much in the news these days with articles regularly appearing
China’s success in attracting Foreign Investment (FDI), China’s nearly
eight percent GDP growth last year, China’s exceeding a one trillion
figure for its economic production, etc. Was it just the fact
China is newsworthy these days that caused you to focus your new book
China or are their other factors?
China’s current newsworthiness and the book’s release do coincide.
But the book has arisen out of our desire to contribute something more
substantial to China’s efforts to continue to reform and expand its
regardless of the conditions. As we say, the World Economic Forum has
been in China for over 20 years, and this is just one concrete
of some of that involvement.
2. This is your
second collaboration and your new book is very different in
and style from your previous book last year on Asia. You use many
different techniques with a longer opening essay setting the stage for
the book and your views on China, then follow with a series of short
articles by noted China watchers, a section with view of current
officials, a panel of business entrepreneurs and then end with a
and conclusion. Are you both still experimenting with your style
and how happy are you both with the final book and what parts do you
worked particularly well?
Definitely each book is a bit of experimentation together with a bit of
certainty. While we are happy with the result—especially the section
on geopolitics and regional relations—there are always things that one
thinks could have been better or that one could have spent more time
on. For instance, it would have been ideal to have a piece
directly addressing the social challenges facing the
country. This is a book primarily about China’s economy,
but within that there is definitely a social component. Perhaps
in the 2nd edition!
3. In the preface of
your book written by Mr. Klaus Schwab, President of the World Economic
Forum (WEF), Mr. Schwab notes the WEF’s 20 year collaboration with
China. Given Mr. Schwab’s obvious commitment to engagement with
China and the fact that he is both of your “boss or leader” how much of
his perspective and the perspective of your organization defined or
affected your writings and how much of the book is truly independent?
Certainly the fact that the book is under the World Economic Forum
has shaped our view of the way the country has developed. However, the
effect has been very positive. We take a multi-stakeholder view
of the world, and by that you see included not only government views,
but also business, economists, media fellows—and from all over, too.
Each are reputed in their own fields. The fact that part of the book
contains contributed pieces gives space for independent viewpoints.
4. In your essay on
the current state of affairs in China, you quote some interesting
statistics on China’s economic development. Among them, “today
over two-thirds of foreign manufacturing in China is for the domestic
market.” “The second wave of FDI is characterized by a two-fold
shift: from low knowledge base industries to medium and highly
knowledge-intensive industries and
geographically from the coastal and southern areas of the country
(p. 10). These seem to indicate a less coastal bound stage of
and a more domestic as opposed to export oriented economy than most
observers have reported. Are these trends clear at this time and
how certain are you of this change in economic development?
The statistics we quote are all from publicly available, reputable
sources and the fact that they counter commonly held perceptions could
be due to the fallibility of the latter. Having said that, we would
that statistics only present part of the picture, and that it is
to take into account the whole picture that emerges, rather than just
the slice presented. In this specific case, the fact that a lot of
is destined for the domestic market is only a sign of that market’s
and size, and the collapse in global demand, especially from the first
world. With regard to the shifts from low to high knowledge bases
and from the coast to the inland, those are gradual trends which will
some time to be visible on a macro-level.
5. A similar
statistic that seems to also indicate the change in China’s economy is
Fan Gang’s following essay on Reform and Development on page 35 where
he notes that “the non-state sector, which consists of private
self-employed businesses, shareholding corporations, joint ventures
foreign investment, and community-owned rural industries, a great part
of which are actually private undertakings, now contributes 74% of
output, 62.2% of GDP, and more than 100% of the increase in
This and other statistics you note in your earlier essay seem to
an economy that has already transitioned much more to a private
model than most people outside of China realize. Is this change
deep as the above statistics suggest and in terms of state control of
how different is China today than many European countries in terms of
control and state intervention in the economy?
The emergence of the non-state sector is a phenomenon that has been
mentioned by a number of analysts and observers. In fact the recent
Party Congress in Beijing acknowledged this in allowing members of the
private sector to come into the Standing Committee. This is a huge step
forward, and does indicate a trend towards a more open, diverse
it is too early to say, it is possible to imagine a situation in which
the Chinese economy is as diverse and possibly more flexible than
some of those in Europe today.
6. In your earlier
piece setting out your view of the current China situation, in Fan
Gang’s following article and in the article by Hank M. Paulson and Fred
Hu from Goldman Sachs Group titled “Banking Reform in China:
Mission Critical” all of you discuss the current weak banking sector in
China but all of you conclude that although the current situation is
unfortunate and even worrying, none of you believe that it will likely
lead to a major banking crisis. Is this characterization of the
three positions fair and
if so why do your all seem so confident that the problem is solvable?
While we cannot speak for the others, we attribute our confidence
primarily to two factors. The first is that the problem is critical but
will only have the possibility to “blow up” and instigate a large scale
collapse in the medium term. The problem is definitely fundamental to
a healthy functioning economy, but in the short term, China can get by,
by “muddling through”. The second factor is that China is doing much
than just “muddling through” the problem, by pinpointing the sources of
the problem and beginning to address those, even when politically
(e.g. with corruption). Recent events in China, especially in the
of a regulatory body specifically to oversee the banking sector,
that China is moving in the right direction.
7. Midway in the
book, Andy Xie from Morgan Stanley writes an interesting essay on the
importance of enhancing competition for capital in China. In
he notes that this is “the last major hurdle in China’s transition
a full-fledged market economy.” He notes the weakness of China’s
current stock market in promoting corporate development and the problem
with so much credit going to the state sector and sets out his
for China’s resolution of this problem by what he calls “a financial
bang.” Could you explain exactly what this is and whether you
agree with Mr. Xie as to the problem and as to his proposed solution?
We agree with Andy Xie that forthright action is needed to create
a true market economy, although for sure people will interpret “big
bang” in different ways. While we prefer to let Andy Xie elaborate
further on his ideas, we do agree that coordinated action commensurate
to the complex and large-scale nature of the problem is needed.
Only such action will enable the government to create a financial
system that is robust
and flexible enough to support the growth demands of the economy.
8. Later in the
book, Professor Hu Angang and Guo Yong from Tsinghua University argue
that Administrative Monopolies in China are a greater danger than
of government officials and each year deprive Chinese citizens of much
more money and create many more opportunities for corruption. Can
you give some examples of Administrative Monopolies in China today and
do you agree with Professor Hu as to their economic effect on
Lastly, do you feel that the Chinese government realizes the danger and
if so could you give concrete examples of how it is moving to resolve
Professor Hu and Guo Yong point to administrative monoplies as one
of the drains on the economy, and in this regard, we do think that they
raise a significant point. However we do also note that the government
is proactively moving to dismantle these and create a more competitive
framework. Its approach is pragmatic and step-by-step, and is seen in
its moves to inject competition into telecom services and break up the
State Power Corporation of China. These are just two examples where the
government is moving ahead, and we note that it is not just the WTO
9. Philip Bowring
from the International Herald Tribune sets out four issues that he
feels will dominate China’s agenda in the 21st Century – economic
modernization, particularly through enterprise reform, the future of
Taiwan, the relationship with the United States and China’s Asian
regional role. Given the fact that without further progress in
the first of these issues that China’s scope for progress in the three
others will be somewhat hindered, how internal focused do you see China
being in the years ahead and why?
The trend today certainly seems to be of China becoming more outward
looking and active internationally. China has taken leading roles to
push the concept of free trade areas in Asia, and has also been a
voice for multilateralism in the resolution of international disputes,
for instance in Iraq and North Korea. It is increasingly aware of the
weight of its presence internationally. Of course, like other
there will continue to be an extent to which foreign affairs are shaped
by domestic agendas. People have said that this is very true in China’s
case, although we would also argue that China is not unique in this
10. Mr. Bowring,
Professor Zhang Yunling from the Chinese Academy of Science and Victor
Chu of First Eastern Investment group all write about China’s regional
role and China’s efforts to work with Southeast Asia and Japan.
To date, it seems China’s approach to Southeast Asia has had much more
initial success than its “competitive partnership” with Japan.
is this so and do you see room for optimism that China and Japan can
come to a closer working relationship?
As Victor Chu says, the China-Japan relationship is one of Asia’s
most important relationships and yet at the same time, one complicated
by economic trends and historical weight. We must acknowledge these
and also realize that there is no choice but to try to focus on those
areas where it is possible to make progress, and to build trust from
points. Victor Chu names several possible areas, and these are good
11. At the 2001
ASEAN Plus Three (APT) meeting (10 ASEAN countries plus China, Japan
and the Republic of Korea (ROK), China and ASEAN announced their
to establish a Free Trade Area (FTA) within ten years. Do you see
such a goal as realistic and what implications does an Asian FTA have
for both trade in the region and relations with the EEU and the U.S?
A free trade area in Asia would do much to solidify trade within the
region and also present the region as a larger market—in consumers and
suppliers—to do business with countries and firms overseas. It also
possible the idea of an integrated pan-Asian supply chain, and could be
one huge unexploited competitive advantage.
book in the section on government voices has essays by Cheng Siwei,
Chairman of the National People’s Congress on the need for a vibrant
venture capital industry in China and from Li Yuanchao of the Nanjing
City government on “Development Strategies for Big Cities”. Both
of these essays are interesting. How did you decide what issues
to include and what subjects to not include and how did you settle on
contributors for the book?
We tried to identify key actors in policy making circles who
represented different parts of the government—so for instance, central
and regional, and at the central level, both Ministerial as well as
from the other legislative bodies such as the CPPCC (Chinese People’s
Political Consultative Conference) and the National People’s Congress.
13. Your last major
portion of the book includes a panel session by eleven of what can only
be described as China’s “movers and shakers” discussing current issues
in China. How did you determine your panel, your questions and
happy are you with the final product here?
We meant to present different views from the business community
involved in China without making it seem too disjointed. We chose
were relevant to a number of different stakeholders, whether foreign
or domestic . The challenge of course is to let each person’s voice
through—and we are especially pleased that the chapter does show
different “speaking styles” and different ways of addressing
We’re pleased overall. Perhaps in the future we might consider to break
the roundtable down thematically, which would also enable us to include