China New Era



Director, Asia,The World Economic Forum (WEF) and Associate, Director, China




1.    China is much in the news these days with articles regularly appearing concerning China’s success in attracting Foreign Investment (FDI), China’s nearly eight percent GDP growth last year, China’s exceeding a one trillion dollar figure for its economic production, etc.  Was it just the fact that China is newsworthy these days that caused you to focus your new book on 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 economy 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 synthesis of some of that involvement.

2.    This is your second collaboration and your new book is very different in organization 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 in-depth articles by noted China watchers, a section with view of current government officials, a panel of business entrepreneurs and then end with a summation 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 think 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 inward.” (p. 10).  These seem to indicate a less coastal bound stage of development and a more domestic as opposed to export oriented economy than most other 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 admit that statistics only present part of the picture, and that it is necessary 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 manufacturing is destined for the domestic market is only a sign of that market’s strength 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 take 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 noted in Fan Gang’s following essay on Reform and Development on page 35 where he notes that “the non-state sector, which consists of private companies, self-employed businesses, shareholding corporations, joint ventures with foreign investment, and community-owned rural industries, a great part of which are actually private undertakings, now contributes 74% of industrial output, 62.2% of GDP, and more than 100% of the increase in employment.”  This and other statistics you note in your earlier essay seem to indicate an economy that has already transitioned much more to a private business model than most people outside of China realize.  Is this change as deep as the above statistics suggest and in terms of state control of business how different is China today than many European countries in terms of state 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 economy. While 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 developing 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 more than just “muddling through” the problem, by pinpointing the sources of the problem and beginning to address those, even when politically dangerous (e.g. with corruption). Recent events in China, especially in the creation of a regulatory body specifically to oversee the banking sector, confirm 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 fact, he notes that this is “the last major hurdle in China’s transition toward 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 prescription for China’s resolution of this problem by what he calls “a financial big bang.”  Could you explain exactly what this is and whether you both 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 corruption 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 China?  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 the problem?

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 strong 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 countries, 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 regard.
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.  Why is this so and do you see room for optimism that China and Japan can truly 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 difficulties, 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 those points. Victor Chu names several possible areas, and these are good places to start. 

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 intention 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 makes possible the idea of an integrated pan-Asian supply chain, and could be one huge unexploited competitive advantage.

12.     Your book in the section on government voices has essays by Cheng Siwei, Vice 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 how 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 topics that were relevant to a number of different stakeholders, whether foreign or domestic . The challenge of course is to let each person’s voice come through—and we are  especially pleased that the chapter does show different “speaking styles” and different ways of addressing questions.  We’re pleased overall. Perhaps in the future we might consider to break the roundtable down thematically, which would also enable us to include more contributors.


About the Authors:

Pamela C.M. Mar is Associate Director, China, for the World Economic Forum.  She has worked for a satellite television company in Asia, in rural development in Thailand and in venture capital in Hong Kong. She holds degrees from Yale and the London School of Economics and has published on China and Asian economy and business in both scholarly and general interest journals.

Frank-Jürgen Richter is Director, Asia, for the World Economic Forum. He has lived, studied, and worked in Asia for over a decade-- in Tokyo and most recently in Beijing where he developed and managed a European multinational company's China operations. An active scholar, he has authored and edited on Asian economies and international business.

Dr Richter and Ms. Mar's most recent publication is Recreating Asia:
Visions for a New Century, which presents a wide-ranging case for Asia's renewal in terms of regional relations and trade, governance and leadereship, globalization, and managing business challenges.

About the Interviewer:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.

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