Magazine article Ivey Business Journal Online

The Business of Doing Business with China: An Ambassador Reflects

Magazine article Ivey Business Journal Online

The Business of Doing Business with China: An Ambassador Reflects

Article excerpt

Both nuanced and overtly aggressive, dogmatic yet flexible, and wise but having much to learn especially about corporate governance, China's leaders and its business operating environment represent a supreme challenge for the Canadian manager. In many ways, China is a new market unlike any other, though, as the Canadian ambassador explains in this article, the differences can be overcome and success stories can be written.

One of the defining features of the early 21st century is the emergence of the People's Republic of China as an economic power. Among observers and interested parties, the suddenness of China's rise and its role in global affairs generates optimism and excitement about seemingly unlimited opportunities. Yet China's emergence also generates uncertainty and questions about the broad implications of its rise.

China could perhaps be viewed as a conventional state that has stepped boldly to the forefront by continuous and rapid economic development, replicating in many ways the experience of Japan, Korea and Taiwan. But this tells only part of the story. In fact, most people believe that China's sudden emergence is defined by exceptional characteristics and dynamics which make this story uniquely important. This view also suggests that the challenges posed by China's growth must also be unique. In these and other respects, I think that most people are right.

The facts are clear: China now accounts for 4.5 percent of world GDP in dollar terms and 13 percent of world GDP in PPP terms. The British Treasury projects that this share will increase to about 19 percent by 2015. The World Bank believes that, because of China's rise, developed countries' relative share of global output will decrease, even as the absolute volume and value of that output increases. In global macro-economic terms, we will all, potentially, gain. I don't think that this is an optimistic projection. I think that it is a realistic one, because I believe that China's growth will be sustainable. The question is: For how long? This question and others that pre-occupy business executives are discussed in this article.

The challenge of sustaining growth

Three facts must be taken in to account when determining if China's growth is sustainable:

* Trade and investment, both domestic and foreign, have driven much of China's recent growth.

* Continuing reform of the domestic economy is the key to sustained, long-term growth.

* Maintaining China's growth is in the interests of us all.

Trade and investment

Trade and investment is China's primary engine. Investment alone has accounted for more than 35 percent of GDP growth during the past 25 years. Since 2001, exports have increased by 225 percent. Straight-line projections alone indicate that if China's exports continue to rise by 35 percent, they would be worth U.S.$12 trillion in ten years, roughly the value of the current U.S. GDP. China imported more that 1million barrels of oil per day in 2004, a total of 122 million tons, up 34.8 percent year on year. If China's petroleum imports continue to rise at this pace, in just a decade 20mm barrels will be imported each day, one quarter of current total global production. No one believes that this increase will occur so soon. More likely, the downward pressures on growth, both exogenous and endogenous, will work inexorably to slow things down.

Export-lead growth causes the rapid displacement of non-Chinese goods. This risks creating a political backlash, one which China will have to address. For example, U.S. imports of Chinese goods increased from $125 billion in 2002, to $152 billion in 2003 and $197 billion last year. In the first two months of 2005, China ranked behind only Canada as a source of U.S. imports. Some textile imports have already increased dramatically in the first few months of this year, impacting seriously on Canada, the U.S. and EU, and even more so on developing countries. …

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