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Understanding China Robert Kuhn, (“Understanding China III: Vision,” Jan.–Feb. 2009) for whom I have much respect, provides a rosy picture [...]

April 13 2009 by ChiefExecutive.net


Understanding China Robert Kuhn, (“Understanding China III: Vision,” Jan.–Feb. 2009) for whom I have much respect, provides a rosy picture of China, seemingly overoptimistic against the many factors, positive and negative, regarding China’s place in the world and its essential role as a vast market for the future. I taught in China at the university level in 2006, and I reckon that within that country’s 1.3 billion people, by my estimate 100 million (close to 8 percent) are brilliant by any standard and deeply motivated. By comparison, the U.S., with about 8 percent of China’s population, has roughly one-third as many brilliant people.

Kuhn might reconsider his point of view in light of the following observations regarding the Chinese role in the world of commerce and politics.

The positive elements:

  • China’s economic progress continues and relations with the West have generally improved.
  • Entry to the WTO and progress on business reporting and accounting have modestly moved forward.
  • China has not acted directly in a warlike or militant way since the 1970’s, when it invaded Viet Nam three times (with 500,000 soldiers in the first two invasions) and suppressed a rebellion in Tibet.
  • Chinese education has grown exponentially and its national infrastructure has vastly improved.
  • Chinese newspapers and television news have become more open, though they remain far below Western standards.
  • Laws regarding intellectual property rights have been passed.
  • Chinese political leadership, for quality and shrewdness, is perhaps among the best in the world, in my opinion. They are smart, wily and work toward long-range goals (rather than re-election, as in the U.S. or Europe), with direct involvement at the highest level in internal decisions and with respect to targetof- interest countries (predominantly with regard to natural resources).
  • Capitalism has grown, but it is natural to the people of China and it exploded once they were released to pursue economic goals. This is the core of progress made to date.
  • Many government-owned for-profit companies have been moved to more private ownership.
  • Home ownership in the urban setting has moved to semi-private status, a true bonus. The government offers 50- year leases, where the leaseholder can sell the property during the lease period.
  • China is pursuing (as quite correctly stated by Mr. Kuhn) more innovative strategies and technologies, and has enough brilliant people to be successful.
  • Capital (and especially venture capital) has been expanding at astounding rates by comparison to the U.S., due to direct investment, high private savings rates and growing markets.

Nonetheless, the rosy picture must be corrected by a touch of reality. This is in spite of my love of China and its wonderful people, who offered affection, caring and open conversations beyond my expectations.

  • China’s laws appear to have three classes: 1. Laws meant to satisfy WTO requirements and defuse negative international opinion (e.g., intellectual property protection); 2. Laws meant to reduce internal criticism (for example, laws guaranteeing reimbursement to farmers whose lands are expropriated); 3. Other laws meant to be implemented and observed. The first two classes of laws are sporadically or rarely implemented and prosecuted.
  • Banking remains dominated by government banks even while small private banks have proliferated.
  • Corruption and bribery exist at all levels: national, state and local in all branches. It remains the cultural norm.
  • Many critical industrial segments remain firmly dominated by government-owned corporations.
  • Obstructions to foreign ownership remain firmly in place, utilizing many tools at many levels. For example, the national government forces unionization in foreignowned companies by unions that are dominated by the Communist Party, as at Wal-Mart.
  • The national government has found that provincial governments often ignore and reject the edicts of the central authority.
  • Defense spending has been consistently, almost obsessively, high. Published national government defense budget growth has been in the range of 20 to 25 percent per annum, but this ignores the military-owned for-profit companies’ funding that has been estimated at increasing defense spending by 5–10 percent per annum. China’s military is the largest in the world and is now equipped with a blue-water navy and nuclear-capable and expanding ICBM coverage.
  • An aggressive military posture with respect to Japan and Taiwan remains in place, though with ups and downs. Taiwan faces 250,000 troops and 20,000 missiles, positioned directly at the Taiwan straits. Indeed, other Asian governments have privately expressed wishes to have the U.S. balance the weight of China’s regional military dominance while, of course, coveting Chinese trade.
  • Most observers agree that the Communist Party utilized the 2008 Olympic Games as an opportunity to become more suppressive and cracked down on dissent, whether in Tibet, or elsewhere. Examples include pressuring parents who lost their children due to corrupt school building contracts to remain silent, imprisoning many of the lawyers defending farmers’ rights and requiring bloggers to obtain a license and imprisoning violators.
  • Direct and indirect support to Chinese companies in the export market, as in the high taxes on manufacturing that are rebated if the products are exported. _ Increasing use of espionage, ITand Internet-based, national and corporate. The U.S. has seen dramatic increases in such attacks.
  • Support of human-rights abusing and totalitarian governments around the world, albeit typically to secure preferential access to natural resources. North Korea, however, is supported based on other political rationales.

In sum, much Chinese progress is evident but there has been some backsliding recently. Regardless, China remains an essential and key country in world politics and business, nowand even more so in the future.

Allan Gerard
Technology Forecasting &
Venture Capital
Boulder, CO

Robert Kuhn replies: I appreciate Allan Gerard’s list of China’s positives and negatives, as he sees them. Although I could quibble with several-e.g., a concern for stability in a weakening economy, not the Olympics, catalyzed tightening control-his points, in general, are real or arguable. All are worth enumerating but none are really new. Other problems are more serious and should be added to the negatives, primarily imbalances in income between different sectors of society (urban-rural and coastal-inland) being exacerbated by the financial crisis, which is causing widespread migrant unemployment. Also critical are pollution, sustainable development and the need for industrial transformation (moving up the value chain from low-cost manufacturing to innovation, including design, technology and branding) – topics that greatly concern China’s leaders. International positives I’d add are China’s cooperation with the West on terrorism and improved relations with Taiwan.

More important than any specific issue, however, is the need to elevate the general discourse about China, and about Sino-U.S. relations, so as to achieve high public awareness, and for this I thank Mr. Gerard for his contribution. I echo his conclusion. In these turbulent times, understanding China is more critical than ever. Although the financial crisis is hurting China significantly, it is also reducing the gap between China and the West. China’s role in world affairs is now enhanced, and robust Sino-U.S. relations are essential for world peace and prosperity in the 21st century.