The subtitle is Two Peking University Professors Explain All of China Business in Six Short Stories and the authors are Jonathan Woetzel and Jeffrey Towson (2013).
First off, I really like the concept of the book – break down the important themes in China, all in a short and accessible format (I must admit, though, it took me closer to two hours to read). And the authors are not simply “Professors”. One is with McKinsey and the other is a private equity investor, so they have some chops when it comes to understanding how the world works outside a classroom.
They identify six “mega-trends” that help to define what has happened, and why things will continue to happen, in China:
(1) Urbanization: Eventually there will be a billion people living in Chinese cities, and it is because of that re-location that so much of the country’s economy is evolving. It’s also why you can sometimes end up with “ghost cities” that reflect speculation around this trend. If you believe in the benefits of agglomeration, and the creativity that follows, then droves of Chinese moving into cities is very important to the global economy.
(2) Manufacturing: We know that it represents about 40% of GDP (to the extent that you trust the numbers). The Chinese have a major advantage because of their low cost and economies of scale. Not only that, but because they still largely use labor over automated processes, they are better able to customize products to meet the demands of clients. And the Chinese are able to use that low cost advantage to tackle second and third tier markets where the margins just don’t work for the larger multinationals. The only real defense that the West has is brand equity.
(3) Rising Consumers: It’s relevant that Asia’s share of the middle class will rise from 20% to 66% globally in the next fifteen years. What this cohort demands is what producers will try to supply. And, in China, advancements in agriculture and farming is where the current demand exists. Quite frankly, just pay attention to what the Chinese are buying and you could possibly make a buck. (You might note that Michael Pettis argues in his books that consumption continues to be a very small share of the Chinese economy – but even in the face of too much investment, per capita incomes are still on the rise which is what this trend speaks to.)
(4) Money: The banking system and capital flows across the country continue to gain efficiency and grow in size. It is largely guided by the government, but there is also a larger and larger shadow banking system that caters to the smaller- and medium-sized enterprises. The effect is a surge in credit levels, which probably means a bust at some point. The sub-trend, therefore, is volatility in the future.
(5) Creativity: Most people don’t think of China as being an innovator of new technology. But, when you parse through the data, you see how many of the most desired gadgets and doodads are built in China. At a minimum, they are tremendously successful at cost innovation. And they are definitely producing more and more engineers, and improving the educational opportunities for students. The eventual upshot is a marriage of Chinese manufacturing and R&D that should impact the whole world.
(6) Internet: Chinese is already the most widely used language on the web. As such, the growth in Chinese e-commerce is a trend to follow. And pay attention to how the population spends it time while on the internet.
If you have two hours, give this book a read.
