Is China unstoppable?

Uprising Kinda fun to see these sorts of headlines on the BBC about US decline and China becoming the world's 2nd largest economy.  Because at Hall and Partners on Jan 26th a roomful of us gathered to discuss Uprising Geord Magnus book about China where he pours cold water on the idea that China's growth is unstoppable. Basically it takes more than a mountain of surplus savings and a vast compliant population to make you a world leader. What Magnus (who made his name forecasting the credit crunch) points out is that world leadership requires investment in infrastructure, leglislature and innovation.  As well. And China's billions are likely to get old before they get rich because the population is ageing and within 2 decades the factories will be manned by the middleaged who may expect to be paid a little more by then.

We didn't have the author present at the breakfast but Hall & Partners had summarised the book very neatly for those who hadn't had a chance to read the whole thing. This isn't a book review but a summary of the discussion on our table where Yimen Lee of Hall & Partners, John Wood of Libertine, Danny Hill of Volkswagen and myself chewed over what we perceived to be the key themes of the book.

Its dangerous to conflate Chinese growth with US decline – the one doesn't mean the other. More interesting is that the USA has an expansionist outlook but China doesn't. They want wealth and influence. But the USA believes that the world becomes a better place if we all become a bit more American. China doesn't have that same agenda.

The odd thing about China is the way that the super rich get richer – but the country isn't creating a raft of consumer goods for the middle classes. Households still save 50% of their wages partly becuase this is insurance-  for medical bills and disaster – and a novelty because the Communist party didn't allow you to keep a surplus. But also because there isn't much to spend your money on. China is making goods for everyone else and gathering in the income and reinvesting it in US bonds – (to simplify wildly).This is particularly important for VW who are doing very nicely with premium models as Danny told us – but the real volume will only come when the middle classes not just the affluent can afford to buy their own car – brands are busy playing the aspirational game because there is more than enough money higher up the tree.

Corruption was another topic. I find China interesting because within 10 years it is likely to be numerically the largest Christian nation on earth. And the growth in Christian belief with Christianity as an indigenous Chinese faith is partly driven by the perceptions that Christians get on – stay sober, pay their taxes – they are model citizens and the state could do with more of them. The altruism and voluntarism which are part of Christianity's DNA is an asset which could have an economic effect. Christians in China already outnumber members of the Communist party.

The property bubble was another topic – and what happens if China's property bubble collapses. Will this lead to a global slump bigger than what we have already experienced because of the US  problems. 

China is investing in infrastructure but can they do so fast enough – or is the wealth likely to continue to be concentrated in the provinces by the sea. What impact will this have on the price of raw materials?

We talked also about the cultural influence of China – which is largely implicit. If almost everything we buy is made in China – then the leakage from Chinese culture and values may be considerable but we may not notice it. Certainly in New Zealand Asian culture was very visible in public spaces. Specifically Chinese influence is likely to be less visible but substantial.

I leave the last word to Yimen – born in Hong Kong raised in Grimsby -with an accent to match! Who questioned whether George Magnus critique was intrinisically Westernised – assuming only one model for development which was primarily materialistic and requiring a western notion of demogratic instutions and economic structures. 

Consider also that this discussion was mirrored by at least half a dozen others. There aren't many more interesting ways of spending an hour at breakfast time. With some very interesting people!  Thanks to Hall & Partners for laying it on. I notice that Paul Edwards has just been announced as their European CEO. Good times for them indeed.

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