7/12/2004

East Meets West

This article in Newsweek has a very good relation to current topics in our macroeconomics class. China is currently experiencing a capitalism boom driven in part by foreign investment. There are however pitfalls for some investors who are having trouble investing in an economy that has a completely different culture than ours. China is also experiencing some of the same type of social complaints that we see here in the United States. The income gap between the wealthier Chinese, who tend to live in urban areas, and the poor, who tend to live in rural areas, is growing ever wider. This fact does not however negate the fact that Chinese people have on the whole become richer. Personally I believe that even though there will always be a debate over who is really gaining the most from this growth the Chinese are realizing the benefits of allowing a capitalistic society.

6 comments:

C-Dizzle said...

I think this is a great article. I clicked on the link provided and found out a great deal about this exploding growth in China and the problems with investing in an interview with Peter Liu, cofounder and chairman of WI Harper by Newsweek’s Laura Fording.

In the interview, Liu repeated over and over the fact that westerner’s tend to have problems investing in the Chinese market because of a lack of knowledge of the Chinese culter and lack of patience. We westerner’s have been raised to expect instant results while the chinese market apparently doesn’t work that way.

Another problem westerner’s are having in investing in the chinese market is a lack of experienced international management. Liu stressed the fact that the people with whom we choose to work with our investments should be someone with whom we have great trust in.

The last major problem is the currency revaluation currently under way in China. The U.S. government is putting constant pressure on the Chinese Government to finish this revaluation. Liu says, “The more Americans push, the more difficult it is for the Chinese government to agree. There is clearly a lack of cultural understanding from Americans, if you put aside all the economic reasons for and against a revaluation.”

As for me and the Chinese market, I’m staying away. What good would it do a person who can hardly manage a checking account!?

Boris said...

I think this topic is a very important one to discuss. The awakening of the Chinese economy is something that I believe will be very influential on the upcoming years. Everyone, whether they are interested in economics or not, will be affected by it. Businesses around the world are, and will be, beginning to focus their attention towards Asia. The Chinese economy is sure to experience dramatic growth in just a few years, and there will be many opportunities associated with its growth.

Senator Miller said...

I also think China's rapid economic increase is interesting. Having spent two years in Korea, I felt that I have received a decent exposure to Asian culture and it's possible effect on the economy. One of the first things I noticed that was beneficial was the large lack of crime. Crime there was very rare not because of the amount of money spent on prevention but because the culture strongly forbade it. Also, almost all students went to schhol from 8 AM to nearly 11 PM at night. And a school day on Saturday as well. The work week went into Saturday as well. The value of education and strong work ethic there seemed excellent. On the negative side, they seem very prideful in the sense of looking down on other countries (which might lead to restrictive trade), and the politics are very corrupt. Even in the educational systems bribes were very common. Both those things seemed to be the most detrimental to their economy. If China is anything like Korea, I believe some of those factors could possibly play a part.

Ned said...

I enjoyed the article. I've lived with people from different parts of the world, and you'd be amazed how annoying it can get because you make assumptions about their way of life and their preferences. I could definately see how this would create major difficulties trying to invest in China. I like what Jack said about the feeling of pride, looking down on other countries. People have traditions that are hard to shake loose. May I point out we do the same, and our willfull ignorance will only lengthen the time it takes to make trade with China and similar countries. We need to find ways to increase social capitol on both sides.

Dr. Tufte said...

This is all good.

Mark my words, China is trendy now, but the country you will be hearing about in your middle and old age will not be China, it will be India. Currently, China, India, and the U.S. are 1-2-3 in population. But, India will soon overtake China, and as their per capita incomes converge towards that in the U.S. they will both become more economically powerful. But China will be playing second fiddle to the richer in aggregate India, and the richer per capita U.S.

I thought the article about China glossed over some of the important problems. First, investors have problems in China because the party and the army still have their hands in the cookie jar, and secondly because of unusual regulations in certain areas. A big problem with most business investments in China is that you need to have somebody from the party or the army involved to make the thing work. This is just kleptocracy. Also, they have a lot of regulations controlling what sort of investments are possible. Did you know that you can't buy the same shares in Chinese companies that Chinese citizens can? Even better, the shares they can buy are worse than the ones you can buy. Why would they do something crazy like that? To push savings from Chinese citizens into less desirable investments that the government has a political reason to support (usually failing state owned enterprises).

You know ... people make all sorts of comparisons of China to other countries: China is like Japan, or S. Korea. Invariably it is a good model. I have in mind a more middling model: China is like Indonesia, big, capable of a lot, but fundamentally flawed by crony capitalism.

As to the cultural differences, I think those are overrated. The big issue is pride. If there is money to be made, people who are not wedded to pride issues will find a way to do it. Every time I here some &*%#*@ about cultural differences the somebody-wants-a-bribe-or-protection-money-or-a-job-with-no-work red light goes off in my head.

C-Dizzle had a bunch of misspellings and miscapitalziations.

kavindavis said...

As Dr. Tufte said, India is going to be the big topick. People from India right now, are comming to America and are becoming very rich and succesful fast. In India right now they have a problem with getting a business license. To get one you have to climb a huge buracratic ladder, and you could wait for several years to never before you get one. Were in America, my wife got her business licens in a few days, and in Hong Cong you dont even have to be a citezen to get one. So as we all know from class, that free ideas equal growth, than the inability to start a business freely would be a huge downfall.