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China's economy in good hands, says US
By Gustavo Capdevila
DAVOS,
Switzerland - China holds surprises for foreign
investors, who might find themselves doing business with
the president of a major company who is also the leader
of the firm's labor union and local secretary of the
governing Chinese Communist Party.
If confronted
with a situation like this in the Chinese market, the
chief executive officer of Nissan Motor Co Ltd, Carlos
Ghosn, recommends being extremely flexible and
maintaining an open attitude. In return, China will give
solid profits.
"If you do the basics, you can be
very profitable," said Ghosn, the chief of the
Franco-Japanese automaking giant, and the subject of a
new book, Turnaround: How Carlos Ghosn Rescued
Nissan, by David Magee.
The Chinese economy,
with the glow of a prolonged growth cycle, almost beyond
compare, is once again the star of the annual World
Economic Forum, under way in this Swiss alpine resort
through Sunday.
Corporate executives,
financiers, economists and government leaders are
gathered for a talk fest, this year to focus on the
"Davos Equation" - as forum founder Klaus Schwab defines
it - "Security plus prosperity equals peace".
China, with 1.3 billion people, has seen its
gross domestic product (GDP) grow an average of 8
percent a year over the past two decades - and it
reached 9.1 percent in 2003.
Following closely
on the heels of the United States, "the most
competitive, the most efficient, the most profitable",
comes China, says Ghosn.
US Commerce Secretary
Donald Evans endorsed that interpretation and expressed
the favorable impressions that Washington has of the
Chinese economic situation.
US praises 'new
generation' of leaders
"China is headed in the
right direction ... and is in good hands," said Evans,
who went out of his way to praise Beijing's new
political/economic route. He noted that a "new
generation" is acquiring and holding more power in
China, and that the "transition is going quickly".
President George W Bush has visited China twice,
and many US officials have followed. Washington
"supports China's integration in the world economy",
Evans said. He praised China for its "remarkable"
household savings, which are the equivalent of 100
percent GDP. Ninety percent of the capital invested
comes from China itself, he added.
The
functioning of the Chinese banking system won further
acclaim during a discussion organized by the Davos
Forum. Ulrich Schumacher, German president of the
semiconductor manufacturer Infineon Technologies, said
it is easier to obtain loans from the European banks
operating in China than in those institutions' home
countries.
An expert on Chinese economic
affairs, Victor L Chu, head of the Hong Kong-based First
Eastern Investment, says: "The best moment to [invest
in] China is now because the exchange is fixed at 8.3
yuan per dollar." Chu confirmed that Beijing is studying
the possibility of pegging the yuan to a "basket" of
currencies, not just to the dollar.
Protectionism and pirating
Some of
China's economic problems were also noted. Evans said it
appears China is undertaking a movement of protectionism
for industry, particularly in telecommunications.
Another concern of the US commerce secretary and others
was China's lack of compliance with international rules
on safeguarding intellectual property. Ninety-five
percent of the DVDs and CDs sold in China are pirated
copies, Evans said.
Ghosn, the head of Nissan,
said that the automaker has problems protecting its
intellectual property rights in China. Investors need to
feel more secure in China in regards to these rights
than they do at this time, he said.
Nevertheless, there are no obstacles to
transferring royalties and revenues abroad from China,
said Hong Kong investment expert Chu.
A survey
of foreign companies operating in China, said Ghosn,
found that 80 percent recognized that their investments
had turned a profit. But economic activities present
other peculiarities, like difficulties in establishing
good relations within Chinese society. Foreign
businesses are not successful in China if they are
unable to build personal and political relations, said
Chu.
Expansion or
contraction?
Corporate executives and economists
expressed concern about the future of the current growth
of the Chinese economy, and fears that it will
"overheat". Some analysts predict the Chinese economy
will continue to expand until 2008 or 2010. Then it will
face problems on the supply side of various sectors that
are critical for investors.
All cycles include a
downswing, said Evans, and China will be no exception.
When that time comes, social problems will be
exacerbated.
But the Chinese government is
closely following the process and is "promoting social
harmony", said Chu. An overheating of the economy would
not pose a major social or economic challenge because
the country has developed a "social security net", he
said.
For now, the phenomenon appears to be under
control, as inflation stabilized at around 2 percent.
Per capita GDP, which stands at US$1,000 a year, leaves
room for growth without upsetting the principal economic
and social indicators, some economists said.
Treasury Secretary Evans said the Chinese
leadership is attentive to the country's social
situation and has begun a process of democratic
elections in cities and towns. "A more competitive China
is good for the world economy," he said.
(Inter
Press Service)
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