Several people have reached out for me to follow-up my WBZ interview with some written commentary on China. Here’s a short essay summarizing my thoughts, and I hope it serves as nice reading for the upcoming holiday weekend.
Sincerely,
Greg
Re-thinking in China
2013 was a challenging year for China. While its efforts to improve the standard of living for its people continued to result in wage increases, it has come to realize these cannot be automatically passed on through higher prices to the US and other countries to which it exports. Economically, they’re temporarily stuck in neutral. Partly as a result, Chinese President Xi Jinping indicated three top priorities for 2014: to reduce graft, improve environmental conditions and increase personal consumption.
Through the worldwide media, we’re given an almost weekly check-in to gauge progress, and determine if the People’s Republic is on course. While these reports are helpful for Americans to understand the bigger picture, they often fail to mention that it is the high-ranking executives running large companies, the factories producing materials, and the people who purchase the goods, who must shoulder the burden of implementing these goals. In order to be successful, behavioral change from everyone will be necessary, and many of the cultural traditions that define China, and those affiliated with its recent business reform processes, will need to be modernized. It’s not just a wage increase issue.
With nearly 4,000 years of recorded history, along with data from testing capitalism in its special economic zones, one would assume China should be capable of avoiding prolonged economic problems that we face in the west. After all, under central planning, they have had lots of practice and have ascended to become the world’s #2 economy. In some respects, China is unique in that its export-driven model has survived in various forms for an extended period, much longer than most anticipated. Additionally, they had the opportunity of studying the economic missteps of Japan and other Asian neighbors during the lost decade of the 90s. So, their ongoing reforms should be working, right?
Unfortunately, improvements aren’t coming as quickly as planned. Businesses are going to have to act differently and consumers must change their purchasing habits, and not follow tradition by saving so much of what they earn.
For years, China has relied on low labor and material costs to gain market share from other countries in the Pacific Rim. But they’ve learned that long-term sustainability is far more crucial than short-term profit.
President Xi is correct that reducing corruption, fixing the environment and increasing household spending need to be achieved. However, true change can only come if the Chinese people begin re-thinking the way they do business with companies and with each other, and if Chinese consumers begin to increase their personal spending.
While change has been slower than some might like, there are positive signs improvements have already begun. I spent a week last month in Beijing wrapping up a 6-month business consulting assignment, and have been traveling regularly to China since the mid-1990s. Every visit provides a unique, in-person opportunity to observe the latest round of development, but rarely do I take away a universal theme. That is, until now.
I heard loud-and-clear a united desire to be proactive and to confront this new reality of economic uncertainty among manufacturing experts, business executives and consumers.
This type of new-age thinking traditionally comes about reactively, when emerging from a recession or under the rollout of a governmental stimulus. Especially in the case of China, unilaterally taking action, departing from convention, or tinkering with the cultural DNA of a nation, would not normally be open for debate. But, fortune has always favored the bold, and established traditions need periodic re-thinking, too, even if in preparation for another 4,000 years.
Greg Stoller is a lecturer and helps build entrepreneurship and international MBA business programs at Boston College.
