Surprises from China

Panelists at Columbia Business School’s ninth China Business Conference suggested the past has been just a precursor: Look for unexpected twists to come.

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“Where there are uncertainties, there are growth opportunities,” said Xiaoning Wu ’16, co-chair of the Ninth China Business Conference held on April 1. While surprises may have always thrived in China, speaker after speaker at the daylong event repeatedly used the words “pivot point,” “innovation,” “global reach” and “transformation” repeatedly.

Game Changers

Andrew Liveris, CEO and president of Dow Chemical Co., kicked off the conference by predicting six game-changing surprises he expects China to deliver.

  1. China will embrace new SOEs, but the “E” will be entrepreneurs as the government encourages startup companies that will wield enormous clout. Practically without exception, startups are different from those in the West, taking the country’s eccentricities into account.

    Another conference participant, Neng Tang of CreditEase, said that maxim is particularly pertinent in the financial arena, given China’s lack of credit history. “In 2006, I had no idea that the UK and the US already had models of peer-to-peer lending, so we created a homegrown version of the [Internet-based] borrower-to-lender format,” he said.

  2. Sino-consumers will outspend US consumers by 2025. That’s in less than 10 years for those of us counting.

  3. Even as urbanization thrives, China will maintain a large agrarian economy that will adopt innovative techniques to feed China and the world.

  4. The phrase “made in China” will be matched by the new slogan, “invented in China.” The government even now is setting the stage for intellectual property protections.

  5. China will implement “generation-skipping” sustainable solutions to provide clean energy.

  6. The country’s geopolitics will be led by geoeconomics as China continues its outward push with global acquisitions and infrastructure development exemplified by its “One Belt One Road” initiative.

Indeed, a panel on outbound M&A noted that amounts pledged in the first two to three months of 2016 have already overtaken last year’s numbers, with China accounting for a full 15 percent of all cross-border deal activity. A good chunk of the flow has been to US real estate. As opposed to the wave of Japanese real estate investments in the 1980s that was backed by high leverage, Chinese buyers come with lots of cash, a big attraction for sellers.

Growing Pains

Conference participants seem unfazed by the slowdown of China’s economy, even as they acknowledged that Beijing’s pivot from manufacturing and exporting to a service and consumption society will displace millions of workers. Pointing out that most developed markets have gone through similar growing pains, Joyce Chang, global head of research for JP Morgan, said, “excessively high leverage is good for economies and is typically a sign of high growth.”

The middle class has genuinely shifted consumer dialogue within the country. “Young people are not so worried about employment and pocketbook issues as they are concerned with quality of life issues, such as food and air quality,” said Xiabo Lu, a professor of political science at Barnard College.

With China, surprises are inevitable — but the outcome can be managed. While China’s leaders remain at the helm, the speakers acknowledged the determination and spirit of the Chinese people. “Your generation will decide whether China’s rise will lead to conflict, as Henry Kissinger says is inevitable, or if it can share and lead global economic prosperity along with the United States,” Liveris told the audience of Columbia Business School students.

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