UTA EMBA China Trip 2009

Toward the beginning of our time in China I quickly began to form what would become my lasting impression of this country. A sunrise jog provided an opportunity to witness the people who calmly walked the streets this time of morning. The majority of them were over fifty and dressed in rather simple and drab clothing. Their morning activities involved walking, practicing Tai Chi, or sitting in small groups for quiet conversation. Few, if any, smoked, carried cell phones, or spoke English. All appeared to have a dull look in their dark eyes. They also had an air of submission where most would not look you directly in the face. What struck me the most was not the somber appearance of this crowd, but rather the considerable contrast between it and the one that walked the same streets the night before. Just twelve hours previous the streets were filled with young people who moved at a pace that was dizzying. Their clothes were with strong western influence, being short skirts and branded with logos. As they hurried around, sometimes pushing right past you, it did not take long to notice that most only slowed as they arrived at a coffee shop or hip restaurant to socialize with friends. Very active crowds could also be seen around kiosks where information was being transferred to cell phones, that all the young carried.

When taking together these two different groups of people and their country, China seems an economic monster that might be losing its bite. Allow me to explain. In a country where Confucianism provided 2,500 years of social, morale, political, philosophical, and quasi-religious influence, China is a perfect chalkboard for the implementation and propagation of socialism, but only if in isolation. In fact, this influence was noted many years previous by Napoleon Bonaparte as he was known for the statement, “When the sleeping dragon awakes, the world will quake.” He was of course speaking about China some 200 years ago, and China has since existed without autonomy. Today, and two centuries later, with 60 years of communist rule and recent economic reforms the dragon appears to have awoken indeed. However, while Napoleon’s statement still stands true today, it does not reflect the character of the people who are required to give this dragon its teeth (more than 1.3 billion people in fact) and the impact of western culture that dominates their rapid social change. Like a slumbering and often beaten dog that is starved and days from expiring, the countries aged are far from providing anything close to sharp teeth. And while they might attempt to bite, it seems these people would only do so if backed far into a deep dark corner. When contrasted with the nights crowds, people who are more concerned about western influence and goods than mangy old dogs, they too are far from providing teeth for this dragon. The youth in fact are more like sheep, being a highly impressionable population of future and ever growing consumers who would rather be lead to more of what they are now becoming entitled to. My point is simple. This country and its people are moving out of phase with one another, if not already. From these observations I get the feeling that this country and its government are unlikely to successfully manage the pace of social change that will occur within the next 20 to 50 years. The dragon may indeed be awake, but its teeth are likely to be rotten from age or from the sweets of western influence, respectively. This is decay that the government cannot manage over the long-term without risking considerable social upheaval, something still quite common to this country.

Beyond making observations of the people, our time in Shanghai, along with bus rides to the Yangshan Port and Suzhou, provided many opportunities to witness the vast infrastructure development underway in China. This was analogous to the wild west being much like the movement the US experienced some 200 years ago. But in place of gold mines and cattle yards, large industrial parks are the business in play. Skylines change here on a monthly basis and new building complexes spring up in open fields over night. It is often said that China’s country bird is now the industrial crane, and these ‘birds’ can be seen flocked together along skylines marking the locations of future high-rise building complexes. Being planned by the government, much of this development is done with a ‘build it and they will come’ or ‘build it now and it will be used at some point’ approach. However, this type of investing cannot provide a 100% successful rate of return. A mental image of western ghost towns comes to mind and I wonder if vast landscapes of empty and dilapidated buildings will capture the majority of future skylines in China. In support, Yangshan port is currently operating at less than 30% capacity, much due to the recent and global economic downturn. Faced with this reality, China took this as an opportunity to increase port capacity by adding another terminal. This will make them the largest deep-water port in the world by the end of the year, surpassing Singapore. However, much will remain unused until, or unless, the global economy regains strength. This investment coupled with China’s plans to expand domestic consumption beg the question, “Will this additional deep-water port capacity ever be needed as global shipping transitions to domestic consumption.”

In summary, and while there is so much more that could be discussed, I still stand by the position that China is truly an economic powerhouse. No doubt. With strict control of natural resources and core industries, this is most likely the way the government intends to continue to attempt to steer the development of this behemoth. However, a dragon without teeth is nevertheless still a dragon that cannot feed itself. Size, whether in the form of foreign monetary holdings or consumption potential does not always facilitate successful economic growth. As the people of this country continue to transition from more traditional Chinese social norms to those of western origin, the teeth are undeniably going to fall from the mouth of this dragon and this is the China that I fear the most.