CKGSB Founding Dean Xiang Bing Addresses Six Misconceptions About China in “Electrifying” Speech at Davos 2013

Under the theme “East v West: Re-Shaping the World” the World Economic Forum at Davos brought together Stephen King, chief economist at HSBC, Joseph Stiglitz, Nobel Prize-winning economist, Martin Wolf from the FT and Dr Xiang Biang, Dean of Cheung Kong Graduate School of Business under the auspices of Clifford Chance, one of the world’s leading law firms, to talk about some of the big economic and political trends that are affecting the world. 

Identified by the Daily Telegraph as one of the most important speeches at Davos, Dean Xiang Bing addressed 6 misconceptions that the West continues to foster about China:

1. The first misconception is that China is closed – whereas the facts suggest it is one of the world’s most open economies.
2. The second is that China’s state sector dominates – whereas the facts suggest that the Chinese private sector is flourishing.
3. The third is that China’s political system is dictatorial – whereas it is inherently meritocratic.
4. The fourth is that Chinese governance is inflexible – whereas it has always been historically diverse and flexible.
5. The fifth is that the Chinese are aggressive – whereas history shows them to be generally peaceful and humanistic. 
6. The sixth is that the Chinese economy is fragile – whereas it continues to have solid growth foundations for the future.

MISCONCEPTION 1: CLOSED V OPEN – THE FACTS

1. According to 2011 figures, trade as a percentage of Chinese GDP is 59% versus 31% in the US and Japan.
2. Samsung’s revenues and exports from China account for 40% of its global sales.
3. Multinationals account for 55% of China’s exports.
4. Global products and brands feature highly in Chinese convenience stores
5. China is the second largest recipient of FDI (and some argue has recently become the largest)
6. CISCO provides 70% of the Chinese internet backbone and Lockheed Martin the Chinese air traffic control system  … but if Huawei tries to develop its business in the US, there is an outcry 

MISCONCEPTION 2: STATE V PRIVATE – THE FACTS

1. While 7 strategic sectors in China are dominated by state owned enterprises (SOEs): defence; power generation and distribution; oil and petrochemical; telecommunication; coal; aviation and shipping, 50% of GDP, 80% of employment and 90% of new jobs are provided by the private sector
2. 5 of the top Fortune 500 companies from China can be considered private: Jiangsu Shagang ($32.1bn); Huawei ($31.5bn); Lenovo ($29.6bn); Shandong Weiqiao ($24.9bn); Geely Group ($23.4bn) – such groups are tremendously resilient, having succeeded often without state support.
3. In a Chinese context, the state helps to balance unbridled capitalism and therefore has a strong role to play in promoting inclusive development and growth, a harmonious society and an environment to promote entrepreneurship and exponential innovations.

MISCONCEPTION 3: DICTATORSHIP VERSUS MERITOCRACY – THE FACTS

1. China’s system for choosing its leaders precludes the establishment of dictatorship by a single individual
2. China’s political leaders are acknowledged to be the brightest and most capable of their generation and must progress through the ranks of provincial governance and ministerial commission before acceding to the Politburo Standing Committee
3. The Politburo Standing Committee itself represents a range of economic opinions that inform decision making
4. This is in stark contrast to other political systems where people with very little experience can accede to the highest political posts 

MISCONCEPTION 4: INFLEXIBLE V FLEXIBILE – THE FACTS

1. Chinese history shows that poor governance is repeatedly overthrown (roughly about every 300 years with the establishment of new dynasties) … note that the US has not yet completed its first 300 year cycle!
2. The Chinese during the Tang and Song dynasties were very open to other cultures – promoting Japanese generals and Muslim admirals to co-operate at the highest level

MISCONCEPTION 5: AGGRESSIVE V PEACEFUL – THE FACTS

1. As the greatest beneficiary of globalization, China has no interest in belligerence
2. China is too busy raising the living standards of its people to contemplate external aggression
3. China’s Confucianism promotes internal order as a pre-requisite of social harmony
4. China has no interest in exporting ideology and therefore was not susceptible to the concept of a G2, preferring ‘diversity as essential to harmony’

MISCONCEPTION 6: FRAGILE V SOLID – THE FACTS

1. The West likes to focus on the inevitable short-term consequences of China’s explosive growth: social inequality; environmental damage; social unrest; corruption and economic overheating.
2. Chinese government aware of all these issues and committed to addressing them in successive five year plans
3. In the meantime, certain big picture fundamentals are hugely optimistic for China and the world:
   1. A projected increase in Chinese urbanization from 50% to 70% by 2020
   2. An increase in the Chinese service sector from 43% upwards (US 80%)
   3. Increase in Chinese consumption rate from 55% upwards (US 88%)
4. This optimism contrasts with the West’s continued pessimism about its own circumstances, whereas the facts suggests that China will continue to be a driver of world economic growth for the next 20 years – and will continue to be a market wide open to foreign participation