China Moving Away from Export-led Growth

The Nobel laureate in economics Joseph Stiglitz, who was a professor at Stanford during my Stanford years, says in his new article “World has much to learn from China’s new economic model” that China is employing a “new economic model” to move away from export-led growth, which other East Asian countries have pursued. China recognizes that things worked in other countries may not be suitable to China’s unique situation.

To move away from export-let growth, China needs to stimulate domestic consumption. “While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40 percent, struggles to get its people to consume more.” The good news is, as professor Stiglitz notes, “There is a consciousness of environmental limits and the realization that the resource-intensive consumption patterns now accepted in the United States would be a disaster for China – and for the world.”

The new model also requires China to create an independent innovation system. “Western technological innovation has focused too little on reducing the adverse environmental impact of growth, and too much on saving labor – something that China has in abundance.” says professor Stiglitz. So, it makes sense for China to focus on technologies that use fewer resources, but can be used by the majority of people.

In the end, Stiglitz summarizes: “Too many people think of economics as a zero-sum game, and that China’s success is coming at the expense of the rest of the world. …. But economics is really a positive-sum game. An increasingly prosperous China has not only expanded imports from other countries, but is also providing goods that have kept prices lower in the West, despite sharply higher oil prices in recent year.”

To hear a Nobel laureate say this is really encouraging: “We should all hope that China’s new economic model succeeds. If it does, all of us will have much to gain.”

The Chinese Renaissance

Last year, China consumed 15% of the world’s energy, but only produced 5% of global gross domestic product. While a lot of people in the West are worried about China’s insatiable hunger for energy and growing economic power, the vast majority of Chinese see their rise as nothing but a return to historical norms.

A recent The Economist article says that “between 1600 and the early 19th century, China accounted for between a quarter and a third of global output. At the time China’s agriculture was more advanced than the West’s, its cities bigger and more literate and its ruling classes more meritocratic.” No wonder Chinese simply call what’s happening now a “renaissance.”

There are also concerns about China’s trade surplus and undervalued currency. The article says: “In several respects that view is wrong. With a trade-to-GDP ratio of around 70% and a sea of foreign investment, China is one of the world’s most open economies. Much of the growth in America’s bilateral deficit with China reflects a shift in low-cost manufacturing from other parts of Asia to the Chinese mainland.”

Then the article went on to say: “America’s emphasis on exports misses the point about China’s economic power. That power comes not so much from being a seller of things but increasingly from being a buyer, an investor and a provider of aid, in Asia and beyond. One Chinese diplomat put it thus: ‘Imports: that’s real diplomacy, because it means you’re attractive to others. It means other countries need you, not that you need them.’ This subtle understanding sets China in stark contrast to how Japan viewed the world during its post-war rise.”

I think this is brilliant! Like a person, when a country starts to give rather than take, it will become really powerful. That’s a new kind of power, and I would like to call it “The Chinese Renaissance.”

Mobile Marketing to Reach Chinese Consumers

An interesting article by Time (Mar. 29th, 2007) says By 2010, 70 million Asians are expected to be watching videos and TV programs on handsets. Advertisers are looking for new ways to reach audiences. According to eMarketer, corporate spending on handset advertising is expected to soar to $13.9 billion by 2011.

In China, an merging middle class with a real purchasing power is the target of mobile advertisements. When BMW launched new models last year, it tried mobile-video ads, downloadable screen wall paper and ringtones. “The click-through rates were unbelievable,” says the BMW marketing manager. Other multinationals that are pioneering in mobile phone marketing are McDonald’s, Proctor & Gamble, etc.

Chinese consumers seem to be receptive to mobile marketing. According to a Shanghai-based mobile marketing firm, 9 out of 10 people open and read unsolicited text messages: “When Johnson & Johnson recently introduced a new contact-lens line in China, it sent an “m-coupon,” good for free samples, to tens of thousands of young, urban women via text messages. Nearly 10% of recipients redeemed their coupons by showing the message to store clerks. That’s a far higher response rate than the average 0.2% rate for e-mail ads.”

Google’s Uphill Battle in China

While Google is considered too powerful in the United States – with “an online package of news, entertainment, blogs, and services drawn from all the world’s up-to-the-minute knowledge,” it is not in China.

According to iResearch, Google’s market share in China was only under 15%, down from about 25% earlier last year. Baidu, the Chinese search engine, has more than 69% of market share in China’s search-engine market. No double Baidu has an upper hand against Google in China because it has a deep understanding of Chinese users and their complex languages.

Most multinational companies found the China market is hard to crack. It took long time for multinationals to learn how to do business in China. The worst defeat was eBay – it shut down its China site last December and took a back seat in Tom Online, a Beijing based Internet portal that provides wireless value-added services with no experience in online auction business. Yahoo! had been in China for seven years. It finally threw itself to Alibaba, a local e-commerce company.

However, Google is not giving up. Recently, Google is joining China Mobile to launch a mobile-search-engine business. With more than 400 million cell phone users, China is the world’s largest cellphone market. Many industry observers are betting on the fact that Google is being favored among the business professionals – “in terms of future business development, Google does have a good base in China to grow on.”

The mobile search is critical for a country that has more than 400 million mobile phone users. But I don’t see why Baidu is not doing the same. In addition, how Alibaba comes to play a role in the search engine race is not clear. Google is definitely facing an uphill battle in China.

My Hometown Hangzhou

My hometown Hangzhou is known as “paradise on earth.” An ancient Chinese saying says: “Above there is heaven; below there is Hangzhou.”

Anyone who has visited Hangzhou is impressed by its scenic beauty. A mirror-like lake, called West Lake, is nested in lush hills, like jade carved into green velvet. Along the lake are peach and willow trees, wavering and whispering in gentle breeze.

In the springtime, when the peach trees are blossoming with pink and white flowers in between the green willows, West Lake looks like a cheerful bride ready to wed. A pagoda, named Precious Stone Pagoda, stands on the top of the hills at the north side of the lake, as if a faithful guard watching out for his bride.

Hangzhou is also a historical city. It served as the capital of China in Song Dynasty (960-1279). In the 13th century, Marco Polo traveled to Hangzhou – the center of trade and culture during that time, and wrote elaborately in his journals about West Lake. He considered Hangzhou as “the most beautiful and splendid city in the world.”

Throughout history, Hangzhou has inspired poets, artists, philosophers and politicians. Many of them had left mesmerizing poems about West Lake. A classical poem by Su Shi, a renowned poet in Song Dynasty, says it all:

The brimming waves delight the eyes on sunny days;
The dimming hills present rare views in raining haze.
If comparing The West Lake to the Beauty of West Shi,
It becomes her to be adorned in either ways.

Today, Hangzhou has renewed itself into a center for technology and entrepreneurship. With a population of seven million, Hangzhou accounted for 20 percent of the province’s GDP, 30 percent of its imports and 17 percent of foreign investment.

A recent survey by Forbes reveals that Hangzhou scored the highest on the list of “the top ten best places for business,” before Shanghai and Beijing.

It is a base for global manufacturers such as Motorola, Siemens, and Toshiba. It has several of the most successful homegrown companies – the biggest auto parts maker Wan-Xiang, soft drinks group Wahaha, and Internet company Alibaba.