Saturday, July 3, 2010

China - The Next Super Power?

In Goldman Sachs's 2007 update on the BRIC's report, by 2027 China will overtake US to be the world no. 1, if this is true will it surprise you?

For those who know the ancient China history, China was once a very powerful nation interms of military and prosperity during the beginning of the Qing dynasty, under the guidance of Kang Xi (reigned 1662-1722), Yong Zheng (reigned 1723-1735) and Qian Long (reigned 1736-1795) emperors.

The divergence between China and the western countries started during the 1800's where the European countries led by Britain were gaining power through the industrial revolution. Since then the divergence became bigger and bigger until 1978 when Deng Xiao Ping decided to open up its door to the world.

From 1978 - 2000, China's economy was rising due to its capitalism. Later when China joined the World Trade Organisation (WTO), it's growth has been accelerated and now, China has become the world 3rd largest economy in terms of GDP (lagging behind USA and Japan).

After hundreds of years of lagging behind the western world, China is now closing this gap in less than 50 years. There are a lot of hard work behind. Let me share with you my personal thaughts.

All these boil down to a simple word - "Vision". In the 1950's they shared a vision with Russia to have their countries run in the communism way whereby they believe socialism and communism will benefit their people most. Indeed, they will able to eliminate the internal wars within their own country and bring peace. However the prices these communists have to pay were huge. As everything was state owned, there were lack of initiative, labour productivity was low and the people were having low levels of standard of living.

The death of Mao Tze Tung in 1976 signifies the end of communism in China. After Mao Tze Tung era, it was Deng Xiao Ping who had contributed China the most. Have you heard of the Deng's cat theory - "whether its a black cat or white cat, as long as the cat catches mice, its a good cat". So China has a vision, the vision of an "efficient" country which lead to prosperity in China now.

There is also a little story about Deng. In the 1990's he once said that Singapore was a role model for China. He admired Singapore, a country that is so rich and efficient and yet there are law and order in placed. So China developed its Guang Dong province to be like Singapore.

Another reason for China's success is education! They realised the main driver for economic growth is really its people - the human resource. Look at Singapore, its world class education sector has successfully transformed Singapore from a manufacturing based economy to high skill service based economy. Likewise, over the years, China's education sector has been developing steadily with primary school children equiped with computer knowledge.

Having look at how others become so successful, we should also look at ourselves. Why aren't the foreign investors coming to Malaysia? Not only the foreign talents not coming, the local talents are leaving, why? Our politicians should know the answers!

Happy investing,
Pauline Yong