Tuesday, January 19, 2010

CHINA - Its Past, Present, Future

The following is an op-ed article written by Tony Gleason of Neuberger Berman. In this interesting work, Mr. Gleason studies essential history, reviews present issues, and predicts future trends, regarding business within China. It is very helpful for those of us, who have operational dealings and investments in China. Extremely worthwhile reading:
China Wakes, the World Shakes
by Neuberger Berman’s Tony Gleason - November 17, 2009

As we have all witnessed, the economic system that drove much of world trade buckled in the financial crisis of 2008. It appears that the U.S. will no longer be the insatiable source of demand for the world’s manufacturing countries. Our credit has unfortunately hit its limit with our creditors, namely China and Japan. From an investment point of view, understanding the new financial, economic and political system that is evolving from the 2008 crisis will be a key to making and preserving capital in the decades ahead. China, as I will explain, is re-emerging on the world stage and will likely play the leading role in this evolution. Within this piece I offer my perspective on China today and how I believe it will influence the investment landscape.

I’ve had the extraordinary good fortune of traveling frequently to China. Each time, I’m startled by the progress the country has made since my previous visit. The most recent trips are no exception.

Cities visited in the past few months include:
  • Tier one cities: Beijing, Shanghai, Guangzhou, Hong Kong
  • Second tier cities: Nanjing, Hangzhou and Chongqing
  • Small, but important cities: Li Jiang and Macau
Along the way I met with over 60 companies, various government officials and many interesting people. Since the crisis began almost a year ago it’s become abundantly clear that the Chinese government recognizes they can no longer grow the country’s economy based on exports to the United States and Europe. Recognizing that economic growth is necessary for harmony and its own ability to stay in power, Beijing has shifted gears quite dramatically and so far has managed its way through one of the most significant financial crises in a century. Many will argue with how it got there, but China is on track to leave 2009 growing at a better-than-8% rate. While China has many goals, in our view, the three with the greatest implications for the investment business are to:
  1. Increase domestic consumption;
  2. Accelerate infrastructure; and
  3. Diversify away from the U.S. dollar.
In the investment business, getting the big picture right is key; we believe the ability to appreciate what is going on in China—and act on it— will have a significant impact on investment results. For some perspective on where China is headed, it pays to look back a few years. Therefore I’d like to provide you with some history intertwined with my observations on this most fascinating country...