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Special> Boao Forum for Asia 2013> Archive
UPDATED: May 15, 2007 NO.20 MAY 17, 2007
Deciphering China-U.S. Economic Relations
It is not a good idea to allow 20,000 textile workers in South Carolina to determine China’s monetary policy. The U.S. reason for doing this is obvious. It’s because of the political pressure

(SMEs) are trying to grow but they have no source of capital. [Chinese] banks don’t lend to SMEs. The foreign private equity guys will, and foreign banks will, but they are just [new to China], they are just coming. The future jobs in China are all going to come from SMEs. SOE employment in 20 years will be less than it is today, so all of the growth of jobs will come from SMEs. The biggest capital market problem in China is credit for small companies.

As China grows at such a tremendous speed, some contend that this is the main thing driving up energy prices. What’s your view?

The rest of the world wants to be the only rich person. And now that China is having higher living standards, the rest of the world is worried about that. In fact, Americans use many times more energy per person than China. Yes we should all conserve energy. Yes we should all discover more energy. But China today is constructing about 30 nuclear power plants. The United States is constructing zero power plants, because, 35 years ago, we had a very small accident with a nuclear plant [Three Mile Island], which caused almost no human problems. But a [U.S.] politician is not going to approve such a project. So China is doing a better job than the United States in developing nuclear power.

Moreover, Americans drive giant cars. The United States is not going to give a lecture about energy efficiency. The real answer to the energy problem in the world is to find a way to use human resources to create economic value without using oil. That means education, technology and communications. So China’s policy today is very aggressive at building human resources. The rest of the world will just continue to complain.

In Western countries, “Made-in-China” always refers to cheap and low-end products. How do we change that image? How can Chinese companies brand themselves globally?

It’s very important. The best way is to study Japan and South Korea. Thirty years ago, “Made-in-Japan” was a serious problem. Japan was regarded as a country making little toys. They were cheap, bad quality. But today, the best quality products in the world are made in Japan. South Korea, 20 years ago, just began to make automobiles. Today South Korean cars and their digital products, like Samsung, are the very best in the world.

Today, one of the best car brands is Toyota. Toyota was a big joke in the United States 30 years ago. Toyota had terrible cars. But they learned how to make better cars and they built the brand. I like the strategy of building brands. The only way you can build a company with value is to create a brand that the customers trust. So Lenovo is doing a good job. It’s probably the best-known Chinese brand in the United States. They would not think it was a low quality IBM.

Today in the United States, Cisco is a very famous company that makes communication equipment. Huawei is as good as Cisco, but Huawei’s name is not as well known. So they have to do the marketing. They (Huawei) already have the products, and they just have to do the marketing and service work to build the brand. That’s a good reason why Chinese companies should make acquisitions in the United States. Because sometimes you can buy a company there that already has a brand and you can use their recognition.

In developing the Chinese capital market, what are your suggestions?

One problem with the Chinese capital market is that banks only loan money to large companies. China’s biggest problem is small company capital. In December, China opened its market. Foreign investors and banks are coming to China and going to the customers of the Chinese banks and showing them (SMEs) that they can get capital. So foreign banks are taking the customers away from the Chinese banks. The Chinese banks are going to have to work with smaller companies.

Large companies in the United States never borrow from banks, and no large company has any bank money. In the United States, the banks only exist to loan to individuals and to small companies. Less than 25 percent of business capital comes from the banks, and most of the capital comes from private equity. Take General Electric as an example. If GE wants to build a new business, they will not go to the banks to borrow money. They will go to the stock market, or the bond market or the commercial paper market, and get the money because it’s cheaper. So in the United States, if the bank is going to lend money, they have to go to small companies. So the banks in the United States exist to loan money to SMEs. They do other things with large companies, like advise on currency trading or commodity trading. But they don’t loan money to big companies. The U.S. and European banks coming into China are coming in to provide capital to small companies. So that’s going to help SMEs.

China needs a bond market and a commercial paper market, and China also needs a derivatives market, like options and futures, which are beginning to happen in different places. So those are all starting to grow.

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