Will Hutton an alternative view from Charles Chang
March 12, 2007H-I Network hosted an excellent evening on the 22nd February, 2007 with Will Hutton the author of: THE WRITING ON THE WALL – China and the West in the 21st Century – Little, Brown – £20 pp443.I was privileged to be a guest of
Andrew Gaule, the head of H-I Network and found Hutton’s address both entertaining and instructive. If his book is as good as his talk, I recommend it to anyone with business in
China or planning to do so in the near future.However there are many assertions Hutton made that need to be redressed. Amongst the many provocative statements Hutton made, I noted the following. Hutton said that the Chinese export is mainly made up of re-manufacturing of semi-finished goods imported from elsewhere. Although he may be correct about this in a literal sense, he is in danger of not learning the lessons of history. Not so long ago, Japan – rapidly followed by South Korea and
Taiwan – was at the same state of development. In no time at all, each in turn became innovators and product developers of the first order. One should note the insightful comment made by Tom Friedman in his book “The World is Flat” that China is racing the West to the Top, although initially the tactic may appear to be a race to the Bottom of costs and quality. And finally, a nation that Hutton derides as mere copyist, has none-the-less joined not only the small clique of nuclear nations but also, along with only the US and
Russia, managed to knock out a satellite in space! Hutton also said
China has no global companies worthy of the name. He is plain wrong. It has 20 in the Forbes Global 500, twice the number of
Italy, and those numbers are growing fast. Chinese businesses are expanding by taking over foreign firms. Hutton was also very dismissive about the State Owned Enterprises (SOE). Well, until the late 80s Britain had a large number of SOEs:
British
Airports, British Airways, British Coal, British Gas, British Petroleum, British Steel, British Telecom, CEGB and many others. Today, France and Italy and I believe
Germany still have many SOEs. I am, by no means, defending their existence. But to slate China for a structure that only in recent years were not seen to be a ‘good thing’ is being a bit premature.Hutton recommended avoiding investing in the 57 strategic sectors controlled by the Party. Well, I find that intriguing as I am led to believe a large number of Foreign firms have made large profits in investing in energy, steel, water and other strategic sectors. On a personal level, sometimes I think Britain would be better off if Mrs Thatcher had not privatised some of our strategic industries like energy, water, railways and so forth!Freehold and leasehold or the ownership of fixed assets was another Hutton issue. My understanding is that in a JV, the foreign firm owns the proportionate share of the use of the fixed assets. And when it sells on its share of the company, a market value of the use of these fixed assets is paid by the buyer. So – for all practical purposes – the western firm ‘owns’ these assets. In any case, land ownership (another of Hutton’s beefs) is very much an Anglo-American habit. More people in France, Germany,
Italy and other European countries rent than buy personal property to live in.Hutton talked about the party’s rampant corruption cannot be controlled, despite periodic anti-corruption campaigns conducted by the party itself. Two points need to be made:· Firstly, the very fact that there are periodic purges of corrupt officials is a very good sing. Quite different when the British government stops an enquiry into alleged BAe bribery.· Secondly, according to Transparency International: http://www.transparency.org/ the corruption index for China for 2005 is 70 (out of 163, where the higher the number the worse it is) the same as for
India. But a few years ago both were around 80. So, the direction of travel is gradual improvement. By the way, the top ten include all the Nordic states, Netherlands, Switzerland and
Austria. Both the UK and the US are close to 20.Hutton bemoaned the single party system: the immovable object that is the Communist Party’s continuing grip on
China’s political (and economic life and Leninist Corporatism). Once again he is right. But what about
India? Despite being a genuine democracy, the National Congress Party has been ruling for most of the nearly 60 years, and
Singapore? It seems to me that people tend to want continuity/stability and hereditary is driven deep into us. Why else would Kim, Assad, Bhutto and the remaining monarchies continue to run? And what about the two Kennedy brothers and the Bush sr./jr. situation?Hutton then espoused the lack of Western ‘Enlightenment’ institutions. Once again he is right, but not completely so.
China had such institutions for many centuries well before the Western Enlightenment of the 18th Century. Sadly, with the Republic, the Japanese war and Communism, these institutions fell apart. But new institutions are slowly being re-established. Joining the WTO was one of the levers that Chinese leaders used to sort out its own house as much as to improve its exports. More will follow. One cannot expect a large country like China to change in 20 years that which took the West 200 years.Hutton took issue with Goldman Sach’s prediction of a long run of growth for China well into the next 25 to 50 years (part of their BRIC studies). Firstly, if I had spare financial resources, I would rather take Goldman Sach’s advice than Hutton’s. Secondly, Hutton is probably not aware that nearly all 10 of the members of the Central Committee of the Politburo (
China’s inner cabinet) are engineers both by training and practice. I believe that Hu Jintao, the President, is a hydraulics engineer, Wen Jiabao, the Premier, is a mining engineer, Mme Wu Yi, who negotiated
China’s entry into the WTO and sorted out the SARS epidemic mess, is a nuclear engineer, and the previous President Jiang Zemin, is an electrical engineer. My take is that engineers find problems very interesting, something to be solved. In the West most of our senior politicians are either lawyers or economists. Lawyers are trained to limit damages when face with real or potential problems, to ring-fence the negative effects. (Did you know that Putin trained as a lawyer, and George Bush has an MBA from Harvard?) Economists of course think they are scientists. But put any three economists together and, they say, you will get seven theories on why things are the way they are and how they should be improved. Hutton was also very concerned with the 45% savings rate. Firstly, when one sees what is happening in the urban areas with a growing middle class already estimated to be over 150 million, this figure must surely be dropping to 35 or 30% very soon. And as more and more peasants migrate to the cities, this trend will speed up.
China is gradually but accelerating from an export-driven to an internal-consumption nation. Secondly, a large part of the savings is in property/real estate (despite only enjoying leasehold!). Many Chinese (and that applies across South East Asia as well as on the Mainland) regard owning property as their pension, as most states and companies are woefully inadequate in their provision – yes, even worse than in the
UK. Finally, Hutton played the
Taiwan invasion as his trump card. On the one hand, some time in the future
China will want to reunite its breakaway province. For the foreseeable future the pragmatic, down-to-earth and materialistic nature of the Chinese on both sides of the Taiwan Straits will prevent that from happening. The two economies are fairly well tied up, almost like Siamese twins some say. Most leading Taiwanese firms now are so interdependent on their Mainland subsidiaries or partners – blame global supply chain if you will – that they will not be able to operate successfully if cut off. Even when Taiwanese President Chen was declaring some form of independence a few years ago and Chinese warships were threatening action, trade delegations continued their discussion of direct flights between Taipei and Mainland cities rather than the tortuous route via
Hong Kong. Sabre rattling is there for the benefit for the China watchers in
Washington. This is not to say, something will not trigger war. Sovereignty is a very touchy issue. Even Britain went to war in the south
Atlantic for a very small island with little strategic or material value. But chances are the pragmatists on both sides of the Straits will prevail.To conclude, as I surmised at the event, perhaps Hutton is using the journalist device of shouting “Man bites dog” to sell his book and maybe he doesn’t quite believe all the scepticism he propounds. In fact, taken as a whole, he is less pessimistic about the prospects of China’s “writing on the wall” than he is of
America’s. On that I can only sadly agree. Charles Chang charles.chang@oaksmill.co.uk 26th February, 2007. ©Oaksmill Limitedposted by
Andrew Gaule
