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Franklin thank you so much for joining
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us today my pleasure to be here uh I
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wanted to talk to you about uh the
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changes that have taken place in the
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decade that China has been a member of
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the WTO and also spent some time looking
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to the Future so to begin with I wonder
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if we could talk about what the
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situation
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was about a decade ago uh when China
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joined the
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WTO uh in 2001 its share of global
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exports was just around
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4% uh today China has become the world's
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top exporter uh with a share of more
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than 10% uh any sense on how this has
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come about and how has Chinese business
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been transformed as a
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result I think it's partly due to WTO
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but a large part of is just due to the
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growth of China which since then has
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been phenomenal it's really gone from
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being quite small economy at that stage
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in global terms to having overtaken
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Japan last year and become the second
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largest economy in the
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world I mean so how exactly has
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China's membership of the WTO brought
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about the transformation of Chinese
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Enterprises and have they had to become
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more competitive and globally oriented
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and can you speak a little bit about
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that transformation process I think
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that's a longrun process and I think WTO
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has spurred that along and it's done
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faster than it would have done without
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WTO but it's been on this process now
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for about 30 years I I think one of the
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main effects was the opening up of the
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financial system to some extent and that
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has been ongoing and has been important
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but also all the other aspects of WTO
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membership have been important so for
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example speaking about the financial
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sector uh how has uh the WTO affected uh
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the the way in which the Chinese
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financial sector has evolved and the
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Capital Market has evolved well people
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or firms have been able to enter in a
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way that they weren't before it's not
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fully open in a complete sense yet but
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uh that will be a matter of time in my
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view but it may take some
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time uh could you do you have a sense of
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which sectors of the Chinese economy
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have been affected the most uh by uh
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China's after China's entry into the WTO
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and which ones are lagging behind and
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why
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so obviously manufacturing's done very
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well in this uh environment I think um
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services are still
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not as forward as as manufacturing so um
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there's a ways to go in the the
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globalization of the Chinese economy
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still right uh what are some of the
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opportunities and challenges that uh
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Chinese people face as a result of uh
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the China's participation in the WTO I
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think their main problem is still to
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build Global Brands they're very good at
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certain types of export but there are
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not too many Chinese companies that have
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Global names that people recognize there
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are some of course like Lenovo but not
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too many and I think this is the next
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big challenge to create these Global
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firms you you referred to the fact that
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China has now become the world's second
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largest economy overtaking
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Japan uh what is J China's uh growth
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meant for the world
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economy and can this growth be sustained
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because as we know the US market and the
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European market which have been the
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major markets for Chinese goods and
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services of primarily goods are are are
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sort of slowing down so to to foresee
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that in the next 10 years there could be
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some negative ShakeOut on the Chinese
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uh on on part of Chinese
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firms I think China will continue to
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grow at a high rate maybe not as high a
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rate as it do done the last few years
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but that's more to do with the problems
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in the global economy rather than than
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uh anything else I think their growth
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rate will probably slow to eight or
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maybe even 7% but it's unlikely to go
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below that simply because so much of
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their spending is on
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infrastructure and they current plan is
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to build out the tier 2 and tier three
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cities and that plan will take some time
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to implement and keep growth High see
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but is is there uh do you see rapid
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enough growth in China's internal Market
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uh to to offset uh you know uh decline
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in demand from
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overseas countries so there will will be
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some effect of that but people usually
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quote a figure of
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35% or so for for exports but that's a
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gross figure includes imported energy
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and so on and materials the the net
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figure is about 10% is the number people
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usually quote and so it's not that large
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compared to investment for example which
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is around 40% of their GDP so this is
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the real driver and they can compensate
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for a lot with that and as opposed to
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exports now uh ever since China joined
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the WTO what are some of the biggest
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challenges that you find the country has
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faced especially in the form of trade
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disputes uh see with the us or Europe or
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Mexico so there are the classic ones
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like the tires and so on and I think
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these will
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be somewhat problematic going forward
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they are always going to be these issues
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about is Trade Fair and are there
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subsidies and so on and this is between
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all countries not just China and the us
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but also between China and uh the EU and
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the EU and the US and so on so I think
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there will be isolated incidents I don't
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think hopefully that they will get out
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of hand and become
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full-blown problems do the global
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economy you know continues to uh have
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some risks uh do you see uh
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protectionism becoming a
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factor I'm sure that there will be some
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protectionism I don't think it's going
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to be a major factor at least I hope not
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uh we'll see as as we go forward and how
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bad things
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become let's look turn now to what
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what's happening on the financial side
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uh with the RMB uh China has been making
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some efforts to globalize the RMB uh
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could you help us uh our audience
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understand what exactly is going on and
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what do you think is likely to happen
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over the next few years so they have
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been doing a number of things recently
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to try and move in this
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direction they have been encouragement
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encouraging settlement of trade in R&B
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and that's growing very fast but albeit
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from a low level so um but it is
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occurring and I think it will increase
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particularly in
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Asia the second thing they've been doing
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is to allow compies to issue R&B Bonds
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in Hong Kong and McDonald's and a number
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of other us firms have been doing that
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and that's again growing quite fast I
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think what remains is the most difficult
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and that is to have full convertibility
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of the R&B both on the current account
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and the capital account in the US we
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tend to emphasize the current account
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there is a deficit particular bilateral
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deficit with the us but I think really
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the more important issue is what is
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going to happen with the capital
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account the Chinese domestically have
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relatively few investment
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vehicles and I'm sure that if the
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capital account was to open up there
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would be a large outflow of
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R&B at the same time I think there are
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many people who would like to invest
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freely in Chinese assets and so there
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would also be a big inflow it's very
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difficult at this stage to say which of
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those flows would be bigger and which
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way the R&B would move in the long run
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what we've seen of course in the last
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few months and the last couple of years
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is that the capital account has become
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very important for the determin of
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exchange rates a classic example here is
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Switzerland
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so uh I think that that is a big issue
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and although people assume that the
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exchange rate would strengthen it's not
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entirely clear that that's the case I
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think when we get the new generation of
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leaders in China One of the hard things
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they'll have to decide is at what speed
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to move towards a fully convertible R&B
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I hope that they will do that and that
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in maybe 5 to 10 years we will have made
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significant progress in that
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direction uh what do you think will be
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the implications for other currencies
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like the dollar or the
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Euro I think in the long run we'll move
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towards a multi-polar financial system
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where the dollar will lose its Primacy
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as as the only currency the Euro has
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moved up significantly in recent years
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of course but that's now threatened by
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the problems in
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Europe my own guess is that there will
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be a bumpy road ahead for the Euro I
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don't expect it to disappear and so in
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the long run I expect there to be three
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Global currencies the US dollar will
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presumably still play the lead role but
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there will be two major
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Alternatives the Euro will be used
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widely in Europe
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and to some extent in in Africa and the
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R&B will be used in Asia and maybe also
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in Africa and then the dollar will be
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used in in uh nor North America and
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Latin
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America let's let's look to the next 10
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years and see uh how how do you see
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Chinese uh the Chinese economy evolving
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over the next 10 years what will be some
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of the major implications for other
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other
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countries I think it will continue to
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grow the IMF predicts that it will
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overtake the US in terms of GDP in
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purchasing power parity terms in
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2016 so we're not that far away with all
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the dislocation in the world economy it
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may happen sooner or slower than that
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but at some point in the next 10 years
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it will become the largest economy in
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the world and then the big issue I think
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is how much bigger than the US will it
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get and in what's the time frame for
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that and So within 20 to 30 years it may
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well be a multiple of US GDP and this is
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going to have enormous consequences for
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the US and for other countries in the
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world the US
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May grow and and start to increase its
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growth rate by allowing more immigration
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and those kinds of things but the the
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way that people think about the world I
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think will change significantly if China
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does indeed become the largest economy
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so what could be some of the
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consequences to the US economy in the
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and Europe and other parts of
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Asia I think the big issue is is going
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to be competitiveness
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and at the moment as we talked about a
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few minutes ago China doesn't have a lot
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of brand names and a lot of well-known
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corporations I think it intended to
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develop a Hightech sector and it is
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doing that with Huawei uh for example
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getting the big contract in Sweden ahead
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of Erikson uh for their um telephone
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system however I think there have been
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setbacks I think the high-speed rail
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crash was an event which is significant
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in in this regard and I think the
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Chinese need to think hard about how to
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build their credibility in the high-tech
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sector and I think that will take some
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time and clearly that's the area where
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the US and Europe are still able to
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compete in in a significant way do you
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see any internal risks within China that
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could de uh sort of destabilize Chinese
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growth over the next years for example
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do you see a real estate bubble popping
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or some frisk in the financial system
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that could uh that could affect this
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sort of growth scenario I think what
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we're seeing in the Chinese economy at
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the moment is the bursting of a real
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estate bubble in some parts of the
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country I think that will have an effect
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on the financial system but as long as
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China is able to keep growing at 7 to 8%
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it can grow out of any of these issues
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and and I expect that to happen so there
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will be a bumpy time but I don't expect
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the long term to be significantly
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affected so any final words of advice
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for uh companies around the world on how
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they should U what should their China
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strategy be over the next decade I think
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they should be involved but they should
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hedge their risks and be involved in
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many places around the world Franklin
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thanks so much for joining us today
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thank you Mel
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