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moru thank you so much for joining us
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today thank you for inviting me so we're
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talking about the fact that China has
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just completed 10 years of WTO uh
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membership and in this decade that has
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gone by China has just become an export
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Powerhouse uh I think according to
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numbers I had its share of global
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exports was just about 4% 10 years ago
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and now it's not only the world's top
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exporter uh it has a global share of 10%
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uh how has this change come about and
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how has Chinese business been
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transformed as a result of this change
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well the reasons for this change are
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very uh straightforward which is that U
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as part of of WTO membership China uh
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got uh access um to uh the big Global
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markets including the US and Europe and
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and other countries in exchange of
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course for reducing its own trade
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protectionism in the Chinese market
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which hasn't always happened but it has
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happened to a very large extent so
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that's the main driver now the other
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important driver of course is that
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Chinese companies have become very
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competitive uh over the last 10 years
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they were already where in the 1990s uh
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but that they have entered new
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Industries they have uh uh you know
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invested in their uh Capital Equipment
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uh they have created new distribution
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channels uh we already see the first
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Chinese multinationals like uh Lenovo or
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like hire um making progress in in
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global markets in fact higher has become
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the the largest uh household appliances
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company in the world uh so that's the
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the re the uh you know the the reasons
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why um WTO membership has essentially
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made China the world's largest um
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exporting Nation as you just mentioned
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now the consequences are are massive
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both for you know the global economy as
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a whole and uh for the receiving markets
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meaning the US and Europe and uh and
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also for
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China let's go back to the point you
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just made very interesting about the
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emergence of Chinese multinationals it's
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absolutely right H higher uh and and the
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Lenovo and others have become Global
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players do you see a difference between
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the way these Chinese multinationals
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have emerged and say previous
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generations of Asian companies like say
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the Japanese companies like Sony and
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others or the Korean companies like
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Samsung has there been a difference in
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the strategy growth strategy and
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globalization strategy of the Chinese
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multinationals relative to the others
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and what can other aspiring Global
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multinationals from company countries
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like Brazil and India learn from China's
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experience that's a great question and
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of course it's a very complex question
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so there are some common patterns so the
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Japanese and the South Korean and now
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the Chinese companies had one very big
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Advantage going their way which was they
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had a protected domestic Market while
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they were still learning how to compete
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right so for many years Chinese firms
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have had a captive domestic market and
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uh they learned how to uh you know make
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things and uh they could sell and then
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of course they started to pursue foreign
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opportunities this was the case of hire
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hire uh grew first in the domestic
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market and then it started to pursue
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foreign markets first by uh selling uh
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their products to uh Walmart or to uh uh
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other American brands so they would make
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the washing machines for them and then
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they started to launch their own brand
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so that's the common pattern that also
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happened to the Japanese firms in the
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50s and 60s the same with the Korean
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firms in the 70s and 80s I think the big
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difference with China of course is
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ownership many of these firms in China
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uh have at some point at least been
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state-owned uh that wasn't the case of
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the uh Japanese firms uh that was not
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the case of most of the Korean firms
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with the exception of maybe posco in
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steel right so so that I think is the
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biggest difference that is to say that
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in China what we see is a very important
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uh influence of a government owned
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state-owned Enterprises in you know the
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rise in this process of uh of
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internationalization of the Chinese
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companies that's the big difference and
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what imp lessons can say companies in
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Brazil or India which are aspiring
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multinational learn from China well I
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think also multinationals in the US and
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in Europe can learn I think one of the
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biggest lessons is of course the
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importance of scale that is to say
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higher Lenovo uh byd which is one of the
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largest uh makers of rechargeable
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batteries in the world and you know
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there's like five or 10 other very good
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examples of Chinese multinational firms
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that uh are making uh great inroads into
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the global economy by themselves right
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um the the big lesson I think is is a
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scale uh the other big lesson is uh uh
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learn the ropes don't try to accomplish
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everything at once so again first start
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in the domestic market then sell your
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products for somebody else to put their
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brand name on them right in Europe and
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the US that way you uh reach a scale
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that way you establish relationships and
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then once you're ready then you launch
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your own brand and then you try to
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conquer markets with your own uh
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resources and with your own reputation
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it's a hard thing to do obviously
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because you're facing uh stiff
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competition by established players from
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Japan from Europe from the United States
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but hey at least 20 or 30 multinational
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firms from China so far have made it you
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know 10 years from now uh there will be
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100 or 150 what would you think will be
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the implications for the incumbents in
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those fields well they're going to have
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to wake up uh many of them of course
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will be acquired by Chinese firms um or
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they will have to sell some of their
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divisions to Chinese firms Lenovo of
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course became a big Global player after
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acquiring the PC business from I BM uh
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hire has also made some Acquisitions
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even though you know most of the action
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there has been um organic growth uh and
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so on so I think they need to wake up
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they need to realize that China is no
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longer just a lowcost manufacturing site
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China is a big economy big domestic
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Market uh but it's also the home base
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for many firms that are becoming
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increasingly more technologically
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sophisticated and uh they're also Lear
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learning how to Market how to sell their
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products uh so the world of uh um you
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know competition is changing very very
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quickly in large measure because of the
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Chinese firms the Indian firms the
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Mexican firms the Brazilian firms
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essentially getting out of their
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domestic markets so if you were to
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identify the most critical Industries in
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which uh companies are likely to be
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acquired by Chinese multinationals which
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would you consider to be the prime
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target uh I think the number one
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category will be commodified
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Industries um so anything that is a
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commodity right now the Chinese
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companies Brazilian firms also Indian
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firms will have an interest in buying
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why because uh they like scale and they
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know how to operate at larg scales and
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when margins are very low in a commodity
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industry uh whoever is bigger wins so
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this has happened in personal computers
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which is a commodity I this is starting
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to happen in many categories of
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electronics which have also become very
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commodified and and uh I think this is
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going to happen also in the lower
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segments of the automobile industry
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which are also very low margin very
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commodified um I think a little bit
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later we will start seeing u in
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high-tech Fields right um aircraft um
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biotech uh possibly even Pharmaceuticals
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we will see more activity not not
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necessarily only in the form of
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Acquisitions it could also be alliances
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but certainly there will be Chinese
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firms Indian firms Brazilian firms that
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would like to get into those Industries
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and they're going to be you know
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targeting uh I uh you know European or
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American firms either as partners or as
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acquisition uh
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possibilities now uh stepping back from
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the role of Enterprises now to the
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Chinese economy as a whole during the
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past decade that China has been in the
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WTO which areas do you think have seen
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the most growth and and and success and
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which areas have been relative losers
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within the Chinese economy yeah that's
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great question also so clearly the
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manufacturing and the Assembly of uh uh
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Goods has been a major engine of growth
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in China and Chinese companies and uh
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Chinese manufacturing facilities just
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more broadly regardless of ownership
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have become very sophisticated they know
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how to set up a plant how to run it
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efficiently um how to turn out very high
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quality products so that's a major area
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in which uh you know the Chinese economy
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I think has clearly uh succeeded I think
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they've also become very very good at
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building infrastructure and they're
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doing this obviously in China right but
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they're also doing this increasingly in
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Latin America in Africa and other places
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around the world so Chinese companies uh
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the Chinese economy I think has become
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very Adept at um uh building uh
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infrastructure now heavy industry of
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course steel uh cement all of the things
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that are required for building
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infrastructure or for building factories
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that's another um part of the Chinese
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economy that has made a lot of progress
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I think by far the two areas where
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Chinese firms are still lagging behind
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are consumer products meaning not so
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much manufacturing of the consumer
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products but rather how to uh sell them
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and also the services that go together
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with those products and then of course
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financial services so Financial Services
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commercial banks in China are still
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relatively backward and uh it is if if
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they don't address that problem I think
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it's going to be a bottleneck uh because
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I know of no Advanced economy in the
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world that has a backward Financial
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system you need a financial system that
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is also developed that is sophisticated
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uh if you want to be a rich country so
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let's stick to this point a little bit
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about uh some of the the financial
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challenges uh what do you see as the
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biggest risks uh especially of of a of a
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financial SE sector that's kind of
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lagging behind a little bit uh you know
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as as the Chinese economy seeks to grow
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uh and and it it's a matter of time
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before or it overtakes the us as as as
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the world's largest econ probably in the
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next six or S what the biggest risks you
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see Mar well the problem is there's
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twofold one is the uh um uh large
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amounts of bad loans that some parts of
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the banking system in China has
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accumulated over the last 30 years and
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again it's being a time of Boom in China
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but that doesn't mean that everybody has
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done well that doesn't mean that all of
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the people who borrowed money are now in
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a position to return all of that money
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so there's that problem and then the
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second problem is just more the
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nitty-gritty day-to-day operational
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details about how you run a bank a bank
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that takes deposits and then uh extends
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loans to families and to uh businesses
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right and does other types of uh
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commercial activity uh here what you see
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very clearly is that Chinese Banks just
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don't have the experience they don't
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have the sophistication uh they don't
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have the management systems the
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information systems the Marketing
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Systems the risk assessment systems in
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place in order to you know be uh
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profitable and be sustainable and uh
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they're uh working very hard to develop
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those systems right uh but it takes a
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takes a while uh you know China didn't
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have any banks really other than state
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owned Banks up until 20 years ago it
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takes a long time China's transformation
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is just so quick and I don't think the
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financial sector has been able to uh to
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um you know stay on top of all of the
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developments do you see any political
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risks uh over the next you know decade
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well in China as a whole of course I
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mean China is after all a country that
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faces many challenges uh it's right now
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an economy that keeps on growing but
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they face uh issues such as for example
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the uh pollution air pollution and water
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pollution uh they face problem with uh
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problems with
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desertification um they certainly face
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problems uh with their neighbors uh I
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think that's also part of iCal risk that
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is to say China unlike the United States
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or unlike the United Kingdom right this
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is China's huge disadvantage is
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surrounded by you know more than 15
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countries and neither one of them has
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historically been a friend of China um
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um I have here in mind uh Korea Japan
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Russia India uh the Central Asian
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republics and then Vietnam Cambodia and
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so on and so forth neither one of these
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countries is a friend of China and also
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keep in mind that all of them have a
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territorial dispute with China all of
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them every one of them either you know a
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land border or they're fighting over
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some islands right uh so the issue is
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China is a uh you know resurging country
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certainly very powerful economically and
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financially uh but geopolitically right
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in terms of geopolitical risk it is in a
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neighborhood located in a neighborhood
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that is a very tough one it's a very
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complicated one so what does China's uh
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emergence mean for the rest of the
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global economy and the global governance
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system well it's huge and I think the
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best way to um assess that is by looking
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at the FI the uh numbers right Financial
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numbers so China right now as you know
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has a huge Surplus trading Surplus with
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rest of the world so in the year 2010
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they accumulated reserves uh for a total
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of about $450 billion doar that's more
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than1 billion do a day
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right uh Reserve accumulation now at the
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same time that means that some other
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countries in the world are running
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deficits right because if we don't have
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any trade let's say between planet Earth
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and Mars or Venus then if somebody's
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running a uh Surplus like China there's
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got to be somebody in the world who's
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running a deficit and that's the US
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that's some European countries and so on
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and so forth so this gives China
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Financial Cloud also gives it power
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because China uses those reserves of
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course to help the countries that have
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def
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you know make it through the year they
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buy US government securities now the
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Europeans are trying to persuade China
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to buy European government bonds and so
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on and so forth so this gives China
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cloud and of course the problem is that
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China 20 years ago 30 years ago didn't
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have this financial strength so they're
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underrepresented in all of the important
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uh institutions in the world the IMF
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right is one of them all of the
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development Banks um in the world uh
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China has a lot of resources they could
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have more voting power they have more
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voice but they don't yet have it so we
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do need to reform those International
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institutions now that China has become
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such big Power and you know all of the
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problems right now in the global economy
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catch us at a time at a time at which we
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haven't made that change so the
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governance structures are still those
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from 20 years ago right but the problems
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are entirely new and we have all of
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these economies China India Brazil
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Russia which didn't used to be very uh
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important from a financial point of view
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the world but now they are and we have
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no way of uh you know using them as a
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source of um funds and as a source of
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support to overcome the problems that
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we're facing right now in the global
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economy no that's a very great point so
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let let's take just one of those
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multilateral institutions which is the
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one we began with which is the WTO as we
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know during the past decade there have
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been any number of trade disputes that
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China has been involved with over issues
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like subsidies and so forth how is how
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do you expect this to play out over the
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next 10 years say within the WTO context
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well China has been um as you just said
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like other countries right the US and
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Europe are also taken uh to task right
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sometimes for subsidizing certain uh you
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know companies or certain products and
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uh protecting others and so on but China
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of course as the developing country that
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it still is has uh you know more of
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these um mechanisms of protection in
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place so naturally you know uh they they
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get more attention and then of course
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there's also the problem with the
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overvaluation of the currency but you
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see China has been pretty good actually
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at um when whenever they're taken to a
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court so to speak right they're accused
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of doing something uh at the WTO they've
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been pretty good at trying to address
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the problem and uh most of the time they
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have um accepted you know that they were
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in violation of some part of the
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agreement now remember again that uh
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China is a developing country and it is
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categorized that the WTO is a developing
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country country meaning that it's easier
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to actually accuse it of all of these uh
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you know transgressions one of the
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things that China was mentioning u a
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month ago when the Europeans were trying
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to uh get the Chinese to buy some
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government bonds was we'll buy the bonds
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but in exchange for that we want you to
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make us a developed market economy at
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the WTO and that means that it's going
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to be much harder to uh accuse China and
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to make it change its ways right so
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there's a lot of things you know at play
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here uh seemingly you know the Chinese
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obviously want to uh play a constructive
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role in the global economy they don't
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want to destroy the global economy
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because that would be devastating for
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them they want the global economy to
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grow uh they want Europe and the United
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States to be in a position such that
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they can buy all of these Chinese made
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Goods uh but at the same time they're
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asserting themselves and they want to um
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be more influential they want to be
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participants in the big decisions and in
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in the face of Chinese assertions do you
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see protectionism becoming a big risk
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going forward or not really no not at
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all I mean first of all in many
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Industries China doesn't need to protect
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because they're very competitive and I
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think as time passes I meant more the
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rest of the world becoming more the rest
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of the world certainly there could be
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Temptations keep in mind that China
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among developing countries and certainly
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among the bricks is not the most
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protectionist country so both Brazil and
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India are way more protectionist than
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China uh both in goods and in Services
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uh India if you remember there was this
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big uproar just a couple of weeks ago
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Walmart uh being able to operate there
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more freely than in the past uh so so
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China is not the biggest off is not the
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worst offender um but you're right uh
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not only in other emerging economies but
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also in Europe and the United States
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there could be Temptations now that
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would be a very very bad outcome very
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bad outcome that would you know in the
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short run protect some workers or some
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companies in Europe or the United States
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or in Brazil for that matter but you
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know 10 or 20 or 15 uh years down the
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road we would regret having protected
00:19:00
those Industries because the only thing
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that you accomplish when you're
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protecting right just because somebody's
00:19:06
not competitive right the only thing
00:19:07
that you accomplish is you're buying
00:19:09
time right and you are essentially
00:19:12
making it possible for bad habits to
00:19:14
perpetuate themselves right so the only
00:19:17
reason that I see for protecting is what
00:19:18
the Japanese did in the 50s or the 60s
00:19:21
or what the Koreans did in the 7s and we
00:19:23
were talking about that earlier that is
00:19:24
to say you want to protect your
00:19:27
companies until they're ready
00:19:29
to become Global players that's a
00:19:31
different issue you can still make
00:19:33
mistakes and overprotect them right but
00:19:35
that's a different issue you're not
00:19:36
protecting just because you want to save
00:19:38
them from collapse you're protecting
00:19:41
because you want to help them be more
00:19:42
competitive that's a different
00:19:44
proposition just the last uh couple of
00:19:46
points Maro uh you referred to the uh
00:19:49
valuation of the Chinese currency it's a
00:19:51
very important issue but one of the
00:19:53
really interesting Trends going on is
00:19:55
the efforts that China has been making
00:19:57
to globalize the RM be uh do you believe
00:20:00
that over the next 10 years that the
00:20:03
Chinese Zan could become as influential
00:20:05
a currency as the US dollar or the Euro
00:20:07
what what's your no I don't think that's
00:20:09
going to happen and I'll give you the
00:20:10
reason so first of all let's say if the
00:20:12
Chinese currency is over I'm Sorry
00:20:14
undervalued by 10% that's the same as
00:20:17
imposing a 10% tariff on imported goods
00:20:20
or the same as uh giving a 10% subsidy
00:20:24
to Chinese exporters so you accomplish
00:20:27
exactly the effects are exactly the same
00:20:29
and of the same magnitude right so this
00:20:31
is highly distortive right I think the
00:20:34
uh controversy right now is as to you
00:20:36
know we know the uh remin b or the Yan
00:20:38
is overvalued I'm sorry undervalued the
00:20:41
problem is by how much right now China
00:20:43
has been letting it gain in value over
00:20:45
the last three or four years and that's
00:20:47
a good sign right uh China at the same
00:20:50
time of course uh we all know still
00:20:52
controls the currency it's non-con
00:20:53
convertiable that is to say you cannot
00:20:54
go to the market and buy Remy be or
00:20:56
Yuans and the reason for that is is very
00:20:59
simple which is that the Chinese economy
00:21:01
and especially the banking sector uh
00:21:03
neither one of them are ready to have a
00:21:05
convertible currency Chinese Banks would
00:21:07
just you know collapse if the reming be
00:21:11
uh you know were made convertible which
00:21:12
means that you have to liberalize
00:21:13
Capital flows and you have to to do a
00:21:15
number of things so that's not something
00:21:17
that's going to happen in the next five
00:21:18
years I don't think or 10 years what
00:21:20
China is doing is they are coming to
00:21:22
swap uh agreements with uh certain
00:21:25
countries around the world so that uh
00:21:28
when export or when they import from
00:21:30
those countries uh they don't have to
00:21:32
use the dollar or the Euro as the uh as
00:21:35
the currency so that they can make the
00:21:37
the deal they go directly from reming
00:21:38
bees to the local currency in those
00:21:40
countries so this is happening in some
00:21:42
countries in with some countries in Asia
00:21:44
in ltin America and in Africa but it's
00:21:46
still very small now they could expand
00:21:47
those swap agreements uh but you see the
00:21:50
Europeans or the Americans would never
00:21:51
want to get into that so I think the
00:21:54
time at which you know the REM me or the
00:21:55
Yan is going to play as as such as a
00:21:58
currence a big role in global financial
00:22:00
affairs is at least I would say 10 15 20
00:22:04
years away uh something very dramatic
00:22:07
would need to change in the Chinese
00:22:08
Financial system and banking sector for
00:22:10
that to happen earlier I just don't
00:22:13
think it's going to happen
00:22:14
earlier great one final question Mar
00:22:17
what advice would you give CEOs around
00:22:19
the world about how they should navigate
00:22:22
the future especially as it concerns
00:22:24
China well I think uh you need to read
00:22:27
uh as much as you can about China uh I
00:22:30
think the uh Power transition such as
00:22:33
the one that is going to be happening in
00:22:34
the next few months in China are going
00:22:36
to be very important we have to pay
00:22:38
attention to that I think it is uh very
00:22:40
important uh to see what happens with
00:22:42
the uh you know 1 billion people in
00:22:44
China who are still relatively poor
00:22:46
because uh Economic Development and
00:22:48
wealth has only reached the top 300
00:22:51
million that's a huge accomplishment but
00:22:54
it's uh you know only about 1/4th right
00:22:57
of the entire country from the point of
00:22:59
view of population and I think you've
00:23:01
got to watch the uh environmental issue
00:23:03
in China very uh very uh carefully and
00:23:07
uh see how you know they they manage to
00:23:10
play a bigger role in decision- making
00:23:12
at Global institutions such as the lto
00:23:14
the IMF uh all of the International
00:23:16
Development Banks and all of that so I
00:23:18
think uh the best piece of advice is
00:23:20
keep an eye on what the Chinese are
00:23:22
doing and also read not only the
00:23:24
analysis that uh the um American
00:23:27
journalist or Scholars or Consultants
00:23:29
are producing about it also read what
00:23:33
the Chinese themselves are writing many
00:23:35
of the reports that the uh think tanks
00:23:37
in China publish are translated into
00:23:40
English I think it's also important to
00:23:42
you know see the other perspective how
00:23:44
the Chinese themselves uh are thinking
00:23:47
about their own you know rise as a as a
00:23:50
major economic power in the world Mar
00:23:52
thank you so much it's a pleasure as
00:23:54
always thank you for having me
00:23:58
[Music]
