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Making Sense of a Changing China

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  • Zachary Karabell (all photos by Asa Mathat)

  • (From left) Robert D. Hormats, Zachary Karabell, Gary Rieschel

  • Robert D. Hormats

  • (From left) Robert D. Hormats, Zachary Karabell, Gary Rieschel

Panelists

Robert D. Hormats
Under Secretary of State for Economic, Energy and Agricultural Affairs, U.S. Department of State

Zachary Karabell
Head of Global Strategy, Envestnet

Gary Rieschel
Founding Managing Partner, Qiming Venture Partners


As China’s influence expands, how will it influence global innovation? Read excerpt from the discussion below, or download the full transcript.

Karabell: In spite of China actually slowing down in its rate of growth this year, to whatever figure it’s going to be, and whether or not that figure is notional or accurate, a deceleration of the rate of China’s growth is not, as both media and investors seem to treat it, the absence of growth.

So, in nobody’s mathematical universe does a shift from let’s call it 11 or 12 percent growth to 7 or 8 percent growth constitute contraction.

China growing at 7 percent, if it even is that low this year, will add more to global output than China growing 11 or 12 percent did five years ago because the sheer size of the economy has grown larger, which means it’s pulling everything from resources like iron ore to coal to its consumer market, which is chronically underemphasized as an emergent phenomenon

The relationship between the United States and China has never been, at least in my view, asymmetric the way trade figures make it look. So Americans tend to focus largely on this trade deficit with China, which continues to expand.

As a market for U.S.-produced goods, China is the fastest and largest growing market in the world. Bar none.

Hormats: They need a very robust rate of growth, but there is going to be, as Zachary’s pointed out, a robust rate of growth even if it’s a little bit slower than the past.

But the big difference is the quality of growth. What’s even more interesting is the notion of a harmonious society, harmonious growth. And that is it’s not just the aggregate amount of growth, because we know there’s a lot of growth in the two big Pearl River, Yangtze River delta areas and certain parts of Eastern China. They are now emphasizing growth in the middle part of China, Western China. They are emphasizing a Social Security system which lower income people will have opportunity to access and to take advantage of.

The growth in China is not just in Beijing and Shanghai. The regions, the provinces have enormous influence. A lot of the growth taking place, they have cities springing up¾2, 3, 4, 5, 10 million people all over China. And the government—it’s not a government that runs in a central way anymore. A lot of power is in the hands of provincial authorities.

You have a lot of pressure for greater participation in the governance process. Now, don’t equate participation with Jeffersonian democracy. But more and more there’s an understanding that provincial leaders, city leaders, and other leaders have to listen to people.

There are numerous protests over environmental issues, over corruption, over poor governance. And they are trying to do these little experiments in different parts of China, and they call them experiments, on greater participation in the system and how you emphasize what one might call democracy with Chinese characteristics.

Rieschel: One of the grand experiments that China did 25 years ago was Shenzhen. So it’s important to realize when they talk about doing experiments, sometimes they are small and sometimes they actually change the entire economic structure of the country, which obviously Shenzhen and the special economic zones managed to do.

You have to realize this is a country—it’s a huge teenager. It is incredibly powerful. It is very proud of itself. And sometimes it has absolutely no clue in terms of what to do. And it doesn’t like to be lectured to.

You need to start to accept that China is going to be a major player on the stage. China is going to have a huge impact on innovation.

The vast majority of the companies that we’re investing in now, they are all being commercialized in China. We’re taking technology from the U.S., a lot of clean technology, a lot of healthcare technology is being developed here, but it’s being commercialized in China. And it will wind up being the China product that will go around the world.

Hormats: We want them to be less export dependent, more dependent on domestic demand. They want to do the same thing. We want them to have better environmental policies because they are big polluters. They want to do the same thing. Not easy to do, but quite do-able.

Rieschel: A drug approved for use in China is accepted by virtually every country Africa, most countries in Europe. Even the U.S. FDA is now almost at peer level. So you commercialize in China, you suddenly have a global product. That was absolutely not the case five years ago.

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