China: economic growth


Visiting professor: After 30 years, China's SEZs ready for new role


During their 30-year history, China's Special Economic Zones (SEZ) have achieved a measure of success that was unimaginable in 1980 and gives reason to celebrate, said Hans Hendrischke, a professor of the University of Sydney who is visiting China at the moment, in an exclusive interview through email by Li Jingwei of People's Daily.

Hendrischke's remarks come on the 30th anniversary of the establishment of China's Special Economic Zones. For Chinese people, the 30th birthday is a watershed year marking the end of a period of youth and learning while at the same time heralding in a period of raising a family and accepting social responsibility.

"In just a few decades, China's SEZs have attracted huge volumes of foreign and domestic investment, integrated China into the global economy and raised China's GDP to a level of global importance," Hendrischke said.

But with all these achievements, is there still a need for 'Special Economic Zones' within the Chinese market economy?

"Any answer requires a closer look at the domestic role of SEZs as their international commercial success often overshadows their domestic institutional achievements," Hendrischke said.

Unlike many export-processing zones across the world, China's SEZs have had a major impact on the domestic economy. While creating confidence among foreign investors, they have also built trust and security for domestic investors during periods when enterprises in other parts of China could not make and retain profits and were not allowed to cooperate with foreign partners.

The mission of the SEZ was to create market space in a non-market economy. This mission has been achieved. From the establishment of Shenzhen in 1980 to the 14 open coastal cities in 1984 and later the thousands of development zones after Deng Xiaoping's Southern Tour in 1992 as well as the many Industrial Parks, the concept of the 'Special Economic Zones' has been used across China to create functioning local markets in a non-market environment.

In the process, SEZ have taken on many forms and are now more a device for industrial planning than a means of experimentation and innovation. In this sense China's SEZs have grown up and are not 'special' any more.

He has said that yet there is an institutional side to China's SEZs that is full of potential. China's economic innovation relies on local experiments with national legislation following later. SEZs are a way to design specific market places and to test them in local pilot projects.

The early SEZs were pilot projects to put in practice marketplaces for Chinese-foreign economic cooperation. Later 'special zones' were pilot projects for domestic marketplaces in areas such as IT or for market places for private entrepreneurs. Many of these experiments have worked well and have helped to create unprecedented national and private wealth in China.

"With wealth comes new challenges and responsibilities. A richer, more globalized China has to address issues of regional development, social justice, environmental concerns, well-being, health and sustainability," Hendrischke said.

Standard economic theory would argue that national policies must be designed to solve these issues. The predictable outcome would be reliance on subsidies. However, China's reform trajectory suggests an alternative approach that is akin to the new concept of Market Design in economic theory.

This approach designs specific local marketplaces and tests them in pilot projects in "special zones" rather than aiming at comprehensive national solutions from the start. For example, regional development in the western regions of China can be tested in "special zones," which empower local populations. Social justice and welfare can be the focus of local marketplaces. Environmental solutions and well-being can be tested in local special zones, and local markets can be fostered around sustainability.

"At age 30, Special Economic Zones have served their purpose and can look back at a proud history of success. It is now time for the second generation of new 'Special Market Zones' to take over and to use design and experiment with local market places in order to realize the innovative potential in China's social and economic institutions," Hendrischke said.




Senior business leaders serve as sustainable corporate growth mentors


From: People's Daily

The role of companies in sustainable growth is too often seen narrowly as mitigating climate change, but it extends to ensuring that businesses are not only environmentally sustainable, but also economically and socially sustainable, senior business leaders said today at the opening of the World Economic Forum's Annual Meeting of the New Champions 2010 in Tianjin, China.

"We have started to limit sustainability to the environmental aspect of sustainability," said Peter Brabeck-Letmathe, Chairman of the Board, Nestlé, Switzerland, and a Member of the Foundation Board of the World Economic Forum, at a media briefing today.

"If we really want to drive growth through sustainability, we have to think about economic sustainability and social sustainability," he said

Brabeck-Letmathe is one of nine senior global business leaders who have joined this year's meeting as mentors. They will be offering advice and insights to executives from roughly 400 cutting-edge businesses taking part in the meeting, which form a group the forum has designated "Global Growth Companies" for their demonstrated potential in becoming global economic leaders.

Brabeck-Letmathe is joined by Hari S. Bhartia, Co-Chairman and Managing Director, Jubilant Organosys, India, and President, Confederation of Indian Industry (CII); Cynthia Carroll, Chief Executive, Anglo American, United Kingdom; Eckhard Cordes, Chairman of the Management Board and Chief Executive Officer, METRO, Germany; Kris Gopalakrishnan, Chief Executive Officer and Managing Director, Infosys Technologies, India; Jack Ma Yun, Founder and Chief Executive Officer, Alibaba.com, People's Republic of China; James E. Rogers, Chairman, President and Chief Executive Officer, Duke Energy Corporation, USA; John S. Watson, Chairman of the Board and Chief Executive Officer, Chevron Corporation, USA; and Wei Jiafu, Group President and Chief Executive Officer, China Ocean Shipping Group Co., People's Republic of China.

Five of the nine mentors outlined their planned advice to smaller companies in today's briefing.

"We think about the impact that we will have not just for 10 years out or 20 years out, but for a generation," Carroll said, explaining her focus on corporate citizenship and accountability.

Cordes said he would be drawing from his experience running Metro to advise companies on how to become global players, not only offering the must-haves for being global, but the should-haves for companies that want to become global champions.

"Be a local player in all the countries you do business in," he said.

Technology will provide a key avenue for achieving greater sustainability, Gopalakrishnan said.

"Technology is a solution to a lot of the problems facing the world today," he said in explaining his focus as a mentor on coping with the challenges posed to companies by rapid growth. Gopalakrishnan said he would be advising how companies can create the systems and processes they need to manage their supply chains and their talent so that, as they expand, they remain sustainable and keep creating jobs.

Rogers said he would concentrate on how to lead through transformation, whether corporate, technological or personal, drawing from his experience as head of one of the world's leading power providers.

"Within our company, every action, every decision, is made through the lens of sustainability," he said. "It's in the long view that we judge these actions and decisions. Then you get to the heart of what a sustainable business is."

The Annual Meeting of the New Champions, or "Summer Davos," is the foremost global business gathering in Asia. Introduced in 2007, the meeting is hosted in partnership with the Government of the People's Republic of China, represented by the National Development and Reform Commission (NDRC). Over 1,500 participants from 85 countries will participate in Tianjin from Sept.13 to Sept. 15.

This year's Annual Meeting of the New Champions is designed to prepare leaders from government and industry for this new growth context under the theme "Driving Growth through Sustainability".

Sustainability requires committing to a new mindset – one that is determined to challenge long-held economic assumptions, rethink business models and explore scientific and technological solutions to foster innovation and creativity within organizations.

As the global population moves from 6 billion to 9 billion, it is also a mindset that defines sustainability in the broadest terms beyond its ecological impact to develop a more holistic, systemic and integrated approach to leadership.Therefore, driving growth through sustainability is fundamental for global, national and business competitiveness in the 21st century.

By Fon Mathuros, World Economic Forum




Rising labor costs will not affect China's attractiveness for foreign investments

From: People's Daily


The coastal areas in China have suffered from labor shortages since last year, which contributed much to the considerable increase in workers' salaries in 2010. This year, companies in eastern China have raised workers' salaries, and local governments in central and western regions have raised the minimum wage standards as well. Overall, labor costs are going up in China.

The rise in wages has prompted two questions in regard to China: how much longer can the country maintain its competitive advantage based on cheap labor? Will the rising labor costs affect China's attractiveness for foreign investments?

First, we should have a rational understanding that the wave of salary increases this year is a natural result of the changes in the Chinese labor market as well as the rapid economic growth and social progress.

In addition, the increased salaries are also overdue payments for common workers. For example, the Pearl River Delta region has maintained annual GDP growth rates of over 10 percent for a long time, and the profits of companies there have also increased quickly, but the workers' salaries seldom, if ever, rise.

Since the beginning of reform and opening up, Chinese workers have provided goods with low prices and high quality to the entire world, but their own salaries are almost the same as more than 10 years ago. China is also faced with increasingly severe environmental problems. In a word, it is unjust and unsustainable to simply count on cheap labor to promote economic development.

Second, the increase in labor costs is a “double-edged sword,” and will produce a profound impact on the Chinese economy. In the short term, salary increases will exert direct adverse influence on companies' profitability, especially the profitability of certain manufacturers that only rely on cheap labor to gain competitive advantages.

However, in the long term, the rise in labor costs will help adjust China's economic and industrial structure, reduce the economy's over-dependence on low-value-added export products and foreign investments, narrow the wealth gap, stimulate domestic demand and bring great benefits to the Chinese people.

Third, despite the rapidly-rising labor cost, China's labor cost still has a competitive edge around the world.

According to the data from the White Paper on International Trade released by Japan, the share of the average labor cost in total product cost in Asian countries and regions stands at 4 percent compared with 3.5 percent in China. This indicates that although China's labor cost is on the rise, it generally still stands at a relatively low level in Asia. It is far less than that of developed countries, such as Japan, South Korea and Singapore.

Furthermore, there are still about 150 million surplus laborers in China who may enter the labor market at any time. The "Lewis turning point" is unlikely to occur in China over the next 10 years and demographic dividend will take a long time to disappear in China.

Fourth, labor cost is just part of the investment cost in investment environment evaluation. A questionnaire survey on several hundred multinational companies shows that the top three factors determining multinational companies' investments are market opportunities, political risk and legal environment. Wage level ranked fifth, close to employer-employee relationship and tax preference.

Another survey on 1,500 foreign-funded enterprises in China shows that to deal with the rise in labor cost in coastal regions, most foreign-funded enterprises have still chosen to shift their production to China's inland regions.

Obviously, China enjoys an overall competitive advantage in terms of market opportunities, market depth and breadth, regional development room, economic growth, industrial supporting capacities, labor quality, political risk as well as policy and legal environment. Without the erosion in the overall advantage, the moderate wage rise will not result in the remarkable decrease in foreign investments.

According to data from the Ministry of Commerce, the actual foreign investments in China in the first seven months of 2010 rose 21 percent to 58.4 billion U.S. dollars.

Nevertheless, it is clear if China seeks to maintain its comprehensive competitive advantage in introducing foreign investments, it needs to continue to further enhance the guidance and services of the governments for foreign-funded enterprises, further advance the quality of macroeconomic factors, widen market openness, keep raising labor quality in order to create an open and better investment environment.

By Shi Jianxun, professor at School of Economics and Management under Tongji University