Share

BOOK REVIEW: Bone up on China's business trends in one hour

The One Hour China Book (2017 Edition): Two Peking University Professors Explain All of China Business in Six Short Stories, by Jeffrey Towson and Jonathan Woetzel 

“WE WROTE the One Hour China book for smart but busy people,” authors Jeffrey Towson and Jonathan Woetzel explain. I am glad they did, because China has become a very important topic almost everywhere. The challenge is not to trivialise a very complex topic.

Towson is also a US-China private equity adviser, and Woetzel is also a McKinsey partner in Shanghai.

In this book they have identified a set of six powerful economic and demographic mega-trends shaping the People’s Republic of China.

“Our trends are phenomena that are generating revenue, creating big companies and minting Chinese millionaires (and billionaires),” they explain. Their view is on based on studying and working with thousands of individual companies.

They have added a single story that illustrates each trend so that it sticks in the mind.

This is about business and they do not delve into Chinese politics or state capitalism. They believe firmly that the business of China is mostly - business.

The first “mega-trend” needed to understand China is urbanisation and the largest migration into urban areas in human history. In the 1980s, 80% of Chinese were living agrarian lives; soon there will be 1 billion Chinese city dwellers.

Consider the impact of this migration. It requires the building of cities: housing, buses, subways, police services, parks, roads, sewage treatment, water and electricity infrastructure, an economy to support them, and all with huge environmental impact.

Today there are 160 Chinese cities with over 1 million people – and to put this in perspective, Europe has 35.

This mega-trend is fundamentally changing the Chinese people, whose disposable income per capita has shot up over 300%. In most countries urbanisation does not directly lead to wealth, but urbanisation is necessary for wealth.

Real estate accounts for about 20% to 22% of investment in fixed assets, and employs over 100 million people directly or indirectly. And construction has produced great wealth.

Urbanisation has also altered the social fabric, moving it from the slow-moving, family-centric village lifestyle common in China for centuries.

The second mega-trend is China’s huge manufacturing scale. This has all sorts of implications. If you are much larger than your competitors, you can outspend them on research, factories, fixed assets, marketing and other fixed costs.

The Chinese manufacturing base has increased by over 20 times in the last 30 years!

To get a sense of this size, China produces 80% of the world’s air-conditioners, 90% of personal computers, 75% of solar panels, 70% of cellphones, and 63% of the world’s shoes.

China has several big advantages – a primary one is the rapidly growing domestic market to which 20 million cars are sold, versus the US’s 16 million.

To service this market, Chinese manufacturing wins against foreign competition through producing good quality, low-cost, simple as well as high-tech goods, through efficiency and scale.  

The third mega-trend is China’s rising number of consumers. In 2009, 18% of the world’s middle class was Chinese and by 2030, that will rise to 66%.

North America and Europe combined hold 51% currently and are forecast to drop to 21% by 2030, not because they are getting poorer, but because the Asian middle class is rising.

Warren Buffett explained that he invested in the razor-maker, Gillette, because every night while he slept “beards are growing all over the world.”

The huge Chinese market is getting hungrier every night. They have moved from “subsistence living” to being able to purchase more aspirational goods. Their per capita GDP has risen from $200 in 1982 to $5 500 in 2015.

With prosperity comes the rise in meat-eating, which is why China now has 450 million pigs, about half of the global pig population, and consumes 28% of the world’s meat.

KFC hits the fast food spot

Little wonder that KFC is the number one fast food chain in China with 4 000 restaurants.

And like consumers everywhere, the Chinese are perpetually demanding, on price, quality, service, convenience and every other dimension.

This has a direct impact on the growth of farming, infrastructure, supermarkets, refrigerated trucks, logistics, home electricity and refrigerators, and more, to meet the growing demand for meat.

The fourth mega-trend is money, and lots of it. Capitalism requires capital and China’s financial system today “will impress any capitalist anywhere,” the authors point out.

Their bank deposits are over $19trn today and growing by over $2trn every year. In 2016 their foreign exchange reserves were $3.2trn, and they are the single largest foreign purchaser of US government debt.

All this said, it is not only the volume but the efficiency, sophistication and architecture of China’s financial system that comes with this mega-trend.

The area along the Huangpu River was developed to focus on finance, commerce, exhibition and services, to become China’s Wall Street. With financial development comes the nationwide training of hundreds of thousands of retail bankers, investment bankers, underwriters, loan officers, accountants, lawyers, traders, analysts and other professionals of modern finance.

Ping An is a massive Chinese insurance and financial services company with 275 000 staff, 870 000 sales agents, over $100bn in revenue and 110 million customers. In 2015, it was worth more than Prudential, AIG and MetLife!

China’s big four state-owned banks do dominate the banking sector, but they have evolved from mostly government organisations into quasi-corporate, state-owned entities.

They operate with a mix of commercial and government objectives, which raises concern particularly regarding their non-performing loan-book. There is a lot of cash in China, but even with the financial architecture in place, there is a serious question about financial stability.

China is a 'brainpower behemoth'

The fifth mega-trend flows from the previous ones - China is a “brainpower behemoth.” The stereotype of China as a limitless pool of factory workers, who will work long hours for low wages, is rapidly changing.

So is the reality that Chinese are “rote learners” but Westerners are creative. In 1993, China accounted for only 2.2% of the world’s research and development investment. Today it has overtaken France, England and most European countries, surpassed Japan, and is only second to the USA.

The sixth mega-trend is the Chinese internet, which has grown so fast that Chinese has already replaced English as the primary language. China didn’t move slowly into acceptance of the internet as the West did; for them it happened all at once with videos, music, chat, games, news, dating, shopping, etc.

It’s not a coincidence that China was the first country to designate internet addiction as a disease.

This book is remarkable both in the brilliance, breadth and depth of the content, but also in how succinctly and accessibly it has been packaged. 

Readability:      Light +---- Serious

Insights:           High +---- Low

Practical            High --+-- Low

  • Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Executive Update. Views expressed are his own.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.96
-0.3%
Rand - Pound
23.95
-0.2%
Rand - Euro
20.47
-0.0%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.3%
Platinum
911.00
+1.6%
Palladium
1,012.02
+1.0%
Gold
2,213.44
+0.9%
Silver
24.79
+0.6%
Brent-ruolie
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.9%
Resource 10
57,251
+2.9%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders