"Learn Chinese, if you do business"
Author: The New Times
Today there is no serious international business outlook without
analysis of the prospects of China's development. In 2011, the Chinese
economy officially became the second in the world after the United
States, leaving Japan behind. But by 2040 it will be the largest in
the world, according to the Nobel laureate in economics Robert Vogel.
- You predict that China's gross domestic product in 2040 will grow
from $ 6.5 trillion to $123 trillion. To do this, the Chinese economy
needs to grow by 10 percent annually. But recently, the Chinese
government said it expects economic growth of 7% in the coming
years. How will these data affect your forecast?
- They won't. My estimates are based on the annual growth rate of
real capital - human and physical, but not at the level of prices. All
the measurements are meant in dollars, so I expect the real growth of
the Chinese economy to be 8-10%.
Prospects for growth
- At what expense?
- The level of return on invested capital per worker, that is, the
efficiency of production in China today, is very low. Through the
introduction of advanced and efficient technologies, the productivity,
capital productivity and profitability of the business can grow more
than tenfold. In addition, there is a process of arrival of cheap
labor from agriculture to industry and services - this provides about a
third of China's GDP growth. If in the basic industries China will be
able to keep a growth rate of 5-6%, then another 2-3% will be
provided at the expense of internal migration on the labor market.
From this will arise 8-9% growth per year, which will allow for an almost
20-fold increase in GDP in 30 years. China is developing along Western
lines, repeating the path taken by all the world's richest countries.
For example, in the early 19th century in the US, 80% of employees
were employed in agriculture, and today - only 2%. Another matter is
that China's economy, unlike the United States', grows at the expense of
the existing borrowing of Western technology and their applications in
local industrial processes. And in the next 30 years, this model will
continue.
- Do you exclude apocalyptic scenarios - the war for resources and
new territories, especially from China, that awaits the world?
- I think that the Chinese government will not go for the military
adventures: they are interested in becoming rich as quickly as
possible. Any dreams of a Chinese leader saying: "It is during my
life that China has evolved from a very poor country to a the very
rich one." This is the goal on which Chinese policy will focus in the
coming decades.
Please note that the percentage of GDP they spend on the military is
2%! In comparison to the US or the EU it is very modest.
Shakespeare vs Confucius
- The Chinese language is the most widespread language in the world: it is
spoken by more than 1.3 billion people. However, English remains the
main language of business. Can it happen that in the next half-century
in business the language of Shakespeare will be replaced by the
language of Confucius?
- I always tell my students: learn Chinese. And if someone is going to
do business and build partnerships with Chinese entrepreneurs, a
knowledge of the language will be a competitive advantage over those
who do not speak it . But do not expect that English will quickly
descend from the international scene: it is widespread in China, and
children in schools learn it for about 6-7 years.
- Chinese students and scholars in universities can be found in
virtually every developed country. After 30 years, the flow goes back,
and already Americans and Europeans will be attracted to Chinese
universities?
- No, 30 years later it will definitely not happen, because the
Chinese are engaged in borrowing technology. However, in the next
decade we will see that in some branches of science Chinese scientists
will take the lead.
In the meantime, Americans constitute the Chinese, but not vice versa.
For example, some professors from China are teaching in the US for six
months teaching and for six months at home. According to my estimates,
about 2 thousand professors and lecturers engaged in economic science
do that. Prominent American economists provide consultations to senior government
officials of China.
You'll be surprised, but to some extent, China is more a capitalist
country than the United States of America. The Chinese discovered the
free market and believed that the market is the best engine of
economic growth. For the past 40 years they have been systematically
reducing the size of the public sector in the economy: in the late
1970s it was about 40%, today – only about 20%.
- What will happen to the yuan? Should we wait for it to devaluate, and if so,
how this may affect the dollar, which now performs the function of the
world's reserve currency?
- This question is purely political. But even if China's leaders
decide to devalue, the effect is not as formidable as experts paint
it: Chinese goods will not become more expensive than American. Do not
forget that only 15% of all goods consumed in the U.S. are imported
from abroad. Therefore, higher prices for Chinese goods will be at the
average price increase in the U.S. - about 1%. I can object: it is
said everywhere that Chinese manufacturers, at the expense of
their undervalued currency, have an advantage over US
producers, and therefore we must erect trade barriers against them,
increasing the taxes on foreign goods. In fact, Chinese manufacturers
do not have this advantage, and American politicians and lawmakers are
engaged in pure populism and misleading the voters. With regard to the
US dollar, for the foreseeable future its status as a world reserve
currency is safe.
