David Scott Lewis’ AlwaysOn AO2005 Innovation Summit panel discussion, “Are You Ready for the Chinese Revolt?” examined what’s driving China and what its current and coming challenges will be.
The Director of Asia Studies for the Council on Foreign Relations, Elizabeth Economy, painted a grim portrait: environmental degradation and pollution, the widening gap between the haves and the have-nots, and the inability or failure of the Chinese government to provide a social net for those who aren’t making it in the new economy.
Ex-White House National Security Advisor and current Stonebridge International Chairman Sandy Berger compared the country to a giant snowball that’s rolling down the hill, gathering momentum and growing. Along the way, he said, “there are some very big stones that could split it apart” — among them, the ability to keep such a vast population and such a vast country together and stable.
What can’t be denied is the mandate set and executed on by the Chinese government — that over the next 20 years, China’s economy will grow by 7% annually. It’s actually exceeding that — and has for several years. Their GDP is about a trillion dollars. That involves creating 20 million new jobs a year and accommodating one of the great human migrations of recent history — 140 million people have migrated from rural areas to urban areas. Another 200 million will join them between now and 2020.
Does this economic momentum herald a fledgling democracy? Is it inevitable that China will be more like us in another decade? Will market forces rule? Don’t bet on it. Predicted Millennium Technology Ventures Managing Partner Dan Burstein, “I do not believe that China in my lifetime or in my children’s lifetime will ever come to resemble a liberal, democratic society.” He believes a new form of political theory could emerge to encompass the forces swirling through the political, social and economic environment of the new China.
I.T. United CEO Cyrill Eltschinger said to watch for more Lenovo-type deals as well as the emergence of new companies.
Accel Partners Partner Joe Schoendorf seconded that. He referenced a partnership his company has with IDG, which has a local investment group on the ground there, and which has done about a hundred deals. The group has made money, and those companies are growing. He suggested that in 10 to 15 years, we could expect to see about 10% of Fortune 500 companies being headquartered in China.
Yet the Chinese don’t simply wish to dominate in their own markets. That represents only about 10-15% of the world. Since the Chinese seek world domination, they’re working hard to become global players. That means establishing a rule of law with teeth — a long-term proposition.
Mr. Eltschinger pointed out that while China has dominated for low skill sets and cheap factory labor in the international market, over the last 12 to 15 months, there’s been a major shift. And now global companies are beginning to consider China for its high-end engineering skills. (I’ll be running a future article in which Mr. Eltschinger provides practical advice for companies that want to set up operations there.) Markets for those skills include aviation, automotive and pharma work.
Another intriguing area of innovation, according to Mr. Burstein: stem cell research. The Chinese government doesn’t have nearly the moral, ethical or religious reservations holding it back that the US does (California notwithstanding).
A final note from Mr. Schoendorf: The people he’s met in China-based companies are as “smart as anybody I’ve met in the Valley. They’re beginning to be more innovative. There’s one difference: They get paid 80% less.”
And, he said, the emphasis in the Chinese family is on education. That will only make this growing revolt bigger — and better.
Shortly, you should be able to go here and watch a video archive of the panel. I encourage you to tune in.
