Ronnie Chan is an outspoken, friendly Chinese-American
tycoon and philanthropist. When you go to Hong Kong, he is a man
you are told to try to meet. Although a U.S. citizen, he has high
contacts in Beijing, and it usually turns out that he has just had
lunch with Henry Kissinger.
I had the good luck of spending a fortnight with him
recently on a trip in China, and was able to collect his views on
conditions in that country.
JT: First, what is the good and the bad about investing in
China?
RC: Foreigners make two big mistakes when they think about
China. They can’t believe its tremendous growth, and they don’t
realize how lousy its economic and social system is. As to growth,
by early this century China will consume half the world’s raw
materials and produce half the world’s goods. Already China has
become much more hi-tech than most people abroad realize. The cell
phone is at least as ubiquitous, even in the most remote areas, as
in any Western country. There are about 160,000 Chinese students
studying abroad, 80,000 of them in America, and domestically,
English is gradually becoming a second language. It is often taught
in schools, and is appearing in commercial establishments.
In past years foreigners were an object of curiosity in the
street, but today, thanks to a flood of tourists, that’s no longer
true. Even ten years ago, when there was a zone of prosperity along
the coasts, much of the interior was impoverished. China’s
tremendous growth rate means that the really poor area is
constantly shrinking, and today comprises probably no more than ten
percent of the population. Remember, 250 years ago China was the
richest and most advanced country in the world. It may well join
that club again.
JT: And what has brought about this turnaround?
RC: I give tremendous credit to Deng Xaoping. Thanks to the
vertical — Confucian — structure of Chinese authority, when he
decided that Maoism was ruining the country he could change course
very fast. Of course, the country was ready for the decision. Mao’s
crazy and disastrous experiments, notably the so-called Great Leap
Forward — which was actually a leap into an abyss — and the
Cultural Revolution — which was a war against culture and, indeed,
civilization — not only cost us ten or fifteen million lives but
set back our development by decades. As it was, though, when Deng
said, “Enough,” and turned the country toward free enterprise, he
improved the livelihood of more people in a shorter time than
anybody in history.
JT: How well can China maintain this course? There are
constant demonstrations of one sort or another around the country,
I understand.
RC: There are bound to be setbacks and reversals, but the
long-term momentum of growth seems unstoppable. The energy and the
savings — and investment — rate is almost unbelievably high.
JT: You mentioned as the second thing foreigners didn’t
understand, how “lousy” — your word — the economic and social
structure was. I gather one should write into any contract an
arbitration clause providing that disputes should be settled in
Singapore, for instance. On the other hand, there is a problem of
getting this clause enforced! So, the choice of any Chinese
partner, if that is contemplated, must be extremely
careful.
RC: Yes. The courts don’t deliver justice.
Also, the enormous oversupply of bureaucrats is essentially
parasitic. Only the strong and extremely skillful can flourish
here. But given these qualities one can indeed succeed.
JT: Like you? [He smiles.] How much of a problem is it that
the banks are bust?
RC: Their bad debts are tremendous, perhaps $800 billion, but
private and corporate savings are much more — perhaps $2.5
trillion. And the Chinese banking system isn’t like the U.S.
banking system. Think of the Chinese banking system as the
“cashier” of the Chinese government, the way the U.S. Post Office
is the government’s courier.
JT: People like to compare China’s prospects with those of
India, often to India’s advantage, on the grounds of India’s
democracy, its use of the English language, and of the Anglo-Saxon
legal system.
RC: I don’t buy that. Unlike China, India has not got its
population under control. By 2050 they’ll have more people than we
will. Illiteracy stands at 42%, compared to our 21%. Women are kept
down by inadequate education and poor job opportunities. And as to
the legal system, it’s Dickensian. An Indian court case can drag on
for decades.
JT: Napoleon said that each of his soldiers carried in his
knapsack the baton of a field marshal, and it seems to me that in
the pocket of most Chinese is the handheld computer of an
entrepreneur. But I’ve noticed that to many Indians there’s still
something unsavory about getting rich.
RC: Yes. Their general point of view is still quite antipathetic
to private enterprise. India’s progress is based largely on its
thriving software and call center outsourcing, but to prosper,
India needs a lot of heavy and light manufacturing, which I don’t
see happening. And India’s infrastructure is terribly
antiquated.
Here’s a paradox: India is a democracy, which helps hold it
together. However, the great Asian success stories — South Korea,
Taiwan, Hong Kong and Singapore — achieved their astonishing
takeoffs under autocratic government, while India and the
Philippines, the most democratic countries in the region, have made
unsatisfactory progress. Maybe a country, like a company, needs a
lot of control at a certain point to get going even though that
opens the door to bad mistakes, the way Mao plunged us into
disastrous troubles. The Chinese Communist Party, five or six
percent of the country, may no longer be Marxist, but it still
controls all the key elements of the government, so when Deng
turned the party toward economic freedom he had in effect turned
the whole country around. You can’t do that in India.
JT: And how about Tibet?
RC: The incorporation of Tibet is probably irreversible. China
sees its presence as a liberation from theocratic servitude, rather
than an occupation. A tiny part of the whole population — nobles
and lamas — gave orders to huge population of illiterate serfs and
indeed slaves. That couldn’t last. The Dalai Lama accepts that
Tibet is part of China, and its independence was never recognized
by the U.S. or Britain, for example. Over time an appropriate
degree of a cultural and religious accommodation will have to be
worked out, not only in Tibet but for the more numerous Tibetans in
the neighboring provinces. In the meanwhile, China is pouring
development money into the region and developing a modern
infrastructure.
JT: And Taiwan?
RC: Nobody wants dramatic change.
JT: How, then, should an investor hope to make money in
China? I gather that below about a hundred million dollars, a
project cannot assemble the influence, resources, skills and
staying power required for success.
RC: Yes. The first thing is, as always, not to lose
money. And the way to lose money is to believe what you read in the
Western papers — the New York Times, or whatever. The
current news cannot give you a real insight into the big picture.
It has been rightly said that China is a civilization masquerading
as a country. There is so much to get your arms around! To grasp
the underlying reality you need to understand Chinese history,
Chinese culture, and the background and organization of Chinese
communism. That’s the totality the investor is working in, and he
won’t get it from news stories.
Incidentally, one thing you must understand about Chinese
communism is that the leaders never respond to foreign pressure.
They simply stonewall. Then, when the issue has dropped off the
front page, they may give a little, and then a little more. But not
under immediate pressure.
JT: Thanks Ronnie. A useful reminder!
