Innovation Blog
From “Made in China” to “Owned by China”: Or What Can You Buy with Two Trillion Dollars?
By Shlomo Maital
$1 b. in cash: now picture 2,000 piles
You have to hand it to the Chinese. They have a multi-stage long-run business strategy for China Inc. that is working to perfection. It is amazing that a group of former Communists have applied ‘modified free market’ strategy far better than the American blueblood capitalists, and have created an economy whose size will overtake America’s far sooner than we believed or expected.
Here is the simple version of the two-stage strategy ‘rocket’ China created.
Stage One. Attract huge resources from abroad, to create enormous state-of-the-art manufacturing capability, to generate a huge export surplus. Use the export surplus to accumulate enormous financial assets (mainly US Treasuries).
Stage Two. Use the pile of American dollars (growing daily, now equal to $2.5 trillion) to buy equity interests in companies and real productive assets around the world, to acquire control of resources, brands, and competitive advantage. Note: For only $1.5 b., Lenovo bought IBM’s Think Pad and leveraged it into near-market leadership in laptops. The transition from Think Pad to Lenovo branding was flawless and powerful.
Writing in the Global NYT, David Barboza says “flush with capital from its trade surpluses, China is spreading its newfound riches to every corner of the world..over the next decade, China could invest as much as $2 trillion to acquire overseas companies, plants or property”. The shift is amazing, Barboza says; a decade ago, China’s yearly equity investments abroad averaged only $2 b. a year, an inconsequential sum.
Just as we saw an almost panicky rush by global companies to shift production to China, we will now see a similar stampede by nations to vie for China’s money, by selling off national assets.
How much of that equity investment abroad will go to America? Very little, Barboza thinks. The study he cites suggests that because of political rivalry, America will benefit little from the Chinese direct investment. I hear a note of regret – alas, America will not ‘benefit’ from selling off its assets to China. For a nation that chants “USA USA, We’re Number One”, President Obama’s declared passion for welcoming Chinese equity investment, implicitly accepting “We’re #2—and we don’t even try harder” is impossible to understand.
As a business, China is exceptionally well run. Can’t say the same for America.
* David Barboza, “China’s cash goes global, but maybe not to US”, Global NYT May 4/011, p. 14.
TIMnovate 
1 comment
Comments feed for this article
May 20, 2011 at 4:56 pm
Dr David Hill
In reply…
Back to the Future by Copying China’s Economic ‘Blueprint’- The only Solution for the West’s Future Socio-economic Existence of any real merit
When China set out in earnest to dominate world trade some 30 years ago, it did not ask its politicians to determine the nation’s economic ‘blueprint’, but its engineers and specifically His Excellency Jian Song, former vice-premier of China for 13-years and an Honorary Member of our Foundation.
This is a little known fact in the West as Song is the true ‘master’ of the basis of China’s economic dynamism today. There were five broad-brush critical phases within this world-leading strategy thought out by Song and his eminent colleagues under his control.
1. Human Capacity Building and Technical Educational Development – low cost/high human value Strategy
2. National Economic Stimulation and Internal Market Development – Mass Internal trade growth and National Savings Strategy
3. Strategy for Global Manufacturing Dominance, Global Minerals Supply and National Innovation Strategy
4. Strategy for the Acquisition of Global Assets
5. Enabling Strategy to Control World Markets
Under Song’s guidance China started the long applied process to dominate world economics over his 13-year tenure as vice-premier.
Considering these facts, the West if it is to recapture the high ground in the economic stakes has to supplant its political thinking with innovative thinking likewise from its engineers, scientists and overridingly its independent innovators (the capture of the people’s creative ideas). There is no doubt that China’s economic emergence over the last quarter of a century has been unparalleled and has proved to be a truly enviable success by any standards. It will be even more phenomenal in the future as its global dominance will eventually encompass at least half the world’s economic turnover, equivalent to more than what the USA ever attained by a factor nearly greater than 3.
Therefore the West on its present path is in for a life-changing experience over the next three decades that will despatch the majority of our future generations to a life of relative poverty with the East. This is not pie in the sky but thinking based upon reality and fact.
Consequently our politicians in the West have to start anew with their economic thinking and do what China decided to do around four decades ago, create their economic dynamism, not based upon political ideology, but based upon re-engineered creative thinking of their innovative inventors and engineers. That is the only way that the West can ever have a hope of re-engaging substantially in the future of world of economics on a supportable and totally sustainable basis. For all other thinking will fail us to our great regret and with colossal human misery for many centuries to come it has to be said. Yes, we are certainly dealing with centuries here, for once the high ground has predominantly been taken up by SE Asia and China’s unassailable economic lead, the West will find it near impossible to retake any of the world markets back. That is how bad it will get and we have better get used to it due to our western political thinking on the economic front.
Dr David Hill
Executive Director
World Innovation Foundation