Asia Expats Forum

rainfall · Joined: 30 Apr 2005 Posts: 10 Location:

Interesting read -- several more papers published there. All are provocative and powerful.

THE WORLD LIVES IN THE SAME BOAT:
Great Challenges Ahead
by George Zhibin Gu 顾志斌
May 6, 2005

Throughout history, unequal development has been the norm; there has never been a time when different nations did not have radically different levels of development. But the economic forces causing a convergence of development levels have never been so powerful as they are today. The countries moving ahead most quickly, including India, China, Egypt, Brazil and Russia, might be called "late developing nations". It goes without saying that the late developers face many huge challenges. But they also have advantages. Many have leapfrogged transitional stages of development by adopting more advanced technologies.

For example, China has jumped directly to ATM cards, bypassing the checkbook stage. Since its ineffective legal and banking systems can hardly support the wide use of checkbooks, ATM technology has nicely covered up the holes. Another example is mobile phones being adopted before conventional landlines: China now has more handsets than wired phones, 340 million versus 317 million, a direct result of developing late.

China's rapid development has generated vast interest around the globe. Any developing nation that can consume 100 million hamburgers, sodas, and chocolate bars a day is sure to attract interest from the McDonald's, Coke and Nestle men. As the Chinese saying goes, "it is easier to share good fortune than misery". Today, foreign investors are racing into China and benefiting hugely from the expanding pie. But they are contributing more than capital, products and services: these foreign "wolves" are making the domestic "sheep" run faster. Lenovo, the Chinese PC maker that recently acquired IBM's legendary PC unit, is only one of the new domestic competitors produced by the "wolves".

India provides more examples of this phenomenon. Indian railroads may be third-world quality, but its "IT army" is world-class, and has become a powerful link between India and global economy. And watch out for the Indian biotech industry, which is also on the move.

China and India are not the only late developers. Islamic states, Latin American countries, and the ex-Soviet states are other examples of countries facing a common situation: underdevelopment, but with plentiful natural resources. Rising commodity prices recently have been a boon for these nations; resource revenues, particularly for oil, have boosted their economies more than any conceivable aid program ever could. The resource windfall has opened the door to sustainable development for them - if they are wise enough to enter it.

Today, the late developing states, especially China and India, have become new theaters for globalization. By being open, they can better employ their best resources and energy for development. The vast entrepreneurial armies in the two Asian megastates are the best creations of the new openness, and have helped both nations to participate effectively in global development. These new entrepreneurs are vast in number, limitless in their capacity for hard work, and boundless in their aspirations. Indeed, it is not too strong to say that they represent the best hope for a better society. The recent history of both countries shows convincingly that what most impoverished nations really need is more entrepreneurs and less bureaucratic meddling. If the number of government bureaucrats can be halved and the number of entrepreneurs doubled, the potential gains to humanity are staggering.

Problems of late developers

The flip side of the coin, of course, is a set of common problems faced by the late-developing economies. These formidable obstacles include weak financial markets and regulatory structures; growing income inequality, which threatens social stability; and corruption.

The ups and downs of China's stock market are a good example. The Chinese market has only existed about 13 years, but it has already gained some 71 million investors. Foreign investors are interested, too, although they were only allowed market access in spring, 2003. Numerous overseas financial players - including HSBC, Citibank, UBS and Nomura, are now investing in Chinese stocks. Even Bill Gates's family trust fund has bought into China. Overall, nearly $4 billion of foreign money has been injected into the Chinese equity market, which now has 1,400 listings with a market value of more than $500 billion.

But the market has also shown frightening volatility, caused many naive investors to lose their shirts, and now stands at a six-year low, having deflated even more dramatically than the notoriously over-invested NASDAQ in the US. It is seriously affected by widespread abuses, built-in flaws, and populated by many Chinese Enrons and WorldComs. As a result, investor interest in the Chinese stock markets has cooled so much that reforming the stock market has become a major priority for the government.

Why did China fall into this trap? One would think that, being a late developer, China would have learned the hard lessons from older markets elsewhere. Every nation with financial markets has seen great crashes. But the Chinese, instead of learning from past mistakes, are reliving them. It seems that folly knows no nationality, and "the madness of crowds" is universal.

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http://www.financialsense.com/fsu/editorials/2005/0506.html