OCTOBER 2013

2013

U.S. And ChinaAt New Level

Chicago Council On Global AffairsNames Two To Leadership Positions

Now that China has become the third largest foreign direct investor, following the U.S. and Japan – and predictions are that it will become the world’s largest economy in a decade or so – observers are pondering what this will mean for U.S.-China business.

This issue of China Call Report notes some observations on what new drivers of China’s growth will mean to the West, and what changes in regulations and governance in the U.S., as well, might mean in expanding the market for trade.

As shown by the growth of one Chinese company in Illinois, it also is apparent that cross-cultural business success continues to depend on careful selection of deals and relationships.

Anita Tang, Managing Director

I v o H . D a a l d e r , f o r m e r Ambassador to the North Atlantic Treaty Organization, has assumed the presidency of the Chicago Council on Global Affairs, succeeding Marshall M. Bouton, president emeritus, and Philip L. Levy, a former White House and State Department economist, has joined the Council as a senior fellow on the global economy.

P r i o r t o h i s s e r v i c e a s Ambassador – May 2009 to July 2013 – Daalder was a senior fellow in foreign policy studies at the Brookings Institution, specializing in American foreign policy, European security, transatlantic relations, and national security affairs. He served on President Clinton’s National Security Council from 1995 to 1997 as director for European affairs, and was responsible for coordinating U.S. policy toward Bosnia.

Daalder has written many books, the most recent of which include In the Shadow of the Oval Office: Portraits of the National Security Advisers and the Presidents They Served – from JFK to George W. Bush (with I.M. Destler) and America Unbound: the Bush Revolution in Foreign Policy (with James M. Lindsay) . Other books include Winning Ugly: NATO ’s War to Save Kosovo. Daalder is a frequent contributor to the opinion pages of the world’s leading newspapers and a regular commentator on international affairs on television and radio.

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Ivo H. Daalder Philip L. Levy

China’s economy is to become twice as big as that of the United States and larger than both the U.S. and the EU combined pretty soon, according to Hu Angang, dean of the Institute for Contemporary China Studies, in his new book China 2030.

Hu writes that China will be driven forward by accelerating industrialization, its major role in a new globalized world, its dominance in information technology, the rapid modernization of its infrastructure in areas such as electricity supply and high-speed railways, and the growing internationalization of its economy.

Gary Liu, executive director of CEIBS Lujiazui Inst i tute of International Finance, commented in China Daily: “The problem is not about how big the Chinese economy can become but the quality of that growth,” noting “I believe that quality is bad in China and it has been at the cost of people’s health.”

Duncan Innes-Ker, senior China analyst for London’s Economist Intelligence Unit, said there would have to be significant improvements in China’s business environment before China could make such a rapid advance.

“There needs to be major reform

of the legal system and regulatory environment to put China on a level with developed countries.”

None the less , Hu says tha t China’s state-owned enterprises which dominate crucial economic sectors are a source of strength, while Xu Bin, professor of economics and finance at CEIBS in Shanghai, finds them a barrier to growth. “There is little doubt that the success of the Chinese economy will be closely associated with the reform of the state-owned sector. Without a vigorous private sector, there is no future for the Chinese economy. It needs to be driven by innovation and there is no way that this can be accomplished by state-owned enterprises.”

Wang Qinwei, China economist at Capital Economics in London, said that China overtaking the U.S. should not be seen as an economic superpower battle, because the U.S. would benefit by China’s advance. “The next phase of China’s economic growth will see the Chinese buy more high-end consumer goods,” he says.

“This is in contrast to the first stage of China’s growth, which was all about buying commodities such as iron ore and copper from Africa, Latin America and Australia.”

Chicago Council New Leadership(Continued from Page 1)

He was awarded the Secretary of Defense Medal for Outstanding Public Service by Secretary Chuck Hagel in June 2013. Daalder was educated at the University of Oxford and Georgetown University, and received a Ph.D. from the Massachusetts Institute of Technology.

L e v y s e r v e d a s a s e n i o r economist for trade for President G e o rg e W. B us h ’ s c o u n c i l o f economic advisers and handled international economic issues as a member of the secretary of state’s policy planning staff from 2003 to 2006. He also has taught at Yale, Columbia University, the University of Virginia and Georgetown.

Most recently, Levy was an adjunct senior fellow for The Chicago Council and an associate professor of business administration at the University of Virginia’s Darden School of Business. He also was a resident scholar at the American Enterprise Institute. His academic writings have appeared in such venues as The American Economic Review, Economic Journal and The Journal of International Economics. Levy will continue writing and speaking on international trade policy and will teach two courses at the Kellogg School of Management.

Photos by Chicago Council on Global

Affairs.

What Will Fuel GrowthOf China's Economy?

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Good Governance: Lighten Up Or Tighten Up?

The Chicago Council on Global Affairs on September 10, 2013, presented at the Chicago Club a discussion on governance by Nicolas Berggruen as interviewed by Anne Dias Griffin.

Mr. Berggruen, an international investor, also leads a namesake institute, a nonpartisan think tank for the study and design of systems of good government. With co-author Nathan Gardels, he has gathered speculation and concrete examples of what can work in a new book, Intelligent Governance For The 21st Century: A Middle Way Between West And East.

Ms. Griffin is the founder and managing partner of Aragon Global Management, an investment fund focusing on U.S. and international stocks, and is co-president of the Kenneth and Anne Griffin Foundation.

The discussion of governance led from how leadership is achieved in societies, with the U.S. putting that in place through popular elections and, for example, China has leaders “promoted to power,” in a way similar to the way leaders rise in a corporation with an HR department. Governance, it was noted, is about how the cultural habits, political institutions, and economic systems

of a society can be aligned to deliver the desired good life for its people. Governance in the West is being frayed by debt, political gridlock, indecisiveness, Mr. Berggruen has written, while in China there are signs of decay and dysfunction that are appearing from corruption of China’s “remarkable success.”

Mr. Berggruen held out the possibility that both West and East could learn to better govern from the example of each. “Intelligent governance” devolves power and meaningfully involves citizens in matters of their competence while fostering legitimacy and consent for delegated authority at higher levels of complexity.

“While China,” he wrote, “as the conventional wisdom suggests, would need more participatory involvement and a more accountable meritocratic mandarinate to achieve balance, the United States would need a more depoliticized democracy in which governance for the long term and common good is insulated from the populist short-term, special interest political culture of one-person-one-vote elections.

“In short, China would need to lighten up while the U.S. would need to tighten up.”

U.S. BusinessesRate China's Value

Tempered optimism sums up corporate America’s view of the China business environment for the second year in a row, according to the US-China Business Council’s survey of 220 member companies. Most companies, but fewer than last year, said China remains among their top five priorities.

Ris ing cos ts for labor, lax i n t e l l e c t u a l p r o p e r t y r i g h t s enforcement , competi t ion with Chinese companies, and challenges with the licensing and business approval process continue to rank as top issues of concern to foreign companies doing business in China.

The Council members continue to see a significant difference in how foreign companies are treated, both formally and informally, versus their domestic Chinese counterparts. USCBC believes the solution to these problems should include a change of approach by China’s government to foreign investment in its country. Companies incorporated in China should be treated equally regardless of ownership, as are those companies incorporated in the United States.

The survey revealed that U.S. companies continue to see growth and profitability in China, with more than 90 percent of survey respondents saying their China operations are profitable. USCBC estimates that China is roughly a $300 billion market for American companies and would be much larger without the market access barriers.

T h e t o p t h r e e c h a l l e n g e s c o m p a n i e s c i t e d a r e : 1 . C o s t increases, 2. Competi t ion with Chinese enterprises, and 3. tied between Administrative licensing, and Human resources.

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Wanxiang AmericaGrows From Elgin

When Wanxiang America opened in Elgin, Illinois, in 1995, it had three employees to begin its auto parts business. Today the company has a workforce of about 6,000 in 14 states, and this year its parent company in China, the Wanxiang Group, made a $250 million acquisition of U.S. battery maker A123 Systems Inc., making the company’s presence even higher in its industry.

Ni Pin, president of the Elgin company, expla ins tha t h i r ing practices have a great deal to do with Wanxiang’s growth. When they acquire a company, they consider if the company has a functioning management team. “We give the team the power to execute their decisions and that helps the company to grow. We don’t send anyone from China or Chicago – they all manage

by themselves. You’ve got to give them room and freedom to grow and they can be the hero in their own development.”

In hiring, Wanxiang chooses people who “really can deliver”. “It doesn’t matter what your title is on your current job, where you graduated, etc.,” said Ni. He says recruitment is like “winning a lottery” because even with everything right on the person’s resume it doesn’t guarantee that they can handle the job.

The company has expanded

beyond auto parts into clean energy and real estate, and in the last three years has invested billions of dollars in real-estate projects in the U.S. Hiring is still carried out carefully but today, in the real-estate unit, there is no shortage of candidates who are lined up through connections and recruitment firms.

A f t e r m e e t i n g s o m e 5 0 candidates for one position, Ni said, “Our mindset is we’d rather wait until the right person comes along. We need the right person to provide efficiency and deliver.”