The China Management Handbook (review)

Abstract

Reviewed by: The China Management Handbook Alev M. Efendioglu (bio) Christine Boos, Engelbert Boos, and Frank Sieren. The China Management Handbook. Foreword by Chris Patten. New York: Palgrave Macmillan, 2003. 407 pp. Hardcover $65.00, ISBN 1-4039-0024-8. Deng Xiaoping opened China to the forces of market competition after Mao's death, and, in the quarter century since, China has emerged as one of the most powerful—and unpredictable—forces in the global economy. The trigger for rapid catching up in China was Deng's liberalization of the economy beginning in 1978, and China's aggregate GNP has grown by about 10 percent a year since the late 1970s, with a compounded annual growth rate of 7.3 percent real GPD per capita from 1999 to 2004.1 During the early 1980s, Chinese investors from Hong Kong and Taiwan established operations in the Special Economic Zones, taking advantage of the tax concessions and China's low-cost labor. These enterprises produced white goods for export. In 1992 Beijing announced plans for a dozen new special economic zones, and foreign investment flooded in. This prompted multinational companies such as Nokia, Royal Philips Electronics, Samsung, and Sony to make investments and venture beyond the existing zones to manufacture goods for China's domestic market. Since then, China has sucked in hundreds of billions of dollars from multinationals eager to tap its vast pool of cheap labor and secure positions in its burgeoning market. In 2003 it received $53 billion in foreign direct investment or 8.2 percent of the world's total—more than any other country and more than Japan has attracted since the end of the U.S. occupation there.2 China began soliciting foreign investment and trade at an early stage, and foreign capital now permeates vital sectors of China's economy in a way that would be unimaginable in other countries. Even though China originally insisted that foreign investors grant local partners a majority stake when investing in China, the poor performance of early ventures prompted Beijing to loosen restrictions, making wholly owned foreign enterprises a norm in many sectors—from consumer electronics to retailing. As a result, China has become the world's manufacturing hub (50 percent of the world's clothes and 35 percent of mobile phones are made in China), driving down the prices of toys sold at Wal-Mart and laptops shipped by Dell.3 China now has the largest trade surplus with the United States, pushing Japan to number two. GDP growth, driven largely by manufacturing, rose to 9 percent in 2003 after reaching 8 percent in 2002. Furthermore, as the benefits of this GDP growth have trickled down to the general population, China has become a very large consumer market, making it increasingly attractive to foreign and domestic investors. For example, China is now the world's fourth largest market for consumer electronics. A typical large-scale consumer-electronics [End Page 280] multinational corporation in China now sells as many goods locally as it exports. In 2002, over 25 percent of the population had color TVs (up from 11 percent in 1999), over 16 percent were mobile-telephone subscribers (up from 8.5 percent in 1999), and 0.3 percent had automobiles (up from 0.1 percent in 1999).4 And even though these numbers provide evidence of a significant increase in consumerism, the incredibly high savings rate of Chinese (estimated to be around 40 percent) is seen as a great opportunity by domestic and foreign businesses for even greater growth rates and development in the consumer markets. Unfortunately, even though China has most of the characteristics of a centralized economy, it lacks a coherent central plan, and the political system grants vast power to Party bosses at the provincial and municipal levels. Even though China has significant numbers of entrepreneurial talent, home-grown companies (unless they are state owned) are hindered by inefficient capital markets, a banking system notorious for bad loans, and the fact that local officials rather than market forces largely decide who receives funding. (According to Dong Tao, chief regional economist at Credit Suisse First Boston in Hong Kong, private companies pay 20 percent or more...