Class is in session!

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Today was our first day of class at Cheung Kong Graduate School of Business (CKGSB). The school is housed in skyscraper not far from our hotel and we were in the classroom section of the building by 8:15 am. Our morning lecture was given by Professor Leslie Young. He’s currently a visiting professor at the school and teaches finance at The Chinese University of Hong Kong. His lecture focused on the Chinese economy from both a domestic and an international perspective. His lecture was fascinating as it not only focused on China, but also discussed some of the potential long term effects and the impacts that China and India together will have on the world. Some of the interesting factoids from his lecture are:

• China is currently sending thousands of workers to Africa for agribusiness and farming to fill a gap for farming technology and $
• China consumes 26% of the world’s crude steel, 32% of rice, 37% of cotton and 47% of cement in the world!
• China has 75% of the total world capacity for solar heating for residences
• Of the world’s 20 most polluted cities, 16 are in China.
• Water distribution in China is extremely poor. The northern areas of China have 45% of the country’s population, 60% of its
cropland but only 15% of the water in China.

In fact, water is one of the key concerns in China at the moment. It’s not just about access to potable water, but water in general. Professor Young argued that water is the government’s main interest in Tibet. The snowmelt that comes from the Himalayas feeds all the major rivers in China. Snowmelt has been a predictable and stable source of water vs. rain. However, the current impact of global warning (of which China plays a big role) is that the annual snowmelt in the Tibetan areas is decreasing. At some point this will disrupt the flow of water to China and India.

What was also very interesting from the lecture is the thought that China does not have the capacity or the will to engage in military conflicts in Southeast Asia. The government is so focused internally on its economy and promoting social stability (given the huge risks of social instability across a population of 1.4 billion people) that it doesn’t have the resources to engage in warfare.

Also of note: the Chinese economy is not slowing down any time soon. Given the amount of state owned enterprises (SOEs) the government is in effect the only “shareholder” of these businesses. It doesn’t have to pay dividends to anyone so in effect all profits can be viewed as retained earnings that it uses to fund additional projects and growth. Given that close to 1 billion Chinese live in poverty and the country’s infrastructure is non-existent to weak at best in many areas of the country, China will continue to be a huge consumer of natural resources as it continues to modernize and grow. The impact on its economy is that is getting “deeper” as more domestic industries develop and interact with each other. As an example, China now relies less on foreign companies as a source of heavy industrial equipment. Rather than having to import these types of goods, the Chinese economy produces them and is moving to be an exporter of them to the rest of the world. We will start to see this with more and more industries in the coming years and it will have a profound impact on the world economy. China is fueling much of this growth through alliances and joint ventures with western companies to gain access to new technology and design processes.

In the afternoon we had the opportunity to visit a business operation. There were three to choose from: Nokia’s headquarters in China, an internet content provider (Tom Online) and Huiyuan Juice, a juice manufacturing company. I went to Huiyuan which will be the subject of another post.

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