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Shanghai Slides on Eve of 50th Anniversary
Market Q&A with Andy Xie, Asia economist, Morgan Stanley Dean Witter
September 30, 1999
Web posted at 11:30 p.m. Hong Kong time, 11:30 a.m. EDT
| Index |
Last |
Change |
% |
| Tokyo Nikkei 225 |
17,605 |
+323.2 |
+1.9 |
| Hong Kong Hang Seng |
12,733 |
-101.7 |
-0.8 |
| Sydney All Ord. |
2,881 |
-16.7 |
-0.6 |
| Taipei Weighted Price |
7,599 |
-16.7 |
-0.2 |
| China Shanghai Comp. |
1,570 |
-14.3 |
-0.9 |
| Seoul Composite |
836 |
-32.7 |
-3.8 |
| Singapore ST Indl. |
A: There's no point for people at the administrative level to talk about something that's so purely political. It's up to Jiang and Clinton, period. They've got to make some hard choices. As for the mistakes, that was very ambiguous. But I have a feeling the deal will look very, very similar to the one we saw in April.
Q: You can't read about the Chinese economy these days without hearing about the dismal state of foreign direct investment, which has contracted by 20% this year. But while some say this spells doom, others maintain it's all in line with the general trend in Asia. What do you think?
A: Well, we know that overseas Chinese have been hit hardest by the financial crisis. We also know that foreign investors make up three quarters of FDI. There is nothing we can do about it. Everything else being equal foreign investment is going to be weaker. Then of course there's the process of post-euphoria adjustment. Investors here go through stages--first they're overwhelmed by the limitless potential, then they get a reality check and disillusionment sets in, and then they want to leave. You've got to be realistic. Potential is great, yes. Labor is cheap, yes. But competition is enormous because there are so many people looking for jobs. And domestic demand is low; they're poor.
Q: I've read a lot about foreign companies that have come in only to find that their market is cornered by a slicker, cheaper, savvier local venture. Haier and Kelon in appliances and air conditioners. Eastcom in mobile phones.
A: Well, that's their problem. That's one of the reasons it's so fiercely competitive to sell to China. Your products must be very, very cheap--that means not just a local assembly plant but local parts and components, local everything. It's a price-sensitive place. Even Kelon and Haier--I'm not sure they're making particularly good returns because competition is so tremendous.
Q: Which is why they're selling their appliances to Wal-Mart now?
A: That's the difference in the Chinese market. It's growing up very quickly because it has to be so competitive domestically, which helps it compete against international brands quite well.
But then you look at McDonald's, at Coca Cola, at KFC--they've got an edge, they're selling a little piece of Americana. That's why they're doing so well. Then look at Motorola. Eastcom has given them a run for their money, but they're still so technologically ahead--it takes a much longer time to master the technology, to build the infrastructure, and Motorola is still the leader in wireless technology. Dell also reported a profit after only a year doing business in China--because they've got an advantage when it comes to technology. These are the two typical examples of companies that can succeed in China. But China's catching up. If you look at Haier, they're constantly innovating, upgrading their products all the time.
Q: In the past 10 years we've seen the first real generation of entrepreneurs in China, but it's difficult to say what the business culture will look like down the road. How do you see China's corporate culture evolving?
A: Once the state enterprises are privatized I see it looking much more like Taiwan--relaxed, competitive, profit-conscious and dominated by mid-size companies. But right now privatization is the issue. And then there's the issue of establishing a meritocratic, rules-based stock market instead of selecting companies arbitrarily based on their applications. State enterprises are primarily concerned about sales volume and unemployment. So they waste a lot of money and usually get mediocre returns on their capital just to keep the cash flow going.
Q: Which sectors will succeed most?
A: Home appliances. Obviously China is already extremely globally competitive in that realm. PCs, telecommunications equipment, and also subway and rail equipment--I see all of these industries doing well. Of course, telecom is really only a third of the way there. PCs are maybe 10% of the way there. And rail-subway equipment is still in its infancy.
Q: How do you see exports in the near future?
A: They'll grow in the second half because of the yen's strength. We see a 10% growth rate after they contracted 7% for the first half of the year.
Q: Will China devalue its currency?
A: Not this year; the Premier is adamant against it. But it could help the economy somewhat. They've been using fiscal stimulus to shore up domestic demand, but that's insufficient.
Q: What's the best thing China's got going for it--besides a big population?
A: The fact that it's got its population growth under control. That's the most important thing for a developing country. The growth is coming down and so there's room to develop.
Q: Well, we love Haier, we love Guangdong Kelon, we're fascinated by the portals--China.com, Sohu, Sina, Netease--but what else do we invest in on the mainland, as long as the market's low-key?
A: The one big company institutional investors can buy is China Telecom, which is good. Then there's Legend Computers. Unicom and Sinopac aren't listed at all yet, but it will happen, so watch out for that.
Interviewed by Maureen Tkacik/AsiaNow
Write to us at mail@web.timeasia.com
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