TAIWAN
(Republic of China)
BBC Taiwan profile
AN ISLAND STATE
TAIWAN: YANGTZE RIVER VALLEY HUB
ANOTHER “MIRACLE”
ANOTHER PROBLEM LEFT OVER BY HISTORY
WORLD FACT BOOK TAIWAN
https://www.cia.gov/library/publications/the-world-factbook/geos/tw.html
ADB DATA
http://www.adb.org/publications/key-indicators-asia-and-pacific-2013?ref=data/publications
http://www.adb.org/ki2013/StatTrends.html
TAIWAN ASIAN TRADE 1989 $46.6 BILLION
TAIWAN ASIAN TRADE 2010
$328.5 BILLION
TAIWAN BUREAU OF TRADE STATS
Taiwan-Mainland trade
Sheet1"BUSINESS SYSTEMS" BUSINESS SYSTEMS TAIWANSINGAPOREHONG KONGTHE STATEDEVELOPMENTALTOP DOWNTHE STATETOP DOWN1C2SDEVELOPMENTALREGULATORYDIRECTIVEDIRECTIVEINTERVENTIONISTNON-INTERVENTIONISTEDUCATIONHIGHEDUCATIONHIGHHIGHINVESTMENTBANKSLONG TERMINVESTMENTBANKSBANKSGOVTFAMILYOWNERSHIPFAMILYFIRM RELATIONSNETWORKSOWNERSHIPFAMILYFAMILYFIRM RELATIONSSTATEHONGSCORP GOVFAMILYNETWORKSCORP GOVERNANCEFAMILYFAMILYSOCIAL CAPITALHIGHSTATESOCIAL CAPITALHIGHHIGHPAROCHIALINTERNATIONALBUSINESS SYSTEMS TAIWANTHE STATEDEVELOPMENTALTOP DOWNEDUCATIONHIGHINVESTMENTBANKSLONG TERMOWNERSHIPFAMILYFIRM RELATIONSNETWORKSCORP GOVFAMILYSOCIAL CAPITALHIGH
BEST US OPPORTUNITIES
A sophisticated, price-sensitive market
IPR, bureaucracy the main US business issues
Electronics Industry Production/Test Equipment (EIP)
Computer Services & Software (CSV/CSF) •
Overseas Travel and Tourism (TRA) •
Industrial Chemicals (ICH)
•Education (EDU)
•Medical Devices & Supplies (MED) •
Electrical Power Equipment (ELP)
•Pet Products (PET) •
Telecommunications Equipment (TEL) •
Information Security Services (SEC) •
Sporting Goods (SPT)
•Pollution Control Equipment (POL)
•Pleasure Boats/Accessories (PLB) •Books (BOK) •Apparel (APP)
TAIWAN AS A CASE STUDY IN STRATEGIC AMBIGUITY
DOES US “RECOGNIZE” OR “ACKNOWLEDGE”
“ONE CHINA?”
JIANG ZEMIN’S 8 POINTS and HU JINTAO’S 4 POINTS
“ONE COUNTRY, (1, 2, OR 3) SYSTEMS”?
3 NO’S AND THE TRA?
“ANTI-SUCCESSION LAW” - TO BLOCK INDEPENDENCE,
NOT COERCE UNIFICATION
BUT ON TAIWAN….
ECONOMIC MIRACLE: up from poverty
POLITICAL MIRACLE:
From martial law to democracy
The DPP
The “new” KMT
IDENTITY: CHINESE OR TAIWANESE?
US ROLE: TAIWAN RELATIONS ACT
IS TAIWAN THE 21ST CENTURY’S
“CZECHOSLOVAKIA”?
THE TAIWAN DILEMMA
分久必合，合久必分
Anything long divided will surely unite,
and anything long united will surely divide
US-PRC-TAIWAN: A DEADLY EMBRACE
PROBLEMS OF DEFINITION: WHAT IS “THE STATUS QUO”?
PROBLEMS OF NATIONALISM: CHINA, TAIWAN
PROBLEMS OF IDENTITY: WHAT IS “CHINESE”
PROBLEMS OF IDEOLOGY: “UNIFICATION”
PROBLEMS OF “STRATEGIC AMBIGUITY”
PROBLEMS OF THE ECONOMY
-See “Globalization & The Future of the Taiwan Miracle” by Berger & Lester, in “Precis” Spring 2005, pp 11-13 http://web.mit.edu/cis/Publications/MIT_Precis_spring_2005.pdf
TAIWAN AS A CASE STUDY OF “THE 4 BASIC QUESTIONS”
RULE: ...
Andreas Schleicher presents at the launch of What does child empowerment mean...
TAIWAN(Republic of China)BBC Taiwan profileAN .docx
1. TAIWAN
(Republic of China)
BBC Taiwan profile
AN ISLAND STATE
TAIWAN: YANGTZE RIVER VALLEY HUB
ANOTHER “MIRACLE”
ANOTHER PROBLEM LEFT OVER BY HISTORY
WORLD FACT BOOK TAIWAN
https://www.cia.gov/library/publications/the-world-
factbook/geos/tw.html
ADB DATA
http://www.adb.org/publications/key-indicators-asia-and-
pacific-2013?ref=data/publications
http://www.adb.org/ki2013/StatTrends.html
2. TAIWAN ASIAN TRADE 1989 $46.6 BILLION
TAIWAN ASIAN TRADE 2010
$328.5 BILLION
TAIWAN BUREAU OF TRADE STATS
Taiwan-Mainland trade
Sheet1"BUSINESS SYSTEMS" BUSINESS SYSTEMS
TAIWANSINGAPOREHONG KONGTHE
STATEDEVELOPMENTALTOP DOWNTHE STATETOP
DOWN1C2SDEVELOPMENTALREGULATORYDIRECTIVEDI
RECTIVEINTERVENTIONISTNON-
INTERVENTIONISTEDUCATIONHIGHEDUCATIONHIGHHI
GHINVESTMENTBANKSLONG
TERMINVESTMENTBANKSBANKSGOVTFAMILYOWNERS
HIPFAMILYFIRM
RELATIONSNETWORKSOWNERSHIPFAMILYFAMILYFIRM
RELATIONSSTATEHONGSCORP
GOVFAMILYNETWORKSCORP
GOVERNANCEFAMILYFAMILYSOCIAL
CAPITALHIGHSTATESOCIAL
CAPITALHIGHHIGHPAROCHIALINTERNATIONALBUSINE
SS SYSTEMS TAIWANTHE STATEDEVELOPMENTALTOP
DOWNEDUCATIONHIGHINVESTMENTBANKSLONG
TERMOWNERSHIPFAMILYFIRM
RELATIONSNETWORKSCORP GOVFAMILYSOCIAL
CAPITALHIGH
3. BEST US OPPORTUNITIES
A sophisticated, price-sensitive market
IPR, bureaucracy the main US business issues
Electronics Industry Production/Test Equipment (EIP)
Computer Services & Software (CSV/CSF) •
Overseas Travel and Tourism (TRA) •
Industrial Chemicals (ICH)
•Education (EDU)
•Medical Devices & Supplies (MED) •
Electrical Power Equipment (ELP)
•Pet Products (PET) •
Telecommunications Equipment (TEL) •
Information Security Services (SEC) •
Sporting Goods (SPT)
•Pollution Control Equipment (POL)
•Pleasure Boats/Accessories (PLB) •Books (BOK) •Apparel
(APP)
TAIWAN AS A CASE STUDY IN STRATEGIC AMBIGUITY
DOES US “RECOGNIZE” OR “ACKNOWLEDGE”
“ONE CHINA?”
JIANG ZEMIN’S 8 POINTS and HU JINTAO’S 4 POINTS
“ONE COUNTRY, (1, 2, OR 3) SYSTEMS”?
3 NO’S AND THE TRA?
4. “ANTI-SUCCESSION LAW” - TO BLOCK INDEPENDENCE,
NOT COERCE UNIFICATION
BUT ON TAIWAN….
ECONOMIC MIRACLE: up from poverty
POLITICAL MIRACLE:
From martial law to democracy
The DPP
The “new” KMT
IDENTITY: CHINESE OR TAIWANESE?
US ROLE: TAIWAN RELATIONS ACT
IS TAIWAN THE 21ST CENTURY’S
“CZECHOSLOVAKIA”?
THE TAIWAN DILEMMA
分久必合，合久必分
Anything long divided will surely unite,
and anything long united will surely divide
US-PRC-TAIWAN: A DEADLY EMBRACE
PROBLEMS OF DEFINITION: WHAT IS “THE STATUS
QUO”?
PROBLEMS OF NATIONALISM: CHINA, TAIWAN
5. PROBLEMS OF IDENTITY: WHAT IS “CHINESE”
PROBLEMS OF IDEOLOGY: “UNIFICATION”
PROBLEMS OF “STRATEGIC AMBIGUITY”
PROBLEMS OF THE ECONOMY
-See “Globalization & The Future of the Taiwan Miracle” by
Berger & Lester, in “Precis” Spring 2005, pp 11-13
http://web.mit.edu/cis/Publications/MIT_Precis_spring_2005.pd
f
TAIWAN AS A CASE STUDY OF
“THE 4 BASIC QUESTIONS”
RULE:
TERRITORIAL INTEGRITY
If PRC accepts Taiwan self-determination,
then what about Tibet, Xinjiang, etc?
GREATNESS:
PRC REGIME LEGITIMACY
TRANSFORMATION:
TAIWAN A MODEL?
DEALING WITH THE OUTSIDE WORLD:
IS TAIWAN A DOMESTIC OR INTERNATIONAL ISSUE?
US seen as perpetuating Taiwan’s “separatism”
JZM: “We shall try our best to achieve the peaceful
reunification of China since Chinese should not fight Chinese.
We do not promise not to use force. If used, force will not be
directed against our compatriots in Taiwan, but against the
foreign forces who intervene in China’s reunification and go in
for ‘the independence of Taiwan’.”
6. ACER: STAN SHIH – Visionary
HTC: A BRAND!
Uni-President: from flour mill to food giant
UNI-PRESIDENT
AN ASIAN FIRM ADAPTING TO STRATEGIC
ENVIRONMENTAL SHIFTS
FROM TO
GOVT PUSH MARKET PULL
IMITATION INNOVATION
NATION BUILDING MARKET BUILDING
KNOW WHO KNOW HOW
HOW DID UNI-PRESIDENT MEET
THE CHALLENGES POSED BY GLOBALIZATION:
BUILDING ECONOMIES OF SCALE
HANDLING CROSS-BORDER COORDINATION
INNOVATATING TO SERVE DIFFERENT MARKETS
CREATING AND SHARING KNOWLEDGE
Moving from “international” to “global”
The criticality of knowledge--competitive
advantage based on “systems”, not “assets”
7. DEALING WITH HR ISSUES
Legacies…old ways of doing business
“New blood”
LEVERAGING OPPORTUNITIES
“Arbitrage” PEST
UNI-PRESIDENT
Start-up…leveraging govt. policies
Alliances?
Diversification? (noodles, drinks, stores, etc.)
China strategy? (leveraging govt. policies again)
What is UPEC doing with its China JVs?
UPEC beyond China….Hong Kong?ThailandIndonesia
HR issues?
HOW DID UNI-PRESIDENT MEET
THE CHALLENGES POSED BY GLOBALIZATION:
BUILDING ECONOMIES OF SCALE
HANDLING CROSS-BORDER COORDINATION
8. INNOVATATING TO SERVE DIFFERENT MARKETS
CREATING AND SHARING KNOWLEDGE
Moving from “international” to “global”
The criticality of knowledge--competitive
advantage based on “systems”, not “assets”
DEALING WITH HR ISSUES
Legacies…old ways of doing business
“New blood”
LEVERAGING OPPORTUNITIES
“Arbitrage” PEST
UNI-PRESIDENT
Start-up…leveraging govt. policies
Alliances?
Diversification? (noodles, drinks, stores, etc.)
China strategy? (leveraging govt. policies again)
What is UPEC doing with its China JVs?
UPEC beyond China….Hong Kong?ThailandIndonesia
HR issues?
9. UPEC lessons?
Going from a traditional model to a strategic model
Need to adjust for PEST
Need for “rational” organization
UPEC
http://www.uni-president.com/
NOTES ON “ROOTS OF MADNESS”
These notes are meant to raise some things to think about while
watching “The Roots of Madness”
(http://www.youtube.com/watch?v=3R6kntniDPI). Remember
the historical context of the film--the Cold War, memories of
the Korean War, the questions why China, “our best friend in
Asia” in the 1940s became “our worst enemy”, (there was a
searing debate in the US in the 1950s about “who lost China”),
the Vietnam War, the worst years of the Cultural Revolution,
etc. There are scratches on our minds about “mysterious
China”, “Red China”, etc. Despite all this, the history is fairly
straight forward (some things were omitted from what is, after
all, a TV program) and the pictures really bring home the
degree of catastrophe that befell China. One final note--some
people think this film is CIA propaganda...it isn’t. It was
produced for American TV and broadcast on NBC (I think).
These notes follow the film almost scene by scene. If you think
they could be improved (and they can be!), let me know.
10. · The shots at about 00:40 are of Red Guards during the
Cultural Revolution (around 1967) destroying cultural artifacts
from “the old society”.
05:05 - Actually, China was hardly “invulnerable”--Chinese
history is full of invasions of non-Chinese: Uighers, Tibetans,
Khitans, the Mongols (Yuan dynasty/Kublia Khan) and the last
dynasty, the Qing (Manchus from Manchuria).
What were the results of the Opium War?
Who was “China’s evil spirit”?
Who were the Boxers?
Pearl Buck wrote many novels about China, including “The
Good Earth”, a book that influenced many American attitudes
about China. Still worth reading.
According to the film, what are the geographical divisions of
China and what importance do they have?
What happened to the Qing (Manchu) dynasty?
According to White, what kind of leaders emerged in China
after October 10, 1911?
Who was Yuan Shikai?
Who was Sun Yatsen?
The 1919 student movement kicked off the May 4th Movement,
the first national expression of Chinese nationalism.
Who were the “War Lords”?
11. Why did peasants flee to the foreign concessions in Shanghai?
And how did foreigners live? (Do you think that might have
engendered resentment?)
What were the 3 Principles of the People (San Min Zhu Yi)?
Did the West support Sun Yatsen?
Which country did?
What was the Whangpoa Military Academy? Who led it?
What was the Bei Fa (Northern Expedition)?
What happened in Shanghai in April 1927? The outcome?
What happened in Canton at the end of 1927?
How did Chiang’s troops identify the Communist fighters in
Canton?
Who is Song Meiling?
According to Pearl Buck, what was the complex situation facing
Chiang Kaishek as he consolidated his rule?
What was the Japanese reaction of rising Chinese nationalism?
What was Manchukuo?
What was the Chinese national reaction to Manchukuo? What
was Chiang’s dilemma?
What were Mao’s ideas about seizing power?
12. What was Chiang’s first priority in the 1930s?
What was The Long March?
What happened to Chiang in Xian in Dec. 1936? The outcome?
What happened to “The Young Marshal”?
What is Yenan? The Chinese 8th Route Army and its strategy?
Where does Chiang retreat to?
What how does Chiang regard the two threats of Japan and the
Chinese Communists? Does this sound a little like the way the
“Self Strenghteners” regarded their enemies 100 years before?
What was “Flying the Hump”?
Who was Joseph Stillwell. What problems did he face?
Did Chiang and Stillwell get along?
What was the Cairo Conference?
Did Chiang and Mao have views about what would happened
after the defeat of the Japanese?
What views did Mao have about military and political training?
Why?
Why did both Mao and Chiang concentrate on Manchuria?
Which country has occupied Manchuria?
What was George Marshall’s solution to the Chinese post-war
political dilemma? Why did it fail?
13. What did the Russians do with captured Japanese factories?
What was Chiang’s military strategy? Policies in Shanghai?
What happened to the Nationalist economy and the Chinese
middle class?
What did Chiang offer the peasants? What did the Communists
offer the peasants?
What happened to Chiang’s armies in Manchuria? In Nanking?
What does Taiwan symbolize in the 1960s?
What does White think about US intelligence about China?
The famine (1:13) refers to the Great Leap Forward, during
which 30-40 million people are said to have died.
During the Cultural Revolution, shown at the end of the film,
Mao was deified.
What do you think of White’s conclusion?
FINALLY, if you had grown up in China during the time
depicted in the film, what do you think your attitudes and
beliefs about life, economics, politics and the outside world
would be?
/ / /
15. TAIWAN: YANGTZE RIVER VALLEY
HONG KONG: PEARL RIVER DELTA
SINGAPORE: ASEAN
ALL THREE “MIRACLES”
BUT THREE DIFFERENT SYSTEMS
ASEAN
Association Of Southeast Asian Nations
SINGAPORE
“SINGAPORE INC”
BBC Country Profile Singapore
http://www.bbc.co.uk/news/world-asia-15961759
WORLD FACT BOOK: SINGAPORE
https://www.cia.gov/library/publications/the-world-
factbook/geos/sn.html
16. EASE OF DOING BUSINESS: SINGAPORE
http://www.doingbusiness.org/data/exploreeconomies/singapore
6
SINGAPORE ISSUES
LEE KWAN YEW, THE PAP
AND “CONFUCIAN DEMOCRACY”
ACTIVIST STATE
SOVEREIGN WEALTH FUNDS
MERITOCRACY
“ASIAN VALUES”
FDI
ASEAN REGIONAL HUB
17. GOVERNMENT OF SINGAPORE INVESTMENT CORP…..250
BILLION
INCLUDES….
GIC Real Estate Pte Ltd (GIC RE)
GIC Real Estate Group is among one of the top 10 global real
estate investment firms in the world. With over 200 investments
across more than 30 countries, investing a multi-billion US$
portfolio. Direct property investments include: offices, retail
stores, residential, hotels, senior and student housing, and
sports and medical facilities. Indirect property investments
include: funds, public and private corporate entities, real estate
investment trusts (REITs), and real estate debt.
Notable investments include:
Seoul Finance Centre, Seoul, South Korea
Azia Centre, Shanghai, China
Shiodome City Centre, Tokyo, Japan
Queen Victoria Building, Sydney, Australia
Uptown Munich Tower, Munich, Germany
Westin Paris, Paris, France
Bluewater Shopping Centre, Kent, UK
30 Gresham Street, Londo
18. SINGAPORE’S EVOLUTION
Singapore has been ruled by a single political party, People’s
Action Party (PAP)
The underlying philosophy is ‘to maximize political cooperation
and minimize contention’
Confucian democracy is key to the government’s policy
AND YOU WON’T FORGET IT!
SINGAPORE’S POLITICAL CULTURE
HONG KONG
“Borrowed place,
borrowed time”
Capital of the
Overseas
Chinese
BBC Profile
19. http://www.bbc.co.uk/news/world-asia-pacific-16517764
Hong Kong: Pearl River Delta Hub
Guangzhou Shenzhen
Hong Kong
According to Michael Enright the PRD
has 3.4% of China’s population
produces 10% of China’s GDP and 24% of China’s trade
has attracted 20% of China’s FDI
South China
Source: Weidenbaum, “Chinese family business enterprise”,
Calif. Mgt. Review, Sum. 96
HONG KONG ISSUES
20. “BORROWED PLACE”: 1842/1997/2046
IS IT REALLY “ADAM SMITH’S WORKSHOP”?
PROPERTY
HK$/US$/RMB
FREE MARKET, RULE OF LAW
INCOME DISTRIBUTION
RELATIONS WITH CHINA
WHERE THE FAST BUCK
REACHES TERMINAL VELOCITY?
MEDIA ON HONG KONG, SINGAPORE ISSUES
BBC on Hong Kong Working Lives
http://www.youtube.com/watch?v=dfGzx5zY6C0&list=PL6648
ACC1F7A848E2
22. What is Culture?
Culture: a society’s (group’s) system of shared, learned values
and norms; these are the society’s (group’s) design for living
Values: abstract ideas about the good, the right, the desirable
Norms: social rules and guidelines; guide appropriate behavior
for specific situations
3
Hasegawa & Noronha, Asian Business & Management
23. High/Low Context Cultures
See E.T. Hall & M.R. Hall, Understanding cultural differences,
1990, Intercultural Press
Consider that these different orientations all underlie
expectations of behavior.
SO CROSS-CULTURAL MANAGEMENT IS REALLY
ABOUT MANAGING DIFFERENT EXPECTATIONS.
24. How does Asian Culture Manifest itself upon Management
Practices?
Multi-layered organizational structure: Confucian influence,
good for operational improvement but not suitable for
innovative thinking. (Japan)
Centralized power and personalized relationships i.e. Boss acts
in a paternal role (China)
Organizational policies and procedures tend to be ‘high context’
: tacit communications; organizational processes rely more on
social relationships rather than written descriptions, thus
become more company specific
Collectivism: decision-making, ringi in Japan, but central in
China
Relational behaviors: guanxi, face (when everyone gives face to
everyone, harmony is preserved, social connection is important
Hybridization theory: host country culture influences upon
foreign management systems, culture specific management
system: In China different from Japan small group activities
often combine voluntary participation and monetary reward.
Hasegawa & Noronha, Asian Business & Management
CROSS CULTURAL COMMUNICATIONS
SETTING THE STAGE:
A Persistence of Issues
25. THE THREE LEVELS OF
CROSS-CULTURAL COMMUNICATIONS
* Personal
* Inter-personal
* Inter-organizational
A
R
E W
E
DO
O
M
E
D T
O
F
A
IL
?
ACC
O
R
DIN
G
T
O
O
N
30. E
D
P
R
O
J
EC
T
S
"
ARE WE DOOMED TO FAIL?
ACCORDING TO ONE STUDY,
15% TO 40% OF
WESTERN EXPAT MANAGERS
GO HOME EARLY
FROM DEVELOPING MARKETS
HALF OF THOSE REMAINING
ARE ONLY MARGINALLY EFFECTIVE.
FEER STUDY OF MANAGERS IN ASIA
ALMOST 2/3RDS AGREE
"CULTURAL MISUNDERSTANDINGS HAVE STOPPED
PROJECTS"
ONE-HALF SAY CULTURAL DIFFERENCES HAVE
HAMPERED BUSINESS PROGRESS
D
36. N
E
S
I
C
S
T
H
E
P
R
O
BLE
M O
F T
OK
E
N
S
DEFINITIONS OF CULTURE
150 DEFINITIONS
“BIG C” & “little c”
“COLLECTIVE PROGRAMMING OF THE MIND”
“AN INVISIBLE PERCEPTUAL PRISON”
ZHUANG ZI’S FROG
CULTURE AS A FRACTAL
BEHAVIOR, EXPECTATIONS, VALUES
PATTERNS, “MODAL BEHAVIOR”
37. CULTURE AS A COMMUNICATIONS SYSTEM
LANGUAGE, KINESICS
THE PROBLEM OF TOKENS
DEFINITIONS OF CULTURE
150 DEFINITIONS
“BIG C” & “little c”
“COLLECTIVE PROGRAMMING OF THE MIND”
“AN INVISIBLE PERCEPTUAL PRISON”
ZHUANG ZI’S FROG
CULTURE AS A FRACTAL
BEHAVIOR, EXPECTATIONS, VALUES
PATTERNS, “MODAL BEHAVIOR”
CULTURE AS A COMMUNICATIONS SYSTEM
LANGUAGE, KINESICS
THE PROBLEM OF TOKENS
COMMUNICATIONS AND TOKENS
WHAT HAPPENS WHEN
=
49. G
P
ICT
U
RE
”
“
NIT
-P
IC
K
I
NG
”
A CROSS CULTURAL MATRIX
(BASED ON HALL)
HIGH CONTEXT..............LOW CONTEXT
<<------------------------------------------------------------------------
--->>
(A CONTINUUM)
LOCUS OF
EXTERNAL
54. Low-Context
Crucial to Communications:
external environment, situation, non-verbal behavior
explicit information, blunt communicative
style
Relationships:
long lasting, deep personal mutual involvement
short duration, heterogeneous populations
Communication:
economical, fast because of shared "code"
explicit messages, low reliance on non
-
verbal
Authority person:
responsible for actions of subordinates, loyalty at a
premium
diffused through bureaucratic system,
personal responsibility tough to pin down
Agreements:
spoken, flexible and changeable
written, final and binding, litigious, more
lawyers
Insiders vs outsiders:
very distinguishable
difficult to identify, foreigners can adjust
Cultural pattern change:
slow
faster
T
H
E HOF
62. a
nd
m
a
te
r
i
a
lism
ac
c
e
p
ta
bl
e
.
THE HOFSTEDE ANALYSIS
FOUR DIMENSIONS OF
INTERNATIONAL BUSINESS CULTURE
POWER DISTANCE
The degree to which
inequality of power in organizations
is accepted.
UNCERTAINTY AVOIDANCE
The degree to which uncertainty and ambiguity is threatening.
63. INDIVIDUALISM-COLLECTIVISM
The “fit”--loose or tight--of the social framework; group
orientation
MASCULINITY-FEMININITY
The degree of assertiveness, aggression and materialism
acceptable.
H
O
FS
TE
DE
’S
DIM
E
N
S
I
O
N
S
I
ND
I
V
I
DU
A
L
IS
M
C
O
74. PERSONAL LINKAGES
MANAGEMENT OF INDIVIDUALS
MGT. OF GROUPS
TASK > RELATIONSHIP
RELATIONSHIP > TASK
SMALL POWER
LARGE POWER DISTANCE
DISTANCE
HIERARCHY, INEQUALITY FOR
HIERARCHY ORGANIC,
ORGANIZATIONAL CONVENIENCE
NATURAL
DECENTRALIZATION
CENTRALIZATION
SUBORDINATES EXPECT
77. PUNCTUALITY
TOLERANCE OF DEVIANT
RESIST INNOVATION
IDEAS, BEHAVIOR
MOTIVATION: ACHIEVEMENT,
MOTIVATION: SECURITY
BELONGING
ESTEEM
“MASCULINE”
“FEMININE”
LIVE TO WORK
79. LIFE
CONFLICT OK
COMPROMISE
A PERSISTENCE OF ISSUES
SELECTION CRITERIA
TRAINING
REPATRIATION
EARLY BURNOUTS
NORMAL RETURN
FOCUS ON THE JOB, NOT THE ENVIRONMENT
FAMILY ISSUES
THE CROSS-CULTURAL ISSUE
OVERSEAS ASSIGNMENTS AND CAREER PATHS
SUPPORT
See “The Long Trip Home” NYTimes 10 March 2009
OTHER MANAGEMENT ISSUES
80. FIELD-HOME OFFICE COMMUNICATIONS
SUPPORT
CHINA’S LEADERS
(Standing Committee of the Politburo)
BBC
THE CHINESE SYSTEM
“UNDERSTANDING CHINA’S POLITICAL SYSTEM”
CONGRESSIONAL RESEARCH SERVICE REPORT R41007
www.crs.gov
CCP
Legislature
Executive
Judicial
Military
81. These slides from a presentation by David Zweig, HKUST
Key Characteristics of the System
Political system dominated by the CCP
Highly bureaucratized—”the permanent bureaucratic society.”
Power based partly on “power of posts”
Highly centralized system, with top leaders wielding enormous
power; “Mao in command” model.
Unstable Institutions and
Importance of Personal Power
But (1) power also based on personal relations—”guanxi”—who
is your political network?
Deng Xiaoping mobilized whole country to speed up reforms in
1992 when his only formal post was President of Chinese
Bridge Association.
Deep State Penetration into Society
2. CCP penetrated down to village level through party
committees (1,000 people).
In Qing Dynasty, county government was lowest level of state
power (200,000 people).
In cities, CCP has penetrated down to neighborhood committees
Horizontal Control by CCP Committees at all Levels of
Hierarchy
3. Every level of government or administrative hierarchy has
party committee which can monitor the government at that
level.
Party committees tend to dominate local decisions—can
intervene in economic decisions.
82. The Structure of Political System
administrative hierarchy of government, legislatures, courts and
the CCP.
Running from Central government in Beijing, to provinces,
municipalities (district), county, township, administrative
village, natural villages.
But today, Communist Party dominates all aspects except the
economy.
Legislative
National People’s Congress
NPC Standing Committee
Provincial-level People’s Congresses
County-level People’s Congresses
Township People’s Congresses
Representative Village Committee
CPPCC
Party
National Party Congress
83. Central Committee
Politburo
Secretariat
Central Discipline Inspection Commission
Organization Dept Rural Work Dept Propaganda Dept
Provincial-level Party Committees
Municipal Party Committees
County-level Party Committees
Township Party Committees
Village Party Committees
Military Affairs Commission
Standing Committee of the Politburo
Judicial
Supreme People’s Procurator
85. Village Committee
Prime Minister
Vice Premier
President & Vice President
State Council
State Councilors
Party
National Party Congress
Central Committee
Politburo
Secretariat
Central Discipline Inspection Commission
Organization Dept Rural Work Dept Propaganda Dept
86. Provincial-level Party Committees
Municipal Party Committees
Country-level Party Committees
Township Party Committees
Village Party Committees
Military Affairs Commission
Standing Committee of the Politburo
Standing Committee of Politburo (SC-PB)
Most powerful people in China!
Controls all aspects of political system
Currently 7 members
party affairs—relations with other CCPs and party life.
organizational affairs—allocates all party positions
propaganda and education-education, news, colleges
political and legal affairs—responsible for courts, police,
“strike hard campaign”
87. finance and economics—led by Prime Minister
Military—CCP tries to maintain civilian control of army
Party Secretariat and
Its Key Departments
Organizational Dept.— responsible for all party posts, key
government posts, and is a key position to affect succession.
Propaganda Dept.—monitors press, tv, organizes ideological
study campaigns.
Rural Work Dept.—makes rural policy.
People’s Daily— top CCP newspaper and editorial board
making public policy
Executive
Organizations
(the government)
Prime Minister
Vice Premier
President & Vice President
State Council
Ministries and Commissions
Provincial-level Bureaus
Prefecture Bureaus
Country-level Bureaus
Provincial-level Bureaus
Prefecture Governments
Country-level Governments
Township Governments
Village Committee
88. State Councilors
State Council
High degree of overlapping directorship —Prime Minister often
3rd ranking member of SC-PB.
Some Vice Premiers are members of PB-SC or Politburo.
Prime Minister needs support of General Secretary of CCP to
push policies.
Legislative
National People’s Congress
NPC Standing Committee
Provincial-level People’s Congresses
Country-level People’s Congresses
Township People’s Congresses
Representative Village Committee
CPPCC
89. Legislature
(makes the laws)
China’s Parliament:
National People’s Congress
Meets every 5 years to elect government leaders--President, PM,
Vice Premiers, all approved before by PB-SC.
Also, meets yearly to address key issues related to legal affairs,
financial affairs, etc.
Mostly rubber stamp, as laws or key decisions originate with
CCP, approved by CCP’s committees.
During NPC, top leaders visit provincial delegations, discuss
regional problems.
Centre for popular input into laws and economy through its
committees; professionals may work with committees.
Major event in 1987 when only 2/3 of NPC members supported
Three Gorges Dam, 1/3 abstained.
Military Affairs Commission
Mao: “Political power grows out of the barrel of a gun”
Directly under Standing Committee of Politburo.
General Secretary of CCP usually Chair of MAC
Vice-Chair may be civilian, other posts belong to military.
Jiang Zemin held this post 1 year after giving up head of CCP,
hoping it would provide leverage over Hu Jintao.
How does the CCP
90. Control the Military?
Mao: “The Party must always control the gun, the gun must
never control the Party.”
Military Affairs Committee (MAC)
budgetary allocations from State Council and Ministry of
Finance
Political Commissars--every military unit has CCP official who
maintains party authority.
Overlapping membership in CC-CCP and Politburo, but no
member of PB-SC for many years.
Center
Province and Provincial Level Cities (Beijing, Shanghai,
Chongqing, Tianjin)
Municipality
Rural
Urban
County
Township
Administrative Village
Natural Village
Residence Committee
Urban Distinct
91. Party Penetrates the Government
Every government office, university department, or enterprise,
has a party branch and party secretary.
Province, has governor and party secretary
-- latter has greater authority.
In state-owned factory, party secretary wields greater power
than manager.
Politics permitting, the Party Secretary will try to intervene in
economic decisions.
Territorial Party Committees
Party Committee at each level of administrative hierarchy
dominates.
Often interferes in government decisions.
Members responsible for education, industry, agriculture,
population control, propaganda, and selection of key
government officials at next level down through Organizational
Department.
Central Committee
Secretariat
Organizational Department Lists of Post:
Chinese Academy of Science
92. LIST:
President
Vice President
Members of Party Core Group
Head of Discipline Inspection Group
Ministry of Education
LIST:
Minister
Party Secretary
Members of Party Core Group
Beijing University
LIST:
Party Secretary
President of University
Nomenklatura System and the Power of Appointment
Key to party control over personnel appointments and source of
its power over government
No Independent Judiciary
Personal power dominates China--”rule of man” over the “rule
of law.”
Officials like it this way, enhances their authority.
all lower levels judges appointed and paid by county party
committee.
Outsiders rarely win in another city—Chongqing firm won’t sue
Shanghai for IPR infringement because it cannot win in
Shanghai.
93. Politics of the Courts
Older judges ex-officers with no judicial training.
Crimes deemed sensitive or impacting social order can be
judged purely on political terms.
Forced confessions acceptable, defendants have great difficulty
proving police made false arrest.
New generation of judges, some with foreign education
Consequences
Unstable political institutions
despite totalitarian image, major shifts in power among major
political institutions.
despite rules outlining when organizations will meet, rules often
broken, party congresses often did not meet
low level of political institutionalization
Why?
Unstable political institutions
a. Charismatic leadership, where individual power often more
important than formal political position.
b. constant political competition without institutionalized
succession procedures leads individuals to try to control
organizations which they use to advance their own power.
c. Result is "Shifting Locus of Authority"
shifts among State Council, Politburo, Party Secretariat,
94. Military Affairs Commission
Mao's big push for collectivization not made in Politburo or
Central Committee
Deng's recreation Secretariat in 1981 to undermine Hua
Guofeng's posts of Party Chairman and prime minister.
d. very limited role for Constitution which is often revised
Constitution seen more as benchmark for shifts in historical
periods than as unchanging document which has legitimacy or
which divides power or authority among institutions.
Political institutions
2. Efforts to ensure party control over army
occurs through budgetary control, dual penetration, overlapping
authority
3. Overlapping rulership and overlapping authority
people wear several hats, military, party, government
same decision often open to influence by competing
organizations and individuals
4. Unclear and weak property rights
allows for competing claims to industry and goods
allows political power, rather than clear contractural
agreements, to determine control over resources.
5. Heavy bureaucracy due to planned economy
central planning created large economic bureaucracy
party efforts to control the economy created parallel structure
heritage of central
Party:
1. Organizational Principles
95. a. Hierarchical top down system,
local organizations as policy implementors
lower levels report to upper levels,
elections from bottom up usually predetemined by next higher
level
b. Democratic Centralism
lower levels obey upper levels, minority must obey majority,
debate possible until decision made, then everyone must obey.
c. Dual Hierarchy of Party committess for all government and
military organizations
primary party organization wherever 3 members in an
organization
party group in all organizations to insure following party policy
d. Nomenklatura: key control structure
"list of names" or positions
Organizational Bureau responsible for all key positions in
government and party
Consequences for business:
“The state can legitimately intervene
in any business deal at any time under any pretext”
Dealing with the bureacratic maze
The negotiating spiral
96. JOE SMITH’S DILEMMA
Apologies! jf
Joe Smith
JF’S 4 BASIC QUESTIONS
1. HOW TO RULE
Need for a strong state, authoritarian rule, justified
by ideology
Pragmatism
CCP dominance at all levels (societal penetration)
2. GREATNESS
China coming back as the West declines
3. TRANSFORMATION
Technology from the West but “stay Chinese” (ti-
yong?)
Catch up
Shift from factory to innovator
Go green
Develop the interior provinces
4. THE OUTSIDE WORLD
A source for transformation
Shift from autarchy to engagement (globalization &
WTO)
A source of subversion and meddling
No more “disrespect”
97. THE ROLE OF DENG XIAOPING
Dedicated follower of Chairman Mao?
Capitalist roader?
Authoritarian pragmatist?
Making China strong: wealth and power
Key: 3rd Plenum of the
11th Central Committee (1976)
1992: ‘”Nanxun” - 1992
On his watch:
Continued agriculture reform, but shift in focus to industry
Further moves away from central planning – “capitalism
with Chinese characteristics”, “market socialism”
(and move from “Asian model”?)
Learning from the world: the Tigers, SEZs
Link China to the rest of the world
Engagement with US
BUT
Supremacy of Party #1 (“4 Cardinal Principles”)
Tiananmen
Time, March 3, 1997
WHAT WAS BEING REFORMED?
98. AN OUTLINE OF “ECONOMIC EVOLUTION”
“LEANING TO ONE SIDE” – THE SOVIET MODEL 1950S
“RED OR EXPERT” – THE MASS LINE…PARTY CONTROL
1960S
THE DANWEI SYSTEM
AGRICULTURE: FROM COOPERATIVES TO COMMUNES
1950-60
REFORM! POST-MAO
AGRICULTURE: “RESPONSIBILITY SYSTEM” 1970S
SLOW GROWTH OF A SEMI-PRIVATE SYSTEM AND FDI
REFORM AND CONSOLIDATION OF SOES
DRIVERS OF THESE CHANGES…. (Opportunities for
business?)
URBANIZATION: migrant workers and development of “the
west”
MIDDLE CLASS EXPANSION
REFORM OF THE POLITICAL ECONOMY
Party still dominant…but power/responsibility shifts to the
localities
(province, district, township)
Local power: licenses, land, credit, protection
Cadres evaluated on economic and political achievements
Economy, birth control, “incidents”
99. *
SOE vs “PRIVATE”
The Economist March 2011
BUT “INDIGENOUS INNOVATION”
BUT…PROBLEMS
IPR
Corruption
Overemphasis on infrastructure –
there’s a limit
Lack of social safety net – displaced workers
(End of the danwei system)
Inflation
Energy & resources
oil, food, water, environment (“China clouds”)
“WORKSHOP ON THE WANE” (FT 17Oct11)
“The export and investment-led model
behind China’s economic miracle looks
increasingly obsolete”
*No more cheap labor, cheap energy, cheap capital, cheap land
100. *Inflation
*Age shifts; fewer workers
*Unbalanced growth – surge in investment, real estate
*Housing bubble; credit bust?
*Stimulus loans to SOEs re-lent;interest
arbitrage
*SMEs have to go to loan sharks; NPLs
*Razor-thin margins
*12th FYP???
“The End of Cheap China”
Economist 10Mar12
CHINA’S 12TH FIVE YEAR PLAN… EDITED KEY POINTS
(Aspirations, Good Intentions or Reality?)
Economic targets
-- GDP to grow by 7 percent annually on average;
--- Prices to be kept generally stable.
Economic restructuring
-- Rise in domestic consumption;
-- Breakthrough in emerging strategic industries;
-- Service sector value-added output to account for 47 percent
of GDP, up 4 percentage points;
-- Urbanization rate to reach 51.5 percent, up 4 percentage
points.
101. Innovation
-- Expenditure on research and development to account for 2.2
percent GDP;
Environment & clean energy
-- Non-fossil fuel to account for 11.4 percent of primary energy
consumption;
-- Energy consumption per unit of GDP to be cut by 16 percent;
-- Carbon dioxide emission per unit of GDP to be cut by 17
percent;
Livelihood-- Population to be no larger than 1.39 billion;--
Pension schemes to cover all rural residents and 357 million
urban residents;-- Construction and Renovation of 36 million
apartments for low-income families;-- Minimum wage standard
to increase by no less than 13 percent on average each year;
Social management-- Improved public service for both urban
and rural residents;-- Improved democracy and legal system;--
Better social management system for greater social harmony;--
More than 10 percent of all residents will be registered as
community volunteers.
Reform-- Encourage qualified enterprises to get listed in stock
markets;-- In-depth reform in monopoly industries for easier
market entry and more competition;-- Improved government
efficiency and credibility
Checking out the usual sources:
https://www.cia.gov/library/publications/the-world-
factbook/geos/ch.html
http://www.doingbusiness.org/data/exploreeconomies/china/
103. http://www.amchamchina.org/businessclimate2013
China Business Environment October 8, 2013
USCBC—2013 Member Survey
Top Ten Business Concerns Identified by Companies (2013)
Cost Increases
2. Competition with Chinese Companies in China
3. [tie] Administrative Licensing
3. [tie] Human Resources: Talent Recruitment and Retention
5. Intellectual Property Rights Enforcement
6. Uneven Enforcement/Implementation of Chinese Laws
7. Nondiscrimination / National Treatment
8. Transparency
9. Standards and Comformity Assessment
10. Foreign Investment Restrictions
104. OLD ISSUES…
STILL THERE?
“Commonplaces of the China trade”
JOE SMITH’S DILEMMA
Apologies! jf
Joe Smith
“THE OPENING” OF CHINA BROUGHT
Economic disruption
Political difficulties
Opium War, unequal treaties, Taipings
Rise of anti-Manchu “nationalism”
Crisis of confidence
Half-way measures
Self-Strengthening - “Ti-Yong”
Modernization steps
Aim: To save the regime
Result: Undermined the regime
CHINA AS VICTIM: THE CENTURY OF HUMILIATION
1911 – A FAILED REVOLUTION
105. SUN YATSEN
COMINTERN INTEREST
WORKING AT CROSS PURPOSES
YUAN SHIKAI
WARLORDS
CONTINUED FOREIGN DOMINANCE
“THE NATIONALIST DECADE” 1927-1937
DEVELOPMENT BUT CORRUPTION
SURVIVAL OF THE COMMUNIST PARTY
JIANGXI SOVIET
LONG MARCH
YENAN
CHIANG KAISHEK:
WHOM TO FIGHT?
COMMUNISTS
OR
JAPANESE?
THE CHINESE COMMUNIST PARTY
INITIALLY URBAN CENTERED
Comintern control
Why cooperate with GMD?
“China as the key link”
106. “Marxist evolution”
FAILURE OF CCP/GMD COLLABORATION
TO THE COUNTRYSIDE
MAO IN OPPOSITION
THE JIANGXI SOVIET
EXTERMINATION CAMPAIGNS 1931-34
THE LONG MARCH 1934-1936
“Red Star Over China”
YENAN
THE SECOND UNITED FRONT
XIAN INCIDENT - 1937
BUT THE WAR WENT BADLY
FROM NANJING TO CHONGQING
NANJING MASSACRE
NANJING PUPPET REGIME (WANG JINGWEI)
FROM A CHINA WAR TO A PACIFIC WAR
JAPAN CLASHES WITH RUSSIA
PEARL HARBOR
Both Chiang and Mao know the US
will defeat Japan
107. GETTING READY FOR THE POST-WAR STRUGGLE
GMD corruption
CCP land reform
THE CCP
Emerges from May 4th, WWI disillusionment
It was no sure thing
* Initial urban successes and failures
* Link with the GMD - The 1st United Front
“Party from within”
*1927 - To the countryside - the Jiangxi Soviet
Mao in opposition with the Shanghai Center
Mobilize the peasants
Initial “land reform” efforts - “yundong”
* 1934/5 - Strategic retreat: The Long March
*1935-47 - Yenan: Mao in command
Xian Incident (1936)
“Rectification” & thought-reform movements
War & Civil War
LEGACIES OF THE CCP RISE TO POWER
108. PERSONAL RIVALRIES, FACTIONALISM
IDEOLOGY
“MOBILIZATION”/”MOVEMENTS”/”CAMPAIGNS”
PENETRATION OF SOCIETY
“MULTIPLE HATS”
PARTY/ARMY LINKS
MAOIST “WILL”
RECTIFICATION/VIOLENCE
CENTRALIZED, BUREAUCRATIC AUTHORITARIANISM
The Son of Heaven tradition
Power: Absolute and arbitrary
Correct behavior --> Correct thought --> Correct society
Personalism: Weak Institutions
Illegitimacy of opposition.
Focus on internal threats,
ignore external dangers (or opportunities)
[But corruption of the Celestial Empire
comes from foreign conspiracies.]
THE AMBIGUOUS LEGACY OF THE WEST
The Ti-Yong question
“Self-Reliance”
109. CCP PERSONALITIES
MAO ZEDONG
ZHOU ENLAI
ZHU DE
LIU SHAOQI
YE JIANYING
LIN BIAO
KANG SHENG
JIANG QING
THE CHRONOLOGY & KEY EVENTS
1949 - 56 - Victory & Consolidation
1950-53 - Korean War
1956-7 - “100 Flowers”
1957 - “The Great Leap Forward”
1959-65 - Reconsolidation
1966-69 - Cultural Revolution - Part I
1970-76 - Cultural Revolution - Part II
1972 - Nixon in China
1976 - Death of Mao
1978 - “Four Modernizations” & Reform
“Socialism with Chinese characteristics”; “1st stage of
socialism”
But “4 Cardinal Principles”
1989 - Tiananmen
1992 - “Get Rich is Glorious”
1997 - Hong Kong, Macao “recovered”
1997 - Deng Xiaoping dies
Post 1997 - Jiang Zemin, WTO, Hu Jintao….Xi Jinping, Li
Keqiang
Explosion of the Chinese economy, growth of crony
111. “LIBERAL”
REVOLUTIONARY
CONSOLIDATION (1949-52)
LAND REFORM
1ST 5-YR PLAN
100 FLOWERS (1956)
(ANTI-RIGHTIST)
GREAT LEAP FORWARD 1956-60)
[Sino-Soviet split]
RECOVERY
CULTURAL REVOLUTION: GANG OF FOUR (1966-69/76)
[Nixon Visit]
1976: Death Of The Leaders
ARREST OF GANG
HUA INTERREGNUM
112. DENG REFORMS
TIANANMEN
8TH 5-YR PLAN
REFORMS BACK ON TRACK?
(Deng’s Southern Tour. 14th PC: 1992)
AUSTERITY/CREDIT CRISIS (1993-98)
“NEW” NATIONALISM
15TH PARTY CONGRESS
1999-2000 ¿¿SOE REFORM??!!!ASIAN FINANCIAL
CRISIS!!!?? WTO???!!!
THE ROLE OF DENG XIAOPING
113. Dedicated follower of Chairman Mao?
Capitalist roader?
Authoritarian pragmatist?
Making China strong: wealth and power
Key: 3rd Plenum of the
11th Central Committee (1976)
1992: ‘”Nanxun” - 1992
On his watch:
Continued agriculture reform, but shift in focus to industry
Further moves away from central planning – “capitalism
with Chinese characteristics”, “market socialism”
“authoritarian capitalism”
Learning from the world: the Tigers, SEZs
Link China to the rest of the world
Engagement with US
BUT
Supremacy of Party #1 (“4 Cardinal Principles”)
Tiananmen
Time, March 3, 1997
FRANKENSTEIN’S LAW
114. EVERYTHING YOU HEAR
ABOUT CHINA IS TRUE
BUT NONE OF IT IS RELIABLE
FRANKENSTEIN’S LAW
A QUESTION OF SCALE
GEOGRAPHIC
HISTORIC
CHANGE (millions up from poverty)
(from “Standing up” to “Long Live Chairman Mao” to “To get
rich is glorious” and “Black cats/White cats” to “China Dream”
)
A QUESTION OF PERCEPTION
MANY CHINAS
A QUESTION OF INFORMATION
A LEGACY OF SECRETS
CHINA’S FOUR BASIC QUESTIONS
HOW TO RULE A LARGE COUNTRY WITH
A LARGE POPULATION FROM A SINGLE PLACE
HOW TO MAKE CHINA GREAT AGAIN
HOW TO TRANSFORM CHINA’S SOCIETY
HOW TO DEAL WITH THE OUTSIDE WORLD
115. HOW TO RULE
Need for a strong state, authoritarian rule, justified
by ideology
Pragmatism
CCP dominance at all levels (societal penetration)
2. GREATNESS
“China Dream”
China coming back as the West declines
3. TRANSFORMATION
Technology from the West but “stay Chinese” (ti-yong?)
Catch up
Shift from factory to innovator
Go green
Develop the interior provinces
4. THE OUTSIDE WORLD
A source for transformation
Shift from autarchy to engagement (globalization & WTO)
A source of subversion and meddling
No more “disrespect”
TRANSFORMING SOCIETY:
WHOSE VISION?
“THREE ROADS”?
“LIBERAL”
“BUREAUCRATIC”
“RADICAL”
116. CONFUCIAN LENINISM:
THE BUREAUCRATIC CENTRAL TENDENCY
CHINA & THE WORLD:
FROM “EMERGING” TO “EMERGED”
or
BE CAREFUL WHAT YOU WISH FOR--YOU MAY GET IT!
PRESIDENT CLINTON, JANUARY 2000
As China joins the WTO
On November 15th of last year, my Administration signed an
historic trade agreement with the People's Republic of China. …
more than any other step we can take right now, it will draw
China into a system of international rules and thereby encourage
the Chinese to choose reform at home and integration with the
world.
China on our minds….
“Made in China. Bought Everywhere”
117. “U.S. Takes Steps to Limit Import Surge From China”
“Wave of Corruption Tarnishes China's Extraordinary Growth”
“Investment Bubble Builds New China”
“Crouching Tiger, Swimming Dragon”
“The China Price”
“Across Asia, Beijing's Star Is in Ascendance”
CHINA FACTOIDS
(FROM TIGER HEAD, SNAKE TAILS BY JONATHAN
FENBY)
“A NATION ON SPEED”
CHINA: LARGEST STEEL MAKER, LARGEST ENERGY
USER
WORLD GROWTH: > 50% FROM CHINA
GDP/CAP FROM 528 RMB IN 1980 TO > 6000 RMB BY 2010
WORLD’S LARGEST MONETARY RESERVES
LARGEST EMITTER OF CO2
PRC LENDS MORE TO LDC THAN WORLD BANK
70%+ OF POPULATION TO BE IN CITIES BY 2035
WORLD’S LARGEST CAR MARKET
MILLIONAIRES AND BILLIONAIRES
http://red-luxury.com/
BUT…
118. A BLAZING ECONOMY OR COLLECTION OF BUBBLES?
Asia…or the world…in orbit around China?
Source:
Asian Wall
St. Journal
ISSUES I
FROM “EMERGING” TO “EMERGED”
WORLD’S #2 TRADING NATION
TRADE GROWTH 2-3X THAT OF WORLD TRADE
CHINA “DISPLACES” OTHER LDCS
OVERVALUED RMB?
WTO COMPLIANCE? IPR ISSUES?
ISSUES II
119. PRIVATIZATION - ABOUT 2/3RDS OUTPUT
FROM PRIVATE SECTOR
BUT FINANCIAL ISSUES
THE FINANCIAL SECTOR
OVERHEATING?
(Investment in fixed assets >40% GDP)
THE ENVIRONMENT - CHINA “CLOUDS”
CHINA & DEMAND FOR RESOURCES
(energy, concrete, metals)
CHINA’S DOMESTIC ISSUES
URBAN MIDDLE CLASS - CONSUMERISM
DISPLACED WORKERS
THE RURAL SECTOR
RISING NATIONALISM
THE FUTURE OF THE PARTY?
120. CHINA’S DOMESTIC ISSUES
URBAN MIDDLE CLASS - CONSUMERISM
DISPLACED WORKERS
THE RURAL SECTOR
RISING NATIONALISM
THE FUTURE OF THE PARTY?
INTERNATIONAL POLITICAL ISSUES
A NEW SUPERPOWER?
JAPAN--WHO’S #1
NORTH KOREAN NUKES
TAIWAN
TERRORISM
HUMAN RIGHTS
COMPETITION OVER RESOURCES
Apologies! jf
121. TWO QUOTES FOR TODAY….
The 21st century has opened and will close with two puzzles
about the rise of Asia. Today, the puzzle is why Asian societies,
long in the doldrums, are now successful. At the century's close,
by contrast, historians will want to know why Asian societies
succeeded so late, taking centuries to catch up with a Europe
that they had outperformed for millenniums…. Centuries of
European colonial rule had progressively reduced Asian self-
confidence. -- Mahbubani, TIME
[T]he Asian bureaucracy, notably in China and India, remained
the bastion of intellectual culture, civilization, and tradition.
But it was also the inward-looking, self- satisfied complacency
of Asian bureaucracy, combined with the corruption and
profligacy of the ruling elites, that grossly underestimated the
technological ascendancy of the West…. More than anything
else, it was the humiliation caused by colonization and war that
drove home the realization that Asian institutions had to change
everything even down to the core values.
-- “The Asian Network Economy in the 21st Century”, by
Andrew Sheng
http://siteresources.worldbank.org/INTEASTASIAPACIFIC/Res
ources/226262-1158262834989/EA_Visions_15.pdf
*
122. IS THE PAST PROLOGUE?
NORTHEAST ASIA:
The Chinese Heartland
China as the “mother ship”: culture, rice
SOUTHEAST ASIA
Sino-Indic collision in Vietnam
Indian reach
Ethnic shatterbelt
OLD TRADITIONS, NEW STATES
Problems Of History, Problems Of Colonialism
“History never repeats itself, but it rhymes”
CHINA: THREE PHILOSOPHICAL TRADITIONS
CONFUCIANISM
LEGALISM
DAOISM
POLITICAL
WARRING STATES ORIGIN
CONFUCIAN/MENCIAN DISCOURSE
BUT
LEGALIST PRACTICE
123. CONFUCIANISM - SELF-CULTIVATION and “REN”
“The 4 Books”
Benevolent Rule
Attention to “Rites”
If things properly ordered, peace and harmony
Filial piety - family as key
“5 Relationships” - based on “Ren”
Ruler/Subject
Husband/Wife
Parent/child (son)
Elder brother/younger brother
Friends
NEO-CONFUCIANISM : METAPHYSICS
DAOISM
Mystical
Non-linear
Dao De Jing
Lao Zi
Zhuang Zi
“Wu-Wei”
Yin-yang
And the search for immortality
124. LEGALISM:
Punitive law
Low trust
Hobbesian
The First Emperor
Li Ssu
The basis of Chinese concepts of power
RELIGION & WORLD VIEW
Cyclical change the only constant: the yin & the yang
Syncretism
NATURE-BASED
SHINTO
POPULAR DAOISM: local gods and festivals
ANIMISM
BUDDHISM - A LATE ARRIVAL
HINAYANA - “LESSER VEHICLE”
MAHAYANA - “GREATER VEHICLE”
ISLAM - AN EVEN LATER ARRIVAL
CHRISTIANITY - AN INTERESTING HISTORY
EAST ASIA - A HIERARCHY
125. CHINA: AT THE CENTER
Son Of Heaven, Tian-Xia Tradition
JAPAN: POOR, FRACTURED AND ISOLATED
KOREA: BUFFETED BUT PROUD
SOUTHEAST ASIA: TRIBUTARY STATES
THE SWINGS OF HISTORY
MID-18TH CENTURY: GROWING CONNECTIONS
CANTON SYSTEM
MID-19TH CENTURY: THE BEGINNING OF THE END
OPIUM WAR, TAIPINGS, SELF-STRENGTHENERS,
MEIJI
LATE 19TH CENTURY: CHINA COLLAPSES, JAPAN RISES,
COLONIALISM IN SEA
EARLY 20TH CENTURY: CONFLICT
CHINA MISERY: 1911, WARLORDS, KMT, CCP
JAPAN ADVANCES: MANCHUKUO, “GEACPS”
WWII
MID 20TH CENTURY: REMAKING THE ASIAN ORDER
TAIWAN, COLD WAR/KOREA,”TIGERS”
LATE 20TH CENTURY: ASIAN GROWTH
126. MING-QING CHINA
Dynastic cycle
The gentry
Clans
The Qing as non-Han rulers
The Qing as a high point of traditional China:
Extent of territory, size of population
Strong state
Strong economy: trade with the world
EARLY WESTERN CONTACT!
(but don’t forget the Silk Road!)
A large demand for Asian goods
But little demand for Western goods
The Portuguese
Maritime trade
1557 – Macau
The Dutch – VOC – Indonesia, Japan
Missionaries: Jesuits in Japan, China
Xavier in Japan
Ricci in China
The Spanish - Philippines (1571)
127. Portugeuse (blue) and Spanish (white) trade routes
And then the Dutch and the English….
REACTION:
CLOSING OF JAPAN
Persecution of Christians
THE RITES CONTROVERSY IN CHINA
Jesuits vs Dominicans
At issue: Confucianism
At larger issue: who rules - the Pope or the Emperor
1724 - Christianity (Catholicism) proscribed
Modern echoes…..
Schirokauer, Brief History of Chinese & Japanese Civilizations
AAIIYAA! GUEI!!!
“OPENING CHINA” - PART I
128. The Macartney Mission - 1793
Qianlong: “As your Ambassador can see for himself, we possess
all things. I set no value on objects strange or ingenious, and
have no use for your country’s manufactures”
COMING UP? - A “CLASH OF CIVILIZATIONS”?
BUT TRADE IN CHINA CONTINUED….
The Canton system (1760-1842)
Follows an earlier pattern
Sequester the foreigners,
require dealings through co-hongs
Unequal tax system
It worked well enough but
was unsustainable….
OPENING CHINA - PART II
The Opium War - still an issue in Asia
Lin Zexiu
129. Hong Kong
Treaty of Nanking (Nanjing) 1842
THE TREATY SYSTEM
(Nanjing & The Bogue)
“Unequal”
Indemnities
Treaty Ports -MFN -
Guangzhou, Xiamen, Fuzhou, Ningbo, Shanghai
Freedom for missionaries
Extra-territoriality
ALL THIS COINCIDES WITH ONE CRISIS
AND CAUSES ANOTHER
INTERNAL DECAY -
Over population
Corruption
Peasant rebellions
CULTURAL -
“How could this happen to us?”
Impact of foreign ideas
130. THE TAIPING REBELLION - 1850-1864
Hong Xiuquan
Proto-Nationalist?
Proto-Communist?
Anti-Confucian
Capital: Nanjing
Defeat by The Self-Strengtheners
Schirokauer, Brief History of Chinese & Japanese Civilizations
THE SELF-STRENGTHENING MOVEMENT
WESTERN TOOLS, CHINESE THOUGHT
“TI-YONG”
“CHINESE LEARNING AS THE BASE
WESTERN LEARNING FOR USE”
First “modern” militaries - had consequences
FOCUS ON INTERNAL AFFAIRS
131. THE “SELF-STRENGTHENERS”
“The situation today [is like the diseases of the human
body]…Both the Taipings and Nien bandits…constitute an
organic disease. Russia…aiming to nibble away our territory
like a silk worm, may be considered a threat to our bosom. As
to England, her purpose is to trade, but she acts violently
without regard to human decency…she [is] an affliction of our
limbs. Therefore, we should suppress the Taipings and Nien
bandits first, get the Russians under control next, and attend to
the British last.”
Schirokauer, p. 170
Schirokauer, Brief History of Chinese & Japanese Civilizations
CONTINUED WESTERN AGGRESSION
Treaty of Tianjin
Destruction of the Summer Palace
Russian gains along the Amur
CONTINUED IMPERIAL DECAY
CiXi
ATTEMPTS TO DEAL WITH THE CRISIS
Education reform
“State capitalism”
132. MEANWHILE…
JAPAN IS FORCED TO OPEN ITS BORDERS
THE OPIUM WAR
JAPAN A WAY STATION
PERRY – THE BLACK SHIPS – 1853
IMPOSITION OF UNEQUAL TREATIES
REACTION:
THE SHOGONATE LEANS TOWARD
ACCOMMODATION
SAMURAI IN THE REGIONS OPPOSE,
URGE RESISTANCE
“SONNO JOI” - 1860
“REVERE THE EMPEROR, EXPEL THE FOREIGNERS”
THUS, THE MEIJI RESTORATION - 1868
AN ATTEMPT TO RESTORE “TRADITION”,
LEADS TO MODERNIZATION
WHY? LEADERS REALIZE THAT WITHOUT
MODERNIZATION, JAPAN WILL GO
THE WAY OF CHINA
“THE CHARTER OATH”
GOVERNMENT CENTRALIZATION
“NEW” JAPANESE ARMY
133. FOREIGN VISITS
THE ROOTS OF “TECHNO-NATIONALISM”?
INTENSE INTEREST IN “THE WEST”
“PROGRESS”
“REASON”
“SOCIAL DARWINISM”
“REALISM” IN FOREIGN AFFAIRS
CONCERN OVER “JAPANESE
UNIQUENESS”,
“NATIONAL ESSENCE”
JAPAN’S “ASIAN MISSION”
RISE OF JAPAN
MEIJI
1895 - SINO-JAPANESE WAR
KOREA, TAIWAN
1905 - RUSSO-JAPANESE WAR
KOREA AS JAPANESE COLONY
MILITARISM (THE WESTERN MODEL)
EYES ON MANCHURIA
134. MILITARISTS IN CONTROL
THE WAR TO COME
“Asia for Asians”
“Greater East Asia Co-Prosperity Sphere”
BUT CONTINUED FAILURE IN CHINA
Continued defeats - Sino-Japanese War of 1895
Shimonoseki
“Scramble for concessions”
Yan Fu - “Wealth and Power”
“We thought that of all the human race none was nobler than
we. And then one day from tens and thousands of miles away
came island barbarians…they attacked our coasts…and alarmed
our Emperor. …the only reason we did not devour their flesh
and sleep on their hides was that we had not the power”
--- Schirakauer 195
“THE OPENING” OF CHINA BROUGHT
Economic disruption
Political difficulties
Opium War, unequal treaties, Taipings
Rise of anti-Manchu “nationalism”
Crisis of confidence
Half-way measures
Self-Strengthening - “Ti-Yong”
135. Modernization steps
Aim: To save the regime
Result: Undermined the regime
CHINA AS VICTIM: THE CENTURY OF HUMILIATION
THEMES
“Asian business success” today is part of
a political, economic and cultural response to historical trauma
Asian political-economic systems challenge “the standard
model”
Challenges and questions:
Rise or Rebirth? (Old traditions, New States)
“Clash of civilizations”?
Globalization?
Role of the state?
Development and democracy?
Democratic peace?
“Asian values”?
Problems of history
“Scratches on our minds”
Nationalism
The colonial question
CONSIDER
136. CULTURAL “RENAISSANCE”
UP FROM POVERTY
RECOVERY FROM WAR
The “Culture Argument”
The “Asian Model Argument”
The “Political Argument”
Legitimacy though economics/Nationalism
The “Globalization/American Peace Argument”
The “People Argument”
Leadership
Challenges
Post-WWII Identity
Reform
FDI
“Ersatz Capitalism”
Globalization
Competing in the global marketplace
OEM or Branding?
BUSINESS SYSTEMS
Conditioned by history and culture
Linked elements
* What are the authoritative institutions?
137. Law/Party/Custom
*How is the system coordinated?
Ownership/Networks/Management Style
Authority & Control
*How is the system organized?
Structure
Strategic Orientation
Market Relations
*What are the resources?
Capital/Human Resources/Social Capital
Personnel Practices
Why should we care about “business systems”?
All businesses (economies) are systems
Systems key characteristic: change one part, change all other
parts (problem of unintended consequences)
2.Appreciating the business system of your target
market/potential partner lets you anticipate issues, plan better.
138. “Multiplexity” “Hierarchy”
“Social Capital” “Informality”
“Culture”
One typology:
Post-Socialist economies
Emerging SEA economies
Advanced City economies
Advanced Northeast Asian economies
(including Japan)
Significant differences?
Using the Redding/Witt Framework,
define US business system
Education/Skills Formation
Employment Relations
Financial System
Interfirm Relations
Internal Structure
Ownership/Corporate Governance
Social Capital
Role of the State
139. China HongKong India Indonesia Japan
BUSINESS SYSTEMS
“GREATER CHINA”
PRC
SOES/Private/”Local”
China’s “Golden Rule” (MG)
Taiwan
Entrepreneurial/Hi-Tech/SMEs Family
Hong Kong
The “Hongs”/Family/Finance
Overseas Chinese (Huaqiao 华侨)
Family
“Bamboo Network”
Economist, “Capitalism Confined” 3 Sep 11
“Multiplexity”?
JAPAN
Keiretsu & Sosha (Kaisha)
Employment
“Patient capital”
Trust
SOUTH KOREA
140. Chaebol
Out of the 5 Year Plan
SOUTHEAST ASIA
Highly varied
INDO-CHINA
Thailand
Vietnam
BUSINESS SYSTEMS (Another look)
CULTURECOORDINATIONINSTITUTIONJAPANEmployment
Group norms
NationalismKeiretsu
Complex govt/biz coordination
Consensus“Patient capital”
Strong social capital
High quality HRCHINA (PRC)Confucianist
Hierarchy (duties, low trust)
“Communist” values“Socialist” market econ.
SOEs, “families”, private, local businesses
Complex (State, JVs, WOFEs, “local”)“Inefficient capital”
(NPLs)
Huge HR base
Weak societal links
Strong clan linksOVERSEAS CHINAComplex identities
Confucianist
“China Circle”Bamboo network
Family
Clan
RegionSMEs
141. Family firm
Personal networking
Guanxi
Flexible politicsKOREAConfucianist
Nationalism
TechnologyState plan
Centralized authoritarian mgt.Strong state
Respect for lawSOUTHEAST ASIAHighly varied (religion,
ethnicity)
Colonial heritageFDI
Emerging markets
Importance of Overseas Chinese“Crony capitalism”
Low levels of social capital
Leadership – One of the keys
Many types , but some shared characteristics
“Confucian”
Combination of authoritative/benevolent/collective/moral
Long Term…seeing relationships, “over the horizon”
Moral
Frugal, CSR
Employee-centered, firm as family
Relationships & Networks (guanxi 关系）
Work ethic
Pressing the buttons
China: $ (instrumentalism, exploitation)
Japan: encouragement (gambate)
Korea: stability
142. LEADERSHIP ORIENTATIONS IN ASIA
CHINA PERFORMANCE FUTURE GENDER =
HUMANEPOWER DISTANCE INST. COLL. IN-
GROUP UNCERTAINTY ASSERTIVE 445.0 375.0
300.0 436.0 504.0 477.0 580.0 494.0
376.0 JAPAN PERFORMANCE FUTURE
GENDER = HUMANEPOWER DISTANCE INST.
COLL. IN-GROUP UNCERTAINTY ASSERTIVE
422.0 429.0 319.0 430.0 511.0 519.0
463.0 407.0 359.0 KOREA PERFORMANCE
FUTURE GENDER = HUMANEPOWER DISTANCE
INST. COLL. IN-GROUP UNCERTAINTY
ASSERTIVE 455.0 397.0 250.0 381.0
561.0 520.0 554.0 355.0 440.0
McGREGOR: CHINA AS A START-UP AND A TURN-
AROUND
CAN APPLY TO ASIA AS A WHOLE
URGENCY & VISION: THE NATION-FAMILY
REFORMS: “FEELING THE STONES”
CONTROL AND ROUGH JUSTICE
(RULE BY LAW, NOT RULE OF LAW)
ELITISM/INEQUALITY
143. OTHER APPROACHES TO BUSINESS SYSTEMS:
“EASE”
“GCR”
THE CHALLENGE IS TO SEE HOW THEY ALL FIT
“EASE OF DOING BUSINESS”
STARTING A BUSINESS
CONSTRUCTION PERMITS
ELECTRICITY
REGISTERING PROPERTY
GETTING CREDIT
PROTECTING INVESTORS
PAYING TAXES
CROSS-BORDER TRADING
ENFORCING CONTRACTS
RESOLVING INSOLVENCY
ALL OF THESE DEAL WITH “RULE OF LAW” MATTERS;
“INSTITUTIONAL” ISSUES IN THE GCR FRAMEWORK
144. GLOBAL COMPETITIVENESS REPORT
A systematic approach to growth/”competitiveness”
From factor driven (basics) Teleological?
“Institutions”
Infrastructure Compare with Rostow?
Macro-econ. Stability
Health/Primary education (UNDP- HDI)
To efficiency driven (production)
Higher ed
”Goods market”
Labor market
Finance
Tech readiness/
Market size
To innovation driven
Management
Innovation support
THE ASIAN CRISIS:
DIZZY WITH
SUCCESS?
*
145. The Asian Miracle
Fastest Industrial Revolution The World Had Seen
Japan - from 1% of World GDP in 1960 to 18% : the second
largest economy (more than France & Germany)
The original tigers had moved to exporting twice as many goods
as all of Latin America
By 1995 East Asia (ex Japan) accounted for 12% of world
manufacturing output (3% LA and 2% EE)
By 1997 Koreans had reached close to UK per capita ’65
China’s per capita quadrupled in les than 20 years
1990s the economic center seemed to shift to the East
ADB
Possible Reasons“Asian values”
Success of Market oriented policies
Emphasis on importing foreign technology
Wealth distribution
Culture
Confucian Model
Educational attitudes
Strong top down philosophy
Deference to authority
Minimal welfare state-citizen’s expectation
147. Culture and PoliticsAuthoritarian power with ruling parties
Centralization
Asia’s Mandarin System:E.G: Cohort education (Japan)British
“civil service” culture
Interlocking/cross-border elite guanxi
Political Background
Extreme poverty post WW ll
Land distribution post war
US direct influence
Relatively equal income distribution
External threats and war
Resource ManagementLand Reform
Japan, South Korea & Taiwan land reform---created middle
class
Control of Minerals and Oil
Private Companies aligned with governments
Productivity
Meritocracy-Mandarin System
Social mobility
System trusted, with institutions that tend to be paternalistic
Literacy and education penetrating throughout society
148. InstitutionsStrong , high quality institutions & bureaucratic
structures (Dirigisme)Mandarin philosophy –Japan, Korea,
Taiwan, China & SingaporeSome countries inherited British
institutions-Hong Kong, Singapore, Malaysia
BUT…
Corruption high—cronyism and official corruption
Indonesia, Philippines and China
Prevailing Government PoliciesFixed peg to the US dollar for
most Asian exchange rates
Moderate over-valuation of local currencies beginning by 1996
Adoption of core Western belief –
“free capital movements underpin growth”
Use of short-term foreign capital for growth “hot money”
FDI and technology transfer
East Asia – Pre-crisis, ca. 1996The East Asia “miracle” -
World BankDouble digit economic growth Trade surpluses in
North AsiaTrade deficits in SE Asia Washington Consensus
pressure for capital account liberalization; removal of capital
controls in markets Huge inflows of international portfolio
capital - feeding stock market and property booms
EASY MONEY
BELIEF IN THEIR OWN PR
149. Up close, did business people see it coming? Maybe.
The FEER surveys
Easy MoneyEach country had opened their markets and with
interest rates lower in world markets—they borrowed heavily -
Expansion of offshore loansWith money borrowed, banks turned
around and lent it domestically for much higher rates becoming
ripe for speculators and rate fluctuations “Crony capitalism” -
no risk managementMoral hazard – belief that Asian banks were
too big to fail or governments would intervene
The result: unregulated private equity pouring in
Signs of Trouble
Prevailing Market BehaviorOver-reliance on international banks
& US dollars to finance growthA bubble in property and
infrastructure financeLack of transparency and adequate capital
& supervision in domestic banks
Economic Liberalization
Domestic Financial Systems Unable To Intermediate Flows
Effort to promote Thailand as regional center, freeing interest &
150. abolishing ceilingsSpeculative money poured in taking
advantage of newly developed financial marketsMoney from
outside moved into short term and real estate vehicles, short
term financingKorea’s deregulation of the Chaebol system—
credit allocation was based on cronyismInvestors worldwide
looking to make quick killing
Financial Market LiberalizationDomestic financial sector
deregulation led to massive private external borrowings
Proliferation of local financial institutions without adequate
capital, controls or risk management systems
Crony capitalism – including government directed lending and
overlapping ownership of banks and industrialists
Breakdown of government directed growth and controls over
external borrowing (except – China, Singapore)
What Precipitated The Crisis?Growing trade account deficits
combined with unexpected bank failure in Thailand and
government intervention shake confidence
Massive speculative shorting of the Thai Baht and Malaysian
Ringgit by Hedge funds
International banks began to pull short term credit lines or call
swaps
Lack of market depth (capital and banks) meant borrowers could
not hedge currency mis-matches or refinance domestically as
banks pulled credits.
1996-Tigers Begin to Hit WallSouth Korea export growth
151. plunged 32% to 4%Malaysia from 26% to 9%Thailand 25% to
less than 1%
Schuman, “Miracle” ��������
The Critical Timeline Autumn 1996- hedge funds start to target
Thai baht and Ringgit
1st Qtr 1997 – Major Bangkok banks fail and are taken over
Thai regulators start “cover-up” of massive swaps to defend
baht/ dollar peg which market begins to realize; speculation
grows
May 1997 – shift in $ / Yen balance draws speculative capital
back to Japan
July 2,1997 - BOT caves in and announces it will float the
baht . Immediate 25% decline
Contagion
Speculators move to ringgit , rupiah and peso
IMF sends team to Thailand – imposes austerity and interest
152. rate increases; currency continues to slide
August 14th – Indonesia abandons peg (from 2500 to US $1, it
goes first to 5,000 and will slide to 15,000 by Dec. 1997) . IMF
enters
November - banks pull most lines to S. Korea; rollover crisis
for S-T loans late December forcing US Treasury w/ IMF to
devise solution
International banks agree to “bail-in” Korea with orchestrated
rollovers and shared losses; Thailand & Indonesia flounder
with longer term restructuring programs under IMF control
Other Asian Reactions
Malaysia – refuses IMF / austerity.
Against IMF recommendation imposes capital
controls and fixes peg to dollar
Taiwan –will not defend currency; wards off speculators
HK – maintains long standing dollar peg
China – isolated by capital controls
Japan’s Role & Impact Vulnerable due to huge $ and Yen
lending by both banks and trading companies
Japan offers immediate G to G assistance for liquidity support.
Rebuffed by US and IMF
Japanese Banks begin to suffer massive NPL’s in already sick
economy (early 1998)
Result-Crisis forces a fundamental overhaul of Japanese
banking system; bursts long standing asset bubble in property
and stock market
153. Financial system further weakened High interest rates force
borrowers into default Specter of bank bailout Credibility of
fixed exchange rate further undermined
Domestic economy weakens Bankruptcies/bank collapses
Increasing unemployment Rising political unrest
Crisis Speculative attack on currency Capital outflow Spectre of
public debt default
Incentives to devalue increase Credibility of fixed exchange
rate further undermined
International Financial Crises
Typical Government Response and Feedback Mechanisms
Depletion of foreign exchange reserves Credibility of fixed
exchange rate further undermined
Government raises domestic interest rates
Exchange rate peg
comes under pressure
Macroeconomic imbalances
Competitive devaluation
*
Government Response & FeedbackThis slide attempts to
illustrate how the efforts of a government to defend a fixed
exchange rate can actually fuel a crisis. Governments basically
have two options to defend the exchange rate: 1) to use foreign
exchange reserves; or 2) to raise domestic interest rates (to
attract foreign capital, which in turn sustains the exchange
rate).The first generation theory of international financial
crises, developed by Paul Krugman, posits that the credibility of
a fixed exchange rate will be undermined if foreign exchange
reserves fall below some critical level because the government
will no longer have sufficient reserves to defend the peg.
Speculators will mount an abrupt attack on the currency,
154. accelerating the loss of foreign exchange reserves, thus forcing
the government to abandon its exchange rate peg..The second
generation theory of international financial crises, developed by
Obstfeld, focuses on the domestic economic consequences of
raising interest rates to defend a fixed exchange rate undermine
the credibility of the exchange rate peg.Raising interest rates
has two negative effects on the economy.First, it can threaten
the banking system because banks have to pass on the higher
interest rates to borrowers. Debtors may not be able to pay
back their loans at these higher interest rates, leading to
defaults that on a large enough scale, can threaten the banks’
solvency. This is illustrated by the pathway on the left side of
the chart.Second, higher interest rates slow down the economy,
leading to rising unemployment and potentially to political
unrest. This is illustrated on the right side of the slide.Investors
may judge at any given point that the economic “pain” caused
by the high interest rates needed to defend the exchange rate is
too great for the government to bear, and that the government
will not be willing to raise interest rates any further to defend
the peg.Instead, they will expect the government to abandon the
peg so that it can lower interest rates. This leads them to sell
off their holdings of foreign currency.
Political Change Meets Recession Withdrawal portfolio/bank
capital over the 3-5 yrs
Negative growth rates
Unemployment 6% to 20% in different markets
“Regime change” in South Korea, Thailand and Indonesia
Severe civil unrest in Indonesia (May ‘98)
IMF Reaction and Outcome
155. Riding to the rescue?
IMF RxFloating rate currency
Severe Government austerity
Immediate phase out of subsidies
Forced increases in interest rates to hold domestic capital
“Market force restructuring” – against immediate government
intervention to shore up banks
The Problem South East Asian currency markets reacted in the
OPPOSITE way to expected outcomes of IMF in terms of
currency values and stability
Major capital flight- added to currency pressure in Indonesia
First round of IMF money all lost and 2nd round bailouts of
money needed
Why Did IMF Fail?IMF prescriptions were largely for sovereign
debt crises in Latin America where government itself was over-
extended
Asia- private sector crises with too many lenders to control
IMF did not understand system or depth of the structural crisis
or how to fix it.
Collapse of Asian BanksFailure to save banks by government
capital injections (except South Korea)
Massive rise in Non Performing Loans
156. Governments took bad assets or entire banks through “AMC” –
Asset Management Companies
Real recoveries on NPL very low – less than 40 cents and
sometimes pennies on the dollar
Governmental Responses To CrisesBowing to Washington
Consensus
Bringing in outside experts (Jeffrey Sachs, etc.)
Putting up blocs and barriers
Government strengthening power
Government Losing Power -deposing leader or political party in
power
Market ChangesForeign Banks entered Asian markets (ex
China) by 2000 in meaningful way –by building new businesses
more than buying old banks
Bank consolidations were forced among domestic players to
meet international standards by regulators
Capital markets massively impaired and still struggling to come
back in SE Asia
Continuing “rise” of China and India--as export competitors
and as destinations for FDI
New Money Players Here To Stay Banks are no longer “risk
players” in region
Shifted focus to consumer banking for growth and profits
Western private equity and hedge funds have provided “risk
capital” for industry consolidation and made the big money out
of the crisis
Rising political protectionism in some markets
157. Still Struggling No more “Miracles” : Asian growth overall
has not gone back to double digits in most markets despite
huge surpluses
Economies struggling to maintain 5-7% annual growth needed
to control unemployment in their populations
China is now the Asian Region’s heart and engine supplanting
Japan
India: an emerging player
What’s next?
Crisis response:
Mindset - Samsung
Management - Nissan: Ghosen, divestitures
Sony: need to overcome “stovepipes”
Governance: Korea - reforming chaebols
not easy
Chinese family firms: succession issues, erosion
of the old “bamboo network” (a new one?),
legal issues (insider transactions?)
Chinese SOEs: management reform, corruption,
branding, NPLs
158. “ASIA”
ASIAN BUSINESS AIMS
ASIAN LITERACY
INTERNATIONAL BUSINESS LITERACY
West-East, East-East
LOOKING TO THE FUTURE
HYPOTHESES
“Asian business success” today is part of
a political, economic and cultural response
to historical trauma
Asian political-economic systems challenge
“the standard model”
ASIA AT NIGHT
SOURCE: GOOGLE MAPS
http://www29.homepage.villanova.edu/christopher.haas/SilkRoa
d-map.jpg
EARLY ROUTES…PRE-HISTORY…
159. SCYTHIANS…ALEXANDER…INDIA…PERSIA
”SILK ROAD”…
…and SEA trade/migration
TRAVELERS
ACROSS THE
STEPPE
~1900 BCE
Source: “Asia: More Self-Contained” FT 10 Aug 2010
National
Intelligence Council
(NIC):
Mapping the
Global Future:
160. Projected GDP/cap
2050
India US$19,900
China US$34,500
PriceWaterhouseCoopers “The World in 2050: Beyond the
BRICs” March 2008
COMING TO GRIPS WITH ASIA TODAY
The need for a multi-disciplinary approach
History
Politics
International Relations
Political Economy
Economics/Trade
Cultural Studies
COMING TO GRIPS WITH ASIA TODAY
Challenges and questions:
Rise or Rebirth? (Old traditions, New States)
“Clash of civilizations”?
161. Response to trauma: national PTSD?
Globalization?
Role of the state?
Development and democracy?
Democratic peace?
“Asian values”?
Problems of history
“Scratches on our minds”
Nationalism
The colonial question
POLITICAL ECONOMY
STATES & MARKETS, WEALTH & POWER
AUTARCHY
MERCANTILISM
INTERDEPENDENCE
COMMAND ECONOMIES
THE DEVELOPMENTAL STATE
IS THE PAST PROLOGUE?
NORTHEAST ASIA:
China as the “mother ship”: culture, rice
162. SOUTHEAST ASIA
Sino-Indic collision in Vietnam
Indian reach
Ethnic shatterbelt
THE CENTRAL ASIAN NEXUS
INDIA
Cultural Glory, Political Inertia
OLD TRADITIONS, NEW STATES
Problems Of History, Problems Of Colonialism
TWO QUOTES FOR TODAY….
The 21st century has opened and will close with two puzzles
about the rise of Asia. Today, the puzzle is why Asian societies,
long in the doldrums, are now successful. At the century's close,
by contrast, historians will want to know why Asian societies
succeeded so late, taking centuries to catch up with a Europe
that they had outperformed for millenniums…. Centuries of
European colonial rule had progressively reduced Asian self-
confidence. -- Mahbubani, TIME
[T]he Asian bureaucracy, notably in China and India, remained
the bastion of intellectual culture, civilization, and tradition.
But it was also the inward-looking, self- satisfied complacency
of Asian bureaucracy, combined with the corruption and
profligacy of the ruling elites, that grossly underestimated the
technological ascendancy of the West…. More than anything
else, it was the humiliation caused by colonization and war that
drove home the realization that Asian institutions had to change
163. everything even down to the core values.
-- “The Asian Network Economy in the 21st Century”, by
Andrew Sheng
http://siteresources.worldbank.org/INTEASTASIAPACIFIC/Res
ources/226262-1158262834989/EA_Visions_15.pdf
