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By Greg Hugh, Staff Writer

The topic for the March meeting of U.S.-China Business Connections (UCBC) was Socialism with Chinese Characteristics including the subtitle From Revolution to Reform to Response to Global Financial Crisis. The addition of this subtitle becomes apparent as the discussion is conducted by the panel of speakers that included Mike Xiong (co-founder of UCBC) of Thomson Reuters; Hong Cai, US Bank; and Sam Wils, US Bank. By Greg Hugh, Staff Writer

The topic for the March meeting of U.S.-China Business Connections (UCBC) was Socialism with Chinese Characteristics including the subtitle From Revolution to Reform to Response to Global Financial Crisis. The addition of this subtitle becomes apparent as the discussion is conducted by the panel of speakers that included Mike Xiong (co-founder of UCBC) of Thomson Reuters; Hong Cai, US Bank; and Sam Wils, US Bank.

At the beginning of the presentation the following outline was provided as a guide as to what was discussed:

• In 1949, only socialism can save China
• In 1979, only capitalism can save China
• In 1989, only China can save socialism
• In 2009, only China can save capitalism
• Background
• Economic Policy Timeline
• Government in action:  Stimulus Package Contents
• Response to Financial Crisis: A New Round of Reform
• Impacts on Chinese People

The panel also identified and discussed a number of movements that have taken place in China as follows:

First Modernization Movement—Keep Confucius, borrow Western technologies
Second Modernization Movement—American Style: Chinese version of “of the people, for the people and by the people”
Third Modernization Movement—Soviet Style: Localized communism-nationalism. Land Reform
Fourth Modernization Movement—CCP led capitalization. Economic pragmatism, political Conservatism

The panel asserts that the Cultural Revolution was based on Marxist historical theory that the upper social structure must match the social infrastructures. Since China had completed production property public ownership reform in the 1960s, the social upper level including its key element – culture – must match that change.  All past history, customs, arts and literature must be discarded. A new culture should be created. Mao wanted to use this theory to regain this power. The Cultural Revolution brought China to the brink of bankruptcy and resulted in a huge loss of educated and talented people in every sector of social and economic life.

After Mao’s death in 1976, the party’s veterans gained the power and arrested the Gang of Four, including Mao’s wife, and used them as the scapegoat for Mao’s crimes

In 1978, China started to normalize its economic life, colleges started to enroll students in late 1977 and the Communist Party started to adopt a new policy of open-end reform with the new leader, party veteran Deng Xiaoping.

After nearly 10 years of open-end reform, as well as ideology liberalization, many educated people and young college students realized that the government should initiate compatible political reform to get rid of growing corruption in the economic life. And this led to the democratic demonstration of 1989. Deng decided to crack down on the peaceful student demonstration due to his conservative ideology and fear of uncontrollable government. The massacre of June 4, 1989 severely damaged China’s image and incurred condemnation from international society.

In 1990-1991, China was on the way to reverse the open-door and reform policies when Deng came up from semi-retirement and pushed the government for further economic reform and being open to foreign investment. China’s economy has since grown at a double-digit rate.

In 2001 China was awarded the chance to hold the 2008 summer games in Beijing by the International Olympic Committee. This event serves as a turning point for the Chinese to regain its long-lost national dignity and political influences.

The Chinese have been the victims of social disturbances caused by the slow transition to modern society due to thousands of years of tradition.  Foreign interference only partially contributed to this hardship. The stability and consistent economic growth as a rising world power will greatly depend on how China makes serious efforts in the transition from party rule to the rule of law.

While China was coping with advances in the fields of science and technology, the following events in the areas of politics, humanities would have its effects on
China’s future development:

•  1971, Lin Biao crashed in Mongolia after a failed power struggle with Mao
•  1972, Richard Nixon visited China
•  1976, Cultural Revolution formally ended
•  1979, U.S. and China formally established diplomatic relations
•  1989, Tiananmen Massacre occurred
•  1997, Hong Kong handover to China completed
•  2001, China won bid to host Olympic Games
•  2008, Beijing Olympic Games held

Communist ideology is gone. Nationalism and Confucianism are back.

Western societies are based on trade, property rights and equal opportunities protected by the rule of law enforcing checks and balances and democratic procedures. Chinese society instead extends the family order to society. For example, names within families are many and very distinctive so that members of the family understand the hierarchy of relationships.  You are treated as a family member in this complex web if you gain their trust. Trust is more important than law.

Despite the external changes in China, relationships and building connections require as much or more effort than that spent on marketing and other business development activities.  This makes investing in China a long-term business.

ucbc_slide_8_copy

Response to Financial Crisis: A New Round of Reform

China’s Current Advantage:
•  Stable fiscal and financial systems
•  Huge foreign exchange reserves
•  On-going industrialization and urbanization process
•  Labor cost advantages

China’s financial system:

• Develop a financial system regulated by the central bank, with state banks as the major players.  Maintain separation of policy-related finance and commercial finance, while encouraging cooperation among various financial institutions

• The government plans to remove loan quotas and ceilings for all lenders, and increase bank credit for priority projects, including rural areas, small businesses, technology companies, iron and cement companies (Pros & Cons).

Growth Pattern Needs to be Changed:
•       Move from exports to domestic consumption
•       Move from competition using low-cost labor to independent technology innovation
•       Move from manufacturing to service industry 
ucbc_slide_9_copy
According to the panel of speakers, these changes offer the Chinese government policy opportunities which likely were discussed at the recently concluded National People’s Congress meeting.
– Only 8% of current stimulus spending is allocated to social spending—1% for health and education, 7% for public spending
– Strengthen social security system to encourage consumption: saving rate of 25%+ with a minimal safety net for education and medical expenses
– Support for the elderly
– Make benefits available to all regardless of place of origin
– Support small business creation and job re-training to remediate wide gaps in human capital
– So what does all this mean?  In the opinion of the panel, Change=opportunity.

The presentation/discussion concluded with a Q & A session.

Future UCBC Breakfast Meetings

The April meeting of UCBC will be held Wednesday, April 1, 2009.  The topic is Environmental Opportunities in China  and will be presented by Steve Riedel, Minnesota Trade Office.

The May meeting of UCBC will be held Wednesday, May 6, 2009.  The topic will be China Business Travel Tips featuring speaker Melody Zhou and others from CIAC Travel.

The UCBC meetings are held at Minneapolis Community & Technical College, 1501 Hennepin Avenue, Wheelock Whitney Hall, Room L3000 (3rd Floor), Minneapolis, MN 55403.

The fee is US$20 per person.  UCBC members and college students are free.  Everyone can bring a guest who can be admitted for half price (US$10).   To register, e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or call Jim Smith at 612-8656543.

For free parking at the MCTC Ramp, please mention your name for the UCBC meeting to the parking staff. The MCTC parking ramp is located at 1420 Hennepin Avenue (north side of Hennepin Ave). Additional information on parking: http://www.minneapolis.edu/parking.cfm

 

 

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About

CHINAINSIGHT (CI) is published monthly ((except July/August and November/December are combined) by China Insight, Inc., an independent, privately owned company started in 2001 and headquartered in the Twin Cities area of Minnesota.

CHINAINSIGHT is the only English-language American newspaper to focus exclusively on connections between the United States and the People’s Republic of China (PRC).

Our goal is to develop a mutual understanding of each other’s cultures and business environments and to foster U.S.-China cultural and business harmony.