China’s Five Surprises
(Edward Tse)

Executive Summary

In the world’s fastest-growing economy, the last 10 years are not the best guide to the next 10 years.

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function,” F. Scott Fitzgerald once wrote. He might as well have been describing the future of China. There are at least two prevailing views about this country’s emerging global identity. Believers assert that by 2030, if not sooner, China will be the world’s largest economy. It is already the fastest growing, averaging a 9 percent GDP increase annually over the past 20 years. Skeptics respond that its growth is bound to falter, soon, amid the environmental, social, and political problems brought on by rapid expansion.

“Why Not Me?”

Many foreign investors base their business plans on the assumption that their Chinese counterparts are simply low-cost competitors. They will be surprised by the ability of some of these companies to compete on product and service differentiation as well.

The most critical factor for Chinese competitiveness is the historical source of the present-day Chinese mindset. Beginning in the mid-1800s (the latter part of the Qing dynasty), there was a period of relative technological and economic stagnation in China, capped after 1949 by more than 40 years of economic standstill under Communism. Only in 1992, when Deng Xiaoping made his now-famous “southern visit” to the city of Shenzhen, was the current wave of economic momentum unleashed.