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Joerg Wuttke: China will be the factory of the world
June 28, 2011
As China continues to develop, will it become an attractive destination for foreign investment?
China has been quite successful in attracting European, American and Japanese investment. Look at the data – it’s a hundred billion USD a year. So the question is as we look into this back mirror and see the huge success of companies in China, are we going to be successful in operating and investing in the future? That’s a big challenge. I was chair of the European Chamber for a couple of years in China. We found more and more problems.
But from the Chinese economy point of view – a GDP growth rate of 7 to 8% at least sees this growth pattern ensured. China’s going to be the factory of the world and we are all going to be very eager to be a part of that.
What are the biggest challenges for Western businesses operating in China?
When I started as chairman of the European Chamber, the position paper which outlines the issues that face businesses in China was about 300 pages. When I left 3 years later it was around 700 pages. This not only shows that there’s more complexity in the Chinese system, but also that there’s something wrong in the investment climate. We have to be very adamant in talking about this with Chinese government officials. Yes, there are quite a number of issues on licenses, on standards, on IPR [intellectual property rights] and so forth – and many of our companies actually see more complaints. But against the backdrop of better business, more business and more profitability it’s sometimes hard to argue that we are left behind in some areas. All in all the market is growing and we have a sizeable stake in it. But percentage wise we’re shrinking, and access to the market is more difficult.
What impact might inflation and the value of China’s currency have on investment prospects?
Inflation is a temporary thing. I think there’s baloo in the newspapers, and the government in China also adds to this by being very cautious and cutting down on prices and so forth. But it’s going to peak at 4.5-5% and then go down. We won’t have anything like the South African 10, 20, 30 or 100% inflation. It’s an immediate thing, it’s not going to have any major constraints on investment for the time being.
But, it will remain structurally. China had deflation for ten years. China was responsible for the low price development all over the world. Now with this structural of somewhere between 2-4%, depends on which year, China will contribute to inflation globally. That’s a big change. The Renminbi is going to strengthen as the Yen did in the 70s and 80s. There is absolutely no doubt about that question. The rise of the Renminbi will have three impacts that I can immediately foresee – one is that the Chinese consumer will buy more foreign goods. So Europeans will be happily sending luxury goods, food or more chemicals into China. Likewise the U.S. will see more opportunities. China will turn into a consumption story. Secondly, of course, China will have more firepower to buy oil, gas and iron ore. So for other parts of the world it will be more expensive as China has more spending power. The third impact is that China will be more able to buy companies and assets in Europe and the US and Japan. We will see a massive increase in Chinese investment in the Western world. I wonder if our politicians are ready for that.