Paul Denlinger: China’s Strategic Future
In this episode of the Competitive Futures Podcast, we interview Paul Denlinger of China Vortex, an author, investor, and executive advisor who specializes in U.S. – China commercial activity. He’s a rare bird indeed, completely fluent in Mandarin and English and totally familiar with the executive leadership mentality of both countries. In this episode, he gives the audience some forecasts about China that you (unfortunately) just won’t be hearing in other media:
- The crash of 2008 shook China’s faith in the U.S. and sent their strategy away from engagement to the creation of a massive Chinese middle class they hope to drive the world economy
- China will ramp their use of coal significantly on the way to dominating the world market for renewable energy
- The markets for many raw materials are being cornered by China today and may leave other countries in the lurch if they don’t act soon
All of this, plus invaluable insight about how the Chinese mentality on the future differs considerably from that in the West.
We hope you enjoy listening to this interview as much as we did making it.
Rebirth of the “made in America” brand
Most consumer purchases in the United States, large and small, involve reading the tag “Made in China.” Everywhere. Everything. Baby toys, shower curtains, plastics of any sort, iPods, furniture – it seems lately that the only thing in America that isn’t made in China is AMERICANS. Maybe we’ll even figure out how to outsource that…
A tip for trend analysis – every major trend has a counter trend. The megatrend of Asian manufacturing is now leading to a powerful counter trend of repatriating operations to America, or at least to make it look like it’s a key component of your brand.
You can see this movement in the “manifesto” commercial for the new Jeep.
Will others competitors follow along?
China, Google, and two notions freedom
Paul Denlinger, a very astute observer of U.S.-China business relations has a fascinating piece up at China Vortex discussing two very different notions of freedom of information that are colliding soon.
One view, ostensibly “American,” is being espoused by Google, Facebook, and their respective CEOs. In short, this view is the early Internet mantra of “Information Wants to Be Free.” Opposing them is the Chinese government, which obviously believes that government should play a role deciding which information goes where in a society.
Read Denlinger’s analysis and decide whether the issue of “information sovereignty” and “individual rights” are as clear as you might think. It just goes to show the incredible role culture needs to play in all of our analyses of the market.
Failed states are great for the Chinese economy
Go to your newsstand and pick up a copy of Foreign Policy magazine’s July/August 201o issue entitled “The Committee to Destroy the World.” It’s a fascinating, broad analysis of all those countries who don’t play by the rules set out by industrial powerhouses – and why they don’t. If you sweat about the failure of American pension funds, Icelandic treasury bills, or German austerity, then cast also an eye toward North Korea, Zimbabwe and Iran for contrast.
One particular item of interest – failed states aren’t all bad, according to the magazine. They make for cheap and pliable partners for China when it comes to natural resources. We reported on this trend back in 2007 with our STEEP Report series, how China’s massive investment in infrastructure requires a broad range of partners, most of whom then become warmer to the rest of the Middle Kingdom’s strategic goals.
Click on the image for a map of China’s investments in natural resources.
If Machiavelli was revaluing Chinese currency
The US has come close to labeling China as a manipulator of exchange rates. The undervalued renminbi allows for cheap exports, especially into their largest market: the EU. The last G-20 talks were a concerted effort to pressure China to allow the renminbi to rise, and last week the US got some, but not nearly enough. China has opened up to a crawling peg: a feckless economic move but a highly deft political move.
Since the last G-20 talks, the EU was emasculated by the Greek and Spanish crises, to which the US had to divert efforts away from nudging the Chinese into a more buoyant exchange rate. Even before loosening the exchange rate the renminbi had strengthened to the euro. Why would China allow their exports to become more expensive to their largest markets? China now has left the US flat on its heels with only a week to prepare complaints about the actual topic at hand—doing business in and with China—before the G-20 talks in Toronto, June 26-27. Brilliant timing.
Now, what is China’s end game in this? Obviously, the value of its currency is merely a tool in its larger political and economic strategy. So what does this mean and where is China going?
China’s debt risk management isn’t much better
It looks like the United States and England aren’t the only countries facing billions in bad loans.
When you read “trillions of renminbi of defaulting loans already in China that no one is doing anything about,” you perk up about the coming crises in sovereign debt and realize it is truly global, with global repercussions.
Sign up for the free Competitive Futures Trend Report for more analysis on this topic.
Interview for Korea’s KRX Magazine: Small, smart companies and more
With the release of Future, Inc. in Korean and Chinese, I’ve had the great opportunity to do interviews with Asian business magazines. I find that they ask more interesting, more insightful questions than many of their Western counterparts, so they are often fun interviews. The only problem is, once they are translated, I have NO IDEA what they said.
I just finished an interview with Korea’s KRX Magazine, which covers the Korean stock market and business in general, and I decided to post the whole text in English, so someone can appreciate it.
The questions:
Companies have hard time in business due to the global financial crisis. What new trends can we look for?
The most important trend is away from the philosophy of growth at all costs. For years, particularly in the United States, management has followed a typical playbook – get big, quickly, through borrowing money from private venture capital or public offerings. Then, you can go national or international, reaching bigger markets and gaining leverage over vendors and distributors. Once you have leverage over vendors and distributors, you cut costs by firing excess employees and force downward price pressure on the market. With the extra cash from operating expenses, you buy more national or international companies. For around forty years companies have repeated this formula.
The theme here was BIG BIG BIG. The problem with “big” is that it sometimes comes at the expense of “smart.”
About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.About Dan Vecchi
Dan Vecchi is the director of economic risk analysis for Competitive Futures. He helps leaders examine their investments in countries around the world, exploring future options and ensuring profitability in the years to come. He speaks natively fluent English, Spanish, Italian and works regularly in South America as well as Europe.New project: Manufacturing 2020!
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