HSBC Chairman's Speech
There were some very worthwhile comments and perspectives made in a speech by Sir John Bond, Group Chairman, HSBC Holdings plc, given at the Foreign Policy Association (FPA) Financial Services Dinner on 2/13/03, where he was given the FPA Medal.
So let me begin with a paradox. It is this: just as more people than ever before in history are migrating to developed countries in search of work, so much of that work is beginning to move from developed to developing countries. I believe a major beneficiary of both these trends will be China.
As the world’s economies integrate further, for the first time ever, things that can be done more effectively in China and India, for example, will be done in China and India.
This movement of jobs will lead to increased incomes in
developing countries, it will unleash a new wave of spending power there as they
build consumer markets. Much of that spending power is going to be in China and
India as middle-class incomes move from 15,000 to 50-60,000 dollars or whatever
it might be. This implies that there should be massive growth potential in these
markets on a scale we don’t appreciate right now. Clearly it will only be a
segment of the population that moves quickly up the income scale.
This gives rise to so-called “sweet spots” in consumer markets when incomes
reach between 3,000 and 10,000 dollars and consumption of consumer goods
increases sharply. Which is why China bought 1.1 million new cars last year
compared to less than half that number five years before. Today China is the
world’s largest market for mobile phones; by next year it will be the world’s
largest market for digital cameras and the second-largest for PCs. As jobs go to
China, the result is a pricing pressure on other economies in the world.
For perhaps 90 percent of the last 2000 years, China has been the world’s major economy. China has developed to what it is today from a civilization that dates back over 4,000 years. China has both a tradition of Buddhism – which promotes the growth of the individual – and of Confucianism – which places the well being of the family and of society above any individual’s needs. This ability to live with ambiguity is a trait often found in Asia, less so in the West.
While the Cultural Revolution left its mark, China has met the challenge of re-building its economy by once again showing a remarkable ability to assimilate and adapt ideas from “outside”, to develop “socialism with Chinese characteristics”.
I would say that the two countries with the greatest sense of nationalism and patriotism that I have seen are among the oldest and youngest: China and the USA. The rude interruption to the huge sweep of Chinese history was the arrival of Europeans; Europeans with a history of practising warfare and empire building. The changes wrought by this led to two hundred years of relative instability and the adoption – and adaptation – of elements of a Western ideology, communism. In the Chinese people, there is a deep-rooted confidence in their own culture, their own civilisation and that, in the long run, they will restore China to its rightful position in the world’s pecking order. China, because of its size, has always been a – or the – major economy in the world. When China starts to approach the per capita standard of living of the West, we will see the most powerful economy ever.
The leadership today is well aware that its mandate – as for the dynasties of the past – comes from the will of the Chinese people. There are no alternatives to reform in China; the only debate is the pace of change.
It is certainly an excellent sign that China is about to complete its first orderly transition of power from one generation of leaders to the next since the 1949 revolution, given the enormous challenges China faces in its transition from a rural to a more urban society; from a state-run to a private enterprise-based economy; and in establishing the rule of law and contracts and, in common with many countries, of eliminating corruption.
In Shenzhen – the economic powerhouse next to Hong Kong – reforms are being put in place to separate the powers of party and government from business activities, and to develop the legislature in a conscious attempt to echo Western systems of corporate governance and a legal system compatible with a fully developed economy. During the process of planning these reforms, they studied models from the UK, Singapore and Hong Kong. Incidentally, Shenzhen now has 300 companies run by Silicon Valley returnees and 1,000 foreign-educated Chinese move there each year. People left China steadily during the past 200 years, but these emigrants never lost their love of their country. The return of the overseas Chinese is likely to be one of the great migrations of the 21st century. And the 55 million overseas Chinese around the world – the bamboo network – are responsible for about two-third’s of China’s Foreign Direct Investment, about 200 billion dollars over the last 20 years.
The mass consumer markets of tomorrow are in China and other developing economies: India, Mexico, Brazil. Goldman Sachs estimates that developing markets will provide about half the growth in demand in the world economy over the next thirty years – those consumer sweet spots like China’s cars. So we will see the rise of China as a new or, they would say, restored power. I am excited by the prospect. And I believe the West today has a great opportunity to engage with the new China. I always remember the Chinese character for threat is the same as the one for opportunity.