Ben Shenglin: My Dream-The Rise of China Inc.

2014-10-18 IMI

Ben Shenglin: Executive Director and Council Member of IMI; Dean, Academy of Internet Finance, Zhejiang University First of all, thank you for the opportunity to speak at this prestigious London Business School forum. When I was invited, I was not aware that I would be joining a session packed with bankers. As you may know, after I left my 20-years of banking career in May this year, I have been trying to stay away from bankers and banking as much as I can. My topic today is the rise of China Inc., the rising Chinese companies on the world stage，it is my version of “The China Dream”. In order to do this, let me fist put this topic in a historical and global context. The First Industrial Revolution and the British leadership Back in 1769, in this country a Scottish, named James Watt, invented the steam engine, marking the beginning of the First Industrial Revolution (“FIR”) and UK was the unrivalled leader in this revolution that helped establish and consolidate Britain’s position as the imperial power of the world for the following century. At that time, United States were just founded as a new country while China was enjoying a long period of prosperity under the Emperor Qianlong, who was busy discovering the beauty of southern China, in particular Hangzhou – my new hometown: HM embarked on his excursion trips of southern China 7 times, he and the whole country did not bother to care about what was happening then in the rest of the world. It was almost a century later (in 1862) that China made the first steam engine in the city of Anqing, Anhui Province. The Second Industrial Revolution: from UK to US In 1831, British scientist Michael Faraday pioneered the invention of “electric generators”, followed closely by Carl Jacobi in Germany and Nikola Tesla in the United States. Then in 1876 and 1886 respectively telephone and lighting were invented by Bell and Thomas Edison, both in the United States. These inventions were hallmarks of the Second Industrial Revolution (“SIR”), which propelled the USA as the ultimate world leader. Some of the leading global companies today including GE and Siemens were a result of the SIR. At that time China was busy fighting a civil war (Taiping Kingdom of Heaven unrest) first in 1860’s and then foreign invasions including the humiliating loss of Sino-Japanese war in 1894. China’s involvement in SIR was as remote as the FIR, with China managing to make the first electric generator only in 1928. The US-led Third Industrial Revolution, so far 1940’s were considered the beginning of Third Industrial Revolution, characterized most notably by information technology. IBM invented the first computer in 1946; Hewlett Packard was founded in a garage in Silicon Valley in 1938. Then a sleuth of technology breakthroughs were pioneered by the United States: in 1955 Nobel Prize winner William Schokley in Bell Lab invented the Conductor, which led to the establishment of Fairchild Semiconductors and then in 1968 the Integrated Circuit Company Ltd – the famous Intel. While Intel revolutionized the microprocessors, making it possible for ordinary folks to have access to computers, but it was Microsoft and Apple, established in 1975 and 1976 respectively, who made real “the personal computer”. Then in 1969, the internet was invented and the first man was walking on the moon. Just like the FIR and SIR, China was preoccupied with other domestic crises including the Sino-Japanese War, Civil War and Cultural Revolutions. While the developed world was enjoying the TIR, we were literally still living in the age of FIR and TIR. 1923 IBM founded 1938 Hewlett Packard founded 1945 First nuclear bomb 1946 First computer 1955 semiconductor invented by William Shockley, Bell Lab 1968 Intel founded 1969 Internet invented, Man on the Moon 1970’s Eugene Kleiner pioneered venture capital 1975 Microsoft founded 1976 Apple founded 1978 China opens up Whatever had happened so far in the rest of the world had very little to do with China, as we were inward-looking, we were preoccupied with domestic (and sometimes pressing) issues or crisis situations. China’s catch-up since 1978 1978 ushered in a new era, as China decided to adopt the unprecedented experiment of “open door” policy. That year was a year of the horse, 36 years ago，just like this year according to China’s Zodiac system of every 12 years. China’s GDP was a mere RMB365bln, and foreign exchange reserve was a paltry of USD167mln. When China decided to open up to the rest of the world, at that time China and the rest of the world LITERALLY lived in different universes. We did not even have (private) companies at that time; or we just had ONE: the whole country was organized under one umbrella: People’s Corporation of China. Private companies were forbidden. At that time, I was a 12 year-old middle-school student in rural area along the Yangtze River and I had one dream: I could eat rice every meal, every day. And the only way to achieve this was to get admitted to a university, which would get me out of the rural China. 12 years later, in 1990, which was another year of the horse, 24 years ago. China had the opportunity to host the first major regional event: Asian Games in Beijing, that was the first “coming out party” for China. I went to the USA, with a total of 225 US dollars in my pocket, hoping that one day -People in the West would know the differences between Singapore and China; -Chinese leaders will be able to communicate in English, would not be afraid of going on CNN’s Larry King Live. -Chinese students in the USA could choose the major they like to study, not what they have to study. There was no single Chinese company, which people outside of China could remember. The difference between China and the USA then was more than Yangtze River, it was like “the Pacific Ocean”. 2002: 12 years ago, I lived just next door, in the St John’s Wood area. I enjoyed crossing the park every day as I went to work in the City. I was hoping that -people in UK would know a bit more about China than just the names of Beijing, or Peking. -we would have our leaders who can go and talk on BBC’s “Hard Talk” show. I was the only Chinese passport holder studying in INSEAD, attending the International Executive Program. At that time the only Chinese brand the world knew was probably Tsingtao Beer, if you visited Chinese restaurants. This year I became a board director of Tsingtao Brewery. The gap between China and UK then was more like The (English) Channel. Let us fast-forward to 2014: today we are now the world’s No 2 economy in terms of GDP, No 1 in foreign exchange reserve, largest nation of international trade, increasingly a net exporter of capital in terms of outbound investments. Today thanks to internet, globalization, trade and investment, Chinese people know more about the world,, and the world knows a lot more about China, Chinese companies and Chinese people. -Today many people in UK and other parts of the world know a lot more about China, Chinese cities, Chinese culture. Many non-Chinese are able to speak fluent Chinese, many more are learning Chinese. -They also know RMB, the Chinese currency. I was here in London and Frankfurt earlier this week to do a roadshow on RMB Internationalization, the first of its kind by a Chinese think-tank. -The convergence between China and UK/ROW is more like Thames River. China’s remarkable growth since 1978 (in RMB Bln)

Source: National Bureau of Statistics, China Zhejiang and Shenzhen will lead the rise of China Inc. Many Chinese companies and products are increasingly better known globally, not just the big state-owned enterprises, the big banks, but also the private sector companies like Huawei, they are not just in traditional trading business or restaurant business (many Chinese PhD graduates would open one in the past), their endeavors are now in many other leading industries from technology, pharmaceutical to consumer goods; they are not just state-controlled sector giants like ICBC and BOC in banking or Sinopec and PetroChina in energy, more importantly we have a thriving private sector, some of the leaders have already grown into globally-competitive players, such as Huawei, Tencent, Alibaba, Geely, and these companies are not headquartered in Beijing, Shanghai or Hong Kong, the Chinese cities you are most familiar with. While Beijing, Shanghai and Hong Kong have their respective roles in the context of Chinese and global economies. I want to draw your attention to two internationally under-appreciated Chinese cities: Shenzhen and Hangzhou. Shenzhen, a fishing village before the open door policy, is now a metropolis of over 10 million people and is home to corporate champions like Huawei, Tencent, China Merchants Bank, PingAn, Vanke as well as a stock exchange. Hangzhou, on the other hand, is a city with rich history and is the provincial capital of Zhejiang. According to Chinese standard, Zhejiang with a population of about 50 million, is considered a medium-sized province. What make Zhejiang special are the entrepreneurship and the thriving private sector. Approximately 30% of Top 500 Chinese POEs (privately-owned companies) in China are controlled by Zheshang (“Zhejiang entrepreneurs”), over 6 million Zhejiang natives are living outside Zhejiang, including 1.5 million living abroad. They are responsible for the widely-accepted fact that Zhejiang’s GNP is 3 times of its GDP and have been able to establish a formidable network of Zhejiang Chambers of Commerce across the globe. In Zhejiang, the number of officially registered companies amount to 4.2 million, with the self-employed and those diaspora, most of whom are entrepreneurs and small business owners, it is suggested that one out of 5 Zhejiang natives is a business owner, an amazing level of the entrepreneurship. It should not be a surprise that the next Alibaba may come from them! China has become a leading source of outbound investment (in USD Bln)

Data Source: Ministry of Commerce, China Will You Join Us? Ladies and gentlemen, according to a recent Forbes study, 100 Chinese companies including those in Hong Kong and Taiwan are already on its Top 500 Global Companies list. But I want to share with you a dream I have today: Chinese companies will not just be bigger, but become stronger and more responsible global corporate citizens. As you have noticed, all my previous dreams have been realized one way or another. With this excellent track record, I have every reason to believe that against a backdrop of political consolidation and economic liberalism, this dream will also come true: the Chinese companies will rise! And my daring proposition is that the private sector companies in particular Zhejiang and Shenzhen will continue to lead the way. There is an English saying: “a rising tide lifts all boats”. We have something similar in Chinese: shui-zhang-chuan-gao (水涨船高)。To all of you here, my simple question as well as sincere invitation: will you please join us and help us in the rise of China Inc.? Thank you!!

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Ben Shenglin: My Dream-The Rise of China Inc.

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