Entrepreneurs can unlock China's regional riches

A former US-based economics professor turned SOE executive says China's economic future rests with entrepreneurs, not state-planners.

Chilean wines are popular in China. It is not because it is especially suited to the palates of Chinese consumers, but because it can be imported to China duty free. It can be 30 per cent cheaper than its competitors’ products including wine from Australian.

Dr He Lining, a senior executive from the Guangxi Beibu Gulf Investment Group, a powerful provincial state-owned enterprise, says he looks forward to the signing of Australia-China Free Trade Agreement, which is likely to be signed at the end of year.

The company has been importing wines from around the world including Australia, the United States and Chile. He, a former economics professor in the United States, jokingly told Australian reporters: “Maybe I should come and talk to your senators to tell them to sign the free trade agreement.”

“Ten years ago in China, nobody drank wine. Now they are trying wine and high-end food products. Bottled water was a luxury in China many years ago. Now you can buy it anywhere,” he said, “We imported flax seed from Australia. It was considered a luxury before."

A big part of the company’s business is to import high quality food products from abroad, including wine, dairy, lobster from Australia, olive oil from Italy and Spain, peanuts from American states like Georgia, Alabama and Louisiana, as well as canola oil from Canada and the Ukraine.  

Before your correspondent travelled to Guangxi province, he thought the province was poor and underdeveloped.  But the capital Nanning is in fact a bustling boom city of seven million people with picturesque landscapes and good modern infrastructure. Perhaps most striking, the city does not have smog like Beijing and Shanghai.

However, the province does not have the visibility of megacities or Chinese eastern coastal provinces like Guangzhou. The province and the city are banking on the annual China-ASEAN Trade Expo, which is one of the largest in the region to put it on the map for foreign investors and businesses.

China Spectator asked Dr He about some of most challenging economic issues confronting his country, starting with the much discussed local debt problem. 

He thinks the accumulation of debt is inevitable when the economy is growing fast and that it’s necessary to borrow to fund basic infrastructure to encourage growth.  He argues that Chinese borrowing has been largely channelled towards investment rather than consumption, which is much preferable than the US debt-fuelled spending craze before the subprime meltdown.

“As long as the debt is being used for investment and not for consumption,” he says, "If Chinese consumers are borrowing a lot of money to buy Louis Vuitton, that is a problem.

“Companies and governments are mainly borrowing to build infrastructure. I think these are good investments. But this could be a problem but it depends on how you manage it. As long as the economy can grow at a healthy pace, it will not be a problem.” 

Though parts of China arguably suffer from over-investment in infrastructure and real estate, Dr He believes Guangxi, which is a relatively poor developing region of China, still needs continuous investment to bridge the gap with the rest of the country. The city is building a new airport and five new high-speed railways connecting it with other major capitals such as Wuhan and Guangzhou.

“Infrastructure is the prerequisite for a happy life and strong economic development,” he says.

Dr He, who studied economics in Canada and the US says he is more comfortable with China’s current pace of economic growth than the previous double digit breakneck speed.

“I don’t think it is a bad thing,” he says. “Just like when kids are growing, at a certain point, we will grow slower than before and this is very natural and very healthy for the Chinese economy.”

“I think even 7 per cent growth is fast and for a country of China’s size, this is strikingly good. It is not an easy job for China to maintain 7 per cent. We do see slowdown but I feel more comfortable.”

China’s good infrastructure is one of the key ingredients that make the country one of the most successful developing countries. Investing in highways, airports, and telecommunication networks is a good way to kick start the country’s economy, but the next stage is far more challenging.

Beijing is talking up the need to build a more innovation driven economy and transform the country’s manufacturing and infrastructure-based economy.  However, He argues that only private entrepreneurs can make it happen rather than bureaucrats.

“I don’t think anybody knows the answer. If anyone knows how it is to be done it's not bureacrats. It depends on entrepreneurs. Entrepreneurs know how to do that, it’s not about government officials or central planners,” he says.

The bustling city of Nanning with its lush green and 7 million inhabitants is a good example of how often Beijing and Shanghai exercise the tyranny of imagination over our thinking about China. For businesses who are looking for opportunities in China, going regional can be an easier route than the already crowded spaces of Beijing and Shanghai.

Peter Cai travelled to Nanning as a guest of China-ASEAN Trade Expo.