borrowed from RB:
This article by Stephen Roach is an account of a 90 minute meeting with China's president Jiang Zemin. Roach is chief economist at Morgan Stanley Dean Witter.
Global: Jiang Zemin Up Close
Stephen Roach (in Beijing)
Every once in a while, all this travel pays an unexpected dividend. Such was the case this week in Beijing, when I spent 90 minutes in a private meeting with Chinese President Jiang Zemin. He was candid and expansive in laying out his vision of the New China. He extolled the virtues of a market-based free enterprise system. And he spent about 60% of the time talking about the stock market and the positive role it can play in driving economic development. I must confess the meeting blew me away. It spoke of a Chinese leadership that was thinking well beyond its current ambitious agenda of reforms. Jiang came across as a risk-taker who was truly committed to the ultimate transformation of the Chinese economy. He sent a message that few in attendance would ever forget.
I came to Beijing this June mainly to present a paper at the Conference 2000 of the 21st Century Forum, a gathering held every five years in China that is sponsored by the Chinese People’s Political Consultative Conference (CPPCC). Of the 500, or so, participants in this gathering
-- academics, policy makers, senior Chinese officials, and a few financial market types -- there were about 30 "foreign guests." Of that group, just three of us were Americans. As foreign participants, we were given special treatment. And so we were bused off to Tiananmen Square, under police escort, to what was billed as a 15-minute courtesy meeting with Jiang Zemin in one of those fancy reception rooms in the Great Hall of the People. As I said at the outset, Jiang kept us for a full 90 minutes. He obviously had a lot on his mind.
I think what really whetted his appetite at this meeting was the presence of Lee Kuan Yew, senior minister and founding father of the modern-day Singapore. The two of them engaged in an extraordinary dialogue that took up the bulk of the meeting. Lee Kuan Yew, of course, is widely credited for having pulled off the greatest development story in modern-day East Asian history, a transformation that China must look to with considerable envy. They played off one another in a fashion that only great leaders could do. In the vernacular of our times, it was New Old Asia (Singapore) versus New New Asia (China). The two leaders didn’t exactly see eye to eye on the implications of the theme of the CPPCC conference -- Economic Globalization: China and Asia. But I found the exchange between them utterly fascinating.
From the start, Jiang made it quite clear that he was looking at China through a very different prism. He stressed the Chinese heritage of risk-taking and the related willingness to "play the market." He boasted of the role he played in nurturing this process, overseeing the establishment of Shanghai’s first stock exchange during his tenure as the city’s mayor in the latter half of the 1980s. In Jiang’s words (as conveyed through a translator), "The stock market was there in the Old China and it will be there in the New China." He held no illusions as to the double-edged sword of market risk and what that held for individual investors. Again, in his own words, "You have to decide for yourself if you want to go into the market. It’s just like gambling -- you win and you lose." Jiang relishes the lessons of risk taking. He believes that by experiencing both ends of the risk-reward spectrum in the stock market, "People get better prepared to ward off risk." Such learning experiences, he surmised, provide the basis of a capital-markets-induced system of economic growth.
Lee Kuan Yew took the other side of much of what Jiang had to offer. He warned of the perils of speculative excesses and especially of the potential repercussions of a post-bubble US economy. Individual investors, he maintained, are essentially helpless when competing against seasoned and well-trained institutional investors. (Editorial note: I guess he hasn’t seen the performance stats for America’s fund managers recently: According to the Lipper Analytical service, more than 80% of all actively managed funds underperformed the S&P 500 over the 1995-99 interval.) Lee Kuan Yew went on to argue that the financial system may well be prone to periodic excesses that can only end painfully. He worried not only about excessive stock market valuations but also about what he called an extended M&A cycle. In the end, he conceded that he just didn’t get it any more. He sold the great dip in late 1998 and would probably do the very same thing again.
Jiang came right back at him. He truly relished the possibility of a China that had to deal with these types of problems. He spoke wistfully of the Nasdaq as being the crown jewel of all that is great about America. If investors were appropriately forewarned of risk, he maintained, they would have the opportunity for unbridled wealth creation. He only hoped that Chinese investors could have just such an opportunity. Maybe the market is overvalued; maybe it’s not. Jiang didn’t really seem to care. The very existence of the Nasdaq, and the culture it has spawned, is, in his view, more important than the perils of short-term volatility.
Nor is Jiang sitting in some remote office complex half way around the world reading US Chamber of Commerce propaganda. The man is connected. He is up to speed on Bill Gates and the travails of Microsoft. He recently met with Gerry Levin of Time Warner. He is steeped in the lore of Silicon Valley, venture capital and the potential that such an entrepreneurial culture holds for dotcom start-ups in China. As a trained engineer, he has considerable expertise -- and fascination -- with technology; he was appointed China’s electronics industry minister in 1983. In short, he knows that America has what China needs -- a vibrant, private-enterprise, technology-based system. He wants that for China. And he knows full well that once China jumps on the technology curve of the New economy, there is no turning back.
I guess in all my travels to China I had never heard it put so plainly before. From the very top, China seems passionately committed to reforms on a scale that few are willing to contemplate. Jiang Zemin stands shoulder to shoulder with Premier Zhu Rongji in this regard. With the Chinese economy now on the mend, the winds of WTO accession at its back, and the first tranche of reforms starting to work, Jiang left me convinced that China is now willing to seize the moment. He seems fully prepared to take even greater risk and get on with the heavy lifting of structural reforms. And what an ambitious reform agenda it is. It’s not just the "corporatization" of state-owned enterprises, but it’s a wide range of initiatives on pension reform (i.e., social security), capital markets liberalization, banking reforms, and broad array of post-WTO de-regulatory initiatives.
I walked out of the Great Hall of the People staggered by one realization: The new China could well be on the cusp of its defining moment. The fits and starts of the past several years could end up being the warm-up to the main event. Jiang left me believing that the coming transformation of the Chinese economy could dwarf anything that has happened in the past 20 years. As I gathered my thoughts at the sumptuous banquet that followed, I worried that I might have been off base in my interpretation. Jet lag can play some strange tricks on you. It turns out that I was not alone in being surprised about Jiang’s candor and insights. Many of the other seasoned China experts in attendance at this meeting felt precisely the same way. A couple of years ago, I wrote a piece that was published in the Financial Times entitled, "This China is Different." Little did I know how different it truly was. |
