Living the Dream

　　Business and financial leaders discuss a future of financially empowered Chinese super consumers， unbound from national identity and joining the global middle class

　　If the American Dream pertains to owning a home with a white picket fence， a car in the garage， flat-screen television， two kids and a dog， then what does the Chinese Dream entail？ Is it really so different？ Does national identity even matter anymore？ Or， do we have a new class of consumers--global citizens that are powered and connected through technology to purchase whatever goods they want， wherever they are.

　　Financial aspirations was the topic of the day for investment bankers， diplomats， trade specialists and dozens of Chinese CEOs who gathered in New York City on November 8 for the 10th China Institute Executive Summit， titled The Chinese Dream & the American Dream： Common Perspectives， Consumer Expectations & Economic Outlook.

　　China and the United States are at the start of a “new wave” of business relations， challenges and opportunities facing “two of the world’s largest economies，” said Greg Marchi， chief representative of summit co-organizers Cheung Kong Graduate School of Business (CKGSB).

　　“Despite what some naysayers predict about the rise of China as a global power， in that it poses an economic threat to the United States， the fact remains that the United States is a major beneficiary of China’s growth，” Marchi noted， adding that China represents a $250-billion market for U.S. companies.

　　To take advantage of opportunities， American investors and companies need to view the market with a “Chinese lens” and understand the Chinese Dream， Marchi explained. As the summit unfolded， it became clear that the Chinese Dream and the American Dream are not so different， and that business leaders， consumers， workers and investors in the East and West both want mutual success， financial growth and safety. With the development of the Internet and social media， a generation of global citizens has risen， packed with consumers that have more in common with their economic class rather than national identities.

　　Plenty of challenges remain for investors， said William A. Owens， former Admiral of the U.S. Navy and current Chairman of AEA Investors Asia and Vice Chairman of NYSE Asia.

　　“Why is it so hard for Chinese companies to enter the United States？” Owens asked. “If you go to China today you see all kinds of American brands.”

　　Trade barriers and government restrictions abound， Owens explained， though “Chinese business， Chinese money and Chinese friends” is essential. Such trade creates jobs， changes economies for the better and promotes bilateral ties. We need “big ideas” to change the world， he said， like a free trade zone agreement or merging stock exchanges.

　　A new era

　　The relationship between the United States and China has changed dramatically over the past 50 years into the most important and influential country-to-country partnership in the world， said F. Warren McFarlan， Baker Foundation Professor at Harvard Business School. However， infrastructure development in China and export-driven economic development since the late 1970s are just the first steps in growth， with different challenges to dominate the next twenty years.

　　“We find that what has gotten us to the party， is not going to keep us at the party. It is the software， the processes， the service economy， the building of habits of savings and so forth so that people can have money to spend in the consumer economy. It is a very different set of issues that we look at for the next 20 years，” McFarlan said.

　　Huge gaps in economic inequality remain in China， and the massive migration of rural residents into cities presents many challenges. Politics， too， can slow down bilateral development， said AEA Investors’ Owens.

　　“There’s a lot of great trade between our countries， a lot of great stories，” he said. “But on the national security side， besides some nice words， it’s not going very well.”

　　Military and political leaders on both sides continue to make comments about potential threats， and the use of terms like “containment” and “rebalancing” inflame tensions.

　　“The things we say to each other turn out to be policies， because they get embedded in political systems， the 500 million bloggers in China read this stuff， and they are very nationalistic. We are both so much better than that，” Owens stressed.

　　The solution to these larger political challenges may be on the micro level， said Tom Easton， American Finance Editor for The Economist.

　　“I don’t think there is any interest on a national level to solve any of these political problems. It’s going to be done on a micro level--business-to-business--and in that sense there is tremendous interest and cooperation，” Easton said， adding that small business ventures can form a powerful foundation for change.

　　“There are no two countries in some ways closer in thought and spirit than China and the United States and that can flower on a low level that will become a big deal，” he added.

　　Part of that shared spirit is the common pitfall of nationalism， Easton explained. The rhetoric of some on both sides can harm economic development. Both sides need to promote the theme of friendship.

　　What investors want？

　　On the micro level， there is massive interest from investors on both sides， said panelists. Both Chinese and U.S. investment funds view the opposing markets as ripe with opportunities， but how are their specific needs evolving？

　　On the Chinese side， one growing request centers around “diversifying risks， both on a commercial level as well as an individual high-net worth one，” said Wendy Cai-Lee， Senior Managing Director and head of Eastern U.S. business for East West Bank. “Secondly， immediate and strategic value to grow business domestically in China.”

　　Acquisitions that strengthen a Chinese company’s supply chain--downstream and up--are extremely valued， she added.

　　“They are looking for resources， technology， the global brands， additional channels outside of their domestic market. And， in recent months， everyone has seen increasing interest in commercial real estate as well as personal real estate investment，” Cai-Lee said. Financing these types of deals has become a hot business for banks.

　　Information technology has ranked as the highest investment area by East West Bank， she said， as well as industrial electronic equipment， energy， automotive， aviation， consumer products and services， as well as financial services. However， “we anticipate that commercial real estate will overtake them all very quickly，” she added.

　　On the U.S. side， investment interest has shifted from low-cost labor in China to the consumer market， especially the shift to online retail， said Harvey Fine， Managing Director for Global Investments & Strategies for Fosun Group.

　　“There are 800 million mobile Internet users in China，” Fine said， “almost two-and-a-half times the U.S. population.”

　　While this mobile-empowered group of Chinese consumers is growing， infrastructure in payment and fulfillment systems is lagging， an area where Fosun sees an opportunity for development high returns， Fine said.

　　Luxury continues to be an important market as China spews out hundreds of newly minted millionaires along with its economic development. Entertainment， luxury resorts， private hospitals and high-end retail continue to attract strong investment.

　　When China’s GDP growth hit double-digits， investors could buy an interest in any sector and make money， Fine noted. Now， as economic growth settles at around 7 percent or 8 percent， U.S. investors have to be more strategic.

　　“Now you have to differentiate not only what sectors， but also which geographies are growing. It’s no longer an export-driven growth， it’s a consumer-driven growth so we have to adjust accordingly， though we still believe the market is strong，” he said.

　　After China held the Third Plenum of the Communist Party of China Central Committee， China watchers expect the focus to be on financial reform， said John Allen， Chairman and CEO of Greater China Corporation. Bilateral trade will also heat up between the United States and China. This government support signals a further opening of investment opportunities.

　　“Invest in the seasons， not in the weather， because the weather changes every day， but the seasons are predictable，” Allen said， quoting super-investor Warren Buffett.

　　Such encouragement aside， Allen acknowledged serious challenges in education， housing， healthcare， and pollution along with the mass migration of rural Chinese into cities.

　　“These problems have to be dealt with， but the flipside is the tremendous opportunity created，” he said.

　　The season of investment between the United States and China is “spring，” Allen told Beijing Review， and the best is yet to come. The Sunnylands Summit， held earlier this year in Southern California， resulted in many important breakthroughs in economic， political and military relations.

　　“This was the first occasion in the history of civilization when two strong men came face-to-face and both， on a private basis， had the chance to size each other up and realize that by collaborating and becoming part of the same team they could provide the leadership to solve not only financial problems but also all of the other social and economic problems that face the world，” Allen said.

　　Changing consumer habits

　　As China grows richer， the economy has begun to move toward a consumer-based market， where working and middle-class families can afford more than the necessities of life. Chinese consumers are also becoming more seasoned， and it is no longer sufficient to have a recognizable brand name， Chinese consumers are looking for quality.

　　“Chinese consumers are now more sophisticated， more discerning， they have more experience and more engagement with the rest of the world. They have more choices than ever before. The ’China market’ is no longer enough--now we have the global China demographic，” said Michael A. Zakkour， Principal at China/APAC Group for Tompkins International.

　　China’s middle class numbers around 300 million now， said Ann Lee， Professor of Economics and Finance at New York University， and manufacturing is increasingly turning inward to serve these domestic consumers. The majority of these new consumers are coming from tier two and tier three cities and American companies would be wise to tailor their approach to specific locales.

　　Lee said she has seen a growing practicality among China’s middle class. They no longer break their budgets to purchase one luxury item. They seek out more affordable goods and spend the rest of their money on going out to restaurants or on entertainment.

　　“Before， they were buying luxury goods for status reasons. I think they are becoming more practical now. This consuming class will start to look more like Americans in that they consume mainly to enjoy themselves，” Lee told Beijing Review.

　　Just as the industrial revolution led to the 1920’s gilded age of consumerism in America， which gave way to the practical sensibilities of the 1950s， Chinese consumption patterns are likely to follow the same trajectory， Lee added.

　　Even with the growing purchasing power of Chinese professionals， consumer confidence is key to economic growth. With deep systemic reforms difficult to achieve， most Chinese expect more marginal changes and still have a saver mentality. Without a strong safety net， Chinese consumers will continue to hoard their earnings for future catastrophes.

　　“The leaders understand this is a real issue， so hopefully they will be able to reform social services and the welfare system to make both more robust，” Lee said. This shift is very much a generational one， she added， as young professionals are leading the growth in using credit for purchases and show a strong sense of security in their futures.

　　Payments and fulfillment services also remain as obstacles to consumer growth in China. Many cities and markets continue to be cash based and even online sales are usually fulfilled in cash.

　　“Right now the biggest impediment to e-commerce is payment systems，” said Zakkour. “To put it quite simply， at least from peer-to-peer systems， Chinese people don’t trust that if they sell something online via eBay that they would get paid for it. You still see a huge amount of [cash-on-delivery] systems. It’s a cash culture.”

　　Panelists praised the Executive Summit， now in its tenth year， as incredibly valuable to promoting bilateral development. The theme of this year’s event is drawn from the new era that both countries are entering； one of stronger， deeper， and mutually beneficial ties.

　　“It has something to do with physics，” Greater China Corporation’s John Allen told Beijing Review. “There is something about equal and opposite forces. If they hit each other， they dissipate. If they reinforce each other， they take off. If you look at China and the United States and the positive aspects of both countries and cultures if they work together， according to the laws of physics， they will take off.”

　　The “Chinese” and “American” dreams are one and the same， Allen noted.

　　“One of the problems is the labels we put on things，” Allen said. “Even things like ’democracy，’ ’capitalism，’ ’socialism’ and ’communism’--get rid of these tags and people start to say ’what’s the problem and how do we work together to solve it.”

　　Facilitated by global media， the Internet and the like， the rise of the “global citizen” has appeared. This group is affiliated more via shared experiences and consumer habits rather than political identity.

　　“The dream is a global dream， at this point，” NYU professor Ann Lee told Beijing Review， “in terms of you wanting to do better than your parents. It’s not so dissimilar. The average person has average ambitions， get the coach bag， send your kids to college， and enjoy a comfortable living standard so you don’t have to worry about your future so much.”

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