Sunday, October 9, 2011

Why Chinese Businesses Succeed?

Chinese Bamboo Industry

Conventional wisdom holds that it is the all-powerful state in China that is responsible for  becoming the globe’s 2nd ranking economic power. Not really true as my friend Tom Easton of The Economist has shown in brilliant convincing detail through a series of pieces he wrote this year.

Easton’s tag for this is Bamboo Capitalism, because   90% of the  43 million private companies in China are private, ie no public market. And the share of GDP  the enterprises   not majority owned by the state  is a gigantic 70%. What’s more– and I’ve seen this discovery in no other publication– the average return on equity of these private firms is about 14%– compared to the measly 4% return by wholly or party owned state enterprise.
So, reports Easton,” the ideas that state-directed capitalism and tight political control are the elixir of growth… China has surged forward mainly where the state has stood back.” That should give the People’s Bank of China and  Premier Wen something to  digest.

Success of the Bamboo Industry in China

Yes, Bamboo Capitalism has driven up wages and benefits– therefore inflation. But, at bottom it is a replica of America in an earlier stage, where ordinary factory workers borrowing very little from private sources at very high rates of interest, became financially independent entrepreneurs. To be dynamic in China is to be private, nimble, intensely hard-working–  and stay well out of the clutches of the central government.
Bamboo Capitalism describes the thicket of almost 40 million enterprises of all kinds in every part of China that do not have the central government hanging over their shoulder.   In fact, Easton goes further in  disclosing that many of these companies raise capital not from the giant Chinese banks, but from unofficial sources,  and operate in the shadow away from government scrutiny.  They don’t seem to trust their own government and it may be this successful business culture  explains the drive for the  Chinese  to own more and more gold– as if they didn’t trust  the heirs to Mao or even the stability of the renmimbi.

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