China and America’s Future

Business Leaders and Top Hedge Fund Managers discuss the latest issues facing the economies of the US and China

by Bruce Fenton

Recently I had the pleasure of attending this year’s Committee of 100 Annual Conference at the Waldorf Astoria in Manhattan. The Committee of 100 is a group of Chinese-American business and social leaders whose impressive membership list includes: Yahoo co-founder Jerry Yang, Cellist Yo-Yo Ma, and YouTube co-founder Steve Chen.

You don’t have to be a Committee of 100 member to attend the annual conference; the conference is open to the public at a very reasonable price, particularly after considering the incredible list of speakers in attendance. Individually, any of the dozens of speakers would be worth listening to for an afternoon. Featured speakers included: US Treasury Secretary Hank Paulson, New York City Mayor Michael Bloomberg, Quantum Fund co-founder Jim Rogers, Hedge Fund Legend Daniel Och, Hedge Fund Manager Richard Perry, and Yahoo’s Jerry Yang.

This year’s conference had an electric excitement with the smiling attendees extremely interested in the topic at hand. The audience members, like the speakers, were as diverse as any ‘who’s who’ guide to business, but the subject was always the same: China and its growth, its economy, its change, its influence, its buying, its selling and its future.

Hearing our best and brightest speak about China can be quite whelming. The immensity of the information was so great that that during a few presentations I found myself entering a sort of “short circuit” mode and where I would then have to catch up. I began to look forward to having time to sit down after the conference and digest the magnitude of the ways in which China is changing the face of the globe.

One common complaint voiced by speakers was about China’s lack of desire to both accept US investments and relinquish control to US investors. Top investment professionals, men and women who make the financial ground shake with their footsteps in New York or Chicago, have increasingly complained about getting a cold shoulder from Chinese companies. I wonder if this is a series of isolated incidents or if it is simply the fact that we in the US need China more than China needs us. Did French and English barons of previous centuries expressed the same frustrations as America became more self sufficient and less reliant on their capital?

While the conference was mainly about the big changes in China, perhaps most impressive is the “smaller” things, the little known and less quoted statistics that hammer home just how immense the growth of China has been. While many people talk about Beijing, Shanghai and Hong Kong, what might come as a surprise is the fact that China has over 100 cities with populations in excess of 4 million people each.

With such a staggering population, even the tiniest percentile of change translates into some very large numbers. One of the speakers, Wilbur L. Ross of WL Ross & Co, raised a few great points in regard to these vast numbers: if China’s automobile penetration per 1,000 citizens increases by 1% it would equal the total output of the US auto industry. Mr. Ross added that Chinese universities are now graduating seven times the number of engineers that the US: “Unless American engineers are seven times smarter”, he points out, “most future innovation will come from Chinese engineers”.

We are truly interconnected in a global economy and the US economy still influences both China and the rest of the world, but our influence is weakening relative to China’s strengthening economic independence. The US Government indicates that China’s Gross Domestic Product (GDP) is roughly US$10 trillion and ours is US$12 trillion, in terms of purchasing power parity. Nominal GDP is also very close.

When asked about China’s decisions in managing the Yuan, US Treasury Secretary Henry Paulson said, “I have learned over the years not to ascribe motives. What I do is say they clearly see the principle.” He further commented, “It’s a big advantage for us if China does well economically” and “My own concern is that China has the right goal, which is stability; economic stability and growth.”

Most striking of all is a look at the Chinese trade surplus in comparison to the US’s increasing trade deficit. In terms of real dollars (when adjusted for currency value and debt), China’s surpassing of the US economy may not be in the 5 to 15 years projected by many economists, in fact it may have already occurred. Furthermore, China owns over US$380 billion in US debt, when this debt is sold it could surely harm the US economy greatly.

Given the magnitude of the discussion, it is no surprise that Committee of 100 attracts such an incredible list of members, speakers and attendees. In terms of the future of our global economy perhaps the audience should have had another million members. With the effect of China on our own future, maybe everyone in the US needs to learn more about this future leader of the global economy.

I am glad to have attended the conference; the question now is what to do about our place in the world relative to the world’s newest economic superpower? I suggest visiting the Committee of 100 website (www.Committee100.org) and attending next year’s conference. Additionally, perhaps we should pursue the often quoted advice of investor Jim Rogers: “Learn Chinese”.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report. great-wall-of-china-don-lee-china


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