China's meek roar

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Have you heard? China is poised to take over the world. Its scheming Communist government is scouring the planet for every last bit of oil, steel, and cement. Chinese banks have secret plans to sell off massive amounts of U.S. government securities and create a tidal wave of rising interest rates in America. When President Hu Jintao was in the States recently, his main goal was to persuade American companies to build more stuff in China so his minions can reverse-engineer the products, produce cheap knockoffs, and drive America out of business.

That's the view of a lot of people . . . who have never been to China. Those who have spent time there tend to see things differently. And some of the biggest skeptics about a Chinese dynasty are the Chinese themselves.

At the recent Milken Institute Global Conference in Los Angeles, there was lots of excitement about China–mainly because the many business people in attendance know they'll make money even if China does take over the world. Especially if China takes over the world. But one deal-maker laughed off the idea of China as a global bully. Wei Wang, a banking pioneer in China, told an audience, "It's not the Chinese economy that's booming. It's the global economy that's booming in China. And that gives the Chinese government a lot of illusions."

Wei's suggestion is that China's recent success is largely due to good–even lucky–timing. Its factories, entrepreneurs, and consumers are arriving at the world marketplace just when the world is ready for them–when the Internet and other technology make it possible to subcontract all manner of business overseas and when crumbling political barriers are enhancing international trade. He dismisses the idea that China's leaders have cleverly manipulated the global economy to their own advantage, a notion that western politicians tend to exploit. Basically, Wei is saying, they're not that good.

He's in a position to know. The banker, who earned a Ph.D. from Fordham University in New York–and speaks pleasant English–was a top official at two of China's huge state-owned banks, and he helped structure China's securities industry in the 1980s. That made him one of the first mergers-and-acquisitions bankers in China. He currently runs a securities firm in Beijing called China M&A Management Holdings. And he is solicitous–bordering on apologetic–about the state of banking and deal-making in China. "We are like teenagers," he told his western audience in Los Angeles, imploring their understanding while acknowledging many familiar problems with the business climate in China: intellectual piracy, overlapping governments, regulations that are "a puzzle" even to him. "We are going to make some mistakes."

But Wei takes that a step further than many analysts, pointing out that China's good fortunes disguise a great deal of endemic weakness in the Chinese system. To illustrate his point (and get a laugh), he showed a slide of a cat, representing the Chinese government, that was looking into a mirror–where it saw a lion. "They enjoy this so much," Wei said of the Chinese leaders who are basking in their country's success. "But it's an illusion. A lot of things are not so strong." Then he talked about the many factors that impede business in China: a bureaucracy that still routinely manages to strangle deals, opaque financials, and a minefield of risks involved in doing business with the thousands of state-owned businesses China plans to privatize.

Things ought to be much better in 10 years, he said. When that happens, what kind of megapower will the West imagine China to be?

--Rick Newman