Joint General Membership Meeting
China Into the Future

29 April 2008 – China today presents “one of the biggest opportunities and one of the biggest threats of the century,” according to W. John Hoffmann, co-founder and principal of the Exceptional Resources Group (XRG), a China-based strategy and transactional consultancy. He spoke before members of the Makati Business Club and the Management Association of the Philippines on 29 April at the Peninsula Manila in Makati.

Mr. Hoffmann spoke about the challenges facing every foreign company in China through 2023 and what mindset is required for long-term success. The topic of his speech was “China Into the Future: Mindset for Success.”

Coming Out
Now is the opportune time to know “who are your friends and who are your enemies in China,” said Mr. Hoffmann. “China is coming out to compete” with the rest of the world. For the very first time, China’s leadership is encouraging Chinese companies to go global, to compete in developed, as well as in developing, markets. “The national imperative for ‘going global’ has focused new attention on emerging international ‘Chinese enterprise champions.’”

He added: “Mergers, financial support, and protectionism are focused on this goal,” with the “globalization of Chinese enterprises a top political imperative for China.” These national champions include domestic market dominating enterprises, export market developing enterprises, and sourcing and procurement enterprises.

However, Mr. Hoffmann pointed out, Chinese enterprises often are not up to international levels in management, quality, and standards; unaware of international market practices; and unable or unwilling to do original research to create their own intellectual property. “The gap between the aspirations of China’s leadership and the limited capabilities of Chinese enterprises provides an important opportunity for MNCs to exploit.”

Understanding China
“Understanding the whole, essential truth in China allows us to mitigate risks and exploit opportunities,” said Mr. Hoffmann. “We have to take a different perspective; the key to understanding the whole is to look at it from many perspectives.”

“The reality is that China is a large, complex nation, with internal differences across regions, cities, and industries that are often wider than differences across nations.” Rather than outline one future scenario, Mr. Hoffmann explained that the better approach to forecasting China’s future is to understand the key drivers or critical aspects of China’s social and economic development.

Over the past 25 years, China’s policies were devoted to transforming the country into a market economy from a centrally planned one; the next 25 years will be directed towards sustainable economic and social development.

According to Mr. Hoffmann, the following key points need to be kept in mind:

China’s future will be profoundly different from its past (one has to deal with a multigenerational workforce, each with different outlooks and perspectives of the world)

• ·China has been more resilient than many expected (China’s leaders are adaptable)
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• The worldview of China’s leaders is very different from that of leaders in the West
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• China will not simply follow the path suggested by others
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• China is not a monolith, but is comprised of numerous actors and groups with their own agendas
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• Despite greater market-orientation, the government will continue to play an immensely important role in China’s economy
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• For businesses in China, rapid economic development need not necessarily correspond with profits
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• Success in China requires a deep and broad understanding of a multifaceted economy and society
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• China’s future is best understood as being the result of a confluence of forces rather than a single master plan

Horizon Gazing
Businessmen should do “horizon gazing” and think in terms of time frames, said Mr. Hoffmann, as he presented China’s “fifth-generation timeline.” The present China leadership is led by the fourth-generation leaders Hu Jintao and Wen Jiabao, who are mainly continuing along the development path set out by the third-generation leaders Jiang Zemin and Zhu Rongji.

During the 17th Party Congress last October 2007, the fifth-generation leaders started moving into party and military positions at the central and local levels as junior power players. They are expected to occupy these levels for the next five years, until 2012. They also moved into state levels as junior power players during the 11th National People’s Congress last March. All of them are competing to be promoted, replacing the retiring fourth-generation leaders at the 18th Party Congress in 2012 and 12th National People’s Congress in 2013. They will then run China for the next 10 years, until 2022–2023.

“These are the leaders who are just starting their five years of being in junior power, and who they deal with now would be the same people they would bring in when they rise into senior positions in the politburo,” said Mr. Hoffmann, as he urged local businessmen to engage these emerging leaders now. “They want to get to know you,” he added, pointing out that “the last time we had an opportunity like this was in 1992,” when China opened its doors to foreign investors.

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ABOUT THE SPEAKERS

W. John Hoffmann
Aside from being co-founder and principal of the Exceptional Resources Group, Mr. Hoffmann is also co-founder of the China Dialogues Network, which provides information and bespoke advice on China. He has had 20 years of unbroken China-specific working experience, during which he has been involved in many break-through, “first-mover” China deals. Mr. Hoffmann, who earned his degree in East Asian studies from Harvard University, is co-editor and one of the authors of the book, China Into the Future: Making Sense of the World’s Most Dynamic Economy.