Executive Offers Cautionary View of China

By Dagmar King
Originally published by USC News Service. Photo by David Roberts: Tang predicted a dire future for the country if it fails to address serious structural flaws.

Deceased Chinese leader Deng Xiaoping is reported to have said something along the lines of  “Black cat, white cat, if it can catch mice, it’s a good cat.”

Donald Tang, chairman and president of Bear Stearns International, used this adage to describe the pragmatic yet simplistic Chinese viewpoint on its newfound manufacturing wealth.

Speaking at the Dean’s Business Breakfast Series sponsored by the USC Marshall School of Business Jan. 11 at Town and Gown, Tang outlined what he views as flaws in the Chinese government’s single-minded thinking.

He predicted a dire future for the country if it continues to focus on the glories of its riches and does not correct its massive infrastructure problems – government corruption, a weak banking system and unrest fed by disparate rural, ethnic and economic tensions.

“For 25 years, China experienced uninterrupted growth, leapfrogging over France and England in Gross Domestic Product. But that growth, based on its manufacturing strength, is faltering and has now almost reached a saturation point,” Tang told the audience.

If there is a housing bubble in California and it bursts, China will be the first to feel the effects of belt-tightening by U.S. consumers, he warned.

Even more troubling, he continued, is a lack of Chinese consumer confidence. In contrast to the traditional American attitude that things will be better “tomorrow,” Chinese save 47 percent of their income in expectation of things getting worse.

The communist government is trying to infuse a dose of optimism to get more money into circulation, a battle that Tang feels it is losing.

Some trends offer a reason for cautious optimism in Tang’s view, including the recent “Supergirl rebellion.” The popularity of “Supergirl,” a Chinese TV talent show aimed at the rapidly growing 15- to 24-year-old population, is soaring. Contestants appear assertive, confident and creative in contrast to the more traditional Chinese ideal of the introverted female, Tang said. This runaway phenomenon is attracting an unprecedented viewing audience of 400 million – more than the population of Western Europe – and could help move the culture from social bondage to democracy, in Tang’s view.

Tang also said the expanding industrialism of China’s coastal cities and in its formerly rural northeast is changing the culture. Because of these developments, more than 100 million Chinese are experiencing a higher standard of living.

Tang advised executives who want to conduct business with China not to rely on second-hand sources such as books or the media to learn about the country. Instead, they should strive to “understand the souls and thought processes” of policy makers.

“Some problems are real, and some are not. Business people must connect to the network of people who regularly travel to China so they can anticipate issues and reach their own conclusions,” Tang said.

Kevin Sharer, chairman, president and CEO of Amgen Inc., will speak at the next Dean's Business Breakfast Series Feb. 8. The event is open to the public.