Harvard’s Vogel: Deng Would Be Delighted

April 30, 2012

 

Ulam: Western investors are very hungry to get exposure to domestic sectors such as Chinese telecom. What are some of the critical issues there?

Vogel: Those are the sectors the Chinese government is trying to protect and use for their own companies. The foreign companies who have leverage on technology will try to use their leverage to get either shares of ownership or shares of market as they compete with Chinese companies.

Ulam: Some people say that is where the real growth in China is going to take place.

Vogel: It’s booming. I don’t know what the figure is now, but it may be 400 million cell phones. And they’re selling more cars than we are now. When you’re dealing with a population that’s four times the size of our population, the market potential is fantastic.

Ulam: So what happens if they raise the value of their currency more—the way we want them to?

Vogel: I think they will. They are doing it slowly, not fast enough. It doesn’t make as much difference as Americans think it does. I was working on that problem in the ’80s and ’90s when people yelled that Japan should allow its currency to rise, and it did. And they still had terrific export surpluses for a long time after that.

Ulam: Already some states are exporting a tremendous amount of agricultural products to China, aren’t they?

Vogel: Some are doing quite well, yes. Some states are very successful. And American farmers are exporting quite a bit.

Ulam: China has a policy of trying to maintain food independence, don’t they?

Vogel: Relative independence. If they went to the market, say for 20-30 percent of their agriculture, it would raise international global prices so high that it would be a big burden on China. So yes, they want to keep purchases of agriculture down to a modest level.

Ulam: So they really can’t afford to not be food-independent to a certain extent.

Vogel: That’s right; it would be an enormous cost to them. So they’re trying to maintain acreage under cultivation for agriculture. And the central government is trying to make it very hard to take land out of agriculture for other use. They realize that they need to keep a lot of that land producing goods for agriculture.

Ulam: So if Deng came back to life today, do you think he would feel satisfied?

Vogel: He would be delighted the country has grown so much, and that China’s prestige is so high in international affairs, and that it’s rivaling the United States in terms of economic potential. I think he would feel it’s an enormous success, and be satisfied. But he was very concerned about maintaining the political base of support for the party. And if he saw how much corruption there was today, I think he would be very tough on corruption. He would clamp down more than other leaders have done so far.

Ulam: Do you think this corruption is a greater threat to China’s future than all these disenfranchised workers that travel the country looking for work?

Vogel: There is so much concern about corruption now that it’s possible to imagine more people demonstrating and overthrowing local governments. So I think the Chinese government is running very scared.

 

 

Find your next ETF

Reset All