 So what you'd see if the PowerPoint was up was a woman looking at a collection of Barbie dolls and the argument that I'm going to make today that what's going on in her head is much more important than the usual topics that you might hear in this very room that her decision to whether or not to buy a Barbie Stands for whether or not she wants to lead the sort of lives that we need Chinese middle-class people to start leading We need her to buy Barbies. We need her to buy cars We need her to buy everything that you can possibly think of go home look around your house That's what we need her to do. So I'm going to suggest that what's going on in her head that the That her the making of this desire to have Barbie dolls is the most important Force Changing China so next slide here Would be a collection of lots of data about China that I pulled from the internet all sorts of graphs and sort of things That you'd see if our proper economists giving this talk and the argument that I make about all that data Is that even with all of that with all of that information flooding us from China? That is very easy to get misled into what are the most important stories or more importantly. It's easy to see these These different data points is unrelated stories I think that this most important force this force of trying to get China to move from this export-oriented economy Where they're relying on you all and our American friends to consume to drive globally economic growth as well as drive Chinese growth behind the story that a lot of a lot of global politics a lot of Economic developments are all riding on what's going on in her her head Those more astute China observers will usually and just in case I forget I should point out Yes, I'm aware that the Barbie store the five-story Emporium on Huaihai Road in central Shanghai in the old French concession is now Fortunately, their business model didn't quite work out the way they wanted it to so no more opportunities to go in for a consultation On how you too can move more like Barbie I'll get back to that so that's all that data that I was suggesting to you I want to suggest that an easier way to capture all this complexity of the last 25 years is a historical It's through history So how do we do that given all that complex information that we see coming out of China? I want to suggest that we can capture this through my own hairstyle and personal grooming 25 well 25 more like 42 years ago This is roughly how I would have had my haircut bull would be dropped on head and I have snip snip snip around me What does this have to do with the most important forces? Changing the world. Well, I believe that you can see the same sort of transformation in China China whip from being the land of the incredibly bad haircut to the land that I now wait You're probably thinking maybe I'm waiting to go to China soon since I need a haircut The land that you go to for really good haircuts Indeed this sort of captures one dimension of the changes in these last few years You don't need to read the fine print below there I put that up for my own cheating purposes But largely it says that that once upon a time when I started going to China 25 years ago If you wanted a haircut you had to go to the center of town to really horrible places You know those bare cement floors people that kept bankers hours. No offense to bankers in here It had a very bad Consumer sort of experience flash forward 25 years and now it's the land of not only the best haircut But it's a land where 11 million plus Chinese people spend all day every day thinking about people's nails their hair Their feet and so on and that this represents this is one way one I am going to argue key way of capturing all that data point can be reduced to seeing this kind of transition of how China went from once Upon a time being the land of the crappy haircut to the sort of place that it is now where it's the fifth largest industry in China I want to then argue that all the sort of stories that we usually hear about in newspapers on the left seemingly in sequence They used to half jokingly say every time one of our major newspapers Sent a new reporter out to Beijing. This is almost a sequence that we get the stories from them out of Something about Chinese military budgets when I made this list There was a big to-do about Chinese military spending, especially and do they have stealth technology might they have it soon Soaring energy demands. There's a new I way way every year. His name will be forgot Well, we will probably remember less about him in one year because he'll be displaced by another Blind self educated Lawyer type not I'm not suggesting any of these stories aren't important. I'm just suggesting that as we go through these Stories we think about the way these are dangled in front of us They're more less important than a what I'm going to suggest over the right column that even in the lead up to who's going to succeed boys you are whoops Who's going to see see who can tell? And now with the purging of boys you lie that even these sort of stories Are less important than the dramatic transformation going on within China That is the Chinese people beginning to lead these news lifestyles these new consumer oriented lifestyles And the international implications of that are changing everything when you write a book with a Publisher suggested title how Chinese consumers are transforming not just one or two things But everything once up once a while you're challenged by that I stand by the subtitle of that because I believe that what's being transformed is everything from this your Subjective experience of the world for your consciousness which in consumer societies is defined by brands namely which kind of car you drive What sort of watch you wear suit your own whatever? So you're a subjective experience of the world to your objective environment you live in namely the biosphere But all of those things and everything in between is being impacted by this dramatic transformation of the rise of Chinese consumerism What I want to argue about today since I said it's something about my personality than rather than talking about all the wonderful brands that China is going to Contribute to the world and how they're going to give Sony well They're already giving Sony a run for their money or Apple or so on that there are lots of the resolvable contradictions between our desire to see them emulate us to me represented by the selection of drinks They're on the left and any one of a number of local convenience stores to the Implications of that of them leading those kind of lifestyles But before I get to that I want to briefly remind again No need to read these anecdotes with these quotations the quotations basically are examples of world leaders both within China And outside of China both in the economic sphere and in the political sphere We're all saying that the way we need to save the world is to get Chinese to consume more And the aftermath of 2008 there was quite a bit of brow beating and that the Chinese need to stop up and do their part But the world economic crisis wouldn't last nearly as long as if the Chinese stopped having this Stop having this export oriented regime and started allowing their consumers to live these much more Western style lives They're they're the percentage of the GDP devoted to infrastructure Would go down and their percentage devoted to personal consumption would go up Chinese savings rates would go down And again globally economic growth would develop. This is the global consensus whether again you're inside of China or outside of China So I then want to ask that what are the contradictions between looking for China to save the world? economically by driving new round of economic development versus what are the kind of offsetting problems that will be created along the way most and most Constituously the environment so here are some of the ways that I try to address this gigantic Problem I'll briefly mention some of the things that I included here and then we can talk about any or none of those as you see fit I'll talk about cars briefly as a case study in a minute I'll go into that in a little bit more detail for those of you who think well He's gonna talk about cars. I can check my blackberry or whatever people use here I want to say that cars stands for almost any industry that you can think of in China The same reason why China went from having virtually no personal cars a couple of decades ago to as of 2009 Having the world's largest car market both in terms of manufacturing In other words they produce more for the world than anybody else as well as consumption 13 plus million units Also applies to many other industries why China developed all of those as well So again, even if you're not interested in cars so much The same way that China went for to being a global leader in consumption and production in that industry applies to almost any industry that we can think of the new rich is a pretty Topical subjects since those of us who are interested in political instability Think quite quite a bit about how China can go from being such an equal and egalitarian society to being one of the most Unequal in just a few decades my central point of that chapter is to look at this this tension between the love-hate Relationship towards the new rich in China love them because they represent the aspirations of hundreds of millions of people When I was a kid there was a TV program hosted by a guy who could have been British Australian I can't tell the difference at that age I think you may be Australian called lifestyles of the rich and famous where he'd walk around and show you how the rich people lived I think there is endless numbers of these same sorts of things in China going on now So pumping in the idea of this is what the good life is like you go on vacations the places like Ireland You have this kind of car this kind of house and so on so you have that on the one hand That's the love part of the relationship the hate part of the relationship is the resentment that the only way They'll ever have that kind of life is through connections But if you're not born into the right family and politically connected then your chances of having those those kind of lifestyles are much Slimmer you can imagine that that's the same in many parts of the world as inequality grows But what about in a country that still calls itself socialist as a living memory of a different way of doing doing things What sort of social tensions will come out of that? I personally think that the problem is not going to come from the tens of thousands of disturbances that we that the Chinese government used to report about up until recently These disturbances are usually essentially land disputes in the countryside lands been stolen by eminent domain to create a Industrial park or something or indirectly by allowing the nephew of the local party secretary to pollute at his factory so much So that it renders the land around it useless I think that's much less of a problem than the millions of Kids who have gone now to these in some cases private universities who can't get jobs the antitribes people that we hear about These are the ones in Chinese history that usually cause the problem Namely the people on the outside who want to be the any inside who feel like the mechanism from going from the outside to The inside is fixed against them so that even if they're brighter harder working and all those other things They can't get in New type Megan Taiwan Chapter is a bit about how China could have gone from this land of bad haircut to land of great haircuts in such a short period of Time it is of course the overseas Chinese diaspora Taiwan Hong Kong Singapore and other places that funded so much that allowed China to go from this land of bad haircut to the Land of good one my brother is an investment Banker and I have a feeling that him and perhaps some of you would feel much less comfortable about an assignment in Shanghai If you had gone to the Shanghai that I experienced a 25 years ago as opposed to the one now with the hotels and restaurants so I say that not only jump-started for Chinese consumers for the but they also jump-started for Making it easier for China absorb FDI that there's much nicer places to go So I look at the role of Taiwan in that it's why it's been obvious for a while that That that any thoughts of Taiwan independence my Taiwanese friends don't like when I say this Seem pretty hard to imagine given that the So many Chinese entrepreneurs in Taiwan are making all their money and men with China as well Retailing and branding unless you're a business type sounds like pretty boring kinds of topics But if you're interested in the development of consumerism in China And as I suggested that you create your identity and you share that identity through the brands that you buy Then branding and retailing is very important for China How do you how for instance do you standardize the consumer experience? So shopping in one high-end place and buying one well-known brand in one place is the same as in another place So I look at these waves of China of China in the reform era from the first the dismantling the state-owned enterprises the re-emerge the emergence of mom-and-pop shops and the consolidation of those and now the attempts by China to not allow better capitalized multinationals to sweep in and Take take off their hands about what they had done namely at the force of a forceful consolidation of these Of these national chains. I can get back to that afterwards Branding consumer consciousness is directly related to my first and much more academic work about economic nationalism in China One of the takeaways I suppose for a business crowd of this and I'll talk about this a bit with the Cars is that China is not just happy being at the bottom end of the value chain not surprisingly They're not happy just with low-wage labor work Stuffing Disney toys as it were as opposed to owning Disney and owning the brands managing brand management I suspect people here who are in brand management or equivalent professions are making slightly more than people Stuffing Disney toys It suggests much So I'm interested in the ways that the Chinese state is picking winners and losers in the branding of Branding wars and how that's not only linked to some sort of economic nationalism but that critical issue I talked about earlier of Getting jobs for those millions of unemployed college kids that those those kids represent not just an economic problem We need to move up the value chain get them better jobs, but also a political problem as well So it's with each of these topics I'll then talk about or get you to think about how these things all have political and much larger Reprocussions than just something to do with economics or business these last three are the particularly grim chapters These are the chapters that I feel Suggest that we're China. We're not just up here with world's best practices and everything we can think of democracy markets Apple pie production whatever it is and China is down here ever so slowly making its way in this direction But there seems to me and this is again Contestable point quite a bit of convergence in any number of areas one of these areas to me is living in a world of fakes that The experience of being in the consumer in the Chinese market is a pretty bad one Why because you're never sure whether something is fake or or the genuine article I believe that that's already spilling out to and I don't believe I know that's already spilling out into global markets In Africa a huge number of percentage of pharmaceuticals are fakes that are likely either to be inert and then kill you because they don't sell Whatever a medical problem you have are poison is this problem isn't just restricted to Africa so I believe that this is not only a question of undermining branded markets within China, but also Globally furthermore I guess this is the historian bit in me if you believe as I do that Consumerism means you structure identity around the consumption of branded objects. What does it mean if I can't convey? I'm rich because I have Swiss watch that you can't pronounce as opposed to polar heart rate monitor that you can't pronounce What how does that change the society of the era that we're living in when brands no longer communicate? What they had previously extreme markets for me is this attempt to look at how what was Successfully or largely banned in the communist period is now reemerged with a vengeance so things like markets for liver for our organ tourism Consumption of endangered species notably sharks so how Chinese consumption of sharks are destroying stocks of Destroying species of sharks halfway half a world away sale of Children import and export of brides both into and out of China and then from richer to poor parts of China I look at all of those things in the point that I'm trying to make about convergence of markets is I'm old enough to remember the Cold War Rhetoric in which freedom was equated with freedom in the marketplace one of the ways You knew you were free was because you had the ability to buy and sell whatever you wanted in a free marketplace I think China in some ways to my mind takes that to its logical extreme now How free are you if I can't buy your liver and have it for dinner? Maybe not so free after all This this is the not on the record part, right? Anyway, you take that you take the point that what we see in China is in some cases Especially as an American who has to listen to endless amounts of how the market can do absolutely no wrong Why those people I think are not familiar with the markets in China and what wrongs they might in fact be doing Finally, there's the environmental implications, which I'll talk about in the context of cars So right let me then shift to talking a little bit more detail before we have discussion about this to Chinese cars So the question here Then again is how did China go from being the land of no private cars to the largest market? Both for personal cars as well as global producer of cars just in the last couple of decades I think the reasons why Chinese people want cars Some of it's pretty obvious. I mean we all closed our eyes and thought about why we like cars I suspect that would have picked the cars, you know have a couple of things on the list there air conditioning I don't like to get rained on I didn't I didn't I didn't take my magic carpet over here from the other side of town You know in the rain you can go through all all of these sorts of things It's understandable the individual desire to want to have a car But one of the things that I want to contest in this book and in my talk is the idea that Once the evil Chinese state gets out of the way DNA kicks in and nature takes a course and next thing you know everybody wants a car I don't think there is anything inevitable or automatic about it I think instead that we need to think about the massive role of the state in pushing people into cars I have put some stuff again those people in the corner who can't see this I'll just explain what I think are the important bits anyway So once upon a time the centers of cities of China China used to be mixed use meaning you live and work in the same Roughly the same area if you work for a state-owned enterprise then it's like being part of an Oxford College Everything is provided for you and there's almost no reason to leave the walls You get your housing your Education for your kids Everything was taken care of in the same place in the centers of town those have all been privatized and Replaced with an acronym that I hadn't heard before going to China 10 years ago or so CBD everyone's talking about CBD and Central business districts and the relationship of the property that they were speculating on to the CBD would determine in a very Efficient market manner how much the property was worth So if the state has privatized all of those things have consciously created CBD's what's happened all the people that used to live and what's now called the CBD Well, they're pushed out of the centers of city pushed into the Outerlying areas or they go of their own free will because they want a 6,000 square foot house with an American style Backyard for their dog and 2.3 children. They've had someone illegally Or they have leisure homes or Or so on so what what first one and I could give plenty of other examples of this as an example Which once upon a time, maybe you didn't need a car if you lived and work in the same place as I do I don't need one an oxford. I don't have one to starting to need to need a car Again, I don't think there's much of an Accident around this during the 90s, although not China is now known for building this massive Underground network a railway network. It had underfunded as it was doing all this. It was underfunding mass transportation. So again, it was Increasing the need for people to have cars The state on the lower right corner can do lots of different things lower tariffs It can for allow banks to lend money to people that want to buy cars It can tweak it can do all sorts of things to make it easier for people to start buying their own in cars But for me the most important story of all of this is the early 1990s again All of this being the question of how China went from having no cars to the world's largest car demand as well as Production all that boils down to the lower left corner if you had to pick one of these things It's membership in the WTO in the early 1990s the decision to join WTO and again This will be reproduced an industry after industry Sets off a very small window between China's decision to join the WTO in 92 93 94 And 2001 when it's support when most of the terrorists are supposed to come down There's a phase in period, but you take the point. There's like an eight nine or so year window between When China is going to a sound a full membership in the WTO and when all of this kicks in in that little time They see themselves as having a small window in which they can create Internationally competitive businesses or else or else what or else as I've said They've just done the work for better capitalized multinationals to sweep in and say thank you very much So China has to go from being a place where it's auto industry It's highly decentralized thanks to Cold War ideas of what might happen if you locate all of your industry in one easily new location All over the place, there's a terrific book by a British guy, I think Mr. China Anyone read that it's about a you know a venture capitalist type basically looking around he's got all this huge amounts of money He's got to invest somewhere and he goes he gives a great description of going off to one of these automobile Automotive plants. I forget where it was on way somewhere relatively remote the point being What I'm using that point to illustrate is how there's this teeny window of eight or so years when when the Chinese state has to Recentralize all of that and it create economies of scale so that it can compete against the big boys It can still tweak it can still tweak the nature of a cooperative agreements between GM or any other Detroit or Japanese auto manufacturer in order to get them to transfer capital and know-how into China without giving over giving away permanently Those higher ends of the value chain remember why that's important for any number of reasons economic and political to Foreigners, so I see I don't I see the WTO then is playing a critical role or imminent Membership in the WTO is playing a critical role in saying we can't mess around anymore with all these small and mom-and-pop shops We need to centralize all of these to create well capitalized well run ideally international competitive industries or else What are the impacts? What are the impacts of this well the impacts are visible in every city across China? These numbers are out of date. I mean it's changed so quickly. It's barely worth unless I had a digital You know hope number of rolling the amount of cars bought on there a couple of years ago You remember this story of the 100 kilometer long traffic jam in China I had a special term for that in China. It was called Monday Tuesday Wednesday Now in other words, I I've been on that road I think it's the one leaving the top on one of these coal coal rich areas are on the road to the coal rich areas Where yeah, it was kind of like that quite a bit. So horrible traffic jams all sorts of other Personal health consequences one third of China has acid rain so much of that acid rain is produced by cars So I put a few of those impacts up there China now over imports over 50 percent that numbers changed I mean I started researching this eight years ago now It was 30 something percent and like practically every time I give a talk I have to tweak the number upward way over 50 percent is the danger zone For people in politics for two to reliant It's already over that lots of predictions about how much worse it's going to be think of all the global repercussions of this when I started midway through the writing the golf BP disaster occurred in the United States. It's not hard to imagine what that would have been like if instead of I'm trying to think what the term for the guy running BP at the time was that's not vulgar Unfortunately, I pick up these British expressions. I'm told they're vulgar in any case this seemingly quit a stereotypical Feet upper-class British guy Imagine in place of him and how much of Americans had problems with this guy going yachting. Well, most of the Most of the Gulf Coast is suffering if it's instead some Chinese guy with broken English, you know, you could imagine the Fu Manchu like stereotypes or whatever Well, you know, I don't think you're going to have to imagine them for very long given the growth of Chinese Petroleum exploration there will be those kind of disasters and Chinese will be In control of them think of all the kind of consequences of that the same kind of unsavory Relationships were forced into the Chinese are into this last one is maybe the most important and interesting one I'm part of an Oslo based group looking at the adaptation of green technologies and automotive and power Industries and they're very excited about China because of all that push towards Green technologies in Chinese automotive I think it's easier to it's easy to think about why China has a huge vested interest in developing the electric car industry It's not because the air is so unbelievably polluted that We learned recently embassies have to measure it and the Chinese government is unhappy about that It's not because they care about well, they may care about that But for me that's much less important than those two other things That is the geopolitics of being so reliant on imported oil when you have quite a few a lot of coal Most 70% or more of Chinese electricity is generated by coal So if they switch from internal combustion engines to electric, they're essentially switching from imported oil to coal So the first of these is the geopolitical Considerations the second is those economic ones as I mentioned they need to move up the value chains for the net chain for The next round of economic growth in China If they if they don't they'll have not only a sputtering economy and be caught in that middle-income trap and all the other things that People predict but they'll also have those political problems of those millions of Now I got my college degree, but can't find a job types not getting a job So those two considerations alone over determine that China isn't going to get people to drive electric cars Nicely, they're going to push them in that direction I think there was an article by a reporter that I otherwise greatly admire about how Electric cars are failing in China. The prices are too high There's not no free charging stations the battery technology anyone even vaguely familiar with EVs knows what the most what the problem is and the problems are considerable I think that's if you look at even the not even long term You look at the development of the auto industry in China and just the way I've suggested that people were more or less forced into Relying on cars and how deeply entrenched the part of Chinese culture and economy that now is with two million plus people Working in Chinese car industries. You're going to see the same sort of push into EVs along the way that may help some of the rest of us, especially if we get our electricity from somewhere else Other than burning this type of coal that China burns, but in the meantime I'm not so sure it's going to be the solution that we're looking for So the point that I'm trying to make with all of this about cars is that China's not only Not only created an export industry, but also a car culture that is the infrastructure of desire What do I mean by all that kind of vaguely academic gobbledygook? I mean that what was done on to China mainly mainly that we forced like we Forced China to have a car culture and economy They're now doing for the rest of the world to the same reasons we did massive over capacity Means that they need to find other export markets for cars and in order to find those markets They're willing to help build roads and do all the other things ride politicians Whatever in order to facilitate the export of those cars to other places So yes, maybe some of those things will be green cars We already have seen China race ahead in two-wheel DVs two-wheeled electric vehicles It's pretty startling in the streets of China how quickly that's for those of you who go to China periodically It used to be safe to cross the street because those bicycles and everything else is so noisy do I can't Lost track number of times it's almost been hit. I also think that I mentioned that gateway cars that this is Once you get people in cheap cars, then they want more expensive cars and more expensive cars beyond that Usually these more expensive cars consume more energy and have other related problems. So what I'm trying to suggest then is that China is not only driving saving the world on the one hand economically But also creating massive problems on the other other I've outlined a couple of those problems But I think the environmental ones are worth dwelling on and that's I think everybody who's even vaguely familiar with China knows that They're environmental problems there I sure was but in compiling that chapter writing that chapter of putting the dots together of how many different environmental problems that they're dealing with Simultaneously all adds up to a grim picture because I spoke to a lot of Business crowds over the years and they didn't just want doom and gloom, which is my again my personality There's lots of positive. I suppose takeaways from all of this. I think the Chinese Obviously the demand part is going to be good for business I think Chinese competition and branding categories meant that much like what the Japanese did They'll start to create brands that will become internationally competitive not just because the Chinese state Has created artificial barriers to make sure that they have entry entryway into the market But also because they're better quality or lower price So from the point of view of the consumer China could make global markets much more efficient They could make them much more satisfying because your options are better and cheaper I'm just afraid that the cost will be pretty high So right in any case as an historian I guess I should end up with the historical note that China has come a long way. There I am. They're getting my haircut From this land of the terrible haircut to this land of the excellent haircut with some implications not all of them positive Thank you very much. I look forward to our discussion