APEC Comes to Beijing

The Pascal Wager by Avam Hale
The Pascal Wager by Avam Hale
APEC comes to Beijing
APEC comes to Beijing

On November 5 – 11 Beijing will play host to APEC, the 21 member economies of the Asia Pacific Economic Cooperation organization, which includes, oddly enough, given its name, the United States, Mexico, Russia, Canada, and, of course, Peru. (Yes, that Peru.) Both President Obama and President Putin will be in attendance at the event, which will take place on scenic Yan Xi Hu (many Western journalists refer to it as Yanqi Lake) in the suburban Huairou District northeast of the city center.

It’s a big deal. These economies (They define members on the basis of distinct economies, not independent countries, allowing both Hong Kong and Taiwan to take separate seats at the table.) collectively represent 55% of global GDP, so, ‘pivot’ or not, the two former super-powers (i.e., the U.S. and Russia) want to be in the game.

Several other events, including the APEC CEO Summit will take place at the same time. One hundred and fifty CEO’s of Fortune 500 companies will participate, adding to both the importance and the security challenges that accompany the event.

Beijing takes great pride in hosting such events and it’s pulled out all of the stops to insure a memorable event for all. The government has closed many high-pollution factories, including steel and cement plants, closed down virtually all construction sites, and limited or stopped production at any plant that creates gaseous emissions, including those that would easily meet environmental standards in places like the U.S. and Europe.

The residents of Beijing, who have fallen in love with their cars in the same way that a previous generation of Americans did, are prevented from driving them virtually ½ of the time. If your license plate ends in an even or odd number, which all of them do, you can only drive on even or odd dates, respectively. Taxis and buses are, as you would expect, exempt.

All of these restrictions began on Saturday, November 1, and will remain in place until Wednesday, November 12, the day after the meeting ends and all of the delegates have presumably gone home.

If you aren’t Chinese, imagine if your country imposed such restrictions. In the U.S., I suspect, the lawyers would be queued up around the block at the courthouse doors.

But not here. The courts, for starters, would offer no relief. But the people, I believe, would not seek it even if it were available. Beijingers are a proud people, and more than accustomed to a little inconvenience.

These restrictions, in fact, are not so bad. Before President Xi took office the government routinely closed roads and highways so that senior government officials could travel from one location to another without the hassle of fighting Beijing’s notorious traffic. President Xi, as part of his eight-rules on government behavior, abolished the practice, instructing his government brethren not to inconvenience the citizenry in carrying out their duties; a bold move designed to bring the government back in touch with the people. I, like every other Beijinger who inevitably got stuck waiting for a government motorcade to pass and the highway to re-open, was cheered by his obvious willingness to attack established norms of power, even among his own colleagues.

But how do people get to work when they can only drive their cars half of the time? Always pragmatic, they find a way. Public transportation in Beijing, while crowded, is a convenient option. There are 465 km of track in the Beijing subway system and a subway ticket costs only $.30, no matter how far you travel. (That is about to change.) And there are 28,000 public buses in Beijing, many of them long, articulated vehicles with substantial capacity.

The wealthy, of course, inevitably own two cars; one with an even number plate and one with an odd number plate. And while Uber is not available here, many people with private cars moonlight as ‘black taxis’ to help make the car payment and there’s little doubt they will all be out on whichever day they are allowed. (I have used them with no problem but only when traveling with a native Chinese person.) The government knows they exist, of course, (they usually have red lights in the middle of the windshield), but does little to suppress them in light of the city’s chronic shortage of taxis. (Except at the airport. For reasons I’ve never quite understood, taxi drivers prefer to queue up for long periods of time at the airport when they could easily remain fully utilized plying the streets of the city.)

In the end, I’ve heard very little complaining from the citizenry that is being so inconvenienced. Part of the reason, as noted, is simple pride. They want what the government wants; to put the city’s best foot forward on the global stage. (More than 4,000 journalists have registered to cover the event.)

But I think it’s deeper than that. I believe that the Chinese simply accept that life inevitably involves a little suffering now and again. And, I think, that leads to a larger story.

A lot of foreign companies are starting to back away from further investment here due to the rapid rise in wages and energy costs. Some are leaving altogether. But even among those that are staying, very few foreign companies consider China to be their top investment destination today. It probably ranks 3rd or lower for most big multi-nationals.

I, for one, think that is a big mistake. And here’s why:

If you look at all of the most successful economies of the world you will find they have a few things in common. The first is a significant domestic market. The second is robust infrastructure. The third is a deep capital market. And last, but certainly not least, is a strong cultural work ethic.

And China checks on all four fronts. Personal consumption only accounts for 39% of GDP in China today (compared to 72% in the U.S.), but it has the potential to easily be the largest single market in the world for almost everything. (It is already the world’s largest market for automobiles.) The country’s infrastructure is unmatched anywhere on the planet. And while the capital markets are highly regulated and relatively undeveloped, China enjoys one of the highest personal savings rates in the world. And then, of course, there is the whole willingness to suffer, which, in the end, is the key ingredient of a strong work ethic.

So even if wages double in five years (the government’s stated goal) and energy prices continue to soar, the wealth created by moving personal consumption to even 50% of GDP is enormous. Where else in the world will multi-national companies find that kind of opportunity?

I don’t wish to offend anyone so I won’t name names but if you look at all of the emerging markets that are on every pundit’s list of ‘The Next China’ virtually all are lacking in one of the four ingredients cited above. Many have had this chance before and not capitalized on it simply because their savings rate is too low to generate the necessary capital or there is a general cultural sense that ‘rich enough’ is good enough. (Few Chinese would agree that there is such a thing as ‘too’ rich.) Which, of course, is simply a polite way of saying that their work ethic and willingness to sacrifice is not equal to China’s.

The governments of the 21 member economies of APEC have undoubtedly figured this out. It’s unclear that the pride and joy of these economies, the large multi-nationals who were so bullish on China a decade ago, have.

But, as the old saying goes, “You snooze, you lose.” While they are trying to figure out where to make their next foreign direct investment the people of Beijing will be enjoying the blue skies and lack of traffic congestion, complaining little, and building their businesses to capture the growth that the multi-nationals appear poised to leave behind.

The Sunrise Oriental Hotel on Yan Xi/ Yanqi Lake. In any language it is a beautiful spot and within the boundaries of Beijing.

Copyright © 2014 Glassmaker in China

Notice:  The views expressed in this post are strictly those of the writer acting in a personal capacity.  They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.