China – some history and way beyond

Early 80’s :-
Zhang Ruimin ( known for his work in turning a little-known, bankrupt refrigerator manufacturer into the world’s largest white appliances company – Haier ) once lined up about 75 refrigerators that had been produced with some minor defect . He asked his staff as to what should be done with the defective refrigerators . Responses were – sell them at discount , offer to employees etc.
He instead did something which is legendary in Chinese business history – destroyed the first refrigerator using a big hammer and then forced his staff to do the same with all the other refrigerators and made a very emphatic statement about the manufacturing standards that a world class company should follow. That set the tone for Haier and in a way for China in the years to come .

Around 2004 :-
When fighting eBay’s arrival in China , Jack Ma famously declared “eBay may be a shark in the ocean , but I am a crocodile in the Yangtze River . If we fight in the ocean we lose , but if we fight in the river we win” and he launched Taobao. The website , offering free service to buyers and sellers on the consumer to consumer platform , created china’s first secure online payment system ( Alipay ) . Next in line were money market products called Yu’e Bao – use Alipay account to freely deposit and withdraw money and avail better rates than traditional bank products .

And then rest is history
To me the two episodes that I have mentioned above highlights the major mind shift changes that have happened in the China’s economic history .

But understand the history ( and the market ) first

There is government, when the prince is prince, and the minister is minister; when the father is father, and the son is son. (Analects XII, 11, trans. Legge)

Confucian believed that people must behave , rulers must govern and control is always necessary and hence China has a history of long rejection of free market economy , markets need to be controlled – otherwise cacophony and inefficiency prevails .

Since the early 1990s, China has consistently been the world’s fastest growing economy . It has moved from a state controlled to a market driven economy. The economic scale and size of market enables companies like Alibaba & Tencent to compete with global giants. China , although also being a complex and fickle market , has been using technology effectively ( and at a massive scale ) and is becoming a harbinger of how the world’s business environment will evolve.

What’s the future now :-
China’s poster boy companies today – Baidu , Alibaba and Tencent ( BAT ) and many more like Xiaomi , Lenovo , Huawei , Yihaodian are the most innovative , creative and influential players – not in the Chinese economy but slowly into the regional economy as well . The imaginative entrepreneurs who have build these companies from the ground up have shown phenomenal drive and ability in negotiating the extraordinary changes China and its economy have undergone .

China will continue to open and liberalise its market and the World will be forced to respond. One milestone event was China entering WTO in early 2000s and the other one more recent – programs like stock connect ,QFII , RQFII quotas , MSCI decision to include China A shares in the MSCI emerging market index .

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China has learnt a lot in the last few decades and now has a lot to Share

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