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  Kenneth Lieberthal

Alumni Learn About China's Impact on American Businesses

10/17/2005 --

Kenneth Lieberthal teaches popular session at Annual Business Conference.

ANN ARBOR, Mich.—"China is justifiably creating a major stir," said Kenneth Lieberthal, the William Davidson professor of international business and corporate strategy and professor of political science, at the Ross School's Annual Business Conference on Oct. 7.

Lieberthal's presentation, "Evaluating the Business Opportunities in China," was one of nine workshops offered as part of the school's reunion weekend. In it, he addressed key drivers of China's development, the major challenges it faces to sustained economic growth and the implications of both for American businesses.

Why is China creating a major stir? Lieberthal cited its astonishing economic growth and impact on energy and mineral markets. China also has become the point of final assembly of a new Asian regional manufacturing system, and Chinese companies are beginning to seek opportunities to invest abroad, he added. "When you think about the impact in corporate terms, look at the regional economy," said Lieberthal.

According to Lieberthal, key drivers of future demand include:

  • Urbanization—China is experiencing the largest rural-to-urban migration in history, which will continue for another two decades.
  • Major ongoing development of three metropolitan areas—Beijing-Tianjin-Tangshan, Yangtze delta and Pearl delta.
  • Movement toward a market economy—this requires construction of a social safety net, development of better financial services, an improved transportation infrastructure and fundamental change in the government's relationship to the economy.
  • Creation of a middle class society—this requires consumer credit, expansion of the service sector, quality consumer products, major transportation development and ongoing avenues of upward mobility including enhanced quality and availability of education. The gap between the rich and poor is growing, according to Lieberthal, who said 25 years ago China was the most egalitarian country major in the world.

He discussed China's severe constraints: It has less than half of the global per capita averages of almost all minerals, water, forests, land, oil and other natural resources (except coal). Water and arable land are the two shortfalls of greatest long-term consequence. "If I could describe the future of China in one word, it would be water. Some areas are running out of it," said Lieberthal, adding that the country recently launched the largest water transfer in history from the Yangtze to Beijing.

Lieberthal said the economy has grown big enough that these underlying scarcities are having an impact on China's trade and investment policies and are beginning to produce a paradigm shift in global resource pricing and in China's own infrastructure development.

Additionally, key domestic and international business risks in China include corruption, pollution, infectious disease, intellectual property threats (the Chinese are the best in the world at copying products and packaging, and local governments protect piracy by local firms), possible political instability, economic and trade frictions with the United States, and North Korea, he said.

Multinational corporations must have an Asian regional strategy, according to Lieberthal. In addition, every company with a presence in China should have a strategy and human resource capability specific to the country.

Simply doing in China what you did in the United States to get more "bang for your buck" should be avoided, said Lieberthal, who also recommended businesspeople "treat intellectual property as a strategic issue since the risks are extraordinary."

Lieberthal's research focuses on the evolution of China's political economy, multinational corporate investment in China and India, foreign policy decision making in China, U.S. foreign policy and Asian security issues.

For more information, contact:
Heather Thorne
Phone: 734-936-8421