China a mystery going at breakneck speed

It’s not until you’re on the ground that the basic growth story in China is really obvious. When Guy Russo, now head of Kmart in Australia, was the head of McDonald’s in China, they called it “opening a store every four hours”.

Russo, who is now chairman of a charity for Chinese orphans, Half the Sky, says the basic growth of China is juxtaposed against the innovation-driven economy of the US.

“God knows when innovation will be needed in China,” he says.

The differences between the US and China are many. Spending culture versus savings culture; growth driven by innovation versus population. Arguably the biggest difference may be the willingness, or not, of US business and politics, to adapt.

Everywhere you go in China you hear about how the west does not “understand” China, Chinese business, or investment.

The willingness of the US and other developed nations, to adapt their ways of doing business, could be the key to whether they will benefit from the growth of China.

By way of example, Russo says the McDonald’s that opened in Tiananmen Square was the largest volume McDonald’s anywhere in the world.

“Soon after opening, the Chinese told us to move,” Russo says. “Our advice was we had legal rights to be there, and we had support from the US to fight that request. But thank God we backed down. We wouldn’t be operating in China now if we hadn’t.”

And in hindsight, he says, the store was in the wrong place anyway.

“It would be like opening a store in Washington right in front of the White House,” he says.

Certainly Chinese investors seem willing to adapt and learn from the west. Most executives I came across had PhDs from American universities. Investors wanted to hire western asset management firms to learn their way of thinking about and implementing investment strategies. And CIC managing director, Hua Fan, says education of the board is one of the top priorities in their currency management program.

The importance of the west “getting” China cannot be underestimated.

As head of portfolio advisory for the Asia Pacific at Towers Watson, Peter Ryan-Kane says “there is so much riding on China”.

Any broker, economic or industry report that you read, regardless of the industry, says that growth relies on China, he says.

“There is an enormous amount of emphasis on something being successful when we don’t know all the levers and how they’re being pulled,” he says.

“Will it be the next Japan?”