An Analysis of the Six Mega-Trends of Today's Chinese Economy, Balance Sheet Formula and Society in a Book by Woetzel and Towson

I really appreciate authors Woetzel and Towson’s attitude of cutting to the chase of the story and not taking too much of the reader’s time. Overall, I think the book does a great job of focusing on the six mega-trends of today’s Chinese economy and society (internet, urbanization, manufacturing scale, the brainpower behemoth, rising Chinese consumers, and lots of money), and how these trends are big and “drive economic activity on a very large scale”. The authors introduce each topic through its own chapter and then present an accompanying story, and refer back to the mega-trend chart to give readers a pathway to understanding.

In the first chapter on urbanization, I thought it was really interesting how Shenzhen just sprouted up into a huge city in just two decades. The author mentioned how supply can get ahead of demand in real estate just as in anywhere else, and faulty speculation can lead to “ghost cities” where there are a bunch of empty apartments.

I have observed some of these ghostly apartment complexes in China. I enjoyed the truly rags-to-riches story of Wang Shi of China Vanke, and its unique business strategy of focusing on speed and turnover to effectively capitalize on the urbanization trend. The authors do a good job of connecting the framework of China Varke to describing the trend of urbanization.

In the manufacturing chapter, the authors describe the massive number of manufacturing companies in China and how it is all about being the “fattest” company of scale to out-do competitors in every way possible by being able to spend lots more money.

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Low wages are a big factor in this, as Chinese manufacturing companies especially capitalize on this to boost profits through low skilled-worker wages. Another rags-to riches story discussed was that of Huawei, and how they shifted into consumer electronics from equipment manufacturing. I thought it was really interesting how Huawei was able to take advantage of this trend by redesigning their company. I did not realize how big Huawei was until reading this story, and learning that it is basically the Apple of China.

The chapter on the consumer rising discusses how the next big thing is emotional consumers, and how Chinese consumers are mostly influenced by value and low prices. I can see this as I walk the Hui Minority market shops in Xian, as ten different Chinese people will be selling the same product and it is all about which one will go lowest, and that is how I have been bargaining here in China. The authors discuss how rising wealth for Chinese consumers makes them consume more, and whether that will drive the Chinese GDP upwards, which I definitely believe will be the case. The authors state that the middle-class consumers are the future and I think this applies to any economy today. I was not surprised by the financial chapter describing how the big four Chinese banks rule the financial industry in China, but I did think it was interesting that almost all of the loans they issue are to governments and state-owned enterprises. They explain that “shadow banking” companies fill this gap by lending to those not served by bigger banks. The authors elaborate on how businesses in China, especially SO’s are very opaque as to the flow of loans for example from one SO balance sheet to the next SOE balance sheet. It is interesting that though Chinese companies can seem to be like any regular company with shareholders and what-not, yet a lot of it are veils hiding the Communist Party’s influence behind the scenes.

The brainpower chapter is mainly about how education in China produces more graduates than there are jobs for them. The authors also elaborate on how the educational standards are lower in China and this does not help the unemployment rates of graduates. One subject that I really appreciated was that of intellectual property theft, as any foreigner shopping in China would be bewildered by shopping at the Pearl Market for example. I was surprised that only 76% of college graduates find employment, as it seems from the naked eye that China has more jobs now than ever.

The final chapter is about the rise and influence of internet in China. I connected with the story about Tencent as I use WeChat a lot here in China. Future consumer behavior revolves around technology and the internet, and China has a huge “netizen” population. I thought it was very intriguing how internet addiction is a big deal in China, and how one annoyed father hired people to sabotage his son’s online games in an attempt to remedy this. I’m sure that the rise of Internet is exponentially fueling Chinese economic growth, as it is probably the ideal area for this to work. The authors described how e-commerce is the next big thing and that word of mouth is the most trusted form of communication. Internet seems to be the key to making or breaking it for evolving Chinese companies, as companies that don’t make that hurdle will be left in the dust in this technologically-influenced consumer-based economy that China is experiencing.

Overall, the authors wrote this book almost as strategically as the companies they discuss run their businesses. The 1 Hour China Book is a quick, to-the-point summary of the complex and intriguing Chinese economy that cuts through complexity which six different knives, a.k.a. mega-trends, that outline the major factors of the arguably world’s largest economy.