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05/17/2010

Book Review: The China Strategy


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The China Strategy

Edward Tse, the author of The China Strategy: Harnessing the Power of the World's Fastest-Growing Economy (Basic Books, 2010), is Booz & Company’s senior partner and chairman for greater China. He has been involved in China as a management consultant since the early 1990s. While his book is primarily for business executives, it contains much that is essential reading for investors and analysts. China is a unique country in intense and constant change; what you see today may not be what you see in a few years. However, some aspects of China will be familiar to Wall Steeters. 

The inhabitants are driven by aspirations for more prosperity in their lives. They have lots of energy, are competitive, move with speed and flexibility, and are very risk tolerant. Like late-nineteenth century Americans, the Chinese are urbanizing rapidly, positive about their future, and proud of their country.

Some foreign companies have done well in China, but many get stuck in markets with low profit margins that are crowded and intensely competitive. The government is pervasive and wants to be part of everything. Its constant goal is to stay in power. Government control varies with economic sector, and this book has helpful charts that break down the degree of that control by sector. Some of the low-cost manufacturing attractions are being eroded by rising labor and land prices—and potentially by the availability of raw materials.

This is an entrepreneurial culture, but one with a cultural tradition of obedience and a limited pool of management talent. Markets, especially consumer, are often fragmented and local rather than national. Consolidation, restructuring, and mergers are sure to come, offering lots of opportunity for investment bankers. Chinese companies are now moving up the value added chain and looking to expand globally.

Despite the ancient roots of its civilization, "China's newness is utterly startling." Investors and analysts must work hard to stay on top of what is going on. Edward Tse's China Strategy is an invaluable place to start, to get prepared for the journey.

–Bill Hayes

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