Submitted By: Catriona Banks-Orosco

“When the US sneezes, do parts of the world get sick?” That was the question posed to us in International Business as we discussed how a slowdown in the US economy might affect other nations.

Recent articles in the Wall Street Journal and Financial Times [registration is free] describe a slow down in the economies of China and India. China’s growth is expected to slow by 2%, down to 9% this year. India’s growth will slow 1%, down to 8.7%. Not exactly stagnant, but still they’re both less than the double digit growth the countries have been experiencing over the past few years.

So, is the slow down in China and India directly tied to the economic slowdown in the US or simply the natural process of a growing economy? Does it indicate a larger problem? Or opportunity?

Exports have fallen in both countries. India is likely to keep their interest rates high to attract investors and to try to tame inflation. China’s imports outpaced exports for the last three months of 2007. As the value of the US dollar falls, imports cost us more, but suddenly our exports have a larger audience that can afford our products. China exports products to many nations, but the US market is known for its mass consumption. So could our slowdown in consumption, create the space necessary for China and India to consider longer term, environmental implications in future growth plans? The World Bank is hoping for just that. A slowdown will allow China to “recalibrate growth away from heavy industry in favour of consumption and services.” This would allow China to re-balance the economy away from resource intensive industries, reducing green house gas emissions and pollution. It would also position China to eventually become the world’s largest economy, surpassing the US in consumption, and buoying the global economy. Redirecting growth away from heavy industry won’t necessarily translate to environmental protection. But a transition to services and consumption could help lift a major portion of the population out of poverty. Heavy industry has not created many jobs. A transition to services and local consumption will create jobs for more people. As the overall level of income rises, the citizens of China are likely to begin to demand more protections, for themselves and their surroundings. Of course this won’t happen overnight. But history has shown that as populations are lifted out of poverty, they expect more. The same will hopefully be true in India, where the rise in incomes of some of its people has not been spread across its vast population.

I don’t fear the common cold, I don’t like it, but I’m not afraid of it. I let my kids dig in the dirt, wear shorts in the rain and wear themselves out. The logic is that it will increase the strength of their immune systems by allowing them to be exposed to regular germs in their environment. Maybe the slowdown in the US will have the same effect on the world economy. Many nations will be adversely affected in the short term. However, it could also force the world to take a breath, and consider future paths instead of simply plowing forward. Ideally all nations will gain an understanding of how to grow economies in a sustainable manner.

How do you see the US economic slowdown affecting the rest of the world? Could it be good for the world economy?

Submitted By: David Zarcone

I recently journeyed down to Santa Barbara with my Technology Entrepreneurship class to visit an MIT Enterprise Forum. One of the various speakers at the “Digital Technology in Filmaking” event spoke about the rapid growth and popularity of “YouTube.” This reminded me of an article that I read just a few days prior regarding China’s version of “YouTube” and how it is causing trouble for Beijing.

Tudou.com, China’s largest video sharing website (more than a billion minutes of video per day, 30% more than YouTube) had a knack for showing clips that could not be shown on Chinese TV. Some of you may have seen the video of the China Central Television’s 2008 Olympics inauguration where a woman questioned China’s morality. “If Chinese have no humane values to present to the world, what is the purpose of the Olympics after all?” Of course, this video had 650,000 views on Tudou but was soon removed (it is still on YouTube however.) Other videos have been deleted causing much controversy such as risqué scenes from films and even a clip of drunken Chinese police officers beating up a college girl.

In response to these, online video posting will be limited to state-owned or state-controlled video providers and all amateur video clips will be immediately deleted. Clips with violence or sex are to be considered “detrimental to the nation’s security.” (This law was to take effect on January 31, 2008.) However, many people believe that enforcement will not take full effect because it may violate current laws. One analyst said “the government just wants to show its power over the industry.” Of course the government wants to control what their citizens can see and do online, but they do not want the possibility of distancing themselves from the overseas financiers who have invested deeply on China’s Internet growth (Western venture capitalists have put $120 million into the industry since 2004.)

This topic is closely related to the human rights issue discussed recently. The comment on how TV in Hong Kong cuts away to commercial when issues like universal suffrage are about to air is a relevant example. What do you think about this topic? Although YouTube is one of the most popular ways for Americans to express their opinions publicly are companies like Tudou in danger? Do Chinese citizens have any form of free speech without government censorship or restraint?

A hat tip to Dan Harris and the China Law Blog for this lead ….

Here is a really, really interesting power point presentation by advertising giant Ogilvy on consumers in China’s Tier II and III cities. Some great stuff in here that will relate to what you are studying or will study in your MBA marketing class this winter quarter (e.g., branding, market segmentation, packaging, impulse buying, distribution channels, price sensitivity, who makes the family buying decisions, etc. anyone?). This material also highlights why so many foreign firms are trying to get into the market there — the consumer class and their spending power in these lower tier cities are on the upswing. This presentation is worth spending a few minutes to click through and study. Doing so, via this compare and contrast measure, also helped me better understand the marketing of products here in the US. Once in China, as you walk in and out of stores, and as you bus from A to B and look out the window, you need to think back to this material and connect some of the dots as related to your coursework ….

This is a new book that just came out that I would approve for one of your book reviews:

Billions of Entrepreneurs: How China and India Are Changing Their Futures — and Yours, 2008 (Harvard Business School Press)

From the book’s description on Amazon, looks like this could be a relevant book to read following Dr. Bardhan’s excellent and very informative session with you last week.

Really good session today. Dr. Ashok Bardhan was very, very good. He accomplished a great deal to connect many of the things you will see in China and India.

There were lots of good questions today. Dr. Bardhan offered good insight on the import of a place like Silicon Valley, and China’s lack thereof. Here are two China Law Blog posts on this very topic where you can read more on this important issue, and which provide on the ground support of Dr. Bardhan’s analysis. Thanks to Dan Harris and Steve Dickinson of the China Law Blog for these posts and supplementary reading materials.

Silicon Valley in China — Not Anytime Soon, Well Maybe

China Versus India: Heifi as Silicon Valley (also has a sub-link with a list of places in China that are more likely than others to develop into something that might, in time, resemble a Silicon Valley; this post also has some further on the ground viewpoints that support Dr. Bardhan’s point that China is creating more blue collar jobs than India that can give a person a shot toward moving toward the middle class)

And with respect to the question about investing in real estate in China, to learn more check out (thanks again to Steve Dickinson):

China Real Estate Laws, Part I (really good big picture post)

China’s New Property Law, Part III — Rules of Property Ownership (a post with a plethora of information perhaps only lawyers can love, but read and you will see why you need us)