This is an MIT Sloan Management Review article. Since China began its economic reforms in 1978, it has transformed itself from an economically impoverished and politically unstable country to the second-largest economy in the world. But China faces monumental challenges, both economic and political, in the years ahead, notes author Yasheng Huang. One thing we know about economic growth is that it typically slows down after a period of robust performance. It is much more difficult for a country to grow at a sustainably fast pace when the per capita GDP is high than when per capita GDP is low. Despite more than three decades of reforms, Huang argues, China is still substantially statist in its basic orientation. The result is that for each percentage point of GDP growth, China requires more and more energy and investments, with worrisome implications for its environment and the health status of its population. There is increasing evidence that China is seeing diminishing returns with its existing growth model. Research shows that fast growth at an extremely low income level is relatively easy. However, Huang notes, being able to grow from what is known as "middle-income status" (between $6,000 and $8,000 dollars per capita, a level that China has just about reached) is much harder. Can China avoid the middle-income trap and grow at a sustained rate for another decade or more? Huang believes it can, but only if it undertakes significant reforms, especially political reforms. At GDP of $700, Huang argues, China didn't need to innovate-it could simply copy and transplant the technology and production methods of other countries. But it now needs to transition to a stronger, market-based economic system, a political system that is more open and democratic, and a legal system that is rule-based and offers strong IP protection. In other words, Huang says, China needs political reforms as well as economic reforms to enter the next stage of its growth model.
What caused the 1997 Korea crisis? Did the International Monetary Fund (IMF) help or hinder recovery? Did democracy help or hinder recovery? Seen as an economic miracle, Korea succumbed to the wave of currency crises sweeping Asia in late 1997. Did the same state-led export growth strategy that had brought about such spectacular success cause this financial meltdown? Conversely, what role had foreign investors played in setting up the crisis by pouring short-term capital into Korea's partially and unevenly liberalized financial system? When it arrived on the scene, did the IMF do more to help Korea recover from its economic distress, or did it just bail out foreign investors and prepare the way for Wall Street to up buy Korean banks and firms? Had Korea's long move toward democracy helped or hindered government efforts to reform its economic strategy and to resolve the current crisis? This case explains the background to explore these questions.
Describes the success and rapid growth of a real estate entrepreneurial firm, SOHO China. As the firm enters into a new stage, its founders, Xin Zhang and Shiyi Pan, consider their next big strategic move.
On April 4, 2000, at a board of directors' meeting, CEO Anatoly Chubais, Russia's legendary reformer, announced his plan to break up the Russian joint stock company Unified Energy System (UES). The plan envisioned breaking up the giant energy monopoly along two lines of business: electricity transmissions and generation and sales. His proposal met a fierce storm of opposition from foreign minority shareholders of UES as well as from Boris Fedorov, a fellow reformer in the early to mid-1990s. This case examines the dynamics of implementing structural reforms in a highly uncertain environment.
In 1970, the Indian government significantly revised its patent law, Patents and Design Act of 1911. The 1911 act was enacted when India was a colony of Great Britain, and it was controversial because it led to the total dominance of India's pharmaceutical market by multinational corporations. The 1970 act substantially reduced both the scope and the extent of patent protection, and some credited the act with the creation of India's own indigenous pharmaceutical industry. In 1994, the Indian government committed itself to conforming its intellectual property rights regime to the requirements of the WTO. Domestic political opposition was fierce toward any attempts to move away from the 1970 act.
China is one of the most popular investment destinations in the world. Throughout much of the 1990s, China accounted for 50% of foreign direct investment (FDI) going into developing countries, and between 1994 and 1997, China was the second-largest recipient of FDI in the world, after the United States. The recent agreements between China and the United States and the European Union over China's accession into the World Trade Organization (WTO) may increase China's already impressive FDI inflows significantly. This case examines the drivers of FDI flows into China and the lessons for other developing countries.
On January 6, 1999, Itamar Franco, the governor of the state of Minas Gerais, the second-largest state in Brazil, declared a 90-day moratorium on its debt payment to the federal government. The announcement triggered a run on the Brazilian currency, the Real, and threatened the macroeconomic stability carefully constructed by President Fernando Henrique Cardoso since 1993. Confidence in the country on the part of foreign investors was badly shaken. This case traces the origin of this crisis.
In December 1999, Newbridge Capital, an equity investment fund based in San Francisco, successfully negotiated with the Korean government to acquire a controlling interest in Korea First Bank. It was the first time a foreign financial institution acquired a Korean Bank. The negotiation was difficult and protracted, and the two sides tried hard to reach an agreement that would preserve the interests of both. The case examines the conditions and the motivations underlying one of the most significant acquisition deals in the Korean economy.
In March 2000, plans for the initial public offering of shares in PetroChina were proceeding on schedule, and institutional investors were evaluating the deal. PetroChina was China's largest oil and gas company and an attractive play on China's continued economic growth. The imminent listing on the Hong Kong and New York stock exchanges was designed to raise revenue and produce discipline for the firm. Disclosure policies and a new management compensation system with management rewards based on stock prices suggested a focus on investor interests. At the same time, the AFL-CIO drew attention both to corporate governance concerns with PetroChina and to human and labor rights issues linked to PetroChina's parent company. Was PetroChina an investment to avoid or a risk worth taking? Also raises broader questions about the roles of the state and the private sector.
Describes the development strategy followed by Korea under the leadership of Park Chung Hee as well as the reform efforts embarked on by his successors.
Explores the development of the Chinese auto industry and of Shanghai Volkswagen (SVW), a successful joint venture in China. Established in 1984, SVW is a joint venture between Volkswagen of Germany and the Shanghai Automobile Industry Corp. (SAIC). One key element of SVW's strategy to date has been to work closely with local suppliers, many of which are controlled by SAIC. SVW is the leading auto producer in China, but the competitive landscape is changing rapidly, and SVW's traditional strengths could prove to be impediments in the future.