Conference on Global Entrepreneurship: Economic Development for Asia and the U.S. – General Session 3 : Asian Perspectives on Global Entrepreneurship

Daxi Li: Ladies and gentlemen, my name is Daxi Li. I am the chairman of the Chinese Association for Science and Business. We are very proud to co-sponsor this conference. The mission of our association is to bridge science and business, to bridge China and the world. This global entrepreneurship conference is really what we are promoting. Today we are so happy, we are so honored, we have such great speakers. First of all, it is my great honor to introduce Cheng Siwei. He is the vice chairman of the Chinese People’s Congress National Standing Committee. He is one of China’s national outstanding leaders. It is our great honor and our privilege that we have him here. Mr. Cheng was born in Beijing and graduated from the East China Chemical Engineering Institute and then worked as an engineer. After China opened the door, he was sent to the U.S. to study in 1981 and earned his MBA degree from UCLA. As far as I know, in the current Chinese leadership, he is the only one with a U.S. degree. That is also a great honor for our Chinese Americans. He played a very important role in China’s economic reform. He was called the father of China’s venture capital, because in this critical area he played such a crucial role. Before 1998 in China, there were no venture capital funds. Only after the great efforts of Mr. Cheng and his colleagues, China passed a law to allow and to promote venture capital. So now, venture capital in China plays an important role in China’s economic development, especially when we talk about entrepreneurship. We are so honored and we think Mr. Cheng is such a great figure to present this issue. After he returned to China, he also worked as a chief engineer, as a vice minister of chemical industry and he was elected as the vice chairman of the National People’s Congress Standing Committee in 1998. He was reelected in 2003, now he is in his second term. So it’s really great today we have this rare opportunity to listen to Mr. Cheng talking about China and the world. Please welcome Mr. Cheng Siwei.

Cheng Siwei: Thank you, Daxi. Ladies and gentlemen, I’m very glad to be here to talk to you. You know, although I’m now a statesman, I still want to keep my image as a scholar. So today I want to share my views of China and the world with you. Because of the time limit, I will go a little quicker. As you know, economic globalization is an interdependence in real success and a general trend in the world’s development today. The evolution of economic globalization was commenced in the preliminary stage of the development of capitalism. Through progress over hundreds of years, it has evolved from raw material procurement to trade in commodities and then to technology transfer and capital export, making the economic links among various countries in the world ever closer.

In my opinion, the characteristics of economic globalization in the new century are four. One is based on knowledge; second, selected by information technology; third is with finance as the core; fourth is with multinational companies as carriers. Certainly economic globalization is a double-edged sword, as you can see here [referring to slides]. I don’t want to repeat it.

So, today I want to talk about three issues in China and the world. First is: China needs the world and the world needs China. Upon comprehensive trade-off, the Chinese government concluded that WTO membership means more advantages than disadvantages to China. From our past experience, opening up and reform are the two wheels pushing forward rapid growth of China’s economy. The third: opening up is a must to China. China needs to get integrated into the pipe of economic globalization in the world. Also, the world also needs China. Why? Because first: China is a fairly large economic entity. The GDP of China last year reached 1.65 trillion U.S. dollars and ranks the world’s sixth largest. In foreign trade it is 1.15 trillion U.S. dollars, the world’s third biggest. Foreign exchange reserve reached 609.9 billion U.S. dollars, ranking the second. If you add that our foreign reserve with those in Hong Kong and Taiwan, we are the first. The FDI last year was 60.6 U.S. billion dollars, so according to my knowledge, maybe the first.

China is also the most vital economic entity. We enjoy the highest growth rate over the past twenty years; over nine percent annual growth rate. Also, although China’s GDP is only four percent of the world, it contributed 20% to the world economy. China is also the largest developing country. China’s membership in the WTO can help strengthen the voice of the developing world and help address the regionality of rules formulation dominated by developed countries. As a responsible developing country, China can help enhance south-north dialogue and promote cooperation between developed countries and developing ones and accelerate the formation of a multilateral trade system. As you can see in Doha and Kankun, China has its own voices and we play a very important role. That means China needs the world and the world also needs China.

My second issue is China must understand the world and the world also must understand China. You know, we are just in the transition from the traditional central planning system to the market system. So to learn about a market economy, especially features, history of development and good experiences, practices, organizational modalities and management roots, are very important to us. That’s why I came to the States to study management. I’m a chemical engineer by raining. But in the early 80’s I decided to change my specialty from chemical engineering to management because I thought management is more important in China, in the process of modernization. And to learn about relevant WTO rules, to actively employ WTO rules and to perfect the mechanism for multilateral trade negotiations and to better handle trade relations are also very important issues we have to learn. That means China must understand the world.

But on the other hand, the world must also understand China. I’m very glad to hear the previous presentation from the Committee of 100 and I think figures talk. In my opinion, the Chinese understanding about the United States is much more than the Americans’ understand about China. In my opinion, bias is further from the truth than economics. If you don’t understand, you just can learn. But if you have a bias, that’s on the negative side and you’ll need much more effort to pull them back to the positive side. So I think the world must also understand China.

From an economic point of view, there are four points the world must understand about China. First is China is the world’s biggest developing country with 1.3 billion people. China has big aggregate economic strength which enables China to concentrate its resources on accomplishing some difficult tasks. Although China is a developing country, we can send people to outer space. We are the third country that can do this. On the other hand, GDP per capita is very low, only 1,269 U.S. dollars per capita. This means we still have a long way to go, because China has 1.3 billion people. Any number divided by 1.3 billion is very small. So we still have a long way to go.

Second point is China is a country with great development potential. The year before last year, when I attended the Doha Forum, people asked me the question: why is China growing so fast and attracts the attention form the world? My answer is in five points. One is political stability and national unity. China is now a much safer place. If you go to China, you don’t need to leave your fingerprint in the embassy [laughter], you don’t need to remove your shoes through the security check. Also, because China has political stability, national unity is also very important. All Chinese people are concentrated in building up a well-off society in our own way. This is our main goal.

Second, China has a huge market potential. Last December I visited Atlanta, the headquarters of Coca Cola are there. I said to people, any number multiplied by 1.3 billion is a huge market. If one Chinese drinks a bottle of Coca Cola per year, it will be a 1.3 billion Coca Cola market. So it has huge market potentials. Along with the income of Chinese people increasing, the market potential will also increase.

The third is we enjoyed steady economic progress. Over the past twenty years, we enjoyed a nine percent annual growth rate and the income of our people keeps increasing. That is very important because it means the demand is always higher than the supply. Fourth is the comparative advantages in its labor force in terms of cost and quality. In Dallas they organized a media roundtable for me and I answered questions from the media. One journalist, I don’t want to mention his nationality, complained to me: You Chinese took all the investments from our country. I said, dear gentleman, you’re quite right, but I just want to give you a number. In the United States the hourly wage is 16 dollars, in Mexico it is four dollars and in China it is fifty cents. If you are a capitalist, where will you invest? He smiled and said “China”. You know, the salary and labor cost difference is quite big.

Certainly, I want to mention two things. One is that along with our development we will raise the salary of our workers, but the difference is so big we can still enjoy the low cost for a certain period. The second is the domestic purchasing power is different from the international purchasing power. The best way is to live in China but get paid from the United States, so you can live a much better life in China. That doesn’t means our hourly wage is only fifty cents and the United States is 16 dollars. That means the worker in China only lives a life only 1/32 comparing with the American workers. I think maybe only one eighth if you use PPP, because our workers don’t buy many expensive, imported goods.

Last but not the least is both soft and hard environments for investment has been improved. We use our investment in the infrastructure, we put quite a lot of investment in improving infrastructure. Although China is a developing country, our total highway length, our freeway length, are second in the world. United States is first; you have 80,000 kilometers in total. China now has 30,000 kilometers, so we are the second place in the world.

If you talk about Internet service, last year I was invited by the Royal Institute of International Relations in London and I said although the hotel I stayed in is a five star hotel, the Internet service only equals a three star hotel in China. That means we put quite a lot of investment to improve our infrastructure. On the other hand, we revised our laws according to the WTO rules. I’m working in the National People’s Congress, I’m a legislator. We put a lot of effort to revise our laws and make new laws according to our promises to the WTO. That means that both soft and hard environment for investment has been improved. If you are a person without any bias, you can come to China every year and you can find progress in China.

The third thing you need to understand is China has a dual economic structure. The dual economic structure is left over from history but has not yet been well tackled to date. That means in China in the cities and in the rural areas, the economic situation is different. Per capita income of urban residents was 3.21 times that of rural residents. Urban citizens take up one third of the total population and own two thirds of the country’s purchasing power. The quality of social security, public services, cultural, educational and other kinds of products available to urban residents are well above the level offered to rural dwellers. This is a big question for us. The reasonable and orderly transfer of rural labor force through industrialization and urbanization and the increase in the peasant’s income serve as major solutions to problems in the dual economy.

That’s why we put quite a lot of effort to improve our peasant’s income and to promote the urbanization. According to my research, for the population in the cities from 30% increased to 70%, in England it took over 200 years. They reached this level in 1850. In the United States it took about 100 years from the 1820s to the 1920s. In China now the population of the cities is 40%. If we want to reach 70%, it will take at least 30 years. It’s a very important task for us. On the other hand you cannot only drive people from rural areas to the city. You have to be very careful to prevent the Latin American phenomenon where you have many poor people moving to the city, but they have no jobs. If you want the peasants to move to the city, you have to create jobs for them. This is a very important task for us.

The last is, China is in transition to a socialist market economy. What is a socialist market economy? In my opinion, on the one hand it is to raise efficiency by a market economy. On the other hand, it is to ensure social equity by a socialist system. Tremendous achievements in operational mechanism and government functions have been scored, but further improvement is just natural. China should be encouraged to follow the right path and not be subject to harsh environment according to the standard of sophisticated market systems in developed countries. I always talk to my foreign friends saying, the market economy in China only has a history of less than 25 years. How can you compare our market system with yours? You have hundreds of years of experience. You still have the problem of Enron and WorldCom. How can you ask us to compare our system with yours? We are improving but it takes time. I wish we could be encouraged and criticized. This is my second issue

My third issue is China should cooperate with the world but the world should also cooperate with China. China has taken a serious, sincere and responsible attitude towards its WTO membership and it has done a lot over the past three short years. First, the amendment and revision of laws and regulations has been intensified; second, trade balance has been improved; third tariffs have been cut by a large margin; fourth, market access has been relaxed.

And the world also should cooperate with China. The multilateral trading system can earnestly achieve wins for all on many issues only through mutual understanding and compromise among various members on an equal footing. This is very important. I agree with this point, the result of the Committee of 100. In my opinion, to encourage the communication, to encourage the contact between people, is very important. Because only through continuous communication we can develop mutual understanding, mutual trust, friendly cooperation.

So, trade balance between China and the United States always is an issue, sometimes a political issue. I would say trade balance is dynamic and changes as time and the trading object vary. Trade is mutually beneficial. Trade surplus should be viewed from the perspective of foreign exchange equilibrium. In the near term, we would like the relative stability of our RMB value should be kept on a rational equilibrium basis. I can show the newest data of our foreign trade. You can see our surplus in the trade is very small, according to the total. Our total export plus import is 1.15 trillion U.S. dollars. The surplus is only 32 billion, so that means only 3% of our trade. Certainly we have surplus with the U.S. and the European Union, but we have a deficit with Japan and Asian countries, South Korea and with Russia. One thing I need to mention is we have a deficit with Hong Kong, quite a large number. Maybe some goods were re-exported from Hong Kong to the other countries.

In my opinion, necessary compromises should be made. Multilateral negotiation is a multilateral game. If all relevant parties can make necessary compromises, proceeding from a long-term and comprehensive perspective, win-for-all situations can be achieved. On the contrary, if all countries only care about their own interests and shift their own troubles onto others, no favorable results can be yielded. So, last December I visited South Carolina. Greenville. As you know, Greenville was a textiles industry center in the United States. I talked to the people. I said, you Americans cannot compete with us in the textile industry because it’s a labor-intensive industry and your labor cost is very high. If you can limit the export from China, but can you compete with Mexico and South Asian countries in textiles? No you can’t. So the best way is to readjust your industry or structure and find what fit would be good. They shut down some textiles in the factories but they built some new factories, like GE built a factory there to produce turbine, according to the order from China. So the GE factory hired the workers laid off by the textile factories and trained them for a new job. Also they have BMW there and a tire factory, I think it is Good Year.

That means if you cannot compete with China in the lower end of the market, the Americans should focus on the higher market end and then we can have mutual supplementary trade. Certainly, I was just kidding, I talked to some American congressman. I said the trade imbalance you cannot just blame on us. A congressman said the ships from China that come to the United States are full, but all the ships from the United States to China are empty. I said you’re quite right, because we sell the lower end of the product and you sell knowledge, intellectual properties and high-tech products to China. Those products are not shipped by ship. You just ship them by airplane, so that’s why the ship that came to China was empty.

On the other hand, we don’t need to buy the lower end products from you because we have much cheaper costs. The things we want to buy from you, you don’t want to sell. If you can sell a space shuttle to China, the trade imbalance will be improved quite a lot. So I think we need to cooperate. We need to find a way to get a win-win result, rather than to raise a trade war. It will benefit no one. According to my knowledge, the American consumers have 600 billion U.S. dollars benefit from the low cost of Chinese products. This is not my data, I think this is from Morgan Stanley. That’s my point. I don’t want to mention the World Economic Development Declaration because I was the chairman of the declaration activities, but we have a time limit so I don’t want to mention that. But those are our thoughts about economic globalization.

Now I’ve come to my conclusions. China needs the world, and the world also needs China. China must understand the world and the world also must understand China. China should cooperate with the world and the world also should cooperate with China. It’s my expectation that people of reason from all countries conduct in-depth consultations on trade issues and strive for consensus on fundamental matters under the WTO framework. Only in this way can we jointly promote the prosperity and development of the world economy, serve the improvement of the people’s living standard worldwide and make the globe belonging to us all a better place. Thank you.

Daxi Li: Thank you very much, Mr. Cheng. Yes, China needs the word and the world needs China. We do need to improve the mutual understanding. We are so grateful Mr. Cheng can come directly to us to give us a better understanding of China and the relation of China with the world. Thank you again.

We are so happy today, we have a very good panel here, excellent speakers. I will introduce them one by one and then we will have a question session. So if you have some questions for our speakers, we can discuss them later. I would like to introduce Mr. John Allen. John is the chairman and CEO of the Greater China Corporation. This company is operating with a base in Hong Kong and China and U.S. partner companies, listed in NASDAQ. He also is the chairman and CEO of Spring Investment. Mr. Allen got his B.A. from Yale and then continued in the law school at Yale, and obtained his M.B.A. from Harvard Business School. He started his finance career at the Bank of Boston and then continued in the finance world. Before he started his own investment company, Spring Investment, he was the president of the International Stock Exchange Corporation. In the past 30 years, Mr. Allen has played an instrumental role in creating, building, managing, financing over 50 companies. So he is really an important figure in the investment world. We’re very happy today to have John with us. John, please…Let’s welcome Mr. Allen.

John Allen: Thank you Daxi and thank you Vice Chairman Cheng. I have a confession to make and very few of you know this, I think Daxi knows it. I’m Chinese. The reason I’m Chinese is that we all know that during this century, China is going to be the dominant world economy and I like to be a winner. There’s a catch to this, though. When I told Daxi, “Daxi, I’m Chinese,” he said, “John, if you’re Chinese, you must speak Mandarin.” I said, “Daxi, you’ll teach me.” He said, “I’ll do my best.” I said, “well the first thing I have to learn is, when I meet this very distinguished gentleman this morning, Vice Chairman Cheng, I want to be able to say ‘Hello, how are you.’ ” So Daxi says, “Easy, ni hao, wo ai ni..[laughter] Hello, how are you.” And then I found out that ni hao means hello but wo ai ni means I love you, so… [gestures at Vice Chairman Cheng, laughter].

Anyway, I was thinking this morning about four important points that have made an impact on me about China. The first of those came out when President Putin of Russia went to visit President Jiang Zemin in Beijing. He asked Zemin, “What are the most important things that you do here in China?” And President Zemin said “The top three priorities are stability, stability and stability.” And President Putin said “That’s wonderful. I wish I had that in Russia. How do you get stability, stability, stability?” And President Zemin gave the answer. The translator said “management, management, management.” The Russian translator translated that into “leadership, leadership, leadership.” [laughter] So if you look at what is happening in China today, it is really superb leadership, leadership, leadership of every level.

The man who really put his finger on that, the man who gave a speech just last week on Hainan Island, was the former Prime Minister of Singapore, Lee Kwan Yu. Lee Kwan Yu said “In Singapore,” during his tenure of leadership, “we attracted only the best and brightest people we had in Singapore and it was only enough to be leaders in government.” And that was his whole objective: it was to get the very best people from Singapore and make them part of the government. In Singapore they’ve always compensated government officials as well as those individuals could be compensated in private industry. But he said “In China they have enough top quality leadership for government, industry, banking, academia, for every field you can think of.” One point three billion people, many of them educated at international universities and 57 million and growing Chinese or people of Chinese extraction living and working and being successful all over the world. Unbeatable, unbeatable.

But China is not without its problems and some of these problems are ones of perception. As we heard on the first panel this morning, there are a lot of misconceptions about what is important in China and what is important in America. One good illustration of this is Taiwan. Most Americans believe that it’s no big deal, whether Taiwan is independent or not independent, it’s pro-democratic, no big deal. Not so in China. China feels that Taiwan is the prodigal son who has not yet come home. But just remember your parables. When the prodigal son comes home, he is more loved than the son who stayed at home in the beginning. I think this misunderstanding will go away, but it’s illustrative of a lot of the misconceptions that go on in the world.

But the most important lesson that I learned about China, I learned this from a most highly respected professor, he is also a government official, a financier and a lot of other things, but I took it very seriously. It was the most important lesson that I learned about China. And that is China needs the world and the world needs China. You may have heard that from somebody else before, but I’ll tell you why it’s the most important thing.

This past weekend I was at Yale University with some of my friends, like [inaudible] and [Olof] over there, on a conference on globalization. One of the key speakers there was a man named John Thornton. John Thornton was the President of Goldman Sachs and he said “When I look to my future, I see China,” so he became a full professor at Tsinghua University in Beijing. John and I were talking about what is going to happen in this century to the world and we agreed on two things, one thing really: that China is going to be the dominant economy and political and social force in the world. The one question we had that we couldn’t find an answer to was “Will China’s leadership be able to rise above China in order to really be constructive, to provide the leadership for peace, economic prosperity and job creation in the world?” Because a lot of the problems today is because everybody looks at the world from the nation state, not the global state.

So John and I debated this a long time. He said “You know, I’m not sure. You have to look at China’s leadership and the top five people who the make decisions in China,” including Mr. Cheng, “are all scientists and engineers. Unless they have some management training, I don’t think they’ll make that transition.” But we heard the answer to that this morning. Vice Chairman Cheng said that he was a chemist, but he found out that being a manager is even more important. That’s exactly what Bill Gates said, “I always considered myself an engineer, until I became a manager, and that’s much more important.” So I can’t wait to get back to John Thornton to tell him that “yes, the problem is solved,” and I thank Vice Chairman Cheng for being the one who’s solving it.

Daxi Li: Thank you, Mr. Allen. The next speaker is Mr. Harry Edelson. Mr. Harry Edelson is one of the most famous venture capitalists in the world. Harry is the Managing Partner of Edison Technology Partners. His partners manage five venture capital funds for ten of the most important multinational companies, like AT&T, 3Com, all those important companies. As you can see, many technology companies, not just pension fund companies. And his partnership invests in eighty companies on all the area of technology. I’m also very proud that Harry is a CUNY alumnus. He got his B.A. from Brooklyn College in physics and also got his M.B.A. from NYU and graduated from Cornell’s double “E” graduate school. He has so many years of experience in the technology between Wall Street and real industries. That’s why he can manage the venture capital funds so successfully. Please welcome Mr. Harry Edelson.

Harry Edelson: Well it’s an honor to be on the same stage with Chairman Cheng. Chairman Cheng is Chinese but he spoke in English, and I am from Brooklyn, but I am going to speak in English too. [laughter] I went to Russia with John Allen to teach the children of the leaders of Russia about entrepreneurship. Look what happened to Russia. I went to Germany and I spoke to the business people out there three years in a row about entrepreneurship. Look what happened to the GNP in Germany. China didn’t ask me to teach anybody anything and look what happened to China.

I’m going to speak very briefly because lunch is awaiting. But I did speak to the Harvard Club of Hong Kong, the American Chamber of Commerce and the Venture Capital Association of Hong Kong in the 80’s about venture capital. And then I started investing in Hong Kong and China. For a two million investment, I made 94 million dollars. In fact, I think I started the Internet in China, because I invested in China Internet Corporation and I also started HongKong.com. So I’ve had very good fortune in China. We have an expression in the United States alluding to what Chairman Cheng said: when your ship comes in, that’s good news. And all these ships are coming in from China; that’s a lot of good news.

I had a very good experience in China. I was there with my wife and somebody stole her credit card. But I never reported it because the thief was spending less than her. [laughter] But there are CEOs in China just like the United States. I’ve made a lot of investments and nine investments went on to be worth over a billion dollars. You mentioned there are 1.3 billion Chinese, I’ve had nine investment that exceed 1.3 billion. But I’ve had some CEOs who were very bad. If the CEOS were good, I would have had 20 investments over a billion. I had one CEO, we had just completed a board meeting and then he called me up two weeks later and he said “come quickly, we’re running out of money.” So I went to him and I said “What do you mean you’re running out of money, we just had a meeting two weeks ago. How much money do you have left, how long is it going to last?” He said “Ten.” I said “Ten? What do you mean ten? Ten months, ten weeks, ten days?” He said “Nine.” [laughter]

Winston Churchill said to a young diplomat, who wanted to learn how to be a diplomat, he said “When you have something to say, you should say nothing. And when you have nothing to say, you should say something.” So I leave it to you as to whether I am saying something or nothing. [laughter] But it’s very difficult in the venture capital business; don’t think it’s easy. You are the founder of venture capital in China. We had a CEO who became gravely ill and then he received a letter from the Board of Directors and it said “We wish you a speedy recovery by a vote of five to four.” [laughter] I had one CEO, I was sitting in Silicon Valley at a bar with someone, he’s an old CEO. I said “How are you doing?” He said “Not too well.” I said “Why is that, you made 80 million dollars on our deal.” He said “Well, I spent a lot of money on women, and on booze, and on gambling, and the rest I spent foolishly.” [laughter] Well I know time is short, so I’m going to leave it at that, and I am very appreciative of Chairman Cheng’s remarks. Thank you.

Daxi Li: Thank you Harry. So next I’m going to introduce Mr. Alex New. He is also a CUNY alumnus. Alex was at Hunter College for many years, but probably because he wanted to learn from Bill Gates, he said he never really technically graduated, but I think he has enough credits. He is the President of the Wen-Parker Logistics. Alex spent three years in Hong Kong at a freight forwarding company and then he started his own company. So now he is doing very well and his company now has ten offices over five countries and it’s a 15 million dollar company. Please welcome Mr. Alex New.

Alex New: I think I have stage fright so I’d better sit down instead of standing up there. I’m embarrassed to admit to Dr. Tam that when he called me up about a month ago asking me to be here, I didn’t realize I would be in front of everybody, I thought a little panel in a room to do some workshop. But I thought “I’ll dig up some literature and do some reading before I come here” because I know I’m in front of a group of academic persons and I’m never good with my schoolwork. Like Daxi was alluding to, I have more than full credit with Hunter College, but I have no diploma to show for it.

Anyway, I’m not prepared, and thanks to Mr. Reyes when I heard his speech this morning, people have been asking him whether he is pro-or anti-globalization, I think that’s the theme I’m going to base on. I’m biased because my business is in international freight forwarding and we move a lot of the containers and the freight, the clothes that you wear, some of you wear Polo, Tommy Hilfiger; we move all that stuff into the United States. It has been a good business and it all started with a credit card and six hundred dollars cash to register the corporation. It has been eight years and I found that at this point of the development of the company, I have hit a bottleneck and therefore I have been invited something similar to Mr. Edelson, a private equity fund to buy out my business, but not totally buy out. I will leave some equity in there and I will cash out a lot of money; it’s worth from 15 to 21 million dollars, the company’s worth.

To talk about entrepreneurship, I think that is one success story, a little one. But with the cash-out that I have, I have already planned to invest in software writing business in China because the Chinese governments are nurturing this industry to catch up with India. I have some Chinese friends who are from China and study here and are writing some software programs and come up with some projects and I have already set aside one million dollars to further build this entrepreneurship. I think that’s an [honorable] perspective to it. I wonder if any of you realize that kids are buying $160, $200 pairs of jeans today. I am in the industry and I realize that’s an opportunity and some money, about half a million, will be invested in a young African American boy who is in the hip hop scene a lot and he knows what this group of people want. I have invested half a million dollars of the cash out into that. That’s another [fielding] of the entrepreneurship. So I come from that side of the fence to the capital side of the fence and that’s what I told Dr. Tam, that I would talk about my experience, not the academic side, no data, nothing. I think we are good for a break for lunch. Thank you.

Daxi Li: Thank you, Alex. Maybe we have a little bit of time for some questions, if any of you have any questions.

Male Audience Member: U.S. Congress has been very vocal about the Chinese currency exchange rate. As the supreme legislative body, what’s the position of NPC? Have NPC members done something, are they in dialogue or have they expressed some view on this issue? Thank you.

Cheng Siwei: I was asked this question many, many times. I will answer you shortly. The foreign exchange system is a big problem at this time because we are under quite a lot of pressure. As a scholar my point is, first, after the currency link with the gold standard, the currency becomes a little fictitious because you have only the value of the money by its purchasing power. So in this case, the foreign exchange system is a game between different countries. If you remember during the Asian financial crisis, we were under pressure to devalue our currency, but now we are under the pressure to revalue our currency. So what we want to do is to keep RMB in a relative stable and reasonable balanced basis. But we would like to make RMB a little more flexible, as Premier Wen said. But in an unexpected time because, if the expectation is very high, we don’t want to move it. After you are cooling down, maybe someday we will change it a little. So this is the first point.

The second is we would like to move our foreign exchange system from mainly pecked to the U.S. dollar to a weighted basket, between dollar, Euro and Japanese yen. But not at the time being, because 90% of our foreign trade is in dollars, so the dollar has a 90% weight. But the European people and the Japanese people already required us to use their money in the trade, because they lost quite a lot because the dollar went down. In this case I think after a few years maybe we will need to change our system to a weighted basket.

Certainly finally we would like to make our RMB fully convertible. We don’t have a timetable now, but I think it’s not too far away. Actually I talked about this with [inaudible]. He suggested that 2008 is the best time to make our RMB fully convertible. I said, “I agree that’s good timing, because people will come to China to spend their money.” But I have a doubt if the conditions are mature, mainly two conditions: one is the relative strength between dollar, Euro and Japanese yen; second is the capability of our administration to control the foreign currency system. If you cannot control it, you cannot let them free, otherwise it will be a disaster.

Now we allow R MB to be fully convertible in the current account. In the capital account there are 57 items, half of them are already fully convertible. So we still want to move step by step, gradually, to make R MB fully convertible. I don’t think you can wait for many years, but I don’t want to say when. I will just give you a number, last year our foreign reserve increased by $200 billion U.S. dollars. And I mentioned the FDI is only $60 billion, and our surplus is lower than $40 billion, so totally only $100 billion. How can we get a $200 billion increase in our foreign reserve? That means many hot money flew into China. So we have to be very cautious and not move our foreign exchange rate quickly. If we move our foreign exchange system quickly, the hot money will flow out quickly and will leave the problems in China. So that’s why I’m saying we will keep R MB relatively stable, on a rational and balanced basis. But certainly it will be changed at an unexpected time.

Daxi Li: Thank you very much.