November 13, 2012 | St. Louis Mo.
Chien, Coughlin and Ravikumar answer a variety of audience questions on China and India.
Cletus Coughlin: So what we're going to do, well, we've got a good half hour here to open it up for your questions. Hopefully we've generated some more questions from you as well as the questions you came in with to start. What I'll do is I'm going to moderate this. And so basically what I'll do is if you want to raise your hand when you have a question and then I'll eventually recognize you. Hopefully I'll not miss any of you, but if it's apparent that I've missed you, raise your hand again and I'll make sure. There's one other little thing that we are recording this. And so in front of you is a microphone, and there's an on/off switch at the bottom. And so for us to be able to hear you and also for the rest of you to be able to hear the question, if you'd turn that on when you get ready to ask your question? And also, turn it off after you're done with your question so we don't hear your groans and stuff about, you know, he didn't even answer my question or anything like that. We don't want to hear that.
So anyway, if you guys would join me up here? We have a group of people that's in another room in the Bank that's also listening to the presentation. So what I'd like to do is give them the first shot at asking any questions. So if there's anybody in the River Room that has questions for Ravi or YiLi, speak now or find your way back into this room so that I can identify you later on. Is there anybody in the River Room that has a question?
F: Cletus, at this time, I don't think we have any questions.
Cletus Coughlin: Okay. So the questions are for you. Okay, why don't we start back there.
Q: This is for YiLi. I went to a seminar here recently by the strategist at Black Rock, and he was talking about China and its growth as well. He went through a process and evaluation of their demand for copper and compared their copper usage to other developing countries just to forecast where it was going to be here in the future. His conclusion was that they're going to set a meeting to import it coming up here in the future—from Jupiter. The connotation there is that there is not enough copper in the world to satisfy China's demand. Any thoughts on this comment?
YiLi Chien: Yes, thanks for the question. So the resource have being used in China is really large, and they've driven up the price of the copper and the oil and many other stuff. But we do believe that in economics eventually the price is going to be adjusted so that it would never occur in the current situation. So that's my first response. Of course, this also involves the international trade, so the Chinese are going to import a lot of resources from other countries. So right now they import not only the copper but also agricultural goods. So in this dimension, the U.S. will actually benefit from it. So my point is that we shouldn't worry too much about that China use too much resource so far. The free market, the price is going to adjust and eventually you're going to solve out.
Q: As the price goes up, isn't that going to have a pretty marked impact on the whole world's population?
YiLi Chien: Yeah, it could be. I mean, but so not only copper, like, a lot of research has focused on that China used a lot of oil or many other resource. But we should believe that at some point which this price goes up, up, up again, then we're going to find an alternative usage of this resource. And new technology can come in and new way to utilize this resource will eventually arrive. I have great confidence on the free market. So I don't think that we should worry a lot in this dimension so far.
Q: So China and India have very different government structures. And so like you said kind of at the end, China can just bulldoze wherever it wants and get things done. But my question is more about India, if you think their government will ever have massive investment in the country, or do you think it will be all privatized and more of a toll road type of expansion in infrastructure?
B. Ravikumar: So there are a couple of things happening right now. So in terms of infrastructure investment, instead of relying on domestic savings they've kind of opened up at least the connections of the big cities to bidding contracts in which foreigners can build the roads and potentially even private sector entrepreneurs can build the roads and charge tolls for the tollways, et cetera. Whether it's the purview of the public versus private sector is less relevant as opposed to building the infrastructure itself. Now, sort of the democracy versus the Chinese way of doing things, that's still a problem whether it's done by private sector or the public sector. It's still the same process. So if I wanted to build a road as opposed to government of India wanted to build a road, it's the same process so you need clearances on all the legal kind of disputes. So that's going to come.
But having said that, the way these things work typically, in some ways it's sort of the way U.S. operates. It kind of takes a crisis before some action is taken. So until then people are really, ah, it's not a problem, it's not a problem, it's not a problem, this will go along. So until this kind of mushrooms into a crisis, that's when some action is going to happen. So even now, what's being built in a big way are connecting the four big cities in India. There are lots and lots of cities that are not connected up so that's going to take much longer. So it's not so much the private versus public, it's just opening it up for bidding.
Cletus Coughlin: Okay, yes, right here.
Q: One of the things about growth is that everybody is not going to get richer at the same rate. And this concerns me about India because India has always impressed me as being a very ethnically divided country. You have lots of—there's more than just the Pakistani dispute going on in India. Is the population so structured that certain states, certain religions, certain ethnic groups, certain maybe castes—I'm not blaming this on the caste structure—are going to grow much faster than the rest of the population and create some social unrest that could really get in the way of India's growth and stability?
B. Ravikumar: So India has a very strange evolution. It's probably the only country that I know where the political freedom came well ahead of the economic freedom. So if you look at the path of economic development for almost all economies, it's the economy that grew first, inequalities kind of increased, and the political freedom came much, much later, including the U.S. development. So India is the only country where right from the get-go in 1947, even when people were abjectly poor, people could say whatever the hell they wanted. There was no problem in terms of political freedom in there. So given that, I'm less worried about social unrest. The inequality is always going to be there. That's almost the hallmark of pretty much any path of development. Some people are indeed going to grow faster than others, but hopefully if the path of development continues—The problem in India is not so much that how come I'm poor, but they've started asking the reverse question, how can I get rich as that guy?
So the hopes and fortunes and expectations have completely tilted on its head. So in some sense I'm less worried about social unrest. Inequality is going to be part of the pattern, but they're looking forward to, how can I get rich like that particular guy? So to the extent that you remove the shackles on various kinds of regulations, the level of improvement in the standard of living from the standards of living that used to be in the 60s and 70s when the goal was to eliminate poverty as opposed to what happened when that was not the stated goal is just phenomenally different. So I would say given the political freedom, there's going to be some social unrest, but it's nothing like what you would see in an oppressive society.
Cletus Coughlin: Okay. The red sweater?
Q: Hi. Thanks, you guys, for being here. This has been really great. This question is for YiLi primarily, but I guess, Ravi, I don't mean to force you out there. But so as far as Chinese investment in Africa is concerned, I'm pretty interested in first a comparison perhaps to how the IMF and other western forces have tried to do similar things and what that might mean or what success with Chinese investment in Africa might mean for the future of global growth?
YiLi Chien: So as I said earlier, so China has been relying on the investment quite a lot, and this they cannot sustain in the long run. So how soon or how fast it's going to decline is very hard to estimate. So China could continue on this huge investment, and it could be the case that they keep import from the more expensive equipment or machines from Europe or United States and help the U.S. or Euro and sustain some level of growth rate. But we cannot bet on that for the long run. This is the bottom line. I don't know if this answers your particular question or...
Q: Not exactly. I was more interested in the effect of Chinese investment in Africa particularly as that pertains to gaining resource access and how that would affect the United States' interest globally.
YiLi Chien: Okay. So again, I'm not a speculating politician. But so China has been huge investment in Africa. There's no doubt on that. And most of this investment is not driven by profit. It's driven by try to make a friend, try to be outreach to this third world country. And for some point, China still faces a lot of challenges. I did show in today's talk. But when China gets richer and actually they are competing with most of other developing countries, probably some part in Africa, some part in East Asia. So those countries nearby China or most underdeveloped or developing countries, it seems kind of some fear about rising in China. The fear is even more compared to the United States. So those investments, I would say most of them—I don't know the detail of the numbers, but I doubt that it's huge, really profitable. So mostly it's mostly like a subsidy to Africa country. So far I didn't see there's a large problem in the United States, but that part I cannot really answer in terms of the inference in the political side. But the economics, mostly just subsidy to Africa country as far as I know.
Cletus Coughlin: Yes?
Q: This is a question for Ravi mostly. If you look at India, my impression is that much of the economy is controlled by family consortiums like Tata, for example. And the question I have is, is this really true? And if so, if it is true, then is it the alternatives to the family consortia going to get large enough to drive the Indian economy when they—you know, is there a curve for that to happen?
B. Ravikumar: It used to be true, let's say, 20 years ago. But that's kind of slowly changing, partly because of the nature of the new growth is on the information technology. So there are companies like Wipro, for instance, which is totally software and IT industry company. And one of the wealthiest people in the world right now is the resident chairman of Wipro. So these kinds of growth, it's very difficult to keep up unless the family kind of expands itself. Now, the Tata industry itself is not what it used to be. It used to be like 1 percent controlling the entire scope, but, of course, since then many, many generations have passed, sort of like multiple parts of the family controlling multiple parts of the industry in an unconsolidated way. So I'm not concerned about the family consortium controlling the entire Indian economy through what it used to be 20 years ago, partly because of the way the new growth is happening and partly because what the family structure used to be is no longer true.
So both of these are pointing towards more and more entrance and more and more entrepreneurs, and especially in the service sector, the growth of medical tourism, the hospitals, the software, all of these are not part of the family consortium at all. So typical members. And you know how these family consortiums go. Within two generations they're fighting with each other, so what used to be a family is no longer a family.