Visit to China, Jan 2011.

I’ve just returned from a trip to China with Tuck’s Dean Paul Danos, where we checked in with alumni, prospective students, businesses, and a local MBA program, among others. Across our conversations with these parties there was a palpable sense of optimism and excitement about the current stage in China’s economic development, in which many expect the country to transform itself from an export-oriented economy to an economy fueled by domestic demand and overseas expansion by Chinese companies. I spoke with several prospective MBA candidates – an incredible group with elite educational and work backgrounds and impeccable English – and the majority planned to return to China after business school, a trend that we have seen among recent Tuck grads. I also heard some of the stories of new-found wealth that have become increasingly common in recent years. For example, a gentleman who provides services for car dealerships told me about 8-month wait times for a new high-end Mercedes model, despite its $300K price tag.

At the same time, there was concern about potential obstacles to this next phase of growth. More and more Chinese companies, both state-owned enterprises (SOEs) and privately held companies, hope to expand overseas in search of resources and markets. However, many of these companies lack the processes and skilled workers to do this successfully. A consultant with whom we spoke pointed out that many SOEs are not data-driven, and their employees lack formal business training or international sophistication. Privately held companies share some of these issues. There are simply not enough MBAs available to fill this talent gap, nor do most of these companies pay the competitive salaries that MBA grads usually garner. (Even if SOEs did pay well, we heard several stories about young MBAs finding it difficult to work in the relatively stodgy and politicized state sector.)

This is where Executive Education comes in. The Exec Ed market is red hot. Demand comes from diverse groups, such as entrepreneurs without university education, let alone formal business training; managers at SOEs who are more familiar with Communist Party ideology than spreadsheets; and execs from elite multinational companies. However, although there are excellent programs, both foreign and local, it is definitely a case of “buyer beware.” For example, we were told of one program that bears the name of an elite American school, despite the fact that not one of the American school’s faculty teaches in the program.

Factors limiting domestic consumption and economic growth were also topics of discussion during our trip.  Several ordinary people with whom I spoke, including a worker who had emigrated from Anhui province to Shanghai in search of opportunity and a young, upwardly mobile journalist, felt great economic insecurity amidst China’s economic miracle. The worker and her husband both worked 70-hour weeks with no benefits, and could only afford a tiny apartment given the overheated Shanghai property market. They had no family in Shanghai and there was no affordable daycare, so they left their 4-year-old daughter in Anhui with her grandparents. Any leftover money that they had went to the grandparents and into savings, so that they could pay for medical care and an eventual return to Anhui to “supervise [their] daughter’s education.” They were incensed by the low-level corruption that ate into their hard-earned funds, such as the need to slip “red envelopes” (cash payments) to doctors in order to get decent care. This despite the presence of signs at the hospital prohibiting such payments.

The young businesswoman was frustrated that she had an elite education and an excellent professional track record at top multinational companies, and yet could not come close to buying a home in Shanghai. She had also started an entrepreneurial venture but was unable to expand it because she did not have access to capital. At one point in the conversation, she stated with obvious frustration “I have never voted in my life!” The problems that she faced would sound familiar to many American fresh college grads, trying to make a start on life in the big city. However, I wondered if the fact that she lacked a political voice eroded hope and exacerbated her frustration. Referring to the political situation she went on to say “this situation is not sustainable.”

It is evident from the media that the government is aware of these types of social concerns and anxious to address them. The question is how, and when, especially given the scale and scope of the needs in China. In addition to focusing on the implications of China’s economic growth for the US, we should keep our eyes on these internal issues in China as they play themselves out in the months and years to come.

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