Why China May Only Have 20 Years to Break Through Economically

Timothy Beardson founded, majority-owned, and ran the largest independent investment bank in the Far East. He chairs the China Oxford Scholarship Fund -- supporting talented Chinese students pursuing postgraduate work at Oxford University -- and enjoys coaching young entrepreneurs. Today he joins the Fool to discuss his book, Stumbling Giant: The Threats to China's Future.

Beardson discusses foreign investment in China -- yes, it's high, but nowhere near the domestic investment -- and explains why he sees a 20-year window of opportunity for the Asian giant to make an economic breakthrough, before it's too late.

A full transcript follows the video.

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Brendan Byrnes: Let's talk about foreign investment. Specifically, I spoke with Ford CEO Alan Mulally. He said, "It's great to work in China," and then you go over and you look at a company like Caterpillar. They had to take a big writedown on a recent mining equipment purchase. Google pulled out of mainland China.

How important is foreign investment in China, versus organically growing Chinese companies themselves, and what's the dynamic there for China?

Timothy Beardson: Foreign investment in China is among the highest of any country in the world, apart from the United States, so in that sense it's big. But domestic investment dwarfs foreign investment so it's not, in that sense, so important.

Of course, by the time you get to the early 2020s and India becomes a bigger country than China, you'll start to see multinationals having an India strategy and saying, "Perhaps we should up what we do over there," so there's going to be a little bit of change of focus.

But this isn't so important as what China does domestically.

Byrnes: I wanted to ask you about another quote you had in the book, which is, "China has a limited window of opportunity, maybe 20 years, to make an economic breakthrough."

I think some people would argue they've already made that breakthrough. Could you explain why they haven't, and maybe what they need to do to make the breakthrough, in your eyes?

Beardson: Yeah. It's back to the demographic point that if, by the 2030s, we're going to see very, very low economic growth rates based on the current economic model, then China has to make this breakthrough and become more innovative.

We've got to see more patents, more technology, more Chinese-built innovation. This just isn't really happening because of constraints within the education system and the scientific culture in China.

That's why I say there is a window to get that done, because without funding the other big issues of China -- cleaning up the environment, getting the financial system to function properly, getting a proper competitive education system -- won't be funded if we wait until China's growing at 2% a year.


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