SFCMarketsandFinanceJohnQuelch:China

The International Monetary Fund raised its economic growth forecast for Asia, including China for 2024 recently. The IMF expects Asia’s economy to grow by 4.5% this year and has increased China's economic growth forecast by 0.3 percentage points from six months earlier.

The IMF pointed out that the upward revision of China's economic growth forecast reflects the continuation of the stronger-than-expected growth momentum of the Chinese economy last year, as well as the relevant policies introduced by the Chinese government.

In an interview with SFC, John Quelch, the Executive Vice Chancellor of Duke Kunshan University and former Charles Edward Wilson Professor of Business Administration Emeritus at Harvard Business School, indicated that “China is obviously the powerhouse in Asia. It delivered 5.2% economic growth last year on a very large base. China accounts for 30% of global manufacturing output and represents a very important component to the health of the entire global economy.”

Regarding international trade and opening up, Quelch was pleased to witness the journey of China's opening up. He considered China crucial to the health of the global economy, and an open China is much better for the world.

China will become a more value-added economy with innovation

SFC Markets and Finance: What's your outlook of Asian economic development in the future?

John Quelch: I'm very optimistic about Asia, because increasingly in the trajectory of economic development in the 21st century, Asia will be a key driver of the global economy. And China, obviously is the powerhouse in Asia. It is delivering 5.2% economic growth last year on a very large base. China remains 30% of global manufacturing output and so represents a very important component to the health of the entire global economy.

SFC Markets and Finance: Starting from Harvard, you have been interested in China, because you were once the member of Harvard China Fund. So for now, how do you see China's own economic growth potential?

John Quelch: I first came to China in 1981, and so I have been a witness to one of the greatest transformations in human history, in terms of economic development over the last 40 years. And there's no reason not to believe that China is going to be able to continue to reinvent itself, to shift from being simply a factory to the world in terms of low-cost manufacturing to being a much more value-added economy, that emphasizes innovation, research and development, and brings new expertise, products and services to the world.

Guangdong owns international historic perspective

SFC Markets and Finance: Are you familiar with Guangdong as the economic province in China? Now, Chinese government is promoting new quality productive forces and high-quality development. What do you think of Guangdong's high quality development?

John Quelch: Guangdong is a very important long-standing area of China, that has looked out to the world and has embraced the global economy in its history. And so I'm very optimistic that Guangdong will be one of the leaders in terms of the new quality productive forces. Guangdong is also home to many high-quality academic institutions and quality universities with outstanding researchers that are very important to the innovative capacity of the province. So good luck to everyone in Guangdong.

SFC Markets and Finance: This year marks the fifth anniversary of the Outline Development Plan for the Greater Bay Area. What do you think of the GBA's innovation in playing a role in China's growth potential?

John Quelch: It's always been an area that has looked outward, and that will enable it to respond to the global needs in terms of the priorities that need to be set for new product development, for new technology, for new services to be developed. And I believe that Guangdong, because of its international historic perspective, will be able to play an leadership role along with the entire area.

Educational bridge building among countries is essential to the world

SFC Markets and Finance: Because this year is the important year for U.S. election, so I'm very curious that the impact of U.S. election in 2024 on China-U.S. bilateral relationship.

John Quelch: So I think in any bilateral relationship, there are really three key components: the political, the economic and the cultural. Sometimes the political relationship can be a little uneasy, a little bit volatile, some bumps in the road. But then you have the stability and continuity that is generated by long-term economic dependency and interaction through trade and investment across borders between the two countries. And you also have the cultural interchange as well. That's very important to ensuring that political volatility does not upend the total relationship, but rather that political volatility is offset by economic integration and cultural understanding.

SFC Markets and Finance: As we know, Duke Kunshan University is based on the corporation of U.S. and China. And do you think it will become a bridge of China-U.S. relationship?

John Quelch: Duke Kunshan University is a unique university in China, and Duke University is very proud to be one of the three partners, along with Wuhan University and the municipality of Kunshan in this venture. We are delivering a very innovative curriculum, a very interdisciplinary curriculum and a very international curriculum, in the context of a student body and faculty body that is very much balanced between Chinese and international students in faculty. So it's a unique university, and that explains why our applications from Chinese candidates are up 40 %. This year, we have 10000 applicants for our 500 undergraduate places for freshmen this year.

SFC Markets and Finance: You have worked in Harvard University before, and then Miami University, and I'd also say London Business School. So how did you become interested in Duke Kunshan University and come to China for it?

John Quelch: So I was previously the Dean of the China Europe International Business School in Shanghai between 2011 and 2013. That's also a joint venture institution, combining the European Foundation for Management Development in Brussels with Shanghai Jiaotong University. So I have some experience about how to manage international joint venture institutions in China. I think that's the main reason why I was especially interested at this particular time, when the educational bridge building between the two countries is so essential to global peace and prosperity. That's why I was interested in taking the job now.

An open China is much better for the world

SFC Markets and Finance: And for the international trade, how do you see the rising trade barriers and the tariff existing around the world and how shall we avoid that in the future?

John Quelch: So protectionism is never a good thing, and protectionism often is a function of organizations and companies in a country being afraid of international cooperation and international competition, and wanting to have their governments protect them from that competition. But this kind of protectionism that results in tariff barriers, e.g. and also non-tariff barriers, which can be very important, this kind of protectionism does not serve the interests of the global consumer. The global consumer is best served when there is open market and free trade, so that the best possible products can reach everybody at the lowest possible prices. That's what collectively, industry and government should be aiming to do for the sake of global prosperity.

SFC Markets and Finance: So China is further promoting the standard of opening up right now. How do you think the level of opening up of China by now?

John Quelch: China pre-COVID was, in many respects, opening up on a path to more and more openness. And this was, I think, very important in enabling multinational companies to feel confident about investing in China. Of course, for all countries in the world, COVID-19 was a very big shock. And naturally, the safety of the citizenry is the key responsibility of any government. And China took its appropriate measures to ensure the health and safety of its citizens. Now that we are through the COVID-19 period, it's totally appropriate that China should again be opening up, going out, as well as encouraging foreigners to come in. And so, whether it be tourism at an individual level, or foreign direct investment at an international commercial level, all of that has to and is proceeding, I think, in good measure at this point. So I'm very pleased to see China opening up again. Because, as we said, China is so important to the health of the global economy, and an open China is much better for the world than a closed China.

AI is a tool for positive and good forces for innovation

SFC Markets and Finance: And we also want to talk about artificial intelligence. Since the beginning of 2023, ChatGPT has ignited the world's imagination with the power of AI. So how does AI differ in scope and speed compared to the previous technology in your opinion?

John Quelch: So artificial intelligence and machine learning, all of these things are tools rather than ends in themselves. So artificial intelligence can, combined with low-cost computing power, enable us to reach decisions that are better, more informed, and do so more quickly than in the absence of AI. So my belief is that AI is an instrument that can be used for many positive and good forces for innovation in the world, and solve many intractable problems, from individual health and medical issues e.g. in particular patients, all the way through to managing global supply chains in a more cost-effective and bullet-proof fashion.

SFC Markets and Finance: How do you see the impact of AI on rich countries and poor countries because the use of AI will form a new digital divide between these countries?

John Quelch: Any rapid technology innovation is always going to have a problem associated with it, of will the poorer countries be able to access the new knowledge, the new capability that that innovation delivers. And we're going to see, I think, that problem in the case of AI, as we have seen it in the case of many other technologies that have preceded AI. But I think there's an understanding globally that the health of the global economy depends on ensuring that these poorer countries are enabled to access at least an element of the AI gift to the world. Because otherwise, if the digital divide grows greater, then the risk of another round of anti-globalization, anti-trade, protectionist, nationalist sentiment will be further fueled, so rich countries have to share with poor countries in an efficient way, so that all boats can be lifted on the ocean, not just a few.

SFC Marketsand Finance:Since you have many teaching experience before, and how do you think the AI will be implemented in the education?How mayit be implemented in your research area, like consumer mental health?

John Quelch: So there is always a problem, e.g., in marketing, of inefficiency and waste. In other words, people spend money on marketing campaigns, but they can't really be sure whether or not they're effective. Are they reaching the right people? Are they resulting in the right behavioral change? So one of the things AI can do is to facilitate much more precise targeting of the right message to the right person at the right time to achieve the desired behavior change. So that's just one example of how AI can add efficiency and productivity in our daily lives, so that we are not subjected to advertisements, e.g. that we are not interested in, because the AI will have screened out the messages that are not appropriate for us or are not likely to have any impact.

SFC Markets and Finance: Will AI push more advertisements based on our interests?

John Quelch: While all learning models which are essentially what AI represents, learning models that pick up on what your choices are, and then adjust the selections or the offers that are extended to you, based on what your previous habits have indicated you like. So we know that that happens with respect to video streaming and online delivery of moviesand other services already, and this is all part of a process by which the suppliers of these services can do a better jobon behalf of all of us by not wasting our time watching advertisements that are not relevant.It's a customized approach to advertising.

China will sustain its leadership in international manufacturing output

SFC Markets and Finance: So I think you are an expert in the fields just as in the health care and focusing on the consumer psychology. I'm very curious at how do you connect health care with consumers and markets? And what's your inspiration between the enterprise responsibility and consumers' mental health?

John Quelch: So all companies have a responsibility to ensure the health of their employees, and that's just a matter of basic self-interest. If an employee is not healthy or happy at work, they're not going to be productive, they're not going to be creative, they're actually going to be a drag on the organization. And so monitoring and being sensitive to the mental health of our employees are fellow colleagues especially after COVID-19 is really very important to any organizations productivity and success.

SFC Markets and Finance: More and more Chinese companies are now making the ESG report. And because you are an expert in the enterprises' public services, so what do you think about the business environment of China right now?

John Quelch: So I think ESG is very helpful in terms of focusing each individual business on its responsibilities beyond just making a short-term profit and focusing on the impact that it has on the social well-being of consumers and citizens, but also on the environment as well. Obviously, many companies leave an environmental footprint that they may not even know they're leaving. So an ESG reporting system actually motivates companies to take a close look at what they themselves are doing to the environment, good as well as bad, and to make sure that that is transparently understood to the broader public. And then thirdly, to take corrective action that will improve their performance and their abilityto deliver against national goals for peak carbon emissions by 2030 and carbon neutrality by 2060, for example.

SFC Markets and Finance: What do you think the overall attitude of the foreign investment or foreign enterprise towards Chinese market? Do they still think that China market has a great potential?

JohnQuelch: So China still remains responsible for 30% of global manufacturing output.It's very difficult for international companies that are sourcing from Chinato speedily move their sourcing to other countries.It simply is not that easy.The skilled labor, the managerial capability is simply not as good, and the supply chains are not as well as developed.All of that is going to add cost compared to continuing to source from China.So I'm confident that China will be able to sustain its now 14-year leadershipin terms of international manufacturing output, contributing to the world economyand ensuring good, competitive, low-cost prices for consumers, wherever they may be living.

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