Good afternoon. Ladies and gentlemen. It's a pleasure being here today. I'm going to try to spend the next 25 to 30 minutes talking about the developments in China and what they mean for the rest of the region and for the United States business. It's a it's rare that I have an opportunity to talk to an audience so large as this usually my briefings are in house with individual country companies and so I can easily apologize for all the people I'm going to offend. I really can't apologize for so many people here today on talking about the the various political andOther issues in Asia that might be sensitive but let me say that I'm not attending attempting to be insulting. I'm only attempting to look at Asia partially with a sense of humor because I was too serious. I probably wouldn't have been there for 20 years. The fact is that I do think this region is the most dynamic in the world and and I'm happy to be there when you're looking at Asia when I started giving speeches and Minneapolis about oh must be about eight years since I did my first one what you would find out is that the region of Asia really consisted of Japan and a lot of other countries what you found was the perception in the United States and the mid-1980s was that Asia consisted of one large market and a bunch of small ones in Japan was a little bit like the Pac-Man of Asia in terms of being the aggressive investor the market that everyone wanted to get into and no place else really counted in theSo what you found were a number of us companies such as Apple computer and a few others set their their Asian headquarters in Japan for them. Japan. Was Asia now to anyone that was in the other countries of Asia during that time, you know, that that wasn't really true. It didn't feel right looking at 1993 figures by old traditional methods of calculating gross national product. You still see Japan as the biggest Market, but the fact is that we told the economist your numbers can't be right now The Economist weren't like the Chinese and didn't change the foot to shoot the suit shoe. What they actually did do is they change their their numbers and in this case and so what they came up with was a this is an amazingly fast forward. There we go. What they came up with was a situation where they decided yes. Our numbers were wrong using a purchasing power parity.Where you're looking at a situation of taking a the same basket of goods and seeing how much it cost and in each country. You can then calculate what Asia would look like and you find that indeed China and India arrival in Japan. In fact, Japan may not even be the largest economy in Asia China probably already is and even some of the other ones are quite significant. Now this makes Japan look far less threatening. This doesn't mean that Japan is going to dominate not only the world or even the region the way it used to now a number talking about economic numbers is puts everybody to sleep. Now what I find in judging from the pot bellies that I see in the room here a number of other people find significant boy. This is an amazingly efficient.Just going to get back here. There I like measuring an economy by how much beer they drink. I find that when you're looking at a situation and growth. I've never known a place that drinks a lot of beer that I didn't like. The fact of the matter is beer consumption in China has been growing by 30% a year since 1990 now to put this in perspective last year China surpassed. Germany is being the second largest beer consuming country in the world moreover. The beer production is supposed to be rising from about 13 million tons in 1995 to about 20 to 24 million tons in 1998, which means in 1998 China will probably challenge the United States being the largest beer producing country in the world, and I can only take partial credit for that growth. I'm the fact is it could be that there's been a lot of foreign investments, especially from Germany and they're very thirsty Germans there. But the fact is that China has over 800 breweries and it's not bad beer. First of all and what you're seeing is a market starting to be realized specially when you consider that a per capita consumption of beer in China is very very limited. I my wife is Chinese and if she has one glass of beer a month, it's an awful lot. But when you have one point two billion people drinking like that, it shows you the type of Market that it can become now if this doesn't race ahead, Now if you're looking at China as a consumer Market, what you're finding is that China's not a poor country with a per capita GDP of about $400. In fact, the thinking now China's per capita GDP is closer to $2,000. $2,000 is a lot more spending power but you ask yourself. So that's what's causing a lot of companies to look and try to set up their shops. There's introduce their products there, but it has problems and I'm going to be talking a bit for the rest of the speech on the problems of China because if you understand the problems, that's where you understand your business opportunities to me. The important thing of China's consumer power is a fact that less Chinese consumers on average spend less than 5% of their household income on housing health and education combined. Now all of you ask yourself, how much do you spend on housing health and education combined and I guarantee there's not one person in this room or listening over the radio that spends as little as 5% on all of those issues. Well, how can they do it in a relatively poor country they do it because the employer namely the state Enterprise is responsible for the education and the housing and health of their workers the worker himself really pays nothing. Now. What happens is this is a big burden on state Enterprises. So as growth grows, there's a tendency for companies that are are losing money to say we've got to take off some of these expenses and let's try to put them on the workers. So what you're seeing you're going to see a shift of the burden for spending on health education and housing on to Consumers so I could see a situation in China where you can have 10 to 14 percent real growth, but actually periodically I mean consumer purchasing power if that household all of a sudden has to pay for a rent that it never had to pay for it before now, you're already seeing that in certain types of Healthcare in China. For example back in 1980. Your you would have the average patient paying only about 14% of Total Health care costs. The remaining 70 are 86% was accounted for by basically the government subsidies or by a state sector insurance. But today you're having the individual Chinese or accounting for almost 60 percent of their health care expenses and you're going to see that in other areas of the country as well. So that although it's growing rapidly don't assume that people's spending power is going to increase at the same rate. Now, what are some of the threats that could upset China's growth in the coming years. Well one is a fickleness of capital inflows. We saw for example after the Mexican crisis and December and January a dramatic fall-off in investment Capital flows into the stock market's of Hong Kong virtually every country of Asia and including China. A lot of the capital flows today are not the kind of flows that you can count on for the long term. banking sector deficiencies the banking sector in China is probably one of the most backwards least structured Industries in the country Banks do not make loans in China on the basis of how good a credit risk is Banks make loans in China because the political boss or somebody in a very strong political position either in the city or in the national government says, I think this company should get money and lending isn't controlled by interest rates or by raising reserve requirements lending tends to be controlled by this fine tuning instrument called intimidation, whereby the very the most effective way. If you want to slow down lending is to probably assassinate 13 or 14 Bankers. It's a very efficient manner they don't have many Bankers left now in China unfortunately, but it's not an effective industry the political uncertainty surrounding the pose dung era is going will China be able it's not going to collapse. The Soviet Union there's no way in the world the non State sector in China already accounts for over 50% of production in China. So if you had the current political system collapse, which I don't think will happen. You would still have an economy of sorts very strong potential economy. Whereas you had nothing like that in the Soviet Union you didn't have an on state sector, but the fact is that the transition to dung period could be disrupted. We I like viewing it as a horse race. If you bet on the right horse has in China, you can probably make more money than any other country in the world. If you bet on the wrong horse as you can lose everything. Take Airlines. There were there was one airline in China ten years ago today China has 35 Airlines. How many airlines is China going to have ten years from now a hundred Airlines or you're going to get a consolidation of the industry. If you picked the one company of the five or ten that is likely to survive a very competitive environment. You're going to make a lot of money. If you pick one of the companies that is not going to make it you could lose your whole investment because that there's no there's no precedence in China for a nice smooth buyouts and Acquisitions that companies likely to be gone. Whoops, here we go again. Now, if you're looking at the final issue social instability, you have 1.2 billion people. It's difficult for people in Minnesota to appreciate just how crowded China is if you went to the parking lot of Target stores on Saturday afternoon. It's not crowded like China and that's what I have to do. Try Americans have claustrophobia. My my wife when I bring her to the United States. I've got to take her to an intersection so that she can feel a crowd to feel comfortable. You're talking on a situation with high inflation in a crowded environment like that the state sector these companies responsible for so many people to take care of will they be able to make the transition possibly? Some of them will not and if they're not able to you may get some dislocated labor and there could be nationalistic sentiments. The Chinese are a very proud people their culture and civilization goes back thousands of years. There is a widespread perception in China and the modern times the last 40 years were the west and the next 30 40 years are going to be China's and there is a there it's a very tempting feeling to to assume that you can do it on your own during the post dung are it's entirely possible that you will get groups in China that preach Chinese notice. One mile to a tongue started the Communist Party in China it will China was ruled on the basis of an etiology that idealogy tended to wear thin by the 1980s with dung sort of moved into socialism with Chinese characteristics and Tiananmen really removed any etiology for ruling that was left. But the Communist party is not about to give up. It's trying to reinvent itself and my guess is that it will in the post on are the chief concern will be how will the Communist Party redefine its rationale for ruling it cannot do it simply on the basis of etiology because the only etiology that exists in many places in China today is a dollar people are very aggressive for making money, but that's not a rationale to sustain a government in the long term sooner or later. They will have a recession. So what will the party the ruling government do to Define itself? I think that a force will be nationalism. This is the power that protects the interest of the Chinese. Now in terms of foreign investment falling off already starting in 1994. We've seen a decrease in direct investment inflows into China. If a year ago, if I were making this speech I could say China's a flavor of the year right now. India happens to be the flavor of the year, which I can talk about later and China's tends to be falling away of it. But keep in mind that even though investment is falling away from its peak of almost 40 billion US Dollars direct investment China still accounts for more than half of all direct investment that's taking place in Asia these days Now one of the problems that I think we have in China moving forward is this lumping all investment Capital together, there's various kinds of investment capital and China unfortunately has been relying a little bit too much on the wrong one. Do you realize if you ask many Chinese leaders what mistakes China's made in the past 2000 years they're going to be hard for us to think of one. Now. The fact is that they think that the biggest problem that country has many people is that it doesn't have enough money. It doesn't have enough capital and if they can get enough Capital it will solve their problems. So what's happening is many investment bankers from around the world have gone and preached that line to China said we understand that your number one problem is capital and we can help fix that problem. We can take your state companies and perhaps list them on the New York Stock Exchange, or we can help you arrange an international bond flotation. Somehow we can get you capital from the west and you can get this money and fix all of your problems. Now that is not necessarily a good thing. Although a lot of money has gone into that. It's bad for a lot of reasons. Number one. For example, you have a situation where in certain industries like telecommunications. It is illegal for a foreign company to participate or have even a minority stake in network operations. And if the state company in China the state Telephone Company can think that if it just gets enough billions of dollars, it can fix all of China's telecommunications problems. It's wrong it won't fix them as the most inefficient Telephone Company in the world unless it changes its management structure of how it uses the money that it raises. So there's absolutely no pressure through certain sources of capital raising to change your management and that's what's missing in China the pressure to change how you're doing things. And I think the more direct investment you get in the country. The more you're going to have foreign competition Force away the overall system changes you have a misuse of capital as a competitive weapon. If you're trying to compete in China against estate company in many cases that state company doesn't value. For example, the building that it's in it doesn't put any value on its equipment therefore the price of the products or services that cells are unrealistically price. You have a distortion of the market that the Strax even sound companies from Core Business. Now, let me come back to beer again because beer is so instructive. It's also good for negotiating. But when you're finding in China One of the biggest beer companies is Chang Tao Chang Tao was listed on the foreign Stock Exchange recently. It had a very successful fairly successful offering and given the growth that I've outlined for the beer industry. You would think this would be a great company to take that Capital that it's raised and and participate in the growth of the industry. Well, in fact, what Chang Tao has done with most of the money that is raised on the international Capital Market is it's lent the money for high rates of interest to a troubled Bank in China, which then lends it out to other inefficient State companies. So what you wind up with is the money that's been raised abroad is not being invested in productive Investments. What you have is a share price of Chang Tao has now been cut in half and what you have to say is how do you get that Capital employed effectively and what you wind up with if you get one of these companies that have raised a lot of funds on the international market goes under China doesn't have to go under but if several of the large State Enterprises that have borrowed heavily do go under it's going to affect the willingness of investors in the United States and Europe to invest anywhere is an emerging markets in the world. Just as we saw the Fallout from Mexico, we could see Fallout in China from a large corporate default. Therefore earlier this year. We had situations where Lehman Brothers had a loan problem in China was I think worth about a hundred million dollars. I was quite happy to see that problem because a hundred million Ours is small potatoes in the overall scheme of things and in China needs a good four hundred billion dollars in infrastructure programs. So I would like to see some of these anomalies worked out before too much money is sucked in on the wrong for the wrong reasons. I think what you're going to see in the pose dung erina is a very one very positive development. There is no strong individual leader in China to replace dumb Mao was a strongest leader in China's modern history done was strong. He didn't have the absolute power of now the way the Chinese say it is is Mao was God and dung is the Emperor. There is no success in emperor in China. Now what happens when your Emperor dies which sooner or later will happen? I'm the guy just amazing in 90 years old and smokes plays bridge and he's in a coma. It's fantastic. What you have is a situation where where the institutions in China are very very weak. When you have an authoritarian government with an emperor. You don't have a legal system as it is the legal system the banking system in China are secondary to the party which means in the party is secondary to the emperor. So when you don't have an emperor for a brief period the pressure will be on those institutions to become stronger. There will be pressure on a legal institution to act as the law. There will be pressure on the banks to act as Banks because there will be no ultimate Emperor with the authorities to say the buck stops here. So I do think you're going to see A a building of institutions in the year or two after dumb dies. Now after that year to it's entirely possible that one of those institutions will spit out a new emperor, but it doesn't exist today Jeong ji Min I think will take over and succeed dung certainly, but he is staying power will have to be proven. He doesn't have the the Mandate from Heaven that Don has now what are some of the institutions you have to look at. Well, I think you should be looking at the centralist. The centralist would be the Communist party people at the headquarter or Beijing level. These would also be Ministries in China that are run at the central level and make money. For example, the oil Ministry the ministry of post and Telecommunications The People's Bank of China. These are Ministries when China doesn't have an effective tax system. These are Ministries which deliver deliver money to the central coffers and therefore Abel the center to hold on to power so it's there. It's in their desire in the post dung are to show how they can be used to maintain power for the people at the center. Another institution. I think will be those who look at provinces provincial rights and more of a legal system and the rights not so much of the individual but of the group at the more local level. So you're seeing Ministries like chemicals like Electronics were the center in China doesn't have any money. They don't have the money at the center to pay for their Workforce has to pay for all that health and housing and education. I mentioned these industries are subsidized. So what they've done is they've made their provincial and Municipal branches much more autonomous to say you compete in the world. These guys want to compete in the world, but they're having a hard time competing sometimes against the Centrist who want to take advantage of their leverage to get power to the center. So I see a split emerging there. I think you have the Army which you have to look at the Army has first of all, it shouldn't be viewed as one unit. You have at least the Navy and the Army itself, which are somewhat split but also the Army viewed as to which which group in China are they going to back? I don't think even the Army knows rat that right. Now the Army is a group tends to back dumb. It tends to back the emperor. I do think that the Army will be the decisive factor in the transition in that when it does cast its vote for who should succeed gum. Its vote will be decisive. So I view the Army's role as a little bit like Mayor Daley in Chicago Cook County during the Kennedy elections when Cook County was the last county in the United States. Show its vote it was a very decisive vote and Mayor Daley because he was decisive was able to leverage his position to gained considerable favors from Washington. And I think that the pla will do the same thing in China. They will wait until the end they will wait until there's a fairly even split and then they will come down on one side in return for favours to the pla. A few tips for businessman doing business in China. I think the Temptation is a country is so complicated that you want to view each deal and isolation. Unfortunately, you can't you have to take all your business in the context of the bigger political picture to give you an example of what I mean by that there is a well-publicized case earlier this year where McDonald's lost its property franchise and Beijing and had a 20-year lease or 25-year lease, which was taken over by a Hong Kong entrepreneur. Well the fact is that Hong Kong entrepreneur went through the Labyrinth bureaucratic Labyrinth and Beijing and got a legalistic way of get getting that property back. And so he worked with Municipal officials in Beijing and he succeeded in doing the deal McDonald's was ousted, but the fact was that that deal so angered the national government in Beijing for a variety of reasons. That that Hong Kong investor has since had to apologize the size of his deal has been scaled in half and 22 people in Beijing have been arrested two of whom have committed suicide. This is not what you would call a great victory. It's also cause of what can happen. If you don't view things in the bigger political picture, you need to look when you're doing business in China at both the central level of government and the municipal level of government. A lot of what I have to do is to see how it what is the vision that comes from Beijing and then I have to go to the cities around China and see how is that Vision being implemented and what you find are differences in the implementation from what Beijing says in the provinces want and splits between the provinces. It's very China is a country the size of the United States and it would be wrong to assume that it's extremely homogeneous. You have to focus much more on people than you have to uh numbers. The Temptation in the United States is to take an Excel spreadsheet and put in numbers for business planning purposes. Well numbers come cheap and China. You want a number? I got one for you, but if you want to know how something works, you've got to know the people behind those numbers that can be very very difficult. You have to do it. A lot of people assume I have to go into a joint venture in some cases. You do some cases. It's all not only do you have to but it would be a wise strategic move. There are other cases. However, when you can have a wholly-owned joint you can have a wholly-owned venture increasingly. I think those tend to be only very large companies or small companies working in the shadow of a very large company, but China is not a place where you have to assume. I've got to go a joint venture the last two you have to keep a low profile don't ever go in China and say you make a lot of money nothing ticks off China more and to feel that some foreigners have come in there and are effectively plundering the come to the country and you've got to shape your environment as much as you can what I've I'm very impressed by Minnesota the Minnesota companies and why I like coming back here is because they talk with each other you go to New York City. I think the last time a company talk with its neighbor was a hundred and twenty years ago and the Fact is when you're going into an environment. You don't need to necessarily have a partnership. What you do need is to know what other companies are doing. So that I'm very key issues like housing Health other things you can speak with the same voice. You can fortify your cases. Now. I've talked for half an hour and there some other slides that I could show but I want going to stop there and just ask any any questions that you might want to ask on China and the rest of Asia as a positive force or a negative Force. I think the one thought I want to leave you with because this is supposed to be a more Regional speech but as usual I got carried away with my talk. It's a fact that there are no real alternatives to China in the sense that gee I think I'm going to invest in Indonesia, or I'm going to invest in India because if China falls on its face, this is a better market for me fact is that there are alternative markets. But in many cases and conditions are improving in India and Indonesia in the Philippines mainly because of developments that have taken place in China China's reform program. I think have caused other governments that were protected that were not opening up the foreign companies to say look at all the money that's going to China we better get off the mark and do some changes ourselves. So India opens up its doors in telecommunications faster than China is opening up its doors. So we're finding India to be an extremely attractive country this year. India has a legal structure its able to position itself and say we're attracted to compared with China, but we're trying to not to move India never would have moved. I don't think Indonesia is the same. It is a very State oriented system that is now opening up to foreign investors if China fails, I hopefully it won't but if it does fall on its face there are enough Horses in India and Indonesia and the Philippines who I will who I think will say look what happened in China when they opened up to the world. We should slow down to a little bit like Mexico again when Mexico Falls we all got hurt on that one. So you may not be directly involved with China but whether sinus succeeds or fails is going to have implications that are felt all the way here in Minneapolis. I guarantee you so let's stop there and open up to questions and answers good. Thank you very much Bob. You're listening to Bob brought put who is the the editor and publisher of Asian Intelligence on speaking to the Minnesota meeting on the station's of Minnesota Public Radio. We have a first question here from Rick Franz. Who is the global account director of AT&T Rick? Thank you. Robert. China is making huge investments in its voice and data communication infrastructure. What kind of impact or threat might this improved communication have on the political environment in China? Well, it has a variety of Dimensions since I want to have a lot of questions. I'll try to just hit the high points one. It's one of the most profitable Industries in China right now. So the ministry of post and Telecommunications is at the Forefront of the centralist fight. So it has extremely important implications for the group in China who who are promoting a stronger center of the country. Secondly as China gets more Communications. There is going to be in China knows it no way to hold Chinese back and plugging into the internet from Gaining exposure to ideas from the outside world in a way that will permit almost Anonymous debate and in a centrally controlled systems such as China Anonymous debate. We just can't imagine what will happen when the lid is taken off of that Pandora's Box. Finally you have a sense of although China is a big country the lack of infrastructure both physical like roads and rail, but also in a sense of communication has kept it very isolated. Are you have to view China in terms of regions the more that the Telecommunications infrastructure gets into China the more that the regions of China will be able to communicate with each other and China will act as a single country. So for example during tenement Tiananmen what made it here in the United States on CNN. It did not make it in Guangdong Province. It did not was not seen in Shanghai as telecommunication evolves in China. It will be much more difficult to hide those types of things so I could keep going on. I think it's the most profound change taking place. There is a telecommunications industry in China. Thank you. Our next question is from Mark Stein Yanni who is with West publishing following along the line of the first question? Could you continue to contrast the infrastructure projects in China and India and how they kind of balance out with the Telecommunications or other ones of you? Okay. Well, let's first look at the size. China is planning between the year 1995 in the year 2000 to install about a hundred million new phone lines. India is planning to install twelve point eight million new phone lines. And India is the second largest market in Asia last year alone China installed 12.5 million lines. So China did in one year what India is planning to do in the next six years, but that said China is not allowing foreign companies to come in other than as equipment operators. And so the network operations in China tend to be very much. A closed affair right now. There are no legal structures that foreign companies can really feel comfortable with in China. It is a lack of a legal system such as was exhibited in the McDonald's case that makes foreign companies feel uncomfortable India on the other can hand is willing to sign contracts. Now foreign companies can have an equity stake and there is a long history of a formal legal structure. So it's a difference of this huge bird in the bush over there versus a smaller bird in the hand right now in India and that verbal bite you so it's also something you have to do with extreme care. Thank you Bob. And next question from Bob White who was the former editorial page editor of the Minneapolis Star also writes extensively on Foreign Affairs Bob. Mr. Bradford. I realized you were going to talk and did talk about a lot of China's problems. From your description I would take China to be a country in really deep trouble. Lots of management problem state-owned Industries leadership transition and aside from beer production having real difficulty. Give us a sentence or two on why it's been such a phenomenal economic success. I think it's success and part stems from the low base that it's starting to Brown and secondly, there is so much. Potential in that country both in agriculture and Industry that it only took a slight opening a slight opening to enable the initiative of average people to go for the brass ring Wen dong initiated agricultural reform in the beginning people in China realize they could better their life. There is an element of Hope in China that is being realized and a lot of what I talked about today is about the Contracting public sector in China the sector with the greatest amount of problems, but I haven't talked about is this increasing non-public sector that has built both on Hope and on results of the past five years and I think that a lot of the problems will be solved by individual initiatives within China and I didn't really fit if I'm looking for going back to the Beer example Going to the airline example you have you have companies being set up that are not State companies people that are working for them that are learning how to work on the basis of a fair day's pay for a fair day's work. That's something that never existed before. Our next question is from binge on hi. My name is Ben John. I am the managing partner at Dixon International being from China myself. I can relate to what you have said in the presentation. My question is more regard to the marriage between a state-owned Enterprise in China and local company here in Minnesota being from China having gone back many many times. I have seen successful marriages. I have also seen marriages there are starting to falling apart based on your experience awarded things a local company in Minnesota have to do in the stating stage in order to prepare for self successful marriage quite often a company will bring a lawyer with them and they talked about divorce before they get married but in China that didn't seem to work that way so based on your experience if you can share some of the things that are important in the Dating stage and then that certainly will help the company to put to get prepared for wonderful and successful marriage. Thank you. Well, I think there's a number of key ingredients. I think just to list a couple of the most important ones first is the need to have a common understanding of shared goals, which does not come easily many people want to enter into a joint venture for different reasons and it remains to be seen if in the medium to long term those reasons are compatible. So the first thing that has to be done is a common understanding of why is that person doing something now to show you how difficult it can be is you because you're going to China from Minneapolis by definition are a risk taker. On the other hand. The person in China is probably a 50 year old manager who has been through the cultural revolution the Great Leap Forward and still has his head on his shoulders. He almost by definition is the opposite of a risk-taker. He's the most conservative individual in the entire world. There's a great deal of cultural bridging that has to be done there. The second critical issue that I think has to be addressed right from the beginning is a human resource issue. How will you hire your workers? How will you motivate and how will you retain your workers? This is something you should decide before you sign a contract not before because ultimately China is about people and I've seen far too many joint ventures where it's the labor side of the problem that gets in the way on the other hand if you get it, right for example, Motorola's is a classic case where Motorola is expanding. Tianjin with its Factory, which is now set globally as the standard for productivity. This is a company that is addressed to human resource issue and probably surmounted it better than most of the ones that I've been in in terms. So those would be the two key issues. Finally. I think that you have to realize as a person from Minnesota, you're going to have to change more than the Chinese is going to have to change you're not going to be able to go in the negotiations and say what you need is a legal system. What you need is you're going to have to go into the system into a negotiation and realize the contract is the beginning of the negotiation not the end and that when you set up your factory the problems will continue they don't end again and so you have to have a relationship that can weather and manage the problems because China is one giant. precise and problem solving you're listening to Robert Broadfoot managing director of Pep Andy consultancy of Hong Kong speaking to the Minnesota meeting on the station's of Minnesota Public Radio. We have a next question here from John Coleman who is a member of the Minnesota meeting. China's position in the world looms larger and larger So let's consider the time will come when the military and the nuclear Arsenal are larger and larger. And the population and the economy are bursting at the seams. What then? What will China have to do what can the rest of us expected? I do not think the China will be expansion area in terms of its territory. I do think that it will be defending what it's already defined as its Sovereign rights. So the points of military conflict that I anticipate are more around China's immediate borders. Now, they can stem all the way down to Malaysia Philippines in the spratly Island area. I think you're certainly going to have problems in the Muslim areas in the west. We're going to have more problems in Tibet. None of those types of disputes. I think of the type where nuclear weapons are going to be considered. It's much more of a conventional fighting approach. So I don't think that the I don't think that China is going to try to export its non-existent increasingly non-existent etiology of what I think are other worries that you would have to do with China again. It's not so much nuclear. It's Will China fit in the region when 5-10 years ago Japan cast a big Shadow Japan Shadow is now starting to be overshadowed by China. So if you're looking at the other countries in Southeast Asia, Indonesia, Thailand Malaysia where you have ethnic Chinese communities, which may be in a minority in terms of numbers of people but are in a majority in terms of dominating those economies what happens if you have racial or ethnic tensions flaring up in Indonesia in Thailand, how will China react to those ethnic tensions? Will it try to intervene? Will it do what the United States is done in Haiti and assume that it's it's it's an intense interest to try to protect ethnic Chinese in those countries again. It's not a nuclear type of issue. I think that the only way I don't think the nuclear side comes into it nearly as much as just the Army side. The Army is one. Few institutions that exist in China on a national scale and as a National Institution are critical to defining who remains in power in the long term again, I don't think that's a a nuclear issue. That's simply a numbers and organizational issue. But the issue does come if China emerges as a world economic and political power which I think it will do what does that mean for the status quo of both world affairs as we now know them and the position of ethnic Chinese who perhaps have been identifying themselves as Indonesians are ties and now be thrown rightly or wrongly Under the Umbrella of China. It will change the status quo of how Global business is done. Thank you. Our next question is from Dave Tesla's who is the president of the Minnesota Medical Foundation? Coming from an organization like that. I suppose you can guess what my question is. But what is the attitude in China regarding philanthropy or charitable giving both from the standpoint of individuals as well as corporations and organizations. And is that philanthropy limited if there is any to China or are the exporting dollars to other countries such as the United States such as Japan has been doing well in China the concept of philanthropy is extremely limited what most people's experience with philanthropy is when a government bureaucrat comes in and levels and arbitrary philanthropy tax on you so there is there's not a great deal like it was a lot of philanthropy when they were bidding for the for the Olympics in the year 2000 that a lot of people would probably not have wanted to be in so I don't think that China as a country is currently capable of offering much however ethnic Chinese Are emerging as one of the world's great groups of philanthropist. We have seen a number of international. Charity foundations opening offices in Hong Kong for example because of the large funds that can be raised for international Affairs, but they were amazed at they were thinking traditionally we've seen where there's a flood in China Hong Kong immediately has donations to 2 raise to raise aid for the victims. But when we had when we had the the famine in Africa and the fighting there they discovered Hong Kong people gave for that too and another classic case of a Chinese philanthropy. I one of my partner's runs an orphanage down in Indonesia for Native melees, and he wanted to take his group of kids to Jakarta for a band. They wanted to go to a band to go from Madan to Indonesian. We had to raise money to bring the kids and they had just finished the Chinese riots and Madan and I went to a particular Chinese company from Jakarta and I said, this is a problem with the kids. They wrote one check for the All trip and they said give it to them but don't tell him who it came from. And so it really isn't there is an awful lot of philanthropy among the ethnic Chinese outside of China. Thank you Bob. We have a next question from John bandar us who's the director of international at Pillsbury companies? Bob you addressed the potential ramifications of a change in leadership in China, but near-term if we moved South a bit as you just mentioned Indonesia is going to be facing a change in leadership eminently as well with elections in 97 so hard to and 70s the problem of Islamic fundamentalism the role of the military using your crystal ball in your experience in the area. What do you think that country is going to face with suharto out of the picture? Well, I feel more comfortable about Indonesia than I feel about China in terms of stability. I would probably rate I most uncertainties with regard to China and the long term. I have some serious reservations on Thailand and I would put indonesia' probably third or fourth on the list the major concern I have and Indonesia is less that it will break up into fighting but that the business lines of influence will change drastically after suharto dies one of my You know the number one industry in Indonesia Is Mining and and I don't mean gold mining ore coal mining. I mean so hurt those kids saying that's mine and that's mine and that's mine. And so the fact of the matter is you have a situation when suharto dies large elements of the economy that are in the hands of people that are connected to hard to could be upset. I don't view it as a violent thing and that's something that strategy can be built around so I'm not particularly where I don't think the Islamic fundamentalism will spread beyond the the Akshay area, which is a very limited area in Indonesia. I don't worry so much about the military. It really is an influence thing that I worry about most there. I like Indonesia. Thank you. Our next question is from Paul Bennett. Who's the Canadian Council here in Minneapolis? Thank you. I was wondering if you could comment briefly on what's Happening concerning human rights in China and whether Western countries at least as governments will likely continue or what they will look for in terms of pressure on a human rights issue. if you define Democracy as a necessary precondition for guaranteeing human rights. China is always going to be in violation of Human Rights While I'm Alive on the other hand. If you Define human rights in terms of giving Healthcare on a universal basis Universal education permitting people to move up the economic ladder. I think the China is and will continue to make huge strides. I think we're the real fighting is going to be is in those borderline political areas where you get opposition to whatever regime is in power and I think the reaction of whatever that regime will be will be to through whatever strong-armed means are required to neutralize that opposition do I think it will interfere with trade and investment? Not as long as China is growing at its current rate if China starts going into a recession. The West may feel that they have more leverage of China's growing as rapidly as it is companies in the west will say don't link human rights with trade and investment issues. Thanks Bob. We have time for a couple of quick questions here. We have a group of students here from touching their Grace high school. They're guests of Norwest bank. One of our Minnesota meeting sponsor is 50 Brian latekka. You have a question and you're a high school student. What grade are you in 11th grade? Okay, once dog dies what type of effect you see that having on the Chinese people and after he dies, do you expect another leader to step forth their National spotlight? Well, I think that the majority of Chinese will go on with their daily lives. I don't think it will have a great deal of impact a dog's death and most people I think that Hong Kong stock market will fall 30 minutes and sympathy and then probably continue to rise and I think that there will be a few people that will be quite happy and may do some visual demonstrations like breaking little bottles because dung's name in Chinese rhymes with little bottles. But again, that will be The Fringe. I don't think that dongs. I think they're more amazed at the guy can hold on for as long as he's doing once he dies. I do not think that a new leader will emerge immediately. I think Jang Shi men will be the successor to dung for one year give or take six months after that period of time he'll have to prove himself he will. Is not have the individual ability now to put his seal of approval. He's only there because factions Underneath Him will support him and it will take a year for those factions and their opposition to realign because large numbers of factions won't move until after dong dies the first sign that we're looking for and I'm not joking here the first event that were already going to be no we're going to be monitoring is done funeral because dung's funeral in the in China. You have the present China isn't 4 News the press and China's for in the best word. I can say is public relations in the worst word as propaganda. And what you will see is only on Chinese TV only the scenes that that propaganda machine wants to have on TV. So you'll be able to see what officials they want to see is the successors to dung on TV and in the funeral line and over the next six months will watch which of those people start fading away which of those We're no longer on TV because you can bet there's going to be a lot of Wheeling and dealing behind the scenes. I do not think that there will be violence other than on perhaps a very isolated scale and I think ultimately it will be probably between chow sure and johnse men as the likely candidates for success, but I certainly don't roll out some Outsiders. Thanks Bob. We have time for one last question from Marc Whitehead who's the director of an organization called Global liability management. I'm not sure. This is a short question. But what do you see in terms of investment in China? And in Asia with regard to the development of the investment link between Hong Kong and Shanghai and related to that. Do you see cat having an influence on the development of I of Asia as a trading block or having some leverage over the financial markets? Well, I think if I got your question, right, I'll try to address the made that's a big question Gad. I think has a positive impact especially on when it comes in for China in the sense that it's got has rules. China doesn't have rules. So by definition we've imposed a set of legal structures on China that don't exist today. That's a start of an institution in terms of the Hong Kong Shanghai axis. I view them as two entirely different cities. I think that Hong Kong is the commercial city in China closest to Beijing. I think that Shanghai is China's number one commercial City now the difference there is that if Jane gives an order that order is implemented through about a thousand layers of bureaucracy by the time it's implemented in Shanghai. If Beijing gives an order in Hong Kong it goes through one layer of bureaucracy. So who's ever in power and Beijing will use Hong Kong to stay in power. They cannot use Shanghai to stay in power. So for example of companies want to list, where would you list in the stock exchange in Shanghai or Hong Kong? Probably you're going to pick Hong Kong because Beijing can then determine which companies come to Hong Kong that gives in political power Beijing can determine which people from China get visas to live in Hong Kong that is political power Hong Kong has a separate currency from China, which means that investors like yourself would have a greater level of exchange rate Comfort than you would with a Mainland currency. So I think they will they will both have very very different roles, and I've been ordered to stop. Thank you very very much.