Below is a Turkishtime interview with Mehmet Ogutcu. Mehmet Ogutcu is the person below. He thinks he is leftist, along the lines of Kemal Dervis I suppose, and I know this because I met him in this cyberspace more than once.
Best, Sabri +++++++++++++++++++ WHO IS MEHMET OGUTCU? Mehmet Ogutcu, works currently in the OECD (Organization of Economic cooperation and Development) Secretariat in Paris as the head of Global Forum on International Investment and Relations with Non-Member States. Before he joined the OECD in 1994, he worked as a foreign ministry official in Ankara, Beijing, Brussels and Paris; in Is Bank and at the Prime Ministry Press-Publication General Directorate. Presently, besides his duty in the OECD, he teaches on Asia-Pacific and Eastern Europe economies at the University of Dundee and London School of Oriental and African Studies. He has numerous articles and books published about energy geopolitics in Turkey and abroad, The Chinese economic domain, Russia, international investments, Central Asia, the Balkans, bribery and corruption and the European Union. His reports, "The New Economic Super Power, China and Turkey" (1994) and "Towards A New Foreign Economic Relations Strategy for Turkey" (1998) were published by TUSIAD. His book "Does Our Future Lie in Asia?" (1999) is published by Milliyet Publications. His forthcoming book entitled, "The 2023 Turkey Vision" will soon be published. +++++++++++++++++++++++ LET'S NOT MISS THE CHINESE BOAT! WE DISCUSSED THE SECRETS BEHIND THE "CHINESE WONDER" AND ITS FUTURE WITH MEHMET OGUTCU WHO KNOWS AND WATCHES CHINA VERY CLOSELY. OGUTCU'S WORDS OF CAUTION FOR THE TURKISH BUSINESS COMMUNITY APPLY NOT ONLY TO TURKISH BUSINESSMEN, BUT TO ANYONE THINKING OF ENTERING THE CHINESE MARKET. TURKISHTIME: Can you sum up the foreign capital strategy for China to be practised for the period ahead? What kinds of developments are taking place? MEHMET OGUTCU: China, which looks set to surmount the $50 billion foreign direct investment threshold by the end of this year, aims to double this amount over the next five years. I am referring to annual capital inflows. Since 1978, gross foreign direct investment has soared to levels of over $400 billion. Bearing in mind that last year, international investments were cut by more than 50%, the world economy shrank and that the same downward trend is to linger-on this year, the performance of China is really impressive. Its entry to the World Trade Organization last year, its substantial openings in the services sector and improvement of the investment environment by speeding legal and institutional reforms consolidated the confidence of investors in this country. Next month, fourth generation leaders (Hu Juntang and his team) are going to be taking over the administration in the Communist Party Congress. It seems as if the political rule won't be shaken. Foreign companies that have produced traditionally with the help of cheap input/labor factors and exports now revamp their business strategies, seriously taking into account the Chinese domestic market and technology production. China, wants to break away from being a center of cheap production and hop on to the position of a country drawing increasing rates of quality foreign capital. It wants quality, long-term foreign capital that integrates with the national economy, elevates environmental and social conditions and invests on research and development. It revises its strategies accordingly. How will the WTO membership come to play on China's foreign capital strategy? The WTO membership should not be seen limited to trade liberalization and market opening. A historical decision to profoundly influence the economy was made. It should even be expected for middle and long-term competition to make a democratizing effect on the political system. Surely, the WTO membership has buoyed up the reliability of China in international markets. Next to edging away trade protectionism, it alleviated the risk premium of the production investments oriented for exports within the country. This, to a great extent, will reshape the global distribution of capital investments in favor of China. All indicators reveal that especially with the possibility of company takeovers and mergers and the opening in the services sector, the volume and quality of foreign capital will climb record highs. Foreigners will be able to buy stakes from Chinese state owned enterprises even if this won't be dubbed, privatization. Ownership rights are expected to be concurred in the next Communist Party Congress. In the new period, the foreign capital in the manufacturing industry will be waning; in return the investments in the services sector are to be pumped up. In particular, the finance, insurance, telecommunications, domestic trade and energy sectors, will be brisk. The process of shifting present or prospective investments from other Asian countries to China will also accelerate. This situation worries ASEAN countries that compete with China in drawing foreign investment as well as Japan and Taiwan, which are unable to hold their own companies in their respective economies. The imbalance of development among regions of China shows through in foreign capital distribution. Nearly 80% of foreign investments concentrate on coastal provinces in the east, which are relatively more developed, while central and western regions take a negligible share from investment flows. It looks as though the WTO membership will aggravate this imbalance in the short and medium term. With time, the labor-intensive manufacturing sector and foreign capital in search of natural resources may pursue the "Go West" strategy and be led towards the west in order to benefit from the prodigious infrastructure investments and incentives of the state in underdeveloped regions. The market opening will at first hurt several local firms and competition brought by the WTO for which they are unprepared. It is more likely that in the medium and long term, the Chinese economy will overcome this obstacle and thrive. What kind of lessons do China's foreign capital strategy and policies bear upon Turkey? We're asking this question in relation with a frequently encountered opinion in Turkey: "China is a country that has still not abandoned central planning and is ruled with a single party regime. Besides, foreign capital to China, for the most part, consists of investments by Chinese living abroad. For these two points, China can't surely be an example for Turkey"? Even if each country's conditions differ, there are always lessons to be learned from diverse experiences. It is true that in China there is still an administration based on central planning on paper. In reality, the five-year plans of the State Planning and Development Commission are not executed widely. As a result of swift changes, the planning of China turns in a way into the plans of our State Planning Organization. Regions in particular go their own way. The overseeing of regions in the activation of WTO duties and implementation of the legal and political precautions of the central government will continue to be a major headache. China, since 1978 has been ruled within the framework of a "socialist market" economy. In the past three or four years the word "socialist" has not even been uttered in the management of the economy. Of course, they are totally behind the "fanatic" market economy, but they tune their supply-demand balances, price settings and improvement of the investment environment with Western terminology. They keep searching for a "Third Way" unique to China in order to fill in the ideological vacuum that's been formed. Probably one of the first jobs of the new leadership is to make progress in this area. At one of my last visits to China, in Beijing, I met Peter Mandelson, an aide of Tony Blair. He was invited by the party school to contribute the search for a new ideology. Capital, foreign capital essentially, can't obey a chain of command. Even in China. When you listen to them, almost all investors complain of the conditions of doing business in China. But they carry on working so that if not today, in the near future, they will grab their slice from this giant cake and not lose the market to their rivals. Those who are patient, win. As it is so in the rest of the world, the capital in China flows into areas with reasonable profit margins and revenues, legally protected and able to see ahead. Above all, in China, provinces and certain cities follow an investment policy and provide incentives largely on their own, autonomously. The effort that strikes me most is their incessant search to entice advanced technology to the country no matter what. As long as there will be steps towards protection of property rights, they will draw more technology-concentrated investment. Foreign capital is granted incentives in areas thereby complementing the gaps in national capital. Although the restrictions may sometimes be over the top, ultimately, the principal aim is maximization of the foreign investors' benefits to development, while they pursue the aim of profit maximization. China has, since 1978 gained considerably in developing its exports, creating employment, technology transfer and improving management techniques. The crisis period in Asia included, it managed to draw $40-45 billion of foreign investment every year. It is second after the US in the listing of countries that secure the most amount of investment. Among developing countries, it is first. Although the income per head is low on a national level-but let's note that it's around $5,000 in Shanghai- China has a tremendous domestic market potential as the most populous country in the world. Its rapid economic growth, -last year, while all world economies were in stagnation, it grew by 7.8 %- unabated purchasing power, cheap labor and land costs, represent broad opportunities for investors. The permanence of political stability whereby promises are kept is an additional source of attraction. China's share of international investments today stands at 7%. In 1995, this number was 13%. Foreign capital per head is not as high as it's thought. In its GDP, the share of foreign investments was a mere 3.1% in 1980. In 2000, it moved up to 32.3%. The share of foreign investment in fixed capital formation is in the region of 10.5%. As you rightly point out, the share of multinational companies founded in the OECD countries in the amount of foreign capital entering China was very low. Presently, the concentration is on foreign investors from Southeast Asia, Taiwan and Hong Kong that cannot be categorized exactly as quality capital. But subsequent to the WTO membership, the OECD countries' enterprises in the country are mushrooming. Part of this undercurrent is the flight of domestic savings that are not well treated inside and then their return by way of (round tripping) benefiting from foreign capital incentives and guarantees. One other important matter is: China's attempts are not only for drawing the foreign investor, but at the same time to open up the way for its own investors. In an environment where local investors quit or run off abroad, you can't coax foreigners to come in, aside from speculative domains that deliver exorbitant returns. Foreign investment should be seen as an integral part of a comprehensive national development strategy. In China domestic savings are evaluated in conjunction with trade, investment and development aid/credits. If we sniff the last twenty years' experience of this country and think that it doesn't have any lessons for us, we would be hughly mistaken. When we view medium weight countries like Korea, Malaysia, Thailand, Poland, etc. playing at the same league as us, we see that they lead us. We have to realize that improvement of the investment environment and drawing foreign investment does not simply go through legislative or institutional changes, but that we have to contrive the necessary capacities of people, institutions and infrastructure, above all, overhaul our traditional mentality. The view that after 2005, China will become a stumbling block for Turkey's exports, especially for textile, is widespread in our country. How accurate is it to look on China simply as a potential rival? Are there possibilities for Turkey and China to cooperate in international markets? There are wide possibilities of cooperation for two countries at the eastern and western ends of Asia. It remains as to how the present potential is to be turned into kinetic energy. The existing picture does not allow for optimism. In many sectors such as textile, construction and food, China is among our foremost rivals in international markets. In order to turn competition into cooperation, we need to think creatively and make intense efforts. We don't work enough on this subject. China as the world's largest steel producer (91.8 million tons) and also imports on a magnitude that can throw the international markets off balance (and which would also propel our own trade volume, since steel is an important export item). China's steel imports were 11.7 million tons in the first half of 2002. PetroChina, Shell, Exxon Mobile and Russian Gasprom have taken over the construction of the 3,900 km Xinjiang-Shanghai natural gas pipeline which will stretch from the west end until the east end of the country. Approximately $9 billion will be spent. Here, if at an early stage, they could take part in projects, Turkish contractors may be employed. The same goes for the country's infrastructure constructions to which the state pours billions of dollars. It is a good start for Turkey to be included in the list of countries that the Chinese tourists can visit for the first time. If the infrastructure and services that would appeal to the Chinese tourists, whose expectations and understanding of holiday is different, can be spruced-up without delay, it wouldn't be difficult to draw high-income level tourists from the "Middle Kingdom" over the next decade. The potential in this area is extensive, but we shouldn't be carried away by pipe dreams such as, "it would be enough if we drew 1% of the 1.3 billion population". Last year only 18,000 or so Chinese tourists visited. With a long-term perspective, we have to galvanize attempts and take precautions the results of which, we can reap in five-ten years in this area. In textile, the period after 2005 will be tough for countries such as ours. Not only China, but countries like India, Indonesia, Pakistan and Egypt will pressure us in our traditional markets. Within the next three years, we must become a brand in design, production and marketing, raise the quality and lay the basis for strategic partnerships based on international cooperation with our rivals, including China. Unfortunately, while so many developments and opportunities to affect us are burgeoning, the Turkish business world is relatively absent in China. The Koc Group withdrew from the joint venture, handing over its shares to its Chinese partner in the software contract it had secured for the Chinese state's aim in using computer technology in education. There is talk about a project by Arcelik to produce in Chinese factories. The Sabanci Group has not been mentioned. Rumour has it that STFA and ENKA, as well as some of our architectural firms are in the process of pre-trials. The investment partnership regarding the Baycan gums almost ended before the production even started. We shouldn't give up quickly. And let's not disregard the commercial mind of the Chinese that is distilled from a five thousand year civilization. The crisis we have gone through may have changed priorities, but it is possible for those thinking of strategic interests to make ventures by way of "sowing seeds" in China. It is still possible. For example, a new division of labor opportunities may arise in the financial sector. Garanti Bank, with strategic foresight, made a decision and opened a representative office in Shanghai. Because domestic savings are offered very low interest rates, there is a marked flow of capital abroad. China is placed in the top ten largest of foreign investors. An environment of trust will enable our country to draw capital from China. Let's not forget Hong Kong, which was handed to China in 1997 in this picture. In the same way, the "Silk Railroad" project is important in reducing transportation costs. In the 1999 government protocol it was professed, also with your efforts, that Turkey-China relations would be advanced. How far have we got since then? Can it be said that the desired goal was achieved? Since 1999, we have still been tracing the "ground breaking" steps taken by Turgut Ozal in the mid 1980s. In this, there are certainly problems stemming from the Chinese side. But even our largest firms behold China only as a resource country to import cheap goods from. Nobody moves without incentives. Imports were slackened because of last year's crisis ($675 million), but it's still decidedly beyond exports ($230 million). Very few people deliberate on how our presence can be established in the Chinese market in the long run. The guidance of the state is inadequate. Actually our every delegation visiting China is astounded. They return to our country with positive impressions and brimming with promises. The absolute need of developing investment, trade and political relations is repeated. Coordination meetings are held, reports fly off in the air. In a few months, because of not fixing on solid goals, not developing projects with feet on the ground that bear in mind the special conditions of China, China drops from the agenda yet again. Until another "eye opening" visit...Meanwhile, trade in silk, porcelain, carpets, pearls, tea and souvenirs is up! Sister city relations generally serve the commercial interests of the Chinese because they work whereas we visit and talk. In the eyes of the Chinese, Turkey is a gateway for the EU market. Turkey and Iran are both bridgehead countries in security scenarios concerning the supply of Middle Eastern and Caucasian oil. In the current status quo, due to its close relations with the West, China's preference of bridgehead in the region is Iran. The possibility of the fundamentalist movement in Central Asia to spread to the Xinjiang-Uighur Autonomous Region worries Beijing. The contention that in Turkey some groups backed the separatists in China's north-west is common. In spite of the security cooperation agreement between the two countries dispersing the clouds in political relations and the atmosphere of distrust, Turkey does not receive a treatment in Beijing that is in proportion with its significance and weight. Probably China is the country where every cent to be spent for promotion would give the best returns. Generally speaking, we are seen by the Chinese man on the street on the same scale as Arabic countries. Our ties with the Uighur minority in the Xinjiang area can be instantly conjured up in their heads. Our image is not established or based on preconceptions. With the right and positive messages, Turkey can improve its image in China. In the meantime, it is an auspicious development for Turkish diplomacy to send its brightest ambassadors to Beijing. Their efforts need to be supported. In the final analysis, we have to know that we can pierce through the Chinese Wall, not by the state bureaucracy but by the active work of our private sector entrepreneurs. The contribution of the state is bound by efficient promotion, strategic orientation, formulation of the appropriate political framework and the use of the advantages in hand in favor of our companies via economic diplomacy. TARGET: 2020 There is a popular opinion that after 2005, China will be able to transform the unipolar world picture and come up against the US as a superpower. How do you evaluate this notion especially in the wake of September 11? China bears the potential of radically influencing the global system. It does not intend to cast itself onto the scene without shoring up its economic and military force, rock the unipolar world system and scare the US, Russia, Japan or its other neighboring countries. It pursues a rationalist and step-by-step approach of prudence knowing what it wants and what is possible. Unless a severe political and economic depression will be sparked off until 2020, the Chinese GDP calculated according to its purchasing power parity, may surpass that of the US. It is currently the second largest economic power in the world. It is also aware that the future lies in oceans and in space. China is rapidly modernizing and expanding its navy. It launches satellites. In its WTO membership, as echoed in its cooperation with the OECD, it wants to be an active member of the international system and play the game by the rules. The improvements in life standards will accompany softening in the political domain. China is on its way to develop an idiosyncratic democractic culture. The multi-party democratic model of the West is destined to fail in China. The Chinese administration gave strong support to the struggle against terrorism after September 11. The security of its borders with Central Asia and Afghanistan is a priority in its foreign policy objectives. That was why it initiated the "Shanghai Five" organization. However, the deployment of US forces to Afghanistan, and later Uzbekistan and Kyrgyzstan reinforced the ideas of leaders in Beijing that Washington's strategy of "containing" China continues. We see a skillful line of diplomacy in keeping relations with Japan, with which it has had a historical hostility, on a basis that would serve mutual benefits, in developing strategic cooperation with Russia and in setting up a free trade area with the ASEAN countries. As it is concerned with the American 7th Fleet cutting its energy dispatch in case of an international conflict, it tries to build a sphere of influence both in the Middle East and in Eurasia so that it can secure its energy needs. It's developed strong economic interdependency relations with Iran, Iraq, Sudan, Oman and Saudi Arabia. It purchased oil deposits in Kazakhstan and Turkmenistan. Consequently, I don't believe that China will get involved with attempts to challenge the US in the international arena without fully reinforcing itself. But it is also true that it's become a country whose opinion and support is sought after in every international issue. This role will be progressively heightened. If we don't want to miss the boat to Asia, we have to invest politically and economically in China, its leading locomotive. Short-sightedness on our part will cost us dearly. Even if we do not get returns in the short-term, believe me, the long-term returns of this investment are very high.
