When Hong Kong native Gordon Wu graduated in 1958 from Princeton University’s engineering school, the U.S. was going through a major transformation. The Eisenhower administration, eager to lift the economy out of its post-World War II slump, had embarked on a massive nationwide highway construction program. Over time, these investments in infrastructure led to the real estate boom of the 1960s and the proliferation of suburbia. Wu, who in 1969 founded Hopewell Holdings – a civil engineering firm that he named after the New Jersey town where he had lived as a student — remembered these lessons when China opened up its economy in the late 1970s to pursue its own drive for economic growth. China needed superhighways, he argued, claiming that without them, the country could not hope to modernize its economy. Back then, his views were greeted with scorn and skepticism.
How times change. China today has the highest number of superhighways after the U.S., and its economy, fueled by rapid infrastructure development, is among the fastest growing in the world. Wu’s Hopewell Holdings — where he serves as chairman of the board – has been a pioneer for nearly three decades in building highways, power plants and bridges in China and Hong Kong. In addition to Hopewell Holdings, Wu heads Hopewell Highway Infrastructure and other companies of the Hopewell Group, whose operations span property development, leasing and hospitality. Queen Elizabeth knighted Wu in 1997 for his contributions to Asian infrastructure – and in effect for building one of the continent’s largest civil construction firms. Former Philippines president Fidel Ramos once described Wu as “the man who turned on the lights.”
Wu spoke at the Wharton Global Alumni Forum in Hong Kong on May 26 about his personal perspective on China’s growth. The Forum’s theme was “Up and Down the Capitalist Road.” An edited version of his speech appears below, followed by Wu’s responses to questions from Forum participants:
When I look back at the 30 years from 1949 to 1979, China, under the leadership of Chairman Mao Zedong, was in utter chaos. You will remember the Great Leap Forward of 1958, the Cultural Revolution, and other idiotic economic policies. If anybody has learned anything about the French revolution and the Paris communes — when people were talking about Liberty, Fraternity and Equality — you will know that those communes did not work. Mao Zedong, like Joseph Stalin, wanted to make everybody equal. They both succeeded — because they made everybody equally poor. I remember during the Mao Zedong era a time when China’s foreign exchange reserves were no more than $2 million. Today, the country’s foreign exchange reserves are $1.2 trillion.
So those 30 years were wasted. While China was trying to make everybody equal, people in Hong Kong and Taiwan had no alternative but to buckle down and try to create some wealth. Hong Kong’s wealth and tremendous economic growth happened in those three decades, as did Taiwan’s.
Fortunately, Deng Xiaoping came along in the winter of 1978 and introduced the Open Door and Reform policies. I remember reading his speeches and wondering what he meant. I said to myself, “Until yesterday, people with money were called capitalists, and now all of a sudden Deng Xiaoping says, ‘Come and invest in this country.’ That doesn’t seem right.”
I read Deng’s speeches very carefully, and by about the fourth time it dawned on me that what was going on in China was a replication of what had happened in Japan during the Meiji Revolution (Restoration) of 1868. At that time, Meiji [Japan’s emperor] was very young, but the officials in his court were very enlightened. They recognized that if Japan failed to change, the country would have no future. So they sent students and workers all over the world, and they led Japan through a complete transformation in which they remade their educational system, constitutional monarchy and industrial undertakings. As a result, 31 years later there was the birth of a new Japan. I saw Deng Xiaoping’s Open Door policy as nothing more than a replication of the Meiji Revolution. I said at that time that if Deng Xiaoping meant what he was saying, China would be really successful. My personal opinion was that there was only one way to find out: Let’s go inside China and see whether or not they mean what they say.
At that time, people laughed at me and thought that I was risking too much. But still I went forward because I knew that Hong Kong’s future was tied to the future of China, whether we liked it or not. In 1997, the British would have to hand Hong Kong back to China. One way to stabilize Hong Kong after Britain’s withdrawal was for us to actively help China with economic development. If we were successful, Hong Kong’s future would be very bright. That was something in my mind then.
Now, 28 years on, let’s take a look and see what is happening. China has $1.2 trillion of foreign exchange reserves today. Back in 1978, 20% of the people lived in the communes. Everybody was equal, but equally poor. Today we are talking about some people who make a lot of money. Now, 43% of the people live in cities and within the next 20 years, I bet your bottom dollar that the number of people living in cities in China will be the greatest migration that the world has ever seen. Urbanization will probably hit a figure of 80%. This is unheard of, in my mind. I’ll give you an example: When I first went to Shenzhen to work there in 1979, there were only 80,000 people in that city. Today it has 10 million people. That is the number of people who have migrated to the city in the past 20 years.
China’s economic growth was driven by the manufacturing industry. Of course, the country also has a really stable government; the Communist Party controls the whole nation, and sometimes there are some hiccups, but by and large things are really stable. The stable political environment combined with a free economy – as free as the government allows it to be – has made all these successes possible.
I believe that the reason why China was able to be so successful was thanks to the misery that the economy suffered through those 30 years. Looking back I say, well, we are not going to be that stupid again. We are going to follow sound economic principles. What economic principles? I believe an American businessman has defined them very candidly – they have worked in the past, and I believe they will also work in the future. His name was J.P. Morgan, and he said the only way for someone to make money is either by providing others with services or providing them with capital. That is what China has done – it has become a manufacturing center that provides the world with services. In the beginning, the factory owners were in Hong Kong. They helped the people in China start the manufacturing process. Of course, the Chinese are very smart, and they have learned very quickly during the past 20 years. That is why there is a lot of manufacturing in China today.
In 1997 I think China handled the Asian financial crisis very well. When the crisis came, Thailand and Indonesia listened to the IMF, and they let their currencies drop in value, and the result was complete chaos. I remember the Indonesian rupiah was around 3,000 to one U.S. dollar and overnight it dropped to 10,000. Malaysia decided that currency traders were like modern-day outlaws who would come and plunder the country, so it took more control of its own currency. As a result, Malaysia is still relatively stable. I have been watching the recent talks between [China’s vice premier] Wu Yi and [U.S. Treasury Secretary] Henry Paulson, and I do not think that China will listen to the U.S [about devaluing the yuan]. I think China will stay true to its policy.
I believe the future of China rests on several things. First, there is this great urbanization that has already taken place and which will continue to evolve. Look at the real estate prices. These prices are determined by several factors: supply and demand are important, and so is the per capita income of the population and the availability of mortgage loans. If all these factors come together, you see an increase in property values. In China I believe that if people start investing in locations in major and minor cities, they will make some money.
China still needs lots of infrastructure and hardware — for instance, telecommunications, power stations, superhighways, hotels, and so on. These are very easy to create, although in 1979 when I first went in and negotiated with Chinese leaders, it didn’t seem to them to be an easy thing to create. I told them that it was the easiest thing. An example is when I was trying to sell my concept of building superhighways in China, I explained that without transportation, there was no way modernization could be achieved or the economy put in order.
If you look at China today, the country already has 40,000 km of superhighways, which is second only to the interstate system in the U.S. with its 75,000 kms. Also, the consumption of electricity, steel and copper are in high demand right now, and China’s needs are driving the world market. The demand for urbanization will create enormous opportunities.
However, for China to be able to sustain its development, hardware – such as roads, bridges and power plants – is not enough; the country also needs software. By that I mean the educational and legislative systems, and most importantly, an independent judiciary, which is crucial to maintain order in a growing society. Unfortunately the development of this software will probably take another three or four decades.
China will need many services. The country needs improvements in healthcare, life insurance and in retirement benefits. I believe this is where there could be a lot of opportunities. China is really good at copying and is using Hong Kong to its advantage. Chinese firms use the Hong Kong stock exchange and rely on the companies there, and that is a very smart move. I am hoping that Wu Yi and other people will not begin a free float of the renminbi but will let it escalate in an ordinary manner.
I think that if Hong Kong residents try to understand what China is trying to do, and find opportunities along the way to provide the kind of products and services China needs, I think that our 6.8 million people will have their hands full catering to a market of more than 1 billion. We won’t have unemployment; I think we will do just fine.
Concepts such as corporate governance and intellectual property rights were alien to the Chinese populace. Of course, now the public embraces them in as much the same way as they embrace issues such as protecting the environment. Sometimes the U.S. gets impatient with China, but we should tell the U.S. Congress, “Don’t try and get everything done in a hurry. Give China some time to develop. If you look at modern-day China, it wasn’t until a fateful December night in 1978 that Deng Xiaoping announced his Open Door and Reformation policies. Twenty eight and a half years later, look at what China has achieved. So why don’t we give them another 28 years?” In that time, China will become part of the world order and its development will be the fastest ever in the history of mankind.
In fact, 1.3 billion people have changed themselves; they have reduced poverty through rapid prosperity. I am confident about the future of China. My advice to young people is that there is great opportunity here. You need to do what J.P. Morgan said: you have to provide people either with capital or with services. In my own case, I have made a small change in Morgan’s formula. In my work, I provide both capital and services. That’s why I have been able to make some money.
After the speech, Wu answered questions from the audience on topics ranging from China’s transportation system to the future of Hong Kong. One member of the audience wanted to know Wu’s views on the development of high-speed railways in China. Wu’s response was that transport is a critical element in China’s future development. “When you have so many people moving into the cities, moving within the cities and also between cities, transport becomes a problem that must be addressed,” he said. “I predict that one of the largest businesses in China will be the building of mass transit systems within cities. Currently state councils want to build most of the transport infrastructure between cities. They build high-speed railways, and that is fine. There is logic behind wanting to have high-speed trains. You cannot only rely on airplanes because they are not as effective as high-speed railways up to distances of about 600 or 800 km. Still if you want to see why mass transit in the cities is important in China, look at the rate of car ownership. In China, it is still only a few cars per 100 people. In the U.S., car ownership is 67 cars per 100 people.”
Wu explained that his company is working on a mass transit project in the suburbs of Guangzhou. “It is very innovative, and it will save a lot of money for the civil engineers,” he claimed. “The financing shouldn’t be too difficult if it is tied in with real estate development. For instance, that is how America was able to build its railways in the 19th century. The government told the robber barons that if they built the railways, one square mile on each side of the track would belong to them.” That incentive encouraged them to invest in infrastructure. Wu added that mass transit is essentially for the people and governments should not make any money off such systems. “There are health care benefits, decongestion and other environmental benefits that result from focusing on mass transit,” Wu noted.
Another conference participant asked Wu how the U.S. economy could be restructured so that it could become more competitive and sell more goods and services to China. Wu’s response was that confrontation was not the solution. “If I were the president of America, I would not negotiate with China until I understood what good and services we could offer the Chinese at the same or lower prices. After that I would tell China, ‘How about giving Americans a break? We have a lot of products that we could export to you, products that you don’t have and which you could benefit from – such as software or pharmaceutical drugs or financial services.” All that the U.S. needs to do is understand what China needs and export those products. Wu added that forcing China to raise the renminbi was not the answer. “Why doesn’t America just lower the dollar,” he asked. “But that is not the way. The real solution is to provide efficient, genuine services to China. That is how America can solve this problem. Another thing is not to spend $200 billion on Iraq – that was a stupid thing to do.”
Yet another participant asked Wu about the role that Hong Kong’s might play as China continues to develop over the coming decades. “Hong Kong will have a field day,” Wu replied. “I have never seen Hong Kong have better opportunities. The one condition is that we don’t argue amongst ourselves. The way I look at Hong Kong today is no different than China was during the Cultural Revolution. In the 1960’s and 1970’s, China was arguing every day with itself about class struggle and other issues. Meanwhile, the people of Hong Kong were busy working and generating wealth. Why do we waste so much energy arguing? Look at the millions we spend over who said what. This is the kind of thing that Hong Kong should not do. If this continues to happen I think Hong Kong may miss its opportunity.”
Wu said Hong Kong’s principal advantage is that most of the city’s people are in close proximity to China’s 1.3 billion people. “Most importantly, our legal system is very strong,” he noted. In addition, Hong Kong has an excellent health care system and a higher life expectancy rate than China does. “Our life expectancy is No. 1 in the world. Why does Hong Kong not export this expertise to China? If we did, we could serve 1.3 billion people in health care. Here is a huge opportunity. If I were 30 years younger, I would go into this business and make a lot of money.”