Heading in the right direction

The Beijing office of US-based global consulting giant McKinsey & Co, which was founded in 1926. The company entered China in 1993. CHINA DAILY

Employment generation should be 'main driver of growth' for China

Though Gordon Orr has been a rapier-sharp critic of the government policies in China, it has not gotten in the way of his being honored as an important guest at key functions. He is rather comfortable with wearing two hats at the same time.

Though some of Orr's comfort comes from the aura that McKinsey & Co, his employer and one of the world's largest management consulting firms, provides, it is his sharp and keen intellect that makes him different from the rest of his peers.

Orr, the director and chairman of McKinsey Asia, is well－known for his incisive and objective views on the Internet, or more widely as "China's No 1 foreign brain", a title given him by Global Entrepreneur magazine.

That title seems well－deserved, considering that Orr has over two decades of service in China and has watched the economic transformation of the nation from the time McKinsey set up its first office in Shanghai in 1993.

Orr writes articles and commentaries twice a week in his official blog, Gordon's View, on extensive topics ranging from e-commerce to air pollution. He has also been a panelist at several top-level forums such as the Summer Davos. In early September, Orr was given the "Magnolia Gold Award", the highest honor for foreigners from the Shanghai government.

Orr had much of his fire intact when he told China Daily in a recent interview that the China (Shanghai) Pilot Free Trade Zone still has some way to go before it can attract big-ticket investments. "In the early days of the announcement of the free trade zone, lots of companies got very excited, but probably inappropriately excited," he said.

Though the Shanghai FTZ is often showcased as an example of the government's determination for reform, Orr says that the China of 2014 is different from the China of 1994.

It has an economy that is 10 or 15 times larger than what it was in 1994. So the real impact of any zone-type initiative as a proportion of the entire economy would be rather small, he said.

"There was lots of learning, lots of exploring and a lot of options created in the FTZ over the last year. But there has been no big investment yet," he said. Orr says that though there are several reasons for this, it is the lack of clarity and purpose that has been the bugbear. "Experiments in financial reform need to be carried out gradually and smoothly, which also means slowly," he said.

"But I am equally optimistic about the FTZ," Orr said, adding that the Shanghai FTZ is heading in the right direction, especially with steps like faster registration of businesses and easier handling of money.

"Foreign financial institutions are absolutely committed to the FTZ and are patiently waiting for the right time to make investments," he said. Though there are lots of negative factors, these are something that will vanish eventually. "Over the long term, the government will learn from the steps it has taken till now, and introduce more progressive measures," he said.

Orr believes that although not much has been achieved at the FTZ so far, it is something that should not be given up hastily. "Let us not give up on the direction just because the progress in the first year has not been what we would like it to be," he said.

Changing to a different plane, Orr said that despite concerns about the economic slowdown in China, rising costs and tougher regulations, the prospects for foreign investors still remain bright.

"The Chinese economy is becoming more and more efficient, more and more productive, and that is a great thing for multinationals, because they are actually very good in doing this－it is what they do in countries like the US, Germany and Japan."

Multinational firms can continue to hold an edge in China by bringing in advanced skills, ahead of the local competition, Orr said.

"Take the case of Shanghai itself. Cleaning up the air (in Shanghai) is an excellent investment opportunity for a world-class industrial cluster."

According to Orr, most of the foreign companies are willing to double their investments in China and will continue to play a critical role in several sectors. But it is also equally important for them to follow the local rules and regulations to the hilt, he said.

"In some sectors, you would find that Chinese companies are becoming more competitive. But in emerging sectors such as healthcare, foreign companies have been able to break new ground. So things are going both ways despite some stresses."

On a broader perspective, Orr believes that China will be able to achieve GDP growth of over 7 percent this year, but not the official target of 7.5 percent. To achieve this, the government would need to focus more on employment generation, rather than just GDP growth, he said.

"GDP growth is a simple goal. Everyone knows how it works and how to make it happen. But in a $12 trillion economy we need more complex goals－quality jobs and quality life."

"A Chinese factory hiring 100 workers 20 years ago may only need 40 now and a few machines, but in the US they may only need five. We're heading on this journey where China's manufacturing sector will continue to grow, but will employ fewer people," he said.

Changes in the job market will also impact State-owned enterprises. Orr said it is going to be significantly harder for the State-owned firms to hire quality talent in the long term.

"If you're 35, and the company you are working for is in an industry that is on the wane, then you have to really think about the future," he said, adding that the resultant talent drain would flow to private enterprises.