Creative Reinvention: The Way To Survive The Chindian Challenge

Small to medium sized Asian economies such as Malaysia, Thailand and other emerging economies which do not have the benefit of China's vast population as a source of domestic demand nor India's head start in information technology have to innovate their ways out of their caught-in-the-middle economic dilemmas.

If these smaller countries do not manage to build a new competitive edge, they face the danger of being peripheral nations whose business cycles depend on China and India's economic engines. Where will the next generation of jobs and domestic economic growth come from? If they can't compete in the manufacturing sector, then they have to compete in services, which is high quality human capital intensive rather than low skilled labour intensive.

The next growth areas in Asia will come from innovation and high-end services such as education, financial services, health care and consumer branding. To generate the next generation of thinkers, innovators and leaders, the education system of Asia needs to be refocused towards creative thinking. Joseph Schumpeter's idea of creative destruction is the answer to Asia's tendency to build a symbiotic relationship with the US. If this traditional relationship continues, the economic decline of the US will bring these Asian economies down with it. Conversely, desperate attempts to ride on the Chinese dragon or the Indian elephant can also backfire.

In fact, China's fledgling attempts to diversify out of the U.S. export market and build up its own domestic demand market have yet to bear fruit. The robust growth of 2009-2010 will continue to be driven by infrastructure spending, which has strong spill-over effects on consumer incomes but which is not sustainable over the long-term. So China, too, has to innovate its way out of its unbalanced relationship with a deleveraging and over-indebted US consumer.

The Chindian challenge is this: if Asia follows China's economic structure, they will be competed away because they can't catch up with China's leap into producing engineering talent. If they follow the Indian model, they also need to start from scratch not to speak of the lack of an English proficiency advantage.

So what can Asia do to stand out of the shadow of the two emerging economic giants? The dependence of the global economy on the vibrant health of emerging countries is both a blessing and a source of future economic trouble. Blessing because if Asia stands up to the challenge of innovation and creative reinvention, it will be able to rebalance the current global imbalances which depend on the developed nations's ability to rescue themselves from rising debt levels. If it fails in the latter, then continued dependence on developed nations' weakening appetite for consumer goods coupled with the potential of sovereign default of developed nation's debt suggests a more polarised and protectionist economic world.

Getting On The Innovation Highway With A Nation-wide Contest System

I think there are broader benefits of promoting open science forums in Msia across all sectors of the economy. The call for open science comes from Dr Lim Teck Ghee's article, "Positioning Malaysia for open science: Any takers?" (http://english.cpiasia.net/)

The government and private sector can embark on a nation-wide knowledge innovation competition for each sector of the economy ranging from tourism, education to financial services.

The award will be on a quarterly basis and participants can submit their research work anonymously (you know how humble most Msians are when it comes to having a high profile) which focuses on raising productivity and innovation in their industries.

The government should have a grant to promote ideas that will benefit the entire industry and raise global competitiveness. The aim is to raise the productivity of the nation from the bottom-up rather than the top-down.

What are the incentives? The quarterly award could be RM5,000 each for three top prizes for each industry sector. Assuming six sectors, the annual prize money may cost RM360k, which will be subsidized by both the private and public sector. This is not costly in view of the unquantifiable external benefits for the country (excluding advertising and campaign costs.)

Who will be the judges? Like American Idol, the expert judges will be drawn from a panel of industry leaders as well as registered voters from the public through an online poll.

What are the benefits? It will promote out-of-the-box thinking and problem solving skills to short-term and long-term challenges in every industry.

How will it be executed? The biggest challenge will be to standardize the platform/format for the different issues facing 6-7 key industries. For instance, the finance industry will address issues of how consumers/investors can be encouraged to mobilise their savings without taking unwarranted risks, the tourism industry can tackle issues of how tourists can return to Msia in droves without spending too much on new tourist attractions. Simple value-enhancing ideas such as clearer signboards in English or touch screen information counters in hotels showing all the tourist hot spots, etc.

We know that often what benefits the consumer may not benefit the producer. However, competition, local and global, will ensure that both their interests are more aligned.

If done smartly, this innovation competition will put Msia on the map of high income, high productivity nations. Let the politicians handle their corruption problems with debates about the open tender system, we the rakyat need to move fast on the innovation highway and come up with an open innovation system that benefits both consumers and producers alike.

In fact, if the government lacks the initiative, internet bloggers can jumpstart this idea on an Asia-wide basis starting with the more English-literate countries such as Singapore, Hong Kong, Taiwan and Australia. Malaysia is well positioned to be a thought leader due to the potential of its English-speaking population notwithstanding the recent decline in English standards.

A Different Twist To The US$ Debate

What most mainstream economists have missed out in their analysis of global currency outlook with regard to the US dollar’s outlook is the political perspective.

The dollar bears have got their analysis right over the long term but over the short term of 6 months to a year, the US dollar index may rebound due to a stronger-than-expected recovery in the US economy, a hike in Fed interest rates, or the end of quantitative easing or some global financial crisis where flight to safe dollar havens resumes. So the dollar bulls may be right for the short term.(this has turned out to be true with the Greek soveriegn crisis and better-than-expected US economic data lifting the US$ in the first quarter of 2010)

The decisive factor that will lead to the demise of the US$ (be it through an outright collapse of 40-50% or a gradual annual depreciation of 10% over the next five years) is predicated on four factors:

1. The excessive and irresponsible printing of money (through the US Treasury’s creation of excess reserves) and the monetization of America’s rising debt burden.

2. The large holdings of US dollars by global central banks notably China, Japan and the BRIC countries. Nobody wants to be holding large amounts of a currency that will fall sharply in value. Their ongoing policies to buy US Treasuries to support the US dollar will eventually end if investors continue to abandon the US dollar due to its government's debasement/devaluation policy.

3. China’s policy response to the prospect of a weakening US dollar is to move its assets away from the dollar and into hard assets and other currencies.

4. The political drive by a group of globalists to engineer the emergence of a new global reserve currency. The latter will not happen unless the US dollar collapses. (In fact, many sound economists and central bankers have voiced their approval of a global currency to stabilise the global economy.)

The fourth political factor is the most important factor that is overlooked by economists presumably because (a) it appears to come from conspiracy theorists (b) a monetary union of the world seems more justifiable and noble than a political union under a one world government. But if you follow closely the actions of the US government and the statements and actions of many world leaders, the stage is already set for a new global reserve currency, whether by default, accident or through negotiation. The question is whether this move will be successful or will the US economy suddenly find its way out of structural decline through a technological breakthrough or resource discovery?

We live in interesting times not just because all well-known economic theories and policies (namely Keynesian and Monetarist) have failed to convincingly rescue the world from the current global recession, but a wrong policy move by governments can lead the world into a Greater Depression. The current global solution of piling up more government debt to compensate for the deleveraging of private debt is a short-term pain-killer that will not cure the patient of the root cause of his illness, which is too much debt in the first place.

This leads one to ask whether government leaders can be that stupid. They may act stupid and go against the interests of their electorate in favour of a vested interest group who put them in power. However, it is my view that there are certain prominent "global" leaders who may pretend to act selfishly for their lobby groups but who are actually setting up the stage for a one world government.

This could soon happen in the next 2-3 years when the current dosage of orthodox economic policies (flooding the economy with newly created money) leads into new asset bubbles and financial collapse. By then, global markets systems could be shut down and food shortages and civilian unrest will force governments to impose marshall law.

Hamlet, Atheists & The Msian Christian's Dilemma

I am a Christian. Though I may not be an exemplary one at times, I do not boast about myself but Christ in me.

In a simple analogy, Jesus may not appear to be the answer to how we decorate our houses but He is the answer to what foundations we build upon. There are many people who live successful and moral lives without believing in God and Jesus Christ. At the end of their lives, they will face an accounting for which their lives will be judged and weighed.

The confusion of this world and the tragic comedy of the human soul is caused by our lack of understanding of who we are, our position in this world, our purpose and final destiny. A world in which every man and woman act for themselves within the constraints of the law and human decency is destined for failure. If we build our house on the rock of Christ, we shall withstand every storm, every blow of circumstance and overcome the sting of death (i.e. we shall all die a physical death but will be spiritually redeemed and saved from eternal death).

In simple words, Jesus is the practical answer to every aspect of our lives. He is present in every suffering person, be the pain physical or emotional or spiritual. I personally know because I marvel at the way He rescued me many times from trouble even when I was not a believer in my youth.

My faith is in Jesus who died for our sins and took our place of bearing God’s punishment against man's sins, the faith that man can only be saved and have eternal life through giving our lives to Him.

In this sense, a Christian engaged in social or political works without the power of the gospel and the aid of the Holy Spirit is like an empty drum, making noise and having little impact in the harvesting of souls.

So I think the dilemma facing Msian Christians, post March 2008 shake-up in the political landscape, is not Hamlet’s dilemma of whether to be or not to be a man of action. It is precisely this limited choice that caused Hamlet to end tragically. Without the power of the Holy Spirit and the word of God, we won’t be able to contend with the enemy of this world, which is not flesh and blood but principalities.

A Wide Disconnect Between Growth Targets & Reality

There seems to be a wide disconnect between what Malaysia's Ministry of Finance projected GDP growth (+2% to +3%) to be for 2010 and what the Prime Minister has in mind in terms of his long-term forecast of economic growth from today till 2020.

Notwithstanding the fact that he made an about-turn within a day from 9% GDP growth to 6% GDP growth, the PM's target of 6% real GDP growth does not seem to sit well with his objective to raise per capita GDP from US$7,000 to US$17,000 by 2020. Per capita GDP is always stated in nominal terms, so this implies an annualised nominal growth rate of 8.4%.

Assuming long-term inflation in the next ten years is in line with the historical average of 3% ( a fair assumption given that cost-push factors from energy and food inflation), then an 8.4% nominal GDP growth translates into a real GDP growth rate of 5.4%.

To see whether this is realistic, we need to ask three simple questions:

1. What was Msia's average GDP growth in the last ten years (excluding the recession year of 2009)?

Answer: 5.5%.

2. What were the global economic conditions for this type of growth?

Answer: The US economy was growing 2.6% while the Singapore economy was growing at an average of 5.6% amidst a credit boom in the US starting from 2003 to 2007.

3. What was the standard deviation of the growth rates of these three economies? In other words, how volatile are these economies?

Answer: The US economy had a standard deviation (SD) of 1.3% with the lower range of growth at 1.3% (average growth of 2.6% less 1.3%) while the Singapore economy has an SD of 3.9% with the lower range of growth at 1.7%. For Msia, the SD is 2% and the lower range of growth is 3.5% (higher range at 7.5%).

Given that Malaysia has a a fairly high correlation (R sq=79%) with the Singapore economy and the Sing economy in turn is correlated with the US economy (R sq=60%), then a period of sub-par growth in the US for the next ten years suggests that Singapore and Msia's economy will also be below their past 10-year track records. Unless either economy rebalances and realigns their economic structures towards new growth engines such as China and India.

My conclusion is that a long-term GDP growth rate of 3.5% for Msia is more realistic than the 5.4% implied by the 2020 goals of the PM.

Malaysia & Spore's GDP Move In Step?

In the last three years, Malaysia's quarterly real GDP growth has become more correlated (move in tandem) with Spore's real GDP growth. This is because both are highly export-oriented and the global financial meltdown of 2008 basically pulled down their economies simultaneously.

What is also interesting is that in terms of standard deviations, Spore's economy is 3.7 times more volatile than Msia's economy. On an annual basis, Spore's economy is twice as volatile as Msia's.

Look at the chart above (apologies for the quality of the image, will try to overcome the technical glitches) to see the strong linkages between the two economies. The R Square for the 2007-2009 period is higher at 89% compared to 83% for the more extended 2000-2009 period.

Implications: The lower volatility of Msia's economy is due to its broader base economy with commodities and consumption as a buffer. However, in absolute terms, the close correlations of GDP movements indicate that Msia is vulnerable to the global economic cycle.

Incidentally, the KLCI has only an R square of 38% with the STI. Given that KLCI has a 70% R Sq vis-a-vis the Dow Jones, this means that the rest of the driving factor for the KLCI's movements is regional sentiment.

Six Key Words In Stiglitz's Latest Economic Prophecy

Renowned economist (the prophet with not much honour in his homeland) Joseph Stiglitz wrote another enlightening article in Vanity Fair: "Wall Street's Toxic Message".

If there is one economist we would all be wise to listen to and who is neither influenced by Wall Street or Washington, it is Stiglitz, a man of unusual modesty and intelligence (I personally met and interviewed him when he was in Kuala Lumpur in 2000 before he won the Nobel Prize in Economic Science in 2001).

His last paragraph contains key words that hints at more than what he did not elaborate:

"The American economy will eventually recover, and so, too, up to a point, will our standing abroad. America was for a long time the most admired country in the world, and we are STILL THE RICHEST. Like it or not, our actions are subject to minute examination. Our successes are emulated. But our failures are looked upon with scorn. Which brings me back to Francis Fukuyama. He was wrong to think that the forces of LIBERAL DEMOCRACY and the market economy would inevitably triumph, and that there could be no turning back. But he was not wrong to believe that democracy and market forces are essential to a just and prosperous world. The economic crisis, created largely by AMERICA'S BEHAVIOUR, has done more damage to these fundamental values than any TOTALITARIAN REGIME ever could have. Perhaps it is true that THE WORLD is heading toward THE END OF HISTORY, but it is now sailing against the wind, on a course we set ourselves."

Stiglitz hit 6 key words in the above paragraph (my comments in blue):

1. Still the richest (thanks to loads of debt).

2. America's behaviour (a blind electorate satiated with steroids induced asset inflation and money illusion + a government that is more of a wolf helping the Wall Street fellow wolves to the chickens).

3. A liberal democracy that has become a two-headed party oligopoly.

4. Any totalitarian regime (has one already entered the White House by stealth?)

5. The world (which world? The politician's world, the media's world or the real world?)

6. The end of history (Quite rightly, we are at the end of a long and dramatic history which is the culmination of our mistakes and the false delusion that we can solve the problems of under-regulated capitalism with socialist fascism i.e. state and privates assets merged under one authority.)

Ironically, the most economically "successful" posterboy for the world today is also one of the most totalitarian states in the world (perhaps fourth ranking after North Korea, Burma and Iran).

What Professor Stiglitz forgot to say or implied by not saying is that world politicians today (from the developing and developed countries) are quite likely to take that emerging country's model as a blue print for development.

We are now in an end game when the leading players, frustrated by the severity of the global financial crisis and by the lack of viable long-term economic solutions, decide to change the rules and declare themselves winners.

To Save Our Country, We Need To Save Ourselves First

How are we to save our country requires deep philosophical thinking and perceptive analysis beyond mere politics.

Will there be more bloggers/people discussing the big picture behind the systematic crisis that caused Teoh Beng Hock’s tragic death? Or will we continue to focus on the trees and miss out the forest?

Many intellectuals are puzzled by the state of affairs of Malaysia. There is a political mystery that needs to be solved first at the human level.

If our leaders are rational and sensible people, it would never be in their interest to take advantage of citizens (half of whom voted for them) under NORMAL circumstances. What is even more puzzling is why is the governing regime unwilling or unable to heal the disease that is undermining all our democratic institutions of rule of law and independence of judiciary (i.e. no follow ups/actions taken from recent Royal Commissions of Inquiries)?

However, there is a political economic theory that says that under certain unique circumstances, even rational people will act and behave against their long-term interests.

[Mancur Olson, the American economist and social scientist, explained in his book "The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities" that at first, people will act in their own interests, not in the interests of their group. Once they have harnessed their individual incentives to the group, if they ever do, the groups then act in their own interests, not in the interests of the larger society. Olson also noted the tendency of individuals to opt for the free rider strategy, i.e. they will attempt to benefit from the public good without contributing to its provision. This free rider strategy is often adopted by leaders at the expense of the public's welfare.]

I think the real reason is because by 2012/2013, these leaders intuitively know that the world will be a different landscape (including the real possibility they will be voted out) so it is quite rational for them to take as much advantage, financial and political mileage, as they can now in order to intimidate, demoralise and indoctrinate the people into passivity and acceptance of the current political situation.

Having said that, it is my view that PM Najib is a rational man. But whether he is rational for himself, his party or for the rakyat is the billion dollar issue which all Malaysians needs to probe and resolve.

The dilemma for Malaysia is how the short-term interests of politicians can be realigned with the long-term interests of the larger society (rakyat). Do we have to wait every four years to decide whether to fire or rehire our public servants?

Instead of correctly calling for a change of leaders/political regimes (the Pakatan Rakyat solution?) or a reform of our institutions as Tengku Razaleigh had recently written, it would be far more powerful and effective to call for a change of mindset and heartset in every Malaysian.

When everyone looks into themselves, they will accept the rationality of a sharing a common vision that aligns the diverse interests of smaller groups (e.g. political lobby groups) with the larger society.

Open the floodgates of intellectual discourse and we will soon find the root disease is in the false ideas and selfish motives hidden behind our public personas. Lastly, we need humility and the grace of God to lead us out of our present political and social problems.

Painting by Rufino Tamayo: "Friend of the Birds"

The Shadow Cabinet: A New Era of Hope or A Pandora's Box ?

Finally, we get to see the potential candidates for Pakatan’s shadow cabinet.

To resolve the doubts public voters are now having about the credibility, competence and viability of the fragile coalition, Pakatan should put these three committee members per ministry to openly discuss their views/policies (cross examined by the media or Internet media like Malaysiakini and Malaysian Insider in a video telecast forum) and allow the public to vote online who is the most competent and fair to the rakyat in responding to issues such as:

1. Malaysia's Economic Conundrum: The global economic downturn and Msia’s new model to survive (sorry, Najib has won half the battle on this front by dismantling NEP on 30th June, in spirit if not fully in letter). So Pakatan has to work doubly hard on the new economic model.

2. Malaysia's Social Political Conundrum: The social problem of race and religion that is hampering the rakyat from moving forward. To what extent are these minister committee members open to a more flexible, intellectually free society or a more restrictive, closed society based on the narrow religious restrictions of one particular domineering faction of Muslims (no need to mention the partylah) ?

Finally, each member should come clean on the hidden agenda of unity talks - power for one race or ensuring good race relations in a complex society like ours?

Just as the Internet has revolutionized political news coverage in the past year, Pakatan should use any impactful technology it can get hold of to reach out to key voters who wish to look into the insides of the brains and hearts of our next leaders.

Having said that, I am sorry to say that, judging from the recent crises in Pakatan Rakyat, the insides of their leaders' brains/hearts is more like a Pandora’s box. While I don't subscribe to Greek mythology, it is ironical that at the bottom of the box, there is hope.

As at today, I doubt Pakatan can be trusted to lead any nation, much less any corporation at the rate they are going. Which is why the mandate to rule should be given back to online voters and citizens.

A High Income Society Needs A First Class Mentality

The Prime Minister's speech at the Invest Malaysia conference 09 needs to be read between the lines despite the welcome news that the 30% Bumiputra equity requirement will be lifted (except for newly listed companies who will need to offer half of the 25% public shareholding spread requirement).

Reading Najib’s concluding speech below, there is a trace of irony in his vision for a high income society...one foot in the new era and the other foot in the old era. It is as if he is saying, yes, we will liberalise under the new market-friendly economic model on the one hand but, still we need to take care of those left behind on the other.

A high income society must have a first class mentality and spirit of excellence, no hold bars competition and ensure that losers and cheaters pay the price of defeat. We must change from a Malaysia Boleh society to a Kiasu society like Spore. How else to compete with China, India and kiasuland? (My comments are in blue)

" In conclusion, if there was one message I wanted to leave with the investment community, it is that there should be no doubt that Malaysia welcomes foreign and local investors and participants. We can only achieve high income by creating more opportunities for growth rather than protecting our narrow turf. We can only achieve our social equity goals (the only effective way to having an equitable society is by providing incentives for people to work hard and learn from their failures) by expanding the pie (indeed, we know how much the pie has shrunk because of misuse of Malaysia's resources and taxpayers money).

A high income society must be socially inclusive. It must provide incentives for those who "have a lot" and YET (yes, we know this was coming) be fair to those who "have a little". It must lead to high returns for companies and entrepreneurs who invest, better and higher incomes for those that are employed and greater capability for those who require assistance (clutches again for the undeserving) to help themselves or to get help from government (in other words, money from taxpayers to be distributed without our consent to the undeserving).

Above all, a high income society must be one where every Malaysian feel they have a place and a promising future under the Malaysian sun (nice thing to say but how to make us feel comfortable under the sun when there is the scorching heat of race-based politics promoted by UMNO/BN?). It is toward this ultimate goal that I dedicate the energies and efforts of this Government. I hope as investors, you too will continue to play your part (we shall see how you perform first. At present, we are making lots of money investing in the more vibrant markets of China and SEA), and walk along with us in this great Malaysian journey."

A Strange Tale of Two Countries: Kiasuland & Bolehland

Let's go back to history when Singapore was kicked out of the federation of Malaysia in 1965.

One country which had no resources started thinking that the Kiasu spirit will strengthen the people's competitiveness. They then worked hard and turned a strategic weakness into a strength: thus the emergence of a developed kiasuland with the highest GDP per capita in Asia (US$35,445 versus Japan's US$34,678 and nearly five times larger than Malaysia's US$7,522 based on 2007 nominal GDP data).

The other country which had plenty of resources, timber, rubber, palm oil, petrol, gas, etc found that it could afford to be a bit complacent and lepak. Thus the bolehlah attitude pervaded the whole civil service and infected the corporate and personal culture of the people.

So when Tun Dr Mahathir made mocking remarks about Singapore Mentor Minister Lee Kuan Yew's visit to Malaysia, I think TDM should realise this twist of destiny:

The morale of these two countries is that bolehland will always be lagging behind kiasuland merely because of different attitudes of mind and spirit. Nothing to do with physical resources or whether water was transacted at 3 sen per 1,000 gallons (made under two agreements in the 1960s).

Change Will Come Soon To Malaysia, Mr Lee

While I agree with many of the injustices and inconveniences cited by ex-Malaysian George CN Lee, there are many equally if not more rational reasons for many Malaysians to stay.

Incidentally, George Lee made his decision to migrate two years ago and this means that he left before the political tsunami of 8th March 2008. This is a crucial factor because many things were getting from bad to worse before the General Elections and a peaceful protest from voters against the present government was achieved. It was a not just a slap in the face but a real warning to Barisan Nasional.

We need to think rationally and not react emotionally when faced with a corrupt and unjust political machinery. There is no need for panic or desperation.

Malaysians and ex-Malaysians who have strong intentions and good reasons to migrate from Malaysia to greener pastures are like the Hong Kongers who before the handover to China in 1997 thought the island will go down the drain of communist rule. Many migrated to Canada and other popular places.

I agree Malaysia is different from Hong Kong, we are already in a big mess economically and politically. Yet, those who say that the country won't improve for the next thousand years, let them put their money where their mouths are and sign a declaration they will not return for good when Malaysia makes major strides in democracy and living standards.

This is the problem with today's commentators and political analysts: they see the wonderful past of Msia in the 1960-1970s or the great life they enjoy overseas compared to Msia's present state. But they never have the courage, the persistence and the vision to see that change is coming fast in a short time.

Everything is moving fast in the 21st century and change that benefits all citizens is not a choice but a fact of life with the Internet, the political tsunami and winds blowing through Asia.

The same thing can be said about China today. I can foresee the day the communist government will fall and a vibrant democracy arise. Detractors may shout: "Not in a thousand years!" I say quietly to them, just watch and pray, change will come soon.

Better Late Than Never in Policy Turnaround

The IMF projects Malaysia's GDP to contract by 3.5% this year compared to the Malaysian government's forecast of -1% and +1%. Meanwhile, IMF's forecast for Sinagpore is -10%, which is in line with Senior Minister Lee Kuan Yew's comments a month ago.

Thus, PM Najb's move to remove the 30% bumiputra equity requirement in 27 sub-services sector (Computer & Related, Health & Social, Tourism, Transport, Sport & Recreational and Business Services) is commendable and marks a first step towards real economic reform for the country.

Removing the NEP policy and the political agenda behind it is essential. But what is more essential for bloggers/the media and the public to understand is that distibution of human and financial resources based on race is economically most wasteful and greatest disincentive for economic wealth.

Allocating economic resources based on race/class(Marxism)/religion/or any other superficial feature is a guarantee for economic inefficiency and waste. There are huge opportunity costs (RM140 billions or 20% of annual GDP?) that Malaysia's affirmative action policies (as distinct from but not unrelated to cronysm) have incurred.

So Najib's move should spark a fresh wave of analysis why Malaysian policymakers need to recognise the absurdity and stupidity of economic disincentives and to allocate its resources in the market efficient way. Everyone benefits from a bigger pie.

Thus, I sincerely hope the policymakers are not just making the right noises but taking concrete steps towards real reform.

How China Can Be The New America

In terms of Gross Domestic Product, China is already heading towards a future where its GDP will match the GDP of America. If China's real GDP grows by an average of 7% while the US GDP grows by 3%, then China's economy will be as large as the US in 20 years, i.e. 2028.

However, in terms of economic structure, the growth model that will propel China into that scenario will be markedly different from the growth model that has driven China's growth rate in the last 15 years. With the global economy deleveraging and America/Europe in a synchronised recession, which foreign market will be strong enough to buy Chinese consumer products?

Invariably, China needs to make a quantum leap from a state capitalist, export-oriented economy into an entrepreneur-driven economy. In order to achieve that within the next 5 to 10 years, Chinese policymakers should (1) liberalise price controls over fuel and utilities, (2) allow freedom of political dissent, (3) establish democratic freedoms such as a two-party parliamentary system and (4) encourage intellectual discourse and religious freedom without any censorship.

If Chinese policymakers are serious enough about supercharging their economy, they need to ask themselves what type of economic and social environment is conducive to nurture and groom the likes of Bill Gates, the Steve Jobs, the Warren Buffets and the Thomas Edisons of this world?