Alumni Association Update

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"Due to the size of the nation and its population" he continues, problems in any one of those areas "could be of grand scale and inter-related, and could cause great damage in China's continuous development."

"The hope is that the country and its leaders are sufficiently wise and capable of solving these problems gradually," Li says.

Still, the challenges of managing China's growth are daunting. By international standards, the country's capital markets are still inefficient and enormously risky, with mountains of bad loans on the books of state-owned banks. And global investors are losing patience with rampant intellectual-property theft.

Leading economists point to yet another threat to China's booming growth: A potential deceleration in world demand. If the U.S. consumer slows down—and some economists worry about a recession, given rising interest rates and energy costs—the global repercussions would be swift and loud.

China's growth so far has been largely on the coattails of the American consumer, producing the televisions, t-shirts and toys that U.S. consumers hungrily charge on their credit cards. The U.S. trade deficit with China widened to a record $20.1 billion in September, compared to $15.5 billion a year ago. With more than one third of China's exports going directly to the U.S., there is no question that the countries' economies, not to mention their currencies, are inextricably linked. A slowdown in U.S consumer spending could endanger China's booms, whose factories are already showing signs of overcapacity.

"A slow-down in the U.S. as well as other areas around the world will, to a different extent, have a negative impact on China's continuous growth as the world's factory," Li says.

But, says Li, despite its intricate ties to the U.S. economy, China is boosting its immunity to global ups and downs.

"China's reliance on exports is becoming less and less significant. With the WTO agenda rolling out and the conscious desire and decision from the Chinese government to maintain long term growth and prosperity, we will be able to see that the domestic market will play a bigger role" in the country's economic stability, Li says.

That, in turn, spells a bigger role for financial institutions to serve a population increasingly hungry for credit lines, insurance policies and investment vehicles such as mutual funds and retirement accounts.

"The opportunity in China for international financial institutions of all forms is tremendous," and carries more potential than any other industry, Li says.

Private equity and venture capital investment in China continues to rise. Foreign direct investment topped $60 billion in 2004, and by mid-October, merger and acquisition activity in China had reached $42.2 billion.

UBS has played a leading role in that flow. In 2003, UBS became the first institution approved as a Qualified Foreign Institutional investor, allowing it to trade in Chinese shares and bonds on behalf of foreign clients. In 2004, the bank topped the China mergers and acquisitions league tables, and in March 2005 obtained a license to conduct derivatives transactions to help clients manage interest rate and currency risks.

The inflow of foreign capital is expected to play a critical role in modernizing China's capital markets and banking system, which until now have been renowned for their cronyism and corruption.

Yet, says Li, it will take time for the country's legal and capital markets infrastructure to evolve. He urges patience to those who expect overnight transformation, and encourages flexibility in navigating the country's business culture, where the success of a deal can often hinge on approval from key members of state councils rather than particular provisions in a contract.

"We know that the regulatory and legal system is very important in the U.S. But in China, the legal and regulatory system is not very mature. If you try to do business here but only follow international legal practice, in some ways you couldn't get anything done," Li said.

"At Wharton we talked a lot about business ethics," he continues. Outside the classroom, however, says Li, the lines are not as clear. "It's a dilemma. You have to make difficult decisions base on your experience, your judgment. It can be very tough."

The challenge, Li says, both for global companies looking for opportunities in China as well as Chinese companies looking to expand overseas, is not to get stuck in one way of thinking.

"China will be able to sustain its fast growth for a prolonged period beyond 2025. The biggest job right now is not how to grow. The important thing is how to combine or smooth the different cultures. It's very important. For the long run, for a responsible vision of building a business or an investment, you have to build a bridge. To construct a bridge, you have to understand both cultures."

1881 The pioneering of Joseph Wharton creates the world’s first collegiate business school.

1896 Through the Wharton fellowship, W.E.B. DuBois undertakes his classic study of the social and economic condition of African-American urbanites.

1921 The MBA Program enrolls its first class.

1933 Frances Perkins is appointed U.S. Secretary of Labor by President Franklin D. Roosevelt, becoming the first woman cabinet member. Perkins studied at Wharton between 1907 and 1910.

1953 The Securities Industry Institute is established, the first and longest running custom executive program among business schools.

1962 Professor Irwin Friend leads a milestone study of mutual funds.

1971 Simon Kuznets, former Wharton professor, wins the Nobel Prize in Economics for his method to measure the Gross National Product.

1980 Professor Lawrence Klein wins the Nobel Prize in Economics for creating econometric forecasting models that help predict global economics trends.

1990 Wharton leads a "wave of change in management education" with the revolutionary redesign of its undergraduate and MBA curricula.

2001 The Alfred P. West, Jr. Learning Lab establishes Wharton as a leader in creating technology-enhanced learning tools for 21st century management education.

2005 Wharton’s global network expands to more than 80,000 alumni in 140 countries.