Dizzying pace, even for a racecar driver

A.T. Kearney partner sees risk of a dip in Chinese economy but rules out any crash

Thomas Luedi says he still finds it difficult to come to terms with the pace of change in China.

The 43-year-old managing partner of international management consultants A.T. Kearney is something of a veteran in the country, having arrived in 2000.

"That was all farmland," he says as he points at the other skyscrapers out of his company's Beijing offices on the 26th floor of China Central Plaza in Beijing's central business district.

"Beyond the Third Ring Road, there was hardly any major development. They built the Fourth Ring Road (there are now six) the year that I came here."

Luedi, who is Swiss and took up his position last year after a long career with McKinsey & Co, says what many in the West and in other parts of the world such as Africa do not grasp is that China is not just a Beijing or Shanghai story.

"I went back to Hohhot (the capital of the Inner Mongolia autonomous region) recently for the first time after my first visit 15 years ago and saw the enormous changes there. It is certainly not the three or four cities in China that everybody has heard about that have transformed but around 200 cities.

"Whenever I go back to Switzerland after about two weeks I just miss that pop of energy that I have never experienced in any other country."

Interpreting that change brings to Luedi's door lucrative work from not only multinational companies doing business in China but also Chinese state-owned and private companies.

Undoubtedly the biggest issue facing most enterprises in China is the recent slowdown of the economy, he says. GDP growth hit a six-year low of 7 percent in the quarterly figures issued on April 15.

"I think it is back to basics for many companies. When the economy is growing at 12 percent you can rely on even marginal investments to make a profit. Now it is more difficult and you are running up against problems of overcapacity in many industries."

Luedi, who is normally based in Shanghai, specializes in the energy, mining and chemicals sectors that are often dominated in China by the big state-owned enterprises.

These are at the epicenter of economic reform and have also been the target of the government's anti-corruption drive, with a number of high-profile bosses being arrested.

"I see the anti-corruption drive as being part of a bigger economic agenda. Taking corruption out of the state-owned enterprises will make them stronger economic entities and will encourage more foreign investment in them when that is allowed.

"There needs to be consolidation through mergers so you have asset optimization and integration that will lead to stronger economic entities."

Luedi insists that rebalancing the economy toward services does not mean compromising China's industrial and manufacturing might that has been the engine of its growth since reform and opening up began in the late 1970s.

"The industrial part is 50 percent of the economy and it is still going to be a significant part after 2020 and beyond. The future might not necessarily be manufactured in China but engineered in China, and that means China has the potential to become a major engineering nation like Germany and Japan. China certainly has got the engineers."

Being involved in the energy sector, Luedi has a front seat vantage point on China's resources and mining investments in Africa.

Some have argued that it would be cheaper for China to buy resources on the commodities open markets than to keep seeking direct ownership through joint ventures with governments and other arrangements.

"Some of the Chinese African projects are probably negotiated at a high price and perhaps take longer to develop than planned at the outset, adding to the cost. A lot of recent investments also were based on the premise of higher commodity prices. But I think China is taking a long-term strategic view of this and creating a security of supply."

"If China was just to buy from the market it is just a trading relationship."

Luedi, who comes from Interlaken, originally trained to be a pharmacist at Bern University before embarking on a career in consulting.

He joined McKinsey in Berlin and worked in South Africa and Hong Kong before taking up a position in the Shanghai office in 2000.

He took six months out in 2002 to do an intensive Mandarin language course at the Beijing Language and Culture University, one of China's top language universities.

"Six months is manageable as a career break. You have got to give your mind to it. I did six hours a day of classes and then two hours with a private tutor. After that I took lessons at home for about 10 years.

"My wife is Chinese and we speak Chinese at home. My view was that if you want to be in China, how can you be credible without speaking the language?"

He moved to AT Kearney last year because he liked the idea of working for a smaller consultancy.

"If you get to 1,000 partners, it is hard to argue that it is a cohesive global partnership. There are 300 partners here, and I already know around 200 of them."

There has been a debate recently as to whether international consultancies any longer understand the DNA of China with them reportedly having a US-centric mindset. The former head of Booz & Co in China, Edward Tse, quit last year to launch his own consultancy, Gao Feng Advisory, to purportedly address this problem.

"I don't subscribe to this actually. Every client conversation I have - whether it is about strategy or operations - half way through the conversation you are asked about global benchmarks. There may be a local corporate culture but business is essentially global."

Luedi combines his consulting career with being a driver in the Asian Formula Renault series, competing in Malaysia, Macao and on the Chinese mainland. For this he has to keep himself fit, including running on a treadmill five times a week.

"It requires a certain physical and mental fitness. When you approach a corner at 230 km/h you have to break within a distance of 2 or 3 meters so you don't overshoot and you have to repeat that on the 17 corners on each lap. It is a real precision sport."

His somewhat demanding hobby means he is perhaps as up to speed with the Chinese in the dynamism they have shown in transforming their country's economy over the past 15 years.

But does China, like any racing car driver, risk a crash, as some have predicted?

"I certainly see the risk of a dip but China is still urbanizing so it has the ability to absorb overcapacity.

"In countries when you have problems in the real estate sector you look at the demand side, and it is weak. That is what happened in the US housing crash. In China you actually have a strong demand side. It has been the supply side that has been weak, with many new developers going bankrupt."

He insists he remains as in awe about China's development as the day he arrived.

"What China has done has never happened in the world before in both the speed of development and the scale."

Bio

Thomas Luedi

Managing partner, Greater China, A.T. Kearney

Age: 43

Education

BS, chemistry, molecular biology, physiology and anatomy, Bern University, 1992

Master of Pharmacy, Bern University, 1995

MBA, Kellogg School of Management, Northwestern University, 2000

Diploma, Chinese language, Beijing Language and Culture University, 2002

Career

Summer associate, Goldman Sachs, London, 1999

Senior partner, McKinsey & Co, 1996-2014

Managing partner, Greater China, AT Kearney, since 2014

Book: Business biographies such as The Big Score: Robert Friedland, Inco and the Voisey's Bay Hustle by Jacquie McNish, The King of Oil; The Secret Lives of Marc Rich by Daniel Ammann and No Angel: The Secret Life of Bernie Ecclestone by Tom Bower. Also anything on astrophysics such as In Search of the Multiverse by John Gribbin

Film: Strange Days (1995, directed by Kathryn Bigelow) and Blade Runner (1982, directed by Ridley Scott)

Music: Hotel California, written and performed by The Eagles

Food: Xinjiang fried lamb with cumin

andrewmoody@chinadaily.com.cn

(China Daily Africa Weekly 04/24/2015 page32)