Charles Freeman, once the Assistant U.S. Trade Representative for China Affairs, is now a vice president of Rock Creek Global Advisors LLC.  Last Thursday, Mr. Freeman was one of four speakers at the GBD colloquium, The Dragon Goes Shopping, 2013.  Others spoke to the data - especially the data on China's imports  - and about the effects of China's imports on some of her trading partners.  Mr. Freeman, on the other hand, talked about China itself and the challenge of maintaining the growth miracle that the Chinese economy has become.
 
In framing the issue, Mr. Freeman said:

In effect, Mr. Freeman posed this question - for himself, for the audience, and for China:  how will they keep growing?  To answer it, he turned to the four factors of growth: land, labor, capital, and productivity/innovation, and he offered a comment on the growth potential of each.  The most promising, he said, was "productivity slash innovation," as China has pretty much run out the string on the other three.
 
Labor.  We have chosen a labor comment as today's quote; so we will begin there.   Here is a close paraphrase of his comments on China's labor situation:
 
Respecting Land too, Mr. Freeman said, "China has really run out of gas on its exploitation of land," remarking that the country has devoted a lot of factory space to heavy industry and energy intensive production, "things that don't make a lot of sense for the economy and where it's going."

Even Capital was ruled out as an engine for future growth, though its importance in the past was stressed.  "You can say all you want about exports as the driver," Mr. Freeman said, "but investment has really been the driver of growth for 20 some on years."  But there are limits, "only so many shiny new airports," etc.   The answer, he said, is:

Productive and Innovation.  "The thing that has to drive China's new growth model has to be productivity and innovation."   It was this topic that led Mr. Freeman to a discussion both of the trade data and an upcoming political event. He talked, for example, about China's imports of high-tech equipment and other investment goods.  Those imports, he said, underscore China's "need to move up the productivity chain."

As for the political event, that is the November plenum - the Third Plenary Session of the 18th CPC Central Committee - which could adopt policies to spur innovation and increase productivity.  For example, Mr. Freeman said they could take steps to empower non-state actors - private firms.  Giving them greater access to credit would be a start. 

Currently, he said, most of China's research and development money goes to the state-owned enterprises. (There are more than 100,000 of them and they account for roughly half of China's industrial output,* but they are not, en masse, great innovators.)  And the amount of R&D done by the private sector is miniscule.  Mr. Freeman cited a study by China's National Bureau of Statistics, showing that 86 percent of small companies do no R&D at all.  That's a pity because, according to Mr. Freeman, "When these guys do invest in R&D, they do show pretty dramatic results."

We'll return to the outlook for the November plenum in the Comment section.  Here we will recall just a few more highlights from the Freeman presentation, with particular reference to selected imports.

Coal. China buys a lot of coal, coking coal from Australia and, from Indonesia, coal for generating electricity. Mr. Freeman said he expects those coking coal imports from Australia to taper off. China has a lot of overcapacity in steel, and there is a real effort underway to close some of those facilities.  Coal for generating electricity is another matter.  Those imports are likely to continue from Indonesia and other countries.

Petroleum. Mr. Freeman estimated that 1,000 new drivers are added to Beijing's streets every day.  In 2010, The New York Times put the figure at 2,000 a day, but the pace may have slowed a bit.   Whatever the figure, petroleum imports are only going to increase.   

In talking about petroleum, Mr. Freeman noted that China too, like the United States, is rich in unconventional sources of oil - shale oil.  Getting it out may be more difficult in China than in the United States, however.  Looking on the bright side, this might become an area of significant cooperation between the world's two largest economies. 

Agriculture.  Of course he talked about agriculture, including Shuanghui International's purchase of Smithfield Foods, but we'll leave the subject of food for another time, except for the luxuries.

Wine and Cars.  Some luxury goods have truly found a rich market in China. High-end wines from France, Australia, New Zealand and Chile are some of those.  Others are European luxury cars.   On the subject of cars, Mr. Freeman shared these remarkable observations:

We are not China's watchers (at least not sophisticated ones) and have no independent view as to what to expect from the November plenum.  We would note, however, that not all the signs are positive.  Charles Freeman drew everyone's attention to the importance of the upcoming plenum but, for the most part, he did not speculate as to what it would or would not do.  He did, however, say that "If you are a Chinese bureaucrat, inherently, you don't trust the private sector."

There is a shadow there, and there were a couple more shadows in the recent article on the November plenum by Bloomberg Businessweek's Asia News Editor and China Bureau Chief Dexter Roberts. The headline writer gave his article the title "How China May Lose a Chance for Reform."  In it, Roberts noted, for example, that President Xi Jinping talked a lot about reform in his recent APEC speech in Bali, but he did not talk about reforming the state-owned enterprises.  In the same piece, Roberts took note of the fact that China's senior leaders were all conspicuously absent from the September 29 opening of the new Free Trade Zone in Shanghai, suggesting that, collectively at least, China's leaders may be having second thoughts about the zone and its promise of greater economic freedom.