I had coffee today with Ivan Chu, CEO of Cathay Pacific Airways (and now a subscriber to this newsletter.) From his perch in Hong Kong, which serves as airline hub for the Pearl River Delta, he monitors a key artery to the Chinese economy. And his view, based on that, is surprisingly optimistic. While cargo traffic is down, he says, reflecting the slowing of Chinese exports, passenger traffic is up double-digits from last year. That’s consistent with the Chinese government’s desire to make the transition from an export-driven to a consumer-driven economy.
Does that mean China is on its way to be the world’s leading power by 2041? Thanks to all who offered thoughts on this debate topic, which I have to tackle tonight for the Asia Society in Hong Kong. I’m inclined to agree with those who see innovation as the key. We are in the midst of a technological revolution that will remake many of the fundamental underpinnings of global business over the next two decades. The U.S. is in a stronger position to benefit from that Schumpeterian disruption than China, which is still dominated by stodgy state-owned enterprises (yesterday’s post on Huawei notwithstanding.) By 2041, we may conclude that personal freedom and economic dynamism really do go hand in hand, after all.
By the way, for those who asked why the Asia Society chose the date 2041, the answer has to do with the founder of Fortune magazine, Henry Luce. It was in 1941 that he penned a famous essay for our sister publication, Life magazine, heralding the dawn of “The American Century.”
Today’s bonus: If you think Donald Trump has been using the word “China” a lot, take a minute to watch this video.
More news below.
• China also on Cisco’s mind
Networking-equipment giant Cisco is poised to announce a partnership with server maker Inspur Group Co. during Chinese President Xi Jinping’s visit to the United States, The Wall Street Journal reports, the latest effort by a tech firm to adjust to a market that faces more local rivals. At Cisco, estimated sales in China surged from under $800 million in 2006 to over $2 billion in 2012, but have dipped in recent years. Fortune reports two key takeaways: Cisco has lost its position of power in China (it is widely acknowledged for building the Chinese Internet) and the pact will likely involve some level of technology transfer. WSJ (subscription required)
• VW puts steep price tag on scandal
The controversy surrounding German automaker Volkswagen continues to speed ahead, with the company disclosing it intends to set aside $7 billion to cover costs tied to a scandal that involves 11 million vehicles worldwide that it built with diesel engines that the Environmental Protection Agency says contains software that defeats emissions tests. CEO Martin Winterkorn issued a video apology on Tuesday, though no official word if he will resign. He is due to meet with VW’s board to discuss renewing his contract. Many expect a new CEO search will need to be conducted. Fortune
• Goldman Sachs CEO has lymphoma
Lloyd Blankfein, the CEO of investment banking giant Goldman Sachs, disclosed he has lymphoma and intends to continue to work during his chemotherapy treatment. Blankfein, who has led Goldman since 2006, described it as “highly curable” but will also cut down his travel schedule. He said that he discussed his approach to treatment while working with the board of directors and that they are supportive. Fortune
• Bank of America CEO wins
Bank of America CEO Brian Moynihan won the backing of a majority of shareholders to keep his second title as chairman of the bank’s board, with 63% backing his dual role at BofA after a special shareholder meeting. As CEO Daily has outlined, the bank’s board last year gave Moynihan the chairman role without consulting shareholders. That led to some sharp criticism of the board as shareholders in 2009 voted to separate the chairman and CEO roles in the wake of the company’s takeover of Merrill Lynch. USA Today
Around the Water Cooler
• Is the Washington Post-Facebook pact wise?
Facebook is rolling out an expanded version of the social networking company’s Instant Articles project – which offers faster-loading pages to media firms that agree to publish directly on the site. The Washington Post is going all in: agreeing to publish all of its content to Facebook. The bullish case is that the Post is responding to how young readers get their news today: through social networks. Conversely, it can be argued that power increases for Facebook, and continue to blur the line as to who is providing the content. Fortune
• The limits of big money in GOP race
One of the most fascinating elements of the failed presidential bid of Scott Walker is that the Wisconsin governor actually had a lot of cash: unfortunately, it was all with Super PACs that supported him. Walker’s Super PACs raised more than $20 million by mid-summer, when it last reported its finances. But Walker ran out of money to run the day-to-day campaign, as Super PACs are restricted from paying for staff, travel and other immediate needs, and Walker didn’t raise enough from smaller donors to support those expenses. Fortune
• The latest on the Benihana brawl
The embattled CEO of Benihana of Tokyo won an arbitration panel decision that said Keiko Ono Aoki can continue to operate its highly profitable restaurant within Honolulu’s Hilton Hawaiian Village Waikiki Beach Resort. The battle in this case was between Benihana of Tokyo (BOT), which operates the chain in most countries, private equity owned Benihana Inc., a separate entity that operates here in the states but has a licensing agreement with BOT for the Hawaii location in question. Fortune
5 things to know today
VW and the Pope’s U.S. tour–5 things to know today. Today’s story can be found here.