“Women”, in Mao Zedong’s memorable phrase, “hold up half the sky”. While not strictly the case in the business world, Chinese women do play a far more prominent role, both in starting and running big companies in China, than their sisters do elsewhere, particularly in the US and Europe.

According to a study last year by accounting firm Grant Thornton,  women hold 34% of the senior management positions in China, compared to an average of 20% elsewhere in the world. The percentages are also moving in opposite directions, with a greater proportion of top jobs in China going to women recently. Women held 31% of management jobs in China in 2009. Meantime, women are becoming less common in senior management in Europe and US, down from 24% over the same period.

And, no, it’s not just a case of women dominating “soft functions” like HR and accounting, as they often tend to do in the West. In China, 19% of women in management roles are serving as CEOs, compared to 8% elsewhere. A significant quotient of partners at private equity firms in China are women. The most talented and capable person in investment banking in China I know, Wang Yansong,  is female — even better, she works with me.

If there is a “glass ceiling” in China, it must be quite porous.

In my three-plus years in China, I’ve met far more successful big-time women entrepreneurs and bosses than I did in 25 years working in US and Europe. I’ve also been lucky enough to work with several, including one of China’s most well-known entrepreneurs, Mrs. He Yongzhi, the founder of the country’s largest spicy hotpot restaurant chain, 小天鹅, or “Little Cygnet”, with over 400 high-end restaurants across China.

Mrs. He started the business 30 years ago in a tiny alcove, with just five tables –no capital, no powerful backers and a competitor on every street corner. And yet, she has thrived. She invented the now-ubiquitous “yin-yang” twin-flavored stock pot commonly used not just in her own restaurant but in hotpot restaurants around the country.

Along with the restaurant chain, she also runs a food processing company, producing bottled hot sauces with her face on every label, and a large commercial real estate business, including five hotels in Chongqing, Sichuan and Tibet. Her daughter Weijia is a chip off the entrepreneurial block,  having started a high-end tea business called Nenlü.

Mrs. He’s  restaurant company has Sequoia Capital as an investor, and is planning an IPO next year that will likely make her into another of China’s self-made billionairesses. Already, half of the world’s self-made billionaires are from China. Over 10% of the richest businesspeople in China are women. That may not sound like much, but is light-years ahead of most every place in the world. In a typical working year, I will meet at least 10 women bosses who are well on the way to building an enormous fortune as founder and majority-owner of companies that may likely one day have an IPO in China.

Indeed, it’s one of the great joys of my working life, that I meet so many great “lady laoban”, as we call them, using the Chinese word for “boss”. I especially like meeting with women running metal-bashing businesses.  One of the more successful and elegant women bosses I know started and runs one of China’s largest private auto parts companies, making aluminum ventilation and heating systems for cars and large trucks.

At the factory, she wears a smock with the cotton elbow-protectors once in vogue among 19^th century English bookkeepers. Her husband works for her, as head of the security team. Her likely successor? Her one daughter, a recent new mom, who runs the company in tandem with her mother. Both mother and daughter are warm, lovely, attractive, fully at ease talking to truck mechanics and engineers, or walking the factory floor.

It may be a coincidence, but many of the women bosses I know do not have sons. Only daughters. Did they work harder in their professional lives to overcome the stigma (then large, now thankfully smaller) of having only girl children? It could be. But, such Western-style psychological theorizing seems misplaced. China has more great women entrepreneurs because 30 years ago, as China was ending its costly experiment with Maoist socialism, there were new huge areas of money-making opportunity open to all.  Gender mattered less than ambition, diligence, persuasiveness, business acumen and leadership skills. China after 1978 was a commercial “tabula rasa”. There were few established business rules and basically no role models (positive or negative) for anyone to follow.

China traditionally is a male-focused society, with deep-set roots in Confucian thinking that put husbands and sons well above the rank of wives and daughters. In many ways, this mindset still persists in China. And yet, paradoxically,  a society that puts men on a higher social plane can also provide women entrepreneurs with something of a level playing field in business.

In the last year, along with the two lady bosses already mentioned, I’ve met women who started and now run successful companies that make high-end LED screens, lease cars, provide an online B2B transaction platform, make and export embroidered blankets to Williams Sonoma. Never once have I heard a complaint about gender-discrimination or even a hint that the company has been victimized by negative perceptions about female bosses.

In the end, starting a company anywhere requires a tolerance of — if not full bear hug embrace of — risk. Women, so I’ve read, are programmed from birth to shun risk. It’s meant to be the reason there are comparatively few women combat soldiers and motorcycle riders, as well as successful entrepreneurs.

Gender theorists obviously never looked closely at China. Equally, Chinese women weren’t taught why they were destined by biology to underperform men in the workplace, to start fewer businesses, to climb high on fewer corporate ladders. Spared knowledge of these “facts”, they’re in full pursuit of their dreams and ambitions.

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I get asked occasionally by private equity firm guys how CFC gets such stellar clients. At least in one case, the answer is carved fish, or more accurately my ability quickly to identify the two murky objects (similar to the ones above) carved into the bottom of a ceramic dish. It also helped that I could identify where the dish was made and when.

From that flowed a contract to represent as exclusive investment bankers China’s largest and most valuable private GPS equipment company in a USD$30mn fund-raising. It’s in every sense a dream client. They are the most technologically adept in the domestic industry, with a deep strategic partnership with Microsoft, along with highly-efficient and high-quality manufacturing base in South China, high growth and very strong prospects as GPS sales begin to boom in China.

Since we started our work about two months ago, several big-time PE firms have practically fallen over themselves to invest in the company. It looks likely to be one of the fastest, smoothest and most enjoyable deals I’ve worked on.

No fish, no deal. I’m convinced of this. If I hadn’t correctly identified the carved fish, as well as the fact the dish was made in a kiln in the town of Longquan in Zhejiang Province during the Song Dynasty, this company would not have become our client. The first time I met the company’s founder and owner, he got up in the middle of our meeting, left the room and came back a few minutes later with a fine looking pale wooden box. He untied the cord, opened the cover and allowed me to lift out the dish.

I’d never seen it before, but still it was about as familiar as the face of an old teacher. Double fish carved into a blue-tinted celadon dish. The dish’s heavy coated clear glaze reflected the office lights back into my eyes. The fish are as sketchily carved as the pair in the picture here (from a similar dish sold at Sothebys in New York earlier this year), more an expressionist rendering than a precisely incised sculpture.

It’s something of a wonder the fish can be discerned at all. The potter needed to carve fast, in wet slippery clay that was far from an ideal medium to sink a knife into. Next came all that transparent glaze and then the dish had to get quickly into a kiln rich in carbon gas. The amount of carbon, the thickness and composition of the glaze, the minerals dissolved in the clay – all or any of these could have contributed to the slightly blue-ish tint, a slight chromatic shift from the more familiar green celadons of the Song Dynasty.

All that I knew and shared with the company’s boss, along with remarking the dish was “真了不起”, or truly exceptional. It’s the finest celadon piece I’ve seen in China. Few remain. The best surviving examples of Song celadon are in museums and private collection outside China. I’m not lucky enough to own any. But, I’ve handled dozens of Song celadons over the years, at auction previews of Chinese ceramic sales at Sotheby’s and Christie’s in London and New York. The GPS company boss had bought this one from an esteemed collector and dealer in Japan.

The boss and I are kindred spirits.  He and I both adore and collect Chinese antiques. His collection is of a quality and breadth that I never imagined existed still in China. Most antiques of any quality or value in China sadly were destroyed or lost during the turbulent 20^th century, particularly during the Cultural Revolution.

The GPS company boss began doing business in Japan ten years ago, and built his collection slowly by buying beautiful objects there, and bringing them home to China. Of course, the reason Chinese antiques ended up in Japan is also often sad to consider. They were often part of the plunder taken by Japanese soldiers during the fourteen brutal years from 1931 to 1945 when they invaded, occupied and ravaged parts of China.

Along with the celadon dish, the GPS boss has beautiful Liao, Song, Ming and Qing Dynasty porcelains, wood and stone carvings and a set of Song Dynasty paintings of Buddhist Luohan. In the last few months, I’ve spent about 20 hours at the GPS company’s headquarters. At least three-quarters of that time, including a visit this past week, was spent with the boss, in his private office, handling and admiring his antiques, and drinking fine green tea grown on a small personal plantation he owns on Huangshan.

I’ve barely talked business with him. When I tried this past week to discuss which PE firms have offered him money, he showed scant interest. If I have questions about the company, I talk to the CFO. Early on, the boss gifted me a pretty Chinese calligraphy scroll. I reciprocated with an old piece of British Wedgwood, decorated in an ersatz Chinese style.

Deal-sourcing is both the most crucial, as well as the most haphazard aspect of investment banking work. Each of CFC’s clients has come via a different route, a different process – some are introduced, others we go out and find or come to us by word-of-mouth.  Unlike other investment banking guys, I don’t play golf. I don’t belong to any clubs. I don’t advertise.

Chinese antiques, particularly Song ceramics,  are among the few strong interests I have outside of my work.  The same goes for the GPS company boss. His 800-year old dish and my appreciation of it forged a common language and purpose between us, pairing us like the two carved fish. The likely result: his high-tech manufacturing company will now get the capital to double in size and likely IPO within four years, while my company will earn a fee and build its expertise in China’s fast-growing automobile industry.  

Two truisms about China should carry the disclaimer “except in Xinjiang”. China is a densely-populated country, except in Xinjiang. China is short on natural resources, except in Xinjiang. Representing over 15% of the China’s land mass, but with a population of just 30 million, or 0.2% of the total, Xinjiang stretches 1,000 miles across northwestern China, engulfing not only much of the Gobi Desert, but some of China’s most arable farmland as well. Mainly an arid plateau, Xinjiang is in places as green and fertile as Southern England.

Underneath much of that land, we are beginning to learn, lies some of the world’s largest and richest natural resource deposits, including huge quantities of minerals China is otherwise desperately short of, including high-calorie and clean-burning coal, copper, iron ore, petroleum.  How, when and at what cost China exploits Xinjiang’s natural resources will be among the deciding issues for China’s economy over the next thirty years. Already, some remarkable progress is being made, based on two past visits. I return to Xinjiang tomorrow for five days of client meetings.

Because of its vast size and small population, Xinjiang hasn’t yet had its mineral resources fully probed and mapped. But, every year, the size of its proven resource base expands. Knowing there’s wealth under the ground, and finding a cost-effective way to dig out the minerals and get them to market are, of course,  very different things. Until recently, Xinjiang’s transport infrastructure – roads and railways – was far from adequate to provide a cost-efficient route to market for all the mineral wealth.

That bottleneck is being tackled, with new expressways opening every year, and plans underway to expand dramatically the rail network. But, transport can’t alter the fact Xinjiang is still very remote from the populated core of China’s fast-growing industrial and consumer economy. Example:  it can still be cheaper to ship a ton of iron ore from Australia to Shanghai than from areas in Xinjiang.

Xinjiang’s key resource, and the one with the largest potential market, is high-grade clean-burning coal. Xinjiang is loaded with the stuff, with over 2 trillion tons of proven reserves. Let that figure sink in. It’s the equivalent of over 650 years of current coal consumption in coal-dependent China . The Chinese planners’ goal is for Xinjiang to supply about 25% of China’s coal demand within ten years.

Xinjiang’s coal is generally both cleaner (low sulphur content) and cheaper to mine than the coal China now mainly relies on, much of which comes from a belt of deep coal running through Inner Mongolia, Shanxi and Shandong Provinces. Large coal seams in Xinjiang can be surface mined. Production costs of under Rmb150 a ton are common. The current coal price in China is over four times higher for the dirtier, lower-energy stuff.

For all its advantages, Xinjiang coal is not going to become a primary source of energy in China. The Chinese government, rightly, understands that the cost, complexity and long distances involved make shipping vast quantities of Xinjiang coal to Eastern China unworkable. Moving coal east would monopolize Xinjiang’s rail and road network, causing serious distortions in the overall economy.

Instead, the Xinjiang government is doing something both smart and innovative. It is encouraging companies to use Xinjiang’s abundant coal as a feedstock to produce lower cost supplies of industrial products and chemicals now produced using petroleum. All kinds of things become cost-efficient to manufacture when you have access to large supplies of low-cost energy from coal. Shipping finished or intermediate goods is obviously a better use of Xinjiang’s limited transport infrastructure.

I’ve seen and met the bosses of several of these large coal-based private sector projects in Xinjiang. The scale and projected profitability of these projects is awesome. In one case, a private company is using a coal mine it developed to power its $500mn factory to produce the plastic PVC. The coal reserve was provided for free, in return for the company’s agreement to invest and build the large chemical factory next to it. The cost of producing PVC at this plant should be less than one-third that of PVC made using petroleum. China’s PVC market, as well as imports, are both staggeringly large. The new plant will not only lower the cost of PVC in China but reduce China’s demand for petroleum and its byproducts.

Another company, one of the largest private companies in China,  is using its Xinjiang coal reserve, again supplied for free in return for investment in new factories, to power a large chemical plant to produce glycerine and other chemical intermediates. This company is already a large producer of these chemicals at its factories in Shandong. There, they run on petroleum. In the new Xinjiang facility, coal will be used instead, lowering overall manufacturing costs by at least 20% – 30% based on an oil price of around $50. At current oil prices, the cost savings, and margins, become far richer.

The key, of course, is that the companies get the coal reserve for free, or close to it. True, they need to build the coal mine first, but generally, that isn’t a large expense, since it can all be surface-mined.  This means that the cost of energy in these very energy-intensive projects is much lower than it would be for plants using petroleum or, to be fair, any operator elsewhere who would need to purchase the coal reserve as well as build the capital-intensive downstream facilities.

The Xinjiang projects should lock-in a significant cost advantage over a significant period of time. As investments, they also should provide consistently high returns over the long-term. While the capital investment is large, I’m confident the projects are attractive on risk/return basis, and that in a few years time, these private sector “coal-for-petroleum” projects will begin to go public, and become large and successful public companies.

The Xinjiang government keeps close tabs on this process of providing free coal reserves for use as a feedstock.  Since in most cases, these projects are looking to enter large markets now dominated by petroleum and its byproducts, there is ample room for more such deals to be done in Xinjiang.

Deals are getting larger. This summer, China’s largest coal producer, Shenhua Group, announced it would invest Rmb 52 billion ($8 billion) on a coal-to-oil project in Xinjiang. The company plans to mine 70 million tons of coal a year and turn it into three million tons of fuel oil.

Remote and sparsely-populated as it now is, Xinjiang is going to play a decisive role in China’s industrial and energy future, just as the development of America’s West has helped drive economic growth for over 100 years, and created some of America’s largest fortunes.  My prediction:  China’s West will produce more coal and mineral billionaires over the next 100 years than America’s has over the past hundred.

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True of false? The basis of China’s global economic competitiveness is cheap labor? False. It’s cheap factory land.

No doubt,  until a few years ago, China’s low labor costs were a vital part of its economic growth story. That is no longer the case. Labor costs have risen sharply in the last five years. There are now many countries with a decided labor cost advantage over China. And yet China remains the “factory of the world”. For one thing, its workers have higher productivity than those earning lower wages in countries like Vietnam, India or Indonesia.

But, there is a more fundamental, and most often overlooked, reason for China’s global economic competitiveness. Factories, and other productive assets like mines or logistics centers, are built on land that is either free of close to it. The result is that in China land costs usually represent an inconsequential component of overall manufacturing and operating costs. This, in turn, gives China an inbuilt edge and, when added to the productivity of its workers, an insurmountable cost advantage over the rest of the world.

There is no good international data on the percentage of a company’s fixed costs that come from purchase or rental of land. But, it is certainly the case that in China, this percentage will be far lower than in any developed – and many developing – countries. This isn’t because land is cheap in China. It isn’t. The market price, in most areas, is often on par with land costs in the US. But, good businesses in China don’t pay market price. Often they pay nothing at all.

This has two useful aspects for the favored Chinese business. First, it means the cost of expanding operations is limited primarily to the cost of new capital equipment and factory construction. Second, the business given a plot of land is thus endowed with a valuable asset it can use as collateral to secure more funding from banks. Even better, if the business runs into trouble or later goes bust, the owner will be able to sell the land at market price and pocket a huge personal gain.

It can’t be overstated just how important this is to a business owner’s calculation of risk, and so the success of Chinese entrepreneurial companies. Owners know that if all goes bad, they still hold land acquired for little or nothing for that is worth millions of dollars.

All land in China belongs to the Chinese government. Every year, a fraction of it is released on a long-term lease (usually forty years or longer) for development into commercial or residential land. While there is no official central policy to make land available at low prices to successful businesses, in practice, this is the way the system works. Land is sold at deeply-discounted prices, or given outright, to businesses that are seeking to expand, often by building a new factory or office building.

Land in China, it goes without saying, is in very high demand. It’s a crowded country, and only 15% of the land is flat or fertile enough to be suitable for cultivation. This “good land” is also where most new factories get built.

There isn’t enough new land released every year to meet the enormous demand. This is true both for residential land, a key reason why housing prices are so high, and commercial land. For most businessmen, it’s impossible to get new land, at any price. A privileged group, however, not only gets land to expand, but gets it at artificially low prices. In China, land prices are elastic. Different levels of government have ways to transfer land to companies at prices equal to 5%-15% of its current market value.

Officially, the land allocation system in China is meant to work in a more market-oriented way, with new land for development being auctioned publicly, and selling prices controlled and verified by higher levels of government. In other words, the system is meant to discourage, if not prohibit, land being given to insiders at low prices. In practice, these rules are often more observed in the breach. Local governments have ways to control the outcome of land auctions and so guarantee that favored businesses get the land they want at attractive prices.

These below-market sales deprive the local government of revenue it might otherwise earn from a land deal done at closer to market prices. But, there is some economic logic at work. The sweetest of sweetheart land deals are generally offered to successful companies whose growth is being stifled by insufficient factory space. The new land, and the new factories that will be built there, will increase local employment and, down the road, tax revenues.

Note, the deeply-discounted land prices are available mainly to companies that are already successful, and straining at the leash to maintain growth and profits. Both private and state-owned companies are eligible. It’s a rare example of even-handed treatment by officials of state-owned and private companies.

Is corruption also a factor? Are cheap land deals really not all that cheap when various under-the-table payments are factored in? My personal experience, though limited, suggests such payoffs, if they happen,  are not compulsory.

I’ve played a walk-on part in several below-market land deals. My role is to meet with local officials, usually the mayor or party secretary,  to urge them to provide my client with the land needed for expansion. All local government officials in China are also motivated by, and rewarded for, having local companies go public. I stick to that point in my discussions with the local officials – my client needs land to grow and so reach the scale where the business can IPO.

In each case, the deal has gone forward, and clients have gotten the land they were seeking, at a price 5-15% of its then-market value. My client wins the trifecta: the business grows larger, unit costs remain low because of scale economies and the cheap land, and the balance sheet is strengthened by a valuable asset purchased on the cheap.

In all respects, this system of commercial land acquisition is unique to China. It is also a key component in the country’s economic policy, though it never has been proclaimed as such. The government at all levels is keen to keep GDP growing smartly. This process of rewarding good companies with cheap land for growth plays a key part in this, everywhere across China. China’s government (at national, provincial and local levels) is not hurting for cash, unlike for example America’s. Tax revenues are growing by upwards of 30% a year. So, maximizing the value of land released for development is not a fiscal priority.

Who loses? There are likely incidences where peasants are thrown off land with little or no compensation to make way for new commercial district. But, that way of doing things is becoming less common in China.

Mainly, of course, the losers are the international competitors of Chinese companies getting cheap land to expand. It’s hard enough to stay in business these days when facing competition from China. It verges on hopeless when the Chinese companies can build output and lower unit prices because of land they get for free or close to it.

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Among major cities in China, Chengdu takes the prize as most pleasant, livable,  comfortably affluent, relaxed and charming. I arrived back here today. I’m reminded immediately there’s much to like about Chengdu, and one thing to love: the food.

Chengdu is famed for its “小吃”, (“xiaochi”) literally “small eats”. To translate 小吃 as “snack”, as most dictionaries do, doesn’t even remotely begin to do it justice. A 小吃  is a often one-bowl wonder of intense, jarring flavors. They not only take the place of a full meal with rice, they make the Chinese staple seem almost superfluous, a waste of precious space in the stomach.

There are about a dozen小吃 that can stop me in mid-stride, any time of day. These include several varieties of cold noodles, including the bean jelly ones called 凉粉, literally “cold powder”，as well as dandan noodles served dazzlingly hot, in both senses of the word.

My favorite 小吃 , by a wide margin, is 抄手 , literally, “to fold one’s arms”. It’s an odd name, since the last thing I’d ever do when I see a bowl of抄手 in Chengdu is fold my arms. They are always thrust outward, in anticipation.  抄手 is a bowl of wontons steeped in a fire-engine red soupy sauce, optimally with enough Sichuan pepper corn to numb the tongue all the way down the gullet. This frees up the nose to do the real work of decoding all the subtle flavors.

Offiically, Chengdu has a per capital income of around $5,200, about half Shanghai’s. But, I’d prefer living and working in Chengdu any day. So would many Chinese I know. The economy is doing well, despite some geographic disadvantages. Chengdu is the most westerly of China’s large cities, and so isolated from the most developed regions of China. It’s over 1,000 miles to Shanghai, Beijing, and almost as far to Shenzhen.

Chengdu is doing well economically – though you don’t always have a sense this ranks as high on the list of civic priorities as drinking tea and playing mahjong. The electronics and telecom industries are both doing well. Quite a few companies have received PE investment.

The one industry, however, that is still relatively undeveloped is the food business. This is odd. By logic, Chengdu should be a center of China’s food processing and restaurant industry. Not only is it a great food town, situated in a very region valley producing some of China’s best fruits and vegetables, but it is also capital of Sichuan Province.

Sichuan food is almost certainly the most popular “non native” cuisine across China. Within a mile of where I live in Shenzhen, there are probably over 50 Sichuan restaurants. It’s the same in Beijing, Shanghai and most other major cities.

There’s an innate association in Chinese minds between Sichuan and good food. In this, Sichuan reminds me a lot like Italy. Italian food is prized across all of the Western world, and as a result, some of the Western world’s biggest and most successful food companies are based in Italy. Among the larger ones are Barilla, Bertolli, Buitoni, Parmalat, Ferrero. These, and thousands of smaller ones making wine, cheese, salami, all benefit from the widespread popularity of Italian food, and the high market value of associating a food brand with Italy.

Chengdu and Sichuan should be no different. It should be the capital of China’s food processing industry. But, as far as I can tell, there are as of yet no great food companies or food brands based there.  If you shop around in Chengdu, the food products being marketed as “authentic Sichuan food ” are mainly an assortment of beef jerky, along with sweet and savory biscuits made from beans and peanuts.

There’s nothing wrong with any of these products, but there isn’t a big brand national brand among them. The mass market is going unserved.

Let’s look at two of the biggest food product categories where Sichuan brands should predominate: chili sauce and instant noodles. Each of these product areas have sales of billions of dollars a year in China. Yet, the leading brands come from outside Sichuan. In the case of instant noodles, the leaders are mainly Taiwanese and Japanese.

In chili sauce, the biggest brands all seem to come from Guizhou province. This, particularly, should cause a collective loss of face across Sichuan. Their spicy food  “owns” the palettes of hundreds of millions of people and yet the main brands of chili sauce in supermarkets come from the poorer province to its south.

The companies selling bottled pre-made Sichuan sauces (for popular dishes like Gongbao Jiding, Mapo Toufu and Yuxing Rousi) mainly come from Taiwan, Shanghai, even Hong Kong. It’s as if the most popular brands of spaghetti sauce were made in Brazil. Chinese food companies all over are eating Sichuan’s lunch.

This situation is unnatural and, I’d hope, unsustainable. Sichuan companies should by rights eventually dominate the market for many food products in China, much as Italian food companies are among the largest in Europe.

Some lucky PE investors should someday make a lot of money backing Sichuan food companies. Me and my company would love to play our part in this. Ambitious food entrepreneurs in Chengdu, call us anytime — 0755 33222093. If ever there were a billion-dollar unfilled market opportunity in China, this would be it.

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The private equity industry in China continues on its remarkable trajectory: faster, bigger, stronger, richer. CFC’s latest research report has just been published, titled “Private Equity in China 2011-2012: Positive Trends & Growing Challenges”. You can download a copy by clicking here.

The report looks at some of the larger forces shaping the industry, including the swift rise of Renminbi PE funds, the surging importance of M&A, and the emergence of a privileged group of PE firms with inordinate access to capital and IPO markets. The report includes some material already published here.

It’s the first English-language research report CFC has done in two years. For Chinese readers, some similar information has run in the two columns I write, for China’s leading business newspaper, the 21st Century Herald (click here “21世纪经济报道”) as well as Forbes China (click here“福布斯中文”) 

Despite all the success and the new money that is pouring in as a consequence, Chinese private equity retains its attractive fundamentals: great entrepreneurs, with large and well-established companies, short of expansion capital and a knowledgeable partner to help steer towards an IPO. Investing in Chinese private companies remains the best large-scale risk-adjusted investment opportunity in the world, bar none.

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Shale gas is the most important major new source of energy on the planet, as well as the most important development in the petroleum economy since deep water drilling. Shale gas is reshaping the world’s energy market in a way that even a decade ago seemed unthinkable. This is especially true in the US, where most of the shale gas development is now taking place. Ten years ago, shale gas was just 1% of American natural-gas supplies. Today, it is about 25% and could rise to 50% within two decades. Estimates are that US has more than a 100-year supply of natural gas, thanks to the development of shale gas. Natural gas is used for everything from home heating and cooking to electric generation, industrial processes and petrochemical feedstocks.

Shale gas was first discovered over a century ago. But, it’s only become a commercially-viable source of natural gas with the invention, over the last twenty years, of new drilling technology to break layers of rock and release the gas trapped within. The technology is known as hydraulic fracturing (now widely known as “fracking” or “fracing”). The companies that have played the leading role in developing this technology are mainly all American. They are already making billions of dollars using their techniques to drill deep under the surface across the continental US and harvest the gas trapped there.  The US, which just a few years ago looked to be running out of natural gas, now may someday begin exporting, thanks to its large deposits of shale gas.

The US has long been the world’s largest user and importer of energy. Last year, it was announced that China has overtaken the US in overall energy consumption. Its energy imports are on track to overtake America’s. Although natural gas use is increasing in China, it only comprised 4 percent of the country’s total energy consumption in 2008.

Beneath China’s surface also lies shale gas, most likely quite a lot of it. According to information released by the US Energy Information Administration (EIA) in April, China has 1,275 tcf of technically recoverable shale gas resources, nearly 50% more than the US.  Those estimated recoverable reserves are more than one thousand times the amount of natural gas used in China in 2010.

For China in decades to come, as much as for America, shale gas could be the energy “game-changer”, increasing energy self-reliance and helping to shift the country away from its heavy reliance on coal for electricity generation. Domestic shale gas, if fully exploited, would have enormous impacts not only in China, but worldwide. It could moderate China’s skyrocketing demand for petroleum, one of the primary drivers of higher oil prices. It would mean less coal gets mined and burned, which would have widespread environmental benefits and also ease the strain on the nation’s transportation infrastructure, a large part of which is now devoted to moving coal from where its mined to where its burned for electricity.

China already has more cars and busses running on natural gas than the US. Quite a few cities, including some large ones like Chongqing and Urumqi in Xinjiang, have many of their taxis running on natural gas. There is already a large infrastructure of “natural gas stations” across China. In other words, China stands to benefit, proportionately, even more from the US from a large supply of cheap, domestic natural gas.

The key question is: will China be able to tap its shale gas efficiently? In fact, it may be one of the most important questions in world energy markets over the next five to ten years. The technology is new, complex and almost entirely American. The owners may not be interested to share it with Chinese companies. For one thing, most of the companies with core technology and experience in tapping shale gas are themselves producers, not just suppliers of drilling equipment. Under current rules, they might not find China a very attractive market, especially when the US has so much untapped natural gas, as does neighboring Canada.

China’s leaders clearly understand the importance of shale gas to its economy and the importance of US shale gas technology. China’s goal is to produce 30 billion cubic meters a year from shale, equivalent to almost half the country’s gas consumption in 2008.  In November 2009, US President Barack Obama agreed to share US gas-shale technology with China, and to promote US investment in Chinese shale-gas development.

That sounds more significant than it probably is. President Obama cannot do much to help China, since the US government has little shale gas technology of its own, nor can he provide any real economic incentive for US companies to share technology with China. If there is a good market reason for US companies to drill for shale gas in China, they will surely do it. That is not the case now, as far as I can tell. Energy production and pricing are both heavily controlled by the Chinese government. A US shale gas producer would probably not be able to fully-own a shale gas field in China, nor sell its output at world market prices.  So, my guess is the owners of the best shale gas technology will not likely share it with China.

PetroChina and China National Offshore Oil Corporation (CNOOC) bought stakes in North American shale drillers like Chesapeake Energy and EnCana with the intent of acquiring technology and ramping up production at home. But, it is not certain, to say the least, that this strategy will pay off — becoming a small shareholder is not the same as buying a right to that company’s technology and expertise.

That leaves China with two choices, neither of which is appetizing: first, rely on domestic technology; second, try to obtain US technology by other than legal means. It could take domestic producers a long time to master the technology, and even then, it may not be equal to the best of what the US now has. With the second route, the problem is that it’s not enough just to get hold of drilling equipment. Exploiting shale gas reserves requires a mix of special equipment and know-how, which is far harder to obtain. A lot of the most successful shale gas fields in the US, for example, use horizontal drilling, a method pioneered in US, that allows operators to “ drill down to a certain depth and then to drill at an angle or even sideways. This exposes more of the reservoir, permitting the recovery of a much greater amount of gas,” according to the noted energy researcher Daniel Yergin.

China needs its shale gas, now. It is of vital importance to China, as well as the rest of the developed world. Everyone is hurt if Chinese demand for petroleum continues to push prices higher and higher, especially when there is an attractive alternative, that China shifts more of its energy consumption to natural gas, produced at home.

It’s a troubling sign that China’s Ministry of Land and Resources continues to delay distribution of the country’s first official shale gas blocks. Its first announcements indicated that only Chinese state-owned energy companies could bid on rights to these shale gas deposits.

My preference would be for China’s government to make it as financially rewarding to exploit shale gas there as it is in the US. It can do this with a mix of tax incentives and various rebates available, for example, to US companies that develop shale gas fields in China. The US oil industry doesn’t bother much with politics. They go where there is money to be made.

China will likely spend over $180 billion this year on oil imports, enriching foreigners in places like Iran, Russia and Venezuela. Based on that uncomfortable fact, and that using more natural gas will cut the environmental damage caused by burning so much coal, the rational policy choice is to do about whatever it takes to get US shale gas producers to come to China and start drilling, fraccing and pumping.

My advice: let it be done, and let it be done soon.

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A particularly – and atypically – alarmist article ran recently in the Wall St. Journal titled “U.S. Firms, China in Tech War” . You can read it here ( WSJ Article) and decide for yourself. The thrust is that Chinese national policy has shifted in recent years, making it more difficult for Western government companies to win government contracts and protect their most valuable intellectual property. According to the Journal, it’s part of a new “Chinese industrial policy” to transform China into a hothouse of homegrown leading edge technologies, with companies able to challenge American supremacy.

It makes good copy. According to the article, the issues are of such portent that President Obama discussed them directly with China’s leader, Hu Jintao, during the latter’s visit to the US last month. The article cites a fretful report from the US Chamber of Commerce in China, titled “China’s Drive for ‘Indigenous Innovation’: A Web of Industrial Policies”.  The report claims China is building an “intricate web of new rules considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before.”

To me, it seems that the Journal may be guilty of mistaking cause for effect. Is China pursuing a nationalist domestic procurement policy? Most likely, just as the US and virtually every other developed country does. Will this make it harder for non-Chinese companies to sell gear to China’s government agencies?  Quite probably. Are Chinese rules crafted in such a way to make it obligatory for Western companies to transfer their technology to Chinese partners? Seems to be the case.

But, will any of this actually achieve the stated goal? Here, I’m a lot less agitated than the Americans quoted in the Journal article. The reason is also found in the same article, which makes a passing reference to similar rules in place in Japan, Korea, Germany and elsewhere. Fat lot of good they’ve done those countries.  Their aggressive “buy local” rules, and other protectionist measures to “nurture” domestic innovation have done little to nothing to achieve their stated aim. In fact, the opposite is the case. If you want to draw up a list of the countries that have lost significant ground to the US in new technologies over the last twenty years, you can start with those that pursued similar regimes to China.

Twenty years ago, France, Germany and Japan all had large, well-known computer companies. Today, Bull, Nixdorf and NEC are either bankrupt or laughing stocks. Their governments’ passionate embrace turned out to be a kiss of death.

The same is true in the industries that the US government has chosen to support and nourish with subsidies and protection. Think about the billions wasted (or as our current US administration tabs it “invested” ) on “alternative energy” and “clean transport” in the US.

Industrial policy, in almost all cases, has a track record untainted by success. There are a lot of good reasons for this, but the most fundamental of all is that government officials, however well-schooled and well-meaning, have no competence to choose winning technologies, and certainly do so with far diminished effectiveness than an open, vibrant market of billions of customers.

Governments all love command and control. The problem is they can only do one of the two. Commanding your citizens to produce advanced products, and lavishing subsidies and protection on those who pay attention to you, is not the same as controlling which technologies will prove most useful, as well as most time- and money-saving.

Yes, this system can produce bullet trains in Japan and China, and maglev trains in Germany. Problem is, no one else wants to buy them, and your citizens are mainly too busy and happy futzing around on Facebook or Google to much care about any of this.

If China does favor domestic technology companies, the risk is these companies produce just enough innovation to please their government customers. But,  like Bull, Nixdorf and NEC, they will produce nothing that anyone else with free choice will care to buy.

Sure, I’d like US companies to have a better crack at the Chinese market. But, then again, I’d like some of my Chinese clients to have a better crack also at the Japanese, Korean and European markets they are often shut out of. Governments by their nature, sadly, are usually protectionist and nationalist. China is no different. The US has often tried to keep these malign instincts at bay. But, my homeland has all kinds of “buy American” favoritism in place for government contracts.

Innovation is important. But, often enough, it’s good marketing, pricing and efficient global distribution that wins customers, and generates the profits to reinvest in more new ideas and products. I don’t know of a single great technology company that relies on its national government as a main customer. Those that do so, like SAIC in the US or EADS in Europe, often end up falling behind the technology curve.

US companies have every right to complain about unfair procurement policies in China. There’s no solid ground, however, for believing that these same policies will result in China producing world-beating technology companies in the future. One of the surest way to find the failed technology companies of the future is to search for those whose main customers are their own nation’s bureaucrats.

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Is this the zero-emissions green vehicle of the future? For the masses, possibly not.  For me personally, maybe so. It’s a battery-powered electric scooter, with solar panels for recharging during daylight hours.

I’ve become a big fan, and a minor authority, on battery-powered electric scooters. I’ve owned a few. A Chinese-made electric scooter was my primary form of urban transportation while living and working in Los Angeles until moving to China last year.

Though I never saw another one on the road in LA, I’m a passionate believer in this mode of transport. In China, electric scooters are almost as common as passenger cars, with upwards of five million sold every year. The streets and sidewalks are crowded with them. They run on lead acid batteries, the same kind used in car batteries.

The electric scooters sold now in China rely on plug-in battery rechargers. That’s the biggest drawback of driving one. Lead acid batteries can take up to eight hours to recharge. This new solar-powered recharger should solve that problem. The battery recharges automatically as you ride around, as long as there’s sunlight. Assuming the solar recharger works, this electric scooter becomes a street-legal perpetual motion machine, never needing, at least during daytime, to stop for a recharge.

I met the inventor, Zhao Weiping, at a trade exhibition. I could barely contain my excitement. We discussed the science, the capacity of the solar panels, and the potential to upgrade the batteries to lighter, longer-lasting lithium batteries. He’s only built prototypes so far. He expects the cost, for a base model, to be around Rmb3,000 ($440).

With lithium batteries, the price goes up to around $750. Lithium batteries take half the time to recharge.

Another benefit of lithium: the batteries weigh less than half lead acid ones. Less weight means less drag and so farther range on a full battery and faster top speeds.  Engineer Zhao guesses top speed should be about 50kph (30mph) compared to 30kph (18mph) for lead acid models.

To me, it sounds like the ideal form urban transport: zero emissions, reliable, fast enough to keep up with traffic, and will rarely, if ever, require mains electricity to recharge. In other words, zero cost per kilometer traveled.

It gets better: in much of the US, including California, you don’t need a driver’s license or insurance to drive an electric scooter, and you can drive it legally in bicycle lanes. Of course, few traffic cops know any of these facts. I was pulled over routinely in California, while riding my electric scooter. Eventually, I created a plastic-coated car card with all the relevant clauses of the state traffic code. I’d present it to traffic police, and they’d usually let me head off after a few minutes.

In LA, I drove a Chinese electric scooter upgraded with lithium. Top speed was about 24 mph. Recharging time: four to five hours. As commutes go, my 9-mile trip to work was about as pleasant and relaxing as any could be. Most of my route was along the Pacific Ocean, and then through some of the hipper areas of Santa Monica and Venice. When the roads were crowded at rush hour, I’d switch into the bicycle lane. You can park anywhere on the sidewalk, just like a bicycle.

The biggest hazard is pedestrians. The scooters are so quiet that people don’t hear it coming. I had a few near misses.

I never understood why so few in California ride electric scooters. I never saw another one on the road. California is certainly one of the most environmentally-conscious places on earth. Motorized transport doesn’t get any greener than electric scooters. Zero emissions, zero fossil fuels, zero direct carbon footprint.

Those green credentials were never my main reasons for riding an electric scooter. I liked the convenience, the tranquility, the absence of traffic and the sheer exhilaration of riding it.

Exhilaration, however, is instantly transformed into despair when your battery runs out of juice.  It happened to me a few times, when I miscalculated the range. Open throttle riding, going uphill, lots of stops and starts can all drain the battery rather quickly. The meter showing battery life is, at best, unreliable. When the battery is empty, the scooter will shudder once, then conk out completely.

Run out of fuel with an internal combustion engine, you call the AAA or find a gas station. Run out of electricity with an electric scooter and your only real choice is to push the vehicle home for recharge. I’ve had to do it more than once.

Engineer Zhao’s solar-powered recharger should make that problem less common, if not eliminate it altogether. At worst, if the battery empties, you park it and in daytime, come back in a few hours and drive it away. Limitless range should make for limitless enjoyment.

Yes, but will Engineer Zhao’s machine work? Talking with him, it’s hard not to be confident it will. The solar panels are powerful enough to keep the batteries recharged and light enough not to create a lot of extra drag. The only way to find out, of course, is to get one. I’m thinking now of commissioning Engineer Zhao to build me one, with lithium batteries.

If it works, I’ll help Engineer Zhao get venture capital funding to build his company. My gut tells me I’m not the only one who’d ride around on one, and that there could be a very big market in the US, Europe and China for this solar-charged scooter.

I don’t particularly relish the idea of driving any sort of vehicle on Shenzhen’s streets. Driving is chaotic. Accidents common. Pollution awful. There are no bicycle lanes. But, I’m prepared to put my money – and perhaps my health – on the line to prove this is a vehicle with a future and perhaps even a mass market.

Wish me luck.

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During the first eight months of this year, 547 million mobile phones were sold in China, a 36% increase over the same period last year. At the current rate, more mobile phones will be sold in China this year than there are mobile users. In other words, on average, everyone of China’s 780 million mobile subscribers will buy a new mobile phone this year.

Can this possibly be true? Outside of China, mobile phone sales are basically flat, with most of the growth now coming from sales of smartphones like those made by Apple and HTC. Based on the current sales pattern, China will account for over 60% of all new mobile phone sales in 2010.

What is happening in China that could account for phenomenally high growth rate? I’m at a loss to explain it. Anecdotally, I can’t find much evidence of this remarkably high rate of new phone sales.

Most Chinese I know are using phones that are at least a year old. Nokia phones are particularly common in my circle. Overall, Nokia is still the biggest selling mobile phone brand in China. But, its sales in China are not doing very well, and the company is losing market share.

China’s Ministry of Industry and Information Technology compiles the statistics on Chinese mobile phone sales. They do a professional job gathering and transmitting data on China’s mobile market. So, I have no reason to doubt the basic accuracy of the numbers. The absolute number may possibly be off, but the 36% growth rate is probably correct.

If so, the larger question may not be one of accuracy, but of sustainability. In other words, if mobile phone sales are growing by 36% a year, is there any way that rate of year-on-year growth could continue into 2011 and beyond? I have severe doubts about this. For one thing, if the 36% annual growth rates continued through 2012, overall annual sales will double from the current high level. If so, every Chinese mobile subscriber on average would end up buying two new mobile phones a year. That, as the British like to say, “beggars belief”.

It may well be that the fantastically high growth rate we now see in China will begin to plateau very soon. If so, the overall market dynamic will change from one of rampant growth, in which even the weakest players register growth every year, to one where a company’s ability to generate sales growth will comes mainly from increasing market share.

In other words, from a manufacturer’s standpoint, the market changes from one of absolute growth to one of relative growth – or loss. It will happen soonest for products like mobile phones, where the market is reaching saturation.

There is still plenty of organic growth left for other fast-growing items like new cars, computers, white goods, and a full range of brand name products, from laundry detergent to Italian suits.

I bought a new phone recently,  an HTC Legend, running on Google’s Android operating system. But, it didn’t register on the Ministry’s figures.

Like a lot of people living in Shenzhen, I bought my new phone in Hong Kong, where prices are as much as 35% cheaper, and there’s far more certainty of getting a phone with all its original circuitry intact. It’s not all that uncommon for brand name phones in China to be doctored before sale. They look authentic on the outside, but have some cheaper, replacement parts within.

HTC is still a niche brand in China, though with very ambitious plans for growth over the next year. I bought the HTC in large part because the company is an investor and partner of one of my clients.  I like the phone, and like the fact it’s not an iPhone.

I have nothing against the Apple product. I just prefer, in phones and most other things, to choose brands that aren’t already dominant in their market.

Apple phones, either genuine or knockoff, are far more common in China than anywhere else in the world, as far as I can tell. Apple just announced plans finally to begin selling its new iPhone4 in China, months after it went on sale in the US, Europe and much of Asia. The price is still well above the level in Hong Kong, but I have no doubt the phone will sell well.

Apple computers are still very rare in China. There are very few places to buy one. This is a major untapped opportunity for the California company, since anything with the Apple brand is going to sell well in China. Apple has begun opening retail stores in China, but as of now, there are only two, one each in Beijing and Shanghai.

Apple is certainly one of the companies that should continue to thrive in China’s mobile market, even as it shifts from absolute to relative growth. HTC too. As for the others, both global and domestic brands, it’s going to be a dogfight.