Wishing everyone a happy, healthy and prosperous Chinese New Year. This is a Dragon Year, which many consider the most auspicious in the duodecennial Chinese lunar cycle.

The vigorous dragon above is a “Kesi” embroidery from the Ming Dynasty, Wanli Emperor period.

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“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.  

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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Leonardo DiCaprio does something in China that he dare not do in the US: peddle product. He is appearing now, unnamed but clearly recognizable, in ads for a Chinese domestic mobile phone brand called Oppo. His face is currently plastered all over my local subway station in Shenzhen.

It’s a bold move by a little-known Chinese mobile phone company to storm into the big time, and grab market share from Nokia, Samsung, LG and Apple. None of these global brands uses a big name to front its ads in China. Oppo is determined to compete as equals with these larger companies. It’s still learning the rules of building a successful brand. Its tactics and ad strategy are a little off-beat. But, Oppo has the resources and distribution in China to challenge the large global mobile phone brands, and so cause them headaches in the world’s largest mobile phone market.

The ads are a bit of a head-scratcher. They are framed to look like a strip of celluloid and feature, in the background, a European cobblestone street, a moped making a fast getaway while someone, maybe Leo, gives chase. The only text are the words “Find Me”, in English. In other words, it doesn’t have anything to do with mobile phones, not even subliminally. It looks like a movie poster. Still, seeing an A-List Hollywood star in a Chinese ad for a Chinese brand is no workaday occurrence.

Leo is hugely popular in China, especially among women under 40.  “Titanic” may well be the most-watched American movie of all time in China. No one knows for sure, since the movie came out in 1997, and circulated in China mainly through pirated video and DVDs.

Getting Leo to appear in the ads is quite a coup for Oppo. The Chinese company reportedly paid Dicaprio $5 million. A steep price, but the company is betting that Leo can pry open wallets in a way no other celebrity endorser can. The reason: Oppo is the only “girls only” major mobile phone brand in the world. The company’s phones are all aimed at, and advertised to, females.

Oppo’s phones are all  pretty standard, with no unique technology under-the-hood. But, they come in bright colors and feature girly do-dads like crystal keys. Oppo’s marketing, with the exception of the new DiCaprio ad, features Chinese women traveling in exotic locations, or chatting with friends.

Oppo is trying to pull off a challenging feat:  to catapult above the hundreds of no-name mobile phone manufacturers and brands, and establish itself as a premium brand in China. The other Chinese mobile phone brands do little to no advertising, and instead compete mainly on price. With its big ad budget and quirky strategy of targeting women from 18-40, Oppo aims to compete head-to-head with Samsung, Nokia and Apple.

Will it work? My guess is that Oppo will get a decent return for the $5 million spent on DiCaprio. The Chinese market is ready for a splashy self-confident Chinese domestic phone brand with some star power.

“Cometh the hour, cometh the man.”

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I’m sorry, but there is only one proper way to say “I’m sorry” and “goodbye” in China. Unfortunately, fewer and fewer Chinese seem to agree with me.

The Chinese terms “zaijian (再见)” literally “see you again”, and “duebuqi (对不起”), meaning “I’m sorry”, have been among the most commonly-spoken phrases in China for hundreds of years. But, every day now, they grow less common, like forms of endangered speech.

Why? Because their English equivalents are taking over, everywhere.  Day by day, China is becoming a country where everyone says  “bye-bye” and “sorry”, rather than using the Chinese equivalents.

“Bye-bye” first started to gain popularity a decade ago. Today, it is rampant. Most probably, “bye-bye” entered the vernacular in China via Hong Kong, where it’s long been a main way Cantonese-speaking people say farewell to one another. I’ve never quite gotten used to hearing it in China, and still resolutely refuse to use anything other than “zaijian”.

I have never once knowingly used “bye-bye” anywhere outside China, so I’m certainly not going to use it inside. My own preference, in English, is for either “see you later”, or a simple “bye”.

I always liked the fact that Chinese traditionally bid farewell in the same way as many Italians and French do, by saying “see you again”. By contrast, “bye-bye” has no particularly clear underlying meaning, and sounds rather childish.

In Chinese internet slang, a common way to end an online chat is by writing “886”, in China pronounced “ba-ba-leo”, meant to approximate the sound of “bye-bye” with the addition of the modal particle 了，which indicates an action has been completed.

Cute slang, as some suggest, or a degradation of the beautiful Chinese language?  I know where I stand.

“Sorry” is not nearly as widely used as “bye-bye”, but it’s becoming more commonplace all the time. The first few dozen times I heard it, I assumed the person was shifting to English to be sure I understood the apology. Then I started overhearing it said between Chinese, as they bumped into one another on the subway, entered a crowded elevator or tried parting a throng of people.

This change aggravates me to my core. Along with its other merits, 对不起 is one of the more euphonious common phrases in Chinese. For non-Chinese speakers, it’s pronounced “dway boo chee” . It was among the first ten phrases I learned in my first Chinese class 31 years ago, and certainly among the most useful.  It is also precise in its meaning. The phrase literally acknowledges one’s act of rudeness.

“Sorry” is a kind of bastardized shorthand, far more commonly used in the UK than in US. Like “bye-bye” it seems to have smuggled itself into China via the ex-British colony of Hong Kong. When I lived in London, I heard “sorry” often and generally thought it hollow and insincere. Americans prefer to take personal culpability and say “I’m sorry”, or “Excuse me”.

Hearing Chinese say “sorry” , I feel it’s an alien presence, diminishing the level of common courtesy in China.

Mine is probably a minority view in China. New phrases gain currency in China very quickly. I’ve seen it not only with “bye-bye”, but another import from Hong Kong, the two-word phrase “mai dan”, meaning “give me the bill”. It’s a Cantonese term. Over the last ten years, it has all but exterminated across much of China the traditional Mandarin “ 算账”.  Again, it’s an example of a perfectly good, age-old Chinese phrase being pushed out by an inferior foreign import.

In France, the Academie Francaise has the specified role of preventing English terms from seeping into the French language. A lot of this can seem silly and pedantic,  like urging French to drop the use of English technology terms like “software”, “email”, in favor of clumsy, made-up French terms.

China has no such body, nor will it likely ever have, since Mandarin is spoken with so many different regional dialects and accents.  Still, I’d like to see more effort made to halt the spread of English terms.

The Mandarin spoken today is in many core ways similar to the Chinese language spoken seven hundred years ago.  Chinese language is the connecting rod linking China’s ancient past and present. It survived intact through upheavals, invasions and colonization. “Sorry” and “bye-bye” should be deported back to Hong Kong.-

If you could be the boss of any company in the world, with your pay package completely tied to performance, which would you choose? If you answered Kweichow Moutai Ltd., congratulations. You couldn’t have made a better choice.

For those who don’t know this company, it is the largest and by far most successful distiller of China’s favored prestige alcoholic drink. There is no faster-growing, large spirits company anywhere in the world. Better still, if you do become boss, there’s just about nothing you could do short of outright criminality that would in any way slow its stupefying growth rate.  In 2010, sales rose by about 20% to over $2.2 billion. So strong and constant is the demand for the company’s product that their major headache is preventing designated retailers from raising the price above the already sky-high levels fixed by the company.

During 2010, the street price of a bottle of Moutai’s highest-end brew, called Feitian, doubled from Rmb 700 ($105) to over Rmb1,300 ($200). The raw material cost? Probably under Rmb10 per bottle.  Getting a fix on its real level of profitability is hard to do. But, in my estimation, there is no more profitable liquid mass-produced anywhere in the world. Make no mistake. Moutai is not 25-year-old Courvoisier. Chinese love the stuff. But, it is a species of what Americans would call “rockgut”, distilled from a low-end grain called sorghum and then diluted with water drawn from springs surrounding the distillery in Guizhou province.

When I first came to China 30 years ago, a bottle of Moutai cost no more than a few dollars. It’s the same stuff today, brewed according to a Qing Dynasty formula. The main difference is that over 30 years, the price has gone up 30-fold. And no, that’s not because sorghum prices have skyrocketed.

So, what explains Moutai’s astounding success? Simple math. More and more Chinese chasing an insufficient supply of the country’s highest-end liquor brand. Consumption of bottled liquor has grown by 20% over the last five years, and shows no sign of slowing. Moutai plans to double its output over the next four years, then double it again by 2020. Overall, the plan is to increase output by 2.5 times in next nine years.

At the start of the year,  Moutai put in a price cap, to try to stop its retailers selling Feitian for over Rmb959 a bottle.  The price immediately shot up over Rmb1,200. Seeing the Moutai fly off the shelves, retailers then imposed limits on the number of bottles a customer could buy at one time. Supply restricted, the price just kept climbing.

Packaging and marketing are pretty much unchanged over the last 30 years. Along withTsingtao beer, it’s one of the few branded products in China to stick to the old and clumsy pre-revolution spelling of its name. The company is called Kweichow Moutai but no one knows it under that name. In China, it is pronounced “Gway-Joe Mao-Tai”.

Good, bad or indifferent, whoever is the CEO of this company (the current incumbent is Yuan Renguo) will certainly succeed in keeping things buoyant. As long as Chinese keep making money, they are going to spend a percentage on Moutai. The company has even achieved some success in export markets lately, with sales rising 55% to $50mn in 2010.

If Mr. Yuan chooses early retirement and wants to bring in some foreign blood at the top, I’m available to take over. I’ve been to Guizhou, most recently just two weeks ago,  and like the scenery and the food. I also know how (thanks to a Guizhou client)  to evaluate the quality of Moutai: you rub a bit between your palms. If it smells like soy sauce, it’s the real thing.

The only snag: I’m not much of a fan of the company’s product. Since moving to China, I’ve had enough of it to pickle a goodly portion of my liver. But, it’s still an unacquired taste. Drinking good cognac or Armagnac familiarizes you with the aromas of peat and oak. Drinking Moutai familiarizes you with how instantaneously alcohol can go from gullet to bloodstream. Most frequently, I can remember drinking Moutai but not how I get home afterward. Maybe that’s the secret to the brand’s success?

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It is certainly the largest annual mass underwear change in the world. This week, as many as 100 million Chinese will take off their red underwear for the first time in a year and change into other colors. Meanwhile, 100 million other Chinese this week will pull on red underwear and wear no other color for the next twelve months.

It’s not fashion that rules this process, but supersition. This week is Chinese New Year. Wearing red underwear is meant to provide protection against misfortunes likely to target the one-in-twelve Chinese who this year will celebrate their 本命年 (“benming nian”), or birth year . This is a Rabbit Year. Everone born during a previous Rabbit year is likely going to take some precautions this year, including the red underwear. A red string bracelet or belt are also commonly worn by people during their birth year.

One’s birth year isn’t automatically going to be unlucky. But, there’s thousands of years of folk tradition that says people should extra mindful. This extends across most aspects of daily life. Many Chinese will try to avoid making larger life changes, or consequential business decisions, during their birth year.  I have one client, for example, whose founder was born 72 years ago, in a Tiger Year. The company is booming. The founder had numerous offers during 2010 to sell his business for a significant sum, or start work on an IPO. He chose to do nothing but wait things out. Now that Rabbit Year is dawning, he is ready to start considering his exit options. And, of course, changing back to a more neutral color of underwear.

As a Westerner, it takes some getting used-to, this notion that one’s birth year may come freighted with potential misfortune. After all, in all belief systems except possibly the Nihilists, one’s birth is considered a blessing.  But, in Chinese tradition, the anniversary of one’s birth year is a time when things can go especially awry. Or worse. The red underwear is meant to act as a kind of lightning rod, attracting an added flow of good luck during the year.

Red, of course, is associated with happiness, prosperity and good fortune in Chinese culture. Two of the more common sights in stores and on streets in China this time of year are crimson-colored envelopes and similarly-colored underwear. The envelopes, of course, are used to hold the cash handed out as New Year gifts to family and coworkers. The new underwear for men, women and children, in all sizes and styles,  is the flight suit for those about to traverse their birth year.

There’s also quite a lot of red underwear on sale this time of year in the US and Europe. But, it’s generally of the skimpy and sexy Victoria’s Secret variety, given by husbands and boyfriends as a Valentine’s Day gift. That custom is catching on rather quickly also in China, where Valentine’s Day is celebrated twice a year, on February 14 and also usually sometime in August (the date changes every year according to the lunar calendar), when the traditional Chinese version known as 亲人节  (“Qinren Jie”) falls.

Underwear is less commonly given as a Valentine’s gift in China. However,  fathers, brothers, husbands and boyfriends are supposed to buy red underwear for the women in their lives about to enter their birth year. Love in China is often expressed as a protective impulse.

I tended to view the mass changeover of one-twelfth of China to red underwear as a quaint superstition, one of the evermore scarce expressions of an antique and thoroughly unscientific traditional culture. But, over the last year, I saw at first hand the kind of mischief and harm that can target people during their birth year.

Last summer, I got word that another client of mine, one of my favorite people in China, was arrested while trying to cross into Hong Kong. He was accused of paying a bribe to a senior government official in one of China’s less developed inland provinces. He was taken from the Hong Kong border to a prison in the province’s capital, then held in detention for over three months while his friends and family raised the money to free him.

Under Chinese law, paying a bribe is treated more leninently than accepting one. But, it also signals rather emphatically the person has money.

I saw him soon after he got out. He was a shambles, gaunt, with a prison buzzcut and clothes that no longer properly fit him. I offered to help out his new venture, unrelated to the one that landed him in jail.

I invited him for lunch again a few weeks ago. He was his old self again, brimming with vigor and good cheer. As soon as the tea was poured, he proposed a toast, “To a happy Year of the Rabbit, and a quick end to the Tiger Year, my birth year.” We never discussed directly his time in prison, or even that I knew about his ordeal. He’s elated to be out of jail – and, by all appearances, almost as happy to be out of his birth year.

I glanced down at his feet.  He was wearing red sox.

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How long would it take an ordinary Chinese peasant to save up and buy a nice apartment in Beijing? You’ll need to brush up on your dynastic history.

1,400 years ago, as the Tang Dynasty dawned in China, a peasant began farming a small plot of decent land 6mu (one acre) in size. Every year, in addition to providing for his family’s needs, he was able to earn a small profit by selling his surplus. His son followed him on the land, and maintained his father’s steady output and steady profit. Same with is children, and children’s children, through the Song, Yuan, Ming, Qing Dynasties into the Republican period and then the modern era marked by the founding of the People’s Republic in 1949, down to present day.

Some 280 generations later, there should now be just about enough in the family bank account for the family to pay cash for a new two-bedroom apartment in Beijing. This is assuming no withdrawals from the bank account during that time, and even more unlikely, no bad years due to floods, famine, locusts, rebellion.

I heard this calculation second hand, and so can’t check the figures. But, it certainly has a ring of truth about it. Property prices in Beijing particularly, but other large cities as well, have reached levels utterly disconnected from average earning levels, especially in rural China.  New apartments can now cost over USD$1 million. Prices continue to rise by over 5% a month, despite aggressive actions by government to curb the increases in residential property prices. According to the Wall Street Journal, “Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.”

The collapse of this “housing price bubble” has been widely predicted for years now  — not since the Tang Dynasty, but it sometimes seems that way. The housing price crash was meant to be imminent two years ago, when prices were about 30% of current levels.

Still, they keep rising, most recently and most dramatically in second and third tier cities in China, places like Lanzhou, a provincial capital in arid Western China, where the cost of a 100 square meter apartment has doubled in price in the last year, to about $300,000.  Some apartment owners in Lanzhou earned as much profit  during 2010 from the sale of their property as a typical peasant in surrounding Gansu Province might make in a century.

My prediction is that housing prices may soon peak relative to incomes, but will keep moving upward. There are a few fundamental factors at work that raise the altitude of housing prices: rising affluence, China’s continuing urbanization and a dearth of alternative investment opportunities. Real estate, despite what can seem like dizzying price levels, is often seen to be a safer long-term bet than buying domestically-quoted shares.

Introducing property taxes, and allowing ordinary Chinese to buy assets outside China, would both alter the balance somewhat.  But, many a hard-working peasant is still going to need a thousand years of savings to join the propertied classes in Beijing.

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Food prices in China, as everyone inside and outside the country now knows, are rising fast, in some cases by over 30% during 2010. The Chinese government puts some of the blame on speculators who are said to be buying large quantities of fresh food, holding it off the market and then profiting from price increases. There seems to be some evidence of this.

There’s no short-term fix for these price increases. The Chinese government has released for sale some of its food stocks. It is also urging peasants, and local cadres who govern rural China, to make sure more food is grown next year to increase supplies. The peasants probably won’t need any such encouragement.

The increases this year in food prices have done more, in a shorter time, to lift income levels for many of China’s 600 million peasants than any other single measure taken over the last 30 years.

There has never been a  better time, in China’s long agrarian history, to be a peasant. Fundamentally, food price inflation in China represents a colossal transfer of wealth from China’s more affluent urban areas to the rural hinterland where half of China’s population still lives.

If this lasts, it will narrow the gap in living standards and income levels between China’s cities and countryside. This is one of the overarching goals of the Chinese government. And yet, no one is applauding.

Instead, the Chinese central government has reacted with some alarm to the recent price increases. It knows that higher food prices are putting the squeeze on city-dwellers, including, of course, those in the capital Beijing and other major cities. In China, communist power originally took hold in the countryside, and a lot of party doctrine still speaks about its roots among the peasantry. But, political power today is firmly rooted in urban areas.  China’s political, economic and cultural elite all live in major cities, as do most of their friends and family. So, price rises effect this group directly.

When apples, the staple autumn fruit in most of China,  almost double in price, as they have this year, political leaders will soon hear about it. The fact that China’s apple farmers now have a lot more money in their pockets is not necessarily part of the political calculus.

Yet, it is undeniable that the fastest and most effective way to raise peasant living standards and real incomes is higher farm prices that don’t fuel overall inflation. There are signs that’s now the case, that the only area of significant double-digit inflation is in food prices. If so, this is unquestionably the best time in Chinese history to be tilling the land.

How long will this last? Of course, commonly, a spike in food prices leads to overall price levels rising as well. This can erode, or even wipe out,  the rise in income for farmers from higher food prices. Also, today’s high prices will certainly lead to more land being cultivated next year, as farmers chase the fat profits from today’s prices.

I was just in Jiangsu Province, in central China, and it seemed like most of the farmland is under plastic cover this winter, allowing peasants to keep growing and selling vegetables. Supply goes up, price comes down. Eventually.

How high are food prices at present? Looking around my local covered market, prices in the stalls for many fruits and vegetables are now as higher or higher than prices commonly seen in the US. Looking just at autumn fruit, apples are about $1 a pound; navel oranges around 60 cents; clementines about $1 a pound; bananas are 50 cents a pound. Meat prices have risen sharply.

Pork remains comparatively cheap at about $2 a pound, but chicken is quite a bit higher here. Garlic and ginger, the two fundamental staples of all Chinese cooking, are both at all-time highs of around $1 a pound.

So far, in my experience, higher food prices haven’t yet fed through to higher prices at restaurants, noodle shops or even the outdoor steamer wagon where I buy corn-on-the-cob and potatoes as snacks. This means restaurant margins must be hurting. One notable exception, McDonalds in China. They recently announced price increases to counter effect of rising raw material costs.  With about 900 restaurants in China, all in larger cities, McDonalds feeds a lot of people.

Wages are also rising very steeply in urban China, as is household wealth for anyone who owns property. This seems to be allowing most urban Chinese to absorb higher food costs without much of a fuss.

In other words, just about everyone across this country of 1.4 billion is doing much better, year by year. For now, the 600 million peasants are doing best of all. Viewed across the breadth of China’s long history, no less than across the last 30 years of unparalleled economic progress, this is a singularly welcome development.

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