Archive

Archive for the ‘Chinese Culture & History’ Category

The ‘children’ of Deng Xiaoping — Toronto Globe and Mail

December 13th, 2014 No comments

Globe and Mail

The ‘children’ of Deng Xiaoping

From left: Yang Hongchang, Hung Huang, Zhuo Wei, Grace Huang, Wu Hai, He Yongzhi.

The other Chinese revolution: Meet the people who took Deng’s economic great leap forward

 

Deng Xiaoping was no Winston Churchill. He possessed a thick southern accent most people found nearly impenetrable, and was anything but garrulous. In fact, little of what he said was memorable or even original. His most-cited aphorism – “To get rich is glorious” – did not actually spill from his mouth; historians suspect its provenance can be traced to the West.

But in deed more than word, Mr. Deng was the linchpin in redirecting China’s economy away from the backward, centrally planned beast it had become under Mao Zedong. He set it on a path that would see decades of unrelenting growth and the creation of credulity-defying prosperity.

What he wanted to do, he said in 1978, was to “light a spark” for change:

Deng Xiaoping

If we can’t grow faster than the capitalist countries, then we can’t show the superiority of our system.

– Deng, 1978

And on many indicators, grow they did – more than the U.S

 

Globemail

He succeeded in spurring growth, and wildly so, marshalling the power of the world’s most populous nation. Now, 110 years after his birth – an occasion that its leadership has sought to celebrate with lengthy TV biopics and other remembrances – China is filled with millionaires.

But has the sudden influx of wealth made it happy?

Where chasing profit was once grounds for harsh re-education, the country’s heroes and superstars – Jack Ma and an entire generation of tuhao, or nouveau riche – are now, in ways both spiritual and economic, the children of Deng.

President Xi Jinping has consciously sought to present himself as the current generation’s version of Deng. But for many of Deng’s figurative progeny, wealth and happiness haven’t always come together. In a recent survey published in the People’s Tribune magazine, worries about a moral vacuum, personal selfishness and anxiety over individual and professional status were high on the list of top concerns about the country today. The poll reflected a pervasive cultural disquiet that has reached even into the ranks of those most richly rewarded by the Deng-led opening up.

“On the social level, money became the only currency in terms of personal relationships, and that’s a really sad reality,” says Yang Lan, one of the country’s top television hosts.

She points to “the lack of a value system” that she sees when she hears young girls “discussing how they would love to be a mistress so they can live a wealthy life before they are too old. And you see girls discussing these things very openly.” China, she says, needs “a new social contract.”

There is little doubt that those who no longer need to worry about making money are more free to criticize others, raising the spectre of hypocrisy. But pained reflection has been among the less-anticipated products of the wealth China has amassed. The comforts of financial security have provided a new space to rethink the path the country has taken and ways it has fallen short.

And as China’s economy slows to a pace not seen in decades, it also faces a moment to consider the sweep of its modern history – decades marked by the vicious turbulence of the Mao years, followed by the full-throttle race away from it inspired by Mr. Deng.

From 1978, the first year of the Deng-led reforms, China has been so thoroughly reshaped that even numbers struggle to do it justice. Gross domestic product has expanded 156-fold, the value of imports and exports is 727 times higher, and savings are up by a factor of 2,131.

The growth has been driven by an extraordinary – and massive – cohort of people who have turned personal quests for profit into a national obsession. “China has, in absolute numbers as well as percentage of populace, the most successful entrepreneurs anywhere in the world,” says Peter Fuhrman, chairman and founder of China First Capital, a specialist investment bank based in Shenzhen.

But even those who most warmly embraced the Deng mandate are now pausing for a second look at a country whose vast financial progress has become marred by other problems.

 

Read complete article by clicking here.

Nanjing: A Special Kind of Chinese Boomtown

November 18th, 2014 No comments

Nanjing City Investment Promotion Consultant

In 1981, when I first arrived in Nanjing as a student,  the ancient and rather sleepy city had a population of four million and a GDP of Rmb 4 billion. Today, the population has doubled to eight million and GDP is two hundred times larger. Yes, you read that right. This year’s GDP will exceed Rmb 850bn. Even by recent Chinese standards, that kind of growth rate for a major city is just about unheard of. Since 1981, Nanjing’s GDP has grown almost twice as fast as China as a whole. It is now richer in per capita terms than Beijing, and its economy continues to expand more quickly than the capital, Shanghai and just about every other major city in the country.

I was back in Nanjing in the last week to visit friends and clients, as well as receive from the Nanjing city government an official appointment as an “investment promotion consultant”. That’s me in the photo above celebrating with Mr. Kong Qiuyun, the cultured an charismatic director-general of Nanjing Municipal Investment Promotion Commission. It’s an especially welcome honor since I consider Nanjing, all these years later, my hometown in China, my  “laojia”. Every return is a homecoming.

With or without the official status, saying good things about Nanjing comes easily. It’s a special kind of boomtown. Despite the steep economic ascent over the last 33 years, today’s Nanjing is visibly woven from strands of its 2,500 year-old history as a city at the core of Chinese civilization. Old parks, streets and buildings stand. Though stained by tragedy – including the Nanjing Massacre in 1937 and bloody civil war at the end of the Taiping Rebellion civil war 73 years earlier — Nanjing is a city with a lightness of spirit and an intimate association with Chinese traditional culture of painting, calligraphy, poetry.

There is an ease, prosperity and comfort to life in Nanjing that is largely absent in Beijing. One is built upon the parched steppes below the Gobi Desert. Camel country. The other is set amid China’s most fertile, well-irrigated patch of bottomland –a kind of Chinese Eden, saturated by rivers, lakes, ponds and paddies, where just about everything can be grown or reared in abundance. The city is a symbiosis of man and duck. In a typical year, the people of Nanjing will consume over one hundred million of them. Every trip, including this most recent one, I return to Shenzhen with a suitcase padded out with three or four salt-preserved Osmanthus-scented ducks. Each trip back to the US I carry several with me and deliver them to my father in Florida. Somehow, age 82, he has developed a fine appreciation for them.

Nanjing took awhile to get its economic act together. During much of the 1980s, it was a backwater, trailing far behind the nearby cities of Shanghai and Suzhou as well as the coastal cities of Guangdong and Fujian. Earlier it had a reputation for being not very well-managed. Today the opposite is true.

Nanjing is the most ideally-situated large city in China. It is at the back door of China’s richest, most developed region, the Yangtze River Delta, stretching from Shanghai through Hangzhou, Suzhou, Wuxi and Changzhou. It is also now the front door for China’s huge market of the future, the inland regions where growth is now strongest, particularly the provinces of Hubei, Sichuan, Chongqing, Anhui farther up the Yangtze.

Nanjing’s is a large economy but without especially large and dominant companies. Few even in China can name its largest businesses or employers. This sets it apart from Beijing, Shanghai, Shenzhen, Hangzhou, Tianjin. Credit Nanjing government’s hands-on far-sighted economic management. It’s made up for the lack of large businesses by encouraging the growth of smaller mainly private-sector entrepreneurial businesses, as well as bringing in investment from abroad. Sharp, BASF, A.O. Smith, ThyssenKrupp are among the larger foreign companies with significant investment in Nanjing.

Major American investors are still comparatively few. This needs correcting. I hope to help in my new role as a consultant. Americans in the first half of the 20th century played a conspicuously positive role in Nanjing’s development. US academics and missionaries helped establish the city’s two oldest universities, Nanjing University (where I studied) and Nanjing Normal University. They remain the rock-solid backbones of Nanjing’s outstanding university system with over 25 institutions of higher learning.

An American team of architects and urban designers were responsible for creating the layout of much of the modern city of Nanjing, including the city’s main shopping district of Xinjiekou. The city was designed to combine elements of Paris and Washington D.C., with wide boulevards, stately traffic roundabouts like the Place de l’Etoile, and an elegant diplomatic quarter with large mansions spread along arching plane tree-shaded streets.

During the pre-1949 era, American companies were the most prominent and successful businesses in Nanjing. Two in particular – Socony (then the world’s leading petroleum company, a part of the Rockefeller Standard Oil group, and now ExxonMobil.) and British American Tobacco – managed large operations in China from their headquarters in Nanjing. They were then among the largest companies in China of any kind. They left in 1949 never to return to Nanjing and their previous prominence.

An individual American, a long-term resident of Nanjing, wrote while there the most popular and influential book about China in English. It was then made into a successful film which etched in the minds of many Westerners the enduring image of China’s Confucian values and pre-revolution rural poverty. Pearl Buck’s “The Good Earth” was for years a best-seller and played an influential role in winning her the Nobel Prize for Literature in 1938. *

To my thinking, America has an unfulfilled destiny in Nanjing. It’s a smart place for smart capital to locate. In modernizing, it has kept its soul intact.

* For sharing his rich and consummate knowledge of America’s multi-facetted engagement with  Nanjing in the first half of the 20th century, I’m indebted to John Pomfret. John’s book “Chinese Lessons”, about his years as a student at Nanjing University and the lives thereafter of his Chinese classmates, is as good as anything published about China’s remarkable transformation these last thirty years. You can read more about the book, and about John, by visiting http://www.johnpomfret.org/

 

The Abacus. A Crowning Achievement of Chinese Innovation

October 14th, 2014 1 comment

 

abacus China First Capital

While China’s recent performance may be a disappointment, averaged across the millennia no other nation has provided the world with such an abundant wellspring of innovation. Have a look at this long list of Chinese inventions. Not a day passes for most of us when we don’t rely on at least one product of Chinese ingenuity, be it paper money, the bristle toothbrush, toilet paper, oil wells. A slightly smaller group of us wouldn’t want to long tolerate life without noodles, steamed or stir-fried food, tofu, tea, alcoholic drinks.

Left off the Wikipedia list is one other Chinese gadget that played a central role in people’s lives, especially in East Asia, for centuries and then abruptly disappeared over the last two decades. It’s also my personal favorite among all Chinese inventions, the abacus. I grieve over its extinction.

When I first got to China in 1981, the abacus was ubiquitous — in every shop, bank, schoolroom and government office. If it had to be counted or calculated, an abacus was required. I still remember the loud and ceaseless clicking sound inside the main room of Nanjing’s cavernous People’s Bank as dozens of clerks tabulated and re-tabulated sums, louder and more rhythmic than the clatter of cicadas outside. Cheap electric calculators and PCs not only killed off the abacus they also have turned China’s banks and offices into quieter more monotonous spaces.

Among all Chinese inventions, nothing quite rivals an abacus, or “算盘 suanpan” in Chinese,  for pure “out of the box” ingenuity. There’s no clear predecessor machine, and no real evolution or improvement from the device that is first described almost eight hundred years ago in Chinese books and begins appearing in Chinese paintings five hundred years ago.

Though the name of the inventor (or inventors) is lost to history, none but a towering genius could invent a portable lightweight tool and the accompanying fingering technique to allow a few rows of beads separated on two stacked decks, five beads on the lower and two on the upper, to perform high-speed, accurate multiplication, division, addition, subtraction, square root and cube root operations. In geek-speak, hardware and software are proprietary and seamlessly integrated. The abacus, unlike the modern electronic calculator, is as easily used for calculations in base ten (decimal), base 16 (hexidecimal) or any other base you might choose.

Europe and America, so dominant in most spheres of invention these last 400 years, contributed in the 17th century the slide rule and adding machine to the technology of calculation. But, neither achieved the widespread use in teaching and daily life the abacus enjoyed for centuries. Most Chinese aged over 30 (as well as tens of millions in other parts of Asia) were taught in school to use an abacus. While most have since sadly forgotten how to use one, they once could manipulate the wooden beads as quickly and accurately as skilled touch typists.

I recently went off to see if I could buy an old wooden abacus. It’s harder than you’d think. My guess is there were at least 400 million abacuses in China thirty years ago. Today, they’ve completely disappeared from sight. I can’t recall a single time I’ve seen one in use during the last five years living full-time in China. Something of great functional beauty and utility has gone out of Chinese lives.

I did eventually succeed in finding one at an antique market in Shenzhen. It looked to me, based on the filigree bronze hinges, to be about 120 years old. The seller, in his early 60s, had forgotten how to use it, as did everyone else who gathered around to watch me bargain for it, with the exception of one handsome older woman trained in the early 1970s as an accountant. I asked the seller to give us some random four-digit numbers to add and subtract, with me using the calculator on my phone and her using the old abacus. In each case, she was quicker than me. I had to repeat each number in my head before tapping on the keyboard. Her fingers, on the other hand, were in motion from the first sound. It was a virtuoso performance.

An abacus is not a calculator, in the sense that you punch in numbers and it spits out an answer. “The person operating the abacus performs calculations in their head and uses the abacus as a physical aid to keep track of the sums, the carrys,” explain the experts at Canada’s Ryerson University.

After polishing away the dust, I put the abacus on the table in the CFC’s meeting room. I’m determined to learn better how to use it, but conscious of ebbing mental and physical dexterity.

It looks like nothing else on the planet, and yet it shares similarities with an iconic device invented 800 years later (in 2007) in Silicon Valley. A swipe-operated high-tech tool, with a simple rectangular design, its engineering elegant yet practical, and an intuitive interface that allows anyone with a little practice, from kids to old folks, to solve routinely and quickly a host of problems once thought too challenging for ordinary folk. The iPhone is the abacus of our age.

 

China High-Tech: giant ambitions can’t disguise a disappointing record of achievement

October 3rd, 2014 No comments

China innovation

China high-tech achievements

“China, the innovation nation. With nine times more engineering graduates and more patents filed each year than in the US, China is transitioning quickly away from its roots as a copycat, knockoff economy to become a potent new high-tech power.” By now, we’ve all read the headlines, heard the hype. China’s high-tech ambitions were part of the sales pitch used in Alibaba’s successful US IPO last month.

No story about China, no prediction about China’s future gets more attention or more traction from consultants, authors, policy analysts. It encapsulates the unanimous hopes of China’s leadership, and the fears of America’s. “China is now standing at a critical stage in that its economic growth must be driven by innovation,” declared China’s ruling State Council in May this year.

While China is certainly making strides the reality is sobering. For all the hype, the government policies and cash, China remains a high-tech disappointment, more dud than ascending rocket. As a banker living and running a business in China, I very much wish it were otherwise. But, I see no concrete evidence of a major change underway. The best the many boosters can offer is, “give it more time and it’s bound to happen”. In other words, they make their case unfalsifiable, by saying today’s China’s tech famine will turn into a feast, if only we are prepared to stand by the empty banquet table long enough.

Unlike a lot of those forecasting China’s inevitable rise to technology superpowerdom, I’ve actually met and talked with hundreds of Chinese tech companies, and before that run a California venture capital firm with investments in the US, Israel and Europe. I’ve also run a high-tech enterprise software company in the US that used proprietary technology to gain leading market position and ultimately a high price from an acquirer when we sold the business. So, I’ve been around the tech world a fair bit, both in China and elsewhere. Rule number one: deal with the facts in front of you, not wishful thinking. Rule number two: a high-tech economy is not a quotient of national IQ, national will, national urgency or national subsidies. If it were, China might well by now be at the epicenter of global innovation.

High-tech is meant to be a savior of China’s economy, delivering higher levels of affluence in the future and an escape from the so-called “middle income trap” that has slowed growth elsewhere in Asia. But saviors have a nasty habit of never arriving.

Let’s start with perhaps the most glaring weakness: China’s failed efforts, despite momentous efforts across more than a decade, to reach even the first rung of high-tech engineering competence by designing and serially producing jet engines.

Military power both requires and underpins high-tech success.  Any doubt about this was eliminated by the collapse of USSR. I was fortunate to have a front-row seat for that event. During the 1980s and 1990s, as a Forbes journalist, I spent a lot of time in the USSR surveying both its military and civilian industries, its indigenous technology base. I was one of the few who got to spend time, for example, inside the secret Soviet rocket program, including visiting main factories where its rockets and space station were built. The rocket program was for decades the pinnacle of Soviet tech achievement.

But, it proved to have little overall spinoff benefit for USSR economy. It was a dead-end. Note: the Soviet Union then, like China now, had far more engineers and engineering graduates than the US.

As I wrote back in the 1990s, US’s military supremacy rests as much on Intel and Broadcom as it does on Lockheed Martin fighter jets and GD nuclear submarines. The US has a huge fast-adopter civilian technology market with strong competitive dynamics, something China is without. This means US military then and now can procure the best chips, best integrated software and systems cheaply and quickly from companies that are mainly serving the civilian market. The Soviet Union had no civilian high-tech industry, no market forces. The Soviet military was exposed as a technology pauper by the 1989 Iraq War.

China is different and better off in so many ways. It now manufactures a lot of the world’s most advanced civilian high-tech electronics products. This gives China huge advantages USSR never had. All the same, the USSR by the mid-1950s was producing jet engines for military and civilian use. To this day, China relies on Russia, using Soviet-successor technologies, for its advanced military jet engines. Russian jet engines are generally considered a generation at least behind the best ones manufactured now in the US, France, UK.

China’s inability to make its own advanced jet engines casts light on problems China has, and likely will continue to have, developing a globally-competitive indigenous technology base.  In the case of jet engines, the problems are at manufacturing level (difficulty to serially produce minute-tolerance machinery), at the materials level (lack of special alloys) at the industrial level (only one designated monopoly aircraft engine producer in China, so no competitive dynamic as in the US between GE and P&W).

A recent report on China’s jet engine industry puts the technology gap in stark terms.  “In some areas,” it concludes, “Chinese engine makers are roughly three decades behind their U.S. peers.”

This challenge, to bring all the parts together in a high-technology manufacturing project, is also evident in China’s failure, up to now, to develop and sell globally domestically-developed advanced integrated circuits, pharmaceuticals, new materials. In drug development, China by some estimates has spent over $10 billion on pharmaceutical research and up to now has had only one domestically-developed drug accepted in the global market, the modestly-successful anti-malarial treatment Qinghaosu (artemisinin). Interestingly, it is derived from an herbal medicine used for two thousand years in China to treat malaria. The drug was first synthesized by Chinese researchers in 1972.

It’s simply not enough to count engineers and patents, or the content of government technology-promotion policies. China lacks so many of the basic building blocks of high-tech development. Included here is a mature, experienced venture capital industry staffed by professional entrepreneurs and technologists, not MBAs. A transparent judicial system is also essential, not only for protecting IP, but managing the contractual process that allows companies to put money at risk over long-periods to achieve a return. Non-Disclosure and Non-Compete agreements, a backbone of the technology industry in the US, are basically unenforceable in China. Not just here in China, but anywhere this is the case you can about kiss goodbye big-time technology innovation.

While ignoring the troubling lessons of China’s failure to produce a jet engine (as well as jet brakes and advanced radar systems) the boosters of China’s bright tech future these days most often cite two mobile phone-related businesses as signs of China’s innovation. The two are Xiaomi mobile phones, and Tencent‘s WeChat service. Both have had great success in the last year, including getting some traction in markets outside China. Look a little deeper and there’s less to be positive about.

Xiaomi is a handset manufacturer that now has a market valuation of over $10 billion, higher than just about any other mobile phone manufacturer. It relies, though, on the same group of mainly-US companies (Broadcom, Qualcomm, Google) for its phones. They, along with UK chip-maker ARM and non-Chinese screen manufacturers, are the ones making the real money on all Android phones. In addition, Xiaomi’s phones as are many cases manufactured by Taiwanese company Foxconn. As of now, China has no domestic company that can achieve Foxconn’s levels of quality at low manufacturing cost. Foxconn does this from factories in China. Its superior management systems for high-volume high-quality production also underscore another critical area where China’s domestic technology industry is weak.

With WeChat, it’s done some impressive things, in signing up over 300 million users. The basic application is similar to that of Facebook‘s WhatsApp and others. Its real technology strength is in its back end, in building and managing the servers to store all the content that is sent across WeChat, including a huge amount of video and audio files.

Whatsapp doesn’t have similar capacity. In fact, it points with pride to the fact it doesn’t backup for storage any Whatsapp customers’ conversations. Tencent does this because it’s required to do so by Chinese internet rules and government’s policies to monitor internet content. Tencent might be able to commercialize and sell globally its backend storage architecture, but it’s not clear anyone would be interested to own it. It’s a technology that evolved from specific Chinese requirements, not market demand.

Earlier this year I spoke on a panel at a conference in Shanghai of the global bio-manufacturing industry. This is precisely the sort of area where China most needs to up its game. Bio-manufacturing relies on a combination of first-rate science, cutting-edge manufacturing techniques and far-sighted management. After all the talk and the establishment of dozens of government-funded high-tech pharmaceutical science parks across China, the simple verdict was China has yet to achieve any real success in this industry.

China is not alone, of course, in having its difficulties nurturing a globally-competitive indigenous technology industry. In their time, most of the world’s advanced major economies have all tried — Germany, France, Japan, UK. All lavished government subsidies to foster domestic innovation. All made technology a policy priority. Yet, all have basically failed. If anything, the US is now more dominant in high-technology than it was at any earlier time in history. The US is home to most of the companies earning high margins, market shares and license fees for their proprietary technology.

China has already achieved what no other country has: in the course of a single generation, it has achieved the highest-ever sustained rate of growth, and so lifted hundreds of millions of its citizens out of poverty. This achievement shows the capabilities of the Chinese people, the far-sighted and pragmatic skills of its policy-makers. Both will continue to deliver benefits for China for decades to come.

For China, becoming a tech power is neither certain nor impossible. Progress can be hurt more than helped by those who engage more in hype, in predicting certain outcomes, rather than critically assess the impediments, and learn lessons from the failed efforts so many other countries have had in developing a technology industry. New thinking about innovation, and how to encourage it in China, is still lacking.

 

 

Why and how Beijing became one of the world’s more unmanageable major cities

August 21st, 2014 No comments

Beijing Bactrian camel

What if most of what we think about government spending was wrong? What if government money causes, rather than cures,  pollution, unaffordable and substandard housing, impossible traffic, more expensive and less available healthcare? Sounds impossible, right? Not if you live in or have traveled to Beijing lately. The city’s now infamous urban problems are at least in part the result of a deluge of government spending since the onset of the financial crisis in 2008. Direct central government funding doubled to over Rmb 14 trillion ($2.2 trillion) over this period while local governments borrowed an additional Rmb 13 trillion ($2.1 trillion) to finance their spending.

The government money, of course, wasn’t meant to turn Beijing into an urban sprawl with a population larger than every state in the US except California. In fact, most of the government stimulus was targeted for big projects outside the capital. But, in China, the nature of things is that much of government spending travels on a round-trip ticket. It is dispensed in Beijing and then a big part of it eventually returns home. And no, this isn’t all in kickbacks. A large part is from the build out of a huge new infrastructure in Beijing to support, steer and encourage the distribution of more government cash.

In the last five years, it seems like everyone rushed to open or expand offices in Beijing:  companies of all sizes from all part of China and the world; governments from the smallest local hamlet 3,000 kilometers away to provinces with populations larger than every country in Western Europe also staffed up. Result: commercial and residential real estate prices skyrocketed to the point now where they are among the highest anywhere in the world.

More people begets more cars, more cars begets more traffic, more traffic begets restrictions on the days-per-week any car can be on the road, which in turn begets Beijingers buying an extra car to get around the prohibition. End result: pollution that is now substantially caused by auto emissions, not as in the old days by nearby-factories burning coal. Many polluting factories have been shut down, which added to the available land for development into commercial and residential property in and around Beijing, particularly in areas you need a car to get to.

Here are the two charts, showing residential real estate prices and cars registered in Beijing from 2008 through last year. The numbers are likely underestimates. But, they show the trend.

data

 

The torrent of government cash had all kinds of spillover effects that have altered Beijing permanently. More restaurants, higher prices, more wining and dining, leading to prohibitions last year, as part of the big anti-corruption crusade, on government officials accepting invitations to party outside the office. This then drives the behavior underground, so high-end restaurants empty out, while more expensive and exclusive “members only” clubs flourish.

Beijing has morphed into the financial capital of China. That’s attracted a large group of players to move from Shanghai and Hong Kong to get a piece. PE funds, private bankers, lawyers, consultants, so-called “guanxi merchants” who arrange access to government officials. Among my circle of friends in PE industry, I can count 15 who have moved to Beijing in recent years, to get closer to the action, and only one who left, who finally couldn’t take the crowds, pollution, high cost.

Beijing’s precise population is unknown. The official number is 21.1 million. Some in government say 25 million. Others claim the real number is closer to 30 million, when you count more recent migrants living rough, plus the huge throngs in Beijing for shorter periods, either for work or pleasure.

Since 2008, far more of China’s total economic activity is decided by government bureaucrats in Beijing. Overall government spending has more than doubled. Result, more people need to travel to Beijing more often.

Look at passenger numbers at Beijing’s Capital Airport. Between 2008 and 2013, this already crowded-facility saw passenger numbers increase by a remarkable 50%. It is, as of March this year, now the busiest airport in the world, eclipsing Atlanta’s Hartsfield. Capital Airport is now breaking under the load, and so Beijing is about to embark on building an even larger new airport in the southern part of the city. This mammoth $11 billion project by itself could support a lot of Beijing’s gdp growth in the coming few years. But, it will be just the cherry on top.

Beijing has the best hospitals in China, so people come from all over the country to try to get admitted for medical treatment. This has led to price increases and longer waiting times. Equally, those with a serious grievance about their local government, or who feel maltreated, will often gather up their documents go to Beijing to try to get redress. This trek to Beijing has been around since the days of the Emperors. As China’s government grows in power and economic clout and ordinary Chinese have the money to fight back, those seeking to petition central government’s help increase.

To serve all the new arrivals and visitors, Beijing continues to expand its Metro system. The average daily ridership is now 10 million, about triple London’s, and also triple the amount five years ago in Beijing.  Waits at rush hour to get into some stations can be horrific, so the government recently proposed to raise fares. Beijing currently has the cheapest public transportation of any big city in China.  While some may leave Beijing, the likely result of higher Metro fares will be more people trying to buy a car.

How bad is traffic in Beijing. Horror stories abound. A more reasonable evaluation: the manager of a big telecommunications company I know told me recently if he doesn’t leave his house by 7am, it will take 90 minutes to drive 10 km from his house to his office. That’s about speed of sedan chairs used to carry emperor and his cohorts within the Forbidden City.

To be sure, Beijing is not Dhaka. Since 2008, many aspects of the city’s infrastructure have been upgraded. It is a thoroughly modern city, with scarcely a trace of either poverty or blight. When I first visited the city in 1981, Bactrian camels were still occasionally seen on the streets hauling cargo.

For first time since 1949, the leader of the country, Xi Jinping,  is Beijing born and bred. Since he was a boy, Beijing’s population has about quadrupled, while China overall has almost exactly doubled.  Will he try to shift gears, slow or even reverse the growth in the city’s population? It won’t be easy. Government stimulus spending, once turned on is notoriously hard to scale back in any serious way. Do so and overall GDP growth will likely suffer.

In its 3,000 years as China’s major urban outpost on the country’s northern perimeter,  Beijing has experienced countless invasions, barbarian pillages, conquests, uprisings. But, nothing in history has altered Beijing as quickly, deeply, and perhaps permanently as five years of bounce-back and kickback from trillions in government pump-priming.

 

 

 

China’s rise enters a more challenging phase, where bold ambitions confront stubborn, often centuries-old obstacles

August 5th, 2014 No comments

China First Capital 2014 Survey cover

China’s economy and society have both reached levels of wealth and development that were unimaginable 30 years ago. What comes next? How can China continue to push forward, against some deep-seated problems, including how to generate globally-competitive innovation, how to sort out land ownership, how to attract and reward global investment flows? These issues are examined in detail in the new research study published by China First Capital.

The new report is titled ” China Survey 2014: The Rise Continues, New Directions & Challenges“. Copies may be downloaded by clicking here or from the research reports page of the company’s website.

China’s economy remains vibrant and fast-evolving. Many of the Fortune 500 successes stories of recent years – KFC, P&G, Coca-Cola – are finding it harder and harder to keep winning in the China market. As they lose share, other companies are gaining, both domestic and international. The report looks at this transformation through the vantage point of China First Capital’s rather long experience working in China,  alongside some talented CEOs in both domestic and global corporations, the incumbents and the disrupters both.

Investing successfully in China, either through the stock market or through M&A, also remains challenging. But, it’s worth the strain, the report asserts, since no other country can rival China today in terms of both the number and scale of money-making opportunities.

The new China First Capital report discusses these broad trends, and also examines the following in depth:

  •  is China’s investment community (PE and VC firms, stock market investors)  over-allocating now to mobile services and online shopping;
  •  an assessment of the serious challenge facing traditional shopping mall operators and retailers mainly because of competition from soon-to-IPO Alibaba’s online shopping giant;
  • a sober analysis of actual disappointing state of China’s high-tech industry;
  • how China triumphed over India, and won the battle as the world’s best and biggest Emerging Market,
  • why 3M may be the most successful American company in China, but flies so far beneath everyone’s radar

Some of the contents have already been published here on this blog and on Seeking Alpha.

The report’s core conclusion is that China has come a long way and in raw terms is certainly the most successful emerging economy of all time. But, it needs to become more innovative, generate more globally important technology breakthroughs, not just copycatting. There’s no absence of hype around about how China is poised to become a global technology powerhouse. The report, though,  cites China’s failure to serially produce an aircraft engine as a concrete, if not often talked-about, reminder of its technology frustrations and limitations.

 

 

Tiananmen 25 years later. I was there. I was wrong

June 4th, 2014 No comments

Tiananmen Square

Twenty-five years ago on the evening on June 3, 1989, I was standing in the northeast corner of Tiananmen Square as Chinese soldiers emerged in large numbers from inside the National History Museum a short distance away. From loudspeakers came instructions that all those gathered in the square should leave in an orderly way. The Tiananmen Square Protest, begun seven weeks earlier, was entering its final and most brutal phase.

It would be another seven hours or so on the morning of June 4th before the last of the demonstrators would be led unharmed out of the Square. The violence that night occurred elsewhere. Chinese troops entering the city by road encountered stiff resistance, particularly to the west and south of the square. I witnessed some of this at close quarters – the mayhem and loss of life. I was a reporter at the time. I don’t reflect often on these events, and this is also the first time I’ve written about what I saw there.

Most of what I and so many others thought was true and inevitable at that time turned out to be wrong. There was no civil war, no fracturing of the country, no return to Maoism, no retreat into bitter isolation, no dying of the universal hope here for a better life.

China today is an infinitely better, fairer, richer, more open and freer place than it was in 1989. This is the reality that too many in the West are unable or unwilling to see. Their views about China were cast in concrete that awful night in June 1989. All they often choose to see are ghosts of repression and despotism.

So what I have learned these twenty-five years?  China’s long history, for all its stunning achievements and millennia of global weight and prestige, is also etched with pain — from war, famine, civil discord. No single cataclysm could possibly define its destiny or determine the country’s future. Not Tiananmen. Not the Cultural Revolution. Not the civil war that brought the Communists to power in 1949. Not the Japanese conquest of the 1930s, nor the Taiping Rebellion eighty years earlier in which perhaps 30 million Chinese perished.

“Amnesia” is what some Western commentators and authors now choose to call it. I prefer to think of it as a deep, practical and praiseworthy resiliency. China is where it is today, at a moment of prosperity and bright prospects unprecedented in its history, because most, if not all, of the country of 1.3 billion willed it there. Through toil. Through self-reliance and self-improvement. Through an unshifting focus on bettering their own lives, and those of their families. And, also through knowing when and how to bury the past.

Was this made easier because no news about the Tiananmen protests circulates in official media, and nothing is taught in schools? Quite likely. But, by itself, the impact of this was negligible on China’s transformation since 1989. The country is now thirteen times larger, in per capita gdp terms, than it was then. The improvement in people’s lives goes beyond the scale of numerical measurement. It is the largest, most complete and most rapid uplift in human history.

Yes, some problems from 1989 still remain. China has polluted air and water, as it did in 1989. It has corrupt officials. As it did in 1989. Its politics are now and were then opaque and closed in most parts to public scrutiny. Then, as now, China confounds and sometimes infuriates those who visit it, study it, admire it, or seek to trade with it.

I left Beijing on June 15th 1989, together with my oldest and closest friend, who was expelled as an Associated Press journalist “due to alleged links with student ringleaders”. We met as two of a handful of American students in Nanjing in 1981, when food was still rationed and China was as poor, per capita, as India and poorer than just about everywhere in Africa.

I stayed away for many years, moving back almost five years ago. That friend is also back now in China, raising his three children in Beijing. He and I don’t see eye to eye on China. Our interpretations are quite different on what happened in Tiananmen that night, and the impact it exerts over today’s China. We speak about it rarely. He’s writing a history book now on the many ties that bind the US and China together. He is more fixated on politics, with intrigues and policy shifts in Beijing. I care little about that, and far more about what happens here financially and economically.

We both feel grateful to live in China now, and in our own ways, grateful also to hold onto a few memories of China as it was 33 years ago, and also on that night in 1989. No amnesia. Some late middle-aged forgetfulness for sure.

China is not at all like the sad place we expected it to become when we left Beijing together in 1989. It is our home. It provides us both with opportunity, friendship, purpose, careers, happiness, love, occasional frustrations and, when we remember to take note,  a sense of astonishment at all we’ve witnessed, and how much farther China has come than we ever dared imagine.

Who should own China’s land and who should farm it remain the central questions of China’s five-thousand year-old civilization

May 20th, 2014 1 comment

 

 

 

Qing porcelain

When I first came to China 33 years ago, 80% of China’s population was rural, mainly small-scale peasant farmers. Today, half the 1.3 billion population is off the farm, living in cities. Two obvious results: China is over twenty times richer per capita in dollar terms. And, from a country with a handful of major cities three decades ago, China now has 160 cities with a population of at least one million.

The Chinese government’s plan is for another 150 million Chinese to go from farm to city in the next decade. But even then, there would still be as many as 300mn too many people living in rural villages. China, according to reliable estimates I’ve seen,  could be efficiently farmed by as few as 100mn full-time farmers, or 7% of the total population. In the US, less than 2% of the population works on farms. They live well. A farming family in the US now earns on average $108,000, 53% above the national household average.

In China, peasants earn on average one-third as much as urban Chinese.  As peasant numbers decline, the incomes rise of those remaining. A depopulating countryside, however, won’t directly solve rural China’s age-old problem: farm plots are too small and often on uneven terrain. This limits the use of farm machinery and modern farming methods. Farm yields remain stubbornly below US and European levels. This, in turn, means food imports must rise inexorably. Year by year, China moves farther away from an often-expressed goal to increase its food self-sufficiency.

The solutions aren’t hard to formulate. China needs fewer and bigger farms with more leveled ground to permit efficient mechanization. But, achieving this remains, for now, all but impossible. Part of the problem is that all rural land in China is owned by the state, so there’s no way for peasants to buy land from one another. A larger problem is the adverse impact this would likely have on Chinese society.

China’s describes itself, even today, as a 农业大国, “nongye daguo“, or  “agricultural great power”. This is in some sense an artifact of history. But, it also reflects a deeper reality, that most Chinese, even the most thoroughly urban, still have some concrete connection to village China. Often this is through extended family members still engaged in peasant farming.

More directly, many people living in cities — if not the majority than close to it — still hold rural “hukou” and so generally have an entitlement to farm a plot of land in their ancestral village. This hukou system, though much criticized for depriving many city-dwelling Chinese of full rights to low-cost healthcare and schooling, acts as an almost-universal national insurance plan. Those now long-removed from farming life still have the comfort of knowing, if things ever got really tough, if they lost their jobs or the small business they started goes bust, they could go back to where they or their parents came from. They always have a place to live and enough land to feed themselves and scratch out a bare living.

China is the most entrepreneurial place in the world, which creates huge benefits for everyone living here, including better products, services and fast-growing incomes. Small farm plots widely held is one reason for this. They act as the safety net.

So, creating a more efficient farming system by giving peasants the right to sell or mortgage the land they farm or hold title to might ultimately do more economic harm than good. Chinese government has so far stalled on major reforms of peasant land ownership. Instead, city-dwellers are renting the rights to farm their rural plots to local peasants who have the energy and ability to manage larger holdings. The incremental effect is that average farm size will grow gradually. But, of course, renting land isn’t the same as owning it.

No one will invest in improving the quality of the land if they are renting it year-by-year It’s not only efficiency that suffers. The levels of heavy metal soil contamination is reaching alarming levels in many areas, especially Hunan Province, source of 13% of the rice grown in China. Who will pay to clean up the soil and so improve food safety in China is a national problem without an obvious answer.

The price of fruits, vegetables and grains are all rising in China, lifting peasant incomes. But, so are cash salaries for low-skilled jobs in cities. Run the numbers and it still looks to be wiser in many cases to leave the land. The standard land measurement in China is the “mu”, equal to one-sixth of an acre or about one-twentieth of a hectare. The income from farming one mu in China is about equal now to one week of low-pay wages, for example, the salary for sweeping up factory floors. Not many peasants own and farm 50 mu.

As I write this, I’m intermittently staring out the window of a high-speed train traveling 300kph through rural parts of Shandong Province. It takes less than a second for the train to pass a typical small plot of farmed land. The spring wheat is already about 18 inches high. There is no one out in the fields. Thanks to pesticides and chemical fertilizers, far fewer people are needed to grow food than when I first came here in 1981. Every day people leave the land and will continue to for decades to come. But, who should own China’s land and who should farm it remain the central questions of China’s five-thousand year-old civilization.

How China buried India

March 6th, 2014 5 comments

Forbes India cover story 1994

Twenty years ago, India, not China, was the object of my absolute and total focus.  Back then, I was living in London and working as a European bureau chief for Forbes Magazine. In May 1994, a story I co-wrote called “Now We Are Our Own Masters” appeared on the cover of Forbes (click here to read the article). It was the first time a big American magazine took the risk to suggest India, after so many years of pathetic growth, famine and unending poverty, was ready for an economic take-off. It turned out to be a smart call. Since then, India’s economy has surged, growing seven-fold while poverty has declined steeply.

India GDP growth 1950-2010

I spent about a month in India researching the article, meeting with political and business leaders. It was my third trip to the country. The first had been in 1978, as a young backpacking college student, on my way back to the US from a summer in Taiwan studying Mandarin. The two most vivid memories of that first trip — nearly dying from untreated amoebic dysentery, and hiding out for days in a place called Aurangabad as masses of Indian men rioted on the streets against the forced sterilization policy of India Gandhi. (Life lesson learned at 19: political popularity will be short-lived wherever a leader orders men at gunpoint to undergo genital surgery.)

It took another three years before I first set foot in China. On a lot of levels, the two countries struck me as similar back then, both in the extent of the obvious poverty as well as the shared disappointment some thirty years after each had gained full independence as socialist states under charismatic intellectual leaders, Jawaharlal Nehru in India and Mao Zedong in China.

China began its reform process a decade earlier than India. I caught the first stirrings when I arrived in Nanjing as a student in 1981. When I went to India in 1994 for the Forbes article, it still seemed plausible India might one day emerge as the larger, more vibrant of the two economies. China had suffered a sharp setback in 1989, during the Tianmen Square Protests of 1989, an event I witnessed first-hand in Beijing. At the same time, India had begun at last to liberalize and energize its over-regulated and inefficient state-run economy.

While India’s growth has since surpassed my optimistic hopes in 1994, I firmly believe it will never rival China. This chart below shows how far the gap between the two has grown. Since 1994, China has all but left India behind in its tailpipe exhaust.

China vs. India GDP Growth 1960-2010

In per capita PPP terms, China is now almost 2.5 times wealthier than India. Year by year, the gap grows, as China’s gdp expands faster than India’s, while India’s birth rate is now almost triple China’s.

I haven’t been back to India since 1994. I have no doubt it’s changed out of all recognition. Changed for the better. Poverty is down. Exports are way up. Its biggest misfortune may be having to compete for capital, and for attention, with China.

Living full-time and working in China now for more than four years, I’m more impressed than ever how superbly China is engineered for rising prosperity. The comparisons I read between India and China generally give a lot of weight to the difference in political systems, between India’s raucous federal democracy with dozens of parties and China’s one-party centralized rule. The indisputable conclusion: sound economic policies are easier in China to design and execute.

The few times I’ve been asked to contrast the two countries, I prefer to focus on their most valuable long-term assets.  India has English. China has Confucius.

India doesn’t out-compete China in too many industries. But, in two of these — pharmaceuticals and computer software — English is probably the main reason. India’s educated population is basically native fluent in the language. China has tried to make more of a game of it, especially in computer software and services. But, China is now and will likely remain a bit player in these two large, global high-margin industries.

India also has, overall, a more innovative financial services industry. This isn’t really the result of widespread English, but the fact that India has a more open financial and currency system than China’s.

Both nations benefit from having large diasporas. In India’s case, it’s a huge source of cash, with remittances of over $65 billion a year, equal to 4% of gdp. In China, the benefits are as much in kind as in cash. Companies owned or managed by ethnic Chinese from Southeast Asia, Hong Kong, Taiwan and the US have been large corporate investors in China, with the capital matched by transfer of technologies and manufacturing know-how. This is an ever-renewing remittance, as money pours in each year to finance projects with solid long-term rates of return.

China’s trump card, though, is its Confucian value system. Its potency as an economic force is amply demonstrated by the affluence of China’s Confucian neighbors, not just Hong Kong, Singapore and Taiwan, but South Korea and Japan. Its impact is measurable as well in the outsized economic clout of Chinese immigrants in Thailand, Philippines, Indonesia. Free market capitalism and Confucianism. Anywhere in the world you find sustained economic success and rising prosperity, you will find at least one. In China, they are entwined in a kind of ideal synthesis.

India, too, has close-knit families and a tradition of thrift and obedience. Confucianism adds to these a reverence for education and practical problem-solving. It contains nothing transcendent, not much, if any,  spiritual guidance for a soul-searcher make sense of his place in the cosmos. Honor your ancestors with burnt offerings, sweep their graves at least once-a-year and they’ll grease the wheels of success in this life.

The Confucian system hasn’t changed much for two thousand years. One vital adaptation over the last century, though,  was to accept that women could, and should, play an active role outside the house, reaching the same educational level as men and joining the workforce in equal numbers. Here, India is woefully far behind. China’s growth has been on steroids these past twenty years because its 650 million women have contributed exponentially more to economic growth and prosperity than India’s.

Of the couple hundred stories I wrote while at Forbes, I’m probably proudest of this India cover story published twenty years ago. It may not seem like it now, but it was a gamble to suggest back then under my byline India was about to come out of its long economic coma. Imagine if instead I’d gone on the record 20 years ago to forecast the coming economic miracle in Russia, Mexico or South Africa – all countries back then seen by some to be “the next great emerging market”.  I heard afterward the article helped generate more interest in India’s economic reforms and ultimately more investment in India by US multinationals. This grew about 30-fold in the ten years after the article appeared.

On a personal level, I made a larger, and I think even safer bet with my own professional life, to move to China and start a business here. Yes, India has English. I work every day in an alien tongue and in a culture steeped in Confucian values that play little or no part in my own ethical code. But, China was, is and shall long remain the great economic success story of all-time. I don’t need someone else’s magazine cover story to tell me that. I live it every day.

China’s Beauty Revolution — Deng Xiaoping Deserves Some of the Credit

March 19th, 2013 4 comments

Rather than discuss again the state of Chinese private equity and billions of dollars in capital flows, this blog will turn now to an even weightier topic. Pretty women. Specifically, the increasing abundance of them in China.

To my eye,  Chinese women have undergone a spectacular makeover over the last 30 years every bit as dramatic as China’s economic growth and modernization. I first came to China 32 years ago, as a graduate student. At the time, China was still partly under the leaden pall of the Cultural Revolution, which had officially ended five years earlier. College girls dressed like soldiers, wore no makeup and kept their hair short, often in stumpy pigtails. Army caps and threadbare canvas sneakers were considered fashion accessories.

Coming to China in 1981 after four years at university in the US, a fair amount of it spent chasing coeds, Chinese college girls seemed adorned mainly for calisthenics and bayonet practice. I duly kept them at a distance. Just as well, since had I fallen for a Chinese girl, it would likely have brought her nothing but ceaseless political browbeating and struggle sessions from her peers and professors. Chinese girls were not to be fraternized with. The thought barely even occurred to me. Instead, I fell under the powerful spell of my very glamorous Italian female classmates, including one who became, for a brief time, a famous Chinese movie star and perhaps the most lusted-after woman in China. She finished her studies, left China when I did in 1982, and ended up marrying one of America’s most famous movie actors. But that, as they say, is another story.

What a difference 30 years of hypertrophic economic growth can make.  Deng Xiaoping is not short of praise or recognition. But, to his list of titanic accomplishments must be added that he did more to beautify Chinese women than any man who’s ever lived. He liberalized not only the economy, but social attitudes and unwound the straightjacket that had bound women’s fashion for decades. For, that he deserves the eternal gratitude of every man living now in China, myself included.

The magnitude of this change in women’s appearance, over the last 30 years, cannot be overstated. If there is another aspect of China’s modernization that created so many benefits, so much net happiness, with few if any offsetting disadvantages, I don’t know of it.

Women in China today have opportunities to express themselves in ways that were unthinkable a generation ago. This runs not only from the clothes they wear and ways they style their hair, but also including the many elements of accessorized femininity, all of which were basically unavailable 30 years ago. There was no make-up, no proper skin creams, no sunblock, no perfumes, no nail polish, no hair dye, no properly-engineered underwear. Chinese girls looked a lot like toy soldiers because they were wearing clothes and underwear designed to neutralize rather than accentuate their curves.

This is absolutely no longer the case. To choose one example, on my short walk home from the subway, I pass through a 50-meter long underground mall with five different underwear shops, all selling domestic brands, and all very far down the “skimpy spectrum”  towards the sexiest things for sale in a Victoria’s Secret. The customers cross all age barriers. There is a popularity, as well as exuberance in China to the buying of sexy underwear that I never saw elsewhere, including Italy. It is also much more of an everywoman’s activity in China.

From the little I can tell from glancing at the age of the customers in these underwear shops, Chinese mothers are almost certainly the world’s largest market for sexy underwear. As for the fashions that are more visible to casual onlookers, Chinese women generally display a sense of style, of trying to look their best, across all ages and income levels.  The most popular clothing comes from domestic brands no one outside China has heard of, not the famous Italian or French fashion houses. Chinese brands know how to design clothes to flatter the way Chinese are shaped.

I have one friend, who started and runs one of these larger domestic female clothing brands called Ozzo. He has over 400 stores across China and caters to middle class women over 30. He sees virtually unlimited capacity for growth for his brand across China.

While beauty is in the beholder’s eye, it seems to me an objective reality that women in China are more attentive to how they look in public than at any time in recent, as well as probably ancient, history. This is true from the smallest farming village to the largest metropolis.

My sense is that colors here are brighter and more varied than you see commonly in US and Europe, where women tend to wear black. It’s apparently meant to be “slimming”. That isn’t a major concern for the majority of Chinese women, from what I can tell. Food is plentiful, and appetites are large. I’ve personally yet to run across a Chinese women who engages in the self-mortification ritual known as dieting.

One small downside. Chinese women are smoking more than they used to. But, the number of women smokers is still a miniscule fraction of what it is in Europe and the US. One reason more Chinese women don’t smoke is they know it damages the skin.

I travel within China more than just about anyone here, excepting airline pilots and government officials. Along with all the new buildings, roads and the new sense of national pride over the last three decades, this focus among Chinese women on looking and dressing well is the most emphatic statement of how far the country has come.

I can already hear the “feminist critique” of what I’m writing here, to wit, that to beautify is to tyrannize, and to “objectify” — a word I still can’t quite define. But, the best proof of how much Chinese women themselves appreciate the changes, appreciate the freedom now to spend more of what they have to look their best,  is how very few Chinese women have rejected all this and stay dressed as Mao once obliged them to.

 

Reflections on a Sunday of Protests in China

September 16th, 2012 1 comment

“To reap the whirlwind”. It’s an ancient English saying, taken originally from the Bible. It means that actions in the past can end up having very large, unexpected consequences.

This phrase is very much on my mind today, as I listen to two unfamiliar sounds from outside my window in Shenzhen: one is of helicopters circling close overhead. The other is thousands of voices shouting angry slogans in unison. In Shenzhen today, as in cities across China, there are large demonstrations being staged to protest Japanese claims to some offshore islands nearest to Taiwan known, in Chinese, as Diaoyudao, and in Japanese as Senkaku.

I happen to live near both one of Shenzhen’s largest shopping malls, as well as its main street, known as Shennan Avenue. Demonstrators are parading down this street, and then stopping in front of the mall to wave Chinese flags and scream “Smash Japanese imperialism”, and, somewhat more incongruously, the soccer chant, “Let’s Go China” (”中国加油“) .

The shopping mall is shut today, for a second straight day, with a phalanx of Chinese police in riot gear standing between it and the demonstrators. The main tenant inside the mall is Jusco, the Japanese supermarket and department store. The mall also houses local outlets of high-end global brands like Louis Vuitton, Cartier and Ralph Lauren. A lost weekend like this is the last thing these big luxury brands need, of course, as their sales in China are already weakening because of slowing economic growth.

I’m no expert in maritime law. Equally, I’m not familiar with all the facts, claims and counterclaims about these islands. It seems rather self-evident, when looking at the map, that the islands should belong indisputably to China. But, at the moment, they are mainly a source of significant national irritation in China. Demonstrations here are rare, and always involve some degree of government approval. Tempers are high today, but not uniformly so. Mixed in with angry young men of all ages are lots of families with kids, waving small Chinese flags, taking photos as well as taking obvious pride in their Chinese identity. That’s all to the good.

And yet, I’m still more than a little uneasy. I probably have a higher-than-average sensitivity to the character and tone of Chinese street protests. I was in Beijing during the Tiananmen Incident in June 1989. All these years later, the two filaments embedded in memory are the sound of a massive angry crowd chanting in Chinese, and how quickly, explosively, unpredictably an orderly, even good-natured, protest can turn into a violent and uncontrollable mob.

The term “collective wisdom” is one I often struggle with. In my experience, the size of a crowd is often inversely correlated with the reasonableness of its behavior.  This is as true in the US or Europe as it is in China. Less than a year after witnessing the events in Tiananmen, my neighborhood in London was engulfed in what was called the Poll-Tax Riots, as tens of thousands of people took to the streets to protest an unpopular new tax. It turned into an anarchic frenzy of looting and hooliganism, as rioters set fire to restaurants and cars, and beat unarmed British police. Excitement and incitement are close cousins.

Anti-Japanese feelings run deep in China. There is no easier way to rouse a rabble here. On any given night, at least one of the country’s main television broadcasters will show during prime time a historical drama about the Japanese invasion of China, often featuring quite graphic levels of violence.  For an American, it would be something like one of the three networks broadcasting every night, every week of every year a series about the cruel Japanese mistreatment of Allied POWs during the Bataan Death March. Anti-Japanese entertainment sells in China. This year’s big budget Chinese movie, the Zhang Yimou directed The Flower of War (金陵十三钗), was set against the backdrop of the 1937 Rape of Nanjing, and included the most horrifyingly violent and realistic images of barbarism and cruelty I’ve ever seen in a film.

Chinese lack no justification for their anti-Japanese sentiments. And yet, as this nation continues its remarkable rise, the dark grievances of the past must fade in the light of China’s current achievement and progress.  I find powerful logic in the words of a Chinese patriot who died 99 years ago, Tang Guo’an (唐国安), the first president of Tsinghua University. During the height of the deplorable Western occupation of China, Tang wrote  “were the positions reversed, China might accord even worse treatment to foreign nations. It behooves us, then, not to entertain unworthy thoughts of hatred and resentment, which will be of no avail.”

 

One Star Fits All

August 20th, 2012 No comments

China First Capital blog post

Imagine a world of where every product had a single celebrity endorser. The same star would advertise on behalf of car companies, detergent, liquor, travel. Sound implausible? Welcome to the world of Chinese celebrity product endorsement, where kungfu star Jackie Chan is such a fixture of product advertising, both commercials and billboards, that no one knows for certain how many different brands he advertises.

With the help of a friend, I recently compiled a list of 16 companies Jackie Chan now shills for. There are certainly others. The list includes some brands familiar to Western audiences, like Mitsubishi Motors and Canon EOS cameras. But, most of the products are ones targeting China’s domestic market. These include a dumpling company, an air-conditioner manufacturer, an anti-baldness shampoo, green tea bags, and a laundry detergent. During the broadcast of the 2012 London Olympics, Jackie Chan-fronted commercials got far more tv time in China than Michael Phelps or any Chinese medal winner .

In the US and Europe, the generally held view is that a celebrity should endorse only one product.  Endorsement contracts usually specify this. Once a brand pays out a lot of money to get a celebrity, they don’t want that investment squandered, in part, by the same celebrity pitching for another product, even an unrelated one.

So, Robert DeNiro has appeared in American Express advertising, and nowhere else. Jennifer Aniston pitches L’Oreal shampoo, and that’s it. For awhile, golfer Tiger Woods was the one notable exception to this rule of promotional monogamy, promoting several different products at once. His marital philandering brought an end to his endorsement philandering. Every big brand but Nike has dropped him.

But, Jackie Chan in China is an advertising law unto himself. He is, without question, the most visible man in China, a wall-to-wall presence in people’s lives. The only face Chinese seen more often is Mao Zedong, whose portrait is on every banknote circulated in the country.

Simply understood, in today’s consumer market in China, paper with Mao’s face buys products with Jacky Chan’s on it.

Unlike Mao, Jacky Chan’s popularity and ubiquity in China are both a little beyond the scope of my comprehension. Start with the fact Jacky Chan is from Hong Kong, not the Chinese mainland, and his clunky Mandarin betrays that fact. Kungfu movies aren’t particularly popular in today’s China. At 58, he’s hardly a matinee idol. Most of his film work these days is in English, like the recent remake of “The Karate Kid” and “Kungfu Panda”.

China has plenty of home-grown stars. Two of them, the actresses Zhang Ziyi and Gong Li, also do a lot of product endorsements. These two share a key attribute that makes Jackie Chan valuable as a pitchman: they’ve achieved fame outside China.

These three are in a class by themselves among celebrity endorsers in China, precisely because they are the only three with real name recognition outside the country. If you want to be a truly big star in China, become even a minor one in the US.

Most of the products endorsed by Jackie Chan are sold only in China. Some, like Cree air-conditioners, among the leading brands. Others, like Fenhuang Cola, are also-rans. Nothing, though, seems to dent his value as a pitcher of products to China’s masses.

All celebrity endorsements are a paid attempt at rub-off glamour. With Jackie Chan, no matter how often that glamour gets rubbed, it never seems to dull.

 


Stir-Fried Rat Anyone?

August 8th, 2012 1 comment

Rat painting from China First Capital blog post

I was still drowsy from sleep early one morning when I heard a rustle and saw a brown flash dart across my kitchen counter. A rat. For sure. I then found some telltale signs in one of my cupboards – a plastic bag torn open and peanut skins littered all around.

My immediate thought was, “If only Chinese ate rats, there’d be fewer of them”. I’d always heard rats were one of the few animals that Chinese would not consider a meal-in-waiting.

Turns out, I was wrong about that, as this article I dug up from China Daily points out: Click here to read.

A lot of insight and wisdom, as well as the occasional bit of crackpot thinking, is contained in Chinese “chengyu”(成语), the often-ancient sayings still frequently used in daily speech. It’s no surprise that one such chengyu is used to promote the special virtues of eating rat. It avers “one rat is as nutritious as three chickens.”

That there’s zero empirical basis for this claim is clearly no impediment to its use.  A more considered chengyu would be “eat rat and catch all kinds of nasty diseases for which there is no known cure”.

The Cantonese are widely known as the most adventurous eaters in China. There are multiple chengyu about this as well, mainly variations on the theme that Cantonese will eat anything with four legs except a table, and anything that flies except a helicopter.

Rat meat is obviously an acquired taste in China, and not a common source of protein like, for example, dog meat. If it were more prized on the table, there’d be less chance of  encountering one in my kitchen cabinet.

Equally, though, there’d be more seriously ill Chinese. On balance, I’d rather have them thrive as domestic pests, than become a toxic part of the food chain.

 

 

Funny, You Don’t Look American

May 7th, 2012 3 comments

If I had one minute of national air time in China and could provide a single piece of information to correct a deep cultural misunderstanding, here’s what I would say, “You like to try, but it’s really hard, maybe impossible, to guess a white person’s nationality.”

Just about every Chinese I meet asks me where I’m from. My usual response is “Where do you think?”. What then follows, almost invariably, is “You look like you are from…” following by the name of various countries inhabited by large numbers of white people. Canada, France, Australia, Spain, Russia, Switzerland, Italy. I’ve heard them all.

There’s usually a note of certainty and keen deductive reasoning about it, for example, “people as tall as you are come from France, so you must be French”, or “people in America have big noses, and you do, so you are American, right?”, or “you are so friendly, you are English”, or “Canadians have blue eyes, so you should be Canadian”.

There is universal disbelief when I explain that white people pretty much all look the same, and that in most cases, I can’t tell by looking at Caucasians where they are from. The small clues I might use – differences in clothing, accent, hairstyles – are not perceived or understood by Chinese. They just look at the skin color and then form a conclusion.

About one-third of the time, someone guesses right. When I ask them why they think I’m American, I hear all kinds of things, some flattering, some not. Equally, when I correct a wrong guess, I’m then often lectured, in a friendly way, why I couldn’t possibly be American, because American men are all lighter-skinned than me, or have mustaches, or are balding. And so on.

I always enjoy these little exchanges. As far as I can tell, my Chinese interlocutors do as well. If I have the time, I’ll explain that white Americans are really deracinated Europeans, whose ancestors came from England, Germany, Ireland, Italy, Eastern Europe. We still look pretty much the same as people still living in those places.

This usually is news to Chinese. I suggest to them that just as lots, though not all,  Japanese and Koreans can pass for Chinese, and that large numbers of Thai, Indonesian and Filipino citizens have Chinese ancestry, so many white people look like they could come from any number of different countries.

From what I can tell,  many Chinese think there is a distinct American “race”, with unique appearance and physique. Sometimes I fit that “genotype” for them. Sometimes not.  Chinese are used to hearing over and over how their own country is made up of 55 different ethnic minorities, many of whom look rather similar to the Han people who make up 91%.5 of the country’s 1.3 billion peope.  Quite a few, therefore, surmise countries in Europe and North America are populated by unique “races” , all somewhat similar, but each with its own unique ethnic identity. Sometimes costumes as well.

The irony is that when pressed, most Chinese will admit that to them, all white people look pretty much the same. They are happy to guess a white person’s nationality, despite the fact that to them whites all look more or less alike. From what I can tell, Chinese don’t “see” a white face the way white people do. They don’t apprehend the big differences among whites in hair, eye and skin color.

If some of these more subtle differences don’t make of an impression, overall Chinese have gotten far more familiar seeing white faces, mainly on TV, but also in major cities like Shanghai and Beijing. Compare this to the situation 200 years ago when Europeans first began making their presence known, often forcefully, to the Chinese. Then, Chinese described foreigners mainly as peope in garish costumes, with long red beards, and an overall appearance not unlike either monkeys or the devil. (The porcelain plate displayed above is from that time, the Qing Dynasty, showing a Chinese official receiving a European envoy.)

Truth to tell, I don’t much like being mistaken for a Russian, the most common guess. But, I’m always greeted warmly and with genuine curiosity and goodwill. That’s something those earlier visitors of European ancestry rarely, if ever, experienced.

 

 

Why I Love What I DO

March 15th, 2012 1 comment

My love story began 25 years ago on a bus barreling down the Mass Pike highway in Western Massachusetts. It continues to this day, stronger and more captivating than ever. It has provided the joy, the passion, the inspiration, the endless study and purpose of my life. I’m talking about my love affair with entrepreneurs and entrepreneurship. 

Twenty-five years ago I was a newly-hatched baby reporter at Forbes Magazine in New York, on my first proper reporting assignment. An editor asked me to look into what was then still a small New England bus company with the unlikely name of Peter Pan Bus Lines. Against the odds, little Peter Pan was competing, and somehow winning, against America’s giant intercity bus company, Greyhound. I took one of their busses from New York’s dreary Port Authority station to the company headquarters in Springfield, Massachusetts. 

I sat down with the company’s CEO, Peter Picknelly. He gave me my first lesson in what it’s like to be an entrepreneur, the challenge and the delight of taking on – and eventually taking down – a big rival. To my surprise, as well as my editors, I was able to turn the conversation into an article that made it into Forbes, under my byline. My first. I was hooked– not so much with reporting and journalism. That was purely a means to an end. My life’s direction became meeting and learning from entrepreneurs.

At that time, I knew and cared little about small business and entrepreneurs. Both my grandfathers were founders of successful companies. But, growing up under their noses, I never quite appreciated just how special they — and their fellow entrepreneurs – really were. Only when I landed at Forbes, after years of studying Chinese history, then spending time in China and Hong Kong as a grad student, did it first begin to dawn on me how much I had to learn, and how deeply I should admire, the people who take the limitless risk to start businesses, find and please customers and, not all that infrequently, end up changing the world for the better. 

Fast forward to today, and I’m living a life that is the culmination of this 25 years of meeting, talking with, learning from some of the best entrepreneurs in the US, Europe and now China. In the four years since starting CFC, I’ve met in China more great entrepreneurs than in the previous 21. That is no small accomplishment, since among the entrepreneurs I met previously are Bill Gates, Miuccia Prada, Ken Olson and dozens more, less famous, but in many senses, no less remarkable and successful.

Entrepreneurs in China share much the same profit-making and opportunity-seeking DNA of entrepreneurs elsewhere. What makes them more remarkable, though, is fact that almost all got their start at a time when entrepreneurship, when starting your own company, was new, untried, often hazardous in China. They not only had to overcome the obstacles familiar to entrepreneurs everywhere (where do I find the money? How do I make a profit, feed my family and reinvest? What about my larger competitors?) but a raft of others that would daunt just about any other sane individual. 

Until comparatively recently, China’s economy was a near-perfect socialist vacuum in which entrepreneurship could not survive.  The economy was almost entirely in state hands. Licenses were not granted to private businesspeople. Banks would not lend. This was the world today’s successful Chinese entrepreneur was born into. There were no role models. The previous generation of private entrepreneurs had, in large part, been expropriated and excoriated or fled the country in 1949. 

Laws giving equal treatment to private companies were only introduced in 2005. Even then, private companies have had it very tough, in many cases. It remains a challenge. Taxes are numerous and high. Regulations can be as stifling as anywhere else in the world. Laws change frequently. Worker salaries are now growing by 25% a year or more. Every good business idea, almost within minutes, attracts hundreds, if not thousands, of competitors. Success or failure can be conferred at the whim of a local bureaucrat. 

And still, the great entrepreneurs of China keep marching forward, in ever greater numbers. A week doesn’t go by when I don’t meet or hear about a successful and accomplished entrepreneur. I’m just back from a five day trip to cold and barren Northwestern China. For me, it was far more enjoyable than a long weekend on the beach at Bali. 

During my trip, I met back-to-back with the founders of nine different companies, sharing hours of discussion with each, and a delicious meal with most. Each of the nine is successful, in industries ranging from cooking oil to laser components, from high-tech fiberglass threads to the world’s largest producer of a refined mineral used by steel mills all over the world. 

In my next blog post, I will tell the story of this mineral company and its remarkable founder. In eight years, since starting his business with little capital and no relevant experience or higher education, he has built a business worth, conservatively, $2 billion. He owns 99% of it. His wife and daughter the remaining 1%. 

Each of these entrepreneurs, like so many others in China and elsewhere, will achieve more in their lives than most, and likely leave a lasting imprint on generations to come. This was true for my grandfathers, whose success (one as the owner of a department store, the other as the founder of a button-making company) in the middle part of the 20th century created the wealth to send their children to college, get advanced degrees, and so ultimately provide a very affluent upbringing and even more possibilities in life for me and my brothers and cousins. 

The roots of so much of my own happiness are opportunities and experiences made possible by the business success of my two entrepreneurial grandfathers. It is the greatest of privileges for me to now work helping in a small way some outstanding entrepreneurs here in China.