Thursday, December 22, 2011

Merry Xmas, Happy Hanukah & Happy New Year!

I hope all my loyal readers and all my new readers have a wonderful Holiday Season!

Upcoming stories include an outline of China's plan to require foreign workers to contribute to Chinese pension schemes while, at the same time, making sure that virtually no foreigners can either gain eligibility or actually collect Chinese pensions. More Contradictions Among the Masses (masses of rules & regs, not the masses of Laobaixing)!

Thursday, December 8, 2011

Deja Hu

In a news story published November 22, 2011, by Xinhua, China’s state-owned news service (or, for those who prefer their labels in English, the New China News Agency), China’s President, Hu Jintao called on China’s writers and artists to redouble their efforts to produce great works. Nothing wrong with that; great art and great literature are both to be welcomed. As Xinhua wrote:

“Great times call for great writers and artists, and the people expect great literary and artistic works, President Hu Jintao said Tuesday while speaking to an audience of 3,300 who represent the country’s literary and art circles.

Xinhua continued:

In his speech, the president called on Chinese writers and artists to persist in the principles of “Serve the People and Serve Socialism,” “Let All Flowers Bloom Together” and “Let Hundreds of Schools Contend.”

The thoughts and sentiments are certainly welcome but, as Shakespeare wrote so long ago, “To sleep, perchance to Dream; Ay, there's the rub . . .” The words themselves evoke another time in Chinese history and another outcome altogether. Here’s the story:

In late 1956, seven years after the founding of the Peoples Republic of China, Mao Zedong began one of the more infamous of the many mass campaigns in modern Chinese history up to that point. In a very well-known speech titled, “On the Correct Handling of the Contradictions Among the Masses”, Mao said “our society cannot back down, it can only progress . . . criticism of the bureaucracy is pushing the government towards the better.” Although it would be followed by the Great Leap Forward and mass starvation (1958-61) and that, in turn, by the Cultural Revolution (1966-76), the Hundred Flowers Campaign is still remembered by many. Even though it’s core period lasted only for approximately six weeks, it remains a source of controversy and disagreement. The operative slogan of the day was, “Letting a hundred flowers blossom and a hundred schools of thought contend is the policy for promoting progress in the arts and sciences and a flourishing socialist culture in our land.” There was a consequent outpouring of ideas and criticism about the operations of the new Chinese state. Then it came to crashing halt. Those most outspoken were sent off to labor camps or prison. Their response to Mao’s exhortations to be open and let the criticism flow, was turned on them in a sort of political jujitsu. Historians disagree about whether Mao planned the whole campaign in order to entice his critics to come into the open, thereby leaving them vulnerable, or whether he began with the best of intentions only to later fear the resulting waves of criticism. Either way, a current-day reference to letting many flowers bloom and hundreds of schools of thought contend is likely to prod many here to hide under their covers in an effort to avoid the intellectual spotlight.

One hopes that this is not what Hu Jintao intended.

Wednesday, November 30, 2011

A Contradiction of Style And Custom

I climbed out of my figurative Hermit’s Cave today and attended an American Chamber of Commerce in China meeting on “US China Relations: The View from Washington”. The speakers were Michael E. Brown, Dean of the Elliott School of International Affairs and Professor of Political Science and International Affairs; and Doug Guthrie, Dean of the School of Business and Professor of Management and International Business, The George Washington University. While the talk was interesting, its not what this blog post is about. During the Q & A that inevitably follows such an event, the subject of Chinese investment in the U.S. was raised. It is, for a number of reasons, common knowledge in China, at least amongst Chinese, that the U.S. is inhospitable to Chinese direct investment in America. Of course, the American view is quite the opposite -- and the data bears this out. Nevertheless, think Huawei Technologies Co. Ltd. and it’s cold reception both by Congress and the Washington punditry. You can also look at CNOOC and its abortive run at acquiring UNOCAL in 2005. At the time, CNOOC CEO Fu Chengyu was originally very confident that they would succeed because they "were following a system that was set up by Western leading companies”. I’m not sure what that means -- because they hired Goldman Sachs? Because they thought the had the system wired? Who knows. One of the audience mentioned that there are actually an increasing number of Chinese direct investment transactions being consummated in the U.S. and it was mentioned that the failures often can be blamed on Chinese investors going about things in the wrong way. I’m not sure what the speaker meant by this and didn’t have a chance to ask, but I’ve certainly seen these missteps in action. That is the topic of the moment here at Beijing Eye.

There is a basic contradiction in both style and custom in how many U.S. business people approach the Chinese market and how their Chinese counterparts approach the U.S. market. Of course, the first thing western business people do is to try to figure out whether there is a strategic reason to come to China. As the answer is, many times, a resounding “Yes!”, they take the next steps. The “next steps”, for opening China as much as opening a new branch in Cleveland, is to find out what the laws and regulations are. That means, inevitably, that they must hire lawyers and accountants. Once armed with the legal and financial structure, they do their “due diligence”, meaning that gather facts and try to anticipate what business risks they’ll face. If it works at home this way, it should be doubly important in a place like China, wouldn’t you think? Its certainly the way we’re taught to do things in B-School!

On the other hand, Chinese business people coming to the U.S. take a different tack. It should be no surprise that they act as they would at home in Beijing, Shanghai, Houhot, or Chengdu. First off, they’ll try to find a fixer, someone whom they trust who can take them around to meet people. Then they meet people, most especially they long to meet the local mayor, the governor, or any suitable (and available) public official -- the higher, the better! Often, they jump into deals before doing any substantial due diligence and without giving too much thought to how to structure a deal. They’ll hire advisory firms with big names, not because they are the right advisors or because of past successes with similar deals, but largely due to the Face such an association brings them. Sort of like buying a BMW because it has a famous logo and a high price tag.

I’m not suggesting that success in China is all about who you have a relationship with, altho it’s extremely important (and Guanxi doesn’t come from a few dinners with a visiting CEO, either). You have to also structure things properly and due all the requisite due diligence. But if you ignore relationship building, power alliances, and related issues, you will suffer eventually. By the same token, in the U.S., if you rely on relationships with Big Names in government (or big names generally, for that matter) without having a business model and a business plan that are well thought out and carefully crafted, you’re inviting an eventual shipwreck. No amount of pictures of your CEO and Governor What’s-His-Name will help at all.

And so it goes (with apologies to Kurt Vonnegut).

Saturday, November 19, 2011

After Taiwan, Sell Israel & Why Not Canada?

In 1998, when I ran the American Chamber of Commerce in China (no relation to the U.S. Chamber of Commerce in Washington), we had a dinner that had about ten or twelve speakers, a mix of Senators, Congressmen, and Cabinet Secretaries. Sen. Jay Rockefeller, one of the last to speak that night, started his remarks by quoting “Tip” O’Neill, the Speaker of the House from 1977-87. He said, “ It has come to that point in the evening where everything that needs to be said has been said, but not everyone has had a chance to say it.” A great line that I’ve borrowed before. So now its my turn to sound off about an Op-Ed piece published by the New York Times a few weeks ago.

The New York Times, my favorite newspaper, does a lot of things right. But it still makes some big blunders. In my humble opinion, the Editorial Pages are a weak spot. Too little quality control. Too little discipline (poorly thought out columns, based -- all too often -- on misinformation or even a certain lazy ignorance that still results in opinions that the Times willingly publishes). A case in point is the opinion piece published on November 10th, “To Save Our Economy, Ditch Taiwan”, by a guy named Paul Kane. That’s right, Kane advocates that the U.S. government sell Taiwan to the Peoples Republic of China in exchange for that portion of U.S. debt held by China, some US$1.15 trillion. In case you were wondering, that works out to about US$50 per person. Taiwanese aren’t cheap. A potential complication to this idiotic and shortsighted proposal is that Taiwan itself is the seventh largest sovereign U.S. debt holder. I guess Beijing would inherit that debt as part of the sale. Its not, literally, a sale, but its close enough.

Kane makes the case that military alliances are SOOOOO 1960’s that looking at the world in any way other than in terms of economics is just silly (I guess that’s why we’ve got Marines in Australia now, huh?). He says that the Chinese leadership would be startled by such a move by the U.S. Of all the assertions in his article, this is the only one that seems correct. Beijing would certainly be startled; then they would close the big red doors of Zhongnanhai so they could laugh in private. Then they would politely reject the deal. Why? Because they think Taiwan will “return home" on its own”, especially now that Chen Shui Bian is so discredited and the Guomendong government of Ma Yingjeou are shuttling back and forth from Taipei to Beijing. Why buy something at an inflated price when you can probably get it for free with a little patience? Whatever else one can say about the government of China (and there’s quite a bit), they are not stupid, not impatient, nor are they insensitive to Chinese public opinion. If they relinquished all of their U.S. Treasuries, the domestic criticism would be almost overwhelming. There’s nothing in this deal for the Chinese.

But that’s not at the crux of Kane’s fantasy. He proposes this as a fix-it solution for the U.S. In the unlikely prospect that this would be successful, it would wipe out almost 7% of U.S. Government debt. Quite obviously, that still leaves behind more than 90% of the debt burden. To suggest that the U.S. economy would see lasting benefit is, to say the least, mistaken. U.S economic security would not see any lasting benefit. Besides that, the image of the U.S. as a reliable and consistent ally would take a severe beating. Or not; more likely, it would just completely go away. Sort of like what would happen if the Obama turned over the entire State Dept. to Goldman Sachs. Most people would look at this idiocy as a shameful and selfish act of national desperation. After Taiwan, the U.S. could sell Israel to the Saudis, then Saudi Arabia itself to the Iranians. Would Putin be interested in Canada? Worth a shot, maybe. After all, what are friends for?

Would it help President Obama get re-elected? My guess is that it would backfire badly. Sort of like promising to appoint Ron Paul as Secretary of State, Rand Paul as Attorney General and Grover Norquist as Treasury Secretary.

It all sort of makes me wonder why Kane wrote his Op-Ed piece in the first place. He says, in his own defense, that it was meant as a satirical approach to the problems facing the United States. Kind of hard to believe, in that satire is generally identifiable as such, at least by the end of an article. He says it was meant to be provocative. He’s succeeded, of course. My guess is that he’d like to be seen as an authority on foreign and/or domestic policy (he tries, after all, to meld both with a simple -- or simple-minded -- “one size fits all” solution). If that was an aim, I think he’s damaged his own cause. Maybe his brain got a bit rattled as a Marine in Iraq. Or he’s spent too much time at Harvard. He may be eligible for the Larry Summers Award, given annually (by me) to the author of a public policy proposal most likely to have been designed with total disregard for the real world.

To be taken seriously, you have to do something (or write something) that’s worth taking seriously. “. . . Ditch Taiwan” is not deserving of anything except ridicule. Let’s hope no one takes it or its author seriously.

Wednesday, October 19, 2011

Chinese Road Rage

Road rage is all the rage in China these days. Of course, this is not a phenomena that is limited to China; virtually anywhere there are cars and traffic, road rage pops up. In China, it comes with rather quirky trappings.

The press, not just in China, was peppered in mid-September with stories about Li Tianyi, 15, the son of the acclaimed singer Li Shuangjiang, who accosted a couple in Beijing over a traffic-induced slight. The younger Li, hopped out of his unregistered souped-up BMW and with a friend (himself driving an Army-registered Audi) proceeded to beat the crap out of the male half of the couple. He warned bystanders not to call the police. Nevertheless, he was arrested and given a years jail time. His father apologized quite profusely and publicly.

Some time ago, Li Qiming, the son of a police chief in Hebei province hit and killed a young woman while driving on a university campus. He then attempted to bully his way past security guards shouting “My father is Li Gang.”

In a less reported incident, this time in Anhui province, a young male driver was attempting to parallel park on a commercial street. On the sidewalk next to the road was a sign advertising the the adjacent shop. The driver managed to flatten the sign. To his credit, at least he was trying to actual parallel park; many Chinese drivers just stop as near to the curb as they can, altho far from parallel, and block traffic until they finish their business. At any rate, in this case, the shop keeper took exception to the destruction of his sign and came out of his shop to give the driver a piece of his mind. Things, predictably, escalated. The driver objected to the shopkeeper's objections, entered the store and trashed the place, ripping the phone out of the wall, smashing anything within reach. The shopkeeper's wife and baby were collateral damage, although, fortunately, not fatally. By this time a crowd had gathered, surrounding the store. If the driver had fantasies of a blitzkrieg and quick escape, they were firmly dashed. Someone called the police, who arrived shortly after. They took the young driver into custody.

That's when things began to get interesting, as the crowd departed from the usual passive pattern. This wasn’t just an afternoon’s entertainment. Apparently fearing that the driver would get off without punishment, the crowd took matters into their own hands. The estimated 2,000 people on the sidewalk and street surrounded the police car and refused to allow the cops to leave the scene with the young driver. They forced the cop and culprit out of the car and made them stand side-by-side next to the police car. Then, armed with the latest cell phones, they took pictures of the driver and the cop, as if to forever link the two. If the kid got off, they’d know who to blame. That was the idea, anyway.

The moral of the story, for me, is that the average people of China are getting more than fed up with the atmosphere of lawlessness, privilege and arrogance that is so much a part of some segments of Chinese society. Road Rage, Chinese style, is merely a symptom. It will be interesting to see if anything changes.

Tuesday, September 20, 2011

Welcome To Beijing, Mr. Ambassador

Ambassador Gary Locke, America’s first Chinese-American Governor and America’s Tenth Ambassador to China (and only Chinese-American to hold the post) was the guest of honor at a lunch today, hosted by the American Chamber of Commerce in China and the US-China Business Council. He’s had an interesting and rather unusual time of it so far, in ways that were also, probably, unexpected.

First, some background:

When I was a young boy -- maybe 10 or 11 years old -- I had a chance encounter with one of the many members of the Rockefeller family that lived in suburban New York. What I remember about that glimpse was that my father used it as a “teachable moment” about values. Strikingly, here was a member of one of America’s then richest families, driving down the road in a well-worn Ford station-wagon; one of those ubiquitous buggies with the big round taillights, mini fins canted up and out at a forty-five degree angle, and fake woodgrain on the side. A Woodie, as we used to call them but, of course, just painted steel that looked, from 30 feet away, like wood. Unassuming and rather modest for someone so unaccountably rich.

So: what does that have to do with welcoming a new American Ambassador to Beijing?

One of the most curious subtexts of Ambassador Gary Locke’s short time here in the Peoples’ Paradise is that he has come in for a bit of chatter from Baidu posters and the Sina Weibo masses for some incongruous, at least for many Chinese, Ambo-sightings. This has nothing to do with Amb. Locke’s speeches. It has everything to do with something more akin to his political body language.

The first sighting was a photo of the new ambassador on his departure from Seattle-Tacoma Int’l Airport, on his way to Beijing. He did something totally unremarkable for most Americans. He bought a Starbucks coffee -- it was Seattle, after all -- while his backpack was slung over his shoulder. My reaction was: well, you have to put your pack over your shoulder so you can use your hands to manage your coffee. The Chinese reaction was completely different: “He bought his own coffee? Why? What’s with that? And he carried his own bag?”

More recently, he’s apparently been scouted tooling around Beijing on a bicycle, shocking the locals even more.

All of this is quintessentially American. At least that part of the American character that most Americans are proud of. Its like a Rockefeller tooling around suburban New York in an everyman’s aging Ford station wagon. And why not? For many Chinese that I’ve heard from, this is a very refreshing thing. A “Senior Official” (and Beijing is overflowing with them) who sees himself as a normal human being (albeit with a pretty interesting and high ranking job)? Bravo!

For many other Chinese, its a sign of America’s inescapable and inevitable decline. High ranking officials, they believe, should let no opportunity escape to remind everyone that they are: powerful; not like you and I; special; held to a different standard; and so on. If you can, and don’t, there must be something wrong. But there’s nothing wrong with Amb. Locke. I’m sure his State Department armored limo is in great condition. He’s just self aware enough to know who he is. Who he really is. In the U.S., no matter the reality, people with either power or money or both want to be seen as being “just everyday folks” or, as the Chinese would say “laobaixing (老百姓)”. Its an eloquent statement, and a welcome one.

So, Mr. Ambassador: Welcome to Beijing!

And Thank You!

Monday, September 19, 2011

What's Next, Redux.

It's Not Fun Being Right
I posted this article a while ago; February 1st 2009, to be exact. While I may have missed a few of the details, overall I think I was pretty much spot-on. The social fabric of Europe is getting frayed, as is that of the U.S. (think of the Tea Party movement as a sign of things to come) and, of course, the "Arab Spring" wasn't a phrase that would have meant too much two and a half years ago. There's much more of this on the way, I'm afraid.
What's Next? (February 1, 2009)
As the global economic order collapses, most of the attention has been, for obvious reasons, on economics. After all, this is, first and foremost, an economic problem. We've all, those paying attention, become steeped in the vocabulary of economics and the financial world: credit-default swaps, hedge funds, yield curves, Treasury bond pricing, currency valuation, trade imbalances, savings rates (or lack thereof). For me, it has always been useful to try to look at problems from a completely different perspective. Sometimes its an empty and fruitless exercise -- interesting, perhaps -- but ultimately, providing no new insight. At other times, a whole new light can be shone on something and we see it in a new way.

The economic collapse we're witnessing is so complex and so multi-faceted & nuanced, that it gives us all kinds of different angles to watch from. One very popular Scenic Viewing Spot, a great Photo Op, you might say, is to look at the current situation and compare it to the Great Depression of 1929-1939 (or so). Certainly, there's a lot we can learn from the mistakes of the past that will help policy makers deal with the dilemmas of today. Its not the same, of course; it never is. But there are enough similarities, and the mistakes of the 1930's were so glaringly obvious, that the same mistakes won't be repeated. In China, in the U.S., in Europe, the media (and policy makers meeting rooms, you can bet) are filled with analysis and studies of lessons to be learned. There's been at least one thing that's been largely missing from the discussion, altho I'd bet that, at least in Zhongnanhai, the Powers That Be have been paying close attention. The media, to be sure (at least from my reading) hasn't woken up to the problem yet. What is it? Its the issue of what's next. What happens in the aftermath of an economic collapse of this magnitude? Again, a look back to the Great Depression is useful. It doesn't mean that the same things will happen; they never do. But similar things could happen, even if in different ways and in different places. Here's what I mean: the biggest & most consequential result of the 1929-1933 economic collapse was not economic, altho that was bad enough. It was political. Europe saw a turn from liberal democracy towards fascism, resulting in the rise to power of the National Socialists (who weren't really socialist at all) in Germany and the National Fascists in Italy. In Asia, Japan turned to the militarism that was latent in Japanese culture and politics. And, of course, the consequence of this broad political shift was World War Two. I'm not suggesting that the current problems will lead to another big war. Not at all. What I'm suggesting is that a broad shift downward in the economic prospects of hundreds of millions of people, if not billions, is likely to have political repercussions.

Already we have seen the Icelandic government collapse. Russians are restive, as are people in other pockets, both in Europe and in China. The U.S. has seen a peaceful, albeit dramatic, political change. With apologies to Elizabeth Kubler-Ross, I'd like to suggest that her Five Stages of Grief (Denial, Anger, Bargaining, Psychological Depression, and Acceptance) have a sociological and political application. First off, though, some caveats. These stages are not predictive, meaning they aren't inevitable. They may come in a rather random order. While, for individuals, there is a sequence, the edges are rather fuzzy (one can be alternate, for instance, between denial and anger). lastly, people don't necessarily go thru all the stages. Kubler-Ross maintained that people always experienced at least two stages, altho which two could vary. This is, in my opinion, even more true with large groups of people. Certainly, some of these stages of grief are already apparent. Who would today suggest that as recently as last summer, denial was not common? Americans were characterized as a "nation of whiners" by former Senator Phil Gramm. John McCain famously said the American economy was "fundamentally sound". If that isn't denial, the meaning is lost on me.

While some are still in denial, you can see evidence of bargaining, particularly in the halls of government. Then again, that's their job. In the U.S., at least, anger has been apparent, but it hasn't been a broad motivating factor. In other regions, it has been more visible. In China, it has sprouted up but has not been a broadly motivating factor for most of the population. For most of the world, the situation is in its early stages. There is economic pain, to be sure, but it is still characterized by early stage shock and denial. What is to be feared is the anger that may come as people realize their prospects & wealth may have been forever altered. If the world's government leaders, with their central bankers & finance ministers, are successful in limiting the disintegration that is potentially right around the corner, the dragon of political and social disruption will go back in its lair to hibernate for another eon. That's a big "if".