Pivoting off of a post by China Law Blog from the other day, entitled The End of Cheap China, With a Giant Caveat, it is worth examining a few points about the relative decline of Chinese manufacturing output and the potential for these jobs to come back to America. But before I get started, consider this:

When it comes down to it, how many of you want your kids to work in a factory, mindlessly putting together toys, sewing socks, breathing in industrial pollutants and dreaming of a better life for $7.00 an hour and few, if any, benefits?

How many of you want your kids to enter fields where machinery, automation and robotics increase productivity at the cost of a shrinking and unneeded workforce? Is that the future you want for your kids and country?

Right. Wouldn’t you rather have them working in knowledge based jobs, or in high tech manufacturing jobs that require skill, ingenuity and which command premium salaries?

So, while the end of cheap china is here, it is relative, and China is still a relatively good bargain because:

1. It does not appear likely that China will make enough progress in building a service and consumer driven economy in the next five years to make up for a major loss or move away from manufacturing. It would be politically and economically impossible for the Government to allow that to happen.

2. China’s interior provinces are still a viable alternative to the more expensive and saturated coastal cities. The 12th Five Year Plan makes clear that more equal development and sharing of wealth is a priority. Companies can take advantage of lower costs and great incentives by producing/sourcing in non-traditional areas. Of course this needs the continued build-out of infrastructure and supporting services but Chongqing is a good example of how it can work and we believe the trend will continue.

3. America can not, and will not, win back the low value-add, commodity based manufacturing jobs it once had. If these jobs leave China, as some already are, they are going to SE Asia and South America. The US and Europe need to focus on the high-value add, technology driven export economy that Germany has perfected and which keeps it in the black.

4. China is working toward moving commodity based manufacturing inland, but is also developing higher value-add and higher technology manufacturing in the coastal areas. It is NOT abandoning manufacturing and has the money to support and subsidize it where needed. In other words China will move from selling toothpicks to the machines that make them (formerly bought from Germany).

5. China still has stellar infrastructure, with scale, built for manufacturing and export that the likes of India can’t compete with.

6. China for China – As more and more Western companies turn their focus to China as a market, they are shifting their in-country manufacturing and sourcing to creating products for China, as well as export. We expect that this will have a positive effect on China’s overall manufacturing out put in the next five years.

7. All things being equal, American retailers are not yet willing to pay the premium that MIA products command and will not be willing t pass those costs on to customers.

8. As a new generation of entrepreneurs and factory owners rises many of the old inefficiencies, quality problems and lack of understanding regarding the needs of Western markets will begin to fade providing a new advantage for China.

All this being said, it is likely that China’s economy will cool a bit in 2012 and there are major shifts taking place in the manufacturing sector, but China needs to employ a lot of people to stay afloat and for the Party to maintain legitimacy. Right now that still means a lot of manufacturing jobs, of both the commodity and high value add sort.

We see the rapid decline of China manufacturing and the rapid rise of Amero-European manufacturing to be highly exaggerated. In the end the likely and hopeful scenario is that America starts producing high-end products that produce high end wages and leave it to China and the rest of the developing world to provide the rest.

China’s president, Hu Jintao, greeted 2012 with an important essay warning that China was being battered by Western culture: “We must clearly see that international hostile forces are intensifying the strategic plot of Westernizing and dividing China, and ideological and cultural fields are the focal areas of their long-term infiltration,” he wrote, adding that “the international culture of the West is strong while we are weak.”

Essentially, Hu was saying that China was under assault by Western soft power — the ability to produce outcomes through persuasion and attraction rather than coercion or payment — and needed to fight back.

Over the past decade, China’s economic and military might has grown impressively, and this has frightened its neighbors into looking for allies to balance rising Chinese hard power. But if a country can also increase its soft power, its neighbors feel less need to seek balancing alliances. For example, Canada and Mexico do not seek alliances with China to balance American power the way Asian countries seek an American presence to balance China.

Already in 2007, Hu told the 17th Congress of the Chinese Communist Party that China needed to invest more in its soft power resources. Accordingly, China is spending billions of dollars on a charm offensive.

The Chinese style emphasizes high-profile gestures, such as rebuilding the Cambodian Parliament or Mozambique’s Foreign Affairs Ministry. The elaborately staged 2008 Beijing Olympics enhanced China’s reputation, and the 2010 Shanghai Expo attracted more than 70 million visitors. The Boao Forum for Asia on Hainan Island attracts nearly 2,000 Asian politicians and business leaders to what is billed as an “Asian Davos.” And Chinese aid programs to Africa and Latin America are not limited by the institutional or human rights concerns that constrain Western aid.

China has always had an attractive traditional culture, and now it has created several hundred Confucius Institutes around the world to teach its language and culture. The enrollment of foreign students in China has increased from 36,000 a decade ago to at least 240,000 in 2010, and while the Voice of America was cutting its Chinese broadcasts, China Radio International was increasing its broadcasts in English to 24 hours a day.

In 2009, Beijing announced plans to spend billions of dollars to develop global media giants to compete with Bloomberg, Time Warner and Viacom. China invested $8.9 billion in external publicity work, including a 24-hour Xinhua cable news channel designed to imitate Al Jazeera.

Beijing has also raised defenses. It limits foreign films to only 20 per year, subsidizes Chinese companies creating cultural products, and has restricted Chinese television shows that are imitations of Western entertainment programs.

But for all its efforts, China has had a limited return on its investment. A recent BBC poll shows that opinions of China’s influence are positive in much of Africa and Latin America, but predominantly negative in the United States and Europe, as well as in India, Japan and South Korea. A poll taken in Asia after the Beijing Olympics found that China’s charm offensive had been ineffective.

What China seems not to appreciate is that using culture and narrative to create soft power is not easy when they are inconsistent with domestic realities.

The 2008 Olympics were a success, but shortly afterwards, China’s domestic crackdown in Tibet and Xianjiang, and on human rights activists, undercut its soft power gains. The Shanghai Expo was also a great success, but was followed by the jailing of the Nobel peace laureate Liu Xiaobo and the artist Ai Weiwei. And for all the efforts to turn Xinhua and China Central Television into competitors for CNN and the BBC, there is little international audience for brittle propaganda.

Now, in the aftermath of the Middle East revolutions, China is clamping down on the Internet and jailing human rights lawyers, once again torpedoing its soft power campaign.

As Han Han, a novelist and popular blogger, argued in December, “the restriction on cultural activities makes it impossible for China to influence literature and cinema on a global basis or for us culturati to raise our heads up proud.”

The development of soft power need not be a zero sum game. All countries can gain from finding attraction in one anothers’ cultures. But for China to succeed, it will need to unleash the talents of its civil society. Unfortunately, that does not seem about to happen soon.

Joseph S. Nye Jr. is a professor at Harvard and the author, most recently, of “The Future of Power.”

First out of the gates is this sad, funny, bigoted, weird video. No one seems to know who is really behind it. It’s purportedly from Ron Paul or a supporter of his but I doubt that highly.

According to the video, since Jon Huntsman speaks Mandarin and was ambassador to China, he is a Manchurian candidate, whose kids aren’t really his own and who will work on behalf of the Chinese government to undermine America. As sad as this is, it may just be a sign of things to come this season. From both sides of the aisle. And of course Chaiman Hu’s recent “Cultural Warfare” commentary add fuel to the fire from Zhong guo.

A future where the US and China are antagonists and openly hostile to each other rather than friendly rivals, shaping a better world with mutual dependence is a future I don’t like to consider. Called me naive, but that is the future I want.

Watch and weep.

You will find a culture that is progressive and regressive. You will find a government that is amazingly effective and horrifically ineffective. China is at once virile and impotent. Chinese people can be incredibly honest and incredibly opaque. China is moving fast into the future and clinging tightly to the past. China is a great business opportunity and it is also a place where the wreckage of many companies and ideas meet their doom on rocky shoals.

In other words, China is no one thing. It is neither an unstoppable force that will dominate the world, nor is it a paper tiger on the verge of collapse.

After a long, long time living and working in China, studying China and engaging China, the only thing that is clear to me is that China, no matter where you look, IS and IS NOT. The land that gave us the concept of Ying and Yang exemplifies it best.

Yet, we are often confronted by those who want to paint China as one thing and one thing only.

Some say it is the land of virtue, opportunity and equality where fortunes are to be made and the government and people can do no wrong and the glorious new benevolent authoritarian Empire will rise and rule for a thousand years. Please read anything that Shaun Rein of China Market Research Group has written in the past few years.

or

It is an evil government intent on world domination presiding over dishonest, craven, materialistic drones who happily trade freedoms for money. A country whose amazing progress over 30 years was an illusion about to be exposed. Read Gordon Chang.

The smartest writers, pundits, business people and academics I know all see that China can be all of the above, none of the above and everything in between.

Read James Fallows of The Atlantic, Stan at China Hearsay, Andrew Hupert, Ian Bremmer, Ann Lee, Janet Carmosky, Malcom Riddell, Bill Russo, Richard McGregor, Avery Booker, Bill Dodson, Charles at China Geeks, James McGregor, Peter Hessler, Kent Kedl, Tom Lassiter, Ben Shobert or Dan Harris at China Law Blog for starters. All voices who I owe a great debt to for having taught me so much about China and who consistently provide balanced views.

But if you allow yourself to believe the version of China presented by either the Gordon Changs or Shaun Reins of the world then you will never really understand the promise and peril that is China.

I did not post a review of China in 2011 because so many others did it so well. I did not post any predictions for 2012 a. because others did it so well and b. predicting anything regarding China 12 months out is extremely hard to do and I am in awe of those who do it for me

I fell in love with China when I started working there. I have a deep love of the people, the culture, the history, the food and yes, the business opportunities. Some of my longest lasting and deepest friendships were formed and continue to flourish in China. I have been inspired an amazed by the progress the country has made on almost every front over the last 30 years.

But, that does not blind me to the problems and obstacles the country is facing, it does not innure me from feeling sick when I see the ways in which the government fails, the way corruption and poverty persist, the way the environment is becoming poisonous and the possibility for chaos.

Gordon Chang has doubled down on his 10 year old prognostication and predicated the complete collapse of the CCP in 2012 and the crash of the Chinese economy. Well, he has been wrong 10 years in a row, so he might as well keep going until he’s right. Right?

Shaun Rein continues to take an apologist’s, see, hear, speak no evil view of China. Maybe that’s good for getting along in China but it does NOT present clients and the wider world with the full picture.

If you have a business, product or investment you want to make in China, I can only hope that you will seek out the middle ground of understanding regarding what China is and is not.

So, going against my inclination to not make predictions I will offer two for China in 2012.

The CCP and the Economy will not collapse but the Chang, Chanos, view of China will continue to find a credulous audience.

Shaun Rein’s upcoming book “The End of Cheap China” will be a big success and his rose-colored view of China will continue to find credulous audience.

What do you think?

Thanks for reading this blog in 2011 and I hope to continue to see and engage with you all in 2012.

Happy New Year everyone.

Read James Fallows.

4. Standing on History

I made my first visit to Vietnam this year. Standing on top of the Reunification Palace where the iconic picture of the last helicopter out of Saigon was taken. Wow, lots to think about for a history obsessed, geopolitical wonk like myself.

3. Natural China

White water rafting on a pristine river, through mountain gorges and in the shadow of a 500 foot waterfall, in the the midst of 1,000 islands on a lake in Zhejiang. It reminded me how beautiful China is outside of the big cities and how much of China’s air, water and land have been despoiled.

2. Cognitive Fashion Dissonance

In the lobby of the JW Marriott in Kuala Lumpur. A tourist couple from one of the Gulf States. She: In full Burka with only a pair of beautiful green eyes and lots of gold jewelry showing. He: Ratty shorts, flip flops and…. A HOOTERS T-SHIRT.

1. My bed.

10. “Gang” war at Pudong International Airport, Shanghai

Eight men in blue airport uniforms were holding down and abusing a worker in a green airport uniform. He struggled hard, they could hardly contain him. This went on for about 10 minutes. Then I heard the uniform thump of men marching in formation. Here they came. About 20 green uniformed airport workers. They attacked the blues who were holding their comrade down. Curses flew, fists and elbows banged faces. Then a whistle. A major domo type figure said one sentence and the lot of them scrambled off.

9. No, really, it’s a good smell.

White girl tries Durian fruit from a street stall in Shanghai. White girl promptly throws up Durian fruit on street stall in Shanghai.

8. The slow motion dumpling

After a week long slog on the road in China with a client we finally had a chance to sit down and discuss the week’s events over some dumplings.

And as he raises the dumpling, unsteadily perched between his chopsticks, I watch as the slippery slider falls away in slow motion and tumbles down to his bowl of vinegar. There follows a Vesuvian eruption of brown liquid that miraculously only found its way onto my white shirt. I wish Nat Geo was there with a high speed camera so you could appreciate the full effect.

7. Uh oh

Watching the protests in Cairo’s Tahrir Square unfold on Chinese TV. With the requisite cuts to a black screen during “uncomfortable” portions of the broadcast.

6. We’re on Fire

We were not more than 20 minutes out of Shanghai on the way to the Technomic Asia company retreat in the mountains of Zhejiang when…a woman in the car next to us frantically screamed and waved her arms at us. I only realized what was happening when the bus driver pulled over, grabbed the extinguisher and raced to put out the flaming exhaust pipe at the rear. Disclaimer: No consultants were injured during this typical Chinese holiday scene.

5. It’s California

Man riding bicycle on Santa Monica Blvd wearing only…a fig leaf. Must be a bible literalist.

Stay tuned tomorrow for the final four.

As with most things China there is a wide variety of views, statistics, proofs, forecasts etc. to choose from. The bottom line seems to be:

Sales of luxury products and services will continue to grow in 2012 as more Chinese consumers buy at home, in Hong Kong and further abroad. That said growth will be slower in the first two quarters of the year as uncertainty surrounding the capital and real estate markets on the mainland continues to fester.

But, over the next five years China and its consumers will continue their march toward being the #1 buyers of luxury products across a wide range of categories.

This article from Bloomberg Business Week is a good recap of the situation and summarizes what I have been seeing and hearing out there.

http://www.businessweek.com/news/2011-12-21/prada-poised-to-extend-slump-as-china-shoppers-cut-back-retail.html

What are you seeing?

Today I found the Dec. 17 article The Economist posted. Now I feel like I have some answers.

Why China fails at football
Little red card
The telling reasons why, at least in football, China is unlikely to rule the world in the near future

Dec 17th 2011 | from the print edition

The Buddha tells the people he can fulfil only one of their wishes. Someone asks: “Could you lower the price of property in China so that people can afford it?” Seeing the Buddha frown in silence, the person makes another wish: “Could you make the Chinese football team qualify for a World Cup?” After a long sigh, the Buddha says: “Let’s talk about property prices.”

THE pass back to the goalkeeper seemed routine for Qingdao Hailifeng FC in its match against Sichuan FC in September 2009, even if the ball was struck a little too hard and the keeper only just managed to stop it running past him and into the net. Qingdao was safely ahead 3-0 with two minutes left in a meaningless match in China’s second division. What could be amiss?

Then a Qingdao assistant coach gestured for the keeper to come forward from the penalty area. Another Qingdao player promptly chipped the ball over him and towards the net, missing an own goal by inches. The final whistle blew soon afterwards.

Qingdao’s owner Du Yunqi was irate—at his team’s utter incompetence. As he would later admit to investigators, he had just lost a bet that there would be a total of four goals scored in the game. His humiliated assistant coach said on national television, “Afterward the boss was angry and scolded me, saying I bungled things and couldn’t even fix a match.”

The hapless case of “chip-shot gate”, as the Qingdao game came to be known, is just one low point in aeons of Chinese footballing ineptitude. The only time China qualified for the World Cup finals, in 2002, its side failed to score in any of its three matches; the team has never won a game at the Olympics. And Chinese players are sometimes too incompetent not only to win matches, but also to rig them.

http://www.technomicasia.com/blog/?p=1368 Landed last night after 10 days in Singapore and Malaysia. The trip makes my regular NY-Shanghai commute seem trivial. Twenty six hours each way. The good news is I caught up on some reading.

One question stood out. I said “hopefully” China will be successful in its transition from a commodity/export based economy, lacking innovation, to an economy driven by innovation, consumer spending and services.

I was asked why I said “hopefully.” My answer. This type of transition is difficult under the best of circumstances. Never mind if: you have 1.3 billion people to employ, feed and take care of, an environment that is poisoned, a populace that needs to pay for its own health care and education, a looming change in leadership, shifting Geo-political winds, a neighborhood that is increasingly wary of your intentions, a need to keep growth at at least 8%, an educational and political system that discourages original thinking and risk taking, an aging population etc. etc. etc.

Many people in the Chinosphere are talking about these being particularly gloomy times for China and many others are questioning the sustainability of China’s rise. See Dan Harris’ post from the

I tend to balance the positives with the negatives and never get too high or too low on China’s prospects.

That said there are a few stories circulating now that I think businesses, governments, NGOs and all those who have an interest in China must pay attention to as they point to some worrying trends.

They are:

The Issue: Apple Loses the Right to use the name iPAd in China

What it Means for the Future: One of the great bugaboos of doing business in China is the lack of respect for intellectual property. In the past China’s trademark and copyright laws were to loose. They have come the other way now and are among the strictest, and most complicated on Earth.

One of the greatest challenges to doing business in a “first to file” country like China is protecting your IP. Chinese companies have every right to use the name of your company, product, slogan etc. if you do not file first. If Apple can’t keep the iPad name in China it does not bode well form smaller players. It also sends mixed signals on the sanctity as well as the disposable nature of IP in China.

Good coverage here:

The Issue: Beijing’s Polluted Air

The huge controversy developing around Beijing’s air quality and the government’s commitment to telling the truth and taking corrective actions. This has reached emergency proportions. The air in Beijing right now will actually take 6 years off of your life.

Please see James Fallows’ coverage of the story for The Atlantic. He has all the details and has been semi-obsessed with Beijing’s air for the better part of 5 years.

What it Means for The Future: As I have explained in my “Wealth Through Health” analysis of the 12th 5 Year Plan, cleaning up the environmental mess in China and preventing further degradation is a major focus of the the government. That said, one has to wonder how much of this is just talk if the air in the country’s capital is the most polluted on earth. The Chinese people cannot prosper, nor can foreign businesses, if the air, water and land are poisoned.

Fallows’ coverage is here:

The Issue: Companies Employing Foreigners in China To New Pay Taxes, Surcharges

Beijing seems to be tightening controls on foreign companies operating in China. These new regulations will make it much more expensive for local and foreign companies to employ foreigners in China.

What it Means for The Future: China still needs the experience, expertise, technologies and best practices that foreign companies bring with them. This may dissuade some companies from entering or expanding in China, thus depriving China of what it needs most. It also seems unfair that employers have to pay these taxes and charges for employees that will never collect the social benefits they are supposed to provide.

It may also signals that China may be “souring” on some foreign enterprises and FDI and that they want to concentrate ever more on “Going Global” with their companies and investments.

MSNBC covers the story well here

What are you seeing, hearing, feeling out there? Any stories that worry you?

This week a number of readers have asked why Beijing banned some advertising on TV and what it means.

The first thing to know is that this move is part of a larger corralling of media of all types; internet, social, blogs, print, movies and yes, TV. The main factors feeding the year-long campaign, of which the ad ban is just one piece, are:

1- A change of leadership is coming. Next year President Hu and Premier Wen will be stepping down and Xi Jinping will assume power. Whenever there is a change of leadership in China, there is a temporary move to political, social and media conservatism. While everyone figures out which way the wind will be blowing, no one in the current or coming government wants to see disruption and disharmony during the transition (viewed as a vulnerable period).

2 – The Great Firewall worked very well for Web 1.0, but in a social-media dominated Web 2.0, Beijing has found that blocking key words, web sites and foreign content is not enough to maintain complete control. Recent scandals, including the Wenzhou train crash, the Shanghai Metro crash, a party official’s son hitting a pedestrian with his car and others, were all widely talked about, dissected and questioned through social media. This prompted authorities to rethink their engagement with and control of all media. How do you police 10 billion user generated posts per day? You start by rethinking your entire approach to controlling communications.

3 – The Chinese Central Government is in the media business. and doesn’t like having to compete for the attention, hearts, and minds of viewers or for the advertising dollars the big hits produce.

4- The Arab Spring - Beijing has followed the Arab Spring closely. They realize that satellite TV, non-state owned media and social networking not only fueled and provided logistics for these revolutions but they brought the images, sounds and events live to screens around the globe. There is a reason you never see video of unrest in the Western regions. If you don’t see it, it didn’t really happen. They see the media landscape as holistic and interconnected. If you are not consuming state-approved content you may start getting ideas…

What does this mean for business?

*TV is is the most widely consumed and effective advertising medium in China. If your company and brand depend on it, you need to rethink your plans for the next 18 months.

*China has more Internet users than any country on Earth and reaching them is critical to domestic and foreign companies branding and sales strategies. Social media is now an important part of commerce in China. If ads can be banned on TV, they can be banned on social media as well.

*Media of any type is still considered a National Security industry in China and in most ways foreigners will be shut out for the foreseeable future

*Like we always say – “Your China Strategy has a shelf-life of six months” – You need to constantly assess conditions on the ground and have contingencies in place.

What do you see out there?

Michael Zakkour, principal of Technomic Asia a will provide commentary and insights about China’s fashion and luxury consumers for the Confucius Institute, Fashion, China, and You on Tuesday, December 6 from 9am – noon.

The event, being held at the SUNY Levin Global Center at 116 East 55th Street, is part of the State University of New York’s Confucius Institute for Business, which incorporates expertise in innovation, culture and business strategies. Zakkour has more than a decade of experience in developing and implementing business strategies for companies entering or expanding in China. Technomic Asia also recently concluded a year long study of China’s premium brand consumers. He will present these findings and other first hand information about China’s fashion consumer at this event.

The two other members of the panel are Renee Hartmann, co-founder of the China Luxury Network, and the Eno lifestyle apparel brand. Eno has 25 retail stores in China that markets brands to China’s youth market. Also speaking will be Professor Lawrence Delson, president of Delson International, and adjunct professor at NYU and lecturer at the Fashion Institute of Technology.

The panel will be moderated by Janet Carmosky, CEO of the China Business Network and a veteran of 25 years of doing business in China.

“In America we have laws and contracts so that we can create predictable outcomes. In China no such system exists but the same desire for predictable outcomes is there. That is what lies at the heart of guanxi”- Vice Minister Xi, paraphrased.

In this day of technological ubiquity in entertainment, it is still The Theater (and books) that give me the greatest pleasure. I love plays: comedies, dramas, ancient, classic, contemporary, and musicals of all stripes as well. I love that plays are essentially staged and told the same as they were 2,000 years ago. The planks, the players, the audience, the ambiance….

But it is not often that I go to the theater with the anticipation of seeing my life, my profession and my experiences laid bare upon the stage.

So it was with David Henry Hwang’s new play about cross-cultural misunderstanding, “Chinglish”. His best since his Tony Award winning “M. Butterfly.”

If you are in any way involved in doing business in/with China, if you are a Sinophile, if you have lived there or if you have spent any kind of time trying to navigate personal and business relationships in the Middle Kingdom then you will likely love this play as much as I did.

If you are clueless about China or know only what you read in the news the play will be just as satisfying because it is as much about how we interpret and define the meanings of honesty, love, ambition and most importantly, relationships, as it is about the incomprehensible aspects of language and culture between Western and Chinese people

This is a laugh out loud comedy with a deep and dramatic message at it’s heart.

Much of the play takes place in Mandarin with translations (and mistranslations) projected on the sets that marvelously recreate a Chinese hotel, office and home.

The characters are all people I have met and worked with. The attractive, whip smart, ambitious Party apparatchik, the smooth-talking, Manadarin-speaking, ex-pat “consultant”, the official who plays by the same corrupt rules as everyone else, the young, entitled “princeling”, the bad interpreters.

“Chinglish” is superbly acted, well written, well directed and the sets are near perfect. Jennifer Lim as Vice Minister Xi will almost certainly be nominated for a Tony as best female lead.

Seeing my early experiences, thoughts, feelings and confusion writ large upon the stage was like being in a dream where I am just landing in pre-WTO China again.

The central plot revolves around Daniel Cavanaugh (Gary Wilmes) trying to close a deal with the Guiyang Ministry of Culture to provide signs for the new Cultural Center. Vice Minister Xi appears to be Daniel’s adversary at first, but becomes an ally. I don’t want to give anything away so it will have to suffice to say that a series of political, romantic, and business intrigues develop that all expose how cultural perception and norms are real and truth is really an abstract, and that in China, not everyone (including foreigners attempting to reinvent themselves) or everything, is as it seems.

The play is not perfect, there were some issues I had with the length (could have used a 20 minute trim), character depth (we needed more for a few) and a tendency to overly rely on bang-you-over-the-head exposition, but in the end it was funny, touching and a work of great human exploration.

CHINGLISH

By David Henry Hwang; directed by Leigh Silverman; sets by David Korins; costumes by Anita Yavich; lighting by Brian MacDevitt; sound by Darron L West; projections by Jeff Sugg and Shawn Duan; an Theater. At the Longacre Theater, 220 West 48th Street, Manhattan; (212) 239-6200; telecharge.com.Running time: 2 hours.

WITH: Jennifer Lim (Xi Yan), Gary Wilmes (Daniel Cavanaugh), Angela Lin (Miss Qian/Prosecutor Li), Christine Lin (Miss Zhao), Stephen Pucci (Peter Timms), Johnny Wu (Bing/Judge Xu Geming) and Larry Lei Zhang (Minister Cai Guoliang).

Technomic Asia is now the sole in-country consulting partner for Pan Asian, a commercial debt recovery consulting firm, in China and is also now managing the company’s overall expansion in Asia.

“We are pleased that Pan Asian has placed its trust in Technomic Asia to help the company build a dominant market position in Asia. Our work for the company in China has provided the blueprint for our expansion across the region,” said Technomic Asia Principal, Michael Zakkour.

“As the Western economic downturn continues, the need for Pan Asian’s products and services in the region has grown exponentially and Technomic is excited to help steer the company into the future in this most important of markets,” continued Zakkour.

Highlights of the expanded relationship include:

• -Responsibility for all Pan Asian strategies, implementation and operations in China
• -Hosting Pan Asian’s personnel at TA headquarters in Shanghai
• -Opening Pan Asian offices in Vietnam, Malaysia, Thailand and Taiwan

“Technomic Asia has proven itself to be an invaluable asset in every facet of our business activity in China, providing us with the guidance, strategies, infrastructure and relationships for measured, strategic and rapid growth” said Keith Stillings, CEO of Pan Asian.

About Technomic Asia
Technomic Asia, a division of Tompkins International (www.tompkinsinc.com), is a business strategy and supply chain consultancy with more than 30 years of experience helping clients plan and execute Asian growth and operational strategies. Technomic Asia’s mission is to assist globally-expanding companies to build their Asian businesses through high quality market strategy and implementation assistance.

General Motors Co. (GM) will introduce its Chevrolet Volt plug-in hybrid car in China at an auto show on Nov. 21, and dealers will begin taking orders for the model “shortly,” the automaker said.

“This will be relatively low-volume,” Kevin Wale, president of the Detroit-based company’s China unit, said in a phone interview yesterday in Shanghai, declining to comment on specifics including pricing before the show in Guangzhou. “We’re trying to use this as a statement for technology and the beginning of the path towards electrification.”

GM will be first among the world’s largest automakers to sell a plug-in car in China, where rivals including Daimler AG (DAI) and Nissan Motor Co. also plan to introduce similar models. Electric-car sales in China are forecast to exceed those in the U.S. by 2020, helped by government subsidies and investment as the Asian nation, the world’s largest polluter, seeks to cut emissions, according to the Boston Consulting Group.

The Volt, which is powered by an electric battery for about 40 miles before a gasoline engine kicks in, retails in the U.S. for $39,995 before a federal tax credit.

The model will complement an all-electric car that GM is working to develop with its Chinese partner, SAIC Motor Corp., Wale said.

Daimler is working with Shenzhen-based carmaker BYD Co. to introduce an electric vehicle in China in 2013, the Stuttgart, Germany-based automaker said in April. Nissan plans to export its all-electric Leaf car to China for fleet sales, the Yokohama, Japan-based company said in September.
Toyota Prius

Toyota Motor Corp. (7203) started a yearlong test of its Prius plug-in hybrid in the city of Tianjin early this year, and the model isn’t being sold to consumers yet, said Niu Yu, a spokesman for the Toyota City, Japan-based automaker.

Electric cars may account for as much as 7 percent of total auto sales in China, the world’s largest vehicle market, by 2020, Boston Consulting said in a June 14 report. Chinese consumers are more receptive to the technology than their U.S. and European counterparts, with more than 90 percent showing interest, the report found.

“To achieve a breakthrough, carmakers must offer attractive mass-market vehicles, and the vehicles’ relatively high price and smaller driving range must be addressed,” said Marco Gerrits, a Beijing-based partner at the consulting company.

Currently, buyers of energy-efficient cars in Shanghai, Shenzhen and four other Chinese cities qualify for a 60,000 yuan ($9,450) subsidy. The government aims to have 1 million electric-powered vehicles on the road by 2015, according to the Ministry of Science.
Lower Parking Fees

State media have reported China would support the use of such vehicles through favorable policies and buying incentives. Alternative-energy cars will be exempt from current license- plate and traffic restrictions in some major cities, Xinhua News reported Nov. 12, citing a government notice.

There are 25 Chinese cities running trials for alternative- energy vehicles, and local authorities must develop policies to promote their adoption, including building charging points at government agencies, hospitals and shopping malls, Xinhua said.

The trial cities should also lower fees for parking, electricity and road use for such vehicles and adjust the purchase policies of government agencies and state-linked companies, according to the report, citing the National Development and Reform Commission and the ministries of science and technology, finance, and industry and information Technology.
China Demand

China’s auto demand may grow 5 to 10 percent next year, driven by demand for passenger cars, Wale said today. Sales of commercial vehicles, which have dipped this year, will grow 5 percent, he forecast.

GM will expand its luxury Cadillac brand and distribution network and broaden its range of sport-utility vehicles, he said.

“We’re seeing a much greater move to individuality in terms of colors and body styles,” said Wale, who aims for GM’s China sales to grow faster than the overall market in 2012.

The U.S. carmaker is counting on China to overtake Toyota in global sales this year. GM expanded deliveries in the Asian nation 6.9 percent from a year earlier to 2,113,274 vehicles in the first 10 months of 2011, according to the company.

Yet, if you were to ask those complaining most vocally a few questions, such as:

Do you want your kids to go to college or a trade school to prepare them for the 21st century job market?

Do you want them to work in high paying, high skilled jobs?

Do you want them to work 12 hour days in a factory for minimum wage?

Are you angry that we told the world to embrace capitalism and now that they did we have competition?

The answers would be yes, yes, no, HUH? Yet, the call to bring these jobs back to America (which is nearly impossible anyway) continues.

This fascinating story out of Alabama (and it is happening across the South) about draconian anti-immigrant, anti-illegal worker laws and their effects crystallizes the point.

There are jobs to be had, but Americans don’t want to work long hours, for little pay, in uncomfortable circumstances.

China is trying to move away from a reliance on these types of jobs at the same time American politicians, ideologues and xenophobes are asking for them back. That said, I duly submit to you this fascinating story from Elizabeth Dwoskin at Bloomberg Business Week.

Excerpt:

Skinning, gutting, and cutting up catfish is not easy or pleasant work. No one knows this better than Randy Rhodes, president of Harvest Select, which has a processing plant in impoverished Uniontown, Ala. For years, Rhodes has had trouble finding Americans willing to grab a knife and stand 10 or more hours a day in a cold, wet room for minimum wage and skimpy benefits.

Most of his employees are Guatemalan. Or they were, until Alabama enacted an immigration law in September that requires police to question people they suspect might be in the U.S. illegally and punish businesses that hire them. The law, known as HB56, is intended to scare off undocumented workers, and in that regard it’s been a success. It’s also driven away legal immigrants who feared being harassed.

Rhodes arrived at work on Sept. 29, the day the law went into effect, to discover many of his employees missing. Panicked, he drove an hour and a half north to Tuscaloosa, where many of the immigrants who worked for him lived. Rhodes, who doesn’t speak Spanish, struggled to get across how much he needed them. He urged his workers to come back. Only a handful did. “We couldn’t explain to them that some of the things they were scared of weren’t going to happen,” Rhodes says. “I wanted them to see that I was their friend, and that we were trying to do the right thing.”

His ex-employees joined an exodus of thousands of immigrant field hands, hotel housekeepers, dishwashers, chicken plant employees, and construction workers who have fled Alabama for other states. Like Rhodes, many employers who lost workers followed federal requirements—some even used the E-Verify system—and only found out their workers were illegal when they disappeared.

Give me those nuts!

In my many years of living, working and doing business in China I have seen countless ways in which Chinese manufacturing and consumer consumption have changed the world.

Not just the obvious examples but the small, subtle ways as well.

Take for example the cobbler on the Upper West Side who I send my shoes to. Years ago he complained to me how badly his business had fallen off. He couldn’t understand why things had been going so poorly for him, so fast. “People still wore shoes? The hippies didn’t win on that one right?”

His problem, it turned out, was that shoes that used to be made in Europe or the US that retailed for $300 now cost only $75 at retail, thanks to Chinese production.

At $300 people would spend the money to resole and repair. At $70 they would be paying only slighlty more for a new pair. Thus my cobbler friend’s precipitous drop in business.

Which brings me to this headline from today’s Voice of America:

Chinese Taste for Pecans Raises Price in US

A holiday tradition in many parts of the United States will cost more than it has in many years this holiday season. It is pecan pie.

As far as the traditional holiday pecan pie in the United States, Worn says there is talk of price hikes from 20 to 25 percent due to the price hikes.

So there it is, China is changing the balance of econmic and political power in the world and while they are at it, grinching Americans on their beloved holiday season Pecan Pies.

Impossible right? Not in China. Loretta Chao of the Wall Street Journal has a story out today detailing how Beijing has summoned China’s top internet CEOs for a “policy training session.”

To wit:

By LORETTA CHAO

BEIJING—Executives from China’s top Internet companies have been summoned for an unusual policy-training session by the Communist Party’s propaganda department, according to people familiar with the matter, the latest move in the government’s campaign to increase oversight of the nation’s fast-growing Internet sector.

The executives are participating in a multiple-day policy-training event held on the outskirts of Beijing this week, similar to training sessions often held for government officials to review new regulations, the people said. Among those in attendance are representatives from Baidu Inc., Tencent Holdings Ltd. and several other social media and online video companies, the people said. It’s unclear when the event ends.

The meeting comes as social media websites, particularly popular Twitter-like microblogging services run by Sina Corp. and Tencent, have become platforms for freewheeling, real-time discussion, including on controversial topics ranging from a train accident in Wenzhou that Internet users accused the government of mishandling to the recent news that a toddler killed in a double hit-and-run accident had been ignored by more than a dozen passersby.

China has more than 500 million Internet users, according to government statistics, which would total the most of any nation.

High-level officials in Beijing have increasingly shown interest in further regulating the Internet sector, a booming business shaped by nongovernment-owned companies, beyond existing requirements for the companies to take down what the government deems to be “harmful” content. This ranges from pornography to political topics such as Tibetan independence and the Falun Gong spiritual group.

Chinese coin found in Yukon evidence of early east-west link

By Randy Boswell, Postmedia News November 1, 2011

A 340-year-old coin from China has been unearthed by archeologists near a planned Yukon gold mine, shedding fresh light on historic trade links between 17th-century Chinese merchants, Russian fur traders and first nations in the northwest corner of North America.

Great, now we have to worry we might “hurt the feelings of the Chinese people” by claiming Columbus discovered America.

In related and more serious news. Word coming out of France is that Sarkozy is being pilloried by the opposition, as well as some of his supporters (however few are left) for turning to China for help with the debt crisis.

This is a small tidbit all but buried in the news of the day but in my mind it’s an interesting peek in on how Europe and China may or may not get along in the coming years.

So much focus is always (and rightfully) put on the questions surrounding US/China relations, but Europe is 700 million strong and China’s single biggest customer. If Europe turns sour on China then China’s bargaining power and leverage with the US and others is weakened. Does China really want to have the US, Europe and India as well as SE Asia working against them?

I am not saying the Chinese have done anything wrong here but they need to play the game right and ditch the 10 ton tin ears they wear.

“It’s shocking,” Martine Aubry, the general secretary of the Socialist Party, said in the Sunday newspaper, Journal du Dimanche. “The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?” – Reuters, Nov. 1, 2011

Strange to see a Socialist worried about the Capitalist machinations of a Communist country.

Later in the story another French politician shows he has no grasp of history and very little sense of hypocrisy.

Nicolas Dupont-Aignan, a presidential candidate from the “Debout la Republique” Party, went further, calling it “dirty money.”

China Willingness

On France 3 television, he said China “has cheated on all the rules of the game: social slavery, pollution, environment, copying… It is now, after having cheated, telling us ‘we are going to buy you.’”

However wrong he may be, his quote does shine a light on the potential for Europe to turn its anger away from immigrants to China.

This should all make for an interesting G-20 Summit.

Beijing’s announcement that a sweeping and thorough new regime of restrictions, censorship and retrenchment on media content and consumption and its desire to dictate what is and is not proper for the Chinese public to consume could have the unintended consequence of stopping China’s breakneck development of the last 20 years in its tracks.

This, not the real estate bubble, not tax and land protests, not the underground banking or reverse merger fiascos or the polluted air, water and land, this could be what sets China back 10 years on its road to being a true, not paper, global power.

The most striking instance occurred Tuesday, when the State Administration of Radio, Film and Television ordered 34 major satellite television stations to limit themselves to no more than two 90-minute entertainment shows each per week, and collectively 10 nationwide. They are also being ordered to broadcast two hours of state-approved news every evening (ed. note in primetime) and to disregard audience ratings in their programming decisions. The ministry said the measures, to go into effect on Jan. 1, were aimed at rooting out “excessive entertainment and vulgar tendencies.” – New York Times, October 27, 2011

THE BIG PICTURE

There are many reasons that are likely behind the move:

-The Arab Spring
-The pending change of leadership
-A general discomfort with the voices of change, reform and accountability online
-The online reaction to the rail crash in Wenzhou
-The lack of control on microblogs and blogs
-CCTV feeling the sting of competition in a market driven media environment

We can focus on the reasons behind it later. Here we can focus on what it may mean.

China has made it clear that in order to sustain growth, wealth and the health of the nation it must shift from a commodity export driven economy to a consumer and services economy while also producing higher-value add goods (a la Germany).

The new restrictions have the potential to stunt China’s growth because you cannot have a consumer and services economy without people and the market choosing which TV Shows, movies, apparel, makeup, web sites, microblogs, insurance companies, cars et. al are best for them. And in today’s China the Internet and TV are the main vehicles for the market testing ideas and consumers buying or rejecting them.

In a consumer/service driven economy you cannot dictate people’s tastes, cultural mores, and desires. That is the very DNA of a consumer/service economy.

This decision will also make it harder for Chinese companies to innovate. If you can’t be creative in making shows, music, movies, internet services and content that people want to watch and use supported by advertising products people want to buy, then you might as well go back to Mao suits and 24/7 CCTV propaganda. No innovation for the domestic market means no Chinese brands abroad.

So how could all of this impact China’s continued development in a major way?

Lack of market driven products and services + lack of choice, freedom, expression, digital tools and content = no innovation = no consumer and services economy = China stagnating = no legitimacy for the Party = massive unrest = the possible end of the rise of the dragon.

Will it play out that way? I can’t say for sure. But I do believe it is a possibility.

Jim Tompkins, president and CEO, of Tompkins International, has seen many opportunities that have gone unnoticed by companies in this more than three decades advising Fortune 1000 global companies. In this podcast we discuss Tompkins’ recent trip to China where he spoke with dozens business executives about their China business strategies and improving their supply chain to meet China’s domestic and exporting demands.

China is in a transformation, but perhaps more of an advancement. You’ve read the articles about China no longer being solely a low cost manufacturing center, but that transition will take many years according to Tompkins. Today, he sees a complex and dynamic manufacturing sector in China that must meet their growing domestic consumer demands, which presents unique supply chain challenges and solutions. In addition, as China’s government continues its progress toward incorporating market driven thinking, more integration is taking place among supply chain partners, more businesses are creating joint ventures, and mergers and acquisitions.

Jim Tompkins meeting with executives in China

Tompkins believes this environment combined with a global consumer sensitized to price makes it even more important to find the hidden profits in your supply chain. Profits exist in creating internal efficiencies that will allow companies to be more competitive, more profitable while having little to no impact on the consumer facing side of the business. Supply chain improvements are where many companies that Tompkins’ advises have been finding profits.

Tompkins writes more on supply chain issues at his blog Supply Chain and Logistics Issues. Tompkins International is the parent company of Technomic Asia.

I did a Q/A with the always insightful, always entertaining and fantastic writer Benjamin Shobert of the Asia Healthcare Blog yesterday. Here is the article he published.

Ben Shobert: You make reference to what you call China’s policy of “health through wealth?” Can you explain where that comes from and what it means to companies looking at China as an opportunity for their healthcare business?

Michael Zakkour: That phrase came from my extensive and repeated readings of the Chinese government’s 12th five-year plan. I tried to formulate in my mind what the commonalities across sectors were as the country pursues growth. What I saw was an admission by China that to sustain growth and continue to move in the right direction they had to admit that the country has some unhealthy things happening. To address this, they see that they need to approach the health of the people, the country and the environment. I saw a really striking focus in that plan on improving the healthcare system – all aspects of it.

1. I spoke on the subject at FIT last week and I will be speaking to international marketers on the subject at “Inside the China Marketing Mindset” on Wed. the 19th

2. There is a lot to talk about on this subject at this time

Today’s announcement from THE GAP, the largest apparel retailer in the US, sums up everything I have been writing, talking and advising on for the last year:

From today’s AP wire.

Gap plans store closures in US, while opening new locations in China

By Associated Press, Published: October 13

NEW YORK — Gap Inc. plans to close stores in the U.S., while expanding in China.

The struggling retailer, which runs the Gap, Old Navy and Banana Republic chains, detailed plans on Thursday to close 189 locations, or 21 percent of its namesake Gap stores in the U.S., by the end of 2013. At the same time, the largest U.S. clothing chain said it plans to triple the number of Gap stores in China from about 15 by the end of the year to roughly 45 by the end of next year.

If you are a retailer or brand owner and you are not in China yet, what are you waiting for? For the market to be so saturated that you have no chance? To fall so far behind your competition that you won’t have to bother? To go out of business chasing zombie customers in the West?

In this episode of the China Business Podcast, we speak with Michael Zakkour, principal of Technomic Asia, about the unique and growing markets of China for higher end apparel and accessory brands. Zakkour recently presented a study conducted by Technomic Asia to the Fashion Institute of Technology F.I.T. in New York showing how China’s consumers are hungry for luxury and “affordable luxury” brands.

Zakkour says China is not a market where foreign companies can apply techniques or even product lines that are successful in other markets. Further more, he says China is a series of different markets that need to be understood before entering into China’s second, third, and fourth tier cities, areas that are potentially fertile ground for high-end brands. Chinese consumers love for brands is prevalent in Shanghai and Beijing, the opportunities and new territory is in the interior of China. Below is a chart of the regions that are the new growth areas for companies looking to catch the next China wave.


Resource Technomic Asia study One Year on the Frontlines of China’s Apparel and Luxury Markets

Zakkour comments in the podcast about the research necessary to determine what aspects of a product line or marketing strategy should be to Chinafied and which should not. Each of these regions and its consumers may well be very different than other areas of China. Zakkour says what works in Shanghai may not work in Jiangxi, Shaanxi, or Inner Mongolia. “We have seen successes and failures in these markets, what these markets require is a methodological, perhaps even phased approach to expanding into China,” added Zakkour.

Fashion Factoids From China

• China is now the #1 apparel and #2 accessory market in the world
• The Chinese consumer market is exploding as tens of millions of people join the middle class every year (300 million and counting)
• There is a growing appetite for niche brands
• There is a new appetite for “affordable luxury”
• Online apparel sales have boomed in the last 18 months
• Brands and retailers are investing in Tier 2, 3, 4 cities
• Department stores and specialty stores are the major distribution channels for branded apparel
• Casual wear, which comprises 60% of clothing purchases, is growing 19% a year, for example. This reflects a shift toward occasion-based dressing – that is, wearing different outfits for work, social occasions and at home

New York, Monday, October 3, 2011 – Internationally known China business consultant Michael Zakkour of Technomic Asia, said the flood gates are open for foreign fashion brands in China. Speaking today at the Fashion Institute of Technology event entitled Fashion, Beauty, and Status, Zakkour highlighted his year long study “On The Frontline of China’s Apparel and Luxury Markets.“

China is the number one apparel market and the second largest fashion accessory market in the world. “The opportunities for established and independent fashion brands are opening up now in second and third tier China cities. We see accelerated investment in cities including Chongqing, Suzhou, and Qingdao,” said Zakkour.

Technomic Asia’s research showed Louis Vuitton, Burberry, Coach, and Ferragamo investing in these new fashion-conscious urban markets. “These are cities that every US business should become familiar with as they will be the new wave of dynamic consumer growth in China,” Zakkour added.

The boost in casual apparel sales, up 20 percent annually in China, is a strong indication of clothes becoming a fashion and status statement and less of a utility purchase. “We are in an era where a new generation of Chinese is purchasing more clothes for a variety of purposes, or even as a political statement,” said Zakkour. He added, “it’s a statement that says, ‘China has arrived to be noticed on the world stage as consumers and designers in their own right.’”

Lastly, Zakkour called specific attention to the average percentage of a women’s income, between 10 and 15 percent, spent on cosmetics and skin care. A large portion of that, approximately 45 percent, is dedicated to skin care and moisturizers as compared to heavy use of makeup. He called this an important distinction that reflects China as a unique consumer market.

“Our research shows it would be a mistake for foreign companies to market themselves in China as in other parts of the world; China’s consumers are unique and need to be understood by marketers before they try to replicate what worked in other countries here,” Zakkour said.

About Technomic Asia

Technomic Asia, a division of Tompkins International (www.tompkinsinc.com), is a business strategy and supply chain consultancy with more than 30 years of experience helping clients plan and execute Asian growth and operational strategies. Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential and assistance in designing the optimum strategy for success. Technomic Asia’s Michael Zakkour is a principal with the firm, is a resource on topics involving China’s economy and growth opportunities. He is a frequent speaker for business and international conferences.

The China Business Network has posted a podcast interview with me regarding China’s luxury, fashion and premium brand markets. This is, of course, in anticipation of my address at The Fashion Institute of Technology on Monday, October 3.

To wit:

Michael Zakkour, Principal at Technomic Asia and an expert on strategic market planning and trends in China, has spent the last year analyzing China’s new consumers. And what he has discovered is that many view fashion and luxury products in a very different way than they did even a couple of years ago.
His presentation, Fashion, Beauty and Status – One Year on the Front Lines of China’s Luxury and Apparel Markets, will detail a year-long study of what consumers want, who is selling it to them, and how they do it.

Also speaking will be Professor Mark Greiz, Fashion Institute of Technology, and Chief Consultant, MG Consulting; Professor Lawrence Delson, Fashion Institute of Technology and New York University and President, Delson International Inc., will moderate the session.

The event is being held Monday, October 3, 6:30 pm – 8:30 pm, at the Katie Murphy Amphitheater, Ground Floor, Fred Pomerantz “D” Building, Fashion Institute of Technology, Northwest corner of 27th Street and 7th Avenue, New York City.

The event is free. Please bring a picture ID to show security.

Excuses, excuses, excuses. Sorry about the low post volume. We had our company retreat in the mountains and lakes of Zhejiang Province. Mountain climbing, boating, whitewater rafting, lots of amazing food, laughter and games. We had a great time.

Thanks to our CEO, Steve Ganster, for making it all possible.

Then it was on to Vietnam for 4 days of work before heading to NY. Now, to catch up…

Zakkour will deliver the keynote presentation at New York’s Fashion Institute of Technology,Monday, October 3, highlighting the latest trends in China’s apparel, accessories, body care, cosmetics, and fragrance categories. These trends will determine the purchase of billions of dollars in merchandise as China’s middle and upper class continues their amazing growth.

“Fashion is the external expression of China’s economic success. These trends give insights into a dynamic generation of consumers, the size and likes of which we have not seen before,” said Zakkour.

What - Fashion, Beauty and Status – One Year on the Front Lines of China’s Luxury and Apparel Markets

When – Monday, October 3 at 6:30pm – 8:00pm

Where – Katie Murphy Amphitheater, Ground Floor, Fred Pomerantz “D” Building, Fashion Institute of Technology, Northwest corner of 27th Street and 7th Avenue, New York City

Michael Zakkour is principal of Technomic Asia a consulting firm with more than 25 years of experience in developing business strategies for China markets. Technomic Asia is a Tompkins International Company.

Zakkour is available for interviews prior to this presentation. To expedite reporter’s deadlines, contact Mr. Zakkour directly at 973-994-2040 or email mzakkour@tompkinsinc.com He will be traveling in China September 14 – 25. You may also contact his assistant Albert Maruggi at amaruggi@providentpartners.net or 612-325-8126 to schedule a conversation.

It’s also a time for us all to get back to the business of business. For me that means the next 12 days in Shanghai, Hangzhou and Saigon. I plan on some frequent posting during this trip. But for today I want to share a great article from The Economist.

It is a great look-in regarding the State vs. Corporation discussion we have had here over the last two weeks. They also seem to think MNC’s have reason for concern.

“IN 1992 two Chinese cities, one just south of Beijing, the other just north of Hong Kong, were in desperate shape even by the standards of a desperately poor country. Their municipally run companies were in danger of bankrupting not only themselves but the cities too. Zhucheng, near Beijing, was best known as the birthplace of Jiang Qing, Mao Zedong’s despotic, doctrinaire fourth wife, who died in jail in 1991. Two-thirds of its revenues were being eaten by corporate losses. Shunde, a small city in Guangdong, was buried in debt.

Meanwhile, the authorities in Beijing were becoming concerned that the state banking system, already creaking under the weight of bad debt, would be unable to bear even more. With the quiet acquiescence of the central government, Zhucheng and Shunde ignored doctrine, old laws and 40 years of failed policies in search of a better approach.
in a carefully constructed phrase subsequently endorsed, in 1993, by the all-powerful State Council, the two cities engaged in gaizhi, which means “changing the system” and implies the diversification of ownership. Put more simply, in words that even now the Chinese government cannot bring itself to utter, they started to privatise many of their companies. They thus began one of the Chinese state’s first attempts to change its relationship with its enterprises. Jiang Qing would not have approved.

I am promising that I will not check my China twitter, google, blog and newsfeeds for 48 hours and that I wil not contribute to any of them either.

Unless of course….

The always interesting, always charming and always funny Ms. Janet Carmosky. Her new series “China What” on The China Business Network. “Water is the New Oil.

Dan Harris at China Law Blog on new ambassador to China Gary Locke.

And the always interesting and always funny Stan Abrams on a curious “suicide”

I’ve had a lot of names for it over the years but the most succinct one is – “EMPTY STORE SYNDROME”.

It is a phenomenon somewhat particular to China. If you have spent any time traveling or doing business in China you know the scene.

Three thousand square feet of retail space in a luxury mall staffed by pretty/handsome/fashionable young people. Every product looks perfect, the fixtures, lights and other aspects of merchandising are perfect and the tenant is a world famous top 50 brand, only…there is no one in the store. There never is. If you step into one of these stores you are either a. surrounded by five staffers eyeballing you suspiciously or b. ignored by the five sleeping, reading, dreaming staffers

In general the people are in the mall and they may pass through the store, but they NEVER BUY ANYTHING!!!! Or so it seems.

A recent Cushman and Wakefield report shows that rising rents, overcapacity and too much competition is exacerbating the problem in Beijing and other Tier 1 cities. Malls and stores that are either empty or just full of window shoppers.

This is an expensive problem for brands and the distributors who pay a lot of money for “counters” or stores in a mall.

Of course this flies in the face of my belief in the growth of the Chinese consumer market and the numbers that back it up. People in China are buying, they just don’t seem to be doing much of it in the malls.

So where are they buying? Our year-long study of Chinese consumer behavior, channels, distribution and merchandising shows us that:

-E-commerce (both legit and non legit) is taking a huge chunk out of retail sales of luxury, premium and specialty products

-FMCGs are seeing increased sales on the internet and supermarkets, hypermarkets and traditional markets still make up a huge chunk of sales

-The stranglehold of the “distribution” systems that permeate and rule over almost all consumer product sales is starting to wane. Foreign brands and retailers are growing tired of the expense (50% of sales for the distributor anyone?) unreliability and low sales volume that comes with the distributor mall and department store model and are seeking alternatives

-The economics, control and return on owner-operated, stand alone, stores is helping this model gain ground

-The street-level and invitation only multi-brand retailer and boutique models are starting to gain in importance as well

-The expansion of brands and retailers into 2nd and 3rd tier cities means Mr. Wu can buy his Prada briefcase in Suzhou and doesn’t need to go to Shanghai

So the paradox of robust consumer product sales and empty malls and stores can at least be partially explained by the above. What are you seeing out there? What is your view as a brand, retailer, distributor, shopper?

Is the China consumer market going to continue to expand exponentially or are we seeing “Peak Shop” in China?

Sina Weibo has taken steps to warn users against spreading rumors and false reports.

I think this is part of the bigger, more established government method of keeping the natives calm by forcing them to self-police through vague directives.

It also seems to be part of a larger effort to ensure state control over every aspect of the Internet. I think Beijing was rattled by the role social media has played in revolutions across the Arab world. One truly wonders what the future of the Internet in China will be.

The hallmark of the Internet around the world is the open-ended, find, do, say, buy anything beauty of it all.

Will China show us what the first State-Owned and Operated Internet will look like?

It would seem to make sense. More IP, more brand recognition, more built-in trust and the ability to meet the demand in China with a “hometown” company.

Lenovo? A company from another industry? An SOE? We shall keep tabs on this and keep you posted.

…and be reborn as the local version.

Great piece by Wall Street Journal Beijing correspondent Loretta Chao on Groupon’s abrupt China closing (you’ll need a subscription to see the entire article).

Chao reported Groupon’s joint venture, Gaopeng.com “closed offices in some cities and laid off hundreds of employees, according to people familiar with the situation.”

To me it sounds like a familiar situation.

China probably overtook the U.S. as the largest personal-computer market last quarter, after three decades of American dominance in an industry pioneered by Apple Inc. and International Business Machines Corp.

Personal-computer shipments in China rose 14 percent to 18.5 million units during the second quarter, the first time they surpassed the number in the U.S., where they fell 4.8 percent to 17.7 million, Bryan Ma, an analyst at research firm IDC, said in an interview today. On a full-year basis, China will likely pass the U.S. in 2012, he said.

The estimates highlight the growing importance of China’s consumers to the global economy after the country passed the U.S. in 2009 as the largest auto market.

Ok, so two weeks ago we let you know that China is now the number one apparel market in the world. And we already know it is the fastest growing auto market in the world, so we add computers to the mix.

The good news is that the opportunity to sell to 1.5 billion people is there. But as we say in China. “Everything is possible but nothing is easy.”

The bad news is that there are still some very high hurdles and obstacles to overcome.

Take this fascinating story about groups of Chinese netizens petitioning Shanzai (counterfeit) factories to make custom made fake bags and apparel. So companies who do not even make or sell in China are getting ripped off by the very youth market they want to target. TIC.

From fashion icon to fake production in 5 easy steps!

by Jay Mark Caplan

Counterfeit designer goods are commonplace in China, but fakes don’t always match the hottest trends. After all, how can a middle- aged factory owner in Guangzhou keep up with what Kate Moss is wearing?

To remedy the situation, industrious Chinese fashionistas are using online forums and e- commerce to connect with factories and get exactly the fakes they want.

Just check out Hers.com, a popular fashion and beauty forum with hundreds of threads devoted to factory petitions.

Here’s how it works:

1. START A THREAD AND RECRUIT FOR A GROUP BUY

In late July, Hers.com user White Rose decided she simply had to have a copy of Danish model Freja Beha’s trademark Balenciaga biker jacket.

So she started a thread on Hers.com, posting photos of Freja with her jacket, and encouraging her ‘sisters’ to get on board and vote for production of designer fakes.

Fallows and Ma

It speaks to the sustainability of the Chinese model and tendency to push big ideas and changes off to the future. Good stuff.

* Baidu may face tougher rules after state media criticism

* Protracted campaign could hit China’s Internet sector

* Baidu shares fall 10 pct in two days after strong 2011 rally

* Baidu’s online market revenue closes in on CCTV advertising

About 9 months ago we noted that the Central government was planning to open and operate its own search engine. We figured it was because the competition for the eyes and ears of netizens was beeing won by Baidu. This shocked us because Baidu is a shining star of a Chinese global company. Would the government really target Baidu after having dispatched Google?

Well today’s news seems to confirm our somewhat cynical take on the situation.

Its important to bear in mind that although China has 400 million Internet users, like all media products, its still mostly a no go for foreign firms and may be so for domestic companies as well. Are we moving toward the dominance of the SOE in this category as well? It seems CCTV is angry about losing ad dollars to Baidu and that may be the real cause. We will keep an eye on this,

By Melanie Lee

SHANGHAI, Aug 18 (Reuters) – Increasing scrutiny into China’s top search engine company Baidu by state media is highlighting the fierce competition developing between traditional and new media over lucrative advertising dollars.

The barrage of criticisms could also signal Beijing’s intention to toughen its anti-monopoly stance against Baidu and tighten regulations in the Internet sector as a means to enforce its official line, analysts said on Thursday.

“The impact of the new media is increasing rapidly and the ad spending on online portals and especially on search engines is rising almost 100 percent every year,” said Autumn Zhu, an analyst with technology consultancy RedTech Advisors.

“But for old media like TV and print, the growth is flat.”

Baidu has about 80 percent of all search market traffic in China, a nation with almost half a billion Internet users. It has been building its market share since Google Inc’s high-profile exit from mainland China this year after a fallout with Beijing over censorship.

Shares of Nasdaq-listed Baidu, which has a market value of nearly $50 billion, fell around 10 percent in the first two days of the week, partly on concerns over possibile fall-out from the criticisms. They edged up 0.8 percent on Wednesday.

http://www.reuters.com/article/2011/08/18/baidu-cctv-idUSL3E7JI0WT20110818

Bremmer’s basic precept is that in the future SOEs will challenge public and private companies for market domination, and will win.

Today an article ran on Reuters about the rise of Chinese SOEs and the concern it is causing among American business leaders.

And I quote: Given China’s rapid economic growth and its push for Chinese enterprises to “go global,” former Deputy Treasury Secretary Robert Kimmitt said it is certain the number of big Chinese companies will continue to rise.

But what American business finds disturbing is that most of the Chinese companies are state-owned, including the three in Fortune’s Top Ten — China Petroleum and Chemical Corp (also known as Sinopec) (600028.SS), China National Petroleum (CNPET.UL) and State Grid (STGRD.UL), which says it supplies energy to over 1 billion Chinese consumers.

“A new dynamic in the world economy threatens the competitiveness of American companies and workers in world markets and undermines our country’s core belief in market-based economy,” the U.S. Chamber of Commerce and the Coalition of Services Industries said in a joint report.

Strong stuff from some important corners.

We believe this concern is legitimate. As the idea of a “Beijing Consensus” grows as a model for developing countries, and as the Amer/Anglo/Euro model of capitalism and free markets are suffering grievously from greed, shortsightedness and self-destructiveness,the SOEs of China and others have risen to the challenge of competing on the world stage.

We advise companies around the world who are doing business in/with China or who are competing with Chinese companies abroad to be sure to have a complete understanding of these State players, how they operate, how they compete and what their plans are for the China and overseas markets. Because, despite pleas of unfairness and how it “undermines our country’s core belief in market-based economy” in the short term this dynamic is not going away. It’s long-term sustainability is another discussion altogether.

What are you seeing out there?

http://latestchina.com/news/?RID=43940

The Wall Street Journal

BEIJING—China has suspended the construction of large theme parks to clamp down on local government spending and rein in unauthorized real-estate development.

The country’s top economic planning agency has halted the construction of locally approved parks planned to be larger than 20 hectares or that have a total investment of more than 500 million yuan (US$78 million), according to a directive seen Tuesday.

“Since 2004, the State Council [China's cabinet] has clearly ruled that it must approve construction of large-scale theme parks. But in recent years local governments have approved large parks on their own,” the National Development and Reform Commission said in the directive.

The suspension took effect Aug. 5 and covers projects already approved but for which construction hasn’t yet begun. It will remain in place until the introduction of new regulations for the sector, the directive said.

Full story here http://online.wsj.com/article/SB10001424053111903480904576511923883314438.html?mod=rss_about_china

There’s a lot happening in the China, China, China news/noise machine these days. You would be hard pressed to find too many newspapers, weeklies, web sites, etc. that don’t run a China-something related story on a daily basis. Think I’m kidding? make “China” one of your Google alerts like I did.

In a way I get paid to read all of it and it’s enlightening and mind numbing at the same time (many grains of salt needed).

Reverse-merger racket blowing up, a small Chinese ratings agency downgrading US debt, inflation, rail accidents, getting closer to transition of power, the world “longest” bridge, how will China react to a US recession and a runaway European debt crisis…

There is a lot to read and think about regarding China. Read and think wisely (present company included). I’ll be posting from Shanghai.