On his first trip to China, one of my clients reacted to this country, as most foreigners do, with a mixture of fascination and utter dread. He was overwhelmed by the size of the country and its dynamic (one might say, hyper-dynamic) society. Over dinner one night, he asked me my opinion on the fundamental difference between China and other cultures. Now, I never miss the opportunity to pontificate on any subject, especially one that I don’t understand completely (see any of my previous columns). So I offered him my view: The fundamental difference between China and the rest of the world, I said, is that Chinese people are born entrepreneurs; they have an near manic compulsion to start their own business.

Linguists believe that language is an accurate reflection of what a given culture considers important. For example, the Inuit are said to have 14 different words for snow – and so would you if you were knee-deep in the white stuff for most of your life. [Author’s note: I am from Minnesota, a state in the US where, for a good portion of the year, we, too, are surrounded by snow. However, unlike the Inuit, we do not have 14 words for snow; rather we have over 14 swear words for snow as in “that %$@# *&%$ &^%$# snow is so %$#! deep I cannot get my *&^% *&^$# car out of the *&^% driveway!!”.]

The preceding sentence reveals that Americans attach great cultural importance to the vice of impatience. Indeed, we are a deeply disturbed people, and pity the person (the next guy that cuts me off on the Yannan Expressway) who pushes us beyond our limit, which, quite obviously, is way below the world norm.

But I digress. The Chinese language reflects the entrepreneurial spirit of the people in a variety of ways. For instance, the term “start up”, referring to opening a business, can be expressed, alternately, as: 成立 (cheng li), 建立 (jian li), 开 (kai), 设立 (she li), 办 (ban), 创立 (chuang li), 创办 (chuang ban). There are more ways to express this sentiment, but I have forgotten them. What’s more, I cannot distinguish between the phrases; their subtleties are lost upon a lout like me. But one thing I do know, they all mean: “Let’s make some money!”

Should you remain unconvinced by the linguistic proof of China’s entrepreneurial obsession offered above, well, just step out on into the street. You’ll be instantly bombarded with pitches to purchase just about anything you’ll ever need (and much that you’ll never need). If you happen to be driving and happen to stop at a stoplight (unlikely, I know), then you’ll be assaulted by a dozen guys loaded with all things automotive: newspapers, lighters, phone chargers, steering wheel covers, Shanghai maps (because you look lost) and even world maps (because you really look lost). Now, I’m not saying that the Chinese are the only people with excessive entrepreneurial drive. But they do bring a degree of optimism and can-do spirit to the idea that most others cannot match. Indeed, they sometimes bring too much.

Awhile ago, I was walking through a street market with my kids. Within seconds, we were surrounded by hawkers. Now the interesting feature of street market vendors in China is the aggression with which they pursue their trade.  As you walk by the stalls, they will yell out “HELLO!!” followed by a recitation of what they are selling.  To wit: “Hello DVD!!”, “Hello CD!!”, “Hello T-shirt!!!”.  It can be a bit disconcerting, but one gets used to it … I suppose as one eventually gets used to a root canal or open heart surgery if one has had enough of them.

Anyway, one merchant was touting figurines of a little boy, who, after pouring hot water on his head, tinkles. The hawker shouted at me in the template style: “Hello, Pee-pee boy!”. Many heads turned, I assuming, hoping to see some tall foreigner in Depends fighting valiantly against incontinence problem. The man’s sales tactic might be a tad suspect, but there was no denying his enthusiasm. He knew that I wanted and needed a statuette of a small boy relieving himself. What he didn’t know is that his remark would take on a life of its own. When someone calls for me at home and one of my teenage daughters answers the phone, they have been known to shout: “Hey, Pee-pee Boy … phone!”

Of course, the entrepreneurial spirit exhibits itself in other ways, the notorious gauntlet tactic, for example. This ploy is based on the theory of sales by attrition. Street vendors seems convinced that you will buy from them if they form a gauntlet that you cannot avoid. By the time you reach the forty-seventh guy, you will be so worn down that you will purchase a DVD, CD or fake watch because you are finally convinced that life is not worth living without one.

Westerners believe that China’s low cost labor provides it with a global competitive advantage. While it helps, I believe that it is China’s drive to start new ventures – and to do so with such wild abandon – that presents a greater challenge to other economies.

The Pee-pee Boy tinkling on my desk is proof positive.

Following is part two of my interview with Steve Crandall, VP for Technomic Asia in charge of our small- and mid-sized enterprise (SME) practice.  Today we focus on the importance of hiring and retaining the right people in your China operations.

Here on the China Business Blog and Podcast, we focus on being very logical and very practical … at least as logical and practical as China allows one to be.  Over the 25 years we have been working in China, we’ve seen a lot of experimentation, trying this and that to see what works.  We’ve even done a fair amount of it ourselves … and that’s fine for many multinational companies with deep pockets who can afford to try this and, if it doesn’t work, try that.

However, there is a group of companies for which this experimentation approach doesn’t always work so well … the Small- and Mid-sized Enterprise or as they are commonly referred to, the SMEs.  And that is the theme for a new series here on the China Business Podcast – The SME.

To discuss this topic with me, we are going to bring in the newest member of the Technomic Asia team, Steve Crandall, who recently joined us as Vice President in our Implementation practice.  We have been seeing a need lately to increase our capabilities in helping our clients execute their organic strategies in China – setting up manufacturing, hiring, establishing sales teams and pipelines, executing a sourcing strategy etc.  Steve comes to us with a long history in China, starting in the 1980s when he was a student here.  Steve went on to set up the first foreign owned car dealership in China when he set up Crandall Ford up in Tianjin (Steve comes from several generations of Ford dealers back in Ohio).  He then went on to start up several manufacturing and sales operations for SMEs in China, incubating them until the client was ready to take over.  After a stint at Ernst and Young where he had to wear a tie to work everyday, he came to join us.  Steve has been a good friend for a number of years and we are thrilled to have him in the Technomic Asia family.

There is no standard definition of the SME, just as there is no standard definition of the Multinational Corporation, or MNC.  However, generally, the SMEs are defined by their size – less than 500 employees – and their ownership – privately held or invested by a private equity company or other financial backer.  Now I’m sure I’m going to get some letters about this … because some subsidiaries of MNCs essentially have to stand on their own and really act like SMEs.  As my teenagers say: “Whatever!”  The key commonality here is that an SME is facing the same challenges in China as any other company here but they often have less global experience to work from and they typically do not have such deep pockets to do a lot of experimentation.  They have to get it right the first time.

Over the coming weeks, we are going to explore some issues that impact SMEs in unique ways such as HR, manufacturing, sales, operations, etc.  You will be hearing many of the same themes that we’ve been hitting for years here on the China Business Podcast … but we will be discussing them as they impact the SME and will explore several unique ways that we’ve seen SMEs handle these issues.

We begin the series today with the age-old issue of market opportunity …

I would like to begin this post with an apology … its been awhile since we checked in here on the China Business Blog and Podcast!  Thankfully, it seems we have not been forgotten as we’ve received many notes from loyal listeners asking how we are doing … if everything is ok.  I can assure you that, yes, things are just fine here in Shanghai, China … in fact, its because things are going so well that I just have not had the time to get these Podcasts recorded and posted.

We’ve been working on a series of discussions on mergers and acquisitions in China with Dr. Kim Woodard, one of the leaders of Technomic Asia’s M&A practice here in China, and we are continuing that today.  It is appropriate that one of the reasons we’ve been so busy lately is that we’ve seen a big upswing in M&A activity for clients here in China … lots of strategy development and target identification, the early stages of an M&A program.

Well, today, we are going to talk about a stage of the M&A process that, we believe, is unique in China – we call it “deal cultivation”.   Remember that we’ve been talking about the relatively “young” market for M&A in China … we are still in our first generation of doing deals here and there is not a lot of experience floating around.  Therefore, it is critical that we help bring the Chinese companies along in the process, helping them feel OK about it while, at the same time, doing what we call “discovery” – finding out as much about the target as we can ahead of the more formal legal and financial due diligence process.

I started today’s conversation with Kim by asking him about deal cultivation and why it is so critical in China…

Well … its been awhile since we’ve posted a Podcast.  Sorry ‘bout that!  I took the week of Chinese New Year off and tried to ignore my computer and email.  That was nice … but then I really paid for it coming back to work afterwards.  Now I have been able to dig out from everything and get back to our series of Podcasts on China M&A.

If you recall, I have been having a series of conversations about China mergers and acquisitions with Kim Woodard – a vice president here at Technomic Asia and one of the leaders of our M&A practice.  The theme we have been orbiting around is “reducing risk” … this is because the failure rate for China M&A deals is quite high.  We estimate that fully three quarters – that ‘s 75% for the CPAs in the crowd – of deals that reach the letter of intent stage fail to close.  So that means, for successful M&A, we need to focus on reducing risk at each stage of the process.

Today, we go back to the beginning and talk about, what we feel, is the most important stage in China M&A … target selection.  Here is a conversation that Kim and I had just this afternoon in our Shanghai office…

We are continuing our series on mergers and acquisitions in China through a conversation I have been having with Kim Woodard, a Vice President here at Technomic Asia and a specialist in China M&A.  In over 30 years of doing business in China, Kim has done deals both from within the corporate environment – with companies like John Deere and AMP – and as an outside advisor.  In the last part of this conversation we talked about the five key risk factors in doing a deal in China:

1. The acquiring company chooses the wrong target for the wrong reasons.

2. Failure to connect well and build trust with the shareholders, management, and other stakeholders of the target company.

3. Inability to bridge the valuation gap

4. The target company fails to meet due diligence expectations on financial documentation or on financial and commercial performance.

5. The C-suite in the acquiring company gets worried about post-acquisition performance.

Let’s get back into the conversation as we now turn to the best way to manage these risks …

I was quoted recently in an article in the New York Times on the growing demand of direct sales in China.  The article is very well done and I highly recommend anything that David Barboza writes on China … the man knows his stuff about China and he really does his homework.  One of our Five themes for China in 2010 and Beyond is “Distribution” and the direct-sales model is a very interesting one for China so I wanted to add a couple more comments here.

For those not familiar with it, “direct sales” is when individuals are recruited by a company to sell their products directly to consumers who are, typically, their friends and family.  There are many well-known companies that have used this model such as Mary Kay, Amway and Avon (those of a certain age will remember the old commercials in the U.S. whose tagline was “Ding-dong, Avon Lady calling!”).  As David’s article notes, direct sales have not always had smooth sailing in China as the government has been wary of allowing individuals to start up their own businesses (because, as we know, once people have money-power they want all sorts of other power).  I think that the combination of entrepreneurial sellers and adventuresome consumers are fertile ground in China for direct selling business models for two main reasons: first, direct-selling can leverage relationship-based sales which have a long history and solid cultural foundation in China; and secondly, direct-selling goes around the modern sales channels in China which, although growing in strength, are still very immature and often very difficult to work with.

One of the main reasons that China’s distribution networks have been so fragmented is that they have been based on guanxi or relationships which are simultaneously personal and professional.  In a traditional distribution model, this guanxi holds you back because you are limited in they amount of personal relationships that you can maintain at any one time.  In other words, if my hometown is in Wuhan, all of my guanxi will likely be from that place because I grew up with many of these people, our families know each other, we went to school together, etc.  However, if I try to expand that guanxi network out to, say, a city like Chengdu (probably over 1,000 km away from Wuhan) it will not be possible to develop the same depth of relationships in that region.

Historically, sales in China have been based on this guanxi … I get the sale, not necessarily because I have the best price or the best quality product, but because I have good guanxi with you.  However, this is rapidly changing in China: while good guanxi is a necessary condition to successful sales, it is by no means a sufficient one — I now have to bring good products to the market at good prices.  And for most industrial and consumer products companies, this is a good thing because it means that they can develop more “professional” distribution channels and get a broader sales footprint in China.

So let’s go back to the direct-sales model … this is a model that leverages (and even celebrates) guanxi-based sales.  Sales most often are made to friends and family (or the friends and family of other friends) and, while these product suppliers are certainly concerned to bring good quality products to market, I would argue that they are relying even more on the strength of their sales teams’ guanxi in their local area.  The strength of the direct-selling model is that it goes with the flow of traditional Chinese culture, not against it, by making each sale personal.  And all you have to do is multiply the large number of people in China by their growing disposable income and you understand why executives at companies such as Mary Kay, Amway and Avon are having a hard time controlling their excessive drooling.

The second reason why I think that the direct sales model will have some legs in China is that it goes around the typical sales channels for consumer products: retail stores.  This is a topic too large for one blog post but suffice it to say that China is in the midst of a sea-change in its retail channels, moving from a “traditional” model — dominated by mom-and-pop stores and small specialty stores — to a “modern” model dominated by the larger hypermarkets, “Big Box” and grocery chains.  If you look at China as a whole, a slight majority of consumer products are sold through traditional channels; however, the growth is in the modern channels and particularly in the so-called “hypermarkets”, chains such as Wal-Mart, Carrefour, Rt-Mart, etc.

Initially, consumer products companies were excited about this change … selling to many thousands of traditional outlets is much more difficult than selling to fewer (and larger) modern chains.  However, what everyone is realizing is that these modern chains, while good looking on the outside, are often very difficult to work with simply because they are so big and wield so much power.  The cost of doing business with them — what consumer products companies call “trading terms” — are often quite high in China compared to the rest of the world so while consumer products companies are often happy with the volume that moves through modern channels, they are not as happy with the margins (and multinational consumer products companies are ALL about the margins!).  These companies are often finding that the hypermarkets are not all that good at merchandising and marketing themselves so consumer products companies often feel that they end up paying a lot in terms of marketing fees and not getting all that much for it.

However, the direct-sales model does an end-run around these channels and goes directly to the consumer.  The only marketing fees are the commissions to the sellers so, theoretically, both the margins and the volumes can be quite high.  Consumer products companies don’t have to deal with the retail stores nor do they have to work with distributors to those stores (a topic for another blogpost). In our work with consumer products companies, some of them — and some big names too — have secretly asked about direct-selling and whether or not they could do it.  To date, none of them have but that doesn’t mean that they are not thinking about it.

Now this direct-selling model is not all beer and skittles and in his New York Times article, David Barboza identifies some of the challenges that companies such as Mary Kay are facing (for one, direct sales companies are required to open their own “brick and mortar” retail stores through which to do they actual distribution of product).  Suffice it to say, there is no magic bullet in China retail … we are in the midst of a mini-revolution in China retail and all players — retailers, product companies, distributors and consumers — are changing faster than we can keep up with them.  However, given the sheer size and potential on the China consumer market, everyone is dumping massive amounts of investment and are exhibiting as much patience as they can.  Keep your eye on the direct-sales model in China … we could see it expand beyond the companies we typically associate it with and move into areas we never thought possible.

Most Americans live with the delusion that we blend in well in foreign cultures. We think that because we come from a melting pot culture we are, by definition and constitution, “multi-cultural” and, therefore, “any-cultural”.  As a card-carrying American (VISA card, I should clarify), I can tell you that this is wrong. While our distant ancestors might have come from somewhere else, the remnants of cultural sensitivity have long left the American cultural gene pool; indeed, they have showered, toweled off and returned home. The truth is most Americans, no matter their ethnic DNA, have regressed. We have adopted the American cultural mean and are therefore easily identified, particularly here in China. We walk tall, talk loud and surgically remove most of the tones from our spoken Chinese.

That said, most Americans are genuinely interested in what makes other cultures different …not that we necessarily respect those differences, but it is sure neat to know what they are. And what they are is very different from us. We are fascinated with the unique ways of foreigners because Americans have a generally-uniform culture. It is spread across 5,000 km of country and we all speak, roughly, the same language (except for members of our former government administration who tended to drop vowels and add syllables when discussing the situation in Eye-rak).

Then again, maybe our interest in other cultures is all a sham, nothing more than an attempt to assuage our collective guilt for foisting fast food and Britney Spears on the rest of the world (being responsible for both “Hit Me Baby One More Time” and a global addiction to trans-fatty acids is enough to make anyone desperate, I suppose). Whatever the reason, Americans are morbidly interested in how other groups of people behave, and how they’ve managed to retain their identities.

So for my American clients and friends that are making their first trip to China, I give them a crash course in “what to do” when they arrive. First, I tell them to present and receive business cards with both hands; secondly, always offer a guest something to drink; and third, if they drive, be sure to drive rapidly on crowded sidewalks, all of which are VERY culturally sensitive. The purpose of such cultural niceties is that it has meaning for both parties. The gesture of respect shown by offering your business card with two hands means a great deal to the Chinese, and at the same time it helps lessens the chance your card will drop on the floor which is definitely not a sign of respect.  The Chinese are quite pragmatic in these things.

My frustration, however, comes when foreigners start using cultural norms from our host country (China) when interacting with each other. For example, when I meet another foreigner and he hands me his card with two hands. C’mon … just get your card to me any way to you can: slide it across the table, flip it, fold it into a million paper cranes and fly it over, I don’t care. I am not Chinese so the two-handed thing means nothing to me and I don’t really need to know that you know how to do it, thank you very much.  Save it for someone for whom it really matters!

Things get really sticky when two foreigners from different cultures interact here, particularly when it comes to greetings. Meeting for the first time is pretty straightforward: smile, shake hands; get over the one-hand / two-hand business card thing and then you are home free. But develop a social relationship and things get hairy, especially between Americans and Europeans.

I think I speak for all Americans when I ask my European friends, in all sincerity: “What’s up with the kissing thing?” You know, that two cheek kind of thing when members of the opposite sex greet each other (or, I guess, when Italians greet ANYONE).  When do you do it? How do you do it (on the left first, on the right)? And it seems to me that no actual contact is made between lip and cheek – its more of an air kiss, is that correct? And am I right in assuming that French kissing, despite the name, is not appropriate when greeting a Gaelic friend? I’m just asking, here.  I don’t want to offend.

Like I said, this is where things get sticky.  For many Americans, the part of me that is “me” begins about 21 inches from my physical body (or 53 cm for the rest of the world that insists on using a system of measurement that actually makes sense). You get inside of that me-space and, unless I know you very well, I feel a bit uncomfortable. Mainly, because I don’t know where those lips have been (and I really don’t want to know so don’t bother explaining). Where I am from … the great state of Minnesota in the U.S.A. we really value our personal space.  Men on one side; women on the other and don’t get too close.  Its like some Amish throw-down.  Its amazing that enough physical contact even takes place in that state enough to keep the reproduction level roughly above that of the Giant Panda (who, for those interested, conceive roughly once every two millennia.  No wonder they are nearly extinct.  Let’s get it on, my furry friends … throw a little Barry White on the hi-fi, fluff up the bamboo leaves and get un-endangered!).

But I digress …

This is the month when many people around the world celebrate Christmas … a holiday that, arguably, has been internationalized mainly because it has been Americanized (and by that I mean “consumerized”).  I would encourage those from other countries to join in the fun and celebrate with all we Americans. I think you will find us open, friendly and on the good side of naïve. But if possible, before greeting us as comrades, please provide a warning. Something like: “Excuse me, clueless American friend, I am going to greet you with a friendly air-kiss. I come in peace. Do not be alarmed or try to defend yourself. And I will go left and you should go right …”

We are at the end of a two-part interview with David Thomas, Founder and Managing Director of Think Global Consulting, based in Sydney, Australia.  In the first part of our interview, we explored the long – and often complicated – relationship between Australia and China.  As members of the Asia-Pacific Rim group of nations, there is a lot of activity going on between the two countries … and, as we’ve seen in the media this past year, not all of it has been smooth sailing.  I started off this last part of the interview by asking David to talk a bit about some of the Australian firms that are finding success in China and what their attitudes are today…

In  past interviews here on the China Business Podcast, we’ve talked with business leaders about their approaches to China … why their company came to China, how they are approaching the market, how  things are going, etc.  I am trying to think back, but I don’t think we’ve ever talking to someone about how a country approaches China.  Well, in today’s Podcast, we are going to change all of that by talking with David Thomas, Founder and Managing Director of Think Global Consulting, a firm based in Sydney, Australia.  David and his firm work with Australian businesses and government to make connections to China.  I’ve known David for a couple of years and, in fact, I think we might have even met through his listening to our Podcasts in the early days.  But as we’ve talked and done business together, I learned more about the deep connections between Australia and China and how those ties are becoming even stronger as both countries find a deeper affinity with each other.  Certainly, those deeper ties are not without their conflicts as we’ve been seeing recently with the dust-up around Rio Tinto and mining contracts.  But as we’ll hear from David today, though the road might be a bit rough, there are some good things ahead for both countries.  Attached is part 1 of my interview with David Thomas of Think Global Consulting…

Over the past 4 years of the China Business Podcast we’ve done many interviews with business people in China, typically leaders of companies or operations.  We’ve talked about the intricacies of doing business here, the opportunities and challenges, and specific strategies and tactics that have worked for them.

Well, I would like to take a chance to back up a bit and view the China environment from a different perspective through an interview with someone who has been reporting on the action, not only in China but around the world.  Bill Powell is the senior writer for Time and Fortune magazines and is based in Shanghai.  We’ve known each other for a couple of years and he calls every now and then to bounce around some ideas and perspectives.  I have always appreciated his perspective and I thought he would make a great interview … and I was right.

Here is part one of that interview …

But that was yesterday; this is today and all seems clear now.  President Obama will arrive in Shanghai on Monday.  Or maybe it is Sunday.  And he will have a town hall meeting here.  Or maybe he won’t.  He might also visit the new Disney site.  But maybe not.

I’m surprised that he could get a flight at this late date.  Usually I have to make a reservation a year in advance for my trips back to the U.S. to keep from getting stuck in the seat where the guy in front of you leans so far back you could do dental work on him.  But maybe the President has a better travel agent than I do.

Now that the trip is on, I want answers to the really important questions.  Ones like “Will Mr. Obama shoot some hoops while he is here?”  The Chinese LOVE basketball and not just because Yao Ming is their John Lennon minus the guitar and annoying wife.  His O-ness has got some game, or so they say.  Maybe he and President Hu can play a game of H-O-R-S-E to see who gets the comfy chair at the U.S. Security Council.  Or a gimmee on higher emission standards at the Copenhagen conference.  I’ve heard Mr. Hu has a mean skyhook so Mr. Obama should definitely take it downtown on a crucial point.  It looks like Hu has no vertical.

Another question: “Can the President use chopsticks?”  I am not trying to be smarmy here (its natural, I don’t have to try) but if he bellies up to the banquet table and is presented with a slimy plate of sea cucumber or duck tongue, he’s got to bring game there too.  And even more so … a sea cucumber splotch on a nice white shirt will be treated like a Rorshach test by the international media.  Glen Beck will see Elvis telling us to roll back health care reform.  Like The King could even benefit from it now (Elvis would have a hard time too).

But maybe the biggest question is: “What does President Obama’s China trip really mean?”  I’ve been polling my local staff and friends here in Shanghai and the general (yet non statistically-significant) opinion seems to be “so what?”  20 years ago, the President of a Super Power showing up in China gave Chinese leaders the vapors.  Heck, even Gorbachev stopped traffic back in the day, and not just because he was a natty dresser.  Now these trips are more like a weekend event between the Olympics and the Expo.  Most people here just complain that is going to further snarl traffic in a system that already looks like the Indy 500…if bicycles and pedestrians could cross the track at will.

When I ask locals how they think it will impact business, some have quoted the old Chinese saying, 天高皇帝远 (tian1 gao1 huang2 di4 yuan3), “Heaven is high and the Emperor is far away.”  Or “what happens at the seat of power has nothing to do with me down here.”  I would paraphrase (badly) Tip O’Neill, “All business is local” – if you are doing business here, you need to figure out how the game is played in your ‘hood, wherever that happens to be.  What happens in Beijing, stays in Beijing.

So while the China watchers will be analyzing to the nanosecond differences in handshake durations and depth of eye contact to interpret just what is “really going on”, I will continue to advocate that Western businesses spend their time finding out more about the activities of their competitors in China than their political leaders in same.  I am going to choose not read too much into this trip.  As Freud said, “sometimes a cigar is just a cigar.”  Now if Obama and Hu sit down over a Montecristo No. 4 and talk shop, we might have something to analyze!

I was in Los Angeles a couple of weeks ago for a conference.  I flew from Shanghai to LAX, landing there at about 11:00 in the morning.  By noon I was on the road in my rental car.  But it wasn’t until about 12:45, driving 70 mph on the 405, when I remembered that, in the U.S., the lines on the road are more than just mere suggestions … you are expected to stay between them and other drivers get upset when you drift aimlessly.  And some of those other drivers are armed and in a very bad mood too!

My inability to cross traffic cultures aside, this raised in my mind an important point about safety in China … and frankly, things are still a bit loose here.  While it is better here in Shanghai than it used to be, cars don’t always stay between the lines, on their side of the street or even off the sidewalk.  If a driver doesn’t know where they are, they stop, wherever they happen to be, to consider their options.  They will stop in the middle of a street, an intersection or even the elevated highway.  They are not thinking about safety … they just don’t want to be lost.  While I admire their commitment to truth and knowledge, if they are not careful, they will soon know very well where they will end up … on a stainless steel table in the morgue!

Pedestrians here will only stop at a crosswalk when there is a traffic cop to shame them into waiting the 12 seconds required for the light to turn.  And if you are on a bicycle, scooter or motorcycle, you can – and will – just go right through any intersection and any light.  Apparently, no traffic rules apply to you and cops, in general, won’t even try to stop you.  Its as if the presence of two wheels under you gives you superpowers of invisibility, Kevlar underwear and a get-out-of-jail-free card.

So when I saw a New York Times article a couple of days ago titled “Salute All Cars, Kids. It’s a Rule in China”, I was intrigued.  In a nutshell, the article tells how Chinese education officials are encouraging children in the countryside to, literally, salute all cars on their walks to and from school … the purpose of which is to get these kids to pay attention to traffic and notice when cars are coming and to stay out of the way.  However, what I thought was going to be an article about improving traffic safety in China turned into a diatribe about the ridiculous edicts that come from the government here and the citizen outrage that often accompanies it.  The journalist cited numerous examples of silly government pronouncements – such as forcing people to purchase local cigarettes and liquor to inflate the state-owned enterprise sales figures – and the fact that ordinary Chinese are fighting back.  Fair enough … its good to see that voices are being raised against government silliness, something we’ve known how to do for a long time in the U.S. (however, we haven’t quite figured out how to actually END the government silliness).

Unfortunately, what gets lost in article, buried at the very end, is that this edict, no matter how silly it may seem, actually seems to be reducing traffic accidents, at least in the mountainous village where the journalist did their interviews.  And that, I think, should be the point … in Shanghai where I live in MORTAL fear of hitting some kid that runs out into traffic, finding some way … ANY way … of teaching kids to respect traffic is OK in my book.

Teaching civil behavior in China has been an issue ever since … well, ever since there was society here.  And China has one of the world’s oldest civilizations so you do the math … but its been awhile. Chinese leaders over the years, from Meng-zi to Mao, have been seen not only as political leaders, but social leaders as well.

The big phrase in China over the past couple of years has been an encouragement from President Hu Jin-tao to work together to create a “he2 xie2 she4 hui4”, a “harmonious society.”  They started it leading up to the Olympics when they expected airplane loads of tourists to descend upon China and the leaders wanted to put on their best face … kind of like when you were a kid and were told to “go wash up, Aunt Marge will be here any minute” and you were dreading that dry, moth-bally kiss and the comments on how big you’d grown and isn’t it cute at how they grow up so fast, but really, can’t you do something about that acne and … well, no need to drag you into my adolescent nightmare.  Let’s just say that the Harmonious Society campaign has gone over about as well here.

So maybe teaching kids to salute cars isn’t so silly after all.  And c’mon, admit it … isn’t EVERY country’s teaching of civil society a bit ridiculous?  Imagine you are sitting in the pitch meeting for the Woodsy the Owl campaign … “OK, J.R., here is how I see it … we don’t want people to throw garbage on the ground, right?  Makes the place look like a dump, right?  OK … so picture this … a grown man, dressed in a cheesy owl costume … and he says ‘Hoo … Hoo … Give a Hoot, Don’t Pollute!’  Huh?  Huh? Is that great or what??”  Yea … I know I am guy of limited taste and erudition, but I don’t think I would have signed off on that one.

I think that China is reaching a tipping point in matters of public safety and I really think that the government should – and CAN – step in and start to move public opinion and behavior.  Private cars are proliferating like bunnies in the dark here, but car seats for children are not and Junior is playing Red Rover between the front and the back seat.  Start putting some pictures at the car dealerships of what happens if Junior goes through the front windshield … guaranteed there will be a lock down pretty fast.  And maybe adults will actually start using their own seatbelts as well instead of just draping them across their laps whenever they drive by a policeman.  Seriously, taxi drivers do this all the time!  And people are still dumping garbage out their windows here.  Sure, there are tons of municipal workers running around with brooms to sweep the streets, but polluting for the sake of fuller employment doesn’t make sense to me.

So I say, bring on the saluting if it helps teach kids to respect a ton of speeding death metal on the road.  Heck, get them to bow, curtsey and say “By your leave, m’lord”, I don’t care!  Just keep them from being human speed bumps!  And bring on the animals teaching moral lessons … in the U.S. we had our Woodsy, Smokey and G’ruff, China should have theirs.  Imagine the pitch meeting for that one, “OK … Wang … here’s how I see it.  We want to get people to stop throwing garbage on the ground … so let’s dress up some guy in a cheesy panda costume and have him say, ‘Polluters should be nearly extinct … like me!’  Huh?  Huh??  Is that great or what???”

Yea … maybe I will just stick to Podcasting.

Thanks again for listening … remember our motto: “In China, everything is possible but nothing is easy.”  We’ll see you next time on the China Business Podcast.

I woke up this morning with two words running through my head: “Reality TV”.  Kind of a scary thought, huh?  But what got me thinking about Reality TV is not the content, per se, but the business model: find a bunch of people, average schlubs, and film them acting as such; edit the content to highlight the schlub-iest moments and then put it on prime time television. Violà… instant ratings. Like all great ideas, I am kicking myself that I did not think of it first. Why, you might ask, should I consider myself so forward-looking as to think I should/could come up with that idea? Well, because what they call “Reality Television” I call “the average day in China.”

China is a country of “watchers”: people sitting around and simply studying other people being…well…people!?! One of the things that foreigners have to get used to here is what we would call “staring” … many here would call, simply, “observing the behavior of those around them.”  I suppose that makes sense … there are so many people there that free content is always available.  Several decades ago, just being a foreigner in China attracted attention. Go to the market, let a couple of Chinese words slip out of your mouth and you gained such a crowd on interested onlookers that you could put up a tent and charge admission.

Now, certainly, things have changed over the years.  But many years ago, I was a spectacle, even in a big city like Shanghai where foreigners were not very common.  I once asked a Chinese friend why everyone stared at me and he said, “Well, for thousands of years, all we’ve had to look at is other people who look like us … you are REALLY different, so we want to have a look!”  That was tough to argue with, I must admit.

So I have spent countless hours entertaining local residents here over the years. I should have had an agent negotiate a contract for me, thusly: “Mr. Kedl is willing to shop for vegetables every Tuesday and Thursday and to mispronounce a minimum of 17 Chinese words while doing so. The neighborhood will provide no less than 83 gawkers, at least 11 of whom will attempt to help Mr. Kedl negotiate the transaction and another 6 will comment on the proceedings. Mr. Kedl will receive 10% of the front end and two points on the gross plus all residuals on local TV news footage.”

Not much has changed over the years in terms of the spectacle I create when shopping. The modern hypermarket has made for some great leaps in shopping convenience: too many choices are jammed into too little space at too high prices and NO room to negotiate. The beauty about shopping in China is that total strangers will feel very free to look into your cart and check out what you are buying. Many of them will feel even freer to comment on your purchases, particularly if they don’t think you can speak Chinese: “Hmmm….look at that foreigner…what in the world would he need with a toaster oven, a pile of hangers and three apples?? And he should get himself a real nose instead of that two-car garage he has holding up his glasses now!”

I was at my local hypermarket recently when one elderly lady tried to convince me – in animated sign language reminiscent of Helen Keller doing liturgical dance – that the milk I was purchasing was NOT the right milk and that, if I bought the one she was buying, I could get 2-for-1. I explained to her that my kids preferred this type of milk, but thanks for the advice. She walked away a bit confused, mumbling to her shopping companion “Why in the world wouldn’t he by the cheapest kind…and it almost sounded like he spoke Chinese!!”

But having a foreigner as the center of attraction is not necessary. Almost any activity on the street will garner attention from passers-by. The other day a motorcycle cop stopped a guy on a bicycle carrying a load (looked like three sofas and a cage of ducks). The cop dismounted his bike, sauntered over, Ponch-style, to the offending cyclist and stared at him. Immediately, a gaggle of pedestrians gathered around the two of them to see what would happen next. Not able to resist peer pressure, I joined the throng (it felt good to be the gawker as opposed to the gawkee). And you know what happened? The biker got a ticket.

The crowd went away happy, but I was left unfulfilled. No fight broke out. No blood was spilled. No threat levels went to Orange. A TV news anchor didn’t show up with his helmet of hair and don’t-believe-me-at-your-peril voice to intone, over a dramatic graphic sequence, What It All Means and Why You Should Be Very, Very Afraid. The dude just…got a ticket.

The West is trying to convince China that they need to change, to upgrade themselves to the “modern world”. Personally, I think China is doing OK, for the most part. However, if I were to be honest, I think China could add a bit more excitement to what is, essentially, a reality show here.  I mean, if all of life is open for others to sit around and stare at, you should really go for it …you know, punch it up a bit, get better ratings and maybe raise ad rates. Cops shouldn’t just give someone a ticket: apply a little OJ and first have a slow-motion chase through downtown (actually, it would be slow-motion here in Shanghai because you’d never get over crawling speed through the traffic). An overloaded vehicle tips on the highway? Splash around some fake blood and have five people go at it, Jerry Springer style. Over-crowding on the subways could be solved if we could all vote someone off every stop (my choice would be the guy with the scary comb-over taking up two seats) or the guy who keeps losing his mobile phone signal and keeps shouting “Wei?  Wei?” into his dead phone.

But I think the ultimate Reality Show here would be to demonstrate just how helpless some foreigners are here.  We could put a collection of them in a row house off Chang Le Lu, give them only CCTV, no access to DVDs or any restaurant that ends in “on the Bund”, take away their Ayis, drivers and secretaries and see who lasts the longest. Guaranteed to make Survivor look like summer camp for sissies.

But, like many things in the global economy, the China auto industry is still coming along OK.  GM just upped their forecast for sales for this year (not that this will reduce the more-gruel-sir handout they are getting from the U.S. government).  In fact, China’s vehicle sales accelerated 25 percent in February, reversing from a 14-percent drop a month earlier, as demand for small cars surged after the government launched stimulus measures.  It is reported that was the first year-on-year gain since last October when the financial crisis began to take its toll.

It was also just announced that China’s second largest auto firm – inappropriately named “First Auto Works” or FAW – is working with a Mexican group to build China-designed cars for the North American market.  After Chery and Chrysler pulled back from their sales agreement, this could be the biggest chance for a China auto group to penetrate the U.S. market.  China is also being lauded as the next place for auto innovation as Chery is developing their new battery powered car.   Several years ago Chinese designers were winning the Yugo Award for Crappy Auto Design and now they are ripping up Motown.  Go figure.

This is all well and good.  But have any of these journalists actually DRIVEN on Chinese roads lately and seen how cars are used?  I mean, c’mon!  China has over 100 car manufacturers churning out ever more makes and models of cars and its tough to tell your QQ from your Spark these days (Hint: look for the annoying logo of the hydrocephalic penguin to find the QQ).  In the pre-consolidation dawn of the China auto industry, there are going to be some winners and losers, so instead of using brand names to identify cars – brands which may or may not be around in a few years – I like to identify cars on China’s roads by their function – how they are actually used by their drivers.  I have come up with several types:

The In-Santana-ty: these are typically ancient model VW Santana cars, often purchased used and driven by individuals who have NO business operating any road vehicle, let alone a car.  You can trust these vehicles to be weaving between lanes, braking for no apparent reason and stopping in the middle of the street.  These cars typically have major dents on them as living proof of the driver’s lack of skills.  When one encounters such a vehicle, give it wide berth because, sure as they don’t wash their car, they don’t give a rat’s hind end about yours either.

The next type is what I call the Speed Bump and it refers to any of the mini-sized vehicles on the road in China, so easily trampled underneath the treads of other cars.  The leader of these is the QQ – of the aforementioned penguin brand – and they look like Matchbox cars on the road compared to real sedans.  These things cost something like $49.95 plus tax and I think you can buy them in a gumball machine, packaged in a plastic bubble [I always get the cheap plastic ring when I try, but I am just an unlucky person].  Speed Bumps are often manual transmission and are powered by an engine measured in hamster- (not horse-) power.  I think they even squeak when you squeeze them.  In developed nations these engines power riding lawnmowers in the suburbs, hauling around overweight, middle-aged men in shorts, black socks and sandals.  Here they haul extended families of seven with one child and a nephew in the glove compartment.

A third type are those owned by young parents who liberally affix “Baby On-Board” stickers to their rear bumpers … and then refuse to use car seats to strap in said precious cargo.  Many is the time that I see a parent driving and a 3 year old child running laps in the back seat, occasionally dong the Fossbury Flop over the front passenger headrest to land in the lap of the other over-indulgent parent riding shotgun.  Just imagine the horrendous results of an accident … the kid will be bouncing around the car’s interior like a ping-pong ball in a Lotto draw.  I call these cars, sadly, a Baby Rattle.

So yes, let us now praise the China auto industry.  It is on life support and yet is the clear global winner in the Global Automotive Zombie-fest. But let’s also admit that, for every cool new battery powered car being developed in China, there are 3 million people driving backwards down the freeway because they missed their exit.

Say what you want about the Chinese authorities, but when they are determined to build something, it can usually get it done fast.  Go to a rural township one year and it’s a patchwork of dirt roads and asphalt.  Go there the next year, and not only are all the roads paved, but they’re lined by trees of all the same breed, shape, and height.  Ask around, and a peasant points into the distance and says that the government “uprooted all those trees from that mountain over there” (behind that river, across that valley!).  The irony of a lush roadside next to a naked mountainside is not addressed.

Pundits in the U.S. applaud the billions in infrastructure investment in Obama’s stimulus plan, but keep in mind that at 10 to 20 times the wages of those peasant tree-movers, we’re getting a lot less investment bang for our stimulus buck.  This has been the “miracle” of China’s breakneck infrastructure development (wowing first-time travelers to China, serious business people and casual tourists alike) in miniature: cheap labor.  Combine this with the “P&L impact” of the China stimulus plan we blogged about the other day, and it makes for some potentially interesting outcomes.

Given the easy mobilization of unskilled labor in China, to say nothing of China’s lack of pesky checks, balances, and legislative mud-fights, it stands to reason that their $586 billion stimulus plan is getting off the ground much faster and with much greater effect than all of the “shovel-ready” projects in Obama’s stimulus plan.  So, how fast has it been going?

According to the Chinese government, $57 billion (or one-tenth of the total stimulus) has already been spent as of the end of 2008.  Of this…

• about 69 percent ($39 billion) has been spent on rural infrastructure, roads, railroads, and housing construction
• an astonishing $90 billion has been budgeted for next year to more than double China’s rail network over the next decade, adding 25,000km of track
• construction has already started on a $13 billion gas pipeline from Xinjiang to Shanghai, and there are plans to start building at least four nuclear power plants this year.

As a result of these and other mega-projects, Yangtze River cargo throughput of steel, coal, and cement ticked up in January after suffering declines since last August, despite steep declines in manufacturing production.  Clearly, the stimulus is already affecting the real economy.  And, we would venture to say, its effect will be an order of magnitude greater than the $400 million for highway overpasses and upgrades in Kansas, or the proposed $3 billion just for a four-lane tunnel in downtown Seattle (Ed note: not that one might NOT want to be high above Kansas or far below Seattle!).

Aside from basic infrastructure, China’s stimulus will be spent in a variety of other ways, some familiar in the U.S. and others not so familiar.  Ten industries have been designated as stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics.  Some will benefit from consumption subsidies, such as 13% off for peasants to buy mobile phones, computers, and home appliances.  Others, such as textiles and light industry, will get bigger export tax rebates.  Almost all of the industries will benefit from government commitments to invest in innovation and new technology, with multi-billion dollar funds already announced for the auto and steel industries.

The government is also taking industrial policy one step further, guiding consolidation in the fragmented auto and logistics sectors, and getting rid of excess capacity in steel, metals, and equipment manufacturing.  Industrial policy is not always spending per se (and it is important to keep in mind that the Chinese term for the stimulus, 振兴计划 (zhenxing jihua) or “rejuvenation plan,” does not necessarily imply spending), but China is clearly committed to a degree of market guidance that the Obama administration, even with rumors of bank nationalization, would never touch.  The Chinese authorities are thinking of the global crisis as an opportunity to enhance their industrial competitiveness.

So, it’s never surprising that things are built fast in China, and the ambition of government planners has never been in doubt – but how much of what has been announced is really part of the stimulus, and not accounting magic?  We’ve all heard in the Western press that a big item in the stimulus is “earthquake reconstruction,” which clearly would have gone forward regardless of the financial crisis (though at a slower pace).  It’s easy to suspect that some big-ticket projects and industrial policies are “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus greatly exaggerating the headline figure of $586 billion.  When the government officially allocates only $23 billion to “industrial restructuring” while sources from within various departments announce stimulus spending whose total far exceeds that amount, we know that something fishy is going on.  Despite the anemic pace of U.S. stimulus spending, there might yet then be something to be said for our own small-bore, yet essentially transparent approach.

March is when things start to heat up in China – both literally and metaphorically – and there are a couple of things we are going to want to keep an eye on in the coming weeks.  The biggie, of course, is the annual meeting of the National People’s Congress that starts this Thursday.  Signs have been up for some weeks now around Shanghai, touting the accomplishments of the Party and the advances of the nation and the Chinese people under their leadership.  If you didn’t know any better, you’d think they were running for something.

Well, in fact, they are.  You see, just because there are no elections, doesn’t mean that the government is not, to some extent, “of the people, by the people and for the people”.  As I have said in these pages before, the Chinese government and the Party – one in the same thing – know that, in today’s modern tell-all era of instant electronic communication, there are plenty of ways that they can be embarrassed in the eyes of the world.  And that is a BIG no-no as far as they are concerned.

So besides the herd of 60+ year old men in bad suits and comb-overs rubber-stamping as if their life depended on it (and it does), we can also monitor the NPC meeting for some other details.  The biggest issue will be how focused the Party will be on “social investment” in their economic stimulus program.  In the past, most of the government’s investment has been in “big iron” projects – infrastructure (highways and railways) and energy (the Yangzi river dam, big mining projects).  But now that China can claim more roads and rail than the U.S., it is time to move on to the next Big Thing.  And that is investing in people: hospitals, healthcare, schools, job re-training and the like.

The current investment proposal allocates 1% of the stimulus to health care and education spending and 7% to public housing … not exactly numbers to warm the potentially frigid feelings of the populace.  So I am looking for some other announcements to come out; some big Hallmark card of a program to send out the love.

The Party has been doing a decent job of maintaining their street cred: from the Olympics to a pretty rapid response to the tragic earthquakes last year when Wen Jia-bao showed up to provide a much-appreciated compassionate face to an otherwise distant bureaucracy.  But it is difficult to send Grandpa Wen to every displaced worker to insure them that everything is being done to help them find another job; to visit every white collar worker to show them that its OK to spend some of their savings now because a social safety net is being built to help care for them and their parents in their old age.

Just like any other country in the world, China is going to need to speak words of comfort to their own people in these troubled times.  The NPC meeting this week and the subsequent economic stimulus package will be the next voice we hear.

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The world is a very large place if you get outside your comfort zone and experience it. That’s easy for me to say, I first set foot in China when I was 20. It was a very different country then. Fast forward to today and I’m here after more than two decades in the country, and reporting on the China Business Podcast for nearly four years.

ChinaSense Sample Itinerary

We are coming full circle in this interview with Jennifer Pan, the CEO of ChinaSense. Her company produces some of the most in depth, and eye-opening trips to China for US MBA and EMBA students. Jenny has graciously asked me to speak to several of her groups and it is a joy to field their questions. Regardless of how overwhelmed they may be with a two week China immersion itinerary, they leave China with a sense that anything is possible and a new horizon of opportunities for them to explore further.

In this podcast, I’d like you to meet this entrepreneur who has helped many American students discover a new country, while also discovering something new about themselves.

Despite the global downturn, China still offers an economy that’s growing, with predictions for growth ranging from about 7 percent to 9 percent in 2009, stimulated by significant government investment. As such, China will remain a key market for growth as well as a major supplier to the world. To help management of Western businesses better understand how to tap China’s potential, Technomic Asia has partnered with the producers of “On the Frontlines: Doing Business in China” to create a pragmatic and street-smart business tool useful for China beginners and veterans alike.

A preview from the producers of “On the Frontlines: Doing Business in China”:

The “On the Frontlines: Doing Business in China” series consists of five DVDs full of insights from more than 150 interviews and one CD, sponsored by Technomic Asia, that contains research reports, book excerpts, a China Readiness Assessment and more. The video series is hosted by James Fallows, China correspondent for the Atlantic, who also served as editorial director for this project. Joe Nocera, business columnist for the New York Times, provides commentary and analysis throughout the series, as well.

With “On the Frontlines: Doing Business in China,” business leaders will quickly understand how to:

• overcome the cultural barriers to doing business in China,
• master the fine art of negotiating with the Chinese,
• succeed in making the deals you want to make in China, and
• avoid costly mistakes: business is different in China.

“On the Frontlines: Doing Business in China” is only available online and sells for $199, but the series can be ordered at a 25 percent discount off the retail price at www.chinadoingbusiness.com using the promo code “TechAsia2009.”

“One of our favorite sayings is ‘In China, everything is possible, but nothing is easy,’ and this documentary shines some light on why that’s true,” said Steven Ganster, one of the interviewees for this documentary series and the managing director of Technomic Asia, a China-strategy consultancy and a division of Tompkins International. “Although nothing in China is easy, a well-informed strategy to establishing a business presence is worth the effort. With most of world reeling from economic trouble, China provides opportunities to great to be ignored.”

(Original news release)

I give this background because today’s topic is “Engineering in China” and it was prompted by an email I received from Roger this morning.  He sent me a link to an article that says that China is now the global leader in indexed engineering publications – in other words, more words about engineering are coming out of China than anywhere else in the world.  I sent Roger a note back on the topic and, not seeing any shame in being lazy and re-purposing content, I thought I would riff on it a bit more here.

It would make sense, with all the manufacturing in China and the number of schools graduating HUGE numbers of engineering students here, that the total volume of engineering publications coming out of China would be quite large.  Heck, China is the number one exporter of engineered products … why shouldn’t it also be the leader in exports of articles about engineering?  However, as we often see in China, “volume” does not connote “quality” and that would be my primary concern in this case – just because there are a lot of engineering articles coming out of China does not mean that China is a leader in engineering best practices.

I think we have talked before in these pages about some of the challenges in engineering in China, particularly the differences we see between engineering education in the West and here in China.  In the West, students are trained in “engineer-to-solution” methods where they are taught how to provide a total solution using various principles of engineering.  Sketch a challenge out on the back of a napkin and a Western engineering student should, theoretically, be able to give you several ways of solving it (it seems like U.S. engineering students are always participating in some invention competition or another).

In China, the training is more “engineer-to-print” where students are taught how to “read” a problem (a blueprint, data output, etc.) and then solve that particular problem.  Foreign friends and clients here who run engineering departments are constantly challenged by their local staff who want to be given a problem to which they can apply their standard toolbox of formulas to come out with the “right answer” (I still remember our English students bringing us the TOEFL test and wanting to know which of the two choices was “right” … when actually, BOTH of them were “right”, given the situation!  Very frustrating for them as well, I’m sure!).  They have to work very hard to get their local staff to stop applying solutions until they fully understand what the problem is.

A British friend of mine runs an engineering department at one of the biggest Chinese car makers.  He said that the greatest frustration he has is working with local engineers who understand engineering theory…but don’t drive!!  He told me of a time that they were designing a car seat that kept rattling once the vehicle reached a certain speed.  The engineers said, “That’s OK, my bicycle seat rattles too when I go fast!”  My friend could NOT seem to get them to understand that this was a TOTALLY different situation that required a different solution!!

Roger embodies the Western approach to problem solving.  The small teachers college where we worked had a flat roof over the dining hall and, after heavy rains, the pipes would clog up and would not be able to drain the water, leaving a VERY heavy and dangerous weight over our heads (it did not promote good digestion, to have the Wading Pool of Damocles suspended above you over dinner!).  The engineers at the school did their best to unplug the drains, but it just didn’t work – so they threw up their hands and said, 没有办法 (mei you ban fa “nothing we can do about it”).  Roger, being Roger, did not agree with this assessment, nor did he agree with the basic problem.  The issue, said Roger, was NOT that the drains did not work … the issue was that the water was still there!  Just because the drains didn’t work did NOT mean that you could not get rid of the water.  After another nerve-wracking dinner one evening, Roger went down to the local store and purchased a long section of rubber tubing.  He then went up to the roof, put one end of the hose in the water and tossed the other end over the side of the building.  Using some magical principle of physics that I think he called “gravity”, he started the flow of water out of the hose and, after some time, the roof was completely drained.  The school’s engineers were VERY impressed and proceeded to go buy more sets of tubing to deal with other buildings on campus (I think the local store ran out of supplies and purchased a truckload of tubing the next week, wrongly thinking there was a bull run on the rubber tubing market … and that stuff is probably still there, 20 years later!).

By NO means do I intend to belittle Chinese engineers … the market is making quantum leaps every day and, to be honest, the quality of “engineering to print” can be phenomenal and much better than the West (the copy-market benefits from this!).  But there is still some way to go, as the editor of the Chinese Journal of Construction Machinery is quoted as saying about the engineering articles coming out of China, “… their quality is still an issue. Many of China’s EI papers are less than satisfactory.”  That’s OK … give it some time and there will be millions of engineers embodying the Spirit of Roger solving more problems than you can shake a rubber hose at!

But here in China, the authorities are betting it is going to be different. The rumor on the street is that we will soon see a move by the Chinese government to provide huge subsidies on a basket of goods that will be pushed out into the countryside and small towns in China. This cornucopia of goodness, supposedly, will include things like washing machines, motor scooters, TVs, rice cookers and other small appliances. And by “subsidies,” the word is that this stuff will be practically free to the buyers — like they will pay only 10 percent of the retail price of the goods. Its like one day Sears and Best Buy throw open their doors and help patrons loot the place.

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As we have said many times before in this podcast, rumors are rampant in China and we must be careful not to plan market strategy on the basis of what is called “back alley news” ( 小道消息 xiao dao xiao xi). However, as I thought about what this program might do, I wondered if it might actually work. Remember that, despite the spectacle that is the big cities like Shanghai (where you can’t throw a chopstick without hitting a Starbucks or McDonalds) the rest of China is decidedly less urban and an estimated 65 percent of China’s population still lives in rural areas. There is a lot of disagreement as to exactly what the rural population number is, but it is impossible to determine. The several hundreds of millions of migrant workers make it tough to count them when they won’t stand still.

The backlash of lower growth in China is going to hit the migrant workers the hardest, and many of them have lost their jobs in China in recent months. The timing of these losses might diffuse the situation a bit: We are in the Spring Festival holiday this week where many of these workers have returned to their homes and turnover at factories can be as high as 40 percent in a normal year. Still, if factories are shutting down, there will be less for these workers to return to after the holiday so the unemployment gap will increase.

The biggest challenge for the Chinese government is to find a way to keep many of these workers “down on the farm,” so to speak, and moderate the flow into the cities. Certainly, workers are going to be needed to support the growth that is still happening here (remember our rants last week that “only” 8 percent growth is still growth?!), but not as many. Adding to this challenge is that many of these workers have been to the circus and seen the elephant — they know what lives many Chinese urbanites are living with all the standard trappings of wealth (funny how a Mercedes E-Class communicates the same thing in any culture. It says: “I am a 55-year-old male, I have money and I am compensating for something”).

So the first bit of encouragement the government can bring to the rural worker is to start them on the road to the better life by providing the starter-kit of bling: call it “Pimp my Farmhouse,” if you will. When I first came to China in the ’80s, people lusted after the “4 Things that Go Around,” which included a bicycle, watch and sewing machine — and I forgot the fourth. A pizza cutter?

Not much has changed except that the expectations have risen. We need to get places faster, so the bike has become the scooter. No one makes clothes any more but they do want to avoid washing them by hand. Hence the washing machine.

And you know what? Bully for them! There is nothing wrong with wanting –- and getting -– this stuff. I love my washing machine, TV and my rice cooker. Probably couldn’t live without them (at least, I could not properly parent teenagers without a TV!). Why should others be denied these because they can’t currently afford them? If the Chinese government can find a way to get these things to people who want them, that’s great. And contrary to the U.S. approach where people collect credit cards like Yugioh, if the rumors are correct, then people here will still be paying cash for these goods like they always have. They are just going to pay a lot less than they otherwise would.

As we have seen, economic recessions have a huge emotional and psychological component and the path of a county trends in the direction of the collective consciousness of its citizens. The revolution in China in 1949 was a radical departure from the socialist revolutions in Europe. While the Soviet Union and its satellite protectorates came into being through an urban/worker revolt, China’s came about through revolution in the countryside. Mao Ze-dong and his compatriots harnessed the anger of the abused peasant and swept themselves into power. Since that time, there is a tension in Beijing that, on the one hand, celebrates such peasant roots while, at the same time, wanting to guard against a repeat performance.

China’s leaders now are decidedly urbanized intellectuals and one of their primary concerns is how to avoid rural unrest. There have been many protests in the countryside in recent years, and interestingly, the Chinese media has reported on some of them. But so far, the “big one” has not come about. Deng Xiao-ping’s twist on socialism was to say that its OK if some got rich before others –- which is all fine and dandy if you can see the path out for yourself to boldly go where others have gone before. These subsidized goods, if true, would be a step in that direction.

The second benefit this program could bring would be to help keep factories open that are making these goods. Yes, people would like stuff, but they also need a job so they can keep buying more stuff. I have heard figures of unemployed migrant workers range from 3 million to nearly 6 million (so much for data accuracy in China). Whatever the figure, there are not enough factories making washing machines, TVs and rice cookers to absorb all of these displaced workers. But every little bit helps.

And the Chinese leaders’ growing sophistication in PR could come into play here. Have some of the leaders visit the factories where these products are made and then accompany these goods to the countryside to pass them out, shaking hands and kissing babies in the process. Splash that around the newspapers and online chat rooms and get some buzz going, some good buzz that might transfer to the foreign press. Radical? Not by Western standards, but it would be very different here in China. And it might even do some good.

For every happy, smiley, feel-good tingle that this program might engender, there is a potential darker side to it, as well. Getting someone a washing machine for cheap will make one feel pretty good, but before the warranty is up, you can be darned sure that the receiver is going to be saying, “OK, thanks for the washing machine, but what’s next?” If the government is using a program such as this as a quick-fix finger in the dam of emotions in the countryside, they are going to be very shocked to find out just how short-term this solution will be.

The reality is that, despite the amazing growth of the past few years (or maybe because of it), true rural reform has to be high on the to-do list for Chinese government leaders. The opening of the economy has gutted the social programs that were tied to state-owned factories and farms and, while many individuals have been able to make more money on the freer market, they don’t often make enough to purchase affordable housing or good health care. Cheap motor scooters are nice, but if you can’t get emergency health care following your inevitable mash-up, is it that much of a benefit?

So we should be monitoring two things in the coming months in China: First, let’s see if the rumors are true and we see a subsidy program hit the street. Again, I hear enough rumors every day to listen to all of them and trust none of them, but this one seems to have a lot of internal logic to it. But secondly, keep your eyes on the real reforms that have been promised in the countryside: new schools, clinics, hospitals, affordable housing, etc. We have several clients for whom we are exploring these rural opportunities (particularly in medical devices and building products), and things are looking pretty good so far. But until real people get real and lasting benefit from real reforms, there is always the danger of people using their cheap scooters to drive to the nearest protest. And I don’t think the warranty is supposed to cover that!

Thanks again for listening. Happy Year of the Ox to everyone, and remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast.

Photo courtesy of JSolomon on Flickr

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Of course, I could take the easy way out and reply that China is great because of its “long and storied history” or that its “modern dynamism is unparalleled in the world.” But that would be like saying Hunter S. Thomson was a “good” writer.

China (and the good doctor) deserves more. I have come up with a list. A definitive list.

The Top 20 Reasons to Love China:
(with apologies to talk show hosts and their lawyers)

1. China is the only place on earth where you can see a man pedaling a bicycle loaded with two butchered pigs, a living room sofa and two family members. And he is not even breathing hard.
2. The Chinese word for “mother” and the word for “horse” are separated by just one tone, leaving open a world of possible insults for the sloppy student of the language.
3. A black GM sedan is the coolest car on the road…this IS your father’s Oldsmobile!
4. You are acclaimed a “China Expert” by local acquaintances the minute you come close to properly pronouncing ni hao and know the meaning of the word guanxi.
5. At the same time, these same Chinese acquaintances will correct your mispronounciation of ever other Chinese word, which will fill you with a sense of belonging, knowing as you do that they now feel comfortable enough to tell you what they really think.
6. When someone asks you whether they drive on the right or the left side of the road in China, you can truthfully answer: “both.”
7. Reading an EKG report is easier than deciphering Chinese calligraphy, even for many locals.
8. It is not impolite to slurp your noodles, ask someone’s age or how much money they make. Eat your heart out, Ms. Manners.
9. You can buy a Spongebob Squarepants doll while visiting the Great Wall, thereby gaining an immediate understanding of the clash of civilizations without having to read Samuel P. Huntington.
10. One’s heart rate after crossing the street on foot is roughly equivalent to a 20 minute Stairmaster workout.
11. The answer given to me by a Shanghai native when I asked how he knew if a Chinese sign should be read left to right or right to left: “I read it one way. If it doesn’t make any sense I read it the other way.”
12. The look on the face of a foreigner at his first formal banquet when he receives an answer to the question, “What is this I am eating?”
13. Dogs here understand commands in Chinese better than I do.
14. The always empty Rolex brand store 200 meters from Xiangyang market.
15. Fortune cookies are NOT a Chinese invention; spaghetti is.
16. Not only can you turn right on a red light, you can do so without stopping.
17. Even though China’s per capita GDP is one-twentieth that of the US, Starbucks charges the same price for a cup of coffee in China as they do in the States.
18. The taxi sign reminding you to take everything with you, the English translation of which reads: “Don’t forget to hold your thing.”
19. A coupon to the local go-kart track, good for “One free ride” and “One free beer” at the bar, which stipulates that the beer must be consumed before taking the free ride.
20. You get to eat with sticks.

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The following is a complete transcript of today’s podcast:

For those of you familiar with the recent history of Shanghai, you will remember the Xiangyang market. Plunked right in the middle of downtown Shanghai, it was both a beacon to tourists and a bane to local authorities – for it was the biggest, wildest, most uncontrolled fake-goods market in the city (if not the country). The tension among the local authorities was palpable because, although it was a big draw for many foreigners, it was also a sign that China’s control over knock-off products was not as good as they were touting.

The authorities have since shut down the market claiming, rightly so, that the land was too valuable and needed to be developed (I think they are putting in another hotel-shopping-residential-commercial complex that will look just like the other 20 million similar complexes in China, thereby eliminating any character and class from a city that used to have buckets full of both).

Anyhow, this podcast is not a screed of the cynical China expat – or, at least, it is not intended to be. It is actually the story of grace and kindness in the midst of hardcore commerce. This is the story of the day I went to Xiangyang Market to buy nothing. I had something to buy but that something was, really, nothing. Lest this quickly digress into a podcast on Retail Zen – “Grasshopper, first you must know the sound of one hand shopping” – let me try and explain.

I had recently purchased a new belt at Xiangyang. When I got home I found that I needed a couple of extra holes to make it smaller. Now, if I were back in the States, I would go to the garage, find a hammer and nail and just make my own hole. But in China, I possess neither hammer, nor nail, nor garage so I had to find someone to help. And this is where the nothingness comes in: I needed to buy a hole.

I figured that since I had purchased the belt at Xiangyang, I would return to the scene of the crime in search of the belt puncture-upgrade. I reached the market gate and steeled myself for the phalanxes of commerce vultures screaming the glories of their wares (all of whom, oddly, mistook me for Dick Van Dyke, repeatedly greeting me with a hearty “Hello, DVD!”).

But first, a confession: I really am a cynical person. The reason matters not, for I am not alone: the expat community in China is rife with cynics. And our Cynicism Radars are particularly active at Xiangyang-type markets where the stall owners are out to make a quick RMB off our supposed ignorance.

However, my radar did not seem to be functioning that day and I found myself explaining my situation to one of the DVD touts at the gate. He smiled and, with a glint in his eye, said “Follow me.”

We wove our way through the stalls of “genuine fake” goods, ending up at a shoe repair place at the back of the market. My new Best Friend proudly introduced me to the proprietor and I explained what I wanted. Shoe Repair Guy looked at the belt and shook his head; no, he didn’t have a leather punch big enough for that purpose and recommended that we try another place a few stalls down – where we found that they, too, did not have the right tool but directed us to yet another stall down the way. This charade lasted half an hour, with each stall owner shaking his head in empathy – “can’t help, so sorry.”

After awhile, my radar warmed up and I began to wonder if my Best Friend was taking me for a ride, a ride that would end at his stall where I could not get a hole made but where I was sure to find an excellent selection of other belts (in addition to an oh-so-lovely purse, should I wish to accessorize further).

Just as I was about to give up, we stopped by a stall that was tucked among the meat vendors (where, I am pretty sure, you can find all the components to assemble your own pig, should you care to).

I explained to a cobbler, for the umpteenth time, my dilemma. She took a look at my belt (which, by that time, I had removed from my person to relieve myself of the embarrassment of beginning a striptease at each stall), hauled out a punch and whacked two proper-sized holes in it. She handed it back and said, “That will be 5 kuai.” Stunned, I fished around in my pocket for change and handed it to her.

I looked over at Best Friend, Radar in “full alert” mode, expecting him to try to sell me something else, but he just looked at me and asked “Is it OK now?” I was shocked. Did he really want nothing from me? Was he really just trying to be helpful? Is the world really flat? Is up, down; is black, white; and are Shanghai pedestrians now crossing only at intersections?

But it was true: He really was being helpful. He saw someone in need and decided to take 45 minutes out of his day to help me out. Amazing. I thanked him profusely and asked for his card, promising to stop by his stall with my rich laowai friends.

So beware, dear listener of foreign origin: If ever we meet in person, I am going to insist you visit my Best Friend who, while no longer at Xiangyang market, has moved to a different one and was kind enough to inform me of the fact. After all, we are guests in China and we owe our hosts a debt. Our cynicism must be compensated for with kindness, and I don’t plan to foot the bill on my own.

Photo courtesy of Marc van der Chijs on Flickr

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Dear faithful reader [Kent has sent his monthly "that's Shanghai" magazine columns to a list of several hundred e-mail subscribers, but that came to a halt recently]:

Sorry it has been awhile since you’ve heard from me as we have been distributing my monthly column from “that’s Shanghai” magazine.

But there is a reason for my silence. I am not quite sure how to say this … so I will just say it. I was fired. Well, maybe “fired” is too strong a word. Let’s say I was “given a firm talking to by the authorities and then summarily ignored.” In a Chinese context, that is being fired.

I started writing for “that’s Shanghai” in 2005 when the magazine was just exiting from a nasty battle between the publishers and the former owners. There was a new managing editor — I will call him “Ian” — and he was looking for something to spark up the magazine. Someone sent Ian some of my musings and he called me. Ian is classic Dubliner Irish and has lived a long and hard life here in China — so when he called, I thought it was the Lucky Charms leprechaun channeling Tom Waits.

“I read yer articles, lad,” he said to me. “Not bad. Want a job?” When I told him I already had a job but that I would love to write for him he said, “Whatever … just don’t go over 800 words. What country you say you were from? American? Well, then really don’t go over 800 words!”

Over the ensuing months and years, Ian would prove to be my toughest editor and biggest fan. Every month he would call me: “We got a problem with the censors this month, lad,” he’d say. “They say yer being too sarcastic. I told them ‘of course he’s sarcastic … he’s a fackin’ American! What else could he be?’ I hope you don’t mind.”

No, I did not mind in the least. Ian had one of the toughest jobs known to foreigners here, trying to ride the jagged edge between being interesting enough for people to read and yet politically correct for the State-controlled media. He was immensely successful and remains, to this day, one of my personal heroes.

However, the closer we got to the Olympics, the more pressure Ian was getting to dial back the tone of the magazine, to be more “supportive” of China and less critical. My article, on the back page of the magazine, was a key culprit and Ian caught all sorts of flack for it. The censors — the State-owned entity that controlled the publishing license — were on his case to talk to me. When that did not happen, they insisted that he set up a meeting between them and me. Ian held off as long as he could. “Sorry, lad … but would you mind meeting with these chaps? They’re on my arse about it.”

I said, “no problem” and was actually looking forward to it. It is not everyone that gets hauled in to the Great Principal Publisher’s office. I thought that, at least it would make great content for a new article!

I met with their chief rep, a very nice guy who had actually studied and worked in Australia for a bit. He was oily-smooth, just as I had imagined a publisher would be. “Kent,” he said, “Let me start off by saying that your article is just what we want our magazine to be. It is smart, funny, articulate, to the point. Great writing. Just great. It is the first column everyone around here reads every month. We love it!”

I nodded and smiled … and waited, because I knew it was coming. The Chinese word “dan shi.” Dan shi means “but” or “however” in Chinese and it signals a radical turn is ahead — “I have been telling you all of these nice things, dan shi, I am going to give you the real story. And it ain’t gonna be pretty.”

“Dan shi …” he said. “There is a bit of a problem. You see, you are being very sarcastic in your articles by pointing out the behavior of the Chinese people. That is causing a problem.”

“I see,” I said, “but don’t you also see that, when I point out people’s behavior here, I also point to the even-more-ridiculous behavior of foreigners. My conclusion is usually that all these people are behaving this way and don’t have a problem with it — therefore, it is not them that is wrong, but ME!”

“Yes,” he said, “I see that. But still. You are pointing out behavior and that is not good. As you know, all media in China is approved by the government. And if this is published, it is like the government approving these things. And that is not possible. Kent, let me tell you this: You are becoming too famous in Beijing.”

And it was that last statement that froze me in my tracks. The very last thing anyone wants to do here is to become well known for anything! Chinese phrases are rife with warnings: the tallest tree in the forest gets blown down first; the highest nail gets hit. To be famous here is not good.

So I crumbled. I said yes, he was right. I should dial it back. I should not be so sarcastic. I should be nicer. We continued for some minutes as he emphasized that I was not in trouble at all, but that this was just a friendly conversation. I got up to leave, shook his hand, promised to do better and walked out, my knees still shaking from this “friendly conversation.”

But then and there I knew it was over. One only gets hauled before the court here if one is guilty. Judgment had been brought and sealed by my agreement to attend the meeting. I went home and wrote my new column — trying hard to behave myself, knowing all the time that it would never be published. It was, of course, rejected. Completely. “Too sarcastic,” they said.

So it is time to close this chapter and go look for another one. However, I wanted to at least get this out because, although the style is different and “nicer” than what I usually am, I mean every word of it. Here it is…

Dear Chinese Citizen,

Hi. How are things? Its been awhile since I wrote. Been busy. Living in your country is a full time job. I don’t know how you handle it with such grace.

Anyway, I thought it was time to write and say “thanks” for letting me live here. I know I complain a lot. Sorry for that. I am trying to become a better person but don’t have much to work with in the way of raw materials. My elementary school teachers said the same thing.

You have an amazing country. Honestly, I am into my third decade here and not a day goes by when I don’t sit back and think about something new I saw that day. Try to find that anywhere else. I know the rest of the world is impressed by the big stuff — the Great Wall, tall buildings, new Olympic sports venues — and well they should be. But I am more impressed by the little things I see every day.

For instance, your road construction workers. Do they have no fear? Americans are proud of our astronauts having the Right Stuff…but to face immanent death the way your DMV gauchos do every day? Wow. These men and women live lives of Tao-like calm amidst chaos, like a duck in a shooting gallery. And what do you make those orange vests out of? Must be Kryptonite, the way cars seem to avoid them.

Then there are your inventions. I know you are more famous for your gunpowder, paper and kites (and make full and ostentatious use of them around Spring Festival) but I am more impressed by some of your modern creations. I was in a park the other day and saw a wedding photographer with several groups of newlyweds. He had a wedding dress with a quick-release zipper in the back…strap it on one bride, snap some pics and then move it to the next. Beauty and efficiency, all in one package. Very cool! With the high divorce rate in the U.S. we could benefit from one of those. Here is a business tip: set up your first distributor in Las Vegas.

And how about that horn you have on official vehicles? Who came up with that sound? Ah-oo-ga!! It’s like a nine foot tall goose with adenoidal blockage or a T-Rex with intestinal gas. Clears traffic like a flatulent T-Rex would too. Kudos to your sound engineers for that one.

I know I gripe a lot by how crowded it is here, but it doesn’t seem to faze you. To those of us of Caucasian-European heritage, our body size and sense of personal space are directly proportional and we do not take kindly to being touched, bumped or grazed (our ratio in swimsuits is, on the other hand, indirect – the larger the belly, the smaller the Speedo). A room is crowded in the U.S. when you can reach out and touch your nearest neighbor; in Shanghai, I could have three people living in my back pocket and still feel there is room to expand. The morning subway here looks like a shuttle bus for the Siamese Twin Convention, but no one gets upset. Incredible. In the U.S. there would be three lawsuits per subway car by the end of rush hour.

I am also amazed by what good travelers you are. The quality of a person’s character can be clearly seen in their response to the inevitable delays that plague every plane, train and bus terminal around the world. When a flight is delayed in my home country, the chorus of complaints sounds like extras rehearsing “Mutiny in the Bounty.” But in China, a delay just means there is more time for another bag of sunflower seeds, a longer nap stretched out on your carry-ons or another hand of cards. By the way, thanks to that group in Beijing late last year that included me in their game — remind me again, are face cards high or low?

I have always been impressed with your food history, one of the greatest in the world. However, you are not food snobs — your ability to tackle a gourmet restaurant meal and airplane food with equal relish is astounding. Are your taste buds on a toggle switch?

Finally, I want to thank you for the grace you have shown me, a foreigner, living in your country and butchering your language. In the U.S. we legislate that English — American English — is the “legal” language and criticize anyone who speaks anything else, as if being multilingual is the same as being polygamous. But here, you are very excited every time someone makes a lame attempt at speaking your language, and most of us are pretty lame. A big 谢谢 for that (or, as most foreigners pronounce it, “shay-shay”!)

So thanks for all of this. I promise to tone down the whining and keep my eyes open for all the good stuff.

Sincerely, Kent

P.S. If you could hook me up with one of those T-Rex horns, I’d appreciate it…these morning commutes are killers!

So that’s it. My final column. A column that was never a column. For now, I am going to keep these musings going through the podcast and blog we do for our company — its called (creatively) The China Business Blog and Podcast. The link is at the top of the page and I would encourage you to sign up for it to receive them every week.

Thanks to all who wrote words of encouragement and appreciation for the articles over the year. I love this place and I love sharing it with others. Writing this stuff is the cheapest form of therapy I know. And goodness knows, I need a lot of it.

The articles that most fascinate me are those by journalists who have never been here and are sitting in a sports venue for the most hyped-up event in the lives of modern day Chinese people – and they try to deduce “what the Chinese are like” by watching the participants.

I read one article that was critical of the cheer that everyone uses here – “Zhong Guo Jia You!” and insinuated that this was something mandated by the government authorities to show support for China.  Um … no.  It is not.  Jia You has been around here for ages and is shouted at every sporting event – directly translated it means “add oil” or, better, “step on the gas”.  Basically, it is just a way to say “Let’s Go!!”  I attended a warm up game with the U.S. Olympic basketball team last week and thousands of Chinese fans were screaming Mei Guo Jia You (“Let’s go USA!!”).  Not sure what the same journalist would make of that – probably would tell his editors that a revolution was brewing.  Alert the Neo-Cons!

Anywhere in the world, there is a danger in observing human behavior from afar and deducing complex, internal cultural motivations.  And the Olympics is, in some ways, the WORST place to do this.  Its like the last time the beloved and beleaguered Minnesota Twins baseball team played in the World Series – the stadium was filled with thousands of Minnesotans screaming their lungs out and waving “Homer Hankies”, white pieces of cloth that some marketing genius came up with (the fact that we were waving a symbol of surrender did not occur to many of us until much later).  A simple Jane-Goodall-among-the-apes observation of these event would deduce that Minnesotans are all turbo-charged extroverts hyped up on 3.2 beer and have odd fascination with white cotton.  OK, the 3.2 beer is correct…

But what else can we do?  A view from the outside is often the only way we have of learning about other people and cultures.  And being new to China, frankly, doesn’t make that much difference.  Even though I am “here” and have been for some time, I am not really here (starting to sound like a Bob Dylan lyric??).  I am not Chinese nor do I blend in all that well (six foot five and blue eyes stick out somehow …not sure why).  My view is still one of an outsider – maybe a bit more informed than a newbie journalist but not all that much.

Such knee-jerk observations in the press could be an opportunity for those of us, more enlightened, foreign residents of China to retreat smugly into our China-watcher cocoon and pontificate on the “real” China (some of us might even have the hubris to start Blogs and Podcasts … imagine that!).  It would be easy to do as some of these observations – like the Jia You editorial – are pretty easy to swat out of the air.

However, I think we all need to remind ourselves that, like any culture and country, China resists the iron-clad box of clear definition.  We need to monitor our descriptions of China, avoiding definitive statements that begin “China is…” in preference for more qualified ones: “China seems to be…” and “China is in the process of…”  Wimpy?  Maybe.  Wishy-washy?  Yea, probably.  True?  Definitely.

In these pages and Podcasts, we make a point to tease out the subtleties in China business that impact your investments here.  Guaranteed, we have made a couple of Jia You gaffes in the past and likely will do so in the future.  However, the speed and scale of change here has never been seen, at least in modern times, so we are all working without a net.  All we can do is observe, comment and learn.

China-Watchers Jia You!!

But I like this public viewing thing. I watched the opening ceremonies from two different locations, first at a local bar near my home here in Shanghai and then moving on to Malone’s, more of an expat hang-out (which, actually, was loaded with more locals than expats that night). I won’t comment on the opening ceremonies – needless to say they were very cool and had more how-the-heck-did-they-do-that moments than a David Copperfield special.

I spent as much time watching the crowd watch TV as I spent watching TV, and I was enthralled! The faces looking up at the big screen TVs, imagines reflecting off eyeglasses, was amazing. For every amazing moment, local Chinese were not only thinking “isn’t that incredible” … they were also thinking “aren’t we incredible?” When the Chinese national anthem came on, everyone in the bar stood up and sang at the top of their lungs.

As an American, I am conditioned to be wary of mass demonstrations of loyalty and unquestioned fealty for a government – I would say that, on the whole, Americans are proud of our system of government, but we are not necessarily proud of the people or parties that make up that system. We reserve the right to throw the bums out (even if we cannot get a quorum of citizens who care enough to get off their chip-eating, X-Box-playing tushies long enough to actually go into the voting booths).

During the singing of the Chinese national anthem at the opening ceremonies, many people had tears in their eyes, as if they had just won a gold medal after many long years of training. Well, in a sense, they have. Even if much of post-Liberation history has been erased from the books here, the shame of the Opium wars and Japanese colonial occupation is learned by wrote. So, to see 80 world leaders gathered with 91,000 others in a stadium to be watched by – probably – nearly a billion more on television, all to recount 5,000 years of Chinese history and contribution to world culture and commerce … well, that should be emotional.

So I say, let China have its moment. Are there still problems? Of course there are. But I believe that the way out of these problems is through the pride and (yes) abject nationalism of the Chinese people themselves. Pride in building a nation into the fourth largest economy in the world over the past 20 years is child’s play compared to the challenges of building one that represents justice for every one of its citizens. Given that, over the past 200 years, we Americans have not been able to do this ourselves – and, in fact, have slipped drastically backwards in recent years – should give us all pause.

But give it time and the Chinese people will stop comparing themselves to where they have come from and will start measuring themselves against where they could be. Then – and only then – will change happen in China.

Twenty years ago when I was teaching in a Teacher’s Institute in rural China, where the average wage was barely $40 a year, I never thought I would see this day. So I am going to gather with my friends and neighbors at the local pub and will lend my voice to the shouts of “Zhong Guo Jia You!!” (“Go China!!”). I, too, get misty when I see a Chinese gold medal winner on the stands and hear their national anthem. I am not Chinese and I will never claim to know what it is like to be Chinese, but I am honored to be here among them as they are discovering just what that is.