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

By Randy Boswell, Postmedia News November 1, 2011

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

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

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

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

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

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

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

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

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

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

China Willingness

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I had the pleasure of listening to Former US Secretary of State, Dr. Henry Kissinger speak this week. He reflected on his new book On China and the 40 years of relationship building with China, some refer to this as the ultimate in Guanxi. OK, I buy that, and it’s a high standard set by a man who has dined with generations of Chinese leaders, influenced policies in both countries and, through his work, enlighten the societies that were so vastly different when he first set foot in China to secretly meet with officials in July 1971,

At Technomic Asia we try to steer clear of politics, but the realities are that opportunities for business are more clearly visible by understanding politics. That was the case 40 years ago as the Chinese and Soviets were at odds, a situation that the US bet provided an opening to plant the seeds of US values. Among those values, the benefits of a capitalist economic model and the opportunities it provides to the society that embraces those values.

In retrospect, the first 30 years of this US China relationship was about understanding these benefits and working them into a unique political and economic system in China. The last 10 years was in some ways the dynamic growth of the seeds planted in the 1970s by the dialogue with the United States across several political administrations. I’ve seen companies struggle with the decision to establish a presence in China because their senior leaders’ ability to envision the future was cloudy. That is less the case today.

I’ve painted the picture for company managers of what could be in China more than a decade ago when the roots of economic growth, joint venture ownership, and consumer spending where just taking hold. Today, as I engage in a dialogue with business leaders, the ability to predict their future may be just a daunting as in the past, but the landscape in which their future will unfold is not. The GDP per capita has increased several fold in China since 1970. The middle class is equal to the entire population of the United Sates. Make no mistake I tell them, the taste of consumption, the attention of the world, and the increasing expectations of China’s citizens support a landscape of growth.

The question for US business is how they will participate. An American Chamber of Commerce in Shanghai survey of executives of US companies doing business in China in 2010 revealed their success. Among the results, 87 percent of US companies reported revenue growth in 2010 up from 47% in 2009 and 61 percent of US companies said they gained market share in 2010 up from 40$ in 2009. These are snapshots of a larger picture that beckons strategic business leaders to China in a way that even Dr. Kissinger didn’t envision forty years ago.

China imposes “Harmony” tax on foreign companies

Beijing declares talk of Inflation a “thought crime”

When in doubt, blame foreigners

China fines Unilever $300,000 for talk of possible price increases

The last one is the actual headline but the first three could have been the subheads. Inflation has risen 5.4% in China this year and keeping prices under control is a top priority for 2011. Patrick Chovanec, an economics professor at Tsinghua University in Beijing said today that China’s leaders are “trying to put out fires and the fire of the day is inflation…” If you were wondering, yes, the government can impose these fines. The only constant in China is finding out how much you don’t know, no matter how long you have been here.

Under China’s “Price Law” companies can be fined for “spreading rumors about price increases.” Who knew? So Unilever, which only suggested verbally that they might, possibly, are considering, about to mull, perhaps dreamed about, could, may, raise prices to deal with rising raw material and labor costs, brings down the “hammer of harmony” upon themselves. And they were thus smote: “Severe punishment was meted out this time to break ugly habits and build new rules, said the National Development and Reform Commission, warning other firms to “absorb the lesson.”

I urge all regional heads, C-suite suits, brand managers and companies selling products in China to take note.
This is a blunt proclamation aimed at keeping a “Harmonious society” – China-speak for keeping the people happy, healthy, fed and paid so that protests and social unrest leading to a questioning of Party rule do not develop. Right now inflation is the threat and your company needs to be aware of the social and political context in which pricing your products takes place.

To be clear: Inflation threatens harmony, social unrest threatens the government, and that could be a threat to your business in China. It is unlikely that these fines will become a major trend. Enforcement is difficult and the PR message would be bad for China Inc. (although that doesn’t always stop cases of “tin ear syndrome” on the Mainland).*  Nonetheless it is an example of why companies in China need to be constantly evaluating the political as well as social trends that impact business.

In the end China needs to solve the real causes of inflation:

• -Oversupply of money post-2009 stimulus
• -Rising cost of raw materials and commodities
• -Continued Urbanization
• -Need for further Yuan appreciation (note this is happening now and the RMB hit an all-time high against the dollar as I am writing this)

Make no mistake, the Government has problems that are in many ways common with other countries but are uniquely large in scale and cultural import.  They are usually adept at navigating dark waters.  As short and long term programs and policies are put in place to deal with the big picture problems it would still be wise to take stock of where your company, products and prices fit in. Hell, if I knew I wouldn’t sound so cynical I might even suggest, if I were your consultant, that you create messaging/take actions to address this issue and work it to your advantage. After all, working with government initiatives and goals in mind , and never against them, is a sure path to…Harmony.

Updated: Tuesday, May 10, 2:13 New York Time

I just read my good friend Dan Harris’ post at the China Law Blog on the same topic Unilever fined for mentioning the I (inflation) word. I recommend his insightful post about what it means for you.

*H/T to JF

In this presentation, Wealth Through Health, Zakkour makes the case for examining China’s priorities in healthcare, the health of the environment, and the health of the consumer as keys to economic business growth in China.

China Business Toolbox

This is a day-long conference focused on successful healthcare business strategies in China. There will be speakers and discussions on medical device and healthcare informatics initiatives in China, understanding China’s hospital facilities management goals and the opportunities for US healthcare infrastructure companies. China is also developing a significant mergers and acquisition environment which will be discussed in depth at the China Business Toolbox conference. The China Business Toolbox Conference is June 3 in Boston with a full agenda.

The visit represents the first time the US and China will be meeting as the two largest economies in the world.
For the better part of three decades this honor was reserved for the US and Japan, but the first decade of this century has seen a new economic order develop and no two countries are more important to the growth of that economic order than the Eagle and the Dragon (apologies to India for the moment).

In order to get things off on the right foot we can only hope that the under-managed nature of Hu’s visit in 2006 to then President Bush (no State dinner, introduced as the “President of the Republic of China”, hecklers in the Rose Garden) and the opposite, over-managed, nature of Obama’s China trip in 2009 (a “town hall” meeting packed with Communist Youth League ringers, no straying from scripted events) are dispensed with and the business of the day is business.

There are dozens of important issues that the US and China must continue to address bilaterally, including foreign policy and defense, sovereignty (Taiwan, Xinjiang and Tibet) shipping lane security etc. Too many to cover here. From a business perspective here are four to keep an eye on:

• The revaluation of the RMB. It’s hard to talk US/China relations without the currency valuation issue taking front and center. As usual opinions on the relative merits and problems of a market valued RMB range from “Let it float” to “Keep it Low” and everything in between. Whatever your opinion there is no doubt that China is looking to rebalance its economy and the US wants better balance between the two economies. Continued progress on the RMB will serve both goals. We feel that the likely result of the summit will be an agreement to continue the slow appreciation but with an end point in sight. This will benefit the long-term prospects of US companies looking to sell their products in China and will help create the “consumer culture” that China seeks to sustain its growth.
• Energy. As I type this, the US and China are consuming 50% of the world’s daily oil output, right now, today. That is unsustainable. One country is seeking to regain its footing economically and the other is looking to keep up 10% annual growth. Any infringement on the use of fossil fuels is a roadblock for both, right? At the same time, if 1.3 billion Chinese consume energy the way 300 million Americans do that is unsustainable, right? But who are we to tell the Chinese they can’t develop the way we did (including messy energy and environmental issues) for China and the world, right? Hopefully the two leaders will look to get clean/green energy cooperation back on track after a lull this past year. This has big implications for American companies in the solar, wind, hydrogen, hydro and other alternative energy industries.
• Indigenous Innovation and Intellectual Property Rights – These two subjects are usually spoken of separately but they are interdependent. China wants domestic companies to have the best, first chance at developing key products, components and technologies (for both domestic use and for eventual sale in markets around the world) and, some say, is giving such companies preference over foreign companies with perhaps more advanced solutions. Also, Chinese companies are seeking the fastest path to indigenous innovation and still prefer the acquisition, legal or otherwise, of foreign IP as the best route. These tensions need to be further addressed as they will have a huge impact on how US and other foreign companies deal with their Chinese counterparts going forward. A move away from state selected products and companies and a move toward respect for IPR will move China closer to the culture of innovation it sees as its future.

US GDP still hovers around 13 trillion dollars and China’s is a third of that and growing. China is in the first month of implementing its twelfth Five Year Plan, a foundation for achieving its economic objectives. There is no escaping the fact that this is the most important bi-lateral economic relationship in the world today. Dialogue and understanding are the key to good politics…and business. With that in mind we wish you a productive few days Presidents Obama and Hu.

For those who live or travel regularly to Shanghai, you have been the victim of the city’s wild abandon to prepare for the World Expo – new roads, bridges, tunnels, metro lines, bus lines, bike lanes, stoplights, security cameras … the list of infrastructure and hardware upgrades goes on and on.  Well, now that the Expo is finally here, many of us have been able to take advantage of that infrastructure … I, for one, am quite pleased with the new subway lines, making it much more convenient to get around the city.  However, the 9 squillion visitors a day to the Expo mean that there are just more people riding the subways and driving on the roads so a bit of the allure has rubbed off.

But all of these so-called improvements remind me of an old joke: a city slicker is lost in the countryside; eventually, he happens upon a local walking along the dirt road. The guy asks for directions back to the city and the local makes several unsuccessful attempts to explain the route. Finally, the local gives up and says to the city slicker: “Well, I guess you can’t get there from here.”

Needless to add, the point of this little jest is that there is always a way to get from point A to point B.

But not necessarily so in China. We may be all-too-familiar with the Confucian saying: “A journey of a thousand li begins with a single step.” Which is good advice (provided you know what the heck a li is), but it omits a crucial precondition. There first must be a road to walk on. Put another way, you may know your destination, but finding the path to get there is a whole ‘nuther matter.

Case in point: The Shanghai Pudong airport opened to much fanfare in 1999. Its size, capacity and architectural splendor was (and still is) truly world class. Anyone that calls Shanghai home can be proud of it … and even more so since they completed Terminal 2. What’s more, it was built in record time. However, the highway to the airport took a lot longer to complete. For the first year or two one had to pass through an obstacle course called Pudong, dodging pre-modern horse carts on the way to the post-modern airport. So while the destination was ready and waiting, there wasn’t a decent road to reach it.

Excepting the Maglev train, of course. Another marvelous example of modernity, which, unfortunately, had its own destination issues. True, on arrival at the airport the train seemed a welcome alternative to the long taxi line; one could whizz along at speeds of more than 400 km per hour all the way to Jinqiao, where … you waited in another long line for a taxi to get you home! Now don’t start writing me nasty letters. I am aware that the Maglev has since been connected to the #2 subway line and that getting to downtown from Pudong airport is now a breeze. But note the year: this happened in 2006, roughly six years after the airport opened.

The drive to modernize has had similar results in other areas. In keeping with the WTO provisions, China is opening up new forms of investment for foreign companies, though the process is frustratingly familiar.

Step One: The new rules are announced with much fanfare and praise from global punditry.

Step Two: One year later, the application procedures are announced, again with much fanfare and more punditing from the pundits;

Step Three: One year after that, applications are actually accepted by the government, with very little fanfare (by now the pundits have moved on to touting new developments, see Step One).

As I was saying, this process causes foreigners much rending of hair. Which in my case, I cannot afford because I cannot find my hair. For those of us that value convenience, efficiency and modernity, new forms of investment are useless unless we have means to access them.  Most foreigners (particularly Americans) have acquired the detritus of efficiency: daily planners, PDAs, alarm clocks, etc., all of which calculate time to the nanosecond. As such, a beautiful airport, or a beautiful new business opportunity, are anathema — without a means to reach them.

But before we get too huffy, keep in mind that we were warned of the dangers. Way back in the early 90s, Deng Xiaoping said that development in China would be “like crossing the river by feeling for stones.”

Today, we are standing on the banks of the rushing river we call Chinese Development looking across to the land of riches and eternal happiness on the other side. There are a couple of stones peeking out from the rushing rapids, but they look a bit slippery. So we need to tread carefully. Better still, we should watch while someone else crosses the river before us, to see where he steps. One day, there will be a solid bridge to cross, but in the meantime, many will fall in the water and be swept away.

Be that as it may, it’s silly to think that China should build roads (or bridges) for the convenience of foreigners. Like I said, no one made us any promises and if the existing road takes it toll on you, well, it tolls for all of us. In the meantime, buy a compass and a pair of hip-waders.

I am going to start this post out with a warning: in the world of global economic intrigue and gamesmanship, the following ranks rather low on the excitement scale … but on June 22nd, China announced that it would scrap the export tax rebate it gives to China producers of 406 categories of export products.  These products include steel, non-ferrous metals, fertilizers, chemicals, plastics, rubber, and glass.  This was the first adjustment in the export tax rebate since July 2009, when it was increased as part of China’s stimulus program.

Now I know that, for most of you, the phrase “export tax rebate” doesn’t send a thrilling chill down your spine … and if it DOES, then maybe you need to get out more.  But we think that there is something deeper here that is worth exploring just a bit further.

This policy announcement is coming at an interesting time.  The communication between the U.S. and China on the global economy and the RMB valuation has had more passive-aggressive subtext than a Midwestern family Thanksgiving – “PLEASE pass the SALT, DEAR!!” – so one rather hoped that any move by China would be attempt to alleviate some of the stress … as in “Please ADJUST your RMB rate, DEAR!!”.  However, at first blush, there is not a huge material impact to the trade imbalance as the policy change is not expected to make a major dent in exports, since it affects only $11 billion in exports, or about 1% of the total.

However, we think that the importance of this policy change goes beyond any material impact.  We think that China is trying to telegraph some very specific messages to two constituencies: the international community and its own people.

First of all, the Chinese government is signaling to its own domestic manufacturers that it wants them to curb overcapacity, move up the value chain, and turn away from the export-driven model of growth.  In this new policy, the government has focused on the environmental benefits of discouraging the production and export of these 406 products, which are highly energy-intensive and polluting, thereby scoring a point with the Greens, both domestic and international.  Lower production will save energy and reduce greenhouse emissions, in line with China’s stated promise of reducing energy consumption per unit of GDP by 20% from 2005 to 2010.  Again, this move is not going to get China all the way to environmentally friendly heaven, but it’s a step in the right direction.

At the same time, this move is a response to recent global pressures on the RMB and non-tariff trade barriers, trying to get China to be an engine of global recovery, rather than continuing its export-driven model.  Europe and the US are trying to export their way to recovery, so someone’s exports have got to go down.  By partially eliminating the export rebate, in line with RMB revaluation, China can better claim that it’s pulling its weight globally.  Given that this is a partial rollback of the stimulus package, China can also claim that it’s dealing with stimulus-induced preferences for domestic industry, further reducing what some say is over-investment by the Chinese government in their own infrastructure which has led to an over-inflation of China’s GDP growth.  So that’s quieting 4 squawking birds of international conscience with one stone of administrative action … not bad at all.  The tortured metaphor of that last sentence does not give enough Kudos to China for this move … China is definitely starting to understand that, for its policy changes to have impact, symbolism – properly spun – can have more power than substance in the world of international diplomacy.

However, of the two possible audiences for this move – internal and external – we fall on the side of this being a stronger message to its own domestic producers, an encouragement to move up the value-chain and pursue domestic innovation, not just be the manufacturer for the world.  Steel is a good example.  48 of the 406 affected products are made, at least in part, from steel that, until this action, had enjoyed a 9 percent rebate.  Steel exports from China have grown 127% year-on-year, and 266% alone just this past May.  However, along with this growth have been the installation of new steel-making facilities in China … despite a general ban on adding more capacity, Chinese companies found a way to build 40 new steel plants in this past year.  This has resulted in the overproduction of low value-added steel which means that China’s steel industry profits have come almost entirely from the 9% rebate.

But this new ruling makes a fine distinction between the two types of steel products. The rebate on the commodity steel goes away but the higher value-added steel products such as cold-rolled and galvanized steel – which many US buyers are more interested in anyway – still enjoy a 13% export rebate.  So, by getting rid of only the rebates on low-valued added products, the government is sending a signal to the domestic industry: “Start moving up the value chain, and stop building so bloody much capacity.  Move away from the low-cost export model and start innovating.”

After over 20 years of concerted effort on building their economy through exports, China is going to take awhile to turn this ship around.  In other words, China is not going to becoming a domestically-driven (and particularly a consumer-driven) economy any time soon … I don’t even think the next 20 years is going to get them there.  But bit by bit, they are moving that direction … and this recent policy change is one of those bits.  And keep your eyes and ears open for future policy announcements … more and more you are going to see the double purposes behind policy changes as China navigates the dangerous waters between both the internal and external constituencies most impacted by such changes.

So I thought I’d add my two cents … and where else to put in such a paltry amount than on National Public Radio?? Here is a link to a commentary I did that aired on Monday in the U.S.

This ain’t over … there is LOTS more to come.  Stand by for further updates from the front.

So when our research manager, Frank Tsai, came to me and said that he could see some value in a review of the week’s news on China, I admit that I was a bit skeptical. It seemed to me like we were just anthologizing stuff already out there.  But as he kept talking and showing me some material, I came around … there is a TON of good writing on China and, while it is impossible to take it all in, it is important to try.  So we are going to try an experiment … every week, we’ll highlight some of the things that interest us about the news on China, adding comments where we feel we can add something or just setting it out there for you to take in.  We won’t stop the original stuff … that’s our bread and butter (and besides, its cheaper than therapy for us) … but let’s see how this goes.  Drop us a line and let us know what you think and/or clue us in to things that you think we should be paying attention to.

OK, here goes…

Living in a Bubble?

When your Chinese friends are making six figure (USD) salaries, and they say they don’t FEEL rich, even though the cost of living is almost invariably much lower in China, you know something is odd.  They feel that way because housing costs in Shanghai are 20 to 50 times annual income for the typical ($10,000/year) worker, and the better homes that rich Chinese executives want to buy are still 10 to 20 times annual income.   According to the China Daily, real estate prices rose at their fastest rate in two years in February, going up 10.7% year-on-year in 70 major cities, and undoubtedly even faster in major cities like Shanghai and Beijing.  Housing and housing-related purchases, according to the Global Times, now account for 40% of consumer spending, and have accounted for 20% of GDP since 1998.  While the government has recognized the risk that rising asset prices pose for inflation and social stability, and has signaled measures to curb the property market, some investment banks like UBS are, apparently, still bullish on Chinese property.  Needless to say, the continuing boom in housing-related purchases is great news for many foreign companies – from an IKEA, to home appliances, to decoration services, to home water purifiers.  However, we all get the feeling that “something” is out there and, at least among average people who have become “overnight millionaires” just by owning homes in Shanghai, there does seem to be the ominous feeling that values can’t keep rising.

Working for a Living

Years ago, the rallying cry for multinational participation in China was “cheap labor!!”.  Well, while labor costs in China are still much lower than North America or Western Europe, we are seeing some changes here as well.   In recent months, factory wages have risen by about 20 percent, as many migrant workers have gone home for the Chinese New Year and decided to stay home, having found better (and often less arduous) jobs in their hometowns.  According to the China Economic Review, many factories have had to lure back workers with substantial raises and that the average wage for a migrant worker in Shenzhen is now about $200/month.  Despite fears of a labor shortage at the low end, however, college graduates at the higher end are facing dimmer prospects, as detailed in pieces in both the LA Times and the New York Times.  So it seems that demand in the labor market is becoming curiously U-shaped, with factory workers getting raises and the experienced managers seeing their wages double and triple in just a few years, while recent graduates suffer on subsistence pay, even at good companies.

Gloom and Doom

Year-end predictions are lots of fun … you get to talk eloquently about what just happened (and drop a few “I-told-you-so’s” in if you can) and then go all Nostradamus and predict a gloomy future.  If you are right, kudos to you.  If you are wrong, that’s OK because it means the gloom-and-doom didn’t happen and everyone is basically happy.  This could be the case in an article in the New York Times that came out last December that highlighted the three greatest dangers that could derail the Chinese economy are inflation, protectionism, and inequality.  Let’s see how they’ve been doing so far …

• Chinese economists have been sanguine about Febuary’s 2.7 increase in the CPI, and policy shifts are unlikely in the near-term.  However, we’ve seen instances where China moves pretty quickly against inflation should the need arise so that might be the source of their comfort.
• Pressure for protectionism against China could rise, however, in light of China’s 46% export increase in February and slim chances that the government will let the RMB will appreciate.
• Growing inequality is reflected in the growing ranks of Chinese billionaires, and in a sign that the government is concerned about inequality, it recently capped the compensation of bank executives in line with similar measures in the West.

Hmmm … seems they’re doing pretty well so far, but the year is still young.  Stay tuned for more.

We just received a comment from a faithful Podcast listener which spawned some interesting ideas here at China Business Podcast World Domination Headquarters (located in beautiful downtown Shanghai).  Full disclosure here … the “faithful listener” that made the comment, Dave, is actually a good friend of mine.  So I guess this is kind of like responding to a review of an elementary school play made by your mother … but I will take it where I can get it!

In any case, the question was a good one.  Dave asked, “Tell me this, as you think about the last 20 years, do you see a noticeable shift in the energy and excitement the Chinese Governments (local and central) have for recruiting western companies to expand their businesses to China? In the collection of articles I see, and recent business development work, I get the sense that there is a growing indifference. Is the China domestic growth ‘engine’ becoming so strong that western investments have become ‘ho hum’?”

Great question and good timing, Dave.  Because not only is this a topic of conversation among foreign companies here, but the Chinese leadership is talking about it as well, although in somewhat less-than-direct terms.  Chinese President Hu Jin-tao just this last week made a speech that, I think, is going to be referred back to in years to come as marking a turning point in Chinese economic development.  As far as speeches by politicians go, it was … well … a speech by a politician, and a lame-duck politician at that.  Remember that President Hu is expected to step down in 2012 and hand over the reigns to new leadership.  The leading candidate is Xi Jin-ping, one of China’s “princelings” with a significant political pedigree here, but a lot can happen in the next two years so stand by for further updates.  So President Hu is looking down the road at early retirement and he is trying to find ways to cement his legacy.  He’s already tried a couple of things.  Mr. Hu was behind the tepidly-received 和谐社会 or “Harmonious Society” campaign leading up to the Olympics which attempted to get people to stop spitting on the streets and be nicer to each other in public.  No one here has paid much attention to this – as evidenced by my messy shoes and bruised body from riding the subway to work every morning.

So this past week, President Hu had a chance to speak at the Party School of the Chinese Communist Party … now when I say “Party School”, I am not talking about the University of Wisconsin or Bowling Green.  This “Party School” is the institution that trains all up and coming cadres in the Communist Party of China, or CPC.  They used to teach these cadres how to wear musty wool Mao suits and engineer their comb-overs to cover bald spots … but now, they have more serious things on their minds.  The topic of President Hu’s speech – oddly, not covered much by the mainstream Western media – was on economic development in China.  Here is the English synopsis from the CPC website:

“General Secretary of the CPC Central Committee, Chinese President and Chairman of the Military Commission of the CPC Central Committee Hu Jintao delivered an important speech, stressing that we shall seize the opportunity to undertake the historic mission to take speeding up the transformation of economic growth mode as the important target and strategic measure to deeply carry out and implement the scientific outlook on development to unswervingly accelerate the transformation of economic growth mode and constantly improve the quality and efficiency of economic growth and increasingly raise the international competitiveness and the risk resistance capacity of Chinese economy in a bid to get higher quality, larger space and broader road of development.”

Got that?  Yea … no wonder this was not picked up by mainstream media.  I am actually interested in this stuff and I started to doze off by the line about “unswervingly accelerate the transformation of economic growth mode” (as a side note, this might be good advice to give drivers here in China because they tend to accelerate in a “swervingly” manner … President Hu’s people can contact me if they want further advice on this one).  Anyway, the speech in Chinese was not much more thrilling (like political speeches in ANY language, the Chinese for such situations tends to be very flowery and over-laden with adjectives).

In the past couple of months, China has been crowing about its 8% growth while the rest of the world is in the dumps and President Hu was responding to accusations that China’s economy was build on a foundation of sand … that government investment in infrastructure was going for short-term growth while ignoring long-term economic drivers such as technology innovation, consumer spending, etc.  Such accusations are not only coming from foreign sources but locals as well … the running joke in China is that the current leadership is pursuing the 保八计划 or “Protect the 8% Plan”, at any cost insuring that China reached that magic 8% growth that everyone thinks they need to avoid economic collapse.

This speech, I think, was intended to tell everyone that, “No, we really do have a plan here … we are not just going for short term development but we are trying to set China up for success in years to come.”  And how is that to be done?  Well, President Hu listed a lot of things: encourage the new energy sector; reform agriculture; support the growth of science and technology … heck, I think he even called for the development of a bubblegum to arrest male pattern baldness (a key concern for much of the world’s political leadership these days … they may want to pay attention).  But jumbled among the disparate ideas is a key phrase that President Hu used that responds – finally! – to your question, Dave.  President Hu said that China’s economic development is going to be driven, in large part, by “independent innovation”.

This phrase, “independent innovation”, is an echo of rumblings we’ve been hearing in China for some time.  Just last November, several Chinese ministries came out with the “Indigenous Innovation Product Catalogue”, a listing of approved vendors that government entities can purchase from.  The restrictions on this Catalogue are quite tight and makes it difficult for a foreign firm to get on the list, spurring many foreigners to accuse China of being “protectionist”.

Are they being “protectionist”?  I don’t know … that’s kind of a loaded word and it can be applied to other governments as well (similar accusations have been leveled at the U.S. for keeping China out of their oil, technology and agricultural sectors in the past).  But what they ARE being is “independent” … and that means, that, yes Dave, I think they are going to value foreign participation in China’s markets differently.  Not necessarily “less”, but certainly differently … whether or not it is “less” determines what we do about it.

This is a topic we are going to keep our eyes on this year and is closely related to one of the “Themes for 2010” that we identified in December of last year – China’s growing confidence in their own power and importance in the global economy.  But suffice it to say that foreign companies are going to have to pay even closer attention to the value that they are bringing to the China market.  We’ve been saying for some time that things have changed here … no longer can foreign companies just show up with money and cool technology and have China fall all over them.  Foreigners need to clearly articulate their value and to get local Chinese partners to agree to this value and to partner with the foreign company to bring it to China.  In the process, foreigners are going to have to give up this value to their Chinese partners … the risk being that you are starting to train your future competitors.

I am often asked if business is becoming “easier” in China – as in, “are the structural barriers to foreigners doing business in China becoming less?”  In general, I think this is true … China’s entry into the WTO has brought them in line with many global practices.  Sure, there are still questions of currency exchanges and the like, but I really don’t see these as being the greatest barrier to working with China.  I actually think that business is, in some ways, becoming MORE difficult to do in China because it is more difficult to determine exactly what foreigners bring to the deal; what we can do that China cannot yet do for itself?  You are right, Dave … we foreigners are becoming less interesting to China.  We need to work harder to find out what our value is to China and sell it to people here.  This is our game to lose.

As we’ve been saying on this Podcast for a month or so now, China had a really good 2009.  While most of the world is thrilled to send 2009 off to the Group Home for Annoying Old Years and welcome 2010 in diapers, China is still doing victory laps for their 2009 performance, even though it was down severely from previous years.  There is a lesson to be learned here … in a room of ugly people, the average schmuck is a supermodel.  And trust me … I know how to do schmuck.

But as we all know, there is the story of what is happening in China, and then there is the truth.  Not to go all post-modern on everyone here, but the truth – if there is one Truth with a capital T – is probably somewhere in between and pundits aplenty are rushing to fill the blogosphere with their version.   For some reason, every time a talking head heaves an opinion on China into the public sphere, I have this overwhelming need to comment on it, to give the general public the beneficent view of my own brilliance and expert insight.  I know, you don’t have to tell me, I need professional help, I am fully aware of that.  I’ve tried therapy, several mood-altering substances and, as a last gasp effort, producing this Podcast, but I it hasn’t helped much.  The end-of-the-decade articles on China were killers … everywhere I looked there seemed to be an opinion popping up that absolutely REQIRED my commentary!  I consider it a mark of my immense self control and budding maturity that I was actually able to lead a somewhat normal life in the midst of all of that and did not spend all my time blogging back.  Thank you in advance for your kind words of congratulations.  I just live one day at a time.

But there is one article published way last October that I keep coming back to and, finally, cannot help but comment on.  It is by Rana Foroohar in Newsweek International is tantalizingly titled, “Everything You Know About China Is Wrong”.  The title alone compelled me to read and comment on it since, as China market strategy consultants, we go to market with what we call a “correct” view of China based on 25 years of experience so I was anxious to read it.

Ms. Foroohar elucidates several reasons why China is not the economic miracle that everyone seems to think it is.  Her opinions are not rocket science nor are they all that original … over the years there have been China-doubters aplenty who look askance at the phenomenal growth in China and wondered two things: a) is it really possible; and b) is it really sustainable??  But just because something is not original does not mean that it is not worth listening to (I give you anything recently recorded by Lady Gaga and the Jonas Brothers as proof positive of this) and I would encourage you to read her article (those of you listening to this Podcast can go to our blog for the link).  Overall, I agree with most of the statements that Ms. Foroohar makes and, in fact, I think she makes them very well; however, I would like add a couple of perspectives from the cheap-seats…

One of the myths that Ms. Foroohar attempts to deflate is “The Communists are brilliant economic managers”.  The evidence in favor of this belief is that, in 2009, China was able to maintain an 8% growth in the face of what is arguably the world’s worst economic meltdown ever.  The criticism is that this growth is driven by government investment in infrastructure and that, some day, China will have all the roads, bridges, tunnels, telecommunications networks and subways that it needs and won’t be able to make the transition to a privately-driven economy.  And it is argued that this last round of economic stimulus spending in 2009 just further deepened this problem.

This is not a new criticism and, in fact, economists, China watchers and the rabble of doomsday pundits have been making this statement since China first started their massive investment campaign in the early 90s.  For the most part, I would agree … focused investment on infrastructure is, by definition, not sustainable and, someday, China is going to have to broaden their economy to bring in other, more sustainable engines of growth.  However, I would add two caveats that would argue against being too concerned about this right now.

First of all, despite nearly 20 years of infrastructure investment, China has just scratched the surface of their total need.  China is a MASSIVE place and, while the infrastructure in the big cities of Shanghai, Beijing and Guangzhou is quite good, there is SO much more to be done in China’s Tier 2, 3, 4 and smaller cities (remember that China has over 100 cities with over a million population plus a seemingly endless countryside).

What I am saying is that the need for this spending – and the associated support it gives to the broader economy in terms of employment and supply infrastructure – is not going to end any time soon.  In fact, its probably going to continue strong for the next 20 years or more.  Yes, there are many associated problems with such infrastructure investment – the housing and real estate bubble is probably the most concerning – and China is going to have its ups and downs.  But this is not a small country we are talking about where you work hard for 10 years and everything is built.

My friends and colleagues in India only WISH that their government would have a similar commitment and authority to build infrastructure in their country … if they could, then I think India’s growth would quickly catch up to China’s.  But as it stands, there are so many internal politics in India that infrastructure projects often get stalled and never completed (there is a highway construction project in Chennai that I see when visiting clients there … and for over 5 years it has remained in the same state of incompletion.  There are people at the site and they look like they are doing something … but nothing seems to get done!).

Spending on infrastructure is not going to end any time soon … but the government can do something about the types of infrastructure they invest in.  The 2009 economic stimulus package of over $600 billion from the China government earmarked over $100 billion for what is called “social infrastructure” … hospitals, schools, etc. In the long run, the return on this type of infrastructural investment can be huge … and as I’ve addressed many times before in these Podcasts, China healthcare is in desperate need of life support itself and sustained investment here will do wonders.

Secondly, we need to understand – and even appreciate – the investment perspective that the China government takes in these projects.  Ms. Foroohar quotes a business professor who observed that, although there was a nice new highway built between two rural areas in China, there was no traffic on the road.

[let me just stop for a moment and ponder what it would be like to have a road somewhere in China without an immense amount of traffic on it … living in Shanghai where traffic is so bad we actually USE our fenders, that is a nice thought . OK … I am better now.  Thank you].

A couple of quick responses to this: is there infrastructure in China that is built without any thought to its eventual use – what in the U.S. has been called the “bridge to nowhere”?  Yes, definitely.  The number of pork-barrel projects here are directly proportional to the number of people schlepping the barrels … and we have nearly 5 times that number in China than they have in the U.S.  So yes, nosy business professors are going to be able to observe such examples of poor use of capital resources.

However, I think that the professor should relish in the fact that he can stand on that highway in complete safety.  Fast forward 10 years and I would venture to guess that this same professor would not be willing to stand in the middle of that road – there will be SO much traffic on it so as to turn him into a human speed bump.  In any environment, the population expands to fit the capacity provided and in China, this is doubly true.  Where I live in Shanghai, on the Pudong side, this was just rice fields a few years ago and now it is bucking to be a leading financial capital of the world.  There are putting up an 80-story building where just 20 years ago water buffalo grazed (giving a whole new meaning to the phrase “a bullish market”, I suppose).  The primary reason behind the real estate bubble here is that people are SO confident in their speculation that they are willing to bet large sums of money on property that will quote-unquote “some day” actually be worth more than the exorbitant price they just paid for it.  Oh, that and the fact that much of the real estate investment is being driven by people not using their own money but the government’s … but that is an issue for another Podcast.

So we should not be asking the question: “Is China’s spending on infrastructure sustainable in the long term” because it is, by definition, NOT sustainable.  Of course it isn’t.  We should, on the other hand, be asking the more difficult-to-answer question “what do you mean by ‘long term’”?  We are only 20 years into a modern business environment in China, and look how far we’ve come.  Of course, you don’t drive well by admiring the view in your rearview mirror (although that might explain some of the traffic problem here) so we need to look ahead.  My point is that, barring disasters of all types, China’s near to mid term looks pretty good and very sustainable.

Of course, there is a LOT that I do not understand about macro-economics and I am sure that I will get nasty letters from the Association of Super Smart Economists of just how wrong I am.  But to be honest, how accurate are those Super Smart Economists?  They are working off of models developed in other economies in other cultures at other times and have been woefully inaccurate in predicting even the things they supposedly understand well (ala the mortgage crisis).  The fact remains that we don’t have ANY case studies to guide us as to what might happen here in China … there has never been a country in history that is this large and has made this big of an investment in their infrastructure and government spending.  The U.S. and Japan are in the same direction, but they did theirs at very different times in history when the world was a VERY different place.  Yes, China will eventually have to pull out of this model … it cannot continue forever.  But we don’t have any good examples of a situation of this scale where this has happened.  As I have said before, in China, we are working without a script AND we are working without a net!

Twenty five years ago, when I first came to China, if someone were to show me a picture of what Shanghai would look like in 2010, I’d think they were smoking something.  NO ONE could have – or would have – predicted this.  Indeed, there were multiple doomsday preachers talking about the immanent collapse of “Red China” (I love that term, Red China … like it’s a theme color for the day!).  But here we are, still technically “Red” but, so far, no collapse.  Could it happen?  You bet.  But I assume that the only completely untrue statement is “I am 100% right” so it could also not happen.  And I am betting on the latter.

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

One of our themes for 2010 here at the China Business Blog and Podcast is “acquisitions”.  A typical market sector in China is very fragmented and very crowded – there are many players working in their own local areas.  From automotive, to healthcare to consumer products … they are all this way.  Both foreign and local companies will be looking to strengthen their positions in these markets by acquiring smaller players, bringing products, brands and distribution together to gain scale and more power in the market.

In early 2009, the global economic crisis knocked the wind out of the M&A market all over the world, and here in China, it was no exception.  Transaction volume fell off significantly as companies hunkered down to wait out the storm.  Well, though for many individuals around the world, the storm is still blowing, for companies and investors here in China, it is prime time to move … they have motivation to grow and cash to invest.  The challenge, as we will explore today, is managing risk.

Here at Technomic Asia, we have strengthened our M&A practice to include end-to-end transaction services and have brought in to the Technomic family one of the preeminent deal guys in China, Dr. Kim Woodard.  When Kim joined us late last year, we started a Podcast series on M&A in China.  Today we are going to continue that series as Kim and I talk about managing risk in China M&A.  And we start off discussing a very shocking statistic …

Raleigh, NC – December 31, 2009 — China will provide necessary growth for US companies in 2010. Kent Kedl, managing director of Technomic Asia in Shanghai, says there are five opportunity signs for companies to watch in China this year. Kedl highlights those areas below:

· Growth – The World Bank projects a robust GDP for China following an anticipated 8 percent growth in 2009. There will be few places in the world with this kind of growth.

· Distribution – Companies who are in China already need to find a better way to get their products to market. It is the classic case of getting products to market, which requires a transportation infrastructure and integrated supply-chains. The Chinese government stimulus and other programs are addressing infrastructure needs. The last two decades of manufacturing investment and export experience within China make this country keenly attuned to the benefits of integrated supply-chains. US companies are becoming familiar with cities like Dalian, Chongqing, and Hangzhou as well as 40 others as those areas approach double digit annual growth over the next several years.

· Consolidation – The majority of China’s industrial sectors are over-crowded and too fragmented. As the market matures and distribution consolidates, the companies themselves will consolidate.  Look for this to happen in automotive, primary metals (particularly steel and aluminum), consumer products (food and beverage, mid-range body care, all ranges of homecare).

· Mergers and Acquisitions – A separate and complex strategy unto itself is divided into two major categories, 1) into China and 2) out of China.

o Into China – Foreign companies need speed-to-market, and M&A is the best way to achieve coverage and market share.
o Out of China – This is still in the very early stages but we should see some mid-level deals done by Chinese companies overseas (not only the big energy deals).

· China’s Global Influence – China is emerging as a leader as the dust settles on the global economic crisis. Politics aside, China will continue to expand its shoulders upon which the rest of the globe will build their own economies.

Key Sectors to Watch in China
Kedl believes there are several key industrial sectors to watch in 2010 in China. They include: 1) Medical, particularly healthcare services, look for the privatization of hospitals, 2) Automotive, consolidation of OEMs, growing strength of dealers and dealer groups, stronger aftermarket parts distribution, and 3) Consumer products, particularly in the 2nd and 3rd tier cities.

Technomic Asia conducts primary and secondary research in China markets for Fortune 100 and midsize companies. Kedl was also deeply involved in a recent 2009 China Business survey done for the American Chamber of Commerce in Shanghai. According to Kedl, “This survey showed that even companies who are in China for 10 years need to reassess how they approach China because the country has changed from a provider of low cost production to a growth consumer market.”

In addition to research, Technomic Asia uses their research to assist companies develop strategies to participate in China markets and sourcing.

The China Business Podcast, hosted by Kent Kedl, will focus in greater detail on these growth areas in upcoming episodes in January, 2010. Listen to them at iTunes, Stitcher Radio, or at www.technnomicasia.com/blog. Here is the first podcast with an overview of these business opportunities to watch in 2010 in China.

About Technomic Asia
Technomic Asia, the Asian arm of Tompkins International, is a strategic consultancy with more than 25 years of experience helping clients plan and execute Asian growth strategies. Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential and assistance in designing the optimum strategy for success including M & A. Technomic Asia’s Steven Ganster and Kent Kedl are co-authors of “The China Ready Company,” a book that details the formation of a successful China strategy.

OK… I am just going to put it out there: these last 10 years have kind of sucked.  Years from now, we are going to look back on the first decade of the new millennium and only the very strong among us are going to be able to avoid using a variety of four-letter words to describe it.  From the rise of terrorism to the meltdown in the global economy, these have been tough times.

Things didn’t start well, of course, with the futuristic “Y2K” problem. It was, for the most part, just IT consultants crying wolf.  But to so completely lack faith in our own technology so as to doubt its ability to handle a digit change in the thousands column does not speak well of our confidence or our technology.

But, for me, what started things off on the wrong foot was our inability to agree with simply what to call this decade.  The “Aughts”? The “O’s”?  The “Naughts”?  Given the current state of the average American’s bank account, “the Nils” sounds like it’s the most appropriate.  But c’mon, folks … if we can’t even name the stinking decade, how are we supposed to handle the real issues.  Frankly, I am a bit ashamed that we Americans couldn’t come up with the marketing slogan that we could all hold hands around.  We are a country that brought you such ditties as Hooters, Cabbage Patch Kids and the Pet Rock.  And we can’t name a decade?  How embarrassing!

However, contrary to the desperation much of the rest of the world is facing, China had a pretty good decade.  From a GDP of about $2,000 per person when 2000 started, China is projected to be over $6,500 per person heading into 2010.   And unlike other changing economies such as the former Soviet Union, China’s political infrastructure didn’t go through a meltdown in the face of such growth.  Certainly, there were many doomsayers predicting the imminent collapse of China, but so far, these people with their Nostradamus For Dummies guidebooks have been, thankfully, quite wrong.

The Chinese authorities are, certainly, giving themselves a big Attaboy for their performance in this past decade.  Not only has their growth been the best in the world, but they’ve landed some pretty big gigs to show it off including the Olympics and the Shanghai Expo.  Fair enough, let’s give China their due … but let’s also look forward to the next decade and make some guesses ourselves as to what we might expect.

Here at Technomic Asia, we are celebrating our 25^th year in China … that is, if I might say so, pretty impressive for a boutique consulting firm where many of our peer firms have burned out long ago.  However, if you would have asked any one of us when we first started in China in 1985 to predict what China would look like in 2010, there is NO WAY that any of us would have come close to envisioning what I can see out my window right now.  Back then, I had to bring in coffee from Hong Kong and now I have three Starbuck’s stores and seven knock-offs of the same within a 10 minute walk of my office.  So predicting the future in China is not a science; heck, its not even an art.  I would liken it to a pin-the-tail-on-the-donkey game played by at a birthday party of some cargo cult voodoo priestesses.   Yea, its that much of a crapshoot.

But what the heck … its only my job to assess the China market and plan growth strategies for my clients, so I am going to go out on a limb here and introduce 5 themes for 2010 that I think will become even more important as the decade continues.   They are, in no particular order because they ALL are important and impact each other:

1. Growth

2. Distribution

3. Consolidation

4. Mergers & acquisitions

5. The emergence of China as a global power

As a year-end wrap up, I want to introduce each of these themes today and then we will re-visit them throughout 2010 and explore their progress (or lack thereof).  So let’s get to them …

The last decade has seen China grow in importance in companies’ global strategies … from just a blip on their radar screen at the turn of the century, China is now a major – if not THE major – strategic initiative for many companies.  And the reason?  Growth!  And its not just because, in 2009, China was the only market in the world to grow more than 8%.  The rumor perpetuated by politicians and angry journalists that China is ONLY a source of low-cost labor and a way for evil capitalists to export jobs from the U.S. is dead-wrong: China is a source of good-old top-line growth. In the midst of all the management theory bouncing around boardroom walls, it turns out that customers are important.  As a former sales manager of mine once told me, tongue firmly planted in-cheek, “Kent, I’ve done some research and have determined that 100% of our revenue comes from customers.  We better focus on them.”  And you know what?  China can be a great source of new customers for many companies.

We just completed the annual business survey for the American Chamber of Commerce in Shanghai and determined that over 60% of American companies were in China primarily to serve the China market … they were looking for growth!  As U.S. and European companies are emerging from the dark depths of economic depression in the past couple of months, I have increasingly had serious discussions with CEOs about ways to grow in China.  They have all said that they feel they have just scratched the surface of what they could – and should – do in China and they need to do more.

A sub-topic under our “Growth” theme for this year will be companies’ expansion into China’s Tier 2, 3 and 4 cities – its not only important to be in China but you have to expand across markets here as well.  Remember that a Tier 2 city in China can still have nearly 8 million people in it so we are not yet talking about selling into rural areas … this is still urban marketing.  But gone are the days when  company could just set up a sales office in Shanghai, Beijing or Guangzhou and hope to do enough throughout the country.  We see many companies today making significant efforts to expand their China footprints and throughout this year we’ll talk with some of these company leaders to find out what they are doing and how they are doing it.

Closely associated with the “Growth” theme is our second theme, “Distribution” … I guess this is overstating it but if you want to grow, you’ve got to actually get your products to market.  Companies who are already in China need to find a better way to get more products to more markets.   Companies are discovering that China is a VERY large and fragmented market and your route-to-customer in one region will not be the same as in another region.  We’ve said it before in these Podcasts but you will never – repeat, NEVER – find one distributor to represent you all over China.  I don’t care what industry you are in, it ain’t gonna happen.  Sure, your distributor will TELL you that they can do it, but they cannot, at least not as well as you need it done to realize the growth that you need.  You will need to take over that responsibility yourself, to find the right combination of distributors to reach the right markets.

In 2009, we did a lot of work for clients to assess the strength of their own distribution, typically benchmarking their operation against their competitions’ (both local and foreign).  And more often than not, we found huge gaps … geographies not covered, certain sectors totally missed and important customers under-served.  These clients are using 2010 to rebuild their distribution.  Sometimes they need to tear things down and then rebuild them … but more often than not, they just need to identify the gaps and start to fill them.

Not only do we need to address the people part of the distribution equation but we also need to consider the supply chain infrastructure.  From sourcing to manufacturing to transportation to warehousing and, finally, to distribution, foreign companies in China are reassessing how they handle their entire operation.  Growth without a firm distribution and supply chain foundation is impossible so 2010 will be the year when companies will start to get very serious about improving both.

The third theme that I think will be important in 2010 and beyond is “Consolidation”.  As I just said, China is a large and fragmented market and a key contributor to that fragmentation is purely the number of players involved in any particular sector.  For example, China has over 100 automotive OEMs … not just 100 brands but 100 distinct auto manufacturers (a long way from what we used to call the “Big Three” in the U.S. which is now, depending on how you count it, probably more accurately described as the “Big One-and-a-Half”).  In pharmaceuticals, there are over 3,000 manufacturers in China and over 10,000 pharma distributors.  Most of these are what China calls “sub-scale” which is a polite way of saying, in effect, that they are too small to survive very long on their own and really have no opportunity to grow very much.

The Chinese government is strongly supporting consolidation and are, in many cases, selecting key companies (often State-owned) to move to the top of the food chain in this Darwinian, survival-of-the-fittest process.  I did a Podcast recently on the Big Four automotive companies (including First Auto Works, Shanghai Automotive, Dongfeng and Changan) and how they are looking to acquire companies inside and outside of China to bring under their rapidly expanding umbrellas.  Look for some major automotive moves in 2010.  In pharma, the government is forcing the smaller distribution companies to merge with the larger ones, so much so that the rumor on the street is that there will be only one distributor per province in the end.  Personally, I don’t see how this can happen, at least in my lifetime, so while the end state is unknown, it is absolutely certain that consolidation will be the trend.

Foreign companies playing in China will want to play close attention to consolidation trends in their own industrial sectors.  The competitive landscape will change greatly as consolidation takes place … your competitors will be stronger, wealthier and have a larger geographical footprint.  In many cases, consolidation will result in a broader product portfolio, making it more difficult for you to compete with them toe-to-toe.

Our “Consolidation” theme leads us nicely to the fourth trend, “Mergers and Acquisitions”.  Not only will local companies grow through M&A but foreign companies are increasingly looking at growth by acquisition, particularly those who have been in China for awhile.  There are multinational companies who came into China through a joint venture many years ago but who are now, for all intents and purposes, operating as a wholly foreign-owned enterprise (or WOFE).  Once they did the deal, they started growing organically, adding products and distribution territories so that, over time, they have built quite a good presence.

However, they have gone about as far as they can go organically and, to speed up time-to-market and increase depth of market penetration, they are looking at acquisitions.  In the past couple of months, we have done some Podcasts on China M&A and will continue that again in the New Year.

Our fifth and final theme is a bit trickier and I put it under the heading of “China as a growing global power” … however, this requires some unpacking.  Here on the China Business Blog and Podcast, we tend to avoid so-called “macro views” and, instead, dig deep into the specific strategies and tactics that companies are using to succeed in China.  We don’t talk much about the goings-on in Beijing, the ins and outs of political leadership.  Its that not this is NOT important – it is – but such palace intrigue can often be quite far away from the day-to-day issues that company management faces in China and, for most of us anyways, we have very little direct influence on the seats of power.  Besides, our daily experience is in the trench warfare of markets, not hanging out in the rare air of the Zhongnanhai leadership.  And my momma always told me to talk about what you know…

However, I think we are seeing an emerging power and even “attitude” from Beijing that warrants mentioning and awareness.  Basically put, the Beijing leadership has been making more unilateral decisions lately and is doing so quite confidently that the rest of the world will not punish or even censure them all that much.  Just a few days ago it was announced that China executed a British citizen for drug trafficking, despite the VERY loud protests from the West that China should take some time and think about it.  The view from Beijing since the execution is that this is an issue of their “judicial sovereignty” and that the rest of the world should butt-out.  In the many articles I have read on this, the journalist inevitably mentions that Britain is China’s third largest trading partner and hints that British authorities are trying to “keep lines of communication open”.  Which means that, although they will whine a bit, nothing is going to happen to China because of their actions.

I mention this, not to criticize either side for their behavior – and I am sure there is lots of criticism to go around – but rather to highlight that we are moving into some new territory here.  2009 was a heady year for China … the Olympics, the fastest growing economy in the world, huge cash reserves, significant investments in U.S. t-bills all added up to an administration that, frankly, thinks they are pretty bullet-proof.  You can be sure that, increasingly, the Chinese government will be making more unilateral decisions and will be less and less sensitive to the opinions of other international players.  How it plays out is anyone’s guess … but suffice it to say that this will be a factor, starting in 2010.

One word of caution here – just because things are happening in Beijing does not necessarily mean that there will be a direct impact on what you are doing in your local area.   All governments move along their own timelines … and some would say their own dimensions of reality … and these timelines are often best measured using carbon-dating methods, things move so slowly.  So please don’t assume that I am prophesying doom and gloom … this is just another data point you will need to include in the algorithms you use to understand what is happening in China.

So there you have it … my predictions for the future.  Radical and cutting edge?  Probably not, but I am very certain that we will see these themes come into play and interact with each other this coming year.  As for each of you and your companies – include these themes in your strategic planning.  Assume that your competition is moving in these directions and challenge yourself and your China management to be able to articulate, in detail, how you are going to handle all of these, both defensively and offensively.

One of my favorite quotes about the future is from Alan Kay, the American computer scientist, researcher and visionary, who said “The best way to predict the future is to invent it.”  It has been true for the past quarter century I have been in China and will be so for the next 25 years – China is a unique environment where you can, literally, create your own future.  And this is what we at Technomic Asia hope for you in 2010 and beyond which is why we end every Podcast with our motto: “In China, everything is possible but nothing is easy.”  We wish you all a very Happy New Year and we’ll see you next time on the China Business Blog and Podcast.

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…

Shanghai and Raleigh, NC — December 16, 2009 — Technomic Asia jointly released the 2009 China Business Report with the American Chamber of Commerce in Shanghai (AmCham Shanghai) this week which revealed China as one of the few growth areas for US business around the world. Kent Kedl, vice president and general manager of Technomic Asia in Shanghai, said, “This does not surprise me even in the midst of a ‘mostly global’ recession. The survey shows, contrary to the conventional wisdom that China is only a source of low-cost labor, in fact American companies are finding incredible growth opportunities in China.” This year’s survey showed that nearly 60% of American companies are investing in China for the revenue created by the China market. “After 25 years of working with companies on their China growth initiatives, we are seeing these companies realize some big pay-offs,” said Kedl.

“American companies are finding that their performance in China is the bright spot in an otherwise challenging global picture,” said Brenda Foster, president of AmCham Shanghai. “This is creating a level of optimism among American companies investing in China that we have not seen for many years. Even though this is a very difficult time in the global economy, China remains quite strong and our report shows that American companies are poised to take advantage of market opportunities.”

Technomic Asia partnered with AmCham Shanghai to produce the survey, now in its tenth year. “AmCham Shanghai was delighted to work with Technomic Asia, which helped develop and administer the survey and led the analysis,” said Foster. “Their long experience in the market here and their deep knowledge of foreign investment in China brought our survey’s insight and impact to a new level.”

A key finding of the survey is the factors related to a company’s success in China. The following factors were found to be significantly related to a company’s profitability in China:
• Size: especially those with more than US$10 million in revenue
• Experience: especially those with more than five years in China
• China revenue relative to global revenue: companies who derived more than 5% of global revenue from China
• China priority: companies that set China as their #1 priority in global investment plans
• China sales footprint: those companies with sales offices in two or more cities in China

Nearly 45% of the survey respondents have been in China for longer than ten years and, says Kedl, “It is clear from this survey that experience counts – China takes some getting used to and the longer companies are here, the more they learn and the more successful they tend to be.” Kedl sees companies continuing to focus on growth in 2010, expanding their penetration of markets into Tier 2 and Tier 3 cities.

In this survey, more than 64% of companies said in 2009 they were profitable to very profitable, “a phenomenal statistic given the state of the global economy” says Technomic Asia’s Dr. Kim Woodard, one of the leaders of Technomic Asia’s Mergers and Acquisitions practice. “I am encouraged by the five-year outlook from survey respondents,” added Woodard, noting that nearly 90% are optimistic about China’s market. Woodard suggests this number is a supportive indicator of the increase in inquiries Technomic Asia is getting about mergers and acquisitions in China. “We are seeing those players who are confident that their five-year growth strategy must include a major stake in China planning their next move,” says Woodard.

Technomic Asia also produces the award-winning China Business Podcast which will have a series of episodes related to the 2009 China Business Report. Those shows are available on iTunes, and Stitcher Radio as well as the Technomic Asia Blog. The China Business Podcast has been in production since 2005 and was the first podcast about conducting business in China.

About Technomic Asia
Technomic Asia, the Asian arm of Tompkins International, is a strategic consultancy with more than 25 years of experience helping clients plan and execute Asian growth strategies. Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential and assistance in designing the optimum strategy for success including M & A. Technomic Asia’s Steven Ganster and Kent Kedl are co-authors of “The China Ready Company,” a book that details the formation of a successful China strategy.
Media Contact: Albert Maruggi
612-325-8126
amaruggi@providentpartners.net

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…

Those who have been doing business in China for awhile are quite familiar with the differences between the State-Owned Enterprises (SOEs) and the Privately-Owned Enterprises (POEs).  For those of you not familiar with this distinction, let me break it down for you.  The POEs are just that, companies owned privately with little or no government involvement – they are often run by business-savvy executives with global business experience.  The SOEs, to put it succinctly, are seen as hulking, unprofitable behemoths chocked full of aging assets and run by 55 year old Party hacks in moth-eaten Mao suits and greasy comb-overs.  OK … maybe I am being a bit too hard on them, but the term “SOE” has been used as a pejorative descriptor more often that not.

After Liberation in 1949, the Chinese Communist Party brought all businesses under their control and POEs were, for all intents and purposes, completely eliminated in China (as was nearly all foreign investment when they were unceremoniously kicked out of China).  Through a series of disastrous events in the 50s through the 70s (the Great Leap Forward, the Cultural Revolution, etc.), the government proved that, not unlike their Soviet cousins, they were terrible CEOs – factories were inefficient, poorly run and churned out bad-quality junk that had no relationship to any market demands whatsoever.  That wasn’t as bad as it seemed because China retail and commercial trade was not yet standardized so bad products were also hard to purchase.  Go figure.

One of the many reforms that the Deng Xiao-ping administration started in the early 80s was captured under the Party phrase 民进国退 (min2 jin4 guo3 tui4): “POEs will advance; SOEs will retreat.”  What this meant, in effect, was that the Party wanted to get out of the business of being in business and started the long, mind-numbing, ulcer-inducing process of unwinding the complicated SOE culture … which included, for many people, guaranteed housing, education and healthcare.

Fast forward to the mid-2000s and you begin to see private Chinese companies really moving the market.  Thanks to China’s joining the WTO in the early part of this century, various sectors in the China market were opened to foreign investment, particularly retail and distribution/logistics.  This led to further (and more rapid) modernization of China’s business environment and it looked as if the SOEs were going to go the way of the dinosaur, only to be studied by business anthropologists who dug up their jerry-rigged balance sheets and padded expense accounts.

But don’t count the SOEs down for good … we see that there might be life in these old war horses yet, in part because the Chinese government and the Party (one in the same thing here) sees some advantages to keeping their fingers in the business world, particularly in areas that have remained the jurisdiction of the government such as automotive, oil & gas, media, etc.  Not to over-simplify things but these SOEs have two unique competitive advantages over their foreign competitors: first, the SOEs are not held to strict growth and profitability metrics and are encouraged by the State to get as big as possible, regardless of margin targets; and second, the government makes available an almost unlimited stock of growth capital through forced lending from the State-controlled banks.  Imagine if you, as a business executive, were told by your shareholders, “OK … here is the deal – we want you to grow this company.  Don’t worry about profits, just bring in the revenue … we have ways of dealing with the P&L.  And when you need money, just ask.  We’ve got plenty.”  Sounds like a dream scenario, right?

Well, it seems to be working and we are seeing a surge in some of these SOEs – in automotive, the so-called “Big Four” (First Auto Works, Shanghai Automotive, Dongfeng and Changan) are on a consolidation tear, encouraged by the government to acquire smaller, regional automotive companies, much like GM, Chrysler and Ford did in the early days of the U.S. auto industry.  The Chinese oil, gas and mining giants are actively looking outside of China for investment and, though they have been rebuffed by some foreign governments, are slowing expanding their global footprint.  Several of the larger SOE construction equipment companies are aggressively expanding, both inside and outside of China (as a side note, some say that this is why Carlyle’s acquisition attempt of construction giant XCMG did not go through last year … that the government wanted to maintain control in what they saw as a very strategic industry).  All of these SOEs – and many more besides – benefit from very easy capital lending requirements from State-run banks.

A recent article in the New York Times highlighted the pressures that Chinese banks are under to insure that they keep their lending capital accounts well-stocked and rumors are flying around China that the government is requiring China banks to raise their capital adequacy ratios.  Some might see this as a slowing down of lending.  However, I interpret it as just the opposite: the government wants the Chinese banks to keep good reserves of dry powder to be able to lend to those, predominantly, SOE companies that need growth capital.  It’s a “go slow to go fast” strategy if there ever was one.

All of this has led to private chats over dinners and drinks all over China that the government is trying to reverse their dictum of the 80s and say, rather, 国进民退 (guo3 jin4 min2 tui4): “SOEs will advance and POEs will retreat.”  While I seriously doubt we will ever see this in an official government document, the government’s practices are certainly encouraging this.  The SOEs are no longer run by Party hacks … their CEOs are often Western-business educated and understand very well both international commerce and the unique requirements of doing business in China.  They are dressed in Armani suits, have their hair styled and show up at the right parties, all the while maintaining their status in the Party-with-a-capital-P!

Just this past year, we’ve been involved in more competitive intelligence programs with our clients, helping them understand the ever-changing landscape around them.   It used to be that they were just interested in understanding their foreign competitors; however, more and more we see Chinese companies – and particularly SOEs – coming to the forefront of our clients’ concerns.  And given the competitive advantages these SOEs bring with them, everyone is very smart to be concerned about them.

So the question you need to answer is this – do you know your SOE competition?  Do you know who is backing them?  Who is running them?  Do you know what their growth strategies are and what their plans are to grow in the market?  Do you know what they think of you?!?  I can almost guarantee that they are no longer the lazy competitors you once knew.  You better understand them because they are a big threat, whether you know it or not.

We are in the middle of a discussion with Bill Powell, senior writer for Time and Fortune magazines.  In the first part, we talked about China and the rest of the world, how we try to make comparisons to what is happening in China with what we have seen in the past.  In this Podcast, I wanted to start off by getting Bill’s take on the challenges of covering China.  I prefaced my question by saying that, in our consulting practice at Technomic Asia, we are very careful not to talk about “THE” China market … there are, in fact, MANY China “markets” taking into account big cities, small cities, northern cultures, southern cultures, urban and rural, etc.  I asked him to talk about the practicalities over covering such a vast subject and the challenges he finds in trying to do so …

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!

OK … we are on to Part 3 of our interview with the newest addition to the Technomic Asia team, Kim Woodard.  In this section, we get down into the nitty-gritty of doing deals in China.  Enjoy!

Maybe I am being unfairly smarmy, but smarmy is sometimes the only club I have in my bag.  However, there is a potential flaw here in that, in the interest of coming up with the Index That Explains All, we are missing a TON of subtlety.  And trust me, I do the same thing … it is very human to want to find a Unified Theory.  Oh … and I am usually not very subtle.

But I think there are a couple of things we should be thinking of here …

First of all, a single manufacturing index is potentially misleading because there is not a single manufacturing environment in the world.  Sure, saying that “in general” Mexico is cheaper than China is OK, but you start breaking this down by manufacturing sector and you’d start to see a lot of differences.  The article says that Mexico makes a lot of sense for things like automotive components being shipped to the U.S. … well, auto manufacturing in the U.S. just got the rug pulled out from under them and they DRASTICALLY cut all sourcing.  And it would make sense that the first cut sourcing from China because, for landed cost to the U.S., it is not as competitive.  Look at individual sectors: alternative energy; wafer fabrication; food and beverage.  We might find the same thing but we might not.

Secondly, the business press tends to gloss over a key point of international business by focusing on EITHER cost savings OR growth, but never in combination.  The simple fact remains that, while China might be getting more expensive on a bill of material line-item basis, the pull of its growing markets is enough for companies to ignore one-sided thinking about costs and, instead, consider their entire businesses.  If I am an auto parts manufacturer and am thinking about the sales from a factory, I am going to look at my global sales opportunities … and if I am located in China where the auto market is still growing at double digits, I might be willing to trade a few points of manufacturing cost over a plant in Mexico where the markets in their sphere are receding faster than my hairline.  As we’ve said before in these pages, cost cutting will only get you to business heaven … all companies need to find a way to GROW!  And China is leading on the growth index in almost every sector, far greater than anything in North America.  I’d rather see an index on manufacturing costs to products shipped to China … this is where the growth is and where our eyes should be also.

Third, I don’t think we should be looking at this as a competition, a horse-race between nations where we identify winners and runners-up.  Some very grave errors have been made over the last 30 years by companies swinging on the Manufacturing Pendulum — first we move everything to Taiwan (and close down the U.S.), then we move it to China (and close down Taiwan) and finally back to Mexico (where we close down everything else and start all over again).  A mature global business thinks in terms of “and”, not “or”.  We should ALWAYS be thinking “China and Mexico” (and Poland and Russia and Brazil and…).

Fourth, I am very hesitant to base any view of global business on a survey done this year.  We are in the Twilight Zone in terms of our understanding of the puts and takes of the global economy … the floor has dropped out and we are suspended in mid-air, Wiley Coyote-like with an “Acme” anvil in our hands an a panicked look on our face.  Any survey of ANYTHING this year should have a big ‘ol asterisk on it making a disclaimer that the results may not have any relationship to a future reality.  Based on points 1-3 noted above, I think we are going to be seeing a lot of changes in these numbers in the very near future.

In no way do I want to minimize the findings here … it is very true that manufacturing costs have been on the rise in China for a number of years.  It is a fact of life.  But as those costs have risen, the world in and around China has changed drastically and companies should not only look at raw manufacturing costs to plan their global strategies.  First ask the question “How can we grow?” and then (and only then) decide where to put your operations.

We are in the middle of a Podcast interview with Dr. Kim Woodard, the newest addition to the Technomic Asia team here in Shanghai.  Kim’s background includes setting up A.T. Kearney in the early days of China business and running his own boutique M&A consulting firm.  We brought Kim into Technomic to fill out our ability to provide end-to-end services for our clients doing deals in China.  While we saw a bit slow-down in 2009 for M&A in China (and, in fact, around the world), we see that things are really going to pick up in 2010 as companies are looking for aggressive growth opportunities.

In this Podcast, I talk with Kim about the practical do’s and don’ts of doing deals in China …

Unless you have been living in a hole or the dark side of the moon for the past year, your life has somehow been impacted by the global economic slowdown.  You, a friend or a family member have lost a job; your municipal budgets are being cut; heck, your OWN budget is being slashed.  It has not been a fun year, even here in China where things are still moving along at a pretty good clip.

Though there are signs that things are getting better, I am not convinced we are totally out of the woods yet.  But just because we have no guarantee of where things might be going, that doesn’t mean we can crawl back into our hole or retreat to the backside of the moon … no, we need to keep moving forward.

And at Technomic Asia, that is exactly what we are doing.  For many years, our consulting practice has been involved with foreign companies doing all kinds of alliances in China: from joint ventures to licensing to distribution to acquisitions, we have helped our clients put their alliance strategy together and then execute it.  Up until about a year ago, we had been seeing a real upturn in acquisitions in China: the government rules for acquiring companies were loosening up and foreign companies were looking to China for new growth opportunities.  Then the bottom fell out of the economy and companies put all that activity on hold.

However, as things settle around the globe, multinational companies are looking for ways to grow and China seems a very good place to look for that growth.  And one of the methods they are returning to is growth through acquisition.

To capture this wave, we have brought in a new team member to Technomic Asia: Dr. Kim Woodard.  Kim has had over 30 years of experience in China, first coming here in the 70s in the earliest stages of China’s opening to the West following Nixon’s “Ping Pong Diplomacy”.  Armed with a Ph.D. from Stanford, Kim was soon a respected leader of foreign companies’ earliest advances into China.  Kim helped establish A.T. Kearney’s China practice and then went on to help big names such as John Deere and AMP establish their China operations.

Most recently, Kim had his own firm, Javelin Investments, to assist Western multinationals with acquisitions in China.  We wanted to bring Kim in to Technomic Asia to give us the ability to provide a complete M&A advisory practice – from initial strategy development all the way through to negotiation, closing and integration.

Given the returning importance of M&A in China, I wanted to have a series of conversations with Kim about M&A and, in his experience, what makes for a successful acquisition in China.  Attached is the first in a series that we will roll out in the coming weeks.  I hope you enjoy it!

Those of you who are long-time listeners to the China Business Podcast have heard us talk, endlessly, about ways that companies need to be looking at the potential opportunities in China, not just the actual ones … to look not only at the present, but the future of China.

I loved to play and watch hockey when I was a kid, and nothing was more thrilling than to see the great Wayne Gretzky play … it was magical, how he would always be in the right place at the right time.  Someone once asked him why he was such a good hockey player and he said, “because I skated to where the puck was going to be.”

And that’s the challenge, isn’t it … to start working in China today based on where it is going to be in the future.  In today’s Podcast, we have a very special treat … we are going to talk with someone who is actually putting this adage into practice.  Syed Jafry is the President of the Global Environmental Division for ThermoFisher Scientific, a very diverse, publicly traded company.  Syed and ThermoFisher are on, what I believe, is the cutting edge of global business and we sat and had a conversation in his Shanghai office on a rainy morning just before the National Day holiday.

My mother told me that its not polite to say “I told you so”, but I can’t help it.  From the start of the global economic crisis last year, we’ve been blogging and Podcasting like maniacs saying, “Yea … I know it is rough out there.  But China could be a shining light at the end of the tunnel for companies going through the rough stuff.  If the rest of your world is crumbling, now might be the time to really look at China.”

And now, no less an august body than the U.S.-China Business Council is saying just this.  In their recent survey, released on October 7^th and highlighted in this article from Industry Week, they say, and I quote, “Most U.S. companies doing business in China are profitable and many want to step up investments despite fears on the economy, protectionism and intellectual property rights.”

Yep, I told you so.

The USCBC survey is quite revealing.  51% of the 100 respondents projected that their revenues in China will grow in 2009, and 84% said their China operations remain profitable.  How many of you can say that about your U.S. operations?

A year ago, when the nasty stuff hit the fan, the one question we asked was “Where are you going to look for growth?”  We received a number of comments using words that my mother would never approve of … but all of them were along the lines of, “Are you nuts???  Growth?? Who can look for growth?  We are only interested in survival at this point!”  Yea, I get it … when you are shedding employees and operations faster than an Eskimo stripping on a Miami beach, its tough – maybe even unnatural – to ask about growth opportunities.  But that’s what separates the men from the goats, isn’t it … asking questions and using different words from what your competition is asking.  They say “tomato”, you say “kumquat”.

So I am going to go out on a limb here and repeat what I said a year ago … in 2010, companies should be looking to China for new growth opportunities.  I’m talking blue ocean, limited competition, boldly-going-where-no-person-has-gone-before stuff.  Seriously, most market sectors are still doing double-digit growth in China, more than the existing suppliers can supply.

Yes, the signs in the U.S. and Europe seem better … capital markets are improving a bit, money is starting to flow and buyers are starting to buy.  But recovery is going to be slow … slow like glacial slow … slow like the speed of mammal evolution slow.  Dollars to donuts, you are not going to be able to sustain your company waiting for your domestic markets to come back.  China could be part of your answer.

Now I know my smarmy tone is probably not appropriate … going after China is NOT easy.  We’ve never said it was … in fact, this blog and Podcast is dedicated to exploring just what a royal pain in the backside China is to succeed in.  But the difficulty of success here should not be confused with the importance of the pursuit.

Everyone is deep into planning for 2010 so you are setting priorities and budgets.  If China is not among your top priorities, then it probably should be.  Almost 90% of USCBC’s members surveyed indicated that China remains the top or among the top five priorities for their global investment plans.  Is it yours?

Now, my momma done raised me right.  I try to keep my elbows off the table when I eat, say “excuse me” when I sneeze and open doors for people when I can.  Mom also told me its not right to say “I told you so.”  So do it right this year … listen to what everyone is saying and get things in gear for China.  Get your team together Monday and ask yourself a simple question: “What are we going to do in 2010 to grow in China?”  Don’t make me have to say “I told you so” again next year.  I am already in enough hot water with Mom over missing holidays, birthdays and not writing as often as I should … and I don’t want to make it worse.

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Every market prognosticator worth his/her/its salt is in constant search-mode for “leading indicators” – data points that show us which way the markets are shifting and where trends will be moving before they actually become trends.  The easiest (and most used) are probably the ones everyone knows: GDP, consumer prices, commodity prices, exchange rates, etc.  Look on the back page of any financial magazine and you’ll find them … the problem, is that different sources will have different data, all highlighted by an asterisk that tells you why they are different.  Then mix in the challenge in China where economic data is so fraught with government intervention and interpretation so as to make it intelligible at best and downright false at worse.

These indicators are pretty important – as we’ve discussed in these pages before, everyone is looking for the “bottom” of the market and the economic windsocks and canaries in the coalmine are the only way we have of seeing this.   Everyone is looking for the upswing, particularly here in China which is expected (read: “desperately hoped”) to help lead a global recovery.

The more smarmy among the economists have tried to come up with “common sense” indicators, the best-known of which, probably, is the Economist’s Big Mac Index.  This is based on the theory of purchasing power parity (PPP) which says that exchange rates should equalize the price of similar goods between economies.  They use the Big Mac, a product available across most markets in the world, as that standard and compare the Big Mac prices when converted into US dollars at current exchange rates.  This is all well and good … but with the increasing health consciousness of many populations, it might be a good idea to get away from the Super Size Me indices.

So what else can we use?  I might have an idea …

I live in Pudong, the “new” area of Shanghai where construction cranes have been the city bird for the past 5 years and building has been going on 24-7: industrial, commercial, residential … everything has been going up in a flurry of activity.  However, starting last fall and then hitting a low point around Chinese New Year this year, things have been going oddly quiet.  In what used to be a dust-choked part of town we can now see blue sky.  What’s up with that??  Dust, dirt and noise are good – they are signs that stuff is happening!

But over the past few weeks, things seem to be changing, and that has resulted in my discovery of the perfect indicator that we are on the upswing in China – I call it the Teenage Attitude Index (or TAI). The TAI is plotted on a matrix with “Weekend Wake-Up Time” on the vertical (plotted inversely so an earlier wake up time gets a higher score) and “Crabbiness Factor” on the horizontal.  The louder the construction is around us and the earlier it starts, even on Saturday and Sunday, the earlier the kids wake up and the more angry they are that they had to wake up early.  It works really well and I can clearly plot the upswing here: the past few weekend mornings, I have observed my teenagers very carefully and have noted that they are not only waking up earlier but are in a MUCH worse mood when they do.  And I could not be happier!!  Sure, we start to hear jackhammers and cement trucks at 5 a.m. on a Saturday, but that just means that life is returning to our definition of normal.  And the grumpy look on the faces of my darling children are empirical proof of this.

The only piece I have not worked out yet is how to differentiate between the crabbiness brought on by construction noise and the crabbiness associated with simply being a teenager.  But once I figure that one out, I am going to be the Nostradamus of Asia.  Who knew that teenagers could be so helpful??

But Wal-Mart is not necessarily cutting staff … they are “relocating” them.  This might not be such a big deal in the U.S. where white collar management in retail is somewhat used to being moved about like pawns on a national chess board (a friend of ours with Best Buy was relocated 5 times in 11 years).  But in China, this is a big deal.  The hukou system – whereby everyone has a city “residence permit” that gives them and their families access to cit services such as education – is still alive and well in China.  It used to be (10+ years ago) that the hukou system would keep people from moving at all because you could not get healthcare or education in a city in which you did not have your hukou.  Many of those restrictions, particularly for white collar workers, have been lifted.  A lot of people now living in the big cities (i.e. Beijing, Shanghai, Guangzhou) are not originally from here, but many of them sure hope to get their hukou here some day.  For instance, of the 20 people in our Shanghai office, only 6 are from Shanghai itself; the rest are wai di ren, or “outsiders”, in a polite way of speaking.

So when Wal-Mart says they are going to relocate people, this – in and of itself – is not a shocking thing.  Lots of people in modern China are from “somewhere else”.  The problem is where Wal-Mart will likely relocate them to.  The vast majority of Wal-Mart’s recently-opened stores are not in the big cities.  Ammend that: they ARE in big cities, just not THE big cities of Shanghai, Beijing and Guangzhou.  They are in smaller cities like Wuhu (in Anhui province with 2.3 million people) or in Maoming, a prefecture-level city in southwestern Guangdong province with a population of “only” 6.8 million.

“There are no layoffs,” said Jonathan Dong, a spokesman for Wal-Mart China. “If someone wants to go somewhere else [outside Wal-Mart], that is their decision.”  Right.  The “choice” they are offered will be moving to Maoming and keep your job or stay in Shanghai and lose it.  If true, it is an ingenious play…Wal-Mart is able to stay within the strict confines of the labor law that makes it difficult to let workers go and still effectively reduce their workforce.  If my way IS the highway, the choice is easy.

Some are calling the Chinese economy “the canary in the coal mine”, a harbinger of the near future (and a kick-butt song by The Police!).  As well they might…things have been moving along OK here lately.  Q1 ended at, I think, the 6.5% growth that the government was predicting – but, then again, it is the government that determines this number so they had a pretty good chance of it being close!  But in March, the Purchasing Managers Index (PMI) in China rose to 52.4%, over a 4% increase over the previous month.  Pointy-headed economists tell us that any PMI reading over 50 suggests that the manufacturing sector is growing again.  This makes China the first major country to record such a good number since the global economy went in the crapper last September.

However, I think we need to be careful here.  Saying that China is a predictor of good things for the global economy suggests a cause and effect relationship that might not be there.  Remember that, because it has been so reliant on exports, China’s economy followed those of the West down the tubes – water skiing behind a speedboat is fun until that boat heads for the bottom of the lake and you can’t let go fast enough!  For China to be a predictor of the global economy’s slow return to health means that China is now the speedboat and everyone else is the hapless skier tied on back.

To a certain extent this might be true.  For example, General Motors – which is now, for all intents and purposes, a State-owned company in the U.S. – is going gang-busters here in China where total car sales reached another record in March.  GM might still be making your grandfather’s Oldsmobile, but that’s what folks are buying here – in fact, GM just announced that they plan on doubling their sales in China in the next five years.  Many of my friends who work at GM are very thankful that they are working here for the company, and not back in the United States of Depression.  But GM’s success in China is not going to prevent them from going into selective receivership in the U.S.  They are not doing THAT well here!

The question is how “deep” are foreign companies augured in here and will they be in a position to catch the China helium-lift as it hits?  For years, we have been preaching that, for many companies, some of their best opportunities for growth are in China.  This was certainly the case when the economy here was growing at a neck-snapping 13% annually.  But the halo factor is still possible, for those that were able to get in and get established.  I have been talking to several companies these last few weeks who have seen NO drop in their business throughout the downturn, even though their parent companies in the U.S. are going through terrible times.  China has been able to sustain through it all!

So while the signs of life in China are good news – particularly for those of us here! – I am going to hold out on saying that this is a broader sign that the global economy is following hot on China’s heels.  We have a saying in the U.S. that “the opera ain’t over ‘till the fat lady sings”.  So far, she is tuning up, but the curtain has yet to rise.

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Sheesh … can’t a guy get away for holiday without the world falling apart??  I go for 10 days of sun, sand and minimal Internet and come back to find the world upside down.  AIG needs more money (to fund bonuses? foreign banks? Liddy’s baseball card collection?) and President Obama is firing CEOs (not that many others have wanted to do the same in the past but lacked the political will and cajones).  China dope-slapping Coke in its attempted acquisition of Huiyuan is counter-slapped by Australia for Minmetals attempted investment in OZ Minerals.  An apt description from Dr. Venkman in Ghostbusters: “Cats and dogs living together!  Real wrath-of-God stuff!!”

Not that the situation would be any different if I would have been on the frontlines last week, bravely Podcasting and blogging about the world from my 5th floor Shanghai office … but I do have a bit of a Rip VanWinkle feeling about it all.  To have so much happen in the space of just over a week makes my head spin (causing the too-small brain inside my rather large cranial capacity sound like some Cinco de Mayo maraca jam session).

The suddenness of all this – and too much free time on a beach – has led me to think of three deep thoughts:

Deep Thought Number One: the age of dominance of the western multinational company (MNC) is over. Actually, I think this dominance has been over for some time but we’ve been so busy kicking the body and yelling “Look!  Its moving!” that we’ve not realized its dead.  Certainly this is true in manufacturing … that happened some time ago when we started worshiping at the alter of the god Wal-Mart to receive the deity’s blessings that came from cheap products manufactured in low-cost countries.  I am not saying we would/could/should have done anything differently, but we are where we are.

So maybe the proper way to say this is that we Westerners need to lose the illusion that we are in total control of the world.  We are not.  And the last stand where at least Americans could claim dominance – the financial sector – has completely lost its mojo (and most of its money).  The title “Bank Manager” has become the new oxymoron replacing “student-athlete” and “country-music”.

Practically speaking, this means that Western companies will now be the seller as often (or even MORE often) than they are the buyer.  For every Coke-Huiyuan situation we will find Chinese companies buying medical companies (ala Mindray), mining rights (ala Minmetals) or car companies (ala a billion rumors in the market about various GM divisions being schlepped to the Chinese ).  Certainly, there are massive financial and cultural hurdles to overcome for Chinese companies and institutions to become major buyers, but there is definitely the motivation here and there are certainly enough Western assets – distressed and otherwise – for them to pursue.

Deep Thought Number Two: China WILL become a stronger global player in several sectors. This is a natural result of the first … if there is a leadership vacuum created by the decline of Western firms, someone will step into their place.  And the Chinese seem to be the most likely to come off the bench and make the winning basket.  I see three sectors to keep our eyes on – two are no-brainers and one might be a long-shot.

The first sector where China will begin to gain global leadership is, obviously, automotive.  Already the second-largest auto market in the world, China is also the leading supplier of auto parts and components to the world.  China will begin to leverage this supply chain dominance into actually creating cars to sell into other markets.  It is already happening in southeast Asia where a number of Chinese suppliers are exporting cars.  And Chery attempted a distribution agreement for small cars with Chrysler in the U.S. before the U.S. auto world turned upside down.  Finally, China has declared that they WILL be the global leaders in electric cars and technology – in the next three years.  That is very aggressive but it seems the entire economic and political system is focused on doing this.  Look for the leading China auto companies – SAIC, FAW, Dongfang, Changan, Chery and the cheeky BYD – to flex their muscles internationally.

The second sector is medical device.  Again, China is a leading player in the supply chain of components to the global medical industry but strict regulatory requirements have kept them largely from being very strong in Western medical markets.  The Mindray acquisition of Datascope last year was their attempt to change that – Mindray is the biggest Chinese medical device company, competing against the big boys of GE, Philips, Toshiba and Siemens.  Their acquisition of Datascope, a mid-sized U.S. player in the patient monitoring device sector, was Mindray’s first entry point into the U.S. market.  Look for them and others to follow. But look particularly at China becoming an even stronger growth market for medical companies of all kinds.  China will be investing a big chunk of their economic stimulus package in their medical sector in an attempt to rapidly upgrade the penetration and quality level of medical care for their 1.3 billion population.  As they do this, there is going to be a lot of money out there to purchase medical devices, pharmaceuticals, lab equipment and even healthcare management solutions.  Any medical company of any size should be looking at China as their key growth market in the mid-term.

The third sector to keep your eyes on – and I know I am out on a limb here – is the financial sector.  What?, you say.  A centrally-controlled, socialist system with a partially convertible currency is going to become a leader in global finance??  Yes, that is exactly what I am saying.  I am not saying “tomorrow” or even “in the next 20 years”, but all you have to do is follow the money and the motivation.  China certainly has the money – both in cash and U.S. T-bills – and their motivation is repeatedly being articulated – the latest has China’s leadership saying that they hope to build Shanghai into a major financial sector by 2020 and that “the Chinese Yuan will become a new world-favored currency by then”.  Gutsy?  Sure.  Possible?  Maybe.  But are they going to work on it?  You can bet on it!

This all leads us to my Third Deep Thought:  When it comes to the future, we don’t know JACK!! I know … as the proprietor of a leading market strategy consulting company in China whose very JOB it is to predict market futures for our clients, it is counter productive to admit this.  But c’mon … consider the situation.  If, 18 months ago, you would have told anyone with half a brain and a cable TV subscription that Lehman Brothers, Bear Sterns and AIG would be toast at the start of 2009, we would have assumed you had only a quarter of a brain.  Two years ago – even in the midst of big changes already happening in the automotive market – if you would have said that the U.S. Big Three would be on the edge of global collapse and that BYD (hitherto known as a battery maker) would make the biggest splash at the Detroit Auto Show, we would have taken away the last 25% and made you ride the little bus.

The truth of the matter is that we – meaning pundits, consultants, politicians, TV news anchors, banking regulators (if there are any left) – have NO idea what is going to happen next.  Sure, we know that “down” is still the trend and that “flat” is the new “growth”, but the details of which movers and shakers will actually be the ones shaking and moving is a complete mystery.  So let’s give up trying to predict where things are going and start act like they are going to go somewhere.

This means that we – and by “we” I mean “we Westerners” – get it through our neatly coiffed (but thick) skulls that we are not going to be returning to “normal”.  This economic crisis is not just a speed bump on the journey that we’ve been on since the dawn of the industrial age … it is a fork in the road with a car-swallowing pothole in it, at the bottom of which is a pack of very hungry lions who have been subsisting only on lettuce and Fruit Roll-ups.  OK … that metaphor needs a bit more work, but the bottom line is that EVERYTHING has changed!  The products, pricing, distribution, supply chain, competitors and even regulatory environments of your business are changing radically.  New players – many of them Chinese – are not just playing in the shallow end of the business pool; they are swimming in the deep end and, frankly, many of them look pretty good.

What has not changed is the advice for Western companies regarding China – we have been saying this for a LONG time and, in fact, we can maybe put a sharper point on that advice which is: your company’s future WILL be involved somehow with China so find out what it is now and start working on it.  In the midst of the global economic meltdown, China is still one of the best places for pure growth in most sectors.  You are probably not going to find growth in your home markets in the U.S. or Europe so why keep banging your head against that wall?  Net-net: if China is not at the top of your list of “Ways to save your corporate ass and position yourself for the future”, then you are missing the boat.  That is a fact that I feel 100% confident in predicting.

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There has been a lot of press, not to mention moaning and groaning, about stimulus packages in the last few months. Many countries have put forth their genius to turn their economies around…but we haven’t seen much fruit yet to be sure, and their remains a high dose of skepticism out there on virtually everybodies stimulus approach. This skeptical view even exists with China, the global champion in actually getting things done. As usual, there is a lot of noise in the media about anything to do with China and the ever present political filters that tend to bias realities. In this podcast, I will try to cut through this static and identify what we think is really happening with China’s stimulus plan and how western companies can benefit. I’ll cover the current status of the plan, what forms the various stimuli are taking, some key themes that underly the programs and the industry sectors that will benefit most. In this horrible economic environment there are few places one can go for revenue growth. China is one of those places… so companies with the intent to find growth despite the current pain they are experiencing in their home markets, will do well to take a hard look at what is happening in China.

So let’s set the context a bit before getting into specifics on the stimulus plan. It should be clear to us by now that when the Chinese government is determined to get something done, it usually happens… and it happens fast, and often in a big way as we saw with the Olympics last year. 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 are lined by quaint looking 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”.

The Chinese government has, to date, earmarked (can I use that word?) some US$ 584 billion to stimulate things in the economy. By our US standards of throwing trillions at a problem in the hopes of overwhelming it, this figure may seem a bit paltry. 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 here. Further, the actual usefulness of the monies spent almost embarrases our US program (most pork bellies in China are served with a nice Maotai). There is some opaqueness to the source of these funds (about 25% is slated to come from the central government and the balance from provincial and local government sources). Yet China’s track record when it comes to stimulus spending is pretty stellar so we have confidence this level of resource will indeed find its way in to the market…eventually.

Best estimates say that about $57 billion (or one-tenth of the total package) has already been spent as of the end of 2008. Of this, about $39 billion has been spent on rural infrastructure, roads, railroads, and housing construction. 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. A sign of the stimulus at work!

I was in a meeting with China’s largest grocery chain a couple weeks ago and they were describing their brand new 1.3 mm sq ft., state of the art distribution center being developed…with monies from the stimulus. Our stimulus activities in the US seem like taking a couple advil to ease the pain of a heel spur versus China’s shot of cortisone right into the ­­­affected area.

In these types of programs, we see the Chinese government taking more of a long-term, strategic view of the investment. The goal is not only to address the short-term pain, but to build the country’s overall health and competitiveness. In this regard, it is interesting to note some of the main themes of the stimulus package…

1. Upgrading technology through forced obsolescence and replacement of outdated, energy intensive and polluting processes & equipment
2. Upgrading/expanding capacities e.g. an astonishing $90 billion has been budgeted to more than double China’s rail network over the next decade, adding 25,000km of track.
3. Providing rural development/support, as in offering coupons to get discounts on purchasing durable goods
4. Providing investment and incentives for innovation and expansion of R&D
5. Implementing industry consolidation
6. Spurring export promotion and competitiveness via putting back some of the VAT tax refunds
7. Expanding energy sources including nuclear, coal and renewable energy

We also see the government using a creative mix of methods to stimulate the market using both direct and indirect tactics…it’s not all about spending cash.

1. Tax rebates/cuts
2. Direct investment
3. Policies e.g. consolidation, financing terms
4. Technology funds
5. Direct subsidies

Ten industries have been designated as direct stimulus beneficiaries: automobiles, steel, textiles, shipbuilding, petrochemicals, light industry, electronics, nonferrous metals, equipment manufacturing, and logistics. Not many areas will be unaffected. The government will employ a mix of the methods I just mentioned to bring help to these sectors. Some will benefit from consumption subsidies, e.g. 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. The auto industry will get some help through tax reduction, e.g. going from a 10% to 5% purchase tax to buy a car.

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 “stimulus,” zhenxing jihua or “rejuvenation plan,” does not necessarily imply spending), but China is clearly thinking of the global crisis as an opportunity to enhance its industrial competitiveness.

While the ambition of government planners has never been in doubt, there is always some concern for the reality of things in China given that the government always retains a level of opaqueness in its announced programs. So we do need to take some of these specifics with a grain of salt. There certainly will be some, how shall we say “leakage” as the money flows into the system (or the pockets of some politicians). It’s easy to suspect that some big-ticket projects and industrial policies are simply “piggy-backing” on the stimulus to give their proponents bureaucratic momentum, thus exaggerating the headline figure of $586 billion. My litmus test for the reality of these types of things in China is simply to look out my apartment window to see if I can see tangible evidence of activity. I recall during China’s boom periods in the 1990s and early 2000s when many economists doubted the reality of China’s double digit GDP growth. Yet the fact that 50% of the world’s construction cranes were operating in China at the time presented a pretty compelling case for the reality of China’s growth.

So, bottom line? China’s stimulus package is real and its impact will not only spur more economic growth in China’s domestic market but will take China to the next level of global competitiveness as we have seen happen before. The plan is not without its faults and false advertising but don’t doubt its real impact on the economy. Foreign companies, with smart and targeted growth initiatives, can take advantage of this stimulus package to obtain some added growth. You need to be proactive and aggressive to exploit these opportunities. They won’t just fall in your lap!

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