Archives for posts with tag: china

I haven’t blogged in a long time, but since Google+ doesn’t seem to have too wide an audience, maybe I’ll write more stuff here.

I went to Taiwan a few weeks ago and was surprised, once again, how un-Chinese it is in so many ways.  I’ve been reading some more stuff about Asia and politics in general (recommend “The Dictator’s Handbook”, if you have a chance) and started thinking more about the crazy and often times illogical approach the US has taken towards China, and specifically the Republic of China (ROC).  I wanted to lay out the history as I see it.  I’ll do it in 3 posts, 1 about the mainland days of the ROC, 1 for Taiwan days of the ROC, and 1 for recommendations on how both the US and Taiwan can improve their relations.  Yes, I’m a complete nerd.

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As I discussed before, the CPC is not as monolithic as it appears on the outside.  I think this is becoming increasingly clear with the censorship in Chinese media of Premier Wen Jiabao’s CNN interview he did last September, and more recent censorship of his comments in Shenzhen earlier this year.  I don’t expect there to be a faction that will publicly denounce another anytime soon, but I think it also goes beyond what the Coasties-vs-Hinterlanders argument suggests.  Below are just some predictions, and some members might be in two or more factions, so it’s not always clearcut.

In no particular order:

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I’m not a Republican.  I do consider myself a fiscal conservative, however.  This would be why I tend to vote for the other guys and support a public health care system.  Protectionism is something that rubs me the wrong way though, and I fear the latest trade row between Chinese tire manufacturers and American chicken farmers is a big step in the wrong direction.  Both countries are at fault here, but I’m only going to touch on the Chinese side today.

Business in China has huge profit potential but is also extremely difficult for some arbitrary reasons.  The extremely one-sided Heritage Foundation listed China as #132 out of 179 countries in their “economic freedom index” (Hong Kong took the #1 spot; US was #6).  I don’t suggest for a second that the US does not practice many of these broken ideas, and I encourage those interested in the American side to submit a rebuttal.

This is an extremely simple and non-exhaustive list, but it’s a rough overview of China business pros and cons:

Pros:

  1. Largest market in the world.  Can’t argue that.
  2. Market potential is enormous.  Almost 50% of the Chinese are still farmers.  Once they move to the cities, their income and desire for foreign goods is only going to increase.
  3. A highly literate population means it’s easier to find skilled workers.  The large rural population coupled with a rapid move to the cities means cheap, skilled labor is going to be there for some time.
  4. Chinese cities are denser than American ones.  It’s nicer to have electricity/water/roads at a location already instead of paying to run power lines out to some remote McDonalds in Montana.  Also, China is obsessed with new highways, harbors, airports, and high-speed rail.  Whoever they are trying to impress, a great infrastructure will only help a foreign company.
  5. TV/Radio ownership is pretty high.  Advertising seems to be more prevalent in subways and buses than in the States.  So you’ll have plenty of places to advertise.
  6. Being foreign immediately carries considerable prestige.  It’s common to slap “American brand” onto a completely Chinese-owned brand just because it carries a lot of weight.  “Foreign” is also understood to be more expensive, so there’s not a lot of pressure to sell at a discount, ever.

And now some cons:

  1. As mentioned above, glaring protectionist policies.  The biggest problem is probably a drastically undervalued currency.  The exchange rate is pegged at 6.8 yuan to 1 dollar.  Meanwhile, the University of Pennsylvania estimates the real exchange rate (based on what you can get with your money) should be about 2.14:1.  So its extremely cheap for Chinese companies to sell goods in America, and extremely expensive to import foreign goods to China.  The Chinese government keeps the rate to protect domestic business.  It’s lousy.
  2. Starting a branch of a foreign company often requires a joint venture with a local parter, bribing government officials, and usually both.  The Economist wrote about how Goodyear tires went through the trouble of making over 700 unique partnerships with local suppliers in China, because they had to.  Bombardier has a partnership with a Chinese train manufacturer, and GM’s China operations are largely run by a Shanghai partner.  A huge party to the joint venture requirement is the entertainment industry.  American films can only be imported by 2 state-owned companies, and there is a quota on the number of films that can be screened.  This isn’t as huge of a problem for Chinese consumers, because…
  3. No intellectual property protection.  There is literally zero market for legitimate DVD purchases.  Software and books tend to fare better, but tens of thousands of websites can offer that stuff for free.  Granted, China has a lot bigger problems than catching the college kid who downloaded an MP3 or two.  But when the country’s largest search engine (Baidu) offers a sub-site specifically for downloading MP3s, it sort of tells you there’s no interest in protecting IP.  Clothing is equally susceptible.  In a bizarre set of twists and turns, Louis Vuitton became known as a prestigious brand in China.  So the clothing pirates started making fake bags to sell for about $5.  So now everyone has a look-alike, which eliminates its prestige.  True luxury “show-off” goods have to be more confined to those things difficult to pirate, like houses and cars.  Either way, LV loses big time.
  4. A very small middle class, maybe 15% of the population.  It will get better as time goes on, but unless your product is dirt cheap, it’s going to be hard to move inventory in any large numbers.
  5. It’s not the US, Europe, or South America.  Chinese people like red bean flavored ice cream more than chocolate.  Clothing trends aren’t the same.  Coupled with a huge urban-rural divide, and marketing can be really tough.  The Chinese don’t speak as much English as Indians or Southeast Asians either.
  6. And the big one: opacity in government and legal procedures.  You don’t know who’s going to be in charge or what the new policies are going to be next year.  There’s no polling.  You don’t know if your company is going to be axed for breaking a law that didn’t exist last week.  Newspapers offer no reliable economic statistics.  Censoring the internet means businesses have to either spend extensive resources  on workarounds, or ignore banned social media sites entirely (Facebook, Twitter, WordPress, etc.).  I even encountered a situation where a local police station said city population stats were classified data.  Its tough to market when you don’t know anything about your audience.  I think the legal system is improving, but the political stability of most Western countries is a huge advantage.

If you can get over all the hurdles, working in China can be very lucrative.  GM sells more cars here than anywhere else.  Crest and Colgate have the toothpaste market almost locked up, and there are no Chinese cola brands to compete with the ubiquitous Pepsi and Coca-Cola.  CLSA published a list of the top brands in China, and there’s a lot of foreign companies who have claimed a slice of the pie.

And if you’re really interested in selling to China, I have more than a few friends who want to help with that.

burningcrusade

If you’re up on the PC gaming world (not admitting anything here), you’ll know that the latest expansion to World of Warcraft (WoW) was announced this past weekend.  The game – which has 12 million gamers in the US, Europe, and Asia – charges users a monthly fee ($15 in the US) to kill monsters and save the world from the comfort of your computer screen.  The original was announced in 2001 and released in 2004.  The expansions, “The Burning Crusade” and “Wrath of the Lich King” released in 2007 and 2008, respectively, while  “Cataclysm” will likely be released in late 2010.  All you need to know about that is “worgen.”  Awesome.

Anyway, what’s more interesting is the worldwide impact of this wildly popular game with an exceptionally long shelf life.  Specifically, I’m interested in the relationship, noted in this Yahoo! News article, between China’s version of WoW and the recent World Trade Organization (WTO) ruling regarding Chinese monopolies on entertainment property.  This relationship could have serious implications for future software, movies, and music released in China.

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In an especially bold move, the US Broadcasting Board of Governors (BBG) has decided to research and deploy a new technology that will permit Chinese internet users to bypass their own government’s internet firewalls.  As it stands today, a large number of pornographic and politically contentious websites are blocked in China.  Any searches related to Chinese protests, Tibetan or Taiwanese independence, or democracy return a “This page is not found.” screen.

The weird thing about this is that the BBG claims this testing is secret.  (Read article from Internet News here).  However, this was the headline yesterday on ChinaDaily:

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ch-map

When anyone hears the word “China,” the place they are most likely to think of is the People’s Republic of China (PRC), also known in some circles as “mainland China” or “Red China.” The PRC was established on October 1, 1949, after Chiang Kai-shek and the Nationalist government had been routed following the Chinese Civil War. The capital city was moved from Nanjing to Beijing, and Mao Zedong became the national dictator until his death in 1976.

Immediately following World War 2 and the Civil War, most Chinese people were pretty happy about some stability. Many rich Chinese and former government officials had fled to Taiwan (about 2 million total), so the new Communist government had serious problems with finding experienced bureaucrats and professors. Three things helped the Communist Party achieve relative stability in a short time:

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tw-map

The third “China” on the list is what is now referred to as Taiwan. Although the legal name of the territory is the “Republic of China,” “Taiwan” will be used for clarity’s sake in this article.

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hk-map

Hong Kong and Singapore share enormous similarities, but also striking differences. Both have been historical shipping hubs. Both are islands (although Hong Kong includes a peninsula). Both were British colonies for hundreds of years. Today both are majority Chinese (Singapore, 75%; Hong Kong, 95%). Both have developed their economies from heavy manufacturing in the past to high-tech industry, logistics, and finance in the present. Both have about 6 million people.

Yet, Singapore went from British colony to independent country. Hong Kong became a “Special Administrative Region” of China, the first of it’s kind. Under the doctrine of “One Country, Two Systems,” the Chinese government in Beijing agreed to leave Hong Kong’s freedoms untouched for 50 years after the handover of power in 1997. Chris Patten, the last British governor of Hong Kong, would say it simply became the colony of a different superpower. Some nationalist Hong Kongers celebrated a return to the “motherland.” Most in the territory consider themselves both Chinese and Hong Kongese. So it’s a difficult mish mash of nationalism.

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FourChinas

I finally got around to reading Fareed Zakaria’s 1997 article in Foreign Affairs: “The Rise of Illiberal Democracies.” I really enjoyed his book, The Post-American World and know that he’s a big shot on CNN now. Still, this article far surpasses anything he’s done on TV or books as of late, and it opened my eyes to a very interesting concept, something I hope to expand upon in an academic article in the future.

Zakaria notes somewhat indirectly how Hong Kong and Singapore, both majority Chinese and former British colonies, took very different paths in political development. Immediately I got to thinking about the other two “Chinas,” Taiwan and the People’s Republic of China. They too took very divergent paths in political development. Combined, we have the four majority-Chinese states in the world, each taking a markedly different path. How did this happen? Is Chinese culture really that universal? Or is “Chineseness” simply a farce, at least in political relations? Using some of Zakaria’s terms, I want to look closer into this question.

Zakaria uses the term “illiberal democracy” to define a country that has elections, but they mean close to nothing. “Illiberal” in this sense does not mean conservative, but rather refers to the opposite of classical liberalism. Way before we had the left versus the right, we had royalists versus classical liberals. Liberals like the Founding Fathers believed in freedom of speech, religion, press, and most importantly, rule of law (generally in a constitution). An “illiberal” state, therefore, would have laws made up by the leaders on a whim, limited freedom of the press, and other restrictions on personal expression.

The other half of the phrase, “democracy,” simply refers to popular choice of one’s leaders. After World War II, most countries decided elections were a good thing, even if they were rigged. This would be an illiberal democracy. An autocracy, on the other hand, has no meaningful elections to speak of. Very little is done to imply that the people have any choice, or the elections are for trivial offices. Most authoritarian nations today have rigged elections, or find some way to otherwise suggest they are democratic. The “Democratic People’s Republic of Korea” tries for a double whammy, implying both “the people” and “democracy” are involved. In this case, they appear to be overcompensating for their exceptionally oppressive form of government.

This is hardly an exhaustive report, but rather a brief summary. First, Singapore:

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