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Underwriter of Two Rivers--ChinaVest.
See also ChinaVest Business Diary.

Two Rivers is about the umbilical cord between America and Asia, particularly Greater China.  A few amongst us are still pointed to Europe and Russia.  But the more advanced leaders of North America are trafficking across the Pacific and below the Panama Canal.  For more on companies doing business in China, such as ChinaVest, see our Business Diary.

189. -new- Entrepreneurs Key to Chinese Economic Growth

Yasheng Huang, in the December 2008 edition of the McKinsey Quarterly, claims it was rural entrepreneurs, not state iniatives and investments, that put China on the road to high growth. “What actually happened is that early local experiments with financial liberalization and private ownership, in the 1980s, generated an initial burst of rural entrepreneurialism. Those earlier gains—not the massive state-led infrastructure investments and urbanization drive of the 1990s—laid the true foundation for the Chinese miracle.” “Although many experts contrast China’s grand infrastructure projects and gleaming factories built using foreign money with India’s dilapidated highways and paltry foreign-direct-investment flows, this point of view overstates the contribution of public spending and foreign investment to China’s growth.” “Shanghai is the most visible symbol of China’s urban development. Its modern skyscrapers, foreign luxury boutiques, and top-ranking GDP per capita make it China’s model city—a glittering testament to the success of state-led capitalism. Or is it? By more meaningful measures of economic achievement, Shanghai’s rise is far less impressive than that of Wenzhou, an enclave of entrepreneurial capitalism a few hundred miles to the south, in Zhejiang province. In the early 1980s, Wenzhou was known for little more than its struggling farmers. Of five million inhabitants, fewer than 10 percent were classified as urban. Today, Wenzhou is China’s most dynamic municipality, teeming with businesses that dominate European garment markets. By contrast, Shanghai, once home to China’s earliest industrialists, is now oddly bereft of native entrepreneurs.” “The real mystery of China’s miracle isn’t how the economy grew, but how Western experts got the growth story so wrong.” Private ownership, holds the author, is the key to how China achieved dynamic growth. (06-24-09)

188. -new- China’s Wine Will Runneth Over
“In May, Berry Brothers & Rudd,” an English wine merchant on St. James, predicted in its “Future of Wine Report” that in 50 years China would be the world’s leading wine producer.  Further it says China has the right conditions to produce wines of absolutely the first rank.   China is already sixth, with some “400 wineries.”  New York Times Magazine, December 14, 2008, p.80. 

187. China’s Transportation and Logistics
ChinaVest, a merchant banking house based in Shanghai, has long focused on China’s efforts to knit itself together, which involves ports, highways, trains, airplanes, warehouses, American fast-forward services such as FedEx and UPS, and so many other things.  It includes, too, the Internet: China now has more Internet users than the USA.  Its newsletter is making a more determined effort to share some of its insights with us, and China observers would do well to look there to see how the tapestry is coming together.  China’s government has determined to weave the interior to the over-developed coastline and, in the process, to create one large national market, not unlike what the U.S. did after the Civil War across the whole of the nation. We are hopeful that ChinaVest will broaden its review over time to include more of the less dramatic but terribly important nodes that collectively are creating one nation.  Shanghai, we learn in a recent report, is China’s dragon, handling 3 times the containers of any other city, but a slew of other ports are fast making themselves key distribution centers. In cargo, however, several cities, especially Ningbo, are giving Shanghai a run for the money.  Nanjing, it seems, is the top river port.  (11/5/08)

186. Drucker in Asia
Peter Drucker lives on.  Back when Drucker and the rest of the Four Horsemen (Juran, Deming, and Feigenbaum) were at NYU, the Japanese paid them much more heed than Americans.  Now, we notice, America is fast forgetting Drucker, but Asia still worships at his feet.  This is chronicled in “Drucker’s Teachings Find Following in Asia,” Wall Street Journal, June 18, 2008, p. B2.  “In China … Mr. Drucker is the man of the moment.  In the past few years, devotees have created 14 Drucker academies in Beijing, Shanghai, Xian, and other Chinese cities.”  “Mr. Drucker himself laid the groundwork for China’s enthusiasm … meeting in 2000 with leaders of the nonprofit Bright China Management Foundation to get the Drucker academies started.  Last year 6,000 Chinese managers graduated from the academies….”  Other countries, such as Japan, South Korea, and Japan share this continuing enthusiasm for Drucker.  (10/22/08)

185. Fantastic Restaurants in Beijing?
We would suggest that modern China needs one more turn of the screw before it offers truly great cuisine.  We find, for instance, that very young, mobile chefs who have gone to other ports prepare more interesting, fresher dishes than are available on the Chinese mainland or, for that matter, in the various Chinatowns across the world.  That said, an intrepid Stan Sesser, writing for the Wall Street Journal, May 9, 2008, p. W1, boldly proclaims he has found offbeat Beijing and some real winners.  Here are some of his discoveries: Liqun Roast Dunk(PekingDuck) 11 Beixangfeng Alley, Zhengyi Rd., Chongwen district; (86-10) 6705-5578.  Jiu Men Xlao Chi (Beijing-style snacks) 1 Xiaoyou Hutong off Denei Dajie Rd. Xicheng district; (86-10) 6402-5858. Guo Yao Xlao Ju (Tan Family cuisine).  58 Jiaodaokou Bei Santiao, Dongcheng district; (86-10) 6403-1940. Jun Qin Hua (Guizhou). 88 Meishuguan Houjie, Dongcheng district; (86-10) 6404-7600 Xlan Lao Man(Beijing-style dumplings). 252 An Nei Da Jie, Dongcheng district; (86-10) 6404-6944. Jade Garden (Jiangsu) 6 Jiqingli Chao Wai Ave., Chaoyang district; (86-10) 6552-8688.  Hong Zhuang Yuan (Beijing congee) 7 Panjia Yuan Rd. (near Panjia Yuan antique market), Chaoyang district; (86-10) 8771-80 Hua Jia Yi Yuan (Modern Beijing) 235 Inner Dongzhimen St., DONGCHENG DIST.; (86-10) 6405-1908 Kejia Xlao Zhen (Hakka) 103 Manheyan Dajie, turn into Nanwaizi Hutong (across from Days Inn), Dongcheng Dist.; (86-10) 6522-8993, Fei Teng Yu Xlang (Sichuan) 1 Gong Ti Bei Lu (Corner of Chun Xiu Rd.), Chaoyang district; (86-10) 6417-4988. (7/16/08)

184. UPS in China
“United Parcel Service Inc, which aims to open an international express-delivery hub in Shanghai in November, is doubling its bet on mainland China with plans to move its hub for regional shipments to the booming southern Chinese city of Shenzen.”  (See “UPS Enlarges Footprint in China, Wall Street Journal, May 22, 2008, p. B4). It will have 5 times the capacity of its former hub in the Phillipines.  Fed Ex is going to open in Guangzhou and DHL plans a facility in Shanghai.  As we have noted, China has been focused in developing its internal market, with heavy emphasis on logistics, transportation, and communication. These expansions go hand-in-hand with this effort to knit together the Chinese heartland. (7/2/08)

183. China’s Try for an Ultra-Power Grid
Reviving a Soviet era technology, China is trying to patch up its power grid.  “China’s power distributors have been” pushing “an ultrahigh-voltage power grid that would transfer large volumes of electricity from remote inland regions rich in coal and hydropower to economic powerhouses along the coast” (Wall Street Journal, November 15, 2007, p. A20).  State Grid Corporation is shepherding a pilot project “than will link parts of Shanxi province with Jingmen city in the central province of Hubei via a 1,000- kilowatt alternating- current transmission line.”  Generating and transmission capacity investment “could reach $2.9 trillion, equivalent to a quarter of the world’s total….”  “Last year China added more than 100 gigawatts of power-generating capacity—equivalent to France’s entire installed capacity.”  (2/27/08)

182. Herbal Drugs–Shanghai Hutchison Pharmaceutical
“Shanghai Hutchison sold 200 million doses last year for $8.7 million, with sales up 17% from 2005.”  “The two companies, Shanghai Hutchison and Hutchinson MediPharma..share the same parent, Hutchison China MetTech, or Chi-Med.”  It is trying to expand traditional herbal drug market, while uncovering brand new drugs from Asian flora.  See Forbes, June 4, 2007, pp. 80-84.  It is owned by Li Ka-shing, Asia’s richest man.  “Sales of Western pharmaceuticals in China grew 91% in five years to $13 billion in 3005 … roughly equal … to the traditional Chinese medicine market.”  Western firms have had a few hit drugs derived from herbs for malaria (Novartis Coartem) and for genital warts (Medigene of Germany).   Samantha “Du and her staff have screened 10,000 traditional Chinese medicines looking for ones that influence cancers and the immune system and have come up with a handful of new prospects.”  The FDA allows botanicals to skip early stage trials if the candidate has a history of safety already in China.  (2/13/08)

181. Charles Bethell Wheat
Can a young man from Shanghai do well and do good in America?  Born in Shanghai on June 18, 1933, Chuck was reared in California and Oklahoma, many of his business acquaintances knowing him as the witty Okie from Ohio.  In fact, he became as American as apple pie, and it’s all too fitting that he spent a good portion of his life in Middletown, Ohio.  Wherever he hung out—Ohio, Virginia, London, even New York City—he sank his feet into the clay and made the place very much his home.  In at least two locations, he even penned local histories.

For he was a journalist and writer.  We remember him as a speechmaker for corporate presidents at substantial global companies.  At one point we visited him at the top of a skyscraper in the Midwest, where he officed with the chairman, president, and vice chairman who were his writing clients.  Not for him the pits of the public relations department at the lower depths.

We experienced his creativity in several ways.  Most fun perhaps was his contribution to the unending novel on this website called Monongahela.  His chapter was called “Escape from San Quentin.” 

But he never forgot his entry into this world in Shanghai, which he recounted for us:

I was born in the British Country Hospital in Shanghai.  When people ask me why I was born in China, I used to reply "to be near my mother."  Actually, I was the first (legitimate) U.S. child born to a member of the  Navy's Yangtse Patrol.  My dad, a J.G. at the time, was Gunnery Officer (executive officer on a gunboat) on the Panay.  This was in 1933, four years before the Japs sank her.  During those years, the Navy had the responsibility of being the police force on the Yangtse under the treaty ending the Boxer Rebellion. War lords, pirates and the like.  I recall several good tales told me about that which I won't bore you with now.
 
I was only 2 years old when my dad was transferred to the Philippines, so I recall nothing personally of China.  Pity.  But when I worked in London, a good friend who was born in the same hospital in Shanghai allowed me to join the annual luncheon in Limehouse of the London Born in Shanghai Club.  Fascinating.  Even a member of the famous Soong family was there.  And when my friend's mother and mine got together one time in that lady's suburban home near London, we all had a blast watching those two formidable old women compare notes on living in China.  They got out street maps and recalled old memories of the Bund, "Bubbling Well Road" and the race course, and watching the Jap bombs fall on Shanghai from the rooftop of the old Metropole Hotel.  And my mother saying of that hostel "those Satin sheets. Ah, those Satin sheets!"  A sweet memory of her for me that never fades.

180. Finally, the China Pot of Gold
Thar’s gold in them thar hills. As the Wall Street Journal puts it, “China Begins to Fulfill Its Potential for Profit,” October 9, 2007, p. A12 ff.  “A 1998 survey by consulting firm A.T. Kearney found more than one-third of multinationals were losing money in China, and an additional 25% were barely breaking even.” “An analysis by San Francisco-based Revere Data of filings by companies trading on U.S. stock exchanges shows that 44 reported that 5% or more of their 2001 revenue came from China. By last year, the number had leapt to 108. The true figure is all but certainly higher, because many companies don't disclose revenue by country.” According to a survey of the U.S.-China Business Council, 83% of the American companies they have surveyed now are getting profits, and usually profits that matter, from China. “China is now, by far, Yum’s most important growth market. In the first half of this year, the China division, which includes small operations in Taiwan and Thailand, accounted for 70% of the company’s profit growth over the same period last year. In the most recent period, Yum would have reported an operating loss if not for the $65 million in operating profit from China.” The WSJ reporter mainly reports on the growth of the Chinese market and the fast growth in revenue of many American corporations. But we do understand from reliable sources that many of the majors really are making significant profits there. It’s still another matter yet as to whether those profits are getting re-patriated. Getting the money back out has always been a problem in the People’s Republic. (1/16/08)

179. China Investment Research Sources
As China’s equity markets burgeon and, frankly, get overheated, the need for serious investment commentary grows stronger.  Some of the sources of information on China’s companies and markets have become tainted, as entrepreneurs involved with the markets have over-reached themselves, even to the point of incurring the wrath of the Chinese government.  Below are a couple of sources that enjoy a good reputation.  We will be adding to this list:

1. Chinavest, a merchant banking firm that is helping major American firms gets positioned in China and is helping Chinese firms invest outside Greater China, publishes a frequent newsletter that details transactions of note in the Chinese financial markets.  Its reports are archived on its website in its Research Library.  Prior to the founding of the merchant bank, Robert Theleen was China’s premier venture capitalist, having started venture activities there several decades ago.
2. Research-Works is headed by Hugh Peyman, a veteran commentator on Asia’s and China’s public companies. Institutional investors throughout the West purchase his research.  Each year, in addition, it publishes a handbook on China’s principal companies, some 200 of them.
3. Latitude Capital Group is focused on private companies and is based in Hong Kong.  We have found its notes on real estate activity helpful, although its sector updates can give investors a quick snapshot of other areas as well. (1/2/08)
   

178. China’s Environment and Pollution
China is about to displace Germany as the world’s third biggest economy.  But it is also getting ready to overtake the U.S. economy in one important respect.  Its pollution and gaseous output is set to equal the world’s largest economy, occasioned in some respects by the fact that China’s infrastructure is a vast sieve that wastes energy and resources while creating a flow of contaminants.  All that said, the Chinese government has begun to turn the heat up on environmental protections in a number of ways.  We will be following here both the depth of the country’s environmental problems and its accelerating efforts to get on top of them.

Readers are urged to peek in several places on the Global Province—Agile Companies, Big Ideas, Two Rivers—where you will discover that China is already up to a great deal that will make an environmental difference.  For instance, in “Windpower,” we learn that the Chinese are only producing 68 wind megawatts today, but 400 megs are in sight, and some visualize 20 gigawatts by 2020.  In “Solar Shi,” we learn as well that one of China’s richer men has made his ascent through solar manufacturing.  Suntech Power Holdings, now listed on the New York Stock Exchange, is now a big photovoltaic equipment producer, with “first world technology and developing world prices.” 

Amidst its flood of greenhouse gases, China is forging ahead with clean-tech, according to the Economist, July 21, 2007, pp. 64-65.  One report puts the economic cost of air and water pollution at around $100 billion a year, or 5.8% of China’s GDP.  “Venture-capital investment in clean tech in China is picking up, increasing by 147% from $170m in 2005 to $410m last year, according to the Cleantech Group....”  Several companies trying to earn credits under the Kyoto Protocal by doing clean up projects in poor countries to offset their emissions in the more developed world are taking on projects in China.  The government has already approved some 524 projects; “China accounted for 61% of the CDM market last year, which was worth nearly $5 billion.”  The Chinese Government has also pushed standards and projects of its own.  The Joint US-China Co-operation on Clean Energy (JUCCCE), headed by Peggy Liu, once of Silicon Valley, and now a venture capitalist in China, is now particularly enthused about cutting energy waste in buildings, which tend to use 2 or 3 times more power than buildings elsewhere in the world.  “Last year the government set a goal of reducing the energy consumption of new buildings by 50%, and in some cases by 65%.”  As elsewhere, green ideas depend on government subsidies.  “A shining exception is solar-powered water heaters, of which China has more than any other country.  Chinese firms sold $2.6 billion of them last year alone.”

177. China’s Advancing, Retreating Internet
China’s Internet is making great strides technically.  On the other hand, the government is maintaining as tight a clamp as ever over it, and it’s uncertain what bloggist or what site will be put out of business next.

“In research labs throughout China, engineers are busy working on another project of that the Chinese government plans to unveil at the Olympics: China’s Next Generation Internet (CNGI), a faster, more secure, more mobile version of the current one.”  See CIO, July 15, 2006, pp. 43-48.  “CNGI is the culmination of this revolutionary plan” to turn China into the world’s innovation capital, says Wu Hequan, vice president of the Chinese Academy of Engineering.  “The technology at the heart of CNGI is an emerging communication standard called Internet protocol version 6 (Ipv6)….  The current standard, Ipv4 … doesn’t have enough unique addresses for every would-be user in the world to connect to the Internet.”  By getting a jump on adapting to ‘6,’ it could seize an innovation lead, developing products around the new standard:  Japan and Korea are trying to be early adopters as well.  “China’s NextGenerationn Internet could further tighten its control over Internet access and traffic while offering a strategic advantage to foreign intelligence.”  If the U.S. remains on ‘4,” it will become impossible to track China traffic back to its source.  “Today CNGI connects 100 universities, 100 research institutes and 100 companies in 20 cities.”  “China, which is expected to surpass the United States as the world’s biggest Internet user later this year, has just 2 percent of the world’s IP addresses, or around 60 million—about as many as Stanford University.”

Ipv6 solves “the address shortage by increasing the number of decimal values in each address from 4 to 16 (or 128 bits), resulting in a near infinite number of combinations….  Ipv6 can also recognize Ipv4 traffic, allowing network operators to phase out the old standard over time.”  

Internet and wireless voice and internet use are spreading copiously in China.  But “the government has also spent freely to keep its liberating side-effects under control.”  See “China and the Internet,” Economist, April 29, 2006, pp. 27-30.  Even with efforts of American firms to placate the government so as to maintain their market presence, local firms are gaining ground, and having a more profound effect on China’s people and economy.  The search engine Baidu apparently now controls some 56% of the search market.  Another important domestic internet company is Jack Ma’s Alibaba. 

Other sources suggest that China’s Internet population grew 18% in 2004 and 2005, and 23% in 2006.  See Deborah Fallows, “China’s Online Population Explosion,” Pew Internet Center, July 2007.  At these rates China could have 210 million users by the beginning of 2009.  China’s Internet population is overwhelmingly urban, and now it is interesting to see if the country can get substantially beyond its 3.1% rural penetration.  Wireless telephones have made major inroads, and it is possible that wireless transmission may expand Internet usage, if farmers and the like can see the upside of using it.  (10/31/07)

Update: Mobile Fun Downloads, Social Life, Games
In “Alternative Reality,” The Economist, February 2, 2008, we become clear that the Chinese Internet is not a knockoff of what goes on in Western countries, but instead an intriguing organism that is developing along far different lines. It just reached 210 million users, up 50% in a year, it is 3 times larger than that of India, its software savvy neighbor, and it is slated to soon surpass America’s numbers. And still, it just covers 16% of the population, so its rocketing growth probably will continue unabated. Despite severe government controls, it is flourishing as a tool of youth—in contrast to the West. “More than 70% of Chinese internet users are under 30, precisely the opposite of America….” Margins at leading internet firms are 28%, a contrast to America’s 15%. Its “most obvious use is to distribute free pirated films, television shows and music.”

Though the Government screens out content that is politically objectionable, it has not stopped piracy of foreign media.  “When it comes to making money online, the biggest market involves the delivery of mobile-internet content to mobile phones.”  “Another big field is online multiplayer games, which have become so popular the government has started to worry about their impact on adults’ productivity and children’s education.”  “The most dynamic area, and the hardest for outsiders to understand, is that of online communities, many of which are run by a company named Tencent.  Its site offers an instant-messaging service and a MySpace-like social networking site….”  Read more about Tencent in “Internet Boom in China is Built on Virtual Fun.”  Also see “Creating Consumer  Value in Digital China,” Morgan Stanley, September 12, 2005, Richard Ji and Mary Meeker.  It appears, however, that Internet user growth in China has exceeded even the optimistic estimates put out by Morgan Stanley in 2007.   (3/12/08)

Update: Welcome, Big Brother
As we have previously indicated, a very high percentage of Internet users in China are quite young.  And their elders are quite concerned about the tone and content of what passes through the Internet portals.  So “Few in China Complain About Internet Control” reports Deborah Fallows of the Pew Internet & American Lifek Project, March 27, 2008.  “According to findings from the fourth and most recent of a series of surveys about internet use in China from 2000 to 2007,1 over 80% of respondents say they think the internet should be managed or controlled, and in 2007, almost 85% say they think the government should be responsible for doing it.”  “Three-quarters of respondents deemed reliable most or all the information on government websites, compared with 46% for pages from established media, 28% for results from search engines, 11% for content on bulletin boards and in advertisements, 4% for information from individuals' web pages, and 3% for postings in chat rooms. In addition, an overwhelming 93% of internet users said they considered much of internet content to be unsuitable for children.”  (6/18/08)

176. Religion in China
The July/August 2007 Atlantic is heavily devoted to various aspects of China and is well worth a read.  The editors have put a stake in the ground and decided to make China their own special province, though most of the world is little aware of this, because it is not relentless enough to attack the subject in every issue.  The fine journalist James Fallows has a signature article here on why we should be content that China has become the world’s cheap manufacturing machine, but it is a little thin, and Fallows is better when he describes an enterprise or a business TV program, as he has done in recent times.  Jeffrey Tayler’s “South of the Clouds” is quite fine, an intelligent look at Kunming, China’s City of Eternal Spring, in Yunnan Province, sorely tempting us to make a sortie in its direction on our next trip over.  Northwest of Kunming is the Qiongzhu Si, the Bamboo Temple, which reminds us that religious activity is never far from the surface in China.

“I stepped up to the rope cordoning off the hall from the courtyard and focused on the walls on either side of the Buddhas.  There, surfing sculpted waves, were the surreal characters for which the temple is known: an imperious duke astride a flying rooster, a masked buffoon atop a lion, devils mounted on dragons, and a multitude of other playful statues, all commissioned from the famous 19th-century Sichuanese sculptor Li Guangxiu and modeled after arhats, or monks who’ve attained nirvana.  It took Li more than seven years to complete the collection, which comprises 500 figures, each depicting an aspect of human experience.”

That brings us to the most important article in the issue, Adam Miner’s “Keeping Faith,” billed as Bishop “Jin Luxian’s 50-year struggle to keep Catholicism alive in China, balance Rome and Beijing, and build a Church for “100 million Catholics.”  Luxian, at great sacrifice to himself, has kept the original Catholic Church alive in China, even as the State constructed its own version of Catholicism with priests who toed the official line.  At times this task has put him at odds with Rome as well.  “Defying canon law, as Jin has done on several occasions, is no small matter for a Catholic bishop.  But Rome has tolerated his disobedience, largely because of what he’s accomplished in Shanghai.  From his modern office, Jin looks out over a diocese that includes 141 registered churches, 74 priests (most under the age of 40), 86 nuns, 83 seminarians, and 150,000 laypeople.”  “In 1980, China officially had 3 million Catholics (likely an underestimate due to poor census data), the same number it had had in 1949.  Today, the best estimates place the Catholic population between 12 million and 15 million.  No single explanation accounts for this.”  Jin’s survival, even amidst incarceration, and his subsequent rebound as Bishop of Shanghai indicates how resilient religion has been, even with the various moods of the Communist Party. 

Today the Party and the State have become rather permissive towards several religions, except for cults that it thinks may create social instability.  Particularly with the stresses between the cities and the rural poor, it has come to regard religion as a useful opiate to keep the peace.  See, too, “Christianity in China.”

175. Finding the Great Wall
“There isn’t a scholar at any university in the world who specializes in the Great Wall.  The fortifications have been poorly preserved, and in the past many sections of low-lying wall were plundered for building materials, especially during the Cultural Revolution.”  See “Walking the Great Wall,” New Yorker, May 21, 2007, pp. 56-65.  Since 2002, David Spindler “has worked as an independent scholar of the Great Wall, and although he has no academic affiliation or outside funding, he has become one of its leading researchers.”  This should remind us, incidentally, that the most interesting, original, and provocative research always is done without much official sponsorship, since independent people do not stroke institutions very well.  Spindler had studied at Peking University, worked for CNN’s Beijing bureau, tried Harvard Law, worked for McKinsey & Company, again in Beijing, and then simply quit to do the great Wall.

“In 2006, Spindler began giving more lectures—his main client was Abercrombie & Ken, a high-end travel service—and his income rose to twenty-nine thousand dollars.”

Dong Yaohui, a former utility line worker, has become a Wall compulsive as well.  “He helped found the Great Wall Society of China, which publishes two journals and advocates preservation of the fortifications.”  A British geologist, William Lindsay, had done 4 wall related books and founded the International Friends of the Great Wall.  Wall enthusiasts maintain a website at www.thegreatwall.com.cn.

The author of this article queries enthusiasts about the importance of the wall.  Many consider it to be a symbol of national pride, a way of waving the flag.  But the most committed wall enthusiasts think of it more as a historical symbol of how China defended itself against attacks from invaders.  It is most interesting that a raft of foreigners have proven to be its most diligent explorers.  The Great Wall is so visible, such an important symbol, but so forgotten.  (10/3/07)

Update:  China Heritage Quarterly and Great Wall

China is so busy re-inventing itself that it is hard to remember that it so wonderfully old and that it harbors a durable culture that, out of sight, survives, sometimes because it is so neglected, sometimes because an oddsome bunch of foreign enthusiasts keep it alive. One of the ways to stay in touch with its culture is to pay heed to Australia’s China Heritage Quarterly.   As we have suggested before, for instance, Chinese scholarship on the Great Wall has been patchy and many from abroad know it better than the locals.  So it is worth a read of  “The Great Walls of China”  As well, see “The Great Wall of China: Tangible, Intangible, and Destructible.” “Although walls rarely form a part of traditional Chinese ritual concerns, they play a key role in Chinese discourses of power and provide an aesthetic for defining urban spaces and housing that resonates through Chinese architectural history.” “Great Wall studies (Changchengxue) is a relatively new branch of Chinese scholarship that examines the history of China's various walls, and it is a field that attracts professional archaeologists and amateur enthusiasts. The China Great Wall Society is the leading organisation championing the restoration of the Great Wall…”  To some extent, the CHQ is rather too caught up in its missionary zeal to save artifacts and edifices, a passion that sometimes gets in the way of appreciating the heritage itself. 

174. Spurt of Private Colleges in India 
“Amity is part of a wave of private universities in India—the most high-profile backed by the nation’s business moguls—that are sprouting up to meet the demand for skilled workers.”  Amity started as a small management school 16 years ago, financed by Ashok Chauham, head of AKC Group of Companies that has flourished in plastics and herbal medical products.  Now it has 45,000 students on two campuses near New Delhi with plans to expand throughout India.  There are quality questions about some of the new colleges.  On the other hand, Shiv Nadar’s Sri Sivasubramaniya Nadar College of Engineering has earned high marks for its educational standards.  (7/11/07)

173. India Short on Tech Workers 
Though India “produces two and a half million college graduates and four hundred thousand engineers,” it is short on postgraduates and many undergraduates come out of community colleges with rather incomplete educations.  “India spends roughly three and half per cent of its G.D.P. on education, significantly below the percentage spent by the U.S…” (New Yorker, April 16, 2007, p. 54).  Despite its investment incidentally, the U.S. is also running into shortages of knowledge workers with critical skills.  (7/4/07)

172. China’s Reality Business School
“There is also a best Chinese reality show….  We first heard of  Ying Zai Zhongguo, or Win in China from … Baifang Schell, who was involved in the production (“Win in China,” Atlantic, April 2007, pp. 72-78).  The show offers big money to contestants, the originator Wang Lifen having raised the money from big investors in China.  Prominent business figures served as judges and played other parts in the show’s promotion.  CCTV has now renewed the show for 2 more seasons.  (6/13/07)

171. China’s Promontory Point
In 1869 America spanned the continent, tracks from East and West uniting at Promontory Point.  About a century and a half later burgeoning China is getting the task done, putting railroads across its interior so that all its commerce is no longer concentrated along the coasts.  See Wall Street Journal, March 20, 2007, p. A8.  “The plan calls for the government to nearly quadruple its investment in the nation’s railroads to almost $200 billion by 2010.  The aim is to create 10,500 miles of new track, much of it in underserved central and western China.  By the end of the decade, if China meets its goal, the rail system will have grown to more than 56,000 miles.”  “In many countries, railroads carry as much as 20% of all containerized freight; China’s historically underfunded tracks transport less than 2% of its shipping containers.”  Since trucks are cost effective for a distance of about 300 miles, this isolates the interior and makes it hard for it to participate in the export trade.  James Wang, a transportation geographer at the University of Hong Kong, calculates that no less than 94% of China’s international trade is generated within 150 miles of the coast.”  “A centerpiece of the plan is the creation of 18 logistics centers to expedite the distribution of containers throughout China.”

170. The Growth of the English-Language Press
Well, newspapers may be dying in the West, but not in China.  And emphatically not in India.  India’s population, incidentally, includes the second-largest body of English- speaking citizens in the world.  See “Let 1,000 Titles Bloom,” Economist, February 15, 2007:

India has some 300 big newspapers, with a combined circulation of 157m last year--a rise of 12.9% on 2005.  Only a few dozen of these rags, with a circulation of 35m, are in English, but they get about half of the advertising cash.  The economy has grown by 8% a year over the past four years and growth has been particularly strong among traditional advertisers, such as carmakers, property developers and airlines.  …  The language of inspiration is English and the medium of aspiration is the newspaper, so an English newspaper is almost a ladder on which this class seeks to rise.  …  In recent years, led by the Times of India, the biggest English dailies in each region have gone national, breaking a gentleman’s agreement to avoid each other’s patches.  For example, the Deccan Chronicle, traditionally of Hyderabad, has won a circulation of nearly 200,000 in Chennai, traditional home of the Hindu, in just 18 months.  (5/16/07)

169. China Getting Green 
Long a laggard, China is turning green and trying on health.  Its environmental and healthcare problems are huge, but interestingly its government has become mildly activist on both questions.  “China Tilts Green: Global Warming Softens Stance,” WSJ, February 13, 2007, p.4 talks about this change of heart.  “China, which could soon surpass the U.S. as the top generator of carbon-dioxide emissions, is rethinking its policies regarding greenhouse gases.”  It is embracing carbon credits, a Kyoto Protocol idea, where companies in developed countries are allowed higher emissions by finding gas reduction projects in developing countries.  It is launching a program to use energy more efficiently. 

168. Broad Air Conditioning
James Fallows has once again given us insight into the shape of the future.  His “Mr. Zhang Builds his Dream Town,” Atlantic, March 2007, pp. 84-92 provides tremendous insight into the ways of China’s growing band of capitalists and into the many ways they are reshaping the world beyond China’s borders.  Zhang Zue and his company are located in Changsha, well inland from the Coast.  In China, it is now correct to say, “Go West, young man, since the greatest expansion is now taking place in the heartland.  Not only is Zhang’s home a virtual palace, but it is housed in substantial enclave—a factory town estate totally controlled by him.  “In China, Changsha,” with a population equal to New York City’s, “is famous as the capital of Hunan province and one of the places where the young Mao Zedong lived and worked.”  Broad Town has a fancy club, a 130-foot-high gold-covered replica of an Egyptian pyramid, and 43 bronze statues of leaders from different cultures and different times.  The factory and its workers are run with military precision.

Zhang, one of the few leaders in China allowed to fly his own craft about the country, interviews Fallows about aircraft, anxious to buy a more fuel-efficient, environmentally friendly plane.  He wants it now, though Fallows would prefer to have him wait 3 years until a new generation of executive jets are in circulation.  Zhang has a do-it-now impatience that puts executives in the West to shame.  Interestingly top Chinese are becoming activists about energy, the health, and the environment, pushing these issues with a fervor not yet found in the United States.

A control room in the factory manages real-time control of air conditioning installations all over the world—in hotels, at malls, in airports.  It is probably not widely understood that a Chinese company is in command of building systems all over the globe.  “Broad Air Conditioning has no debt, and last year had annual sales of about $300 million.  The company’s English name is derived from Yuan Da, which means expansive or spacious.” “Broad’s specialty is a form of air-conditioning that uses less energy than conventional means.”  The company has been the subject of a Harvard Business School case called “Broad Air Conditioning and Environmental Protection.”  Their coolers are non-electric, using natural gas to boil a special liquid, which, upon condensing cools the surrounding air.

“Employees are like an army in mufti.  They eat, work, and sleep in the base—I mean, the factory grounds.”  “Solar-energy collectors are everywhere in Broad Town.  Part of boot-camp indoctrination is training employees about environmental issues.” 

167. China’s Irrational Exuberance
The U.S. is not alone in having millions who are playing the stock market as if it were a crap game.  China’s markets are equally frothy.  See “Chinese United by Common Goal: A Hot Stock Tip,” New York Times, January 30, 2007, pp. A1 and A10.  “Less than two years after share prices collapsed, China’s stock markets are almost going mad … with the leading Shanghai Composite Index approaching 3000….”  “One mutual fund raised $5 billion in a single day.”

166. China’s Optics Valley
See Global Sources, 5 October 2006.  “Wuhan, capital of Hubei province, is known as China’s Optical Valley.  It is the first and largest base for the optical electronics and photoelectronics industries in China.”  “Its fiber-optic cable sector is currently third in the world in terms of manufacturing capability.”  “Wuhan currently has 48 colleges and universities, 56 institutes, 11 national key laboratories and 10 national project technology centers.  The Wuhan Research Institute of Post and Telecommunications (WRI) and Huazhong University of Science & Technology (HUST) are considered leaders in optics technologies.”  “Wuhan has about 600 optical electronics product makers, which in 2004 hit $40.17 billion in output.  About 30 of these companies are optical communication or fiber-optic makers.  Twenty of the top 500 companies worldwide have invested and established factories in Wuhan, and these include NEC, IBM, Fujikura and Philips.”  “FiberHome’s products are exported to 37 countries and regions.  The company has set up overseas offices in Saudi Arabia, Russia, Nigeria, Malaysia and South Africa. In 2005, FiberHome achieved an estimated total sales of about $376 million, in which optical communication systems accounted for about $10.79 million.  Its export sales is estimated to have reached $25 million in 2005.”  (2/7/07)

165. China Business: The Almost Agile WSJ
The Wall Street Journal is now offering a China Briefing, which is a grand idea, but the execution is lacking on all counts.  It cumbersome title is dumb: “The Wall Street Journal Briefing: China Business.”  Its content is undigested: it looks like a hackneyed rewrite of wire service pieces, so it’s more of a chronicle than a briefing with insight.  And the promotion for it is dismal, so its success will depend on an avid readership demand, rather than on the merchandising finesse of Dow Jones.  In sum, it has all the problems that usually occur with WSJ publications—outside of the flagship newspaper.  For somewhat similar reasons, the WSJ has botched its European and Asian editions and has utterly snatched defeat from the jaws of victory with the Far Eastern Economic Review.  All this saddens us, because the WSJ should be America’s premier publication.  (12/27/06)

164. Solar Shi
Suddenly Shi Zhengrong of Wuxi has now become one of China’s richest people.  See “For Chinese Tycoon, Solar Power Fuels Overnight Wealth,” Wall Street Journal, October 12, 2006, pp.A1 and 10.  Though unobserved, considerable wealth is now being amassed in the advanced developing countries by adventurous entrepreneurs who have placed bets on alternate energy.  In this regard read about Tulsi Tanti’s Suzlon Energy in India where a textile captain became a windpower general.  (For more on solar, see “Solar Power Revisited.”  Suntech Power Holdings, now listed on the New York Stock Exchange, is now a big photovoltaic equipment producer, with “first world technology and developing world prices.”  Shi is also a prime example of the power of China’s policy of sending students abroad to learn—in Zhengrong’s case, to Australia—and then reaping benefits much later when the savvy student returns to China with entrepreneurial ideas.  Ninety percent of the equipment produced in China is estimated to be sent abroad, particularly to countries like Germany and Japan which offer incentives to solar energy producers.  His company, registered in 2001, has achieved very fast growth. Through necessity, he invented a cheaper manufacturing process that was ready for primetime in 2003 when solar sales took off, soaring to $266 million last year.  (12/13/06)

163. Yum Yum in China
Yum Brands, owner of KFC and Pizza Hut, is making quite a mark in China, not only by implanting many outlets there, but by starting a whole new chain in China to serve Chinese food.  See “One U.S. Chain’s Unlikely Goal: Pitching Chinese Food in China,” Wall Street Journal, October 20, 2006, pp. A1 and A8.  East Dawning is the name of its Chinese food chain, and it is proceeding slowly and deliberating, already scrapping one version and opening stores at a slow rate.  Among other things, it has been hard to come up with a formula for all of China, since the tastes and cooking are so different in different regions.  Yum got 16% of its profit in China last year, operating 2000 stores in 400 Chinese cities, well ahead of its international rival McDonald’s. 

162. IBM Purchasing in Shenzen
IBM is moving the headquarters for its global procurement arm from Somers, New York to Shenzen (Wall Street Journal, October 12, 2006, p. B3).  IBM has been sourcing for hardware in Asia for 50 years; now it plans to buy more there for both the software and services part of its business.  It spends “30% of its $40 billion procurement budget in the Asian-Pacific region, of which about half is spent in China.”  “IBM employs a quarter of its 7,500 procurement personnel in Asia, with 700 in China.”  “China is IBM’s eighth-largest market and the company’s sales there grew 8% in 2005.”  It is also expanding in India, with a software development center in Calcutta that will be second in employment in India only to Bangalore.  “IBM expanded its work force in India to 43,000 in June from 38,500 in December 2005.  (11/22/06)

161. China’s Thirst
China’s growth is outrunning its infrastructure—in so many ways.  Most recently we read that “China’s Urban Growth Overwhelms Water Supply,” Wall Street Journal, August 23, 2006.  There’s both water pollution and a shortage of potable water. “By the end of last year, about 52% of the wastewater from cities was being treated, up from 34%in 2000.”  “The government says some 300 million people don’t have access to clean drinking water.”  “Leakage remains a problem.  About 20% of a typical Chinese city’s water supply is lost because aging pipes leak badly—more than double the ratio of losses for a city in the West….”  (10/18/06)

Update: More Water Problems
Getting new water is not an easy matter.  It is very complex to change the course of rivers.  And regulation of water resources requires ingenuity at the point of consumption that thus far has been lacking. 

For instance, “an engineering project as ambitious and controversial as the Three Gorges Dam is attempting to divert billions of tons of water from China’s floodprone south to the Yellow River and the cities that rely on it” (Wall Street Journal, October 20, 2006, p. A8).  “The lack of water in China’s north is so severe that planners have quickened construction of a part of the canal network to make sure there is enough water to supply the Beijing Olympics in 2008.”  China has ¼ of the per capita water resources of the world’s average; in Beijing, 1/30.  “More than 300 million people … lack access to clean drinking water….”  More than half of the waterways are badly polluted, and ¼ of them cannot be used for anything.  This diversion would take water from the Yangtze to the North.  “The entire project could take decades … at an estimated cost of $60 billion….” The eastern part of the project would involve an upgrade of the Grand Canal, the longest in the world at 1,100 miles, which dates back 1,400 years. 

160. The Bloom Is off the Factory
China is getting more expensive, and, a little at a time, its manufacturing position is eroding, especially in the coastal provinces.  See “China Loses Some Allure as World Factory,” Wall Street Journal, August 7, 2006, p. A4.  We are seeing as well a decline in foreign direct investment in China, both in absolute terms and as a percentage of GDP.  “At this point, much of the manufacturing that can be profitably shifted to China has already moved, while the lowest-end production is starting to migrate away to less expensive locations.”  Vietnam is one such location.  (9/27/06)

159. China’s Soft Underbelly
Will The Boat Sink the Water is an investigation of Chinese peasant life by two Chinese journalists.  See “Betrayed by the Revolution,” Wall Street Journal, July 6, 2006, p. D8.  Published in 2003, it sold 250,000 copies before the authorities yanked it off of China’s shelves.  “The authors describe a world of violence and corruption, a world in which Chinese peasants—the supposed beneficiaries of the communist revolution—suffer at the hands of vicious local officials.”  The book “suggests that a threat to China’s Communist Party now exists in the form of peasant uprisings.”  It is widely known, moreover, that the biggest fear of the Chinese leadership is that the Chinese peasantry, left behind so far by the country’s coast economic development, will rise up against the government.  (9/6/06)

158. Fine Wines in China
“In October 2000, however, Nicolas Billot-Grima decided to build a winery, far from his native Bordeaux, within sight of the Great Wall of China, 43 miles northwest of Beijing” (New York Times, July 4, 2006, p. C7).  “Wine consumption in China, including Hong Kong, is forecast to grow 78 percent in the 10 years to 2009, according to a study by The International Wine and Spirit Record in London.”  Chinese wines, though growing in volume, are a bit substandard in quality.  A number of foreign winemakers are setting up small projects in China, and a few Chinese vintners are trying to crawl into the quality game.  All this reminds us that once a year we had a celebration in New York’s Chinatown, and our host also brought along a couple of bottles of cheap Chinese Chablis:  we would not know what to do with Chinese wine that pretended to be upscale ripple.  (8/30/06)

157. Wumart vs. Wal-Mart
Shares of Beijing based Wumart Stores have been on the rise.  “In February, Wumart agreed to pay US $46 million for a majority stake in Merrymart, the fourth-largest retailer by size in the Beijing area.  In April, Wumar paid US$22 million for a 28% stake in Shanghai-listed supermarket retailer Xinhua Co., which has a strong position in the northern Ningxia province.”  Major chains only have 0.5% of retail sales in the China market, obviously the world’s largest by population.  “The prospect to all this competition led local retailers to lobby for a set of proposed regulations that may curb the expansion plans of foreign retailers and benefit local players” (Wall Street Journal, July 20, 2006, p. C14).  “Wumart’s market share in the great Beijing area will be slightly more than 5%.”  Wumart is giving the foreign discount chains a run for the money.  (8/23/06)

156. The Mandarin Offensive
“Ma is the deputy director general of the National Office for Teaching Chinese as a Foreign Language, better known as Hanban, and the map chronicles his success exporting Mandarin around the world” (Wired, April 2006, pp. 84-93).  “The map shows that the hottest markets for Mandarin are Thailand and South Korea, where all elementary and middle schools will offer Chinese by 2007.”  Mandarin is already the most spoken language in the world and is second on the Internet.  “The government is backing” the Mandarin initiative “to the tune of nearly $25 million a year.”  Gasper Caperton, former governor of West Virginia and now president of the College Board, is a major promoter of Chinese learning in the United States.  (8/23/06)

155. Foreign Capital Going to Secondary Cities
Foreign real estate investment in China was up 37% in 2006 from the second quarter in 2005.  While there was still heavy investment in Beijing and Shanghai, over 2/3 of the deals were done in secondary cities, especially Chengdu, Guangzhou, Nanjing, Tianjin, Quindao, and Guiyang. See Latitude China Real Estate Quarterly, Second Quarter 2006.  (8/16/06)

154. Auto Passion
China is fast knitting its coast and the rest of the country together, creating one giant, integrated domestic market.  Ample evidence of this is provided by the national highway network—which is growing by leaps and bounds—the huge growth in automobiles, and the zeal with which the Chinese who can afford it are taking to their cars.  “Capitalist Roaders,” (New York Times, July 2, 2006, pp. 30-37, 50, 54) lays out just this story: Ted Conover, a Western journalist who writes about roads and prisons and all manner of thing, takes a journey to Hubei Province, with a stopover at the Great Gorges Dam, as part of an auto club, clubs increasingly popular among the affluent.  “Total miles of highway in the country: at least 23,000, more than double what existed in 2001, and second now only to the United States.  Number of passenger cars on the road: about 6 million in 2000 and about 20 million today.”  While most of the cars in the writer’s expedition were foreign-made, “more than 40 local brands are currently manufactured in China.”  Gordon Wu’s “Guangzhou-Shenzhen Superhighway was the beginning of an infrastructure binge that seems to be only picking up steam: the government recently announced a target of 53,000 freeway miles by 2035.  (The U.S. Interstate Highway System, 50 years old last week, presently comprises 46,000 miles of roads.)”  The Chinese driver’s “style of driving helped me understand better why China, with 2.6 percent of the world’s vehicles, had 21 percent of its road fatalities in 2002….”  “According to The Wall Street Journal, Bejiing’s sulfur-dioxide levels in 2004 were more than double New York’s, and airborne-particulate levels more than six times as high.”  “By 2030, according to the International Energy Agency, China may be importing as much oil as we do.”  (8/9/06)

153. Safe Drinking Water
China’s government apparently has made safe drinking water its top environmental priority (Wall Street Journal, June 6, 2006, p. A10).  It is struggling to deal with pollution in its major rivers as well as recurring drought in the north.  “More than half of the surface water in China’s seven major rivers is unfit for human consumption….”  We ourselves make a point of staying at hotels with good filtering systems when we are in China.  (7/19/06)

152. Drive-Through China
McDonald’s is now cementing a deal with China’s largest gas retailer, state-owned Sinopec Group, to build drive-throughs at its gas stations.  McDonald’s calls this De Lai Su, which means approximately, “Come and Get It Fast.”  This goes against the grain in China, which has not favored take-out food.  McDonald’s, Yum Brands, and others are betting that exploding car ownership will lead to burst of take-out consumption.  See the Wall Street Journal, June 20, 2006, pp. B1 and B9.  (7/12/06)

151. Sake It to Me
Trends in Japan, 23 May 2006 shows Japanese sake production to up 8% in 2005, with the dollar value up 18% to $48 billion, a record for the 5th year in a row.  All the growth is from exports, which are up 50% over the past five years.  “The United States is the top importer of Japanese sake, accounting for 31% of the exports.”  “After the United State, the biggest import markets for Japanese sake are Taiwan and Hong Kong.  There is also growing interest in China, particularly in major cities.”  (6/20/06)

150. Ikea in China
“By increasingly stocking Ikea’s Chinese shops with China-made products, Mr. Duffy pushed prices on some items as low as 70 per cent below prices in Ikea outlets outside China.”  “The gamble seems to have worked.  Next month, Ikea will up the ante in its low-price strategy by opening a store in Beijing that will be its largest store in the world outside of its flagship store in Stockholm” (“Ikea Hits Home in China,” Wall Street Journal, March 3, 2006, pp. B1 and B4).  “Typically, Western brands in China price products such as makeup and running shoes 20% to 30% higher than in their other markets.”  Now, of course, Britain’s B & Q will double its units, and  Home Depot is thinking about entering the market, promising more intense competition.  (6/14/06)

149. Avid Adders
“Spending on advertising grew 18% last year from 2004 … but it was off from 22% the  year before and a skyscraping 39% jump in 2003…” (Wall Street Journal, February 17, 2006, p. B3).  The U.S. rose 3% to $150 billion.  One hitch was Chinese government roadblocks for giants such as Disney, Viacom, and News Corp., all of which are trying to establish a larger presence in China.  “CTR reported about $30 billion in advertising in China last year, tying the nation with the United Kingdom and Germany,” which were in third place behind the U.S. and Japan.  “Foreign companies represent about 30%” of ad revenues in China, with P & G leading the way, a change from 2003 when local Chinese brand spending overshadowed the foreigners.  As competition heightens, advertisers, as in the West, are moving beyond traditional print and TV into sundry alternate media and direct marketing.  Last year newspaper advertising dropped 1%, but radio, a good buy, was a gainer.  The WSJ cautions that the figures should be discounted a bit, since they are based on rate cards, rather than actual billings.  (5/17/06)

148. Fractured Anglais
When last in Shanghai and wandering about the city, we were pleasantly accosted by some delightful elderly Chinese who wandered away from their exercises in the park in order to chat with us.  The conversation was about as expected: “Where have you been here and what have you enjoyed?  Where do you come from?”  Only later did we figure out that these senior citizens were avid to try out their English on us, worried that their Chenglish might die from lack of use.  There is a passion for English in the People’s Republic, and it is conceivable that it may become the largest English speaking country on earth. 

147. Getting in Hot Water
In “Heat for the Tubs of China,” Wall Street Journal, March 31, 2006, pp. A11-A12, James T. Areddy remarks on how “cheap solar-powered devices” are bringing “hot water to millions” of Chinese.  “China has quickly emerged as the world leader in using solar power for a more mundane task—providing hot water for showers and washing dishes in dwellings that often have no other source of heat the year round.”  “Already, China claims an estimated 30 million solar households, or nearly 60% of the solar capacity installed in the world, according to Worldwatch Institute….”  The Chinese are now to make a bid to enter the U.S. market, hoping to heat swimming pools, showers, and dishwashers.  Apricus Solar Co. in China claims to have shipped 4 times as much equipment to the U.S. in 2005 as 2004, and is apparently on track to triple this again in 1006: one importer is Earth Sun Energy Systems.  It is noted that China is making considerable progress on both sun-to-heat systems, and sun-to-electricity equipment.  Despite China’s vast energy usage and its horrendous environmental record, it is clearly making progress on both solar and wind energy, and in some ways it is leading other major nations in this regard.  (5/3/06)

146. Backwater Tourism
“China is beset with rural poverty….  In response, the government is pouring $10 billion into the tourism infrastructure of dozens of scenic but impoverished areas” (Wall Street Journal, April 22-23, 2006, pp. P1-P9).  The article particularly cites the somewhat isolated province of Guizhou, where only 270,000 foreigners visited last year.  Other remote new tourist locations include Jiuzhaigou national park and Lhasa, the capital of Tibet.  This tourism thrust on the part of the government fits its general objective of fostering the growth of service jobs in its domestic economy.  The opening up of remote areas is creating new opportunities for sundry tourism related industries.  The French chain Accor, with 30 hotels in China, plans to open 30 more; Sheraton, Intercontinental, and Super 8 all have growth plans as well.  (5/3/06)

145. The Decline of the State
China, the world’s most populous ‘socialist’ economy, becomes relentlessly more capitalist:  it “aims to cut the number of enterprises owned by the central government by about half…” (Wall Street Journal, April 13, 2006, p.A8).  The reductions will be achieved mostly through mergers, cutting the total SOEs down to 80-100, with less successful groups merged into more successful ones.  “But a recent backlash against pitfalls of market-oriented policies, such as a growing wealth gap and environmental degradation” has many thinking about how to successfully privatize within the context of various societal initiatives.  The further thought is to take several of these enterprises public eventually, particularly those in non-strategic sectors.  Since 1999, the number of state-owned enterprises has roughly been cut in half: as well, the number of unprofitable ones has also been cut by 50%.  (5/3/06)

144. Looking at Beijing
Squidoo is the witty name of an online newsletter from a quirky little marketing firm in Connecticut called David Manners.  It’s got a guide to Beijing and a piece on the 2008 Olympic Games that merit your attention.  These introductions are far from definitive, but are a help.  The 2008 Games will be a transforming experience for China—and certainly for Beijing.  All of us will be giving a bit more attention to China’s political capital, a bit less to its economic capital—Shanghai.  The companies we advise are maintaining outposts in both cities.  (4/12/06)

143. Arriviste China 
The worry of the very astute Chinese political leaders is the ever widening, yawning gap between the haves and the have-nots.  There’s more and more talk about billionaires and millionaires.  And we hear about more and more serious revolts in agrarian China where the peasants can’t make ends meet, and are plundered to boot by local authorities.  The explosion in golf is probably as good an indicator as any that the parvenu urban classes have come into their own, not only at the renowned Mission Hills complex but all about Shanghai and Beijing.  Golf is a metaphor for the new China, the most capitalist socialist country on earth. 

This is all very well laid out for us in “How Do You Say Shank in Mandarin?” in Play, the new sports magazine of the New York Times, February 2006, pp. 102-107, 114.  “The first modern course, an Arnold Palmer design, opened in 1984.  Another dozen or so were added in the decade following.  But in the last 10 years the total has soared to 230, making China second in Asia in terms of golf course acreage (behind Japan), and though there is supposed to be a moratoriusm on constructing courses, new ones seem to spring up every month.”  

Sheshan Golf Club, on the outskirts of Shanghai,  is “the newest and most exclusive of the Shanghai clubs.”  “Thanks in part to a connection with IMG, the giant sports-management agency, Sheshan was selected as the site for last November’s HSBC Champions tournament, whose $5 million in prize money, the richest purse in Asia, was sufficient to attract even the likes of Tiger Woods….” 

142. -new- How Nations Design 
“One of the keenest observers of this renaissance has been Lee Kun Pyo, director of the Human-Centered Interaction Design Laboratory at the Korea Advanced Institute of Science & Technology.  BusinessWeek Asia Editor David Rocks and Seoul Bureau Chief Moon Ihlwan recently sat down with Lee in a Seoul Chinese restaurant to share plates of roasted eggplant, grilled shrimp, and fried tofu while discussing the changes sweeping Korean design” (“The Flavor of Korean Design,” Business Week, January 24, 2006). 

But Koreans traditionally don’t articulate what they’re doing beforehand.  They’re very contextual.  Of course they do customer research and product planning and user-centered design and so on.  But they quickly arrive at solutions, then look at the solution to find any further problems.  Some might say that’s unsystematic, but it’s really very dynamic.  And it works well for products with a short lifecycle, like mobile phones or MP3 players. 

It’s not only design—there’s a pattern of differences among the cultures.  In food, the Japanese keep things very simple, Korean food is very hot, Chinese is very greasy.  In colors, Japan is very monochrome.  Korea is a little bit red.  And China is red and gold.

In Japanese traditional music there’s almost no sound.  Korea’s is a little bit noisier, and Chinese opera is very loud.  The same goes for the communication mode.  In Japan, when people finish speaking there’s a little pause, then the other person replies.  In Korea, people are a little faster, and in China they all overlap.  All those things are visible in aesthetics.  Japanese products don’t violate the horizontal and vertical, but Korean design is a little bit more dynamic.  And in China, it’s very busy. 

Korea has 230 design schools—more than America.  But 80% of those schools still require a drawing examination for admission.  Of course there are some design problems that require drawing.  But interface design solutions can’t be drawn. It doesn't make any sense. 

And this explains to us why Japanese design leads to too much functionality in a product and a dashboard (i.e., switches) that is much too complicated to operate, designed for a nation of near-sighted people.  On a more serious note, this whole discussion probably leads us to think rather carefully about where to have a product designed.  

141. Auto-China in the Fast Lane
As we said in “Autos: The Thrill Is Gone,” the world auto industry is undergoing massive consolidation, but in Asia, as happens in this world of contradictions, it is forging ahead in China, Korea, and now even India.  Keith Bradsher of The New York Times (February 17, 2006, pp. Al and C5) writes tellingly of China’s vaulting ambitions:

In the latest sign of this country’s manufacturing ambitions, a major Chinese company (i.e, Lifan), hand-in-hand with the Communist Party, is bidding to buy from DaimlerChrysler and BMW a car engine plant in Brazil….  The failure of China to develop its own version of sophisticated, reliable engines has been the biggest technological obstacle facing Chinese automakers….

Now the enormously wealthy and prominent president and principal owner of Lifan, Mr. Yin (i.e., Yin Mingshan) has his sights on exporting to Europe in 1008 and the American market in 2009….  The Tritec engine is one of the most technologically sophisticated and fuel-efficient care engines in the world….  Mr. Yin said he wanted to rebuild the factory on vacant land next door to his car assembly plant here. 

Update: Technology Transfer
Keith Bradsher continues his excellent coverage of the Chinese auto industry.  Reporting from Chongquing, he says, “Thanks to Detroit, China is Poised to Lead,” March 12, 2006, pp. BU1and 9.  U.S. and European automakers are desperate to establish and hold major positions in the Chinese market, and, for this entry, the Chinese are demanding a stiff, some would say an unconscionable, price.  GM is making a nickel in China, while losing its shirt at home: it’s no wonder that it’s committing long-term strategic suicide there.  Company after company is exporting its technology and techniques to China where it has to be shared with Chinese partners who will be exporting to the world before long.  Chinese carmakers have finally captured 28.7 percent of their home market, now ahead of everybody else, even the Japanese.  (4/26/06)

140. Shanghai Tang Comes on Strong
“But now the new team, led by le Masne de Chermont and Ooi, believes that Shanghai Tang’s moment on the world runway has arrived.  If, as global market watchers from Wall Street to Tokyo have claimed, this is the China Century, then Shanghai Tang may just turn out to be that century's banner—China’s first global, upscale brand.”  This from Linda Tischler in Fast Company.   Ms. Tischler, incidentally, is quite focused on the nuances of global branding: 

While the global luxury market is already big—$168 billion a year, according to Bain & Co.—and growing at a rate of 7% per year, ‘big’ doesn’t begin to describe the potential market for glitzy goods in China itself.  A quarter of a century ago, there were no millionaires in China; by the end of 2004, there were more than 236,000, Bain says.  And Patrizio Bertelli, the CEO of another fashion house that’s hungrily eying the market—Prada Group—figures that China could overtake the United States as a market for luxury goods by 2020. 

Until now, Shanghai Tang has been proceeding cautiously, focusing first on satisfying the growing Chinese demand for prestigious labels at home, with five stores in Hong Kong and four on the Mainland (plus 10 outposts in places such as Paris, London, and Bangkok).  But now it's embarking on an ambitious expansion plan that will see it launching five stores a year in the world's toniest markets. 

The brand’s founder, British-educated David Tang, is from Hong Kong, that most Western of Chinese cities. Ooi is American; Camilla Hammar, the marketing director, is Swedish. Le Masne de Chermont, who is French, honed his luxury branding skills at Piaget before being deployed by Richemont, whose portfolio also includes Mont Blanc, Chloe, Dunhill, and Cartier, to fix its ailing Shanghai Tang brand. 

David Tang, son of a wealthy Chinese businessman, launched the brand in 1994 in Hong Kong as a custom-tailoring business, marshaling the talents of Shanghainese tailors who had fled Communist China in 1949.  In 1996, anticipating a robust market selling Chinese souvenirs to well-heeled tourists attracted by the handover of the city from the British in 1997, he expanded into ready-to-wear.  [Tang went on to sell a majority interest in the company to Richemont.] 

Meanwhile, rivals were starting to steal some of Shanghai Tang’s cultural thunder. One of them was Ooi, who, after various jobs in the Hong Kong fashion industry, had opened her own store across from the Shanghai Tang flagship.  China was chic, and international fashion editors were going wild for qi pao dresses.  “I thought I'd launch my own ready-to-wear line based on the idea of innovating this iconic symbol,” says Ooi, a 5-foot-6 Asian-American whose own fashion taste runs to jeans and T-shirts.  “To underscore my point, I even made one qi pao out of African kente cloth and put it in my window.  I thought I would eat Shanghai Tang for lunch. 

The theme for the spring/summer 2006 collection: contemporary Chinese art.  Ooi commissioned well-known Chinese artists to create designs and, in turn, asked students at China’s most prestigious art academy to create artworks based on fabrics from the collection.  She’s currently gathering ideas for a collection based on Shanghai in the 1930s, the period when the city was known variously as either the Pearl of the Orient—or the Whore of the East. 

139. China Goes Upmarket
Edward Tse’s “Five Surprises” provides a host of insights about China’s future, warning us that the past may not be a very good guide to the future.  We are most struck by the fact that the Chinese are rapidly going upmarket, moving away from commodity, unbranded products to offerings where they can capture more of the value added:

Within China, some industries are already developing a maturity that their Western counterparts took decades to reach.  In automobiles, for example, full-service retailers have emerged (formerly, they were state-owned enterprises or joint ventures between the government and foreign manufacturers like Volkswagen).  Chinese vehicle manufacturers are establishing global vehicle brands, such as First Auto Works, the world’s foremost producers of midsized heavy-duty trucks.  The Wanxiang Group (a privately held manufacturer of auto parts from Hangzhou) is acquiring ownership stakes in American, European, and Japanese companies to build a global supply chain and develop a global brand.  Chinese component suppliers are consolidating; some are establishing themselves globally.  Most significantly, according to a Booz Allen Hamilton analysis of cost figures, price competition in China (along with price competition from India) has put enough pressure on margins that vehicle manufacturers will probably need to reduce costs by 8 percent per year within the country to stay profitable, even as annual sales volumes increase by 10 percent or more per year.  Similar consolidation is taking place in appliances, electronics, and textiles.  These are the hallmarks of a maturing set of enterprises.  (2/22/06)

139. The Yanghan Deep Water Port
On an island some twenty miles out to sea, China has opened what promises to become the world’s largest container shipping port, further cementing Shanghai’s pivotal role in China, in some ways similar to New York City’s key role in 19^th-century commerce that was accentuated by the Erie Canal.  “Other experts say that the city of Shanghai might have to spend up to $18 billion over the next 15 years to complete the construction of this complex port…”  Already Shanghai is the world’s third busiest container port, behind Hong Kong and Singapore.  Existing ports are 23 feet deep, but the new port, 49 feet deep, can handle much larger vessels.  A six-lane bridge, some 20 miles in length, has been built to connect the islands to the Coast in order to lorry in cargo.  See the New York Times, December 12, 2005, p.C7.  (1/25/06)

Update.  Port-Technology.com is a good way to keep track of port development around the world, although we notice that it is a bit outdated.  Yangshan (or Yanghan) is, of course, listed, since it is surely the most important port development around the world. Meanwhile trade continues to surge at China’s other principal ports such as Qingdao, Ningbo, Guangzhou, and Tianjin.  (2/8/06)

138. Drucker: The Chinese Weakness
“In contrast, the greatest weakness of China is its incredibly small proportion of educated people.  China has only 1.5 million college students, out of a total population of over 1.3 billion.  If they had the American proportion, they’d have 12 million or more in college.  Those who are educated are well trained, but there are so few of them.  And then there is the enormous undeveloped hinterland with excess rural population.  Yes, that means there is enormous manufacturing potential.  In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious.  You don’t have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities—its rural population has gone from 90% to 54% without any upheaval.  Everybody says China has 8% growth and India only 3%, but that is a total misconception.  We don't really know.  I think India’s progress is far more impressive than China’s.”  From an interview “Peter Drucker Sets Us Straight,” Fortune, January 12, 2004.  (12/28/05)

137. Christianity in China
Official figures suggest there are 5 million Catholics and 15 million Protestants, while unofficial estimates about the size of the Christian population range from 2-7% of the population.  The most ambitious claims speak of perhaps 100 million underground worshippers.  Growth has often occurred outside officially sanctioned places of worship, in gatherings in private homes, for instance.  This opening up has occurred since 1980, when hard Mao-era restraints on religion were lifted.  “Most striking in recent years has been the spread of Christianity among urban intellectuals and businesspeople,” with some striking activity on university campuses.  See The Economist, April 23, 2005, p. 44.  “David Aikman, the author of Jesus in Bejing, a book about the growth of Christianity in China, says there are probably dozens of Chinese universities teaching Christian culture.”  (12/14/05)

136. Johnny Apple’s Shanghai List
R.W. Apple has made more of a splash as a journalist with a global expense account than he ever did as a political writer on the New York Times.  He gets his tips about this city and that from a source or two in each city, and his tips are as good as whatever deep throat he discovers.  Most recently he did a bang up job in Thailand, but then he has a superb on the ground friend named Robert Halliday, who really does know food.  In fact, his Bangkok article, “On the Streets of Bangkok, Two Guys Keep It Real,” is far more interesting than his foray into Shanghai.  We have cribbed his list of Shanghai eateries from an October 9 piece called “Shanghai, a Far East Feast,”  a title that did not tax his imagination.  His list will get you started, but you will find much better offerings as you move about amongst the city’s more than 3,000 restaurants: 

1. Bao Lu, 2721 Fumin Lu; telephone: 6279-2827

2. Chun, 124 Jinxian Lu; telephone: 6256-0301

3. Xin Ji Shi, North Block Xintiandi, Building 9, Number 2, Lane 181; telephone: 6336-4746

4. Nan Xiang, 85 Yuyuan Lu; telephone: 6355-4206

5. Din Tai Fung, 12-20 Shuicheng Lu; telephone: 6208-4188

6. Crystal Jade, South Block Xintiandi, House 6-7, Lane 123; telephone: 6385-8752

7. Guyi Hunan, 89 Fumin Lu; telephone: 6249-5628

8. M on the Bund, 5 Zhongshan Dong Yi Lu; telephone: 6350-9988

9. Laris, 3 Zhongshan Dong Yi Lu; telephone: 6321-9922

10. Jean-Georges, 3 Zhongshan Dong Yi Lu; telephone: 6321-7733

11. Whampoa Club, 3 Zhongshan Dong Yi Lu; telephone: 6321-3737 (12/7/05)

135. Growth of Linux in China
In China Linux is making the Big Leap Forward, urged on by a government that is resistant to software with proprietary code.  “According to China’s Ministry of Information (MII), almost 70 percent of all software purchases last year were of Linux-based products.  Meanwhile, provincial governments installed 45,000 desktops with Linux operating systems.  Now private companies are following suit.”  See CIO Magazine, October 15, 2005.  pp.21-22.  Red Flag, a major Chinese Linux vendor, says the government’s railway and telecom companies pushed into Linux early on.  (11/30/05)

134. The Real Mao
Nicholas D. Kristof, a fine journalist, provides an excellent review of Mao: The Unknown Story in the New York Times Book Review, October 23, 2005, pp. 1 and 10-11.  Jung Chang, along with her husband historian Jon Halliday, has “written a biography of Mao that will help destroy his reputation forever.”  “No wonder the Chinese government has banned not only this book but issues of magazines with reviews of it, for Mao emerges from these pages as another Hitler or Stalin.”  The Chinese Communist Party in its early days was entirely under the thumb of Russia.  “Mao rose to be party leader not because he was a favorite of his fellow Chinese, but because Moscow chose him.”  “More startling, they argue that Mao didn’t even walk most of the Long March—he was carried.” 

133. The Logistical Costs of Doing Business in China
“Making It in China” (CIO, October 15, 2005, pp.46-56) explores the added costs of doing business in China, particularly in the hinterland.  Lead times for bike production at Pacific Cycle, a maximum of 60 days back in the U.S., can now run as long as 270 days.  This involves shipping times, delays on inland transport, complications for sourcing components or raw materials, lack of transparent supply chain controls, etc.  These hurdles must, of course, be balanced against very low labor costs which, depending on the product, may be all important.  Some companies try to beat some of the headaches by buying their own factories, but that is a mixed blessing as well.  (11/23/05)

132. Top Hong Kong Story
We have been vaguely keeping track of this story, but it has gripped Hong Kong and the Orient in the same way as the O.J incident. transfixed the United States.  An overpaid U.S. banker—out of Greenwich we think—and his wife have for years apparently led an absolutely wretched life there together, both mentally askew.  Right or wrong, the courts have found her guilty of his murder.  You can read most of it on East West blog—in several entries—whose author obviously has as big a taste for low-life matters as the next guy, whatever the ambitions of his blog.  To read about Robert and Nancy Kissel’s very soiled underwear, you can start at Zonaeuropa.  One of our associates out in the Kong also promises to do a write up.

131. FBI Watches Chinese Economic Spying
David Szady, number two in the FBI’s counterintelligence division, is leading the charge on China’s effort to pick up U.S. economic secrets.  See the Wall Street Journal, August 10, 2005, pp. A1 and A4.  The Chinese are alleged to have something like 3,000 front companies in the U.S. that put out feelers to Chinese nationals working at U.S. companies, particularly in technology.  “All told, about 700,000 Chinese tourists and business executives visit the U.S. each year.”  “Mr. Szady and other FBI agents believe China began intensifying its spying operations in the late 1970s,” when relations opened up between the two countries.  Formal spies sent out by the Chinese don’t actually peek in company’s files; instead, agents collect information from Chinese and China Americans working in vital industries.  (9/28/05)

130. Asian Middle-Market Investment Bankers
Asia in general is still constructing its financial infrastructure.  Now a number of firms are springing up that can minister to the special needs of middle-market companies to include reverse mergers, U.S. listing, capital raising in and beyond Asia, exit strategies to include buyouts by Western companies.  We will be adding more investment banks to this list and will eventually include the names of other kinds of intermediaries. 

ChinaVest.  A longtime venture-capital firm funded in the West but staffed with both Westerners and Chinese nationals, it has now converted itself into a merchant bank based in Shanghai.  Founder Robert Theleen has wide experience in a number of Chinese sectors to include light manufacturing, branded services and retail concepts, technology, etc.  We think he has particular insight into the logistics and distribution sectors, areas of particular concern as China tries to integrate its domestic market.  It has most recently completed a financing for Net 263.  With offices in Bejing, Hong Kong, and San Francisco, it is probably best reached at its Bund office in Shanghai at telephone 8621 6329 3610.  Fax: 8621 6329 3951.  Website: www.chinavest.com.  (9/7/05) 

Orient Financial.  President Nils Ollquist and Principal David Sih have shown themselves to be skillful at helping young Hong Kong entrepreneurs on a fast track expose their companies to Western markets.  They have clients throughout Greater China and India.  Examples of transactions are at www.orientfinancial.com/track.html.  Orient Financial Services Limited.  One International Financial Centre, 18th Floor.  One Harbourview Street.  Hong Kong Central.  Telephone: 852-2166-8333.  Fax: 852-2166-8999.  Website: www.orientfinancial.com.  (9/7/05) 

FirstAlliance Financial Group.  Chief Executive Weiming Zhang, based in Shanghai, has shown particular aptitude for bringing companies public in the U.S., often by reverse mergers.  The firm is particularly active with companies in the automobile components sector.  Clients include Pacific CMA (Amex:PAM), China Automotive (Nasdaq:CAAS.OB), and Sorl Automotive (Nasdaq: SAUP.OB).  See biography for Ms. Zhang at www.wpcapital.
com/management1.html.  FirstAlliance Capital Group, Inc. 1800 West Zhongshan Rd., 25J1, Zoa Fond Universe Building, Shanghai, 20035.  Telephone:  011-8621-6440-1678.  Fax: 011-8621-6440-1901.  Email: weiming@firstalliance-capital.com.  (9/7/05) 

Trenwith Group.  Now a fast-growing affiliate of BDO Seidman, a second-tier accounting firm, Trenwith, formed on the West Coast, has intensified its China activities over the last 5 years.  It started as a merchant bank in1981 and has gradually broadened into a full-scale, multi-office investment bank.  Its particular strength we think is its collaborative nature, as it has shown an uncanny ability to work with a host of other financial intermediaries.  One can get some idea of its range of assignments at www.trenwith.com/news/pr.asp.  We would particularly point companies seeking help to Douglas Ivan in Newport Beach, California, who has had broad experience working on a host of questions for middle-market companies stretching well beyond the usual banking menu (www.trenwith.com/contact/ivan.asp). Unlike most young investment bankers, he actually returns his calls.  He can be reached at the Costa Mesa office at 3200 Bristol Street, Fourth Floor, Costa Mesa, California 92626. Telephone: 714-668-7333.  Website: www.trenwith.com. (9/7/05) 

Latitude Capital.  We have found Latitude to be useful on due diligence and some aspects of negotiations for selling parties.  We notice that it is now publishing more information on completed transactions.  This group has ample staffing.  As well, it is publishing some sector information—IT, healthcare, logistics, mobile phones, etc.—which is moderately helpful and suggests it has its eye on active sectors.  We see it has subsidiary offices in Bejing and San Francisco, but we would point you at Hong Kong, Suite 4310, Jardine House, One Connaught Place, Central, Hong Kong.  Telephone: 852-2973-5311.  Fax: 852-2295-3979.  Website: