Archive for the ‘Business’ Category

Check out the EO Podcast

Posted: September 18, 2012 in Business
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Over the past several weeks updates to this blog have been regrettably sparse. I’ve been laying the groundwork for two long-term projects (both China related) and have unfortunately only had time to juggle so much. But I can now happily announce one of those projects.

From now on I’ll be hosting a regular podcast at Economic Observer where I chat with people doing interesting work in China.

It will be a bit different than the content on this blog. In keeping with EO’s general content, most guests will be business-related; from execs at multinational corporations down to mom and pop startups (whom I find equally interesting).  But I’ll certainly have occasional politically and socially-oriented guests. For instance, I’ve already recorded an episode with Daniel Bell, where I ask what was up with those recent op-eds in NYT and CSM.

The premise will usually be to explore how these people ended up in China and how they’ve tried to navigate China’s consistently inconsistent market. But it’s also meant to look at the wider industries/fields that the guests are part of; altogether lasting about 15-20 minutes.

In the first episode I speak with an internet security consultant turned Beijing’s first microbrewer. We talk about the countless roadblocks involved with setting up shop, whether the dream is dead for young people trying to do business in China’s increasingly foreigner-unfriendly market, and finally discuss China’s wider alcohol industry. That episode and all future ones can be downloaded here.

Some of the other tentative guests I’ve lined up are a green urban planner, a film director who’s done a US-China co-production, the man who oversaw the NBA’s expansion in China from 2003-2008 and is now trying to bring Ultimate Fighting Championship (UFC) to the country, and a guy who started a magazine, a guitar shop and plays in a Beijing Beatles cover band on the side.

As you might imagine, I’m not an expert in any of these fields. I don’t intend to make podcasts that are figure-heavy or full of content that would only interest businessmen. I’ll try to make them smart, but accessible and story-oriented.

As I mentioned, I’m also in the early stages of another big China project, but I’m a LONG ways away from announcing that one. As far as this blog goes, I’d love to pretend like the frequency of updates won’t be affected, but it already has been. This is a one man operation, so I hope you’ll understand if there’s a slightly less steady stream of updates for a while.

Anyways, thanks for reading (and hopefully listening). Now back to your regular sociopolitical speculation…

The mystery job

Posted: December 4, 2011 in Business, Economics
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Recently I got a call from a friend offering me an interesting day job. She wasn’t clear on the specifics but it had something to do with businessmen and she assured me I wouldn’t have to do anything seedy. Foreigners in China often get offered these kinds of mystery jobs where you don’t really know what you’re getting into until you’re halfway through it. But they’re usually at least good for some entertainment and writing material, so I agreed.

I was whisked away in a Mercedes to the Diaoyutai Guesthouse – a government compound where foreign dignitaries stay and meet with top leaders like Hu Jintao and Wen Jiabao.

It was for a social networking company to formally announce its plan to go public on Nasdaq. They were pulling out all the stops to impress the investors. As I somewhat suspected, my job was to sit there and be a white guy. Sketchy, yes, but I was just happy they didn’t expect me to pretend I was part of the company or an investor like many of these white-guy-in-a-tie jobs do. I just had to sit and be foreign to enhance the prestige of the event.

But the prestige didn’t stop with me. The Diaoyu guesthouse must cost a small fortune for private companies to rent out. Everyone in China has heard of it. The investors lined up to be photographed next to the podium bearing the compound’s name.

There were cameramen and reporters from several of China’s major media agencies, but I find it hard to believe they had any real interest in covering the event. This was just some two-bit social network that will never compete with the established juggernauts. The ceremony itself was an excruciatingly ordinary chain of executives giving each other face and making flowery speeches.

It’s quite common in China for companies to pay reporters to show up and cover their event…even if there’s no intention of actually airing any of the material they get (that costs extra). Photographers conspicuously snapped away hundreds of pictures of the executives and, during the three minute question & answer period, two journalists were called on to lob softball questions at the panel. But the investors came away with a lot of face and confidence in their investment. The number of people who will actually purchase shares on Nasdaq remains to be seen.

It was reported last week that a Chinese cave somehow managed to get listed on the New York Stock Exchange through a series of backdoor schemes. The lengths and expenses some companies go to in order to bestow prestige and recognition upon themselves in China often goes to a Loony Tunes level of absurdity. I have a little more hope for this company to make a ripple in the stock market than I do the cave, but not a lot.

The money quote of the day came when an Australian investor who was backing the company said, “If you invest in the internet industry, you will achieve great success.”

I can’t say I know anything about this company, but I couldn’t help feeling a bit guilty while wondering how much the crowd, largely rich middle-aged Guangdong housewives, actually knew about “the internet industry.” I wondered how much my presence was contributing to China’s .com bubble (or rather, .cn bubble). And how many companies routinely put on shows like this wooing investors who, like Japanese of the 1980’s, think this rocket ship of economic growth will keep soaring forever.

Perhaps the most distressing thing I thought about while watching was how many Chinese Enrons there might be out there. How many companies are already seeing cracks, yet will keep aggressively pushing for investment until the house of cards comes crashing down?

I don’t know, but I’ve decided to cool it for a while with these mystery jobs.

What Americans won’t acknowledge about their manufacturing jobs

Posted: October 14, 2011 in Business, Politics
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Last week the US senate passed a bill aimed at punishing China for currency manipulation with tariffs, which is stupid for a number of reasons, but I want to talk about the underlying narrative that springs up every election cycle in Washington: Those cheating abusive Chinese commies are stealing our hard-earned American jobs!

Dozens of congressional candidates ran ads to this end in 2010. Perhaps the most articulate was this one for Ohio Congressman Zack Space, where it shows a crowd of a dozen Chinese people and says, “Gibbs (his opponent) wants more free trade with China to increase their standard of living.”

Then it cuts to a lone white man and says, “…but what about Ohio?”

It perfectly captured the attitude many Americans, and ergo the politicians that depend on their votes, have that they’re entitled to these jobs as Americans. Protectionist bills like what the senate just passed enjoy wide populist support because we need to protect American jobs for Americans damn it! Well let’s look at one simple statistic:

Average manufacturing job hourly wage

USA: $22.30

China: $3.10

(Source: Time Magazine)

On average you can hire seven Chinese workers for the price of one American. I’m a proud American, but if one of us loses a job to seven Chinese, I don’t see much problem with that; especially when you consider a few other things.

Things aren't so hot for white collar Americans either

That average Chinese worker making $3.10 an hour probably didn’t just waltz over to the local car factory. Odds are she left her entire family behind to work in a distant manufacturing hub like Dongguan or Wenzhou where she lives in a dorm and sends the bulk of her paycheck back home to support her child and parents, whom she’ll be lucky to see once a year.

She might work 10-12 hours each day, maybe taking only one day off per month. Say what you will about human rights, but this is usually by choice. If she’s already this far away from home, there’s no sense wasting time. She wants to work as much as possible. So she’s happy to ignore overtime regulations if it results in more hours. And she’s very grateful for this job. It gives her far better prospects than she’d have back home.

(Read: Factory Girls by Leslie Chang. An excellent chronicle of the lives of Chinese factory workers)

This doesn’t just apply to factory workers. Ask a random waitress or cleaning lady in a big city like Beijing. Chances are they’re not from Beijing and they have a similar situation to the factory worker.  How many laid-off Ohio workers do you imagine would be willing to leave their family behind and move to Florida to live in a dorm and work at a waitressing job?

You can point to abusive working conditions, defective products or intellectual property theft. These things certainly exist, but they’re more a shameless excuse for protectionism than they are a significant detriment to America’s economy. They’re no justification for boxing out all Chinese manufacturers. And yes, China manipulates its currency, but it has appreciated 20% since 2005. And no matter how much it appreciates, it won’t even out the mammoth manufacturing cost imbalance.

In the latest Republican debate Honeywell CEO David Cote pointed out that, “Twenty years ago there were a billion people actively participating in the global economy.  Today there are more than four billion active participants in the global economy, with China, India, former CIS states and other emerging economies now in the game. While that is a good and peaceful phenomenon, it also means we need to compete more strongly than we did in the past.”

People like Mitt Romney are pushing the American victim of red China narrative because it’s what Americans want to hear. Telling them the truth would be political suicide; that their previous lifestyles were superficially inflated and that they need to brace for permanent sacrifice and dramatically lower their living expectations.

There are plenty of things the US government can do to make the country more competitive in education and clean energy that don’t need to resort to protectionism, but ultimately it’s on Americans to accept the tough reality of having to sacrifice more for less money. The global playing field is balancing out. For emerging economies like China’s, that means an upswing in quality of life. Unfortunately for the US, it means a fall down to the world mean. When viewed objectively, that’s not a bad thing.

An eye-for-an-eye will make the economy blind

Posted: February 25, 2011 in Business
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After it became apparent the US government would ultimately reject them, the Chinese telecom giant Huawei recently gave up on its attempt to acquire the American company 3Leaf. Even before the decision was announced, Chinese pundits were already loading their cannons in response to the probable rejection.

It’s hard to blame them. Huawei has been at the butt of several rejected deals in the US in recent years based on dubious national security concerns. Huawei is almost certainly a victim of American politics.

Some pundits have taken their responses too far though. A recent Global Times editorial suggested, “If the bid is rejected, China should launch retaliatory measures against US businesses over here.”

The suggestion conjured up similarities to the ancient Code of Hammurabi which had a basic “eye-for-an-eye” principle. One law stated that “If a builder builds a house for someone, and it falls in and kills its owner’s son, then the builder’s son shall be put to death.”

That law was deemed archaic some 3,500 years ago, but the suggestion that American businesses in China should be punished for Huawei’s rejection isn’t too far off the mark. Foreign business owners in China must have felt a chill go through their spine upon reading that editorial.

The suggestion makes an all too common assumption that a country is a single body where the actions and thoughts of all its people and institutions are coordinated. But being from the US doesn’t mean a business supports US government polices like the one impeding Huawei. And those companies certainly don’t have any power over the matter. These pundits are suggesting lashing out at innocent bystanders simply because they don’t see any better options.

Even if that kind of retaliation were justified, it would hardly be effective from a practical standpoint. It would probably even make things worse. The US government blocks deals like Huawei’s because, no matter how well-established and independent a Chinese company is, Americans will still see it as “China Inc.” and want it dismissed on any grounds. American leaders are happy to soak up the kudos that come with saving American jobs by expelling a seemingly red communist enterprise.

If China retaliated against American companies, it would just enhance that shady image in most Americans’ minds. They would simply call for further retaliations against other Chinese companies and, in the coming election cycle, American leaders might feel compelled to chase those cheap political points.

From China’s standpoint, it’s hard to bite this bullet and refrain from making some kind of retaliation while one of its companies is being treated so unfairly. But they should also keep in mind that China isn’t exactly a shining example of fairness toward foreign enterprises.

China requires technology transfer from foreign companies, enforces intellectual property laws far less stringently when foreign companies are being ripped off than when Chinese companies are, and the state owned media regularly takes shots at foreign companies while neglecting the problems of their Chinese competitors.

If one looks beyond business to fields like journalism, they’d be hard pressed to find an example of a Chinese journalist in America being followed, threatened, arrested, beaten or deported for carrying out their basic reporting duties in accordance with the law.

Huawei is getting a bum deal and Chinese are justified in sticking up for it. But they need to stay rational at the same time. To advocate indiscriminate retaliation against companies simply because they’re American is little different from throwing rocks through McDonalds’ windows when the US government offends China. It’s tempting to go after the easy target, but reckless and ultimately useless.

 

China’s English Bubble Almost Ready to Pop

Posted: May 3, 2010 in Business
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Global Times – March 3rd, 2010

Last December the employees and students of the Kai En chain of English training centers in Shanghai arrived to their schools to a very rude surprise: After 13 years of operation, one of the oldest and best known English training companies in Shanghai had suddenly gone out of business.

The directors had fled the country, leaving the employees of the five branches owed months of back-wages and customers without refunds for their expensive pre-paid courses.

When looking at this in the context of Chinese and international trends, it could be a preview of things to come for China’s English language industry.

Most indicators seem to show that China’s English industry is booming. According to the Social Survey Institute of China (SSIC), it’s a 15 billion yuan ($2.2 billion) per year industry and a survey of eight large cities showed that 55.4 percent of the Chinese respondents had received English training, with another 21.2 percent saying that they planned to.

However, the survey also showed that there are over 50,000 private English teaching institutions throughout China, with more opening constantly. So while the English pie may still be expanding, the pieces are becoming smaller and more numerous.

English centers with business models similar to Kai En’s are the most vulnerable. These centers rely on big facilities, highly paid but often unqualified foreign teachers and high tuition fees from students. They are facing growing competition from cheaper and often more effective resources.

In recent years China has expanded public school English education to begin as early as first grade, where it had previously begun in fifth grade or later in much of the country. This has cut off a significant chunk of the children’s English market.

Other sources of English learning are also becoming increasingly available and affordable, such as Skype-lessons with overseas teachers, podcasts, private foreign and Chinese tutors, and even a barrage of fly-by-night schools promising to take students from no English ability to exam-ready in 30 days.

While some of these options aren’t always legitimate, they’re grabbing market share nonethe-less. The ever-increasing foreign population in China also means English learners will need less and less to rely on expensive training centers to meet and practice English with native speakers.

Of course, as long as there’s strong demand in the industry, those centers that offer a quality education at a reasonable price will stay afloat so long as they can adapt their business model to the increasing supply of other English learning mediums.

However, by looking at past international cases, an impending decline in the demand side of the equation leading to mass closures of these centers seems very likely.

During the economic boom of the 1980s, Japan also went through an English learning boom similar to that of present-day China. Across the country English training centers sprouted up and the industry thrived. It seemed a guaranteed way to make money in Japan – for about a decade.

In 1996 the first major English company collapsed. The American Club English School, much like Kai En, had been delaying employee payments for months and eventually the owner fled the country, leaving the employees and students hung out to dry.

In the late 1990s, Japan’s English schools marketed and competed aggressively with one-another over share in an industry that was sinking fast. Many managed to stay afloat – for about another decade. In 2006, the 10th largest English company in Japan, Nippon NCB Co., collapsed under circumstances almost identical to Kai En and the American Club.

Then in 2007, Nova, the largest English school in Japan, with 900 schools and 15,000 employees throughout the country, went belly-up. Upon the collapse, many of the teachers (who had lost months of withheld wages) flooded to the remaining English schools. In one case, 400 foreign teachers applied for one job opening at another company.

While there are differences between Japan’s and China’s markets, the similarities are hard to ignore. Much like in present-day China, Japanese businessmen of the 1980s and 1990s thought English was a “can’t-lose” industry and foreign teachers enjoyed plentiful, secure and high-paying jobs, often with no real qualifications.

Though China’s English industry still appears to be thriving, the collapse of Kai En and the ever-growing competition in the market could be the warning signs that China is following the Japanese trend. Many economists have already observed that the industry is forming a bubble. It’s just a matter of how soon that bubble will burst.