Silk Road International Blog

Following up on yesterday’s blog regarding US immigration policy and the so called China Threat, I found this article in the NYT very apropos. Click here.

For 4.1 million college graduates in China this year there are approximately 1.5 million jobs. Most Chinese college graduates are from technical or vocational colleges with only a small percentage coming from the social sciences.

This seems to me to be a tailor maid opportunity for the US. With the US economy needing an increasing number of technical workers and Chinese wage expectations below US minimum wage couldn’t the US allow a greater number of these students into the US for work experience? This is a great opportunity for the US to fulfill its own needs and strike a great public relations coup too—when was the last time that the US was seen as a benevolent benefactor?

Another uniquely disturbing situation is the well published gender in balance in China rising generations. As Chinese are limited to one child, or stiff penalties for subsequent births, the number of males in China greatly outnumber females. Now, I’d be the first to admit that college grads would be more “marriageable” than their lesser educated counterparts. I don’t know what % of these men are or will soon be college graduates, but it has to be at least a small percentage, right? If we combined the numbers of under and unemployed Chinese graduates with the estimated 30 million Chinese bachelors that have not opportunities to marry (due to Chinese desire for male offspring) the US could foster the creation of generations of Chinese American citizens with close personal ties to the US.

While this latter appendix may be more amusing pondering than realistic option, the premise is realistic—The US has multiple opportunities to improve its relationship with China. Many options could improve both economies and the personal ties that bind the two nations.

Tags: Business, China, Culture, Politics by David Dayton
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I’ve actually been told by other Americans that I’m “helping the enemy” by living and working in China. Are Americans really that insecure or really that stupid?

I’m by no means in love with China, but by the same token, China is no threat. In my opinion, the biggest threats facing America today are our collective lack of international education, our debt and our entitlement mentality. North Korea, maybe. But not China.

I’m convinced that increased engagement is the best international policy that the US can take. International exposure and competition can’t hurt the US and will only increase our ability to continue to project influence into the foreseeable future. In the light, China is an opportunity that Americans can either profit from now or pay for later.

News reports regularly confirm that the most competitive US companies are doing what the US government will not—participate in Chinese growth. While Congressmen continue to argue over Taiwan (do you really think that we step into a cross straights fight at this point?), currency devaluations, security and piracy, other US companies are plowing ahead and solving problems or eliminating conflicts on their own—and making billions in the process. These companies are making it financially painful for either the Chinese or US governments to have any type of military conflict.

Whatever your thoughts about Wal-Mart’s labor history are their growth in China is another example of the codependence and financial sense of the US/China relationship. Wal-Mart will have 80 stores in China by the end of the year and would be the China’s 5th largest trading partner if it was a country. Other visible US companies that are “aiding and abiding” include Visa, McDonald’s, Coca Cola, Pepsi Co. (KFC, Pepsi, Pizza Hut), Starbucks, Buick—these are just the ones you can see everywhere, everyday in China. And AmCham says that the growth of American business in China will double this year—smart money! Next year I expect to add scores of US and foreign banks to this “visible” companies list.

The fact is that China is a great opportunity for anyone in the world, but especially the US. US and Western European educated professionals can, according to one recent news report, have their pick of jobs while 65% of graduates from Chinese universities will be un or under employed this year alone. The ascension of China to WTO standards will only bring more opportunities for US companies who are already WTO compliant by nature of US business/governmental standards.

But the US government and educational systems continue to shackle the US and its future generations. Why do we still only get Spanish, French and German offered as foreign languages in high school? WWII ended 60 years ago—get over Western Europe already! US business is innovative and adaptable; that’s what’s made it us the biggest economy in the history of the world. So why is the pre-collegiate education system so archaic? Why is it that most US students can’t find China on the map but Chinese students can name the US president, and typically read some English by Junior High?

Not only are we generally under internationally educated but the restrictive visa policy of the US makes further contact, professional exchange and even legal immigration more difficult than necessary. The US government is bad for US businesses—unless you are your senator’s pet pork project. So much for free trade.

To those who think China is a growing threat to the US (and can actually find China on a map), I just have a couple of questions. First, how does a strong Chinese economy hurt the US? It doesn’t—rich Chinese people buy US production and travel to the US. More Chinese businesses use more Western developed tech and buy more Western materials/goods. US companies wish the rest of the world would grow as fast as the China market.

Second, is a balance of military power more or less likely to force a confrontation? If history, even recent history, is a forecast of the future, we are more likely to head back to the Middle East as the loan super power than the Eastern Asia in a “balanced” world. And the dirty secret of cold wars is they can be financial and technological bonanzas for participating economies. If the European Union was growing at 10% a year would be scared because Italy and Germany and some former Soviet republics are members? Besides, what country, the US included, doesn’t want to be more “powerful” and have more influence?

China is growing fast but it is not a physical or financial threat to the US today. Nor will it be in the coming decade. But, China is a threat to people in the US that are scared of change, are scared of competition or are undereducated. The US needs to get over it’s self.

Tags: China, Culture, Politics by David Dayton
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Any one who tells you that connections in China, especially in the government, are not that important any more either hasn’t been here very long or doesn’t have any connections.

The recent pulling of the film “The Da Vinci Code” after it had already been released in theaters is just the most recent example of how arbitrary and inconsistent the government can be here. For more on film censoring see this.

As I read the books and blogs of various writers on China, a general theme seems to be that business is business and politics is politics and the two no longer mix. Yet, news reports are proclaiming just the opposite. For example, read this. for statistical comparisons, see ICGG. Issues in just this weeks news alone could include any of the hundreds of recent articles about the “trial” of a NYT journalist and the sacking of the Beijing Vice minister for graft.

I have to wonder where these optimistic bloggers are working/living. It’s certainly not China. Could it be that many of them are writing about China from abroad? Only coming here every quarter to stay in 5 start hotels for hosted dinner parties and sanitized factory visits? Or are they consciously and selectively reporting on news that enhances their entrenched investment positions?

I am not blind to the vast opportunities here—obviously, or I wouldn’t be here. Nor am I a fear monger that is predicting the “Coming Collapse of China” as one writer has proclaimed. But caution, connections, culture understanding combined with significant amounts of due diligence and a high degree of risk tolerance are still required for doing business in China.

The reality of China is that selective enforcement is the standard here. And, once in place, laws and regulations and even legal standards can and are over turned at the drop of a hat. Connections may not save you if your industry or product becomes the target of the week, but a well placed connection can warn you ahead of time and save you, personally. Good luck.

Tags: Business, Culture by David Dayton
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On a personal level I really enjoy working and living with the Chinese. They are interesting, interested, and very kind. But environmentally, I’m not all that pleased with living in China.

On Thursday, as I was coming into Shenzhen from Hong Kong, I was robbed at the boarder. It happened right in the middle of the metro station with video cameras, police and security all around. I was glad to have two young ladies report the theft to the security guards and try to help me identify the robbers. But ultimately the security guards and the video surveillance operators all said “it’s not really my responsibility. You should be more careful.” The police came 45 minutes later and said the same thing and added “you’ve lived here a long time; you should know what it’s like.”

In addition to this bad experience, the fourth time in 3 years that I’ve been robbed here, there were four news articles in the last week identify separate issues that ultimately will and currently do now limit China’s potential and influence. The four issues are increasing pollution, a new bird flu outbreak (reported in HK but not in China), limited housing options for the middle class and limited civil and human rights for those opposed to or even reporting on the government.

Now, despite the pollution and the theft I’m obviously in China because of the opportunities. But with each theft, each new disease outbreak, each new scare, I plan ways to leave. And despite the head-long lemming-like plunge of foreign money and companies into China, I’m not alone. Chinese people would love to be able to leave, if only for a visit to somewhere else (as evidenced by the rapidly increase numbers of Chinese tourists abroad). Even though people want to leave, I’m not predicting a brain drain any time soon. China’s economy is too robust for that. But I am claiming that the Chinese people are China’s greatest resource. And the lack of government enforcement of environmental and social regulations combined with the increasing corruption (as defined by the World Bank) to me means that the bureaucratic infrastructure is what is sucking a healthy % out of the economy and the spirit of individuals.

While every conceivable degree of growth is monitored and ostensibly controlled by the government, more influential is the lack of security, both moral and physical, that people fell and fear in China. With an increase in corruption, pollution, disease (and subsequent lack of reporting) and a glass ceiling for the new middle class means that more and more Chinese are becoming disenfranchised with “just” economic growth. Chinese are much better off, especially in the urban centers, than ever before, but at what price? Economic growth has served as a brilliant distraction from the host of problems that accompany rapid and uneven economic growth for many Chinese.

Another equally effective and must less costly distraction has been the arrival of the World Cup. China didn’t make it into the World Cup (and it looks the US will soon be out too) but that hasn’t limited the Chinese from participating. There were/are fears that Chinese gambling syndicates will try to influence some of the matches. Everyday in the office buildings in Shenzhen I see people coming to work wearing shirts of their favorite teams (Brazil and England mostly). You can’t help but hear the cheers and groans of people staying up all night to watch the matches live (matches are from about 9pm to about 5am each night). The World Cup has generally given everyone in China something else to talk about, drink about and enjoy together. Chinese I know were even disappointed to see the way that Japan lost their first match to the Socceroos. Empathy for the Japanese is a major achievement!

Maybe the Chinese government should get out of the environment and crime control business and into football more. It’s working on a personal level already.

DD

Tags: Uncategorized by David Dayton
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The latest ruling by the Chinese courts in favor of protecting IP Rights in China is significant, but only to Pfizer itself and those who believe that the Chinese really have IP protection as a nation and governmental priority. The reality of the decision is much less grandiose.

Pfizer is a huge multinational company but Pfizer’s sales of Viagra in China are small, rendering the decision more of a source of positive publicity for the Chinese legal system than any effectual ruling. This will be reported all over the world with most folks acceding to the opinion that the Chinese courts are falling in line with the rest of the world’s not an incorrect conclusion, but not totally accurate either.

Secondly, the last line of this Forbes articleclearly stats that enforcement and a court ruling are two completely different things. Further, unless the responsible government agencies decide to make Pfizer a personal priority, enforcement will most likely never happy.

In countering the claims that they are the largest source of black market goods in the world, China regularly touts their facts that they have stricter IP regulations than the US or Europe. China apologists also claim that the size of the country and population affect the government’s ability to enforce said regulations. So, does that mean that the counterfeiting of goods is OK or just inevitable? While only the most strident of anarchists will justify the complete elimination of any copyright enforcement (even Chinese companies are now realizing the value of domestic IP protection), the enforcement issue is one that needs to be dealt with.

While I agree that China is large and that it has a large population, neither of these factors should influence enforcement in a police state with so much technological and human capital at its disposal. (if you doubt that China is a police state, just read this about the 2008 Beijing Olympics. Anyone who thinks that this will not be the most picture perfect Olympics ever is delusional.

Furthering the Olympic example, the event’s accompanying paraphernalia is all licensed by the Chinese government and so there is an obvious stake in effective enforcement. The results? FANTASTIC!! You can’t find fake Olympic dolls, t-shirts, pins, hats, or sponsor’s signs in the large black markets in Shanghai, Beijing, Shenzhen and Guangzhou (all places I’ve personally searched in the last couple of months). If the government can stop the production of Olympic counterfeits why not Viagra, or Disney, or Sony or Calloway or the hundreds of thousands of Western brand name goods?

Anyone that has lived in China for more than a couple of months can tell you of the China Daily article claiming all illegal CDs and DVDs in China have been destroyed. Really! 100% total clean up, or so the government run paper says. But like the Pfizer case, publicity and selective (or no) enforcement will be the end result.

Tags: Business, Politics by David Dayton
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