Silk Road International Blog

Yup. Woke up this morning to the SZ police force outside the gates of our apartment complex, Zhonghai Huating. They brought 6 riot vans and two busses full of police to make sure that the housewives, maids and others at home wouldn’t disrupt their appropriation of land for the SZ metro company. (I was asked by other landlords to edit this paragraph–this is not the original version).

I’ve talked about the “process” we’ve been involved in with the SZ govt and the Metro before. It’s process in name only–I mean, how much respect can you give a system where, in a meeting in the offices of the local government, the head of the SZ Metro delegation says: “you can die for all I care! And if you protest we’ll arrest you just like we arrested the others.”

Guess he’s made good on his threat.

A couple of landlords were indeed hauled away this AM. I came out later and starting taking photos and was immediately pushed and ask/told to leave. Of course being a bull-headed American, I didn’t. We argued about the fact that I’m not only a landlord but there are no signs prohibiting me from taking photos of my own property (that the police were standing on). After 20 or so minutes, a call came and the police said that I could take photos. So I immediately started snapping pics of the guy who tried to stop me in the first place. Round two of “no pictures” started immediately. “You can take pictures” means, I guess, I can take photos of everything but the guy who told me no–you can see him with his hand up in the photos–more photos went to a couple of newspapers already.

Now, I understand eminent domain. But there are both limits and requirements on what can be taken. First we were not offered any compensation for our land. Second, we were not told of the timing of the construction. And third, we weren’t given any health studies on the construction of the exhaust fans that are going to be put in our fishpond/garden.

Further, 300+ police with water cannons and riot gear (in the trucks) for a construction project in the middle of a Wednesday AM at a private residence? Me thinks they over reacted just a bit.

Some interesting reactions from the mornings events. First, Chinese neighbors cheered when I showed up and started taking pictures. They chanted and told me they supported me. I wasn’t looking for anything but some good shots as I’ve pretty much resigned myself the the fact that the government doesn’t care (the “you can die” comment sealed the deal for me weeks ago). They cheered when I made a smart (ass) comment and screamed in the face of the policemen that were trying to stop me. They knew that being foreign means being different–sometimes thats a good thing.

Second, the police were not as willing to arrest a foreigner as they were the locals earlier. They threatened to arrest me and I put my hands behind my back and offered myself up and they backed off and just told me to leave. Indeed, they wanted me out of the way as quickly as possible. Again being foreign kept me out of jail when others were tied up and hauled off.

Third, the police were very very intimidating to the locals. The local screamed and yelled but except for the couple that got hauled off, they did exactly what they were told to do–stand back, leave the work alone and go home or go to jail. Surprisingly vitriolic but at the same time passive.

Fourth, the words used to talk to me came in two very distinct styles. First, was from an assumed power position. I was told/asked things like: “Do you know who I am?” “Do you want me to arrest you?” “Leave now!” “You can’t take photos here–you have no right!” “I’ll give you some face, you just leave now.” The second position came later as the people were more riled up and after I had offered to be arrested. “Please leave.” “Please support our work here.” And of course “OK, you can take pictures now.”

The problem is, I don’t support the work. I’m very much against the land appropriation by the SZ government for a company (the SZ metro) when we were given nothing but threats as compensation.

If you think that I’m just down on China or that this is really a new, modern China and I just don’t get it, think again. Much in China is recent, clean and different to be sure. But much of the current problems are the same horror stories you read about 10 years ago. There are great opportunities and scary problems here side by side. Illegal land appropriation by local governments is not unique to our housing complex–it’s happening thousands of times a year all over China–famous stories include the old lady in Chongqing, the Beijing Hutongs and the riots/arrests in multiple cities in Guangdong province late last year.

I’m here for the opportunities…but at what price?

Tags: China, Culture, Politics by david
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For whatever reason(s), we just went back to my wife’s family’s village for the first time this past week. We drove from SZ to Jingdezhen in Jiangxi, about a 12 hour trip each way. Along the way up and back I gained a new appreciation for driving in China. We drove up the off ramps since the truckers completely blocked the on ramp of every service station. We waited in gas lines (truckers waited for hours!), we saw fights in gas lines (and almost got in our ourselves). We saw at least 6 MAJOR accidents on the way and a couple of dead (or at least really bloody) bodies. The fact that freight ever even gets to port in this country is a miracle!

My wife had always told me her village was small, but I didn’t realize that “small” meant it was less than 100 people and no roads. It was the only village for about 10-15km’s in any direction; surround by mountains and tea fields. There was running water, electricity and satellite TV though.

They killed the fatted pig (literally), we passed out tins of cookies, smokes, drinks and red envelopes and took tons (500+) pictures over the two days. We hiked through the freshly planted rice paddies to the tombs of ancestors. We drove from the family village to the next valley where the village had a street and a restaurant. We fed 45 relatives from 4 generations a huge lunch. The little cousins got into a fight over a toy in the (open) kitchen of the neighbor next door to the restaurant and most of the other people on the street stood outside the door and watched the meal.

Over the course of two days my brother in law had to call a friend in the municipal government to get the police to let him go for driving our car (foreign plates, local driver), we had friends call the mayor of the largest area town and request permission for me and another brother in law (HK citizen) to go into some Chinese-only national park-like tourist areas. We had family call officials to get us lower prices for museums and other attractions and had a huge dinner courtesy of a local judge (friend of the family). Quite a weekend.

Now let me put that this little family adventure into context for you.

My wife not only built part of her village home with her parents when she was ten years old, but she has since lived in Shenzhen and worked for multiple MNC’s for almost 20 years now. She is not alone in this life changing move from village to high-rise living. Most middle class urban immigrants come from similar backgrounds.

The point is this: your average urban Chinese person older than 25 has probably had a similar life experience. These “average” urban Chinese are the middle and upper level managers of most to all of the companies that you’ll be working with in China. This generation has a deeply ingrained set of beliefs and ties. Here’s some of the concepts held by the people we met that were either told to me directly or presented themselves clearly in the course of the week’s events.

1. No one will take care of them but themselves. Working 24/7 for twenty years is not just justifiable but necessary.
2. Every opportunity is a one time shot that needs to be taken advantage of fully before it gets away (or is taken by someone else). This precludes creation of new long term guanxi (with foreign clients) which is supposed to be the hallmark of Chinese business culture.
3. Strong, binding relationships with family and a few close friends are the only lasting “valuables” that you can count on maintaining throughout your life.
4. Uncategorically, property and cash are the most important things you can have for your own future and for your children. EVERYTHING in business is done within this mental framework of stockpiling these assets for the future.
5. The economy was better a few years ago than it is today—more evidence in support of banking on items 1, 2 and 3.
6. Despite all the recent nationalist rhetoric, a “faith,” in or commitment to the current government is not nearly as strong as the desire to “just make life better” economically—an almost palpable practical-ism that precludes ideology in China.
7. The further you get out of the big cities the more personal connections matter in getting things done.

Do these beliefs affect negotiations and business? The real question should be how do they not. They affect everything.

First, when negotiating in China, the prevailing concept is probably “scarcity” rather than “abundance.” This means that when you negotiate, your Chinese partner is almost certainly NOT looking for win win. Don’t misread that as “your Chinese partner is looking to have you lose,” he’s just not equally concerned with your profit margin as he is his. Even in this age of factories being busier than they can handle, most don’t believe that this will continue forever—and the slowdown this last year confirms that. (The move by many factories to inland provinces and other SEA countries further confirms it.)

So to make the deal more palatable, it needs to be structured to benefit them in the short term and you later on, if at all possible. You can see this style of negotiation in lots of deals in Asia—the Olympics and North Korea being the biggest examples I can think of.

Secondly, you have to realize that if there are problems (and my experience says there ALWAYS will be) the “customer first” theory will NOT be practiced. You are not going to get anything banking on it’s “the right thing to do” or because it’s “good in the long run.” Again, don’t misread this as “you’ll get screwed by your supplier” as many people claim. It’s more a matter of immediate self-preservation in a very insecure system—and by nature, you look after yourself as your supplier looks after himself.

Third, never pay bribes, never take kickbacks and fire anyone who works for you that does. Draw a very clear line in the sand and make firings for this offense as public as possible. At the same time, never be afraid to pay more than you agreed to just to get what you want. The difference is the legality of the payments. Cash is king and if you have the cash you can run the show. For example, incentives (publicly and legally) paid to key engineers, managers and other individuals can make a big difference in the level of attention to detail that you’ll experience. Buying drinks for line workers in a factory without AC is another way to win point and get better results too.

Fourth, be very very careful about what you say about politics. Just because some Chinese (very rarely) criticize their own country in public doesn’t mean you can—even in personal, private company. Misplaced comments spoken in what you think is agreeable company can reinforce taught stereotypes and make partners less willing to cooperate and more intransigent on sensitive issues or requests for help. In the current environment, it’s just not smart to talk about politics or the 0lympics (unless you’re positively thrilled about each). The rule I was given by my first Chinese employer, a university in Chongqing, was: say nothing about Religion, T!bet, T!ananmen or Ta!wan. Some things have certainly changed, but it’s always better to be safe than sorry.

On a related note—it never hurts to know the right people. This isn’t an endorsement for pulling personal strings to get access to opportunities that otherwise would not be available to you. But it is an absolute acquiescence to the reality of the power of well placed political individuals in a relatively weak legal system.

Finally, let me say that I’m not trying to insinuate that Chinese are all about money and themselves. But I am trying to convey the notion that background experiences color the perceptions and positions of the Chinese partners that you work with. Understanding and emphasizing with that background will always be an asset in negotiation and working with your Chinese partners.

Tags: Business, China, Culture by david
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One visa for all countries in ASEAN—great idea! The fact that you’ve got Thailand,Malaysia and Vietnam all fighting over the same pool of potential business clients and ton of tourists going to both Cambodia and Thailand (and to a lesser degree Vietnam) this is a great deal for Thailand—as the largest regional city/airport Bangkok becomes more and more the de-facto hub for all SEA travel. With the new road connections from China, this would boost travel and investment into Lao too, no doubt. Now if ASEAN could just do something about Burma…

A very interesting perspective on Thai culture and the lack of any real political progress in the last decades. Even more interesting now that there are signs of yet another coup in the works this week (more here). If you could clean up the sex trade and straighten out the government processes in Thailand, it might just be heaven on earth. Dare to dream…

Wow!! Let me get this right…thousands of factories close in China in the previous two financial quarters and Thailand, as the regional investment hub for SEA, has 5.7-6% per quarter growth! Well, fancy that. If you’ve ever done business in Thailand you know a couple of things. First, it’s a great place to go on vacation. Second, Mandarin and Cantonese are just as useful as Thai when talking with most factory management. And third, investment, ownership and raw materials are, in large part, all coming from China.

2008 Global Competitiveness Rankings. China and the rest of SEA are just eating up the European countries and Singapore may just knock the US out of it’s 15-year top spot next time around. Brief article here. Methodology and details here. The world it is a changin’.

And finally a not-directly-related-to-SEA piece of news; more on the impacts of the quake to Chinese and global finance here.

Tags: Business, Culture, Thailand by david
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I don’t agree with what Sharon Stone said (here’s some apology news). But a lot of Chinese actually do–it’s not just PC for a Westerner to point it out. She is not the only one saying it publicly either. I would dare say that more Chinese people are themselves talking about it than foreigners are even thinking it.

Take, for example, my wife’s niece. She is a 22 year old college student in Guangzhou. At a family dinner last weekend she said: “this is supposed to be China’s lucky year (08) and the government said that it’s supposed to be a really good for China because the 0lympics are coming. But it’s been the worst year that I can remember.” I asked her if that was her opinion or if she heard if somewhere else. “Oh, most of the people in Guangzhou are talking about it.”

So, that got me thinking are other people saying that too? Sure enough, just mention how this supposed to be a lucky year to just about any Chinese and you’ll certainly get “yea, right” type of response—try it. I’ve talked with neighbors, employees and restaurant and factory workers and all have basically the same response.

The most detailed response was from a taxi driver who said that his life is worse now than it was a couple years back. He said that inflation and the number of private cars and the subway have really cut into his business. He said “the big money times” are over. I asked my (Chinese) wife about his comments when I got home that night and she immediately agreed. Someone else did a blog about a paint supplier with the same opinion a few weeks ago—but I don’t remember who or where—sorry for not citing you to whomever beat me to the punch on this topic.

While I don’t believe that it’s the end by any means, here’s a quick list of what’s happened so far this year.

1. Snow storms strand millions
2. Train wreck kills 70
3. Foot and mouth disease kills children
4. T!bet Riots
5. Torch fiasco. It was so bad they won’t do it again!
6. Sichuan quake—90K dead or missing, 7000+ collapsed schools, umpteen millions if buildings collapsed, 5 million homeless.
7. And now more dam(n) problems
8. Torrential rains
9. Inflation in China at 8.5%.
10. Post-quake political intrigue. The PR honeymoon is officially over.
11. Food shortages

Remember that China is a very superstitious society—there is tons of weight given to lucky numbers, fortune tellers and fengshuai—my children were named by Chinese fortune tellers (who cost a small fortune!) and my office is organized according to fengshuai and in a building with “good fengshuai.” The Shenzhen government building was designed according to fengshuai principles (good for the government, the people in the buildings directly across from the pointy roof are mad as hell that they get all the bad whatever that shoots out from the corners—their property values dropped!). Historically natural disasters were seen as a sign that a particular dynast was over—don’t discount the impact of this concept in the interpretation of the current cycle of “bad” events.

Tags: Culture by david
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I’ll admit, I’m biased. I would much rather live in Thailand than just about anywhere else on the planet. And news today of Thailand’s world #47 ranking in medical technology. And Thailand costs (better than Korea, Japan, Malaysia, and China) supports my desire. Article here.

The only concern I have is if an ambulance was needed, could it get through the traffic?!

On a more serious note, I’ve had three different companies come to me in the last two months asking for help with manufacturing “anywhere but China.” Their words, not mine. Two of the clients are in the toy industry and another in home decor.

Their reasoning? First, the lead paint scares last year are not yet forgotten in the Toy industry. This means that regardless of the quality available, high end Toys can’t have the “made in China” label. Second, the costs of labor in China are rising so rapidly that re-orders are priced to high to keep up with a hot selling toy. Third, marking, marketing, marketing. Fair or not, there are enough consumer groups targeting “made in China” that it’s too sensitive to risk right now–particularly if children’s items are involved.

I moved the majority of production that we do from Thailand to China in 2003 because China had both better prices better/more options. Particularly in Guangdong province. Since then, I’ve seen the prices rise and many factory options (and laborers) move to other provinces within China and many back to SEA (mostly to Cambodia and Vietnam). What is interesting to me is that China is still the source for much of the raw materials that are used in SEA factories. And, unless labor is the major cost contributor to a project the Pearl River Delta still has many advantages over Western China and SEA.

So, for the present and foreseeable future, I’m still going to be living in Shenzhen and working, mostly, in China. But for vacations and plastic surgery I’m definitely going to Thailand!

Tags: Business, China, Culture, Thailand by david
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