Silk Road International Blog

The protests in BKK have put the Thai government and the Thai people in an awkward position.  The protests are no longer about if the government will change.  Rather they are about when will the govt step down, how will it come about, and what will Thailand do afterward.

The reality is that the Red Shirts have won.  Like it or not, they have been in the streets too long and have too many people shutting down too much of the city to be physically moved or cajoled out.  The government has ordered them out, has issued summons for arrest of the leaders and still they fill the streets and shut down multiple shopping malls, hotels and intersections.

The govt looks both weak and indecisive even though they have the law on their side.  They probably have about ½ of the populace on their side and business leaders are putting pressure on them to do something too.  But they have done nothing.

But to be fair, the govt have few if any choices left to them.  They can use force and push out the Red SHirts and then have a full scale riot on their hands—this will garner support from people on the fence and be condemned by all the int’l press and foreign govts.

Or they can negotiate—which just means that the Red Shirts get more and more leverage the longer they can hold out.

The military doesn’t want to step in either.  This is evidenced by the fact that there are NO police or military on the streets at all (police offices near the protests are closed!).  Even though there is a State of Emergency in effect, laws specifically regarding mass assemblies have been breached and there have been more than 40 bomb threats in the last 3 weeks—even injured policemen–there is NO security presence visible at all in the main protest area (Radjaprasong Dist.).

So if the military aren’t going to stop the protests will they force a coup?

They are stuck here too.  If they force a new govt on the people then they’ve simply recreated the same problem they are facing now—a non-elected government that the people do not accept.

This is a crisis of faith in the system, not just a partisan political move at this point.  The Thai people have to choose: if the government is dissolved and a new election occurs, will they accept democracy regardless of whom is elected or will the next government also face mass protests from the opposition?

If it was just the position of the PM in Thailand that was in question this might be just an academic question.  For example, Military kicks out Abhisit and sets up a temporary govt for 2-3 months to set up new elections and then the democratic vote ends the problem.  But it’s much more serious than that.

It is no secret that corruption in Thailand (and China, and Vietnam, etc., etc.) is a historical and cultural problem that affects not just governments but businesses and everyday life of almost everyone living in it’s wake. The Thai courts, the military, the freedom of press, the relationships/influence of business and powerful families are all in question.

So what if the government is replaced but the courts are still controlled by the military?  So what if a new PM is elected democratically if he again has big business ties (as Thaksin did)?  So what if Thailand gets a new government but a large enough percentage of the population decides they’re not going to accept it no matter what (and protest until the choice is, again, force or absolving yet another )?

Regardless of who wins this round Thai’s have some ethical decisions to make about what’s next for the land of smiles.  And these decisions will specifically affect business as well as politics, hopefully for the better.

On a lighter note, the best piece of political commentary I’ve ever heard came from a speech given by a UDD leader yesterday.  In talking about policies that look good on the surface he said (Using the word for transvestite as the personal pronoun) “It may look pretty, but until you see which bathroom it walks into you don’t really know what it is.”

And I bought a great shirt t00.  It says: “Have you gagged-down-like-a-dog enough yet?”  Very vulgar Thai verb for eat that you don’t use for people.

Also, the Red Shirts were the most polite group of protesters I’ve ever seen.  They offered me food, drinks and a place to sit and listen (relative close to the stage).  I must have had polite conversations with 10-15 different people attending the rallies last night–all from BKK (as opposed to the afternoon folk which are mostly bussed in from the provinces and paid around 65B/day)–to a person they were interested in what I understood and hoped that I would support their cause.  But they weren’t pushy about it.

Finally, just by chance I ran into a buddy from grad school who was also watching the protests.  What are the odds?!  Two Americans, that speak Thai, who went to school together, in the midst of a crowed of more than 10,000 people, at night, run into each other!

Tags: Culture, Politics, Thailand by David Dayton
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I apologize for not posting for a while.  I was completing a year-long goal of losing 50lbs and running a triathlon, the Laguna Phuket Triathlon, this last week.  I have never been so proud of 618th place in my life!

I’ve also been incredible busy–I’m writing this from Vietnam. 5 countries in the last week and the contrast in national “personalities” is just striking–I’m literally overlooking a huge street party in HCM city right now.  Vietnam just won the Asian Games football gold.  Thailand was a vacation (whether we wanted it or not) and China is 24/7 business–we were gone for only a week and came back to a new building that had previously just been cement, with a totally new glass face.  Taiwan seems more and more depressing each time I go and Hong Kong is still amazing.   And as we’re heading back to the US for Christmas (country #6 in 10 days), this will be the last post of the year too–other than the annual year-end review of the most popular posts.

Thanks for reading and commenting.  Merry Christmas and Happy New Year.

At the last Global Sources show in Hong Kong I was asked after my presentation: “So is there anything else that you think we (people new to business in China) should know?”  I answered, “Yea, tons!  Do you have a year?”

Here’s the longer answer to that question.  These are my suggestions based on the books that I’ve read over the last few years.  These are all books that I liked and found to be of value, or at least to be of interest.  I tried to focus the list and limit the qtty to what I expected is a manageable amount of reading for someone who is busy moving to another country.

Of course, this list is in no way exhaustive.  Feel free to add to it.

I’ve divided the suggestions into different categories based loosely on the situation of the coming reader.  The first link is to SRI’s book review (if I wrote one), and the second is to Amazon–you’re welcome.  My favorites are numbered (1-10).

First, Business Professionals—meaning people that are going to be working in China in a more or less completely Chinese environment full time.

(4) Inside Chinese Business, by Ming-Jer Chen

(3) Chinese Business Etiquette, by Scott D. Seligman

(7) The China Price, by Alexandra Harney

The Chinese, by Jasper Becker

Managing the Dragon, by Jack Perkowski and (8) Mr. China, by Tim Clissold

Business Leadership in China, by Frank T. Gallo

(5) The Coming Collapse of China, by Gordon G. Chang

(Yes, there are a ton of other books that could go here–feel free to add to the list below–but these are the ones that I thought were the best.)

Sub category: Importers—people trying to build their own brands and markets within China.

All of the Business books above, plus:

Luxury China, by Michel Chevalier and Pierre Xiao Lu

(6) Elite China, by Pierre Xiao Lu

Where East Eats West, by Sam Goodman

Sub category: Buyers—these are people that are here irregularly, but still have significant in-China experience.

All of the Business books above, plus:

Poorly Made in China, by Paul Midler

Factory Girls, by Leslie T. Chang

All the Tea in China, by Jeremy Haft

One Billion Customers, by James McGregor

Second, non-business types. Maybe spouses of professionals and/or English teachers or students (non-business focus).

(9) River Town, by Peter Hessler

Oracle Bones, by Peter Hessler

The Rape of Nanking, by Iris Chang

Will the Boat Sink the Water, by Chen Guidi and Wu Chuntao

Wild Swans, Jung Chang

Life and Death in Shanghai, by Nien Cheng

Soul Mountain, by Gao Xingjian

Chinese Lessons, by John Pomfret

China Hands, by James R. Lilley and Jeffery Lilley

Lonely Planet China, here’s the web site too.

Sub category: Politics and/or higher education

(10) China: Fragile Superpower, by Susan L. Shirk

The Tiananmen Papers, by Liang Zhang, Andrew J. Nathan, Perry Link, and Orville Schell

(1)Gifts Favors and Banquets (anthropology), by Mayfair Mei-Hui Yang

(2) Capitalism with Chinese Characteristics, by Yasheng Huang

The Great Wall, China Against the World, by Julia Lovell

What does China Think?, by Mark Leonard

The Search for Modern China (history), by Jonathan D. Spence

Chinese Religiosities (anthropology), by Mayfair Mei-Hui Yang

Tags: Book Reviews, Business, China, Culture, Politics, Thailand by David Dayton
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Following on the last post, here are some more interesting numbers coming out of China.

Unless Madoff-style or Enron-style accounting is taught in school, I believe that “Accounting in China” should probably be taught as at least as an anthropology class in International MBA schools: this is just the way numbers are run over here—from SOE’s to NGO’s, to local govts, to private companies.

Item 1.  NGO’s are not. Meaning your donation to the Sichuan earthquake victims actually went to the CCP.  Highlights here, and the original article here (h/t to China Esquire)

Item 2. SOE’s are making a comeback. Contrary to popular belief, SOE’s are not a diminishing part of the Chinese economy, but rather a ever-growing presence.  In the book Capitalism with Chinese Characteristics, Huang discusses this as a mater of policy since the early ‘90’s.  In his (always good) blog Bill Dodson discusses how the tax laws, investments in strategic resources and the stimulus package in China is accelerating it too.

Finally the One Child Policy. The numbers from private groups, again different than the propaganda that the central government is putting out, show that China is going to have a very different set of demographics in just 20 to 30 years.  And, as the comments point out, there are significant questions about the accuracy of the numbers as the census takers are motivated by politics and countervailing job performance standards than by collecting accurate numbers.  But even if the numbers (120-100 girl-boy ratio) are less than that (I’ve read more like 112-104) the result will be the same, just a decade later. Brubaker’s blog is another that I recommend should be regular reading—always good stuff.

The reason for pointing these out is not to make China look bad but to make foreigners coming here for business for the first time (the majority of my clients) look twice (or three or four times).  My intent isn’t to bash China, but rather to point out that just because people work in glass an steel office buildings, wear (pant) suits and use cell phones and computers does not mean that they do business the same way.  I just think that it’s often times a shock for non-Chinese speaking Westerners to see McDonald’s and Starbucks and then find out that account rules are not the same and might just as well be written in cuneiform.

I find the excitement about China to be significantly reduced when the rubber actually hits the road for most people.  More often than not China ventures are not as financially successful as they could be (or were expected to be), often because many coming to China don’t know what they don’t know about Chinese business.  Admittedly, I’m in the fixing-problems business so I only hear the horror stories, but I have to think that many problems that foreigners have in China could be managed if not avoided if more education and DD were added into the pre-order processes.

Good luck.

Tags: Business, China, Politics by David Dayton
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I’m firmly ensconced on the fence when it comes to China and it’s future—I love my family and my friends here but can’t imaging a more amoral environment to work in.  I am so grateful to be here and to still have business in the current economy, but working here is dangerous, unhealthy and difficult.  I see the market growing incredibly but think that the bubble is scary-huge already.  8% GDP growth is amazing, but the current plan of government spending and exports isn’t sustainable.  So, knowing where I stand, you’ll understand why I say it’s rare that I find multiple articles that I think are really well written (in terms of perspective and research) and also immediately valuable for use in business and/or personal investment or planning.   The two links below are both.

Long time readers will also know that I doubt that the China is the next “superpower.”  But I do completely agree with and believe that China should and will be the largest economy on the planet—just getting 1.5 billion people to a respectable level of education and income will demand that it be so—the world just needs to get used to that.  But China is not there yet, as this FP article points out.  And there are many issues (increasing poverty, decreasing education) that have been getting worse not better in the last 20 years; hence my uncertainty about China’s future.  The combination of so many factors leads me to the conclusion that there are serious troubles ahead for China.  For the sake of my family and business (and other people too) I hope that I’m wrong.

If you’ve read my posts on the economic situation on the blog and are again thinking “man, this guy just can’t say anything good about the Chinese economic miracle and the fact that it’s the only growing economy on the planet” then you need to read both these articles and some of the other books that balance the China-as-world-savior hype.  I’m not saying you should subscribe to the China’s-going-down-in-flames perspective, I don’t; cautious pessimism is more of what I would call my attitude—which I find prudent for doing business here.  But as more info comes out, an increasing number of people in a wide variety of business and political sectors are seeing a big crash coming too.

Remember when you read numbers on China—there is absolutely no transparency here.  Not in the government, not in public companies, not in private companies, not in tax records, not in corporate power distribution.  Nowhere.  So everything you read, you have to question both the source and the motive of the source.  Further, the terminology used by Chinese and then translated to into English equivalents are often misleading as the baggage/meaning in the English is not necessarily the meaning in China and sometimes completely different from the Chinese.

And finally, while the US and China are sitting down together this week–the Chinese are (rightly) asking the US what the hell is up with the “stimulus” package that inflates both long term US debt and the current deficit?!   But the US is asking the right questions too–how can the Chinese government continue it’s stimulus if the world doesn’t recover to pre-crash levels of consumer spending?  Answer?  They can’t.

Tags: Business, China, Politics by David Dayton
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Had a couple of really interesting discussions about working with Chinese factories today.  One was with a Purchasing Manager from the States that buys for his company in China.  He says that almost as difficult as dealing with all the unknowns and changes in China is convincing Americans that have not been to China in his company that China really is that irrational and difficult to deal with.

For example, the sales team was told that it takes two weeks to produce item XYZ.  But in reality over the past year every shipment is at least a week late, if not two.  This PM says it’s obviously taking 3 weeks to make the products.  So, logically, they need to extend their lead times accordingly.  But where’s the other week going then?  Domestic port transfers.  Closing dates are on Wednesday or Thursday for Yantian port in Shenzhen.  So if you don’t get product IN the port by noon on Wednesday you miss the boat and have to wait A WEEK for the next one.  And the boats don’t leave on Wednesday, that’s just the closing date.  So even if you make the closing date your stuff won’t leave China for another 4 more days.  There’s your second week.

But for some reason, sales people think 1) “Hey?! We can load and clear out a container in one day, why can’t they?!”  and 2) “Can’t we just tell them to do it faster?”  This is the secret to working in China.  Logical and logistical inefficiencies abound and make every transaction take longer (even if there are more workers and production is actually shorter than in the US).  You have to realize that banking, logistics, communications, physical confirmations of product and container loading can take you much longer than what you’re used to in the US.

Get your head around this reality and adjust your expectations accordingly or be very frustrated for the last two weeks of every order.  PM’s can help the process by placing orders on Fridays and start counting days on the following Monday.  You can also account for closing dates and shipping lead times; add in at least 4-5 days for every shipment or coordinate orders to finish and go to port on Monday or Tuesdays so you know you’ll catch the Sunday boat.  Understand that there are cultural issues on both sides that are hard for the other party to understand.  (For example, why can US companies only cut PO’s/checks one day a week?  This drives Chinese business people nuts.)

The second conversation was about attitudes and perceptions in China with the US economy is still weakening and China (according to official reports) still getting stronger and pulling out of the recession (first).  I’m still hearing that this is changing some of the ways that factories are looking at clients/buyers.  It’s not bad, actually it’s good.  But for those foreign buyers (especially US) that were used to being treated special, those days are coming to an end.  There are other fish (with money) in the pond now.  And there are enough stories about foreign companies stiffing Chinese factories that everyone here knows someone who was “unfairly” imposed upon because of the financial irresponsibility in the West.

Both this blog and China Law Blog have detailed how Chinese factories are more and more sophisticated in their research of potential foreign buyers and their participation in foreign markets.  This is all good, unless China was where you came to stroke your ego and feel appreciated.

You can also add to this the fact that factories are calling and telling us that if we have clients from the US they don’t even want them to visit right now because of the fear of H1N1 (pig flu).  They don’t want to take the chance that they’ll have to quarantine everyone for a week to ten days just because some guy from LA showed up with a cough.  Like Rodney says, no respect.

Other tidbits.

GM to make autos and ship them to the US.  Good, bad or ugly?

Good, for the domestic market here for sure.  Bad for Detroit—but what isn’t other than the Red Wings?  And ugly for quality.  Everyone’s heard of Beijing Jeep.  But it’s not just fake autos but parts out of China that are really scary.

80% of fake parts come from China. It’s so bad India (yes, India) is scared of being lumped in with China.  Most know that counterfeits are endemic to the China auto industry.  And that Professionals can’t tell the difference. What’s scary is that poor quality fakes in your car can kill you and the number of products sourced for autos in China is going to rise (especially if the entire car is built here!).

This is a good source for Black Market auto parts and other counterfeit news (news about counterfeits, not fake news).

Other Econ news.

You’ve heard of the bell curve, right?  Well, meet the “W” curve.  No it has nothing to do with George but everything to do with the end of this year.  Be afraid.

And finally, Missing China stimulus money is feared to be in individual bank accounts and stock portfolios.  50% of govt infrastructure programs are not completely funded either.  This is how you spell “slower-than-expected” second ½ of 2009 annual growth.

Tags: Business, China, Culture, Politics by David Dayton
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