My column Challenging China for Eurobiz Magazine”>Eurobiz Magazine focuses on Information Technology (IT) issues Western managers encounter in China. Eurobiz is a publication of the European Union Chamber of Commerce in China. China IT does have particular issues unique to the society, which, though modernizing at a rapid pace, is learning the kinds of processes and controls the West learned (and seems to continually forget) decades ago. I write:

“Unfortunately, the entire relationship between Western companies and the IT function in China is complicated in that the vast majority of organizations have to outsource their IT to a plethora of small, local outfits. This has as much to do with the dearth of IT talent in the marketplace as with the newness of IT as a discipline in China. The West has been fouling up corporate IT projects for decades; in China, a mere ten years at most. Outsourcing IT in many ways can be more frustrating and expensive than using qualified, in-house resources. Outsourcers have multiple clients they are juggling; your Management does not have the convenience of interviewing outsourcing resources, who are typically young and whose English language capabilities might be wanting; and outsourcing companies in China never seem to give adequate time to thinking through to the root causes of organizational IT problems, or to sticking around long enough to ensure issues never recur.”

The article is based on my efforts within Asia Base to rationalize IT support calls and resolution processes. It ain’t been easy, let me tell you.

“To the technician I was the irrational Westerner; his job was to fix the problem the user had called him on. My job was to make sure staff had an environment in which they could be productive and have somewhat fulfilling work to do that was profitable. The problem, I explained to the principal of the IT services company, was there was no triage system in place to help both users and service representatives prioritize issues. To both users and service providers, every issue was an emergency. The result was that IT was actually creating as many issues as it was solving. IT and user habits brought in off the busy streets of China were maintaining a destabilized work environment.”

Check out the article, when you get the chance.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F23%2Fseat-of-the-pants-it-support%2F'; addthis_title = 'Seat-of-the-Pants+IT+support'; addthis_pub = '';

I wrote at the end of December how the Chinese government was unimpressed with company bosses who were closing up shop in Guangdong and Shandong provinces and running back to their home countries with their suitcases literally stuffed with the company’s proceeds. Of course, this course of action is highly illegal, as many staff remain to be paid and many taxes and fees much change hands with local government officials.

Today’s Financial Times reports that Chinese company owners are doing the exact same thing in the African country, The Democratic Republic of Congo.

“More than 40 Chinese-run copper smelters are standing idle in the Democratic Republic of Congo after their owners fled the country without paying taxes or compensating staff at the end of the commodity?boom, according to a governor.”

The circumstances surrounding the flight from Congolese justice sounds remarkably like that in the industrialized Pearl River Delta and Bohai regions.

“When global commodity prices tumbled, the result in Katanga was painful: in the space of weeks luxury house-building projects and freshly imported Jeeps vanished to be replaced by unemployment and rising crime.”

The Congolese government - like their gray-suited government counterparts in China - are singularly unimpressed with their errant guests.

““They didn’t pay their people, they didn’t respect anything. We have already written to them to ask them to give severance pay to their staff and to pay the tax due to the government.

“If they don’t, we are going to ask the court to auction their properties to pay the bills.”

I don’t imagine the Congolese will be rolling out the red carpet to Chinese businessmen anytime soon.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F20%2Fhow-to-become-a-chinese-persona-non-grata%2F'; addthis_title = 'How+to+Become+a+Chinese+Persona+Non+Grata'; addthis_pub = '';

Economists are keen to gauge all kinds of ancillary data about an economy to divine the general direction in which an economy is developing; for instance, electricity usage, pollution rates, commodity prices, real estate values and vacancies, etc.

So how about measuring the number of mistresses a businessman is able to support? The China Daily’s Tuesday 17 February 2009 print edition had an article about a Chinese businessman that juggled five mistresses. Tragically, one of the mistresses died as she plunged the car in which she was driving her boyfriend and the four other mistresses to a resort area; she had lost in the first round of a beauty and talent contest the businessman had hosted to determine which of the five mistresses he should keep.

“The Shanxi native reportedly became Fan’s mistress shortly thereafter and lived with him in a two-room apartment bought by the man…Fan, a married entrepreneur, also kept other four mistresses two of whom were his employees and two his former clients, the report said.”

The economics of keeping a mistress in China is enlightening about how China’s New Money has chosen to invest its recent financial gains:

“Fan introduced the five to each other, but none chose to break up with him, as each reportedly received 5,000 yuan (US$733) a month plus a rent-free apartment.”

Clearly, in an economic downturn of global proportions, this bit of overhead can quickly seem burdensome. So, for a bit of creative vetting:

“But business began to go bad, and Fan decided to lay off all but one mistress to save money… To select the best one, he reportedly staged a talent show in a hotel last May, even inviting an instructor from a local modeling agency to be a judge…”

It seems though, not just mistresses are succumbing to the economic downturn; errant journalists under pressure to produce are as well.

Yesterday’s China Daily retracted the story, though, which was apparently a translation word-for-word of a Chinese article printed in Wuhan some time before.

Seems the dismal science has many more data points to choose from than ever before.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F19%2Fsour-economy-affects-economics-of-being-a-mistress%2F'; addthis_title = 'Sour+Economy+Affects+Economics+of+Being+a+Mistress'; addthis_pub = '';

Last night on Suzhou local news - between the reports on the latest real estate scam and the young man that murdered his pregnant girlfriend - there were a couple reports on the state of the local school system, which, I imagine, is reflective of the state of the nation. Actually, given that Suzhou is as rich per capita as a second-tier city as any of the first tier cities in China, it just might be that the state of most other school systems is even more desperate than what I saw last night.

The first report talked about how over-crowded Suzhou public schools have become. On average, after 8th grade, it costs about 400 RMB per month for a student to go to a public school in the area. With the import of a wai di ren (literally, outside land people - Chinese from cities other than one’s hometown), public schools are bulging with pupils. For an additional 1000 RMB up to 10,000 RMB per month parents can send their children to private Chinese schools. However, the quality of the Chinese private schools is difficult for parents to gauge. So, they are in a quandry as to what to do with their children.

Which brings us to the second education-related report, fifteen minutes after the first. A private school for elementary age children was suffering financially (for reasons I am unclear on). The Chinese owner of the school saw the handwriting on the wall (in a manner of speaking) and ran off with the school’s funds. The parents nor the teachers nor the police know his whereabouts. Teachers continue to work without salary; though for how much longer no one knows.

Of course, it seems contradictory that in the first report there seem to not be enough public schools to go around, which should mean bonanza for private schools. However, if the quality of the private school is not good and/or the tuition is higher than the market is willing to bear, it seems it will meet its end.

I have a tough time, though, shaking the image of the six-year olds happily stomping around the playground, oblivious to the turn of events at their school, and clueless that getting a proper education in modernizing, ever-wealthier China will prove increasingly challenging for them.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F18%2Fthe-value-of-education%2F'; addthis_title = 'The+Value+of+Education'; addthis_pub = '';

Yesterday I chatted with a young Chinese local who had been making the rounds of interviews in Suzhou. She had been laid off from her job as an interpreter from an American manufacturer in the area. Apparently, she pressed for a raise at just about the worst time an individual could: just as Wall Street and the American automotive industry were melting down and no one knew quite who would be the next president of the United States. Her two years work experience did not help save her job.

When I talked with her she had just finished an interview with a Taiwanese corporate training company. It had been her second interview with a company since the end of the Spring Festival. “There were fifty people for the interview,” she told me. Company management had had the group of hopefuls herded into the same waiting area.

The day before she had dropped her resume at a job search agency that promised - with the payment of a couple hundred RMB - to blast her resume out to target companies.

“You know,” I told her, “Taiwanese companies don’t have such a great reputation in China for treating their staff well.”

“I know,” she said, “I don’t want to work for a Taiwanese company; but no choice. I have to find a job.” Her family was acutely feeling the loss of a third of its income with her unemployment. The position of proctor for electronic English-learning pays about 1,500 RMB per month, she told me. Before, she was making 2,300 RMB per month.

“There are very few Western and Japanese companies hiring,” she said, “Most of the companies hiring are Chinese or Taiwanese.”

A Wall Street Journal article from today bears out her observation:

“Foreign direct investment in China plunged 33% in January from the same month last year to $7.53 billion, the Ministry of Commerce said Monday, as the global economic downturn slowed capital flows into the world’s third-largest economy…Tao Wang, China economic research head of UBS securities, … expects direct foreign investment into China to drop 30% to 40% for all of 2009.”

Looks like our interpreter-friend in is for long, hard job search.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F17%2Fjob-search-blues%2F'; addthis_title = 'Job+Search+Blues'; addthis_pub = '';

I recently received an interesting email from a Jiangsu Province government official:

“Your China Economic Weather Report is interesting. We, at XYZ Economic Development Zone, are tasting the bitterness of global recession. We totally agree with your FDI Forcast for 2009. Some of our clients have decided to postpone or even cancel the investment plan under current economic turmoil. However,the pharmaceutical sector seems less affected by the economic meltdown. Three chemical companies signed investment agreement with us in 2008. We are making adjustment in development strategy to better cope with the downturn. The pressure is there on our shoulder to reach the same or even more amount of FDI in this situation. Hopefully things will get better in the second half of 2009.”

In particular I found the administrator’s observation that pharma was weathering the economic downturn relatively well quite enlightening. In talking with an American expert in the field who visited our office a few days ago, we agreed that Pharma in the West was at a crossroads: R&D has become prohibitively expensive; many blockbuster drugs are reaching their patent-expiry dates, after which low-cost manufacturers will be able to copy the drugs with impunity; and the road to FDA approval (at least, state-side), is fraught with expense and failures aplenty.

The China market - as is the case with so many other industries - has opportunities aplenty for relatively low-cost development as well as consumption. But - again, as is the case with so many industries in China - the market is highly fragmented with little regulation (think “milk”). It will be another few years at least before Big Pharma - and the FDA - will be able to feel comfortable pursuing substantial R&D projects in China, as well as clinical trials.

The allure of one billion pill poppers, though, will eventually transform the obstacles to developing China’s pharmaceuticals market into grand opportunities.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F16%2Fone-billion-pill-poppers%2F'; addthis_title = 'One+Billion+Pill+Poppers'; addthis_pub = '';

I’ve just finished reading Simon Winchester’s “The Man Who Loved China: the fantastic story of the eccentric scientist who unlocked the mysteries of the Middle Kingdom.” The book is a biography of the British biochemist Joseph Needham, who forsook his work in a field in which by the age of 30 he had already distinguished himself to become the foremost expert in the area of the History of Science in China. Already married, he fell head over heels in love with a Chinese protege who had traveled all the way from Nanjing in 1937 to Cambridge University to study under Professor Needham (ahem). For nearly sixty years after, Needham’s life would be proscribed by the walls of one university, the love of two women and the history of one country - China. Punctuated by the occasional world war and red-communist witch hunt, Needham etched a deep mark in the West’s perception of China through his mega-tome Science and Civilization in China. The seventeen-volume series took nearly forty years to write after he began the work in the early 1950s.

Two questions that kept gnawing at me while I read the book were: So what happened to ALL scientific Innovation in China (Innovation with a capital “I”) - a question that haunted Needham as well; and Why don’t China Hands today “love” China the way China Hands from the early 1900s through 1976 (with the death of Mao Zedong) did? Scholars still debate the answer to the first question. I have my ideas about the second question.

When China Hands - essentially Westerners sent to either minister to the Chinese as missionaries, or the journalists that covered the greatest colonial battleground in decades (I don’t consider government suits posted in China Hands) - made their way to China the country was in a pitiful state. The foreign government that had assumed the mantle of the Ming Dynasty - the Manchus - had not developed the country, and essentially allowed it to disintegrate from the edges to the rotten, corrupt core that was the Qing court. Other foreigners - as every schoolboy should know - picked at what was economically viable.

China Hands for the most part seemed to have a genuine compassion for China and its people during one of the worst periods of any country’s history. In general, they saw China and the misery of the times as a way to make a difference in the world, however altruistic it might seem to us today. The depth of their emotion comes through in much of their fabulous writing.

Today and for the last 30 years, China has chosen its direction, and it ain’t pretty. Especially since the uncertain times of the Cultural Revolution, the powers that be have been identifying the country with wounds the rest of the world has reconciled itself with, and bases its mantle to govern on how many jobs it creates and where it is in the world’s ranking of GDPs. It’s tough to be romantic about greed. Being a China Hand now is less like a tryst and more like - well, being married.

Nevertheless, having myself been trained as a scientist (Physics), with a concentration in the History of Science, and now having made China my home, I admit to enjoying the book a great deal. It was a good read, a fast read. Breezy, without quite the same level of detail as Paul French’s biography about Carl Crow. Still, I would recommend it to anyone who wants to learn about the China Hands that lived in China during the Japanese occupation of the country. Also, if you’re particularly interested in learning just how innovative the Chinese were for centuries until the middle of the Ming dynasty, then this is the book for you.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F12%2Fafter-the-love-is-gone-the-life-of-joseph-needham%2F'; addthis_title = 'After+the+Love+is+Gone%3A+The+Life+of+Joseph+Needham'; addthis_pub = '';

The last couple years I’ve been writing this blog I’ve written about my discussions with companies based in Central China and their difficulties hiring staff from the East Coast that want to come to far off and (to an Easterner) uncool places like Chongqing, Wuhan and Chengdu.

In a back-handed sort of way Intel has done what many companies wished in the past they could do but either found it politically incorrect or economically unpalatable or both: fire anyone who doesn’t want to move out there.

ChinaTech News.com and other media channels have reported Intel will be closing its Shanghai plant, which employs about 2,000 staff. If staff would like to keep their job, they have to move out to Chengdu, where Intel has another plant. Intel will be increasing capacity out of the Chengdu plant over the next year, eventually rendering the Shanghai plant redundant.

Intel just may be setting an unsettling precedent for other companies - foreign and domestic - that are looking to reduce their operating costs while retaining experienced talent.

As ChinaTech News says, “…good news for investors, but bad news for employees in Shanghai.”

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F11%2Fstaffing-the-interior-intel-blazes-trails%2F'; addthis_title = 'Staffing+China%27s+Interior%3A+Intel+Blazes+Trails'; addthis_pub = '';

The colonial dream of “adding a single inch of cloth to the sleeve of every Chinese” may one day have an IT equivalent for Western software developers.

I recently received a press release from next-door neighbor Dextrys, a software outsourcing outfit based in Suzhou and Boston:

“…China is still an untapped market for US software sales and cannot be ignored by US software providers as they seek new avenues of commerce. Up until this point, most Chinese businesses have never been exposed to US software.”

A lot of that, of course, has to do with the American market itself being so large for software applications the rest of the world never really mattered. Also, most American software companies couldn’t be bothered localizing their software into Chinese language, leave alone setting up the sales and distribution network to grow the business in China. Of course, that likely 90% of all software-use in China is pirated likely scares the beejeezus out of all but the largest American vendors.

The press release threw out some statistics such as:

“While 87% of Chinese companies surveyed purchased software in 2008, only 30% considered US-developed software…”

“However, 84% of respondents have a strong positive impression of US software quality…”

“79% of respondents are willing to buy software from any country other than China—including the US—as long as it meets their business needs.”

Anyway, if you’re interested in downloading the full survey, go to the Dextrys site.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F10%2Fa-line-of-programming-code-for-every-chinese%2F'; addthis_title = 'A+Line+of+Programming+Code+for+Every+Chinese'; addthis_pub = '';

The Financial Times recently published an interactive map of Asia that reflects their reading on the economic barometric pressure of various countries. If it’s China; it must be raining. But not as hard as in Japan or South Korea.

OK, so their weather map is cooler (cuz it’s interactive) than the weather forecast I posted of the Chinese economy a couple days ago. Still, I used blizzard conditions where they simply stopped at rainstorms. Fair-weather economists.

Cup of Java anyone?

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F05%2Fstormy-weather-the-economies-of-asia%2F'; addthis_title = 'Stormy+Weather%3A+The+Economies+of+Asia'; addthis_pub = '';

Mid-week during Spring Festival I called an American friend to ask how his Chinese holiday was going. Dan (not his real name) has been living in Suzhou more than seven years, and owns a duplex in the northern suburbs of Suzhou, where he lives with his Suzhou wife and baby daughter (and Chinese father-in-law and mother-in-law; or rather, where they live with his nuclear family). The day before, he explained, they had all had a street fight with the next door neighbor, a local Chinese: very new money.

Dan explained, “I walked down to the garage to drive the car out to the airport. A friend was coming in from Dalian for the weekend, and I was going to pick him up from the airport at Shanghai Hongqiao. The driveway was blocked again; the neighbor had once again parked his car in front of my garage.” It was the third time the neighbor had done that. Though the neighbor also had a garage, and the garage was supposedly empty, he seemed predisposed to parking in front of Dan’s property. Presumably, the neighbor did not yet fully comprehend just what the use of a garage was. Or else, he was just lazy and couldn’t be bothered with getting out of the car, opening the garage door, getting back into the car, driving into the garage, then getting out to close the door of the garage. Likely the latter.

So Dan for the third time went next door, knocked on the man’s door, told him to move his car from in front of Dan’s driveway. The Good Neighbor made excuses for yet again blocking Dan’s car park, and took his time meandering toward the car. Of course, I’m sure he felt little Face in the process as Dan’s wife and father-in-law were berating the man in Suzhounese about the infraction. Petulant, the man got in the car, turned it on, and made to pull out of the spot. Despite the wide berth, he was able to go out of his way to knock Dan’s Chinese sister-in-law with the car. Though she did not fall down, it was clearly an unwelcome bump in the thigh.

Dan said, “My first thought was to protect my family.” Now, Dan is a big man. Played linebacker or some such for an American mid-west college team. He also has a temper to match his mass, though to meet him one has only to think pussy cat: big pussy cat. A great deal of potential energy, then, to be unleashed.

Dan punched in the hood of the neighbor’s car. It was at that moment the neighbor realized he really had crossed a line of no return with Dan and his family. Dan threw open the door to the driver’s side of the car and reached in to pull the neighbor out of the car. As Dan describes it, “the guy was scrambling to get into the passenger side of the car, but got caught on the gear shift. It was pretty funny, actually,” Dan chuckled at the telling.

Still, Dan was able to catch The Neighbor as The Neighbor tried to do an end-run round tail of the car. Dan wanted to punch the man, but his wife called out for restraint.

Meanwhile, The Neighbor’s family members leaked out of the property next door ready to rumble. Before Dan could put The Neighbor’s feet back on the ground, The Neighbor’s wife was hitting at his father-in-law, and two other family members from the The Neighbor’s posse were making for the sister-in-law. Dan threw the Neighbor to the ground and went for the two guys, at one point picking them by their collars and bouncing them off the nearest concrete wall. Dan saw that his father-in-law and wife had The Neighbor’s own wife on the ground, and were kicking her. He turned to see another couple of family members from the Neighbors make for his wife and father-in-law.

It had been clear to The Neighbor’s family they were not going win. They had already called the police. Not to break up the fight; but to press their right to park their car and to be abusive to whomever they pleased in the narrow lane that defined the neighborhood. Dan walked back home when the police arrived. He refused to speak with the police. He told the police in no uncertain words they were useless: his home had been recently broken into and the Keystone Cops and done nothing more than poke at the up-ended sliding door through which the thieves had broken in, and then filed a report.

In most instances in China when the police are called they stand silently aside. As another American friend confirmed, “The police in China usually come in mid-stream, after an argument has been going on for some time. They’ll usually get involved only when the two parties break into a fight, which is often the case.” And, of course, whatever the police adjudicate there on the spot does not carry any weight after the altercation, unless - in a matter involving a small amount of money - the transaction is carried out there on the spot.

A few minutes later a representative of the Property Management Company came by Dan;s home to see if there was anything he offer to smooth things over. Dan told the representative he was useless, too: for two years Dan had been complaining about the water problems in the basement due to poor construction; he had had his property broken into because the security guards and overall security level of the area was sub-standard; he had complained about the neighbor’s parking his car where he wasn’t supposed to be. Dan was not about to give the representative any Face. Dan said the representative “left with his head down, a broken man.”

“My biggest concern now is that the The Neighbor and his family are next door cooking up some kind of retribution. I’m afraid this is going to turn into a Hatfield and McCoys style family feud. I told my wife just go over there, pay them some money for the [damaged] hood, get this over with. But she insists, no; it would only show weakness.”

Sure, feuds between neighbors happen all the time throughout the world. But without institutions that ordinary citizens can trust - Management, Security, Police, even a civil court system - China faces an increasing number of property rumbles.

Ownership is not new to China; civility is.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F04%2Fgood-neighbors%2F'; addthis_title = 'Good+Neighbors'; addthis_pub = '';

Just before Chinese New Year a couple weeks ago I spoke at a symposium in Shanghai on Trends in Foreign Direct Investment in China in 2009. The China Economic Review sponsored the program, in which Steve Dickson partner at Harris Moure updated participants on government policy trends for FDI in 2009. You can find Steve’s paper on the trends on the China Law Blog.

Gems of self-proclaimed wisdom I offered the audience related to China’s slowing GDP growth, the Central Government’s response to the deceleration (through its much publicized fiscal stimulus package), and the effects the package would have on FDI in various industries across primary, secondary and tertiary manufacturing industries and China’s nascent services industries. For instance, the stimulus package will be good for domestic infrastructure projects, which will help reignite activity in primary industries like ore mining and processing, steel and concrete making. Secondary industries involved in the manufacture of things like sneakers, toys and plastic wares, consumer electronics and the like will see some impetus from consumption, as Chinese start feeling better about their economy. Tertiary - or capital-intensive - industries such as avionics, car manufacturing and shipbuilding will have knock-on effects; however, those will come later and will revive as much for policy as for fiscal reasons.

From Central Government’s point of view the greatest drag on the society will be the government’s inability to generate enough jobs for those that have lost them in 2008, and for the new entrants onto the scene: young people come of age AND young people that deferred market entry in lieu of a higher education they believed would all but guarantee them a job - and a relatively high-paying one at that. The magic GDP growth rate of 8% worked 8 (!) years ago when the economy was moving from primary industries into labor intensive (and dirty) secondary industries through what I call its Hong Kong model, prevalent throughout the Pearl River Delta. Since then, industries have become more productive and so require fewer workers. Economists project the economy actually needs to grow at about 9.5% annually to create the jobs the country needs to soak up the employable. That will be a tall order for an economy that in the last quarter of 2008 that saw a drop in GDP growth to 6.8%.

The glut of workers on the market is good for FDI, I posited during the talk, because it will deflate over-inflated salaries for locals, and will keep them at their posts longer than the 12 to 18 months job hoppers have been eking out to foreign enterprises. Commodity-price drops and a drop in the inflation rate will see the Chinese economy by 2010 as positive a business climate for foreign investors as it was just after SARS, in 2003.

I presented a final slide in the presentation which you’ll see in this post: an economic weather forecast for the next year and a half, for primary, secondary and tertiary/services industries. (The China Economic Review in no way endorses my economic projections; that’s just a screen shot of the slide I used during the presentation).

So, don’t forget you’re umbrella in 2009!

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F02%2F03%2Fchina-foreign-direct-investment-weather-forecast-for-2009%2F'; addthis_title = 'China+Foreign+Direct+Investment+Weather+Forecast+for+2009'; addthis_pub = '';

The holidays have still not ended in China. Though the West is recuperating from Christmas and New Years (and the Americans are still trying to work off the Thanksgiving turkey from round their waistlines), we here in China are gearing up for the mother of all human-migrations - Spring Festival (otherwise known as Chinese New Year).

Here are some of the conversations I’ve had with people (usually over a pint or two of brew) during the festive season:

The 30% Problem
It was Christmas day in Suzhou. Several score of us families and friends both Chinese and Western were hooting and hollering and eating and imbibing and generally having a festive time. But the owner of one of the Western restaurants in the area was not in as festive a mood as he would have liked. He continued, “Since September, business has been down 50%.”

I offered, “Some have said that by this time next year there’ll be 30% fewer Westerners in Suzhou than last year,” proposing that companies are recalling their expat managers in increasing numbers.

A pub owner in the group exclaimed, “30% percent of the Westerners have already left Suzhou since the summer!” He had also seen a substantial decline in business in his establishment.

“The problem is that Western companies aren’t flying their managers here to Suzhou every month for operations visits and supplier tours.” Indeed, a senior level manager in the group who was accustomed to hosting managers and engineers from the UK and the States nearly every month for ten years said HQ had frozen ALL international travel for its staff.

More space at the Inn.

Siphoning Welfare
With so many companies in Suzhou Industrial Park (SIP) laying off staff an issue has arisen with former employees withdrawing all the contributions from the SIP Provident Fund. The British manager who broke the news explained, “Employees contribute a portion of their salary to a fund that serves as a savings account so they can buy a home in SIP. The company matches the contribution. But employees have the option of withdrawing the funds when they no longer work in the Industrial Park.”

So, the dispossessed - mostly assembly workers and machine operators - are taking the contributions back to their hometowns, likely to start little businesses of their own.

“But if they decide to work again in SIP,” the manager said, “they may not be able to take advantage of the Provident Fund. Their names are still in the computer.”

So, they may be welcomed back to work; but they may not be able to get that subsidy that helps them buy their home in SIP.

Koreans Go Home!
A long-time resident of Suzhou has several children attending the Singapore Suzhou International School (SSIS) in SIP. He talked with a couple of his childrens’ teachers to learn that about 200 Korean (South, of course) students had not returned to classes after the Western holidays that round out the year. Now, that may not sound like much, but consider: SSIS has about 1200 students; 600 (!) of those students are South Korean; 1/3 of the South Korean students did not return at mid-term; or more than 15% of all students did not return to kick off 2009.

That certainly reflects gravely on the plight of South Korean manufacturers in Suzhou, and on the South Korean economy itself. And it certainly isn’t helpful in keeping Suzhou buzzing along at its 36% GDP growth rate. I’d certainly be interested in hearing the extent to which matriculation by Western students has been affected.

You Are Uncordially Invited…
While gulping a beer after work one evening I was whining about again having to renew my visa just after three months after getting it renewed in October. A combination of bad timing with the expiry of my passport, expiry of my work permit, and expiry of my visa all within a six-week period forced the situation. I don’t think it helped that the government was still in bad temper after the Olympics. Despite after living here in China five years and always getting one-year residency, local officials thought I only deserved a three-month visa; because that’s what my latest visa was for. One of my staff explained the odd confluence of events during the Fall of last year. The local government said they would take it under advisement.

One of guys around the Table said one of the rules that has stuck since the Olympics was that now invitation letters have to come from local governments, NOT from the companies. The company feeds the local bureau information about the foreign guests, whereupon the government takes its time deciding when to forward the letter. Of course, that lengthens the time during which executives and the like have to wait for their invites, and can frustrate a great many investment plans.

Though it’s clear China wants to ensure it inadvertantly does not invite riff-raff into its country, one Westerner’s view (ie, mine) is that they are sure to throw the baby out with the bathwater by pinching off genuine interest in foreign investment into China.

Sever Me, Please!
Peter, a good friend, recently took a severance package from his company. After more than twenty-five years with the Fortune 500 company and just a couple years from proper retirement he told us all at the beginning of January he was stepping out. By his telling, the severance amount was HUGE. He and others of his executive level were offered such packages essentially because of the global economic downturn.

He is one of the “old-timers” in Suzhou, having set up one of the first Western operations in the area ten years ago. It can genuinely be said he contributed a great deal to the modernization of Suzhou and to the development of talent in the area - not to mention to the once-upon-a-time color and fun of Suzhou’s Bar Street, Shiquanjie.

He has no intention of returning to the West, but has every intention of “working for the enjoyment of it,” instead of “working for a living.”

All the best in the next chapter of your life, my friend.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F21%2Fheard-round-the-holiday-table%2F'; addthis_title = 'Heard+Round+the+Holiday+Table'; addthis_pub = '';

Minxin Pei recently wrote an essay that went to the heart of the Central Government’s Fears about the global economic downturn: unemployment.

….high unemployment of migrant labourers and university graduates could pose a more deadly threat to social stability. Based on surveys by Chinese sociologists, only about half of the jobless migrant labourers have returned to their native villages, leaving roughly 5m unemployed, mainly young, migrants in urban areas (the number is expected to rise significantly this year). Chinese graduates, most of them the only child of their family, are among relatively privileged members of Chinese society. Unlike the proletariat in moribund SOEs, Chinese graduates harbour powerful individual ambitions, possess strong organisational skills and have a tradition of challenging government authorities.

The author proposes that though it is necessary to build China’s “hardware” infrastructure - roads, airports, railways - it is as important to invest in China’s human capital.

While infrastructure spending can help absorb some of China’s overcapacity in heavy industries (especially steel), it will have a negligible impact on generating employment for jobless migrant labourers and graduates.

I would add to this point that China’s desire to move up the industrial value-add ladder will require more and better trained personnel than it currently has on hand.

A more effective approach to staving off potential unrest in urban areas would be to increase investment, not in more hardware, but in human capital. For example, China should create its own “Teach for China Corp” (modelled after the successful Teach for America Corp) and hire hundreds of thousands of new university graduates as teachers in rural areas, which have a severe shortage of qualified teachers.

I realize this smacks of the programs of the Cultural Revolution in which young people were sent to (and sometimes stranded in) the countryside, but a loosening of the hukou (residency) permit requirement as well as the “contractualization” of the education terms for teachers could go a long way toward dispersing a great deal of creative and potentially destructive energy.

If implemented, these two “human capital investment” programmes would absorb 2.5m migrant labourers and new graduates, with the job creation effect equal to 2.5 per cent of gross domestic product growth. This would be money well spent. By investing in people, China would not only increase its human capital, but also secure social peace in hard times.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F16%2F553%2F'; addthis_title = 'No+Graduate+Left+Behind'; addthis_pub = '';

Services outsourcing businesses here have certainly seen a slow-down; especially those that are oriented to international customers. An insider at one of the outsourcing companies here in SIP has told me they’ve laid off most of their people in the BPO division, their localization group has been idle the last two months, and they are laying off staff in their IT outsourcing division.

I would say the best positioned companies to weather the financial crisis are those that are domestically oriented - which is the majority of services outsourcing companies in China; and those international service providers with very deep pockets - ie, the Indians (including Satyam, if it finds financing, public or private). Most Chinese services outsourcing is done with customers within China. The outsourcers based in the Yangtze River Delta region stand the best chance with all the MNCs in the neighborhood to develop the technologies, processes and disciplines that will make them world class outsourcers in the international markets five to ten years in the future.

Since the Chinese market has indeed slowed down compared to 2006, overall industrial activity has decreased domestically. However, many mature Chinese companies are finding cost savings through outsourcing back-office services to Chinese providers; the Shanghai financial industry outsourcing back-office activities to Hangzhou providers is a case in point. The rigidity of the new labor law has made it more difficult to fire people; skilled, experienced labor is still difficult to find and salaries are still relatively high; hence, the appeal of services outsourcing in a modernizing China.

The Chinese services outsourcers that support Japan and South Korea are going to really hurt. Those two export markets are falling off a cliff economically. It is also possible that once the recessions in the those countries end, it will be more cost-effective for companies in Japan and South Korea to keep the services in-country, because of salary and operational cost deflation brought on by the recession.

So, services outsourcers based in China catering to clients outside China will continue to hurt. Domestic services outsourcers have seen business slow down; however, business will pick up for them as the Chinese economy picks up for secondary industries, and as Chinese consumers regain their confidence about the Chinese economy (which is why many Western companies are here in China - to sell to the Chinese).

Meanwhile, the Indian services outsourcing sector sees a slowdown in the growth going into 2009 from 30% per year to 10% to 15% per year for the next couple years. Further, their government is continually having difficulty rationalizing a business sector capable of capitalizing on the outsourcing services in its own backyard. Of course, it does not help that the CEO of Satyam - one of the Big 4 services Indian outsourcers - quite effectively scammed the company’s customers so he could live the good life. Sort of leaves a bad taste in a buyer’s mouth. Finally, with India and Pakistan posturing at their shared border, no wonder Western multinationals are diversifying their outsourcing risk by using service providers in China, too.

The next year could be the best opportunity the Chinese have of eating a larger portion of Outsourcing curry.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F15%2Fcurrying-favor-chinese-services-outsourcing-forecast%2F'; addthis_title = 'Currying+Favor%3A+Chinese+Services+Outsourcing+Forecast'; addthis_pub = '';

The Financial Times reported today that the Chinese leadership is making a big push to better inform international audiences about the way things really are in China.

China is pushing its state media to create credible, appealing news for an international audience, in an attempt to spread a more favourable image of the country in the west.

The plan, backed by at least Rmb30bn ($4.4bn, €3.3bn, £3bn) in government funds, comes as Beijing looks back on a year of public relations disasters.

Global Times, closely affiliated with the Communist Party will launch and second English-language newspaper while Xinhua hits the airwaves with an English-language station.

Of course, it would be simpler and cheaper to just let the international journalists already in China gain access to restricted regions in the country to file their reports, and to allow them to do their jobs without being beat up by local government thugs.

But the image might not be as pretty.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F14%2Fam-i-informed-yet%2F'; addthis_title = 'Am+I+Informed+Yet%3F'; addthis_pub = '';

The Financial Times today reported that the Chinese government is cheered somewhat that its fiscal stimulus package is working.

“Wen Jiabao declared China’s efforts to offset the effect of the global economic slowdown an “initial success” on Sunday as the economy performed “better than expected” last month. …

Speaking during a three-day visit to industrial regions in eastern China, Mr Wen said sales at some companies had begun to rebound, stockpiles were falling and electricity consumption was rising.”

Well, that all seems rather premature to me, especially since the package was just announced in October last year. And though monies in the package had already been disbursed in 2008 as part of infrastructure projects, it’s much too early to declare victory in what will be a very long economic march indeed.

“It was not expected to improve economic growth until the middle of this year but some industries, such as steel, have already shown more confidence since the stimulus package was announced. Scores of Chinese steelmakers have resumed production in the hope that it will lead to a sustained recovery in steel prices.”

Steel makers:
a) are mostly state-owned, with largesse passed on to them by the state-owned banks;
b) know that eventually, likely in the Spring, the real estate market will begin revivification;
c) are no rocket scientists and have a reputation for being famously speculative;
and
d) have probably been ordered to increase production.

I’d rather watch concrete dry.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F12%2Ftoo-early-to-tell%2F'; addthis_title = 'Too+Early+to+Tell'; addthis_pub = '';

I’ve always said that next-door Kunshan per capita has the prettiest women in China. It’s a simple fact that Kunshan as a boom town made rich by Taiwanese investment attracted to its KTV lounges, discos, bars, tea houses (of ill repute) and barbershops (yes, even a haircut could be made sublime) attracted the cream of Chinese xiao jie from around the country.

But now the party has come to an end and districts in Kunshan are scrambling to find a way to take care of former employees of Taiwanese bosses that have taken the money and run back to Taiwan. According to a Financial Times report:

“As factories in this manufacturing hub near Shanghai, hit by the sudden collapse of export orders in the past few months, fail by the dozen, the government of the district of Lujia is scrambling for financial aid to pay off thousands of laid-off workers. It has turned to the few flourishing businesses in town for help.”

This is a huge trauma for the local government, which built the village into a vibrant if not unique economic success story in China.

“For Kunshan, home to the largest cluster of Taiwanese-owned manufacturers in China, this is a drastic turn in its fortunes. The arrival of manufacturers from the island in the mid-1990s, which quickly built profitable export bases for everything from computer components to furniture, made the city the first in China with tax revenues exceeding Rmb1bn.”

But the same Taiwanese companies that would willfully spew industrial waste into Kunshan waterways and paid its workers a pittance to work long hours and to live in cramped dormitories are getting out while the getting is still good.

“In October the Taiwanese founder of Hei Mengniu, a forklift factory close to Thermos, closed its gates and disappeared, leaving several thousand employees behind, their wages unpaid.”

But Kunshan government has a way of detecting possible plans for Great Escapes by its investors, something I’ve not read before:

“A utility company has been ordered to report weekly on trends in electricity consumption by local corporate users to the government. ‘Once there are drop-offs in use, township officials will be on your doorstep investigating whether you are closing down,’ says Mr Lin.”

But Taiwanese investment in Suzhou is just as much a cause of the meltdown in Kunshan as Kunshan’s liberal policies toward its tenants.

“Dick Lai, a senior executive at Plotech, a neighbouring computer component company, says the recent collapse of an affiliate of Taiwan-based Vertex Precision Electronics in Suzhou, a city close to Kunshan, means a number of suppliers in Kunshan will be next.”

Sounds like it’s only going to get tougher to find a satisfying haircut in Kunshan.

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F09%2Fkunshan-the-shape-of-things-to-come%2F'; addthis_title = 'Kunshan%3A+The+Shape+of+Things+to+Come%3F'; addthis_pub = '';

George Orwell’s 1984 presaged a modern age in which Big Brother - an autocratic and technologically sophisticated government - is watching its citizens. But what Orwell never presaged was that the citizens would take to the technology with gusto and start watching the government itself!

And so we have the case of the not-so-modest government official in Nanjing who’s been caught in a photo clocking into work with a much too expensive watch and smoking upscale cigarettes. According to the Shanghai Daily:

“The watch would have cost at least 100,000 yuan (US$14,500) in China, while each carton of the Nanjing 95 Imperial cigarettes sells for 1,800 yuan.

“Zhou, 48, was also found to drive a Cadillac to work.

“Photos of him wearing the luxury watch were posted on most China’s major Web portals and were widely discussed among Netizens.

Some Netizens, wondering how a public servant could afford such an expensive lifestyle, filed complaints with related government departments.”

Jiangning district officials quickly responded - through the internet - that Zhou was being investigated for possible wrongdoing. And if that wasn’t enough…

Media reports also revealed Zhou’s son was engaged in the housing-material business. There are suspicions of illegal dealings between father and son. However, no evidence has been released so far.

Government Suits: The Sons and Daughters of the Revolution are Watching You!

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F08%2Fbig-brothers-sons-and-daughters-are-watching%2F'; addthis_title = 'Big+Brother%27s+Sons+and+Daughters+are+Watching'; addthis_pub = '';

I’ve been invited to speak next week in Shanghai at a symposium sponsored by the China Economic Review, titled, “Foreign Direct Investment in China 2009: Optimizing FDI Strategy in the current economic climate.” I’ll be presenting on “FDI Challenges and Sector Opportunities in 2009.”

The esteemed Steve Dickson, a partner and China Manager for Harris Moure, a law firm, and columnist for the China Economic Review, will be presenting an “Update and forecast of [the] regulatory framework for FDI in China.” Harris Moure is also the home of the China Law Blog, written and edited (mostly) by Dan Harris. PWC will also be presenting financial strategies for maximizing returns during the year ahead.

The symposium is an afternoon affair, starting at one o’clock at the JW Marriot Hotel on Nanjing Road West. There’s booze at the end - I mean, there’s a mixer, so those interested can network. For an agenda and contact information, click here.

Hope to see some of you there!

addthis_url = 'http%3A%2F%2Fsilkrc.com%2Fchinadialogs%2F2009%2F01%2F07%2Fforeign-direct-investment-in-china-2009%2F'; addthis_title = 'Foreign+Direct+Investment+in+China+2009'; addthis_pub = '';