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One of my Chinese staff recently told me she has heard that some of the South Korean and Japanese plants in Suzhou with thousands of assemblers each have been laying off people since the beginning of October. The news put me in mind of a Financial Times op ed piece that irritated me a bit, since it seemed to echo the same sort of nonsense current President Bush encouraged Americans to do when the dot-com bubble burst in 2001: consume.

Editors of the Financial Times implored China to spur slowing economic activity in the country by encouraging consumption. The Chinese government’s announcement of a half-trillion dollar stimulus package for the economy was the cause for the piece. I disagree, though, with the Paper’s assertion that - to paraphrase President George W Bush just after 9/11 - people should go to the Mall and spend. Instead, the Chinese government needs to begin building the sort of Social Security institutions and creating WPA (Works Progress Administration) -style programs for the people that are losing their jobs through the latest economic re-strucuturing: a movement away from low-margin export manufacturing to more capital-intensive production and services. It was just such government investments that put America back on track eighty years ago as an economic superpower during the Great Depression.

“Having cut interest rates three times within the past month, the Chinese State Council has now taken the advice of the IMF and the World Bank, and authorized $586bn of stimulus spending over the next two years. Housing, utilities, disaster relief and transport are expected to be the main beneficiaries.”

Another FT article cites:

“Arthur Kroeber, managing director of Dragonomics in Beijing, said the actual extra investment as a result of the fiscal package might be as little as one third of the headline figure, at around Rmb 1,300bn. That is still around 2 per cent of GDP each year, but much less than initial reports suggested, largely because a lot of the likely investment in roads, rail, health, education and rural areas had already been announced.”

Though the Chinese government’s opaque plan for stimulating its economy seems to be going more toward fixed asset investment, there is still little sense that it has the will to begin building the sort of social institutions that will give individuals and families a sense of financial safety and security that will see them open their purses and wallets wider in order to spend. Beyond social security institutions and work programs are efforts that involve the development of a truly independent judiciary and greater liberalization of industry - especially at the local level, where corruption is endemic.

The first Financial Times Op Ed piece goes on to say:

“The Chinese government recognises that it must build domestic consumer demand, but it is time for the leadership to put its money where its mouth is. Alas, the planned stimulus does not attempt to boost public and private consumption. It aims, instead, to keep the economy ticking over until it can start exporting again. This will not work. This is the golden opportunity to redirect the pattern of growth towards consumption and away from the previous massive reliance on exports and investment.”

If people do not have jobs and feel insecure about government institutions - whether the government is with them or against them, in a manner of speaking - the people will not simply go out and spend - especially when the indications are that other countries are suffering economically and that at any time in changeable China policies might change that punish the very behaviours that had at first been encouraged. A push toward consumption when so much of China’s infrastructure and industry is immature is rash.

Indeed, the same article points out:

“In the absence of a domestic safety net, Chinese household savings have been as high as a quarter of disposable income.”

It was Nobel laureate Paul Krugman’s piece in the International Herald Tribune, Franklin Delano Obama, meant to influence incoming President Obama’s economic stimulus plan for the States that inspired me to apply the same thinking to China’s own situation. Indeed, China’s current demographic reflects America’s of the 1920’s more than that of the America of today: then, America was in the grip of a demographic shift from the countryside to the city and a movement from an agricultural base to an industrial one, all underpinned by rampant speculation.

However, Krugman points out a little known fact about government fiscal policy during the Great Depression in the States:

“This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we Americans drive on WPA-built roads and send our children to WPA-built schools.”

Didn’t all these public works amount to a major fiscal stimulus?

Actually, it turns out FDR was TOO conservative in priming the infrastructure pump of the would-be superpower to get the people to feel secure enough to begin spending again:

“And FDR wasn’t just reluctant to pursue an all-out fiscal expansion - he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.”

In other words, FDR steered the American economy back into a deep recession - some would even say another trough of the Great Depression - by doing TOO LITTLE, not too much to put people back to work. The frightening revelation is the sort of fiscal stimulus that got America working again, gave it the boost of confidence it had lost for more than a decade, and created the basis for an economy that has just finally imploded with the latest debacle:

“What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.”

Let’s hope China’s leaders are profligate in their fiscal spending in the next two years as they are with their banquets.

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My latest column “Challenging China” came out in the November 2008 issue of Eurobiz Magazine came out a couple weeks ago. Eurobiz is a publication of the European Union Chamber of Commerce in China. This month’s column focuses on Sea Turtles, and tries to get to the root of what they’re on about when they return to China. Sea Turtles is a translation of the Chinese expression used to describe Chinese that leave the Mainland to return years on as prodigal sons and daughters of the Motherland. Problem is, “You can never go home,” as the expression goes.

Of course, you never know that until you try. I based the article on experiences colleagues and I have had with Sea Turtles in business. Many of the experiences have been disappointing at best; downright bankrupting at worst.

“A Shanghai Chinese, Jeff, had lived in Japan nine years and then in Canada for two years before returning to China. He once explained to me, ‘When you live outside the country you have all these experiences that no one cares about when you return to China. When you’re back in China it’s like you have this big hole in your life. And strangely, you feel like you simply paused your life in China while you were abroad. When you return, all the old requirements and expectations that you had and others had for you come back into play, as if you took the ‘pause button’ off. The problem is, though, you have less time to do what you’re expected than you had before. The pressure to show off why you were away for such a long time makes you impatient for results.’”

Life isn’t a Beach for Sea Turtles.

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A Western expat friend who lives in Suzhou told me how the monthly rent he is paying on his stand-alone house (with a small back yard) is increasing from 15,000 rmb to more than 30,000 rmb within the next month.

It seems that quite recently a high-ranking Suzhou official got caught with his hand in the till. He lost his job. It’s unclear whether he’ll go to prison. But you can’t fire an entire department that was also on the take. Instead, the department employees have to pay steep fines to stay out of prison.

What better source of income than the villas the government administrators granted themselves when my friend’s compound was built? Though the government administrators do not themselves live in the houses, they do have many rented out - to nouveau riche Chinese, to expats, to anyone with any means. But to meet the penalties exacted on them, the local bureaucrats have to raise rental prices on the properties - or else.

My friend - nor his boss - are much keen on paying such an inflated price. Nor are they much interested in subsidizing the local government’s ignoble ways. Looks like they may be moving soon.

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I’ll be visiting beautiful San Francisco next month December 8-9 to speak at the Annual Conference “Legal, Tax & Financial Strategies for Doing Business in China,” sponsored by Atlas-SFI. This is the sixth year I’ll be speaking at the Conference, and am looking forward to seeing old friends I get to meet only during this annual event (which is usually held in New York City).

Though, of course, the conference will have speakers discussing China entry, conference coordinators assume that the majority of attendees already work for companies with interests in China. So, there will also be talks examining issues surrounding expanding in and exiting from the China market.

My talk is entitled, “Expanding in China - Gauging Local Government Effectiveness for Investments.” The talk draws on local measures across 120 Chinese cities that gauge just how supportive local officials are of foreign investments, such as: the amount of time investors spend annually engaging local government administrators; durations for customs clearance; travel and entertainment expenses; percentages of university educated staff and more. I ground the discussion with (hopefully) lively anecdotes and case studies drawn from my experiences working with Western investment projects in China.

The talk takes place at the Sheraton, Fisherman’s Wharf, on the first day of the conference.

After which I intend to do some fine dining! I think I’ll skip Chinatown, though…

Hope to see some of you at the Conference!

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A recent Financial Times article discusses how local governments have been wrong-footed by factory owners that take the money and run back to their home countries. In particular, Hong Kong and Taiwanese manufacturers in the South and Koreans in North China have been creating all manners of headache for authorities whose interests lie in making money off commercial deals and keeping the local populace sedated through it all.

“When the economy was buoyant officials in the delta – which accounts for one-third of China’s exports – were inclined to take a laisser faire approach towards industrial disputes. But now that they find themselves on the frontline of China’s economic slowdown, they are adopting a more interventionist posture to pre-empt potential social unrest in their own backyard. Emergency funds to pay worker salaries are being established and officials are actively monitoring factories to identify troubled ones before they go bust.”

The historic backdrop of the country’s laissez faire investment policies - especially when it comes to Asian investors - has converged with cost pressures, regulatory shifts and the global financial crisis to force an unseemly flight of factory owners from their responsibilities to local communities and workers.

“There are runaway factory owners every year who intentionally fail to pay workers and suppliers, but closures are up about 20 per cent this year,” said Xiong Xiaoping, a deputy district chief in Shenzhen. “Most are small and medium-sized enterprises without their own brands or core technologies.”

That is, chasing investment with no thought or investigation into the sustainability of the industries or the investment business models is leading to exactly the social blow-back local and national governments feared.

Once out, though, let’s hope officials never let those ankle-biters back into China.

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Recently, Peter Rasmussen, Founder of the Asia Base group of companies, delivered a presentation to representatives of the Danish Wind Industry Association visiting China. The Wind Industry includes manufactures and services that convert wind power into electricity that can power entire cities. In Europe, Holland and Denmark are big users of wind energy, with Germany also weighing in.

The thrust of the presentation was that current and future investors in manufacturing in China need to be aware that if they are coming to China exclusively to supply the Western customers that are already in China, their days will be numbered. Chinese manufacturers - across a broad swathe of industries - are quickly catching up to Western levels of quality, while maintaining price levels that are HALF of the price at which European producers sell their wares. Western companies that believe they can compete in the China market against Chinese suppliers by merely cutting prices 10% or even 20% will soon learn the price levels are still too high to fend off the hordes of Chinese suppliers in their industry who are galloping up the quality curve.

Peter noted that even large Western buyers in China are buying with greater frequency from Chinese suppliers who have internalized quality standards and processes. Western buyers are feeling the squeeze on their own sales both in the Chinese market and in international markets, where there are fewer buyers than even a year ago. The Western buyers eschew the partnerships with the Western suppliers who have followed the buyers to China in favor of dramatic cost reductions.

The conclusion to draw from all this is that if your company is planning to come to China in these more competitive times, you must have the patrons, plans, policies and processes in place to sell your product at least at half the price you sell it in the West, at the same quality or better quality levels at which you currently offer the product.

Are you ready for the challenge?

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The first time I was ever mistaken for President-elect Barack Obama was a year ago, in a Barnes & Noble Bookstore in a suburb of Chicago. I hadn’t been back to the States from my home in China in a year, and decided on my first day back to America see what Americans were reading. I stood near the bookstore entrance at a magazine rack perusing the latest issues in the Current Events section. I believe there was even a magazine with Mr Obama on its cover.

A little old white lady with a kind face and well-read hands came to to the rack and stood beside me. She had the sort of shuffling stance usually reserved for young men that see a pretty girl at a bar and approach her hesitantly, anxious about immediate rejection. She pulled at the cover of one of the magazines - she seemed The New Republic sort - and secreted a gaze in my direction every now and then. Suddenly she blurted out, “Are you Barack Obama?”

Of course I was taken aback, as I’ve only ever been mistaken for Michael Jordan - in China, by Chinese people. Typically, when told by Chinese I resembled Jordan I would respond in Chinese, “Well, he’s taller than I am; blacker than I am; and far richer than I am.” Which would always elicit a chuckle or two and set Chinese people at ease with me, an American who “didn’t look like an American”.

I didn’t have a snappy retort for the little old lady, though.

“Oh,” she simply said, clearly disappointed, and walked away, her brush with fame dashed.

It was several months later, in China, as the election race State-side heated up and the Olympics thankfully wound down and the dairy scandal took center stage that the Powers that Be in China thought it would add entertainment value to the average Chinese national’s life to cover the American campaign in greater detail.

Nearly every week since that time Chinese have remarked that I resemble the President-elect. Just a few days ago a British couple with whom I’ve been acquainted for more than a year here in Suzhou repeated the same observation. “You know, you look a bit like Obama,” the husband said. “Yeah,” I replied absently, “all us mixed-race people look alike.” He and his wife thought it was funny.

I have to admit, I prefer resembling an incoming President to an outgoing basketball star. I also have to admit that I privately revel in some of the similarities of our background: I was born 29 days after Mr Obama in the same year; my father’s unmistakeably a black man (West African and a bit of Ethopian thrown in for good measure), while my mother is a fair-skinned, red-haired, green-eyed Lena Horne-esque woman; I lived in Hawaii as a child for nearly five years (Dad was in the Air Force), where I went to Pololo Valley elementary school until we transferred to Kansas (Obama’s mother’s side of the family is Kansan), where I suffered two-and-a-half years of bi-polar social schisms I had never encounterd in Hawaii; graduated from an Ivy League institution (Cornell) the same year the next President of the United States graduated from Columbia University (1983).

My interest in politics waned when I graduated from the second High School I attended, in Florida (the first was in Alaska). In High School I ran for nearly every office in the school and in national programs, as well (I understand a law I co-authored in 1979 in the Florida Youth Legislature as “Lt Governor” went on to the real State Legislature to become a real law closing some loopholes in Florida’s arson laws.)

But Physics was my bailiwick in University, while writing was my passion; politics held little interest for me, then. Excessive interest in the practice of martial arts and my discovery of Chinese History were enough to free me from the gravity well (some might even say, black hole) of a career in Physics. My desire to write took me into management consulting (had to make a living, didn’t I). Through a happy convergence, I have my writing; I am living in China; and I am helping companies and individuals the best I can manage in this strange society that is both new and ancient.

I appreciate how Mr Obama was able to reconcile the opposites of blood - black and white - within the context of his upbringing in Asian surroundings - Hawaii and Indonesia - and be able to bridge and reconcile the divisiveness of American society. And I guess I’m kind of greedy: I was always of the mind I had to bridge all three primary colors - black, white and “yellow” - and my training and experience in the sciences forced me to ask more questions about “life, the universe and everything” than what others might consider sensible. Nevertheless, I am proud and excited at the possibilities of Mr Obama’s taking the helm during these turbulent times.

What I’d really like to know is, though: how’d he manage to keep his afro intact all this time?

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As is my wont, I like to chat with friends and acquaintances over cups of espresso and glasses of beer about the latest goings-on in our lives in China. This latest thread, occurring over several days and many libations, seemed to disconcertingly center on China’s growing car culture and expat mishaps therein.

Frozen Assets
Starting 2009 expats will have their China assets frozen and their passport confiscated should there be any question of responsibility in the event of a traffic fatality. “It’s really more aimed at the Asian expats that get piss-drunk after a night out at KTV then drive home,” a British drinking buddy noted. They can hit someone in an accident then be on the plane back to Japan or South Korea or even Taiwan within hours.”

“What about the Chinese?” I asked, glum at the idea of driving at all in China with my newly-won driver’s license. “Do they get their bank accounts frozen, too?”

“They’ve always had this law applied to them,” the Brit said. “In fact, whatever the size of the accident, the drivers are supposed to call the police.”

“Even with a small bump?”

“They’re supposed to call the police,” an Irishman with a large, ruddy face chimed in. “But just because they don’t most of the time, doesn’t mean they’re not supposed to.” Most Chinese incidents end up in shouting matches with several hundred RMB exchanging hands in the end.

Call the police? Tai mafan. Too much trouble. Especially if there’s a fast buck to be made.

Taxi Fanfare
“I’ve never heard that before,” a young Irishman with fair skin and perpetually cheerfully red cheeks said. “Just walk away?” He had lived in China less than a year.

“Aye,” said one of the old timers at the table, and took a drag from his cigarette. “If the taxi gets in an accident - especially if they’ve hit someone - just drop the fare on the front seat and walk away.”

“End of transaction,” I said with finality. “Problem is, Chinese taxi drivers have been known to hold the expat passenger responsible for the accident. The argument I’ve heard told goes, ‘if you hadn’t asked me to drive there, I wouldn’t have had this accident.’”

“That’s insane!” the young Irishman said.

“Well, when my daughter was in that taxi that had the accident the driver didn’t make her pay anything.” Nick (not his real name) has a twenty-year old daughter that visited him during the summer. The accident resulted in a nasty concussion that took her days to recover from.

“That’s because she’s not a Big White Guy,” I chided. “They know she doesn’t have any money.”

Nick continued, “I once wanted to get into a taxi. I pulled the door handle and it came off in me [sic] hand. When I got out of the taxi, at Tom’s Bar, the driver didn’t say anything. He followed me into the bar, though, and told me he wanted me to pay for the handle. I told him to piss off. The bar manager showed him the door.”

Whoever says it’s not easy to get a handle on China?

New District Punch-up
I hadn’t seen Frank (not his real name) in some time. One of the reasons is he lives in Suzhou New District, on the west side of Suzhou; while I live in Suzhou Industrial Park, on the east side nearer Shanghai. The soft-spoken Brit had put on some weight, so I didn’t recognize him at first. More unusual, though, he had a black eye and his face around the mouth was scratched up. I just assumed he’d had a scooter accident.

Friends told me later that the week before Jim had wanted to drive out the gate of the compound in which he and his Chinese family lives. A sedan entering the gate from the wrong direction blocked the exit. After a fair amount of honking and swearing at the driver to back out, Frank got out of his SUV to talk to the driver. As Frank approached the car it was clear to him it was a company car: a Chinese manager - or perhaps even the owner himself - sat in the back seat. Jeff knocked on the window to address the driver. The driver rolled down the window, and punched Jeff in the face.

Frank is a short fellow, but stocky. He’s a brawler as well, known to have had his share of bar fights. He immediately hauled the Chinese driver out the window of the car, and slammed him onto the ground. According to my friends, he proceeded to - - beat the hell out of the driver.

Frank turned his attention to the company man in the back seat. The man apologized profusely for his driver’s behaviour. I get the impression the driver was in no condition to back his boss’es car out, so I’m assuming the boss did it himself.

In future I think the driver will be sure to wear his seat belt the next time he drives. Or at least to buckle up before he punches someone from the driver’s seat.

Zhejiang Jamboree
An American named Dave (not his real name) and his family were driving back from Yuyao (Zhejiang province) to their home in Suzhou. They had just attended the wedding of an American friend that had recently married a local girl. Dave took a wrong turn while looking for the exit onto the Hangzhou Bay Bridge. He found himself going down a one way road in the wrong direction.

He hadn’t gone down too far though, so began backing up the road to get back onto the correct side of the thoroughfare. Suddenly he felt a bump behind him, a light thump. He and another car that was also traveling in the wrong direction had collided.

Dave got out of the car to survey the damage, though he was confident it was slight. The Chinese driver also got out and began shouting at Dave. Dave checked the point of impact - there wasn’t even a scratch on the car. Before Dave knew what was happeneing, the Chinese driver ran away from the scene over a knoll.

Dave thought the fellow had gone to get the police, which was fine with him. He wasn’t, however, prepared for the Chinese driver returning with four other guys who were all shouting and gesticulating in Dave’s direction.

Now Dave is a very big guy. He figured he could take down the local mob, but also considered he had his Chinese wife, their two-year old daughter, and another couple in the van as well. The moment the Chinese driver arrived back at the scene with his homeboys Dave shoved 200 RMB into the man’s hand.

Without further hesitation Dave climbed into his car and drove over the median to get back onto the stretch of highway he was on before he made the turn into Hell.

So much for local hospitality.

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This past Halloween night some friends and I checked out the scene on Suzhou’s Bar Street, Guanqian Jie. Pulp Fiction, an expat bar, was offering discount beers to the guys and ghouls bold enough to dress up in costume. The crowd that spilled out the door across the sidewalk and slopped along the bicycle lane was a motley assembly of gallant gladiators, delicate damsels, comely catwomen and tentative teenagers.

My award for most creative costuming goes to the foursome that dressed as The Ghostbusters, replete with drab-gray jumpsuits and heavy packs with extrusions that included blinking computer hard drives. My favorite character was the bloke that played the black guy from the movie series: the tall European had an afro [wig] five times the size of anything I ever dared wear twenty-five years ago, a fake mustache and - yes, Whoopee - black face. It was funny as hell (remember, This is China!).

An American friend of mine dressed as an old Chinese beggar draped in an old Mao jacket a Chinese acquaintance had lent him. He adorned the jacket with a Greek cap, black baggy pants and black-cloth shoes. He carried around an old tin cup from his workplace. He said he had already collected eight RMB from the crowd. The Chinese friend I was with thought he was cute. Which he was.

The following day my Chinese friend told me she overheard a number of Chinese passersby uttering how insulting it was to them that a foreigner would be dressing as an old poor Chinese man. Clearly, they’re not clear on the concept of Halloween; or of irony or of Fun!

I explained to my Chinese friend the origins of Halloween: essentially, it started a couple thousand years ago to mark the co-incidence between the world of the living and the dead - the material and the spirit. People would wear costumes of the various spirits that would either bewitch them or protect them. In many Western countries All-Hallows-Eve became a time of mischief-making and identity theft, in a manner of speaking. Today, of course, costumes can be pretty much anything that strikes the wearer’s fancy: ghosts, of course, are big with the little ones, as are masks that squirt blood, super-hero costumes and fairy princesses. Dead and living presidents of the United States are popular, too.

So I asked my Chinese friend if she could ever envision a Chinese at Halloween wearing a mask of Hu Jintao. “Of course not!” she replied without hesitation.

“Mao?”

“The police would come and put him in jail.”

“And that is a major difference between Chinese and Western societies,” I proffered. “We don’t take our jokers-in-office as seriously as Chinese people do. That’s part of our social system: we make fun of them when they’re doing a bad job and throw them out when they’re doing an awful job.”

After all, we’re all just wearing masks.

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How much more inspiring can you get in a symposium than learning about companies that seek to keep all waste to an absolute, recyclable minimum; that support the local communities that provide the raw materials and talent; and which produce beautiful and functional items as well? I was fortunate as moderator of a full-day seminar on “Responsible Fashion and Design” in Shanghai to learn about business models that are helping to economically sustain communities while turning a profit. The symposium was part of the Danish week-long program called “Responsible Fashion and Design.”

The seminar was just one program of many during a week of exhibitions and lectures about product design and doing business in China. The Danish programs were sponsored by the Danish Fashion Institute and the Royal Danish Consulate General’s office. Next door to the Danish pavilion at the Junckers Exhibition Hall in Shanghai the Dutch were running a similar program about The Dutch Way of design. The talks and exhibitions were all part of Shanghai Creative Industry Week, held at The Shanghai Creative Center, a post-modern campus at The Factory, No. 265, Lingshi rd., Zhabei District.

Companies represented at the day of seminars in which I participated included Kompan, the world’s largest maker of creative playgrounds; and the founders of companies such as: Jooi Design, which makes fashion accessories; Bambu, which uses bamboo materials to make kitchen and dining utensils; Torana Carpet, Tibetan carpet maker; and textile designer [ethicsandaesthetics]. All companies are for-profit, and seek to create business ecosystems that engage producers, buyers, designers and manufacturers in a generative cycle of value-creation and waste reduction.

Martin Haxhold of Kompan established the premise that a fundamental aspect of the sustainability of a product is its immunity to trends: the playgrounds the company makes appeal to various age groups in a timeless way. Immutability of concept and durability of materials also play an important part in creating a product range that outlasts disposable offerings.

Trine Targett, founder of Jooi Design, came to China in 1997 without a design background but with a strong desire to mesh traditional Chinese designs and methods with modern sensibilities. The result are handmade bags, pillows and other accessories whose designs literally cannot be replicated by machines!

The founders of Bambu, Jeff Delkin and Rachel Speth, take their bamboo materials from forests in China and Thailand and engage local communities that have little industry to hand-make and lacquer their beautiful kitchenwares and accessories. An interesting point they made in describing their efforts toward building a sustainable business involved packaging: they offered they spend more time designing sustainable packaging than on actual product design. However, sometimes even governments can get in the way of the best efforts. The Chinese government apparently requires a certain kind of plastic be included in the packaging of the wares they sell in the Chinese market.

Trine, Jeff and Rachel are co-founders of NEST, based in Shanghai. NEST is an incubator-space and forum that encourages other sustainable business models in China.

Chris Buckley described his journey to Tibet as a chemist (PhD) to build a sustainable and responsible business designing and weaving Tibetan carpets. He has two retail outlets now: in Shanghai and in Beijing. One of the strongest ideas I received during the day of talks came from his presentation. Chris indicated that, sure, the local Tibetan communities with which he works could easily mechanize the weave of their carpets to make and perhaps sell more product. However, within a matter of a couple years Chinese mills would quickly and easily copy and out-sell the Tibetans. Tibetan machine workers would then for lack of competitiveness have to take jobs as restaurant workers and hotel service staff. In other words, the traditional weaving techniques and natural dying processes are competitive advantages that are near impossible for commercial weavers to replicate and to market with sizable margins.

Daniella Schmidt in her new company [ethicsandaesthetics] is working with women in minority groups in China to incorporate their designs and weaving techniques into womens’ ware for the European market. For her, the company must not only be profitable, but must also communicate to the West the values and subtleties of China.

At the end of the day I summed up the symposium with some simple yet (for me) powerful observations, shared values and approaches of many of the presenters:

- companies take it upon themselves to educate their local communities of designers and craftspeople with the methods, requirements and expectations of the international marketplace;

- keeping alive and building on the traditional crafts techniques of the local communities actually maintains a competitive advantage that helps keep residents from suffering sub-standard qualities of life that are difficult to reverse once the traditions are lost forever;

- it was important as part of the stories for all the founders to educate buyers inside and outside of China of the richness and vastness of China and its traditions;

- linking traditional/ancient craft heritages with modern techniques is important to achieve the sustainability and responsibility all businesses must work toward if they are to sustain their communities of producers.

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The Financial Times reported in an October 27th, 2008 article that Walmart’s CEO recently handed down its gospel in China:

“Lee Scott, Wal-Mart’s chief executive, told a meeting of 1,000 Chinese suppliers in Beijing: ‘I firmly believe that a company that cheats on overtime and on the age of its labour, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honour its contracts, will ultimately cheat on the quality of its products.’”

Logical; but it’s pretty much agreed that China’s eighth-largest trading partner contributed mightily to much of the corner-cutting amongst its vendors it is now condemning.

“Wal-Mart would begin demanding Chinese suppliers to stores in the US, UK and Canada sign up to rigorous environmental and social standards in three months. Within three years, all suppliers to Wal-Mart stores anywhere in the world would have to sign up.”

And so Walmart leaps to the head of MNC-pack in pushing for a new way to manage business:

“So how is Wal-Mart planning to marry improved factory practices with dirt-cheap products? Wal-Mart does not actually talk much about corporate responsibility. Its phrase, following recent corporate fashion, is ’sustainability’. It has proved to be a sophisticated way to cut costs.

Sustainability involves reducing the amount of energy used in production and the amount of waste thrown away. Getting rid of unnecessary packaging also helps.”

But it’s not going to be easy herding Chinese suppliers that have weathered the Perfect Economic Storm of 2008 to get behind sustainability. As the article points out:

“… paying workers their overtime is more expensive than not paying it. Suppliers will be hard pressed to provide Wal-Mart with the products it wants at the price it demands – reduced energy inputs or not. Many will struggle.”

And some will die.

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An article in the October 25th, 2008 issue of the Shanghai Daily about the IT Outsourcing industry in Shanghai caught my eye yesterday. The article opens with the bold assertion:

“Shanghai’s information technology service and outsourcing industry will continue to grow 50 percent annually in the next three years despite the global financial crisis, industry officials said during a local IT forum which ended yesterday.”

That’s like the Dallas Cowboy cheerleaders predicting a winning streak for their favorite team next season based on the players’ the new style of their uniforms. In this instance, the cheerleaders included the vice general manager of the Shanghai Pudong Software Park Company and the general manager of a software development group.

“‘The credit crisis will push the financial giants to seek outsourcing partners,’ Xue said. ‘Chinese firms provide quality services and more competitive prices compared with rivals in the West or India.’”

Sounds a bit blindly nationalistic to me, without very much real analysis behind the assertion. Indeed, there will be companies that will think about cutting IT costs by outsourcing that bit of their back office; but there will be just as many that will consider during the waves of staff downsizing beginning to sweep industries in the West that outsourcing doesn’t make fiscal sense to their slimmed-down operations. And, let’s face it, China - and its image as a quality maven - is a great question mark still in the minds of international buyers.

The article ends by citing that during the good times…

“In 2007, Shanghai’s software exports jumped 20.2 percent on year to US$1.19 billion.”

It’s going to take quite an effort in the coming global economic slowdown to maintain even that level of double-digit growth in the international market.

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I wrote a couple weeks ago in my post, “Everybody was Kung Fu Fighting” about a personal observation I’ve made here in Suzhou. It seems to me there are open fights between Chinese people in Suzhou when before there had been very few. The commentary thread for the post offered some interesting perspectives on possible causes of this judgment call of mine.

The International Herald Tribune last week published an intriguing article, “As stress grows, Chinese turn to Western psychotherapy,” about the rising call for more psychotherapists and counselors in China’s fast-changing society. The article put me back in mind of what seems to me to be a tension that is rising in society due to modernization and the rapidity with which it has taken over people’s lives. According to the article:

“Job pressures may be a contributing factor. Fifty-one percent of Chinese respondents to a survey by Hudson Highland Group reported higher work stress than a year ago. It is the second consecutive year in which China has registered the highest stress levels in Asia, the recruitment firm, based in New York, said in a report in October.”

It seems that thousands of years of (albeit cyclical) history have not prepared society for the G-force stresses and strains that Madonna’s “Material World” have placed on the culture:

“China’s traditional culture values ’saving face,’ which means emphasizing the positive and addressing embarrassing issues obliquely. This approach conflicts with the process of openly discussing problems that is inherent to most psychotherapy.”

If my supposition is correct - that typically mild-mannered Yangtze River Region natives are going gerbil-crazy on modern life’s treadmill - then we ain’t seen nothing yet:

“The current global financial crisis may raise pressure on China’s economy - and increase potential demand for therapy - if a slowdown in U.S. and European consumer spending has repercussions in the export-dependent country.”

Time for a chill pill, China.

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I’m glad when other publications appreciate one of my favorite pastimes: listening to and writing about the experiences and considered perspectives of others. Especially if it happens during several rounds of beer.

China Success Stories recently republished my post Heard Around the Table. Read fresh comments and perspectives on the article at this insightful business guide.

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The October 9th edition Economist Magazine had an engaging article about the global outsourcing industry subtitled, “How the financial crisis will affect the outsourcing industry.” The thrust of the article can be summed up in the statement:

“As they struggle for survival, many banks have put discussions about outsourcing contracts on hold or just canceled them altogether. Once the dust settles there will be far fewer financial institutions around, so competition for the remaining contracts will be stiffer.”

The observation resurrects a thesis I proposed at the “Nanjing-Singapore Services Outsourcing Forum: Partnering to Successful Service Outsourcing Solutions,” held last month September at the Ascendas iHub campus in Nanjing Jiangning. During my talk I offered that the most natural course for development of Nanjing’s Services Outsourcing industry - indeed, for nearly all of the 10+ Services Outsourcing Bases Central Government is promoting - is right at its doorstep: it is the capital of a province found most attractive to multi-national corporations (MNCs). Never one to dissuade mavens with grand schemes of conquering the world, I proffered that Nanjing is representative in China as a Services Outsourcing hub to the many countries that have invested in local regions.

I’ve said this before in other posts and other talks that the keys to Indian dominance in the Services Outsourcing industry are found in the Y2K Big Bang and the resourcefulness with which Indian firms set about leveraging their knowledge and experience in IT to gain footholds internationally in Business Process- and Knowledge Process Outsourcing. Question is: what is China’s Big Bang and where is it?

China’s Big Bang came with its entry into the WTO, in 2001. China the debutante found itself courted by the most Foreign Direct Investment (FDI) ever to flood a country in such a short time. Almost overnight every major MNC set up shop in China, a great majority of which did so in the Yangtze River Delta. Concurrently, China’s Services Outsourcing industry - vastly dominated by IT - began sprouting. Still, nearly 90% of all Services Outsourcing in China is domestic, according to a report by Tholons, a consultancy, and is slated to be so for the forseeable future.

Now, the Yangtze River Delta - and Jiangsu Province in particular - is increasingly supporting a 21st-century transport and information infrastructures. Further, the highly competitive domestic market is forcing retail and manufacturing to early adoption of IT, while global economic and demographic pressures are forcing MNCs to reduce costs and increase effectiveness.

In other words, the Nanjing model shows China has an opportunity to develop its services outsourcing industry in a way India does not have because of India’s comparative disadvantages: a weak and fragmented infrastructure and an under-mobilized citizenry. It will take at least another twenty years for India to rationalize its domestic marketplace to the same degree China has, so Indian outsourcers can moderate their escalating costs and insulate themselves somewhat from the travails of the international marketplace.

The same Economist Magazine article points out:

“As they chase new revenues, outsourcing companies will also need to clamp down on costs. These have been soaring, especially in India, where a ferocious war for talent has driven up wages and led to very high staff-turnover rates.”

So what about Nanjing? The city does have one of the best university educations on offer in China, and the local government is hell-bent on encouraging MNCs to settle in or near the city. Jones Lang LaSalle identified in several reports: Nanjing has the fifth highest concentration of hi-tech companies in China (Suzhou is Number 6); the ninth most popular destination for R&d centers in China; in 2005 was the fifth most popular base for expansion of MNC activity; while half of all MNC activity is tied up in finance and banking, and IT and Telecoms sectors - sectors that are amongst the most avid consumers of Services Outsourcing. Nanjing also has at its disposal resources as the capital of one of the richest provinces in China, which also happens to be the province with the most outsourcing bases (which include Kunshan, Suzhou and Wuxi).

The Nanjing Model for Services Outsourcing in China will see service providers taking advantage of the international marketplace through the front door of the MNCs in or near their cities. The support of the MNCs in the region will provide outsourcing vendors the knowledge, experience, relationships and credibility that launched the Indian revolution eight years ago. Coupled with the results of outsourcing partnerships with Chinese customers, Chinese service providers will be able to take out into the world the innovative processes and technologies they’ve developed to meet the unique requirements of Chinese society and business.

One day perhaps, Chinese services outsourcers might be bringing their experience in the world’s most populace country to the world’s second-most populace country. Chicken-Feet Vindaloo, anybody?

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It was one of the old timers in Suzhou who brought the fact to my attention that more than the fair share of Suzhou residents are leaving for other destinations. Sipping beers round a table at Blue Marlin 3, in Suzhou Industrial Park, a group of us went down the roster: British Dave from Nokia is off to India; another British Dave, a former GM of a packaging company, returning to the UK the end of the month; Ash, a South African mate, on to Beijing; Wim, a Dutch drinking buddy whose family has been involved in textiles in Asia for twenty years, just flew out to Singapore to establish a new beachhead for the company. And then there are friends of ours we haven’t seen for months, as they are setting up operations in India for their companies; these are long-term Suzhou residents.

Reasons vary for the migrations, of course. But two things are apparent: it’s been a while since we’ve seen such a burst of deployments; and the changes signal a structural change in the global economy, not cyclical. These fellows, though not around the eight and ten years that some of my mates have been in Suzhou, have been fixtures. Not like the fellows on two year and three year contracts that you’re sort of happy to see go when their term comes due.

The export-driven companies, in particular, are the ones that are reconsidering their international strategies. Textiles, we all know, it an industry that has been hit particularly hard. My Dutch friend and his family will concentrate on working with suppliers in Indonesia and Malaysia, with the minority now in China. The large multinational manufacturers this year accelerated their development of factories in India; one friend that works for a Danish company that has just finished equipping its new Indian operation said to me the factory still hasn’t any electricity or running water (and that the place is deadly boring for foreigners).

I’ll miss these guys: they were all good fun and never caused trouble (unless it was in good fun).

Your new homes will be that much richer for having you there.

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I’ve recently been contacted by China publications already looking ahead to the business climate here in 2009. Chaina Magazine, the publication of the China Supply Chain Council, has already produced an excellent cover story in its September/October edition. The article is entitled “Managing through the lean times,” starting on page 29.And The China Business Guide 2009, produced by the editors of The China Economic Review, are already busy at work on their 1st Quarter 2009 release.

I very much enjoyed the format of the Chaina Magazine article. Russel Beron, the charming French editor of the publication, did an excellent job collecting and collating responses to questions he emailed at least thirty of those of us in China who have to think about the domestic and international business dynamics to run our companies. He and his staff then organized the extensive article into nine broad categories he illuminated with relevant quotes from interviewees.

Some pertinent quotes to whet the appetite include:

“…Internally, our employees are coming back to us with requests for pay raises as they struggle to cope with their growing living costs - this increase in our payroll cost has had an impact on our bottom line.” - Phillip J. Hatch, CEO of Ventoro

“…Costs have increased substantially as a result of inflation, Renminbi appreciation and high deman for wood and petroleum based resources. Costs for paper increased dramatically in the early part of the year and costs for polypropylene products we make rose so quickly during the run on oil that we were pressed to nail down prices for more than a 48 hour period.” - Aaron Landis, Vice President of International Operations, China Printing Solutions International

“…With companies increasing prices due to [regulatory] factors, it was easier for [suppliers] to slip in additional increases based on projected changes in policy. Then, when the commodities hit their highs, it was even easier to hide further price jumps in pricing as the market prices became unstable for finished goods.” - Hsien-Hui Tong, vice President, Emerging Technologies as Wassax Inc., Singapore

“…We have to reduce unnecessary cost and restrategize our business. We are focusing our business in smaller cities where it is less competitive and cities near to our production facilities in oreder to keep logisitc cost down.” - Teo Aeng Kyet, Head of Proton China

And then there is my inimitable observation in the same article:

“Doh! Where’s China?”

No, actually I said:

“…We are seeing clients choosing destinations like Xuzhou, in North Jiangsu Province, and Inner Mongolia to establish their facilities…”

The questions the editors of The China Business Guide 2009 were good, reflective fun to respond to. It seems they sent the same questions out to as many China business advisors, executives and managers as they had in their database. A sneak peek at one response of mine went something like this:

“What kind of regulation do you expect to see in the near future?
China national policy will tighten in the areas where industry and living standards meet: that means greater regulation and enforcement of environmental standards, and food and drug administration. Huge and deadly pollution and food scandals have embarrassed national and local governments in China into action lest they lose “the mandate of Heaven” - the permission of the people to administer their country….”

Of course, I go on to qualify the answer, as I did with the others six they asked me. Anyway, look for the Guide when it comes out early 2009.

And just when you think you’ve got China figured out, remember Don Henley’s inimitable (there’s that word again) advice to himself:

“I saw a Dead Head Sticker on a Cadillac; A little voice inside my head said don’t look back you can never look back…”

This is China! now and for a long time to come…

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It seems to me that the amount of fighting in the streets has increased in Suzhou since I came here six years ago. I’m not talking about street gangs that swagger down sidewalks knocking down old ladies and kicking pekingese dogs in the arse. Instead, I’m talking about a subjective increase in the number of scuffles myself and my friends have been noticing in Suzhou and even in Shanghai.

It’s pretty much accepted that Northern Chinese are hot-tempered and will fight at the drop of a hat. Indeed, I remember the first time I ever went to Beijing nine years ago that within the first half-day there I saw two fellows brawling in the street after a fender-bender between their cars. My favorite Beijing fight, though, was the two middle-aged women in the parking lot of a Starbucks hammering away at one tall, thick-set Chinese man who had no qualms shoving them back.

The Yangtze River Delta region, though, has the reputation of Chinese merely shouting and gesticulating at each other for a bit, then going on their relieved way. For instance, two weeks ago within a span of half hour I saw two groups in arguments within spitting distance of the same Bank of China: one seemed to involve a car parking where it shouldn’t have been and the other an electric bicycle where it shouldn’t have been. I don’t know how either ended because I tend to lose interest within a couple minutes of all the barking.

A week later one of the partners in my company told me his wife just the day before had been standing in line at the very same Bank of China in our office building. A middle-aged Chinese woman swept into the bank and barged into the front of the line ahead of another middle-aged Chinese woman. The woman in the line objected to the intrusion, especially as she was next up to the cashiers window. The barger over-ruled the woman’s complaints by claiming rather loudly that she had a lot of money in the bank and should be first. The bargee was not impressed and subsequently pushed the barger out of the line. Alas, the barger’s nails were long and sharp, and she took them to the face of the hapless bank patron who had shoved her. A scuffle ensued, during which the bank guards watched on with utter astonishment. Not until the women were screeching and pulling at one another’s hair did the guards think to intercede.

After the guards had taken the lady-of-the-talons away the bargee called her husband on her mobile phone. He had been waiting outside for her in their car. When the husband entered the bank and saw his wife’s disheveled hair and clawed face, he quickly realized service in the bank was not as advertised and began berating the guards. When he more fully understood the situation and saw the culprit behind the large glass pane being serviced by bank employees, he took it upon himself to get at the woman. The guards insisted he desist. He beat the guards. I’m sure the whole thing was caught on closed caption cameras and was shown on the Suzhou local news that night, but I did not see the report.

Days later a Chinese friend took a walk down Dong Huan Lu, which separates Suzhou Industrial Park from downtown Suzhou, around Modern Avenue. In one two-hour walk she saw two fights on the sidewalk, the most amusing of which was between four Chinese women in their twenties. One of the women had been a patron of their hair parlor and was not happy with the result. She refused to pay and stormed out of the establishment with her girlfriend, who had been waiting for her and who supported her friend’s decision that the result was more than simply a bad hair day.

And it’s not just Suzhou I see this phenomenon: entering the American Citizens Services Center on Nanjing West Road just last week I watched as a balding public worker in a bright yellow jumpsuit head-butted a clearly obnoxious citizen - while the police were attempting to intercede in the argument. Baldy’s co-worker followed up with a quick shove to the citizen’s chest. The policeman on the beat was useless, eventually realized as much, and called for back-up.

Of course, this is all very subjective, this observation of the increasing volume and frequency of fights on the streets, but I have been considering just why I and others with whom I’m acquainted have been seeing what we’ve been seeing. One reason could be the increasing stress residents may be feeling with the breakneck pace at which Chinese are trying to make money - or just trying to survive. Another reason could be that increasing migration throughout China has brought more northern Chinese into Southern Jiangsu and Shanghai - that would include people from Northern Jiangsu, which is much more culturally attenuated to Shandong province with its hard-drinking, hard-talking world view than its cousin south of the Yangtze River.

Whatever the reason, trust that street life in the Yangtze River Delta will become more colorful. And don’t forget to duck!

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I tried this month in my Eurobiz Magazine column Challenging China to look from another view at the cultural issues dissecting investment in China: What are Chinese employees seeing of Westerners in the workplace? I asked. Eurobiz is a publication of The European Union Chamber of Commerce. Typically, Westerners are pointing the finger at China workers as reasons for operational inefficiencies. But I’ve noticed these last few years that many times Westerners don’t make it any easier for businesses in China to operate smoothly, or for communications to range as openly as Westerners like to profess.

I write in the column:

“A manager of a Scandinavian home furnishings manufacturer once told me how when he was transferred to the China operation he was appalled to see the Western managers all sitting together in the canteen upstairs, while all the Chinese staff sat together eating in the downstairs cafeteria. ‘I tried several times to sit with the Chinese staff downstairs to converse with them while we ate, but I got the feeling they felt I wasn’t sincere about wanting to break down the separation. The company culture seemed to have a built-in divide between the Westerners and the Chinese that the Chinese seemed quite aware of.’”

Westerners tend to have a Hero mentality to living and working in China. And it shows. It’s not as bad as The White Man’s Burden that colonialists carried round with them like some great bat over which they clubbed many a society over the head in Asia; however, there is a fair share of hubris that hangs around the operations of some Western companies in China like soot from a coal-fired generator.

Now, with the meltdown of the financial system in the West and Western institutions coming to cash-rich Chinese organs, it may not be a bad idea to actually consider creating “a level playing field” between China and the West - culturally speaking, that is.

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On October 16, 2008 I’ll be in Shanghai moderating the seminar program on “Responsible Fashion & Design” during the week-long exhibition event of the same name. The seminar in which I am participating is sponsored by the innovative Danish maker of creative playgrounds KOMPAN.

“The seminar will answer questions like: What is responsible production? How to set up a ‘green’ production in China? Why produce environmentally friendly products? Is there a market for these products? What are the economic incentives? Which companies are producing environmentally friendly products in China and what is their story?”

The program is part of a seven-day conference and exhibition in Shanghai that takes place at galleries, hotels and exhibition halls throughout the city. Exhibition and seminar underwriters include the Royal Danish Consulate General and the Danish Fashion Institute. The series of exhibits and seminars begins Tuesday, October 14. The Danish Prime Minister Anders Fogh Rasmussen will be attending the Exhibition on its last day (Tuesday, October 21), and will be attending a press conference and reception at the conclusion of the Program.

For more information about the seminar I’ll be moderating or about the entire Event contact Karina Junk at the Royal Danish Consulate General in Shanghai, phone: (21) 6209 0500 x 301, or email her at karjun@um.dk.

Be there or be square!

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