Much has been made of the rain the Tibetan protesters have managed to shower on the Olympic torch parade in London, Paris and San Francisco. In terms of world publicity garnered, the protesters can claim an asymmetrical victory. Clearly, the western media were embedded in their midst and faithfully reported on the "facts" as laddled by the Tibetan expatriate camp.
I have offered a contrarian view of the riot in Lhasa last month. Below is a compilation of various views that should provide a more balanced view of the Tibetan protest, if those in the media are interested in some modicum of fairness in their reporting.
Retired Professor Ivy Lee took a bus from the Sacramento area to watch the parade in San Francisco. Read about her reflections of the event.
Attorney Ed Liu has unleashed a torrent of counterpoints at his blog.
Architect and author Bevin Chu has written a number of thought provoking think pieces on Tibet, Tibet 2 and Tibet 3.
Another treasure trove of articles on various views of Tibet can be found at this content rich site.
A sample of the response by the Chinese students in Australia objecting to the bias reporting of the west can be found on video.
F. William Engdahl is a Research Associate of the Center for Research on Globalization. He is one of many to describe the historical complicity of UK and then the CIA in stirring unrest in Tibet in a recent review accompanied by impressive list of references.
One basic review of the history of Tibet referenced by Engdahl and widely read is written by Michael Parenti, The Tibetan Myth, most recently updated in January 2007. Dr. Parenti, (PhD from Yale) is an award winning author and lecturer. In 2007 he was awarded a Certificate of Special Congressional Recognition from U.S. Representative Barbara Lee.
Another review of the history of Tibet has been written by Foster Stockwell, son of missionaries who lived in China for many years.
As I noted in my book rerview of Orville Schell's Virtual Tibet, there are a lot of information about Tibet that has been glamourized out of existence in the minds of Hollywood.
I do not consider myself as an expert on Tibet, but even back in 1997 I could sense something amiss in the idealized views of Tibet that did not jive with reality. This unfortunately has continued to this day.
Any of you of like mind, please help spread the word. Add your comments and other useful links below and send this on to your contacts.
Monday, April 14, 2008
Tuesday, April 8, 2008
China's Economy is not a Zero-Sum
Invited speaker
Barbara & Richard M. Rosenberg Institute for East Asian Studies
Suffolk University, Boston, April 8, 2008
Ladies and Gentlemen,
It is a great honor to be an invited speaker at this inaugural conference of the Rosenberg Institute of East Asian Studies. I would like to add my personal congratulations to Barbara and Richard Rosenberg for their wisdom and leadership. Recent events strongly suggest that Americans and for that matter the people in the West do not understand East Asia and China. Yet students today better get to know about the cultures and peoples of East Asia, because such knowledge or lack of it will impact their careers. I applaud the Rosenberg’s attempt to rectify this deficiency by establishing this Institute.
I picked as the title for my talk, “China’s Economy is not a Zero Sum,” for a very specific reason. I am keenly aware of America’s rather dismal understanding of China and I hope that today I will have the opportunity to clear up some of the false premises about China, either through my prepared remarks or in the Q&A that follows. For the sake of clarity and continuity, I am eschewing the usual PowerPoint presentation, although the organizers have very kindly provided each of you with a set of hand-outs that back-up the factual part of my talk. The hand-outs are in the order of my talk.
My talk will touch on three inter-related issues. Namely, a description of today’s China economy, how China got to this point and what China is not and in doing so, take the opportunity to debunk some of the notions that are flat out wrong about China. As we enter into the heated presidential campaign, China appears to be once again the piñata of choice, a convenient scapegoat for everything wrong in this world. I hope today to neutralize some of the ill wind or at least point out how silly some of the rhetoric about China can get.
It is important that I make a disclaimer at this point of my talk. Although I am an employee of Deloitte and proud to be part of that global firm and rely on the research material and resources from the firm, my remarks today are strictly my own and does not represent in any way the views of my employer.
By any measure, China’s economic growth over the last three decades has been nothing short of miraculous. Nothing of this scale and growth rate of economic expansion has happened in humankind’s recorded history of 5000 some years. China’s annual GDP is now around $3 trillion, having overtaken Germany (or will overtake Germany soon, the uncertainty is due in part to fluctuating exchange rates) to become the third largest in the world. In 2000, China was the 6th largest (just ahead of California) and ten years earlier in 1990, China was 19th just one place ahead of Taiwan, but with a population 50 times larger, and back in 1980 when China had just barely began its economic reform, China was in 30th place with an economy smaller than even Nigeria, Argentina and Iran. Since 1978, China’s economy has been doubling every seven years.
Since China joined WTO in December 2001, its exports have grown five fold in five years. By 2006, China overtook the U.S. as the second largest exporter of goods and is expected to surpass Germany sometime this year. In the early ‘90s, China’s foreign currency reserve was an anemic $20 billion or so. Today, China’s reserve has exceeded $1.5 trillion, an increase of 75 fold in roughly 15 years.
During this period, the lives of the Chinese people have significantly improved. Over 400 million have been lifted out of poverty. China now has more than 140 metropolitan areas with populations over 1 million. The portion of the population now living in urban areas is approaching 50% from around 20% when reform began in 1978. Just about every household, including those in the rural area now owns a TV set. There are over 500 million mobile phones in use, 220 million Internet users, 190 million PC owners.
Already China has more mobile phone and Internet users than the U.S. and closing fast in PC ownership. And these numbers are constantly changing because new wealth is constantly being created. China is the fastest growing market for Bentleys that sell for $3-400,000 each. China is overtaking the U.S. as the source of greatest number of tourists traveling abroad; China sent 35 million abroad in 2006. Furthermore, as Europeans in the hospitality business will tell you, the average spending per Chinese tourist is 2-3 times higher than the American tourist.
How did this come about? Ironically, while the rate of change in China seemed so breath taking, the fiscal policy behind it was cautious with emphasis on gradual, trial and error approach. The policy makers in Beijing took to heart Deng Xiaoping’s advice to carefully grope for the stones while crossing the river. After Deng returned to power in 1978, there have been three premiers that implemented policies of economic reform.
Under Zhao Ziyang, the first premier after Deng’s return, the communes were disbanded giving farmers the chance to determine their destiny by working harder and smarter. Some of the farmers turned to higher value added crops and were soon shipping tulips to Holland, Shiitake mushrooms to Japan and garlic to Gilroy California. Others turn to cottage industries and started collectively owned enterprises. These township and village enterprises were the first non-state owned sector to make a significant economic contribution. Economic experiments were carefully monitored by a dual track system. In other words, a local price in local currency the RMB and a higher price in foreign exchange certificates that that visiting tourists get when they convert their hard currency—not a system pleasing to visiting foreigners.
Zhu Rongji took over as the economic czar, though not formally as premier, shortly after the Tiananmen incident, the memory of which, by the way, has become indelible in the minds of the West, but virtually forgotten in China. He tamed the run away inflation when he first seized control of the national economy—he introduced the economic concept of hong guan tiao kong （宏观调控） (macroeconomic control) to the Chinese population for the first time. Following Deng Xiaoping’s edict that to get rich is glorious, he proceeded to open China wide to foreign direct investments. 1993 was the first year when registered FDI exceeded $30 billion for the year. It has been increasing steadily and leveling off recently at around $60 to $70 billion of new foreign investments every year. No other country other than the U.S. has attracted as much foreign investments.
By the time Zhu retired in 2003, China had entered the WTO and rapidly became the factory of the world. By the time Zhu’s successor Wen Jiaobao took over, a new set of challenges were awaiting. Huge gaps now exist between the wealthy and the poor, the urban and the rural, the coastal region and the interior. Theses gaps are sources of social tension. Ironically, universities have greatly increased their capacity and are now generating many more college graduates than ever. This too adds pressure to growing the economy and creating jobs to meet the expectations of the new graduates. And, I have to tell you that China is struggling to deal with all these challenges and will be doing so in years ahead.
The current premier Wen has a challenging balancing act. On the one hand he has to keep the economy growing to create jobs. On the other he is concerned with inflation. The economic figures for the first two months of this year show ominous signs of inflation as if to reinforce his worry. He has to deal with a strengthening RMB, which has appreciated about 16% since it was taken off the peg to the dollar in July 2005. As a consequence, multinational companies are beginning to look elsewhere to put in their next plant. He also has to worry about the $1.5 trillion of reserves he is holding in dollars that are eroding in value by the day. He is facing rising labor cost, rising energy cost, the need to bring environmental degradation under control and exert tighter enforcement of labor laws. He has just begun his second term of office and he has a tough job ahead of him.
So what did China do to be so successful so far? I would say three main factors.
First, ever since Deng Xiaoping returned to power, China has been stable and had an orderly transition of leadership. Increasingly the leaders are highly educated, all college graduates and some with advanced degrees. The Jiang/Zhu generation was all engineers. In the current generation, a few economists and lawyers have been allowed into the inner circle. More importantly, every leader has been tested and proven that they are capable each step along the way as they rose in rank. Sons and daughters of senior leaders sometimes do enjoy the inside track but only the capable ones end up in key positions while less capable or motivated are assigned to cream puff positions.
Secondly, since Deng, China has taken down the bamboo curtain of Mao days and opened the country to outside ideas. In the early 1980s, China invited Robert McNamara, then president of the World Bank into China. Beijing wanted not just World Bank financing but the rules and conditions that go with the financing. Beijing wanted the World Bank guidance as a framework to establish their own rules of governance for banking and financial institutions, a matter where they had no experience from their past as a planned economy to draw from. This is not your typical third world response where they just want the money but not the discipline and constraints. No wonder then that to this day, the World Bank considers China to be their most successful client. And, as a historical note of interest, the leader representing China in the working group with the World Bank was Zhu Rongji.
Another example of China’s openness is their entry into the WTO. There was a lot of resistance inside China to the idea of entering WTO. Many state-owned enterprises feared open competition in the global market and wanted to protect their domestic piece of the pie. Indeed in the transition, many inefficient factories were closed and more than 30 million jobs were lost. But Premier Zhu recognized that despite near term pain, in the long run, China needs to compete at the international level and forced the country into this multilateral agreement over the objections of many. He was right, of course. Sadly, the need to compete in the global market is a principle some of our political leaders seem to have forgotten.
Third important factor, I feel, is China’s willingness to invest in infrastructure--heavily so. From the first World Bank financing, China has placed high priority to infrastructure investments even when they did not have the funds from internally generated sources to do so. Consequently, China now has a highway network that rival the U.S. Interstate system. There was just one bridge across the mighty Yangtze River when my wife and I visited China in 1974. There are now so many that nobody bothers to keep track. I believe the most recent is around 18 miles long near the mouth of the river connecting Suzhou in the south to Nantong in the north. China has constructed at least two bridges that I know of over 20 miles long, over open water. The port handling facilities, airports, the train system (including the only one in the world to operate above 4000 meters in altitude), the power plants and grid, the telecommunications networks and Internet broadband are all constantly increasing in capacity and improving to keep up with demand. The Beijing government has been running deficits to keep their infrastructure in pace with their economic development and by and large they have been successful.
In summary, many developing countries are now looking at China as a model for development. What they see is a stable government that allows the leadership to concentrate their attention on economic development including prioritizing infrastructure projects and moving away from a planned economy to one where the market is the driver.
Of course, phenomenal as China’s economic growth has been, it has not been without some serious costs. In growing the economy, China unfortunately hewed to the traditional western model, which was pollute now and worried about it later. Anyone that have visited China over a period of years can see that this approach has devastated the quality of air around most cities and severely constrained the availability of already tight supply of clean water. More recently, one can spot occasional improvement in air quality—a friend of mine just returned from Beijing where she saw 5 continuous days of blue sky and she has changed her mind and decided to take her son to the Olympics--but China has a long ways to go. In pollution control and environment remediation, the West has a lot to offer and China represents a market of huge potential.
China is also in the process of rebuilding its tattered social safety net—a system that broke down in the transition from a planned economy to a free market. Their need to restore and improve their health care system is another very large market for outside technology and services. Their need to construct a sturdy national retirement pension plan represents opportunities for financial and macroeconomic experts from everywhere.
All in all, China economic development has been a win for its Asian neighbors that trade with China, for Latin America and Africa where most of China’s foreign investments have been going, and for the West that buys from China, because up to now, the prices have been stable and low and thus help keep us, the American consumer, in a style we are accustomed, all at a reasonable price. Not only China’s economy has not been a zero sum but has been an all around win.
Some critics of China accused China of predatory trade practices and frequently link China to the mercantilist policies of Japan. I see two entirely different models of external trade. The U.S. has been blaming China for its booming trade deficit. Let me break this down for you. In 1997, 27% of our trade deficit is from China while another 43% is from the rest of East Asia, (mainly from Japan, Korea, Taiwan and Singapore). That means a total of 70% of America’s trade deficit came from East Asia. In 2006, ten years later, China accounts for 28% while East Asia adds another 17% to our trade deficit for a total of 45%. The reason is that much of the manufacturing that used to be done in other countries has now been shifted to China.
In percentage terms, our trade deficit with East Asia including China has actually shrunk. Some members of Congress has blamed China’s pegged exchange rate as the cause of “manipulated trade.” Since China’s RMB was taken off the peg, it has appreciated by about 16% but our trade deficit has continued to rise. In absolute terms, our government has not been able to manage our trade and fiscal policies. Our policy makers’ inability to balance our trade should not be blamed on China.
To reinforce this point, nearly 60% of China’s exports come from foreign invested enterprises (FIE), about half from wholly foreign owned factories. On the high end of the export products, anywhere from 85 to 90% of the goods are made for foreign invested enterprises. Let me just cite just one example. China is a major exporter of boom boxes. In 2006, 34% of the exports came from FIEs but accounted for 73% of the total value of this export category. If you do the math, FIE made boom boxes came out 5 times higher in average value than the domestically made ones.
In other words, everybody is benefiting from China’s open economy, not just China.
The U.S. is an important market for China but our perceived leverage may be overblown. In 2007, 21% of China exports were sent to North America including Canada. Europe took 23.5% while Asia is the destination for 46.6% of China’s export.
Another misleading statement frequently bandied about is the lack of consumer spending in China. One recently published book by a veteran Western journalist even goes so far as to say that China has a policy to suppress consumerism. Maybe not comparable to the American consumer but these views fly in the face of the density of TVs, mobile phones and PCs that I mentioned earlier. It is also not consistent with the maker of Bentleys and others who regard China as the fastest growing market for their high profile brands of luxury products.
China’s annual retail sales is already over $1.2 trillion and growing at almost twice as fast the GDP, which as I said is doubling every 7 years. Wal-Mart clearly sees China as its most important market of the future. They have just over 100 stores in China, having added 23 in just last year. The per store sales in 2006 was half of their experience in the U.S. Their public statements indicate that they see an as yet largely untapped potential ahead for China.
According to recent poll of American companies already operating in China, 68% of them are planning to increase their resource commitment in China over the next 12 months, while 30% plans to hold steady and only 2% are pulling back. When asked of their 5-year business outlook in China, 55% are optimistic, 38% are somewhat optimistic and nobody is pessimistic.
While China is one of America’s major trading partner, a major holder of our national debt, and a partner in anti terrorism, for reasons hard to understand, U.S. policy makers insist on seeing China as an adversary. This hostility has a deleterious effect on every Chinese American living in the U.S. The FBI special agent has publicly declared that every ethnic Chinese working in Silicon Valley is a potential spy for China. The federal government nearly succeeded in railroading Dr. Wen Ho Lee to a sentence of life imprisonment on a trump up charge. Recently, an engineer in Southern California was sentenced to 24 years after being convicted of trying to send publicly available, non-classified information to China. The sentencing judge even said that the sentence was intended to warn others of the consequences of spying for China—the judge even used a classic Chinese strategy of killing the chicken to frighten the monkey.
The rhetoric can get down right hysterical sometimes. Let me say for the record that China detonated its first atomic bomb and launched the first guided missile in 1964, detonated the first hydrogen bomb in 1967 and launched the first unmanned satellite in 1970. All of this before Nixon met Mao in 1972 and bilateral relations were normalized in 1979. During that pre-normalization era, there couldn’t be much exchange between China and the U.S. and hard to make a case of blaming China’s achievements on stolen secrets from the U.S.
The Pentagon is proposing a military budget of $515 billion for the coming fiscal year, not including the extraordinary expenditures for Afghanistan and Iraq. The budget will include development of advanced fighter, advanced aircraft carrier, advanced destroyer and advanced submarine. The DOD is not pretending that this is for combat against the global terrorists. The largest one year expenditure request since WWII is for the prospects of meeting a future unnamed adversary. Want to guess who is the unnamed adversary? In the interest of brevity, I will simply make the observation that China’s military budget well under one fifth of the U.S. budget rests on a strategy of maintaining a credible retaliatory threat, a second strike capability against any other global power but otherwise concentrate on domestic economic priorities.
I am a member of the Committee of 100, a national organization of Chinese Americans. At their conference I attended last November in Beijing, China’s Vice Foreign Minister, Zhang Yesui was one of the invited speakers. He said, “We should observe the purposes of principles of the UN Charters and the universally recognized norms governing international relations to promote democracy, harmony, cooperation and win-win progress in international relations.” He goes on the say, “China cannot develop itself in isolation from the world, and the world cannot sustain prosperity and stability without China. China’s active participation and constructive role in the international affairs has boosted its own growth and promoted world’s peace and prosperity.”
Indeed China’s foreign policy has been to work within the confines of the United Nations. They have contributed troops and police in 13 of 17 on going UN Peacekeeping operations. Since 1990, China has contributed 9000 peacekeepers in 22 UN operations, more than the combined total of the other four permanent members of the Security Council. As of the end of 2007, China has exercised its veto power on the Security Council a total of 6 times since they joined that body. During that same period, USSR/Russia cast 123 vetoes, the U.S. 80 times, UK 32 and France 18.
Permit me to just mention one example of China’s foreign policy to this audience. In September 2007, China signed a deal with Congo to work on infrastructure projects in accordance with the Congo government’s priorities, which were water, electricity, education, health and transportation. The total cost will exceed $9 billion, far more than Congo’s annual budget of $1.3 billion. To pay for the infrastructure investment, China formed a JV with Congo to extract copper, nickel and cobalt, a $3 billion investment. Other parts of the deal include technology transfer and training of Congolese staff, work on social welfare and environment and subcontracting certain work to local Congolese companies. The deal is neither colonial exploitation nor charity to a destitute developing nation. China is not telling the Congo government how to run their country and make no judgment on whether the government is to their liking. Instead, they just structured a win-win arrangement that will make a difference in Congo quickly. Hopefully the Congolese government is up to the task and its people will see and reap the benefits of this kind of venture.
We can talk about Tibet, Sudan and Darfur and human rights and whatever else in the Q&A if there is an interest. I would like to conclude my presentation by mentioning a historical character that happens to be from state of Massachusetts. How many of you have heard of Anson Burlingame? He was a Congressman from Massachusetts who was appointed ambassador to China by Abraham Lincoln in 1861. He spent about 6 years in China. As he was ready to come home, he was asked by the Chinese imperial Manchu court to serve as the envoy to negotiate with the West while representing China. To my knowledge he is the only person in history who had the privilege of holding successive flip-flop diplomatic posts for two nations. (You can visit my blog, www.georgekoo.com for more about Burlingame.)
My fervent wish is that with the inauguration of the Rosenberg Institute of East Asia Studies in Suffolk University we will see in the future more ambassadors that can bridge the two countries and two cultures and replace the ill will that stems from ignorance with good will that comes from an informed public between the peoples of America and Asia. Thank you for your attention.
Barbara & Richard M. Rosenberg Institute for East Asian Studies
Suffolk University, Boston, April 8, 2008
Ladies and Gentlemen,
It is a great honor to be an invited speaker at this inaugural conference of the Rosenberg Institute of East Asian Studies. I would like to add my personal congratulations to Barbara and Richard Rosenberg for their wisdom and leadership. Recent events strongly suggest that Americans and for that matter the people in the West do not understand East Asia and China. Yet students today better get to know about the cultures and peoples of East Asia, because such knowledge or lack of it will impact their careers. I applaud the Rosenberg’s attempt to rectify this deficiency by establishing this Institute.
I picked as the title for my talk, “China’s Economy is not a Zero Sum,” for a very specific reason. I am keenly aware of America’s rather dismal understanding of China and I hope that today I will have the opportunity to clear up some of the false premises about China, either through my prepared remarks or in the Q&A that follows. For the sake of clarity and continuity, I am eschewing the usual PowerPoint presentation, although the organizers have very kindly provided each of you with a set of hand-outs that back-up the factual part of my talk. The hand-outs are in the order of my talk.
My talk will touch on three inter-related issues. Namely, a description of today’s China economy, how China got to this point and what China is not and in doing so, take the opportunity to debunk some of the notions that are flat out wrong about China. As we enter into the heated presidential campaign, China appears to be once again the piñata of choice, a convenient scapegoat for everything wrong in this world. I hope today to neutralize some of the ill wind or at least point out how silly some of the rhetoric about China can get.
It is important that I make a disclaimer at this point of my talk. Although I am an employee of Deloitte and proud to be part of that global firm and rely on the research material and resources from the firm, my remarks today are strictly my own and does not represent in any way the views of my employer.
By any measure, China’s economic growth over the last three decades has been nothing short of miraculous. Nothing of this scale and growth rate of economic expansion has happened in humankind’s recorded history of 5000 some years. China’s annual GDP is now around $3 trillion, having overtaken Germany (or will overtake Germany soon, the uncertainty is due in part to fluctuating exchange rates) to become the third largest in the world. In 2000, China was the 6th largest (just ahead of California) and ten years earlier in 1990, China was 19th just one place ahead of Taiwan, but with a population 50 times larger, and back in 1980 when China had just barely began its economic reform, China was in 30th place with an economy smaller than even Nigeria, Argentina and Iran. Since 1978, China’s economy has been doubling every seven years.
Since China joined WTO in December 2001, its exports have grown five fold in five years. By 2006, China overtook the U.S. as the second largest exporter of goods and is expected to surpass Germany sometime this year. In the early ‘90s, China’s foreign currency reserve was an anemic $20 billion or so. Today, China’s reserve has exceeded $1.5 trillion, an increase of 75 fold in roughly 15 years.
During this period, the lives of the Chinese people have significantly improved. Over 400 million have been lifted out of poverty. China now has more than 140 metropolitan areas with populations over 1 million. The portion of the population now living in urban areas is approaching 50% from around 20% when reform began in 1978. Just about every household, including those in the rural area now owns a TV set. There are over 500 million mobile phones in use, 220 million Internet users, 190 million PC owners.
Already China has more mobile phone and Internet users than the U.S. and closing fast in PC ownership. And these numbers are constantly changing because new wealth is constantly being created. China is the fastest growing market for Bentleys that sell for $3-400,000 each. China is overtaking the U.S. as the source of greatest number of tourists traveling abroad; China sent 35 million abroad in 2006. Furthermore, as Europeans in the hospitality business will tell you, the average spending per Chinese tourist is 2-3 times higher than the American tourist.
How did this come about? Ironically, while the rate of change in China seemed so breath taking, the fiscal policy behind it was cautious with emphasis on gradual, trial and error approach. The policy makers in Beijing took to heart Deng Xiaoping’s advice to carefully grope for the stones while crossing the river. After Deng returned to power in 1978, there have been three premiers that implemented policies of economic reform.
Under Zhao Ziyang, the first premier after Deng’s return, the communes were disbanded giving farmers the chance to determine their destiny by working harder and smarter. Some of the farmers turned to higher value added crops and were soon shipping tulips to Holland, Shiitake mushrooms to Japan and garlic to Gilroy California. Others turn to cottage industries and started collectively owned enterprises. These township and village enterprises were the first non-state owned sector to make a significant economic contribution. Economic experiments were carefully monitored by a dual track system. In other words, a local price in local currency the RMB and a higher price in foreign exchange certificates that that visiting tourists get when they convert their hard currency—not a system pleasing to visiting foreigners.
Zhu Rongji took over as the economic czar, though not formally as premier, shortly after the Tiananmen incident, the memory of which, by the way, has become indelible in the minds of the West, but virtually forgotten in China. He tamed the run away inflation when he first seized control of the national economy—he introduced the economic concept of hong guan tiao kong （宏观调控） (macroeconomic control) to the Chinese population for the first time. Following Deng Xiaoping’s edict that to get rich is glorious, he proceeded to open China wide to foreign direct investments. 1993 was the first year when registered FDI exceeded $30 billion for the year. It has been increasing steadily and leveling off recently at around $60 to $70 billion of new foreign investments every year. No other country other than the U.S. has attracted as much foreign investments.
By the time Zhu retired in 2003, China had entered the WTO and rapidly became the factory of the world. By the time Zhu’s successor Wen Jiaobao took over, a new set of challenges were awaiting. Huge gaps now exist between the wealthy and the poor, the urban and the rural, the coastal region and the interior. Theses gaps are sources of social tension. Ironically, universities have greatly increased their capacity and are now generating many more college graduates than ever. This too adds pressure to growing the economy and creating jobs to meet the expectations of the new graduates. And, I have to tell you that China is struggling to deal with all these challenges and will be doing so in years ahead.
The current premier Wen has a challenging balancing act. On the one hand he has to keep the economy growing to create jobs. On the other he is concerned with inflation. The economic figures for the first two months of this year show ominous signs of inflation as if to reinforce his worry. He has to deal with a strengthening RMB, which has appreciated about 16% since it was taken off the peg to the dollar in July 2005. As a consequence, multinational companies are beginning to look elsewhere to put in their next plant. He also has to worry about the $1.5 trillion of reserves he is holding in dollars that are eroding in value by the day. He is facing rising labor cost, rising energy cost, the need to bring environmental degradation under control and exert tighter enforcement of labor laws. He has just begun his second term of office and he has a tough job ahead of him.
So what did China do to be so successful so far? I would say three main factors.
First, ever since Deng Xiaoping returned to power, China has been stable and had an orderly transition of leadership. Increasingly the leaders are highly educated, all college graduates and some with advanced degrees. The Jiang/Zhu generation was all engineers. In the current generation, a few economists and lawyers have been allowed into the inner circle. More importantly, every leader has been tested and proven that they are capable each step along the way as they rose in rank. Sons and daughters of senior leaders sometimes do enjoy the inside track but only the capable ones end up in key positions while less capable or motivated are assigned to cream puff positions.
Secondly, since Deng, China has taken down the bamboo curtain of Mao days and opened the country to outside ideas. In the early 1980s, China invited Robert McNamara, then president of the World Bank into China. Beijing wanted not just World Bank financing but the rules and conditions that go with the financing. Beijing wanted the World Bank guidance as a framework to establish their own rules of governance for banking and financial institutions, a matter where they had no experience from their past as a planned economy to draw from. This is not your typical third world response where they just want the money but not the discipline and constraints. No wonder then that to this day, the World Bank considers China to be their most successful client. And, as a historical note of interest, the leader representing China in the working group with the World Bank was Zhu Rongji.
Another example of China’s openness is their entry into the WTO. There was a lot of resistance inside China to the idea of entering WTO. Many state-owned enterprises feared open competition in the global market and wanted to protect their domestic piece of the pie. Indeed in the transition, many inefficient factories were closed and more than 30 million jobs were lost. But Premier Zhu recognized that despite near term pain, in the long run, China needs to compete at the international level and forced the country into this multilateral agreement over the objections of many. He was right, of course. Sadly, the need to compete in the global market is a principle some of our political leaders seem to have forgotten.
Third important factor, I feel, is China’s willingness to invest in infrastructure--heavily so. From the first World Bank financing, China has placed high priority to infrastructure investments even when they did not have the funds from internally generated sources to do so. Consequently, China now has a highway network that rival the U.S. Interstate system. There was just one bridge across the mighty Yangtze River when my wife and I visited China in 1974. There are now so many that nobody bothers to keep track. I believe the most recent is around 18 miles long near the mouth of the river connecting Suzhou in the south to Nantong in the north. China has constructed at least two bridges that I know of over 20 miles long, over open water. The port handling facilities, airports, the train system (including the only one in the world to operate above 4000 meters in altitude), the power plants and grid, the telecommunications networks and Internet broadband are all constantly increasing in capacity and improving to keep up with demand. The Beijing government has been running deficits to keep their infrastructure in pace with their economic development and by and large they have been successful.
In summary, many developing countries are now looking at China as a model for development. What they see is a stable government that allows the leadership to concentrate their attention on economic development including prioritizing infrastructure projects and moving away from a planned economy to one where the market is the driver.
Of course, phenomenal as China’s economic growth has been, it has not been without some serious costs. In growing the economy, China unfortunately hewed to the traditional western model, which was pollute now and worried about it later. Anyone that have visited China over a period of years can see that this approach has devastated the quality of air around most cities and severely constrained the availability of already tight supply of clean water. More recently, one can spot occasional improvement in air quality—a friend of mine just returned from Beijing where she saw 5 continuous days of blue sky and she has changed her mind and decided to take her son to the Olympics--but China has a long ways to go. In pollution control and environment remediation, the West has a lot to offer and China represents a market of huge potential.
China is also in the process of rebuilding its tattered social safety net—a system that broke down in the transition from a planned economy to a free market. Their need to restore and improve their health care system is another very large market for outside technology and services. Their need to construct a sturdy national retirement pension plan represents opportunities for financial and macroeconomic experts from everywhere.
All in all, China economic development has been a win for its Asian neighbors that trade with China, for Latin America and Africa where most of China’s foreign investments have been going, and for the West that buys from China, because up to now, the prices have been stable and low and thus help keep us, the American consumer, in a style we are accustomed, all at a reasonable price. Not only China’s economy has not been a zero sum but has been an all around win.
Some critics of China accused China of predatory trade practices and frequently link China to the mercantilist policies of Japan. I see two entirely different models of external trade. The U.S. has been blaming China for its booming trade deficit. Let me break this down for you. In 1997, 27% of our trade deficit is from China while another 43% is from the rest of East Asia, (mainly from Japan, Korea, Taiwan and Singapore). That means a total of 70% of America’s trade deficit came from East Asia. In 2006, ten years later, China accounts for 28% while East Asia adds another 17% to our trade deficit for a total of 45%. The reason is that much of the manufacturing that used to be done in other countries has now been shifted to China.
In percentage terms, our trade deficit with East Asia including China has actually shrunk. Some members of Congress has blamed China’s pegged exchange rate as the cause of “manipulated trade.” Since China’s RMB was taken off the peg, it has appreciated by about 16% but our trade deficit has continued to rise. In absolute terms, our government has not been able to manage our trade and fiscal policies. Our policy makers’ inability to balance our trade should not be blamed on China.
To reinforce this point, nearly 60% of China’s exports come from foreign invested enterprises (FIE), about half from wholly foreign owned factories. On the high end of the export products, anywhere from 85 to 90% of the goods are made for foreign invested enterprises. Let me just cite just one example. China is a major exporter of boom boxes. In 2006, 34% of the exports came from FIEs but accounted for 73% of the total value of this export category. If you do the math, FIE made boom boxes came out 5 times higher in average value than the domestically made ones.
In other words, everybody is benefiting from China’s open economy, not just China.
The U.S. is an important market for China but our perceived leverage may be overblown. In 2007, 21% of China exports were sent to North America including Canada. Europe took 23.5% while Asia is the destination for 46.6% of China’s export.
Another misleading statement frequently bandied about is the lack of consumer spending in China. One recently published book by a veteran Western journalist even goes so far as to say that China has a policy to suppress consumerism. Maybe not comparable to the American consumer but these views fly in the face of the density of TVs, mobile phones and PCs that I mentioned earlier. It is also not consistent with the maker of Bentleys and others who regard China as the fastest growing market for their high profile brands of luxury products.
China’s annual retail sales is already over $1.2 trillion and growing at almost twice as fast the GDP, which as I said is doubling every 7 years. Wal-Mart clearly sees China as its most important market of the future. They have just over 100 stores in China, having added 23 in just last year. The per store sales in 2006 was half of their experience in the U.S. Their public statements indicate that they see an as yet largely untapped potential ahead for China.
According to recent poll of American companies already operating in China, 68% of them are planning to increase their resource commitment in China over the next 12 months, while 30% plans to hold steady and only 2% are pulling back. When asked of their 5-year business outlook in China, 55% are optimistic, 38% are somewhat optimistic and nobody is pessimistic.
While China is one of America’s major trading partner, a major holder of our national debt, and a partner in anti terrorism, for reasons hard to understand, U.S. policy makers insist on seeing China as an adversary. This hostility has a deleterious effect on every Chinese American living in the U.S. The FBI special agent has publicly declared that every ethnic Chinese working in Silicon Valley is a potential spy for China. The federal government nearly succeeded in railroading Dr. Wen Ho Lee to a sentence of life imprisonment on a trump up charge. Recently, an engineer in Southern California was sentenced to 24 years after being convicted of trying to send publicly available, non-classified information to China. The sentencing judge even said that the sentence was intended to warn others of the consequences of spying for China—the judge even used a classic Chinese strategy of killing the chicken to frighten the monkey.
The rhetoric can get down right hysterical sometimes. Let me say for the record that China detonated its first atomic bomb and launched the first guided missile in 1964, detonated the first hydrogen bomb in 1967 and launched the first unmanned satellite in 1970. All of this before Nixon met Mao in 1972 and bilateral relations were normalized in 1979. During that pre-normalization era, there couldn’t be much exchange between China and the U.S. and hard to make a case of blaming China’s achievements on stolen secrets from the U.S.
The Pentagon is proposing a military budget of $515 billion for the coming fiscal year, not including the extraordinary expenditures for Afghanistan and Iraq. The budget will include development of advanced fighter, advanced aircraft carrier, advanced destroyer and advanced submarine. The DOD is not pretending that this is for combat against the global terrorists. The largest one year expenditure request since WWII is for the prospects of meeting a future unnamed adversary. Want to guess who is the unnamed adversary? In the interest of brevity, I will simply make the observation that China’s military budget well under one fifth of the U.S. budget rests on a strategy of maintaining a credible retaliatory threat, a second strike capability against any other global power but otherwise concentrate on domestic economic priorities.
I am a member of the Committee of 100, a national organization of Chinese Americans. At their conference I attended last November in Beijing, China’s Vice Foreign Minister, Zhang Yesui was one of the invited speakers. He said, “We should observe the purposes of principles of the UN Charters and the universally recognized norms governing international relations to promote democracy, harmony, cooperation and win-win progress in international relations.” He goes on the say, “China cannot develop itself in isolation from the world, and the world cannot sustain prosperity and stability without China. China’s active participation and constructive role in the international affairs has boosted its own growth and promoted world’s peace and prosperity.”
Indeed China’s foreign policy has been to work within the confines of the United Nations. They have contributed troops and police in 13 of 17 on going UN Peacekeeping operations. Since 1990, China has contributed 9000 peacekeepers in 22 UN operations, more than the combined total of the other four permanent members of the Security Council. As of the end of 2007, China has exercised its veto power on the Security Council a total of 6 times since they joined that body. During that same period, USSR/Russia cast 123 vetoes, the U.S. 80 times, UK 32 and France 18.
Permit me to just mention one example of China’s foreign policy to this audience. In September 2007, China signed a deal with Congo to work on infrastructure projects in accordance with the Congo government’s priorities, which were water, electricity, education, health and transportation. The total cost will exceed $9 billion, far more than Congo’s annual budget of $1.3 billion. To pay for the infrastructure investment, China formed a JV with Congo to extract copper, nickel and cobalt, a $3 billion investment. Other parts of the deal include technology transfer and training of Congolese staff, work on social welfare and environment and subcontracting certain work to local Congolese companies. The deal is neither colonial exploitation nor charity to a destitute developing nation. China is not telling the Congo government how to run their country and make no judgment on whether the government is to their liking. Instead, they just structured a win-win arrangement that will make a difference in Congo quickly. Hopefully the Congolese government is up to the task and its people will see and reap the benefits of this kind of venture.
We can talk about Tibet, Sudan and Darfur and human rights and whatever else in the Q&A if there is an interest. I would like to conclude my presentation by mentioning a historical character that happens to be from state of Massachusetts. How many of you have heard of Anson Burlingame? He was a Congressman from Massachusetts who was appointed ambassador to China by Abraham Lincoln in 1861. He spent about 6 years in China. As he was ready to come home, he was asked by the Chinese imperial Manchu court to serve as the envoy to negotiate with the West while representing China. To my knowledge he is the only person in history who had the privilege of holding successive flip-flop diplomatic posts for two nations. (You can visit my blog, www.georgekoo.com for more about Burlingame.)
My fervent wish is that with the inauguration of the Rosenberg Institute of East Asia Studies in Suffolk University we will see in the future more ambassadors that can bridge the two countries and two cultures and replace the ill will that stems from ignorance with good will that comes from an informed public between the peoples of America and Asia. Thank you for your attention.
Monday, March 31, 2008
The Olympic Torch is not for China Bashing
By: L. Ling-chi Wang & George Koo
Monday, March 31, 2008
The torch heralding the 2008 Summer Olympics will arrive April 9 in San Francisco. This is its sole stopover in North America, as it makes its way from Greece to the site of the Summer Games in Beijing, China.
The Olympic torch is a universally recognized symbol of goodwill among the peoples of the world. The goal of the global torch relay is to unite the people of the world. San Francisco has been accorded the singular honor to represent North America in welcoming this international symbol of athletic competition and excellence.
For any politician or organization to disrupt this ceremony as a way of registering a protest against China - however valid their views - is to dishonor the spirit of Olympics.
Even if the protesters succeed in using the Olympics to score political points, they will be setting a precedent and run the risk of turning this honored event into a special-issues sideshow - where promoters of every pet issue will seize the opportunity for exposure of their cause. Interest in the goals and spirit of the Olympics will fade, and the international community will be the poorer for it.
Almost any city of the world would leap at the chance to join in the celebration and participate in the Olympic torch relay. The world community would look upon San Francisco with disdain, if the torch relay celebration is hijacked by other interests.
The contrast between how the torch is received in San Francisco with how the torch is celebrated in Europe, Africa, Latin America, Australia and Asia will embarrass not just the disrupters but sully the image of San Francisco - and America.
The Olympics belong to everybody - not just China, and not just the handful of protesters. Using the Olympic torch relay as a venue to voice their protests runs the risk of damaging their causes. They may think they will get their voices heard, but the vast majority of the global audience will see only the antics of the protesters, raising doubts and questions about the legitimacy of the protest.
The protest sponsors stand to lose sympathy more than gain support.
For the Bay Area Chinese American community, the Beijing Olympics is an occasion of pride and joy: This ancient tradition of athletic competition will be held in China for the first time. We invite and welcome all residents of goodwill and fans of the Olympics to join hands in welcoming the Olympic torch as it makes its way to Beijing through San Francisco.
Let the people of San Francisco use this occasion to join hands with the world community and renew our friendship and partnership with the people of China.
L. Ling-chi Wang is a professor emeritus of ethnic studies at UC Berkeley. George Koo is an international business consultant and board member of New America Media.
This article appeared on page B - 5 of the San Francisco Chronicle
Monday, March 31, 2008
The torch heralding the 2008 Summer Olympics will arrive April 9 in San Francisco. This is its sole stopover in North America, as it makes its way from Greece to the site of the Summer Games in Beijing, China.
The Olympic torch is a universally recognized symbol of goodwill among the peoples of the world. The goal of the global torch relay is to unite the people of the world. San Francisco has been accorded the singular honor to represent North America in welcoming this international symbol of athletic competition and excellence.
For any politician or organization to disrupt this ceremony as a way of registering a protest against China - however valid their views - is to dishonor the spirit of Olympics.
Even if the protesters succeed in using the Olympics to score political points, they will be setting a precedent and run the risk of turning this honored event into a special-issues sideshow - where promoters of every pet issue will seize the opportunity for exposure of their cause. Interest in the goals and spirit of the Olympics will fade, and the international community will be the poorer for it.
Almost any city of the world would leap at the chance to join in the celebration and participate in the Olympic torch relay. The world community would look upon San Francisco with disdain, if the torch relay celebration is hijacked by other interests.
The contrast between how the torch is received in San Francisco with how the torch is celebrated in Europe, Africa, Latin America, Australia and Asia will embarrass not just the disrupters but sully the image of San Francisco - and America.
The Olympics belong to everybody - not just China, and not just the handful of protesters. Using the Olympic torch relay as a venue to voice their protests runs the risk of damaging their causes. They may think they will get their voices heard, but the vast majority of the global audience will see only the antics of the protesters, raising doubts and questions about the legitimacy of the protest.
The protest sponsors stand to lose sympathy more than gain support.
For the Bay Area Chinese American community, the Beijing Olympics is an occasion of pride and joy: This ancient tradition of athletic competition will be held in China for the first time. We invite and welcome all residents of goodwill and fans of the Olympics to join hands in welcoming the Olympic torch as it makes its way to Beijing through San Francisco.
Let the people of San Francisco use this occasion to join hands with the world community and renew our friendship and partnership with the people of China.
L. Ling-chi Wang is a professor emeritus of ethnic studies at UC Berkeley. George Koo is an international business consultant and board member of New America Media.
This article appeared on page B - 5 of the San Francisco Chronicle
Wednesday, March 26, 2008
Significance of Ma Yingjeou's Win in Taiwan Election
Ma Yingjeou scored an overwhelming win in the just concluded election for president of Taiwan, garnering 58% of the votes cast, and handily defeated his opponent by more than 2 million votes. His win has been a subject of all sorts of interpretations by outside pundits.
Seemingly overlooked in the post-mortem analysis is his win on Kinmen Island, where he won 95% of the votes. Kinmen is the smallest of Taiwan's voting districts and easy to overlook. But surely, a plurality of 95% is noteworthy and deserves a closer examination.
Kinmen (also known as Quemoy or Jinmen) is just one mile off the coast of Xiamen. Direct ferry service to Xiamen began in 2001 and the traffic between the offshore island and its bigger neighbor has flourished, having expanded to eight daily sailing in each direction.
Xiamen is where residents of Kinmen go to buy necessities, fresh fruits and vegetables and luxury goods. Kinmen is a popular destination for tourists from the mainland. The economic linkage is obvious and palpable to people on both sides of ferry crossing.
Ma’s avalanche victory on Kinmen is a leading indicator of where his cross strait policy needs to go when he is sworn into office on May 20.
The people of Kinmen can see first-hand the benefits of closer ties to the mainland and bet on Ma to improve on this approach. The rest of the people of Taiwan will also see the economic benefit if Ma delivers on his campaign promise for closer economic ties with China.
Closer economic ties will build on the natural affinity of people of both sides and lead to closer ties with the mainland, something Ma’s opponent did not relish. Hopefully Ma will ride the rising tide of sentiments and make the necessary bold moves to reverse the past eight years of stagnation and cross strait hostility.
He has made a positive move by revisiting the prospects of welcoming pandas to Taiwan earlier offered by Beijing but rejected by his predecessor, Chen Shui Bian.
If he let irrelevant issues such as pursuit of pseudo independence, maintaining checkbook diplomacy with banana republics, buying arms from the U.S., denying Taiwan’s Chinese roots, rewriting history books, and, of course, graft and corruption interfere with implementing the people’s demand, he will rue his day and the lost opportunity.
His first 100 days will be watched intently.
Seemingly overlooked in the post-mortem analysis is his win on Kinmen Island, where he won 95% of the votes. Kinmen is the smallest of Taiwan's voting districts and easy to overlook. But surely, a plurality of 95% is noteworthy and deserves a closer examination.
Kinmen (also known as Quemoy or Jinmen) is just one mile off the coast of Xiamen. Direct ferry service to Xiamen began in 2001 and the traffic between the offshore island and its bigger neighbor has flourished, having expanded to eight daily sailing in each direction.
Xiamen is where residents of Kinmen go to buy necessities, fresh fruits and vegetables and luxury goods. Kinmen is a popular destination for tourists from the mainland. The economic linkage is obvious and palpable to people on both sides of ferry crossing.
Ma’s avalanche victory on Kinmen is a leading indicator of where his cross strait policy needs to go when he is sworn into office on May 20.
The people of Kinmen can see first-hand the benefits of closer ties to the mainland and bet on Ma to improve on this approach. The rest of the people of Taiwan will also see the economic benefit if Ma delivers on his campaign promise for closer economic ties with China.
Closer economic ties will build on the natural affinity of people of both sides and lead to closer ties with the mainland, something Ma’s opponent did not relish. Hopefully Ma will ride the rising tide of sentiments and make the necessary bold moves to reverse the past eight years of stagnation and cross strait hostility.
He has made a positive move by revisiting the prospects of welcoming pandas to Taiwan earlier offered by Beijing but rejected by his predecessor, Chen Shui Bian.
If he let irrelevant issues such as pursuit of pseudo independence, maintaining checkbook diplomacy with banana republics, buying arms from the U.S., denying Taiwan’s Chinese roots, rewriting history books, and, of course, graft and corruption interfere with implementing the people’s demand, he will rue his day and the lost opportunity.
His first 100 days will be watched intently.
Tuesday, March 25, 2008
Dalai Lama, Tibet and China
I just came back from Asia where eyewitnesses gave a different view of the matter than that of the West. First of all, the violence was initiated by the thugs in Lhasa. Secondly, the violence got out of hand because the riot police did not respond right away but melted away for the first 24 to 48 hours. Thirdly, since Dalai Lama is publicly opposed to violence, this suggests that he is not in control of his younger followers. From Beijing's point of view, having a dialogue with Dalai Lama may not contribute to a peaceful resolution because of their perception that he lacks sway over his followers.
This summary was what I gathered from the reports written in Chinese and found in Hong Kong such as the weekly, Yazhou Zhoukan, and in part confirmed by the International Herald Tribune.
I personally believe a dialogue between Dalai Lama and Beijing would be useful but feared such a dialogue will fall far short of expectations of the West. America's view of the world, particularly of Asia, fits the derisive Chinese proverb of the frog in the bottom of well, i.e., very limited vision of the real world.
What the thugs did in Lhasa would not have been tolerated had the actions taken place in Los Angelese, Detroit or New York. But because it took place in Tibet, the American sense of right and wrong has once again been turned on its head.
This summary was what I gathered from the reports written in Chinese and found in Hong Kong such as the weekly, Yazhou Zhoukan, and in part confirmed by the International Herald Tribune.
I personally believe a dialogue between Dalai Lama and Beijing would be useful but feared such a dialogue will fall far short of expectations of the West. America's view of the world, particularly of Asia, fits the derisive Chinese proverb of the frog in the bottom of well, i.e., very limited vision of the real world.
What the thugs did in Lhasa would not have been tolerated had the actions taken place in Los Angelese, Detroit or New York. But because it took place in Tibet, the American sense of right and wrong has once again been turned on its head.
Sunday, March 2, 2008
Career Challenges and Opportunities in the Coming China Century
Keynote speech at International Career Fair, San Francisco, February 29, 2008
China has been the fastest growing economy in the 5000 year memory of human history. By quadrupling every 14 years, that’s almost 20 fold since reform began in 1978, China has left most of professional economists breathless in trying to keep up, much less explain why China has been so successful.
China is now a global economic force and has impact on the economic development in all corners of the world. It is a great trading nation, just next to the U.S. in scale and is most likely the third largest economy in the world already, having surpassed Germany sometime last year. In terms of purchasing parity, China has been the second largest economy for a number of years. Purchasing parity, another economic term, is why it is possible to take a salary cut and still thrive in China. A dollar or euro just goes much further there.
China is also fast becoming a major source of foreign direct investment in other parts of the world. Their exercise of multi-lateral and multi-faceted diplomacy, commonly called soft power, has been particularly notable in the 3rd world such as Latin America, Africa and elsewhere in Asia.
Of course, there are always nay Sayers that predict the imminent demise of China or the pop of the bubble, etc. One of these so-called pundits even wrote a book about the coming collapse of China. Since that book was published, China has doubled its GDP and now sits on top of nearly $1.5 trillion of hard currency reserve. If you wish, you can devote your energy criticizing China for human rights problems, official corruption and flimsy banking system, and to varying degrees you’d be right. But it would be hard to make a living at it.
But if you are interested in developing your career where the action is--and will be for a long time to come--China is the arena you should be looking into.
It has been thirty years when I first joined Chase Manhattan Bank and later Bear Stearns to advise American companies on doing business in China. In the early days, we used to try to make business appointments first thing in the morning from our hotel rooms and we’d get a busy signal even before we finish dialing--a most disconcerting experience. Today, China has roughly 500 million cellular phones and equal or more land lines. In some cities, completely wired in glass fibers, one can even order and get a phone installed the same day—not possible in countries with copper wire legacy systems such as America.
In those early days, there were just a handful of us doing this kind of work and one can hardly describe it as a career. Today, with China’s prominent place in the age of globalization, cross border business consulting, which was what I was doing, is a popular career choice and in demand, but it is not the only game in town. Let me simply enumerate some of the careers that have opened up with the emergence of China.
First of all, China has become a magnet for all sorts of professions seeking new and developing opportunities.
Jim Rogers, famous for starting the first mega private equity fund with George Soros, has written several books about China and is putting his money where his mouth is. He is cashing out of America and investing in China. He is also taking his family to live in China—well, not quite, but is moving to Singapore to get closer to where action is.
Dick Kramlich, senior partner of New Enterprise Associates, a major venture capital firm in the Bay Area, has some success investing in China and is so impressed with the potential that he too is moving to China. He will actually live in Shanghai to get even closer to where it is all happening.
One of Kramlich’s investment was Semiconductor Manufacturing International Corporation in Shanghai. SMIC was the first semiconductor foundry to be established inside China, wholly foreign owned with capital from the West and a management team headed by a Taiwanese executive. During the early period of this company, one out of three employees were returnees from the West, many from Silicon Valley. These returnees gladly took a 75% pay cut to get on the ground floor with stock options and subsidized housing and enjoyed the generally much lower cost of living.
Returnees with middle management experience have been able to land senior positions in China. Scientists and professors with their own lab in the U.S. have gone back to become head of research institutes and department heads. China has shown a hunger for talented individuals with valuable experience gained from the West.
But as I mentioned in the examples of Jim Rogers and Dick Kramlich, you don’t have to be ethnic Chinese or even Chinese speaking to find opportunities in China. Let me tell you the story of a French chef in Shanghai.
He was originally the master chef in San Francisco. The owner, a Chinese American, sent him along with the maitre ‘D and a manager to open a new fusion restaurant in the Xintiandi district of Shanghai. Any of you that have been to Shanghai would know that Xintiandi is the high profile, upscale place to be seen.
I had dinner there shortly after the restaurant opened and I asked the three of them how they liked living and working in Shanghai, none of whom speak any Chinese. Their enthusiastically responded that Shanghai is their future, San Francisco is passé. They expect to build their fame and fortune in China’s and for that matter, world’s most cosmopolitan city.
A few weeks later I had a networking breakfast meeting with an investment banker who had just relocated to Shanghai to begin a new career doing deals in China. He was also a non-Chinese speaking white American but he too was really excited about the prospect of working in China.
I told him that he reminded me of this restaurant in Xintiandi and the three founders there. He said, “Yes, yes, I know all about that place, I’ve eaten there many times.” I said, “Well, you know what I mean about your common background and putting a stake on the ground in Shanghai.”
He said, “You know, George, that restaurant is going to fail!” I was surprised since the restaurant had just newly opened. “What do you mean?” I said. The investment banker, with greatest authority declared, “Can’t you see, the fengshui of that place is terrible.” Sure enough, the next time I saw him, he confirmed that the restaurant had indeed gone belly up.
So, as you can see, sometimes a laowai knows more about Chinese customs than even an ethnic Chinese.
Of course, as China is increasingly integrated into the globalization trend, career opportunities are not all in China. Chinese businesses and companies are going to come to the U.S. and Europe and elsewhere to establish their presence for a host of usual reasons. Initially, local Bay Area travel service that caters to Chinese visitors was the first to profit. They know where Chinese visitors like to stay and eat and where to go to buy real Prada and Coach handbags. Investment bankers, lawyers, accountants, tax advisors, consultants, site selection experts, real estate agents are next to line up and offer their services.
Those that are agile and can see the opportunities will be successful. Let me mention one example. Up to now, though the situation in China is constantly changing, privately held companies have difficulty getting financing at home. A popular route has been a so-called PIPE linked to RTO transaction to get a back door listing on NASDAQ. PIPE means private investment into a public equity achieved by reverse takeover (the RTO part) of a shell company. By this transaction, the company ensures raising some capital as part of the exercise. Companies learned through disappointment that simply backing into a shell company without PIPE does not guarantee raising capital because of a lack of investor interest in pink sheet listings.
Once listed the company then worked hard to drum up investor interest, raise secondary rounds and eventually graduate on to the main NASDAQ board. There are private equity and hedge funds that find investing in promising Chinese companies via this route very lucrative.
There are law firms and boutique investment banks that specialize in this kind of financing. What I find particularly interesting is the public relations firm that helps the RTO entity gain traction with the investors. I found one firm that concentrates of serving Chinese companies. The PR firm formed an office in Hong Kong and regularly conducted seminars inside China on the IPO process on the U.S. stock market. The firm accompanies their Chinese client on their road shows and participation in investment conferences and they coach their clients on how to present themselves to investors in the best light.
So, what will it take to participate and establish a career based in China related businesses? There are the usual requirements that would qualify you and there is one specific “watch out” that you have to be sensitive to.
First, the basic attributes to succeed in any cross culture, bi-lingual career is the ability to form empathy with anyone that looks different, talks and thinks differently. If you see yourself as a hard nosed, successful entrepreneur or a fast track, go-getter executive and know everything about international business and you act on your self image, then you are likely to fail. Whatever your self image, you need to show respect and you need to know how to listen. You need to understand where your counterpart is coming from. To do this you need to spend time understanding Chinese culture and how they think, and you need to keep up with recent developments in China so that you know their priorities.
You need to be able to communicate. Knowing how to speak Chinese helps but for those of you in the audience that already know how to speak Chinese, may I remind you that speaking the language is not the same as communicating—the difference is between talking to each other or talking at or past each other.
Now some bad news. Any of you that decide on a career involving China, especially in Silicon Valley, needs to know that you run some risk of going to jail. No, not the Chinese jail, but the American jail. You should be aware that deep seated racial bias still exists with the U.S. government and the FBI. I am not joking. Please do not take this lightly.
Some of you may remember the spy case involving Dr. Wen Ho Lee of Los Alamos Lab. He did not even do any work with China. He was merely ethnic Chinese. At the time the right wing Republican Party was accusing the Clinton Administration of being soft on China and allowing precious missile technology to be stolen and sent to China. The Energy Secretary, Bill Richardson, promptly offered Dr. Lee as the scapegoat and Attorney General Janet Reno looked the other way. The outcome was a farce in which the presiding judge actually apologized to Dr. Lee for government misconduct.
This is no isolated case. There were Chinese American victims of racial profiling before Lee and continues to this day. Some of you may recall the famous double agent (or was it triple agent?) case involving Katrina Leung and her FBI handler, J.J. Smith. Until they were caught in bed together, the FBI LA office had no clue as to how information seemed to be leaking from their office. Their natural reaction was to suspect two of their top ranked agents who happened to be ethnic Chinese and women to boot, Anita Chiang and Denise Woo. They had distinguished careers up to then but suddenly they became the in-house Mata Hari’s. Their careers were abruptly terminated by FBI’s long standing practice of racial profiling and never got compensation by the government for wrongful termination. Later when JJ Smith was apprehended, he got three months probation.
More recently, there was a Bill Chen who was accused to selling shaker tables to a Chinese missile operation which he vigorously denied. Originally his Silicon Valley employer defended him but then the U.S. government told the company that if they expect to do any more business with the government, they need to fire Chen. A few months ago, the government dropped all charges but a disillusioned Chen said that his career is ruined and he is taking his family back to China.
I spoke to a biotech scientist who came to the government’s attention because he was holding a nice job and felt secured enough to buy a house. He needed help with the down payment so his parents and brother wired him $20,000 from China. The Homeland Security folks apparently concluded that something fishy was going on and turned his life upside down. At the time, China was well on its way to holding a trillion dollars of foreign reserve but our government agents can’t seem to believe private individuals from China has $20,000 to send and therefore something nefarious was going on.
I could go on and on. Go to my website, www.georgekoo.com, and pick the heading “Racial Profiling in America” and read more.
Those of you working in technology sector or in Silicon Valley have to be extra careful. The FBI special agent in charge of Silicon Valley has in public interviews proclaimed that the valley is crawling with spies sent from China. That means you and you and you (in the audience) are all potential spies. The agent’s name is Pryzbyla but no one has accused him of being an undercover spy for some Eastern European country.
If you go to China frequently, if you speak Chinese or if you work for a high tech company (and you don’t have to be all of the above, any one of those can put you under surveillance), you need to know about dual use and export license. Dual use applies to technology products and know-how that have civilian use but can also be used in military applications. Such items require export license which is obtained by applying to the Department of Commerce. Of course, export license is required for a lot of products made in Silicon Valley. Typical of bureaucracy, the range of products subject to license seems to only expand, but that’s another story. Go to my blog and you can see why I think the idea of dual use has hampered the competitiveness of American export.
My takeaway to you today is that you need to know the regulations governing export from the U.S., not just products but information as well. Sending your own technical publications to China could get you in hot water as it did in the case of Chi Mak, another miscarriage of justice. On the other hand, just looking at the increased interest in learning Chinese in K-12, you can see that everybody sees the importance of China in the coming century.
This is the best of times to pursue a cross border, cross cultural career and I wish all of you every success.
China has been the fastest growing economy in the 5000 year memory of human history. By quadrupling every 14 years, that’s almost 20 fold since reform began in 1978, China has left most of professional economists breathless in trying to keep up, much less explain why China has been so successful.
China is now a global economic force and has impact on the economic development in all corners of the world. It is a great trading nation, just next to the U.S. in scale and is most likely the third largest economy in the world already, having surpassed Germany sometime last year. In terms of purchasing parity, China has been the second largest economy for a number of years. Purchasing parity, another economic term, is why it is possible to take a salary cut and still thrive in China. A dollar or euro just goes much further there.
China is also fast becoming a major source of foreign direct investment in other parts of the world. Their exercise of multi-lateral and multi-faceted diplomacy, commonly called soft power, has been particularly notable in the 3rd world such as Latin America, Africa and elsewhere in Asia.
Of course, there are always nay Sayers that predict the imminent demise of China or the pop of the bubble, etc. One of these so-called pundits even wrote a book about the coming collapse of China. Since that book was published, China has doubled its GDP and now sits on top of nearly $1.5 trillion of hard currency reserve. If you wish, you can devote your energy criticizing China for human rights problems, official corruption and flimsy banking system, and to varying degrees you’d be right. But it would be hard to make a living at it.
But if you are interested in developing your career where the action is--and will be for a long time to come--China is the arena you should be looking into.
It has been thirty years when I first joined Chase Manhattan Bank and later Bear Stearns to advise American companies on doing business in China. In the early days, we used to try to make business appointments first thing in the morning from our hotel rooms and we’d get a busy signal even before we finish dialing--a most disconcerting experience. Today, China has roughly 500 million cellular phones and equal or more land lines. In some cities, completely wired in glass fibers, one can even order and get a phone installed the same day—not possible in countries with copper wire legacy systems such as America.
In those early days, there were just a handful of us doing this kind of work and one can hardly describe it as a career. Today, with China’s prominent place in the age of globalization, cross border business consulting, which was what I was doing, is a popular career choice and in demand, but it is not the only game in town. Let me simply enumerate some of the careers that have opened up with the emergence of China.
First of all, China has become a magnet for all sorts of professions seeking new and developing opportunities.
Jim Rogers, famous for starting the first mega private equity fund with George Soros, has written several books about China and is putting his money where his mouth is. He is cashing out of America and investing in China. He is also taking his family to live in China—well, not quite, but is moving to Singapore to get closer to where action is.
Dick Kramlich, senior partner of New Enterprise Associates, a major venture capital firm in the Bay Area, has some success investing in China and is so impressed with the potential that he too is moving to China. He will actually live in Shanghai to get even closer to where it is all happening.
One of Kramlich’s investment was Semiconductor Manufacturing International Corporation in Shanghai. SMIC was the first semiconductor foundry to be established inside China, wholly foreign owned with capital from the West and a management team headed by a Taiwanese executive. During the early period of this company, one out of three employees were returnees from the West, many from Silicon Valley. These returnees gladly took a 75% pay cut to get on the ground floor with stock options and subsidized housing and enjoyed the generally much lower cost of living.
Returnees with middle management experience have been able to land senior positions in China. Scientists and professors with their own lab in the U.S. have gone back to become head of research institutes and department heads. China has shown a hunger for talented individuals with valuable experience gained from the West.
But as I mentioned in the examples of Jim Rogers and Dick Kramlich, you don’t have to be ethnic Chinese or even Chinese speaking to find opportunities in China. Let me tell you the story of a French chef in Shanghai.
He was originally the master chef in San Francisco. The owner, a Chinese American, sent him along with the maitre ‘D and a manager to open a new fusion restaurant in the Xintiandi district of Shanghai. Any of you that have been to Shanghai would know that Xintiandi is the high profile, upscale place to be seen.
I had dinner there shortly after the restaurant opened and I asked the three of them how they liked living and working in Shanghai, none of whom speak any Chinese. Their enthusiastically responded that Shanghai is their future, San Francisco is passé. They expect to build their fame and fortune in China’s and for that matter, world’s most cosmopolitan city.
A few weeks later I had a networking breakfast meeting with an investment banker who had just relocated to Shanghai to begin a new career doing deals in China. He was also a non-Chinese speaking white American but he too was really excited about the prospect of working in China.
I told him that he reminded me of this restaurant in Xintiandi and the three founders there. He said, “Yes, yes, I know all about that place, I’ve eaten there many times.” I said, “Well, you know what I mean about your common background and putting a stake on the ground in Shanghai.”
He said, “You know, George, that restaurant is going to fail!” I was surprised since the restaurant had just newly opened. “What do you mean?” I said. The investment banker, with greatest authority declared, “Can’t you see, the fengshui of that place is terrible.” Sure enough, the next time I saw him, he confirmed that the restaurant had indeed gone belly up.
So, as you can see, sometimes a laowai knows more about Chinese customs than even an ethnic Chinese.
Of course, as China is increasingly integrated into the globalization trend, career opportunities are not all in China. Chinese businesses and companies are going to come to the U.S. and Europe and elsewhere to establish their presence for a host of usual reasons. Initially, local Bay Area travel service that caters to Chinese visitors was the first to profit. They know where Chinese visitors like to stay and eat and where to go to buy real Prada and Coach handbags. Investment bankers, lawyers, accountants, tax advisors, consultants, site selection experts, real estate agents are next to line up and offer their services.
Those that are agile and can see the opportunities will be successful. Let me mention one example. Up to now, though the situation in China is constantly changing, privately held companies have difficulty getting financing at home. A popular route has been a so-called PIPE linked to RTO transaction to get a back door listing on NASDAQ. PIPE means private investment into a public equity achieved by reverse takeover (the RTO part) of a shell company. By this transaction, the company ensures raising some capital as part of the exercise. Companies learned through disappointment that simply backing into a shell company without PIPE does not guarantee raising capital because of a lack of investor interest in pink sheet listings.
Once listed the company then worked hard to drum up investor interest, raise secondary rounds and eventually graduate on to the main NASDAQ board. There are private equity and hedge funds that find investing in promising Chinese companies via this route very lucrative.
There are law firms and boutique investment banks that specialize in this kind of financing. What I find particularly interesting is the public relations firm that helps the RTO entity gain traction with the investors. I found one firm that concentrates of serving Chinese companies. The PR firm formed an office in Hong Kong and regularly conducted seminars inside China on the IPO process on the U.S. stock market. The firm accompanies their Chinese client on their road shows and participation in investment conferences and they coach their clients on how to present themselves to investors in the best light.
So, what will it take to participate and establish a career based in China related businesses? There are the usual requirements that would qualify you and there is one specific “watch out” that you have to be sensitive to.
First, the basic attributes to succeed in any cross culture, bi-lingual career is the ability to form empathy with anyone that looks different, talks and thinks differently. If you see yourself as a hard nosed, successful entrepreneur or a fast track, go-getter executive and know everything about international business and you act on your self image, then you are likely to fail. Whatever your self image, you need to show respect and you need to know how to listen. You need to understand where your counterpart is coming from. To do this you need to spend time understanding Chinese culture and how they think, and you need to keep up with recent developments in China so that you know their priorities.
You need to be able to communicate. Knowing how to speak Chinese helps but for those of you in the audience that already know how to speak Chinese, may I remind you that speaking the language is not the same as communicating—the difference is between talking to each other or talking at or past each other.
Now some bad news. Any of you that decide on a career involving China, especially in Silicon Valley, needs to know that you run some risk of going to jail. No, not the Chinese jail, but the American jail. You should be aware that deep seated racial bias still exists with the U.S. government and the FBI. I am not joking. Please do not take this lightly.
Some of you may remember the spy case involving Dr. Wen Ho Lee of Los Alamos Lab. He did not even do any work with China. He was merely ethnic Chinese. At the time the right wing Republican Party was accusing the Clinton Administration of being soft on China and allowing precious missile technology to be stolen and sent to China. The Energy Secretary, Bill Richardson, promptly offered Dr. Lee as the scapegoat and Attorney General Janet Reno looked the other way. The outcome was a farce in which the presiding judge actually apologized to Dr. Lee for government misconduct.
This is no isolated case. There were Chinese American victims of racial profiling before Lee and continues to this day. Some of you may recall the famous double agent (or was it triple agent?) case involving Katrina Leung and her FBI handler, J.J. Smith. Until they were caught in bed together, the FBI LA office had no clue as to how information seemed to be leaking from their office. Their natural reaction was to suspect two of their top ranked agents who happened to be ethnic Chinese and women to boot, Anita Chiang and Denise Woo. They had distinguished careers up to then but suddenly they became the in-house Mata Hari’s. Their careers were abruptly terminated by FBI’s long standing practice of racial profiling and never got compensation by the government for wrongful termination. Later when JJ Smith was apprehended, he got three months probation.
More recently, there was a Bill Chen who was accused to selling shaker tables to a Chinese missile operation which he vigorously denied. Originally his Silicon Valley employer defended him but then the U.S. government told the company that if they expect to do any more business with the government, they need to fire Chen. A few months ago, the government dropped all charges but a disillusioned Chen said that his career is ruined and he is taking his family back to China.
I spoke to a biotech scientist who came to the government’s attention because he was holding a nice job and felt secured enough to buy a house. He needed help with the down payment so his parents and brother wired him $20,000 from China. The Homeland Security folks apparently concluded that something fishy was going on and turned his life upside down. At the time, China was well on its way to holding a trillion dollars of foreign reserve but our government agents can’t seem to believe private individuals from China has $20,000 to send and therefore something nefarious was going on.
I could go on and on. Go to my website, www.georgekoo.com, and pick the heading “Racial Profiling in America” and read more.
Those of you working in technology sector or in Silicon Valley have to be extra careful. The FBI special agent in charge of Silicon Valley has in public interviews proclaimed that the valley is crawling with spies sent from China. That means you and you and you (in the audience) are all potential spies. The agent’s name is Pryzbyla but no one has accused him of being an undercover spy for some Eastern European country.
If you go to China frequently, if you speak Chinese or if you work for a high tech company (and you don’t have to be all of the above, any one of those can put you under surveillance), you need to know about dual use and export license. Dual use applies to technology products and know-how that have civilian use but can also be used in military applications. Such items require export license which is obtained by applying to the Department of Commerce. Of course, export license is required for a lot of products made in Silicon Valley. Typical of bureaucracy, the range of products subject to license seems to only expand, but that’s another story. Go to my blog and you can see why I think the idea of dual use has hampered the competitiveness of American export.
My takeaway to you today is that you need to know the regulations governing export from the U.S., not just products but information as well. Sending your own technical publications to China could get you in hot water as it did in the case of Chi Mak, another miscarriage of justice. On the other hand, just looking at the increased interest in learning Chinese in K-12, you can see that everybody sees the importance of China in the coming century.
This is the best of times to pursue a cross border, cross cultural career and I wish all of you every success.
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