This is China! blog

I went to a farewell party a couple weeks ago that was very touching. Jim*, the Western GM of a former client that is now a close friend, invited me to the banquet to see off the company’s former production manager, a local Suzhounese named Betsy. I had participated as instructor of one of the training sessions I had presented to the company when the manager had first joined the company, four years before. Once, years later, when the manager was visiting the company’s headquarters near Chicago, I had her over to my home for a dinner party to meet the neighbors and other local Chinese friends. She enjoyed the gathering very much.

The night of the farewell banquet four tables of forty co-workers in all had gathered to say their farewell, about twenty percent of the entire staff. I came with the HR manager of the company, also a close friend. I very much appreciated the opportunity the GM and the HR manager had given me as a friend and former vendor to say goodbye to a lovely person. Happily, Betsy did not know I was coming to the affair, and gave me a warm hug to thank me for attending; it had been nearly two years since we had seen each other in Suzhou, and nearly four since her husband and I had played equally badly as a team during a company badminton tournament.

The food had not been served yet, but Betsy was already saluting the others with her half-filled glass of red wine. Jim, the GM, had bought four cases of the stuff, Great Wall ’94. It was going to be a long night. I asked Jim what kind of opportunity Betsy was leaving for. Chinese Way is typically to not be too clear when telling others the details of a new job. This case was no different: the best Jim knew, Betsy had been offered a GM position at a large Chinese manufacturer’s. “Anything she wanted,” Jim said. “There was no way I could compete.” The GM explained to me that her husband’s guanxi – special relationships – was very strong, and that the GM understood that through the husband’s relationships the offer had come up.

I replied that if that was so, the pressure for her to take the new position was likely inexorable: everyone in the Chinese family seems to get in on the individual’s decision, especially if an opportunity is wealth-providing; the individual’s happiness becomes subsidiary to the family’s requirements in this instance. In other words, though Betsy might have been happy as a lark at the current company, her family would have seen the opportunity for greater wealth and prestige as over-riding factors.

Throughout servings of skewers of sweet-spicy shrimps, black-pepper steak, steamed fish in soy sauce, pig’s intestine soup and more, the toasts became more ferocious. Jim and Betsy fared the worst. Nearly all of Jim’s staff, it seemed, came with glasses half and sometimes fully filled to salute their boss, whom they all appreciated and respected as a great leader. Meanwhile, Betsy was making second rounds to individuals at tables to salute them; whenever she returned to her seat coworkers would challenge her to another toast. Eventually, Betsy simply put her head on the table; it was unclear whether she was going to be sick or whether she was simply weeping. A clutch of young women, co-workers all, gathered around her. Some whispered soothingly to her, others rubbed her shoulders and back. Some of her attendants started to sob.

Jim called Betsy to the center of the restaurant banquet room to say a few words and to pass her a gift. The company had given her one of the most expensive of the consumer electronics items it manufactures, with her name engraved on its chassis. Betsy sniffled, and told everyone her experience at the company was the most fulfilling in her life, and would probably in the future remain so. She also told Jim he had been the best boss she had ever had, and gave him a warm hug. Misty-eyed, everyone clapped. By the time she returned to the table she was crying, in full swing. She laid her head down on the table again.

By now it was clear concluding affairs was not going to be straight-forward. Bob, the HR manager, called Betsy’s husband to come and collect her. It was a long goodbye, and continued to be a tearful one to the last possible minute. Her husband, a shy, soft-spoken Suzhounese, gently took her by the shoulders, lifted her to her feet, and began to guide her to the exit. An entourage of young lady co-workers trailed behind her, carrying her belongings. As she walked out she doled out hugs as if she would never see the people again, including me. By this time, everyone was sniffling, while many of the women were outright crying.

As Betsy finally made it to the entrance, I remarked to Bob in a low voice how touching it all was. He said simply, “This is what it is to be a human being – to have a feeling of belonging to something. Now she has to leave that feeling.”

What better staff retention plan could there be than that?

*all names have been changed

Changshu Economic Development Zone (CEDZ) representatives recently visited my office to offer an update on the latest developments in their investment area. Much of the changes are in infrastructure, which will be an increasingly important story over the next five years as regions tucked away from the mainstream of Foreign Direct Investment (FDI) benefit from the addition of highways and bridges where before there were only country roads and barges. Vice Director Jennifer Qi explained to me that the completion of the Changshu portion of the Sujiahang Expressway decreased driving time between Suzhou and Changshu from 1-1/2 hours to 45 minutes. “Nearly 100 foreign managers live in Suzhou have their factories in Changshu. They are very happy about the completion. Before, they kept asking us when the highway will be complete, especially when there were some delays. Now it is easier for them to go between the two cities.”

I first went to CEDZ more than five years ago. Back then, it was little developed: Suzhou was absorbing much of the investment alternatives beyond Shanghai. Vice Director Qi politely reminded me that was when she and I had first met. I had forgotten. However forgetful I might have been though, the Vice Director and her colleagues have been capitalizing on the city’s location on the Yangtze River to develop the investment zone as an industrial center for: automobile parts, precision machinery, logistics/warehousing and equipment manufacturing. Originally a provincial level zone, the Central Government upgraded the Zone to State level.

Despite a rapid rise in investment activity in the Zone the last couple years, nearly 40% of the area’s land – or 40 square km – remains available for development. The area’s Export Processing Zone (EPZ) is a 1 square kilometer plot of land with nearly half the fence-in property still available for development. The Zone in general still has a number of single-floor workshops available for leasing, ranging in size from 3,200 square meters to 6,000 square meters.

Interestingly, Changshu does not lay on any major rail lines; highway and river are the main modes of transportation. Railway construction to the city begins in 2009, and should end in 2011, when a high-speed train will be inaugurated.

I was glad to hear Changshu has no interest in developing itself as the next IT hub, as so many third- and fourth-tier cities are fashionably styling themselves to become. Ms. Qi said, “We have no intention to focus on IT. We don’t think our over-all condition is suited to IT. We do not have enough high-tech graduates, and we are situated on a natural river port.”

Truer words could not have been spoken by any government official.

Originally published in ChinaBiz Forum

May/June 2008

by Bill Dodson

China‘s Generation W(eb)

Internet Cafes in China are not for the faint of heart. Most are noisy, gritty, intrusive places filled with young people either caught up in the romance of online personalities or on the prowl for the real-world purse to snatch or customer to fleece. But it’s the Chinese internet café that is at the heart of China’s explosive entrance into cyberspace, and the source of inspiration of many of the opportunities found in the Chinese internet market.

China had a total as of January  2008 of 210 million users; with only about a 15% penetration, according to the China Internet Network Information Center (CNNIC). China added nearly 50 million new users in the last six months of 2007, and is set to bypass the United States as the largest user base in the world by the middle of 2008.

The internet cafe in China is a social phenomenon, day and night. CNNIC cited that about 34% of China’s users access the Internet in internet cafes; the proportion of users approaches 50% in rural areas, where there are fewer households that have computers and internet connections. And Internet Café’s are cheap: a mere US$.25 per hour during the day and early evening; and US$1.50 to $2 total from late night to early morning. For many young migrant workers from the countryside, internet cafés in the cities are the only places they can afford to sleep at night.

I QQ, Do You?

In the West when we log on to the Internet we typically check our email first. When a Chinese user sits down at home or in an internet cafe the first thing she does is to check her Instant Messaging (IM) system, where friends are likely chatting away. The most popular IM systems in the West are MSN and Skype. In China, the most popular IM application is QQ, which, as of July 2007, boasted a whopping 273 million registered users. Chinese users will register themselves under several identities. Henry Jenkins at MIT performed a survey that observed that almost five times as many Chinese as Americans will manage a parallel life in cyberspace.

QQ users take pride in the degree to which they can customize the long, narrow window that displays their list of friends – invited and uninvited. A user’s most important decision, though, is choosing from among the scores of cartoon personas QQ provides through which users can chat with others in QQ-space: handsome warriors, winsome princesses, huggable pandas, and more.

Something for Western investors to consider is that we in the West usually check up on the latest news and sports updates after we’ve read our email. Chinese netizens, however, will go directly to their favorite portal after checking QQ, where they can download music (86.6% of users surveyed in a recent CNNIC report), IM (81.4%), watch online movies (76.9%), read online news (73.6%), use search engines (72.4%), play online games (59.3%) and then email (56.5%). Most internet café users are less than thirty years old; three-quarters of which have a high school education or less. It is not unusual for most users to be playing online games and up on their screen, shooting up bad guys in virtual realities while chatting with their friends about it at the same time.

Web Portals: Doorways to Another Life

QQ five years ago was able to leverage its IM interface into the most popular web portal in China, QQ.com. The most popular portal after QQ is Sina.com. To open the home page of a Chinese portal is to understand a bit of the frenzied life of the average Chinese. Pages are dense with photos of movie and singing stars; the latest gossip scrolls up bordered windows; advertisements square and round, rectangular and oblong scream for precious real estate; sponsorship bubbles float around the page, chasing after the user’s cursor like a hungry fish chasing a mosquito skimming the water. “There’s something for everybody [on QQ.com],” one twenty-something year-old user enthused, “young and old; and we can all share with each other!”

Western companies like Yahoo! that have entered the Chinese market with their Copy-2-China business models have not found the success they sought simply because Chinese consider their Western-style sites boring. Western sites err on the side of simplicity of appearance and message; Chinese sites satisfyingly overwhelm the Chinese user with a smorgasbord of functions that rivals any Chinese dinner banquet.

By far the most popular use Chinese users make of internet portals, though, is music downloads.

Search Engines

The more successful search engines like Baidu.com have successfully fought off several rounds of lawsuits by the music industry alleging that Baidu was promoting the illegal download of music. Baidu is the most successful search engine in China, and is now ranked the third most popular in the world, after Google and Yahoo!, according to Comscore, an internet information provider. Users type the name of the song or artist whose music they would like to download, view a list of available download sites, then choose the item from the web portal.

Yahoo! China failed two years ago in its attempt to topple Baidu, and was soon after bought by the Alibaba Group, owners of the B2B directory of product-suppliers Alibaba. Baidu’s interface – contrary to those of Chinese web portals – is Google-simplistic: a white screen with the bare minimum of Chinese characters to point out what to do to search for keywords and other, hidden, features. A Chinese user might type in the name of a favorite Chinese movie star – for instance, ??? (known in Hong Kong as Rosamund Kwan) – to display a Google-like list of all the links leading to raucous websites with stories and photos about her.

Social Networks

51.com is the largest social networking site (SNS) in China, with 60 million registered users. The site is popular with 17- to 30-year-olds and is growing by about 5 million accounts per month, according to Intel, a recent investor. Users create MySpace-style pages to share with friends.

However, the fastest growing segment of the SNS market in China is the university campus and respective alumni. Classmates in China are a very important circle in the Chinese individual’s life, ranking second only to family itself. Tencent – makers of QQ – will leverage their extensive membership to co-develop and promote Campus SNS Longhaier, with India’s Globe 7. The site “will offer online forums, campus information and games, and other interactive Web applications, and also will provide extensive information on study abroad, job placement and scholarship opportunities,” according to a press release.

To Be, or not to B2B

For most companies in China and in the West, Business-to-Business (B2B) websites are little more than brochures for brick-and-mortar operations that provide a service or product that is paid for in ways other than the internet (for instance, bank transfers, Letters of Credit, etc). Still, Alibaba, the most famous B2B product-supplier directory in China, is also the tenth most popular search engine in the world, according to Comscore.

John Huang, General Manager of Made-in-China (MIC), explained, “B2B in the form of e-commerce has been difficult to monetize in China, because the products on offer have to go through a manufacturing process that may or may not involve design, testing and quality checks.” MIC is the number-two product-supplier directory after Alibaba. “Seldom are orders that come to Chinese manufacturers like ordering a book: you choose the book, pay with your credit card, and then receive your book,” he added.

But B2B hosts know time is running out for their traditional roles as information brokers for China manufacturers. “The Chinese government wants to develop its services industries,” MIC Vice General Manager Franziska Gloeckner.” Ms Gloeckner is a German national who has been with the Chinese company for more than four years. “That means that in five or ten years time there may be fewer manufacturing companies in China.”

The logical result of the policy shift is that the membership bases of China suppliers will erode over time, affecting advertising, membership and any achievable revenues from transactions. B2B market leaders like Alibaba are already shifting to a service model, with its companion online offering Alimama.com, a directory for services-suppliers throughout China. And with Alisoft, Alibaba will support suppliers in their back office SAAS (Software as a Service) applications  to run operations. Much like the American product Salesforce.com, suppliers will be able to download office-support applications that will be hosted in remote locations in China.

Logging on to Opportunity

Western marketers, venture capitalists and business start-ups that wish to enter the Chinese internet market must adopt an immersive, adaptable approach to doing business in China. Chinese users, compared to their Western counterparts, tend to be: younger; more changeable in their tastes; invest more of their lives in cyberspace; immerse themselves more readily in online personae; are chattier and are more readily drawn to entertainment-driven content. And with hundreds of millions of Chinese still waiting their turn as cyber-citizens, opportunities to pioneer new digital territories abound.

Copyright © 2008 William R. Dodson

I saw a pretty Chinese woman on the street the other day. Actually, her face wasn’t that pretty, but she didn’t leave much to the imagination with the rest of her body. She was a thin, shapely young lady. Her black hair was tied back in a bun. She wore the shortest pants possible without actually revealing her butt cheeks. She chose to complement these khaki colored abbreviations with a flesh-colored, translucent blouse that revealed the hint of her bra. She slinked past me on open-toed high-heels, the sort that have just enough strap to embrace the ankles and anchor the toes.

I had just come out of our office building after a long day of meetings. I blinked away the heat and humidity the Suzhou summer had mixed with haze. I had my mind set on a cold beer at the local Blue Marlin pub. That’s when I saw this refugee from a fashion runway saunter past me.

Of course I watched her. I’m a guy; she’s a girl. I watched with a mixture of lust and wonder. Lust, well, that’s an easy one to explain: has to do with all the blood draining from a man’s head to his nether regions. The wonder came from the fact that one never saw that sort of thing in Suzhou even two years ago. And certainly, five years before; that sort of “look” would have been out of the question. Indeed, five years ago, the thought of a young woman eschewing those hideous ankle-high nylon stocking socks would have been unthinkable. Now, it is rather commonplace in Suzhou, Shanghai and in many of the larger, wealthier cities in China to see women with naked ankles.

Just days before, in fact, while hanging with some of the Suzhou old timers who’ve been around here seven years, ten years, some even longer, we had talked about how much more revealing women’s fashions had become in Suzhou. One of the fellows, from continental Europe, said, “Yeah, I got two Chinese women in my office who wear those short shorts. And one of them wears a low-cut blouse, so when she bends over my desk to show me some document she leaves little to the imagination.” None of the guys, though, thought it was a good idea to change clothing standards in their offices. All of us, however, considered that Chinese women were completely or almost completely ignorant of the inappropriateness of the dress or of its sanguinary effects on the male libido.

We settled on the precept that Mainland Chinese women are experimenting with themselves; that, ultimately, they still don’t know what they’re supposed to look like nor how to act.

A young Chinese female friend had a different opinion about why some young Chinese women were dressing  provocatively. She was fierce in her conviction it was about a Chinese woman exhibiting to other women in the office that she had the attention of the men in the company. “Do the women know it’s, well, distracting,” I asked her. “Yes,” she said without hesitation, “they wear those kinds of clothes because they feel it gives them some kind of power in the company, over the men; and they want other women to know it.”

I thought again about Short Shorts, the woman who had walked passed me outside my office building. My wonder at the event was trumped only by the two women who were walking behind the first girl, the one strutting her stuff. I didn’t really get a good look at the two women; it only registered they were older than the first girl, though not by much: perhaps in their late twenties compared to the young girl’s early twenties. The two women were dressed far more conservatively; I’d say they were likely coming from work in one of the nearby offices. All the women had passed me as I continued on my way to the Pub when I heard one of the two women say to her friend, in Mandarin, “Those foreigners are all so dirty!” Her friend agreed.

Clearly the two women had seen me eyeballing the runway-wannabe, and they figured I hadn’t understood their snipe. My first sensation was of mild embarrassment, which quickly evaporated with the acceptance of my being a guy who was clearly baited. My second feeling was one of resentment: here was a girl who had dressed extremely provocatively and who had elicited a response from me. I wanted to turn back and confront the two women and tell them in Mandarin, “Hah! When was the last time you got any from your man?” or “Since when did Chinese women in Suzhou decide it was OK to take up the dress of the oldest profession in the world and consider it appropriate office attire?” You know the kinds of snappy retorts: the ones that only occur to you minutes and even hours after the encounter.

I told a Chinese friend about the encounter. He’s lived in Suzhou about five years, and works for an American company. He’s a good friend, and I can always rely on him for a clear-eyed perspective on Chinese society. He offered that, yes, there had been a great many changes in Suzhou culture – indeed, in Chinese society – in very recent years. He put it down to generational differences. I remarked to him that there was not much of an age difference between the first woman with the short shorts, and the second set of women: maybe ten years at most. He simply nodded, said, “Things are changing very fast.”

Another observation I pointed out to my Chinese friend was that the two women trailing Short Shorts were speaking Mandarin Chinese, not the local Suzhounese dialect, which is impenetrable. “I understood what they said,” I told Bob. “And then I said to myself, ‘Hang on a minute, I shouldn’t have been able to understand that!’” In other words, it was very highly likely that one or both of the women were not locals, which led me to believe that social mores outside Suzhou were not evenly distributed.

Days later, while riding a taxi in Shanghai on the way to a morning meeting, the driver and I drove past a woman who too wore short shorts. Actually, her attire would have qualified as Hot Pants:this time, the radar showed cheeks. However, there was nary a pair of nylon ankle socks for miles around.

I had a discussion recently with some Chinese and Western friends about architectural trends in China. The topic kicked off with a comparison of recent visits to Beijing, where one either loves or hates the new architecture that’s gone into place for the city’s coming-out party. Consensus round the table was that all the new architecture was hideous, with the new CCTV building being both hideous and astounding. I bemoaned the fact that none of the new architecture reflected anything of a sense of style through which previous dynasties in China projected their world views. Instead, the new architecture was developed by Westerners who were hard put to get those sorts of structures built in their home countries. “Come on,” I said, “look at the Egg, on Tiananmen Square; or the CCTV building. They’re hideous!”

“Oh, you Westerners always like the traditional architecture, which just isn’t economical,” Bob, one of my Chinese friends said.

“You’re right about the economics, but my point is that none of the new architecture in the national capital reflects a sense of Chinese style, a kind of continuity between old and new, or a projection of the traditional into the future.” I brought up a relatively new property development here in Suzhou, Ligongdi, on Jingji Lake. “The architecture is amazing. The developers were able to keep a strong sense of the Suzhou architectural style while at the same time updating it, modernizing it. It’s lovely.” The “Suzhou-style,” also prevalent throughout southern Jiangsu Province from Kunshan to Nanjing, presents simple white-washed facades capped with undulating black-tile roofs. Clean, simple lines sometimes punctuated by large round doorways into courtyards that give a feeling of entering a safe place, a sacred space. In other words, there is a sense of style, as opposed to a mere paean to power or commercial acuity.

“And then there is the University of Xiamen,” I said excitedly. Xiamen is a municipality in Fujian Province across the Strait from Taiwan. “The main building on the campus must be 30 stories, with a great, peaked roof that swoops down and up again like a bold, red-tiled brush stroke. The building clearly reflects the Fujian traditional style but updates it beautifully.” Bob and my other Chinese friend, David, had seen the campus. They both nodded their appreciation of the building.

Bob made the point, though, that Beijing never really had a chance at carrying forward some sense of the traditional. From 1949 the Central Government began tearing down the great fortress wall that ringed the city, and built monstrous Soviet-style mausoleums as a tribute to the fathers of Communism. In other words, the architectural trajectory of the city from the founding of the People’s Republic was never in the direction of extending the traditional. He came back again to economics, said, “How many people can you fit into the Siheyuan?” he asked. I nodded my head in acceptance of his point. Siheyuan are the traditional courtyards of Beijing in which several generations would live. Typically, the areas are quite small, with stingy, dark rooms that in the winter have wind whistling through tired panes of thin glass; and in summer, are stifling with dusty heat. As charming and “traditional” as they Siheyuan are they are not very economical in light of the shifting demographics of the country: more people are coming to make their lives in the city from the countryside.

And then again, Bob and Frank – the other Westerner at the table – proposed, Beijing is not in competition with the rest of China over who is the most cultural; Beijing is in competition with other capitals of the world. Beijing is looking to impress the political, cultural and financial leadership of the world.

And when Beijing’s air pollution lifts long enough to reveal the New City – like a curtain drawn on the debut of a grand performance – world leaders may indeed find themselves envious.

A Danish friend once told me he would never buy real estate in Beijing because it will all be under sand in twenty years anyway. Though tongue-in-cheek, he might just have a thought there. During a recent trip to Beijing I talked with a Chinese professional who told me there were rumors in Chinese chat rooms that the capital of China just might move – southward. He explained to me that the strains the city and its population are putting on the environment are unsustainable: water, especially, is a scarce and precious resource the city has been siphoning from other locations, including those in other provinces, like Hebei.

“In the 1950s through the 1970s we only had one dust storm about every three years,” a retired professor at Beijing’s Foreign Language Institute told me in the Spring of 2006. I had just missed a dust storm – sha chen bao – that had buried Beijing under a quarter-inch of dust. Many of the cars that congest Beijing streets still had the coarse red dirt smudging their hoods and roofs. The Beijing professor continued, “in the 1990s we started seeing one dust storm a year in the city. Now, we have at least three a year.”

Though this year was light in comparison to previous years in the number and severity of dust storms that come visiting the capital, everyone is aware of the inevitable: the Gobi Desert is coming. And let’s not forget the Mongolian Steppes, where thousands of sheep have eaten away the nappy grass that has held the loose soil in place for millenia. The Central Government began a program of planting trees in advance of the encroaching desert sands, and claims to have seen some success in the reduction of the rate at which the desert is expanding, as well for this year at least in the condition of the dust storms.

However, the city is still thirsty. That the Beijing government had to put out a notification that it did indeed have enough water to support the athletes, visitors and residents in the city during the Olympics more throws a spotlight on the issue than alleviates anxiety about lack of the resource. Beijing has grown quickly, and in anticipation of the Olympics has built a city that is more an icon for flagrant consumption than a vanguard for the sort of balanced growth the Central Committee has professed it is pursuing.

“So where will they move the Capital?” I asked the professional.

“On the internet people have been gossiping about the government moving to Hubei Province, to somewhere near Wuhan. Lots of rivers down there, and not much development.”

Does politics float?

The Chinese factory owners were near completion of another factory an hour and a half’s drive up the coast of Zhejiang, still more than two hours south of Ningbo. The owner’s had five years before bought about 40,000 square meters of land on which to build their dream factory compound. After driving narrow winding roads through picturesque mountain scenes we arrived at the half-finished compound, which hosted dormitories, warehousing space and workshops. The factory area was so remote that it had to be self-supporting. Other large factory spaces were going up around the area, too.

The group of Western businessmen I was with wondered aloud where all the business was going to come from to fill the spaces within the compound walls. The company’s export-led business had flattened of late because of the weakened economies abroad. Still, any thoughts of being unable to fill the potential capacity of the factory seemed far-removed from the reality of the buzz surrounding the place. In an odd sort of way it was reassuring to see that Chinese business owners, without much of a business plan, were still of the philosophy, “If you build it, they will come;” that is, by building spaces that would take years to fill they gain Face and through the Face they will gain business, which seemed rather contrary to the sensibilities of my clients.

I’ve seen this phenomenon time and again over the years in China: in Jiangsu province; Anhui province; Tianjin and Chongqing. This phenomenon of over-building factory space in the hopes of filling it seems to drive away potential JV partners from the West. If it’s not the sheer lack of business planning, then it’s the schemes the Chinese side has cooked up to fill the space to capacity. Many of the schemes seem to involve the Chinese running different businesses under the same roof, including the joint ventures with the Westerners. That seems to also include splitting the attentions of the Chinese management staff. “Oh, the managers will be able to spend about eighty percent of their time on the JV,” Tianjin company owners said once during a negotiation with Western clients of mine. Of course, the Westerners were not impressed with what the Chinese believed was a rational offer.

Much of the build-it-and-they-will-come attitude comes from the sense of insecurity that still permeates China’s nascent market economy. Companies do not know when policy winds will change, perhaps causing business owners to shutter their factory doors. The bigger the capital investment, though, the more Face they’ll have in the local business environment, and the more weight to dissuade local officials from enforcing State edicts.

Still, business reality bites, occasionally. I recall a 20,000 square meter factory space that was all but complete near Nanjing. Roughened concrete walls and floors needed plastering and painting, electricals still needed to be installed. The dark, dank super-space was clearly disintegrating for want of attention. “Why is the space empty?” I asked the attendant government administrator. She answered, matter-of-fact, “The company ran out of money. They didn’t know they would actually need twice the power generation they had actually planned for to run the operation. The costs of new back-up generators and of electricity were going to be more than they could afford.”

A great waste of space.

I recently spent a couple days in Beijing on business. With the run-up to the Olympics I had to admit I was a little curious to see how the Powers That Be were making out with sticking points such as pollution, lack of water, tightened security measures, traffic, weather patterns, the implications of a more restrictive visa policy and other persnickety issues. I had been able to escape the trip “up north” to the capital for nearly a year and a half, but finally had to bite the bullet and show up to a meeting in the Central Business District.

One of the first things that surprised me about the trip came even before we arrived at Shanghai’s Hongqiao Airport for the flight: the Hotel at which we were going to be staying in Beijing – the Nikko – in the Central Business District, was remarkably inexpensive: only about 900 rmb per night. That told me if the Central Government had not been able to suspend the laws of supply and demand and that indeed hotels were hurting for business, just as I had been reading in the international newspapers. Visa restrictions, the Powers’ more restrictive security enforcement and bad press had put occupancy rates at 40 – 50% less what had been expected, from what I had read. That my hotel room rate a mere month from what has in other countries amounted to one of the biggest parties they’ve ever hosted indicated to me international attendance was not going to reach the levels the Powers had in their dreams prophesied.

Of course, traffic was miserable in the city; but it really wasn’t so bad until we reached the third ring road, driving in from the airport. Actually, the only thing exceptional about the traffic was that it was indeed as bad as friends, colleagues and the newspapers had said it had become. It was difficult to make out more than the faint outline of buildings a mere 200 meters away, and the fumes from the exhaust of frustrated cars and bullying buses made me dizzy. A drive that late in the evening to the Hotel took thirty seconds for the taxi to navigate had at rush hour taken our driver 20 minutes.

I do have to admit to taking at least ten of those minutes in the fidgeting traffic to marvel at one of the most extraordinary buildings I have ever seen in my life: the new CCTV tower. The Escher-like structure is imposing, and the way it twists and turns in mid-air seemingly defying the laws of physics was jaw dropping. I commented to my colleague in the car that the building struck me as the perfect structure in which to house an institution that contorts in mid-air and changes direction at its pleasure with the effect of bending even the space around it: the power of Chinese media.

An oddity and perhaps a one-off experience, though I am still unsure, involved dinner with an old friend the evening I arrived at the airport. We ate at The Tree, a popular expat pizza parlour that serves a wide variety of beers, just off Sanlituan . My friend wanted to eat a salad. Salads were unavailable, the bartender informed us (no tables were available at the busy establishment, so we sat at the bar). Why is that? we enquired. He said they had received a government circular that no salads were to be prepared in restaurants until further notice. He was serious. Of course, we asked why the government would want to control salad making. He said he didn’t know much more than that. Still, I don’t know if the circular really existed; or, if it did exist, it just affected the restaurants and cafes in the Sanlituan area. I didn’t know, as well, if it was an effort to save water (as salads typically require extensive washing before serving), or if it was a public health campaign (sometimes salad fixings are not washed enough before serving). Either way, it seemed like a dumb thing to control.

My colleague and I met the next day with a group that had its offices near our hotel. The walk was easy, though noisy and noxious. Visibility was down to 100 meters, so it was difficult to make out buildings that were no more than a block away. It started to drizzle; or rather, the mist that enshrouded us seemed to squeeze out small drops of moisture. I quipped to my colleague, “I think when we get back to Suzhou there’ll be small holes burned into out shirts from the acid rain.” He chuckled I just might be right.

At the end of the meeting our host, a soft-spoken Chinese gentleman in his mid-forties, asked me if I planned to return to Beijing for the Olympics. “No,” I answered definitively, “I intend to go south, as far away from the Olympics as I can.”

“So do I,” the Director said with a smile. He saw the question mark on my face, added, “I’m from Jiaxing [an hour's drive south of Shanghai]; I’m going to go there in a couple weeks. Next week the Beijing government is only allowing cars with odd and even license plates to come into the city on alternating days. It will be miserable getting around.”

The afternoon flight back to Shanghai was easy enough, though we were stowed on the airplane an hour just after the staff had battened the hatches. The plane hadn’t even disengaged from the umbilical ramp. During the wait I vowed not to board an airplane during the Olympics: security was tighter, lines were longer. Even at the subways, I had heard that now passengers had to queue to pass through metal detectors to board their trains. Of course, this being China and all, the tightened vigil at the subways had meant nabbing would-be passengers with everything from tanks of gasoline through Bowie knives. So, though the cramped Beijing trains were safer, they were certainly less interesting to ride.

It was good getting back to Shanghai. For one, there was sunshine. Bright, blinding, with a great blue backdrop as canvas for a sweltering homecoming. I resisted the urge to drop to the pavement outside the Hongqiao terminal to kiss the ground. Still, I was happy to return. At least, in this part of China, though making money was of paramount importance, at least the laws of physics were still observed.

A recent trip through Zhejiang Province reinforced for me the observation that the more things change in China the more they stay the same. I was accompanying a group of clients to open discussions with a couple of Chinese companies on the possibility of the Western company acquiring one or the other. The first target was really out in the middle of nowhere: it’s first factory was in a town that had only a few hundred thousand inhabitants. That’s very small by Chinese standards. The owners of the operation were affable and capable young men who were clearly interested in a cooperation of one sort or another with the Westerners, specifically – they said openly – for technology and management processes.

I had explained to the Westerners before the meeting that most Chinese companies keep two sets of accounting records: one for themselves, and one for the local tax authorities. The first company, though, surprised me in two ways: they were honest about their duplicity, and explained in detail where numbers in the books were just for government consumption; and they had only one set of books – the ones they offered to the tax authorities. All other numbers the Chinese partners kept in their heads and freely related to the Western businessmen. However, when the Western managers asked questions about revenues and profits and depreciation and the like, the foreign executives found themselves quickly frustrated with the lack of clear answers.

A far more mature acquisition target we visited nearer Ningbo wasn’t too much different. Despite how much better-developed its facilities were (taking up nearly 80,000 square meters) than that of the partnership we had just visited, and how well entrenched it was in Western markets, it too had two sets of books. The second set, though, was at least in book form, so the owner could identify line by line in the report to the tax man what lines were true and which were bogus.

Another revelation for the Western team was just how low taxes and social benefits appeared in the books for employees: healthcare, retirement, maternity leave, disability and the like. Instead of the thirty- to forty-percent additional expense to base salary across many provinces, the two companies were paying around three percent. “There are ways to keep these costs low,” the owner of the second factory said without blushing. “Don’t worry,” he encouraged, “you won’t have to pay more than this amount for the employees if you buy the factory.” Of course, I encouraged the client to worry about it.

To Err is Human; Due Diligence is Divine.