This is China! blog

Originally published in Chaina Magazine

July/August 2008

by Bill Dodson

It’s a long way to Meishan Free Port right now. The last few kilometers into China’s newest Free Trade Port are spent slowly driving a temporary bridge tiled with thick steel plates followed by winding gravel roads. Visitors driving those last tortuous bends must make way for the constant stream of dump trucks that return from filling ocean with landfill. By 2010, the small island off the coast of Zhejiang , an hour’s drive west of Ningbo city, will rival the Yangshan Port near Shanghai for the volume of containers the Port will support.

Ningbo Meishan Free Trade Port Area is the fifth free trade port area China’s Central Government has approved; other Port Areas being: Yangshan, Tianjin Dongjiang, Dalian Dayaowan and Hainan Yangpu. Currently the island is only about 27 square kilometers, with 7 kilometers of coastline. It’s shores are natural deep-water ways, and a logical supplement to Beilun Port, a network of ports on the northern shore of Zhejiang Province. Beilun has ranked second of all ports in China since the beginning of the millennium, and fourth place in the world, according to Ningbo administrators. Meishan Free Trade Port was only recently approved by the state government on February 24^th, 2008.

Through an extensive landfill project, the local government will enlarge the island to 36 square kilometers.  Interestingly, the island already has a population of 150,000. The primary industries on the island until the construction of the Port facilities began in February this year were fishing and salt processing. Indeed, the foot prints of old salt processing facilities can be found along the rough route to the government offices, on the east coast of the island.

“The advantage of free trade ports is that ships can dock, off-load their cargo and processing can be done right at the Port, then re-loaded on other ships without customs duties paid and VATs tabulated,” according to Jeffrey “Casper” Yu, a senior administrator in the Promotion Bureau for the Free Port. Yu worked for nearly five years in the Ningbo Free Trade Zone, and so has a great deal of experience in developing a bonded zone in China. “Another point is that domestic companies that sell into a Free Trade Port can apply for VAT rebate,” he explained, “while those that sell into Free Trade Zones are not eligible.”

Ultimately, the island will have three bridges spanning the half-kilometer of water that separates it from the mainland. The current make-shift bridge will disappear, Yu said, “The Island will serve several roles:  to serve as a port logistics hub; to support service industries such as customs, port affairs, ship inspections, finance, law firms, audit firms and the like; tourism – including the development of an international cruise ship port in the north of the island; and convention and exhibition of import and export commodities among others.” The Island’s authorities will also entertain commercial and logistics real estate projects.

The island has been slated to be developed into several areas, including: International Transfer; International Distribution; International Purchasing and Export Processing, among others.

By 2010 the first phase of the Port will be put into operation. The first phase will include two 100,000-ton container berths put into operation, as well as completion of Meishan Bridge, the construction of a main thoroughfare Maishan Boulevard, and the Container Truck Highway. The project also plans to have complete by 2010 an additional 9 square kilometers inning project to expand the land area to 36 square kilometers. By 2020 the Port should be complete and in full operation, with an annual throughput of 5-6 million TEU.

Mr. Yu explained, “The Meishan Free Trade Port will not compete with Yangshan Free Trade Port for business. The plan is for Meishan Free Trade Port to cover port requirements for Zhejiang Province, Anhui Provinde, Jiangxi Province and Fujian Province. Meanwhile, Yangshan Free Trade Port will address many of the containers coming down the Yangtze River from river port towns, and north China, including Jiangsu Province, Shandong Province and Henan Province.

Copyright © 2008 William R. Dodson

A couple weeks ago in The Economist Magazine Technology Quarterly I read a fascinating article about how mobile phone access to the internet will trump access through the PC in developing countries, especially China.The article is entitled, The Meek Shall Inherit the Web.

“This year China overtook America as the country with the largest number of internet users—currently over 250m. And China also has some 600m mobile-phone subscribers, more than any other country, so the potential for the mobile internet is enormous. Companies that stake their reputations on being at the technological forefront understand this. Last year Lee Kai-fu, Google’s president in China, announced that Google was redesigning its products for a market where ‘most Chinese users who touch the mobile internet will have no PC at all.’”

Westerners who do not make their lives in China see China with binary vision: either it is still a Maoist bastion of Red Book toting factory workers OR it’s a post-modern threat to Western sensibilities about the Free World. Of course, China is both poles and A LOT more in between. One particular usage of mobile phones by students in the hinterlands of China illustrates this:

“As countries work their way up the development ladder, however, the situation changes in favour of full mobile-web access. Jim Lee, a manager at Nokia’s Beijing office, says he was surprised to find that university students in remote regions of China were buying Nokia Nseries smart-phones, costing several months of their disposable income. Such handsets are status symbols, but there are also pragmatic reasons to buy them. With up to eight students in each dorm room, phones are often the only practical way for students to access the web for their studies. And smart-phones are expensive, but operators often provide great deals on data tariffs to attract new customers.”

If nothing else, the trend toward using the mobile phone as a gateway to the internet will be a boon to eyeglass and contact lens manufacturers. Bausch and Lomb execs must be jumping for joy at the prospect.

I’ve this theory – neigh, experience – that local government officials are only interesting AFTER they’ve had a few beers to drink chased down by a couple shots of fire water (bai jiu). They may even need to belt out a couple lines of a favorite Deng Li Jun song during a KTV session to really loosen up. At least, that’s what the officials of the Haiyan County Economic Development Zone need. For the first time in my years in China eating and drinking with government officials I thought I was going to die … of boredom: such is the curse of government regulations that bar officials from drinking anything stronger at lunch than orange juice and spring water.

Actually, I think that by lunch time the day of the conference, “The Battle for the Bridge: Industrial Investment in Haiyan,” the officials were exhausted. The Sinomedia group, publishers of the China Economic Review, had sponsored the event September 17th. When I had walked into the lobby of the Hyatt on the Bund to register as a speaker for the event, three officials from the Zone assaulted me at the check-in table – before I’d even delivered my name and picked up my conference badge. Another two administrators from the Haiyan Promotion Bureau tackled me as I walked down the central aisle to take a seat. Just as I was able to limp to my chair another three buzzed me. Just as I was growing convinced there were as many local government officials as attendees at the conference, one of the government representatives that had already assaulted me returned to introduce me to the Big Boss of the Zone, who looked as though he wanted to become acquainted with me about as much as I with him.

Eventually, I presented my keynote speech “Yangtze River Economic Integration: Infrastructure Development Trends.”  Afterward, a Sinomedia representative gave some of the more salient points about Haiyan county that will increasingly make it an attractive target for investment: it lies at the foot of the newly-opened Hangzhou Bay Bridge, on the Shanghai side of the Bay; it has a great deal of land available for investment at nearly 40% the cost of what one would find in Shanghai and Suzhou; and its location makes it a prime base for the expansion of the logistics industry, which is being hard-pressed to find land in Shanghai and eastern Jiangsu province. A representative from a German company then delivered a talk on the reasons it had chosen to invest in Haiyan and some of its experiences in the area. Finally, a panel that involved all the speakers and Directors of the Zone answered questions from the audience.

Lunch was delicious but excruciating: a bacon and greens salad with soft boiled egg; a crab bisque soup; broiled salmon followed up with an apple tart and ice cream. And six really boring guys from the Haiyan government. And a German. Thank goodness for the German. Otherwise, I wouldn’t have had anyone but the mannequins at the table with whom to chat. There was one five-minute interval during which conversation around the table picked up, with the discussion of the merits of watching downloaded pirated movies versus viewing bootleg DVDs. Everyone considered the quality of Russian movie copies to be the worst, followed by Thailand. Germany’s copies, though, were top quality, all agreed (much to the German’s satisfaction).

I’m confident Haiyan will develop well and develop quickly over the next five years. It is an investment frontier where there are few frontiers remaining in the Yangtze River Delta. Now if only they can get their government representatives as interesting.

Last month I was interviewed in Canadian Business Online magazine about business in China after the Olympics. I have to admit I didn’t much like the article. The writing was fine enough, but the angle of the article was clearly blinkered: China can’t be good because it has pollution; it has corruption; it has human rights problems. China as The Evil Empire Revisited. It was an article I’d figure would come out of Fox; not out of Canada.

I think I’ve become spoiled here in China, interviewed by the likes of the China Economic Review and the Economist.com. I’ve come to expect that what I say (or what I write through email interviews) will be placed in a balanced context, not used as political fodder to pander to populist fantasies about the Yellow Horde.

Several things I learned from the interview, though: always read the relevant articles of the publication that requests an interview with you BEFORE you say yes; demand the right to read the context in which your words will be used; and …

John Candy was right: the Canadians need to be straightened away every now and then.

Last week I met a Dutch businessman in the bar atop the Shrangila Hotel in Shanghai, on the Pudong side. He has been an importer of products used in the hospitality business in China for at least six years. He told me when we met he had just finished interviewing seven women for the position of office assistant for the new office he was setting up in Shanghai. “Five of them did not wear underwear,” he said, shaking his head in disbelief.

Of course, I was a bit surprised, too. “Are you sure?” I asked, and took a gulp of wine.

“Yes,” he said, “they made it quite plain to me they were ready for action.”

“How is that possible? What recruiters did you use?”

He wouldn’t tell me the names of the recruiters, just assured me “they were international recruiting agencies.”

“I told them exactly what I needed; only two of the seven were even close to being interested in an interview,” he said. Three of them asked me if I wanted to go out together later for dinner.”

“Well, how did they look?” I just had to ask. “Any of them good looking?

“Two of them were smashing,” he smiled, and took a swig from his beer bottle. He continued, “But I didn’t dare ask any of them out. Too much trouble, you ask me.” He shook his head in wonder – as much in disbelief of the forwardness of the women as of the gumption of the recruitment agencies.

The best a colleague and I could figure was that some recruitment firms in Shanghai have rogue employees that run Escort Services on the side, to put it politely. The moonlighting staffer can always plead that the candidates that appeared for interview were the best available at the time – at least, according to their cv’s – should the interviewer complain about the quality of the candidates. The candidates’ “agent” gets a cut of any proceeds that might come out of a “hire” for the evening.

Now that’s what I call Enterprise.

One of my staff earlier this week traveled up to Beijing to meet an official with the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), to clarify some policy issues for a project. He said armed guards had surrounded the place, and he – a Chinese professional – was not allowed to enter the building. Instead, the government official had to come out to the street where my colleague waited to meet. For the next hour on the noisy, congested street corner they discussed central government policy, my co-worker sketching notes against a telephone pole.

When the staff member returned to our office in Suzhou he explained, “It was the first day of business for Central Government officials after the Olympics [lest we forget the Special Olympics], so there was still tight security. But the big reason was the Dairy Scare: they’re protecting the building against angry parents.” Little did my staff know but that same day Li Changjiang, the chief of  the very same Bureau, was being turfed from his office.

I’ve always been a proponent of the phenomenon that a society does not make long-term radical changes in its attitudes through the imposition of outside pressure, whether economic or at the end of the barrel of a gun. Like a teenager, societies just have to figure things out for themselves – usually, the hard way.

Case in point: despite multiple outcries from the international marketplace last year about Chinese quality and inspection issues ranging from tainted pet food that killed thousands of pets in the States, and lead-based paints on toys, and poisoned toothpaste and and and – it seemed you named the Chinese export last year and there was some problem with it – Chinese officials did not put the quality and inspection controls in place and the reward/punishment system to enforce the policies.

The Chinese response at the level of the vox populi was that the Western world was envious of China’s rise and was still after all these years bullying the country. The Chinese government’s response was to execute the head of the Chinese Food and Drug watchdog and to close a few offending factories. The problem, after all, was an internal matter and would be dealt with The Chinese Way. There was a clear sense publicly and privately that none of those issues were “Chinese” since they did not occur in China’s backyard, a domain in which a different physics is at work. Indeed, it all rather seemed yet another foreign plot to up-end China.

Now, pigs with blue ears aside, the country has to deal with an issue it could have been pre-emptive about: poisoned dairy products that have struck at the heart of the Chinese value  system – the Family and the infant. The tragedy still unfolding will eventually force a major revision of the quality and inspection protocols the government is responsible for.

The same can be said about Intellectual Property Rights. Now that the Chinese themselves have something to lose in a patent infringement case, they are the ones filing far more claims than foreign companies. A September 2008 article in the Shanghai Business Review entitled, “Patently Powerful,” cited:

“It is estimated that over 95 percent of patent disputes occur between Chinese companies… ‘The system will only improve by intra-China fighting,” says Elizabeth Chien-Hald, the founder of the Institute for Intellectual Property in Asia. ‘If it’s only foreigners using the IP system, it won’t gain traction – it will seem like a foreign system.”

Whether poisoned food stuffs or pilfered property, China has finally reached adolescence. I don’t expect it to be an easy phase.