This is China! blog

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The press release threw out some statistics such as:

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

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

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

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

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

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

Cup of Java anyone?