This is China! blog

It’s tough to lend a helping hand when you’re not sure what’s happened to your hand afterward. It’s just recently been revealed that the United Nations board that approves issuance of credits for carbon trading to developing countries has since the summer stopped providing credits to Chinese manufacturers in the wind power generation industry. Apparently, the UN has issued nearly US$1 billion to Chinese companies in a bid to help the companies build wind farms that would not have been built without the credits. The credits trade on international bourses, like stocks, and have real value. They are one of the developed world’s ways of helping modernizing countries curb power generation projects that produce a great deal of carbon-related pollution. The UN has refused approval on 50 Chinese projects.

China has received over 50% of the carbon credits the past five years, while at the same time ramming up wind turbines at an ever-increasing volume each year. Suppliers for turbines have gone from over 95% foreign-owned in 2000 to nearly 60% domestic suppliers in 2007. European manufacturers in particular such as Vestas and Siemens have been crying foul the past year in the face of a projects-bidding system they claim the State has rigged against international players.

Indeed, the largest wind turbine producers in China were unbundled from State Owned utilities companies, and are still heavily guided by the State: Guodian, Datang, Huadian, CPI and Huaneng produce more than half the wind turbines in China today, according to the Danish Wind Energy Development Program.

So, one can only imagine international wind turbine manufacturers sighing a bit of relief at the UN moratorium. With governance and shareholdings in large Chinese companies that have heavy State legacies as opaque as the smoke that billows from coal-powered generators, it may be some time before the UN actually figures out where the credits are going, and whether they’ve done any good.

Read More: FT

A Chinese friend in the commercial real estate industry told me how her company’s plans to cash in on Hangzhou’s repute as a services outsourcing depot for the Shanghai financial industry has taken a turn. Hangzhou’s economy as a popular tourist destination has become nearly as pricey as Shanghai’s, she told me. The cost of labor has risen accordingly, making Hangzhou increasingly expensive for the sorts of routine back-office service functions the sector can handle well: a lot of repetitive keying in of paperwork into computer systems, mostly. Meanwhile, the global financial downturn has taken a hit on Shanghai’s financial industry resulting in headcount reductions at many companies.

Though it seems only the more basic of services outsourcing offerings in Hangzhou may have been priced out of the market, there is still a plethora of offerings to be made, with higher-value adds. Still, China’s stab at the global services outsourcing may be severely curtailed if the costs of doing business in the cities with the talent continue to climb.

Working with Chinese investors is not quite as Forest Gump would make it out – that is, as a box of chocolates. But it’s a close analogy. In my column in the December 2009 issue of  Eurobiz Magazine I write about the lessons learned of Westerners who are managing Chinese Outward Direct Investment (ODI) projects. One of the managers, an American working near Shanghai, suggests managing investors the same way you would order for a Chinese banquet: give them lots of options to pick from when soliciting their thoughts. Still, Western managers agree, what Chinese investors may lack in management acumen they more than make up for in flexibility and speed to market.

The powers that be in China may one eventually rue the day they rolled-out and began interpretation and application of the country’s anti-monopoly law. Since 2008 both Chinese and Western lawyers have been trying to read the tea leaves the new law presents to companies internationally and within China. The ruling against Coca Cola’s bid for a Chinese juice maker and the government’s judgment that Panasonic divest itself of units in Japan for China to accept its acquisition of Sanyo may have blow-back effect central government authorities are already beginning to regret.

Recently, a Chinese consumer won a suit against China Mobile for taking unfair advantage of its monopoly position in charging customers (FT). China Mobile is the world’s largest provider, with over 500 million users. The court awarded the consumer 1000 RMB (US$145) to settle the suit. Other suits awaiting settlement include China Netcom, Baidu and Sinopec.

So, as Chinese anti-monopoly authorities feel their way into the outside world with rulings that clarify the intent and the letter of the 2008 anti-monopoly law, they unwittingly arm their own citizens with ammunition to sue the country’s own State-run monopolies.

South Korea has been experiencing a baby boom-let of late, involving the fruits of mixed marriages between South Korean men and women they’ve imported from other Asian countries. Mothers come from China, Vietnam, the Philippines among others. South Korea, like China, has been experiencing its own dearth of men – especially in the countryside. Though South Korea has no one-child policy, the same trend towards falling birth rates that other modernized countries have have driven poorer segments of the male population to marry imported brides.

Since it became apparent that China’s one-child policy and the unbalanced importance Chinese families placed on having a male heir, Chinese men in the countryside have apparently been doing the same, though their brides more likely come from bordering states like Vietnam, Thailand and Myanmar. The first batch of Chinese men born under the one-child policy came of an age in 2006 at the age of 25, during which young men – especially in the countryside – are expected to have already married. Vietnam is a popular source of brides – called “Straying Cows” in Vietnamese – who are typically kidnapped from the Hmong tribes along the border with China and sold on to bachelors upwards of 5000 to 6000rmb (US$730 to US$875).

However, as opposed to South Korea, so local and/or so under-wraps is the trade that no news has come out of the countryside about the kind of cultural and social dislocation the infants and their mothers may be experiencing.

Resistance is futile.

Further Reading:  NYT, Economist, Now Public

Hundreds of residents recently protested the Guangzhou government’s plans to place a garbage incinerator in their neighborhood (Reuters). Apparently, residents of another such incinerator built in Likeng village, near Guangzhou, suffered mightiliy from the carcinogenic toxins the place spewed out. Of course, this all leads to the logical question: where and how to dispose of the waste of a billion and a half bodies on their way to a better life, Western-style? This isn’t just a question for Guangzhou, but for the entire Mainland Chinese society.

Of course, there’s always “other people’s” backyards. Way out West.

Remember: there is no “away”.

The Economist magazine a couple weeks ago presented a report that showed China with four-to-one gains in productivity over the United States and Japan from 1990 to 2008, using a measure called Total Factor Productivity (TFP). TFP has also been higher in China compared to the historic zenith of Japan’s and South Korea’s modernization drives, according to the article. TFP is what’s left over of output growth after you’ve taken into account growth from capital investment and the amount of work labor provides. It’s supposed to be a more accurate measure of productivity than just counting the number of hours of work done per head – especially in a country as populous as China.

Of course, China started from a much lower base of development than the developed countries, and has relied heavily on the near-manic bootstrapping of its private sector. It’s openness to Foreign Direct Investment (FDI) has also been a boon, as it has been able to co-op many of the technologies it would have been pained to develop on its own. The article supports the classic view that China is still too heavily investing in capital intensive – ie, infrastructure – projects, and that it needs to facilitate the migration of the population from a rural to an urban setting in order to keep its TFP at astronomic levels.

A point of contention I do have with the TFP comparison with other Asian Tigers at the same time in their own development curves is whether China would still be the TFP leader if the other countries had had the same “flattening” technologies and applications at hand as China does now: mobile phones, internet, personal computers, VoIP and the like. “Flattening” technologies reduce the cost to entry to new markets, product development, supply chain development and customer relationship management. Or, conversely, if China were measured in terms of its application of the same technologies of the 1960s and 1980s, whether China would still be faring as well as the current survey seems to show.

In other words, China’s great showing in the TFP race can be put down to its having started from such a low base of industrialization and from the “flattening” effects of the technologies it has embraced to leap frog from the 1930s into the 2000s. Not because it has some special mojo the others did not during their ascents to modernization.

However, the country’s elite seem to be weighing down productivity gains with narcissistic protectionist measures. 2009 marks a clear move back toward state-ism, with SOEs having bought up a fair number of companies once privately owned. Also, the central government has restricted competition in certain high-value sectors such as financial and alternative energies – something about which the European Union Chamber of Commerce has been quite vocal. And then there is the clear walling off of the Chinese net-citizenry from the international-internet to incubate its own internet companies and to control information content.

It seems the leadership has little interest propping up a Western acronym very few have even heard of that measures something very few care about – at least, in China.

I just received a press preview of China Logistics Development Report 2010, published by China Intelligence Online. There’s a lot of statistics about past developments in infrastructure projects over the year, as well as a reference to the New Postal Law, which ostensibly blocks 80% of foreign competition inside China if rigorously enforced. And given that DHL is plowing millions into a logistics and customer service center in Chengdu, they can be none too happy with the policy shift.

In particular, the regional round-ups in the Preview are engaging. I found particularly interesting developments in the Southwest, where the report discusses a pan-Asian rail network that includes a rail-line from Kunming to Singapore. Now that would be an interesting ride!

You can get the report at CIO’s Shop.

With the spreadsheet application in Google Docs blocked for the past week here in China, it’s clear China is using Google’s apparent infringement of Chinese writer’s copyrights as an excuse to whittle the competition down a bit further. So, one of history’s greatest IPR violators of foreign designs, processes and technologies finally gets hold of the other end of the stick with which the West has been beating it.

The spreadsheet block comes on the heels of the powers that be blocking YouTube for domestic consumption, and also blocking links to identity-sensitive online content. Google has also been beat for links to “yellow” (read: porn) content, while its domestic rivals have merely had raps on their (blistered) hands for the same titillating links. Of course, Chinese online services likeTom365.com and Youku.com continue to allow any user to stream content directly to their computer for real-time viewing; that includes some of the latest American TV shows and Hollywood films, replete with Chinese subtitles.

It seems sanctioned copyright infringement is actually ok – just as long as its the Chinese doing infringing.