This is China! blog

It’s been a while since I was in the UK, so it has taken me some time here in Singapore to recall British norms such as: everyone drives on the left side of the road; the steering wheel is on the right; you get into taxis on the left, and – just to make sure – look both ways before crossing the streets. Singaporean traffic is thick and noisy. With some training and with enough sitting at outdoor caffes you learn to block the incessant traffic noise from your field of attention.

This morning I took in the National Museum of Singapore, to gain an overview of its history and get some sense of how it has become such a powerhouse. The Museum itself is a great white domed structure in the imperial sense, once housing great stores of collections on the flora and fauna and cultures of Southeast Asia. Now, inside, it is a thoroughly modern super-space seeming rather like Doctor Who’s TARDIS: larger on the inside than it appears on the outside.

Two things frustrated me about the museum: the central winding ramp that takes you into the bowels of the museum to began at the beginning of the region’s history – it seems endless; and the doggone blasted audio video unit that, though informative, was difficult to coordinate with the relics and photos and paintings curators had organized. So, I’d be looking at a giant 19th century Chinese bell and listening to how Lord Raffle’s wife had redeemed her husband’s reputation for posterity.

Nevertheless, the modern making of Singapore – much like Hong Kong – begins with British colonialists who outwit the local powers that be; in this case, Malaysia kings and princes. The most dramatic portion of the exhibit was the three years of Japanese occupation from 1942. It’s no coincidence the photos, film footage and montages are all mounted in a huge papier machet bat cave, lending a sense of disorienting, never-ending oppression.

The bit about how Lee Guan Yew, the architect of post-war Singapore was shorter than I thought it would be, and less weighty than his newly published autobiography, which I unsuccessfully tried to lift at the local Kinokuniya super-bookstore.

After gaining these past couple days a better sense of the people, the melange of cultures and the hyperventilated history of the city-state, Singapore rules make much more sense to me now. Some of it, I have to admit, isn’t a bad export at all.

I had just walked out of the luxurious Raffles City Mall in Singapore when I saw a great black plume of smoke sucked into the sun. As it’s my first visit to city-state, I wasn’t sure if fires in busy intersections were a regular occurrence. A car had exploded curb-side; actually, not just any a car: a Ferrari, low slung, previously banana-peel yellow and, now, charcoal grey. The fire had started in the engine, at the back of the car. The boot completely had melted, most of the engine was ash. The tires had completely melted down, so the chassis rested on the scorched tarmac.

One of the things I have realized during my first visit to Singapore is that it is a society on the go. It fared the Global Recession relatively well, and has been liberalizing its economy, and enlivening its notoriously dull society. As one Singaporean university student told me, “The government isn’t controlling things as much as it used to. Just a few years ago, there was only one art school. Now there are three. The government doesn’t direct us to certain jobs any longer; now we can have more possibilities.” I recall a couple years ago the Singaporean’s concern at the dearth of entrepreneurial talent; it had been directing its best and brightest to careers in government and nationalized enterprises.

I like Singapore. As one British expat who’s lived in Singapore 13 years and raised a family here told me, “It’s easy to knock the government. But things work here.” He described to me what a dream it is to come off an international flight at the Singapore airport and be through passport control and customs in less than twenty minutes. Just a few minutes more with little wait at the taxi stand, and he’s home.

It seems a safe city. I’ve seen only one police cruiser. Most of the uniforms I see are of school students who club together after class, chattering, fooling around, teasing each other, sharing after-school snacks. School days, though, are clearly long, with students heading home after 5pm.

Though business brought me to the nation state, I’ve made the time to walk some of its boulevards and side streets. Despite its small size, the diversity of the population is a breath of fresh air after more than a year of not having traveled outside China. Ethnic Malays, Chinese and Indians pretty much socialize within their own groups, but work together at government and service jobs. It’s also nice not to be pushed and shoved – as is the rule, rather than the exception in China – to queue in line without complaint; to hear (and say) “sorry” when crossing too close into someone’s personal space, or even bumping into them; and no loud hocking or spitting on the sidewalks. Though it would be nice to chew a stick of gum now and then, I’ve gotten over it. Singapore makes an extreme effort to put the “civil” into civilization, something Chinese society on the Mainland has a long ways to go in its wen ming campaigns.

But then again, Chinese leaders are more concerned with keeping the momentum of economic growth roaring at Ferrari-like speeds. We know, though, what can sometimes happen to overheated engines – no matter how finely tuned.

Three new high rises are set to be built next to the two whose shells sit expectantly next door to my Suzhou flat. The last two apartment buildings went up a floor a week, to finish a year ahead of my expectations. I expect the next three to go up just as rapidly. BMWs and Mercedes seem to be breeding in the area (all of it in-breeding), while expensive boutiques and beauty spas abound – many of which still seem empty of the volumes of customers they need to realize a return on investment. Stories abound in South China of Chinese customers walking into mega-stores with suitcases of cash to buy flat screen TV’s so large they have to have the rooms built around them to be watched.

These are China’s glory days, when cash is sloshing around the economy at levels unprecedented in the country’s modern history. And inflows are not about to slow down, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics and Centre for Global Development. Instead, he explains in the Financial Times, the West’s anemic recovery and the relatively rigid financial controls and narrow band of currency valuations will see yet more cash flow into Asian economies as investors bet that Asian governments – especially China’s – will have to re-valuate their currencies and loosen financial controls to keep yet more and larger bubbles from inflating prices in their economies. Subramanian suggests the Asian countries coordinate their fiscal policies to keep speculation from bulging out one economy or another, potentially destabilizing the region in other, unexpected ways. China, especially, can take up leadership in this respect in the region to coordinate economic policies.

But then again, the few watching life on those newly purchased mega-screens may find down-sizing to accommodate the masses unbearable. Tune in for the next episode.

Related posts:

The Mother of All Bubbles

The Bubble Cometh

If it Looks Like a Bubble and It Smells Like a Bubble …

A Look Under the Hood at China’s Economic Engine 

A recent survey of the South Korean economy in the Economist Magazine discussed a miscalculation of the largest of South Korea’s companies, or chaebol: They calculated come the Asian Financial crisis of 1997-98 that they were too big to fail, that the government would bail them out of hyper-leveraged Hell they had created for themselves. “They were spectacularly wrong,” The Economist writes. “The conglomerates failed in droves. The collapse of Daewoo in 1999 was followed by the bankruptcy of more than half the then top 30 conglomerates.” The government also gave jail sentences to CEOs and family members.

Since that time, many of the guilty have been pardoned, and balance sheets and corporate governance have become less complex, more transparent. Now, South Korea comes out of the Great Recession more competitive than any other Asian nation – including China, the banks of which have created a 1990s style environment of high leverage and low accountability. Most of the money lent to the State-Owned Enterprises (SOEs) went into real estate speculation and the stock market to support opaque, hyper-complex cross-holdings; not into new product lines and R&D. Meanwhile, Japan seems immobilized by the cemented relationships between its keiretsu, its mordant bureaucracy and its clueless government, all mired in the highest debt-to-GDP ratio of the rich countries.

I’m betting that when loans handed out to SOEs come due the central government will cover the bill, just as they had ten years before when they privatized many of the least competitive SOEs. Without the incentive to be competitive, Chinese SOEs will still remain bloated and uncompetitive on the world stage. Actually, I think the “captains” of those industries will actually be just fine with that.

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Eating Their Young

A friend and one of the funniest guys I know in Suzhou, Turner Sparks, recently received a write-up in the New York Times about the franchise he runs in China, New York-based Mr Softee. Turner not only runs the ice cream truck, but he also hosts a Friday night stand-up comedy show in one of the bars in Suzhou, showcasing the talents of local expats and Chinese comedians alike. The article is an excellent case study for any Westerners who want to transplant their business models in China, when the Chinese are simply clueless what the business is on about – especially franchises. As the article mentions, Turner and his former college room mate, Alex Conway, President of Mr Softee China, had all kinds of hoops to jump through in China, the first of which was “selling products out of a truck. Mr. Soft Heart trucks were assigned specific routes and parking spots, with no deviating allowed.” Mr Soft Heart is the Chinese name for the company. The article goes on to explain how the company educated Chinese consumers about the product line and flavorings, and how some flavors simply did not fly.

The article is as light and fluffy as the ice cream itself, except more educational – and less fattening.

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The China Chop

Is China Still a Risk Worth Taking?

Are Your Employees Trustworthy?

Smothering Business: Information Blanket

I recently found myself talking a European businessman in the energy sector out of forming a company a joint venture in China. With so much activity in general in China and in the energy sector specifically, it’s no wonder that a business person in China after just a few short months wants to get in on the game. Of course, he had not done any due diligence on the JV partner, leave alone the sole-supplier from which they were supposed to draw product and sell it onto the international market.

Andrew Hupert in his monthly online negotiation column for the China Economic Review writes about just some of the pitfalls in doing business deals in China. As is his pithy way, Andrew cites five must-do’s, my favorite of which is under the heading, “There is a Chinese metric system – how do you measure a ‘win’?” Andrew writes, ” Amateurs demand that onerous penalty clauses get inserted into English-language contracts that don’t mean anything in local courts. Pros want the right to pick the financial controller who keeps the company chops in his office safe.”

Amen to that.

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That Rio Tinto Taint

What’s Your Plan B?

Is China Still a Risk Worth Taking?

China may still see itself as a relatively poor developing nation struggling to gain global affluence; however, it’s neighbors are increasingly seeing a more muscular China that is willing to exert influence and wield military power at its borders. Wen Liao writes an opinion piece in the Financial Times that discusses the parallel between Baron Otto van Bismarck and his efforts to unify Germany in the late 1800s into a Prussian empire with China’s rise as the historical heavyweight it had always been until the early 1800s. Bismarck sought to balance the relations and perceptions of Germany’s neighbors to ease their anxieties over Germanic ascent in the region. Liao writes, “China’s dilemma is that, like Bismarck’s Germany, it surpasses in power all its neighbours combined (save for Russia with respect to its nuclear arsenal). To avoid the fate of the Second Reich, China must recognise and publicly accept that it is no longer a developing country but a global power with responsibilities that extend beyond its immediate national interests.”

Wen advises Germany to adopt a policy of “ostpolitik,” referring to the good neighbor policy in 1970 of then German Prime Minister Willie Brandt to negotiate with the Soviet Bloc of East German counties to open up trade and facilitate diplomatic relations. Though the Soviet Bloc was not afraid of West Germany’s rising economic power and its cosiness with the Americans, the charm offensive helped paved the way for the re-integration of East and West Germany, less than twenty years later.

With China politically and militarily bulging over its borders, wracking the nerves of Japan, Russia and India, not to mention Vietnam and the Philipines, as well, China needs its own brand Ostpolitik.

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China’s Day in the Sun

The Ties that Bind

Pulling a “Google” on China

Japan is not a happy neighbor. While extending a hand to China to bolster trade links and advantages with its out-sized neighbor, it is watching out one eye as the Chinese People’s Liberation Army Navy runs frigates and submarines ever closer to Okinawa. The latest episode happened just a couple days ago with ten Chinese warships and subs passing through international waters near Okinawa. Just a week before, according to the Financial Times, a ship-based Chinese helicopter came within 90 meters (!) of a Japanese destroyer. One can almost see the Chinese pilot thumbing his nose at apoplexic Japanese sailors, just itching to take out the mosquito of a craft.

The United States Navy’s “Sputnik”moment” came in November 2007 when a Chinese Song-class nuclear attack submarine surfaced 160 feet from the U.S. aircraft carrier U.S.S. Kittyhawk. Sputnik was the Soviet Union’s satellite program in the late 1950s that crystallized American fears of losing the race for outer space. The 1000-foot Kittyhawk, with 4,500 personnel on-board, was being escorted by at least a dozen other naval vessels and two submarines when the Chinese sub had apparently been tracking the carrier group for some time, running on super-quiet electric motors. The Chinese crew revealed its presence to the Americans in waterways near Okinawa. American naval leaders were apoplectic at the Cold War tactic, while the diplomatic corp lodged angry complaints with the Chinese government. Beijing offered it had been ignorant of the submarine maneuvers and suggested the encounter was a coincidence. American military leaders had not considered that any of the 13 Song class subs at the time were as advanced as they apparently were.  The surprise served as a rude awakening to American policy makers that the Pacific Ocean was no longer the pre-eminent domain of its navy.

Ultimately, what’s at stake here for Japan and China are untapped sources of energy and national pride. China’s central government, in other words, has a full mandate from its citizenry to force its collective will onto islands off China’s and Japan’s coast that both countries contend are their territory. At the center of contention are the Diaoyu (Senkaku, for the Japanese) islands, Tianwaitian (Kashi) and Chunxiao (Shirakaba), the latter two of which are characterized more as rock outcroppings than as masses of land that come anywhere close to becoming islands. Nonetheless, all lie nearly equidistant from the shores of both economic powers, which are willing to go the military distance to protect their territorial claims as well as potential oil resource riches.

Though in 2008 the two countries agreed to jointly develop gas fields in the disputed seas, China has signaled through military exercises around the outcroppings that it’s not much interested in detente. A dangerous trend indeed.

Further reading: Globe and Mail

A Bogey Man That Will Never Die

Warlords in Suzhou

New Prescription Needed: Blurring a Bi-polar World

The Financial Times recently published an op-ed piece about the effects of RMB revaluation by Yang Yao, director of the China Centre for Economic Research at Peking University and editor of China Economic Quarterly. It doesn’t shed any new light on the fact that revaluation of the Yuan will not in and of itself set right the international flows of currencies – both countries have economic re-structuring to do; however, the article is notable in the reasonable note it sounds, compared to most of the shrill proclamations coming out of Beijing. Worth a read.

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Evaluating Revaluation

Doing “a Google” on the RMB

Pulling a “Google” on China

RMB Revaluation: Not So Fast

The New York Times ran an excellent piece recently on a University of Toronto team that used its own stealthy methods to shadow a China based network of hackers who broke into the highest levels of the Indian government’s computer network system The Chengdu based group, which called itself the Shadow Network, pilfered highly classified information that the University Team also became privy to, and about which it notified the Indian Government:

“The researchers also found evidence that Indian Embassy computers in Kabul, Moscow and Dubai, United Arab Emirates, and at the High Commission of India in Abuja, Nigeria had been compromised.

Also compromised were computers used by the Indian Military Engineer Services in Bengdubi, Calcutta, Bangalore and Jalandhar; the 21 Mountain Artillery Brigade in Assam and three air force bases. Computers at two Indian military colleges were also taken over by the spy ring.

Beyond the Indian Government, infected targets included the Institute for Defense Studies and Analyses as well as computers at India Strategic Defense Magazine and Force Magazine. The researchers also found that computers at YKK India Private Limited, DLF Limited and TATA, as well as other companies were compromised.”

The Canadian team of researchers watched the hackers for eight months, and waseven able to identify a couple of the individuals in China responsible for the hacks. Of course, those of us who live in China have little doubt who was behind the hacker ring.

Which brings us to the question of the extent to which the computer systems of foreign companies based in China are vulnerable to intrusion by the local hackers and the powers that be. One of the revelations I drew from the NYT article was that the invasion of the Indian network provided entry into the secured networks of other countries, and into NATO as well. So, if Chinese hackers can do that abroad, what might their capabilities be like on their own turf, with companies they could care less about, but whose information might bring them riches and accolades from the right buyer?

Related posts:

Cyber-kerfuffle

Googleplexed

Publish and Be Deleted

Broken Web