This is China! blog

When – not IF – China revalues its currency more than just the United States will feel the ripples of global economic re balancing. Last time China released its peg from the dollar to a basket of currencies that included the yen, the euro and the dollar the RMB increased 20% in value from 2005 until the global economic downturn in 2008. This time, the world is different, with China far more cash-rich than it was five years ago and exporters in developing counties feeling the squeeze from China artificially holding down the value of its currency. With a release of the dollar-peg countries that import goods into China should benefit, according to an article in the Financial Times. That means countries that export natural resource minerals and foodstuffs into China should see growth in their export industries as the Chinese renew their spending sprees with a stronger Yuan. Countries like Australia, New Zealand and Brazil may see their currencies strengthening as a result of greater demand for their exports.

If the dollar continues its long-term slide the Chinese may diversify further from the US currency into the euro and yen, to protect the value of its reserves. Ultimately, the key to avoiding the dollar from being orphaned as a reserve currency is for America to clean up its balance sheet and force through structural reforms that increase the value of the American worker on the world market and maintain United States’ preeminence as an innovative culture; manufacturing more accountants and lawyers is not the answer to America remaining a world economic leader.

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I’ve been spending a fair amount of time in the luxury hotels of Shanghai on recently on various projects and found service levels in general quite high. International brands seem to be investing ever more budget into training staff in English communications, sales, and even complaint management. The service skills employees develop help the hotels to maintain competitive advantage in markets that have fast-become saturated at the high-end. With room supply outstripping demand and room rates falling the last three years, developing and strengthening relationships with customers is ever more important. “Employees need to understand that guests develop relationships with the individual, not with the hotel,” one industry trainer told me.

Of course, now that the labor market is heating up again, hotels have once again become recruiting grounds for companies in need of polished staff. Hotels themselves are learning to that employees are worth more than a one night’s stand.

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An American friend and I recently discussed how much easier it is to start a multinational company than it was even five years ago. With support from Chinese and American financing the company he and his partners are launching has as many as 175 new products, product combinations and kits within two years from seed investment. With a factory and suppliers based in the Yangtze River Delta, the company has commitments for sales from retailers in the United States, Europe and Russia. My friend believes the combination of Chinese investment (unaffected during the global economic downturn), the relatively low cost of manufacture in China as well as information technology that allows American headquarters in China can effectively communicate with designers in the States and distributors around the world. “The barriers to entry to be a multinational have never been lower,” my friend mused.

Proctor and Gamble watch out!

A third-born Chinese young lady recently told me how she almost did not exist. Her father was extremely disappointed at her birth, given his wife had already born him two daughters. The father’s plan in the Anhui countryside was to leave the newborn in a field for the dogs. A grandmother intervened and took the infant in, though the hungry child had the same status in the household as a doorstop.

The result of such deeply entrenched generally accepted parochial thinking in China is that the country has way more bachelors than potential brides. The countryside of Anhui has ratios as high as 127 boys to 100 girls; deeper in the interior sees proportions of 175 boys to 100 girls; while even higher still is the Beijing municipality, where the ratio of boys to girls born is nearly 3-to-1, according to the Economist Magazine.

Now, according to the young lady, she is part of a huge “buyer’s market” of young brides who expect potential suitors to have already bought a house and provided a dowry to the girl’s parents. In the cities dowries are around 50,000 yuan (about US$7,000), while apartments in even the smaller cities can now run as much as US$150,000 to start. Countryside families of girls, Third-Child explained to me, are far more uncompromising, expecting as much as 300,000 RMB (about US$40,000) as dowry, in addition to the purchase of a home before the boy even contemplates a proposal of marriage. “In the countryside we say the men are ‘buying’ a wife; in the city, it’s a little less overt than that, though it’s still expensive for the boy.”

Third-Child told me the stress boys are experiencing now is so great that many despair, considering lives of crime to acquire the money families are extorting for their daughters, or simply giving up on finding a girl ever in their lives.”Families with girls are so happy now because they can actually make money from their daughters instead of paying it out if they had sons who needed a wife.”

Though in many instances boys can turn to the extended family to pitch in for the purchase of a marriage-nest, even extended families are finding it difficult to contribute more than a few thousand RMB to the cause of despairing nephews. “One cousin asked my parents for money, and was upset at the small amount they could give him,” Third Child explained. “My parents explained they had their own expenses living in the city, and still had to save money for themselves.”

I asked Third-born about the market for Vietnamese women imported into China. She told me, “Even the Vietnamese girls don’t want to live in the countryside. Though their families may not require large dowries or the girl may not even need a home bought first, the girls do not want to live in a situation as poor as the one from which they’d come. They want to live in the cities.”

Pity the Princelings of Pekin.

The Economics Intelligence Unit in association with Accenture and Clifford Chance have just released an insightful study into the character of Chinese M&A overseas. It seems that in many instances Chinese investors bit off more than they could chew, with an incomplete understanding of the foreign climes in which they were investing; a lack of mechanical knowledge about what it takes to integrate a foreign acquisition; a myopic vision that did not extend any further than taking advantage of fire sales; and increasing resistance to Chinese investment in countries who are seeing their own investments in China hampered or even scuppered. Now, with economies in the West believing they’ve gotten through the worst of the global economic downturn, the tables are about to turn on would-be Chinese kingmakers abroad.

Read more about the report and download it here.

The confession of Rio Tinto’s man in China, Stern Hu, accepting bribes did not surprise me. Hu was originally from Tianjin, and acquired an Australian passport. Rio fired Hu soon after the Beijing court’s verdict at the end of March 2010, claiming it did not know what its man in China was up to during his negotiations with Chinese steel producers over iron ore pricing.

The reason I’m not surprised is that it is all too common in China for overseas Chinese to return to China as prodigal sons who quickly take to Chinese ways of doing business. I thought over the years that I would hear fewer stories of Overseas Chinese (OCs) who are General Manager’s following the Chinese Way of doing business: opaque, backroom dealings; mis-information or no information relayed back to HQ; commanding subordinates to help them siphon funds from purchasing contracts. What does surprise me is the increasing frequency with which I am hearing these stories, mostly from expats who have to work under the OCs. Perhaps the reason for the increase in cases is that when the global economic downturn struck in late 2007, headquarters of companies from around the world began pulling their expat GMs out of China, because of the “hardship” of it all. In many instances, Chinese junior staff were not yet ready to take the tiller of managing large, complex, rationalized organizations that had to meet international standards – especially around transparency.

The other point that surprised me about the Hu story is that there are not more of them in the news. One American businessman that’s worked in China more than eight years expects to see Western companies putting expats back in place after they’d pulled them out in a financial panic come the Great World Recession. “The companies are just figuring out that they’d passed the reigns on to Chinese staff too quickly, and that Headquarters actually doesn’t know what’s happening in their Chinese operations,” my friend said. When I commented on the dearth of news of multinational mis-organizations in China he commented sagely, “What multinational wants the world to know their man in China screwed the pooch?’

Find an excellent in-depth analysis of the Rio Tinto case:  FT

Related posts:

The China Chop

Just a “Little” Corrupt: Moral Ambivalence in China

Corruption Rules

Kicking the Kick-back Habit

A good friend of mine in Milan, Professor Marco Bonetti, asked me to share with Chinese readers information about  the University of Bocconi’s Economics program. Professor Bonetti is Director of the the Master of Science in Economics and Social Sciences at the University.  You’ll find contact information at the end of this post, or send me an email and I’ll forward you more information in Chinese language about the program.

Ciao!

—

“Università Bocconi is one of Europe’s leading economics and business universities. Its modern urban campus is located in the centre of Milan, Italy’s commercial, financial and fashion capital, and also its most cosmopolitan city. Bocconi treasures its Italian roots whilst fostering a truly international outreach and draws from this to offer a wide range of programs taught by an international faculty.

“For high-school graduates, Università  Bocconi offers a variety of 3-year bachelor degree programs, including the Bachelor of International Economics, Management & Finance program taught entirely in English. At graduate level, Bocconi offers a full range of 2-year Masters of Science programs, including six taught in English: International Management, Finance, Marketing, Economics and Social Sciences, Economics & Management of Innovation and Technology and Economics & Management in Arts, Culture, Media & Entertainment.

“In addition, Bocconi offers several PhD programs in English.

“SDA Bocconi school of management, the only Italian in the international rankings, offers an English-language MBA program and a Global EMBA, run in cooperation with Fudan University. The school also offers a series of specialized masters and executive programs in English.

“The cosmopolitan atmosphere helps the exchange of experiences and ideas. Bocconi is a member of important international networks, and has exchange agreements with over 170 leading universities worldwide. Students at Bocconi are offered a host of opportunities (internships and exchanges) to broaden their horizons.

“Università Bocconi also supports its graduates in their approach to the international job market with a strong Career Services program. The University maintains an enormous network of connections with companies of all types and sizes in Italy and abroad.

“Bocconi established a dedicated team back in 2002 to develop programs and relations in China. It has now established partner agreements with the most prestigious Chinese Universities and with international companies and organisations in China. Today Bocconi has 12 Partner Schools in China for exchange programs, including Fudan University, Jiaotong University, Peking University and Tsinghua University. There is a permanent Bocconi Desk in Shanghai to foster relations and provide information. In cooperation with Fudan University Bocconi offers the Double Degree in International Management with a mixed class of Italian and Chinese students studying one year in Milan and one in Shanghai.”

For further information:

Università  Bocconi

International Recruitment Services

via Sarfatti, 25 – 20135 Milano – Italy

+39 0258365930

+39 0258365822

undergraduate.services@unibocconi.it – graduate.services@unibocconi.it www.unibocconi.it/recruitmentservices

Ian Bremmer , president of Eurasia Group, recently wrote an incisive editorial in the Financial Times in which he rightly observes Beijing believes its day in the sun has arrived. He writes, “Put bluntly, Beijing no longer believes American power is indispensable to Chinese economic expansion and the Communist party’s political survival.” The global economic meltdown and China’s ability to weather the storm have created a mindset in Beijing that it is invincible: much like the teenager who’s friends go out for the night on a drunken binge, and have a car wreck; the teenager believes that through his prudent decision to stay home and not go out that night that he is far wiser than his mates. Actually, what he doesn’t tell you is that his family forced him to stay home to study and do all his homework, otherwise he would be disowned. However, such are the effects on those “fooled by randomness,” who put transient symptoms of success down to their peculiar form of genius.  Frankly, it remains to be seen if China’s letting flood US$2 trillion in loans was really as “wise” as the “state capitalist” system seems to trumpet.

Nevertheless, as I fully agree with Brilliant and as I’ve written many times before, the US needs to take a multilateral approach in curbing and channeling Chinese machismo; a unilateral trade war would simply magnify the Chinese leadership’s sense of being a legend in its own mind.

A recently talked with the plant manager of an American Fortune 500 company that has a facility in Shenzhen. It’s been a couple years since I’ve been down to Shenzhen. I asked her if the environment had become any more livable since the economic downturn and the talk of Guangdong trying to upgrade its manufacturing sector to higher-value production, and to services. She flatly answered “No.” In fact, she told me, she lives in Hong Kong. Though the downtown area might be all bright lights, big city, the manufacturing districts were unsafe, especially at night. She worked a long four-day work week in Shenzhen, then retired to HK on Fridays for a bit of civilization.

The characters of places are as devilishly difficult to change as people themselves.

Local and national Chinese TV has been full of news stories about the terrible drought affecting southwest China: Guizhou, Yunnan, Guangxi. Peasants scooping spoonfuls of muddy water from dried wells; entire families scrabbling deep into caves to collect teat-fulls of water formed by condensation from stalactites; long lines on towns-folk queuing at trucks loaded with bottled water, sent by city governments as far away as Suzhou and Shanghai.

News footage also shows something even more disturbing to me than thirsty children, faces smeared with dirt: the sheer, uncontrolled waste of what will be the most precious resource China has squandered on an unprecedented scale: water. Army soldiers of the People’s Liberation Army march into townships and turn on fire hoses connected to container trucks to spray jet-fulls of water into fields that gulp down the precious fluid like a man stranded in a desert for weeks; delivery trucks disperse boxes of bottled water that children gleefully chug at in front of waiting cameras; city fathers splash buckets-full of water drawn up from stressed wells into waiting plastic basins, liquid splashing onto the ground and onto the arms and faces of happy villagers.

The systematic waste and the lack of even a modicum of thought or habit in China for conservation of water, valuation of its forests, and too-rapid industrialization will prove challenges far greater to its leadership than whether America will continue to accept cheap Chinese-made sneakers onto its shores. All too soon.

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