This is China! blog

I just received my electricity bill for the last couple months of winter. Whoever said coal-generated power in China was cheap hasn’t lived in Greater Shanghai. Now I really understand why so many Chinese south of the Yangtze River don’t even turn on their heating, even in the depths of winter. Save money!

Western countries seem to be standing aside and allowing China to capture the cost-effective end of the renewable energies market. According to the New York Times, China already produces the most solar panels and wind turbines in the world. “Yet many Western and Chinese executives expect China to prevail in the energy-technology race,” the Times writes. Domestic subsidies to buyers and energy producers (as well as the occasional diktat) the society already investing in less-polluting sources of energy than America and Europe. The sheer size of the market serves to further drive prices down. Of course, little is said about the processes and energy-efficiency of the manufacture of the renewable energy devices.

Now, from a global markets point of view, the country seems to be able to export the products to countries that have been politicking about investing in low-cost energy alternatives. But, as Ma Lingjuan, deputy managing director of China’s renewable energy association notes, “Every country, including the United States and in Europe, wants a low cost of renewable energy. Now China has reached that level, but it gets criticized by the rest of the world.”

My, aren’t we sensitive.

Further reading: NYT

Indonesia’s forests made the news this week because of Greenpeace activists that disrupted logging activities in a peatland forest. Every year loggers mow down a swathe of Indonesian forest the size of Switzerland to sell on to buyers in China, Japan and the United States, mostly. China has become a primary buyer, with nearly half its timber imports illegally brought into the country. In 1998 Chinese authorities oficially barred domestic logging of its own trees, though that ban has only been loosely enforced. In Yichun, in Heilongjiang Province, an entire forest has been lost to unmanaged logging by local factories making toothpicks and paper. The Guardian reported that factories were capable of processing one tree every minute. Now, the lack of trees have led to erosion, sand storms and, without trees to hold the water, flash floods. The city has been designated one of twelve “resource-depleted cities.” So the central government has turned what’s left of the forest into a preserve a la Yosemite National Park, in the USA, to develop a tourism economy. All that’s left to see though, are granite formations.

Further reading: earth stream, Guardian, China Post

When your acupuncturist tells you the housing market is wildly inflated, it’s best to listen (lest you be stuck in painful and inappropriate places). Still, a recent Financial Times article all but signaled China’s economy is officially out of the doldrums as a combination of fiscal stimulus, export sector revivification and consumer activity spurs the statistics onward and upward. My favorite bear Andy Xie wrote in the FT just a couple weeks before the report:

The day of reckoning will come when the high economic growth rate finally falters. This could happen either when the favourable demographic trend worsens or urbanisation ends. When either or both occurs, liquidity or savings do not grow any more. At that point, the stock market cannot be subsidised any more.

China’s final day of reckoning is probably 10 years away.

In other words, sometime in the following decade it won’t take more than an acupuncturist’s needle to prick that bubble.

A local Suzhou television news reported highlighted an odd disconnect in the local labor market: local factories are looking to hire, and the unemployed are looking for jobs. The report, in many ways, was more an infomercial for the company, its products, its working conditions and its labor requirements, which is likely how the issue became a news items at all. The news reported went to some labor markets and talked to young people who were looking for jobs. The interviewees were unaware there was a labor shortage. Perhaps these were the unemployable.

The China Economic Review in its November issue highlighted the matter as well, citing that:

“From the factory towns of Dongguan to the trestle tables of Wenzhou, bosses are moaning about labor shortages. Suzhou reported 150,000 – 200,000 job vacancies in September, while vacancies in Shenzhen rose from 23,000 in April to 120,000 in August.”

A combination of late Christmas orders from the West and folks who just don’t want to relocate yet again from their hometowns to factory campuses is creating staffing shortages in China’s export sector. Also, the central government’s infrastructure projects in the interior of the country has seemingly creating enough economic gravity to keep folk’s within the orbits of their hometowns. A hobbled export sector will only make it more difficult for China’s policymakers to keep GDP growth above 8% without additional fiscal stimulus. 9 Nov 2009

It’s easy to think China has a master plan for buying up the world when you see New York Times headlines gush, “

Chinese and U.S. Partners to Build Big West-Texas Wind Farm”:

“Construction of the $1.5 billion wind farm would be funded largely by Chinese financiers, with an assist from the United States government in the form of loan guarantees and grants from the federal stimulus package.”

Look a bit more closely, and it seems the American government has given the overwhelming number of awards for alternative energy research and implementation projects to foreign companies. Investigative Reporting Workshop cites that instead of the American government encouraging homegrown wind machinery producers, it’s giving the cash incentives to foreign producers, mostly European, it seems.

“The reliance on foreign companies for development of wind energy appears to be at least partially tied to the U.S. government’s resistance to subsidize a home-grown wind energy industry until now. With so few U.S. companies in the business, the door was open for foreign companies to walk away with the bulk of the grants. European companies, in particular, are well positioned to collect stimulus benefits for clean energy.”

So if the door is wide open and the welcome mat put out for foreign – including Chinese – producers, who can blame them for making themselves comfortable in The Land of Opportunity?

A couple of General Manager friends on separate occasions have told me one of the greatest human resource concerns they have is what to do with bored Chinese staff. In both instances, the staff they hired came from much larger organizations, spoke English, and had varying degrees of management experience. Both staff are particularly bright, inquisitive. In one instance, one of the GMs was able to engage the Chinese employee by sending him on an MBA program. Now that the program is finished, the GM is casting about for the next challenge to pass the employee. Problem is, in both cases, the companies are stable, though revenues for each in China are steadily growing. Of course, staff boredom will become a growing problem for Western companies as the heady days of business start-up wind down.

I’ve learned that as my waistline grows I trade up to new trousers, something a bit more comfortable. Of course, exercise works, but entropy seems to trump all slimming efforts. Perhaps it’s time for the staff to either slim their expectations, or try out a new outfit.

I enjoyed Philip Bowring’s illuminating opinion piece in The New York Times, “Chinese Exceptionalism,” about the clout China is accumulating on the international financial stage:

For sure, the United States has been in an exceptional position and one that has enabled it to consume more than is good for it. Many countries, with China the most vociferous, wish for a more balanced world in which other currencies play significant roles in trade finance, capital flows and exchange reserves.

But while the cries against U.S. privileges ring out loud and clear, scant notice is taken of the exceptionalism successfully pursued by China. Beijing has so far insisted on maintaining both a pegged currency and controls on capital flows.

Point being, if China wants to be a stakeholder in the new international financial system that is shaping up after the global economic downturn, it is going to have to play by the rules:

All of North America, Europe and Japan have no controls on capital flows and have fluctuating exchange rates. Ditto for South Korea, Taiwan, Australia, South Africa and most of trade-oriented Southeast Asia. India has some exchange controls but a floating currency, which is also the norm in South America.

So much for a level playing field:

This exceptionalism has helped China accumulate over $1 trillion in foreign reserves, that it naturally thinks should give it clout in the world. But where would China be if that exceptionalism were removed?

Its citizens would have higher wages and better living standards, but the government would be unable to boast of such huge reserves. As it is, China boasts of its reserves as the Soviets once boasted of their missiles.

China claims to want its currency, the yuan, to play a role in trade and capital flows. But Beijing continues to underwrite U.S. deficits by keeping its currency pegged and capital movements subject to controls, thereby preventing the yuan from playing an international role.

Time to raise the bar, China.

Thousands protesting are big numbers, even by China’s reckoning. Especially if the protests occur in two separate regions in as many days, are violent, and have essentially the same reason: the rich getting richer in China by unashamedly gaming the system.

The Financial Times reports:

“The privatisation of a state steel group has been scrapped after an executive was beaten to death by workers angry at the threat to their jobs from a takeover of their company…The violent riot in north-east China late last week involved up to 30,000 workers, a reminder of the ongoing sensitivity about lay-offs from state companies in industries targeted for consolidation.”

Certainly, it doesn’t help when people become self- or otherwise-anointed emperors and treat co-workers like crap. I can certainly see from whence their anger stems:

The interim general manager sent by Jianlong to run Tonghua, Chen Guojun, had infuriated the workers with his high-handed attitude, according to comments posted on internet bulletin boards in China.

He had reportedly said that he would re-establish Tonghua “under the name of Chen” and lay off almost all the employees.

“With Tonghua Steel’s retired workers each receiving only Rmb200 ($29) a month for living expenses, Chen Guojun was paid an annual salary of Rmb3m,” the rights group reported.”

AP reported yesterday that just a couple hours drive from Suzhou, in Zhejiang province, 3,000 townsfolk went berserk at the local authority’s purportedly giving them the shaft in a land-for-spit deal the residents found wholly unfair:

More than 3,000 villagers in eastern China blocked a highway and clashed with police while protesting alleged official corruption in a land compensation deal…Ten residents of Shipu town, in Zhejiang province, were injured in the clash with more than 300 riot police Saturday…Another resident said thousands of people had been staging a sit-in on the land for nearly a week.

Without credible avenues for complaint and decision, local governments will continue to place citizens in positions in which residents must explode en masse to gain any kind of fair hearing at a supra-local level.

“The employee, who refused to give his name, said the villagers believed the land was worth three times the price the local government had set — 20,000 yuan (US$2,900) per mu. A mu is a Chinese measure of land equal to about 0.15 acres (0.06 hectares).

“The villagers want the local authorities to address the corruption and the central government to intervene in this case, but some local officials have been preventing this information from getting to the relevant authorities…”

So what set off this latest round of high-volume, high-action drama that has nothing to do with ethnic differences? In a word: stimulus package (ok, that’s two words). China’s stimulus package of some US$560 billion kicked off at the beginning of the year with the Central government ordering the banks to open the offers. Hundreds of millions of dollars have already been loaned out, re-inflating the stock market and property bubbles the government had worked to flatten two years ago. Now, local governments, State-owned enterprises and large privately-owned corporations with “special relationships” with bank lenders (read guanxi) are redistributing wealth in preferential ways. Indeed, the FT writes about the steel protests in the northeast:

The privately held Jianlong Group, one of China’s largest private steel companies, had first proposed taking over Tonghua in 2005, backed out of the deal when the economy slowed last year, but re-entered negotiations recently when industrial demand picked up.

Propelled by the government’s stimulus package, China produced steel at an annualised rate of 545m tonnes in June, a record level of output.”

AP writes of the Zhejiang protests that the land was recently sold to be developed into a science and technology park. In Shipu, Ningbo district. In the middle of nowheresville? Local administrators would be able to access bank loans for infrastructure development as well as the national level subsidies for new-and-high-tech projects. Clever.

Of course, the communications and information infrastructure the national government is putting in place will only enable citizens to band together more easily when it comes to voicing grievances. And as long as the powers-that-be continue to find it difficult to kick their millennia-old bad habits, encouraged by the prospect of untold wealth, more of these industrial actions will occur, with greater frequency and with groups in numbers that may one day mark the Ides of March on the Chinese calendar.

The Chinese girlfriend of a guy I know recently presented to my friend the uniqueness of my friend’s situation in China. She put it to him this way, “There’s going to come a day when your white face will mean very little in China. In a few years unless you’ve got very special skills and/or you speak Chinese very well, there’s not going to be much for someone like you to be able to do in China. Unless, that is, you take some very specific steps for the future and stop taking everything here [read: 'including her' -ed] for granted.” My friend is pushing 40 years old and has been the manager of a factory in Suzhou for more than 4 years, living a life he would not be able to in his home country.

Later on, over coffee, my friend told me, “You know what? She’s right. There’s not going to be much for me to do, since I’m already pretty expensive for my company. And my Chinese is s&%t. And the [Chinese] girls will likely not be as impressed, either.”

What’s a white man to do?

I’ve never met a GM in China who hired a Chinese local because she had an MBA degree; though I have met GMs that have encouraged local staff to obtain an MBA to broaden their knowledge of how their patron-company works and improve the local’s chances for eventually taking over the top position in the foreign-invested company. I recently told a journalist in an interview for the China Economic Review (July 2009 issue) that the expat managers in the manufacturing sector in China have a deep distrust of new hires with MBA degrees, due to what I call “expectation mismatch”: the GM expects the new hire to do a specific job and the MBA-holder believes the specific job is to tell the GM how to run his company. Down-to-earth nuts-and-bolts types do not take kindly to that sort of attitude; and the further away from Shanghai an operation is placed the less welcome MBAs seem to be.

However, during a panel discussion in which I participated at the University of Chicago’s MBA program on business in the Asia-Pacific several years ago, one of the other panelists – herself an MBA and an executive at a global recruiting firm – made the valid point that in the professional services like Finance and HR in a Shanghai or a Beijing the MBA degree lends some credibility to the training and experience a recruit may actually have. In other words, it adds polish and fills some of the holes in an individual’s otherwise patchwork background.

The MBA degree for Chinese nationals, though, serves an additional role: it helps them with communications and facilitation skills they otherwise do not develop. The traditional Chinese education system does not prepare them with the participatory skills that help them get ahead in Western organizations. Also, international MBA programs in China acculturate locals to international standards, processes and procedures for rationalizing business processes. In other words, the degree is a great primer for understanding the dynamics of organizations. The clash between newly-minted MBAs and the rest of us is that MBAs more often than not mistake “the map for the territory;” in other words, they tend to fit real world challenges into the templates they learned in school. And therein lies rub.

With that said, I always enjoy speaking at MBA programs to which I am invited in Shanghai and back in the States. No matter the age of the student – whether a straight MBA in her twenties or a more senior manager in a EMBA – the audience is consistently open-minded and energetic. They seem to genuinely want to “get it right” when they re-enter the corporate world with their newly minted degree.

I’ll next be speaking in Shanghai to a group of MBA students from the University of Reading (UK), on July 14, 2009.

Nevertheless, the China Economic Review interview was fun (and the reporter charming), and helped me to express my belief that MBA’s are not spawn of the devil – but neither are they saviors of corporate humanity.