China Forum

Sino American Relationship will be based on intense competition for resources and geo-political influences

 

Professional Kaplan is 70% correct

Yes, there will be turbulent time ahead for Sino-American Relationship in this century.  Professional Robert Kaplan's Op-Ed piece and his latest essay in Foreign Affairs and Atlantic Monthly highlighted concerns and challenges for the world's two superpowers as they compete rigorously for resources and geo-political influences.  I offer no opinion on Professor Kaplan's speculations as to what may or may not drive this competition/collaboration forward in the coming half century; however, I would like to outline specific steps in an action plan that can ensure our success when dealing with a rising Chinese Superpower.

 

Firstly, America must not forgo its position as the perennial-dominating superpower (economic, political, technological, cultural, spiritual and moral) in the world and especially across Asia Pacific and the Middle East.  This position requires dedication, discipline and self-sacrifice to an arcane set of ideals (e.g., democratic values, human rights, individual freedom, free and fair trade without barriers, increasing productivity through innovations and efficiency, others).  Second, Americans must learn to work smarter and harder for less short term individual rewards for the greater common good.  Consumers must buy less, save and invest more across the developed world.  For the past 30+ years, baby boomers in the US, Europe and Japan have dramatically increased consumption and spending through debt, while our government has been too cowardly to take action.  The current crisis faced by Greece, Spain, Portugal and Ireland as well as California, Illinois, Michigan and other states testify boldly to this sad fact.  It still amazed me to see how much time and money Americans waste on watching football, baseball, basketball and hockey games while neglecting critical shortfalls (education, infrastructure, energy and civil order) in their communities and nation.  The idea that as long as I am doing okay, then the hell with everyone else doesn't wash anymore.  Similarly, the notion that our government or someone else who may smarter and more able to find solutions to all of our problems is but naive and selfish denial of responsibilities.  It is time that Americans (especially those between the age of 14 and 50) stop watching Monday, Tuesday, Thursday, Saturday and Sunday football and baseball games and start investing their time, talents and energy into productive avenues to improve themselves and their communities.  Unless we want to follow in the same path as Greece, Spain, Portugal and Ireland, we need to transform ourselves to compete rigorously against our competitors from China and other emerging nations.

Thirdly, our government must adopt a proactive and long-term strategy to deal with unfair trading practices of Chinese companies and government.  If the Chinese Communist Party (CCPC) treats an American or an allied company unfairly, our government should retaliate tit-for-tat by singling out Chinese companies with special relations to senior members within the CCPC politburo with penalties and restrictions.  If one of our companies (e.g., Google) faces unreasonable restrictions in China, we can target a Chinese company (e.g., Hua Wei) with similar restrictions in the world market.  Lets face it, if the US government tell our allies that Hua Wei is not to receive any contract, our friends will be hard pressed to award a bid.  It's a case of hard ball, bullying business practice, but guess who's the biggest and meanest bully in the block.  The US government can sway political and commercial interests far more effectively than the CCPC.  The clear fact is that we need to exert our dominance whenever necessary without fear of another superpower like China.  Commercial conflicts are necessary and much preferred over a military one; if the circumstances require it, we must be ready, willing and able to fight as well.

Now, that brings us to the fourth tenet of my action plan against China.  I will elaborate further on a military-political-diplomatic doctrine that will not only ensure our success in a sustained confrontation but will portend victory before a single shot is fired.  Stay tune for my next posting. 

 

Does the Ability to Deceive Others Lead to Success in China?

This is what the former President of Microsoft in China states:

Deception signals Success

 

Like most rules-abiding citizens, I was amazed by Tan's audacity and blatant disregard for the truth in business and in presenting his academic records.  What's most troubling is the fact that Tan led Microsoft, one of the world's leading companies doing business in China.  Supposedly, Microsoft and its employees adhere to a much a higher standard of conducts than say some lowly Chinese companies that may routinely engage in frauds, bribery, copy-rights and intellectual property infringements.  Unfortunately, this experience tells us otherwise.

Rules, laws, standards in business and personal practice are established to protect not only primary participants (e.g., Microsoft and its competitors) but all stakeholders in business and society.  Academic credentials by themselves do not make an executive or a man/woman; they are more or less a symbol of his/her dedication to a well-established discipline of thinking and working.  They do not substitute for creativity, determination, hard work, charisma and luck.  To deliberately and perennially deceive others with false credentials highlight not success but a person who is lacking in self-confidence.  He/she realizes his/her shortcomings but is not willing to make the personal sacrifices to undertake the discipline.  I see no other reasons in the case of Mr. Tan except his own weakness to take short cuts.  While he may refer to his deception as a symbol of his own success, I see it and his rationalization as a huge shortfall in his own self image and confidence as an executive and a leader.  His employees can not follow such a hypocritical manager.

We have all faced situations that require us to choose between doing what is right or ethical and what may be beneficial personally.  Our decisions often reflect our own character and values.  I have faced such situations professionally as well.  For example:  as a consultant for a market due diligence company, I was pressured by my employer and other associates to engage in deceptive practices where I must miss-represent my intentions to unsuspecting job-seekers who are working or have worked in targeted, competitive companies.  The goal is to deceive them into disclosing proprietary information about their current or former employers.  Though the group pressure was great, I chose not to engage in their prevailing practices and relied on building a relationship with industry insiders and contacts.  Ultimately, the situation became untenable, and I had to leave the company.  Nevertheless, I made a conscious decision not to engage in deceptive practices to secure competitive intelligence on companies.  Some may say that my decision cost me a lucrative job, but I have no regrets.  We all must make our decisions based on the values that we hold dear.  Our steadfast devotion to those values as exemplified through our actions and sacrifices build the character that supports our lives.  For better or worst, may each person work and live as each person is called 

Shame on Chinese Communist Cowards

 

"Eternal Shame" on film

The Karamy disaster where Chinese communist cadres flee while 300+ performing school age students burned in a fire is disgraceful beyond words.  Speaking on behalf of victims who are unable to voice their stories of injustice, I will highlight key reasons why the Chinese Communists have no rights to reign over Xinjiang.

1.  Xinjiang has been and is populated by a separate race of people with very distinct history, culture, language and religion (Muslim) than those of the ruling Han Chinese.

 

2.  In the 40 years since Communist China seized control of this geographically expansive and mineral-rich territory, the Uyghur’s, indigenous people, has suffered economically and spiritually while their overlords have reaped enormous riches from pillaging the land and people.

 

3.  Under Chinese rule,  the Uyghur’s have not been allowed to integrate into Chinese society, economy and political system

 

4.  Uyghur’s have continued to fight for their independence from Chinese rule and are sacrificing much towards this goal.

 

5.  Chinese communist cadres and administers have shown and are showing no regards for the wellbeing of the Uyghur’s, evident by the Karamay disaster.  This grave injustice only serves to demonstrate the true nature and injustice of Chinese rule over the Uyghur’s.

 

6.  Recent history and protests by the Uyghur’s as well as the severe and violent crackdowns by the Communist administers and conspiring Han Chinese in the region testify to the unending turmoil’s there.

 

7.  It is against God's gift of Free Will to have one group of people subjugate another group by brute force.  Even though I do not share the same faith as the Uyghur’s and have enormous differences with their practices, I respect and cherish God's gift of Free Will for all people.

 

Kudos to those who speak for the victims of Karamay and all who suffer from injustice caused by tyrants.  Shame to the Chinese Communist Cadres and their conspiring cohorts as well as those self-serving mercantilists (e.g., foreign investors) who are lobbying on their behalf.

The Chinese Communist Party feels the "Domino effect" from Google's pullout

The Chinese Communist Party feels the "Domino effect" from Google's pullout:

Go Daddy stops playing with Chinese companies

I have been deliberately reticent about Google's announcement of its pullout from China until a more definitive picture emerges.  Now, after Google's redirection of its web traffic from China to its Hong Kong search site and the Chinese firewall blockage of the same,  I feel compelled to provide a layman's analysis of this decision and its impact on the growth of the internet in China as well as the hope for greater freedom in the Middle Kingdom.

Firstly, I applaud Google and Go Daddy for standing up for its principles in lieu of short-term profit.  It is often difficult to do the right thing rather than to do things right.  This is especially valid in a rapidly growing marketplace like China that does not have much regards for the right thing.  The media, and increasingly internet media, is under tight scrutiny by the Chinese Communist Party (CCPC), for it can stray popular opinions on a variety of sensitive subjects (e.g., Tibet, Xinjiang, Systematic corruption, endemic public inefficiency, Taiwan, Hong Kong, religious freedom, activism and many more) that are not favorable to the ruling regime and its cronies.  Matter of fact, if information were to flow freely within China, it is estimated that the tyrannical powers that control the Chinese economy, government and society will collapse within 12 to 18 months.  This may be a good thing for the populace who are exploited within the current socio-economic system but is detrimental to the ruling class and its colluding partners.  Therefore, CCPC will and must employ the full might of its resources, including but not limited to its information ministry, state security apparatus and other departments to control directly and/or to intimidate all service providers (foreign or domestic) to toll the party line and to provide otherwise confidential and personal information about their users.  Case in point: the arrest and prosecution of a Singaporean journalist for subversion through his personal emails via Yahoo in 2005.  To the self-serving dictatorship that reigns over China today, these and other tactics are an invaluable tool to its command and control as well as self-survival.  It will not relinquish this power.

What's not surprising is the lack of support or sympathy for Google and Go Daddy’s courageous stance from the American, European business communities and governments.  Microsoft, whose email accounts were breached, and Apple Computers, who prided itself with an anti-iconic image, have been silent on this subject, while multinational companies such as GE, PG, JJ and GM have actually denounced Google for standing up for its principles against the wishes of the CCPC.  Though China has a long and prosperous history and a rich culture, it is not exempt from the rule of laws, universal justice, human rights and dignity.  CCPC is a political party that does not have the support of 1.5 billion Chinese and is not representative of the citizens there.  Its ability to grant favorable access to these companies into its rapidly emerging marketplace with the potential of huge profit can not be deemed just cause for denial of basic rights to its citizens.  If the cowardly management or political leaders in the US and Europe are not willing to stand up for their long-espoused principles (e.g., "Life, Will and the Pursuit of Happiness"), I hope that they would have the decency not to decry the brave action taken by Google and Go Daddy this week.

In the words of Thomas Jefferson almost two and a half century ago:

  " ...  We hold these truths to be self-evident; among them, life, liberty and the pursuit of happiness....... We freely pledge our self, wealth and families to this course ......"

The question remains; Do the founding principles of America still hold true for Americans or does the opportunity to gain economically trump these principles after two and a half century?

Has Americans evolve to a state where self-perservation and obession with material comforts, including but not limited to watching football, baseball and basketball as well as video games on large screen HD televisions, transcend over the values that made this nation into a global superpower and the envy of the civilized world?

Is there the courage and strength to stand up against tyranny and the suppression of free will, liberty and human dignity that form the basis for the US Constitution and our Bill of Rights?

As for me, I say Kudos to Google and Go Daddy.  May God guide their path forward and bless them for doing what's right.   

The Chinese Communist Party feels the "Domino effect" from Google's pullout

The Chinese Communist Party feels the "Domino effect" from Google's pullout:

Go Daddy stops playing with Chinese companies

I have been deliberately reticent about Google's announcement of its pullout from China until a more definitive picture emerges.  Now, after Google's redirection of its web traffic from China to its Hong Kong search site and the Chinese firewall blockage of the same,  I feel compelled to provide a layman's analysis of this decision and its impact on the growth of the internet in China as well as the hope for greater freedom in the Middle Kingdom.

 

Firstly, I applaud Google and Go Daddy for standing up for its principles in lieu of short-term profit.  It is often difficult to do the right thing rather than to do things right.  This is especially valid in a rapidly growing marketplace like China that does not have much regards for the right thing.  The media, and increasingly internet media, is under tight scrutiny by the Chinese Communist Party (CCPC), for it can stray popular opinions on a variety of sensitive subjects (e.g., Tibet, Xinjiang, Systematic corruption, endemic public inefficiency, Taiwan, Hong Kong, religious freedom, activism and many more) that are not favorable to the ruling regime and its cronies.  Matter of fact, if information were to flow freely within China, it is estimated that the tyrannical powers that control the Chinese economy, government and society will collapse within 12 to 18 months.  This may be a good thing for the populace who are exploited within the current socio-economic system but is detrimental to the ruling class and its colluding partners.  Therefore, CCPC will and must employ the full might of its resources, including but not limited to its information ministry, state security apparatus and other departments to control directly and/or to intimidate all service providers (foreign or domestic) to toll the party line and to provide otherwise confidential and personal information about their users.  Case in point: the arrest and prosecution of a Singaporean journalist for subversion through his personal emails via Yahoo in 2005.  To the self-serving dictatorship that reigns over China today, these and other tactics are an invaluable tool to its command and control as well as self-survival.  It will not relinquish this power.

 

What's not surprising is the lack of support or sympathy for Google and Go Daddy’s courageous stance from the American, European business communities and governments.  Microsoft, whose email accounts were breached, and Apple Computers, who prided itself with an anti-iconic image, have been silent on this subject, while multinational companies such as GE, PG, JJ and GM have actually denounced Google for standing up for its principles against the wishes of the CCPC.  Though China has a long and prosperous history and a rich culture, it is not exempt from the rule of laws, universal justice, human rights and dignity.  CCPC is a political party that does not have the support of 1.5 billion Chinese and is not representative of the citizens there.  Its ability to grant favorable access to these companies into its rapidly emerging marketplace with the potential of huge profit can not be deemed just cause for denial of basic rights to its citizens.  If the cowardly management or political leaders in the US and Europe are not willing to stand up for their long-espoused principles (e.g., "Life, Will and the Pursuit of Happiness"), I hope that they would have the decency not to decry the brave action taken by Google and Go Daddy this week.

In the words of Thomas Jefferson almost two and a half century ago:

  " ...  We hold these truths to be self-evident; among them, life, will and the pursuit of happiness....... We freely pledge our self, wealth and lives to this course ......"

 

The question remains; Do the founding principles of America still hold true for Americans or does the opportunity to gain economically trump these principles after two and a half century?

As for me, I say Kudos to Google and Go Daddy.  May God guide their path forward and bless them for doing what's right.   

Second Act is more challenging than the first

Premiere Wen's speech to the Peoples Congress in March of 2010

Premiere Wen set some pretty ambituous growth and inflation targets for the Chinese economy for 2010 to 2015 during the Peoples Congress last week.  Will he pull off the "hat-trick" for the 2nd act after the global financial collapse of 2008?

Here are seven concerns that will affect the Chinese economy:

1)  Dealing with excessive liquidity

2)  Dealing with excessive property speculations and prices

3)  Dealing with Tibet and other ethnic concerns

4)  Dealing with endemic and systematic corruption

5)  Dealing with a chronic shortage of clean drinking water and a worsening ecological and environmental disaster

6)  Dealing with populist dissatisfaction of an inept, corrupt and tyrannical regime

7)  Competing against the US for supremacy in East Asia   

Each concern requires a near-herculean effort; conquering all seven will be epic for the Chinese leadership in the coming years.  Will China suceed?

Can China Save the US and the World?

 
Unrealistic Expectation or simply a Fantasy ?

Pictures and stories of continuing Chinese economic growth and unending benefits for world markets are welcomed news, especially when much of the US, Euro-zone and Japanese economies are still mired in recession or stagnation.  However, one need to dig a little deeper to what drives China's economic growth, estimated at 16.7%, and its impact for US and world exports.  The writer in the link above does a good job of answering the first question, and I shall try to do likewise for the second.

Multinational companies (MNCs) have learned from their decades of experience doing business and investing into China that access to the Chinese market requires patience, adaptability and persistence.  Patience is mandatory when negotiating entry and conditions for licensing, joint-venture or wholly-owned foreign direct-investments into China.  Legal requirements, governmental mandates and strict time-tables are but the start of unending process by which foreign businessmen and executives begin to understand their Chinese customers, regulators and supporter/sponsors (hopefully!).  We will just simply refer to this phenomenon as relationship-building and strategic marketing/business development or "guan-xi building".  If this first phase proves successful, as most foreign enterprises in China have learned well, they must now build up their business/operations and/or to establish a distribution network for their products in China.  Adaptability is paramount to survival at this stage.  Chinese consumers are no longer ignorant of global branding, product quality, customization and innovations (e.g., the introduction of the iPhone into China) and demand optimal value delivery of goods and services.  Competitors (both Chinese and foreign) are quick to grasp what's good or hot, to copy features or services (either by reverse-engineering or copy-rights/patent infringement) and to undercut prices by 25% to 40%.  MNCs realize that to survive and then to succeed in the Chinese marketplace requires a continual adaptation of their products and services to their targeted customers by delivering evermore optimal value.  Therefore, taking something that may or may not sell in the US, Europe and Japan and dumping it into China is a recipe for absolute failure.  One has to imagine how many US and European companies have followed or are following this strategy?

MNCs must overcome other barriers to grow their business in China.  I will elaborate on some of those in my next posting but will simply state that perseverance is an essential character.  Unless, one is selling commodities (e.g., oil, natural gas, copper, minerals, wheat, soybean, etc ......) to the Chinese, one need to skillfully navigate around many of these landmines.  Having a realistic set of expectations and being patient, adaptable and persistent are necessary!

How to profit from China's Money-led Diplomacy !

Chinese FDI with a catch

Cases of Chinese cronyism and corrupt practices as they relate to China's foreign direct investments ("FDI") in third world countries may be embarrassing but are not unique or exceptional.  Yes, Chinese officials maximize their advantages by exploiting human weaknesses (e.g., greed, lust, gluttony, etc ...) of administrators from Africa, Philippines and other yet-to-emerged countries with vast nature resources.  Its motivation has been clearly documented in news articles such as the above linked report from the New York Times.  I neither condone the perpetuation of corrupt practices from ill-moral Chinese officials, most of whom are indoctrinated into corruption and immoral practices by way of the Party School reinforced through the Cultural Revolution and its aftermath nor care to elaborate more of their well exposed cases.  I prefer to highlight China's strategic acquisitions and investments overseas and how one can benefit from them.

Apart from China's vast needs for resources (e.g., oil, natural gas, iron-ore, copper and other industrial metals as well as commodities), its industries need innovations and established best practices to compete and grow in the coming decades.  The global financial crisis has demonstrated to Chinese industrialists and officials that they can no longer depend on exports and rapacious demand of US and EU consumers for their low-cost and medium-quality goods spewing out of their factories over the last decade and a half.  They further see that world class companies (e.g., Toyota, IBM, Apple, Research in Motion, Exxon, Nestle Foods, Goldman Sachs and others) not only survive economic downturns but gain market share, customers and earnings while lesser competitors fall down.  It is not size or dominant market position that enables a superior competitive advantage but an emphasis on innovations, the ability to provide greater customization, quality, value and enhancements that target the unmet or soon-to-be discovered needs of customers.  Apart from the traditional 5 Cs, 4 Ps and 6 forces that B-school teaches its MBA students, innovative companies anticipate market-needs at the customer level and create products and/or services that are tailored to their audience.  Its one part science and three parts art!  Since this is not a discussion about creating a dynamic and innovative culture within learning organizations, I will focus on China's needs and opportunities to benefit from them.

A simple SWOP analysis will yield clearly defined sectors where China can compete effectively in the coming years and decades.  One needs only to focus on its automotive, consumer electronics (e.g., smart phones and portable internet-enabled devices), healthcare, professional education and financial services to understand its enormous growth and earnings potential.  In terms of applying industry and cross-industry best practices, innovations and advancements (both incremental and quantum), Chinese companies lack essential resources, capabilities and building blocks.  As leading and secondary Chinese companies engage in fierce battles to compete both domestically and globally, suppliers, partners, investors and strategic customers (those who can support channels or add value in the distribution chain) will be highly valued.  It is noteworthy to add that many or all of the missing pieces are available in developed markets (e.g., US, EU and Japan).  This is a great formula for a new generation of cross-boarders M&A.

In my next posting, I will highlight several sectors and Chinese companies that can benefit from either strategic alliance or investment with foreign parties.

What does it mean to be # 1 ?

 

China surpasses Germany as global export leader

It was widely anticipated that China will overtake Germany as the global leader in exports.  We should not be surprised by this news.

What the rest of the world need to recognize going forward is not the sheer size and scope of Chinese manufacturing and/or production capabilities but rather its impending drive towards innovations, quality and a knowledge-driven culture.  Just as President Obama speaks about supporting industries around clean and renewable energy and a national imperative on revamping education and healthcare, it is the Communist Party who has taken the lead in spurring investments, research and developments in the same fields.  Naturally, Chinese entrepreneurs and enterprises have the inherent advantage in monetizing new technologies, both home-grown and borrowed (???) from Overseas, through its massive industrial base.  Just as US industries benefitted enormously from governmental programs (e.g., defense, space and scientific research) in the 60's, 70's and 80's, Chinese companies (state-owned and private) will reap the benefits of massive governmental incentives and investments into clean and renewable energy, clean-burring engines, health-care reforms and other innovation-driven programs both in China and across the globe.  The difference now is that innovations and technologies have no borders.  What's being discovered at a university laboratory or inside a company will soon make its way to the factory floor of a Chinese plant.  Given its manufacturing prowess and entrepreneurial spirit, Chinese entrepreneurs and/or managers will be spurning out new products and services based on these soon-to-be discovered technologies and reap the economic benefits of their future applications.  The most eminent concern for American enterprises is not the loss of their manufacturing capabilities but the absence of entrepreneurship as presented in calculated risk-taking with a willingness for short-term sacrifices to achieve long term success.  In a society dominated by financial engineering of the balance sheet for immediate to short term results and a preponderance of Harvard or other elite institution trained MBAs who demand outrageous compensations, has the US loss its competitive edge in its entrepreneurial spirit with its manufacturing base?

How to profit from Chinese's Overseas Acquisitions

 

Innovative ODI (with M&A, FX & Branding)

There are numerous blogs and tweets pronouncing on opportunities presented by Chinese Overseas Acquisitions.  Thus far, Chinese sovereign funds and State sponsored companies have focused their overseas acquisitions in the commodities and resource driven space.  Namely, recent deals and/or discussion with oil producers in Africa and Iraq as well as mining companies in Australia (e.g., Rio Tinto) have drawn much media attention.  Unfortunately, these deals present little to no co-investment and value adding entry for American, European and Asian private equity or strategic investors. 

Greater opportunities abound when Chinese funds target industrial and/or commercial service companies in the US and Europe.  Historically, Chinese companies have fared poorly in such acquisitions (e.g., Lenovo's US$5 Billions purchase of IBM's PC division).  I have previously outlined several key areas of concerns and critical barriers that must be overcome for a successful Chinese acquisition of US and Euro companies.  Without repeating my thesis, I recommend that US and Euro based investment bankers, private equity sponsors and related service providers market their value proposition to would be Chinese buyers, who have both enormous interests and needs in exploring, buying and managing acquisition opportunities there.  Thus far, Chinese companies rely on bankers and service-providers (e.g., Goldman Sachs, Morgan Stanley, Blackstone, Carlyle and Bains) whom they have dealt with in China.  Recently, CITIC committed US$ 2 Billions and joined with Evercore Partners, a NYC based private equity sponsors, to target industrial and commercial businesses in the Americas.  The main impetus for this collaboration lies in an established relationship between an Evercore Partner who was a former Under-secretary of Trade under the Clinton Administration and who was instrumental in delinking China's MFN status with its human rights record.  His work on this policy benefited trades with China tremendously, and the Chinese government always reciprocate with its "foreign friends", whom they believe to have further political benefits.  Former Secretary of Treasury and CEO of Goldman Sachs, Hank Paulson, obviously understood this fact, as he prepared for his continual personal/professional collaboration with China while serving in his office.  Currently, he consults, at exorbitant fees, with multinational companies, investment bankers and institutional investors about monetizing from China's growth and overseas acquisitions.  If other US and Euro based funds and service providers want to benefit from Chinese's overseas acquisition, they need to learn from these highly successful and seasoned players.  Get off the " a_____" and begin marketing and relationship-forming before all the money is committed.

US private investors to benefit from China's RMB 4 trillions stimulus program

 

Foreign investors preparing to partake in China's growth

Most foreign investors and business stakeholders are preparing to partake in China's massive stimulus program by investing into commodities driven businesses and/or producers.  The obvious plays such as Rio Tinto or selective offshore/on-shore oil producers have been well explored.  So where are the hidden or soon-to-be exposed opportunities ahead?

Stay tuned for my answer and updates on investment opportunities that can benefit from China's massive RMB 4 trillions stimulus program.