A round eyes perspective on business travel in China

Part of the premise of this blog is to provide a forum for exchange of ideas, actionable intelligence and sometimes just plain old commentary on life as it effects us. We are working on several other articles at the moment. Some are Wynter Benton related. Some are ideas for trade strategies like the upcoming "Joe Dwek - Agent of Satan or just a good business man?"

I was in Shanghai last year on business and spent a week after business was concluded looking around Shanghai and getting a general feel for what's going on. My business took me into a province outside Shanghai over the longest bridge in the world and I got a pretty good view on how business works over there, general population live in the cities etc. Some of it is heart breaking and other things make you wonder is "this really communist china?"

First Impressions:

The air is foul. It hits you like something physical the minute you get out of the airport. As a smoker the first thing you want to do after a long flight is to go somewhere and have a cigarette. For Westerners that is outside and after one cigarette combined with diesel fumes that’s enough for even a hardened smoker like me.  Once out of the airport the air gets a better. It no longer makes you feel ill but I certainly wouldn’t be out jogging.  I wouldn’t be out jogging anywhere but you get the idea.

I’m a car nut so I pay attention to what’s driving around.
Ferrari's, Porsche Cayannes on the high end and the only "junk" I saw on the road were Taxi's (5 year old or less) Volkswagon Jettas obviously made from old designs. A small number of Buicks but mostly European model cars. Mostly French and German models made in China. The govt is really pushing car ownership outside the cities but adhering to strict emission standards and limiting ownership in the cities. GM and Ford need to get their asses in gear and make some deals. European and American brands are status and luxury brands over there. GM, Ford are you paying attention? You might have to partner 50/50 and give away some manufacturing know how but the know how is going to be copied anyway.
They have a lottery system to get a plate in the city and a few winners typically are interviewed on TV fluff pieces.

The People:
The general consensus I got from talking to people there on Google hacking etc. is a "big so what, who cares".  This was an important clue towards attitudes concerning intellectual property rights.
Naturally most didn't seem surprised that Google might have been hacked by their govt. but resented the accusation. They don’t care if Google is in China. They like their phones and like Europeans they may have several phones and rely on these rather than landlines.
Everyone I talked to had no clue as to what the financial state of affairs here in the USA is.
They see people around them making serious money. Opportunities everywhere and their assumption is the USA is the same or better. Much like we are very US centric they are the very same if not even more oblivious. The biggest pain the neck there is wholesale blocking of Google blogs and various other news related sites. I don’t use Facebook, Twitter etc. so never checked them. 
I went to several nightclubs and would advise most westerners to avoid them unless you are there with a few locals. You may be inviting more trouble than you can handle. In every public situation keep your wits about you. I was dealing with two guys I will never forget. They drove like they had stolen the car and driven the car through a building site before picking me up. They dressed like slobs and didn’t care what they looked like. They blew through tollbooths without paying, broke speed limits as if they were suggestions and they had more than a few drinks on them the whole day. They were untouchable and nobody touched them. They were connected. Not sure how connected but everyone knew them.

As with everything Asian there is a ritual involved and although some latitude is given to Westerners we do try their patience at times. Just like an American travelling to France thinking all French are arrogant we forget we are the foreigners. It would be wise to bring a phrase book to make some sort of effort to communicate natively.  It goes a long way towards acceptance. Even if your pronunciation brings ridicule from children the effort will pay dividends.  Always get business cards from the hotel and bars you want to make your way back to. It’s easier to hand a card to the taxi driver than try to communicate through talking loudly with a funny accent in a language he doesn’t understand.
I brought some gifts in the form of Whiskey. Although it’s not a problem finding just about anything you want it’s the thought that counts.
My first meeting was an eye opener even though I’d studied as many travel sites as possible before going. Travel sites won’t tell you anything from a business travel perspective.
I was brought into a large room with small coffee tables and chairs against the wall. Everyone was seated in order of importance.  The local political boss being the most important in the room took position against the far wall with his back against the windows. His chair was also higher than everyone else. He had a couple of secretaries in his entourage of approximately twelve and one was seated beside him. Without his blessing no business would take place in his district.  I was seated opposite him divided by about 20 feet of open space. Tea of course was served and then the meeting started. Chinese strawberries and other locally grown fruit was on offer as well. Bottled water was on offer but I stuck with the tea. That choice pleased my hosts. I ention the strawberries as they very different than the varieties I have tried anywhere else. Sweeter,  softer and more pink than red. 
Chinese meetings are an odd affair to most Westerners. The meeting lasted approximately three hours. The whole meeting was speech after speech by the important participants. The drivers, secretaries and translator did not speak but everyone else did. At length extolling the virtues of the province, the country and of course the boss. I was of course expected to speak. Not about specifics but just in general and of course favorably towards China etc. I made some favorable comparisons about the Celtic tiger and the USA.
I had several of these meeting over the coming week. Depending on the relative importance of the local political boss the size of the room changed. In some case we went for lunch or dinner after the meeting.
During some of the meetings the political boss explained some of the subsidies available for entrepreneurs. Specifically in my area of interest which was software development there were a number of rebate programs, free office space. For example there was a rebate of 5% for contracts over $100,000 paid to the development co. from the government as an incentive to grow that export industry.
Cell phones were in constant use during the meetings I attended. In western culture unless there is a real emergency we will ignore calls. In China it’s a badge of honor to be yakking on the phone about some deal or problem during a meeting.
The most important thing to realize about Chinese business is who you know. It’s tough to break in there unless you know the right people. The right people do not grant an audience without a formal introduction through a relative or close business associate. If you want to climb the ladder there you have to scratch some backs. Quid pro quo.  The right people have political connections. Without them you are going to be a street vendor if you want to be self employed.

Real estate bubbles etc. in China
If it looks like a bubble and smells like a bubble is it a bubble?

Much has been written by analysts about real estate.  Some have never been to China, done business in China, talked to ex-pats, talked to locals so base their opinions by viewing things Chinese through round eyes. 
If you want to understand something you have to open your mind to everything and every opinion. You have to ask a thousand questions a day. You have to walk in their shoes as much as possible and consider that what you think you know is probably wrong. You have to go to nightclubs and eat fried chicken feet and look like you enjoy them. When offered chopsticks or a fork opt for the chopsticks. When offered a drink or invited to a drinking competition accept it unless you are physically unable.

An oddity I noticed on my drive from the airport to the hotel a lot of empty apartments in apartment buildings. I knew they were empty as they had no curtains on the windows. My Chinese business partner informed me that the Chinese speculators will not rent out apartments they plan to sell as the Chinese don’t like to buy homes that others have lived in before.

Empty factories. Saw plenty of them but they were old, broken windows and will be torn down. I also saw plenty of new construction with waiting lists to get into them. Obviously they have a real economy as well based on manufacturing real things. I visited an empty, under construction industrial estate with a huge college campus as its core. The Campus was looking to attract 10,000 students. Apparently they are up and running now.

The govt over there steps in very quickly if they feel things are getting out of hand. A few months before my visit they changed the rules so that you have to own an apartment etc. for one year before you can sell it. My observation on real estate bubbles .... You know it's over when every dog on the street is buying older properties to rehab or in the China case when everyone is sitting on an extra apartment looking to sell. That hasn't started there. They just build fresh. Sure there are bubbles but nothing like we experienced in the USA or Europe.

So is there a bubble? Certainly there are real estate bubbles in certain areas. Fueled by non stop expansion and easy money. Fueled by competing political chiefs trying to out do each other but at the same time the political cats know if they over reach their heads might literally roll.

There is a lot of China bashing in the media here and lot of US bashing in the media there. The bottom line is they have a lot of respect for the USA and see the USA as the most important trading partner they have with even more opportunity for trade in the future. Right now the focus is on IT outsourcing and the govt. is really pushing incentives to companies that can deliver on that or even the promise of it.

The similarities between the Celtic Tiger of old and China today is what struck me. Everyone is optimistic and the young people have money in their pockets. The night clubs are all pounding techno music minus the ecstacy. You don't see much in the way of police either except in the clubs. The 20 something year olds are happy and have prospects in the cities.

During the Celtic Tiger I would get lost every time I went over to Ireland because of new roads going in everywhere. According to a GE contractor I was bar hopping with it was the same for him in Shanghai and he was on his 20th trip in 4 years. They don't have the tech savvy for a lot of physical projects or software for that matter so they have to import western companies to handle it for them. Siemens trains are an excellent example. Siemens insisted they would service the trains so China wouldn’t copy them. Well that was good for the short term. China now has their own version of the Siemens high speed train.

Others come to the cities with meager savings searching for the job that will support them and their families back home. I read one story of a 50 year old farmer whose wife fell ill and he had to move to the city to pay her medical bills. He worked as a porter sharing a small room with bunch of other porters who used the bunk beds in shifts. He became so mal nourished trying to save money he literally collapsed and died. Unfortunately, the newspaper didn’t provide any personal details on the man or his wife or I would have sent a donation.
This simple little story illustrates the problem with China and the problems they are going to face. When you are on a fast track to modernize on the backs of a third world population with no social safety net you are building a powder keg. As most people are aware in a third world country people have lots of kids to take care of them in their old age. In China they curtailed that by limiting the kids a couple can have. So what you have is a social time bomb. I’ll spell it out. This generation has too many males, there are not enough children to support parents and there are no social safety nets.  They are polluting their country so much that they literally shut down all industry in Bejing before the Olympics and literally tried to blow the pollution out of the city. The west might be at  a competitive disadvantage right now but there is a wind of change blowing through China that is unstoppable. It’s a social unrest that will stop China in it’s tracks when the Children realize they are tied to their parents for life making them slaves. When they realize their youth is over by 30-35 and if they haven’t carved out a good living by then in the city they may have to return home to take care of their parents.

I didn't see much in the way of activity in the bullion area. Lot's of gold jewelry for sale but all high end. For them Jade speculation is where it's at not gold. The speculation in Jade is getting out of control there and the govt is instituting formal standards of appraisal. In Jade speculation you can become a millionaire overnight or lose your shirt. What they do is they will quarry a large rock and auction the rock to speculators who hope to find their fortune in the rock. They bid based on past performance from the quarry which may or may not yield what they are looking for.
They then have to pay an expert to chisel the Jade out of the rock keeping as much intact as possible. Fortunes made and lost in the Jade game overnight. From my reading since my visit the Gold and Silver traded are picking up and this has been confirmed by my GE contractor friend. 


GM Jenkins said...

Thanks for this, LC. Interesting perspective on the real estate bubble there. The jade story was too funny. Do you think the tepid attitude towards gold could've been a local thing?

Louis Cypher said...

My observation on the metals was based on what I saw in Shanghai. Which is one of the most populous cities in China. This was before the banks were selling bullion to the public though.
The way I look at it is every culture has their version of what is considered precious. We have Diamonds and they have Jade. Both require a knowledge of what is considered good or bad and is very subjective.
However, we all have on thing in common and that is Gold and Silver. So when push comes to shove Gold and Silver are the go to universal insurance.
I would encourage everyone to put China on their bucket list. Very interesting place.
I'll add another article later from a tourist perspective.

Louis Cypher said...

On the Gold question being a local phenomenon the gold I saw being sold was beautifully crafted necklaces etc. There wasn't a big markup on the craftsmanship and the biggest sellers of gold were in the touristy sections. Jade was everywhere though.