January 6th

Day 4 of our Middle Kingdom adventure!  Beijing weather this morning was typical early January–no snow, but chilly, with morning lows of 16-18 degrees F. and a modest breeze from the NW. The overall health of the group was very good–probably a solid 8.5 ranking on a scale of 10 signifying perfect health and 1 a near-death situation!

This was the first day of our “business/economics” related meetings. Enroute to our first meeting with the American Chamber of Commerce, Guide Bill spoke of the growing problem of educated unemployed in China–of the 2010 university graduating class, no more than about 50% had secured jobs within the first year after graduation. Our Chamber meeting was held on the 6th floor of a gleaming newish glass and steel office complex in Beijing’s central business district. Our host, Mr. Matt Wisla, Vice-president of the Chamber for Communications and a 7-year “veteran” of his work here, provided a very fine overview of the structure, objectives and modaliteis of the American Chamber in China. He noted some 1,200 US companies now operate here, ranging from the “big boys” (General Motors; Caterpillar, etc.) to the small companies seeking market niches to source local production for manufacturing operations in the US.  The overall objective of the Chamber was “To help US businesses succeed in China”.  He spoke of the Chamber’s work in advocacy, networking with US and Chinese interests, and provision of information relating to the Chinese business environment. With regard to the latter he spoke of an annual “white paper” comprising some 30 chapters and 400 pp. with assessments and recommendations useful to American business operating in, or contemplating operations in, China. He mentioned close cooperation with the American Embassy in Beijing–with recently-departed Ambassador Jon Huntsman and newly-appointed Ambassador Gary Locke.

In general, Wisla reported that American business are doing well in China (e.g. GM which now sells more cars in China than in the US), with those with longer history here doing better than those who come seeking quick returns. However, despite this generally positive assessment, he noted continuing challenges facing the American business community here–the ever-growing problem of theft of intellectual property rights, the tendency on the part of PRC government to slant policies to favor Chinese firms–as opposed to foreign companies, the continuation of an exchange rate policy which is perceived as favoring Chinese exporters,etc. Among the uncertainties which are likely to provide both challenges and opportunities to American firms here are: the ever-rising Chinese labor costs (up 5-8% in the past year), the steady expansion of the Chinese state in ownership and operation of the large profit-rich sectors of the economy–petroleum products, electrical energy, mineral exploitation, the growing bureaucracy in government, continuing corruption, the difficulty of hiring and retaining competent senior Chinese staff, etc.  This very useful meeting ended with opportunity for some Q & A from the BC group:  Why do some US businesses fail in China?  What can be done to thwart persistent efforts to steal intellectual property rights? The threat of cyber-attacks, etc.   In conclusion, w/in our group there was a strong feeling that study tours to China should first program meetings of this type which provided an overview of the situation of interest, thereby providing a valuable perspective for subsequent meetings.

Our second business meeting of the day was with Stonesoft Computing, a Finnish-based company operating in the area of internet security. We were hosted by  Madam Li Lei, a Beijing native, Fininish-educated senior executive of the company. She noted that Stonesoft is a “software oriented” company and does not provide/produce any hardware.  She provided an interesting overview of Stonesoft’s expanding global operations (substantial US operations headquartered in Atlanta), key components of Stonesoft’s business culture  (“Revolution, Love, Integrity”) and some of the challenges facing Stonesoft in China.  Among the latter she mentioned the proclivity of Chinese firms to “want to do everything themselves” perhaps after learning from international firms, the importance of close relationships among the parties involved in a particular business decision or operation (“guanxi”), the fact that many of the operations of the Chiense business community remained off-limits to foreign internet security firms, etc. And for those areas where non-Chinese firms can operate, competition is keen–with over 2,000 vendors of fire wall security operating in China! Another area mentioned was demand by the Government of foreign companies for training of local staff, but with all training materials in the Chinese language.  This was an informative meeting which provide insight and greater understanding of a business area of limited familiarity to our group.

The final meeting of the group, and perhaps the most interesting for several of us, was with Alan Li Yong, CEO/President of Tian Ping International Travel Services (the travel firm which organized this Interterm program in China). Alan has been a close friend of our (Jim and Shirley) for some 20 years and is currently Shirley’s business associate in the tourist visits to China she has arranged over the past several years. Educated in the 1970s in Marxist economic and political theories, but imbued with a good knowledge of democracy through association with western business and personal contacts, Alan  provided to us a fascinating overview of recent Chinese history as seen from his perspective–the feudal dynastic past ending with the overthrow of the Qing Dynasty in 1911, the formation of the short-lived “Republic of China” at that time, the ensuing wars among local war lords, the rise of the “Guo Min Dang” (Nationalist party) in the 1920s under Chang Kai Shek, the invasion by Japan in 1937; the defeat of the Nationlist Government and its exile to Taiwan, the emergence of Mao Tse Deng and the formation of “New China”–the People’s Republic of China in 1949; the economically-disastrous “Great Leap Forward” in 1961-63 in which some 30 million Chinese died from the ridiculous polices of Mao; the politically-disastours “Cultural Revolution” of 1966-76 and the shenanigans of the “Gang of Four”; the “opening and reform period” beginning in 1976 under the leadership of Deng Xiao Ping (the true architect of the economic reforms behind some 30 years of rapid economic growth).

Today China finds itself as the second largest economy in the world (having displaced Japan a couple of years ago), foreign exchange holdings in the US$3 trillion range, and a growing economic and political power in the international community. Alan takes understandable pride in this progress and the country’s current situation, but is also understanding of, and challenged by, the growing economic and political problems now facing the country.  Among these troubling portents for the future are:  growing inequalities between the economic classes–the urban/rural divide, the coastal/inland areas divide,  etc., the increasing rural unrest, particularly over land ownership issues, the persistent problem of air, water and soil pollution, etc. And perhaps the most troubling of the issues as seen by Allen is the growing power of state in the operation and ownership of the Chinese economy. “There is a growing tendency today that the State is taking things back both in the economic and political areas.” Examples: Just a few years ago there were “10s of thousands” of gasoline filling stations owned by private companies or  individual; today all are owned by government entities. Much the same is true of the newspaper industry, the national power grid, the telecommunications industry, etc. “All the big money earning sectors of the Government are state owned.”  The ICBC (Industrial and Construction Bank of China) is one of the most profitable banks in the world. While the Chinese economy has grown by about 10% annually in recent years, tax revenues to the Government has grown by more than 25%.  Today the Prime Minister, in control of vast economic enterprises, operates much like the CEO of a major corporation. In Alan’s view one essential remedy to these issues is true political reform.

Jim from Beijing