Netizens of the World, Unite!

China's online population might now top 450 million. That figure includes an estimated 277 million who rely on smartphones to access the Internet.

Fighting the Good Fight

The Information Office of China's State Council has released its first-ever white paper regarding the country's anti-corruption efforts. Government corruption is a highly sensitive subject in China and sparks public furor across the PRC blogosphere, despite the government's best efforts to squelch them.

White papers are nice, but I do not expect any fundamental changes to the CPC's approach to date, which has been to scapegoat mid-level officials whenever public opinion appears ready to spark action.

Go West

The old punishments are still the best. Beijing's Vice Mayor has been "reassigned" somewhere in China's remote western region. Politically speaking, that is the equivalent of being transferred to the dark side of the moon. His sin was in bungling the rollout of the city's new traffic-improvement plan. Beijing's subway system has roughly tripled in size since I moved away in 2004, yet street and highway traffic continues its stranglehold, so the city is considering a wide range of aggressive measures to combat the problem. Word that new-car registrations would be severely limited in 2011 led to a rash of panic buying in December and sealed the vice mayor's fate.

Anecdotally, I can attest to the seductive power automobiles have on the "average" Chinese consumer. While visiting Beijing earlier this month, I had dinner with two of the city's newest and proudest car owners. They are friends I have known since 2002, when both worked at my gym. They have since married, bought a dog, and live in a modest apartment block not far from the intersection of the South Third Ring Road and Line 5 of the subway system. They drive a new Chinese model that looks like a 1999 Nissan Sentra and cost roughly US$12,000. While it might be a "status" symbol, the car does not exactly reflect their professional achievement: he has a low-level sales position while she is between jobs as they consider starting a family. Both acknowledged that their parents often help them make ends meet.

Their neighborhood is what I like to call the "real" Beijing: densely settled and thoroughly urban but seemingly cut off from the political, international, historical, academic, diplomatic, economic, post-Olympic, and/or touristic dazzle of much of the city. Bus service is excellent (so long as you don't mind crowds), and taxis are everywhere; even before the subway stretched this far, I could not imagine why anyone would want to own a car here. I tiptoed around the issue and carefully asked when they drove. He shrugged in response as if the answer were obvious: "to work, to the store..." but later conceded his commute can take nearly two hours, roughly twice as long as by public transportation.

Whatever the motivations, they seem to be shared by many of my friends' neighbors. The small square wedged between their apartment block and its twin was never designed to accommodate anything more than foot traffic but is regularly jammed with more than a dozen parked cars.

Automakers are not as alarmed by the prospect of new restrictions as one might imagine, apparently because they cannot satisfy current demand.

Hazard a Guess

The Economist has a cute interactive graph with which to predict--using real GDP growth, inflation, and yuan appreciation as variables--when China will overtake the United States as the largest economy in the world.

Same Song, Second Verse

The story of China's huge strides in the field of green technology lacks the 'warm and fuzzy' feeling it might otherwise have because the PRC is employing its proven strategy of exacting big technology transfers from foreign investors while propping up Chinese competitors.

This pas de deux has, on the one side, overzealous multinationals who just can't say no in the face of China's growth opportunities, while on the other, China applies layers of technical standards and registration procedures that, according to most MNCs, force applicants to divulge much of their proprietary information.

Going Upscale

During my recent visit to Beijing, there were pockets of the city that I recognized as being unchanged since at least 2003, but large sections were stunningly transformed in the run-up to the 2008 Olympics. Unlike the city's pre-WTO growth, when changes could be measured largely by new fast food restaurants, supermarkets, and apartment towers, the latest transformation is characterized by "top-quality" office space and luxury-brand retailers.

The story behind Beijing's rise as a 'city of the world' had always been marked by its short supply of quality office space. The story behind The China World Trade Center, if ever it is told, could be summed up as a license to print money. Opened in 1990, China World was the address for anyone looking to open a representative office in China to await the next big thing (be it MFN status, PNTR designation, WTO entry, or whatever). If you weren't there, you were nowhere.

Developers were quick to meet the excess demand, but while they succeeded in scooping up most of the city's prime real estate, the buildings they constructed typically fell woefully short of world-class standards. Sci-Tech Plaza is an example. It is an easy walk from Tiananmen Square along Beijing's main thoroughfare and sits adjacent to the Second Ring Road (one of several concentric expressways surrounding the city; the Second Ring more or less tracks the old city wall, the "first" ring is, presumably, the moat around the Forbidden City). When new, the complex was merely an eyesore. Years later, it is a depressing combination of sooty, crumbling exterior tile and oversized billboards. Still, its retail wing is home to such brands as Burberry, Armani, and Bentley Motors. The office units are as resplendent or as neglected as their tenants desire, but the common areas are cramped and showing their age. One occupant, a global marketing/PR firm I met with, was counting the days until its scheduled move to a new tower in the heart of Beijing's CBD, which overlaps the eastern section of the Third Ring Road and is anchored by the ageless China World. Despite its off-center location, the CBD is now the closest thing this sprawling city has to a "downtown".

Amazingly, Sci-Tech is a gargantuan success in comparison to the Henderson Centre, its neighbor just inside the Second Ring Road and even closer to Beijing's historical and political nucleus. Entering the building causes a pang of claustrophobia, as the ceilings are remarkably low and the floor plan downright labyrinthine. Its location next to the city's main rail station means a steady stream of humble Chinese travelers (read: peasants) course through the complex at all hours looking for restrooms. Tenants began to flee both the office and retail sections as early as 2002, which was roughly the time that A&W abandoned the food court, and apparently China altogether. That location was my first and only experience with A&W fare, and I can only imagine key elements were lost in the company's "translation" to the China market. Even when starved for comfort food, the burgers were a disappointment and left me deeply chagrined when Chinese colleagues asked, "Is this what people eat in your country?"

My first trip to Beijing in 1996 was punctuated by my many dealings with the city's sellers of counterfeit goods--everything from "jade" trinkets to "Norwegian" sweaters. I browsed pirated CDs in the gutted, two-story ruins of a lot that is now home to the LG Twin Towers. The infamous Silk Alley, once an open-air market of fake North Face, Nike, and Levi's products, among many others, has been reborn as a four-story megamarket of more than 1,000 vendors. Behind a thin veneer of IPR respectability lies most of the same stuff that was available in the good old days. All you have to do is ask.

But while Silk Street remains a high-profile embarrassment (the northern tip of the original "alley" emptied onto the doorstep of the former U.S. embassy), it is not representative of China's overall IP problem. Fake pharmaceuticals, pirated software, shoddy building materials and machine parts marketed as international brands, to say nothing of the many "genuine" products that are tainted by harmful additives, solvents, and other chemicals, are the real danger. Silk Street is a quaint novelty in comparison. Moreover, foreign tourists are its biggest customers.

There is reason for hope, however. As they did with China's overall economic development, the country's upper and upper-middle classes will eventually lead the way to better IP protections and heightened consumer safety. For all the talk of China being a "classless" society, the average Chinese professional is as status-conscious and brand-aware as any Manhattanite. iPhones, Mont Blanc pens, designer bags, Swiss watches, and coffee at Starbucks are some of the many "subtle" ways that upwardly-mobile Chinese flaunt their wealth. A stroll through Beijing's newest department stores had me Googling several brand names previously unknown to me, only to discover that they are among the tops in European fashion.

In my hasty crisscrossing of Beijing's Dongcheng and Chaoyang districts, I didn't see any McDonald's or KFCs that hadn't been there since at least 2004, but those looking for the latest from, say, Luis Vuitton, now have at least three boutiques to choose from (not counting the airport shopping gallery). And Beijing has joined the short list of cities worldwide that feature an Armani "concept" store. When Chinese yuppies shop, they want the genuine article and are increasingly able to afford the very best.

We are a long way from ridding the shelves of China's rural markets of boxes of "Colaate" brand toothpaste or "Heed and Sholders" shampoo, but I predict a trickle-down effect from the absurd heights of Beijing's conspicuous consumption.

Hello from Beijing

I just arrived in Beijing for a week of visits, meetings, and interviews with friends, former colleagues, and other contacts.

When I worked for the American Chamber of Commerce here (2001-04), I made a point of attending all of our luncheon lectures, in which a guest speaker would discuss his or her area of expertise. The series attracted a range of talent, from U.S. senators to professional athletes, but each shared at least two things in common: 1) they were usually just passing through China on a fact-finding mission or promotional tour, and 2) they had the unenviable task of trying to convince a crowd of grizzled "old China hands" that they were hearing something they didn't already know.

While the quality of the lectures was generally high, the audience would always groan when a speaker broke the ice by remarking, 'Wow, the city sure has changed since the last time I was here!' Such a comment rang so hollow in our jaded ears that, on those rare occasions when I had the opportunity to host such luncheons, I would try to coach the speaker beforehand.

So that being said, let me get the impulse out of my system by stating here that, wow, this city sure has changed since the last time I was here (in 2007).

Happy Thanksgiving!

Today's New York Times has a great piece on China's evolving economy. The country's transition from an agrarian society to the world's factory may have been the "easy" part. China's business model of cheap labor is not sustainable, as manufacturers will inevitably find cheaper alternatives. Maintaining China's robust growth will require innovative products and services. Just ask the United States.

Send Us Your Coal

I happen to know a little something about coal, in as much as I lived across from a building-sized pile of the stuff for three years (1996-99) in Shenyang, China. The coal dust was largely invisible but the first wash cycle of any load of laundry invariably became an inky-black mess. At that time, the global debate on the subject focused on the unintended results of China's agreement to "wash" much of its coal. Coal washing removes most of the surface impurities from coal bricks so that fewer pollutants are discharged through burning. While China's move was seen as an environmental win, its "clean" coal quickly found eager buyers in countries that banned the use of untreated coal and coal producers outside of China bemoaned the sudden glut of cheap coal on the international market.

Their concerns were short-lived, as China's booming economic growth has required more and more energy from all sources, foreign and domestic. China is now a net-importer of coal and the inescapable environmental questions associated with coal now fall back on its chief exporters: the United States, Canada, and Australia.

Because We Said So

I miss the good old days of strident and syntactically fractured Chinese editorials. They are still strident, I suppose, and not above the outright spinning of China's policies, but are increasingly adept at asking pointed questions regarding U.S. fiscal and foreign policy, leaving U.S. officials in an awkward position of having to ask world leaders to 'do as we say, not as we do'.

Playing the India Card

For what it's worth, President Obama has endorsed India's bid for a permanent seat on the United Nations Security Council. There are numerous political and administrative obstacles in India's way, but this signal by the United States puts China in the uncomfortable position of having to argue why the second most populous country in the world should not be so represented.

U.S. and Indian foreign policy are not wholly aligned vis a vis China, but India certainly considers China a rival while the Chinese government assumes that any Security Council votes cast by India would fall in line with those of the United States. This courtship is just the latest in a series of moves by both the U.S. and China to secure alliances in key geographic and economic circles.

A Sign of the Times

China has surpassed the United States as the world's number one energy consumer. The U.S. is still tops in terms of per capita consumption, but developing a nation of 1.3 billion people requires all the energy China can find, be it through oil imports or local wind farms--so much so that the PRC has become a global leader in renewable energy investments along the way.

The correlation between between energy demand and investments in R&D of alternative sources should not come as a surprise to anyone, but begs the question of when U.S. priorities in this area will be recast as matters of national security, to which traditional "market" considerations do not apply.

One, Two, Three, Four...

China has dispatched more than six million census takers to tabulate its estimated population of more than 1.3 billion. This is the sixth census since the Communist revolution of 1949, but the first to acknowledge the fact that huge numbers of migrant workers flock to the country's urban centers in search of work. While that should come as no surprise given the developmental gap between the boom towns of eastern China and the rural interior, such labor flows are complicated by the fact that they are, strictly speaking, illegal under Chinese law.

China's 户口 system requires formal registration of one's household, which can effectively confine an individual to his or her province, even county, of birth. While enforcement is not nearly as strict as was the case from the 1970s to the 1990s, a laborer from Gansu Province, who made his or her way to Shanghai to work on a construction project, would still be excluded from most local government services. As a result, a remittance economy has developed where migrant workers live in crude, temporary housing and send a portion of their earnings to those family members who remain plugged into whatever social programs exist in their hometowns.

Their nebulous legal status leaves migrant workers vulnerable to abuse. For example, a migrant worker would have, at best, limited access to local courts in the event of a wage dispute. While the possibility of re-registering in a new locality exists, the administrative process is formidable, even for highly-skilled workers.

And What is a Good "Netizen"?

H.L. Mencken quipped that a good citizen is "simply one who never says, does, or thinks anything that is unusual" -- and he didn't even live to see the work being done by the Shanghai Information Network Security Association.

10 years ago, the scuttlebutt among foreign "experts" was that the combination of rapid economic growth and advancements in personal technology could not help but profoundly change China's political system. That may still happen, but the CCP has shown remarkable adaptability and a dogged determination to police the Internet (which is not to say that the Public Security Bureau is above traditional means of intimidation and variations thereof).

It's a Buyer's Market

China is no longer shy about its foreign policy, probably because it has never had more money to spend. China's strategy in Europe appears to be to scoop up distressed assets (especially in the transportation and logistics sector) while currying favor among cash-starved governments whose support would be beneficial in any currency battle with the United States.

China as Villain

Battle lines are forming over attempts by China's Huawei Technologies to crack the U.S. Internet telephony market. The story can be read as either that of a homegrown Chinese company fighting its way into the ranks of elite telecoms, or one of a serial patent-infringer that poses a threat to U.S. commercial interests and national security.

On issues like this, I like to take a little from Column A and a little from Column B. You can say that I am hedging my bets, but I know of no "good guys" in the telecom sector. China's record with respect to intellectual property rights is a worldwide joke. At the same time, however, patent-infringement suits are routine among tech companies, regardless of their country of origin. Disputes that make it all the way to a court judgment end in the patent in question being invalidated roughly half the time, meaning that for every patent thief there is an over-aggressive patent holder.**

If, like me, you assumed Senator Lieberman's letter to the FCC about the risks associated with Chinese technology was motivated by special interest money, you might be disappointed by his list of contributors. Congress would not be doing its job if it did not consider the security interests tied up in telecommunications (or rare earths, or transportation and logistics, or aviation, or...). After all, the CIA allegedly thinks creatively along these lines.

My guess is this story has already run its course. In the private sector, tech companies will continue, as they always have, to defend their proprietary technologies through lawsuits. At the government level, however, there is not a lot that can be done, apart from congressional hearings and other grandstanding and dilatory tactics. Both the United States and China are members of the World Trade Organization, which apart from very narrow exceptions, does not allow one member country to prohibit investments by firms from another member country. The devil is in the details, of course, and the U.S. and China are constantly at odds over how the other reads the WTO agreements and implements them.

**My technology transfer professor in law school cited this statistic as evidence of an anti-patent bias among courts, but I countered that an even split in results among plaintiffs and defendants represents the optimal balance in civil litigation. Trials are time-consuming and expensive, and are pursued to the point of final judgment only when both parties are confident of a favorable outcome. Conversely, a party that begins to lack faith in its case will always push to settle the matter out of court, at any point short of a decision by an appellate court. Cases that make their way to judgment may be characterized as a coin flip, and as such, 50/50 results should be expected.

China as Panacea

In 1851, Horace Greeley famously said, "Go west, young man, and grow up with the country," and thereby helped inspire a generation of pioneers to settle the American frontier. Or maybe he didn't. In any case, it was sage advice, and is no less applicable today. I might just tweak it as "Go west until you hit 南京西路."

That is easier said than done, of course. Not everyone can seek their fortune abroad, but I can't quite laud the entrepreneurship of a school superintendent in rural Maine who is trying to cash in on the "China" craze as best he can.

Even at US$27,000 a year in tuition, there likely is sufficient demand among Chinese students and their parents. The real trick is how such students could ever secure a U.S. visa. The key criterion for tourist and student visas is whether the candidate presents a risk of overstay. Applicants for U.S. visas are presumed to be such a risk unless they show ties, e.g., family, assets, positions of power, that would compel their return to China. In short, the sort of ties a teen typically lacks.

The U.S. does, of course, issue some student visas to Chinese applicants, but the competition is fierce. When I was an English teacher in Shenyang, I was frequently asked by students to accompany them to the U.S. consulate and (literally) stand behind their visa requests. Only once did I agree to do so, but after waiting outside in line for an hour and inside a large waiting room for at least an hour more, I was ordered back to the waiting room when my student finally got her 30-second chance to argue her case (through a teller window) before a consular official. Her visa application was denied on the spot and she left in tears, with her scholarship to a Pennsylvanian college I had never heard of about to go to waste. I felt bad for her and would not have accompanied her had I not seen great potential in her. But while it was hard not to feel sympathy for the others rejected that day, the "ugly American" in me wanted to skewer those who displayed a smug sense of entitlement and cursed the United States as soon as things went badly for them. Hey, we're a nation of immigrants, but we can't let everyone in.

Years later in Beijing, I always enjoyed hearing stories from U.S. officials who worked in the visa section of the U.S. Embassy. By that time, many applicants were using Internet chat rooms to try and game the system. Each consular official was given a nickname (Blue Eyes, Fat Man, Blondie, and so on) and their apparent tendencies, likes, dislikes, favorite questions, etc., were much discussed. As with a line at a bank, teller selection was more or less random, so apart from showing up on a day when your "favorite" official was expected to work, there was probably no way to guarantee a face-to-face meeting. One official told me he was slightly offended when the first applicant he greeted after a shift change responded in horror with, "This is not Beautiful Man!"

Read All About It

Allow me to engage in some (more) self-promotion: The International Trade and Business Law Review will publish my study of letters-of-credit and the UCP 600 in their next volume (December 2010). Moreover, they will publish my master's thesis regarding the use of electronically stored information (ESI) in international commercial arbitration in their 2011 issue.

Needless to say, I am thrilled and honored, and thank my colleagues and professors for their support. I would especially like to thank Professor Juscelino Colares of the Syracuse University College of Law, who advised me on the UCP 600 paper, and Mr. Lars Perhard of Wersén & Partners, whose Stockholm University lecture inspired my work on ESI. Thanks also to Ms. Gentiana Dedaj of Stockholm University for serving as my thesis opponent.

What does any of that have to do with China? Well, you don't ever want to import something from China without using a letter of credit, and your sales agreement had better include an arbitration clause.

Follow the Money, Part II

In the wake of China's (late 2001) accession to the World Trade Organization, some U.S. leaders feared a major relocation of R&D muscle from the United States to China, as U.S. and other multinational firms were expected to look for low-cost engineering talent abroad. Those fears were overblown, as most foreign firms lacked any confidence whatsoever in China's ability to protect intellectual property, be it foreign or domestic. Early technology transfers were generally limited to localization efforts, i.e., those steps necessary to make existing technology functional for Chinese users. Only where absolutely required by a joint-venture agreement, or the like, were foreign firms willing to share proprietary knowledge or establish major R&D centers outside of their home countries.

That decade-old struggle may soon become an historical footnote as China threatens to blow away the rest of the world in corporate R&D spending. While China may stand on the shoulders of giants with respect to its technological foundations, it is aggressively seeking to become a world leader in everything from high-speed rail to space exploration.

Apple is still the most innovative company in the world, but these trends should throw gas on the fire that is the U.S. debate over math and science education. Where will the next billion-dollar "garage" business be founded?

Heavy is the Head that Wears an $80,000 Diamond Encrusted, Platinum Tiara

The Hurun Research Institute has released its twelfth annual listing of China's billionaires, i.e., those with fortunes in excess of one billion Chinese yuan (roughly US$150 million). There are 189 that the institute "knows of" who qualify as U.S.-dollar billionaires, and the report estimates there are likely 200 to 300 more, which would make China home to more dollar-denominated billionaires than any other country in the world.

Other interesting tidbits include the appointment of 173 on the list to "significant government advisory posts," which should come as no surprise given the Chinese Communist Party's continued willingness to bring "capitalists" into its ranks.

With great wealth comes great responsibility--at least one might like to think so. Among such curses of affluence as obesity and divorce, China must now debate the role of its wealthiest citizens with respect to socio-economic stability. Welcome to "our" world.

Follow the Money

Business Week has a great piece on China's hidden inflation. I would not go so far as to call Beijing and Shanghai Potemkin villages, but their growing opulence masks complex fiscal policy and uneven economic development.

The important thing to remember about China's two crown jewels is that they are truly international cities--and wholly otherworldly in comparison to the rest of the country. Beijing has a political pulse to rival that of Washington, DC. The seat of the PRC's political power is flanked by the international diplomatic community on one side and the government affairs reps of the Fortune Global 500 on the other. The fact that few embassies spare any expense on perks and amenities, and the absence of anything like a Honest Leadership and Open Government Act, means expense accounts drive a large portion of the city's economy. The demand for all manner of luxury goods and comforts of home is booming, and for those with the means, Beijing has not been a "hardship" post for over a decade (I've been to Brussels twice, and loved it, but the best Belgian meal I've ever had was served in Beijing--and depending on the route, I could pass a Ferrari, Porsche, or Rolls Royce dealership on my way home from work).

As for Shanghai, what it lacks in political muscle it makes up for in money and glitz. But more than that, the sheer vastness of the city cannot be overstated. What I enjoyed most about living in Beijing was that a 60-minute drive was enough to get out of the city for some (relatively) fresh air (it can take a bit longer today). By contrast, Shanghai is virtually inescapable; one must surrender to it or drown in the concrete.

Give Me 小康 Or Give Me Death!

Of China's population of roughly 1.3 billion, at least 700 million live in the country's rural areas and as such have not participated in the PRC's two decades of growth in any meaningful way (which is not to say that urbanites have necessarily held a winning lottery ticket). 小康 is a critical issue because the rates of China's growth and the distribution of its wealth have been markedly uneven. China's peasant farmers, for example, are squeezed ecologically and politically. Those lucky enough not to be pushed off "their" land by urbanization or desertification are often victimized by local bureaucrats. Chinese construction workers and miners have similar tales of woe.

While Mao Zedong's effusive praise of China's peasantry was largely lip service, he knew that the Chinese Revolution would not have succeeded without their support. The country's socio-political calculus has changed little since 1949 and the current leadership recognizes that rural-centered social upheaval could undo all of the Party's gains since 1989. "Inclusive growth" is the new mantra. Although rural development has been a stated goal for more than a decade, it is now tied to the country's overall economic objectives, as the developmental tactics of the last decade have been deemed "unsustainable".

Playing the Blame Game

When the Xinhua News Agency can see through your campaign rhetoric, it is probably time to develop some new material. The Chinese media are never shy about highlighting perceived attacks or slights by U.S. leaders, but the fact that such posturing and political grandstanding can now be discussed in the context of electoral politics is refreshing.

No News Is Good News. Unless It Isn't.

Apart from an obvious difference in headlines, the New York Times and China Daily have similar takes on the recent meeting between the U.S. Secretary of Defense and his Chinese counterpart. That may simply be because the meeting took place behind closed doors. In the absence of new developments, stories about U.S.-China security issues always break down as follows: 1) Taiwan's status, 2) China's defense spending, and 3) the "chessboard" that is the Asia-Pacific region.

China's record of human rights abuses is an open sore, but painting the country as an "evil empire" doesn't work when transnational terrorism is the issue of the day, nor when the PRC borders a country best described as a criminal syndicate. As a result, the United States cannot easily rely on the Cold War playbook of taking the purported high road against an immoral enemy. For its part, China has couched its ambitions as a "peaceful rise," (和平崛起) and more recently as "peaceful development" (和平发展). After all, who could deny one's fundamental right to better oneself? That would be downright un-American.

Of course, the U.S. Defense Department would not be doing its job if it didn't keep a jaundiced eye on China's military, whose spending has more than tripled in the last ten years. Such a statistic is helpful when courting Congress during appropriations season but does not tell the whole story. For instance, China's military budget is still roughly one-sixth that of the United States. The question becomes one of strategy: can you envision a future in which the United States and China peacefully coexist in a world of dwindling natural resources, or would you rather plan for the possibility of war over food and energy security? Both countries, but particularly China, must consider the consequences of becoming net-importers of food. The United States has never been shy about using government subsidies in the name of "farm income stabilization" to ensure that U.S. agriculture is not priced out of existence. China, in addition to the pressures of international trade, is losing arable land from urbanization and desertification, and as it has with energy investments in Africa, is looking beyond its borders to address its basic needs.

As an aside, one of my favorite stories on the subject of China's military (the kind that makes me long for the Beijing cocktail parties I used to frequent) is how China got serious about its military technology after the first Gulf War, when the country's old guard--many of whom had been with Mao Zedong on the Long March--was shocked by the array of U.S. smart weapons it saw on CNN. The estimates on China's defense spending do nothing to contradict that rumor.

Steal a Better Mousetrap

Allow me to be both apologist and castigator. The New York Times has an interesting piece on the fraud that is "rampant" in China's academic and scientific communities. This phenomenon is a corollary of the country's obstinance over intellectual property rights. China is the world's leading producer of counterfeit and unlicensed goods, and has spawned a global supply chain for knockoffs. Fake perfume, for example, might be made in China, bottled in Eastern Europe, and packaged in Italy before being sold on a street corner in Milan.

While the good faith of Chinese manufacturers should not be overestimated, there are nonetheless some vestiges of an entrepreneurial naivete that believes it is simply "good" business to copy the bestselling mousetrap (or golf club, or sneaker, or erectile dysfunction medication...) than to build a better one. But by "vestiges" I mean only the thinnest veneer, and by "naivete" I mean the sort of ignorance of basic IP laws that, in the West, could only be excused in a child.

It has been just 20 years since the PRC initiated meaningful economic reforms and large sections of the country's interior remain underdeveloped, but the consumer tastes of China's upper-middle-class have grown remarkably sophisticated and Chinese industry has had to accept certain legal realities in the wake of the country's accession to the World Trade Organization. In short, any "veneer" that still exists is sandblasted on a daily basis--and not for the sake of the foreign business community, but for China's own long-term interests in becoming an industrial pioneer, not merely the world's factory. While technology transfer--be it in the form of joint-venture agreements or IP violations--helped China (by some measures) catch up to the industrialized world, its underdeveloped rule of law leaves domestic entities equally vulnerable to piracy. Too often naivete is replaced by willful blindness.

As for academic fraud specifically, I will say that the competition for admission to top-tier universities is brutally intense. Cheating on entrance exams, TOEFL tests, and other standardized exams is widespread, largely because most Chinese students (and their parents) see such exams as their one and only chance for a better life. At that still-impressionable age, status replaces merit as the key driver of success. Once in school, large numbers of students are willing to coast their way to graduation, believing their career prospects are largely predetermined (irrespective of any attempts at emigration they may make on the side).

Academic fraud in China might even be characterized as a way to game a hopelessly corrupt system. China's youth stand at a remarkable crossroads in history. They are the first generation never to know famine and they benefit from a technological age that their parents, and certainly their grandparents, can view only as miraculous. At the same time, however, they must question their role in a country wrenched by social upheaval and uneven economic development. China's communist leadership has been adept at placating the middle class since the Tiananmen massacre, but the Party is in a continuing state of flux, as public notions of patriotism collide with genuine concerns over the country's leadership. Only occasionally was I able to explore such issues with my students when I taught English at a Chinese university. Students were always on their guard in a classroom or group setting, and generally willing to echo the Party line, but even in private conversations I found a reluctance to discuss openly the motherland's dirty laundry, especially with an American.

I will stop short of a Horatio Alger-inspired rant for China's youth to pull itself up by its collective bootstraps (for their sake and ours--and for that matter, you do not want to hear my rants regarding the state of higher education in the U.S.), but ignoring the problem or lamenting that some Chinese "just don't know any better" smacks of paternalism. In any case, I will take the train whenever possible the next time I'm in China.

Work-Life Balance. Sort Of.

One of the best perks of working as a foreign national in China is that you can usually double-dip all the major holidays. The U.S. Embassy, for example, observes both Chinese and U.S. holidays. When I was at the American Chamber of Commerce in Beijing (an NGO), we stuck to the Chinese calendar but major U.S. holidays provided an excuse for a half-day, or at least an office party. Getting one week each for the Lunar New Year, May Day, Mid-Autumn Festival, and National Day was sufficient consolation for having an unorthodox Thanksgiving and Christmas.

There is a catch, however, for Chinese employees. At least a portion of one's vacation time needs to be paid back, typically over the subsequent weekend. This was the case when I taught English at Liaoning University in Shenyang, a large but obscure city in northeastern China. My students loved that I ignored the make-up requirements. Call it civil disobedience, but my thinking was that a holiday was just that and any attempts to offset the loss of productivity were themselves counterproductive. I had the same attitude while with the Chamber, but our deadline-driven projects meant that I was in the office for at least a part of most weekends, holiday or not.

Things get really tricky when the lunar calendar (which sets most of the traditional Chinese holidays) and the Gregorian calendar (which marks the National Day of October 1, among others) conflict to create an on-again/off-again work schedule that can confuse even the staunchest bureaucrat.

All the Spin That's Fit to Print

If you are not in the habit of reading Chinese op-eds, you really are missing out on some fantastic spin. China's propaganda apparatus is nothing new, but its external propaganda (外宣) has grown more sophisticated in the last decade. Whereas China Daily was once content to translate editorials of the major Chinese-language publications--i.e., material designed for domestic consumption--current works reflect a more nuanced style for the intended benefit of overseas Chinese and other foreign nationals. The results are frequently stilted but mark China's increasingly proactive approach to public communications. For example, instead of engaging in secrecy or playing an entirely reactive PR game with respect to its investments in Africa, China's leaders have couched them as much needed financial and technical assistance, while op-eds use the opportunity to knock the warmongering style of U.S. foreign policy.

97% Is Not Necessarily a Scary Figure

The AP reports that the world's high-tech manufacturing hubs are on "high alert" in the wake of China's temporary halt of exotic metal shipments to Japan. According to the AP, China accounts for 97 percent of the global supply of the metals known as rare earths, which are vital to the production of everything from televisions to wind turbines.

Although the next great cold war will most likely be fought over energy resources and the like (with Africa as the eventual flash point) the "good" news is that two-thirds of the world's reserves of rare earths are outside of the Middle Kingdom. Unfortunately, those two thirds are scattered worldwide, and China has pushed its advantages of scale by relying on a familiar playbook: cutting prices until the competition disappears.

The rest of the world's rare earths aren't going anywhere, not until they are worth more than their cost of extraction. Doomsday scenarios of China cutting off the world's supply are enough to make a stock like Rare Element Resources (AMEX: REE) jump, but only a sustained increase in market prices can bring smaller producers online (and push industrial R&D to discover synthetic alternatives). China is not above playing the brinkmanship game, but in the end it knows what is good for its bottom line. Short of a war across the Taiwan Strait, nothing will prompt China to upset its virtual monopoly in the rare earths business.