Shameless, Priceless

That China Central Television would apparently use footage from the movie Top Gun to prop up a puff piece on China's air force hardly surprises me. It reminds me of the indoctrination disguised as a welcome party that I had to sit through when I first taught English at Liaoning University in Shenyang. A panel of city and provincial officials, plus an officer from the Public Security Bureau, spoke at length about the importance of "teaching from facts" and shunning "pseudo-science". The highlight, however, was the promotional video (set to the music of one of Sergio Leone's spaghetti westerns) intended to trumpet the glorious past, present, and future of Liaoning Province but which, for reasons not explained, included footage of a Space Shuttle launch.

I do not imagine that the CCTV producers, or whoever else was involved, thought they were truly getting away with anything, nor do I imagine it was an inside potshot or clever attempt at subversion (the penalties are too great), but I do think the incident reflects China's general disregard for intellectual property rights, to say nothing of a lack of creativity or even awareness of how ridiculous China looks on the world stage in the wake of such events. The chicken-or-egg question is whether China's lack of IP protections has such a chilling effect on homegrown talent, or whether there are deeper cultural and educational issues to be explored if the country is to become an "innovation" economy.

At least the Taiwanese media has shown there is a better way to produce compelling television news.

The Revolution Will Not Be Televised (But Will Be Tweeted)

I will admit to not following the recent events in Tunisia all that closely.  Frankly, I could not understand what was going on, who the principal actors were, or their motivations. Perhaps that is because the country's revolutionary spirit was so decentralized before being channeled suddenly through online social media in response to a single, and possibly apocryphal, catalyst. 

The Tunisian Revolution will no doubt be scrutinized by the Chinese Communist Party, and is likely all the assurance the Party needs to believe the continued blocking of Facebook, Twitter, and other high-profile and user-friendly social networking websites is a sound course of action. China is certainly not without its share of potential rallying cries, which have found currency despite all official attempts to squelch them.

I have just arrived in Beijing, so this is a fitting post given that Blogger.com is also blocked here. The only way I can update this blog is by email.

Third Time is the Charm

I am off for my third stint in China---in just a matter of hours from now. My first was as an English teacher at a university in Shenyang; the second was with the American Chamber of Commerce in Beijing, and the third is with a corporate advisory services firm specializing in investor relations communications (and also in Beijing). I will try to keep this blog going but expect future posts to be fewer and farther between.

Trash Talking

Doom-and-gloom predictions concerning the U.S. economy and the uncertain future of the United States as a hegemonic power abound--and the Chinese media are always quick to spotlight them.

In the wake of the Tucson shooting, however, I have not yet come across any Chinese editorials taking the sort of propagandistic cheap-shots that marked coverage of, for example, the Columbine tragedy (the U.S. equivalent is noisome enough). So far, coverage seems limited to basic reportage culled from wire services. If there has been a change in the party line regarding issues of gun violence, it may be because such events are no longer unheard of in China.

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.