Derek Scruggs

Dave Winer has a post arguing “maybe there’s more to Google-China than meets the eye.”

My wife is from China and my brother-in-law is a member of the Chinese Communist Party who works for the finance ministry. (Seriously.) If you talk to him, he’ll tell you they’re scared shitless that American’s will stop buying their products and stop building factories there. We wring our hands about jobs going overseas. They wring theirs over dependence on foreign capital. Yes, they hold a lot of our debt, but all the treasury bonds in the world are no good if you can’t redeem them. Dave seems to think the Chinese government will operate unilaterally, but he forgets that their hands are tied in many ways  – by trade agreements, the WTO and, not to be forgotten, their own class of rich businessmen who don’t want to upset the apple cart.

The scenario he describes was much more likely to happen 35 years ago when Mao was still around and China basically had nothing to export except ideology. Intertwined economies make nutty political interference less likely, not more so.

China certainly has a lot of problems when it comes to individual liberty, but it has much more freedom now than even 10 years ago. As an example, there were something like 30,000 public protests there last year. Last September I watched several people stand outside a military compound and shout insults at the military over some grievance. As would be the case here, the guards pretty much ignored them. This would’ve been unthinkable when my wife was growing up. Now it’s common.

My point: China certainly has a long way to go, and censorship should of course be condemned. But the long-term trajectory of China is on our side and there’s no compelling – that is, financial – reason for them to do a 180.

In re: my previous post about searching Google for Tianenmen, a couple people pointed out that in China they don’t use the English spelling of the word, and in fact don’t even use Western character sets. The simplified Chinese version of Tianenmen looks like this: 天安门

(Mainland China except Hong Kong uses the simplified character set.)

So FYI here are the results one would expect to get searching Google for 天安门 in the US vs. China:

US: Google.com

Mainland China: Google.cn

Also, I just found a great (and also disturbing) overview of the differences one gets when searching for “falun gong.”

Here’s an interesting post about one of the ways China censors the Internet. I’m pretty sure it’s not the only way they do it. My understanding is that in some cases they do IP-level filtering, so it doesn’t matter what your DNS server is. The most common workaround is to find a proxy server. There are several IM channels you can ping that respond with the url of a proxy server you can plug in to your connectivity settings. Pretty clever, that.

Most people in business have heard that piracy in China is huge. A visitor there quickly notices a) a lot of products featuring Disney, Snoopy, Ralph Lauren and every Hollywood movie ever made 2) that are incredibly cheap – too cheap – and 3) that are of low quality – like a Polo shirt made of cheap polyester.

But what most people may not know is that logos – even whole businesses –  are often ripped off, too. Starbucks was a victim of this. After Starbucks’ initial foray into China in (I think) 2002, an imitator quickly popped up. It had a very similar logo and practically the same name. The Chinese name for Starbucks is Xingbake, roughly pronounced as “sheen-bah-kuh.” The competitor was called Shanghai Xingbake.

(An interesting side note about Chinese corporate law.  You can’t just call yourself, say, ABC Inc. You have to use the name of the city in which you are based – such as Shanghai ABC or Beijing ABC – or pay a huge licensing fee for the right to use the name throughout the country. Also,you cannot use the word “China” in your name unless you are a state-owned company.)

In any case, it’s a sign of progress that Starbucks successfully sued Shanghai Xingbake. You know capitalist American values are taking root when you can sue the hell out of somebody.

Here’s another example of logo piracy. It’s an ad for a shopping strip in Beijing. Look familiar? (Hat tip: Shanghaist)

 

Brad Feld (actually, his uncle Charlie) says “we need another Sputnik” to spur the next great wave of innovation, which in turn will keep us competitive with China and India.

I predict it will be something around alternative energy. There is absolutely no way China, which wants all the trappings of the good life in the West, can ever hope to achieve it on a carbon-based economy. Pollution there is outrageously bad, and all the cheap labor  in the world won’t buy enough oil for everyone there who wants to own a car. Even though they’re building coal power plants at an astounding pace, they still have trouble with unreliable electricity (and especially hot water) in even major urban areas like Shanghai.

The other thing is, though a lot of manufacturing is being done in China, they’re tremendously inefficient in their use of energy for industrial purposes. So if they are to have a hope of catching up with the West, they’re going to have to have different energy policies than what powered the West into and through the industrial revolution.

So they are investing a lot of R&D in developing new energy sources, and it wouldn’t surprise me if a shock-the-world moment like Sputnik – cold fusion, say, or 10x improvement in fuel cells – comes out of China or India in the next 10 years.

(And by the way, the demand for coal is killing miners at a horrific rate. Workplace safety and environmental protection are the sleeping  giants of the Chinese citizenry. If and when a democratic revolution takes place there, will be driven by specific issues like these, not abstract concepts like freedom and liberty which so seem to concern the West.)

Here’s the picture:

Here’s the 1000 words.

China Blog List recently launched, and it’s a great way to find out what’s really going on there. The reputation of China is that it censors everything. And though they definitely censor a lot of things, for the most part they seem to leave their hands off the English language blogs. I’ve learned a lot from sites like Shanghaist, Simon World and China White, and I expect this to be a gold mine of new information.

Whenever people ask me about China, I inevitably bring up Shanghai. It’s so incredibly huge and cosmopolitan. The only fair comparison in the US is New York. New York is more culturally diverse because so many ethnicities have established themselves there over the last 150 years, but Shanghai is more impressive physically because of all the tall buildings. And the boom is just beginning, according to the New York Times:

This year alone, Shanghai will complete more towers with space for living and working than there is space in all the office buildings in New York City.

 If you’re the kind of person who likes big cities, go visit Shanghai now. Though it impresses on a scale similar to New York, it’s still very cheap (like everything else in China). As an example, you can take a cab across the city for just five dollars or so. Something tells me those prices won’t survive the 2008 Olympics.

Hat tip: Shanghaist

A couple weeks ago Laurel Delaney at GlobeTrade.com, who has been very helpful to me in researching business opportunities in China, asked me to write an article for her newsletter. Laurel doesn’t archive her newsletter on the web, but she graciously allowed me to reprint the article here. If you’re not interested in China, you probably want to skip this.

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The Adventures of Doing Business In China

China! China! China! They’re a strategic threat! They’re the world’s Wal-Mart! They prop up our debt! They have over 1.3 billion customers, er, people! They work in sweatshops!

It seems that everywhere you look these days, there’s another article about China. (This one is not an exception.) I recently returned from a month-long trip to China to explore business opportunities. While that doesn’t make me an expert, I do believe I have more insight than the average tourist, of which I’ll explain more below. So herewith is my contribution to the stream of information about doing business in China. I hope you find it useful in your own global adventures.

Why China?

Until a few years ago, I didn’t know much about China beyond the headlines we all see every day. Like most people, I basically thought it was a big, poor country that made everything at Wal-Mart. Then, in 2002, I met a Chinese expatriate on the Internet – yes, I’m a case study for online dating – and about 18 months later we were married. As a naturally curious person, I started reading a lot about China and of course asking my wife lots of silly questions. (”Do they have Mexican food in China?” “Why don’t they skip the hassle and just use forks?”)

After a while it was obvious to me that China is the new business frontier. Since I have started a few companies and am naturally adventurous when it comes to business, it was clear that China was in my future.

Getting Started

I started learning to speak Chinese. It’s as hard as you think, but I recommend Pimsleur’s Mandarin Chinese if you’re game. However, it’s not a requirement for doing business with China. There are many English speakers there. If you decide to move there and live, though, it’s a good idea to start learning the language.

Shortly after our wedding, my mother-in-law from China came to stay with us for a year. At first that seemed like a bit much, but one of the first lessons I learned about China is:

It’s very common for multiple generations to live together. While this is not unexpected for a developing country, it’s important to realize the impact it has on the way business is done there.

Because the Chinese government is rather corrupt, not to mention weak when it comes to enforcing things such as property rights and contracts, Chinese business people are very careful about whom they do business with. They want to get to know you and make sure you will hold up your end of a commitment and stand by them when things get difficult.

This is not just true of business partners. Because consumer protection in China is spotty at best, consumers are much less willing to, for example, buy a product over the Internet from a company they have never heard of before. Therefore, if you plan to enter the Chinese market, plan on spending a lot of time, and not a little money, educating potential customers that you are trustworthy.

This dynamic is usually called guanxi, the Mandarin word for “connections,” and it’s probably one of the most overrated words in the language. Though family and personal relations are important, in recent years the media has blown it out of proportion, to the point that unscrupulous business people make a big deal about their guanxi as though it’s some kind of magic pixie dust. It’s not.

As in the U.S., connections are important. After all, all things being equal, you’d probably hire a sales rep with a big Rolodex over one with a small one. But it’s more important to hire someone who is trustworthy and tenacious. Which leads to the second lesson about China:

Making Connections

Fortunately, one thing I learned quickly is that it’s possible to create your own guanxi. You might think that I had an advantage because my wife is Chinese. Though it did give me a little bit of an advantage, it wasn’t a great one because she has spent all of her professional career in the U.S. Her network in China consists primarily of old college friends. While I did my best to leverage these connections, I quickly realized that I would have to reach out on my own.

At first this seemed impossible. How could I possibly meet people halfway around the world without an introduction?

This is where the Internet is enormously helpful. First, I read as many articles online about China as I could. If something in the article resonated with me, I contacted the author and asked for help, a chance to talk by phone, an introduction, whatever was relevant. I found bloggers to be particularly helpful (see the list of links below for some of the blogs I read regularly).

Next, I searched through LinkedIn, Ryze and Ecademy for people who are working in China or have business dealings there. If I found someone who might be a fit, I emailed them, explained that I was researching business opportunities in China and asked if I could call them and get their feedback.

To my surprise and delight, I found that most people I contacted were very responsive. At times it seemed that everyone who lives in, and works with, China was very enthusiastic and wanted to help me.

I also reached out to my local network. Given China’s pervasiveness in our economy, odds are good that you’re only one or two degrees removed from someone who is doing significant business there. Reach out to these people. Take them out for lunch and pick their brains.

Finally, I used the Internet to research whether Colorado (my home state) offered any assistance programs. This came to me after getting in touch with Laurel Delaney on the Internet through GlobeTrade.com and subsequently subscribing to her Borderbuster newsletter. She introduced me to the Illinois representative in Shanghai. It turns out that most states have a trade rep in China whose job is to help companies like yours. For example, while I was there I met with the trade representatives from Denver and Illinois, both of which provided me with excellent information. I found Denver’s by doing a Google search on “U.S. consulate China”, “trade representative China”, and “trade mission China.”

(Amazingly, there is no directory of all the U.S. trade reps in China. I confirmed this with Paul Taylor, Denver’s trade rep. He pointed me to a Chinese language version, but he says an English language version is still in the works. If you have trouble finding your representative, contact me and I will see if he or she is listed in the Chinese version.)

Start Today

I haven’t even touched on the nature of business opportunities in China, but suffice it to say that there are many. That said, the landscape is changing fast. Product categories that were brand new a few years ago are now becoming saturated.

If you’re reading this article, you’ve already made an important step forward. The next step is to make a to-do list of what you want to accomplish in China and start reaching out to your network.

One last tip: If you’re not sure about your goals or opportunities, search Google for trade shows in China for your industry. Most of them have English language web sites. Find one that seems to offer what you’re looking for, then schedule a research trip around it. This will give you a goal to shoot for and a deadline.

Useful Links

• Shanghaiist
• Danwei
• China Herald
• Simon World
• China Challenges
• EastSouthWestNorth
• US Consulate in Shanghai
• US Embassy in Beijing
• US Consulate in Guangzhou
• American Chamber of Commerce Beijing
• American Chamber of Commerce Shanghai

US Says China Must Address its Intentions: How it’s Power Will Be Used Is Of Concern

I just got back from a month in China. My wife is Chinese, so we stayed in the homes of friends & family, not hotels and tourist areas. Though that hardly makes me an expert, I feel like I got to see more of the “real” China than the average tourist or even State Department muckety mucks.

While there I engaged in a friendly debate with my brother-in-law, who is a member of the Communist party and an employee of the ministry of finance. I have no idea whether his views are mainstream or not, but he clearly thinks of the USA as an expansionist military aggressor. I argued that at least our military adventures are checked by democracy (though some would say the last election disproved that), but he didn’t buy it. So I pointed out that all the financial entanglement between the US and China (we buy their stuff, they loan us the money to do it) made a war between us exceedingly unlikely, at least compared to 30 years ago. He agreed this was probably true. Nonetheless, we were pretty much diametrically opposed on everything else.

However, he made at least one good point: if you look at a map, China is literally surrounded by the US military or its proxies. We have:

• A base in S. Korea
• A base in Japan
• Taiwan with high-tech weapons supplied by the US
• A base in Afghanistan
• A base in Kyrgyzstan
• A base in Tajikistan

He also talked about the US spy plane that was shot down over Hainan island in 2001. He pointed out that there are no Chinese spy planes flying off the coast of Florida.

I’m not saying I think we should give China carte blanche to expand as they see fit – it is, after all, a dictatorship that is unaccountable to its people (I pointed this out to my brother-in-law). But if the US were surrounded like this, how would we react?

Aside: as much hand wringing there is in the US about outsourcing to China, there’s just as much there about being too dependent on foreign capital.