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January 17, 2011

China raised the Reserve Rate Ratio once again last Friday really demonstrating the urgency and seriousness the PboC sees the economic situation in the country at the moment. With Hu Jin-Tao in the USA this week to meet with President Obama, it seems appropriate to make some commentary about the recent situation.

It has been a long time since we have made any commentary about the Chinese. The profound impact of their behavior and policy on global macro-evironment is becoming more and more evident. It is exciting how much of a ‘player’ they have become in just a relatively short period of time. The Chinese, their culture, their economy and about everything in between matters a lot these days. Perhaps more than even most people realize. Still, they have become the second largest economy due to both stellar growth and a relatively lackluster performance on the part of the Japanese, the Europeans and the Americans in recent years. Their recent Europrean debt purchases, relationship to the North Koreans, major investments abroad and much, much more (not to mention the very surprising Chinese rate raise on Christmas) all have really underscored their impact on the world. They cannot be denied, yet somehow it almost seems like they have flown ‘under the radar’ for some time almost as if the world thought the Chinese were inept or unintelligent and would most likely find a way to stumble or make a mistake on their path/process of modernization and advancement. Their undeniable place in the ‘pecking order’ is obvious, but the scope of the change would almost seem more surprising if it were not for the stark and very rapid, yet relative, decline of the power and influence of the United States over the past few years.

The reason for today’s commentary is due to the remarkable event that occurred on Christmas day 2010. The fact is, China is becoming more and more important to global finance, as well as Forex traders, and its policies and economic happenings going forward will have a major impact on currencies. The People’s Bank of China raised interest rates 25 basis points on Saturday, the 25th of December, 2010. What an incredible thing to do for so many reasons. I, for one, had released my tight grasp on minute-by-minute news and information gathering for what would ordinarily be a event-less week(end) of holiday’s for much of the world. No more checking of Yahoo! Finance, CNBC Squawk, or Bloomberg tape reading for at least 3 days I thought. It was only in answer to a question from a friend about where (what source) I get most of my financial information did I happen to flip on the cable and catch a short snippet about the move out of China. Wow! Is really the only response. Sure there was a great deal of speculation the week before and all they did was raise the RRR (reserve rate ratio) amidst much talk of a potential move on rates. In hindsight, it seems almost predictable. While most of the rest of the world was on some sort of vacation, China decided to make a major market moving decision. How obvious! The Chinese, known for utter inscrutability, have almost outdone themselves. They would never let the West (or the rest of the world) figure them out or predict their behavior now would they!? Yet, they also would not squander the capital (of all types monetary, political and so on) they have accumulated by letting the market down either. And hence, the RRR was raised. But, this left to much to be desired.

The PBoC had to raise interest rates, after the inflation rate rised more than 5% in recent data announcements, and they did. It is just that they did it at the time when no one can act and perhaps when it might have the “least impact” on the market (at least we would like to think that). Though one might think this is purposeful, that is surely a miscalculation. When the market opened on Monday it will did face major, and surprising, news that it was behind the curve on and had to act swiftly. Typically, this will result in “commodity currencies” (and commodities themselves), stocks and other assets getting sold heavily as they expect that higher interest rates will have a “cooling” effect on the market and prevailing wisdom states that the market will slow (as borrowing becomes more expensive and liquidity diminishes). The market will sell off, if only temporarily, as we know that a market trend (read: bubble) can continue on far longer than logic would dictate. Whatever happens is secondary to this discussion. The point is, China is powerful. If you didn’t know that already we will likely become frighteningly aware of it even more so in the coming years. Things are changing and China is a force to be reckoned with.

The fact that the Chinese chose Christmas to make this move shows they are very savvy. There were no changes in economics this past week that could have prompted this move, but choosing Christamas day demonstrates that the Chinese are a distinct group of people and have their own agenda - again (Even Muslims and Jews, not to mention Christians, have holidays over this weekend 24th to the 27th of December). It is remarkable. We all know the Chinese are savers, they have worked their way to relative prosperity much like the Americans did throughout most of the middle of last century and beyond. They have been shrewd and played each one of their ‘cards’ precisely and without waste. Everything “Chinese” is at a historical record (every single statistic). All that remains for China is a ‘funding currency’ (the RMB) and they would stand alone as a ‘new’ standard and relative beacon of success for the 21st century. In the West, we have a tendency to sell the Chinese short, often feeling they have a different standard of living and conditions for success. They may very well, but it is not inferior, only different. The only thing they need now, it would seem, is a freely trading currency and an open market. These are no small things, but juxtaposed to what they have done over the past decade, those things seem “easy”. With sufficient domestic consumption, China could turns its factories on the local consumer and ease any impact of a diversion from American-centered policies. Furthermore, with this growth, an international market in Chiense yuan denominated bonds would ostensibly attract massive capital. Right now, everyone “knows” the Chinese currency will appreciate (if slowly), and they know there is growth (and yield) in China. The problem is (for foreigners), that it is so very difficult to ‘realize’ an investment gain short of being fully involved in the Chinese market (having ’skin in the game’, that is, actually living and doing business in China). Although this is true now it will likely change. So far, the Chinese have masterfully engineered policies to control the system. However, given the speed of change of the past ten years anything is possible, and soon.

A new paradigm is very much upon us. The American and European economic recoveries are going to take time and may never get back to pre-crisis levels (at least for a while), and while it is important and necessary for China to ‘play a role’ and ‘pick up the slack’ in the global market place, it is clear that such a development will definitely be largely on China’s terms. While the West may have fantastic accomplishments, amazing creativity and a dymanic, ‘can-do’ attitude when it comes to life and business, China has cohesiveness, conservatism, industry and the uncanny ability to endure hardship.  Not to sound cliché, but these are almost the yin and yang of humanity. As a person who has extensive exposure to both sides of this coin, it is necessary that we constantly advance and improve ourselves by determined action through integrating the best and eliminating the worst of all that we encounter and experience. It is not appropriate to espouse one method over another, but necessary to rise to the occasion by finding the optimum action or behavior for each situation, if not for life in general. The rapid globalisation of the past decade or more has given us a glimpse into what may be possible in the future. Just as the Third World craved things like education and material wealth of the West, the West may look to temper (even optimise) their approach with diligence and modesty (among many others) of the emerging world. Life is about experience and growth. We are nothing but a culmination of our experiences and we will, tend to or may be measured by our growth as human beings. Will we solve our problems of environmental pollution and conflict over resource with understanding, maturity, responsbility and savvy or will we continue on our current path which may more may not lead to success? The time may have come to alter our path and make adjustments so that we may all succeed. As far as I understand, the past standard of success was always to leave the world a better place (or better off) for our offspring. I hope we can do this…

Several weeks ago I attended the Shanghai International Literary Festival, at which Professor Jeffrey Wasserstrom was a guest speaker promoting his book, “Global Shanghai, 1850 - 2010.”  I found his speech about Shanghai and regarding his book to be very interesting.  But what particularly caught my attention was the very first question when the Q&A began.  It was no surprise that the attendee asked about the strong likelihood that the United States will not have a pavilion at the Shanghai World Expo 2010; this has been a burning question within China in general and Shanghai specifically.  Wasserstrom made some interesting points, but I could still tell from his response, as someone not based in China, that there is a disconnect abroad about how important Shanghai World Expo 2010 is to China.

The World Expo is essentially the second of a one / two punch in China’s emergence on the global stage, with the highly successful Beijing Olympics being the first.  For the U.S. not to participate in China’s coming out party would be an insult, resulting in China losing face, and economic repercussions that would cost more than the investment in a pavilion.  Furthermore, reportedly America made an oral promise to build a pavilion, resulting in China giving them an extremely preferential site compared to all other global attendees; so for the U.S. to break this promise would also be dismaying.  This is especially true given that one of America’s biggest beefs about doing business with Chinese companies is broken promises.

Professor Wasserstrom suggested that China should use the traditional term “World Fair” rather than “World Expo” when describing the event, which communicates a sense of fun and spontaneity rather than just economics.  He pointed out that those were elements about China that were absent in the highly choreographed Beijing Olympics.  Wasserstrom also commented that the ineffective “Haibao” mascot of the World Expo doesn’t help promote the event well.  Although my nearly 2 year old son is a fan and many people within Shanghai pose for photos next to Haibaos that are displayed everywhere, many Westerners I have talked to describe it as a rip-off of Gumby, even if it is supposed to be a cute, cuddly, personified Chinese character (of ren, meaning people).

Professor Wasserstrom makes some good points that more needs to be done to promote the World Expo within the U.S.  At this point a huge amount of money is being spent on advertising and other forms of marketing the World Expo within China to promote the message “we have arrived.”  But I would say the majority of Americans are probably unaware even that the World Expo is happening, much less that it is taking place in Shanghai.  It is also a tougher sell given the global economic recession, not to mention less clear benefits from association with top athletes that the Beijing Olympics clearly had.

But the problem is that the rest of the world seems to get the importance.  All major countries besides the United States are investing huge sums of money in pavilions in Shanghai that will be highly decorative and communicate something about the unique attributes of that country, invested in spite of the fact that after the World Expo is over, all pavilions will ultimately be torn down.  France in particular understands the importance of the World Expo to China, investing the most of any nation, at a reported 50 million Euros (552 million yuan).  And America’s loss could be France’s gain in terms of won business deals; it would certainly be no surprise if Airbus were to secure more orders at Boeing’s expense in the near future.

The final point that Professor Wasserstrom made that I felt was extremely apt was that participation in the World Expo is certainly in line with the message President Obama has communicated about desiring for the U.S. to make a rapprochement with the world.  What more important country is their globally for America to seek a better relationship with than China, global economic recession or no.

March 3, 2009

Walking into the FamilyMart near my old office, I was quite surprised by the display my Chinese former colleagues and I discovered right next to the front counter. Boldly placed between the two main cash registers was not just a huge assortment of condoms; but also a Durex branded sex toy for women under the brand name “Play.” Furthermore, the sign next to the Durex products stated that they were all sold out.

Needless to say I was quite shocked for a variety of reasons. First of all there was the prominent display at the very front of this high traffic FamilyMart convenience store, which would would certainly never fly in the U.S., because it is could clearly be seen by minors. And here I was in Shanghai, China, in a society generally regarded as being extremely conservative regarding sex, especially when it comes to women. And yet these sex toys were being sold for all to see. 

Secondly, I was certainly surprised that Durex’s “Play” was selling so well in close proximity to a very high-end shopping area of Shanghai, near Plaza 66. Call me uptight, but I had a hard time imagining a young, middle-to-upper class woman actually buying such a product in an open environment. But here the sign said sold out. Since FamilyMart is open 24 hours a day, I wondered whether women came late at night to make their secret purchases.

But after discussion with my Chinese colleagues in the public relations field, we realized that Durex’s marketing in such an open way was a stroke of genius, demonstrating their real understanding of Chinese women. Durex took away the stigma by selling these products in such a free, innocuous way at the front of FamilyMart stores rather than the backs of seedy sex shops. Also, what could be more innocent than buying a product named “Play,” brought to you by a trusted Western brand like Durex. The amount of research and thinking that must have gone into this product launch, from start to finish, is astounding.

The next element that blew my mind was the price; playing with the “Play” toy is not cheap, especially by China standards. In China where one is considered to have entered the middle class with a monthly wage of RMB 5,000, at a cost of RMB 249, the Durex “Play” is an expensive toy. But apparently women in Shanghai are more than willing to pay such a steep price.

Later I decided to check out whether other FamilyMart outlets would also sell the Durex “Play” in the same way. I was not disappointed. Pictured above is the display with the exact same arrangement at the FamilyMart that opened recently near my apartment. There must still be some stigma attached, however, because I was chased out of the store by a clerk working there while taking the above photo and this one below of the exterior of FamilyMart. This was the only part of the Durex “Play” experience that did not surprise me; I actually expected to be chased.

While shopping at French supermarket Carrefour today, whose stores are also very widespread throughout China, I decided to check out whether Durex’s “Play” would also be on sale there but was somewhat surprised that they were unavailable. Apparently FamilyMart must be the ideal sales location for this brilliantly marketed product.

Creativity in China

Authors: Joshua Campbell
February 2, 2009

Many stereotypes with some truth behind them proliferate in China, particularly the idea that Chinese society does not teach people creativity, expressiveness and originality well when compared with the Western world. Apparently this has even resulted in the emergence of a niche industry that aims to teach creativity to Chinese business executives, as reported here by the AP and picked up by the International Herald Tribune:

“There’s a lack of creative teaching in schools here, but we bring in pro-active students with potential and train them,” said Sam Jacobs, British creative director at Jellymon Shanghai, a media design company that moved its operations from London to China. “There’s no question that the biggest obstacle holding China back from becoming a true global player is innovation.”

I have worked in creative industries in China for a number of years and have to say that overall I have been impressed by the innovation of many of my colleagues at the various multinational companies I have worked for. However, these professionals are the exceptions not the rule. There is a significant amount of truth to the idea that there is limited creativity in Chinese society mainly as a result of the strong influence Confucianism still has on the educational system. This system emphasizes cramming and memorization for a huge test at the end of high school which essentially determines your entire future life depending on the quality of the college that you are able to enter.

This has also led to Chinese targeting top colleges in the U.S. as documented by the International Herald Tribune in the article “Chinese Aim for the Ivy League” The book ”Harvard Girl,” written by the mother of the first Chinese girl accepted into Harvard, apparently created an entire genre of books for Chinese people detailing how to raise your children properly to get them into the Ivy League. However, very questionable parenting methods are detailed: 

“‘Going to Harvard means that the way they raised their child was successful,’ said Yang Kui, publisher of the best seller. ‘People are willing to copy and learn how they did it.’

The book, which features a photo on the cover of Liu posing with her admission letter to Harvard, espoused unconventional techniques for turning out an Ivy-caliber child. Liu’s parents challenged the young girl to hold ice in her hands for as long as she could bear it to improve her endurance and made her jump rope every day for increasingly longer periods until she won a school contest.

They put toys out of her grasp when she was a baby to make her work harder for them, timed the girl’s studies to the minute as soon as she entered elementary school and made her do school work in the noisiest part of the house to develop her ability to concentrate.”

Confucianism also encourages a highly hierarchical way of thinking, all based on your position within society. As highlighted in the Know China Business ebook this can have a major influence on important creative functions in the workplace, particularly brainstorming, which can turn into sessions where those in lower positions of power simply support the bosses’ ideas. If you are a high-level expat this can also be a problem because those that report to you might be scared to challenge ideas that worked in your home country but may not be applicable for China. 

Proof of a lack of creativity can also be found throughout the streets of China, where high quality knock offs of famous Western brands are available ranging from Rolex watches to Louis Vuitton hand bags. In the Internet sphere, generally regarded as a highly creative industry, those Chinese companies that have achieved success have simply emulated successful Western Internet company business models such as Google or Facebook. While on television some of the most popular programs are simply imitations of popular programs in the U.S. ranging from Sex and the City to Project Runway.

China Hearsay also blogged on the original AP article and argues that creativity is very difficult, if not impossible, to teach adults:

“I’m a dyed-in-the-wool skeptic on this issue. Creativity can be encouraged but it is very difficult to foster in adults. I understand that China desperately wants to move up that value chain and have an IP-based economy, but you need patience for that sort of thing. Running around clucking like a chicken just makes everyone uncomfortable.”

I tend to agree with this argument. Creativity really is very hard to teach adults, no matter what their cultural background. However, I think that it is worth a shot. Team building and creativity workshops such as those described can possibly be valuable depending on the course make up, willingness of participants to open up without being too intruded upon on a personal level etc. So clucking like a chicken might be out but other methods might be useful in fostering creativity.

Kobe Versus Phelps in China

Authors: Joshua Campbell
January 17, 2009

Kobe Bryant is a master marketer when it comes to China

Kobe Bryant is a master marketer when it comes to China (Xinhua News Agency)

As a long-term Celtics’ fan it is hard for me to say this. But Kobe Bryant has all the right moves when it comes to marketing in China. He is arguably the most popular NBA star in China, rivaling even Yao Ming, which is no mean feat given that Yao is Chinese and a local hero. Kobe’s recent launch of a Chinese website and blog on Internet power, Sina.com, will go far towards ensuring that he keeps feeling the love in China in terms of merchandise sales and sponsorships that will be effective in driving brand’s performance. As pictured above in photos by Xinhua News Agency, he even posed at a high profile launch event in LA in traditional Chinese garb.

The content of his published interviews also demonstrates that he has been given proper media training and has developed an understanding of Chinese culture: he showed great humility, expressed admiration for the Chinese people and shared how he cherished his memories of Beijing Olympic gold. He absolutely said all of the right things to The Sydney Morning Herald among other interviews:

“As a kid growing up I never in my wildest dreams thought I would have this big fan base half way around the world in Beijing and Shanghai,” said Bryant during a red-carpet reception Thursday at the Club Nokia bar to announce the launch of his new Chinese-language web site.

“They know everything about me and my family. We had such a great time at the Beijing Olympics. They treated us very well.”

I will give Kobe Bryant some credit that he individually possesses great charisma and marketing savvy. But I also feel strongly that he is being given excellent advice when it comes to promoting himself in the Middle Kingdom. Kobe has a China strategy.

Michael Phelps Needs a Better China Strategy Despite His Multimillion Dollar Mazda Deal

Michael Phelps Needs a Better China Strategy Despite His Multimillion Dollar Mazda Deal (Xinhua News Agency)

Place all of this in contrast to Michael Phelps. Phelps may have broken the world record for most Olympic gold in Beijing and be on the cover of Wheaties’ boxes in the U.S. But most Chinese people don’t eat cereal and he is no celebrated hero here. Car manufacturer Mazda unfortunately doesn’t realize this, having reportedly awarded him the most lucrative sponsorship deal for a foreigner in Chinese history at more than US$1 million. There money will be wasted. As blogged on previously by David Wolf at Adage.com here, after winning his eighth gold medal he let an amazing opportunity to endear himself to the Chinese people slip through his fingers when China Central Television (CCTV) interviewed him and he quite rudely and abruptly exited. With the right strategic counseling this didn’t have to be the end of the road in China. But now that he is back in Beijing to film the Mazda commercial he does not appear to have learned any lessons or have a China plan. No traditional Chinese jacket or fireworks for Phelps despite the fact that he is physically in Beijing. While not coming across quite so rude in the interview with Xinhua News Agency, he still doesn’t say the right things the way Kobe does.

“There are some memories, some flashbacks of that time when I landed and was first going to the Olympic Village,” he said. “Driving around today on the roads — sort of seeing some landmarks I saw — really just brings back more and more memories.”

That kind of language just isn’t strong enough. He should be overwhelmed to be back in Beijing and thank his gracious hosts for the opportunities they provided him at the Olympics. He should speak a few words in Chinese; that would blow people away and given what a huge potential market China could be for him, it would be well worth the investment in time and effort. Be humble, talk about his amazing Chinese fans etc. But he doesn’t do any of those things. Phelps would do well to study Kobe’s marketing strategy in China.  And I hate to say it but Mazda might just be out a million big ones simply because they didn’t do their homework or train their spokesperson properly.

Barack Obama, Audacity of Hope in China, Shanghai Bookstore Front

Barack Obama, Audacity of Hope in China, Shanghai Bookstore Front

Welcome to the knowchinabusiness.com blog. As Barack Obama’s inauguration draws near, for the first post, I think it is of interest to revisit the view of his victory from China.

First of all, it is important to note that there was a lot of skepticism in China prior to Obama’s win. Having heard numerous stories of racial division in the United States, friends and colleagues that I talked to felt that it was nigh impossible that the U.S. would elect its first black president. This was in spite of the fact that all major polls were showing Barack Obama ahead. I myself had quite a few doubts and concerns that the American people would make the right choice given my deep disappointment in elections both 4 and 8 years prior. I even had a heated discussion with a taxi driver about whether Obama had a chance to win; he “bet me” that Obama would lose.

Emma Graham-Harrison of Reuters reported:

The dramatic victory, in which Obama carried some states that had not voted for his Democratic party in decades, was a major boost to America’s reputation.

“I am very happy U.S. history was made. I think in a lot of Chinese people’s eyes America was a racist country, even today the television said that white people wouldn’t vote for Obama,” said Li Nan, a student at the Chinese Academy of Social Sciences.

“I think that a lot of Chinese will change their mind now.”

This quote really reflects the view of many Chinese people prior to the election, as well as that of prominent Chinese media. Now that the presidential contest has been decided, interest from Chinese friends and colleagues in Barack Obama’s win has indeed become even more keen and the reaction quite overwhelmingly positive. Many who knew prior that I was an Obama supporter (basically everyone) asking curiously “how do you feel?” or “how will you celebrate?” now that he had in fact won the presidency. The next question one colleague asked me at lunch was “so when will there be an Asian American president?” to which I had no answer. But I felt encouraged that Barack Obama had at least opened this door in my colleague’s imagination to dare to dream.

People smiled and asked me to openly express my joy at Obama’s victory, which was interesting. It was sincere curiosity at my feelings and probably had something to do with the perception that Westerners wear emotions on their sleeve. I felt jubilant on the inside but, as the only non-Chinese person in the office, decided an open celebration would be a little strange. I still greatly appreciated the smiles and encouragement however. I think for colleagues it was a bit like watching an enthusiastic sports fan of a team you know to be good, but don’t necessarily support yourself.

Following lunch with colleagues on the day of Obama’s victory we went to an English bookstore and overheard the phone conversation between the boss of the book store and his employee, who was instructed to move all of the Obama-related books to the front of the store. Interest has been high in Barack Obama’s books including The Audacity of Hope: Thoughts on Reclaiming the American Dream and Dreams from My Father: A Story of Race and Inheritance. At another book store across the street from Cloud Nine Shopping Center in Shanghai and close to my home, an Audacity of Hope poster is prominently displayed in the window.

In summary, although the financial crisis still remains the primary issue on people’s minds in China, initial doubt and skepticism have given way to optimism for an Obama presidency:

Antoaneta Bezlova of IPS reported:

The results of the online poll conducted on the China Daily website by the U.S. embassy here showed Obama enjoying a much greater lead over his Republican rival, John McCain, with the support of 75 percent of Chinese polled.

Rebecca Zhu, a 29-year-old bank employee, agreed. “No Chinese leader is that young,” she said. “Obama is attractive because he is hip and unconventional. He has even used e-mails to advance his campaign.”

“Perhaps his age, energy and even complexion, which signify the U.S. dream, are more appealing to the Chinese,” Song Zhiyuan, who analysed the survey, told the ‘China Daily’.

I would point out in a final note however that many Chinese people and the Chinese media take a more pragmatic view of the Obama presidency, focusing primarily on whether it will mean any changes in the U.S. policy towards China; most have concluded that previous policies towards China will be carried over, which is also the view from where I sit.

Welcome to the Know China Business Blog

Authors: Joshua Campbell and Matthew Jon Jones
October 10, 2008

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