The China Vortex

Last week I met with Elliott Ng, publisher of CNReviews, a US-based site which aims to help westerners get a better understanding of modern China. Today, Elliott posted on his site an idea about bringing both Chinese and western bloggers closer together through their attendance at a Chinese Bloggercon event in November to be held in the southern city of Guangzhou. As one can see from reading the comments section of the posting, the discussion has already become “lively”.

In 10 years, we probably we won’t talk about blogging, we will just call it writing, and writing will come to include the term blogging almost automatically in everyone’s vocabulary. It’s just that now, the technology and its capabilities are new enough, that some people have become enamored with its possibilities. Blogging, from my point of view, is just a new form of writing.

I’m convinced that a good part of the reason for the popularity of blogs has been because the mainstream media has done such a bad job of explaining for example, China and the west to each other. In particular, the US mainstream media, under the pressure to achieve profits and ratings, has turned everything into a gladitorial epic struggle. One moment it’s between China and the west, the next day it’s between Hillary Clinton and Barack Obama, the following day it’s between the rulers of Myanmar and the international community. And on and on it goes.

Part of my reason for writing this blog is to highlight issues and bring to peoples’ attention issues which I believe are not shown correctly and intelligently in most of the western media. There is an awful lot going on in China, and 99% of it cannot be analyzed intelligently in terms of a gladitorial contest between opposing forces. Besides, gladitorial contests are a Roman form of entertainment! The Chinese much preferred strategy games to achieve their ends. Chinese heroes are Sunzi (writer of the Art of War) and Zhuge Liang, who used his wits to achieve his strategic goals.

The server logs indicate that most visitors to this site come from the US. If the articles on this site show visitors from the US and the west that there is more than one possible interpretation to events in China and Chinese behavior, then it has done a good job. It would be presumptuous to ask anyone who has not lived in China for more, but it certainly is a good first step. This is why I like writing about China as a medium. The reader can think things over, and then decide to agree or disagree. When they want, they can post a comment. I must say that I have been very impressed with the intelligence, thought and perception behind the vast majority of the comments, even when my opinions may be different. This is the kind of dialogue which engenders respect, even when people are separated by time, distance, language, culture and even opinions. The world needs more of this kind of dialogue.

I have become disconcerted at what I call the dumbing down of American society. Too much, issues have been reduced to 15-second sound bites and become trivialized. The relationship between China and the west is far too complex and complicated, and the relationship is so deeply intertwined, that it simply cannot afford to be trivialized.

It would be great if American bloggers visited the sites of Chinese bloggers, and western bloggers with a Chinese angle, such as this one, and posted thoughtful comments and questions about China. In my opinion, it would be entirely improper if well-known American bloggers came to China, lectured the Chinese about freedom, human rights and freedom of speech, without even making a dedicated effort to understanding what the Chinese bloggers were thinking about and discussing on their blogs. The Chinese would feel insulted, and I would agree with them. They would be insulted, yet again, by yet another example of arrogance, ignorance and stupidity. And then the Americans would move off, completely oblivious to all the damage which had been done to an event which had the best of intentions, but then didn’t play out right.

If China is about to become the great power that many think that it will become in the 21st century, wouldn’t it make sense to start reading the blogs of Chinese bloggers to find out what they are thinking about and saying? What’s so difficult to understand about that?

Why is it that Robert Scoble is so quick to condemn China’s lack of rule of law (as he recently has), and then quickly changes subject to something totally unrelated to China? The answer is simple: Robert Scoble is a media gadfly who is seeking new subjects which he can feed to his followers. He is not really interested in his subjects; he wants to stand in the spotlight and serve his own agenda. And he will move wherever the spotlight moves, as long as he is in the center. China is interesting to him only so long as it serves his purposes. After that, it becomes yesterday’s newspaper. He is incapable of going deep on any subject.

When are people like Robert Scoble actually going to make an effort to understand what Chinese are thinking about before they lecture them about how they should run their country? Is that too much to ask?

I hope that this event is not turned into a spectacle. The way to do that is to start talking to each other, through our blogs, NOW.

That is what real dialogue is about.

China’s economic growth over the past several years has excited many members of the international community, who see it as an alternative to the US’s and west’s leadership of the world order for the past two centuries. There has been a deep underlying distrust of the west, but it was brought to the fore by the Bush administration’s single-minded focus on the invasion of Iraq in 2003, and what to many, have seemed like trumped-up reasons for the invasion.

This, along with China’s dramatic economic growth, has opened up a great opportunity for China to offer an alternative vision of economic and social development. But China has fallen short with the recent fuss over the torch relay, and the actions of the fenqing (angry youth). In a very short period of time, a great deal of the goodwill China has earned has dissipated.

This situation has forced many supporters of the reform and opening-up of China into a lose-lose situation. If they support the Chinese position, they become seen as Chinese toadies, and if they criticize certain aspects of what has happened during the Olympic torch relay, they become dismissed by the Chinese, especially fenqing, as western toadies. Intelligent people should not be forced into making choices like this which are not real choices, and further polarize the two sides. People should be able to make constructive criticism without being forced to make bad choices and being pigeon-holed into one group or the other.

I, for one, believe that there is validity to the Chinese criticisms of the way China and the Chinese have been shown in the western media. There are biases; some are based on ignorance and some may be based on malice. But anger and heavy-handedness are not the right way to correct these perceptions; instead they validate the views and fears of China’s worst critics.

But this is not purely a public relations exercise. If China was a smaller and less influential country, maybe that would work. What China needs is to offer an alternative vision to the western model of development. This model must include dialogue, institutions and rules without a pre-conceived agenda which are pre-packaged for others, who must buy into it. Basically, a new framework needs to be created for Chinese engagement and dialogue on a global scale.

One of the criticisms of western hegemony is that it has offered a pre-packaged vision which in reality, offers pre-packaged western interests at its core. Joseph Stiglitz talked about this in his book Making Globalization Work.

So what is China’s vision? Is it just anger for western wrongdoing and the way it is depicted in the western-controlled media? How much goodwill will venting anger get China? There needs to be a better more thought-out way which offers more constructive results.

More people need to be included, and it should not just be government to government. It should be open where all can offer their views, and be listened to. Differing opinions should be debated and allowed to co-exist. Out of this, some kind of rationale for China’s rise has to come out, and this vision needs to be consistent with the rest of the world, as well as the Chinese people.

China is now a real power in every way. Real powers listen to and debate different views. If they don’t like certain views, they can offer a point by point rebuttal, or they can debate those views, but there is no need to get angry.

New times bring new challenges, and new challenges call for new thinking.

For the past fifty years, globalization was offered as the answer to all the world’s ills: it would raise standards of living in the developing world, it would create more wealth, nations would understand each other better and eventually trust each other, and so on and so forth.

I’m going to state what is increasingly obvious: globalization is fading in the struggle against nationalism for peoples’ hearts and minds. The world has not become global; instead capital, wealth, classes and class values, as I have mentioned in the previous post, have gone global while leaving most of the rest of the world behind. For the moneyed classes, nations are less important, perhaps even irrelevant. That is happening now as the Chinese economy grows and Chinese companies are expanding their presence to other nations by investing in their financial companies, for example.

But the moneyed classes represent only a comparatively small percentage of the world’s population. Most belong to the middle class, who still see the world in terms of the nation-state. What do they think?

They are becoming more, not less, nationalistic. A recent article shows that Chinese consumers are gravitating to Chinese brands, not western brands. In the online search struggle, search engines become victims of these games.

The simple fact is that although the US and Chinese economies are tightly bound together, and depend on each other as their largest trading partners, they do not trust each other. This trust is getting wider and deeper with the passage of time; it is not getting smaller. People for the most part, still think in terms of national interests, not global interests.

As the rich/poor divide widens, and as the US dollar weakens and the US standard of living starts to head downhill, it will become expedient to blame globalization for the country’s ills. We aren’t there yet, but we will be. Previous administrations and the WTO will be blamed for the shortcomings of globalization. Increasingly, China and the Chinese people will be seen as a threat to western values and the western way of life.

This will make it increasingly difficult for brands to become international. Are they national? Whose side are they on? Who sits on their boards? These are questions they will be asked more and more.

That is why globalization is failing, and will ultimately fail. It’s just that no one wants to take the blame and be the first to make the call.

But that will happen soon enough…

In my previous post, I talked about the dark side of China’s Internet cafes. I was surprised at how quickly I got responses to the posting; there were more than six comments in less than two hours.

Now, I would like to talk about a business opportunity in China’s Internet cafes. One of the biggest problems with Internet cafes is the uneven quality of the management; most are terribly managed, some are managed pretty well. Overall, the well-managed cafes suffer from the poor image problem associated with the whole industry. In a comment following my post, Fons Tuinstra says that the numbers of people going to Internet cafes are falling sharply, citing CNNIC figures. I suspect that this is because of a combination of factors:

• Educated Chinese families don’t like them because of their bad reputation
• With laptop computer prices coming down to 7,000-8,000 yuan for a fully equipped notebook, prices are coming with the range of most urban Chinese
• With monthly DSL prices between 100-200 yuan; broadband access is now affordable

In spite of all this, the Internet cafe still has attraction as a social and recreation area for young people who are looking for places to meet which don’t cost too much.

So why hasn’t someone come in with a roll-up strategy, buying up the good Internet cafes, offering professional management and a franchise package, and turning the whole thing into a franchise like Starbucks, McDonald’s or KFC? After all, that is how Ray Kroc started with McDonald’s in the 50s in the US.

These Internet cafes should offer clean well-lit areas which are frequently cleaned, fresh food and drink, clean bathrooms and a good overall experience. Just think of what could be done if a Chinese Internet cafe experience could be as good as an Apple store! Yes, prices would be higher but it would attract a much better demographic group. And a better demographic would make for a better advertising market.

Events could be planned for the stores educating people about online buying and selling, and to demo new products and services. Game contests could be held in a much better environment than are available now.

If I were an advertiser, I would really love to reach this demographic group. They would be upwardly mobile, not like the permanent urban underclass we now see in so many Internet cafes.

In short, make the Internet cafe a place where Chinese parents would not be ashamed of letting their child go to, and a place where the child could tell his parents he is at, without having to lie or admit to shamefully.

This would help to clean up the image of an industry which badly needs to improve its image. It would even make sense for an advertising company to get into it, as the advertising opportunities in a wholesome Internet cafe franchise are huge. I can think of several companies which should seriously consider doing an Internet cafe franchise in China:

• Focus Media
• Baidu
• Tencent
• Google
• Starbucks
• McDonald’s
• KFC

And now, here’s the company I’d really like to see do a Internet cafe franchise in China because it really knows about making cool stuff and it understands lifestyle marketing. If they did it, and did it right, they would own the Chinese Internet cafe experience.

Now wouldn’t that be something! You saw it here first.

I can always wish…

Last night I had dinner with five individuals in Beijing. Except for me, all of them had real hands-on experience in the gaming industry in China. (My experience in gaming is limited to the business side; not programming and production.) All of them were Americans, or had extensive experience in the US.

Long story short: China has become a boomtown for gaming companies doing development. There are several reasons for this:

• A large Chinese gaming population
• Smart programmers and artists
• A large cheap labor pool which is eager to work, and more importantly, learn

Significantly, most of the group had started, or were starting, their own companies in China. The president of one company, Gage Galinger, had been working in stealth mode for three years, quietly hiring and developing its own title for his company, Possibility Space.

Most of them were former Microsoft employees.

Gage was from Texas, and had come to Beijing to start his own game development studio. He is not Chinese, or Chinese-American, but Caucasian. I always admire someone who is not of Chinese extraction, and is willing just to jump on a plane to Beijing or Shanghai, learn, and start a company. More than anything else, that is what starting a business is all about in this age of globalization. This is the mark of a true entrepreneur.

After arriving in Beijing, he started hiring for his own studio where he is lead programmer and president.

I’m sure many of my readers may be wondering how someone who does not know Chinese could possibly function in an environment where many people do not speak a common language. How could he add value?

This is where his background at Microsoft came in handy, and the American style of collaboration for game development really shines. In Chinese gaming companies, the artists and programmers are just worker bees, performing repetitive tasks. They are not asked, and do not offer their opinions about the games they are developing; they are told what to do, and just do it. In his company, employees are required to show their day’s work to everyone else in the company, and others are encouraged to critique the work. Of course, most Chinese are reluctant to say bad things about other peoples’ work, afraid that it will hurt their colleagues’ feelings. For Americans, it is more natural to critique other peoples’ work because Americans are able to separate the work from the person.

Most of the time anyway.

Gage said that the path was not entirely smooth; he had to fire people who did not fit. But all in all, he was encouraged by the experience, and he had a very clear idea about how he added value to his company. He was very optimistic about his experience, and said that for him, living in China was about realizing the American dream of having his own company and making his own title, and launching it worldwide.

The economics of the gaming industry in the US is broken; developments costs are high, and game developers are always in debt and losing their IP to investors. But development costs in China are low, and Gage claims that his developers in China are better than any team he has worked with in the US by an exponential factor, or anywhere else.

He said that he has tried to get other game developers to come to China to partner with him, but while they have expressed interest, none have made the move. He has just opened an office in Austin, Texas.

If America had more entrepreneurs like Gage, who don’t overthink, overplan, have a solid core skill, and just get on a plane to China and start their company, and are humble and willing to learn, the US would be in a much better place.

America used to be a much more entrepreneurial country, now it is overly regulated, overly expensive, overly specialized, overly structured and overly corporate. In order to be competitive again, the entire society and culture will have to make major adjustments. The road will not be a smooth one.

That is why the smart entrepreneurs, like Gage, start their businesses in China.

In this new globalized world, China has become what America used to be.

Rebecca McKinnon has a very interesting post at her blog “Thomas Friedman gets the middle finger in the Middle Kingdom”, which was part of her coverage of the World Economic Forum at Dalian.

During a panel, Thomas Friedman, author of The World is Flat, accused China of being a “free-loader” while the US carried the heavy load of being a “global guardian”. I really love the term “global guardian”; what does it mean? Does it mean that the US is protecting the globe
from an attack by Mars? Or Jupiter? Or is it some unknown Deathstar which we don’t know about? Does it mean that Beijing is keeping this a secret from the rest of the world so that it won’t have to publicly acknowledge this enormous debt to Washington DC?

Who defines the role of “global guardian” and the role it involves? It takes a lot of hubris even to bring the phrase up. How would you react if your spouse calmly announced that he was the “global guardian of our world against evildoers who want to destroy our way of life”? I think you get the drift…

Then in the post,

Friedman also argued that it’s in China’s interest to work more directly with the U.S. on geopolitical issues because if the U.S. fails, then China will have to pick up the pieces. “If there is too little American power China will be forced to respond to that,” he said.

Now I get it, Beijing is supposed to change Washington DC’s diapers when it makes a mess! So now Beijing is going to be the “global diaper changer” when the “global guardian” has… well, nevermind.

Unfortunately for Friedman, Sha Zukang, told the audience that the Chinese government is not anxious to assume this new role.

Sha rejected the whole idea of “soft power,” calling it a “condescending approach” and “notion created by Western developed countries.” When it comes to world leadership, he said the world’s leaders should not be “self-proclaimed” - he said they should be elected. China, he said, would not self-proclaim itself a world leader, because China’s policy is always to treat other countries as “equals.”

Translation: “Let’s take responsibility for changing our own diapers, instead of expecting someone else to do it for us.”

Another very interesting viewpoint put forward by Clay Chandler of Fortune magazine is that now that China is a world power (I really love the way the words “world” and “global” are thrown around), Chinese politicians are still giving boring speeches. Of course, American politicians never give boring speeches; I’m sure that any intelligent reader of this article can recite all the speeches of George W. Bush and the Senate and House heads by heart. Yes, I too, am deeply disheartened that Beijing has not announced plans to stage a pre-emptive attack against Mars so that the “global guardian” can at least take a small rest and enjoy a cup at Starbucks.

Seriously though, Friedman’s criticism of Chinese policy is, at its very least, an acknowledgement that the US has not been able to carry all its burden by itself and needs help. In this light, it should be interpreted more as a plea for help and assistance for the global guardian than as a rebuke of current Chinese policy.

In the article, Rebecca recalls:

A couple years ago a Chinese academic who advises the Chinese government on foreign policy issues told me that the best way for China to build global power, good will, and international credibility over the long run is to mind its own business, avoid criticizing the U.S. whenever possible, sit back and let the U.S. destroy its own power and credibility by itself.

There is a strong argument to be made that it isn’t so much that China has risen quickly out of seemingly nowhere, but that China’s growth appears accelerated because of rapid American decline. Put it this way, if China is riding an up escalator, and the US is riding a down escalator, at some point they will pass each other at an intersection point.

The only question is “When?”

Now the question becomes whether it is a good thing to accelerate decline. Wall Street routinely rewards companies which make dramatic management changes when they are in decline. The thinking is that it is better to make dramatic, even wild, changes in the face of falling sales and market share. Share prices go up even before the results of those changes become apparent, based on the hope that the new management can make the changes necessary. Wall Street is hoping for a happy ending, even though most of the time it doesn’t work. Doing something, even if it is madly wrong, is better than doing nothing when confronted with a bad situation, according to Wall Street. Then, when the company has hit bottom, it can either be acquired or claw its way back to recovery.

My question is whether this same rule should be applied to countries and governments? If the US is in a state of systemic decline, is it better to accelerate the decline, so that the country can eventually climb out of the mess it is in? The problem with this approach is that when a company screws up, a few hundred thousand people lose their jobs.

The problem with a country, especially one as big and powerful as the US, is that no one knows what the bottom looks like.

For this reason, the slow erosion and decline of American power will continue.