tag:blogger.com,1999:blog-27557004150432052472024-03-05T03:01:51.283-08:00ChinaBizGovHighlighting interesting issues in business-government relations in ChinaG. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.comBlogger215125tag:blogger.com,1999:blog-2755700415043205247.post-17509051477288408592013-01-24T14:33:00.001-08:002013-01-24T14:39:56.999-08:00China's Green Car Sales in 2012<span style="font-family: Arial, Helvetica, sans-serif;">Just a few years ago, pretty much everyone (except Chinese auto industry insiders whom I interviewed) thought China was about to take ownership of the global green car market. (Here's just <a href="http://www.nytimes.com/2010/09/26/opinion/26friedman.html?_r=0" target="_blank">one example</a> from the excitable Tom Friedman of the <i>New York Times</i>.)</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">In 2009 China's industrial planners announced plans to have <a href="http://chinabizgov.blogspot.com/2009/04/local-govts-throw-full-weight-behind.html" target="_blank">500,000 green cars</a> ("New Energy Vehicles" or "新能源汽车" -- a combination of electrics and hybrids) on Chinese roads by the end of 2011. That obviously didn't happen, so last year, that same target of 500,000 was <a href="http://www.greencarcongress.com/2012/07/china-20120709.html" target="_blank">pushed out to 2015</a>.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">So how did green car sales fare in 2012? Overall, hybrids plus electrics grew a respectable 52 percent.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_lKN5QbvhpteFmJEKFngeGjnC80MbY6jrN9anpewr-M4KZeBkwG3MXZxTANFitgvNWbHdUoq_YrkApmv3oVOXFkQXYJqnTzoWyb5M28uDKWm6mgrhcJHni_-m4pzwE41rMtzUUkrN5euL/s1600/China+Green+Car+Sales.PNG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_lKN5QbvhpteFmJEKFngeGjnC80MbY6jrN9anpewr-M4KZeBkwG3MXZxTANFitgvNWbHdUoq_YrkApmv3oVOXFkQXYJqnTzoWyb5M28uDKWm6mgrhcJHni_-m4pzwE41rMtzUUkrN5euL/s1600/China+Green+Car+Sales.PNG" /></a></div>
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">So while sales grew pretty well in percentage terms, it is clear that overall numbers are still inconsequential when you consider that <a href="http://www.industryweek.com/competitiveness/car-sales-china-disappoint-2012-china-automobile-association-says" target="_blank">19.3 million vehicles</a> were sold in China last year. </span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">How do these numbers compare to the US? <a href="http://cleantechnica.com/2013/01/09/electric-hybrid-vehicle-sales-in-the-us-rose-73-in-2012/" target="_blank">Green car sales in the US grew 73 percent</a> to over 440,000 in 2012. (Includes electrics, hybrids and plug-in hybrids.) So China's aim of 500,000 sales may still be a bit ambitious when you consider that not even the world's largest market for green cars has reached that number yet. Nevertheless, just as China has eclipsed the US in overall vehicle sales since 2009, China can probably be expected eventually to eclipse the US in green vehicle sales too.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">One thing that we can surmise from these numbers is that China has clearly yet to become the global green car powerhouse it had aspired to become. The reason is simple, and it also explains why China's auto industry -- despite having been relaunched over 30 years ago -- has yet to produce a globally-competitive home-grown brand. (Investigation of this question consumes a major portion of my book, <a href="http://www.amazon.com/gp/product/111832885X/ref=as_li_qf_sp_asin_tl?ie=UTF8&tag=designdriver-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=111832885X" target="_blank"><i>Designated Drivers: How China Plans to Dominate the Global Auto Industry</i></a>.)</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">The state-dominated structure of Chinese industry does not provide the proper incentives for innovative leadership. China has private automakers, but they continue to be marginalized in terms of state support and access to funding. The big state-owned enterprises (SOEs) continue to receive every benefit that central and local governments can hand out, yet they are still led by politicians who have no incentive to take risks or invest for the long term.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">The green technologies being used in Chinese EVs and hybrids are, for the most part, purchased, licensed or copied from foreign automakers. This is not a recipe for ownership of a global market.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;">_______________________</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Green car sales data sources:</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.chinacartimes.com/2011/01/13/2010-green-car-round-sales-round-up/" target="_blank">2010</a>, <a href="http://gas2.org/2012/01/30/in-china-ev%E2%80%99s-outsold-hybrids-2-to-1-in-2011/" target="_blank">2011</a>, <a href="http://e.ccialerts.com/a/hBRAYWhAG-rD9A8ZAg8NsgDj45D/and1634" target="_blank">2012</a></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com6tag:blogger.com,1999:blog-2755700415043205247.post-22949392063468899622012-12-13T11:58:00.000-08:002012-12-13T11:58:09.818-08:00Comparing Corruption in China and the US<span style="font-family: Arial, Helvetica, sans-serif;">Today's <i>WSJ China Realtime</i> <a href="http://blogs.wsj.com/chinarealtime/2012/12/12/study-chinas-corruption-doesnt-match-gilded-age-america/" target="_blank">reports on a study</a> by a George Mason University economist who attempts to compare corruption in the US and China. His conclusion is that corruption in America's Gilded Age (1877-1893)* was worse than corruption in China today.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">Perhaps the conclusion is correct, but the methodology used by this professor is flawed. US corruption is measured by mentions of corruption in US newspapers 1870-1930. China corruption is measured by mentions of corruption in US (not Chinese!) newspapers 1990-2011.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">So he is measuring corruption in two countries by the number of times the newspapers of only one of the countries mentions the word. Even if the researcher <i>had </i>used Chinese newspapers, the study still would have been flawed due to Communist Party control of Chinese print media throughout the period in question. (Why the author of the study did not even attempt to scan Chinese newspapers for mentions of corruption, I don't know, but I'll venture a guess that it's because he doesn't speak Chinese.)</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">The question the researcher is asking is a valid one. America during its Gilded Age was extremely corrupt, as is modern day China. An answer as to which one is/was more corrupt would be enlightening. It would be interesting to consider whether actions taken to curb corruption in the democratic America of the Gilded Age are even remotely applicable to modern authoritarian China.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">Nice try, but we're still no closer to a valid measure for corruption that we may compare across countries.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">____________________</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">* The official dates of the Gilded Age are considered to be 1877-1893, after which the Progressive Era began, but the author of the quoted study extends his analysis to 1930. </span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-10555657918440220952012-10-17T19:42:00.000-07:002012-10-17T19:43:41.076-07:00GM and SAIC: Trouble in Paradise?<span style="font-family: Arial, Helvetica, sans-serif;">General Motors (GM) and Shanghai Auto (SAIC) announced in December of 2009 that they were deepening their partnership beyond their joint venture in China. Together they created a 50:50 joint venture, registered in Hong Kong, for expansion outside of China. Now that partnership appears to be coming apart.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuEzkKo_mDZPkTUwjbRWJeJLy98aXUr6SUSO5Jw6LdEq4UtNzQtZoKQvCbQRHmq2G_JseEt-VIKBUYWwmYbXJ5bTK0JllDsU7fI2EizpBVzn9kj8hoj5E7XefoIZ3O8AJiU3leoj87PJEy/s1600/General-Motors-Logo.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuEzkKo_mDZPkTUwjbRWJeJLy98aXUr6SUSO5Jw6LdEq4UtNzQtZoKQvCbQRHmq2G_JseEt-VIKBUYWwmYbXJ5bTK0JllDsU7fI2EizpBVzn9kj8hoj5E7XefoIZ3O8AJiU3leoj87PJEy/s1600/General-Motors-Logo.jpg" width="200" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYBgSxttNikGPQmLCdW1IkKTRw_3gtlLqdhnCZPjchtPUvdj1Mt0BMmFp4bFxrO0pqDpe2YYeLW5SXHj5srGb5YzRDv7zx_XMvsuY5msV6opbarRW2S-JElBnLDcddc3YbYjdcdltNYkty/s1600/65e047d937a3e8e1db4bd3039febd9e0_SAIC_Logo.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYBgSxttNikGPQmLCdW1IkKTRw_3gtlLqdhnCZPjchtPUvdj1Mt0BMmFp4bFxrO0pqDpe2YYeLW5SXHj5srGb5YzRDv7zx_XMvsuY5msV6opbarRW2S-JElBnLDcddc3YbYjdcdltNYkty/s1600/65e047d937a3e8e1db4bd3039febd9e0_SAIC_Logo.jpg" /></a></div>
<br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;">Initially, the plan for the HK JV was for the two sides to work together in India and possibly elsewhere in the future. (For further insight into this particular deal, please see Chapter 4 of <i><a href="http://www.designateddrivers.co/" target="_blank">Designated Drivers</a></i>.) As for the India venture, GM would contribute two existing factories in India, along with its Chevrolet brand, and SAIC would contribute cash -- something that GM had been seriously lacking as it had emerged from bankruptcy earlier that same year</span><span style="font-family: Arial,Helvetica,sans-serif;">.</span><br />
<div style="font-family: Arial,Helvetica,sans-serif;">
<br /></div>
<span style="font-family: Arial,Helvetica,sans-serif;">Another part of the deal was for GM to hand over 1% of its ownership in its 50:50 China-based JV with SAIC in exchange for about $85 million. As GM's people explained it, SAIC would be able to help GM gain bank financing outside of North America (as if no one outside the US had been aware GM was in bankruptcy).</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Thanks to a <a href="http://www.thetruthaboutcars.com/2012/10/how-the-gm-bailout-turned-into-foreign-aid/" target="_blank">clever analyst who has combed through GM's SEC filings</a>, it has now emerged that <a href="http://www.thetruthaboutcars.com/2012/10/gm-buys-indian-jv-stake-from-saic/" target="_blank">SAIC appears to have backed out of the India joint venture</a>, and GM has stepped in to buy out SAIC's portion for $125 million -- ironic since GM was previously so desperate that it was willing to hand over control of SAIC-GM to SAIC for a mere $85 million. The India joint venture has now gone from an equal 50:50 partnership to a 93:7 partnership in favor of GM.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">One can only speculate as to why SAIC has decided to pass up an opportunity to participate in the burgeoning demand for small cars in India. Until now, the two partners, SAIC and GM, have been considered to be among the "most harmonious" Sino-foreign joint ventures.</span><br />
<div style="font-family: Arial,Helvetica,sans-serif;">
<br /></div>
<div style="font-family: Arial,Helvetica,sans-serif;">
Now that GM has regained its profitability in North America, has GM perhaps decided it no longer needs SAIC's cash to expand to other markets? Has SAIC decided it would also prefer to go it alone?</div>
<div style="font-family: Arial,Helvetica,sans-serif;">
<br /></div>
<span style="font-family: Arial,Helvetica,sans-serif;">If things have truly soured between the two partners (or if they are merely less keen on each other than they were before), </span><span style="font-family: Arial,Helvetica,sans-serif;">SAIC has the most to lose here. In China, SAIC still makes most of its money by selling GM- (and VW-)branded vehicles. While SAIC has its "own" brands, MG and Rover, these were purchased outright from the UK and not self-developed. GM, on the other hand, appears once again to be running </span><span style="font-family: Arial,Helvetica,sans-serif;">its massive research and development pipeline </span><span style="font-family: Arial,Helvetica,sans-serif;">full steam ahead back at home.</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-74876324416822443892012-09-14T15:51:00.000-07:002012-09-14T16:39:17.565-07:00But will China's smart, young automotive managers ever get to lead?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi83EIyOnTTRTtMvLW5lvwWqHbxtTaNx2-X-B8kJj7IIjznIf8RRN_exhNpLO27mvMA0SQHzR-NnR__Hf-6CCWX0-E4qjhFAPftR9HsaLckLfGk0ujQRO1nXu987771TeEMEJ9xTR48PX3V/s1600/global+auto+forum+logo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi83EIyOnTTRTtMvLW5lvwWqHbxtTaNx2-X-B8kJj7IIjznIf8RRN_exhNpLO27mvMA0SQHzR-NnR__Hf-6CCWX0-E4qjhFAPftR9HsaLckLfGk0ujQRO1nXu987771TeEMEJ9xTR48PX3V/s200/global+auto+forum+logo.jpg" width="200" /></a></div>
<span style="font-family: Arial, Helvetica, sans-serif;">There is a great piece by <a href="http://autonewschina.com/en/index.asp" target="_blank">Automotive News China</a> Managing Editor, Yang Jian, on their site this week. (The full article is reproduced on the AdAge site <a href="http://adage.com/article/global-news/younger-managers-china-good-news-brands/237197/" target="_blank">here</a> without restriction.)<br /><br />Yang Jian notes that, at the recent <a href="http://www.ga-forum.org/en/" target="_blank">Global Automotive Forum</a> in Chengdu, a lot of senior auto executives couldn't be bothered to address the crowd, so they sent younger managers in their place. The result was a level of candor not normally expected of senior auto execs.<br /><br />A few examples:</span><br />
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">A Chang'an VP on electric vehicles: "you will find there are still a lot of problems with these vehicles when you develop them with taxpayers' money."</span></blockquote>
<br />
<blockquote class="tr_bq">
<span style="font-family: Arial, Helvetica, sans-serif;">Chery's sales chief admitted to short-termism: "We strived to rank first or second in sales among domestic brands,...but we forgot to ask what our future direction should be." (There are a few other examples in the <a href="http://adage.com/article/global-news/younger-managers-china-good-news-brands/237197/" target="_blank">original article</a>.)</span></blockquote>
<span style="font-family: Arial, Helvetica, sans-serif;"><br />Yang rightly praises the pragmatism of this younger generation, and expresses hope that these younger guys will turn around the <a href="http://blogs.wsj.com/chinarealtime/2012/09/11/chinese-automakers-joint-venture-junkies/" target="_blank">erosion of Chinese brands' market share</a> when they get to the top. And I largely agree -- if they do get to the top, that is.<br /><br />In order for that to happen, <b>China will have to do a radical re-think of how SOEs are managed. </b></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br />The way it works now is that SOE (state-owned enterprise) leaders tend to be more politician than business person. Most of them held political positions before landing in or near the head office of an SOE, and many will return to political positions after their tenures are up. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br />Unlike a lot of these younger managers, most of these senior managers didn't come up through the ranks in the auto industry. Even the few who may have worked in the auto industry when they were young may have possibly been just as pragmatic as today's younger managers, but something apparently changed along the way.<br /><br />Leadership, unfortunately, tends to drive out a lot of idealism and replace it with survival instinct. The CEOs of state-owned enterprises work, not for a diverse group of shareholders who just want to get rich. They work for the Communist Party whose overarching goal is to remain in power -- a goal often at odds with efficient, productive and profitable business.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-23441539897949589652012-09-05T13:17:00.000-07:002012-09-05T13:17:54.272-07:00Fragile Bridge: Conflict Management in Chinese Business<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJLisv4IwyPioATJa2wCMcCy8u-rZ_ZQTrCdFP2UQCGQRU1aYxtPWW9r6zOWuZrKG_aT0EHEUh-JHMktnmIeGz14ZNNom9KhIdxnI6EEGj_4rNKNOmdUBEsM6xqjVEXVw_2Auf02_EBxiV/s1600/fragile+bridge.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJLisv4IwyPioATJa2wCMcCy8u-rZ_ZQTrCdFP2UQCGQRU1aYxtPWW9r6zOWuZrKG_aT0EHEUh-JHMktnmIeGz14ZNNom9KhIdxnI6EEGj_4rNKNOmdUBEsM6xqjVEXVw_2Auf02_EBxiV/s320/fragile+bridge.png" width="213" /></a></div>
<span style="font-family: Arial, Helvetica, sans-serif;">In March of 2012, Andrew Hupert released his first e-book, <a href="http://chinabizgov.blogspot.com/2012/03/andrew-huperts-guanxi-for-busy-american.html" target="_blank"><i>Guanxi for the Busy American</i></a>, a quick yet thorough read on how to navigate the potentially treacherous waters of guanxi in China. He now follows <i>Guanxi </i>with his second book (within less than a year!), <i>Fragile Bridge: Conflict Management in Chinese Business</i>.<br /><br />As much as I enjoyed <i>Guanxi for the Busy American</i>, I found <i>Fragile Bridge</i> to be even more interesting and applicable across many more situations. Hupert provides the reader not just with practical advice on structuring agreements and contracts, but more importantly, he spells out the warning signs of future conflict. Many behaviors that come natural to the Western business person appear as red flags to their Chinese counterparts, and avoidance of these behaviors are a real key to setting up a partnership for success.<br /><br />Even the word “conflict” in the title of this book should be an indicator of just how differently the Chinese and Western sides of a partnership approach business. Much of what counts for “conflict” in this book is indeed “conflict” from a Western perspective, but from the Chinese perspective, it is simply part of doing business. While Westerners are accustomed to a fair amount of conflict leading up to the signing of a contract, the general expectation is that this is the point at which conflict ends, and both parties do their best to adhere to the terms of the contract.<br /><br />While it has now become practically cliché to say that Chinese and Westerners view contracts differently, Hupert opens a door on what the Chinese side is thinking both before and after contract signing, how they constantly assess the performance of both the business and their foreign partner, and how they will maneuver to improve the terms of the deal for themselves. Having this knowledge certainly will not prevent conflict, but understanding what motivates the Chinese side, and having Hupert's advice on how to address Chinese concerns (most of which they will never verbally express) will equip Western business people far better than an entire lifetime of experience in a Western-only business setting.<br /><br />This 10-chapter book is structured to mirror the life of a Chinese-Western partnership from beginning to end – whether that end is a continuance of the partnership or a dissolution. In each chapter, Hupert provides clear theoretical explanations of how and why Chinese and Western expectations differ, and then he provides case studies that illustrate both successful and unsuccessful ways of dealing with conflict.<br /><br />There is also a larger, fictional case study about an American partner, Stan, and a Chinese partner, Jimmy who meet in college in the US and establish a business together in Shanghai. Each chapter ends with a telling of the portion of the Stan & Jimmy story that applies to that chapter, and the story is so well-told, that the reader will find it hard to stop reading at the end of any given chapter. (In my case, I read the entire book on a flight from Los Angeles to Taipei in about three or four hours.)<br /><br />I am not certain whether it was intended this way, but Hupert's new book seems to be a sort of prequel to his first book in that it is a longer and broader work covering many aspects of Chinese-foreign business partnerships, just one of which happens to be <i>guanxi </i>(which can be loosely translated as “connections” though there is much more to it than that). To anyone who has yet to read <i>Guanxi for the Busy American</i>, my advice would be to read <i>Fragile Bridge first</i>, then pick up <i>Guanxi </i>for a more in-depth treatment of this very important topic.<br /><br />For those who have already read <i>Guanxi</i>, you will find that <i>Fragile Bridge</i> contains the same kind of practical advice, except that it is extended to many more situations in addition to the building of <i>guanxi</i>. And regardless of the order in which you read Andrew Hupert's two excellent books, if you're serious about succeeding in business (or any kind of negotiation) in China, you really cannot afford not to have both of these books in your e-reader.<br /><br /><i>Fragile Bridge: Conflict Management in Chinese Business</i> is available for $9.99 in Kindle format at <a href="http://www.amazon.com/Fragile-Bridge-Conflict-Management-ebook/dp/B008MDOG7U/ref=sr_1_1?s=books&ie=UTF8&qid=1346876070&sr=1-1&keywords=Fragile+Bridge" target="_blank">Amazon.com</a> and in many other e-book formats at <a href="http://www.smashwords.com/books/view/181307" target="_blank">Smashwords.com</a>. <br /><br /><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-88418381219020175992012-05-31T10:42:00.001-07:002012-05-31T10:42:50.722-07:00In praise of public-private partnership<span style="font-family: Arial,Helvetica,sans-serif;">Today's <a href="http://online.wsj.com/article/SB10001424052702303552104577438262928543468.html" target="_blank">splashdown of the SpaceX Dragon capsule</a> off the coast of California completes the first successful visit of a private spacecraft to the International Space Station.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMWIzrEqXX_EaBoQonrzdWZvCK4299USu2e7Sxb-8gT4FuWsIO2WY0T-uWgZsWxiogdLfc_SqLedXwutIWnB-AIPgtlbt3MlxPx0T_bYw0v6nWYs3eqI6QP8DjinGxLFkpLU9TjHM2ylrR/s1600/SpaceX+Dragon.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMWIzrEqXX_EaBoQonrzdWZvCK4299USu2e7Sxb-8gT4FuWsIO2WY0T-uWgZsWxiogdLfc_SqLedXwutIWnB-AIPgtlbt3MlxPx0T_bYw0v6nWYs3eqI6QP8DjinGxLFkpLU9TjHM2ylrR/s320/SpaceX+Dragon.jpg" width="320" /></a></div>
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This news isn't really China-related, but it illustrates an important aspect of state vs private sector investment. To over-generalize a bit, (American) conservatives would prefer that the private sector do everything, and (American) liberals would prefer that the state do everything.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Here we have illustrated the importance of public-private partnership. Without the initial leadership of the state, the US would not have reached the moon in 1969. It took far more investment than any private sector investor would have been willing to risk for what was basically a huge experiment with no monetary payoff.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Based on a few decades of learning, a private company has now managed to come up with a solution far less expensive, and at least as effective, as anything the state could have come up with to send supplies to the space station. And this was apparently just the beginning; the Dragon capsule will someday ferry people too.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Bringing this lesson closer to my area of interest, perhaps it also makes sense that governments subsidize the development of alternative methods of fueling personal transportation. Right now, the economics of electric vehicles simply don't make sense. This is why it is important that governments step in to subsidize the experimental phase.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">As with the original moon shot, alternative fuels and methods of propulsion are experimental (and arguably far more important), but no private sector investor would be willing to take such a risk to build a product that doesn't yet provide a positive return on investment.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This isn't to say that governments will always be right, but that's the nature of experimentation. Thomas Edison conducted over 3,000 experiments with different materials for filaments until he finally made a lightbulb that worked. For small experiments such as Edison's, no government help was needed, but without government regulation and assistance, we would never have moved beyond the traditional gas guzzlers we were driving back in the 1970s.</span><br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi92_HrWoIC7Sf2OwSnDhBujbdLrhm3N5-2uiB6VaS_s7qhiKVVX7gFjQkN1SAkCbadAlym4zHj_9sHqdwjbhz5MD7CrUMCa4xcGbnZhyM1cfi3erCdRzUUoxJJ1ejPDPtM051OqbrxEBNL/s1600/2011-Chevrolet-Volt-Volt-300x225.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi92_HrWoIC7Sf2OwSnDhBujbdLrhm3N5-2uiB6VaS_s7qhiKVVX7gFjQkN1SAkCbadAlym4zHj_9sHqdwjbhz5MD7CrUMCa4xcGbnZhyM1cfi3erCdRzUUoxJJ1ejPDPtM051OqbrxEBNL/s1600/2011-Chevrolet-Volt-Volt-300x225.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Scorn of conservatives: The Chevrolet Volt</td></tr>
</tbody></table>
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">When I began to research business-government relations in China's auto industry several years ago, I started with a question of why China seemed to be achieving such great success under the heavy hand of the state. What I have since learned is that, while, yes, the state can drive outstanding growth in an agrarian society with low living standards, the ability of the government to make good decisions declines as technology becomes more complex.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">China has now reached a point where its government needs to be smart enough to step back and allow the private sector to compete freely (and not just <b>talk </b>about it). All the government assistance in the world will not make state-owned businesses competitive. They simply lack the proper incentives.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">At the same time, the American people also need to realize that the US will never grow as fast as China has grown over the past three decades (and neither will China again). We also need to realize that there is a place for government to invest in experimentation that will result in much-needed future technology. Sometimes the government will make mistakes, but fear of making mistakes will deprive us of potential successes.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Being counted among the most advanced countries on earth is not easy, as the Chinese are about to discover, but the notion that either the government OR the private sector is best suited to drive future innovation is a false choice. We need both. We need the competitive zeal of the private sector, and, sometimes, we also need the deep pockets of the government to take on problems too big for the private sector.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">The Chinese system of dominant state ownership is nearing the end of its usefulness, and if the Chinese don't figure that out, they are doomed to stagnation and chaos. US arguments over "socialism" vs "free-markets" are also pointless. Somewhere, in the middle, there is an ideal system in which ownership still lies primarily with the private sector, but the government takes the big risks that can potentially save the planet for our children and grandchildren.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com7tag:blogger.com,1999:blog-2755700415043205247.post-7557313799218865012012-05-25T10:53:00.000-07:002012-05-25T10:53:24.556-07:00Book Giveaway!<span style="font-family: Arial,Helvetica,sans-serif;">To celebrate the imminent release of my book, <a href="http://www.designateddrivers.co/" target="_blank"><i>Designated Drivers: How China Plans to Dominate the Global Auto Industry</i></a>, I will be giving away three signed copies next week.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;"><i>Designated Drivers</i> is about much more than the auto industry. It uses China's auto industry to tell a story about how China's central government manages its economy in its drive to create global industrial champions. It's an important story for anyone considering doing business in or with China as well as for policymakers who want to better understand business-government relations in what is still the world's most consistently fast-growing economy.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">If you would like a chance to win a free copy of my book, all you need to do is "like" the <i>Designated Drivers</i> Facebook page and share it on your page. The Facebook page is here:</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;"> <a href="https://www.facebook.com/DesignatedDriversChina">https://www.facebook.com/DesignatedDriversChina</a></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"> </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">On Tuesday, May 29 at 08:00, pacific time, I will select three "likers" at random* and send each of them an autographed copy of <i>Designated Drivers</i>.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">And if the number of "likes" surpasses 500, I'll throw in another two copies for a total of five possibilities to win!</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This morning a friend emailed me a picture taken at a bookstore in Hong Kong showing a few copies already on the shelves there, so it should only be another week or so before copies reach North America.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvFOE_CoIY1rdH_ah_GAEJumIw2565hq8HkBQU54MciZYNHgYMzraJQb9TE4XnhcQniDuQVfnMb4koA3pcvxCeCT_n07ycmhnSF7RxuMqs39jrqo_UjC0xugLQcJGMehkrscrwdqaaouzm/s1600/2012-05-25+10.35.10.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvFOE_CoIY1rdH_ah_GAEJumIw2565hq8HkBQU54MciZYNHgYMzraJQb9TE4XnhcQniDuQVfnMb4koA3pcvxCeCT_n07ycmhnSF7RxuMqs39jrqo_UjC0xugLQcJGMehkrscrwdqaaouzm/s320/2012-05-25+10.35.10.jpg" width="240" /></a></div>
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">_______________</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">* To ensure randomness, I will copy all names into an Excel spreadsheet, number them consecutively, and use Excel's random function to select three (or maybe five!) numbers from the list.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-82553708474630789882012-05-14T13:00:00.000-07:002012-05-14T14:09:11.186-07:00Thoughts on the 2012 Beijing Auto Show<span style="font-family: Arial,Helvetica,sans-serif;">I recently traveled to Beijing to attend the 2012 <a href="http://www.china-autoshow.com/2010bjx/en/" target="_blank">Beijing Auto Show</a> as well as to attend the <a href="http://www.autonews.com/Assets/html/12_ancc/" target="_blank">Automotive News China Conference</a>. While no one can expect to gain a full understanding of China during a quick trip like this one (indeed, one must live there for an extended period in order to learn that he can never fully understand China), such trips are often helpful for taking the pulse of what's going on at the moment.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZoZXEs6j5m1H4QwutHmeNF955qES-rISmIg6GjO6AhZVdx1pEbp2sdHdIWl-nTs875-IIDEPIH7yw4G9lUuD88zo5pDn3acyD81IIoHudcDDs9Caiak4Ax7aeyWPOCM1u_cvPg-pHJTAD/s1600/AutoNewsChinaConf.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZoZXEs6j5m1H4QwutHmeNF955qES-rISmIg6GjO6AhZVdx1pEbp2sdHdIWl-nTs875-IIDEPIH7yw4G9lUuD88zo5pDn3acyD81IIoHudcDDs9Caiak4Ax7aeyWPOCM1u_cvPg-pHJTAD/s1600/AutoNewsChinaConf.png" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">First, a bit about the conference. Like most industry conferences, this one is basically a big networking opportunity surrounded by presentations from industry notables. My greatest impression was that, despite less than impressive growth numbers in the first quarter of this year, everyone seemed very optimistic about the prospects for longer term growth in China's auto market.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">A lot of the discussion centered around the still largely untapped markets in China's Tier-3 and Tier-4 cities, and how dealer networks have aggressive expansion plans to take advantage of burgeoning demand among middle class Chinese consumers. And because the majority of auto purchases in China are still cash transactions, dealers see the ability to expand and sell their finance offerings as another key to getting more people behind the wheel.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">From a personal point-of-view, while I learned much from the presentations, also I could not help but wonder why, for all of its stated intention of doing its own thing, going its own way, doing everything with "Chinese characteristics," China seems determined to build a consumer society with "American characteristics." Why is China copying some of the least attractive of American characteristics such as streets crowded with slow-moving vehicles, polluted air and consumer debt that has allowed us to live beyond our means?</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">While I wouldn't want to deny China the opportunity to develop itself and to improve standards of living, I wonder why China's planners cannot look down the road and foresee the kinds of problems that already exist in the US. Here is a chance for creative thinkers to leap ahead to solutions that will allow Chinese citizens the kind of personal mobility that will enhance their lives without bringing many of their negative characteristics.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">And speaking of leaping ahead, this is a good point for me insert a few pictures and observations from the Auto Show.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This first picture is of a concept car shown by Chery, a local state-owned automaker from Anhui province. Actually, it's two cars, called the @Ant, connected to each other.</span><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjizQglEcrDS6R7tF8fu_RyhneFoeLbmSRYK-ZMYGcHZNUIdZS8u40cECPl6KOT_E4iNWace04ngGjJmVKq2_J3UMxmL9_4MCpAurQ5XAbagsa1smH3rYF1gbLXHNhxOsvXCtWsL4sQhEq2/s1600/IMG_1529.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjizQglEcrDS6R7tF8fu_RyhneFoeLbmSRYK-ZMYGcHZNUIdZS8u40cECPl6KOT_E4iNWace04ngGjJmVKq2_J3UMxmL9_4MCpAurQ5XAbagsa1smH3rYF1gbLXHNhxOsvXCtWsL4sQhEq2/s400/IMG_1529.JPG" width="400" /></a><span style="font-family: Arial,Helvetica,sans-serif;"> </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">While I have to give Chery kudos for its creativity on this one, I felt like their design was more of a novelty than something that could truly solve problems. First, even though these cars are intended to be smaller, their footprints are actually quite large. Because the front wheels are intended to link up with another car in front, when the car is driven solo, those extended front wheels still take up a lot of room.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Also (and I really hate to nitpick here) aren't we pretty close to having technology what would allow cars to "link up" virtually with the use of software and proximity sensors? Such wireless technology would eventually allow for linkages to take place on the fly without the vehicles even needing to slow down. I'm guessing that the physical linkage suggested by Chery would require the vehicles to slow down, if not stop altogether, in order to establish a link.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">In terms of more realistic concept vehicles, my impression this time was that Chinese designers (in some cases) have improved their design skills and visions since the last auto show I attended in Shanghai in 2009.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This crossover concept, also from Chery, really flows with some clever use of side panel creasing.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJdkvyQmMU3AY7EMT5pPWKnko1KYp2-LrFThRgA-EICwKMR7mxJ1SPe1uTR6T9FBGtwi7D-xuPZC0RtMV3IgVoPjRq_5yPKs75hwybAHkflR5QW7bhMqzPW7TQ4B-7e9N8wungPy3GTmlr/s1600/IMG_1530.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJdkvyQmMU3AY7EMT5pPWKnko1KYp2-LrFThRgA-EICwKMR7mxJ1SPe1uTR6T9FBGtwi7D-xuPZC0RtMV3IgVoPjRq_5yPKs75hwybAHkflR5QW7bhMqzPW7TQ4B-7e9N8wungPy3GTmlr/s400/IMG_1530.JPG" width="400" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">And this MG concept from Shanghai Auto was also an eye-catcher. I like the way they were able to integrate the traditional MG look with the round headlights into a very contemporary design.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhdHmJasBZ5Qxmd_aoT4S9PCLL9j-8X0PWPsgT6nCtA5DgE6f3gnbpWvH9UDyk5lCHx5Vj1EeWgGB0BW2koJyf8eiLWLJMXHRipRo2uzTya9Z03nhdP3MQgyEfffr43PJ1U71qsxjEYU_D/s1600/IMG_1524.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhdHmJasBZ5Qxmd_aoT4S9PCLL9j-8X0PWPsgT6nCtA5DgE6f3gnbpWvH9UDyk5lCHx5Vj1EeWgGB0BW2koJyf8eiLWLJMXHRipRo2uzTya9Z03nhdP3MQgyEfffr43PJ1U71qsxjEYU_D/s320/IMG_1524.JPG" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfVFCqNVhw3z6_e7jvTlxFq4aSNCrg82jFEY94HhfIa6NTwm03X15laJ3xbWzh3kS0Qrf98krTPyIw_KDTaH7OZwHu3XfQu6IFSy43rhB9pA5v3YVFp1RyWiNze3ATS4uAAlejnONhWt-n/s1600/IMG_1523.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfVFCqNVhw3z6_e7jvTlxFq4aSNCrg82jFEY94HhfIa6NTwm03X15laJ3xbWzh3kS0Qrf98krTPyIw_KDTaH7OZwHu3XfQu6IFSy43rhB9pA5v3YVFp1RyWiNze3ATS4uAAlejnONhWt-n/s320/IMG_1523.JPG" width="320" /></a></div>
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">And here's another nice concept from First Auto Works with really smooth lines. Unfortunately, FAW had it displayed in such a way that it was nearly impossible to capture the whole car in a single photo.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrlZlyonRXCD7VsEUjrchrVUltbPX2vYORU_0zwG3SRR1y1UzIud7L_S4Pr89ho5DoDYrxNrFQYAgbeOdLV68Mmbij-DziF0KdRE61SJdkymDwJtisx7rhZLUBDar_ICNXsJGfamhqNJx7/s1600/IMG_1504.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrlZlyonRXCD7VsEUjrchrVUltbPX2vYORU_0zwG3SRR1y1UzIud7L_S4Pr89ho5DoDYrxNrFQYAgbeOdLV68Mmbij-DziF0KdRE61SJdkymDwJtisx7rhZLUBDar_ICNXsJGfamhqNJx7/s320/IMG_1504.JPG" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKDZvh1TVazERREeu3z9Y7SE8fO7ByoyxG8HWZwGXgeDwZsYjiQ1BgyXbugL_bFRNEXVp5WYRWdviwRfqsfy8erMFBqP3fpM8Bf18IbweTCqtWK3493sMM8VRgl1tJTOCnTabFihRKuvo2/s1600/IMG_1505.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKDZvh1TVazERREeu3z9Y7SE8fO7ByoyxG8HWZwGXgeDwZsYjiQ1BgyXbugL_bFRNEXVp5WYRWdviwRfqsfy8erMFBqP3fpM8Bf18IbweTCqtWK3493sMM8VRgl1tJTOCnTabFihRKuvo2/s320/IMG_1505.JPG" width="320" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;"><br /></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">As in Shanghai 2009, everyone this year was still eager to demonstrate that they were developing new energy vehicles. Also like Shanghai 2009, practically none of the green vehicles on display could actually be bought by Chinese consumers. (Of course, the foreign automakers also showed their NEV offerings like the Toyota Prius, Nissan Leaf, Chevy Volt, etc.)</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Here's the apparently electric version of Guangzhou Auto's Trumpchi which is built on an older Alfa Romeo platform (no doubt acquired from its new partner Fiat which owns Alfa). </span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE0wZuQdfX7YY6_1CFdzrf1QvIB6flrC6p9PsU6-8BAws84qw3FXuWqR2Px6QFpkLwcJ-cWf6j_-07vJrXNwRtUaRMu1n7RP9pz1a8pSl8KkeF-7SJNGT_PxFEqgj-a3bhCCrsi3IMSv6h/s1600/IMG_1502.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE0wZuQdfX7YY6_1CFdzrf1QvIB6flrC6p9PsU6-8BAws84qw3FXuWqR2Px6QFpkLwcJ-cWf6j_-07vJrXNwRtUaRMu1n7RP9pz1a8pSl8KkeF-7SJNGT_PxFEqgj-a3bhCCrsi3IMSv6h/s400/IMG_1502.JPG" width="400" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">I say this is an "apparently" electric version because, like many NEVs at the show, the only indication of their NEV status was a nearby sign or decals on the side. A look at the interior of some of these cars revealed the traditional shifter associated with an automatic or manual transmission -- which electric vehicles don't need.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">This is the Denza, a new brand created by a joint venture between the private Chinese firm BYD and Daimler of Germany. This NEV is slated to go on sale in 2014.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKVNdN2TmaVbzn54EsOdGkXapOZLHYSEV7sjV6nSXhGCqt8j4y1WRT9K5wjD-6kCKQJwVaLH2TQ_JIa_WuParMLiuCHjiLZymCiwHTDF4ExaERXOaXpLAUN7VNND2HKhiD6tp75hSr3cwE/s1600/IMG_1539.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKVNdN2TmaVbzn54EsOdGkXapOZLHYSEV7sjV6nSXhGCqt8j4y1WRT9K5wjD-6kCKQJwVaLH2TQ_JIa_WuParMLiuCHjiLZymCiwHTDF4ExaERXOaXpLAUN7VNND2HKhiD6tp75hSr3cwE/s320/IMG_1539.JPG" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6w5Yc6zMWpKgDUUhjhDZ7bt8FOtCSZlxbHTc93ghsi84BxpmeDh4SblLA2sVplIpGC8gpgEnnNYXG5daeGE9J843__fC8JMthBl6KczdJFdx7IsPCjVYIqO3PzaKfViuU7iUSxAqlmE4l/s1600/IMG_1540.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6w5Yc6zMWpKgDUUhjhDZ7bt8FOtCSZlxbHTc93ghsi84BxpmeDh4SblLA2sVplIpGC8gpgEnnNYXG5daeGE9J843__fC8JMthBl6KczdJFdx7IsPCjVYIqO3PzaKfViuU7iUSxAqlmE4l/s320/IMG_1540.JPG" width="320" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">Suicide doors also seemed to be all the rage this year, though no one actually has the guts to sell a car with this really cool feature.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Another common theme I noted was the traditional Chinese blue and white pottery theme on this sedan by local Chinese automaker Hawtai and a custom version of the Smart for Two.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvp09pF-gBKK2gNOPQyg5aLdcOLaCG6_cJ7oPQeuMVtyICbRXr9DcQM3BHgLZfcBY0rt_iN4Zjve-nKiQ0DrNOwDPHK5-eT6kuOiqPJ6A0e5mNSXl3q98e28QkV5dv70auBNeNVsAbSmPK/s1600/IMG_1526.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvp09pF-gBKK2gNOPQyg5aLdcOLaCG6_cJ7oPQeuMVtyICbRXr9DcQM3BHgLZfcBY0rt_iN4Zjve-nKiQ0DrNOwDPHK5-eT6kuOiqPJ6A0e5mNSXl3q98e28QkV5dv70auBNeNVsAbSmPK/s320/IMG_1526.JPG" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7e0EWrozVX5GI4dQNKk_NSjzkQZUd5-D0Hc9jtGV5SxJ9YQAGCkTFCelrIK2czllYOoCMm33JhxCFXQyKxDl0sI6Vbjv6H16NjAJS9G1O-VfjJRZ4TEpcVs7zZq3nlnTGmJARa9HDkRCx/s1600/IMG_1542.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7e0EWrozVX5GI4dQNKk_NSjzkQZUd5-D0Hc9jtGV5SxJ9YQAGCkTFCelrIK2czllYOoCMm33JhxCFXQyKxDl0sI6Vbjv6H16NjAJS9G1O-VfjJRZ4TEpcVs7zZq3nlnTGmJARa9HDkRCx/s320/IMG_1542.JPG" width="320" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">And in case you are still wondering why <a href="http://chinabizgov.blogspot.com/2010/02/hummer-rejection-its-all-right-there-in.html" target="_blank">Beijing wouldn't let Sichuan Tengzhong buy Hummer</a> a few years ago...</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFjP1QYN-Wd-Sd8ODLSHmXAugNv50i_Z8B10rz3U7fEDG_S7uVA4mhNI-SwBOXrVzJ2pKZpLDgxT-4qTa5jR3K0WT4dFivGMOz49lOIDkqutEJu4cWAwazzPuSdA0AxHa-riw9jIVg93oL/s1600/IMG_1571.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFjP1QYN-Wd-Sd8ODLSHmXAugNv50i_Z8B10rz3U7fEDG_S7uVA4mhNI-SwBOXrVzJ2pKZpLDgxT-4qTa5jR3K0WT4dFivGMOz49lOIDkqutEJu4cWAwazzPuSdA0AxHa-riw9jIVg93oL/s400/IMG_1571.JPG" width="400" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">... here's the Chinese version made by Dongfeng Motor. As you can see it's every bit as pretentious as the old US version which (fortunately) is no longer made, depriving some Americans of opportunities to unwittingly make fools of themselves. ;-)</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">I didn't take a lot of photos of the non-Chinese automakers' stands as my interest on this trip was primarily in what the Chinese are working on. However, I did notice that all of the Detroit Three are projecting a lot more confidence than they did in 2009. If you remember, GM and Chrysler were still on the ropes then, and Ford was also pretty deep in debt. This year, all three had much larger stands, a lot more vehicles (including some really fascinating concepts) and were drawing such huge crowds that it was hard to walk through.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Here's a cool batmobile-looking concept from Chevrolet called the Miray. </span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbZ7K83MmSF2DDyVXBPPTx-twrH7rUoUo0CKQ07uQrdWFG9jrfhZmYMfHkWiJeRBCEsVdyJSvTeeR4iEC0dm4Yls-y-H08Z_Dh113Va-ozEZQLqLeg8HjdM00pVHn5zAsUefdilF49WcOY/s1600/IMG_1514.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbZ7K83MmSF2DDyVXBPPTx-twrH7rUoUo0CKQ07uQrdWFG9jrfhZmYMfHkWiJeRBCEsVdyJSvTeeR4iEC0dm4Yls-y-H08Z_Dh113Va-ozEZQLqLeg8HjdM00pVHn5zAsUefdilF49WcOY/s400/IMG_1514.JPG" width="400" /></a></div>
<span style="font-family: Arial,Helvetica,sans-serif;">The dancing blondes at the Ford stand attracted every red-blooded Chinese man with a point-and-shoot camera like bees to clover, so I couldn't get a good look at the new SUV Ford was displaying.</span><br />
<div class="separator" style="clear: both; text-align: left;">
</div>
<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXwmebEqiUgaSsbvev5zrrbRE84hvbIhau43q6VMdPF4NPuBORHCFEHHOuvwAjVWPMnEEvpD3VwtoTc53Urc2tXtycuDvXM9qN1vMk0LK45X9dy6AU_0cQWmpT8KvDDz3WCEwKZzWVG7dd/s1600/IMG_1564.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXwmebEqiUgaSsbvev5zrrbRE84hvbIhau43q6VMdPF4NPuBORHCFEHHOuvwAjVWPMnEEvpD3VwtoTc53Urc2tXtycuDvXM9qN1vMk0LK45X9dy6AU_0cQWmpT8KvDDz3WCEwKZzWVG7dd/s400/IMG_1564.JPG" width="400" /></a><span style="font-family: Arial,Helvetica,sans-serif;"> </span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: Arial,Helvetica,sans-serif;">And finally, here's a shot of an Audi stand outside of one of the pavilions. What's so interesting about this? The characters on the building are inviting people to check out their used cars (二手车, literally "second hand car").</span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWiezuwauX2z5QIZWTOpnQwMMcRy9S3BjmjUNyuxyj_-uh0koqfLSaa7c6Agu8OiirsqNDbvmyXcRf_qL7it7zroh95j0qe3jB6130NpY6ZogpFK8qMNyHiTQHFwDZZXjeZCEM9MpdK_k0/s1600/IMG_1543.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWiezuwauX2z5QIZWTOpnQwMMcRy9S3BjmjUNyuxyj_-uh0koqfLSaa7c6Agu8OiirsqNDbvmyXcRf_qL7it7zroh95j0qe3jB6130NpY6ZogpFK8qMNyHiTQHFwDZZXjeZCEM9MpdK_k0/s400/IMG_1543.JPG" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: Arial,Helvetica,sans-serif;">China's auto market is still so new that about 85% of car buyers today are still first-time buyers. But since 2005 over 80 million vehicles have been sold in China. This means that an increasing number of used vehicles will be available as many previous first-time buyers trade up.</span></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: Arial,Helvetica,sans-serif;">I would not have expected to see used cars being touted at an auto show, but since Chinese consumers still overwhelmingly consider foreign brands to be superior to Chinese brands, it makes sense that a first-time buyer might be persuaded to buy a used car, certified by a foreign automaker, rather than a brand new Chinese-branded car.</span></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: Arial,Helvetica,sans-serif;">As for the auto show itself, I have to say that it was a bit of a disappointment. The organizers of this show appeared to be more interested in how many tickets they could sell than in putting on a good show. Even though they designated different days as media days, industry days and public days, there appeared to be no real distinction as tickets were offered for sale to anyone who showed up.</span></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<span style="font-family: Arial,Helvetica,sans-serif;">China's biggest auto show alternates between Bejing and Shanghai on even and odd years, respectively. In the future, I think the odd years will be enough for me.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com2tag:blogger.com,1999:blog-2755700415043205247.post-60387471459599364872012-04-18T16:35:00.004-07:002012-04-18T22:47:22.464-07:00GM is getting its 1% back, and it won't be cheap<span style="font-family: Arial,Helvetica,sans-serif;">Back in January, GM <a href="http://www.reuters.com/article/2012/01/10/us-autos-gm-china-idUSTRE8092DI20120110" target="_blank">announced </a>it wanted to buy back the 1% it had sold to its partner, Shanghai Auto (SAIC). In the post I wrote at that time, here was <a href="http://chinabizgov.blogspot.com/2012/01/gm-wants-its-1-back-good-luck.html" target="_blank">my prediction</a>:</span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">The only way I can see this happening is if GM were to agree to set up the sales organization that SAIC had first proposed, which may be possible now that the US government is no longer a majority owner in GM (though still technically the controlling owner).<br />
</span></blockquote><div class="separator" style="clear: both; text-align: center;"><a href="http://www.adambots.com/wp-content/uploads/2011/01/General-Motors-Logo.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="http://www.adambots.com/wp-content/uploads/2011/01/General-Motors-Logo.jpg" width="200" /></a></div><br />
<span style="font-family: Arial,Helvetica,sans-serif;">As it turns out, this is exactly what is happening. According to an <a href="http://www.autonewschina.com/en/article.asp?id=8513" target="_blank">article</a> (free registration required) from Automotive News China:</span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">Company CEO Dan Akerson told the Journal that the partners plan to split Shanghai GM into two units: sales and operations.<br />
<br />
General Motors would have a 50 percent share of the operations unit, which would make product decisions. SAIC would retain a 51 percent share of the sales unit, which would allow the Chinese automaker to book the joint venture's revenue.</span></blockquote><span style="font-family: Arial,Helvetica,sans-serif;">The remaining question, which the partners have not yet answered, is what consideration is changing hands. How much is GM paying to SAIC for the 1% of the manufacturing operation?</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">As for the ongoing implications, GM once again presumably has an equal say in SAIC-GM board meetings. This is good for GM because they will have leverage in charting the direction of the firm, appointing executives, and planning production.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">However, this new sales organization, of which SAIC will now own 51%, will funnel a bit more cash toward SAIC for the foreseeable future. What's that worth? According to my very rough, back-of-the-envelope math, possibly as much as $150 million a year in sales -- that's <b>every year</b> in perpetuity.*</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">If my math is even close to correct -- cut my figure in half and assume $75 million a year in sales -- that will very quickly add up to a lot more than the $85 million or so GM originally got for selling that 1% to SAIC in 2009.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Of course, SAIC and GM could just tell us what this will cost and people like me wouldn't have to do voodoo math. I'm sure GM's shareholders would like to know. </span><br />
<div style="font-family: Arial,Helvetica,sans-serif;"><br />
</div><div style="font-family: Arial,Helvetica,sans-serif;">___________________________</div><span style="font-size: x-small;"><span style="font-family: Arial,Helvetica,sans-serif;">* My back-of-the-envelope math. According to the <a href="http://online.wsj.com/article/SB10001424052702303513404577351870982630672.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank"><i>WSJ</i></a>, GM gets about $30 billion in revenue a year from China. Last year, SAIC-GM sold 1.2 million vehicles and SAIC-GM-Wuling sold 1.3 million (<a href="http://www.reuters.com/article/2012/01/17/autos-china-idUSL3E8CH0V920120117" target="_blank">data here</a>). Again, very roughly, taking GM's 49% of SAIC-GM and GM's 44% of SAIC-GM-Wuling reveals that about 52% of GM's China revenue came from SAIC-GM. Even more roughly, 52% of GM's $30 billion is $15.6 billion and 1% of that is $156 million.</span></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-3943569740399392312012-04-05T20:09:00.000-07:002012-04-05T20:09:21.951-07:00Wen Jiabao gets it, but no one cares<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">On Tuesday (3 April 2012) major media outlets reported that Chinese Premier Wen Jiabao was getting ready to take on China's giant state-owned banks. He was quoted in an <a href="http://is.gd/V8YD9O" target="_blank">article</a> in the <i>Wall Street Journal:</i></span><br />
<blockquote class="tr_bq"><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">Let me be frank. Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly...To break the monopoly we must allow private capital to flow into the finance sector.</span></blockquote><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTRJaJt2CGkNW8YRuRBQB9MAr1TfGqb8C-M9h5xNQZ32r0XgAYI944HX4F59qelj8S2yg0fGALEvpYZNGUPzm4oKu3CNMT6aMLPLeptikR0YuRzNX67CQecVNUznPhQW0XIc1jHsjCJt-r/s1600/Wen+Jiabao.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" border="0" height="150" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTRJaJt2CGkNW8YRuRBQB9MAr1TfGqb8C-M9h5xNQZ32r0XgAYI944HX4F59qelj8S2yg0fGALEvpYZNGUPzm4oKu3CNMT6aMLPLeptikR0YuRzNX67CQecVNUznPhQW0XIc1jHsjCJt-r/s200/Wen+Jiabao.jpg" title="Chinese Premier Wen Jiabao" width="200" /></a><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">Setting aside the fact that there are too many banks in China for any one to have a monopoly (let us not forget that the "mono" part of monopoly means "one") Wen's criticism was definitely warranted. China's top five banks account for more than 55 percent of loans in China's banking system.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">On Tuesday I posted this </span><a href="http://www.blogger.com/goog_2045667133"><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;"><i>WSJ </i></span></a><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;"><a href="http://is.gd/V8YD9O" target="_blank">article</a> on Facebook and offered the comment that, "what Wen really means is that the dominance of the big state-owned banks needs to be broken so that privately owned banks are better able to compete for lending business. There are plenty of banks in China. The problem is that the biggest are state-owned and are managed according to political, not economic, principles."</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">But that isn't the whole problem. The other part of the problem is that, as long as China's major industrial firms are also state-owned, they will be considered by bankers to be a better credit risk than private firms, and they will absorb most of the funds available for lending.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">It isn't that private firms are necessarily a poor credit risk. Indeed, some (possibly most) private firms are better managed than state-owned enterprises (SOEs), but unlike the SOEs, the private firms aren't backed by the full faith and credit of the central government. Consequently, China's private sector continues to be starved of funding.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">On Thursday (5 April 2012), George Chen of the <i>South China Morning Post</i> wrote an <a href="http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=c3f53a6a9cd76310VgnVCM100000360a0a0aRCRD&ss=Companies+%26+Finance&s=Business" target="_blank">article</a> entitled "Bankers Reject Wen's Criticism." (Sorry, <i>SCMP </i>is behind a paywall.) Some of the quotes in this article are simply golden. It's almost as if China's bankers wanted to help me make my argument. One unnamed senior bank executive was quoted:</span><br />
<blockquote class="tr_bq"><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">I don't think it [Wen's comment] is a fair comment. Because we're a state-owned bank, much of our business and loans are to support whatever the government needs, for example to support the growth of many state-owned enterprises. We must listen to the government, which already gives us a lot of orders and guidelines.</span></blockquote><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">Right there you have an explicit admission that "the government" wants the banks to support the SOEs. Of course, we already knew that, but it's nice occasionally to have insiders admit as much.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">What I find strange about this response from a senior banker is that he apparently does not associate Wen Jiabao with "the government" -- which is odd since the Premier's job description is "Head of Government."</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">What this tells us is, first, that Wen Jiabao's views, if they were ever considered to carry any weight, are no longer deemed worthy of respect. Even though he'll be Premier until next March, in the eyes of many, he's already a lame duck.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">Second, if the Premier isn't calling the shots, then someone else -- whoever this senior banker considers to be "the government" -- <i>is </i>calling the shots. And whoever that is (and I'm sure it's a faction of the senior leadership) is still not interested in </span><span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">opening up China's industries to free and fair competition from the private sector.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">In my <a href="http://designateddrivers.co/" target="_blank">forthcoming book</a>, I make what I believe to be a very strong case for the fact that China's insistence on state dominance of its major industries is stifling the country's innovative capabilities. This latest episode with the banks just further confirms my belief that the powers that matter have yet to see a connection between state dominance and China's continued reliance on copying of foreign technology rather than development of its own.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;">Wen Jiabao gets it, but he already has one foot out the door.</span><br />
<span class="Apple-style-span" style="font-family: Arial,Helvetica,sans-serif;"><br />
</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-1093049180274979872012-03-29T10:47:00.000-07:002012-03-29T10:47:47.288-07:00Part of me is on Facebook now<span style="font-family: Arial,Helvetica,sans-serif;">Long-time followers of this blog may have noted that I don't post as often as I did during 2009, my first year of blogging. There are a couple of reasons for this.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">First, once I set about writing my dissertation in 2010, I would spend entire days writing, so it became difficult also to take the time to write blog posts. Now that I am working, I still find it hard to post more than 2-3 times a month, but </span><span style="font-family: Arial,Helvetica,sans-serif;">I will continue to post here when I identify issues that deserve more analysis than is provided in the mainstream media.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Secondly, my increased use of Facebook allows me to make shorter commentaries on news stories that don't necessarily merit a longer blog post. If this is something that also interests you, please "like" the Facebook page for my book, <i>Designated Drivers</i>, which you can find <a href="http://www.facebook.com/DesignatedDriversChina" target="_blank">here</a>.*</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">On that <a href="http://www.facebook.com/DesignatedDriversChina" target="_blank">page</a> I comment mostly on China's auto industry, but also on general business/government issues in China. Also, please feel free to jump in and comment as well, either here or on the <a href="http://www.facebook.com/DesignatedDriversChina" target="_blank">Facebook page</a>. This is all about making each other smarter, so I welcome comments and criticism. </span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">_______________________ </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">* Sorry, but I really hate the term "like" that Facebook insists on using. If you prefer, think of it as "following" instead. You can be interested in what I have to say without necessarily liking it. :)</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-34333733181493880292012-03-28T14:22:00.007-07:002012-03-28T17:19:52.863-07:00Is GM handing China another win?<span style="font-family: Arial,Helvetica,sans-serif;">General Motors <a href="http://www.carnewschina.com/2012/03/28/gm-working-with-catarc-to-charge-volt-sales-in-china/" target="_blank">announced today</a> that it has signed a memorandum of understanding with the China Automotive Technology and Research Center (CATARC) in which CATARC will reportedly...</span><br />
<blockquote class="tr_bq" style="font-family: Arial,Helvetica,sans-serif;">...manage GM’s fleet of demonstration Volts and will assist GM China in meeting certain objectives.<br />
<br />
These [objectives] will include gaining the support of key decision makers crafting vehicle electrification policy in China.</blockquote><span style="font-family: Arial,Helvetica,sans-serif;">Who is CATARC? From their <a href="http://www.catarc.ac.cn/ac_en/about/intro/webinfo/2007/12/1196727076728291.htm" target="_blank">English website</a>:</span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">China Automotive Technology and Research Center (CATARC) was established in 1985 response to the need of the state for the management of auto industry and upon the approval of the China National Science and Technology Commission. It is now affiliated to SASAC.<br />
<br />
As a technical administration body in the auto industry and a technical support organization to the governmental authorities, CATARC assists the government in such activities as auto standard and technical regulation formulating, product certification testing, quality system certification, industry planning and policy research, information service and common technology research.</span></blockquote><span style="font-family: Arial,Helvetica,sans-serif;">CATARC is "affiliated to SASAC" (S<span style="font-family: Arial,Helvetica,sans-serif;">tate-owned Assets Supervision and Administration Commission) which is essentially the organization that holds the shares of central state-owned enterprises. CATARC is also a major regulatory organization in that all automobiles need to be tested by CATARC before they may be certified for the road in China.</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">Since part of GM's purpose is to gain influence over policymakers, this relationship with an organization that is part of the central government cannot hurt. But there is more to CATARC than meets the eye.</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Not only is CATARC an auto industry regulator that is essentially owned by the central government, but it is also a <i>competitor </i>of GM's through its ownership in the <a href="http://www.catarc.ac.cn/ac_en/about/organizations/affiliations/webinfo/2007/12/1196727076182389.htm" target="_blank">Tianjin Qingyuan Electric Vehicle Company</a> (Qingyuan). </b> According to Qingyuan's website,</span></span><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> the company both develops and produces clean energy vehicles and components, which sounds remarkably like something that GM does.</span></span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">Qingyuan's "principal shareholder" is CATARC, and another of Qingyuan's shareholders is the Tianjin Lishen Battery Company, a producer of lithium-ion batteries for electric vehicles, which is, of course a competitor of LG Chem, the manufacturer of the battery in the Chevrolet Volt. (Lishen, incidentally, makes the li-ion battery for the <a href="http://www.codaautomotive.com/" target="_blank">Coda</a> electric car.)</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">So what does all of this mean? Am I saying that GM has handed its intellectual property over to CATARC so they may copy at will? Not exactly. CATARC, after all, also has a reputation to protect, so I am doubtful that they would so blatantly copy GM's Volt technology. But how certain can GM be that its technology will not find its way, through CATARC, into the hands of Qingyuan, or Lishen, or any of the dozens of Chinese automakers who bring their cars to CATARC for testing?</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">GM is no stranger to having its IP copied in China. Back in 2003, GM discovered that <a href="http://www.newyorker.com/archive/2005/09/26/050926fa_fact_hessler" target="_blank">Chery had somehow obtained the plans to the Chevrolet Spark</a>, and used them to develop the QQ which Chery got to market several months ahead of the Spark. And when GM went to its partner, Shanghai Auto, to complain about this miscreant that had been copying its technology, only then did GM learn that Shanghai Auto was also a part owner of Chery. (Long story short, GM sued, then settled out of court with Chery, which admitted no wrongdoing, and Shanghai Auto got rid of its shares in Chery.)</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">In all honesty, I find it hard to blame Chinese automakers for copying foreign technology and designs. After all, this is what all developing countries do when they are trying to catch up. All developed countries -- including the US -- at one time or another, copied other countries' technologies with reckless abandon.</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">I do, however, blame foreign automakers (and manufacturers in pretty much any industry) for sometimes naively risking their shareholders' valuable IP for a share of the Chinese market. The goal of the Chinese automakers is to win -- as it should be. But foreign automakers need to understand that the ultimate goal of China's automakers is to no longer need them. When Chinese partners say their aim is for a "win-win," this means they get to win twice.*</span></span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">___________________</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;">* I don't know for certain whether I was the first person to say this about the concept of "win-win", but I had not heard it before I tweeted it from my hotel room in Shanghai in January of 2010 (as <a href="http://rudenoon.com/absalletc/archives/2132" target="_blank">documented</a> by <a href="https://twitter.com/#%21/rudenoon" target="_blank">@rudenoon</a> on his blog). :)</span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"><br />
</span></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-56398013486562582592012-03-23T13:05:00.000-07:002012-03-23T13:05:11.635-07:00Time for a Shakeout in China's Auto Industry?<span style="font-family: Arial,Helvetica,sans-serif;">Yesterday China Bureau Chief of <i>Automotive News</i>, Yang Jian posted an interesting <a href="http://www.autonewschina.com/en/article.asp?id=8398" target="_blank">article</a> (free registration reqd.) speculating as to possible consequences of a recent slowdown in auto sales in China. In the first two months of 2012, auto sales decreased four percent, year-on-year – and this comes on the heels of (for China) a rather <a href="http://english.caixin.com/2012-01-13/100348367.html" target="_blank">anemic 2011</a> in which sales only grew about 2.5% and Chinese-branded passenger vehicles <a href="http://chinabizgov.blogspot.com/2012/01/chinese-branded-cars-lost-market-share.html" target="_blank">gave up nearly two percentage points</a> in market share to the foreign brands.<br />
<br />
In short, Yang Jian's point is that, should this drop in sales become a trend that lasts through 2012, some of the weaker players in China's auto industry could be forced into bankruptcy or possibly out of business altogether.<br />
<br />
From the perspective of China's central government, which has been begging and pleading for this heavily fragmented industry to consolidate itself for nearly three decades, this wouldn't be such a bad thing. (Of course it would be a bad thing for the employees of those companies that went out of business.) There are still well over 100 vehicle manufacturers operating in China (compared to only 24 in the United States), and this fragmentation prevents the industry as a whole from becoming more competitive <span style="font-size: small;">vis-à-vis</span></span><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: small;"></span> the foreign automakers.<br />
<br />
So what is the likelihood that a decline in sales could lead to a shakeout of the weaker players? Well, let's take a look at what happened the last time China's auto industry experienced a slowdown in sales growth. After enjoying annual sales growth of anywhere between 14% and 37% since 2001, the onset of the Great Recession in 2008 caused China's growth rate to drop to a horrifyingly low 7%. (Yes, the word “horrifyingly” should be interpreted sarcastically.)<br />
<br />
</span><br />
<div class="separator" style="clear: both; text-align: center;"><span style="font-family: Arial,Helvetica,sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPICCAo86Izhc7-1aE78jxhQcnaWi7drE0eo48uZBGqroY2BniC0WKhuSCKWaDKmNbDWvoHvAr-yeI7IbcbNlN6sEs06zv7xsVNrGvwtJF0M7LVpus55C1SYRwYyb52QAOeOX1n9HM080f/s1600/China+Sales+Graph.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="264" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPICCAo86Izhc7-1aE78jxhQcnaWi7drE0eo48uZBGqroY2BniC0WKhuSCKWaDKmNbDWvoHvAr-yeI7IbcbNlN6sEs06zv7xsVNrGvwtJF0M7LVpus55C1SYRwYyb52QAOeOX1n9HM080f/s320/China+Sales+Graph.png" width="320" /></a></span></div><span style="font-family: Arial,Helvetica,sans-serif;"><br />
I remember talking to a lot of auto industry insiders in China in the spring of 2009 when some of them lamented the fact that the much hoped-for shakeout didn't happen back then. (And it seems like Yang Jian himself may have been among those who expressed such sentiment to me then.)<br />
<br />
<i>Why didn't the shakeout happen? </i> </span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">The central government rode to the rescue with a far-reaching stimulus program that not only prevented another year of miserably low sales growth, but that, for the first time ever, launched China into position as the world's single largest market for automobiles in 2009. Hence the lamentations from some of my interviewees at the time. As Yang Jian hopes today, many of them also hoped soft sales growth would kill off some of the weaker players in 2009.<br />
<br />
<i>So will the central government ride to the rescue again this year?</i> </span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">I think it is less likely. With large cities in China already limiting the number of cars that can be sold and driven on their streets, and with the central government <a href="http://www.bloomberg.com/news/2012-02-20/china-curbing-overcapacity-helps-gm-set-goal.html" target="_blank">clamping down on overcapacity in the industry</a>, AND now that China is already the number one auto market in the world (they can't go any higher), a rescue is probably not in the cards.<br />
<br />
<i>Does that mean a shakeout will occur?</i> </span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">I wouldn't bet on that either. Among the top-10 automakers, Chang'an, Chery and BYD each experienced sales <i>declines</i> in 2011, which doesn't look good for them. Except that Chang'an is among China's “Big 4” and Chery is among China's “Small 4.” What this means is that the central government has designated these automakers to be among those <i>remaining </i>after the industry consolidates. And BYD is privately-owned (its shares are traded in Hong Kong), and, though it hasn't sold as many EVs and hybrids as it had hoped to by now, it is probably China's best chance of having an automaker who can compete in this space.<br />
<br />
<i>Will a shakeout then occur among the dozens of tiny, inefficient and unprofitable automakers scattered around the country?</i> </span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">I think this is the best hope, but whether the downturn will be deep enough and long enough to outlast local governments' ability to prop up these firms remains to be seen. Local governments tend to be rather fond of their automakers -- even the ones that lose money.</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><br />
</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com2tag:blogger.com,1999:blog-2755700415043205247.post-79854643223127906652012-03-20T19:51:00.002-07:002012-03-21T11:56:10.332-07:00Andrew Hupert's "Guanxi for the Busy American"<span style="font-family: Arial,Helvetica,sans-serif;">My friend Andrew Hupert, whom I first met in Shanghai several years ago, has for years managed a couple of very practical and helpful blogs on negotiating and managing in China (<a href="http://chinesenegotiation.com/">ChineseNegotiation.com</a> and <a href="http://chinasolved.com/">ChinaSolved.com</a>). Even before I met Andrew, I always wondered why he would give away such valuable information for free.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Well, now he's finally selling part of his wisdom in an e-book entitled <a href="http://www.smashwords.com/books/view/137026" target="_blank"><i>Guanxi for the Busy American</i></a> available at <a href="http://www.smashwords.com/books/view/137026" target="_blank">Smashwords</a> in ten different formats including Kindle, ePub and PDF. And at a price of only $2.99, it's a bit of a steal. (Seriously, Andrew, you should charge more.)</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://cache.smashwire.com/bookCovers/60b34916277825786042d8c1d32997fcd651a0be" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="http://cache.smashwire.com/bookCovers/60b34916277825786042d8c1d32997fcd651a0be" width="200" /></a></div><span style="font-family: Arial,Helvetica,sans-serif;">Because it's in an e-format, it's easy to keep on pretty much any device and peruse on the plane on the way to China. And whether someone is completely new to China, or an old China hand, the book is equally useful as both a source of necessary learning, or a reminder of how things work in China.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Much of this stuff simply doesn't come naturally to Westerners, and, even after nearly 20 years of travel to China, I occasionally need reminders. The book is a relatively quick and easy read -- it took me a little over an hour -- but it's packed with both theory and practice on what this mysterious <i>guanxi</i> thing is all about and how to navigate one's way through a potentially tricky maze of gestures and obligations.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Andrew's writing style is clean and straightforward, but also descriptive and, at times, humorous. Among the gems are statements like "Guanxi is the sweet candy shell that coats some potentially bitter medicine." What he explains is that, while the whole process of building <i>guanxi</i> can seem light and even fun, it is a process that the Chinese take very seriously. Mistakes made during this process can sink a partnership before it even gets off the ground.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Among the behaviors he warns against are denigrating the value of guanxi among your Chinese hosts by saying something like, "oh yeah, we have that concept in America too: it's not what you know but who you know," which is likely to be taken as an insult. Your Chinese hosts will be more flattered if you simply admit that the whole concept baffles you and that America has nothing like it. Even if that isn't true (and if you've read this book, it won't be true) it will buy you some credit with your hosts. (I mention this particular bit of advice because I know I have violated it several times in the past.)</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">The book also offers a way to "de-code" some of the guanxi talk you are likely to hear at an early guanxi-building session with your hosts.</span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">When they ask if you have been to China before, they want to know if you already have connections or are likely to grant them exclusive control (over your venture).</span> </blockquote><span style="font-family: Arial,Helvetica,sans-serif;">And another </span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">When they ask when you are returning to America, they want to know about your internal deadlines so they can time the negotiations to apply maximum pressure.</span></blockquote><span style="font-family: Arial,Helvetica,sans-serif;">He also offers practical advice on how to deal with endless toasts and offers of cigarettes during banquets. These are important rituals that tell the Chinese something about you. More importantly, how they react to your behavior also tells you something about what kind of partner they would be.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">One final point (among many dozens more) is that foreigners in China need to understand that their hosts generally want very much to invest in a long term relationship. But one shouldn't be fooled into thinking that a relationship that begins well will result in an eternal bond. The Chinese simply do not see it that way. The relationship will only last as long as the Chinese partner thinks he is deriving value equal to or greater than yours. Once that calculation changes, expect a re-negotiation. And if you aren't open to re-negotiation, expect your counterpart who has invested time in learning the names of your spouse, children and pets to lose interest and stop returning your calls. </span> <br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">The only real criticism I can think of is regarding the title. I am not so sure that North American and Western European cultures are so different that this book wouldn't be immediately useful on both sides of the Atlantic (and down under as well). Perhaps it might have been better titled <i>Guanxi for the Busy Westerner</i>.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Either way, people who do business in China need to load this book onto their Kindles and iPads</span>.<span style="font-family: Arial,Helvetica,sans-serif;"> And if you find yourself sending a newbie to China on behalf of your company, be sure he or she has this book ahead of time. They will need to read it several times before getting on the plane, and probably several more while they are in China.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com2tag:blogger.com,1999:blog-2755700415043205247.post-37746846085100749282012-03-19T12:40:00.000-07:002012-03-19T12:40:01.452-07:00Book Talk at USC<span style="font-family: Arial,Helvetica,sans-serif;">Several weeks ago I gave a talk related to my forthcoming book at the University of Southern California. Watch as I attempt to summarize four years of research and a 300-page book in less than an hour. :)</span><br />
<br />
<iframe allowfullscreen="" frameborder="0" height="233" src="http://www.youtube.com/embed/SeTMhAvTXR8" width="400"></iframe>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-68086067439056779282012-02-21T09:56:00.000-08:002012-02-21T09:56:37.436-08:00Volvo is Geely, and Geely is Volvo<a href="http://www.chinacartimes.com/wp-content/geely-volvo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="97" src="http://www.chinacartimes.com/wp-content/geely-volvo.jpg" width="200" /></a><span style="font-family: Arial,Helvetica,sans-serif;"> It was only a matter of time.</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">The privately-held Chinese automaker Geely has <a href="http://www.businessweek.com/news/2012-02-21/volvo-to-form-china-carmaking-venture-with-parent-zhejiang-geely.html" target="_blank">announced</a> that it will be forming a joint venture with its subsidiary Volvo. As you may remember, Geely’s owner, Li Shufu conducted a high-profile purchase of the Swedish automaker Volvo from Ford in 2010.</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">The concern at the time had been that Geely simply wanted to strip away Volvo’s intellectual property for itself, but Li Shufu assured observers that the two entities would remain separate: “<a href="http://www.nytimes.com/2010/03/29/business/global/29auto.html" target="_blank">Volvo is Volvo, and Geely is Geely</a>.” And indeed, the purchase was structured so that both the Hong Kong-listed Geely Motors and Volvo are both subsidiaries of a holding company controlled by Li Shufu. (In other words, Geely doesn’t own Volvo, technically, Li Shufu does.)</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">So why is Geely now forming a JV with Volvo? Because it has to in order to build cars in China. China’s rules require that any “foreign” automaker that wants to assemble cars in China may only do so through a joint venture with a Chinese automaker, and the foreign entity may hold no more than 50 percent of the JV. Since Volvo is still headquartered in Sweden, it is considered foreign.</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">The icing on the cake for China here is that, like all other foreign automakers who have sought permission from Beijing for expansion or establishment of a new venture anytime during the past two years, Volvo is also being required to “assist” Geely in building a Chinese-branded car.</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">Until now, this has only applied to state-owned enterprises because only state-owned enterprises had joint ventures with foreign automakers (with the exception of a small JV between BYD and Daimler to develop electric vehicles). The assumption had been that the SOEs, which had been dragging their feet in terms of developing their own brands, would be “given” slightly out-of-date technology by their foreign partners. They would then produce cars under a Chinese brand name using the foreign technology and designs. (I have previously written about <a href="http://chinabizgov.blogspot.com/2011/03/creating-chinese-brands-now-part-of.html" target="_blank">this phenomenon</a>, which I refer to as "sub-brands" or “JV Brands.”)</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">What is interesting here is that Geely, unlike the SOEs cannot be accused of “dragging its feet” in developing Chinese brands. Indeed, Chinese brands are all Geely has ever made!</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">So what does this mean for Volvo? What it means is that Volvo will simply be handing over technology onto which will be slapped a Geely-owned Chinese brand name.</span><br style="font-family: Arial,Helvetica,sans-serif;" /><br style="font-family: Arial,Helvetica,sans-serif;" /><span style="font-family: Arial,Helvetica,sans-serif;">Perhaps Li Shufu would now like to change his quote to, “Volvo is Geely, and Geely is Volvo.”</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com1tag:blogger.com,1999:blog-2755700415043205247.post-86029393684242539452012-02-08T16:41:00.000-08:002012-02-08T16:41:31.575-08:00GM's Kevin Wale on Innovation in China<span style="font-family: Arial,Helvetica,sans-serif;">The consulting firm McKinsey published on its website an <a href="http://www.mckinseyquarterly.com/Innovating_in_Chinas_automotive_market_An_interview_with_GM_Chinas_president_2920" target="_blank">interview with Kevin Wale</a>, president and managing director of General Motors China. The whole interview is worth a read if you are interested in the state of innovation in China, but here are a few of the more revealing excerpts with a little of my own commentary.</span><br />
<blockquote class="tr_bq"><span style="font-family: Arial,Helvetica,sans-serif;">Kevin Wale: When the Chinese get an idea, they test it in the marketplace. They’re happy to do three to four rounds of commercialization to get an idea right, whereas in the West companies spend the same amount of time on research, testing, and validation before trying to take products to market.</span></blockquote><span style="font-family: Arial,Helvetica,sans-serif;">This is both scary and admirable. Scary, because the Chinese are, at least according to Mr Wale, willing to put products into the market before they are fully tested as a means of development. When you think about it, this is pretty much what Apple does with its products. The first iPhone wasn't fully ready, but it was ready enough. Feedback from customers helped them to improve on subsequent iterations.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">What's scary about this is that driving a car that has been put into the market on an experimental basis doesn't sound like something I would want to do. If my iPhone blows up, I would probably survive. I'm not sure I could survive my car blowing up. While I would hope that GM is able to prevent its partner, Shanghai Auto, from putting dangerous vehicles on the market, I wonder whether other Chinese auto companies are quite as careful.</span><br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://images.thecarconnection.com/sml/buick_100173739_s.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="http://images.thecarconnection.com/sml/buick_100173739_s.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">The Buick LaCrosse, partially designed in Shanghai</td></tr>
</tbody></table><br />
<blockquote class="tr_bq" style="font-family: Arial,Helvetica,sans-serif;">The Chinese system supports the idea that it’s OK to fail if you fail in a government-sponsored direction. It’s OK to make mistakes as long as you’re moving forward. They’re quite OK to get out there, do something, find out it’s not perfect, but quickly adapt it and move forward. There’s no recrimination internally for doing that if that’s the direction the country wants to move in.</blockquote><div style="font-family: Arial,Helvetica,sans-serif;">It's a great thing that people feel comfortable to experiment within the boundaries set by the state, but the opposite of Mr. Wale's statement is that they <b>do not</b> feel comfortable experimenting <i>outside</i> the boundaries set by the state. But what if a worker has an idea that's not in “the direction the country wants to move in.”? Too bad.<br />
<br />
This, in my view, is precisely why China will always be a step behind. Governments have historically been quite bad at charting an unknown course in terms of picking winners and losers. In China, true technical innovation will always have to come from outside until people feel free to make mistakes in all areas of business, not just those approved by the geniuses in Beijing.</div><blockquote class="tr_bq" style="font-family: Arial,Helvetica,sans-serif;">McKinsey Quarterly: Do you source innovation from outside GM China? Kevin Wale: The answer depends on whether you’re talking about joint ventures or GM. In our joint ventures, we’re happy to take innovation from suppliers any day of the week.</blockquote><br />
<div style="font-family: Arial,Helvetica,sans-serif;">This is more interesting for what Mr Wale doesn't say. When asked whether GM gets innovation from outside, Mr. Wale assumes the question is about whether GM sources innovation from its joint ventures in China. From his answer, it seems pretty clear that they don't.<br />
<br />
Let's be honest here, the technology is still only flowing in one direction, and that's from GM to its Chinese partners. At what point will GM's partner have enough technology that it doesn't need GM anymore? </div>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com3tag:blogger.com,1999:blog-2755700415043205247.post-61705485346421641482012-01-30T16:50:00.000-08:002012-01-30T17:12:26.713-08:00Chinese-branded cars lost market share in 2011<span style="font-family: Arial,Helvetica,sans-serif;">In early 2009 China's government released a fairly comprehensive policy for the auto industry called the "Automobile Industry Adjustment and Stimulus Plan (<a href="http://www.gov.cn/zwgk/2009-03/20/content_1264324.htm" target="_blank">汽车产业调整和振兴规划</a>)." </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<a href="http://i360.photobucket.com/albums/oo46/ChinaBizGov/zhong_hua_old_logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://i360.photobucket.com/albums/oo46/ChinaBizGov/zhong_hua_old_logo.jpg" /></a><span style="font-family: Arial,Helvetica,sans-serif;">Among the major targets included in this plan was for an increase in market share of China's home-grown auto brands (also known as 自主品牌). One of the targets was for Chinese-branded passenger cars (轿车<i></i>, aka, sedans) to increase domestic market share to 30 percent in three years' time (by the end of 2011). (Up from about 26 percent at the end of 2008.)</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<a href="http://i360.photobucket.com/albums/oo46/ChinaBizGov/CheryLogo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="120" src="http://i360.photobucket.com/albums/oo46/ChinaBizGov/CheryLogo.jpg" width="200" /></a><span style="font-family: Arial,Helvetica,sans-serif;">China's auto industry enjoyed robust sales growth of 48 percent in that very year, giving the Chinese brands a 29.7 percent market share by the end of 2009. And just in case the leaders weren't satisfied with rounding up to 30, Chinese brands achieved a 30.9 percent market share by the end of 2010. </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">Unfortunately, the tide turned against manufacturers of Chinese-branded cars in 2011, causing them to <i>lose</i> market share for the first time. Though the absolute number of Chinese-branded cars sold increased, foreign-branded car sales grew at a faster rate, dropping the domestic brands to a 29.1 percent market share -- just in time to <i>miss</i> the target that had been set out for them three years earlier.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://i360.photobucket.com/albums/oo46/ChinaBizGov/PassCarMktShare-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="220" src="http://i360.photobucket.com/albums/oo46/ChinaBizGov/PassCarMktShare-1.jpg" width="400" /></a></div><span style="font-family: Arial,Helvetica,sans-serif;">And this came in a year during which luxury automakers enjoyed enviable sales growth in China: Audi-37%, BMW-37%, JaguarLandRover 61%, Cadillac-73%. </span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">Why did Chinese cars suddenly lose market share to the foreign brands?</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Did quality decline? Not at all! In fact, <a href="http://www.jdpower.com/news/pressRelease.aspx?ID=2010209" target="_blank">Chinese brands have been closing the quality perception gap</a> with the foreign automakers.</span><br />
<div class="separator" style="clear: both; text-align: center;"><br />
</div><div class="separator" style="clear: both; text-align: center;"><br />
</div><div class="separator" style="clear: both; text-align: center;"><a href="http://i360.photobucket.com/albums/oo46/ChinaBizGov/byd_logo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="146" src="http://i360.photobucket.com/albums/oo46/ChinaBizGov/byd_logo.jpg" width="200" /></a></div><span style="font-family: Arial,Helvetica,sans-serif;">What happened was that another provision in the "Adjustment and Stimulus Plan" of 2009 distorted sales growth in 2009 and 2010. The plan included a 50 percent cut in auto sales taxes for vehicles with engine sizes of 1.6 liters or less -- in other words, small cars.</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<span style="font-family: Arial,Helvetica,sans-serif;">The stimulus really worked! In 2009 sales of cars in the 1.6 liter and below segment grew 71 percent while sales in all other passenger car segments grew by "only" 23 percent. And the beauty of this stimulus plan was that, at the time of its introduction, fully 85 percent of the market for 1.6 liter and under cars was occupied by Chinese brands. This was none other than a plan to stimulate sales of <i>Chinese brands</i>.</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"></span><br />
<a href="http://i360.photobucket.com/albums/oo46/ChinaBizGov/150px-FAW_Car_logo.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://i360.photobucket.com/albums/oo46/ChinaBizGov/150px-FAW_Car_logo.png" /></a><span style="font-family: Arial,Helvetica,sans-serif;">The stimulus also worked in 2010, but it was later halved to only a 25 percent sales tax cut, and then, by the end of 2010, the stimulus was lifted completely -- resulting in disappointing performance in 2011.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Of course, we can't blame it all on lifting of the stimulus because, once the stimulus was enacted in 2009, foreign automakers scrambled to enter the 1.6 liter and below segment as quickly as possible.</span><br />
<br />
<span style="font-family: Arial,Helvetica,sans-serif;">Still, this does illustrate well the distorting effects of government schemes on markets. And it is somewhat ironic that the same plan that brought such growth in 2009, took it away once the stimulus provision was allowed to expire.</span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com2tag:blogger.com,1999:blog-2755700415043205247.post-12896549999693745122012-01-11T12:48:00.000-08:002012-01-11T12:48:13.115-08:00GM Wants its 1% back. Good luck.<span style="font-family: Arial,Helvetica,sans-serif;">GM <a href="http://www.reuters.com/article/2012/01/10/us-autos-gm-china-idUSTRE8092DI20120110" target="_blank">announced</a> yesterday (again) that it wants to repurchase a one percent stake in its joint venture with Shanghai Auto (SAIC) that it sold for a handful of magic beans a few years ago.</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://www.eiseverywhere.com/file_uploads/65e047d937a3e8e1db4bd3039febd9e0_SAIC_Logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://www.eiseverywhere.com/file_uploads/65e047d937a3e8e1db4bd3039febd9e0_SAIC_Logo.jpg" /></a></div><a href="http://www.adambots.com/wp-content/uploads/2011/01/General-Motors-Logo.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://www.adambots.com/wp-content/uploads/2011/01/General-Motors-Logo.jpg" width="200" /></a><span style="font-family: Arial,Helvetica,sans-serif;"><br />
Back in December of 2009, GM and SAIC announced a major change to their partnership which involved GM selling one percent of the SAIC-GM joint venture (JV) to SAIC for $85 million. This announcement also included details on a new Hong Kong-registered joint venture through which GM and SAIC would partner to conduct business in other countries, primarily India.<br />
<br />
The net result was that GM and SAIC were no longer 50:50 owners in the main China JV. With the one percent transfer, SAIC became the majority owner with a 51 percent stake. On paper at least, GM had been reduced to the role of junior partner.<br />
<br />
At the time, GM management explained that the purpose of the one percent transfer was in consideration of some future help from SAIC. And though it wasn't explicitly stated, GM statements sort of hinted that SAIC's help may come in the form of help with future funding.<br />
<br />
Early speculation was that GM needed the money. And since GM had emerged from bankruptcy only a few months earlier, that seemed to make sense, except that, in the whole scheme of things, $85 million didn't really seem like a lot of money. At year-end 2009, the company had over $14 billion in cash on its balance sheet, so it wasn't cash poor. And with a current ratio (current assets/current liabilities) of 1.13, it wasn't facing an impending liquidity crisis.<br />
<br />
Since I happened to be in Shanghai only a few weeks after this announcement was made, and since I was fortunate enough to land an interview with a senior SAIC executive who was integral to the negotiations with GM, I asked the SAIC executive to explain why GM would give up any leverage it had over the JV for a measly $85 million. His explanation made a little more sense.<br />
<br />
In short, SAIC wanted to be able to consolidate the top-line revenues of the JV into its parent company income statement, and under accounting rules, it could only do this if it owned more than 50 percent of the company. Chinese companies were (and are) under a great deal of pressure from Beijing to move up in the rankings of the Global <i>Fortune</i> 500, and since the <i>Fortune</i> list looks at sales, not profits, SAIC needed to make its sales number bigger.<br />
<br />
Does this sound ridiculous? It did to me too. But it's also the truth, as this particular executive, on two different occasions, emphasized to me the importance of moving up the list of the <i>Fortune</i> 500.<br />
<br />
So what did GM get for handing over control? According to the SAIC executive, GM wanted desperately to continue expanding its global footprint, but was facing two hurdles. First, as GM had recently exited bankruptcy, the terms it could receive on bank lending were highly unfavorable. Second, still being majority owned by the taxpayers of the US, GM was restricted in its ability to fund any activity that didn't somehow create American jobs or shore up the US-side of its business.<br />
<br />
And this is where SAIC came in. Through this partnership, SAIC, with its stellar credit rating, not to mention being a major state-owned corporation with access to favorable loan terms from both state-owned mainland banks as well as Hong Kong banks, would be able to help GM out with its funding needs overseas.<br />
<br />
The SAIC executive did suggest that GM and SAIC could have entered into an agreement whereby the two companies would create an entirely separate sales JV to which all vehicles manufactured would be sold. Then SAIC would own 51 percent of the sales JV, also allowing it to consolidate revenue into the parent company's income statement. (SAIC and its other major partner, Volkswagen have a similar arrangement.)<br />
<br />
However, this particular arrangement didn't work for GM either as, once again, GM's government minders in Washington were not interested in entering into any arrangements that didn't serve the interests of the US.<br />
<br />
Fast-forward a couple of years, and now <a href="http://www.reuters.com/article/2012/01/10/us-autos-gm-china-idUSTRE8092DI20120110" target="_blank">GM wants its one percent back</a>. The only way I can see this happening is if GM were to agree to set up the sales organization that SAIC had first proposed, which may be possible now that the US government is no longer a majority owner in GM (though still technically the controlling owner).<br />
<br />
Of course, since the time of that transaction, GM has been very vocal about the importance of the China market to the company's future. In fact, GM now sells more vehicles in China than in the US (<a href="http://www.bloomberg.com/news/2012-01-09/gm-china-sales-rise-8-3-percent-in-2011-on-buick-chevrolet-cars.html" target="_blank">2.6 million</a> vehicles in China vs <a href="http://investor.gm.com/sales-production/" target="_blank">2.5 million</a> in US in 2011.)</span><br />
<span style="font-family: Arial,Helvetica,sans-serif;"><br />
One wonders how eager SAIC will be to give up the majority control it has enjoyed for more than two years. Furthermore, given the importance of its China JV, GM can probably expect to pay considerably more than $85 million for the return of its one percent. </span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-63819952028360096482012-01-04T14:38:00.000-08:002012-01-04T16:47:25.765-08:00End of the Road for Foreign Automakers in China?<span style="font-family:arial;">Last week a story emerged that China's industrial planner, the National Development and Reform Commission (NDRC), has announced that it will stop supporting foreign investment in its auto industry. (News stories may be found <a href="http://www.bloomberg.com/news/2011-12-29/china-stops-encouraging-investment-in-auto-manufacturing-after-sales-slow.html">here</a>, <a href="http://online.wsj.com/article/SB10001424052970203899504577128702636589134.html">here</a> and <a href="http://www.smh.com.au/business/world-business/china-limits-foreign-car-investment-20111230-1per9.html">here</a>.)<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://dalje.com/slike/slike_3/r1/g2010/m03/y229731203057620.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="http://dalje.com/slike/slike_3/r1/g2010/m03/y229731203057620.jpg" alt="" border="0" /></a><br />This bit from a <span style="font-style: italic;">China Daily</span> <a href="http://www.chinadaily.com.cn/cndy/2011-12/30/content_14354135.htm">article</a> explains a little about why these restrictions were being put in place:<br /><blockquote>China...has removed industries from the list of those it encourages foreign companies to invest in. No longer part of that group are automakers, large coal-to-chemical operations and manufacturers of polycrystalline silicon.<br /><br />"The restrictions generally apply to<span style="font-weight: bold;"> industries that have excessively large capacities and that pollute the environment</span>," said Zhang Xiaoji, senior researcher at State Council's development research center. (emphasis added)<br /></blockquote>My take on this story is that the NDRC actually has no real intention of restricting foreign investment in its auto industry. To understand why this is so, one needs only a limited understanding of the history of foreign involvement in China's auto sector, which I lay out in an <a href="http://online.wsj.com/article/SB10001424052970203513604577140041232991080.html?mod=WSJ_Opinion_LEFTTopBucket">op-ed</a> in today's <span style="font-style: italic;">Asian Wall Street Journal</span>.<br /><br />In short, I make the claim that:<br /><blockquote>... the NDRC's announcement is more about improving Chinese leverage in negotiations with foreign automakers so Chinese automakers can more quickly overcome their innovation deficit.<br /></blockquote>For the rest of the op-ed at the WSJ site, click <a href="http://online.wsj.com/article/SB10001424052970203513604577140041232991080.html?mod=WSJ_Opinion_LEFTTopBucket">here</a>.<br /><br />And for all of the stories behind the main story of business-government relations in China's auto sector, my book, <span style="font-style: italic;">Designated Drivers: How China Plans to Dominate the Global Auto Industry</span>, will be published by Wiley and Sons this year.<br /><br />Coming to a bookstore, mailbox or e-reader near you in Spring 2012. Stay tuned!<br /><br />_________________<br />EDIT:<br />I was just notified that my article was also picked up by WSJ<span style="font-style: italic;">'</span>s US op-ed page. It will run in Thursday's edition. (January 5)<br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com3tag:blogger.com,1999:blog-2755700415043205247.post-80192668571837819522011-12-31T12:18:00.000-08:002012-01-04T15:31:45.141-08:00Will India Challenge China? Not yet.<span style="font-family:arial;">Last month my wife and I took our first ever trip to India. Since that time I have struggled to put into words what I learned on our trip – not only about India, but also about China. Since today is the last day of 2011, I have determined that my latest thinking on this topic, however crudely formed at this point, is going up on the blog today.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmmWfO-LXlpzcC8Brs9WWUyrMNUCFUVln6q0mGJLLW8_N_KqKfGqI9JdMpN-q39nOdVYVfDZM5FJktvsgqa7qjkTUZBc0RQIvQfA3jtAmhois-CyWMssSstsGovpNxqaQTrLkWS37TJ1Eu/s1600/IMG_0747.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 300px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmmWfO-LXlpzcC8Brs9WWUyrMNUCFUVln6q0mGJLLW8_N_KqKfGqI9JdMpN-q39nOdVYVfDZM5FJktvsgqa7qjkTUZBc0RQIvQfA3jtAmhois-CyWMssSstsGovpNxqaQTrLkWS37TJ1Eu/s400/IMG_0747.JPG" alt="" id="BLOGGER_PHOTO_ID_5692394225751321234" border="0" /></a></span></div><div style="text-align: center;"><span style="font-weight: bold;"><span style="font-size:85%;">India Gate, Delhi</span></span><br /></div><span style="font-family:arial;"><br />So what does China have to do with India? More importantly, you may be asking, how could one hope to learn anything about China by visiting a completely different country?<br /><br /><span style="font-weight: bold;">Why India?</span><br /><br />Aside from the fact that I thought India would be an interesting place to visit, I had begun to notice over the past year news stories, blog posts and twitter discussions about whether India would ever challenge China economically, militarily and/or diplomatically.<br /><br />One book I read earlier in 2011 was Robert Kaplan's <a href="http://www.amazon.com/Monsoon-Indian-Ocean-Future-American/dp/0812979206/ref=tmm_pap_title_0"><span style="font-style: italic;">Monsoon</span></a>, a fascinating historical approach to explaining why the Indian Ocean will become the world's most contested region, and how China and India are already competing for influence. (Kaplan also leads the reader to wonder a.) whether the US understands the importance of this region and b.) even if the US gets it, whether the US will have either the will or the ability to maintain its influence.)<br /><br />The question of whether China's influence in the region will increase is no longer contested, but many people – including some long-time China watchers such as me – see India as a potentially credible rival to China. India has a large land mass, the world's second largest population and an economy that has consistently turned in upper-single digit economic growth for most of the past two decades. India and China also share a long and contested border, with both countries occupying lands claimed by the other, and as a result, the level of trust between the two has always been fairly low.<br /><br />Regardless of whether India could become a credible rival, it is easy to see that many of the necessary ingredients for a rivalry are there. And given what I know about China – that it fully intends to return to its historical role as regional (if not global) hegemon – I wanted to see for myself whether India might truly be on the cusp of challenging China's ambitions.<br /><br />So why might I have expected to learn anything about China while in India? Perhaps it is because China is the first country in which I ever spent significant time abroad. Ever since the mid-'90s, every other country I have visited has further illuminated my view of China.<br /><br />Since 2000, when my employer sent me to Japan for a couple of years, I have viewed China slightly differently. To give but one small example, having been a waiter in college, I had always thought that service in China was poor because no one tipped in restaurants. After my first dinner in Japan, not only was I amazed by the friendly and efficient service, but also by the fact that the Japanese don't tip in restaurants either. There was clearly a much deeper cultural or sociological explanation for the disparity in service levels between China and Japan.<br /><br /><span style="font-weight: bold;">Will India challenge China?</span><br /><br />So, back to the first burning question that drove me to India, the question of whether India will be a credible rival to China. The short answer to this question, I am disappointed to admit, is <span style="font-weight: bold;">no</span> – certainly not in the near future, and not without China self-destructing from the inside.<br /><br />As thrilled as we were to have arrived at the clean new terminal of Delhi Airport, my wife and I were simply dumbstruck by the the poverty, filth and chaos we witnessed during the hour-long ride to our hotel. <span style="font-weight: bold;">Delhi makes Beijing look clean and orderly by comparison</span> (a fact that cannot have been lost on any Chinese leaders who have visited India). And while I reserved judgment on that first day, the remainder of the two weeks we spent in India further confirmed that India is not quite ready for prime time.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUqCROPBRqUtQdzkmGHXpUfmfcDh0viVKKihWWJpWGKb2_-8rVe0u_-IlOufyB5a9me6McIXTS3MDtWGld8nudkPKe_RkDVa48UP-BDYHTe9HK8lbxDiQQEN4eVJq4iY5BINwbinxHajc7/s1600/IMG_0917.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUqCROPBRqUtQdzkmGHXpUfmfcDh0viVKKihWWJpWGKb2_-8rVe0u_-IlOufyB5a9me6McIXTS3MDtWGld8nudkPKe_RkDVa48UP-BDYHTe9HK8lbxDiQQEN4eVJq4iY5BINwbinxHajc7/s400/IMG_0917.JPG" alt="" id="BLOGGER_PHOTO_ID_5692396412678825378" border="0" /></a></span></div><div style="text-align: center;"><span style="font-size:85%;"><span style="font-weight: bold;">Chandni Chowk</span></span><span style="font-weight: bold;"><span style="font-size:85%;"> Bazaar</span></span><br /></div><span style="font-family:arial;"><br />This is not to say that India has no hope at all, but a lot of what I saw on the ground, combined with what one may easily learn about politics in India by reading the news, leaves me to believe that India has much further to go if it ever hopes to catch up with China. <span style="font-style: italic;"> I simply never imagined India's overall development gap with China would be so wide.</span><br /><br />I also came away from India with a new level of appreciation and respect for the accomplishments of China. While I don't believe China's accomplishments excuse the lack of personal freedoms and rampant abuses of human rights, one cannot help but admire the speed with which China has pulled itself out of a deep hole of poverty.<br /><br /><span style="font-weight: bold;">Traveling in India and China</span><br /><br />Traveling in China, while having improved quite a bit over the past two decades is still a bit of a grind, and in some areas it has become worse. When there were fewer people traveling by air back in the '90s, there were also far fewer unexplained flight delays than there are now.<br /><br />That said, we found traveling in India to be even more difficult. Travel agencies and airline ticket offices tend to close on Sundays so if an emergency arises (say, for example, one gets food poisoning – don't ask me how I know about this) and you need to change your travel plans, just be sure it doesn't happen on a Sunday. (Apparently the planes do still <span style="font-style: italic;">fly</span> on Sunday.)<br /><br />Also, trains in India are apparently affected by fog. The day we left Delhi for Agra, our train was two hours late, which actually wasn't bad considering many trains were as much as six or seven hours late that day.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3LTKf77f21nKe4hWLhcfAf65ZrTGFDAGf41ZLByY3Dztvq0-KS2n205g8OQwejP9PJhXwh7LOuLg-wxmMK0k4sgiHSJYaRWkVWLEEncFq4mrrMoIFO7Z4l_8u0yO1cxsGFfONGKVAU87G/s1600/IMG_0951.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3LTKf77f21nKe4hWLhcfAf65ZrTGFDAGf41ZLByY3Dztvq0-KS2n205g8OQwejP9PJhXwh7LOuLg-wxmMK0k4sgiHSJYaRWkVWLEEncFq4mrrMoIFO7Z4l_8u0yO1cxsGFfONGKVAU87G/s400/IMG_0951.JPG" alt="" id="BLOGGER_PHOTO_ID_5692397493766078626" border="0" /></a></span></div><div style="text-align: center;"><span style="font-size:85%;"><span style="font-weight: bold;">New Delhi Train Station</span></span><br /></div><span style="font-family:arial;"><br />This connection between train travel and weather would not have occurred to me, but apparently train engineers in India need to have a certain distance of visibility before a train can travel. Having traveled on trains in China in all kinds of weather, I don't think this is the case there, though I could be wrong. I mean, if all trains follow their appointed schedules, and all trains are connected via radio to each other and to a central dispatch, avoiding collisions shouldn't be rocket science.<br /><br />Of course, one can easily avoid the hassles of air and train travel by hiring a car and driver, but it can be quite expensive, particularly if it is arranged by your hotel, which (as we later realized) has no problem doubling the price of the car for their own profit.<br /><br /><span style="font-weight: bold;">Corruption</span><br /><br />And in terms of scams and general corruption, I used to think the Chinese were masters at cheating foreigners, but they have nothing on the Indians I encountered on the tourist track. By comparison, the Chinese are rank amateurs. At every turn – particularly in north India, but less so in the south – we encountered people who, on the pretense of being friendly and inquisitive, wanted nothing more than to separate us from our money while providing nothing of value in return.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyZAGqkd2eVIxkHngSGgXjVYSBJV1zVqPyLqK8MjhqAnUBJCBN1Wcmy3K4g67PLupAZoi5aZz_VOYBj7jUWPTMWxIrO3j8c3p35DXWT6LCoOLjxS8X61XpSD9y_iaqb2dgkQe4d_eC4ris/s1600/IMG_0804.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyZAGqkd2eVIxkHngSGgXjVYSBJV1zVqPyLqK8MjhqAnUBJCBN1Wcmy3K4g67PLupAZoi5aZz_VOYBj7jUWPTMWxIrO3j8c3p35DXWT6LCoOLjxS8X61XpSD9y_iaqb2dgkQe4d_eC4ris/s400/IMG_0804.JPG" alt="" id="BLOGGER_PHOTO_ID_5692398012690283122" border="0" /></a></span></div><div style="text-align: center;"><span style="font-size:85%;"><span style="font-weight: bold;">A market in central New Delhi. Where were all the women?</span></span><br /></div><span style="font-family:arial;"><br />In all fairness, I must emphasize that these people were gathered in massive numbers around the areas frequented by tourists. Because we did not really experience the everyday lives of average Indian citizens, I cannot comment on whether such corruption affects their lives to a similar degree. However, if the many Bollywood movies I have watched are any indication, perhaps the corruption for the average Indian is just as bad though taking on different forms.<br /><br /><span style="font-weight: bold;">But you should go to India anyway...</span><br /><br />While my post thus far has focused on some of our negative experiences in India, the truth is that my wife and I loved India. The amazing sights we saw, the outstanding food we ate, and the smart and honest people whom we encountered along the way combined to make the whole experience worthwhile.<br /><br />If you have ever considered traveling to India just to see the sights, we can attest that it is absolutely worth the effort. (And this comes from a couple who have seen many of the amazing sights that China, Vietnam, Japan and California have to offer.) Though we were disappointed to find our view of the <a href="http://en.wikipedia.org/wiki/Taj_mahal">Taj Mahal</a> completely obscured by pea-soup fog, this in no way diminished our experiences in seeing the <a href="http://en.wikipedia.org/wiki/Qutb_Minar">Qutb Minar</a>, <a href="http://en.wikipedia.org/wiki/Humayun%27s_tomb">Humayun's Tomb</a>, the <a href="http://en.wikipedia.org/wiki/Red_fort">Red Fort</a>, <a href="http://en.wikipedia.org/wiki/Agra_fort">Agra Fort</a> and the <a href="http://en.wikipedia.org/wiki/Amber_Fort">Amber Fort</a> near Jaipur, among others.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7YM89LFscPsCGeyHiExaOE7CkjjqGlXAIMZ-BgfWTcOdq3O4xoWLX7AKneRhSaAv6FtrkuJXCcdYp9p-SKf_3bnDbmuKNvToTYRByMcyGjTAiG3mznBO0d2bHWE-DchTyraskomYZhbJf/s1600/CIMG2266.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7YM89LFscPsCGeyHiExaOE7CkjjqGlXAIMZ-BgfWTcOdq3O4xoWLX7AKneRhSaAv6FtrkuJXCcdYp9p-SKf_3bnDbmuKNvToTYRByMcyGjTAiG3mznBO0d2bHWE-DchTyraskomYZhbJf/s400/CIMG2266.JPG" alt="" id="BLOGGER_PHOTO_ID_5692398643266208274" border="0" /></a></span></div><div style="text-align: center;"><span style="font-size:85%;"><span style="font-weight: bold;">The Taj Mahal (It's back there somewhere.)</span></span><br /></div><span style="font-family:arial;"><br />We also experienced fantastic service aboard a <a href="http://en.wikipedia.org/wiki/Kettuvallam">kettuvallam</a> boat on the <a href="http://en.wikipedia.org/wiki/Kerala_backwaters">backwaters of Kerala </a>while dining on outstanding Kerala cuisine and learning about the lives of the people who farm and fish in the area. And probably our best experience was at a <a href="http://www.olavipe.com/">farm homestay</a> near Kochi where we enjoyed the warm hospitality of a world-wise Syrian Christian family and engaging conversation around the family dinner table.<br /><br /></span><div style="text-align: center;"><span style="font-family:arial;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijXlUBMZJJvsgFfJeia8fLbAkHnoFUlpUxaOY-SuzI-bgWJiSLg7GfpgMZSHxLHUOCI0QXjhHZixlnFvgDQH65fOTmfCYzxCQQlVr30uC7Pj72QDKTJAW2LQXll8gw5gN3RRMkIyEBrde6/s1600/IMG_1478.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 300px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijXlUBMZJJvsgFfJeia8fLbAkHnoFUlpUxaOY-SuzI-bgWJiSLg7GfpgMZSHxLHUOCI0QXjhHZixlnFvgDQH65fOTmfCYzxCQQlVr30uC7Pj72QDKTJAW2LQXll8gw5gN3RRMkIyEBrde6/s400/IMG_1478.JPG" alt="" id="BLOGGER_PHOTO_ID_5692400435212821506" border="0" /></a></span></div><div style="text-align: center;"><span style="font-size:85%;"><span style="font-weight: bold;">The crew on our kettuvallam cruise, Lake Vembanad, Kerala</span></span><br /></div><span style="font-family:arial;"><br />All of this should come as no surprise to anyone who has traveled to more than a handful of foreign countries. The world is a big place, and every country has both its pluses and minuses. While I still have yet to visit most of the world's countries, in every country I have visited, I have discovered uniquenesses that make my travels worthwhile. And though India did not live up to my (unreasonable) expectations, I have no regrets for having visited, and I will most certainly return. (While I was able to touch the Taj Mahal, I still have yet to see it!)<br /><br /><span style="font-weight: bold;">Evolving views on India vs China</span><br /><br />This has been a difficult blog post for me to write, if for no other reason than that I really, <span style="font-style: italic;">really</span> wanted India to be the credible rival that China needs to have in Asia. Also, since returning from India, my wife and I both have found that our views are evolving as we continue to ruminate over our experiences there and compare them to our experiences elsewhere.<br /><br />And I must also emphasize that this does not arise from a desire to “keep China down” as China's media often likes to claim whenever foreigners disagree with China's government. As I stated before, I have an even greater appreciation for China's accomplishments to date. Yet at the same time, it is somewhat unnerving to the free world that a big, powerful country such as China <span style="font-style: italic;">may</span> have figured out a way to build prosperity without personal freedoms (note the emphasis on “may”). It makes many people uncomfortable that this kind of government aspires to regional hegemony and world leadership.<br /><br />I would argue that no one really has a desire to “keep China down,” but that many do have a desire to keep <span style="font-style: italic;">authoritarianism</span> down. If China were to demonstrate its concern for human rights, few would have a problem with its asserting influence around the world. (Though one might argue the same for the United States.)<br /><br />And this is precisely why my hopes for India were so high. I very much wanted to see for myself that a democratically-led government could provide for its citizens both freedom and economic prosperity, and act as a counterweight to the other big country in the region that only wants to provide the latter. But what I saw is that, similar to America, India's prosperity is limited to a small sliver at the very top of society. The middle class experience stagnation while the poor are just trying to keep their heads above water.<br /><br />It would be easy to blame democracy for the disparity between China and India, but I believe that is too simplistic of an answer. (Naturally, this is the lesson that China's leaders will choose to take from their own comparisons with India.) There are many other differences between China and India that cannot be ruled out as factors affecting the countries' trajectories of development.<br /><br />The most obvious difference is demographic. Whereas China is quite homogeneous, India is a patchwork of ethnicities, religions and languages. Without going into too much detail, I can only say that it is a surprise to me that India has remained a cohesive unit since 1947. The fact that it didn't break into dozens of rival states is a testament of the determination of independent India's first leader <a href="http://en.wikipedia.org/wiki/Jawaharlal_Nehru">Jawaharlal Nehru</a>. Love him or hate him, one cannot deny that he laid the foundation for modern India – both good and bad.<br /><br />Since this blog post is already far longer than most people will bother to read, I will end it here and simply note that my thinking on this topic is far from complete. Scholars far more brilliant than I have tackled this topic of comparative modernization, and have yet to produce anything more than hypotheses (some more plausible than others).<br /><br />The one thing I know, however, is that I will most certainly spend time in both India and China again in the future. I see great value in understanding both countries and how their political systems affect the lives of real people.<br /><br />Happy 2012, everyone!<br /><br />_________________________<br /><span style="font-weight: bold;">EDIT (4 Jan 2012)</span><br />Dan Harris at <a href="http://www.chinalawblog.com/2012/01/will_india_challenge_china.html">ChinaLawBlog</a>, one of my favorite China blogs, linked to my India-China post and had some interesting comments of his own -- some of them way too kind, but also some valid criticism. Since his site generates a lot more traffic than mine, his post generated a lot more comments than mine (although I believe this post sets the all-time record for comments at ChinaBizGov.)<br /><br />Check out Dan's <a href="http://www.chinalawblog.com/2012/01/will_india_challenge_china.html">post</a> and also the comments that follow. Some people are critical of the fact that we would even compare China and India, but I think the fact that so many people took issue with this post tells me that there really is no consensus answer on this topic. There are a lot of great ideas and food for thought in the comments (along with the usual anonymous sniping from the sidelines).<br /><br />If you're <span style="font-style: italic;">really</span> interested, here's another related <a href="http://www.china-briefing.com/news/2012/01/04/why-india-matters-investing-in-india-makes-sound-asia-strategic-sense-when-coupled-with-china.html">post</a> on this topic that I came across today. It's written by someone with a great deal more experience in both China and India than me, and he includes a lot of facts and figures to back up his assertions.<br /><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com29tag:blogger.com,1999:blog-2755700415043205247.post-49791606509109267042011-12-14T10:11:00.000-08:002011-12-14T11:06:28.613-08:00Hold on to your lugnuts! It's time for a Trade War!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://cdn1.hark.com/images/000/107/014/107014/original.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 176px;" src="http://cdn1.hark.com/images/000/107/014/107014/original.jpg" alt="" border="0" /></a><br /><span style="font-family:arial;">The <span style="font-style: italic;">Wall Street Journal</span> is <a href="http://online.wsj.com/article/SB10001424052970204026804577097962928196218.html?mod=wsj_share_tweet#articleTabs%3Darticle">reporting</a> today that China is preparing to levy duties on certain autos imported from the US. This would be<span style="font-style: italic;"> on top of </span>the 25 percent duties that China is still allowed to levy under its WTO commitments.<br /><blockquote>China's Ministry of Commerce said in a statement late Wednesday that it will levy antidumping and antisubsidy duties on imports from the U.S. of some vehicles with engine capacities above 2.5 liters beginning on Thursday and lasting through the next two years. ...<br /><br />The ministry said several U.S. companies, including General Motors Co., Chrysler Group LLC and the U.S. arm of Honda Motor Co., engage in dumping and subsidizing. The statement said the move would also affect cars made by the U.S. arms of Mercedes-Benz and BMW AG, though it said their level of dumping was smaller.</blockquote>Note that China's Commerce Ministry singled out not only the traditional US automakers GM and Chrysler, but also the US arms of Honda, Mercedes and BMW.<br /><br />While China could have plausibly argued that GM and Chrysler benefit from government subsidies due to the bailouts these two companies received, they instead chose to make this about all cars with engines larger than 2.5 liters made in the US (but not in Japan or Germany!).<br /><br />Does anyone think the US Congress will choose to view this as any less than an attack on the livelihoods of American workers -- and in an election year no less? Of course, Congress cannot portray themselves as innocents in all of this as Congress has already singled out <a href="http://chinaenergysector.com/2011/11/28/solar-power-trade-war-brewing/">China's solar panel industry</a> for US-imposed tariffs. Then again, Congress can point to China's currency...<br /><br />And on and on it goes. One thing I learned in grad school about wars (the kind in which people shoot at each other) is that it is nearly impossible to identify who started it. No matter which incident one side points to, the other side can go further back in history to identify another.<br /><br />If we look at this incident only with regard to China's auto industry, it is also easy to see a kind of pattern here. Back in 2009, when China launched the <a href="http://chinabizgov.blogspot.com/2009/01/chinas-auto-stimulus-having-effect.html">stimulus heard round the world</a>, they chose to subsidize consumer purchases of vehicles with engines smaller than 1.6 liters.<br /><br />Why 1.6 liters? Because the foreign automakers that were dominating China's auto market had very little to offer in the small car segment. That subsidy was <a href="http://chinabizgov.blogspot.com/2010/12/missing-link-in-chinas-auto-development.html">intended to boost sales of Chinese-branded cars</a>.<br /><br />Of course, the foreign automakers didn't stand still. Many of them already had small cars in the pipeline, so they got them to market faster -- just in time for China to cancel the subsidy toward the end of 2010.<br /><br />Why are the import duties now focused on 2.5 liters? Because this is an area in which the foreign automakers pretty much own the market. This effort to make these imports more expensive may ideally (from China's point-of-view) accomplish two things: 1) make Chinese consumers more likely to consider a less expensive Chinese-branded car, and 2) make foreign automakers consider moving more assembly of their larger models to China.<br /><br />In reality China's new tariff may not accomplish either purpose. For one, the Chinese consumers who are more interested in these larger cars (as the <span style="font-style: italic;">WSJ</span> <a href="http://online.wsj.com/article/SB10001424052970204026804577097962928196218.html?mod=wsj_share_tweet#articleTabs%3Darticle">article</a> points out) are less price sensitive anyway. They are already interested in these large foreign brands because they perceive them to have higher quality. In addition, because the volume of these larger cars in China is still comparatively small, it is highly doubtful that much, if any, of their production would be moved to China. (Perhaps that second one is a straw man argument.)<br /><br />So what does China really stand to gain? Not much, really. In the end, China will get the trade war that it has been <a href="http://www.chinadaily.com.cn/bizchina/2009-02/06/content_7452155.htm">warning us about for years</a>, and its home-grown automakers will still face a quality gap with their foreign partners/competitors.<br /><br />____________________________<br />In case you're wondering where the picture at the top came from:<br /><br /><iframe width="420" height="315" src="http://www.youtube.com/embed/FWULKc4YfC4?rel=0" frameborder="0" allowfullscreen></iframe><br /><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-51197489160102196112011-11-05T19:00:00.000-07:002011-11-06T03:12:26.673-08:00China, without all the paranoia<span style="font-family:arial;">I recently returned from a trip to Taiwan as part of an American Young Scholars' Delegation. Pretending that I could still qualify as “young,” I joined ten other American scholars as a guest of Taiwan's Ministry of Foreign Affairs (MOFA) for a week of meetings and sightseeing.<br /><br />The purpose of this trip was for Taiwan to introduce itself to a handful of foreign scholars who previously had little contact with Taiwan, but who were interested to see the country up close. About half of our delegation were China scholars, with the rest having interest in aspects of Taiwan's culture, politics or society related to their own research.<br /><br />As is my custom, on the first morning after the trans-Pacific flight, I hit the streets for a quick run and my first look at Taipei as the sun was rising. The area around our hotel in Taipei felt much like parts of Hong Kong or Shenzhen: green and well-swept.<br /><br />Whenever I run in China, I am accustomed to being either stared at or ignored, but I was surprised when two different people greeted me during my first run in Taipei. One security guard enjoying a cigarette gave me a big wave and a deep-voiced “ni hao.” Another middle-aged Chinese man greeted me with broad smile, a nod and an enthusiastic “good morning!”.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5OXWMWvWGiH6B2kuJKl7c4kiwWkbXygtTdmc3ymVApPZQoMpS7g-2w9jkcdvVF70I9UbzKzCaPaEio1YIWZHzyWHRumHQ6l5ERCROK0aN2isaBEWXtGpRMpk0qrTQfHVmmRdB9M2m1kcE/s288/DSC00680.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 288px; height: 216px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5OXWMWvWGiH6B2kuJKl7c4kiwWkbXygtTdmc3ymVApPZQoMpS7g-2w9jkcdvVF70I9UbzKzCaPaEio1YIWZHzyWHRumHQ6l5ERCROK0aN2isaBEWXtGpRMpk0qrTQfHVmmRdB9M2m1kcE/s288/DSC00680.JPG" alt="" border="0" /></a><br />In hindsight, I guess I shouldn't have been so surprised by the openness and friendliness of strangers on the streets in Taiwan. Our entire itinerary was intended to impart that impression. Everywhere we went, we were greeted with openness and a willingness to answer all but the most sensitive of questions. (I'll forgive the Deputy Minister of Defense for not fully answering Katherine's question about Taiwan's strategy for defending the Taiwan-held Jinmen [Kinmen] island against an attack by the mainland.)<br /><br />And while no one chose to dwell on the negative aspects of Taiwan's politics, no one shied away from the facts that fistfights have occurred on the floor of the legislature in the past or that Taiwan's former president now serves a prison sentence for corruption. Indeed, on the day we visited the Legislative Yuan, there was a protest taking place on the street out front. No problem for us though: we just went around back. We learned that Taiwan has been continuously developing its own democratic system for the past two-plus decades, and that, despite the occasional chaos, despite the international isolation, and despite the ever-present threat of big, bad China next door, Taiwan's people have a say in how their lives are run.<br /><br />Contrast this trip with, well, every trip I have ever taken to China. While the average Chinese citizen can be as open and friendly in private as the average citizen of Taiwan is on the street, there is a stark difference in the general atmosphere. (And I'm not just talking about China's awful pollution.)<br /><br />Though it is hard to describe in concrete terms, there is a heaviness in China that one feels as soon as one steps off the plane – a sense that one must be careful about what he does, what he says and where he goes. (And any Chinese government official reading this is saying to himself, “well, of course! That's how it's supposed to work!”)<br /><br />Despite months and months of trying desperately to get even the lowliest bureaucrat on the mainland to discuss China's auto industry with me during my field research a few years ago, out of over 100 interviews, I only managed to interview a single government official. (Though I did talk to several people who work in government-controlled “NGOs”.) And among those whom I did manage to interview, only a few were willing to delve very deeply into the political forces that have shaped China's industrial planning. Even some expatriates with whom I met were scared to talk openly with me. (One expat even demanded that I return his name card after the interview!)<br /><br />Another surprise during our trip came in our visit to the American Institute in Taiwan (AIT), the <span style="font-style: italic;">de facto</span> embassy of the United States in Taiwan. Having visited a few US consulates on the mainland, I thought I had an idea of what to expect, and indeed AIT had that familiar smell of an old church with a pot of coffee brewing somewhere. But our meeting with AIT officials (our Taiwan MOFA minder remained outside) revealed a surprising level of enthusiasm. In contrast with the bunker mentality I have encountered among bureaucrats at US consulates on the mainland, these folks made no attempt to conceal their enthusiasm, indeed, their <span style="font-style: italic;">advocacy</span>, for Taiwan and all it stands for.<br /><br />This is not to say that our entire trip was propaganda-free. After all, Taiwan, just like the mainland, also has an agenda. But unlike the mainland, that agenda doesn't include the continued rule of an unelected government, the stifling of free speech, the occupation of, or claim to, territories that do not wish to be a part of the larger whole.<br /><br />What Taiwan wants is quite simple. They want the rest of the world to know how open and transparent their system is, how much freedom their people enjoy, and how much like the rest of the developed world Taiwan is. In short, the whole purpose of Taiwan's Ministry of Foreign Affairs is to run out the clock. To use a basketball analogy, the task of MOFA is to keep the ball in play, and to keep the other side from getting their hands on the ball. I think the best hope is that China will eventually change into something Taiwan wants to be a part of.<br /><br />Taiwan has been effectively isolated in the world by China, but Taiwan's diplomats are doing the best they can to let the rest of the world know they exist and that they have a society worth preserving in its present state. And judging by some of the results, Taiwan's efforts are paying off. To cite but one example, the citizens of Taiwan now enjoy visa-free travel to 124 countries around the world compared to only 34 for citizens of the PRC. (I don't know how many countries US citizens can travel to visa-free, but I'm certain it's fewer than Taiwan's citizens enjoy.)<br /><br />There are, of course, downsides to Taiwan's position. The question of whether Taiwan should declare <span style="font-style: italic;">de jure</span> independence from China or adhere to the status quo dominates Taiwan's politics – to the extent that important domestic issues often fail to get the attention they deserve. National elections tend to be primarily about a candidate's position on cross-strait relations.<br /><br />Also, there appears to be some confusion around identity in Taiwan, and this confusion revealed itself in some of the language used. What are the people who live on Taiwan supposed to call themselves? Are they Chinese? Are they Taiwanese? The former may be confused with citizens of the PRC. The latter may be confused with aboriginal people who lived on Taiwan for thousands of years before the mainlanders arrived with Chiang Kai-shek in 1949. One of our tour guides kept using the awkward-sounding term, “Taiwan people.”<br /><br />When we visited the National Library, I noticed that their “Center for Chinese Studies” called itself “漢學研究中心”which could literally be translated, “center for the study of the Han people.” But again, this excludes the aboriginal people who have lived on Taiwan for millennia. And the Palace Museum (which is a must-see for anyone visiting Taiwan) contained mostly relics that had been transported from the mainland, and a history timeline of dynasties presented as if it were Taiwan's own.<br /><br />I have no suggestions for how Taiwan should address these issues, and in fact, I'm not certain that these issues are really all that important compared to the existential issue Taiwan faces with the ever-present threat of an angry mainland. And the mainland, whose Communist Party has painted itself into a corner with its irredentist claims to Taiwan, really has no way out but to persist with those claims.<br /><br />Nor do I have any suggestions for the US in its Taiwan policy, other than to stay the course, maintain ambiguity and occasionally ensure that the security balance doesn't tip too far in the direction of the mainland. Taiwan doesn't want to give up its freedoms; China doesn't want to give up Taiwan; and the US doesn't want to see any of its aircraft carriers sent to the bottom of the Taiwan Strait.<br /><br />The Chinese may often wonder why this tiny island of 23 million people is so important to the United States. After all, Taiwan hasn't really been a democracy for all that long, and the US has much greater problems to deal with in trying to extract itself from Afghanistan and in restoring growth to its own economy.<br /><br />But having now been to Taiwan and seen with my own eyes what it is all about, I have a better understanding. In the end, America cannot help but admire and support a budding democracy trying its best to resist a bullying, autocratic overlord. A little over 200 years ago, that was us.<br /><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com5tag:blogger.com,1999:blog-2755700415043205247.post-12929250071636801702011-10-13T15:54:00.000-07:002011-10-13T18:11:59.373-07:00A legitimate beef with China<span style="font-family:arial;">A <a href="http://www.economist.com/node/21532288">leader</a> in this week's <span style="font-style: italic;">Economist</span>, concerning the US Senate's passage of a bill intended to punish China for currency manipulation, warns that, however right the Senate may be about currency manipulation, passage of the bill would risk an unnecessary trade war.<br /><br /><span style="font-style: italic;">The Economist</span> goes on to say that America does have "legitimate beefs with China, but this bill is the wrong way to address them. It is legally flawed, economically dangerous and unnecessary." If passed, China would surely have a legitimate claim against the US through the WTO, and would almost certainly retaliate with its own trade-limiting measures.<br /><br />While I understand the value of this measure as a political tactic for Senators who are part of <a href="http://www.gallup.com/poll/149009/congressional-job-approval-ties-historic-low.aspx">the most hated US Congress in history</a>, the fact is that there are better ways for America to get what it wants (not that Congress even cares).<br /><br />While the WTO mechanisms designed to facilitate open trade are slow to work, China recognizes them as legitimate and has generally adhered to their judgments in the past. Although, as <span style="font-style: italic;">The Economist</span> admits, currency manipulation is not addressed in WTO rules, America indeed has "legitimate beefs" with China that could be addressed under the WTO. Yet, for some reason, the US Congress chooses to focus on currency, and the Obama administration apparently chooses to look the other way when it comes to some of China's real WTO violations.<br /><br />While I haven't cataloged all of China's violations, I know that there are several going on in the auto industry that no one seems to think are worth calling China on. For example, a couple of key measures in China's WTO accession agreement forbid China from conditioning investment in China on technology transfer and local content requirement. (This agreement dates back to 2001, by the way, so it's nothing new.)<br /><br />As for the tech transfer part of the rules, China's ability to apply pressure to foreign automakers to transfer technology in exchange for permission to expand in the country has been well-documented. (A couple of example articles are <a href="http://www.ft.com/cms/s/0/4a5c8d82-5328-11e0-86e6-00144feab49a.html">here</a> and <a href="http://www.autonewschina.com/en/article.asp?id=6807">here</a>.)<br /><br />The latest attempt by the Chinese to adhere to the letter of the law while blatantly violating its spirit includes holding off on investment approval until the foreign company "voluntarily" offers to contribute technology toward establishing a Chinese brand with its (state-owned) Chinese partner. Peugeot's CEO was quoted by the <a href="http://www.ft.com/cms/s/0/4a5c8d82-5328-11e0-86e6-00144feab49a.html"><span style="font-style: italic;">Financial Times</span></a> as saying that, cooperating on building a Chinese brand is now "part of the deal."<br /><br />And the automakers involved in this attempted extortion have no incentive to complain about it for fear of losing their access, all the while knowing that their competitors are all doing the same thing.<br /><br />Okay, you may say, perhaps China's violations in this case would be too difficult to prove under the WTO's mechanisms. After all, the foreign automakers all appear to be "voluntarily" contributing technology in these cases, and anyway, none of them is complaining. Perhaps.<br /><br />Then how about a more obvious violation of the rules? In this case, it involves the imposition of illegal local content requirements.<br /><br />This actually surfaced a few weeks ago, and I commented about it on twitter, but only my friend @alexwoods5 seemed to think it was an issue worth being concerned about. The issue in question arose from a recent <a href="http://www.cablegatesearch.net/cable.php?id=09CHENGDU166">Wikileaks cable</a> in which an employee of Ford in China revealed to US diplomatic personnel that<span style="font-weight: bold;"> Ford's operation in China is subject to a 40 percent local content requirement</span>. This is the relevant section:<br /><blockquote>¶9. (SBU) All of Ford's parts suppliers must meet the Chinese Government's rules of minimum 40 percent local content by value, Chuang explained.</blockquote>Does that not sound like a local content requirement? Could this have been a condition for Ford's recent investment in new factories in China?<br /><br />I even emailed an acquaintance of mine at Ford, twice, seeking some sort of explanation or confirmation. The fact that he has yet even to respond with a "no comment" tells me that this may be worth investigating.<br /><br />But is the Obama administration investigating it? If not, why not?<br /><br />I know that the administration, or at least certain individuals in it, understand that the currency bill passed by the Senate would do great harm to both global trade and to America's relationship with China. But if they want to avoid such unpleasantness, why not at least make an effort to make China follow the agreements it has signed?<br /><br /><br /></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com0tag:blogger.com,1999:blog-2755700415043205247.post-6683565546213738732011-09-15T13:47:00.000-07:002011-09-15T16:40:30.565-07:00Who cares about IPR, what about innovation in China?<span style="font-family:arial;">The <span style="font-style: italic;">Wall Street Journal</span> <a href="http://blogs.wsj.com/chinarealtime/2011/09/15/china%E2%80%99s-copycat-economy-boon-or-barrier/?mod=WSJBlog">reports</a> on a brief debate that took place yesterday between US Ambassador to China, Gary Locke and an advisor to the People's Bank of China, Li Daokui. The exchange took place during a panel discussion at the World Economic Forum meeting currently taking place in Dalian, China.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://online.wsj.com/media/crt_locke_li_G_20110915003130.jpg"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 423px; height: 282px;" src="http://online.wsj.com/media/crt_locke_li_G_20110915003130.jpg" alt="" border="0" /></a><br /><br />The apparently civil discussion surrounded a disagreement as to the repercussions of China's difficulties in enforcing intellectual property rights (IPR) protections. In short, Locke expressed his view that lack of IPR enforcement would stifle Chinese innovation. Li, on the other hand, merely expressed his disagreement and noted that China's policy focus instead needed to be on supporting entrepreneurs and removing barriers to their success. (Notice how Li cleverly took Locke's cue and changed the topic from IPR to innovation?)<br /><br />So who is right about innovation? Where should China focus its policy in order to better support innovation? Should it beef up IPR enforcement, or should it focus on removing barriers to the private sector? Which would give it the biggest bang for its policy buck? (</span><span style="font-family:arial;">Not that this is necessarily an either/or proposition -- China is big and rich enough now to do both -- but humor me on this.)</span><br /><span style="font-family:arial;"><br />Some of my readers may be surprised to learn that I think Li Daokui was right. While Locke was certainly carrying out his duty as Ambassador by saying that China needs to improve IPR protection, the truth is that IPR protection has very little to do with innovation in a developing country like China. In fact, history tells us that, since the dawn of the Industrial Revolution, every subsequent country to jump on the development bandwagon has copied those who came before.<br /><blockquote>...every country that became economically great began by copying: the Germans copied the British; the Americans copied the British and the Germans, and the Japanese copied everybody.*</blockquote>This is not to excuse the Chinese companies that blatantly copy foreign products and the government that often chooses to look the other way, but since Locke chose to introduce innovation into the discussion, the issue deserves a closer look.<br /><br />My research on China's auto industry reveals that the most innovative among China's automakers are the private and independent automakers, not the massive state-owned enterprises (SOEs) with their foreign joint venture partners. While private players have yet to introduce any real <span style="font-style: italic;">breakthrough</span> innovation, their progress in developing new energy vehicles and unique Chinese brands is ahead of the SOEs. The reason for this (and you'll have to take my word for it until my book comes out) is twofold.<br /><br />First, leadership positions in SOEs are essentially political positions. The men who run these companies have their eyes on their next job, which will be a political appointment to run an association or a local government, or even to become a Vice Minister or Minister in the central government. In order to better assure themselves of a good position, they tend to be risk-averse in their decision making.<br /><br />Second, because these guys have short-term investment horizons, "wasting" money on R&D is not high on their agendas. R&D spending only helps the next guy. It is much easier to rake in profits building and selling foreign branded cars. They simply lack the career incentives to take the kind of risks that result in significant innovation.<br /><br />(Here is <a href="http://in.reuters.com/article/2011/09/15/idINIndia-59353120110915">another story</a> today about how "JV brands" have not resulted in the innovation that the central government had been hoping for. Why? Again, forcing foreign partners to hand over technology does not translate into innovation, especially when leadership incentives are not changed. I previously <a href="http://chinabizgov.blogspot.com/2011/03/creating-chinese-brands-now-part-of.html">wrote</a> about this "JV brands" or "sub brands" issue several months back.)<br /><br />So while Li Daokui seemed to be changing the subject above, he was actually addressing Locke's point about innovation. And if China's auto industry is any kind of indication for China as a whole, the central government would do well to follow Li's advice and remove the barriers that continue to marginalize private business in China.<br /><br />Of course, as an American, I would like to see the home team do well, so if China continues to insist on a preponderance of state control over all of its major industries, I believe that will ultimately be to the advantage of China's competitors. And they need every advantage they can get.<br /></span><br /><span style="font-size:85%;"><span style="font-family:arial;">_______________</span><br /><span style="font-family:arial;">* William Kingston, “An Agenda for Radical Intellectual Property Reform,” in International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime, ed. Keith E. Maskus and Jerome H. Reichman (New York: Cambridge University Press, 2005), 658.</span></span>G. E. Anderson ---http://www.blogger.com/profile/11194863913108812712noreply@blogger.com1