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Tuesday, July 20, 2010

Thoughts about China

I had the pleasure of traveling in the People's Republic of China extensively and working closely with colleagues there over a 12-year period. I don’t call myself an expert on China, but here are a few observations that you might find interesting.

The Chinese import almost as much as they export ($550B versus $650B, per recent numbers). That’s a reasonably well balanced trade policy. The problem from the perspective of the USA is that we take much of their exports, but we don’t win the same percentage of their imports. Who's to blame, the Chinese or us? Although some goods imported by China are sourced from other Asian countries, a fair amount is sourced from Europeans. If the USA has an intolerably unfavorable balance of trade with China, let’s look ourselves in the mirror and ask why – and how we can increase American competitiveness in global markets.

China does restrict personal freedoms. What you hear about Internet restrictions, for example, is true. When Chinese citizens get permission to travel overseas – and that’s considered a very high reward, when offered by a multinational employer – they will often spend hours on the Internet reading what they’re not allowed to read at home. Over time, the Chinese “Internet curtain” will fall just as the so-called iron curtain fell in Europe. We must be patient. Most Chinese are acutely aware of how their government limits their freedom.

Chinese have about the same respect – in other words, nearly zero – for the intellectual property right of corporations as Americans do. Illicit copying of music, videos, etc is just as prevalent here as there. The only difference is that they’re willing to export it. Gradually the Chinese legal system is taking on more Western characteristics.

The Chinese are an inherently capitalistic and hard-working people. “Let’s make a deal!” is an apt description. Of course it’s true that Chinese behaviors are not precisely the same as American behaviors, and language can be a barrier (although manageable with effort), and the culture takes some getting used to from both sides. Nevertheless I’ve found it easier to make business arrangements in China than in many other countries.

Terms of employment in China are changing rapidly. When Nortel went bankrupt, we discovered that our Chinese colleagues were entitled to European-like protections in terms of severance. In fact, those workers were far better protected than USA workers! All indications are that Chinese salaries are beginning to rise, mitigating the advantages of hiring there. The law of supply and demand takes a while to work, but it is inexorable.

What concerns me about China?

  • Lack of concern for the environment.
  • A strong military-industrial complex, much like we have here, somewhat staffed by ideologues who are not always tempered by pragmatists.
  • A potentially explosive situation whenever there is a change in leadership. I happened to be in Beijing when Deng Xiaoping died in 1997. It was very unsettling.
  • Mistreatment of ethnic minorities, which could trigger internal violence that cannot be contained.