CHINA: The Gilded Age

1988: 50 years of isolation In 1988 we landed in China for the rst time and took a step back in time. Intrigued by the mystery of China we jumped at the chance to take teaching/research positions at Tianjin University, an exchange program with MSUM, in the gray industrial town of Tianjin. China had opened itself to the world in 1978 as Deng Xiaoping established market reforms/free trade zones following Maos disastrous cultural revolution. 50 years of isolation were painfully obvious with most modern amenities and basic consumer goods a non-existent dream. Our adventure started with our brand new ying pigeon bicycles ... the only bicycle brand made or allowed in China. A perfect example of communisms no-competition philosophy ... the bikes broke down frequently but luckily there was a bike-xer on every corner ... a perfect jobs program. Our ying pigeons became our primary mode of transportation and we soon learned to navigate the vast tsunami of bike trafc faced each day as we left our compound lane and entered what seemed to be an eight lane highway of bikes. Only party ofcials had cars ... a black chrysler variety with lace curtains. There were 5 other professors from the U.S. living among us in the foreigner compound. A drab, cold, cement-box affair -- but we were fortunate -- we had indoor plumbing! and hot water (between 8 and 10 am)! Hot water for tea, drinking, etc. was placed at our door each morning, and we were awakened promptly at 4:30 am by a rooster in the courtyard nicknamed Cocky (Cockys crowing mysteriously ended around Thanksgiving when our communal cooks decided to make a Thanksgiving dinner for us, accompanied by chicken feet and sea cucumber( large leeches) --- nevertheless -- we were thankful for a good nights sleep! While Peter developed his research, I taught marketing, a new concept to students growing up in a centrally planned economy. I was known as Professor Xu Xin (Susan) and was paid a cash stipend each month. We stood in line to receive our Renminbi -- then 4 to the $ -- but fetched 8 if you could exchange hard currency. We used this money for train rides across China ... sometimes traveling hard seat; I still recall the smell of cigarette smoke, ripe bananas, and live chickens tied by their feet, while barreling to Shanhaiguan, where the Great Wall meets the sea. The sense of adventure overpowered all other senses. Our rst trip to Shanghai brought us to the famous shopping street of Nanjing Lu and the now overtired Park Hotel (where Mao had stayed) across from peoples park. Strolling through peoples park on a Sunday afternoon brought HORDES of chinese youth anxious to practice their english and touch my blonde hair. A walk down Nanjing Lu was a dirt road with darkened shop windows and nothing one would ever in their lifetime want to purchase. Mei-You or dont have was the primary word in the chinese vocabulary in most shops and restaurants -- any attempt to identify whether it might be found elsewhere was met with a glare of are you kidding? followed by resumed sleep on the counters. No incentive to work... one was paid the same rate whether you performed your duties or not, and most were tired from moonlighting by night. I hired a tutor to learn Chinese ( three hours per day). Madame Chen was a harsh product of the cultural revolution and I learned Chinese through her life history. She was an intellectual caught on the wrong side of history. Her father was a General in the Kuomintang army and ed communist China with her two brothers(to Washington D.C.) when it was clear that Mao and the Peoples Army would win the revolution. She and her mother, a university professor, were left behind -- Chen was sent to Mongolia, her mother to the rice paddies in southern China. She was back now, taking care of her mother, but hadnt seen her father in 30 years. She called me later in the 90s from Washington, D.C. her father was ill and she had made it to America! Most chinese professors wore blue Mao suits, and pretended to be good party comrades. Our students were eager, bright, and voracious learners -- they would show up unannounced at our door (there were no telephones, emails, or texts then) at 8:30 on Saturday and Sunday mornings to learn about America and convince us to start a joint venture and hire them (they would otherwise be destined for some distant, dingy, factory). I thought then, and know now, that someday, these driven dreamers would rule the world. Our professor delegation came to a tragic end one dark June night in 1989 with the Tiananmen square massacre. All state employees were evacuated by the U.S. State Department -- fearing a new cultural revolution and backlash against intellectuals. We never heard from many of our students again. Little did I know that event, with the power of youth, would change China (and its relation to the world) providing impetus for revolutionary reform. Upon return, freedom of choice became a far more heightened value and when asked if there were opportunity in China.we replied, Yes, 20 years from now.

Fast forward - 2010: Since that June Night in 1989, the opportunity in China has unfolded and: Nanjing Lu (right) resembles 5th Avenue in NY Cement box compounds have been replaced with gleaming new skyscrapers Party ofcials now sport slick black Audis vs. the old Chrysler with curtains More than 350 million have been lifted out of extreme poverty GDP has tripled in more than 250 cities " Personal disposable income has risen10-fold to $4000 per annum Gone is the sleepy state-owned economy to one where two-thirds of the economy is run by the private sector and provides the impetus for its continued growth of +10% per annum Chinas streets are paved with gold, quoted 7 centuries ago by Marco Polo, is still true today: China is now the leading source of new IPOs IN THE WORLD. Shanghais stock exchange now leads the world in total number of companies listed. This is a good sign, as it will bring increased transparency, better management practices, and promise of fair play for global competitors. There are 128 billionaires in China (twice the number of last year), but look at the source of their billions and youll nd many are American copies of technology plays. Examples include the Chinese version of Amazon, Google, Ebay, instant messaging, and Facebook. Others have become rich through foreign (largely U.S) investment/buy-out. The rest are in real-estate and appliances-- go gure -- China will comprise 40% of the worlds construction in coming years and is building apartments like army ants. The Next Tinderbox? Asked if China will be the next tinderbox a la North Africa. Short answer: not likely. Unlike the youth of North Africa the Chinese are feeling prosperous and optimistic about opportunities in the future. Opportunity is even luring overseas chinese talent back to the homeland... from Hong Kong, Singapore, Malaysia, Australia,Taiwan, Canada, and the U.S.! If one possesses western style management and chinese language skills, combined with confucian tradition, the Golden Dragon can be harnessed. This is despite continued setback in human rights (discussed later), and pervasive (but improving) poverty in central and western regions. The Golden Dragon - Chinas Consumer Society With a consumer market widely believed to be the size of todays Germany, there are: Cool jazz clubs abound .... and the best part... no smoking! Starbucks on every corner. Despite the high price tag for Cafe Lattes at $5 a cup, these trendy coffeehouses are lled to the brim with young yuppies in funky glasses, wireless headsets, and sparkling PCs. Lines at the Apple store, blocks long, featuring the new iPad 2 and Iphone 4 Chanel boutiques are lined with well-coiffed young chinese sporting Louis Vuitton bags, high-heeled Gucci boots, and snazzy suitcases - lled with luxury goods. 500 square foot apartments - in an ok location - sell for about US$600,000 in Shanghai More cars are sold per annum in China today than are sold in the U.S. The !CROWD! at the Bentley and Audi outlets in Beijing are living proof of this nouveau lust for luxury cars Proctor and Gamble, Johnson and Johnson, and other consumer goods companies are experiencing growth not seen since the post-war 50s and 60s in America 80% of American companies surveyed by AMCHAM in China say they are very protable, selling to Chinas consumer society, and no longer producing for export. (Albeit, these companies have been in China over ten years, and have likely seen the worst). Many chinese contract manufacturers, stung by the loss of foreign customers during the 2008 nancial crisis, have found the new consumer market in China, with little appetite for recovering-returning overseas customers. It is far easier to sell at home now, sans the hassles of export. Take that America, a twist of fate to be sure.

Fast-forward 2025: Can China continue their growth? Short answer: YES. Over the next 15 years China plans to once again build a new society: 5 million buildings with 40 billion sq meters of oor space --the equivalent of 10 New York Cities. 170 mass transit systems will be built - more than twice the number that exist in Europe today -- to connect people to jobs in other cities 221 chinese cities will have 1MM+ people living in them (Europe has 35 today) GDP will multiply 5X, adding nearly 500 million jobs 170 Megawatts of coal power will be built -- 55% of the worlds capacity Dozens of new airports are being constructed - including many in Western China, providing faster routes to Europe. The Consequences: What will be the consequences of this dramatic growth and meteoric rise of consumer society? The impact of Chinas urban growth means continuing prosperity for its people and substantial new markets for companies involved in infrastructure building, energy, transportation, and consumer markets. It also represents a huge challenge in terms of environmental impact (land, water, food supply, air quality), migrant integration, and social services. The growing wealth gap between rich and poor is real. Wealth creation (jobs for all) is crucial Corruption/land grabs (mostly by provincial ofcials) must be controlled as the demand for housing and factories (and thus riches) increases, deposing farmers and farmland Corresponding rising ination - particularly in food prices is increasingly worrisome and could lead to the next revolution (we saw this all over Asia ... particularly problematic in India) The demand for steel, energy, water, and natural resources will outstrip supply and raise world prices. Already U.S. prices for steel are rising dramatically. Environmental disorders will continue --- to compensate, the Chinese are buying clean environmental technology like crazy, but demanding access to the Intellectual Property in exchange for huge provincial contracts. Note to self: Be careful. College grads are expected to triple, but a shortage of quality skilled labor is major problem, with cultural issues relating to teamwork, communication, and taking responsibility being roadblocks to growth. Human Rights: A Step Back: Most China-watchers agree... China has taken a step backward on human rights. Paranoia rules the day blocking sites such as Google, Facebook, You Tube, keywords like Jasmine or black jails. CNN was often blipped during the North African revolution coverage. Buying an International Herald Tribune was a trip... we were informed by the retailer that page 5-8 had been removed by the National Party - with no reason offered. We were curious, but blocked from discovering the truth on-line. There were civilian security guards on every corner during the party congress - hired to keep the harmony and report suspicious activity. We wished these harmonious guards had stopped cars speeding through stoplights. Pedestrians clearly lack the right of way in China (and most of Asia). Are people so dispensable or did these people skip drivers training? Overtake the U.S. Economy When? Despite Chinas stellar growth as the worlds second largest economy the U.S. : is still the worlds largest manufacturer representing 19% of the worlds manufacturing output personal income outpaces Chinas by 10-fold at $48,000 per annum embraces a higher percentage of highly skilled technical and managerial labor has a stronger higher education system (that continues to educate and send home some of Chinas brightest - some say committing economic suicide) holds a far more innovative and entrepreneurial culture continuing to turn ideas into gold via its unique capitalist system leads the world in patent production and scientic papers -- although China is catching up on quantity of papers, U.S. quality/citations by the scientic community dwarf the entire world. China bashing.... The Dragon in the Room : Many view China as the venomous dragon in the room -despite the fact that China has provided much-needed investment in many countries. Therein lies the rub-their investments often come with consequences and they are VERY ADEPT at negotiating needed resources. Example: The Chinese are paying outright for the new deepwater port on the eastern seaboard of Sri Lanka, thus enabling cruise ships and large container ships. In exchange, they are permitted to park their navy there...infuriating their neighbor to the North - India. Uhhuh. India didnt offer payment for the port. We often blame the Chinese for taking our jobs, undermining our exports, and stealing our intellectual property. Yet, the U.S. continues as the worlds largest manufacturer, has access to cheaper imports, readily accepts chinese investment, and our companies often arrive on chinese contract manufacturers doorsteps with competitive products requesting a better copy. The Chinese perspective: Should you not thank us? Rule of Law vs. Interpretation of Law The good news: IPOs, WTO, and Chinese as invested-owners in companies - all provide more transparency and legal protection than ever before. The laws on the books are solid. HOWEVER, interpretations of the law that side with local considerations coupled with lack of experience, need for community popularity, and surprise tax laws are still far too numerous. " " Embrace China. The two largest economies in the world must live harmoniously and judiciously to build a more prosperous society for all. Its time to stop bashing and start embracing.