Monday, September 11, 1995

The Complexity of the China Market

Those formulating a strategy for entering the China market need to take various complicating factors into consideration, some of which are rather uniquely native to China. I have summarized some of these factors below to serve as check list for the international business development executive.

Geographical diversity.

Assuming that China is one homogenous market would be disastrous. It is not. As can be seen from the chart, most of the foreign investment has been going into the southern provinces, specifically Guangdong and Fujian. The greatest industrial output is coming from the middle coastal provinces around Shanghai while the coastal provinces north of Shanghai and around Beijing is second. Purchasing power, cost of labor, availability of skilled labor, cost and availability of land, energy and raw materials among other things can vary by huge increments across the vast country.

Unlike a developed country such as the United States, the infrastructure in China is still in the frantically building and modernization stage. A modern infrastructure smooths out the bumps and any uneven distribution of resources. A backward infrastructure is a major cause for regional disparaties.

Uncertainties asssociated with transition.

In its drive to becoming a market driven economy, the country's economic performance tends to be 3 steps forward and 1to 2 steps back. State planning has not been dispensed with, just not as obvious. As the late Chen Yun, China's former erstwhile economic planner, was known to have said: "A free economy can fly away like a bird." Part of the planning function is to put a cage around the economy. Sometimes the cage is loose and other times tight. So far no one has found a reliable way to forecast financial performance for a business in a pulsating birdcage economy.

Marketing & distribution related headaches.

In the old days of planned economy, the factory manager only worried about meeting and exceeding production quota. The manager didn't have to sell. The State allocated the disposition of goods. The customer came to the supplier once or twice each year to place orders. Since the economy was not booming, the channels were not overloaded and the State can handle the logistics of getting the goods from supplier to customer. Material for marketing communication? Didn't know what that was and didn't need them. Advertising? Decadent bourgeois practice.

Now, a foreign company entering China will have to deal with finding the customer, how to reach the customer, how to get the goods to the customer, how to provide service, what kind of message to send, etc. As one experienced China trader lamented over his brew at one of many karaoke bars in Beijing, "Life was so simple then. All you have to do was to visit Erligou (where most of the foreign trade corporations held court) and try to get your orders. You didn't have to worry about any of this stuff!" Yes, but, you didn't have any karaoke bars to go to then.

Opportunities for alliances.

Western companies, in particular, have found that forming alliances with local entities is one way to cut through the complexities, especially since much of the complexities are due to bureaucracy. (Whatever we may think about Washington or Sacramento, they are novices compared to the Chinese who invented bureacracy.) China Hewlett-Packard is a successful joint venture since 1985. Even 3M which in 1984 had one of the first wholly owned foreign ventures in China decided that less equity was more market share and took in a local partner about ten years later.

This is a good time for the western company to find and pick a local partner in China. One of the consequences of the transformation to a market economy is that the State is removing the safety net from the state owned enterprises. The enterprises now have to justify their existence based on laws of economics--that means they have to make money. This is a revolutionary concept that most Chinese were quick to grasp. They are now eager to make deals.

It is not just the western technology, know-how, management practice, capital and access to international market that appeal to the Chinese enterprises. Those are nice, but in addition any enterprise with 25% or more foreign ownership can shuck off the heavy social burden (such as onerous pension obligations, free health care and heavily subsdized housing) and reorganize into leaner and meaner companies. A new company can replace the iron rice bowl with incentives based on merit and the threat of dismissal for the slackers. (This is the real revolution that western media rarely talked about.)

The dilemma of western company going to China will not be not finding potential local partners. Just the opposite, the company will be challenged to find the winner among a haystack of propositions and alternatives.

Saturday, September 2, 1995

U.S., China and Human Rights

The early part of Farewell My Concubine, co-winner of the top prize at the 1993 Cannes International Film Festival, depicted the lives of young boy apprentices in a Peking Opera troupe. The troupe master's method for exacting discipline and dedication was frequent caning and otherwise harsh treatment without any apparent interpersonal affection. Since I am no movie critic and this was incidental to the main story line, why am I bringing this up? Because I believe this segment of the film serves to illustrate the difference between the Westerner's and the Chinese attitude about human rights.

I do not know if training for the opera troupe in Beijing is still as brutal as it was in the 1920's. I suspect not. Then again today's aficionados of Peking operas will claim that the skill level has gone down, perhaps because training is no longer so rigorous. Certainly no western schools would countenance use of corporal punishment to exact diligence. On the other hand, Chinese would consider western training methodology as too lenient to obtain the dedication needed to truly excel.

Who's right, who's wrong? That would depend on from whose perspective. A bigger question is whether it is appropriate for either the West or the East to evaluate the other relying on one's own value system as the template. In the case of the United States, it is to impose its value on China. I am too westernized, --having spent the last 80% of my life in the United States, to be a competent apologist or defender of the Chinese values and way of life. I do question whether it is appropriate for the U.S. to take on an almost vehement role on insisting that China come to terms with human rights in a manner acceptable to Americans.

When it comes to human rights, no society is without flaws, not even the U.S. For example, no other country and culture in the world share America's love for the handgun, even though it is the most frequent instrument of random and intentional violence. Cult caused massacres, police brutality, increasing number of homeless people, inequities of the justice system towards the poor and the minority, random homicide by gun wielding teenagers, and death by drug overdose are among the ills of the American society that are obvious to the rest of the world. So far, no other nation has deigned to tell the U.S. how to resolve these abuses of human rights!

When the U.S. does actively interfere or attempt to interfere with other nations' abuses of human rights, its record of success has been dismal. Not with Bosnia, Somalia, Iraq or Haiti. While universal condemnation could justify taking actions in these aforementioned regions, this is not the case with China. Germany, Japan, Russia, not to mention all other Asia Pacific nations recognize China as a dynamic growing economy where its people is prospering. No other country is taking as hard a line as the U.S. Given the reality of the world, why would the U.S. jeopardize world stability by insisting that China hew to certain U.S. specified practices as related to human rights?

I cannot offer any rational explanations only some wildly irrational speculations on the U.S. position on China. The first that comes to mind is the need for an adversary. Having an outside enemy has been a many-decade mind set. I hope it will not become a compulsion for the U.S. to make up a replacement for the paper bear that was USSR. Surely, it must be possible for America to finally enjoy the peace dividend and look for constructive ways to build the economy and create more high paying jobs--one of these avenues being to enhance trade with China.

A less generous explanation of the American attitude is to attribute it to presumptuous arrogance. Others might call it naive idealism. No matter. Americans frequently forget or perhaps never realize that the Chinese civilization led the world in technological developments for thousands of years. It was a civilization that introduced meritocracy as the basis for the selection of government officials. When the imperial ruler was wise and benevolent, the population prospered. When the ruler was despotic, the people became oppressed and sooner or later they rose up to rid themselves of such rulers. The cycle repeated periodically every two hundred years or so. The Chinese rarely saw the need to conquer others to prosper. Instead, nearby states flocked to China to learn and adopt their philosophy and science.

Today, most of the Asian countries still owe their way of life more to the Chinese culture than to the West. Singapore, South Korea and Taiwan have been cited as the model states of miraculous economic growth. None would be considered model democracies. Philippines is perhaps most like the U.S. in their government system (and in their love for the handgun) but the standard of living there has tumbled from one of the highest to one of the lowest in Asia. By simply becoming an ostensibly democratic state has not solved Russia's economic woes and the cosmetic appearance does not include any apparent improvement in human rights either. On the other hand, it is possible to see a direct correlation between improvement in human conditions with economic growth in such places as China, South Korea and Taiwan.

Even Hongkong, where the laws and practices are perhaps more western than even the West, most the citizens there care more about making money than whatever efforts their London appointed governor might be negotiating on their behalf with Beijing. Governor Patton had been trying to get "more freedom" guarantees from Beijing for 1997, when China resumes sovereignty over Hongkong. The Hongkong stock market became a sensitive barometer of how the negotiations were proceeding. More citizens were upset with the governor for disrupting the upward march of the stock market than concern for the perceived benefits of concessions to be wrestled from Beijing. Patton has now assumed more of a lame duck posture abiding for the time to go home.

Last year, the U.S. Congress was said to have 270 some signatories insisting on tying China's MFN to improvements in human rights. I would venture to guess that most of these honorable men and women have not been to China, at least not recently, and certainly do not understand China and its place in the world nor appreciate the damage their views are inflicting on American economic interests. They are being led by a handful who are making political capital out of China's real and perceived problems with human rights. Their interest, I submit, is less driven by any altruistic concern for the welfare of the Chinese people than by the opportunity to grandstand for the benefit of voter attention in their home district. I think its time for the Americans to marshal their resources toward cooperation for mutual benefit rather than mutual disruption via confrontation.

Friday, September 1, 1995

China's View of Harry Wu

When we formed the Concerned Citizens for Rational Relations with China, it was to make a public plead that the bilateral relations of two major nations should not be put in jeopardy by the actions of one private individual. An open letter was sent to Congress along the lines similar to those of outlined by Senator Dianne Feinstein (AW, Voices, September 1, 1995). Since that letter was distributed to the media, Harry Wu has been released. To his supporters and, thanks to the English language press coverage, a large part of the general American public has embraced him as a hero of extraordinary courage and conviction. On the day a mortar shell killed over thirty innocent civilians in Sarajevo, the front page of the San Jose Mercury News disclosed that Harry Wu lost a few pounds as result of his incarceration. The news on Bosnia was buried somewhere in first section. Clearly, Wu's cause for human rights carries much weight.

Our open letter did receive significant coverage and response from the Chinese American community was particularly high. One of the responders sent us a reprint of the August 25, 1995 article from China's People's Daily on the Harry Wu case. Since ours is a democratic society where issues are openly debated, we believe that the American public is at least entitled to see what the other side have to say about this case.

So far, I haven't seen any specific reference to China's official position in the English language press and the People's Daily article is much too long to translate and reprint in full. Presented below are the salient points from that article without embellishments:

The Chinese court accuse Wu of the following major criminal offenses:

On June 16, 1991, Wu accompanied by a Ms. Chen, on the pretense of visiting friends, went to the jail in Huozhou, Shanxi to take photos of the prison and security measures. Next day, Wu took Ms Chen to Yangchuan No. 2 jail for the same purpose. On July 29, Wu returned to this jail where he found two persons tot take him inside and where he used a video camera hidden in a bag to take video of the prison and surroundings. Wu unlawfully gave these material to outside organizations.

On the afternoon of June 18, Wu pretending to be an American businessman and accompanied by Ms. Chen visited a factory in Shanghai on the pretext of wanting to buy certain products from that factory. Using the noisy environment as excuse, he went to the director's office, and when unobserved he stole confidential documents from the desk top. On next day afternoon, Wu again pretended to be a businessman and visited another factory in Shanghai, again on the pretext discussing business. On departure he stole confidential documents from the chief engineer's office using the same approach.

On early August, 1991, Wu wore a police uniform and assumed the identity of a police officer to enter a jail in Qinghai to take video with a hidden camera. The material was unlawfully given to outside organizations.

On March 12, 1993, Wu in Hongkong paid a Mr. Feng (or Fung) $4000 to film and take pictures of provincial and municipal jails in Zhejiang, Hubei and other provinces. Wu indicated that the funds came from an Anti-China's Laogai Funds that he had organized.

During the latter half of April, 1994, Wu and Ms. Chen met with a Mr. Zhang, a retired worker from Shanghai prison to take secret photographs of the Shanghai jail

When questioned by the court, Wu admitted that all of the above were true and factual.

The court also presented a confession handwritten by Wu on August 9. The main contents are as follows:

In the summer of 1991, he did returned to China twice for the purpose of taking video, photos and secret documents for the purpose of helping CBS produce an anti-China TV program. Doing business was used as cover and he also used old acquaintances to get into laogai for videos and photos. He also used the collected material to present to the U.S. Congress.

In 1994, with BBC's support, Wu again returned to China and took BBC personnel to China to visit laogai in Xinjiang, Sichuan and elsewhere to take secret videos for the anti-China program, "Condemned Criminals' Organs."

Results of the Court Examination

During the court hearings, Wu was accused of resorting to various underhanded means to steal China's secrets for the purpose of damaging China's reputation. Wu was also accused of using fabrication to achieve the same goal.

In April, 1994, Wu accompanied by a woman reporter from BBC entered China on the pretext of visiting China's Silk Road. The actual purpose was to collect material for two BBC programs, one on prison made goods and the other on organ transplants from executed prisoners.

One of the scenes of BBC's program purported to show a street outside Xinjiang's No. 2 Prison full of stalls with goods for sale that were made in the prison. During the cross examination, Wu admitted that the street scene was actually taken in Wulumuqi, Xinjiang's capitol, that no such street exists outside of No. 2 Prison and that the goods displayed had no relationship with the prison. Wu admitted that splicing the two scenes together was wrong.

The same program also showed a scene of burial grounds indicating that it was where executed prisoners were buried. Wu admitted that he knew at the time of filming that it was actually a local civilian cemetery.

The Source for the BBC Program on Prisoner Organ Transplants

On April 12, 1994, Wu and the BBC reporter, pretending to be husband and wife, visited the Urology Department of No. 1 Hospital near Chengdu's West China Medical College. Wu represented himself as an university researcher from the U.S. with an uncle suffering from acute renal failure and seeking a kidney transplant. He even presented a falsified medical history on his "uncle." He asked to tour the hospital's operating and recovery room facility.

Next day the couple visited operating room no. 15 where the patient was undergoing an open heart surgery for repair of the mitral valve. While Wu engaged the host in conversation, his "wife" surreptitiously took the operating scene which later became the so-called organ transplant from prisoners scene. Surgery was actually performed on Chen Zuchuan, a civilian patient on bed No. 29 of the thoracic surgery ward. During the cross examination, Wu admitted that he had no uncle, the medical history was false and no doctor from the hospital ever discussed kidney transplant from executed prisoner with him.

The BBC program indicated that the hospital was full of patients from Hongkong, Taiwan, Europe and the U.S. seeking organ transplants. Wu admitted that while he was there he did not see one foreigner.

In his confession, Wu admitted that he utilizes distortion and fabrication in order to satisfy BBC's request for material for the Condemned Criminal Organ program. He accepted responsibility for all of the action in connection with the BBC program.

Wu's History in China

Wu was born in Shanghai in 1937 and after graduating from university was sent to Beijing on a work study assignment. [*Note: Work study assignment, sort of like an internship, is a frequent precursor to actual full time job.] He was caught stealing money from office colleagues and sentenced to three years in laogai. From May, 1961 to May 1964, Wu spend his time at Qinghe and then Tuanhe prison farm to receive reform through labor. His first assignment after release was at a coal mine in Hou Xian, Shanxi. [*I am guessing that Houzhou where he visited one of the laogai is a city inside the Hou Xian (county).]

While working at Wuhan Geology University, Wu was severely criticized for repeatedly using falsified receipts and was criticized before the entire school for forgery of authorized signatures to obtain travel expense reimbursements. [I have been told that China uses different degrees of severity of criticism and censure to deal with lesser crimes.]

While working at Shanxi Finance College and at Wuhan Geology University, Wu received internal disciplinary censure for seducing women students.

Some Questions for Mr. Wu

Since the People's Daily is the official organ of China's Communist Party, the reaction of some Americans will be to dismiss the contents without further ado. Since Wu upon his return has already publicly admitted that he would do anything to expose China including using aliases, masquerading as a police officer and other pretenses, he would no doubt disown the confession as one of convenience made under duress. Nevertheless the article from China does raise some interesting questions.

(1) In his campaign to "expose" China, just how far does he go? Does his approach include fabrication and falsification to satisfy his sponsors as the trial contend? The article calls it "yi hua jie mu," i.e., moving the flower to another tree.

(2) Now he is free again, how much of the BBC program will he admit as factual and how much as not? How does he now explain the apparent video sleight of hand described in the People's Daily?

(3) According to China, Wu started his career as a common criminal, not as a political prisoner. When and how did Wu become a human rights activist?

(4) No doubt, Wu will contend that the People's Daily article is a complete fabrication. It seems to this writer that China went to a lot of trouble to make up a case full of details. Perhaps, Wu would be more convincing on his own behalf if he would care to rebut some of the details in full.