Saturday, March 17, 2012

Demonizing China for Fun and Profit

Mike Daisey is the latest but not likely the last to attain fame and fortune by making up stories about China. Daisey’s case was a widely acclaimed monologue entitled “The Agony and Ecstasy of Steve Jobs” supposedly based a six-day visit to Shenzhen China and his encounters with various factory workers—except as we were to find out very little of it actually happened.

Daisey’s performance on stage was a hit and he became a media celebrity that talked about his China experiences. This American Life a radio program on National Public Radio dedicated an hour on Daisey and excerpts of his monologue. Up to this point, his monologue was considered to be a factual presentation of his encounters in China since he never qualified it in any way.

Unfortunately for Daisey, some of his more flamboyant assertions on his one-man show rang hollow to those that know China. This American Life then retroactively did some fact checking and found that Daisey had lied to the program. In the end, This American Life made a full retraction of the story they carried about Daisey. In the retraction, the listener could hear Daisey’s awkward and embarrassing retreat as Ira Glass disassembled Daisey’s lies step by painful step.

By the end of the hour program, Daisey apologized to Ira Glass for appearing on his program and misled the American public into thinking that he was doing journalism when he was only doing theater—a medium where mixing facts with fiction are permitted.

An important reason for Daisey’s initial success is his choice of topic. Much of American public are susceptible and open to hearing anything negative about China. I have reduced the formula of success as ABCDEF: Americans bash China by distortion, exaggeration and fabrication.

The earliest known example that came to my attention was the so-called human rights activist, Harry Wu. He made a decent living talking about China’s human rights conditions based on half-truths and lies. He has had the good fortune of never appearing on a stage visible enough that someone was inclined to give him a once over fact check.

Friday, March 16, 2012

Hey China! Stop Stealing Our Stuff

The cover article in latest issue of Bloomberg Businessweek has the above subject as the title. A provocative piece that is likely to be cited in months ahead by congressional spokes persons and law enforcement officers whenever China is in the cross hairs of public discussion about China's bilateral relations with the U.S.

One of the Sino American business relationships described in the article that went off the tracks involved Sinovel, a Chinese maker of wind turbines for wind farms and AMSC, an American maker of electronic systems that control the operation of the turbine. Ostensibly this was a match made in heaven; the Chinese with low labor cost to put the hardware together and the MIT spinoff to supply the sophisticated electronics.

Indeed, Daniel McGahn, the CEO of the American side said, "We always saw it as a symbiotic relationship of having China's low manufacturing cost coupled with Western technology. We would grow as they grew." It didn't hurt that Sinovel was a market leader and dominant supplier in China.

Unfortunately, as was the case with cellular phone, energy saving light bulbs, solar panels, wind turbines or other fashionable products of the day, whenever one company makes a high profile entry, others follow suit and soon China is overloaded with too many manufacturers with too much output and everyone having to resort to price cutting in order to stay in business.

In 2008, the electronics from AMSC accounted for 12% of Sinovel's cost of the turbine system. Three years later, the AMSC package made up 18%. "Everybody was getting squeezed except AMSC," according to an American consultant quoted by Business Week.

In my view, McGahn missed an opportunity to proactively re-balance the AMSC partnership with Sinovel that could have forestalled the ugliness that ensued.

Instead of assuming that his company would continue to enjoy the margin of 2008, he could have empathized with his partner's plight and share some of the pain of eroding margin. Perhaps he could have seized on the opportunity to restructure the business relationship in such a way that Sinovel would own equity in AMSC and vice versa. Perhaps he could have proposed a joint venture to develop export sales of complete turbine systems with hardware from Sinovel and control system from AMSC and thus expand the pie for both parties.

Just the information presented in Business Week is not sufficient to come up with a definitive solution that could have headed off the Chinese side from trying to steal the technology, but the principle is obvious. Namely as with any partnership, one needs to constantly think of ways for both parties to win and make sure that the cost of doing business together is more appealing than going separately.

One particular aspect of doing business in China that is especially difficult for western executives to understand is that the best way of not getting screwed is to develop real friendship with their business counterparts. Chinese value face and yiqi(义气). The dictionary defines yiqi simply as personal loyalty but it's much more. To behave without yiqi is to dishonor oneself and suffer a great loss of face and self respect.

As AMSC's case showed, keeping the crown jewels, in this case the source code, outside of China did not prevent theft and the attempt to go it alone. If the parties had found a way to remain in the same bed and share the same dream, they might still be living happily ever after.

Wednesday, March 14, 2012

The Myth of China Dominating the American Economy

Despite recent hue and cry about China taking unfair advantage of trade with the U.S., an analysis revealed that the amount of Chinese goods and services being consumed by the Americans in 2010 accounted for (gasp) 2.7% of America's total personal consumption. Not only that, but 1.2% were actual costs of imports from China. The other 1.5% were accounted by the U.S. business transporting, selling, and marketing of the made-in-China goods. By contrast, 88.5% of the total personal expenditures were spent on goods and services made in the U.S.

This study was performed by the Federal Reserve Bank of San Francisco and can be read in its entirety here. Ostensibly the reason for conducting this study was to determine how inflation in China might impact on the U.S. economy. Obviously, if Chinese imports only account for 2.7% of our total personal expenditure, it won't matter if China experience inflation in the near future. For that matter, it is immaterial whether China is manipulating its currency or not.

Keep this study in mind, the next time some politician or pundit makes a mountain out of this mole hill or indulge in flights of runaway imagination on how China is ruining our economy. Your response should be simply: Nonsense.

Sunday, March 11, 2012

Debunking Cyber Warfare and Other Illicit Derring Do

Accusations of evil doers lurking in cyber space seem to fall into the following categories.

(1) Some warn of frightening cyber attacks in order to sell their network security expertise.
(2) Some describe lurid tales of evil doing in cyber space to sell books, fiction or not.
(3) Some attributes acts of cyber sabotage to other nations in order to demonize them, most often targeted being China and Russia.
(4) Of course, threat of cyberwar is another way to justifying budget allocation from the federal government to the defense industry.

Along comes in latest issue of Foreign Policy an article that should calm matters down and lower the scare meter by a notch or two. Below are some excerpts from the piece written by Thomas Rid, ridding us of some of the amorphous fears.

Cyberwar is still more hype than hazard. ...act of war has to be potentially violent, has to be purposeful and has to be political. So far we have not seen any that meet those criteria.

In his 2010 book, "Cyber War," former White House counter-terrorism czar Richard Clarke invokes the specter of nationwide power blackouts, planes falling out to the sky, trains derailing, refineries burning, pipelines exploring, poisonous gas clouds wafting, and satellites spinning out of orbit. The only tangible result so far is the establishment of the U.S. Cyber Command in 2010 with an annual budget exceeding $3 billion.

Development of a cyber weapon would require a lot of resources. The weapon has to be target specific in order to be effective. Once used defense measures would be put in place and the weapon would lose its potency. In other words, the cost effectiveness of such a one-shot weapon is problematic and doubtful.

While Rid's article provides a balancing perspective, it will not deter others to scare monger.