Saturday, December 2, 1995

U.S. Policy Towards China

Public Forum, December 2, 1995
Chinese American Culture Center, Sunnyvale

Good afternoon, Ladies and Gentlemen:

I want to thank the sponsors of this forum for organizing this event and for giving me this opportunity to share my views on the relationship between the U.S. and China. Most important of all, I want to thank you all for coming. I congratulate you for your concern and your interest. I believe this relationship between two major powers of the world is of critical importance not only to the people of the countries involved but to peace and stability of the entire world.

Before I get into my presentation, let me give you a little more of my personal history. Knowing my background may help you put my comments in proper perspective.

I am a first generation immigrant American. When I came to America, I was 11 years old and had completed the 6th grade in China. After arriving in Seattle, my father would frequently say to my sisters and I: "Don't forget you are Chinese; don't do anything that would embarass the Chinese and cause them to lose face." For the next ten years or so, as I was becoming an adult in the U.S., I was busy learning how to be a good American. During this period, I didn't want to be a Chinese, not even a Chinese American.

In 1974, twenty five years after I immigrated to America, I visited China for the first time. It was an extensive trip covering 12 major cities. This trip made a lasting impression on me. I came back with a lot of photographs and spoke before many groups on what I saw in China. I was fascinated by the breadth of Chinese culture that I saw. Every city had its historical heros, its unique folklores and customs, its special native handicraft, its local cuisine, its place in Chinese history as a major or minor capitol, site of battle, etc. No two cities were alike in spite of heavy hand of the regime in control then, known as the Gang of Four.

I was deeply impressed and proud of the Chinese people. They were warm, friendly and curious about America, but at the same time they were proud of being Chinese and proud of China having regained its stature as a full-fledged equal to other major nations and playing an important role in the world arena.

In 1978, I jumped at the opportunity to join Chase Manhattan Bank and co-direct their non-banking group, Chase Pacific Trade Advisors. Chase was the first American bank to establish a presence in China to help American companies develop business relationships in China. The Chase position allowed me to play a constructive role in the U.S. China relationship. That is, to explain and help prepare American companies on how to succeed in China and to explain America to the Chinese organizations so that durable and sensible and mutually beneficial business alliances can be formed.

By helping American businesses, I can also help China in their drive to modernization. This then has been part of my activity since 1978, sometimes more and sometimes less. I am proud to be an American and I am proud of my Chinese heritage, it's enormously satisfying to be able to contribute to the mutual understanding of these two great nations

I feel that it is important for the audience to know that I am speaking to you from the ground level of a business consultant who goes to China frequently. From this perspective, the first issue that I would like to deal with is the rather natural assumption that I have a vested interest in seeing a friendly relationship between the U.S. and China. That is certainly true. But I submit, it should be in the interest of everybody in the world to see the two major nations engage in a cordial rather than in a tension-filled relationship. In fact, I can't think of many parties and situations that can derive benefits by playing the suspicions and biases of one against the other. Maybe there are a few Americans that feel the need to replace the former USSR with China as the common enemy. There are unfortunately people of little minds whose Asian bashing attitudes are based on ignorance and/or racist bigotry and I don't think there is much that I can say that would have any impact on them.

For my formal remarks, I would like to discuss three related subjects. Namely: (1) What constitutes a constructive engagement between U.S. and China. (2) How human rights and democracy can impact this engagement. (3) What influence economic cooperation can have on the bi-lateral relationship.

I think it is fairly obvious that in order for any two parties to enjoy a so-called constructive engagement, there has to be mutual respect. Unfortunately, respect, politeness, consistent posture, and close communication, the ingredients needed to build and maintain relations have been conspicuously missing in the way the U.S. has been dealing with China. It seems that the only time the U.S. has anything to say to China, it is to make demands, to insist on China doing things in ways acceptable to the U.S., to tell China how they should manage their internal affairs, to threaten China if they fail to abide by the U.S. wishes and then back down when China ignores those threats.

President Clinton's own personal commitment or interest or understanding can be simply measured by counting the numerous times that he has already visited Europe versus the only one trip that he has taken to Asia, and that was to attend the APEC meeting in Indonesia last year. This year, of course, he didn't even make an appearance but had to make a last minute cancellation because of the budget crisis at home.

The Clinton Administration isn't the only one to be blamed. The Congress has to shoulder its share with its parochial ignorance and arrogance. Very few Senators and House of Representatives have ever been to Asia and much less to China. Most have shown not the slightest inclination to understand the Chinese culture and attitudes but are ever ready to condemn based on what they have been told is going on in China. The Republican leadership in Congress is much more interested in embarrassing and obstructing whatever the Clinton Administration is attempting to accomplish than to judge each issue objectively.

So what about human rights and democracy? Let me make one thing very clear. No leader in China can stay in power that does not respect human rights. A surprising statement to some of you, I suppose. But that's because many Americans equate human rights with democracy. That's simply not true. Human rights can exist in the absence of democracy. The presence of democracy doesn't guarantee human rights.

May be I should backtrack a little and state what I think constitutes human rights. I think human rights consist of the right to life and include the freedom from starvation, right to shelter and clothing, the right to an education, to employment and thus gain the means to support themselves. If deprived of these basic rights, do you think anybody would care if they get to vote or voice their opinion as to who should be their political leaders? Next time you see homeless persons in San Francisco, check this out. Ask them when they last voted or what they think about the job their Congressman is doing.

Asia with the exception of Philippine has been the economic success story of recent decades. This includes Taiwan, South Korea, Hongkong, Singapore and Tiger wannabes such as Thailand, Malaysia and Indonesia. None of them started out as democracies; some barely qualify now, others remain not. They had first and foremost a stable government. Only with a stable government, can the leaders promote economic expansion. With economic growth, the general population began to enjoy a higher standard of living. When they have their basic human rights satisfied, then and only then do they start to look for more and demand more. They expect more alternatives and choices in lifestyle if not for themselves then for their children. The progressive liberalization that follows may not be part of the plans of the political leaders, but it has been inevitable.

This is the path China is taking. China's economy has been growing at nearly 10% per year for the last 16 years or so. The change that comes with this economic growth has to be seen to be believed. When I was first going to China regularly in 1978, there were no high speed expressways, virtually no locally made passenger cars, and no traffice jams, no fancy Hongkong-style restaurants, no 5-star hotels, no high class department stores with shelves of imported luxury goods, no McDonalds, nobody wearing anything that could be described as plain much less fashionable. Now all of these things are common place and not just for foreign tourists but for the local people. Now there is a proliferation of stalls, store fronts, restaurants and enterprises that are privately owned.

Now, there are even enterprising young men and women in their 30's and 40's who have made enough money to be able to come to the U.S. to invest here and take advantage of the U.S. immigration laws that would allow them to in effect buy themselves a green card. Interestingly, these people are much more interested in the convenience of the green card for doing business with the U.S. and have no interest in living here.

These young entrepreneurs and the so-called princelings, i.e., the sons and daughters of high ranking officials, represent the future of China. Largest portion of these princelings have been or are being educated in the United States. They have seen the pluses and minues of an open society. There is no way that they would be party to the old dogmatic ways. Besides the privileged class, there are also an increasing flow of professional managers and technical personnel visiting the U.S. in search of or working with business partners. They are experiencing first hand what life is like in the U.S.

Let me digress for a moment and tell you about a group from China that I was taking around recently. As we were driving along 280, I had the spur of the moment inspiration and pulled into the rest area with the huge stature of Father Junipera Serra. I showed the Chinese visitors the nicely planted gardens in the rest area and explained that it was done by a homeless priest who was living there and acted as the unpaid caretaker there. I also told them that Caltran initially wanted to evict the homeless priest but was turned around completely by the vocal protests of the people in support of the priest. Now Caltran wants to use this case as a model for beautification of other rest areas. Why did I do that? Because I believe these anecdotal, see-for-themselves incidents are much more effective in promoting their understanding of America than the holier-than-thou lectures that people in Congress like to give. As long as there are cordial relations between the two countries, there are millions of opportunities for these show-and-tells.

The bottom line as I see it is that the more contact the Chinese people have with America, the more exposed they will be to the American ideas and gain a real understanding of the principles of democracy. Thus, they will be in a better position to decide and choose a governing system that is best for them.

There are other tangible benefits of the presence of American businesses in China. Multinational corporations will not invest in China without clear guidelines on how their investments will be protected. Consequently, the government's drive for joint ventures with foreign companies has led to the formation of laws and regulations on foreign owned ventures. These laws are not perfect but represents a huge step in getting China accustomed to the rule of law as opposed to rule of men. As most of you already knows, democracy can work only where there is rule of law. For thousands of years, not just the current regime, China has been governed by rule of men.

Americans sent to China to work in these joint ventures are also important agents for change. By working alongside their Chinese colleagues, they are in the position to show their egalitarian attitudes, to share their concerns for the environment, views on equal opportunity and other values. With daily contact, they are in a strongest position to influence the thinking of the Chinese people.

Many in Congress have asked the question: Given China's drive toward economic reform and growth, why can't the U.S. use the threat of withholding economic cooperation, such as MFN-- most favored nations status on trade-- as leverage to get China to make the political reform more to our liking? The answer: We can't, because it doesn't work. One reason is that the U.S. position has not support among the Group of 7 major economic powers. Others do not agree with the U.S.; they have and will continue to do business with China. Of the 30 some billion $s investment that goes into China every year, only about 10% comes from the U.S.

Of course since the U.S. is China's most important customer, any economic sanction will hurt them more than it will hurt us. Even so the pain will be significant on our side as well, in such destructive lose-lose situation.

Even if economic sanction does work, is it really in our national interest to have a destabilized China? Despite its recent economic success, or perhaps because of it, the Chinese leadership is confronted by a host of problems. They include:

• A massive migration of rural peasants to the urban areas and from interior to the coastal regions seeking employment.

• The disappearance of precious farm lands due to the building of highways and conversion of land into factories and office buildings.

• The improved standard of living resulting in a higher quality diet that requiring more, not less, land for cultivation.

• Increasing prospects of unemployment for workers from inefficient and non-competitive state-owned enterprises and the lack of pension funds to support those laid off or retired workers.

• Corruption of officials at all levels of government.

Ironically, with economic reform and loosening of government control, China now even has a drug trafficking problem because drugs from the golden triangle south of the border can now find a easier conduit via the mainland of China to get out to the western market. The government actually is now in need of more control, not less. Democracy is the last thing on their mind.

Part of their solution will depend on economic growth to continue to create opportunities for its people. If the Chinese leadership fails to solve these problems, the consequence of chaos among 1.2 billion people will be felt world wide. The flood of boat people from Vietnam would seem a trickle in comparison. It will be in our interest to help China avoid such a catastrophe, not pushing them towards it.

Personally, I am not convinced that our human rights record is superior to that of China. In any case, human rights in China have been improving steadily and will continue to do so with a healthy growing economy. American engagement and sharing of common interest will allow us to exert positive influence on the future course of China. We can be on the inside as a partner to progress or we can be outside throwing bricks. If we choose to be on the outside, we will be standing alone unsupported by world opinion.

Wednesday, November 1, 1995

The Origin of the Name "China"

Many of us probably know that the first fine porcelain the West ever saw was from China. Thanks to the silk road, the West came to associate China as the source for china so that it was no coincidence that the country and the porcelain had the same name. But why "china?"

It seems that in the ancient days, the most famous kilns in all of China was located in a town called Changnan,--which means to flourish in the south. By the time the fine bowls and cups reached the west, Changnan had been Anglecized to "china," and the name stuck, so to speak.

Then about 900 years ago, a Song dynasty emperor decreed that the Changnan kilns shall henceforth produce for imperial use and the bottom of each piece shall bear the name of the year of his reign when this decree was proclaimed. Since the year was Jinde, the town quickly became known as Jindezhen (the town of Jinde) and that was how the origin of China, the name, was lost. Of course, Jindezhen is still famous for their china to this day.

Sunday, October 1, 1995

King Crab and the Japanese Structural Impediment

In a round-about way, the recent rage in Japan for restaurants to offer all-you-can-eat crab feast is connected to the way Japanese motorists are regulated. How so? Read on, please.

Under Japanese law, all new cars must be inspected after three years on the road, thereafter every two years. After a car is 7 years old, the compulsory inspection becomes an annual event. The inspection costs at least the equivalent of $1,500 plus any repairs needed to pass the stringent inspection. The government appointed inspection enterprises have carte blanche in deciding what repairs are needed and therefore the final bill to the hapless owner. The process is so expensive and time consuming that many frustrated owners trade in their old cars for new ones to avoid having to face the inspection fiasco.

Russia's Siberia on the other side of Japan Sea faces a shortage of cars, especially ones that still run, and hungers over the glut of used cars in Japan. However, because of the lack of hard currency to pay for the used cars, Russian ships have been landing in Hokkaido (Japan's northern most island) loaded with king crabs to swap for cars which are then sold for a handsome profit back in Siberia.

One consequence is that the price of king crab has reached the commodity level in Japan. With the restaurants needing to maintain traffic in face of recessionary pressure, the all-you-can-eat of a heretofore expensive delicacy became a marketing solution. Of course, everything is relative. In Japan, a cheap all-you-can-eat crab dinner starts at $25.

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.

Monday, July 10, 1995

Synergy across the Taiwan Straits

Come early August, a Taiwan delegation of forty some individuals, consisting of officials under the guise as "economists" and real industrialists from the private sector, will convene in Beijing for about a week to meet with counterparts from their host! (Yes, Beijing is still the capital of The People's Republic of China.)

What will they talk about? According to the advance agenda and if all goes well, the two sides will discuss economic development and cooperation. The Taiwan delegation are planning to discuss their strengths and needs in electronics, aeronautics, iron and steel, and the automotive industry. They will listen to the reciprocating presentations from the Beijing side and then they will tour the famed "electronics row" near Beijing University and the special economic development zone in nearby Tianjin. On the last day of their visit, combined study groups representing each industry will present their collective conclusions and future action items.

This is, of course, not a sudden whim but a carefully planned event borne out of mutual necessity and complementary strengths. The mainland economy has been booming along at over 10% per year. Even so, the growth has been lopsided, heavy in the southern regions near Hong Kong and Taiwan and lighter to hardly any elsewhere. A vast number are still under-employed in state-run enterprises that do not know what to do with them. Beijing needs Taiwan's expertise in building large scale manufacturing operations to make more efficient use of the labor pool. Along with it, Beijing needs Taiwan's capital, international market access and presence, business acumen and management expertise.

Taiwan's economy has been cooling down and it's electronics business based on the personal computer taking its lumps. Taiwan's industries are naturally attracted by the nearby source of low cost labor, a labor force with common cultural background with which to bring down their cost base. Taiwan is also drooling over the prospect of many natural resources on the mainland such as coal, oil and minerals that are awaiting for development. Most surprising perhaps to the western observer is that Taiwan also covets the mainland's store of technology!

That a less developed economy such as China should possess technology of value to Taiwan is on the surface surprising. The reason that this is so is because Taiwan has historically under-invested in research and development even as the economy was expanding rapidly. Mainland China despite a per capita GNP about one - tenth that of Taiwan has always employed a lot scientists and technologists at the universities, research institutes and industrial organizations. By and large, these developments sit in the laboratories unloved because China lacks the resource and know-how to turn them into commercial successes.

Then came Taiwan. In recent 2-3 years, the Taiwan government came to realize that as wages rise, the electronics industry, notably the personal computers, will no longer be able to compete as the low cost producer. They sought the advice of A. D. Little, the Cambridge, Mass., think tank. ADL's advice was to seek strategic alliances as the way of injecting Taiwan with new technology. Alas, it has been easier said than done. Taiwan looks to U.S., Japan and Western Europe for advanced technology. Other than cash, as is the case on the deal they are negotiating with McDonnell Douglas, it's not obvious to the countries with advanced technology as to what else Taiwan brings to the party. The mainland on the other hand has no trouble appreciating the merits of cooperating with Taiwan.

Whether the August meeting is the beginning of a symbiotic mutual dependence remains to be seen. As to which of the mainland technological developments are real commercial plums is also not clear to the outside observers. Only time will tell.

A final point, it seems to me, is that despite their still enormous political differences, China and Taiwan are finding ways to work toward common economic gain. The U.S. with much less political capital at stake is missing out. Except for a few notable exceptions such as Du Pont, Hewlett-Packard, IBM, Motorola and 3M, most American companies are not investigating the growing economy in China. Nor are there many companies taking advantage of Taiwan as the gateway to the growing markets of southeast Asia.

About 12 years ago, a Cathay Pacific flight from Hong Kong to Tokyo was forced to make an emergency landing in Taipei. All the passengers had to disembark and wait for another plane, including a group of mainland officials holding PRC passports. In those days, each side was still very much the enemy of the other. What to do? A most awkward incident was avoided when the Taiwan immigration official waived the procedure of examining the transient's passport. Even then, the Chinese in Taiwan showed the willingness to be flexible. We, in America, ought not let any political high horse get in the way of doing business in Asia. In Taiwan and especially in mainland China, anything American still carries a special cache, a special feeling dating back to World War II. Too bad more American businesses are not taking advantage of this vast reservoir of built-in good will.
Note added on January 20, 2008. Tragically, the synergy discussed abovebecame what could have been when the political condition in Taiwan took a turn away from reapproachment and the potential of cross strait cooperation was only partially realized.

Thursday, June 1, 1995

When is a Radar Trap a Contradiction?

A visitor from China was riding along in the heartland of America when he noticed and asked his driver and host about the gadgets on the dash of the car.

The top one was the radar detector to warn the driver of speed traps ahead, the American executive explained. The second one was a laser detector because some of the speed traps, in order to outwit the radar detectors, were using lasers instead. "This is high technology in action, you see," the American said partly in jest.

The Chinese thought for a while and then said, "Did you know that the Chinese term for contradiction is literally made up of two characters: "maodun" which stands for spear and shield?

"During the warring states period in ancient China, so the story goes, there were two shops next to each other in the capital. The sign on one store proclaimed that it made the world's sharpest spears guaranteed to penetrate any shield. The other store proclaimed that it made the world's strongest shields guaranteed to block any spear."

Nancy and McDonald, peaceful co-existence

On one of the busiest sections of Shanghai's Huaihai Road, there is a fast food restaurant doing brisk business called Nancy's Fast Food. The logo is the slightly exaggerated letter "N" in one and one half golden arches on an orange red background that McDonald's made famous. A sub-title underneath the restaurant sign reads: Chinese Foreign Joint Venture. If Nancy's had opened in the U.S., the owner would have heard from McDonald's lawyers in no time flat. But this is China and Nancy's owner is said to have powerful relatives. Besides, Nancy's had been in business for almost two years before McDonald's entered Shanghai. McDonald's approach was to open its first restaurant just a few store fronts from Nancy's. In effect, Nancy has introduced the concept of fast food to Shanghai consumers and McDonald's is taking advantage of the built-in stream of customers. Nancy's offers all sorts of fast food but no hamburgers; the last time I looked, both places were busy with lots of customers.

Lesson: In Asia, symbiosis works better than confrontation.

Wednesday, April 26, 1995

China's first McDonald's

Do you remember the international brouhaha that was raised late last year because McDonald's 20 year lease on the corner of Changan Avenue and Wanfujing Street, arguably the most coveted address in Beijing, was suddenly in jeopardy? Most China wise folks would know that Changan is the main east-west thoroughfare that runs by the famed Tiananmen Square. The intersecting Wanfujing extends northward and has historically been known as the premier street of commerce in Beijing.

Many a homesick visitors in Beijing for an extended stay have probably eaten at the 700 seat restaurant, said to be the world's largest McDonald. After a gala opening in 1991, it was to vacate prematurely in favor of a big time development financed by Hongkong money. Going by recently, I see that the restaurant was still standing, though rather forlornly because everything around it has turned to rubble.

As the locals tell it, Li Kaishing, one of Hongkong's richest billionaires, made the deal with the Beijing municipal government, which normally would have been sufficient. The envisioned project was going to be so huge, that it was going to dwarf the 17-story Beijing Hotel across the street, dominate the nearby Tiananmen Square and cast a shadow over the grandeur of Forbidden City, the finest imperial palace in China,--movie goers will remember it as the back drop for Bertolucci's Last Emperor.

In January, cooler heads from the central government reconsidered the matter and ordered the project put on hold, but not before all the buildings on that long block from the corner of Wangfujing eastward along Changan had been razed. Maybe the fuss over McDonald contributed to stopping this project, but it was too late to save the street. From the most desirable location, the restaurant is now next to one of the biggest eye sores in Beijing. With reduced foot traffic, McDonald did not exactly win.

As of April, the government has asked Li Kaishing to proceed at a reduce height comparable to the neighboring Beijing Hotel. Whether the Hongkong investors would still find the project economically attractive is not known at the time of this report.

In any case, students of Chinese tradition would not find the refusal to allow the development to proceed as surprising as the initial approval. For dynasties, no building around the palace is permitted to look down into the palace grounds. After all the site of the imperial grounds was carefully chosen to ensure long and stable reign. This and other traditions involving the palace and its powerful fengsui are observed by the current regime with the tall Beijing Hotel being only a slight stretch. Fengsui is the Chinese term for their science of geomancy that basically says location is everything. (Maybe the first Chinese geomancer was a real estate broker.)

If you don't think the current regime is a keen observer of traditional fengsui, next time in Beijing look at the prime real estate on the avenues that radiate directly north and south away from Forbidden City. You will find no tall buildings. Why? Because, as it was explained to me, the central nervous system of the imperial dragon lie underneath the north-south axis, and nothing heavy should be allowed to press on it.

People that do not understand China, which include many in Washington, tend to think of China as a tightly controlled state in which everybody moves in sync. This kind of go/no-go happenings, which occur with regularity, should persuade otherwise.

Other explanation for the go and stop and maybe go again of the Wangfujing project attributes the cause to political in-fighting between the central and the municipal government. Whatever the case, it does reaffirm the maxim about China, namely "nothing stays the same and nothing is as it seems."

Thursday, February 9, 1995

Getting on the Fast Boat to China

Depending on who you believe, China now has the second largest economy in the world, after the U.S. according to the UN, or the third largest after Japan according to the International Monetary Fund. Either way, it is pretty startling for a country with a per capita gross domestic product of less than $400. (Both the U.S. and Japan's per capita GDP are more than fifty times greater.) That China's economy has been under stated and under rated does not surprise those of us who have been doing business in China for years.

To others who are just getting the message about the exciting opportunities in China and are ready to join the next stampede into China, a word of caution is in order. As many business executives who joined the first wave into China in the late '70's found out: some of that glitter is pyrite. The outcome will depend on the executive's advance preparation, assumptions, motivation, Asia-related experience, and whether the objectives are long term or short. (If you're the investment banker looking for the quick hit, get there early. Don't wait until all are labled persona non grata.)

China's appeal

Specifically, why is China so attractive? China has been enjoying close to double digit economic growth for nearly 15 years. To fuel this growth, China has been a voracious buyer of capital equipment and technology. They buy from the U.S. when politics and export control don't get in the way, from others when they do. This is why Silicon Valley IC equipment companies, among others, are rushing into China.

After such sustained economic growth, the domestic consumer market is becoming one worth drooling over. Goods bearing the Pierre Cardin and Yve St. Laurent labels are prominently displayed in Guangzhou, Shanghai and Beijing and sold at world level prices. The shift from a centrally planned economy to a market economy means people are no longer evenly poor. While it's still a tiny percentage of the population that are making a lot of money, a very small percentage multiplied by a very large population base nonetheless amounts to a significant number of customers for expensive goods. Coca Cola has been in China for a long time and knows first hand about the growth in consumption. More recent entrants doing well there include MacDonalds and Campbell Soup.

Furthermore, China still possesses a large pool of motivated and reasonably well trained workers who can make goods at a competitive cost. The first ones to go to China because of this comparative advantage were the Hong Kong toy makers and the Taiwanese personal computer manufacturers. Motorola is one the first American high tech companies to establish manufacturing bases in China, not just to take advantage of the low cost labor but also to participate more effectively in the local market.

Pitfalls of Doing Business in China

So where are the potholes on this modern silk road to Cathay? First, virtually nothing stays the same about China. The economy, for example, according to most pundits and crystal ball gazers is likely to come to a screeching halt sometime this year or early next. (If Americans can't fine tune a market-based economy, what can be expected of the Chinese who are new at this game?) In the past, the Chinese economy lurched forward for 2-3 years and then hit a wall. Like a stunned drunk, China will pause and collect itself then lurch forward again.... In the meantime, if you have a contract that depended on the Chinese buyer getting easy credit from the Peoples Bank, you had better check into the situation soon.

Many people will tell you that whether your deal is in jeopardy depends on how well your Chinese counterpart is connected. Alas, that's true. However even 24 carat connections today could turn into brass tomorrow. Companies contemplating wholly owned operations in China need to be even more mindful of this issue--namely, how to track which way the political wind is blowing.

Having the right local partner to take care of the formidable amount of red tape can ease the pain of entry, and the local partner can guard your ongoing interest. Furthermore, China still has that 3rd world sensitivity about being exploited. Even though they now permit 100% owned foreign operations in China, the thought of the foreign entity taking all the profits still smacks of exploitation to them, and the approval process is bound to be long and arduous. If you leave a, say 20%, minority stake on the table for the local partner, you will find life easier now and in the future. 3M is a case in point. They had the very first wholly foreign owned venture in China, grudgingly approved in late 1984. Recently 3M took on a local partner to accelerate their business expansion of that venture in China.

Smaller American companies need not be fazed by the prospects of doing business in China if they have long term objectives and can gird themselves for the Chinese decision-making process that is almost never quick. Establishing a carefully thought out base now should pay dividends over the long haul as China's economy continues to grow.

Tuesday, January 17, 1995

Apple China Forum

Godd afternoon, ladies and gentleman. It is a pleasure to participate at this Apple China Forum and a honor indeed to be part of this distinguished body. Parenthetically, I should admit that I am glad that the 49'ers played yesterday.

As recently as 15 months ago, when I chaired a conference in Silicon Valley sponsored by the Asian American Manufacturers Association on fastest growing economies of Asia, it was still necessary to declare that China has become the world's hottest and fastest growing market for just about anything. Now that has become common knowledge. Those of us that have been active in China has seen the list of items that every household hungers for changed from the bicycle and sewing machine to color TV and refrigerator; now its VCR, camcorder, CD player and home karaoke sets. The family car and the personal computer are likely to be next on the desired list.

As you can see from this chart, courtesy of Dataquest, sale of personal computer, since 1992, is already beginning to take off in China. I believe, however, that so far virtually all of the sales are outside of the home market. But there is a lot of market left. One way of looking at China's market potential of China is to compare to that of the U.S. Even if we consider only the urban population which is roughly 25% of the total population, the per capita concentration of PCs in China is about 1/40th of the U.S.

So if you decide to enter this market, what do you need to know about China? Where are the potholes on this silk road to Cathay? In addition to the usual parameters in entering any new market, there are some that are peculiar to China. My fellow panelists will no doubt add others.

A big reason for the complexities of the China market is because China is still in transition from a state-controlled allocation system to a distribution that is unevenly determined by market forces. Some organizations can import directly; others still have go through state authorized trading corporations. Some dealers have powerful backers; others operate in briefcases that were here yesterday but gone today. Some specialize in soft currency transactions to organizations loaded with Rmbs but no dollars.

Sunday, January 1, 1995

First American to become a Chinese General

Who is the first naturalized Chinese American to become a general of the U.S. Armed Services? I don't know the answer to that question, but I do know who was the first American to become a naturalized Chinese citizen and became a general of the Chinese army, a personal appointment bestowed by the emperor.

His name was Frederick Townsend Ward, a native of Salem, Massachusetts, and this happened over 130 years ago. Ward was a soldier of fortune who ended up in Shanghai at the time of Taiping rebellion (and about the same time as the American Civil War). He organized and trained an army to defend the city from the encroaching rebels and his deeds were recognized by the imperial court in Beijing. He was appointed a mandarin official of the third rank and a general of his army, named Ever Victorious Army or Chang Sheng Jun (in pingyin). He was mortally wounded in battle and died within a year or two of his appointment, and a Briton by the name of Charles Gordon assumed command and the troops played a prominent role in rolling back the Taiping rebellion. Gordon was so successful that he picked up "Chinese" as his moniker. Charles "Chinese" Gordon's name was to become world famous some twenty years after his campaign in China when he died defending Khartoum in Sudan.

Anyone interested in learning more about this fascinating chapter of history along with a colorful description of colonial Shanghai will want to read The Devil Soldier by Caleb Carr, Random House, 1992.

Ward was the first to demonstrate that Chinese soldiers when properly organized and trained were equally adept at firing western guns and can become as effective a fighting force as, say, westerners. After his death, his followers buried him in Songjiang, a village south of Shanghai where he had his headquarters. The people at the time honored him by erecting a small temple by his tomb. Alas, he did not realize that by fighting on the side of the Manchu court, he was to become politically incorrect. After the 1949 Liberation, his tomb and temple was leveled and paved over into a park and no trace can be found today. (Recently, when I made a special trip out to Songjiang, I couldn't find anybody there that knew of Ward.)