China: The Gilded Age

7/27/2019 China: The Gilded Age

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CHINA:The Gilded Age

1988: 50 years of isolation

In 1988 we landed in China for the first time and took a step back in time. Intrigued by the mystery of China we jumped at the chance to takteaching/research positions at Tianjin University, an exchange program with MSUM, in the gray industrial town of Tianjin. China had openeditself to the world in 1978 as Deng Xiaoping established market reforms/free trade zones following Maos disastrous cultural revolution. 50years of isolation were painfully obvious with most modern amenities and basic consumer goods a non-existent dream. Our adventurestarted with our brand new flying pigeon bicycles ... the only bicycle brand made or allowed in China. A perfect example of communismsno-competition philosophy ... the bikes broke down frequently but luckily there was a bike-fixer on every corner ... a perfect jobs programOur flying pigeons became our primary mode of transportation and we soon learned to navigate the vast tsunami of bike traffic faced eachday as we left our compound lane and entered what seemed to be an eight lane highway of bikes.Only party officials had cars ... a black chrysler variety with lace curtains. There were 5 otherprofessors from the U.S. living among us in the foreigner compound. A drab, cold, cement-boxaffair -- 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 awakenedpromptly at 4:30 am by a rooster in the courtyard nicknamed Cocky (Cockys crowing mysteriouslyended 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 werethankful for a good nights sleep!

While Peter developed his research, I taught marketing, a new concept to students growing up in acentrally planned economy. I was known as Professor Xu Xin (Susan) and was paid a cash stipendeach month. We stood in line to receive our Renminbi -- then 4 to the $ -- but fetched 8 if you could exchange hard currency. We used thismoney for train rides across China ... sometimes traveling hard seat; I still recall the smell of cigarette smoke, ripe bananas, and livechickens tied by their feet, while barreling to Shanhaiguan, where the Great Wall meets the sea. The sense of adventure overpowered allother senses. Our first trip to Shanghai brought us to the famous shopping street of Nanjing Lu and the now overtired Park Hotel (where Mahad stayed) across from peoples park. Strolling through peoples park on a Sunday afternoon brought HORDES of chinese youth anxiouto practice their english and touch my blonde hair. A walk down Nanjing Lu was a dirt road with darkened shop windows and nothing onewould ever in their lifetime want to purchase. Mei-You or don t 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 withglare 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 moswere tired from moonlighting by night.I hired a tutor to learn Chinese ( three hours per day). Madame Chen was a harshproduct of the cultural revolution and I learned Chinese through her life history. She waan intellectual caught on the wrong side of history. Her father was a General in theKuomintang army and fled 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 hemother, a university professor, were left behind -- Chen was sent to Mongolia, her moth

to the rice paddies in southern China. She was back now, taking care of her mother, buthadnt 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 AmericaMost chinese professors wore blue Mao suits, and pretended to be good party comrades. Our students were eager, bright, and voraciouslearners -- they would show up unannounced at our door (there were no telephones, emails, or texts then) at 8:30 on Saturday and Sundaymornings 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 weevacuated by the U.S. State Department -- fearing a new cultural revolution andbacklash 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 itsrelation to the world) providing impetus for revolutionary reform.

Upon return, freedom of choice became a far more heightened value and whenasked if there were opportunity in China.we replied, Yes, 20 years from now.


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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 officials now sport slick black Audisvs. 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 theeconomy is run by the private sector and provides the impetus for its continuedgrowth of +10% per annum

Chinas streets are paved with gold, quoted 7 centuries ago by Marco Polo, isstill 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 increasedtransparency, 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 find many areAmerican copies of technology plays. Examples include the Chinese version ofAmazon, Google, Ebay, instant messaging, and Facebook. Others have become richthrough foreign (largely U.S) investment/buy-out. The rest are in real-estate andappliances-- go figure -- China will comprise 40% of the worlds construction incoming 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 optimistiabout opportunities in the future. Opportunity is even luring overseas chinese talent backto the homeland... from Hong Kong, Singapore, Malaysia, Australia,Taiwan, Canada, andthe U.S.! If one possesses western style management and chinese language skills,combined with confucian tradition, the Golden Dragon can be harnessed. This is despitecontinued setback in human rights (discussed later), and pervasive (but improving) povein 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, thesetrendy coffeehouses are filled to the brim with young yuppies in funky glasses, wirelessheadsets, 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 - filled with luxury goods.

500 square foot apartments - in an ok location - sell for about US$600,000 inShanghai

More cars are sold per annum in China today than are sold in the U.S. The !CROWD! atthe Bentley and Audi outlets in Beijing are living proof of this nouveau lust for luxury cars

Proctor and Gamble, Johnsonand Johnson, and other consumer goods companies are experiencing growt

not seen since the post-war 50s and 60

s in America

80% of American companies surveyed by AMCHAM in China say they arevery profitable, selling to Chinas consumer society, and no longer producingfor export. (Albeit, these companies have been in China over ten years, andhave likely seen the worst).

Many chinese contract manufacturers, stung by the loss of foreign customerduring the 2008 financial crisis, have found the new consumer market in Chinwith little appetite for recovering-returning overseas customers. It is far easieto sell at home now, sans the hassles of export. Take that America, a twist offate to be sure.


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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 floor 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 -- toconnect 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 routesto 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 marketsfor companies involved in infrastructure building, energy, transportation, and consumer markets. It alsorepresents a huge challenge in terms of environmental impact (land, water, food supply, air quality), migrantintegration, and social services.

The growing wealth gapbetween rich and poor is real. Wealth creation (jobs for all) is crucial

Corruption/land grabs(mostly by provincial officials) must be controlled as the demand for housing andfactories (and thus riches) increases, deposing farmers and farmland

Corresponding rising inflation- particularly in food prices is increasingly worrisome and could lead to the next revolution (we saw this aAsia ... particularly problematic in India)

The demand for steel, energy, water, and natural resources will outstrip supplyand raise world prices. Already U.S. prices for steel are dramatically.

Environmental disorderswill continue --- to compensate, the Chinese are buying clean environmental technology like crazy, but demanaccess 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 laboris 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. Buyan International Herald Tribune was a trip... we were informed by the retailer that page 5-8 had been removed by the National Party - withreason offered. We were curious, but blocked from discovering the truth on-line. There were civilian security guards on every corner durinparty congress - hired to keep the harmony and report suspicious activity. We wished these harmonious guards had stopped carsspeeding through stoplights. Pedestrians clearly lack the right of way in China (and most of Asia). Are people so dispensable or did thesepeople 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 committingeconomic 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 scientific papers -- although China is catching up on quantity of papers, U.S. quality/citations b

scientific community dwarf the entire world.

China bashing.... The Dragon in the Room :

Many view China as the venomous dragonin the room-despite the fact that China hasprovided much-needed investment in many countries. Therein lies the rub-their investmoften come with consequences and they are VERY ADEPTat negotiating needed resouExample: The Chinese are paying outright for the new deepwater port on the easternseaboard of Sri Lanka, thus enabling cruise ships and large container ships. In exchan

they are permitted to park their navy there...infuriating their neighbor to the North - Indiahuh. India didnt offer payment for the port.

We often blame the Chinese for taking our jobs, undermining our exports, and stealing intellectual property. Yet, the U.S. continues as the worlds largest manufacturer, has acto cheaper imports, readily accepts chinese investment, and our companies often arrivechinese contract manufacturers doorsteps with competitive products requesting a bette

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 evbefore. The laws on the books are solid. HOWEVER, interpretations of the law that side with local considerations coupled with lack ofexperience, 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 a

time to stop bashing and start embracing.

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China: The Gilded Age