Guanxi and common sense, part III – the WTO-column

(later also at Chinabiz)
Lawyer and my friend Mark Schaub focuses professionally often at the flip-side of doing business in China. For his speeches he uses a few one-liners on guanxi, a feature he holds strong opinions about. “When you do business in China, everybody seems to have this guanxi,” he says. “Only when you need that guanxi, it has always disappeared.” And “When you build your business on guanxi, you have a problem, since your guanxi will go away, retire or end up in prison.”

I remembered those one-liners as I was reading the sad story of Maurice R. Greenberg, ‘Hank’ for friends, who saw earlier this month his forty-year old reign of the American insurance company AIG end as the financial authorities in the US started an investigation into the financial practices of the company. He had been longer in charge than the previous pope! When somebody used to have guanxi in China, it was Hank Greenberg.
During the 1990s you could easily confuse him with the anchor men of Shanghai TV, so often the hard-working American business man showed up there. Thanks to his contact he was able to get at the beginning of the 1990s the first license to open a wholly foreign-owned life insurance company in Shanghai.
Much later, when the European competitors tried to enter the market, China’s regulatory authorities had their act much more together and foreign insurers had to enter a joint venture with a Chinese partner, before they could start their business in China.
That advantage for their American competitor has haunted the Europeans for a long time. In the last phase of the negotiations for China’s accession into the WTO in 2001 that difference between European and US insurance companies has caused lengthy delays and was the last major issue before Europe and China struck a deal on the WTO.

Now the tables have reversed. Under the current regulatory climate foreign insurers cannot expand their network of branches as fast as they want. But those with a Chinese partner can use the infrastructure of their partner from their erstwhile forced marriage. AIG is now distinctively having a disadvantage while Hank Guanxi is no longer around to fix the problems.
Whether AIG really has benefited from more than a decade guanxi and preferential access of the life-insurance market is another question. From the Bloomberg dispatch I learn that foreign insurance count their blessings in China more in terms of branch offices than in market share or – another alien counting method in Chinese life insurance - even in return on equity. Despite more than a decade of hard work, foreign insurers rule only at a tiny fragment of the market the domestic insurers have and that suggests that the market is not yet ready for foreign insurance practices. Chinese insurers have a tradition of conquering the market by losing millions.
Insurance companies always take a long shot before they can report on their returns, but in the case of China they might have to rejoice their previous lack of guanxi that has allowed many of them from starting to lose money a decade after AIG got that marvelous opportunity.

Fons Tuinstra

Part I: Common sense or guanxi
Part II: Readers’ reactions

internet - China's bloggers forced to host abroad

Isaac Mao

Isaac Mao comes with a sad observation regarding domestically hosted bloggers in China. He sees that more and more ISP's pull the plug from webloggers who have not registred in database of the central government. That often happens without even a notification, Isaac says.
He calls for support of webloggers outside China, to host the Chinese webloggers. That is sad for several reasons. First, the short-sighted governmental reaction. Even if a registration is only a formality - and very little in China is not required to register from churches to bicycles - it will hamper the development of weblogs, even though now MSN, Google and others offer very easy free weblogs.
It is especially sad for the domestic hosts of weblogs, who see a potential good business disappear. Many people, including Isaac, have been spending much time and money into developing a business. That business will still develop in the long run, but that might be too far away for some of the current participants.

internet - The Google strategy, and its consequences for nanny



Today I have been giving the latest developments on Google in China some thought, after I discovered that their new service had virtually deleted parts of the already very leaky internet firewall. Did I tell you that this evening I could also get Google News without any problem when I use the Google Web Accelerator?
The strategy of Google (and I now summerize very short the analysis of people who make following the company into their daily business) is to become an intermediar between the internet user and the internet in all aspects. What happens is that they try to suck away traffic into their systems, as they did very well with their web search engine, desktop search and gmail. Setting up this gigantic proxy called the web accelerator fits into that strategy and has as interesting side-effect that we can avoid the IP-blocks in China. There is a danger in losing some privacy, but to be honest, I would rather lose that to Google than to the FLG who provided me with proxies in the past.
What is next? Google will have to rethink their China-strategy, now they plan to enter the China market not only virtually. When it wants to stick to its image of being not evil, they can of course not censor the traffic in the way the Chinese censor does. Or can they? Those are important questions for the near future.

Update: the word is getting out pretty fast despite the holidays. Read here what Yan Feng has to say.

Books on censorship

economy - Shanghai stock exchange loses BoCom IPO



The Bank of Communications (BoCom) will most likely only go IPO at the Hong Kong stock exchange and not in Shanghai, media widely speculate. The fourth largest Chinese commercial bank, 20 percent owned by HSBC, wants to list 12 to 15 percent publicly. It is yet another sign that the domestic stock exchange is heading for more trouble in the near future. The expected increase in liquidity might deter more companies to list in China.

Business in China

media - Beijing Youth Daily syndicates US cartoonist

Beijing Youth Daily

The Beijing Youth Daily will syndicate the famous US cartoonist Pat Oliphant, AP reports.

Beijing Youth Daily, with a circulation of 600,000, is the second-largest newspaper in China's capital. In December it became the first state media outfit to sell shares to foreign investors.

It is all part of a slow, very slow change in the media change, as we see in this weblog too often. Oliphant mostly comments on US domestic politics, so it might need quite some explanation for a Chinese audience.

More cartoons

internet - Google Web accelerator beats nanny too



(Also at BNN)
Google has introduced a new tool to increase the usage of your internet connection, the Web Accelerator. It does allow Google to peek at what you are doing and even change what you see, so be aware of that possible danger. I do not care about that very much but had not installed the feature because I use maxthon as a browser, much more efficient than Microsoft's IE and less open for attacks too.
But a reader of this weblog suggested that in combination with IE Google's new tool would also beat the internet censor. Well, that was enough encouragement for me to have a try. Indeed, the web accelerator helps to beat our internet nanny, at least I got to the BBC news services very easy. I do not think that Google wanted to bring down the firewall (as far as it still is in place with so many proxies around) but they effectively did.

Update I: I have done some more testing and the results are less coherent than I hoped for. While the news site of the BBC is available, the Google News site is not available in this way and also some other blocked IP addresses I cannot access. Any other results out there?
Update II: With the exception of Google news, all other 'blocked' website I can see thanks to the web accelerator: Amnesty International, the blogspot-weblogs, www.cnd.org: seems the system is basically working as a proxy to avoid the firewall.

Books on Google

media - No bon voyage for Mark Kitto

Kitto in 2002

Richard McGregor of the Financial Iimes gave earlier this week an overview of the tribulations of former media mogul Mark Kitto (but it took a few days for the internet ants to get over the FT-firewall). I followed his story till the end of last year, when Mark started his travel magazine Voyage China after being ousted from "That's Shanghai".
Things have not gone well and Mark has returned to the UK, we learn from the article. The murky legal waters for media in China caused also this venture to run into problems and things have been played in the rough way:

In April this year, however, his partners in Voyage had rung up "inhysterics", saying they had been asked by the authorities in Beijing toexplain why they were working with a supporter of "Muslim separatists".

You wonder why anybody would like to burn their fingers on the media in China. Well, first there is a lot of money to be made when you play it right. That might explain why the number of English-language media projects is growing rather than decreasing. More about those later.
(For those interested in the full FT-article, I can email you a copy).

On travel in China

media - Find the hundred musea in Shanghai

Shanghai historical museum

Of course I know the sensational Shanghai historical museum and I would be able to come up with half a dozen other musea of different qualities, but I was a bit surprise by this article in the China Daily announcing that my city would open this month museum no. 100. Where are all these museums?
Target for 2010 is actually 150 museum, but what if nobody knows where they are?

Statistics from the municipal Civil Affairs Bureau, show that on average each year Shanghai will see more than 20 new museums opening their doors .

We know the story of the sex museum that was chased away by narrow-minded government officials, but where are all these others?

Insiders say that of the 100 museums due to be open by the end of the year, more than 50 per cent are publicly owned and funded by the local government.

Must be a kind of state secret or they have no money to tell people where they actually are.

On China's history

relations - More pandas than mainland tourists to Taiwan

the evil panda

In their typical propaganda-style Chinese media cheered today about the decision of the relevant authorities in Beijing to allow mainland tourists to visit Taiwan and to send two panda's to Taiwan as a sign of goodwill. Unfortunately, the media reports did not disclose all necessary information and perhaps eager tourists should not start packing yet. The reports failed to mention that there is another party, back in Taiwan, who calls itself a government and might not allow tourists from mainland China in, so in that way it is a rather empty move.
Both panda's might make it sooner. KMT-chairman Chen Lien told the media before he left Shanghai:

"For many years, mainland compatriots have wished to present giant pandas to Taiwan compatriots, and many Taiwan compatriots have repeatedly asked to see cuddly pandas in Taiwan too.... We hope the pandas, with their tame nature, noble air and cuddly looks, will bring joy and laughter to the Taiwan compatriots, children in particular," he said.

I do have to warn the Taiwan compatriots for those panda's though. Although they do look cute, they still are bears who are known for their evil character. Their "tame nature" can turn suddenly nasty and especially children should be kept at a distance.

On tourism in Taiwan

economy - Tables turned on Hank Guanxi and AIG

Maurice R. Greenberg

I just finished my second column on guanxi as I stumble into this overview by Bloomberg on the implications of former AIG-chairman Maurice Greenberg's downfall for the China operation of the insurance company AIG. That seems to ask for a follow-up. Greenberg got earlier this year at home in hot water because of discovered financial irregularities and had to step down.
Who arrived in the 1990s in Shanghai might have easily taken Greenberg for the anchorman of Shanghai TV, so often he was in the picture. With the help of then municipal leader Zhu Rongji Greenberg organized as the first one a license for an insurance company in Shanghai, 100 percent foreign owned.
Only later the Chinese authorities decided that the envious European insurance companies had to join a Chinese partner to get access to the market. Up to the last phase of the WTO-negotiations in 2001 Europe tried to secure a similar privilege for their insurance companies, but that was denied. Now it turns out that insurance companies with a Chinese partner have an easier job in expanding over the country than the American insurers who have none. AIG is losing its clout very fast.
From the dispatch in Bloomberg I understand that foreign insurance companies count their blessings in China in terms of branch offices, rather than market share. As always when insurance is the issue the market share of international companies is not compared with that of the domestic ones, because it is so tiny that is looks rather bad. Not sure whether that is really bad, because the Chinese insurance market still has to prove it can return a decent profit.

On business in China

Guanxi or common sense, part II – the WTO column

(Later also at Chinabiz)
My little rant about foreign companies who mistakenly assume that all Chinese can provide helpful portions of guanxi caused quite some reactions. Of course I could not address all subtleties of the matter and certainly, kakila-hereditary Chief Clark Smith might be right that Aboriginals in Canada still need their guanxi, because they cannot get bank loans, as he writes in a comment, but I would like to limit the argument to China.

“I think guanxi is extremely important in doing business in China,” writes business consultant Ari van der Steenhoven. “It seems the companies you quote did not have much knowledge about doing business in China.” That was indeed my main argument: lack of common sense can kill any business, with or without guanxi.
Guanxi has become an issue in China among foreign business people – and not in their own countries – because of the cultural differences, writes Mike Noske from Zhangjiagang. “Can I stress the point that I believe the western business world is very much cognizant with the concept of guanxi – we just call its different: “the old school ties”, “lodge brothers”, “mates” are three that comes to mind. But because we don’t acknowledge it as openly as the Chinese do with ‘guanxi’, the possibilities for unethical outcomes as a result of ‘western guanxi’ are in my view much higher than in China.”

I’m not too sure about the last part of Mike Noske’s argument. While guanxi might still have an influence, as Van der Steenhoven argues, I do see its influence is diminishing. When a market is dominated by monopolies and oligopolies, when government officials can decide about market entry, distribution channels, then there are barriers you have to develop your business based on your good relationship with those government officials. Newcomers might not appreciate my argument when they see how much influence the government in China still has, but compared to a decade ago, the government interference in much of the economy has diminished greatly.

A representative of a larger car company, who has to remain anonymous, argues that ‘guanxi’ is still very much in place, and not diminishing as I say. “In my opinion this is [still] true for small ventures but also for a huge corporation like the one I am working for. One of the main reasons why our company gets into the headlines of the Chinese newspapers when something small or something big goes wrong is, that we send our lawyers to the government instead of the "invitation to the Karaoke bar". Have you noticed that there is hardly any bad news about Volkswagen? In my eyes this is because due to their long experience and very good connections to the government, their mistakes are not communicated in the same way.”
This might still be right for the media, because they belong to the least deregulated industries in China. But as Volkswagen has discovered the hard way over the past decade is that ‘guanxi’ perhaps might still keep your corporate disasters out of the media, it does not help anymore in selling cars. Ten years ago Volkswagen was big in China, because they could keep the competition out and force the majority of the car owners to buy their outdated Santana.
Now in the car market, the consumers are in charge and guanxi on that previous scale has lost its impact. “Guanxi is nonsense, you can do business with everybody nowadays,” says one of my local hit men, who is conducting many business negotiations. “You have to know how to organize the kickbacks, that is the only thing you need to get things done.”

Fons Tuinstra

Doing business in China

media - The 'killing' of anti-Japanese activists



In a flare of anger ESWN engages in a powerful argument dissident websites for a habit they have in common with the official media in China: publishing blatant lies next to truthful stories. Starting point is the unproven and even highly unlikely story of a killing of 17 anti-Japanese activists by police in Shenzhen on April 25.
The disputed report says:

According to eyewitnesses, these plainclothes policemen came in four cars with eleven personnel. The eyewitnesses heard gunshots from the factory. Afterwards, a large truck came and 17 stretchers came out with bodies covered in white sheets. The scene was then cleaned up and the cars left.
Afterwards, the news came out that anti-Japanese activities were suppressed in Shenzhen, Shanghai, Beijing, Chengdu, Guangzhou and Shenyang. But the news of the bloodshed was strictly shut down.

And ESWN argues:

The problem with a website like Peacehall [who published this report - CH] is that it is a mix of apparent truths and total lies. Peacehall publishes many interesting posts from Chinese dissidents as well as hosts the works of the members of the Chinese Independent PEN. As such, this is one of my major resources. At the same time, I also had to learn to avoid the blatant fabrications (such as the million plus Chinese Communist Party members who have heeded the Nine Criticisms from the F*L*G master Li Hong*zi to resign from their party).

The problem is of course that traditional media in China used and still use similar methods. The quest for the truth is not yet a firmly rooted tradition in the Chinese media, whatever side they belong to. If not telling the truth would be a reasonable argument to ban websites, as ESWN argues, what should happen to the newsagents in China?

On media and lies

Shanghai: Global aspirations with anti-Japanese characteristics

Shanghai, April 16

Associate professor James Farrer of the Sophia University in Tokyo analyses the predictment Shanghai finds itself in after the anti-Japanese demonstrations in April in Yale-Global. The problem for Shanghai according to Farrer:

The experience of Shanghai in dealing with nationalistic sentiments may offer a case study of the constraints that a globalized city's well-being imposes over narrow nationalistic pulls. For the time-being the Chinese and foreign stakeholders in global Shanghai have succeeded in containing the damage but questions remain about the future.

Farrer goes on to dissects the discourse he noted and concludes:

Although few foreigners in Shanghai worried about their immediate safety, many felt that by allowing violence against foreign property, the police had set a dangerous precedent for future demonstrations. Japanese residents were alarmed and angry but said they were planning to stay. Their local ties to Shanghai outweighed national rivalries, and Japanese companies could not afford to pull out.

And:

As China's rising global city, this Shanghai story also has implications for understanding the politics of globalization more generally. Political motives cannot be reduced simply to a story of narrow local and nationalist loyalties versus globally oriented economic interests; we should also take into account the local cosmopolitanisms developing in key polities such as Shanghai, creating mixed loyalties which – at least in peaceful times – may moderate more radical expressions of national sentiment.

James Farrer wrote earlier on China:
Farrer on Shanghai's sexual revolution

media - Discussing the Zhao Yan-case in Beijing

Joseph Bosco

Google the name of Zhao Yan and the second link that shows up is the website WOW - We observe the World - by a class of future journalists at the Beijing Foreign Language Institute. On the invitation of its dean Bosco teaches "First Amendment, free press and American-style journalism". In the lastest issue of the magazine of (American) Society of Professional Journalists, Bosco describes this as one of many small steps that will lead to a feer Chinese press.

We are now well into the spring semester, and we’ve had reports and meetings about the content on WOW. The students are campus heroes, and the series remains up for all to read, officially, with the blessings of the deans and Party cadres I work for. I won’t pretend to know why. I know a truly free press is coming to China, as well as they do, but it is a process as slow as it is unstoppable.

Books on media and China

economy - Sale non-tradable shares takes off

Shanghai stock exchange

As expected the China Securities Regulatory Commission (CSRC) has announced it will start selling off the non-tradable shares of China's listed companies. Now, according to the China Daily, USD 400 billion worth of shares is being trade at the Shenzhen and Shanghai stock exchanges.
Two-third of the shares not not being traded and in theory the state could cash in another USD 800 billion if the threat of putting the remaining share on the market would not destroy the same market. That is what has happened since the summer of 2001 and it looks the CSRC is going to take that now for granted.
The ongoing holiday's will give everybody some time to brace for the opening of the markets again after the break.
The Financial Times has some more details on the planned track.

Buyers of state shares will not be able to sell their stake in the first year, and after that will be restricted to sales of a maximum of 5 per cent of a company's equity in each 12-month period.

Books on China's stock market

The online consumer revolution – the WTO-column

(Next week also at Chinabiz; now at BNN)
Demonstrations and protests in China have been hitting in April many of the front pages in the world, and for good reason. Explanations behind all the unrest differ very much, but astonishing is that one kind of protest, one that hurts foreign companies directly in their pockets, attracted much less attention outside China. Inside China, it has been regularly big news.
The latest victim was Procter & Gamble, who saw itself fined 200,000 renminbi for what was considered to be a “bogus advertisement”, according to the China Daily. The story originated from Nanchang, the capital of Jiangxi province, where a customer of P&G’s skincare product SKII settled a complaint after the product did not do the beneficial work its promised – reducing deep lines and wrinkles with 47 percent after 28 days – but caused mainly an allergic reaction.
The Xinxi Daily reported about the case, and in the past that would be it. But the incident got picked up by the internet and started to cause reactions all over China. Major publications started to follow the case, reported about it, and amplified the damage that would in the past have been limited to the customers in Nanchang. Even after settling the claim, consumer reactions are still flooding the internet.

This is not about who is right or wrong in this case. P&G accepted a settlement and that does not mean it accepts guilt. But the consumers perceived it as such and that causes again waves in the internet.
What is key is that P&G, and all the other foreign companies in China who had similar experiences, have not yet found a way to deal with this consumer revolution that has cost already many of them millions in damages and even more in immaterial loss of their carefully created reputation. The 100 million online consumers have become a powerful force that needs to be engaged by any brand name in China. Smaller incidents take place on almost a weekly basis, although the larger ones might be more illustrative. Often those incidents spill over into the traditional media, making the fallout even larger.
A famous example was Nike that was attacked by the dark forces of the internet in December when the company was accused of insulting China’s dignity with a harmless commercial where an NBA-player fought with Chinese cartoons and symbols. Nike discovered the online row too late, panicked and then made – at least in my eyes – a fool out of itself by pulling the commercial and apologizing publicly.
Welcome to the new world, I would say to all those who have not yet realized that the internet in changing almost every aspect of this world.
There is no easy solution that can solve 47 percent of your potential problems with the online population. But monitoring what is happening online, who is talking about you that would be a bare minimum. Becoming a player in the process and actively taking on rumors on the internet would be a next one.

Within a year, all PR-firms in China will advise their clients on an online strategy, if they do not do this already like Edelman. In the US they already do. “The end of the world as we know it,” calls Rich Edelman, their CEO it in his weblog. That has already started off in the US where Microsoft, Sun, GM and a few others show how to work effectively on the internet. With China, having the second largest online population, similar approaches are not far away.

Fons Tuinstra

Books on weblogs

protest - Update on the Zhejiang riot

After the riot

The hectic pace of life in Shanghai has slowed down a bit on the Labor Day and while massive crowd do their compulsory shopping despite the rain, I can update you much too late on this other riot in Zhejiang. China Elections has a story, but seemed to have missed the overview I used from ESWN.
In addition, earlier in the week I talked to Hans Moleman, the Shanghai correspondent of the Dutch daily De Volkskrant, after he returned from the area. The villagers were still full in charge, he confirmed, and they would not leave until the factories had closed, he said. The story about the two women being killed seemed definately not true.
He also got more background on how the villagers had been able to chase away around 3,000 'law enforcement officers' and the local government. Most of the 3,000 were 'volunteers', called in by the local government and supplied with uniforms. Most of then wanted to leave after they learned about the task they had to perform. They were told it would all be very peaceful, but as they were confronted by stones and violent villagers, most of the 'volunteers' ran away in panic leaving their uniforms behind.
Angry Chinese blogger has pictures here.

Books on civil society