China’s quest for dead horses – the WTO column

(later also at Chinabiz)
Brussels - Now the shock of the bomb attacks in London is subsiding a bit, British media focus on other amazing stories again. So, together with the anchor people of the BBC’s Breakfast show I was wondering the other day why Shanghai Automotive (SAIC), competing with two other Chinese automotive companies, resumed bidding for the heritage of MG Rover, the erstwhile famous British car producer of the Jaguar.
“Don’t do it,” I told the TV screen when they said that SAIC would resume its bid for this relic of British industry.
It was not unlike the adventures of foreign companies entering China more than twenty years ago. They also bought or teamed up with Chinese companies that were gone, dead and too often paid a lot for the privilege to buy a dead horse.
Now Chinese companies are trying to enter the global market and they tend to make the same mistakes. There are a few reasons why acquiring a firm could make sense. The purchase of the IBM PC-business, Haier’s efforts to enter the US market and the MG Rover deal seem to make less sense, to put it mildly. For me the jury is still out concerning the friendly offer oil company CNOOC is making for its US competitor, but I keep my nose open to notice any possible signs of decay.

There might be three main reasons to buy another company, to acquire the latest technology, to buy into a market or to buy a cool brand. Five years ago MG Rover stopped investing in research and development, say British media. What is left is their heritage with no trace of new models or developments. MG Rover itself decided already five years ago it was not worth to invest in a dead horse. When SAIC and Nanjing Automotive are looking for new technology to improve their own operation, they might be looking in vain.
Will they get access to a lucrative market? Just like foreign companies entering China in the past, they might not find that market anymore after they have bought the assets. When MG Rover was unable to turn their product into a viable market, I do not see what SAIC could add to that, especially now the whole operation is defunct for some time. A few streets away here in Brussels there is still a MG Rover showroom and it looks pretty sad and dusty.
Could the last argument be valid? Getting a brand that was erstwhile pushed by James Bond himself? I would today rather be in charge of selling Harry Potter’s broom. Just getting an outdated brand name could be a good strategy in the past for selling consumer goods in China to an ignorant market but might not work anymore when other fundamentals, like a solid market and good technology, is lacking.
Getting an outdated production unit dismantles and moved to China might have worked in some industries. For example China bought a full steel factory in German, dismantled it and brought it to China. But that might be a losing concept for an industry that focuses on high-quality and where the latest factories in China are cheaper and less fault-prone than the older production units in Germany and the US. SAIC should know that.

So, what might drive the Chinese executives in pursuing an antiquated, bankrupted car company in Britain? I guess some of the buy have a Jaguar themselves, they are just looking for a hobby.

Fons Tuinstra

economy - High wages force foreign companies out of Korean to China

Foreign enterprises are leaving South-Korea because of high wages, writes the Korea Times today. Danish toymaker Lego has decided to pack its bags, after earlier this year three larger pharmaceutical companies left: GlaxoSmithKline, Eli Lilly and Wyeth.Korea is losing its global competitive edge, the paper says:

Wages in Korea are five to 10 times higher than China and India, and even higher than in Ireland. Foreign companies have also been troubled by labor strikes for years. Soaring land prices stemming from rampant speculation as well as administrative red tape definitely worked against Korea. Add to these problems the country’s perennial security risk and it is easy to conclude that it would be strange for foreign companies to stay. Foreign direct investments fell 8.4 percent in the first half of this year.

Rupert Murdock and his wife Wendy Deng

media - Another Murdock venture falls apart

Yet another effort by Rupert Murdock to enter the Chinese media scene has fallen apart, according to an article from Xinhua, published in the People's Daily. ( A pickup from the Chinabiz headline service.)
SARFT, the State Administration of Radio, Film and Television, in charge of domestic media, repeated on tuesday its ban of foreign participation in domestic media. It signled out a venture Murdock started early this year with Qinghai Satellite TV as an example of the kind of ventures that would have to stop.
More on Murdock in China.

internet - SCMP's five million bloggers

The South China Morning Post is trying to defend its title as the most ignorant medium concerning the internet. On Tuesday it wrote that China is having five million bloggers. While developments are going very fast, but the number is hoovering between one and two million. The official counter at Cnblog seems with 770,000 weblogs also out of touch, but in a different way. In March it also had counted 700,000 weblogs.
Any more realistic estimates around?

Free trade, but not for all – the WTO-column

(later also at Chinabiz)
The China-US trade relations saw this week a ritual upsurge in attention as one of another US-official came up Beijing to pursue their mantras: a floating renminbi, more action again copyright infringement and of course: more access to the Chinese market for American businesses.
Especially the last demand must have been followed with increasing amusement by Chinese companies that try to enter the US markets, as producers of agricultural products, textile companies and CNOOC feel what a free market really means, while the US tries to curtail fair Chinese competition it tries to block with legal and diplomatic tricks.

More than any other country, China has benefited from a relative free trade. Relative, as it started off with a heavy regulated economy. While Chinese companies at a micro level have to clear panacea to beat competition, China at large had. While the ideology worldwide increasingly embraces free trade, China developed its current basis by heavy government protection.
Some of the politically less correct economists – my favorites as you might guess - encourage continents like Africa to close their borders and develop their economies first based on their own strength, and only then engage in worldwide free trade. Only after gaining enough strength domestically, those countries can compete with the developed world.
Under the pressure of the WTO-regime China has been moving towards free trade, and faces the proponents of free trade, the EU and the US, who despite their economic position and free trade ideology, just seem to be unable to do what they are asking the rest of the world.

Of course China still scores pretty low in the official rankings that try to measure the level of freedom in its economy. Developed countries can define much better what free trade actually is with subsidized agriculture, just as China officially still embraces its communist ideology, although in all cases it seems just a convenient way to conceal their focus on their own interests.
In China foreign companies increasingly have to live up to a sudden rise in class-driven conflicts, as workers’ and consumers’ interests seem increasingly to play up. Siemens mobile phone service is the latest victim, but the list of foreign companies that have to live up to social standards that seemed to be dead for the past decade.
That new emergence of social standards in China might be as important as the American way to sell protectionism as free trade.

Fons Tuinstra

labor - And the next one is: Siemens

Public pressure on German giant Siemens is growing after the sales force of its mobile phone united in Beijing protested against possible lay-offs, reports CRS.
Protest against foreign multinationals, both on consumer and on labor issues, seems to become a regular feature - or are we just more alert?

culture - The Amsterdam China festival

When you are in October this year in Amsterdam, it is worthwhile to check out this dazzling festival. It brings together some of the key cultural and corporate players in what seems a set of very interesting shows.

life - Shanghai caught in gridlock


Twenty years ago Shanghai tried to avoid the traffic disaster that brings many other huge cities to a standstill. It failed, writes Howard French in the IHT.

"The estimates we made 20 years ago have been proven wrong," said Li Junhao, chief engineer of the city's Urban Planning Administration Bureau, in something of an understatement. "The development of Shanghai has been beyond our imagination."

economy - Europe tightens visa-rules

Tightening visa-rules, including face-to-face interviews, might reduce Chinese interest in European holidays, Shanghai travel agencies say in the Shanghai Daily. Only last year the first Chinese tourists departed for these promising new destinations after China and Europe struck a deal.

The agencies said they may consider replacing some Western European routes with tours to Eastern and Northern Europe, and Northern Africa.The city's first tour group to Tunisia, for instance, will set off on August 2, according to Shanghai CYTS, Shanghai International and Shanghai China International Tours.

economy - Putin gives China priority for oil

The Russian president Vladimir Putin gives an oil pipeline to China priority over the connection to Japan, he said after attending the G8 conference in the UK, according to the Nanfang Daily (picked up by the China Media Watch of Chinabiz).

In the fight for Russian oil Japan has been pushing Russia to first build a pipeline favors Japan and promised aid of 9 billion US dollars. The Japanese proposal is a 4,000 kilometers pipeline which runs from Taishet to Nakhodk, a southern port on Russia's coast of the Sea of Japan.

internet - Chinese bloggers' conference

T-salon reports on the first Chinese webloggers conference planned for this autumn in Shanghai.

China’s job machine – the WTO column

(later also at Chinabiz)
Brussels – In the past week economic life in big parts of Europe came to a standstill as the major summer holidays too off. It offered reason enough to ask locals here and elsewhere in the world how they imagine their economies would survive against the competitive force of China. Amazingly enough they increasingly tend to look at China to offer ways out of their economic problems.

In a desperate move to find a new angle in the classic China story some of my colleagues are coming up with very creative solutions.
For any restructuring in the past years the five-letter word ‘China’ would offer any journalist an-easy-to write story. While sometimes a direct relation with China could be found, mostly the story was a bit complicated to tell audiences as countries with a less strong media presence abroad like Mexico and Lesotho would be hit much harder by the fallout of globalization than the US and Europe who have been complaining more loudly.
But the media are getting bored with the story, as I note every now and then stories popping up seeing in China a solution for their own economic problems. I would call it a variation on the ‘man-bites-dog’ articles that offered a welcome anti-dose for the all-too-boring ‘dog-bites-man’ stories. Chinese investors and Chinese management perhaps could offer them a way out, they suggest.
So, increasingly my local colleagues in the US find ‘prove’ for this reversed relationship as Chinese investors rush out to save their presumed doomed local industries. They all suggest that China has a kind of miraculous formula to save companies and move against conventional economic wisdom. Industries that have lost their struggle with time, as every industry does every now and then, hope they can survive with that magic Chinese medicine that seems to work in China itself.
I hate to set a hose on what is potentially a new and creative angle on viewing China, but after more than ten years in China I wonder whether this magic medicine to save companies does exist.
Chinese companies fail at least as often in China as foreign companies do. But since there are many more, the number of successes seems to dominate. Surviving in a competitive Chinese economy is indeed an achievement in itself. It is very hard to distill the right formula that makes a Chinese company successful at home, since there are so many differences between industries and cultures that make China look in real life more different than Europe.
While the murky relationship with different government departments is still key in many parts of China and a large number of industries that is an advantage hard to transplant abroad. The successful Huawei is still in many ways and extension of the People’s Liberation Army, a relationship that could be less helpful in the US and Europe. Otherwise it is the Chinese experience to deal with fast change, and especially to compete against lower prices that makes Chinese companies domestically successful.
What I admire especially in how Chinese conduct their business is they way how they are able to ignore all conventions and traditions when it is in their interest. I had some interesting but confidential talks with European companies in their dealings with China and the Chinese, as potential customers, employees and suppliers: the Chinese flexibility drives them crazy.
The six-week summer holiday started and, more than in the US, Europeans take their holidays very serious. Efforts by Chinese to ignore that kind of traditions tend to fail here, but that is what could give them a competitive edge. When I ask the Belgians whether they would like to become more competitive by giving up their holidays, and other privileges, they bluntly say ‘no’. Unless Chinese companies can force developed countries into accepting Chinese standards for labor relations, becoming competitive might be tough for American and European companies, even under Chinese management.

Fons Tuinstra

economy - How China saved US jobs

A nice 'man-bites-dog' like story in the Chicago Tribune News, where a US entrepreneur in the tools business explains how Chinese investments saved his company in the mid-West.

Chinese investment in the Midwest--as elsewhere in the world--has amounted to a trickle so far. But that is likely to change. Despite the angst in Washington, business people and economic development officers throughout the region have been falling all over themselves to attract Chinese investment capital to their communities.

It might not convince those who see jobs disappearing abroad. And Chinese investments really contributing to valuable jobs outside China: I still have to be convinced myself.

life - Speaking Chinese, a challenge for China

Howard French writes in the New York Times on one of the features in China that amazes much of the outside world: only half of the Chinese speak the official standard Chinese or mandarin.

The official view here is that all of the tongues spoken by Han are variants of one language, Chinese. But in a country with a traumatic history of civil war and fragmentation, many specialists say this theory may have more to do with politics than with linguistic reality. Many of the Han dialects are almost entirely mutually incomprehensible, more distinct than languages from disparate regions of Europe.

Not only much of the politics in China is local politics, the same goes for the languages spoken:

"We have an expression, that if you drive five miles in Fujian the culture changes, and if you drive 10 miles, the language does," said Zhang Zhenxing, a linguist from Fujian at the Chinese Academy of Social Sciences in Beijing. "In recent years, because of economic growth things have been getting better, but there are still an extraordinary number of dialects in Fujian."

internet - Confusing facts from new CASS study

Guo Liang of the Chinese Academy of Social Sciences has released its long-expected second study on the Chinese internet, unfortunately only through a rather confusing announcement by the official newswire Xinhua. His first study in 2003 gave the first rather thorough look at what was happening in this community that counts now for over 100 million users and is still growing, although less fast than we were used to.
The original study is not yet available. The Xinhua article begins rather surprising telling us that Chinese spend more time online than watching TV, an assumption that is made not true in the rest of the article.

Yet the survey found that television is still the dominant mass medium.Seventy-nine percent of interviewees choose to watch TV to get information, and another 75 percent take newspapers as important as TV.

The survey also found that only 63 percent of the interviewees uses email, much to the surprise of the researches. Guess we need a look at the study to make sense out of the Xinhua article. The People's Daily is slightly more convincing as it says the internet is more importantant as information source compared to other media, for its Netizens - that is a bit more modest headline.