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Meishan Free Trade Port: The Told Story

A few weeks ago I had written a post about my travels to the small island of Meishan, just off the coast of Zhejiang Province, in the municipality of Ningbo. The post could have been subtitled, Meishan: The Untold Story, since it is about some of the less formal aspects of my trip to the newest Free Trade Port Zone in China.

This month’s Chaina Magazine - a publication of the China Supply Chain Council - published my article on the Meishan Port, the “Told” Story, as it were. (Could be the first time “the untold story” was told before “the told story”). The article’s short but informative, I would like to think, and was a pleasure to write. You’ll need to “flip to” page 46 of the digital magazine to read the article.

Enjoy…

Posted in China Writings, China Development Trends | No Comments »

Modern Architecture in China (with Western Characteristics)

I had a discussion recently with some Chinese and Western friends about architectural trends in China. The topic kicked off with a comparison of recent visits to Beijing, where one either loves or hates the new architecture that’s gone into place for the city’s coming-out party. Consensus round the table was that all the new architecture was hideous, with the new CCTV building being both hideous and astounding. I bemoaned the fact that none of the new architecture reflected anything of a sense of style through which previous dynasties in China projected their world views. Instead, the new architecture was developed by Westerners who were hard put to get those sorts of structures built in their home countries. “Come on,” I said, “look at the Egg, on Tiananmen Square; or the CCTV building. They’re hideous!”

“Oh, you Westerners always like the traditional architecture, which just isn’t economical,” Bob, one of my Chinese friends said.

“You’re right about the economics, but my point is that none of the new architecture in the national capital reflects a sense of Chinese style, a kind of continuity between old and new, or a projection of the traditional into the future.” I brought up a relatively new property development here in Suzhou, Ligongdi, on Jingji Lake. “The architecture is amazing. The developers were able to keep a strong sense of the Suzhou architectural style while at the same time updating it, modernizing it. It’s lovely.” The “Suzhou-style,” also prevalent throughout southern Jiangsu Province from Kunshan to Nanjing, presents simple white-washed facades capped with undulating black-tile roofs. Clean, simple lines sometimes punctuated by large round doorways into courtyards that give a feeling of entering a safe place, a sacred space. In other words, there is a sense of style, as opposed to a mere paean to power or commercial acuity.

“And then there is the University of Xiamen,” I said excitedly. Xiamen is a municipality in Fujian Province across the Strait from Taiwan. “The main building on the campus must be 30 stories, with a great, peaked roof that swoops down and up again like a bold, red-tiled brush stroke. The building clearly reflects the Fujian traditional style but updates it beautifully.” Bob and my other Chinese friend, David, had seen the campus. They both nodded their appreciation of the building.

Bob made the point, though, that Beijing never really had a chance at carrying forward some sense of the traditional. From 1949 the Central Government began tearing down the great fortress wall that ringed the city, and built monstrous Soviet-style mausoleums as a tribute to the fathers of Communism. In other words, the architectural trajectory of the city from the founding of the People’s Republic was never in the direction of extending the traditional. He came back again to economics, said, “How many people can you fit into the Siheyuan?” he asked. I nodded my head in acceptance of his point. Siheyuan are the traditional courtyards of Beijing in which several generations would live. Typically, the areas are quite small, with stingy, dark rooms that in the winter have wind whistling through tired panes of thin glass; and in summer, are stifling with dusty heat. As charming and “traditional” as they Siheyuan are they are not very economical in light of the shifting demographics of the country: more people are coming to make their lives in the city from the countryside.

And then again, Bob and Frank - the other Westerner at the table - proposed, Beijing is not in competition with the rest of China over who is the most cultural; Beijing is in competition with other capitals of the world. Beijing is looking to impress the political, cultural and financial leadership of the world.

And when Beijing’s air pollution lifts long enough to reveal the New City - like a curtain drawn on the debut of a grand performance - world leaders may indeed find themselves envious.

Posted in China Society, China Development Trends | 3 Comments »

The Politics of Water

A Danish friend once told me he would never buy real estate in Beijing because it will all be under sand in twenty years anyway. Though tongue-in-cheek, he might just have a thought there. During a recent trip to Beijing I talked with a Chinese professional who told me there were rumors in Chinese chat rooms that the capital of China just might move - southward. He explained to me that the strains the city and its population are putting on the environment are unsustainable: water, especially, is a scarce and precious resource the city has been siphoning from other locations (sometimes illegally), including those in other provinces, like Hebei.

“In the 1950s through the 1970s we only had one dust storm about every three years,” a retired professor at Beijing’s Foreign Language Institute told me in the Spring of 2006. I had just missed a dust storm – sha chen bao – that had buried Beijing under a quarter-inch of dust. Many of the cars that congest Beijing streets still had the coarse red dirt smudging their hoods and roofs. The Beijing professor continued, “in the 1990s we started seeing one dust storm a year in the city. Now, we have at least three a year.”

Though this year was light in comparison to previous years in the number and severity of dust storms that come visiting the capital, everyone is aware of the inevitable: the Gobi Desert is coming. And let’s not forget the Mongolian Steppes, where thousands of sheep have eaten away the nappy grass that has held the loose soil in place for millenia. The Central Government began a program of planting trees in advance of the encroaching desert sands, and claims to have seen some success in the reduction of the rate at which the desert is expanding, as well for this year at least in the condition of the dust storms.

However, the city is still thirsty. That the Beijing government had to put out a notification that it did indeed have enough water to support the athletes, visitors and residents in the city during the Olympics more throws a spotlight on the issue than alleviates anxiety about lack of the resource. Beijing has grown quickly, and in anticipation of the Olympics has built a city that is more an icon for flagrant consumption than a vanguard for the sort of balanced growth the Central Committee has professed it is pursuing.

“So where will they move the Capital?” I asked the professional.

“On the internet people have been gossiping about the government moving to Hubei Province, to somewhere near Wuhan. Lots of rivers down there, and not much development.”

Does politics float?

Posted in China Society, China Development Trends | 3 Comments »

Wujiang Wonders

A couple representatives of the Wujiang municipality dropped by the office a few days ago to let me know what was new in their economic development zones. Wujiang town hall is just south of Suzhou city, about a half hour drive. The economic development zones there are what I call “suburban” economic development zones: investors can put their factories in the area and still live in the more Westernized venues of Suzhou Industrial Park. The land prices and lease prices in suburban EDZs tend to be less expensive than their more developed neighbors, while in many instances benefiting from the inferiority complex of being next door to famous or well-developed Zones. Being number 2 (or number 3 or 4) tends to make the administrators in these suburban areas hungrier for projects, and more attentive to the special requirements of investors – especially Westerners.

Wujiang is no different. The two promotion bureau representatives that made the drive up to Suzhou to meet me during one of Suzhou’s summer torrential downpours were ever upbeat about their area’s prospects; after all, their job is to promote (no good being downbeat about your product’s prospects). One of the more recent developments in their Zone was the start of a Chemical Zone in the FOHO region of the district. The FOHO sub-zone is further to the south of Suzhou city and closer to the border with Shanghai, as well. “We turned away a lot of applications for chemical factories last year,” the petite Ms. Chen explained to me. “So, we felt if we regulate and process the pollutants well, then we can make a Chemical Zone.” A pity, that, because the Liu He area in which FOHO has settled is still a relatively unspoiled area with pretty marshes and lots of small lakes. Let’s hope the centralized waste treatment facilities they are building maintain some semblance of the local ecology. “Investors can only buy land,” Ms. Chen added, “they will not be able to lease workshops in the Chemical Zone; we need to be able to control the quality of construction.”

Wujiang is also building a “Liesure City” called Songling Town along Lake Tai (Taihu). Ms Chen explained, “Wujiang has 50 km of lakeshore along the Lake, and wants to develop real estate projects and tourism. We are also encouraging truly foreign companies to invest in real estate in the area,” she enthused. “That includes Hong Kong companies.” But doesn’t, she was reluctant to say, include Chinese companies that come as investors to China through Special Investment Vehicles hosted by offshore entities. That would be cheating.

Posted in Suzhou, China Development Trends | No Comments »

How to Waste Space in China

The Chinese factory owners were near completion of another factory an hour and a half’s drive up the coast of Zhejiang, still more than two hours south of Ningbo. The owner’s had five years before bought about 40,000 square meters of land on which to build their dream factory compound. After driving narrow winding roads through picturesque mountain scenes we arrived at the half-finished compound, which hosted dormitories, warehousing space and workshops. The factory area was so remote that it had to be self-supporting. Other large factory spaces were going up around the area, too.

The group of Western businessmen I was with wondered aloud where all the business was going to come from to fill the spaces within the compound walls. The company’s export-led business had flattened of late because of the weakened economies abroad. Still, any thoughts of being unable to fill the potential capacity of the factory seemed far-removed from the reality of the buzz surrounding the place. In an odd sort of way it was reassuring to see that Chinese business owners, without much of a business plan, were still of the philosophy, “If you build it, they will come;” that is, by building spaces that would take years to fill they gain Face and through the Face they will gain business, which seemed rather contrary to the sensibilities of my clients.

I’ve seen this phenomenon time and again over the years in China: in Jiangsu province; Anhui province; Tianjin and Chongqing. This phenomenon of over-building factory space in the hopes of filling it seems to drive away potential JV partners from the West. If it’s not the sheer lack of business planning, then it’s the schemes the Chinese side has cooked up to fill the space to capacity. Many of the schemes seem to involve the Chinese running different businesses under the same roof, including the joint ventures with the Westerners. That seems to also include splitting the attentions of the Chinese management staff. “Oh, the managers will be able to spend about eighty percent of their time on the JV,” Tianjin company owners said once during a negotiation with Western clients of mine. Of course, the Westerners were not impressed with what the Chinese believed was a rational offer.

Much of the build-it-and-they-will-come attitude comes from the sense of insecurity that still permeates China’s nascent market economy. Companies do not know when policy winds will change, perhaps causing business owners to shutter their factory doors. The bigger the capital investment, though, the more Face they’ll have in the local business environment, and the more weight to dissuade local officials from enforcing State edicts.

Still, business reality bites, occasionally. I recall a 20,000 square meter factory space that was all but complete near Nanjing. Roughened concrete walls and floors needed plastering and painting, electricals still needed to be installed. The dark, dank super-space was clearly disintegrating for want of attention. “Why is the space empty?” I asked the attendant government administrator. She answered, matter-of-fact, “The company ran out of money. They didn’t know they would actually need twice the power generation they had actually planned for to run the operation. The costs of new back-up generators and of electricity were going to be more than they could afford.”

A great waste of space.

Posted in Doing Business in China | 10 Comments »

Beijing: Ain’t No Sunshine When She’s Gone

I recently spent a couple days in Beijing on business. With the run-up to the Olympics I had to admit I was a little curious to see how the Powers That Be were making out with sticking points such as pollution, lack of water, tightened security measures, traffic, weather patterns, the implications of a more restrictive visa policy and other persnickety issues. I had been able to escape the trip “up north” to the capital for nearly a year and a half, but finally had to bite the bullet and show up to a meeting in the Central Business District.

One of the first things that surprised me about the trip came even before we arrived at Shanghai’s Hongqiao Airport for the flight: the Hotel at which we were going to be staying in Beijing - the Nikko - in the Central Business District, was remarkably inexpensive: only about 900 rmb per night. That told me if the Central Government had not been able to suspend the laws of supply and demand and that indeed hotels were hurting for business, just as I had been reading in the international newspapers. Visa restrictions, the Powers’ more restrictive security enforcement and bad press had put occupancy rates at 40 - 50% less what had been expected, from what I had read. That my hotel room rate a mere month from what has in other countries amounted to one of the biggest parties they’ve ever hosted indicated to me international attendance was not going to reach the levels the Powers had in their dreams prophesied.

Of course, traffic was miserable in the city; but it really wasn’t so bad until we reached the third ring road, driving in from the airport. Actually, the only thing exceptional about the traffic was that it was indeed as bad as friends, colleagues and the newspapers had said it had become. It was difficult to make out more than the faint outline of buildings a mere 200 meters away, and the fumes from the exhaust of frustrated cars and bullying buses made me dizzy. A drive that late in the evening to the Hotel took thirty seconds for the taxi to navigate had at rush hour taken our driver 20 minutes.

I do have to admit to taking at least ten of those minutes in the fidgeting traffic to marvel at one of the most extraordinary buildings I have ever seen in my life: the new CCTV tower. The Escher-like structure is imposing, and the way it twists and turns in mid-air seemingly defying the laws of physics was jaw dropping. I commented to my colleague in the car that the building struck me as the perfect structure in which to house an institution that contorts in mid-air and changes direction at its pleasure with the effect of bending even the space around it: the power of Chinese media.

An oddity and perhaps a one-off experience, though I am still unsure, involved dinner with an old friend the evening I arrived at the airport. We ate at The Tree, a popular expat pizza parlour that serves a wide variety of beers, just off Sanlituan . My friend wanted to eat a salad. Salads were unavailable, the bartender informed us (no tables were available at the busy establishment, so we sat at the bar). Why is that? we enquired. He said they had received a government circular that no salads were to be prepared in restaurants until further notice. He was serious. Of course, we asked why the government would want to control salad making. He said he didn’t know much more than that. Still, I don’t know if the circular really existed; or, if it did exist, it just affected the restaurants and cafes in the Sanlituan area. I didn’t know, as well, if it was an effort to save water (as salads typically require extensive washing before serving), or if it was a public health campaign (sometimes salad fixings are not washed enough before serving). Either way, it seemed like a dumb thing to control.

My colleague and I met the next day with a group that had its offices near our hotel. The walk was easy, though noisy and noxious. Visibility was down to 100 meters, so it was difficult to make out buildings that were no more than a block away. It started to drizzle; or rather, the mist that enshrouded us seemed to squeeze out small drops of moisture. I quipped to my colleague, “I think when we get back to Suzhou there’ll be small holes burned into out shirts from the acid rain.” He chuckled I just might be right.

At the end of the meeting our host, a soft-spoken Chinese gentleman in his mid-forties, asked me if I planned to return to Beijing for the Olympics. “No,” I answered definitively, “I intend to go south, as far away from the Olympics as I can.”

“So do I,” the Director said with a smile. He saw the question mark on my face, added, “I’m from Jiaxing [an hour’s drive south of Shanghai]; I’m going to go there in a couple weeks. Next week the Beijing government is only allowing cars with odd and even license plates to come into the city on alternating days. It will be miserable getting around.”

The afternoon flight back to Shanghai was easy enough, though we were stowed on the airplane an hour just after the staff had battened the hatches. The plane hadn’t even disengaged from the umbilical ramp. During the wait I vowed not to board an airplane during the Olympics: security was tighter, lines were longer. Even at the subways, I had heard that now passengers had to queue to pass through metal detectors to board their trains. Of course, this being China and all, the tightened vigil at the subways had meant nabbing would-be passengers with everything from tanks of gasoline through Bowie knives. So, though the cramped Beijing trains were safer, they were certainly less interesting to ride.

It was good getting back to Shanghai. For one, there was sunshine. Bright, blinding, with a great blue backdrop as canvas for a sweltering homecoming. I resisted the urge to drop to the pavement outside the Hongqiao terminal to kiss the ground. Still, I was happy to return. At least, in this part of China, though making money was of paramount importance, at least the laws of physics were still observed.

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China Due Diligence: Double the Fun

A recent trip through Zhejiang Province reinforced for me the observation that the more things change in China the more they stay the same. I was accompanying a group of clients to open discussions with a couple of Chinese companies on the possibility of the Western company acquiring one or the other. The first target was really out in the middle of nowhere: it’s first factory was in a town that had only a few hundred thousand inhabitants. That’s very small by Chinese standards. The owners of the operation were affable and capable young men who were clearly interested in a cooperation of one sort or another with the Westerners, specifically - they said openly - for technology and management processes.

I had explained to the Westerners before the meeting that most Chinese companies keep two sets of accounting records: one for themselves, and one for the local tax authorities. The first company, though, surprised me in two ways: they were honest about their duplicity, and explained in detail where numbers in the books were just for government consumption; and they had only one set of books – the ones they offered to the tax authorities. All other numbers the Chinese partners kept in their heads and freely related to the Western businessmen. However, when the Western managers asked questions about revenues and profits and depreciation and the like, the foreign executives found themselves quickly frustrated with the lack of clear answers.

A far more mature acquisition target we visited nearer Ningbo wasn’t too much different. Despite how much better-developed its facilities were (taking up nearly 80,000 square meters) than that of the partnership we had just visited, and how well entrenched it was in Western markets, it too had two sets of books. The second set, though, was at least in book form, so the owner could identify line by line in the report to the tax man what lines were true and which were bogus.

Another revelation for the Western team was just how low taxes and social benefits appeared in the books for employees: healthcare, retirement, maternity leave, disability and the like. Instead of the thirty- to forty-percent additional expense to base salary across many provinces, the two companies were paying around three percent. “There are ways to keep these costs low,” the owner of the second factory said without blushing. “Don’t worry,” he encouraged, “you won’t have to pay more than this amount for the employees if you buy the factory.” Of course, I encouraged the client to worry about it.

To Err is Human; Due Diligence is Divine.

Posted in Doing Business in China | 3 Comments »

Is China Cool Yet?

A recent Financial Times commentary asks the question, “Is China now cool?” The article poses the observation:

“This is not as flippant as it may sound, but an important issue for business, technology and even geopolitics. China has repeatedly shown it can make cheap and reliable products. But a Cool China would be a place with a sense of style and home-grown brands young people the world over would want to emulate, and it would be a freewheeling place where innovation flourished.”

A recent trip I took to Beijing a couple days back (about which I’ll be posting an article in the days to come), left me with the unequivocal answer, “No, China is not cool yet.” That is, if Beijing is meant to be the flag bearer of a Cool China. Indeed, once you cut through the curtains of pollution and navigate through the stagnant seas of traffic Beijing is a great and toxic concrete jungle.

“You cannot escape the restless ambition and sense of renewal in China these days, from the uber-fashionable modern-art galleries and grunge music scene in Beijing to the dizzying statistics about university graduates and patent approvals. Yet somehow the end result never quite matches the hype.”

There are pockets of Cool in China, of course: art scenes, music scenes, even some business venues; but, maybe because I’ve been living down South these past five years and am so near Shanghai, I tend to attach associations with “cool” to Shanghai. Shanghai has always struck me as less restrained and more “international” than Beijing, despite Beijing being the country’s capital. Guangzhou, though, is just nuts, and has few redeeming qualities unless you like eating snake and civet cat.

“In a way, Beijing’s new icons tell a similar story. The buildings are not the fruits of home-grown creativity: they are designed by foreign architects and their function is often expressing state power. As Mr Koolhaas’s critics love to point out, his CCTV tower will house an organisation whose output is sometimes little more than party propaganda.”

The article’s observation reaches to the heart of the discussion about how a country can be Cool. A government cannot impose Cool on a population or society anymore than it can democracy (as some countries in recent modern history have attempted to). A government can organize manufacturing production; it can direct propaganda; it can even fund research in specific directions. But it cannot by fiat foster an environment that incubates Cool.

“From the environment to education, so much of what happens in China over the next couple of decades will depend on how quickly the Communist party lets go its tight grip and allows society to breathe. The same goes for innovation, culture and the birth of Chinese cool.”

Posted in China Society, China Development Trends | 3 Comments »

Almost as Good as The Tonight Show

Comedians in the States used to say, “It’s all practice until the Tonight Show,” a reference to endlessly performing their comedy acts at half-empty clubs until they get their spot on The Tonight Show, for decades one of America’s funniest and most enduring late night television shows.

I sort of feel the same way about being an up-and-coming China Hand: it’s all practice until The Economist quotes you.

OK, so it’s the Economist Intelligence Unit, from which The Economist Magazine draws much of its research and data. But being quoted a couple times on the efforts involved in rebuilding Central China’s industrial base after the Sichuan Earthquake merits mention. Check out the article, “Rebuilding.”

Can’t wait until I make it to a print edition!

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North Korea: The New Vietnam

I recently talked with a Dutch friend with years of experience sourcing textiles in China. Months ago he had told me that production in Guangdong had diminished greatly and costs escalated. His company shifted sourcing to Qingdao – or rather, just outside Qingdao – in the northern province of Shandong. Qingdao is a charming seaside city with a strong South Korean and Japanese manufacturing base, and some Russian architecture. The greatest legacy of the colonial period to Qingdao was the brewery the Germans abandoned when they were told to get out of Qingdao at the end of World War I. It’s from that brewery that the Chinese learned how to make beer and to create a brand known world wide, the name of the city at the heart of the brand.

Still, the shakeout of low-end commodity industries in China has not ended, and Qingdao has hardly escaped. “Back five years ago,” my Dutch friend told me, “a primary vendor of ours in Qingdao had orders of 1 million pieces. He had landed Walmart as a customer. He went from being very small to very large and now is down to where he first started, 5,000 to 10,000 pieces. And whereas he had 1,000 employees at the peak of business, he now just has about 350. They don’t produce anything in the huge facility they have, they just assemble from smaller operations.”

But some of the more complicated pieces cannot even be handled in the area. “The owner of the factory has to outsource the manufacture of some knitted pieces, like collars. He gets those from North Korea.”

My jaw dropped. “North Korea as a production base?” I had visions of little girls stitching complicated knit pieces with bloodied fingers, soldiers with machine guns guarding the exits should the exhausted and hungry workers attempt to escape.

My friend nodded, drew a puff from his cigarette. “Yeah, so now he can get costs as low as they were ten years ago.”

“How do they get the orders into North Korea? How do they get the production out? Over land? Must be over-land.” I realized I was muttering to myself.

“Anyway, the guy isn’t hurting financially. He built a huge hotel across the street from the factory. Expects that as Qingdao becomes more wealthy, more foreigners will want to stay at the hotel – which was quite a nice place, really.”

And if the hotel investment doesn’t work out, I considered, and the textile industry booms again, he can always use the hotel as a dorm for migrant North Korean workers.

Posted in Qingdao, Globalization, China Development Trends | No Comments »