Long View Blogger: Individual Blogs Page
Posted to BroadSpectrum Charles Mingus III
Monday, 21 February 2005
1. Left & Right 2. peter jennings on UFOs We were warned 3 Killing Softly Lois M. Scheel • 1994
- by angry_tester at 11:49 PM

Be well
Different processes underpin the grammars of numbers and language.

Deciphering the language of numbers uses different skills than understanding words.
 An inability to process language needn't stop you from doing maths, UK researchers
 have found.
They say that three men with severe aphasia, a linguistic impairment, can understand 'grammatical' rules in mathematics even though they cannot handle analogous rules in
 language. Aphasia leaves people unable to use or comprehend words, and is often 
triggered by stroke or other brain injuries.

Ultrasonics paranoia  & more
3. AFVideoclip.

Good show to tape - peter jennings on UFOs
"Peter Jennings Reporting: UFOs ‹ Seeing Is Believing" airs Thursday, Feb.
24 from 8-10 p.m. ET on ABC.


"Now why can't these technology specialists work to find ways to enhance life instead of destroy...oh, oh. Mustn't forget that
these new weapons are supposed to be non-lethal; even so, if they were actually put to use, they would certainly play havoc
with natural resources not to mention promoting business for the nearest unscathed medical associations."
Lois M. Scheel • 1994

<!--[if !supportEmptyParas]--> Killing Softly Lois M. Scheel • 1994

How does it feel to be killed softly? What a strange way to keep the peace: weapons that are kinder, gentler, a post-cold war strategy emerging from the U. S. Government's secret "black budget." Perhaps if these technology experts can come up with enough non-lethal weapons that "disable or destroy" without causing too much injury or damage, they can make war seem almost palatable and get on with their fun and games.

Here is a non-lethal laundry list described for the public:

(Excerpted from September/October 1994 issue of The Bulletin of Atomic Scientists from an article written by Steven Aftergood, Physicist.)

Infrasound: Very low-frequency sound generators could be tuned to incapacitate humans, causing disorientation, nausea, vomiting, or bowel spasms.

Laser weapons: Low-energy laser rifles could dazzle or temporarily blind enemy soldiers, or disable optical and infrared systems used for target acquisition, tracking, night vision, and range finding.

Supercaustics: These highly acidic chemical agents can be millions of times more caustic than hydrofluoric acid. They could destroy the optics of heavily armored vehicles, as well as tires and structural metals.

Biological agents: Microbial cultures can be "designed" to chew up almost anything. Scientists at Los Alamos National Laboratory reviewed naturally occurring organisms that could be cultured to enhance certain characteristics. "As a result, we discovered a bacterium that degrades a specific material used in many weapons systems."

Acoustic beam weapons: High frequency acoustic "bullets" used against people would induce blunt-object trauma "like being hit by a baseball." According to a special technologies expert at Los Alamos, "Proof of principle has been established; we can make relatively compact acoustic weapons."

Combustion inhibitors: Chemical agents can be released into the atmosphere or introduced directly into fuel tanks to contaminate fuel or change its viscosity to degrade or disable all mechanical devices powered by combustion.

Mini-nukes: Mini-nuclear weapons with explosive yields of 100 tons ("The 'Soft Kill' Solution," March/April 1994 Bulletin).

Among the many other technologies under consideration in the Pentagon's non-lethal program are sticky foams to immobilize individuals, anti-traction chemicals to slicken roads and runways, high-power microwave generators, mechanical entanglements, holographic projectors, non-nuclear electromagnetic pulse generators, neural inhibitors, and wireless stun devices.

Now why can't these technology specialists work to find ways to enhance life instead of destroy...oh, oh. Mustn't forget that these new weapons are supposed to be non-lethal; even so, if they were actually put to use, they would certainly play havoc with natural resources not to mention promoting business for the nearest unscathed medical associations.

<!--[if !supportEmptyParas]--><!--[endif]-->  Killing Softly Lois M. Scheel • 1994 [END]

<!--[if !supportEmptyParas]-->
 avowed capitalist, entrepreneur and and U.S. citizen
 Back in 1989, William Xin’s name was Xin Weirong, or “Glory.” He was a nuclear physics student
from the provinces who led a group of his peer to join student protests in Tiananmen Square, and
soon changed his name to Xin Ku, meaning “Bitterness.” And he was shortly to become one of the
 first of a small group of former Chinese dissidents who were spirited out of the country by a still-
shadowy underground to begin new lives in the West, even as the Red Army reduced the student
protests to a bloody massacre. Will landed at Yale, after a brief stop in France. Today, he’s a New
 Yorker. Also an avowed capitalist, entrepreneur and and U.S. citizen.
The Year Of The Rooster
Former Student Radical  Now Helps Companies Invest In China's Growth

Back in 1989, William Xin’s name was Xin Weirong, or “Glory.” He was a nuclear physics student from the provinces who led a group of his peer to join student protests in Tiananmen Square, and soon changed his name to Xin Ku, meaning “Bitterness.” And he was shortly to become one of the first of a small group of former Chinese dissidents who were spirited out of the country by a still-shadowy underground to begin new lives in the West, even as the Red Army reduced the student protests to a bloody massacre. Will landed at Yale, after a brief stop in France. Today, he’s a New Yorker. Also an avowed capitalist, entrepreneur and and U.S. citizen. But Will is still working to bring greater political stability and economic opportunity to the land of his birth. The difference is that, these days, he doesn’t deal in protest placards and slogans, but in RMB and dollars. BChinaB, the company Will and partner Jeremy Haft formed at the end of the 1990s with about a million dollars in start-up capital, has established a large network of specialized Chinese manufacturers, which it matches up with U.S. firms looking for reliable low-cost manufacturing capacity.
Will has very definite views on the risks and benefits of globalization, for Chinese and Americans, as well as on the pace and peculiarities of the Chinese “miracle.” And an extraordinarily informed perspective on the best way for U.S investors to participate therein. Best of all, he shares them in this interview to mark the New Chinese Year of the Rooster, a time of fresh beginnings in the new dawn.

Let’s start by talking about your business. No, let’s go back to the story of how you came to this country. It was not long after Tiananmen Square, in 1989, right?
That’s correct. I actually escaped to France before I came to the USA, right after the massacre. But soon after, I was invited to come here to study at Yale.

Where the first thing you had to learn was the English language?
That is correct.

That clearly didn’t present an insurmountable obstacle. Do I have the story right? You had already earned an undergraduate degree in physics in China?
No. I had been studying nuclear physics at Lanzhou University, in the provincial capital of Gansu Province (that’s in the remote northwest of China, where I grew up in a farming village). But I didn’t have a degree yet when I had to flee China.

So you finished that up and got an MBA at Yale?
Well, first I got my undergraduate degree in astrophysics, and then I left school for a short time to work in Silicon Valley, before I went back to B-school.

Let’s see. China, Astrophysics, Silicon Valley. A Yale MBA. That trajectory had to land you in Wall Street.
Correct, again.

Quite a journey, all within five or six years of escaping China —
Well, I was a very idealistic. I still thought about Wall Street in purely theoretic terms. Wall Street was this nexus of capitalism, where there was all this information and capital flowing. So it was where you could use capital to do good things like building bridges, highways, and all those kinds of things. That was what really attracted me. I am the kind of person who is driven by ideas. What interests me and what is worth spending my time on is something that can change the way we live or interact. From that perspective, it seemed only natural to want to work in the center of financial information and capital flow, which is Wall Street.

But your idealism soon ran smack into a wall of reality in the Street?
That’s right. I went to work for a very large hedge fund and saw a lot of enormous transactions being done, dealt with incredible fortunes. But I came to understand that Wall Street is also like a big gambling den, with some people making a lot of money, but with others also losing a lot of money, all of the time. For many of the guys doing the trading, it seemed to be a very fun game. But for me, I felt something was missing. It was China. When I got an opportunity to travel back to Shenzhen, which is just over the border from Hong Kong, in 1997, I was stunned by how much things had changed in less than a decade. And I came to understand that what I really want to do is raise and use capital to build businesses and projects that can in some way be good for society. Especially, Chinese society.

So you have morphed from a Chinese radical to a bona fide capitalist, but you’re still an idealistic dreamer at heart?
Well, what I am really interested in doing, ultimately, is impacting the development of technology through the capital markets. I would like to see technology used to build, or increase, efficiencies in society; to change the way people live and interact. Even though, you know, I may not be able to change China politically, I feel I can still—through the capital markets, through investing and through technology—play a part in improving people’s lives, particularly in China, where I grew up.

And where, I take it, many members of your family and many of your friends still live?

What you’re really saying is that you learned the hard way, at a very young age, that going head-to-head with the Chinese Army is not most prudent way to improve the lot of ordinary people in your homeland, so you have decided that fostering capitalism may ultimately be more productive?
Well, it was never my intention to overthrow the government in China. Even in 1989. A clash between the students and the government was never what we wanted. What we really had in mind was a kind of peaceful evolution. But unfortunately, the tragedy happened because of a generation gap. Essentially, the older generation was caught up in a way of thinking that interpreted our student protests as the acts of counter-revolutionaries bent on overthrowing them—because that is how they came to power when they were young, they assumed that the younger generation was simply trying to do the same thing.

You weren’t?
Well, they were not totally wrong, because even then technology was making information more available and our generation is more educated. We had more exposure to Western ideas like democracy and capitalism. We were all thinking that they might help create a more stable society in China than the one that had been dictated by the one-party system. We dared to imagine that there might be other paths for society, something between silence and revolution.

Not to mention that you were a mite impatient for economic reform.
Absolutely. Some economic reforms had already begun, but what the intellectuals and the students saw was that economic reform alone was not enough. You also needed political change to accommodate the economic reform, to consolidate the good results that were being achieved by economic reform in China. So we were asking for more political freedom and reform. But unfortunately there was that generation gap, so we clashed.

And how.
But we knew all along that violence was never a viable choice. We did not set out to clash with the military. We were just surrounded by the government troops and —

That overreaction led to tragedy. But it certainly focused the world’s attention—and our collective horror must have played some role in China’s gradual course correction.
You use the word “overreaction.” I actually think that is the right word. There were overreactions on both the government side and the student side. The government thought the students wanted to overthrow it, which was totally not true. On the students’ side, the overreaction that led to the tragedy was mainly driven by fear and a kind of naiveté. Those of us who led student groups to join the demonstrations in Tiananmen Square were so idealistic and naive that at first we really believed that since we were doing a good thing for society, our leaders would listen to us. That was quickly replaced by fear of being prosecuted by the government if we withdrew the demonstration from the Square, because once we dispersed, we knew we’d have no organization to protect us. We knew each individual would be prosecuted, because we knew the Communist Party’s history. They always ruthlessly punished any resistance to them. They had never let anybody go.

In fact, you were very lucky to escape with your life, weren’t you? The Wall Street Journal piece written about you several years ago had an underground network spiriting you out of the country by boat amid “whizzing bullets.”
There was no choice. We knew there was no hope the government would change its way of dealing with its own people, or respond in a peaceful and moderate way. We knew we had to find another place to live.

Yet despite it all, you’re still trying to find ways to engage with China, generate more economic opportunities in the land of your birth?
Correct. I have no urge to overthrow the government, as the Communist Party feared. I just hope that a more mature governing party can evolve that would give people enough freedom to express themselves, and would permit the society evolve in a peaceful way. Everybody would be better off. Even though I am now a U.S. citizen and living in the USA, I would still like to see things getting better in China, politically and economically.

Now, you have traveled travel back to China a number of times. But it must have been very strange the first time. It’s not unheard of, after all, for China to arrest foreign Chinese who dare to go back.
They have become a little bit more civilized in the last 15 years. They know that they have to be more respectful of international norms. They have become a little bit polite. Of course, the first time you do anything is always the most difficult. Then you just become accustomed to it.

Still, the booming coastal area around your Ningbo branch office is worlds away from part of China where you grew up, isn’t it?
It is very different. In Ningbo, because it is on the coast, international shipping is a natural activity; so it has become a manufacturing center. There is a lot of entrepreneurial spirit there. There actually are very few big state-owned companies in Ningbo. The whole business community is made up of people who have started small businesses and are growing them organically. That is the hope of China; the future of its economy.

Explain what your role in all that is. It’s been, what, four years now since you set up BChinaB with your partner, Jeremy Haft? The company’s name sounds like it is some sort of web site, but you’re actually industrial middlemen?
Well, you could think of BChinaB as a kind of virtual manufacturer. We provide a lot of engineering capabilities and supply-chain management expertise, as well as quality assurance, for Western firms that want us to match them up with Chinese manufacturers in our affiliate supplier database to get all sorts of things manufactured in China and then shipped, wherever. Everything from medical and dental products and optics to HVAC/R components and plumbing fixtures. What we are, to businesses here, is a complete and reliable outsourcing solution. What we do for Chinese manufacturers, besides acting as a source of business contacts, is help them become more quality-conscious, and complement their engineering capabilities.

How many Chinese manufacturers do you work with?
The BCB managed supplier network is now over 1500 strong. All the companies are quality-certified, by us, to meet world-class standards like ISO, QS and FDA mandates. Our network now includes 1300 processors, 116 raw materials producers, 58 mold makers, 210 assemblers, and 14 logistics and consolidation firms. These are companies that employ modern production equipment imported from places like the U.S., Europe and Japan and that are staffed by the best of China’s engineering school graduates.

You are saying you have resources that an individual company couldn’t possibly put together for the price of a quick trip to China?
Everything takes more time than you’d think in China. It has taken us several years to put together this network, and we speak the language. The BCB China team, led by our Ningbo branch office, speaks the local dialects and streamlines all the local bottlenecks, saving our client companies time and money—and sometimes seemingly endless supply-chain headaches. Of course, it also usually takes a long time for us to persuade client companies to outsource their manufacturing through us.

What is that you really do at BChinaB that a manufacturer in, say, Ohio, can’t do just as well for itself?
First, we can more efficiently locate an appropriate Chinese manufacturer than they can, because we already have the local Chinese engineers and professionals working with us. We provide a better service in the USA, because we are a U.S. company and understand what businesses need here, and we provide a more efficient search for the best manufacturers in China because we have an operation there, employing local professionals. Second, we add a lot of value in this process. A domestic company anywhere in the U.S. faces a lot of hurdles trying to do business in China. Many of them, cultural. There is not the same quality-consciousness, for instance, in China as there is here, often making it especially hard to communicate about those requirements. But because we are Chinese, because we are local, and because we hire our own quality-control managers and put them on the manufacturing floor in China for our clients, we can control the process better. That is on the service side. On the supply chain management side, we are also more efficient than our typical Ohio manufacturer because we have been doing this repeatedly. It can be very complex to put it all together in China, but we already have raw materials manufacturers, processors and logistics companies lined up. We also can often do a lot better when it comes to negotiating terms. When you are the foreigner in a foreign land, there is a lot of due diligence that needs to be done. But it is very hard for a U.S.-based company to do that with confidence in China. I mean, you can go there, you can see some machinery on a factory floor, but that doesn’t say anything about the people who run those machines. But we have local people there, so we know the quality of their work almost just by heart. When we go to the negotiation table, everything is easier for us than it would be for a company perceived as foreign.

Just not having to rely on translators is a big leg-up.
Right. I can give you a better example of how BChinaB can take the headaches out of sourcing production from China. First, we cut costs, because companies don’t need to have their engineers flying back and forth to China all the time. Often those savings alone are enough to cover what we charge. We don’t need to fly back and forth on every job. But our real value often becomes obvious only when some sort of problem is encountered, maybe the Chinese firm suddenly says it can’t deliver on time, or their quality isn’t good. From here, it’s often very difficult for a U.S. company to sort out what has gone wrong. But our local people are in a position to quickly identify the real problem, and figure out how to fix or at least come up with three ways to work around it. If a U.S. company is outsourcing mission-critical projects, it cannot afford to suddenly experience a breakdown and be left without the sort of backup our local network provides in China.

You simply know the ropes.
Sure. The opportunities for cultural misunderstandings are enormous. Chinese New Year is this week, for instance. Many Chinese manufacturing plants will be closing down for three weeks of vacation; they’ll have no one working all that time. A company here that depends on those plants’ output could be in big trouble if it doesn’t plan ahead. Yet most American business people just don’t think in terms of long holidays in February. An American company may take, at most, a three-day vacation for Christmas or New Year. An even better example of the sort of difficulties that tend to surprise Americans in China are its energy shortages. Its factories have to constantly deal with electricity outages, especially in the summertime.

One reason things can take longer than expected to get accomplished there!
Exactly. I have seen situations where a U.S. company was very upset with its Chinese manufacturer, saying things like, “I need this, now. You promised me 20 days to deliver. How come it is now 25 days and still no delivery?”

Sounds like a reasonable beef.
Only because you, like that “typical” American company, don’t understand the supplier’s situation. In many parts of China, there are only three days of electricity every week, and four days of no electricity. That is something you never experience in the USA. When there was a blackout in New York City a year or two ago, it was major news. But not in China. Which means that the manufacturer you’ve outsourced to has no electricity to run his factory. That is something it is quite difficult for you to predict, but something we can manage locally by buying generators or whatever, if we have to. That is No. 2.

What’s No. 3?
Remember when SARs hit China a couple of years ago? No one wanted to travel anywhere in Asia? It was great for our business. We had no problems. Why? Because we have the team already living there. We don’t even need to travel. We could keep shipping.

Can I take it, then, that you’re satisfied with the way  China  has been growing? Are you turning a profit?
Yes, but it has taken longer than we had hoped to build up our client list here. Nothing happens overnight. It is not like a technology firm or Wall Street. We have found that the first thing we have to do here is overcome people’s psychological barriers. Before people will outsource through us, they want to qualify us and see if we can really do the job that we say we can do. It’s normal for that process to take time, and I actually think that is okay. Many companies really aren’t prepared to do the sorts of things they have to do, if they want to expand the reach of their supply chains from what’s often a radius of 10-15 miles to 8,000 miles.

It is a pretty good leap, when you put it that way.
A lot of work needs to be done. A lot of documentation, preparation, that even many fairly large companies haven’t done before. By the same token, there are also lots of companies that just believe they can do everything. They think, “If I have the money, I can do anything.”

But at what price?
Exactly. People forget that Lucent lost $1 billion trying to set up manufacturing in China. Motorola did, also. Either that, or they do realize it, so they decide, “Everybody going to China is losing money, so we don’t go.” But that is dumb.

Maybe. But not necessarily dumber.
What I mean is that there are lot of opportunities to be exploited in China. But it’s not as simple as just visiting a factory or calling a manufacturer on the phone and placing an order. Anyone can go there, but then what? Developing a good outsourcing relationship with a Chinese manufacturer involves a lot of hand-holding, a lot of guidance, nurturing and coaching. You also have to understand that even if you are cutting costs, ultimately, if you can’t provide the product or service, you might as well stay home.

But when cutting costs is such a big reason for outsourcing, don’t you find U.S. companies reluctant to pay anything to a middleman like you?
It has happened. We were dealing with a multi-billion dollar company as a client, one that was outsourcing a product in which there was intense price competition. It got to the point where there was no profit for us in the deal at all. So we told them in good faith, “Look, this product may not produce a profit because of price competition. Why don’t we just introduce you to a manufacturer? You can do business directly with them, and we won’t charge you anything.” But their outsourcing director told us, “No, we need your service. There is no way I can do business with a Chinese manufacturer directly. I cannot even speak the language, let alone stay informed about what is going on there. And if they run into problems, I cannot repair them from here.” So clearly, there is a recognized need for our services, at least in some quarters. I am not saying people cannot do it themselves, but how can they even be sure they are getting good deals? They know if they’re getting a better deal, compared to a U.S. price. But it takes someone who can do what we do to tell if it’s really a great deal or a trap.

Gee, you mean every Chinese entrepreneur isn’t a straight-arrow?
Of course there are traps. Some people quote artificially low prices to win business in China. But once you enter into one of those relationships, the renegotiations begin. They say, “Well, this I didn’t calculate into the price quote,” or “that is more.” Soon you feel like a hostage in these negotiations. You might have thought a contract was settled when you signed it, but if a Chinese partner is bad, a signed contract is just the beginning of the negotiations. “Oh, you actually want me to deliver something? That will cost you three times as much.”

A good point. The rule of law means something else entirely in China than it does here.
You have to understand, they are approaching it from a whole different cultural perspective, that’s why having intermediaries like us can be immensely useful.

The average American could be forgiven today for thinking that virtually every U.S. manufacturer has already figured out how to send all its jobs to Asia—
I am not sure that assumption is correct. I believe Business Week did a survey of manufacturers and economists recently that concluded that probably only 1% of employment here has been lost to outsourcing. A lot more employment adjustments have come about because of structural changes in the economy, which always cost jobs. Things like the internet, and digital communications all cost jobs, even as they enhance productivity. You can’t blame outsourcing, alone, for the slow pace of job creation in this country. Besides, this economy has to be as efficient as it can be, to compete in the global market. I mean, no customer wants to pay $50 for something he can buy elsewhere for $2.50. What a lot of people don’t understand, though, is that this isn’t necessarily awful news for businesses in the U.S.

It does make it pretty hard to compete and pay a living wage—
Maybe not. When you look at where there are fat profit margins in this economy, it is not on the manufacturing end, anyway. Most of the good returns come from the distribution, or service, sides of the economy. As an example, some of the Chinese plants we work with might make a plastic product for you for $1. The raw materials probably cost 75 cents, and on top of that the manufacturers’ operating costs and profit margin probably add 25 cents. But as that $1 product wends its way through distribution from the wholesaler to the retailer, its sales price climbs to something between $5 and $8. So most of the money is made in distribution, marketing, service—not manufacturing. My point is that even though China may make a lot of goods, its manufacturers are not making a lot of money. Granted, they do feed a lot of workers, but the manufacturers are not getting filthy rich. It’s the same story in textiles. Here you buy a shirt for $50. But the Chinese manufacturer is probably sending it to the U.S. wholesaler for $5—and paying $4 of that for raw materials.

That still sounds like there’s no way for a U.S. manufacturer to compete.
Well, he has to be competitive on price, because his customers will increasingly demand the world price, which usually means the China price. The way you do it is by keeping some of the R&D in the USA and keeping the sales, marketing and the service here, because they make a lot of money. Then you put the manufacturing, the pure labor-intensive stuff in a low-cost country like China. That will make you very competitive. My assumption is that the use of outsourcing should help U.S. manufacturers by letting this supply-chain globalization accelerate. So U.S. investors, I would think, should be happy to invest in U.S. low-to-medium tech companies that can be restructured to keep their high-margin distribution and service operations here while outsourcing their low-margin manufacturing to places like China. Assuming, of course, that their raw materials are reasonably available from sources relatively accessible to manufacturers in China. You would lower the company’s overall costs, make the financial people who have provided the capital happy, and most of the money the company made would stay in the U.S. Plus, keeping the R&D here, means the intellectual capital stays in the U.S. Only low-margin production is outsourced to low-cost Asia. This is a better strategy than trying to move your own manufacturing facilities to a Third World environment and then having to hire expensive foreign expatriates to manage it.

Which is how the likes of Motorola and Lucent got taken to the cleaners.
Well, the equation is a little different when you talk about high-tech manufacturing, but yes, in the early years, that’s basically what they tried to do.

Yet I keep hearing that it isn’t low-tech manufacturing we should be worried about. That it’s the migration of high-tech manufacturing and even R&D to Asia that poses a real threat to the U.S. economy. Do you see evidence of that?
Yes, I am seeing many Chinese high-tech manufacturers catching up. For example, in the telecommunications area, Huawei Technologies is a very successful firm competing with Cisco.

Precisely. They are the poster boys for China’s high-tech juggernaut.
There is also a Chinese telecommunications company called ZTE doing very well in Europe. Clearly, in some sectors, China’s manufacturers are catching up very quickly. And that does put pressure on the USA. We need to stay innovative. That’s the key. If you stop innovation, you’re dead, no matter what.

On the other hand, the issue you always hear raised in outsourcing discussions here is the fear that it’s impossible to protect intellectual capital—patents, designs, copyrights—in markets like China. What do you tell prospective BChinaB clients about that? I know Cisco has had issues like that with Huawei.
I think you have got to see the big picture trend. Compared with even five or ten ago, China’s enforcement of international standards on intellectual property rights has improved significantly. The trend is improving because China is interacting with the world more frequently. They are now putting a lot of effort into improving the protection of intellectual property there, because they now see that it’s to their benefit, as well as their trading partners’. That doesn’t mean, however, that you can be anything but very cautious in selecting a partner. In China, that still means that you don’t try to do everything yourself and rely on the legal system to back you up. A document is only a document. A legal contract is only a piece of paper unless you know how to protect it and implement it. So it is still better to find a reliable partner, like BChinaB, rather than rely on a lawyer. Then you have partners in China interested in protecting your intellectual property.

And that makes a Chinese manufacturer less likely to try expanding his margins by selling a few hundred thousand extra of my patented whatever into the grey market?
Well, first off, we have many opportunities to take the measure of the Chinese manufacturers we work with. And the first thing we ask them to do is sign a non-disclosure agreement with us. So they know that if anything happens, we would probably sue on behalf of our clients in the U.S. And they know that because we are locals, it would be a local-to-local fight, in which we’d know all the tricks, too. Second, we do a lot of business with companies in our network, enough for them to think twice before jeopardizing that by doing something illegal. No. 3, because we are local, we know that the best way to protect our clients’ intellectual property isn’t by filing suits, but through early detection and swift action to stop illegal activity. This constant vigilance is part of our value added.

When was the last time you went back to China?
Last April.

What are the biggest changes you’ve seen since your college days?
What has changed the most is that people are more enthusiastic about doing business with foreign companies. This not only brings them foreign money, but it also brings them more in line with international business standards. It’s not in anyone’s blood, or coded in their DNA, that they want to cheat each other. It is just that it sometimes appears that way in China to outsiders, because so many Chinese have never been exposed before to Western business practices. They don’t know how things are done differently in the West. But as their contact with foreign business partners grows, they are learning respect for the rule of law. Chinese notions about service are also improving tremendously. Meanwhile, some of the technologies, like cell phones, that have been introduced from the West, have made vast improvements in the domestic infrastructure. These are all good things, which make the people very excited. And right now, I’d estimate, 40% of China’s GDP is generated in the import-export sector.

That much?
Yes. China is doing more than $500 billion a year in import – export. And I think the government actually is very pro-business, which is a huge contrast with 10-20 years ago. When U.S. business people go to China, the government always tries to impress them with lavish banquets and it grants lots of policy favors to attract business investment. The attitude couldn’t be more different than it is in the U.S., where the government, essentially, has a hands-off attitude toward business—until something egregious happens.

How do should the U.S. should react to things like Lenovo’s planned purchase of IBM’s PC unit? Or to speculation that a Chinese oil company is looking to buy U.S. assets?
Those developments speak for themselves in terms of the tremendous changes happening in China right now. Over the past 10-15 years, a huge amount of foreign direct investment money has poured into China to build its manufacturing capabilities, and some of its domestic manufacturers have grown so large that they are naturally looking to expand their presence in the global market. Lenova is just one of them. Another is Haier, which has even built some appliance manufacturing capacity in the U.S., in North Carolina and Massachusetts. And of course, there are some Chinese tech companies trying to establish a presence in the US, too. I mean that is natural. Whether Lenovo will be successful in acquiring the IBM PC business, nobody knows. But it just shows that Chinese manufacturers have become more ambitious. They are trying to become major players in the world market.

Seems a strange way to do it, buying a has-been PC company. IBM is desperate to dump it.
I see probably two major reasons Lenovo is interested. No. 1, they are trying to buy a brand, not the technology. There isn’t really any technology there. The PC is a commodity. Most of the parts are probably made in China already. So I don’t really see the deal being driven by technology. On the other hand, if what they want is just the brand, why didn’t they go after Compaq or Gateway and probably pay even less?

Are brands suddenly a big deal in China?
I think brand awareness has increased in China for two reasons. First, Chinese companies want to acquire a U.S. brand so their customers in China will be impressed. It’s a matter of prestige. Second, by being transformed into global market players, they can increase the brand equity of their domestic brands in China. Remember, Lenovo has a huge domestic PC market share in China. So what we have here is China’s premier domestic player in PCs trying to buy a U.S. brand like IBM PC, which probably means they’ll be able to command an even higher premium in the Chinese market for their products. It will add a Western gloss to their already top brand image in China. Which increasingly is a place where simply changing the packaging, even on a product as basic as dried noodles, to make it look more Western, can dramatically increase the price consumers will pay. Thirdly, Lenovo is probably attracted to the IBM unit’s foreign currency cash flow—and also probably hopes it’s acquiring some management expertise, along with the hardware.

I’d bet that’s doubtful, based on the way most such cross-cultural acquisitions have worked out in the past.
Well, there are actually three distinct trains of thought on that in China. Lenovo is taking one track, going global by trying to acquire a foreign partner. Another route is being taken by companies establishing some small presence in the U.S., hiring U.S. experts and professionals and trying to learn gradually how to become successful in the U.S. market themselves. There are actually more Chinese companies trying to go that route. A third track is the one Huawei Technologies has been taking, just growing organically and establishing some joint ventures with Western companies. They have established JVs with companies like 3Com, and Siemens.

Your basic attitude, I take it, is that globalization is inevitable, and ultimately all to the good, whatever interim dislocations are involved?
Sure. The basic forces at work are rather like the ones that made the Marshall Plan such a good idea after World War II. By helping Western Europe rebuild, the U.S. also enlarged the market that could potentially consume U.S. exports. Helping China grow does the same thing. When you help the Chinese manufacturing sector grow, its exports to the rest of the world clearly grow. But remember, when the Chinese actually earn some money, they can also consume more of your exports. When they are very poor, they consume cheap local goods. But as soon as they get some money, they start buying things like Estee Lauder cosmetics, expensive watches, foreign cars. Do you know what the No. 1 brand of cigarettes is in China? Marlboro.

Perfect, we’re exporting cancer to China. Some status symbol.
Well, it just shows that when more money can be made, people spend more. A healthy China market will not only produce some Western goods more cheaply there, but create more consumers for U.S. made goods.

So far, China’s leaders have been able to walk a tightrope, opening the economy by degrees, without losing their grip, politically. Any thoughts on whether, or rather for how long, they’ll manage to pull that off? Volatile growth and inflation rates can wreak havoc—
Right now they needed to control the growth, keep the pace not too high, not too low. A failure in either direction would be disastrous, and very probably produce political unrest.

So China’s leaders have every incentive to try to keep growth “measured.”
But there’s no doubt at this point that China’s growth is real. The miracle is real. The market opportunity is real. How long can it last? Some people optimistically think that since it has already lasted for 20 years, it should have no problem lasting for another 20. The pessimists figure that because it’s lasted 20 years already, it’s surely going to slow before another 20 years pass.

Tell me this: Is the U.S. trade deficit with China something you lose sleep over?
That is a political problem. We are in a global economy. And if you look at overall Chinese imports and exports with the rest of the world, they are pretty balanced. For that reason, I think China’s economic growth is pretty sustainable if they can continue to maintain a rough balance between development and inflation. If the rest of the world continues to encourage China to be more open, the domestic Chinese market will explode and the rest of the world will sell all sorts of things in China.

But aren’t there growing indications that inflation is getting dangerously high there?
That’s a very strange phenomenon that the rest of the world probably doesn’t understand. Inflation is growing fast in China, but only in parts of China. In metropolitan Beijing, Shanghai, Shenzhen, in the well-developed cities, inflation is high, because there is a limited supply of very experienced labor. But in the rest of the country, especially in the North and West, inflation is very low, because there has been much less development there. Virtually anything you buy in Chengdu costs only a quarter of what it costs in Shanghai. Now, in the U.S., if Miami prices were only 25% of New York’s, everyone would move down there immediately. But in China that enormous imbalance can exist, the people can’t move nearly so easily. That’s another advantage BChinaB has there, by the way. We know where to get things done well for less.

Okay, but where inflation is raging in China, doesn’t that have to spill over into demand for higher wages?
Only in those few metropolitan areas, Beijing, Shanghai and Shenzhen. In a lot of cities, there hasn’t been any price movement. Why? Because everybody in the West goes to Beijing and everybody in the East goes to Shanghai. Not many people migrate to the secondary cities.

Doesn’t that just aggravate the government’s headaches about controlling growth there?
What they have to do is create more balance in the opportunities between the cities and the country instead of exploiting the peasants, and effectively forcing them to flee to the cities for economic opportunity.

Does that include the family you left behind in the remote Northwest?
They feel desperate. They feel there is no hope. I mean, in the cities, people see changes very fast. New skyscrapers, every month. But in the countryside, it is as if nothing ever changes. Over 20 years, nothing has changed. People feel helpless. That is very sad.

Also de-stabilizing, politically, I’d imagine.
Yes, it is increasingly risky as communications improve. As I said, they need to better balance their development, help the disadvantaged and poor areas. Otherwise, the miracle won’t be sustainable. The government talks about policies to aid the peasants but results still remain to be seen.

What’s your take on the valuation of the RMB?
There is too much political nonsense in most of the discussions here about the value of the Chinese currency versus the dollar. To claim the RMB is undervalued by 40% just because the U.S. has a large trade deficit with China is bogus. Some economists claim that because a burger costs $4.50 here and only $3.30 in China, the RMB is 40% undervalued. But you can’t use single items to say a currency is overvalued or undervalued. If you use purchasing power parity, then the Chinese can probably buy more things. But what most people forget is that most of what Chinese people buy is made very cheaply there, and it’s not valid to apply that theory to foreign made goods. And yes, this country has a large trade deficit with China, but if the RMB were allowed to float freely, you could actually see it get cheaper, because so much money would want to leave the country instantly. That’s what a lot of people don’t understand. Over the past 10 years, over $500 billion has been invested in China. If that money were to be repatriated to the U.S., it would create enormous downward pressure on the RMB. There are also lots of bad government-backed loans still in the Chinese banking system. And bank failures would also bash the RMB. Not to mention the potential for more scandals like that energy trading company in Singapore. In fact, U.S. based investors should be pretty glad it is virtually impossible to invest in Chinese stocks from here, because the Chinese markets were some of the worst performing in the world last year—even worse than U.S. markets.

Why was that, considering the economy was growing like gangbusters?
There are two reasons, which foreign investors often don’t understand. One is that most of the companies listed in China are state-controlled enterprises. So they are not necessarily the most efficient or best companies. The best Chinese companies that I know of tend to be private companies in China. Like a Huawei. It is a very, very good company but it’s privately held. And the second reason is that there is no transparency. The Chinese market is not fair. There is a lot of manipulation and virtually no disclosure. And third, the Chinese financial system is in such bad shape that even good companies have no other way to raise capital. So when companies do go public, they just keep issuing more and more shares, to do anything and everything, mindless really, of the dilution. So when you’re talking publicly traded stocks, China is not a place to invest. Neither is Hong Kong a good place to invest in Chinese shares, for the same reasons.

Then how would you participate?
Well, by investing in the private sector. Finding good private companies and investing in them. For the long term. Then forgetting about them.

Not easy advice to follow.
Well, that requires a local partner, someone like me. But I really think probably the best way would be to invest in China’s future by raising a fund here, that wouldn’t invest in China itself. Instead, the fund would buy ailing U.S. manufacturers or distribution companies that could be restructured and revived as I described earlier, by outsourcing the low-margined end of the business to China, while increasing R&D, service and marketing. In that way, you’d keep most of your profits in the U.S., reap the benefits of investing in China without putting all your money actually at risk there. And your exit strategy could be straightforward. That is my theory.

Sounds like your next project. Good luck. And thanks, William.



"What I really want to do is raise and use capital to build businesses and projects that can in some way be good for society. Especially Chinese society."

" Our generation is more educated. We had more exposure to western ideas like democracy and capitalism. We were all thinking that they might help create a more stable society in China than the one that had been dictated by the one-party system. We dared to imagine that there might be other paths for society, something between silence and revolution."


"U.S.-based investors should be pretty glad it is virtually impossible to invest in Chinese stocks from here, because the Chinese markets were some of the worst-performing in the world last year-even worse than U.S. markets."

Be well
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