Be sure to jump over to the excellent bilingual website, edge.neocha.com for more. And, if you’ve seen an American take on US-China relations in art, please tip me off in the comments section.

Blogging- and social media generally- are amazing pathways for exploration and discovery, but sometimes it’s necessary to turn off the faucet of information in order to let the mind quench its thirst. Someone I very much admire once wrote that “technology has made our perspective more global and tolerant, our access to information easier, our self-definitions less confining. But, the more complex and sophisticated our systems of lateral access, the more we sacrifice in the way of depth.” Based on my own experience, I think he makes a very good point- one which is difficult to swallow in an age that has largely forfeited contemplation and privacy for urgency and 24/7 engagement. Where’s the balance? I hope that my time away from blogging (and Twitter and Facebook and LinkedIn and…) will give me greater perspective on that question as well. And, who knows, maybe I’ll blog about it next year…

On that note, I want to extend a big *THANK YOU* to all who have dropped by over the past year; your thoughtful comments and emails have always fueled this blog, as many of my posts originated from your questions and suggestions. Blogging has forged friendships, conversations over coffee, and even the occasional argument… Blogging has opened the doors to a new US-China community bridge, a community that I believe will lead the future of US-China relations. Simply put, I am very thankful to have had the opportunity to engage with you and I look forward to more dialogue in the future! And, of course, many thanks to all who participated in the interviews and collaborative posts… I think it’s most appropriate to wrap this up with some wisdom from those who are on-the-ground and in-the-know…

On Business and Investment…
Chinese Brands In America: A Conversation with Scott Markman, President of The Monogram Group
“The scale of this opportunity and the amount of companies in China that have the means to consider this would dwarf anything that we have seen from Japan and Korea combined. Many Chinese companies are actively considering the prospect [to build their own brands in the US] but because of cultural issues, very few have taken the leap to put into place the infrastructure and investment. They are looking for other models to follow. Companies like Lenovo and Haier were among the earliest to do this, and other Chinese companies are now sitting back and waiting to see how successful Lenovo and Haier are before they take the leap into the US market. Today is more about potential than reality.”

Head West, China: An Interview with Private Equity Consultant, Song Jin
“There is one major challenge for every Chinese company and it is that they don’t have enough talent to manage cross-border transactions, not to mention managing a US company. In terms of China’s private sector, I would say that they have a slight advantage over the SOEs. One reason is because these privatized enterprises are market driven, and another is because their decision-making process is much faster than the SOEs. However, a state owned enterprise has a huge advantage: they are backed by the government and government-supported banks, which means that their resources are much larger than in the private sector. But, whether state-owned or private, the biggest challenge all of these companies face is lack of management talent.”

China-US Insights on the Future of the Auto Industry: An Interview with Automotive Experts An Qingheng and Bill Russo (Part 1)
Chairman An: “What will power future automobiles is still a difficult question. Will it rely on clean diesel, hybrid technologies or something totally different? Different specialists have different viewpoints. In fact, with traditional energy resources decreasing day by day, all parties have reached the same understanding: that new energy should be developed to power future automobiles. Concerning which technology should take the priority in different points of time, every solution has a reasonable rationale. History will tell us who is right.”
Bill Russo: “The Chinese automotive market is still very young, and in many cases the producers of vehicles that are sold in China are also fairly early in their development stage. What has happened over time is that, as the market has grown, more and more technology providers have taken note and looked at China as a place where they can localize their product. So, for technologies such as clean diesel, hybrid and electric vehicles – you will find that China does not lead the technological development. In fact, Chinese companies are not leaders in the development of any major new automotive technology.”

China-US Insights on the Future of the Auto Industry: An Interview with Automotive Experts An Qingheng and Bill Russo (Part 2)
Chairman An: “The American market is massive and free. It’s reasonable that Chinese OEMs would like to enter this market as soon as possible. It’s rather a question of whether this can be achieved after 4, 5 or 10 years. Rather than forecast when can we make the entry, I think that it’s more appropriate to talk about how to make this happen. Chinese always say that: “The practices of precedent are the lessons of descendent.”
Bill Russo: “While Chinese firms have learned very quickly how to assemble cars and source parts, they are very inexperienced in the vehicle development and synthesis process. An automobile is a complex engineered system that requires advanced technology and know-how in testing and validation in order to achieve a world-class standard of performance, fuel economy, safety, and quality. You need to achieve a certain level of world-class benchmark targets in all of those areas. Quite frankly, a company that’s only built cars for maybe a little more than a decade probably lacks the skills to optimize the finished product.”

Interview with Sam Goodman, China Entrepreneur and Author of “Where East Eats West: The Street Smarts Guide to Business in China
“I jumped in head first. At the time, I was 25 years old; I was overflowing with confidence and brimming with ignorance. My advice is, do your homework and find a mentor. There’s many people who have already done it- find out directly from them what they did right and what they did wrong. Learn from people who have done it before. I’m not really the corporate type and I can’t say that I’ve seen many corporate types take the plunge outside of the corporate world. The skills that you need as an entrepreneur are quite a bit more varied than what you will find in a corporate setting. It’s not the nature of corporate design to give you all the tools you will need as an entrepreneur.”

Q&A with Serial Entrepreneur, Richard Robinson
“I was working my way around Europe for a few years in the early 90’s and I became enamored with the idea of overland travel and read most of Paul Theroux’s train travel books (Paul happens to also be from my hometown of Medford, MA). I got excited at the prospect of an overland trip from Europe to Asia via train so in late 1993 I hitchhiked from Switzerland to Prague and then went by train from there through the Ukraine to Moscow through Siberia and Mongolia to Beijing. I had a ‘China epiphany’ upon my arrival and I’ve been hooked by the Middle Kingdom ever since.”

Go West, China! (Includes an Interview with International Lawyer, Dan Harris)
“The biggest mistake I see is that the Chinese company thinks that because its Chinese employee lived in the United States for ten years, that person knows everything he or she needs to know about doing business in the US. That person is an international lawyer, a labor lawyer, a real estate lawyer, a litigator, a corporate lawyer, an accountant, a chief financial officer, a human relations specialist, a marketer, a publicist… I am working with a Chinese company who has an extremely bright, capable person at the helm, but this person gets grief whenever he tries to bring in outside experts for assistance. [The attitude is] “why do we have you if you need help?” So, what are the drawbacks? They are too numerous to mention, but all you need do is assume that the legal work, the accounting work, the tax work, the marketing work, the human relations work, and the PR work are all being done by someone who doesn’t really know what he or she is doing.”

Interview with David Mair, COO of China Connection Global Healthcare and China Healthcare Fitness and Culture Experience
“It’s really a combination of diet, exercise and traditional Chinese medicine that Aimin Hospital draws on. The calorie-controlled meals they serve are strong in terms of volume, but without the heavy oils and sauces that you often get in China. At the same time, the participants each have their own personal trainer; each participant receives two rigorous training sessions per day and traditional Chinese medicine, including acupuncture and herbal treatments. This approach is designed to create and maintain a higher than normal metabolic rate while staying within a healthy range.”

Interview with Bill Russo, Automotive Industry Expert (Part 1)
“The forecasts on China have always been wrong. If the forecasts say “the middle of the next decade,” I’d move that up to within the next 3 years. One of the barometers that economists typically follow is GDP growth per capita – also known as purchasing power parity. The number that signals when a market has reached a level where domestic consumption can sustain an industry on an ongoing basis is US $6,000. If I go back a few years, China’s GDP per capita in 2001 was US $1,000. In 2008, it was US $5,943. This increase signals that China has arrived as a sustainable domestic consumer market. You have enough citizens and enough wealth that people can afford big ticket items like cars which can sustain growth for a long period of time.”

Interview with Bill Russo, Automotive Industry Expert (Part 2)
“The value proposition for new market entrants usually starts with affordability and evolves over time after the brand is accepted by consumers. The fact of the matter is, much of the content in our cars increasingly comes from China. Because a greater percentage of the total cost of a car is in the manufactured components, there has already been a significant movement of the production of supplied parts to China. A lot of the components used in cars today either are or can quickly be manufactured in China. This is purely driven by the efficiencies gained from sourcing in China. So, people are all waiting for the Chinese car to arrive. What they don’t realize is that a great deal of the Chinese car they’re waiting for is already inside the one they are currently driving.”

Interview with Alistair Nicholas, Founder, President and CEO of AC Capital Strategic Public Relations
“The question – will we see a rise in China’s risk profile because of the economic crisis?  Absolutely. If a company has a factory in a small town that is likely to see social unrest, it has a potential exposure. If a company is about to close down a factory somewhere, which will entail redundancies, it has a bigger exposure. A few years ago I worked with an American company that was shutting down a factory and was surprised when local townspeople surrounded the factory and held its foreign management hostage and the local government was doing very little to help. The problem was partly caused by the fact that they had neglected to communicate effectively with their workers or the local government prior to the announcement to close. It was resolved in the end – but some thinking about communications beforehand would have helped a lot. Foreign companies that may need to rationalize in the market because of the current recession need to give proper thought to how they communicate with government officials, the media and internally. Failure to do so could see them punished in China for a long time to come.”

Interview with Sam Lee, Entrepreneur and Recruiter
“I am a Singaporean Chinese.  I know the language and celebrate many Chinese festivals.  Yet, I am not a ‘Chinese’.  It’s very different doing businesses in these two countries.  To list some: -Singapore thrives on transparency in doing businesses; China thrives on Guan Xi (relationships).
- We follow rules and regulations.  China has all the rules & regulations but little enforcement.
- In Singapore, business is like 100 people with professional fishing gear fishing simultaneously in a small pond.  In China it is like 100 people with enthusiasm and devil-may-care attitudes fishing in a big lake.
I am still learning about China.  The good news is, my dear partner is using this statement less frequently on me now: “Sam…you don’t understand how the Chinese think…..””

Interview with Edward Zhong, Project Chief of Changshu Economic Development Group
“We have encountered some cultural gaps with expats, but those were not significant problems- mostly they were communication problems.  Gradually, in our experience, [effective communication skills] have increased with expats, we now understand their way of thinking and doing things, and we don’t see any problems anymore in working with them.”

On Policy and Politics…
Interview with Greg Anderson, Finance/China Specialist and Ph.D. Candidate at UCLA
“Aside from the obvious, which would be typical business analysis with competent management at the top of the list, clearly there is a role for government in China. Unlike in the West, there’s not a whole lot of distinction between state-owned and privately-owned companies, in terms of government influence. Now that GM is an SOE, it’s understandable that the White House taskforce is going to have influence on how that company is run. People may question the viability and rationality behind this, but no one questions that this is the way it’s going to work. In China, being a private company doesn’t mean that you can completely ignore the government or that the government is not going to have any influence. I’m finding that the leaders of both SOEs and private companies in China must have the skills to manage political relationships. I’m working on a couple of stories along those lines that [highlight] examples of how leaders of auto companies in China didn’t value their relationship with the government and ended up paying the price.”

Interview with International Lawyer and Foreign Corrupt Practices Act Specialist, Richard L. Cassin
“I’m always somewhat skeptical with official statistics coming from China. The bureaucrats have a tendency to report figures that support the government/communist party. And, because there’s been an anti-corruption drive on for a few years now, lower-level officials may be producing statistics to show positive results. That said, however, corruption is still a huge challenge in China. Outright bribery is still common across all industries. But it’s not clear how much impact it’s having on development. Western investors have compliance programs and usually believe (sometimes incorrectly) that they can deal with the risks.”

Interview with Malcolm Moore, Shanghai Correspondent For Telegraph
“You have to ask why people talk to journalists. In some cases, normal people speak to journalists because they have a grievance and they want to get it off their chest and they’re hoping that a little bit of coverage will ease their way in the future. Companies and government officials speak to journalists because they have something to sell. We are a medium for people to transmit their ideas across. In China, nobody has anything to gain from speaking with the foreign media. If you are a peasant and you’re pissed off, speaking with the foreign media could get you severely beaten or imprisoned. If you are a government official, speaking with the foreign media could cost you your job and if you are a company, speaking with the foreign media could severely hamper your prospects in the business world. So, I can understand why people are reluctant to speak to me.”

Interview with Ted Naganawa, US-China Strategist
“Many people are concerned with China’s rapid ascent, but not really as an economic threat.  The term, economic threat, was probably coined to describe Japan in the 1970-80s, which practically posed no security threat to the United States.  Today many people are concerned because China is potentially an overall threat to the United States.  A good example would be the ongoing currency controversy.  In 1985, the United States pressured Japan to let the yen appreciate considerably thereafter, the result of which perversely affected Japan’s export sector and created the bedrock for the subsequent burst of asset bubbles and decades of stagnation in the Japanese economy.
The United States could afford to pressure Japan that way, because Japan was only an economic threat.  If the United States employs the same measure against China, and, as the result, China’s economy stagnates for decades, sending hundreds of millions of Chinese people back into poverty, I doubt it will be contained in the realm of economic policy.”

On Culture and Education…
A Life Transformed by China: A Conversation with Saul Gitlin (Part 1)
“I can’t even begin to describe to you how different it was in China overall in 1982 and how we were treated as foreigners, as compared with today…Imagine standing at the end of Nanjing Lu on the Bund in Shanghai and looking at Pudong. As far as the eye could see, there was farmland- there was nothing on the other side of the river. Today, Shanghai residents themselves don’t pay any attention to foreigners, and anyone in Shanghai who does is immediately recognized as a domestic tourist.”
A Life Transformed by China: A Conversation with Saul Gitlin (Part 2)
“Maybe most people define their career in terms of, “I’m a banker,” or “I’m an insurance agent,” or “I’m a telecom guy.” I define my career another way. My career is defined by China, by Chinese, by Asia.”

A Conversation with Andrew Hupert, Professor on International Negotiation and Founder of US-China Forum
“Part of my inspiration came from Chinese bulletin boards and chat groups where Chinese students are talking to one another about these topics, but there’s no Western participation at all. They tend to just go around in circles and aren’t really improving. Then, the American students entering China tend to come in with their own preconceived notions about culture. They think that they are being very open-minded but [in reality], they are just patiently waiting for the Chinese students to act exactly the way that they do. These two groups really do want to engage in a cross-cultural dialogue, but there is a structural impediment. With US-China Forum, I’m trying to create a structured environment where they can at least get a look at how the other side sees the world.”

Interview with Jenny Bai, Founder and CEO of The Red Connect
“In terms of crossing over and exporting China’s “coolness factor,” I think someone in the middle is needed. China could be “cool” in the U.S. tomorrow, but that depends on what happens with branding. In China, I feel like the idea of branding is synonymous with the idea of face, both of which represent a reaction to an emotional trigger. China is obsessed with luxury brands because it equals status, but what China doesn’t have yet is the history behind its branding, like the U.S. does. Take kaixin001.com, for example: a fiercely popular online community for young people and a great project overall. How do you introduce it to the U.S. and translate it into an American-friendly product? You need someone who understands how to cross such a product or concept over, without losing the Chinese element, which oftentimes means keeping the Chinese people who are associated with it.”

Interview with Xujun Eberlein, Author of “Apologies Forthcoming”
“History is the joined consequence of individual actions. If we could dissect history like an organism, we would see a huge diversity in individual behavior and motives. Yet when we look at the history of different cultures, there is a tendency to focus on commonality rather than diversity within people. Such a tendency is most pronounced when there is any discussion of “good” and “evil.” Those actions that seem to us to be wrong, or abhorrent, are thus attributed to people with evil hearts. People do things for a very wide variety of reasons growing out of strongly distinct cultural upbringings. Individual personal accounts are one of the best means to counter stereotypical thinking.”

Interview with Jason Walker, Tea Maven
“After living in a foreign culture for an extended period, it becomes harder to distinguish between the cultures. You intuitively adapt to the situation and people, not always consciously aware of the changes you’ve made. I adapt my behavior to be with my Chinese in-laws and my Tennessee family.
One of the biggest lessons I learned was the notion of being “in relationship” with the people around us, and what that means within the two cultures. Both greeting a stranger on the street and responding to a colleague’s subtle change in mood are means of acknowledging inter-connectedness to the people around us. Awareness of differing sets of values for relational transaction better enables a person to connect to others, build trust, and collaborate more effectively.”

Interview with Toffler Niemuth, Owner of Shop My Shanghai
“Overall, I’d say there are fewer misconceptions about China now than there were a few years ago.  Many people don’t expect the level of development, and all the sky scrapers they see when they arrive.  That’s quite a big shock.  They also don’t expect the cities to be as clean as they are.  More specifically related to shopping, some people think *everything* is cheap here, but it’s not.  Not only is Shanghai in general getting more expensive, but there’s a huge duty on luxury goods, and on some non-luxury foreign brands as well.  China is not the place to buy real LV bags or Omega watches. Even Nike clothing can seem overpriced here depending on the strength of your home currency.
On a brief trip to China, you only get a taste of the country, nowhere enough to unravel its mysteries.  China is such a complex society, with a rich multilayered history that a short trip to China isn’t going to make clear.”

Interview with Yi Lu, Linguistic Consultant at Handsome Translations
“If you can afford the time, I would say a good command of your business counterpart’s native language would always put you in an advantage over your rivals because that knowledge naturally draws you and your Chinese partner closer. It is a universal human reaction in interpersonal relationships. Even if good proficiency is not possible, on the other hand, some survival Chinese would save you a lot of trouble in private life when you are in the country. Cantonese as a dialect is gradually losing the kind of prominence it enjoyed say 20+ years ago. In addition, the catching up of the mainland economy, closer ties and more frequent travel between the SAR and the mainland have given rise to a popularity of Mandarin study among Hong Kong natives. I should say the Mandarin proficiency of Hong Kong intellectuals has picked up significantly in comparison to Guangdong mainlanders, who read and write Mandarin fluently but still habitually shun it in speech in favor of Cantonese.”

Collaborative Post: What Makes China Uniquely Cool?
Robert Aiudi: “I would hope that China’s coolness and uniqueness stays in China. It makes for fun, fascinating and wondrous travel. That said, China’s coolness is already available around the world in several places. In NYC, I love to go to Chinatown and see old and new China, buy food, see new fangled products, see the newest cell phones, hair styles and hear some funky music alongside family associations, incensed temples, and Chinese lion dances.
All that said, I have a feeling that as Chinese marketers, PR professionals, among others get more savvy about penetrating Western markets, we will begin to see more mainstream Chinese “cool’ things. I think it’s going to follow a similar path to Japanese goods. I remember when “Made in Japan” meant junk, low quality products. Now Sony, Fujitsu, etc etc are world class brands.”
John Yang: “Lifestyle goes with value system, China will start to export its value as it grows stronger and more and more foreigner learning Chinese, and then export lifestyle brands. People have tattoo of Chinese characters. Its characters and styles have also been used in design. HP Mini 1000 Vivienne Tam edition series is one of the latest one.
Chinese food, silk, tea, art-works all have great potential. They need a company to commercialize it abroad.”

On Social Responsibility and Our Global Future…
China’s Energy, China’s Power: An Interview with China Energy Specialists, Elizabeth Balkan and Chris Brown
Elizabeth: “I would characterize the US-China position on climate change not as being at odds, but as perhaps differing in terms of their perception of responsibility. While I think China and the US are equally committed to being responsible and active players in combating climate change, there’s a difference between the United States position on how China should address climate change, and China’s position on what it should do. It’s been repeated many times, but the controversy surrounding historical vs. current emissions and gross vs. per capita emissions remains. Depending on how you read the numbers, China can either look really good or really bad.”
Chris: “Jim Rogers from Duke Energy recently talked about how much they’ve done with carbon capture and sequestration, which holds huge potential for China. I think it gets more difficult with some of the renewables. Having said that, First Solar in Inner Mongolia is involved in this massive utility-level solar project and has brought in its own engineers while incorporating knowledge from the Chinese side.
I’ve been very impressed with how smooth the technological exchange process has been on this First Solar project- so far. But, they’re at the very beginning stages so of course, policy vs. implementation problems could still occur.”

Interview with Joel B. Eisen, Professor of Law and Fulbright Lecturer in China
“Looking back at the start of my trip, I had many preconceptions about China that were too simplistic or otherwise just downright wrong. For example, I had tended to think of China as an unrepentant polluter, but that does not square with the earnest efforts I observed to try to reconcile growth and environmental concerns.
I found myself thinking a lot about the Western-centric lens through which I’d previously viewed China. There’s a lot that’s been written about China by Westerners and I think much of it suffers from the same uninformed approach I’d had before spending time there. China is a place where you need to spend a lot of time before really understanding it, and the biggest surprise to me is just how little I know after five months there.”

Interview with Mihela Hladin, Founder of Greennovate
“First of all, basic awareness moved a step ahead with all of the “green” talk around the Olympics. But, in general, Chinese people think that a lot of these challenges are so huge and that individual participation is not worth it. When we are talking about the carbon footprint or green technologies- these are all very big terms. Without providing basic information, it’s very hard for them to see how they can be a part of the solution. We took the principle that, if you communicate about the environment in a simple and positive way, you get a lot of people on board. Also, as everyone knows, government has great power in China. For example, last year when they banned the plastic bags, it happened immediately. They announced this plan in April and in June they banned them. Nobody thought this would happen; it’s not even happening in the Western countries yet.”

The Fifth Annual Clinton Global Initiative Meeting, Calvin Chin and Qifang’s New Commitment: A Collaborative Interview
“There will be a natural gravitation towards looking for sustainable business models. [In China], I anticipate a lot of social innovation because of this added pressure- we can’t go for the typical non-profit models. The analogy that comes to mind is the way that video games in China faced a constraint, which was the inability to sell physical copies or cartridges because console games were illegal, or CDs/DVDs because people would just pirate them. So, there was a lot of creativity. It’s hard to do a non-profit in China, but socially-minded entrepreneurs and philanthropists will look for models elsewhere, as we did. We looked at Kiva and Grameen for inspiration, but to make it work in China requires fitting into [the country’s] constraints.”

Interview with Casey Wilson, Co-Founder of Wokai
“In a lot ways, there are two different Chinas. There’s a China of the cities that is growing at a very quick rate and then there is a China of the countryside. When you look at the current situation, the average income of individuals in the cities is at about US$6 a day, but in the countryside it’s less than US$2 a day. The urban development rate is at 9.6% a year while in the countryside it’s growing at about 6% a year. If we zoom that out in twenty years, we could have a situation where people in urban areas are averaging a salary of US$12,000 a year whereas in rural areas, they are earning less than one-sixth that amount and essentially existing in poverty. They get stuck in that cycle where they don’t have the funds to send their children to high school or college and their children [repeat the pattern]. When you look at the world, China still has the second largest population of people living under the poverty line and if that issue will not be addressed through the natural process of economic development, there really needs to be new models put in place to support the other side.”

Until next time… And thanks again for reading!

Whether or not successful deals will be made is another story altogether and there are significant hurdles that may serve to alter the trend. To quote a question that China specialist Greg Anderson recently posed, “will the US Congress (which takes every opportunity it can to poke China in the eye) simply sit by and watch American companies be bought up by Chinese investors?” For China, acquisition of distressed US companies has thus far been a Sisyphean task- consider the political firestorm that led China oil company CNOOC to withdraw its bid for UNOCAL in 2005. Additionally, more than ever before, China has the option of taking its money elsewhere; in fact, the vast majority of the world welcomes the prospect. Why should China, which has previously tripped over America’s insecure welcome mat, trust that things will be different this time? And why should America, which has seen thousands of jobs outsourced to China, feel confident that a similar outcome will not occur again? While these are two exceptionally difficult problems to tackle, one less talked about- but no less important- challenge exists…

In seeking perspectives from both sides of the fence regarding the potential for Chinese investment and Chinese brands in the West, I have encountered two distant galaxies of thought. While it would be easy to point a finger at the usual suspects- language and cultural barriers- our now globalized world disproves this as the sole explanation. Put simply, US and Chinese leaders in business and government aren’t making a concerted effort to effectively communicate with each other. And, as with any “marriage”- particularly a Chimerican one in a very new territory- the success of the relationship is hinged upon the ability to seek common ground and at times, to compromise (even if that relationship is mainly about money and power). The following are just a few examples that highlight the soundproof wall erected between both parties in the Chinese investment conversation (or lack thereof):

Chinese perspective: We’re not entirely sure that acquiring distressed US companies is possible. While it sounds like a good opportunity considering today’s economic climate, we’ve been burned in the past.
American perspective: We’re not entirely sure that we’re ready to handle all of the (perceived) issues that come with Chinese acquisition on US soil, but we will encourage it regardless because the US economy needs a financial injection.

Chinese perspective: If we’re setting up shop on US soil, business will be largely conducted in the Chinese way.
American perspective: If China is going to set up shop on US soil, China is going to have to do things the American way. Our way or the highway!

Chinese perspective: Chinese companies in the US will need to rely most heavily on Chinese management and employees because of differences in language and business practices.
American perspective: Chinese companies in America will need to rely on American managers and employees to ensure success in the US business market.

Chinese perspective: Business relationships are formed through trust and guanxi, first and foremost.
American perspective: Business relationships are formed through the American legal system. Period.

Chinese perspective: We’re not going to pay for nebulous services like accounting, branding consultancy or legal advice. Why pay for something that isn’t visible to the naked eye? And, how do we know that you’ve actually put in the hours that you’re claiming?
American perspective: Chinese companies will never survive on US soil without the expertise that consultancy services provide. Every company in America knows that they need these services to establish, shape and protect their brands. China will have to hire American consultants whether they like it or not if Chinese businesses are going to exist in the US.

Chinese perspective: If we purchase an American company that already has a manufacturing base in China, then we’ve essentially created a 100 percent Chinese-owned and managed company. Ready to go!
American perspective: Manufacturing base in China or not, if you buy a distressed company, you are going to have to do a heck of a lot of work to make that business a success again.

Chinese perspective: If American companies aren’t willing to be flexible with us and allow full market access, then we can take our business elsewhere. China doesn’t really need America. In fact, America needs China now, more than ever.
American perspective: If China isn’t willing to be flexible, then it can take its business elsewhere. We don’t need China. (Okay, maybe we do need China, but America doesn’t compromise.)

Over the next few weeks, I will analyze each of these perspectives, further exploring the communication breakdown as a whole while pointing out specific areas for compromise and deeper cooperation. I’ll also introduce a few bridge-builders and negotiators who aim to strengthen this partnership overall. As with many new relationships, this US-China investment terrain is simultaneously alluring, complex and at times, deceptive. It also shows exceptional promise given the complementary nature of each side’s needs and the potential fruits that may come from what is undoubtedly a tempting opportunity. However, without a platform of trust, mutual confidence and effective communication, China’s bags may be packed before America has a chance to kick her out the door.

What other differences in perspectives have you seen? Can the US and China have a candid conversation about Chinese investment and brands on US soil? Or, has the relationship been doomed from the start? I want your feedback! Leave your thoughts and questions in the comments section…

Bill Russo: The automotive industry historically has to deal with significant risks, threats and challenges. It’s a capital-intensive business that is very sensitive to economic developments. What has happened in this past year is that we have experienced a sudden and dramatic contraction of the global economy. The impact that it’s had on the auto industry is profound, particularly in the mature markets of Western Europe and the United States. The US auto market is down more than 40 percent, year over year. The resulting impact is that you have companies filing for bankruptcy protection, you have a lot of suppliers that are in the process of reorganizing, and you have a fundamental restructuring of the global automotive landscape. If you follow the trajectory of the past several years, you see the strength in the global auto industry shifting eastward to places like India and China. Most of the growth in the world’s auto industry is happening in the Asia-Pacific region, and more than half of that growth is forecasted to come from China over the next decade. The growing influence that China has is not just its ability to influence standards and direction, but also its ability to create opportunities through partnerships for organizations that are financially weakened. As a result of the developments in their core markets, automotive companies and their suppliers must strive to deepen their participation in the China market if they hope to remain viable. It only stands to reason that companies that have weakened positions in their domestic market would benefit by redistributing some of their focus to the growth markets and in particular, China. What’s unique about the way China’s automotive business works is that you are required when you do business here to partner. If you are an OEM, you have to have a partner in China. For suppliers, there are fewer rules, but in most cases it makes sense to have a local partner when you establish operations here. If you look at this in the macro sense, there’s a movement of the economic wealth to Asia and the consequence of that is that there needs to be a redistribution of assets in the automotive industry to Asia. This creates opportunities for cross-border partnerships between the established players in China and the companies that need to rethink their global footprint.

Reports have been circulating stating that introduction of Chinese cars into the US market is imminent- some experts predict 4 years, others 5 to 10. What do you believe is realistic and what challenges must be addressed for this to happen?
Chairman An: The American market is massive and free. It’s reasonable that Chinese OEMs would like to enter this market as soon as possible. It’s rather a question of whether this can be achieved after 4, 5 or 10 years. Rather than forecast when can we make the entry, I think that it’s more appropriate to talk about how to make this happen. Chinese always say that: “The practices of precedent are the lessons of descendent”. We have to carefully study Hyundai’s successful experiences if we want to enter the American market. From the failures in the 1980s to the successes following, Hyundai’s long journey was successful. Their experience is a good lesson for us. We shouldn’t be too aggressive when we enter the American market and we must acknowledge the difficulties of doing so. We can’t dream of an easy and massive entry of our products. According to my experience, before entering the American market, we should strengthen our understanding of American standards and market entry rules. We have to be familiar with the safety, emission standards, product authentication processes, etc. We should not rely on the simple introduction and commitment of some small American partner companies. Some OEMs have exported their non-road products into America, but this is not a real entry into the car market. The products have to achieve all of the standards of American automotive products before they can be exported. Anything less is not a true achievement. Consistently high quality of exported products is necessary. Otherwise, the cost of recall for quality issues is not easy to bear. Based on these understandings, I think that we should first optimize our own work, make sure that the products can reach all standards and the quality is good and steady. Then we should find the right products into the right market segment. The marketing work should focus on these questions.
You may question that if we can accomplish all these quickly, why should China wait for 4, 5 or 10 years? Everyone agrees that today, the American cars industrialized in China have reached a high quality standard, and a lot of parts and components have been exported to America. Therefore it shouldn’t be too difficult for Chinese OEMs to reach the standards set by the American government. Today we can even manufacture Mercedes-Benz in Beijing, with the same quality of those in Germany. So as long as Chinese and Americans can set up the real partnership, the final obstacle for Chinese automobiles into America is neither technology nor processes, but international trade, or strategy. Facing the global financial crisis, the American auto industry is restructuring. It’s very necessary that some strategic specialists should consider the market entry strategy of Chinese automobiles into America. Last year, Chrysler and Chery made investigations, but failed to come to a mutual agreement. However, it’s too early to say that this strategy is not right. The right strategy should benefit both China and America. I am very optimistic about the future of Chinese automobiles in the American market, because I am sure that this will benefit both sides.

Bill Russo: The timeframe that we’re talking about is dependent on the type of company that we’re focusing on. If we are referring to Chinese-branded products, then I think 5-10 years is a very aggressive estimate. From my personal experience and observation, I think that you can source and build good products in China, but there are differences in the level of capability between the companies that have some level of maturity in vehicle development and those that are fairly new to the game. International OEMs that have established operations here are building cars that probably today could be distributed to any market around the world. General Motors has hinted at the idea that they could export some of their China-built vehicles to other markets, including the United States. They could do that probably within the next 3 to 5 years. I think that is very possible. It’s not a question of vehicle development; the cars that are built in China have the level of quality and execution that make them saleable in other parts of the world. The question you are asking is “when will Chinese-branded vehicles make their way into the US market.” The answer to that question will be quite different. You have to think about the supply side and the demand side of the equation. On the supply side, there’s a level of capability that needs to be built into the system of developing a car, where today China has a competency gap. While Chinese firms have learned very quickly how to assemble cars and source parts, they are very inexperienced in the vehicle development and synthesis process. An automobile is a complex engineered system that requires advanced technology and know-how in testing and validation in order to achieve a world-class standard of performance, fuel economy, safety, and quality. You need to achieve a certain level of world-class benchmark targets in all of those areas. Quite frankly, a company that’s only built cars for maybe a little more than a decade probably lacks the skills to optimize the finished product. That is where I think it’s going to take more time. It doesn’t mean that it’s insurmountable, but it does require transferring more technical development capacity into the companies that are attempting to achieve this. On the demand side, China is big and growing, unlike Western Europe and the US. These markets have reached maturity and the brands in those markets are already well established. You are now talking about entering a mature market with Chinese-branded products that are not well known. Adding to this, the market perception of a “Made in China” car is probably not positive. China now has to overcome a lot of its own recent history of building low-priced and often poor quality products. In addition to building a brand and establishing it in a foreign market, you now have to prove to that market that what you have is indeed competitive with the alternatives that are already available to consumers. This is a very challenging, but it can be achieved. The Japanese and Korean brands have achieved this and China can certainly achieve this goal in the long run. But, it’s a different game now. Toyota entered the US market and did not gain market acceptance until the 1970’s oil embargo – when Americans sought more fuel-efficient cars. The Korean brands entered later and positioned themselves to capture consumers seeking lower-priced alternatives. Until recently, the Japanese and Korean brands have enjoyed a growing market with room for new market entrants. Coming late into a market that is not growing with brands that are unknown and have relatively weak reputational value will be a lot more difficult.

What are some of the more challenging aspects of cross-border negotiations between the US and China, overall?
Chairman An: I experienced a lot of international negotiations with American, Japanese, Korean, and German companies. In the last 20 years of my 40 year professional life, I never stopped negotiating with foreign partners. Among all such negotiations, it’s my special fortune that I led the cooperation negotiation between BAIC and Hyundai. We entered into the Strategic Cooperation Agreement of BAIC and Hyundai, and then set up the Beijing Hyundai Co. Ltd., which changed the fate of BAIC. At that time, some persons questioned whether this cooperation can be successful. After that, I led the negotiation with DaimlerChrysler and successfully signed the Framework Agreement of Strategic Cooperation between BAIC and DaimlerChrysler. Under this Agreement there are two lines: on one side we kicked off the heavy duty truck cooperation between Beiqi Foton and DaimlerChrysler; on the other side, through negotiation, we restructured Beijing Jeep, a long term loss-making company with unfavorable Sino-foreign cooperation into the brand new Beijing Benz DaimlerChrysler. Chrysler now draws attention of the world. It was forced to announce bankruptcy protection, which affected its partners. Luckily, when we had the negotiation 5 years ago about the restructuring of Beijing Jeep, we finally decided to keep only one foreign shareholder: DaimlerChrysler. Chrysler was no longer a shareholder of restructured Beijing Jeep. We defined that the cooperation with Chrysler only be restricted to licensed production. Of course, it’s understandable that later both sides even decided to cease cooperation on products. Anyhow, now the bankruptcy protection-at least from legal perspective-won’t affect our business. Someone might think that this is no more than a coincidence, but the decision to exclude Chrysler from our cooperation did show our strong commitment to restructure entirely the business base. The international negotiation is always very challenging.
On policy: To understand and deal with policies of the Chinese Government is also challenging. If you want to be successful in negotiation, you have to study carefully the government policy and take it as your guidance. In the past several years, you had to strictly abide by the Chinese Automotive Industry Policy if you were in an automotive project negotiation. In other words, the policy is the foundation of negotiation. With large scales of business in China, multi-national companies (MNC) usually engage a consulting firm to help them. But such consulting firms might not understand-or they understand but do not fully agree with the Chinese policy, although they won’t speak out publicly against it. Sometimes, for the benefit of the company, the MNC might request their Chinese partner to jointly apply for an adjustment of existing policy to the government. This is usually a problem for this Chinese partner. To the Chinese company, it’s inappropriate to join the MNC to apply for such an adjustment, and give pressure to the government, especially when they are clear that this is viewed unfavorably. But if the company simply refuses, the MNC might think that it is not the government, but the partner who does not support this application, and this in turn will endanger the relationship. Usually the Chinese company should, instead of simply say no, spend time to communicate with the MNC, let it understand the policy and sometimes, arrange even some informal meetings between the MNC and related government officials to strengthen the MNC’s understanding of the policy to reconcile the situation. The international cooperation negotiation process is also a process to let the foreign partner gradually understand, so they abide by the Chinese government policy.
The administration of companies is totally different here than in Western countries. In Western countries, the head of a company can make any decision as long as it doesn’t infringe on other citizen’s rights, but things are not that simple in China. The leaders of large Chinese companies or negotiation leaders are usually in the embarrassing situation that if they strictly abide by the policies according to their understanding, the foreign partner will think that they are using the government policy to achieve their personal benefit and it’s obviously not wise to challenge the policy. The foreign partner usually won’t blame the government and usually applies pressure to its Chinese partner- perhaps because they are still thinking in their Western way, not aware that they are in a totally different Eastern country. Therefore, the Chinese partner has to be patient and involve government officials to do the persuasion to reconcile any misunderstanding. While dealing with policies, the Chinese company has to be patient enough to teach their partner about the Government approval processes in China. A big project will pass through multiple approvals including: project proposal, feasibility study, joint venture approval, company registration, etc. Before feasibility study approval, the specialist appraisal meeting organized by China Consulting Company of NDRC, etc. Sometimes the foreign partner is not accustomed to these processes, which are necessary. So the local company has to give good introduction in advance to their foreign partner and cooperate to achieve the final approval.
On principle and compromise: Stick to the principle here means to strictly abide by the National Industrial Policy and other Chinese laws and regulations and don’t try to cut corners. Such principles including the share structure, sales strategy, R&D investment, localization requirement, employee benefits, etc. It’s very important to stick to the principle; you can’t make compromises in these respects according to your personal agenda. Of course, you can’t make deals freely with foreign partners and sign agreements that should not be signed. Detailed explanations are necessary when the foreign partner doesn’t understand the policy requirements.
Compromise exists in any negotiation; actually negotiation without compromise will end nowhere. For example, capital injection needs asset evaluation if the injection is not cash but assets. The foreign partner wants to price lower the asset of its Chinese partner while this partner wants to price higher, so compromise is necessary. Of course, with this compromise, the financial report will be negative. Therefore, the administrative government official or asset administration department will have some comments, which need the support of the Chinese partner. The technology compensation also needs some compromise. Normally, if the Chinese partner purchases the foreign partner’s technology, this foreign partner should be fully compensated in case of intellectual property violations, but the understanding of the foreign side and the international custom is that the joint venture should also bear some of the compensation. All such issues are not that easy to deal with.
In applicable law, the foreign partner naturally will request to use the law of its own country, but the Chinese partner will in turn request to use Chinese law. Again the negotiation will end nowhere if both sides insist. The only chance is to persuade the counterparty or use a third country law. Remuneration package of expats requires more compromises, because there is no absolute standard for this. Therefore, you have to take care of the benefits of both shareholders, of the shareholders and the joint venture, of the joint venture and the employees in the negotiation. Some foreign company asked for a high remuneration package and a huge amount for expats, which is not realistic and the joint venture can’t bear. You need to be patient and discuss with your foreign partner to find a reasonable solution.
China and foreign countries have different cultures. Therefore, when the negotiation arrives at a critical point, some compromise on wording might become necessary. For example, if the Chinese use the words “principally consent”, it really means “agreement,” but there might need to be further talks on minor issues; but the foreigner feels that the Chinese partner actually does not agree. So the understandings are totally different. We experienced failed negotiations only because of whether this “principally agree” can be added or not. Chinese language is so complicated that the foreigners usually try their best to be cautious. Chinese negotiators must try to understand this. Whatsoever, the core task is to fully understand the true thinking of your partner through negotiation and then put the agreement into mutually acceptable written languages. The understanding is more important than the final wording. Of course, there is always responsibility behind compromises, so, it’s easy to stick to principle, but it’s difficult to compromise.
On the market: Through negotiations and cooperation, the common target of both parties is to cooperate and make successful business, and, to make money together. If you want to make money, then you have to understand the Chinese market first. Arriving in China, the foreign partner is usually not familiar with Chinese local affairs and the market. In order to secure a successful cooperation, the Chinese partner has to take a big responsibility. The responsibility is that the Chinese partner has to know the market well; make decisions about business, scale, investment; and figure out how to fit the products into the market. In addition, they must decide which product to launch first and how to localize the products. These are all questions to be answered by the Chinese partner, who should make detailed investigations, analysis, and then provide a formal proposal for the reference of its foreign partner. In fact, the Chinese partner has the advantage of profound market awareness, which the foreign partner should make good use of in any cooperation. But Chinese and foreigners usually have quite different understanding concerning the Chinese auto market. Several years ago it was rather difficult for foreigners to understand why the Chinese auto market kept expanding by a two digit percentage for consecutive years, and it was also difficult for them to understand the tastes of Chinese customers towards automobiles. They also had to learn the importance the Chinese customer placed on car interior and styling, which is a much higher priority in China than for foreign customers. Some foreign OEMs had to learn that their big-displacement, higher cost products required modifications. Some OEMs concentrated on the absolute increase of its own sales volume and they didn’t take great measures to improve. The Chinese partner should take the responsibility to remind them. Several years ago, some foreign OEMs refused to modify their products into China only because of their successful experiences in other countries. Therefore, their products were far behind the requirement of Chinese customers concerning interior design, rear seat leg room, shock absorber strength, fuel consumption, material choice, and even exterior styling. You won’t have efficient actions if you can’t understand the market.
On cooperation: Sino-foreign cooperation is difficult, and such cooperation with giant MNCs is much harder. Some high level leaders of such MNCs are not very familiar with China, and they only want to duplicate their successful experiences from their home country, or some other countries. Such leaders usually stick to their own opinion concerning market, decision processes, product modification, HR, etc., and some even don’t take their Chinese partner seriously. Such an approach cannot be successful. With the development of the Chinese automotive industry and with continuous cooperation, things are going better. Everyone is more and more clear that: for any Sino-foreign cooperation, a concerted effort is always the prerequisite of success.

Bill Russo: I would only add to Chairman An’s very thorough response the point that cross-border partnerships are important for inbound as well as outbound market development. So far, the focus of Sino-foreign partnership has been on development of the China market. However, Chinese companies must also leverage foreign partnerships in order to realize their global ambitions. Right now, the partnership equation has been: foreign company comes to China to access the Chinese market. They find a Chinese partner because they are required to and frankly because it makes business sense – because the foreign company simply cannot understand the Chinese market in a way that the local partner does. The value proposition goes both ways. The Chinese company lacks technology and experience in the industry, and the foreign company lacks knowledge of the Chinese approach to business – specifically the way business, government and the marketplace are intertwined in China. The value proposition for a foreign company partnering with a Chinese company has benefits in both directions. Now take the world and turn it upside down, which is what has seemingly happened in this global financial crisis. You have wealth accumulating in China and distressed markets seemingly everywhere else in the world. The natural consequence of this is going to be more interest in Chinese companies to invest abroad. Chinese companies will reach out to partners to help them close technology gaps and other competency gaps. What will happen over the next several years is that those partnerships originally focused on the China domestic market may transform into partnerships to help China access the rest of the world. The most challenging aspect as it relates to cross-border alliances is to achieve a true understanding of the respective needs of each partner. This tends to get oversimplified in the sense that people assume that language and culture are the problems. I don’t believe that this is the central problem. Language and cultural misunderstanding creates “resistance” and added friction among the partners – which makes it difficult to develop a common understanding, but this is not the most fundamentally challenging issue. The most difficult issue is to understand what your partner really wants out of the relationship – and finding a way to work with that. Of course, both sides want to make money. The Chinese side also has other objectives, which are to build technological self-sufficiency and management competency. They also have a social agenda, which is to create jobs and to build and develop the local economy. The foreign companies that come here tend to be fairly more narrowly focused- they seek profits and longer-term stability in the world’s fastest-growing economy. Establishing a successful relationship with a foreign partner requires that the partner entering the market develop a deeper understanding of the objectives of their local partner. In the coming years there will be an increasing number of Chinese car companies investing abroad. It will be interesting to see how these Chinese companies take the partnership game and play it in reverse.

Many, many thanks to Bill Russo for participating in this interview follow-up and facilitating the component with Chairman An. To learn more about Mr. Russo’s expertise and Synergistics Limited, his international business development advisory firm, please visit the company website.

Another memory: listening to an acquaintance of mine- a polyglot from Cameroon- lament about his inability to secure a job in China. He had been wrapping up his PhD at a Chinese university during this time- following two Master’s degrees and a short stint in France- but was facing the prospect of having to return to Africa if he had any interest in making a living. While neither of us directly acknowledged the issue of race during this time (this was pre-Obama after all, and therefore inappropriate fodder for conversation), it is my opinion that my acquaintance’s failures in the China job market had a direct correlation to the color of his skin. If he had been Chinese, or even Caucasian, I would not have had to pick up the bar tab.

More recently, I took a trip to Yangshuo with my fiance, who is often mistaken for being either Northern Chinese, Hispanic or Mongolian. He found himself continually bombarded with questions like “what are you?” and “why don’t you speak Chinese?” as passed through his translator (me) and was generally treated with less respect or interest than I was. One exception to this occurred while we were trying to secure a table for dinner at an upscale hotel restaurant, during which time the hostess referred to me as “the Russian” and refused to seat us until I snapped at her in my best Mandarin. My fault- I guess I looked Russian that evening.

In writing this blog, I have unintentionally invited an intense dialogue on the intersections between nationalism, racism and the globalized marketplace as it pertains to the US-China relationship. While I have both witnessed and experienced the rampant stereotyping that continues to occur in China and which may potentially fuel renewed nationalist sentiment, prejudice continues to flow in multiple directions. Westerners are just as guilty. Last month I was advised that “the Chinese only care about themselves,” and that “the Chinese will just try to screw you over.” “How can you deal with those people?,” a friend asked me, rather innocently. These sentiments from both sides of the fence conjure up a prediction brought to me by my former Mandarin teacher. “Chinese and Americans will never really work together,” she’d cautioned. “Chinese should stick with Chinese; Americans with Americans.” I will forgive my laoshi for her old thinking while reluctantly admitting that Samuel Huntington might have had a point when he expressed that the great divisions among humankind and the dominating source of conflict will not be primarily ideological or economic, but cultural.

Economically-driven migration continues to rise as business professionals and entrepreneurs recognize opportunities that do not exist within their home countries but are instead afforded in foreign lands, made possible by globalization and emerging transnational states. When we “pioneers” take the dive, we typically swim to the island that most closely resembles our own- expatriate communities in Beijing and Chinese enclaves in Queens are evidence of this. Similarly, as American companies look to break ground in China, they often seek out consultation from Western-managed consulting firms which have an established base in China and which are largely staffed by expats at the mid- and upper- levels. In Western expansion, China follows the same model, preferring to hire local Chinese companies and their associates established in the US and Europe over a Western-brand firm. In both directions, this formula  falls far short of what is possible and yet- due to the pervasive comfort zone of “same color, same flag,” continues on while grossly hindering expansion, fueling embarrassment, limiting resources, and costing money. My conclusion is rather simple: Racial bias and nationalistic fervor have no place in international business.

Check your stereotypes at the door and consider these five steps to progress:

1. While the global marketplace has seen drastic changes over the past three decades, one factor will always remain consistent: customers drive companies. If you oversee a Chinese brand and are looking to broaden your horizons in Germany, you’d better remember who you are selling to- a largely German consumer-base, not a Chinese one. Proceed accordingly, embrace German talent, and seek German partnership. Your Chinese friend who took a few German language classes in college and recently moved to Berlin should remain your friend, not your business partner. To go global, you must connect with the locals.

2. Spend some time honing your language skills. Even if you’ve spent five years studying a foreign tongue and still can’t string together a proper paragraph (like me), don’t be afraid to open your mouth and practice with your foreign business associates. They’ll be much more impressed with your initiative to try and speak their language- even if you butcher it- than they will if you haven’t even taken the time to learn how to say “Nice to meet you.” The same rule applies in regard to cultural customs. If you’re working in China and still don’t know that you should accept a business card with both hands, then it might be a good idea to consult with someone who has been in the game for a long time. Better yet, grill a Chinese buddy about proper etiquette.

3. Building a multi-lingual and multi-cultural team with a wide array of professional experiences will fuel innovation, foster understanding and promote synergy with your global clients. I once read that entrepreneurs bring their best ideas to light following entry into a new environment. Maybe that’s why “35 percent of Microsoft’s 2008 patent applications in the US came from new inventions by visa and green card holders.” On the other hand, if you’re working in an environment where everyone looks like you, talks like you, thinks like you, and rivaled your  college alma mater at one time or another, then you’re at an automatic disadvantage in today’s international playing field.

4. Let’s be honest, the vast percentage of us have bought into or promoted one type of cultural stereotype or another. I will admit that, after a string of unsavory dating experiences with Italian men, I may have uttered an impolite word or two. Scusi. Typecasting on the business stage has far different implications than the generalizations you may make off set; vocally advertising your prejudices to other colleagues may be akin to digging your own grave. In addition, turning one (or a few) bad experiences with a particular race or culture into a broad generalization about their presumed deficiencies has the potential to burn bridges and severely limit your chances for success. So, your Chinese business partner just ticked you off? Resist the epithets, take an inventory of the part you might have played in the disagreement, and move forward.

5. In today’s global environment, nationalism is an ideology, not a business model. While the “Buy American” rider holds special sentiment harkening back to a more insular age, it directly conflicts with the fact that Wal-Mart is the world’s largest company. Similarly, China’s  insistence on hiring local Chinese firms to facilitate global expansion denies the verifiable truth that the world’s population is not entirely Chinese. All countries are guilty of self-interest. Regarding their respective businesses and brands, it may be the time to recognize that international expansion and protectionism are two warring goals.

With the recent publication of Unhappy China and the subsequent fanfare it has received for its promotion of nationalism and the assertion that “the current financial crisis reflects an overall corruption of American society,” tensions between the US and China have shown a marked increase. As Andrew Hupert pointed out in his China Solved post, China Drinks the Kool-Aid, “one approach that is almost guaranteed to fail is the “we’re all in this together” play, as Secretary of State Clinton found out on her recent trip to Beijing.” In politics, both sides of the fence have their list of grievances and now, more than ever, business relations lend an opportunity to repair these differences by maintaining professionalism, resisting bias or prejudice, and keeping the finger-pointing to a minimum.

David Ko’s observation is right on the money: “In today’s globalized world economy, protectionism or xenophobia is not just anachronistic, it is short-sighted and self-limiting.” In US-China business, check your stereotypes at the door.

What’s your take on racism and nationalism in the US-China relationship and international business? I’d love to hear from you.

You made a transition from serving in a distinctly corporate role as VP at JPMorgan to a US-China Strategist and independent consulting entity and most recently, as a Visiting Scholar at Fudan University.  Tell me a little bit about why and how you made this career shift.
Toward the end of my JP Morgan career, I got asked a lot of questions about China, and in the beginning I consulted with outside “expert” sources for answers.  The problem was that, it seemed to me, many “expert” views on China were skewed by not only the Cold War mentality but also the lack of understanding – especially in the field of economics – about the United States, which contributed to overestimating what we were really dealing with.  I sort of emphasized that by calling myself a “US-China”- not “China”- strategist.
Some people assume that I might be either anti-China or pro-China, ironically, the former because I’m a Japanese-American and the latter because I’m Asian.  The truth is that I don’t have any special feeling toward China professionally, and I’m just trying to impartially deal with what is and will be the most important country for the United States, where I may have a possible niche.  In other words, if it were 30 years ago, I’d probably be a US-Japan strategist, and 20-30 years from now, I could be a US-India or US-something else strategist.

Ted, you’ve self-published three books and many papers/articles on policy, economics and US-China relations.  After reading some of your work, I have to say that you are both prolific and extremely knowledgeable on the subject matter you tackle.  Any plans to go after a big book deal?
Thanks for your compliments to ‘China 2047′ and my other works.  But, as you probably noticed, my books are not really for everybody, and I doubt they would sell very well.  By writing ‘China 2047,’ I just wanted to show that I knew enough about the subject, to claim myself as an expert, and I published it only to stick an ISBN on it so that in the event that I was right about something, I could go back and refer to it.  I assume that I will not get any big book deal nor am I interested in changing my style to land one.
Having been involved in the financial market, I learned that pretty much all information in this world is one way or the other tainted with the bias of its sender.  Therefore, independent research remains valuable, not for its neutrality, because there always has to be some kind of bias, but for the simplicity of its bias.  In my case, I tend to view the long-term interest of the United States most important and as the result, treat present events rather lightly.  That makes my books not so catchy either, another reason they don’t sell well.
In fact, when I was in Shanghai last year, a local publisher called Truth & Wisdom Press contacted me for a possible deal to publish a Chinese translation of ‘China 2047′ by way of recommendation from the Shanghai Municipal Government’s Development Research Center (i.e., an official think tank) who probably heard about my book from someone who actually read it.  However, after reviewing the contents, they sort of excused themselves for needing “additional approval” and never came back again.

In ‘China 2047′ you state that “among the American public, China is considered to be less of an economic threat than Japan was in the past.”  It’s been three years since you wrote this statement.  Do you still maintain the same view?
Yes, but in a slightly different tone.  Many people are concerned with China’s rapid ascent, but not really as an economic threat.  The term, economic threat, was probably coined to describe Japan in the 1970-80s, which practically posed no security threat to the United States.  Today many people are concerned because China is potentially an overall threat to the United States.  A good example would be the ongoing currency controversy.  In 1985, the United States pressured Japan to let the yen appreciate considerably thereafter, the result of which perversely affected Japan’s export sector and created the bedrock for the subsequent burst of asset bubbles and decades of stagnation in the Japanese economy.
The United States could afford to pressure Japan that way, because Japan was only an economic threat.  If the United States employs the same measure against China, and, as the result, China’s economy stagnates for decades, sending hundreds of millions of Chinese people back into poverty, I doubt it will be contained in the realm of economic policy.

Similarly, the 1980s compelled many commentators and experts to predict that Japan would become the next world superpower and in doing so, instilled a fair amount of fear in the Western world.  We are seeing this now with China.  What are some of the parallels?  What are the differences?
Not that there are some parallels, but what’s happened since 2005 in the US-China context was, economically speaking, exactly the same as what happened in the US-Japan context after the 1985 Plaza Accord plus or minus a few years.   The only big difference is that Japan was already rich enough back then to withstand shocks.
I didn’t buy that “Japan would take over the world” story back in the 1980s, and I don’t buy the “China would conquer the world economy” scenario today.  However, I’m curious about what would’ve happened if Japan took over the world “economy” and more so about what will happen if China either “conquer the world economy” or hopes it does but doesn’t in the end. In this regard, there’s an interesting Japanese movie titled “Bubble Fiction: Boom or Bust” that features a heroine who time-travels from 2007 back to 1990.  Incidentally, I came to believe that this comedy also broadly mirrors the possible gap between how the Chinese people now expect things are going to be and how things will actually end up.

Today’s economists often fail to adequately incorporate socioeconomic factors into their forecasts.  You seem to do the opposite, emphasizing the potential impact migrant labor, education and population growth may have on a nation’s financial stability.  Why are these factors so important?
One of the major reasons I didn’t buy that “Japan would take over the world” story back in the 1980s was Japan’s aging population, and similarly, I don’t buy the “China would conquer the world economy” scenario today because of its continuing adherence to the one-child policy, whose original merits I don’t necessarily deny in entirety.
As I mentioned in ‘China 2047,’ “[T]here is no reason to underestimate the impact of a shrinking population on economic growth, because of several factors, from a less division of labor in a macroeconomic sense on one hand to a smaller economy of scale in a microeconomic sense on the other.”
Likewise, “[A] growing population is important for a mature economy with a high per capita GDP, like US$42,000 in the United States, where the economy historically grew about three times its population growth,” and therefore, I’m sure American supremacy will last as long as our demographics stay robust, especially through immigration.

On that note, how will the softer side of economic development (educational, demographic, and legal aspects) impact the future of global business in China?
Education policy has been working quite effectively, both providing an abundant supply of semi-skilled labor especially for a rapidly growing manufacturing sector and tearing down the gender barrier in Chinese society (China has very small gender gaps in literacy and college enrollment rates, unlike, say, India).  On the contrary, the lack of the rule of law is huge trouble in many ways, and for instance, I seriously doubt that China will be a consumer society, like the United States, without adequate bankruptcy protection.
But the most crucial issue China will face is its deteriorating demographics, particularly after 2015-20, when the ratio of the working age population starts declining, according to the UN projection.  Thereafter, China’s population will continue to age and by 2050 a quarter of it will be 65 years and older, twice the ratio in the United States today.  I’m skeptical that China’s economy will keep growing at double-digit rates against this demographic trend, a view that many Chinese experts and others disagree, although by and large emotionally.

In this same vein, what impact will China’s political climate have on international investment?  What trends have you seen developing over the past year?
Overall, China’s political climate has been quite stable over the last 20 years, and I expect that trend to continue unless there’s major disruption in economic growth.  I’m afraid that I’m not quite sure what you are asking by “international investment” either Chinese investment coming out or foreign investment going in.  But in either case, I don’t think China’s political climate will have much impact on China’s overseas investment strategy or policy to provide a friendly environment for foreign investment.

A more difficult question:  From your standpoint, should the U.S. be worried?
About the change in China’s political climate, I presume?  I don’t think we should be worried about that in the near future, again unless there’s major disruption in economic growth that, say, massive US protectionism might trigger.  In the long run, there might be some shift in China’s overseas investment strategy or policy to provide a friendly environment for foreign investment, especially the latter, if nationalist sentiment gains momentum due to either too strong or too weak economic growth.

There is an incredible focus on China’s “recession” and how it may impact the global economy.  But, the fact of the matter is, China is still forecasted to show positive economic growth at a low estimate of 4.5 percent, whereas the U.S. is slated for negative growth.  Is China really in a “recession” and should we all be concerned, or has their financial situation been blown out of proportion?
A recession may not mean the same thing in China and the United States.  Economists describe a recession as two consecutive quarters of negative GDP growth, which I interpret as meaning that we each produce less goods and services under minimal demographic change.  But I estimate that in China, about 7 percent of economic growth comes from the growth of the urban population, i.e. either urbanization or permanent migration to cities.  So, last year China’s GDP grew 9 percent, but excluding this effect, the core growth would be around 2 percent.
But that’s assuming the urban population is still growing fast, and in fact, it is difficult to tell if that is the case because of numerous anecdotes of rural workers leaving cities for lack of employment, although strictly speaking, they should not be included in the urban population to start with.  If we assume that both urbanization and permanent migration to urban areas still goes on at the same rate as in recent years, 4.5 percent estimate this year is like negative 2.5 percent growth, excluding the 7 percent from the population shift.

Companies and individuals are still itching to invest in China.  Is now the time to do it and if so, what are some of the industries exhibiting promise of growth over the short-term?
As already mentioned, because I weigh the impact of China’s deteriorating demographics heavily, I’m not quite optimistic about China’s economic growth in the long run.  Furthermore, because I see what’s happened since 2005 in the US-China context equate to what happened in the US-Japan context after the 1985 Plaza Accord, except for the relatively slow pace of the Yuan appreciation so far, I’m not so positive in the short-term, either, especially if the Yuan appreciates still further.
Therefore, if you are looking to start investing now, you’d better have a highly marketable product and a fairly efficient strategy to get in and make enough money to pay off at least initial investment within 10 or so years in whatever industry, with a few exceptions.  On the contrary, if you were already in China over the last 10 or so years, the most robust environment imaginable, and haven’t turned profitable yet, it is probably time to start thinking about a long-term exist strategy, unless you are sure about what you are doing.

You’ve been following the expansion of ‘Buy American’ provisions, which will undoubtedly cause global tension.  Despite the controversy, is this a smart move for the U.S.?  How do you think China will react?
Generally, protectionism is bad for America because it often hurts consumers and taxpayers more than it benefits particular industries, although it is politically difficult to sell this argument because of the symbolism that the phrase “Buy American” emanates.  In the US-China context, where an average American spends only US$100 a month on imports from China, mostly retail goods, negative impacts on the American economy would be surprisingly acute, both directly as higher costs to consumers especially in the middle of the worst recession in decades and indirectly via China’s export sector and overall economy as less demand for American products.  Still, if we have to resort to protectionism, given the circumstances, we should do so selectively over high-valued added products, in the manufacturing of which we have relatively large comparative advantage, with the least chance of provoking retaliation, such as autos made in Japan and Europe rather than pots and pans and socks and even US flags made in China.  Personally, I’d love to see China make 10-20 times more US flags than we do here to help us spread the symbol of freedom and democracy around the world.

If I am a small business that is looking to expand to China, what should I be aware of?
Unless you speak the language and have a trusted partner along with a very deep pocket, I’d recommend you to consider a way of doing business with China from the outside rather than going in by yourself.

As mentioned, you’ve had a fascinating career thus far.  What’s next for you?
By now, you probably understand that my view on China is different from those of most other Americans as well as the majority of the Chinese people.  I’m realistic enough to expect that many American businesses would not be interested in hearing my view because if I were right, they’d have to admit what they’ve been doing was somewhat wrong, and if they were right, there’d be no point of listening to what I’d have to say.
For a while, I’d like to spend a little more time flexibly traveling and maybe teaching and lecturing.  When I was in Shanghai last year, aside from research, I had an opportunity to teach a group of American students in a study abroad program, and I found it refreshing and rewarding, so I’d be happy to explore similar opportunities on and off.  But eventually, if my view on China proves to a large extent accurate, there will be profound repercussions from the gap between what’s generally assumed to happen and what will actually happen, and I think I have sort of an obligation to help formulate a more sensible US foreign policy on China.  Therefore, I will probably moving into the areas of political consulting, government contracting, and foreign policymaking.

Many individuals and businesses are in need of your expertise.  How can they contact you?
LinkedIn is the best.  If you don’t have an account, you should be able to sign up at www.linkedin.com. That way I can easily understand who is contacting me, too, and whoever is contacting me can also join my LinkedIn US Policy on China & the Rest of the World Group, where I discuss US-China issues with other members day-to-day.