chinaresourcenetwork.com

If you haven’t already heard, the Chinese govt is requiring all computers sold in China to come preloaded with software to stop porn. Well - that is what they were saying. Later they changed it to all computers would come with software the buyer could install / activate. The reaction in China was immediate - that this was an attempt to monitor the computers usage overall, a government backed spyware.

And now the US representatives chime in: http://www.bloomberg.com/apps/news?pid=20601087&sid=a742IZmP4hKE

Individuals have been testing the blocking software, and while it does work on Porn sites it also blocks key words or phrases of organization or topics the Chinese government isn’t supportive of; Falun Gong, Free Tibet, etc.

What surprises me is that they could really believe that any preloaded software would be effective. Chinese hackers would have found a way to break into the code in a matter of days, and would offer their patch online (at no cost) so that the software could be disabled. All that will result from this is a PR debacle as the rest of the world decries China’s freedom of speech. So why take the step in the first place? Unusual in China where such misteps are generally caught before they get this far.

To try to further stimulate the economy the government has increased the percentage of VAT rebate on select categories of goods - the same high labor, low cost goods that it was trying to demphasize before. Their reasoning - to try to stimulate foreign demand by lowering costs. Have your vendors been passing these savings along to you?

The question is then, is it working? While the Chinese economy shows some signs of strenghtening - there is still a great deal of unemployment within the lower level workforce and recent college graduates. Will VAT rebate increases help that pool, or would offering more corporate credit result in more businesses investing in new product development, production, inventory, and thefore increased labor needs?

Having now done it myself - I can attest that every flight touching down will have a one - two hour delay because of the hazmat team coming on to take passengers temp’s with a temp gun. If your flight has anyone with a fever - then an assessment is done while all passengers are on hold. If the individual has H1N1 - then passengers within a few rows seating distance are detained.

The Chinese government is extending new measures to make the Yuan a more useful currency outside of China. Select countries have been able to buy / sell Yuan (still closely managed by the Chinese government) and now with the fall of the US dollar - and the US economic strength they are making slow moves to expand outside trading of the Yuan. Including allowing Chinese companies to have more access to Forex for their own out of China business investments.

New York Time article on our current economic relationship with China and Geithner’s role in that policy has the following quote:

“Moving to an economy based more on consumption and less on exports happens to be the policy of the Chinese government, and has been since 2003. Its latest five-year economic plan, announced in 2006, was organized around the idea. “The biggest problem in China’s economy,” Wen said in 2007, “is that the growth is unstable, imbalanced, uncoordinated and unsustainable.” Remarkably, though, the Chinese economy has become even less reliant on household spending, and even more reliant on business and government spending, in recent years. Consumer spending now makes up about 35 percent of China’s gross domestic product, down from 40 percent in 2004 and almost 50 percent in the early 1990s. By comparison, the share is 54 percent in India, 57 percent in Europe and 70 percent in the United States.

The challenge for Geithner and the rest of the Obama administration, then, is persuading China to live up to its own five-year plan.”

What is interesting in this article is also Geithner’s background, he lived abroad growing up and studied Chinese at Dartmouth (although it doesn’t look like he spent any time in China - just school in the US).

http://www.nytimes.com/2009/05/17/magazine/17china-t.html?pagewanted=5&_r=1

Considering I will be taking another trip to China soon, and that I was in Mexico a month ago…I must say I am a bit concerned. China is loath to go through another SARS - so they are totally focused on keeping the germ carrying North American’s out of the country at all costs. First there was a 7 day hold period on issuing new visas to China (but I am OK, my multi entry goes until November). Anyone applying for a visa with a Mexico visit in this year could be rejected. And now they are warning that if anyone on an inbound flight exhibits any flu symptoms - the whole plane could be quarantined.

So as you board, insist that any diseased looking passengers are pulled off the flight! Take some tylenol to reduce your body temp, maybe even pass it around the plane. Whatever measures you must take to avoid the problem! Although I have yet to hear of any flights actually going through a full blown quarantine. One of the CRN members who has been traveling around China did say when they arrived (2 weeks ago) that guys in Hazmat suits came on board and checked the passengers for symptoms.

So - we will see what effect this has on business in China, and how long they can maintain these policies. I am hoping they lighten up right before I go myself, but as the cases keep developing in the US that is not looking likely.

The earthquake in China last summer proved to be a watershed point in China socially. For the first time ever in its history, people donated and volunteered in large numbers for a cause that was not local to them. It was a reflection on the economic advancements in China, how for many Chinese it was the first time in their family history that this generation felt secure enough economically to be able to give openly to a stranger in need. Generousity in China has a long history, but has usually been tied to the close family circle. So the generousity wasn’t new, it was their willingness to give to strangers that had changed.

What happened afterwards was also new - the backlash against companies that had not donated sufficiently to the cause. See the report below:

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2213

The report illustrates that it wasn’t the time for corporate policy in response to the crisis, but time to make a clear public statement about the companies commitment to China.

I find that even in small situations - that is something Americans underestimate. That you need to make clear and public statements about your company’s commitment in China. Because many Chinese always start with the assumption that you are there for short term profits, and are not respectful to the host country or truly invested in its future.

Negotiation is China is so different from the US - it’s not about “rights” or ownership - its a game of chess and you have to keep your mental list of who has what leverage. More than that - you need to understand their motivation (and its not always money) and how they react in the situation.

A client on the west coast had asked me to qualify their only supplier in December and I gave them a hearty two thumbs down (taiwan agent - never in china and with huge margins, factory with no quality control and poor mngmt). So for the last three months they have been back and forth with these guys and I have been saying you are making it worse - telling them “we are done” then going back when they play hardball. So we finally flew over unannounced and spent the first day trying to negotiate to get our tooling out ($500K of tooling - they won’t give it to us). More than a few times during the day the factory owner was caving - ready to sign an agreement, her voice hushed and serious. Then Taiwan would call - and she would leave the room and come back repeating their extra demands - or convinced that she just didn’t understand what we really wanted (the Taiwan agent controlled the factory through fear that they weren’t sophisticated enough to deal with foreigners).

So we switched tactics the second day and sent in the B team (less threatening) to negotiate buying the order they have sitting there for three months that Taiwan won’t ship to us. No management, just US and Chinese staff - without the authorization to negotiate for anything but the shipments. We got that agreed - without them calling Taiwan. So we broke their loyalty to Taiwan a bit, we got them some much needed inventory, and opened the door a crack to getting the tooling later. In the meantime we are proceeding with some new sample tooling (cheap, and can get some small runs out of it) to get us through the next couple of months with a new factory I intro’d them to. I fly back today - just three days on the ground. Their engineer stays to get the new production up and running.

Its the wild wild west! But as the US owner observed “you love this stuff don’t you.” Yes, this is the old school China hard negotiation - out last, out smart, just don’t walk away - keep one hand in and eventually you will crack the wall a bit. Thats all it takes, then you keep on chipping. The Americans wanted to come in demanding “our” tooling. I said they will shut down on you mentally - you won’t get anywhere. Come in soft - come in as a partner who is down on their luck and needs help. They will call you a liar, just keep talking.

You can take the official numbers and add 50% - unemployment in China is high. And not just among the laborers - its very high with newly graduating college students. What does this mean for you?

An opportunity to keep wages down in your offices and plants - in 2007 we were looking at 20% increases just to keep up with inflation (which is also down significantly). If you are negotiating raises this year (post Chinese New Year) you could keep it low - depending more about how your business has performed.

It’s also a great time if you have the capital to invest in additional staff for development of a new line of business or expanded production by hiring and training new employees.

A couple of months ago it looked like China would hold firm at the current RMB / USD exchange rate, but there are rumblings that if the stimulus package and increased VAT rebates aren’t working then we will be looking for a pick up in the USD rate again.

Bloomberg online, March 11, 2009 - “A devaluation “cannot be ruled out if the outlook for the export sector worsens,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.”
Full article at:
http://www.bloomberg.com/apps/news?pid=20601080&sid=abFb.3Gze3Dw&refer=asia