Understanding China

For over 200 years, the relationship between China and the United States has been tarnished by cultural misunderstandings and ideological differences, but the relationship has shifted to a new level. The shift is a result of globalization, to be more specific, trade and economics.

For example, one friend who was an electronic  executive and lived in Singapore traveled to Tian Jin (just outside of Beijing) almost every week. The reason? His company built a very large manufacturing plant there, which was now a major global source for all their mobile phones. A neighbor in Singapore, an American, moved to China because his American air conditioning company relocated all their manufacturing plants to China. In fact, over the last ten years there has been a huge investment of foreign capital into China in many manufacturing sectors.

This shift increased employment, upgraded skills and raised the income of tens of thousands of Chinese. As the Chinese increased jobs and skills, they also privatized some sectors, reduced tariffs and developed independent agents and distributors, to mention just a few trends. Slowly their consumer market began to increase as well. For the first time, some could afford to buy computers and mobile phones, and through the Internet, more and more became exposed to creams, gadgets and gizmos. The number of Internet users in China exploded, as has the number of Chinese who speak English. As the Chinese consumer market increased, consumer products companies began to increase their presence. Chinese began to buy more household items, clothes and the myriad of items made from plastics. Then the petrochemical companies started to build larger chemical plants and the cycle repeated itself in this industry and others.

In the early 2000’s, China entered the World Trade Organization and lowered taxes on items like cars, and for the first time ever, cars became affordable! In the last couple of years it has been reported that sales of automobiles increased 40% one year and 70% in another. Such figures are difficult to pin down as China does not always have the infrastructure and reporting mechanisms to collect reliable data, but the bottom line is, car sales are increasing dramatically, and we know what that translates into- more roads, gasoline stations, convenience stores, tires, car loans, and insurance: boom, the consumer age has begun.

As an illustration, on a recent trip to Asia I met an associate that told me that he just purchased a car, and he was very excited because for the first time in his life, he had the ability to go visit his family in a distant city. For you see, as the car sales increased, so did the road construction projects and now there actually was a road to his family’s city. China has announced some $40 billion in new road construction…. that’s something like 4,000 miles of new roads every year…for a long time.

The China economy has reached the necessary critical mass to light the fire that propels the engine of growth and expansion for decades to come. We are only seeing the end of their beginning, not the beginning of the end. China is now the second largest overseas trading market (not counting Canada and Mexico) in the world for the United States. The Chinese are hard working, industrious, resourceful and intelligent people. And they have necessity on their side, which is a powerful force. Necessity is the mother of all great inventions and solutions. Unlike some mature societies, it will be a very long time before the Chinese become complacent.

Of course, none of this is possible without electricity, power plants, pipelines, storage tanks, and a myriad of other construction projects. So as demand has increased in the manufacturing and consumer sectors, so has the demand for basic infrastructure. China has announced plans to build 30 new nuclear power plants and 50,000 municipal water projects. These are staggering numbers and huge investments.

For the last eight years, every time I have visited Beijing or Shanghai I opened my hotel curtains and stared out in amazement, telling myself I was in the wrong business. For as far as my eye could see, the landscape was peppered with nothing but cranes, steel girders and cement trucks. Every time I returned, new roads existed, hotels were springing up overnight and real estate prices were soaring.

For those that say this manufacturing shift to China has hurt Americans, I see it differently. I just returned to the United States and bought a new washer and dryer for the low price of $500. Twenty years ago a similar washer and dryer cost me $700. As I stared at the prices with my wife, I whipped out my calculator (it’s the engineer in me) and calculated that if inflation had been a mere 2.5% a year, that washer and dryer should have cost more like $1,150. That’s a savings of 230%! The point is, all these low cost gadgets, gizmos and services provided from overseas have contributed to Americans saving a lot of money!

If that doesn’t make one feel good, then consider all of the business and investment opportunities from this massive economic expansion. On a sadder but still opportunistic point, we know that economic developmental ways results in errors, accidents and loss of control. It happens in every country, including America and it is happening in China.

In a prior life, I was the national director for safety in a large company and had the unfortunate but valuable experience of cleaning up after some accidents. I would like to believe that America and perhaps even more specifically Texas companies, have some of the best products, inventions, services and training programs in the world in the petroleum industry. This is a huge opportunity not only from a business point of view, but also from the point of view of a nation that needs our help. If we don’t provide Chinese companies the knowledge, how can we complain when they cannot correct the problems? Perhaps an example will help. In November 2005, China National Petroleum Company (CNPC) had an explosion that spilled approximately 30,000 gallons of toxic chemicals into the Songhua River. This was a tragic event that polluted the water supply to millions of people and caused the evacuation of tens of thousands of residents. Business associates called me and asked if I could help: I was in Texas, and they were in Beijing, and they didn’t know what to do.

After a lot of difficult translation I explained what they needed, but these senior executives had never heard of items like bioremediation, HAZMAT, environmental monitoring equipment, nor had they ever had any training in command centers, field response teams, or with industrial hygienists. The lesson is that as China expands, the opportunities in environmental, safety, and crisis training will emerge for those that dare to venture abroad. Actually, it doesn’t even require that much courage, and it’s far easier today than it was just a few short years ago. For example, Continental Airlines now has direct flights to China and traveling isn’t just fun; it’s a good thing. To quote one of America’s favorite authors, Mark Twain, said it best, “Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one little corner of the earth all one's lifetime.”

In summary, the answer to why China is in the news is mostly driven by economic and commercial reasons. China has reached critical mass and by entering the World Trade Organization (WTO), barriers have dropped. Large foreign investments in the manufacturing sector have caused the normal ripple effect and now the standard of living is rising, creating a large consumer market. The combination of the two is driving economic growth of almost ten percent a year for the last twenty years, increasing the need for massive investments in infrastructure.

Understanding China: Do You Know…

• Why Americans sometimes refer to China as the Middle Kingdom? The name for China in Chinese characters is ‘Zhong Guo,’ which literally translates to middle kingdom.
• That China is one of the oldest civilizations in the world? The book of I-Ching (pronounced ‘E Ching’) is believed to be the oldest book in the world, supposedly written over 4,000 years ago. In this ancient wonder, we can read about how the world is interconnected and interdependent. Perhaps 4,000 years ago the authors were talking about nature and the eco-system, but the descriptions on how we are all one living entity on this planet earth are prescient and perhaps more easily understood today than they were 4,000 years ago.
• We may share values but exhibit them in opposite behaviors?
  • In America, we eat all the food on our plate to make our hosts feel good, and in China we leave some food on our plate to demonstrate the host can provide.
  • In America, we keep our shoes on to keep our feet clean, and in China we take our shoes off to keep the floor clean.
• That the English language is not directly translatable into Mandarin?
  • There are no words (characters) for elevator. The word elevator is the sum of characters, which means electric stairs. The characters for computer mean electric brain.
  • A common word for Americans is ‘stakeholder’. There is no simple way to translate this word that I am aware of. Many Chinese who are not already familiar with the term commonly misunderstand it. Its translation might require a ten-minute explanation.
• Americans who casually hand over business cards (instead of presenting with two hands with a slight bow) are insulting themselves? In China, the formal presentation of a business card represents your unique value, your reputation, and the image of your business; if you don’t present your business card respectfully, this is a direct reflection on yourself and your business.

About This Point of View

Someone recently asked me if I was an expert on China. In today’s complicated and rapidly changing world, it seems that you can pick any subject from law, economics, trade, or even religion and ask five supposed experts their opinion and get at least three different answers. I don’t believe there is any one person who could say they are an expert on such a broad range of subject matter. I believe it takes a collection of experts focused on a specific topic to properly answer detailed questions. My comments and stories are based on my years of working in China, learning the language, reading the papers and journals and doing business there. To make broad ‘shotgun’ statements about the opportunities and risks in China and apply them with ‘rifle’ precision to a specific situation would be inappropriate.

On Global Evolution were not simply trying to help promote global business, we’re also promoting global understanding. Thanks for supporting these goals. To our listeners and readers around the world, good morning, good afternoon, and good night.