The China Track 与中国接轨

IU China Office Opens

After several years of planning, Indiana University's China office opened its doors on Friday, May 23rd. Although the cover photo for the office's website may exaggerate how clean Beijing's air is, the facility really is state of the art, and will be a very comfortable home for IU faculty, students, and alumni who need to do research and hold meetings in China. For more info on using the facility, visit IU's China Office website.

The opening is officially described in a press release issued by IU, so no need for me to go into much more detail here. But you can see from the "before" and "after" shots, that the space underwent a dramatic change in just a few short weeks. 

January 2014: We received the space essentially naked, with no floors, walls, or ceiling. Each tenant in required to install and uninstall all of this when moving in or out. This adds a lot to the cost of the space, but is a boon to the remodelling and interior design sectors. 

May 2014: Picture taken from the same physical location. A little different, no?

May 2014: RCCPB Center Coordinator Roy Hooper in the reception area. 

May 2014: The view from the reception area toward the conference room and other offices.

May 2014: President McRobbie speaks at the opening ceremony.

May 2014: 75-80 people attended the ceremony.

May 2014: President McRobbie and his Tsinghua counterparts renew our Memorandum of Understanding between the two schools.

The IU Office is located within the Tsinghua University Science (TUS) Park, a 5-minute walk from the East and South gates of Tsinghua University and a 10-minute walk from the #13 subway line. Click here for directions. You're welcome to visit any time!

 

Chinese bookstores: nothing going on this year

One would think from visiting bookstores in China that nothing important is occuring in China this year. Of course, later this year the Chinese Communist Party will hold its 18th Party Congress and select a new slate of leaders to take up positions in the Politburo Standing Committe, Politburo, Central Committee, and its top offices, such as the Organization Department, United Front, etc. The same transition occurs first at the provincial level and before that at the county and city levels. The replacement of Party leaders will be followed by replacement of government officials up and down the system. Probably around 20,000 officials will gain and lose posts through this transition. 

This is a huge deal, more important than anything else going on in China this year. And it is being absolutely, 100% ignored by Chinese scholars and the media. There is not a single scholar in all of the Chinese mainland who has made a career out of analyzing Chinese elite politics. I've met academics who are quite knowledgeable about the leadership, and if they chose, could write impressive articles. But they write barely anything, at least within publications available in China. 

Imagine if in United States the media and scholars didn't pay any attention to American elections and the political class. Of course, that seems like absolute nonsense. There are experts on American elections, the presidency, Congress, and lobbying. Then there are all the news stories, Sunday talk shows, blogging, and twittering, day and night, 365. All absent in China. 

Except in Hong Kong. In this little tiny exception of a place, the 18th Party Congress is a huge topic for experts and the media. Go to any Hong Kong bookstore or newspaper stand on the side of the road and you will encounter dozens and dozens of books about China's leadership, their families, and potential developments in policy. In one store, I found a shelf with about 12 books.  

It took me a while to sift through these, and I thought I had a good treasure trove. But then I turned around a found a whole other set of shelves, all with books about the leadership. A few steps away even more titles awaited me. If I had wanted, I could have bought 60-70 titles. I must admit that after looking through many of these books, I was not extremely impressed. The books had some basic info about the leaders, and made assertions of about so-and-so being part of Hu's faction and other so-and-so's part of Jiang Zemin's faction, and on and on. And the more I read, the less convinced I became in the accuracy of the claims. But at least there were claims and a discussion. 

Back in Beijing? Zilch. I went to one of the city's best bookstores, Wansheng Shuyuan (万圣书院), just outside the south entrance to Tsinghua University. Overall not a bad bookstore, with lots of books on a host of subjects. But nothing on elite Chinese politics save the selected works of various leaders. The bookstore listed its Top Ten Sellers for May, and they were mainly about Chinese history and philosophy, not politics.  

The window display of new and suggested titles was equally anodine. Nothing remotely related to the country's politics. 

I was curious if I had missed something. So I asked a sales clerk if they had any books on the 18th Party Congress. Her reply, a simple, "no." I asked about books regarding elite politics, and she pointed me to the Politics section of the bookstore. What did I find? A lot of books on Chinese international relations and diplomacy, but nothing on elite politics. 

I asked other sales clerks if anyone else had asked for books about the 18th Party Congress, and they answered either, "I don't know," or "it's unclear" (which means, "no, stop bothering me"). 

In one last attempt, I looked at the magazine rack to see what I could find. Again, nada. One magazine had what could only be described as an extremely boring story on Li Keqiang's recent tour of Europe. 

The silence in China is deafening. The contrast with Hong Kong and other places with more open political discussion is stunning. Of course, there are tons of private conversations and gossip-trading going on, but nothing is occuring out in the open.  

One is left to ask: Is this a healthy state of affairs for a political community and a country going not only through a political transition but through rapid economic and social development? 

 

 

My own southern tour

In January 1992, Deng Xiaoping famously set out on his Southern Tour with the aim of kick-starting economic reforms, which had languished over the previous 3 years. His trip included a visit to the electronics maker Xianke, whose manager was the son of one of Deng's fighting comrades in the 1930's in Jiangxi province. A decade later, despite the best of connections, Xianke went down in flames. Neither Deng nor any of the other top leaders who paid homage to Xianke could force Chinese consumers to buy Xianke's stereos or DVD players. 

My trips to Guangdong have never been so consequential. The first visit was in early 1988, when I arrived by overnight boat. I started in Guilin on a rickity bus that went up and down over horribly scary roads (I occasionally read about them going over cliffs with 20 passengers on board), and then took at boat from Wuzhou down the Pearl River to Guangzhou. I had a small open birth with many people on both sides of me. There were photos near a door showing the results of what happens when you smoke or light a fire on board. Grusome! When I arrived the following morning, I found Guangzhou difficult to navigate compared to Beijing because its roads were not straight and no one spoke Mandarin. I stayed at a nondescript hostel not far from the US consulate and the Swan Hotel. I had three-cat soup and some snake at a restaurant written up in the Lonely Planet guide. When I visited the restroom, I walked by cages stacked to the ceiling of meowing meals. 

24 years after my first trip and two decades after Deng's trip to Guangdong, I decided to make my own treck south in late May to see how things were going. Deng and Xianke are now both long gone, and I didn't bother to look for the snake restaurant. My main goal was to take stock of economic reforms and how well Guangdong's leader, Wang Yang, is making out. 

My efforts were helped tremendously by Sun Yat-sen University's Edward Wang, who introduced me to many of his friends (including some folks who visited IU before) and helped arrange some excellent interviews.

School of Asia-Pacific Studies, SYSU

Sun Yat-sen University has a gorgeous campus. Its northern border sits along the Pearl River. The buildings are not overly large (like some on the campus of Renmin University in Beijing), and there are trees and quiet paths everywhere. 

School of Management, SYSU

What did I find out about Guangdong and Wang Yang? In short, I was pretty impressed by both. Guangdong's economy grew rapidly in the 1990's and 2000's as the core of China's export machine, but as production costs there have risen and global markets have shrunk, everyone knows Guangdong needs to move up the value-added chain and focus more on serving domestic demand. Wang Yang has been forcefully pushing this transition. He's run into some serious opposition from manufacturers who just want to squeeze more and more out of their workforce, but he's also managed to induce some companies to move to northern Guangdong or other provinces and push firms that remain in the Pearl River Delta to upgrade. I'm currently searching for confirming stats, but this is my general impression. 

Guangdong has also been relatively proactive on the political front as well, encouraging governance that gives a greater voice to the grassroots, such as through NGO's and village elections. Guangdong is also experimenting with open budgeting so that citizens can have a better (though not perfect) understanding of where their taxes go. On all scores, Guangdong looks very different from the recent approach of Chongqing. And we know what happened there. 

One of the highlights of my time in Guangzhou was a visit to a provincial advisory body known as the Canshishi (参事室). This official advisory body is composed of scholars and experts who serve at the pleasure of the Party Secretary and governor, giving their frank opinions about all sorts of policies. I was only marginally aware of these advisory bodies before, which serve the leadership of every province and the central government's State Council. I think they deserve much more attention.  

Outside the Guangdong Provincial Canshishi, Guangzhou

During the visit I was able to meet the office director, Mr. Zhou, and received a briefing about the office's history and the evolution of their responsibilties. 

From left to right: Mo Xianchun (advisory group's staffer), Wang Xinsheng (Deputy Dean, SYSU School of Asia-Pacific Studies), Zhou Yi (director of the advisory group office), and Edward Wang (SYSU professor and a great guy)

After having my most productive visit ever to Guangzhou, I made the short trip by train to Hong Kong and tried to measure the temperature from the other end of the Pearl River. My first visit to Hong Kong (in 1991) was worse than my first to Guangzhou. It involved a very heated argument with a sales clerk on Nathan Road; I ended up with a bloody lip soothed only by some ice from a nearby McDonald's and then a few hours of rest on the beaches near Stanley. Don't ask my what I said to provoke the clerk's ire!

Downtown Hong Kong (no one dares to jaywalk)

Nothing like that happened on this visit. I had a good time bunking in with a buddy who just moved down from Beijing, and over the course of a few days meeting with analysts of all sorts and shapes. Your average person on the street may not be paying much attention to Beijing, but Hong Kong's newspapers and analyst class are going gangbusters trying to determine which direction China and its leadership are headed in. Needless to say, there's a wide array of views about Guangdong and the future of China's economy and politics. I visited a bookstore and was overwhelmed by the number of books and sensationalistic titles and covers. Digesting that stuff could take months, and it'd leave you with serious stomach pains.

Book covers at a Hong Kong boostore

Having finished my interviews, I went over and took the Star Ferry from Central to Kowloon and enjoyed the views. There's nothing like quietly drifting across the harbour while at the same time gazing at Hong Kong island's towering buildings on one side, the bustling streets of Kowloon on the other, and tug boats and steamers passing through the middle. 

 

   View of Central in Hong Kong from the Star Ferry

 

Happy birthday CUPL

The Chinese University of Political Science and Law (政法大学) celebrated its 60th birthday last week. I was fortunate enough to attend the opening ceremony. Although it was a real hike to get out to the campus, which is around 20 km to the north of the downtown Beijing -- it took over an hour in snarled traffic -- it was worth it. 

It was an amazing performance. I always underestimate how fancy things like this will be. I did wear a suit, which was smart. But while I was in green, everyone else had dark blue suits. I arrived thinking this would be an event for a couple hundred people, but we went into a big theatre, and I guess there were at least 800 people packed in there. And the stage was decked out like the annual meeting of the National People's Congress, with the most important speakers and guests up there looking very important and sipping from their nice tea cups. They were surrounded by lights, a TV crew, a host with a well groomed voice, and dainty young Chinese girls in uniform keeping tea cups full and escorting speakers from their chairs to the microphone.

Down in the audience, I was led to the "foreign guests" section, and I felt like a prop in a play -- the happy foreigners giving greater legitimacy to the accomplishments of the university, but kept apart from everyone else because we were not Chinese. If they really wanted to show they have an international university, we would have been encouraged to mix and mingle amongst everyone else. 

I looked at the program, and there were 13 speeches listed. The current president's took over 20 minutes, and I thought we'd never finish. Luckily, speeches are arranged in order of length, with the longest first and the shorter ones following. Speakers did a great job of staying within their appointed times, all well practiced at turning their thoughts into one hour or one minute. One of the funnest parts of Chinese major public speeches are the cues to let you know they are making a big point and want applause. This happens at the end of sentences such as, "To all our guests, classmates, teachers, let's give them a greAT WARM WELCOOMMEE!!!!!" By the time they say "welcome" (huanying, 欢迎), they are almost yelling. Learning how to speak like this is something foreigners have not mastered, but I plan to find some chances to try out my "speechified" Chinese. 

The electronics were cool. They had 2 large screens on either side of the stage that switched between the audience and the speaker. I was worried when cameras pointed at me because I was in green and a little tired. I didn't want everyone looking at me with my eyes momentarily closed or me taking a deep yawn. The host began by reading letters of congratulations to the university, and I was impressed by one from Zhou Yongkang. Not that Zhou's letter was any better than Li Tieying's, but from what I've read in the foreign media, Zhou seems to have recently taken a vacation from his official duties. To dispell this, Zhou is going to need to show up at a meeting or visit some sick people in a hospital or something. 

One of the nice moments of the program came when about 10 students from CUPL's first class (actually, it wasn't called CUPL until the 1980's), in 1952, came up on stage and each received a plaque. They were, of course, quite old and moved slowly, but they walked with a great deal of pride and smiled widely out at all of us. It was actually moving. 

The speeches mostly made the same points, and everyone got plenty of applause. CUPL has made a huge contribution toward building rule of law in society and government, and there is still much more work to be done. But two speakers got more applause than anyone else: Cheng Siwei, a member of the standing committee of the National People's Congress, and Jiang Ping, CUPL's president during the late 1980's. Both had nice things to say about CUPL, but they took decidedly negative swipes at the overall progress toward rule of law and education. Jiang said China needs to have genuinely indpendent universities with genuine academic freedom, else innovation and rule of law will never materialize. 

I was impressed that they were invited to speak, and that they said things that reflect relatively negatively on China's educational and political systems. And no one stuffed a sock in their mouth. As I said, the crowd gave them the largest applause, and they didn't even raise their voices as well as others. I didn'y see the TV news that evening, and so don't know if their comments made it beyond the room. 

When the festivities ended just after 11:00 am, I made a beeline for the exits and the campus's main gate. CUPL was nice enough to assign a student volunteer to help me the whole way. She escorted me in, and she escorted me out, and then she made a call and a car showed up to take me all the way back into the city to my next appointment. How cool! As I waited a minute for my car, about 100 black Audis with licenses plates of all sorts, including from the miltary, zoomed by me out the campus gates and on to their next destination. 

Yi Gang: Re-balancing a high priority

Trying to determine the trajectory of economic policy in China is never easy, but last week we got some important insights into the financial bureaucracy's views when PBOC deputy governor and SAFE administrator Yi Gang spoke on April 18th at Indiana University's Indianapolis campus. Yi, a former economics professor at the awkwardly named Indiana University Purdue University Indianapolis, or IUPUI, was in town to receive an honorary doctorate of letters for his academic research and application of this knowledge through his contributions to Chinese economic policy during the past 15 years. Yi joined the PBOC in 1997, and has steadily risen up the ranks, becoming deputy governor in 2008 and SAFE administrator in 2009. In a very nice (and brief) ceremony, President Michael McRobbie ticked off Yi's accomplishments and then bestowed the honorary doctoral hood over Yi Gang's shoulders. 

Yi Gang was visibly moved by the ceremony. It was clear he has a special place in his heart for IUPUI and Indianapolis, a city he called a second home to him and his family. He obviously really liked being a scholar, and like most academics, is not extremely comfortable being in the public eye.

It was fitting that Yi Gang then delivered a highly academic 40-minute lecture,  "China's Economy -- Path of RMB Exchange Rate Converging to Equilibrium," followed by 10 minutes of Q&A. I'm not sure that everyone in the audience and the members of the Board of Trustees on the stage sitting behind him could follow the details of his graphs and, conversely, that experts on China's economy would find much new. However, I found his presentation and the discussion quite refreshing and insightful.  

I haven't seen any media reports other than IU's own press release before the event occurred, but this was a public lecture presented to an audience of about 200 people, and so I'm sure it would not be seen as confidential. Hence, I feel comfortable summarizing his main points.

• China has depended heavily on exports for growth, but that era is ending. With substantial RMB appreciation and wages growing faster than productivity growth, China's terms of trade are systematically worsening, which will hamper Chinese competitiveness. Hence, growth must come from other sources.

• China's substantial increase in real estate prices does not represent a bubble waiting to pop. There may be a market correction, but he thinks an underappreciated reason for extended increase in prices is the strenghtening of property rights since housing reform in the late 1990's.

• The official 2012 target for growth is 7.5%, but growth will likely be just over 8%. He expects inflation to come in around 3%.

• China's trade surplus with the US is entirely based on processing trade, which is less sensitive to exchange rate flucutations. For trade in final goods, China actually runs a deficit with the US. He argued that if the US would have reduced barriers to exports of high-tech goods and kept the same market share it had in 2000, US exports would have grown by an additional $250 billion since then. (Of all the things he said, this was the least persuasive, as it assumes a highly unrealistic linear extrapolation. This is just an official talking point that others shouldn't take very seriously.) 

• To help re-balance China's economy, key policy reforms include: 1. Increasing domestic demand; 2. Improving the social safety net; 3. Increasing environmental protection; 4. Reducing price distortions in oil, other energy products, and transportation (this means raising these prices); 5. Expanding Chinese outward direct investment; 6. Making the RMB exchange rate more flexible, which received a boost a few days before when the daily trading band was widened; and 7. Expand imports. 

• Given the Euro sovereign debt crisis and the uncertainty surrounding US deficit reduction plans, it would not make sense for China to accumulate additional foreign exchange reserves. This does not mean, however, that China wants to reduce forex holdings. 

• Interest rate reform is important, but forex reform and achieving capital account covertibility are higher priorities. These 3 reforms need to coordinated and sequenced correctly. Interest rate reform seems less pressing because: 1) Chinese interest rates are much lower than rates abroad, and reforming interest rates would mean raising them, inducing more capital inflows (hot money) into China, which the PBOC would like to avoid; and 2) Since inflation has come down, Chinese real interest rates are no longer negative as they were a few years ago. 

What's this all mean? A couple things. First, this sounds like a roadmap for reform, and is consistent with the report, "China 2030," published in February by the World Bank and the State Council's Development Reform Center. How quickly China will move down this road or whether it will take another path is unclear, but at least we have a pretty good sense of the outlines of what we could potentially expect.  

Second, I'm told by someone who closely follows the comments of China's financial bureaucracy that almost everything Yi Gang said in Indianapolis has already been said by others. The only thing that stood out is his last comment about the appropriate sequencing of reforms -- liberalizing the RMB exchange rate and opening the capital account before engaging in further interest rate liberalization. To be fair, that comment was made during the Q&A period and wasn't part of his prepared remarks. My source says Yi Gang's explanation isn't entirely persuasive. Since the RMB is not likely to appreciate much soon, raising interest rates -- the likely outcome of their liberalization -- isn't likely to spark a hot-money inflow. The more likely reason to not reform interest rates is to keep the cost of borrowing as low as possible for favored borrowers, that is, for state-owned enterprises. The implication is that if Yi Gang presented us with a roadmap for reform, it is a road that won't be traveled in a day, but, in fact, will take much longer.

China not an anti-status quo power, unfortunately

On March 23-24, 2012, Indiana University's Research Center for Chinese Politics & Business (RCCPB) and the Workshop for Political Theory and Policy Analysis jointly hosted the "Conference on China and Global Governance" in Bloomington, Indiana. Scholars from the US, Canada, China, and Europe presented findings from research projects examining the growing role of the Chinese government and non-state actors in international regimes dealing with foreign investment, exchange rates, intellectual property rights, foreign aid, public health, and climate change.

Some conclusions that emerged out of the papers and discussion are surprising:

• China by and large is a "status quo power." This finding goes against the expectations of those who believe that a rising China that did not create the current rules of the international system would naturally be an opponent of the status quo. That has not been the case. Although there is disagreement about what constitutes "status quo" vs. "anti-status quo," in no area that we examined did we find the Chinese government, industry, NGO's, or experts going strongly against the grain of existing international rules and procedures. For the most part, Chinese are attempting to learn the existing rules of the game and not promote alternate institutions and norms.

Ren Xiao (Fudan University), left, and Cheng Shuaihua (International Centre for Trade & Sustainable Development)

In 2009, Zhou Xiaochuan, the governor of China's central bank, put forward the idea of creating a "super-sovereign currency," but in reality China still favors a dollar-based international monetary system. A substantial part of China's foreign aid is "tied" to economic benefits for Chinese industry, but foreign aid even from many OECD countries has been similarly tied. China's rules for reviewing foreign investment for national security and competition policy concerns are relatively similar to those of other countries. China is a huge violator of IP, but its legal system and the trend of growing patenting amongst Chinese companies places China increasingly within global common practices.

Bruce Reynolds (University of Virginia)

• China's domestic political economy fundamentally shapes how Chinese participate in the international community. Chinese are prone to gravitate making international regimes serve the interest of industry and production, as opposed to the interests of consumers and workers; and they generally prefer state-based institutions, as opposed to private governance mechanisms.

Zhang Lu (Temple University), left, and Xu Jiajun (Oxford University)

• The global status-quo shouldn't be seen as inherently good, and in fact, in many areas is quite troubling, as overall poverty levels and inequality are still on the rise. The global IP regime, to many, has overly shifted its balance toward protecting inventors at the expense of consumers. China and others need to be much stronger advocates of reform; otherwise, poverty, climate change, and other problems will not be solved.

Elinor Ostrom (Indiana University), left, and Ricardo Melendez-Ortiz (ICTSD)

Workshop co-founder Lin Ostrom, winner of the 2009 Nobel Prize in Economic Sciences, gave the conference's keynote address. She discussed how to apply polycentric governance approaches, a key prinicple the Workshop has long advocated, to effectively addressing the problems of global climate change. Her advice: don't just depend on national governments and international negotiations; local initiatives can also be extremely important. She noted a program in Sacramento where when customers were given electric bills that showed how much electricity they used relative to their neighbors ("You're using much more than your neighbors!"), people quickly cut back.

This research on global governance is currently being issued through the center's working paper series. Contributions will soon be revised and published through an edited volume, journal articles, and other formats.

Speaking at the Caixin Summit on Green Modernization

I have no illusions about China's political system and its effect on freedom of the press, but no one can deny that the unofficial media in China have developed substantially over the last two decades, and this has been followed by the growth of the Internet and non-traditional media sources.

An initiator of this trend has been Hu Shuli. She broke through with Caijing Magazine from 1998 to 2008. But she left Caijing to form a new company, Caixin Media, which has expanded well beyond a weekly magazine. Caixin is now a brand applied across a wide range of information products, from periodicals to video programming to conferences.

Given Caixin's role in China, it was an amazing honor to be invited to speak at this year's summit, whose theme was "China and the World: Strategizing Sustainable Growth." I spoke on the panel on “Green Modernization – the Next 10 Years,” together with representatives from Rio Tinto, Citibank, and a local private equity company. I stressed that going green will require going beyond government-mandated standards. Green certification programs for products and construction, well developed in the United States, are just in their infancy in China, but hold a great deal of promise in reducing energy usage and increasing efficiency, all the while contributing to economic growth.

I also suggested that Chinese consumers use their market power to push domestic and foreign product suppliers to raise the environmental protection standards of their goods. A “China effect” could be just as positive in promoting green modernization as the well-known “California effect." As an example, I said that China shouldn't criticize the EU's new airline carbon trading scheme, which many have said is too costly and a trading barrier; instead, China should not only embrace it but issue their own higher standards. I think most folks in the audience were sympathetic to these kinds of suggestions, but one person interpreted my comment as a defense of European protectionism and went on a rant for several minutes. I actually would've been happy to engage her, but the moderator shifted to other questioners.

Here are links to more coverage of the conference and the Green Modernization panel. A PDF version of his PowerPoint presentation is available here (Download Kennedy Green Modernization Nov 11).

In suggesting that Chinese need to go beyond their government to promote green modernization, I provided data about the relatively low level of government transparency in providing information about the state of the environment and government policies.The Natural Resources Defense Council and a Chinese partner organization developed a Pollution Information Transparency Index based on 2009 data. They found wide variation across Chinese cities; the most transparent city was Ningbo, in Zhejiang; the least transparent was Xining, in western China. Peter Lorentzen of UC-Berkeley and Pierre Landry of the University of Pittsburgh took the data one step further to examine the reasons for these differences. The answer: cities in strong fiscal positions have the resources to collect environmental data, and cities that do not have a dominant company have the political will to release this information. Here is a look at the Top Ten and Bottom Ten and the related data. I'm grateful to Peter and Pierre for letting me use this information in my presentation.

The most interesting speaker on my panel was from Rio Tinto. He gave a detailed description of how this huge mining company attempts to be as efficient as possible and support reductions in energy usage for itself and its customers.

Beyond our panel there was a ton of interesting speakers and comments. Liu Mingkang, who just stepped down as head of the China Banking Regulatory Commission, described in detail how the CBRC has tried to monitor and control the negative consequencese of expanding local government debt. Economist Wu Jinglian spoke quite forthrightly about his hope that the new leadership line-up next year will usher in a new wave of economic reforms that liberalize China's markets and create a greater likelihood the economy will be more efficient and balanced in the years ahead.

All in all, a total blast!

10th Anniversary Conference Wrap Up

This past weekend's conference, "The 10th Anniversary of China's WTO Accession: China's Learning Curve," went off extremely well. I had the same worries as a restaurant owner -- the kitchen may be a little chaotic, but as long as the customers enjoy their meal (and don't look in the kitchen), then everything will be okay. I think the conference served up some nutritious food for thought.

Some highlights of Day 1:

• Long Yongtu, China's chief WTO negotiator, gave a subtley worded critique of current economic policies. When China joined the WTO, it made policies changes which were domestically seen as "progress" (进步), but are now criticized as "concessions" (让步). He said he is worried that China may be getting further and further away from the spirit of the WTO. His concerns were echoed, more directly, by Christian Murck, President of the American Chamber of Commerce in China, and Dirk Moens, the Secretary-General of the EU Chamber of Industry & Commerce.
  
  
• In his keynote address(Download Day 1 Robert Wang WTO Conference Remarks 10 29 2011), Robert Wang, American Deputy Chief of Mission, struck a balanced pose. He praised China for the distance it has travelled in economic development and reform the past 10 years, but he noted the concerns the US and others have about China's recent economic policies, including currency policy. He also stressed that China can't avoid taking on greater responsibility in the WTO just because it is a developing country. In perhaps the most memorable line of his speech, he said: "As our trade negotiators are fond of saying, no doubt to the annoyance of their Chinese colleagues – 'China is not Chad.' And the fact of China’s astounding success as an exporting power means that China carries considerably more responsibility than was the case ten years ago with regard to the liberalizing mission of the WTO."
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• On the Doha Round, Huang Rengang, Deputy Director-General of the Ministry of Commerce's WTO Division, said China would obviously like to see the Doha Round reach a successful conclusion, but there need be no rush to a conclusion. He joked that trade ministers weren't tired of negotiations but rather were addicted to them. Ricardo Melendez-Ortiz, Chief Executive of the International Centre for Trade and Sustaintable Development in Geneva, outlined a wide range of initiatives the WTO can take even with a stalled Doha Round to promote liberalization and development. Rorden Wilkinson of the University of Manchester said that the WTO and its members need to go back to first principles and decide once again what the main goals of the organization should be; he argued that liberalization and other policies should more squarely be in service of development and poverty alleviation.
  
  
  
• Several speakers, including Tang Wenhong of MOFCOM's Law and Treaty Division, noted that China had moved rapidly up the learning curve in the dispute resolution process. China has been a respondent in 23 cases and a complainant in 8. Xiao Jin, a partner at the law firm King & Wood, noted that China has complied with negative rulings in at least 7 out of 8 cases it has lost. Philippe De Baere, a partner at the Belgium-based law firm Van Bael & Bellis, gave a run down of China's victory in the "metal fastners" (nuts and bolts) case, showing how the portion of the European Union's antidumping regulations related to non-market economy status were found wanting and had to be changed. 
  
  

On Day-2, we turned our focus to analyzing 11 pieces of research conducted as part of the RCCPB's Initiative on China and Global Governance.The papers can be found on the center's Publications page.I was particularly impressed by how seemless the discussion went. Despite using Chinese and English, everyone was speaking the "same language." The biggest differences in approach and opinion were  among scholars from the US and Europe. We were all using the same concepts and familiar with the same range of methods. If there was a difference it was that Western scholars are probably still a little more comfortable in making theoretical pronouncements based on their data and analyses, but the difference in approaches, at least in economics and political economy, are not what they used to be.

One particular highlight on Sunday was a visit paid by Madame Zhang Yuejiao, a current member of the WTO's Appellate Body. She was extremely impressive in her command of the WTO's dispute settlement process. It seemed to me that she had totally absorbed the norms and approach of the WTO, and likely, is not just a passive user, but also an active contributor to the norms and procedures in the system. It's highly unlikely the Chinese government uses her presence to their benefit -- she was a former MOFCOM official -- but Chinese can certainly be proud of her accomplishments on a very high-profile international stage.

Following Sunday's panels, we adjourned to Bellagio (鹿港小镇) for dinner, a Taiwanese-style restaurant owned by a couple from Guam. And then some stalwarts visited the 81st floor of Guomao Tower #3 (国贸三期) to look out over Beijing. Of course, our view was blocked by smog, which is still sitting over the city as I type. Just as with China's first 10 years in the WTO, much has changed for the better, but a lot of work still needs to be done.

I'm extremely grateful to the entire team that worked hard over several months to make the conference a success.

New happenings at the RCCPB

We are having a cool conference in Beijing this coming weekend, October 29-30, 2011. Day-1 will be fancy show at the Beijing International Hotel. The occasion is the 10th anniversary of China's entry into the World Trade Organization (WTO). In attendance will be several WTO representatives, officials from various governments, international trade lawyers (my favorite), business execs, and scholars. On Day 2, we will move the meeting north to the campus of the University of International Business & Economics, and turn our attention to 11 working papers produced through the RCCPB's Initiative on China and Global Governance. 

We've had a great response rate so far, with lots of folks registered. You can still try and reserve a spot, but if not successful, you can at a minimum get copies of the related working papers.

We're proud to have several co-conspirators in this venture. Our co-organizer is the University of International Business & Economics China Institute for WTO Studies, and Caixin Media is our exclusive Chinese media partner. Of course, anyone from the media is welcome to attend, cover the event, and interview the participants.

Baotou Bound

In mid-August I visited Baotou, a medium-sized city in Inner Mongolia. Baotou is the center of China's rare earths (RE) industry; and given that China produces over 95% of the world's rare earths, Baotou is center of the global rare earths industry.

I think by now most folks have heard of rare earths simply because of the number of news stories about them. RE's are 17 element minerals who are used in a variety of technologies, from batteries to missiles to computer screens. RE's typically are just a tiny fraction of the cost of a product, but in some instances, such as wind turbines, they constitute a large portion of the production cost. RE's are far more important their $2 billion in annual sales would suggest. The US and others used to dominate RE production, but they gradually withdrew from the sector because of the high costs of mining and more stringent environmental standards. That left RE's to China, and over the past decade China has been trying to restructure the sector in order to deal with the pollution, make the sector more efficient and technologically sophisticated, and use domination of RE production to help develop downstream sectors that depend on rare earths, such as advanced magnets.

While in Baotou, I visited the main company that mines and processes RE's, Baogang Rare Earths High-Tech Co., and talked with some local officials and experts. As luck would have it, on my first day in Baotou there was a national Rare Earths Forum being held at the Shangri-La Hotel. So I crashed the party and met a few people, though I was not allowed to sit in the formal meetings because they were closed to foreigners.

Funnest of all, I visited the Baiyun Ebo Mine, 180 kilometers north of Baotou, close to the border with Outer Mogolia, or as we know it, the Republic of Mongolia. Along the way, we came across a massive number of hot air balloons that were all trying to glide past one of the oldest sections of the Great Wall, built about 2000 years ago.

Once at Baiyun I got to see the two main open-pit mines from which they mainly get iron ore and rare earths. I wasn't allowed to take pictures of the mine, but I was permitted to take a few shots of the giant trucks that rumble up and down the mine roads carrying the ore.

The tires alone were twice my size, giving the impression that I'm not very tall.

I have to say I was extremely impressed by the high esteem in which everyone in Baotou holds Cheng-ji-si-han, or as you know him, Gengis Khan, who created an empire that stretched from Mongolia across China to the south and toward Europe to the west.I've heard that in the first few decades after "Liberation" in 1949 Chinese spoke of Mao Zedong in equally glowing terms, but I had never witnessed that myself, or at least seen it so universally. You could say Gengis Khan "is the man," but he's revered almost as a god.

China being what it is -- a capitalist socialist mecca -- it shouldn't have come as a surprise that Gengis Khan has been turned into essentially a brand, with business upon business taking advantage. I had dinner at a Gengis Khan theatre restaurant pavillion that made me think I was visiting Busch Gardens.

There you could eat in a yurt, with all the modern conveniences, or in a yurt-shaped room in the main building. In either case, you could have local ladies join your party for singing and dancing (which I avoided, in order to not hurt the feelings of the Inner Mongolian people because of my horrific voice). It was more fun watching others.

I did learn a lot about rare earths and will be writing about them before too long, but just as important, I had a heck of a lot fun in Baotou, a town with people that deserves our admiration.

 

 

Searching for Owen Lattimore - found.

As loyal readers may recall, I was in Shanghai with a group of Indiana professors, businessmen, and journalists. Among the group was Greg Lattimore Andrews, managing editor of the Indianapolis Business Journal and great nephew of famed China specialist Owen Lattimore. Using information provided by some Shanghai history buffs, including Paul French, we tried to find the office of Arnhold Brothers, where his uncle worked for a few years in Shanghai. We didn't find the exact address that day, but we thought we had found a building that could have been where Lattimore worked. So we took a picture and posted it to this blog.

 

Turns out we were wrong, but only by a block or two. Paul French, host of the blog China Rhyming, followed up and found the right building, which is at 320 Jiujiang Road. Case solved! Many thanks to Paul and others who helped with the detective work.

New Book: Beyond the Middle Kingdom

Pardon the self-promotion (though aren't blogs a form of self-promotion anyway?), but I wanted to let folks know about a new book I edited that just hit store shelves -- Beyond the Middle Kingdom: Comparative Perspectives on China's Capitalist Transformation (Stanford University Press).

The book makes the straightforward point that one of the best ways to better understand China is to compare it with other countries. Many of us tend to think of China as unique and distinctive, but that's usually the result of either not comparing China with other places or only comparing it with the United States. It turns out that in many cases, it is America that is the oddball, not China. The chapters examine a wide range of issue areas, including the auto sector, industrial policy writ large, international trade, social policy, business lobbying, the political views and behavior of private entrepreneurs, and the politics of international bank acquisitions. The other contributors are Margaret Pearson (U Maryland), Andrew Wedeman (U Nebraska), Arthur Kroeber (Dragonomics), Mark Frazier (U Oklahoma), Kellee Tsai (Johns Hopkins U), Victor Shih (Northwestern U), and Greg Kasza (Indiana U).

For more info, check out a detailed description on the Stanford University Press website and at Amazon.

By the way, the cover photo is a collection of flags on display at the Shanghai World Expo (aka the world's fair), held in Shanghai, China last year. And the "Middle Kingdom" is a term non-Chinese people sometimes use as a synonym for China when they want to highlight the country's supposed distinctiveness. Middle Kingdom is thought to be a direct translation of the Chinese word for China, zhong-guo, 中国, to suggest that Chinese people see themselves at the center of the universe and are not members of a sovereign state but rather a broad civilization. In reality, the term zhong-guo is most accurately translated as "central states," plural, to refer to the various small kingdoms that existed during the Warring States period (475-221 B.C.) in part of the area that later was unified into a single country. But no one called China the country zhong-guo until much, much later, and it contains no implicit idea of uniqueness in the way that non-Chinese use term "middle kingdom."

The Crisis and 'Post-Washington Consensus'

 I usually don’t like to write about something just because it makes me mad, but I have to make an exception. I finally got around to opening my March/April 2011 edition of Foreign Affairs. I enjoyed an article by Thomas Christiansen (Princeton) on why Beijing’s foreign policy has become more assertive and how the US can effectively respond without generating greater insecurities on the Chinese side. Wang Jisi, dean of the School of International Studies at Peking University and widely considered one of the few international relations specialists who provides informal counsel to China’s decisionmakers, also has a nice essay pondering what China’s grand strategy should be. It is not just a “we want peace as we develop in a non-threatening way” propaganda note. He shows real empathy for how China’s foreign policy actions and statements are perceived by others.

On the downside, though, Nancy Birdsall and Francis Fukuyama have what to my mind is a very misguided essay entitled, “The Post-Washington Consensus: Development After the Crisis.” Birdsall is president of the Center for Global Development, and Fukuyama teaches at Stanford University. In the 1980’s and 1990’s, Fukuyama was at the government-funded think tank, the Rand Corporation, which is where he penned, The End of History and the Last Man (1992). (He taught at Johns Hopkins-SAIS before moving to Stanford.) In the wake of the Cold War and the USSR’s demise, his book sounded the highest note of triumphalism, arguing that the ideas of democracy and free markets had thoroughly vanquished all rivals permanently.

Well, sad to say, things haven’t quite worked out that way (and this essay might be seen as Fukuyama’s confession). Yes, democracy is a widely shared norm; even authoritarian regimes like to argue that they are democratic in some way, take China’s “socialist democracy,” for example. But Fukuyama was absolutely wrong about free markets. Markets yes, free no. That is, economists, political scientists, and policymakers, have never reached a consensus about the right mix of policies to promote economic development or sustain growth more generally. The original so-called “Washington Consensus” (WC) was supposedly a consensus just of economists in Washington made up by John Williamson of the Peterson Institute for International Economics in 1989, and we know that was going too far.

Within a few short years of the original formula and Fukuyama’s victory speech, the consensus started to come unglued. The failure of Latin American countries to overcome their debt crises and move to a consistent development trajectory following free-market norms and the failure of shock therapy reform to generate growth across central Europe and the former Soviet Union were the chief reasons why the Washington Consensus lost its luster. Not to mention the success of the East Asian “dragons,” where government intervention was standard practice.

Williamson and others tried to rescue the concept by modifying it – clarifying that they did not mean Reaganesque neo-liberalism and suggesting that nurturing solid government institutions was just as important as government getting out of the way – but it never again regained its original influence. The World Bank started to issue reports recognizing that states could selectively promote industries and perhaps even specific firms, and the IMF began to reconsider conditionality. And this was the late 1990’s.

Birdsall and Fukuyama give the impression that it was the 2008 financial crisis that shook the world’s faith in free markets. Certainly, that happened long before. Over the last decade, the rise of China may have given some more impetus to this trend because of the government’s interventionist tendencies. Hence, Joshua Ramo in 2004 penned the extended essay, “The Beijing Consensus.” But the Chinese case is far more complicated than Ramo or other BC advocates let on. China’s experience actually comes closer to the WC maxims than Ramo or others admit. For an exposition of this, you can see my article, “The Myth of the Beijing Consensus,” published last June. [Download Kennedy Myth PUB June 10] You should also check out the forthcoming book, In Search of China’s Development Model (in which my article is also included), edited by S. Philip Hsu, Yu-Shan Wu, and Suisheng Zhao.

But speaking of the financial crisis and the end of the WC, the real nail in the coffin for free-market policies was not the interventions of the Chinese and other developing countries, but of the US government. Since September 2008, the US federal government has spent hundreds of billions, if not trillions, rescuing banks and major corporations that if the market had been left to its own devices would have gone the way of the Dodo Bird. Remember the joke that President Obama is CEO of General Motors? Washington’s interventions were the exact opposite of what it and the IMF and World Bank had been preaching to others for the past several decades. And it is this hypocrisy, or rather the unveiling of what states really must do in the face of such economic and political storms, that gave another blow to the WC. Yes, there are many admirers of China’s developmental success, and some of them as a result are more open to industrial policy and intervention more generally. But the loss of confidence in the Washington Consensus started a long time ago and reached its culmination far closer to home, at 1600 Pennsylvania Avenue. Washington can cluck all it wants about how its trading partners should continue to reduce barriers and get out of the way of the market (or rather America’s companies who want a larger piece of their markets), but everyone is watching and learning from what America actually does. And that’s just as consequential in the long term as what the Chinese and others do in terms of defining what economic policies are recognized as legitimate and acceptable.

Searching for Owen Lattimore

One of the highlights of the just-completed China study tour was the inclusion of journalists. Chris Fyall, a young and energetic reporter with the Bloomington Herald-Times, Greg Andrews, the equally energetic, though slightly older (seasoned?), managing editor of the Indianapolis Business Journal, and George Vlahakis of IU's Office of University Communications were all terrific. Chris, who must not need sleep, filed several stories in the midst of the trip. (When we returned I heard many people remark about the quality of the pieces.) Greg and George both kept blogs as we traveled, and Greg then made China the cover feature for the March 28-April 3 edition of the IBJ. George also took a few thousand photos -- literally -- several of which made it onto his blog, and many others were burned onto CDs he shared with the group. 

One special element of their participation is Greg Andrews' special connection to China. His full name is Greg Lattimore Andrews. His great uncle was Owen Lattimore, one of the world's foremost China experts of the 20th century; and his grandmother, Owen's younger sister, was Eleanor Frances Lattimore, who herself was a famous author of children's books. If you haven't read Little Pear to your children, you should (even if your kids are 40). Owen and Eleanor's parents moved to China at the very turn of the century to teach English, first living in Tianjin before moving to Shanghai, where Eleanor was born in 1904. (Owen and Eleanor had 3 other siblings - Katharine, Isabel, and Richmond.) After going to school in the West, Owen returned to China and in the 1920's worked in the insurance division of the British firm, Arnhold Brothers & Company. Part of his job involved traveling to western China to learn about the risks some of their clients faced, and that is how he originally became an expert in a part of China so few westerners (or Chinese) ever saw. Those skills were later translated into positions with the US government (he helped the US and its allies understand Mao and his Communist movement when the CCP was based in Yan'an, in northwestern China) and then as a scholar at Johns Hopkins University. McCarthy singled Lattimore out as one of the "Communists" lurking in the State Department, a total fabrication, but enough to force Lattimore out of Hopkins. He left the US and taught at the University of Leeds in the UK. Lattimore returned to the US much later in life and passed away in Rhode Island in 1989.

Having not learned of Greg's family connections until well after he had agreed to participate and just a couple weeks before we left for China, one side goal of the trip became to find the home in Shanghai where Owen and Eleanor lived. I put a call into my favorite historians: Jeff Wasserstrom, formerly of IU and now at UC-Irvine, has written some great books about Shanghai, including Global Shanghai; and Bill Rowe, who has taught history at Hopkins since the early 1980's. Bill didn't have any info on Owen's old addresses in Shanghai, but he shared a wonderful article (Download Rowe Lattimore JAS 2007) he wrote about Owen's scholarship. Jeff didn't have any details either, but he put me in contact with Shanghai officianado Paul French. Given his authorship of The Old Shanghai: A-Z, I figured we were in luck. I told Paul where we thought Greg's relatives had lived (in something called "The American Compound"), but that didn't yield any more substantial clues. He then put me in touch with another Shanghai specialist Tess Johnston, but her expertise is on the 1930's and 1940's, a little too late for us. So we boarded the plane to China thinking all was lost. Heck, even if we had an address, we figured that the building would have long been torn down and replaced by one of Shanghai's 5,000 high rises.

A couple days into the trip, Paul emailed me with one last suggestion. He said I should try Greg Leck, another Shanghai expert whose interest was the first few decades of the 20th century. I emailed him my final plea, and low and behold, he responded:

My 1916 directory does not show him [Owen], but my 1921 directory already has him moved out to Tientsin, to which he returned from his sojourn in Shanghai, to take up a journalist position. The best I can do is give you the address of his Shanghai workplace:  Arnhold Brothers & Co., Ltd.  (He worked in the insurance department.) Arnhold Building, 6 Kiukiang Road, Shanghai. (The company moved to Sassoon House at 1 Nanking Road around 1930, but Owen was long gone by then.)

He wrote "best" as if to apologize, but to us, this was fantastic. We had a real place and building to connect Greg to his family. I wrote to Paul and thanked him, and he responded with even more encouragement that made us more excited.

Just to let you know the Kiukiang Road (Jiujiang Road) building of Arnhold and Brothers still stands magnificently on the street and also has a plaque on the building identifying it as the former Shanghai office of Arnhold's. It's well worth a visit and you'll also find some other Arnhold buildings from slightly earlier round the corner on Dianchi Road (formerly Jinkee Road) - these two are identified by plaques on the outside.

So on Friday, March 18, we set out to complete the journey. After wrapping up very interesting visits to Tianma Micro-Electronics and Cummins Fleetguard, we took our charter bus from Pudong back into Puxi (the western side of the Huangpu River) with the rest of our group, but then had the bus drop the two of us off at the first convenient place it could pull over. We then walked 3-4 blocks to get to Jiujiang Lu (九江路), which is the more common way Kiukiang is transliterated into a form non-Chinese readers would understand. We started at about 700 Jiujiang Lu, and the numbers got smaller in the direction of the Bund, so that's the way we went. With even numbers on the left side of the street, we expected sooner or later we would have to run into 6 Jiujiang Lu. Block by block we went, and the numbers got smaller and smaller. I could then see we were getting closer to the Bund, and as we did the buildings began to look older and some of them had plaque on the walls identifying the historical roots. But we were running out of blocks, because the Bund is at the river's edge. When we got within 50 yards of the end of the street, I looked at the last building on the left, and it was something like #36 Jiujiang Lu. The plaque on the side of its cement face gave no indication of the Arhold Brothers & Co. To focus on something different, we crossed the street to the bund itself and enjoyed the skyline view of Pudong and the river and talked to a few curious Chinese. We then crossed back over and decided, hey, let's walk back up on both sides of the street, thinking that perhaps the street numbers since the 1920's had changed, and we should focus on the plaques rather than the address. We did this for about 15 minutes without any clear luck until I happened upon an old man sitting in a booth next to one of these buildings. I explained Greg's story thinking nothing would come of it, but I got an interesting answer. The man, who was serving as a guard for one of the buildings, or at least its parking lot, said that although he himself was born "after Liberation," that is, after 1949, he thought the building directly next to his had at one point been owned by a British company. So we went to give it a second look. We walked all the way around it and found no plaques; we peered through some glass windows, and the inside was currently being entirely renovated. It was stripped bare, with nothing of note inside, and just a light white-gray facade on the outside.

We got no confirmation this was the right place, but we were tired. We had exchanged emails with Jeff, Bill, Paul, Tess, and Greg, and Greg Andrews had consulted his living relatives and even some of their family papers. Despite not being sure, we decided to adopt this building as part of Greg's heritage. In front of it he stood, and I clicked away (iPhones have a nice fake clicking sound).

It's very likely we did something wrong in the search -- that there may be a different Jiujiang Lu, or we should have been at WEST Jiujiang instead of EAST Jiujiang, or we passed by the right building and were just too stupid to notice it, or it was just around the corner and we would have seen it had we taken 10 more steps in this or that direction.

But for now, that's irrelevant. Perhaps for no good reason, Greg and I now are nostalgic about this building. It may or may not be where Owen Lattimore worked in the 1920's, but it was where Greg Lattimore Andrews stood in 2011, and we know for sure his great uncle and grandmother walked these streets and stood along the bund and admired the beauty and vibrancy of where they were. What's a block or two when you've circled half the globe? We may not have found "history," but Greg lived a little more of his family's history. And for that reason, it was an exciting day.

If any of you Shanghai specialists out there know what we did wrong, don't tell us! No, I'm kidding. Please do let us know where we should have gone, and where we should have stood. And if you have a photo, even better! You'll earn a free coffee at the Starbucks nearest to Owen Lattimore's office. Now, I wonder, do you think Owen liked coffee?

Postscript on a Successful China Study Tour

I'm way behind in blogging about a million things, including IU's recent study tour to Hangzhou and Shanghai. Carried out under the theme, "US-China Business Cooperation in the 21st Century," the trip was a terrific success, as you can see from two other blogs: "IU Takes You to China," maintained by IU's George Vlahakis; and "The New China," by the Indianapolis Business Journal's Greg Andrews.The RCCPB itself has a page devoted to the trip, at www.indiana.edu/~rccpb/Chinatrip.html.

A few things stand out about the trip:

Our delegation members got along great! We were a motley crew of scholars of politics, journalism, and business, thrown together with journalists and business executives. You would think everyone would have their own agenda, some would walk really slowly and others would be running ahead, some would want McDonald's and others would want the strangest things from foodstalls, and some would want to meet movie stars and others beggars on the street. And that we'd get on each others' nerves. That would've been a great soap opera, but it didn't turn out that way at all. Again, we got along great! No whinning, no complaining, no taunting, and no "when are we gonna be there?!!!" A couple folks were squeemish about driving down the wrong side of the road to get through a traffic jam (Shanghai's traffic situation has deteriorated big time), firmly grabbing to their seat handles and tightly closing their eyes, and some of us saw this as great fun and standard practice -- the yellow lines in the road are just suggestive. But in general, we followed Hu Jintao's dictum to be a harmonious group.

Second, the quality of scholarship we encountered at Zhejiang University is first-rate. I may be leaving some folks out, but I was just immensely impressed. Three participants in the conference stood out: Wei Lu (韦路) from the College of Media and International Culture, who presented the findings from a sophisticated study of Internet usage that found the wealthier you are the broader your use of the Internet; Zhao Jun (赵骏) from Guanghua School of Law, who presented research on international investment and stepped in to translate flawlessly with zero notice; and Wang Zhikai (王志凯), from the School of Economics, who took on the job of organizing the specifics of our conference at Zheda and many other details of our visit. I also was fortunate enough to give a lecture on business lobbying to a (small) packed room at the College of Public Administration. Host and vice dean Yu Jianxing (郁建兴) offered some terrific comments, as did grad students and faculty in the audience.

Many of the Chinese with whom we spoke were very worried that the country was falling into what one person called, a "middle income trap," in which the progress of the last three decades was coming to halt in the face of greater government intrusion into business and the lack of a positive business environment for innovation and expansion. At the symposium, a local company executive made an  impassioned argument for more extensive economic and political reforms. One cannot, of course, dismiss such concerns -- they live them every day -- but it is odd that from the outside China looks like it is rising as fast as could be; Americans, Europeans and others believe it is they, and not Chinese, who are hurting the most these days. How could these companies, with China's 11% growth and $2.6 trillion in foreign exhange, be suffering? Explaining these conflicting perceptions is going to be an important task for years to come.

We visited a handful of companies in a variety of sectors, and the distinction between Chinese and foreign seems more irrelevant than ever. Shanghai GM, a JV between GM and Shanghai Auto, is it American or Chinese? Our host, David Chen, was originally from China, but studied at Purdue and worked in the US for a long time before returning to China for GM. Crown Biosciences, a company officially based in the US but with facilities in Beijing, Taicang and Wuhan, is run by Chinese who used to work for Eli Lilly, and one of them taught at Indiana University. One gentleman who showed us around studied at Cambridge and had a nice British accent. They are prepared to comply with both Chinese government and US FDA regulations. Tianma Micro-Electronics, a producer of flat screens, is owned by the centrally-controlled China Aeronautical Technology Group (中国航天科工集团), but it is listed on the Shenzhen Exchange, its production technology and processes are almost entirely Japanese, and its chief technology officer spent years in Silicon Valley. And Cummins Fleetguard, co-owned by Columbus-based Cummins Engine, is a joint venture located in Pudong; almost everyone in the plant was Chinese, and the manager of filtration for Asia-Pacific, Mark O'Connor, is originally from Australia.

 

Finally, on Friday, March 18, we had an awesome reception on the 40th floor of the Shanghai Hilton with about 90 guests, including IU alumni, current students, and friends from the broader business community. Even friends attended from the humbly named Lord Corporation; my brother-in-law Scott Thompson works in their Erie, Pennsylvania facility. It was wonderful to be with such a great group of Hoosiers and friends of Indiana.

All in all, a great visit, and I'm deeply grateful to everyone at IU, Zhejiang University, the journalists and business executives who accompanied us, and the organizations we visited for making it possible.

The Sweet 16: 22 Years Ago Tonight

This has nothing to do with China, so if you care about the Middle Kingdom, then flip to the next blog post. But if you care about basketball, read on.

In the Spring of 1989, I was a fourth-year student at the University of Virginia. UVa has many traditions that distinguish it from other schools. We don't say "campus," but "grounds." It's not "freshman," "sophomore," etc., but "first-year," "second-year," etc. And it's Mr. Jefferson, not President Jefferson, T.J., or any derogatory title. And at least in the 1980's, we wore coat and tie to the football games. And instead of a marching band, we had a pep band that raised hell.

Before I was addicted to China, I was a sports junky. And I still am. Tonight I'll be watching the Sweet 16 of the NCAA men's basketball tournament. But in 1989, I was in the stands with my friends. That year UVa had a pretty darn good team. A few years before, the UVa Cavaliers (or Wahoos) had been on top of the college b-ball world, with 7-4 Ralph Sampson leading the way. The Wahoos -- a fish that can drink its weight in beer  -- were basketball royalty but could never get over the top in the NCAA tournament. Remember upstart Chamanade, the team that beat UVa in an early season tourney in Hawaii? Once Sampson left, UVa wasn't part of the discussion among elite teams, but it was still quite good, surprisingly good, in fact.

UVa made the 1989 tournament, I believe, as a 5-seed. It won its first two games without too much stress, at least, again, that's what I remember. Sitting in our apartment at the end of the first weekend, my friends and I looked at the TV and realized that the next round for us wasn't that far away, in Lexington, Kentucky, about an 8-hour drive from Charlottesville. Should we blow off classes right in the middle of the semester just for a game or two? And we were broke, could we afford tickets? We called, and the tickets were only $20/person for 3 games -- 2 on Thursday night for the Sweet 16 and 1 on Saturday afternoon for the Elite 8, with the winner going on to the Final 4. (Or was it $20 for each game? I don't care. I'm old and can't remember.) That settled it, we were going! We being: myself, Keith Kimberl, Chris Trimble, and Daren Blythe.

I was taking a few classes my last semester, but didn't care a whole lot about them, at least compared to going to game. I told my Chinese-language teacher I'd be busy with “something” and couldn’t go to class. No problem, he said.

Okay, I see this is getting long, so let’s get to the high points.

UVa was matched up against Oklahoma in the first game, and Michigan and North Carolina played in the second game. The Sooners were picked by everyone to crush UVa. They had Stacey King, who later went on to win 3 NBA titles with the Chicago Bulls (perhaps another player for Chicago was more responsible for that). Mookie Blaylock was their point guard. I mention him because his name was Mookie. Mookie is a neat name. Not many people are named Mookie. Do you know anyone else named Mookie? Not me.

UVa shocked the world. A nip-and-tuck game the whole way, UVa pulled ahead in the last 2 minutes, and we were victors! UVa’s weapon was a player named Richard Morgan. He wasn’t consistent, but when he was on, he was on and could shoot from anywhere. Way up in the upper tiers of the arena, we went absolutely bezerk, and that’s how I spell that word, so no complaining. This is a spell-freedom post. We stuck around for the second game, and to our ACC surprise, Big Blue was better than Carolina Blue. And they kept playing that dang song, “duh…duh, duh..duh, duh, duh…” It made me sick. But we’d get them in the next round, right?

We won on Thursday night and then had to find a place to stay. Keith’s cousin said we could stay with her, but a drive through the Kentucky night brought us to an empty home in a far away suburb. So we went back up to Lexington and found a room at a motel, something like “The Fisherman’s Motel,” in the center of the country far away from any sizeable body of water.

It took about 10 seconds to fall asleep. In the morning we awoke to a bright sun and found that a touring rock band was staying in the room next to ours. I think they towed their equipment in a U-Haul, so they weren’t incredibly successful. Today, they’re probably a banker, psychologist, and high school math teacher. Among our group, we were all doing fine in school, but Chris was the stand-out, and not just because he stood 6-4. He was just smart, freaking smart. And worse, he worked hard, freaking hard. He could’ve been drunk his entire college career and showed up for final exams high, and he would’ve gotten A’s, I’m absolutely certain. I believe there was a small window of time when he considered trying this… Well, not really. He wouldn’t have done that. He was an E-school student, that is, an engineer. He studied a simple subject – nuclear engineering. He went on the serve in the Navy for a few years, then switched on a dime to become a specialist on companies and innovation. He now teaches this stuff at Dartmouth and has an article in the Harvard Business Review about once every six minutes.

Well, that Friday, while the rest of us were killing time playing hearts, Chris unloaded his super-duper Commodore computer from the trunk of Keith’s tiny car and worked through the day. When I opened the door to get some sun, the band looked in and saw Chris typing away. We were so proud!

The next day we went to the game all psyched and full of excitement. It took Michigan 5 minutes  to pop our balloons. Glen Rice, damn him, could not miss. Hit from the top of the key, hit from the corner, the top of the key…and on and on. UVa couldn’t hit the side of the barn. Well before halftime the game seemed already long decided. We had to suffer through another hour and a half of humiliation. Then that darn forsaken music, “duh…duh, duh..duh, duh, duh…”

We left the arena deflated, but we found a way to raise our spirits. Like Lu Xun’s character Ah Q, we found a way to find victory in defeat. Driving east on Route 64 back toward Virginia, a car pulled passed us and we saw it had a lot of dark blue & yellow flags and paraphernalia all over it. U Michigan scum hid within the doors. Well, heck with them. “Pull up next to them,” Daren said. “I’m gonna moon them.” Is he nuts? Well, perhaps. But why not? So Keith raced the engine of this tiny white car, and got up close. Daren stuck his cute ass against the right window. If there hadn’t been glass, the driver of the other car could easily have reached over and wiped him. But with the glass, my impression is that this caused his ass to spread across the window, making it even larger and a site to behold for the folks driving next to us, not to mention to the horses grazing along the side of the road.

We got them! They decelerated pretty quickly, shocked by what they saw. Then a minute later, they pulled up alongside, and one of them returned the favor. Not a pretty sight in the least. And so much for respect of intellectual property rights. As Daren said, “Imitation is the highest form of flattery.” With that, we had a long, but satisfying drive back to camp…no, to the grounds.

To bring things full circle, tonight there is no UVa, Oklahoma or Michigan playing. Carolina is, but I can’t root for or against them. But the U. Michigan coach from that game, Steve Fisher is coaching San Diego State, and they’re playing tonight against the Connecticut Huskies. The best footnote to the 1989 game is that Fisher inherited the team suddenly from coach Bill Frieder, who ran out at the end of the 1989 regular season to take a job with Arizona State. Can you imagine how he must have felt having jumped ship and then watching his former team win it all? Oops!

Go Wahoos!

Spring Break in China

I'm leading a delegation of IU professors, Indiana business executives, and local journalists on a trip to Hangzhou and Shanghai during Spring Break. We leave in a few hours. We'll land at Shanghai's Pudong International Airport, then take a two-hour bus ride to Hangzhou. There we'll participate in a conference hosted by Zhejiang University, IU's strategic partner in China. Because Indiana and Zhejiang are both along the coast, it's natural they are sister state-provinces. :)

Following the conference, we'll visit with the Zhejiang government, a TV station, and tour several companies, including Alibaba and Geely. We'll then make our way to Shanghai, with a few more visits, including to Crown Biosciences, founded by former IU professor and Eli Lilly researcher, Faming Zhang. We'll also tour Shanghai General Motors, Cummins Fleetguard, and the LCD/flat panel manufacturer Tianma.

While I'm thrilled to be traveling with my colleagues and three terrific entrepreneurs -- Mat Orrego of Cornerstone Information Systems, Matthew Neff of University Health Management and CHV Capital, and Ben Shobert of Teleos -- I'm particularly excited about the two journalists coming with us, Chris Fyall of the Bloomington Herald-Times and Greg Andrews of the Indianapolis Business Journal. The Midwest media covers China some, but not to the extent it needs to. So our center created a program to help Indiana journalists better understand China and figure out how to report on the country in a way that is relevant to their audience. Chris and Greg are visiting China for the very first time. I've visited so often that it's easy to lose the thrill of the trip. Not this time. To make things even more exciting, Greg is Greg Lattimore Andrews. His great uncle was Owen Lattimore, one of the West's first  China specialists. Owen and Greg's grandmother, Eleanor, lived in Shanghai from 1904 to 1920. One scholar we are meeting translated Owen Lattimore's memoirs. Now if we could only find where the Lattimores lived, that would be so, so cool.

I'll write more in this space as the trip progresses. But you can also follow us through the blog, "IU Takes You to China" (印大华夏行). Its author is George Vlahakis, a manager in IU's Office of University Communications. This is also George's first trip, and I'm excited to see China through his eyes.

(Full disclosure: Faming Zhang, Mat Orrego, and Ben Shobert are on the advisory board of the Research Center for Chinese Politics & Business, which I direct.)

 

RCCPB Signs Agreement for Research Cooperation and Beijing Office

On January 24th the center I direct, IU's Research Center for Chinese Politics & Business (RCCPB), signed a memorandum of understanding with the China Institute for WTO Studies at the University of International Business & Economics (对外经贸大学中国WTO研究院) that promotes both institutional and research cooperation. Starting May 1st, the RCCPB will open an office within the WTO Institute on UIBE's Beijing campus. To make this work, I will be re-locating to Beijing for at least the next two years. However, I'll need to make a few trips to Bloomington each year. We will be a bi-continental center and have programs in the US to carry out. In addition, my family will remain in Bloomington. We are swapping one set of complications (higher living expenses and uprooting my wife and kids) for another kind (maintaining a family over a very long distance).I've done both before and know that neither is easy.

In my opinion, the WTO Institute is China's leading scholarly organization focused on China's participation in global trade and economic affairs. Its director is Zhang Hanlin (张汉林), and its deputy director is Tu Xinquan (屠新泉). Founded in 1951 and located in central Beijing, UIBE is one of China's premier universities, with a full range of disciplines and programs. It has an extensive array of cooperative programs with leading universities around the world. Although Beida and Tsinghua are somewhat more prestigious, everyone I talk to who has interacted with UIBE has been consistently impressed by their scholars and students. More than one China rep of a multinational company told me they prefer to hire UIBE students over those from Beida and Tsinghua because of their stronger language skills and greater willingness to take on any job thrown at them. My own experience so far has confirmed these sentiments, so I'm quite excited to see what the next few years will bring.

Realizing the China Dream a Billion Dollars at a Time

It's time once again to present the best ideas money need not buy for how to make it big in China. Each year I teach a class with the boring title, "China's Political Economy." Surprise of surprises, rather than a pedestrian stroll around the various aspects of China's economy, the policy process, WTO, IPR, etc., the students have one task: give me a proposal on how to invest a billion bucks in China. That is $1,000,000,000.00. For folks like Bill Gates and Warren Buffett -- and perhaps some of you readers out there -- this is pocket change. But for students -- and professors -- at Indiana University, this is a lot of dough. And, in fact, a billion dollars can go a long way in investing in China. Whether motivated by the idea of a big bank account, the shear thrill of the challenge, or figuring out how to go from the abstract to the practical (“let’s build a guanxi wang”), my students produced some fantastic proposals which the world deserves to see.

Before unveiling this year’s best of the best (here is last year’s), let me explain how the class was structured. The students examined, in order, the economic, policy, and political risks associated with doing business in and with China. They first did research on a wide number of industries, from tea to telephones, from waste water management to airlines. They then analyzed all the various types of policies the Chinese central and local governments could throw up in their way to complicate things, including Indigenous Innovation incentives and obstacles, M&A reviews, antidumping and safeguard duties, RMB manipulation, etc. And then they considered the business ramifications of China's political environment -- corruption, inter-provincial protectionism, limited policy transparency, labor unrest, etc.

The class syllabus (Download SYLL CPE F10) is full of terrific case studies and broad analyses written by journalists, lawyers, academics, and investors. Students particularly enjoyed Tim Clissold’s story of eating deer whip in Liaoning. Another highlight was the utterly hilarious and insightful documentary China or Bust! (2008), which tells the story of three British businessmen who go to China in pursuit of fortune. The three were each terrific characters, and the outcomes of their efforts were highly unexpected.

My students’ investment proposals mirror the path of the class and culminate with an Action Plan of how to invest their billion and a discussion of the steps they’ll take to address the various risks they are most likely to face. And the winners are . . .

• Matt Laury, a senior in the IU’s Kelley School of Business, suggests in his proposal ( Download Laury Proposal) taking advantage of China’s growing consumer power by investing in Univer’s Lipton brand and the Yum! Corporation’s chain of restaurants. He is most concerned about risks related to China’s financial system, protection of trademarks, health regulations, and labor unrest in their operations. He has reasonable suggestions for how to deal with each of these risks.

• Nick Leish, also an IU Kelley School student, takes a very different tact ( Download Leish Proposal). Whereas many are decrying the heavy hand of the Chinese state and calling for greater liberalization – just see Treasury Secretary Geithner’s speech at Johns Hopkins-SAIS yesterday – Nick suggests taking advantage of extensive government intervention by investing in the stocks of several leading Chinese companies (I hate the term “national champions”): GCL Poly, Sun Tech, China Mobile, and China Unicom. His strategy is consistent with the age-old motto: If you can’t beat ‘em, join ‘em. And isn't that why these and other Chinese companies list outside China?

• And Jim Nagler, a Master’s student in East Asian studies, suggests yet another avenue ( Download Nagler Proposal) by proposing that investors fund a start-up human genome R&D facility. He identified several leading Chinese genome research outfits, including the Beijing Genome Institute (BGI), and believes that if the start-up does well enough it could eventually merge with BGI or form some sort of strategic partnership. He suggests it be located in the Suzhou Industrial Park to take advantage of the large talent pool of university graduates and researchers in Jiangsu, Shanghai, and Zhejiang.

When you read these, please remember that the proposals are for a political economy course, not a class in business management, entrepreneurship, or accounting. The overriding purpose is to use the investment proposal as a vehicle to better understand the interaction of economic, political, and international factors in China. Don’t be disappointed for the lack of indepth marketing research or detailed budgeting. Instead, enjoy the boldness of the ideas, the dreaming, and how they are justified in light of China’s broader social and political milieu.

And if you really like these ideas, please let us know. And if you want to use any of them, feel free. We’re happy to take any credit (and a fee – ha, ha) if things turn out well but none of the responsibility if things go poorly.

Viewing Beijing from Tokyo

A couple weeks ago I made a one-week trip to Asia, spending the first couple days in Beijing and the next five in Tokyo. Most people I know see the similarities between China and Japan -- a Confucian heritage, Chinese characters/kanji (汉字), the use of chopsticks, high savings rates, interventionist economic policies, etc. I'm much more struck by their differences. I'll mention just a few:

1. The air. China and Japan are at very different places in their economic development. China's industry is energy-intensive, and that of Japan is not. Japan, like the US and Europe, has moved much of its manucturing, particularly that part which is based on low-wage labor and high use of energy, to Southeast Asia and the People's Republic. Beijing is making major stides in reducing energy intensity of production, yet overall absolute use of coal and oil is continuing grow at a rapid pace. The air doesn't give a whit about percentages and intensity; it only cares about absolute levels. Below are photos from Beijing, Shanghai, and Tokyo on what I would call representative days that I think capture the basic difference between the three. Disagree? Send me your photos.

   

Every day I was in Tokyo I could make out, even faintly, the outline of Mt. Fuji many miles away. In Beijing I rarely notice that the city is, in fact, surrounded by mountains on two sides, with those to the west within a couple miles of the city proper.

 

 

 

 

2. The temples. Tokyo's temples seem more peaceful and refined than those in Beijing. I visited three near the home of my uncle and aunt, who live in Hyoshi, the suburban home of Keio University. The photo below is typical of them. I could've sat for a long time just relaxing.

3. Economic Policy. During my stay in Japan, I visited with an official from METI, the Ministry of Economy, Trade, and Industry. METI was the center of Japanese industrial policy in the post-World War II era, and for most of that time was known as MITI, the Ministry of International Trade and Industry. I say "was," because although METI still has bureaux devoted to specific segments of the economy and its officials regularly interact with business, it is no longer "pilots" Japan's economy. Instead, it is a highly interested bureaucratic body that can try to informally steer Japanese business with information and limited financing, yet it lacks many of the tools needed to compel compliance. Its heyday is long over, and Japanese officials who work there (I've spoken with several over the years) do not see themselves as economic architects or engineers in the vein they used to be. And amazingly, they don't seem overly upset about that. Now maybe that's the perspective of a non-Japanese speaking China specialist speaking. So please correct me if I'm wrong.

The contrast with China is stark. China first learned from its Soviet comrades the art of mandatory central planning. In the 1980's and 90's, as China shifted away from mandatory planning, the target for many Chinese officials was incentive planning in the model of Japan, South Korea, and Singapore. Chinese officials learned a great deal from their neighbors about how to develop and implement industrial policies, and to this day, the Chinese bureaucracy feels it is entirely legitimate for it to encourage, coddle, or mandate micro choices of Chinese companies or the macro environment around them. That does not mean that the policy process is neat and orderly. The development of the policy agenda, the consideration of choices, their adoption, and their implementation are influenced heavily by the preferences of individual political leaders, inter-bureaucratic rivalries, experts, and lobbying by domestic and foreign companies. Nevertheless, I'm struck at how far Japan seems to have moved away from what some call the "coordinated capitalism" approach and how in China the government is still committed to keeping its hands firmly on the wheel. Again, this may largely be a difference of time -- that part of the Chinese economy which is less subject and responsive to industrial policies is gradually growing -- but the side-by-side contrast one sees in traveling between the two countries seems dramatic.

4. Train signs. Beijing and Shanghai (and other cities) are moving quickly to develop subway and train systems on par with those of Tokyo and other major metropolitan cities around the world. I'll admit Beijing's subway, which I'm most familar with, is light years ahead of where it was five years ago, let alone two decades ago. Nevertheless, I'm struck at how the Tokyo train system gets you to absolutely everywhere in the city you'd need to go. Moreover, companies, hotels, and stores all have online directions to their establishments via the trains. Not only do they tell which stop they are near, they say which exit to leave the station, give precise street directions, and estimate the number of minutes to you destination. Here's the online map with directions to METI's headquarters.

But the most interesting difference in subway systems are the signs. Yes, advertising has taken over both systems. And in Beijing there are digital ads that spring forth in the tunnels as you pass by at 100 km/hour; they somehow follow alongside your car for a few seconds before disappearing. And yet in Tokyo there are still lots of creative signs posted to remind you to be polite and curtious to your fellow travelers. My favorite sign, below, could be misinterpreted, but its real purpose is to remind passengers that they should turn off their cell phones when sitting in seats reserved for the elderly or women, since they might find your talking with your friends or headbanging rock-n-roll seeping out of the earphones to be upsetting. I welcome my Japan specialist friends to provide further details, including the comments from the upset passengers.

 

Now it may appear that most of the contrasts I pointed to indicate a pro-Japan/anti-China bias. If so, that'll be the first time most people have ever accused me of being anti-Chinese. One thing I missed about China when in Japan was the Chinese language. I've learned a smattering of Japanese phrases over the years, but the reality is that after the basic greetings, numbers below 100, and some food, I can't say very much. Luckily, my family helps me a lot when I'm there, and the scholars and officials I interact with all speak excellent English. But I'm still left feeling somewhat isolated. But on the few moments when I heard Chinese, I felt right at home. When I was eating by myself in a sushi restaurant, I heard these two Chinese businessmen next to me chatting, and it felt wonderful. Then I took my aunt Mikie, my cousin Mie, and her daughter Tesla to lunch at a Chinese restaurant in Yokohama, and I had the best time talking to our wait staff, three lovely ladies from Jiangsu, Xiamen, and Shenyang. It felt like being in China. Until I got the bill -- then I remembered I was in Japan.

The Chinese Countryside: A Tempest or a Teapot?

For most observers it has become conventional wisdom that protest in China have been on the rise as a result of a growing gap between rich and poor, generated by corruption and the special privileges of China's elites. "Seething discontent," which occasionally boils over into huge protests involving thoustands, would be the picture many would draw. Scholars point to the growing assertiveness of China's labor movement as the latest sign that society is fighting back against oppression.

This view is particularly visible is portraits of the Chinese countryside. Pulitzer prize-winning author Ian Johnson's book, Wild Grass, details the rising assertiveness of Chinese villagers, who find a lawyer to represent them in cases where their land has been expropriated. The more academic, Taxation without Representation in Contemporary Rural China, by Tom Bernstein and Xiaobo Lü, details how peasants' incomes have been increasingly eaten away about by a money-hungry local state, and that these burdens have led to a growth in rural resistance. The current issue of the China Quarterly has an excellent article by Graeme Smith entitled, "The Hollow State." Smith shows that township governments, which sit just above the village level, have become hollow shells, losing authority to county and provincial governments above them and their officials being seconded to villages to perform work closer to the peasants or sent out of province to attract industrial investment. The result, in his eyes, is a weaker governance regime which can't address the needs of China's 750 million rural inhabitants.

Times, though, may be a changing. Earlier this year Indiana University sociologist Ethan Michelson, working with a team of Chinese scholars, conducted a survey of villager attitudes about the state and their quality of life. The survey sites were in five counties in very geographic and economic circumstances. Although not "nationally representative," the counties constituted a broad cross section of the country. Even more important, these counties had been surveyed eight years earlier about the same topics using almost identical questions. We'll have to wait for Michelson and his team to publish thei full findings, but he gave an initial taste during a colloquium presentation hosted by IU's Research Center for Chinese Politics & Business last month.

What did they find? In a word, things have gotten a lot, lot better. In 2002, when the first survey was completed, there was a great deal of mistrust of local government, especially village cadres, and villagers believed that social services -- roads, education, health care, etc. -- were not being provided for as they should be. At the time, the fees and taxes places on villagers was quite high, and they thought they were getting screwed. By contrast, in 2010, respondents had a more positive assessment of government, including village cadres, and they believed the provision of public goods was substantially improved over the past. 

What explains the changing perceptions? Changing national policies. In 2004-05, the central government passed new regulations banning agricultural taxes and began providing much greater funding for rural social services. The provision of these services expanded dramatically in the wake of the global financial crisis, as a substantial amount of China's stimulus plan was directed at rural areas.

One chart from Michelson's presentation, provided here with his permission, captures the heart of the issue.

Michelson was quick to point out that the data do not reveal placid contentment on the part of villagers. There are still things they are unhappy about, and some regions have more significant problems than others. But the gross change from 2002 is unmistakable.

There are many implications for these findings. I'll just mention one. Some argue that Chinese foreign policy has become more nationalistic because China's leaders are sitting on a domestic powder keg, and they need to keep the nationalist bona fides in tact or face the scorn of an upset public. At a minimum, it implies a less cooperative China on a range of foreign policy areas, from Taiwan to trade disputes. The most clear exposition of this view is Susan Shirk's Fragile Superpower.

If China's central leaders have the same data that Michelson has -- and they engage in extensive polling -- and believe their policies of the last 6 years are bearing fruit, then Chinese foreign policy should not be seen as a consequence of a jittery leadership; at least the trembling isn't originating in the countryside. China's national leadership is being more assertive on the global stage, expecting a higher standing in a range of international bodies and being more openly critical of the US military presence in Asia. This assertiveness is likely borne of greater confidence in China's domestic economic and political conditions, and not growing worries that their hold on power is more precarious.

How to Invest a Billion Bucks in China

The headlines these days suggest it's harder than ever to do business in the People's Republic. My students are here to help. They've just written proposals on how to invest $1 billion in China and not get taken to the cleaners. They could invest in any sector, from real estate to refrigerators, and in any form they wanted, from joint ventures to going long on copper. My only requirement is that they justified their proposal in light of China's economic landscape, the evolving policy climate, and the enduring political risks.

The result -- a lot of crazy schemes, and a few real gems. Here are the 4 best of the bunch, posted with the students' permission.

Brian Spegele, who will soon be working for the Wall Street Journal's Beijing bureau, suggests forming joint ventures with Shanghai Pharmaceutical and the Jiuzhoutong Group. In stage one, he'll focus on selling generics in the Chinese market; in stage two, export drugs to the developing world; and in the last stage, receive US FDA approval to export drugs to the United States. Since IPR theft is a huge problem, Brian suggests focusing on generics first, but he sees signs protection of pharma patent rights is gradually improving, as is regulatory attention to safety issues. (Download Spegele Pharma) A little too optimistic for your blood?

Adam Molon, who in 2007-08 interned at SouFun Holdings, which is owned by IU grad Vincent Mo, diversifies his billion among three sectors -- the dairy sector, the Chinese Basketball Association, and gambling in Macau. Ingeniously, he suggests purchasing the Yunnan HongHe Running Bulls Chinese CBA team and making it an advertising and marketing vehicle for his dairy company. Milk and basketball -- what could go together more? (Download Molon Dairy BBall Macau)

Abraham Gerber, who is attending IU on a research student scholarship and served as the RCCPB's R.A. during his freshman year (2 years ago), suggests the best opportunity is in China's alternative beverage sector -- "fruit juices, bottled water, bottled teas and coffees, and milk all which have just recently emerged in force onto the Chinese market." He suggests taking majority stakes in several smaller beverage makers in order to avoid the problems that are associated with being minority shareholders in too many companies at one time, the problem that befell Asimco in its early years. (Download Gerber Beverages)

Edwin Way, a terrific Ph.D. student who speaks terrific Chinese and already has an M.A. in political science from the University of Oregon (thank you, Pete Suttmeier), suggests that the best way to avoid the pitfalls of fragmented enforcement of central government policies is to invest in carefully chosen business-friendly regions. His choice -- hop on the "Develop the West" bandwagon and make Chengdu the centerpiece of his investment plans. (Download Way Inland)

An honorable mention, in 5th place, goes to Kent Inglehart, who had the guts to say that directly investing in China opens you up to too many risks and problems, in particular, foreign exchange worries and market access obstacles. Hence, he decided to buy stock off the NY Stock Exchange of China Natural Gas, PetroChina, and the Industrial and Commercial Bank of China (ICBC). Why get jetlag when you can make a mint on China from your bedroom? 

Happy reading. If you use any of their ideas and make a mint, send us a check. If you go bust, you should've known better than listen to students.