Here is the illustrated report of our Fujian trip. Today I present some clear symptoms of blogorrhea after my 5 day internet abstinence. So we’ll try to keep it ruly and live up to my Bull Year’s resolutions. I am applying the special astringent potion: Max 5 words per picture. The rest in your imagination: 一切尽在不言中.

Every village had a church

热闹 means Hot and Noisy!

The temples were 热闹

The faithful like burning stuff

The mosque was less 热闹

Love Church was not 热闹

Beach of the Grande Jatte

No! Muslims don’t eat porc

We met an electric fisherman

Administration + Participation = Administpation

Hate those noisy cracker vandals

Shooting and Bumpers: Safety first

Ming Walled Chongwu is Magnetic

Let’s get chicken at EFC’s!

No! my chicken at CBC’s!

Ah, finally: it’s a KFC’s!

Macdonalds + Kentucky’s = Mac-Ken-Ji’s !!

Mac-Ken-Ji’s: Children’s playground, Grandpa’s shrine

Fairy houses made of seashells

发展 wave engulfs the past

Model Street Award: Zero Imitations

I

My polos always at Coddle’s

Model Workers Instruction: Model Street

I was writing just yesterday my latest Crisis article when I realized that in Shanghai we have our own economic weak link, with quite a lot of companies that are suffering as much as the Pearl River Delta workshops. I am speaking of foreign startups in Shanghai.

One of the things that makes Shanghai such an interesting place to live is her magnetic properties that attract all sorts of enrepreneurial metal from around the world. One can read a lot about succesful startups in well informed China blogs dealing with business, but that is just the tip of the iceberg. Unless you live here, you can not even start to imagine the thousands of starting business ventures swarming the city. Even in the most modest of social events you will meet a good handful of CEOs in their 20s, always rich with ideas, and typically trying to figure out how to monetize them.

Most of these adventuruos foreigners struggle for a long time before eventually giving up and moving to new horizons. Others manage to run a sustainable business. Very few ever become rich.

But an unusually large number of them are actually going bust right now as a consequence of the Crisis. In the last few months since the summer, already three acquaintances have said farewell to me and to Shanghai, with their dreams broken and their companies bankrupt.

Now, it is probable that for Chinese economy, these bankrupcies won’t have the same impact as the ones on the Pearl River, but they do provide some colourful and very typically Shanghainese tales:

For example. I think of my friend who went to work one Monday to find out that there was no computer, and no chair and table, and no company at all, because the struggling Dutch owner and founder of the startup had been busy over the weekend trying to get the best value off the remaining assets before he disappeared out of the country. Fortunately, this girl was only doing an internship in Shanghai and, as last survivor of the company, she had the difficult task of assessing her own performance and grading herself before taking 2 extra free months to travel in China.

Some recent developments of this new trend can be seen also in this article by CER, which warns us against company-sponsored trips and team builidng events. Does your boss sound suddenly generous in the midst of financial turmoil?  Does it seem a bit odd that you have been invited to this expensive Team Building week up on the pastures of Heilongjiang? Don’t go. Chances are when you are back to Shanghai there is no accounting department left to submit your expenses claims. Or to pay your 2 months due of salary for that matter.

And all this makes me wonder: are we coming back to the good old times of the concessions? The times when only in Shanghai there were dozens of different national jurisdictions where crooks and adventurers of all sorts found the folds where they could flourish; when thousands of foreigners flowed into Shanghai with the most diverse schemes to get rich, usually involving, as Carl Crow would put it: “mixing other peoples money with their own”. Perhaps we never really left that period.

And this leads me straight to the Big Question, which foreigners in Shanghai have been asking themselves for the last hundred years, and which is still a recurrent subject of conversation here: Is it possible to get rich in China?

This is definitely a subject I will be blogging about soon. In the meantime, I strongly recommend that you read this book: “Foreign Devils in the Flowery Kingdom”, by Carl Crow. Among many other things, you will see how little has changed, and how expats in Old Sahnghai answered to exactly the same questions as we ask ourselves today.

One last quote from the book that might help shed some light on the Question above:

Every foreigner went to China with a consciousness of his own [...] mental superiority and a smug satisfaction in the belief that there were many things he could teach the chinese.

To be fair, there are more and more foreigners, especially of the younger generations, coming in today with a serious disposition to learn what the chinese have to teach before they add their own grain of sand. But there are still too many left with the Old China Hand attitude who feel the need to enlighen the locals with their wisdom.

So, here is the first big clue to answer the Big Question: in 2008, just like in 1908, the (few) foreigners who get rich have taken the time first to learn from the country. See the Standard Oil back in the time, or Tudou’s Marc van Der Chijs today.

PS. If you are even slightly interested in China – and if you are reading this blog you probably are – do yourself a favour and get this book immediately from the Shanghai Foreign Language Library or from here.

PPS. If you are my personal friend or relative – and if you are reading this blog you probably are – then just give me a call and come over to my place, I will lend you the book.

Hong Kong – It feels good to travel just for fun once in a while. I flew to HongKong this weekend to say goodbye to a good friend who is leaving Asia, with the firm intention to relax, enjoy the city, and not indulge in any sort of  China watching activity.

My only serious mission was to obtain for a Shanghai girlfriend of mine some hi-tech cosmetics of a European brand, which are cheaper down there. Clearly, at 1500RMB+ the package, it was a real bargain.

In spite of my initial plans, I couldn’t help making some observations of this amazing city. The first one is that it is a very vertical place, so much so that all my pictures have an awkward shape which is hard to fit into this column.

It was difficult not to notice also the amount of mandarin spoken in Hong Kong today. Many times on the street I saw chinese speaking mandarin to each other, probably newcomers from mainland China. I don’t know if this is good or bad for Hong Kong, but I found that today it is easer to move around speaking Mandarin than English.

But the most interesting detail I observed, and the one that has ruined my good intentions not to write an entry about Hong Kong, is the creativity of locals when it comes to choosing their English names. Two girls we met over there were named Redana and Monstar. Seriously, we had it written down for us, so there is no possible mistake. A quick search on Google confirms that these first names don’t exist in any known culture. Pure innovation.

However, when it comes to choosing their own names, there is a sector of the mainland Chinese population that is by far in advance of the rest. It is schoolchildren, and in particular boys below 10 year old. Children that age are often given the freedom to chose their own English names, and they make full use of this freedom to let their imagination fly.

While all their female classmates are from an early age naming themselves Sugar and Lovely, the boys are clearly one step ahead.

It is through my friend Annie, who worked as an English teacher in Shanghai, that I came to hear of the wonderful world of Georgie Pan, the old teacher, and his two young students: Polar Bear and A Chinese Boy. Hopefuly, they still have some time to enjoy their childhood names before the ultra-competitive world of chinese education changes them into the likes of Johhny Power.

During my travels these last weeks in Europe and Asia, and on my return to China, I have observed some rather striking contrasts. So much that they made me think a lot about the present state of Chinese economy, and here is a word about it.

Two different ways of seeing the world

I was in Europe for the last time the week that Lehman Brothers declared bankruptcy – some call it already “Meltdown Monday”. Pretty scary, but the news didn’t seem surprising for anyone there.  Ever since the beginning of the year most people had seen the crisis coming. On the Spanish beaches, there were less tourists to be seen this summer, and the variable rate mortgages were getting stiffer for all. The governments that were not in electoral campaign had profusely announced what was to come.

That same week, during a congress in Lyon, the American guest from the marketing consultancy came out to the stand and presented the prospects of our industry up to 2010. He had a very professional looking PowerPoint with some colourful graphs that vaguely reminded me of the slides in a waterpark. The delegates from the rest of the countries looked bored, and only we – New Delhi, Kuala, Shanghai – were hurriedly taking notes. Nobody had shown us that back home.

The whole atmosphere I encountered in Europe was in stark contrast with what I had seen and what I am living still today in China. The crisis has not yet touched this country. The taxi drivers at the airport, who usually know a good deal of economics, don’t even mention the word crisis. On the corporate side, the contrast is even bigger. Most of my local clients, who take a WSJ for breakfast every morning, are not only not worried, but they actually look at the future with renewed optimism. They know that a big crisis (危机) is also a big opportunity(机会). In an intuitive language like Chinese, the two words share one single character.

The Great Wall of China

The prevailing thought here seems to be that of the Great Wall of China: Confident and proud of their financial system which has resisted the negative western influence, Chinese at all levels are convinced that the crisis will not hit them hard. To reassure them, there is the precedent of the 1997 Asian financial crisis, which devastated the Asian tigers’ economies and left China, the only country strong enough to ignore the  western blunderer IMF, mostly unscathed.

The media here have already been speaking about the crisis for a while, but always as an external problem, and with a generally positive outlook. The official Chinese press is prudent as usual, but the general idea still seems to be that China shall be the word’s bastion of stability against the irresponsible western financial devices. Thus the official discourse goes: Growth to slow down mildy, there will be some  restructuring to boost the domestic markets, and we will come out stronger in the end. And in everyone’s mind is the opportunity for Chinese companies to go out shopping for deals in capital thirsty western counterparts.

Of course, Chinese are aware that international markets are the weak link, as a large part of the GDP is made up of exports to western countries and FDI. But they count on two factors  to ensure the minimum of vital growth required by the system. On one hand, the massive ongoing investments in infrastructure that expand their tentacles day after day to each end of the country. On the other hand, they bet on the development of Asian markets to counter the descent in Western demand.

In view of all this, the new priorities of the technocrats, as they explained last week in our industry briefing in Beijing, are: 1- Develop the markets to find a way out for Chinese production, and 2- Take advantage at the worst of the crisis to go out and acquire foreign companies, and achieve through these means the creation of truly global corporations, with an access to know-how and technology which is much more direct than that obtained from FDI.

The Great Wall of China, the myth that for millennia has defined the Chinese people, is born again in the realm of finance. And, shielded behind it, the sons of the Dragon hope to regain the glory of past times.

A weak point in the Wall

There are however some signs indicating that Beijing’s plans might not work out so cleanly. In the first place, although the Chinese financial system, entirely controlled by the government, has indeed remained more conservative than the western one, this does not make it in itself an efficient system. A series of failed investments in the near past, such as Blackstone or Bear Sterns are good examples. And the opacity typical of the large Chinese banks, heavily influenced by the Communist Party, is not precisely the best guarantee of success.

It should be noted as well that the very foundations of the Great Wall, the massive reserves of foreign-currency held by the Chinese government, may not be the solution for every problem. Most people in China fail to understand that the foreign-exchange reserves are not free assets, and cannot be used freely by the government without seriously affecting its monetary policy, or rather, as professor Michael Pettis calls it, its currency regime. Indeed, until the domestic market is strong enough, China will be forced to keep the RMB as low as possible to keep up with the exports, which will completely condition the freedom of its policies.

Looking at the markets, already several observers have started to note the fall in sales of Chinese companies. It is very doubtful that the Asian Markets can grow sufficiently quickly to absorb the growing Chinese manufacturing output. In the end of the day, Asian markets mean India and Russia, the only two countries with a critical mass to match Chinese needs. They are both strangled by serious structural problems to be able to respond quickly enough to China’s needs. And the hesitating actions taken for land reform to increase the consumption of peasants might be a good idea in the long term, but it sounds very optimistic to bet on domestic consumption in the short term.

Add to this that Chinese economy, in spite of being in the middle of a development miracle, has severe structural problems, partly derived from its political system, as commenter Will Hutton brilliantly puts forward in his book “The Writing on the Wall”.The lack of a “soft” infrastructure, as he calls the ensemble of characteristics of a civil society that are necessary for the proper functioning of a market economy, makes China a very vulnerable system. It is symptomatic, for example, the total lack of internationally recognized brands, or the many cases of mismanagement, such as the recent case of baby milk contamination.

Beijing taken

But there is a much more worrying aspect, which derives precisely from the Great Wall effect. Historically, the Great Wall of China has not been effective to prevent barbarian invasions, and in a way it has often had the opposite effect. The Han people, protected by their Wall, had a tendency to feel invulnerable and live with their back to the North. In 1644, when the Manchus crossed Shanhaiguan, they took the Chinese by surprise. Beijing fell very quickly (to internal rebels in the frst place), and the last of the Han emperors was left with no choice but to hang himself from a Pagoda tree at the Jingshan Hill, right behind his forbidden city. This is History. But it is a story that has too often repeated itself in China, and which can revive under a new shape in the XXI century.

It is well known, and the economic miracle of the last 30 years is a proof of it, that Chinese economy is guided by a corps of well trained technocrats who know very well their subject. And undoubtedly Zhongnanhai must have a Plan B readily prepared for contingencies. But it seems clear that, as much as they might want to prepare, if the crisis hits hard in China, the scope of reaction of the system is very limited by its own structure and its own people.

Indeed, the great majority of Chinese workers, unlike their western counterparts, are ill prepared to face a crisis, let alone to understand it. Ever since the end of the Cultural Revolution, they have only known 30 years straight of growth. The Chinese people has kept silence since the summer of 89, when Deng and the Red Army made them understand that getting rich comes first. Since then they have accepted injustice, inequality and corruption in exchange for national pride and a notable increase in material conditions. The day the system fails to deliver, due to unemployment, inflation, or other crisis effects, the pact of silence shall be broken.

Unlike our governments, the Chinese Communist Party will be unable to shield itself behind an international economic situation that its own people do not understand. And all its legitimacy,  based on economic development and on the dubious legacy of Mao, can vanish overnight. China needs a minimum annual growth to employ the massive wave of peasants that are migrating to its cities, the biggest migration in the history of humanity, as the topic usually goes in China comment books. The leaders know this very well, and the 7.5% of annual growth that they set as a goal in the 11^th Five Year Plan is probably about the minimum they estimate for the whole formula to add up.

It the Wall falls in these circumstances, as in the Ming period, the psychological effect could be devastating. And when the forces of the hundreds of millions are unleashed, the bureaucrats in Beijing might have no other way left than the one of the (political) Jingshan hill.

Possible outcomes

We might be right now at a turning point in the process of development of modern China, which will seriously impact the course of history in the XXI century. This year 2008, the one of the 30 anniversary of the beginning of Deng’s reform, marked by a series of disasters, and rounded off by the spectacular success of the Olympic Games, might well be the year in which everything changes. In the Chinese tradition, natural disasters, and earthquakes in particular, have long been omen of political change. The last serious earthquake was, precisely, in 1976.

Whatever happens, whether the Chinese Wall resists or not, the international crisis shall precipitate many changes in China, and in the rest of  the world we shall do well to keep a watchful eye on these events, because they shall have a major impact on our own lives.

If the Wall resists, Westerners will be forced to admit the validity of the Chinese economic system. Chinese capital shall go out to the world. Taking advantage of the opportunities provided by the crisis, Chinese economy may take in a very short period of time a decisive leap, and under the solid supervision of a regime legitimized by its success, it can spectacularly accelerate its progression to become a superpower. In a very short period of time, the most optimistic of predictions for China can become true.

If the Wall should collapse, on the other hand, Chinese economy may suffer a rapid decline, with almost immediate social and political consequences that may drag the rest of the world into a crisis that could go beyond the purely economic. The outcome in this case is much less predictable, and only mutual understanding and tolerance among the peoples of the world will avoid disastrous results.

So is the crisis hitting us or not?

The greatest economists have historically failed to predict crises, and are rather better at analyzing the problem “a posteriori”, finding out that it was all very clear after all. Crises are by definition unpredictable, so the point of this blog is not to guess whether or not the Great Wall of China shall resist this time the barbarians.

Instead, the conclusion is that, whatever the outcome, the role of China in the world is going to change radically as a result of this crisis. In the meantime, CHINAYOUREN will be here to inform you and keep a watchful eye on the Crisis and the Wall.

EDIT1: Deleted little rant against Western Media. Added shameless promotion of CHINAYOUREN.