Thursday, September 4, 2014


China is the second largest economy in the world, after the United States, and rapidly will become number one. This will open up new opportunities for some Americans, as well, both in trade and in educating ourselves to interact more effectively with our Chinese business colleagues: the Chinese value modesty, tact, etiquette, education, respect for elders, which is not as habitual for some non-Asian Americans.

In their recent best-selling and wryly titled book, designed to introduce American businessman to modern China, The One Hour China Book: Two Peking University Professors Explain All of China Business in 6 Short Stories, Professors Jonathan Woetzel and Jeffrey Towson highlight and explain six trends in China that business executives must heed:

1. URBANIZATION: “China is currently witnessing the largest migration in human history. Hundreds of millions of people are flooding from the countryside into the cities.” 300 million have done so already and another 350 million are likely to follow. “…the equivalent of adding the entire population of Japan every 8 years.” They all hope to have middle-class living conditions, at least, with housing, jobs, schools, hospitals, transportation, etc. The impacts are tremendous, especially on public services and the environment. “There will soon be 1 billion Chinese city dwellers,” in lots of new cities, generating and spending great wealth.

2. HUGE MANUFACTURING SCALE: The cost of producing a unit of production usually decreases with the total number of units produced, due to the learning curve, and with the rate at which they are produced, due to efficiencies of scale. This leads Chinese companies to invest heavily in production equipment and personnel, hoping to drive out their competitors with lower prices allowed by their lower costs. The winner of this cut-throat competition is the last company still standing. Chinese manufacturing, the world’s largest, has matured from making toys and clothes to making computer chips, just as Japan’s had done previously.

3. RISING CHINESE CONSUMERS: “Chinese (and Asian) middle class consumers are the future,” far more important than Europe, Brazil, Russia, or even India, and eventually eclipsing North America. Currently, they shop for bargains, for value, but are likely to choose on more “emotional” bases in the future, as has happened in America and Europe before. For example, they like meat, 3 million chickens per week, making farming a hot “new“ Chinese industry. Worldwide pork prices have risen largely due to Chinese demand.

4. MONEY---AND LOTS OF IT: “China has over $15 trillion in bank deposits and these grow by over $2 trillion every year.” A trillion here and a trillion there, and you are beginning to talk about big money. “There is basically just a ton of cash.”

5. THE BRAINPOWER BEHEMOTH: “…the number of college graduates has gone from approximately 1 million in 1998 to 7.5 million in 2012.” There graduates, especially those trained at the best schools in China and the U.S., form a highly valuable resource in the global competition for markets. The number of Chinese patents per year now exceeds the number of U.S. patents, although the quality of the former is not generally up to that of the latter. As the solar panel producer, the giant Suntech, demonstrated once government subsidies for solar power expired, these companies are not invincible, and the bigger they are, the harder they fall.

6. THE CHINESE INTERNET: Professors Woetzel and Towson note that the Chinese Internet, a much more recent innovation in China than in America, now has a half-billion participants already, twice number of Americans, and Chinese is the predominant language of the Internet world-wide. Sixty percent of the Chinese participants started within the past three of four years, and the impact on Chinese communications and commerce has been explosive. A company known as “Tencent” has 700 million users of its QQ instant messenger service and is predicted soon to dominate on-line multi-player gaming world-wide. It also combines many of the popular features of Facebook, Skype, Twitter, Yahoo, Gmail…. “In the 60 largest Chinese cities, people spend around 70 percent of their spare time online.” Amazing!

“Word of mouth,” as opinion expressed on the Internet, is of particular importance in China, where government-influenced sources of information are generally less trusted. Bloggers are powerful.

“Chinese e-commerce is the next really big thing.” And it is “winner-take-all,” “spectacularly competitive.”

You have been alerted.


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