One Billion Customers

Mr. McGregor is an excellent speaker.

In addition to the entertainment, he provided a Business man’s point of view of China: practical, no baggage, no ideology. He is so in awe with China’s rampant capitalism that he seemed a borderline worshipper.

He had many good story to tell and each attempted to illustrate a point. China being the giant it is, with the 1.2 billion population and rising, it is bound to be a good place where stories are created everyday, to everyone. It is a dramatic place. McGregor did a good job telling his share of the stories.

Many of his conclusions concur with my own observations during my recent trip back to China. But there are a few glaring blind point that he totally didn’t touch on. I will start with the items that I’m in agreement.

Government Structure:
I found it impressive that he understands that China is in essence a feudal society just like it has been in the past thousands of years. Communism was a historical accident. “Communist party” is the current Empirical court, Military/Judicial system reports to it. made up of a a few hundred elite families. Outside of it is the government.

In China, no one believes in communism, here he told an excellent story about the actor Gu Yue, who has been portraying Chairman Mao for many many years. I might come back and insert the story here if i have time.

Society:
He made an interesting choice of word here, when he said “China is an individualistic society, you take care of yourself, your family, your friends. that’s it.” I never thought to associate this “selfish-ness” with the word “Individualistic”. The maximum i would go would have been “self-sufficient”.

Because of this unfortunate trait of the society, “If there is ever a revolution in the near future in China, it would start in a hospital ward.” Here he illustrated the same point i had made about the deterioration of Chinese Healthcare system, it is basically non-existent. And the citizens sit on the lowest rank of the totem pole, the peasants, the unemployed, the remove villagers, are the ones to suffer the most.

Intellectual Property Right:
After reading “Guns, Germs and Steel” I started to take IPR problem in China more seriously. Without intellectual property protection, a society will never encourage its people to be creative, without creativity, China will forever stay in the “copy & paste” state, behind the West.

Here is what McGregor, the American, the Businessman has to say about that:
“IPR is eroding China’s support in the US Congress, the centric group on the Hill.” He said that when the pro-China business lobbying group goes to D.C. they will encounter the hostility from the extreme right and extreme left of the Capital Hill. But they had always been able to count on the support from a group of centric senators and congressmen. This group has been served as the voice of reason and the support for trade with China. Chinese violation of IPR is seriously hurting the businesses behind these centric group. That is going to, if it hasn’t already, eroded this solid support in the US government

West’s Wrong/Superior Attitude toward China:
Most of them still live in the past glory thinking the US is the leader in the world and they could tell others what to do.

A couple of contrasting example from Mr. McGregor:
When Mr. Bush visited Beijing recently, he is basically went to meet his banker. China is now the largest financier for the US government. In a way, the US government officials are paid by the Chinese government.

Under this situation what did the US treasure Mr. Snow do when he visited SiChuan Province? He told the governor there that China should spend more, save less! “That’s not what my mom taught me!! ” Mr. McGregor laughed, “why didn’t he just tell them to eat more and exercise less?”

Because he spent the last 20 years in Taiwan and China. All of his kids grew up in China. Recently he has moved them back to the US to save expense cost and also to give them a chance to live in the US and to live a not-so-previleged life. After one week watching American TV, his son asked him, “Dad, what is 0 percent APR Financing?”

Now let’s look at a a few points that I want to counter Mr. Mcgregor.

Economy:
Several times, Mr. Mcgregor stressed this point that China is an extremely entrepreneurial country, everyone is in it to make some quick money.

This fact alone shocked him the most because most people from the west would be when they saw a people who are more shrewed at business than the western businessman. But i want to emphasis here is the “quick” part. That alone could cause the collapse of this optimistic, fast-growing, rosy economic empire that Mr. McGregor and many other international businessmen in China have been painting.

Right now China’s banking system is a mess. It is not a market economy because of that. It is half controlled half free. Because China’s size, the free portion looked bigger than normal to most businessmen, and they started to take that and assume the rest of the economy will work the way it did in a mature western society.

One major concern for Chinese government is what to do when this rosy picture started to break apart. What if when all the bad loans the state run banks started to come back and hunt them? What if the Crash of US’s economy in 1929 happened in today’s China, what then?

Everyone is in it to make a quick buck. Very true. Because no one here believes or tries to build a sustainable economy.

Sometimes i admire the optimism of a business man. But they deserve the admiration because that’s how the wild wild west was built. So maybe they have a reason to be optimistic and gamble with all they have.

Risk-averse MBA graduates, or historians don’t make history. The gamblers, the optimists, the adventurers do. So for that, i must say, Salute! 🙂

At the end Mr. McGregor offered this option to the individual investors:
Don’t invest in China if you are a value investor.

That makes Mr. McGregor a cool-headed businessman, not yet a adventurer or gambler. I wonder maybe he is in it more for the fun rather than the money?

Freedom of Speech and Democracy:

Internet is more important to Chinese people than it is to the US users. WE are bombarded with all kinds of media. We have access to endless information sources. In China, Internet is their only way to get real information while the state controlled media is useless.

Don’t expect to see freedom of speech in China in my lifetime.

I think this maybe more of a wish rather than a predicament.
From business point of view, if the Chinese people started demanding Freedom of Speech, it is probably time for revolution rather than economy growth. That’s not what a Business man wanting to see.

My question will be if the Chinese economy one day evolves into a true market economy, what will that do to the political structure? If a true market economy could endanger Chinese political structure that has been in place for the past thousands of years, will the government let that happen? Where is the break to this gloomy loop? Is there a break?

Mr. McGregor’s opinion on Taiwan and HK:

Taiwan and China are extremely similar
Don’t like HK, messed it up by HongKongers themselves, lots of money, very little brain

My final take away question from the talk and all the information i’ve been consuming and digesting about China is this:

Is China the future of capitalism?

3 thoughts on “One Billion Customers

  1. Yet another book on Today’s China – A Frontier.

    Jean’s Reply:
    You mean there are others that are just as good? care to share? I’d love to take a look…
    Thanks!

  2. Actually, the only other book about China I bought and read before is “the China Dream”by Joe Studwell who is the founderof the China Economic Quarterly and used to write for the Economist. He lived in China from 1990 to 2000. Since I left China in 2000, I am pretty familier with the topics he mentioned in the book but feel nothing new and more there. Now I would probably prefer to read a book about post 2000 development era in China. So the China Dream will not be a book I recommend you to read. It provides very few new insights.

    BTW, I am reading “The search” recommended by you, I am intrigued by it. I love it. I also like “The Reader”. Thanks a lot.

    Jean’s Reply:
    I’m glad you like “The Search” and “The Reader”. 🙂

  3. Hi Jean,

    W.r.t the US debt and balance of power I’m reminded of some ideas I read about a few years ago. You can argue that being a debtor reduces your power but that viewpoint comes from practical experience as an individual paying off a mortgage, car loan, credit card debt, etc. Once you move to the level of nations then the laws of economics change I believe. Intuition based on household finance doesn’t necessarily apply, although politicians will use the phrase ‘household finances’ as a simplistic ploy to push through an agenda. Some argue that the larger a debtor a nation is, the more power it holds. I’ve read financial articles that make the case that if the US ever paid off its debt this would lead to worldwide financial calamity. US bonds and tbills are essentially the highest quality currency for higher level financial institutions. Removing this common currency leaves a vacuum to be filled with a grabbag of lower quality investments and who knows what will happen. US debt also represents investment in US infrastructure. Foreigners are giving money to the US which goes towards building basic spending, infrastructure, education, etc. Yes, the US agrees to pay this back later with interest, but money that could have gone towards building up the foreign country has now been spent building up the US.

    Another point w.r.t. power, is military power. In the movie, Syriana one character says that US is on the decline *because* it’s responsible for 50% of the world’s military spending – a true power spends less on military. Maybe true, but I tend to look at it the other way. The US has the world’s most powerful military, technology that can instantly cripple entire nations, and the largest nuclear arsenal as a last resort. In a hypothetical future when the current bedrock of economic growth has turned out to be quicksand, these resources may come in handy.

    W.r.t free speech, I’m starting to think this is essential for optimizing economic growth. Corruption tends to slow an economy down (some disagree, see Syriana). Governments put procedures in place to reduce corruption but these are prone to become corrupt themselves. A free press is ideally a spotlight that performs a task to keep government and business operating effectively. Of course, when the media becomes big business, such as in the US the media gains investigative resources but its focus is somewhat compromised. Perhaps some kind of arms length, government funded media would be best. Or maybe not 🙂

    Regarding IPR, I haven’t made my mind yet up on this one. Philosophically, I tend to view IPR as kind of artifical property. True property is something you can physically possess. If you can physically keep IPR out of the hands of others then it is truly property, eg. a dedicated, unhackable network for distributing uncopyable movies. Practically speaking, I understand the argument that the expectation of profiting from some new creation is the primary motiviation for that creation. However, I’ve also read arguments that IPR actually stifles innovation. IPR tend to be enforced by large companies who are not necessarily in the business of innovation but in the business of playing a legal framework for profit. Smaller players tend to innovate but do not have the resources to battle the large players who can scoop up their innovations. But frankly, I haven’t made my mind up on this one yet.

    😉

    Jean’s Reply:
    Jesus, how did i miss this comment? Didn’t see it till today… Sorry.

    1.US Debt.
    When the day comes that the China’s economy is going to collapse big time, what do you think the US will do to prevent that from happening? Would it be MOST beneficial to the US that China’s economy keeps on going?

    2.Millitary power.
    Look at USSR. When the economy goes to the dogs, the “largest nuclear arsenal ” does come in handy, it goes to the blackmarket and the terrorist, but it doesn’t save the country’s economy.

    3.free speech versus corruption.
    Direct result of corruption is a less efficient government. In a country where labor is expensive, the result might be prominant, like in the US and West in general. In a country in China, it is probably not a big deal. So far the most affective way to cure corruption is to pay your government workers a decent amount so they don’t need to take bribe to survive. That’s how the west does it because they have the financial power. For the East and developing country in general, they probably have to live with it, and to survive because labor is cheap.

    free speech? China survived thousands of years without it, why would they need it now?

    4.IPR
    Since you haven’t made up your mind. I will just keep my position. 🙂

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