Wednesday, July 30, 2008

Who Leads in Socialism?

Say what you want about the superficiality of rankings, but it sure is a lot of fun. And really, what else is there to talk about?

The other day a friend commented to me that some are arguing that the US is becoming more and more socialist by the day with the federal bailouts of Fannie and Freddie and IndyMac, plus all of the other banks. I chuckled and conceded Fannie and Freddie, but noted all the other banks are merely being bailed out by the FDIC which has had the mandate to do this since its inception under the New Deal legislation of the 1930s. We agreed, both on fact and the humor of the situation.

In an opinion piece in today's Shanghai Daily, Rosy statistics mask not-so-pretty picture, Wu Jiayin expresses concern over the statistics purportedly indicating an increase in living standards for Chinese people, and concern that China is not spending enough on its citizens welfare.

The gist of the salary concerns:
The trick lies in the statistics themselves. The 18 percent increase refers only to the salaries earned by "urban workers," a term that excludes migrant workers, self-employed business people, and anyone working in the private sector.

With CPI clocking a 7.9% increase in the year to date, Mr. Wu worries that the Chinese people not included in the salary study aren't able to keep up with rising costs. Mr. Wu writes that this would be alright if China spent proportionally as much or more on its citizens medical health, social security and employment. But China spends proportionally less than the US, with medical health, social security and employment expenditures accounting for 15% of total expenditure, 2.4% of GDP, and expenditure per person accounting for 3% of the annual income of an average worker. In the US the respective expenditures are 61%, 11.5%, and 17%.

I like the way Mr. Wu ends his article:
It is just because China is not as rich as the US that the former should spend more of its income on the well-being of its people.
But, as of present the amount that the US spends on technologically advanced medical procedures, and the amount that the EU and US spend on pharmaceutical R&D means that US expenditures include subsidies of technologies that benefit the whole world, and not just its own citizens. And I would certainly argue that our relative wealth means that we should be spending more to improve the health of all.

Tuesday, July 29, 2008

No Bad News? Sounds Like Government Sanctioned Insider Trading

A recent FT article on Pre-Olympic warnings to China’s fund managers (h/t to The China Vortex) says that the China Securities Regulatory Commission (CSRC) warned fund managers "that companies should be cautious about holding public forums “which may cause market fluctuations”." The article aptly describes this as a "clumsy ... directive to manage the level of the stock market."

I've only got the one course in Corporations, but if China had SEC rules and any of these fund managers have a duty to speak, don't speak, and then make trades, they'd probably be up for 10b-5 liability for insider trading. A BIG criticism of China's markets is that they're opaque. Opacity creates greater uncertainty as investors are unsure about the true health of their investments. With the world in town for a couple of weeks, greater opacity seems a strange solution for stability.

H0pefully, China really is only jumping in bed with Henry Manne for the duration of the Athletic Festival Honoring Zeus.

Sunday, July 27, 2008

Posts of the Week: 7/21 - 7/27

McKinsey Report on Meeting the challenges Of Chinas growing cities at All Roads Lead to China
Fun game is attached, too. I scored 46 for Mega City on my first run through at any level. I squandered my opportunities to build up my human capital...

Auto Tariffs and Competitiveness in China at Managing the Dragon

Signs of deeper change: Labor organization and regulation in China at The China Sourcing Blog

Keeping China’s Forex Safe: The State Administration of Foreign Exchange
at China Briefing

Give me your tired, your poor...doctoral candidates at Free Exchange

How fast will China’s economy slow? And will China also slow the pace of RMB appreciation? at Brad Setser
And related commentary at Free Exchange

China's Coal Concerns, Part III at China Environmental Law

China's Anti-Monopoly enforcement agencies named at Managing Intellectual Property

What are we supposed to do now? Read? at CER: Editors Journal

Idiots Encouraged to Protest in Olympic Safe Zones at Cup of Cha

From Me:
So you want to put Motels up on Boardwalk? First you need Park Place...

To Weigh in on Obama v. McCain

I've been an embroiled in an oddly compelling debate on Facebook that somehow grew out of comments to a friend's posting a news item from the UK Times, He ventured forth to bring light to the world. Below I'll print quotes from the discussion. Post-modernism has taught me that I'll probably subconsciously selectively quote things that make the position I and those I agree with stronger, and things that make the opposition weaker. Oh well. I haven't fallen for that other part of post-modernism, and I believe that the story of the powerful is the most important story as it will have the greatest effect on the rest of the world. Please feel free to join in. I apologize for the length, but I was having a lot of fun.

Sendhil Panchadsaram:
Oh please, that's such a load of crap. Obama's running to be president of the United States of America. Showing a little respect toward the American flag isn't a very difficult thing to do. The fact that he'd rather put his logo up in its place, rather than side by side, is a very telling sign as to his character. This is also evident with Neil's point, that he cares more about selling his 'product' than he does promoting and honoring this countries symbols(the flag, the troops).
If the flag and troops, symbols of war and conquest, are America's symbols then we deserve the low global reputation we have.

I was under the impression that liberty and democracy were two of our symbols. I was also under the impression that the Hope evoked by the New World encouraging waves of mass immigration to the US was an American symbol. I was under the impression that the Hope for a better life that drove Americans west was an American symbol. I was under the impression that the Hope America brought to Western Europe, Russia, and China during WWII was an American symbol. I thought the Hope and Determination to rise in socioeconomic class, the American Dream, was an American symbol.

I also thought that America's near genocide of American Indians was an American Symbol. I also thought that great prosperity earned on the backs of African slaves was an American symbol. I also thought that senseless wars to to fight communism and Islam at any cost were American symbols. I also thought that torture was an American symbol.

Obama the product embraces the sweet American symbols and takes a chunk out of the ugly.

McCain ain't bad, but he also ain't Obama.
Sendhil Panchadsaram:
Typical of a liberal seeing America as an oppressive war mongering regime. The American Flag and American Soldier stand for Freedom. The American Soldier has freed and protected more people than anyone else in human history. A billion people have their freedom thanks to America and its military. Fact of the matter is liberals like you are ashamed of our country, thats why you run off to europe and dump all over it.

People like you and Obama are incapable of saying one good thing about this country without having to predicate it with a list of bad things. We are not a perfect nation, but as a whole we are good. We feed and clothe the world. We keep the world safe. The rest of the world is just jealous of us,but make no mistake, they would do anything to come to this country and call themselves an American.

Spare me this we wiped out the Indians garbage and Slavery Stuff. We are also the nation that went to war with itself to free those slaves.

Obama is the product of everything wrong with liberals. He's ashamed of this country. He looks down on the people and institutions that make this country great. He runs off to Europe and acts like he'd rather be EU president than President of the United States. He never speaks of American Exceptionalism. The thing liberals like yourself and Obama fail to ask yourself, is How is it we became the most prosperous, most powerful nation in history in such a short time? It's because our founding fathers realized that free people are capable of great things. They enshrined this freedom in our constitution and it has allowed us to do things no other nation has.

Democrats used to be proud of this country and talked about things like Freedom and American Exceptional ism. Presidents like FDR, Harry Truman, and JFK. Now democrats like Barack Obama are ashamed of this country and fail to understand what makes it great.

Your right about one thing will, Mccain is no Obama. McCain didn't go to prep schools as a kid, and didn't spend his youth prancing around the Ivy Leagues. He didn't get a cushy job right out of law school doing nothing of grand importance. He chose instead to spend a lifetime of service to this country, a tenure of service that came at great personal cost to him. So you're right. Mccain is no Obama. Obama isn't even fit to lick his boots.
Wow, okay, so Neil called me a retard when he made reference to Forrest Gump logic, but I'm under the impression that you actually believe your thinly veiled insults.

1st paragraph: I'm really interested in your math. 1 billion freed by the American military? The only theater of the only war in which the American military played a decisive role was in the Pacific Theater of WWII, but it was Soviet tanks rolling through China that became the symbol freedom there not America. The Soviets had Europe all wrapped up by the time we started getting involved in operations in Italy, Normandy just sped the process up. You can count the Balkans stuff in the '90s. Until a free regime has been established in the ME, there hasn't been any freeing.

I am certainly not proud of America, but I love her deeply, which is why I have no problem exposing her flaws. And I love being an American because we have the power to shape the country into what we want it to be.

2nd paragraph: If you think the glass is half-full, you're gonna take a drink. If you think the glass is half-empty, you're gonna try and figure out how to fill it up. The bad always comes with the good, and if one doesn't recognize that and try to fix it then the country stagnates. The whole "rest of the world is just jealous of us" attitude reeks of arrogance and will alienate foreigners, something that is bad bad bad for trade.

3rd Paragraph: You can't ignore history (Praise Ford!), it has made us what we are. Also, a not so close historical reading shows that the South seceded because it lost the balance of power to maintain slavery, the North declared war to preserve the Union, and Lincoln did not free the slaves until the war had been underway for a while as a desperate plan to bolster the ranks of the North and foment rebellion in the South.

4th Paragraph: "American exceptionalism" is part of Obama's boilerplate speech. In every speech he says that in no other country in the world could somebody with his background be a candidate for the President of the US. Obama ran off to the EU because "conservatives" were saying that he didn't have foreign policy chops. He deliberately avoided saying things in Germany and France that would've played to the crowd because he knew that this is not what an American candidate should do.

The second half of that paragraph is a gross oversimplification of the development of America, and probably not the most important factor. Countless books have tried to answer it, none is conclusive.

5th Paragraph: One of those dudes was cool. One dragged us into the Cold War. One dragged us into Vietnam. I prefer Ike.

History is complicated.
Sendhil Panchadsaram:
You lost all credibility with this : "I am certainly not proud of America"
Pride is self-satisfaction with the current state of things. If you're ever satisfied with where you are, then you might as roll over and die. I'm excited to see America grow and thrive, and keeping ourselves open to the world is the way to ensure this. War and conquest is a good way to ensure that the other nations of the world shut their doors to us. Especially as nonpolarity increases.
Adam Burke:
The flag is not an ornament, it should not be printed on swim suits, paper plates, lapel pins, or airplanes - it should be printed on cloth, attached to a rope, and hoisted high above our heads - that is respecting the flag - giving a patriotic man like Obama a hard time for removing a flag from his airplane is an argument I would more likely attribute to a republican drone like Sean Hannity than smart, young people such as ourselves who surely have more valuable points to make than ones they have paraphrased from the sensationalist vultures at Fox News.
Neil, Surely you know the quote, "Patriotism is the last refuge of a scoundrel"? And surely you know the story behind it: patriotism is fine and to be admired, but when one coopts patriotism for personal gain, one is a scoundrel. Don't join the scoundrels and accuse Obama of being unpatriotic for not making superficial displays of patriotism such as lapel pins (against the code anyways) and hand over the heart. If you've ever been to a sporting event there are tens of thousands of people who don't take off their hat, don't put their hands over their hearts, and cheer before the song is finished, and I hope you wouldn't accuse all of them of being unpatriotic.
McCain, son and grandson of 4-star admirals. McCain, ranked 5th last in college class. McCain, reputation as hard-partying slacker elevated in rank by daddy and granddaddy's reputation. McCain, married to a model. McCain, given preferential treatment by captors because of his daddy and granddaddy. McCain, numerous extra-marital affairs upon return to America because of wife's medical problems. McCain, starts sleeping with Ms. Hensley, daughter of huge AB distributor. McCain, gets divorce to marry heiress. McCain, gets cushy job with wife's daddy. McCain, best friend of biggest crook of the S&L crisis. McCain, net worth $40 million. McCain's wife, net worth > $100 million.

Obama, worked hard, damn smart, got some damn good grades, went to the best schools in the US, first minority with the presidential nomination for a major party.

Which story is more American, the life of entitlement or the Horatio Alger story?

Sendhil Panchadsaram:
LOL! The fact that you try to rationalize Obama's life as harder than Mccain's shows the rest of us what a complete joke you are. I don't think i've laughed this hard in a while. Thanks for the laugh. You've once again showed us you lack any credibility whatsoever.
I don't get it... Are you trying to goad me into name calling? If so, I could say you have lost touch with what the Republican party is supposed to be. Bill Clinton's adoption of the traditionally Republican embrace of free trade paved the way for the neoconservative faction of the Republican party to take control through bitterly divisive political schemes. Neocons view the world as a dangerous place that won't be safe until democracies have been installed in every country forcefully or otherwise. 2000 McCain was more in touch with Reagan style Republicanism, but 2008 McCain is running like a modern Republican. I like the Republican party, and I don't want to see it become a parody of conservative paranoid authoritarianism, which is exactly what it is becoming, and exactly what you have fallen prey to in your focus on Obama's perceived lack of patriotism.

All you've shown so far is that you think the image a candidate projects about their love for the country is all that matters. From what I understand, this caused a lot of problems worldwide in the late 19th century and the first half of the 20th century.

I've shown that I think what matters is the image the candidate projects about what the country can become. The Founding Fathers wrote a dynamic Constitution that could be amended not because they thought the past should control the future, but so that their document of freedom could be modified to meet the challenges of tomorrow aware that changing times require new solutions. Look to the vision of the future that the candidates offer, the grass is greener philosophy is what brought people to America, and what continues to drive our risk taking behavior.
Sendhil Panchadsaram:
I'm not trying to goad you into anything. This whole time i thought to take you seriously, but i just realized how silly your arguments are.

I'm done with this, if you feel some childish need to have the last word its yours.

Gotta run, I think i just spotted a black helicopter.
Sendhil, I'm not a little boy that you can play silly tricks on such as he who displays indifference to the discussion first, wins.

Black Helicopters is currently a Republican thing. Look at Obama, Clinton, HW, Reagan, Nixon, Kennedy, Ike, and FDR. These are/were beasts of men who walked around with their cocks dragging on the floor. They deal with enemies by shrugging and saying, no problem, we don't fear them. Now take a look at McCain, W, Carter, Johnson, and Truman. They've each got swagger, but their politics is we have nothing to fear except Al Qaeda, and Iran, and Mexico, and China, and Russia, and North Korea, and ... Any leader should have fear, but to publicly display your fear reeks of insecurity. Something the leader of the most powerful and wealthy nation in history should not display.
The End ... For Now...
Okay, so I get a little belligerent towards the end, but I really was holding my tongue. The only thing I regret is that one of the paragraphs looks like I'm being too hard on McCain. I really do respect McCain and all that he has accomplished. His life might've been harder, but sitting in a POW camp is not an accomplishment, it is an experience. An awful and trying experience, but it does not magically qualify someone for leadership. Rather, it's a good human interest story on which to connect with voters and launch a political career.

Friday, July 25, 2008

Careers of Chinese Lawyers

Just stumbled across these FT videos documenting the careers of two very different Chinese attorneys (h/t Lawslot). The first video is about a human rights lawyer, and the second video accessed from a link in the first video is about a Jones Day partner. Both are compelling.

So you want to put Motels up on Boardwalk? First you need Park Place...

Well folks, we are officially one week away from the effective date of China's Anti-Monopoly Law! Aren't you excited?!?

I'm sort of excited, sort of. But not really. But more excited than about the contemporaneous adoption of Henan's judicial etiquette rules, though the AML is certainly less funny.

Let's take a quick look at the law:

Chapter I - General Provisions
Just definitions, regulatory body, jurisdiction, purpose, all the same unimportant language in the beginning of any PRC law that doesn't really have any meaning ... until you're getting sued.

Chapters II-III
Yawn inducing boring definitions of "Monopolistic Conduct" and "Abuse of Market Dominance." Sure, this law is a big deal for China, but this conduct and its effect on the marketplace was a basic part of our public primary school education when covering late 19th/early 20th century US history. The basic lesson: Standard Oil, Boo! Yellow Journalism Competition ... Yay? National Library Construction, 加油 ("add petrol" in Chinese)!

The more I reflect the less boring these provisions become. China is a country moving from a planned economy where the State and its Enterprises were the monopoly to a market economy in which competition is fostered and protected by antitrust laws. Wait a sec! Chapter I, Article 12, this AML seems to even apply to SOEs? Awesome!

Chapter IV - Concentration of Business Operations
This is where a lot of the editorial focus has been. I don't really get why this is such a big deal. If anything, I really appreciate this chapter. Have you ever read the M&A Provisions? They're about as vague and ambiguous as you can get. Between this Chapter and the definitions in Chapter II, you can get a much stronger handle on whether or not your acquisition will be approved by the relevant authority. Which is nice, because I assume that it would suck to have an acquisition vetoed by the relevant authority after months of no weekends and sleepless nights.

Chapter V Abuse of Administrative Power to Eliminate or Restrict Competition
See second paragraph of Chapters II-III, above, and final sentence of Conclusion, below. The jury's out, especially without an independent judiciary or a 7th Amendment equivalent.

Chapters VI-VII
The scary parts (damages, investigations)... Except for the plaintiff's attorneys. And the defendant's attorneys.

The AML is pretty tame and predictable, except maybe in relation to IP rights. What is going to be exciting is how the law is enforced. But that's always the fun part in a civil law jurisdiction. I'm guessing that domestic companies will enjoy greater protection than foreign companies at least until that magical day when the Party Honchos decree that indeed China companies can compete on a fair playing field with the rest of the world, or not, see Chapter V.

Outside Reading
1. Jones Day's thorough Publications team does it again.
2. Matt Young proves that the game metaphor is too fun to pass up.
3. Paul Jones plays it straight (h/t to China Business Law Blog).
4. Dan Harris at CLB links to others in a couple of posts, 1 & 2.
5. CLB team member Steve Dickinson calls it what it is.

Thursday, July 24, 2008

I Really Really Like Us Too, and I Want Others to Add Another Really

Dan Harris at China Law Blog reports on a Pew Study which finds that more Chinese, 41%, have a favorable view of the US than Germans, 31%. For comment Dan writes, "Call me Careyesque, but I think that is pretty good." I ask: why can't it be gooder?

Sure, the arguments for the economy are familiar: give out more H-1Bs, let in more students, eliminate home stay requirements on J's, make it easier to bring in strong brains and skilled workers to the US and our economy will grow stronger not weaker with immigrant talent. But, the other positive of bringing foreigners to America is that it improves our image around the world. This too is probably an old argument, but I'm gonna give you a new story.

A few weeks ago after a few liters at the Shanghai French Concession Paulaner Brauhaus*, a German buddy told me about the history of his relationship with America. The conversation began after some of his German friends told me that Americans are only superficially friendly. As a young man the relationship was hostile, indeed. He hated America and what it stood for, and admittedly not knowing exactly why. Internally I reckoned that it had something to do with America being an occupying force in Germany. Though I think America is pretty dang swell, I've watched Braveheart too many times to not realize that a young man is liable to bear a heavy grudge against an occupier no matter how benign. Nor did I voice my confusion in my friend's decision to come to Florida for a study abroad program despite his grudge against us. But, I was certainly not confused by what he found in America.

He found a significant disconnect between America's foreign policy and image or his perception of America's foreign and image, and the American people. He was surprised by how friendly his host family and classmates were. He was surprised by the eagerness Americans demonstrated in learning about his culture, his family, and him. He was not sure that this hospitality would be found in Europe. I had a feeling that his story was only aimed partially at me, and largely at his friends. And, I'm pretty sure that this is a common story.

So, dangit, let's get more Chinese people over here! Sure, some of 'em might be spies, but the evidence seems to show that they're not very good at spying so the bad apples shouldn't cause a very big tummy ache.

And the story doesn't begin and end with getting Chinese into America. You American students, and not just the ABCs, need to get over to China for some reciprocal cultural learning. Most colleges and law schools will allow you to cross enroll in their study abroad programs, so you don't even need to go to the school to use their study abroad and get the credits transferred. I have no recommendations if you're an undergrad, but I highly recommend Santa Clara Law School's China study abroad program which consists of 4 weeks in the classroom and 4 weeks applying your knowledge at a Chinese law firm.

* For those who want to keep track, that's 4 Paulaner Brauhauses in the past year. I'd rank the French Concession Paulaner second to Nockherberg, beating out The Paulaner Brauhaus by the superior ambiance of the garden and the rocking house band.

Monday, July 21, 2008

Posts of the Week: 7/14 - 7/20

How to Play Anti-Monopoly at bizCult
Do you think my UCC Article 9 Professor should teach the course with analogy to Risk or Operation?

China's Coal Concerns, Part II at China Environmental Law Blog

Billing Issues for SME’s with Hong Kong Holding Companies at China Briefing

IP Protection in China the Hon Hai Way at All Roads Lead to China

China Due Diligence: Double the Fun at This is China! BLOG

A Couple of Fun Posts:
Sunscreen, yes - crossbows, no at CER: Editors' Journal

F-ck China Culture Lessons. Give Me Anthony Bourdain With No Reservations. at China Law Blog

And, A Really Interesting Post
Bound feet in China at Danwei

Wednesday, July 16, 2008

How Many Drinks is the Deal Worth?

The other evening in Shanghai we had a company banquet at a seafood restaurant in Xintiandi. There were mostly sales personnel plus some tech support, marketing and administrative staff. If you hang around any of these China blogs you've almost certainly read a story about how the drinking culture has died out, or how you no longer need to drink to make a sale. I decided to just sit back and let my colleagues explain the drinking and sales connection.

The consensus was that in Shanghai and Beijing you could drink as little as you wanted to without offending anybody. But, if you get too far from either of these cities, especially in the North, then you're in trouble. Which led to much joking and laughing at and with our Sales Manager of North China. The same joke was made about our Northwest guy, our West guy, and our South guy. But, as we were in Shanghai and we weren't trying to sell anything to each other that night, other than the humor of our jokes, we toasted each other throughout the meal.

At one point, one of our sales guys told me a story about the CEO of a company in the South of China who was trying to secure a large contract. The CEO was meeting with a principal of the company and the principal said that they'd purchase 1 unit of the 12 units required for each cup of baijiu toasted. The CEO announced that he'd take 12 cups of baijiu. He then leaned over to his assistant and told him to have an ambulance waiting outside. The CEO awoke in a hospital bed with the full contract. My colleague told me that the greatest payoff came when the CEO returned to his factories. His employees had heard the story and their loyalty skyrocketed after knowing that their boss was willing to commit suicide for the company [his words not mine].

I might've had a slightly different interpretation of the CEO's actions. I'd be a little disturbed by the company's risk analysis.

Thursday, July 10, 2008

Keidel, Carnegie, and China's Growth

Rich Brubaker wrote a pretty lengthy post on Albert Keidel's newest policy brief for the Carnegie Endowment, China’s Economic Rise—Fact and Fiction. I completely agree with everything Rich said, but I also want to add my own two cents.

Though I tend to agree with a lot of the scholarship coming out of Carnegie, my interpretation of Keidel's brief is probably skewed by where I found it. Drudge Report is a great source for offbeat news, but there is a definite editorial political bias emerges in the content and lanugage of the headlines. Planting a headline about China overtaking the US economy on Drudge Report is a sure fire way to whip up the passions of young conservatives. Thus it was that I read Keidel's brief less objectively than I might otherwise have.

After reflection, and despite the rider claiming that CE does not take institutional policy positions despite being an institution dedicated to advancing policy, I think this is still a scare piece. In Rich's post he seems to be implying that Keidel's conclusions are supported by assumptions that are all too convenient and not backed up fully enough by figures. This was my impression, too. Unlike your typical Red China scare piece, though, this one tries to scare the US into working with, rather than against, China.

In this vein, one of the most interesting things I thought Keidel pointed out was "The payoff from engagement with autocratic regimes."
Contrary to popular understanding, China did not "open itself" to reforms and global commerce in the 1970s. Rather, the United Staets, which had "closed" China during the Korean War, decided under President Richard Nixon to engage the highly autocratic authorities in Beijing. It might thus be more accurate to say that the United States and China both contributed to "opening" China. The subsequent benefits are obvious, including the evolution of China's more sophisticated and decreasingly autocratic economic and political structures. This experience argues for considering the replacement of blanket U.S. sanctions against other countries with broad-based engagement, keeping an eye on potential benefits several decades hence.
Hmmm... I wonder who he's talking about?

Thursday, July 3, 2008

The China 5-Star Experience

Several years ago, a friend and I took a car from Portland, Oregon to New York to visit his brother who had just started his summer associateship at a big fancy law firm. We arrived on a Friday afternoon after making stops at Yellowstone and Mount Rushmore. We met his brother in his office. I was wearing flip flops at the time--I felt like a jackass with each step. Somehow his brother was able to get off at 5pm (but I think it was with the caveat that he read some 1,000 pages over the weekend), and secure the firm's card for drinks.

Long story short, I woke up in some hotel room that ate into a huge chunk of the spare change I had left after blowing as much as my graduation money as I possibly could on fireworks at various firework depots on the drive cross country (I still have a seemingly endless satchel full in my closet). But, it wasn't the money I was thinking about as I awoke. Rather, I was wondering whether I had fallen asleep in a cloud for the bed in the most inexpensive room in the very expensive hotel was the softest bed I had ever known. It felt like I had sunk into a cocoon of feather pillows and velvet.

Which brings me to the 5-star China hotel. I'm typing this from the Grand International Hotel in Guangzhou, my first actual 5-star experience. The service is impeccable, the restaurants are tasty, the lobby is fabulous, the rooms are well-appointed, tasteful and clean. But, the bed feels like the exact same bed I've slept on every night I've been in China--a gigantic box spring. What gives? Is this some sort of Chinese medicine thing? Are soft beds supposedly bad for people?

I might conjecture that these beds are at the heart of Chinese entrepreneurialism, ;) When I wake up in China, I never feel like sleeping in and I'm always raring to go.

Tuesday, July 1, 2008

Case Study in Fitting a Triangle into the Global Market

This week's Economist print edition has an interesting case study about Chinese tire manufacturer that's On a roll, Triangle Group.

Triangle Group was founded by the Weihai government in 1976, and has since grown into one of the six largest domestic tire companies in China. The article notes that with its 1% global market share it is one of only two Chinese tire companies with "anything approaching a global market share." As with many SOEs, Triangle became big, bloated, and unprofitable by the early 1990s. Then, in 1993:
A powerful chairman was installed who could run a business and negotiate the country’s complicated politics. The company reworked contracts, imposed a new approach to discipline and rustled up money (presumably from Weihai, Triangle’s parent) to invest in the production of modern radial tyres. Workers wear uniforms determined by rank, and every detail of operations, from the typeface to be used in correspondence, to the company song, to how a phone should be answered are recorded in an “enterprise culture” book. Order emerged, along with profits.
Recently, Triangle has negotiated deals to produce tires for Caterpillar and John Deere, and for one of Goodyear's brands. Interestingly, a partnership with Caterpillar is something that Jack Perkowksi implied in his book was evidence of his own company making a reputation on the global market.

The big news is that Triangle is in the process of filing paperwork and approvals to cease being a SOE and become a publicly owned company. Samuel Zheng, a commenter on the article, argues that taking an SOE public is merely a way for SOE management to cash in on an IPO:
The go-public process for a Chinese SOE is more motivated by the management's eagerness to pocket the so called "public owned" assets into their own bags. The case is the same with Triangle Tyre. Because for a government backed SOE, it does no need extra money to expand. The state owned banks are their caches of cash. The only worry for the management is that how can they legally benefit from the prosperous economy the most. Turning a state owned enterprise into a public comany is the most used practice. Just take a quick peek into the IPOs of Chinese SOEs, you will find out that these communist Chairmen, CEOs and directors are very generous to themselves.
Maybe this does happen. But, Triangle has built itself a strong business and is on the edge of having the reputation and resources to expand to a global market. This is a strong company with the potential to grow stronger. If management has acted so wisely in strengthening Triangle since 1993, it is difficult to see why management would simply cash in on an IPO when much greater rewards may be eventually reaped by turning into a company that can compete at the global level. Or is that too naive?