Sometimes the simplest questions are always the most difficult to answer. For example, I’m always asked how many expats there are in Beijing. It’s a difficult question because the numbers I’ve heard over the years have been all over the map.

Several years ago, I was having dinner with a senior member of the Beijing Automobile Industry Corporation (BAIC), and I thought for sure that he would know. After all, BAIC is owned by the Beijing municipal government and many of the company’s officials have come from city government.

My friend didn’t really give me an answer, but he volunteered that there were at least 500,000 Koreans living in the capital city. Because BAIC has a joint venture with South Korean car company Hyundai, I felt this was a number I could take to the bank. However, I admit to being both surprised and not surprised by his answer. Surprised, because 500,000 is a big number. Not surprised, because of the number of Korean-focused businesses that have popped up all over the city in the past three years.

Despite my conviction that my friend from BAIC was a reliable source, I did some research. Most Internet sources put the number at something more like 100,000. See what I mean about the numbers?

As to the number of non-Korean expats living in Beijing, a recent article in City Weekend appears to have gathered some hard statistics. City Weekend is one of a handful of English-language magazines that Beijingers regularly read to get information about new restaurant openings and other events in Beijing. (City Weekend also publishes editions in Shanghai and Guangzhou.)

In its article, Expat Evolution, the magazine describes how the type of expat living in China is changing. The main point of the article is that, in the past, expats primarily consisted of middle-aged executives from multinational corporations who were here on full expat packages, complete with expat salaries and housing allowances for serviced apartments or even stand-alone homes.

As a result of the global economic crisis, this is changing. More locals are being hired; companies are trimming employment; and expense accounts have been cut. The article quotes a local restaurant manager who noted that, “Now, you might only be entitled to one or two glasses of wine. Any more, and the company won’t compensate.”

According to the article, today’s expats are more often than not “half-pats,” foreigners who come to China without expat salaries and benefits. They tend to be younger, live in walk-ups rather than expensive apartments, and are in competition with a growing number of qualified locals for jobs.
Some interesting facts about expats and expat life in China and Beijing:

• There are an estimated 250,000 expats currently living in Beijing, up from 60,000 in 2002. (My understanding is that there were many more than that in 2002, but I’ll give City Weekend the benefit of the doubt.)
• Rentals for serviced apartments have dropped 15 to 20 percent since the Olympics.
• Beijing is now the 26th most expensive city in the world for expats to live in, compared to its 104 ranking just last year.
• Expat premiums (cost of living allowances and housing assistance) have dropped 11 percent since 2001.
• 50.5 percent of the total expat population in China now consists of half-pats, compared to 27 percent in 2005.

First it was pagers, then cell phones, then Internet use and then cars. In each case, China has emerged as the largest market in the world for these products soon after they were introduced into the country. Can the same thing happen in sports?

When I came to China over 15 years ago, I would never have thought so. Other than the unused, poorly maintained basketball courts that I saw at most factories I visited, there was not much evidence of Chinese interest in sports, at least that I could see.

Perhaps it was Yao Ming’s great success with the NBA’s Houston Rockets, or the 51 gold medals won by Chinese athletes at the Beijing Olympics, or Michael Phelps’s individual heroics and the “US NBA Dream Team” that awakened the sleeping sports dragon in the country. Whatever it was, China is rapidly becoming one of the largest sports markets in the world.

NBA star LeBron James and his team, the Cleveland Cavaliers announced this week that they have agreed to allow an investment group from China to take up to a 15 percent stake in the team. The motivation for the sale is to provide marketing opportunities for the Cavs—and for LeBron James, who becomes a free agent next summer and might otherwise leave to join a team in a larger market such as Los Angeles or New York. LeBron, aka King James, said that he wants to become the first billionaire athlete. It’s thought that his brand overseas would be enhanced by playing for a team with Chinese business partners.

China has indeed developed into quite a market for basketball. 300 million Chinese now participate in basketball in some way. 70 percent of males between 15 and 24 are NBA fans, and in urban areas, the NBA has 89 percent awareness among this group.

During the 2007/8 season, 51 NBA-licensed networks in Greater China reached more than 1.4 billion viewers, 59 percent higher than the previous year. When the Houston Rockets and Yao Ming faced off on December 22 against the New Jersey Nets and their Chinese star, Yi Jianlian, 106 million viewers in China tuned in. By way of comparison, this year’s Super Bowl between the Pittsburgh Steelers and the Arizona Cardinals, which was the most-watched Super Bowl ever and the second-most-watched program in U.S. television history, attracted 98.7 million viewers, slightly less than the matchup between Yao and Yi.

Separately, IMG Worldwide Inc., the sports marketing giant, announced this week that it had received the necessary clearances to begin a 20-year-sporting-event partnership with China Central Television (CCTV), China’s state broadcaster. With 740 million daily viewers, CCTV has the biggest daily audience in the world. The partnership between IMG and CCTV will target sports covering various demographics, including polo and sailing in the luxury category, golf and tennis for the white-collar category, and American football for younger fans.

Robert Kuhn, one of IMG’s partners, summed it up best when he said: “We see that the sports industry in China will become gigantic—the largest in the world.”

Courtesy of the Young Presidents’ Organization (YPO) chapter in Nairobi, Kenya, and the newly formed YPO chapter in Dar Es Salaam, Tanzania, Carleen and I had a great opportunity to see East Africa for the first time during the Spring Festival holidays.

East Africa generally includes the countries of Kenya, Tanzania, Uganda, Rwanda and Burundi, but sometimes the latter two are considered to be part of Central Africa. Our trip included three days in Nairobi, a day each in Dar Es Salaam and Zanzibar, and three days at a safari camp in Masai Mara,
a large game reserve in southwest Kenya. While it was a whirlwind trip that didn’t allow nearly enough time in each place, it certainly whetted our appetites for a return visit.

China has had a long relationship with both Kenya and Tanzania. China was one of the first countries to recognize Kenya, establishing diplomatic relations with the country only two days after the Republic of Kenya was formed on December 12, 1963. China’s diplomatic relations with Tanzania, as it is known today, dates to April 1964, when the country was formed through the unification of the archipelago of Zanzibar with what is now the mainland of Tanzania.

While Kenya has had a long history as a democracy and a capitalistic economy, Tanzania’s experience with capitalism is more recent. Tanzania’s post world war history is as a socialist country, aligned with “Communist China.” With its economy in disarray in the mid 1980’s, however, the Tanzanian government accepted loans from the International Monetary Fund and agreed to a structural adjustment of its economy, which essentially amounted to a large-scale liquidation of the public sector and deregulation of its financial and agricultural industries.

Of the two countries, Kenya is considerably more developed than Tanzania. It has a population of approximately 38 million people; an estimated GDP in 2008 of $31.4 billion; and a per capita income of $890. Businessmen in Kenya refer to the country as the “window” to East Africa and contend that the rest of East Africa follows Kenya’s lead. With roughly the same size population as that of Kenya, Tanzania’s GDP in 2007 was only $16.7 billion, and its per capita income $421.

China’s overall trade with Africa has boomed in recent years, topping $100 billion in 2008.
However, imports from Africa, which totaled $56 billion last year, are dominated by oil and mineral shipments from Angola, Sudan, Nigeria, Zambia, the Democratic Republic of the Congo and its smaller neighbor, the Republic of the Congo. China’s exports to African states were $50.8 billion in 2008.

By comparison, neither Kenya nor Tanzania plays a large role in trade with China. Kenya is buying approximately $630 million worth of goods from China each year, but is exporting only $18 million. Although relatively small compared to other African countries, Tanzania’s trade with China is a much more important part of its overall economy. Trade between Tanzania and China now totals $800 million, with approximately $200 million represented by goods exported to China.

The most visible link with China for both Tanzania and Kenya is in infrastructure development, where it seems that Chinese construction companies are building all of the new roads and major buildings in the two countries. China helped build the Tanzania-Zambia railway in the 1970s, and it built Nairobi’s stadium in the 1980s.  More recently, China built a 60,000-seat national sports stadium worth more than $40 million in Dar Es Salaam, which President Hu Jintao, who is currently on a four-country African tour, handed over officially to Tanzania this past Sunday.

When Carleen and I were in Nairobi, we saw countless local road crews, supervised by Chinese foremen, fixing and expanding the roads. Chinese construction firms have also won the contract to refurbish the Nairobi airport and to build a series of ring roads around the city, not unlike Beijing’s ring-road system.

In addition to their management and construction expertise, Chinese construction companies are also bringing Chinese equipment to East Africa. As we traveled through the two countries, signs of China could be seen everywhere–from FAW and Foton dealerships, to China Heavy Duty Trucks and Sanyi and Xugong construction and road-building equipment. Beyond trucks and construction equipment, there is a keen interest in importing Chinese cars. As I said in China’s Natural Market For Vehicles and Other Things, Chinese companies have a great potential to export to countries like Kenya and Tanzania where the per capita incomes, operating conditions and emission standards are closer to those in China than they are to those in more developed countries.

One area where Kenya may play a greater role in the future is in the production and transportation of oil. On his last visit to Kenya in 2006, President Hu signed an oil exploration contract with Kenya that allows CNOOC, China’s state-controlled offshore oil and gas company, to prospect for oil in the country. Kenya is just beginning to drill its first exploratory wells on the borders of Sudan and Somalia and in coastal waters. In addition to producing oil, Kenya may also prove to be a natural location for a pipeline to transport oil from southern Sudan to the coast.

Finally, both African countries played a unique role in the Beijing Olympics in 2008. Tanzania was the only country in Africa to host the Olympic torch relay before the Beijing Games, and while Jamaica dominated the sprints and shorter running events, Kenya dominated the longer distances.  In 2008, Kenya won the most medals in its history with 13, ranking 15th on the medals table. Kenya’s athletes won five gold, five silver and four bronze medals in the 300 meter steeplechase and the 800 meter, 1500 meter, 5,000 meter and 10,000 meter runs.

It’s pretty safe to say that 2008 did not turn out like anyone expected. At the beginning of the year, there were already signs that the United States economy was heading for a recession, but no one expected the total financial and economic meltdown that ultimately occurred. In China, there was a big question mark about what the country would look like after the Olympics, but again, no one expected the near total collapse that we have seen in the fourth quarter.

On New Year’s day, I looked into my own crystal ball for 2008 and made five specific predictions. How did I do? Let’s review what I said.

1. Blue Skies for the Olympics: Understandably, there was a great deal of concern on the part of the Olympic Committee and Chinese government officials over the level of air quality in Beijing during the Games and the effect that it might have on the health and performance of the athletes. In fact, many teams chose to do their pre-Olympic training in clean environment countries like Japan in order to limit their exposure to China’s air.

Despite the concerns, pollution was not nearly as bad as everyone expected. During the roughly two week period of the Games, there were several hazy, high pollution days, but there were also rainy days that had the effect of clearing the air, followed by bright, sunny and clear days. By the time the marathoners took to the streets, the temperature in Beijing had dropped to a comfortable low 80’s.

On this prediction, I give myself at least partial credit.

2. China Bashing by Presidential Hopefuls: Though there was the occasional reference to the valuation of the yuan and keeping jobs in America, there was relatively little criticism of China by the candidates from either party. The devastating earthquakes that China suffered in May perhaps had something to do with it, just like they seemed to deflate the Tibet issue in the run up to the Games. More importantly, the meltdown in the U. S. capital markets sucked the air out of virtually every other issue during the final months of the campaign as Americans looked almost exclusively inward. At a time when the U.S. government will need to make heavy use of the credit markets to fund the bailout and stimulus packages, it was also lost on no one that China is the largest holder of U.S. debt securities.

I was flat out wrong on this one.

3. The Yuan Will Appreciate by 7 to 10 percent Against the Dollar: This is one prediction that I almost nailed. At the beginning of 2008, the dollar to yuan exchange rate was $ 0.137 to 1 yuan. By December 30, the yuan had appreciated 6.6% to the point where 1 yuan bought $0.146. Said another way, the exchange rate went from 7.29 yuan to the dollar at the beginning of the year to 6.84 at the end of 2008.

Since I only missed the low end of my range by less than six percent, I give myself full credit on this one.

4. GDP Will Once Again Grow at a Double Digit Rate: When I made this prediction, it seemed like a gimme. China’s economy grew at 11.9 percent in 2007, and despite the fact that the government was already taking steps to cool the overheating, spending in the runup to the Games almost ensured that the country would register another double digit increase in GDP. That’s not what happened. Growth began slowing from the first of the year, and then dropped precipitously in the third and fourth quarters. Credit Suisse estimates that China’s GDP growth may fall as low as 8.7 percent in 2008.

Missed this one completely.

5. China Will Continue to Make News With its Reserves: Even though China’s foreign currency reserves doubled during the year to over $2 trillion, they did not become nearly the news item that I predicted.

In May, 2007, China bought a 10 percent stake in Blackstone for $3 billion, and in December of the same year, it invested $5 billion for a 9.9 percent stake in Morgan Stanley. Coming on the heels of these two high profile investments, I believed that we would see more of the same in 2008.

However, both investments have been major disappointments for China from a strictly financial point of view. Blackstone’s stock has declined by 80 percent from $31 per share when China invested, to $6.26 currently. Morgan Stanley’s stock was in the 50’s and its market value was over $50 billion when China took its stake. Today, Morgan Stanley’s shares trade at $15 per share and the company’s market capitalization has declined to approximately $15 billion.  The poor performance of the investments in Blackstone and Morgan Stanley, followed by the global financial crisis, have undoubtedly cooled China’s ardor for investing in the global financial services industry—at least at this time.

Unfortunately, I whiffed on this one as well.

If this were baseball, I would be batting .150, not a good average in any league. But, 2009 is another year, and I will go back to the plate in the next article.

In order to meet the objectives of its various stakeholders–stockholders, employees, creditors, suppliers and anyone else with an interest in the company’s success–a company must run its business and perform according to a variety of metrics. Sometimes, however, circumstances become so critical that it must adopt an overriding, singular focus for the good of all. In the 1980s, at a time when the quality of its products was being called into question and foreign car sales were surging in the United States, the Ford Motor Company coined the slogan, “Quality is Job One” to emphasize Ford’s commitment to regaining its quality image.

In 2008, China’s government had to shift its economic focus based on changing circumstances. Last year at this time, it was cooling a red hot economy. In February it was controlling the worst inflation China had seen in ten years. In May, it was dealing with the aftermath of the devastating earthquake in Sichuan. And in August, it was all about ensuring a smooth Olympics. With the current global economic crisis having such a severe impact on China’s economy, make no mistake about it, jobs–both creating them and keeping them–is now “Job One” in China.

China’s government has said that its economy will grow by eight percent next year. This is the growth rate China’s leaders believe is necessary for the economy to absorb the millions of new entrants that come into its workforce every year and to maintain a stable level of employment. As we have heard from Prof. Yijiang Wang, professor of economics and human resource management at CKGSB, this is his principal worry for 2009.

Countries the world over are putting in place various types of stimulus packages to create new jobs. When he takes office, Presdent-elect Obama is expected to announce a package of infrastructure projects and stimulus programs that could exceed $1 trillion. An equal amount of attention, however, is also being paid to preserving the jobs that already exist in the economy, no matter the price. President Bush has agreed to a $17.4 billion bridge loan to tide General Motors and Chrysler over until the end of March. The reason: no one can even contemplate the consequences of putting at risk the 3 million jobs that the heads of the Big Three automakers say would be lost if they are forced into bankruptcy.

Even Canada is getting into the act, pledging to provide loans totaling 20 percent of whatever the United States commits. “We cannot afford, in the United States or Canada, the catastrophic short-term collapse of the Big Three automakers. The U.S. has signaled that they are not going to allow these companies to fail, and we will do our share of the North American package to see that this doesn’t happen either,” Canadian Prime Minister Stephen Harper said at a news conference on Saturday.

In 2009, expect the same in China. Every other issue in the country will be subordinated to the closely-related issues of creating and keeping jobs and maintaining stability. China has announced a 4 trillion yuan (US$586 million) stimulus package, but that is only the beginning. We are now seeing signs that China will back off on strict enforcement of key initiatives such as environmental regulations if they threaten job loss. In the interest of maintaining stability, government leaders will be very sympathetic to workers’ concerns. Faced with a series of strikes across the country, government authorities have been allowing worker protests and have been having high-profile meetings with strike leaders to talk over concessions.

A strike by nearly 8,000 taxi drivers in the southwestern city of Chongqing in early November helped spark the recent wave. After three days, the city’s top Communist Party official, Bo Xilai, held a three-hour meeting with cabbies’ representatives, televised live. Mr. Bo, who is also a member of the Communist Party’s powerful central committee, urged drivers to set up an organization to mediate between their employers and the government.

Under the current circumstances, I have several suggestions for foreign investors in China.

• If you are in a joint venture, now is not the time to be pressing for those labor-saving measures to increase its efficiency. In the best of times, Chinese partners and the local governments they answer to are sensitive to any job cuts that may threaten stability. In the current economic climate, expect the resistance to be even greater.
• If you have a wholly-owned company in China, be careful in how you implement any layoffs. In the face of uncertain economic prospects, Western companies will instinctively seek to adjust employment levels, which is understandable. Even though your operation in China may be wholly-owned, however, this will not stop laid-off workers from taking their complaints to the local government–and the government will be listening. Talk to your friends in the local government ahead of time so there are no surprises.
• Make the most of any expansion plans your business may have in China by publicly or privately announcing them. China has a long memory and remembers companies and individuals who come forth in difficult times.
• Watch China’s power consumption numbers. In the aftermath of the Asian Crisis, published figures for China’s economy were not always reliable. Astute analysts began to track growth in power consumption as a more reliable indicator of the economy’s performance. The same will likely be true in 2009.

Having spent the first 20 years of my career on Wall Street, it’s impossible not to view the events now occurring in Manhattan with anything but complete horror. Consider what has transpired in just the last several months:

• Bear Stearns, one of the major U.S. securities firms, collapsed, and could only be sold after the Federal Reserve agreed to insulate J.P. Morgan, the buyer, from $29 billion of potential losses;

• FNMAE and Freddie Mac; the two largest mortgage lenders in the country, have been taken over by the U.S. government;

• Lehman Brothers, the venerable 158-year-old investment banking firm that survived two world wars, numerous recessions, stock market crashes and even the Great Depression, has filed for protection under the bankruptcy laws;

• Merrill Lynch, the firm that created Wall Street’s bull as an icon of American and stock market optimism, hastily agreed to merge with Bank of America over this past weekend in what can only be described as a shotgun marriage; and

• AIG, America’s largest insurance company with over $1.0 trillion of assets that ironically traces its roots to Shanghai, teeters on the edge of collapse.

As if that weren’t enough, executives at Goldman Sachs and Morgan Stanley are being pressed to explain why their firms have no further exposure to bad real estate and mortgage related loans and securities—and we haven’t even gotten to the hedge funds that are now facing redemptions and could soon be closing their doors as a result. I don’t know what it felt like in 1933 when the U.S. financial system last melted down to this extent, but it couldn’t have felt too much differently.

Given the way in which the entire world has become tied together financially and economically, the ripple effect of these events will be felt in every country around the globe. As America’s largest trading partner and the largest investor in the U.S. economy, China will be no exception. All things considered, though, the news isn’t necessarily all bad as far as China is concerned.

Expect to see the following:

• Slower Growth in Export sales to the U.S: Already sluggish, the current financial crisis will only exert further downward pressure on the U. S. economy. Banks and other lending institutions will be de-leveraging, conserving cash and reluctant to make new loans in the months ahead. With credit already tight and getting tighter, U.S. companies will be hard pressed to find the capital and loans needed to expand their businesses.

• Lower Commodity and Fuel Prices: In what can only be described as good news for China’s manufacturers and consumers, we are likely to be on the downhill side of the commodity pricing cycle. With lower global demand, the upward pressure on commodity prices is being alleviated. For example, U.S oil demand in 2008 is running 5 percent lower than last year due to high oil prices.  Lower demand, in combination with increased calls for offshore drilling in the United States, seem to have broken the speculative bubble in oil prices. That is why the cost of oil has fallen by one-third and is now trading below $100 per barrel.

• Less Inflationary Pressure: Lower commodity and fuel prices should also lower food costs, one of the major contributors to the recent bout of inflation that China has experienced.

• More Room to Stimulate the China Economy: With less inflationary pressures to deal with, the Chinese government should have more room to stimulate the Chinese economy in the aftermath of the Olympics and to counteract credit tightening and other measures it has taken over the past year.

• Upward Pressure on the Yuan Against the Dollar: The dollar has strengthened in recent months, slowing the fast appreciation of the yuan that took place at the beginning of the year. Given the current financial turmoil, the Federal Reserve will most likely be forced to lower interest rates and provide more liquidity to the marketplace. To the extent that it does, and absent efforts by China to intervene, pressure on the yuan to appreciate against the dollar will mount

• Near Term Downward Pressure on China’s Stock Market: With so much negative sentiment in the global financial markets, it’s hard to imagine how any equity markets in the world, including those in China, can be expected to perform well in the near term. However, if Chinese manufacturers begin to restore profit margins as a result of lower commodity prices, and if inflationary pressures are alleviated and the negative trends in China’s economy reversed, China’s stock markets could bottom as we near year-end . The Shanghai Index is trading below 2000, more than two-third’s below its high of last year.

• More Buying Opportunities in the United States: Financial assets are now being sold in the United States at fire-sale prices. While investing today in American banks, investment banks or financial institutions might be akin to “catching a falling knife,” the markets will eventually stabilize. When they do, China’s sovereign investment funds could be presented with some interesting, once-in-a-lifetime, buying opportunities in the world’s biggest capital marketplace.

Everyone knows what happened to China’s economy after WTO, but what about ATO?

China’s accession to the World Trade Organization in late 2001 was one of the factors that touched off six years of double-digit growth in China, culminating in an incredible 11.4 percent expansion of the country’s GDP in 2007. Exports quadrupled from approximately $300 billion in 2001 to $1.2 trillion last year. Property prices climbed ever higher, and China’s stock market soared, with the Shanghai Index passing 6,000 last October. In early November, PetroChina listed in Shanghai and became the first company in the world to be worth $1 trillion. With stock market valuations at inflated levels, China boasted eight of the 25 most valuable companies in the world. If that wasn’t a bubble, I don’t know what is.

As the pages on the calendar turned at the end of 2007, conventional wisdom held that China had so much face invested in the Olympics that the government would do all that it could to maintain a fast growth rate in 2008, and that an expected high level of spending in the run-up to the Games in August would ensure that result. Coming on the heels of six years of double-digit growth, it was quite natural to wonder how big the emotional and economic letdown would be when the last of the athletes and tourists left Beijing.

Although China’s economy grew by 10.4 percent in the first half of 2008, this represented a marked slowdown from the pace set in 2007. By almost every measure, China’s economy has been decelerating since the beginning of the year. For example, export growth slowed to 21 percent in the first half of the year, compared with 26 percent in the same period last year. Vehicle production increased by 17 percent for the first six months, but the growth rate was over 20 percent at the beginning of the year and has been declining nearly every month since. By June 30, there were widespread reports of higher than normal passenger car inventories.

The economy has continued to deteriorate since mid-year. The latest official statistics on manufacturing show that output of Chinese factories may have actually contracted in July. By early August, Jing Ulrich, Hong Kong-based chairman of China Equities with JP Morgan, was quoted as saying: “As the day of the long-awaited opening ceremony arrives, China’s economy is indeed slowing. A slowdown in export growth is rippling across the economy. New orders at factories have declined, and the country’s property market has seen a sharp drop in transaction volumes.” Against this economic backdrop, it’s no wonder that the Shanghai Index has plunged by more than 60 percent to below 2,400.

What happened, and what does this mean for China ATO? A global slowdown has been one reason for China’s slowing economy, particularly with respect to exports, but measures taken by the Chinese government are certainly another. Concerned about inflation, high commodity prices and an overheated economy, China began restricting bank loans and allowing the renminbi to appreciate more rapidly against the dollar last year. Apart from these broader measures though, it appears that the government also took advantage of strong overall growth in the economy to pass measures which are having the effect of forcing China’s manufacturers up the value added chain. A new labor law, stricter enforcement of environmental laws and reductions in export rebates may be seen as an attempt by the government to discourage the growth of companies that produce low-margin products that rely on low-cost labor, pollute the environment and abuse workers. Reports of rampant factory closures in the south of China suggest that these measures are having precisely this effect.

The net result: what many expected to happen to China ATO, actually happened BTO (Before The Olympics). From here, all signs point to the government shifting course and beginning to stimulate the economy. It has already authorized a 5 percent increase in the amount which banks may lend and has increased certain export tax rebates. In addition, fiscal policy will be stimulative the rest of this year and next. China still operates under a five-year planning cycle, and infrastructure spending tends to be highest during the second, third and fourth years of the Five Year Plan. (2008 and 2009 are the third and fourth years, respectively, of China’s Eleventh Five Year Plan.)

The Chinese economy will certainly slow further during the remainder of this year, but that was already in the works due to measures taken by the government last year, and has little to do with the Olympics. How slow could things get? Lehman’s China economist Mingchun Sun predicts that GDP growth for the second half of 2008 will slow to 8.7 percent. Sun also predicts Chinese GDP growth will cool to just 8 percent in 2009.

Because I believe that measures will be taken to stimulate a decelerating economy and that infrastructure spending will remain high, I am much more optimistic about 2009.

These past three weeks in Beijing have been some of my most memorable in China. The Games themselves—from the Opening Ceremony to the amazing lineup of Chinese athletes and the unbelievable individual performances by Michael Phelps and Usain Bolt—- have been nothing short of spectacular. Along with that, I have had my entire family in town for two of those weeks and Beijing has been one big party. For starters, we attended no less than four birthday celebrations (there seem to a lot of Leo’s in town), as well as a warm-up party put on by the Jamaican Embassy on the afternoon when Bolt set the record in the 100 meter sprint, bringing home yet more gold for this island nation.

One of the most interesting events that came up unexpectedly was being interviewed on Monday evening by Carl Quintanilla, the Emmy award-winning co-anchor of Squawk Box, high atop the Convention Center, overlooking the Bird’s Nest and the Water Cube. Carl’s opening comment: “Jack, it must feel like you’ve been to a party for the past 20 years that the rest of the world is only now getting invited to,” expressed what a number of the NBC execs and producers also said as we prepared to go on air. Many are first time visitors to China, and to put it mildly, have been simply blown away by what is happening here. Expect even more coverage of China in the aftermath of the Olympics. Everything now is “China, China, China” and viewers can’t get enough it seems. In this sense, the Games have lived up to their promise of being China’s Coming Out party.

Carl’s next question was one that has been on everyone’s mind since the beginning of the year; “What happens to China’s economy after the Olympics?’ We will be doing more on this topic later, but here is a preview:

Building a Billion $ Business in China

18 Aug 2008

CNBC’s Carl Quintanilla interviews Jack Perkowski, author of “Managing the Dragon.”

NBC and its affiliates have a ton of people here covering the Olympics, but even those not in China are featuring Beijing, China and the Games in their broadcasts from the States. In June, I was interviewed by Maria Bartiromo for her Wall Street Journal Report. Even then, much of the talk was about the upcoming Olympics—-and the environment. The full interview ran in the States this past Sunday evening at 7:30 pm on CNBC nationwide. The preview segment on the CNBC.com website was appropriately titled:

China’s Future & the Olympics

With the Beijing Olympics getting underway, Maria talks to Jack Perkowski–an American attempting to build a billion dollar business for a billion-plus population.

Beijing is surrounded by mountains, and so far Mother Nature hasn’t cooperated with the combination of rain and wind needed for my prediction of blue skies to become reality. After a beautiful weekend before everyone arrived last week, Beijing has been hot, humid and grey. Thankfully, it rained on Sunday; the city is much cooler today; and if the winds pick up, I may yet be redeemed for at least part of the period of the Games.

Beijing weather aside, the point I made in the interview is that the environment is one of the future constraints in the growth of China’s economy, and the government now recognizes this fact and has turned the corner in terms of how it thinks about these issues. I realize there is a very, very long way to go before China can fully address the many environmental problems it faces, but a mindset change was an important and necessary first step. From our vantage point as a manufacturing company with factories throughout the country, I see growing evidence that environmental impact is increasingly being factored into the country’s decision making.

First of all, local officials now bring up the topic of the environment—and the positive steps they are taking to improve it—-in discussions about their city, town or province. It’s clear that the environment is now part of the scorecard that the higher ups in Beijing look at in evaluating performance.

Secondly, I saw tangible evidence of a quite different attitude in my recent trip to our factory in Shanxi Province. Located about 1000 kilometers from Beijing, it sits near a steel processing facility that, in the past, regularly spewed orange smoke into the surrounding area. Despite repeated complaints to the local authorities, we could never get them to clean up their act. Now, it seems, government officials are visiting all of the factories in the area at least once a month to ensure that the rules are being followed.

Though tougher enforcement of existing environmental regulations was undoubtedly begun as part of the cleanup for the Olympics, the Chinese are no different than people in any other part of the world. Once people have clean air, they tend to want to keep it that way.

If you are in Beijing and hadn’t gotten into the Olympic spirit before this Monday, you couldn’t help but get into it then. Both NBC and CNN began their Olympic coverage with Matt Lauer conducting interviews on the Great Wall and John Vause and Anjali Rao leading Countdown Beijing.  Meanwhile, United, Continental, Lufthansa and dozens of other airlines began delivering scores of athletes, members of the press and spectators, many of them first-time visitors to Beijing and China. I’ve never seen so many flash bulbs going off at the airport.

I had two major events on Monday that brightened my day and put me into full Olympic mode. Sara and Douglas, my son and daughter, arrived after a 13 hour flight from Newark with two year old grandson Bobby and six month old granddaughter Ellie in tow. Sara’s husband, Bob, will be joining us on Saturday, and with my youngest daughter, Libby, already in town, it will be the first time that we have all been together in China. Bobby looked like an Olympic athlete as he sprinted towards us after clearing Customs. After only one day, he is already making more progress on the language than I have in fifteen years. He has “Nihao” down perfectly!

China Daily also chose Monday to run a three piece, full page feature on me on the back page of the Business Section. Diao Ying interviewed me in June right after the Chinese version of my book was launched, but China Daily held off running the article until now. Their timing could not have been better from my point of view.

In addition to the main article “Going Local” where they noted my predilection for baijiu and rabbit ear, they ran a section called “Tips from Jack Perkowski on doing business in China” and another on the “Tough Lessons” I have learned in China, focusing on the three chapters in my book where I discussed management transitions in Anhui, Langfang and Hengyang.

All in all, a pretty good start to the week and the 2008 Beijing Olympics.