In the chapter on China’s Two Markets in my book, Managing the Dragon, I describe how every product in China has two markets: a highly visible market that resembles those in the most developed economies in the world, and a second, much less visible one that is purely local and unique to China. While the world focuses on the first, much of China’s population deals on a daily basis with the latter.

This is true even in the case of capital. On the one hand, China’s commercial banks are now among the largest in the world and have become highly active, and visible, players in global financial markets. In the stock market, the ups and downs of the Shanghai Stock Exchange are reported on in the same breath as those of the exchanges in New York or London. At its peak last year, the valuation of China’s A share listed companies was a lofty 43.7 times earnings, more than double valuations on most stock markets around the world. Even with the 55 percent decline from last October’s peak prices, A share companies trade at 18.5 times earnings, slightly more than the price/earnings multiple for the S&P 500.

While China’s largest companies enjoy rich stock market valuations and can readily borrow money from banks at interest rates less than 8 percent, most private companies in China are forced to resort to a large and growing network of illegitimate, unregistered and unregulated private lenders that charge interest rates of 20 percent or more. This underground network constitutes China’s less visible, purely local market for capital. Though it has always existed in one form or another, China’s recent credit tightening measures are drying up bank financing that most private companies find it difficult to obtain even in the best of times.

Rampant entrepreneurialism in China and the 85 million private enterprises that Ted Fishman, author of China, Inc., estimates exist in the country, belie the fact that being an entrepreneur in China is no easy matter. Despite the enormous amount of capital that has flowed into the country over the past thirty years, and the vast amount of wealth that has been created during that period, obtaining capital to start or build a business in China is one of the biggest hurdles faced by budding entrepreneurs.

Bank loans, a traditional source of financing for new companies in other countries, have been largely reserved for state-owned enterprises in China, where the implicit guarantee of the state makes it unnecessary for loan officers to learn how to analyze a business plan. A survey by the Guangdong provincial government showed that small and medium sized enterprises in that province only got 2 billion yuan in bank loans in 2007, 2 percent of the total loans extended in the province.

Leasing and other institutionalized forms of secured lending are still in an embryonic stage of development in China. Even selling shares in the stock market, an option available to companies of all sizes in most other stock markets around the world, is not an option for private companies in China, no matter how promising their growth prospects. Which companies go public in China is determined by state regulators, not the investment bankers.

With traditional channels for obtaining capital closed to them, a purely local market for capital has developed as many private companies have been forced to go “underground” to obtain start-up or working capital. A recent story in China Daily Business described some of the aspects of this purely local market and the dilemma faced by entrepreneurs in the country.

When Yuan Xing needed 800,000 yuan to start his organic farm, he turned to private lenders in his hometown for financing at a 20 percent annual interest rate.

“I knew I could get a better rate from a bank,” said the 29-year-old fruit and vegetable producer. “I tried Bank of China and Industrial and Commercial Bank of China, but they didn’t even want to look at my business plan.”

“A lot of small firms come to us. Only the bigger enterprises go to the banks,” said an underground lender, who declined to be named. He has lent out 10 million yuan - he declined to say how he made that kind of money - at 30 percent annual interest rate.

“Interest is not an issue. They will go bankrupt if they don’t get our short-term loans,” he said. “Our money is available at short notice. We can deliver the cash within 24 hours, while a bank loan might take at least six months.”

Despite usurious interest rates, underground lending is becoming a big business in China. In a survey conducted by Beijing’s Central University of Finance & Economics, it was estimated that underground lending totaled 1.98 trillion yuan in 2007, equal to 28 percent of the amount lent by banks.

China is a study in contrasts and nowhere is this more apparent than in its capital markets. Countries like the United States have found that the biggest sources of new jobs are the small and medium sized enterprises, not the large Fortune 500 companies. One of China’s biggest problems is its lack of effective capital markets to distribute capital to those individuals and companies that can use it most effectively. One of China’s biggest opportunities is to develop capital markets that do.

On May 16, the Chinese version of Managing the Dragon was published by China Youth Press.  The book is now available at book stores throughout the country, as well as through China’s two major on-line booksellers, Dang Dang and Joyo Amazon.  The book has been well received by Chinese readers and China Youth Press has already gone into a second printing.

What are the Chinese readers saying about the book?  We have translated a few reviews for you here: 

“Managing the Dragon describes Jack Perkowski’s journey, experiences and feelings at different stages in his life–it is the essence of his life.  It is also a book about a very special company created and based in China, ASIMCO, which was founded by Jack and developed over the past 15 years, and closely relates to the same period of China’s reform and opening-up process.   It is a sound example of what many companies in China experienced.   Jack, like all the other entrepreneurs in this era, saw many opportunities but had to deal with many challenges.   The book not only showcases the spirit of an entrepreneur and wisdom of business, but also the relentless pursuit of a man with dreams.”
— Liu Wei, Publisher at China Youth Book., Inc., a division of China Youth Press

“It is a fairly recent phenomenon that foreigners think of China as an ideal market and attractive location to build a business.   Jack, however, was a pioneer.   Through his experiences described in detail in the book, he tells people willing to invest in China that you had better try your best to understand the country, people and culture.  Indiscreet action is very dangerous.”
— Hu Yong, Chief Editor of “Win in China”, CCTV

“Nowadays, the global automotive industry competes fiercely and China has fortunately become the main battlefront in this competition.  Through 15 years of effort which started from scratch, Jack has made an admirable business achievement in China.  No matter if you are a foreigner willing to build a business in China or are just interested in understanding the rules of business here,  or you are Chinese and looking to take your business into the global market,  Jack’s,  Managing The Dragon,  is the book you should read.”
— Yan Ping, Chairman of Yuchai
 
“As one of his Chinese Partners, I personally witnessed how Jack reformed a State Owned Enterprise (“SOE”) and helped them to become the globally competitive company.   All the difficulties and challenges he faced in China and how he overcame them are summarized in his book with clear explanations and insightful perspective.   It is a book worth reading.”
 — An Qingheng, Former Chairman of BAIC, President of Association of Beijing Auto Industry 
 
“The most estimable attribute of Managing the Dragon is that it speaks fairly about China’s positive and negative issues and problems during its “Reform”.  Furthermore, Jack took a very positive and active approach in analyzing all these problems and issues which will give all foreign investors a comprehensive knowledge and understanding of how China and China’s reforms.”
— Annonymous – Joyo Amazon

If you are intentionally avoiding China and Beijing during the Olympic Games, thinking that the country and the city will just be too crowded, you may want to reconsider.

August is always the hottest and most humid month in China’s capital city, and most expatriates living here typically take the month to return to their home countries. This year’s exodus is being exacerbated, however, by new rules that are making it difficult to renew visas; and the visa restrictions, plus concerns about the availability and high prices of hotel rooms and tickets, are causing would-be Olympic travelers to stay at home. As a result, it now appears that there will not be nearly as many visitors as previously expected to enjoy the $40 billion of new infrastructure that has been put in place in China’s capital city over the past seven years.

The new visa restrictions, which China has adopted for security reasons are definitely having an impact on tourism. The number of foreign visitors to Beijing in May dropped by 12.5 percent from a year ago, China’s tourism bureau said. Among the biggest drops were Japanese visitors, down 45 percent. The number of American visitors fell by 17.15 percent.

As a result, many are predicting that the Olympics may be a bust for Beijing’s hotels. “We are not full at the moment, and we have rooms to fill,” said Anthony Ha, general manager of the newly-opened Marriott Courtyard Beijing Northeast. “There’s not much time left, and we have a way to go.” With the opening ceremony of the Olympics just seven weeks away, only 44 percent of the rooms in four star hotels and 77 percent of five-star hotel rooms are booked, according to the Beijing Tourist Bureau.

Many other cities in China are also feeling Beijing’s pain of fewer tourists, including Shanghai, where some hotels say occupancy rates are down 15 to 20 percent. The new visa rules are not only affecting tourism but also business travel:

Nothing is more of an obstacle than the new visa policy. Businessmen, particularly from the United States, Hong Kong and Taiwan, have complained that new visa restrictions have prevented business meetings from taking place and crimped deal making. Many Hong Kong-based businessmen, for example, say new visa rules require frequent and complicated applications, often including proof of a hotel booking, round-trip airline tickets, and in some cases, a letter of invitation.

The visa restrictions are also having an impact on expatriates living and working in China. Because the new rules may require expatriates to return to their home countries to renew visas, many are simply staying home and telling their Beijing colleagues, “We’ll see you in September!” This hit home over the weekend when I learned that John T. McAlister, a good friend and a driving force behind the Yale Club of Beijing, has lost his months-long battle with the visa authorities, and is being forced to leave Beijing after being here for eight years.

All of this is having an impact on business, and the Olympics may not be the economic boon that many expected. There has already been a visible drop in traffic at restaurants, bars, hair salons and other establishments frequented by tourists and the expatriate community. Most shop owners that I know can’t wait for the Olympics to be over so that Beijing can return to normal.

In addition to there being fewer people than expected on the streets of Beijing, there will also be fewer cars. Beginning July 20, the odd/even license plate system will begin and the number of vehicles will be cut in half. The only experience I have in this regard was the 50th year anniversary of the founding of the People’s Republic of China in 1999. All traffic inside the Third Ring Road was restricted, and the flow of people in and out of Beijing was reduced considerably. October is one of the nicest months to be in Beijing weather-wise, but the traffic restrictions certainly helped ensure blue skies for the parade.

Although there are peculiar circumstances such as the visa rules in the case of China, Beijing’s experience may not be so different from what I have been told about other Olympic cities. Vlad Reyes, a good friend of ours who runs the Beijing Hilton, managed a hotel in Sydney when that city hosted the Olympic Games in 2000. Just like Beijing, all of the hotels were fully booked one year in advance of the games. As the games approached, however, rooms were let go and many rooms became available.

Similarly, another friend of ours who lived in Los Angeles in 1984 when the games were held there, sent his children away, figuring that traffic during the games would be horrific. He said it was the biggest mistake he ever made. The freeways were empty and getting around LA was easy. Everyone thought as he did and stayed away from the city. With the much anticipated Games only weeks away, it appears that potential visitors to Beijing and the city’s residents are having the same reaction.

Ted Fishman, the author of China, Inc. and a good friend, shocked me and the audience in Florida in late 2005 when he stated, matter of factly, that there are 85 million private companies in China, more than three times as many as the 25 million in the United States. Ted and I were serving on a China panel together, and I learned something that day that I still cannot get out of my mind. I always knew that China is an entrepreneurial country, but I had no idea as to the sheer magnitude of the numbers– until then, that is.

Entrepreneurism in China is infectious, and there is no known antidote or cure as far as I can see. It seems like everyone in China—young, old, Chinese, non Chinese— is starting some type of business. If you aren’t an entrepreneur before you get here, I guarantee you; you will become one before you know it.

Despite the difficulties of doing business in China and the fact that the country is already the third-largest economy in the world, China remains one of the best places in the world to start and build a business. Why? First, the economy is growing at double-digit rates, so whatever business you pick, it is likely to have a strong wind at its back.

Second, China is a large economy, but it is also one that is in an embryonic stage of development. That means there are many “gaps” that need to be filled. How many times have you met someone who has just returned from his or her first trip to China and is literally brimming with ideas for new opportunities in China? That’s because there are a lot of opportunities and gaps to be filled. Services and products that are readily available and familiar in a well-developed economy may not be so available or familiar here. Finally, despite China’s rapid development, it’s surprising how many otherwise well-informed business people around the world are not even aware that there may be opportunities for their products or services in China. If you happen to spot one of these “opportunity gaps,” don’t assume that it will soon be filled. The people or companies most likely to fill it may not even be aware it exists.

Having gone down the entrepreneurial road myself, I am always happy to help those that are beginning their own journey in whatever way that I can. That is why I was more than happy to accept an invitation by Jim James and Matt Lewis to speak to the Beijing chapter of the Entrepreneurs’ Organization (EO). EO is an organization that represents a global network of more than 6,600 business owners in 38 countries. Founded in 1987 by a group of young entrepreneurs, EO provides a platform that enables entrepreneurs to learn from each other.

The event in Beijing was well-attended, and I was delighted to meet many people whom I have known by name over the years, but whom I had not yet had the opportunity to meet in person. Most in attendance have been in Beijing and China for several years, so it was a very experienced group. I was particularly happy to meet Paul Denlinger, who not only wrote a review of my book, but also wrote about the event on his blog, The China Vortex.

I congratulate Jim and Matt for their hard work in building the Beijing Chapter of EO. In Jim’s words, “EO is a forum for entrepreneurs to share, learn and support one another here in Beijing. We welcome people who are taking risks, making decisions and building a business here in China.”

 If you would like more information about EO Beijing, you may contact Jim directly by e-mail:jim@eastwestpr.com

As a result of rising crude oil prices, and taking advantage of a drop in the country’s inflation rate in May, China raised gasoline and diesel prices for the first time in eight months this Friday. As of midnight, gasoline prices were raised by 0.8 yuan (12 cents), and diesel 0.92 yuan (13 cents), per liter. This brings gasoline prices to 6.2 yuan per liter in China, or approximately $3.47 per gallon. In most parts of the United States, gasoline now sells for $4.00 or more per gallon. However, taxes account for 11 percent of the retail price, so the net price per gallon in the U.S. is approximately $3.56 per gallon.

It appears that the Chinese government took advantage of the drop in inflation from 8.3 percent in March to 7.7 percent in May to bring energy prices in the country more in line with global prices. At the same time, China announced that it will raise electricity charges for commercial units as of July 1.

With prices in China’s A share market falling precipitously from their October 2007 peak, and many in China calling for the government to do something, anything, to stop the stock market’s slide. I wrote a post on April 29, Sometimes, the Market Just Wants to go Down, where I argued that further intervention by the Chinese government would be the worst thing it could do. The duty of any government is to implement sound economic policies, and to ensure transparency and fairness in its capital markets — not  to guarantee that its citizens and investors earn positive returns through the stock market.

Sometimes, despite any government’s best efforts, stock markets react to global events or trends that are outside the government’s control. In these cases, the market just wants to go down, and the government should let it. This is how vibrant, well-functioning capital markets that efficiently allocate capital in any country’s economy are built.

Anxious to ease the pain of investors, the government nonetheless continued to intervene. Despite these efforts, China’s stock markets have continued to slide, with the Shanghai Composite Index dropping below 3,000 last week. On Tuesday, June 17, the Index plunged another 2.76 percent to close at 2794.75, a 15-month low. The Shenzhen Component Index tumbled 4 percent on the same day.

Commenting on the market, a recent Wall Street Journal editorial summed up the futility of government intervention in the country’s stock markets, and the distortions it causes in capital allocation:

There are good economic explanations for this week’s bear run. As the U.S. and European economies slow, there are worries about China’s export growth. Domestic consumer price inflation hit 7.7% last month. Beijing is trying to slow the economy in response – most recently by increasing banks’ capital reserve requirements Saturday. In any normal market, investors would be worried about corporate earnings right about now.

But China’s stock market isn’t normal; underlying economic growth is less important than government meddling. In the past few months, regulators have reduced the stamp tax on stock transactions, imposed new regulations to limit large block sales, and even told mutual fund managers not to sell their holdings too quickly.

As a result, investors are punting on what the next new regulation will be, rather than on the economic fundamentals of listed companies. This leads to inefficient capital allocation, herd behavior and boom-and-bust cycles. It may also prove self-defeating. Now that Beijing has shown it can’t hold the market above 3,000, the danger is that investors lose faith completely and a sharper plunge might ensue.

In “Managing the Dragon,” I argue that one of China’s biggest problems is the current state of the country’s capital markets. There is plenty of capital in China — it’s just not distributed efficiently. In the book’s final chapter, where I review the bumps ahead for China’s economy, I wrote:

Inefficient use of capital, as I’ve discussed on a couple of occasions, is another big problem. The amount of capital required to generate an additional 1 percent growth in the country’s GDP’s increases each year. Unless China develops a better way to channel capital to the individuals and companies that can use it best, the country won’t be able to achieve its full economic potential.

Despite their current shortcomings, the development of efficient capital markets represents one of China’s biggest opportunities going forward. If you think that the country’s growth over the past 30 years has been something, wait until China develops deep, diverse and independent thinking pools of capital — “cold-nosed capital” that seeks only the highest returns as Charlie Williams, one of my Harvard Business School professors, used to say. The economic growth caused by the eruption of entrepreneurial activity that will occur as a result will be nothing short of spectacular.

As a first step towards that goal, the editors at The Wall Street Journal said it best:

If Beijing wants to create conditions for a healthier market in coming months, it will let this slide run its course.

Given all the questions I’ve gotten recently about whether ASIMCO plans to move production to lower-cost countries like Vietnam to escape rising wage rates and inflation in China, I found the opening sentence in a recent Wall Street Journal article about Cambodia to be somewhat ironic:

As Vietnam’s overheated economy teeters on the brink of crisis, its neighbor Cambodia is being labeled the next frontier market for private equity.

Huh! Did I miss something? Or, is this just an outbreak of ADD (attention deficit disorder) that’s sweeping the international investment community? Overnight, it seems like we’ve gone from an investment focus on the third-largest economy in the world, with a population of 1.3 billion, to a brief stop in Vietnam, a country with an 85 million population and a GDP of $71 billion, to an even smaller Cambodia with a population of 14 million and a GDP under $10 billion.

Don’t get me wrong. I have nothing against Cambodia, and in fact, I really like the country. Carleen and I had the pleasure of meeting up with Libby, my youngest daughter who is making a year-long trip around the world, in Siem Reap over the May 1st holiday and spending a nice long weekend there. The temples of Angkor Wat are first-class sights and well worth a trip to the country. If you haven’t traveled there yet, I highly recommend it for your next tourist excursion in Asia. And, despite living through a tragic and terrible recent history, the Cambodian people seem genuinely nice. I have to admit that I found myself thinking about the opportunities that might be available there. But China it’s not.

In the meantime, what happened to Vietnam? If you haven’t been following the story, inflation hit a peak of 25.2 percent in May, and a proliferation of labor strikes is dragging foreign manufacturers into the country’s worsening economic crisis. Vietnam, it seems, has seen an influx of foreign companies in recent years, many of them clothing or footwear manufacturers seeking relief from rising labor and business costs in neighboring China. Last year, foreign companies applied to invest $20 billion in Vietnam (an amount that wouldn’t even make a dent in China), pushing up office rents and other costs.

A Credit Suisse research report observed that: “Vietnam is balancing on a beam at present. The situation has not yet deteriorated to a point where a crisis is inevitable, in our view, but we are hardly reassured about the economic and policy direction.” China, with its $3.2 trillion economy, deep labor pool and relative economic stability has never looked better.

All of this reminds me of my days on Wall Street in the 1980s. When I was running PaineWebber’s Investment Banking Division, I used to hold an 8:30 meeting every Monday morning to review deals and the markets. The highlight of the meeting was always a review of the previous week’s market activity by Bruce Foerster, our syndicate manager. Not only did Bruce show up every Monday sporting a different set of brightly colored, flamboyant suspenders, but he could have been a stand-up comic in another life. Usually, a few minutes into his review, he had everyone rolling in the aisles.

I’ll never forget one Monday when Bruce unveiled his “The grass is always brown” theory. Wall Street has always been a bit of a revolving door, with bankers changing firms after bonuses are announced almost as frequently as they change their shirts, but we were experiencing an unusually heavy wave of defections at the time. Everyone was looking over the fence at other firms, where the grass just seemed to be a whole lot greener than at PaineWebber. Being the consummate relationship person, Bruce always maintained contact with those who had left, keeping tabs on how they were doing. Bruce’s conclusion: rather than finding lush, green grass on the other side of the fence, the departing bankers inevitably discovered that “The grass is always brown.” Every firm has its advantages and disadvantages. It just so happens that the disadvantages of the firm you work for, and the advantages of the “other” firm, are always the most apparent.

So too with countries. Opportunity is where you find it, and there are good opportunities in every country in the world. Vietnam and Cambodia are but two examples. But they aren’t perfect, and neither is China. There are many things that all of us would like to be different, but the fact remains that China is, and will continue to be, the economic story of the 21st century. When China has inflation or hits some other bump in the road, we shouldn’t be so quick to conclude that the country has run its course, and that it is now time to begin looking for the next big thing. To paraphrase Winston Churchill, this is not the beginning of the end, but merely the end of the beginning as far as China is concerned.

As anyone who lives and works in China knows, obtaining visas is becoming a bigger and bigger problem here. So much so that some, like the Australian foreign minister, are warning that this could harm future trade and business. In a recent interview, Stephen Smith told reporters in Hong Kong: “It is important that the Chinese authorities understand the potential practical, on-the-ground difficulties that this is causing.” Whether this is part of the overall pre-Olympic tightening that may begin to dissipate when the last athlete leaves Beijing, we won’t know until later. In the meantime, individuals and businesses alike need to understand the new restrictions and how to best deal with them.

To this end, Jason Inch, a Shanghai-based consultant and co-author of the soon to be released “Supertrends of Future China,” did us all a favor by putting together in one place some of the most current thoughts on the visa issue. Last week, Jason commented on his blog, China Supertrends, about a recent panel discussion and networking event in Shanghai which was sponsored by Beijing-based China Entrepreneurs and whose theme was “The State of Entrepreneurship in China.” I had the pleasure of serving on the panel along with Taiwan entrepreneur Raymond Chang, who is bringing a new take to home television shopping in Shandong; and Rocky Lee, an American lawyer with DLA Piper who heads its Asia Venture Capital and Private Equity practice.

We did not have time or the occasion that evening to discuss the visa issue and how it impacts entrepreneurs in China, so Jason provided a nice summary in his post. He referenced the changes you should know about and how this might affect your personal and business travel plans; a timely post on the subject from Dan Harris of China Law Blog; as well as several posts from China Herald.

I won’t repeat all of the advice, wisdom and observations contained in these sources, but merely refer you to them.

???????? ????? ????????One of my recent presentations, I was asked what impact $130 a barrel crude oil is having on the growth of China’s auto industry. It was a good question, one that deserved a much better answer than I could give. With the price of crude increasing so quickly–a 17 percent increase in May alone when oil hit its peak–it’s very difficult to tell. I replied the only way I could by saying, “I don’t know.”

On the surface, the industry continues to motor along, with passenger cars increasing by 20 percent year over year through May, and trucks increasing by an even faster pace at about 25 percent. Those figures can be a bit misleading, though, given that the Chinese government is controlling fuel prices and insulating consumers from the most recent price shocks.

Gasoline math and comparing prices around the world is a bit tricky. In continental Europe, for example, where consumers are paying the equivalent of $8 per gallon at the pump, analysts estimate that the various governments are taking up to 70 percent of the retail price in taxes. The United States, where the government’s tax take is only 11 percent of the retail price, is probably a better reflection of true market prices. At $4 per gallon near my farm in New Jersey, the true cost of a gallon of gasoline is about $3.56, net of taxes. Even at that discounted number, however, the price of a gallon of either gasoline or diesel is still quite a bit lower in China. A recent survey of prices in Beijing showed that both gasoline and diesel are selling at the equivalent of just over $3 per gallon. The last time the Chinese government raised the price of fuel was at the beginning of November, 2007 when crude oil was about $95 per barrel.

As far as the appetite for passenger cars in China is concerned, it’s very difficult to tell what effect today’s high prices for oil are having on demand. The Chinese consumer is still living in the world of November, 2007, which as the rest of the world has found, is ancient history in terms of oil economics. It’s difficult to believe, but oil was only $65 per barrel, less than one-half the May peak, at about this time last year.

The situation in trucks is even more complicated. In addition to controlled pricing for diesel, demand for trucks is being impacted considerably in the first half of 2008 by the expected implementation of Euro III emission standards for heavy duty trucks on July 1. Because a Euro III compliant truck will cost from 15 percent to 25 percent more than one that meets only Euro II standards, truck buyers are ordering all the Euro II trucks they can, while they can.

What happens after July 1 is anyone’s guess. While the secular demand for trucks continues to increase, pre-buying in the first half, combined with diesel shortages across China, are bound to have an impact. Because refiners have not been allowed to pass along higher raw crude costs, they lose money on any diesel they sell and have been limiting production. Moreover, the recent earthquake in Sichuan Province has caused diesel to be diverted to Sichuan and other provinces impacted by the quake. Diesel is the fuel used to power the large numbers of trucks and construction equipment used in the rescue and rebuilding efforts, as well as the generators that are providing temporary sources of electricity to the millions of homeless.

At 11:30 pm the other day, one of my colleagues saw a long line of trucks at one gas station on the Fifth Ring Road in Beijing, the drivers asleep in their cabs, waiting to fill up. In areas like Hunan Province, truck drivers, after waiting for more than one hour, are being told that they can only refill 700 yuan worth of diesel, which at today’s prices represents only 25 to 30 percent of what a typical tank can hold.

With no relief from diesel shortages in sight, and the normal questions looming as to how rigorously China will enforce the new emissions regulations come July 1, the outlook for truck sales in the second half of the year is unclear.

Unfortunately, I don’t think anyone can answer the question posed at the beginning of this article with any degree of certainty. We will all just have to wait and see.

With almost 100,000 people either dead or missing, and as many as 5 million now homeless, it is difficult to find many bright spots in the devastating earthquake that ripped through Sichuan Province several weeks ago. The reconstruction needed to repair the damage done in those few minutes will be an ongoing story for months and years to come. Whole cities may be gone forever.

Amidst all the devastation, however, the story of Sangzao Middle School and Ye Zhiping, its remarkable headmaster, stands out. “One minute and 36 seconds after the first tremors of the earthquake hit Sichuan province on May 12, more than 2,200 students and 100 teachers of the province’s Sangzao Middle School in Anxian County, Mianyang City, evacuated the school buildings and gathered at the playground. Not a single person was hurt.”

This amazing result was not an accident. It was due to the deep sense of responsibility that Ye Zhiping, who is now being called “the greatest headmaster in history,” brought to his job. “The parents have entrusted us with their children,” Ye said calmly in a recent interview with a Beijing radio station. We cannot let them down.”

Concerned with the stability of a lab building when he took over as head of the school in 1997, Ye commissioned a number of structural improvements—reinforcing columns; replacing heavy brick railings with light steel bars; injecting concrete into each floor—that ultimately enabled the building to remain standing. While the school had spent 170,000 yuan ($24,504) on the lab when it was built in the 1980’s, these structural reinforcements cost 400,000 yuan ($57,662). He also was very strict on the quality of the other buildings in the school.

In addition to looking after building safety, Headmaster Ye insisted on safety training. Beginning in 2005, he made it a rule to conduct one evacuation drill every semester. This prevented the stampeding that often occurs when a natural disaster such as an earthquake occurs, and enabled all of the students and the teachers to evacuate the school within one minute and a half after the quake. As one of the students commented afterwards, “I did not panic when the earthquake occurred. We had already been through evacuation procedures. After receiving the signal from the school, the teacher of each class led the students out of the buildings.”

Poorly constructed buildings, the use of inferior building materials, and inadequate safety precautions are some of the reasons why earthquakes in China take such an incredible death toll. Buildings are simply not built to withstand earthquakes, and too little attention is paid to safety. One positive outcome of this terrible tragedy will be improvements in each area, and Headmaster Ye’s example will be emulated throughout the country.

Expect tighter building codes for new buildings and reinforcement of existing structures as a result, certainly with schools, but also with other buildings as well. The need for this has been heard loud and clear. “China will build schools as the toughest strongholds of the country,” said Liu Yandong, member of the Political Bureau of the Central Committee of the Communist Party of China, while visiting schools in Sichuan last week.