Several months ago, Joni Evans, a good friend of mine, began a new Web site www.wowowow.com (“The Women on the Web”) that is oriented to women, 40 years of age and over. Joni, a veritable powerhouse in the publishing industry whose career includes serving as president and publisher of Simon & Schuster and publisher at Random House, identified women over 40 as an underserved market on the Internet, and decided to create a Web site targeting this segment. To help her create, run and write for the site, Joni organized 15 extremely successful women, including Lesley Stahl (broadcast journalist), Peggy Noonan (political columnist), Mary Wells (inventor of modern day advertising); and entertainers, Whoopi Goldberg, Candice Bergen, Lily Tomlin, and Marlo Thomas into a powerful team.

Why do I mention this on Managing the Dragon, a site devoted to China? Trust me, there is a China angle– I’m getting to it. But first, a bit more background.

A popular feature of the site is the “Question of the Day” which each contributor is asked to answer. One of the first questions was a doozy. Followers of New York politics will recall that in mid-March, Eliot Spitzer, the self-righteous former Attorney General of New York who had been elected Governor in 2006, was literally caught with his pants down when an investigation uncovered that he had been spending tens of thousands of dollars on hookers over a 10-year period. All of New York and the United States watched as Governor Spitzer stepped down, effective March 17, a distraught Mrs. Spitzer by his side. wowowow’s Question of the day: “Should Silda Spitzer Stand By Her Man?”

Now to the main point. As the Olympics draw near, and all things relating to China take center stage, one of last week’s questions of the day on www.wowowow was: ”It’s been 19 years since the protests in Tiananmen Square. What do you think about China today?mebeli”

One way or another, this question will be asked over and over again in the coming months. Whether you think the views of these very accomplished women represent a cross section of Americans or not, they are opinion makers and their comments provide interesting reading.

I confess to being most impressed with the comments made by Mary Wells, whose opening lines demonstrate a refreshing open-mindedness regarding China:

It is easy to complain about China but can you find a country you fully admire and have no complaints about? Including America? There have been big differences in China since Tiananmen Square and if you haven’t been there in awhile a visit there is astonishing. You can’t think about Tibet without being reminded of America’s own mistakes and you can’t visit Beijing without being reminded of America’s past capitalistic growth.

Well said.

She continues with a common sense, pragmatic prescription for the future:

I think this is the time to start encouraging our young people to learn to speak and to write Chinese in school. I would guess that in their primary career years the timing will be such that to be expert in Chinese will enhance a career and, in an important competition, make the difference.

Unfortunately, many Americans and Europeans do not share the same balanced perspective as Mary Wells. On my recent trip to the United States, I was surprised by how frequently I heard negative remarks made about the country and its leaders. The focus on the Olympics and the publicity surrounding anti-China demonstrations is drawing true sentiments to the surface. Jack Cafferty of CNN said it most crudely, but I suspect his comments speak for many.

If the Beijing Olympic Games, by bringing millions of first-time visitors to China, help to close this “understanding” gap, they will be considered a great success.

In the world of IP, China is America’s recalcitrant stepchild. Software piracy runs rampant to the point where if one wants to purchase a legal copy of Microsoft anything, one will simply run into the software stonewall of unavailability - at every major computer outlet in whichever city you please. These same places are happy to install a copy of Windows Vista on your computer for free, assuming you bought, say, a hard drive from them. Registered, licensed, and real software products over the price of a hundred dollars generally don’t exist. To narrow the focus, I am only going to approach the gaming industry, or the online gaming industry to be specific.

Currently, the three major companies for game consoles are Nintendo, Sony, and Microsoft. Microsoft has the most integrated online gaming service with its service dubbed Xbox Live, by which console users can connect and play with each other for a nominal sum - $8 a month, or $50 for the year. Nintendo and Sony have both neglected to set up a unified online server system that connects gamers to each other. Can anyone say market opportunity?

The essential hubris of American IP attitudes in relation to China comes into play here. Microsoft’s Xbox Live service shuts down your account and restricts access to online gaming if they detect that you have a modified machine. Hardware modifications by pirates - who are scattered all over the city of Beijing and are readily available - cost about $20, giving you access to play pirated games for about 6 RMB each (less than a dollar). This is a very extreme difference to the retail price of $60 per game for the newest generation of Microsoft consoles, the Xbox 360. In China, the volume of unmodified, original Xboxes is negligible. Given that the average college graduate makes about 3000 RMB a month in Beijing, 400 RMB for a retail game is obviously ridiculous and out of the question. After paying the price for an Xbox, it is almost unfeasible to not modify the machine, considering the price differences. As for Nintendo, Wiis come pre-modified when you buy them at stores, meaning you can’t even find unmodified Wiis, if Nintendo even had an online game service. Sony currently does not have the piracy problems due to its Blu-ray formatting, although things like this are just a matter of time. The PS3 will surely be modified in the future.

So how does the Xbox Live business model work, anyway? Xbox Live commits subscribers to monthly or yearly fees, fees that are not likely to disappear once a customer has the taste for online gaming with his game console. Online gaming is an essential feature, and without it consoles become almost like a computer without the Internet. The costs for Microsoft to provide this service are negligible, since all Microsoft has to do is set up servers that connect gamers to each other. In general, anybody who owns of of these consoles will want to play online. It is one of the primary features that this new generation of consoles claims to have, and turns the consoles into vehicles for repeat subscriber purchases.

So how would Microsoft make money here? Microsoft must realize that, given a per capita income of $1740, China will not aggressively pursue mom-and-pop shopkeepers who modify Xboxes and sell games for a dollar. Instead, Microsoft should focus on aligning the interests of the government to make Microsoft money. As of yet, Sony and Nintendo do not have established online gaming services for its consoles. Microsoft should approach China Netcom, the main DSL provider for urban areas, and have it grant exclusive rights to provide online game services to all console service providers. The way in which Microsoft would do this is by having China Netcom create a partnership company that would have these exclusive rights, while the company provides a username and password service that connected, say, the Xbox Live service to users that had a DSL account - virtually all Xbox, or any other console owners. Imagine that! The government suddenly has an interest in providing online services for games through its own SOE. Microsoft could simply add its monthly or yearly fee for Xbox Live service as a line item on China Netcom’s DSL bill. When Nintendo and Sony are good and ready to provide online game services, it would have to do so through Microsoft, who would already have established itself in this essential market. This would also allow Microsoft to open up its Xbox Live services to users who may have modified machines, in that since China Netcom is an SOE, Microsoft realizes that the revenue from the repeat services it would be providing will accumulate revenues that would otherwise be completely lost. This would all be internal to China, essentially relieving Microsoft of responsibility in punishing pirates, given that the modifications on these console machines never stop. The pirates in Hong Kong were active and engaging in sales when the first games on CD-ROM were being released in the 90’s. The mainland certainly won’t be able to stop it for the foreseeable future. There are revenue streams open, though. You just need the right kind of fishers.

The following post was contributed by one of MTD’s readers Katherine Don, who recently returned from a trip in Southern China:

I recently had the opportunity to visit two factories in the southern China town of Kaiping that produced denim jeans for a major discount retailer in the United States. Considering that the only reports of Chinese textile factories that I had come across had been critical, the visit was a (pleasant) surprise.

Working conditions were orderly and tidy, the air was cool despite scorching heat just beyond the concrete walls, generous lighting flowed from large bay windows, and healthy employees casually chatted above the hum of the machines barely noticing the presence of the factory owner leading us through. A sense of respect and camaraderie passed between the management and employees, ages 20-40, while the atmosphere was calm yet efficient for a Sunday afternoon without a sense of employee exhaustion or oppression.

Each floor of the large facility occupied a different stage of the production process, from cutting to sewing, embroidering, and packaging. The floors were neatly organized with sturdy machines—some computerized—for a streamlined process from bolt to box.

While observing the mechanical, yet diligent process at each station, spread out between mounds of denim jean in various stages, it was natural to see how more than 4000 items are produced daily ready for the shelves of a major American big box store, pre-packed with hangers and price tags—all for less than 25 cents per piece—the current going rate for any cut, style, wash and quantity of denim jeans in China. Considering the ability of the factory to quickly program and mass produce any cut and style, the notion of a boutique jeans market in the west seemed a laughable scam on the upper-class western consumer. (I was especially impressed by the custom embroidery machine pictured below, which stitched the butterflies and curlicues you see on teenage girls’ hip-hugger back pockets, 16 at a time)

One of the more altruistic in our party spoke with the owner about increasing worker salaries and benefits in order to reverse the much-publicized “race to the bottom” of the globalized textile industry. The owner’s response demonstrated the real-world complexities of a decision that is so obvious in the eyes of western academics and journalists. Like the U.S. there is tremendous job insecurity in China. Though China makes as much as half the world’s clothes today, perpetual fear exists that less-developed markets like Vietnam, Bangladesh and Thailand will take the reins as soon as China loses its competitive edge. This fear is so much the case, that any attempts by factory owners to rock the boat have been met with threats and violence from other factory owners, fearful of losing their businesses.

Not surprisingly, the factory owner said that it was not just his workers who feel the squeeze; he himself is left with very little salary at the end of the day and the middlemen at later stages of the supply chain that eat up all of the margins.

Regardless of the veracity of the factory owner’s stories, what was immediately evident was that the stories of workers locked into dark rooms—not allowed to take bathroom breaks or talk, being worked to the brink of death—were not the case in this factory. In retrospect, it seems sheltered and naive to assume that the conditions of every factory in China are dismal chambers where laborers are enslaved in poor working conditions under management insensitive to personal health and well-being.

Inevitably it has been the reports of flawed practice and mismanagement that tend to make headlines while presumably thousands of factories, like the one I saw, prosper under relatively fair-minded and responsible business owners

The New York Times recently commenced a series called “Choking on Growth,” which highlights the unintended but astronomical environmental consequences of China’s economic development. For foreigners living in Beijing and other parts of China it is a grim reminder of how dirty the air that we breathe every day is and for the rest of the world, it is an effort to force them to confront the fact that behind the double digit GDP growth is a frightening environmental crisis that is now a critical global issue. It will likely be a very interesting series that will hit on many of the key issues, but for the sake of this post, there are two sentences in the first article (written by Joseph Kahn and Jim Yardley) that deserve discussion:

Chinese leaders argue that the outside world is a partner in degrading the country’s environment. Chinese manufacturers that dump waste into rivers or pump smoke into the sky make the cheap products that fill stores in the United States and Europe.

As previous posts have touched on, two of China’s most daunting challenges today are one, product safety and maintaining strong demand overseas for Chinese made goods and two, making real progress in curbing environmental degradation. The above quote concisely illustrates where these two issues overlap.

The cheaper Chinese goods that foreign consumers rely on are cheap partially because the manufacturers do not have to treat hazardous waste to the level that Western manufacturers do. This keeps costs lower but it also results in situations like the one in Lanzhou, Gansu Province where it is believed that 10% of the Yellow River flowing through the city is human and industrial waste. As the world comes face to face with the impact that China’s economy is having on the global environment there will be calls from all corners of the world to take action. If one makes the connection between cheap Chinese goods and environmental degradation, then one of the most salient ways for an individual to take action is to stop buying Chinese goods until the Chinese government cracks down on pollution.

This would be a consumer-based protest to an environmental crisis that puts western consumers in a bit of a moral bind – are we willing to spend significantly more in our everyday shopping for non-Chinese goods if we know that somewhere down the supply chain we may impacting the behavior of Chinese manufacturers? Perhaps the connection between the cheap toys on the store shelves and the pollution streaming into China’s rivers is too convoluted to gain momentum, but this environmental reason to avoid Chinese goods only adds to the anti -“Made in China” fire smoldering overseas.

The last six months have been less than friendly to Chinese exporters and increasingly, it appears that US consumers are forming blanket opinions about the safety and quality of Chinese made products. As the complaints from the US side and the rhetoric between China and the US continue to build, one must question if this is simply a bump in the road or the beginning of a major trend where Americans become increasingly resistant to all goods stamped with the “made in China” label.

There are a few factors that must be considered that seem to have been overlooked by much of the media coverage. One big issue that has not received its fair share of coverage is the fact that American politicians are looking for reasons to make the “China issue” a campaign issue and these consumer scares not only give them an opportunity to further push trade protectionism, but also play to the voters that feel that their safety (and the safety of their defenseless pets) is at risk. China Law Blog captured this point by highlighting how Alabama senate hopeful Ron Sparks has used scares over the safety of Chinese seafood to further his attempts to protect Alabama’s fish farming industry.

Another factor is that in reality, the typical American consumer has only a partial understanding of how critical China is to the global supply chain. It’s one thing to avoid buying cheap toys with “made in China” written all over them, but it’s another thing to take the necessary time to sift through the opaque supply chains of every piece of merchandise that one buys to determine if products were partially sourced or assembled in China. This The World is Flat type complexity would be a major obstacle if a consumer were to try and boycott Chinese goods until they felt that the Chinese government was sufficiently ensuring safety and quality.

A huge driver behind the rhetoric that is building between the United States and China is that the Chinese government is completely unfamiliar with how protected consumers in the United States are made to think that they (we) are. Chinese consumers are increasingly vocal about food safety issues but because of the nature of the Chinese political system, their complaints have traditionally not made much of a difference (this definitely seems to be changing though). In the United States on the other hand, when we feel that this trust between supplier and consumer has been violated (and government agencies fail to catch it) it sparks a public and media outcry that usually then gets picked up by the political sphere.

The only way to reverse the current trend is for China to take concrete action in better ensuring that their exports are safe, and they seem to be doing this. The fact that they did it in a manner that according to this New York Times article was rushed and haphazard suggests that they are also realizing the urgency of taking action before American politicians and the foreign media escalate it beyond their control.

Athletes, Olympic Committee Members and city officials are all concerned about the air quality in Beijing when the city hosts the 2008 Olympics next August. As reported in the August 10, 2007 issue of the China Daily (see article “Vehicles ordered off road for Olympics drill” which is contained in its entirety below), the city will conduct an experiment from August 17 to August 20 to monitor the impact of removing roughly one-half the vehicles from its streets.

Vehicles ordered off road for Olympics drill

Beijing yesterday announced a drill to test the effectiveness of the Olympic host city’s efforts to improve air quality and ease traffic congestion.

From August 17 to 20, about 1.3 million vehicles - nearly half of the total 3 million in the city - will be ordered off the roads as part of pre-Olympic tests, according to the capital city’s environmental and traffic authorities.

On August 17 and 19 (Friday and Sunday), only vehicles with the license plate number ending with the odd numeral will be allowed on the roads.

On August 18 and August 20 (Saturday and Monday), it’s plates ending with an even number.

The rule applies to Beijing-registered vehicles as well as those from outside the city.

Du Shaozhong, spokesman for the Beijing Environmental Protection Bureau, said air quality will be monitored during the vehicle-reduction days.
“Let’s see the correlation between air quality and the number of running vehicles,” he said.

“Data from the tests will be collected and analyzed to improve air quality,” Du said, adding vehicle emissions are a leading cause of urban pollution.

In addition to the 27 air quality monitoring stations spread across all the 18 districts and counties, three new stations and two new mobile monitor vehicles will be put to use, he added.

Vehicles which will be exempt from the drill will include those of the police, ambulance, fire, postal and breakdown services and the public transit system as well as those belonging to embassies and international organizations.

Zhai Shuanghe, deputy director of the Beijing Municipal Traffic Management Bureau said the drill will test the city’s public transport.

Rush hour services of the bus and metro systems will be extended to three hours, 6:30 am to 9:30 am, from the usual two hours, 7 am to 9 am.

Civic servants are supposed to arrive in office half an hour earlier at 8 am, and shopping malls will open doors one hour later at 10 am.

Currently, the public transit system carries 31 percent of the traveling public and is the most popular means of transport after walking.

Beijing runs 19,105 buses, two metro lines and two light rail transits lines.

During the test period, the public transit system will operate at full capacity. Besides, another 700 to 800 backup buses will be used, Zhai said.

So how does Public opinion influence businesses in China? Well, looking at the effect of internet users insisting on Starbucks leaving the Forbidden city reported on this site and others, it seems that public opinion has quite an effect on various businesses.

Case in point: a Beijing TV posted a story 3 weeks ago detailing how 40 to 50% of all bottled water sold in Beijing was simply bottled city water that had undergone little or no filtration. My roommate and I immediately started boiling water and bought our own filtration system. A visit to my local water delivery company revealed that their business has significantly dropped since the report came out (25% by their estimates), and they had enacted measures to double check the quality of their water. They are a licensed business and according to their manager only use “qualified sources” of water. They also mentioned other water businesses were facing the same problems they were.

This case highlights the lack of trust in the quality, safety and hygiene of the distribution systems for public goods. Here in China so much goes unregulated, and even if regulated, most products or services have no guarantee on quality or safety, as we have seen in the recent Chinese FDA case. Most Chinese consumers are wary of this but have few options. You will note that most recent large scale public protests have been against foreign brands, e.g. demonstrations last year against Japanese products and the Starbucks Forbidden City case. Both of these are more along the lines of nationalism, and highlight the growing influence of Chinese Consumers, but this influence falls short when applied to consumer product safety issues. Unfortunately most Chinese consumers have only two choices, to continue to purchase the goods, or simply forgo them altogether. Some local reporting when combined with public outcry have been effective in revoking licenses or clamping down on illegal business practices, such as the recent reports on abuses by brick kiln owners in Shaanxi Province. This, when viewed with the Starbucks Forbidden City case makes a strong argument for a Chinese public that is becoming increasingly aware and outspoken on a growing range of issues.

On my way to school the other day I sat on my Flying Pigeon bicycle, mouth agape as I stared at a bus slowly rattling past me kicking up dust from the subway construction for the 2008 Olympics. The two storied bus was packed with people on their way home from Zhong Guan Cun, the Chinese version of Silicon Valley, and as the bus cut its way through the pollution it proudly exclaimed on its side:

Club Med: Quan bao zhi lu! (All inclusive vacations!)

As I stared at the bus 3 men riding 3 wheeled bicycles were hauling massive amounts of Styrofoam to a local recycling center. 1 kilo = 1 Mao (1/10^th of 1 yuan). This is how they make their living, and I didn’t ask, but they probably don’t make much over the rural average of 2600 RMB per year. They represent some of the millions of immigrant labor that has been estimated anywhere between 80 to 180 million persons.

I had just finished my exam in comparative politics the previous day and my professor proudly exclaimed that China was “a poor country whose developmental path can’t be compared with others.” This “poor country” was the third nation in history to send a man into space, is currently developing an aircraft carrier, and whose leaders drive expensive foreign made Mercedes Benz’s instead of locally manufactured cars. What gives? Read more »

On a muggy day last May I pitched three innings against the Tianjin Lions junior development baseball team. I had some control problems, they didn’t swing at balls, I hit a few guys (on accident) and by the time I pulled myself out of the game, I don’t think I’d left much of an impression on the large team of 15 to 18 year olds who were undoubtedly expecting much more from a very tall American who had been playing baseball his entire life. They left quite an impression on me though – it wasn’t so much that they were amazing athletes or that they were superbly conditioned, but rather that they didn’t make the stupid mistakes that baseball seems to bring out in people – especially 15 to 18 year olds.

My observations were confirmed by a friend from the US, Gil Kim, who came to Beijing this summer to play for Beijing’s professional team, the Beijing Tigers. He described practices as being literally padlocked into the baseball facility for six hours and just taking repetitive infield practice and batting practice until he could go through the motions without even thinking about it. This type of repetition can lead to a certain amount of consistency but it doesn’t exactly encourage prodigious talents to shine. Gil did say though, that there was no lack of ability, just a complete lack of coaching and experience. Read more »

An interesting collection of posts and articles has recently surfaced regarding China’s increasing role in Latin America. First, this article from the Council on Foreign Relations, which is a general overview of how China is using “soft power” to obtain greater influence over African and Latin American countries. Then, this recent blog post from Matt Cooper on the Portfolio Magazine website, which highlights a recent Organization of American States meeting that he attended where China was the primary sponsor and representatives of all of the key Latin American and South American countries were present. The third recent piece that I have come across on this topic is Tim Johnson’s post on his China Rises site highlighting the fact that increasing numbers of Latin American countries are breaking ties with Taiwan because according to the post, Taiwan is not providing these countries with significant enough financial incentives and China is. Read more »