An exchange between Churchill & Lady Astor:

She said, “If you were my husband I’d poison your tea.”

He said, “If you were my wife, I’d drink it.”

Grand Theft China?

The U.S. Chamber of Commerce released Tuesday a report about the rise and implications of China’s “indigenous innovation” policies.  This is a think piece by long-time China watcher and journalist James McGregor of APCO Worldwide.  I urge any of you working in China, or thinking about doing business there, to take a look at “China’s Drive For Indigenous Innovation: A Web of Industrial Policies”.  Though the current debate focuses on tech industries, it has far broader implications.

Beijing has realized for several years that its industries soon will not be able to depend on being the world’s low labor cost supplier.  This wasn’t a startling insight, but an inevitable progression as other countries begin their own march to development and seek to attract the industries that gave China its launch as an export powerhouse for cheap goods.  Ergo, China must move into higher value-added industries.  Domestic considerations are at play, too, reflected in recent labor unrest and sudden decisions to increase factory worker pay scales.  China is, whether Beijing wants it or not, becoming more of a consumer market and needs to up its game in the quality of production.  Beijing saw this several years back, culminating in the 2006 issuance of the “National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)”. Given the catchy title, I’m not surprised I missed it at the time.  The plan has become known by the acronym MLP, less of a mouthful.

The MLP is a blueprint for China’s scientific development – and for applying new technologies to Chinese industry.  All sorts of policies have grown from the plan, such as determined schemes to build a modern Chinese-designed airliner.  But the policy that really caught the business world’s attention was last fall’s announcement of the “indigenous innovation” policy, which seemed a pretty blatant attempt to force non-Chinese firms to hand over their technical know-how and secrets free-of-charge.  Reactions from companies worldwide and the world capitals that support them have been predictably negative.  Indigenous innovation has become the collision point between China’s necessary development of science and technology, and a form of protectionism Beijing deems necessary to foster industrial applications of this technology.  It crosses the line when it becomes an excuse for wholesale theft of other people’s technology.

The MLP is a curious document.  It says the expected things about developing science and talks about new labs, science centers, that sort of thing.  But when it comes to innovation, it becomes protectionist and xenophobic in tone.  “Indigenous innovation” is defined as “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.” This doesn’t sound particularly indigenous, but seems an exhortation to copy or somehow obtain non-Chinese technology, but then camouflage it somehow in Chinese decorations.  The MLP gives this advice to Chinese tech developers: “One should be clearly aware that the importation of technologies without emphasizing the assimilation, absorption and re-innovation is bound to weaken the nation’s indigenous research and development capacity.” While embellishment on someone else’s inventions can be productive, and is common around the world, where is the emphasis on developing new and original ideas?  Has the nation that has brought the world so many inventions over the ages lost its nerve, or its belief in its own people and systems to create something new?  One wonders.

The U.S. Chamber report sums this up neatly: the MLP “… is considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before.” The emphasis is mine.

Whale shark waiting for the pot in Bangkok (photo: Rob Stewart)

These benevolent attitudes run head long into the love for shark fin soup brought to our islands by Chinese immigrants, but it is now official in Hawaii: the shark has won and shark fin soup lovers have lost.  As evidence mounted that sharks are being fished to extinction, and videos emerged of still living sharks having their fins cut off, public opinion turned heavily in favor of the shark (despite some hangovers from “Jaws”).  Hawaii has long had a ban on finning in Hawaii waters, but the Hawaii Legislature this year voted to ban all possession of shark fins, including by restaurants.  You won’t find shark fin soup in Hawaii’s restaurants any more.  I believe this is the first such ban anywhere in the world.

I have been waiting for a backlash from Hong Kong, Taiwan or China, but it hasn’t materialized.  Indeed, last week, the South China Morning Post ran an article that mentions Hawaii’s shark fin ban, but said there is growing opposition to the shark fin trade within Hong Kong itself.  Why is Hong Kong important?  The entrepreneurial city buys half of the world’s total trade in shark fins. Most of the rest is purchased by China.  But the tide may be turning in favor of the sharks.

According to the article, there is growing recognition in Hong Kong that many shark populations, not just those on endangered species lists, are over-fished and sliding towards oblivion.  Indeed, there is even a Facebook group, launched by Hong Kongers, called the “Cut gift money for shark fin banquets” campaign.  That’s a reference to the Chinese practice of presenting money to new brides in red envelopes, and the 8,000 strong group is advocating that the amount in those envelopes should be cut by 30% if the wedding banquet includes shark fin.  The documentary film Sharkwater is apparently a blockbuster hit in Hong Kong and is building opposition to the shark trade.

A friend, who is an ardent devotee of shark fin soup, argues that if we ban finning and trade in shark fins, then we should also ban fishing of blue fin tuna.  I think he is right.  I trained as a fisheries economist and, if humans want to taste such species again someday, they need a rest now.  Hawaiians have a word for this.  Whenever a particular area seemed fished out, the chiefs would declare that area to be kapu until the fish became more abundant.  We recognize kapu in English today as taboo (from the Tahitian form of the word).  Perhaps we need to declare shark and blue fin and whale kapu for a while.  In trade terms, I believe that means embargo.

Only 27% of Hong Kong’s traders actually sold goods in China in 2009.  Most of these sales are fairly small, only 29% of those who sell in China reporting 2009 sales of more than HK$10 million (US$2.86 million).  The small percentage of Hong Kongers actually selling in China makes one wonder if profit margins from helping China export are so much higher than from selling to the Chinese?  Possibly.  Or is pushing product in China simply a tough sell?

Previous HKTDC surveys showed China’s demand to be primarily for raw materials, semi-manufactures, parts and components.  Clearly, Hong Kong was supplying Chinese factories.  But the mix has changed rather suddenly.  Industrial materials have dropped to 45% of Hong Kong’s China sales and light consumer goods are challenging for the lead with 44% of the total.  What’s more, most of the respondents expect that light consumer goods will be the trend for at least the coming three years.

Just another Chinese seaport?

Most of Hong Kong’s trading companies are focused on producing or buying goods in China and then exporting them to overseas markets. Of total goods sold by Hong Kong companies worldwide, an astonishing 83% were sourced in China, only 6% from Hong Kong itself.  The mere 11% made elsewhere raises questions about whether Hong Kong’s former attraction for taking products into China still holds.  Are more Western or Asian companies going to China directly now?  Will they be doing more joint ventures with Taiwan companies (as the Japanese are doing) now that the China-Taiwan FTA is in place?  All this makes me wonder if Hong Kong’s historic entrepôt role is ending and the city is becoming merely another Chinese seaport.

Brian Ng, HKTDC’s Director for China, made some clarifying comments that suggest that consumer and business services are where Hong Kong’s growth in China sales will come.  Ng sees impressive opportunities in China for Hong Kong companies in consumer businesses such as catering, retail and beauty services, as well as for sales of automobiles, appliances and construction materials.  The latter makes me wonder if a Chinese DIY market is developing, as some of my friends in China have suggested.  Ng also emphasizes business support services such as brand management, logistics, design, marketing and financial services.  He cites green technologies as a growth area for Hong Kong in China, mentioning systems development and consulting services in environmental protection and remediation, energy conservation and emissions control.

Might be some lessons there for non-Hong Kongers.

Kaneohe Golf Club

For years I watched the Hawaiian Open on TV.  The golf held little interest – I was mesmerized by the scenery.  Eventually, I moved to Hawaii and, for several years, lived on a ridge that overlooked the course.  If there was a segment of Hawaii’s tourism industry that I would have thought was booming, it would likely be golf.  Wrong.

The Honolulu Star-Advertiser ran a piece last week about how Hawaii has fallen behind in the world tourism sweepstakes to attract golfing visitors.  And, even as a non-golfer, I found some of the reasons fascinating.

Most golf visitors to Hawaii are from the U.S. mainland or from Canada.  Visitors play close to one-quarter of the rounds on Hawaii courses, though that goes over 50% at the famous high-end courses.  But where are the golf visitors from outside North America?  Mark Rolfing of the Golf Channel, and soon to host a new worldwide golf show on NBC, says Hawaii’s courses are too tough, too costly and take too long to play.  I’m not sure about the too costly part; according to the U.S. Commercial Service, average club memberships around Shanghai are $78,000.  I don’t think we’ve got anything that steep in Hawaii.  It’s true, the famous courses can have high greens fees, but my father-in-law was quite happy playing the many public courses, particularly Ala Wai and Hawaii Kai.

Rolfing’s point about too tough puts Hawaii’s courses in a similar league to Scotland’s.  He points out that Europe’s relative newcomers to golf (e.g., Swiss or Germans) take their golf vacations in Portugal, Spain and Turkey where the courses are easier and not too expensive.  It may be many years, if ever, before they decide to tackle St. Andrews or Royal Dornoch.  He thinks China’s legions of new golfers just aren’t ready to take on Waialae or Kapalua – and he may well be right.  Of course, Rolfing and many others note that U.S. visa requirements are also likely keeping Asian golfers away.  Talk about a tough lie.

Another factor is that, over the years, golf course ownership in Hawaii has become separated from hotel/resort ownership.  This means that, although concierges will happily tell you about golfing opportunities, their main task is to keep you doing things in their resort – not on somebody else’s golf course.  And the recession has taken its toll on sponsorship for Hawaii golf tournaments, resulting in less worldwide coverage, fewer shots of superstars playing Hawaii courses, and fewer people like me watching the magnificent scenery.  Finally, the experts say that it sure does help if a destination is the home of some of golf’s superstars.  Hawaii made a run at this with Michelle Wie and Tad Fujikawa, but both have faltered of late.

I’m no expert on golf, but it seems that some good, old-fashioned marketing is needed.  A good step would be for Hawaii, whether the Hawaii Tourism Authority or individual golf courses and tour companies, to participate in the Commercial Service’s Sino-U.S. Golf Tourism Expo this September in Shanghai, Chengdu and Beijing.  But focus on bringing those new Chinese golfers to the smaller public courses.  Don’t start them out with the tough ones, even if they are famous.

Who knew that Saudi Arabia would be the G20's best free-trader?

• I didn’t watch President Obama’s latest speech about the National Export Initiative until after yesterday’s post about the NEI was published.  But I didn’t hear anything to change my opinion.  The NEI is mostly good rhetoric, but the same rhetoric that has been used by every president since Lyndon Johnson (and probably earlier).  An increased export promotion budget is the main event here, and possibly better availability of small business export credit.  Obama reiterated that he plans to reopen the FTA with South Korea to renegotiate something that has already been negotiated twice.  Bet the Koreans hang tough this time.
• The Federation of International Trade Associations (see link to the right) had a couple of interesting links in its weekly e-newsletter, both dealing with living and working abroad.  One was to a site called International Business Etiquette, which is self-explanatory but with some good stuff in it.  The second site, International Living, takes a bit more explanation.  The site is aimed at people considering retirement overseas, but there is a lot of cost and other information that might be useful in investment decisions, or for marketing if your company targets lucrative expat communities.

1. Well-funded promotional campaign (US 3.3 million).

2. Continuous, uninterrupted marketing campaign.

3. Appealing to Chinese women who make most purchases in China.

4. Appealing to the Chinese desire for a “healthy and radiant life” instead of relying solely on taste appeal.

• I’ve posted several times about this negotiation, but the China-Taiwan trade agreement has been signed.  That’s good news on both sides of the Strait.
• How big is the World’s Largest Aloha Shirt, made by Hilo Hattie and exhibited at the U.S. Pavilion at the Shanghai Expo?  400XL!  That’s 168 inches at the chest and a 60 inch neck.  It took 26 yards of fabric, which is the amount, Hilo Hattie says, it takes to make shirts for thirteen sumo wrestlers.  You can see the shirt back in their Honolulu store on Nimitz Highway.  Big fella.

53% alcohol (photo: Mark Bussinger)

I was amused by Li Yuan’s article last week in the Wall Street Journal about liquor-laden banquets in the smaller cities of China.  When I started doing business in China and Taiwan, I had to mentally prepare myself for the inevitable and frequent gambei contests at business banquets.  Over the years, these contests largely disappeared in Taipei (where it was normally done with rice wine, not the white lightening prevalent in China).  I was relieved in recent years when I could go to Beijing or Shanghai and not be forced to consume quantities of fire water.  But the custom is apparently still alive and well in the provinces.

If you haven’t been a guest at a Chinese business banquet, you can’t imagine the pressure that can be placed on you to drink.  The principal guest is seated next to the principal host at a table for ten – and the toasting begins as soon as you sit down.  Anything and everything can be toasted.  There will be toasts for every dish that arrives.  There will be toasts to friendship, family, everlasting good relations between countries, good luck with the horses – all carry equal weight and each is accompanied by the cry of “gam bei”.  That means “bottoms up” and they are serious about it.  Luckily, the glasses are fairly small (about .1 liters, or a bit more than 3 oz.), but you would be surprised how quickly the toasts come and how fast your blood alcohol ramps up.  And, in most situations, you can’t stop drinking if you wish to maintain face (generally necessary to whatever business you are trying to accomplish).  There is a graceful way out, but not early in the evening unless you have a very believable medical excuse.

Your host may initiate a few of the toasts, but he (it generally is a he) subtly (or not) designates one of his underlings to be the toastmaster.  That requires no long speeches, just a continuing initiation of toasts – which are directed at you, kemosabe.  If the initiator says gambei, you are more or less obliged to respond by also saying “gam bei” and then drain your glass.  Others may join in if they wish and they usually do.  After a few minutes, you may notice the host to your side give a nod to the underling, who then generates another toast.  If you recognize the game, you can anticipate and help yourself to survive by eating anything you can get your hands on (which is quite a lot at a Chinese banquet).  It also helps to be a fairly good size and somewhat overweight (I was 30 pounds heavier in my gambei-ing days).   If you succeed in outdrinking the designated toaster, the host will then nod to another underlying and the game continues.  The objective is to see how much it takes to get the guest under the table.  I have put a fair number of designated toasters under the table first.

Watch for cheating.  I’ll never forget one banquet in Taipei in which I caught my host drinking tea the same color as the rice wine I was being served.  I had been impressed with his ability to hold his liquor, but out of the corner of my eye I glimpsed a waitress filling a wine bottle from a teapot and refilling his toasting glass.  I didn’t make a scene, just let him know that I knew what was going on.

There is a way out of all this drinking, one that women can use from the beginning, but men first have to prove they can keep up for a while.  I was on vacation in south Florida when I got a call from an old colleague who was organizing a conference in Miami on doing business in Taiwan.  His keynote speaker had just canceled out.  Could I come to Miami the next morning and speak?  I protested that I was working in Vienna then, not Taipei, and that I wasn’t up to date on Taiwan.  But he was desperate and persisted, and said I should just talk about experiences from the three years I had lived in Taipei.  So, among other things, I told the crowd about the “two most important words in Mandarin”: sui yi.  They literally mean “as you will”, but when somebody challenges you with “gam bei” and you have had enough, respond with “sui yi”.  It then takes on the connotation of “you can drink all you want, sucker, but I’m not doing it with you”.  You can then either sip the white lightening or drink some of the tea.