Category: FDIB China – 2010

One of my favorite stores in Hong Kong is across from the Star Ferry. It’s the China Arts and Crafts store, which was once the “official” China Friendship Store, offering the mainland’s finest wares for sale. I once promised myself that if I won the lottery, I would buy that store and ship it home, take what I wanted, and send back what might be left. It occurred to me I haven’t visited that store for a long time, and the reason is simple: China has become more like Hong Kong.

When I first started coming here, too, friends worried about the “handover,” and what it might do to Hong Kong’s vibrant economy. The current absence of that fear, too, has a reasonably simple explanation: China has become more like Hong Kong, and in the process, has helped lift its own economy as well as Hong Kong’s.

I said politically China is not Hong Kong. The protest I mentioned yesterday could not happen on the mainland. But the economic wealth of this tiny (7.5 million) city-state has been important in funding the mainland’s economic growth. One of the reasons for Deng Xiaoping’s opening of South China is that three of the four ports were within an hour of Hong Kong. The financial and managerial expertise that Hong Kong brought to the transformation, and the example it set, have turned China more into Hong Kong than Hong Kong into China.

Some of those transitions are as much British as American. Hong Kong remains viable because of its heritage of rule of law, the close British cooperation with business, its free port status, its role as a facilitator of mainland activity (along with Taiwan), and the pride its return has meant to the mainland. I still remember the countdowns in Tiananmen Square to July 1, 1997, when it was “Goodbye Great Britain, Hello China.”

What we saw in business confirms the vitality of the local government and its ability to keep Hong Kong focused — and to provide a model for the rest of China.

The four businesses we visited all had a visible Hong Kong government hand. In general, Hong Kong government facilitates the business activities, without favoring a specific company. The first visit was to an office whose job it is to attract businesses to locate in Hong Kong. As the Director General (a Scotsman) pointed out to us, Hong Kong is the site of the majority of foreign regional offices, partly because of its entree to China, partly because of its entree to Southeast Asia. A businessman who spoke to us noted how easy it was to fly to Beijing for a day or two — or anywhere in the region. HK also has 60,000 American passport holders, and over 200 regional headquarters for American companies. Unlike the mainland, its money is fully convertible. One can incorporate a company in HK for $1 and have no directors living here. I was almost persuaded to open one!

The second visit was to what might be called an “industrial park‚” but it is one in the service economy; Hong Kong’s service businesses contribute 90% of the region’s income. The government saw the handwriting on the wall for manufacturing, and has helped move the Special Administrative Region downstream. About ten years ago, it decided to move the economy downstream, into services. It apparently gave Li Ka-shing, the world’s richest Chinese (he started manufacturing plastic flowers, and now owns much of the world) property in Hong Kong to build a “cyberport,” a high-tech work environment whose representative stressed the “community” of small businesses (and large ones) it brings together to promote digital communication and digital businesses. The facility maintains editing and movie capabilities that reminded me of how 20th century I am. Make that maybe early 20th century!

The final visits involved education. The government is building a new campus for HKU, and apparently the other universities in the SAR. We spoke with people from the business school, which has about 25-30% of the students. The Executive MBA has offices and classes in the technologically-advanced cyberport, and charges $1 million — that’s in Hong Kong dollars (divide by 7). At least as impressive was the government-sponsored Culinary training institute, which prepares young people for restaurant businesses. It offers one year of training (we saw four different kitchens — northern, southern, western cuisines — I didn’t realize the cooking arrangements were different), and one year of running a restaurant-club, where we ate lunch. Amazing how attentive the students were, how attractive the cuisine, etc. The school also certifies “master chefs” who have to have 8 years of training, then take a one-year course with a 10.5-hour oral examination, etc. The SAR also has a similar school for hotel services.

Yesterday was part lecture, part free time. We had an interesting lecture from a professor at the Chinese University of Hong Kong who compared and contrasted China and the United States. One of the secrets of both economies, to him, was that we both had low-cost assets — Mao confiscated all the land, which still belongs to the state; while the U.S. either purchased or appropriated land from its previous owners as well. In addition, he pointed out that without shareholders, the state owned enterprises in China can pour money back into research and development, salaries, or low prices, which enables Chinese workers to live better for less money than most other workers. I hadn’t thought about it, but one no longer sees the phrase “bankrupt State Owned Enterprises” or “bailout” — in the Chinese press. We also had a nice case (right word!) study of Coors in Asia from the only American in the Asia office. Coors has decided to become a nice beer, selectively distributed in 50 cities; the company has gone slowly and carefully, but with little profit — as yet — after 9 years!

In the afternoon, my roommate and I toured Macau with my HK friend, Eleanor. China may rightly boast one country, three systems, because Macau has a Portuguese history (from the mid-16th century until its return to China in 1999), and the distinction of being the most profitable gambling area in the world. Since its return, the mainland has opened the gambling (which used to be one man’s monopoly) to global gaming businesses. Part of the harbor has been filled in to create more space for new cassions, but the old parts of town retain a distinctive Mediterranean flavor. It’s unlike anyplace else in the Far East. Its success is in part attributable to the decision of the Chinese mainland government to allow its own citizens to travel rather freely into the Macao Special Economic Region.

Hong Kong, by contrast, is more difficult to enter, but the rise in the number of Chinese visitors has been quite impressive; it’s over 16 million, which is about 4 million more than other foreign visitors. One of our speakers suggested that Shanghai and Beijing has the upscale brand-name shops as a tease for the bigger stores in Hong Kong. The Louis Vuitton store in Hong Kong is apparently the largest one in the world. Typical of how I started this blog with mainland China/Hong Kong comparisons.

I’ve begun the long journey home; I started writing this at 7 a.m. in the Hong Kong airport, and am sending it at 1 p.m. from Tokyo. I have another 21 hours before finally getting to Bloomington-Normal. As I tell students when we come back from the East, it’s one of the longest days of their life.

See you soon.

I have had so much to digest for the past three days — and that’s not including the wonderful “farewell” dinner we had at a fish restaurant. That in itself was an experience. Like all of the restaurants we’ve gone to, there were no tour buses, no French fries, no gift shops. We got to this one after a long ride into the new territories (the part of Hong Kong ceded for 99 years, whose lease expiration in 1997 triggered the return to China of all of Hong Kong — the island of HK, and Kowloon were ceded in perpetuity); parked the bus near a “wet” market, which had every fish known to me and many not known (only a mother could love a cuttlefish), and eventually wound up in the Gateway Cuisine restaurant for a real cornucopia of food. I would not have found the place, nor known what to order, but I’m glad our guide found it and ordered for us!

The trip from Guangzhou to Hong Kong was my first through the Pearl River delta area since it became the manufacturing capital of the world. The expressway is lined with factories producing almost everything available in stores in the United States and Europe, with whole cities dedicated to a single product. The region’s fortunes have gone mostly upward until the crisis hit last year, and some factories have closed, and the official word is that 6% closed. It did not look it, but the Chinese government has a major stimulus package in place to encourage less saving (about 40% versus 1% in the U.S.) and more consumption. From what we’ve seen, it’s working, at least in the short run.

It seemed fitting that one of our stops — by our request — was at a Wal-mart, which, were it a country, would be China’s 8th largest trading partner. Two things struck me as different — the number of servers and the food area. Food is incredibly cultural, and it’s the one section where Wal-mart has had to make the greatest adjustments. There’s not just a range and variety unlike anything you’ll see at other Wal-marts, but an extensive “wet” market there, too — without the flies.

The other stop before the border was at a major port that is new, run by Hutchinson, a Hong Kong based company that manages ports around the world. It demonstrates, in part, the nature of the Pearl River economy, and one of the reasons for its success. The manager is a Hong Kong resident, who won my respect when he said, “First we’ll have the complimentary advertisement, then I’ll answer real questions.” Hong Kong managerial expertise and money (Hutchinson owns 65%), have helped develop China’s work force into a major economic powerhouse. I asked him a question that seemed to take him aback — what does a port north of the border, and in China proper, do to Hong Kong. He said, after a minute, that Chinese government response to any Hutchinson’s moves was, “What will this do for the stability of Hong Kong?” As I’ve mentioned, social stability is the watchword of the regime, and the sensitivity to Hong Kong is, in my opinion, tied to the problem of Taiwan. I’ve long felt that China’s desire to “return” Taiwan to its place as a province of China tempers any moves; if China can prove it can handle two systems, the Taiwanese might more willingly be interested in one country, three systems. As I look back at my first time here, when there was genuine fear about the PRC, I can’t believe how smoothly the transition has gone. We were at UHK (the premier institution, with a lovely old colonial building as the main hall), and there was a democracy board. Among other things, a poster with Mao advertised a play directed against the proposal of the HK government to help build a fast railroad from Guangzhou to Hong Kong.

More than the Shenzhen river and two border checkpoints separate Hong Kong from mainland China, though, as I hope to explain when I continue this blog.

I meant to share with you an epigram about the difference between the new and old Chinas. The University we visited yesterday, Sun Yat-sen, has a school of business named the “Whampoa Military Academy of Business.” That is the new (post 1985) China. The “Whampoa Military Academy” of old China (and the Chinese used to make a sharp distinction between “before liberation” [1949] and “after liberation,”) was a military institute here in Guangzhou that played a prominent role in training leaders of modern China — including Chairman Mao and Chiang Kai-shek, opponents for most of the period from 1927 until their deaths in the 1970s.

The business metaphor is apt in other ways for the “new” China, and an example is provided by our site visit today: to the world’s largest producer of microwave ovens, which produces domestically under the brand Media, and internationally as a contractor for Wal-mart (they had interesting stories about Wal-mart’s conditions; apparently Wal-mart inspectors come twice a year, unannounced and investigate everything in terms of social conditions of workers — checking data and interviewing people randomly), Sears, and other retailers. The company started as the dream of a local entrepreneur (the Cantonese have long been in the vanguard of entrepreneurship in China) who in 1968 parlayed 5,000 Renminbi into a factory making bottle tops. Today, Media is China’s 61st largest company, with 100,000 employees. Its goal (typical of almost every business we’ve visited) is to build an international brand renowned for quality. (When my roommate, Jim Gerber from San Diego State, picked up the newspaper this morning, he said, “I wonder what the Chinese are claiming #1 now”). The route it is choosing, however, provides quite a contrast with China’s business strategy in the past — it wants to be the leader in innovation, and has bought research helpers from Korea and Japan to move up the value chain. Among other items, Media has developed a microwave steamer; if you know anything about Chinese cooking, you’ll understand what a valuable addition that is. The tour leaders also showed us a portable microwave, explaining that it can be used camping! That will certainly change the one-pot meal! One of Media’s main challenges is labor, ironically enough; the locals don’t want to work for as little money as the factory workers earn, so it is mostly people from the interior provinces who come to work here. The plant shuts down for two weeks, (I think that’s it) for the New Year, and the human resource director was a little worried about the number who would return. The official figures in the paper indicated that employment declined 6% last year, but this company benefited from the recession because retailers worried that some of the smaller suppliers would go bankrupt dropped them in favor of Media, and the small suppliers did go bankrupt.

One irony for me is that the Chinese characters the company uses are phonetically the same as my cultural revolution Chinese — for American imperialism! — but not the same characters.

On the way back to the hotel we traveled to one of the districts in the city of Foshan, which had a huge building for obtaining government permits to start a business. The tour leader said, “It’s like Tiananmen Square,” but it bore no resemblance to a 1950s collection of Soviet style buildings, which is what surrounds the Gate of Heavenly Peace in Beijing. Instead, this particular building (which houses all the bureaus involved in obtaining the permit — reducing the time to about 4 weeks from 6 months) looks more like a performance hall, while the city government looks like a skyscraper in a major city designed by a major architect. The square is a well-appointed and landscaped area. This is not the old China. And to think, when I came to Guangzhou 20 years ago, we were taken to Foshan because it was world-famous for pottery — and our hosts wanted to show off the then only expressway in China — nine miles from Guangzhou to Foshan.

Even the area that we are in — Shamian Island, the old foreign concession area — shows marks of China’s ability to absorb its recent past. While my recollection is that there’s a park on the island that had a gun and an explanation about the Opium War, I couldn’t find it this afternoon. And about 9 years ago, the local government began putting plaques on the buildings indicating their former usage; the restaurant we ate in a few days ago, for example, was “gazetted” as the former home of the Butterfield and Swire Company, one of the famous hongs that dominated British trade in the East.

Tomorrow, we’re taking the bus to Hong Kong, and we’re supposed to be stopping at a Wal-mart; we’ll certainly be seeing more of the Pearl River Delta miracle, which is where socialism with Chinese characteristics began.

One can only imagine what the Marx/Lenin/Stalinist would have to say about the new China.

You might recognize this city of 12 million if I told you it once went under the name of Canton; many émigrés from this part of China have made Cantonese food (or the variant of it in the U.S.) the standard that most folks think of as “Chinese food.”

It occurred to me when we arrived here Saturday night that we’re going in reverse, not only to the way I originally entered China, but for the way many foreigners (especially oceangoing devils) came to the Middle Kingdom — from Hong Kong or the China Sea. Under the Qing dynasty, foreigners were kept away from the political capitol, Beijing, and relegated to doing commerce with south China. In the 1790s, emperor Qian Long told the British minister who wanted to establish diplomatic relations with China that Britain had nothing the Chinese could possibly want. And that was more or less true until the British sent “foreign mud”(opium) to China, and it caught on like an addiction (which it was). The emperor in the late 1830s attempted to interdict (look that one up) the Opium trade, and the Opium War began.

It ended in 1842, I believe, with the Chinese ceding the right of foreigners to trade with five port cities in China. If you go to Beijing, the stele (look that one up, too) describing the Communist history of modern China begins with the Opium War, beginning the century of foreign oppression that the Chinese see as a modern anomaly.

Canton has been a trading point on the “maritime Silk Road” for centuries — down till today. The Canton trade fair was one of China’s few links with the outside world until Deng Xiaoping “opened” four special economic zones to Western economic influence in the early 80s. Guangzhou has boomed since then.

We’re staying at the White Swan Hotel, which was China’s first five-star hotel. For me it deserves that ranking because of its location. The White Swan is on Shamian Island, which was where foreigners repaired after winning the Opium War. The former German consulate is across the street, and Christ Church has been standing here since 1865. There are lots of old colonial buildings being restored because Guangzhou is hosting the Asian games this year, and the government is spicing up the city (Shanghai, I meant to mention, expects to have 800,000 visitors a day from May to October at its expo; I’m glad I was there in January!)

We’ve essentially had two days of sightseeing. In Hangzhou, my roommate (an economist, who used to be a smokejumper in Montana) and I rented a car and went to the Lingyin Temple, which had some wondrous carvings in a cliff along the creek that dated from the Yuan dynasty. The temple itself had the largest Buddha made of wood (or something like that), that helped me understand why Chinese are so fond of Hangzhou. From the temple we went to the tomb of a famous general (who fought for the southern Song about a millennium ago). I discovered it with a friend from Taiwan, who cried because the general was a hero: he had carved “give me back my country” on his back; his story is memorized on Taiwan, and his patriotism is recognized on the mainland.

The tomb was next to West Lake, and we had a chance to walk through the renowned gardens. Hangzhou’s commercial importance waned after the city was destroyed during the 19th century Taiping rebellion, but it is regaining importance with Alibaba, and another domestic business, Wanxiang group. Wanxiang owns a number of auto part suppliers, including one in Aurora, Ill. The CEO of the North American group is the founder’s son.

In Guangzhou, where it’s been “cool for Guangzhou” we went yesterday morning to a university complex, which houses 15 campuses and around 150,000 students on the outskirts of town. It’s nearly exam time here, and there was not a vacant seat in the library. Left on our own in the afternoon, a number of us went to a temple that was so authentic (albeit recreated after the Cultural Revolution of the 1960s left it in ashes) that we paid no admission! A first.

Today was back to business, literally. We spent the morning on the main campus of an early 20th century university, named for Sun Yat-sen, the father of modern China. We met with the business school, which has 6,000 of the 80,000 students on the school’s four campuses; it is one of the top four schools in China. The business school dates from 1985 (note that date) and runs a variety of programs, including an international MBA that is taught in English and commands a premium from students (around $25,000 tuition) and from the faculty, who get paid 1.5X their salary for teaching in English. 98% of the graduates (MBA) have jobs before graduation, and earn about the cost of their tuition.

It seemed appropriate to me that after our “class” and lunch with professors, we toured a brewery, whose chief officer is a woman engineer. She told us that Zhujiang brewery started in 1985 (told you to watch that date), but is now (as a State-Owned Enterprise) the major brewer (70% market share in Guangdong province — about 60 million people), with about 8 plants in the region and 6,000 employees. The goal is to develop an internationally recognized brand — and in 25 years, sales have increased 30X, but since we talked with an engineer rather than a marketer, we didn’t learn much about creating an international brand. Like the tour of the Budweiser plant (an apt comparison, since Inbev-Anheuser Busch is a 30% stockholder in Zhujiang), the path goes through a museum on beer history into a tasting room.

Needless to say, we’ve had some great Cantonese food!

It’s been over 10 years since I’ve been to Hangzhou — given the rate of change, that time might as well be a century.

The city is about 3 hours south of Shanghai, along the coast, with over 6 million inhabitants (China has something like 90 cities with a population of more than 1 million). The trip yesterday was on a fairly uncrowded superhighway (for contrast, see my India blog from two years ago), where we stopped for lunch at a most unusual “mall.” According to our guide, the mall was built by the province (Zhejiang) as a showcase for local small business/manufacturers. Hence, there were three enormous buildings with small shops — one for leather, one for furs, and one for shoes. Size was numbing, but the idea of introducing suppliers and consumers was one that would play an important part in our site visits today.

Hangzhou’s claim to fame (in part) was its tenure as the capital of China for a few hundred years nearly 1,000 years ago; the Song dynasty fled here when the Jurchen Mongols invaded Xi’an and conquered that part of the country. As the gathering point for food (read: rice) destined for the North, Hangzhou played an important role because it sits where the Grand Canal begins. It also has West Lake, one of the famous sites of China, where I hope to spend part of the day tomorrow before we fly to Guangzhou. Despite its history, not much is left; the city has been destroyed several times, most drastically, I believe, during the Taiping Rebellion in the 19th century. Happily for me, since I’ve been here last, the government has rebuilt a lot of things — there’s a “Song dynasty street” for example, and parts of the wall.

Our hotel sits a half block from the lake, near the Porsche, Lamborghini, and Maserati dealers (in the high-rent district). Yesterday, we went to a restaurant on the lake, famous for its “bagged chicken” (wrapped in banana leaf and baked in mud), and West Lake sweet and sour fish (I’ve made a variant of it, but didn’t use the authentic West Lake fish).

We had two visits today. One was to a famous Chinese company, Alibaba, an Internet “matchmaker” that brings together small and medium sized businesses with wholesalers and retailers. It is the ultimate business to business website, the brainchild ten years ago of Jack Ma, at the time a professor of English at the local university. It has a domestic and an international site. Its business model is to sign up members, and it is the only company in the group which is listed on a stock exchange (Hong Kong); the public offering in 2007 was second only to Google’s. Building on Alibaba, he added Taobao, a Chinese eBay/Amazon which now has 90% market share (listings are free), and Alipay, which is a Paypal look-alike. The founders expect Taobao to do more retail in 5 years than Wal-Mart. The company strikes me as physically resembling Google/Yahoo, with Ping-Pong tables, foosball games, strange configurations of furniture; they told us the average age was 26, and I think the standard deviation might well be 1. Hardly anyone is gray-haired. Yahoo owns around 40% of the company, which, in turn, is the arm of Yahoo China. It was an interesting visit at an aspiring high-tech company.

The second visit was to an “old economy” company with a wrinkle. Harsco is an American steel company in a joint venture with Hangzhou steel and iron. The Chinese company is state owned, which meant that a member of the federal bureaucracy was at our meeting. In addition, the company has a union, which is responsible for motivating employees  Interestingly, the Chinese forced a union on Walmart, but the unions are not like American unions; they do not get involved, for example, in collective bargaining. Hangzhou Iron and Steel is the 91st biggest company in China, involved in real estate, mines, hotels, and education. We toured a joint venture involved in a “service” business; Harsco is helping the Chinese company recycle iron slag; the Chinese company has a 20% share in the JV. I hadn’t realized that the Chinese government no longer gives tax breaks to joint ventures or locals, but there can be advantages to having a joint venture; Harsco benefits because the Chinese government is attempting to minimize the impact of industry on the environment. Our speaker, a Chinese-American with an MBA from the University of Washington, also told us that China is addressing the overcapacity in steel making by forcing consolidation and in some cases closing companies.

Quite a worthwhile day from a personal and professional standpoint. It’s been fun being back in Hangzhou, which has a reputation of being a place where Chinese enjoy their leisure. It’s certainly more laid back than Shanghai.

Incidentally, I read the Shanghai Daily and realized that Shanghai Automobile Industrial Corporation is a joint partner with GM, but also with Volkswagen — in addition to introducing its own car that will compete with both companies in China, and eventually in the U.S. In addition, someone told me that the Chinese-designed cars selling in China today will be introduced in the U.S. in about 16 months, which will give GM time to make sure there are no quality problems.

Have a good weekend.

We spent the day in Pudong, the part of Shanghai I predicted would not happen when I visited the construction site in 1994 (I think). It was bulldozers and plans on paper, plans for an airport, maglev train, 4 or 5 million people, etc. Plans I said would not happen. So when I predict the future, judge accordingly.

The area has a number of government (local, I believe) special economic zones. One of them is devoted to attracting pharmaceutical companies, and we went to a company that produces HIV drugs, apparently to sell to developing countries to give to the poor. From what I could gather, the company gets the rights to make generic versions of branded goods, which allows it to sell them for less. The company also has a joint venture with an American firm for research and development. One key reason was starting salaries; college graduate chemical engineers here earn around $300-$400 a month. I would imagine in the States comparable figures are $5,000. Two college students started the company about 15 years ago with help from “venture capital‚” supplied by the Shanghai government. Apparently, the local governments compete heavily for businesses to locate in their special economic area — there are 5,000 in the country!

The other visit was our best one so far, and one I will attempt to repeat when I take students here — a visit to Shanghai General Motors. One of three GM joint ventures in China, it is the largest, selling about 1 million cars last year. By contrast, our local Mitsubishi Motors sold 80,000 cars last year, aided by about 25,000 exports (some, ironically, to China). The contrast extends to the countries — the U.S. market was around 9 million last year; China’s, aided by a government stimulus that reduced the tax on autos from 10 to 5%, grew to 12 million, with GM and Volkswagen vying for leadership in the market (with about 13% of the sales). The Director of Global Supply Chain for the joint venture told us that their sales jumped over 60% from 2008-09, and it had a hard time keeping up with demand.

GM Shanghai has a joint venture partner in Shanghai Automotive Industrial Corporation; GM provides products and process (manufacturing techniques borrowed from Toyota), SAIC provides access to market. GM sells Chevy, Buick, and Cadillac labels in China, with models essentially the same as those in the United States. The cars tend to be a little smaller (though GM doesn’t have or intend to have a “small” car), with smaller engines than in the U.S. because the taxes escalate based on engine size. Our guide thinks the Chinese are aspirational (and Shanghai stores — at least in our neighborhood, which is on Nanjing lu, the Michigan Avenue of Shanghai — or at least one Michigan Avenue — reinforces that picture of conspicuous consumption); he noted that Buick was an easier sell than the other brands because the Chinese emperor Pu-yi (the last emperor) drove a Buick (which may account for the popularity of the Regal). I think we could have talked with the Director for far more than two hours, but the need to tour the factory while the shift was still there (two shifts, 10.5 hours a day) curtailed what was a fascinating question and answer. The shops are union, but the unions are government-sponsored and, he said, far less confrontational than the UAW at home. He observed that he could have a work day on Sunday without begging or yelling — and without paying triple overtime. Needless to say, Shanghai GM is a very profitable unit in the GM empire. He touched lightly on one of the major challenges — that GM’s joint venture partner, SAIC, is beginning to produce a car of its own that it hopes eventually to compete with the GM models, and export to the United States.

We leave tomorrow for Hangzhou, about 3 hours south of here, and I’ll be sorry to leave Shanghai. It’s cool here, but the snow you may have seen in Beijing should help point out that China is a large country. Much of the development is along the coast, and a lot of that is in the Shanghai area. The Director noted as you go west in China, the sales of GM cars shift from Buick to Chevy, and in rural areas to a small truck GM is making with another partner.

Stay warm and be safe, and I’ll be in touch from Hangzhou, which, unlike Shanghai, was one of the ancient capitals of this country.

Associate Professor of Business Administration Fred Hoyt was selected to participate in a Faculty Development in International Business program in China. The two-week program involved travel to Shanghai, Hangzhou, Guangzhou, and Hong Kong in the Peoples Republic of China to visit factories and learn about the current state of the Chinese economy and Chinese-American business relations from Chinese and foreign experts.

I’m sitting in a plush new hotel (the Meridien) in Shanghai in a choice location; in the city whose name means “above the sea,” I’m above People’s Square, which used to be the racetrack in the days when Shanghai was “the Paris of the East,” a foreign-ruled enclave surrounded by China.

The two days of the Faculty Development in International Business Program have been a nice mix of tourism and business education. The tourism consisted of turning us loose in the Shanghai museum, a wonderful building in easy walking distance of the hotel (the racetrack has become a park that houses a library, the museum, orchestra hall, etc). Shaped like a Chinese wine vessel (I think that’s what it is), the museum has a spectacular display of Chinese historical artifacts (I especially enjoyed the Genghis Khan coin), and one of the best bookstores in Asia.

My roommate and I spent the afternoon enjoying being in a big city (Shanghai is some 23 million people), taking the subway (which is relatively new and has helped ease what I remember as one of the worst traffic congested cities in the world!) to the old French Concession for some sightseeing there. The focal point for me was a revisit of the home of Soong Ching-ling, one of the “Soong dynasty” which was important in China from 1911 until quite recently. Ching-ling married Dr. Sun Yat sen, the patriot who inspired both the Communists and the Kuomintang (the communists’ bitter rivals, who fled in 1949 to Taiwan and have transformed the island into an economic powerhouse). Ching-ling remained on the mainland as an official honored in the People’s Republic; her home is nicely preserved as a memorial both to her and her husband, and to the life of Shanghai when it was a haven (because foreign-ruled) in a war- and warlord-torn China. Her sister, Mei-ling, married Chiang Kai-shek, and was his “good angel” with the American congress for many years. She died recently. (To complete the story, another sister married H.H. Kung, a descendant of Confucius, wartime finance minister of China, and a brother became the Prime Minister).

In the evening, they took us to the old city (which was a purely Chinese area) that has been saved pretty much as a tourist attraction. Like much of the city, it is being redone for the Expo 2010 that will serve as Shanghai’s “coming out party” just as the Olympics last year did for Beijing. That meant areas were closed (and have been for two years) as the old buildings, including the imposing former foreign banks along the waterfront — the so-called Bund — are being refurbished. I’m glad they’re not being torn down, but let them add to the eclectic architecture that makes Shanghai a museum of contemporary and European architecture.

The newer buildings (Shanghai’s rebirth has really been in the last 15-20 years) are marvels of architecture; the Pudong area (on the east side of the river) was a rice field the first time I came here, but today houses around 4-5 million people, Shanghai’s modern airport (reached by a mag-lev train), the financial center of China, and the world’s tallest building (at least until the new one in Dubai opened this week).

Today we had two lectures from American organizations interested in building business in China. One is the U.S. China Business Council, which numbers around 200 businesses, about half of them major multinationals. Last year’s survey indicated about 80% were profitable, which given the nature of the world economy, has focused a lot of attention on China’s expected 8% growth this year, although the U.S. economy is still 6X the size of China’s. The world economic crisis has hurt China’s weaker factories, he said; 10,000 have closed. The other presentation was from the Diplomatic Services’ Commercial service, an arm which helps businesses get established in China. He said the biggest challenge is to convince American businesses to do their homework before coming here; it’s a different market with different rules (that vary, ironically, by cities and provinces, despite what we think of in the way of a monolithic totalitarian state). One story he told was of a businessman who got sued by his joint venture partner, and because he had not specified in the contract creating the joint venture what would happen if the company dissolved, he could not leave the country until the lawsuit was settled.

The second part of the day was filled with a drive to Baosteel, supposedly  the largest steel company in the world. What was most interesting to me was its history — in 1978 Deng Xiao-ping (who I call “done shopping”), the leader who opened China to the west (“to be rich is glorious,” he said), told Shanghai to develop a steel mill, and while the Chinese had no experience in the field, he felt the Shanghainese had the ability to learn quickly. Borrowing initially from Japan and Germany, the company has 140,000 employees, and sells 95% of its production domestically (there’s that much demand in China!). It exports 5% to the world’s most demanding customers, our guide from the factory stated, because the company wants to establish its reputation for world-class quality. It’s mostly state-owned, with many of the trappings that accompanied the state-owned industries when they dominated the economy — housing, education, sports, retirement, medical care were all functions of the company, rather than the state. The company (like China generally) has privatized housing (selling it with bank credit over the last decade), but still has 200 busses that transport employees to and from work! In the meanwhile, the state has pledged to institute a social insurance network in the next few years to replace the “rice bowl.” Social stability is the #1 challenge facing the government.

In short, many of the dynamic changes in China that I’ve documented since I came here 20 years ago are accelerating.

The biggest headlines today were about the weather. I was disappointed not to be in Beijing, but there’s been a major snowstorm that delayed or cancelled most flights in north China (some faculty were delayed because their planes did not arrive t0 China from the U.S.) It’s been about 15 years since I was in China during the winter, and while Shanghai was in the 50s when I arrived, it’s supposed to be in the 20s-30s for the next few days. That sounds cold — but then I’ve seen what’s going on in the Midwest. Stay warm!

Talk to you soon.