I'm still working out a few of the kinks and playing with a few new design ideas. But I think I can officially say that starting next week I will be moving full time to my new blog at www.bradleymgardner.com. Please update your feed readers accordingly.
It has been fun running this blog and working in China for the past however many years, with trips to strange places, meetings with strange people, and dealing with the incessant illogic of working with a censor. The blog, and the work, have taught me a lot about how China and the world works (or in some cases doesn't work). And for that reason I think i'm going to dedicate my first week at my new online residence collecting my favorite writings from this blogs history, and discussing how the events surrounding these stories changed my perception of economics and current events.
The new blog will have much the same content as this blog did, but will hopefully have both a more global, and a more personal, angle to it. I started the website both to stake out my domain name on the internet, and to get ready for a move back to the United States I plan on making in early 2011 (though that's still in the air somewhat based on job opportunities). I hope at that time to start competing with the big names of American policy blogging, and trying to communicate my core policy argument: that the future of the world is wrapped up in the success of emerging markets (and China in particular), and the stronger America's involvement with these areas the better the future will be for everyone.
Thank you to all my regular readers, I've often been surprised and pleased that you guys care what I have to say, and I hope to see you over at the other blog.
Brad
So I'm not sure if I posted this up here, but I'm editing this quarters edition of China Offshore magazine. This job involves a lot of writing and editing stories about tax structures. Which can be fun, but also tiring.
Yesterday at around 7 PM I was getting tired of editing a piece on Mauritius, so I popped around to Facebook and noticed that one of my relatives was having an in depth discussion on his wall where he was advocating Republican economic policies. I quickly decided that joining this conversation would be a much better use of my time then actually working, so, throughout the night, I would click back over on to face book to see if anyone had responded to my points about efficient stimulus and the applicability of historical comparatives, and get short 10 minute breaks from my restructuring.
By around 9 PM the conversation had gotten to the point where I was commenting on tax policy in order to avoid editing a paper on... tax policy.
Which is when I realized that my life went in a direction that I'd have never expected when I younger.
This article was originally published on Roubini's Global Economics Ecomonitors.
Would you trust your information to a Chinese server?
That was basically the question raised by my conversation with the VP of Hisoft, a Chinese IT outsourcing company that has just listed in the US. Like many other conversations I've been having about intellectual property lately, he made the argument that the problem isn't as bad as everyone thinks. The protections in place at Chinese IT outsourcing companies to prevent information leaks are as strong, or even stronger than in India, he claims, but the industry is being held back because there aren't enough marketing skills to counter China's image as an IP badboy
The IT outsourcing sector is somewhat special though, as China's image as an IP badboy here is less a matter of poorly regulated factories in Shenzhen, and more a matter of specific government policies.I think this sector is actually one of the most concrete examples of how government controls put the country's service sector at a disadvantage to regional rivals. The sector is in an extreme growth phase right now, so its obviously not an extreme risk, but I believe companies like Hisoft and Vanceinfo will hit a wall before they catch up to their Indian competitors. And something significant will have to change with China's internet policy if they are to get past that wall.
Government Support
The sector has extensive government support. According to the VP of Hisoft any new IT outsourcing company in China has a 3-5 year tax holiday starting out. Regionally additional subsidies, tax breaks, and preferential treatments are added into the mix. These companies employ thousands of college graduates in second and third-tier cities where college graduates are traditionally underemployed, and so they are favorites of the local politicians (unemployment statistics are sketchy in China, but I have read that one inner province has an unemployment rate over 20% in the two years after college graduation).
My favorite part is that the universities actually liaise between students and employers to direct students to pick up certain skills. Something along the lines of "If you want a job with the local Sony campus after graduation, they will need 100 people a year to read and write Japanese, 70 of which need C++ programming skills. Currently we only have 67 signed up."
The sector also has certain cost benefits-first because there is a less developed (and thus cheaper) workforce, but primarily because they are protected in the local Chinese market by preferential government policies. They can grab international customers by providing their China services and segwaying from that into global services, but outside of China some of the cost argument breaks down.
The Google Problem
Google's spreadsheet program has been banned in China. It was blocked sometime in the second half of 2009, well before the controversy at the beginning of this year, so the reason for the sudden shut down remains one of the mysteries of the Chinese Internet. But if my office were running the software, I would want to know why I suddenly had to relocate all my documents. I have heard from countless places the argument that cloud computing (a mainstay of Indian outsourcing firms) is the future of the Chinese software industry, which, due to bootlegging, can't make money off store bought software. But as of now I couldn't imagine anyone trusting Chinese servers to be accessible anytime, anywhere.
And then there's the issue of supposed government IP theft. Google's accusation earlier this year that the Chinese government was hacking into its servers may or may not be true, but its quite obviously believable. Chinese laws regarding technology transfer, its intrusive information gathering apparatus, and some conspicuous attacks on computer security, have given the impression that it wouldn't be safe to store your information within the jurisdiction of the Chinese government. Or as one research analyst I spoke to about the issue put it "we should at least make them work a little to spy on us."
The concern is somewhat overwrought. The Chinese IT outsourcing companies usually go out of their way to show that they put the trust of their clients first and foremost (and that they're rather dismissive of Chinese internet laws, as they regularly have to access blocked sites for particular projects), but the Google problem means trust is something that the Chinese companies have to earn, not something they have naturally.
The Wall Approaches
This industry will grow for a while, as long as they have a cost advantage over Indian companies (particularly on smaller projects), as well as a captive market within the fastest growing economy in the world. But as China delves into the services sector, a supportive government can be as much a hinderance as a helping hand.
Just got an email advertising that the UN World Tourism Oranization is holding a "high level dialogue" on tourism and biodiversity in Guangzhou.
Guangzhou people are of course famous for "eating anything with four legs except furniture" "eating anything that flies except airplanes" and "eating anything that swims except a submarine." But I see no way they are going to bring that up to their gracious Chinese hosts.
I really hope shark fin soup is on the menu.... except not really because that would be horrible.
These things are springing up all over the place. Still i think this one's going to be special, mainly because it has the backing of Danwei bigwig Jeremy Goldkorn, and thus good content and a lot of link-exchange.
I plan on keeping this at the top of my google reader.
The Economist has an article in this week's issue that makes something of the same point that I was making in my previous post on this subject:
Harvest failure in a country with just 8% of the world’s wheat has produced embargoes and panic buying. What are importers to make of that? For some the answer seems to be obvious: don’t trust markets; grow it yourself; food security begins at home.
This is deeply depressing. Self-sufficiency is inefficient and shallow markets are more volatile than deep ones. And it will get worse. On the current best guesses of scientists, climate change is likely to produce more events like the heatwave in Russia. These will disrupt harvests and make prices more volatile still. And climate change will probably shift patterns of production; some marginal land will become infertile; land now barren will come into production; some countries will import more, others export more. Retreating into self-sufficiency just when production may be reshaped is a starve-thy-neighbour policy.
After the chaos of my getting married, and catching up on all my extra work out here, I've put aside my attempt to transition over into a more personalized/globalized blog. But since I'm paying monthly for the webhosting I need to get back on that and see if I can get it up and running in the next month or so.
Question for my readers. I very much like the design I have now, but I'm concerned that its unsuitable for a heavily content driven blog, mostly because of the white lettering on a black background. So anyone who can run over there and tell me whether they can read to the bottom of the page without hating me. I'd appreciate it.
If this doesn't work I think I'm going to buy thesis theme. But that's throwing another 100$ at this project.
I had just finished writing an article on Chinese agritech companies, when I ran across a post by Chris Blattman, and a response by Duncan Green, on food prices, food riots, and globalization, and because of that fortuitous timing I'm going to break my rule of never getting in the middle of a conversation between PH.D's and throw my two cents in.
Green agreed with Blattman on the majority of his post, but took issue with this one paragraph.
‘Globalization and growth should reduce price spikes in future. More countries are producing crops. Climate shocks in Argentina are not that tied to climate shocks in Russia or China, and so price volatility from supply shocks should be going down. Falling transport costs also mean that more substitutes are available, further reducing price volatility. So things should be getting better over time, not worse, especially if trade allows countries to diversify their diet. Envision a future of diminishing instability.’
Responding:
This reminds me of the apocryphal French diplomat arguing in a Brussels punch-up ‘I can see it works in practice, but does it work in theory?’ Here’s the practice – you can clearly see food prices pretty smooth up til 2007, then going haywire.
Time to adjust the theory, rather than deny the reality, Chris?In general I think using the term "globalization" and "agriculture" in the same sentence is a pretty bad idea, as agriculture is dependably the least globalized commodity in the world, and is likely to stay that way for a long time in the future. Yes, theoretically globalization in agriculture would lead to less price spikes, and I don't think pointing to a graph that shows prices spiking right at the time numerous countries shut down their exports of grains disproves that.
Similarly I think Blattman is being overly optimistic. Yes, the damage from weather shocks is now spread across the world, but global warming has caused more and more over the past decade, and government response to a major is always to shut down the global trading system that diminishes the damage. And global supply will continue to be unpredictable, as agricultural programs in most developing countries usually take a back seat to industrial programs, developed world agriculture is basically a protection racket, and political interference in the sector makes it prone to shocks. All while demand is consistantly growing.
I agree with both of them that there are multiple causes to food riots, but that shouldn't distract from the fact that shoddy agricultural policy is pretty much a global constant, and that policies that encouraged global trade in agriculture are still needed, and would greatly help countries like Mozambique.
This article was originally published on Roubini's Global Economics ecomonitor
I was speaking to an M&A lawyer today from a large Italian law firm, and one of many interesting topics that came up was the gigantic improvements in intellectual property protection in China. I had hear this message from a few other lawyers recently, but he threw out a few interesting reasons for this change that I hadn't heard before.
First, Chinese companies are beginning to have intellectual property. He cited two cases recently, both in the machinery sector, where Chinese companies have taken Western companies to court, and won, over some intellectual property issue. He sees this as an increasing trend, and expects the levels of cases coming and going from China to end up about 50/50 in the relatively near future.
Second, Enforcement has gotten quite strict in the larger cities. He's quick to acknowledge that this is probably not the case outside the main jurisdictions, but he says in Beijing and Shanghai, and probably even the second tier cities, you can be quite readily expect to get a reasonable outcome to your case... Unless the person you're bringing to court is well connected politically, then its up in the air. Or if you failed to register your patents and trademarks before entering the country.
Then, most interestingly, the changing structure of Chinese-foreign joint ventures. Intellectual property/trademark rights are now often included in the joint ventures assets, and thus belong to the Chinese partner at the beginning of the agreement. There are a few reasons why JVs have begun to be structured this way.
Part of it is improvement in Chinese financial markets: often when Chinese companies join a JV with the explicit goal of taking the company public, if the company does not control the brand then the market value of the listed vehicle is not going to be much.
A second part is simply the increased financial clout of both Chinese companies and Chinese consumers. A lot of the companies he represented were luxury goods/clothing brands who have suddenly found their largest markets are in China, and that their Chinese partners are stuffed with cash, while they are short of it due to the financial crisis. In this case it often simply makes more sense to have the brand located in China (though often only the Chinese distribution rights). Whereas on the Chinese side, they don't see the point in building someone else's brand when the market is Chinese.*
Then third, and the lawyer didn't explicitly say this but I've heard other people say it, Westerners are often selling the brand/technology right away to give all the IP risk to the Chinese partner. Something like an assumption that its going to happen anyways, so you might as well get ahead of it. Every lawyer I've spoken to about IP says its not nearly as bad as it once was or the existing reputation makes it seem. But it still happens, and this is an effective way to mitigate risk.
I think China is going to keep its reputation as an IP sinkhole for some time now though. As before, there are a few reasons: Manufacturing is moving away from cities with strong judiciaries, Chinese companies have been horrible at branding their intellectual property outside of China (most people wouldn't know what IP there is to steal in China), and most of all, because all the major exceptions to the "strict IP enforcement" rule are politically motivated. The lawyer had worked somewhat tangentially on, the Danone-Wahaha case, about which he said "Danone was unfortunately going against one of the most powerful men in China." (referring to the political connections of Wahaha's founder). BYD of course has been sued by at least three large companies for IP violations, but has yet to be convicted in a Chinese court.
Intellectual property protection seems to be one of the many areas where China is changing for the better. Its also one of the areas that, when I worked at a chinese business magazine, we weren't allowed to write about. The reason is clear, improved enforcement of IP rights might be a political victory, but its politics that also allows some of the largest culprits to get away with it.
*Interesting side note here. There's supposedly a market for fake Italian brands in China. Chinese entrepreneurs will go to Italy, set up a company, then go back to China and sell the company with its "brand" to some Chinese clothing factory. The lawyer said that Chinese companies are now protecting against this by buying brands solely based on how long ago they were registered.
I just want to draw quick attention to this post over on naked capitalism. Not so much for her end point (which is nonsense*) but for the comment one of her friends makes on stimulus.
He made short order of niceties and got to the point: “We need more fiscal stimulus. Obama did too little and too much of what he spent on was liberal pork. We could and need to spend a lot on infrastructure. This is looking a lot like 1936. I’m afraid it could get really ugly. And I’m particularly worried that the Republicans will win big this fall. They’ll cut even deeper, that’s the last thing we need right now.”
I agree thoroughly. And I have made this point before. The unifying factor in almost all global growth stories is an improvement in infrastructure, and America is no exception: America's past success has been on the back of road, rails and communications infrastructure. You are supposed to spend on these things counter-cyclically in order to provide short term employment and stimulate businesses related to infrastructure construction. He is equally right that the Democrats spent far too much on entitlement programs whose affects won't be seen for years, and won't have as much long term benefit to economic growth.
*The other things have little to do with economics, but people talking about desensitization to violence always annoys me. People are more adverse to violence then they ever have been in the past, and there's statistics to back that up. Lack of food is also much less of a problem then it has ever been. She somewhat distances herself from these comments at the end just noting that there is pessimism in the air, but the tone makes it clear just how distant people are from on the street realities....
of course I live in a completely different country... so I shouldn't talk about distance.