Chinese Technological Standards

This Christmas, when you buy that new Blue Ray DVD player, you run the risk of not being able to play movies from certain movie studios for an unknown amount of time. Similarly, if you buy a Microsoft Zune, you won’t be able to use your massive iTunes library you’ve assembled piecemeal for 99 cents a song.

At times, it seems like the US personal / entertainment electronics industry is being ground to a halt by digital rights management (DRM). While Hollywood, Sony, and most of the outside world have been squawking over the next format of high capacity DVDs, China has just developed their own standard, EVD. EVD boasts big sound, big storage, and big screens without the license fees to foreign companies who administer the DVD standard and products. With over 80% of the world’s DVD players made in China, Chinese electronics companies and consumers have lost the incentive to pay license fees to play their own movies. They plan on phasing out domestic production of DVD only-players by 2008.

The personal music player market in China has also created an interesting situation concerning a general disregard for DRM. Consumers in the US often factor buying decisions of mp3 players on the after sales music delivery services: by an iPod, use iTunes, buy a Samsung and use Yahoo Music, or buy a Zune, and use Microsoft’s network (or illegal downloads, of course). As a result, the few products that have captured significant market share remain in dominance. Similarly, phone manufacturers are still bogged in their efforts with DRM and haven’t produced a half decent mp3 hybrid phone.

The Chinese market, on the other hand, has very little respect for digital rights management and music player brands, both big brand and no-name, are a dime a dozen. This trend has been drastically beneficial for the development of Chinese brands, and even more beneficial for the Chinese consumer. Without DRM locking consumers into a product, mp3 players are a low priced commodity product, and phones are considered anemic if they can’t play mp3s, mp4s, AVI, and mpegs.

This by no means justifies the rampant violations of intellectual property here in China, just merely an observation that the vacuum of DRM has allowed the consumer electronics market to focus solely on something fairly important: the consumer.

As a result, the Chinese consumer electronics market has become so competitive beyond the realm of protecting after-purchase license fees, that it is starting to dictate the technological standards it will be using, and how they are managed. While the current lapse of DRM rights will not last forever, the jump-start of the current situation has given this market a significant fast-forward. Foreign-owned firms of consumer electronics will have an even more paramount challenge in capturing the market in China: a significant amount of domestic competition already in tune with the Chinese consumer.

Environment

Development over the last two decades has catapulted China into one of the world’s largest economic powers. The opportunity costs of manufacturing the world’s goods have however come at a high price. Most notably, the environment has taken a back seat to economic development; China current is home to 7 of the world’s top 10 most polluted cities. However, help from the World Trade Organization (WTO), Non-Governmental Organizations, and other global communities have enabled more outlets for environmental concerns.

Bates: I recently visited Intel’s new chip manufacturing plant which hosted a non-profit forum in Chengdu. The intended purpose was to increase awareness to other MNC’s and domestic companies on Environmental Health & Safety (EHS) standards and best practices. Most firms present were Chinese companies, which gives me the impression that environmental compliance and safety has begun playing a greater role to both foreign and domestic firms.

Dietz: As symbolic as Beijing has become for the upcoming 2008 Olympics the city still remains a very polluted city. However, the city is like that dirty mangy mutt you had as a child. Even though that mutt is less than attractive and smells of wet mange you begin to grow to love the puppy. Such is Beijing and many other cities throughout China. Even though many cities are heavily polluted the unique characteristics and history propels one to in someway help during it's critical development.

Bates: The use of blogs in China is rising and has also been used to increase awareness and corrective measures. Recently, one Chinese blogger began writing about a local company who had been spilling its wastes into his village’s local water supply. Appropriate organizations looked further into the issue and authorities sought legal action and corrected the issues. Even though there was damage, at least at this point corrective measures are beginning to take form.

Dietz: In the past, Deng Xiaoping once famously said of China’s economy: “Black cat or white cat, all that matters is that it catches mice”. However, recently said by The World is Flat author Thomas Friedman, It doesn't matter if the cat is White or Black just as long as the cat is GREEN!! The current sacrifices of growth are not sustainable to ensure it's future prosperity.

If China is to continue developing at it's current rate it desperately needs reform and to institute environmental controls in order to continue it's economic prosperity. Certainly, as the world visits China in 2008 it will see upsides and downsides to development. However, with foreign investment increasingly becoming apparent and to sustain it's own development, China is and will be instituting more controls on Environment and Health issues.

Bargaining for "The China Price"

An indefinite price is very common throughout China. Many daily transactions are settled through bargaining and people pride themselves on their haggling prowess. Bargaining (jiangjia) commonly extends from daily milk purchases to business deals. Even though you might think you know the price for a certain commodity or have a business contract including pricing and payment terms, this by no means signifies that your counterpart has this amount in mind. The role of a fluid final price is extremely ingrained in the culture, and a source of pride for those who have the ability to demonstrate their lihai (powerful) jiangjia abilities.

Dietz: I often take for granted price tags on everyday items. Walking into a department store in China and viewing the price tag by no means signifies that you will pay that price. In most cases, you would be foolish to do so. However, it becomes tiring to have to negotiate for everything. There is even a market near my apartment where you can haggle for shampoo if bought in decent quantities.

Bates: The shelf price on many Chinese goods is generally marked up around 40%; paying the asking price is big mistake. The day-to-day activity of bargaining for everyday amenities becomes very tiring. However, with Wal-Mart, Metro, Carrefour, and Oushan setting up shop in China, local people's bargaining power is diminishing. Although, the greatest convenience of big super-market chains opening here is you know what your buying unlike bargaining for something that may be fake or just doesn't work.

Dietz: I got caught up in the fever once, and attempted to buy a black market cell phone on the street. It was a cool phone with a camera and the usual features. It was lacking a sim card and a charger so I thought it was just stolen merchandise. I haggled, argued, insulted the man a few times, walked away, and finally got it down to the equivalent of $24. I felt pretty good about myself and had the urge to brag to people about how cheap I got this cellphone for (a very culturally acceptable thing to do). In the end, the phone up being a fake cell phone with a functional LCD but no internal components (they can make fake everything over here). Humbled to this day.

Bates: Being a foreigner, it's easy to get ripped off on just about anything. I once accompanied a Chinese friend to the train station via taxi and on the way back home I ended up paying double the original price. Even purchasing fruits and vegetables from local markets can be a challenge. My least successful experience was paying a reasonable price for oranges one day, and paying triple the very next day from the same vendor. Perhaps she sensed my great demand for oranges late at night.

Dietz: Earlier this year, I sat in on a payment discussion with a Chinese company. They were settling the final payment of a piece of a project, and the amount was stipulated on a previous memorandum of understanding. However, in order to save face and maintain a sense of business prowess to the company's leadership, the contract was renegotiated at final payment at GREEEEAT length (at one point even negotiating the exchange rate).

Other than purchasing houses, cars, and formal business negotiations, Americans are rather isolated from the world of bargaining. It comes as a shock to some the amount of price fluctuations on all levels, and in many cases, as a foreigner in China, the price tends to fluctuate up. Unfortunately, this is one of the lessons learned, and reminder that you have to be on top of your game with every purchase. The term 'buyer beware' has never seemed more relevant.

Regional Food Specialties & Western Options

With 33 provincial regions and 80 dialects and, it’s no wonder food choices will differ from city-to-city in Mainland China. It’s enjoyable experimenting with new cuisine, but what selections do westerners have to relish from home? In this discussion, Dietz & Bates will compare specialty dishes in Beijing and Chengdu as well as western food options.

Dietz: Beijing is a hotbed of culinary craziness. The city is home to a huge range of historically famous Beijing delicasies as well as a solid representation of virtually all types of Chinese regional food. While Peking Duck is the first thing that comes to mind, North Eastern Chinese food has a wide range of flavors and ingredients. My favorite food tends to be the street snacks available on nearly every corner. Fried dumplings, egg pancakes, and vegetable pockets comprise the vast majority of my meals, all of which are under a $1.

Bates: The most famous of all dishes in Chengdu is Hot Pot (Huo Guo). Virtually, every food item is used such as vegetables, meats, pig brain; the list goes on. It consists of a large communal boiling pot of extremely spicy broth that makes the mouth numb. However, it’s not only the food items that make the dish famous, it’s also the process. Grab your friends, throw in your favorite vegetable or meat to cook and enjoy good food with good friends. Other specialties are chao shou (dumplings) and fei pian (cows’ lung).

Dietz: Aside from the common western restaurants such as McDonald’s, KFC, Pizza Hut, and Subway there are many western cafes and restaurants in Beijing. However, they are the last place I will typically eat. The biggest stomach problems I have had here are from Western restaurants, not Chinese. This could be a result of a lack of familiarity with cooking thick pieces of meat, however I have had difficult experiences at Western Steakhouses in Beijing. For me, eating imitations of food from back home here just makes me miss it even more, so I stick with the cheaper, better, and healthier Chinese alternatives.

Bates: Although Chengdu lags behind Beijing, the number of western restaurants is growing steadily. The most famous western restaurant is Grandma’s Kitchen. Here, one will find hamburgers, steaks, pancakes, bacon and eggs which tantalizes your mouth if it has been awhile. Another famous restaurant is Peter’s Tex-Mex which specializes in burritos and fajitas. The burritos in Peter’s are amazing and taste much like the burritos found at home. Other restaurants include Shamrock Bar & Restaurant, and BBQ.

Dietz: One of the benefits of living here is the food. You can eat out very frequently and not break the bank. Also, the sheer number of restaurants in Beijing gives one a host of opportunities for trying anything and everything. You can eat out for every meal of the day for a few weeks and not frequent the same place twice, in your own neighborhood. While, on occasion, I do need a Subway fix or whatnot, every time I return to the States after a stint in China, I've lost 10 pounds and my blood pressure is lower. I chalk that up to the frequent use of fruits and vegetables in everyday foods.

Bates: For a quick fix, I often hit the local Metro or Carrefour (western supermarkets). Cheese, bread, are always on my shopping list and I often experiment with Chinese wine. Since Starbucks is so far away, I have since adopted a new drink called Coffee Cola (Kafei Kele), it's a version of coke black that tastes more like cola than coffee. Not bad, but not great either.

Dietz: I broke down and bought a drip coffee maker from a specialty store. That is one thing I cannot live without.

Some say that the best part of living in another country is the food. You get to experience tastes, smells, and flavors that you have never encountered. On the other hand, you're deprived of your comfort foods that you have grown to love your entire life, which makes them so much sweeter when you return back home. For those who have been here, this country can be a gastrointestinal nightmare for some, an absolute dreamland for others.

Language: The ultimate entry barrier?

For most people who come to mainland China from the outside, one thing is blatantly clear in most places: there is not a whole lot of foreign language. English is by far the most widespread of the foreign languages here, but in most cities, English won't help you much on a day to day basis. For many who lack the necessary language skills, the first time period here is a true test of your body language and charades skills. However, with English education starting in primary school, and a flood of foreign English teachers, things are starting to change considerably.

Dietz: Language is a huge barrier at times. When I first came to China, most restaurant experiences consisted of the 'point-and-hope' method, which was to point to something on the menu and hope it doesn't have pig's stomach as a main ingredient. However, I guess this place forces you to learn the language, and once you do, it’s a lot more fun and you eat much better.

Bates: Definitely, the language barrier either forces you to eat pre-packaged items or forces the point-and-hope method which isn't a mentally healthy way to enjoy life in China. The first time eating hot-pot (Sichuan specialty) with my classmates was a huge fiasco. We expressed what we wanted in Chinese but for some reason nobody could understand us?-very depressing moment. We were thus forced to walk around the restaurant looking at other patrons choices; how embarrassing and it does get worse. I personally have been very lucky in my choices but I have also been curious to try new foods: Turtle, Chicken/Duck Stomach, Duck Neck, Chicken Throat, and Cow Lung!!

Dietz: There is a subtle difference in tones and pronunciation between the words for classmate (tongxue) and bedmate (tongshui) that I could never seem to figure out. Embarrassed a great many of classmates that way back in college.

Bates: I too have experienced awkward situations in which my Chinese was skewed from normalcy that ended up expressing rude comments to my friends. It is a common expression after departing from an acquaintance to say, "I'll see you next time" (sha ci jian). However, I happened to leave a very key word out of the phrase which honestly isn't a very suitable thing to say to a friend. Luckily, my friends took what I said with a grain of salt. Mistakes happen and humility makes you learn fast.

Dietz: However, I have worked in offices here that run completely on English. If there is one thing that China has a lot of, it's people who can study really hard and memorize some of the most technical English imaginable. I moonlighted teaching English for engineers Lenovo here in Beijing during college at nights, and some of the answers I got to questions were absolutely amazing.Example:Me: "So what are you doing this weekend, Geeves (they all picked their own English names: Tiger, AK47, Forrest)"Geeves: "I assessed the capacity for the following weekend holiday." (translation: thinking about going somewhere next weekend).

Bates: Absolutely amazing and sometimes out right funny. I asked one of my friends whom is an officer for SIFE and an economics major how she was doing. Her response was, "chillin like a villain". She was curious why I snickered and didn't understand why, but slang when used unknowingly becomes quite comical. Apparently, someone told her to respond in this manner and didn’t mention that it was slang.

Dietz: If you have absolutely no idea how to say something, and are completely lost trying to explain it in Chinese, a good trick is to go up to a group of kids or teenagers. At least one of them usually speaks conversational English pretty well.

Bates: I have yet to use this method but this situation arises for me quite often. To survive around this I have integrated my Cell phone to contain English speaking friends, business cards to get from point A to point B, and so I've been told, finding a significant other to put up with language inadequacies in situations that are beyond ones ability helps too.

Although, China is developing its English language resources quite quickly, especially in time for the 2008 Olympics, there are still many challenges and boundaries when conducting business. No matter how well China adopts English as a second language there will always be great respect to those who can communicate using Chinese. In a business world that is dominated by "guanxi" (relationships), knowing the language and business culture will give huge precedence to those that understand these elements. Preferential treatment will be given to those who can respectfully and skillfully navigate their way in China.

From Beijing to Chengdu: Part IV - Drawing Feet on a Snake

Many visitors to China often comment on the ideological differences that affect business, culture, and daily life. There have been many articles, by foreigners and Chinese nationals, about the 'can't do' attitude that is common here. Like so many things in China, this too is changing.

Dietz: At times the lack of ingenuity and freedom of creative thought it is a little frustrating, at even with basic business services. For example, recently at a restaurant, I asked for something on the menu and asked if some of the extraneous toppings could be left off. I was met with an extreme face of fear and puzzlement at my request. The server's response was: "We have never done that, don't do that, and probably will never do that."

Bates: I have had similar experiences that are equally frustrating. Recently, I made the long journey to Starbucks to enjoy an Americano. I particularly enjoy a strong cup of jo, thus I asked the barista to fill the cup only half-way with water. I too was met with a blank stare that did not want to comply with my request. It took several minutes for my Chinese friend and I to persuade the barista that this is what I truly wanted and had to explain why before I could relish in my vice. The constraints placed upon the Chinese in the past have also contributed to the lack of creativity and innovation.

Dietz: At times this doesn't seem to be limited to the basic services sector, but to generally doing business. Due to the broad availability of labor (both blue and white collar), things that would generally rustle feathers are seen as a liability, not an asset. Thankfully, this is changing.

Bates: Agreed, the rate of change is increasing everyday and will eventually contribute to better service models and business cooperation between the West and China. Due to the supply and extremely liquid labor force here, it is dangerous for most employees to step outside normal business protocol. If employees deviate to satisfy customers and it somehow backfires, it could very well mean getting displaced for another available employee; employees acknowledge that they are very expendable.

Dietz: If you are one of the millions of workers that have come to China's urban area seeking expanded opportunities from the vast rural communities, an activity which may annoy your boss is not the first thing that comes to mind at the office.

Bates: This reminds me of a famous Chinese idiom (hua1 she2 tian1 zu2) which translates to “drawing feet on a snake.” The story is about a drawing competition, where the competitor who draws the snake the fastest gets a nice bottle of booze. One guy draws the snake really quickly, but seeing the others are still working, decides to add feet to the snake for fun. Another guy finishes his snake drawing, grabs the booze, chugs it, and says in triumph “You didn’t draw a snake. A snake doesn’t have feet!” As I understand it, the idiom means that you shouldn’t do superfluous things — only what’s asked of you.

Dietz: However, Bill Gates said last year that some of the most interesting software development in their company is the stuff coming straight from the top college graduates they recruit over here (specifically Qinghua) and give free reign.

Bates: This is a prime example of the changes taking place in China at this time. The younger generation has experienced a completely different way of life and thus will begin contributing to China and the world economy in a great way. However, the rate of intelligent college graduates is also making the working classes suffer lower wages. Many Chinese companies have so many people to choose from that they can offer low wages and at times recent grads may work for free. At the same time, wage in many cases is what is driving China in to the super power it has become.

The question in my mind is how do you encourage really smart and capable people — and there are a lot of them — to break that conformist tradition, and draw feet on snakes? For instance, stop thinking “what job can I apply for” and instead ask “what opportunity can I create”? Looking back at the development of Korea and Japan, and the similarly rigid educational systems and labor pools, ingenuity and innovation were not adjectives used to describe them either. However, the current situation with both these countries puts those wayward viewpoints to rest. In all probability, the same is happening here.

From Beijing to Chengdu: Part III - Construction

Although Chengdu and Beijing are developing differently, and at different rates, construction has lead to positive and negative affects on both cities. The impact of development can be seen from every twist, and viewpoint the two cities has to offer. In this second series of discussions, our team will discuss the varying levels the degree to which development has affected investment, opportunities, and lifestyles.

Real Estate and its Implications

Bates: The residential and commercial high-rise real estate market in Chengdu is booming. The market value of office space grew 17% Y/Y through 2006 which provided a rental yield of 13% per annum; more than Beijing, Shanghai, or Guangzhou . However, the luxury residential market demand exceeds commercial space due to the recent emphasis to construct tall buildings with greater density.

Dietz: The commercial real estate market is booming as well, but with some consequences.

Many international firms have established main offices here but either have little need to completely staff the offices, or cannot effectively manage the logistics. As a result a whole new market has opened up for property management of foreign corporations operating in Beijing. Additionally, the local authorities are trying to calm the hot real estate market, fearing a pop in the bubble.

High-Rise Construction
	Beijing	Chengdu
Completed	848	127
Under Construction	66	39
Proposed	10	1
Never Built	2	1
On Hold		1

Bates: Chengdu is planning 5 subway lines totaling 220 km. The first 15 km phase of the 17 station line began construction in 2001; total rail investment exceeds $1.718 billion. In May of this year, the main body construction of the deepest underground subway station was completed. This alternative transportation will help ease the increasingly congested roads.

Dietz: Similarly, in order to gear up for the Olympics and ease a huge deal of city congestion, Beijing has begun a massive subway construction project, adding an additional 5 lines to the existent three. Currently, the city has Line 1 (runs east to west under Jianguomen St., and under Tiananmen), Line 2 (a square route running around the 2nd ring road), and Line 13 (a massive loop around the north end of the city). However, the existent lines are grossly inadequate to meet the commuting demands of the city (as evident by my very intimate morning encounters with Beijing residents sardine packed into subway cars).

Bates: Of course all this development in Chengdu has caused many traffic flow implications. Many directional streets here shift one way or the other depending whether or not construction is hindering traffic. With many combined cyclists/pedestrians, the flow of traffic swells and contracts perfectly like a school of fish in a hurry. It is remarkable however, that Chengdu's resident's constantly adapt (and even manage to flourish) their way of life to meet tomorrow’s needs.

Dietz: Beijing streets run according to a different set of rules, or more accurately, a general disregard for them. The massive construction projects (including the subway lines) have forced traffic to bend and flow across the improvised routes. The roads are jammed pack with bikes, buses, and an ever increasing number of personal cars.

A common sight in most Chinese cities is a skyline littered with construction cranes (estimates range from 30-60% of the world's cranes are in use here). The face of most cities have been redefined in the past ten years, and most likely, will continue to change rapidly for some time to come.