Friday, November 26, 2010

If you don't know the rules, maybe you shouldn't play

A couple of days ago, I read this interesting article on the front page of Stockhouse.com, talking about how the TSX is looking to expand into China to attract more Chinese companies to go IPO in Canadian public markets.  This scares the heck out of me.  People have a hard enough time making investment decisions and lose their shirts all the time.  If Chinese companies truly do see the Canadian public markets as a viable platform to go public, I worry for the shirts of many Canadian investors.  Spurred on by the hype surrounding China, they'd have the ability to easily apply their same poor decision-making abilities on companies where it is much harder to do due diligence due to distance and foreign-based ignorance.

The fact is that China is still maturing in terms of its economic behaviour.  I don't want to sound like I'm discriminating against China unfairly.  They have huge growth potential that I like, but lots to learn.  Scams exist in western nations too.  Just look at Bernie Madoff and the like.  Whether or not China has a higher incidence of corruption and scams than the West is irrelevant.  What's relevant is that there is bad stuff that goes down in China, and you sitting across the ocean would have a very difficult time sniffing it out in your investment due diligence analysis, especially since the rules may be different in China.  Let's look at this fascinating example of the Universal Travel Group, who some people accuse of being a scam listed on the NYSE.  This guy's due diligence analysis goes deep, really deep, to the point where he has local people carrying out tasks for him.  Spoiler: the conclusion is that the company really doesn't look good.

If you want to trade a Chinese company listed on the TSX, would you be able to go to the same level of due diligence to make sure you didn't make a poor investment?  While the TSX no doubt has standards and processes to ensure that only legitimate companies can go public on its exchanges, it can't catch everything.  So when an inexperienced ignorant trader sees the reported financials for a Chinese company that is supposed to be growing like a weed in quite possibly the most significant growth market in the world, why would he not buy?  Emerging markets, especially China, are hot.  The stage may be set for a beehive of activity that causes a huge letdown, unless China can take control of their inflation issues:
The U.S. monetary policy and domestic asset market conditions are the most important factors in attracting hot money. When speculators take money to emerging markets, they expect massive gains like 100 percent in a couple of years. Such returns are possible only in a bubbly environment and, of course, one must have the skills to leave before the bubble bursts. The loose U.S. monetary condition is a necessary condition for an emerging market bubble. Hot money is the ammunition to make it happen. But, emerging economies must be receptive in the bubble game. If a government is determined to go against a bubble, it cannot happen, regardless how loose the Fed's monetary policy is and how enthusiastic the speculators are. When an emerging economy shows resolve to fight a bubble by raising interest rates, the hot money tends to leave. When China raised interest rates unexpectedly last time, the yuan forward price in the offshore NDF market fell. It is one piece of evidence that the hot money would leave rather than flood in when China raises interest rates.

Investing is all about buy low, sell high.  I lost thousands trying to make a buck in the mining bull run back in 2007, especially in uranium.  My money's starting to come back thanks to uranium getting hotter again and my favourite stock URC (up 119% since I bought back in August!), but quite frankly, I know I don't know what I'm doing.  My friend Kyle knows what he's doing.

Kyle:  "Hey, hey, guess how much money I made today!"  
Me:  "No."
Kyle:  "Come on, guess!"
Me:  "$20,000."
Kyle:  "Nope!  Guess again!"
Me:  "40,000."
Kyle:  "No man, $80,000!  I killed it today!"

Every week he goes in, he says he expects to lose money 4 days of the week.  But if he plays it right, the 5th day will more than make up for all his losses.  And as he told me, "You either have what it takes or you don't."  But the other thing he does is not go into something he feels is risky or he feels he doesn't understand.  Amateur traders don't understand this part.  The good guys know what they're doing.  The rest are the suckers who take the losses that make profits possible for the winners.

I think Chinese companies listing abroad is a good thing.  It enables access to capital markets easier, and spreads the risk around (but hopefully not too much, ala subprime).  But frankly, I wouldn't know where to even start to make sure I'm making a good investment decision.  So I'm doing the sensible thing.  I'm staying out.  If you want to dive into investing in anything, let alone China, go in at your own risk and don't risk more than you can afford to lose.  It may still look like a grass field to you, but there's a reason why there's no quarterback in a game of rugby.  The rules are just different, even if the ball looks similar, and you better be up to date on how to play.

On a side note, here's why I'm bullish about uranium again, even if the economy turns sour, causing a lower demand in energy.  Peak oil and peak coal.  Let's face it, solar and wind power just aren't there yet.  The only thing even remotely capable of supplying our energy needs sufficiently in the short term are all those nuclear power plants that are being built.  So far, the market has a consensus on this thought.  Yay.  And I'd say apparent dangers wouldn't disappear if we decided to put a ban on nuclear power plants.  That's like saying mobs will stop using hitmen because guns are illegal.  No, I think they'll still find a way to get their guns.  If there's something positive to be gained from uranium, let's by all means grab it.  Just remember, I'm only a clueless amateur.

Tuesday, November 23, 2010

Dang it, North Korea, stand down, for everyone's sake

Just a quick comment on the recent North Korean attack on South Korea.  Apparently, South Korea was doing some military exercises that involved 70,000 troops and North Korea saw that as aggression and responded violently?  According to the NYT:
The South Korean deputy minister of defense, Lee Yong-geul, acknowledged that artillery units had been firing test shots on Tuesday afternoon close to the North Korean coast, from a battery on the South Korean island of Paeknyeongdo. But he denied Pyongyang’s charge that the shots had crossed the sea border.While skirmishes between the two countries have not been uncommon in recent years, the clash appeared to have been the most serious in decades and came amid heightened tensions over the North’s nuclear program. An American nuclear scientist who recently visited the North said he had been shown a secret and modern enrichment facility.
Well, if you see someone firing artillery in your direction and you know that guy's not friendly, can you really interpret it as anything other than aggression, even if it is only supposed to be part of an annual exercise?  I'm not defending North Korea here at all.  I'm just trying to imagine how the situation became what it is.  Some nervous trigger happy NK soldiers may have been briefed about how this SK 70,000 troop exercise was training to invade the homeland; suddenly they heard all this artillery firing, panicked, and decided to fire back.  That's the scenario that makes the most sense in my mind.  Otherwise, it was a carefully calculated event by North Korea's leadership to use the South Korean exercise to justify a small attack and lay blame on South Korea.  Or there was something else that's not crossing my mind.  Who knows?

The important questions.  Firstly, will this escalate to war?  The sinking of the Cheonan in March certainly didn't.  North Korea denied being behind that incident, but international experts that investigated the sinking could only conclude that it was North Korea.  However, there were no real significant repercussions against North Korea; certainly no military reprisals.  This is especially interesting to note because the March attack was unprovoked, while North Korea could argue that this one was provoked.

Is this attack really any different?  It feels a bit different.  It's not just a ship at sea that was sunk, actual soil was attacked.  More people died in the ship's sinking for sure (46 sailors to be exact), but I wonder which has a bigger impact on a nation's psyche?  A ship at sea could be easily abstracted away from one's own life, despite the number of deaths.  Meanwhile, a direct hit on home soil may incite much more close-to-home fear and outrage, despite causing only 2 deaths.  Or maybe not.  I have no idea, but if it were me, I'd be more spooked by the home soil getting attacked, even if it is an outlying island.  If South Koreans in general agree with that sentiment, that alone could cause an escalation to war.  If it doesn't great, but South Korea would just look more and more like like the nerdy wimp that the class bully uses to cheat on his homework and get lunch money.  This also is not a good scenario because you don't want the bully to get any more belligerent than he already is; you want him to tone it down.

The more interesting question is if it does escalate to war, how will the world's players react?  Will they ignore it and treat it like a regional dispute in which they shouldn't get involved?  Most likely not, as the region is too strategically important to the world's economic output, which currently needs all the help it can get.  However, it's interesting to note how wars correlate with power swings.  After the two world wars, Germany became a regional player who never regained its political clout, the UK lost its superpower status, and the up and coming USA emerged to lead the way for the future, despite having endured the Great Depression only just previously to the second war.  Many might say it was the war that enabled them to rev up the engines that were established in the roaring 1920s but collapsed in the 1930s, especially since the USA came late to the party.  Europe slaughtered itself, then the USA came to save the day when almost everyone was tapped out.  Obviously, that's a very simplistic summary, but relevant for this discussion.

Currently, the tables are again turned.  The USA is floundering due to the latest self-induced economic crisis, and it continues to have heavy military activities in the middle east.  Compare this to China that has almost no military activity and is finally starting to show some economic teeth.  If war breaks out again, and the USA and China get involved, who will last longer and emerge the world's superpower?  This is a worst-case scenario, and a frightening one at that.  The one ace that the USA has up its sleeve is that China holds massive numbers of American dollars.  That's a massive amount of cash, which China wants to convert slowly and gradually into sovereign denominated/controlled wealth.  It does China no good to have the USA do an economic nosedive, as it would kill China's own currency reserves.  Plus the fact that the Chinese yuan is tied to the American dollar.  It is in China's economic interest to let the USA die a slow and painful death, not a quick and violent death.

China's not stupid.  It needs to care about its own interests.  It wants to grow economically, and it wants the world's favour, not its spite.  The monkey wrench is that it may be North Korea's only remaining real ally.  It's dealing with a little brother that it needs to keep bailing out of jail.  The kid may just want attention and feel he doesn't get it, so he causes trouble instead.  Eventually, China must decide if family comes first and it will defend (and teach) its troublesome kid brother till death do them part, or give up on his kid brother because the guy causes too much trouble.  What are you going to do, China?  As is the trend these days (disliked by some), you have the most power to resolve this situation, not the USA, Europe, Japan, or any other party.

Of course, there's that ever-so-strange conspiracy theory that maybe this is in fact good for China; some might think that the combination of the economic crisis and more war is the best way for the USA to die its slow and painful death.  I just hope that if that happens, I'm not caught up in the middle of it, since I'm living over here now, huh?

I'm betting that this will end up like the Cheonan incident.  Lots of outrage, but no real repercussions.  Then we continue as normal until the next incident.  Ad infinitum.

Sunday, November 21, 2010

The Best Current Summary of China's Ambition That I've Seen To Date

Someone posted this article over at HN.  Best current summary I've read on the topic to date.  And his comment really sticks out:
This article really struck a note with me. The atmosphere here in Beijing really has changed a lot over the past few years. The relative wealth of the 2 countries is directly evident in the different attitudes of Western expats and native Chinese towards money. The expats here are becoming noticeably poorer. I see it because I am a retailer of luxury goods.
There was a time when being on an expat package in Beijing meant living the good life - you could splurge however you wanted because the cost of living was so cheap. Today, my products are really pushing the affordability of the expats here but are considered a great value by the new middle class here. Several times a week I get complaints from expats that our prices are too high. I've never heard that from a Chinese. Indeed, the opposite is true, several times a week Chinese people tell me what a good deal I'm offering.
It's actually getting a bit problematic for me. Inflation's pushing my costs up and my competitors are raising their prices as well. I've been raising prices alongside everyone else, but I'm really about to price myself out of the expat market. Expats who receive their paychecks in dollars are seeing their purchasing power diminish and I think it's having a big psychological effect on them. They're really important to me, but I would be crazy to not be trying to reduce the percentage of sales that they constitute.
This is directly impacting my spending decisions. A few years ago, it would have made sense for me to drop money to advertise in expat magazines. These days, that extra money's all going to marketing towards the Chinese.

Saturday, November 20, 2010

What the Average Person Doesn't Understand About High Paying Jobs

All this money that Google is throwing at their top people to make sure they don't go to Facebook has got me thinking.  The latest story is that Google offered one of its employees $6 million to stay.  Two things in particular have been crossing my mind: what kind of people get the good jobs in big corporations and what the superstars are really worth.

1.  People who get high paying jobs in big corporations
I remember back in university when I started my job search in my last year.  It was September, and I was to graduate the following April.  A good 8 months to find a job.  I applied to a bunch of companies.  In particular, I applied to a bunch of leadership development programs in various respected companies.  These are the programs where you bring in the cream of the crop from the next generation, and put them through a special career schedule that readies them for a management position in 2 to 5 years.  I also applied for interesting high-growth opportunities in smaller companies where I felt pull (i.e. they wanted me and it excited me).  I ended up getting 2 job offers, and took the one that excited me the most.  What interested me through the whole process watching my peers go through the same thing.

I know a lot of people who really want to get good jobs at big companies, but I think they don't understand several things.  This next sentence is going to sound bad.  It will sound mean.  But it will be the truth.  Frankly, looking at most people I know who want to work for big companies but don't, these people aren't cut out for big companies.  They don't work hard enough, they're not smart or creative enough, and they don't have enough mental toughness.  They only see the nice pay, benefits, and fancy reputations.  They don't see the ugly stuff from the outside.  If they did, maybe they would realize they're not a good fit.

Working Hard Enough
The work can be a tough grind, the hours can be long, and you'll be lucky to get OT pay for your efforts.  Normally, you get paid a salary by the year, not a wage by the hour.  This is made up for if you can get a nice bonus based on personal and corporate performance.  And if you can participate in a share plan or get share options.  But the fact is, getting OT pay isn't a normally expected thing (flex days are a different matter, depending on the company).  If you get put on a fantastic, high-profile, strategic project?  Hey, that's every corporate junkie's dream.  You can put something amazing on your track record, get recommendations galore, and make a real difference.  But then you also need to expect to put in 60 to 80 hour weeks.  I've been there.  The people who expect to do 9 to 5 with some water cooler chat can't hack it.  I've seen those people wither and die.  They can't pull their own weight.  And then they have to be kicked off because they're too much a risk to the project.  It's not pretty.  And if you're not working on a special project, but you still need to pull 60 hour weeks to get everything done?  Poor you.  Wah wah wah.  Get it done.  What do you think you're getting paid for?

Being Smart and Creative Enough
Update:  I want to be clear after some initial feedback that this section is not referring to innovation or product development creativity.  It is referring to having the intelligence and creativity to deal with crappy problems that can only exist in big companies, problems that should never exist in the first place.  Anyone who reads what I write will know my thoughts on creativity in big successful companies.  In fact, this entire post is just to demonstrate that the grass is greener on the other side.

You have to be smart to have a good job in a big company.  This isn't because the job requires intelligent or creative people.  Often enough, the job itself requires very little intelligence or creativity.  My friend at Google says with a hint of honesty that he and his co-workers feel like they are just janitors.  But this same friend interviewed an MIT PhD (everyone participates in interviews at Google) and rejected that guy for not being able to demonstrate a good level of intelligence.  I've been on both sides; I've rejected people and I've been rejected by people.  It always boiled down to level of potential that was demonstrated in the interview.  What is this person's potential to make a positive impact?  What is this person's potential to consistently deliver quality work?  What is this person's potential to rise in the company?  A new hire candidate needs to demonstrate potential in all of these areas to be seriously considered, and that requires intelligence and creativity.  Doing the work described in your job description is easy.  Everyone can do that, it's what they trained to do for many years.  Some jobs may have required more intellectually difficult training (chemical engineer) than others (insurance sales).  That doesn't matter, you need to compare yourself with people who have the same training.  Going above and beyond your job description is what differentiates you from the herd, and that's hard.

Intelligence and creativity are required when you're faced with a difficult and unexpected situation, and you need to make good decisions on the fly.  When there's risky groupthink, and someone needs to be able to step back, see the big picture, and convince the group that they're going down the wrong path.  When nobody agrees on anything, everyone has different opinions and data, and someone needs to have a light bulb moment that will identify the truth.  When the instructions and corporate strategy from above you are just plain wrong, and you need to figure out a solution that still meets the corporate goals without breaking the core strategy.  When a customer is complaining about something that is actually the customer's fault, the company has no ability or resources to fix the problem at hand, and management demands that the customer be satisfied because this customer in particular is really important.  Average people can't solve these problems on the fly, and ironically enough, these problems won't be listed in any job description for any job posting.

Having Enough Mental Toughness
Work in a big company can get ugly.  People build their fiefdoms and fight each other over capital budgets, resources, and visibility in the race to get to the top.  Or in particularly brutal and large organizations, just to survive and keep their jobs.  There are lots of reasons why large organizations are dysfunctional, but that's not important for this discussion; the important fact is that they generally are dysfunctional.  And to survive that environment, you need to demonstrate a particular mental toughness.  If you're lucky, you'll have a good manager who shields you from all the crap.  If you're not so lucky, you'll get to experience it all firsthand.  I have friends who even cried from just being blasted by a VP or director level person through email.  The successful ones could pick themselves up and get back at it.  The unsuccessful ones quit if they weren't somehow fired.  And the more you get promoted, the more you'll be right in the middle of it all.  This side of an organization can be hidden if things are going well; it will just happen behind the scenes at a higher level.  But if things are going poorly, you will experience hell.  But if you're a prodigy, you can control all the drama so that you're the calming influence to whom everyone will listen.  That kind of employee is worth their weight in gold.  I've both been that employee and not been that employee.  When you're not that employee, you are contributing to disaster in high pressure situations.

So people who dream about working a good job in a big corporation need to ask themselves these three things.  Do I work hard enough to take the grind?  Am I smart enough to figure out a solution for any problem?  Am I mentally tough enough to take any criticism and drama that comes my way?  If you are, chances are you'd be working for a big company already if you really wanted.  So if you're not yet working at a big company but you really want to, take a long hard look at yourself and ask yourself these questions again.  Even in crappy economies, the truly good people will always have jobs.  Perhaps it's better to say that in crappy economies, only the truly good people will have jobs.

2.  The Superstars
In every company, you'll have your normal high quality people, and you'll have your superstars.  That $6 million offer isn't something that Google would give everyone.  It would have to be a really elite employee, although rumors say that this time it has to do with the employee being a female engineer.  Even if her gender was the catalyst for such a high offer, we can safely presume that if she weren't worth it, she wouldn't be getting the money.  Also consider that Facebook is trying to raid the cream of the crop from Google, so there's a second reason why we can presume she's pretty good at what she does.  So all things considered, is she really worth $6 million?

If she's a top 1% engineer, and a scarce female top 1% engineer at that, why not?  Let's put this into perspective.  How much do the top 1% athletes in this world make?  Millions.  How much do the top 1% musicians in this world make?  Millions.  How much do the top 1% salespeople in this world make?  Millions.  Top 1% real estate agents?  Top 1% academic researchers?  Top 1% authors?  Top 1% fashion designers?  Top 1% playwrights?  Top 1% chefs?  Top 1% journalists?  Even if some of these people don't make millions directly from their jobs, their jobs are the key to enabling them to have patents, book deals, etc, whereby they can get their millions.  And if these top 1% people can get millions, then why can't top 1% engineers?

I think people need to think about how hard it is to get a top 1% person.  Especially at Google, where a bottom 1% employee would likely be considered a top 1% employee at any smaller company.  The case is even more so at Facebook, who is trying to raid all the superstars from Google.  These people are scarce because there are so few of them.  And just like the Vancouver Whitecaps would never even consider me to play soccer for them, big companies are in search of those people who can make them better, not drag them down.  That means you have to be just as good as everyone already in the company, if not better.  And if you want to make the truly big money, you need to be top 1%.

But while finding a top 1% person is hard, becoming a top 1% person is just as hard.  It's easy to be great, but it's hard to be consistent.  The more you get paid, the more you're expected to deliver something amazing day in and day out.  Even lower level people are expected to deliver quality day in and day out.  It's why you get paid.  This never hit home harder for me than when I was working for the Olympics in Vancouver and received some feedback from the same senior guy who had interviewed me.  I was the youngest venue technology manager hired by far, and we were having a conversation about my reassignment to another venue.  He said when they hired me, they believed that I would be either amazing or a disaster, but that it turned out I was neither.  I was simply good enough to do what needed to be done so far, but I still had a lot to prove.  That conversation really opened my eyes.  I thought I was doing amazing.  To be told that I was just average made me realize how hard it was to be amazing in any context.  I still have that feeling today.  It's hard enough to be amazing, but it's much harder to be consistently amazing.

Watching at home on TV, we scream when a multi-million dollar athlete doesn't score points every single night to win our hometown team a championship.  And while we may not scream if the lowest paid player on the team doesn't score points, we do scream when the lowest paid player makes mistakes that cost us the game.  The highest paid people are paid to be consistently amazing, but even the lowest paid people are paid to be consistently reliable, if not amazing.  This goes for both professional sports and any corporation.  And as mentioned before, the problems that everyone faces in a big company aren't easy problems.  So while they might bring in the top 1% guy when things are in flames, they're depending on you to not screw it up to that point first.  If you experience difficulty and crap, you need to suck it up, because you're not volunteering your time; you're getting paid.  You can get all starry-eyed when you hear about the top 1% employee's new offer, but have some humility to remember why you're not that person right now, what you need to do to become that person, and that you have your own job to do right now.

I think that the attitude that many people have about working in big companies can be summarized by a LinkedIn status update I saw recently, written by Marcin Janowski:
"There are two kinds of people: those who want to go work for a company to make it successful, and those who want to go work for a successful company." I'm proud to be the former.
If you're not yet working for a big company but want to, this is probably what separates you from those people who got in.

Now of course, there is a separate set of people that is even above the top 1%.  These are the guys who have what it takes to be the top 1%, but choose to blaze their own path.  Some call them revolutionaries.  Some call them hackers.  They eventually become entrepreneurs.  These are the guys who aren't satisfied with how things are, turn our world upside down, and create a better new world in the process.  They take risks that corporate junkies would never imagine taking.  The sad thing is that there are too many people who think that they are better than they are, and not enough people who believe in themselves as much as they should.  In which group do you belong?  Having tried to go this route myself before, even though I could never be considered a top 1% guy (maybe a top 10%), I can testify that it's crazy risky.  The venture world is truly a meritocracy, and maybe that's what makes it so alluring: the opportunity to develop and prove that you are more than a job description.  Eventually, being a top guy in the corporate world is too bureaucratic, political, and constraining.  One might even argue dehumanizing.  But the average person on the outside looking in wouldn't understand this.

Friday, November 19, 2010

That's enough excitement for today, let's go home

We just had an earthquake.  People as far as Futian felt it, so that's the only explanation that makes sense.  The floor shook for a few seconds.  Everyone stood up and rushed to the windows.  I guess there's no earthquake procedures here to hide under your desk for 1 minute.  My co-worker tells me that Shenzhen never had an earthquake before.  You know what's ironic?  We're scheduled to have an evacuation drill in 2 hours.  Don't tell me they were testing some kind of crazy secret military weapon, and it was a trial run for the evacuation drill later this afternoon.  Is this how the military tests all its secret weapons?  I'm just joking.  But seriously.  Crazy.

Update:  The evacuation drill was such an awesome show.  After I walked down 11 flights of stairs and walked out of the building, fake police cars with Styrofoam siren lights came and stopped in front of us.  They did mock fires, brought out the water hose, blasted the building, put out staged fires in the lanes, tended to the mock wounded, and did a lot of running and marching.  We all just lined up on the grass, took attendance, and watched.  A bunch of official looking people, including police and probably the building management, sat at a big head table to the side and watched as well.  Meanwhile, an announcer had a sound system up and running and did a play by play commentary.  Chee, how come evacuation drills are never like this back home?  :)

China Plays Chicken with the Economy

I've written a couple of items on how China is growing, but at the same time has some tricky things to figure out.  The biggest issue is how does China keep growing the economy?  Previous years count the lucky number as 7: the Chinese government estimates that a 7% annual growth rate is necessary to keep the population happy.  The world complains that the RMB is undervalued, which unfairly enables Chinese-made products to cost less than products from other nations in the international market.

The thing is, while economic health is an important issue in most of the developed world, it's perhaps more important in China because it's commonly believed that annual 7% economic growth is the only thing that keeps China's population from mass riots.  China has almost no social safety net, despite being a Communist nation (or as many economists might say, due to being a Communist nation, but that becomes less and less an argument as they transition more and more to capitalism).  There are a bunch of factors that ensure that China's future long-term success is not a sure shot.

Firstly, relying on the economy to keep people happy and fed is hard because much of the growth just can't be sustainable.  You know that things are out of control when normal middle class people start pulling every trick in the book to get on the train before it leaves the station.  Like getting a divorce just to be able to qualify to get a second home?  Those restrictions were put in place to cool down the real estate market.  Instead, it just keeps heating up.  What happened to buy low, sell high?

Secondly, inflation is going insane.  It's nowhere yet what Germany experienced in the 1920s, but it certainly is worth noticing:
Since the beginning of 2010, the price of sugar has increased 100 percent and the price of garlic ten-fold in some regions of China. Hot pepper rose from 4 yuan ($0.60) a kilogram to 40 yuan in May in Beijing, and the price of potatoes surged 84.8 percent from January to June.

Prices of pork, eggs, ginger, silk, mung beans, cotton, soybeans, bean oil and even apples have also jumped month by month, earlier reports showed. 
(quote found courtesy of China Hearsay)
When inflation is going wild like this, people's income is worth significantly less.  For a nation that depends on economic health for the happiness of its population, this is a bad thing.  The biggest example for me is in the bottles of Minute Maid.  I swear that a bottle of Minute Maid orange juice in China was a lot bigger in April than it is now.  And it's still the same price.

Thirdly, the wealthier folks are feeling the pressures/risks that arise from income disparity, and are turning to private bodyguards for protection.  This trend has been increasing for a few years now.  It demonstrates two things: firstly, people don't trust the government to be able to keep order.  Secondly, people don't trust their fellow members of society to be nice.  That can only entrench the idea of an unstable society.

Since the Chinese government only has the economy at their disposal to keep order peacefully, they're caught between a rock and a hard place.  A lot of China's growth has been in real estate, but you can just feel that there's something wrong with this real estate picture.  A friend of mine recently invested in a condo with another friend.  They plan to flip it in a few years.  But they don't want to rent it out to anybody in the meantime because the wear and tear from living in it would decrease the condo's long-term potential value.

Likewise, in Beijing after the 2008 Summer Olympics, there were many buildings that were made for the Olympics, but absolutely empty with no purpose afterwards.  The government is investing everywhere, but governments are highly inefficient at allocating capital.  So both residential and corporate real estate are skyrocketing, but with no real tenants.  It's a ponzi scheme where owners just hope they can sell to another sucker before it all comes crashing down.

Hey, we've seen this movie before, haven't we?  The USA kept investing in real estate and even started handing out bad loans so that people could afford to buy homes they couldn't afford, because they incorrectly assumed that prices would always go up, enabling an easy refinancing of loans when necessary.  And we know how that movie ended.  Actually, no we don't.  Maybe we're only in the middle of that movie, and there are more disasters to come.

A just economy is the foundation for a healthy economy.  I attended a seminar today put on by the Swedish Chamber of Commerce on business corruption in China.  The speakers were comprised of the head of a Scandinavian security consultancy based in Beijing (the guy used to be the head of security for the royal family in Sweden, how cool is that?), and a Swedish lawyer based in Hong Kong.  I came away from this seminar with five main points:
  1. If you want to do business in China, you need people on the ground that you can trust.  And you can trust local Chinese people to do the job for you, you just need to find the right ones.  In fact, hire a security consultancy to do some due diligence for you.  Even if the firm, bank, or factory comes highly recommended.  Yeah, OK, I was sold very well.
  2. While the central Chinese government is hardcore about stamping out corruption, China's a big country, and Beijing is far away from everywhere else.  The stuff that happens on the ground can be horrible, and you can't walk in blind and naive.  Imagine being unable to leave for your home country for a business trip or vacation, just because you didn't pay someone a bribe for your business operations.  And it doesn't get resolved until 5 months later, despite intercession from your embassies.  All because of a small town judge living in a conspiring world.
  3. Guanxi (the power that arises from having strong relationships) does not equal corruption.  People give each other gifts and take care of each other because of guanxi, but guanxi is about true friendship.  Corruption is when money is passed to get something done that would not have been done without the money.  Admittedly, it's sometimes hard to differentiate between the two scientifically or in a court of law.  It may be one of those things where only the people who are directly involved can really know and understand what's happening.
  4. You can't brush all of China with one stroke.  While there are plenty of stories of corruption and bad things, you can't paint all of China with the colours of just a few experiences.  Again, Beijing is far away, and many people and companies are experiencing good success in China.  Stereotyping is like driving through a gang fight in LA and thinking that everyone in the USA shoots guns at each other all day long.  It's just not true everywhere just because you can cite some examples.  But the examples do give you reason to take the risk seriously and prepare for it well.
  5. People aren't afraid of using physical violence to make their point.  Especially if everyone stands to gain from the "protection money" (looking at the cops).  One business executive was brutally assaulted for just switching suppliers.  He felt his old supplier wasn't paying enough attention to quality.  So the supplier got some hoodlums to go after him.
The fact that corruption still exists in vast quantity is poison to China's future economic health.  Eventually, a business has to decide whether the risks are worth it, and if so, fully commit to investing in the proper things to do things properly.  However, point #5 is the most relevant for thinking about what happens if China's economy crashes and is unable to recover.

Maybe, just MAYBE, China's middle class will continue to grow, China will be able to move up the value chain, and China will be able to start developing real heavy duty sustainable consumers.  However, if they don't and the house of cards comes crashing down, what will happen?  What happened with any extremely upset population throughout history?  Revolution.  It's a scary thought.  In the most extreme case, the Chinese government could implement martial law.  I've seen the military out in force before in rural regions where there was risk for unrest; it quiets things down in a hurry.  But then the question arises whether it would escalate to civil war.

When China's trying to keep its economy growing at the expense of other nations, it's true that it wants to be #1, it's true that it wants to be king, rather than the servant.  But perhaps it's more that they're just scared to death that if they don't keep this economic engine going, they'll see the worst riots in their history.  There is no safety net here.  The Chinese government can't be flippant and say, "Let them eat cake."

But what about things that are more foundational?  What if there's something to change the fundamental aspect of why China believes that economic prosperity is its only weapon against potential unrest?  I've never been broke or homeless before.  But I've met people who have been in such a destitute state, were able to survive it, and then recover and thrive.  What I've learned from these people is that you can't let your self-worth depend on your wealth, success, or happiness.  Those are forever effects, not causes.  Your sense of life, purpose, and attitude needs to be rooted in something much stronger and long-lasting.  For me, that's my faith.  For China, that's... what?  I think that's the question that China must answer, because if they can't, they might not be able to survive any crash that might come their way.  And I'll posit that God is the only final answer that can withstand any test.  In my experience, he can change people's hearts for the better too.  And judging from the stories of these people I know, that kind of inner strength and hope is the most important thing for surviving a major crisis and then recovering from it.

Can China learn the lesson that money can't buy everything?  Or will it continue to play chicken with the economy and just hope that everyone survives?

Monday, November 15, 2010

5 Differences between Shenzhen and Hong Kong

So I went to Hong Kong for the weekend to visit with various friends.  Here are the five starkest differences I've seen between Shenzhen and Hong Kong.  There are obvious differences before you even arrive (eg. the HK dollar is 0.85 of the Chinese Yuan).  But here's maybe some stuff that people can only understand if they're there to see it for themselves.

5.  HK is definitely more of an international city.  You see it in the restaurant diversity, even in the most local Chinese places.  On Saturday, I had Singaporean for dinner.  On Sunday, I had Thai for lunch.  You can't find that easily in SZ.  In HK, there are a bunch of options in many locations.

4.  It was surprising that very few people in SZ seem to speak Cantonese fluently.  It's Guangdong, so they should speak Cantonese, right?  Well, correspondingly, it's surprising that very few people in HK seem to speak Mandarin fluently, even though mainland China is right there.  This isn't to say that they don't speak Mandarin.  But my HK friends tell me that many HK people struggle with Mandarin.  It seems similar to a Canadian in Quebec struggling with English. I will say this though.  Mandarin with a certain type of female HK accent sounds really nice.  Like you're in a dream listening to mellow music.  Hey, I was asking for directions, OK?

3.  The streets seem safer in HK.  People drive and walk more safely in HK.  Seriously, it seems like traffic moves more slowly and orderly than in SZ.  Plus, they drive on the left side of the road.  Correspondingly, the people in HK obey the traffic and walk signals.  I sometimes found myself to be the only one walking across the street when there was a Don't Walk sign, despite there being no traffic at all; the rest of the crowd would be patiently waiting on the sidewalk.  It took some focus to get out of Chinese walking mode.  Finally, is it just me or are there no mopeds and motorcycles on the roads in HK?  How come I couldn't see any at all?  But in SZ, you see them everywhere.  Electric, gas-powered, even normal bicycles.  In HK, it seems to be either only cars, taxis, or public transit.

2.  Talk about bright lights.  I can't remember if it was like this the last time I was in HK.  But in Mongkok, the lights were so bright that it might as well have been daytime, not 11pm.  Seriously.  Daytime.  If it weren't for the fact that it were artificial lighting, you seriously would not have thought that it was evening.  I can't think of any location like that in SZ.

1.  The public bathrooms in HK malls, restaurants, and offices are planned better.  In SZ, you have lots of bathrooms where you open the door (or worse, there's no door), and the urinals are in plain view of everyone outside, including the women who walk past to enter their own bathrooms.  The women's bathrooms are similar, but they don't have a big problem because they don't have urinals, they just have toilet stalls.  However, in HK, the bathrooms are more western in design.  They're planned so that the urinals aren't so easily seen by people outside the entrance.  That's thinking ahead.  I think this is interestingly indicative of where the Chinese mindset is and where it needs to go (and is going).  Learning by rote doesn't teach kids how to think ahead.  They only learn how to get the task at hand done, but not how to contemplate future problems and prevent those problems from becoming reality.  Things are very reactive, rather than proactive.  So next time you want to see how proactive a culture is about its thinking, go look at the bathrooms they design for high-traffic areas.  Unless the culture values voyeurism, then you just have to change your own worldview first.

Thursday, November 11, 2010

Quirks that may not last in China

As China continues to grow, I wonder how much I'll continue to see this kind of stuff...  I'm thinking possibly not often.  And that kinda makes me sad.  What will China be if it can't be quirky?

5.  For the last few hours, there have been these people on the roof of the Toyota building across the street walking around and waving flags.  I have no idea what they're doing, but it looks like they're practicing for a performance or a parade?  I'm not sure....  Now they're in a big crowd talking about something.  I don't think they're actually Toyota employees, just the building is a Toyota building.  I think?

4.  So I went to buy a rice cooker, right?  The one I wanted wasn't in stock, so they promised to order it in and call me when it arrived the next day.  I didn't receive a phone call, so I went to check it out.  They said sorry, it hasn't arrived yet, they'll give me a call.  It's been maybe 2 weeks now.  I don't think I'll buy that rice cooker anymore....  Maybe I'll just go to Walmart, they had some for 200RMB.  But it was fun to try to shop for one with my Mandarin level.  :)

3.  Went to visit a friend at the airport.  While riding the bus back from the airport (only 6RMB or something like that, thanks), I looked out the window and saw... 3 guys riding a motorcycle.  The guy who was sitting at the very back had his head on the middle guy's back and was happily sleeping away.  It also looked like his butt was about to fall off the motorcycle.  Now, given my own recent experience of riding a motorcycle to get somewhere (the buses were jam packed that evening, and I've always wanted to ride one of those things anyway), I don't see how this guy could sleep without a care in the world like that.  I couldn't keep my eyes closed on the motorcycle I took for fear of... well, something happening.  There were so many cars all around us, and I think I almost clipped a few.

2.  A lot of skinny girls here all seem to comment something I never thought I'd hear: "I want to be fat."  What??  Say again??  And after extensive conversation with them, I'm sure they know what they're saying completely.  Not that I understand them.  I tried to explain that my usual experience is that girls want to lose weight and become skinny.  Not the girls here.  It has something to do with wanting to be stronger.  But again, after extensive conversation, I'm pretty sure they are talking about fat, not muscle.  Don't ask, how can I explain if I don't get it?

1.  Several times now, I've seen cars trapped on a one-lane street when two cars in the middle couldn't figure out how to pass each other.  Then there's a big symphony of car horns as the drivers all along the street get frustrated with whatever's keeping the line from moving.  Yesterday morning, I saw this walking from the bus stop to work.  Except, I saw it twice on the same street.  That is, there were two mini-jams within one street.  It was only possible because of a car coming in where there was a T-intersection.  I'd have to diagram it out to explain it properly.  Suffice it to say... this is why certain streets in downtown Vancouver are designated one-way streets, huh?

Thursday, November 04, 2010

Did Facebook Just Kill Groupon?

Quote #1:

At TechCrunch Disrupt, Benchmark Capital's Matt Cohler said he wasn't sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:

That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon's brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.


And here's another key: Facebook CEO Mark Zuckerberg noted that Facebook is not getting paid at all for these deals. They're just doing them because they're great for users and businesses who use Facebook. (He did leave open the possibility that some partners may choose to advertise with Facebook, but that's not the main intent.)

I was really surprised and interested when I read someone like Matt Cohler citing academic business strategy principles to raise questions about Groupon's business model.  I mean, he's not an MBA type, right?  But there you go.  Wonder how Groupon will respond to Facebook's new initiative and how it'll all turn out.  But long-term, the only way Facebook can keep up something like this is if they have another way to make money on the side.  But the same could be said about most of Facebook's products.  And Google's for that matter.  Both are essentially just advertising companies that approach advertising with different strategies.  Very high-tech intelligent strategies, mind you.