Paul Midler is a consultant for foreign importers who deal with Chinese Manufactures. The book is full of examples of how Chinese manufactures will trick importers, such as promise one price only to raise it later at the last second when it is too late to cancel the order. Midler's book also analyzes China's business culture at large in which he makes the point that China still cannot innovate, only copy. That Chinese businesses take profit day by day with no real long term constructive plan. Chinese manufactures cannot see the big picture win win of a partnership and are instead looking for the day by day victories. How they can squeeze out the most profit each day.
Do I think China will be the leading economic power?
No, At least not right now. China has to go through major government, legal, and cultural changes before they can become even a major economic power, much more or less the driving force in the world economy. Breathe a sigh of relief everyone, China is not that strong and will probably not make it to the top.
1. On the legal front China is still full of friction that prevents proper innovation and entrepreneurship. Accounting laws which tax gross revenue as opposed to profit means a company can still get taxed even if it makes a loss. Further, the accounting system requires that all receipts given to customers are approved by the government. This accounting system effectively limits supply. Yesterday I went to a lake to rent a boat with my girlfriend only to find that I could not rent one because they boat company was out of official receipts. As a result boats stayed floating by the dock, empty and unused, the company lost out on profit, and we lost out on a boat ride. These relics of communism create barriers to the growth of great businesses and leaves success to those with the right government connections, or those willing to risk going around the system. An estimated 60% of all business in China is on the black market.
2. Chinese culture encourages replication and perfection, as opposed to innovation and efficiency. In his book Midler shares a story of a Chinese Emperor who when presented a fake reproduction of a work of art, so admired how close it was to the original he actually praised the creator as a genius in copying as opposed to a cheat. The culture praises someone who has taken the time to study, learn, and mimic to a point of perfection. The language itself which has 3000-5000 basic characters starts every child off with great skills in memorizing and recreating characters. This initial task in education sets the stage that learning involves brute force memorization and re-creation that seems to stick with every Chinese through life. Midler makes the point that any economy which only copies and does not innovate will always be one step behind and therefore can surely never lead, or be a driving force, in the world.
3. Chinese are savers and not spenders. People seem to feel that it is the accumulation of wealth, assiduous saving, which leads to power. However, the true economic driver of an economy is spending, and lots of it. Why do so many people want to come to America to start business? It is because Americans spend money. This kind of spending will not exist in a country of skin-flints, and in the long term, will actually stifle the creation of new businesses. I have met people in America who are actually afraid that China owns to much U.S. government bonds, and that one day, somehow, we will be so in debt to China as to be at their mercy. This view is not only irrational, but simply not true. A quick look at the government treasury bulletin will show you that the majority of debt is held by our own government and people, and of the 25% that is held by foreign countries, China only represents a fraction.
4. Chinese cannot accept foreigners as one of their own. Perhaps one of the greatest glories and advantages of America is its ability to welcome any kind of person and make them instantly American. There is little, if any, cultural pride in a America that can cause us to refuse a person. This unique feature lets America attract seriously talented people from all over the world to a a very big market and let them set up shop and add value to the economy without fear of an "old boys network" or "government xenophobia" to prevent assimilation. I was shocked in China when I was not allowed to stay at a certain hotel just because I was a foreigner. Try to make Chinese food, or call China your "home" and see how many of the Chinese let you. Yet, this one trait will certainly keep other smart foreigners from moving to China to set up shop in China.
5. Chinese are concerned with face, with looking like the real thing without really having it.
Anyone who has eaten a Chinese version of "Cake" knows this. It looks just like Western Cake
on the outside, but take a bite and what you get is the taste of wet cardboard. The face is there, but the soul, the part that really counts is not. This works in China for everything. Take for example the people, in his book Midler stresses that the Chinese dress modern, but the truth is that they are people in any other developing country like Central America or South East Asia. Everyone looks and acts like a graduate student, but they are not. Understanding this concept of face is the ultimate way to understand the world's current perception of China. Everything looks like China is growing fast, that China is improving rapidly, but taste the cake, look at the real China, and the true soul of it is simply missing and has a long way to go.
Do I think Chinese (Mandarin) will become a world language? The leading language of business?
No. Too many Chinese are already learning English, and further, as stated above, China still does not have it to lead the world economy, much more or less world entertainment. Even the Japanese which created, and still create, a wide array of popular cartoons and shows did not manage to supersede English, and it seems seriously unlikely that China will also. At Tsinghua University, where I currently take Mandarin classes, all the students speak English and several classes are taught in English. The majority of lectures are given in English, even by Chinese speakers. Speak to the students and most want to go to America or abroad to study. Nowhere is there a real feeling of confidence to stay in China due to its perceived power and growth in the world.
What about the Chinese people? Are they not more hard working?
Perhaps, but I think the truth of it is, that the Chinese are really just like us, and without the proper incentives, would not work any harder. In truth, I find harder working people who are more focused on personal development in America. So this fear of greater competition abroad seems unfounded. Factory workers have fewer days off and work longer hours, but as they earn more and more money this will definitely change. Currently the Chinese still look to America and Western countries for their opportunities, though they do not want to admit this. I recently went to an Amway conference. Amway is an American Company which sells health and cosmetic products through a multi-level marketing scheme. Basically friends selling to friends. The conference was full of votes of confidence, of achieving dreams, of creating pride for your family. At the end of the presentation every sales group took the stage to be recognized and shout their goals. Often people were crying. These were perhaps people who had really bad low paying jobs that selling products for Amway allowed them to escape. These people, the Chinese people, are just like any other. Looking for way to escape the bonds of their life, be independent, and bring pride to their family. They are not people looking to steal your job, or "take over" somehow. They are looking for meaning in their life.
Beyond it all, that has been the main theme in China. Despite all the development, despite all the smart students at the top University in China where I attend, you find people searching to do something truly meaningful. Many students here are following majors their parents chose for them, or majors that test grades allowed them to have. Once you choose a major, you cannot change. This leaves people with distraught lives looking for distraction or change, looking for new opportunities and choice, and often times this is translated to looking abroad.
