Monthly Archives: November 2016

China: The Next Tech Powerhouse?

Author Gary Moreau
Author Gary Moreau

Not that long ago it was conventional wisdom in Western circles that China could make things on the cheap but would not be able to stimulate the creativity and innovation necessary to compete with developed countries in the age of technology. How wrong that wisdom was.

The most common explanation for the inability to innovate was laid at the feet of the Chinese educational system that relies heavily on rote learning and standardized testing. Chinese teachers teach and the students absorb. The students, so the thinking went, were simply educationally unequipped to create the next Apple or Google.

It’s always a mistake to try and drive your car by looking in the rear view mirror, however, and this false perception was no exception. So, where did the ‘pollsters’ go wrong?

For starters, there were more than 300,000 Chinese studying at US universities in the 2014-2015 academic year, according to the nonprofit Institute of International Education (IIE). That’s roughly one-third of ALL international students studying in the US at the time and represents a five-fold increase in the number of Chinese studying in the US in just over a decade. The competition among Chinese students for entry into US universities is becoming so intense, in fact, that middle class Chinese families are now routinely sending their children to attend high school in the US as well, believing that will give them a leg up for US college admissions. (I personally know two families who have followed this strategy.)

The Chinese government is also doing its share. Beijing has sponsored numerous tech incubators and created huge amounts of business infrastructure to support the nascent but rapidly growing tech sector. Beijing itself, in fact, is quickly becoming another Silicon Valley and has the world-class local universities to support it.

Social media, I believe, has also helped to stimulate the boom. While Facebook, Twitter, and other US social media sites are blocked in China, they have their own versions of each. And the Chinese population has embraced them completely. The average Chinese teenager, I would hazard to guess, may be even more wired into social media than their US counterpart, in part because they don’t have as many other options to gather news and have social interaction with their peers. (Chinese educational institutions are generally limited to traditional education – no sports, drama club, or proms. They have special schools devoted to athletics and the arts.)

Understanding China is now available at Amazon in paper and electronic formats.
Understanding China is now available at Amazon in paper and electronic formats.

In effect, while the academic institutions of China may not provide the right mix of innovation and rote learning just yet, the young Chinese have essentially taught each other. Through prolific sharing they have, in essence, complemented academia, with its heavy emphasis on mathematics and science, with the tools necessary to apply that knowledge effectively and to disburse it widely.

On November 11 for example, the informal anti-Valentines holiday celebrated by single Chinese, Alibaba, the online shopping giant, has created the largest shopping spree on the planet. During this year’s Singles’ Day, also called Double-11, Alibaba sold $17.4 billion (yes, USD) of merchandise in just 24 hours. That’s more than Black Friday and Cyber Monday combined – and that’s one company. (More than 80% of the volume in the first few hours, moreover, was conducted via smart phones.)

The surge in China’s tech sector is not due solely to the growth in e-tailing and social media, however. The number of patents granted in the first nine months of 2016 grew by 44% compared to the prior year. And tech manufacturing grew by more than 10% over the same period. The sector, in fact, may currently account for as much as 15% of China’s total GDP.

It’s been a seldom-acknowledged revolution outside of China, for sure. Western politicians are still focused on China’s dominance of the global steel, rare earth metals, and toy markets. The Western political narrative, in other words, has been all about jobs, not innovation and technology.

While these statistics about the growth of the tech sector in China are telling, moreover, they don’t begin to tell the whole story. That requires context.

Fully 70% of the US economy – the largest in the world – is driven by consumer spending. In China, by contrast, consumer spending currently accounts for less than 40% of GDP and that is up considerably over the last five years. And China, of course, has 1.4 billion residents, compared to 315 million residents in the US. You can do the math in terms of future growth opportunities in China. (Scale is critical to advancements in technology, of course.)

Now consider the fact that the top ten brands in China over the last decade or two were virtually all foreign brands. In the tech sector, up until recently, Apple was the brand to beat. Samsung and LG, both Korean brands, have given Apple and others a run for the money but it is the Chinese brands – Huawei, Hisense, Haier, Xiaomi, in addition to Alibaba and Tencents’ WeChat, that are the brands to watch going forward.

Part of the reason China’s tech future is so bright, I submit, is that a solid brand is easier to build in the electronic and tech spaces than in the apparel and fashion spaces. The tech consumer is motivated by features and value, whereas the fashion industry is driven more by intangibles such as country of origin, longevity, perception, etc. (Value can, in fact, be an inhibitor.)

Add to the mix that the Chinese are uber-nationalistic and motivated by value and it’s easy to make the case that the future of Chinese tech is bright indeed. China has incredible scale, has shown itself able to innovate, and has the economic infrastructure and government support it needs to make good on the opportunity.

If you are an investor or manage a US tech company you’d better get over there before the boat leaves the dock. It is the future. Of tech, no less.

Trade War

Author Gary Moreau
Author Gary Moreau

What will happen if President-elect Trump makes good on a central campaign promise and begins an aggressive trade war with China? With 100% certainty they will retaliate. And that could bring down the entire global economy.

Starbucks, Coca-Cola, General Motors, Apple, Microsoft, and many other elite US companies have all made huge investments in China. And they will inevitably suffer if the US does initiate a trade war. I don’t think the Chinese government has to do anything. The Chinese people just won’t buy from them. The level of nationalism in China is hard to over estimate and the entire population is wired together through Chinese social media. As I’ve noted before, they already tend to see the US as a bit of a bully due to recent friction between China and the US on hot button issues like the South China Sea. The Chinese won’t need much to turn away from our corporate front line if it is perceived that we are trying to curb the country’s rise to power.

While it is certainly true that the US lost good middle class manufacturing jobs twenty years ago when US corporations moved production overseas, the jobs issue is not as simple today. As the manager of a Chinese plant belonging to a US multi-national it is true that my Chinese company only provided direct employment to two Americans. But we helped employ dozens of US engineers, technical specialists, accountants, lawyers, bankers, and IT staff that supported us from the corporate offices. These are among the best paying jobs in any corporation.

And we exported almost none of our production to the North American markets. Almost all of our production was sold in Asia, so we had virtually no impact on our US plants. In fact we only shipped to the US when there was a temporary lack of capacity here and the company would otherwise have to walk away from additional sales opportunities.

Would the US plants see incremental opportunities to sell in Asia if the China plant didn’t exist? No. Even if the product could be made at the same cost as that of a Chinese competitor, the transportation alone would make the idea impractical.

And the reality is that the US industries whose jobs were hit the hardest have already moved out of China due to rising wage costs. The production of furniture, textiles, and shoes has already been moved to other emerging countries in Asia and Central America. Other industries, such as steel, are sure to follow as China attempts to reign in its pollution problem. (The government, in fact, is already encouraging steel makers to relocate capacity out of China.)

The US President-elect actually has the problem upside down. While Trump’s solution may have helped twenty years ago, it is outdated today. The biggest problem facing America’s economy today is not cheap exports from China, but US access to China’s growing markets. In many key industries, where US companies might enjoy a significant competitive advantage, foreign companies continue to operate at a significant disadvantage to their Chinese competitors due to non-tariff barriers that often have little to do with central government regulation.

Understanding China is now available at Amazon in paper and electronic formats.
Understanding China is now available at Amazon in paper and electronic formats.

In terms of return to the US economy, in other words, Trump would be better served pushing for unfettered access to the Chinese economy than slapping tariffs on products that China no longer relies on anyway.

Unfortunately, the tide is working against the President-elect. As China strives to move its economy up the value chain and away from cheap, labor-intensive exports, there is an understandable tendency for government officials to want to support emerging Chinese companies. Trump’s trade war would only give them the ammunition they need to justify it. And they will; make no mistake about it.

But if Trump really wants to boost the US economy I think he would be better served to concentrate on US exports to China rather than US imports from China. China is already the US’s third largest export market and could easily be number one or two.

Perhaps the biggest constraint, which never came up during the campaign, is that the US has strict limits on the products and technology that US companies can sell to China. These are the products the Chinese are most interested in and would pay top dollar for. And the products that are least impacted by the cost of transportation.

The controls, of course, were initially justified on the basis of national security. It’s a good cause, for sure. But a restrictive ‘list’ is a blunt instrument, particularly when drawn up by politicians and bureaucrats with local constituencies and agendas.

I can tell you from first hand experience that our US-owned plant in China was prevented from buying very simple machines from US suppliers for the simple reason that they had electronic control systems that fell within the restrictions. And I can assure you that this technology had no military application whatsoever and was no better than that which was available from Chinese suppliers.

The policy is all quite disingenuous in this Internet age anyway. Trade secrets are not exchanged the way they used to be (by reverse engineering). It’s impossible to seal the border from the flow of information. It just can’t be done. And technology doesn’t have to be obtained illegally (by hacking, for example). There is nothing illegal about a foreign university graduate returning to their home country after they have had access to some of the best technology the country has to offer.

Obviously, there should be limits. But they should be carefully thought out. And I don’t believe they have been. If we were to do no more than review the list of products and technology that can be sold to China and elsewhere I am confident it would have an immediate and material positive impact on the US economy – and create more high paying jobs.

The US economy has two primary advantages in terms of global trade – efficient capital markets and an ability to innovate. The Chinese and others are catching up fast on both counts. But they still represent our best chance of promoting economic growth and the creation of good jobs.

China understands this, which is exactly why they are trying to pivot away from the kind of manufacturing jobs that we lost twenty years ago. It would not be prudent for us to simply trade places with them. We will only end up where they were twenty years ago, not where we were.

Contact: You may reach the author at

Just for fun. A Giant Panda cools off from the sweltering heat of summer on a block of ice at the Beijing Zoo.
Just for fun. A Giant Panda cools off from the heat of summer on a block of ice at the Beijing Zoo.


Author Gary Moreau
Author Gary Moreau

As predicted, the acrimony of the 2016 US presidential election has now degenerated into the virulence of the post-election analysis and finger pointing.

The Chinese can help.

Western culture is built on a deductive, scientific worldview. Above all else, we believe in the sanctity of cause and effect. If A, then B, etc. Always. Every time.

When something happens that we don’t like, as a result, we take it personally. We’re offended. Science did not win the day. If it had we would not be here. (The monotheistic religions, by the way, are different faces of objectivism. Both organized religion and science rely heavily on cause and effect. Which is not to say that either is in error.)

The Chinese worldview, on the other hand, is inductive in nature. It starts with the effect and works back. Not everything, therefore, can be explained. To the Taoist (also called Daoist), in fact, nothing can. The way of the universe is merely too complex for humans to comprehend.

Understanding China is now available at Amazon in paper and electronic formats.
Understanding China is now available at Amazon in paper and electronic formats.

So, too, perhaps, is American politics. I have read article after article since the election that claims to solve the riddle of what happened. The articles are full of science, or, in this case, statistics. This group stayed home; this group split; this group was angry. On and on and on.

The Chinese, I believe, would be inclined to explain it all this way. (Since they aren’t inclined to explain things that have already happened this is obviously only an opinion.) I think they would scratch their chin and say, “Donald Trump won because he received more Electoral College votes.”

Carl Gustav Jung (1875 – 1961) was the famous Swiss psychiatrist who coined the term synchronicity. While I can’t do the topic justice in this short blog, Jung believed in “meaningful coincidences” that had no causal relationship other than their meaningfulness. He also referred to it as “acausal parallelism”, but I think the more appropriate contemporary description might be “s_it happens.”

A key to synchronicity is the notion of the collective unconscious, a common thread to all of us that we are unaware of and can’t explain. That makes it, by definition, decidedly unscientific and, to some, fatalistic.

Jung, who was not Chinese, was a student of Taoism and Buddhism, both of which undoubtedly provide some trail markers as to how he got to synchronicity. As somewhat of a Chinese inductivist, however, I’m not sure it matters.

The Chinese are not devastated by this election. Nor would they have been should the other side have won. They won’t be doing any internal soul-searching about where to go from here. They know exactly where they’re going and they fully intend to get there.

And I won’t bet against them. I have no idea what kind of president Donald Trump will be. Any more than I had any idea of what kind of president Secretary Clinton would have been. That’s up to the collective unconscious to sort out.

I only know that ongoing vitriol won’t solve anything. It will surely be the Chinese Century if we spend it fruitlessly dissecting the cause and effect of past events.

Contact: You may reach the author at

The Communist Party of China is the big winner in this election

Author Gary Moreau
Author Gary Moreau

Who is the big winner of the 2016 presidential election? The Communist Party of China (CPC). The current American political process – perhaps carnival would be more apt – has provided China with greater future political stability than the CPC could possibly achieve on its own.

In the end, it really won’t matter who wins Tuesday’s election. Half of the electorate will be angry that their candidate lost. And eventually everyone will be angry because the winning half will ultimately realize that their candidate has not delivered anything close to what he or she promised.

As far back as Ronald Reagan, newly elected American presidents have taken a series of politically popular positions with China that were ultimately rescinded or ineffective. President Reagan wanted to re-invigorate Taiwan’s independence. President Clinton vowed to get tough on human rights although there is no evidence that this pledge had any real impact. Numerous politicians have accused China of currency manipulation, but little has come of it.

Secretary Clinton, for her part, appears to favor continuation of the Obama pivot-to-Asia. It simply won’t work. China will eventually have uncontested control over the South China Sea and will use its economic might in the region to enhance its regional power, largely at the expense of the US.

Understanding China is now available at Amazon in paper and electronic formats.
Understanding China is now available at Amazon in paper and electronic formats.

Mr. Trump, for his part, has threatened to slap steep tariffs on imports from China and re-negotiate world trade deals with more favorable terms to the US. And, of course, he is no fan of the Trans-Pacific Partnership (TPP), which Secretary Clinton now opposes after initially supporting it. It doesn’t matter, because the reality is that China is not a party to the TPP and you can hardly have an effective trade agreement in the Pacific Rim without its participation. The US needs to engage China, not isolate it.

Nor does Mr. Trump ever mention that China is the third largest export market for US goods and services. And with the US economy growing at anemic rates, and Europe all but stalled, the reality is that the world cannot afford to de-stabilize China’s economy at the moment. By some estimates, the global economy is already in recession if you factor out the favorable impact of China’s strong, albeit diminished, economic growth.

Ironically, the American Democratic and Republican parties have amply demonstrated that their agendas are no different than the CPC’s. More than anything else they all want to maintain political stability with their leadership in charge. Yes, power.

And while the Democrats and Republicans have virtually assured themselves of mutually assured destruction, to use an old Cold War term, both have handed the CPC the greatest gift of all. They have laid bare all of the scandals, the failures, and the propaganda of the modern American political process. The CPC’s media surrogates now have more than enough fodder to denigrate and disparage the US political process for years to come.

A well-educated Chinese friend of mine once observed that if you use the American democratic model as a template, democracy cannot possibly work in China. “Elections would be an absolute mess. In a country of 1.4 billion people they would take years to conduct and the cost would bankrupt the country.”

Most Chinese would agree. The Chinese system of socialism with Chinese characteristics works for China. As my friend went on to say, “We must have a strong government. Otherwise we will just fight and the country will not move forward.” Like the US, in other words.

My own Chinese wife is witnessing her first US election. She can’t vote, of course, although I hasten to add that she is here legally. Her perspective of the US political process is not refreshing. She thinks it’s a joke and can’t begin to understand why we put ourselves through it. (Many Americans would now agree with her, I suspect.)

In the end, while I know most Americans are anxious for this charade to come to an end, I believe we will look back, long after the votes are counted, and wistfully long for the days before there was a winner and a loser. In the end, there will be neither.

Except for the CPC and other political entities like it that have long been chastised by American politicians for not being “more like us.” Is there anyone who would sincerely wish American style politics upon the people of the developing world now?

It would be inhumane.

Contact: You may reach the author at