Tag Archives: Tech

US Investors are Relieved but Advantage: China

Author Gary Moreau, aka Avam Hale in fiction

US investors went into this past weekend with severe anxiety, the major markets posting their worst week since January 2016. On Monday, however, the DJIA soared 669 points, the largest single day increase since 2008, while the tech-heavy NASDAQ jumped 3.3%

While there are plenty of experts offering an explanation for the wild turnaround, CNBC’s Jim Cramer suggests that China had a lot to do with it. And while that may seem like stating the obvious, Cramer does get China in a way few Americans currently seem to.

Having been a member of the American Chamber of Commerce in China for eight years, I can say with confidence that US corporations, as a group, have close to zero concern with China’s steel and aluminum exports to the US. Trump’s recently announced tariffs would hurt American allies, like Canada, far more than China.

And, of course, Trump knows this perfectly well. We often think of Trump as the first pure businessman to occupy the White House. But he’s not a businessman; he’s a real estate developer; and there’s a big difference. Perhaps more importantly, he is a man without any discernible economic or political ideology. He lives, in other words, for the deal alone.

In announcing the new steel and aluminum tariffs, Trump and his supporters suggest that he made a “successful” deal. He took on the Chinese when no administration in recent memory had the courage to. And he scored one, on the surface, for a core constituency that helped him to capture the White House in 2016.

But he has not fooled the Chinese. The Chinese know exactly what American business wants:
1. More protection for intellectual property (IP).
2. More access to the domestic Chinese markets for American companies in the tech, banking, and professional services sectors.

Everything else is just noise.

What happened over the weekend, according to Cramer and many others, is also pretty simple. China did not crush the American tech sector in response to Trump’s opening trade salvo on steel and aluminum. Investors breathed a sigh of relief and the markets soared.

The main thing to keep in mind, however, is that the Chinese did not pounce on the US tech sector for one very simple reason—they don’t need to. They have the upper hand.

Forget about President Trump’s relationship with President Xi Jinping. It is true that the Chinese put even more cultural, political, and business emphasis on relationships than their American counterparts do. But the emphasis is on the relationship, not the personalities involved. If China defers to the relationship it has with the US you can be assured it has little to do with the personal relationship between the two leaders. Chinese leaders do not have personal relationships.

The bigger issue is the amount of protection governments are willing to give to intellectual property. And here’s the really important news for US investors:

1. The US has the most individual-centric business culture on the planet. And Silicon Valley (SV) is the center of that universe. China, however, has a collectivist culture. The Chinese simply don’t view IP in the saw way that the SV libertarians do. (By the way, many Americans also believe that the government has gone too far in protecting IP rights for wealthy US tech companies. How can we say that Amazon ‘owns’ the one-click, which the US Patent Office says it does?)

The Chinese fully appreciate the role of IP in the West, and will ‘honor’ Western standards to the extent necessary to do business in the global arena. BUT, and it’s a big but, their heart will never be in it to an extent that will satisfy Wall Street or Silicon Valley. (Nor would most Americans want them to if they truly understood how far SV has pushed the concept for its own benefit.)

2. The IP debate is moot anyway. Now that Google and others have digitized the world, IP advantage has lost any sense of real long term value. Digital data is, by definition, discoverable. Security protocols like blockchains, while promising, are far from ready for prime time.

As a practical matter, therefore, digital technology, like water, will inevitably seek its own level globally. We can only slow it down. Which is why the US, China, Russia, and the EU should be focusing as much effort on how to deal with the military implications for global security as they are on grabbing headlines with revelations about teenage troll farmers.

3. The Chinese made a brilliant decision, but they made it decades ago. Unlike the US, which thought it could take over the digital world, the Chinese government decided from the beginning that the Chinese Internet belonged to the Chinese people for both economic and security reasons. At this point, as a result, neither China nor the Chinese people need Facebook. They don’t need Twitter or Instagram. They ‘like’ Apple because the Chinese like Apple’s products, the company employs a lot of Chinese, and Tim Cook has long agreed to play by their rules. (He was, coincidentally, in China over the weekend.) That’s not to say, however, that they are beholden.

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Over the past weekend the Chinese government did announce that it would reduce the forced technology transfers previously required of US companies wishing to do business in China. But that train left the station a long time ago. The train I’m talking about, however, is not the one you might be thinking of. In the end, this concession will be of almost no practical benefit to US tech companies.

Following World War II, both Japan and Germany built advanced industrial economies on the back of their automotive industries – the tech companies of that era. And how did they do it? Both had national industrial policies that both drove the growth of car ownership (e.g. the Japanese paid substantial fines to drive cars more than a few years old) and protected the domestic industry, largely through incentives and non-tariff barriers.

The US has no industrial policy. None. At least not a public one. (If the US markets were truly free, as we are constantly told by our politicians, there would be no need for corporate lobbyists.)

China, like Japan and Germany, has a very transparent national industrial policy that it actively manages. (Tech, not surprisingly, is at the top of the list of priorities.) And, more importantly, now that China boasts the second largest economy in the world, and is home to 1.4 billion potential consumers, it has the domestic scale to make that industrial policy work. It doesn’t need our technology or our products. While the US tech companies need to push beyond US borders to achieve scale, the Chinese tech companies have no similar need to push beyond China’s borders in the short term. Advantage: China.

The bottom line is that if US investors had reason to be concerned about China on Friday, nothing has changed. If they are betting their collective futures on the world domination of the American tech industry, they really should be quaking in their boots.

Trump will continue to make his string of relatively insignificant deals. He will not take on China. And they won’t take him on. They don’t need to—and they know it.

At some point, however, the US would be far better off politically just accepting the reality that China is not the new global bogeyman that the Soviet Union once was. China is behaving entirely rationally and in the best interests of its people.

The US, on the other hand, appears insistent on sacrificing the American people at the altar of American corporate capitalism and its false dogma of absolute individualism. We should stop blaming the Chinese government for protecting its own interests and start asking the US government when they are going to start protecting ours.

photo credit above: iStock.com/sdlgzps


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Consumer Electronics Show

Author Gary Moreau, aka Avam Hale in fiction

The annual Consumer Electronics Show (CES) kicked off this past Tuesday in Las Vegas. Media coverage is dominating the business, tech, and lifestyle news cycle in virtually every format.

The Chinese have a big presence there, as they have for the last decade or more. There are about 1,500 Chinese tech companies in Vegas, collectively accounting for about one-third of all of the booths at the show.

Industry giants like Baidu and Alibaba, the parent of e-tailing giant, Taobao, which did $25 billion in retail volume during one 24-hour period this past November 11, are there, of course, along with numerous Chinese startups that you’ve never heard of. One Chinese company, Iflytek, which specializes in AI translation, introduced a real-time translator that works as well as the most proficient human translators.

Driverless car technology, as expected, is everywhere. Royole, a Shenzhen-based company with engineering teams in 16 countries, and a leader in human-machine interface technologies that introduced the world’s first curved car dashboard in 2016, unveiled the completion of a $1.7 billion production campus for its flexible display technology in China.

The big Chinese star this year, however, is Byton, an electric car unveiled at CES that is expected to sell for $45,000 and be the Chinese equivalent of Tesla. Suning, a Chinese electronics retail giant, also opened the first fully automated retail store in the US. The new store, in Las Vegas, is a further rollout of the five it already operates in China.

Tech, of course, continues to further dominate the way we live, work, and learn in ways that none of us could have imagined even a short time ago. While I have historically been a late-adopter of all things technical I actually ended up with an Echo device over the holidays because I bought one for each of my daughters and Amazon, marketing geniuses that they are, was running a promotion on a pack of three. So far I’ve only used it about ten times more than I thought I would, and I have yet to spend any time learning how to apply it. It even responds to my wife, who speaks with a heavy Chinese accent but can use Alexa for audible translation into English.

And where does China fit in? Of course, China makes virtually all of the hardware, but that’s not where the real money is. Or the influence. Silicon Valley is still the center of that universe, for now.

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When I wrote Understanding China: There is Reason for the Difference, I honestly had my doubts as to China’s ability to lead the tech charge. And since the machines will ultimate build themselves, being the tech factory to the world didn’t seem all that alluring.

That reservation was built on the observation that as a result of their inductive worldview and the rote nature of their education system, the Chinese I encountered did not exhibit the same level of raw curiosity that I had witnessed in the best-run American companies, and I thought that might hold them back.

But I’ve changed my mind. Completely, in fact. And my reasoning has more to do with a better understanding of what drives tech than anything else. I now believe that the Chinese are ideally situated to dominate the tech universe of the 21st Century. It will take time for the Chinese to develop the brand confidence that is so essential at the early-adopter stage, which we’re still in, but they will get there, just as the Japanese got there in automobiles following a pretty weak start in the 1960s, when their car brands were synonymous with poor quality.

One obvious advantage the Chinese have is that the education system, which is changing, but still largely rote-oriented, puts a big emphasis on the STEM subjects. Chinese culture puts a big emphasis on education, moreover, and the Chinese university system is putting out roughly 8 million graduates per year, each of whom has gained nothing quite so much as they have learned discipline and hard work. Chinese students in general, and university students in particular, must survive a daunting school schedule that leaves little time for much else, but prepares them well for the grind of the modern workplace.

And, of course, there are roughly 300,000 Chinese students currently attending American universities, and an equal number, or more, attending universities in Canada, the UK, and Australia, as well as virtually every country in Europe. Some of those will stay overseas when they graduate but many will return to China and join their classmates who stayed home to go to school to form a truly internationally-trained workforce.

Anyone who has ever worked or lived in China also knows that there is such a thing as “China time”, a greatly accelerated time line that is impossible to comprehend until you witness it. They accomplish in days what other countries struggle years to achieve. Part of that is a function of the work ethic, but Americans work hard, too. American companies, however, reflecting the deductive worldview of Western culture, are consumed with process, which helps to insure consistency and sustainability, but at the expense of bureaucracy and rigidity. The inductive Chinese, by contrast, are laser-focused on results, and far less infatuated with the process employed to get there.

Tech, of course, works to an accelerated clock that is only going to accelerate faster and faster as machines get better and better at learning and one breakthrough is quickly leveraged into a dozen more in the blink of an eye. The Chinese will be very comfortable working at warp speed and juggling many balls in the air at one time. American business will continue to excel once they get their processes developed and in place, but when the landscape is changing that rapidly, speed will be the ultimate competitive weapon.

Chinese companies will also benefit from a much more business-friendly regulatory environment in China. Unlike the US, China has a very clear national industrial policy and tech is at the head of their list of priorities. That alone will remove a lot of regulatory hurdles and delays. When Chinese tech companies are ready to test new technologies in real-world environments, they will face far fewer regulatory delays and will be able to be in live tests in a matter of days.

China, as well, is far less legalistic, of course, and while that may hinder development in some arenas, it will be a big advantage as new technologies totally redefine the legal boundaries of ownership and property rights. American companies, by comparison, are sure to get bogged down in the courts as obligations and rights are resorted through the new paradigm of technology, where ideas dominate, and where one begins and another ends is often a matter of perspective.

I actually believe, however, that China’s big advantage in tech will be one that will surely surprise you and that I, frankly, hadn’t even considered until recently. That advantage—hold your hat—is the Communist Party of China, or, more specifically, the collectivist environment in which the Chinese tech pioneers of today have been raised.

America is the home of rugged individualism, and that perspective has served it well. To date, the US has clearly been the center of the tech universe, largely on the back of young, independent entrepreneurs like Mark Zuckerberg, Dustin Moskovitz, Rishi Shah, and the once younger Bill Gates, Steve Jobs, Larry Page, and Sergey Brin.

By definition, tech is built on collaboration and a collective perspective to personal rights and ownership. There is a duality to everything—or a yin and a yang, as the Chinese would put it. American business has benefited from a strong legal system and its protection of intellectual property in the past. The idea economy, however, is sure to blur the historically clean lines of IP ownership and protection and the courts are sure to become a quagmire of commercial suits and counter-suits as the tech giants and bankers battle it out. The Chinese will face no such burden.

I recently saw an interview with 26 year-old Dai Wei, the founder of bike sharing company Ofo Inc. The company has already raised $1.3 billion in startup capital and was expected to have 20 million of its yellow bikes on the streets by the end of 2017. Dai Wei is typical of the Chinese young tech entrepreneurs, and in many ways could not be more different than his Silicon Valley counter-parts.

Dai Wei attended Peking University, the Harvard of China, where he surely got a world-class education and probably paid virtually nothing thanks to government largesse. After graduating, however, he joined a government teaching program sponsored by the Central Committee of the Communist Youth League of China and went to Dongxia township in rural Qinghai Province to teach math to poor middle school and high school students. He cycled 17 kilometers from his dormitory to work each day along dirt mountain paths, the only way in and out of the village. He would later return to Beijing to earn his masters degree and start his ride sharing company.

When the interviewer asked Dai Wei who actually owned the bicycles that the company leases for 1 yuan (about $.15) per ride, he seemed perplexed by the question. “No one owns them,” he finally answered. “They don’t belong to anyone, but all of us may use them.” It’s hard to imagine many Silicon Valley entrepreneurs, in the their mad scramble to become the next youngest tech billionaire, or the venture capitalists lining up to cash in on them, would share such a perspective, either in terms of career path or the ownership of bicycles.

There are some in the tech world who do share a collectivist utopian vision of the tech future. But that does not appear to be the direction the country is heading. Progressives, conservatives, and libertarians alike all see the world through a decidedly individual prism. They come at the issues from different directions, but they all end up at ME. Whether it’s the individual’s right to be free of the government, or the individual’s right to the government’s protection and support, their worldviews are not collective.

Eventually, I believe, the US will have to adopt more of a we-centric socio-economic-political system if we want to maintain the American Dream and make it available to all Americans regardless of race, country of birth, gender, or sexual identity. I am, in fact, writing a new book about it.

In the meantime, enjoy the coverage of CES and the fancy new gadgets being unveiled there. This will be the Year of the Dog in China, an auspicious sign not far below the dragon or the horse in the cosmic pecking order.

The year is already off to an interesting start.

You may contact the author at gary@gmoreau.com
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First the Car, Now the Bike?

Author Gary Moreau

First there was Uber, Sidecar, Lyft, and Didi, which revolutionized the car-for-hire industry with their convenient and affordable ride-sharing apps. In China, at least, phase two has already arrived, led by two Chinese startups, Mobike and Ofo.

The new revolution: Smart phone apps that allow patrons to pick up bicycles and leave them ANYWHERE. That’s right, anywhere. Patrons use their smart phone apps to find the nearest bicycle and to unlock it. They are then free to ride anywhere they like and just leave the bicycle. All for as little as $.15 per hour.

Just in time. With several Chinese urban areas already exceeding 20 million people in population, and with several expected to grow to 80 million residents over the next decade or so, the Chinese are already choking on automotive emissions and traffic congestion. Taxis help with the cost of car ownership and parking, but they are not the end-all. The professional drivers may be able to navigate a traffic jam better than the average driver, but they are still part of the automotive ecosystem – and its limitations.

China is one of the world’s leaders in terms of public transportation. It boasts the world’s largest system of high-speed rail. And the biggest subway system in the world is in Shanghai, while the Beijing subway system, the second largest in the world, carries as many as 11 million passengers per day. I was frequently one of them when I lived there.

But you still need to get to the station, or the bus stop. And it is that first or last mile that has always been the natural constraint on the embrace of mass transit. New York City commuters traveling into the city from out of the boroughs by train often use automobiles to cover that connection distance. But that doesn’t entirely realize the benefits of mass transit.

China may be uniquely qualified to take advantage of this new technology because most major urban streets are equipped with isolated lanes for bicycles. Urban planners the world over should take note. You can ride a bicycle in a safe environment without having to be a 20-something daredevil weaving through a sea of cars.

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

Many progressive cities around the globe have bicycle rental stations scattered around the city in order to facilitate clean and congestion-free travel. But you must pick up and leave the bike at one of their official racks. The first and last-mile problem is, therefore, potentially reduced, but not eliminated.

The bike-sharing revolution, of course, is occurring on China time and at a Chinese scale. Ofo, one of the pioneers, began as a student project at Peking University in Beijing. It will have 20-25 million bicycles in circulation by the end of this year.

There are two takeaways for me. The first is that anyone who thought that China could not be the next tech giant (And I was one of those at one time.) was clearly wrong.

The second has to do with simple humanity. I am often saddened by the strife and total lack of civility the world exhibits today. We’re all fighting. And for what?

I wonder, however, if part of the problem is simply our physical isolation from each other. My wife and I live in a suburb of Detroit now. There are no bicycle lanes. And while there is a fair amount of population density we have both marveled at how few people we encounter day to day. There are a lot of cars, which undoubtedly have drivers, but meeting at a stoplight isn’t quite the same as actually seeing each other.

Perhaps I am simply wistful for a simpler time when my friends and I rode our bikes for hours every day. But I don’t think so. Fond remembrances aren’t always bad.

China, despite the harsh rhetoric coming out of Washington these days, just might be on to something. And helping to save the world – our world – in the process.

Contact: You may reach the author at understandingchina@yahoo.com. Mr. Moreau is also available for public speaking and the provision of third-party written content on a wide variety of topics for your website or other communications material.

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.