the blog of the guy who wrote

that book about china

Time Magazine has published a piece in which Jim McGregor remarks that foreigners are “angry and disillusioned.” There has been a lot of this sort of talk in the media these past few days. In the wake of the Google case, many are suggesting that things are changing in China. There has been a paradigm shift, and a number of pundits would like to take credit for taking the country’s pulse.

I would instead like to take credit for predicting the future.

It’s been almost two years since I wrote my piece on profit zero for Far Eastern Economic Review, an article in which I was clear in suggesting that things were changing in China — and for the worst. I was specifically referring to the new way in which Chinese were looking at those foreign companies and countries that helped bring China to where it is today. This idea about a changing, chilly attitude was not empty talk or a shot in the dark, but a conclusion based on experience. Go ahead and read what I wrote in March 2008:

Foreign companies invested large sums while dreaming of enormous potential, and China benefited as foreign investment accelerated domestic growth. One of the big questions going forward is whether the government will allow foreign companies to compete unfettered, or whether they will burden foreign firms with increased taxes, regulation and the unequal enforcement of laws that were meant to apply to foreign and domestic firms in equal measure. China has been more open than either Japan or Korea at comparable stages in economic development—but one has the sense that profit zero will play out on the macro scale, that the day will come when the nation will come to see the work of foreigners as largely done.

My editor on the piece (not the editor-in-chief of the publication) questioned my conclusions. Others who read the article after its publication thought I was out of my mind. You have to remember that in early 2008, publications like Time were busying themselves by talking up China’s “rising middle class.” Articles on the big opportunity in China made me think instead of Western greed. Look at where we are today anyway — precisely where we are (i.e., Google) — and ask whether what I wrote above was not at least a little prescient!

Again, the article was written two years ago.

In my book, Poorly Made in China, I developed the theme further, suggesting that the importer-supplier relationship might be seen as an allegory for US-China relations. I made the controversial claim that “wealthy companies” in China tend to behave worse than “poor companies,” and that China as a nation will become more difficult to work with as it rises. This is the opposite of what US politicians and business leaders predicted in the early 1990s when the decision was made to delink human rights and other reforms in China with the economic opportunity at hand. I was early, if not first, in making certain, related claims.

It is important to make a distinction that while I suggested doom and gloom, I’m not talking about China collapsing under the weight of Communism. This conclusion was what we got from Gordon G. Chang in his book, The Coming Collapse of China. You want find echoes of these conclusions in James McGregor’s own book, One Billion Customers.

Financial Times ran a piece by Gideon Rachman, in which the journalist also seemed to be cribbing notes. Rather than quote what he’s written, I’ll link over to his piece and then supply a complete excerpt from the conclusion of my book. When I wrote the section below, there was no “Google case” to use as a springboard, or as evidence. I was not a newspaperman who came to conclusions through brief interviews, and from scanning blogs. My thoughts on the situation were based on real-life experiences in business. Make of it what you will, this is the end of my book (the last page):

“When the United States pushed for greater levels of bilateral trade with China in the 1990s, it was under the assumption that China would become easier to work with as it rose to prosperity. If the importer-manufacturer relationship has shown anything, though, it is that the opposite is true. As Chinese manufacturers have grown bigger and wealthier, they have managed to find — and to exercise — more leverage in their relationships with buyers.

The manufacturer-importer relationship can be seen as an allegory for the future of relations between the United States and China, and one of the challenges going forward will be learning how to engage China. Some leaders feel that they have only the political past to use as a guide; but in fact, they have many microcosmic examples to take from business, and in those models can be found an appreciation for a variety of strategies and tactics.

When it comes to free trade, taking a backward step is many orders of magnitude less desirable than not moving forward toward increased levels of openness. During the Clinton Administration, when Most Favored Nation status for China was debated in Congress, there was a chance for the United States to hold out for political and economic reform in China, but the opportunity was lost.

Improved structural conditions made possible then might have more appropriately set the stage for stability going forward. Instead, American politicians and business leaders rushed headlong into greater levels of interdependency with China, a nation whose reliability is questionable.

This decision, to fling open wide the doors of trade with China — before we were ready, before China was ready, before we understood what we were getting into; an action motivated by our own greed — this decision more than anything else was the one thing related to China that was truly poorly made.”

No matter whether you are a reporter, an executive, a politician or an investor — there is a value in getting certain things right, and in getting them right early. There is risk in taking a contrarian view, and reward in validation.

One final note. I am in the middle of a book tour through Asia. Having completed a number of successful talks in Thailand and Hong Kong, I will soon be speaking in Singapore. One of my talks there is closed to the public, the other is open. Outside of these talks, I am meeting with journalists and others who have asked to speak with me. If you are professionally involved in the subject of China and would like a more detailed explanation of anything I’ve written, welcome to drop a line. I’ve been enjoying discussing my book while on the road. As always, welcome dialogue on this very important topic.

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