Internet or eSludge

Jingshun Road, inbound.
Any bets on the first sandstorm?
1028 hrs.

Living in China one gets so used to long lead times for web pages to load and email to download that when the Internet really slows down you don’t trust your own senses. You sort of think to yourself, you know, the Internet is really slow today. Or maybe I just drank too much coffee.

But when the CTO of one of my clients grabbed my arm the other day and ask me if I’ve noticed that the Internet in China had slowed considerably lately, I had all the confirmation I needed that the issue had nothing to do with caffeine-induced impatience. The net IS slower, and not just with overseas connections.

There could be several explanations for this, some quite sinister, like “they’re upgrading the GFW.” (Part of the joy of living in China is that government conspiracy theorists who would be regarded as crackpots anywhere else tend to start sounding like realists here. It doesn’t mean they’re right about things, just that people actually have to consider what they are saying before discarding it as paranoia.)

But there are a lot of things going on in and around Beijing that could be contributing to this: network upgrades, Olympic-related projects, construction cutting cables.

Or, indeed, more careful and deliberate scrutiny of the Internet in the weeks ahead of the coming opening of the 11th National People’s Congress.

Either way, it’s making surfing more painful than it has been in years.

I want my VPN…

America’s Airline Mashup and China’s Future

In the Hutong
Dreaming of Islands
1902 hrs.

The normally astute (and often erudite) BusinessWeek falters a tad in analyzing the value of the coming wave of airline mergers in the United States.

The question BW asks is almost the right one – it wonders if the creation of a small number of American Megacarriers – Northwest/Delta, United/Continental, and American/player-to-be-named-later – will be enough to fend of European competition. The large U.S. carriers – with the sole exception of Southwest, a huge, well-run discount domestic-only airline – lose money on domestic service, making it up only on international passengers and freight. European carriers are, naturally stronger than US carriers in this space.

Asian Airlines are not Chopped Liver

Not a bad question. I suggest there are two others:

1. Given that there are only two airline models that seem to make money (low-frills and high-efficiency discount, or full-service, long-haul international), how is creating larger airlines that do neither of those very well going to make the U.S. industry any stronger? Nobody seems to have picked up the ugly reality that combining two mediocre airlines does not make the resulting company better – just bigger. Opportunities for economies of scale aside, this will still not solve the long-term problem: with the sole exceptions of Southwest and possibly JetBlue, U.S. airlines are operating on an obsolete business model.

and

2. If you think the British Airways, Lufthansa, and Air France/KLM are such a threat, have you ever paused to consider that Singapore Airlines, Cathay Pacific, and ANA would tear even bigger holes into what have become U.S. carriers’ most profitable markets – the trans-Pacific trade? It it particularly surprising that BW seems to dismiss the Asian carriers completely out of hand. With the sole exception of Virgin Atlantic, I cannot think of a single European carrier that approaches the quality of service, youth of fleet, and profitability of Asia’s leading airlines.

Don’t Follow The Americans – At Least Not THOSE Americans

All of this is instructive for China’s airline industry. As Air China pursues ownership of China Eastern, it heeds my second question while ignoring my first. Yes, it would probably be bad for Air China to stand by and let Singapore Airlines get its nose under the proverbial tent. Apart from that, however, it will simply create a larger, less nimble, less efficient carrier right at the time when the Chinese airline industry needs to rethink its structure.

China would do itself an injustice by learning the wrong lessons from all of the noise around M&A activity in America, and would do better by looking around the world for airlines that work brilliantly.

Responsa: E-Waste, Keeping Our Own?

Jingshun Road
Watching all of the workers return from holiday
1518 hrs.

Spenser left a comment on an earlier Hutong post about processes that are being developed for managing the growing piles of discarded electronics and computers.

I mentioned in the note that China’s rust belt northeast would be a logical place to seed China’s own recycling/demanufacturing/remanufacturing and other environment-related sectors.

Spenser correctly noted that it would be silly – and wasteful – to set up such facilities in China and ship our waste there.

He’s right, so I should clarify my point.

No way should America move its e-waste to China – the idea is to recycle the e-waste near source, then transport the resulting raw materials to wherever they should go. This ensures the best use of energy in the process, and also keeps third-world countries from getting the impression (correct or not) that we are exporting our garbage to them. Doing so tends to piss off the natives and trash our global relationships. (No pun intended.)

At the same time, I am profoundly aware of the NIMBY factor in all of this, and the possibility that a highly motivated group of people in the US or Europe could discover some implicit dangers (real, speculative, or imagined) to having such processing take place in one’s neighborhood. If that happens, electronics recycling will wind up someplace else.

Naturally, this would be a shame, not only because it would waste energy and turn other countries into our garbage dumps, but because such activity could be far better regulated in the US, and location in developed economies would not only drive innovation in process, it would ensure the fastest diffusion of those innovations through the recycling industry.

(Indeed, I think this will be a driver for manufacturers toward “design-for-recycling” and “design-for-remanufacture.)

All of that said, I still see recycling, demanufacturing, and remanufacturing as major potential industries for Asia generally and China specifically, if for no other reason than Asia is a major consumer of electronics in its own right, thus a growing source of e-waste. As the pile of discarded mobile phones, computers, televisions, and the like expands here, the case to process it grows as well.

After all, nobody wants to see containers of Asian e-waste landing at U.S. ports, either, now do they?

Rule of Law is Only As Good as the Cops

In the Hutong
Listening to Harry Shearer
1756 hrs.

Using Chinese New Year to catch up with my reading, I came across this short jewel by Maureen Fan over at the Washington Post. Maureen reported on the current environmental protection plan.

The money quote comes from the plan itself:

“Laws and regulations are not respected. It’s very hard to punish those who violate the law and law enforcement is not strict enough.”

Spot on. And it’s nice to know that the government realizes it, too.

China has made immense progress over the past three decades in terms of putting Of course, it doesn’t take rocket science – only the experience of driving on China’s roads for more than about five minutes – to recognize that law in China is worthless without enforcers who can do their jobs without fear of reprisals from above.

(One guy here in the Hutong cracked recently that Beijing could probably pay for the Olympics with traffic citation revenues if they’d let slip 40 or so California Highway Patrol cars and officers on Beijing’s streets for a year. My back-of-napkin calculations figure he’s off by a few zeros, but his point is well-taken. I figure an honest, intrepid cop willing and able to pursue violators without fear of getting fired for doing so could probably deliver $360,000 – $500,000 per year in citations. That’s US$.)

Why is this important?

There are indications that some senior people in the Hu administration are pushing hard for better training and management of the nation’s law enforcement agencies. This group understands that there will be no “Harmonious Society” without entities that are empowered to enforce the laws on the books.

At some point in the next 18 months – though probably not during March’s First Plenary Session of the 11th National People’s Congress – we’re gong to start hearing more about law enforcement. Some of it will be cosmetic, but we will see the start of a clear movement to improving law enforcement at all levels, beginning with a few high-profile cases.

Microhoo China

Hiding in the International Club
Is it CNY yet?
1328 hrs.

The prospects of Microsoft buying up Yahoo! are providing considerable titillation for those of us who love industry gossip, are suffering election fatigue, and who dream about being flies on the wall of Yahoo! board meetings.

What few of us have started to consider is what such a combination is likely to mean to China. Certainly, MSN will probably continue to operate as the #2 chat application (far behind Tencent’s QQ but a growing fave among office workers). Where it gets interesting is when we start to think about Yahoo! China.

Readers of this blog will need scant reminder that Yahoo! China is owned and operated by Alibaba. Along with a whole lot of other interesting things, Yahoo! owns 39% of Alibaba. If Microsoft buys Yahoo!, it becomes Alibaba’s largest shareholder.

Assuming Jack Ma and Steve Ballmer got along (there is no reason to think they wouldn’t), the Alibaba investment could be very interesting for Microsoft. In fact, it would provide them several potential avenues – the LEAST of which is the Yahoo! China property – for building their (indirect, but very real) opportunities in China.

Taobao.

Alipay.

Even Alimama.

Think for a moment what it would mean to have these properties backed not only by Jack Ma’s savvy dealmaking, but by the sheer muscle of Microsoft.

And think what it would mean to Microsoft to have Jack Ma as its leading advocate in China.

Finally, here is a question – what about Jack Ma as non-executive chairman of Microsoft China?

All very interesting possibilities that, if Microsoft takes the time and brainpower to focus on China in this process, make for some really interesting opportunities.