History Friday: For Your Reading Pleasure

In the Hutong
Multiscreen Monotasking
1458 hrs.

One of the reasons posts have been rather scanty here of late is that we (okay, “I”) have been resurrecting The Peking Review blog in a new format.

Some of you may know that I’ve got a collection of somewhere around 4,000 books and book-length works, of which about 2,200 are in electronic format and around 95% of those are freely available on the web. Apart from the occasional review of books that don’t comfortably fit into Silicon Hutong, I am posting on The Peking Review thumbnail summaries/reviews of up to five of those totally gratis books each day, along with a handy link for you to download them at your leisure.

It is a reasonably eclectic mix, so you may want to check through the categories if you are looking for something specific, or just browse recent posts.

For today’s History Friday, in honor of the re-launch of The Peking Review, I have pulled a few of the works on China’s history for you to check out. (And now that the hard work on The Peking Review is done, I can spend more time here.)


Foreigners in Areas of China Under Communist Jursidiction Before 1949

Liu Sha0-Ch’i and “People’s War:” A Report on the Creation of Base Areas in 1938

Sun Yat-Sen University in Moscow and the Chinese Revolution: A Personal Account

China’s Maritime Militia: The Fish Story

In the Hutong
Spongebob is not Kosher
1752 hrs.

Appropos of the recently cooled dispute over Japan’s imprisonment of a Chinese fishing boat captain, The New York Times‘ Edward Wong wrote a thought-provoking piece laying out how the People’s Liberation Army may be extending the doctrine of “People’s War” into the maritime domain.

As for relying on fishermen, military exercises off the coast of Fujian Province and comments by Chinese officials show that the Chinese Navy has been trying to “more effectively organize China’s maritime militia, based on various fishing fleets,” Mr. Cole said. “The maritime militia in 2010 is quite active.”

This is no surprise – China’s naval forces have been (by comparison, anyway) neglected in China’s effort to upgrade the PLA (which includes China’s Navy.) The logical interim step would be to deputize the fishing fleet to serve as an extension of the fleet until the Navy can put more hulls in the water.

But this also means that, outside of the Diaoyutai dispute, there are implications for the territorial waters of countries well beyond East Asia. Chinese fishing vessels, their home waters either overcrowded with competition or plundered to exhaustion, will venture even further from China’s shores to harvest the bounty available in the waters of other nations.

Many of these craft will be caught in violation of international maritime law, thus increasing the likelihood of an international event, even an unintentional one. In the event that a fishing vessel is actively operating as a Chinese government auxiliary, other nations may find themselves bitten by the same Chinese nationalism the Japanese experienced in September.

How the U.S. Senate Handed the Climate Talks to China

In the Hutong
Sushi for Dinner
1713 hrs.

A spate of conferences, clients in from out-of-town, and paid writing assignments has kept Silicon Hutong quiet of late, but that’s set to change as of now, at least for the next couple of weeks.

A quick one to get going and for your weekend reading: a superb article in The New Yorker that displays in painful detail the dealmaking, egos, self-dealing, and trans-branch communications failures that pulled a critical piece of climate change legislation off of the national agenda this year. Regardless of how you might feel about climate change, unless you have spent some time inside the beltway and are comfortable or fatalistic about the process, you are certain to be either alarmed or disgusted by what you read.

You can read the article and write this off as just another dysfunction of the American polity, an explanation of why it is difficult to forge a workable coalition around any major government initiative regardless of how much each side gives away to make it happen.

Yet this article raises another, more salient point. If the United States cannot commit itself to policies to reduce carbon emissions even with a sitting Democratic President and Congress, how can Washington hope to lead the world in that direction? And if American cannot forge such a coalition, in a nation that by any account could afford to wean itself at least partially off of carbon, how can we expect China and the teeming emerging nations of the world to do so?

There are villains aplenty in this tale: Congress, special interests, the Obama administration, or the American consumer. Casting blame is not the pressing issue. It is this: the United States has surrendered its role as a global leader in one of the most important issues of our time, leaving a vacuum to be filled by a nation or nations with a very different set of interests.

As we count down to the next round of climate talks in Cancún at the end of November, America goes in as a lame duck, and China is in a position to forestall any U.S. initiatives at those talks merely by holding a mirror to the U.S. ambassador. Watch China take a very active and vocal role in this round. And if you are frustrated about the outcome, before you make China the heavy, call your Senator and find out where he/she stood on the Kerry/Graham/Lieberman bill.

Around the Hutong This Week

northeast tower of Forbidden City in night light
Image via Wikipedia

Some quick admin notes:

First, I have updated the “About” page. I do much better when I don’t try to be funny. Let me know what I’m not including.

Second, in my effort to keep Silicon Hutong on topic, I have relaunched Peking Review as its own site, with links to books of interest (mostly free e-books available online, and mostly with some China angle) and some thumbnail reviews. I have modest plans for the site, but with a clearer focus it is taking on a healthy life of its own. I’ll still do topical long-form book reviews here as appropriate.

Next, a couple of posts from the Off-Topic Hutong blog – Silicon Hutong Lite:

Time to Rethink Conservatism

Not a City of Airheads

Finally, Dan Harris over at China Law Blog posted a link to our article on Guanxi. The comment string is well worth reading.

Beijing vs. the Provinces: A Rethink

Party cadres at a meeting 1983 开会
Image by kattebelletje via Flickr

Pacific Century Plaza, Beijing
Sucking Coffee Grounds
1145 hrs.

For a long time I have been trying to find a good way to frame the evolving relationship between China’s central government and the provinces in a way non-Chinese could start to understand. China is not a confederation like a “unified” Europe, nor a nation with a clear and constitutional division of powers between state and national governments like that of the U.S. Nor is it, fortunately, a coalition of regional warlords with a single leader as ostensible primus inter pares like the Republic under the Kuomintang.

But a passage from Chapter 6 of Richard McGregor’s book The Party helped the penny fall into place.

“Every jurisdiction is a company, and every company a jurisdiction – all of them with powerful incentives to compete against each other.”

China functions, essentially, in a manner I would call “corporate federalism.” Each province and locality operates as an economic entity, and the political relationships among them and between the localities and the center are driven by the economic (i.e. commercial) interests.

As McGregor points out, the central government’s challenge is that the more it asserts its power over provincial affairs (including its tax collections), the more it serves to slow the economic engines in the provinces. The looser it holds the reins, though, the greater the opportunity for the negative effects of rapid development to run rampant, and the less responsive the provinces are to centrally-driven policy and regulation.

The ongoing process of maintaining a dynamic balance between the center and the regions in China is different than the classic issue of centralization vs. decentralization. While China’s local party organs and governments are structured to look like the central party and government in miniature, appearances do not reflect reality.

In truth, the system more closely parallels the way industry regulators in the west manage their corporate charges, with the focus being allowing the commercial entities the widest possible range of freedom as long as the economic benefits of their activity do not over-exceed the social and political costs thus incurred.

As such, the central government does not concern itself with a sharing of powers. Instead, it retains full power but informally grants the localities considerable license in return for playing their role in ensuring growth, and thus supporting the legitimacy of the party and the system. Only when local leaders publicly fail in this effort do central authorities step in.

Whether his is a “good” thing or a “bad” thing is subject to debate. What is laudable about framing centers of power in an economic context is that a) it keeps those centers focused on commerce, not on playing power politics (a fatal malady in a naturally centrifugal country like China), and b) it provides a framework for incorporating non-governmental economic actors, like major SOEs, in national decision making.

Traditional political power-sharing systems, like confederations or federal states, ignore non-governmental actors or pointedly exclude them from the process as non-relevant, forcing them to play sub-rosa roles in a polity or form alternative power basis. A corporate federalism, on the other hand, is in a position to integrate non-governmental actors into the system, something that, while inappropriate for parliamentary or republican democracies, may actually be a wise approach for developing states.

What I expect is that corporate federalism will be a transitory arrangement for China as it evolves. In the meantime, this gives us a framework to begin to understand the varying roles local, provincial, and national governments play in our businesses.

A Few Notes on Guanxi

Logo guanxi
Image via Wikipedia

In the Hutong
Thinking of samurai
2057 hrs.

A discussion on the LinkedIn China Business group about what foreign businesses need to succeed in China was going quite well until someone mentioned the importance of “guanxi.” After a somewhat involved to-and-fro about how important it was (or wasn’t, I jumped in with the following. I thought it was worth sharing, so I reproduce it here.

First, to translate “guaxi” as simply “relationships” is a dangerous oversimplification, particularly when proffered to someone unfamiliar with Chinese culture. First, guanxi are tiered, based on a Confucian hierarchy: familial relationships, long-term friends, classmates, and schoolmates are the nearest ranks, and to those no stranger – Chinese or foreign – will ever have access. At best we are relegated to outer rings like colleague, in-law, business partner, or acquaintance. There are exceptions, like Sidney Rittenberg, but he is the rara avis that proves the rule.

Second, guanxi are personal and non-transferable, they are not enterprise. There is no way to hire someone and have him hand over his guanxi to the company. You want the guanxi, you keep the employee. That’s why China’s princelings, the offspring of senior Party cadres, have sinecure. Consultants who hawk guanxi are simply renting their relationships, they know it, and from such realities are retainers made.

Third, guanxi involve mutual obligation. If you use someone in your company with guanxi to get assistance from an official, there is an implicit quid pro-quo, hence Richard’s concerns about the coziness of guanxi and corruption. Further, few westerners understand that there are complex social obligations involved in such relationships, your average Chinese executive would sooner burn his employer than his close connections.

Fourth, guanxi die. Or get sacked. Or retire. Or get transferred. Or quit and go into business. They are ethereal, fleeting, and in constant need of regeneration, repair, and re-creation. They are not forever.

Fifth is the hammer-nail problem: the people your employee or partner knows may not be the exact right people to get things done, but that’s who they know, so that’s who they use. When that happens, watch the oversold connection drop the ball, or get smacked. I have watched it happen, and it is not pretty.

Or they may just limit you. I know of a western media company with no special unique advantage in the market that is doing well in exactly one province: the place they have guanxi. They’re happy with how they’re doing in that one province, but they have been utterly unable to scale their business: they’ve been hemmed in by their relationships.

Finally, it is worthwhile noting that guanxi today are of declining importance for most businesses. The scope of industries in which it is necessary to cultivate exclusive ties at a high level is declining over time.

Business fundamentals first, second, and third. Special relationships only to the extent necessary.

This is not a comprehensive discussion of guanxi, and I’ve simplified it with the sole goal of underscoring how misunderstood the concept is in the west. But it gives you an idea of why misunderstandings around guanxi are so common as to make the whole issue a litmus test of an individual’s level of understanding of Chinese business.

One nota bene that must be emphasized. While guanxi is taking a back seat to market fundamentals in many industries, and policy changes are drawing away the value even the best connections in others, there are some businesses in which it is absolutely essential to hire, retain, or otherwise acquire high-level influence. On that list I would include banking, investment banking, and infrastructure.

But the point remains: it is as unwise to overemphasize guanxi as it is to under-emphasize it, and essential to know where that line is.

Handsets and Style

In the Hutong
Watching “The Man Who Would Be King”
1943 hrs.

Thomas Crampton points us to a Roland Berger report suggesting that trendiness is a critical factor for Chinese consumers in the purchase of a mobile phone, and in the speed in which they purchase new phones. I am certain Berger is not hawking such insights to mobile device manufacturers, because none would pay to learn what they have known for a long time, at least since the Motorola RAZR demonstrated that the mobile phone was as much fashion accessory as telecommunications hardware.

What is of value is figuring out exactly what “trendiness” means, to whom it means that, and being able to anticipate that trendiness six to eighteen months in advance. China no longer has a single mobile phone market, it has several, and in each of those markets trendiness means different things. A techie wants the latest version of Android. A fashionista might want something with some bling. Others want a few more features, an iPhone, or maybe just a simple handset with a cool color.

These groups are constantly changing, realigning, and splitting. What they want in a device changes as quickly as twice in a normal ownership cycle. Identifying those groups, and having a rough idea of what they will want a few months down the line, and why is the insight mobile device makers need.