The bookshelf of reads for people interested in China, business in China, and China’s role in international affairs.

Pulp Fiction for Guys, or My Guilty Pleasure

Back in the Hutong
Dealing with the RSS Nightmare
1945 hrs.

When I was growing up, I always equated pulp fiction with Harlequin romances and other, similar examples of the type of fiction my mom – only somewhat despairingly – called “bodice-rippers.” This was stuff to be avoided, good for little more than some low-brow titillation.

Then, when I went to college, I stumbled upon a book series called “The Brotherhood of War” by an author named W.E.B. Griffin. The book I picked up, The Lieutenants, was the first in the series and had the name of somebody I respected on the cover heartily endorsing it. For the price of a paperback – and being in the need of some cheap amusement – I figured it was worth a try.

A quarter of a century and over two dozen books (in four series) later, I can comfortably say I’m hooked.

The books (W.E.B. Griffin is a pen name, the author is actually William E. Butterworth III) are essentially an easy-to-read form of historical fiction, deftly mixing actual events, historic figures, and a continuing cast of main characters who are usually aggregates of real people, whom Butterworth usually either knew personally or second-hand. Providing a dual-focus on the lives of the characters (the heroes are either career military, police, intelligence, or some combination thereof, and often independently wealthy) and the events both large and small, the narrative rips along, assuring that one of the books can easily be devoured in a single day.

And it’s great stuff, filled with well-researched detail and highly likeable (and, in many cased, thoroughly detestable) characters. I have to say, after reading a couple of dozen of the books I’m starting to see some fairly common threads, but most of Butterworth’s characters are fun to read about, and the opportunity to read about forgotten chunks of 20th Century History from the eyes of the participants is just too good to miss.

“The Brotherhood of War” series, for example, follows the careers of a half-dozen U.S. Army officers from the rout at Kasserine Pass in 1942 through the raid on the Hoa Loa Prison (Hanoi Hilton) nearly four decades later. In the course of the books, we get to look not only World War II, Korea, and Vietnam, but also at the occupation of Germany, Truman’s forgotten (but effective) intervention in Greece in 1946, the Marshall Mission in China, the development of the helicopter, the French rout at Dien Bien Phu, the preparations of an invasion of Cuba, the creation and growth of the U.S. Army Special Forces, the Simba rebellion in the Congo, and a host of other events large and small that are of interest to history buffs and people with somewhat elevated testosterone counts.

“The Corps” series covers a similarly-sized group of career Marine officers who are all connected by their pre-World War II service in Shanghai, then move into the Intelligence and aviation establishment when the war begins. Focused largely on the Pacific, the books were my first introduction to the “China Marines,” the politics around MacArthur’s headquarters that often insulated him from the truth, wartime Washington D.C., Colonel Mike Edson and the Marine Raiders, Marine intelligence, the anti-Japanese insurgency on Mindanao in the Philippines led by an unknown U.S. Army colonel named Wendell Fertig, the Australian and American coastwatchers in the South Pacific, and a host of equally obscure but incredibly fascinating events and personalities.

“Honor Bound” is a somewhat shorter series, but focuses on a single OSS mission in World War II: the effort to try to pull Argentina out of its neutral-and-leaning-toward-Nazi Germany status and into the war as one of the Allies. Apart from a superb introduction to Argentina, the book opens the door on some of the more hare-brained of the OSS’ missions in World War II, and the kind of people – good and bad – it pulled in to execute them. On the balance, it makes the OSS look somewhat less like keystone cops than the successor agency, the CIA, but it gives some clues as to why Harry Truman disbanded the OSS at the end of the war.

“Men at War” is a somewhat more thorough study of the OSS and some of the work it did both in Europe and on the Home Front in World war II.

“Badge of Honor” is a fascinating look at the Philadelphia Police Department in the early 1970s, when former cop Frank Rizzo was in the mayor’s office.

These are Butterworth’s main series. If you are a fan of Tom Clancey, Dale Brown, Herman Wouk, or Leon Uris, pick up the first title in any of these series. I can guarantee you’ll enjoy the airplane read, and chances are you’ll learn something to boot.

An American Library

Fourth Ring Road, 3.5 klicks from the Siyuan Bridge, Beijing
Marvelling at the truly legendary traffic
1937 hrs.

Not too long ago I realized that my appreciation of books went somewhat beyond what is considered normal. I guess the light went on when I designed my home office to hold 2,000 volumes, then filled it up three-quarters full as soon as it was complete.

Hello. My name is David, and I’m a biblioholic.

American Penguin

Despite having what I would consider a pretty decent education, I realized that I’ve missed more of the classics than I care to admit. I considered the idea of going to a foreign languages bookstore here in Beijing and scooping up handfuls of Penguin Classics, but then realized that Beijing’s harsh climate would ensure that by the time my five-year-old was ready to enjoy them, they’d be falling apart.

My mom went to town on her collection of classics, and the walls of her study in Los Angeles are covered with the elegant volumes of Easton Press. Easton does a great job – the leather covers and binding, gold-edged acid-free paper, and carefully varied sizes and cover textures to give the feel of a library filled with heirlooms.

Easton Affection

I hovered for years on the verge of buying Easton Press volumes, but I kept holding back. The prices are high, to be certain, and that was part of it. On my last trip to visit my mom in July, thumbing through Easton’s Jules Verne, I realized what was bothering me: the books are almost self-conscously beautiful, as if their primary purpose is decorative, or indeed designed to impress the visitor with the culture and literacy of the owner. They look, in short, ostentatious, the literary equivalent of the kind of Louis XIV-Whorehouse-Modern gilt-edged overwrought style that passes for decor in many of the restaurants and residences here in Beijing.

So I was stuck between the biodegradable Penguin paperbacks on one end and the effete and expensive Easton volumes on the other.

Just Right

Then, about a week before my return, I was cruising the bargain racks at the front of the new Barnes & Noble at the Westside Pavilion and I came across a competitively priced volume of Philip K. Dick books. It was shrink-wrapped and had a black paper dustcover with Dick’s photo and a list of the four novels included therein. I bought it, along with a handful of other necessities, took it back to my hotel room, and set it alongside the three dozen other books I’d purchased on the trip. (See? I told you I’m a biblioholic.)

And promptly forgot it.

When I got back to Beijing, I catalogued and shelved my new books (yes, I know), and finally came to the P.K. Dick volume. I removed the cellophane and was awestruck. The binding was cloth-covered hardcover, but the cover was flexible enough (and the volume small enough) to be held comfortably in the hand. The paper was acid-free, and there was one of those little ribbons for marking your place (no dog-ears, please.) The spline was tastefully and elegantly embossed with the author’s name.

All for the retail price of around $13.

There’s more.

Inside the dust jacket there is a long list of volumes of American authors offered by the publisher, TheLIbrary of America (LoA), stretching from the earliest days of the colonies to more modern fare, all delivered in LoA’s trademark elegant but affordable packaging. This was it. An American library for someone of modest budget that would outlive me and possibly even make it to my grandkids. What is better, LoA is a non-profit, doing their bit to keep classics in heritage formats and charging just enough to support the effort.

If you are building or fortifying your library of American authors, there can be no better source. As for me, the P.K. Dick volume is no longer alone: I just ordered an LoA volume of Jack London and four volumes of John Steinbeck from Amazon.

Before you buy, though, check out the LoA website for subscriptions. After ordering the entire Steinbeck library from Amazon, I found that LoA was offering it for about 85% of what I paid for them through Amazon. I harbor no resentment – the money is going to a good cause – but I’ll check the website first next time.

The Disasters We Don’t See Coming

The Rift by Walter J. Williams, Harper Torch/Eos, April 4, 2002, 932 pages

You need not read much about China to get your fill of the disasters that are waiting to befall the nation. The government is doing all it can to prepare for calamity, but what we all know down deep inside – but never talk about – is that preparation is beyond the government. If Hurricane Katrina taught us anything, it is that even the U.S. government never adequately prepares for the dangers they know.

All the more so the dangers that lie hidden in memory.

Life along Old Man River – the Mississippi/Missouri river complex that bisects the United States – is focused on the water. People worry about the floods that imperil the region on a painfully regular basis, and on the occasional hurricanes that roar up the river from the gulf of Mexico.

But dormant beneath the heart of that region lies an earthquake fault which, when it last twitched in 1812, produced the most massive series of earthquakes in recorded history on the lower 48 states. Those tremors, collectively called the New Madrid earthquakes for the town in southern Missouri near the epicenter, shook a half-million square miles. At the time, the region was sparsely populated, and the human effects were moderate, but the quakes changed the course of the Mississippi River and the geography of Missouri, Arkansas, and Tennessee.

Here is the kicker: the fault, known to geologists as the Reelfoot Rift, has a 90% chance of delivering a magnitude 7 or stronger quake in the next 50 years. And the region – the nation – is painfully unprepared for such a cataclysm.

What would happen the next time is the subject that drives Walter Williams’ superb and epic novel The Rift. Told entertainingly around the stories of characters that parallel those in Mark Twain’s Huckleberry Finn,The Rift delivers a picture of the worlds most prosperous nation brought to its knees by a sucker-punch disaster it should have seen coming.

Quakes followed by floods when levies broke, followed by toxic disasters, building collapses, nuclear emergency, systemic breakdown, civil unrest, and worse. It was a compound disaster, a confIuence of horrors that Williams made all too real. I couldn’t put it down.

And when I turned the last page, I thought about China.

For all of the derision we heap atop the Department of Homeland Security, the Army Corps of Engineers, the Federal Emergency Management Agency, and the collective governments of New Orleans, Louisiana, Mississippi, and George Bush for their mishandling of the preparations for and aftermath of Hurricane Katrina, we have to believe that somehow the US government is far better prepared to alleviate human suffering in the wake of calamity that the Chinese government.

And those of us living in China have to hope we are wrong, hope that the Chinese watched the effects of Katrina, the tsunami, and similar natural system perturbations and took some hard lessons.

Barbarians at the Gate and Private Equity’s Rule-Set Reset

With the stack of books on my desk that await my attention, I don’t know what propelled me to take the time to revisit Bryan Burrough and John Helyar’s outstanding Barbarians at the Gate. But given what is happening in China’s financial markets, I’m glad I did.

If you’re not familiar with the work, Barbarians at the Gate is an engrossing, deeply entertaining telling of the 1988 saga of how the wealthy, cosseted management team of RJR Nabisco tried to buy the company from its shareholders, only to watch the buy-out turn into a vicious battle to control the company. More than the story of a single company, the book is a case study of what happens when the predatory forces of what Thomas Friedman calls “the financial herd” encounter large corporations arguably awash in inefficiency and waste.

Despite this being a book written by two Wall Street Journal reporters, none of the players comes out of this looking particularly good. The book also calls attention to the political debate surrounding mergers, acquisitions, and private capital, and in the end underscores that both sides have a point. The financial tools that enable these transactions can be used for good or ill.

Used for good, they can unlock the assets and hidden profits of a moribund corporation to the benefit of employees, shareholders, and broader community.

Used for ill they can be used to perform the legalized equivalent of what wise guys in the Syndicate used to call a “bust-out,” or the systematic transfer of company assets into the pockets of a few individuals, followed by bankruptcy.

Nearly three decades after Michael Millken raised the much maligned junk bond to the level of high finance, launching a wave of mergers, acquisitions, buy-outs, spin-offs, and bust-outs that changed the face of capitalism. In that time, business in the United States (and to a lesser extent, Europe) have watched the systematic dismantling of the industrial conglomerates created in the wake of World War II.

As a result, people running public companies in America think a bit differently than they did three decades ago. Partly as a result of these financial machinations, American businesses are once again globally competitive, after a very long period of time in the late 1970s and throughout the 1980s when we were all questioning if they would ever be so again.

Which brings us to China.

Barbarians at the Jianguomen

Today, the people making the policies that affect China’s financial services industry are weighing the pros and cons of allowing just that sort of “creative destruction” to take place in China. There is a lot to argue for it – and a lot to argue against it.

On the pro side, the guys in Zhongnanhai understand that waste, inefficiency, graft, and corruption are rife in major Chinese enterprise, and they all profess a desire to end that and create a host of globally competitive Chinese enterprises. They see there is a role for government to play in that process, a role for the market, and a role for financial markets.

Yet in the face of the public history of the financial industry of the last 30 years, you understand why China’s leaders hesitate at the brink of unleashing such a wave of Schumpeterian mass destruction. Especially when in their eyes that effort carries the prospect of millions of downsized Chinese workers and a host of accompanying political and social problems, and especially when allowing The Herd to fill their pockets in the process implies some politically unsavory images in a land that remains at least nominally communist.

No senior official wants to preside over an industry where an RJR Nabisco-type fiasco is taking place. In fact, China’s leaders, bureaucrats, and cadres are mortally afraid of allowing any transaction that might generate the least significant public concern, media attention, or political outcry. Imagine for a minute being a Communist Party cadre reading Barbarians at the Gate one evening before bed, then the next day having to sit down with a group of foreign investors looking to buy a major Chinese business. How could you notbe concerned, if not terrified, especially as another major financial firm seems to set up shop in Beijing, Shanghai, or Hong Kong each week?

Kinder, Gentler Barbarians?

As a corporate communications specialist, a certified spin-doctor, you would expect me to say that any financial firm seeking to engage in creative destruction in China has got to make sure it positions its intentions in China correctly, delivering just the right messages to China’s alerted (if not alarmed) bureaucrats to assure them that you are looking out for their best interests.

I would – if it were that simple. It ain’t.

While I am a big fan of saying that business in China is fundamentally the same as doing business anywhere else, unless you understand what those fundamentals are, you’re lost in China.

One of the fundamentals that has enabled the immense success of the financial services industry in the U.S. is the understanding that while strategies remain constant, tactics – how you execute your purchase, integration, and sale of corporate assets – depends on the commercial and political environment and how it is evolving.

There are some extraordinarily bright people at private equity giant Carlyle, people who understand how messages need to be delivered. And yet Carlyle’s purchase of a controlling interest in heavy-equipment maker Xugong demonstrates that the financial services

China demands a different type of execution, one that addresses the concerns of regulators and does not incite – or carry the prospect of – significant political backlash. China’s regulators are looking for companies that understand the delicate line they walk between charting the nation’s future and taking care of the social and political issues they must deal with today.

In short, rather than waiting to hear messages, policy makers are looking for evidence that someone in the growing procession of private equity firms understands the political and social challenges of letting foreigners buy up China’s most promising business, and are willing to go out of their way to address them – in advance.

Because if they haven’t read Barbarians at the Gate, or something like it, they will soon.

Winning the Unwinnable

The Village by Bing West, Pocket Books, December 31, 2002, 400 pages

As we sit each day and have pumped to us still more images of Iraq descending into civil conflict, we are tempted to throw up our hands and say that America has no business trying to intercede in – and end – a civil war. We point knowingly to Vietnam, nod our heads sagely, and foreswear any future military venture unwinnable by sheer kinetic brute force.

And then we read a book like The Village, the true story of a team of 15 U.S. Marines who, without any special training or indoctrination, lived for two years in a village of 6,000 peasants in South Vietnam and for all intents and purposes ended the Viet Cong reign of terror in their district.

West (a Marine in Vietnam, later an Assistant Secretary of Defense and most recently a war correspondent in Iraq) could have been reading from the works of Mao when he noted that a revolution has to be fought among the people. Every counter-revolution or counterinsugency, West notes, must be fought the same way. It’s not just about “hearts and minds.” It’s about “I’m going to put my ass on the line alongside you, every day, 24/7, because I understand that you trusting me is more important than any weapon I could bring to bear.”

The book is an incredible read, a page turner, and with the end of every chapter you ask yourself “why didn’t they tell us we could do this? Why, for seven years after the successes in Binh Nghia village, did America choose to pursue the failed strategies of the French and not the strategies we knew would – and could – work?”

You can read this book, understand it, and still argue that America had no business supporting the corrupt, detached regime in Saigon. But you cannot argue that the war was tactically a lost cause because an organized military cannot successfully fight insurrection. Follow that line of inquiry, and I guarantee that you will find reasons for the collapse of South Vietnam that are far more complex – and disturbing – than any of the oversimplified platitudes of either the “Vietnam was a bad war” Left or the “we could have won if if only the politicians had let us” Right.

And what about today?

If, one asks oneself, there were successes like this in Vietnam that have been forgotten both by the public and the military at large, what lessons are we failing to learn on the ground in Iraq (if any) that could change that situation. And what lessons from our past have we forgotten that would provide us insight into the situation we face today?

You might say this is all irrelevant, because Iraq is a lost cause and Afghanistan will surely follow.

But if you have a sense of history and of the direction the world is taking, you cannot help but realize that we will find ourselves facing more Iraqs, more Afghanistans more Vietnams in the future. It is not going to be a matter of “if.” Rather it is a matter of “when” and “whom.”

We failed to learn the lessons of Vietnam the first time, and it has landed us in Iraq today. In The Village,Bing West reminds us that perhaps it’s time we realized that our defeats have far more to teach us about ourselves and our future than our victories.

Risk: Why I Now Get It

Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein, Wiley, 1998, 383 pages

This is one of those books that I put on my Amazon wish list something like five years ago, ordered about two years ago, and finally got a chance to get through it thanks to some abnormally regular travel over the last couple of months. Picking up a book about the world of finance is not something I normally do, if for no other reason than I buy books to learn about stuff rather than as a homeopathic cure for insomnia.

But author Peter Bernstein, a lifelong “quant” with superb credentials, rises above both his profession and the subject matter with the grace of a historian-storyteller, and makes the history of risk and risk management so powerfully engaging I found myself searching online for the back stories of some of his characters. In fact, at one point, I told Gizmo that as a result of the book, for the first time in my life I was interested in mathematics beyond simple spreadsheet functions.

Against the Gods is that good, and a command of the meaning of “risk” is probably no more important anywhere in the world than right here in China, where we live with uncertainty every day, regardless of your profession. Reading through the book and occasionally staring out my hotel room window at Mt. Fuji in the distance late in December, I realized that in China we are so accustomed to doing business amid great uncertainty that we come to take it for granted.

Which, I guess, is fine if you’re simply turning up the “squelch” knob on your mental radio to drown out the ongoing static and to keep yourself sane. Unfortunately, if you keep drowning out that static you wind up numbed to how bloody risky it is to do business of any kind here. That’s not good, especially if you’re putting your money into China, and arguably even more so if you’ve been charged to watch somebody else’s. Read Tim Clissold’s Mr. China, and you get what I mean.

Meantime, I’ve developed a taste for books about the history of the finance industry, and my order to Amazon last night included a couple of titles along those lines.

To Have a Lever Long Enough

Race to the Bottom: Corporate Complicity in Chinese Internet Censorship by Rebecca MacKinnon, Human Rights Watch vol. 18, no. 8(C), August 2006

If nothing else, Rebecca MacKinnon has done a superlative job in pulling together into a single volume a treatment of the issue of Internet censorship in China as allegedly assisted by major U.S. companies, specifically Yahoo!, Microsoft, Google, and Skype. And for that, all of us should be grateful, because it provides us all with an opportunity to evaluate the position taken by activists working to change the behavior of these companies.

If for no other reason, this is a work that must be read and considered by everyone with an interest in the issues. Ms. MacKinnon is never bashful about stating her position or that of the publisher of the report, and there is no attempt to balance the discussion, but frankly I wouldn’t expect that. This is an advocacy document, not a piece of journalism, and it’s a damned good piece of advocacy.

To her credit, the report is a good read, and she articulates the positions more clearly than most have in the past. Frankly, I’m in general agreement with part of her premise – that there is more companies can and should be doing about this issue. After that, however, I’m afraid we part ways.

I have two major issues with the report that I think draw from its credibility and need to be addressed.

Simple Recommendations. Or, Not…

First is the contention made in the executive summary that:

“Human Rights Watch does not believe that the choice for companies is to either continue current practices or to leave China. Rather, we believe companies can and should make ethical choices about what specific products and services they will provide to the Chinese people––and the manner in which they are provided––without playing a pro-active role in censorship or collaborating in repression.”

In the cases of none of the four companies singled out in the report are specific recommendations made about which “specific products and services” should or should not be offered. What is provided at the end of the report is a series of seven recommendations to Internet companies operating in China, which boil down to:

1. Lobby the Chinese government to end censorship of the Internet. (See my next point below)

2. Refuse to participate in or facilitate infringements of the right to free expression, information, privacy, association, or internationally recognized human rights.

3. Never turn over personal user information if it could be used to prosecute a user. To ensure this happens, pull your servers with this data out of China.

4. Never censor any material unless required to do so in writing. Stop any proactive effort immediately.

5. Use all legal means to resist demands for censorship.

6. Document all censorship cases

7. Encrypt all email.

All of which sounds perfectly reasonable. What never happens in the course of the report is an analysis of whether or not it is possible to follow these practices and be allowed to operate in China. With all of the resources available to her, Ms. MacKinnon and her assistants never take the time to analyze with the kind of microscope an investment analyst would use is whether or not it is actually possible for Microsoft, Google, Yahoo! and Skype to do business in China under these requirements.

So We Lose a Few Internet Companies. We Have More.

“The display of politically objectionable content can result in reprimands to company management and employees from the MII, the State Council Information Office, the Communist Party’s Propaganda Department, and/or various state security organs, accompanied by warnings that insufficient controls will result in revocation of the company’s license.”

A somewhat knowledgeable reader can see the issue quite clearly – HRW requires that Internet companies refuse to “participate in or facilitate” infringements on free speech. And yet the report itself acknowledges that this kind of behavior could result in the revocation of a business license.

The question, of course, is whether the government would actually shut down these companies. Unfortunately the only way to test that is to have one or more companies step up and actually operate according to HRW’s recommendations. Since nobody wants to be the sacrificial chicken, Ms. MacKinnon proposes the modern equivalent of Russia’s political kommissars standing behind ranks of soldiers ordered into battle with orders to shoot if they try to retreat. She proposes legislation to force companies to challenge the will of the Chinese government.

(Worse, she suggests that U.S. companies would only be able to hand over user data to the Chinese government in cases determined acceptable by the U.S. Department of Justice. Under no circumstances would the Chinese government find this acceptable – it is redolent of the sort of extra-territoriality provisions forced on the Chinese during the period of unequal treaties and would invite an unequivocal response.)

Here is the question: how long would any Internet company, Chinese or foreign, be allowed to operate in China if it encrypted all email, refused to turn over personal information, moved its servers offshore, and demanded a writ each time it had to block a site or filter a word?

Does anyone with experience running a real business in the PRC, Chinese or foreign, doubt that taking such actions would be perceived by the Chinese government as the electronic equivalent of aiding, abetting, and harboring criminals? Is there any question that such actions would likely irritate some fairly senior people in government? Because in a land where rule of law is in its infancy, it would not require a court order to shut the doors of even the largest Internet company. All it would take is for a small number of well-placed regulators or police officials to lose their patience with a company and the axe would fall.

Something, again, that Ms. MacKinnon does not deny. She merely implies “HRW believes” it to be possible to act according to their requirements and still operate in China.

Fair enough. I “believe” she and HRW are wrong. And nether of us will be proven right or wrong until somebody does it. Any volunteers?

Moving the Immovable

My second objection to the report is the document’s implicit conviction that if U.S. companies make a principled stand, somehow they will change the nature of the Chinese government. From the recommendations:

“Lobby and attempt to convince the Chinese government and its officials to end political censorship of the Internet.”

Perhaps it is something in our psyche as Americans that believes that we can change anything if we work hard enough. I was raised to believe that this is an admirable trait. I have come to realize that there is a fine line between conviction and hubris.

With all of the government relations activity that companies engage in, the single most important aspect of that activity is developing an understanding of the broader policy agenda. Despite the misperception that MNC public affairs staffs, agencies, and industry associations actually help form policy in China (suggesting that Beijing operates the same way Capitol Hill does,) the reality is quite different. The only occasions on which companies are able to influence policy is when they are able to align themselves with or help direct politically powerful local interests in their lobbying efforts.

Despite the considerable aggregate value of foreign investment in China, the marginal value of any one company to the nation’s future in 2006 is in decline, and its political power with it. No longer do the nations leaders spend considerable parts of their schedules meeting with CEOs. The nation is awash in foreign cash. It boasts an economy that is growing beyond the most optimistic projections of its reformers. And it is coming to grips with a sobering reality – it has arrived at this place by selling off its best assets, it has created powerful competitors for its own nascent companies, and it still faces intractable economic issues.

Against such a background, the traditional levers wielded by foreign firms in their relationship with the government – the carrot of more investment, greater employment, and technology transfer vs. the stick of taking it all to India or Southeast Asia – are proving too short to move policy. What is worse, the element within government that sees foreigners as increasingly unwelcome interlopers and opportunists is growing. While it is unlikely that such sentiment will spill over into an outburst of anti-neocolonialism, it means that until rule of law is firmly established in China, companies operate in the PRC on the good graces of the government, and whatever levers remain to companies are used sparingly and in the interest of survival.

Can Companies Incite Social Change? Do We Even Want Them To?

This is by no means an issue unique to China or to this moment in history. In his book Empires of Profit: Commerce, Conquest, and Corporate Responsibility, Daniel Litvin debunks the myth that “Multinationals….ruthlessly [manipulate] governments and entire countries in the single-minded quest for profits.”

The myth dies hard, given that it is one of the Great Beliefs of our generation. But in a well-researched, carefully documented analysis that touches on ten cases, Litvin makes a cogent case that corporate influence even in the most corrupt of governance is more illusory than real, a misperception best banished from either NGO analysis or corporate strategy to someplace where it can do some good – pulp fiction.

Litvin’s primary conclusion is that compelling companies to become instruments of social change in the countries in which they operate vastly overestimates the abilities of these companies to bring about change. Social change is not brought about by brute force, whether it is the arms and armaments of the United States armed forces, the petrodollars of Shell Nigeria, or the vast media empire and soft power of News Corporation.

If China must change its ways in censorship, leaving it to the companies would be at best ineffectual, and at worst precipitate unintended consequences that would redound to the detriment of all – conceivably including a backlash against any foreigners and the Internet as a whole.

The burden of proof, as it were, appears now to lie with Ms. MacKinnon and HRW. Before embarking on a campaign to compel companies to change their ways, she is at least obliged to proffer some level of proof that the effort (and likely significant attendant commercial costs) have some chance for success.

To do any less would be disingenuous, as at present in the historical record as well as in the minds of the well-intentioned leaders and shareholders of the four companies she discusses, the likely end result of following her recommendations would be to force U.S. Internet companies out of China. I will give her the benefit of the doubt and assume that this is not her end goal.

Alternative Recommendations

It would be disingenuous of me to conclude without offering up my own solution to the situation. As such, I offer my own preliminary set of recommendations.

I. Companies

A. I agree that every company should operate under a clear code of conduct – what I dispute is a universal code. While there must be common values that underlie all codes of conduct, any code of conduct must be specific to its business, reflecting the fact that every business is unique and each faces its own unique ethical challenges and traps.

B. Companies need to be absolutely transparent with all of their audiences about the ethical challenges they face in China, and should be upfront about how they plan on addressing them. This means being upfront with investors, customers, regulators, and the community at large. At the same time, a company is obliged to be honest about the nature of the challenges it faces in China so that all of its publics are clear about what the company cannot change, what it can, and what it would cost the company to make those changes.

C. Seek coalitions with Chinese companies and entities who for their own reasons share the goals of limiting censorship.

II. Investors – Investors are the most critical force to guide company behavior. Investment in a firm doing business in China cannot be passive – it must be active and all of the hard questions need to be asked. If a company does not behave according to its own code of ethics, an investor is obliged to do all in his power, up to and including divestiture – to convince a company to act according to its own broader interests.

III. Activists and NGOs – Add capable business people to teams developing recommendations to companies to ensure that recommended courses of action are commercially practical as well as ethically correct.

IV. Foundations and Think Tanks – Study ways for the full range of groups and entities to build comfort among policy makers in China with the idea of a free and open Internet.

V. Users, including users in China – Make it clear to the company exactly how much the company’s policies really affect you.

VI. Governments – Provide companies with every opportunity to govern themselves in these matters, stepping in with legislation only when self-governance has failed. When stepping in, ensure that the companies that have made a good faith effort are not penalized along with those who have not.

VII. Business Associations – Provide companies with assistance in establishing codes of conduct, and in supporting the development of independent bodies to assess corporate behavior and compliance.

VIII. In addition, there are recommendations in the HRW report that are worth following, so.

A. Investors should press for ethical company practices and respect for users’ human rights, and should ensure that the company is doing all that is practical to ensure this.

B. Investors should press for a code of conduct and for companies to comply to it.

C. International organizations should study – and monitor – the ways in which non-transparent censorship in China contributes to the lack of a level business playing field and the extent to which censorship should be considered a barrier to trade.

D. Activists should work in concert with socially responsible businesses to develop technologies that will maximize privacy, ensure anonymity, and enable Internet users around the globe to circumvent Internet censorship, filtering, and blocking.

E. NGOs should conduct independent research and documentation of the ways in which companies are or are not complying with legislation and/or codes of conduct.

F. Foundations and NGOs should provide clearing houses of information through which users can better inform themselves about the ways in which the products and services they use may be limiting their universally recognized right to free speech and privacy

The Last Word

Creating a free Internet in China will not happen overnight, and in the end will not be driven by forces from outside of China. Foreigners have but an opportunistic, supporting role to play in the process, a process that is yet unfolding as the domestic news media becomes more assertive in its relationship with the government.

But the first indication that the drive to a free and open Internet is driven by forces outside of China will throw the issue into the laps of the state security apparatus, an event that will destroy the progress made to this point and thrust us back into the dark ages of the early 1990s.

Ms. MacKinnon and HRW should be commended on their report for giving their point of view an articulate outlet, and for keeping this issue on the corporate agenda. Now that they have done so, it is time for the debate over solutions to begin.

Coming to China? Read a Lot – And Watch “Deadwood”

In the Hutong
Suspiciously eyeing the poultry
1837 hrs.

I am frequently asked by people planning to move to China and do business here what they should do to prepare themselves for the experience.

I’ve always had a good reading list, but it has leaned heavily on the more realistic tomes, with a little light fiction to prevent people from going into deep depression before boarding the plane to come here. Once you made your way through, you may still think you can make a go of it in China, but at least you would be under no illusions that it would be easy.

My list includes:

James Clavell’s Tai-Pan and Noble House to show how even the smartest gweilohs can be swindled, and to provide some light entertainment.

Sir Reginald Johnston’s Twilight in the Forbidden City to see how the best laid plans in China can be undermined by demagogues and bureaucrats.

Sidney Rittenberg’s The Man Who Stayed Behind to understand that the Chinese may seem to love you today, but they may darn well be spitting on you tomorrow.

Joe Studwell’s The China Dream to show you that just when you think you’re succeeding, you may actually be on the verge of crash-and-burn.

There are plenty of other books, obviously (Mr. China pops into mind), but I’d certainly suggest those.

I’d also suggest the better China blogs, which you will find listed as “Heroes of the People” near the top of this page.

Finally, and perhaps most important, for the executive seeking to truly understand what it takes to succeed in China, among all of the reading I’d intersperse a full, marathon viewing of the HBO Original Series Deadwood Perhaps more than anything else, this single work captures what it’s like to operate in China. (Thanks to Tom Barnett for the suggestion.)

A Big Picture in Need of Magnification

In the Hutong
Under Clearing Skies
22:58 hrs.

I just finished Edward Jay Epstein’s new book, The Big Picture: The New Logic of Money and Power in Hollywood. I figured it would be a timely read, immersed as I am scribbling a tome about television in China. And I liked the book, frankly, because I thought it was a good 10,000 foot overview of the industry as it stands today. For that reason, it’s a good primer and so for those needing a primer on Hollywood (i.e., if you’ve never been in, on the periphery of, or spent a lot of time studying the industry), it’s worth the read.

But in critiquing my own writing, part of me was reading the book a little more critically that I would normally, especially for something that for me was a recreational read. In the desperate hope of avoiding such issues myself, there are some things bothering me about The Big Picture.

Epstein never seems to want to get too close to his subject matter. Even though his list of sources cites several interviews conducted over a period of 16 years, the book feels exceedingly detached from Hollywood. In fact, the book had the feel like it was written from his Manhattan apartment surrounded by a stack of books, magazine clips, and videotapes.

The tone of the book leaves a lot to be desired as well. Epstein correctly approaches his topic as an outsider (all the better to explain to outsiders.) The problem is that he approaches it as an outsider having a difficult time managing his latent hostility, as one of those literary New Yorkers who have always been a tad perplexed (and secretly jealous) that the movie industry has managed to wrest dollars and eyeballs away from the printed word. His derision, I will grant, is subtle, but it is no less acidic – and slightly distracting – for it.

I don’t begrudge a writer his biases. Lord knows old Hunter S. Thompson had them, and he stands high in my pantheon. But at least people like Thompson come right out and say “hey, this is who I am, this is where I’m coming from, and it’s going to bias my writing, but it would be both stifling and intellectually dishonest to do anything different.”

Epstein doesn’t, and the problem is his work suffers for it. He clearly spent as little time on the left coast as possible, and as little time delving into the the guts of the business. He never rises above the level of critic, and for that reason his book – which at around 350 pages could have afforded to be a lot longer – suffers.

First, when he uses examples to illustrate different points, he uses the SAME examples over and over again. He refers to the terms of Arnold Schwarznegger’s $29.92 million above-the-line fee for Terminator 3: Rise of the Machines no less than 14 times.
Hello? Is this the kind of deal typical or extraordinary? Are there other examples of 8-figure stars apart from the now-moved-on-to-greener-pastures Governator?

Second, he makes stupid errors that belie his lack of familiarity with the system. In referring to Tim Robbins’ character in the movie The Player, Epstein calls him a “studio chief” and marvels how he is unable to greenlight anything. Anyone who spent more than a couple of weeks around a Hollywood studio knows the difference between a development executive and a studio chief. It’s nitpicking, I know, but it’s indicative. And mistakes like this throughout the book cost him credibility.

Third he fails completely to talk about how Hollywood is dealing with the threat of digital content. To read the book you would think that a) Hollywood invented the idea of digital movie delivery, and b) is leading the charge to adopt it. MGM v. Grokster, anyone? Hello?

Fourth, he talks extensively about US distribution system and the Popcorn and DVD economies, but he has no clue about the challenges and opportunities Hollywood faces offshore. The fact that China merits a single mention is just dumb.

Fifth, he never talks about the implicit opportunities Hollywood faces in not only new distribution models, but new production models as well. There’s no discussion of green-screen technology and what it could do for location costs or the cost of talent. No thinking about the Bollywood or Hong Kong production models. No consideration given to people like Richard Rodriguez who, amazingly, have discovered a mystical formula to deliver films ahead of schedule, under budget, and for moderate fees that actually make money. No. It’s much sexier to talk about how Hollywood lavishes ridiculous production budgets on overpriced films that are created by a bunch of artless marketers and overpaid dummies posing as talent.

There are numerous other smaller faults as well, but suffice to say that if Mr. Epstein labored mightily he brought forth a mouse. He indeed gives us The Big Picture of Hollywood, but there are holes in that portrayal that leave a sightly knowledgeable reader asking for more.

Review: The Man Who Stayed Behind

Deep, Deep in the Hutong

Just finished The Man Who Stayed Behind by Sidney Rittemberg and Amanda Bennett. The book is an account of Rittenberg’s 35 years in China, first as a U.S. Army translator in World War II, then as a U.N. Relief official, and finally, from 1947, as the only American citizen to serve as a member of the Chinese Communist Party. After the communists took China in 1949, Rittenberg chose to remain in China, rising in 16 years from a translator at Radio Beijing to – briefly, during the Cultural Revolution – head of China’s Broadcast Administration. He was imprisoned twice, once for over six years, once for nearly ten.

The one question I asked myself when I finished was “why the hell didn’t I read this sooner?”

Honest Insights

As personal histories go, this one is exceptionally easy to read and enjoyable, due I am sure in no small part to Bennett’s contribution, but also because Rittenberg’s story itself is so engrossing and painfully, blisteringly honest. The very idea of an American at the heart of China’s revolutionary maelstrom is remarkable. The insights and context he is able to put on those events easily rivals in importance the better known works of Harrison Salisbury et al.

But that is almost the least of the book’s merits. In the spirit of the self-criticisms he and all party members had to endure, Rittenberg does a brilliant job at avoiding hindsight, instead taking us on a journey as much mental, emotional, and spiritual as it was geographic, ideologic, and historical. The insight into the mind of a man who could first buy into the promise of Marxist-Leninist-Maoist thought, then subjugate his ego and his conscience to the cause of revolution by itself makes the book worth reading.

We come away from the book understanding, as Rittenberg did, that the Chinese revolution deserves neither to be idealized or demonized. Great horrors were committed in the name of the revolution, to be sure, but China has indeed come a long way since 1949, and we see through his eyes – and are able to juxtapose – the suffering in the neo-feudal chaos that was Republican China before 1949, and the murderous excesses committed since.

Rittenberg could probably get away with passing final judgment on China, but he does not, and the book is better for it. He strives instead to put us behind his eyes through the whole experience, good and ill, and let us judge for ourselves.

It is customary for a reviewer to look for flaws in a book, but to do so in this case would be picking nits. The book does not pretend to be more than it is – an honest memoir of somebody who was there and saw it all. Rittenberg makes no excuses for himself and his behavior – and he comes out in most respects looking no better or worse than those around him.

The book is no substitute for a more academic history of the period, and there is nor shortage of either histories or biographies to provide a broader canvas, more context, or greater analysis. And frankly, the more background the reader has in modern Chinese history the greater the value of this read.

Key Takeaways

I walked away understanding two things: first, there is no excuse, even for those of us who profess to care about China and its people, to either apologize for or vilify the country or the party. Only a balanced perspective on either will give us perspectives on how to help China evolve as a nation. If Rittenberg can avoid those tracks, so should we.

Second, China’s modern history has in its background a constant tug-of-war between internationalism and xenophobia. In most cases, those conflicts are represented by people who are more one or the other: the foreign-hating Empress Dowager vs. her nephew, the Kuangxu Emperor; Yuan Shikai vs. Sun Yat-sen; Mao Zedong vs. Zhou Enlai, and even Li Peng vs. Zhu Rongji. But as The Man Who Stayed Behind points out, that’s an over simplified understanding of the battle. Rittenberg subtly reminds every non-Chinese who lives in or deals with the People’s Republic that China and its people have a schizophrenic love/hate relationship with things and people foreign, and that they seem fated to eternally swing between the two extremes.

If such insights put long-range goals and long-term investments in China in a starker light, That’s probably a very, very good thing.

A must-read.

The Best Thing to Come Out of the Pentagon Since John Boyd

His new book The Pentagon’s New Map: War and Peace in the Twenty-First Century has been out a month and is already a must-read inside the beltway and by security analysts around the world.
It is a delight to know that somebody who lives within commuting distance of the Capital of the Free World and the Headquarters of the Global War on Terrorism has both an compelling framework through which to view the world and the manhood to pack it all into a compelling format and challenge the prevailing wisdom at the Pentagon. People like Thomas P.M. Barnett come along once in a generation, and whether you agree totally with his viewpoints or not, I can guarantee you his thinking will be required material for any serious student of international affairs within months. His new book The Pentagon’s New Map: War and Peace in the Twenty-First Century has been out a month and is already a must-read inside the beltway and by security analysts around the world. Read his article from Esquire from last year to get a taste, and a more recent open letter to George Bush from the same publication.

Brains and balls. The world, and indeed America, could use more people like Thomas Barnett.

Books: China Dawn

David Sheff’s China Dawn: The Story of a Technology and Business Revolution may be a tad dated and a bit less jaded than other works on China’s Internet industry, but it posits some interesting questions that demand answers.
For a generation so near the actual event, the story of the birth and youth of the Internet commands a considerable share of our interest and bookshelves. Business writer David Scheff adds admirably to this literature by covering China’s Internet boom from a second-person point of view (not quite of the action, but not quite divorced from it either.) A friend and San Francisco area neighbor of youthful venture capitalist Bo Feng, Sheff became a fly-on-the-wall for the emergence and growth of companies like AsiaInfo, Sina.com, and China Netcom (the latter in its original incarnation) and the creation of Chengwei, a venture fund focused on China tech startups and run by Feng and partner Eric Li.

Sheff takes us on a journey that has its cast of characters bouncing back and forth between China and California so much that my biggest problem in reading this book is sympathetic jet lag. I’m sure Sheff was providing nothing more than narrative, and it may just be my sympathetic reaction to all of that trans-pacific travel (the book could have been subtitled “Sleepless in Shanghai”), but one cannot help but come away from the book with a sense of outrage about two things.

First, it is a sad statement about China that people like Feng and Li had to live on two sides of the world to do get capital into Chinese startups. In a country with trillions of dollars in savings and hundreds of billions in foreign reserves, two guys who wanted to start a venture capital fund had to go to San Francisco, New York, New Haven, and points between to pull together a comparatively paltry $60 million. It should have been possible to tap global financial markets from Shanghai, but the minimal importance institutional investors attach to China and the lack of decent financial infrastructure in China made necessary a process that is maddening in its wastefulness of time and money and in the personal toll it took on investors.

Second, one cannot help but come away from the book with a feeling that the powers-that-be in China have treated Edward Tian a bit shoddily. I don’t know Tian and never met him, so the outrage does not come from a sense that a good guy was shafted. But that someone like Tian with some pretty obvious business and management skills was sidelined when China Telecom and China Netcom were restructured makes it pretty clear that the decisions made about China’s carriers place far less an emphasis on business needs than on politics. Unfortunately, all of us who count on the evolution of Chinese telecommunications to enable our businesses will pay the price for this stupidity, along with the Chinese economy.

Finally, the books brings hom in a very visceral way that Bo, Li, and many of the entrepreneurs they backed (including Tian in his AsiaInfo days) didn’t just write business plans and wait for the dumb foreigners to dump cash on them. The creation of the Net in China was no automatic thing, and most of the characters we meet in the course of the book were living on almost no sleep, giving up any semblance of family life, keeping ridiculous schedules, and all the way praying that Wu Jichuan didn’t do something to bring the whole show down on their heads. As was the case in the U.S., there was no shortage of manifestly stupid businesses that got more cash and attention in China than they should have (eTang anyone?) But there were some very good and critical businesses and people that built and continue to build China’s infobahn who deserve to be separated out and helped in their efforts.

While Sheff’s wide-eyed, almost breathless prose about the hugeness of China and the market opportunity here seems a tad naïve to more jaded readers, it’s worth getting past the “two-billion-eyeball” rhetoric. Sheff spins a rich story, and while he’s pulling his punches with a cast of characters he’s come to call friends, he doesn’t pull them much.

The unique perspective of the fly-on-the wall that Sheff brings to this story ensures that many other important stories are not told. There was far more to the growth in the Internet in China than what Bo Feng and Eric Li dealt with. But for this book, that’s almost beside the point. His point of view may deny Sheff journalistic detachment, but it provides us with the closest thing to an “I was there” viewpoint available in the English language today.