Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

Standards of Influence

One of the early chapters in my book Public Relations in China focuses on the importance of the government as a stakeholder, and the means by which a non-Chinese firm could make its influence felt in the policy-making process.

In a time when the collusion between moneyed interests and government power has become a challenge in countries around the world, we have to ask, “is there any circumstance in which it is right for a commercial interest to influence policy and regulation?”

My answer is a qualified “yes.” There is no shortage of companies that have proven themselves to be bad actors, wielding a degree of influence far out of proportion to that wielded by other stakeholders, and too often acting in ways that undermine the popular best interest.

At the same time, there are occasions when it is proper for a company to make its point of view known to those proposing regulation, and, indeed, there are circumstances in which a company’s decision to withhold its expertise from the regulatory process represents an abandonment of the firm’s civic duty.

What we need is a standard, a framework within which companies can offer their input in the regulatory process without drowning the popular interest. In an effort to incite a discussion on the topic, I’ll suggest the first six criteria.

  • For those questions of regulation where a commercial entity has, by virtue of its collective experience or expertise a clearer understanding of a problem than a legislature or executive agency, and the commercial entity has nothing to gain or lose from the resolution of the question, that entity is obliged to offer its information and analysis to influence policy for the greater good.
  • For those questions of regulation where a commercial entity has, by virtue of its collective experience or expertise a clearer understanding of a problem than a legislature or executive agency, and the commercial entity stands to gain or lose from the resolution of the question, that entity may to offer its information and analysis to influence policy provided that it is open about its interests.
  • At no time should a commercial entity use its influence to mute or silence other voices, even those in opposition.
  • At all times the information provided to the government agency must be factual and presented in as clear a manner as possible.
  • At no time may any commercial entity provide direct or indirect payments to any government official or agency that would serve to influence the resolution of a regulatory question.
  • All efforts should be publicly disclosed in real time.

Arguably, China’s central government has never been as open to outside (and particularly foreign) influence as have those of the West. Looking at the lobbying-industrial complex that has turned entire neighborhoods of the US capital into ghettos of influence peddling, that is not entirely a bad thing. But the nation needs legitimate pathways to allow an appropriate degree of input by all stakeholders, and foreign companies are no exception. Those pathways should never be closed to companies that adhere to a clear and publicly-acceptable set of standards.

No China Experts

Hutong West
In search of macro-fauna
1241 hrs.

I have said this in other fora, and as my book Public Relations in China goes to bookstores I am getting questions from media and others that have caused me to lay out the following disclaimer:

  1. I am not a “China expert.”

  2. There is no such thing as a “China expert.”

  3. Anyone who comes to you claiming to be a “China expert” is either deluded (and thus to be pitied), lying (and thus suspect), or out to separate you from your money (and thus to be avoided.)

  4. You don’t have to believe me. Dr. Fan Gang, the head of China’s National Economic Research Institute and the Secretary-General of the China Reform Foundation (among many other titles), once said as much to a reporter when she asked Dr. Fan and I whether, “as China experts,” we saw China’s economy improving or in decline in coming years. He denied being a China expert, told the reporter that he knew I agreed, and questioned the very existence of anyone who could claim the title of a China experts.

  5. China is too large, too old, and too complex to be sufficiently understood by a single individual. At the very most, we can be “specialists.” We can never be “experts.”

When doing business in China, you thus cannot rely on the counsel of a single individual, regardless of how experienced, well-connected or erudite. Instead, seek and genuinely consider the advice of a range of people of different backgrounds, and in so doing form your own view based on a synthesis of their views.

China “experts” will only get you into trouble.

The Cost of a Revolving Door

In the Hutong
Watching Fall Arrive
1223 hrs.

Sitting in the lobby of my hotel in Beijing, I watched over an hour on a Saturday morning as several groups of tourists negotiated an automatic door. One group overfilled it, jamming the door and compelling doormen to come to the rescue.

Two other families (who came in separately) did not get the idea of an automatic revolving door, and pushed the glass partition as they believed that this was what was causing the door to turn. A third family let their kids play in the door, causing several jams and frustrating groups of other guests, one almost to distraction.

The hotel, as a result, posts a doorman nearby to help tourists negotiate issues with the door that was installed in order to eliminate the need for a doorman; and a cleaning lady was hired to clean the door that was installed to minimize the cleaning of the lobby.

All of this serves as another fun reminder that the most prosaic things can have unintended consequences and unexpected costs in a Chinese enterprise.

Sophisticated Chongqing

Hutong Forward
LAX bound for Bangkok and Shanghai
1215 hrs.

My first trip to Chongqing summarily destroyed all of my preconceptions of the central Chinese river terminus.

Instead of an immense but slightly provincial city, I came away after three days with the impression that Chongqing is about as provincial as Hong Kong, and is in many ways a lot more livable than its coastal cousin.

People were fashionable and stylish, at least as much as Beijing. The streets along the river were lined with remarkable restaurants and shopping districts that made Shanghai’s Xintiandi look both quiet and unsophisticated by comparison. The Pedestrian Street between Minzu Road and the Liberation Monument bisected the central business district with a sophistication that rivals Nanjing Road and Wangfujing. And the people have that warmth that seems to come so readily to the people of Sichuan.

I berate myself now for delaying my visit for so long. There really is more to Chongqing than a foggy, overgrown river port, and I suspect that I will be going back again soon.

The Limits of Coercion

Persuasion trumps coercion. Even in China. The government has a monopoly on force, but it does not retain that monopoly by employing it without consideration of public opinion.

The days of high-handed government action are over, and this makes the government’s task more complex – and delicate – than ever. Power my grow from the barrel of a gun, but the nation’s leadership cannot ignore that it remains rooted in the people.

Concept of the Week: Urbanizing In Place

Urbanizing in placeconcept – the idea that China’s urbanization is not being driven entirely by migration from the countryside to the cities, but that large areas that Beijing’s statisticians might once have considered “rural” are now considered “urban.”

In-place urbanization could occur in one of three scenarios.

The physical area of a municipality has been expanded to include what was once surrounding countryside.

In the second scenario, a village that was once considered part of the countryside has now grown into a town that a demographer or statistician would now classify as urban.

In the third scenario, a group of villages in a given area are considered to be conglomerated as a single administrative entity and reclassified as a single town.

In these cases, China’s urbanization is taking place without migration, and presents a different set of policy, marketing, and personal challenges and opportunities than classical migration-based urbanization.

The Third Way on Xi

English: "Long live the great Communist P...

English: “Long live the great Communist Party of China” in Xinhuamen, Beijing ‪中文(简体)‬: 新华门左标语“伟大的中国共产党万岁” (Photo credit: Wikipedia)

“Is the Chinese dragon losing its puff?”
Peter Harcher
The Canberra Times
March 16, 2015

Professor David Shambaugh’s recent essay in the Wall Street Journal suggesting that China’s political system is about to hit some very rough times (“The Coming Chinese Crackup“) has provoked intense debate. Peter Harcher’s article written in response offers a neat summary of what makes Shamgaugh’s conclusions so debatable.

I nevertheless absolutely reject his conclusion which I find astonishingly ill-informed. The pervasive sense of dramatic change is, I have found, combined in almost all Chinese minds with satisfaction and confidence that the change is urgently needed–indeed long overdue—and in the right direction.

It also demonstrates that the American academy has powerful competition as a source of cogent analysis on Chinese politics.

Any serious discussion of China’s future must include non-Academics like economist Arthur Kroeber and Australians like Geremie Barmé of the Australian National University and David Kelly of China Policy in Beijing.

Barmé, for his part, writes off Shambaugh’s collapsism as the view of an American deeply anxious about America. Kroeber, an American himself, argues that the Party remains as strong and adaptable as it was in 2008, when Shambaugh wrote his excellent China’s Communist Party: Atrophy and Adaptation.

My problem with both sides is the determinism implicit in the arguments. The Party’s collapse might not be imminent, but neither is its adaptability without real limits, imposed upon it by important groups and individuals within its own ranks. I find it hard to believe that Barmé and Kroeber would argue that point.

We thus must agree that there may be circumstances under which the Party might prove insufficiently adaptable to avert an existential crisis. And before you protest, let us agree that there may be circumstances under which any polity, however strong and adaptable, might face the same limits. In that case, the answer is neither “the Party will collapse” nor “the Party is too adaptable to collapse.” It is, rather “under what circumstances would the Party face the danger of collapse?”

Like most of us, neither I nor my clients can afford to treat China like its future is a game of roulette: bet on Red, the Party stays in power. Bet on black, and it collapses. Creating strategy in business means contending with all possibilities, balancing them, and coming up with a pathway that appropriately addresses them.

We can be neither Cassandra nor Polyanna. We should not overestimate the considerable challenges Xi Jinping faces as he guides the nation through roiling and uncharted waters, but none of us can afford to underestimate them.

Shameless Plug Dept.: New Fast-Food Paper

Hutong West
Contemplating lunch
1253 hrs.

My most recent paper, this one on addressing the challenges facing fast food franchisors in China, “Jumping China’s Great Food Wall (pdf),” is now up on the Allison+Partners website.

Failing that, you can find the paper on here.

This is more of a practical paper than my last one, giving a quick overview of the uneven success enjoyed by fast food companies in China, and offering a series of prescriptions designed to avoid some of the more serious rocks and shoals, and mitigate the effects of many others.

Get off the plane

English: Business class at grand opening of Be...

English: Business class at grand opening of Beijing–Shanghai (Jinghu) High-Speed Railway. (Photo credit: Wikipedia)

In the Hutong
Watching the pigeon hutches
1011 hrs.

Speaking to a group of students touring China from the UK, I asked how they traveled from Shanghai to Beijing. Their response, of course, was that they flew.

I understand the rationale for flying inside of China. Under the best circumstances it is fast, and other forms of travel are harder to arrange from overseas.

That said, my recommendation to anyone organizing a trip to China for a group of executives, students, or scholars is to do yourself and them a favor: on the leg between Shanghai and Beijing, put them on a high-speed train, in either First or Business Class.

(Be aware that for reasons that escape everyone but the Ministry of Railways, Business Class is the better, more comfortable, and more expensive of the two.)

Even if flights are on time, the elapsed time from downtown Shanghai to Downtown Beijing (or the reverse) is not that much greater, especially if you purchase your train tickets in advance. And if there are flight delays (and there are frequent delays, because of weather, VIP flights, or because the Air Force feels like it), the trip can actually be faster. But that’s not the best reason to take the train.

The best reason to take the train is that the people you are squiring across China will actually get to see out their windows something more than modern cities and clouds. They will see farms, villages, half-completed roads, factories, and the insides of a half-dozen cities of a million souls or more that they had never heard of.

Send them home with visions of modern cities in their heads, and they will get the wrong idea about China, making the same mistake made by instant China experts like Thomas Friedman and Niall Ferguson. Expose them to a bigger slice of China, and they will understand that a large part of the nation is still 40, 70, of 100 years behind Shanghai. Then they will start to understand the forces that drive this Asian Leviathan. And is that not the point of bringing a group to China in the first place?

Case Study: Why You Should Seek Multiple Opinions on China

“Three Things TLD Registries Must Know About China’s Domain Name Regulation”
Chang Jian-Chuan
June 18, 2015

I get to talk to groups of businesspeople and business students on a regular basis, and one of the maxims I include in just about every speech or presentation is this:

Don’t get your China advice, whether generally or on a specific issue, from any single individual. China is too large and complex for you to trust the future of your enterprise in this market to the viewpoint of one source, however knowledgeable he/she/they may seem.

The news this week offers a superb example of why this is the case. The Ministry of Industry and Information Technology (MIIT) has had one if its periodic regulatory spasms regarding the Internet. One of the specific areas covered by the current policy outburst is the arcane but important area of top-level domains (TLDs).

The Internet Corporation for Assigned Names and Numbers (ICANN, the international body that, among other things, operates the system that makes it possible for you to type “” into your browser and get to a bookstore instead of an error page) has recently presided over an explosion of top-level domains (TLDs), those bits of an site name to the right of the dot, like “.com,” “.net,” and “.org.” Where there was once only a handful (in addition to nation-specific top-level domains,) there are now literally hundreds, if not thousands of these, and we’re all having to adjust to a world that includes “.law,” “.ninja,” “.guru,” and “.me,” and .”porn,” among hundreds of others.

China’s adjustment is coming in the form of a new regulation (“Interpretation (Reading) on Carrying Out the Domain Name Registration Services Market Special Action Policy”, promulgated by the MIIT on May 12) restricting how registries (the companies that own the top level domains and collect fees for domain names that use them) can sell domains to customers in China. This is causing a bit of a panic.

Chang Jian-Chuan, a Ph.D. and a research fellow who covers the field for a local registry, offers this piece in a leading industry publication as something of a palliative, and I agree that panic is unhelpful, but he loses me when he writes:

Nowadays a revision of the regulation is under way to reflect the latest expansion of registry operators. However, except for the new requirement that any foreign registry has to establish a legal entity in China, all the other requirements for the license have maintained unchanged. Therefore, it is fairly safe to conclude that there is no “tightened control” or “new move” against New gTLD registries and registrars.

What we have here is a disagreement (to put it mildly) over terms. While a superficial reading of the regulations may suggest no significant change, if you understand both the challenges faced by the companies affected and the knock-on effects of the law, it is clear that the change doe represent a new move that tightens control of the industry and endangers the business of many foreign registries currently selling into China.

From a business standpoint, the regulations throw the business of many registrars into a spin, if for no other reason than they are required to set up and register a local operation in China with $170,000 in registered capital, with local technicians and customer service personnel. Someone familiar with the global registry sector would know that most registries, including some of the larger ones, are not yet operating in China, and for all of those this represents a costly process and significant ongoing expense. For the vast majority of non-Chinese registries the cost will be prohibitive, in effect shutting them out of China.

From a legal standpoint, attorney Allan Marson at noted in November:

When MIIT promulgates these revisions (and barring any last-minute amendments), they will substantially change the status quo for non-Chinese registries in China. While users in China will continue to be able to access websites outside China (subject to passing through the “Great Fire Wall“), in order to promote and serve Chinese customers, a non-Chinese registry will be required to set up a subsidiary registry or entrust a China-based registry to operate its TLDs in China. Failure to do so will likely result in Chinese registrars refusing to sell domain names under the non-Chinese registries TLDs and preventing resolution of any websites that are already registered under those TLDs.

Contrary to Dr. Chang’s fairly offhanded dismissal, a common sense reading of the regulations from the viewpoint of a foreign registry and from an attorney is that this regulation and its knock-on effects represent a new move and tightened control over the field, one that significantly changes the way most companies in an entire industry must operate in China.

While most of us shy from anything that may seem ad hominem, when seeking advice in China you must consider the provenance and possible motives of any advisor. For example, Dr. Chang is a former official with CNNIC working for a local Chinese registry. This would suggest that, far from being a dispassionate observer, Dr. Chang has some skin in the game. It is worth noting that his company, KNET, stands to gain if the new regulations are enforced to the greatest extent possible. It is also worth noting that his publishing an article in an international industry publication praising an MIIT regulation will not hurt his company’s regulations with its regulatory overlords at MIIT, and that it would have been impolitic – if not commercially suicidal – for Dr. Chang to have written a different opinion.

Let me be clear: the goal of this article is neither to impugn Dr. Chang nor his employer. I am sure Dr. Chang is a wonderful person and an academic of great integrity, and that his company is a fine organization operating in a highly competitive and heavily regulated industry.

The point, rather, is that the advice you receive from anyone about China is often influenced on where the individual comes from, where he or she sits, and the pressures under which he or she operates. The only way to get a true picture of the challenges and opportunities your company faces in China is to reach out to a range of advisors, tapping each for their thoughts, questioning each, and forming a picture based on all of the above.

China: State Multinational or Global Superpower?

America fights, in other words, while China does business, and not only in Afghanistan. In Iraq, where U.S. troops brought down a dictator and are still fighting an insurgency, Chinese oil companies have acquired bigger stakes in the oil business than their American counterparts. In Pakistan, where billions in U.S. military aid helps the government keep the Taliban at bay, China has set up a free-trade area and is investing heavily in energy and ports.

via China succeeds by behaving more like a multinational company than a global superpower.
nne Applebaum
September 27, 2010

This was a clever observation when Anne Applebaum first made it five years ago, and there is still some validity to it. Nonetheless, one cannot help but wonder if things will stay this way much longer. China’s military posture overseas continues to rise, and its companies are beginning to discover that the easy fruit has fallen. We may well have witnessed either the high point of China’s overseas expansion, or, more likely, the end of China’s purely commercial overseas expansion strategy.


Making Crepes is Not Cultural Theft

US Jianbing Maker Accused of “Stealing Chinese Culture” | The Nanfang.

A young American goes to China. She finds out how to make jianbing, a popular local street food. She goes home to Portland, and she opens up a shop to make it.

And is promptly excoriated by Chinese netizens for “stealing Chinese culture.”

Leave aside unfathomable presumption (or cultural chauvinism) that would prompt someone to suggest that only Chinese should be allowed to make Chinese food (or that only French should make French food, or that only Italians should make Italian food.)  Those who have issues with Alisa Grandy making her living on making Chinese crepes miss the bigger point:

This is exactly the kind of cultural diffusion that the Chinese should be applauding as a natural result of China’s rise. The world is discovering Chinese culture, and in the process more and more aspects of China will wind up woven into the world’s cultural fabric.

If Chinese chefs can make hamburgers, pizzas, and fajitas (and I know more than a few who do, and some very well), American chefs should be allowed to adopt – and extend – Chinese cuisine.

New York’s Transparent Buildings

Full Bank Accounts, Empty Storefronts: The Economics Of High-Rent Blight.

Fascinating little story that somehow brings to mind places like Kings Garden Villa in Beijing, and much of the city of Ordos.

I would wager that at least some of the money that has found its way to Manhattan is coming from Chinese investors who would rather wait for tenants who can afford their desired rents than rent out at less and undermine the likely ridiculous sums they paid for the properties.

This is not a uniquely Chinese behavior, but it is a practice that is notably common among property owners in China. What is more, the sources of cash flowing out of China and into North American investment properties are certainly not limited to giant, high-profile developers like Wanda. So while it would assume far too much that Chinese money is the cause of High Rent Blight in New York, it is likely a contributing factor.


Shameless Plug Dept: New Paper on Strategic PR in China


Hutong West
The cool before the heat
1855 hrs.


Public relations people have a word fetish. We invest the aphorism “words have meaning” with an almost scriptural infallibility. Yet when it comes to terms we use to describe our own capabilities, we become maddeningly imprecise, if not deceptively hyperbolic. The best (or perhaps worst) example of that is the word “strategic,” as in “strategic public relations.” In fact, we use it so much when referring to so many different things that the phrase has almost lost its meaning.


In a new paper published last month by Allison+Partners (“Strategic Public Relations in China: Actions, Behavior and Communications”,) I ask the PR industry generally and in China specifically to take a step back. I argue for a definition of strategic public relations that steps completely outside of the communications function: as it was originally intended by the founders of the public relations craft, PR begins with the actions and behaviors of a company, and the obligation of PR counsel to guide them. My point: it is time for all of us to become more strategic, and in no place more so than in China, where so many brands consistently fail to understand, much less live up to, the expectations of their publics.


For my fellow PR practitioners and anyone else who oversees a PR function, the paper is available for free download and review on It’s a fairly quick read.




The Confucius Institute Question

To: Dr. Gene Block, Chancellor, University of California, Los Angeles
From: David Wolf, California taxpayer, UCSD alumnus, UC Davis alumnus UCLA extension alumnus, and son of a UCLA alumnus

Dear Dr. Block:

I know that you are busy, so please pardon my intrusion into your holiday week. I have a concern I need to raise with you.

You have enough money in the campus budget to teach Afrikaans, Ancient Near-Eastern Languages, Arabic, Armenian, Czech, Dutch, French, German, Greek (Ancient and Modern), Hausa, Hebrew, Hungarian, Quechua, Iranian, Italian, Japanese, Korean, Latin, Polish, Portuguese, Romanian, Russian, Swedish, Norwegian, Danish, Serbian/Croatian/Bosnian, Hindi, Vietnamese, Thai, Tagalog, Indonesian, Spanish, Portuguese, Swahili, Turkish, Uzbek, Azeri, Ukrainian, Yiddish, Yoruba, and Zulu.

But when it comes to teaching Chinese, the language spoken by more people on the planet earth with the exception of English, you find it necessary to go begging to the Chinese Communist Party – via the Confucius Institutes – to adequately fund and staff instruction in that language.

This is, at best, a misallocation of priorities. If there are three languages that should be taught at your institution, they are English, Spanish and Mandarin Chinese. All of those should be funded as a matter of necessity. Choosing to fund staff in French, German, and Norwegian over Chinese suggests that the university might be losing touch with its core mission.

At worst, this compromises the independence of a public institution of higher learning. The Chinese government official charged with the oversight of the Confucius Institutes is not shy about her goals.

May I respectfully suggest that the university seek a way to fund instruction in the Chinese language and literature that does not entail a dependence on the funding of a foreign government with complex motives? And may I further suggest that such alternate funding not come paired with implicit leverage that might be used to undermine the political, philosophical, and behavioral freedom of the UCLA community?

Many thanks,

David Wolf