Days 14 & 15: Hong Kong & Home

Day 1 is here. The next two days were all about getting acclimated.

Days 2 & 3 are here. These days were pretty much spent as a tourist in Shanghai.

Days 4 & 5 are here. Lots of meetings with companies and other experts on Chinese business development.

Days 6 is here. Our journey to Hangzhou.

Days 7 & 8 are here. Hangzhou, Alibaba.com & Harsco Metal Company & travel to Guangzhou.

Days 9 & 10 are here. Guangzhou.

Days 11 & 12 are here. Guangzhou to Hong Kong.

Day 13 is here. Hong Kong.

Day 14 (January 15)

Friday was much like being back in school. We had several formal presentations in one of the conference rooms of our hotel. We heard from Dr. Leslie Young (Chinese University of Hong Kong), George Mansfield (Coors Brewing Company) and John Miller (Alumnus, University of Colorado Denver Business School).

We first heard from Dr. Leslie Young, a Professor of Finance & the Executive Director of the Asia Pacific Institute of Business   at the Chinese University of Hong Kong. I used to think that I was in an elite group starting college at 16 and completing my PhD by 26. Dr. Young finished his PhD in Mathematics at age 20. As one of my martial arts teachers used to say, “there is always someone out there who is smarter, faster, stronger or better looking.” Indeed.

Leslie spoke to us about the growth of China and the US and what made them economically the top two nations in the world. Specifically the title of his talk was “Capital Accumulation in China vs US: Institutions, Resources and Elites.” Any errors or misrepresentations of his talk are due to my inadequate note taking skills. His talk was educational, entertaining and at times inflammatory. I suspect that his students either love or hate him.

In Dr. Young’s opinion, China was still a 3rd world economy in 1979 but is now a leading industrial power and exporter. This change required both capital accumulation and utilization. China made it up as they went along by experimenting and improvising. Importantly, they immediately shut down the failures and copied the successes. This experimental approach obviously worked. He stated that the system in use today in China is somewhat hard to describe, “a post modern pile of things that work.” Whereas the US system, which took 300 years to get us to where were are, used to be the “gold standard” but it most likely past its prime.

While Chinese institutions (e.g. law enforcement, environmental protections, worker protections) are “rickety” compared to the US, in part it was the US processes and procedures that allowed things like the recent subprime mortgage crisis. So in Dr. Young’s opinion, both China and the US have succeeded despite troubled institutions and processes. Both countries had vast resources (land/natural resources) that could be accessed for essentially free by their governments. China reappropriated vast swaths of land during the cultural revolution, whereas the US essentially claimed all of the lands from the native peoples giving the Chinese & US governments access to the 3rd and 4th largest blocks of real estate in the world for free. So in his opinion, places like India may never catch up in part because Ghandi did not take the land from the people whereas Mao was a “murdering bastard” who turned the land into profit.

He said that if you looked at the current PPP (purchasing power per person), China is #1 even though their GDP is not more than the US. Apparently China, Brazil, Poland and Hong Kong all lead the USA on this index. (Note: This does not match data found on Wikipedia which defines PPP as purchasing power parity, the CIA or the World Bank websites although the metrics are not completely identical.)

In his opinion the free land allowed low wages (since no rent needed to be paid by farmers), the workers then had low food prices leading to cities with low rents and low food costs. Thus, the overall quality of life could be good with low prices and low wages. At the same time, the (Chinese) government could actively build infrastructure and industrial parks with housing on the same land (selling the housing to offset costs) near export zones. Because state run companies had no shareholders, all returns were reinvested to either start new companies or to grow the existing businesses.

Dr. Young pointed out another big difference between China and the US. China has funded many social services: health, education and pensions but citizens who leave state owned enterprises (SOEs) lose access to those services and needed to increase savings to replace the value kept by the state firms. In this way the social capital can grow unburdened by social obligations (the workers have no real claim on it). This is the opposite of how it works in the US. The US has entitlements (social security, medicare, medicaid) that are not backed by assets whereas China has assets without entitlements.

The only real danger to China’s current economic boon may be the proportion of their assets held as US dollars.

Dr. Young spent a good amount of time comparing the similarities of China and US with respect to how expansion and urbanization was driven by public-private partnerships that increased land value and industrialized the nations. One major difference was that in China the rewards for success were often tied to power and status, but not necessarily wealth as would have been the case in the US.

Dr. Young used to think that the US system was stable and flexible and a real showcase was technology, e.g. Silicon Valley.  However, the “bad boy” in the US was the financial system where innovation was utterly counterproductive. He believes that the people in charge of rules with integrity have been tempted by rewards in a way which caused them to shatter them. In contrast, in China there is no real system to collapse. There are plenty of local scandals but no national system to collapse. Because China is a system where relationships matter, the scale of a corrupt coalition is limited. The problems are local not systemic.

Dr. Young described several other systemic differences between China and the US. In China, the system is structured so that the incentive is the elite can “grow the pie” and then skim from it. Because the metaphorical pie is growing, the skimming really does not hurt the system and those with the most integrity and best capability can be be promoted. In contrast, in the US, the elite are reducing the size of the pie in order to capture a larger percentage of it for personal gain. Our own system of law and rules allows those individuals to “bend” the laws to their personal advantage. This system allows the US business elite and political elite to essentially corrupt each other. He then moved onto a commentary on the US mechanisms for presidential selection. For the last few cycles, we have picked Presidents for their packaging, people who appeal to us in 30 second sound bytes.

I asked him how the US can stay competitive in this global landscape. More specifically I wanted to know what can my entrepreneurship center do to ensure that our students and incubator companies are competitive? He said we should just continue doing what we are doing with the understanding that we (the USA) will be less important on the global landscape in the future. This answer was NOT reassuring or compelling.

After meeting with Dr. Young, George Mansfield, the head of international marketing for Coors Brewing company, spoke to us about his experiences in Asia. George has been with Coors for about 25 years and in Asia since 1996. Like most entrepreneurial ventures, he initially worked out of coffee shops in Hong Kong before finding a Chinese national to serve as his general manager. Many international beer companies have failed to enter China successfully. It sounds like Coors resilience thus far is due in large part to flying under the radar by focusing on being a niche brand in the high end market. They are only distributed at very high end bars in large part so that they do not compete with local beer brands. Furthermore, while Coors has developed the expertise to reach the wealthy high end of the market, they do not yet have the expertise to penetrate the local markets.

We discussed several “loopholes” that need to be exploited to operate legally in China. Much of the discussion turned cultural – recruitment & retention of employees, management styles that need to change in Asia, compensation and the use of scantily clad PGs (Promotion Girls & related products) to sell the beer. We also spent some time discussing the ongoing demographic shift in China. Young men will soon outnumber women by about 24 million.  This of course may create social dysfunction or alter beer drinking habits. However, he reminded us that people always underestimate how fast things change in China. But he cautioned us to not underestimate the country or the people. He believes that economic recovery in China is vastly underrepresented in US media.

We briefly discussed US competitiveness. How can you compete in US if you don’t learn a foreign language, and need protection for everything? Especially when in China people will work for 4K US per year, work 80 hours per week, are happy, hard working, etc. He did not have any answers beyond investing in China.

Finally we chatted briefly with John Miller, an alumnus of the University of Colorado Denver 11 Month MBA program.  John first went to China with Chen Ji as a student and recently took a job in Hong Kong with with AECom  – an environmental engineering firm for SE Asia ( but NOT mainland China). John had only been in Hong Kong for 2 months but was simply loving it. He stated that the pace was amazingly fast and that many American simply could not handle the pace of change and gave up to go home. He thought that employees must be open and willing to learn and accept that the US way may not in fact be the BEST way to approach a problem.

While historically many Americans (and foreigners) moved to Hong Kong for the “expat packages” that these are largely becoming a thing of the past. He was hired as a local with very few perks for living expenses. However, the salary is good and there is clearly no hardship to living in Hong Kong. However the US has punitive tax regimes which lower incentives for working abroad. His company handled the visas and contracts and will hire him an accountant when the time comes for him to file his US taxes.

After this educational morning, I spent the remainder of my time in Hong Kong as a tourist. Among other things, I took the tram to Victoria Peak, which was one of the prettiest places I have seen on this earth (though I did not expect to see a multi-story shopping mall there). While I was unbelievably ready to come home to the USA, I wish I’d had more time in Hong Kong. I want to go back!

Day 15: Back to Denver

I was once again grateful for upgrading all of my seats to Economy Plus. Thank you United! I did not have anyone sitting next to me for the long flight from Hong Kong to San Francisco. We were all hand searched prior to boarding our flight from Hong Kong to San Francisco but customs screening in San Francisco was uneventful, almost cursory. I cannot adequately express how happy I was to get home, to hear and see English everywhere, to sleep in my own bed, and to safely drink water from the faucet, any faucet.