Entrepreneurship and fierce competition

Around 600 large cities in the world have established a public bike system that allows individuals to rent a bike for short periods of time. Toronto has Bixi-Bikes (www.bikesharetoronto.com), Montréal has Bixi-Montréal (http://montreal.bixi.com/en), and even Paris offers bikes for rental (www.parisvelosympa.com), as does London.

All systems are similar in concept. Bikes are available at determined locations that users must find. Individuals need to register, pay a caution and then present a credit card. The user is then able to take the bike at rates that are generally around $3 for a one-way rental, $5 to $7 for one day ($20 in Paris!) and $90 for a whole year. The bicycle must then be returned to a rack, which might be at a fair distance from the location the customer targets.

bixi-bikes-torontoBixi bikes in Toronto. Source: Toronto Life, Image: Gary J. Wood.

These systems are generally provided by private companies with a guarantee from cities that they will not operate at a loss. Many of these services are only marginally profitable. In fact, Bixi Toronto went bankrupt in early 2014 and needed to be restructured.

Large cities in China had a similar system: fixed rental stations, guaranteed by the city, where customers needed to pay by credit card. Not anymore. Private enterprise has taken over this business by creating a new way of servicing this market.

In the middle of 2016, a new approach to bike rental was rolled out. Beijing based, privately held Mobike introduced a bike that simply was “on the street”, available for rental. Goodbye fixed stations! Customers would simply take the bike where it was located and drop it at the end of their journey, where ever that was. Forget having to locate a station to rent the bike, and one where to drop the bike at the end of the ride. This innovative approach simplifies the process for the customer, leading to a much higher level of usage. For registered customers, a smartphone app allows them to simply sign into the system and unlock the bike all within 15 seconds.

mobike-on-the-street             Mobike on the street. Source: Unknown.

mobike-gps         Mobike GPS and control system. Source: http://lanseybrothers.blogspot.hk.

Mobike’s innovation involves an interactive control unit that communicates with the central monitoring station via a wireless system. The customer simply scans the QR code with a smartphone. The lock is then released. Once the journey is completed, the user re-scans the QR code and the bike is then re-locked. With a GPS system included in the control unit, Mobike knows at all times where the bikes are placed. This allows the company during the night to reposition bikes that are located in low utilization positions or in places where it has too many bikes compared to the historical utilization rate. This smart system can be adjusted based on consumer behaviour.

Other design features, like no-flat tires and sturdy welded tubular construction were incorporated in order to minimize downtime and costly repairs. In a redesign of the bike, a front basket was added to increase customer appeal.

mobike-locking-mechanismMobike locking mechanism. Source: YouTube.

The main competitor to Mobike is a venture called “Ofo”, also based in Beijing. Its business model is similar to Mobike’s, but Ofo has designed a low-technology, low-cost bike (250¥ (yuan), roughly C$50), compared to Mobike’s more technically advanced bike which costs 3,000¥ (C$600). This has allowed Ofo to charge a lower registration deposit of 99¥ (C$20), compared to 299¥ (C$60) by Mobike. Both companies charge 1¥/30-minute (C$0.20) for use, but only Mobike has a fully functional GPS location system.

A total of 17 competitors have now emerged within China. These companies have a regional or city based strategy, compared to Mobike and Ofo that target serving the whole of China. These two firms also aim to expand internationally. Ofo announced in late 2016 that it was targeting the USA and the UK for its first international foray, with the goal of shipping 20,000 bikes in early 2017. Mobike is targeting Singapore as it begins moving beyond China.

mobike-ofo-et-alMobike (the new design will lower manufacturing costs), Ofo (yellow) and a local competitor (blue). Source: Author.

The market penetration strategy is very similar to what has been used by technology companies: grow fast by growing the market, gain market share and don’t worry about profitability as it will come later (at least they hope so!). The speed of the market roll-out is amazing. In 2017, Mobike targets to manufacture 10 million bikes (way too optimistic in my opinion) in partnership with Foxconn (largest manufacturer in China (roughly 1.1 million employees), which assemble Apple computers). This is quite a jump from the 400,000 bikes Mobike manufactured in 2016.

Financial support is coming from large technology firms, as these organizations believe that this market will grow to be worth US$5.8 billion by 2020. These two firms raised around $500 million in the last 6 months. Mobike backers are Tencent, Ctrip.com (both multi-billion dollar Chinese organizations) in addition to US venture capital (VC) firms. Ofo has the financial support of Didi (the company that defeated Uber in China) and US VC’s. Valuation of each company is estimated to be above US$500 million.

These new ventures aim to reinvent the personal bike ownership concept, and reposition it as a shared asset that can be used to simplify the life of city dwellers. Their success hinges on two operational issues. The first is the level of damage, vandalism or theft and the second is the wide availability of these bikes at easy to access locations, most probably on sidewalks.

The challenge regarding damage, vandalism or theft should not be a serious concern in China. The existing social system has created a low-crime environment, which should address this issue. Will this however, be the case in the West with a less regimented society?

tight-on-the-sidewalkIt can get tight on the sidewalk. Source: Author.

The second challenge regarding the availability of bikes is not an issue in China as sidewalks are already quite busy, more bikes should not cause further aggravations. Pedestrians are already used to dodging all sorts of things: store racks, garbage bins, running bikes and motorcycles, and a large number of bikes parked in designated and non-designated areas. But how will all these bikes be integrated in the well-structured environment in the West, where “there is a place for everything and everything is in its place”. Dropping these bikes everywhere, particularly if there is snow to be cleared, would not go well with city planners.

To compound the situation, the labour required to re-position bikes, change the battery in the control unit or repair damaged bikes will be more expensive than in China. This will result in higher operating costs. To address this challenge, Ofo has plans to charge $1/hour, still a substantial reduction compared to the current rental cost in western cities. Another key issue could be civil liabilities as the West is much more litigious than China where it is almost non-existent.

The high density of population in Asia and the co-existence of bikes and car have facilitated the rental of bicycle. But in the West, which has a much lower population density and where a strong “car culture” exists, are city planners ready to leap into the “bike culture”? We should know within a couple years as Mobike and Ofo rush to internationalize.

dodging-taxis-et-alDodging taxis, buses and cars in London. Source: Martin Godwin for The Guardian.

This example clearly demonstrates that China has the capabilities of creating, developing and nurturing innovative businesses. Chinese by nature are risk takers and will work hard at succeeding when they embark on a venture. The Japanese success of the 80’s was based on their organizational capabilities. The Chinese success will be based on innovation and entrepreneurship, once their cost competitive advantage is diminished. The West better be careful if it does not want to lose further ground in the race to maintain its economic leadership. History indicates that China was at the top of the world for centuries. That is the position they are targeting. Watch out! The Chinese are coming!

gdp-realignmentThe upcoming economic realignment. Source: The Economist (2010).

Pierre

Round 1: China 1 – USA 0

In a previous blog, I discussed the China-USA dynamic in the Trump era. After the first month of the Trump administration, it is most interesting to see what is happening on the world stage in regards to the dynamic between these two hegemons.

walmart-in-china        Source: China Daily

In its rapport with the USA, China has built on its cultural strength based on its long history, and has come on top of this game. Over 2,500 years ago, a Chinese sage put in writing the fine art of power. Sun Tzu wrote The Art of War, which is required reading at military academies around the world.

The Chinese have put in practice this long rehearsed skill. No wonder the Trump administration was bamboozled.

A recent article in BBC News details the strategy and accomplishments of China over the last few months. The totally amateurish Trump administration could not stem the “charm” and “power” of China.

Welcome to the new world order where cunningness trumps strength and brashness.

Pierre

BBC News Link: http://www.bbc.com/news/world-asia-china-39061702

Air pollution – How bad is it?

Western media often show pictures or discuss the air pollution challenges facing China. Almost everyone has seen pictures of people with face masks walking in a grey haze. Are these rare occurrences? Is it as bad as it seems? Let us have a look at what is happening.

tiananmen-square-in-beijingTiananmen Square in Beijing. Source: Source: Reuters

The key issue for air pollution in China mainly focuses on small particles in suspension in the air. Unlike the West, which faced the acid rain challenge in the 1970’s, China faces a different problem, though it can be difficult to appreciate the extent of the challenges as pollution is not openly discussed in the Chinese media.

Let us understand what the PM2.5 standard is. PM2.5 stands for Particulate Matter of 2.5 micrometers (0.0025mm) or less. The World Health Organization (WHO) has established a guideline and a guide for PM2.5. The guideline stipulates that PM2.5 should not exceed     10 μg/m3 (micrograms per cubic meter) annual mean (i.e. similar to average), or 25 μg/m3 24-hour mean for it to be acceptable. The WHO guide on PM2.5 is as follows.

who-air-quality-guide-for-pm2-5World Health Organization Air Quality Guide on PM2.5. Source: WHO

It is to be noticed that China has set the PM2.5 at a higher acceptable level than the WHO standard. The acceptable annual mean was increased from 10 μg/m3 to 35, and the 24-hour mean from 25 μg/m3 to 75. In effect, China has tripled the level set by the WHO, which makes it less demanding.

Let us now look at the actual PM2.5 pollution over the years. The data was obtained from the US Embassy in Beijing, which has a monitoring station on its roof. An analysis of the data has provided the following table.

beijing-air-quality-2008-2015 Source: US Embassy in Beijing (www.stateair.net/web/post/1/1.html).

For example, based on the above graph, roughly 180 days a year (i.e. 49% of 365 days) in Beijing would have a PM2.5 that would be Unhealthy (i.e. between 151 and 200).

If we use the mid-point value in each category of the WHO Air Quality Guide, we arrive at an annual average of 163 μg/m3, which is 4.7 higher than the Chinese acceptable standard and 16.3 times higher than the WHO acceptable standard.

The PM2.5 pollution is not distributed equally across China and affects particularly the eastern regions which are large consumers of coal, with an even greater pollution level in the provinces adjoining Beijing.

provincial-distribution-of-pm2-5-pollutionProvincial distribution of PM2.5 pollution, 2008-2010. Source: NASA

We can therefore conclude that the air pollution issue is of serious concern in China. But how do the Chinese people feel about this issue?

In a survey in spring 2015, the Pew Global Survey found that nationwide 76% of Chinese view air pollution as a moderate (41%) or very important (35%) problem. If this survey would have been done in the provinces that are most affected by air pollution, the percentage would have been understandably higher.

coal-consumption-of-coalNational wide, the consumption of coal generate by far the largest percentage of the PM2.5 pollution. Source: AFP

In China, air pollution contributes to an estimated 1.2 million premature deaths annually through an increase occurrence of lung cancer, cardiovascular disease and respiratory disease.

The state has realized that this issue has impacted a large segment of the Chinese population. It has started to take action, but for some, it is too little. To a limited extent, people have taken to the street to protest. The state has reacted forcefully to any public display of disapproval as seen in the city of Chengdu in Dec. 2016, where protesters were arrested and a planned protest was prevented.

sit-in-protest-in-chengdu        The sit-in protest over problems of smog in Chengdu lasted for 10 minutes before the demonstrators were taken away by police. Source: Twitter@paleylin

In an upcoming post, we will look at the actions taken by the government and what could be done to address the fundamental sources of the PM2.5 problem.

Pierre

Note: An excellent article (Jan. 18, 2016) from the Council on Foreign Relations presents the environmental challenges that China is facing (China’s Environmental Crisis). It can be found at: http://www.cfr.org/china/chinas-environmental-crisis/p12608

Ballet at a crossing

Rush hour at the Wulumuqi Road and Changle Road crossing in Shanghai in the late afternoon of a fine autumn day as pedestrians, cyclists, motorcyclists, cars, buses and trucks dance with one and other to get through.

3400Can I get through?

3401Going against the flow?

3403Lets go for it!

3405I know that I am on the red light.

3409Business attire required.

3412Squeezing by.

3414All means of transportation accepted.

3415Keeping the place clean.

3418We are loaded.

3420Getting through.

3427Don’t touch me.

3428Just crossing.

3432Whizzing through.

3438Let us get on with it.

Pierre

Note: Photos by author

An amazing feat

Over the last decades, China has achieved a drastic reduction in the number of people living below the poverty line. In 1981, 88% of the population was living below that line. That number now stands at 4%. The poverty line is defined as a person living on less than $1.90 a day, using 2011 $ at purchasing-power parity.

This amazing achievement has been accomplished since the economic restructuring that began in 1978, and has continued uninterrupted since. Per capita annual income has increased from $200 in 1990, to $5,000 in 2010, and has continued to improve.

Poverty reduction occurred in stages. The first stage happened in the rural areas with the introduction by the central government of the Rural Responsibility System which allowed families to produce more than their allocated production quota. The additional production was sold on the open market at market prices.

The second stage was the progressive opening of the Chinese economy to foreign direct investments (FDI) that created a multitude of enterprises geared towards exports, capitalizing on the low cost of labour. This had the impact of creating a large number of unskilled positions that brought many people into well-paying jobs in an urban setting.

poverty-level*Living below $1.90 a day, using 2011 $ at purchasing-power parity. Source: The Economist

In the early 1990s, the central government privatized small and medium size State Owned Enterprises (SOE’s) removing the rigid constraints of a centrally planned economy and placing these companies in a market economy. Once subjected to the forces of the market, millions of employees were laid-off, but within a few years many more jobs were created due to the innovative needs placed on the new owners.

In parallel, in 2001 China joined the WTO (World Trade Organization), accelerating the economic development of the country. Many more foreign enterprises elected to establish a facility in China, again adding a large number of jobs in an urban setting. By now, local entrepreneurs had also started creating employment opportunities.

By the turn of the century, at least 200 million people had been lifted out of poverty. In the next 10 years, another 200 million people would follow, as the economic expansion continued. By 2014, a total of 700 million people were lifted out of poverty, leaving only 4% in economic difficulties. These last 55 million people are now the focus of the government.

The efforts to continue reducing poverty is one of the key objectives of the government 13th Five-Year Plan period (2016-2020). The goal of the central government is to eradicate poverty by focusing on the 128,000 poor villages and 832 poor counties, predominantly in rural settings, in provinces located away from the coastal zones. In addition to focusing on economic conditions, the government is aiming to increase the quality of education, health services and housing.

The prime strategy to address these challenges is to encourage the development of competitive industries such as tourism and agriculture. In regions with limited economic development potential, residents will be moved. People will be relocated to areas which have greater economic possibilities. In addition, the government will introduce a guaranteed basic living standard for people unable to work.

gansuTourism features as a key economic tool in Gansu province, which has a GDP per capita at half the national average, and 4 times lower than the leading areas. Source: chinatouristmaps.com

In spite of these successes, different challenges were created as a result of this rapid economic growth. Probably, the greatest social challenge in China is the economic inequality that currently exists. In the 1970s, everyone had roughly the same economic level; more or less everyone was poor. As economic growth accelerated, and the economy moved from a centrally planned to a mixed economy (i.e. a combination of centrally planned and market economy), inequalities emerged. People who had post-secondary education were able to command higher salaries. Entrepreneurs were able to start businesses that rapidly flourished. Others were able to benefit from the privatization of small or medium size SOE’s. These groups of people raced towards reaping the benefits of rapid economic growth while the individuals with no or limited access to these capabilities progressed at a much slower pace.

Another challenge created by the central government relates to the partially deregulated liberty of movement. The Household Registration System (hukou) or similar methods have always been a cornerstone of the Chinese government’s desire to control the internal movement of its citizens. In the late 1980’s and early 1990’s people were given the opportunity to relocate but without establishing a permanent residency in their new location. This allowed this floating population of roughly 250 million people to move from rural areas to cities in search of better paid work. As these people did not have the hukou in the city where they worked, their children and at times their spouse had to remain behind. This has created a diaspora across China of broken families that are only reunited for 5 to 14 days, once a year during the Spring Festival (i.e. Chinese New Year) held in January or February.

Both challenges are being addressed by the central government but at a rate that will see these inequalities solved at a slower pace. By 2020, it is quite probable that the poverty issue will have been nearly resolved, but the problems caused by the substantial economic inequalities and the large floating population will probably take longer.

Pierre

Guokao time

Every year on the 4th Sunday of November more than a million people write the National Civil Service Examination (NCSE) required to apply to positions with the national government. This selection process launched in 1994 is modeled on the imperial examination, which goes back to the 6th century. The purpose is to provide equal opportunity to people across the country for desirable positions within the national government.

ncsvApplicants getting ready to write the China’s National Civil Service Exam. Source: Getty Image

In 2016, a record 1.5 million people from across China applied to write the common exam for 27,061 openings. Candidates are invited to apply to the positions that are of interest, with some positions garnering more than 10,000 applicants. At the same time, roughly 800 positions had no applicants as they are located in faraway regions or require particular training or knowledge.

Chinese citizen are eligible to register for this exam if the candidate is under 35 years old (40 for Master’s and PhD (age discrimination!)) and have a college degree as a minimum. People can apply as often as they want. In 2016, a woman wrote it for the 6th time.

The NCSE is a test that comprises two phases: the written test, and if you pass an interview. The written test comprises 130 multiple choice questions that need to be answered within 2 hours. These questions cover topics in language, math, logic, data analysis, politics, law, culture, etc. The following are two examples of questions that may be asked. The answers are provided at the end of the post.

  1. Observe the images below and pick out the right one that belongs to the blank or the group.

ncse-question

  1. The Indian Ocean earthquake and tsunami showed humans the power of the nature. Although we have islands and submerged reefs as natural barriers to tsunamis, we need to be prepared for potential dangers. Sometimes the earthquake in the deep ocean does not cause any loss as the epicenter is far from the land, but the tsunami generated by the displacement of the water can cause huge damage. Tsunami waves can move at 800 km per hour in the ocean and can be several meters high. The main argument in the paragraph above is
  1. Earthquakes and tsunamis warn people to pay attention to the ocean
  2. Earthquakes and tsunamis in the Indian Ocean warn us to focus more on oceanography
  3. Tsunamis generated by earthquakes can cause huge damages
  4. Natural disaster is cruel

If a candidate is caught cheating, the person is banned for life from applying for a government job, and for serious cases, a criminal charge can be brought against that person possibly resulting in a prison term of up to 5 years.

The second part of the written exam, of a 3-hour duration, is an essay writing on policies with topics covering social issues, civil disputes, etc.

Applicants often begin studying for the exam months in advance. A small industry has been created to respond to the needs of preparation material, which is not unlike what is offered in the West for GMAT, LSAT, and others. Books, online material and classes are sold to potential candidates.

ncse-study-material

Study material to prepare for the National Civil Service Exam. Source: JOJBuy

Once the results are available in January, the successful candidates are then invited to an interview. Once a further screening has been done, the results are shared with the respective government departments who have posted job openings, allowing these departments to invite candidates for further interviews and evaluation.

Numerous people are interested to work for the government as these jobs are for life. Unless a person abuses their position (i.e. corruption), the employee will not be let go, regardless of personal performance. A steady income is offered along with good benefits, and a work environment with limited stress.

In addition, public servants have a good reputation and are well respected. To work for the government implies that the individual is helping build a better society. The extended family of the employee will be proud to see that one of their own is now a public servant.

The other point that has to be taken in consideration is the job market. With 7.6 million college and university graduates a year, and a soft job market that is not able to absorb this number of graduates, students are pursuing all job opportunities.

Unfortunately not all is rosy. Generally jobs are paid at a much lower level than in the private sector. Middle managers in their 30’s will be paid around 120,000 RMB (C$24,000) a year, while in the private sector, they might be paid 3 to 5 times that amount. Job security comes at a high financial cost.

Government employees will generally work in a system that is not conducive to personal growth or development as there are limited opportunities for horizontal transfers or promotion. This will often lead to boredom and low motivation.

Also, as employees progress within the civil service, they will reach a level where being a member of the Communist Party of China (CPC) is often required. This might further curtail opportunities for promotion of non-CPC members.

In regards to the selection process, the high standards that are applied and the desire to apply a meritocratic process can only be lauded. China is a society that prides itself in being inclusive. Unfortunately, this system is rigid; offered only once a year and standardized (i.e. one size fits all) for all job types. There are no signs of nimbleness and capabilities to adjust to rapidly evolving situations. In an era where the government is pushing to realign the economic model of China, with a substantial emphasis on innovation and creativity, is this system preventing changes within the government?

Pierre

Answers

Question 1: From left to right, there’re increasing numbers of small shapes in each image. 1. One round 2. Two quadrangles 3. Three candle-shaped images 4. Four trapezoids 5. Five triangles. The image with six small shapes is the correct answer.

Answer: A

Question 2: Answer: B

The omnipresence of Western culture

In the West, we discover Chinese culture through our enjoyment of Chinese food and the occasional exposure to philosophers (Confucius), medicine (acupuncture), martial arts (Kung Fu) or films (Crouching Tiger, Hidden Dragon). Otherwise, little is experienced of the culture of the Middle Kingdom.

chinese-movieSource: IMP Awards

On the other hand, when Westerners arrive in China, they are surprised to find Western culture so pervasive. Let us explore the extent of this cultural presence.

Upon arrival at the airport, one will note that the male or female models used on billboards are often from the West. Frequently it is to promote a Western brand, but quite often it is used for Chinese products. The use of a Western model can often be explained by the desire to position the product or service at a high-end level, enticing Chinese consumers to achieve the material wealth and ease available in the West.

As the person journeys further into China, the names on a substantial number of stores will be familiar. Often Western companies have identified the Chinese market of nearly 1.4 billion potential consumers as a market that is worth pursuing, in spite of the many challenges that they will encounter. American and European labels will lease many locations in shopping malls, at times occupying more than 25% of the retail space.

hmSource: Nelson Ching/Bloomberg News

American fast food brands have a strong presence across China as well, with KFC (>5,000 locations), McDonalds (>2,000) and Starbucks (>1,600) leading the way.

kfc-mcdonaldsSource: Wikimedia

As the days go by, one will notice the less obvious manners in which Western culture is present. Western music will often be played in public locations, even in Chinese restaurants. Western artists will tour the largest cities to capitalize on being well-known and liked. Billboards will advertise the latest Hollywood action movies. These movies will generate hundreds of millions of dollars annually in a market that will become within a few years, the second largest market, after the USA.

harry-potter

Source: AFP Photo / Frederick J. Brown

One will also be amazed at the number of people who have a decent notion of English. It is estimated that around 300 million Chinese are learning English. Some in a formal setting like schools (public or private), while others will do it on their own. Their goal will be to capitalize on Western opportunities, might they be work related or personal.

As one stays longer in China, further cultural influence will be experienced starting with the introduction of Western holidays. For Halloween, stores offer masks and outfits. On the evening of October 31, thousands of adolescents disguise themselves and go for a walk in the downtown core of major cities. In late November, it is common to see retail stores or banks posting “Merry Christmas” signs. Stores like Walmart and Carrefour offer Christmas trees and decorations. Commercial streets are lit up, encouraging shoppers to purchase gifts for family and friends.

As one talks to Chinese friends, a key topic of discussion is the education of their child (i.e. 1-child policy). Chinese parents take this topic very seriously, and as a consequence, foreign schools are often a preference, if the parents can afford the substantial annual fees, often equivalent to one-year salary of a well-paid individual. American and British schools and universities have established Chinese locations that use the curriculum and teachers from their home countries.

shanghai-american-school

Source: Shanghai American School

In the field of literature, it is frequent to see a book or a play in its original version or translated in Chinese. Through these, Chinese people are exposed to Western values portrayed by the likes of Shakespeare, Molière, Dickens, Hugo, Hemingway and others.

shakespeareSource: British Council

As one further expands its reach into the Chinese society, Western culture becomes more subtle. The presence of many multinationals operating in China and the actions of multiple NGO’s (Non-governmental agencies) further spreads the cultural influence of the West.

Where is the cultural dynamic between China and the West heading? The first observation is that at this time, the flow of cultural influence is highly unbalanced in favour of the West. This has been the case for as long as China and Western countries have interacted. How will this change in the coming years and decades? At this time, it is reasonable to believe that the material wealth, creativity, openness and social dynamism of the West will probably continue to exert pressure for the continued dominance of the West. For this balance to be more equal, substantial changes would need to occur in China.

Meanwhile, the government is fully aware of the cultural dominance of the West and is taking actions to regulate the inward flow. Strict rules have been placed on the number and the content of films allowed in the country. For foreign corporations, a series of rules clearly delineate their areas of activities, while the Communist Party of China monitors their activity through their presence within each of these corporations. For NGO’s, recently issued regulations constrain their operations.

So the approach is if China cannot match or stem the Western cultural influence, China will contain and constrain it. One must wonder if it will work.

It is to be noted that as the Chinese culture is strong, there is no chance that Western culture will subjugate it. The Western cultural experience will remain a veneer on the Chinese culture. The Chinese will continue to live with the beliefs and the behaviour that have been at their core for centuries.

Pierre Brunet

Mandarin as lingua franca?

With the growing power of China, will Mandarin (Putonghua (i.e. national language)) replace English as the language used across the world?

Whenever people in a nation desire to communicate with people another nation, a language that both parties understand needs to be found. Historically, the language of the nation that had the largest economy or greatest military power was used.

As the means of communication and travel evolved, the process used to select the language changed. Originally, the distance of communication was relatively limited. As the means of transportation increased in speed and reach; from horse, to ship, to plane and finally to electronic, the distance and the number of countries covered increased.

latin-as-lingua-francaLatin was the lingua franca during the Roman Empire and subsequent centuries. Source: Wikipedia

What was a regional requirement became an international need. If we travel back in time, common communication languages were based on regional powers. All this changed in the 17th century with the establishment of colonial empires.

The first universal language, commonly called lingua franca was French. It was replaced with English in the late 19th or early 20th century because of the substantial colonial empire and the economic might of England, compounded with the economic power of the USA.

Chinese language was the lingua franca within its sphere of influence (Japan, Korea, Vietnam and Mongolia) until the late 19th century. With the weakening of China due to foreign presence, English displaced Chinese.

Now that China is on the ascendance again, with its economy being the second largest, probably overtaking the USA in the coming decade, it is probable that some countries will feel the need to interact with China in Mandarin in order to ingratiate themselves towards China.

In international bodies, English and French are the most common languages used, with Mandarin rarely recognized as an official language.

The key point that changed in the historical dynamic used to determine which language will be used as the international lingua franca is electronic communication. This has forced parties to rely on the power of the word, compared to a face-to-face interaction. In an environment where time is money, compounded by high pressure to rapidly respond to questions or situations, it is important that the language retained be clear. This implies that the language has a low level of contextual relationship to be understood clearly (i.e. that the words can be taken at face value); in addition to being relatively easy to learn. And this is where the Chinese language stumbles, as the words (or characters in this case) used are not precise in their meaning, particularly if any legal recourse is pursued. In addition, learning Mandarin is time consuming as it is complex.

The following graph illustrates the extent to which English is currently spoken around the world by non-native speakers, compared to Mandarin. This numerical advantage of English is substantial and almost impossible for Mandarin to surpass.

non-native-speakersRelative importance of native speakers to non-native speakers. Source: Transpacific Project

Therefore, it is probable that the English language will remain for the foreseeable future, the lingua franca of the world, as the most commonly used international language when people interface across boundaries.

Pierre

The North-East: Shenyang to Harbin

Heading out of Shenyang (population 6.3 million, capital of Liaoning province) on board the high-speed train, we rapidly cross the industrial outskirt of the city. Within a few minutes we are in an empty countryside, as it is November and the cold weather has already been here for a few weeks.

Harbin is 540 km away. At 305 km per hour, it will take us slightly more than 2 hours to reach our destination. This will allow sufficient time to observe the environment as we speed through the countryside.

shenyang-harbin-by-trainJourney by train from Shenyang to Harbin. Source: Google Map

In no time, Shenyang is a distant memory. We only see empty fields except for the dry stalks that are the leftovers of the corn and wheat harvests. The earth is dark colour indicating rich soil. Sporadically we see a person manually tending the fields. The occasional tractor shows that mechanization has reached this part of the country. But the small fields indicate that no large equipment will be used here until the fields are much larger. Horses are seen pulling small wooden carts. There are no barns where equipment would be stored. There are no animals as it would probably be too expensive to feed and house them during the long winter.

The corn collected is air dried in wired cages. No metal silos here where corn could be stored until it is taken away by trucks to the nearest scale and then shipped to market. No mechanization to handle the crop is seen.

The occasional roads that can be seen are paved, but there are few cars on them. Side roads are in hardened earth, which the rain will turn into mud. At times, a lone highway follows the train tracks. Cars and trucks trudge along in both directions. Trucks are heavily loaded with goods that are destined for the few large cities of the North-East.

A few gullies emerge to accommodate small brooks with minimum flow. No trace of any rivers here. The fields must be watered with the randomness of the rains, as there are no traces of water wells. In between fields we see the occasional row of trees that will dampen the effect of the winds on this flat land. Fields carry on as far as the eye can see. There are no traces of forests or any discerning features, with the exception of the occasional cellular phone tower.

Small villages appear every few kilometers. Their size is almost uniform, with 30 to 60 houses located on a few streets that run parallel to each other. All houses are of the same design. They are rectangular, roughly 7 meters by 12 meters. All have the same sloping rusted corrugated roof with two chimneys. There are 4 windows at the front, 2 or 3 at the back, and none on the sides. A solar water heater is located on the roof. An electrical wire is connected to the house, but no trace of satellite dishes. Smoke is coming out of many chimneys as people have already taken refuge inside.

heilongjiangFields and villages in Heilongjiang. Source: Google Earth

A small plot of land at the front or the back of the house seems to indicate a garden that provides vegetables for the family. There are no traces of cars or pick-up trucks that one would expect to see in the countryside. Maybe people have gone to work away from town, but there are no factories around. No large buildings are to be seen in these villages. Where are the schools, hospitals, stores, gasoline stations or other institutional buildings?

Suddenly in the middle of fields, twenty residential high-rises, all identical, at least 8-floor high appear. Many seem empty. There are no cars around, no activity, only lonely buildings. A few kilometers away, another series of high-rises appear, and then 10 kilometers further is Changchun, the capital of Jilin province. There was only a short transition between the fields and the city. We can’t see this city of 4.1 million people as we are in its outskirts.

After a brief stop, we are back in the countryside. We pass within 300 meters of a coal power plant that seems recently built. Its belching chimney and two cooling towers dominate the fields. There are a few piles of coal nearby; a few kilometers away, another coal power plant.

The monotony of small fields and villages is back. Some fields have been set on fire to burn the left over dry vegetation, which will fertilize the fields for the next growing season. Unfortunately, these fires will also increase the pollution, mainly particles in suspension in the air, for which China is well known.

One hour after leaving Changchun, the train rolls into Harbin (population 5.3 million, capital of Heilongjiang province). The transition from fields to the cityscape is instant. Low rise buildings surround the brand new station that remains to be connected to the subway system. The countryside is long gone, but never far from any city as almost 50% of China’s population still lives in a rural setting.

Over the coming years, the migration of tens of millions of people from the countryside to the cities will continue. It is obvious that the countryside is overpopulated to take care of the existing fields. Mechanization will progressively be used as the standard of living continues growing. What will happen to all these small villages? How will the people who migrate to the cities thrive? So many questions remain.

Pierre

Trump on China

The improbable has happened. Donald Trump will be the next President of the United States of America. So, what are the possible implications for China? Let us look at what might happen from the most probable to the most challenging.

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A Chinese newspaper with the headline ‘Outsider strikes back’ above a picture of Donald Trump. Photo: AFP

The first topic regards the Trans-Pacific Partnership (TPP) free-trade agreement, which Trump has repeatedly stated that he would not sign because of his position that free-trade accords ship jobs outside the USA. The non-implementation of this accord goes against the desire of all countries in Asia to expand free-trade. The framework of the TPP was pro-market and was designed to set the stage for Western-based market economy rules. With this agreement not proceeding forward, the context for free-trade agreements in Asia moves in favour of China with its desire to see a strong presence of the state in the market.

Another approach favoured by Trump is to focus on America and take its distance from the rest of the world, as long as it is not about terrorists that can attack the USA. A Trump presidency would probably scale down the Pivot to Asia that the Obama presidency has taken. This implies that smaller countries in South East Asia will see their position weakened in regards to the territorial disputes in the South China Sea, where China has claimed vast areas within the “nine-dash” line. This will embolden China to continue and even expand its land reclamation efforts and force smaller nations to negotiate an agreement with China.

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The other aspect that was clear in the Trump campaign is the desire to see foreign countries that benefit from the military protection of the USA, carry a greater percentage of the cost of their defense. The benchmark of this cost is 2% of GDP, as clearly spelled out within NATO (North Atlantic Treaty Organization). In Asia, two key countries might be affected by this policy: South Korea and Japan. The most worrying is Japan, which is facing China in a contest of will in regards to projecting its influence across Asia and maintaining control of small islands that China asserts belongs to them. Currently Japan has been increasing its military buildup and freeing itself from parts of the constraints of their constitution imposed by the USA in 1945. At this moment, military spending by Japan is constrained to 1% of GDP, while for China it is almost 2% based on an economy 3 times larger. It is possible that the tension between China and Japan will continue to rise, allowing the Chinese government to continue its assertive policy towards Japan.

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The biggest question in regards to the dynamic between the USA and China relates to trade. Over the last 2 decades, millions of jobs have been lost in the USA and moved to China because of a much lower cost of operation (labour and material). This cost advantage might have been compounded by the weak value of the Chinese currency (RMB) relative to the US dollar, and possibly by market manipulation where State Owned Enterprises dominate (dumping of goods in sectors that are in overcapacity, particularly the steel sector). Not much can be done by the USA to influence the cost of labour or raw material in China, but substantial action can be taken by the USA on currency and dumping.

On currency, the key expression to watch for is “currency manipulator”, where China would be deemed to have weakened its currency relative to the USA currency in a manner that would reduce the costs of goods produced in China. If President Trump officially states that China has manipulated (i.e. weakened) its currency, a series of actions are automatically initiated. This could lead to substantial duties imposed on all or parts of Chinese imports into the USA, with possible counter duties imposed by China on US goods imported into China. Then a trade war between the two countries is a prospect.

What makes the situation even more challenging is that these events need to happen within the framework of the World Trade Organization (WTO), which would take years to rule on these actions. Would President Trump be willing to work through a third-party international body? Not sure, as he has stated many times that third-party bodies have impeded the development of the USA. This is where all bets are off, particularly if President Trump takes action on his frequent comments: “China is sucking us dry. They’re taking our money. They’re taking our jobs. They’re doing so much. We have rebuilt China with what they’ve taken out.”

The overarching point on the economic front that is confronting the USA is the fundamental realignment that I made in a previous posting (Time over for the West to dominate – Oct. 22). China wants, in fact needs, to continue growing economically at a rate that is 2 to 3 times higher than the US growth rate. So, relatively speaking the Americans will feel that they are not dominating the world anymore, and therefore that America is not great. Will the USA accept that China is overtaking them? That is the fundamental conundrum of this election.

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The relative importance of the USA shrinks to the benefit of Asia. Source: The Economist

Unfortunately, history indicates that any switch of country that “dominates” has not happened peacefully. It is to be hoped that a modern society, where people understand the mistakes of our forefathers, will find a solution to this transition. I remain hopeful, but the upcoming Trump presidency will keep us on the edge of our seats for the upcoming 4 years.

Pierre