China's Victoria Secret

Today, I received an email from a friend of mine from Beijing, announcing his new online start-up La miu (www.lamiu.com) – a China’s Victoria Secret to be. This is at least the second “China’s Victoria Secret” I have heard among my circles of friends. The other one is Herbella (www.herbella.cn) in Shanghai. Who knows how many more are out there?

Photo credit: be Lamiu girl

The message is clear, though, that the consumer market in China is booming. According to a McKinsey report, currently, China’s overall consumer market ranks about equivalent size to Italy. By 2025, China will become the third-largest consumer economy in the world behind the U.S. and Japan (I haven’t worked on the numbers, but it’s hard to believe that China, with its population ten times of Japan, will still be a smaller consumer market than Japan?).

When I was traveling in China, I was totally overwhelmed by the number of consumer products in department stores. Poor Chinese consumers must have been bombarded by too many choices L.

Yiping Zhu, the founder and CEO of Herbella, told me that Chinese consumers didn’t have role models, therefore, were open to try new products and accept new brands. Although most of them didn’t care about brand, more and more people started to have brand awareness. “The challenge is that the Chinese consumer market is very fragmented,” he said, “top 10 brands in lingerie have less then 10 percent of the market share.”

My guess is that China’s consumer market will always be fragmented, at least in the foreseeable future because it’s such a big country with diverse consumers. It’s a challenge as well as an opportunity – there is room for many players. The real potential is in 2^nd and 3^rd tiers cities. Think about it: China already has 170 cities with more than one million people. By 2025, there will be 221 cities with one more than million inhabitants.

The good thing is that the middle class Chinese have started to pay attention to diet, fitness, and healthy lifestyle. When women start to buy fancy lingerie, they are not just buying sexy bras and underwear, they are also beginning to have a sense well-being and self-respect.

Chongqing

I arrived in Chongqing in the late afternoon of May 12^th, without knowing about the devastating earthquake in Wenchuan, which is about 200 miles northwest of Chongqing. The taxi driver told me that even people in Beijing and Shanghai felt the quake. I knew the situation was pretty severe.

There were many aftershocks. To be cautious, I changed my hotel room from 22^nd floor to the 10^th floor. In the middle of the night, I felt my bed was shaking and people in the hallway were yelling and running. I guess I must have been too tired, I thought I was dreaming and fell back to sleep.

Things started getting back to normal in a couple of days. Chongqing is a city that grows on me. When I first arrived, I thought Chongqing was too crowded, with ugly buildings densely standing next to one another. But after a few days, I started to like it.

Chongqing is also known as a "foggy city." Although there is no blue sky, the air was not full of smog like other cities in China. All the taxis and buses were fueled by natural gas. Chongqing is China's largest production base of natural gas, which can supply Chongqing alone for about 300 years.

Chongqing is also one of the fastest growing cities in China. In a single day new construction can add approximately 137,000 square meters of usable floor space to satisfy demands for residential and commercial space. Everywhere I went, I saw high-rises that go on and on and on…. yet there are more buildings under construction.

Geographically, Chongqing is like Manhattan – a peninsula embraced by two rivers. The night before I left Chongqing, I went to Chao Tian Men, where the Yangtze river is joined by the Jialing river. The lights on both sides of the banks were shining spectacularly. People were dancing in the parks and squares. Women were beautiful, wearing Calvin Klein, Max Mara and other name brands.

Pretty soon, Chongqing will be another Shanghai!

I saw the Olympic torch relay in Guangzhou!

I was so disappointed by not seeing the Olympic torch relay in San Francisco. Guess what? I saw it today in Guangzhou! And I couldn’t believe my luck – it ran through the street right in front of my hotel!

Thousands of people were gathering along the Liu Hua Road in the morning, waiting to see the torch relay. Contrasting to the tension between protesters and supporters in San Francisco, people in Guangzou enthusiastically welcomed the torch arrival. The banner says: "One World, One Dream."

Exactly at 1:30 pm, the torch runner, holding the "sacred fire" and waving to the people on both sides of the street, was running proudly in front of where I was standing. People were cheering: “China, go on!” “Olympic, go on!” Some people even climbed onto the tree in order to see the torch.

I was glad that people in Guangzhou were not disappointed, and I was grateful that I was given the second chance to see the Olympic torch!

Our capacity for acting on our hope

I had a conversation with Rob Watson, a leader in green building movement and founding father of LEED – a certification program and benchmark for designing and constructing green buildings. For the past decade, Rob has been instrumental in developing China’s green building standards.

With its unprecedented urbanization and a growing middle class, China is adding a New York City every two years. The question on everyone’s mind is where all the resources will come from and whether China can sustain its growth.

photo credit: eco-tech international

Rob seemed concerned. Human should abide by the law of nature, he said. A large middle class in China could reap huge benefits for the world economy, but also could cause potential disasters. “The middle class consumes ten times more than peasants,” he said. “Even if 20 percent of the people become middle class, it means adding another United States.” He was worried that at some point China may have an economic heart attack.

Rob’s concerns are certainly valid. But I am a glass-half-full kind of person. I believe that it is precisely these challenges that put China in the frontier of green innovation and technology.

China has committed to invest $265 billion in renewable energy by 2020. Rob told me that China is leading in solar thermal technology, and catching up in wind. A report by The Worldwatch Institute indicated that if China can scale up the renewable energy technologies for its domestic market, the same technologies will be adopted at affordable prices on a massive scale around globe.

China has the world’s toughest problem, as Rob said. No one has the right to deny hundreds of millions people to pursue “the Chinese dream” and have a better life. I agree with Rob that China should not copy Western style of development that resulted in severe environmental consequences. China has an opportunity to walk a different path.

William McDonough, the renowned architect and author of “Cradle to Cradle,” has designed buildings that produce more energy than they consume. He envisions a world of abundance where eco-friendly design can prevent environmental disaster and drive economic growth at the same time.

“Bill is an amazing thinker and visionary,” Rob said. “Conceptually, he is right. But in reality, the model hasn’t proved to be scalable.”

photo credit: eco-tech international

But I remain hopeful. What if the "Cradle to Cradle" model becomes scalable? If we can go to the moon, why can’t we clean up our mess on the earth and re-make a world “based on nature’s interdependence cycles” that sustainability and prosperity go hand-in-hand?

I would like to end this post with William McDonough’s words: “One of the wonders of human nature is our ability to hope…. Still more human, perhaps, is our capacity for acting on our hope.”

China’s Urban Billion

A recent McKinsey Global Institute report “Preparing for China’s Urban Billion” says that the country’s unprecedented urbanization will continue over the next 20 years, and by 2030 China's urban population will reach 1 billion. Here are some numbers that are indeed mind-bogging:

- By 2025, China will have 221 cities with more than one million inhabitants – compared with 35 in Europe today.

- China’ urban population will expand from 572 million in 2005 to 926 million in 2025. Over 350 million people will move from rural areas to the cities – more than the population of the Unite States.

- By 2025, China could have 15 super-cities with average populations of 25 million people. 41 percent of China’s higher income middle class will live in Beijing, Shanghai, Tianjin, Wuhan, Chongqing, Chengdu, Guangzhou and Shenzhen.

- China will build almost 40 billion square meters of floor space over the next 20 years, requiring construction of 50,000 new skyscrapers – the equivalent of ten New York Cities.

- Up to 170 cities could meet planning criteria for mass-transit systems by 2025, more than twice the current number in Europe. This could promise to be the greatest boom in mass-transit construction in history.

The report also says that China’s urban economy will generate 90 percent of its GDP by 2025. Urban China will become a dominant global market with its aggregate consumption almost twice, and disposable income over two times, those of Germany.

Businesses have not only an opportunity to leverage China’s booming middle class and a stratum of affluent consumers, but also to become major investors – in road and rail, public-transits, the energy-supply infrastructure, and energy efficiency technologies.

Thoughts on Recent Events of the Olympic Torch

Like thousands of people who went to see the Olympic torch relay in San Francisco, I was deeply disappointed by not seeing a single flame. Later, I watched the videos of the live reports on Youtube. My heart sank to the bottom. I have never seen anything like this: the Olympic torch – a symbol of world peace – was heavily guarded by three walls of police and security.

The first wall was the “blue guys” – the Chinese “torch body guards,” the second wall was police motorcyclists, and the third wall was fully armed policemen. Since when has the Olympic torch to be protected by an army troop? To me, the torch run has completely lost its meaning, and it was a bigger embarrassment than what had happened in Paris.

I understand the protesters have the right to protest and they were trying to make their point. But such protests can hardly get their point across and may even just do the opposite. Although they made it clear that they were not protesting against the Chinese people but the government, the Chinese people were angry and rallied behind their government more than ever.

Unlike Americans who separate themselves from the government, Chinese still see the government as their representation, or their collective “face,” especially on the international stage. When the government was humiliated, they felt they were losing face, therefore, humiliated; when the government was criticized, they took it personally and believed they were attacked.

It seems today Chinese are angrier toward foreigners than their government. It's not surprising that many young people were calling for a boycott of Carrefour – a popular French supermarket chain in China. The strong sentiment of nationalism is troublesome. The irony is that although Chinese are vocal against foreign media’s biased reports, they are mute on the government’s news censorship, which contributed to the problem in the first place.

A young entrepreneur, who owns an interior design firm in Beijing, once told me: “We know our problems, but it’s not up to Westerners to point the finger at us.” He said he couldn’t care less about politics – or democracy for that matter, as he had all the freedom to do anything he wanted.

Early this year, a top think-tank in Beijing released a “political reform plan,” which laid out the detailed blueprints for building a “modern civil society,” and eventually “mature democracy and rule of law.” I haven’t read the report, but according to a Reuters article, the report indicated that “freedom of the press is an inevitable trend” and current political system is incompatible with the economic growth. It mapped out three phases of reform in the next 12 years, including human rights, religious freedom, and restriction of the communist party’s power.

It seems that China is moving toward the right direction. The most important thing is that the world cannot afford to have a “closed China” and go back to the Cold War. Economically, America and China are too inter-connected and inter-dependent. America has a lot of influence on China in many areas, but not by bullying (which I believe is one of the reasons for the strong nationalism among the Chinese youth), but by engaging and leading by example.

The Olympics, which was supposed to be a great opportunity to show the world what China has achieved, is turning out to be a great challenge to China’s leaders. It would be interesting to see how events unfold in the next few months.

What do you want from us?

This is a hilarious summary of the confused minds of the Western world..., so confused that even the Chinese people get confused (from China Herald).

What do you want from us?

When we were called "sick man of Asia”, we were called peril.
When we billed to be the next superpower, we're called the threat

When we closed our doors, you smuggled drugs to open markets.
when we embrace free trade, you blame us for taking away your jobs.

when we're falling apart, you marched in your troops and wanted your fair share.
when we're putting the broken pieces together, “Free Tibet” you screamed! “it was invasion.”

So we tried communism, you hated us for being communist.
So we embraced capitalism, you hate us for being capitalist,

Then we have a billion people, you said we're destroying the planet.
Then we limit our numbers, you said it was human rights abuses.

When we were poor, you think we're dogs,
When we loan you cash, you blamed us for your debts.

When we build our industries, you called us polluters.
When we sell you goods, you blamed us for global warming,
When we buy oil, you called that exploitation and genocide.

When we were lost in chaos and rampage, you wanted rule s of laws for us.
When we uphold law and order against violence, you called that violation of human rights.

When we were silent, you said you want us to have free speech.
When we were silent no more, you say we were brainwashed.

Why do you hate us so much? We asked. “No”. You answered, “we don't hate you”.
We don't hate you either Bud, do you understand us?? “of course we do”, you said, “We have CNN, BBC, and CBC”.

But why, we still feel, your western people are not happy with us.

What do you really want from us??

My friend, What do you really want from us??

The Olympic Torch Relay in San Francisco

More than ten thousand people showed up to support the San Francisco Olympic torch relay yesterday. They never got to see the torch as it took a different route in the last minute for security reasons. But here are some photos:

Chinese students from Stanford, Berkeley and many other colleges in the Bay Area were gathering in front of AT&T park, where the opening ceremony was supposed to happen.

Some were singing the patriotic Chinese national song: “Arise, for the people who do not want to be slaves, let our blood and flesh be a new Great Wall. The Chinese Nation has arrived to a critical point, we are roaring out our cry as a last resort. Arise, arise, we are united as one heart, we are facing enemy’s fire, forward, forward, forward!”

There were many emotionally-charged and intense debates….. Fortunately, the demonstrations and debates were mostly peaceful and there was no violence.

Here is a photo you will probably never see in the media. The banner says: "Say NO to U.S. CIA campaign against China."

A Tibetan protester put a “Free Tibet” banner on Ferry Building at Justin Herman Plaza - the original ending point of the torch run. But the banner was torn down later by the supporters, who substantially outnumbered protesters.

Some people were having peaceful discussions and learning to see from each other’s point of view.

Mostly, people who had taken a day off from their work and waited the whole day to welcome the Olympic torch and celebrate this joyful event were disappointed as the torch never arrived.

An Old China Made Young

While the US economy is stumbling into recession, China’s retail spending, fueled by a burgeoning middle class, is on the rise. In 2007, China saw a 17 percent growth in its retail market, and there is no sign of slowing down.

According to a BusienssWeek article by Shaun Rein, much of this growth is coming from the young consumers. He wrote:

My firm, the China Market Research Group (CMR), conducted in-depth interviews with 500 Chinese between the ages of 22 and 32 in 10 cities to gauge whether fears of a global slowdown would influence their shopping habits. The answer was a resounding no. A full 90% of interviewees said they expected to "spend considerably more" in 2008 than they did in 2007, and the vast majority was "very optimistic" about salary potential in the next two years, with the majority expecting salary increases of 10% to 25% in next year.

This group of people, born in late 1970s to 1980s, grew up in an increasing prosperous China. They are wildly optimistic about the country’s future. Unlike their parents’ generation, they are not interested in saving. Many of them use credit cards and spend their future money – because of their confidence in the economy.

I was really intrigued when a 24-year-old young woman, who was making a monthly salary of 4,800 yuan ($700), told me that she planned to spend her 2007 Christmas in Paris, and play golf in Bali! I wonder how many of these are what she really wants and how many of these she wants because they are "cool." But one thing is for sure: not only have these young consumers become the core market for multinationals, they have also made a centuries-old China young.

Oral History of China’s Legal Reform

In writing my book on the middle class in China, I am trying to understand China’s legal reform and its implications. Xu Zhen-Xiao, who has a law degree from Xiamen University and is a senior researcher at the Zhejiang Academy of Social Science, gave me a brief history of China’s legal reform.

(Photo credit: The New York Times)

In 1979, China restored the legal system that was abolished during the Cultural Revolution. At that time, there were very few people engaged in the legal profession – most of them were retired academies around sixty years old. Think about it, a new generation lawyers were still in their sophomore year in college. I remember there were less than 200 students who studied law in 1979. They are considered the first generation of lawyers in China.

The second generation lawyers were those who graduated from law schools before 1988. All the lawyers at that time worked for the government bureaus and state-owned legal institutes, and they were considered the government cadres. The government assigned them jobs and paid their salaries.

In 1988, China had the first bar exam for lawyers. It was a very difficult and demanding exam. Only 7 out of a thousand people passed the exam. I was among the first few people who passed the bar exam.

In 1990, China started to reform its legal system. Private law firms were allowed to coexist with the state legal institutes. People could go to the private law firms to file lawsuits. But the problem was that state legal institutes had been around for a long time and they had their clients such as state-owned enterprises. So, the private law firms were really disadvantaged.

After 1993, the private law firms started to increase very fast. You know, it was after Deng Xiao Ping’s south trip. These people were the third generation lawyers. Some people started to speak up.

In 1996, the government decided to separate the state from the law practice, and all the legal institutes became private. It changed the nature of the law profession. The duty of lawyers was now to serve the society, not the government. Many legal practices were changed during this period of time.

Since 1999, the businesses of private law firms really tookoff. These are the fourth generation lawyers in China. The Chinese lawyers charge a very low rate, such as 200 yuan per hour, compared with US lawyers who charge $600 per hour. In many cases, the pay was not based on hours, but a fixed fee. The Chinese legal system is more like European legal systems, and more close to Japan’s too.

(Photo credit: The New York Times)

Now, the government has no role in the law practice. If the government violates people’s rights, people can sue the government. If the government wants to convict somebody, say issue a fine or revoke a business license, it needs to go through public hearings.

China has jurors in court. They make final decisions with the judge. Usually it is one judge and two jurors, and they vote to decide whether the defendant is guilty. The Chinese jurors are also involved with deciding the terms the convicted should serve, etc. They have more duties than American jury.

(To be continued and more information in my upcoming book.)

More on Demystify China's Middle Class

Since my last post about the definition of the Chinese middle class was considered "all too simple," I dug out a comprehensive study: Emergence of the Chinese middle class and its implications. It’s a well-researched and well-documented research paper by He Li. The paper approaches the definition of the Chinese middle class from different angles such as lifestyle, income classification, occupation, and self-perception, and here is what it says:

Economists and sociologists have defined what they believe will compose the Chinese “middle class” of the future. They suggest that five categories of people will represent the middle class: scientific development entrepreneurs, Chinese managerial staff working in foreign firms in China, middle level managerial staff in state-owned financial intuitions, professional technicians in various fields, especially in intermediary firms, and some self-employed private entrepreneurs.

(If you don’t know what “scientific development entrepreneurs” means, me either, but I guess it probably means “entrepreneurs in high-tech industry”).

Two young women in front of a Starbucks in Hangzhou

For those who are interested, the paper has an in-depth analysis and discussion about the political implications of the Chinese middle class. Although it still comes to a “wishy-washy” conclusion, it provides great insights on Chinese society and gives a real sense of what is happening in China. Despite the clumsiness in language, it is one of the best research papers I have read on the subject.

There are many implications on the middle class in China, democracy being just one of them. The debates that over-emphasize the political implications are missing the point, because I believe China will come to democracy – in its own time and on its own terms. It may or may not even depend on the middle class, as the paper suggests.

The showroom of an interior designer for Chinese homes

And there are many fascinating aspects of the Chinese middle class that the world needs to understand; in addition to all the implications for business, there are environmental issues that could endanger the humanity’s common future; there are things that the world may want to learn from China, as China is learning from the world, and there are ties that bind us stronger than we realize, because at the end of the day we see that we share the same dreams!

That is my interest in taking on this project, and that is what my book on the Chinese middle class is all about.

Demystify China’s Middle Class

People often ask me about the definition of the Chinese middle class. To me, it’s simple: the middle class are people who are not poor or rich, who have disposable incomes to consume, and who can follow their own dreams and pursue their own futures.

Yet there are many debates about the Chinese middle class. Some said China has only the new rich and the very poor; others argued that the middle class is an American concept and it doesn’t apply to China.

To make things simple, here is a definition from China’s National Bureau of Statistics: the households with an annual income ranging from 60,000 yuan ($7,250) to 500,000 yuan ($62,500) should be categorized as middle class.

A research team led by Professor Zhou Xiaohong in Nanjing University further defined the occupation of the middle class to be: professionals in management and technology, civil servants, and entrepreneurs, with college or above education.

If the “middle class” is an American concept, the Chinese are adopting it. With these two definitions, I believe the picture should be clearer about what the Chinese middle class would look like. They are consistent with my research and interviews with people in China.

I have to point out that there is even confusion about the term “middle class.” In an article “Myth of China’s new middle class,” the author argued the middle class in the West was evolved from bourgeoisie during the industrialization and “became more complex, producing managerial and professional classes,” and China's "new rich categories of entrepreneurs are quite unlike the 19th-century European bourgeoisie in the extent to which they have emerged from and retain close relationships with the established political system.”

I don’t understand why the “new rich” has anything to do with the “new middle class” here. To make things more complicated, people in China actually consider “bourgeoisie” (小资) to be lower than the middle class (中产). Furthermore, to separate the government from people is also a “Western way of thinking.” Notice the occupations of the Chinese middle class include “civil servants,” – that means “the government officials.”

The Chinese middle class will not be the same as the Western middle class. How are they different? What impact will they have? These are the “myths” my book is going to unveil. Please stay tuned.

2008: The Year of China

On my way back from a family event in Chicago on January 2^nd, I was drawn to the magazine rack in a convenient store in O’Hara airport. Among the stacked magazines, the following cover stories caught my attention:

What’s Next: China (Newsweek)

Can the world survive China’s rush to emulate the American way of life?(Mother Jones)

The Newsweek article is particularly interesting, as it provides a balanced view on China (although some insecurity and hostility are still inevitable). Here are some startling statistics cited by Fareed Zakaria for what’s happened to China in 2007:

- China contributed more to global growth than the United States – the first time another country had done so since the 1930s.

- China became the world’s largest consumer in basic food, energy and industrial commodities

- China surpassed the United States to become the world’s leading emitter of CO2.

And, there are two more things that happened in China in 2007, which Zakaria didn't quote but I think are phenomenal: 1) China had the biggest IPO (Alibaba's) that beat Google's; 2) Shanghai Stock Exchange exceeded New York for the first time in terms of volumes.

Zakaria believes China as a global power is no longer a forecast but a reality. This is a powerful statement, and it also sounds alarming. Think about it, for over half a century, no other country has shared the “superpower” title with the United States. No wonder someone in my writing class at Stanford said to me, “I hope China won’t come over and invade us.”

Unfortunately, there are a lot of fears about China, but not much understanding. I do believe that China is moving toward the right direction. Although it has strong momentum, the situation there is much more complicated than the statistics suggest. Using Zakaria’s own words, China “is unique as a world power, the first in modern history to be at once rich (in aggregate terms) and poor (in per capita terms).

But most importantly, I think China and the United States have a lot to learn from each other, and they can work together to benefit the world as a whole. I strongly endorse Michael Bloomberg’s article “A Race We Can All Win,” in which he wrote:

“Based on my 35 years of experience in the private sector, and six years running the nation’s largest city, I believe that China is not a threat to America, but an opportunity. An incredible opportunity. …. Just as a growing American economy is good for China, a growing Chinese economy is good for America. That means we have a stake in working together to solve common problems, rather than trying to bowbeat or intimidate the other into action.”

The real fear is the United States to slow down, not China to speed up. A competitive China should compete America to the top, not to the bottom. That means we cannot be complacent, and we cannot take for granted what we have!

Chinese Tourists and Cars Abroad

When I traveled abroad ten or fifteen years ago, I hardly met any Chinese who were traveling as a tourist. Wherever I went, people would point to me and say: “Japanese! Japanese!”

Things are very different now. I have met many Chinese tourists in Egypt during my short stay in Cairo and Luxor. Our tour guide Ali told me, in the last two years, the number of Chinese travelers exploded. The Chinese tourists have become the second largest tourist group in Egypt, with approximately 400,000 to 500,000 people each year (Russia is the No. 1 with about 1 million tourists in Egypt last year). And this is just the beginning. As the affluent Chinese middle class grows, more and more people can afford to travel abroad. Now, wherever I go, people would greet me: “Ni Hao!”

Another interesting thing is that Chinese cars are becoming more and more popular in Egypt. According to an Egyptian newspaper, “20 Chinese auto companies have sold their vehicles in the Egyptian market since 2003.” Compared with the Western auto makers, Chinese cars have relatively lower prices, but also good quality. I have seen the tour buses made in China and labeled “Yutong” (宇通) running all over the tourist attraction spots in Cairo. I was also told that a Chinese-run travel agency “Solar Empire” (太阳帝国) is gaining popularity in Egypt.

We visited the famous Khan al Kahlili in Cairo – the biggest bazaar (marketplace) in the Middle East. It sells souvenirs, jewelries, textiles, gold, silver, and many other things. Ali told me that all the souvenirs, scarves and shawls are made in China. But the Egyptian dealers changed labels to “Made in Egypt” to attract the tourists.

In addition to all the merchandises made in China, Chinese tourists and Chinese cars are the first signs I have witnessed of China’s rising presence in the world.

Two Trends on Chinese Consumers

A recent McKinsey report “How half the world shops: Apparel in Brazil, China, and India” reveals some interesting patterns of consumer spending in these countries. Two things stand out for me on the Chinese consumers. I thought I would comment briefly here as the Chinese consumers are related to my upcoming book on the Chinese middle class:

First, the Chinese mass market consumers (defined as annual household income from $3,000 to $12,000) have relatively small, undifferentiated wardrobes – 40 percent of the Chinese women reportedly wear similar clothing at work, formal social occasions, and dates with friends or family.

This photo was taken at Vienna Cafe in Shanghai. The picture on the wall is Chairman Mao and his famous motto "Serve the People."

I did notice, even in Shanghai, people are less sensitive as to what to wear for different occasions. For example, I met a girl friend, who was wearing a beautiful dress, for coffee on a Saturday afternoon. She used to be a marketing professional in a multinational and is now running her own PR firm. But the next day when I met her again in a totally different situation, I was surprised to see that she was still wearing the exact same dress as she wore the day before. However, as China continues opening up to the world, I would expect people will become more sophisticated in this area.

Another thing is that China’s urban youth (18 to 25 years old) is dramatically different from other consumer segments (see my previous post on China’s cyber-savvy and pragmatic youth). They favor international brands and are much more open to try on foreign products compared with the youth in other countries. This segment currently comprises about 15 million people.

This photo was taken in the Plaza 66 - the luxury mall in Shanghai

When I visited the Plaza 66 – the luxury mall in Shanghai, I was perplexed to see that most consumers in the mall were young people in their early twenties. I really wondered how on earth they could afford to buy Fendis and Luis Vuittons and where they got the money. My friend Shaun Rein, who studies the youth culture in China, explained: “It was the secretaries who are making 3,000 yuan a month who buy these luxury goods.” Well, if so, it’s hard to imagine this kind of consumption will sustain.

Stronger China Helps Balance the World Economy

According to a recent The Economist article, this year, for the first time, China is contributing more to global GDP growth (measured at market exchange rates) than the United States. China and other emerging economies have become powerful new engines to balance the world economy when America is facing a risk of recession.

When I was traveling in China, I could see there is a lot of optimism and confidence in people everywhere about China’s future. Although they are worried about their children's education, social security, etc. in general, people believe China is going to get better. Even the economists don’t see many threats to cause China’s economy to collapse in the near future.

Interestingly enough, as the article indicates, “China is one of the few parts of the world without a housing bubble.” Although housing prices have increased several fold, the article says, “the ratio of house prices to average income has fallen by 25% in China since 1999.” This explains why some people I interviewed own more than one apartment, and some still want to buy more.

Here is another picture of a Chinese middle class family:

The article also discusses the other myths about China such as export-led growth and increased labor cost. There are indications that a growing middle class is driving domestic consumption, in spite of their high savings; and labor productivity has increased faster than the rise of average wages.

This is a photo of the neighborhood of my parents' home. Five years ago, it was packed with bicycles. But now, it's parked with cars.

The article goes on to say that China’s long term prospects are strong because its economic success has been based on high savings, openness to trade, good education and strong productivity. “As China has grown, it has come to matter much more to the rest of the world.” China is now a force for stabilizing the world economy and it’s good for the world.

A Growing Middle Class in China

Someone forwarded me an article "China's Illusory Middle Class Market" by BusinessWeek a while ago, questioning whether there is middle class in China and if it changes anything at all.

I have just returned from China, interviewing people for my upcoming book on the emerging middle class in China. Clearly, no doubt that there is a growing middle class in China, mostly in coastal urban areas at this time. I have talked to many people - almost all of them own homes, and a lot of them have cars.


This is a picture of the home of a typical middle class family in Hangzhou, a second tier city southwest of Shanghai.

My current experience tells me that the Goldman Sachs report that the Chinese middle class will reach 650 million by 2015 is not too optimistic. At least I know the statement cited in the article that "many Chinese may purchase virtually nothing else for years before buying a car" is not true.



In reality, a lot of wealth was created in individual hands in just these few years. I visited IKEA and local department stores – they are literally fully fully packed! My sister bought two pairs of shoes while visiting a department store with me, and my mother said she just bought four pairs of shoes a few weeks ago!

I would say, taking into consideration purchasing power parity, the middle class people I met there have more or less the same level of affluence of average people here in the Bay Area.

Choking on Growth? - Another Side of Stories

The New York Times ran a series of articles “Choking on Growth,” citing many severe environmental damages that accompanied China’s unparalleled growth.

One of the more startling problems is a shortage of water in northern China. Almost five-sixths of the wetlands in the North China Plain have dried up, and the area, where more than 200 million people reside, may be drained within 30 years.

The issues discussed in the article are true, but the tone is arrogant. Usually, there is another side of stories that is not told:

Five thousand years ago, one of the first emperors, Yu, fought to control the flood from Yellow River in the North China Plain. “大禹治水” (Honorable Yu Overhauls Water) is a story that can be cited by every child in China. Thousands of years later, Chinese are still fighting the same problem.

In 2002, China started a gigantic project called “南水北调” (South-to-North Water Transfer Project). Chinese compare this project to the Hoover Dam in the United States, but on a much bigger scale. It's a network of canals that brings water from flood zone of southern China to the North.

Another proposed solution is rapid urbanization, which is already under way. As radical as it may sound, scientists say “converting farmland into urban area would save enough water” because “wide spreading farming still uses more water than urban areas.”

As the article also points out, “Britain, the United States and Japan polluted their way to prosperity and worried about environmental damage only after their economies matured and their urban middle classes demanded blue skies and safe drinking waters.”

Indeed, Chinese look at Americans as their role models. They want to own homes, drive SUVs, and travel around the world. "Typically, industrial countries deal with green problems when they are rich," said Ren Yong, a climate expert in Beijing. “We have to deal with them while we are still poor. There is no model for us to follow.” – With this attitude, there is hope for resolution.

Beijing Snapshots

Beijing is notorious for its severe air pollution. This photo was taken in August from my hotel at the Second Ring and Jianguomen Ave. Unfortunately, it looks like this every day!


Beijing has over 3 million cars. Among them, more than 2 million are privately-owned passenger cars. Divided by household number (based on hukou), it means every household in Beijing has a car. In preparing for the 2008 Olympics, Beijing exercised an "only-half-of-cars-running" policy as an experiment. From Aug. 17th to 20th, only odd- or even-numbered cars, based on license plate number, can drive on streets. That means the traffic was reduced by at least one million cars during those four days. But I didn't see much improvement in the air quality.

There is a "hidden paradise" in the outskirts of Beijing called "The Orchard," located just outside of the Fifth Ring near Airport Road.


Essentially, it's a restaurant in the midst of an orchard farm, offering the best Italian food you can ever find. Its Chinese-meets-Tuscany styled interior gives a sense of exoticness. Although far away from the city, the water in the pond still looks pretty mucky. This secret garden is developed by a couple (the wife is an American). In addition to the restaurant, the couple makes furniture and clothes. The taxi driver told me they are making hundreds of millions every year!

A Wake-up Call: China Passing Us By

An article by Knowledge @ Wharton cited David G. Marshall, a real estate guru and CEO of Amerimar Realty, about his experience of visiting China recently:

"In the last 10 years, not the last 22 years, Shanghai has built 2,000 high-rise buildings between 20 and 108 stories high -- one more spectacular than the next. We stayed on the fifty-ninth floor of the JW Marriott, which was the headquarters for our Wharton Fellows Conference. You can look in four directions as far as the eye can see and you see nothing but spectacular high-rises. At night it looks like Las Vegas: All the buildings are lit up, they look like rocket ships going off. It looks like the Fourth of July. It is absolutely incredible what they have accomplished.

And we, on the other hand, are arguing over Sarbanes-Oxley, stem cell research, an archaic tax code, social security and health care -- and I could go on and on. They're all very important issues, but we are paralyzed by these issues and we are not growing. It is reminiscent to me of what probably took place with Great Britain not watching the United States -- when the United States went flying by Great Britain. [China is] going to go flying by us and we're going to wake up one day and say, "Oh my God, look what we missed." That was my take away from China."

I think Mr. Marshall's observation and his sense of urgency are very valid. China is growing at a breathtaking speed. Things change in a matter of days. Yet people here are still rumbling about "human rights," "Internet censorship," "intellectual property," when it comes to China. It's not that these issues are not important, they are just so out of sync with the reality of China these days; or at minimum, they account for a small percentage of what's going on there. As Mr. Marshall said: "Their goals are to get one billion, 300-500 million people educated, clothed, housed and fed. Intellectual property rights are not on their radar screen and [won't] be."

I also think Mr. Marshall's comments are brilliant: "We're trying to play a basketball game with a basketball, and they're trying to play a basketball game with a football. It's a different set of rules. We better realize that it's a different set of rules and that they're not going to play by our set of rules."

It is a wake-up call for Americans, as Marshall further pointed out: "I think that it's very naïve for us to have our congressmen arguing about how we're going to punish China for not letting the Yuan float; and how we're going to punish China for intellectual property rights. When [China is] sitting there with $1.3 trillion of our Treasury bonds, you're not going to punish anybody." Perhaps America has been in dominance in the world for too long. I hope Americans won't learn the British lessons the hard way.

Watch "Tank Man"

An incredible documentary about the legendary tank man and surrounding events of the Tiananmen Square protests in 1989.

One Car Policy?

Anyone who has visited China recently would complain about traffic in Beijing, Shanghai and other major cities – it’s unbearable, so is pollution. A growing middle class increasingly owns cars. The number of car owners in China is rising by 10 million a year. Last year, China overtook Japan to become the world's second-largest auto market.

China’s rapidly increasing demand for energy causes tremendous environmental concerns such as severe pollution and global warming. According to the International Energy Agency, China’s greenhouse gas emissions, although far lower than America’s when measured per person, are growing fast and are predicted to surpass America’s this year.

It sounds worrisome. But there are signs of hope. A recent The Economist article says China has tougher standards for fuel efficiency than America. “Its cars use 6.9 liters to travel 100 km compared with 9.8 liters in America. By next year the Chinese standard will rise to 6.5 liters – a level America will take a decade to reach under the most ambitious plans.” China is “the world’s fifth-biggest user of wind turbines, and the biggest consumer of the sort of solar panels used to heat water.”

The article went on saying that China’s success at curbing the growth in its populations – the so-called “one child policy” which is much criticized by the West – and reforestation also helped to reduce the emissions of carbon dioxide each year. Between 1990 to 2005, China’s energy intensity (the ratio of energy-consumption to economic output) fell by over 4 % a year.

Perhaps China will come up with a “one car policy,” which I am certain won’t be criticized by the West this time. But once country opened up and Chinese could see how people lived on the other side of the world, there is no turning back. Would it be fair to say that Chinese citizens are less entitled to live as lavish as American do?

The Property-owning Middle Class

Home is a very important concept for Chinese people. A growing Chinese middle class can increasingly own their own homes. According to some estimates, China's rates of home ownership are as high as 80% in the cities, - topping US homeownership rates of about 69%.

Before the reform, all property in China was nationalized and “collectively owned by the people.” Housing was distributed along with work. During the Cultural Revolution, property owners were persecuted. But now, owning a house in China is a badge of pride. As a new home owner said, "Owning my own home will give me a sense of belonging."

In the past two and half years, prices for housing have soared 40% in Beijing and 30% in Shanghai. A growing middle class with its wealth tied up in houses wants to pass these assets on to their only children. In March 2007, China’s lawmaking body, the National People’s Congress, passed a new law on property rights, which is mainly intended to reassure the country’s fast growing middle class that their assets are secure.

Private ownership of homes has profound implications for China’s political and economic systems. As Internet entrepreneur Ding, who is trying to create a Facebook.com for the Chinese middle class, said, "Chinese people used to be tied to their homes chosen by their work units. Now they are able to choose their communities, their neighborhoods. It's a fundamental change in their lives."

Ultimately, the Chinese middle class may fundamentally change China in ways we cannot foresee. It would be interesting to see how a property-owning middle class will influence government policies, how home owners will protect their rights, and to what degree it will lead to a more pluralistic society.

"Cautious Consumers" or "Expanding Middle Class"?

Not too long ago, BusinessWeek ran a story "Cautious Consumers" citing a family in Beijing with combined take-home income less than $800 a month that "hardly ever go to restaurants, a movie outing is a rare treat, and they have no plans to trade in their bicycles for a motorcycle or car." The article says most mainlanders "sock away tons of cash, close to 40% of their earnings every month" and only buy a product when it is heavily discounted.

This may be true for the older generation, since frugality is a tradition so deeply rooted in the Chinese culture. But if you look at the younger generation, their attitude may be very different. During the week-long holidays in May, sales of air conditioners, LCD TVs, clothing and jewelry escalated, as much as a 41% increase from last year.

According to official figures, retail sales in China grew at an annual rate of 15.5% in April, "beating forecasts and marking the fastest pace since 2006." The expanding Chinese middle class is the major engine behind the growth in sales. Government initiatives to encourage spending by lowering taxes, especially in rural areas, have also fueled sales.

"The figures reflect a wider move by China to shift the focus of its economic growth - which has been taking place at breakneck speed - away from exports and towards domestic spending instead." says BBC News.

Yet there is a debate on China's illusory middle class market. No wonder China is difficult for foreigners to understand. It is a country full of contradictions and extremes.

China Moving Away from Export-led Growth

The Nobel laureate in economics Joseph Stiglitz, who was a professor at Stanford during my Stanford years, says in his new article "World has much to learn from China's new economic model" that China is employing a "new economic model" to move away from export-led growth, which other East Asian countries have pursued. China recognizes that things worked in other countries may not be suitable to China's unique situation.

To move away from export-let growth, China needs to stimulate domestic consumption. "While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40 percent, struggles to get its people to consume more." The good news is, as professor Stiglitz notes, "There is a consciousness of environmental limits and the realization that the resource-intensive consumption patterns now accepted in the United States would be a disaster for China - and for the world."

The new model also requires China to create an independent innovation system. "Western technological innovation has focused too little on reducing the adverse environmental impact of growth, and too much on saving labor - something that China has in abundance." says professor Stiglitz. So, it makes sense for China to focus on technologies that use fewer resources, but can be used by the majority of people.

In the end, Stiglitz summarizes: "Too many people think of economics as a zero-sum game, and that China's success is coming at the expense of the rest of the world. .... But economics is really a positive-sum game. An increasingly prosperous China has not only expanded imports from other countries, but is also providing goods that have kept prices lower in the West, despite sharply higher oil prices in recent year."

To hear a Nobel laureate say this is really encouraging: "We should all hope that China's new economic model succeeds. If it does, all of us will have much to gain."

The Chinese Renaissance

Last year, China consumed 15% of the world’s energy, but only produced 5% of global gross domestic product. While a lot of people in the West are worried about China's insatiable hunger for energy and growing economic power, the vast majority of Chinese see their rise as nothing but a return to historical norms.

A recent The Economist article says that "between 1600 and the early 19th century, China accounted for between a quarter and a third of global output. At the time China's agriculture was more advanced than the West's, its cities bigger and more literate and its ruling classes more meritocratic." No wonder Chinese simply call what's happening now a "renaissance."

There are also concerns about China's trade surplus and undervalued currency. The article says: "In several respects that view is wrong. With a trade-to-GDP ratio of around 70% and a sea of foreign investment, China is one of the world's most open economies. Much of the growth in America's bilateral deficit with China reflects a shift in low-cost manufacturing from other parts of Asia to the Chinese mainland."

Then the article went on to say: "America's emphasis on exports misses the point about China's economic power. That power comes not so much from being a seller of things but increasingly from being a buyer, an investor and a provider of aid, in Asia and beyond. One Chinese diplomat put it thus: 'Imports: that's real diplomacy, because it means you're attractive to others. It means other countries need you, not that you need them.' This subtle understanding sets China in stark contrast to how Japan viewed the world during its post-war rise."

I think this is brilliant! Like a person, when a country starts to give rather than take, it will become really powerful. That's a new kind of power, and I would like to call it "The Chinese Renaissance."

Mobile Marketing to Reach Chinese Consumers

An interesting article by Time (Mar. 29th, 2007) says By 2010, 70 million Asians are expected to be watching videos and TV programs on handsets. Advertisers are looking for new ways to reach audiences. According to eMarketer, corporate spending on handset advertising is expected to soar to $13.9 billion by 2011.

In China, an merging middle class with a real purchasing power is the target of mobile advertisements. When BMW launched new models last year, it tried mobile-video ads, downloadable screen wall paper and ringtones. "The click-through rates were unbelievable," says the BMW marketing manager. Other multinationals that are pioneering in mobile phone marketing are McDonald's, Proctor & Gamble, etc.

Chinese consumers seem to be receptive to mobile marketing. According to a Shanghai-based mobile marketing firm, 9 out of 10 people open and read unsolicited text messages: "When Johnson & Johnson recently introduced a new contact-lens line in China, it sent an "m-coupon," good for free samples, to tens of thousands of young, urban women via text messages. Nearly 10% of recipients redeemed their coupons by showing the message to store clerks. That's a far higher response rate than the average 0.2% rate for e-mail ads."

The Speed of Trust

I have long been a fan of Stephen R. Covey for his famous books The 7 Habits of Highly Effective People and Principle Centered Leadership. Both are timeless classics, and I have kept them in a prominent location on my bookshelf along with my other favorite books.

When I was asked to write a book review for the newly released book The Speed of Trust by his son Stephen M.R. Covey, whom I mistakenly thought he was the father, I accepted immediately, partly because of my strong interest in the topic of leadership, and partly because of my curiosity: what else could be said after the “father’s masterwork?”

It turned out, reading The Speed of Trust tested my ability to trust. I was amazed at the author’s commending ability to make “trust,” a seemingly soft skill, something measurable and deliverable. In his 4 Cores of Credibility and the 13 Behaviors of Trust, Jr. Covey effectively lays out the detailed framework and roadmaps to develop “trusted” leaders and organizations that improve the bottom lines. He has made strong cases with his innovative terms “trust dividends” and “trust taxes.” The “trust tips” provided in the book to increase trust are practical and useful.

From a cross-cultural point of view, The Speed of Trust is an eye-opener as well as a challenge to the business communities in China where business is typically marked with low trust. As many Chinese business people are still focusing on short term gains rather than long term wins, the book could inspire the new generation of Chinese managers to develop their companies into world class enterprises. The caution here is that the cultural context and implications could be dramatically different, even though the fundamental principles are universal.

If there is one thing that I do not completely agree, it is the author’s claim that trust is “the one thing that changes everything.” I have heard similar things such as “love is the one thing that changes everything.” I believe these age-old virtues are all inter-related. For example, without honesty, there will be no trust; without compassion, there will be no understanding, etc. I see The Speed of Trust as a book anchoring one important virtue – trust to nurture other merits in our personal and professional lives, be it trustworthiness, honesty, respect, courage, loyalty, excellence, accountability, etc.

Nevertheless, the book is full of anecdotes and business cases that are interesting, reflective, and enjoyable to read. I was laughing to tears reading the story of his father accidentally leaving his mother on the freeway in the middle of night without realizing it, and moved to tears at his repeated effort to “right wrongs” for his abrupt behavior of dumping water on his nephew’s head at a basketball game.

Most importantly, the book makes me reflect on my life, my decisions, and how I can become a more trusted person – for that I am grateful. In addition, I see that Stephen M.R. Covey has worked very hard to outgrow his father’s shadow, which itself is very inspiring! After reading the book, I have to say: Stephen, you have succeeded and congratulations! I have placed your book side by side with your father’s on my bookshelf.

The Bay Area – China Connection

The Bay Area – China Connection, a forum hosted by Commonwealth Club of California, brought together industry leaders to review the Bay Area's historical and cultural ties to China, and discuss what we can do to deepen the connections. It is a conversation that is very timely and much needed.

The theme of the discussion focused on the United States and China as two anchors of the growth in the world economy, and how to leverage the assets from both sides. One interesting comment from the panelists is that the world map is out-of-date. The world today is no longer centered on the Atlantic, but the Pacific: “When you sit in Starbucks in Shanghai and hear young people talking about businesses and MBAs, you would wonder whether you are in the United States!”

Certainly, the Bay Area has distinctive advantages in technology, venture capital, and academics that no other place can match to help strengthen the ties between the United States and China. It's very encouraging to see that so many people are doing it!

A Country of Diverse Consumers

Earlier this year, a McKinsey report predicted that China will have 290 million middle class households by 2011 with annual income ranging approximately from $3000 to $5000. By all accounts, this prediction seems too conservative. A recent report by Boston Consulting Group and experts at Wharton says that China has already 25 to 30 million middle class households with annual income of $4300 to $8700.

While this causes much excitement in the business community, many difficulties remain for western companies that want to sell in China. On one hand, Chinese consumers are embracing new economic ideas and lifestyles, buying goods that have long been unavailable to them; on the other hand, they are part of a consumer culture and economic system that are very different from the West. Here are the key points from the BCG report and my comments:

Although China has 1.3 billion people, only 400 million are in urban areas. Coming from a culture that is extremely frugal, the middle class Chinese are both savers and spenders. There are people who are looking for value and a bargain price, and there are others who are seeking a premium branded product.

Some of the most popular products among the middle class are color televisions, mobile phones and personal computers. Interestingly enough, in big cities like Shanghai, diamond engagement rings are big sellers, even though the concept of Western-style engagement prior to marriage does not exist in China.

Chinese value education tremendously. Families with kids spend a disproportional part of their incomes on their children’s education. Chinese are also very status conscious. They are willing to spend much of their discretionary income on items that will help them rise in status, but won’t spend on anything their friends and neighbors cannot see. There is so called “consumptive anxiety” – the need for people to buy products so as “not to be left behind.”

Perhaps the biggest challenge for companies selling in China is navigating through its fragmented sales and distribution channels. Many distributors are state-owned. Local government officials, often on the boards of local companies, make it very difficult for companies from other provinces to do business in order to favor the products of home-grown companies. As one senior executive said, doing business in China is half business and half politics.

China is so big, with many diverse cultures and traditions. It’s almost impossible to generalize the market. For the next five years, most of the growth will be in smaller cities. The needs of these consumers are very different from those from big cities. It’s critical for companies to have a localized mindset and develop products that factor in the local tastes and appeal to the consumers in smaller cities.

China, emerging middle class, China business, emerging market, Chinese consumers

China's Cyber-Savvy and Pragmatic Youth

Chinese youth is an interesting, vibrant and cyber-savvy sector of Chinese demographics that is shaping the future of China.

Yesterday’s Seeking Alpha article says, eighty percent of Chinese youth in urban areas between the ages of 18 and 25 are active bloggers. That is approximately 50 million bloggers! They blog on a variety of topics, ranging from celebrities to sports to lifestyle. They discuss on topics such as what clothing to buy, what music to listen to, and what movies to watch.

These days, young people don’t care about political issues. They care about being cool and getting ahead. They are pragmatic, driven and extremely international-minded that set them apart from their parents.

Chinese youth also forms a major class of consumers. There are about 15 million undergraduate students in Chinese universities. They are increasingly keen on buying iPod music players, fashionable cosmetics and clothing, as well as other famous name-brand goods.

The number of Chinese college students is expected to grow to 30 million by 2010. These young adults are products of the controversial "one-child" policy. Chinese parents, wishing the best for their only child, are willing to foot every bill for their children during college years to ensure their success.

China, Chinese youth, emerging markets, bloggers, consumers

e-Commerce Momentum in China

In my previous posts, I talked about the challenges of e-commerce in China, and the competition between local Chinese e-commerce site Alibaba / TaoBao and global online auction site eBay China / EachNet. Six months later, the competitive landscape has changed dramatically. e-Commerce is clearly picking up momentum in China.

The latest China Internet Network Information Center (CNNIC) data revealed that TaoBao had a 67.3 percent share of China's customer-to-customer (C2C) market in terms of user numbers by the end of March, while eBay China had only 29.1 percent market share. The most popular transactions in China's C2C market were for clothes, cosmetics, computers, cell phones and home appliances.

According to Jack Ma, founder, chairman and CEO of Alibaba, that owns TaoBao which has now over 15 million users, the most critical factor for TaoBao being successful at C2C e-commerce in China is its payment system AliPay, the PayPal equivalent in China.

One of the key issues that hindered e-commerce in China in the past is the under-developed payment systems that resulted in the settlement risk – the risk of ensuring the goods are delivered and payments are made between buyers and sellers. AliPay, different from other payment systems in the market, solves this problem by escrowing cash until the goods are delivered. In a way, AliPay acts as a temporary bank between buyers and sellers. In the meantime, it increases the liquidity in the TaoBao marketplace. AliPay is a key driver of the company's success and e-commerce in China.

Ambitious Ma is also aiming to make Alibaba the No. 1 search engine in China, taking on Baidu and Google. He plans to take Alibaba IPO in the near future. His vision is to make his company one of the world's top three most powerful Internet companies and a Global Fortune 500 company a decade from now.

China business, Jack Ma, e-commerce, China Internet, Alibaba

China's Internet Users

According to some estimation, China has about 150 – 200 million Internet users, contradicting with the official number of 111 millions. That means China’s Internet users may have very well surpassed the United States (154 million). While this may be a shocking news to some people, it’s not shocking to me. Overtime, I have heard from many of my friends that official data is under-estimated and actual numbers are much higher.

However, what’s real shocking is the amount of time Chinese spent online. Chinese Internet users spend on average15.9 hours per week, while Yahoo!, with the largest user community in this country, can only get its users stick around less than one hour per week. That's 1.765 billion hours per week online in China, compared with 129 million hours per week online in the U.S.

So, what are Chinese doing by spending so much time online? Apparently, people log onto the Internet surfing the news, chatting with friends and families, etc. Although there is certain degree of censorship, the Internet is still a place where the media is relatively free. According to the CNNIC, 67.9% of online use in China is spent devouring news. By contrast, only 3% of Yahoo!'s U.S. traffic clicks over to news.

Another important fact is that there are 400 million cell phone users in China, and 80% of them have the mobile phones with the capacity connecting to the Internet. With the roll-out of 3G, there will be more mobile Internet access. I would expect China will lead the innovations in mobile search, which includes search for news, local business listings, entertainment, shopping, etc.

Update: eMarketer has more detailed analysis about China's Internet users with comparison of the data from several sources. However, I do believe the under-estimation of China's Internet users.

China, Internet, China business, emerging market, technology

Silicon Valley's VC China Race

In 2005, China-based domestic and foreign venture capital firms raised new funds of $4 billion, setting a new record for VC fundraising in China. In the past couple of years, Silicon Valley’s top-tier VCs are rushing into China like never before.

Realizing the importance of being close to the market, many VC firms are setting up China offices with impressive local partners. Doll Capital, joined by former Sina CEO Hurst Lin as a general partner, held a grand opening banquet early this year in Beijing to formally announce its entrance in China. Sequoia Capital has also set up a China office with a fund of $168 million, led by Fan Zhang, the former head of DFJ’s China team. Other firms including Bessemer and BlueRun have all officially set up China offices either in Beijing or Shanghai.

Some firms are adopting different strategies in entering the China market. For example, instead of having China offices, Accel and DFJ are partnering with seasoned China-focused VC firms such as IDG and TGF. Mayfield is supporting the new China-based fund GSR Ventures (金沙江), and NEA has collaborated with Northern Light (北极光), a fund started by Valley-bred successful Chinese entrepreneurs Feng Deng et al.

Even Kleiner Perkins, which has been cautious and conservative in investing in China, has added three partners with China business backgrounds (see my previous post), including a new partner Ying Lee who is the former Deputy General Manager of UTStarcom's IPTV's business unit. At his recent trip to China, John Doerr expressed serious investment interest in some deals.

It seems very crowded with VCs pouring into China. The opportunities, however, are growing even more rapidly than that, according to Zero2IPO, a Beijing-based venture research and consulting firm. The successful IPOs of Baidu and Focus Media have certainly set the expectation. Although there are still many pitfalls, the good news is that Chinese entrepreneurs are maturing and they are very savvy in terms of business model innovation. In comparison, the Silicon Valley entrepreneurs tend to more focus on technical innovation.

Silicon Valley, China business, venture capital, China, VC,

Internet and Democracy

Last week, there were many criticisms about Google, Yahoo!, Microsoft, and other technology companies’ submission to the Chinese government’s request to censor the information on the Internet. It has become a public concern that these companies are doing business there at the peril of human rights.

As a native Chinese, I completely understand these concerns and critics. However, I have to agree that the presence of American companies in China provides much greater benefit to the Chinese people. It will help democracy in the long run.

For a country that has three-thousand years of history in feudalism, democracy is a gradual and long term process. It won’t happen overnight. It’s a matter of changing people’s hearts and mindsets rather than changing the government and system.

Economic progress, technology advancement, and globalization are all part of this process. The State Department’s proposal to form a “Global Internet Freedom” task force to address censorship issues at the international level is one step closer toward that end.

I believe democracy in China as well as in other parts of the world is not only imminent, but also inevitable.

Internet, democracy, censorship, politics, China