My younger brother got married to his lovely girlfriend a couple months ago. Looks like the photos were so good that they’re getting linked around by others. Thus as they say from my old stomping ground: take a gander at these.
Congrats again hermano!
Send to KindleGot an email last night from an expat in China asking if there were any domestic BTC exchanges.
My response was that the largest one is BTCChina — but if you’re on the mainland you cannot access the site unless you have a VPN.
There are also a few Chinese-language BTC community sites, like Bitecoin and Bitcoin talk forum, but again you also need a VPN to access them.
A few news stories that I bumped into during the day:
Send to KindleBelow are a list of mostly business-related links from the past week (all about China). Thanks to Bobbie Wu and Sinocism for a few of them. The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleHad lunch with a couple of friends today and the topic turned to Bitcoins (BTC). If you’re unfamiliar with this digital currency in addition to the obligatory wiki entry, I recommend reading Are Bitcoins The Future? from Priceonomics.
If you are interested in actually mining for new BTC I would suggest holding off, unless you own a supercomputer connected to a solar powered grid. The reason why is that until recently it actually cost more in terms of electricity than you actually made in mining new coins. See Bitcoin Mining Update: Power Usage Costs Across the United States (this analysis was done in July 2011 so rates are different now.)
If you are looking to buy/sell BTC I recommend creating an account at Mt. Gox which is the biggest BTC exchange globally as well as Dwolla which makes it very easy to move money from you bank account into it and get BTC from exchanges like Mt. Gox. Once you have some BTC you need to move them into a wallet, one of the most popular is BlockChain.
And if you plan on drinking in NYC there is now a bar that accepts BTC.
Update: Meet the $2 Million Bitcoin Pizza from Hit & Run
Send to KindleBelow are a list of mostly business-related links from the past week (all about China). Thanks to Terrence and Sinocism for most of them. The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleWhile the number may have increased this past year, as of June 2012 there are around 70,000 American’s in the Middle Kingdom:
There are about seventy thousand Americans living in mainland China today, according to the Chinese and US governments. A lot of the Americans in China only stay for a few years, but then there are others — American ex-pats who’ve lived in China for a decade or more with no foreseeable plans to come home. Who are they? And how Chinese do they become? Evan Osnos has this story, which starts with an ex-pat named Kaiser Kuo. Evan is a staff writer at The New Yorker, where he writes the column Letter from China.
From Chicago Public Media’s This American Life
Send to KindleBelow are a list of mostly business-related links from the past two weeks (mostly about China). Thanks to Kevin C and Sinocism for most of them. The first half are from blocked sources, I can recommend a few VPNs if you need (that I do not have any financial stake in). The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleIn Chapter 5 and 17 I briefly mention that due to the current legal and financial system on the mainland there are very few financial alternatives and investment vehicles to park funds.
As a consequence, wealth management products (WMPs) such as trust companies are a new type of wealth management service that collectively amounts to more than $1 trillion and is considered to be an integral part of a “shadow” banking system (e.g. off-balance sheet transactions). According to Xiao Gang, chairman of Bank of China, there are 20,000 WMPs in circulation currently.
It should be pointed out that the term “shadow” has been hyped up and distorted by many analysts to mean the equivalent of “shady” and “fraudulent.” In economic terms, while there may be illicit or fraudulent activity taking place (e.g., money laundering), all the “shadow” activity technically forms part of the larger informal economy.
That is to say, given continued financial reforms, some of these 20,000 WMPs could eventually integrate and become part of the formal economy. While there may be any number of pyramid and Ponzi schemes in this segment, this is not to say that the entire $1 trillion under management will all collapse into nothingness (it could, but you cannot say it a priori).
How does it work?
I asked a Chinese friend, Kevin C, to briefly explain how he manages his assets in this alternative system. Here is his response:
I began my first “shadow” investment in the early part of December 2012. The “shadow” bank system offers different deposit terms ranging from 1 month to 6 months and sometimes up to12 months (which is the longest). Most companies originally offered interest rates from 17% per year last year, however this has been reduced to 13-14% per year now.
There are more than ten public companies operating this kind of private investment path and promote it via their websites. In order to open an account, you need to register a user ID and mobile number. In addition, you need a Chinese National ID Number, plus your personal bank account number which will be used to transfer money back to your account. In practice, I have placed 80% of my capital in the 1 month term,15% in a 3 month term and 5% for longer terms.
I try to choose the company carefully before make my own investment and of course there is no single website can guarantee 100% safety. However, if it doesn’t look like a short term business for those companies which I believe, as long as they offer a one month product, I think it will be relatively safe to me.
As far as trying to fund it through debt like credit cards, I looked into taking out a simple loan and found out that the monthly interest rate that I would owe actually outpaces what I would receive in return from one of these private investment plans. So I am actually using my own money to try this out. So far so good. And even though I still worry about the risk, as I said before, the one month term is the most attractive to me for this reason.
Again, I am not endorsing this service. In fact, it is really hard to see how this particular service can provide these high rate of returns in the long term and may in fact be powered solely through speculation and exuberance.
Perhaps these 10+ firms Kevin mentions do not even reinvest the capital into actual productive projects but merely recycle the money to other customers cashing out each month.
Or perhaps other customers do fund a lot of their investments through debt (e.g., borrowing to reinvest it into one of these 10 firms) and have a great deal to lose in the event one of the companies goes bankrupt. Either way, this was just an example to give you an idea of what the process is like.
For more on this topic see:
Send to KindleHave a really bad cold and temporarily lost my voice. Below are a list of mostly business-related links from the past two weeks (nearly all about China). Thanks to Mark Dreyer and Vincent S for a few of them. The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleThe anonymous manager I interviewed in the education chapter recently sent me an email to clarify a small error. She says:
Only one point I’d like to verify: “they could charge enormous tuition fees, upwards of 400,000 RMB [$64,000] a year primarily because there was and still is a large demand for authentic face-to-face experiences.” The price is not that high, should be around 100,000RMB for VIPs.
For those curious as to how you can modify a digital copy published at Amazon after it is live the answer is, you cannot (yet). If there is a 2nd edition I will be sure to include the change. Also an open offer: if you see any other errors or misrepresentations please drop me a note.
Send to KindleDespite several current issues facing some of China’s farmland (e.g., shrinking arable land, soil pollution, toxic water), a substantial amount of progress has been made in the past three decades of reform:
The trajectory of rising agricultural productivity was similar in post-Mao China. China’s population doubled, and its GDP rose 45-fold. While the amount of land harvested for corn in China also doubled, each acre produced 4.5 times more than it did in 1960. Ausubel and his colleagues calculate that rising Chinese corn productivity spared 120 million hectares (an area more than twice the size of Texas) that would otherwise have been plowed up. The United Nations’ Food and Agriculture Organization reports that Chinese forests expanded 30 percent between 1990 and 2010.
Via: Peak Farmland? See also: Ch 3 & 18
Send to KindleBelow are a list of mostly business-related links from the past two weeks (all about China). Thanks to Sarah M and Sinocism for a few of them. The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleAbout a week ago I mentioned a Shanghai geek/tech event called BarCamp. Unfortunately I was unable to attend, but a good friend of mine, Veli-Antti Ruismäki, was able to. Here are some of this thoughts he emailed me:
I attended the Shanghai BarCamp on March 23 at the Hult Business School. A day of exhilarating topics ranging from agile project management to decision theory and negotiating tactics to gamification and 3d-printing meant I walked out with a ton of new ideas and refreshed views on things. The event boasted 40+ topics so there was sure to be something for everyone. A must-go when they organize it again next fall. Maybe I’ll even present something myself next time.
Have you attended any similar events or expos on the mainland recently? Send me a message and share it with us.
Send to KindleBelow are a list of mostly business-related links from the past two weeks (all about China). Thanks to James T and Sinocism for most of them. The first half are from blocked sources, I can recommend a few VPNs if you need (that I do not have any financial stake in). The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleAccording to a new list of individuals with assets between $100,000 to $1 million, or high networth individuals (HNWI), Forbes estimates there are 10.26 million HNWI on the mainland; a number that will increase to 12 million by the end of the year. More details from SCMP:
More than a third of them were born in the 1970s and the top three industries they were involved in are finance, trade and manufacturing, its study said.
Three-quarters of respondents surveyed said they had no plan to emigrate, but the same percentage expressed a wish to send their children to study overseas. The United States was their first option.
For more about consumer behavior of this demographic segment, see Chapter 9 and 11.
Send to KindleBelow are a list of business-related links from this past week (mostly in terms of China). Thanks to Matt S and Sinocism for most of them. The number in (brackets) is the book chapter that more detailed information about the topic can be found.
Send to KindleBelow are 10 business-related stories regarding China from the past 10 days. Many thanks to the WSJ and Sinocism for providing some of them. Feel free to send me any you may come across as well.
Sotheby’s is working with Tefaf, the organizers of one of the largest annual European art fairs. See Chapter 11 for more about the art market.
All goods and services in the new zone will be sold tax free. Geared towards arts and entertainment and will be located next to Beijing’s Capital Airport. Sotheby’s is going to run the art zone and the whole thing will be modeled after Singapore’s Freeport facility. Supposed to be up and running in 2014. See Chapter 11 for more about the art market and Chapter 14 about pop culture and entertainment.
Several Italian brands including Prada and Gucci (among others) are playing catch-up in the largest luxury market. One interesting stat: Hermès, 50% of its sales come from China. Check out the linked video for how and why. See Chapter 11 for more about the luxury goods market.
There over a million millionaires (USD) and 2.7 million high-networth individuals (HNWI) in China and according to Hurun 85% of HNWI will send their children overseas. Where will these families live? Perhaps in style, in domiciles that are customized to cater to Chinese tastes. In Chapter 5, footnote 7 I noted that another area Chinese individuals and firms are now investing in is the US real estate and property market. According to a recent report, “[b]uyers from China also invested almost $2 billion in commercial property in 2011, or quadruple what they spent several years ago.” One of the recent deals was led by China’s Vanke (the largest real estate developer on the mainland) who agreed to a $620 million project in San Fransico in December 2012. See Chinese buyers lead foreign investment in US housing market from Fox News, China Vanke Arrives in U.S. from The Wall Street Journal and Lennar Said to Get $1.7 Billion San Francisco Loan from Bloomberg
Although sobering, this is a great story for those unfamiliar with the various sacrifices that parents and families will do to put their kids through higher education. And the labor market afterwards is hyper competitive (hence the reason why many families with the means, will send their kids overseas or cajole their kin to go to grad school). I have had about a dozen former students message me over the past couple weeks as they are about to graduate and are facing similar circumstances: a degree without any job prospects related to their field of study. See Chapter 9 for more about education and the labor market.
Another detailed story, with hard numbers, regarding the skillset mismatch of college graduates and labor market. According to one survey, 16.4% of new Chinese college graduates are currently unemployed versus a mere 4.2% who quit after elementary school. One of the reasons why is that those with elementary educations are willing to work in factories whereas many of the college graduates are looking for an iron rice bowl job (铁饭碗). Furthermore, for most college grads that do get jobs, they typically have to settle for wages that are actually lower than their counterparts who only attended elementary school. This of course presents an opportunity for new businesspeople to find educated workers to hire at rates significantly lower than their Western counterparts. See Chapter 9 for more about education and the labor market.
60% of the 194,029 Chinese students studying in the US pay for the education out-of-pocket, through private financing. And these education bills can reach up to $200,000 for a four-year education (there are over 100 colleges in the US where tuition/fees cost $50,000 a year). Yet the immediate return-on-investment in terms of salaries upon graduation is less than inspiring, although the article interviews several experts that argue that in the long run, it will payoff. See Chapter 9 for more about education and the labor market.
This is the same Caterpillar that got burned in a $586 million fraudulent acquisition (a subsidiary bought a Chinese firm that grossly overstated its assets). See Cat Scammed: How A U.S. Company Blew Half A Billion Dollars In China from Forbes and Caterpillar Still Investigating Chinese Accounting Discrepancy from Bloomberg. Keep in mind however, that by 2020 China’s urban population will reach 800 million, by 2025 there will be 221 cities with 1 million people and by 2030 there will be more than 1 billion people living in cities. See China’s urban population to hit 800 million by 2020 from People’s Daily, China’s Megacities from Bloomberg and one of the upcoming challenges that policy makers face with this urbanization is reforming the Hukou, or household registration system. See also Eight Questions: Tom Miller, ‘China’s Urban Billion’ from The Wall Street Journal.
PE firms with assets of more than 500 million RMB (about $80 million) should register with provincial governments. For more about PE see Chapter 5.
New documentary about Jeremy Lin (林书豪), the dark horse NBA player who all of my students talked about last year (and even this year). Of course, being a Dallas-native I think it’s too bad he doesn’t play for the Mavericks, they could use the help. See Chapter 8 for more on basketball in China.
Send to KindleBelow are 10 business-related stories regarding China from the past 10 days. Many thanks to Yanli and Sinocism for providing them. Feel free to send me any you may come across as well.
Weixin has about 300 million users. I used Fetion a few years back, it had a few of the basic functions that Weixin expanded upon. See Chapter 12 for more about the popularity of Weixin (WeChat).
In Chapter 1, footnote 43 I mentioned that one of the issues facing policy makers is traffic congestion. Each city handles it differently, some auctioning off license plates to residents. The cost of license plates has increased as cities have become denser and more affluent. In Shanghai for example, in the recent license plate auction held in January 2013, the average price for a plate was $12,000. See Shanghai’s Newest Luxury Item: The License Plate from The Wall Street Journal and Shanghai licence plates ‘precious as gold,’ says vice mayor from South China Morning Post
In Chapter 3 I detail the milk powder scandal and the subsequent surge in milk importation that continues to take place.
In footnote 26, Chapter 14 I mention that the amount of foreigners residing illegally may actually boost the perceived laowai numbers. That is to say, many of my Chinese friends and students are under the impression that there are more legal foreign residents than there really are. For example, at least 20,000 Africans legally live in Guangzhou alone (up to 150,000 Africans are estimated to live there including tourists and those illegally overstayed their visa). For comparison, between 580,000 and 820,000 Chinese migrants live in Africa. There are tens of thousands of domestic servants (typically maids from the Philippines) under similar legal circumstances in Hong Kong as well. See 593,832 foreigners live on Chinese mainland: census data from Xinhua, The Promised Land by Evan Osnos and China cracks down on African immigrants and traders from The Guardian and Eastern Promise in Little Africa from The Global Mail
If you have ever spent much time using search engines on the mainland it is painfully obvious that Bing (from Microsoft) is really bad in terms of producing relevant search results. So bad that it only has .5% marketshare and it is not even blocked/impeded upon. In contrast, Google.com, which is continually blocked/redirected/stalled, has about a 15% marketshare. And Baidu, the homegrown champion has about 78.6%. See Chapter 12 for more.
360Buy is briefly mentioned in Chapter 7. It is an e-commerce portal that specializes on electronics. It turns out that there is a bit of a scandal as employees have been caught in a scheme in which they would help boost traffic for merchants who gave them goods. This is — so far — a smaller scandal than Alibaba witnessed a couple years ago (see this backstory). Perhaps they can clean it up their act like Alibaba did, there is lots of current and future potential to provide that incentive.
In summation, there is a 20% capital gains tax on your second home throughout certain areas of China (both Beijing and Shanghai have passed this type of law). Thus if you get divorced, your partner can technically sell the second property and not have to pay the hefty levy. Many couples are actually still living together and are only divorced on paper, only going through this process to save tens of thousands of dollars. While it is hard to say just how many divorces are because of this specific issue, in Chapter 4, footnote 40 I discuss some of the numbers regarding divorce and a few opportunities. One area that may be relatively untapped is the divorce app market. For example, more than 5,000 couples divorce each day in China. Roughly 1.96 million couples got divorced in 2009; in 2011 2.9 million couples got divorced. In fact, the divorce rate has doubled over the past decade in Beijing and Shanghai and is now nearly 40% (for comparison the national divorce rate is 2.29%). To be even handed, some of these divorces may be related to avoiding regulations on buying 2nd or 3rd homes. Yet just like in the West, when children are involved, the custody issues require communication between exes. Thus online communication through apps may be a potential market. See Ensuring a long marriage with insurance from China Daily, Joint Custody From A Distance from The New York Times, Divorce: Why the big breakup in China? from CNN, China’s Hot Real Estate Market Takes Broad Toll from NPR, China’s divorce rule dubbed ‘Law that makes men laugh and women cry’ from The Telegraph, Over 5,000 couples divorce each day in China during first quarter from People’s Daily, Divorce rate exceeds one third in Beijing and Shanghai from SINA, Shanghai has 2nd highest divorce rate in China from People’s Daily and Divorce app could help couples decide if their marriage has a future from The Guardian.
Based on current trends, by 2030 China will import 79% of its oil. As a consequence, many policy makers are wanting to tap into fracking like the US has done, to acquire hydrocarbons and become less dependent on imports. In Chapter 17 I mentioned that one estimate by geologists is “the nation’s recoverable reserves at about 25 trillion cubic meters, on par with the United States.” Thus both foreign and domestic firms specializing in the natural gas segment (e.g., extraction, storage, transportation) may find new revenue streams in an industry that is expected to pump “6.5 billion cubic meters of natural gas from underground shale formations by 2015.” Yet despite the aggressive timeline for hydrocarbon extraction, another hurdle is a lack of experience. None of the 16 firms awarded drilling rights at a recent auction has ever drilled a hole. See China’s ragtag shale army a long way from revolution from Reuters, Environmental Frets as Frackers Move In from Caixin and China’s “Ultimate Goal Is a Huge Fracking Industry” from Mother Jones
Good short story, with anecdotes, of the real estate costs on the SAR. Certainly one of the fewer places with more expensive cost of living than here in Shanghai or up in Beijing.
While Beijing is still the top tourist destination, with 5 million foreign visitors a year (see Chapter 4), Xi’an also is one of the biggest destinations for both mainlanders and foreigners. According to the report:
Last year, Xi’an attracted 78.64 million domestic tourists and 1.15 million overseas tourists, 20 percent and 15 percent rises respectively on 2012, according to official figures.
“This year, we expect to see 1.3 million overseas travelers,” Dong said.
Send to KindleThe significant ratio is in the last paragraph 13,188 screens (in China) versus 39,500 screens (in the US). China is now the 2nd largest market for cinematic movies and if businesses like Wanda (the 5th largest private company on the mainland) continue to build theater complexes, Ernst & Young estimates that the mainland market will surpass the US within a decade.
Why the Majority of Chinese Films Never Make it to Theaters from The Wall Street Journal:
Among the 745 feature films produced in China last year, only 315 – or 42% — played in cinemas, media-research firm Entgroup says in its recently released annual survey of the country’s film industry.
That number puts China far behind the U.S., where nearly three quarters of the 818 feature films produced in 2011 were released in theaters, according to the most recent statistics from the Motion Picture Association of America (pdf).
[…]
But the failure of so many Chinese films to make it into theaters serves as a reminder of the limitations the industry still faces, analysts and observers say.
Among the most basic of those limitations, according to Entgroup researcher Kady Yang, is a shortage of screens. “The capacity of China’s cinemas is very limited and their movie schedules are tight,” Ms. Yang said, noting that China is home to 3,680 cinemas with 13,118 total screens. The U.S. has more than 39,500 screens, according to the MPAA.
See Chapter 14 for more details.
Send to KindleBelow are 10 business-related stories regarding China from the past 10 days. Many thanks to VG, Matt S and of course Sinocism for providing them. Feel free to send me any you may come across as well.
Electric vehicles are mentioned in passing in Chapter 10.
Public listings and IPOs on the mainland are discussed in Chapter 5.
Jack Ma recently stepped down as chairman of the Alibaba Group, the largest domestic e-commerce company in the world… which still has not had an IPO. I mention it several times in Chapter 7, 12 & 13.
Ubuntu is the most widely used Linux distribution. However, as I mention in Chapter 20, there have been a number of top-down directed technology projects concocted on the mainland over the years. While it may fare better than Jike (a search engine that flopped) I doubt it will replace Android or iOS anytime soon, if at all.
China is both the largest luxury goods and art auction market. See Chapter 11 for more.
As discussed in Chapter 3, China exports a large number of different food and beverages globally.
As discussed in Chapter 3, Chinese consumers consumed an enormous amount of red wine each year. In 2011 1.3 billion bottles of red wine were sold.
As mentioned in Chapter 14, China is the largest online gaming market, PC gaming market and now mobile gaming market. Epic Games are the developers behind the Unreal engine and the eponymous game series.
In Chapter 12 I discuss the internet empire that is Tencent, the largest tech company on the mainland. They are developers behind the immensely popular WeChat (Weixin) phone app and the golliath that is QQ instant messenger (as well as Qzone and Tencent Weibo). Add me on it.
82 million Chinese tourists traveled overseas last year. 60,000 traveled to South Africa in the first half of 2012. See Chapter 4 and 11 for more.
Send to KindleAccording to their new annual report from the PC Gaming Alliance (an industry trade group):
China continues to be the largest and fastest growing market for PC games with record 2012 revenue of US$6.8 billion. Mature game markets in Korea, Japan, U.S., U.K. and Germany all showed growth in 2012. Together these markets also increased revenue in 2012, to $8.4 billion.
Altogether PC game sales reached $20 billion globally last year. Be sure to also check out Chapter 14 for more info about the gaming and entertainment industry in China
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On March 25, 2013 I took a taxi out to Hongqiao, a western district in Shanghai, to visit Bubba’s Texas-Style BBQ (now one of three locations). Having grown up in the Lone Star state it is always interesting to meet fellow Texans in East Asia (there are not many of us… we do not have a reputation for being globe-trotters) and as it so happens the founder of Bubba’s is Kenneth Walker, from South Austin.
Kenneth has spent the last 16 years in Asia, 8 in Hong Kong and 8 now in Shanghai. Prior to Asia he also had an 8 year stint in New York City, working as a PR specialist for Weber Shandwick, a large global PR firm. And as he explained it to me, although he enjoyed cooking BBQ as a hobby throughout high school, it was not his intention to create his own barbecue joint in China, rather it was a matter of happenstance.
According to him, “While I was doing PR work in New York and Hong Kong, creating a BBQ restaurant was not something that I had really thought about. It was not until much later, after I had arrived in Shanghai and sampled the local so-called “BBQ” that I realized there was an unmet market opportunity and I began putting together a business plan. One of the initial challenges for me then and one of the challenges that all restaurant start-ups today must face in this city is finding a location. When I finally decided to give this idea a try, I originally tried scouting locations whose tenants were already out of business. The problem for me was two-fold: the first is that I had actually only been in the metro for less than a year, so I did not have a lot of connections throughout the city. The second is that in contrast to other parts of the world, after a business closes shop, the ideal time to lease the real estate is not after it is fully closed down. By then it is too late, as someone else always manages to make arrangements before you do – as I found time and again. So I changed my strategy to look for establishments that were on their way down – that had seen better days. The original Bubba’s here, was just that – a woman’s bar called Dragon Bar that was run by a couple of expat women. A friend noticed the place and informed me about it. So I stopped by one day and spoke to the lady who was thrilled to hear about the buyout idea.”
Kenneth was able to finally check something off the list: found the location. And as I mention in Chapter 3, in busy areas like Raffles City (来福士广场), one of the most popular shopping malls in Shanghai, space may cost more than 15 RMB per square meter per day (a rate, which for the typical sit-down restaurant footprint can amount to several million RMB a year). As a consequence several notable restaurants have closed this past year including Purple Onion, Funky Chicken, Public and The Fat Olive (yes those are real names, visit SmartShanghai for more).
What about supplies and decorations? For anyone that has lived abroad for any long-term period, it can be difficult to find a number of creature comforts from back home. And as is the case of football, to the chagrin of North American fans, sport memorabilia can be hard to find. Yet walking around in Bubba’s, North Americans would feel at home with dozens of sport pennants and authentic jersey’s attached to the wall and even a trophy case with autographed footballs (including one from Tony Dorsett and Mack Brown).
Where did he get these?
“It started with a Michigan State fan a few years ago. He gave me a Spartan pennant that I hung up on the wall. And after other patrons saw this, they became riled up. So I made it an open policy: if you bring it, I’ll hang it. BYOB: bring your own banner. So little by little I began to accrue what you see before you today. Prior to this ambiance, all I had initially brought were a few of things I had with me: a flag of Texas, saddles and a golf club whose Tom Kite autograph was accidentally rubbed off later by a cleaning crew.”
Again, for disclosure purposes I will note that I do not own any equity in his firm. I even paid for my own baby back ribs. But as I later told my friends, these were the most authentic tasting Texas ribs I have eaten in this time zone and this is coming from a guy who growing up, regularly ate at Spring Creek and Dickies. How did he do this?
“As I said, I had sampled the food of other local restaurants and what I found did not meet the standards I was used to back home. And to make good BBQ you need to actually smoke the meat. So I began looking for a smoker to import. I had never done this before and I was unfamiliar with the import laws. I did find a company in the US called Southern Pride who told me they could sell me one for $15,000 and that they had sold them abroad before. After hearing they had exported 15 smokers to Asia back in the ‘90s, I then began trying to track down the one that ended up in Shanghai. Somewhere in this city was a real smoker. And as luck would have it, I found out that Hard Rock Cafe were the owners of the smoker – and that they closed the restaurant a few years earlier. I got a hold of their previous GM and he told me that all of the store equipment was now in storage out by the airport and that it was all about to be removed in the next month. So I drove out to this storage site, climbed around for a couple of hours with a flashlight in my hands and after crawling around old chairs, tables, automobiles and motorcycles, I found the smoker. While it had been used as a rotisserie oven for chicken, it had never been used as a smoker, so fortunately it did not have any of the old smoker smell stained into it. I was able to buy it for $2,000 and with the help of about 10 Chinese mover guys we put it onto a flatbed truck and brought it to the now gutted Dragon Bar.”
While you may not be as fortunate as Kenneth was in acquiring kitchenware for your own restaurant, today would-be entrepreneurs have websites like Craigslist, Shanghai Expat and Delta Bridges to talk with others (both locals and laowai) to find equipment and potential store locations.
So Kenneth has found a location, a smoker and has a team to work with. How did he turn it into the real deal?
“The next hurdle is finding some type of wood to smoke with. Any fruit wood would work just fine, and I knew that apple wood was available as some of the Beijing duck restaurants were using it to smoke their ducks. I found a local duck restaurant that used Applewood to smoke their ducks, and while they gave me a few sample pieces of wood, they would not divulge the supplier name or contact. Later however, a friend I had placed in charge of logistics tracked down a company in Beijing that sells Applewood by the ton. I was not very sure what a ton of wood looked like and was told they would deliver it in a 6-ton truck. Thus I had a dilemma because I did not want to waste the storage capacity either. At the same time I did not want to scare the neighbors or the authorities, if they saw a new business opening with piles of wood, what would they think? So while I initially ordered a full 6 tons, at the last moment I cancelled half of the order. When the truck finally arrived and we unloaded the wood, all 3 tons that were delivered ended up taking up half of the restaurant. I got lucky because if I had ordered all 6, there would be no room in the restaurant. Afterwards we manually moved each cord out behind the restaurant wall and this supply lasted for two-and-a-half years.”
Is the rest history? Not quite, after all, even with everything in place you still need to cook a produce customers are willing to buy.
“Even though I knew how to cook BBQ, the first 3 months were hard. I was here from 5am to midnight each day. I eventually taught some local hires how to properly smoke meat and our initial menu included chicken, ribs and potato salad. Sometimes, for recipes like a breakfast sausage that tastes like Jimmy Dean sausage for instance, I would do a lot of trial and error before finding the right combination of flavors that the customer was used to and wanted. The restaurant also features my own secret barbecue cause and dry rub. Later we expanded the menu to include burgers, pizza, seafood and Cajun style fish& chips. We did have some Mexican food at one point but felt the menu was getting too cluttered so we culled it. We might expand the menu again though, due to changing customer demand.”
What are some expansion possibilities and opportunities?
“I opened up the first Texas BBQ in all of China. Because of my professional background I have done a lot of branding for merchandise like t-shirts and now social media. I also organize an annual chili cookoff and an annual BBQ cookoff with multiple teams made up of local cooks around the metro. Because the chili cookoff is an officially sanctioned event by CASI, the top 3 finishers earn automatic bids to the world championship held in Terlingua, Texas. In addition, we have live bands at these events and more than 1,000 people attend, with about an 80% – 20% demographic split (80% foreigners, 20% local), which is about the same demographic customer base at Bubba’s locations. We even work with Crown Relocations services to help manage the logistics of the chili teams, by picking up the kitchen equipment the day before and setting it up at the event grounds.”
CASI is the Chili Appreciation Society International and all Texans born north of the Guadalupe River are legally required to belong to it. Crown Relocations services is 45 years old and according to its official FAQ, generates $766 million in annual revenue.
What are some of the challenges that business owners face?
“This can still be a challenging business culture because of the need to maintain guanxi, to maintain relationships with suppliers and various governmental bodies. But larger cities like Shanghai, Beijing and Guangzhou have become increasingly business friendly. There is a formal structure with forms and permits that have been streamlined over the years. Potential business owners should also make sure to set-up a WFOE because it can be very risky creating a JV with a local partner like a friend or wife. Too many risks associated with that.”
For more about guanxi Chapter 1 and WFOE (Wholly Foreign Owned Enterprise) see Chapter 10.
And other opportunities?
“While it will vary from location to location, but the team that gutted and renovated our first restaurant did so brick by brick. They used the wood paneling from the bar to construct a ladder and reused the bricks to create a new wall in a different location. This kind of resourcefulness occurs throughout many other construction sites all throughout the country. And because of time saving methods like this, we were able to gut and then reopen the restaurant in about 3 months – a process which probably would have taken longer in other cities in the US. Other opportunities that I see are a “dive” steak restaurant. It is hard to find a really good steak for a decent price in this city. When I was working in New York there were a couple of very inelegant restaurants that had nothing but graffiti on the walls, no frills or ambiance whatsoever. The money you paid for the meat was used to buy the best meat for the money, so you got a great product, a delicious steak. I think there is room for several of these “dive” restaurants throughout China, especially in bigger cities. In addition, there are these pop-up trailers that are popular in certain cities of the US. They are mobile units that cook ethnic food like from Vietnam and I have yet to see them here on the mainland, but could see them being very popular late at night and early in the morning near bars and clubs.”
For a review of these pop-up mobile food trailers in Austin see: Scrumptious Chef
With varnished bar stools hovering around wooden tables, a flat-screen TV with sports on in the background, sport pennants and white walls (as opposed to the pink and black décor of Dragon Bar), Bubba’s illustrates how a simple idea and bit of tenacity and luck can create a successful business in China.
For more info about Kenneth and Bubba’s BBQ see: Shanghai’s First Annual BBQ Cookoff: What’s Bubba got to say about it? from ShanghaiExpat and Austinite who introduced Shanghai to Texas barbecue to compete in Terlingua from Austin360
Send to KindleChinese purchases of US real estate accounted for 11% of all foreign purchases or some $9 billion worth of real estate last year. If you are a real estate agent or home owner, you may be able to cater to new clients, especially at the top end. See Chapter 4 as well.
You can read more at Woman Buys US 65m Manhattan Apartment for Two Year Old Daughter from SCMP. And you can also watch a CCTV video about it over at Sina: 视频：中国妈妈为2岁女儿买650万美元豪宅 (English-speaking is in the middle of the segment).
Via Sinocism and Shanghaiist
Send to KindleThree related questions — and some long answers — that may be of use to aspiring writers globally.
Julia on FB writes,
I wondered, of course, out of selfish reasons — how did you do it? Seriously — if I wanted to publish a book, what would I need to do? Do you have any advice for a novice writer? I am becoming your number 1 un-official fan… or a groupie, if that’s allowed.
Groupies are more than welcome! Perhaps one day there will even be roadies…
As far as the self-publication route and things to consider, the short and simple answer is compare Amazon’s KDP program, Barnes & Noble’s PubIt! program and Apple’s iBook program. For cover art and illustrations you can hire some freelancer at Fiverr. Finding an editor can be tricky but a few google searches could help narrow the options down. Then most importantly: create fresh, original content and find your own voice (more on that below). The longer Ned Flanders answer involves tying this in to a conversation I had a month ago with a French friend of mine who just finished defending his dissertation in physics.
CV from Paris writes,
Hi Tim, I’m starting to explore ways to publish my PhD, and I am not sure how to proceed. Since you are also publishing books, I would like to ask you some advice on the possible plans I have in mind. The desired outcomes are:
(1) Publish my PhD as it will be after the defense, at Vrije Universiteit Press (VUB) Press.
(2) Publish my PhD as it will be after the defense, or slightly improved with Springer.
(3) Publish my PhD as a popular book, which requires some rewriting to make it more accessible and concise.
(4) Publish both my PhD as it will be with options (1) or (2); and then make a more popular version (3).
What do you think? What would you advice? Do you see other options?
TL: DR
The too long, didn’t read response to CV is: because business-related content describes dynamic actors (e.g., consumers), in order to stay relevant content creators will probably need to publish and update more frequently than their counterparts in the hard sciences.
I had 3 or 4 professors in college who jokingly noted that the content of many science textbooks in nearly every classroom globally were out of date. That is to say, because of the lengthy publication process (e.g., drafting manuscript, proofing, submitting to press, copy editing, etc.) that as cutting-edge as the content may be, it will inevitably take a couple years to reach the end-user, the student.1 This is not necessarily a priori, a bad phenomenon, at least not in the sciences. For example, last week the team managing the Planck spacecraft (which is currently hanging out in L2 orbit) announced that the Universe is about 80 million years older than previous estimates. This more refined date, while invariably helpful to the astronomical community is probably not a game changing discovery that nullifies the value of current textbooks (that is what standard deviations and sigma’s [σ] are all about). Similarly most math books are still useful even if they do not include the latest calculation of Pi (π) from Shigeru Kondo. For more commentary about this, be sure to check out In Defense of Teaching “Outdated” Material by Brett Lunceford.
On the other hand, business-related topics are inherently not scientific (human preferences change, laws of physics do not). For example, gravity does not change due to seasonal differences in San Diego yet business models must evolve with economic trends and subjective tastes as well as take into account the dynamic impact from season and climate (e.g., when and where to sell winter clothes or advertise the upcoming spring lineup). Because prices of supply and demand are effected by subjectivity and intertemporal choices (that is, valuation changes based on different points in time), certain business models may not work in other regions of the world (like the Barbie versus Hello Kitty example in Chapter 7).
Thus, I would argue that while general principles of marketing and management found in a standard college textbook may be applicable to many business operations (like conducting a SWOT analysis or how to motivate employees), other academic literature used in business schools have an increased diminishing utility due to the ever changing business conditions of a globalized world. For instance, some consumer behavior generalizations made prior to 2004 are no longer useful or applicable in an always-on smartphone-filled social networked world filled with groupbuying websites and check-in-based discounts that simply did not exist a decade ago. And the consumer behavior landscape will become altered in the near-future once more with the proliferation of wearable products like Google Glass.
While it may be useful to know how consumer spending changes over the long-run, for all intents and purposes those pre-2004 academic passages have become intellectual deadweight and probably do not need to be studied in-depth by the average MBA student (otherwise entrepreneurs would spend all their time studying the entirety of the past instead of creating the future). Of course there is a fine line between learning from past mistakes like Dreyer’s Grand Ice Cream turnaround versus using Fannie Mae as a successful model to emulate (seriously, it was used in Good to Great). This also raises another tangential issue: the idea that pop business books sold at bookstores which are typically written by experts with actual business experience and are therefore more practical to entrepreneurs and businesspeople versus subscribing to academic business journals which may be more abstract — which is argued at length in a ten year old AMLE journal article (which ironically is still applicable today): The End of Business Schools? Less Success Than Meets the Eye by Pfeffer and Pfong. But this is a topic for another day.
While the academic writing and publication cycle is a different process then the world of popular media, my response to CV was as follows:
Furthermore, since he is looking for a career in academia and because the material he is publishing is not necessarily time-sensitive, I would try to get published in the best, most prestigious journal that he can (perhaps breaking his dissertation into a few parts and submitting them to other journals).
Bringing it altogether
How does this apply to self-publication? As Barney Stinson might say… wait for it. And now the third person, Brian on TLS writes,
How can you afford to write a book with so much great information and then make it available for free?
Good question. There are a couple answers to it, but to start with lets discuss opportunity costs.
Consider, for example, free apps or demos available on smartphones. Why would a developer such as Rovio utilize scarce resources (time, capital, skilled labor) only to give Angry Birds away for free? (Note: 25% of all global Angry Birds downloads come from China, see Chapter 13.) Perhaps developers do this so they can get their name and brand out into the public, to build buzz so that they can later sell a future app. In the case of King Gillette, while he did not invent the freebie business model he purportedly popularized it: he gave away the shaving handles with the intention that consumers would need to buy his blades to be of any use. However, contra Chris Anderson, even that is arguably not the best utilization of resources either (see The Razors-and-Blades Myth(s) by Randal Picker). 2
I suspect that many aspiring writers never fully recoup the costs of their own self-published works. In fact, based on my research over the past several weeks, very few self-published authors make a profitable return-on-investment solely from book sales when all costs are accounted for (many more may reach positive territory if consulting and speaking engagements are included). Not only would you need to generate enough sales to cover the editing, illustrations, typesetting and promotion (like paid ads), but you would also need to generate more revenue than you would have earned in an alternate timeline, one in which you worked a 2nd part-time job instead of writing a manuscript (e.g., if you spent 20 hours a week working on your book unpaid, what other paid activities did you forgo?).3 These are the unseen opportunity costs and while it varies case-by-case, indie writers should do their own due diligence and cost/benefit analysis. For instance, last summer Suw Charman-Anderson looked at some of the potential earnings and ultimately came to the conclusion that aspiring writers should focus on building content instead of endlessly promoting your first or second or third book.
What about SEO?
My own opinion of SEO is negative. In theory it is no different than marketing or advertising. However, if you spend much time in the industry it is pretty clear a number of SEO gurus treat it as a get-rich-quick scheme. That if you could manipulate passages and content around special keywords, epic floods of traffic will head your way and with it, advertising dollars. But this is a fallacy called post hoc ergo propter hoc conflating cause and effect.4 Readers want useful relevant content, not spam. Keywords do not create lasting readership, content does. If you are following the advice of some SEO evangelist, then others are probably too and thus all of your content is diluted and becomes indifferent mush from the background noise that is all the other like-minded echo-chamber bloggers doing the same thing.
Specifically, consider the opportunity costs of trying to game and trick the continuously changing algorithm systems. Every minute spent trying to tweak SEO keyword placement is another minute you could have spent creating original content for an audience.5 Which raises another question: if other people like the gurus are telling you what do and say, you are not finding your own unique voice and style — which is a necessary process each writer must undergo independently, one in which there are ultimately no shortcuts. Thus for some, SEO becomes a self-defeating, downward spiraling process.
At South-by-Southwest (SXSW) held a couple weeks ago in Austin, Guy Kawasaki asked Amit Singhal (a VP at Google) how companies can improve their search rankings. Singhal’s response was:
“We at Google have time and time again said—and seen it happen—that if you build high-quality content that adds value, and your readers and your users seek you out, then you don’t need to worry about anything else,” Singhal said. “If people want that content, your site will automatically work… you could make a bunch of SEO mistakes and it wouldn’t hurt.”
In other words, original content is king.
Thus to answer Brian’s question, while I won’t go into specifics today, I do have a long-term plan that does not involve the traditional book publishing model in order to recoup all the seen and unseen costs of producing the content. A hint: while it does involve creating regular fresh content, it does not involve SEO or books sales. After all, the web copy is free.
Send to KindleMG, an acquaintance, writes:
Tim, the reality is that China remains a society held captive to the Chinese Communist Party, who is committed to stealing intellectual property from American entrepreneurs and companies. Doing business with the Chinese is extremely costly and a strategic mistake for most US companies. My comments are directed to the broader issues of doing business in China and the Chinese government’s posture on its domestic economic policies, its foreign trade practices, and its unprecedented role in global intellectual property theft. These issues have been the subject of a great deal of analysis here in Washington DC (some of which we’ve engaged in).
Ignoring the agitprop boilerplate about the Party (it exists, it will continue to exist), I mention some of those IP issues in a couple different places and explain to the reader that they should talk with an experienced attorney and IT security specialist before setting up shop on the mainland: see Chapter 10 (legal services) and Chapter 13 (internet security). In fact, there are several cases discussed in detail in Chapter 13 but rather than rehashing those statements, MG raises a problematic issue here: financial disclosure.
For instance, this past week Bloomberg published a story entitled, “Cybersecurity Lobby Surges as Congress Considers New Laws.” While cybersecurity is a real, present danger for every firm in any country there is a Latin phrase that summarizes the conflict of interest in MG’s position: cui bono (who benefits). As Bloomberg notes:
There were 513 filings by consultants and companies to press Congress on cybersecurity by the end of 2012, up 85 percent from 2011 and almost three times as many as in 2010, according to U.S. Senate filings. Twelve firms have submitted new registrations this year on behalf of companies including Google Inc. (GOOG)’s Motorola Mobility unit, Symantec Corp. (SYMC), United Parcel Service Inc. (UPS) and Ericsson Inc., the U.S. subsidiary of Stockholm-based Telefonaktiebolaget LM Ericsson.
“Cybersecurity is a lobbyist’s dream,” Rogan Kersh, provost at Wake Forest University in Winston-Salem, North Carolina, who researches political influence, said in an interview.
How do we know there is a conflict of interest in this segment? CISPA, or Cyber Intelligence Sharing and Protection Act, is a proposed law which would enable government agencies to monitor and share private electronic communication (similar to SOPA). This past week, Representative Mike Rogers, Chairman of the House Intelligence Committee accidentally tweeted and then deleted that the “House Intelligence Committee received 15 times more from pro-CISPA groups than anti-CISPA orgs.” This is another example of cui bono as the same organizations lobbying for the bill are the same ones that will financially gain if it is passed. Similarly, MG works at a firm that gains financially due to the hype and theater surrounding this issue.
This is not to say that hacking and cybersecurity are not real problems that firms and entrepreneurs should ignore. Rather consider what General Electric Vice Chairman, John Rice recently said, “Despite hacking and other issues in China, foreign companies need to be there, due to the country’s potential as the world’s biggest marketplace. The greater risk lies in staying away.”
Thus it comes down to who you want to trust: MG, a contractor who financially gains from hyping a purported threat or John Rice, who is willing to weigh risks and potentially capitalize off knowledge and technology arbitrage (e.g., bringing specific technological know-how to .the mainland).
Experienced expat response
Last night I spoke with David Veksler, CEO of CryptAByte and a cybersecurity professional in China who I interviewed for Chapter 13. He told me in an email exchange that:
“Doing business in China is no doubt risky. But betting your company’s future on a stagnating domestic markets is risky too. Every business must balance the risk of IP theft and broken contracts against opportunities from the world’s biggest consumer market and low cost suppliers.
While Chinese companies are well known for intellectual property theft, we must keep in mind that there is no monolithic entity, even within the Party. There are many competing interests, and each case is different. By doing their due diligence, it is quite possible to protect one’s interests and secrets while being successful in China. To claim otherwise is to say that information security is futile.
In the long run, industrial secrets may be impossible to keep, but in any dynamic industry competitive advantage and profits are made in the near future. Businesses that substitute innovation with copying the competition will not succeed in a competitive market.”
Unconventional analysis
I also reached out and spoke with a patent attorney about the issues MG raises and spoke with Stephan Kinsella (the same attorney in Chapter 7). Here is what Kinsella wrote in an email exchange yesterday:
“There may be a grain of truth in the complaint about Chinese companies not respecting Americans’ IP, insofar as some Chinese companies seem less willing or able to abide by contractual restrictions designed to keep certain information proprietary. But this danger exists for businesses in all societies, even in the US, especially as employee mobility increases and employees move back and forth between employers, taking ideas with them.
But the bulk of the complaint seems to be focused on American-style IP law, namely patent and copyright, and to assume that patent and copyright are legitimate types of property rights. This is what permits the author to refer to competition by Chinese companies as “stealing”: he has accepted the IP mentality. But copying and emulating others in the process of competing with them is part of the free market. Patent and copyright are anti-property, anti-market systems designed to protect companies from competition.
Thus, the author here is siding with protectionism and against the market, and Chinese companies who compete with American companies because they have relatively fewer IP laws to shackle them, more more capitalistic. It is true that some American companies whose business model depends on the protection from competition afforded to them by IP law would prefer that other countries, like China, also offer them protections from competition. But this does not mean that such laws make sense.”
Secret central plans
Tangentially related to cybersecurity and hacking is the myth of the secret plan hidden somewhere. Or rather, the myth that hackers in other countries have of the US — that there is a super secret master plan that directs all activities of the federal government. This was humorously brushed aside last month by Ezra Klein at the Washington Post, who explained that:
I almost feel bad for the Chinese hackers. Imagine the junior analysts tasked with picking through the terabytes of e-mails from every low-rent think tank in Washington, trying to figure out what matters and what doesn’t, trying to make everything fit a pattern. Imagine all the spurious connections they’re drawing, all the fundraising bluster they’re taking as fact, all the black humor they’re reading as straight description, all the mundane organizational chatter they’re reading.
This weekend Reuters published a story about a cybersecurity program at Jiao Tong university with PLA connections (the same PLA unit in the Mandiat report that made headlines earlier this year). While formal ties with this college may exist, to be even handed, we should keep in mind that Stuxnet and Flame were designed by the NSA and Israel, to take out Siemens-designed software systems located in Iran.1 However, this raises a number of questions (e.g., when is state-sponsored cyber espionage justified) that detract from the immediate issue at hand.
Some cybersecurity threats are real, others imagined. Before investing in any domicile be sure to do your due diligence for security threats (even the old-fashioned variety) and speak to a lawyer or risk assessment expert to qualify potential threats. For more on this hype and cybersecurity, be sure to follow Techdirt and Bruce Schneier.
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