China Law Blog - China Law for Business

Jake Ludington is a technology explainer.  He operates Mediablab, a hugely popular website that provides "Audio and Video Answers for Your Digital Lifestyle."  It does an excellent job at explaining things like the following:

• How to backup your iPod
• How to Change Windows XP Boot Screen
• How to sync Google Calendar & Outlook
• How to convert DVDs for PSP

I love this stuff and I could go on and on.  But this is a blog on China.

A few weeks ago, Mr. Ludington e-mailed me to tell me he had attended DEMO China and would be doing a post on all of the companies/technologies there.  Now that he has completed his first ten posts on the various exhibits there, I think it timely to direct those interested in Chinese technology to Mr. Ludington's new DEMO China Blog.

First, a bit about DEMO China.  DEMO has for many years been a leading U.S. showcase for start-up technology companies to show their technologies to VC companies in the hopes of securing venture capital funding. Palm, Java, and TiVo all "launched" at DEMO.  DEMO China is the first time DEMO has ventured outside the U.S. 

DEMO China touts itself as doing all the vetting and picking 70 technologies "so you can do a lot of business in a very efficient three days."  It boasts of the following: 

Civilized networking in an intimate environment.
A select group of decision-makers from emerging companies, respected veterans, sought-after VCs, top analysts and influential journalists - all engaged in the mutual pursuit of what's next. At DEMO you won't just exchange business cards, but ideas, connections and opportunities.

Industry leaders talking, not just speaking.
The recipe is simple: gather upper-echelon leaders from a wide range of technology sectors, put them together on stage with a moderator who knows how to stir things up, open mikes to attendees, then see what happens. 

Mr. Ludington's goal is to post on every single technology exhibited there and he has already covered the following:

• Maizhaopian Photo Shopping and Printing Site
• Wireless Health Monitoring System
• QuDing - News Submission and Voting Site
• NETV Health Management and Media Platform
• Fluorescence Gastric Juice Analytic System
• ClicMobile AreYouHere Social Networking Platform (not Chinese)
• Hongxiu.com Chinese Fiction Portal
• Saybot English Language Learning Software
• Mvox Duo Wearable Voice-Dialing Communicator
• MobiWallet RFID Payment System from Jton Systems

For those wanting more on DEMO China, check out ZDNet, which provides some video coverage of the event, and Postcards from China, which does a nice job synthesizing and highlighting Mr. Ludington's posts.

The China Economic Review's relatively new Logistics blog recently did a post on consolidation among Chinese logistics providers, entitled, "Small firms fight for survival."  The gist of the post is that logistics in China is growing quickly (15 to 20% per year) and is becoming increasingly dominated by big companies, many of which are foreign. 

China only opened its logistics sector to foreign companies in December last year, pursuant to World Trade Organization (WTO) agreements, but consolidation has been "in full swing" since.  The big multinational logistics companies and the big Chinese domestic firms "are taking over small mainland companies in a contest for the major prizes."

Consolidation has a ways to go, however, as there are still more than 700,000 logistics enterprises registered on the mainland, most of which are small and medium-sized companies (SMEs).  According to the post, most of these "lack strategic planning, trained personnel and systematic management."

The post goes on to detail the following milestones for logistic multinationals (MSCs) in China:

Schenker has set up a logistics centre near Beijing�s airport.

STX Panocean of Korea launched a joint venture in Qingdao.

US multimode operator Burlington Northern Santa Fe Corporation set up an office in Shanghai.

Prologis and Wurth plan to expand their logistics park in Shanghai.

Container service provider Scoular settled down in Guangdong.

FedEx, which entered into a 50-50 joint venture with Datian in 1999 after leaving another partner, paid the company $400 million to purchase the other 50 percent early this year.

TNT offered $135 million for 100 percent control of Huayu Logistics, the biggest truck operator on the mainland, based in Heilongjiang Province.

Earlier, UPS agreed to pay $100 million to break free from a joint venture with Sinotrans.

Also on the logistics front, the Zhonghua Rising Blog just posted on how China's seaports were ranked number one for the third straight year for cargo handling and capacity and went on to list China's top ten ports, ranked in order of cargo handling:

1. Shanghai Port.

2. Qingdao Port.

3. Shenzhen Port.

4. Ningbo Port.

5. Guangzhou Port.

6. Tianjin Port.

7. Xiamen Port.

8. Dalian Port.

9. Lianyun Port.

10. Yinkou Port.

Those wanting to learn more about China logistics can attend the First Annual China Logistics Congress, set for Beijing on October 18-20.  According to the China Business Services Blog, this is going to be a big event, as senior executives from China's ten leading logistics companies (COSCO Logistics, China Post Logistics, COSCO International Freight Co.,Ltd., China Merchants Logistics, JC TRANS Logistics Inc., Tianjin Datian W. Group Co., Ltd, China National Materials Storage and Transportation Corporation, China Railway Container Transport Co.,Ltd., SITC Maritime (Group) Co., Ltd., China Railway Parcel Express Co.,Ltd.) will be there, along with numerous high level personnel from many of the major Western logistics companies. 

For more on China logistics, I recommend the following two There are a couple of good logistics blogs that fairly regularly write on Chinese logistics:

Asia Logistics Wrap, which describes itself as "News and commentary from Tokyo on logistics in Asia"

3plWire Blog, which describes itself as "Third Party Logistics Trends, News and Information"

Couple recent articles in the Wall Street Journal and Forbes Magazine (h/t to Nanodot and Nanotechbuzz) on how China is making gains in nanotechnology highlight how China is both making efforts to move beyond manufacturing and is succeeding in doing so.  The Wall Street Journal article, written by Andrew Batson, and entitled, "China's Nanotechnology Gains Have U.S. Looking Over Its Shoulder," explains the significance of nanotechnology:

Nanotechnology gets its name from the nanometer, which is one-billionth of a meter, or about 1/100,000th the width of a human hair. The term refers to the manipulation of materials at very small scales, where they start to take on unusual physical properties. Many governments have focused on the technology because it could lead to breakthroughs in areas such as enabling tiny medical devices that could enter human cells and building superstrong materials from novel combinations of molecules.

Not exactly making one million flashlights at a nickel a piece.

The article goes on to talk about how Beijing has released a "national plan for scientific development that calls for raising spending on research and development to equal 2% of economic output by 2010, from just above 1% in recent years."  The plan lists nanotechnology as a major priority, describing it as an "area where China may be able to 'leapfrog' wealthier nations."

It makes sense to me for China to focus more on a newer, less developed, technology, like nanotechnology, where no country has an overwhelming wealth of experience, than on a more established technological sector. 

The World Economic Forum out of Davos, Switzerland, just released its Global Competitiveness rankings and China has fallen from 48th last year to 54th this year.  The Forum summarized China's positioning as follows:

China�s ranking has fallen from 48 to 54, characterized by a heterogeneous performance. On the positive side, China�s buoyant growth rates coupled with low inflation, one of the highest savings rates in the world and manageable levels of public debt have boosted China�s ranking on the macroeconomy pillar of the GCI to 6th place � an excellent result. However, a number of structural weaknesses need to be addressed, including in the largely state-controlled banking sector. Levels of financial intermediation are low and the state has had to intervene from time to time to mitigate the adverse effects of a large, non-performing loan portfolio. China has low penetration rates for the latest technologies (mobile telephones, Internet, personal computers), and secondary and tertiary school enrollment rates are still low by international standards. By far the most worrisome development is a marked drop in the quality of the institutional environment, as witnessed by the steep fall in rankings from 60 to 80 in 2006, with poor results across all 15 institutional indicators, and spanning both public and private institutions.

To see the full list, go here [pdf format].   To see the criteria employed, go here [pdf format]. The top ten most competitive countries are as follows:

1. Switzerland
2. Finland
3. Sweden
4. Denmark
5. Singapore
6. United States
7. Japan
8. Germany
9. Netherlands
10. United Kingdom      

Hong Kong came in 11th, Taiwan in 13th.  This is a serious, well documented ranking, and China's falling six places, due in large measure to its institutional failures (legal, ethical, transparency) should not be taken lightly.

Update:  The IP Dragon has a good post that further analyzes the findings on China. 

My apologies to Woody Allen. 

Peter Yuen, an attorney in the dispute resolution department of Freshfields Bruckhaus Deringer, (one of the world's biggest and best law firms) recently wrote a very informative article on arbitration in China.  Mr. Yuen, who has been counsel in arbitration proceedings in Beijing, Shanghai, London, Singapore and Tokyo arbitrations under CIETAC, ICC, LCIA and UNCITRAL, works out of Freshfields' Hong Kong office.

Mr. Yuen's article focuses on the Chinese Supreme People's Court's recently issued interpretations of China's Arbitration Law and it is an excellent short summary of both the interpretation itself and where it falls short. The Court's new interpretation provides substantial guidance on two key issues in arbitration: the validity of arbitration agreements and challenges to arbitral awards. 

Because Mr. Yuen's article is itself a summarization, rather than my simply re-hashing nearly the entire article, I suggest those interested in arbitration in China be sure to read it. 

Mr.Yuen was also kind enough to send me a copy of a much longer (20 pages actually) he co-wrote on the "Supreme People's Court's Draft Interpretation on Application of the PRC Arbitration Law," which draft Mr. Yuen tells me is "99% identical to the approved version."  This longer article is an excellent overview of the state of arbitration in China and is great reading for lawyers who write contracts with Chinese companies or get involved in China related arbitration. 

By Glenna Stewart

Last month, the US-China Business Council (USCBC) published the results of its annual member survey, highlighting the gains US businesses have made in China, along with the obstacles they still face.

The results of the survey de-bunked several common myths about US companies operating in China, including the following:

• Most US investment in China is 100 percent US-owned, not joint-ventured with Chinese partners.  Nearly 75 percent of new business enterprises are entirely foreign-owned.
• Fifty-seven percent of USCBC member companies said their principal objective was to serve Chinese consumers.
• Eighty-one percent of companies say their operations in China are lucrative.

The survey emphasized the considerable importance an increasingly large number of US companies place on their China operations.  Eighty-seven percent of companies reported China is at or near the top of their priorities, a sixteen percent increase from last year.  Respondents also stated that company resources for China, such as investment, staffing and executive time, would be increased over the next year:

The priority that US companies place on China and the resources they plan to dedicate to growing their businesses there indicate not only the extent of US companies' stake in the continued development of China's economy, but also the depth and importance of the bilateral trade and economic relationship.

The report also highlighted the operating issues still plaguing US companies in China.  Respondents were asked to rank the top five issues of most importance and evaluate the progress China has made in handling them.

1. Human Resources:  China's swiftly growing economy mean the demand for capable workers outpaces supply.  Recruiting and retaining employees, especially mid-level managers, is becoming increasingly difficult.  Competition for good talent has driven wages up.  For more about on this go here and here.
2. Administrative Licensing and Business Approvals:  Problems with securing administrative licenses, business approvals, product safety licenses, automatic import licenses, certifications and registrations are pervasive in China and have existed for many years.  Surprisingly, despite China's joining the WTO, more than half the survey's respondents said there has been no progress made in alleviating this issue. 
3. Intellectual Property Rights Enforcement:  A growing legal framework exists to protect Intellectual Property Rights (IPR) in China, however, implementation of those laws has seriously lagged, especially at the provincial and local levels.  This issue has consistently been ranked as one of the top ten concerns over the last four years and fifty-seven percent of USCBC members report no improvement in the enforcement and prosecution of IP violators.  Thirty-three percent, however, reported some progress.  For more on this, go here, here, and here. 
4. Competition and Overcapacity:  Chinese reinvestment of retained earnings in new production facilities, regardless of market forecasts, has resulted in plummeting prices for certain products, due to oversupply:  "US companies are increasingly concerned that they will face domestic competitors' financing expansion on non-market-based terms.  This is one reason why China's unfinished financial reforms are critical to sustainable economic growth and to ensuring a competitive 'level playing field.'"
5. Transparency:  Nearly 60 percent of survey respondents said there has been no progress in improving availability of necessary information is struggling to develop an open regulatory system where rules are circulated for comment before implementation.  For more on this, go here, here, here, and here.

The full report on Business Council's website describes 5 more operating issues: standards setting, distribution rights, US visas, national treatment and market access in services, and it also summarizes the respondents' China operations and assesses the impact of China's entrance into the WTO.

Last month, I posted on China's new bankruptcy laws, scheduled for a June, 2007, enactment.  That post was entitled, "China's New Bankruptcy Laws:  Good For Business," because it looked like China would soon have a comprehensive bankruptcy code that would facilitate lending and collection.  The new law will put creditors before employees and my post talked about how the law was being delayed until June, 2007, so China's state owned enterprises (SOEs) could file for bankruptcy before June, 2007, to avoid coming within the new provisions. 

Now it has become clear that China's 2000+ SOEs will not come within the purview of the new laws until at least the end of 2008.  This means that until such time as the SOEs are covered by the new bankruptcy laws, their employee wages and health benefits will have priority over any creditor claims.

This is bad news and it indicates China's reformers have lost out on these laws. This failure to include SOEs in the new law likely will slow down the purchasing of SOE companies through bankruptcy restructuring buyouts and will also hurt the Chinese banks, which have made big loans to SOEs.   It appears the fear of employee dislocation has trumped business sense and China's new bankruptcy laws, though certainly a step in the right direction, are not so good for business after all.

My mother, bless her heart, ALWAYS orders chicken whenever she goes out to a restaurant for dinner.  Those few times I've convinced her to order something else, she ends up saying it "tastes like chicken" anyway.  I mention this because I worry that I am doing the same thing with Vietnam in comparing it to China. 

But I cannot help it.

I recently spent three whirlwind days in Saigon (aka Ho Chi Minh City or HCM) and, based on that, I am willing to venture forth with my impressions.  First off, I would like to apologize to the many readers who wrote me asking if and when I would be doing this post and to whom I replied, very soon.  The reality is that I am just not very comfortable with personal observations of places.  There are reporters out there so much better than this than I. 

While in HCM, I met with countless lawyers, a few foreign businesspeople, and talked endlessly with every cab driver, concierge, waiter, etc., I encountered.  I also read a score of local magazines and newspapers.  Interestingly, I have gotten more e-mails from readers asking me to write on Vietnam than on any other issue since starting this blog.  Worth Magazine has interviewed me as well.  There is obviously a huge interest out there, so here goes. 

1.  Great place.  The first thing one notices in Saigon are the motorbikes.  They are everywhere, and in huge quantities.  I am proud to say that by the time I left town, streets that initially took me ten minutes to cross took only three.  I cannot compare my crossing speed with the locals because they seem to get around on motorbikes, not by walking.  Every foreigner and every native with whom I spoke said they loved Saigon.   

2.  The food is incredible.  Incredible.  And cheap.  Really cheap. 

Excellent Pho at Pho24.  It's part of a chain owned by Nam An Group, which owns and operates a number of other Vietnamese restaurants.  Pho24 has countless locations in Hanoi and Saigon and one in the Philippines as well.  Seems it would do well in the United States too.  I got the meal-sized vegetarian Pho (is it really Pho without meat?) for $1.50.  That's right, $1.50.  It was excellent.

I had lunch one day at Maxim's on Dong Khoi Street.  Dong Khoi is Saigon's main shopping street and.  Frommer's review of Maxim's is right on the money:

Enjoy Vietnamese cuisine in this luxurious setting right in the heart of the city on Dong Khoi (the restaurant is just next to the entrance of the Majestic Hotel where Dong Khoi meets the Saigon River). The open-air lobby leads to an inner sanctum with a large dining area flanked by a cool, contemporary Mandarin-style bar and murals of an oversize lily pond, complete with Japanese koi. Dark wood booths are draped in faux mosquito nets on one side, while private rooms on the other side are heavy with Chinese-style carved cornices, furnishings, and Day-Glo artwork. Popular for power lunches. Entrees are pricey, but portions are large and everything is delicious. The menu's heavy on seafood -- including baked or steamed lobster and shrimp, as well as whole fish done in ginger or soy. The large seafood hot pots are impressive. Starters such as spring rolls, fried tofu, or grilled pork are good to share, and stylish Maxim's is a great air-conditioned break from shopping on Dong Khoi.

3.  The Park Hyatt Saigon is incredible.  Incredible.  Maybe even too incredible. 

I am somewhat embarrassed to admit I stayed at the Park Hyatt  Though not terribly expensive by American standards ($200 a night, including breakfast and internet), I am certain I could have done just fine at many other hotels and paid only half as much.  The service here is some of the best I have ever experienced at any hotel.  Starting with the assumption (valid I think) that Asian hotels have the best service, this hotel tops anything I have ever experienced in Japan, Korea, or China.  The Park Hyatt in Hong Kong comes close, but falls short.  The Park Hyatt in Tokyo (the hotel in the movie, Lost in Translation) comes close, but also falls short. 

The reality is that the Saigon Park Hyatt can do what it does because labor costs in Vietnam are so low.  Anyway, I was picked up at the airport in a new Mercedes E class.  It had water and towels and I was given a music playlist.  I chose Vietnamese songs figuring when in Vietnam ....  (Yes, I know riding around in a chauffeur driven Mercedes isn't exactly "Vietnam.").  It cost $28.   

I arrive at the hotel and as I walk in, at least five people greet me by saying "hello Mr. Harris."  A hostess takes me to my room, checks me in, and introduces me to my Butler who asks if I have any clothes needing pressing.  The room was not huge, but very tasteful, with great photographs of old Vietnam.  The floor in the room entrance was a beautiful hardwood and the bathroom was nearly all marble.  The internet was plenty fast.  I grabbed a quick lunch at the terribly chic Square One Vietnamese restaurant in the hotel.  I order a a four course fish curry lunch, including great French bread and an excellent chocolate cake and I pay $12.  I had dinner there the next day and it too was superb.

4.  Art.  Saigon has beautiful art.  There are stores selling beautiful paintings, beautiful silk, beautiful jewelery, and beautiful vases and bowls, all at about a third of the U.S. cost.  I have been going to Asia 5-10 times a year for more than a decade and I think this is the first time I had to buy more luggage with which to carry back my purchases. 

But let's talk about Vietnam business and law.

My sense -- both from my own dealings with Vietnam and from my conversations over the years and on this trip with people there or doing extensive business there -- is that it is about where China was maybe 10 or 15 years ago.  Some of the Western or westernized businesspeople and lawyers there told me this and even gave examples.  The Vietnamese English language press would sometimes hint at this and, at other times, pretty much flat out admit it.  There is no doubt that Vietnam looks to China in determining how to chart its own economic miracle with Communist characteristics.   

But it is not there yet.    

It strikes me that corruption is a bigger problem for foreign businesses in Vietnam then it is in China.  People love to portray China as incredibly corrupt, but, it really is not.  The corruption surveys I have seen put China about in the middle worldwide for corruption, with Vietnam always listed as considerably more corrupt.  On top of this, China has made a concerted effort to prevent its government officials from soliciting bribes from foreign enterprises and that effort has generally been pretty effective.

Vietnam is trying to do the same thing, but I heard too many stories of foreign businesses leaving because of corruption to believe they have succeeded yet.  "Getting better," is what most people told me on this score.

Vietnam's consumer market is much smaller than China, both in absolute numbers and even in percentage of the total populace.  Salaries even in big city Saigon are generally not high enough to support massive consumer spending, but the city is not lacking in cell phones and I even came across a Vertu store (Nokia's luxury phone line).  I am of the view that most consumer products and retail businesses should focus on China first, and then Vietnam. 

Vietnam, however, is indisputably a rising center for manufacturing and agriculture and it is in these two areas that I see it growing fast over the next few years.  Low end manufacturing costs are rising in China and I can see more of that business moving to Vietnam. 

Vietnam is also seeking to position itself as a software center and my conversations with those involved in this industry in Vietnam make me think this may eventually be realized. 

For more on Vietnam, I suggest readers check out the following:

1. "Good Morning at Last," in the Economist, discussing Vietnam's impressive economic climb;

2.  China Daily article on the shrinking profits in China's textile industry.

3.  Speigel Magazine interview with the CEO of Phillips, Gerard Kleisterlee, who says "some of our [Phillips'] subcontractors are already moving their plants from China to Vietnam, because China has become too expensive."

4.  "Old Habits Undermine Vietnam's Emergence."  Wall Street Journal article [subscription may be required] about  how "lingering tensions between the regions -- and the government's persistent commitment to central planning -- still threaten the country's budding economic boom"

5.  "Foreign Banks in Vietnam Spell Out Fears."  Wall Street Journal article [subscription may be required] about how "major foreign banks in Vietnam have expressed concern to the country's central bank over the threatened criminal prosecution of several NV staff in connection with a currency-trading dispute, a development that has tainted the reputation of this fast-growing economy."

6. "Tax breaks, cheap land and labor pull in business into Vietnam." Los Angeles Times article.

7.  "Swiss Target Vietnamese Business Opportunities."  Interesting blog post detailing the pros and cons of doing business in Vietnam, from a small business prospective.   

The Wall Street Journal just interviewed Ian Yang, Intel Corporation's  Beijing-based co-general manager for Asia Pacific, on doing business in general and, a bit on doing business in China.  Entitled, "An Intel Leader Discusses His Lessons in the China Game: Region Co-Manager Yang
Works to Meld U.S. Ideas To a Very Different Culture," the article [subscription may be required] is part of the Journal's "Leading In Asia" series. 

Mr. Yang has been in China for Intel since the mid 1990's. Though most of the interview dealt with Intel and with general business issues, Mr. Yang's take on Chinese employees is instructive:

In the U.S., people tend to think longer term and strategically. They are very open and fast on their feet. I think a lot of time their challenge is in executing in a disciplined way.

In my last 10 years here [in China], my observation is that there are a lot of very hard-working, devoted employees. But they don't very openly share their ideas or thinking. It's not like they don't have it. But if they don't share it, a lot of times people will have the perception that "these people are not strategic."

But if you talk to them in their own language, a lot of times you're surprised about how much they know about the industry, the market, the issues facing the company, and what the company should be doing.

Basic stuff, but the kind of thing that bears repeating. 

China Daily (h/t to ChingDangVu Blog) just did a story on a comparison study of the quality of life in China's cities  So like so many of these studies that come out of China, both the methodology and the accuracy is murky, but it does make for fun reading so here goes:

1.   Shenzhen

2.   Qingdao

3.   Hangzhou

4.   Ningbo

5.   Shanghai

6.   Wuxi

7.   Yantai

8.   Suzhou

9.   Dongguan

10.  Dalian

The survey consisted of 287 cities and combined an objective ranking with a subjective online poll.  "The ranking was judged using a series of criteria, such as residential incomes, consumption levels and the traffic situation. Education, social security, medical facilities, public security, the environment, culture and leisure, and the unemployment rate were also included."   

Beijing fell from fourth last year to 14th this year and was deemed to have the worst traffic.  However, at 80.09 years, it topped the country in life expectancy.  Lu'an, in Anhui Province, is the worst place to live in China, according to the survey.

It is hard to know how accurate this sort of study is, but since I am often blogging about how much I like Qingdao (where my firm has an apartment) and Yantai, it was good to see those two cities do so well in this study.  None of the cities in the top ten list were a major surprise to me, but I was surprised Shenzhen came in first. 

The other day, I did a post on a Thomas P.M. Barnett post and I had this to say about Barnett:

Thomas P.M. Barnett is one of the few people who truly understands world politics.  Among other things, he understands how countries develop.  He is not a China expert per se, but it seems every time he applies his overall knowledge of the world to China, he is right on.  His latest post on China, entitled, "The normalization of China proceeds apace," is classic Barnett in that it is short, to the point, and most importantly, dead on.  If I could write like he does, I would be writing books also.

Damned if he did not do it again. 

In a post, entitled, "A 'responsible' China is self-interested China," Barnett extols a middle ground in assessing China.

Barnett begins by noting his amazement "at how little people in America understand about how much China has changed in just two generations since the Cultural Revolution."  Barnett equates these changes to those in America from 1865 to 1905.

Barnett then states that though China does not fit the U.S. model of political development, we Americans also "suffered a lot of crappy and inept and corrupt government across those decades, just like China does today."

Barnett then pulls the following quote from a "brilliantly good" James McGregor (author of One Billion Customers), Wall Street Journal editorial:

The Chinese people want the rule of law and fairness.  But they also want a government that solves problems and focuses on progress.  The many vainglorious and venal local Communist Party cadres are roundly detested.  But Chinese who experienced the chaos of the Cultural Revolution also believe that America must be purposely seeking to destabilize China.  Surely the U.S. isn't so naive as to think that instant democracy would make China a better place?

Half a world away, our sensationalist broadcast media is equally adept at demonizing China for the American populace.  When CNN's Lou Dobbs discovered that ranting generates ratings, he quit asking CEOs thoughtful questions about China and now focuses on flogging it for stealing jobs and unfairly threatening U.S. economic preeminence.  Bill O'Reilly and his infotainment-obsessed brethren at Fox stir up a similar stew of angry anti-Chinese cornpone.  And neither network has any trouble finding like-minded and uninformed talking heads from the Congress eager to obscure their own leadership and policy failings by laying America's economic insecurities and difficulties at China's doorstep.  During a book tour that took me to many American broadcast outlets in the past year the producers invariably asked: "Are you our anti-China or our pro-China guest?"  They were baffled when I answered that I was the "let's-try-to-understand-China guest."  Our TV screens may be in color, but discussions of China are exclusively in black and white.

The rest of the world doesn't share our fear and loathing of China.  For the past 15 years, its diplomats have undertaken a very effective charm offensive to build a positive image abroad.  People-to-people contacts abound, with Chinese students filling universities around the globe.  Outbound Chinese tourists now outnumber those from Japan.  China's slogan for dealing with its neighbors is: mulin, anlin, fulin, which translates as: be friendly, make them feel secure and help make them rich.  It works.  A 2004 BBC poll of 23,000 people in 22 countries showed that 48% considered China a positive global influence--10 points higher than the U.S.  Moreover, the survey showed that 58% of the respondents ages 18-to-29 had a positive view of China.

                                                                                 *  *  *  *

Behind the bluster, the Chinese leadership under President Hu Jintao is uncertain and searching for where to take the country as it becomes an integrated part of the global community for the first time.  China doesn't really know what it wants next.  It just knows it doesn't want to be what it used to be: a feudal country that foreigners could carve up like a ripe melon, eventually becoming a dysfunctional civilization that a messianic leader could bring to the edge of social and economic insanity.

Barnett views China as "doing just fine, considering the vast and entirely profound social and economic change it's handling right now -- without blowing up."   In other words, though China certainly is and should be subject to criticism, in doing so, we should not ignore where it was only just recently and how far it has come in such a short time. 

Just came across this article, headlined, "China needs more overseas experience, says Yao."  I opened it, expecting to read a Chinese economist discussing how China's companies are, for the most part, still quite inexperienced internationally.  Instead, the "Yao" is Yao Ming and it is an article on Chinese basketball.  As a huge basketball fan, the metaphoric opportunities here are just too good to pass on.

I have watched countless Chinese basketball games on TV and Yao is right.  Like basketball players everywhere, Chinese players play to the level of their competition and, right now anyway, Chinese basketball does not match that of the leading basketball countries.  To break from this, China's best players need to leave China and start playing in tougher leagues.  Leagues with better players, better coachess, better training.

The majority of Chinese basketball players do not look like they have played basketball for at least five hours a day for their entire lives.  I can remember watching some women's professional basketball on TV during the first season.  This was pre-WNBA, even pre-WNBL.  Nancy Lieberman was the star.  Only a handful of women on each team looked like true gym rats; the rest looked like they were athletes from other sports who were out playing basketball.  Nowadays, most all of the girls on the better high school teams look like they have been living and breathing basketball since they were six or seven.  There is no substitute for getting out and playing among the best.

The same is true of China's companies.  Not that China is an easy environment for businesses generally, but it is for many of the State Owned Entities (SOEs).  Despite all the talk and the numbers regarding increased Chinese investment overseas, the reality on the ground seems very different.  I have yet to talk with anyone involved with China who does not say Chinese companies have been to slow to expand overseas. 

Though we read about the big Chinese companies like Lenovo and Haier and Huawei making strides internationally, most of the Chinese companies with which I deal admit they would like to become more international, but they have little idea how even to go about it.  Almost wwithout exception, the Chinese companies with whom my firm has dealt do need more time out on the international business court.  They need to practice, practice, practice. 

China is testing judges using computers to determine criminal sentences.  Judges using the software are to enter relevant details of the criminal case, such as the crime and mitigating circumstances, and the system suggest the appropriate sentence.  Judges still have the power to overrule the computer and hand down their own sentences.  The software covers around 100 crimes and has already been used in over 1,500 cases in Shandong Province.

The thinking is that software based sentencing will equalize the treatment of criminals, reduce corruption, and help make up for poorly trained judges.  Leading legal site, The Volokh Conspiracy Blog wisely notes that "the fact that something is "computerized" doesn't tell us anything; the real question is how the computer is programmed," while The Sentencing Law and Policy Blog has nothing but positives to say about China's test:

As my comment above is designed to spotlight, anyone concerned about the use of a computer for sentencing needs to consider why China should not be lauded for perfecting, rather than bastardizing, the concept of guideline sentencing.  Fanatics of sentencing reform (like me) should recall that Judge Marvin Frankel, in his landmark call for sentencing reform in Criminal Sentences: Law Without Order, raised the possibility of computerized sentencing:

It is not necessary, or desirable, to imagine that sentencing can be completely computerized.  At the same time, the possibility of using computers as an aid toward orderly thought in sentencing need not be discounted in advance.  James V. Bennett, for years the able Director of the Federal Bureau of Prisons, noted the possibility some time ago.

Marvin Frankel, Criminal Sentences: Law Without Order 114-15 (1972).

I am of the view that so long as the judge retains his or her discretion, this can only be good for China, at least for now. 

I am a big fan of the book Chinese Lessons, and of its author, John Pomfret, whom I have heard speak many times on NPR and who I consider an excellent guide to understanding the generation of Chinese who were young teens during the Cultural Revolution.   

Mr. Pomfret will be reading from his book at 192 Books (h/t to the Critical Mass Blog) in New York City on September 20 at 7 pm and in San Francisco at Stacey's Books on September 28, from 12:30 pm to 2:00 pm.   

Since I did my initial post on Chinese Lessons, the Prince Roy blog has somewhat unfavorably reviewed it.  Though I disagree with the Prince's review, I found it very thoughtful and I recommend reading both the post itself and its comments. 

Yesterday morning, one of my clients gave me a tour of his brand new Marlow Explorer, ~$4.8 million yacht.  Needless to say, it was absolutely gorgeous.  The craftsmanship was incredible.  Nearly everything was wood: the floors, the walls.  We talked a lot about fit and finish.

It was made at a state of the art facility in Xiamen, China. 

Then at lunch the same day, a fishing company client told me he will soon be taking his ships to Dalian, China, for repairs, because Korea (Busan/Pusan and Ulsan) has become too expensive.

Lloyd's List [subscription required] has a story on how South Korea's STX Shipbuilding (the world's sixth largest shipbuilder) is planning to open a medium sized shipyard and a ship block factory in Dalian, China.  STX's rationale for this move was that its domestic facilities in Jinhae and Pusan were at capacity and getting into China would enhance its "competitiveness."

Korea's Chosun Ibo newspaper recently wrote of China's increasing prowess as shipbuilder, entitled, "Chinese Shipbuilders Loom as Future Challenge to Korea."  The article describes Chinese shipbuilders as "fierce future competition for Korean dockyards for the lead in the international market," which lead is presently held by Korea. 

The article says Korea's big three shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, "still enjoy a solid lead, but Chinese rivals are pursuing them full steam ahead." China threatens "Korea in both quality and quantity by making forays into the high value-added liquefied natural gas (LNG) vessel field."

Korean shipbuilders occupy the first five spots in terms of order backlogs, with Hyundai Heavy Industries first, Samsung Heavy Industries second, Daewoo Shipbuilding & Marine Engineering third, and Hyundai Mipo Dockyard, one of two Hyundai Heavy Industries subsidiaries in fourth.  Hyundai Samho Heavy Industries regained fifth place pushing China�s Dalian Shipbuilding Industry to sixth place one month after having been overtaken by the Dalian yard.  China�s Shanghai Waigaoqiao Shipbuilding 'shot to eighth place from tenth", beating Korea�s Hanjin Heavy Industries & Construction and Japan�s Mitsubishi Heavy Industries. Korea's STX Shipbuilding, came in seventh, giving Korea seven of the top ten spots and 34.7 percent of the global market. 

The article goes on to describe the Korean shipbuilding industry as "jittery about the fact that China�s Hudong-Zhonghua Shipbuilding won a contract to build five LNG ships." China has made shipbuilding gains because of Beijing�s policy of nurturing the shipbuilding industry and "abundant cheap labor."

The article concludes by saying that "an industry insider predicts China will catch up with Korea in terms of the scale of shipyards in three to five years."  Logistics blog, 3plwire, says give it ten years. 

Read/Write Web, one of the leading blogs on "Next Generation" Internet, recently did a great post on China's internet as part of its series on top international web applications

The post begins with a market overview and quotes from Benjamin Joffe, CEO of Asian Internet consultancy Plus Eight Star Ltd and co-founder of the Mobile Monday Beijing Blog, who says "there is basically at least one Chinese equivalent for every single US web 2.0 service that is more than 2 months old."   

It goes on to say that big companies dominate China's internet market, rather quickly squeezing out the smaller ones. For example, in the blog hosting market, Blogcn, Bokee and Blogbus were among the first movers, but the big companies (Sina, Sohu and Baidu) have quickly taken over market share.  Joffe concludes that Chinese startups either "grow to over 100 staff and get their first million dollar round of financing fairly quickly, or disappear." 

The post also notes that "language barriers, difference in culture and government policies and regulations make it difficult for foreign companies to compete in China's market."

It then lists China's leading web sites. 

Baidu is China's leading search engine, and 4th ranked in the world. It has an index of over 740 million web pages, 80 million images and 10 million multimedia files. It also offers blogs and other services similar to the US Internet giants.

Sina is China's leading web portal (news, entertainment, email, search, etc).  It is very similar to Yahoo.  Sina is the 7th biggest web property in the world, just behind MySpace. It has approximately 95 million registered users, 10 million of whom use its fee-based services.  It has an estimated 3 billion page views per day.

Sohu is a "mass portal and leading online media destination. It's the 12th biggest web property globally.

Sina, Sohu and Baidu are all listed on US Nasdaq and each is valued at over $500M.  China has four companies in Alexa's top 10 web properties in the world (Baidu, qq.com, sina.com, and 163.com). The US has five in the top 10 and Japan has one.

The post then lists the following as China's leading Web 2.0 sites, and links to profiles of many of them at the China Web 2.0 Review:

• Douban: A book, music and movie community (profile);
• Podlook: A  Chinese podcast  directory  (profile);
• Dianping: Local business review and search service, some introduction here;
• Wealink: business social networking service;
• zhuaxia: online rss reader similar to rojo (profile);
• Sohu Blog: blog service by Sohu, a popular internet portal site, just upgraded to allow adding various widgets into their blogs;
• iephotoshop: online image editor;
• Feedsky: Similar to Feedburner;
• Editgrid: Online spreadsheet (profile);
• Maxthon: IE based browser;
• City8: online map service with local real view;
• eDushi: online 3D map service;
• Qihoo: BBS and blog search and aggregator;
• wretch.cc: Taiwan-based blog and photo album service;
• 8box.cn: music discovering and sharing service (an interview with its founder).

The post then recommends the following blogs and news sites for more on China's internet:

• China Web 2.0 Review blog
• mobilemonday beijing
• web20asia.com
• Virtual China
• China Word of Mouth blog

In addition to the post itself, I urge reading the many comments to it, as those recommend many additional Chinese sites. 

The other day I did a post, entitled, "China Bubble Redux" criticizing an economic analysis that sees China as "living through one of the greatest historical bubbles."  The writer of that analysis, Vitaliy Katsenelson, responded to my post by doing a new post entitled, "China Redux." 

His same post also made it on an investment site, called Minyanville, which called it, "China Speed, Part Deux."  I find it funny that a site would bring in French (the "deux" part) to describe a discussion between a Russian-American (I learned through e-mails that Mr. Katsenelson) is originally from Murmansk, Russia, and an American on China.  True globalization, I would say. 

Though Mr. Katsenelson and I still disagree regarding China's future, his writings and our friendly e-mails left me impressed. My comment on his blog pretty much sums up our disagreements:

You make a lot of good points and your analysis is sound.

I would have much preferred if your analysis were not so good so that I might step in and "enlighten" everyone as to how things really are. But, when you get right down to it, I think all of our disagreements are of degree, not kind.

I do not see it taking as long as you do for China to diversify. I do not see China becoming a software outsourcing center within 5 years, but I do see its economy becoming much more consumer and service oriented in that time.

I also think you are right to point out the bad loans as I see that as a potential weak spot, but I think your numbers on that are too high. I have heard, for what it is worth, that only around 8% of the loans are considered, "bad." Of course, who really knows?

Anyway, you obviously know your stuff and it has been interesting discussing this with you so I am going to do another post on this on my blog.

I urge you to read Mr. Katsenelson's full post.   

A couple weeks ago, an American company contacted us about representing them before the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing.  The American company claimed to be owed hundreds of thousands of dollars by a Chinese company that had failed to make final payment on a large piece of industrial equipment.  The Chinese company was contending the equipment did not work as it should.

The American company was absolutely convinced that if we brought the arbitration, the Chinese company would settle quickly.  We insisted the exact opposite would likely be the case.  I know we are right, and here is why:  Chinese companies almost never settle their in country litigation matters. 

In the United States, something on the order of 97% of all cases in the United States settle.  Indeed, Houston based mega-firm, Fullbright & Jaworski concluded that 60% of the cases it took to trial settled before a verdict could be reached.  I actually think the settlement numbers are even higher on business litigation matters, but I am not aware of any study on this.  The reasons usually given for nearly every case settling are the huge costs of litigating and that both parties usually have a pretty good idea of how the court is going to rule.  I agree with both these reasons and neither usually apply in China.

Chinese judges often complain to us how cases in China almost never settle.  They attribute this to the newness of so many of China's laws and so few Supreme Court decisions on them.  Without clear and established law, nobody knows how the court will rule.  The lawyers with whom we work in China say the same thing.  We hear that around 90% of the business cases filed in China actually go to trial.

Adding to the problem is that many cases in China do not require an outside lawyer (this is always true of CIETAC arbitration) so that Chinese companies can and do fight their lawsuits without having to pay anything at all.  Because Chinese courts rarely award the winning party its attorneys fees and are slow to award much in interest, there is little incentive to settle quickly. 

So using the American company's breach of contract case as an example, one can quickly see a smart Chinese company defendant in this case being very reluctant to settle.  First off, the Chinese company will probably choose to handle the case without a lawyer, so its costs will be minimal.  The American company, on the other hand will, ideally, use an American lawyer who speaks Chinese. 

Secondly, it is likely the Chinese company will either fully prevail or lose entirely, depending on whether it can convince the arbitrator(s) the product was bad.  If the Chinese company prevails, it will owe nothing.  If it loses, it will almost certainly owe the full amount of the claim.  But, is it not better to fight until the bitter end and at least gain the time value of the money? 

Thirdly, even if the American company prevails, there is still the very sticky matter of collection.  The Chinese company might shut down and form a new company.  The Chinese company may just shut down.  And, even if it keeps operating, it very well might take a lot of time and even more money on legal fees to get them to pay.  In the meantime, if it wishes, the Chinese company could initiate settlement discussions. 

The Hoaran blog recently did a post commenting on the thrills and the agonies of how everything in China is "in progress":

living in china is like peeking behind the scenes of how things work. nothing is finished and everything is "in progress". because of this, you get to see the infrastructure of a society and see how it functions - its built environment and transportation infrastructure, its economy, its legal system, its workplaces and schools, its shopping malls.

on the surface, you are confronted first with endless construction. in fact, i don�t think there is a person living in Beijing who is not within a block of a building site. so� if you observe, you see how a field is cleared for construction, how the foundation is laid, the concrete structure established, the scaffolding erected, the worker�s temporary housing built, etc.

at the workplace, you see basic filing systems and h.r. policies being set up. management strategies, business processes and procedures, consistency between offices and other basic systems are still being figured out.

The Hoaran blog is written by an attorney and he sees this same "in progress" situation in the legal arena as well:

in the legal system, practicing judges, lawyers and customs authorities are being trained in basic legal issues. laws are being adjusted all the time. cases are constantly being tried for the first time with no predictable outcome because there is no precedent, no body of legal theory, and no previous experience to rely on

Parties in the United States can settle cases because they essentially agree on the likely outcome.   There is always a 10% chance of an aberrant verdict either way, but within the 80% of expected rulings, the numbers are usually close enough so that both sides can reach agreement at some number near the top of the bell curve.  But since China cases have no bell curve and no 80%, settlement is as much a gamble as trial.  Since going to trial often costs only marginally more than not going to trial, there is little incentive to do anything but see the case through. 

A good contract can not only help prevent the need to litigate, but it can make settlement of any dispute more likely.  A contract that is so clearly written that both sides will have an easy time predicting how the court will rule makes settlement more likely.  A contract that requires the losing party pay the winning party's attorneys' fees also helps, but may not always make sense.  A contract calling for mandatory arbitration without appeal and requiring the posting of a bond will often also make sense. 

Inside Counsel Magazine (formerly Corporate Times) is conducting an on-line poll right now asking whether "China's patent laws do enough to protect intellectual property?"  Since this magazine's readership is primarily in house corporate counsel, the answers could be instructive.  Sixty-six percent said no, sixteen percent said yes.

I draw two conclusions from this survey (assuming the survey population is large enough to draw any conclusions, which is unclear because no voting numbers are given).  One, in-house counsel are unhappy with China's protection of patent rights.  Two, in-house counsel do not fully understand China's patent situation. China's patent laws are fine.  The problem is not the laws; it is the unnerving frequency with which companies in China violate patents and the difficulty in getting Chinese courts to inflict sufficient punishment on patent violators to make future violators think twice.

So though on one level the in-house lawyers have it right in having little faith in China's patent protection system, I fear their blaming the existing laws might cause them to believe there is nothing they can do to protect their patents, when in fact there is.  Companies with valuable patents should register them in China and aggressively protect them, just as they do elsewhere.

It is difficult to protect your patent in China (but certainly not impossible) now, but it is getting better all the time.  Failing to register your patent in China means no protection now and no protection later, no matter how much better China gets with protection.

However, the cost benefit analysis for registering your patent in China will be different than in the West.  In determining whether to register your patent in China, you should consider, among other things, the following:

• The cost to file;
• That filing for your patent exposes it to patent thieves; 
• Your willingness to pursue patent litigation in China;
• That even if you prevail in a patent lawsuit in China, the damages will very likely be shockingly little; 
• Your specific patent, your specific business, your competition in China, your market.   

For more on patent strategy, I recommend the following:

• "International Patent Strategy," by Rajiv Patel and Neil Maloney of highly regarded San Francisco mega law firm, Fenwick & West;

• China Patents:  A Must Have;

• Designing a Patent Strategy.

I spent 11th grade in Istanbul, Turkey, attending Robert College (a high school).  In Istanbulback then, for some truly unknown reason, Maverick jeans were the jeans to have.  As an American, I would never have been caught dead in Mavericks.  I mean, they were being sold at K-Mart in the U.S. and people in places like Paw Paw and Vicksburg were wearing them.  However, because they were so desirable among the Turks, I arranged for a friend of a friend to bring me ten pairs (at a total cost of $50) and together we leveraged those ten pairs into a beautiful leather coat for the both of us.  Taught me coolness is location dependent. 

Seems Tang is China's Maverick.  Yes, that Tang -- the disgusting powdered fake orange juice drink I am proud to say I never liked. The one the astronauts drank.  Bet you have neither seen that drink nor thought of it for at least ten years.  Until today. 

For it seems Tang is making a comeback.  In China.

Crain's Chicago Business recently did a story entitled, "The Tang Dynasty: China loves it," on Tang's fast rising popularity in China and elsewhere outside the United States. Made by Kraft Foods, Tang sales grew 7% last year, with all of that growth coming from "places like China, Saudi Arabia and Mexico."  U.S. sales are down 75% in the last four years "where it went from the pinnacle of 1960s cool. . . to the depths of 1970s derision as the choice of 'Saturday Night Live' nerds Lisa Loopner and Todd DiLaMuca, played by Gilda Radner and Bill Murray." 

Tang's China sales rose 12% last year and in an effort to create its own Tang Dynasty, Kraft will be introducing Tang with Milk and Tang Fruit Tea.  There is even talk of trying to revive the brand here in United States some day. 

I would love to hear ideas for more Tang like products out there that would do well in China.      

Yesterday I did a couple of posts (here and here) on China's new media "laws," wondering how new they really were and whether they would be enforced.  I was calling them laws because that is what they were being referred to in many of the articles I was reading. I have now become convinced they are not laws; they are more like policy directives.  Big difference. Indeed, it appears they did not even come from the government directly; they came from Xinhua itself, which though state owned, is not the government.  Another big difference. 

Never mind.

China is more than just a manufacturing center.  It is also more than just a place to save money.  It is a place where money can be made. 

Many companies read how China is not yet a consumer society (how exactly is that determined, anyway?) and hear about cut-throat pricing and want no part of China from a selling side.  My own indirect experience (as legal counsel to countless small and medium sized companies that are doing very well selling all sorts of items in China, both consumer and commercial) tells me there is money to be made.  Articles I read and conversations I have had reinforce this view.

I just read here that Lochan Tea Ltd, a Siliguri, India, based company, has big plans to sell its Darjeeling Tea to China.  Now I know that this venture might flop, but can we not all agree the mere fact this is being attempted speaks volumes about China's potential as a marketplace? 

The media is abuzz with today's announcement of new rules in China governing domestic distribution of news content by foreign media organizations.  The new rules mandate that state-run Xinhua news agency has the sole right to distribute and release foreign news and information in China and foreign news agencies shall not solicit subscription of their news and information services in China. The new rules are effective immediately. 

I do not know enough about the old rules to know how significant these new rules really are.  Indeed, until today, I always thought these so-called new rules were the old rules, though not always scrupulously followed.  I am hoping (and expecting) some of the more media savvy China bloggers (such as Imagethief, Asiapundit, EastSouthWestNorth, China Confidential, China Rises or Danwei) will enlighten us as to the meaning of these new rules. 

In the meantime, however, those wanting to know more about this can check out posts here, here, here, and here. 

I recently posted on what could go wrong in China from a macroeconomic perspective, linking over to DiligenceChina blog.  We got some good feedback from readers here, especially the wise comment by Mr. Li, but I want to highlight a new post worth reading on the topic.

The post, written by Vitaliy Katsenelson, VP with Investment Management Associates and a teacher of equity analysis at the University of Colorado, entitled, "The Great Bubble of China?"  posits China is "living through one of the greatest historical bubbles." 

Katsenelson sees China as a manufacturing country built with high interest debt.  He sees China's fall occurring due to factory overcapacity, a rise in the cost of money, and/or a slowing U.S. economy.  Kastsenelson even has titles for the books he sees being written after the fall: 'The Chinese Conundrum' or 'The Great Chinese Bubble' or 'Irrational Exuberance 2.'  The author's investment advice is to take your money out of commodities and to forget about investing in Chevron (CVX), Exxon Mobil (XOM), or Conoco Phillips (COP).  Katsenelson equates the idea that all companies need a China strategy to the idea in the late 90s that all companies needed an internet strategy. 

Call me part of the bubble, but I disagree with Katsenelson on all points.  China is a manufacturing country now, but it is rapidly diversifying from that.  Its consumer and service sectors are rapidly rising and even if they were not, I could see manufacturing tailing off and stabilizing, but I cannot see it crashing.  If labor costs in China rise such that companies take their manufacturing elsewhere (Vietnam, Indonesia, and the Phillippines come to mind), and China has no industries to replace it, labor costs will stop rising.  On top of this, China's advanced physical and legal (yes, legal, at least as compared to lower cost countries like Vietnam, Indonesia and the Phillippines) infrastructure creates real value for manufacturers.

I also find fault with the view that a U.S. slowdown will crush China.  Firstly, there has to be a U.S. slowdown on trade with China.  Secondly, the U.S., though obviously of huge importance to China, is not everything.  Thirdly, though I do believe there will be a slowdown at some point (there has to be!), a slowdown is not a crash. 

It is interesting to note that in this post from June, 2005, entitled, China Speed -- Running Into the Great Wall," Mr. Katsenelson said pretty much the same thing he is saying now.   So when is this bubble going to pop and why did it not pop in the last year when all of these same bubble poppers were purportedly in place?   

Comments, as always, are very much welcome. 

In a recent article, entitled, "China: The Next Software Center," Leonard Liu, CEO of Augmentum, a Silicon Valley software services company with offices in Shanghai, states China is still years away from becoming a software outsourcing center. 

Liu notes that no Chinese company comes close to rivaling Indian outsourcing powerhouses like Wipro (WIT), Infosys (INFY), and Tata Consultancy Services and says that those who predicted a quick rise for China's software industry didn't understand the business:

While it's easy to build up a manufacturing base, creating a knowledge industry takes a lot more time, he says. "Software experience is nothing that you can get very quickly," Liu points out. "You can rebuild a TV factory that you had in Japan, because most of the work is automated, and workers can be trained very quickly. However, software is a knowledge effort and it takes time for team members to form."

Liu goes on to predict it will take another ten to twenty years for China to be a big player in the software industry.  Is he right?  Who will actually lead that charge?  Will it be "American" companies like Augmentum, Indian companies like Wipro, Infosys, and Tata (which are already in China and expanding), or will it be local Chinese companies? 

For more on China software outsourcing, check out the following:

1.  SDF China: Opportunities and Challenges

2.  China Invades the Service Outsourcing Industry

3.  China Outsourcing -- Consolidation Waiting (And Waiting) To Happen

4.  India and China for Offshore Software Development services

5.  Big Bucks in China's Software Industry 

For an interesting and thoughtful post on perceived evils and dangers of outsourcing, check out "Outsourcing to Hell." 

We often discuss ways to protect your business, your brand, your Iintellectual property rights (IPR) and other um . . . valuables.  But that is all from (naturally) a legal perspective.  For a good read on what might go wrong in China from more of a business/finance perspective, I recommend reading posts, here and here, over at DiligenceChina blog.  As always, we want to hear from our readers.  What do you think?  Having lived through the dot.com boom and bust here in Seattle, I have to admit the cigar thing does scare me just a bit. 

Dell Computer recently lost a trademark infringement lawsuit in China and I certainly hope that case is never cited as an example of China not enforcing intellectual property rights (IPR) because it is not (h/t to Asia Business Intelligence and to the IP Dragon).  The case was decided in Beijing and we are looking to see if we can acquire a copy of the decision.

Dell lost and, from what I have been able to garner about the case, deservedly so.  Dell claimed that a mark pronounced "De er" being used by the defendant infringed on a Dell mark, pronounced "Dai er."  The two marks neither use the same characters nor are they pronounced the same.  On top of this, the Chinese company registered its mark in 1997.  Dell sought to counter all of this by arguing it was so famous, it had to be an infringement.  The court rejected this argument.

Bottom Line:  If you want your trademarks (or words that sound like your trademarks) protected in China, the rules could not be more simple: register them.  If your name is Dell and you want both "De er" and "Dai er" protected, register both of them.  Doing so is exponentially cheaper and more reliable than pursuing a trademark infringement lawsuit. 

The New York Times Magazine just did a long story (six internet pages), entitled, The World According to China, on China's UN ambassador, Ambassador Wang Guangyu that does a pretty good job both of explaining how Beijing sees itself and/or how it would like the world to view how it sees itself (h/t to the Paper Tiger and to 3QuarksDaily). 

This is the Ambassador's first lengthy interview with a Western reporter.  He is described as part of "a new generation of Chinese diplomats vastly more sophisticated and better educated than the party ideologues of old."

A sample from the article:

China and the United States are the twin b�tes noires of the U.N.: the U.S. insists on enlisting the organization in its crusades, while China refuses to let any crusade get in the way of national interest. Washington is all blustering moralism; Beijing, all circumspect mercantilism. Both can afford to defy the consensus view.

The Paper Tiger (a/k/a Other Lisa) had this interesting commentary on the above quote:

On my first stay in China I had the sense of China and the US as being opposites engaged in an interdependent dance (although we didn't know it yet), two huge countries that were nothing alike and yet oddly the same, in a way mirror-images of the other.

I too have always been struck by how much China is like the United States and, yet, of course, very different.  Now I know that one can say this of every country, but I constantly think this when I am in China and this feeling is unique to China (at least in Asia).  When I am in Korea or Japan, I am much more cognizant of the differences than the similarities. 

Do other Americans see China the same way? 

The Imagethief blog did a post the other day, entitled, "What Was Foxconn Thinking?"  seeking answers as to why Foxconn (Apple Computer's contract manufacturer in China) had sued two journalists individually for having reported on Foxconn's treatment of its workers.  Foxconn not only sued the two journalists, it secured a court order freezing their assets.  It does not take a PR genius to figure out what this lawsuit has done for Foxconn's already damaged image.  Imagethief, which is written by a PR guru, was asking about Foxconn's mental capacity from a PR perspective and it asked for China Law Blog's input from a legal perspective.

But in my answer to Imagethief (which can be found here), I did not discuss the legalities of the lawsuit because I just could not get past the PR blundering.  I was appalled by the strategy (really, the lack of any strategy) behind the lawsuit.  My feeling was that any damages Foxconn might hope to get, even assuming a total victory, would be so far overwhelmed by the damage to their reputation and by the legal costs, they could never be victorious.  I am guessing Foxconn thought their lawsuit would intimidate journalists planning future stories on Foxconn. 

Today, however Foxconn dropped its ridiculous lawsuit. 

Bottom Line:  Litigation often involves more than just what transpires in the courtroom.  If a company suspects it is going to be involved in such litigation or is involved in such litigation, it should get its lawyers and, sometimes, its public relations people as well, to analyze all potential benefits and repercussions involved.   

Twenty year old Luo Xiaoming died at a friend's house after drinking too much.  His parents sued the homeowner and the Yiwu City of Zhejiang court awarded them 35,192 Yuan (US$4,399) in compensation. According to the China Daily, this landmark "case has stirred up controversy about who was really responsible."

So what does this have to do with business?  A lot. 

This case is another indication of China's judicial evolution.   The ruling in this case would almost certainly have been different ten years ago (even five years ago), even in Shanghai or Beijing.  Albeit slowly, China -- and with it, its courts -- is moving from a policy of economic growth at any cost, to one where the "little guy" gets some protection.  This particular case involves dram shop laws, but there have been other cases involving employee rights, environmental rights, and securities fraud. 

What this means for businesses (particularly foreign businesses) in China is the following:

1.  Worker's rights will increase.  Note the recent events at Wal-Mart and with FoxConn/Apple. 

2.  China's product liability and other tort laws will get tougher.  Can anyone translate Ralph Nadar into Chinese? 

3.  China's environmental laws will get tougher.

4.  Damages in court cases will increase. 

5.  The types of claims will expand.  New causes of action will be accepted. I did a post the other day about a decision finding no compensation for a damaged sex life due to the injury of a spouse.  Will anyone bet against such claims being accepted in China within ten years?

Many years ago, the Tokyo's Yomiuri Shimbun interviewed me for an article, entitled, "The Americanization of Law," the thesis of which was that American law and American lawyers influence business laws the world over.  Call it Americanization or whatever else you want, but the trend towards an overall liberalization of laws is so common as to be almost inexorable. 

In the United States, California typically comes first and then other states follow.  Canada and England seem to take up U.S. liberalized laws five to fifteen years later.  I have seen this in Korea, where ten years ago there was no piercing the corporate veil, but now there is. 

I am not saying China is going to take on U.S. laws hook, line and sinker, but if you want to get a feel for where China's laws are heading, start studying United States law and reading U.S. court decisions.   

I was in my Seattle office today talking to a potential client in Orlando, Florida, and I decided we needed to bring in Steve Dickinson to discuss certain China issues.  Steve is in Shanghai. 

The client and I agreed the three of us would talk further early next week.  But at what time?  Seattle is GMT-7, Orlando is GMT-4, and Shanghai is GMT +8.  I immediately went to timeanddate.com and determined the best time for us to talk would be at 5 p.m. Seattle time, which will be 8 a.m., Orlando time, and 8 p.m., Shanghai time.  Thank you timeanddate.com. 

Timeanddate.com is indispensable if you conduct international business.  Check it out. 

Thomas P.M. Barnett is one of the few people who truly understands world politics.  Among other things, he understands how countries develop.  He is not a China expert per se, but it seems every time he applies his overall knowledge of the world to China, he is right on.  His latest post on China, entitled, "The normalization of China proceeds apace," is classic Barnett in that it is short, to the point, and, most importantly, dead on.  If I could write like he does, I would be writing books also.

Barnett posits that China is veering towards normalcy and we in the West should be both happy with this and encouraging of it.  In other words, we should not fear China's rise, we should welcome it.  Barnett uses China's coming to grips with its environmental problems as proof that China is, as the cliche goes, joining the world community.  Or, as Barnett puts it, China is moving from what he calls "the Gap" to "the Core" (see his handy glossary here).  China's development is "the answer, not the problem":

What's amazing about China's rising pollution is not that it's rising (with development, local pollution rises dramatically and then tops out and declines as the population begins to value the environment more than that extra income per capita--a curve proven the planet over), but that the Chinese government so openly admits it and seeks to deal with it. That shows a growing deference to the needs of the average person, and a fundamental realization that bad environmental policies can--in themselves--be a significant trigger for social unrest--the great bugaboo of this regime.

While local pollution tops out with development, historically, a country's contribution to global pollution does not. So there again, the faster a country like China grows and integrates with the Core, the sooner we get its cooperation on the larger global pollution issues (like the growing role of China in greenhouse gas cap-and-trade regimes).

So no matter how you cut it, development is the answer, not the problem. Ditto for globalization. Look at Dan Estes' Environmental Sustainability Index at Yale : the least globalized states tend to cluster at the bottom of the index, and the most globalized tend to cluster at the top. The states moving from Gap to Core are on the lower end as well, but you need to see the critical mass on both pollution and development be reached before the larger trade-offs become apparent. Absent the development, the public and government just say, "The hell with it, we need development first!"

Barnett's post is similar to the view I expressed in an earlier post when I said that, "Put simply, Copenhagen can afford a state of the art sewage system; Freetown, Sierra Leone, cannot."  The same holds true for IP protection and corruption.  Wealthy countries can afford to protect IP and pay their civil servants enough to minimize corruption while poorer countries cannot.  China is not exceptional; if you want to see how China is going to develop over the next 15-30 years, study Japan and Korea.  They were once part of the Gap and now they are Core. 

For more on Barnett's Gap and Core, check out the following:

1.  Barnett: The Pentagon's New Map 

2.  Half Empty?

3.  Is Singapore Resiliant?

4.  Driving from the 21st to the 15th Century [Russia]