First Official Day: Shanghai Old & New

Rushed about like kindergardeners on the first day of school, Master Ning shepherds us safely with soft, but stern words from the JW Marriott hotel to the Shanghai Urban Planning Exhibition Hall.

Bragging rights for the biggest and baddest city model are up for grabs (we visit the Beijing counterpart in a few days). The model shows the present and future Shanghai, an expanse that is presently home to 20 million souls and is expecting more...

The scale model is sexy and super-sized (800 square meters), but has a practical use, too, as city planners can envision the flow and arrangement of 21st century urban living for one of the world's largest cities and with the second highest-building under development in the Pudong area. Pudong (East of the HuangPu River) was not-so-long ago farms and fields (1990). My my, little Pudong has grown.

The Bund, across the river in the Puxi District (West of HuangPu), is the location of the trading houses when Shanghai was sliced and diced amongst the various colonial powers during the dynastic periods. Various "concessions" were let to the European powers after Chinese effort to expel the foreign bodies were variously repressed--winner takes all. The vintage Bund is a lyrical contrast to the Jetsonian Pudong.

Our Shanghai urban tour and education, a mere sip from a vast ocean, wraps up with a visit to the Xintiandi (New Heaven Earth) district, which was one of the tonier areas of bustling 1920s Shanghai during the period of time when China was, briefly, a Republic. The characteristic "Shikumen" housing is as iconic of Shanghai as the Hutongs are of Beijing.

There are many references to Earth meeting Sky (or heaven) in China's culture. The term "Middle Kingdom" comes from the sino-centric notion that China (Zhong Guo--Center Country, literally) is in middle of everything between Earth and Heaven. (Literal translations don't really play out the context of the Chinese language; often a paragraph, or more, is necessary.) Gives one a necessary perspective on the attitudes of a rising superpower and is a frame of reference for not only one-on-one relationships (stones in the bridge) but on more global matters that people-above-my-pay-grade get to grapple with.

Xintiandi is now reborn as even more tony, with restored period housing hosting bars, cafes and other diversions.

And minivans.

Here, in one of the restored/preserved Xintiandi homes, our Lori Dovell checks out the appliances and wonders where the espresso machine plugs in.

But we're not on a historical tour here and have serious business to conduct. So we head to lunch, departing for the first organic Cantonese restaurants in Shanghai, the Ming Tang restaurant.

Our host is owner Dr. Winston Chan, a long-time MCBC board member who has operated the Ming Tang for the past two years, shuffling between Maryland and China, overseeing various activities on both sides of the Pacific.

Winston is a successful IT entrepreneur with a PhD in geophysics and welcomes seasoned representatives of Maryland-based Black and Decker and RTKL.

Towson-based B&D is the well-known tool maker that uses the strong backs of Chinese labor to realize US-designed tools; Zhou Qin gives a brief perspective on the workforce.

Baltimore-based RTKL is arguably one the most successful architects in China; Greg Yager has decades of overseas experience and provides some perspective for us in the service sector.

We got our businees fill and lunch was delicious.

Corporate Visits

Next were visits to successful Wall Street English based in Baltimore, MD. The model for WSE is to use direct, interactive methods to challenge students to immerse themselves in the language. The model has been very successful, and the company has taught over 2 million student the lingua franca of international business.

Here, Secretary McDonogh poses with the Director of Wall Street English in Shanghai.

One of the hallmarks of any business is longevity and perseverance, not unique to China business. WSE was skeptically received by the local business community when it set up operations. "No one will pay the prices you are asking for English language classes" went the line. The key, though, is digging through, going under or over the wall of naysaying. As our dinner guest Ms. Roberta Lipson of Chindex noted during our trip: "In China, everything is difficult, but nothing is impossible."

And, as we have seen, American Icon "brands" are well-received and well-respected here.

Two of our crew who are keen on education, Steve Drake and Ernest Wagner keep their oars in the water and their ears tuned for opportunities in distance-based learning, taking cues from the successful Wall Street English.

Expo

We spent a few rainy hours at the Expo, visiting the US and China Pavilions in express fashion. Travel tip: find yourself a Secretary of State and a couple of VIP passes and save a few hours of standing around.

"Better City, Better Life" is the theme of what might be the final grand Expo in our lifetimes. Speculation has it that the resources necessary to put these big events on are quickly dwindling. The US pavilion, for example, almost didn't happen as the US Congress forbids the use of public funds for this kind of activity.

China, for her part, provided several tens of millions of dollars to various developing nations to come and support the six-month show. After the event is shut down, most of the 170-odd pavilions will be scraped away and the area used for redevelopment into condos and a Better City.

The final evening in Shanghai was capped by a banquet at the JW Marriott hotel. The event, attended by over 150 of our closest friends, provided an opportunity to highlight the trade delegation and thank our various sponsors, both in the US and in Shanghai.

Shao Ning presided and gave an overview of the mission's objectives. This particular mission is different from many others in that the focus is on creating real connections. Throughout our visit, the vision of increased cooperation, echoed by official and the commercial interests, is the only way forward.

Our own Fontaine Bell, who has done much of the heavy lifting during the preparations and execution of the mission, provided remarks to the group.

Of course it takes more than one to get things moving, as these guys know and Ms Yan from Shao Ning's office is our Radar O'Reilly, with schedule, pen and a sweet smile.

Here, she poses with our old friend Anthony Goh, one of the co-founders of the Maryland-China Business Council. Anthony lives in Beijing and dropped by to see us as we welcomed former Ambassador Zhou (more on that later).

Anthony's business is in developing cooperative projects between US technology firms and Chinese customers. The trick to a successful enterprise is to get the agreements worked out, identify sub-contractors and protect partners' interests. Anthony recently worked on water purification technology, assembling the pieces of the cooperation and implementation.

Quitting Shanghai, we headed northwest to Beijing; the phrase "herding cats" was heard several times. By Xiamen, these cats will be a cohesive and integrated group. The one cool thing about travel with internationally-oriented like-minded thinkers is that the "small stuff" ain't worth sweating.

Off To Beijing

Washington Labs/ACB Open Office in Beijing

Taking a break from the hustle of the delegation, I made my way up to the area of the Olympic park where we have opened a joint Washington Labs/American Certification Body office. Jerry Lee, who heads up our Shenzhen team and oversees all of China, has created an efficient working space to do our thing.

The space is walking distance to the MuDanYuan (Peony Flower Park) subway station and close to several critical customers, TMC and ZTE, notably.

Our staff has expanded and the WLL Chinese Entity (Washington Technology International) will provide review, endorsement and engineering training for Chinese customer labs. We will be part of the circular supply chain that connects the US and China industries and consumers.

We now have three staff dedicated to helping US manufacturers satisfy regulatory needs to IMPORT to China. After years of working the other direction, we're going to try to help balance the trade.

A key feature of our China team is its youth. As an aside, during a conversation with one of my longest-standing colleagues and friends, I asked what challenges the "mentors" in China have. The response: Teach Marxism. Seems the youth have little interest in the topic; they just want to be successful and build a better life for themselves. Maybe we can do it together.

We had lunch in a Thai place, greeted with Christmas wishes from Ganesh.

Embassy: Fortress US

We weren't invited into the inner sanctum, but we did have to work through a myriad of blast doors, cross-checks, video surveillance and X-ray examination (provided by a Maryland-based manufacturer). I suppose in the interest of propriety I won't share the name, but they're at every major airport location. The new Embassy in China, relocated from the center of the city, is the largest in the world. Your correspondent visited the old embassy some years ago and the first comment is that there is little in the way of "charm" in the new digs, unless you're a concrete aficiando. The old location was a block away from the biggest open-air knock off markets in Beijing, selling US Brands dirt-cheap in the US' shadow, one of those odd China paradoxes.

We were greeted by officials from the State Department and our beloved Commercial Service and given a sit-down, free-ranging "Insider's View of China 2010." A summary of their remarks are provided (all recording devices, cameras, iPods, electronic doo-dads, & gadgets, etc... were surrendered, so the following is eyes and ears and ink only).

First, what's bugging post-Mao China? Well, from a US-Centric point of view, there are four key areas of concentrated focus: 1) Global recovery (read: jobs), 2) Nuclear non-proliferation, 3) Regional security (read: Iran and the North Korean funhouse) and 4) the environment. As background to those pressing issues is the "oscillating" relationship between the two largest economies, impossible to summarize in a few thousand, or more, words. The key thrust of the US' effort is to have a conversation to address these issues but to advance to a broader strategic dialogue to include the four key areas above and tackle our shared problems.

And then there is the issue of human rights. And Taiwan ("visceral" is the word that was used); the concern is that, if there is a misstep (whoops! there's goes an errant missile) can we take steps to correct it? The positive side of the Taiwan issue is that the present leadership is more realistic, framing the context of the relationship in a more economic framework. And, direct flights between Taiwan and the mainland are finally allowed and, with a special pass, Chinese nationals can take a holiday in Taipei! My Taiwanese colleagues see the eventual merging of the two systems... maybe in a generation, but it certainly makes cultural sense. And maybe the pie is big enough to go around.

At any rate, the global stakes are REALLY huge and the US' mission is to bring China along as more of a partner. But sometimes it is like getting the bride's attention at a wedding, there is so much going on across the seemingly limitless matrix of social, political and economic challenges. The point that was driven home was that many of the world's problems can be addressed (not solved, mind you) by China and the US working together. The times call for "expanding the universe" of dialogue.

It is an "exciting" time and Hu Jintao is coming over to visit Michelle and Barak in 2011, which will be only the third state visit in the Obama's administration. Hopefully, the reception will be without the bizarre faux pas that occurred during his visit under Bush II. Regardless, I asked one China-hand how Obama was viewed by China and the interesting answer was that the Bush family had deeper connections because of Father Bush's ambassadorship. At any rate, the dialogue will be ongoing and the good news, from an energy security POV in the Persian Gulf and Middle East is that China used to foster "destabilizing forces." Now, the stability of the region is in their own strategic interest. You can't drop broken glass in the sandbox your kids want to play in.

One Bowl, One Baby

The one child policy is shifting the demographics and the population is aging. By some estimates, there are 20% more men than women in this society. That may be true, but the old adage about statistics stands and at least on a micro-basis I know several young pursuable ladies who are unsuccessfully trolling for a guy. In Holland, you have your pick of tulips, so maybe they are more discriminating. I think this guy is in pretty good shape, micro-statistically anyway.

At any rate, there are some loopholes in the policy, for example, you can have a second child (if you avoid a state-mandated abortion) if you pay a fine of about $30,000 (steep!). Or, if you divorce and remarry and don't take custody of your one kid, you can have a baby with your new paramour.

There's a 5 year rule that says if both parents are from one-child families, they can have two children (with a 5 year spacing), and if you're a dirt-poor farmer and can't pay the fine, you say "what the heck, I'll have more kids anyway. Fine me all you want, just don't take my water buffalo."

The interest in the US, though, is perennial. Over 100,000 Chinese want a US visa each year and the system for vetting the applicants is strained. The scrutiny of the hopeful travelers is, in some opinions (including mine) excess. "There were few Chinese flying planes into buildings..." Many of them potential investors in a struggling US economy as there is a lot of liquidity in the system and certain restrictions (on the Chinese side as well) need to be lifted to allow FDI to flow into the US.

As for doing business in China, some of the potential areas of interest were summarized by the Embassy Staff:

Legal: Difficult to break into
Accounting: A little easier
IT: Good prospects for outsourcing
Healthcare IT: A BIG push to modernize
Construction: State run: forget it, however sourcing provides great opportunities.

Our brief encounter could have spanned several days, however, it was time, again, to go to lunch.

CCPIT and Mr. Wan

We are greeted by Mr. Wan Jifei, chairman of CCPIT, the organization that first got me started in China in 1999. Mr. Wan's father (Wan Li) was the governor of Anhui province 30 years ago when the sister state program was started.

In honor of Mr. Wan's dedication to Maryland, SoS McDonogh gave a plaque to the senior Mr. Li, continuing the friendship throughout two full generations.

Energy China? Dinner with Shi Dinghuan

Professor Shi is one of 1000 science and policy advisors reporting to the inner power circle in China. He is Counsellor the State Council and Former Secretary-General of the Ministry of Science and Technology. He is, clearly, as one of our group pointed out, a subject matter expert. Fueled by a spicy Sichuan dinner at the New South Restaurant ("where chili peppers reign") we were treated to an expansive and cogent conversation about Energy China. Here is a summary of his remarks as recorded by the author; the actual transcript was mistakenly dropped into the sizzling "Mapu Tofu".

Professor Shi began with an assessment and ended with an outlook. The near-term reality is that China 30B MT of coal is burned yearly and coal is a long-term factor in her energy. Petro and nat gas 10%. Nuke is 3%, but growing with cooperation with Westinghouse. Oil field capacity is decreasing, the oil is mixed with water, which reduces the quality and yield from the existing fields, so it is very costly. The objective is to reduce the dependency on oil and increase the use of alternative and low-carbon forms of energy. The wind power capacity is second to Germany, although in one of our discussions with the embassy folks it was stated that wind generators are deployed, but not connected to the grid.

Apparently, the incentives were structured to install the wind turbines, but not necessarily to make them contribute to the grid. Part of the problem lies in the challenges faced by the State Grid Corporation, a State-Owned-Enterprise (read: big-a** monopoly) with characteristic government blase about expanding the electrical grid to outlying regions where the pinwheels lazily spin.

To gather more oil, according to Mr. Shi, deep ocean offshore fields are being explored at depths of 3000 m. Diversity is being sought, but coal will be critical in the near future; a great deal of emphasis was placed on cooperation with the US to develop "clean-coal" technology.

The 2020 goal is low-carbon supplies to be 15% of demand, nuclear being one of them and hydro-electric being another key source with a doubling of hydro capacity by 2020. However, the advisors recognize that environmental issues have created serious issues.

The past 30 years has seen an expansion of demand and many issues confront delivery of energy to the expanding urban population as well as the distributed rural population that are not connected to the grid. Local waste is being burned (solid waste) in individual generators for providing low-level power and light for household use.

The thing about China rhetoric is that it is positive and forward-looking and the dialogue is ideological and sometimes sweeping. Clearly, global reliance on energy is shaping foreign policy. Sometimes, though, it is difficult to sort out the rhetoric from the reality, but the obvious challenges exist in the countryside and through the mind- and rear-numbing trek through Beijing's late afternoon traffic.

The goal of the wind power directive are to provide 30GW of capacity, about the same amount as 20 or so dual-reactor nuclear plants. China has about 12 nuclear plants in operation with another 24 under construction, according to the World Nuclear Association (so-called 3rd generation plants--with assistance from Westinghouse in the US). The State Energy Bureau has set a target of 5% nuclear-based energy by 2020 (http://www.world-nuclear.org/info/inf63.html) or 86 GW with another 18 GW under construction. By comparison, the US has about 100 reactors in operation, dating from the 1970s, with about 100GW capacity (author's guesstimate).

Breakfast with Zhou

"What matters is how we approach problems."

Our final official activity in Beijing was breakfast with former Ambassador Zhou Wenzhong, a friend of MCBC and a friend of Maryland.

We had the good fortune to spend an hour exchanging our views on business and cooperation with China in general and Maryland in particular.

Zhou carefully but directly engaged on many of the issues that we discussed with the US Embassy, namely trade, currency, mutual interests and cooperations.

He said that China is already engaging on several key areas, namely non-proliferation, anti-terrorism, climate change and environmental protection.

He held forth on numerous currency issues, and directly faced the challenge that our trade deficit is a result of undervalued currency. It would be an oversimplification to point to that as a leading issue, says Zhou, noting that the US exports have grown an average 20% per year over the past five years. He notes, too, that China has an ongoing trade deficit with Japan and several ASEAN countries and that protectionist legislation now being considered in the Tea-tainted politics of Washington would be a move in the wrong direction.

More was said, but I gotta pack and get on the bus.

On to Hefei and Xiamen.

Mike Violette, on the road with the SoS

Mike Violette
mikev@wll.com