It is a question that has been discussed for a while, and was the topic of focus at the ISTA conference in Nanjing last week.

An organization that works to facilitate tech transfer developed in universities to the private sector, I was one of four panelists discussing different aspect of tech development and incubation in China. With my focus being on the market / business model side for tech development as in solving china’s largest issues of environment, economy, and society. the other three focused primarily on the role of university based incubators and of government funding.

Where the event was really interesting for me was that the conversation was largely focused on academia, and the role of academics, as part of this process.  How schools could more effectively engage students to be entrepreneurs was a big topic, as was, what to do with those students once they are engaged and have entered the incubator. Which is a very different angle than were it 30 industry executives. 

In the eyes of one administrator a few basic hurdles existed:
1) Students were often too ideological, and needed time/ support to develop ideas
2) Students lacked any real world experience
3) When entering the incubator, students lacked a technology (i.e. a product)
4) Students have no competitive advantage in the market place
5) Private sector funding of was difficult

To which the standard “solutions” were suggested:
1) Process needs more funding
2) Government needs to be more active in their investments
3) University incubators/ parks need to be closer to VC
4) subsidies (currently offered to students) should be increased/ extended.

So, students aren’t competitive and they just need more money. Anyone else but me see the problem?

It is a classic case of where the business model for innovation not being clear to anyone, particularly those who are looking to incubate the entrepreneurs who are supposed to be out “innovating”.

And when asked for my thoughts on the difference between East and West, and what lessons I thought China could learn from the outside, I offered two thoughts.
1) In china, the education system (incl first employers) have a job to educate students, and they do it well (as shown through international testing), while in the West we incubate”. Ahhh says the crowd. that the core problem is not one of intelligence, but creativity is punished through its education system as teachers are the sole providers of knowledge necessary to pass exams. Any questions, or variance of opinion, are strictly looked down upon. A poor foundation for developing creative talent in 22 year olds.

2) The Chinese believe that confidence is the critical barrier when it comes to engaging and incubating entrepreneurs, without realizing the reason for the void in confident. Which is to say that while Chinese students are looking for someone to tell them that they can succeed, the educators themselves should be primarily focused on equipping their pupils to succeed. It the different between telling someone they can jump from a bridge, and teaching someone how to B.A.S.E jump of the same bridge.

the first being an issue of common discussion, but the later being one that challenged a few of the tenants core to the existing system, and to the credit of to the participants who I am sure I offended most, they remained engaged. which shows that there is a genuine interest in changing the systems that are failing 85% of the time (a statistic offered by one leading incubator) into ones that will see success at a higher rate.

Success not judged by the number of students who enter the incubator, one of the current core KPIs, but into number of students whose business stabilize, employ, scale, and exit.

In my mind, this has been a long time coming as the post-2008 China craze kicked into full steam with semi-solvent firms entering China’s market looking for a profit center to keep them alive.  But, then there are others like GE who have invested billions into China, built a large presence that included R&D, tech support, and sales, who are now beginning to see that the long term ,ay not have been as rosy as once hoped.

As shown through the recent WSJ article GE Says China Is ‘Hard,’ Aims at Resource Hubs - an article originally titled “Frustrated with China, General Electric Turns its Eye to Australia:

The shift stems in part from Chief Executive Jeff Immelt‘s shuffling of the company’s business lines to emphasize energy. But it also reflects a significant rethinking of China’s value for GE, which, after years of missed targets and slow growth in the country, has turned its attention to resource-rich locations that have friendlier rules for investing and fewer national champions as rivals.

GE isn’t giving up on China, where its annual sales have hovered at around $5 billion for much of the past half-decade.

[...] And while senior GE executives say they remain bullish on China over the long term, they also have voiced frustration about conducting business where state-owned companies are rivals rather than partners. Mr. Immelt caused a stir two years ago when he made comments suggesting that Beijing didn’t want foreign companies to succeed.

Vice Chairman John Rice who oversees global growth for GE and is based in Hong Kong, says the business model in China of 50-50 joint ventures means GE operations “take longer to put together and longer to mature” than they would if the company had full ownership.

How could this happen to GE?

1) Business Model – While the average American may know GE for its light bulbs and refrigerators, in China they are predominately an industrial business selling to various government agencies and state owned enterprises.  Energy, transportation, aviation, and security solutions are all high revenue big project based sales, and for them to succeed they need to be able to maintain those big sales.  A tough task in this environment, particularly after the thousands of hospitals, stadiums, and airports have already been built, China”s largest airlines have already upgraded their fleets, and China has already purchased 200 locomotives.  All markets that GE was successful in, but there are only so many projects a year that come online.

2) Policies – this is perhaps the black hole for GE’s sales team.  Knowing whether or not an agency has been told to buy local or not, and if so, there is little that GE could do about it.  However in looking at the energy sector alone, GE has been performing well in various areas.  At one point they had a backlog of wind turbine work, while others were struggling to get a foothold, and while they may not be given access to the projects where wind turbines were built and then left idle, there were plenty of projects where their energy division was leading others.

3) Competition – Behind the dwindling market for large government projects, this is perhaps the biggest obstacle that GE will face going forward.  Looking at GE’s success in selling transportation related products and services, one cannot help to think about the pressure they must be facing from the likes of CSR, who are rapidly gaining ground domestically and internationally in some of the same areas that GE was. This is not something that is unique to GE’s products, as I have mentioned before, and in areas of large project equipment and services the Chinese competition has certainly grown more competitive and competent over the last 10 years.

Is China too hard for others as well?

Simply put, no…. And the recent American Chamber of Commerce study on doing business in China offers some insights into that.

That while China is getting harder to operate in, and competition is growing, many still feel that China offers an attractive market.   Firms, like those in luxury, F&B, and electronics products,  are going to exceed their projections, while there are others whose industries are cooling off who need to review and assess their situation.

Which is the ultimate lesson that GE should serve.

That, a firm needs to constantly look at their projections and make revisions to ensure that the investment in time, money, and people is warranted.

Popular Beijing spots for foreigners, such as Sanlitun and university areas, will be targeted by police in a fresh drive against visitors who commit crimes, outstay their visas or gain illegal employment, authorities said on Monday.

For some, it was a sign that China was after “them”, a feeling that certainly has resonated in the journo community following the Melissa Chen affair, but after 10 years in China and a memory of 3-4 formal visa check campaigns, I am pretty confident this will turn out to be a non-event for most.

Where this announcement is tangentially interesting to me though is that after going through the process of re-upping my visa several months back, it became to clear to me that CHina had taken stps forward towards integrating all the systems which manage foreigners.  The subject of an interesting article last month

In short, the computers are now syncing.  A fact proven by the fact that when I was processing my residential permit at the local PSB my immigration picture flashed on the screen.  indicating that not only does immigration know your entry/ exit details, but also has access to your work permit, residential permit, and all the data required of each department (mobile phone, address, etc).

So, in a sense, with all this information it is theoretically possible that this 100 day campaign is nothing but a test of their abilities to take the database and extract those who are overstaying, checking on a few tourists who are in the wrong place (like in an English School), those who are standing on the street corners of Sanlitun, or going to language schools to see who is actually attending classes.

Which is to say that while the timing could have certainly been better, I do not see any reason for anyone to panic or to be offended, if asked for your credentials.  It is a small, perhaps slightly inconvenient, request and given how easy China has made it for many to get in, it should come no surprise that campaigns like this may need to take place.

It is a list that has changed over time, but in looking back, I have done well to stick to it pretty well:

1) Domestic Dairy and Soy Milk product – I wasn’t worried about melamine, I was worried about hormones/ antibiotics use.  This is one of those things that I have been looking at for a while. What I have found interesting through this crisis in confidence is that no one is looking at soy milk.  It is not all that different in process if you remove the obvious difference between a cow and soybean.  Both can be watered down, both can be thickened, both are really a collection of a million units into one….

2) Fish/ Seafood – This is perhaps the easiest to avoid as much of the (higher) quality fish and seafood in China is going to be imported at this point.  Globally there are a number of issues related to quality of fish, but in China my concern is rooted in antibiotics that the fish are ingesting to fight disease in the pond (largely a result of overfeeding and poor water conditions). That being said, chemical issues certainly exist as fish who survive massive die offs are still sold to market, and the Bohai Bay (home to oil spills and a large chemical base) has a lot of fish farms.

4) Domestic Pork/ beef -  Initially this is a reaction from my study of hte issues that the US faces with meat, but it is a reaction that has only grown more solidified as reports of pork contamination have played out in the media over the years.  Shooting pigs with growth hormones, use of antibiotics, and even injecting water to increase the weight, are reason enough for me to do what I can to avoid pork/ beef in restaurants.  When shopping for myself, I buy Australian beef.  It’s grass fed, and that is about as good as it is going to get.

5) Instant noodles – I once worked on a project for a large starch firm, and through this project I learned a lot about starchy foods, and how companies can mess with them.  Like Aluminum, there are many different grades of starches, and through the process of “reformulation” many firms will find the right “balance”.  which leaves a lot of room for the adulteration of product with various (industrial) chemical additives.

6) Processed meats – This pictorial (h/t CSR Asia) should be enough.

7) Shit on a stick – it is everywhere in China.  Local groceries, outside stalls, etc.. and it comes in many varieties… but let’s be clear about what that stuff really is (even if it looks like a hot dog, or a chicken foot, or a whoKNOWSwhat)… it is shit on a stick and it should not be eaten.  I specifically remember on instance several years back of losing all feeling on my tongue for 2 days from a single skewer of grilled mantou.  Perhaps it was a chemical burn, or perhaps it was the amount of MSG.  I dunno, and I don’t care

Powder based drinks – Sorry folks, but the 6 kuai bubble tea that has provided comfort on the walk is out too.  For me,  I opted out of bubble teas (and anything like it) once I learned how they were made.  White powder (sucrose/ fructose) + brown powder (tea/ flavor) + “tapioca” balls, and it is a decision I am happy with following news of industrial chemicals being used in Taiwan and a Shanghai Daily investigation into the industry.  Seriously, it’s all chemicals, and none of them are good for you… before the cutting of quality occurs.

9) Sauces – Soy sauce, fish sauce, chili sauce.. in a bottle we have largely cut out opting either for imported labels or simply making our own sauces. it is not necessarily due to the reports of boiled hair turning into soy sauce, or the reports on vinegar, or even the industrial complex that processes second hand oils… I was more concerned with the stabilizers and emulsifiers that are used in the process.  Chemicals that have many grades, and are often the first place a firm on the financial / moral ledge will make changes.  Not to mention the amount of salt and sugar that these sauces have, which is perhaps the global issue with any bottled sauce.

10) Anything that will make a government official lean over and say “this will keep you up all night long”.  Toad ovaries, deer penis, etc.  It has nothing to do with food adultery on any level, it is just something I will do just fine without.  Been there, done that, got the tshirt.

Feel free to add more in the comments section.