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Why China may kick our ass

My Week of Radical Transparency at a Chinese Business Seminar

Source: Wired
By Yiren Lu

After decades of copycat culture, Chinese tech companies like Tencent, Alibaba, and ByteDance, maker of TikTok, are now out-innovating Western ones in mobile payments, ecommerce, and livestreaming.

Today China is 1.4 billion strivers, many of whom juxtapose within themselves tradition and modernity, freedom and duty, obeisance and hustle. The hand of the state is the ever present guiding force. It manages this striving, swaying the direction of industry and prescribing a set of public virtues and narratives.

Huang spent seven years in Paris getting a master’s and PhD in history. One day over lunch, he told me that Chinese society could be divided into three groups—the top 15 percent, the next 30 percent, and the bottom 55 percent, i.e., the masses. Each of these groups understood their respective role—the top groups were to be the “brain” of the country; the bottom, the “body.” In his opinion, this partitioning of responsibilities meant that, unlike in the US, where we are governed by the majority, China’s decisions reflected the thinking of the smartest people and were made in the country’s long-term interest. When I asked whether this meant the top 15 percent would make decisions that benefited only themselves, he seemed unmoved. After all, further enrichment at the top could only happen if the masses were fed, entertained, and sufficiently wealthy to drive domestic consumption.

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Nick’s take

Software engineer Yiren Lu is a second-generation Chinese American who suggests American entrepreneurs may not have the stomach for honest self-examination that their Chinese counterparts do. Is it possible that China is kicking our ass, and that its secret weapon is the willingness of its leaders to predicate their success on the economic success of the masses? Is this a trade-off Americans once embraced in our own way, and did we redefine freedom to be selfish, self-absorbed and willing to throw others under the bus to get and keep “what’s rightfully ours?”?

Will China kick our ass because they’re better at working “one for all?” Are we too simplistic in discounting China’s successes as the results of crooked dealings and unfair practices? Do you see hints of truth in Lu’s story about China’s economic turnaround and technological (and possibly social) ascendance? What freedoms would you trade for economic success? Can you use any of Lu’s “findings” in your own career?

 

 

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24 Comments
  1. If future American success is predicated on treating everyone like a cog in a machine and treating the controlling elites like Gods whom no ill word must be spoken and all orders must be obeyed, then I think I’ll want to find a different country to try and make my way in.

    China is a despotic dictatorship.

    One group was missed in his list of the groups that make up China. There are a small percentage categorized as inhuman in China. They may only be a few percent, but with a population like China, that means that there are millions who don’t fit their “model” and need to be eliminated.

    Emulate China?!? Not just no but. HELL NO!!

    • You are referring to the Uighurs and Tibetans of course, who are tracked, put into reeducation camps, and exterminated. Anyone who is not part of the Chinese main race is suspect.

      J,and Nick, that is why the Chinese and the elites who go along with them so desperately want to undermine the West, thru disruption (disease and riots), cancel culture, moral framework, and blatantly through legalizing drugs like marijuana, Americans. They’ve taken over the picture factory (a/k/a Hollywood), Silicon Valley/Sand Road VCs, and many of our legal structures on the state level. I could go on, but it’s become plain as the nose on one’s face.

      HELL NO, 1000X.

      • @Dee: “They’ve taken over the picture factory (a/k/a Hollywood), Silicon Valley/Sand Road VCs, and many of our legal structures on the state level. I could go on, but it’s become plain as the nose on one’s face.”

        Yep. My point is, we seem to reject China’s success and complain about it, and argue we should legislate to block China, but where does that get us? China is succeeding in the markets you and Lu cite whether we say hell, no or not.

        I used to think it’s a matter of U.S. legal policy, but even that is our fault, no? Now I wonder how much of China’s success is due to Chinese entrepreneurs like those described in the article. Even if we agree China’s govt is a bad actor, I don’t think anyone can deny Chinese business people have figured out how to kick our ass in certain domains. Where does “Hell, no” get us?

        • Eventually, they will falter in the realm of entrepreneurship. They are very good at copying and coming in at a lower cost, but a society that has a set of acceptable beliefs, and sets of unacceptable beliefs will never find the new idea because new ideas must be vetted by those who control thought in the oppressive regime.

          See how the creativity and the art of entertainment that must be acceptable to “The Party” suffers. That will happen with business creativity too.

          • @J: You may be right. But I think that’s an old criticism of China that may no longer be valid. They steal IP, but they also invest heavily in R&D. Look at 5G tech — they innovated right past US companies. I think it’s dangerous to underestimate China’s innovation abilities. The tables have actually turned already in some areas. Whether because China is frighteningly ahead of us in 5G, or because this poses security threats to the US, the reality is that the US is blocking Chinese 5G gear because our tech industry can’t deal with it. Please read the Sun Tzu quote I posted. I think we’d be wise to heed it.

            Another example: A recent article in Bloomberg Businessweek explores how China’s TikTok blew away similar American apps. China is innovating and coming in at lower cost. We can complain about China subsidizing its businesses until the cows come home. The reality is that China is highly competitive.

            I don’t know the answer, but I know it starts with understanding the problem. I hope we can all explore this further.

            • @Nick, the question is when will innovation collide with political control. The business climate in China now is an after affect of a time where the CCP exercised less control over the populace than they do now. See: Hong Kong. Hong Kong was an amazing business hub and capitalist success, what effects will we see of tightening political control there. I don’t think it will make Hong Kong MORE successful.

              China may be ahead of us in 5G, but I am hugely skeptical that 5G is going to be successful. I’m from a rural area and I’m not sure the range versus speed tradeoffs of 5G will be worth it. The speed doesn’t matter at all if I only get signal when I’m at home and not out driving further away from the towers. China has a much higher population density and 5G will work fine in their cramped cities. And I don’t think I’m out of line saying that China pretty much couldn’t care less about its more rural population (see: Uighars and Tibet).

              I think whats beening said here may have been true before a paranoid control freak like Xi took over.

              The more the CCP tightens its grip, the less China’s vaunted hybrid model of Communistic Capitalism will falter.

              Elon Musk would not be allowed to be free man if he and his companies were based in China.

              While the entrepreneurs that have come up in China are skilled, it is crystal clear the new leaders (again see Hong Kong) will have to be party first, and skill and capability second. You get what you measure and China is now moved to measuring party loyalty, not market success…

            • @J: Good points about the extent of party control. And I’m kinda with you about 5G. It’s going to require a lot of infrastructure in part because range is short. Hong Kong is a scary example of govt. control.

  2. I’m not defending China, but I think Lu’s article reveals things about the Chinese people that we don’t much understand in the west. What I find interesting are the changes in China’s economy since 1978. There is no denying the shift toward entrepreneurship, even if there are “inhumans” and the government is a dictatorship. It’s too easy to dismiss China as a “bad” nation. Like it or not, the rest of the world has to deal with it — thus the importance of understanding its people better. I’m not a fan of Russia as it’s organized now, either, but I’m fascinated by the Russian people.

    And while I’ll defend the U.S. for its capitalist style — because we’re not really capitalist — there’s a huge segment of workers here that are also treated like cogs in a machine. We often discuss the “consulting” racket, which profits from the staggering “overages” it charges to rent workers to companies, often without adding value and often while leaving those workers without benefits. What’s not despotic about that? The very fact that our government permits overseas IT sweatshops to prey on our workers reveals some of our dirty little secrets.

    We should not emulate China, but we’d be fools not to understand how they are kicking our asses in some areas. We might argue that it’s simply due to China’s abuse of its labor pool, but that would be naive. Lu’s article makes it clear that there’s a middle class of entrepreneurs who are smart, insightful, and willing to look critically at themselves individually and as an economy so that they can build successful businesses. I’m not sure much of that self-examination goes on any more in the U.S.

    While some of us deride China as despotic and unworthy of emulation, China sends its citizens to study in the U.S. They take what’s good even while they may disagree with us. I’d argue that just might make them wiser and more progressive than us. I wonder what we’re taking the time to learn from China while we educate its doctors, scientists, technologists and entrepreneurs.

    I don’t think America can afford its surfeit of arrogance and jingoism. Just look at us — is the stunning political and social division in our nation serving our economy well? I’d argue it’s putting us at a huge economic disadvantage.

    What I found striking in Lu’s story is the willingness of the workshop participants to address their own and one another’s failings so candidly and openly. I think the bellwether here is clear: China and its people seem less afraid of change and progress than our nation does.

    I don’t defend or excuse China’s failings or methods of controlling its people. But we’d better learn how they’re kicking our asses in certain domains, because I don’t think there’s any question that they are. And to do that learning, I think we need the kinds of insights on the Chinese people that Yiren Lu offers in Wired.

    Can’t wait for more comments.

    • Nick, a lot of what China uses, particularly in healthcare, has been through demonstrable IP and data theft. There’s the blatant kind (M.D. Anderson) done by researchers and the below-the-radar stuff (investments in healthcare companies by Tencent and Fosun who then find it very difficult to not fulfill their investors’ requests on data, deidentified or not, in violation of HIPAA and patients.)

      You speak of the students–every single one is monitored through Chinese student groups. Look up the CSSA–Chinese Students and Scholars Association. They are controlled by the Chinese Communist Party’s intelligence wing.

      Every entrepreneur in China exists at the sufferance of the CCP. That self-criticism session is straight out of the Maoist playbook.

      I do agree with you–we should be monitoring what they do. Far better than we did with Germany, German student groups, and German companies in the 1930s up to 1942.

      • @Dee: Please don’t take this as glib: They’re still kicking our ass. While we grouse (with good reason), they’re kicking our ass.

        Forget about Mao — I think Chinese entrepreneurs are guided more by Sun Tzu:

        “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

        We have Ben Franklin, but do we have the insight and patience to understand him?

        “Love your Enemies, for they tell you your Faults.”

  3. I was in China in 1980, leading seminars on imaging and instrumentation at universities in Beijing, Shanghai, and Tianjin. Then 30 years later, briefly in Chungdu and Pudong, working on Intel semiconductor projects.

    China, to me, is a mix of managed economy and individual entrepreneurship. It’s not that they’re kicking our ass, from a macro-economic perspective. There are 325 Million of us in the USA, and over a million in china. Where is the greater supply of labor? Of course, there are lower labor costs.

    And of course, there is an emerging middle class market for goods and services, which can be served by firms with significant asian presence.

    Duh, as my grandsons would say.

    And yes, like any society, they have a lot of smart people who work hard. And in their case, they have a government that recognizes that incentivizing those smart folks will help the country get ahead. It’s a lot easier where the economy is managed by 4 guys smoking cigars in a back room, than 535 in a Congress, arm-wrestling over conflicting priorities. And, dare I say, tweaked daily by a narcistic psychopath who has no concept of governance.

    • @JL: Please, no partisan politics on Ask The Headhunter. It’s too easy to stray into political-party warfare. I’d like to remind everyone that I will not let this forum turn into a platform for partisan bomb-lobbing. There’s plenty we can say about the issues alone. Thanks.

      Now I think we’re getting somewhere.

      You write: “It’s a lot easier where the economy is managed by 4 guys smoking cigars in a back room, than 535 in a Congress, arm-wrestling over conflicting priorities.”

      That’s an important insight. These two sentences from Lu’s article prompted me to feature it:

      1. “China’s decisions reflected the thinking of the smartest people and were made in the country’s long-term interest.”

      I’m not ready to change our Constitution with regard to who may run for office, but I’m going to think out loud because I believe this needs to be fleshed out. China permits itself to be run by what we refer to as despots. Meanwhile, we consider ourselves more advanced and enlightened, yet we don’t so much as require candidates for office to demonstrate competence in basic skills or knowledge.

      We mock China for defining its 1 “Party” as the government, while we are content to define 2 “Parties” as the government.

      We deride China for allowing a ruling class to control decision making. Meanwhile, we consent to a handful of wealthy people and corporations-as-people to essentially control our choices of candidates for public office.

      This leaves us with questions I believe the article implies: Which one works is better, which is worse, and in what ways? (What questions does it raise for you?)

      2. “After all, further enrichment at the top could only happen if the masses were fed, entertained, and sufficiently wealthy to drive domestic consumption.”

      I think the American government and people used to get this. I think we’ve lost sight of it. Henry Ford got it when he raised wages so his workers could afford — loosely speaking — to buy the cars they made.

      Billionaire Nick Hanauer gets it, too, and explains it well here:

      https://www.youtube.com/watch?v=q2gO4DKVpa8&vl=ru&ab_channel=TED

      I’m not trying to make a case for China’s approach. But nor am I willing to accept or excuse our own self-righteous rationalizations and refusals to face our failings. I’m afraid Walt Kelly was prescient: “We have met the enemy, and he is us.”

      • So was Winston Churchill, who observed, “Democracy is the worst form of government, except for all the others.”

        Although, I tend to favor Pogo’s outlook on life.

      • @Nick: Nor am I willing to amend the Constitution regarding who is eligible to run for office, terms, and more. But what I would like to see is the vast amounts of money limited. It is so expensive to run for office that only the wealthy can afford to do so, and even they take money from corporations and other wealthy donors, who then expect said politicians to vote the way the donors wish, to enact laws that favor the donors (too many lobbyists are writing legislation), and this doesn’t help the average person.

        That’s where I see a big disconnect: we pretend that we don’t have a ruling class, but we do. And unlike what is described in China, they’re not concerned in the least that the masses are fed, housed, and have sufficient disposable income to drive domestic consumption.

        I’m not a fan of China, or Russia. They’re both dictatorships in their own way. I was interested that the Chinese people in article at least recognized that it is important that the masses earn enough to buy things. What I see here from too many corporations and echoed by too many politicians is either a lack of understanding that ordinary people need to earn enough to buy things (not yachts, not a ninth house, not high-end cars or super expensive designer clothes, jewelry, whatever–that won’t be enough to drive generate economic growth) like food and other basics. It wasn’t mentioned in the article, but it sounds like they learned the lessons of the French and Russian Revolutions; we, sadly, have not, and when enough people get desperate enough (they have nothing else to lose), that’s when there are bloody, destructive revolutions (like the French and Russian Revolutions). If the corporations and the wealthy donor class that owns the politicians here were smart, they’d raise wages, figure out ways to make housing more affordable, do something about healthcare, education, etc. That is, realize that they have a responsibility to do more than make profits for the shareholders, and to hell with everyone and everything else.

        Henry Ford had the right idea–pay employees enough to so they can buy the products. Too many here aren’t channeling Ford, they’re channeling Marie Antoinette (let them eat cake, although it is disputed that she said that).

        So how do we change? We have to fix ourselves, decide that we want our elected officials to act in our best interests, not just their donors’ best interests. Getting the money out of politics would be a start. Enacting laws and making policies that benefit the many, not the few would be next. Then maybe we’ll be able to figure out how to better compete with China.

    • Cheap shot against the current sitting president.
      Think you can fill his shoes? Wow, I sure can’t!

  4. While recognizing their achievements, we should also recognize some of their weaknesses. They have some severe mal-investment issues due to the lack of a market economy and accurate price signals. Sectors such as real estate are in a huge bubble at this time.

    Plus consider innovation in terms of patents. The US leads the world in patented new ideas. If our economy was less subject to the whims of bureaucrats who often don’t understand the efficiencies of a free market we may have many more creative businesses.

    We really don’t have capitalism so much as we have crony capitalism which is inherently inefficient. In that regard we are a little bit like China whose economy is completely controlled by a political party.

  5. Everything today is political, even the Sunday comics.

    Question, why did the authors parents immigrate here? A bigger question why does ANYONE immigrate to the US, why not go to China, Russia or other country that offer much more?

    • @Larry: Lu offers an interesting statistic related to that.

      “In 2017, eight in 10 Chinese students studying abroad returned after graduation, according to Quartz, up from just one in 10 in 2002. These repatriates, called “sea turtles,” have made a simple calculus: If they stay in the US, they can get stable but faceless jobs at Ernst & Young or Microsoft. Even if they find exciting positions, they have to contend with hostil e immigration policies and a bamboo ceiling. Or they can go home to more dynamic career prospects and apartments and restaurants that are just as nice as those in New York or San Francisco.”

      So they come here for higher education and, probably, to gain a world view. Once they become an educated asset, they go back to China. I think this is part of the answer to the question implied in the title of my column. It seems these new grads view China as offering much more.

      If people emigrate to the US for the benefits, why do they go back? What do they have to gain?

      • From the article: Yuhua Wang, a professor of political science at Harvard. “Part of the reason is that they see the problems, the inefficiencies, the gridlock of democracy. Back in China, everything seems to work very smoothly, because there’s a very strong party.”
        In their eyes, the Chinese government is absolute but not arbitrary, and its decisions, while often harsh, nevertheless have a kind of logic. If you take economic growth and ideological control as first principles, everything else follows: The government shut down cryptocurrency exchanges because they led to speculative, fraudulent activity. It forcibly quarantined Covid-19 patients in special facilities because transmission was happening in families;

        If this is what the we want? Not he country my forebears or your parents came to.

  6. One point I don’t see being made here is that of perspectives. American accounting practices produce boardrooms that focus on short-term gains in stock prices, full stop. Yes, they do some long-term strategic planning, but that’s so that they can inspire the market today with their vision and foresight.

    Chinese accounting requires a social component. The profits *must* be shared out, so short-term stock price manipulations over there become a good way to get targeted in an anti-corruption drive. If they can’t financialize everything, then money has to be made the old-fashioned way: earning it through innovations that lead to market dominance.

    Are all the innovations fair? No, they are not. But they *are* part of a system that takes a much longer-term view of things than the USA does.

    The point on competition is hard to over-emphasize. I know of Chinese firms that purchase security solutions because of rivals not from outside the firm, but from different departments, branch offices, or cubicles. Never mind someone stealing a trade secret to use elsewhere – they will steal secrets and use them within their own companies. Whoever rises to the top of such a world, coupled with a longer-term view of the world, is going to be a formidable business opponent.

    Where I see the difference in the USA is in privately-owned companies. I work as a consultant and I can say that, hands down, the best places to work have been in privately-owned companies. The customers there are happier, they work with each other better, the companies have long-term planning and profit-sharing programs, there’s not a panic that they’re going to take a beating in the market because they miss expectations even though they’re still profitable… not that all privately-owned companies are heaven on earth, but if I knew only that one detail about a firm, I’d favor working at the privately-held one over the publicly-traded one.

    If the bulk of the major firms in the USA are focused more on cutting short-term costs (including shedding staff for outsourcing contracts) and the bulk of the major firms in China are focused more on planning long-term strategy, then that long-term plan is going to win out, because it’s looking far beyond the next turn in the road.

    • @Dean: This is what I’m getting at. How can we understand the differences in our systems and China’s in a useful way? Your comments are a good example of “follow the money”… and forget the politics for a moment. I don’t know anything about China’s accounting standards. Thanks for the short lesson!

      More important, you’ve pointed out an issue that eludes many in the US simply because of the way our stock market and investment industry works: The focus is on the quarter, not on the year or the long horizon. Many years ago I heard the chairman of Japan’s NEC corp interviewed during a satellite broadcast to NEC employees around the world. At the end, he was asked a final question. “What message would you like to give to all of your employees around the world?”

      I tried to guess what he’d say, but I couldn’t have nailed it if I had a month to consider the question.

      “I want all our employees to remember that our company must go on forever.”

      Asian culture has such a long-horizon frame of reference that I think it’s incomprehensible to us. But it explains a lot, as you suggest.

      Great post. Thank you. Privately held companies are a subject we should dig into more deeply. I hope you’ll post again!

    • @Dean Gotta agree on your sentiments on privately owned companies. This is something our economic systems can do that Chinas will not do.

      Small business is a bigger deal in America than in most places in the world. It breaks my heart to watch them suffer from the Covid restrictions while big businesses were allowed, by the government, to continue to operate. It angered me to see my fellow countrymen looking to China and admiring their governments ability to control everything as a way of dealing with the crisis.

      I do agree that private businesses and private business innovation are ways America can compete with China’s top down business approaches and mass of workers.

    • Privately owned companies are fine for private owners. The troops in the trenches generating wealth and making profits for them, not so good!

  7. Ladies and gents. We are both a capitalist and socialist country. Capitalist = facts and socialist = opinion. If we break down the technical pieces of 5G technology then we are talking like a capitalist (dollars and cents/Frequencies/Range/Speed). If we break down what 5G provides it’s a socialist opinion. New ideas that society can hope to produce. Which leads to an opinion.

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