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Behind the U.S.-China trade dispute: 'The West's China gamble has failed.'

April 5, 2018
Edward Tse
Gao Feng

What's the root cause of the current friction between the U.S. and China? The West's disappointment that China did follow the western model but its own, argues Ed Tse, CEO of Gao Feng Advisory Company (a member of the China Analyst Network).

Ed's solution: look to the similarities between China and the West, especially in the tech sector, and be alert to China's evolution toward better IPR,  market access, and other contentious issues, not just the remaining shortcomings. 

Below is a video of my discussion with Ed and excerpts from both the interview and his South China Morning Post op-ed, 'Chinese innovation with US characteristics? Maybe China and the West aren’t that far apart, in business at least.'

Ed presents insights that differ greatly from the China Echo Chamber in the U.S. Let me know what you think.

1. Behind the U.S.-China trade dispute: 'The West's China gamble has failed.'

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‍'China has not gone the way the West anticipated.Instead, China has developed its own system.'   

'The looming trade war between the U.S. and China is front-page news around the world,' writes Ed Tse, founder and CEO of Gao Feng Advisory Company, known also as the "father of management consulting in China," in the South China Morning Post on March 29.

  • 'On the surface, it looks like U.S. President Donald Trump following up on his campaign rhetoric of “America first” and part of his strategy to treat China as a “strategic competitor."'
  • 'However, it’s possible to trace the roots of the current impasse to a fundamental mistrust between the West, in particular the U.S., and China.'
  • 'The cover story on the March 3, 2018 issue of The Economist, “How the West Got China Wrong”, epitomises that point of view.'

Here's what The Economist had to say: 

  • 'After the collapse of the Soviet Union, the West welcomed the next big communist country into the global economic order.'
  • 'Western leaders believed that giving China a stake in institutions such as the World Trade Organisation (WTO) would bind it into the rules-based system set up after the second world war.'
  • 'They hoped that economic integration would encourage China to evolve into a market economy and that, as they grew wealthier, its people would come to yearn for democratic freedoms, rights and the rule of law.''The gamble has failed.'

Ed Tse: 'China has not gone the way the West anticipated.'

  • 'Instead, China has developed its own system. Many people call it the "China development model." And, China has found a way that works.'
  • 'It's a bit unreasonable for people in the West to expect there's only one way to run a country - our way - and that every country will need to follow that way.
  • 'Especially, '...given the major disruptive events over the past decade, such as the 2008 financial crisis, the election of Donald Trump as U.S. president, and sluggish economic growth for well over a decade.
  • 'Instead, 'China continues to be a one-party state while embracing some aspects of the Western-defined market economy and maintaining a strong government role.' 
  • Using the China development model, 'Beijing was able to lift China from basic subsistence to a situation where many people now enjoy a reasonable livelihood.'
  • 'Ideology apart, it is difficult to argue that there is only one way to govern, no matter what the context of the country.' 

2. 'Chinese entrepreneurs look to the U.S. for inspiration'

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'The spirit of entrepreneurship in China has not been that different from the spirit of entrepreneurship in the U.S.' Ed Tse

'The real point - the most important point - I made in the South China Morning Post op-ed is that politics aside, or ideology aside, actually there's a lot of similarities between the U.S. and China in terms of business, in particular in terms of entrepreneurship,' Ed Tse told me.

'Entrepreneurship returned to China 40 years ago with the reforms started by Deng Xiaoping.'

'Since then, in fact, the whole format and the spirit of entrepreneurship in China has not been that different from the whole form and the spirit of entrepreneurship in the U.S.'

'Chinese entrepreneurs, particular those in the tech sector, have looked towards the U.S. for inspiration since their beginning.'

  • 'I'm talking about the internet companies now, Alibaba, TenCent, Baidu, and many others.'
  • 'When they try to set up the business, when they think about the strategy, when they think about the organization, when they think about the business model, they look to the U.S. - Silicon Valley, the Northwest, the Greater Boston area, and other U.S. tech centers.'

'The mindset, mentality and approach of both the U.S. and Chinese tech companies, as well as their investors, are very similar and many mutual benefits have been built over the years.'

  • 'So, while politically, perhaps, the West may be disappointed that China has not gone its way, from the business standpoint, China and the West – especially innovative centres in the U.S. – have much in common and have adopted very similar philosophies.'
  • 'In fact, the Chinese and the U.S. tech ecosystems are already quite intertwined, and it would be hard to separate the two.'

3. In IPR, market access, and force tech transfer, China is moving in the right direction

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'Premier Li has said that the Chinese government will try not to require or force foreign companies to transfer proprietary technology. Let's see how it goes, but I think Premier Li was sincere.' Ed Tse  

'With or withouta trade war, the Chinese are already moving at least in the right direction,' says Ed Tse.

'The Chinese are actually exercising more stringent protection on the intellectual property rights, not only with respect to the foreigners, but also for the Chinese themselves.'

  • 'It's critical. The Chinese government would like to advance China into a more technologically advanced country. To achieve this, the protection of intellectual property rights has got to be better. The Chinese are not dumb. They're trying to do that.'
  • 'At the same time, it requires some time. The Chinese government is trying to move things in the right direction with the right kind of speed.'

'Also with market access. To just blanketly say the Chinese government has closed the market for foreign participation, including American companies to participate in China market is totally bullshit.'

  • 'There are many sectors in China that are already very open or entirely open for U.S. companies' participation.'
  • 'There are some sectors that are not entirely open, but the direction again is in the right direction.'
  • 'The Chinese government continues to gradually open up industry sectors for foreign participation, and the Chinese government is very committed in doing that.'

'To say, "Well, the Chinese government really forced foreign companies to transfer proprietary technology," again is not always right.'

  • 'There are some situations that actually have been enforced, has been asked for, and of course that's not appropriate.'
  • 'Premier Li has already come out and said that the Chinese government will try not to require or force foreign companies to transfer proprietary technology through this kind of requirement. Let's see how it goes, but I think Premier Li was sincere.'
  • 'By the way, the forced tranfers are not of proprietary technology. Many of these are secondhand or thirdhand technology.'
  • 'The core of technology transferred in the auto industry, for example, is ancient technology.'
  • 'In fact, the foreign companies have really not come forth in any big way to transfer that cutting-edge technology.'
  • [Editor's note: That is also my direct experience in negotiating JVs on behalf of Western clients - the Chinese side demanded the latest technology; I argued - and won - that the Western side would only give older versions.]

'If you look at the direction the China government is taking China, some of these issues are non-issues or quickly becoming non-issues.'

  • 'It's critical for foreign companies, in particular American companies, to really recognize these directions and be willing to participate in the evolution of the China market to capture the  potential that the China market offers them.'

4. 'Focusing on differences will not help us.'

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‍'The Chinese saying “qiu tong cun yi” (求同存异) means “seeking similarities while allowing for differences.”   

'The Chinese saying “qiu tong cun yi” (求同存异) means “seeking similarities while allowing for differences,"' says Ed Tse.

  • 'The West, and the US in particular, should view China in this light.'
  • 'China is on the verge of a sustained, generational rise, and President Xi Jinping has made it clear China would like to play a role in global leadership and governance.'
  • 'By focusing more on the similarities, both global commerce and business will benefit.'

'I would encourage U.S. politicians and U.S. pundits to really look more at the similarities rather than the differences

  • 'Focusing on differences will not help us.'
  • 'Focusing on similarities will.'
Edward Tse

Edward Tse

Chairman & CEO
Gao Feng
Gao Feng

Gao Feng

We commit to putting our clients’ interests first and foremost. We are objective and view our client engagements as long-term relationships rather than one-off projects. We not only help our clients “formulate” the solutions but also assist in implementation, often hand-in-hand. We believe in teaming and working together to add value and contribute to problem solving for our clients, from the most junior to the most senior.

Our senior team is made up of seasoned consultants previously at leading management consulting firms and/or ex-top essays-buy.com executives at large corporations. We believe this combination of management theory and operational experience would deliver the most benefit to our clients.

Channels

AsiaStrat
Granite Peak Advisory
Track Research
Trivium China
Gao Feng
Real Estate Foresight
China Beige Book

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Gao Feng

Behind the U.S.-China trade dispute: 'The West's China gamble has failed.'

Behind the U.S.-China trade dispute:  'The West's China gamble has failed.'

What's the root cause of the current friction between the U.S. and China? The West's disappointment that China did follow the western model but its own, argues Ed Tse, CEO of Gao Feng Advisory Company (a member of the China Analyst Network).

Ed's solution: look to the similarities between China and the West, especially in the tech sector, and be alert to China's evolution toward better IPR,  market access, and other contentious issues, not just the remaining shortcomings. 

Below is a video of my discussion with Ed and excerpts from both the interview and his South China Morning Post op-ed, 'Chinese innovation with US characteristics? Maybe China and the West aren’t that far apart, in business at least.'

Ed presents insights that differ greatly from the China Echo Chamber in the U.S. Let me know what you think.

'E-commerce' is rapidly evolving into 'New Retail.' Jack Ma, Alibaba

'E-commerce' is rapidly  evolving into 'New Retail.'  Jack Ma, Alibaba

Ed Tse, founder of the Gao Feng consultancy and the leading expert on Chinese innovation, introduced me to New Retail in a recent conversation. You will find his explanation of New Retail below, along with a couple of videos showing New Retail in action - as amazing today as Minority Report seemed years ago. Perhaps even more amazing is the China business strategy, the 'Third Way,' that made things like New Retail possible. Ed explains the Third Way in Part Two of our discussion that I will be posting soon. Chinese do do things their own way, as the Third Way again demonstrates. For now, have a look at the future today. And, stay tuned for Part Two for Ed's explanation of the Third Way that made New Retail possible.

C-to-C Internet Commerce- From Taobao Shops to Taobao Villages

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C-to-C Internet Commerce- From Taobao Shops to Taobao Villages

One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.

How SOEs & Local Governments Create Overcapacity

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How SOEs & Local Governments Create Overcapacity

One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.

Why SOE Reform is So Tough

Edward Tse
Edward Tse
2/15/17
Why SOE Reform is So Tough

'...SOEs need to reform, because on one hand, many of them have achieved a lot for China. On the other hand, they've actually created quite a lot of harm, in particular in the areas of overcapacity but also in the areas of corruption we've talked about.'

How Alibaba, Xiaomi, & Tencent are Changing the Rules of Business

Edward Tse
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How Alibaba, Xiaomi, & Tencent are Changing the Rules of Business

The real force in Chinese economy is increasingly private companies, not SOEs. / Leading private Chinese companies are innovative and ambitious

The extraordinary power of China's corporate 'mega ecosystems'

The extraordinary power of China's corporate 'mega ecosystems'

Besides Alibaba and Tencent, companies like Ping An Insurance Group, Baidu and JD.com are building out mega ecosystems with incredible speed and intensity. Even some traditional manufacturers are moving in this direction. Zhejiang Geely Holding Group has gone from producing entry-level cars to selling premium models with the help of foreign acquisitions and has been the first Chinese carmaker to move into on-demand mobility services. It has also been experimenting with connected intelligent vehicles, shared ownership programs and flying cars, together assembling a sprawling transportation services ecosystem.

The father of business consulting in China knows why eBay failed there

The father of business consulting in China knows why eBay failed there

In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead.

Is china prematurely declaring victory in its reforms?

Edward Tse
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8/30/17
Is china prematurely declaring victory in its reforms?

At the heart of China's economic take-off during the last four decades is a fragile equilibrium between economic reforms and one­ party rule. The communist party has demonstrated pragmatism and adaptability - but just at a time when China seeks to fully enter the knowledge economy and participate in global markets, it has put the brake on further reforms.

'Inside China’s quest to become the global leader in AI'

Edward Tse
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'Inside China’s quest to become the global leader in AI'

'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.

Edward Tse

Edward Tse

Chairman & CEO
Gao Feng
Gao Feng

Gao Feng

We commit to putting our clients’ interests first and foremost. We are objective and view our client engagements as long-term relationships rather than one-off projects. We not only help our clients “formulate” the solutions but also assist in implementation, often hand-in-hand. We believe in teaming and working together to add value and contribute to problem solving for our clients, from the most junior to the most senior.

Our senior team is made up of seasoned consultants previously at leading management consulting firms and/or ex-top essays-buy.com executives at large corporations. We believe this combination of management theory and operational experience would deliver the most benefit to our clients.

Channels

AsiaStrat
Granite Peak Advisory
Track Research
Trivium China
Gao Feng
Real Estate Foresight
China Beige Book
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