Dynamic Tourism, China, Business

A quick intro for those of you who don’t know, Taobao is China’s C2C internet selling platform, similar to eBay or Amazon.  It’s owned by Alibaba Group and all the online payment transactions for the site happen by your bank in combination with Alipay (also of Alibaba Group).  By the way, why does no one notice how monopolistic Alibaba Group has gotten in this area?

You can buy literally everything imaginable on Taobao from mobile phone recharge cards to patio furniture and shoes.  I’ve bought shirts, shoes, books, etc on Taobao.

Setting up an account is relatively simple if you can read some Chinese.  All you need is an email account, password, and the ability to navi-guess around the site in Chinese.  Actually buying and paying online becomes more complex, requiring a local bank account with either 一卡通 or 信用卡.  But this is how most of us get our salaries paid anyway.  If you can find a local friend to help you set up the link between your Taobao account and your bank account (through Alipay, of course) the first time, its pretty easy to just type in your PIN number whenever you want to buy something in the future.  Taobaofieldguide.com has a much more comprehensive and picture-oriented description of how to search and buy on Taobao.  They also offer to help you do it, for a small fee of course.

Feeling relatively confident in my Chinese reading ability and comfortable navi-guessing and shopping on Taobao, today I decided to try my hand at selling on Taobao. And ran into a Great Wall. To sell on Taobao, you of course need a local bank account linked to Taobao through Alipay (again), which since mine was already linked was easy enough.  However, you also have to verify your identity, and while this may sound simple, for a foreigner, it’s not.

First I tried pretending I was a local because I have a local bank account, yada yada, Not so fine.  You must input the ID # matching the person who opened the bank account.  In this case, it has to be the number of digits on a local Hukou ID card (If you don’t know what a Hukou is, this post probably doesn’t apply to you…).  Well since I’m not a local, I don’t have a Hukou so my bank account was opened with my Passport, which obviously doesn’t have the right amount of digits.  Fail #1

There is an option for Foreigners to sell on Taobao. So next I tried that: first line, OK.  Second line, please input your Guarantor’s name, ID number, phone number, etc, etc.  Uh…FAIL #2.  So as a foreigner selling on Taobao is much more difficult.

I guess they’re afraid we’ll list something super expensive, let some poor unsuspecting local buy it and transfer the money, and then leave the country with his money.  Granted, it could happen, but what’s the highest value item anyone’s ever bought on Taobao (without first seeing the item)?  Maybe 10,000RMB, maybe 100,000RMB?  So all of US$1400 or US$14,000?  Is that really worth it?  Fail #3.  That’s why banks, credit cards, et al have insurance and fraud protection.

Anyway, as you can see I was a bit frustrated with my Taobao selling experience today and I wanted to save other foreigners the same annoyance and waste of time.  And I’m sorry, I don’t know what happens after IF you get a Guarantor to validate your account.

It’s also interesting to note the differences between Taobao and eBay.  Taobao takes the money immediately from the seller’s account and holds it in escrow while waiting for confirmation from the buyer that the item has been received (or a certain period of time has passed) before sending the money to the seller.  eBay lets the buyer and seller decide between themselves how and when to pay and ship.

Can I further point out that since Taobao holds the money in escrow awaiting confirmation of item receipt from the buyer, that the whole paranoia of foreign seller runs out of town with the money is NOT very likely.  Fail #4

And that’s today’s Taobao 101 Guide.

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I’ve signed up on a site where people can ask questions about traveling to different places and have them answered by locals, as a way to get the real feel for the place.  Besides the obvious and just plain stupid questions (do I, as an American, need a visa to China), some people have started asking more business related questions.  Below is one such question (and my response to it), though a site like China Success Stories would have been a much better platform.  (rolling eyes)

Hello Friends, Can you help me? I’m looking for experienced network marketeers to head up a new network in your country and I wondered if you could think of anyone who you feel would like to be involved as a Country Leader at this crucial launch stage.
We are not looking to sign up ‘regular’ distributors at this moment but are looking for the serious team players who will become our global team partners.
As a fouder of this NEW very narrow NICHE business in your country, first year total earnings of $100,000 potential with second year earnings of $100,000 a month potential for the right people.
If you can help me that would be great and your input would be much appreciated.
Look forward to hearing back from you.

Best wishes,

Teodor M Muntean

MY RESPONSE

Teodor,
You know that network marketing is borderline illegal in China and is governed by many complex and unclear laws, regulations, and procedures. This is why Mary Kay and Amway had to offer retail outlets in addition to network marketing distributions when entering the market. This is also the reason many other network marketing companies have not entered China. Pursuant to that, you will not find an ‘experienced network marketeer’ in China who can lead a whole country network.

I think you’re jumping the gun. You can’t, nor should you even consider, finding a Chinese business partner on the internet, particularly on a site devoted to helping travelers. That’s just absurd! And shows a complete lack of knowledge and commitment to the Chinese market on your part.

To properly setup and start a networking marketing business in China, you will need no less than 1Million US Dollars. Also, if you opt to go with a local partner, that organization needs to be considered very closely. You should personally be here researching the options and making sure you can trust them.

My feeling is you know nothing about China and this is more like a scam than a real intent to do business here.

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I just finished reading the September/October 2007 issue (yes, I know I’m a little behind, but blame this one on my mom) of Probate & Property which had 3 extensive articles on Real Estate Law in China and the property market.  The reason for the articles was the new Property Law of China that was enacted in March of 2007 and effective in October of 2007.  The articles were much too detailed and in depth to discuss here, but the highlight, which many people already know, is that in China land may not be ‘owned.’

As the Communist Party, continuing to adhere to Marxist principles, the government owns the land.  People can and do own the buildings on top of the land but they don’t own the land.  The land is used for development under ‘land use rights.’  Land use rights last for between 40-70 years, depending on the type of development.

This explains to me why all the construction in China is so poor: there’s point in investing in quality construction when your lease term is only 40-70years.  The construction only needs to last 40-70years, not a lifetime or even many generations like some of the great historical buildings we still admire today.  Why spend the money on something that won’t be around for more than 50years, because you can cut corners and get it done for cheaper if you sacrifice quality.  My apartment, according to my dad’s guess is 10-12 years-old, while in fact, its about 4 years.  It just looks older due to number of factors, among which, shoddy construction, air pollution, and acid rain.

Sure this might sound like a sarcastic post (and it largely is) but have a look for yourself.  Land ownership leads to stricter  standards and higher quality construction than ‘land use rights.’

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As of yesterday all the food & drink vendors and retail outlets in and around Shanghai’s subway stations have cleared out their inventory and closed.  No more grabbing breakfast in the subway station for me.    They’ve even put tape over the doors to make sure no one sneaks anything inside.  Some larger, more established outlets are still running, such as McDonald’s.

How do they decide who stays and who gets closed down?

Do they compensate the stores that are forced to close?

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This article published this last week on Yahoo, entitled Olympics could be a bust for Beijing hotels, confirms many of my predictions:

China has spent a reported $40 billion on new infrastructure and stunning venues, hoping to impress visitors with a modern city when the games begin Aug. 8. But the lack of reservations could shake the city’s hotel industry, which has more than doubled its five- and four-star hotels offerings to 160 since Beijing was awarded the Olympics seven years ago.

Ha declined to reveal his hotel’s occupancy rate, but he expressed concern over a report last month from the Beijing Tourism Bureau that showed five-star hotels were 77 percent booked, and four stars were at 44 percent.

Well, the occupancy rate was higher than I’d heard, but still not great when you consider,

Some five-star hotels are in good shape — at least during the Olympics — because they secured reservations from Olympic sponsors or Olympic committee delegations.

[...]

“They need to come, and they have no choice to turn back now,” Sander said. “They have put so much money down, they cannot draw back.”

Even all the greedy apartment owners are finding themselves not only without sky high Olympics rentals, but with no tenants at all.

In response to questions about visas,

“Beijingers will enthusiastically welcome foreign tourists,” said Zhang Huiguang, director of the Beijing Tourism Bureau. “But for terrorists and troublemakers, we’ll unite and fight against them.”

I like the use of the term ‘troublemakers.’ China is openly acknowledging they’re not just worried about terrorists but also about protecting their image. As such,

Students have been targeted too, because the government fears they might side with political activists if protests erupt during the games.

Anyway, just read the article, and if you have Olympics tickets (or know someone who does) but aren’t going to use them, I’m already here and I’m happy to buy them from you!

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You’re planning your next internet company, you intend to reach out to a broad audience-the whole world, so where do you base it-West Coast of the US, Europe, or China? (This is by no means a comprehensive analysis of this topic.) These are a few thoughts I have on the relative advantages of each location, based on what I know about the SNS (social networking) for language learning industry, including my Shanghai-based employer.

Advantages of China–

1. Lower cost structure (labor, facilities & equipment)
2. Huge market, the Chinese love their interactive, instant gratification web apps
3. Entrepreneurial spirit, try anything, wild west gold rush mentality
4. VCs (Venture Capitalists) may be looking more at China’s internet players because China now has the most internet users in the world, and China’s internet players have more solid histories of revenue flow than Western internet players
5. Western students will intern for free just to say they’ve worked/interned in China, ‘the hot new place to be’

China’s distinct Disadvantage

1. Relatively inefficient, unproductive programmers, engineers

US’s Advantages–

1. High quality technical staff
2. Proximity to Silicon Valley & VCs
3. Proximity to a lot of tech conferences where you can meet VCs, influential bloggers, potential partners
4. Ample opportunity to get your message out because of proximity to influential tech related media

Europe has similar advantages as the US, but not on the scale they exist in the US. There are some tech conferences in Europe, there are VCs in Europe, but the media coverage for tech stuff is relatively limited in Europe.

America’s & Europe’s distinct Disadvantage–

1. High costs of labor, office space, infrastructure, etc

In conclusion, Europe seems to offer the fewest benefits. Not surprising, the cost differential makes China a very attractive place to base your start up. The US is the best for getting very influential and widely seen English-language media coverage.

Perhaps the optimal solution is to have the marketing/PR person (or firm) in/near Silicon Valley, the technical team, led by a capable Western project manager, based in China, and the executive going back and forth.

If you thoughts on aspects I’ve overlooked or other ideas, please post them in the comments section below.

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As Facebook looks to its Chinese users to translate the site into Chinese, the expectation is that Facebook will soon enter the Chinese market. Facebook tried to enter China previously through acquisition of an existing Chinese social network but nothing came of the negotiations. Will Facebook have more luck this time? Or better yet, will Facebook be more successful than other overseas internet companies have had trying to enter China? (See below slide show) I think Facebook may have somewhat of an inside track with current overseas Chinese studying in universities who’ve already gotten onto Facebook. Maybe those users can help it ‘go viral’ in China. Facebook already seems to have developed a small user base among outward-looking, international business-oriented young people. I know many have sought to be my friend on Facebook, regardless of whether we’d met or not.

Perhaps the better question than whether Facebook can scale in China, is whether it can successfully monetize in China the way China’s own social networks have done. Facebook does not make much money on advertising currently. Chinese social networks, on the other hand, have different revenue models making them more profitable than any advertising-based model developed by Western-based social networks.

Another concern I have about Facebook offering a Chinese-language version is whether that will make it yet another target on the government’s internet block list. The Chinese government already blocks more Chinese-language sites that are sensitive than English-language sites, for example wikipedia.en is sometimes available but wikipedia.cn is never available within Mainland. Therefore, if Facebook is offered in Chinese, that makes it even easier and more accessible to Chinese users, including groups for or against T_bet independence, F_lun G_ng supporters, etc, as well as other sensitive information contained in pictures and videos on Facebook. My Facebook profile is already frustratingly blocked in China (for some unknown reason), I don’t know what all of us expat Facebook addicts would do with so much spare time we’d have if Facebook was totally blocked.

Slide show about the difficulties foreign internet companies have had in China by Jonathan Haagen (Economist Intelligence Unit)

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I recently heard a story about a German-owned travel company in Shanghai from a friend who works there.  The company has been operational in Shanghai for 5-10years.  When the company started, China forbid foreign-owned travel businesses so the company operated as a ‘consultant’ who just also occasionally booked trips.  (Note: This has changed somewhat since China began implementing the policies of the WTO.)

The company had 4 Shanghainese employees, who kept wanting more and more money for less and less work.  One of them was the flight specialist who had good relations with the airlines.  Each time she booked another trip, she kept pushing the airlines to give her more and more commission, in addition to pushing the company to pay her more.  Eventually the company had to let her go.  When she left she took the entire database of clients with her, then contacted all of them and told them not to use the German-owned company anymore but instead to go through her.

One of the other, now former, Shanghainese employees disgruntled over not being paid more, goes to the police.  One morning she brings the police back to the company and the police demand that the company hand over its server.  The company refuses, saying the police have no search warrant nor other documents allowing them to take the server.  However, the company can’t do anything, so the police take the server.

The 4 Shanghainese employees get together and go to the labor and work bureau and complain that the company never paid any social security for them.  Throughout the term of their employment, the company offered all of the employees the option of paying the social security into the system or giving it to the employees as part of their salary; of course, all of the employees wanted it as salary.  Now, these employees come back saying the social security was never paid for any of them over the last few years.  As such, now the company has to repay all of these 4 employees social security again for the entire length of their employment.

Operating in China is difficult, whether it be because of employee issues or government and legal issues.  This company was by no means operating strictly in the legal realm, which of course is difficult because there are so many gray areas in business and law in China.  But that made them vulnerable when other issues came up.

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In my air travels both domestically within China and internationally on Chinese airlines, I have been incredibly disappointed.  After yesterday’s flight on China Southern, I realized I didn’t need to be disappointed with all Chinese airlines, just China Eastern and Air China, because China Southern does a great job and does things ‘right’ where the other two don’t.  For example:

• China Southern did NOT make me walk on the tarmac in Beijing in 40degree F weather
• CE & AC always let you freeze (or roast as the season may be) and waste your time by making you walk on the tarmac and then take a bus for miles to the terminal because they are too cheap to pay for a gate & a jetway
• China Southern’s PA announcer spoke English well enough and clear enough I could actually understand what she was saying
• China Southern’s plane was the newest plane I’d been on in a very long time
• China Southern gave me a comfortable amount of leg room such that I wasn’t squashed into the seat in front of me
• My last flight on AC was so crammed that I couldn’t open my laptop fully even when the seat in front of me was upright
• My bag arrived on the carousel before I’d even gotten there!  Perhaps this is only a compliment to the fact that China Southern actually had a gate, but still it’s great service compared to the normal 15-20min wait I have with CE & AC.

China Southern certainly deserves praise.  My only 2 complaints were, the food was not very tasty (which I think is because of the airport catering company, not the airline catering company) and the flight was late (only 20min though).  All-in-all, I’m very pleased with China Southern and I’m glad to know that some airline in the Chinese airline industry differentiates itself positively.

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As I mentioned in the blog below, there are certainly issues that need to be worked out in China’s travel/tourism industry.  In the following article, these are elaborated on, even to the point of suggesting they are real problems that could undermine China’s ability to grow its tourism industry.

Tourism Skills Shortage in China
onrec.com
As a long time resident in China I have had the dubious privilege of watching the tourism and travel industries develop rapidly over the last decade. The development is the good news but the pre-development stage was a bit of a struggle for us all.
Over the last week I have read a number of articles indicating that China is going to move from being the world’s 4th largest tourism destination, with 124 million inbound tourists per year, to the world’s 2nd largest tourist destination, with countless more. This will happen over the next 10 years and it is great to hear. It means real change in people’s lives; overseas travel for people in China and the arrival of literally millions of tourists for upcoming events like the Beijing Olympics(2008) and the World Fair in Shanghai (2010). The downside is that there will be an inevitable shortage of skills in the tourism and hospitality sectors because the growth is massive and exponential. Businesses will suffer, and in fact are suffering right now because the growth has already started. Hiring volumes are huge and the cost of candidate identification and assessment is high when the salaries on offer are below the average for all other industries. At present there is a clear shortage of Travel Consultants in China. This stems from the exponential growth of the travel industry and the fact that so few people in China have actually been abroad in the past. In an exponentially growing industry the number of people with 10 years experience tends towards zero, and the travel industry certainly follows this path. It is very difficult in China to find someone who knows about the difficulties experienced by travellers who arrive at Heathrow(London) or JFK(New York). This is simply because so few people have actually been to either of these airports. Go back only a few years and it wasn’t even possible for someone in China to get a visa to go to either location. So, for example, it is very difficult for local Travel Consultants to really understand that you need 4 hours transit time when changing terminals at Heathrow. It’s hard to even envisage when your comparison is the small airport in your local city. And more importantly, it’s hard to effectively advise your clients when their travel plans involve multiple locations and different time zones. In effect we are looking at a skills shortage that can never be solved with simple training. The hospitality industry is a little different because it has been growing strongly for more than 10 years. So strongly in fact that it is often seen as a great training ground for other industries like sales, marketing, advertising, PR etc. Hotel people are much sought after because their language skills are developed, they have excellent presentation and they understand customer service in a very deep way. They can transition easily to selling advertising space or managing PR events for corporate clients. Unfortunately, the hospitality industry is now growing at a rate where training cannot keep up with the buildout of new hotels. Occupancy rates in hotels in China are thought to be over 70% and in many cities it is hard to get a hotel room, even when there is no major event going on in that city. Room rates have gone up significantly too. The tourism industry in China is already racking up over US$300 billion a year in turnover. It employs about 17 million people and is growing at about 9% per year. So the logical consequence of this is an ongoing struggle to recruit, retain and motivate staff. A struggle that will only get worse in the short term. The danger is that if this problem is not solved, the industry will not reach its potential. This has huge consequences when travel and tourism combined currently employ about 10% of the entire China workforce. Having the tallest hotel in the world is good, but filling it with qualified staff is much better.

I don’t necessarily disagree with the issues discussed in this article, I just don’t see them posing as big of problems as he makes them out to be.  China’s churning out the tourism/hospitality students at a rapid rate and the ones I know and work with are fantastic people, with excellent English and service skills.  If they come straight out of undergrad this smart and well-trained, I’m sure they can learn and develop great management skills as well.  As such, headhunting those truly capable tourism/travel middle and senior-level managers may just be great business idea.

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Check out this report from the UNWTO:

WTO: China Will Become The Largest Travel Destination By 2020
February 5, 2007

The World Tourism Organization says that by 2010 China will exceed Spain and become the world’s second most popular travel country, and by 2020 it will become the largest travel destination in the world.

The Madrid-based organization says that despite the appreciation of RMB value in 2006, China’s inbound tourists increased by 6% in the year and reached 49.6 million.

WTO Secretary-General Francesco Frangialli and Marketing Information and Promotion Department director Johann Kestner both estimate that China will see faster growth and will exceed Spain in the next four years.

Frangialli says that China, which has abundant capacity in tourist reception facilities, will probably surpass France by 2020 and become the most popular travel destination in the world.

WTO statistics show that China’s outbound tourists increased from 20 million in 2003 to 31 million in 2005.

Wow!  With so much growth, that means there’s a huge opportunity.  And I’m already in China!  Especially in China, where the industry is not nearly as developed as in the US or Europe, there are so many issues yet to be worked out, such as service, transportation, language difficulties, the intimidation factor, etc. So now the question is, what is a good business plan to take advantage of that report?

The problem with businesses in the travel/tourism industry is the margin is tiny.  People start businesses and work in the travel/tourism industry for the sheer love of travel and helping others to travel.  The barriers to entry in this field are quite low, buyers power is high (brand recognition is low), and the threat of substitutes is high. (Porter’s 5 Forces.)  These factors combine to keep margins in this industry quite small.
Nonetheless, I, like so many others want to start a business in the travel/tourism industry, particularly related to China.  I’m starting to brainstorm and have a couple of ideas, but I welcome any others however wacky they may be.  Feel free to offer suggestions or business ideas in the comments below.

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Having read numerous books and articles on contract negotiations in China, I thought I had a good familiarity with the process…until it came time to negotiate my own (employment) contract.  A common theme among literature discussing contract negotiations in China is after all the issues had been discussed and settled, the Chinese partner comes back to the table and starts renegotiating various issues as if they had never been settled or they were having second thoughts or were trying to extract additional concessions from the foreigner.  This exactly happened to me. All of terms of my employment were discussed during my interview, about a week later I was presented with a contract (even after I started working), and I reviewed it.  Generally it looked fine, though there were a few details I wanted adjusted, but still I would agree to it.  Then they came back to me and say ‘Oh wait, there’s a mistake in that one.  You are supposed to work 6 days per week.’  I’m sorry, there’s no way that’s a mistake.  That’s a huge mistake to make.  That’s a difference of 50+ days per year.  Not to mention it’s against Chinese labor laws, which limits the work week to 5 days and 40 hours.

Though they wrote it off as a miscommunication, I took it as a contract negotiation tactic and came prepared to meet them at the bargaining table.  In Chinese negotiations, one must be extremely patient.  The Chinese don’t have the same sense of urgency to meet market demands, nor of urgency to beat competitors to market, nor of being bothered by the extreme amounts of time that can be wasted in negotiating contracts.  They’ll outlast almost any foreigner on patience just waiting for the concessions they hope for.  At this point, having remembered what I read about contract negotiation in China, I was prepared to bargain hard but also be as patient as necessary until my legs collapsed under me while working.

As I discussed with other friends working in China, the Chinese try to extract as much out of the foreigner as possible.  This is true in Joint-Ventures as well, where the Chinese partner tries to retain as much control as possible and get technology transfers, etc.  As far as employment, in the case of someone I know, they’ve asked her to apply for and teach an additional class and write all her own teaching materials (which of course they will keep and use in the future).  According to her contract, presumably, she must follow all reasonable orders, but is doubling your teaching time when you’re already teaching 15-20 hours per week reasonable?  But if she doesn’t do as they say, she will be fired and in doing so also lose her chance to obtain her masters degree.  The company fully knowing this, is using this to their advantage, to extract extra effort from the foreigner without any additional compensation.  Though according to my contract I must work unpaid overtime (if necessary), I have no intention of being sucked into one of these schemes, especially not before I’ve even signed my contract.  Therefore, I’m prepared to stand my ground on this issue and ensure a manageable work week.
Perhaps because of the industry or maybe the Chinese are becoming more reasonable or perhaps because this company has done employment contract negotiations with a foreigner before or perhaps because they value me, there was no need for all my anticipation.  The GM came to me the next day and said ‘you only want to work 5 days, that’s fine.  Just work hard.’  Wow!  So reasonable.  Today the HR Mgr came to me and didn’t seem very happy I would only work 5 days per week, but since the GM agreed, he had no choice.  (Was this another negotiation technique?  His disapproval of the situation?  I thought HR people were supposed to work for the benefit of the employees.)  Nonetheless, a satisfactory end result without the serious negotiations I anticipated, but I did drop the other contract issues I qualms about as a 5-day work week is far more important to me.

So my advice is, seek out other’s advice and experience to the greatest extent possible before going into any contract negotiations with the Chinese.  It may save you a lot of money and headaches.  Then, be prepared for anything, from the most outrageous demands to the most reasonable compromises and if you find the other side meeting you half-way, respond with appropriate accommodation.

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China is almost totally a cash-based society. This is particularly true in rural and western China where they lack the banking infrastructure to process any kind of transactions other than cash. This is slightly less true in Shanghai. As a society so heavily reliant upon cash, a number of things amuse or annoy me:

• Why do the banks have such short hours?! Yesterday I rushed from work to HSBC to try to get there by 6pm so that I could get enough money to pay my rent. However, my effort was in vain…they close at 5pm. I complained to the manager, what good does it do anyone who works a normal schedule for the bank to be open from 9-5 and NOT issue ATM cards? He told me to come at lunch. I was like, if I had that kind of flexibility in my schedule, don’t you think I would. Then he said if you’re a Premier customer we may be able to help you on the weekends. Well, I’m not. But I complained, HSBC in HK is open on weekends to all customers, why not in China. Seriously mister, this is China, you can’t be paying your staff that much money so just pay a few of them to stay an hour longer. I figured it was just an evil attempt by HSBC to keep my money a little longer until… So learning my lesson from yesterday when I needed to go get cash from my ATM (and chose the location where the ATM is only open when the bank is open) I made sure to get there before 5pm. However, this bank closes at 4:30pm and is Not open on weekends either! How do people function in an economy where they must have cash but the banks aren’t open convenient enough hours to provide it to them and where some banks don’t issue ATM cards?
• People carrying around giant wads of cash. Although I’ve seen it in Mainland China, the most poignant example I can give is when I worked in the hotel in HK. Mainland Chinese tourists would come in and pay for their rooms in cash (perhaps because they didn’t have credit cards). When a room costs about US$250 per night and someone is staying for (for example) 5 nights plus tax and service charge that comes out to about US$1500. When the largest bill in Chinese Yuan is approx US$10, that’s a lot of Yuan! To be exact, that would about 120 paper notes! I don’t know if you’ve ever held that many paper notes at one time but try simulating it with regular paper sometime to find out how thick that is. Then imagine these nouveau-riche Chinese men carrying around Louis-Vuitton men’s purses filled with stacks and stacks of Yuan in them. To go from the ridiculous to the sublime, now imagine a not very rich Chinese man (or woman) carrying around that much money in a plastic grocery sack.
• They check every single CNY50 or CNY100 for the embedded security features. As if it was worth every counterfeiter’s effort to copy approx US$6 notes, every single person (except foreigners) checks in detail–and under a blacklight, if possible–every single RMB50 or 100 note. When someone hands over the kind of cash discussed in the previous paragraph this is a very long and tedious process. As if that weren’t enough,
• They count multiple times, with machines and by hand, to check that there are indeed that many bills. When the Chinese man paid in for his JW room in cash the entire process took at least 20min because of the checking and recounting. This morning when I went to pay my rent (not only did I need my passport and I don’t know why) the woman machine-counted my 34 notes twice, then proceeded to hand-count them again as if the fact that I’d counted them, my roommate had counted them, and the machine had counted them twice was not good enough for her.

My reason for writing all of this is to point out the ridiculousness of it and to suggest maybe the Chinese government can design, print, and circulate a note larger than RMB100. It seems to me it would save everyone a lot of trouble from the counting to checking multiple bills for validity to not having to carry so dang many notes around. Or perhaps they can just extend the banking infrastructure and institute a system like Hong Kong’s Octopus Card or at least make the country more credit card friendly.

Last night as I was having dinner with some fellow USC alums, he asked me if I wanted the receipt and I responded, no, why do I care about the receipt? Rarely are you given a receipt unless you ask for it. In restaurants when you ask for a receipt it actually means you’re given scratch cards totaling the amount of your bill. You scratch the end of the paper and most of the time it says ‘Thank you;’ however, I received one in which I won RMB5 and I’ve heard of someone else receiving RMB20. You simply return this to the restaurant and they give you the money. Hey fantastic for me, free money! Someone recently explained to me the purpose behind receipts in restaurants. It’s a way for the government to actually track the restaurant’s revenue and collect taxes from it. I’m not entirely sure how the system works but in a economy so much based on cash (and to some extend evading taxes), it seems to work. The customer wants the possibility of receiving free money so they ask for the scratch receipts, the government then knows approx how much their bill was, and then the company pays taxes on that amount. It’s really an ingenious system if you ask me.

However, this is not the reason the guy last night at dinner asked me if I wanted the receipt. He was not so excited to scratch the receipt himself; he had another reason. He explained to me that as foreigners living in China (and legally employed with a work visa and residence permit) any money we spend in the country, whether for rent, food, dry cleaning, taxis, even plane tickets back to our home country (presumably bought a local travel agency) can be applied to reduce our taxable income by that amount. If you figure the average foreigner here spends at least 75-90% of their income (because really there’s not much to save and when converted back to our home currency any savings would be so little it’s just not worth the sacrifices in lifestyle we’d make here) then that spending amounts to a fairly sizeable reduction in taxable income. Hey, I thought that’s crazy but that could seriously lighten the tax burden for any expat when we start getting a percentage back for each Starbucks we drink. I’m not sure why the government does this, perhaps to encourage foreigners to spend here and support consumption in the domestic economy but also to reduce the stress on the pegged exchange rate if all the foreigners started exchanging their money.

It seems there’s no sales tax here, nor any bed tax (for example, on hotel stays in HK). Attempting to explain sales tax or a bed tax to hotel employees who’ve never left the country was definitely a challenge.

If the country could establish a more omnipresent banking system it would reduce the need for such things as the scratch receipts to track restaurants’ taxable revenue because more people would use credit cards. And of course this would apply to stores/shops as well when they start accepting credit cards. Now, even places that accept credit cards may charge the customer extra for using a credit card (especially on small purchases) because the store will not only have to pay the credit card processing fee but also tax on the revenue (because the credit card transaction is traceable by the govt).

Banking, money, and taxes in China, what a complicated situation. Just hope HSBC will give me an ATM card next year…

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It’s very curious to look around Shanghai and marvel at the fact the cars are all old. Well to be accurate, the cars themselves aren’t actually very old. Since there weren’t many passenger cars in China before the 1970s or 1980s, there aren’t (m)any truly old cars. It’s just that the body styles are very old and the engineering is rather outdated. The body styles of cars here remind me of cars from the ’80s, with very square corners and box-like appearances. The interior/dashboard area is no newer–old radios with turn dials (unless the driver installed a new system). The only very new cars I’ve seen, I expect have been imported, such as a BMW convertible and a few Audis.

As I observed this, I thought to myself, why is this? (Can you tell I ask ‘why?’ a lot?) My reasoning is that car manufacturers don’t want to give away their newest designs. Let me back up and discuss some of the history of business in China. Prior to China’s accession to the WTO any business in China had to be part of a Joint-Venture (or a few other legal forms, but Wholly Foreign-Owned Enterprises were definitely not allowed). The government made these requirements so that during the partnerships the foreign company could transfer technology and expertise to the domestic partner. In doing so, the government hoped local companies would use the technology and knowledge to build up local expertise and eventually undercut the foreign companies. As foreign car manufacturers were trying desperately to get into China’s market they agreed to these terms. They received benefits as well: low-cost labor and knowledge of and distribution in the domestic market. However, knowing the risks, foreign car makers wrote a provision into the contract that said their local partner (in the case of VW and GM, Shanghai Automotive Corp (SAIC)) couldn’t launch its own brand within a certain period of time. (I believe the period has elapsed and SAIC plans to launch its own brand within the next 6-12months). Now, my guess is, to further protect their interests, foreign car manufacturers decided to build outdated models of cars here. So that the local partner wouldn’t rip off the newest, most advanced technology, reverse engineer it, manufacturer it, and sell it for less on the global market, the foreign car makers only brought old styles here that weren’t being sold in any developed countries anymore. This seems like a genius plan to me. ‘Let’s give them engine technology and body styles that are from the 1980s and it will still seem fantastic for the poor, backward Chinese, while protecting our newest international models.’ It would not surprise me if some manager in those foreign car companies thought exactly that. It is my understanding, though, that the foreign car companies did fix defects that were in the originally released cars from the 1980s before they brought the technology to China; this way they would not be subject to any liabilities resulting from design defects.

Now the situation gets tricky. There is new legislation that has emissions standards set at a level stricter than those in the US (though, to my understanding, not quite as strict as the EU). You’ve got to wonder, is the government finally starting to care about the environment and the pollution? Or is this a legislative attempt to get more advanced technology from the foreign car companies just as the domestic companies plan to launch their own brands and sell on the international market? I would be curious to know how the foreign car brands are reacting and what they will do. Will they bring in newer body styles as well as more advanced engine technologies when they lower emissions? Or will they make only the most minor modifications to lower emissions?

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