Interesting China article from today

This article from Marketwatch touches on some of the distortions in economic data coming out of China's economy. Clearly the Chinese economy is growing and growing at much faster rates than the US, but it is hard to know exactly how rapidly. Some people do not trust official data at all and think they can get a better view of China's GDP growth rates by plotting the change in electricity usage instead of GDP (electricity growth has historically correlated very strongly with GDP growth).

Twin views of China's economic growth don't quite add up

HONG KONG (MarketWatch) -- China's gross domestic product as reported by the nation's 31 provinces and municipalities for the first-half came out significantly higher than the national figure reported by the central government, state media said.

The chasm between the two sets of numbers underscores the tendency of regional officials to file data that paint an overly rosy picture of the pace of growth.

The gap between the national and local figures ballooned to 1.4 trillion yuan ($205 billion) for the six months through June, according to the China Daily, which cited figures reported by the Beijing Times.

The size of the economy in the first half, according to figures provided by local governments, totaled 15.38 trillion yuan, while the National Bureau of Statistics reported a figure of 13.99 trillion yuan.

Mainland Chinese media reports said the discrepancy may be related to the tendency of local governments to double count the economic value of subsidiaries of large companies.

The error, according to reports citing Ye Qing, a professor with Zhongnan University of Economics and Law and a deputy chief of the Hubei Bureau of Statistics, arises when local governments count income from company branches along with the income figures reported by company headquarters. Often these company headquarters' figures already incorporate branch-level income.

Another explanation put forward is that regional government officials deliberately inflate the figures to exaggerate achievement in economic development. Often, officials' performance appraisals are related to how well the economy is doing.

Economists say the two sets of figures have failed to add up for the past five or six years.

Ma Jiantang, head of the Statistics Bureau, was cited in Chinese media reports last month as saying his agency was aware of the discrepancy and had proposed the central government directly calculate provincial GDP instead of relying on figures provided by regional officials.

Economists who monitor China generally disregard the regionally reported GDP figures and look instead at local export and import data, power generation data and other quantifiable statistics when trying to gain insight into the nation's regional economies, Credit Suisse's Dong Tao was cited as saying Tuesday in a South China Morning Post report.

China's stock exchange - revisited (updated 2/13)

It has clearly been a very difficult past 18 months for the Chinese stock market. While this is not entirely surprising given the bubble that I discussed in 2007 and the massive overall decline in world stock markets, the correction in China has been particularly harsh.

The chart below shows the SSE over the last two years. The index today is down 62% from its high and at its peak had declined 71%.


Further recent news shows that Chinese exports declined 17.5% YoY through January and imports declined a whopping 43%. While the China Daily calculates that about 1/3 of that import decline is due to the timing of Chinese New Year, the decline is still massive.

Given the decline in world demand for China's good and the rising job losses and deteriorating economy in China, is now the time to get out or get in to the stock market?

While I have less conviction that I would like, over the past month I have started to slowly dollar-cost-average into China's indexes. While I think it may be rough going for the short-term, I think now could be an attractive time to invest. I think a) China's government is much more likely to successfully implement a stimulus than the US government, b) although I don't have this data, I think the higher savings rates of Chinese middle-class consumers vs. American middle-class consumers will help buffer their internal consumption crunch somewhat, and c) the PE multiples of the SSE have declined to a much more reasonable level and at the last data I saw were actually below PE multiples of the US.

I also recently came across this quote from one of the leading global venture capital funds - again, no real data - but captures my sentiment well:

"Our investments in China are better positioned to survive a very prolonged downturn than companies in the U.S. Not only are the cost structures far lower, but the cultural familiarity with the challenge of survival makes the managements of most of these companies more resilient. (Bear in mind that even in good times the average savings rate in China's urban areas for high income earners has been close to 30%). Despite the many challenges that come with operating in different countries, we are relieved that we decided to reduce our overall dependence on the U.S. and can invest in markets that are growing more quickly and where there is a greater thirst for success"

Given the high likelihood that China's long term growth rate is substantially higher than the US, I am hopeful this will prove over the medium term to be an attractive buying opportunity.

China's stock exchange

It's been a rough year since I last wrote about the Shanghai Stock Exchange. After peaking just over 6,000 in September, the SSE is down about 56% to around 2,700 today.

India vs. China

This summer I have had the amazing opportunity to work back-to-back in the world's two fastest growing economies. Here are some comparisons and observations.

Facts and Figures:

• China is the world's biggest country with ~1.32 billion people. India is the world's second biggest country with ~1.10 billion people.
• China is almost exactly the same size as the US in land area. India is about 1/3 of the size of the US in land area.
• China's 2006 GDP was $2,720B, which is $2,069 per capita. India's 2006 GDP was $923B, which is $842 per capita.
• On a purchasing power basis, China's GDP is $7,539 per capita. On a purchasing power basis, India's GDP is $3,920 per capita.
• China's five year GDP growth rate has been 10.1%. India's five year GDP growth rate has been 7.8%.
• China's economy is the 4th largest in the world on a nominal US dollar basis but 2nd on a purchasing power basis. India's economy is the 12th largest in the world on a nominal US dollar basis but 3rd on a purchasing power basis.
• 21% of Chinese exports go to the US. 17% of Indian exports go to the US.
• ~350 million Indians speak English (more English speakers than any other country). Estimates of Chinese English speakers range from 50-275 million. (Though in practice, I have had no trouble getting by in English in India but in China it was often impossible)
  

Impressions:
It's hard not to think that China is going to take over the world when walking around Shanghai. The economic growth and energy is palpable. In India, however, walking around any city you definitely do NOT get that impression. Poverty is everywhere, and the palpable feeling is that of walking around an "emerging" economy.

It seems quite true that China has grown because of its government and India has grown in spite of its.

The Indian government cannot handle the simplest issue. Being a democracy with so many diverse viewpoints effectively paralyzes the government. It is true that India makes fewer mistakes as a result, but it is a clear economic disadvantage. The Chinese government on the other hand, is not at all afraid of crushing a few (or few million) individuals or individual liberties in the name of progress. I am nobody to judge which approach is better, but they could not be more different.

What will happen next?
Currently, both countries face a number of similar and significant challenges.

Both countries are trying to move beyond their core strengths (and into the other's territory). India is expanding its manufacturing capabilities - for example, Dell and Nokia have recently opened large plants here. China is also trying to capture more of the IT market. It's IT revenues are currently about 40% of the size of India's. But China's IT market grew at 22% a year and with greater English adoption may grow even faster. Currently, 80% of India's technology exports go to the US or UK. 60% of China's go to Japan or Korea. Both are trying to become more balanced.

Both countries have major political risks that are discounted in the west. India has both Kashmir and the Northeast Provinces with large separatist movements. In addition to Taiwan, China faces problems in Tibet and Southern China, which is increasingly overrun with crime. Both countries face uprisings and riots from farmers on a daily basis. Both have major issues with water and energy shortages and pollution problems (all probably worse in China).

Both countries also face major economic risks. Japan and the other "Asian Tigers" all had significant depressions after growing for approximately as long as China and India in the most recent expansion. China's stockmarket has also gotten to extremely high valuations which are bound to come down in the near-term.

Both also will face major challenges as currency appreciation hurts their cost competitiveness. The rupee has risen nearly 15% this year vs. the dollar. Economists estimate that the yuan is between 10 and 50% undervalued because it is not allowed to freely float.

And both face competition from other emerging Asian economies. The NYT has recently written about the Japan/India partnership that is emerging to combat China. And many global companies and venture capital firms are looking to Vietnam, the Philippines, and elsewhere to provide the next source for cheap labor.

Still though, I think both countries are largely poised for a strong future and while it may not be a smooth ride, I think they will overcome these hurdles. China, particularly, has already become so large and economically powerful that it's rising consumer class should help it continue to grow even if its exports begin to suffer.

Perhaps unsurprisingly, I think over the next 10-15 years the US will grow at 3-5%, India will probably grow at 5-7%, and China will probably grow at 7-9%. But I think India' growth should be pretty stable, barring a major war. I think China's growth faces some significant risks and volatility in the near-term. As a result, I don't think China will catch up to the US as quickly as some people have projected (this recent NYT article seems to agree).

Which would I choose?
If I had to choose to be a farmer in either country, I would probably choose China (though it would be very close, I'd probably be slightly richer and more educated in China but would have less freedom).

If I were to be Me but born in one of the countries, I would definitely choose China because of the huge potential for great wealth (even though I would probably have to live with a permanent face mask to survive the pollution).

Still though, if I could choose to be born anywhere, while it may change in 50 years, today I would almost certainly still pick the US. Hmmm...or maybe Sydney.

To invest in China?

Note: This is a still in process draft that I hope to turn into a paper at Stanford. Much of it is still poorly developed and explained. It is also quite long. But, as I am leaving China, I think it is appropriate to post it in its current form for those who are interested.

Walking down the neon-lit streets of Shanghai buzzing with energy, shopping in the modern downtown malls of Hangzhou, Beijing, and Xi’an, or studying the massive development projects on display at the Urban Planning museum, it is hard to conclude anything other than China is about to take over the world. When asked in a recent survey, "Do you think you will be richer in 10 years time?" approximately 90% of Chinese respondents chose "quite possibly" or "possibly".

But at the same time, there are problems here which seem nearly insurmountable. The recent US seafood bans and toy lead paint outcry just scratch the surface. The pollution in many parts of the country is unbearable. The northern portion of the country is facing severe water shortages. AIDS is ravaging large portions of the population of Henan province due to terribly misguided government blood gathering practices in the late 1990s. Huge numbers of workers are migrating from rural farms to slums in and around the large cities. Numerous local minority groups want political freedom and independence. The economic disparity between rich and poor is tremendous.

So maybe China is not going to take over the world. Maybe the government will lose control when the economy slows, as the growth slowed in Japan and all of the “Asian Tigers” of the 1990s. Maybe America has just outsourced almost its entire production base to a country with problems growing as rapidly as its economy?

The answer is definitely not clear.

One thing is for certain, the Chinese economy has showed no signs of slowing down yet. Even with the one day 10% drop in the stock market in March when the government suggested there may be new taxes, consider the following:
- Real estate investment and prices have soared (28% annual real estate growth, 25% annual infrastructure growth YoY May)
- The stock market has nearly tripled in the last two years (Shanghai Index up 124% in 2006 and ~70% YTD)
- The Trade imbalance continues to surge (surplus increased 73% YoY May)
- The Yuan is still not free to float (some estimate the currency is 15-20% undervalued)
- Venture Capital money is flowing freely ($220MM was invested just in cleantech directly in China in 2006.

Almost every single person I have met here is working for a startup or a VC. Everyone is getting rich and think they will continue to get very rich, very soon. I have met many people who talk about their plans to retire to the US in 10 years based on their riches from the Shanghai stock market.

Can this growth possibly continue?

I think this answer is actually quite related to my work here at Kijiji. I have been working to expand Kijiji’s presence by entering new markets around China. As such, I have studied the socio-economic characteristics in all of China’s major cities and regions. While today, Shanghai, Beijing, and to a lesser extent Guangzhou and Shenzhen, are wealthy, global economic centers, these cities will not drive China’s growth over the next twenty years. China’s “Tier II” cities will be even more important for China and the world than I ever imagined.

I have analyzed Kijiji’s performance in Tier II cities where we have a presence, and assessed other markets where Kijiji could enter. I have visited China’s Tier II cities firsthand in Hangzhou, Xi'an, and Kunming. It is these Tier II cities, the cities with an average population of 3.5 million and an average purchasing power / capita of just over US$10,000, the cities that most Americans (myself included) have never heard of, that will determine China’s impact on the world over the next twenty years.

Urban household data is one way to see the importance of these Tier II cities. Clearly, Chinese urban households are much better off than they were even ten years ago. While only 6% of urban households are classified by McKinsey as “Global” or “Affluent”, 43% of the urban households are classified as upper or lower aspirant – basically middle class. 10 years ago this same statistic was at only 3%.

One consequence of this growing middle class is a tremendously widening gap between rich and poor. The chart below shows this staggering evolution.


The chart below shows high, low, and base case economic projections for 2025 China. A rising middle class of staggering size seems almost certain. The country is just too big and has gained so many resources that it is hard to see the development of a huge middle class stopping. For reference, if 25% of China’s population is middle class, that would be roughly equivalent to America’s entire population.


Another thing in China’s favor is its long-long-long term outlook. Even in the early 1980s, Deng Xiaoping was writing about how China needed to plan for the next 50 to 60 years to become the dominant global power. Today, China’s long-term economic plan projects that it will “realize modernization” overall by 2050 and that every province will reach its modernization goal by 2070. I am positive there are no similar government projections, let alone 20 volume scholarly plans, planning for US economic development between 2050 and 2070.

So what does all this analysis of Tier II cities and the rising middle class mean? Here are my takeaways:

1) There is probably an investment bubble here today. This is not a consensus view, but it is my view. It may not end tomorrow, it may not end before the Olympics in 2008, but there is a bubble. It will burst, likely sometime between 2008 and 2010, and it may not be pretty.

2) There is a chance that if the bubble bursts in a very messy way, China will not be able to hold together politically. The country is so big geographically, economically diverse, and culturally divided that there may be serious political turmoil which effects China’s economic development.

3) I think the most likely scenario is that the bubble will burst but there will be a relatively soft landing. The slowdown will not be politically catastrophic, and the huge forces behind China’s economic growth will largely continue over the long run.

I think some Westerners will make some money in China over the next 25 years. I think a lot of Chinese will make a lot of money in China over the same span. I am hoping for the former, but not expecting much. I have a little bit of money invested in the Chinese market today, but mostly I am waiting and watching. I plan to invest much more after the bubble bursts. And I plan to target the sectors like healthcare, transportation, and recreation (see final chart, below) that will benefit most from the growing middle class in Tier II cities.

The 20th century was dominated politically and economically by events in Europe. The two major world wars, the cold war, and most of the economic expansion was driven western forces. I see no way that will continue. The 21st century may not be the “China Century” but it will almost definitely be the “Asia Century”. America may still be the biggest and most powerful country, but it needs to change its focus and adapt to a new center of the world in the East.

(Sources: Charts in this posting are all from the McKinsey Global Institute November 2006 report: “From ‘Made in China’ to ‘Sold in China’: The rise of the Chinese urban consumer”. Most other statistics are from Chinese census data, or articles in the New Yorker, the Economist, or the People’s Daily)

Xi'an

I had a great weekend trip to Xi’an with two GSB friends, Ian and Shu, and an HBS guy Winston. It was a great group to travel with and we had a blast. Ian also had 3 friends of friends in Xi’an who took us out to eat on Saturday night and showed us around. They took us out to eat at a great local place, showed us the “best bar in Xian” (which was quite cool actually), taught us a high-speed variant of paper-rock-scissors that all the people were playing at the bar (which I will be exporting back to the US), and pretty much looked out for us, even though none of us had ever met them. Amazing hospitality.

As I have done a lot of research on Tier 2 cities in China (McKinsey rates Xi’an is a Tier 2a city, meaning one of top 15 local market opportunities in China), I was very curious about what Xi’an would be like. I have heard a lot of stories about problems in Tier 2 cities – pollution, overcrowding from rural immigrants, lack of water, severe economic disparity. But Xi’an was much better than I expected.

Xi’an is an ancient capital of China – until the capital was moved to Beijing in the ~1200s, it was the capital for most of the previous 1500 years. Amazingly, there were still a number of interesting cultural relics – the downtown CBD is surrounded by the old city walls with their huge gates rising up overlooking the city. Lots of palaces, gardens, and pagodas. Some of them were really cool. Occasionally, we trudged up hundreds of steps to get to look out over a hot, smoggy nothingness. But generally, the city sights were great.

Xi’an is also fairly west geographically in China, so it has a large Muslim population. We hung out in the Muslim quarter, and had really good lamb dumplings, kebabs, rice porridge and some other stuff for dinner.

The city also had a much bigger and more vibrant upper middle class than I expected. The main street in town had tons of high-end western brand stores – Gucci, Nike, others – and tons of people were out shopping at the local malls, eating out, and going to bars throughout the weekend. Tons of people at the bar we were at had tables with US$50 bottles of scotch and green tea.

The terracotta warriors were pretty incredible. I could write a lot about them, but I will be brief as there are many internet postings about them. Built by the last emperor of the Qin Dynasty around 300 BC, the warriors are thousands and thousands of terracotta stone warriors, horses, sculptures, and animals buried in dozens of huge pits around the Qin emperor’s tomb to protect him in the afterlife. Each was painted in bright colors (though they have faded now), and every warrior had a unique face, body, etc designed to look exactly like one of the warriors in the actual army. After the emperor died, his son executed all of the thousands of workers who worked on the tomb and buried them inside so nobody would learn the secrets of entering the tomb. As archaeologists fear booby traps will collapse the sites, only a few pits have been opened today.

But the highlight of the terracotta warriors was without a doubt the “Number 1 Umbrella in China”. This bronze umbrella stand was built 2,300 years ago for the emperor. It sat in a base that could rotate, so you could easily spin the umbrella around on its axis depending on the direction of the sun. But, not just that, you could also divide it into two pieces. One half of it because a spear and the other half because a shield (somehow). An amazing and hilarious artifact showing that the fascination with umbrellas is thousands of years old.

In addition to Number 1 Umbrella in China, we also found “Number 1 Fountain in the World”. In downtown Xi’an there is a huge fountain with thousands of spouts. At 2pm Sunday there was a full musical show like you might find at the Bellagio or Disney World. We watched the pretty cool show at Number 1 Fountain* from the top of the Big Goose Pagoda.

Finally, just a few of Xi’an’s memorable signs.


*Unfortunately, the internet does not seem to support Xi’an’s claim of having Number 1 Fountain in the World. In a very quick Google search, Singapore, Saudi Arabia, Michigan, and Arizona all seem to claim fountain titles of some kind.

Weekend update and food

Weekend
I am going to Xi’an this weekend with two GSB friends, Ian Chiu and Wu Shu, and one of Ian’s friends from HBS. Xi’an is an ancient capital of China in the central part of the country most famous for being the home of the Terracotta Warriors. In characteristic modesty, the Chinese Tourism Bureau says the Terracotta Warriors are the “most significant archaeological excavations of the 20^th century.” No more blog entries likely until Monday (China Time).

Food
I haven’t written much about food recently. But that is not because it has gotten less weird, more that I am somehow getting used to it. Earlier this week I went to a hotpot dinner – like the Chinese version of fondue, but weirder. We had some regular beef and lamb and shrimp, but then there was a bunch of stuff like cow stomach, some other cow parts in a red sauce, some balls of some kind (supposedly “meatballs” but they were oddly hollow), etc. I was only a little bit disturbed and we all basically just plowed in. The stomach was quite good (though did not look like something you should be eating) as were the supposed meatballs. The cow parts in red sauce were not my favorite.

Then, since this is Shanghai, you can also get any western food that you want as well (except Mexican food, which is killing me). So the next night I went to a nouveau Mediterranean restaurant on the roof of the modern art museum in People’s Square. The place had great views, and I had a pretty good salad and veal tenderloin. Then I went to a cool bar in Xiantiandi that had a jazz band in from New York. Could have been anywhere in the world and seemed as far away from cow stomach as possible.

Finally, I have been eating a ton of dumplings. Averaging about 25/day this week of all different types. My favorites are xiao long bao (steamed soup dumplings) and sheng jian (grilled? jumbo dumpling) .There is a hole-in-the-wall place a few blocks for our office that has been called the best dumpling place in the world. It’s tiny, and dirty, and crowded, but really good. And today at lunch there, I ran into a guy who grew up in Norcross and went to the same middle school and high school as me and who is my brother Michael’s friend. Crazy.

Finally, an interesting article from the People’s Daily – What will China be like in 2050? Hopefully I get time to elaborate on some of my thoughts next week.

Video games

China has between 125-140 million internet users today (~10-12% of the population). But Chinese use the internet for very different purposes than most US users. A large majority of Chinese internet usage is for “entertainment” whereas in the US, a majority is devoted to news/information gathering, with entertainment being secondary. Online video games are extremely popular, and over ~50% of internet usage in China is devoted to video games. Chat is probably as popular as email, and that makes up the next ~20% of internet usage.

I had an interesting talk at lunch the other day about the video game industry in China.

A number of companies are working on different ways to take advantage of the huge video game market. One of my friends here is working for a startup that transfers cash payments made at rural internet cafes into online payments in video games (most rural Chinese do not have credit cards and cannot directly pay online).

This New York Times article (free registration required) on Chinese Gold Farmers is really interesting as well. To summarize, an industry has sprung up in rural China where wealthy consumers (a mix of Westerners, Chinese, and other Asians) who play video games pay hard currency to Chinese players to earn extra points, skills, or advance to new levels in online games. These Chinese players work 12 hour days “playing” video games and earning points for paying customers. The customers make cash payments online to intermediaries in exchange for the stronger character or additional points.

Additionally, the current rumor (unsubstantiated but very believable) is that in many rural areas, local government officials are forcing prisoners to play video games in jail. The local officials collect the money and the prisoners spend their days earning points for paying customers in virtual worlds.

Consumer retail

Saturday was the day of researching the consumer retail market in China, aka shopping. I headed out with the general plan that I needed to get a few pairs of underwear and some jeans (not great packing as I left Stanford) and maybe some souvenirs. Amazingly, Saturday was my last full free day in Shanghai to take care of this stuff.

I think in Shanghai you can shop at more price points than anywhere else in the world. I went to a few small discount places, sort of like small Dollar Stores, with similar $1 or less prices. Then I went to a big Amway, just to check it out. Still, I don’t know exactly what it was – I know Amway is really big in the smaller towns in China as they use a direct sales/distribution model. This Amway was a big building with a lot of people standing around doing nothing and a few tables with some beauty products. But it didn’t look like you could buy anything – I’m not really sure what was going on.

Then I went to 3 department stores, basically a low-end department store, a mid-end, and high-end. All pretty similar stuff and price points to their US equivalent stores.

Finally, I went to two malls, one was about an average mall with average US prices, though except for the Timberland store and the Keen store, there was nothing else really interesting, and the place was pretty empty. The second mall though was huge – like 7 stories – and was just like Phipps in Atlanta or any other really nice mall. Tons of US brand stuff, with US$200 jeans at Diesel and a Nike Golf store and a big fancy food court and everything else you would expect to find at a mall that is too expensive for me in the US. But tons of locals were wandering all around, window shopping and buying stuff.

So I wandered through all of these stores and bought absolutely zero, except an M&M blizzard from Dairy Queen. Last week though, the Georgia Tech guys had told me that there was still a market here in Shanghai that was full of pirated goods (like I think was probably everywhere until they recently started cracking down). So I got on the subway from the nice mall, and headed to the pirate market stop. 30 minutes later, without even setting foot outside, I went from one of the nicest places I had ever shopped to a massive underground market.

You could buy any type of clothing or electronics or sporting goods you can imagine - Callaway golf clubs, Prince tennis racquets, Rolex’s everywhere, iPods, video games, DVDs, Chinese souvenirs, and just about every brand of clothing. And all of it was dirt cheap. There were mostly tourists, but some locals shopping too. So this is where I shopped.

Purchases

One Framed thingee to hang on Matt and Jaime’s “Wall of Weird Random Stuff from Chris”

Chopsticks set for 6, engraved with dragons and little things to set them on

One deck of Mao Zedong playing cards

2 ties, nicer than any other ties I own (which does not say much)

2 pairs of boxers

3 pairs of socks

2 pairs of sunglasses (one Oakley and one Rayban)

One costume-worthy belt with a large John Deere belt buckle

One dress shirt

One army green CCCP t-shirt

One set of iPod speakers

One iPod power adapter (US$50 at Best Buy China, $2.50 here)

One pair Dolce & Gabbana jeans (note: Obviously I am not a D&G guy. But I only brought 1 pair of jeans and I wear them to work everyday. These same jeans were on sale in the nice mall for US$220. Now, my nicest pair of jeans cost $20 at a sketchy market in China. And even if they are fake, they probably are still my nicest pair)

Total cost: ~650RMB or about US$85. I think not a bad day of shopping.

Finally, after I bought some stuff from her stand, I started talking to one of the sellers who spoke pretty good English. I asked her where she got her product from – was it fake, were there just a few shipments that “got lost” from the factory, or how did it work? She just said “Business Secret” and smiled.

A few photos: Me and a large ice cream cone on the sidewalk (sadly, the top is cut off, not sure the guy knew why I wanted him to take my picture), the Disney store in the mid-tier mall, and a band promoting the new CK-1 cologne in the high-end mall.

Three small transportation stories

Online booking
I booked a flight “online” yesterday for a trip to Xi’an for next weekend. I used Ctrip.com, the equivalent of Orbitz or Expedia in the US. For the booking process, everything proceeded fairly normally at first. I sorted through a bunch of options, chose my flights and proceeded to booking. Then the payment choices came up. The choices were: (1) pay with a Chinese credit card, or (2) pay cash. I of course had to choose cash, both because I do not have a Chinese credit card and because I needed to see how that would work. I got to choose a two-hour window during the next day during which a Ctrip representative would come to my office and we would make an exchange. Sure enough, he brought me a paper ticket and I paid him in cash.

Error Messages
One of the best Chinese phrasings I have seen. An error message when searching for a flight:

Shanghai - Diqing None of direct flights in this time.

---

If you can accept the way turn in other airports,The following is the Shanghai that we recommend for you to fly to the Diqing of in turn(onward flight) the flight path.Please choose you feel quite the cheese in turn the city, we will search the service for you

Taxis
I have written before about how difficult it is to take taxis here. It is such a problem that I will write again. First, it is almost impossible to pronounce the address of where you want to go, and taxi drivers never understand what you are saying. So Westerners need to bring a Chinese map and the address written in Chinese of wherever they want to go. But even so, it is still a big question of whether you will actually get where you are going. I have heard a few reasons for that – one being that many taxi drivers don’t read that well, and the other being that since entire areas of town can be seized, torn down, and rebuilt, the landscape changes so fast that taxi drivers can’t keep up. Whatever the case, it is a huge pain to take a taxi anywhere and at all times I keep a Chinese map of my hotel in my pocket and still often don’t get exactly where I want to go.

But, last night I got into a cab after dinner and reached into my pocket. Somehow I did not have my map with me. So we went through a two minute exchange where I tried to say Xujiahui (pronounced something like shoe-jah-hway) and the cab driver stared blankly at me. Finally, he said “Ah! Xujiahui” (to me, exactly the same as I had been saying for two minutes) and off we went. Xujiahui is the metro station about 10 minutes from my hotel and the only landmark I know. We successfully made it to the metro station and then I was able to point and grunt and guide us to the hotel. A huge victory!

Five Fun Facts about China

• The MagLev train from the Shanghai airport to downtown is the new fastest train in the world, with top speeds of 267MPH (though when I took it on arriving here, we topped out at only 186MPH). The trip into town takes 7 minutes and 20 seconds.
  

• According to CCP reports, there are more 75,000 “incidents of rural unrest” per year in China (that is >200/day).
  

• 31% of the world’s ketchup is produced in Xinjiang province (northwest corner of China).
  

• Wuxi, a city of ~4.3 million people, has been without running water for several weeks now. Poisonous blue-green algae caused by water pollution bloomed in the city’s water source, the 3^rd largest freshwater lake in China. Temperatures have been in the 80s and 90s but city residents have no ability to wash or shower. CCTV news tagline “China learns from algae crisis”.
  

• There are 49 cities in China with a bigger population than Houston, Texas.
  

Also, my hotel has a gun club on the first floor (sign on the left side of the picture below).

First weekend in Shanghai

Friday night’s two activities could not have been more different.

First, I went to dinner with a group of 8 people from work. We went to a little hole-in-the-wall local restaurant on the third floor of a sort of dumpy building a block or so from work called “Yummy Place”. It was not. All meals are family style that I have eaten here where one person (not me) orders for everyone. This dinner worked the same. First dish that was brought out was a pile of chicken feet. Not even fried or breaded, just plain (baked?) chicken feet served with tiny hot peppers. You could see the webbing, toes, everything. I am not normally phased by foods of different cultures but this was one of the least appetizing things I have ever seen on a table. Rest of the dinner was unspectacular. Total cost for the 8 of us was about US$12.

After dinner, I met up with my friend Roy from New York and who is now working in ASCP’s Shanghai office. He had some friends who just graduated from Wharton in town visiting. We went out to a super trendy lounge in Shanghai called Volar, with a world-class crowd in a world-class space (Philippe Starck) and world-class prices. We had table service with US$150 bottles of vodka and green tea/whiskey. About 1/3 the price of a similar place in Vegas, Miami, New York, but with the exception of the 98% Asian crowd, you couldn’t tell a difference. But, our bar tab was almost 40x the price of my entire group’s dinner.

How sustainable is China’s economic growth like this? I am mentally composing a much longer separate post about this, but the disparity here between rich and poor is incredible. And China is supposedly socialist.

After the unsatisfying dinner Friday, I opted for an American-style brunch Saturday morning at Kraze Burger, an excellent upscale burger chain that of course is Korean-owned. Then I headed to the People’s Square and to the Shanghai Urban Planning Museum. I had heard a lot about the museum and had high expectations.

The ground floor was very impressive - a huge model of Shanghai’s riverfront probably 60 feet long and 10 feet wide, shadowed under Shanghai’s slogan “Better City Better Life”. I wandered around a bit, quite impressed, and took some photos. Then I noticed there was an upstairs. I took the escalator up to the 2^nd floor which had some mildly interesting pictures of Shanghai in the 1920s and 30s. I almost left the museum then but decided to take the escalator up one more floor to see what was there. As I stepped off the escalator, my mouth opened and I literally said “Holy Sh-t” outloud. The entire floor was covered with a model of 2010 Shanghai down to the tiniest level of detail. It must have been 100 feet by 100 feet at least. (Photos below) There was all sorts of other crazy exhibits also – like a 360 degree video tour through 2010 Shanghai, and a room describing the eco-town of 200,000 people the government is building on a now deserted island just up the river from Shanghai. A final highlight was the big exhibit on containerized shipping (photos and shipping note below!).

After the museum I went to the new Xiantiandi district. It’s a “stylish business, entertainment, and cultural complex” that looks pulled right out of Epcot Center. But it is also somehow the new trendy place in town. I had a straiccatella gelato and coffee outside at a nice café. Then I wandered a bit more and found one of the weirdest places I’ve ever been, a German Brauhaus complete with pretzels, home-brewed German lagers, Chinese girls in blue plaid dresses and two Chinese singers on a little stage belting out Bavarian hits. Picture below does not do it justice.

Finally, taking the subway home, I was shocked to see a white guy wearing a Georgia Tech t-shirt! I talked to him, and he was actually with a group of 5 current Tech students who are all CompE’s. Apparently there is an exchange program with Jian Tong University (the premier technical university in Shanghai) which my office sits adjacent to. There are 47 of them studying here this summer. In an interesting nod to undergrad norms these days, we exchanged not phone numbers or emails but facebook IDs so we can meet up later.

Shanghai plan (above), View of museum from People's Square (below)

German Brauhaus (above), Me commanding a COSCO ship (below)

For the containerized shipping fans out there (and really, who isn’t?), an interesting aspect of China’s growth has been its impact on the port of Hong Kong. For years, Hong Kong was the world’s busiest port. As mainland China has grown and as Hong Kong has prospered, it has become more economical to ship directly from the mainland. Despite China’s crazy growth, container volumes at Hong Kong were DOWN ~3% YoY in Q1 2007. Singapore took over as the world’s busiest port in 2006 and is likely to hold the lead in 2007. But Shanghai has moved into second place and is forecast to take the lead in 2008. Over 90% of world trade is shipped by sea.

Three battles

Battle 1 - Hangars

I am matched in a small war with the hotel staff here at the friendly Home Inn. A quick introduction, Home Inn is a new chain of hotels that is striving to become the Comfort Inn of China. This specific location is actually nice enough, but I am not sure how often they have visitors staying here for a month.

Since I left home for 3 months, I brought more than an average amount of clothes. The Home Inn provides its guests with 6 hangars. Now I know that many of you think I do not have 6 articles of clothing worth hanging up, but I can assure you that I do.

The first day I was here, I went downstairs and asked for 8 more clothes hangars. After a minute or two, they nodded in understanding and I thought hangars would be sent up. Nothing happened. Evening Two, I ask again for more 8 clothes hangars. I don’t know if they don’t want to give me that many, or they truly didn’t understand, but again nothing happened. Evening Three, I come home, get a knock on the door, and receive one hangar. Morning Four I ask for clothes hangars again. Somewhat confused nods from the front desk. I resolve to get the word clothes hangars written in Chinese for me, but later forget. Evening Four, I come home, get a knock on the door, and get one hangar again. Evening Five, temporary ceasefire.

I am not sure how this battle of wits will end up, but I think I am no worse than a 2 to 1 underdog.

Battle 2 - Pollution

I have learned how China plans to deal with the pollution during the Olympics. Our general counsel mentioned that he had heard about this plan from a few government officials in Beijing and Yahoo News seems to support it also.

The Chinese Air Force apparently has cloud seeding capability. They launch missiles that emit silver iodide which explode in the air and cause clouds to form and then rain to fall. The Air Force plans to use these missiles to encircle the city with clouds and rain in the days before the Olympics to temporarily help clean up the pollution by making it rain.

Apparently they also did this when some Olympic Committee officials came to assess the pollution problem before choosing Beijing to host the Games.

Battle 3 – Citizen behavior

The sign below from a park in Beijing shows some of the restrictions that the central government is trying to impose on individual freedoms. Line 7 is my favorite.

(I think if you click the picture you can make it bigger)

Shanghai - first thoughts

“Shanghai is America”

Or so says the really good book China Road that I read during the first few days of my trip here. It’s quite a good story of an American who worked in Shanghai for NPR for a number of years and then took the 3,000 mile trip across Route 312, the Highway 66 of China. While I am not sure that I totally agree with his assessment, I have at least one story supporting him.

When I arrived in Shanghai, I needed to get a charger for my iPod. Somehow I didn’t bring one with me and my iPod died by the time I got here. So the first night I am in Shanghai I set off, completely unsure how to go about finding a charger. A few minutes from my hotel, I found what looked like a sort of department store. I wandered inside, and began to mime the motion for “I need to buy a charger for my iPod”. For those of you who have gotten “iPod charger” in Charades, you know it is not the easiest thing to communicate without words. And of course I had left my iPod at the hotel, which did not help.

After a minute or so of watching me make headphone motions, dancing around like I was listening to music, and pointing to a power outlet, the girl at the department store giggles at me, and motions for me to follow. I trudge after her uncertainly as she leads me around the corner and out the side door of the store. Then, she points down the street, looks at me and smiles and says “try Best Buy”. Which, of course, is right down the street.

“Shanghai is not America”

Says me. So far I only have about 300 examples why this is not true. But that said, I really like it here. I will post more impressions about Shanghai later, but so far the city seems very unique and has a great feel to it. Preliminary city rating is 10 out of 14, and this comes after walking to work in the rain this morning, which is not fun anywhere in the world.

Impressions of Beijing

Beijing is not my favorite place. I would rate it a 2 out of 14 on the pH scale. Tons and tons of traffic. Dirty, hot, overcrowded, extremely polluted, very little culture or feel to it (which is odd, since historically the city has been so important to China). But there is so much destruction and reconstruction going on now that the city doesn’t feel like much of anything.

Some highlights were a very fat man riding me around on the back of his bicycle through a bunch of hutongs (small traditional, alleys). Tiananmen Square, the Forbidden City, and the Temple of Heaven were all OK. Some of the less touristy parks and padogas were cooler. But all in all, nothing awesome to report (except the Great Wall).

The pollution in Beijing is unbelievably terrible. It is permanently gray outside. You climb to the top of something to see a view and you can barely see the buildings a few hundred yards away. The sun shines a creepy orange color. I was coughing and sneezing the entire time I was there. I also had my first asthma attack since I was like 12 years old and had to sit down on a bench and try to catch my breath after walking around outside for only about 6 hours. They say that spending a day in Beijing is the equivalent of smoking 70 cigarettes. I am not sure what they will do when the Olympics are here. Somebody said that they may ban people from driving during that time, though that seems crazy (but maybe not so crazy for China).

Also, taxi drivers are ridiculously bad. First, I started off by taking the name of the place that I was going written in Chinese. Taxi drivers either would not or could not take me where I wanted to go - even to major attractions. Then I started bringing both a Chinese map and the Chinese name of where I wanted to go. Still, we would circle around, ask questions, and take forever to get where I was going. And I was not much better on my own. My hotel the last night was in a little dilapidated alley (too small for cars, people sold melons out of carts pulled by donkeys and fried up fresh dumplings outside my hotel, which was kind of cool). Since it was a small street though, nobody knew the name of it and I could almost never find it. I got dropped off by taxis twice very close to it, walked the wrong way, and ended up spending over an hour both times trying to find my hotel again. Very frustrating, especially in summer heat. I was definitely the sweaty American in Beijing.

On a good note though, since there has been so much deforestation to the west of Beijing, in the spring there are these massive sandstorms that come from the new deserts and blow sand all over the city. I am pleased to report that while it was in the high 90s when I was there, the skies were sand-free.

Will try to post some pictures when I can.