Customer Reviews

The China Dream: The Quest for the Last Great Untapped Market on Earth

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Joe Studwell, a British freelance journalist who lived in and reported from China from 1991 until 1999, has written one of the best-informed insiders' books about the Chinese economy in the boom years of the 1990s that is on the market. The book is excellently researched, well documented (60 pages of notes accompany 300 pages of text) and profits from a wealth of experience gathered "on the ground."

The main thesis of the book is that many big Western companies substitute a blurry, optimistic picture of a vast potential market for a balanced view based on hard data. When it comes to China, wishful thinking replaces critical distance and realistic assessment.

One thing that "The China Dream" explains very clearly is the extent to which two economies in China exist parallel to each other. One is the old socialist economy that is protected from change and the market forces. The other is a vibrant, export -oriented economy of manufacturing plants that assemble goods under the management of mostly Taiwanese and Hong Kong companies. The latter is the poster child for China, but the former continues to gobble up the people's savings to churn out the products that the planners want to see. Stripped of the success story of the export-oriented manufacturing companies, China's economy looks like a disaster waiting to happen.

Studwell is not a China-basher. He admires the stamina and determination of the small entrepreneurs in China who manage to hold their ground against a rapacious bureaucracy, the lack of credit from state-owned banks and the dumping strategies of pampered state-owned enterprises.

Earlier reviewers have criticized "The China Dream" as biased and uninformed (no CEO interviews). Having worked in China for three years, my impression is that Joe Studwell has a very solid grasp of the economic and political realities in the People's Republic of China, and that there is no point in listening to the rosy projections of CEOs and foreign luminaries who were "toured about in government limousines and fed an endless diet of spurious statistics"(255).

In a nutshell: This book is absolutely recommended reading for anyone who wishes to work in China or just wants to know what to make of all the praise lavished on a socialist developing country.

This lengthy document of some of the snafus of people that were managing HUNDREDS of millions of dollars of investors' money is a testament to exactly how rare knowledge really is. And how much of a role psychology plays in the market. And how true the adage "Those who do not learn history are doomed to repeat it" is.

Currently, I am living here and find that the behavior of the people here is accurately represented by this work and could have been predicted based on some of the historical evidence that is given by Studwell. It is obvious that he has a good, sharp mind and has paid attention to his subject material.

I've often heard phrases such as: "We Chinese have invented words for every thing because of our long history and we don't need to invent more." Or, "The American government lies to you too, and is just as afraid of a revolution as ours is." And on and on and on. The mentality of the people here is very stubbornly fixated in the 12th century and is not likely to change anytime soon. It is with this understanding that the author goes on to describe the Chinese customs that make this reality possible--even now, people here think that Beijing and Shanghai are the financial capitals of the world because of what the government tells them.

The one weakness of the book is that he doesn't devote a whole chapter to describing the cultural aspects alone. And this was perhaps a conscious decision because the perception of a culture is not reproducible from person to person-- although I will admit that all that he has said has been consistent with my observation. It would be easy to predict what he observes if you could just understand the cultural context in which these things take place.

It might also have been nice if he had drawm some parallels with the nervousness that the Soviet Union created in the USA. (It may be that I am going overboard with my "could've/should've"s, as just the documentation of this must have taken FOREVER. It is mind boggling that one person could find so much and keep SO abreast of what was happening.)

It is prudent to underline several things of which he has a mature understanding:

1. The essence of Chinese culture is FORM OVER SUBSTANCE. So he correctly notes that the government has spent a lot of time on making people believe that they were going to get returns that they weren't. This explains why people will repeat things a large number of times to convince themselves (and others) that it is true.

2. The obsession of this place with control. The government here has to be in charge of EVERYTHING. And, as to the first observation, they will not reveal the full extent of their control.

3. The mechanism by which a lot of the "guan-xi" money is distributed. (The hiring of consultants that are children of government officials who have sway-- or at least seem to.)

4. That nasty little sense of superiority that makes the Chinese destructively delimit everything into a Chinese/ Non-Chinese (and therefore inferior) way of doing things. Effectively, this makes the number of transactions that would take place in a properly functioning market much lower.

5. The extremely poor understanding of basic economics and its confusion with the other "social theater games" that they like to play here. Everyone seems to think that if we just believe it hard enough, then it is true. And most importantly how these wildly inaccurate ideas have been implemented as public policy by a government that is NOT subject to feedback mechanisms.

On the negative side: The documentation of the book was thorough, but it was just TOO MUCH and made the book rather heavy. Also lacking was a more detailed comparison of the parallels of this with Japan. They did some of the same things and went down the same roads that China is going down now--although with much more reliable enforcement of contracts/ transparency. And during the 1980s, the Americans bought right into the things published by Japanese think-tanks set up in the USA and created the same sense of hysteria. But when everything was revealed in time (as it usually is), then people understood the folly of their ways.

But for all his clear writing, most people will probably never even hear of the book. They are going to have to waste investor's funds and learn the hard way.

There's an incredible amount of hype about China's economic market. Its huge population, high-skilled low-wage work force, and relative political stability for a developing country all act as a powerful lure to multinationals eager to set up shop and begin selling to one-quarter of the world's population. Under tough negotiations from Chinese officials, these companies tend to give away the kitchen sink to ensure they get access to the huge market. But what do they get in return?

Joe Studwell does a service to the informed public by clearly demonstrating that almost all the businesses who have gone to China have gotten next to nothing for their technology transfers, special fees, and tremendous time and effort they've dedicated to the market. Almost uniformly, they have high-balled their expected sales and profits from the Middle Kingdom and found immense barriers such as unseen regulations and fees, corrupt officials, unenforced laws, local spin-offs to their products, etc., that should have sent them packing. Yet almost all of them push on, undeterred.

As Studwell explains, the reason for this is an old phenomenon among Western businessmen he calls "The China Dream." Despite continual setbacks, these hard-headed businessmen are too attracted to the possibility that they have something to sell that even a small percentage of Chinese may want to buy. Those huge potential numbers are too much of an enticement to businesses to easily let go of their foothold in China.

But Studwell's book is more than just about the experience of foreign businessmen in China. It also shows that the China market is becoming a trap for the Chinese people themselves. They work hard and save, and the government confiscates and then destroys their money by trapping it in state-owned banks that are insolvent because they lend to state-owned enterprises that are unproductive.

"The China Dream" is well-written and informative. Its thesis is provocative, but well supported. Studwell argues there is no rational basis for much of China's economic success and that most of its market is as closed and overregulated as the Soviet Union's. This book should be required reading for every CEO of a multinational who dreams of selling in China.

Since the time of Marco Polo, China has held out the promise of unimaginable wealth to anyone who could tap is vast domestic market. Writing in the 1840's an English businessman reckoned that if the Chinese could be persuaded to lengthen their shirt-tails " by only one foot," the Lancashire cotton mills would work round the clock. Some years later, US tobacco pioneer James Buchana Duke is said to have seen the Chinese population, 430 million, on an atlas, and said,"That is where we are going to sell cigarettes." In 1984, IBM Chairman Ralph A Pfeiffer Jr. mused, "If we could only sell one IBM PC for every 100 Chinese, or every 1,000, or even every 10,000..."

And therein as Joe Studwell's excellent book, "The China Dream," clearly demonstrates, lies the allure of China. With a quarter of the world's population, China must surely emerge as the largest untapped market for every imaginable product? Well, no.

In the 1990's, with Deng Xiaoping's exhortation, "to get rich is glorious" ringing in their ears, western politicians and executives flocked to China to exploit the newly "opened" economy. Happily ignoring the fact that the economy was actually still within the tight control of central bureaucratic planners, they poured billions of dollars ( at least 300 billion ) into deals and joint-ventures that never bore fruit.

The "dream" domestic market simply did not emerge, nor, according to Joe Studwell, is it likely to for the forseeable future. 900 million of the vaunted 1.3 billion consumers-in-waiting are peasants with little disposable income. Not included in China's rising unemployment figures are the 250 million landless peasants who roam the coastal cities desperate for work.

China's communist economics still preserve vast urban industries, obsolete state-owned enterprises which devour resources. Most would be bankrupt in a genuinely open market, but Beijing's fear of instability from mass unemployment disallows this. SOEs survive on government-enforced bank-loans, as many as 70% of which are not merely non-performing, but will never be repaid, effectively written-of. China's record growth figures for the 1990's now look dubious, a combination of government pumping and blatantly falsified statistics. The few companies that did well, and a few did very well indeed, were mainly owned by Hong Kong and Taiwan Chinese exploiting the mainland's cheap labour force for low value-added manufacture and assembly. Geared to export, this did not contribute much to the moribund domestic economy. The huge SOEs claim 40% of China's total exports, but these, such as steel ( a bone of contention with the USA since China joined the WTO ) are mainly dumped abroad at artificially low prices, subsidised by a government which cannot pay SOE pensions, welfare or unemployment benefits.

The few foreign companies that profited in China made things like mobile phones, which the Chinese could not yet make for themselves. Or else simply ignored all the bureaucratic hurdles and license requirements by operating illegally.

Studwell's detailed history of the "dream" shows that China's economy is in serious danger of collapse under the weight of state-perpetuated debt, due to central control of every aspect of the economy. The obsession with secrecy, political interference and routine falsification results in massive corruption throughout, from village level to the uppermost ranks of the Party membership ( including, famously, the families of both Li Peng and Jiang Zemin ). Millions of dollars disappear into officials' pockets. The governments "reforms" simply shuffle bad debts from one sector to another, while being counted as assets. The banks survive on the confidence and savings of the masses, who are only permitted to invest within China. Unless, of course, they are Party members or government officials.

China's recent WTO membership might rekindle faith in the "dream," but the debt-encumbered domestic economy is not improved by signing treaties. If anything, it is put under worse pressure by foreign competition ( when foreigners are allowed to compete ). It will stagnate as long as the bureaucracy and Party retain their stifling grip.

Joe Studwell closes with the salutary tale of General Motors, who invested US$750 million to produce Buicks in Shanghai for the Chinese domestic market. Hoping to sell 1 million cars annually by the year 2000, they peaked that year at a mere 30,000, with declining sales since. GM still hopes to make it in China, by the year 2025!

"The China Dream" is an extraordinary book. Even if you don't know your GDP from your pet gerbil, its sheer pace, detailed research, and exemplary clarity make it an enthralling read. A must-have for every Board Director and CEO who thinks China offers easy money to the fortune-hunter. Compulsory reading for every politician who kowtows to China for a share of the mythical loot.

Can it really only be two years since Mr. Studwell wrote this oft-quoted book? Only two years since he bravely confronted and slayed the "myth" of a profitable domestic Chinese market?

Two years ago, we were told about a "long period of slow growth and stagnation" for the domestic Chinese economy. This experienced China-hand, claiming 8 years of personal experience and a wealth of economic insight, assured us that there would only be a few isolated cases of economic success. He mocked GM for its economic investment, and lumped them into the group of so many other misguided CEOs that falsely believed the Chinese could afford to buy anything the West had to sell!

As a previous reviewer pointed out with great self-satisfaction... GM would have to wait until 2025 to meet their target of one million in annual sales! That prediction certainly seems comical when we realize that GM will reach 600k in annual sales this year: 2004. GM, with its over-optimistic and poorly planned investment in China, made an eye-popping profit of $875 million with its Chinese partners from China in the year 2003. That's actually *more* than what GM earned in North America ($811 million for Canada, Mexico, and the US combined). We can only hope Joe Studwell will be contributing a sequel shortly explaining the lack of a consumer market in North America, as well.

Ah, how things have changed. Mr. Studwell wrote for the Financial Times this month (December 2004), and while his melody remains the same, he has certainly changed keys. We're now told that, "while" the Chinese economy is "certainly doing well" (surprising understatement from a man that wasn't shy with rhetorical bombasity a few years ago)... it's not doing *that* well.

How so? Well, it seems, the Chinese domestic market will "only" be returning $8 billion in profits to foreign investors this year... a pathetic sum that's "only" comparable to the returns found in... South Korea and Taiwan? For a man that didn't think much of China's economic prospects 2 years ago, he sure has placed it in hallowed grounds this time around.

Two years ago, Mr. Studwell had a 50/50 shot of getting it right with this book. He found anecdotes and statistics supporting his conclusions at the time, but he conveniently ignored the comparable evidence that just as surely contradicted his point. In a world of conflicting facts when informed experts were unsure about China's future prospects, he decided to trumpet his own truth to the world.

Well, he's been caught with his pants down: he was as wrong as you can possibly be.

As someone who has been in China for eight years I found Joe Studwell's book a breath of fresh air among the constant hype about this market. Some reviewers have challenged his account but I would strongly agree with his premise that while it is easy to be busy in China it is hard to make money. As Studwell points out, few foreign CEO's are able to pick up on this difference.

Some previous reviewers have claimed that Studwell has been proved wrong over the past two years since release of the book as the economy has continued to grow and one reviewer mentions GM as an example of how companies have exceeded their projected growth and revenue targets. Studwell's message was not an attack on the economy necessarily but an attack on the perception that there is easy money to be made in this boom. I would have to agree with his attack on those outside China, or with little knowledge of it, who fail to carry out basic due diligence.

Studwell's point is not based on confirming "the impending collapse of China" rather a recognition that despite the appearance of a first world economy this is still a developing market, with highly protectionist ideals, that requires business managers to apply realism and analysis to succeed. Don't leave your common sense and good business practice on the plane.

The move by Volkswagen in 2005 to cut back on investment and separate research showing that car production will be 5 times over capacity by 2015 seem to substantiate his message that yes there are winners but these are often short term!

China, the fastest growing economy in recent years is in deep trouble according to this book. Starting with a historical perspective, the author goes on to explain that it has never been easy to make money in a market that otherwise appears so attractive due to its sheer size in terms of its population. Multinationals have made over optimistic estimates of the potential market size for various goods and services and sunk billions of dollars either in the hope of making a quick profit or with a view to stay invested before rivals can enter. In most cases, returns have proved elusive.

China is a land shrouded in mystery and secrecy but yet continues to entice entrepreneurs from around the globe. The mad rush to grab the proverbial pots of gold turns into a frenzy in the early 1990s. China becomes the main destination for the global leaders and captains of multinational companies. Having brought in their money, these investors soon find themselves trapped in a situation of no return. Those with deep pockets manage to survive while many others are not so fortunate. The asset inflation boom - stocks and real estate- also has its fair share of victims. Another area discussed in detail is the weakness of Chinese financial institutions and the proportion of non performing assets that account for nearly half of their lending particularly to state owned enterprises. While exports is a success story appreciated across the world, here again the author is quick to point out the low value addition and low share in global trade.

Page after page, the author misses no opportunity to criticise the Chinese bureaucracy, political system the authoritarian rule of the party depicting china as a land that is on the verge of a great economic meltdown where global corporations will have no escape route to retreat.

It is important to note that global companies have gone to do business in China and it is their love for money and not charity has been the motive. It is said that greed, optimism and herd mentality are the three drivers of capitalism . Need a better example ? Large multinationals, mostly from developed countries boast of employing the best talent from leading business schools who are experts in market research and financial accounting. When things go wrong, why blame it on China?. There is no evidence in the book that suggests that China has misused money from international institutions or indulged in unfair practices to swindle FDIs. Assuming that China overstated her domestic income and growth figures, the two main parameters that have attracted the foreign capital, it cannot be an excuse for not doing enough home work to verify these figures before investing huge amounts.

The book appears to be biased and incomplete in not giving due credit to the rapid progress and achievements of the world's most populous nation.

This book is a must for those traveling to China. Gives a detailed look at the history of the Chinese market. Is a great precursor to visiting ex-patriots

A solid overview of the difficulties foreigners have faced when trying to make direct investments in China. Some of Mr. Studwell's arguments get stale after frequent repetition, but the points raised are mostly valid and well explained. Recommended reading for people thinking about doing business in China - any prospective business plan should at least include strategies for avoiding the pitfalls in this book.

This poorly written book suffers from many flaws, not the least of which is the author's lack of access to informed sources. One of the most important things one needs to do when writing a book of this sort is interviewing the CEOs of Fortune 500 companies, and this author has failed to do this, the most basic homework.

For every anecdote one can easily find a hundred anecdotes making the opposite point. If you choose your anecdotes with care, you can prove almost anything. I don't find Studwell's conclusions very convincing. Studwell's choice of historical cases are misleading. When China was prosperous, it was a closed country. By the time Europeans were able to invest, China was in the midst of war and revolution. After the war China was closed again (except to Soviets). The last two decades of reform were also unsuitable for foreign investment, due to structural instability.

If Studwell is right, then I have a hard time understanding why:

(a) Henry Kissinger called China "the most ascendant" among all contemporary world powers (Europe included) ;
(b) Paul Wolfowitz (Deputy Sec. of Defense) said China will soon achieve superpower status within 50 years (by 2025 at the earliest), adding "and that's pretty fast by historical standards";
(c) Jack Welch (of GE) predicted China will be "very competitive" and advised managers doing pie charts to "leave half the pie" for the Chinese, who will "threaten your very existence";
(d) Margaret Thatcher described China as "undoubtedly on course to become an economic superpower", and had this to say about the Chinese people: "everywhere they go they show the same spirit of enterprise and self-reliance, and given the right economic framework, nothing is beyond them";
(e) Joseph Stiglitz, (Clinton's chief economics adviser, former chief economist at the World Bank & Nobel Laureate in Economics) is very bullish and optimistic about China's future, contrasting with his gloomy views of Russia;
(f) Arlen Specter (US Senator, Appropriations & Judiciary Committees) called China "the coming colossus";
(g) Joseph Nye and Sameul Huntington (Harvard dons) predicted China's swift rise to be a problem for the US;
(h) JM Roberts and Eric Hobsbawm (British historians) used "superpower" or "potential superpower" to describe China;
(i) Jeffrey Garten (Dean of Yale's School of Management) called China "the second most important country in the world";
(j) Gregory Chow (distinguished Princeton econometrist) calculated China's economy (gross GDP in purchasing power parity) to be bigger than that of the US by 2025 - even allowing for flawed statistics.

Studwell also chose to ignore the very successful British firms operating in Hong Kong. The drug dealers who brought opium to China got fabulously rich - most were British, while a handful, like Warren Delano (FDR's grandfather), were Americans. Their wealth equalled that of the Vanderbilts. And their legacy persists to this day: the HSBC - the Hongkong and Shanghai Banking Corporation - is now the world's third most important bank.

Let people be swayed by the naysayers and sensationalists: it's HARDER to make money when everybody is rushing in to invest.