About China blogosphere, travel, and entrepreneurship

Social media, and the blogosphere, are playing a historic role in the transformation of China. Because mainstream media in China continues to be regulated and controlled, social media will step in to play the role that free press has played in the positive (and mostly stable) development of Western liberal democracies.  China’s ruling party did not choose social media, but China’s people did.  And now, social media promises to play a big part in the progressive development of the country.

I read John Kennedy’s excellent reflections on this year’s CNBloggerCon and tried to summarize for myself what the main takeaways from the conference was for me.

1.  Before our very eyes, the development of civil society is happening online.

Michael Anti 安替 spoke of the tremendous media liberalization in China since 2000.  With all of these advances, there are still problems with mainstream media in China, which is state-controlled and censored.  From the birth of the internet in China in 1998 to today, blogging in China plays a bigger role than in Western countries that already have a free, independent and professional media.  The question he asks is: can professional journalism arise from the blogosphere? Can bloggers support pluralism and sensible discussion?  He suggests that Chinese grassroots media is at a turning point: and should select the best aspects of journalistic tradition from the world. Ethan Zuckerman has a 2007 interview of Michael Anti that I like.

Ping Ke 平客 aka buchimifan observed the strong tendencies of argumentativeness and divisiveness in online forums and the blogosphere.  He spoke of the need for rational debate, both offline and online.  He hints at some aspects of Chinese society and culture that make it more difficult for people to disagree and debate in a calm way.  If you look online at Chinese forums and blogs, the “civil society” we are discussing is often not very civil.  Are these signs of the inherent centrifugal (”center-fleeing”) forces in Chinese society that cause leaders to emphasize harmony?  The blogosphere needs to play a role to support pluralism and rational online debate.

Hecaitou 和菜头 warned that the risks of misinformation can come from online mob rule as much as it can from a government seeking to maintain control, or private businesses seeking commercial gain.  Online sources can be extremely unreliable.  He gave an example where the blogosphere (and BBS) rallied behind a student who was killed by police officers.  But people jumped to conclusions, and it turns out the student wasn’t a student at all and had a prior record of attacking the police first.  The blogosphere is not “inherently truthful” any more than business or government is “inherently truthful” and Chinese civil society will need to determine what is true infomation in the Web.  Fortunately, I think they are pretty equipped to be skeptical of all sources of information.

2.  The scale of blogosphere and social media in China makes it impossible to control

The Sydney Morning Herald and Stuff.co.nz wrote up a nice article about Isaac Mao that I think captures the power of social media in China:

But while Western attention focuses on how much international content China still blocks, Mr Mao is excited by what has recently happened. His verdict: blogging has given Chinese people nerve. (all emphases mine)

“Two years ago nobody would have believed this was true,” Mr Mao says. But “as more and more social problems have emerged in China, people have had the chance to connect and share things that could not be seen before. Once there are enough bloggers nothing can be hidden.”

The number of bloggers in China doubled to 107 million in the six months to last June, according to the China Internet Network Information Centre. Total users rose 56 per cent from the previous year, to 253 million, giving China the largest online population in the world.

Mr Mao says he can see a tipping point coming. He believes that as a result of blogging, young Chinese brainwashed by their education system are now trying to think for themselves, work together and find smarter solutions.

Roland Soong of EastSouthNorthWest also has an exceptional speech that he couldn’t give in person because of family matters.  In the past, coverage of Chinese domestic injustices by the Western media was the only way to get redress.  But today, domestic social media has assumed the role that the Western media used to play.  Furthermore, the Internet has changed in four important ways:

Firstly, the Internet has grown so big that it is beyond normal control.  How do you monitor what 253 million netizens are doing (statistics from Wikipedia)?  How do you monitor the contents on 11 million Chinese websites?  The mythical 30,000 Internet police are helpless against those numbers…The dam is leaking all over the place….

Secondly, there is the emergence of an extremist right and an extremist left on the Internet in terms of public opinion…

Thirdly, a more interesting development has been the artful insertion of rumors into public debates.  On the seemingly straightforward case of The Police Beat A Harbin University Student To Death, there was a wave of misinformation about the deceased (that is, he had family ties to important government figures; he was a drug abuser; etc) that undermines public sympathy.  This gets to the point where one has to tread extremely carefully in every case to tell information from misinformation.  That may be frustrating, but it is actually very useful training…

Fourthly, and most importantly, you will note the role of western media has been eliminated from the process model…If once upon a time western media coverage, which affects the opinion of western politicians and citizens, mattered to the Chinese people, this is no longer the case.

I find Roland’s assessment very exciting.  The dam is leaking all over the place.  Social media, in an odd partnership with the Chinese government, has created a robust, networked system that is impossible to control, but can be both helpful and detrimental to the development of Chinese society.  It has been so successful, that domestic social media has supplanted the role of Western media and Western public opinion in influencing Chinese government policy and action.  As it should be.  Some more comments on Roland’s speech can be found at China Herald.

3.  But expect Web 2.0 will inspire Cop 2.0: adaptive efforts to control and influence social media

Crane Wang has an interesting post entitled Web 2.0 & Cop 2.0 that shares a bit about government involvement in this year’s event.  I covertly took pictures of the undercover police “protecting” the event from reactionary forces by trying to look “grassroots”:

Zhou Shugang (Zola, Zuola, Alouz, Twitter:Zuola, Zuolazi) - But the government is not without its ability to harrass.  Rebecca MacKinnon shared that blogger Zhou Shugang, aka Zola, was prevented from leaving the country:

Zola has stirred up controversy by turning himself into a commercial brand while at the same time committing citizen journalism. He has been called many things by many people: The “nailhouse blogger.” “Enfant terrible of the Chinese blogosphere.” A Chinese journalist-blogger friend of mine calls him “post-modern.”

Now Chinese authorities say he is “a potential threat to state security.” For that reason, they barred his exit from China to Hong Kong on Sunday. He was on his way to Germany to serve as a judge for Deutsche Welle’s Best of the Blogs awards.

Its clear that Zola doesn’t fear attention, as he was the only one with T-shirts sold at the conference with his picture on it.  I bought a few.

These are traditional harrassment methods.  And much of the burden of Internet censorship is essentially privatized and decentralized to the licensed content providers in China. The important thing is to know that Web 2.0 will eventually inspire a Cop 2.0 response. We don’t know what that will be yet, or if it will be more of the same.

4.  Social Media has been transformative in the fields of education, Non-Governmental Organizations (NGOs), and business.

Education - Social media is creating more ways in which teachers and students relate to each other, and also ways in which students relate to one another.  This is likely to stimulate more creativity and independence on the part of students, and faster, sustained continuous improvement on the part of teachers.

Non-Governmental Organizations - The Sichuan Earthquake disaster relief was a great example of how relief organizers were able to use social media to communicate with each other.  The blogosphere was critical in disseminating information to their trusted networks rapidly.

Panel on Online Word of Mouth Marketing - There are mixed feelings about business’ use of social media.  Chaozuo (抄炒做) is about manufacturing buzz in China — and is controversial if used incorrectly, just as it is in the Western world.  A classic case of the power of the blogosphere is the 2006 case of “Processor Gate” or “Dell Hell” which was chronicled by Sam Flemming of CIC and also BusinessWeek.

5.  Social media offers opportunity for personal growth:  self-knowledge, wisdom, and discovery

Jean Chow (Goldred) shared some heartfelt personal reflections about blogging:

• “life is something like making a good meal, we need time to let it mature to make it taste really good”
• There are no “eternal fans” or “fans forever”
• Sesame and pies — What’s more important — sesame or pies? Both, in fact, as just as important; but there’s a time and place for everything.  The way we need to learn must change.
• There’s too much on the “outside”.  We’ve forgotten the “inside”
• Quote from Zhuangzi (莊子). We must find ourselves. Only then will others follow us.

Lian Yue: Pessimism is Immoral - And finally, Crane Wang blogs about a meet up on November 16 after the official conference had concluded. Lian Yue, a liberal opinion leader, exhorted bloggers to persevere in the face of persecution:

In the very early stage of social change, when the Internet first came into being, when you first began blogging, people might very easily get frustrated and believe those efforts are just meaningless, stupid and vain. If you press hard on those efforts and say there’s no point, such negative attitude might kill civil society in its infancy.

That is why I believe pessimism is immoral at this time in China.

Please remember social transformation is by no means a quick task.

In a democracy like America, very person has one and only one vote. B. Obama has one vote, G. W. Bush one; and a rich man one vote, a poor guy also one vote. If you have a blog and keep writing on it, express your opinion, that is your social responsibility and civic duty being done. Even if there are only 2 readers, your are making quite a move. A civil society would come into being by such gradual influence. Please be optimistic.

So that’s it.  An exhausting event that I believe is part of a historic movement!

和而不同，多志兴邦!  Embracing Our Diversity, We Build Our Future Together!

Other Links:

WSJ China Journal “Do Chinese Web Users have more fun”

John Kennedy’s reflections

Micah Sittig’s quick impressions

John Biesnecker’s parting shots

David Feng’s summary

Shel Israel’s post with some CNBloggerCon reflections

Web2Asia’s China 2.0 Tour Guangzhou Day 2 post

Web2Asia’s China 2.0 Tour Guangzhou Day 1 post

Online broadcasts (zh) by Netease here:  http://tech.163.com/special/000932A4/cnbloggercon2008.html

SlideShare group organized by Oliver Ding:  http://www.slideshare.net/group/cnbloggercon/2

Video from WSJ China Journal:

Via Roland Soong, a list of 17 Chinese bloggers (many already mentioned above) who are on the vanguard of a new open media that will make China a stronger, more resilient country through a new tradition of open journalism and greater civic participation:

安替
长平
连岳
时昭
胡咏
冯三七
周曙光
杨恒均
邓志新
艾未未
老虎庙
温云超
许志永
刘晓原
翟明磊
宋以朗
毛向辉

CNBloggerCon 2008.  I don’t think I’ve ever worked so hard covering an event before as a blogger.  In addition to dealing with the logistics of the visiting China 2.0 bloggers and Robert Scoble, and coordinating our liveblogging efforts, I also took photos like a paparazzi.  My 280-photo CNBloggerCon 2008 Set is at my Flickr photostream: http://www.flickr.com/photos/elliottng/ and is all licensed under a Creative Commons Attribution-Non-Commercial-Share Alike license (by-nc-sa) so feel free to reuse. I earlier posted CNBloggerCon Pictures Part 1 and CNBloggerCon Pictures Part 2 but all those photos are now on Flickr.

1.  Entrance gate to CNBloggerCon with Chinese Flag in the background

2.  星坊 60 (Xing1 Fang1 60) near Xinghai Music College (星海音乐学院)

3.  Local Public Security Bureau (PSB) “protecting” CNBloggerCon.  Thank you Jing Jing and Cha Cha!

4.  Slogan: “A diverse blogosphere working in harmony for society”

5.  A gathering of diverse Chinese bloggers

6.  In a creative warehouse environment

7.  Surrounded by creative spaces and even a bar/lounge

8. Guangzhou committee member LEMONed wears a fail-whale shirt

9.   Bridge bloggers eating at the Xinghai music college cafeteria

10.  Fun game at CNBloggerCon…gathering is not all about listening to speeches

11.  Cool notebook establishing intense blogger street cred

12.  Carol Lin’s (@thecarol) fashionable mini-notebook with a strap.

13.  Young photoblogger in training

14.  Lounging around

15. Jeff Lyndon speaking passionately

16. Xiao Juzi iceorange and Yuanzi (小橘子, 袁子) sharing ideas

17. Sky Canaves

18. Christopher Adam

19.  Undercover Public Security Bureau guys trying to look “grassroots” - but hair, clothes don’t look quite right, and the guy on the right looks a little too fit to be a blogger.

Thanks to Bill Bishop (see below), I read Brad Setser’s post entitled “If you only read one thing on China this fall” praising the World Bank China Quarterly report by David Dollar and Louis Kuijs.  In fact, there is a online Q&A with the authors  in a live online discussion on December 1, 2008 at 8am EST, which is 13:00 GMT/UTC and 9pm in Beijing. More information here.

I’ll follow Setser’s lead and not try to summarize the 23 page report.  But here are my quick takeaways:

1. Export - Slowing growth has so far affected different segments at different levels.  For example, light manufacturing including toys and textiles have declined quickly, but higher-value machinery, equipment and electronics have held up better.  Not sure if this will persist in a rougher 2009.  But this means certain areas (like Guangdong’s Pearl River delta) are affected more greatly than others.
2. Real Estate - There has been a “pronounced slowdown” in real estate, in part because of government policy aimed to control speculative excess in this market.  But as a result, “real estate investment growth is  now close to zero” and “upstream” industries like steel and cement have been affected sharply.
3. Financial Sector - However, this real estate weakness will not affect the financial sector or households as much as they have in the West because of lower levels of leverage.
4. Domestic Consumption - So far, domestic consumption has not been affected that much.
5. Inflation - Inflation is no longer a concern.
6. RMB Exchange Rate - RMB has appreciated as the USD has appreciated vs. other currencies (except JPY).  This is not likely to change.

Everything is consistent with my earlier post on the effects of the economic crisis on China and my uncle’s three-legged stool model (with two legs broken) of Chinese growth:  export, real estate, government spending.

I found one statement disturbing:

The experience in earlier global downturns suggests very weak export growth in
2009, even though China’s exports are likely to outgrow world imports significantly.
Box 1 describes how continued gains in global market share have allowed China’s exports
to keep growing during previous global downturns. In line with this experience, we expect
that China’s exports will continue to gain overall market share in 2009, allowing for
positive export growth in a depressed world market.

This means that China will still be increasing its overall export share and exporting the problem of overproduction to the rest of the world.  This means that China will be a deflationary force as products are dumped onto the world market as companies and provincial governments in China try to maintain employment.

Setser’s highlights seven key takeaways:

1. China was no workers’ paradise during the boom years
2. China really is a manufacturing and investment driven economy.
3. China’s current slowdown was made in China, not in the world
4. There is more bad news ahead
5. The fiscal stimulus is real, but modest.
6. The last thing anyone needs to worry about is fall in Chinese demand for US treasuries.
7. The way China manages its reserves matter immensely for the world not just fo China.

See the Setser piece for more explanation.

A hearty hat-tip to Bill Bishop for highlighting this Setser piece.  An excellent source of China financial and business infomation is from Bill Bishop.  I follow him via his excellent Google Reader Shared Items feed and also on Twitter at http://twitter.com/niubi.  Thanks Bill!

Right after we posted on why the global financial crisis will hit China harder than the US and Europe, the World Bank published its estimate for 2009 growth (h/t Managing the Dragon and The Standard HK):  7.5% growth, which represents a 19-year low.  In my previous post, I shared that many economists think that 9.0% growth is needed to fully absorb the new market entrants and to maintain the current unemployment rate, which is somewhere between 4.0% (official) and 10% (worst case unofficial).

Managing the Dragon has a nice summary, which I’ll excerpt here:

Growth will slow to 7.5 percent in 2009 as the global financial crisis takes a greater toll. (Revised down from its previous forecast of 9.2 percent growth next year.)

Beijing’s multibillion-dollar stimulus plan will help smooth the sharp edges of steep declines in global and domestic demand. China’s downturn — signs of which emerged in the third quarter — will worsen in the first half of 2009 as exports weaken.

7.5 percent growth in 2009 will represent the weakest since 1990 when it was 3.8 percent, and just below the 7.6 percent reported in 1999.

In an earlier post, Managing the Dragon’s Jack Perkowski made a great point about the relative size of China, and that even if it were delinked from the global economy (which it is NOT) it is simply too small to save the day:

For all of its double-digit growth over the past five years, and despite the fact that it has most likely already surpassed Germany as the third-largest economy in the world, China’s GDP in 2007 was just under $3.3 trillion, or only 6 percent of global GDP. No matter how fast China grows in 2009, it simply cannot by itself offset the impact of recessions in the United States and Europe. In fact, there is no country or region of the world that can.

For the record, the five largest economies in the world in 2007 were: (1) the United States at $13.8 trillion; (2) Japan at $4.4 trillion; (3) Germany at $3.3 trillion; (4) China at just under $3.3 trillion; and (5) the United Kingdom at $2.8 trillion.

Michael Pettis expects that the World Bank will be continuing to revise their projections downward.  He also comments that the ruling party in China will use all the policy tools they have by virtue of their authoritarian control, which includes suppressing demonstrations and pressuring businesses not to lay off people:

The government has also warned, more than once, that as a consequence of the slowdown they expect an increase in social disturbances (a euphemism for rioting). They are also trying to control the process of layoffs, with some provinces requiring companies to get approval before they fire more than a certain number of workers.  This obviously can have negative impacts on the adjustment process for businesses, but I think that one of the ways that China can boost private consumption is by various forms of income redistribution, and raising minimum wages and preventing firings may have some positive impact here.

This is another example of the pragmatic approach that China’s leaders have to address this downturn.  For those of us with a strong grounding in the principles of free speech, free markets and minimal government interference with business, the idea of preventing layoffs and preventing rioting seem highly objectionable.   But some might say that these policy tools will be well used to deliver the right mix of stability and growth to China during these difficult times.  All I can say is that I’m glad I’m not running China.

I had coffee with Philip Johnson, former Silicon Valley Bank executive who is now a Beijing-based financial adviser to start-up companies in China.  On his visit to the US, one of the most frequent questions people asked him is “How is China affected by the global financial crisis?“  I’ve had similar questions myself:  How badly will China be affected?  Does the US need China more, or does China need the US more?

When I was in Hong Kong, I asked some of these questions of my Hong Kong based uncle who is in the apparel manufacturing business.  He responded that China would be deeply affected by the crisis, maybe even more than Western countries.  He then provided a simple, easy to understand framework that I then double-checked against the writings of Michael Pettis, Nouriel Roubini, Brad Setser, and other economists on the Web.  Based on this research, I’ve sadly concluded that my uncle is right.  Instead of coming to the rescue of the global economy, China will suffer more deeply from the crisis than the US or Europe.

Uncle’s simple but powerful framework:  China is supported by a three-legged stool, but two legs are now broken

China’s economic growth is supported by three primary legs:

1. export-led growth
2. real property growth
3. government spending

The first leg is clearly broken.  US and European consumers can no longer consume at the debt-supported levels they have at the past.  The second leg is also broken, in part because of the first.  Rising unemployment, declining Chinese consumer confidence, and significant price declines in real property have slowed sales.  So what is left is government spending.  Government plays a more significant role in the Chinese economy than Western economies, but can increased government spending make up for the other legs of the stool?

The consensus among economists is “no.”  And even more worrying, is the belief that Chinese government policy response could make the global financial crisis worse.

Roubini: The Rising Risk of a Hard Landing for China

Nouriel Roubini, the NYU economics professor that predicted many elements of this global meltdown, writes (at RGEMonitor, reprinted with commentary at JapanFocus) that there is strong evidence that China is facing a hard landing.  Roubini points out that a hard landing actually still means a 5-6% growth rate.  9-10% growth is needed to absorb 24 mm new entrants into the labor market, including 12-14 mm poor rural farmers.  A 5-6% growth rate means a significant risk to social stability and continued political control, so its clear that Chinese leaders are in a tough place.  John Pomfret concurs.

Unfortunately, according to Roubini, China is still an export-led economy without the ability to crank up domestic consumption to absorb its domestic production capability.  Roubini:

Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth.

Because China’s GDP growth is dependent on exports, when exports go away, there is no domestic consumption to keep fueling growth.  Which means that factories need to get shut down and people laid off.

Financial Times:  China needs a true change of course

The Financial Times, on 11/10, published an editorial that applauded China for cutting interest rates and announcing the large RMB4 trillion stimulus package.  But at the same time, the paper criticized Chinese policy makers for doing too little, too late:

China’s growth to date has been phenomenal, but it was based on exports and investment, at the expense of consumption. China almost aimed to be a supersized South Korea: in 2005, capital investment made up more than half of China’s gross domestic product. The capital-intensity of its growth also meant profits grew strongly as a share of GDP. But employment growth has slowed since the 1980s, so workers have gained small benefit.

Undervalued RMB and a lack of domestic safety net have caused Chinese households and companies to save.  This “Supersized Korea” inadvertently created a “savings glut” which poured Asian savings into Western countries, flooding the markets with cheap capital.

Setser: Unhelpful - China never did what it needed to do.

According to Brad Setser, Chinese policy makers knew that China’s “Supersized Korea” strategy needed to change and that the strategy was not sustainable on a global level:

…it also turned out that China never really carried through on its 2004 and 2005 and 2006 and even 2007 rhetoric that it planned to rebalance its economy.

Back in 2004 China’s leaders generally got the benefit of the doubt…most observers expected that China’s leaders would be able to deliver when they announced their plan to shift the basis of China’s growth away from exports and investment. Chinese policy makers generally had a pretty good track record of doing what they said they would do.

But four years after China indicated that it wanted to rebalance its economy, its economy looks more unbalanced than ever – its current account surplus is far far larger than in 2004, and investment accounts for a higher share of GDP than in 2004…

The underlying problem we are faced with is a global shortfall in demand.  Because China did not allow its currency to appreciate when times were good, and did not stimulate domestic consumption, China can only help soak up their own production overcapacity through government spending.

Michael Pettis - China Financial Markets

11/20 - Rising unemployment increases the pressure for misguided trade policies

11/16 - Would a trade war help solve the problem of excess capacity?

11/13 - Can Smoot-Hawley return in a wholly different guise

Michael Pettis, professor at Peking University’s Guanghua School of Management, has been the premier blogger on China’s economy and financial markets.  Earlier this year we followed his writings on RMB appreciation and the need for a one-time maxi-revaluation of the RMB.  Obviously, things have changed.

He has written on a few themes recently, influenced in part on his reading up on the Great Depression.  Here are some of the key insights:

1.  Unemployment is putting a lot of pressure on Chinese policy makers–potentially to do counterproductive things like export subsidies or even RMB depreciation.

The employment outlook is looking worse and worse.  According to a Financial Times report, the official urban unemployment rate is only 4% but this excludes all rural migrants to the cities. According to Pettis, most people believe official urban employment rate significantly understates real urban unemployment, and the real level could be as high as 10-11%.

The key to social stability is adequate employment growth.  That growth either has to be fueled by maintaining exports, or increasing domestic consumption.  But there are important reasons why domestic consumption won’t increase.  For one, the lack of safety nets in health and elder care cause Chinese households to save in order to self-insure their risks for illness or health care emergencies.

The “super-sized Korea” response would be to stimulate exports, depreciate the RMB, and try to get the export machine humming again.  But China is simply too big to play this game.  According to Pettis:

Export subsidies, depreciating RMB – all of this might seem to make sense if you look at China as divorced from the global balance of payments system. These measures to boost exports are, after all, pretty standard ways of increasing production.

But if you think of China’s role within the global balance of payments, it seems to me that this is little more that a form of Smoot-Hawley-with-Chinese-characteristics. Global demand is slowing, just as it did in the 1930s, and China as the leading source of global overcapacity is trying to address its global demand problem by shifting the burden abroad.

But it seems quite plausible that Chinese policymakers will do everything necessary to reduce unemployment, reduce social unrest, and maintain political legitimacy.  And shifting the problems abroad might work for a while until and unless Western countries respond with trade barriers and protectionism.

2.  The exporting countries that have more productive capacity than domestic consumption (the “current account surplus” countries like China) will bear the most pain in the recession.

Most people are comparing the United States of today to the United States of the 1930s.  But Pettis argues that this is not the right analogy.  The correct analogy is between the US of the 1930s and China of today. In both cases, each country was the source of massive productive overcapacity, and export-led growth.  In both cases, domestic consumption was not sufficient to soak up domestic production.  And in the case of Smoot-Hawley, US policy makers responded with protectionism because European demand for US goods crashed by 70% in 3 years.  And ultimately, the US bore the brunt of the pain.

Today it is China who is exporting overcapacity and it is the US who is consuming too much, fed by Chinese financing.   With the collapse of bank intermediation US households and businesses are cutting consumption and raising savings.  This is a necessary adjustment. Calling on the US government to engage in massive fiscal expansion to replace lost private demand is crazy.  It means that we should continue the current game that has led us into so much trouble, but instead of having US over-consumption and rising debt at the private level we must have it at the public level.

If Keynes were around today he would probably make the same point he did over 60 years ago.  Demand must be created by the current account surplus countries, which have, to date, relied on net exports to protect themselves from the consequence of their overcapacity.  They must force demand up quickly in order to close the gap, and since expecting private consumption to rise quickly enough is unrealistic, it has to be public consumption – a large fiscal deficit.

Just as the US stupidly tried to increase its ability to dump capacity abroad by creating import restrictions (which has the effect of further expanding domestic production), China seems to be hoping for the same thing by increasing export rebates and slowing the currency appreciation (there is even increasing talk of depreciation).

The responsibility is for the Chinese government to close the gap in Chinese production and Chinese consumption, and that means public spending since private consumption is not going to rise fast enough.  Lets hope that Smoot-Hawley with Chinese characteristics does not come to pass.

3.  The only way out is massive fiscal stimulus from the “current account surplus” countries like China

China’s RMB4 trillion stimulus package is a good step in the right direction.  And the provinces have put together a wish list of projects totalling RMB 10 trillion or more, according to AP and CCTV (h/t China Digital Times).  But its not clear that all of these projects are actually incremental projects and many were already planned.  This is headed in the right direction but there seems to be a lot of skepticism that fiscal stimulus in China, where graft and corruption could soak up some of the money, will be successful.

Morgan Stanley: Further Growth Forecast Downgrade amid Deeper Global Recession

Morgan Stanley also indirectly confirms my uncle’s three legged stool framework.  According to Morgan Stanley, 45% of China’s exports go to US, Europe, and Japan.  And 30% of total fixed-asset investment goes into export-oriented manufacturing.  So the first leg is highly dependent on the developed economies.  Secondly, consumer confidence in the property sector is damaged, with people holding back.  Slow property sales will lead to slow investment.  Finally, fiscal stimulus is the third leg.

According the Morgan Stanley, likely policy response will be:

1. more base-interest rate cuts
2. more bond issuances for infrastructure e.g. railway
3. reduced taxes
4. boosting property sector
5. energy price normalization
6. agricultural support to farmers

Biggest downside risk is collapse in real estate investment.

My conclusion

Here’s my conclusions:

• China’s equity markets could fall further.  Many listed companies are dependent on real property or export markets.
• China’s property markets could fall further.  Not only are private individuals freezing up, but the government is also making significant investments in public housing.  That might have some effect on price levels for private housing.  To early to buy.
• RMB will neither appreciate or depreciate.  It will likely hold the dollar peg at the current level, for quite some time.
• China’s labor markets will get more attractive to employers, but less attractive for employees and job seekers.  There will be a large number of unemployed new graduates.  There is risk of social unrest.
• Freedom of speech and media will likely be curtailed further in the future as the risk of social unrest increases.

In summary, the world doesn’t look as wonderful as it once did.

Scenario:  Let’s say you are a foreign multinational (or startup) considering market entry into China.  You’ve seen how companies like Ebay have failed spectacularly in China.  So you network like crazy to get insight into your specific market opportunity.  But frankly, your friends are not representative of the market…since they all make tons of money at multinationals, eat at the best restaurants, work in nice highrise office buildings in Shanghai Pudong Lujiazui or Beijing CBD, and just have other friends exactly the same…you need help!

Blogger Insight is a new concept that can help you break out of this affluent bubble in China and get real insight, from a hand-picked panel of bloggers that follow your specific market.  I first learned a little about Blogger Insight when I saw co-founder Ying Xue at the Web2Asia office prior to CNBloggerCon, and then heard CEO Lucas Englehardt speak about it at a CNBloggerCon panel on blog monetization. Web2Asia, Profy, and TheNextWeb also posted on this announcement.

I first met Ying Xue in January this year when she was still an associate at BVCapital, and then later met her in May to discuss ways to get involved with CNBloggerCon.  I’ve been impressed with her business acumen and passion for the Chinese blogosphere.  Congratulations Ying and Lucas!

Photo credit: CN Reviews

How it works

A client hires Blogger Insight to work on a “case study”.  A Blogger Insight consultant shapes the study into a form that can be distributed throughout the Blogger Insight expert network of bloggers.  In theory (I have not used the service), Blogger Insight’s value-add is as follows:

• They presumably know who the experts are in your topic
• They have already recruited these experts
• They know how to structure your research query in a way that yields the insights you need to make a decision.
• They manage the process of getting responses from all the bloggers that contribute to your research
• They then present those responses in a form that allows you to make a decision.

Why not do this on you own?  Any one company could not assemble the expert network required as cost-efficiently as Blogger Insight nor could it provide enough business to maintain that network on an ongoing basis.

Pricing

Pricing starts from RMB5000 to RMB12500 and up, depending on the nature of the work.  See BloggerInsight for more details.

How bloggers participate

Bloggers participate with other bloggers to provide opinions and advice to the company.  They also refine their ideas by engaging and debating with other participants in the case study.  This process should sound familiar:  it is exactly what bloggers do on their blog every day!

The research deliverable

Lucas Englehardt sent me a sample of a research study on Chinese Social Networking Sites (SNS).  Here are some screen grabs to show you the kind of information you can get.

Expert Responses

Comparison Chart

Screen Shots

All screenshots copyright BloggerInsight

Key Challenges

I see the key challenges as follows:

• Cost-efficient sales and marketing.  Selling market research projects to foreign companies could involve significant marketing and sales costs.
• Attracting and retaining high-quality client-service staff.  At the center of the operation is a strategic market research professional that fields the research project and synthesizes the data into a useful report.  It could be hard to keep high quality people who can do this work.
• Cost of blogger recruitment.  In theory, all bloggers should be interested Blogger Insight.  But if every project is different, Blogger Insight might need to recruit different bloggers for different projects.  A Web 2.0 startup might be served by the same bloggers as an SNS site client.  But an automotive or cosmetics client might need completely different bloggers.

These issues can be overcome, and I’m already impressed by the team involved.  I’m enthusiastic about their prospects, and think that they can expand beyond the blogosphere to deliver scalable expert network services in other areas, perhaps patterned after the Gerson Lehrman Group Councils that have served hedge funds via Strategic Advisor Councils of senior executives in target industries, with minimum fees probably around USD$250,000 per year.

Reflecting back on the China 2.0 Tour–lead sponsored by Edelman Digital Media China and organized by us, Web2Asia and The China Business Network–I am impressed most by the open-mindedness and sense of inquiry that the participants brought to their visit.  This is in refreshing contrast to the arrogance, ignorance, rehashing of old stereotypes, and dogmatism of most Western commentators on China.  We planted seeds of deeper understanding, which was our initial goal.

Michael Butcher

Michael Butcher dispels a few misconceptions.  He speaks of needing to understand the historical context and the shadow of this tumultuous recent past on the psyche of the government and the Chinese people.  He strikes against the misguided a-historicism carried by most Western critics of China today.  He also talks of the sense of freedom and opportunity, to contrast the popular view that the Chinese people are under the tight control of a repressive regime.  Learning:  Some understanding of modern Chinese history is helpful to understanding why China is the way it is.

Robert Scoble

Robert Scoble highlights a few other wrong and dated ideas on China.  First, according to Scoble, the idea that China is just a country of copiers/cloners is over.  Second, “Americans are being fed only the negative stories about China and that is lulling them into complacency.”  This point of view is in stark contrast to the firestorm of criticism that Robert unleashed on FriendFeed on the 3 day mourning period after the Sichuan Earthquake.  Robert’s attendance at CNBloggerCon was well received and I was impressed by his desire to learn.  Learning:  China is rapidly becoming an innovator.  Western media’s focus on attention-grabbing negative stories about China is dangerous to our economic health in the West.

Shel Israel

Shel Israel addressed the issue of censorship in China and concluded that “censorship can be a major hemorrhoid to the China tech community, but it is not the Orwellian horror that so many Westerners seem to think it is.”  Shel concludes that the scale of social media in China is too large for a low-tech government bureaucracy to repress.  This is not to say that house arrests don’t happen, servers don’t get unplugged, and blogs don’t get blocked. (See Rebecca MacKinnon’s post on “Getting Beyond Iron Curtain 2.0″ for a richer view on Internet censorship in China)  Shel also highlights what I’ve heard from many Chinese people over and over again.  Things are getting better.  The government, despite its corruption and obsession with control, has delivered growth and opportunity to millions of people.  Learning:  The world has got to get beyond the view of China as a totalitarian state with complete information control.  It is instead (in Ted Koppel’s words) an authoritarian state barely in control of its people.

Ernst-Jan Pfauth

Ernst-Jan Pfauth of The Next Web captured perfectly the frustrations of those who have a foot in both China and the West–that most Western observers paint a black and white picture of China that lacks the nuanced grays required to truly explain the dynamics in China.  He then applies this toward helping the Western Web 2.0 audience know that portals and bulletin boards (BBS) are alive and well in China.  Learning:  Nuance is the enemy of a easily packaged story that satisfies editors, advertisers, and the Western public back home.  Good journalists will fight hard to get across this nuance in an attempt to better equip us for the complex world we live in.

I hope we transformed a few people’s thoughts on China, and that for at least a few, there is interest in digging deeper.  That was our original goal. It is vitally important, especially in rough times, that the Western public gain a richer and more three-dimensional view of China.  We need this view to influence our political leaders and the policies they adopt.  We need this view to remain economically competitive and to be successful in the face of globalization.  And we need this deeper understanding to share our best values and virtues with the world, in an effective way that helps us to jointly, and collaboratively, build the future that we want to live in.

George and Christine, we did a good thing.  And my appreciation also goes to the extended team of Brian Eng, Markus Gruber, and Min Guo.

I’m also grateful to the bridge bloggers who helped engage in great dialogue for this tour.  I confess I was a bit tired of the China 101 discussion myself toward the end of the tour and wanted to get away to dig a little deeper myself!  All the more reason why I’m appreciative of the service of the tireless bridge bloggers/analysts who contributed (and I’m sure I missed people):  Richard Burger, Tangos Chan, Paul Denlinger, David Feng, Benjamin Joffe, Kaiser Kuo, Andrew Lih, Gang Lu, Ryan MacLaughlin, William Moss, Adam Schokora, Kenneth Tan, David Wolf, Frank Yu.  CN Reviews Edict:  Add these blogs to you RSS reader right now!!

Here is the published schedule for Day 2 of the CNBloggerCon 2008 in Guangzhou. But it is already outdated:

• A11 - 9:00 - Keynote: Human & Social Media - Shel Israel
• A12 - 10:15 - An Analysis of Authenticity in Online Content - He Caitou
• A13 - 10:45 - Idealism, Debate and Blogging - Ping Ke
• A14 - 11:20 Social Communications 2.0 - Moderator: Vim Zhang; Panelists: Zafka Zhang, Donnie Dong, Bingo Wang
• A15 - 13:30 NPO 2.0:  Internet and the Growth of China’s Civil Society - Gao Tian, Zhang Lina, Peng Weifeng, etc.
• A16 - 14:50 TBA - Roland Soong said he cannot come for some reason.
• A17 - 15:20 - Publishing Autonomy in the New Economy - Christopher Adam
• A18 - 15:50 - Case Studies of How Games Leverage Social Community
• A19 - 16:10 - Asia Open Web - Gang LU
  
• A20 - 16:35 - International Chinese 2.0
• A21 - 16:55 - We Chinese: Look, the Future!
• 17:35 The End

Right now, we finishing up the panel on Social Comunications.  Zoe Li is translating, blogging, and editing on her first liveblogging assignment!

Here we go…day 2.  I can liveblog this because it is English.  David Feng translating.

Introduction:

Son of Jewish immigrants who at the time they came to America were not that welcome, and they were a working class family.  So to have come this far and to be in China is an incredible experience.  Thanks to Edelman China, China 2.0 (Web2Asia, CNReviews, The China Business Network), and CNBloggerCon, and Isaac Mao for the opportunity to come speak to this audience

Naked conversations:  how Shel got started with Social Media.

Shel wrote a book with Robert Scoble.  Book was named “Naked conversations” in English but not Chinese.  I wish it were because it really is about conversations without barriers. A free exchange between people.  Now it is called Global Neighbourhoods and has

Global Neighbourhoods

Social media is about conversation like 2 friends talking

Maybe they travel on the same bus together, maybe they live nearby each other, and slowly over time they get to know each other and each other’s tastes.  For example, after a while I know that my friend [Robert] Scoble is very good at advising me on technology but in my opinion he has terrible tastes in movies or books.

Geography less relevant

We can speak with each other, and where we speak you cannot touch it.  But the friendships we built there are very real.  Build neighborhoods on interest.  Since Naked Conversations, I have followed social media.  I follow it wherever it goes.  I have done 115 interviews for 34 countries, 5 continents.

8 Stories of the Social Media Global Survey

1. Isaac Mao

Have talked about Isaac in 20 different countries.  Am not going into detail with Isaac because the CNBloggerCon community all know him already.  What is important is that 1 person on the Internet opened my eyes to the reality of what was happening in social media in China.

2.  Michael Dell, Dell Computer

2 billion people online by 2011.  conversations more valuable than ads.  Social Media is cost effective.  He was a son of a doctor and going to medical school, but instead of doing that he started selling computers because he was a geek.  Today he runs #3 computer company.  Despite the fact that the company has problems right now, he told me that social media and blogging is a strategic component.  When his business comes around, social media will be a higher priority than advertising, bcause conversations are more effective and less costly than advertising.

3.  Laurel Papworth, Silkcharm

Australian. On Twitter she is Silkcharm.  She is a professor at a university where she has a Ph.D in emerging culture.  A while ago she was invited to go to Saudi Arabia where she helped a group of Saudi women start a social network.  She went there with a certain sense that this was a suppressed culture and that she needed to be very careful.  And she discovered that under the Arab/Muslim garments, the women were wearing lipstick, perfume, tight blue jeans, and western clothes.  And in the social network she discovered that many Muslim women were on Facebook.  Like women all over the world, they flirted with people.  But always anonymously.  It has to be anonymous because for a Muslim woman to flirt on the internet is very serious.  a few weeks after she was there, a teenage girl was discovered to be flirting on Facebook by her father and 2 brothers who dragged her into the street and stoned her to death.  But before that I know through that one incident about Muslim women, there is more to the story. As I have learned in China, the story always goes a lot deeper.

Queen Rania posts on YouTube quite often talking about Western misconceptions about Muslim people overall.  But particularly young women, but particularly in Jordan we don’t have fathers stoning their daughters.  But instead they drink too much in bars and come home and do violence.

When you learn a bad story about one place, you cannot assume that that thing happens all the time in that place.

4. Francois Gossieaux, Beeline Labs

Lives in the US.  He is a Belgian citizen.  He interviewed 140 enterprise companies that host online communities. He discovered many many things that I can’t tell you all of them now.   But he discovered that people online are tribal.  They try to find people like themselves.  Which is of course part of my theme in Global Neighborhoods.  People are tribal.  Companies start a community for a business purpose and then people come and do whatever they want.  It cannot be controlled.

5.  Father Roderick, Amsterdam

Catholic priest who also is one of the world’s mpodcaster ost popular podcasters.  He never talks about Catholicism itself.  When he is asked why he is doing this, he explained that it was time for the Catholic church to become more modern and more human.  He also explained that many people are different but they are also alike.

6.  Wael Abbas Egypt Citzen-Journalist

He is a journalist in Egypt but he doesn’t have much work to do because the government does not like what he writes. So it has become unwise to hire him in his professional.  The laws in Egypt say that it can be considered treason even if you are telling the truth.  Wael gets hidden camera videos of police brutality.  And government corruption.  A popular one is of a government person stuffing a ballot box during an election. He has millions of people who see these clips on YouTube of government corruption and policy brutality.  One day YouTube mysteriously took them all down.  And then when bloggers started to complain about it and NYT learned from the bloggers what had happened, they mysteriously reappeared.

7.  Ethan Bodnar, US student.

He is a student in the US.  “Why would I work for a company that won’t let me blog?” he said.  I interviewed him when he was a Junior in High School.  What he told me that was most significant was that he would never work for a company that wouldn’t allow him to blog.  why would he work for a company that would not allow him to use the tools he uses for conversation?  It is a lesson that I’ve learned time and time again in country after country that the young people are making blogging happen and making social media happen.  Youth is the killer application.

8.  Erik Hersman, Kenya

In Kenya, a missionary son called Erik Hersman was concerned about violence in Kenya where he was raised.  So he and Kenyan friends created a mobile wiki and citizens could upload where violence was so that most of the Kenyans could go somewhere else.

Basic lessons - in summary

So out of all of these experiences there are few experiences that are important.

1. Youth is the killer app.
2. Tools change.  People stay the same
3. Conversations are revolutionary
4. Generosity wins

When the hunters came back from hunting in prehistoric times, they would draw stories in the dirt.  Before we had language, they grunted.  And over time they took berries and blood and they drew pictures in the wall.  I’m told that over the centuries the little pictures of people, the hunters, stayed the same size.  But the things they killed kept getting bigger.  In my country fisherman do this today.

What changes is the tools.  they get bigger, better and faster.  And the tools today are social media.

Another lesson I learned is that generosity wins.  When you are a consumer you get shouted at.  Companies want to get more than their competitors.  In my country, this doesn’t work anymore.  We got tired of getting shouted at.  But today, through social media, the ones that are giving the most and getting the most.

China in Social Media

I”ll skip this slide because you know china’s social media.

• 1.2 > 25 mm bloggers in 4 yrs
• meteoric Facebook growth
• Twitter growing
• joining Global Neighborhoods

Social media starts social. Goes everywhere.  It goes to games.  It goes to education.  It gets into business.

In our country in our wonderful election, it began to play a role in changing who our officials are.  And I for one like the results.

A bit about the barriers between people.  First, Language is a terrible barrier.  In Chinese I can only say 谢谢.  If I could only speak your language with you we could communicate so much better.  I have a great deal of faith in technology.  And someday I can type or speak into this computer, and you will be able to see or hear what I said in your language.

Second barrier is that while the world is getting smaller it is still a big space.  Very few of the people in my country get the opportunity as I have to meet face to face. And until somehow we can transcend that, there will be a mutual misunderstanding between people in the two places.  Social media is the best way for people to speak to people across many miles.

Where I’ve gone, I’ve learned one simple, ultimate lesson: people are all alike.

Q & A

Q: How did you choose the interviews from so many social media users?

A:  I’m always interested in an interested story.  I’m always interested in learning something new.  It was hard in the beginning.  Because I’m pretty well known worldwide, stories are coming to me.

All photos on my Flickr CNBloggerCon set.  All photos are Creative Commons licensed by-nc-sa so feel free to use with attribution to CN Reviews. UPDATE: I also posted CNBloggerCon Pictures Part 1 and my favorite CNBloggerCon Photos on the blog.

Front row at the Blogger conference…

Shel Israel and Lonnie Hodge…

famous grassroots blogger…forgot his name…

Denis Yu of CIC…

Taking pictures of a friend…

Casual outdoor conversation…

Carol Lin aka @thecarol

Official slogan…

Fun brain teaser game outside.  You have to draw an object without seeing what you are looking at.

Zousa Stream projected on one side, Friendfeed/Twitter stream on the other…

Another game.  You put your name in the box, and pull out someone else’s name, and then some kind of action to make a funny word phrase…

Here are some people that I either knew or met, or are speaking.

…Bruce Wang…

…Angus Lau, Gang Lu…

…volunteers of CNBloggerCon…

OW Ning - second speaker…

David Feng…

Fenng…

Denis Yu of CIC

Goldred aka Jean Chow

Stephen Kovats

Tangos Chan

Grey Chan

Webleon

Nathan Ma

Lucas Englehart

Haidong Pan, Hudong.com