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But the questions and potential pitfalls to the Belt and Road initiative are easily as large as its ambitions.

The overriding question is this: does the Chinese government have the will, willingness, and wherewithal to overcome all difficulties and accomplish the mission? To succeed, China must negotiate with governments of scores of host countries and international institutions to design, build, and maintain projects. The Belt and Road initiative envisions mammoth Chinese government loans to Chinese companies and foreign governments to finance projects. Will projects become financially viable? Will loans be repaid, or will the initiative devolve into a massive boondoggle? Lack of transparency on the sources of project design and funding means these crucial questions cannot be answered fully.[1] In fact, available evidence suggests there is reason for major concern.

The Origins of the Initiative

The “One Belt, One Road” initiative was first announced by President Xi in September and October in 2013 in Kazakhstan and Indonesia respectively.[2] At the time, it was simply a concept and an idea. In March 2015, the Chinese government issued a paper that began to turn the concept into a plan.[3]

On April 20, 2017, the spokesperson of the Chinese Ministry of Transportation said during a press conference that China has signed more than 130 bilateral and regional transport agreements with countries involved in the Belt and Road. He said that China had opened 356 international road routes for both passengers and goods, while maritime transportation services now cover all countries along the Belt and Road. Every week, some 4,200 direct flights connect China with 43 Belt and Road countries, and 39 China-Europe freight train routes operate.[4]

Before the Beijing Belt and Road Forum for International Cooperation was held on May 14-15, 2017, the Chinese government issued another paper entitled “Building ‘One Belt, One Road’: Concept, Practice, and China’s Contribution.”[5] The paper mentioned six corridors and six means of communication: a New Eurasian Land Bridge Economic Corridor, a China-Mongolia-Russia Economic Corridor, a China-Central Asia-West Asia Economic Corridor, a China-Indochina Peninsula Economic Corridor, a China-Pakistan Economic Corridor, and a Bangladesh-China-India-Myanmar Economic Corridor. The means of communication are rail, highways, seagoing transport, aviation, pipelines, and aerospace.[6]

Xi himself touted the progress already made at the May forum, saying building had accelerated on a number of projects: a Jakarta-Bandung high-speed railway, a China-Laos railway, an Addis Ababa-Djibouti railway and a Hungary-Serbia railway. Ports at Gwadar and Piraeus had been upgraded, and other projects were “in the pipeline.[7] Xi pledged to avoid “outdated geopolitical manoeuvering” and said China hoped for “win-win” relationships. “We have no intention to form a small group detrimental to stability. What we hope to create is a big family of harmonious co-existence.”[8]

International think tanks and news organization have taken note. The Center for International and Strategic Studies published a research paper saying the Belt and Road project could span 65 countries, comprising roughly 70 percent of the world’s population. Economically, it could include Chinese investments approaching $4 trillion.[9]

The New York Times reported that the initiative was designed to open new markets and export China’s state-led development model “in a quest to create deep economic connections and strong diplomatic relationships.” The Times highlighted some of the projects:

• Africa’s first transnational electric railway, which opened this year and runs 466 miles from Djibouti to Addis Ababa, the capital of Ethiopia. China financed most of the $4 billion price tag. Chinese companies designed the systems, supplied train cars and engineers who built the line over a six-year period.
• A 260-mile rail line from northern Laos to the capital, Vientiane. China is leading the $6 billion investment. Mountainous terrain means bridges and tunnels will account for more than 60 percent of the line, and construction is further complicated by the need to clear unexploded land mines left from American bombing of the country during the Vietnam War.
• The deep-water port at Gwadar, Pakistan. The facility, on the Arabian Sea, will be linked by new roads and rail to western China’s Xinjiang region, creating a shortcut for trade with Europe. The port is part of the $46 billion China says it is spending on infrastructure and power plants in the China-Pakistan Economic Corridor.[10]

Geopolitical Risks Will Not Go Away

For all the hoopla about the Belt and Road initiative, there are signs that all is not well when it comes to international cooperation needed to make the initiative work. The Belt and Road “summit” in May was attended by only 29 heads of state. Germany, Great Britain, the United States, and Japan sent only government ministers or lower ranking officials to the meeting. India, one of the most important countries for the initiative, chose not to send any representative to the summit because its government believes that China harbors an ulterior motive in establishing the China-Pakistan Economic Corridor, a signature component of the Belt and Road program. “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” said Gopal Baglay, spokesperson of India’s External Affairs Ministry.[11]

Other countries, including the United States, also expressed concerns about Chinese motives. To them, “new international order,” “new security framework,” “new economic model,” “new civilization exchange,” and “new ecological order” are synonymous with China’s domination first in Asia and eventually in the whole world.[12]

Western press reports reflected the skepticism. “Neighbors Japan and India have stayed away from the summit, suspicious that China’s development agenda masks a bid for strategic assets and geopolitical ambitions,” wrote Carrie Gracie of the BBC.[13] CNN’s James Griffiths reflected similar sentiment in his reporting on the Beijing meeting. “Its boosters tout its massive economic promise and claim it could benefit the entire world and lift millions out of poverty. But no one can say for sure what exactly the plan encompasses, and detractors warn it could be an expensive boondoggle at best or a massive expansion of Chinese imperial power at worst.”[14]

Russia appears to be increasingly wary of the Belt and Road initiative. President Vladimir Putin attended the summit, but proposed linking the program to the Eurasian Economic Union, Moscow’s own regional economic project. It is common knowledge that Moscow has reservations because Russia is loath to cede influence over Central Asian countries, a main focus of the Belt and Road initiative.[15] A New York Times report quoted a senior associate of Carnegie Center in Moscow saying, “Russia’s elites’ high expectations regarding Belt and Road have gone through a severe reality check, and now oligarchs and officials are skeptical about practical results.”[16]

The Belt and Road initiative faces serious geopolitical risks. Many countries involved in the initiative are situated in the most complicated geopolitical regions pressured by political, religious, and ethnic conflicts. Some are proxies of rival major powers. Pakistan and Afghanistan, key countries for Belt and Road, confront tribal political power that refuses to yield to central control, radicalism, terrorism, and secessionism.[17]

Countries like these can easily derail any connectivity projects in place. The China-Pakistan Economic Corridor is a case in point. The corridor is home to an unprecedented estimated Chinese investment of $48-$57 billion dollars, and the expansion of Pakistan’s Gwadar port would provide China with a much-needed access to the Indian Ocean. But this corridor goes through the province of Baluchistan, where “separatist militants have waged a campaign against the central government for decades, demanding a greater share of the gas-rich region’s resources.” Since 2014, militants trying to disrupt construction on the “economic corridor” have killed 44 Pakistani workers.[18]

Financing Can Be a Challenge

The initiative faces challenges attracting Chinese capital in both the state and private sectors. To be sure, the Chinese state is marshaling significant investment resources: a $40 billion Silk Road Fund was created in 2014; the Asian Infrastructure Investment Bank was launched in 2015 with $100 billion of initial capital that is expected to be spent chiefly in Belt and Road countries; three Chinese state-owned banks received $82 billion in state funds in 2015 for Belt and Road projects.[19]

Yet only a small portion of available investment funds appears to be going toward Belt and Road projects. Capital leaving China is largely going to markets that are safer, richer, and better-developed than those under the Belt and Road framework, according to David Dollar, an economist at the Brookings Institution in Washington. Aside from Hong Kong, the top destinations for Chinese overseas direct investment at the end of 2016 were: the Cayman Islands, the Virgin Islands, the United States, Singapore, Australia, the Netherlands, the United Kingdom, Russia, Canada, and Indonesia. “Of these, only Russia and Indonesia are along the Belt and Road,” Dollar writes.[20] China’s two policy banks, the China Development Bank and the China Export & Import Bank report Belt and Road-related lending totaled $101.8 billion at the end of 2016, or 15 percent of their total overseas lending.[21] Data cited in the Wall Street Journal says Chinese companies have invested more in the United States since 2014 than the 60-plus countries touched by the initiative combined. In other words, Xi’s regional investment priorities have not translated into a shift in private investors’ decision-making.[22]

Jonathan E. Hillman of the Center for International and Strategic Studies, writes that OBOR could include Chinese investments approaching $4 trillion.[23] But Nicholas R. Lardy, a China specialist at the Peterson Institute for International Economics, told New York Times reporter Jane Perlez, “China’s outlays for the plan so far have been modest: only $50 billion has been spent, an ‘extremely small’ amount relative to China’s domestic investment program.”[24] The funding gap is obvious, and the lack of market appeal to capital will certainly become a huge obstacle.

Lending Perilous for Borrowers

Countries involved in Belt and Road projects often take on crushing debt burdens.

Laos, a country with a total output of $12 billion annually, has borrowed $800 million from China’s EXIM Bank, in part to finance a rail line from the northern part of the nation to the capital, Vientiane. According to the New York Times, Laos still faces a huge debt burden. The International Monetary Fund warned this year that the country’s reserves stood at two months of prospective imports of goods and services. It also expressed concerns that public debt could rise to around 70 percent of the economy.[25]

It is reported that Sri Lanka is already overburdened by debt resulting from accepting Chinese concessional loans. As a result of Sri Lanka being unable to keep up with its payments, the Sri Lankan government has converted some of this debt into equity, allowing Chinese firms to control 80 percent of the Hambantota port for a period of 99 years.[26]

The Pakistan corridor is projected to result in $50 billion of debt that will take Pakistan 40 years to pay off. Just like in Sri Lanka, Pakistan’s debt contract could ultimately result in a transfer of local assets to Chinese ownership. Some Pakistani critics refer to the corridor as “the new East India Company.”[27] Jane Golley of the Australian National University told a Financial Times reporter: “The lack of commercial imperatives behind OBOR projects means that it is highly uncertain whether future project returns will be sufficient to fully cover repayments to Chinese creditors.”[28]

Many projects are in Central Asian countries. It is clear some of these countries are suffering from “from weak and unstable economies, poor public governance, political stability, and corruption.” Chinese lenders are not always blind to risks but many “are being pressed to lend to projects that they find less than desirable.[29] An Economist article indicates that Chinese government sources expect “to lose 80 percent of the money they invest in Pakistan, 50 percent in Myanmar, and 30 percent in Central Asia.” This is not just speculation. China has recently lost $60 billion in Venezuela as it descended into chaos.[30]

In addition to this, the Chinese foreign currency reserve is rapidly declining as many companies and individuals are moving their money out of China due to an unprecedented anticorruption campaign and political uncertainty. Thus, Beijing has erected new barriers designed to stem the exodus of capital outflow. In this context, there are two channels through which capital is fleeting from China: first, state-driven, politically motivated, and commercially dubious deals that have backfired on Beijing in the past; second, capital that is going to safer places in the name of the OBOR initiative.[31] One result of the state driven overseas investment will add to China’s fast-growing debt burden, “now standing at more than 250 percent of GDP.”[32]

Not All Roads Will Make Economic Sense

Building major railway lines, one of the primary goals of the initiative, may not make economic sense, even though rail transport is faster and greener than shipping by sea. Turloch Mooney, senior editor of Global Ports writes, “The cost of shipping a 20 foot-equivalent unit by rail to Europe still averages around five times more than by ocean, and the capacity constraints of trains and rail infrastructure compared with ocean-going vessels mean that, while rail services have the potential to create a significant dent in air cargo volumes, they will most likely never account for more than one to two percent of ocean volumes.” To ship cargo from Suzhou to Warsaw, ocean freight takes 40 days and creates 2.1t of carbon emissions.[33] Now, more and more Chinese companies are shipping goods to Europe via rail but for every five containers going to Europe, only one comes back filled with goods. The other four, unfortunately, come back via ships.[34]

Tom Holland published an article on April 24, 2017 in the South China Morning Post declaring, “The idea of a ‘Belt and Road’ rail cargo route between Europe and China remains nothing more than a fanciful curiosity.”[35] The online magazine Quartz elaborates:

“There is really no need to use trains to increase commerce between Europe and China. Sea cargo transportation is much cheaper, and companies already rely on it. More than 19,000 containers can be placed on a single cargo ship, and they only take 30 days from Europe to reach China. The railway is faster than a shipping container, but is also riskier because it goes through a few unstable countries and can be interrupted by extreme weather, terrorist attacks, and politics. China is trying to justify its domestic overproduction by creating the One Belt, One Road, and framing it as a business strategy that is also beneficial for other nations, but the actual benefit for some trading partners and the long-term global economy is still to be seen.[36]

There Are More Important Things than Roads

In the name of investing overseas, state-owned Chinese companies have experienced spectacular failures, costing the Chinese government an astronomic amount of money. The unexpected decision by the Myanmar government to suspend the Myitsone Project may have cost the Chinese government $3 billion.[37] The Chinese company involved in the deal firmly believed its agreement with the military-controlled government of Myanmar was ironclad.

The toppling of Gadhafi in Libya led to at least $6 billion in losses as Chinese companies all had to abandon their projects.[38] One of the leading investors in Libya, the Sinohydro Group, said it had never imagined a strong leader like Gadhafi could be overthrown.

The China Railroad Group signed a high-speed train deal with the Venezuelan government worth $7.5 billion although it was clear that country did not have money, electric power, and density of population to sustain such a project. It launched a project even after the Venezuelan government defaulted on repaying a loan of $18 billion from China. The project is now worth nothing.[39] The Belt and Road initiative is only about three years old and there have already been failures and losses of immense proportions. More will certainly come.

Failures are bound recur in the coming years and the Belt and Road initiative surely will be littered with projects that are costly and unsustainable white elephants. In fact, this is already happening. A Chinese scholar recently came back from Ethiopia and said the electric railroad built by the Chinese from Addis Ababa to Djibouti – hailed as one of the first landmark accomplishments – in fact made only one run with a diesel locomotive, and has been idle since completion. When asked why, the scholar said, “Well, there is no electricity to power the trains. The hydraulic power plant is yet to be built.”[40]

Conclusion

Any of the factors discussed above could prevent the Belt and Road initiative from achieving its lofty goals and lead China into a financial abyss. It cannot be China’s exclusive endeavor and needs to enlist support from all countries in the world to make it a success. To do that, China needs to be transparent about its geopolitical considerations, decision-making processes, and financial arrangements.

Market forces and not just state investment must be employed. Social dynamics and political uncertainties in each country where a project is launched must be carefully scrutinized. The Chinese government cannot blindly force state enterprises to delve into projects and by the same token, state enterprises must not obediently do what they are asked without due diligence on projects.

Signs are emerging that silent resistance against reckless and mindless Belt and Road projects may be shaping up. China’s overall investment in such projects has dipped despite the central government’s recent demand for more and larger investments in related projects. China’s decision to be part of a globalized market and to follow rules and laws required by this market has enabled China to launch the Belt and Road initiative in the first place. To ignore global market rules is short-sighted and suicidal in the long term.

The initiative is not just about development and prosperity. It is also about China transforming itself from a mere player and benefactor of globalization to a reformer and leader of the international order. Beijing must be aware that before all roads lead to Beijing, it must study past development failures and avoid strategic arrogance and national selfishness; it has to learn that the new roads will go nowhere if they are paved with national glory and supremacy and not common destiny and co-prosperity. Without a broad view, few roads will lead to Beijing.

[1] Lack of transparency will be a significant hurdle for many European countries to fully participate in the OBOR. A Guardian report dated May 15, 2017 said, “The EU has dealt a blow to Chinese president Xi Jinping’s bid to lead a global infrastructure revolution, after its members refused to endorse part of the multibillion-dollar plan because it did not include commitments to social and environmental sustainability and transparency.” See Tom Philipps, “EU backs away from trade statement in blow to China’s ‘modern Silk Road’ plan”, Guardian, May 15, 2017, at https://www.theguardian.com/world/2017/may/15/eu-china-summit-bejing-xi-jinping-belt-and-road.

[2] Xi Jinping, “Work Together to Build the Silk Road Economic Belt and The 21st Century Maritime Silk Road”, May 14, 2017, at http://news.xinhuanet.com/english/2017-05/14/c_136282982.htm and  “Building ‘One Belt, One Road’: Concept, Practice and China’s Contribution,” May 10, 2017, at https://eng.yidaiyilu.gov.cn/zchj/qwfb/12731.htm.

[3] “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,” at https://eng.yidaiyilu.gov.cn/qwyw/qwfb/1084.htm.

[4] “China signs over 130 transport pacts with Belt and Road countries,” Xinhua, April 21, 2017, at http://news.xinhuanet.com/english/2017-04/20/c_136224127.htm

[5] “Building ‘One Belt, One Road’: Concept, Practice, and China’s Contribution,” May 10, 2017.

[6] Ibid.

[7] Xi Jinping, “Work Together to Build the Silk Road Economic Belt and The 21st Century Maritime Silk Road”

[8] Ibid.

[9] Jonathan E. Hillman, “OBOR on the Ground: Evaluating China’s ‘One Belt, One Road’ Initiative at the Project Level,” at https://www.csis.org/analysis/obor-ground-evaluating-chinas-one-belt-one-road-initiative-project-level.

[10] Jan Perlez and Yufan Huang, “Behind China’s $1 Trillion Plan to Shake Up the Economic Order,” May 13, 2017, at https://www.nytimes.com/2017/05/13/business/china-railway-one-belt-one-road-1-trillion-plan.html?_r=0.

[11] “India refuses to be part of China’s Belt-Road initiative,” at http://www.business-standard.com/article/news-ians/india-refuses-to-be-part-of-china-s-belt-road-initiative-117051300941_1.html

[12] For the five “new’s”, check out the Center for China and Globalization, “Paths to Win-Win Cooperation Along the B&R: A Proposal to Enlist Global Partners”, at http://www.ccg.org.cn/Research/View.aspx?Id=6593.

[13] BBC, “China invests $124bn in Belt and Road global trade project,” May 14, 2017, at http://www.bbc.com/news/world-asia-39912671.

[14] James Griffiths, “Just What Is This One Belt, One Road Thing Anyway?,” May 11, 2017, at http://www.cnn.com/2017/05/11/asia/china-one-belt-one-road-explainer/.

[15] Nikkei Asian Review, “Asian neighbors still leery of China’s Belt and Road initiative,” May 16, 2017, at http://asia.nikkei.com/Spotlight/New-Silk-Road-summit-in-Beijing/Asian-neighbors-still-leery-of-China-s-Belt-and-Road-initiative.

[16] Perlez and Huang, “Behind China’s $1 Trillion Plan to Shake Up the Economic Order”

[17] Ibid.

[18] REUTERS/Asahi, “Ten gunned down near China “Belt and Road” projects in Pakistan,” May 13, 2017, at http://www.asahi.com/ajw/articles/AJ201705130043.html.

[19] Tom Hancock, “China encircles the world with One Belt, One Road strategy,” May 3, 2017, FT, at https://www.ft.com/content/0714074a-0334-11e7-aa5b-6bb07f5c8e12.

[20] David Dollar, “Yes, China is investing globally–but not so much in its belt and road initiative,” May 8, 2017, at https://www.brookings.edu/blog/order-from-chaos/2017/05/08/yes-china-is-investing-globally-but-not-so-much-in-its-belt-and-road-initiative/.

[21] Ibid.

[22] The American Interest, “One Belt, One Road, One Boondoggle?,” May 11, 2017, at https://www.the-american-interest.com/2017/05/11/one-belt-one-road-one-boondoggle/.

[23] Hillman, “OBOR on the Ground: Evaluating China’s ‘One Belt, One Road’ Initiative at the Project Level”

[24] Perlez and Huang, “Behind China’s $1 Trillion Plan to Shake Up the Economic Order”

[25] Ibid.

[26] Dipanjan Roy Chaudhury, “China may put South Asia on road to debt trap,” The Times of India, May 2, 2017, at

http://timesofindia.indiatimes.com/world/south-asia/china-may-put-south-asia-on-road-to-debt-trap/articleshow/58470014.cms.

[27] Syed Irfan Raza, “CPEC could become another East India Company,” October 18, 2016, at https://www.dawn.com/news/1290677.

[28] Hancock, “China encircles the world with One Belt, One Road strategy”

[29] Ibid.

[30] Douglas Bulloch, “As China’s Belt & Road Forum Approaches, the Initiative Itself Remains a Distant Dream,” Forbes, May 12, 2017, at https://www.forbes.com/sites/douglasbulloch/2017/05/12/chinas-belt-and-road-initiative-remains-a-distant-dream/#607489c32d8a.

[31] Hancock, “China encircles the world with One Belt, One Road strategy.” According to Jörg Wuttke, president of the European Chamber of Commerce in China, In the face of downward pressure on the renminbi, the initiative has been hijacked by Chinese companies, which have used it as an excuse to evade capital controls, smuggling money out of the country by disguising it as international investments and partnerships. OBOR has also “provided cover for the acquisition of less productive and often trophy assets, such as European football clubs. Chinese tycoons have acquired about 100 of these to date.” See Jörg Wuttke, “Xi Jinping’s Silk Road is under threat from one-way traffic,” May 11, 2017, at https://www.ft.com/content/61c08c22-3403-11e7-99bd-13beb0903fa3.

[32] Perlez and Huang, “Behind China’s $1 Trillion Plan to Shake Up the Economic Order.” According to Oxford University scholars, “For over three decades, China has experienced a staggering public investment boom. In 2014, China spent US$4.6 trillion on fixed assets, accounting for 24.8 percent of total worldwide investments and more than double the entire GDP of India. But China’s investment boom has coincided with a rapid buildup of debt. Between 2000 and 2014, China’s total debt grew from US$2.1 trillion to US$28.2 trillion, an increase of US$26.1 trillion — greater than the GDP of the United States, Japan, and Germany combined.” See Atif Ansar and Bent Flyvbjerg: “China’s Great Wall of Debt,” November 28, 2016, at

http://www.eastasiaforum.org/2016/11/28/chinas-great-wall-of-debt/.

[33] “East Wind: a new era of freight between the UK and China,” February 20, 2017, at http://www.railway-technology.com/features/featureeast-wind-a-new-era-of-freight-between-the-uk-and-china-5740643/. The author of this article writes, “For that niche section of import-exporters who cannot afford to wait months for product delivery, but are also concerned about their carbon footprint, the rail service is bound to be a great new alternative.”

[34] “Empty Containers on Sino-Euro Trains Signifies the Tragic Future of OBOR,” May 17, 2017,at http://mp.weixin.qq.com/s/pqhq8SykbjoTRP80bln3Cg..

[35] Tom Holland, “Puffing across the One Belt, One Road rail route to nowhere,” This Week In Asia, South China Morning Post, April 24, 2017.

[36] “It costs twice as much to export olive oil from Spain using China’s ‘One Belt, One Road’ railway,” at https://qz.com/686816/the-view-from-spain-chinas-one-belt-one-road-railway-is-an-unnecessary-folly/.

[37]Mike Ivesmarch, “A Chinese-Backed Dam Project Leaves Myanmar in a Bind,” New York Times, March 31, 2017, at https://www.nytimes.com/2017/03/31/world/asia/myanmar-china-myitsone-dam-project.html

[38] Asianew.it, “Heavy losses for Chinese companies operating in Libya,” February 26, 2011, at http://www.asianews.it/news-en/Heavy-losses-for-Chinese-companies-operating-in-Libya-20887.html.

[39] “High Speed Train Project in Ruins and 7.5 Billion USD Wasted,” December 25, 2016, at http://cj.sina.com.cn/article/detail/1680937367/132128.

[40] Interview with a scholar from the Chinese Academy of Social Science, Beijing Conference Center, May 24, 2017.

The post Will All Roads Lead to Beijing? Risks and Challenges in China’s “Belt” and “Road” Plan appeared first on China Research Center.

Consider the first offer. Whenever the Chinese take such initiatives, the most important aspect to note is that such initiatives must be examined in the context of the prevailing international situation, for rarely are they bereft of such linkages. In the current uncertain times, any Chinese strategic analyst based in Beijing would aver that the principal security threat to China would emanate from its eastern seaboard, in tandem with the deep anxiety and uncertainties the new Trump Administration engenders. This would also suggest that the Chinese, well versed in the art of strategic manoeuver, would be keen to cover their flanks so as to fully concentrate on the gathering storm that they perceive might come from the Asia-Pacific region.

The Trump-Xi Jinping Summit in Florida was designed for both sides to assess the relationship at the highest level. While China has continued to prevaricate on the North Korean nuclear issue, the U.S. realizes that its options for unilateral action are strictly limited, and therefore reliance on China becomes even more enduring. The outcome of the recent trade deal indicates the final burial of Trump’s anti-China campaign rhetoric branding China as a currency manipulator, etc. In some aspects, the announced trade deal is nothing but China implementing what it had already promised. Yet Trump’s persistence seems to have paid off. The decision to participate in the Belt and Road meeting in Beijing, however, surprised many in that this was a Chinese initiative designed primarily to challenge U.S. trading and military power in the Asia-Pacific region. This challenge remains and it would be extremely shortsighted for the U.S. to believe that a new equilibrium with China has been established. China’s ultimate goal of ousting U.S. power from the Asia-Pacific is unchanged.

Past as Prologue

Sometimes a review of historical events offers vital and interesting clues on future developments. A near similar situation to the current one arose in the late 1950s when the Chinese were bombarding the two Taiwan-held islands of Quemoy and Matsu just off mainland China, but were deterred from further military action when the U.S. warned that it would use “all means” (a clear reference to nuclear weapons) to defend Taiwan (not including Quemoy and Matsu). This was a bitter period in Sino-U.S. relations that coincided with the final break in Sino-Soviet relations after Soviet leader Khrushchev refused to back China against a U.S. nuclear strike. On March 19, 1959, a revolt also broke out in Tibet that led to the flight of the Dalai Lama from Lhasa to India for personal safety. On May 6, 1959, the People’s Daily published a scathing article entitled “The Revolution in Tibet and Nehru’s Philosophy.” It was popularly believed that the article carried Mao’s personal imprimatur and contained a nasty personal attack on Nehru for the first time since the signing of the 1954 Agreement between India and China on Trade and Intercourse between Tibet and India, under which India recognized Chinese sovereignty over Tibet for the first time ever. Nehru was devastated by the viciousness of the personal attack.

Despite extreme Chinese unhappiness at what had happened in Tibet and their unflinching belief that Nehru was involved in the events leading to the Tibetan uprising and the subsequent flight of the Dalai Lama to India, the Chinese never lost sight of the greater strategic threat that was gathering in the shape of U.S. military deployments in the Taiwan Strait and the Soviet refusal to back them in case the U.S. used nuclear weapons. It was a grave threat that they could not ignore. Mao had earlier referred to it in his conversation with Nehru during the latter’s visit to Beijing in October 1954. This is what Mao told Nehru:

Between friends, there are times when there are differences; there are also times when there are fights—even fights till we become red in the face. But this type of fight is different in character from the sort of fight we have with Dulles. We are a new country. Although we are counted as a large country, our strength is still weak. Confronting us is a larger power, America…. Therefore we need friends. PM Nehru can feel this. I think India also needs friends.

Therefore, it was not surprising that the then-Chinese ambassador arrived at South Block (the Indian Foreign Office) on May 16, 1959 and handed over a written démarche. It contained a long rambling litany of complaints against India and was reportedly drafted by Mao himself. Toward the end, it contained a most interesting proposal:

The enemy of the Chinese people lies in the east—the U.S. imperialists have many military bases in Taiwan, South Korea, Japan, and in the Philippines, which are all directed against China. China’s main attention and policy of struggle are directed to the east, to the west Pacific region, to the vicious and aggressive U.S. imperialism and not to India…. India is not an opponent but a friend of our country. China will not be so foolish to antagonize the U.S. in the east and again to antagonize India in the west… Friends! It seems to us that you too cannot have two fronts…. Is it not so? If it is, here lies the meeting point of our two sides. Will you please think it over?

Nehru personally drafted the response to the Chinese ambassador’s démarche, and assessed it as “discourteous.”  The tragedy lies in the fact that this démarche and its contents were taken by Nehru as a personal affront. The hapless foreign secretary was directed to respond within a week, on May 23, 1959, to say that the statement was “wholly out of keeping with diplomatic usage and courtesies due to friendly countries.” Moreover, the astonishing remark was made that “the government of India does not consider or treat any country as an enemy country, howsoever much it may differ from it.” (Was Pakistan then a “friendly” country?) Mao would have been deeply offended at Nehru’s response.

Three Current Issues

Let us fast forward to current times. Keeping in mind the historical context and considering China’s deep anxiety at present on developments near its eastern seaboard, what then should India make of the latest Chinese offer of a Treaty of Friendship and Cooperation? The first point to underscore is that there exists in the Chinese mind the belief that Indians are by nature rather fond of “vision statements,” “joint declarations,” “guiding principles,” “Five Principles of Peaceful Coexistence,” etc. Therefore, offering a Treaty of Friendship and Cooperation to India, at present, would be in line with Chinese thinking about the nature of the Indian mind and the belief that it can be easily satisfied by initiating, yet again, such high-sounding joint statements.

The Boundary Dispute

Second, in the Chinese mind such lofty statements/declarations matter little when placed in the context of real politics practiced by its leadership, as they can be easily ignored or subverted should the need arise. For example, take the Sino-Indian Agreement of April 11, 2005 that set out the “Political Parameters and Guiding Principles” for the settlement of boundary issues. In Paragraph VII it was agreed that, “In reaching a border settlement the two sides shall safeguard the due interests of their settled populations in border areas” [emphasis added]. Any unbiased observer would read this to mean that in the eastern sector of the Sino-Indian Boundary, the two sides had agreed to settle the border on the existing status quo since settled populations exist right up to the boundary. And yet when the political situation turned, the Chinese referred to Paragraph V and said that they could not ignore “national sentiment” and concede so much territory.  Further in May 2007, the Chinese Foreign Minister told the Indian External Affairs Minister that “the mere presence of populated areas would not affect Chinese claims on the boundary.” In other words, the Chinese were reneging on Paragraph VII.

Therefore the question that arises is how can India pin down the Chinese in concrete terms, so that they cannot escape so easily from commitments they might make in the proposed Treaty of Friendship and Cooperation? And what is the proof of Chinese sincerity?

To begin with, India must not reject the Chinese initiative, as Nehru had so impetuously done in 1959, but play along, for it gives India enough room for diplomatic manoeuver not only with the U.S. but also with states in the South Asian neighborhood. And yet the Chinese must be pinned down in concrete terms. On November 4, 1962, Prime Minister Zhou clarified to Nehru in an official note that in the eastern sector of the Sino-Indian Boundary, the Line of Actual Control “coincides with the McMahon Line.”  Zhou further said that the Indian government must have a copy of the original McMahon map, negotiated at Simla in 1914 (the Tripartite Conference between British India, China, and Tibet), and therefore it should be easy to read the coordinates line from that copy. That being the case, India should insist that the Chinese live up to Zhou’s initiative and not only reaffirm that the Line of Actual Control in the eastern sector conformed to the McMahon Line, but insist that it be demarcated on the ground to avoid any misunderstandings.

If the Chinese government were to agree with its own stipulation, as made by Prime Minister Zhou in November 1962, this indeed would be a concrete proof of Chinese sincerity and a solid basis for negotiating a meaningful Treaty of Friendship. It would also indicate a serious intent on the part of the present Chinese government. Otherwise, the Chinese ambassador’s proposal is basically a nonstarter. The boundary question, therefore, is likely to linger.

The Balance of Trade

Both India, and to some extent the Chinese, recogniz that the huge trade deficit that exists and currently favors China is untenable. Something must be done to ameliorate the situation. It is in this context that the Chinese ambassador offered a Free Trade Agreement between the two countries. It is not in the public domain whether the Chinese authorities have officially proposed the same to India, but nevertheless it is an important development. Before an assessment can be made of India’s response, it is imperative to first evaluate the current state of the trade relationship between the two countries.

India’s trade relations with China have had a checkered history, and unfortunately continue to remain hostage to political developments between the two countries, albeit considerably less now than earlier. It is to the enormous credit of Prime Minister Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary dispute was not imminent, and therefore to delay normalization of trade and economic relations with China would only be counterproductive. He made the decision to delink the two issues. It was also during his visit to China in December 1988, that for the first time a Joint Economic Group was established. However, it must be pointed out that no one in the Indian leadership at that time paid much attention to this aspect of the relationship, for no one ever anticipated that bilateral trade volumes would develop so fast.

But develop they did. Sino-Indian bilateral trade in 1991 was a paltry US$265 million. It mushroomed exponentially to US$70.7 billion by 2015-16. Interestingly, India’s current bilateral trade with China is larger than India’s combined bilateral trade with Britain, Germany, and Japan. But the main problem is that India’s trade deficit with China is unusually high: in 2015-16 standing at a staggering US$52.7 billion. And it is expected to rise even further this year. This by itself should not be a cause for worry, as India runs deficits with 16 of its top 25 trade partners. The inescapable fact is that India buys more than it sells worldwide.

Almost everyone recognizes the real problem behind this massive trade deficit. India’s trade basket consists of cotton, gems and precious metals, copper, and iron ore. All are commodities. China, on the other hand, exports manufactured capital goods, mainly for the power and telecom sectors. India just does not produce enough high-quality manufactured goods even for its own billion-plus consumers, let alone for exports. Therefore it has to rely on quality imports from abroad. Many experts feel that the inordinately high trade deficit between India and China of US$52.7 billion is not a very serious issue for a country such as India that is on its way to establishing an industrial base and seeks high growth rates. Under such circumstances a larger import profile is unavoidable. Since China is the major source of technology-intensive products that are cost-effective, running a high deficit with China appears inevitable.

However, running trade deficits with China may not be necessarily inevitable. According to the Chinese, the problems faced by India are elsewhere, and essentially relate to restrictive labor practices, land and tax laws, rickety infrastructure, and inadequate power supply. In addition, while China is a part of the global supply chain, being the last stop of the manufacturing chain in East Asia, India is nowhere near being a part of this global chain.

Therefore, what would a Free Trade Agreement with China entail, and what would be its implications? Empirical studies show that for India, any such agreement would be a nonstarter, for India is not competitive at all. Such an agreement would not have any major impact on increasing Indian exports to China, for the tariffs that China levies on most items in the Indian export basket already are near zero. Furthermore, the manufacturing skills and abilities currently available in India compared with China are rather low. Indian’s manufacturing industry would be badly hit. Although overall trade between the two countries might grow at a healthy pace, it would be mostly to the advantage of the Chinese. For example, if tariffs levied were to be reduced by five percent across the board, the increase in India’s exports would be negligible, whereas those of China would increase by an estimated 18 percent. ¹ From the Indian point of view therefore, this proposal is a nonstarter. A selected sector-wise free trade agreement, rather than one across the board, could be one way forward. However, because both India and China find it hard to reconcile their respective positions, progress in negotiations is slow and tedious.

India needs to press the Chinese on opening more facilities and increasing border trade. Right now, trade between India and Tibet across the land borders is very modest in contrast to Sino-Nepal border trade, which stands at US$542 million.  There are several reasons. Firstly, the lists of items that can be traded are outmoded and not commensurate with modern requirements. Secondly, the time allotted for trading is very unsuitable, particularly since traders cannot stay overnight in either country. Most border trade points are open only four days a week. The time taken to reach border points is also a factor, since the infrastructure – particularly on the Indian side – is rudimentary at best. For example, the road connecting Siliguri the last railhead to Sikkim and on to Nathu La on the border is about 143 kilometers long, but is a single lane and often subject to landslides. Sikkim has no airport, nor any railhead.

The importance of border trade should be recognized, as it is an important catalyst for poverty reduction in border areas. Border villages are becoming depopulated, because of the lack of jobs, thus posing security concerns for India. In the past, border trade with Tibet helped towns such as Kalimpong, Darjeeling, and even Tawang thrive. If border trade is revived, it can again be a significant dynamic in economic development.

In 1988 when a significant shift happened in Indian policy toward China, it was the fervent hope that goodwill thus generated with normalization in all other sectors would facilitate the settlement of the boundary question. Those hopes have to some extent been belied, but what has also emerged is that the massive trade deficit generated has added an altogether new issue between the two countries. By 2030 the economies of both China and India are expected to be among the top four economies of the world.  Unfortunately India still does not have a full-time independent trade negotiator on lines of USTR, and negotiates on an episodic basis.

One Belt, One Road

The third proposal on the table was the Chinese ambassador’s idea of merging China’s “One Belt, One Road” concept with India’s “Act East Policy” that envisages that only India pays more attention to states east of India, but that special relations with them should be developed.

When the Chinese ambassador spoke of the “One Belt, One Road” connectivity, what exactly did he have in mind? Does it mean that the initiative also includes the US$46 billion Chinese funded China-Pakistan Economic Corridor as an inseparable component? A clear understanding of what is offered is necessary for the study of the proposal’s implications. In turn this would facilitate a response from India.

On September 7, 2013, President Xi Jinping made the proposal for a new Silk Road Economic Belt in an address at Nazarbayev University.  While addressing the Indonesian Parliament on October 3, 2013, he proposed the new 21^st Century Maritime Silk Road. These initiatives were amalgamated and became known as the “One Belt, One Road” concept. The current Chinese leadership has done well to choose this particular name, the Silk Road, for no matter where a person is located in the vast Euro-Asian heartland, the name would always resonate. The Chinese believe that “One Belt, One Road” provides a fresh way of thinking about regional and global cooperation, and that by including both bilateral and multilateral cooperation in political, economic, cultural, and other fields, a new paradigm would be created. The Chinese benefit immensely for the Belt and Road concept takes care of Chinese overcapacity in the steel and cement industries, as well as the desire for utilizing accumulated capital resources to further Chinese ambitions. Its scope would not be limited to Asia, but certainly its success does, to some extent, depend on cooperation that the Chinese receive from important countries such as India. If this initiative comes to fruition, it would link 65 countries and 4.4 billion people.

The Indian position has been that it has never been officially consulted on “One Belt, One Road.” The assumption in India is that the China-Pakistan Economic Corridor, in which the Chinese have invested US$46 billion, is an important component of the initiative. In December 2014, the Indian External Affairs Minister stated in Parliament that, “Government has seen reports with regard to China and Pakistan being involved in infrastructure-building activities in Pakistan-occupied Kashmir, including construction of the China-Pakistan Economic Corridor. Government has conveyed its concern to China about their activities and asked them to cease such activities.” While the minister was expressing her concern, a Press Trust of India report quoted the Indian High Commissioner to Pakistan as saying that, “India has no worry over construction of the China-Pakistan Economic Corridor, as an economically strong Pakistan would bring stability to the region.”

This dichotomy of approach remains to be reconciled, for it seems that it stems from strategic ambiguity. If the past is any guide then in 1965 at Tashkent, India agreed to restore the 1949 ceasefire line and withdrew from areas it occupied across the ceasefire line in the 1965 conflict. Similarly, the whole ethos of the Simla Agreement in 1972 was that Pakistan would accept and at an appropriate time convert the ceasefire line (now called the Line of Control) into an international border. In 1999 as well, India maintained the sanctity of the Line of Control, never crossed the line militarily and used force to oust Pakistani troops and pushed them back and beyond the Line of Control. Thus, it seems India was quite prepared to give up its claims to Pakistan-occupied Kashmir, if Pakistan accepted the Line of Control as an international border. It is not in the public domain if any such concrete offer was ever made in writing to Pakistan [emphasis added]. On the other hand, Prime Minister Modi recently reiterated in his August 15^th independence message that Pakistan-occupied Kashmir was indeed sovereign Indian Territory. The question is which of the two strategic modules would India prefer to pursue on a long-term basis?

Thus, if the China-Pakistan Economic Corridor is indeed a vital component of “One Belt, One Road,” then it violates Indian Territory, and for India to accept the initiative is a matter of national territorial integrity. On the question of the China-Pakistan Economic Corridor traversing Pakistan-occupied Kashmir, Chinese Foreign Ministry spokesperson Hua Chunying prevaricated on the issue: “With regard to whether the economic corridor passes through [Pak] Kashmir, as far as I have learned, a joint committee for the construction of China-Pakistan Economic Corridor has been established and a second meeting has been held coinciding with the visit of the Pakistani President. I do not know if they have talked about whether the corridor will pass through this region [Pak-Kashmir], but I can tell you that we hope the Kashmir issue can be resolved through consultations and negotiations between India and Pakistan.” Clearly the Chinese were hoping to obfuscate the issue and the fact that the China-Pakistan Economic Corridor passed through Pakistan-occupied Kashmir. Recent Chinese press reports have also taken the same view, calling upon India and Pakistan to settle the matter among themselves.

Therefore, if India cannot join “One Belt, One Road” then the Chinese’s proposal of joining the “One Belt, One Road” with India’s “Act East Policy” clearly becomes a nonstarter. Alternatively, at present India does not have sufficient economic resources or the political heft to put in place either a competitive or an alternative connectivity network on a scale that can offer an alternative option to the Belt and Road initiative. In such circumstances would it be plausible to prudently study those components of the initiative that may improve India’s own connectivity to major Central Asian markets, just as India has chosen to join the Chinese-sponsored Asian Infrastructure and Investment Bank and the National Development Bank? For example, India’s proposal to build a road cum rail link to Central Asia through the Iranian port of Chahbahar could ostensibly be linked to the Chinese-built routes in the Central Asian region to obtain access to both Central Asian as well as Russian destinations. Would the Chinese be prepared to allow limited participation by India, as opposed to full participation?

If India’s resources are indeed limited, then it automatically follows that strategically these must not be spread too thinly as a part of its Act East Policy. As the Indian Ocean area is strategically extremely important for India, it may be more imperative to deploy resources to build an Indian Ocean network of ports, with connecting highways and rail routes, such as the planned Mekong-Ganga corridor and the Sittwe-Mizoram multimodal transport corridor. Plans to develop the deep water port at Trincomalee on Sri Lanka’s eastern coast, as a major energy and transport hub, are still in limbo, despite the fact that the Chinese have gone ahead and built the Hambantota port in Sri Lanka and have expanded Colombo port. The Andaman and Nicobar Islands are strategically located in the Bay of Bengal and opposite the Malacca Straits, and yet India continues to treat these islands as distant outposts rather than developing them as important commercial and transportation hubs. The idea of launching a Spice Route, Cotton Route, and even a Mausam project are currently mostly rhetorical ripostes to China’s “One Belt, One Road” and to the China-Pakistan Economic Corridor. Much more therefore needs to be done, and clearly some hard thinking needs to be initiated soon.

The post Dealing with China – An Indian Perspective appeared first on China Research Center.

Metersbonwe is a company with humble beginnings. In true rags-to-riches form, founder Zhou Chengjian created a brand that is now a household name across the country. Now, he is looking outward, and the company faces its greatest challenge yet. In the approximately 22 years since Metersbonwe was founded, the company has been successful in capturing business from the growing Chinese middle class by combining fashionable products with affordable prices through the utilization of the “fast fashion” model. However, over the past few years, the company’s fortunes have shifted. Plagued by financial woes and a corruption scandal, a company that was once ripe with opportunity seems to be balking at the prospect of international expansion.

Metersbonwe can attribute its success to an ambitious leader, economic reforms, and a rising middle class. However, the integrity of its leader recently came into question. Last year, Zhou Chengjian became embroiled in a corruption scandal brought to light after his mysterious disappearance. His disappearance turned markets sideways and led to many questions, but few answers were given, and the repercussions of the entire ordeal remain unclear to this day. Furthermore, Metersbonwe is beginning to struggle in the market in which it initially found success. The popularity of foreign fast fashion brands continues to rise in China, and domestic brands are being pushed aside in favor of global chains with prestige and brand recognition. Metersbonwe must find a way to keep these fast fashion brands at bay and reassure Chinese consumers that it is the brand that epitomizes both the quality and upward mobility they so desire. Only then will it be able to support a global campaign with any chance of success.

A Portrait of a Leader

Metersbonwe (měi tè sī bāng wēi) was founded in 1995 by Zhou Chengjian. A self-made entrepreneur, Zhou was born in 1965 to a family of farmers in the eastern Chinese city of Lishui (Waldemeir 2015). After quitting school at the age of twelve, he began working as a tailor while starting his first clothing business (Waldemeir 2015). This first business was bankrupt by 1985 and went bankrupt again after Zhou restarted it a year later. Neither of these bankruptcies deterred Zhou; he says his ambivalence toward past failures can be explained by the Chinese saying that “ignorant people fear nothing” (Waldemeir 2015). Zhou’s purported ignorance paid off, and he found success almost immediately after founding Metersbonwe in 1995. Today, Metersbonwe operates almost 4,000 stores in China, and Zhou is one of the richest men in the country, with an estimated worth of more than $2 billion (FT Confidential Research 2016; Waldemeir 2015).

Metersbonwe entered the Chinese market at a seminal time when privatization in the country was just beginning. To “jump into the sea” and become an entrepreneur was incredibly risky, but Zhou possessed the vision and drive to do just that. He says the shift from a planned economy to a market economy caused a high demand for products, and “If you were brave enough, and your performance wasn’t too bad, you could be successful” (Waldemeir 2015). However, Zhou admits that this model of success is no longer viable today. To succeed, entrepreneurs must possess professional skills and a deep knowledge of consumer demands (Waldemeir 2015). Furthermore, Zhou believes that Chinese entrepreneurs will be successful if they are “tireless in starting up, restless in development, and relentless in innovation” (Tan 2011, 97). Zhou’s realization that he cannot hope to succeed using the same tactics he used two decades ago is encouraging, and his sentiments mark him as a leader who is willing to adapt to and overcome the challenges that the 21^st century business environment presents.

What is Fast Fashion?

The fast fashion industry is a relatively recent phenomenon characterized by the speed with which clothing goes from runway to retail. The most successful fast fashion brands cultivate streamlined and sophisticated value chains with the ability to bring designs to fruition over the course of only a few weeks. The speed with which styles arrive in stores stokes demand and guarantees quick turnover of products, thus ensuring fewer markdowns (Loeb 2015). Rather than restocking, fast fashion brands replace sold out products with new styles, so consumers must buy a product as soon as they see it because they may not see it again. Some of the most well-known fast fashion brands include Sweden’s H&M and Spain’s Zara, which are also a few of Metersbonwe’s biggest rivals.

Metersbonwe fits the fast fashion niche by constantly churning out new styles at incredibly low prices. Zhou Chengjian estimates that the company releases 3,000 designs each year (Tan 2011, 97). Fast fashion brands also cater to a wide variety of demographics, which is why Metersbonwe not only specializes in men’s, women’s, and children’s apparel, but also in footwear, accessories, home, and beauty (Nelson 2014).

A Recipe for Success: Institutional Reforms and Favorable Demand Conditions

Economic reforms have played a considerable role in the success of Metersbonwe. Because the company has always been privately held, founder Zhou Chengjian controls all aspects of the company, allowing him to turn his vision for Metersbonwe into reality. Metersbonwe’s founding in 1995 coincided with the second phase of economic reform in China. The first phase began in 1978, two years after the death of Mao Zedong, and ended in the mid-1990s (Kroeber 2016, 104-105). During this time, resources were reallocated from the public to the private sector, and private sector activity quickly expanded, but the legal basis for these private businesses was unstable. The second phase of reforms brought with it private property rights, fewer restrictions for corporate organizations, and a diminished role of the state in private business (Kroeber 2016, 105). Firms in the private sector benefited greatly from these reforms, and the number of private businesses continued to increase, as did private companies’ share of industrial value added. In 2007, the private sector share of value added was 63 percent of total production (Kroeber 2016, 106). The second phase of reforms concluded in 2008 at the onset of the global financial crisis.

Metersbonwe entered the retail industry at a time when consumer demand in China was just beginning to escalate. Since the beginning of reforms, GDP per capita and purchasing power parity have continuously grown, allowing consumers more freedom than ever in their financial decisions. Despite relatively slower GDP growth over the past several years, China is poised to become the world’s largest apparel market in 2017 (Fung Group 2014). This trend is explained by the continued growth of disposable income in both urban and rural households. According to the Fung Group, disposable income grew by seven percent in urban households in 2013 (2014). In rural households the growth was larger, reaching nine-point-three percent in 2013. Clothing purchases made up 10.6 percent and seven-point-two percent of total annual expenditure in urban and rural households, respectively (Fung Group 2014). With a middle class estimated in 2012 at approximately 328 million people and rising, one can be certain that Chinese consumption will only increase (Kroeber 2016, 188). Metersbonwe would not exist without the institutional reforms that occurred in China in the latter half of the 20^th century. Put simply, the company was in the right place at the right time.

Strategy, Criticism, and Changing Consumer Trends

Metersbonwe is a company that subscribes to the belief that there is never a weak market, only weak management (Tan 2011, 97). With this in mind, the company takes great measures to invest in its employees through the Metersbonwe College, which is located at the company’s Shanghai headquarters.  Students at Metersbonwe College are all store employees. They are exposed to a variety of lecturers from professors to business executives (Tan 2011, 98). The purpose of Metersbonwe College is simple: to train the company’s future senior executives. Additionally, founder Zhou Chengjian takes steps to ensure employee morale is high. Employees are granted access to an anonymous company forum, which Zhou often browses to evaluate complaints and suggestions raised by workers (Tan 2011, 98). Employees also are encouraged to share opinions through an internal company newspaper. Each of these aspects of the employee experience showcases Metersbonwe’s strategy of effective leadership in building the foundations for a successful business.

Regarding production, Metersbonwe has formulated a strategy in which costs are minimized when they can be, but company executives are willing to spend on technology and intelligence when necessary. Low value-added processes such as manufacturing and sales are outsourced through franchising or the enlistment of consulting firms, respectively (Tan 2011, 97). High value-added processes such as research and development, channels, and logistics are given special attention and greater expenditure.

Metersbonwe often utilizes celebrities and public figures for its ad campaigns. This is a strategic move, as Chinese consumers are very receptive to marketing campaigns featuring influential people. If a popular Chinese entertainer is seen as the face of a brand, consumers are likely to respond by buying the brand’s products. Not only does Metersbonwe hire pop stars to act as spokespeople for the brand, but many also serve as fashion consultants (Ying 2011, 97).

One reason Metersbonwe has become so profitable is its focus on entering second- and third-tier cities (Faber 2012). With first-tier cities oversaturated and the brand’s losing luster among the big-city young, Metersbonwe made a lucrative push into second- and third-tier urban centers. These markets have yet to be penetrated by global brands such as Zara or H&M, and as a result, Metersbonwe has been able to achieve brand recognition in smaller markets. While successful in building a consumer base in smaller cities, Metersbonwe is not viewed by youth in first-tier cities as prestigious in the same way that international brands are (Faber 2012).

However, it appears that Metersbonwe’s recent efforts have not been entirely effective in capturing the consumer base it desires. In the beginning, Metersbonwe appealed to cost- and style-conscious Chinese consumers. Now, as tastes refine and brand image is paramount, consumers’ attitudes toward Metersbonwe have begun to sour. In an interview, Xu Weidong, vice president of Metersbonwe, expressed the company’s desire to become a “global value brand,” and help establish China as a global exporter of style (Faber 2012). However, young consumers in China’s top-tier cities do not view Metersbonwe in the same light as Xu would hope. These shoppers are adamant in their distaste for the company and its products, stating that its clothes are cheap, ill-fitting, and more suitable for high schoolers than the 18-25 demographic the stores target (Faber 2012). The young people quoted in Bennett Faber’s article for Cargo Collective would prefer to shop at stores such as Zara, H&M, and American Eagle (2012). Clearly, it is a problem when a store’s products do not appeal to its target audience. Judging by the reactions of consumers, Metersbonwe must focus more on branding. Recent ad campaigns have sought to update the brand’s image by not relying solely on celebrity spokespeople to attract young consumers. For example, in collaboration with Hong Kong label Subcrew, Metersbonwe launched a viral video campaign featuring subculture characteristics such as graffiti, skateboarding, and action sports (Faber 2012). Additionally, the company collaborated with iconic Japanese photographer Yasumasa Yonehara on a t-shirt and has featured underground Chinese talent on other t-shirt lines. Through these attempts to update its image, Metersbonwe appears to make a departure from its original target audience in hopes of wooing label-savvy consumers from first-tier cities such as Shanghai and Beijing (Faber 2012).

Further Challenges to the Company: The Technology Boom

In 2013, Zhou Chengjian outlined plans to expand beyond China, pledging to open stores in New York, Tokyo, and London within three years (Schuman 2013). These plans were put on hold when the company began to encounter financial problems. Up until 2011, Metersbonwe’s profits grew more than 30 percent annually (Nelson 2014). Since the explosion in popularity of e-commerce in China, Metersbonwe has struggled to keep up with online retailers such as Alibaba. As a result, the company lost 95 million yuan ($14.9 million) over the first half of 2015. In attempts to combat this, Metersbonwe declared a private placement plan to raise nine billion yuan ($1.4 billion) to be spent on the construction of an online to offline platform, data support, and industry chain integration (Flannery 2015). However, in December 2016 the company announced it was scrapping the private placement plan in response to “changes in market conditions” (Reuters 2016).

Metersbonwe’s online to offline integration initiatives are both extensive and impressive. In addition to developing a website, the company has developed a mobile portal, social media presence, and various in-store initiatives. All stores have free Wi-Fi and support mobile payment, while some store branches have touchscreen devices (Fung Group 2014). Additionally, shoppers have the option to scan a product’s QR code with their phones, where they will then be directed to the store’s product page on Banggo.com, the store’s online platform. From there, shoppers can view full product information and shop online if they choose (Fung Group 2014). Finally, the company has attempted to make the transition from offline to online as seamless as possible by integrating online and offline prices and ensuring there are no discrepancies between the two. Metersbonwe has also learned how to utilize technology to monitor quality control and gauge customer satisfaction. In the company’s flagship stores, remote-controlled videotaping allows executives at the company’s headquarters to observe sales associates’ customer interactions, customers’ reactions to products, and the way products are displayed in stores (Tan 2011, 97).  While it can be argued that any company hoping to compete in the 21^st century must undergo a certain degree of technological innovation, Metersbonwe’s extensive efforts have proven the company’s ability to adapt and directly confront pressure from competitors.

Zhou Chengjian’s Fall from Grace

Despite his leadership achievements, Zhou Chengjian’s reputation recently took a beating. On January 6, 2016, Zhou was reported missing. His disappearance was reportedly related to President Xi Jinping’s anticorruption campaign (Waldmeir 2016). In response to Zhou’s disappearance, Metersbonwe immediately suspended trading shares on the Shenzhen Stock Exchange. It was later alleged that Zhou conspired with Xu Xiang, then-manager of Zexi Investment, to manipulate Metersbonwe shares ahead of a 2015 stock market crash (Yang and Zhai 2016). Zhou returned to work a week later, and Metersbonwe officials have given no explanation.

It may seem strange to many that a high-profile businessman would be taken into custody on suspicion of serious criminal charges, only to be released with no explanation given and no apparent punishment. However, these circumstances have become something of a trend, as several other wealthy Chinese businessmen have been arrested in a similar fashion over the past few years. The disappearances cause instability in the Chinese stock markets, but have varying effects on the men who are arrested (Straits Times 2017). The president of China Minsheng Banking Group, Mao Xiaofeng, resigned for “personal reasons,” after a January 2015 stint in custody, where it was reported that he was assisting with an investigation (Straits Times 2017). In Zhou’s case, the aftermath was subtle, and there have been no further reports about his disappearance.

While it does not appear that there will be any further ramifications for Zhou’s behavior, the entire ordeal undermined both his credibility and integrity. For someone who built his empire through determination and hard work, it comes as a disappointment that he might take advantage of his arduously won power to manipulate his company’s stock price. His humble beginnings seem forgotten, and the entire controversy has tarnished his image as a visionary leader. Although additional repercussions do not appear to be evident, the controversy should not be ignored, as it also underscores the tenacity with which President Xi has conducted his anticorruption campaign.

Conclusions: Global Market Entry and the Future

Per a statement by Metersbonwe, 2016 was a year for product innovation, brand upgrade, good governance, and bravery (Metersbonwe Official 2016). Despite strong competition from online retailers and other fast fashion brands such as Zara and H&M, Metersbonwe experienced a sharp increase in online sales and opened 235 stores in 2016 alone (RLI 2016). It appears that the fall from grace of the company’s leader will not spell the end of the company; rather, 2017 will be a return to business as usual as Metersbonwe hopes to build on the success it experienced in 2016.

It is unclear whether Metersbonwe still plans on expanding into Western markets. However, if it wishes to do so, it might be best if it first expanded into Southeast Asian markets where tastes are similar and labor remains inexpensive. If the company does this, it will likely be able to replicate the success that it has continuously found in smaller Chinese cities where few international brands have established a presence. By introducing themselves into markets with limited penetration, Metersbonwe will cultivate brand recognition and loyalty before other brands begin to consider those markets.

In conclusion, Metersbonwe is a company that has achieved success through considerable drive and determination, and a certain degree of luck. Zhou Chengjian was fortunate to found the company when he did, and economic reforms in China allowed him to leverage favorable demand conditions to his advantage. Popularity and a prominent presence in second- and third-tier cities have proven strong enough to counteract Metersbonwe’s dwindling popularity in first-tier cities, and as a result, the company remains the most popular Chinese casual wear brand (FT Confidential Research 2016). Though faced with setbacks, the company has displayed the tenacity to bounce back as well as the desire to remain successful. In this way, Metersbonwe truly epitomizes the modern-day Chinese brand.

Works Cited

Faber, Bennett. “The Sufferings of Metersbonwe.” The Cargo Collective. March 2012. Web. http://cargocollective.com/bennettfaber/The-Sufferings-of-Metersbonwe

Flannery, Russell. “China Retail Billionaire’s Metersbonwe Posts Loss as E-Commerce Squeeze Continues.” Forbes. August 27^th, 2015. Web. http://www.forbes.com/sites/russellflannery/2015/08/27/china-retail-billionaires-metersbonwe-posts-loss-as-e-commerce-squeeze-continues/#7a872a876ac0

FT Confidential Research. “Fast-fashion brands defy slowdown in China’s apparel market.” Nikkei Asian Review. December 20^th, 2016. Web. http://asia.nikkei.com/Features/FT-Confidential-Research/Fast-fashion-brands-defy-slowdown-in-China-s-apparel-market?page=2

Fung Group. “China’s Apparel Market, 2014.” Fung Business Intelligence Center. December 2014. Web. http://www.funggroup.com/eng/knowledge/research/industry_series25.pdf

Kroeber, Arthur. China’s Economy: What Everyone Needs to Know. Oxford University Press, 2016: 104-106, 188. Print.

Loeb, Walter. “Who Are the Fast Fashion Leaders and Why Does It Matter?” Forbes. 2015. Web. https://www.forbes.com/sites/walterloeb/2015/10/23/who-are-the-fast-fashion-leaders-and-why-does-it-matter/#259e91cf1555

Metersbonwe Official. “Metersbonwe brand presents a multi-style upgrade fission into a consumer to open a variety of lifestyle experience a new chapter (translation).” 2016. Web. http://corp.metersbonwe.com/Index/ArticleInfo?aid=557

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Let me begin with a story.  In 1978 Zhou Peiyuan, senior scientist-educator and president of Peking University, led a delegation to Washington to negotiate a new era in U.S.-China education relations.  Trained in both China and the United States, he was determined to recreate for a new generation the educational experiences that had given him a Boxer Indemnity scholarship, that had enabled him to receive three degrees from the University of Chicago and California Institute of Technology, that had enabled him to study at Princeton University with Albert Einstein.  His model was that of the Republican era when thousands of Chinese students studied with scholarships at elite American universities.  As an observer I was somewhat surprised that American negotiators were hesitant, preferring a very limited, centralized Soviet-type program.  Under the Soviet exchange program, American and Soviet universities did not have direct contact with one another, and the exchange numbers were negotiated and balanced each year.  Zhou would have none of it, canceling the meetings and threatening to return to China.

After a few days the American side accepted all details of his proposal. The “Understanding on the Exchange of Students and Scholars,” signed in October 1978, was appended as Agreement #1 to the January 1979 political normalization agreement between Jimmy Carter and Deng Xiaoping.  Today, 38 years later, with 305,000 Chinese in the United States and an American number only limited by interest and funding, this remains the governing framework.

I begin with this story for two reasons.  First, to underline the many different ways in which the legacy of an earlier era has influenced government officials, educators, and the Chinese and American public.  Second, to remind us that the power of ideas flows continuously, over decades and centuries, and across oceans and continents.  The British and German influences on American education continue to be felt even as Confucianism and the traditional shuyuan find expression in China’s modern universities.

Today China is America’s largest educational and scientific partner, and vice-versa.  China has made many investments to become an international education destination. In addition to national scholarship funds, each province is working to attract more international faculty and students.  It has funded upwards of 100 Confucius Institutes in the United States.  The Fulbright Program is the signature American program. The United States continues as the number-one destination for Chinese students who number more than twice those from India, the second-largest group.  They are relatively evenly divided between graduate and undergraduate students.  Hundreds of American universities have research and exchange programs with China.  More American students study in China than any other developing country.  Eighty colleges and universities from 36 states are operating undergraduate degree programs in China while 30 offer graduate degrees.  All Chinese provinces and autonomous regions have educational agreements with American universities, and all but Xinjiang, Tibet, and Qinghai have joint degree programs.  Most of the Ivy League schools are sponsoring stand-alone research centers in China while three American universities – NYU, Duke, and Kean – have established comprehensive, joint venture, independent Chinese universities.  The Schwarzman College, a fully American-funded graduate school, has just opened at Tsinghua University this fall.¹

The sheer scale is hard to grasp. But beyond the scale I would like to note three key factors.

First, the importance of science. Since 1980 more than 90,000 Chinese have received Ph.D. degrees in the United States, approximately 70 percent in the STEM fields, and approximately 80 percent have stayed in the United States, contributing significantly to U.S. human capital needs.  This has not necessarily limited their contributions to Chinese higher education and research.  Telecommunications and the ease of trans-Pacific travel have changed the context of global knowledge creation: the boundaries between national and international science are far more blurred.  Given these numbers and the extensive bilateral institutional research projects, it is not surprising that for both countries, scientific collaboration has been the most important result of the educational relationship.  Richard P. Suttmeier, the foremost American student of the scientific relationship, has concluded that, “Measured by co-authored scientific research papers, U.S. collaboration now exceeds collaboration with traditional partners such as the United Kingdom, Germany, and Japan.  China and the United States have become each other’s main partner in scientific collaboration.” (Italics added.) ²

Second, some limitations in the fields of social science and the humanities.  Almost all of the joint-degree programs are in scientific fields, and only a small percentage (c. seven percent) of Chinese students in the U.S. are in these fields.  During the last three decades, American scholars have learned a great deal about China, historically and today.  Information about Chinese history, economy and government has been passed on to American higher education and the broader public.  The Chinese study of the United States has, however, been rather limited.  Given the importance of our bilateral relationship one hopes that Chinese attention to the study of the United States, including more accurate high school and college textbooks, could be accomplished.  The United States would welcome more Chinese students and scholars studying the United States.

Third, although student exchanges receive the most attention, it is arguable that institutional partnerships are more significant. For both countries, their institutional partnerships with each other greatly outnumber those with other countries.  Some are superficial but one increasingly finds dual-degree programs and significant collaborative research.

Of particular significance are the ways in which two American university models – the liberal arts college and the research university – are influencing China’s education sector. In 2012 leading American, Chinese, and European university leaders signed “The Hefei Statement on Ten Characteristics of Research Universities.”  While recognizing national difference, the university leaders concurred on key attributes including academic freedom, tolerance of competing views, and open and transparent governance.

Looking to the future, let me suggest an emerging new paradigm in Sino-American education relations.  I look forward to your critique of these ideas.

First, the education relationship is no longer asymmetrical; it is becoming symmetrical.  Gone are the days when China needed American educational assistance. Gone are the days when American faculty were always the senior partners in research collaboration.  China is creating world-class universities and Chinese funds are building and sustaining the new joint venture universities in China.  No longer do American universities provide free rides for underprivileged Chinese students. They now seek self-paying Chinese students.  In 2015 these contributed $9.8 billion to the American economy.

Second, for the first time China is directly participating in research and education in America.  In 2015 Tsinghua University, the University of Washington, and Microsoft announced the creation of a new research and education institution in Seattle, the first such bilateral venture in the United States.  Ten years earlier, the Chinese government-funded education agency, Hanban, began funding Confucius Institutes in American universities. Today there are perhaps 100.

The third change is ideological. In 2014 the Minister of Education called for a rejection of western learning and subsequent government documents have reinforced the importance of Marxist ideology and patriotic education.  This rhetoric, which appears to exclude American values, has already had a chilling effect on some educational programs.

Taken together these three factors – the advent of Chinese world-class scholars and universities, the entry of China into the domestic American educational world, and China’s current ideological campaign – point to a more complex and potentially contentious future.  To offset this pessimism let me also point to ways in which the U.S.-China educational relationship can continue to flourish.

First, both countries are experiencing the presence of new institutional models introduced from each other.  There is every indication that these will include educational innovations that will benefit higher education universally.  In 2018 Duke Kunshan University will introduce a new undergraduate curriculum that may well become a transformative model for both countries.  The Tsinghua collaboration with the University of Washington and Microsoft introduces a new model of industry/university cooperation that could well have a broader influence.  In collaboration with Tianjin City, The Julliard School will introduce a music academy in 2018 that truly is of world renown. The sometimes-criticized Confucius Institutes are innovative university partnerships that promote linguistic and cultural collaboration.

Second, at a time of growing competition between the two countries, the extensive bilateral educational relationship takes on a new strategic role – for both countries.  The growing parity between the educational and scientific establishments makes the China connection much more valuable for the United States.  Americans must learn to welcome a more symmetrical relationship in which we have much to gain as well as to give. With its many collaborative programs in China, American scholars are well positioned to collaborate with Chinese scholars in forefront fields.  Already the fields of medicine, environment, geology, and climate change are benefitting from this bilateral collaboration.

Finally, the educational relationship is in the DNA of U.S.-China relations, a strand of DNA that has served both countries well, during the Qing, Republican, and People’s Republic eras.  This relationship has survived earlier periods in which China has questioned western education.  China’s quest to form a distinctly Chinese modern education system is central to its modern history.  We need to learn more about this emerging model.  And, I believe we share more educational values than some realize.  While I was vice chancellor at Duke Kunshan University, I always talked about a cluster of values: academic freedom, academic responsibility, and academic integrity.  My Chinese counterparts loved Duke’s motto: knowledge in service to society.  Chinese educators understand that all of these values are central to the success of the vibrant American educational model.  Academic freedom and university autonomy are frequently discussed in educational circles.  China cannot expect American educators to abandon their core values, nor should Americans expect Chinese universities to “become just like us.” A new Chinese model is emerging, one that draws on historic Confucian as well as more recent Marxist and western influences.

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Michael C. Wenderoth, who served from 1994 to 1997 as the hospital’s project manager, spoke to Roberta Lipson, CEO and Chairman of the Board of UFH, about the hospital’s challenges and successes, and how those reflect on a changing China.

When we started the journey to establish Beijing United Family Hospital in 1994 (I worked for Chindex International, Beijing United’s parent company, in the 1990s), Lipson already had more than a decade of business experience in China. Arriving in Beijing in 1979, she established Chindex in 1981 and took it public on NASDAQ in 1992 as the largest independent American distributor of high-end western medical equipment in China.

The interview below has been edited for brevity.

WENDEROTH: Roberta, first I want to take this opportunity to publicly thank you. In 1994, you hired a 22-year-old American history graduate to help you establish Beijing United Family Hospital (hereafter referred to as “Beijing United”). You gave me a chance, more responsibility than I was due, and put me through the school of hard knocks. Margaret Mead was right: “Never doubt that a small group of dedicated people can change the world, indeed it is the only thing that ever has.” Thank you.

Establishing and successfully running any business in China is hard, yet you consistently have done this over almost four decades since you founded Chindex, the parent company of Beijing United, in 1981. When we opened Beijing United in 1997, you shifted Chindex’s business from medical equipment into healthcare provision. Beijing United has now become United Family Healthcare Network (hereafter referred to as “UFH”), blazing many firsts, including becoming the first non-U.S. hospital to receive the prestigious Joint Commission International’s accreditation, as well as numerous accolades and attention from international media.

Your vision in 1993 was to provide women and children – primarily expatriates – better patient-centered healthcare options in China. Most people said you were crazy and laughed at you. Did you really envision then that United Hospital would become what it is today, in 2017? What, if anything, differs in how United Hospital looks today versus the vision you had for it in 1993? 

LIPSON: To be honest, I can’t say I foresaw the true potential of UFH when we decided to build our first little hospital.  I knew at the time there was a very meaningful opportunity to model a new approach to healthcare for China.  I thought that if we could show that a different approach to healthcare was possible on the ground in China, there were 10,000 or 20,000 expats in Beijing who had a great need for an upgrade in the services that were then available.  I knew that this limited expat market could sustain our small 50-bed hospital.  I thought that perhaps one day the economy of China would evolve and there would be some demand among the local population. But I, like most others, had no full sense of the great pace of growth of the Chinese economy, the great pace of change in the preferences of the Chinese consumer, or the impact in the changing supporting policies from the Chinese government that would allow us to grow into the multicity healthcare system we are today. 

WENDEROTH: So it was a little bit of a leap of faith?

LIPSON: Through the 1980s we had been leading delegations of Chinese officials to the U.S.

They appreciated much of what they saw at some of America’s best hospitals, but they were uniformly sure that little of the best practices they saw could be implemented in China. Part of me wanted to just prove them wrong and set up a pilot model closer to home.  On the other hand, we did build a model we believed could be sustainable and reproducible in China’s major cities.

WENDEROTH: Can you give an example of the “best practices” the Chinese saw in the U.S. that they felt could not be implemented in China?

LIPSON: They failed to see how the American patient-centric approach, or one might say a viable market-based model, could work in China’s State-run healthcare system. But even simple things, like how to make a hospital not smell like a hospital. How to have patients not line up for hours at the best hospitals [as was common in China… when there were] neighborhood clinics available they could go to.  How to reduce the inappropriate overuse of antibiotics. 

WENDEROTH: Setting up that pilot model proved challenging. Healthcare is highly regulated, and so-called “nonmarket” forces (dealing with government policy) are key. Managing government policy consistently ranks as one of the most difficult areas for western executives to get their arms around in China. Again, you have been a pioneer in this front (not only setting up Beijing United, but being the first to set up bonded warehouses, creatively using export-import loans, to name a few). You also continue your active involvement in the American Chamber of Commerce, policy groups, and are sought after by policy makers from many countries. Can you share a few strategies that are critical to making things work from a nonmarket perspective in China? 

LIPSON: China’s economy for the past 40 yeas has been consistently growing at an unprecedented pace, and the society’s needs are evolving as quickly.  It has been impossible for policy to keep up with these changes.  Policymakers are further hampered by a multitude of interest groups that can be resistant to changes, even if those changes might be better for society as a whole.  Furthermore, central government policy reforms are implemented at a varying pace and in varying ways in different local geographies.  Sometimes the clear policy declarations of one government organ will be contradicted by another government department of equal impact.  All of this can make for a very challenging policy environment. 

My cardinal rule in overcoming this potentially confusing environment is to keep in close communication with all stakeholders and policymakers in the government.  This is challenging, but we have found that the feedback we can offer to policymakers truly has been appreciated and often reflected in subsequent policy reforms.  I firmly believe that ultimately the government is working to improve the policy environment and make China a healthier country.  Actually the big plan is always outlined in each five-year plan, and most recently by the State Councils Healthy China 2030.  I have always felt that if United Family’s strategies fit within this framework, the attendant policy specifics will eventually be in place to support our direction.

WENDEROTH: Talk about dealing with shifts. The concept of growing a business and “pivoting” (shifting one’s business focus or model in reaction to the market) is a popular buzzword and is viewed as a critical skill to managing in complex, rapidly changing environments such as Silicon Valley or China. As you established and ran the hospitals over the past 25 years, do you even think in terms of “pivoting,” and is that an important skill to working in China?  If you do, was there any particularly important “pivot” that Beijing United or UFH made that you can share? A key lesson learned?

LIPSON: When we first opened, we relied on the business of the international community.  As the Chinese economy developed and the local market became the largest growth opportunity for us, we had to figure out how to design our systems to deliver the best experience for our local patient base while not losing the international aspects of our offering that set us apart, never losing our core value of evidence-based practice.  We continue to adapt as the mix and knowledge evolve.

The other important pivot developed as we grew from a single hospital to a hospital-plus-community clinic model, and then to a multicity system with the full continuum of care from clinic to acute-care hospital, to rehab, to home health, providing care along the full life cycle, from before birth to hospice care.  We upgraded our management model while deploying technology to help us deliver the same standard of quality offerings over both geographic and temporal continuums.

WENDEROTH: On your “management model,” UFH is unique in that it employs about every culture imaginable (China and foreign), and serves patients of many cultures in a very high-service environment (having your child is a more important event than say a wedding or five-star hotel experience). Getting it “right” on the people side and intercultural side is critical. Can you share what is key to getting the intercultural part right? For a foreigner coming to China, how would you recommend them to best prepare themselves for working/leading effectively in China? For that matter, for your Chinese employees, what is most important in working with westerners? 

LIPSON: Actually, this is one of the ingredients at the core of our “secret sauce.”  Our teams are not only multicultural in the Chinese plus foreigner sense, but also gender-balanced and balanced among educational backgrounds (medicine, nursing, management, etc.). Having a management team fostering an environment of mutual respect and appreciation has allowed us to glean learnings from multiple perspectives.  Open dialogue among often varying viewpoints allows us to examine issues a multidimensional way, often coming up with innovative solutions. We celebrate this diversity and it is explicitly reflected in an element of our core values of ICARE (Innovation, Caring, Accountability, RESPECT and Excellence). Being a multilingual institution, almost all of our 2,000 plus employees can communicate with each other in either English or Chinese.  We encourage language and culture study and make opportunities for further development available to all our team members.

WENDEROTH: Are there any big myths that foreigners (and especially the West) have about China?

LIPSON: That it is Communist? Actually, China is one of the liveliest market economies going that operates alongside an influential state-owned sector. That it is monolithic?  Actually, China is a country full of diversity: linguistic, ethnic, cultural, culinary, even policy environment.  But it is also tied together by a strong national identity.

WENDEROTH: In 20 years, there must have been many crucial moments for you and the hospital – something insightful, a failure, or a moment that tested your resolve as a leader. Surely the SARS crisis, weathering economic downturns or changes in management would be obvious issues I could ask about. But they may not have been what tested you the most. Can you share one of those key moments for you and the organization, and specifically how you overcame it, what you learned from it?

LIPSON:  I would say your first guess was the most clear.  The SARS crisis was a real test for us, for all of China, and for that matter for the whole world’s healthcare community.   We realized that no matter how close we were as an organization to getting our own systems as close to perfect as possible, we were still reliant for so much on information from the government, and support from the wider healthcare community.  We realized that we could only do our best for our patients if not only our systems were working but also if the information coming from the wider system was reliable.  During SARS both we and the government realized that improvement was needed in these areas in order to prevent another crisis.

The period of SARS was frightening in revealing stages.  In the beginning, although we had already diagnosed a high-profile case of SARS at our hospital outpatient department, there was no official recognition yet of the problem in China.  By the time an official recognition of the problem happened and a referral system was set up for confirmed cases, all referral center hospitals were quickly overwhelmed. Many of us worked around the clock to upgrade systems to keep up with the evolving situation and find ways to keep our patients safe.   Luckily by the time the epidemic passed, all parties – including the government, our hospital, and the wider healthcare community – realized a lot of [lessons] could be gleaned from the disaster and quickly took those [lessons] on board.  As a result there is a lot more transparency and timeliness around public health data, hospitals are better designed for infection control, and we feel that the whole system can work in a more reliable way.

WENDEROTH: Tell us more about operating in China. Chinese firms move fast, operate lean, or benefit from understanding their native environment well. Some copy quickly, many innovate in their own right, and others benefit from quasi-government support. Even now Chinese are rapidly moving into upscale healthcare provision. Outside of China, management thinkers have gone so far to say that we are seeing the “end of (traditional notions of) competitive advantage,” and that the only competitive advantage today is being adaptable and moving fast. Can you share how you think, or UFH thinks, about dealing with Chinese competitors? Do Chinese firms think, act, or manage differently from the conventional “western” view? If so, what can western business learn from the Chinese? What is the competitive advantage western firms need these days?

LIPSON: UFH has been innovating, adapting, integrating, and growing for 20 years.  Our success has been rewarded with many admirers and imitators.  We consider this confirmation of our success and celebrate our models of care that have found currency in both the public system as well as other private startups. 

WENDEROTH: What do you do when you are blatantly copied?

LISPON: We do not appreciate when imitators also pretend to “be us,” by copying our logo, brand name, as well as surface design elements of our facilities.  We have successfully sued many of these imitators.

Healthcare, however, is extremely complex (as Donald Trump recently discovered), and so new startups tend to start with the simplest, most lucrative segments.  It is relatively simpler to start an obstetrics hospital than a full-blown general model of care.  UFH’s system of Continuity of Care for our patients has evolved over time.  Having the complete integrated continuum of care – including community clinics, acute care general hospitals, home health, rehab and hospice – will take newcomers years to develop.

WENDEROTH: So, in the end, the key is building a long-term business that serves your customers’ needs and fits the changing environment, period?

LIPSON: The UFH’s full-service offerings allow us to become the lifelong healthcare partner for our customers.  In response to the growing acceptance of commercial health insurance we are able, together with our insurance partners, to take on the risk of the health of whole population groups.  This can only be done in a system with the full spectrum of offerings from primary care and prevention to acute care intervention capabilities.

No matter whether Chinese or foreign, the keys to a company’s long-term success in my mind are not only nimble adaptability but persistence of principal in moving toward a goal, a strategy that is consistent with the betterment of society, and the ability to inspire passion in the whole workforce about achieving this goal.  I believe that the promise of only financial rewards, no matter how rich, will always be trumped by sound financial rewards plus the satisfaction of producing a good or service that benefits society.

WENDEROTH: If you had a “do-over” what would it be? Any regrets? Hindsight is 20-20, of course!

LIPSON: It’s hard for me to say that I have any regrets.  Every misstep has been a learning experience. 

WENDEROTH: You’ve interacted with policymakers, industry titans, company alumni, the new generation of millennial Chinese who were born after the 1980s, and a whole community outside the business world, and have for more than 40 years. What has most surprised you about China’s transformation? What should we be watching most closely? 

LIPSON: The huge personal wealth that has accumulated, and the entrepreneurial spirit that is everywhere.  Perhaps we should have predicted this. Specifically, as it applies to our business, the increasing acceptance that – in addition to basic healthcare, which the government should provide – an increasing number of consumers are willing to see choice in healthcare as a private good.

WENDEROTH: Over the past 40 years you’ve been at the center of what many would argue has been the greatest transformation of a country in world history. If you had young kids (I know yours are older now), what do you feel they should be studying or learning to be best prepared for the future?

LIPSON: I feel like my kids have had a great education in China in the international school which really did prepare them well for today’s world.  I am a strong believer in the global community.  Being able to communicate in several languages, including a deep understanding of the language of data will continue to be important.  At the end of the day the world is made of people, and having the ability to understand and relate to people will remain the essential element for success no matter how the world changes.

WENDEROTH: Finally, you are successful on many metrics. CEO, happily married, great kids, active in the community. You are a woman, Jewish – and that adds a whole layer of complexity and bars to leap over that people don’t see or appreciate.  How do you strike the balance? How do you do it? There is a whole generation wondering, “Can I have it all?” or “Do I even want it all?” 

LIPSON: That’s a very personal question.  I have always lived by the belief that striving to “have it all” means that I will get to have “most” of what life has to offer.  Some elements may be more or less successful.  However, no one can have it all solely relying on themselves.   I have been blessed to have a husband, children, partners, colleagues, neighbors, and friends who have contributed to my success and allowed me to contribute to theirs.

WENDEROTH: Thank you for your time, Roberta.

Photo was provided by United Family Hospital.

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