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On September 29, 2013, China officially opened the Shanghai Free Trade Zone, or FTZ, an outwardly ambitious project to bring a new wave of foreign investment and reduction in restrictions that have plagued foreign businesses in China for years. The Chinese Communist Party promised sweeping reforms that would both reduce administrative burdens and create a generally more business friendly environment in the Zone, located in Shanghai’s Pudong District. Foreign investors, in anticipation of reform, purchased surrounding property immediately causing home prices in the area to surge 30 percent. Stock prices of logistics and shipping firms also climbed dramatically.¹ The announced framework in the FTZ was geared towards broad administrative reforms to simplify the burdensome processes that often impede or delay foreign direct investment in China’s economy. The announcement was bold and expectations even bolder. Han Zheng, Shanghai’s CCP Leader, and leader of the FTZ implementation, stated upon launch that the Shanghai FTZ would “transform the government’s role in business,” and that the “FTZ is part of a national strategy, a key decision that deepens reform, a breakthrough that overcomes the main obstacles of reforms. With this breakthrough, the government’s role can undergo changes. It can also boost scientific development and increase China’s competitiveness.”²

Foreigners who had done business in the Chinese market often shared the same frustrations; slow, unpredictable administrative approval processes, a largely unreliable legal system, highly limiting restrictions on sectors of capital investment, interest rate volatility, and the inability to convert currency in an expeditious manner. The Shanghai FTZ promised to fix many of these issues, initially in Shanghai but with an eye towards nationwide reform. In mainland China, sectors for foreign investment are controlled through a series of classifications such as “encouraged,” “restricted,” and “prohibited.”³ In what was the most anticipated reform, the FTZ announced the use of a “negative list,” allowing wholly foreign capital investment in any industries not on the list. When initially released, the list covered 16 service sectors including: agriculture; mining; manufacturing; production of power; gas and water; construction; wholesale and retail; transportation; computer information services; finance; real estate; scientific research; environmental; education; health; and sports and entertainment.⁴ The foreign expectation was for the release of the list to be a historical moment, opening foreign investment to markets never previously allowed. In reality, it was a similar set of restrictions dressed up to look like reform. While the negative list does not ban foreign investment in these industries, it does limit investment in joint ventures largely to small equity ownership stakes and requires a burdensome administrative process, leaving sectors of foreign investment in a similar place as it was prior.

Immediately upon release of the list, Chinese leadership began backtracking to quell foreign investor’s concerns by promising that the negative list would become less restrictive. Han Zheng stated “This is the 2013 version, and we will start garnering consensus for how to manage the negative list. Then we will have the 2014, 2015, and 2016 version. The NPC (National People’s Congress) gave us three years. We will make progress every year, making gradual improvements.” He also stated: “Even with the restrictive nature of the negative list, the reforms are progress. This is a major innovative reform. It frees companies from reviews. Companies used to register with the local bureau of industry and commerce in several different categories. But now there is only one category. We have realized the value of a ‘register first, approve later’ process in the FTZ, which means companies can start operating after registration, and applies to government licensing or approvals only when they deal with the businesses required under these procedures.”⁵ It’s a bold promise that as of yet, does not seem to be delivered.

Now entering the FTZ’s second year, Westerners are beginning to lower their expectations. While the 2014 “negative list” has been reduced from 190 items to 139, China has seen little actual change in this area. The negative list, offered as the most sweeping of political reforms in Shanghai, has made little difference in opening up Chinese markets to foreign capital, with criticisms by even the state-run media that the zone has been too conservative in reforms.⁶ Experts in Chinese business policies feel that there has been no significant change. The managing director of the China Market Research Group in Shanghai states: “It’s great talk by Premier Li Keqiang and a lot of senior government officials, but there’s no execution. Nobody knows what you can do.”⁷ In the areas of currency convertibility and interest rate volatility, there has been less movement than promised.⁸ What was expected to quickly become a hub for Western banking has seen very little growth. Only one offshore bank has opened a free trade account available to clients in China: HSBC, which had been negotiating with the Zone prior to the initial announcement.⁹ Xinhua, the state-run news agency, has touted that there has been growth over the past year from 8,000 businesses in the zone to almost 20,000; however this seems to be below expectations.¹⁰

“It’s not you, it’s me”

This is not China’s first time utilizing localized experiments to develop nationwide reforms. Isolated experimentation in economic reform is an integral part of China’s success in the world economy. Beginning with the central government allowing businesses to lease land long-term in the late 1970s, China has seen a rapid transformation in domestic economic policy. Between 1981 and 2001, the proportion of the population living in poverty in China fell from 53 percent to just eight percent. Late in 1979, the first Special Economic Zones (SEZ) were commissioned in Shenzhen, Shantou, Zhuhai, and Xiamen, with the goal of testing progressive domestic economic policies for implementation on a national scale. The development of the SEZs were based on four underlying objectives: (1) utilizing incremental experimentation and workforce education through trade, supported by government policies, (2) attracting of foreign capital to promote export growth and generate domestic employment, (3) overcoming the common problem of limited resources by supporting large scale investment with outside capital, and (4) facilitating economic liberalization through policy measures and private innovation. The SEZs initially saw great success in meeting these objectives. In 1981, the four SEZs accounted for almost 60 percent of Foreign Direct Investment (FDI) in China, with Shenzhen accounting for the most. By the end of 1985, realized FDI in the four zones totaled US $1.17 billion. From 1980 to 1984, Shenzhen grew at a 58 percent annual rate, while the national average for GDP growth was only estimated to be 10 percent.¹¹ Foreign capital, technology, and management techniques drove economic modernization. The foreign capital enabled the country to acquire the needed technology and skills without draining the limited public revenue that existed after the Cultural Revolution. At the time of its designation as an SEZ, Shenzhen was a fishing village of no more than 30,000 people. It was no bigger than three square kilometers and lacked even a traffic light.¹² By the end of 2011, Shenzhen had 10.47 million permanent residents, ranked fourth in economic power on the Chinese mainland, and placed second in global rankings of economic strength compiled by the U.K. Economist Intelligence Unit in 2012.

Shenzhen’s success can be attributed to attracting FDI through favorable legal policies and reduced administrative and tax burdens on businesses. Shenzhen streamlined administrative processes, allowing foreign investors to have direct access to provincial and central level planning authorities through the local Shenzhen authority. As a result of these successful reforms at the local and provincial level, many of these practices were put into place nationally. However, despite Shenzhen’s 58 percent growth rate from 1980 to 1984, it was not until 1987 that land utilization for business became common throughout China. Even when it was most needed, change was predictably slow in China.

The China of today is not the China led by Deng Xiaoping, in need of rapid change to adapt to the world economy. In that sense, Shanghai is not Shenzhen. Western expectations are based on the success of prior localized reforms operating with a very different goal. Shenzhen was the first of its kind. The framework under Deng Xiaoping was to begin to experiment with economic policies that were unfamiliar in China’s system of governance. China is no longer a stranger to capitalism. Thus the focus of the Shanghai FTZ is not to experiment with new ideologies but to tweak existing ones. Where the SEZs were designed to focus on generating domestic growth through foreign direct investment, the FTZ is built with an eye towards opening borders to become a larger part of the international community. For a political class afraid of fallout and familiar with effective domestic economic policies, there is more to lose in Shanghai by rushing reforms. As such, the implementation of true change in Shanghai is predictably more gradual than that of the SEZs of the 1980s.

“Not a Dud”

Despite disappointment from foreign investors, the Shanghai FTZ is starting to see some progress. If the FTZ is the more predictable marathon, rather than the anticipated sprint, it is on pace to serve its purpose. Prior to January of 2015, Chinese regulations had heavily restricted technology related industries to limited joint ventures with local partners. A wholly foreign owned technology company had been unheard of in China. An announcement in January 2015 from the Ministry of Industry and Information Technology stated that it will now permit wholly foreign-owned “online data processing” and “transaction handling” industries, geared toward e-commerce industries. While it will likely take considerable time before corresponding rules and regulations are released, this move could allow Western companies to compete with Chinese e-commerce behemoths such as Alibaba on their home turf.¹³

In regard to currency convertibility, while reforms have moved dramatically slower than initially announced, there have been significant changes in the FTZ. In February of 2014, FTZ-based businesses were granted the ability to create a two-way cash pool of yuan, now the fifth most traded currency in the world.¹⁴ The cash pool allows individuals at these companies to engage in cross-border trade settlements using the yuan, making capital flows much easier in and out of China. Prior to this change, currency often had to be converted into a foreign currency before leaving China’s borders. The policies were largely successful and have been implemented on a national scale in a short period of time.¹⁵ Whether as a result of these policies or otherwise, the yuan has overtaken the Canadian and Australian dollar in world trade.¹⁶

Another aspect of the FTZ that has benefited small and middle-market foreign investors entering the Chinese market is the rise of serviced offices. Serviced offices are rentable office spaces that come with technology infrastructure, fully furnished work spaces, and secretarial services. These services have allowed foreign businesses to maintain a presence in China without having to deal with skyrocketing commercial real estate prices in an unpredictable Chinese business environment.¹⁷ These offices are a part of the reforms allowing a presence in China with minimal upfront capital. In addition to serviced offices, the authorities are correcting a major disadvantage of the FTZ: it was far away from the central business district. The FTZ was geographically isolated from the ports and airport, making many of its liberalized policies difficult to take advantage of for businesses operating in the main business zones in Shanghai.¹⁸ The expansion of the FTZ will move into the Shanghai city center where large multinational companies and banks already have their headquarters.¹⁹

Small businesses are not the only ones assisted by these reforms. Amazon.com, which already has significant operations in China, is opening a new logistics warehouse to try to lower shipping charges and speed delivery in and out of the zone.²⁰ Relaxation in tariffs, as well as import/export regulations, has made for increased ease in logistics and transportation. Amazon.com intends to capitalize on these reforms with its new warehouse. Microsoft Corp. announced in September that it would release its signature game console, the Xbox One, in the FTZ after the country lifted a more than decade-long ban on gaming.²¹ Even Victoria’s Secret is opening a store in the FTZ. Although limited to a $1.1 million capital investment, it is the firm’s first move into the Chinese market. The lingerie brand was attracted to the ease in logistics and warehouse services, allowing it to reduce wait times for product delivery from months to weeks.²²

After early success in the zones, China has announced there will be three new FTZs, each experimenting with its own economic reforms. The zones will be located in Guangzhou, Tianjin, and Fujian, focusing on specific geographic areas within those cities.²³ While the reforms are likely to be slow, China is determined to make FTZs part of the future, in the way Shenzhen was a part of the past.

“No Surprises”

It is hardly surprising that the FTZ has not lived up to Western expectations. It was, however, the Western expectations that were unrealistic, not the rate of reforms in the FTZ. China’s appetite for radical reforms has slowed dramatically since the early 1980s, as China has adapted to a new economic status quo. What was once an economy based almost exclusively on providing cheap labor has now developed a thriving service sector, a domestic luxury goods market, and a banking sector that is beginning to rival any modern nation. As the level of reform required to transform the landscape of China slows down, its rate of experimentation does too. This is not to say that experimentation as a result of policies in the FTZ could not have dramatic change on the way the Chinese do business, it is just that it will not happen at the pace Westerners would like. Chinese authorities are being slow and methodical in their rate of reform. The pace of change is as much about mitigating the risk of moving backward as it is about moving forward. In the words of Deng Xiaoping: “Keep a cool head and maintain a low profile. Never take the lead but aim to do something big.”

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Still, the picture was taken by the supplier and sent to the client, who forwarded it to me along with the email. The photo and email warranted further examination, particularly since the factory had passed a number of social accountability audits required by the retail brands that bought its products. If the allegation turned out to be true, then all orders bound for the U.S. would be cancelled since U.S. Customs regulations prevent products suspected of originating from factories using child or prison labor from entering the U.S.

The concept of social accountability – sometimes called social responsibility, ethical sourcing, and responsible sourcing among other names – became prominent for manufacturers, brands, and retailers in the early 1990s after it came to light that many factories producing clothing and footwear for brands such as Nike had poor working conditions, even in some cases using child or prison labor. From the late 1990s, brands and retailers got serious about implementing labor standards as identified by the International Labour Organization’s Declaration on Fundamental Rights, the United Nation’s Universal Declaration of Human Rights, and local labor laws. In 1997, Social Accountability International, a non-governmental organization that works to improve human rights for workers globally, published the SA8000 Standard, a set of guidelines based on the ILO labor conventions and integrating ISO management system principles. The guidelines promote such concepts as fair pay, limitations on overtime, days off, and preventing child and prison labor.

In the late 1990s and early 2000s, hoping to avoid the situation that the garment industry had faced, many multinational corporations began auditing their suppliers and their supply chains for compliance with local labor laws using the SA8000 standard. But, as my client discovered, particularly in developing countries, rural areas, and in certain categories, the supply chain lacks transparency and labor practices still differ from expectations even after more than 20 years of publicity and advancement in the field.

For me, working in China, allegations of child labor were fortunately rare. More common were issues related to falsified records ranging from faked time sheets to doctored payroll records. In an established area like Dongguan, factories have been audited for labor practices and trained in local labor law for a long time. If the child labor allegation were true, it would be a disappointing set back. I had to ask the question: Is it even possible to have a supply chain that is compliant with responsible sourcing standards?

Hong Kong-based Jon White, Managing Director of Omega Compliance Ltd., a firm that conducts social responsibility audits and consults with brands and retailers in the field, told me that in China, child labor is rare now. In the summer months, however, underage workers – those within a year of the legal working age – can be found in factories after they’ve gotten out of school. They are trying to make some money during the holidays. However, White cautions that “applying a blanket approach to labor law compliance across every category of products is a mistake.” He points out that the garment industry has 15 years of exposure to fair labor compliance and auditing, and that their customers have worked very closely with garment suppliers and have long-term relationships with them that enhance communication on labor issues. By contrast, suppliers in other industries, such as furniture or seasonal categories (like my client) may have only five years of exposure to the concepts, training, and auditing.

Closer to home, The Coca-Cola Company’s Director of Global Workplace Rights, Ed Potter, outlined for me how an industry sector develops toward their goals of implementing a responsible sourcing framework. Potter says that when he joined the company in 2005 to build a framework around the Supplier Guiding Principles defining company expectations around workplace rights, his team started working with China immediately. The standards were new to the fast-moving consumer goods supply chain. Potter’s team discovered that of their 1,600 suppliers and bottlers in China only 29 percent complied strictly with China’s labor laws. But by 2008, working with their supply chain in China, he says Coke raised the compliance rate to 63 percent, and by the end of 2014 it hovered around 90 percent. “The company’s goal is to improve the score each year in every country we work in,” Potter says. But, he counsels that there is still detailed work to do. In his 10 years heading the Workplace Rights team, he feels he has only built a framework, which needs to be filled in now.

Most experts in fair workplace practices agree that monitoring is not the answer; it’s just the first step to get factories to start to understand fair workplace practices. Most brands and retailers have the belief that factory management will follow and manage labor policies themselves. However, many factories still follow the retailer or brand’s lead. An ideal scenario would be for the purchasing team, the factory, and the workers to all take ownership and control of implementing fair workplace practices.

Craig Moss, an Executive Advisor at NGO Social Accountability International, agrees. “A factory owner once mentioned a Chinese idiom ‘he who holds the gold, makes the rules,’ and right now the purchase order is gold, and that’s the way most manufacturers understand and implement labor practices.”

At the factory producing Christmas ornaments, we learned that some workers had brought their children to the factory on a public holiday. The local day care was closed, but the factory was open because of the push to complete purchase orders by the shipping date necessary to meet the all important Christmas shopping season in the U.S. While the few children were looked after by one employee, their parents were able to get overtime pay of three times the normal rate for working on a public holiday. China’s labor law requires this overtime calculation on public holidays so technically, the factory was operating within the law.

Typically, the allegations we look into involve situations in which orders to be shipped prior to Chinese New Year or the National Day holiday would involve factories not paying worker’s overtime and trying to disguise that by creating fake records or turning security cameras off on sensitive days. At certain times of year, Chinese and U.S. holidays align in a way that causes rush orders and necessary overtime for workers.

Sometimes, the client’s purchasing practices are the cause of factories not following local labor laws, and then stepping over the line and falsifying labor records. For some buyers, the bottom line matters more. Factory management would comment they had to require overtime to reach shipping deadlines, in some cases because the buyer changed his mind about the color or the volume at the last minute. Most social accountability experts now agree that educating the supplier and the U.S.-based purchasing teams is key to getting factories to manage compliance to labor laws and standards.

SAI’s Moss points out that over the 15-20 years that social accountability has been practiced, a policing approach comprising audits and customer-designated labor codes has been most common. Factories see social accountability as external compliance. But, he added, leading brands are seeking to change this dynamic now, by supplementing audits with more transparent efforts to collaborate and help suppliers improve their internal processes for managing labor standards and performance.

Suppliers and their factories are often caught between the rock of a purchase order deadline and the hard place of complying with labor standards they agreed to when accepting the purchase order. For my client, the allegation was very serious, in the case of child or prison labor, as U.S. Customs will turn away products. Their company policy was to reject the product if child or prison labor were found. Consequences would be serious for the factory too, which would have lost the purchase order and been forced to absorb the expenses for raw materials and labor. A lot of businesses could not survive that kind of financial blow.

Even though the factory had a reason for children being on the property, an allegation of child labor is difficult to put into an acceptable perspective. The factory management saw the situation as a way to give their workers well-paid overtime, but the allegation could have led them to lose the business or any other future purchase orders. It was difficult to believe that the supplier making the allegation had done so knowing the seriousness of the consequences.

SAI’s Chief Operation Officer, Jane Hwang says that overtime regulations, rather than child labor, are among the biggest challenges for China because of the government’s strict limits conflicting with workers’ economic necessities. Hwang says many of the challenges faced in implementing workplace compliance guidelines are more socio-economic than cultural. “A generation of workers are used to certain conditions and opportunities. That changes. But you can never discount economic necessity and lack of access to opportunities.”

Omega’s White believes that for factories, “the temptation to shortcut is enormous,” precisely because of the facts of purchasing like changes in purchase orders, rushing to meet shipping deadlines, and labor shortages. He says that in some areas, factories are still presenting about 80 percent false or doctored records to auditors. White believes that the key to successful social accountability in a supply chain is “trying to get the brand or retailer to encourage transparency in their manufacturing base.”

For factories, fair labor practices can be complex. SAI’s Moss reports that there are more than 10,000 different labor codes globally. Big brands, industry, local laws, NGO codes, all have different details, language and terminology. A factory such as the one making Christmas ornaments, supplying to five or six different retailers around the world, could have to comply with five or six different labor codes, not to mention local laws.

So how can companies and their business partners in the supply chain avoid unwanted surprises in such a complex environment?

Coke’s Potter cites transparency, ethos, and anticipation as helping the company implement its Workplace Rights Program. After 2005, he says transparency became the key for the company’s work on human rights, which he calls “open source reporting.” This includes publishing all documents and reports on the corporate website, and producing a global workplace rights scorecard accessible to all business units. With huge, complex operations in 207 countries, Coke has “a basic belief that the company cannot be sustainable unless the communities in which it operates are sustainable.” And finally, anticipating the next big thing in the fair workplace practices field helps Coke maintain leadership on the issue, such as endorsing the U.N.’s 2011 Guiding Principles on Human Rights and disclosing country due diligence reports by third parties about Coke’s progress on Human Rights in the supply chain. Potter cites the publication of Coke’s due diligence in Myanmar as one of the benchmarks of transparency in the company’s Workplace Rights Program.

Omega’s White sees brands and retailers working closely with their supply chain partners as the key to success.

SAI’s Moss and Hwang echo the message of partnership. Their teams have seen the most success stories when partnerships in the supply chain encourage open dialogue, transparency, and responsibility. Moss cites one SAI program called Ten Squared, whose approach is to establish worker-management teams in a facility to improve a specific management system issue over 100 days. He says the combination of worker engagement and cross-functional teams helped create “trained, committed people who followed procedures to accomplish goals.”

But guidelines, standards, and sometimes lofty goals can get lost in the hustle to competitiveness. Otherwise, I probably would not have had to look into a case in which a questionable allegation was made in an attempt to hamstring a competitor.

SAI’s Moss thinks that a different type of competitiveness has improved workplace practices in China over the last two years. “The cost of labor pressures, labor shortages, and mobile technology have contributed to factory owners realizing the efficiency of applying labor standards. The most forward-thinking factory owners are working with productivity experts now,” he says. “They want to be competitive in getting and keeping good workers because they realize the cost of turnover and training now.”

At the end of our conversation, Potter tells me, “There are lots of good things happening and it all takes time.” That was true for the Christmas ornament factory as well. The client committed to working with this factory management, and with a number of seasonal production facilities, to understand how purchase orders and timing could be scheduled so that situations like the one in the whistleblowing email would not crop up as a surprise again.

Box on Social Accountability

Terms Used in Relation to Fair Labor Practices:
Social Accountability
Ethical Sourcing
Responsible Sourcing
Social and Environmental Responsibility
Workplace Rights
Labor Compliance
Social Compliance
Labor Relations and Corporate Social Compliance
Corporate Social Responsibility
Ethical Trading
Fair Labor Practices

Organizations and Related Declarations:
International Labour Organization (ILO)
Social Accountability International (SAI)
The U.N. Declaration of Human Rights
Global Social Compliance Program (GSCP)
Ethical Trading Initiative (ETI – UK organization)

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Alibaba, the Chinese e-commerce firm, raised $25 billion from its initial U.S. public offering (IPO) in September 2014 putting China on the e-commerce world map. This exemplified China’s ongoing transformation from a low-skilled, cheap labor manufacturing assembly economy to a higher-skilled, innovation-based service economy. China’s 12th five-year plan defined the communications sector as a central tenet in its new economic developmental model with the Financial Industry Reform Plan sharing center stage.¹ At the same time, the adoption of mobile technology within China has been remarkable in acting as a catalyst in changing consumer behavior, creating access to goods and services and targeting marketing and expansion of the consumer base for businesses. With the promise of inclusiveness, mobile technology is increasingly permeating various sectors covering financial inclusion of banking the unbanked; assisting farmers in rural areas by providing market information regarding price, demand, and information on weather, fertilizers and pesticides; creating virtual classrooms in the education sector; spurring online commerce in retail and wholesale; and expanding delivery of health care services.

Our specific focus in this article is how mobile technology is transforming the landscape of the payments industry in China. This research has been motivated by a confluence of several recent events:

1. In 2011, the China Banking Regulatory Commission (CBRC) planned to increase the number of rural commercial banks and has been encouraging banks, both domestic and foreign, to establish tangible links across the nation and meet the financial service needs in the rural areas.
2. The 12th five-year plan outlines financial inclusion programs that deliver full financial services with a greater emphasis on the finance industry serving the real economy, as well as support for technological innovation, economic restructuring, manufacturing, and above-average growth rates in lending in rural areas, specifically to small and micro enterprises (in rural and urban areas).
3. The number of subscribers to mobile phones in China has grown from seven percent of the population in 2000 to almost 90 percent in 2013.² We argue that mobile technology’s ubiquitous nature, as well as its capacities in the financial services sector, make it a perfect mechanism to align commerce and payments. In China, where consumers often lack access to other noncash forms of payments, such as checks or credit cards, and where e-commerce is rapidly on the rise, mobile payments (mPayment³) and mobile commerce (mCommerce) are gaining traction and are rapidly transforming the payments industry.

Banks, given their experience in the industry and governmental support, have a distinct advantage. However, the financial service sector is expanding to offer both traditional payment and settlement services alongside non-financial services.⁴ Thus the financial sector is increasingly faced with competition from technology companies in the areas of remote account access; online commercial transactions such as people to people, business to business and business to consumer (P2P, B2B, and B2C); and outreach to remote rural areas in mCommerce and mPayment arenas. In addition, banks are heavily regulated compared to the technology companies, limiting their easy transition to mobility.

Mobile Technology in China – a brief background

Although limited, recent literature has shown evidence of relationships between mobile penetration and economic growth in both developing and developed nations.⁵ While the pervasive nature of mobility has helped include the disenfranchised in developing countries, the focus has largely been in communications and information-gathering. Researchers have noted that increases in mobility result in increased productivity thus creating a competitive advantage in nations with large investments in technology infrastructure.⁶

Up until 2004, the Chinese mobile communication market was dominated by two large companies, China Mobile and China Unicom. The dynamics of this changed in 2007 when China joined the World Trade Organization (WTO), opening this market for foreign companies to compete thus changing the mobile landscape. With a large number of Chinese companies entering the mobile ecosystem to support the increasing mobile subscriber base (expected at 700 million smartphone subscribers by 2018⁷), the market for mobile holds great promise in China. It is estimated that by the end of 2018, the population of smartphone users will increase from 38 percent to 51 percent. Companies in China are increasingly able to penetrate the rural and urban markets simultaneously, using mobile technology innovations.

The payments industry is at a tipping point around the world largely due to mobile technology. New non-banking players such as PayPal, Apple, Alipay, and Google have entered the payments arena, changing the financial services landscape. The radical changes in this industry in China have been thrust forward largely because of two events: the Chongqing Rural Commercial Bank (CRCB) IPO in 2011 and Alibaba’s IPO in 2014.

In July 2011, CRCB introduced the first mobile banking product in western China to expand mobile financial services and products for corporate customers.⁸ CRCB raised US$1.48 billion in an IPO in Hong Kong. This company is one of China’s largest lenders to farmers and small businesses, and is expected to be the first in a wave of listings by smaller rural-focused Chinese banks. With the mission of being financially inclusive of agricultural and rural areas and supportive of small, medium and micro businesses, CRCB centered its innovative efforts on developing mobile payment services.

Simultaneously, Alibaba – through its platforms, Taobao (similar to eBay for C2C) and Tmall (similar to Amazon for B2C), with payments facilitated by Alipay – has dominated the development of e-commerce in China. With its recent IPO, Alibaba is now a global contender in e-commerce around the world. Morgan Stanley estimates that while still in its initial phase, China’s e-commerce industry will be about 18 percent of the country’s retail sales by 2018, up from eight percent in 2013.⁹ The Morgan Stanley study also purports smartphone penetration will increase online shopping, especially in the lower-tier cities in China where a majority of the active mobile devices are registered and where most internet access is via mobile usage. Furthermore, the internet provides a level playing field for small entrepreneurs, who make up a majority of Chinese firms, since they can compete better in the online market compared to offline commerce. Concurring, the Boston Consulting Group notes that small and medium-sized companies in emerging markets are largely leapfrogging older generations of technology used in developed nations.¹⁰

In many ways, e-commerce has stimulated the growth of the e-payment arena in China. Because of rapid growth of internet users, improved online services coupled with lifestyle change due to rising incomes, China lends itself to creating a huge market for ePayment services outpacing even the United States.¹¹ A new industry of mobile operators and technology companies are entering into the payments industry once monopolized by the financial services industry, which is rapidly expanding from ePayment to mPayment.

Examples of mobile payment system in China

Tencent’s WeChat’s e-red envelope and mobile payments¹²

Distributing “red envelopes” is a famous tradition in the Chinese New Year. In 2014, the popular application WeChat promoted the WeChat Red Envelope [Weixin hongbao 微信红包 ]. Users only needed to link their bank cards to WeChat to be able to distribute or claim an e-red envelope that then could be used to send money to friends, or to pay bills, hail taxis, pay for parking, buy movie tickets and book flights. Even though Tencent did not reveal how many new bank cards had been linked with WeChat, it announced that from December 30th, 2013, until January 8th, 2014, more than eight million Tencent WeChat users participated in e-red envelope distribution. More than 40 million e-red envelopes have been claimed, and on average, each user claimed four to five e-red envelopes. WeChat’s success with its e-red envelope largely depends on the social network built by Tencent. Despite the surge in the use of WeChat e-red envelope, ZhiFuBao, the liaison payment company (similar to PayPal for eBay) from Alibaba, remains the market leader for online payment, especially in the mobile payment market. Alipay has become increasingly used to pay for theater tickets and is also used more recently to invest in money market funds called Yu’e Bao. By the end of 2013, ZhiFuBao had three billion users and more than one billion of these users paid over 900 billion RMB through their mobile devices.
These micro-payment businesses are increasingly being used in online markets, the sales of insurance products, stock exchanges, P2P lending, and have become some of the greatest competitors for traditional banks in China.

Taxi booking and mobile payment¹³

Consumers in China can now book or hire taxis through smartphone apps in real time. The two biggest apps, KuaiDi and DiDi, claim 97 percent of the taxi booking app market in China. By the first quarter of 2014, KuaiDi had as many as 6.23 million orders a day, covering 261 cities. DiDi had 5.21 million orders a day, covering 178 cities. To be able to cultivate and sustain a large market base for mobile payments, marketing strategies of such apps often focus on discounts in payment schemes such as consumers bundling their bank cards into their mobile devices.

Perhaps due to the novelty, these applications have raised concerns. First, the apps allow consumers to raise prices of hiring a taxi, or tip the driver in real time, creating concerns about illegal and irregular competition. Second, it excludes the elderly who seldom use mobile devices, and creates increasing difficulty for the elderly to hire a taxi. Third, it lures away consumers from the government’s official taxi booking platform. This latter concern resulted in the government quickly launching new regulations covering pricing and information sharing between different platforms, among other restrictions.

Sustainability

Mobile technology in China has created a value chain that includes financial institutions, operators, third party providers (TPP), device vendors and technology providers, with increasing collaboration among these participants. Alongside competition, there are also concurrent alliances being created among the various participants in the mobile technology network. The biggest breakthrough is seen in the online banking platforms. Banks have a relationship advantage with their customers, as well as trust due to the in-built capacity of data security centers. Because of infrastructure limitations in offering physical wired banking services to remote and rural locations, banks can work closely with application and solution providers to deliver integrated technology and security in the mobile banking space. Given the wide coverage of mobile networks and the high penetration of mobile phones in the countryside, banks in China are now able to circumvent geographic barriers and expand business coverage by offering mobile payment and financial services to remote rural locations. These services include money transfers to credit card management to wealth management and other online banking services. In addition, non-financial services are increasingly becoming commonplace, ranging from payments of utilities to business travel and hospital registrations, to managing phone accounts, among others. Many national commercial banks have introduced various financial IC (integrated circuit) cards with special features in 30 provinces and there is a push for alliances with public service departments such as transportation, health, and education.

The growth of the mPayment sector in China holds tremendous promise due to strong program support from the central and local governments, who have developed policies to support and advance e-commerce and mobile technology. The 12^th five year plan places emphasis on expanding the scope of e-commerce to industries such as heavy industry, logistics and tourism, improving online sourcing and retailing capability, boosting cross-border and mobile e-commerce, and creating a more secure online e-commerce system (Xin, Chen, 2011).¹⁴, Chinadaily.com.cn, Available from: http://www.chinadaily.com.cn/bizchina/2011-07/13/content_12893796.htm, (Accessed 22 October 2011).] In addition, the People’s Bank of China (PBC) in 2006 published the China Payment System Development Report, which for the first time publicly disclosed the data and policy leanings of the payment system. Weighing in, Su Ning, Deputy Governor of the PBC stated, “The payment system was an important component of a country’s economic and financial system, and the foundation of economic and financial operation. The development of the payment system and the improvement of the payment efficiency could boost the economic, financial, and social developments, influence peoples’ lifestyle, and enhance the quality of life.”¹⁵ The PBC has also developed the Measures for the Management of Payment and Settlement Organizations, which created a licensing regime for ePayment service providers. Hence this sector is becoming regularized and institutionalized.

Limitations

Penetration of technology in the countryside is a boon to financial inclusion. Yet the daunting task of investment in mobile networks and the viability of the mobile value chain remain a bane to the adoption and diffusion of mCommerce and mPayment. As China shows signs of an economic slowdown, one concern is that this may cause the government to rethink some its investment priorities, possibly impeding some of the mobile growth initiatives.

mPayment is primarily used to mitigate transactions’ costs by offering a gamut of services for a lower average cost by bundling goods or services. From the business standpoint, this allows for cost savings via increases in scale and scope. From the consumers vantage point however, in order to achieve these economies, the consumer may need to increase his/her purchase size and limit choices to a few goods/services to take advantage of the economies of scale.

Many challenges remain, and policies and legal infrastructure are still being refined and promoted. Banks and non-bank operators are separately regulated, and the expansion of mobile financial services is still a work-in-progress. Technology companies are threatening the banking turf in the areas of remote account access, online commercial transactions such as P2P, B2B, B2C and outreach to remote rural areas in mCommerce and mPayment arenas promoting financial inclusion. Given their unique accessibility to their client information, banks have the advantage of offering a multitude of services including brokerage, insurance, real estate services, and trust services, among others, while remaining leaders in the mobile financial services industry. The development of mCommerce and mPayment appears to be the next frontier for banks with an established mobile internet presence. However, while banks are protected by the government and are relatively safe from bankruptcy – unlike technology companies – the latter face less regulatory scrutiny and have a freer rein in developing products and offering innovative solutions.

Regulators have to walk a thin line between fostering innovation and promoting self-regulation while protecting the safety and soundness of the financial system. This causes them to limit banks’ strategic choices in transitioning to mobility. One such example is seen in the highly restrictive bank technology rules that were recently announced by PRC banking regulators wherein all banks are required to prove that their computer technology and software are “secure and controllable.” The extreme measures taken in this regard require banks to provide all sensitive intellectual property, such as their source code for all software to government regulators in China. In trying to address cyber-security issues, China has announced plans to become more self-reliant in its lagging chip and server industries. China has also tightened restrictions for internet companies in the past year, as it seeks to secure control over its online environment. These restrictions may negatively affect the mPayment industry that includes several foreign players in the banking and non-banking sectors.

Conclusions

Given that financial inclusion has increasingly become a policy priority and is seen as a complement to financial stability goals, the outreach capacity of mobile payment services, combined with the rapid growth of e-commerce, is becoming more commonplace in China. The Chinese government has aided in the development of mobile technology and is working to correct issues with poor infrastructure, logistical limitations and government restrictions.

Concurrently participants in China have enthusiastically invested in technology, capital and human resources needed to gain competitive advantage in the mPayment industry. However, investors should also be aware that the e-commerce business model for China has been tweaked and the internet sector regulated, enabling domestic incumbents to grow without much foreign competition. Potential deregulation of the internet industry in the long term could also change the competitive dynamic over time. In addition, mobile devices cause ongoing concern for security as sensitive information can be easily stolen or lost. In this regard, the Chinese government has been imposing regulations regarding online transactions as noted in the recent bank technology rules. With recent concerns around the world about data security issues in some large firms, this may limit the growth of the mCommerce and mPayment industry. Thus the future landscape of the payments industry in China, while transforming, remains uncertain at this juncture.

________________________________________________________________________

Dr. Vijaya Subrahmanyam, Professor of Finance, Stetson School of Business and Economics, Mercer University-Atlanta; subrahmany_v@mercer.edu

Dr. Juan Feng, Associate Professor, Department of Information Systems, City University of Hong Kong, Hong Kong; juafeng@cityu.edu.hk

Murthy Nyayapati, Former Director and co-organizer of GMIC (one of the largest mobile internet conference) in China and Silicon Valley; murthy.nyayapati@gmail.com

The post Mobile Technology in China: A Transformation of the Payments Industry appeared first on China Research Center.

The shah ruled as an authoritarian modernizer in the mold of Mustafa Kemal Attaturk or Japan’s Meiji emperor, who used autocratic power to rip a traditional society away from old moorings and hurl it down the path of rapid industrialization, urbanization, secularization, and social mobility. Milani writes:

[In] the last fifteen years of [the shah’s] rule, there had been not only unprecedented economic growth, but unparalleled cultural and religious freedom in Iran. Double-digit growth of the GNP was not the exception but the rule. Iran ranked with Turkey, South Korea and Taiwan as the countries that were industrializing most rapidly and were most likely to join the ranks of developed countries.

The shah’s authoritarian rule fostered substantial and rapid development. The shah was a leader of the effort by oil producing countries to force consuming nations to pay higher prices. He funneled vast revenues from those oil sales into the rapid development of Iran. Between 1962 and 1974 the percent of GDP represented by the industrial sector grew from 11.7 percent to 17 percent. The number of large-scale industrial enterprises grew from 482 in 1941 to 5,651 in 1974. Land reform freed many farmers from heavy traditional burdens, causing many to move into cities. Education expanded greatly. The number of high schools increased from 351 in 1941 to 2,314 in 1974. The number of universities increased from eight in 1941 to 148 by 1974. The process of educational reform stripped the Islamic clergy of their long-traditional control over education. Tens of thousands of young Iranians went to Europe or the United States for advanced study. Women were major beneficiaries of expanded education. By 1972, 65 percent of students enrolled in tertiary education were female. Women were granted legal equality and emancipated in a number of ways. The middle classes and technocratic classes grew rapidly in size as a result of this swift economic development.

The shah saw himself as the sagacious benefactor of his people. These great advances just outlined were demonstrations of that benevolence, in the shah’s view. He expected “his people” to be grateful for the progress and benefits he had conferred on them. The shah, Milani suggests, was “like a traditional Oriental potentate” who believed “society owed him a debt of gratitude for the progress and freedom he had given them.” When the people failed to show gratitude, the shah projected responsibility outward onto insidious foreign hidden hands. What the shah didn’t comprehend is that the Iranian people did not view these gains as gifts of the shah, but as their natural rights, as Milani points out:

What the shah failed to understand was that it was, in fact, the democratic aspirations of the Iranian people that begat the [opposition] movement against him and that, ironically, his own social and economic policies of the 1960s and 1970s helped created the very social forces — particularly the middle class and the new technocratic class — that united to overthrow him.

The advances and benefits delivered under the shah’s rule did not fundamentally legitimize his authoritarian rule.

The CCP today, like the shah in his era, legitimizes its authoritarian rule by appealing to the economic and social benefits its rule has wrought: high rates of economic growth, economic opportunity, increases in standards of living, expanded educational opportunities. That approach did not work for the shah. Will it work for the CCP in the long run? The Iranian people wanted not only higher living standards, though, of course, they wanted those. They also wanted political freedom and democracy. The shah’s ambitious and largely successful development efforts greatly strengthened two key groups that turned critically against him: a large urban middle class and a new technocratic elite essential to large-scale industry. There were other important elements of what eventually became the revolutionary coalition in Iran: bazaar merchants, the urban poor, radical clerics, Marxist groups, and some nomadic tribes. But according to Milani, it was the middle class and technocratic elite that the Shah could and should have won to support his rule if he had only undertaken transition to constitutional monarchy.

Liberalization in many areas of culture and religion — but not in politics — is another similarity between the shah’s Iran and China today. During the 1960s and 1970s Iranian arts of all sorts — literature, cinema, dance, architecture, and sculpture — enjoyed unprecedented freedoms. There was a virtual effusion of cultural creativity. Old taboos on social relations were eased greatly. Religious freedom waxed. Baha’i were freed from previous persecution and Iranian Jews enjoyed “a golden age.” Only in the area of politics was there greater repression. There was freedom for everyone but the political opposition. They were repressed with vigor. In China today the cultural creativity is striking to anyone who travels the land: in painting, sculpture, literature, cinema, dance, music, architecture. Yet in China as in Iran under the shah, artists, authors, or lawyers who sign open letters, manifestos, or petitions to the government are likely to find themselves hounded and imprisoned. Can human freedom really be compartmentalized?   In Iran cultural freedom fed expectations of political freedom.

Milani outlines another aspect of the shah’s Iran and China today: dual and conflicting identities between, on the one hand, a desire to integrate into the “global march of modernity” and, on the other hand, an “authentic self” rooted in non-globalist traditions (in Iran’s case Islam and imperial tradition). “Modernity” includes, for Milani, a political system based on the consent of the people governed and protection of the natural rights of citizens to participate in politics, the collective self-government of citizens. Since a constitutionalist revolution of 1905 the Iranian people have sought to secure the blessings of modern political liberty for themselves and their posterity. That struggle continued into the 1970s and culminated in the ouster of the shah in 1979. Had the shah been willing to transform his monarchy during the 1970s into a constitutional one, allowing politicians selected by democratic elections to run the government — if the shah had been willing to reign but not rule as the 1906 constitution envisioned — the Pahlavi monarchy might have survived, or so Milani suggests. Instead, the shah increased repression of the opposition and strengthened his own personal control over government. The middle class and the new technocratic classes wanted the political freedoms they knew were common elsewhere around the world. As it became apparent the shah would not accept modern political freedoms, these urban classes gravitated increasingly to radical Islamic clergy, who offered a seemingly modernized version of Shiite Islam accommodating modern political freedom.

Again the similarities with China are many and marked. China, like Iran, is torn between embrace of global modern political norms (the self-defensively CCP dubs those norms “Western”) and more authentic, non-globalist political forms rooted in China’s distinctive tradition — Confucianism, the Imperial era, Marxism-Leninism-Mao Zedong Thought. China’s 1911 revolution, like Iran’s 1905 revolution, sought to establish modern political institutions. Though both efforts failed in large part, popular movements for that same objective have punctuated China’s modern history, as they have Iran’s. It can even be argued that anti-democratic minorities hijacked attempted democratic revolutions of both countries. In the several years after 1945, the popular uprising that toppled Chiang Kai-shek and brought the CCP to power rallied behind a banner of “new democracy” that called for free elections and an end to “one-party dictatorship,” censorship and political imprisonment. Once in power, however, that democratic camouflage was discarded and Stalinism imposed. In Iran, Islamic clerics paved the way to embrace of Ruhollah Khomeini as leader of the revolution by popularizing what seemed to be a modernized version of Shiite Islam. Khomeini in the critical months of 1978 masqueraded adroitly as a democrat, a believer in women’s rights and secular government, who had no desire himself to rule. He made no mention of his doctrine of Islamic theocracy. His publications containing his advocacy of that doctrine were unavailable because the shah had long suppressed them. Khomeini passed for a modern man — until power was in his hands. Might Chinese groups seeking a Fifth (political) Modernization someday in the future be once again tricked by extremist groups masquerading as democrats? Where might that take China?

Another similarity between the shah’s Iran and today’s China is the interweaving of a strong sense of national humiliation and belief in a vast international conspiracy as the cause of that humiliation. By the 20th century the once powerful Persian empire had come under the domination of Russia or Britain. This produced Iranian “souls humiliated by a sense of historic defeat — at the hands of the Russians, the West, Fate….” The shah claimed that his reforms, combined with the vast military power he acquired for Iran, was wiping out Iran’s humiliation and establishing Iran as a world power. This view of historic loss combined with a sense of individual powerlessness to produce widespread belief in conspiracy explanations of Iran’s woes. Iranians widely believed that the United States, Britain, or the Soviet Union were the real masters of events in Iran. Milani puts it this way:

A people who have lost faith in their messiah but have yet to reach social mastery of their own fate need conspiracy theories to assuage their anxieties and satisfy their existential human urge to have a narrative explanation — a history of their lives and what has befallen them.

Thus when the Carter Administration began stressing the human rights shortcomings of the shah’s regime in 1977-78, the conspiracy mentality of many Iranians led them to conclude that the American masters of Iran had decided to get rid of the shah, and this sense of his new vulnerability gave a fillip to Iranian opposition to the shah’s regime.

In China, of course, the claim to ending and wiping out the stain of the century of national humiliation is at the core of the CCP’s claim to legitimacy. Embrace of this ideational complex is widespread in China, as is the notion that the Americans or some other malevolent power is working to encircle, contain or split China, deny it its rightful position of respect and eminence, working to overthrow China’s government casting it into anarchy and civil war, and so on. In Iran this sense of humiliation of conspiracy combined to help lead the Iranian people away from the political liberty many of them sought.

The most striking difference between Iran under the shah and China today involves, of course, Islam. The shah viewed middle class nationalists and Marxists as his most dangerous opposition, and regarded the Islamic clergy as a bulwark against Marxism and the Soviet Union. The moderate clergy was left free to propound its views and organize a network based on mosques. There seems to be nothing comparable in China. But China today possesses one artifact absent in the shah’s Iran: autonomous nationalist movements which on the one hand pressure the government on foreign affairs, but on the other hand are controlled by the state and serve to vent opposition anger and legitimize the regime.

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Tell us about the film, why China, and what motivated you to focus on this subject.

Adam James Smith: I’ve been going to China for 10 years, and have also been making documentary work for about the same time. As my interest
in documentary filmmaking grew alongside my interest in the continued development in China, it seemed appropriate to make my first feature
film in China. I’m also very interested in how cities develop and why people move to them. The powers-at-be in Ordos have turned how cities
normally organically grow based on voluntary migration to them, on its head, by building an entire city from scratch and them moving a rural
population in. I was personally curious as to why this city had been built and who for. This curiosity sustained us through the production of the film.

How did you meet, and why did you choose to work together?

Adam James Smith: We were introduced through a mutual friend who knew we both were interested in urbanization and migration issues in China. He also knew Ting and I have quite similar filmic sensibilities, so it seemed like a good match.

Why choose Ordos, Inner Mongolia, for the film?   How did you get started there to find people to film for the project?  How did the permissions for filming work?

Adam James Smith: Independent documentary film production is still very much a fringe activity in China, and there really is no official route to go about gaining full permission to shoot a documentary there. We embraced the philosophy that it’s better to ask for forgiveness than permission. That said, during our first scouting trip, in which we interviewed hundreds of people in Ordos, we realized we wanted a government worker and also a farmer to be our main characters in the film. In order to film with a government worker, who ends up being Yuan Xiaomei in the film, we had to gain approval from her leaders in the community. This involved building trust with the government body she was attached to over several trips. On the first couple of trips Xiaomei and her leaders were quite suspicious about what we were doing, and so we were only able to secure simple scenes with her to begin with. It wasn’t until our fourth or fifth trip that they began to feel comfortable with us filming and we were able to secure scenes deemed more sensitive.

What was it like working with the people of Ordos?   Was there one particular poignant moment for you?

Adam James Smith: For me it was realizing on our second trip to the city that farmers were being moved in from the countryside. At that point it became clear what our story would be in the film. There were also many surreal moments in which I found myself witnessing something strange or without explanation. As Ordos is a new city, and its residents are new to the urban experience, there were moments in which we witnessed people trying to figure out how to work things in their new environment. These were poignant moments.

Song Ting: In general the people we encountered were nice. Especially the Mongolian friends we made there, who are good at singing and drinking. My poignant moment was when policemen came to our place and asked us to go to police station. We even didn’t know how they found
us. At that time we stayed at a friend’s place and that made her family unwilling to host us anymore. I was worried that they thought we were doing something illegal.

Now that you are showing the film, are there permission hurdles?  Have you run into any censorship?

Adam James Smith: We specifically made the film with a foreign audience in mind, to help foster a better understanding of China abroad. We are therefore screening it almost exclusively outside China and haven’t needed to gain any permissions from the Chinese government for that. We have had a few screenings in Beijing, but they were mostly to expat audiences within expat run institutions. If we did seek a general release in China, I imagine we would need to gain some kind of permission from a government body and perhaps we would encounter censorship. We’ll cross this bridge if we decide to distribute the film in China.

What did you learn about the incentives that farmers have to move to cities, and what holds them back?

Song Ting:  Young rural people hope to move to a modern city after being exposed to the “glorious” vision of urban life through mass media. It is easy and natural for the young generation to migrate. But for the older generation, they are concerned about the finances of their family and the dangers of living in a brand new environment they are not used to. For them to move, incentives need to include, satisfying financial compensation, efficient education of the new environment and a promised “brighter” future, all of which the government in Ordos are working hard on.

You may not want to give away the ending, but were you happy with how the story unfolded?

Adam James Smith: The film documents a process that is still underway in Ordos, and is just beginning on a national level. The process is instigated by the government, and involves rural people being moved into purpose built urban districts. As this is just the beginning it was hard to decide upon what would be an appropriate ending for the film, so the last scene is quite opened-ended and allows the audience to see that really this is just the beginning and the outcomes of this plan are unknown.

How do you view China’s urbanization plan now that you have seen it from a community perspective?  How does it compare with your experiences elsewhere?

Adam James Smith: It’s hard to pass judgment on China’s urbanization plans as they’re unprecedented, and involve so many people. They’re also unfinished, and therefore the outcome of the country’s push to urbanize is unknown. All I can do is think about my experience of visiting a variety of Chinese cities, and wonder what all of these new cities might end up being like as the country builds them to accommodate 250 million rural to urban migrants over the next two decades. Most Chinese cities I have visited – with the exception of Hangzhou, Wuxi, Suzhou, and a handful of other cities on the East Coast – are pretty unpleasant places, plagued with air and water pollution, noise pollution, crowds of people and cars, poor quality buildings with ugly facades sheathed in garish neon. I wonder if these urban problems will be remedied and the Chinese urban experience
improved, and I also wonder what all of China’s new urban residents will do in the cities they arrive in? It’s hard to imagine how the Chinese government will educate so many farmers on how to survive and thrive in their new cities. I also wonder about how the plans to implement more of an industrial style of agriculture throughout China, once farmers have vacated their land, will pan out, seen as the country has little experience with anything but traditional modes of farming.

Song Ting: I think the urbanization plan of China is even bigger than what many citizens in remote areas can comprehend. It is somehow rushed and brings a lot of pains. Maybe this is unavoidable for a country that has suffered too much in the 20th century. It just seizes each and every new opportunity to catch up with the rest of the world with not enough time to digest the results. I have traveled and worked in many other countries and none of them can compete with China in terms of vibrancy and complexity. Any social problem that exists in Western countries is enlarged in China.

What was the work environment like in Ordos—a brand new city but in a relatively remote part of China?

Adam James Smith: The winters are brutal in Ordos, and the lack of buildings that were open for customers during our earlier shoots, made for little respite from the cold conditions. The spring and summer shoots were very enjoyable though. The city itself, at least the downtown, is very pleasant compared to most Chinese cities that really suffer from air and noise pollution, depressing and uninspiring buildings, a lack of green space, and overwhelming numbers of cars and people. The city was only starting to fill up during the time we shot our film there, and therefore was free from the many problems most Chinese cities suffer from, and the city is generally quite well designed and has been built with good quality materials. As there were relatively few people there, it made it hard as a visitor to find restaurants, shops, and places with wifi that were open.

Song Ting: It developed very fast. The city now already differs from the one where we shot the film 2 years ago. As a brand new city, it is clean and is full of big plans. The government is working hard on bringing more manufactures such as an automobile assembling sector. Back when started shooting, there were not many job opportunities and many of them were related to construction. As the construction form expands and new factories are introduced, there should be a growing need for manpower in processing and manufacturing. The Ordos region is extremely rich in natural resources, having one sixth of national coal reserves. The pillars of its economy are textiles (wool), coal mining, petrochemicals, electricity generation and production of building materials. The further development of these industries will underpin the economy of the new city in Ordos.

What advice do you have for others working in China—in film or other sectors—about how to be successful?

Adam James Smith: I think before embarking on a film project, or any endeavor in China, one must understand certain unique aspects of Chinese culture that may seem perplexing or frustrating at first. These include the importance of guanxi (connections), face (that refers to how people and things are presented), the importance of forging relationships with people, usually over dinner, before asking them to help you, and lastly, being flexible with arrangements: They will always change! Once you have a basic understanding of how relationships work in China, it’s then far easier to pursue a project there.

Do you have plans for another documentary on other aspects of urbanization or to follow the process as it matures?

Adam James Smith: Yes, I just began work on a new feature documentary project. “Mountain Town” (working title), will be about the replica of the Wyoming town of Jackson Hole, built in Hebei, China, two-hours north of Beijing. Many wealthy Beijing residents have bought second homes there, or have even relocated there. The community that has been created has really embraced every aspect of the Western American lifestyle, down to the attire, celebrations, and ideas about freedom and independence. I think this community has really stemmed out of urban people’s desire to not only escape cities in China, but to escape China itself, and acts as an accompaniment to “The Land of Many Palaces” which sees the opposite happening: farmers moving from the countryside and into the city, in an attempt to improve their living standards.

Song Ting: I’m in the middle of making a TV documentary about Chinese architects. I work around several very different architects. This film is set to air on China Central Television’s documentary channel later this year. Apart from that, I’m developing a fictional film, which will be a  collaboration between China and the USA.

How can people find more information about this film and your other work?

Adam James Smith: During the filming of “Mountain Town” this summer (2015), I will post regular updates on my blog: www.adamjamessmithfilm.com/blog

Song Ting: People can keep up to date with my work on: www.songtingfilm.com For “The Land of Many Palaces” updates please visit our website:
www.thelandofmanypalaces.com or our Facebook page: www.facebook.com/landofmanypalaces

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