Summer Palace Stone Boat   

Summer Palace Temple

Forbidden City

Our group in front of the Bird’s Nest,
the track stadium

CCTV Tower

Mandarin Oriental Hotel in ruins

Meeting with Goldman Sachs executives

Though we’ve been to China many times, we are always surprised by the changes, the politics, and the endless creativity of the Chinese people.  We recently returned from an 18 day trip to China with a small group of friends who have travelled with us before.  We hope you enjoy this summary of what we saw and learned. 

Our trip started in Beijing and continued on to Xian, Chengdu, Lijiang, Chongqing, a cruise on the Yangtze, and Shanghai.

In and around Beijing

In Beijing, we were able to tour the incredible Olympic complex China built for the 2008 Summer Olympics.  The various facilities are a tribute to the skill and imagination of the world class architects who designed them. Tiananmen Square reflects China’s pride in its Olympic accomplishments, with a huge screen showing videos memorializing the magnificent Olympic opening ceremony. 

For the first time, we toured the Great Hall of the People, where President Nixon was feted during his visit to China in 1972, opening the country once again to American travel and business.  It is quite sumptuous, with lovely artwork and grand banquet rooms.  This may be the largest building of its kind we have ever seen.  We were told it was constructed in less than 6 months.

We have watched the enormous CCTV (China Central TV) tower and complex being built over the last 3 years. Part of the complex is a Mandarin Oriental Hotel, which burned just before it was to open, as a result of a fireworks display gone terribly awry.  It is a ruin now, and the government doesn’t know what to do about it because demolishing it might compromise the foundation of the CCTV tower itself.  Beijingers hate the whole complex, so are not unhappy at the dilemma.  They say that CCTV tells only lies on its news and other programs, so deserves to be punished.  They claim that CCTV stole the Olympic fireworks to use during the Chinese New Year.  So far, the fire insurance company refuses to pay on the fire policy because they say CCTV caused the fire with its fireworks.

Meeting with Goldman Sachs

We met with the General Manager of Goldman Sachs office in Beijing, John Zhang, and the head of their Equities Division, Dongjie Wang, PhD.  Under Chinese law, a foreign investment bank can do underwriting, but not secondary securities sales.  They told us that most Chinese pay cash for cars, but that General Motors and Volkswagen are setting up finance companies to begin financing auto sales.

Their projection is for 11.9% growth in China in 2010 vs. 2.7% to 3% for the U.S.  China may exit from its stimulus package in early 2010.  They said that provincial resources are limited, that money comes primarily from the central government.  Although there is both private and public investment in China’s assets, at the bottom of it, the government owns most of the assets.

Most of the IPO’s are by big state-owned enterprises.  The state must own 51% of the companies, but usually owns closer to 75%, with the remaining 25% in private hands.  The government must always approve the “grand plans” of a state-owned enterprise and plays a big role in whether an IPO can happen at all.  IPO’s in China operate like auctions.  Relationships are key to who wins an auction.  Asset ownership is always complicated, so due diligence is a big and important process.

Employee stock ownership plans are now disapproved because if employees get rich on an IPO, other Chinese citizens will ask why employees of a state-owned enterprise should get rich when the state owns the company.

The Shenzhen stock exchange now has a NASDAQ-style market for small companies, the Growth Enterprise Market.  Its goal is to help entrepreneurs get funding.  These are truly private, John Zhang told us.

The National Development and Reform Committee is like the old Soviet central planning commission.  It doesn’t work well, but is responsible for planning public infrastructure.  It rejects lots of projects. 

Chinese growth is stimulating growth throughout Asia, particularly in resource-rich countries.  This will help return the global economy to “normal”.  To sustain its growth, China is improving its health care system, improving farm aid by eliminating its agricultural tax, and building a social safety net for farmers.

Returning factory workers are taking their new skills back to smaller cities and villages (small cities in China are 5 million people) to be closer to their villages.  Farmers can now lease land to others.  The 1978 reforms cut land into small pieces and let farmers determine what they wanted to grow.  Now, you can farm yourself or sublet your land to others.  This is creating land consolidation and economies of scale.  50% of Chinese are still farmers.

All property is owned by the government.  Leases are for 70 years for land and homes.  Many farmers are dumping their land in order to work in the cities.  The Chinese legal system is very Confucian-based—not clear cut.  The judicial system is part of the government, not a separate branch as in the US.  Nonetheless, there is an attempt now to codify the law, with international norms beginning to take hold, particularly in transparency.  Disputes involving foreigners are often resolved more fairly than internal disputes.

Meeting with Paul Taylor, U.S. Commercial Service

Our next visit in Beijing was with Paul Taylor, a long-time friend of ours who formerly ran Denver’s China Trade Office in Shanghai.  He is now a commercial officer at the U.S. Embassy in Beijing.  We met him in the new U.S. Embassy, which is a very secure fortress, very unlike the old, insecure embassy.  The buildings were built by American workers exclusively in order to ensure there were no bugs implanted during the construction process (you may remember the need to abandon the new U.S. Embassy in Russia a number of years ago because of bugs implanted everywhere by Russian construction workers).  Only cleared Americans can enter the complex and, within the complex, there are varying levels of security.

Recent trade talks made progress for U.S. exports to China, including rescinding the Chinese ban on American pork products and the Chinese requirements for local content on wind energy products.

Paul was in Urumqi recently, the center of the Uigher uprising against Chinese control in Xinjiang Province (where we have visited twice).  In his hotel, there were no tourists at all, only riot police.  The entire region remains very tense.

Because of the unrest in the West, China’s National Day, October 1, was very secure.  Even people who live in downtown Beijing were not allowed to watch the parade.  They couldn’t go out on their balconies overlooking Chang An Street, Beijing’s main thoroughfare.  China is very sensitive about its minority problems.  People with diplomatic passports cannot go to Tibet, for example.  Tourists can go with a permit, however.

Chinese don’t have much confidence in their social system.  Farmers have no health care and no health insurance.  That results in a very high savings rate, about 50%, to protect themselves in case of illness and to provide money for their retirement. Chinese safety nets are savings accounts and children, but with only 1 child allowed for most Chinese, that is a shaky safety net.

China’s exports are way down now reflecting the global recession and the large dependence upon U.S. and European markets to purchase Chinese manufactured goods.  They are trying to diversify their international markets away from just the U.S. and Europe.  The stimulus included the development of a more sustainable health care system.  Urban employees have employer/employee financed health care.

Much of the stimulus was in the form of loans, made by state-owned banks.  Banking is opening up a lot in China, mostly on the retail side, with Hang Seng Bank, HSBC and Citi playing active roles now in China.

The government’s overriding concern is social order.  Technology provides the capability to disrupt society.  The government sees the internet as a big problem.  Previously, you needed a license just to send a fax.  Now China has banned Facebook, You Tube, and Twitter, creating the “Great Firewall”, a network of people and software to filter all internet information and access.  Data pipes are limited and are all owned by the government, so sites can easily be blocked.  Twitter, for example, runs through U.S. servers, which China can block.  They would prefer to block specific content rather than entire sites, but they’re far away from being technology innovators. 

The software development industry is a time and materials industry in China.  New technology isn’t developed here.  Consequently, they have little respect for intellectual property and don’t understand its value.  Historically, great art was created by following the style of someone else who went before.  Tradition places little value on personal innovation in any sphere.

Chinese are beginning to see individuality as important.  There is more respect for individual thinking and behavior than in Japan.  But, they don’t see stealing IP as wrong since they don’t do much research and development.  The government controls the university system tightly, with any new technology going to the state owned enterprises.  The quality of American technology and engineering graduates is vastly superior to Chinese graduates, except for a couple of universities.  That makes it very hard for Western companies to find qualified tech graduates.

Terracotta warriors with horses

Xian’s old city wall

Sleeping Panda

Contemplative Panda


Xian’s vast array of terracotta soldiers is the primary tourist attraction in Xian, but there is much more.  The wall has been restored and offers a great walk around the oldest part of the city—13 km—or a bicycle ride on rickety old bikes for rent at the top of the stairs.  We were late, so walked on part of the wall, watching workers demolish old buildings and sort the timber and bricks for future use.

The Wild Goose Pagoda, very bedraggled in a weedy field on our first visit in 1987, has been fully restored, with a number of temples and pretty gardens surrounding it.  The Pagoda also has an art school, with a group of very good artists who sell their paintings to support the monks who live in the Buddhist Pagoda complex.  Everyone bought paintings, some quite large, and all really beautiful.  We were able to watch a demonstration of Chinese calligraphy before we shopped. 


From Xian, we flew to Chengdu, and headed off to visit the Dongjianguan Water Project, an ingenious 2000 year old irrigation and flood control project outside Chengdu.  It was right near the epicenter of the frightful 2008 earthquake.  Many of its schools and buildings collapsed in the quake killing tens of thousands of people and so many children.  We drove through the ruined city, partly cleared, with a number of new buildings the government has built to house people.  The hotel where we ate lunch a little over a year ago was only a pile of rubble.  We were there 4 weeks before the quake hit.  Very sobering.

A visit to the Panda Breeding Center is a highlight of any visit to Chengdu.  We saw several babies and young pandas lolling in the trees and munching bamboo shoots among the two dozen red and giant pandas we saw. 

Visit to Intel, Chengdu

Chengdu is becoming a large manufacturing center in Western China, motivated by the central government’s policy of providing incentives to develop the interior.  The infrastructure is excellent and the workforce hard-working and well-trained.  Intel is moving its Shanghai manufacturing operation to Chengdu where labor is cheaper and roads are less congested.  From our other trips, this confirms what we have heard and seen about the emphasis on development of China’s interior regions.

We met with Mike Mendenhall, the general manager of Intel’s Chengdu facility, a fascinating man who has studied Daoist philosophy for 30 years, thoroughly enjoys living in Chengdu, and knows everyone in the local government who can help Intel be successful.  Though he has just returned to the U.S. after 3 years in Chengdu, he plans to buy a house there and visit often.

Mike was very involved in helping the area recover right after the 2008 earthquake.  Within weeks, Intel Chairman, Craig Barrett, arrived to visit the collapsed towns and schools.  They started an I-world program to provide internet access to new schools, with e-classrooms all wired for internet access and fully stocked with computers.  So far, they have created 200 I-world schools, spending $5 million to date.  Employees have volunteered 70,000 hours, an effort which really brought them together as a team.

Intel deals with IP theft by rigorous training.  It is a problem that is very hard to deal with in the Chinese culture.  The first 6 months is all training, then each employee gets 1 day per month of training. 

80% of the products produced in Chengdu stay in China.  This is a very important statistic and perhaps is the key to China’s future—domestic consumption.  As Chinese consume more, the Chinese manufacturing juggernaut will become more diversified between exports and internal consumption, which will greatly benefit their economy.

Because their factory is located in an export zone, they must export their products, so do a “Hong Kong U-turn”, sending their products to Hong Kong and immediately back to factories in Shanghai and the Pearl River Delta.  They have a very good working relationship with Chinese customs, Mike told us.  Shipments in the Hong Kong U-turn are mostly by air.  Intel can’t fabricate the highest/newest technology in China because of U.S. restrictions on tech transfer, but can import and sell the newest technology in China.

The turnaround time for production is now 7 days, down from 21 days three years ago.  During the first half of 2009, Intel’s exports were 60% of Szechuan’s exports out of China on a dollar basis.  They try to work very respectfully with the government.  They make no demands, but try to partner with them.  Intel has never had a joint venture in China.  They “just say no” to corruption and have never had a problem.  Personal relationships are so important—the government officials in the city and province are close friends of Mike’s.

Institute of Care-Life
Chengdu Mei Huan Tech Co., Ltd.

Meeting with Tun Wang, Ph.D., CEO

Meeting with Dr. Wang

Lijiang’s Snow Mountain

Lijiang’s Naxi women

Group at Black Dragon Pool

Black Dragon Pool vista

Three Gorges Dam lock

Yangtze River Gorge

Yangtze grandmother and baby

Curious child-Yangtze village

Old men gambling-Yangtze village

Our lunch restaurant
overhanging a gorge

Global Logistics Properties meeting

Dr. Tun Wang has a Ph.D. in mathematics from the University of Connecticut and a Ph.D. in physics from the China Academy of Sciences.  He was working on a post-doctorate in theoretical physics in Austria when the 2008 earthquake demolished so much of his home province.  He returned to Chengdu to try to save lives by studying earthquakes.

He told us that earthquake waves move 3 – 6 km per second.  He has developed a device for homes and schools that will give people 50 seconds warning before the wave strikes their buildings.  He is using wireless networks to suppress false alarms and has patented the technology to do that.  His collaborator is a professor at MIT and his funding comes primarily from U.S. universities and private contributions from friends.  Within 6 days of the May 12, 2008 earthquake, Dr. Wang had raised about $750,000 for his research.  His goal is to have no more than 1 false alarm in 1000 years.  He is keeping all the IP software in China to protect it.  Two of his systems are already in schools and he expects more orders soon.


Lijiang is on the edge of the Tibetan Plateau, with Jade Dragon Snow Mountain, part of the Himalayas, rising a spectacular 18,000 feet above it.  We have been as high as 15,000 feet on Snow Mountain, but, since that tram was closed, we visited a different, and much more enjoyable, part of the mountain, taking a walk through forests and meadows with gorgeous views of the mountain. The crowds quickly diminished as we walked farther from the gondola that takes you to 12,000 feet.

On our return to Lijiang, we stopped for lunch at a Tibetan village, with typical Tibetan houses and, of course, crafts and art for sale.  The Old City of Lijiang is 700 years old, with narrow alleyways and old wooden houses with stone roofs packed tightly together. It is a city of small canals that carry water along most of the streets, providing water for all domestic uses and for firefighters when the frequent fires occur.  Today, Lijiang is a busy tourist center, attracting millions of Chinese each year.  It is surrounded by high hills and mountains, with myriad old temples and pagodas on their slopes and summits.

We visited a beautiful old home, with a series of temples and mansions inside its high walls and the lovely Black Dragon Pool Park, with wonderful views across a lake to Snow Mountain.  To fly in and out of Lijiang, you swoop into a long, narrow valley, much like Aspen, and have to circle twice inside the valley to get into or out of it between the mountain ranges.


Chongqing is the largest city in the world, encompassing a 300 mile long stretch of land and 32 million people.  Before boarding our superb boat, the Yangtze Explorer, for our 3 day cruise on the Yangtze River, down to the Three Gorges Dam, we spent a day in Chongqing.  The city has recently opened a wonderful museum, the Three Gorges Museum, with excellent displays of Yangtze River cultures throughout the last several millennia, as well as beautiful paintings by Chinese artists. 

Chongqing was Chang Kai-shek’s headquarters during the Second World War and the Chinese Civil War.  Because it is usually foggy, it was harder for the Japanese to bomb, though bomb they did every time they got the chance.  The U.S. sent General Stilwell to advise Chang Kai-shek and oversee American operations in China.  We visited Stilwell’s home/office, high above the Jialing River, and the Flying Tiger Museum just across the road.

We must have seen 20 cranes filling the near skyline along the Jialing River, as Chongqing is booming with new construction.  Like all Chinese cities, it is very polluted, made worse by the constant fog.

Cruising the Yangtze

The Yangtze River is 4000 km long and travels only through China.  It is the third longest river in the world, after the Amazon and Nile, starting at 16,542’ on the Tibetan Plateau.  There are 500 million people living in the huge Yangtze Basin.

The Three Gorges Dam, the largest hydroelectric dam in the world, produces less than 3% of China’s power and will produce about 1% by 2020.  China is dependent on coal for 70% of its power.  Construction of the dam began in 1994.  Because of the dam, the most recent flood in 2007 caused no deaths, whereas earlier floods would often kill thousands of people living along the river.   A 1998 flood killed 3000 people, caused $25 billion in damage, and left 14 million people homeless.  In the 1931 flood, somewhere between 3 and 4 million people died.

The Dam is 1.4 miles long, the same as the Golden Gate Bridge, and nearly 600 feet high.  Over 40,000 construction workers built the dam, working around the clock.  The government had to relocate 1.4 million people to new villages high above the new reservoir.  Of the $28 billion cost of the dam, ¼ went to relocating people and villages.  Today, the dam has 26 turbines and will soon have 6 more. 

We went through the huge ship locks on our third night on the cruise.  It was eerie in the nighttime glow of yellow lights illuminating the locks.  We entered the lock first and were followed by another cruise boat and 2 barges filled with sand.  We went through 3 locks in all.  A new elevator ship lock is under construction, which will reduce the time for traversing the locks from 3 ½ hours to 45 minutes for smaller ships.  However, this lock will cost ship owners whereas the current 5 locks are free of charge.

Sun Yat-sen first envisioned a Three Gorges Dam in 1919 and Chang Kai-shek actually started construction farther up the river.  The Japanese moved the dam to its present site.  Today, commercial traffic is 4 times greater than before the dam was built.  However, it is causing significant environmental damage and losses of fish.

For a thousand years, members of the Tu Jai minority group were the boat haulers who hauled boats up the river through the Three Gorges.  Sometimes as many as 300 men hauled the boats, using giant ropes.  They were naked because of the heat and suffered huge sores from the rubbing of the ropes on their skin.  These former boat haulers now mostly live in cities along the River.

One of our excursions during the cruise was to a village that had been moved high up the steep mountainside as part of the relocation effort.  We went to the home of a woman whose family had moved, quite happily, from their old mud home and tiny farm in the valley.  She told us that the money the government paid them for their old house and fields gave them enough cash to build a house and shop in the new village (which is anything but a village, being a small city).  Not everyone would agree with her.  There were many unhappy villagers.  The woman we met said their compensation was 80,000 yuan (about $11,000), enough for them to build the shop and home they wanted.

This woman has a 4 bedroom home above her shop.  The bedrooms are on both sides of a good-sized living room.  Each of her three sons has a bedroom with his wife and she and her husband share the fourth.  There is a balcony where the family has a washer and dryer and a tiny toilet enclosure that also serves as a shower.  They cook and eat in the shop.  She told us that the shop covers all their household expenses, but obviously they are more prosperous than that, by Chinese standards.  Her son and daughter-in-law own a restaurant and she takes care of her grandsons (in one child China, the parents had to pay an 8000 yuan fine for having a second child—about $1100) while they are at work.  She said the restaurant is very popular.  It grosses about 100,000 yuan and nets 7000 yuan (about $1000) a month, a large amount of money for a Chinese family.

Next we visited a farm family in a traditional house.  It was very neat, but built of mud bricks with a mud floor.  The toilet was a hole outside.  We watched as the man of the family hauled human waste in 2 large buckets slung on a pole over his shoulder to fertilize his small field of vegetables.  The house has 3 rooms, a living room with a couple of chairs and a refrigerator still wrapped in the plastic it was shipped in, a bedroom and a kitchen.  It was all very dark and dank.  A small opening in the ceiling of the living room was covered with a piece of glass and provided the light.  The house smelled of human and animal waste.  This family was surely better off than their neighbors because they received money from the cruise companies for letting tourists see their house.  But their lives were still very impoverished and difficult.

We also visited a local market, sprawled along about a dozen streets, and featuring everything imaginable from tires to shoes to exotic (to us) food. 

The new villages are comprised mostly of multi-story apartment buildings.  In China, buildings of 6 floors or less have no elevators.  The new buildings along the Yangtze have no heat or air conditioning, in a climate that has extreme heat and cold.  Individual families must provide their own air conditioners and heaters, but few do.

The area along the Yangtze is the poorest in China.  Many areas still have no roads.  Villagers use foot paths through the steep mountains and gorges and boats if they can afford them.  There continues to be a huge amount of construction all along the Yangtze, including roads, bridges, buildings, and new cities.

As we left the Yangtze, we headed to the airport at Yaching to fly to Shanghai.  We had lunch at a restaurant overhanging another gorge that feeds into the Yangtze.  Only after we left did we realize that we had been overhanging the gorge, high up on the cliff.

Brian Kwok, our good friend and travel agent in China, finagled suites for all of us on the boat, so we traveled in luxury, especially compared to our last cruise on the Yangtze, which was on a dirty, depressing Chinese boat with teeny, grubby cabins.  The food and service were wonderful.  We enjoyed the cruise immensely this time around.


Our only business visit in Shanghai was an all day meeting with Global Logistic Properties, the company that bought Denver’s ProLogis China business, and a tour of Shanghai’s enormous new port.  We met with Ming Mei, President of GLP, Kent Yang, Managing Director of GLP, and Richard Xia, General Manager, GLP Lingang (GLP’s Shanghai port facilities).  All are young, went to U.S. universities and are very familiar with the U.S. economy and culture.  They speak perfect English and fully understand the global marketplace.

ProLogis is still the largest industrial real estate owner in the world.  They entered China in 2004 in Suzhou and Shanghai, and built 34 million square feet of warehouse space in China.  ProLogis sold their China business to a Singapore government investment corporation (sovereign wealth fund) in a deal led by Ming Mei and Jeff Schwartz (former CEO of ProLogis). 

The properties are 99% leased.  Demand in China is beginning to come back now.  GLP is the only provider of such intensive and high quality warehouse facilities in the most important markets in China.  Under their new strategy, they co-market with customers who endorse GLP’s facilities.  For example, they will be co-marketing with KFC, paying all the marketing costs and getting KFC’s business and endorsement in return. 

Logistics are often 90% of product costs.  As a result, companies try to cluster their parts, distribution and manufacturing operations together to save on transportation costs.  GLP works with companies to plan their logistics and build the facility that will optimize their logistics.  In the second quarter of 2009, leasing increased 340% over the first quarter.  GLP does spec buildings, build-to-suit, and sale-leasebacks.  In 2010, they expect to develop over 10 million square feet of warehouse space.  Their big focus now is growing the local customer base.  Entrepreneurial businesses are now the fastest growing sector of the Chinese economy.

Government policy affects GLP’s plans.  In the process of creating a national safety net, the government will require that 10% of any IPO proceeds go to the national social security fund.  All gambling related profits also go to the SSF as will 5% of all profits of state owned enterprises. 

The new generation of urban Chinese professionals are more American than Chinese in their world outlook.  They are spending all they earn.  But rural Chinese live in poverty and have no social safety net.  They know what they don’t have and don’t like it.  Consequently, China’s government is terrified of social unrest.  Chinese governments have always been overthrown internally, and that has happened when people have had no hope for themselves or their children.  So, the government plays to the populace, subsidizing education in rural areas, health care for all, etc.  While farmers have no health care right now, it will soon be free to help compensate them for having no pension.

We went from GLP’s offices to the new Shanghai port, traversing a 32 km. bridge that spans the shallow sea to the deep water port.  The sea has dozens of wind turbines.  The port is huge and very modern, but quite a long way from Shanghai.  Nonetheless, the infrastructure is excellent at the port and from the port to the city.

Shanghai also continues to grow rapidly.  It is preparing now for its World Expo in 2010, completely renovating its beautiful and famous Bund, updating its parks and gardens, spiffing up old buildings, improving infrastructure.  It hopes to outdo Beijing’s preparations for the 2008 Olympics.

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