Why China Will Eat Your IT Company For Lunch: The Kingdom of Mao Bell, Two Decades Later

21 11 2012

“It works in the West, the Chinese must want my service!”

 

“I can outperform a Chinese competitor. I am smarter than they are and have more money.”

 

“My product is globally accepted, the government won’t have a problem.”

Famous last words, says Hult guest professor and e-business entrepreneur Toine Rooijmans. The Chinese ecommerce space is famously littered with the corpses of foreign companies that thought they had it figured out, only to find themselves a smear on the pavement of China’s crowded information superhighway. And we’re not talking about small-time entrepreneurs here- eBay, Yahoo, Facebook, Twitter, MySpace, Groupon and, most notoriously, Google, have all found themselves shut out of- or crushed by- the Chinese market.

If only a company executive had dusted off their stack of WIRED magazines from the early 90s and read Neal Stephenson’s “In the Kingdom of Mao Bell”, these firms could have avoided a world of pain and red ink.

 

One piece of advice that Toine had for the class today was to “become an anthropologist”- if you’re launching an IT project in China (or anywhere, for that matter), take time to understand how people here really use information technology before you start plunking down money. Stephenson’s piece, written in 1994, is probably one of the best pieces of IT anthropology ever penned, and lays out exactly how he saw China’s entry to the information age unfolding. In the two decades that have ensued since, his article has- with some caveats, though mostly cosmetic ones- proven remarkably prophetic.

 

1994 is an interesting time to slip back to, as it shows us a world not that far removed from our own, but right on the edge of the internet revolution and the dot-com boom. In the US, Apple was a fading computer manufacturer who had lost the OS war to Microsoft; Mark Zuckerberg was in elementary school; Barack Obama was an adjunct con law professor in Chicago; cell phones were for your car and using your 9600 bps modem to dial up to AOL was cutting-edge. In China, Deng Xiaoping had recently stepped into a long-delayed retirement and handed over the reins to Jiang Zemin; Jack Ma was teaching English and playing poker at a university in Hangzhou; photocopiers were kept under lock and key; laowai weren’t allowed to live outside of designated hotels and KFC was considered fine dining.

 

It was a very different time.

 

In late 1993, sci-fi author extraordinaire, Neal Stephenson, took a month-long trip to China to investigate what was going on in IT in the throws of the post-Tiananmen, post-Southern Tour boom.  Working on The Diamond Age, his follow-up to Snow Crash, required some legwork in the middle kingdom, and he came to do his due diligence… and try to gain an understanding of just what technology meant in Chinese culture.

 

Now, here we get into one of my pet peeves… the “two-weeker”. By this, I mean the VIP who comes to China, rides the maglev, visits the wall, eats the duck, and goes home full of absurd notions about how things work in China, which, of course, he has the nerve to print in an op-ed for The New York Times or Wall Street Journal. I won’t bother with any links for this one- look up anything Thomas Friedman has ever written about China, and you’ll get a good enough idea of what I’m talking about. Even after almost five years in China, I’m not sure I’m qualified to write about the country. But, despite this rule, I’ve seen a few exceptions- David Sedaris, P.J. O’Rourke, and Neal Stephenson. The first two are funny, wry observations from two great literary humorists. The last, though, is a masterpiece. Let’s see how it holds up today, and what it can tell us about China’s place in the information age.

 

Stephenson starts off in Shenzhen, that massive tumor of skyscrapers and factories fastened to the side of Hong Kong that, as of 1994, had not yet outgrown it’s host. After introducing the lay of the land, he gets into what brought him there:

 

The first thing that happened during Jaruzelski’s military coup in Poland was that the narcs invaded the telephone exchanges and severed the trunk lines with axes, ensuring that they would take months to repair. This and similar stories have gotten us into the habit of thinking that modern information technology is to totalitarianism what crosses are to vampires. Skeptics might say it’s just a coincidence that glasnost and perestroika came just after the photocopier, the fax, and the personal computer invaded Russia, but I think there’s a connection, and if you read WIRED, you probably do too. After all, how could any country whose power structure was based on controlling the flow of information survive in an era of direct-dial phones and ubiquitous fax machines?

 

Now (or so the argument goes), any nation that wants a modern economy has to have information technology – so economic modernization will inevitably lead to political reform, right?

 

A good question to ask. In 1994, freedom was on the march. The Soviet Union had fallen, and democracy appeared to have come to Russia and most of Eastern Europe. And what did people in the WIRED zeitgeist think was the real catalyst of this collapse?

 

Information technology, of course. After all, in the immortal words of Stewart Brand, “information wants to be free”, and it carries with it freedom. After all, we were living at the end of history, weren’t we? Wasn’t it nothing but stars and stripes forever from here on out?

 

And, of course, as human rights are universal and human nature is the same everywhere, well, this logic had to apply to China as well.

 

Stephenson had his doubts- and he had good reason for them.

 

I was carrying an issue of WIRED so that I wouldn’t have to explain it to everyone. It happened to be the issue with Bill Gibson on the cover. In one corner were three characters in Hanzi (the script of the Han Chinese). Before I’d left the States, I’d heard that they formed the Chinese word for “network.”

 

Whenever I showed the magazine to a Chinese person they were baffled. “It means network, doesn’t it?” I said, thinking all the warm and fuzzy thoughts that we think about networks.

 

“Yes,” they said, “this is the term used by the Red Guards during the Cultural Revolution for the network of spies and informers that they spread across every village and neighborhood to snare enemies of the regime.”

 

See what I mean? Same idea, different implementation.

 

Neal just discovered the Human Flesh Search Engine, years before the term would be coined. And right here, he hit upon the problem.

 

Information wants to be free- but free information is of just as much benefit to a savvy government as it is to those who would oppose it. Maybe more. In the last twenty years, the CCP has made a pretty strong case that it takes a lot more than a few bytes of data to bring a government to it’s knees. It also takes a culture that is receptive to said information- and that’s just what’s lacking here.

 

Our concept of cyberspace, cyber-culture, and cyber-everything is, more than we care to realize, a European idea, rooted in Deuteronomy, Socrates, Galileo, Jefferson, Edison, Jobs, Wozniak, glasnost, perestroika, and the United Federation of Planets. This statement may be read as criticism by people who like to trash Western culture, but I’m not one of those. For a Westerner to trash Western culture is like criticizing our nitrogen/oxygen atmosphere on the grounds that it sometimes gets windy, and besides, Jupiter’s is much prettier. You may not realize its advantages until you’re trying to breathe liquid methane.

 

Google thought it could breath liquid methane. So did eBay. And Groupon.

 

They were wrong.

 

When you’re in China, you’re not in Kansas anymore. You’re not even in Mountain View. You’re in a place that will take your business model, tear it apart in freezing 500 mile-an-hour winds and crush it under the gravitational pull of four Earths.

 

There is a common Western assumption that China is taking an economic path to a more open society, and in large part it’s based on the cultural biases of people who remember Leonard Bernstein conducting Beethoven’s 9th at the Brandenburg Gate and who reckon that the same thing must be going on in China. These people like to say that China’s trying to emulate South Korea or Singapore. But I’d say Haiti or Guatemala is more like it.

 

Alas, and until recently, I was one of them. China was just following the path of Singapore, South Korea and Taiwan, I said. Well, Stephenson saw the writing on the (great) wall twenty years ago- Reform and Opening was as much a cash-grab by a totalitarian elite as it was a real attempt at reform in the sense that we thought. It was a reform, all right- but a reform on their terms. Not ours. Modernization, but not Westernization. Economic growth, but not to improve the fortunes of the country and it’s people. The final chapter of Animal Farm, with the pigs now walking on the two legs of capitalism rather than the four of socialism- but still not becoming human beings.

 

Going to China and asking people about the Hacker Ethic is like going to Peoria and talking to the folks down at Ned’s Feed & Grain about Taoism. The hacking part comes to them easily enough – China is, in a sense, a nation of analog hackers quickly entering the digital realm. But I didn’t see any urge to draw profound, cosmic conclusions from the act of messing around with technology.

 

The “Hacker Ethic” has to some extent so permeated the American zeitgeist of 2010- or at least the thoughts of young, upper-middle class Americans on the West Coast- that talking about it seems as archaic as the hardware Stephenson talks about in the article. And it fits in pretty naturally in China, as he points out- though some of this ethic has been sucked out of the younger generation, as the nothing-to-lose spirit of 80s and 90s entrepreneurs “jumping into the ocean” and the waves of ambitious migrants have given way to hordes of timid middle-class college graduates seeking secure jobs to provide for aging parents, afraid of losing the meager comforts that they’ve acquired in the boom years. Yet, scratch the surface of any button-down IT engineer in a Xuhui office building or simply walk through an electronics market in a Zhejiang factory town, and it’s still there.

 

But the point remains- the enterprise is entirely practical. There’s no deeper meaning here. Technology is a tool. Period. You start a business to make money, not to “put a dent in the universe” or make the world a better place. Improving society isn’t the objective. Paying your kid’s private school tab and your father’s medical bills is. Hacking a computer is just a means to that end- even if it’s one they have a great talent for.

 

…many residents of Hong Kong are scrambling to get passports from Canada, the US, or the UK. Once they’ve secured non-PRC passports, they frequently come back to Shenzhen to start and manage businesses, staying in luxury condos built specifically for them by the city fathers. Seen through all these concentric barriers, the Overseas Chinese (ethnic Chinese returning to their homeland) must seem infinitely remote to the peasants being turned away at the Second Border. Locals call them the “spacemen.”

 

Shenzhen is touted as an experiment in free enterprise, both by the government of the PRC and by an especially fatuous breed of Western free-market evangelist – people who think that a free market will lead to a free society. This gets us into some awkward questions of just what we mean by the word “free.”

 

Indeed, what is freedom? The political reforms and technology boom of the last several decades have made the Chinese “freer” in some senses. Though, socially, the demographic shifts, economic reforms and technological changes may have left the Chinese even less free than they were in the 1980s. Namely, the death of the Iron Rice Bowl, the rise of capital growth and inflation, and the one-child policy has put young Chinese in a kind of bind- an enforced conformity that demands their adherence to the system. They can’t opt out, or their parents will suffer the depredations of poverty- which would be unthinkable after all they’ve given to try to maximize their single child’s life advantages. Tie this to an imported pop culture that emphasizes materialism and fiscal measures of success- “I’d rather cry in a BMW than laugh on a bicycle”- and you’ve got a culturally toxic situation on your hands. It’s not that embracing traditional culture is prohibited- on the contrary, it’s all there for the taking- but there’s no money in it. There’s only money in propelling the state capitalist behemoth to new heights of garishness. The CCP figured out the game that the CPSU never did- turn the country’s own culture into a tool of control, and the people will rule themselves.

 

Han Feizi couldn’t have done better.

 

Stephenson was witnessing the beginning of this co-option:

 

After June 4th (which is how the Chinese always refer to the crushing of the Tiananmen demonstration) the government instituted a new program whereby any student who graduated from college was deemed to owe the government five years of service, at a place and in a job to be chosen by, you guessed it, the government. Needless to say, this is a handy way for the government to control the behavior of that frisky Tiananmen generation, while also giving government enterprises, and Sino-foreign joint ventures, a handy recruitment system.

 

Liu Xiaobo referred to it as the “Philosophy of the Pig”, but I think that’s a little bit harsh. It’s simply people doing what they have to under the situation that they’re given, and making the best of it. With the exception of crazy people and rock-hard idealists (and is there really any difference?), it’s what we all do. There but for the grace of God go I.

 

Corruption in China is no secret, but the way it’s covered in Western media suggests that it’s just an epiphenomenon attached to the government. In fact, corruption is the government. It’s like jungle vines that have twined around a tree and strangled it – now the tree has rotted out and only the vines remain. Much of this stems from the way China is modernizing its economy.

 

If you thought zaibatsus were creepy, if Singapore’s brand of state-backed capitalism gives you the willies, wait until you see the Sino-foreign joint venture. The Russians, in their efforts to turn capitalist, have at least tried to break up some of the big state monopolies and privatize their enterprises – but since China is still Communist, there’s no reason for any of that nonsense. Instead, foreign companies form joint ventures with enterprises that are still part of the government – and, of course, everything is part of the government.

 

If Transparency International is to be believed, Russia is far more corrupt than China, and in the time since this was written, many of the privatization efforts of the early 90s have been reversed or de-facto reversed by Putin’s neo-Stalinism, so perhaps China was playing a longer game than the Russians, who simply gave up the farm in the privatization rush of the 90s. But the point stands- “everything is part of the government”. The government doesn’t end with the SOEs. Land ownership is still not a reality. “Private” companies exist at the whim of unchecked “regulators”.

 

And this is the environment that our e-commerce giants waded into. One where you need a byzantine web of licenses just to operate, and all foreign media ventures are essentially illicit. And unlike the automakers or other high-capital industrial firms, there was no pressing reason to set up joint ventures- or honor JV agreements any longer than it took to transfer the IP.

 

Information wants to be free, alright. Free of charge, and free for the use of China’s firms. As Toine pointed out in today’s lecture, nobody here pays for software or content. If you’re entering China, you might as well tear up your patents right now for all the good they’ll do you (or take a page from Elon Musk, and simply not file them- filing a patent is as good as handing a design catalog to your Chinese competitor.)

 

Driving in Shanghai is like shouldering your way through the crowd at an overbooked trade convention. There’s never any space in front of your vehicle that is large enough to let you in, so you just ooze along with the traffic, occasionally claiming a few extra square yards of pavement when the chance presents itself. I’m hardly the first Westerner to point this out, but the density of bicycle and foot traffic is amazing. I’m tempted to write that the streets are choked with bicycles, but, of course, the opposite is true: All those bicycles are moving, and they’re all carrying stuff. If the same stuff was being moved on trucks, the way it is in, say, Manhattan, then the streets would be choked.

 

Everyone is carrying something of economic value. Eviscerated pigs slung belly-up over the rear tire; bouquets of scrawny, plucked chickens dangling from racks where they get bathed in splashed-up puddle water; car parts, mattresses, messages.

 

In network jargon, the Chinese are distributed. Instead of having One Big Enterprise, the way the Soviets did, or the way we do with our Wal-Marts, the Chinese have millions of little enterprises. Instead of moving stuff around in large hunks on trucks and trains, they move it around in tiny little hunks on bicycles. The former approach works great in say, the Midwestern US, where you’ve got thousands of miles of nearly empty interstate highways and railroad lines and huge chunks of rolling stock to carry stuff around. The latter approach works in a place like Shanghai.

 

The same problems of distribution arise in computer networks. As networks get bigger and as the machines that make them up become more equal, the whole approach to moving information around changes from centralized to distributed. The packet-switching system that makes things like Internet work would be immediately familiar to the Chinese. Instead of requisitioning a hunk of optical fiber between Point A and Point B and slamming the data down it in one big shipment, the packet data network breaks the data down into tiny pieces and sends them out separately, just as a Chinese enterprise might break a large shipment down into small pieces and send each one out on a separate bicycle, knowing that each one might take a different route but that they’d all get there eventually.

 

Not that much has changed… the bicycles have given way to private cars and motorscooters, but the principles of logistics in China are the same as they ever were. A million private logistics operators run the highways- legions of trucks do the job that would be done by freight rail in the US. This network- now armed with cell phones and the internet- is arguably the most flexible- if chaotic and unmanageable- logistical army in the world. And it shows just how China operates as a “network society”.

 

Any technology that facilitates this is going to be rapidly adopted. Decentralization is the key. What technologies fit China? Microblogging. Social networking. The cell phone. The airplane. Busses. Scooters. Private cars. Trucks.

 

This is, in part, why I’m unsure about high-speed rail being right for China. Don’t get me wrong- I’m pretty impressed by the CRH system. And the Wenzhou accident aside, I sleep like a baby on the overnight expresses between Shanghai, Beijing and Chongqing. Statistically speaking, you’re safer on a Chinese high-speed train than you are walking down the street in Shanghai. But does the static, high-capital, linear nature of rail transport really fit a country that relies on adaptability? When one thing goes wrong with the train… everything can go wrong.

 

Same goes for the Cloud. The cell phone is a wonderfully robust technology, in the Talebian sense. The basic PC clone filled with time-honored, pirated software (Windows XP, IE 6.0, QQ and what-have-you) is robust- everything that can go wrong already has, and for the most part, the users don’t care. But cloud computing? Forget about it. Fragility city. It’s centralized, top-down technology of a sort that will be laughed out of history after the first EMP or mass hack-attack takes out a trillion dollars worth of critical data.

 

It often seems that, from the point of view of many entrepreneurial souls in East Asia, the West’s tight-assed legal system and penchant for ethical dithering have left many inviting niches to fill. Perhaps this explains their compulsion to enter such perfectly sensible fields as driftnet fishing, making medicines from body parts of nearly extinct species, creative toxic waste disposal, and, above all, the wholesale, organized theft of intellectual property. It’s not just software, either – Indonesia has bootleg publishers who crank out counterfeit bestsellers, and even Hong Kong’s Saturday morning TV clown wears a purloined Ronald McDonald outfit.

 

This has a lot to do with the collective Chinese approach to technology. The Chinese were born to hack. A billion of them jammed together have created the world’s most efficient system for honing and assimilating new tech (they actually view Americans as being somewhat backward and slow to accept new ideas – the Chinese are considered, as Bill Newton put it, “not so much early adopters as rapid adopters”). As soon as someone comes up with a new idea, all the neighbors know about it, and through an exponential process that you don’t have to be a math major to understand, a billion people know about it a week later. They start tinkering with it, applying it to slightly different problems, trying to eke out hair-thin improvements, and the improvements propagate across the country until everyone’s doing things the same way – which also happens to be the simplest and most efficient way. The infrastructure of day-to-day life in China consists of a few simple, cheap, robust technologies that don’t belong to anyone: the wok, the bicycle, various structures made from bamboo and lashed together with strips of rattan, and now the 286 box. A piece of Chinese technology, whether it’s a cooking knife or a roofing tile, has the awesomely simple functionality of a piece of hand-coded machine language.

 

And here we get to the core of it. As Toine mentioned in his lecture today, if you want to release an IT product in China, just release it. Don’t perfect it. Make it minimally functional, and get it into distribution. It doesn’t need to be polished, perfect, a beautiful artifact on it’s own account. It JUST NEEDS TO WORK. Stephenson’s last quote about the awesomely simple functionality of Chinese technology is telling. The wok. The bicycle. And now, the smartphone.

 

The article goes on, and the whole thing is well worth reading. But I’ve already gone on way too long with this ramble.

 

But the final point is this- the Chinese IT market is not your IT market, and the assumptions of what works at home just don’t fly here, for reasons that are deeply ingrained in Chinese society and the contemporary culture. And unless you understand this, you’re going to be in a world of hurt.


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