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Mar 13, 2008

Tradition's Irony

How History and Institutions affect business

China's xenophobia has created a legacy of suspicion among all ranks. Consequently, the processes foreigners must navigate through in order to accomplish many (what could be considered routine) tasks typically involve more effort than one might expect. In financial markets and the media, this web of intricacies is even more pronounced. Although China has been opening up considerably for the past thirty years, familiarity with certain requisite preconditions such as information sharing is lacking. In order to function in the modern economy, information must be able to be shared in order for business transactions to transpire. The financial markets of Shanghai and Hong Kong would be literally unable to work without news from the outside.

Dow Jones and Reuters came across these obstacles as they were entering the Chinese market in the late nineties. In particular, Xinhua, the Chinese news agency/propaganda agency, tried to regulate and compete with the two firms. Regulation would be defined as prohibiting most outside information from coming in at all; while competition would be defined as capturing both firms' consumer bases and technology and putting them out of business. The turning point came for these foreign firms when they asked the officials they were meeting with if they were competitors or regulators. The officials all responded, "Regulators." They were then shown a photo of themselves as "competitors". Needless to say, much face was lost that afternoon.

This anecdote demonstrates the entanglement within the Chinese paradigm. The officials want a piece of the pie. Therefore, they simultaneously try to be regulators, yet competitors at the same time. How can they lose? Make the rules to best suit your interests both as a regulator and as the competition. A win-win at least for them. Obviously, competition is practically eliminated in this circumstance and the true injustice is faced by the consumer whom is forced to pay artificially high prices for usually sub-standard quality.

Prior to the past two centuries, China was a relatively outward looking nation. It is through Chinese innovation the first paper and printing press was created as well as gun powder and the compass. Both the Tang and Ming dynasties engaged in maritime exploration. In fact, Zheng He, under the Ming dynasty, commanded 300 ships and 28000 crewmen in one voyage. As a result, extensive trade took place both to and from China. The Silk Road provided another outlet for trade with the West. The combined reigns of the Ming and Tang are roughly 600 years. How can a nation that's name for itself is "middle kingdom" (after centuries of trading) end up so wary of the outside world and yet crave its knowledge? Imperialism and colonization are the answers.

The resulting dynamic makes patience the most important tactic and secondly building trust. The Chinese government, while willing to open up for the economic benefit, fears that too much information would incite a revolt. How the Dow Jones and Reuters story ends shows this perfectly. Dow Jones and Reuters were able to continue the influx of foreign information into China to secure the success of the financial markets. However, the information is tightly kept in secret offices and is not leaked to the populace.

Rupert Murdoch also had to contend with the intricacies of working within the Chinese paradigm. The Chinese can be quickly offended if they feel threatened and that is exactly what transpired after Murdock's comment on "communications technology being 'an ambiguous threat to totalitarian governments everywhere'." Surprisingly, Murdock, himself, rules his empire much the same as the Chinese government or any authoritarian regime. He is in constant control of all that occurs within his domain. This similarity, ultimately, helped to thaw the tensions between the Chinese leadership as a whole but also specifically with Zhu Rongji, Vice-Premier, and JiangZemin, former President. Murdock's shared vision of calculated control allowed the mogul to help form and mold the Chinese media industry. His understanding of aiding media reform and simultaneously not bulldozing millennia of censorship/information control allowed him to become The mentor over mass media communications.

His partnership with Liu Changle also created an insider's path into the inner circle of the ruling elite. Liu not only provided a path but also had the savvy to work the political game. Although their individual visions eventually separated, both worked tirelessly to bring real broadcasting to the Chinese masses. Liu brought 24 hour news television and Murdock helped to create a more varied television environment albeit still controlled but light years ahead of senseless propaganda jargon broadcast over loud speakers in the fifties or the lifeless programming of the eighties and early nineties.

There is without a doubt a need for the continued flow of information into China. Without it, the Chinese will be unable to make informed business decisions and continue to spur on the Chinese economy. The CCP's relaxation of media controls reveals there is an understanding of the connection between making money and knowledge. However, "objective press" is still not the norm and stories are typically not exposed unless it behooves the Chinese government.

Read this doc on Scribd: the road ahead for capitalism in china