Five Myths About Business in China

Dean of China's top business school CEIBS busts five myths about the Chinese economy in a new blog series on WSJ.com

Nanjing Rd, the main shopping street in downtown Shanghai

We just came across this piece by the dean of China's top-ranked business school CEIBS on WSJ.com. He takes several widely accepted prejudices about Chinese fims, consumers and university graduates and firmly dismisses them. The conclusion: Chinese consumers are as sophisticated, Chinese firms as innovative and Chinese grads as creative as the West fears.

Maybe in his next blog he can advise what the rest of us are meant to do in the meantime!

The first in a new weekly series on The Source which looks at the lessons learned by business leaders, academics and commentators.

For starters, we’ve spoken to Professor John Quelch of the China Europe International Business School (CEIBS), one of the leading business schools in China. He has a unique insight into business in the East and West having been Dean of London Business School.

Here, he describes five myths and common misconceptions about business in China:

1. Chinese consumers don’t consume
To anyone who walks down the Nanjing Road in Shanghai, this statement will seem ridiculous: China will soon become the number one market in the world for luxury brands and more Ferraris (and many other high-end auto brands) were sold in China last year than anywhere else.

Of course, the Chinese population is more than four times that of the U.S., but more important, domestic consumption in China accounts for only one third of GDP, compared to two-thirds of GDP in the U.S. Why is this the case? For the ninety percent of the Chinese population living on less than $5,000 per year, life is full of risk

The most significant risk is getting sick because there is no social safety net in China. Hospitals often require cash up front. Thanks to economic growth, the Chinese are living longer but the nation’s one child policy has meant many older Chinese have to survive without the traditional level of family support and without significant pensions.

Bottom line: the Chinese have to save a much higher percentage of their income for a rainy day than Americans do.

Now, the Chinese government is investing massively in health care provision to provide the safety net that will enable Chinese consumers to increase greatly their domestic consumption. When that happens, China, with one-fifth of the world’s population, will truly become the engine of world economic growth.

2. Chinese consumers aren’t social
In China, competition is intense. In a highly mobile economy, this means that the brands you display signal status and worth. It also means that your “guanxi” or connections can be very important as a tie-breaker when a hundred equally-qualified applicants are after the same job.

Although Facebook can’t operate in China, there is no shortage of on-line social networking on Chinese language sites. In fact, a recent TNS study revealed that 265 million Chinese engage in social media for, on average, 5.6 hours per week, 54% of them daily. The average number of friends for a Chinese social media user was 67, a powerful number when one considers the speed with which new product information or criticism of a brand can be spread over the Internet.

In addition, the Chinese have been at the forefront of group buying. Taobao—a Chinese language website for online shopping—can negotiate a better price for a group of consumers unknown to each other but all interested in buying the same model car at roughly the same time. Groupon and other companies are now pushing this business model in the U.S.

The other three myths Dean Quelch doesn't buy are...

3. Chinese can imitate but can’t innovate

4. Chinese managers won’t go global

5. Chinese students are passive

Check out the rest of his piece here

Comments

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Tuesday 21st June 2011, 16.40 (UTC)

Nathan Portman

i read the original on wsj. it really pisses me off how westerners dismiss Chinese people as lacking creativity. so much creativity takes place within china's manufacturing giants, most of the products we buy (including apple products!!) wouldn't exist without it. it's not as glamorous as silicon valley or making a youtube video as you inhale your own fart that goes viral

Tuesday 21st June 2011, 16.59 (UTC)

Lucy Jennings

but then again, by the same token, it isn't quite fair to cite flatulent youtube videos as an indicator of western creativity either... i'd like to think that there is more to it than just that.

Tuesday 21st June 2011, 17.09 (UTC)

Molly Price

I really enjoyed reading John's blog. For a lot of people there seems to still be a big question mark in their minds with regards to China. I lived in Hong Kong for a few years and the culture and people completely went against my expectations particularly when addressing the idea of the Chinese as consumers.
I think particularly in light of the fact that the western world seems to be up in arms at the moment about China's increasingly powerful role on the world stage, people need to take the time to try and understand what they, and Asia as a whole for that matter, are really about. That isn't to say that it will change their opinions, but before people jump to conclusions, they should make sure they are well-informed.

Wednesday 22nd June 2011, 12.27 (UTC)

ka-ming ho

I agree with this article to some extent, but I question his point on "Chinese can imitate but can’t innovate"...

China is definitly an increasingly innovative country, but for a country of 1.2bn, it is definitly not the most innovative, which I can understand as it only opened up some 40 years ago..

If you eavesdrop into a Chinese coversation, especially when it comes to what they have watched recently, they will probably mention Taiwanese or Hong Kong soap operas or movies more so than the propoganda stuff they churn out on CCTV (If you have ever watched CCTV news, they spend half the time broadcasting the latest news on the Communist Party). One of the most reputated channels in China on politics, for example, is a channel called Phoenix based in Hong Kong rather than in China.

Likewise, what are the most famous modern landmarks in Beijing? The CCTV tower was designed by a Dutch; The Beijing's bird's nest olympic stadium was designed by a Swiss (although with Ai WeiWei, now emprisonned, as the aristic director'; The Beijing Opera House was designed by a French.

In general, Chinese people DO imitate but they use this imitation as a starting point for innovation. I find China's 'Facebook' RenRen, for example, a bit more interesting to use than Facebook. RenRen has alot of features such as the ability to change wallpaper that makes it more lively than Facebook. Likewise, you are also able to see who has viewed your wall (although I wouldn't imagine alot of Facebookers will like this feature very much). Japan used to have a "Made in China" feel back in the 60s, but now, Japanese products are recognized worldwide for their quality.

There is alot of stranglehold on freedom of speech in China, which ultimately leads to a lack of creativey. When I am on RenRen, I often come across people who vent their frusturations against their government and the many restrictions imposed. These people are all educated and can make their minds up. Why should the government limit them?

Although saying that, China definitly has potential. I've just had Chinese friends from Shanghai and various other places studying design here in London. UK has alot to learn from whether that may be branding, packaging or innovation in general. I am sure their experiences here is of benefit to them and to China, especially now that they have started working back home. Likewise, there's 1.2bn people in China vs. Taiwan's 23m people and Hong Kong's 7m people (both being the Chinese media capitals), so I am sure there's some talent in this enomous country. The Chinese government just needs to relax a bit. Talent will also grow in time...

Wednesday 22nd June 2011, 12.46 (UTC)

Alexandra Dean

EVERYTHING is an imitation including FACEBOOK> didn't he rip off harvard connection or whatever? every idea is an iteration of another idea. Westerners can be so self-righteous it's embarrassing

Wednesday 22nd June 2011, 13.03 (UTC)

Lucy Jennings

I find that an incredibly unfair comment. Chinese people are just as 'self-righteous' as Westerners because there is exactly this view that people in the West are so self-righteous to begin with! I get the impression that China considers itself to be fighting an uphill battle against globally 'accepted' points of view. They need to stop living in this 'victim' role and share responsibility equally with the West as opposed to attacking them.