Comments on: China’s Casino Economy

By: Marty

Marty — Sat, 31 Jul 2010 09:19:35 +0000

Bill,
Maybe I’m getting too academic, but my memory from Microeconomics is that two key hallmarks of a ‘competitive’ industry are easy entrance an exit, since that allows the number of competing companies to easily adjust to the supply and demand. I think an argument can be made that many industries in China are far more competitive in this regard than their counterparts in the West. Of course things vary in the West, Texas has far less red tape than say California. One could argue that from the perspective of both businessmen and consumers it is a good thing.

Of course many new business owners are not competent or simply have a bad business model and are doomed to failure. But why not give them a shot at success? My neighborhood in Chicago has a restaurant density that rivals Chinese cities. Restaurants come and go but after 10 years I find myself mostly frequenting places that have been open longer than the 10 years that I’ve lived here. Perhaps it is because these survivors have figured out a winning formula of good food, comfortable atmosphere and good business management that keeps customers coming back.

By: Bill Dodson

Bill Dodson — Thu, 22 Jul 2010 16:20:12 +0000

Inst and reader;
A fundamental tenant of doing business in China the Chinese Way is NOT to build it to last (much to the frustration of German and Scandinavian vendors). Businesses in China are not so much seen as long-term investments as piggy banks from which business people can withdraw their cash whenever they want to and need to. Indeed, the social and economic structures here are different than in the States. Throughout China’s long history the Rule of Man has trumped the Rule of Law through arbitrary and capricious policy shifts and court judgments, creating a perpetual quick sand as a base for business interests.

Some businesses, of course, are long-lasting: mostly those in HK and Taiwan, which have rationalized business structures and relatively more transparent governance than on the Mainland (in general). However, in China, State-Owned Enterprises (SOEs) rule the roost with the result that for the past 18 months in increasing numbers private companies are being absorbed by SOEs through a policy known as guojinmintui – literally, “the state advances as the private sector recedes”.

Such an attack on a nascent private sector combined with the dearth of bank loans and alternative financing sources for SMEs combined with vague and immature property rights laws make building a business that “lasts” in China far more challenging than America’s more rationalized economy. Black Jack, anyone?

Yes, China is just that different.

By: Fengqin

Fengqin — Wed, 21 Jul 2010 09:11:49 +0000

@Inst

Wumao also have to Eat.

Hope you are happy with the River Crabs.

By: reader

reader — Wed, 21 Jul 2010 09:07:39 +0000

According to IRS’s data, 95% of business disappear here in the States within the first five years of incorporation. So what’s the big deal?

By: Inst

Inst — Tue, 20 Jul 2010 13:06:10 +0000

I don’t understand why you posted this blog, given that a lot of it is related to the current economic climate. The mass closings on 2008 were related to the 2007-2008 economic crisis, and perhaps your Suzhou closing is also related to the present economic environment.

I also don’t understand your criticism of Chinese entrepreneurship; in the United States, something around 60% of new businesses fail within the first 3 years. Is it any surprising that Chinese businesses fare similarly?

Perhaps your point of view is more related to different economic structures in the United States and China; in the United States, I see a majority of mall shops being operated by franchises and big-brand names. Very few of these are mom-and-pop stores, and I’d be surprised if I found many “new” small businesses that opened in the last few weeks.

Also, as China is a rapidly urbanizing country and a developing country that, we hope, is in the process of modernization, does it make sense that tastes and customer expectations are in the process of rapid change? What may be adequate today will not necessarily be adequate tomorrow, and what has no market yesterday may be successful today.