Review – “China Dream” by Ma Jian

Ma Jian has been in the news recently, with his new novel and getting barred from a literary festival in Hong Kong. I have just reviewed the novel China Dream for the South China Morning Post. It’s a great and important book. Check it out.


Interview with Yukon Huang


Yukon Huang is the author of “The China Conundrum: Why Conventional Economic Wisdom Is Wrong”, one of the finest books on Chinese economy yet published. With enormous experience from his time as the World Bank’s Country Director for China from 1997 to 2004, and for Russia and other Former Soviet Union Republics of Central Asia from 1992 to 1997, he is a genuine expert on developing economies and the issues in their transition to more advanced technologies. He is now a senior fellow at the Carnegie Endowment for International Peace.

Did you focus on China during your studies?

I’m a specialist in the economics of developing countries but not specifically on China. My PhD thesis focused on agricultural issues in Malaysia – its transition to a country that has begun to use more technologically sophisticated agricultural processes. I then worked at the US Treasury covering Asia, and at that time ironically the focus was on Burma/Myanmar when it was closing down. The big issue was should the US engage in Myanmar or should we just give up on it? Subsequently the US gave up on Burma and of course it has come back within the last couple of years. I then worked for the World Bank for almost three decades. Many of my assignments were in Asia but I was also posted in Russia for a while. So, I specialize in emerging market economies and China is one of the best examples.

What attracted you to the area of international development as compared to domestic economics?

My interest was always international. After I finished my thesis, and having taught at the University of Virginia, my first real assignment in some ways was in Africa. So, I went to Tanzania. I went to Tanzania and spent two years there teaching economics and doing research on Africa Economic Development. Then I went to the US Treasury and worked on Emerging Market Economies. Then I joined the World Bank, and essentially focused on emerging market economies. My last major assignment was China, though it turned out that China was completely different.

When you were the Country Director for China at the World Bank, what were your main priorities during that time?

I went to China in 1997, when Zhu Rongji was just taking over as a prime minister, and getting on with several major initiatives. One was WTO accession. What surprised me about WTO membership is that we all expected China’s trade balance to deteriorate, because China had to liberalize imports and lower tariffs. We thought that imports would surge, and it would take time for China’s exports to increase, so we expected China’s balance of payments to actually moderate or decline. But the reverse happened. China had huge trade surpluses. But what we did not forecast was the strength of the East Asia production sharing network in terms of using China as the base for exporting to Europe and the West. So, you have this huge surge of trade between China and Asian economies in parts and components, assembled in China and exported to the West, which led to a huge surge in exports. So that’s one thing that surprised me.

The other thing that surprised me was the strength of the private property market. In 1997-98, China started to privatize home ownership. People could buy their homes and sell them after a while, and this created a secondary housing market. Then, in 2004, China created auctions to develop land in major cities and made commercial development of both housing and commercial property a market process, and this became a major source of growth for a decade. I saw these two issues as important accomplishments, but underestimated personally how powerful they would be in transforming China.

Looking back at Western comment on the Chinese economy, there’s always a fear of looming recession, and these growth engines are almost entirely overlooked.

It’s very easy to underestimate the power of efficiency gains from reforms and the power of what I call “collective action” in China. This is a system where, if they get it right, they can very quickly move forward in a unified fashion. It is very hard to estimate because we don’t have comparable examples in the West. The power of collective action and potential economic gains from certain reforms are much more powerful in China than what we have been able to see in other countries.

Most people would be surprised to learn about China’s low level of government expenditure – around 30% – as compared to about 45% for OECD members. Is this simply part of being a less developed economy, or is it a conscious decision?

China has more expenditure responsibilities than normal, but its budget is a very small share of GDP. This is a legacy of its central socialist system, where corporations carried out a lot of social responsibilities paid for from their profits. Comparatively, now you have a much smaller state sector and a much larger private sector, but the economy is not securing tax revenues to build roads, healthcare, and education expenditure, all of which are needed. China’s tax revenue is a relatively small percentage of GDP, around 32%, whereas the average for middle income developing countries is around 38%. So how has China been able to finance its public expenditure? The answer is: banks. Local governments borrow from banks to fund infrastructure. In my book I say “There is a problem in China but it’s not a banking or financial problem, it’s a budget problem, which creates what I call hidden fiscal deficits, and over time this needs to be addressed.”

In the book, you reference Michael Pettis’ claims that growth might slow to about 3-4%. We’re seeing growth actually accelerate to 6.9%, but people are claiming that the data must be incorrect, because it’s so consistent. Why is that?

Previously, people looked at indicators like energy consumption, and said energy growth is only increasing by 1-2%, so how can GDP be increasing by 8-10%? The answer of course is that China’s economy is becoming much more services oriented, so energy is less of an issue. Now services account for the majority of growth in China, and a lot of this is showing up in terms of e-commerce and certain services which are very hard to actually record in GDP. A big issue globally is how GDP is underestimated because the digital economy is harder to evaluate, and this is happening even faster in China. Here’s a country which has moved almost totally to an e-commerce payment system where everyone pays by phone and no one uses credit cards or cash anymore. GDP numbers don’t capture this.

The second thing is that China’s GDP accounts still have what I call vestiges of a country in the socialist era, when services and private activity were insignificant, so growth in informal activities, particularly in services, are not adequately accounted for. But every 5-7 years, China does a so-called re-basing of its GDP. Officials from the UN, the World Bank and the IMF come in, look at all the databases and re-calibrate GDP. Every time they do it, they find that the GDP numbers are too low. So in my book I talk about how data is not the real issue.

As for the argument that China’s GDP growth will collapse to 3% or thereabouts – there are two arguments that people make. One is that there will be a debt crisis. As I say, the economy is not going to have a debt crisis, but it does have a fiscal problem. The fiscal problem is bleeding the economy and needs to be dealt with, but it would take many many years before a collapse happens. Pettis’ argument is that consumption’s share of GDP is too low and must rise. But for it to rise, either consumption has to increase very rapidly or GDP has to fall. But consumption cannot grow so rapidly, though it’s already growing by 8-9% a year. Pettis argues that for consumption to be 43-45% of GDP ten years from now (currently it’s about 37-38%), GDP growth must only be 3%. If consumption grows at 5-6% and GDP grows at 3-4% then consumption’s share of GDP rises. But if GDP growth falls to 3%, incomes will fall and consumption will also fall. So in my book I point out that this is just analytically illogical.

What are the ideological biases you think that get in the way of discussing the Chinese economy?

China is difficult to analyze from the perspective of Western textbooks. The problem in China is that the state is heavily involved in the economy. Local governments in China are also economic entities – they invest, develop, and compete. We don’t have that in our textbooks in the West; there’s no concept of an economy in which the State is a competitive player. Then you have another problem: here’s a country that grew at 10% a year for three decades yet lacked strong institutions and had all sorts of weaknesses. Our textbooks would say that such a country cannot grow or develop very well. Many critics therefore basically say that there’s something wrong here. That’s why in my book I have an annex that shows GDP data in China actually understates China’s growth.

Ten years ago, the criticism was that China’s growth model was unbalanced. It consumed too little and saved too much, and that this would eventually lead to a crash. But I found that consumption growth in China has multiplied faster than in any major economy over the last several decades. The recommendation that China needs to balance and consume more is just technically wrong. What I basically show is that high performing economies – if they’re able to invest productively for long periods of time – will grow very rapidly, and consumption will also increase very rapidly. So that’s one fallacy.

The other thing was the growth of debt. People have been saying “This country’s heading for a financial crisis, it’s going to collapse, and its property market is a huge bubble.” I basically point out that China is quite different in terms of debt and the property market. The big difference is that a decade and a half ago it didn’t have a private property market and was struggling to figure out the price of land and property. But China has a lot of people, and relatively limited land, so property prices have soared by 600% in the last ten years and 70% of credit has been going into the property market. I argue in my book that this is not actually a normal debt problem, or a normal credit problem – it’s actually financial deepening. You are trying to find the value of an asset whose value was hidden in the centrally planned days. I basically show that today the debt to GDP ratio in China is actually normal.

In your chapter on the global balance of power, you discuss various confidence building measures and greater openness between the US and China.

In terms of global power relations, China is not easy to characterize. Recently, the Trump administration said China is a strategic competitor, not a strategic partner. I think this is basically correct, so the question is how do you deal with this? I call China an ‘abnormal economic power’ – it’s not what we’ve seen before in the rise of a great power. China is the first developing country to become a great power. It is also getting old before it gets rich, and its political class is not as sophisticated as you expect. It’s also the first great power which is a returning great power. This is all very unusual.

The concept of a so-called abnormal great power has two significant points. There’s a sense of insecurity in the system, and there’s also a lack of experience or sophistication. The West has quite some difficulty dealing with this. At the same time Xi Jinping has moved away from the guidelines that Deng Xiaoping had put in place – that China should bide its time, shouldn’t get involved in foreign policy issues in any kind of aggressive way, and just concentrate on internal matters. Xi Jinping has changed that: he’s saying China is the second largest economy in the world, and very soon it’ll be the largest, so we need to express our views, and should be respected as a rising power. But they have never been really clear on the issues. What do they want to do that would be different? I think the issue is that it has not sorted out what its longer-term objectives are.

Published in Business Tianjin. My review of Cracking The China Conundrum will shortly be published in the LARB China Channel, so keep your eye out.

Reviews – “Feel Free” by Zadie Smith and “The Only Story” by Julian Barnes

Two reviews to catch up on – Feel Free by Zadie Smith and The Only Story by Julian Barnes. I liked the former and loved the latter. Barnes I’d been aware of for some time, as he pops up in the letters and biographies of both Kingsley Amis and Philip Larkin numerous times, but this was the first book of his I’d read. It’s tender and severe, satirical but deeply felt. Lovely. The Smith book was good, sometimes very good, though not quite enthralling. But check ’em out.

Interview with William Bao Bean


William Bao Bean is one of the best known expat venture capitalists and start-up mentors in China. Born in the US and of Chinese and Scottish descent (hence the surname “Bean”), he swiftly gained a strong reputation as a research analyst then moved into venture capital. Currently operating as the General Partner at SOSV with its Chinaccelerator and MOX start-up accelerators, he is deeply knowledgeable about the intricacies and hazards typical of Chinese business. Business Tianjin spoke to him to discuss the trends, demands and pleasures of the start-up scene.

Why did you take up East Asian Studies (at Bowdoin College in Maine) rather than business?

I had a classical education in liberal arts. My father was an artist and my mother was a philosophy professor but since I decided to go into business instead, I never did a postgrad degree. I studied East Asian history and government because analysis of political thinking always interested me. In school I analysed what happened in the past and then over the last 22 years in tech I have been analysing what has been going on and what will go on, or what will happen in future. So in a sense it is quite similar. For me, research, international relations and covering global tech equities is just what is interesting. It isn’t hard work and is in fact a lot of fun.

When you were working at Deutsche in Hong Kong you quickly earned a reputation for picking winners in your research analyst role. What do you put that down to?

My boss at Bear Stearns in New York (I worked for him from 1997-2000) was a really good mentor. He didn’t tell us what to do, we got to work with him, see how it was done, then do it ourselves. You learned by doing. So the three years I spent working for him prepared me. After the first dotcom bubble burst, I went to Deutsche Bank and had six years of equity research experience by the time I got there. I had been covering tech for a long time, as long as anybody in Asia, as it was a new industry back then. The most important thing is when there is change in the margin and realising that something unexpected is happening. That’s when you get a big disconnect between what happens and what people think will happen and when you have the opportunity to make a big call on the stock. Now, the puzzle is constantly changing, so the key is to know which changes are important. And when that happens, you can get a very big change in the stock price because everyone is thinking one thing and then bang! Something else happens. I was constantly talking to people in the industry. Not just senior executives – the key is to talk to directors or vice presidents. One of the tricks I had was that I used to write research reports which industry people liked reading. Every three months I would release a report with all the industry numbers for all the different sectors in the Chinese Internet. Usually when people do these charts, they don’t put the actual numbers in. I put the values in so people could take my numbers and put them in their reports and ended up being quoted in everybody’s internal PowerPoint presentations. It also helped that I have a very strange name, as I’m half Scottish and half Chinese.

Were your studies helpful in understanding how business worked in Asia?

Whenever you read about a culture that’s not your own it’s useful, but living and working in that culture is much more important. It’s kind of like sex: there’s a big difference between doing it and reading about it in a book. There’s no substitute for being in the market. My goal was to get three contacts at each company I covered. If you’re going to do anything you need to have an unfair advantage and mine was that I had 6000 industry contacts who I spent a huge amount of time talking to.

Softbank China India saw you focusing on early stage investments in Tech, Media and Telecoms (TMT) companies. What drew you to early stage companies?

I had been doing equity analysis for 11 years and it was time for a change. I saw the Internet taking off, my clients were making giant piles of money and I decided it was time to go from the sell side to the buy side. The usual path is to go to a hedge fund, but instead I chose to go to early stage VC because my counterparts in the banking side received funding from Softbank. I formed Softbank China India with two partners. We got another US$50 million from Softbank, then another US$50 million from Cisco. Softbank China India was one of the very first regional early stage funds, which is difficult to do. Traditionally people are focused on a specific geography and perhaps we were ahead of our time. Many of the companies we invested in were just trying to do things the market wasn’t ready for. A lot of infrastructure just wasn’t ready. We tried to do a hardcore MMORPG from a hub in Singapore and aside from the infrastructure not being good enough to do it that way, the payment infrastructure wasn’t there in the countries that we went into. But now there’s a much bigger market.

What do you like about working with these early stagers?

I did two start-ups when I switched to venture capital. The first was an utter disaster but I learned a lot. The second one we got a buyout acquisition offer which we should have taken but didn’t. But the key with start-ups is that you can’t know how to do everything. There are sales, marketing, and fundraising people, the product person and usually a tech person. I am not a product person, but I do know how to sell things. I have been explaining bleeding edge technology to investors for the last 21 years. When I work with startups, I focus on strategy, partnerships, business models, customer acquisition, fundraising and pitching, and I fill up my team with a bunch of awesome people.

What are the trends you’re seeing in SOSV’s accelerator programs?

Everyone is investing in mobile right now. We find mobile apps that people love, help them make money and help them get hundreds of thousands, even millions of users. The problem is: without us it’s almost impossible for a mobile app to be profitable unless you are an investor in games and we don’t do games. So, one of the trends is that people do not invest that much in mobile till the later stage. The second trend is there is a very big focus on things like mobility, so artificial intelligence and machine learning are affecting a lot of different industries. We invest in companies in healthcare, mobility and finance and even e-commerce that take advantage of artificial intelligence and machine learning. So as we go across borders we focus on those areas. But if you are going across borders, you need to have an unfair advantage to even have a chance. If you are in China, if you have an exclusive relationship with an international supplier and you are bringing their product into China, that’s an unfair advantage, no one else can really do that. It might not seem super special, but having a unique product is an important differentiator in a big market like China.

Of all the investments you have led, which ones have done best? What names will be best known in future?

There’s a company called Bitmex which is a trading exchange where you have a derivative of any financial product in the world – the S&P500, any stock, any currencies. They’ve set it up so people can put money in via Bitcoin. Chinese people have cash, but they can’t buy Alibaba, Apple, or Tencent stocks, because all of those companies are listed offshore. But if they can take their RMB and turn it into Bitcoin without taking their money out of the country, they can now buy an Alibaba or a Tencent stock derivative. Bitmex started off with currency futures like Bitcoin dollars and ethereum dollars. Then the next thing they offered was ETFs, like S&P500 or China A-Share 50 ETF derivatives. Soon they will be offering single stock futures. This is open to anybody anywhere in the world. This is potentially massive. They’re already doing very well, with three and a half, four billion US dollars in trading volume a month.

What advice would you give to a founder getting ready to pitch to you?

The key is we are very data focused. We look at a lot of industries and a lot of different countries, so knowing your numbers and being able to talk about your data is essential. We don’t invest so much in ideas, we invest in people. They need to have what it takes to solve the problem which they want to solve. It’s important that they understand the metrics that drive their business because if they are not focused on numbers, we’re going to be lost when they go into another market. When you do that, you don’t know the language, you don’t know the consumers and you don’t know the business model. All you have at that point is numbers. Your customers are talking to you through numbers, through their interactions with your platform, products or services. So I would say know your numbers going in, know them cold. A CEO who doesn’t know what is going on in his company is not somebody who is investable.

How did you become a director with italki?

italki is a marketplace connecting students and teachers around the world, teaching 100 languages across 200 countries. They’re one of the companies that got me into investment because they solved a problem I was passionate about. They allow everyone to learn the language the way I did: I moved to Taiwan for two years and just hung out with people. But that’s not available to most people. If they want to hire somebody locally, a Chinese teacher in Manhattan costs around US$90 an hour. I went on the board and I went into debt to keep the company alive. I wouldn’t advise that but that’s what I did. They have up to 60 employees now, and have been experiencing positive cash flow for quite a while. They closed a strategic series A round last year and are really doing well. The great thing about being a board member is that you’re not in there grinding every day. One of the reasons they succeeded was because they just didn’t give up, though you need to pivot, change, correct and iterate. But if the problem is there and people have this problem, if you keep on working on it, over time there is a possibility that you will be able to solve it for people. And there’s usually a way to figure out how to make money from it.

How do you manage so many responsibilities?

I’m a rather poor CEO, but I’ve had to learn how to be a better one because we’ve scaled up and now I have a team of 15. But the short answer is that it’s just not easy. We iterate and we are always changing: SOSV, MOX and Chinaccelerator are start-ups as well. We measure everything; we are constantly trying to improve. Just in the last week we restructured how MOX works and how it’s managed, again not the first time. It’s a constant struggle – that’s why they call it the start up grind. Everybody likes eating the sausage once it’s nice and neat in the package, but nobody likes to find out how the sausage is actually made.


Published in Business Tianjin

Cormack’s Choice – A Book Roundup for 2017

Via The Economist


It’s the time of year to look back and see what were the best books of 2017. I’ll list all the books I’ve reviewed, then see who emerges as the best.

Lotus by Lijia Zhang – South China Morning Post

China’s Asian Dream by Tom Miller – South China Morning Post

The Kingdom of Women by Choo Waihong – South China Morning Post

Party Members by Arthur Meursault – Hong Kong Review of Books

Dear Friend, From My Life I Write To You in Your Life by Yiyun Li – South China Morning Post

The Wangs vs. The World by Jade ChangBusiness Tianjin

Remains of Life by Wu He – South China Morning Post

Alibaba: The House that Jack Ma Built by Duncan ClarkBusiness Tianjin

Everything Under The Heavens by Howard French – Hong Kong Review of Books

Rich People Problems by Kevin Kwan – South China Morning Post

The Language of Solitude by Jan-Philipp Sendker – South China Morning Post

Sour Heart by Jenny Zhang – South China Morning Post

The Souls of China by Ian JohnsonBusiness Tianjin

Shanghai Faithful by Jennifer Lin – Hong Kong Review of Books

Ma Huateng and Tencent by Leng HuBusiness Tianjin

Selfie by Will Storr – Hong Kong Review of Books

The Chinese Typewriter: A History by Thomas S. Mullaney – The Spectator

Wang Jianlin and Dalian Wanda by Zhou XuanBusiness Tianjin

Six Billion Consumers by Porter Erisman – South China Morning Post

Finding My Virginity by Richard Branson – South China Morning Post

The Standing Chandelier by Lionel Shriver – South China Morning Post

China’s World: What Does China Want? by Kerry Brown – LA Review of Books’ China Channel

The Only Story by Julian Barnes – South China Morning Post


That’s a total of 23 books. (I’m currently reading The China Conundrum by Yukon Huang and The War for China’s Wallet by Shaun Rein for a review in LARB China Channel, but this probably won’t be published this year). Breaking it down, there are seven by women, and sixteen by men. Nine are fiction (eight novels and one short story collection), fourteen are non-fiction (five memoirs, three biographies and six books on specific topics) – which isn’t surprising as my focus is largely on China.

Thoughts and comments:


There’s been some excellent books. In terms of books on aspects of China, I most enjoyed China’s Asian Dream by Tom Miller, Everything Under The Heavens by Howard French and The Souls of China by Ian Johnson. The former pair both cover Chinese foreign policy – the Miller book in a shoe-leather-pounding exploration of the areas of the Belt and Road strategy, the French an overview of the history of China’s relations with its neighbours and its effects on China’s newly expansionary foreign policy. The Johnson book was, like the French, both a historical overview and a current-day exploration, in this case of people seeking religious affirmation in a country where religion is discouraged. All three were excellent.

In memoirs and biography, I really enjoyed Yiyun Li’s Dear Friend, From My Life I Write To You In My Life. It’s a book of precise poeticisms, exacting emotional qualification and unsparing, even tortured self-analysis. It’s maybe somewhat chilly but incredibly bracing.

I also very much enjoyed Selfie by Will Storr. It’s an examination of how the self has developed from Ancient Greece to the modern day, and how the modern narcissism has taken hold. It’s a wide rather than deep survey, with biographical interludes and pop psychology, but it’s written with verve and it really hits a nerve.


Fiction is always a bit more hit-and-miss than non-fiction. I’m not sure if it is a genuine trend or just what I’m reviewing, but the Chinese diaspora seems to producing some good works in English. Jenny Zhang’s Sour Heart and Jade Chang’s The Wangs vs. The World were at the opposite ends of the spectrum. Zhang’s book was a collection of short stories that went where no other female writer I’ve ever read has, in revealing what adolescent girls get up to. It was fierce, brave, and even slightly dreamy. One to keep an eye on. Chang’s book was one about rich Asians (like Rich People Problems by Kevin Kwan) and their marvellous lifestyles, for which I had far less sympathy. Both were technically well-written but felt like money porn.

I also hugely enjoyed the Julian Barnes book. I’d been aware of him for years – he pops up in the letters by Philip Larkin and Kingsley Amis, and his friendship and falling-out with Martin Amis are well known  – but never bumped into his books. The Only Story shows him to be having a great Late Period.

Did Not Like

I’ve really only written two negative reviews the whole year. The Kingdom of Women by Choo Waihong had great promise, as a travelogue of a woman encountering a lost matriarchal tribe in China, but it was just badly written and edited. I know the author isn’t a professional, but you expect a bit more from something named Radio 2 Book of the Week. And I was frankly repelled by The Standing Chandelier by Lionel Shriver, which seemed lazy, thin and uninteresting (if competently written).