I recently had the opportunity to read Shaun Rein’s The End of Cheap China: Economic and Cultural Trends That Will Disrupt The World. It is a fascinating and incisive book highlighting some of the misconceptions that Westerners have about China, why certain things occur the way they do in China, the changes that are occurring there, and how those very changes will affect China and the rest of the world over the coming years. It is a must-read for anyone interested in doing business in China.
Rein, who is based in Shanghai and founded and manages China Market Research Group, discusses many key trends/themes and take-aways (including “Do’s” and “Do Not’s”) that are important for anyone conducting business in China to learn about. To me, the most important are: Many Chinese often prefer American-made products—especially food (even KFC!)—because they believe in the integrity of the American supply chain system; the Chinese government is not monolithic and there is a huge chasm between the Central government, which Rein believes is sincere in law enforcement and citizens’ rights, and local governments, which often do not enforce national laws and can be very corrupt; a small—but integral–part of being successful in China is having guanxi, which Rein defines as a “circle of trust” at all levels of government; as costs (especially labor and real estate) rise in China, companies will look to relocate production to other lower-cost countries such as Vietnam; as China becomes more developed and technically sophisticated, it will start producing many of the products that it currently buys from Western companies, reducing their market share in China; and, as Chinese consumption continues to rise (especially for many commodities), friction with other countries will inevitably occur as they will all compete for a finite supply of resources—and the Chinese government will try its best to put its own economic interests first.
I myself learnt a tremendous amount from this book and have seen in-person some of the themes Rein highlights. For example, when I visited two factories in Southern China in 2010, the owners were lamenting how the upwards pressure on wages was causing many American factories to think about shifting production away from their factories to cheaper places such as Vietnam or Bangladesh.
The book does have a few downsides. For one thing, it is unabashedly pro-China and Rein excuses many episodes such as the failure to enforce US copyright law as just poor enforcement of national law at the local level. He also believes that many Americans (including some members of the media) harbor some sort of anti-China sentiment, which I think is off the mark. I firmly believe that many Americans actually want China to be successful as that will help lift millions more out of poverty and that they are really opposed to certain actions that China is committing, such as engaging in friendly overtures with Mugabe’s Zimbabwe, a known despotic country.
Overall, it’s a great book and worth reading for anyone interested in furthering their knowledge about the Chinese business culture. Rein’s anecdotes do an excellent job of illuminating his themes.