Happy Holidays!

Escape from Academia will be taking a break over the holidays until mid-January. Thank you for all your support.

Wish you a Merry Christmas and a Happy New Year!

The Philosophy of Parkour

Imagine you jump, you run, and you free-fall all over a city. How free, or how zen, can you feel?

I read this article about a group of free-runners in Bangkok. They practice parkour not only for fun. On top of jumping off buildings and making dangerous moves without protection, parkour is also about developing self-discipline.

Parkour is a term that comes from the "obstacle course" used for military training. According to the founder of parkour, David Belle, the philosophy of parkour is to move from one point to another in the most effective way possible. In addition, the "traceurs" i.e. the practitioners of parkour, believe that parkour can improve critical thinking and mentality.

It's very interesting. I think I will begin to practice parkour someday. One day ...

Shalom to the Recession or Ben Bernanke?

Foreign Policy named Fed Chairman Ben Bernanke 2009's number one global thinker. Excerpt is as follows:

The Zen-like chairman of the U.S. Federal Reserve might not have topped the list solely for turning his superb academic career into a blueprint for action, for single-handedly reinventing the role of a central bank, or for preventing the collapse of the U.S. economy. But to have done all of these within the span of a few months is certainly one of the greatest intellectual feats of recent years. Not long ago a Princeton University professor writing paper after paper on the Great Depression, "Helicopter Ben" spent 2009 dropping hundreds of billions in bailouts seemingly from the skies, vigilantly tracking interest rates, and coordinating with counterparts across the globe. His key insight? The need for massive, damn-the-torpedoes intervention in financial markets. Winning over critics who have since praised his "radical" moves (including Nouriel Roubini, No. 4 on this list), he now faces an uphill battle in his bid for permanently expanded Fed powers. The radicalism is far from over.

"Those who doubt that there is much connection between the economy of the 1930s and the supercharged, information-age economy of the twenty-first century are invited to look at the current economic headlines -- about high unemployment, failing banks, volatile financial markets, currency crises, and even deflation. The issues raised by the Depression, and its lessons, are still relevant today." --Bernanke, Essays on the Great Depression.

Though many claim Bernanke has successfully utilized his academic intelligence to save us from a worse collapse during the economic crisis, his lack of attention to the long-term economy has also put us in a potential hyperinflation (see my recent post about the current economic crisis). Well, we will see how Bernanke brainstorms and deals with it when it comes.

A Beautiful Crime

Art exists in many forms – Van Gogh found it in painting, Frank Lloyd Wright found it in architecture, and Michael Jackson found it in dancing and singing, etc. And for Philippe Petit, he once found it in crime.

I found this article about Philippe Petit, a famous French tightrope walker, and his history of crossing between the twin towers of World Trade Center on a wire back in 1974. The crossing is not only made by Philip, but by the friends of Philip and those who were entertained by such a dangerous idea. At first I thought I was watching a group of professional criminals trying to destroy the towers. They spent several years of efforts to "premeditate" the crime together - they even had an insider in one of the extremely secured towers. However, I later discovered that this "artistic crime of the century" - named by Time Magazine - is neither a crime nor a serious villainy futile. In fact, it is simply a pursuit of the passion and happiness. Perhaps the story of Philip is an extreme example of having a passion they can die for, but I think we should learn the attitude of Philip: If you have a passion, it must be pursued at any price, if you fail or even die because of the pursuit, it is a beautiful failure.

Philippe Petit's interesting quotations:
- "My crime is purely artistic. If I have to ask for permission to do it and I am refused, I will still do it anyway. To me, this is obvious: there is no need to ask for permission when we want to accomplish something beautiful. It just needs to be done."

- "Being a tightrope walker, it is not a profession but a way of life. Crossing on a wire is a metaphor for life: there is a beginning, an end, progression, and if you make a wrong step, you die."

- "To me, it seems so simple that life should be lived on the wire, meaning to see every day, every year, every idea as a real challenge."

China's Very Own Cola

As I was doing some routine blog readings, I came across this blog post about Future Cola, one of the successful Shan Zhai businesses that I mentioned in my recent article. I think it would be interesting to elaborate more on its rise.

Although it copied the packaging of Coca-Cola, Future Cola actually researched substantially on what flavor was tailored for the Chinese palate. Eventually, it came up with the taste, which it claimed to represent a healthy way to cool off the Chinese youngsters and clean out their fiery livers. With a strategy similar to BaWang’s, Future Cola targeted at overlooked consumers in lower-tier cities and rural areas. Taking advantage of Shan Zhai to achieve low production costs, Future Cola rapidly imported state-of-the-art equipment and localized production facilities. Furthermore, it leveraged the resources of its parent company, Wahaha Group, in order to establish a vast distribution network in target markets. More important, it launched an aggressive but very focused marketing campaign to build a brand image as “the Chinese people’s own cola.” Once mocked as a cheap copycat of Coca-Cola, Future Cola has now grown into the third-largest player in China’s carbonated soft drinks market after Coca-Cola and Pepsi, with a competitive edge in less developed markets. To expand its market presence further, Future Cola is even planning to challenge the two beverage giants by entering the first-tier markets.

This is just one of many stories about venturous and innovative Shan Zhai businesses.

The era of Shan Zhai seems to be on its way.

Chinese Democracy in Becoming a Star

While many people nowadays may still see China as a community nation where the Party takes total control of its people, I recently found democracy in this Chinese television show called Super Girl.

Considered as the Shan Zhai version of American Idol, Super Girl is an open competition any female contestant regardless of her age, origin, appearance, or the way she sings. But unlike the U.S. show, Super Girl judges are selected from different backgrounds in the society – some of them are even picked from the audience. And the most astounding part is that in the final stages the winners are not chosen by judges at all; instead they are elected by viewers from all over the country by telephone and text messages.

It has turned out that such fearless form of democracy has culturally conquered China. The 2005 season finale was one of the most popular shows in Chinese broadcast history, drawing over 400 million viewers, more than the China Central Television New Year's Gala – the usual number one show every year – earlier that year. Think about it. The number is even bigger than that of the U.S. population! Further, roughly over 600 million votes on average were casted in every season, making this show one of the most democratic phenomena in contemporary Chinese history.

Super Girl has evidently created incredible commercial success and unprecedented social impacts. Though there remain some opposing voices, particularly from the government, that accuse the show of polluting the Chinese culture with foreign ideologies and promoting a low culture to the youth, they have to realize that globalization, which today continues to assimilates various cultures, is inevitable and unstoppable. To put this way, Chinese people watching Super Girl is roughly the same idea as Westerners learning Chinese after all.

Probably they might change their mind after watching Jane Zhang’s spectacular performance in The Oprah Winfrey Show.

Building Earth on Earth? Save Enough Money First

The Arabs have got the bad habits of Westerners - they don't save enough money for luxuries.

Human Fat Trafficking: A Price Worth Paying for Beauty?

Four people were arrested in Peru early this month for trafficking human fat, which could be linked to sixty disappearances. Seven other people were wanted, including two Italians. According to the inspector, the fat was to be sold later to cosmetics laboratories in Europe. Moreover, human fat may cost as much as 10,056 euros (approximately USD15,000) per gallon in European countries.

I also heard from other sources that the group of traffickers typically kill farmers or indigenous people who are fat and live in isolated villages. Then they roast the victims' limbs to extract the fat. Without doubt, this is extremely disgusting and inhumane, I thought the movie "Fight Club" in which people produce soaps with human fat was a little exaggerated, but it does happen in reality. There are indeed people who kill others of their own kind to make a living. I do not know else I can say. This is really really sad.

The Purpose of Spam

You don't make much money doing that, right? So what is the purpose of Spam?

The Dream Prison

Filipino prisoners at CPDRC dancing to Michael Jackson's Thriller.

How Much Is an Andy Warhol?

This article talks about an interesting scandal in the history of art at "Art by Telephone" by Andy Warhol. A man named Joe Simon bought a red self-portrait of Andy Warhol silkscreen on canvas in 1989 for investment. But then the Andy Warhol Authentication Board refused to certify the work, even the painting was signed by the artist. In other words, the painting is worth nothing. The committee explained that Warhol was not present during the creation of the work - he gave the printer instructions by phone. While Andy Warhol is famous for producing artworks in a mass scale with the help of a telephone and the execution of his assistants and printers, the Board aims to eliminate the "ready made" to preserve those that are rare. Thus, Andy Warhol's "art by phone" has triggered controversies on authorship in general.

I think that "the art by telephone" gives a delicate gray area on the authenticity of an artwork. The works of "art by phone" are not created by the artist himself, but the artist permits, or even demands, the production of the works. It's really difficult to decide whether a work is authentic or not. But I probably agree with the committee - only works that artists create themselves should be considered authentic. Perhaps art investors should be more careful when they encounter "ready made" artworks, especially those of Andy Warhol!

A "Novel" Way To Read Newspapers

Alfred Sirleaf’s ‘Daily Talk’ newspaper reaches thousands of Liberians every day in the tiny African country’s capital, Monrovia, but he always produces only one copy - he writes the day’s biggest stories on a large blackboard beside a busy road, something Sirleaf has done since he founded The Daily Talk in 2000.

Mario Garcia said, "I have found great inspiration in Sirleaf’s model of a newspaper that serves its purpose in grand style, yet he produces it daily by just writing with chalk on a board. It proves that storytelling is more about the stories than the medium or the technology. If we ever needed a reminder of this, then Sirleaf’s newspaper on a blackboard is the ultimate testimony." Well said.

All Cities Should Have Sisters

A beautiful example of globalization.

What Remains of Our Love?

Paris, the City of Love, is not full of love anymore. In response to the severe divorce problem in France, Nouveau Départ (translation: New Starting Point) – the first fair about divorce, separation and widowhood – will take place in Paris on the coming 7th and 8th. According to the organizer Brigitte Gaumet, the fair is intended to help women with marital problems find a new starting point in their lives. I think that the fair, to a certain extent, brings out the trend that marriages and relationships nowadays are generally fragile. More and more people look for practical advantages, such as money and social status, in a relationship rather than the ideal person that they can spend the rest of their lives with. Worst of all, many people always want to be loved, but they failed to realize that they have to be giving in order to make love more rewarding. If we continue to have such attitude, true love will not exist anymore!

George Soros' Open Society

George Soros lectured yesterday on the concept of open society (see link), which argues that capitalism may not seem as applicable to today's world as it was before. He also emphasized that the society would function better if roles as political participants and those as market participants are separated. This is a very interesting read that critically challenges many economic principles that we learn in class. Enjoy!

Clowns and Jesters on the Economic Crisis

To me, there are two major kinds of jokes: those made by clowns and those by jesters.

Clowns make jokes by being the jokes. Slamming a door on their hands, tripping over their own feet, and falling into a pit are just a few examples. Others laugh at clowns simply because they find their jokes foolish, and sometimes to the point of being ridiculous. On the other hand, jesters make jokes by delivering the truth. Although their jokes may often sound outrageous, they merely reveal the implausible-but-true sides about the very world that we live in. People laugh at jesters because they find their jokes too witty, too true, too overwhelming, and perhaps too sad, to the point that they can do nothing else but laugh.

In his various appearances on CNBC and Fox News during 2006 and 2007, Peter Schiff predicted that a financial crisis was on its way and that the U.S. economy would enter a longer-than-ever recession. What’s more, he further stressed in that the subprime mortgage problem would transform into a large-scale mortgage crisis in which sky-high real estate prices would crash back down to Earth. At that time, most economists and financial forecasters laughed at Schiff in denial, thinking that he was full of nonsense.

Later in 2007, the U.S. housing market collapsed, which then turned into an ongoing series of economic crises throughout the world.

Today people have found out that Schiff was not a clown who cried wolf, but a helpless jester who tried to warn everyone that all the great things happening before the crisis were just too good to be true. Indeed too much consumption and borrowing rather than production ended up harming the well-being of the U.S. economy. Indeed aggressive speculative buying and incomplete lending standards turned out damaging the health of the local real estate market. Not only have Schiff’s revelations ultimately won him a penny from Arthur Laffer, but they have probably brought a triumph for Austrian economics over supply-side economics – having low tax rates, as well as lenient monetary and fiscal policies as incentives for businesses to increase the supply of goods did not promote the U.S. economy at all; most Americans plainly could not afford to consume any of them because they did not produce or even save enough to accumulate wealth in the first place. When the credit market – a vital source of “income” for Americans – tumbled, so did the entire economy. And it did, both theoretically and actually. What the critics of Schiff can do now is to laugh, and be laughed, at their own stupidity.

But Schiff was not completely right.

Also as a zealous believer in “the holy invisible hand,” Schiff asserted that the government should not intervene at all since the current economic crisis was rather a solution. To some extent, it makes good theoretical sense. The main theme of capitalism has always been that good businesses survive and bad ones do not. The deaths of greedy and irresponsible businesses, such as Lehman Brothers, are merely what were needed to make capitalism work.

However, capitalism as a theory contains a number of flaws. An important and blatant one has to be the widening of the rich-poor gap. Adhering to the laissez-faire spirit, advantaged businesses and individuals continue to succeed while disadvantaged ones continue to fail. As a byproduct of such mechanism, the poor unfortunately have to become poorer as the rich get richer and fatter everyday. It is only capitalism that can make a place both heaven and hell at the same time (see Hong Kong).

The current crisis also presents another undisputable defect: under the market economy system, where everyone is free to act upon their self interest, things can go out of control at any second. All the major aftermaths, expected (see the 2008 stock market crash) and unexpected (see Bernard Madoff’s investment frauds), that have broken out over the past three years clearly explain this argument.

And to be frank, the “capitalism” we experience in America is not Adam Smith’s good old capitalism anymore. Like many other western administrations, the U.S. government nowadays tends to pursue the Middle Way between socialism and capitalism in order to ensure the stability of the economy. The establishment of Federal Reserve, U.S. Treasury and various regulatory agencies probably serve as an implicit acknowledgement that there should at least be minimum standards and limited regulations so that the economy can grow in a manageable manner.

Anyhow, pushing too unrealistically for an economy with almost zero government intervention in order to validate an ideology created several hundred years ago may not be a sound idea. Perhaps Schiff deserves some giggles for being too “capitalist” after all.

Let’s face it. Adam Smith does not rule the world anymore – the U.S. government itself has already leveraged billions of trillions of taxpayers’ money on bailing out “too big to fail” banks and carrying out a “too big to possibly repay China” stimulus plan.

Although this is what we all need to learn to accept, one must say that Fed Chairman Ben Bernanke’s decision to create over 1 trillion new dollars really challenges everyone’s tolerance. Having previously failed to see the subprime mortgage crisis snowballing like other “clowns,” Bernanke has now printed such an enormous amount of new money to subsidize failing investment banks, to acquire toxic assets, and to replace the collapsing credit market with the Fed. While Bernanke, based on his extensive research on the Great Depression when he was still a scholar, believes that such move would save the economy from a worse collapse, he is actually exposing the U.S. economy to another potential danger: hyperinflation. This seems to me somewhat of a radical strategy that tries to ease a short-term pain by inflicting a long-term one.

Moreover, Bernanke should realize that the current economic crisis is much more convoluted than the Great Depression. Nassim Nicholas Taleb suggested that nowadays the Internet and globalization generate too many extreme variations that are underestimated by economic models relying on mathematics and theories. Therefore, using an outdated case study – here, the Great Depression – to formulate solutions for the current crisis is probably not very responsible of the most powerful central banker in the world to do.

Maybe there are times when we do not know whether we should laugh or be mad at someone’s outrageous action – well, it’s still too early to make a judgment.

Even though many critics (see John Kay and Liaquat Ahamed) remain unhappy with those who are in charge of the world’s financial system for being too theoretical and academic, what’s done is done. While keeping our fingers crossed for those critical measures to eventually work out, we should focus on coming up with feasible reforms in attempts to prevent an even bigger economic crisis from happening in the future.

As for myself, I would rather listen to the street-smart all-time winners than those book-smart pedantic scholars. One great role model to learn from would be George Soros, who was the biggest winner during the 1997 Asian Financial Crisis and made a solid 8 percent return last year (see his recent article on financial reform for details). Like an intelligent jester, Soros can shed light on the present economic climate just in a few concise sentences, and then offer insights about financial reforms with a sense of humor – he jokingly made an analogy between credit default swaps and buying life insurance on someone else’s life while owning a license to kill him. Most importantly, what Soros preaches is not theoretical reasoning, but wisdom based on experience.

Dear straight-A economists and bankers, perhaps it is time to stick less to theories and models, and pay more attention to what is actually going on in the economy. Also, think carefully for yourselves before and after you laugh. Because you never know who would end up being the clown.

White Model in Black

The photographer Steven Klein for the October issue of Vogue France have been accused of racism. In his photos, the model Lara Stone was painted in black. The SOS Racisme president Dominique Sopo thought that the shooting had no racist intent, but it was insensitive of the magazine.

In my opinion, I agree with Sopo that the editors of Vogue France were not sensitive to the potential problem of racism that the photos might provoke. Perhaps France has no significant history of racism as the United States, but I think that turning a white person into black with cosmetics undoubtedly triggers criticism across different cultures. Unfortunately, this is the taboo of the dominant culture.

Should Kids Use Cell Phones?

According to a poll by TNS Sofres, which was published on October 6, nearly half of French students use cell phones at school - most students said they used them during class. Soon after, the Senate has decided to ban the use of mobile phones in kindergartens, primary schools and colleges. Interestingly, the reasons for the ban was not that many students, who use cell phones during class, are distracted from learning, but that using cell phones frequently is probably harmful the health of children. I found the logic of the Senate a little funny, but I think French kids deserve some punishments because of their misconduct. Talking on the phone during class is rather inappropriate!

Everybody's "Facebook" in China

Nowadays the Facebook fever exists almost everywhere around the world, but not necessarily in China – RenRen (Everybody in English, and formerly called Xiaonei), the Shan Zhai version of Facebook, turns out to beat Facebook as China’s largest social networking sites with over 70 million users.

There are two major reasons, which also shed light on how the Shan Zhai phenomenon (see my recent article) nurtures successful Chinese businesses.

The primary reason is a rather embarrassing one. In fact, it is generally not possible to access Facebook in China because the Chinese government has simply blocked the world’s largest social networking website from its people in attempts to “control” information (well, nothing is impossible…). Thanks to Shan Zhai, in this case the government’s unintended efforts to “relax” the online social networking sector, RenRen benefits tremendously from keeping its greatest rival out of the competition.

Another reason is that RenRen, which has the qualities of a successful Shan Zhai business, actually does a better job than Facebook. As a social networking website, RenRen acts faster on developing more features that fill the needs of local users. It has introduced an instant messaging platform – of course, it is in Chinese – long before Facebook did. It has also provided users with different themed online forums – a very popular form of communication in China – where they can share more culturally relevant materials. It has also been way ahead on running a website that is fully comprehensible to all Chinese users, while Facebook still receives complaints nowadays regarding translation errors. For these reasons, most Chinese users are generally willing to stick with RenRen (see various user experiences).

As a business, RenRen adopts a flexible business model that allows it to grow faster with substantial and stable profitability. Both RenRen and Facebook announced around the same time that they had turned profitable, but consider how long they have been in business – Facebook has been founded since February 2004, and RenRen since December 2005. A possible explanation to RenRen’s rapid growth is that RenRen started out rather as a for-profit website when it was launched. While RenRen offers free basic services like Facebook, it also provides paid upgrade services for those who want to customize their profiles. Moreover, RenRen leverages its largest user base and thus manages to rent out webpage space to multinational enterprises that want to penetrate the Chinese market, such as Coca-Cola, Wrigley and Proctor & Gamble, for mass advertising. Because of Shan Zhai, RenRen is able to harvest remarkable profits without having to manipulate user information as Facebook did.

Since Facebook may not overcome these Chinese difficulties in the near and medium term, RenRen shall continue to succeed as everybody’s “Facebook” in China.

The Overlord of Shan Zhai

This year’s most popular Shan Zhai business (see my recent article about the Shan Zhai phenomenon) has to be BaWang International. Back in July, the Chinese herbal shampoo manufacturer caught the world’s attention by pricing its initial public offering at the top end of an indicative range after the retail portion of its offering was 446 times subscribed. What’s more, BaWang’s share price rose as much as 34 percent on its market debut in Hong Kong when the overall market dropped.

In response to the astonishing results, Neil Hume doubted that it was just a bubble as he believed that was how the Hong Kong market works – when something is hot, everyone simply wants a piece of it.

But after further looking into the company, the business of BaWang seemed to me a real deal.

Since its entrance into the Chinese shampoo market in 2005, BaWang (Overlord in English) has rapidly become the fourth largest player, competing against other consumer products giants, such as Proctor & Gamble, Unilever and C-Bons. Also according to the company’s prospectus, BaWang’s 2008 sales revenues amounted to RMB1.4 billion (approximately USD205 million), which was 45 times what it made only 5 years ago. What’s even more amazing, BaWang carries zero liabilities throughout its business – this is a very positive indicator to investors in today’s debt-aversive market.

The future looks bright for the Overlord too. Chinese consumers nowadays have begun to be health conscious, and thus willing to consume more natural and healthy products like BaWang’s herbal shampoo products. Euromonitor anticipated that retail sales of Chinese herbal shampoo grow at a CAGR of 14.7 percent from 2007 to 2012 as well. In other words, BaWang’s reign may continue gloriously.

BaWang’s success also provides some more insights about the characteristics of successful Shan Zhai businesses.

First, many top Shan Zhai businesses, like BaWang, initially engage in mass distribution in lower-tier markets where they can quickly grow their businesses. Originally as a Shan Zhai manufacturer of Olive’s Beer Shampoo, which was the bestselling shampoo at that time, BaWang selected second-tier and third-tier cities in northeastern China as its target markets in order to avoid direct competition with the market leaders. It also took advantage of the underrated consumption power of those less developed markets, which actually contained about 60 percent of the country’s population. Even though BaWang sold their products for as cheap as 3 yuan (approximately 44 cents), the low production costs and the massive aggregate demand – thanks to Shan Zhai – were able to earn BaWang handsome profits.

Second, when successful Shan Zhai businesses achieve a certain scale and presence, they will rebrand themselves so that they can secure a unique segment of the market. As for BaWang, the former Shan Zhai shampoo maker repositioned itself as a family-run Chinese herbal shampoo company in 2005, pushing its business to the top-end market – now BaWang’s products are even more expensive than those of Vidal Sassoon in China. Furthermore, BaWang has been investing heavily in mass advertising throughout China for the past few years to amplify its presence. As a result, most people in China are very familiar, or perhaps annoyed, with BaWang’s entertaining commercials featuring its proud spokesperson Jackie Chan.

BaWang’s historic IPO is not necessarily a stock bubble that came out of the blue; it rather tells yet another story about the rise of a successful Shan Zhai business.

And we can tell that the Shan Zhai phenomenon keeps working its magic.

Spilling Milk Everywhere in Paris

In response to EU's cut on milk subsidies, milk farmer recently splashed milk everywhere in Paris to show their resentments. It was such a waste to pour 2-3 million liters of milk all over the city. I think the Parisians have probably set up a bad example because they have way too many strikes. Now, a farmer said that it is an effective way to attract attention to this problem.

Apple Sales Exploded. So Did iPhones

This article talks about the recent series of accidents involving iPhone explosions. Apple responded to the situation by saying that the explosions were due to the external pressure on the screens. In addition, Apple rejected the argument that the overheating of the iPhone battery was actually the cause of the explosions, claiming that there was no confirmation to validate the argument, and that these incidents were simply exceptional and rare because there were no more than ten accidents filed.

In my opinion, the arguments presented by Apple do not give a fair view of the situation. Although there was no evidence from the investigation that the batteries were the cause for now, Apple should not immediately blame on unknown external forces and then not intend to help investigate further. Also, it is contradictory that Apple, which has the reputation for taking customer satisfaction seriously, refused to take any responsibility for the accidents.

In any case, to most people Apple is almost like God - or drugs. I am sure that those Apple addicts will continue to buy Apple products no matter what for the sake of staying fashionable.

1959: The Year of Jazz

1959 is the year of jazz. It is in 1959 when Miles Davis released Kind of Blue, the most important modern jazz record as well as the bestselling jazz album in the world. It is in 1959 when many legendary songs, such as So What and All Blues, and a star, John Coltrane, were born. It is in 1959 when improvisation became the foundation of modern jazz. 1959 is the year of joy thanks to the unprecedented achievements of Dave Brubeck, Ray Charles and Miles Davis; 1959 also represents the loss of two jazz legends Billie Holiday and Lester Young. At any rate, 1959 is a very memorable year for everyone who appreciates jazz.

I found this article that talks about the interesting and moving stories about different jazz legends. Enjoy!

When Shan Zhai Succeeded

After the Internet, the latest phenomenon that sweeps the world is probably the iPhone. Because of its sleek design and continually surprising functionality, the iPhone has now become an everyday necessity for more and more consumers around the globe.

Last summer, my friend from mainland China showed off his new cell phone to me. It was an iPhone at first glance. As soon as I was about to jokingly call him a slave of conformity, I realized that the gadget on my palm was actually not an iPhone. It had a multi-touch sensing screen and one single button that appeared just like an iPhone. It carried different advanced features that functioned just like an iPhone: phone, camera, MP3, video recording, internet, GPS and many other eye-opening applications. It adopted an interface as well as an operating system that processed just like an iPhone. It was just like an iPhone. But there was something more about that gizmo – it had an extendable TV antenna for television streaming. I later learned that my friend’s phone was called a TiPhone, a Shan Zhai version of an iPhone. And that, besides the TiPhone, there were also the HiPhone, the SciPhone, and the iOrgane, which has an orange as the logo instead.

This is merely one of countless stories about the Shan Zhai phenomenon that prevails throughout modern China.

Originally used to refer to bandit strongholds beyond government control, the term Shan Zhai (山寨) nowadays commonly describes private businesses based on counterfeit products. In accordance with the term’s seemingly negative connotation, Malcolm Moore further ridiculed Shan Zhai as an expression for anything modified into something “flashier” – yes, nothing else good but “flashier”; and yes, by “flashier” he did not literally mean “better-looking.” He also criticized that while the Shan Zhai phenomenon represented a way for underprivileged people to express what they wanted, most Shan Zhai products contained neither creativity nor utility. In other words, what Moore implies is that many Chinese people attempt to “re-create” and “refine” the quality western products, yet they often end up failing to produce something viable. To many Westerners, perhaps Shan Zhai is just a Chinese name for cheap, inferior copycat products.

But in reality Shan Zhai is not equivalent to complete failure at all. Proponents of Shan Zhai (see here and here) argue that the term is gaining positive significance, particularly when the phenomenon has been proven a commercial success in the technology sector. Based on the latest researches conducted by Gartner and the Chinese government, Shan Zhai cell phones potentially accounted for up to one-tenth of the global cell phone sales in 2007. Even the leaders in Beijing debated about Shan Zhai in this year's National People’s Congress. Such impressive socioeconomic impacts, in return, challenge skeptics with the fact that Shan Zhai is rather a significant driver of the economy that is not to be trifled with.

Still, there is something more about Shan Zhai. It is not only a technological trend. In China, one can encounter Shan Zhai in virtually every aspect of daily life – from electronics to automobiles, websites to television shows, food to medicine, and the list goes on forever. It is not a newly born and transitory phenomenon either. Since the economic reform in 1978, Shan Zhai businesses, which lack governmental support and capital resources enjoyed by state-owned enterprises and foreign companies respectively, have resolved to constantly imitate and improve their rivals’ strategies in order to stay in competition. It is, after all, not a phenomenon that can be found elsewhere. Thanks again to the economic reform, the Chinese government has continuously relaxed the regulatory environment in various industries, and thus contributed to a country with the greatest productivity and also the fastest economic growth in the world. Only in China, the omnipresence of business opportunities, the deep-rooted culture on innovation and venture, as well as the world’s largest market potential constitute today’s Shan Zhai phenomenon.

Most intriguingly, the best of Shan Zhai businesses take advantage of this very phenomenon to evolve rapidly, and eventually become one of the key local industry players that are capable of competing with or even, in some cases, taking over other established foreign competitors. Just to mention a few, Future Cola, the Shan Zhai version of Coca-Cola, competes with Coca-Cola and Pepsi as the third-biggest carbonated beverage manufacturer; Baidu, the Shan Zhai version of Google, outruns Google, Yahoo and Bing as the largest search engine; Taobao, the Shan Zhai version of Ebay, has even kicked Ebay out of the Chinese market as the number one online auction destination.

Believe it or not, some of the best Shan Zhai businesses also profit from the same Chinese phenomenon to catapult themselves into the global competition in a harder-better-faster-stronger manner.

Take BYD as an example.

Beginning a rechargeable battery manufacturer that emulated patents of Sony and Sanyo in 1995, BYD later managed to reduce the production costs significantly by using Shan Zhai: replacing most of the expensive machines with many cheap labors – one of China’s richest productivity resources. Within five years, such innovative business model helped BYD break into the traditionally Japanese-dominated battery industry as one of the world’s leading battery makers. This is not the end of the story yet. Seeing the lifting of regulatory barriers in the local auto industry as a not-to-be-missed opportunity, BYD engaged in the car business in 2003 by imitating models of Toyota and Porsche. On top of leveraging its expertise in car battery design to produce cheap-but-quality vehicles at remarkably low costs, BYD continues to invest heavily in developing its proprietary technology. As a result, this former Shan Zhai company has made two surprising strides ahead of all its competitors – it has already refined the technology of electric hybrid cars and started selling them in China this year, and it is aiming to introduce the first electric automobiles ever to the world in 2010.

Although it has even attracted Warren Buffett’s US$232 million investment and subsequently turned its CEO Wang Chuan-Fu into the richest man in China, BYD’s success is no miracle at all. Rather, it provides insights about some characteristics that most successful Shan Zhai businesses share. First, they choose only the top players in their respective industries to learn from. To stay in business, these Shan Zhai businesses would initially study the best market leaders inside out, and then replicate their know-how at their risks. Second, they are willing to taking risks for the sake of innovation. To differentiate themselves, these Shan Zhai businesses would examine closely for improvements on the business models that they imitate. When they reach a certain scale, they would focus on developing new edges that represent and further their businesses. Third, they are fast and flexible in making every business decision. To stay ahead of their rivals, these Shan Zhai businesses would act and react quickly in their trial-and-error process. When they fail, they would experiment on something else immediately. When they succeed, they would move right on to create more competitive advantages.

Above all, the best Shan Zhai businesses fully utilize the vast resources and opportunities that Shan Zhai offers. Without the world’s largest consumer population that presents numerous business opportunities, these Shan Zhai businesses would never have stayed in business in the first place. Without also the world’s biggest labor force that provides competitive capital costs, they would never have realized their innovative ventures. Without the unique regulatory environment and the world’s biggest market that nurture these Shan Zhai businesses, they would never have been as successful as they are now. In short, the best Shan Zhai businesses are ambitious, willing to learn, innovative, venturous and nimble, and they always want to accomplish something more. Even though they may start out as counterfeiters, they manage to evolve into legitimate and lucrative businesses with their own trademarked quality products. Thanks very much to Shan Zhai!

The Shan Zhai phenomenon is not a joke anymore. Instead, it has become one of the most formidable phenomena nowadays that everyone should study, especially if they want to do business in China. Shan Zhai is probably contagious too (see Mystery Google and a related article). Whether Shan Zhai would one day become the next sweeping phenomenon after the iPhone remains questionable, but I am sure whose turn it is now to have a laugh about this western-made Shan Zhai website – and yes, use their own definition.

You-Know-What

I always like this song by John Mayer called No Such Thing. This is not because I am simply being rebellious against the idea of being taught about what is right or wrong, or what the right tracks should be. Rather, the more I learn from my classes, the less I feel familiar with the world outside school whenever I am out there. For this reason, I set up this blog to share with you all about my experiences of escaping from academia – my findings from outside school that challenge what I was taught before, as well as contemporary issues that we do not formally learn or discuss at school.

Some of you may ask where I am trying to lead the escape into. The so-called Real World? As John sang, the Real World is just a lie we all have got to rise above. Here, I shall name You-Know-What “The Wild.” You know it. Not everything in the very world that we live in has to make sense to deserve recognition or even existence. For instance, it is impressive that Mr. George W. Bush was the President of the United States for two consecutive terms… Well, it is what it is.

Don’t let formal education get in the way of your learning and personal lives. With that said, let’s hunt.