“The War for China’s Wallet: Profiting from the New World Order.” Interview with Shaun Rein.
Written by Henri Delahaye & Bruno Smith
Shaun Rein is the Founder and Managing Director of the China Market Research Group (CMR), the world’s leading strategic market intelligence firm focused on China. He works with boards, CEOs and senior executives of Fortune 500 and leading Chinese companies, private equity firms, SMEs and long/ hedge funds to develop their China growth and investment strategies.
Rein authored the international best-sellers the “The War for China’s Wallet: Profiting from the New World Order,” “End of Cheap China”and the “End of Copycat China.” Publishers Weekly named “Cheap”a top 10 business book for 2012. He frequently appears among others on CNN, BBC, CNBC, Bloomberg and MSNBC. Rein formerly taught executive education classes for London Business School and previously was a weekly columnist for Forbes and also wrote a regular column for Bloomberg Businessweek.
He graduated from Harvard University with a master’s degree focused on China’s economy, a BA Honors from McGill University and sits on the Asia Council for St. Paul’s School.
- You have been in China for roughly 20 years now, is there one town that best epitomizes what the present and the future looks like for this country ?
I first moved to China in the mid 1990s when I studied Chinese at Nankai University in Tianjin, China, a city with a population of about 10 million people that few people in North America or Europe have ever heard of. In many ways, Tianjin symbolizes the struggle and opportunities facing China’s economic evolution — it underwent a shift away from heavy industry and is trying to find a more sustainable economy both from economic and pollution standpoints.
To create a more sustainable economy it built a large, gleaming financial center on the outskirts of the main, old part of the city. It arranged for office buildings and even a campus of the famed New York institution Juilliard to open a campus there.
Yet it is also struggling to fill the space up. Will that happen? There is hope that as it is get closer to Beijing with high speed trains and as Beijing expands that this new part of Tianjin will book. But there is concern that it will be a white elephant.
Tianjin’s struggles and opportunities are emblematic of what is happening throughout the country as the economy shifts from one base on heavy investment, debt fueled infrastructure building, and manufacturing to one based on innovation, services, and consumption.
Not all cities will be able to make that shift as Shenzhen has. Some might run into financial difficulties but overall I am optimistic for the shift.
2. Do you have an explanation for the fear from the western world regarding China’s rising and more globally SA’s awakening ?
Whenever a new power emerges, it threatens the status quo and thus causes consternation. I write about this a lot in my new book The War for China’s Wallet. I discuss how China is disrupting the American-led global order in place since the end of World War 2.
China is taking what I think is its rightful place of influence and that is causing many countries to have to decide whether to align closer with China and away from the United States. Elites that have based their power by being close to America — by going to boarding schools like St. Paul’s or Exeter and universities like Harvard or unsettled by their lack of connections with Chinese elites.
China has also a very different set of moral codes politically which is also causing fear among nations that believe in democracy almost as if it is a religion. I expect China to dole out more economic benefits as I write in my book to co-opt elites like it has done in Ethiopia and Cambodia. Tensions will rise but that is inevitable and also happened under a US-led system where the US’ CIA did a lot on regime change and propping up.
3. We often like to establish comparisons between the west (US especially) and the East (China especially) and how starting from the 1980’s onwards China has slowly incorporated features of capitalistic America. Turning this logic on its head, what do you think are the main aspects that the US could try to implement and import from the Chinese culture and its entrepreneurial ecosystem ?
I don’t see America trying to learn from China much. There is far too much arrogance and racism mixed in the country to try to import Chinese cultural norms. Also, Communism and the fear of that by many Americans is a major sticking point.
But I do see potentially more American companies copycatting Chinese innovation and technology and potentially incorporating some business lessons or models as happened when Japan emerged in the 1980s.
In terms of innovation, China is 2–3 years ahead of Silicon Valley when it comes to mobile services. I feel like I am in the dark ages when I visit the US — mobile payments, apps, everything.
Chinese firms grew in part because of protectionism but don’t underestimate the struggle many private Chinese companies had too as they grew as the government and state owned tried to keep them down for being private. In many ways Tencent was so successful because the government owned China Mobile and China Telecom were dinosaurs that offered terrible service at high rates — that is why WeChat succeeded. Same thing with Alipay and terrible credit card services offered by Bank of China and their SOE (State Owned Companies) ilk.
Western brands should not underestimate the can do attitude these private Chinese companies had and the ability they have to conquer and overcome obstacles.
4. In one of our articles you recently talked about the massive investments made by Chinese tech giants in AI and the constant support of the Chinese government, our second article focused on AI and tried to argue that even though Silicon Valley is seen as the leader in AI, the right horse to Bet one would probably be China. Is this a view you share ?
I am not sure that I would agree Silicon Valley is ahead of China right now on AI. The reality is that there is so much data being collected by two players — Tencent and Alibaba — that is given them a better understanding of how and who consumers are than any data source in the US, except for maybe what Apple has.
Importantly, there are fewer privacy concerns in China, at least by the government, which is enabling these tech behemoths and other firms like Baidu and Huawei get info on people that can be shared with the public security organs of the Chinese government.
The combination of the data, money and government support means China will take the lead in AI in the coming years. We have to wonder if this is a good thing, in many ways, and if privacy will be encroached upon and how AI will be used. If it is used to help people’s lives then good, if it is to be used to control them more than my support falls more in a grey area.
5. Talking about AI and other revolutionary technological fields what is the technology that will most help you meet the needs of your clients?
My firm, The China Market Research Group (CMR), www.cmrconsulting.com.cn is actually very old school. We focus on in-depth 1–1 interviews to glean consumer insights and then use these qualitative insights to develop marketing, sales and growth strategies for our clients.
I think as so many companies focus on AI and big data, that leaves us as a qualitative shop as an amazing niche. We position ourselves quite frankly as the best qualitative strategy firm focused on China.
6. As a European, we do not have these stimulating tech hubs, What is your view on Europe. Are our societies too slow and not responsive enough to major technological changes ? Are we far behind, and will it be possible for us to catch up ?
Europe will benefit from getting closer to China economically as the world is concerned about Trump’s America. We expect more Chinese companies to buy up European firms, especially British and German, in the coming year. We also expect Europe to attract a lot of Chinese tourists as fears of terrorism and the Syrian migration dissipate.
That said, Europe needs to move away from its ultra socialist roots, especially in France, if it wants to compete with China (sic). France works far too few hours, and there are far too few incentives to work hard in that country.
7. In your opinion, which regions/cities in China that are not too famous, could be very attractive for international investors to investigate ?
There are 100 cities in China with over a 1 million person population — I remain very bullish for growth in many of these cities. Consumers there are spending more as incomes rise due to companies resettling there. I think Sichuan province is one that is geared for massive growth.
8. In your opinion, how will BATX (Baidu, Alibaba, Tencent, Xiaomi) compete in the international markets ? How will they be able to convince western customers to shift from (ie. Amazon, Apple etc) to them ?
Finally, Among Chinese Unicorns which ones seem more promising ?
Many Chinese firms have had problems becoming global players — some have succeeded in hardware like Xiaomi, OPPO, Haier, Huawei. Now it will be exciting to see if JD.com, Alibaba, Tencent, Netease can grow internationally. Many have taken the tack of scooping up stakes or entire companies in Southeast Asia, India, Canada and the US.
My guess there will be ups and downs for them. They will probably make many of the same mistakes western brands made when they entered China and they will run into problems with lack of trust of China’s government by many consumers as we have seen with Huawei’s stalled efforts to break into the US handset market by partnering with AT&T.
For example, if two American based consumers use WeChat, will their messages be censored? Many consumers will simply prefer to use WhatsApp or even Line where there are more clear laws and regulations.
But ultimately, Chinese firms will become global players. American and European consumers better get made for the rise of Chinese brands, not just the made in China label.
