Go East, Young Man

Henry Blodget – Slate

y, Jan. 20, 2005, at 4:22 AM PT
There’s gold in them hills! And real estate! And junk bonds! And cell phones! And Internet cafes! And a billion Chinese shoppers!
Every age has its gold rush. The Dutch went mad for tulip bulbs in the 17th century. A hundred years later, canals were all the rage. In the 1840s, gold. In the 1860s, railroads. In the early 20th century, phones, radio, cars, and planes. In the 1980s, Wall Street. In the 1990s, the Internet. And, now, in the 2000s … China.
Pick up a newspaper and you’ll see a story about the latest American company plotting its assault on “the greatest untapped market on earth.” Search Amazon, and your screen will fill with books offering 101 tips for making a killing in the PRC. Say “China” to executives and investors, and they’ll casually mention their last trip to Beijing. The boom is on, and everyone wants in.
Of course, even as we all feel a sudden desire to enroll in Mandarin classes, we should remember that the current China frenzy has only progressed to the second of five phases that define most gold rushes. To wit:
1. Spark: A few early birds strike it rich—and get themselves on the cover of Fortune.
2. Boom: The rest of us drool with envy and rush to cash in. The torrent of inflowing capital upsets the supply/demand equilibrium and drives prices to the moon, making the early birds even richer. This is where China is now.
3. Bust: The level of interest (capital) exceeds the level of opportunity (places to put it). Returns plummet, prices collapse, and herds of recent arrivals and Kool-Aid drinkers lose their shirts.
4. Mature growth: Savvy, patient contrarians sift through the wreckage, buying assets from the disillusioned for pennies on the dollar. This, in turn, becomes the most profitable, if least glamorous, phase. It’s the one that the Internet boom has just entered.
5. Decay: See Polaroid, Xerox, and the British Empire.
Developing countries tend to experience multiple gold rushes, as the pendulum of socio-politico-economic reform swings forward, swings back (e.g., Russia), and then swings forward again. Today’s China boom is only the latest in the country’s history, and it probably won’t be the last.
But in China’s case, the long-term optimism seems particularly well-founded. Given the country’s rate of progress, it is hard to imagine China not becoming the leading economic superpower over the next 50 to 100 years. The intermediate steps, however, will likely be incredibly complex and volatile, especially for Westerners. China’s combination of cultures, languages, military power, income disparity, one-party rule, legal and regulatory systems, infrastructure, and, simply, vastness, will confound many.
No matter what happens, the boom will produce great stories. Slate has asked me to tell some of them. Specifically, I have been asked to focus on the stampede of American executives, companies, journalists, consultants, and investors currently elbowing each other out of the way to snag first-class seats to Beijing.
Before I begin, a confession: Thanks to a previous life as a Wall Street Internet analyst, I know a bit about business and a bit about gold rushes. Unfortunately, I don’t know much about China:
Language. To say I don’t speak a word of Chinese would be an overstatement, but only just. I can say “hello” in one Chinese language (I think), but I don’t know which one. I am also familiar with a refrain sung on the PBS Kids show Sagwa, the Chinese Siamese Cat, which, to my ears, sounds like “Hop on Yo.” I am told it means “You’re my best friend.”
History. I took a class in high school called “Changing China.” It covered the few thousand years through Deng. I remember discussing a picture of Deng swimming in a river (the Yangtze?). The picture had great significance, apparently, because of a famous earlier photo of Mao doing the same thing.
Geography. I would probably be able to find Beijing and the Yangtze on a map (probably), but I’ve never set foot in China. The farthest East (West?) I’ve been is Japan, where I lived for a year at the end of its ’80s boom.
Cultural Revolution. I have read Nien Cheng’s memoir, Life and Death in Shanghai, twice. The story of a middle-aged woman ripped from her house and jailed for six years for refusing to confess her terrible capitalist crimes (working for Shell), the book reveals how entire societies can go temporarily insane (a surprisingly useful lesson).
Business. A while back, my insight into the China business opportunity might have been summarized as “big, really big.” This perception was supported by the usual idiot outsider logic: Multiply the price of whatever you are selling by 1.3 billion and begin hyperventilating. I have since read enough to understand that direct investment in China, at least, is no silk road to riches. (I have not read enough to understand what the silk road to riches is.)
So that’s what I know. To fill the vacuum, I’ve ordered 17 books from Amazon. Soon, I will begin talking to people.
The idea of this series is to examine the gold rush first from a distance (New York), and then jet over and see the fuss firsthand. To be successful, I will obviously have to remedy my ignorance post-haste. I will also have to find people who know what they are talking about and are willing to tell me.
And that’s where I need your help.
Maybe you’re an American entrepreneur who has a great story about doing business in China. Maybe you’re a Chinese businessperson who can’t believe how foolish American investors are. Maybe you are someone who knows a great factory I should visit in Shanghai, a brilliant executive I should talk to, or just the right guy in the Ministry of Foreign Trade and Economic Cooperation. If you are, please tell me about it (on background, if necessary: I don’t believe in risking one’s career just to get the word out).
So if you have any suggestions for people I should talk to and topics I should study, please e-mail me at chinagoldrush@yahoo.com.
To keep the series focused, I am also going to try to answer two questions: one general, one specific. The general question is whether China really is the business opportunity of the age—at least for American business executives. The specific one is whether I should try to cash in on this gold rush (and the last one) by buying the stock of a Chinese Internet company.
Again, please send suggestions for topics, stories, and contacts to chinagoldrush@yahoo.com. Thank you.
Henry Blodget, a former securities analyst, lives in New


http://slate.msn.com/id/2112434/

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