DiligenceChina

Flattening Curves – the End State.

We now know what China will look like. The mystery is becoming revealed, and it’s a lot less revolutionary or dislocating than many pundits had predicted it would be. China of 2016 is starting to look a lot like every other developed market on the planet.

A child born into a middle class family in Shanghai and a child born into a middle class family in Chicago are going to have very similar views on the world, at least until they reach elementary school. Same brands, same labels, same characters, same toys, same smells, same taste, same life. When they reach school age, the Chinese students will be taught to work in factories (OEM or state-directed) or corporate back offices (MNCs) – not unlike schoolchildren elsewhere. We have a status quo.

I’m going to call the (latest) new Chinese generation as having starting in 1991. If you were born before 1991, you’re Old Chinese. If you are 15 years old and the single child of yuppie parents, you are officially the first generation of a special new China. You are the first ones who never thought KFC and Coke were anything but normal. Not good, not bad, not new, not old. Apple is better than Sony because of design factors and features– not history or ideology. You don’t remember much about a China market that was heavily restricted or experienced any kind of shortage. You are the first generation of Chinese kids who feel that “international” is average and unremarkable.

The Shape of Things to Come

There are things we know about the near future of China. Let’s look out at the next 10 years or so — until a 15 year old becomes a mother or father. It’s always risky to make economic predictions, but certain big trends are becoming clear. China will continue to be prosperous in the business centers, though poor elsewhere. It will be politically stable and highly bureaucratic. The education system will stay the way it is for at least another 20 years. That’s very important. Shanghai, Beijing and Shenzhen will be hubs of foreigners and wealth and an elite lifestyle. Western brands are strong and ubiquitous. Chinese commerce is increasingly concentrated in manufacturing and services – with very little proprietary branding or innovation. The Chinese economy is heavily directed, if not owned, by bureaucratic interests. There are no serious internal threats or challenges to the status quo.

Conservative forces at work:

In spite of all the huge changes China has been going through, it’s basically a very conservative place. In the last few years, old forces have modernized and new ones have appeared – all holding Chinese society together.

1) Government / Party.
They are probably just tickled pink, right around now. They are on a 30 year roll, and it has finally started to pay off big. Decision-makers and their families are big fans of the new status quo. They will do whatever needs to be done.

2) Education.

The education system is one of the most conservative forces in China, and those in power are going to leave it just the way it is. That gives the Party first crack at shaping little minds and sets the tone for social development. Resistance is futile.

3) MNCs.

These are not dynamic agents of change for China. Once a Chinese student graduates from public school, the MNCs will be the biggest social force in his or her life. They will bring unbelievable opportunities to many people. They will bring white-collar sweatshops and office dronery to countless others. They don’t believe in right or wrong. Just sales. They can not be stopped.

4) Country-side.

Those who say the country-side is destabilizing and revolutionary are missing the real point. The country side has generally acted as a safety valve in the machinery of Chinese commerce. The provinces are a source of people if the economy needs workers, a place to send the unruly or unproductive, a giant market, and a source of resources. And the MNCs will develop markets across China, bringing relative wealth and upward mobility to all who want it.

HR

The ‘bamboo ceiling’ is real, it’s powerful, and it’s not going anywhere. There will always be a way to manage large groups of intelligent, ambitious people — whether they are creative or not. Modern MNCs are very good at dealing with large HR issues, and their proven methodology will transfer very well to China – treat elites like gold and everyone else like beasts of burden. Localization is going to be broad and will be the great equalizer in the provinces and country-sides. Wal-mart and KFC are going to be a lot people’s first job in Anhui and Hunan. And there’s plenty of room to move up within the company. Most locals won’t rise above mid-management — but for returnees, the children of privilege and exceptional performers, there are few limitations on the future.

Back Offices will suit Chinese education system

White-collar sweatshops – often known as “back offices” — will be a big hit in major cities. Large numbers of bright graduates will be trained to perform simple but high-level transactions under a tight hierarchy of supervisors and managers. Big corporations RUN on these people. The catch is you need huge scale to make it economical, but that’s what the MNCs have in China. Insurance companies, banks, brokerages, retailers, distributors – these guys are training factories. They are going to suck in huge numbers of graduates and turn them into corporate drones who drive nice cars and have bitchin’ cell phones. And they’re going to be spenders. There are going to be millions of Chuppie weddings in the coming decade, and then new little Chupplings – who are going to have the best of everything.

Lifestyle

It’s the age of the Chinese office worker. Look for a 1950’s style euphoria for a while. Dick Van Dyke does Shanghai. We’re entering a period of boring stability. (Or maybe it’ll be more of a Rat Pack thing – flashy and sleazy.) More and more Chinese will be affected by the MNC money mill, both as workers and as customers. They earn their pay at Siemens or Dell and spend it at Volkswagen and Ikea. Chinese workers will come to trust the stability and predictability of corporate life. In 1986, mothers told their daughters to marry men with safe government jobs. In 2016, Chinese mothers will tell their daughters to marry men with safe MNC jobs. China becomes a cocooning nation of consumers and collectors. It’s a good time for flat screen TV makers.

Chinese Brands

If the Chinese want to develop their own strong brands at home, they are going to have to go head to head with big MNCs. I don’t think it’s going to happen in the foreseeable future. Chinese branding will have to wait until there is enough collective experience and expertise to form organizations that can compete effectively. I don’t thing we’re there yet – or will be for many years.