5 Questions for Shaun Rein, Author of “The End of Copycat China”

EndofCopycat China

More can happen in two years in a developing country like China than can happen in a decade or more in developed countries. And given this high speed of change, the information in business books about China’s economy can go out of date really fast.

That is why it is not surprising that although it has only been a little over two years since China analyst Shaun Rein released his first book, The End of Cheap China, he is back with another one. In that time span, China got a new leader in Xi Jinping, the one-child policy was significantly reformed, and Alibaba, the country’s biggest internet company, went public on the New York Stock Exchange.

The End of Copycat China is a natural follow up to End of Cheap China (which we featured a review of on this blog not long ago) and looks to build upon the research he’s been doing for the past decade on the ground in China.

I recently had a chance to chat with Rein about his new book and ask some questions about what he’s seen change in the past two years and, more importantly, the trends he sees influencing China’s development in the near future.

Adam Mayer (AM): Your previous book The End of Cheap China asserted that China is moving up the value chain from a land of cheap manufacturing to higher-end manufacturing and services. Since then, how have your initial observations been validated? Where is China today versus when you were doing research for your first book?

Shaun Rein (SR): When End of Cheap China first was released, many critics pounced on me and said that China would always be a low-cost manufacturing center. Over the last three years, however, my thesis has been proven right as labor and rents have gone up in double digits year on year in the manufacturing sector — China no longer is a cheap place to produce products. Companies like Nike have started sourcing more from even cheaper markets like Vietnam and Chinese footwear manufacturers like Huajian have opened factories in Africa.  When even the Chinese relocate to Africa in search of lower costs, that is when you know there is a tectonic shift in supply chains needed.

I also argued in End of Cheap China that China would not lose its manufacturing dominance because it has superior infrastructure and the necessary eco-system for manufacturing — I said that Chinese firms would move up the value chain which they have done. What might surprise people is just how fast many companies moved up the value chain. They are no longer transferring technology from western nations like Germany and the U.S. but actually focused on innovation which is where my new book begins.

AM: The title of your new book The End of Copycat China also suggests the ‘end’ of something China is known for (intellectual property transfer in this case) as a signal for its next phase of development. Is the perception of China as a land of copycats still a reality?

SR: Chinese firms were copycats for the most part of the last thirty years. The main reason was that there was so much low-hanging fruit to simply transfer technology from the West directly into China and to customize if needed for local markets. It was easy for well-connected (and corrupt) people to get land on the cheap and put up skyscrapers or secure long-term monopolies supplying various government agencies. But now that costs are so high and the public equity markets are giving high valuations to innovative Chinese firms like Alibaba and Tencent, Chinese companies are focusing on innovation more and more — it would be a mistake to discount their ability to innovate. This is a natural progression to what happening in South Korea and Japan.

Yesterday I was at Lotte World Amusement Park in Seoul. From the term ‘cast members’ to Indiana Jones look-alikes, even Lotte is seemingly knocking off Disney and the George Lucas/ Stephen Spielberg franchise.

Intellectual property was and remains a concern so it did not make sense for companies to invest millions of dollars in innovation because someone would likely steal it. When I interviewed top entrepreneurs in the book — and I interviewed the founders of JD.com, Qunar, Tudou for instance as well as the former CEO of Alibaba.com and an angel investor in Xiaomi — property rights and lack of enforced was an issue many brought up towards a barrier for innovation in China.  That said, the situation is getting better as the government is more likely to move to protect the interests of domestic Chinese firms hurt by copyright infringement than western players.

AM: Is there now a broad consensus among policymakers and business leaders in China that the country must innovate in order to continue on its path of economic reform? What are some examples of businesses or policies you’ve come across in your research that align with this goal?

SR: The Chinese government has definitely set the goal of innovative businesses taking up a larger part of the economy. Local governments are setting up innovation parks, like they did with the IT parks a business generation ago. Frankly, I am not sure that these initiatives will work as great innovation tends to occur in the private sector, often in small teams of entrepreneurs who think they can change the world. Chinese bureaucrats despite good intentions often do not understand and thus do not support new technologies which can hamper innovation.

That said, one sector that the government actively supports for innovation and which is seeing great growth is the bio-tech sector. Probably more than any sector I interviewed, except maybe mobile, biotech entrepreneurs were the most optimistic in China precisely because of the support the Chinese government is giving the sector from funding, equipment and opportunity to cooperate with academic institutions. Many said that the climate is better in China than in the US because of Obama administration funding cutbacks.

AM: Apple famously touts its products as “Designed in California, Assembled in China”.  This statement implies superior innovation power over Chinese counterparts. Yet with domestic Chinese businesses such as Tencent and Alibaba becoming more confident as innovators in their own right, what are the implications for Western businesses who have always felt safe in their role as the ‘innovators’ while using China as a factory?

SR: For years the ‘Made in China’ label had negative connotations as being cheap, dangerous. For much of the market that is true but can no longer work going forward. The first half of my book is focused on innovation — the second half is looking at consumer trends and how Chinese are moving away from copycatting the western dream of beauty and life as they define the new Chinese dream.

Importantly, there is a new found pride in Chinese-ness. Top Chinese firms like Xiaomi and Tencent are not hiding their Chinese heritage — Chinese consumers love it, support that move. For western companies, they need to understand that top Chinese firms are going to become global players competing on innovation and no longer the cheap but good enough positioning many Chinese companies competed with before.

AM: Your last book devoted an entire chapter to the real estate industry in China. To what extent does your new book discuss this topic and what are the implications for real estate as China’s economy shifts from one of manufacturing to services?

SR: Real estate plays a key theme in my book — including the high rents that are forcing retailers to think about e-commerce. The real estate sector in China obviously has some issues but they are not as serious as many analysts seem to fret. Prices might soften in the residential sector but there is little leverage in the marketplace. I am more concerned about some of the commercial developments that have gone up in the past few years because developers put too many Louis Vuitton stores as the anchors. The market can only sustain so many LV stores, especially with the anti-corruption crackdown.

But real estate is actually pushing forward a lot of innovation. I had an interview set up with Zhang Xin the CEO of Soho but it got cancelled last minute so I wasn’t able to include anything on Soho in the new book. But pollution has become such a problem in China that it is developers like Soho that are investing in the newest forms of technology for cleaning air, reducing carbon footprints. Chinese real estate developers are really at the clean technology forefront.

Thanks to Shaun Rein for taking the time to answer some questions for us. Please be sure to check out his new book The End of Copycat China.

Urban Creative Culture, Air Quality and the Tragedy of Beijing


Like many foreign travelers and working expats who arrive to China, Beijing was my first port of entry into the country. Leaving Capital Airport I was struck by the massive scale of the city, overwhelmed by the repetitive concrete towers standing like regimented rows of soldiers in the skyline. Beijing’s urban form is undoubtedly inspired by the Soviet-era tendency towards grandiose urban planning schemes, but as I would come to learn the story on the ground painted a different, much more vibrant picture of urban life.

Beijing is not a city that one can fully appreciate in the matter of just a few days visiting the famous historical sites. In the space between gigantic attractions like The Forbidden City, Temple of Heaven, and Summer Palace, a modern grassroots culture thrives. Underground rock clubs, artist studios and independent coffee shops coexist in what’s left of old hutong neighborhoods as well as reclaimed industrial spaces on the periphery of the city center.

The notion of a burgeoning arts scene would seem to run counter to what many outside China still think of the city: that is, the seat of an oppressive Communist government devoted to quashing all personal freedoms. Although Chairman Mao’s portrait still looks ominously over Tiananmen Square, the perception of Beijing as a cultural desert couldn’t be further from the truth.

Arts and culture are engrained in the city’s urban DNA. Beijingers are rightly proud of their city’s long history as a cultural center, and its young creative residents continue that tradition today. Just as the infinite looping ring roads that surround the city conjure up images of Ouroboros (the serpent eating its own tail), so is the city itself in constant cyclical reinvention mode. The tremendous social and economic changes provide a fertile ground for artistic inspiration and creative freedom.

Yet there is one factor that undermines Beijing’s aspirations as a global urban creative center, and it is not the threat of government oppression. Rather, it is the layer of hazardous grey smog that envelopes the city on a regular basis.

When I first visited Beijing 2006 air pollution was already a problem, but not at quite the level it is now. When I returned to Beijing in 2009, this time moving to China for work, I noticed the pollution had become markedly worse. Thousands more cars were added to the roads and urban development was pushing out past the city’s distant 6th Ring Road. Today, the pollution levels are worse than they’ve ever been, with the density of PM2.5 particles reaching as high as 671 micrograms (or 26 times the level considered safe by the World Health Organization).

As someone with the fortune of being born in a country that is already developed and has established emission standards, I’ve been hesitant to criticize China regarding their development aspirations. Throwing stones from afar would be nothing less than hypocritical, as most developed countries also went through a “dirty phase” during rapid industrial expansion. Thus, the general tone of this blog is supportive of China’s urban development and the economic benefits it has created for the Chinese people.

Yet China’s environmental crisis is a serious threat to that process- and Beijing is ground zero for the country’s challenges. Beijing’s air pollution is a health problem for everyone in the city, regardless of class or economic status. It is an economic problem as much as it is a social problem: if the city’s residents can’t breathe clean air then urban life cannot continue to thrive. Pollution is also a real threat to urbanization, as crisis levels could prompt people to revert back to rural living despite economic opportunities offered by the city.

Encouragingly, the Chinese government has fully acknowledged that pollution is a problem and is taking proactive steps to address the issue. This includes everything from limiting the amount of automobiles on the road at any given time to decommissioning coal-fire power plants near the city.

Yet this is not enough- there needs to be a paradigm shift in the way China and other developing countries urbanize and grow their economies. This includes embracing more ecologically sensitive technologies in power generation and transportation. To incentivize using these new technologies, China is testing out a pilot cap-and-trade program in 7 cities (including Beijing). If successful, China will roll out a nationwide cap-and-trade program by 2016.

In the meantime Beijing residents will have to do what they can to stay healthy in the current environmental conditions. Sadly, until the air is cleaned up, Beijing may have to put on hold its aspiration as a global center of arts and culture, despite the exciting activity happening at the grassroots level.

The State of Seismic Safety in China


The 7.0-earthquake in Ya’an, Sichuan Province this past April once again brought up the topic of construction quality in China. Images of crumbled buildings also reminded the world of the devastation that overcame the very same region 5 years ago when more than 70,000 people perished in the 2008 Wenchuan Earthquake.

Amazingly, the loss of life in the Ya’an quake was markedly smaller at only 200 (granted, so was the severity of the quake, but 7.0 is magnitude still a very significant tremor). Ideally, the goal of seismic building safety is to minimize casualties, thus April’s earthquake proved that China is stepping it up in the right direction.

I have a unique perspective on the issue having spent 2 years living and working in Chengdu, the capital of Sichuan. And given my position working on the inside of China’s construction boom, industry colleagues and acquaintances outside China frequently inquired about the country’s building safety standards.

The reality is that the discussion of building safety in China is complex. Back in architecture school, our structural engineering professor liked to remind us that “earthquakes don’t kill people, structurally deficient buildings do”. This tends to true, both in Sichuan and other seismically active regions around the world. And while China is generally known for questionable regulations and safety standards, Chinese building codes definitely do not allow any sort of leeway with structural safety.

That being said, it is important to note that an architect and structural engineer can design a building to be structurally sound but the final product will only be as good as the quality of construction, which is ultimately the responsibility of the general contractor. Provided the contractor follows architectural and structural drawings as designed, there should be no concern over seismic safety. Yet the process is never that simple.

By Western standards, construction administration in China is a rather opaque process for a designer. Final decisions during construction are made by owner and contractor without much input from the architect. This can cause issues with oversight, especially with the more unscrupulous contractors and owners who “skim off the top” by switching out building materials for inferior product at the last moment and pocket the difference in price.

While this is an unfortunate practice, the consequences are much less severe when applied to finish materials versus structural materials. Virtually all of the buildings that collapsed in both Sichuan earthquakes were a result of unreinforced masonry construction, meaning that builders stacked bricks or concrete blocks without using sufficient (or any) steel reinforcing bar (rebar). Furthermore, most of these buildings were located in rural towns where they were probably built by individuals not formally trained in construction techniques. This isn’t an excuse, but rather a reflection of a country that is still developing.

Further highlighting the urban/rural gap in China is the fact that in both Sichuan earthquakes, Chengdu proper suffered minimal damage comparatively to its surrounding countryside. And with the mad frenzy of construction going on in the city, never once did I see a cause for concern with the structural reliability of city’s new buildings. In fact, the new high-rise buildings rising in Chengdu’s core fared well in April’s earthquake.

So while there is still improvement to be made in construction processes and techniques, especially in the more rural areas of China, my feeling is that safety standards are only getting better. The architecture and engineering professions in China, as well as government authorities, take seismic safety very seriously and do not lack the know-how in designing and building safe buildings.

The 2008 Wenchuan Earthquake was a wake up call, but given how far China has come in terms of development, there is a very good chance that this will have been the last catastrophic seismic event in country.

Urban Fantasies in China: Architectural Visualization

The following piece appears in the new issue of the architecture journal CLOG:RENDERING

Urban Fantasies in China: Architectural Visualization

Architectural visualization specialists are the overlooked laborers involved in the vast China urban development program. They differ from architects in that they do not have design training beyond very specific knowledge of software programs such as 3D Studio Max© or the Adobe Creative Suite©. While some Chinese architecture firms employ in-house visualization specialists, most rendering work is outsourced to gigantic three-dimensional modeling studios.

Stepping into one of these studios is much like walking into a factory (one office can employ upwards of one thousand people), but instead of workers assembling widgets along conveyer belts, rows of workers hunch over their desktop computers for hours on end, producing images to be used in presentations to high-level officials or real estate marketing brochures. Just as in a factory, workers are assigned to one specific task: three-dimensional modeling, rendering (material and camera view selection) or post-production work in Adobe© Photoshop© – there is no overlap in roles.

Workers in these ‘image factories’ can barely keep up with the lighting-fast pace at which buildings go up in China and this explains much of why renderings take on a different role in China as compared to in many Western countries . Unlike the built reality of China’s growing cities, renderings serve as fantasies of urbanization rather than true reflections of the urban condition. Whereas in the West architectural renderings for proposed projects are most often shown in the true photorealistic context of their surroundings, Chinese renderings invent their own context.

One example of this is the rending of a skyline. It is not uncommon to see the skyline of an American city like Los Angeles or Houston, collaged into the background of renderings for new projects in far-flung third and fourth tier provincial cities. In essence, true representation of context is not important when it comes to image making for these Chinese renderings. What matters is the appearance of urbanism: a fantasy which means dense clusters of tall buildings, even if those buildings come from somewhere else.

The theatrics do not stop with city skylines. Renderings for new commercial projects in China must give the appearance of affluence, even if the targeted demographic is not. Storefront signage must display luxury brand names like Gucci, even if those spaces will eventually be filled with dumpling restaurants. Photoshopped entourage must be abundant, even if it distracts from the architectural design. Palm trees and other non-native plant species are perfectly okay in renderings for projects in freezing northern Chinese cities and daytime skies are blue even if in reality pollution clouds the sky.

Architectural visualization specialists (and some architects for that matter) in China are not involved in design, but the marketing of urban fantasies to government officials.  Classic architectural principles like proportion, scale and how a building responds to context are forgotten matters in the race to build the future in China. The truth is there is no time to be so thoughtful.

China World’s Largest Wind Energy Market

Infographic Courtesy of Statista

Lessard Design Wins Competition For Nanjing Technology Community

Lessard Design, an American architecture firm based out of the Washington D.C. area, recently shared with us some images of their competition winning entry for the Nanjing Technology Community. Designed in conjunction with local design institute Nanjing City-Town Architecture Design & Consultants (CTA Architects), the project is a 4,280,000 square foot office complex geared towards technology entrepreneurs.

The minimal, understated architecture of the office towers is a suitable backdrop to the generous amount of public space incorporated into the design. The complex features an elevated, active green space weaving through the central axis of the site. Other inviting public space includes a row of restaurant and retail spaces along the canal front.

Please see the following YouTube link for a very cool fly through animation of the project: Technology Core Community – Nanjing, China

China’s Urbanites Take to the Internet in Droves

The good people over at Statista provided us with yet another excellent China infographic, this time about the country’s huge online population. Already, 1 in 5 worldwide internet users is Chinese, yet still less than half of the country’s population is online. Most of those are people living in China’s urban areas, accounting for 73.5% of those online. That statistic and the overall number of people using the internet is bound to increase with the technological advantages that urban areas continue to afford over rural areas.

The world of microblogging is also exploding. China’s version of Twitter, called Weibo, is already a paradigm-changing social phenomenon with over 300 million registered users. Although strict government controls routinely restrict searches for sensitive topics, savvy netizens find ways around these blockades through the use of aliases and codewords. For instance, while the ongoing saga surrounding the recent escape of blind dissident Chen Guangcheng from house arrest has led authorities to block searches for his name, Weibo users are creatively microblogging around the sensors .

It might be too early to assess the full extent of influence that widespread internet use has on Chinese society, but it is safe to assume that it has already changed the social landscape in significant ways.