Mitt Romney's Afraid of China: Should You Be?

Last Updated Aug 7, 2008 11:38 AM EDT

I'm listening to Mitt Romney's Super Tuesday speech, and he's raising the specter of economic disaster in America. Our economy, he says, is in a "long-term slide as we're competing with Asia in particular--we can't continue to allow our economy to be weakened."

Romney thus is part of the "Huns are coming" school of thought about China and India and Asia's other fast-emerging economies. Reading about China in particular makes one think that the hordes are once again sweeping across the plains and soon will sack our economy (Clyde Prestowitz's Three Billion Capitalists is a recent example). We seem faced with an amorphous seething mass of 'them.'

Rebecca Fannin's book, Silicon Dragon: How China Is Winning the Tech Race, shows us who 'them' are. She takes us inside 11 different Chinese high-tech firms and introduces us to the entrepreneurs in all their brilliance â€" and bumbling.

Fannin has spent more than a decade covering the Asian private equity scene, really from its nascent days. Her experience makes her perspective an important reality check on China's high-tech economy. (Disclosure: I worked closely with Rebecca at the old Red Herring, and she acknowledges me in her book, along with some other former colleagues, a sign of her graciousness, since I didn't do anything to warrant an acknowledgement. Nonetheless I may be more effusive in my praise and more gentle in my criticism than I might otherwise be.)

Her title suggests that the hordes of Chinese engineers (it graduates something like ten times as many engineers as the U.S. does in a given year) will swamp Silicon Valley and replace the U.S. as the world's innovation engine. Calling Mitt Romney!

Her entrepreneurs comprise six copycats and five innovators, sandwiched around a chapter on the venture capitalists who are active in China. The copycats have developed Chinese versions of American Web companies like Google, EBay and Amazon. They include some of China's most successful, such as Baidu.com and alibaba.com, as well as some that are less familiar. The innovators will be unfamiliar to most of us, and include companies that could remake the light bulb, the browser, mapping software, and what we buy over cell phones.

Fannin says she firmly believes that these innovator companies signal a shift in China, that will lead the world towards better Internet browsers, messaging services and light-emitting diodes. Further breakthroughs will follow in due course. But every single one of the companies she writes about face challenges â€" competitors large and small, lack of profits, in some cases a lack of a business model. She writes about these challenges in detail, in fact in so much detail that it makes her argument unconvincing. Perhaps that's her writing style â€" she's a news person, and she cannot seem to escape the news person's habit of qualifying every assertion. The writing is not the book's strong point. Some details are lovely, like Alibaba's Jack Ma flopping down next to her on a couch and hugging a pillow while they talk. Too often, the details are clunky. These are not great yarns about Chinese business. Still, her reporting is useful, particularly because she visits most of these companies over a period of years, and shows us the entrepreneurs making blunders, sometimes serious enough for them to be forced out of their CEO jobs, or to make it likely that they will be. Her assertions are often supported by the venture capitalists that are active in China, and their comments often are overwhelmed by the problems these companies face.

The profiles of these companies bulge with those problems. They all face substantial challenges from companies outside and inside China, and with few exceptions their revenues are tiny. Without exception, the entrepreneurs she highlights don't know much about business, though certainly Jack Ma (here's a Q&A she did with him for Inc. magazine's How I Did It feature), Baidu's Robin Li and John Zhang of Chinacars.com, a Chinese AAA, have business savvy. For the most part, though, her entrepreneur heroes are making it up as they go. As she notes, "They have no older role models in private enterprise in China the way Americans have Bill Gates and Steve Jobs, who are now in their early fifties."

If they succeed, her entrepreneurs will be China's Gates, Jobs and Bezos (here's her Huffington Post excerpt saying so). That's the book's selling point â€" it contains a lot of detail about these men and women, their life history, primarily in their own words, lessons they've learned so far and the rapidly changing makeup of the Chinese Internet business. It's worth a close read for people who want to do business in China, particularly in the Internet sector. The chapter on Oriental Wisdom's Liu Yingkui is my favorite â€" he started out selling insurance via cell phone messaging and has expanded from there. While his revenues remains small, he's got something figured out about cell phones, at least in Chinese culture.

I don't doubt there will be a Chinese Bill Gates. But I don't know that any of these people will qualify. I found little to make me disagree with the skeptics in her introduction, who ding China for its culture, which stifles individuality and innovation, for its infrastructure, which remains far behind developed nations, and for its lack of effective capital structures. I think it likely that half of her copycats will fail, and at least that many of her innovators.

In their favor is, of course, China's vast population, the challenge its language presents for foreign firms and its immense room for growth. She notes that only 15 percent of Chinese people have Internet access. That may explain why this book seems to offer us the Chinese version of the U.S. Internet scene circa 1995, just after the Netscape IPO. Perhaps that creates some of my skepticism. There is no Chinese Microsoft to squash these Netscapes she's writing about (except in the cell phone services market, where China Mobile can play that role to PingCo). But these Chinese firms face the substantial companies that emerged from the heady New New Thing days of the U.S. Internet boom. Fannin believes that the Chinese entrepreneurs' innate understanding of their country will make up for their lack of experience, the vagaries of their market and the unpredictable nature of the Chinese government. As she notes in the chapter on venture capital, "For business continuity and consistent rule of law are vital." And lacking in China so far.

I wish she would've written a chapter on the overall environment for startups in China and how that's changed over the years she's been covering the region. That might have helped support her thesis that China as a whole will become much friendlier for entrepreneurs and become a massive innovation engine for the world economy.

As it is, Mitt Romney might find the book something of a relief â€" he'll have time in his role as Secretary of Commerce to gin up a kick-ass plan to keep those hordes at bay.

Other views from the Web on this book:

Simple is the reason of my heart
Jake Ludington's Digital Lifestyle
China Web 2.0 Review
Dean Takahashi's TechTalk Blog
'Silicon Dragon' profiles China's new entrepreneurs, Wilton Villager

  • Michael Fitzgerald

    Michael Fitzgerald writes about innovation and other big ideas in business for publications like the New York Times, The Economist, Fast Company, Inc. and CIO. He’s worked as a writer or editor at Red Herring, ZDNet, TechTV and Computerworld, and has received numerous awards as a writer and editor. Most recently, his piece on the hacker collective the l0pht won the 2008 award for best trade piece from the American Society of Journalists and Authors. He was also a 2007 Templeton-Cambridge Journalism Fellow in Science and Religion.