China – The Economy

In the first show of this week’s special broadcasts on the People’s Republic of China, Tavis discusses the country’s economic and technology boom with Victor Yuan, board chair of China’s most prestigious polling firm, and with venture capitalist Kai Fu Lee, CEO and chair of Innovation Works and one of the “godfathers” of Chinese technology.

Victor Yuan is CEO and chairman of the board of Horizon Research Consultancy Group. Founded in '92, Horizon is one of China's leading providers of market research and strategic consulting services for large multination and Chinese companies. It also conducts survey-based studies about trends in Chinese society and politics. Yuan has a Ph.D. from Peking University, an MPA from the Kennedy School at Harvard University and a master's degree in law.

After holding exec positions with several tech companies, including Google, Microsoft—where he founded Microsoft Research China in the late '90s—and Apple, Kai Fu Lee co-founded the Beijing-based venture capital firm Innovation Works. Lee is also credited with developing the world's first speaker-independent continuous speech-recognition system and was formerly an assistant professor at Carnegie Mellon, where he earned his Ph.D. in computer science.


Tavis: I first came to China a year ago on a fact-finding trip and knew I wanted to return as soon as possible. Now I’ve come back with my good friend and colleague Dr. Cornel West and more than 30 members of my personal staff. In fact, some of the footage you’ll see throughout this week was shot by my young staffers.

Dr. Cornel West: We got something to learn from the Chinese brothers and sisters.

Male One: That’s right.

Tavis: China’s front-page news back in the States, but we really know very little about the people of this vast country. We came to China with questions about the economic boom, who’s benefitting and who’s being left out, about the environment, about human rights abuses and government crackdowns.

The people we talked with surprised us with their candor. Despite a government observer who traveled with us each day, no topic was off-limits. We knew that a week here would only scratch the surface, but we were eager to find out as much as we could about the people behind the second-largest economy in the world as it morphs from communism to consumerism in less than a generation.

Kai-Fu Lee: I think China has accepted the so-called “market economy” starting some 32 years ago, when Deng Xiaoping opened up China and basically said market economy is good. It’s okay to let some people get rich first.

I think starting that moment, at least the Chinese economy is no longer a communist economy.

Tavis: You see proof of that in big cities like Shanghai and Beijing. People are making money. Over the last decade Chinese officials say they’ve moved 300 million people out of poverty into the middle class. Despite recent concerns about inflation, the Chinese economy is thriving. Today, China has more billionaires than any country other than the United States.

Feeding this galloping economic growth is China’s educational system. It’s been criticized for not fostering independent thinking, but it’s also graduating hundreds of thousands of top students in science and math. That’s the reason multinational companies like Microsoft have established beachheads in China.

I’m not naive in asking this question, but why do you think that the largest R&D campus outside of Redmond for Microsoft is in China? Why China?

Ya-Qin Zhang: Talent.

Tavis: Talent, yeah.

Zhang: It’s a vast amount of talent pool. If you look at in China, in every year China graduates over six million people, students, and one million actually are related to IT, in computer science, electrical engineering, things to do with information technology. Also, it’s quite different from the U.S. The best and brightest students, actually, work in engineering.

Tavis: Statistics like that make us a bit uneasy. It’s as if we know they’re gaining on us, and those footsteps in the dark are making for some restless nights in America.

Summing up China, a country of 1.3 billion-plus people, is a daunting task. We turned to the Horizon Consultancy Group, one of China’s oldest and most prestigious research firms, for an overview of just what the Chinese are thinking about.

When Victor Yuan started a company 19 years ago, polling about government policy was off-limits. Now that’s changed.

So based upon what the Chinese people are telling you about the social issues, on a scale of one to 10, a scale of one to 10, 10 being great, one being horrible, overall, generally speaking, how do the Chinese people feel about the direction their country is moving in, on a scale of one to 10?

Victor Yuan: Seven to eight.

Tavis: Seven to eight.

Yuan: Yeah.

Tavis: Okay.

Yuan: The typical reaction is like the general direction is still all right. The problem is about the specific policy. When I look at the specific policies, the most that I read is around five to six. So that means people will complain, and it’s such a big government. There are so many government people and there are so many jobs, and many jobs are not good.

So this is also – they’re also debating about the big government and a small government.

Tavis: Every time I come to China, I get off the plane, and this gets me in trouble back in the United States when I say this, but there was a recent poll, speaking of polls, there was a recent poll in our country, the Rasmussen report, that discovered that just over half of the American people think that our best days as a country are already behind us.

I feel the exact opposite when I come to China, that the Chinese people are excited, enthusiastic, they’re hopeful about their future. Yes, there are many issues, many issues.

Yuan: Yes, yes.

Tavis: But they’re more hopeful about their future than the American people seem to be. So you’ve done some polling specifically about happiness. So how happy are the Chinese people?

Yuan: It’s about a 67 to 70 percent of the people feel that they are, to some degree, they’re happy. But we see the difference. The difference is about the older generation, the middle-age generation and the young generation.

Basically, the older generation is more happy because they have a historical, vertical comparison that nowadays it’s much better. But of course they have some complaints about morality, about corruption. But still, they basically look at the overall situation.

So I think this is the big issue, and the young generation also, their perception to society is quite different. For example, their authority perception has changed, and they treat their parents as like equal friends. They treat their authority – it’s like a soft authority.

But they’re still in a society where government leaders and party leaders are so hard, and for those reasons, if you look at the internal discussion, there are so many complaints. We saw the angry youth, and they see anything. If any policy comes out, they prefer to criticize that.

So this is a reflector of that situation, the younger generation is not very satisfied very much.

Tavis: How has social media changed the People’s Republic of China?

Yuan: It’s a good question. We have social media, although it’s different with Facebook and Twitter. But first it provides a space that people release, disclose their feelings and their comments on different issues, so anything, any policy, anybody, they will criticize.

Tavis: Let me ask you this finally, Victor. So since you probably know the Chinese people better than anybody in China, given the work that you do, what are, you think, the biggest misconceptions that we have about the Chinese people?

Yuan: When talking about human rights, when talking about the legal system, it’s still like they regard China as like 20 years ago, 15 years ago. Not too many progress, and especially the general public will have that perception.

As someone living in China, it’s like the United States, if based on the so-called criteria of freedom and human rights, it’s like at this level, Chinese, it’s like at this level. But even if China was to move this way, if you look from this angle it’s like no change.

But if somebody living under this roof, before it’s like this but now it’s like that, you feel that progress. So in that sense, if you’re simply from the other side angle, to understand is very hard. But as someone here, I write, I’m a columnist, I write an article, I have a comparison that like 10 years ago, five years ago and now, what kind of topic I can write.

You do feel that the scope is bigger and big, and before, mostly I write five articles, one would be released. Now five, and five are released. Of course more will be canceled, some sentences, but it’s progressed a lot.

So I think this is a way – it’s like if you push too much then the space would be smaller, because at least with this regime, when they feel nervous, they typically will tighten the space. If they feel released, they make the space bigger.

Tavis: Mm-hmm. You think, to your point now, you think the central government feels some nervousness? Do they sense that the unrest is starting to bubble, that people are getting restless? Do they understand that, do they feel that?

Yuan: Yeah, it’s like the many policies we’re talking about, the social management, it’s about a social unrest and a social disorder. We’re talking about this. But this is like an internal problem, so in that sense I think that it’s about more dialogue would be better than real heavy, real tight pressure to the regime.

Tavis: To find out more about this new generation who is pushing the limitations of China, I sought out Kai-Fu Lee, one of the country’s most respected business leaders. Lee, who helped establish both Microsoft and Google in Asia, is something of a legend in China, the way Bill Gates and Steve Jobs are in the States.

He has now formed his own company called Innovation Works that incubates ideas from young men and women and then shepherds the best of those ideas to market.

Lee: Great to see you, Tavis.

Tavis: How’ve you been?

Lee: Very, very good.

Tavis: Glad to be back at Innovation Works again.

Lee: Thank you.

Tavis: So these eggs, let me start here. These are fascinating eggs because they’re lit. You going to tell me the story behind this again?

Lee: Sure. We incubate projects. We want to help companies grow. So these eggs in the nest represent the ideas and companies that we help maximize their chance of success, and that’s why they light up.

Tavis: I like that. What does this have to do with (laughter), what does this have to do with Innovation Works and starting companies and entrepreneurs?

Lee: Well, we have young people. Young people like to have fun.

Tavis: Yeah, yeah.

Lee: So they’re good at foosball, and we – actually, this is our second table. They completely wore out our first table. All the little guys, they’ve become broken and chipped down to little toothpicks, so we had to get a new one. This is a new set.

Tavis: So do you play with them sometimes?

Lee: Yes.

Tavis: Yeah? Are you pretty good?

Lee: I’m, I’m okay.

Tavis: Okay. (Laughter)

Lee: Not bad for my age. (Laughter) This is a Saturday. I did not expect anybody to be here. I mean, when I came last time it was on a weekday. I didn’t expect this many people to be here on a Saturday. Is this typical, or are they here to impress me with my camera crew?

Lee: No, everybody works six to seven days a week because they want to. We don’t ask or demand it. This is their own company, and they own the destiny, they own most of the shares, and we’re just here to provide support, to help them be successful.

You asked about cultural elements, so openness and egalitarian are some of the elements, and I think dream and aspiration is another one. These paper airplanes that you see up here are folded by each one of the founding members and engineers, and on it is written that person’s entrepreneurial dream.

So we want people to look up every day and see that this is not just about creating wealth, this is not just a job, this is about making the world different and better, and towards the end of that side there is a big world with everybody’s handprint on it, and that symbolizes that people here want to change the world.

Tavis: This gives a whole new meaning to “I Believe I Can Fly.” (Laughter) I can hear R. Kelly singing right about now, “I Believe I Can Fly.” This is a, that’s a great concept.

You mentioned earlier that you have what’s known in China as a microblog. Obviously, social networking, social media is huge in the United States. So tell me how it does work inside China, this microblogging that you referenced a moment ago.

Lee: Well, it works the same way as in the U.S. I think there’s a bit more monitoring, people are a little more careful in what they say, but 99.99 percent of what you want to say, you can say. So it’s really a lot more similar to Twitter than people might imagine in the U.S.

Tavis: Are young people as hooked on it here as they are in the United States?

Lee: Probably even more so.

Tavis: More so?

Lee: Because the alternatives are perhaps more limited. There’s not as much freedom in publishing on TV or newspapers or magazines, and this is so easy. The mobile is very common everywhere, so the Chinese microblogs are mobile, just as mobile is exponentially growing. It’s a perfect combination.

Tavis: To your point about freedom, or the lack thereof, which leads to more active participation in microblogging, how do young people know where the line is in this country? Is there a class that’s taught? Do you learn it the hard way? How do you learn as a citizen of the Republic of China where the line is with regard to microblogging, what you can and cannot say, can and cannot do?

Lee: Well, I think in every country it’s understood. In the U.S., people know child porn is clearly illegal and it’s illegal everywhere, anywhere, by anybody. They know that certain – teaching people how to blow up buildings is not acceptable, and those kinds of things is known in the U.S. and I think China, there is a similar kind of understanding.

Tavis: You want to sit down now so I can talk –

Lee: Sure.

Tavis: So Kai-Fu, we’re sitting in this room now with all of these young people working. What does innovation look like these days into the future? What does innovation coming out of China look like? And I’m asking that because I want to ask a follow-up, which I’ll tell you now, which is whether or not we in America should be scared of the innovation that China is bringing forth. But what does innovation look like in China now?

Lee: I think the true paradigm shift innovations still tend to come from the U.S., and that’s not just setting China aside but probably almost all of the world. I think the American culture and the type of education it has and the fact that Silicon Valley is the combination of the best academia and venture capital and entrepreneurism I think puts the U.S. well ahead of the rest of the world, including China, in terms of really groundbreaking paradigm shift innovation.

Tavis: So why, then, do you think, at least, that the fear, and if not the fear, the concern about China in the U.S. is so palpable? Why is it so significant then if you still believe that the greatest paradigm shifts in technology are still coming out of the U.S.? Why are we so scared of China?

Lee: I think the raw numbers are certainly humbling, China’s economic growth. Also, I think when Americans first meet a first Chinese, they tend to be impressed by how hardworking and dedicated the Chinese people and students are, and that’s certainly part of the Chinese education-centric heritage.

Those are perhaps the factors, and then I think there is a lot of maybe misleading that goes on in media and perhaps some politicians who want to demonstrate a point or get their articles read or win an election. I think the Chinese people actually feel really great about America and there are lots of opportunities to work together.

In fact, I think the American innovativeness and the Chinese execution may be a great combination that I’d like to see more of.

Tavis: Talk to me about that juxtaposition of us viewing China as a communist country, and yet capitalism taking more and more hold here every single day.

Lee: Well, I think as far as what keeps the Chinese economy moving forward, what motivates the Chinese people, these are very similar to America. It is capitalist. I don’t think that word is commonly used in China. People here like to say “market economy.” But I think they’re really synonymous.

Tavis: Is that good for the people of China or is it good for the people of China who make the money?

Lee: Well, it’s certainly good for the people who make the money, and I think one of China’s future challenges is how to deal with the haves and have-nots. As you go through China you will see some very wealthy regions and people and also some very poor, and in that respect it’s not quite like the China that most of America currently perceives.

So how to deal with that haves and have-nots and make sure issues like digital divide don’t become a problem. Make sure that people who are poor today still have the opportunity. That’s something I think the Chinese leadership is very aware of, working hard on, but it’s a tough problem.

Tavis: So finally here, to my mind, at least, what entrepreneurs do, sometimes of necessity, is to break the rules. In a place like China that is still very young in many ways – a very old civilization but young with regard to what you all are doing here now, how do entrepreneurs go about breaking the rules, rewriting the rules, because this is a whole new chapter for China where this kind of market capitalism is concerned?

Lee: I think in the Internet company-building process the rules are more what’s in people’s mind. They’re not legal rules or business rules, so I do think our entrepreneurs are very willing to try new things, to do things that haven’t been done before, to do things other people tell them can’t be done or are difficult. So I think that spirit is alive and well.

Certainly having said that, all of China, all of the Chinese people, tend to be more rule-following than the American people. So what Innovation Works is perhaps representing, a small group of people who are willing to take chances, take large risks and try something that has a high risk of failure but also a high return.

And because China has that many people, even 1 percent of China’s population can lead to a very large pool of great people for us to draw from.

Tavis: Before leaving Innovation Works we spent a bit more time talking with three young men who hope to create the next Apple or Facebook.

Lee: So (unintelligible) was a former reporter and editor and (unintelligible) was my technical assistant from Google, and Richard was a product manager from (unintelligible).

“Male Two:” We’re doing a social Q&A website which is ultimately a goal of ours, is that we believe that we can get the most available thing out of everybody’s brain. We can connect people with valuable information.

“Male Three:” My company is called Doodle Mobile, which you can see over there. It’s a mobile social game company and well, I think doing a startup is like chasing a dream.

Tavis: How did you get the name Doodle Mobile? (Laughter)

“Male Three:” Yeah, well, I was in Google, so Google sometimes changes their logo for holidays, and we call it a doodle. So that’s where the name comes from.

Tavis: Oh, okay.

Richard: When I talked about opening a startup, my family fought against me. But when I argued with them, I didn’t talk about how good the product is. I talked with them about Kai-Fu, because Kai-Fu is very famous in China. Everyone knows Kai-Fu, including my parents and my wife. So they know I will work with Kai-Fu, he’s such a good guy that they (unintelligible).

Tavis: They said okay.

Richard: Yeah.

Lee: It’s a lot of pressure. (Laughter)

Tavis: You probably saved a few people like that.

From looking at China’s future to honoring China’s past, my traveling companions and I spent time walking through the Forbidden City, which China’s emperors used to call home.

The more you go, the more decadent it gets. It gets more decadent. Once you keep walking, you can walk for three hours. It keeps going and going and going and going. It’s like an Energizer bunny.

We also climbed what seemed like endless stone steps to the Great Wall, one of the most inspiring manmade sites in the world.

It’s hills up and down, like this. Up and down, up and down.

Dr. West: Lordy, lordy, lordy.

Tavis: It’s unbelievable, just the craftsmanship. This is it. This is a wall, brother.

It was a pleasure to share this with Dr. West and my colleagues.

Dr. West: Boy, this’ll make you feel alive, though, brother.

Tavis: Yeah. Or dead. (Laughs)

Exhausted but also exhilarated, we boarded our bus for the two-hour drive back to the heart of Beijing, and I gathered my thoughts about what I’d experienced thus far on the trip.

So I’m sitting here on the bus. We just left the Great Wall, which was quite an experience. This is my second time going to the Great Wall, and it’s always a spiritual experience. It was the first time and it was again today.

My friend Dr. West, who is on this trip, of course, made an observation as he and I were walking up the hill to the Great Wall. Doc’s point simply was that the Wall, as so many other things do, what man has capable of. It shows that man can do just about anything except respect each other, except love each other, except revel in the humanity of each other.

I thought about that, and again, this is what I mean by being a spiritual experience when you take your friends with you. My friends who were journalists didn’t quite make me consider it in that way the first time, and I didn’t even have that thought. But again, when you’re hanging out with the right kind of people, experiences become soulful and they become spiritual. They become much more meaningful to think about then.

Then finally for today, again, another conversation Dr. West and I had when we started moving around in China, and I felt this way the first time, and I recall saying how fascinating it is to go to a country where the sense of hopefulness as opposed to hopelessness is palpable.

I love America and there’s no place in the world I’d rather live, I love the US of A, but we are going through a period in our country’s history where the hopelessness is palpable. I feel it as I move across the country. You get off the plane in China and you feel a sense of hopefulness about their future.

To be sure, this country has its issues, no doubt about that, and we’ll talk about those issues in the coming days, about human rights and freedom, et cetera. But yet it’s a sobering thought. It’s good to be back in China, great to be back in China, and I’m enjoying the trip (unintelligible). Keep the faith (unintelligible).

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Last modified: August 15, 2011 at 10:55 pm