Speech delivered at the "Forum on Development Strategies of Modern Dongcheng District of Beijing in the 21st Century" in the Tianlun Dynasty Hotel, on 11 May 2001 (During the 4th Beijing International High-Tech Industries Week)
By: Gilbert Van Kerckhove
President China Strategy Limited
Advisor to the Beijing International Investment Promotion Council
Adviser to the Belgian Minister for Foreign Trade
The speech was later translated in Chinese and published by the Dongcheng Administration.

Respected Leaders, Ladies and Gentlemen,

With 20 years of experience with Dongcheng District it's for me a special honor to talk today, but also a challenge.
In the middle of 1980 I was offered a position with a Belgian company to open their office in Beijing and to manage the project of the YAOMENG Power Plant in Pingdingshan, Henan. It was the first soft loan granted to China after its opening to the outside world.
A Belgian friend told me: "Gilbert, don't go to China, you will get crazy". When I arrived here for the first time in December 1980 I indeed discovered a challenging environment. Crazy or not - twenty years later I am still here.
So why the challenge in addressing this meeting? Because Dongcheng suggested to explain what makes a world city successful. It seemed a fairly simple topic but actually it turned out to be rather complex.
We could immediately sum up a list of obvious criteria such as:

• urban transport and traffic
• telecommunication
• environment
• pollution
• cost of life and doing business

But are those really that important? Is it really what motivates the final choice? When we look at the success or lack of it of certain cities we have to admit it is not that simple.
Look at traffic: is it good in New York, Paris and London? Certainly not.
Is cost a major factor? In a recent study, the top office markets in terms of cost are London, Tokyo, Hong Kong, San Francisco, Paris, Zurich and New York.
Can we call the environment pleasant in Manhattan, Las Vegas, Hong Kong, and Taipei? We could argue a lot about it. There are certainly more pleasant cities to live in, so why do people not go there to set up their business?
I made a study in the eighties comparing cities to set up an Asian headquarter. At that time Kuala Lumpur seemed quite attractive. So why did it not live up to its promise? Why did the dream of creating the Multimedia Super Corridor not become true? Already 4 billion dollar was spent but results are disappointing.
Some indications:

• climate of insecurity for foreign investment and their profits
• many protectionist rules and government interference for foreign exchange, employment, business
• many restrictions on the flow of information.
• poor living environment in the Corridor
• poor telecom and Internet infrastructure in Kuala Lumpur

Let's have a look at another famous city - Singapore. A study published in January and partly financed by the government brought some disturbing results. By many measures it is one of the most globalized and Internet-ready countries. It has a good environment of supporting policies and regulations. But Singapore was ranked near the bottom in getting people to create business ventures. Entrepreneurship and innovation were found to be lacking. Singapore is now looking how to address the problem. Some of the causes analysts see:

• too many restrictions of the free flow of information
•  too many rules and laws interfering with creativity, information and private life
• too much fear to fail when setting up new ventures.

Recently Germany tried to create a new financial center within Europe, to be a second pole at the level of London.
It basically failed. Why? Because of the long tradition of London being a financial center, the wealth of contacts, the spirit of entrepreneurship, more relaxed rules and regulations for business and lower taxes. And a city known for its international spirit, creativity and innovation. It showed more is needed than just the wish of a government to succeed.
The Cyberport project in Hong Kong is another example. Critics point at the way the project was awarded without real competition and say that instead of being a real boost for the Information Technology industry, it is not much more than a big real estate deal.
Asia has some successful examples of new "Silicone Valleys" such as Hsinchu Park in Taiwan and Hitec City in Hyderabad, India.

I went back to the paper I delivered at a seminar in Shanghai in May 1999 where I talked about private companies in China. I think some of the criteria discussed at that time seem relevant.
Why do entrepreneurs rush to New York, San Francisco, London, and Hong Kong? I think the reason is simple. They know they have the possibility to realize their dreams and succeed. As people say about New York: "If you're not good you don't eat. If you are very good you can get rich".
So, business is ready to accept high costs and other negative factors as long as the final result of being there is tempting.
Why do companies set up operations in Beijing today? To be fair, not as an Asian headquarter or as the place where innovation and profits can lead to spectacular results - like in Silicon Valley. At least not yet. Only Shanghai is starting to be considered as a headquarter for Asia. In Beijing, most companies come because they cannot miss the Chinese market. Shanghai is certainly an example for Beijing on how to transform an old and inefficient city into a world center of the 21st Century.

Now a word of optimism. China and Beijing are both changing at a high speed and when I have doubts like "never in Beijing" or "Beijing will need 50 years" I stop and go back in time. That means 20 years for me.
In the early eighties, being a foreigner in Beijing was not easy.
You could say, well, that's history. I think it's important to look back sometimes and see how life was then. If somebody would have told me in 1981, look, Beijing will be as we know it today, I sure would have replied it was all impossible and China would need some fifty years. We should keep that in mind. In a not so distant future we could see more tremendous changes and I should then have to completely review my analysis of today.

So let's go back in time to 1981.

Problems started trying to book a room. Everybody wanted to stay in the Beijing Hotel, the best place to work, sleep and eat.
Rooms could not be booked directly at the hotels. One had to go through a special service bureau to put down the request. And some day you would be told, if you were lucky, in which hotel you could have a room.
I was lucky and got a single room at the Beijing Hotel where I was a guest for over six years, living through successive renovations that gradually made it the top hotel as we know it today.
There were no office buildings and no apartments - we only had hotel rooms. For several months my bedroom was also the office.
Forget about office furniture, a fridge in the room. I was not allowed to bring in anything.
Privacy did not exist. We called it a "fishbowl existence": the Chinese staff would monitor every move of our life and we would have little information about the outside world.
Normal Chinese were not allowed in our hotels, neither in the Friendship Store. Private contacts between foreigners and Chinese were, the least to say, "not encouraged".
After 8 pm it was hard to find a place to have a beer, if anything.
So when the first international hotel opened in 1982, the JIANGUO, we were all admiring the bar - the first real one in Beijing. How wonderful!
Shopping was also quite different from today.
The main shopping street was Wanfujing, a narrow and crowded street with gloomy stores filled with little but outdated products. The sales staff would consider the customer as a disturbance.
Supermarkets and self-service did not exist. Everybody told me, Chinese would never accept that because it was against their culture.
Placing an overseas call was a headache. You had to book hours in advance and if the number was busy, well bad luck. Try another time. The main communication was through the old-fashioned telex machine. I even mastered the skill to "communicate online" through the telex with the secretary in Belgium. Not exactly your "Yahoo Messenger"...

Maybe some of you cannot imagine those stories. What a difference today! Visitors who return to Beijing after a long time find it also hard to believe. First-time visitors are much surprised to discover Beijing as they still imagine the city being from another century.
Wangfujing is now a modern commercial street with shops and offices that can compete with any major city. Today you can find about anything in Beijing, including the most modern products. And of course the latest fashion! In the shops sales people rush to you, are helpful and do their best to sell their products.
So, when I have my moments of doubts, wondering where China is going, if China will further open up, if China will continue its unique progress, I just stop to think back, to remember some difficult moments of the past twenty years. It makes me feel confident nothing is going to stop China's opening and development.

Let's go back to the factors to make a city successful and how Beijing and Dongcheng District can learn from others.
Three factors:

1. Anyone with talent and energy has access to financial resources
2. Financing and funding is available because there is confidence that serious profits are possible when the business is right.
3. Companies are strong because they are good, not because they are protected.

Today it is not possible to make an in-depth analysis so let me give some examples and highlights, without trying to be complete.

There must be room for innovation and creativity.

•  People should be allowed and have the right environment to come up with new ideas and try them  out, and even fail.
• That means flexibility to create a company in various fields without excess regulation and bureaucracy from the government. That also means that there are fewer restrictions on the movement and employment of skilled people including foreigners. 
• Unfortunately, today laws and regulations are too restrictive and are often not applied through "the rule of the law" as we call it.
• Let's not forget that "private company" is a concept that only recently became accepted in China and still suffers from serious discrimination.
• A good example is Las Vegas, a city in the middle of nowhere, in the desert, and with a difficult climate. But the State of Nevada drafted the most business-friendly laws and as a result the city has boomed with new companies - not only with gambling.

Easy and affordable access to information and communications:

• The Internet service is still a source of frustration for people like me who use it as a tool for business. Speeds are slow, some websites are blocked without any reason. International bandwidth is way too small.
• We hope new Internet regulations will boost commercial applications.
• On the other hand the competition between telecom operators is showing results. Just look how prices came down for domestic long-distance and international calls.
• Interesting to note is, few people complain about making international calls; it is now so easy we just take it for granted. My experience is that voice and fax communication is here often better than in many developed countries.

Funding:

• The banking sector and the lack of venture capital are still seriously limiting the growth of business, especially for Chinese entrepreneurs
• Real venture capital and angel funding practically do not exist.
• We are far from a stockmarket that is a real tool to raise new funds. No NASDAQ here...

Profits:

•  As said, business does not mind high costs as long as profits compensate. Finally, we are here to make money. And so do the Chinese. Worldwide the Chinese people are famous for being the best entrepreneurs, so why not here?
• We still face high costs, often hidden expenses as well as high and sometimes unfair taxes. Also housing for foreigners is still quite expensive.
• As a result, while China is said to be cheap, running an office in Beijing is still expensive, especially for small and medium companies.

I will stop here. If I sounded a bit harsh, well, as I said, looking back we should be confident!

Before concluding, some words about "my Dongcheng District", so to speak. I started here in 1981. Years later, in 1995, when I had to buy a home in Beijing, it was straightforward for me to settle in Dongcheng. Simply because for me it is the heart of Beijing, the heart of China. It is a convenient location, where business, shopping, culture, history and entertainment are all within reach. I think that's important for business. Dongcheng is not just a collection of boring office buildings - it's a district with a vibrant life combining work and leisure. Of course nothing is perfect. But what counts is the concern of the District authorities for constant improvement. And being receptive for constructive comments. I am confident Dongcheng District will continue to develop at the same fast pace as in the past two decades and will be a more and more advanced urban center. So I would say, if you are not here yet, better hurry before it's too late. And if one day you feel sorry to have missed your chance, well, I told you so... Wishing Dongcheng District a great progress in the 21st Century and successful Olympic Games, I close here and thank you for your attention!

Go To Top
Back To List
strategy4china