Is China becoming more like Japan?

Following the well-documented debacle between Google and China, the San Jose Mercury News says people are realizing that doing business in China is getting tougher for U.S. companies.

"It was inevitable after a certain time they would no longer roll out the red carpet for foreign companies and give them special treatment," said Susan Shirk, a former deputy assistant secretary of state in the Clinton administration responsible for U.S. relations with China. "But now we don't have a level playing field. We have nontariff barriers (in China) designed to protect local companies."

Shunning foreign companies is a logical decision from the Chinese government’s point of view. Remaining in the manufacturer’s position will never give China the worldwide power and recognition it wants (or deserves, according to people there). China needs to acquire technological expertise and worldwide access, which is most easily achieved by inviting global players and learning (copying) from them. Now that it is almost done, who needs those “laowai?”

I am having a déjà vu sensation reading the dramas of those companies ejected by China. They resemble what has been going on in a country I am very familiar with: Japan.

We know how “open” Japan is toward the outside, despite having established itself as a major player in the free-trade world. People don’t speak English. Setting up a company is notoriously difficult for everyone, even natives. Mobile phones armored with the world’s top technology are sold only in the domestic market, to work on a proprietary Japanese wireless network.

And today, Japan is paying a huge price. Foreign companies are fleeing Japan due to high costs, a shrinking market, and the complexity of “local habits.” Younger generations are disillusioned by the rigid social customs and lack of career prospects (traditional office jobs are saturated with middle-aged men and part-time jobs are grasped by nothing-to-lose retired grandpas). And what do we call that proprietary smartphones? Galapagos mobile. “This country has everything. Except hope.” That was the opening line of a fictional young character in a best-selling novel published in 2000.

Why Japan has become so inward-looking? Because it could afford to do so. A population of 100 million people means that as a Japanese you can make a good living, or even become a millionaire, doing something entirely in the domestic market—including writing poems in your native tongue. Why risk yourself and adjust your behavior according to external requirements?

Let’s go back to China. Its economy has been growing for more than thirty years. It has a potential market ten times larger than that of Japan. And probably most importantly, its citizens do not have the “frontier spirit,” a driving force behind the onslaught of many US/European pioneers/companies. Historical evidence suggests that during the Middle Ages, Chinese vessels frequently explored the world but never did much more than that. From Jim Rogers’s A Bull in China:

Chinese explorer Cheng Ho set sail on ships twice the size of Columbus’s ships in the fifteenth century and explored much of the world. Yet he never once annexed territory….Their ships and navigational skills were better than those of the great European explorers, yet they never attempted to seize territory or set up colonies.

China is already the center of the world. Why go out? (中國 literally means Middle Earth, or Kingdom). So in the short term, I believe China will become domestic, or domesticated, and prosper as the world’s largest economic entity. In the long term, the same malaise that caught Japan will catch up with China.

The signs arealready there. Lenovo, the company that purchased IBM’s ThinkPad brand several years ago, dumped its ex-Dell CEO William Amelio after several years of disappointing worldwide sales, returning to Chinese leadership and a focus on their home turf. I bet many more companies will follow through in the coming years.