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China’s growth an opportunity for others

Thu., May 12, 2005

Sydney Rittenberg has thought about China for a long time. The Chinese government, which twice locked him in solitary confinement for political reasons, gave him plenty of time to think.

Yet Rittenberg speaks remarkably well of a country that did him so much wrong. He was at Whitworth College last month to help encourage better Chinese-American relations. If, as Newsweek magazine says, we are coming into “China’s Century,” Rittenberg says businesses in the United States should see the era as one of opportunity.

Rittenberg and his wife, Yulin, are partners in Rittenberg Associates Inc., a Tacoma-area consultant to U.S. corporations doing business in China, and Chinese companies looking to do business in the U.S. Intel, Nintendo of America and Levi Strauss & Co. have been clients, as has the Rev. Billy Graham.

Rittenberg, 83, has been a China hand since the 1940s when, as an interpreter for the U.S. Army, he met Mao Zedong and other Chinese leaders. He met Yulin Wang in 1955, and they married a year later. One or the other is in China almost monthly.

Once largely agricultural, China has become an industrial powerhouse churning out cheap goods, from textiles to microchips. Wealth is transforming Beijing, Shanghai, Guangdong and other urban areas.

In such a dynamic environment, Rittenberg says, U.S. companies need help finding reliable information and the right partners. “Due diligence is three times more important when you’re doing business in China,” he says.

But if you have a product the Chinese want, business can be very good. Motorola does about $6 billion worth of business, Hewlett Packard $5 billion. Young Chinese pack Starbucks coffee shops identical to those in the U.S. Ringing cell phones — there are 340 million in use — create the dissonance of a symphonic tune-up.

“They feel this is a little bit of America,” Rittenberg says. “China had to join the world, and this is part of it. You get McDonald’s. You get Starbucks.”

You also get imitators.

China has long turned a blind eye to rampant abuse of international patent and copyright protections. Most Microsoft software used in China is pirated. Textile makers have become so skilled it takes a chemical analysis of the dyes to tell fake Levi 501 jeans from the real thing.

He credits the central government for its willingness to close factories producing knockoff goods, but says provincial officials continue to look the other way. But frustrated U.S. companies are at last finding allies among their Chinese counterparts.

Counterfeiters knock off domestic as well as imported goods, Rittenberg says.

American companies dedicate about 5 percent of revenues to new product development. In China, the share is perhaps 1 percent, and not just because it’s cheaper to copy. Chinese firms are afraid to spend money on innovation because, he says “They know a product is going to be copied as soon as it appears.”

He predicted the Chinese government, like those in Taiwan and Hong Kong before it, will gradually increase pressure on counterfeiters. For now, “It’s still a weak effort.”

Products are not all the Chinese would like to copy. As the economy grows, the nation finds itself short of managers with the training to run large businesses, Rittenberg says. U.S. corporations have been allowed into the country in part because the Chinese they hire can begin to acquire needed skills.

“They want to learn how to run an IBM-type company,” he says.

The government in Beijing has even encouraged some state-owned companies to set up operation in the U.S., where managers can learn firsthand how to cope in a market-driven economy.

But the state, Rittenberg adds, is far from letting go control. China’s largest companies are still state-owned, and their managers do what government officials tell them to do, even when it’s against their better judgment. Some officials run companies in industries they know nothing about.

Rittenberg says that in one particularly egregious case, company managers publicly announced they would adopt Qualcomm cell phone protocols, only to have government officials announce they had chosen a competing technology. “And that was that,” he says, adding that the interference discourages the more enterprising business heads.

Although he praises President Bush’s positions on relations with China, Rittenberg warns that post-Sept. 11 immigration restrictions are discouraging U.S. travel by Chinese, with potential long-term consequences for the economy. If former Washington Gov. Gary Locke had not intervened, for example, the vice mayor responsible for the 2008 Summer Olympic Games would have had to wait six months for a visa to get into the U.S. Chinese students are heading for universities in Australia because entering the U.S. has become too much bother.

The stronger the bonds forged between China and the U.S. today, Rittenberg says, the better the prospect for long-term friendship. Expectations of future conflict can become a self-fulfilling prophecy, he says.

For his own part, the former prisoner says, “I’m an incorrigible optimist.”


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