The hassles and problems have been absorbable, but the greater opportunities lie elsewhere
Op-Ed Commentary: Chris Devonshire-Ellis
Aug. 13 – After some 23 years in China – 20 with the firm I established, Dezan Shira & Associates – it is time to move on. But why? China has been very good to me of course; it took a 30-year-old with no real sense of direction in his career and turned him into a millionaire entrepreneur with offices around the world. So why change that?
There have been a number of fairly prominent expats leaving China recently, as a friend of mine said “It’s the end of an era.” Yet while some moan about never being able to become Chinese and about getting ripped off, I’ve never felt that way at all. One curious thing that may have helped me when I first began in China was that I couldn’t speak any Chinese. That contrasted with many expats who, albeit younger than me, could. There was a generation of expatriates that came to China armed with fluency. That may in some cases have actually inhibited them; over-confident in their language skills an arrogance developed; they too could be like the Chinese and they would snatch up all the opportunities. It didn’t quite work like that for many, and I’m inclined to think they never quite understood China as well as someone who had to really try hard linguistically as a result. Not having Chinese language skills, yet possessing some business experience proved for me a better platform for trying to understand China. Those armed with linguistic capabilities have in many cases either missed out on properly integrating and understanding the people and culture, or felt they really didn’t need too as they had fluency. Being fluent in Chinese is no guarantee of success in the country – China is far more subtle and complex than that. It also has a habit of rejecting expatriate arrogance.
All that said about the beginnings, there is never really just one simple reason for leaving a country one has resided in for a long time, although I have seen many expats after awhile become disenchanted and even cynical about China in particular. “If you don’t like it, leave” chant the slightly more patriotic of our Chinese friends. And they’re right, albeit up to a point. And the disenchantments about China are many and varied – it has ease of internet surfing that is amongst the worst in the world – an issue that I would imagine concerns all Chinese who want to gain an international education – and the standard of morality has plunged to depths well below that of 20 years ago. Amongst all China’s great recent accomplishments, the value placed upon human life remains poor and has been shunted aside rather in favor of the ‘to get rich is good’ mantra.
The Chinese answer lies with the Dalai Lama, but China refuses to contemplate a division of the Party and Religious authority, so instead he is branded as a splittist while monks self immolate. China is backward here too, with such huge resources and they can’t manage a transition as the Mongolians have done, who recently enthroned their version of the Dalai Lama. In Mongolia, the State sticks to politics, while the Mongolian Bogd Khan maintains the ethical and moral path of the nation, and it works. So much for a refusal to give up an inch of power and assume moral guidance for 1.3 billion. The Chinese system of dealing with morality and ethics simply isn’t working.
It’s not outside interference to comment on such matters. But it does interest expatriates and foreigners who do care about China. Because China never did exclusively mean the Communist Party; an arrogance lies within the assumption that it does, and that the two are and always have been undeniably intertwined. They haven’t, and basing claims to seas and territories on ancient maps and the modern renegotiating of old agreements (much of which date from when China was under Mongolian rule) should not signify a retrograde Communist Party authority. Yet it does, and it grates. So these are gripes, yet more intellectual and well meaning than disenchantment, expatriate cynicism and interference.
If that disenchantment exists, with me there is only one area where I feel truly disappointed, and that is the air quality. It is shocking, and this evil has spread across China like the Biblical Plagues. I used to live years ago on Lamma Island off Hong Kong, I could see all the other outlying islands, over to Lantau and right across to Aberdeen. Not any more. I can barely see Lamma itself from the Outlying Ferry terminal, even though that has moved a kilometer or so closer to the island itself than when I first took the route. North, to where I now live (and am shortly about to move from) in Beijing, the broken promises of the 2008 Olympics lie in the air quality. It was great for those immaculate three weeks of China’s Olympics, yet the CCP’s own mantra of “sustainable development” has been shown to come up short. The city air is filthy and worse than before. For a modern, developing nation talking of sending a man to the moon, the state of the capital city is a disgrace. Expatriates leaving China, although there may be other reasons for relocating, at least have that option. I feel sorry for the millions of Chinese who do not and who have to breathe in the filth. It’s China’s most pressing issue. But again, it’s not why I’m relocating – although I have heard many Hong Kong and China-based expats, especially with young children, provide it as a reason, and I would not disagree with their sentiments. China’s air is poisonous.
But while we can still breathe, the simple truth is that China is a young man’s game. At 52, I feel I don’t really want to have to put up with the daily hassles: bad air, stupid censorship, dreadful traffic, poor manners and a bureaucracy that is ruled by people who want to show their power – even small and insignificant pieces of required documentation are processed at the expense of demeaning subservience to the official. Simply put, it doesn’t have to be like this, and other places – even Mongolia – make the quality of life far easier. Dealing with such issues for 20 years in China has been tough, and to be frank, it’s time to move on. I have rather better things to do, and probably more enjoyable.
At Dezan Shira and China Briefing we employ several hundred people in China – all are younger than me, and to be fair to them, even though I remain the ultimate boss, many are rather smarter than me as well. That combination, of being both young, adaptable and clever, means it’s time for me to step aside and let them get on with it. I’ve had to devolve my responsibilities in doing so, and develop and test teams of people, from our services in business advisory and tax planning to marketing and even IT, and that’s taken two years. I didn’t tell anyone I was stepping aside, I just gradually did less, and gave more responsibility elsewhere. Lately, when asked “Chris, what should I do?” I’ve been answering “Whatever you feel is the right solution” which offers nothing in terms of practical advice, but does encourage staff to think and begin to appreciate the responsibility of making decisions. Which is a pretty good one to have when you get things right!
Besides, some of the decisions we have to take now involve both rather a lot of money and in sciences that simply did not exist when I began the business. When Dezan Shira started, there was no email, and no internet. Record keeping was largely manual, and not very computerized. Today we have an entire IT department that discuss issues such as ERP systems and Microsoft platforms. I was educated with a slide rule (banned in exams) and logarithms. There’s no way I’m even capable of making any meaningful input into such discussions, and aside from wanting to know we’re getting the right operational and security apparatus in place, there’s no need for me to be involved. As an entrepreneur, growing yourself out of your own business must take place at some stage. And as we’re not selling, I have to replace myself instead – the task has been to instigate that with, as I said, rather brighter and smarter people than I am. I dare say that’s been relatively simple to accomplish.
Otherwise, relocation is to do with sheer growth. I’ve developed the business out of China – hedging our corporate bets one could say – and expanded into Southeast Asia and India. Actually, about six years ago I began to get itchy feet – having had the firm for 15 years at that stage and pretty much seen everything that could go on in China, I needed a change. Looking at Mongolia, and even North Korea, I ultimately recognized that what we basically knew in China could be broken down into three aspects:
- We weren’t intimidated by large countries
- We weren’t intimidated by massive populations
- We could handle the difficulties of doing business in emerging countries
In fact, to some extent, point three is what we actually do for a living; making sense of the legal and financial administration systems in emerging markets, that’s exactly what clients pay us to do in order to either set them up with a company, or ensure they are paying their taxes and handling their accounts correctly. After breaking all of what we really knew into those components, there was only one other country that offered those elements: India. So off I went.
India is a blast, totally different to China, and equally as capable of being incredibly frustrating. It’s also right in your face; there is no escape from the moment you land from the heat, the people, and sometimes the squalor. For some, that’s too much to take. However whereas in India, everything is on display, in China, problems remain hidden. In reality the two countries make fascinating comparisons, and the perceptions about India are largely outmoded. I’ve seen Chinese women pissing in the open in Wangfujing for example.
In terms of the bureaucracy – of which the dealing with it is what we really do as a professional service – India isn’t that much more difficult than China to be honest. In fact, in terms of setting up the equivalent of a representative office in India, there are two procedural steps less than in China. Comparisons are to some extent meaningless, all I can say is that the two can be equally problematic, but that they are so in different ways. Despite the media attention on India’s ramshackle politics, things are getting done, and both the demographic pointers and our own figures show that growth is now occurring at a more rapid pace in India than in China. Our Indian operations are developing accordingly, and we have many clients we originally assisted in China now investing into the Indian market. Increasingly, India is becoming an important destination for FDI – moving our practice out of China and into Asia was one of the smarter strategic moves I made.
We will continue to develop our practice in India – and recently relocated the German expatriate manager of our Shanghai office to Delhi. His descriptions of how he found the differences and adjustments he needed to make can be found here. Our sister website, dealing with matters of India foreign investment, is India Briefing and it can be found here.
Having taken the leap to India, Vietnam swiftly followed. While India is rather like China in that it offers both a large and established middle class consumer market and cheap labor, Vietnam is really a China play. As manufacturing costs increase, and particularly so in South China, that manufacturing capacity is being added in Vietnam instead. We have examined the operational costs of both China, India and Vietnam several times, and our complimentary report on the subject can be downloaded free from our Asia Briefing website here. Our popular Vietnam Briefing website is here. We are today an Asian practice, not a China focused one.
However, we haven’t finished with just India and Vietnam. We maintain huge interest in investing elsewhere in Emerging Asia, with our own recent Asia Briefing reports on Myanmar and Mongolia outlining the issues investors face. We’ve yet to establish our own operations there, but countries such as Cambodia, Thailand and Indonesia are all of interest for us to establish a presence later. These nations (Mongolia excepted) are all members of the ASEAN trading and economic bloc, and we see the future of Asia – including China and India – very much tied to the developments in ASEAN. With the entire bloc coming into complete free trade in 2015, and with both China and India having double tax treaties with ASEAN, the dynamics of business in Asia are shifting, and it is important for businesses in or dealing with China to be aware of the implications. Many I feel have not yet understood what is happening – and it remains an important and little understood matter. I wrote about the subject here – Why ASEAN Matters For Your China Business. There is too much concentration of resources purely upon the China market in my opinion, and with the global slowdown still manifesting itself, the tides of investment and opportunity are changing. I also wrote about the perils of concentrating too much on China in “China Glare.” The entire issue concerning developing ASEAN is the reason we established a presence in Singapore last year, and that too is now doing well. As Hong Kong is an international financial center for China, Singapore is the same for ASEAN, and with low tax rates of 16.5 percent and 17 percent respectively, and no tax at all on dividends realized externally from their own borders, both remain and will continue to develop as international business hubs. We wrote a comparison between using Hong Kong and Singapore companies for holding operations in China and Asia here.
Another issue that is affecting my move from China relates to the client profile at Dezan Shira. About 50 percent of our clients come from the United States, and we recently established offices there. It is now apparent that as a firm we have added value – we don’t just sell China as an investment destination. And with those shifting trade dynamics in Asia I talked about, foreign investors now need to know more about China, the alternatives within the country and indeed in other nations throughout Asia and beyond. Doing that while being based in the US sounds like a pretty good job to me.
So in hindsight, although I’ll be visiting on a regular basis, the reason I am leaving China is simply that I have outgrown it, and so has my business. Despite the gripes, it remains a fascinating and amazing country to do business in and to live. And ultimately, they’ll fix the air. So thank you China, I’ve thoroughly enjoyed it, and I owe you a lot (although I have contributed huge amounts in various personal and business taxes over the years!) The Chinese people have been amazing, and the country has made me both in my career, provided security for the future and made me as a man. I’ll never really mentally leave, but for now, it’s time to be – rather like my waistline – moving ahead. And one last thing, dear reader – if anyone tells you China is not the place to be – they’re wrong. It’s just that now there are other destinations to be considered as being equally fascinating.
Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates, which he established in 1992. The firm celebrates its 20th anniversary in November. Chris subsequently established China Briefing, now part of the Asia Briefing Publications Group, in 1999. Chris takes up his new position as Senior Partner for North America next month, however will continue to visit China and Asia on a regular basis. He may be contacted at firstname.lastname@example.org.
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