Wokai Adventures

Happy Year of the Ox! Downturn's Impact on Yilong County, Sichuan

Leslie Forman

Leslie is Wokai's Marketing Director.  She's in Beijing, listening to fireworks that have been blasting for more than 24 hours. 

My dad just sent me this Associated Press article that describes the mood this Spring Festival in Yilong County, Sichuan.  This area is of special interest to us, since we will soon start uploading profiles from our second Field Partner, the Association for the Rural Development of Yilong County. 

The article begins...

Migrants find harsh homecomings in China

By ANITA CHANG Associated Press

Jan. 19, 2009, 8:05PM

BEIYA VILLAGE, CHINA — For Chen Xiaohong, the global economic crisis started with unsold portable DVD players.

“The factory just couldn’t move the merchandise. It sat there for three months. They said it was because of the financial crisis,” said Chen, a slight 37-year-old in a navy suit with the trouser legs rolled up to keep the hems out of the mud.

Chen, his wife and a half-dozen relatives worked at the factory on China’s southern coast. Now they’re all back in their rural village home earlier than expected for the country’s biggest holiday, the Lunar New Year, with plenty of time on their hands.

Click here to read the rest

Particularly interesting to me was this passage, which specifically references Yilong County's demographics:

In Yilong County, where Beiya is located, more than a quarter of its 1.1 million residents migrate off the farm to find work, according to the local labor bureau.

I think that microfinance provides people with the opportunity to make a living while staying in their rural hometowns.  I can't wait to read the stories from our borrowers there.  Zhangsheng, Wokai's Director of Partnerships, has told me some incredible stories about his visits with families that live on the tops of mountains, and borrowers that raise rabbits (like Zhuang LiPing pictured below.) 



Also, I've found a handful of other New Year's related links that I'd like to pass along:

The Wall Street Journal shares an opinion piece by Lynette Ong from the Far East Economic Review:

If you are wondering where to park your investments as global financial markets tumble, rural credit in China may offer a silver lining. But, it's important to make the right pick from a basket of good and bad eggs.

The rural financial market in China serves the financial needs of 750 million farmers and a growing number of vibrant small -- and medium -- sized enterprises in a vast area covering 2,800 counties, 40,000 townships, and at least 400,000 villages. While it is traditionally not on the radar of profit-seeking investors, the recent market liberalization introduced by the central government is changing that. Competition is being introduced to the 35,000 rural credit cooperatives (RCCs) that monopolize the sector around the country, even though most of them operate inefficiently and carry huge nonperforming assets.

*rest of this article requires login, but if you're interested, email me (leslie dot forman at wokai dot org) and I'll send it to you...*

The San Francisco Chronicle reports: "In China, out-of-work migrants destablizing"

And Leigh Billings writes on China Crossroads, "2009 is the year of the ox…the hard-working animal that can only ring in an arduous year."



Here's to celebrating the value of hard work in 2009!  Happy New Year, everyone!

A Reaction to James Fallows' Interview

Hongqing Chen

Note from Leslie Forman: I asked Hongqing to react to my previous post, about James Fallows' interview with Terry Gross.  Given her vast experience in finance, roots in Jiangxi Province, and excellent posts for this blog, I knew that she would be able to analyze this more closely than I could.  Here's a part of an email that she sent to me, which I have shared with her permission.  We look forward to hearing your comments.

Chinese government leaders, current and past, are all masters of the political power strategies documented and illustrated by Sun Tzu, The Book of History (史书), and many classic novels such as The Three Kingdoms, Dream of the Red Chamber, Legends of Water Marshals, etc.  It is easy to understand why China has invested so much in the US once you look at this from military strategy or power accumulation perspective.

In short, business people are short-sighted as they are trained to focus on the bottom line and short-term profit.  Intellectuals (including perhaps James Fallows) tend to be idealists, who want to find the good in anything.  Almost everybody can be used as tools, as they are easily fooled and persuaded.  Those who know how to play the game of power, however, are the masters of chess board who use every piece to advance their overall objectives.

So, why do I still want to work for the masses who are at the Bottom of the Pyramid?  It's because I am also an idealist and a believer in equal rights for all.  Amid all these games, those who have suffered the most deserve to be helped in any way possible.

Lessons for China from Seattle's Community Capital Development

Hongqing Chen

Hongqing Chen, a Portfolio/Risk Manager, recently joined Wokai’s Seattle Chapter. You can reach her at hongqingc @ gmail.com. 


Jim Thomas, CEO of Seattle's Community Capital Development, has created a great model that could be the answer for many developing countries like China. 

Shown waving in this 2006 photo from USA Today, Jim is a funny, warm, and sharp businessman.  I contacted him via email first on December 16, 2008.  Then a snowstorm hit Seattle area long and hard.  When ice and snow finally gave away to our normal marine climate, I finally had the change to visit him on December 30, 2008.

Unlike Washington CASH, which I profiled here, microfinance is not the sole focus of Community Capital Development (CCD).  Rather, it would be a step up for its graduates. This page outlines its lending terms.  Whereas Washington CASH focuses on helping people to move out of poverty by utilizing their skills, CCD hopes to take them onto prosperity by providing them with more resources.  He took the rein of a HUD (Housing and Urban Development under US Treasury) community development grant of $2.5MM at City of Seattle in 1994 and turned it into a $14.5MM community development lending operation today. Obviously he’s done something right!

“Our mission is job creation.” Jim explained that, for every $35,000 financed by CCD, he expects one job to be created.  His model combines training and financing (similar to Washington CASH).  However, not all applicants are taking the same training courses.  In fact, CCD requires all applicants to attend a seminar first, to assess their needs for further training.  This can last from several hours to several years, depending on the student’s level of business experience.  He estimates that about 1,100 to 1,200 people attend seminars every year, but only 60 to 70 microfinance loans are made in the end. Through the training process, most people come to realize that they are not ready to run their own businesses. 

(This is very true, confirmed by statistics and my own experience.  It is not easy to start a business.  It is even harder to grow it into a profitable venture.  Once it is successful, the business needs to stay on top of its competition in order to sustain itself if not to grow.  It’s hard!)  Through this “self-weeding” process, as Jim put it, CCD suffers very low default rate (5%, less than half of the loss rate of WaMu Home Loans’ portfolio!)

I thought about what I learned from phone calls to friends and family members in China in the past months.  “The major problem in China today is not poverty,” said one high ranking official friend, “It is how to create jobs amid factory closures that is most urgent.”  The other family friends followed such a line.  Apparently, poverty is an old issue that government would like people to overlook until it fixes it somehow someday.  More visible to the outside world now is China's urban development.  A large influx of unemployed workers, including millions of migrant workers who do not want to return to rural villages, is a cause for concern.  From this perspective, Jim Thomas should be a guest of honor to Chinese government at all levels. 

P.S. To read more about the impact of factory closures in China, we recommend this article from the Wall Street Journal , this reaction from our friend Grace Chiang of the Social Venture Group, and this story from Time Magazine. 

Photo from CCTV. 

28...The Cultural Negotiation & The Grey Area

Casey

We had our Investment Committee meeting on Wednesday and one of the major themes of the talk was how to move forward successfully with our Field Partner contract negotiation. One of our committee members brought up an interesting comment: "In the US, contract signing is the end of negotiation. In China, contract signing is only the beginning of negotiation."

Right after I sent the meeting minutes to Zhang Sheng, our Director of Field Partnerships who's leading our negotiations, I heard a chuckle from the other side of the room as he repeated the quote out loud. Here was his response was:

"In China, when you enter into a partnership you know that there are a million different issues that could arise that are not outlined in the contract itself. That's when you get into the Grey Area. How you and your partner work through those issues depends on your relationship."

Those of you who have lived or done business in China are probably pretty familiar with the Grey Area. I attended a Tsinghua in this NGO and civil society course two years ago and we were discussing the current situation in China in which there are around three million NGOs in China, but only five percent of them are actually registered. I didn't undertand how this could be possible, so he explained to me "In China there is the law and then there's what people actually do."

Interested in learning more about this phenomenon, I checked out the definition of grey area on Wikipedia:

A grey area is a term for a border in-between two or more things that is unclearly defined, a border that is hard to define or even impossible to define, or a definition where the distinction border tends to move. There are several flavors of grey areas:

• A grey area of definitions signifies a problem of sorting reality into clearly cut categories. Example: where is the border between erotica and pornography?
• A grey area of law is an area where no clear legislation or precedent exists, or where the law has not been applied in a long time thus making it unclear if it is applicable at all.
• A grey area of ethics signifies an ethical dilemma, where the border between right and wrong is blurred. Example: is killing always abominable?