Building bridges to China, the country ‘definitely the hardest to manage’

A version of this story appeared in WRAL Tech Wire on February 4, 2014.


Editor’s note: As the $2.3 billion dollar deal between Lenovo and IBM and the recent sale of Smithfield Foods to a China-based company clearly indicate, business bonds between the U.S. and China are increasingly important to North Carolina’s economy. One of the groups striving to improve the business atmosphere is the N.C. Chinese Business Association. It will be hosting a Chinese New Year Dinner on Feb. 4 at the RTP Foundation, and the program will include a panel discussion involving three senior executives who will discuss their perspectives on the past, present, and future of NC-China relations. Leading the panel will be Grace Ueng, a Triangle entrepreneur and advisor to the board of directors of NCCBA.. In an exclusive interview for WRALTechWire, Ueng talks with North Carolina native Michael Jacobs, a professor at UNC’s Kenan-Flagler Business School and a former Treasury official in the George H.W. Bush Administration, who has fresh, first-hand experience from teaching finance in Beijing. This is the third of a three-part series.

CHAPEL HILL, N.C. – Growing up in North Carolina, Michael Jacobs was a star tennis player at Sanderson High School in Raleigh, then taught tennis as a pro to fund his undergraduate studies at UNC Chapel Hill before earning his MBA from Harvard Business School.

Jacobs is the Founder and CEO of Jacobs Capital and Professor of the Practice of Finance, teaching Corporate Governance at UNC’s Kenan-Flagler Business School. He served as DirectorCorporate Finance at the U.S. Treasury Department during the Bush Sr. administration and is a published author by Harvard Business School Press and HBR.

He was most recently named by Governor McCrory to the board of trustees for the $70 billion State Employees Retirement system. He also serves on several for-profit and non-profit boards. Michael spent this past summer teaching finance in Beijing, so offers a fresh perspective on China from the lens of a NC-born and raised business, education, and government leader.

Our interview:

I remember your calling me back in 2012 for my thoughts when you were considering spending the following summer teaching in China. What were your main reasons you wanted to invest time this past summer in China?

I wanted to teach in China so that I could spend enough time there to obtain a personal understanding of China and its policies and its people without the filter of the media. China has achieved such an important status on the world stage that I felt a better understanding was important to my work in business, academia and public policy.

How did your stay in China differ from your expectations? What was most surprising?

There were a number of surprises that surfaced during the two months I lived in Beijing. I was expecting to see a lot more Westerners in public places, but it was actually rare to see any in the malls, subways and tourist sites. Even though Chinese children “study” English, almost no one spoke English, including taxi drivers and workers in Western hotels. I have traveled in many international places, and China is definitely the hardest to manage.

There is a craze among Chinese youth for many Western products from food to clothes and even music, though most were not aware what the lyrics meant!

From our vantage point in the U.S. it seems China is changing rapidly, but many were skeptical that real change was imminent. Most Chinese seem to be resolved to the level of the role of government in their lives and unconvinced that the social reforms being talked about are going to be implemented. The common reaction when I asked about the excitement over growing economic and social freedoms was “we have heard it all before.”

I expected to find my students (who were home for summer school from colleges in the U.S.) to be excited about the career opportunities in the world’s fastest growing economy. But almost of them wanted to stay in the U.S. after they graduated for better jobs, clean air and Facebook.

Given your extensive experience in investment banking and M&A advisory, you must have seen how China is in a quite different state than here in the U.S. What are the challenges major Chinese companies have in gaining access to the world’s capital markets?

The biggest challenge Chinese companies have in accessing the world’s capital markets is establishing the integrity of the financial statements of Chinese companies.

The Chinese government has determined that non-Chinese entities cannot own CPA firms in China, and Chinese auditors have recently refused to comply with data requests from the U.S. Securities and Exchange Commission.

Access to capital is predicated on financial disclosure with integrity. No one wants to invest in a company when they cannot trust the financial statements of the company seeking capital.

The CPA firm ownership issue raised a huge red flag, and the refusal to cooperate with the SEC only compounds concerns that Chinese auditors have something to hide.

Perhaps the culture is so accustomed to government control of information disclosure that government leaders do not realize that their posture on the independence of auditors is anathema to the capital markets, but U.S. regulators and global investors will not competitively finance companies lacking financial disclosure integrity.

The Chinese economy has experienced swings of incredible growth as well as some dips in the last many years. This has, of course, had impact on the rest of the world. What is the present government doing to make the growth in the Chinese economy sustainable?

The government has taken numerous actions just in the past few months to facilitate the sustainability of China’s economy. It has begun deregulation of the banking sector so that market rates can prevail, which will help the efficient flow of capital.

The leaders have gotten serious about weeding out corruption. Every day I was in China there was an article about a government official being punished for corruption.

Over the summer China announced its first free trade zone (FTZ). While the FTZ governing laws remain ambiguous, the mere presence of a free trade zone will boost economic development.

And while this may not appear to be an economic issue to some people, the government is allocating substantial sums to tackle the horrific pollution problems. Reducing pollution is imperative for economic growth and for retaining the talent to steward the economy.

How do you think the drastic pollution issue in China might create business opportunities for companies in the U.S. or in NC?

American companies lead the world in environmental technologies. China has the world’s largest pollution problems. Clearly there are opportunities for these capabilities and needs to intersect in a major way.

Yes, this is definitely an opportunity for companies here in N.C. to help China. And, many who started early, have made great strides in doing so, and others are just beginning. In my work here in the Triangle, I have observed meetings with leaders of China’s largest state owned enterprises who delight in visiting Cree to learn about their innovation. Cree has certainly made a mark in China, with their multitude of LED installations there which reduce light pollution, one of the biggest sources of pollution worldwide. The Cree installations in China ultimately fulfill very specifically quantified mandates from the government for energy conservation.  After your return from teaching in China last summer, you published comments on the lack of gender discrimination/lack of cultural bias toward women. You also mentioned the lack of religious tension. How do you see these as advantages for Chinese businesses?

I was particularly impressed with my female students in Beijing; I expect to see more and more women rising to positions of authority, which is rare compared to other countries at the same stage of development as China.
I got the sense that while the one-child policy produces demographic challenges, it results in two parents and four grandparents pouring themselves into each child’s future.

Both gender discrimination and religious tensions drain energy from an economy. The absence of these social distractions allows all Chinese to focus on their families and their financial well –being.

You have taught for many years at UNC Kenan-Flagler business school. How do you compare the students in China from those you teach here?

The single most common caution I received from other academics about teaching in China is that the students do not engage in discussion in class. They typically take notes, memorize what has been discussed and study for exams.

I decided to ignore this advice and stick to my normal teaching style, which is discussion based. I was teaching corporate finance, which could lend itself to rote memory, but I wanted the students to understand the theory.

What I found was that Chinese students relished the opportunity to learn with this style. After the first couple days, I had no trouble generating class discussion. The students were so excited to interact in the classroom they constantly asked me to organize events outside of class. So I don’t really see any difference in the Chinese and U.S. students.

That is because you brought to the Chinese classroom the western way of teaching!

Closing Thoughts from Ueng:

I found the same when I taught “Entrepreneurial Marketing and Innovation” at Fudan in Shanghai, an international MBA program in joint venture with MIT Sloan School. My students commented how different I was than any faculty they had experienced, how I “changed their way of thinking.”

I was simply doing my usual thing, teaching by the Socratic method like what I had experienced in business school here in the U.S. at Harvard. And bringing in real life case studies and executives to help teach the class, like I have done at UNC Kenan-Flagler, a common practice, in their Center for Entrepreneurial Studies.

And I brought a bit of NC to my teaching in China which was meaningful for me, having lived 18 years here in NC, and my students also learned just what is that state NC. As Paul shared in Monday’s interview, most of China has heard very little to nothing about NC. I purposefully chose to teach HBS cases on NC headquartered companies, Lenovo, Burt’s Bees and Red Hat. My students thought my guest, one of the top leaders in China from Lenovo, who traveled from Beijing to Shanghai to be my guest, was a “rock star” given the high status of the company Lenovo enjoys in China.

Another summer, I made their final exam to form teams to answer Burt’s Bees real life question of “what does our China strategy look like?” They worked diligently and proudly, knowing that I would present the very top team’s recommendation to the CEO of Burt’s Bees back in NC.

Western teaching can definitely benefit Chinese education. Given they have a much shorter history of “doing business,” the Chinese, especially the future leaders of China, can learn from us. To carry this educational concept to business, I do believe like what Paul Chou shared yesterday, “You cannot look at the other side as inferior. Compromise is a losing strategy. Must look at synergy.”

Let’s continue to look for ways for the U.S. and specifically for us here the Triangle to find mutually beneficial ways to work together with China.

About Grace Ueng: In 2003, after serving on management teams for five successful technology ventures, Grace Ueng, founded Savvy Marketing Group, a boutique marketing strategy and management consulting firm. Ueng has served on adjunct faculty at both UNC Kenan-Flager and the international MBA program at Fudan in Shanghai, in joint venture with MIT Sloan School. She was recently named one of eight women of influence by Audrey, a national publication that covers the lives of Asian-American women.
About the NCCBA: Since 2004, the North Carolina Chinese Business Association (NCCBA) has served as: (1) dynamic networking platform to connect entrepreneurs and those in larger companies in doing business with China. NCCBA has also promoted Sino-U.S. friendship and collaboration. (2) a major catalyst in bridging China – NC business relationships, hosting Chinese business delegations to NC every year, to create and sustain successful and forward thinking North Carolina businesses. (3) provider of educational assistance sponsoring over 100 activities to educate and advise members in starting new businesses or progressing in corporate careers in NC. For more information, see