Month: May 2010

The Sweet Smell of Success — One Chinese County’s Dominant Role in Global Garlic Industry

Ming dynasty bowl from China First Capital blog post

Anyone who has enjoyed Chinese food in China will discover, by aroma as well as by taste, that garlic is the most widely-used flavoring agent of all, after salt. It’s detectable – in fact visible – in just about every stir-fried or stewed dish, in such large quantities to leave most outsiders breathless. Which, of course, is just as well. 

A simple stir-fried dish will often have 3-4 whole cloves of chopped or sliced garlic. Many dishes have far more. One of my favorites, Lazi Jiding, is a Sichuan dish of small chunks of chicken, chili peppers, and often several heads’ worth of garlic cloves all deep-fried together.

Garlic turns up everywhere, at all times of the day. This morning at the breakfast buffet of the hotel where I was staying in Fujian, there was a dish of simple stir-fried cabbage that had at least 25 cloves of garlic in it. I stopped counting long enough to spoon some onto my plate, and move onto the next garlic-laced Chinese breakfast treat.  

I lived a lot in Italy,  the other country famed for its use of garlic. There, adding more than one clove to a dish is usually considered excessive, even uncouth. You will likely eat more garlic in a day in China than a month spent eating in Italy. 

In the US, garlic has become a far more common part of the diet than when I was a child.  I began noticing several years ago that all the garlic I bought in LA was imported from China. That always struck me as odd, since very little fresh food is imported from China, and California has a town, Gilroy, that’s famed as one of the world’s largest producers of garlic. 

The Made-in-China garlic I’ve bought is always fresh, crisp and cheap – usually no more than a dollar a pound. I never figured out how anyone could make any money shipping it from so far and selling it for so cheap. 

I assumed that the US’s ever-increasing appetite for garlic was emptying China of its favorite flavoring. Since moving to China, however, I’ve seen that wasn’t the case, that there was more than enough to satisfy China’s far larger appetite. So, then my question became: where is all this garlic being produced? From all the garlic in circulation, you’d think half of China’s arable land must be used to cultivate it. Yet, I’ve never seen any in the ground. I’ve asked friends, farmers, chefs, but never got a clear answer to where all this garlic was coming from. 

Now I know at least one place. Jinxiang County in Shandong Province is the largest garlic-producing area in China. This little-known area in Shandong’s southwest corner is not far from Qufu, Confucius’s birthplace. Jinxiang  is also now one of the centers of worldwide commodity speculation. The price of Jinxiang-grown garlic has spiked recently, rising more than fifty-fold from its low a year ago. As the China Daily reports, “Garlic trading has created a handful of new millionaires overnight in Jinxiang county.” 

I couldn’t find a figure for Jinxiang’s total garlic output. But, last year Jinxiang produced 70% of China’s garlic for export, over one million tons last year. That means that Jinxiang produced half all the garlic eaten outside China. At current pace and current export price of around $1,000 a ton, Shandong will export over $1 billion of garlic in next 12 months. 

China has no strong natural advantage in garlic-production. It’s not particularly labor-intensive, nor does it grow best in climate like China’s. Garlic, after all, is a member of the onion family, and so grows pretty well all over the world. Jinxiang must be the world’s leading garlic producer for other reasons that highlight a part of China’s economic strength that is often not emphasized: regions with intensive focus on particular industries (in this case, growing garlic for home and export market)  and a developed infrastructure to move goods quickly and efficiently to market. 

China has one other advantage that helps explain its dominance in global garlic-production. The whole plant can be sold for good money, not just the bulb. Chinese also eat prodigious quantities of the green garlic shoots that grow above ground. This vegetable, called jiu cai (韭菜)in Chinese, is served on its own, as a stir-fried dish, or added to many other staples, including dumplings. Like a skilful butcher carving a hog,  garlic farmers in Jinxiang know how to extract every morsel of profit, and leave nothing to waste. 

I’m determined now to go to Jinxiang. Partly, it’s because I love garlic. But, I also want to see (and smell) this region for myself, how farms are organized, what else is grown or manufactured there. I want to find out more how one place became so big and so successful selling one agricultural product that (unlike, say, tobacco or ginseng) grows just about anywhere. 

My company is lucky enough to have two clients in Shandong. I’ve already worked out how far these companies are from Jinxiang, and will go there at first opportunity.  I’m pretty certain over the last 20 years, to satiate my love of garlic, more of my money has ended up in Jinxiang than just about anywhere else in China.  

No, I’m not blowing bull

Jade cow from China First Capital blog post

As far as linguistics experts are concerned, there is no direct relationship between English and Chinese. The world’s two most-commonly spoken languages emerged independently, not from some common root in the way, say, Sanskrit is a basis for many of the world’s other European and Asian languages. 

Any examples of common syntax in English and Chinese are rare, and a source of fascination for me.  I always liked, for example, the fact that both English and Chinese have at least one metaphorical saying that is nearly identical, word-for-word, in both languages. In English, we say “speak of the devil” when a person we are talking about unexpectedly arrives. In Chinese, the phrase is “说鬼子鬼子来” and while less common than the English counterpart, it’s meaning and word choice is basically the same. 

As far as anyone knows, neither language borrowed this phrase from the other one. It likely arose independently in both English and Chinese. 

I’ve now found another, even more pleasing example of this parallelism in English and Chinese.  In English, we use the verb “to bullshit” in two different senses. It can mean to chat amiably with a friend, and can also be used to describe someone exaggerating, lying or intentionally deceiving, as in “you are bullshitting me”. 

In China, a similar phrase is used to capture both meanings. It is 吹牛,chuiniu (CH-WAY NEE-YO), or, literally, “blow the bull”. It also has both meanings, of having a friendly chat, and also as an accusation when someone is talking nonsense, or deliberately trying to deceive. So you can say, “let’s get together and qiuniu”, and also say to someone who you believe is trying to con or mislead you, “you are chuiniu-ing me”. 

While I was excited to discover this similarity in syntax, my CFC colleague Ryan arrived at the even more pertinent point. As he put it, “what is about bulls? Why does anyone use this animal to describe these kinds of behaviors.” 

Of course, as anyone who knows even a little Chinese can attest, there is another, more commonly used phrase using “niu”. Note, though, this same Chinese word, “niu”, is used for both bulls and cows. 

This other phrase is 牛逼 “niubi”, which is the word for cow genitalia. In Chinese, “niubi” is commonly used to describe something as being truly outstanding, of the highest quality, as in “that movie we saw is niubi.”

I can’t hear that phase “niubi” without laughing, and without wondering how this particular body part of this particular animal has become a form of high praise and approbation. 

And no, I’m not “chuiniu-ing” you.

“Coincidence is God’s way of remaining anonymous” – Albert Einstein

Longquan vase from China First Capital blog post

Just about everyone has experienced a miraculous coincidence at least once in their lifetime, a chance encounter with a friend at a place and time where neither side would ever have expected to meet. I’ve had a few in my life. The most memorable was running into Giovanna, an old girlfriend of mine from when I was a graduate student at the Chinese University of Hong Kong. I literally bumped into her, eight years after losing touch (this was in the pre-email era) one morning at the bustlingly gorgeous Campo de’ Fiori vegetable market in the center of Rome.

We quickly got reacquainted, and she juggled me and her then-current boyfriend for awhile. I was a foreign correspondent for Forbes based in London. She was living in Rome, close to the market, one of my favorite spots in one of my favorite and most-visited cities in the world.

There was a high degree of improbability about that meeting in Rome. But, it wasn’t completely unfathomable, since she was an Italian, and even when I knew her, interested in film-making. Rome is the center of that industry in Italy. Giovanna had studied in China, spoke good Chinese and had landed a small job helping Bernardo Bertolucci shoot scenes in China for “The Last Emperor”.  She parlayed that into a friendship with the director and the producer of Last Emperor, and then found other work in the film business.

In Chengdu recently, I had an even more remarkable coincidental meeting than that one in Campo de’ Fiori. At a large and fancy restaurant there, a friend of mine from work, Nick Shao, who is a Managing Director of PE firm Carlyle in Shanghai, came up and greeted me as I sat down at a table with two people I only just met.

My brain circuitry is not what it used to be. It probably took me two to three seconds to actually figure out who Nick was and how I knew him. Then it clicked, of course, and I started burbling in my bad Chinese about how remarkable the whole thing was – why was he there? Doing what? Was the food any good?

Running into Nick was remarkable for a lot of reasons, including the fact I know a comparatively small number of people in China, had not been in Chengdu in 28 years, and was in a restaurant that seats at least 800 people. To end up at a table nearby to someone I knew, in a city of 11 million that neither of us have any connection to, in a country with the largest population in the world, that’s a level of unlikelihood that I can’t even begin to quantify. I’d be hard-pressed to find one of my own family members in that restaurant, it’s that large and crowded.

As I found out, Nick was in Chengdu for an EMBA course he’s taking. This also left me a little nonplussed, since I knew Nick already had an MBA from Columbia. Why would anyone need two? Why was his Shanghai university convening its class at a not-especially famous restaurant in Chengdu? I still don’t have solid answers to either of these questions, even after exchanging emails with Nick later that day.

For my part, I was in Chengdu to participate in a PE conference organized by the Sichuan government. I skipped the official lunch to meet some friends-of-friends. It would not be stretching things to say the last place I’d expect to meet someone I know would be that restaurant, in that city, in that country, at that date and time.

I had a great three days in Chengdu,  eating, chatting and walking around China’s most relaxed, pleasant and livable major city. Meeting Nick made it very much more memorable, just as I continue to remember, when I think of Rome, that meeting, over 20 years ago, in Campo de’ Fiori.

For me, at least, this coincidental meeting spurred a lot of what little I can muster in terms of philosophical reflection. It’s all hackneyed stuff, of course, but our lives really are created by the miracle of birth, and punctuated thereafter by occasional miracles, large and small. The world is, in its most benign state, the motive force for the coming true of every sort of wonderful, unexpected but thoroughly delightful possibility. Dreams come true. Happy coincidences occur.

Going home again – Back at Forbes, this time in 中文

Forbes China website Peter Fuhrman column


My career has come full circle. I’m back at Forbes Magazine. Only this time, I’m published in the magazine’s Chinese website, as an occasional columnist.

Have a look here: 

I was at Forbes for almost ten years, and left in 1995, after writing I’d guess around 120 articles, first in New York, and then in Europe, based in London.  I had a splendidly enjoyable career at Forbes, traveling farther and wider than I ever dreamed possible, while writing about companies, ideas and events that seized my interest, and that of my editors at Forbes. I had the great good fortune to be at Forbes while it was edited by Jim Michaels, perhaps the finest ever editor of a business publication.  Read about him by clicking here. 

After leaving Forbes, I always told friends I was much happier outside journalism. I never looked back, never hankered for even a day to get back into journalism. There’s some truth, at least when applied to me, that it’s more rewarding to try to make a little history, rather than to write about those who do. 

All the same, it’s a special feeling to see my byline on the Forbes Chinese website. I accepted immediately when the magazine called to see if they could publish Chinese versions of my blog posts. I’m not all that sure how successful, if at all, Forbes is in China. So, my columns may have a smaller readership than some of the Chinese-language SMS messages I send. 

This time around at Forbes, my writing won’t go under the knife of a sharp team of editors and wordsmiths. Back then, I railed frequently, and impotently, against what I saw to be the boneheaded or misguided changes imposed from above.

Now, well, I have to acknowledge my work could probably benefit from some editing and intervention. Chinese is not a language I speak with much skill. Writing it far harder still. I rely on lots of assistance from my smart co-workers to transubstantiate my hot air  into solid Chinese. 

CFC’s latest research report: 2010 will be record-setting year in China Private Equity

China First Capital 2010 research report, from blog post


China’s private equity industry is on track to break all records in 2010 for number of deals, number of successful PE-backed IPOs, capital raised and capital invested. This record-setting performance comes at a time when the PE and VC industries are still locked in a long skid in the US and Europe.

According to my firms’s latest research report, (see front cover above)  the best days are still ahead for China’s PE industry. The Chinese-language report has just been published. It can be downloaded by clicking this link: China First Capital 2010 Report on Private Equity in China

We prepare these research reports primarily for our clients and partners in China. There is no English version.

A few of the takeaway points are:

  • China’s continued strong economic growth is only one factor providing fuel for the growth of  private equity in China. Another key factor that sets China apart and makes it the most dynamic and attractive market for PE investing in the world: the rise of world-class private SME. These Chinese SME are already profitable and market leaders in China’s domestic market. Even more important, they are owned and managed by some of the most talented entrepreneurs in the world. As these SME grow, they need additional capital to expand even faster in the future. Private Equity capital is often the best choice
  • As long as the IPO window stays open for Chinese SME, rates of return of 300%-500% will remain common for private equity investors. It’s the kind of return some US PE firms were able to earn during the good years, but only by using a lot of bank debt on top of smaller amounts of equity. That type of private equity deal, relying on bank leverage, is for the most part prohibited in China
  • PE in China got its start ten years ago. The founding era is now drawing to a close.  The result will be a fundamental realignment in the way private equity operates in China. It’s a change few of the original PE firms in China anticipated, or can cope with. What’s changed? These PE firms grew large and successful raising and investing US dollars,  and then taking Chinese companies public in Hong Kong or New York. This worked beautifully for a long time, in large part because China’s own capital markets were relatively underdeveloped. Now, the best profit opportunities are for PE investors using renminbi and exiting on China’s domestic stock markets. Many of the first generation PE firms are stuck holding an inferior currency, and an inferior path to IPO

Our goal is to be a thought leader in our industry, as well as providing the highest-quality information and analysis in Chinese for private entrepreneurs and the investors who finance them.

Kleiner Perkins Adrift in China

Gold ornament from China First Capital blog post

No firm in the venture capital industry can match the reputation, global influence and swagger of Kleiner Perkins Caufield & Byers (“KP”). KP is accustomed to outsized success and glory  – which makes the lackluster performance of KP’s China operation all the more baffling. For all its Midas-touch reputation in Silicon Valley, KP’s China operation looks more like 100% pyrite. It seems beset by some poor investment choices, setbacks and even rancor among its partners and team. The firm’s Chinese-language website even manages to misspell the Kleiner Perkins name. (See below.)

Two years ago, Joe Zhou, one of the founding managing partners of KP in China left the firm to set up a rival VC shop, Keytone Ventures. Two other KP partners in China have also left. Losing so many of its partners in such a short time is an unprecedented occurrence at KP — even more so that two of these partners left KP to set up rival VC firms in China.

A partnership at KP is considered among the ultimate achievements in the business world. Al Gore took up a partnership at KP in 2007, after serving as Vice President for eight years and then losing the presidential election in 2000. Colin Powell also later joined the firm, as a “Strategic Limited Partner”.

Joe Zhou left KP just 13 months after joining. When he left, he also took some of the senior KP staff in China with him. Zhou also negotiated to buy out the portfolio of China investments he and his team had overseen at KP China. They paid cost, according to someone directly involved in the transaction. In other words, KP sold its positions in these investments at a 0% gain. Factor in the cost of that capital, and the portfolio was offloaded at a loss.

This isn’t going to endear KP to the Limited Partners whose money it invests.  It also signals how little confidence KP had in the future value of these China investments the firm made. Other top VCs and PEs are earning compounded annual rates of return of +50% in China.

There was every reason to believe that KP would achieve great success when it opened in China in 2007. Indeed, when KP opened its China office, it issued a celebratory press release, titled “Kleiner Perkins Caufield & Byers Goes Global;Joe Zhou and Tina Ju to Launch KPCB China”.

Along with having the most respected brand in the VC industry, KP arguably has more accumulated and referenceable knowledge than any other VC firm on where to invest, how best to nurture young companies into global leaders. It’s roster of successful investments includes many of the most successful technology companies in history, including: Amazon, AOL, Sun, Genentech, Electronic Arts, Intuit, Macromedia and Google.

Opening in China was KP’s first major move outside the US – indeed, its first move outside its base in Silicon Valley. KP has only three offices in total, one in Menlo Park , California and one each in Shanghai and Beijing.  On its website, the firm’s China operations receive very prominent position. Two of the firm’s most renowned and respected partners, John Doerr and Ted Schlein, apparently played an active part in KP’s entry into China. Along with the high-level backing, KP also raised over $300mn in new capital especially for its China operations. One can assume KP has already taken over $15mn in management fees for itself out of that capital.

Beyond the capital and high-level backing, KP also prides itself on being better than all others in the VC world at building successful companies. So, it’s more than a little surprising that KP’s own business in China has so far failed to excel, failed even to make much of an imprint. Physician heal thyself?

I’m in no way privy to what’s going on at KP in China, and thus far have not had any direct dealings with them. I’ve always admired the firm, and fully expect the China operation to flourish eventually. For one thing, great entrepreneurs and good investment opportunities in China are just too numerous. A firm with KP’s deal flow, capital and experience should find abundant opportunities to make significant returns investing in IPO-bound businesses.

From the beginning, KP’s operation was  a kind of outsourced operation. Rather than sending over partners from KP in the US, the firm instead hired away from other firms partners at other China-based VCs. While this meant KP could ramp up in China more quickly, it also put the firm’s stellar reputation, as well as its capital, in the hands of people with no direct experience working at the firm.

The KP website lists 14 companies in the China portfolio. The portfolio is very heavily weighted towards biotech, cleantech and computer technology, mirroring KP’s focus in the US. Other tech—focused VCs in China have run into trouble, and are now shifting much of their investment activity towards established Chinese SME in more traditional industries. In the best cases, these SME have strong brands and very robust sales growth in China’s domestic market.

In my view, investing in these SME offers the best risk-adjusted return of any PE or VC investing in the world right now. KP has yet to make the shift. I wish KP nothing but success, and hope for opportunities in the future to work with them. Its technology bets in China may pay off big-time, in due course. But, meantime, KP is in the very unaccustomed position of laggard, rather than leader, here in China.



It’s surely embarrassing, if not emblematic, that the home page of the Chinese-language version of KP’s own website manages to misspell the company’s name.  Check out the top-most bar on the page, where the firm is named “Kliener,  Perkins, Caufield and Buyers” .

Kleiner Perkins China website

Update: as of May 11, 2010, the Chinese version of Kleiner Perkins’ home page has been corrected.