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Can China Succeed Where the Japanese Failed Investing in US Real Estate?

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Chinese money is cascading like a waterfall into the US real estate market. Chinese institutional money, individual money, state-owned companies and private sector ones, Chinese billionaires to ordinary middle-class wage-earners, everyone wants in on the action. This year, the amount of Chinese money invested in US real estate assets is almost certain to break new records, surpassing last year’s total of over $40 billion, and continue to provide upward momentum to prices in the markets where Chinese most like to buy, the golden trio of major cities New York, Los Angeles and San Francisco, plus residential housing on both coasts.

To many, it summons up memories of an earlier period 25 years ago when it was Japanese money that flooded in, lifting prices spectacularly. For the Japanese, as we know, it all ended rather catastrophically, with huge losses from midtown Manhattan to the Monterrey Peninsula.

There is no other more important new force in US real estate than Chinese investors. Will they make the same mistakes, suffer the same losses and then retreat as the Japanese did? Certainly a lot of US real estate pros think so. There is some evidence to suggest things are moving in a similar direction.

But, there are also this year more signs Chinese are starting to adapt far more quickly to the dynamics of the US market and adjusting their strategies. They also are trying now to dissect why things went so wrong for the Japanese, to learn the lessons rather than repeat them.

This week, one of China’s leading business magazines, Caijing Magazine, published a detailed article on Chinese real estate investing in the US. I wrote it together with China First Capital’s COO, Dr. Yansong Wang. It looks at how Chinese are now assessing US real estate investing.  What kinds of investment approaches are they considering or discarding?

Here is an English version I adapted from the Chinese. It is also published this week in a widely-read US commercial real estate news website, Bisnow. The original Chinese version, as published in Caijing, can be read by clicking here.


headSome of the biggest investors in America’s biggest industry are certain history is repeating itself. The Americans believe that Chinese real estate investors will invest as recklessly and lose as much money as quickly in the US as Japanese real estate investors did 25 years ago. The Japanese lost – and Americans made — over ten billion dollars first selling US buildings to the Japanese at inflated prices, then buying them back at large discounts after the Japanese investors failed to earn the profits they expected.

Chinese investors are now pouring into the US to buy real estate just as the Japanese did between 1988-1993. To American eyes, it all looks very familiar. Like the Japanese, the Chinese almost overnight became one of the largest foreign buyers of US real estate. Also like the Japanese, the Chinese are mainly still targeting the same small group of assets — big, well-known office buildings and plots of land in just three cities: New York, San Francisco and Los Angeles. Pushed up by all the Chinese money, the price of Manhattan office buildings is now at a record high, above $1,400 square foot, or the equivalent of Rmb 100,000 per square meter.

The term “China price” has taken on a new meaning in the US. It used to mean that goods could be manufactured in China at least 33% cheaper. Now it means that US real estate can be sold to Chinese buyers for at least 33% more. Convincing US sellers to agree a fair price, rather than a Chinese price, takes up more time than anything else we do when representing Chinese institutional buyers in US real estate transactions.

While there are similarities between Chinese real estate investors today and Japanese investors 25 years ago, we also see some large differences. American investors should not start counting their money before its made. Based on our experience, we see Chinese investors are becoming more disciplined, more aware of the risks, more professional in evaluating US real estate.  There is still room to improve. The key to avoiding potential disaster: Chinese investors must learn the lessons of why the Japanese failed, and how to do things differently.



Twenty-five years ago, many economists in the US believed the booming Japanese investment in US real estate was proof that Japan’s economy would soon overtake America’s as the world’s largest. Instead, we now know that Japanese buying of US property was one of the final triggers of Japanese economic collapse. The stock market, property prices both fell by over 70%. GDP shrunk, wages fell. Japanese banks, then the world’s largest, basically were brought close to bankruptcy by $700 billion in losses. To try to keep the economy from sinking even further, the Japanese government borrowed and spent at a level no other government ever has. Japan is now the most indebted country in the developed world, with total debt approaching 2.5X its gdp. There are some parallels with China’s macroeconomic condition today — banks filled with bad loans, GDP growth falling, domestic property prices at astronomical levels.

Just how much money are Chinese investors spending to buy US property? Precise data can be difficult to obtain. Many Chinese investors are buying US assets without using official channels in China to exchange Renminbi for dollars. But, the Asia Society in the US just completed the first comprehensive study of total Chinese real estate investment in the US. They estimate between 2010-2015 Chinese investors spent at least $135 billion on US property. Other experts calculate total Chinese purchases of US commercial real estate last year rose fourfold. Chinese last year became the largest buyers of office buildings in Manhattan, the world’s largest commercial real estate market.

This year is likely to see the largest amount ever in Chinese investment in the US. While most Chinese purchases aren’t disclosed, large Chinese state-owned investors, including China Life and China Investment Corporation have announced they made large purchases this year in Manhattan. While the Chinese government has recently tried to restrict flow of money leaving China, a lot of Chinese money is still reaching the US. One reason: many Chinese investors, both institutional and individual, expect the Renminbi to decline further against the dollar. Buying US property is way to profit from the Renminbi’s fall.  Other large foreign buyers of US real estate — European insurance companies, Middle East sovereign wealth funds — cannot keep up with the pace of Chinese spending.

With all this Chinese money targeting the US, many US real estate companies are in fever mode, trying to attract Chinese buyers. The large real estate brokers are hiring Chinese and preparing Chinese-language deal sheets. Some larger deals are now first being shown to Chinese investors. The reason: like the Japanese 25 years ago, Chinese investors have gained a reputation for being willing to pay prices at least 25% higher than other foreign investors and 40% above domestic US investors.

Twenty-five years ago, anyone with a building to sell at a full price flew to Japan in search of a buyer. Today, something similar is occurring. Major US real estate groups are now frequent visitors to China. Their first stop is usually the downtown Beijing headquarters of Anbang Insurance.

Eighteen months ago, just about no one in US knew Anbang’s name. Now they are among US commercial real estate owner’s ideal potential customer. The reason: last year, Anbang Insurance paid $2bn for the Waldorf Astoria Hotel. The seller was Blackstone, the world’s largest and most successful real estate investor. No one is better at timing when to buy and sell. A frequently-followed investment rule in the US Chinese investors would be wise to keep in mind:  don’t be the buyer when Blackstone is the seller.

Based on the price Anbang paid and Waldorf’s current profits, Anbang’s cap rate is probably under 2.5%. US investors generally require a cap rate of at least double that. Anbang hopes eventually to make money by converting some of the Waldorf Astoria to residential. It agreed to pay $149mn to the hotel’s union workers to get their approval to the conversion plan.

Earlier this year, Blackstone sold a group of sixteen other US hotels to Anbang for $6.5bn. Blackstone had bought the hotels three months earlier for $6bn. “Ka-Ching”.

Anbang’s chairman Wu Xiaogang now calls Blackstone chairman Steve Schwarzman his “good friend”.


Another Chinese insurance company, Sunshine, paid an even higher price per room for its US hotel assets than Anbang. Sunshine paid Barry Sternlicht’s Starwood Capital Group $2 million per room for the Baccarat Hotel. It is still most ever paid for a hotel. In order to make a return above 4% a year, the hotel will need to charge the highest price per room, on average, of just about any hotel in the US.

Another famous New York hotel, the Plaza, is also now for sale. The Plaza’s Indian owners, who bought the hotel four years ago, are now facing bankruptcy. They are aggressively seeking a Chinese buyer. We’ve seen the confidential financials. Our view: only a madman should consider buying at the $700mn price the Indians are asking for.

The common view in the US now — the Chinese are, like the Japanese before, buying at the top of the cycle. Prices have reached a point where some deals no longer make fundamental economic sense. At current prices, many buildings being marketed to Chinese have negative leverage. It was similar in the late 1980s. Japanese paid so much to buy there was never any real possibility to make money except if prices continue to rise strongly. Few US investors expect them to. That’s why so many are convinced it’s a good time to sell to Chinese buyers.

No deal better symbolized the mistakes Japanese real estate investors made than the purchase in 1989 of New York’s Rockefeller Center, a group of 12 commercial buildings in the center of Manhattan. Since the time it was built by John Rockefeller in 1930, it’s been among the most famous high-end real estate projects in the world. In 1989, Mitsubishi Estate, the real estate arms of Mitsubishi Group, bought the majority of Rockefeller Center from the Rockefeller family for $1.4 billion. At the time, the Rockefeller family needed cash and they went looking for it in Japan. Mitsubishi made a preemptive bid. They bought quickly, then invested another $500mn to upgrade the building. The Japanese analysis at the time: prime Manhattan real estate on Fifth Avenue was a scarce asset that would only ever increase in value.

Mitsubishi had no real experience managing large commercial real estate projects in Manhattan. They forecasted large increases in rent income that never occurred. The idea to bring in a lot of Japanese tenants also failed. Rockefeller Center began losing money, a little at first. By 1995, with over $600 million in overdue payments to its lenders, Rockefeller Center filed for bankruptcy. Mitsubishi lost almost all its investment, and also ended up paying a big tax penalty to the US government.

A group of smart US investors took over. Today Rockefeller Center, if it were for sale, would be worth at least $8 billion.

It was a similar story with most Japanese real estate investments in the US. They paid too much, borrowed too much, made unrealistically optimistic financial projections, acted as passive landlords and focused on too narrow a group of targets in New York, San Francisco and Los Angeles.

According to Asia Society figures, over 70% of Chinese commercial real estate purchases have been in those same three cities. If you add in Silicon Valley and Orange County, the areas next to Los Angeles and San Francisco, then over 85% of Chinese investment in US real estate is going into these areas of the US. Prices in all these locations are now at highest level of all time. They are also the places where it’s hardest to get permission to build something new or change the use of the building you own.


It’s easy enough to understand why almost all Chinese money is invested in these three places. They have the largest number of Chinese immigrants, the most flights to China, the deepest business ties to PRC companies. They are also great places for Chinese to visit or live.

But, all this doesn’t prove these are best places to invest profitably, especially for less-experienced Chinese investors. In fact, the Japanese relied on a similar local logic to justify their failed investment strategy. These are also the places with the largest number of Japanese-Americans. A quick look through financial history confirms that no two places in the world have made more money from foolish foreign investors than New York and California.


Many of the largest US real estate groups are selling properties in New York and California to reinvest in other parts of the country where the financial returns and overall economy are better. Most of the gdp and job growth in the US comes from states in the South, especially Texas, Arizona and Florida.

Chinese investors should consider following the US smart money and shift some of their focus to these faster-growing markets. Another good strategy — partner with an experienced US real estate investor. The Japanese never did this and paid a very high price trying to learn how to buy, rent and manage profitably real estate in the US. In their most recent deals in Manhattan, both Fosun and China Life have chosen well-known US partners.

Another important difference: Japanese real estate investment in the US was almost entirely done by that country’s banks, insurance companies and developers.  With Chinese, the biggest amount of money is from individuals buying residential property. According to the Asia Society report, last year, Chinese spent $28.6bn buying homes in the US. That’s more than double the amount Chinese institutional investors spent buying commercial property. Residential prices, in most parts of the US, have still not returned to their levels before the financial crash of 2008.

Another big pool of Chinese money, almost $10bn last year, went into buying US real estate through the US government-administered EB-5 program. In the last two years, 90% of the EB-5 green cards went to Chinese citizens.

The original intention of the EB-5 program was to increase investment and jobs in small companies in America’s poorest urban and rural districts. Instead, some major US real estate developers, working with their lawyers, created loopholes that let them use the EB-5 program as a cheap way to raise capital to finance big money-making projects in rich major cities, mainly New York, Chicago and Los Angeles.  Congress is now deciding if it should reform or kill the EB-5 program.

Chinese are by far the largest source of EB5- cash. Even so, Chinese should probably be happy to see the EB-5 program either changed or eliminated. There’s also been a lot of criticism about the unethical way some EB5 agents operate within China. They are paid big fees by US developers to find Chinese investors and persuade them to become EB-5 investors. Many of these agents never properly inform Chinese investors that once they get a Green Card, they have to pay full US taxes, even if they continue to live in China. The concept of worldwide taxation is an alien one for most Chinese.

Taxes play a huge role in deciding who will and will not make money investing in US real estate. All foreign investors, including Chinese, start at a disadvantage. They aren’t treated equally. They need to pay complicated withholding tax called FIRPTA whenever they sell property, either commercial or residential. To make sure the tax is paid, the US rules require the buyer to pay only 85% of the agreed price to a foreign seller, and pay the rest directly to the IRS.  The foreign seller only gets this 15% if they can convince the IRS they’ve paid all taxes owed.

Many larger real estate investors in the US use a REIT structure to buy and manage property. It can reduce taxes substantially. Up to now, few Chinese investors have set up their own REITs in the US. They should.

Another key difference between Japanese and Chinese investors: it is very unlikely that Chinese will ever, as the Japanese did between 1995-2000, sell off most of what they own in the US. The Chinese investors we work with have a long-term view of real estate investing in the US. They say they are prepared stay calm and steadfast, even if prices either flatten out or start to fall.

This long-term view actually gives Chinese investors a competitive advantage in the US. If the US real estate industry has a weakness, it is that too few owners like to buy and hold an asset for 10 years or longer.  Many, like Blackstone and GGP, are listed companies and so need to keep up a quick pace of buying and selling to keep investors happy. As a result, there are some long-term opportunities available to smart Chinese investors that could provide steady returns even if there is no big increase in overall real estate prices.

Two examples: The US, like China, is becoming a country with a large percentage of people 65 years and older. As the country ages, American biotech and pharmaceutical companies, the world’s largest, are spending more each year to develop drugs to treat chronic diseases old people suffer from, like dementia and Parkinson’s. There’s a growing shortage of new, state-of-the-art biotech research facilities. The buildings need special construction and ventilation that require significantly higher upfront cost than building an ordinary office building. They also need to be located in nice areas, with large comfortable offices for 800 – 1,500 management and researchers. The total cost to build a biotech center is usually between $200mn-$400mn. But, rents are higher, leases are longer and there are usually tax subsidies available.


The other good way to make long-term money investing in US real estate is to take advantage of the fact American companies, unlike Chinese ones, do not like owning much real estate. It tends to hurt their stock market valuation. So, bigger US companies often build long-term partnerships with reliable real estate developers to act as landlord.   Starbucks is still growing quickly and is always interested to find more real estate partners to build and own dozens of outlets for them. Starbucks provides the design and often chooses the locations. It is happy to sign a 15-20-year lease that gives landlords a rate of return or 7%-8.% a year,  higher if the developer borrows money to buy and build the new Starbucks shops. The only risk if at some point in the next 10-20 years the 2%-3% of the US population that buy a coffee at Starbucks every day stop coming.

The Japanese never developed a similar long-term strategy to make money investing in US real estate. Instead, they just spent and borrowed money to buy famous buildings they thought would only go up in value. They not only lost money, they lost face. After staying away for 20 years, Japanese investors, mainly insurance companies, have just begun investing again in New York City.

Japanese investors arrived 30 years ago confident they would be as successful buying real estate in the US as they were selling cars and tvs there. They learned a bitter lesson and left with their confidence shattered. Chinese can, should and must do better

(Charts courtesy Asia Society and National Association of Realtors)

As published by Bisnow

财经杂志 《美国房地产投资负面清单》

Free Trade Zones, The Next Phase of Economic Reform — China National News TV Interview

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It is the world’s most watched nightly news report, China’s CCTV 7pm evening news program, “Xinwen Lianbo” (新闻联播). Simultaneously broadcast on most terrestrial tv stations in China, it has a nightly audience estimated at over 100 million.

This past week, the level of broadcast Chinese on this news program took a brief, steep dive. The reason: a short clip of me speaking Chinese led off a news report about recent economic reforms in Guangdong Province and the introduction of pilot free trade zones in Guangdong‘s three largest cities, Shenzhen, Guangzhou and Zhuhai.

You can watch the video by clicking here. (You may need to sit through a pre-roll advertisement.) My contribution is mentioning how comparatively easy it is to register a business in Shenzhen Qianhai,  the most ambitious of Guangdong’s free trade zones.

I was out of the country in Europe when the broadcast was aired, so didn’t get to watch it live. But, I knew instantly something was going on. As I sat in a lunch meeting in Switzerland at 1:15pm (7:15pm China time), calls and messages started flooding in from friends and acquaintances watching the report in China.


A Sense of Place – The Key Role of Laojia in Forging Chinese Identity

Ask Chinese where the country’s leader Hu Jintao comes from and you will be told “Anhui Province”. Simple. Except it isn’t. In Jiangsu province recently, I was told by several locals that Hu was raised and schooled in Taizhou, a small city in the northeastern corner of their province. Disinformation meant to confound a foreigner? Apparently not.

In this case, as well as in China more generally, both can be true simultaneously true, that a person is said to come from one place, although he was actually born and raised in another. The reason for this seeming conundrum is the central importance Chinese themselves place on the concept of 老家,(“laojia”), literally one’s “old home”. It is, after asking someone’s name, the most common as well as most pertinent question you hear people ask one another when first introduced, “where in your laojia?” .

Chinese ask because nothing else is meant to be as telling, as shorthand, in determining the character, interests, personal habits, even taste in food of a person you’ve just met. Your laojia is Henan? It’s a place of con artists and simple poor peasants. Hubei? The smartest Chinese come from here.  Guangdong? Not keen on education but good at making money. Shandong? Strongly influenced by the values of the province’s native son, Confucius. And so on.

Laojia matters because Chinese are convinced it does. Living here, I’ve adopted the habit of asking a person’s laojia and have come to see it as providing some clues to a person’s character – if nothing else, it can often indicate a person’s tolerance for spicy food, preference for noodles or rice, yen for hard liquor.

In Hu Jintao’s case, he is considered a native of Anhui because his grandparents (and probably innumerable generations before them) came from this region of China. It is meant to inform his judgment, personality and provide the main reason Anhui Province is said to have experienced very high gdp growth during Hu’s tenure. He oversaw policies and spending decisions that gave a big boost to this once-poor area of China.  In US politics, this is known as “bringing home the bacon”.

And yet, from what I was told, Hu has little personal connection to Anhui. He was born and spent all his formative years in Jiangsu.  His grandparents emigrated there.  Then and now Jiangsu was among the most developed, economically successful areas of China, with a strong tradition of higher education and high professional achievement.

Hu’s spoken Chinese bears no trace of an Anhui accent, or any regional accent for that matter. His working years before becoming China’s party secretary were spent in various corners of the country, including Tibet and Guizhou, but never in Anhui. But, from what I was told, his parents raised him on Anhui food, and with a strong sense of identity as “安徽人”, or a person whose laojia is Anhui. My guess is that is you asked him to name his laojia, he would say “Anhui”.

China’s likely next leader, Xi Jinping, is a born and bred Beijinger.  He is about to embark on an important visit to the US, a kind of trial run ahead of his elevation to the top spot as Party Secretary later this year. He is son of a first generation leader of the Communist Party, and grew up, it is widely assumed, with all the perks available to a child of one of the country’s top officials.  And yet, his laojia is considered to be Shaanxi, the ancestral home of his father, and a place he was sent to at 16 years old, during the Cultural Revolution.

Shaanxi is the cultural and historical heartland of Han China. Xi, it is widely assumed, will bring to the job of China’s leader not so much the values of a Beijing son of high privilege and power, known in Chinese as a 太子党, or “Communist Party Prince” but the practicality and diligence of Shaanxi folk.

 When Chinese find out I’m American, they often follow up by asking “where do your ancestors come from?” In effect, I’m being asked to name my laojia. I offer the answer (in my case, Middle Europe) and also a quick discourse on why this idea of laojia hasn’t such resonant meaning outside China.  Americans tend to be far more interested in where a person was raised and schooled, rather than the locus of the ancestral burial ground.  Anyway, I often explain to Chinese that as a Jew, my ancestors were pretty much on the run for 1,900 years before disembarking from a ship on New York’s Ellis Island over a century ago. We have no ancestral burial ground. No home turf. I am, for all practical purposes, a person without a laojia.

That would never be possible – or acceptable – for a native Chinese. Laojia provides a middle layer of identity for all Chinese, between family and country. Yet, unlike those other two, laojia is often as much mystical as it is practical.

For many Chinese, not just the current and likely future leader of China, one’s laojia may be a place you’ve seldom, if ever, visited. And yet it’s also the root source of one’s values and preferences, shaping one’s choice of friends, profession, entertainment, food. In China, one can be of a place but not from it.

Investment Banking in China — What I’ve Learned & Unlearned

Anyone seeking to succeed in investment banking in China should live by one rule alone: it’s not who you know, but how well you know them. In China, more than any other country where I’ve worked, the professional is also the personal. Comradeship, if not friendship, is always a necessary precondition to doing business together. If you haven’t shared a meal – and more importantly, shared a few hundred laughs – you will never share a business deal. Competence, experience, education and reputation all matter, of course. But, they all play supporting roles.

The stereotypical hard-charging pompous Wall Street investment banker wouldn’t stand much of a chance here. A “Master of the Universe” would need to master a set of different, unfamiliar skills. Personal warmth, ready humor and a relaxed and somewhat deferential attitude will go a lot farther than spreadsheet modeling, an Ivy League MBA and financial dodges to increase earnings-per-share.

I’ve been around a fair bit in my +25 year business career, doing business is over 40 countries and managing companies in the US, Europe and Asia. Everywhere, it helps to be likeable, attentive, courteous. We all prefer working with people we like.  But, since moving to China and opening a business, I’ve learned things work differently here. Making money and making friends are interchangeable in China. You can’t do the first without doing the second.

Investment banking is so personal in China because most private Chinese companies, from the biggest on down, are effectively one-man-shows, with a boss whose authority and wisdom are seldom challenged. Usually, there is  no “management team” in the sense this term is applied in the US and Europe. A Chinese boss is the master of all he (or often she, as women entrepreneurs are common here) surveys.

A substantial percentage of my time is spent getting to know, and winning the friendship, of Chinese bosses. This alone makes me a lucky guy. Without fail, the bosses I meet are smart, gifted, able, hospitable, warm. We don’t select for these qualities. They are prerequisites for success as a private business in China.

Bosses are also usually guarded about meeting new people. It comes with the territory. Anyone with a successful business in China is going to be in very large demand from a very large “catchment pool”, including just about everyone in the extended circle of the boss’s friends, relatives, employees, suppliers, political contacts. Everyone is selling or seeking something. Precious few will succeed. Being a boss in China requires enormous stamina, to deal with all those making a claim on your time, and a gift for saying “No” in ways that don’t offend.

For investment bankers, successful deal generation in China will usually follow an elliptical path. The biggest mistake is to start pitching your company, or a transaction, the moment you meet a prospective client. You need first to win the boss’s trust and friendship, then you can discuss how to work together. In my working life in China, it’s axiomatic that in a first meeting with a company boss, one or the other of us will say, “我们先做朋友”,  or “let’s become friends be first”. It’s not some throwaway line. It’s an operating manual.

The Chinese use a specific word to define the engagement between an investment banker and client. It speaks volumes about the way new business is won here. It’s “合作” or cooperation. You don’t work for a Chinese company, you cooperate with it. There’s got to be a real personal bond in place, a tangible sense of shared purpose and shared destiny.

I could probably teach a class in the cross-cultural differences of investment banking in China and the US. I’ve not only been active in both places, I’ve been on both sides of the table. Before starting CFC, I was CEO of an American company that retained one of the most renowned investment banks in the US to handle an M&A deal for us. At that company, we had a deep senior management team, including two supremely capable founders. We dealt individually and collectively with the investment bank, which had a similarly-sized team assigned to the project.

The relationships were professional, cordial. But, the investment bankers never made any real effort to become my friend, nor did I want them to. Rarely, if ever, did discussions veer away from how to create the conditions to get the best price. The bankers were explicitly pursuing their fee, and we were pursuing our strategic goal.

The deal went pretty smoothly, following a tightly-scripted and typical M&A process. The investment bank’s materials and research were first-rate, and they had no difficulty getting directly to decision-makers at some of the largest software companies in the world. They performed with the intricate precision and harmony of the Julliard Quartet.

I can count the number of times I sat down with the bankers for a nice meal where business was not discussed. Or the number of times when the meeting room rang with peals of friendly laughter. Zero. Both would be unthinkable in China.

Here, a deal is more than just a deal. Price is not the only, or even the main objective. Instead, as an investment banker, you must knit souls together, their lives, fortunes, careers, goals and temperaments. There is no spreadsheet, no due diligence list, no B-school case study, no insider jargon to consult.

Be likeable and be righteous. But. above all, do not be transparently or subliminally motivated mainly by personal greed. A successful Chinese boss will smell that coming from miles away, and recoil. You’ll rarely get past “ 您好” , the polite form of “hello”.


Say Goodbye to “Zaijian”. Sorry about “duibuqi”



I’m sorry, but there is only one proper way to say “I’m sorry” and “goodbye” in China. Unfortunately, fewer and fewer Chinese seem to agree with me.

The Chinese terms “zaijian (再见)” literally “see you again”, and “duebuqi (对不起”), meaning “I’m sorry”, have been among the most commonly-spoken phrases in China for hundreds of years. But, every day now, they grow less common, like forms of endangered speech.

Why? Because their English equivalents are taking over, everywhere.  Day by day, China is becoming a country where everyone says  “bye-bye” and “sorry”, rather than using the Chinese equivalents.

“Bye-bye” first started to gain popularity a decade ago. Today, it is rampant. Most probably, “bye-bye” entered the vernacular in China via Hong Kong, where it’s long been a main way Cantonese-speaking people say farewell to one another. I’ve never quite gotten used to hearing it in China, and still resolutely refuse to use anything other than “zaijian”.

I have never once knowingly used “bye-bye” anywhere outside China, so I’m certainly not going to use it inside. My own preference, in English, is for either “see you later”, or a simple “bye”.

I always liked the fact that Chinese traditionally bid farewell in the same way as many Italians and French do, by saying “see you again”. By contrast, “bye-bye” has no particularly clear underlying meaning, and sounds rather childish.

In Chinese internet slang, a common way to end an online chat is by writing “886”, in China pronounced “ba-ba-leo”, meant to approximate the sound of “bye-bye” with the addition of the modal particle 了,which indicates an action has been completed.

Cute slang, as some suggest, or a degradation of the beautiful Chinese language?  I know where I stand.

“Sorry” is not nearly as widely used as “bye-bye”, but it’s becoming more commonplace all the time. The first few dozen times I heard it, I assumed the person was shifting to English to be sure I understood the apology. Then I started overhearing it said between Chinese, as they bumped into one another on the subway, entered a crowded elevator or tried parting a throng of people.

This change aggravates me to my core. Along with its other merits, 对不起 is one of the more euphonious common phrases in Chinese. For non-Chinese speakers, it’s pronounced “dway boo chee” . It was among the first ten phrases I learned in my first Chinese class 31 years ago, and certainly among the most useful.  It is also precise in its meaning. The phrase literally acknowledges one’s act of rudeness.

“Sorry” is a kind of bastardized shorthand, far more commonly used in the UK than in US. Like “bye-bye” it seems to have smuggled itself into China via the ex-British colony of Hong Kong. When I lived in London, I heard “sorry” often and generally thought it hollow and insincere. Americans prefer to take personal culpability and say “I’m sorry”, or “Excuse me”.

Hearing Chinese say “sorry” , I feel it’s an alien presence, diminishing the level of common courtesy in China.

Mine is probably a minority view in China. New phrases gain currency in China very quickly. I’ve seen it not only with “bye-bye”, but another import from Hong Kong, the two-word phrase “mai dan”, meaning “give me the bill”. It’s a Cantonese term. Over the last ten years, it has all but exterminated across much of China the traditional Mandarin “ 算账”.  Again, it’s an example of a perfectly good, age-old Chinese phrase being pushed out by an inferior foreign import.

In France, the Academie Francaise has the specified role of preventing English terms from seeping into the French language. A lot of this can seem silly and pedantic,  like urging French to drop the use of English technology terms like “software”, “email”, in favor of clumsy, made-up French terms.

China has no such body, nor will it likely ever have, since Mandarin is spoken with so many different regional dialects and accents.  Still, I’d like to see more effort made to halt the spread of English terms.

The Mandarin spoken today is in many core ways similar to the Chinese language spoken seven hundred years ago.  Chinese language is the connecting rod linking China’s ancient past and present. It survived intact through upheavals, invasions and colonization. “Sorry” and “bye-bye” should be deported back to Hong Kong.

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.

The Harshest Phrase in Chinese Business

Shou screen from China First Capital blog post

What are the most reckless and self-destructive words to use while doing business in China? “Let’s skip lunch and continue our meeting.”  Of course, I’m kidding, at least partly. But, there’s nothing frivolous about the fact food is a vital ingredient of business life in China. This is, after all, the country where people for hundreds of years have greeted each other with not with “Hello” but with the question “Have you eaten?”. 

China is no longer a country where food is in any way scarce. But, perhaps because of memories of years of scarcity or just because Chinese food is so damn delicious, the daily rhythms of life still revolves around mealtimes in a way no other country can quite match. This is as true in professional as personal life. 

It’s a certainty that any business appointment scheduled within 1-2 hours of mealtime inevitably will end up pausing for food. In practical terms, that means the only times during working hours that a meeting can be scheduled without a high probability of a meal being included is 9-10am, and 1:30-2:30pm.

At any other time, it’s understood that the meeting will either be shortened or lengthened so everyone participating can go share a meal together.  Any other outcome is just about inconceivable. Whatever else gets said in a meeting, however contentious it might be, one can always be sure that the words “我们吃饭吧” , or “let’s go eat”, will achieve a perfect level of agreement.  

Everyone happily trudges off to a nearby restaurant, and talk switches to everyone’s favorite topic: “what should we order?” Soon, the food begins to pile up on the table. Laughter and toasts to friendship and shared success are the most common sounds. The host gets the additional satisfaction and “face” of providing abundant hospitality to his guests.  

And yet, there are some modern business people in China that can and do conceive of meetings taking precedence over mealtime. Thankfully, they are quite few in number, probably no more than a handful among the 1.4 billion of us in China. I just happen to know more of them than most people. 

In my experience, those with this heterodox view that meals can be delayed or even skipped are mainly Chinese who’ve spent time at top universities in the US. There, they learn that in the US it’s a sign of serious intent to work through mealtimes. It’s a particularly American form of business machismo, and one I never much liked in my years in businesses there. Americans will readily keep talking, rather than break for food. Or, as common, someone will order takeout food, and the meeting will continue, unbroken, as pizza or sandwiches are spread out on the conference room table. 

Heaven help the fool who tries to change the subject, as the takeout food is passed around, to something not strictly related to the business matters under discussion. If as Americans will often remind you, “time is money”, the time spent eating is often regarded as uncompensated, devoid of value and anything but the most utilitarian of purposes. 

Is it any wonder I’m so happy working in China? I love food generally, and Chinese food above all else. It’s been that way since I was a kid. These days, I often tell Chinese that adjusting to life in China has had its challenges for me, but I know that every day I will have at least two opportunities for transcendent happiness: lunch and dinner. 

So, not only do I accept that business meetings will usually include a break for a nice meal, I consider it one of the primary perks of my job. But, I do meet occasionally these US-educated Chinese who don’t share my view. They will ask if meetings can be scheduled so there won’t be the need to break for a meal, or if not, to make the mealtime as short and functional as possible, so “work can resume quickly”. 

This is misguided on so many levels that I worry how these folks, who I otherwise usually like and admire, will ever achieve real career success in China. The meals are often the most valuable and important part of a business meeting – precisely because they are unrushed, convivial and free of any intense discussion of business. 

Trust is a particularly vital component of business in China. Without it, most business transactions will never succeed, be it a private equity investment, a joint venture, a vendor-supplier relationship. Contracts are generally unenforceable. The most certain way to build that trust is to share a meal together — or, preferably, many meals together. 

To propose skipping a meal is a little like proposing to use sign language as the primary form of negotiation for a complex business deal: it’s possible, but likely to lead to first to misunderstanding, frustration and then, inevitably, to failure.

New CFC Report on Assessing Risk in PE Investment in China

China First Capital Report on Assessing Risk in PE Investment in China

“Risk and Reward.  They are the yin and yang of investing.”

So begins the latest of CFC’s Chinese-language research reports on risk and reward in private equity investment in China. The 18-page report (titled 风险与回报 in Chinese)  has just been published, and is downloadable via the CFC website by clicking this link:

The report’s goal, as stated in the introduction, is to “summarize the ways PE firms evaluate the risks of an investment opportunity so that entrepreneurs will better understand the decision-making process of PE firms, and so greatly improve the odds of succeeding in raising PE capital.” 

The report identifies five key areas of risk that private equity investors attempt to quantify, manage and where possible, mitigate: They are:

  1. 1.      Market Risk
  2. 2.      Execution Risk
  3. 3.      Technology Risk
  4. 4.      Political Risk 
  5. 5.      Due Diligence Risk

As far as we know, this is the first such detailed report prepared in Chinese, specifically for Chinese entrepreneurs. It was written with input from the entire CFC team, and represents a collation of our experiences in dealing both with the founders and owners of Chinese SME and the PE firms that invest in them. 

Few, if any, Chinese entrepreneurs have experience raising private equity capital, or for that matter, answering pointed questions about their business. So, the whole PE process will often seem to them to be odd and protracted. The report aims to increase entrepreneurs’ level of understanding ahead of any PE fund-raising process. The report puts it this way: 

“ The goal of PE firms is to lower risk when they invest, not completely eliminate it. Risk is a necessary part of any profit-making activity. The basic principle of all PE investing is finding the best “risk-adjusted return” – which means, the best ratio of risk to potential future profit.”

Some strategies for entrepreneurs to lower an investor’s risk are also discussed. It’s practically impossible to fully eliminate these risks. But, an entrepreneur will have an important ally in managing them, if successful in raising PE capital. 

PE investment in China is a process in which an entrepreneur give up sole proprietorship over the risks in his business. It’s a new concept for most of them. But, the results are almost always positive. A problem shared is a problem halved. 

We hope the report contributes to the continued growth and success of the PE industry in China.

It can also be enjoyed, for entirely other reasons, by anyone who shares my love of Song Dynasty porcelains. Some beautiful examples of Jun, Guan, Ge, Yaozhou, Cizhou and Longquan ceramics are used as illustrations. 

Some examples:








Joys of Chinese Language: Discovering A Business Model


Jin Dynasty from China First Capital blog post

My Chinese language skills remain sub-standard. At best. But, that doesn’t prevent me from taking enormous pleasure in my wall-to-wall waking-hours’ immersion in Chinese. Often, it’s just the sound and cadences of Chinese local accents, which occur in extraordinary numbers and varieties. Even calling them “accents” doesn’t capture the bewildering array, since to an English speaker, the comparison that comes to mind is likely the difference between an English and American accent. In China, regional accents can be so extreme they are mutually incomprehensible. I often feel like the most common phrase I hear in Chinese is “What?”, accompanied by a puzzled expression that shows the listener didn’t catch a word of the Mandarin just spoken at him. 

In other words, I often feel like I’m in the majority in China that’s in the dark about the meaning of someone else’s spoken phrases. But, of course, that’s not quite the case. Chinese do just fine here. I stumble, fall flat, get back up and trip again. Again and again. That about sums up the path of my linguistic development. 

There are moments of transcendence as well. For example,  in Shenzhen recently, I listened in on pitches by six Chinese companies seeking private equity or venture funding. They were from different industries, but I heard repeatedly the phrase “shangye moshi” in the presentations. The first ten times or so, I just let it pass through my brain unmolested, assuming it was just another word that was outside my active vocabulary. Then it hit me. I knew both words: “shangye” means business, “moshi” means model, or method. Put them together, you get 商业模式, or “business model”, an increasingly common business jargon term in English that I now know was translated literally into Chinese. 

I never liked the term “business model” in English, and so rarely use it. Companies have a way of making money, it seems to me, not a “business model”. Models are static, not dynamic, ever-mutating structures, which is what most good companies must be in order to keep making money. 

But, my aversion to the term disappears in Chinese. I’ve taken it to using it quite often now. Why? For one thing, at my age, it’s rare that any new word will stick around long enough in my memory for me to use more than once. I’m on an email list that sends me seven Chinese words every day. I read today’s words about 15 minutes ago, and I’ve already forgotten half of them. By tomorrow, the rest will probably be gone also. So, the fact I’ve retained “shangye moshi” is already cause for minor celebration.

The other reason is that it does seem to fill a slight conceptual void in Chinese. Languages, including Chinese,  often import foreign phrases for this reason. Two other well-known Chinese examples of this are “lang man” and “you mo”, meaning “romantic” and “humor”, both of which entered as corrupted versions of the English original. Others have speculated about what this says about China, that it had no native words for “romantic” and “humor”, but I’ll leave that to theoreticians. 

With “shangye moshi”, the missing native concept in Chinese was likely a simple way of saying a company has a recurring source of profit. If so, of course, it’s a welcome addition to the Chinese language, and one hopes, to Chinese management strategy as well.