The China Business Conundrum with Ken Wilcox
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But what I didn't realize is that the main reason they wanted us in China was so that they could study our business model and figure out how to copy it over time. And that was something I wasn't expecting, but I should have if I were less naive.

And if I were better prepared, I would have realized that was the intention. So the original title, the working title I had for my book, which I had to change because the publisher didn't like it. My original title was One Bed, Two Dreams. Because that's a phrase that most Chinese are familiar with.

Welcome to Analyze Asia, the premier podcast dedicated to dissecting the pulse of business technology and media in Asia. I'm Bernard Leong and it is early morning. Why most businesses have a hard time setting up in China and what lessons can we learn from it so that we can succeed in making our business there?

With me today, a pretty distinguished guest, Ken Wilcox, author of the China Business Conundrum, to talk about the difficulty of doing business in China and what we can learn from that. Ken, welcome to the show.

Thank you so much. Happy to be here. Yes, I do know that you have worked in Silicon Valley Bank for the last past 30 years. You retired in 2014 based on your biography. So you are a very interesting guest, but first, always as a tradition here, to start off with your origin story, how did you start your career?

Well, I actually started my career in a totally different field. I got a PhD in German studies and I was teaching at a university, University of North Carolina in Chapel Hill. I didn't enjoy it as much as I wished I would. So I quit and went to business school.

When I graduated from business school, I got a job at a bank in Boston lending money to early stage technology companies. So in a sense, I've done that for almost 40 years. Although the last several years, I was more in management and less out in the field. I joined Silicon Valley Bank in 1990.

I became CEO in 2001, and at the end of 2010, I was going to retire. That was the plan. Exactly at that same time, our board of directors got word from Beijing that the Chinese Communist Party was hoping that we would come to China and set up a joint venture bank to work with technology companies in China

So our board asked me if I would do that. And I was quite excited. That's something I really wanted to do. So my wife and I left California at the beginning of 2011. We were in China then for four years.

Well, so you actually started with a Boston bank and became the CEO of Silicon Valley Bank, and then you moved to China. Without providing an opinion on what happened to Silicon Valley Bank last year, and that has nothing to do with your tenure with the bank, what are your perspectives on what could have prevented the durational mismatch during the crisis in 2023? Yes, I think that it could have been avoided.

although I wasn't there, so it's maybe unfair of me to say these things, but I can think of at least four ways in which it might have been avoided. One would have been to do what we used to do a long time ago, and that was when a technology company raised a lot of equity, and they brought it all to us. We wouldn't put it all on our balance sheet.

If a company came to us and said, we just raised $100 million, can we put it in your bank? We would have said, oh, why don't you just put $20 million in our bank and put the other $80 million with a third party money market mutual fund company? Because having too many deposits on your balance sheet can be a problem for a bank.

So that's number one. Number two is if they'd had active lines of defense. So in a commercial bank, we always talk about lines of defense. And those would be if the CFO makes a bad decision, who's going to stop it?

And usually it's the head of risk management. It's the asset liability committee. It's the board's committee on risk or finance. It's regulators. It's advisors like Goldman Sachs. For some reason, all the lines of defense fell through, I guess. They didn't work. The third thing they could have done is hedging, which they didn't do. And the fourth one,

It's a little more complicated, so I'll leave it out at this point. But there are a number of things that they could have done, I think. But it's probably unfair for me to say. I totally respect that because I think there's no point throwing anyone under the bus. So what I'm pretty curious is your career journey. What lessons or life advice that you can share with my audience?

Well, you know, I have lots of advice. So I'll limit myself to just three. And these are life advice. They're not necessarily financial advice. But I would say the one thing that I really think is important, when I ran the bank, I

I followed somebody named Cyrus the Great, who was an ancient Persian 500 years ago. He supposedly said, diversity in counsel, unity in action. And I always advise CEOs to do this. When they have a big decision to make sure that they get advice and perspective from experts,

experts, stakeholders, people who report to them, then make a decision. Don't make a decision without getting the advice from important people. But then of course, make the decision. We don't vote in our bank, or we didn't. Voting's not really a good idea in a commercial enterprise, I think. The second thing is learn how to interview for hiring people because whom you hire is

makes a huge difference. And it's so hard to interview people well, in my opinion, because most of the time, the people you're interviewing are listening very careful and they take little clues and give you the answer they think you want. And then you discover a year later that they're not at all the person you thought they were. And the third thing I would say is,

Be conscious of your, I call them mental models. And what I mean by that is all of us develop these models in our head that it helps us to understand the things around us. And then we take them with us. And when we go to other places, we superimpose those mental models on the other places. The problem is, depending on how similar the place you go to is to the place you came from,

They will work or they won't work. And our American mental models really don't work in China because China is so different from the U.S. and the U.S. is so different from China.

That's a great segue because I'm getting to the main subject of the day. So I want to talk about your new book, The China Business Conundrum. Thank you for the pre-digital copy. I've took a long read over on the computer and it was really a good book. It really helped me solidify my understanding on China. When I was with Airbus, I've traveled to China to deal with a lot of the Chinese drone businesses there.

So my first question, which I usually reserved it for all my distinguished guests, what's the one thing you know about doing business in China that very few do?

Well, when I say this to you, you'll probably say, oh, I knew that. But I would say this is something that few Westerners know. Asians probably already know this. But at one point in my first year in China, my assistant, who was an excellent assistant, of course, she was Chinese. We hired only Chinese people in China.

PRC Nationals. And at one point, she said to me, Ken, you're never going to succeed here. And I said, why? And she said, because you've got a very bad habit. You always say what you mean, and you mean what you say. We don't do that here. And

You know, until she pointed that out to me, I wasn't even thinking about it. But then I realized, yes, I'm too blunt and too, I guess, straightforward. Chinese are much more subtle, in my opinion, now that I've spent years there. I think sometimes it's also the language, because the Chinese language tends to be very metaphorical.

And whereas the Western Latin-based language tends to be pretty straightforward and it basically equates the directness and the logic. One curious question, what is the inspiration behind writing the book? And who are your audience that you intend to read your book? I'm sure I'm one of those audience, but I'm sure you have a whole list of people that you think you want to reach out to. Well, I don't think that Americans are very successful in China in general.

And maybe it's going to be very difficult for us to be successful. But we can't ignore China. China is too big, too important. So it's really important that we understand China better so that we can do a better job of working with China. And that's the reason I wrote the book, because I think there are a lot of misunderstandings

And it would be helpful if Americans really were better prepared and understood China more than they do.

a shockingly few people know much about China in the US. Maybe to take a step back, because reading your book is also reading a historical context of how you brought Silicon Valley Bank into China. The question maybe to ask is, why is it important to bring Silicon Valley Bank into China? Maybe you can talk a little bit too, because I have a pretty general audience who can tell us about what Silicon Valley Bank does and

its importance to the technology ecosystem? Oh, good question. Thank you. Very simply, Silicon Valley Bank works only with technology companies and, of course, also with investors, primarily venture capital investors, because they need banking help as well. So that's 100% of our client base.

Now, technology is a unique vertical or industrial sector because it's one of the few industries that is global in nature. And what I mean by that is you can't be cutting edge anywhere unless you're cutting edge everywhere. And technology moves across borders pretty quickly.

So at any point in time, one country or one innovation center may be ahead in one aspect, like semiconductors. But in general, people around the world start every day with the same knowledge base. And we all try to add to it. And at the end of the day, it's a little bigger. Right.

But generally speaking, even if we get ahead in one area, it doesn't last long because knowledge is ethereal and it travels quickly and it doesn't respect borders. So I felt when I was running Silicon Valley Bank that we absolutely had to be in every innovation center in the world. And I still feel that that's important.

So the question then is, because the importance of Silicon Valley Bank is pretty underestimated in terms of in other jurisdictions, whether it's Latin America, whether it's the greater Asia Pacific, it's one of the things that provide the underlying infrastructure for technology startups to succeed.

Can you provide some highlights on how you tried to build the Silicon Valley Bank in China that would actually finance technology companies in China? I think it was the right time because there was the emergence of the BAT at that point in time by Alibaba, Tencent. And then there is a second generation of BAT.

companies which comes out like ByteDance. Now it's Shein and Pinduoduo, which founded Tmoo that successfully expanded into the US. So can you talk about some of those stories?

Yeah, well, I would say, first of all, that we didn't do as good a job as we should have or as we maybe could have had we been better prepared. If we had understood China better before we got there, I think we would have been better prepared to do a good job. But it was very, very difficult for us because it was so unlike other places we'd been.

I would talk about mental models a few minutes ago, and you can take your mental models about the way the world works and go from the U S to Germany by way of example. And again,

superimpose those mental models on Germany, and they work because Germany is pretty similar. Same with the UK. Actually, India is more similar to the US than China is, in my opinion. So it was difficult for us because we made a lot of assumptions that turned out not to be true.

And I give you just a couple of simple examples. One of them was when we negotiated with our joint venture partner, we negotiated that I would be the chair, excuse me, I would be the president and the representative from our joint venture partner, which is Shanghai Pudong Development Bank, that he would be the chairman. And we thought that was just perfect. I would run the bank and

And he would preside at board meetings. But it turns out, I mean, it's silly. I should have known this before we even started our negotiations, that in China, as it's true, I think in many Asian countries, the chairman actually runs the bank.

And the president is more like a chief operating officer. So when I arrived in China after we negotiated the agreement, both of us thought we were running the bank. He thought he was. I thought I was. It caused quite a problem for the first half year or so. Another thing in the U.S., banks sometimes fail.

When I started my career 40 years ago in banking, we had 18,000 banks. Today, we have about 5,000. What happened to all of them? Where did 13,000 banks go? Well, some of them got acquired, but many of them failed because when a bank makes too many bad loans, the Federal Reserve causes it to fail and it disappears. In China, banks don't fail.

First of all, banks are fundamentally owned by the government. And when they make too many bad loans, they don't typically fail. Usually the government, the regulators come and somebody gets arrested and the government recapitalizes the bank. And it's often very quiet. It's not even necessarily announced to the world.

and the bank keeps on going. What does that mean? That means that Chinese banks can take more risk than US banks can. And in the US, we had almost no competitors because everybody thought, oh, lending to technology companies is way too risky. So we'll just let Silicon Valley Bank do it. None of the rest of us will try. In China,

Many, many, many banks want to copy us and do the same thing because they're not worried about what happens if we lose too much money. So that's another big difference. There are, I could list probably 10, 15, 20 differences that make it very hard to take the business model that we developed over a long, long time and take it to China and expect it to work.

I would highly recommend everyone to actually dive deeper into your book because I think there's some very interesting lessons that even I could tease out. But one interesting point within the book was...

really key to this was you mentioned that the businesses that want to take the business models to China need to learn to deal with the trio, the Chinese Communist Party, or otherwise known as CCP, the Chinese government and Chinese culture. For most people, they would think that the CCP is the Chinese government. Why is it different from your perspective? Well, I'm not sure it really is that much different, but I think my real point is this. In the U.S.,

Most companies want to avoid the U.S. government. Their feeling is, we'll just obey the laws, we'll be good citizens, and we don't have to have anything to do with government because government is government and business is business, and they too aren't the same. In China, we get to China and we find out that the government is very much involved in business.

And then we find out that the party is also involved in business. And although the party and the government are overlapping, they're not 100% identical. And so it's very confusing for us. When

After I'd been there for several months, it occurred to me one day that my main conversation partner, the guy who is the chairman, who was from Shanghai Pudong Development Bank, it occurred to me that he actually wears three hats.

I only wear, the only hat I wear is banker slash businessman. But he had a banker slash businessman hat and he had a party hat and he had a government hat. And then I started to wonder when I'm talking with him, which hat is he wearing? And it took me a long time before I figured out

he doesn't even think he has three hats. He thinks they're all the same hat. So he's not even thinking about it the same way I was. So I think that's quite confusing. And it's also confusing when people find out, when a US company comes to China and finds out that it's going to get a party committee,

in their organization, they get very confused because they don't know what a party committee is. And if you ask people in government or in the party, what's a party committee? You say we're going to have one, but I don't understand what it is. It's hard for them to explain. You get multiple definitions and then you don't know what is actually going to happen. So some people

will tell me, "Oh, when you get a party committee, it'll be so good because all the employees in your organization who are members of the party will have a place to gather once a month and discuss things." Then somebody else says, "Well, actually, when you get a party committee, it'll be so much easier because the party committee will help you put on social events for the employees, all of the employees."

But then somebody else told me, no, no, no. When you get a party committee, it'll be like another board, but a secret board. You won't know who's on it. And they will influence what the real board does or what I would call the real board. And then other people told me, oh,

Don't pay any attention. That's all silliness. There is no such thing as a party committee. So it's very, very confusing. So I think what are the issues that most business get wrong about setting up in China? Is it just regulation, bureaucracy or something else? Yeah.

That's a very good question. Really, it's a lot of things. First of all, the cultural issues that you alluded to before. And among cultural issues would be, there are many, many of them, but I'll mention a couple of important ones. One of them is that in general, Chinese are not interested in contracts.

They're not interested in negotiating a contract with you. They would prefer a memorandum of understanding. Sounds about right. But then secondly, the memoranda of understanding are very flexible and they can change anything.

And third, a lot of times they change in response to your counterparty's perception of who has more leverage on any given day. We, first of all, spent almost a year negotiating a contract with our joint venture partner. And we didn't realize that...

And it wasn't necessarily expected that they would adhere to the contract. And then later, they didn't adhere to the contract. And we were very confused. And they thought, well, it makes perfect sense when they change things. And at one point, they actually wrote a letter to our board in California saying,

telling them that they were throwing the contract out and starting over. And it was because, I believe anyway, it was because they felt that as time went by, they had more leverage than we did. So they needed to revise it in a way that reflected their leverage.

That was so confusing to me. I couldn't understand why anybody would do that because, as you well know, in Western cultures, contracts are sacrosanct and you don't just change them because you wake up one day and think, oh, I have more leverage than the other guy.

So that's very confusing for people. That's a huge challenge. I think something like in the US, you have the rule of law. I think it also happens to some countries out there. But then in some places, it's the country's point of view of what the rule of law is and can change instantly from day to day. That's right. That's right. It's actually rule of party, I think, not rule of law. Yeah.

The other thing is that laws in China, in my opinion, in my experience, are more gray and more negotiable. And what I mean by that is in the U.S., you cannot negotiate with the Federal Reserve. You just can't. They tell you, this is what you're going to do, and you're going to do it. In China, you can actually negotiate with the regulators. Right.

And a lot of things are dependent more on the relationship you've built with them. If you build a good relationship with the regulators and you do something they don't like, they'll just tell you, you know, we don't like that. Don't do it again. But in the U S if you do something that you're not supposed to do, the federal reserve will cut your head off almost. And again,

I'll give you a good example that you may think is funny. There was a product that we wanted to have to offer to our customers. It was called, I think, a trust account, but it was like a deposit account with a higher interest rate. And

In China, every single discrete banking activity requires a different license. In the U.S., if a Chinese bank comes to the U.S. and the Federal Reserve gives it a banking license...

That banking license allows them to do anything a bank would do. They don't need additional licenses typically. But in China, when we got the banking license, that was only the start. To replicate Silicon Valley Bank in China required about 20 different licenses. A license to offer checking accounts, a license to offer savings accounts, a license to offer trust accounts, and so on.

And we wanted that trust account because it paid a higher interest rate to the customers and it was easier to get deposits with it. But we didn't have a license. So one bank came along, China Merchants, and they said, we understand that you're frustrated because you don't have a license to offer trust accounts, but you can rent our license for

And we told our board of the U.S., we're going to rent the license to offer trust accounts from China merchants. And our board in the U.S. said, you can't do that. That's illegal. That's crazy. But we did it anyway. And it's perfectly acceptable to rent somebody else's license. And so it's another situation in which things are so different.

And that you can't expect to understand them necessarily at first. But the risk is that they can change the rule to say that you cannot sublet your license at some point. Wouldn't that be a risk that you will have to bear?

Well, it depends on whether or not we had a good relationship. If we had a relationship with the regulators, which we tried very hard to have, and they would one day come to us and say, you know, you can't do that anymore. We decided that's not a good thing. Then we would only get a warning. We wouldn't get anything.

are head handed to us. But in the U S if the, if the federal reserve tells you, you can't do something, they, they really get upset with you. And, um,

punish you. Yeah, that's good. So I think in the last few lines, you alluded to the point of relationship. And of course, there is this famous word called guanxi. And guanxi, for those who understand it, is the word that many use to explain relationships in China. What do most business people you know get right and wrong about this loaded Chinese word?

Well, I think that first of all, when Americans, including me, go to China and we start hearing about guanxi, we just interpret it as a friendship or good relationship. But we don't realize how complicated it is.

Number one, I would say is that it's baffling to the American when he or she goes to China and every time they get together with somebody, that person gives them a gift.

And these Americans start thinking, what are you giving me a gift for every time we have lunch? That's so odd. I never give anybody a gift when I take them to lunch here. And it turns out that guanxi is something that builds up slowly over a long time, I believe. And it's in part based on

I do something for you and you do something for me and I do something for you and you do something for me. And it just keeps on building up. And pretty soon we're in this relationship together and we can predict the other person's behavior and it helps to build trust. And I think it's all of my opinion. You may have a better understanding, but in my opinion, it's all about trust. Yes.

Tit for tat, quid pro quo. And I think it takes us a while to get used to that, to understand it. I think maybe because I'm culturally Chinese, but living as a Singaporean, I think in my own business dealings, I typically never trade money.

When I'm helping somebody, I only trade favors. So it's that interpretation that you poignantly point out, which I actually didn't realize until you say to me, there is this trading. And then I'm digging back into my experience and I realized actually that was Chinese culture at work for me.

Yeah, I think it's hard for us to understand it at first. And then, of course, we have the Foreign Corrupt Practices Act in the US. And so we're not supposed to accept any gifts there.

And all of a sudden we start getting gifts and we don't know what we're supposed to do. So if we tell our audit committee in the U.S. about the gift, they were very worried that we're breaking U.S. law because sometimes the gifts get to be quite expensive.

So I suppose because I worked for multinational corporation previously and then I go into China. So there is some rules like what is the standard amount cannot be more than say a hundred USD or something like that. I usually declare whatever I receive because as you said, they do give a lot of gifts and I have to really push back more on that.

One question I do have, and I actually like about your book, is talking about how you got the local team to help to build the Silicon Valley Bank in China. How do you actually build this team, given that you talk about the concept of trust? How do you engineer trust and performance excellence in the team you build in China? Because I understand in the US, corporate culture is about performance management.

It's different, although it has similarities. One of the biggest differences that I found was that, so we ended up with about 300 employees in China. And with one or two exceptions, everybody was a PRC citizen.

And some of the things that would be confusing to me would be that if I had my team together, you know, eight people around a table and we're having a team meeting and I would go around the table and I'd say, would each one of you just give a short report on what your team has been doing? They always would do this. They'd say, well, under the guidance of Ken, right?

And with the support of my team, we were able to do X, Y, Z. And that's so different. At first, I was confused. Why are they always saying under the guidance of Ken? So that was confusing. I think the important thing to do from an American point of view is...

Always be as open and honest as you can and never mislead your employees. Now, of course, that's true in the U.S. too, of good leaders. But here's an example. Let me give an example of what I'm talking about. The people we hired were very good people.

no doubt about it. Very good in terms of their character and in terms of their professionalism. But in China, some things are very common that are not common in the U.S. So one thing that was very common in China was that the banking officers would pay a little bit of a

special favor to CFOs that deposited large amounts of money with the bank. And of course, we just don't do that. And that can get us in a huge amount of trouble. And I remember several times people would come to me, our employees, and say, come on, let's

be more flexible. Let us pay CFOs a little bit of money when they give us great big deposits. My first response was that that person's dishonest. But no, they're not dishonest. They just have a different cultural expectation. And it takes a while. So that's a good example of, I think,

of how different things are. Another thing that happens in China is that sometimes account officers, you know, bankers will work for more than one company. So they're working for the bank and they call on clients, but they're also working for some insurance company over here. And they're trying to sell insurance to the same clients. And,

That would get you in a huge amount of trouble here in the US. Yeah, but it's cross-selling in a China cultural context, right? That's right. So...

And then you have to learn to how do I differentiate between the behavior that would be unacceptable in the U.S., but it's just fine in China, and the behavior that's not acceptable in the U.S. and also not acceptable in China. So you've got to, in effect, you've got to try to become Chinese. Yeah.

I get that point for some of my friends who have worked there for over 10 years. When they come back to Singapore, they get a reverse culture shock on that because they got too Chinese. We could have got away with that. And then I'm like, come on guys, you're living in Singapore now. Back to rule of law. Yeah. Yeah. So,

I'm pretty curious. I have a couple of short questions and I just want your quick thoughts on that. What is the one thing in, for example, in your industry or any technological shifts that have changed your mind in the last 12 months?

changed my mind. Yeah. I'm not sure that anything has really changed my mind in the last 12 months. But I would, I'm not trying to get away from whatever you're driving at. But let me tell you one thing, conclusion that I have come to that was very hard for me to come to during my years in China. And that is,

When we went to China, I had what I would call an open mind and an open heart. And I expected that we were going to be treated well.

And I think that the people that interfaced with me from their point of view always treated me well. But some of the things that they did from an American point of view didn't feel like they were treating me well.

And I'll give you the best example. And that is that I believe based on the years I spent in China, that ultimately the main reason they wanted us in China, and they actually were very determined to get us to come to China. I remember that early on,

A couple of years before my wife and I moved to China, I had a series of meetings with a very high level government official who's also got a lot of status in the party. And he was saying to me, Ken, we really want you to bring your bank to China.

your bank is more important than any bank we've ever met. You're more important than any, he explicitly said this. He says, you're more important than Morgan Stanley and more important than Goldman Sachs. And by the way, Ken, you're one of the smartest Americans we've met. And so you think to yourself, well, this is an exaggeration, but it does feel nice. He obviously is going to help me get

established in China. But what I didn't realize is that the main reason they wanted us in China was so that they could study our business model and figure out how to copy it over time. And that was something I wasn't expecting, but I should have if I were less naive and

And if I were better prepared, I would have realized that was the intention. So the original title, the working title I had for my book, which I had to change because the publisher didn't like it. My original title was

"One bed, two dreams." Because that's a phrase that most Chinese are familiar with, and it explains why it didn't work well. Because my dream was working with all these Chinese technology companies and helping them do business with the rest of the world. And their dream was learning our business model.

And the result was that when they gave us our license, they also told us that we would not be able to use Chinese currency for three years.

That made it almost impossible to do business for the first three years. And the people that said these things were both members of government and members of the party. So I don't know which one was talking. But they said, well, we understand that you won't be able to do much business for the first three years because the companies that you want to work with all want renminbi. They don't want

US dollars, but you can still be a good citizen. You can do what we would do. And that is we here in China help each other. So you can be helpful and prove that you care about China by teaching other banks your business model during the three years when you can't really do much business. And we'll give you subsidy.

to help support you during the three years when you can't earn much money because you can't really do any business. Interesting. Interesting, huh? And then at the end of the three years, when they gave us permission to use renminbi, they said to us, we are so happy that you came to China and we really admire your business model and we admire it so much.

that we're starting a bank of our own using your business model. And would you mind staying a little longer and being an advisor to this new bank that's going to use your business model? And it felt like they were stealing my secret intellectual property. Yeah. Yeah. My intellectual property. But

You know, I'm not sure they thought of it that way. You know, I think you should use that original title for your Chinese version of the book. I know the phrase. It's called Tong Chuang Yi Mo. Yeah, exactly. It's an amazing title, actually. I think your publishers totally, you can send this video recording to them and say somebody from Singapore thinks that, you know, culturally Chinese, this is a fantastic title. Yeah.

But it really makes sense, doesn't it? Yes. I do want to ask, does that really mean that in order to succeed in China, you have to be an established brand like Apple, Tesla, Louis Vuitton, Moet Hennessy, or LVMH Group, or even IKEA, where they have a very specific advantage, but it's hard to replicate in terms of the brand value? I think that that would help.

But I think that it's also true that any Western company that goes to China that is at all important, you know, if it's a tiny company that's doing something very unimportant from the point of view of the Chinese government, then what I'm about to say doesn't make much difference. But if you are doing something that's important and you go to China and

you have to recognize that ultimately China wants you there because they want to learn from you. And depending on how long it takes them, that will help to determine how long you'll be welcome. So, for example, General Motors went over to China in 1985. The Chinese really didn't have an auto industry.

But they wanted General Motors there, not because they wanted General Motors to make a lot of money. It was because they wanted to learn about automobile manufacturing. And General Motors, because it took so long to build up the knowledge base, General Motors was welcome for about 30 years. But now General Motors is slowly...

losing market share, and it's probably going to withdraw from China. And then what will happen is China has made so much progress, partially because they're hardworking and smart, partially because they had General Motors there to learn from them. And then once General Motors retracts

and goes back to the U.S.,

the auto industry in China will begin exporting and competing globally. I think actually the Chinese have done such a good job of, first of all, learning from foreign automakers, but then on top of that, taking it further, that foreign automakers are in huge trouble. I think China's auto industry, automobile industry, will dominate in the future. Mm-hmm.

That will go for things like smartphones and other things, semiconductors. Semiconductors are going to take a little longer, I think. Smartphones are already there. Xiaomi, by way of example, is a very big force in the smartphone market. And Apple is slowly losing ground, at least in China. And eventually, I think they could lose ground in other places as well.

So yes, my belief is that you're welcome as a company, as a Western company, or actually a Korean company, a Japanese company, maybe a Singaporean company, I don't know. But you're welcome in China as long as they can learn things that will enable them to build that industry themselves. But be careful because once they've built that industry themselves, they're going to be competing against you

first in China and then globally. And I'm not saying that's wrong. I'm just saying, if you're going to bring your company to China, you have to understand that. I just have a curious question. What happened to the Chinese Silicon Bank entity after the SBB crisis and the post-acquisition by First Citizens Bank in the U.S.?

Yeah. So here's what happened. You probably know Silicon Valley Bank was not just a commercial bank. We acquired a number of other financial businesses that were helpful to technology companies. So we were really a kind of a conglomerate in a way. And when the regulators took over in March of 2023,

They chopped it up into its pieces, and they put all the pieces on the auction block. And some things went very fast within a couple of days, but some things took months and months. And at the end of the day, there was one part that nobody bid on, and that was our joint venture in China. Nobody bid on it. And I think that if that had happened 10 years ago,

There'd have been a lot of bidders because a lot of U.S. banks would have liked to have a Chinese banking license. But because the relationship between Chinese government and American government has gone downhill for so long now,

Nobody wanted to bid on it. They were afraid. They didn't feel that they could be successful in China. And so it just disappeared. And about two to three months ago, Shanghai Pudong Development Bank, the Chinese government officially dissolved it. What was left was assumed by Shanghai Pudong Development Bank. So it doesn't exist anymore.

So it just becomes part of the Chinese entity that the joint ventures partners went to, basically. That's exactly right. Yeah. Okay. One question you wish more people would ask you about doing business in China or your book, The China Business Conundrum. Yeah. I don't know that they have to ask me necessarily. One thing I think that Americans would benefit from is this. In 1982...

A famous sinologist, a professor at the Massachusetts Institute of Technology named Lucian Pai. Lucian Pai wrote a little book. I've got it on my bookshelf behind me called Chinese Commercial Negotiations. And it's about 100 pages long. And I read that book before I even went to China. And I was utterly amazed because it's

Here's the situation. People in my age bracket in the U.S., if they were in banking, we all had to take a negotiation course. And we all had the same negotiation course. It was always called getting to yes.

And it was a product of the Harvard Negotiation Project. And getting to yes teaches you that if you and I are having a negotiation, Bernard, you try to figure out what I need, and I try to figure out what you need, and we try to come up with a solution that makes both of us happy. And so Americans in general, I'm not saying they're all nice people.

But in general, that's our approach to negotiation is how can we make both of us happy? And Lucian Pai in his little book on Chinese commercial negotiations said that's not true in China at all. It's all about using leverage to get your way. Winning is the important thing.

And I didn't believe it when I read that book, "Failu Shunpai." I thought, "This guy is just very cynical and unfair." I'm sure that Chinese are not like that. But when I got to China, I learned that actually that's the way most negotiations go. I believe that it would be helpful to Americans if they understood that before they got involved.

Because it's, in my opinion, negotiation in China is about leverage. It's about developing, understanding your leverage and maintaining your leverage and using it to win.

Bernard, I hope you understand I'm not saying that's wrong. I'm saying that's different. Yes. I totally respect that point of view from just what you say about it. And I actually think that because I read negotiation in Chinese culture and I have read Getting to Yes as well, and I can see the real difference, the distinction between both cultures and wanting to win is actually a very essential part of the negotiation.

in the Chinese. And at the end of the day, as you rightfully point out, it's just about the leverage. So my traditional closing question, what does great look like for your book, The Chinese Business Conundrum? And I really hope that the Chinese title gets the correct title you wanted.

What I hope is, I wrote this book because I'm hoping that a lot of people read it. And my purpose is not to make China look bad. My purpose is to help people understand the way it really is when you take your business to China, because we can't avoid working with China.

I think we have to. Our country is big. Their country is big. We can't avoid each other. We have to figure out how to work with each other. And you can't change other people. You can only change yourself. So I'm hoping that people will read this book and understand and try to learn some of the lessons that I learned the hard way so that they can do a better job in China.

Thank you so much for sharing this. And I really appreciate the opportunity of doing this interview. So many thanks for coming on the show. I really learned a lot. And I think you also helped me to rethink some of my points of view on doing business in China as well, even though I've been there and think about it from time to time. In closing, just two quick questions. Any recommendations which have inspired you recently? A couple of the books that I have read recently are

I think have helped me to understand a lot of things better. So I would recommend two books here. One of them would be, there's a book called Beijing Rules. Are you LES? Yes. By a woman named Bethany Allen. And I think that that book will help people understand. And another book, which I think will help people understand is Hidden Hand by

which is by a guy named, it's by two authors, both of them China scholars or sinologists, Clive Hamilton, who's Australian, and

I think it's Marika Ohlberg, which is a German woman. But I think those books are very helpful, and they've been helpful to me. And I would like to have permission to say one last thing before we separate here. And that is that if you ask my wife or me any time, what about our four years in China, huh?

We will both give the same answer. I know, because we discuss it. We think that the four years in China were the most interesting four years we've ever lived. And the Chinese people are just fine. Terrific. Chinese Communist Party, not so easy to work with. That sounds about right. Yeah.

Most certainly are not anti-China or Chinese. Yeah, yeah, yeah, yeah. No, I have a lot of friends there and I really appreciate that, you know, from time to time, I also teach students there in the university here in Singapore and they go back to China and they still message me from time to time as well. So how do my audience find you?

i what do you mean by that how do they find me well oh yeah social media your link yeah yeah yeah yeah i have a a website i have a um a sub stack and a presence on uh linkedin yep so

And I'm happy if anybody wants to be in my sub stack, just send me an email and I will put them on it and I can give you my email if you want. Yeah, I'll definitely put all those links on the interview once this goes up. And thank you so much for having this call. And I appreciate the lessons as well. And I look forward to speaking to you again. Thank you so much. I really appreciate the time I spent with you. Bye-bye.

Bye.