World trade: A tale of two Chinas

Rebranding a country caught between its Red past and a struggle to create a new image of cultural openness.

At the tail end of last year, the Chinese Ministry of Commerce hired DDB Goan, the Beijing offshoot of advertising giant DDB, to create an ad campaign with the inspirational tone and glossy sheen of a Nike spot. The ads, which aired for six weeks on cable networks in the U.S., Asia and Europe, were designed to transform the meaning of “Made in China,” which in recent years has become associated with poisonous pet food, Big Bird toys slicked in lead paint, and antifreeze-filled toothpaste.

Thus, the country made its first attempt at international branding. The 34-second commercial opens with a runner lacing her shoes in a leafy urban park. As an acoustic guitar strums on the soundtrack, the camera reveals the shoe’s label: “Made in China with American Sport Technology.” Next, we cut to a kitchen, where a “typical American family” is preparing breakfast. We see the label on their coffee maker: “Made in China with European Styling.” And so it goes. An MP3 player is “Made in China with Software from Silicon Valley,” while “Made in China with French Designers” appears on a model’s dress at a fashion photo shoot. As the commercial dissolves into images of soft, puffy clouds, a voice explains: “When it says, ‘Made in China,’ it really means ‘Made in China, Made with the World.'” Simply put, by drawing attention to China’s long-standing relationship with trusted western countries, and doing it with soft-focus friendliness, the ads seemed to say, “China: We’re friends with your friends.”

But smiling into the camera is one thing. Bringing a true culture of commercial openness to a country of 1.3 billion people raised on the tenets of Mao’s Little Red Book is quite another. While China expends great effort courting western consumers, its leaders continue to crackdown on human-rights activists, to reject certain major foreign investments while accepting others, and to threaten western companies that do business with Taiwan. So which is the real China?

More and more, the answer appears to be “both,” and that contradiction lies at the very heart of a conundrum for western corporations and governments. With each high-profile standoff and every choreographed sign of friendship, the stakes seem to increase. The struggle between these two Chinas must be resolved somehow, and that resolution will have massive, world-changing implications for the future of Asia and the global economy as a whole. “We’ve essentially gotten to the point where we need each other, China and North America,” says Ken Bowlby, an associate business professor at King’s College at the University of Western Ontario, who works as a consultant for businesses looking to expand into China. “We’re so linked together that to envision severing those links, I can’t imagine it happening.”

But those links continue to strain under the pressure of a country seemingly pulled in two directions. This year began with a major public confrontation between government officials and one of America’s most powerful and admired companies. In mid-January, Google, which has operated in China since 2006, alleged there had been attacks on its infrastructure in a bid to access the e-mail accounts of Chinese human-rights activists. Furthermore, the e-mail accounts of activists outside of China had been breached using various methods. While the company never directly accused the Chinese government of conducting these attacks, Google did say it was no longer willing to censor the results on its Chinese search engine, as it has since launching in 2006. If the government did not allow for unfettered searching, the company threatened to shut down its Chinese search engine and abandon its offices in the country.

Citizens reacted to the news as if someone had died, apparently mourning the impending loss of a company whose arrival was taken as a sign of burgeoning freedoms. Outside the company’s Chinese offices, people performed the funeral ritual of pouring small glasses of liquor. But the government was not cowed. “China welcomes international Internet enterprises to conduct business in China according to law,” a spokeswoman said. Meanwhile, the Communist Party newspaper called Google a tool of Washington’s “Internet hegemony.”

That kind of rhetoric stands in stark contrast to the slogans that have proliferated as the country readies itself to host the World Expo starting in May – a high-profile international event it will host less than two years after the Beijing Olympics. Indeed, officials spin China’s success at attracting events like the Olympics and now the World’s Fair as proof of their new-found commitment to openness and transparency. Organizers of the World’s Fair, which is expected to attract 70 million visitors, boast on the event’s website, “China owes its successful bid for the World Exposition in 2010 to the international community’s support for and confidence in its reform and opening-up.”

Perhaps to capitalize on the publicity generated by hosting these marquee events, officials recently hired Mindshare, another international ad firm, to create a new tourism slogan, which has not yet been unveiled. And if potential visitors are not enticed by the World Expo, perhaps they will visit the country’s shiny new Disney theme park when it opens in 2015. After nearly a decade of negotiations, the government approved the park in November – a huge concession to western culture for a country that only allows 20 non-Chinese films to be shown in theatres each year.

On the surface, these initiatives suggest that some within the country’s sprawling bureaucracy realize that, as their economy expands – it grew by a blistering 8.7% in 2009, according to its own government’s projections – China needs to forge better relationships with its growing customer base around the world.

Clearly, the stakes for all concerned are huge. China is the largest holder of U.S. treasury bonds, with US$798.9 billion worth as of November 2009. And while it may be America’s largest creditor, China is also deeply reliant on the United States and its other trading partners. The country’s exports represented 35% of its GDP in 2009, with the United States and European Union as its two largest customers. Compare that with another emerging economy such as India, where exports represent just 24% of its GDP, and it makes sense that China is buying television spots to woo U.S. consumers.

But when it comes to relinquishing control, either to foreign corporations or its own citizens, Beijing balks. The Google feud is certainly not the only example of China’s hostility toward western interests. Just a few months before approving the Disney deal, the Chinese government blocked Coca-Cola’s efforts to buy a Chinese drinks manufacturer for $2.4 billion. Just last month, China threatened sanctions against companies like Boeing involved in a $6-billion arms deal with Taiwan. And then there was Premier Wen Jiabao’s high-profile participation in the Copenhagen negotiations for a new climate-change treaty in December. At first, his presence was taken as a signal his country was ready to become a major player in international forums. But that optimism quickly dissipated with accusations China was more of a spoiler than a leader at the talks. And Wen has not hesitated to note the shortcomings of the American financial system, worrying aloud in a press conference last year about the safety of U.S. treasury bonds. “What we’ve seen is suggestive of a much more assertive China,” says Mike Kulma, director of policy initiatives for the Asia Society, an educational institution in New York City.

A large part of the problem is fundamentally different and incompatible notions of what a successful “Brand China” should look like. All of these are the manifestations of a struggle at the highest reaches of China’s internal power structure. Observers warn it is virtually impossible to try to prescribe a single strategy to the country’s sprawling bureaucracy. “China is not monolithic. There is not this great consensus of views,” says Sarah Kutulakos, executive director of the Canada China Business Council. “There are internationalists in the government. There are those who would prefer to be more isolationist.” And so, with one step, the country moves toward a new image; with another, it reinforces old stereotypes.

One thing, however, is very clear – now, perhaps more than ever before, China and the West can’t afford to completely alienate each other. “China’s greatest strategic threat today is its national image,” Joshua Cooper Ramo, a strategic consultant and former journalist, concluded in a 2007 report on Brand China. “How China is perceived by other nations – and the underlying reality that perceptions reflects – will determine the future of Chinese development and reform.” And by extension, it will determine the future course of global trade and politics.

Any discussion of China’s image must account for the fact that its citizens and those outside its borders have vastly different perceptions of the country’s brand. In 2007, Ramo used a half-million consumer surveys culled from 45 countries to track perceptions of Brand China. He found Chinese citizens’ perceptions of their country had changed rapidly in recent years. Twelve years ago, the country was deemed arrogant, unapproachable, different and tough, according to its own citizens. But by 2007, perceptions had evolved with Chinese respondents describing their country as trustworthy, dynamic and friendly.

Outside of China, however, the country’s image was the exact opposite, with negative words like “unapproachable,” “untrustworthy” and “unreliable” dominating the responses. Perhaps even worse, Ramo found outside observers had trouble putting their perceptions into concrete terms, instead falling back on unflattering historical comparisons like the U.S.S.R., North Korea and late-19th-century Germany.

Western observers would like China’s new brand to represent ideals like openness, transparency and free enterprise. But while the Chinese government is willing to sell its country as welcoming of western investment, and keen participants in the global marketplace, they are not willing to sacrifice control or stability for the sake of a new image. “Chinese government officials will tell you they’re very aware of where they want to be, but sometimes getting there is not an easy thing in a country of 1.3 billion people,” says Kutulakos. “And those of us in smaller countries might find it frustrating, but they stand very firm on this because the risk of instability has ramifications in all sorts of areas – economic and other.” And there are still some things Chinese officials simply are not willing to do. “Opening up the Internet sphere to Google and not having that self-censorship goes to much deeper issues of maintaining stability, as they see it, within the country,” says Kulma. “So there are certain untouchable areas. But that doesn’t mean they don’t want to put a positive spin on other aspects of their relationships with other countries. It’s not two mutually exclusive kinds of things.” But trying to convince westerners, particularly North Americans, to be friends with a freedom-limiting, not freedom-loving, country remains a tough sell.

China has also proven somewhat tone deaf to western brand messaging, relying on slogans rather than building a cohesive identity. The country has long relied on low, low prices to sell its goods rather than product quality and image. Cultivating consumer perceptions does not come naturally, and observers say China as a whole is wary of branding efforts. Take, as one example, Huawei, a telecommunications firm that rivals Nokia Siemens in size yet lacks the brand cachet of far smaller tech companies like Google or Apple. Newsweek once described Huawei’s founder, Ren Zhengfei, as “the anti — Steve Jobs,” noting he had never given an interview to the foreign press. The company enjoys revenues of more than $18 billion, despite this anonymity. But China has recognized that consumers are willing to pay a premium for a familiar name. In a report last March, Wen called for the creation of “brand-name export products,” hoping his country will be home to the next Nike instead of just the factory.

The “Made in China, Made with the World” campaign is perhaps the most blatant case of China borrowing from the West’s marketing manual. “They’re just putting it in a nice, bright, good light,” says Bowlby. “They’ve been working with French designers and German engineers and American designers or whatever, always. It’s just a good way of telling your story.”

There are other examples that suggest the country has been studying the best way to protect its image. Many China watchers cite the difference in its response to two viral outbreaks six years apart. Chinese officials were criticized in 2003 during the SARS outbreak, which originated in its Guangdong province, for releasing information too slowly, obscuring death tolls and slowing investigations by World Health Organization officials. When swine flu emerged as a potential threat last year, China reacted quickly, earning praise from the WHO for quarantine protocols and providing forthright information on its response. “They’ve gotten significantly better in openness in certain areas of communication,” says the Asia Society’s Kulma. “When you talk about swine flu, they did a better job of sharing information with the outside world. And I think that could be interpreted as ‘lesson learned.'”

Similarly, Chinese officials seem to have learned that they will need to cultivate the country’s brand itself – hence the advertisements on CNN and other initiatives. “You’ve seen a huge learning curve for the Chinese government in the last five to 10 years in terms of marketing, PR, the media spheres,” says Kulma. “Whether it be reaching out to U.S. consumers, or in its relations with other places or countries and how they now better understand how certain things they do are perceived. I think part of that might be attributed to understanding of the international media landscape.”

But not all China watchers are convinced the charm campaigns represent a sincere effort to change. “The attempt to rebrand China’s export image may be taken as a very positive development,” says Andrew Hupert, a Shanghai-based consultant who started, a site aimed at business managers in the country. “But there’s an old saying in China – ‘It’s easy to fool a foreigner’ – and we may just be seeing China Inc. trying to keep the good times rolling.” Furthermore, the country’s stable economic system has insulated it from the worst of the global financial crisis, and thus emboldened the hardliners in government who are loath to turn the reins of commerce over to a more freewheeling form of capitalism.

Amid the push and pull, it is also hard to gauge Beijing’s current attitude toward foreign investment. At the same time as they were balking at Google’s demands for an uncensored Internet, officials with the Ministry of Industry and Information Technology also rushed to assure mobile phone companies that they could still use Google’s Android operating system. China’s brand involves being open to international business, while also censoring its Internet connections. Shanghai Disneyland, valued at $3.5 billion, will represent one of the largest foreign investments in the country. While its approval was heralded as a sign the country was open for business, the Chinese government’s decision to block Coke’s purchase of the Huiyuan Juice Group was equally seen as a sign of mounting protectionism. Others, however, argue that foreign firms have benefited from China’s $400-billion economic stimulus package and seen bureaucratic headaches reduced as the country tried to push forward with certain initiatives, particularly infrastructure projects. It is entirely possible that both are true, just as China seems to contain two distinct, conflicting brand identities, both wanting to be a friend to western consumers and simultaneously refusing to accept western notions of unfettered freedom.

Brand China, at least the one presented in the television ads, is decidedly internationalist, aswell as trustworthy, dynamic and friendly – all words that the Chinese would use to describe themselves. But a country is far harder to transform into a single value proposition than a computer or a pair of shoes. With its desire for control and stability, the Chinese government itself is trying very hard to squeeze into the new image it is trying to craft for itself. Says Bowlby: “It’s like a puzzle where some of the pieces fit together well – free enterprise, entrepreneurism, capitalism and communism – and other parts don’t fit together well. And when those parts don’t fit well, it creates a scene.”