.
Interview with Siva Yam, President of US-China Chamber of Commerce
Siva Yam, CPA, CFA, is managing director of Siva Yam & Associates, LLC, a private consulting and investment banking boutique, which specializes in cross border business and trade activities between the U.S. and Asia (in particular, the Greater China Region). Yam is an investment banker with over 20 years of experience in mergers, acquisitions, public offerings and private placements of securities, venture financing, and privatization. He has served as advisor to a number of venture funds and corporations including the Federal Reserve Bank of Chicago.
Yam is president of the U.S.-China Chamber of Commerce, a nonprofit organization that was founded by the late Prescott Bush Jr. and dedicated to promoting trade and investment activities between the U.S. and China. He is an internationally recognized expert in U.S.-China business, has traveled frequently, and lived overseas. He is a certified public accountant and also holds the chartered financial analyst designation.
Yam has received numerous awards and has authored or co-authored many investment research reports. He writes articles regularly for international newspapers and speaks frequently at various conferences, seminars, and in television interviews. Yam received his MBA from Duke University on a Fuqua Fellowship and his bachelor of business administration, magna cum laude, from the University of Wisconsin. He also graduated from the Hong Kong Polytechnic with honors and is fluent in both English and Chinese.
Paul Nash: Mr. Yam, you have long felt that China’s business culture must change. How must it change? And what do you think will it take to bring about such change?
Siva Yam: China’s economic model, engineered 40 years ago by the country’s former paramount leader Deng Xiaoping, Mao Zedong’s successor, reignited the Chinese entrepreneurial spirit and initiated a “Second Industrial Revolution” in China. The model, which was heavily reliant on relationships and patriotism, focused largely on the export of manufactured goods with high labor content to exploit the comparative advantage of China’s large population and huge labor pool. Sweet-heart deals and policy lending encouraged investment in infrastructure, fixed assets, and real estate. The model has become antiquated and needs to change. Businesses fail because they are unable to adapt to changes in the business environment. We have seen this in China: a large numbers of Chinese companies, particularly small to medium-sized enterprises (SMEs), have closed their doors in the last few years. Many private companies emerged through the privatization of state-owned enterprises and joint ventures with overseas Chinese, primarily from Hong Kong. The process has always been relationship-based and lacking in transparency. Along the way, many companies have ventured into other businesses; and, invariably, they have become involved in real estate. As China’s economy matures, labor costs and living standards continue to rise rapidly. Companies that focus on labor-intensive contract manufacturing have, in consequence, become vulnerable. A lack of innovation, as well as a lack of proprietary products and manufacturing processes, and brand power have now left these companies dispensable. A lack of structure and transparency has constrained their development and jeopardized their operations. Inevitably, when companies stop growing, disputes among stakeholders surface because they do not have a proper structure and rules in place to resolve disputes and differences. As a result, I believe that Chinese companies, if they are to become more resilient, must change to become better structured and transparent.
Many Chinese companies are, of course, already changing in the face of current difficulties. After all, adversity is one of the biggest motivators of change. However, China is a country in which the government plays an integral role in guiding and fine-tuning the economy at every step. As such, the government needs to take the lead by being transparent and continuing its reforms, and in better enforcing laws, thereby encouraging enterprises to change, The current difficulties in China are, in fact, a good opportunity for the country to further modernize its economy by allowing competition to transform Chinese companies into truly world-class enterprises.
Q: Do you think the South China Sea dispute is damaging international trade relations?
Siva Yam: This dispute has created considerable tension, not just among China and other countries in Asia, but, more importantly, between China and the U.S. Surprisingly, however, most U.S. business people do not pay much attention to this dispute, partially because it seems so far away from home and because it has had so little impact on U.S.-China trade relations. In the end, I believe that economics will win over. For other Asian countries, except for Japan, and perhaps Vietnam with the recent announcement of U.S. weapons sales to Vietnam, China does not really care too much, nor should it. All these countries need China for economic reasons. However, unlike the U.S., China seems not to have not taken advantage of the leverage it possesses. In my opinion, we may see some posturing, but ultimately nothing is really going to happen. The dispute will continue, and it may escalate, but then cool down. Having said that, the dispute may have a negative impact on maritime transportation as rising tensions may result in restricted navigation for container vessels sailing through that area.
Q: Has President Xi’s anti-corruption campaign bolstered the confidence of American companies wanting to invest in China?
Siva Yam: It certainly has bolstered the confidence of foreign investors, particularly, U.S. companies that have to be in compliance with the Foreign Corrupt Practice Act to invest in China. However, the campaign is perhaps too little and too late to counteract the dramatic decline in foreign direct investment into China that we’ve seen over the past five years, which is the result of huge excess capacity. Also, social security and other add-on costs have increased labor costs in China, making it much more expensive for U.S companies to source products there, even as productivity and quality fails to improve in China. As a result, some U.S. companies are moving their manufacturing back to the United States. Also, global financial instability and terrorism have made many U.S. companies want to source closer to home. Moreover, the Chinese corporate laws that were implemented in the early days of China’s economic reform plus the complex family relationships that exist in all sectors of business have discouraged foreign SMEs from investing in China. Those companies, particularly SMEs, that do go to China to sell their products find that their biggest competitors are home grown Chinese companies. Until market conditions change, the anti-corruption campaign will have limited impact on luring foreign investors into China. However, it is a good step and will pave the way for future advances. One thing, in my opinion, is very important: the process needs to be consistent and transparent.
Q: How can the U.S. and China improve relations?
Siva Yam: Both countries need each other. A healthy bi-lateral relationship between the U.S. and China is crucial to the prosperity of the global political and economic environment. The leaders of both countries understand that, and I am confident that the relationship will improve by itself. Business also is a big part of this equation. Despite all the trade disputes, which have been grossly exaggerated, particularly during U.S election years, businesses and professionals are keen to do business, and there is nothing more powerful to improve relations than doing business with each other to improve the quality of lives in both countries. Further, culture, entertainment, and education are big businesses for the future, and these are also powerful tools that can help improve understanding between the American and the Chinese peoples.
Q: How do you see the future of U.S.-China trade?
Siva Yam: Generally, I am confident and positive about the future of U.S.-China trade. China is experiencing a downturn in its exports and is struggling to keep its massive pool of workers employed. However, the current situation will force China to realign its resources for the future, which will benefit the country in the long term. China is now deleveraging and reducing its excessive capacity in certain areas of the basic manufacturing sector and is moving from a commodity-based economy to a higher value-added and service-oriented economy. A certain amount of outsourcing of low value-added manufacturing has already relocated to other countries such as Vietnam. As China is changing, it will become an even bigger market than it is now for U.S. exports. China has been the fastest growing export market for the U.S., and this will continue. The playing field for U.S. and China trade will become a more level, and I expect that there will be an increase in trade and investment activities in the areas of research, and in creative-based products such as entertainment in which the U.S. has strong advantages.
Source photo: EPA
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
a global affairs media network
On China’s Business Culture
August 31, 2016
Interview with Siva Yam, President of US-China Chamber of Commerce
Siva Yam, CPA, CFA, is managing director of Siva Yam & Associates, LLC, a private consulting and investment banking boutique, which specializes in cross border business and trade activities between the U.S. and Asia (in particular, the Greater China Region). Yam is an investment banker with over 20 years of experience in mergers, acquisitions, public offerings and private placements of securities, venture financing, and privatization. He has served as advisor to a number of venture funds and corporations including the Federal Reserve Bank of Chicago.
Yam is president of the U.S.-China Chamber of Commerce, a nonprofit organization that was founded by the late Prescott Bush Jr. and dedicated to promoting trade and investment activities between the U.S. and China. He is an internationally recognized expert in U.S.-China business, has traveled frequently, and lived overseas. He is a certified public accountant and also holds the chartered financial analyst designation.
Yam has received numerous awards and has authored or co-authored many investment research reports. He writes articles regularly for international newspapers and speaks frequently at various conferences, seminars, and in television interviews. Yam received his MBA from Duke University on a Fuqua Fellowship and his bachelor of business administration, magna cum laude, from the University of Wisconsin. He also graduated from the Hong Kong Polytechnic with honors and is fluent in both English and Chinese.
Paul Nash: Mr. Yam, you have long felt that China’s business culture must change. How must it change? And what do you think will it take to bring about such change?
Siva Yam: China’s economic model, engineered 40 years ago by the country’s former paramount leader Deng Xiaoping, Mao Zedong’s successor, reignited the Chinese entrepreneurial spirit and initiated a “Second Industrial Revolution” in China. The model, which was heavily reliant on relationships and patriotism, focused largely on the export of manufactured goods with high labor content to exploit the comparative advantage of China’s large population and huge labor pool. Sweet-heart deals and policy lending encouraged investment in infrastructure, fixed assets, and real estate. The model has become antiquated and needs to change. Businesses fail because they are unable to adapt to changes in the business environment. We have seen this in China: a large numbers of Chinese companies, particularly small to medium-sized enterprises (SMEs), have closed their doors in the last few years. Many private companies emerged through the privatization of state-owned enterprises and joint ventures with overseas Chinese, primarily from Hong Kong. The process has always been relationship-based and lacking in transparency. Along the way, many companies have ventured into other businesses; and, invariably, they have become involved in real estate. As China’s economy matures, labor costs and living standards continue to rise rapidly. Companies that focus on labor-intensive contract manufacturing have, in consequence, become vulnerable. A lack of innovation, as well as a lack of proprietary products and manufacturing processes, and brand power have now left these companies dispensable. A lack of structure and transparency has constrained their development and jeopardized their operations. Inevitably, when companies stop growing, disputes among stakeholders surface because they do not have a proper structure and rules in place to resolve disputes and differences. As a result, I believe that Chinese companies, if they are to become more resilient, must change to become better structured and transparent.
Many Chinese companies are, of course, already changing in the face of current difficulties. After all, adversity is one of the biggest motivators of change. However, China is a country in which the government plays an integral role in guiding and fine-tuning the economy at every step. As such, the government needs to take the lead by being transparent and continuing its reforms, and in better enforcing laws, thereby encouraging enterprises to change, The current difficulties in China are, in fact, a good opportunity for the country to further modernize its economy by allowing competition to transform Chinese companies into truly world-class enterprises.
Q: Do you think the South China Sea dispute is damaging international trade relations?
Siva Yam: This dispute has created considerable tension, not just among China and other countries in Asia, but, more importantly, between China and the U.S. Surprisingly, however, most U.S. business people do not pay much attention to this dispute, partially because it seems so far away from home and because it has had so little impact on U.S.-China trade relations. In the end, I believe that economics will win over. For other Asian countries, except for Japan, and perhaps Vietnam with the recent announcement of U.S. weapons sales to Vietnam, China does not really care too much, nor should it. All these countries need China for economic reasons. However, unlike the U.S., China seems not to have not taken advantage of the leverage it possesses. In my opinion, we may see some posturing, but ultimately nothing is really going to happen. The dispute will continue, and it may escalate, but then cool down. Having said that, the dispute may have a negative impact on maritime transportation as rising tensions may result in restricted navigation for container vessels sailing through that area.
Q: Has President Xi’s anti-corruption campaign bolstered the confidence of American companies wanting to invest in China?
Siva Yam: It certainly has bolstered the confidence of foreign investors, particularly, U.S. companies that have to be in compliance with the Foreign Corrupt Practice Act to invest in China. However, the campaign is perhaps too little and too late to counteract the dramatic decline in foreign direct investment into China that we’ve seen over the past five years, which is the result of huge excess capacity. Also, social security and other add-on costs have increased labor costs in China, making it much more expensive for U.S companies to source products there, even as productivity and quality fails to improve in China. As a result, some U.S. companies are moving their manufacturing back to the United States. Also, global financial instability and terrorism have made many U.S. companies want to source closer to home. Moreover, the Chinese corporate laws that were implemented in the early days of China’s economic reform plus the complex family relationships that exist in all sectors of business have discouraged foreign SMEs from investing in China. Those companies, particularly SMEs, that do go to China to sell their products find that their biggest competitors are home grown Chinese companies. Until market conditions change, the anti-corruption campaign will have limited impact on luring foreign investors into China. However, it is a good step and will pave the way for future advances. One thing, in my opinion, is very important: the process needs to be consistent and transparent.
Q: How can the U.S. and China improve relations?
Siva Yam: Both countries need each other. A healthy bi-lateral relationship between the U.S. and China is crucial to the prosperity of the global political and economic environment. The leaders of both countries understand that, and I am confident that the relationship will improve by itself. Business also is a big part of this equation. Despite all the trade disputes, which have been grossly exaggerated, particularly during U.S election years, businesses and professionals are keen to do business, and there is nothing more powerful to improve relations than doing business with each other to improve the quality of lives in both countries. Further, culture, entertainment, and education are big businesses for the future, and these are also powerful tools that can help improve understanding between the American and the Chinese peoples.
Q: How do you see the future of U.S.-China trade?
Siva Yam: Generally, I am confident and positive about the future of U.S.-China trade. China is experiencing a downturn in its exports and is struggling to keep its massive pool of workers employed. However, the current situation will force China to realign its resources for the future, which will benefit the country in the long term. China is now deleveraging and reducing its excessive capacity in certain areas of the basic manufacturing sector and is moving from a commodity-based economy to a higher value-added and service-oriented economy. A certain amount of outsourcing of low value-added manufacturing has already relocated to other countries such as Vietnam. As China is changing, it will become an even bigger market than it is now for U.S. exports. China has been the fastest growing export market for the U.S., and this will continue. The playing field for U.S. and China trade will become a more level, and I expect that there will be an increase in trade and investment activities in the areas of research, and in creative-based products such as entertainment in which the U.S. has strong advantages.
Source photo: EPA
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
