The American Chamber of Commerce in China just issued their 2008 China Business Climate Survey. Meanwhile, the prestigious Chinese Academy of Social Sciences (CASS) and the Chinese Academy of Macroeconomic Research (CAMR) also released their own reports on the overall development of the Chinese economy.

The contrast in styles is illuminating, and may help to shed some light on staff behaviour in China. But let’s get to the reports first.

The CASS report predicts that China’s GDP will grow at a rate of 10.7% this year. The breakdown says that industry will grow at about 12.2% and services 10.9%. Good news all round. Even the inflation monster is held in at under 5.5%. Break out the champagne!.

A slightly different approach is taken by the Chinese Academy of Macroeconomic Research (CAMR), which cites a marked slow down in the first quarter as the US credit crunch bites. Once that’s out of the way we get to the main point, which is that the economy will grow all the way to 2020, and at much the same high rate as previously. So we have somewhat of an improvement in that CAMR report acknowledges a problem immediately, but then returns to the positive news.

The ‘fast growing’ narrative in the two reports wins big time and you can see this from the confidence level in the CAMR and CASS reports. It is striking to hear the economy ‘will grow’ and ‘will increase’; and for another 20 years. A few more ’shoulds’ and ‘balance of probabilities’ might be appreciated.

It reminds me of the old China balance sheets which showed a fixed amount of profits in the future for any China venture, greenfield or pre-existing. This came as a bit of a shock to me when I saw it first. I felt that this did not make sense because I was seeing this after the time when profits could actually be predicted with accuracy. In the pre-opening days, before China opened up 1979, annual output of factories was fixed, to be sure, as was factory costs and the end-user price. Future profits could be determined with simple maths.

Obviously, this was before Deng Xiao Ping opened the floodgates, but for a long time after many economists continued with the old fixed communist models. I was surprised that this kind of thinking still existed over ten years ago, and I thought this thinking must surely be gone now. Some of this false surety still lingers, as the two government reports may be telling us.


Analysis & Insight

By comparison, the AmCham report takes a look at the challenges that China faces. The focus is on the day to day difficulties that companies face as they operate in China, not on telling us how great things are.

Overall, their report is broadly positive. Most foreign companies in China are profitable, and the vast majority increased revenues and margins over last year. The challenges are actually much more interesting though, and this always seems to come as a shock to local PRC friends when I say this.

Based on previous conversations that I have had with various audiences and stakeholders in China, this focus on problems is often misunderstood and needs addressing. In the present climate it is easily characterized as biased.

Of course you can easily see where I am going here. Amcham is looking for insight, while the government agencies want to tell us the right story, and confirm the narrative of a fast growing China.

So we are very unlikely to find any challenges in the government agency results, which were a foregone conclusion. There is nothing inherently wrong with the results of these two studies but what is interesting to me is the two different approaches to the same problem.


HR’s Problem/Challenge

The linkage to HR is in the way that employees in China deal with work-based problems. Many of the managers I talk to tell me that what they want their staff to do is to give them insight but in many cases all they get is data, and more data. Sometimes they get data that they did not ask for, on the basis that the employee could not find the correct data, and wanted to give them something. It’s a face thing.

Data is something that managers can always find themselves, if they employ enough people or look hard enough. Admittedly, locating data can be difficult in this market, but the point is that it doesn’t take intelligence or creativity; just diligence.

Insight, on the other hand, is in serious short supply in China. The AmCham report drills down through the data and offers up insight because the focus is on doing that.

Management level human resource constraints emerge as the top problem in the AmCham survey, and 71% of members thought that China was losing at least some competitive advantage due to rising costs. However, I would emphasise that few companies have even considered moving out of China.

About 80% of companies reported difficulty attracting, developing and retaining both managers and skilled workers in China. Capacity expansions were on the table for a lot of companies and 41% are looking at moving to the inner provinces, where labor costs are lower. The possibility of an economic slowdown was the top concern, with labor costs as the second biggest challenge.


Demise of Data Providers

The need for staff in China to provide insight has recently become acute. With China reaching the Lewisian Turning Point, productivity is now a real issue, and the responsibility for solving this will rest on HR. We can no longer keep doing the same old same in China, which in the past was to keep throwing labor at every problem.

In order to find out what your company should next do you need to put in place people who can examine what it is that your company is doing wrong now, and then let them go in and fix it. This requires insight and action, and a small proportion of the younger generation gets this. There are also older managers who get this but younger people will provide you with a target rich environment of individuals with the right skills.

Unfortunately, this little group of younger professionals do not have the influence to change things so they need help. Their level of boredom in the office is at least partly due to the fact that they are asked by older, middle level managers for data, when they often have unwelcome insights that cannot get past these middle managers. The gatekeepers keep this generation blocked in, but not forever.

In the long term scenario, this older generation, who are limited purely to finding and presenting data, should be slowly pushed aside. Those who can analyze data and provide insight will survive. HR has to drive this process to its final conclusion.

It can be seen in Darwinian terms, with a new urgency coming from the failure of the current model. Add in the speed of change in the business environment in China right now and you have little or no choice but to move away from data, and towards insight. The good news is that the people with insight are there.

They are probably sitting in your office looking bored.