Musing on the Middle Kingdom & More: The Green Hat Prize
And other instances of copying
In 2010, right before we moved to China, Yu Hua, a prominent Chinese author, published a book called (in English) China in Ten Words, a collection of essays reflecting on modern Chinese society. A year later a translation by Allan H. Barr appeared. I snatched it up and loved it. One of the chapters was entitled “Copycat.” About that same time, we noticed that some company in China was manufacturing washing machines and selling them under the brand name “Apple” with a logo that bore an uncanny resemblance to the logo of the company that has designed our iPhones.
It's a really good book, available on Amazon, and you might enjoy reading it.
In the next few years, I experienced the “copycat” phenomenon many times. And I wrote about a number of these situations in my book, The China Business Conundrum: Ensure that ‘Win-Win’ Doesn’t Mean Western Companies Lose Twice. Also available on Amazon.
What follows are three such examples from my book:
Number One: The Green Hat Prize
In 2008, I was invited to attend a celebration in Shanghai at the Crown Royal Hotel. As the CEO of Silicon Valley Bank, the California-based bank that led the world in funding venture capital firms and start-up companies, I was spending a lot of time in China at that point, trying to establish a branch there. We had operations in the other international innovation hotspots—London, Israel, and India—and China’s explosive growth in that area was attracting our venture capital clients who wanted one-stop banking services. The invitation came from Lao Ding, the Party Secretary and Head of Shanghai’s Yangpu District, who was helping us get the necessary banking licenses. Without knowing what to expect, I cleared my schedule and flew the 16 hours from California to China explicitly to attend this event honoring “innovation advisers.” Bleary and jet-lagged, I found myself in a ballroom with 300 government officials.
In the middle of the ceremony, a high-ranking government official called me up to the stage. To my astonishment, I learned I’d been nominated as one of the ten honorees. I racked my brain, trying to figure out what I’d done to be qualified as an innovation advisor at such a lofty level. Finally, with the help of Lao Ding, it became apparent: my staff and I had unintentionally taught his team our business model. During the many months that we had detailed the model with great precision to Lao Ding’s team so they could explain it to the government agency that might grant us a license, we’d been involved in a form of inadvertent (at least on our part) “technology transfer.”
It was only years later that I understood the whole picture. To see if our business model really worked as described, Lao Ding had transferred his CFO to the Shanghai Rural Commercial Bank where he set up a tech lending team and tested the model in the real world. In essence, I was being honored in front of hundreds of people for (from my point of view) having been snookered. Looking back, I felt like someone had just seduced my wife and then held an awards banquet to compliment me in public for having the good taste to marry her in the first place.
In China, men avoid wearing green hats. Superstition has it that wearing a green hat indicates you’ve been cuckolded. I firmly believe the award I received should be called the “Green Hat Prize.”
But in my defense, this sort of tech transfer was inevitable. It was how China did things. If we hadn’t participated, it’s unlikely we would have ever been able to set up an operation in China. Of course, in retrospect, one might wonder if that would have been a bad thing. But at the time, we felt we had no choice.
Number Two: Mr. Ge’s Speech on Lending to Technology Companies
In 2012, I was invited to give a speech on financing technology companies at a government-sponsored conference, because all banks except foreign ones are functionally owned by the government, and there’s no state-sanctioned freedom of assembly anyway.
I prepared and practiced. On the day in question, I settled into my seat, put on my headphones, and got comfortable. When I looked up to see who was sitting next to me, I discovered—to my surprise—that it was Mr. Ge, one of our Board members and an executive from SPDB. Ge was always affable and often a little tipsy.
“What are you doing here?” I asked.
He smiled. “I’m giving a speech on banking technology companies.”
I thought that was odd, because SPDB had sworn that it had never banked tech companies and never would, in the spirit of neither parent competing against the child.
Ge’s speech immediately preceded mine, and I was shocked to see his slides. They were mine, from a presentation I’d given a few months earlier to SPDB’s management team. When Ge returned to his seat, he jabbed his elbow into my ribs, gave me a huge grin, and like a small boy eager to please, asked me, “How did I do?”
Of course, I had a different set of slides, so it was hardly as if we repeated each other. And Ge was obviously trying to do a good job. Since then, several China experts have said his use of my slides was an indication of admiration. But this interchange emphasizes a fundamental difference between the U.S. and China. It would never have occurred to him that using my slides was an infraction. In China, copying is viewed as a compliment, not theft, particularly in art. Historically, Chinese artists trained by copying the work of their instructors; a perfect copy meant you were a good artist. Intellectual property protection has been an ongoing issue between China and the West—in 2017, a report from the Commission on the Theft of American Intellectual Property estimated that the U.S. alone lost between $225 billion and $600 billion due to intellectual property theft by Chinese operators.[1] IP theft may be a compliment, but it certainly is a profitable one as well.
Number Three: A Bank of Our Own
Six months after Ruth and I left China, on May 19, 2015, the Shanghai government announced that our JV bank could use the local currency, RMB. This had been a long-running issue between the government and the SVB ownership, since the prohibition on our use of RMB essentially meant we could do nothing more than open our doors, claim we were a bank, and pay the enormous staff that the government required us to hire, thus incurring significant losses. The bank had technically opened in August of 2012, so May 19, 2015, was three months ahead of the prescribed three-year waiting period. I was in China for the occasion—primarily to attend our regular Board meeting.
When the officials told me in person, their announcement was filled with praise. We were receiving permission three months early largely because I’d done “such a brilliant job of lobbying the government; seldom has anyone done so well,” they assured me. I’d actually done such a “brilliant” job of it that I’d been told to please stop; that everyone knew we wanted to use RMB and would I just shut up about the matter, notwithstanding that it contravened the terms of China’s World Trade Organization membership. That was all forgotten now and I was told that I’d done so well in making my point that the State Council had decided to change the law altogether. Henceforth, any new bank with any element of foreign ownership would only be subject to a one-year prohibition on the use of Chinese currency, rather than the three-year period we’d suffered through.
Not only that, but they purported to be thrilled to give me this really excellent news.
As a footnote to this “really excellent news,” these same officials also told me the Chinese government held our business model in such high regard that they’d made the executive decision to copy it. Four days later, the Shanghai government would hold the opening ceremony for the brand-new Huarui Bank, 100 percent owned by the Shanghai government, to deploy our business model. Finally, they would have “one of their own,” something I’d heard from the audience after every single presentation I’d given on the JV bank and the importance of our model for lending to startups! They hadn’t wanted ours, although it was 50% owned by the government and had more than 99% Chinese employees. They’d wanted “one of their own.”
Oh, and there was just one other thing, they went on. Even though they’d studied our business model for years, they were cloudy on a few details. Would I mind meeting with the new bank’s management team just to help them understand some of these finer points about which they were still unclear?
I was invited to attend the opening ceremony. Out of 250 people in attendance, I think I was the only Westerner.
How do you explain these incidents? It’s hard to say. Tech pundits in Silicon Valley would have said that the Chinese can’t innovate; they can only copy. I don’t think so.
Friends in China have told me that I should look at such incidents as evidence of admiration. The Chinese copy because they admire. That may be closer to the truth.
Take your pick. I really don’t know.
[1] The National Bureau of Asian Research, Update to The Report of the Commission on the Theft of American Intellectual Property, February 2017, http://ipcommission.org/report/IP_Commission_Report_Update_2017.pdf.
