Below is a complete transcript of the Sinica Podcast with Bob Guterma.
Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China, produced in partnership with The China Project. Subscribe to Access from The China Project to get access. Access to, not only our great daily dispatch newsletter, but to all of the original reporting on our website at thechinaproject.com. We’ve got reported stories, we’ve got essays, we’ve got editorials, great explainers and trackers, regular columns, and of course, a growing library of podcasts. We cover everything from China’s fraught foreign relations to its ingenious entrepreneurs, from the ongoing repression of Uyghurs and other Muslim peoples in China’s Xinjiang region, to Beijing’s ambitious plans to shift the Chinese economy onto a post-carbon footing. It’s a feast of business, political, and cultural news about a nation that is reshaping the world. We cover China with neither fear nor favor.
I’m Kaiser Kuo, coming to you from Chapel Hill, North Carolina.
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Sometimes it’s hard to get the right guest with specialist insider knowledge to talk about a specific story that is in the news lately. This is not one of those times. As many of our listeners will know, a company called Capvision made the headlines last week with stories in nearly every major English language outlet about how Capvision’s offices were rated by authorities. Though, as we’ll hear, this actually took place several months ago. How this was part of a broader crackdown on consultancies in China, coming on the heels, as it did, of the much talked about raid on Bain, and with some claiming that it was related to the new anti-espionage law, and in any case, how this was surely scaring off foreign firms and part of this newly intolerable hostile environment toward foreign businesses in China. As it happens, the CEO of the China Project, the company that I work for, worked for Capvision in a very senior capacity.
Capvision was the largest private investment research house in China, and my guest today, who’s also my boss, served as Chief Compliance Officer from 2012 to 2015, and the managing director for Europe and North America from 2013 to 2015. So, not surprisingly, he has been doing the rounds on various media outlets to provide context, and hopefully to correct a lot of the inaccuracies that he says have been out there in the way that this raid and its significance are being reported. Bob Guterma joined The China Project, which was then called SupChina, about four years ago. Last year he was promoted to CEO, and he’s just been really great to work with. I am really happy to have this opportunity to actually have him on Sinica as a guest. Bob, man, welcome at long last to the show.
Bob Guterma: Well, thank you. As we were talking about before the recording began, there’s only one way a chief compliance officer gets famous, and this is pretty much it. Never mind that I’ve gone on to do things beyond compliance, but here we are anyway.
Kaiser: Never mind that being on Sinica doesn’t make you famous either, Bob.
Bob: Right, yeah. It also saves me that we’re here right now because I was going to have to, at some point, make the awkward kind of revealing egomaniacal move of demanding to be on the show. Now I don’t have to do that. I could be here for a legitimate purpose. So, let’s get going.
Kaiser: The editorial independence of this program would’ve prevented you from doing that.
Bob: Yeah. Blah, blah, blah. Yeah.
Kaiser: All right. Anyway, let’s jump in and start with, I think, the basics about Capvision. What is Capvision? Maybe you can give us a quick history of the company, tell us what they do and how big they’ve gotten, and maybe some examples of some of the companies in the U.S. that have business models that are similar to Capvision.
Bob: Sure. Capvision was founded in Shanghai, China in 2006 by Roger Xu, who is the current CEO and largest shareholder, to my understanding, based on public records that I’ve looked at in the past day or two from China, and Kai Hong, who was the CEO when I was there — and ran it up until about 2015, around the time that I left. The company is an expert network, a business model, a research model, first pioneered in New York by GLG, the Gerson Lehrman Group. I actually shouldn’t say that the research model was pioneered by them because it’s existed for a long time in legal circles, medical circles, and other places where you seek people with specific expertise to fill in gaps in your understanding.
They popularized it and brought it to bear for investment research, management, consulting, etc. GLG is the granddaddy of the industry, by far the largest globally, although there are a handful of other large western players. Capvision saw them making early inroads into China, and the founders were management consultants and investment bankers, and said, “You know what? I think we can do a better job than these foreign players in China,” because this is a very human focused business. At the end of the day, you are reaching out to people and getting them to trust you and trust your clients. At that time in China, you had to educate them on what this research model and business model even meant. People would pick up the phone and you would say, “This is who we are.” And they’d be like, “I’m not buying anything.”
They’re like, “No, no, no, no, we want to pay you.” And they’d be like, “Well, that’s even worse.” Click. It just was such a foreign idea that you would get paid for your expertise. That’s what Capvision is. That’s when it started. Yeah.
Kaiser: I worked in a reasonably senior position at a listed Chinese internet company, and I was always getting calls and being asked by companies, I won’t say that it was GLG, but companies like GLG to talk about these things. I was always extremely uncomfortable. I said, “Well, no, I mean, the money sounds great, but I can’t disclose the kind of information that…” And so I did one. I did one and was extremely careful, but the whole time, I noticed all they tried to do was to get me to say things that I knew I shouldn’t ever say. It was extremely uncomfortable. And I told them that. I said, “Look, I told you really at the outset of this thing that I wasn’t going to go in any detail, I wasn’t going to talk at a very high level strategic, kind of.” Anyway, it was very uncomfortable. So, that’s what they do. Isn’t that sort of the model that they try to entice people right up to the line to violate SEC or CSRC regulations?
Bob: You know, it’s funny to hear you summarize it that way. I don’t doubt you. We’re exposed to clients like that, especially working for a hot listed company, tech stock. That certainly attracts that kind of attention. I would point out, however, that the vast majority of the experts in these networks don’t work for listed companies. The truly private, not publicly traded part of the economy in most countries is much larger than the publicly traded side.
Kaiser: Sure, sure.
Bob: In that sense, SEC violations specifically, or CSRC violations wouldn’t apply to the bulk of interactions taking place on these platforms. At the same time, there is something to what you said in the sense that if what you were looking for was widely available or available through desktop research or common knowledge, then the whole thing wouldn’t be necessary. The whole point is that you’re getting really frontline information from the people who know on a timeframe that you could never achieve with desktop research — the information hasn’t propagated out in the real world or on the internet yet. I was thinking about this before our call, GLG and a lot of its Western peers went through a period of great trouble in the early 2010s due to insider trading violations here in the U.S.
Now, I haven’t brushed up on the details of those cases in quite a while, but if I recall correctly, GLG ultimately did not bear any legal responsibility for what happened because their compliance program makes very clear to both parties, the client and the expert, what their responsibilities are, and draws the lines and says, “Don’t cross them.” The people, the individuals to those engagements decided to cross the lines anyway. And therein lies the rub is that while GLG may not have done anything wrong, the brand damage was huge. I think we’re seeing something a little bit similar here with Capvision. They weren’t actually pressed with any specific charges under Chinese law. No one from Capvision has been detained. The experts who violated their confidentiality to their employer in defense in other government related areas, they’re the ones in jail.
The foreign clients were not even named, although they were specified to be foreign. So, you have this situation where, just by the mechanics of what is happening, individuals in many different places, engaging with clients in many different places, all the motives are sort of unknown, lines may be drawn, but how they’re always kept in mind and always respected is something else. If you ask me today on GLG’S network, is insider trading or violation of any number of different forms of confidentiality obligation being violated? Hopefully, without slandering GLG, I would say mathematically the likelihood is quite high just by the sheer number of engagements taking place and the way that this works.
Kaiser: The engagements with this particular expert or experts isn’t just about insider trading though, right? The allegation anyway is that it touches on matters of defense sensitivity of national security. I mean, isn’t that something that pretty much any government would object to? Maybe it wouldn’t get framed in terms of going after international businesses, but rather just about running the whole national security concerns.
Bob: Yeah. That’s one of the critical things that I think the mainstream media has wholly avoided. I wouldn’t even say they’ve got it wrong, it just hasn’t even come up, which is the fundamental allegations or the who, what, when, where, and how of the situation. The Chinese releases, both from the government and from Capvision itself, detail that it was related to government information. And in the second case, specifically military information. If that happened in America, and by the way, it does happen sometimes. I mean, researchers and scientists at different American companies have been busted for transferring or selling, or even just trying to transfer cell secrets related to the government or military to foreign powers, including China, but others as well over the years. If that happened anywhere, if it happened in America, the FBI would surely raid those offices, investigate the bejesus out of them, and press charges wherever they were able to.
None of the articles on the Capvision situation have even paid attention to the allegations. They haven’t said that the allegations are bogus or made up. They haven’t said anything about them. I find that curious. If what happened really happened, then why is the reaction being interpreted as a foreboding signal of Beijing’s stance on foreign business in China?
Kaiser: Well, I think the answer is clearly because it happened right after the Bain case and after the Mintz case. Maybe we can talk a little bit about those and whether they actually are connected in any way. I mean, what do we know about Bain, which is of course, a very big global consultancy, why its offices were raided? Is there any connection at all?
Bob: Sure. Well, I want to zoom out, and there’s one other base fact that I want to kind of get straight here. A lot of the reporting on the Capvision case, especially the early reporting, referred to it as an international, or in many cases, even as a U.S. company, a U.S. consulting firm in China. And it is a Chinese company through and through. And you can check-
Kaiser: Okay, I mean, I thought it had headquarters in the U.S. as well. No?
Bob: No. There is one line on it, the English version of its website that says that it has headquarters in New York and Shanghai, but if you switch to the Chinese version of their own website, it does not mention New York. If you look at any interviews or older profiles of the company, or just do more research than like the first five links on Google, you can figure out pretty quickly that it was established in Shanghai. The overwhelming majority of its employees are in Shanghai. Its CEO and key executive team have always been in Shanghai. The owners of the company are entirely Chinese. And this is not available on the public record, but just if you talk to people or even look at the company’s… Actually, you know what? I take that back. It is in the public record.
If you look at their Hong Kong IPO filing papers that they didn’t really get close enough to pull off, and now it’s probably off the table, something like 80% or more of their revenue is all from within mainland China. So, that’s a pretty lopsided co-headquarter company. In any case, I can say when I was there until 2015, there was not even the language existing in marketing materials saying that they’re co-headquartered anywhere. So, it’s a Chinese company. I think this is the number one thing to point out in terms of the whole narrative or-
Kaiser: Why it’s unlike Bain.
Bob: Well, yeah, that’s exactly right. If you asked, how does this fit into the trend of what’s going on? I think the first problem is that it’s not a foreign company. A lot of the reporting was continuation of its crackdown on foreign companies in China. The government has raided the offices of Capvision and international consultancy. That’s not true. It’s a Chinese consultancy.
Kaiser: What about the people who were actually detained? Were they representatives of an American or a foreign company?
Bob: That’s another good point. The only two people that we know of from official announcements, and I’ve talked to probably a dozen people close to directly involved in this, the only two people who have actually been detained or had formal charges pressed against them are the experts. Those were Chinese nationals. Capvision itself has… They’ve been given the full treatment in terms of publicity, and I don’t mean that in a good way. They’ve been forced to publish all the apologetic letters and talk about how much they’re going to uphold relevant laws and regulations going forward, etc. But there’s been no penalty imposed upon them, and the foreign clients that were involved weren’t even mentioned by name. This really is focused on the China side of the equation for now.
That leads me to the second part of this, which is Mintz and Bain, etc. They are foreign companies. So, there’s a difference. But we don’t know enough about what happened in those cases. In the case of Bain, again, no specific charges, no penalties, no one was arrested according to any of the reporting I’ve read. There were some conversations that took place, and one piece mentioned that some computers may have been taken, although I couldn’t find that anywhere else, and it appeared to have been walked back in later reporting by that same outlet. Basically, what we know about Bain is that the authorities came by to have a conversation. And to anyone who’s worked in China in management consulting or due diligence, or even investigations, and probably also many other industries, including different types of manufacturing or more mundane things, that would’ve been a slow Tuesday in 2009. The Chinese government coming over to have a talk, it’s literally called being invited to tea. You know that.
We have an entire column called Invited to Tea with Jeremy because it’s like a thing. It’s a thing that happens in China. You get invited for tea, and it’s not always good, but it’s not always bad. It’s just kind of part of doing business there. And you even grow to welcome it or look forward to it if you’re in that industry because it’s your chance to check in and be like, “Hey, any changes since last time? Hey, we’re doing something kind of like this right now. Is that cool?”.
Kaiser: I assure you, I have not grown to the point where I’ve welcomed being invited to tea yet, but maybe I’m just not…
Bob: Yeah, I mean…
Kaiser: Still wet behind the ears.
Bob: I guess welcoming it is maybe too strong, but it’s part of doing business in China in any case. I don’t want to make light of what happened to Bain. The fact that it got into the newspapers when something like what I’m describing probably has happened very often to Bain over the years and didn’t get in the papers, means that something probably was different about this visit, but none of it’s been reported. We just really don’t know. Then the other case here is Mintz, and we really don’t know what happened there, but again, I would point out five people were arrested, they were all Chinese. They worked for Mintz. I’ve talked to a number of people in the due diligence or investigation space, and the kind of word on the street is, and I don’t think this has been reported, although it may have been, is that they were doing research related to the UFLPA, the Uyghur Force Labor Protection Act.
And that some of their work somehow got into a public facing document of their client. That kind of initiated a public blowback cycle that got to the Chinese government and then got them in trouble. Again, without knowing exactly what their people were doing on the ground there, were they contacting people in government? Were they doing site visits? I don’t know. I have no idea. But I will say that there have always been very clear no-fly zones in that space in the due diligence or investigation space in China. There’s been very well demarcated gray zones as well. Places where you can maybe get away with stuff, but you probably shouldn’t. For a long time now, any major global player Control Risk, FTI, Crawl, etc., they don’t get in trouble. They do orders of magnitude more work than a company like Mintz does in China, and they don’t get in trouble because they know what to do and they know what not to do.
When I’ve talked to anybody in that space, or even close to it, people at large, management consultancies, the McKinsey, Bain, BCGs of the world, but also the Control Risk, Crawl, FTIs of the world, none of them are even considering pulling their people out of China. They’re not that worried about it because the general view on the street is Mintz was probably doing something they shouldn’t have been doing, and they got in trouble for it, which is not surprising if you’ve done this for long enough.
Kaiser: So, after Mintz and after Bain, Capvision, I mean, come on, they came in for the full CCTV treatment as we’ve said, right? Authorities do this for a reason. They do it to send a message. Bob, what do you think this message that they’re trying to send is? Who’s it directed toward? Shouldn’t they have sort of assumed that there would be a freak out by Western companies? I can imagine I would’ve seen the optics of how that would’ve looked.
Bob: If we zoom out, there is no denying the fact that the overall direction of travel for doing business in China and specifically doing information-related businesses in China, such as consulting or market research is bad. The direction of travel is in the negative direction. It is getting harder to do it. There are more risks. The risks are less clear or easy to avoid than they were in the past. Yet, there’s enough difference about these cases that it leaves me with the feeling, having done this for a long time now, has anything really changed or are we just becoming more aware of the risks? Are the risks just kind of presenting themselves in rapid fashion? I mean, what happened with Capvision, again, if it happened in America, and certainly if it happened in China at any other time in the past decade, should also result in the same exact thing happening.
The Bain visit, until we know more, it just sounds like a super intense conversation. The Mintz thing, again, investigation firms have been getting in very high-profile trouble in China every two to three years for decades. There’s tons of examples of other investigation firms getting in trouble in China over the years. In a way, there’s nothing really new about what happened to Mintz except for its temporal proximity to the other two, which do come at the time of the espionage law.
Kaiser: Yeah. So, is there a connection to the espionage law that you can think of?
Bob: I mean, I read the espionage law, the new version, and everyone’s like, “Oh, it’s been expanded and it’s so vague.” I read it and I’m like, “This sounds pretty much like what we all assume the espionage law meant all along.” It’s like you do something that crosses the government in China and we will get you in trouble. They’ve just added a few more words to it. I don’t know, nothing about it really strikes me as fundamentally different. It’s almost like they wrote down a few things that they’ve run into a lot in the past decade of doing what they were doing anyway, like documents and emails. “We better put that one in there, just so no one’s surprised.” Because again, like de facto, what it is now is also what it’s always been. I don’t see too much of a difference in how it would apply to people.
Kaiser: Yeah. In last week’s show, Jeremy Daum and Kendra Schaefer both talked about how Chinese laws are, because it’s a single-party state that you don’t need to run it through the entire laborious process of congressional approvals every time you want to amend the law. There’s nobody to stop you from doing it. They threw stuff at the wall, saw what’s stuck and what didn’t, and then they made adjustments along the way. That seems to be the case with the espionage law as well. I think, though, if I may offer my own surmise of why this and these other stories, why Capvision and Bain and Mintz, and other things, why they popped, why they drew so much attention was because it seemed to be happening at a time when with another hand, China was trying to kind of woo back foreign business.
At least that’s what some of the messages certainly have been. Coming from Li Qiang, the new premier, he’s been making all sorts of foreign business-friendly declarations, and a bunch of COVID-related restrictions have been dropped. Xi Jinping himself has directed that pained rectus that passes for a smile at the Western business community from time to time. I’m not sure what kind of an effect that has, but when he appears to crack down so hard with one hand while trying to be generous with the other, it does look odd, right? I think it just sort of makes the crackdown pop out in stark relief.
Bob: As I said, the general direction of travel for doing business and doing research and consulting work in China is in the negative direction. Beyond just saying it’s in the negative direction, notwithstanding all the things I’ve said to kind of push back against the mainstream narrative, we can also say that it’s accelerating or that it has accelerated slightly in the past couple months. But again, I just don’t feel like there’s anything that you can’t do now that you actually could or would be well advised to have done six months ago. I think the same things are inadvisable now as were inadvisable then, and maybe what we’re just seeing is they’re actually going to ramp up enforcement or something like that. I would also point out that there’s a lot of crackdowns, if you will, if we can use that term, to apply to America as well.
There’s a lot of those things happening in America right now. Just a few days ago, Rockwell Automation was, I don’t know exactly what happened, if they had charges pressed against them or just an investigation launched against them by the DOJ for potentially exposing U.S. national security information vis-à-vis their operations in China. Rockwell Automation is a large auto supply chain company. I don’t know what got them in trouble. I’m not even saying that there aren’t risks. I’m not pushing back against the fact that there might be risks in that Rockwell Automation is exposing U.S. national security risks. I’m just saying that whatever they’re getting in trouble for is probably something they’ve been doing for a fairly long time.
I highly doubt it’s something they just started to do overnight. Would we say that that’s the U.S. being unfriendly to foreign businesses or to doing business in general? You could find so many examples from the past year where things have gotten more difficult to do business in America or doing business with America globally, maybe not even in America. The Inflation Reduction Act sent major shockwaves through Europe and was seen as very unfriendly. What I’m getting at here is not to draw some kind of parity between the U.S. and China. Not at all. I’m just saying we’re in much more complicated times than we’ve ever been in, in our memories, perhaps even at least recent memories. It’s harder to do business anywhere right now.
All governments are grasping at straws for how to keep economic growth going, keep the story of globalization going, and yet manage the risks that are endemic and systematic to the world we now live in. Everybody’s trying to figure it out, and all governments are bringing the acts down wherever they can find a reasonable place to try to do so. And it feels arbitrary sometimes.
Kaiser: The fact that it took place, I think you said something like six months ago, that’s when the actual raid on Capvision happened.
Bob: As I understand it, the visits to Capvision’s actual offices were about six months ago. It’s kind of funny because if you look in the video footage, there’s the camera you’re watching from, and then there’s another camera person behind the person at the desk being forced to sign the apology letter. It’s like they had a makeup team there and everything. It wasn’t like body cam footage during a raid. It was very well orchestrated and very well planned. I think interestingly, Capvision employees and team members as a result have had a lot of time to prep for this and this wasn’t a surprise to them. We’re just all learning about it now.
Kaiser: I wonder, though, if everyone corrected their stories to say Capvision’s actually a Chinese company, and actually the timeline is different than it seems to be. This actually happened six months ago, whereas the Bain and the Mintz raids happened in, what was it, March and April respectively or something? Would this actually take the chill out of it, of things for Western companies, or even for investors who are looking at upping their exposure to China? It sounds to me like you’re saying it wouldn’t make much of a difference. The chills already in the air.
Bob: Yeah. It’s funny because I’m pushing back against a lot of it to say… Basically, I’m saying that the mainstream media is bending over backwards to fit each event to the overall narrative of the CCP cracking down on foreign business in China. I am pushing back against that in its simple version and in the kind of most severe version. But even as you were talking, I was like, no, I know where Kaiser’s going with this, but I don’t actually think we shouldn’t pay attention to this. The raids may have taken place six months ago, but the TV special aired now. And the TV special made specific mention of cleaning up the industry.
Kaiser: Exactly. That’s what I’m saying.
Bob: So there is something going on. I’m just saying it’s not quite so simple as a CCP led crackdown on foreign business. I do think it’s kind of funny because you had, I think Qin Gang was in Europe at the exact same time saying, “Come on back to China.“
Kaiser: Right. The water’s great.
Bob: “Yeah, the water’s great. We got a new pool heater. You’re going to love it. Like it’s really fun right now.” Meanwhile this is raging in the media. It can leave you wondering if this was a left hand not knowing what the right hand was doing situation. But I don’t know, man. It’s also unpredictable. You could also have seen, let’s pretend there’s a working group of five or six people that are in charge of coordinating this stuff and they had a meeting and someone brought this up, and someone else at the meeting might have been like, “Nah, Capvision’s a Chinese company. Who’s going to care about that?” It could have been that simple. And they’re like, let’s air the special anyway, even Qin’s still over there in Europe. Who knows how these things really work. You alluded to it earlier saying, wouldn’t they have known that this would look really bad and blow up in their face? I don’t know. I was quite surprised to see this blow up the way it did. I mean, yeah.
Kaiser: Yeah. I mean, the U.S. Chamber of Commerce has raised flags over heightened risk now. I think the risk premium is certainly raised now for Western companies. This just doesn’t strike me as an overreaction necessarily in light of what we’re…
Bob: Look, when the stock…
Kaiser: How do you see it?
Bob: When the stock market craters, everybody says, “Oh, everybody’s pricing in the risk.” But they say that after the fact. The people who made money made it by getting out at the top, seeing what was happening before it happened. It’s really easy to look back and everybody else is like, “Oh yeah, everything’s changed now.” And it’s like, well, duh. I think that we’re kind of doing that with China. Again, when I talk to people in the space, who have been in the space for decades, who are still in the space, and when I say the space, I mean everything from Bain to Mintz to Capvision, any of those types of companies, no one’s really that surprised by what’s going on it. The people who have been doing this for a long time at a very high level aren’t surprised. There is something going on at the same time. It’s a both and.
I know I’m being a little annoying and evasive here saying “No, it’s not quite as bad as everyone says.” And then I’m like, “Well, no, but it’s definitely bad enough. We need to pay attention.” I am being very demanding here, but I just think it’s too simplistic to say this is the CCP sending a big negative signal to foreign businesses. It would also be wrong to say that there’s nothing going on.
Kaiser: Right. You have to find that spot in the middle.
Bob: We’ve established that there is some form of a trend going on here in terms of it becoming harder or less clear how exactly to run a research and consulting business in China at the moment. But we’ve also talked about how there are many things about the current situation that don’t match the overall trend that the media’s currently really into about the CCP cracking down on foreign businesses. To really prove this point, what we should do is zoom the lens out even further and look at this within the context of the past three years and not just the past three months. What I mean by that is, let’s just think back to the days of Ant financials’ imminent IPO getting canceled, the DiDi listing, having the plug pulled on them right afterwards, the overnight deletion of the private education industry, the extremely invasive constraints on video gaming and other parts of the digital economy.
Kaiser: Sure.
Bob: All of these things affected Chinese companies way more than they affected foreign companies operating in China.
Kaiser: Sure. That’s true.
Bob: Yeah. The intention of all these things was not to hurt the foreign companies operating in the space, it was to clean up or to achieve other government goals than just unbridled business growth. If we look at the past three months within the context of the past three years, we would see that, yeah, there is a trend, but I don’t think it’s unduly targeting foreign companies. I think that the Chinese government has a very long to-do list of things that they think have gotten away from them or gotten out of control, or are in need of regulation or a message being sent, and they are going down that checklist and we are now at the researching consulting part of the checklist.
Kaiser: And what’s next?
Bob: That’s the question. I mean, that’s the real question. Anyone who can call that one… I don’t know if they could make money off it per se, but they could at least be a good reporter.
Kaiser: Bob, give us a sense of what your role was as a compliance officer and what the thinking was. Because when I hear about expert networks, I feel like it’s an inherently kind of risky thing. I mean, you are, as I suggested, trying to cajole or entice people to divulge information that isn’t publicly available, right? And so, compliance is going to be a challenge. Tell us a little bit about that.
Bob: Look, I was hired by Capvision in the first place to be their first Chief Compliance Officer. This was based on my years of experience at the British risk consultancy, Control Risks, where we help global companies implement compliance programs of different shapes and sizes. The task I was given was to build us a world-class compliance program, not a world-class compliance program with Chinese characteristics per se, but a truly world-class compliance program. I was given basically unlimited budget, or I can’t remember ever having been told no when it came to budget requests. We hired a top, top of the market, New York-based law firm that had a lot of on-the-ground experience in China and Hong Kong as well. We built the program to the exact standards of all the other global research firms that we could find, and then some, because we were doing it a couple years after they had done it, so there was room to improve even.
The intention was to build the real deal. And we actually did that. I know some of the people still involved in that program today, from my conversations with them, there’s no indication that they officially shifted chorus or gave up on that effort to be a truly world-class company. Again, there’s just a lot of endemic risk to running an expert network model. I think that it was on the experts and the clients to perhaps be more cognizant of that and maybe for all of us to accept that just an expert network, by its very nature, is going to expose people to these types of risks.
Kaiser: You’ve done a spate of interviews now with quite a number of media outlets who’ve reached out to you, unsurprisingly. Look, Bob, you’re not a blushing virgin when it comes to this stuff, but what have your general impressions been with these interviews?
Bob: As an independent news media company who seeks to deepen our collaboration with many of the mainstream news providers out there that I might comment on here, I got to pick my words carefully, but I was surprised at how quickly it got established. That Capvision was an international or even U.S. company. And the way that that worked was one very respectable outlet reported that first, everybody else read that and assumed they’d done more work than they’d done, went to the English version of Capvision’s website and were like, “Well, must be a U.S. company,“ and just kind of moved on. No one really dug deep on the company at all to know anything about it. That was surprising. I mean, maybe I’m expecting way too much as a former due diligence practitioner. It’s like, how could you assume anything is true just because you read it on their website?
That surprised me. Even once I started telling these people the reality, the reporting wasn’t changing, and even some of the pieces I was quoted in continued to just get fundamental facts wrong. I was a little surprised by that. All right. Another thing that I observed is how focused the reporters are on getting their peace out and participating in the rush of the news cycle. There’s a saying in academia, I don’t know exactly how it goes, but it’s something to the effect of like, publish or die, or something.
Kaiser: Publish or perish. Yeah.
Bob: Publish or perish. Yeah. Okay, there we go. That sounds a little better. Publish or perish. I feel like there’s something similar that applies to reporters because they would call me and we’d talk, and then I’d read what would come out 12 or 24 hours later, and it was just so incredibly reduced down. The example from this morning that came to mind is that FT reported, and maybe others too, but the one I read was in the FT overnight that Forrester Research is going to ax a bunch of China jobs. If you read the statements by Forrester, they say it’s because of an overall unfavorable global business environment for them. If you dig more deeply, you’ll see that there have been talks of a repositioning and a reorg for them for a while now.
They just reported results recently and they were losing ground on a couple key financial metrics. And the FT article says “Forrester Research to Ax China Jobs After Beijing’s Consultant Crackdown.” Now, literally it is after it, the announcement is after the crackdown.
Kaiser: Yet there’s a causal imputation here.
Bob: Yeah. But that’s the thing, man. And so look, I mean, is something going on? Did what has happened recently in China play any role in Forrester’s decision? Yeah, probably. It couldn’t have not come up in their conversations, but at the same time, any consulting company I know that’s deeply committed to China is not even considering doing anything different. I’ve talked to them, anyone I know in that space in the past two weeks, and there’s no consideration of them leaving China, not because of risks and not because of a bad couple years of financial performance. Forrester’s own comments on it and their official statement say it’s because of other reasons, and the reporting on it is really working hard to make it meet the narrative that’s already prevailing.
Speaking of management consultancies, I mean, no one ever got fired for hiring McKinsey. If the deal goes bad anyway, it’s like, “Well, I hired McKinsey. What could I have done?”, right? But you get fired for going the contrarian route, and I feel like there’s a lot of that prevailing in the reporting on China these days.
Kaiser: Hmm. Well, welcome to our world.
Bob: I finally see how the sausage gets made in this place.
Kaiser: Hey, see, that wasn’t that bad, right? You’ve survived your first Sinica ordeal.
Bob: Exactly. I made it.
Kaiser: Hey, that was fun. I think it was great and so timely, and what a fantastic coincidence that this guy I work with happens to be the same guy I want to interview for. We’ll certainly have you back on for other things, like to talk about all the other companies in China that you’ve worked for that get in trouble in the future.
Bob: Yeah, right. Fortunately, there was only one other, and that was an overseas consulting firm, but I don’t think they’ll be getting in trouble anytime soon.
Kaiser: Touch wood. All right. Hey, let’s move on to recommendations. Before we do, why don’t I give this plug to you? Why don’t you tell people why they should be signing up for Access.
Bob: Per our conversation just now, there’s simply no one way to understand China. There are many things going on in China, often at the same time. I believe that reading our platform consistently is one of the best ways to get exposed to more of the things going on in China on any given day of the week. And so, if you really want to know what’s going on in China, go become a subscriber, become a paid subscriber, and give it an earnest try. Read as often as you can. If at the end of it you don’t think you’re learning enough more about China to be worth the subscription fee, you can always cancel.
Kaiser: Good earnest plug for us. No, I totally agree. Also, you get this show early, which is super important by the way. All right. Hey, Bob, let’s move on to recommendations. What do you have for us this week?
Bob: All right, so I just finished reading a book that took a lot of commitment to get through, but I couldn’t more highly recommend.
Kaiser: Great recommendation already.
Bob: Yeah. Not for the faint of heart. It’s true. It’s like 600 pages or something. It’s called Energy and Civilization: A History by Vaclav Smil. It traces energy writ large from the sun and like the primordial ooze of Earth at the beginning, all the way through to wind, solar, nuclear, and the other aspects of the modern energy transition. My favorite part on that historical path was the American horse, which apparently is really what gave America a literal leg up on Europe and other parts of the world at the beginning of the Industrial Revolution. The American horse is just so much more powerful and efficient of a draft animal than almost anything else out there. And yet it wasn’t a straight shot to success because the horses actually eat a hell of a lot more food. So you had to plan much more carefully to maintain your stable and to make sure there was enough food for them to get through the winter, as well as all the humans. In any case, a fascinating book from start to finish. If you think you know about the energy transition, you will feel differently after reading this amazingly researched book.
Kaiser: All right, great. But 600 pages is a little daunting. I haven’t done a musical recommendation in a while now, so I’m going to do that. I just took a really long drive last week up and back to Madison, Wisconsin. One of my best friends from college went along for the ride to share driving and everything. We, as you can imagine, listened to a lot of music on the way. One album that we spun, which I hadn’t listened to forever, I mean it had been a long time, was the debut album from Mr. Bungle, which is a band that’s fronted by Mike Patton, who’s maybe better known for Faith No More from the early ‘90s or late ‘80s. It is a really warped, warped record, and it’s hard to believe it’s been over 30 years since it came out. I think it’s like 1991.
It’s got like every genre imaginable. I mean, it’s got ska and metal and circus, crazy clown music, and kind of free form jazz. It’s everything. It’s a nutty, nutty album. There’s some pretty dark stuff on it and also some kind of juvenile stuff on it too. So, come on, don’t judge me based on this, but I got to say no musician will listen to this and not recognize that there’s some serious talent and expansive imagination at work on this record. So, Mr. Bungle’s debut record. Anyway, I drove home for like 19 hours yesterday and… I did most of the driving, so I’m just knackered right now. So, if I’m sounding spacey, it’s because I barely slept last night. But anyway, Bob, what a treat, man. That was a ton of fun.
Bob: Thanks, dude. Hopefully, I have another legitimate reason to come back to prevent me from usurping my executive powers to be here more often.
Kaiser: We’ll create one for you if you can’t find one.
Bob: Great.
Kaiser: All right, thanks, Bob.
The Sinica Podcast is powered by The China Project and is a proud part of the Sinica Network. Our show is produced and edited by me, Kaiser Kuo. We would be delighted if you would drop us an email at sinica@thechinaproject.com or just give us a rating and a review on Apple Podcasts as this really does help people discover the show. Meanwhile, follow us on Twitter or on Facebook at @thechinaproj, and be sure to check out all of the shows in the Sinica Network. Thank you for listening, and we will see you next week. Take care.
