A Canadian neophyte China traveller who just visited China for a couple of weeks presents his comments on a small company that he is interested in over there and volunteers his thoughts and reflections on what he saw in China (Beijing) as a first timer. No doubt some may challenge some of his observations but that is not the point in presenting it here. Its a glimpse into an outsiders first impressions.
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Visit with David An
China Oct/04
I just returned from China this past weekend, and I had the opportunity to spend a few hours with David An (V.P.) talking about cibt, as well as visiting two campuses in Beijing. I was impressed with young Mr. An . I saw him as a young Toby (not that Toby is old) – full of ideas, very high energy, very well thought out ideas, well-connected in his sphere of influence, and a charmer. We spent a couple of hours together talking, then walked the campuses, then went out to dinner and talked some more. I sensed no reluctance to talk about anything and left feeling that my questions were answered. Here are some of my thoughts.
There were two profit centers forming that I was quite impressed with (though I didn’t know about zibs when I was there, so that may be another): Beihai and the new auto certification programme
Re Beihai:
the new beihai acquistion is very significant. There are presently 550 students, but cibt must re-apply to the govt for approval to offer a degree to these students, since it is now a new programme. Cibt is expecting approval from anywhere between 400-800 students. The idea is to ask for approval to accept more and more students each year. They hope to have given 2-3000 degrees in 2-3 years. Relations with govt in that province are even better than in Beijing, so this is quite hopeful. This is where David An was born, and his connections are invaluable to us.
a second element to that is the possibility that they may be able to offer classes to other students at Weifang University, such as students in marketing, computer sciences, etc. These would be extremely profitable, as they would not “count” as our students and we could offer unlimited classes to those students. First impression is that Weifang University would love to have cibt teach courses to a number of their majors/degrees, as it would save them money and they fully recognize cibt’s expertise in this area.
A third potential profit center is that cibt may buy another college or other programmes at weifang – e.g. commerce, computers science, marketing, and so on.
Finally, no marketing is necessary here, as all spots will get filled up that are available, by simply lowering entrance requirements slightly, thereby increasing the margins.
I see this as a potential major profit center for cibt as well as a model for growth and expansion to other cities in china.
Re the auto programme:
The other major profit center I was quite impressed with was the certification of auto technicians. This could be really huge. The profits will have to be split up three ways somehow, as a leading automotive school (has the programmes), Weifang (offering the space), and cibt (offering the marketing and management) are all in the mix together in some as yet undetermined way.
This project could involve not only the certifying of all technicians for luxury cars (BMW, Audi, Mercedes, Toyota, Audi, Nissan, etc), but it could involve upgrading skills, repair services, and specialized courses. No other school in China can provide this technology, outside of this “leading automotive school”, and our relationship with this school is rock solid, I am told. The potential market is about Cnd $6 million in just one city, and that is only for the degrees. If you add on upgrading and teaching specific repairs, it goes much higher, then when you expand to new cities…well, you get the idea. But the nature of the joint venture or new company is as yet unknown, and the profits attributable to cibt are similarly unknown. It should be bringing in real revenues after the first of the year, I was told.
Some disjointed thoughts:
Ø Students in china pay much less than western students – it is about 6.5 yuan to the cnd dollar, and an auto tech my pay 10,000 yuan or so per year.
Ø Beijing will not be a major profit center – competition is high and margins are generally low (MBA, 2+2, and 1+1 programmes are the most profitable, but they are all fairly small). There are currently about 1100 students.
Ø ITT, Apollo and Devry are good but small. They are not known in china, so cibt is conducting small tests using their programmes – it is simply too risky to do a major marketing blitz which may not pay off. Rather, these programmes give us a higher level of quality than everyone else and it is the quality of programmes and graduates that will convince the govt to allow us more and more spaces.
Ø Beijing Technical Institute actually has quite an impressive entrance, and cibt is on these grounds
Ø BIS is cancelled
Ø China limits the number of students that can go to public university – only about the top 15% of students - so there are many, many students who want to buy there way into a private school. By reducing the entrance requirements somewhat, cibt can get lots of applications from students who missed the (very high) cut-off for university. So, colleges in these universities are a very attractive way to go, as there are no advertising costs and every space is filled.
Ø I saw the first two rooms that were the sum total of cibt in the early days, and it is remarkable how far they have come…with no money to speak of until now. I sense that the growth is now accelerating nicely and the profits should be meaningful (finally).
Ø I think when we reach revenues of 10-20 million, we will start to hit the radar of many more analysts and institutional investors.
I could go on ad nauseum about my 3 weeks in China, but I will spare you that. It is an incredible textured and complex place that must be seen. But before you think china is going to take over the world, they have a long, long way to go. For example, about 17.5% of all loans are nonperforming (over 35% in certain industries, like retail), as there is no national or provincial system of rating credit. Believe it or not, this represents a dramatic reduction in nonperforming loans over a few years ago.
Similarly, there are no regulations whatsoever about truth in advertising – a shirt can say 100% silk, and have no silk in it (none, nada zip). Business regulations are sorely lacking.
It is only recently that people have even been able to choose their own jobs. To become a world economic power, they know they must move from 75% farming to more industrial jobs, and that will be a very slow and difficult process.
People are only allowed to have one child. There are exceptions – farmers can have a second child if their first is a girl, as they need men to work the farms; a couple can have a second child if the first is retarded; etc. This policy of one child is of course needed to reduce the growth in population, so it doesn’t outstrip its resources, and it is too late to use education and social pressure to get that job done. It is not long ago that Chinese emperors wanted you to have at least 5 children, so you were making china more dominant in the world.
This is not a democracy and the government, while gradually becoming more lenient, is still quite oppressive and very tough with any perceived transgressors. Four people who stole artifacts from the terra cotta exhibit and tried to auction them off, were killed – and this fact is proudly and prominently displayed at the terra cotta museum. There are no overruns in building – the 3 rivers damn project (the largest man made project in history of any kind, resulting in a reservoir the size of lake superior, scheduled for completion in 2009) was projected to cost 28 billion 10 years ago, and guess what, while not finished yet that is exactly what they are still projecting today – I guess there were no overruns in steel, cement, energy – it’s impossible, of course, but face is all-important. You have no say if the govt wants you to move – 2 million people are going to be relocated as dozens of cities, towns and villages are flooded as the damn’s reservoir builds. Could you imagine telling every person in the city of Toronto that they had to leave their home and move to another city? Yet, the damn is needed – it opens up the middle of China to the west (a direct link to San Francisco), it adds significantly to it’s power resources, and it will reduce flooding on the Yangtze River that has occurred every 5-10 years and killed so many.
People are trying to get out of China, as they get the funds for it, which tells me that the lack of freedoms will prevent china from becoming a creative force in the world, until and unless the govt loosens their strings very significantly. They may become a powerhouse labour force, but how can they become movers and shakers if many of their best and brightest don’t want to stay? If education is restricted?
I do understand that the government is loosening the strings slowly, knowing the chaos that would ensue if they did it abruptly (Russia is the example often used). I know it is only 10 years since the beginning of the conversion from communism to capitalism. At the same time, however, everyone I talked to, from tourist guides to students, said that the Tianamen Square demonstration was “no big deal …. a few people died” i.e. people are still afraid of the govt and it shows up subtly and not-so-subtly. I do not think the govt will give up power willingly, even if it does change its views toward a more progressive and capitalistic system. I do not yet see free elections in the continuum of reforms that have been laid out for me. It will happen, I suspect, but it will take a very long time.
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a later post......
Several people have inboxed me asking for a bit more about china, so I'll briefly share some experiences of a more cultural nature.
China has 6000 years of history and it is incredible to see the inventiveness of their civilization so many centuries ago. I had this constant feeling that we had re-invented the wheel, as they had ways to prevent corrosion in their weapons, maintain heat by putting three legs and part of the pot under ground, make pottery that has stood up for 6000 years, and so on.
It was similarly astounding how esthetics are incorporated into everything. That new damn has gorgeous flower gardens and beautiful architecture, where our dams seem like concrete structures that are so utilitarian. Similarly, shanghai, which is the "new china" where computer geeks and engineers go (while Beijing -previously Peking - is the "old" china, just getting bigger but not the state of the art appearance of Shanghai), has the most incredible architecture I have ever seen...no two buildings alike. It also has a Bund - a riverscape - both sides of the river are simply magical, with very old and beautiful embassy and govt buildings on one side, with all new buildings (banks, towers, etc)on the other (including a CN Tower type building that makes ours look sick)...we took a ferry ride at night, and it made broadway look like a child's playground.
Chongking is a city of 30 million....imagine that...a city more populous than all of canada. Beijing and Shanghai are 14-15 million each.
Beijing is a very dangerous place to walk, if you plan to cross streets. People there have no apparent rules regarding driving, and pedestrians have no right of way. cars just honk and keep going. You see cars make left turns into traffic, with cars going around both sides of oncoming traffic (cars from the left). I can't describe it. No one would sit at the front of our bus, because they got sick watching the traffic. Lights and lanes mean little, unless there is a traffic cop in the intersection (which is rare).
There is so much to see, and each site has a history of its own that is just captivating. The forbidden gardens, the great wall (a bit too touristy, with tacky shops and camels to take your picture on, but one of the wonders of the world), the summer palace (quite the cottage), the jade palace (a Buddhist temple), heavenly gardens, Mings Tomb, Guilan (a Palm Springs to the south - a gorgeous resort town unlike anywhere else in China), three rivers gorges (some of the most beautiful scenery I have ever seen), terra cotta warriors - thousands of full scale replicas of soldiers buried with emperors, with no two alike, to ward off the enemy after death. there were about 130 emporers, I believe, and each has his own terra cotta warriors. the one we saw had 6000 of them buried with him. there are literally millions of these warrriors buried around china, with most of them around Xian, which used to be the capital of china and where about 78 of the emporers are buried. By the way, the emporers also buried concumbines and artesans alive in their tomb - it is said that most went willingly, since the emporer was like a god, but their are tales (sacandals)that some escaped before they were put down there(ie they didn't want to go).
I know a little knowledge is a dangerous thing, but you can't help getting caught up in Buddhism, tai chi, the making of silk, the museums.....
We had chinese food day and night...at least chinese food in government buildings (for liability purposes), so it is not authentic "on the street food", which we were told to stay away from (one purson tried some unrecognizable street food the second day and could not leave his room all day, so we decided not to be that adventurous). Chinese people don't eat much meat, so even the barbecued pork is really fried fat with sweet and sour sauce on it, but in truth the vegetables were delicious and I got into tofu and three thousand things you can do with beans and cabbage. About two weeks in, they gave us a western buffet, with steaks - you have never seen anything like this tour group going after those tenderloins - we didn't stop to chew. The chinese people just gawked at us eating all these slabs of meet....first time I ever had three steaks at one meal (and I was not alone). This is changing, though, as McDonalds now has about 50 restaurants over there......
All things western are hot......from MTV to jeans to mp3 players. And now basketball has hit it big, as Houston (and their Chinese 7 ft 6in giant - I forget his name) was in town and tickets were going for about $200, an unheard of price. But the best entertainment is local.....the Chinese acrobats are tremendous, as is chinese opera (I hate opera, but in china what they call opera appears to be a collection of songs, skits, humor, dance, music that is a lot of fun).
Could go on forever, but one just has to go see it......it is the best vacation I ever had.
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