星期一, 9月 26, 2005

Hot commodities



看到Daisy的首度登場,令人鼓舞.今次介紹的是Jim Roger的Hot Commodities. Jim Roger其人其事不用我多說吧,這本已是04年出版的書,今時今日看更覺仿如隔世.這本恰稱dummies guide to commodities,沒有複雜難明的分析,講的是投資入門,及各種商品的未來供求因素.筆者兩天已了結此書,易入口之餘,卻會感到不夠喉,不過作者有江湖地位加上遠見,確實具備一定的流行元素.

不要以為看後能對寫新聞有很大幫助,但作為入門書也無不可.Roger在書中給出的主要訊息如下:

商品與股市correlation夠低

商品價格可以在經濟差時依然發圍

直接買商品比買商品股要好及簡單


石油、咖啡、糖、铅、黃金 -->掂

今次商品大牛市將歷時10年,但當中會有反覆

若要延伸閱讀,可以看末日博士更早寫成的Tomorrow's Gold,里昂當年幫他出版送給客戶,當時麥嘉華已大聲疾呼要買原材料,不過這本書較為概念性,不少篇幅讓麥嘉華賣弄博學,叫筆者看了好幾十頁奧國學派熊彼德的經濟學說仍未入到正題,結果半途而廢久久未重看,或許日後有機會補看後會覺得值得一書.

星期三, 9月 14, 2005

The Book of Bunny Suicides, Return of the Bunny Suicides



香港人成天把「想死、想死」掛在嘴邊,尋死率好似全球第一,不妨把這個話題戲謔一番,也好化解化解怨氣.在網上看到有人介紹這套漫畫書,看了幾頁,已喜歡上了.死,原來也可以很有趣.



星期日, 9月 11, 2005

統計/調查泛濫

近幾年新聞鍾意用很多調查或統計,又話全港有幾多十萬人有呢隻病,又話香港自殺率全球第幾高,又話市民普遍認為要幾多千萬元才夠退休,一直對這些所謂調查抱有懷疑,看了think3介紹的numbers guys專欄,覺得香港為何一直缺少這類肯反省統計泛濫現象的文章,揭破一些有商業或政治企圖,搏宣傳或怪力亂神的統計.

其實即使一些有standing的機構,或大學所作的調查,準確性也大有疑問,傳媒一方面在提供這些資訊作為談資之餘,也是否能容納多些獨立批判的空間?

介紹一段值得一讀的文章,若對統計誤用有興趣,可參看think3早前介紹的書list.

Scientific accuracy

...and statistics
Sep 1st 2005
From The Economist print edition

Just how reliable are scientific papers?

THEODORE STURGEON, an American science-fiction writer, once observed that “95% of everything is crap”. John Ioannidis, a Greek epidemiologist, would not go that far. His benchmark is 50%. But that figure, he thinks, is a fair estimate of the proportion of scientific papers that eventually turn out to be wrong.

Dr Ioannidis, who works at the University of Ioannina, in northern Greece, makes his claim in PLoS Medicine, an online journal published by the Public Library of Science. His thesis that many scientific papers come to false conclusions is not new. Science is a Darwinian process that proceeds as much by refutation as by publication. But until recently no one has tried to quantify the matter.

Dr Ioannidis began by looking at specific studies, in a paper published in the Journal of the American Medical Association in July. He examined 49 research articles printed in widely read medical journals between 1990 and 2003. Each of these articles had been cited by other scientists in their own papers 1,000 times or more. However, 14 of them—almost a third—were later refuted by other work.

Some of the refuted studies looked into whether hormone-replacement therapy was safe for women (it was, then it wasn't), whether vitamin E increased coronary health (it did, then it didn't), and whether stents are more effective than balloon angioplasty for coronary-artery disease (they are, but not nearly as much as was thought).

Having established the reality of his point, he then designed a mathematical model that tried to take into account and quantify sources of error. Again, these are well known in the field.

One is an unsophisticated reliance on “statistical significance”. To qualify as statistically significant a result has, by convention, to have odds longer than one in 20 of being the result of chance. But, as Dr Ioannidis points out, adhering to this standard means that simply examining 20 different hypotheses at random is likely to give you one statistically significant result. In fields where thousands of possibilities have to be examined, such as the search for genes that contribute to a particular disease, many seemingly meaningful results are bound to be wrong just by chance.

Other factors that contribute to false results are small sample sizes, studies that show weak effects (such as a drug which works only on a small number of patients) and poorly designed studies that allow the researchers to fish among their data until they find some kind of effect, regardless of what they started out trying to prove. Researcher bias, due either to clinging tenaciously to a pet theory, or to financial interests, can also skew results.

When Dr Ioannidis ran the numbers through his model, he concluded that even a large, well-designed study with little researcher bias has only an 85% chance of being right. An underpowered, poorly performed drug trial with researcher bias has but a 17% chance of producing true conclusions. Overall, more than half of all published research is probably wrong.

It should be noted that Dr Ioannidis's study suffers from its own particular bias. Important as medical science is, it is not the be-all and end-all of research. The physical sciences, with more certain theoretical foundations and well-defined methods and endpoints, probably do better than medicine. Still, he makes a good point—and one that lay readers of scientific results, including those reported in this newspaper, would do well to bear in mind. Which leaves just one question: is there a less than even chance that Dr Iaonnidis's paper itself is wrong?

星期五, 9月 09, 2005

iPod & Flat World


iPod : "Designed by Apple in California, Made in China."


To be precise, iPod is designed in Cal., it's components are manufactured in Asia, then iPod is assembled in China and is being sold globally.

During my visit to US in March 05, I attended New York Times' columnist Thomas L. Friedman's lecture on his new book -- "The World Is Flat: A Brief History of the Twenty-first Century" (published on 5 April).

He outlined his new book in his lecture, and I chatted with him briefly after the lecture. His book is about "Outsourcing" and "Globalization".

Chatted with audiences and people I met over the trip, I found US public is generally worried about "outsourcing". The lecture was held in Seattle (headquarter of Microsoft and plenty of software companies), hence you can image how middle-class electronic engineers feel when competition pressure from India getting heavier and heavier.

Friedman is an excellent speaker, respond from audience was great. I found the talk interesting too, but I was not as "surprised" and "shocked" as other US audience.

Friedman uses the "The World is Flat" as a metaphor for the fact that "the global playing field is being leveled". The book is about how the convergence of technology and events that allowed India, China, and so many other countries to become part of the global supply chain for services and manufacturing, creating an explosion of wealth in the middle classes of the world's two biggest nations, giving them a huge new stake in the success of globalization.

"Well, what is so new about this ?" I thought.

Perhaps, Hong Kong have located at the very front-line of globalization, we have experienced "outsourcing" for too long. Losing manufacturing jobs to workers in China have been the trend since early 1980's, losing call-center jobs to China have been the trend since early 1990's.

I joined the drink section of a group of audience after the seminar. I found there are plenty mis-conceptions on international trading relationship between US and China. The common mistake is mis-focus on US-China trade deficit figure, and forget the reality is a multi-countries trade & division of labor network.

Indeed, there has been a structural change in US-China-Asia trade relationship since mid 90's.

In old days, Asia directly export to US. However, in recent years China emerged as the final assemble centre for Asia's goods (ie. triangular relationship: Asia countries(raw material/technology/components) => china(assemble/manufacture) =>US(sale & marketing).

China becomes the launching-platform of manufacture products. US import from China is mostly a substitution of US import from other Asia (including Japan and Korea) countries (Graphic Source: The Economic Report To President 2005).




Cos, advanced countries like Japan / Korea / US / European have focus on highest - valued components (e.g. design & manufacturing of semi-conductor, DRAM, LCD screen) and shifted the lowest-end manufacturing / final assemble process to their factories in China.

The name-tag "Made In China" has lost its meaning.


In fact, China's semi-finished products and raw material import have been the driver of economic growth in Asia and Latin America. Thankfully, this process (a) bring a lot of employment opportunity to developing countries, (b) pull developed Asian-countries (eg Japan, Korea) out of recession.

Moreover, US multi-national corp (MNC) have extracted huge benefit in the process. US MNC focus on the most high-value added end -- R&D on one end and Sales & Marketing on the other end -- and cut the largest slice of the profit.

For example, US consumer may be surprised by finding their Compac notebook computer is actually assembled in Shanghai, however, this doesn't change the fact that (a) US consumer enjoy the same notebook computer at lower price that otherwise, (b) the notebook is shipped by
Fedex, (c) most of the profit generated from this purchase actually go to Compac / Fedex and their shareholders.

Another example is : when US consumer buy a pair of hottest Nike shoes for $150 (or buy a pair of less fashionable Nike at $35), the factory in China only receive $1.00 per pair of shoe no matter how much the retail price is, and the $149 (or $34) go to Nike's profit, marketing firm, TV, billboard, Micheal Jordon, Walmart / other shoe-chain stores, employees and shareholders in these companies -- who are mainly US citizens. The same pair of Nike shoes also "export" to countries all over the world under the name-tag of "Made in China" and most of the profit go into Nike shareholders' pocket.

A lot of US MNC have seized the opportunity and transformed themselves into the champion of globalization -- Walmart, Nike, Starbuck, Intel, Apple, Compac, Dell, UPS, Fedex
.... etc.

Of course, there are always winner and loser in every new-mega trend – in this case, low-end manufacturing job loss in US and SE Asia countries have lost out. However, no one can reverse the trend and it is not for the benefit of anybody to do so.

Related Article :
日本與中韓台〝技術戰爭〞開打,優勢能撐幾年?


Ipod Nano launching event


If only a press conference can be as funny as this one, our lives would be happier - Ipod Nano launching event - a great product with a great presentation, you are not going to miss it. Here are the link:
http://stream.apple.akadns.net/

星期三, 9月 07, 2005

Watch a clever comedy .....



After a long exhausted day, reading becomes mission impossible. Watch a clever comedy or drama could be the best way to relax before bed.

After chewing up classic comedy “Yes Minister” & “Yes Prime Minister”, I just finished another almost equally sweetly ironic and witty BBC comedy – “Absolute Power - Welcome to the world of public relations”.

Absolute Power originally debuted on BBC Radio 4 in January 2000. Series One: 5 Jan-9 Feb 2000, Series Two: 30 Jan-6 Mar 2001, Series Three: 1 Jan-29 Jan 2003, Series 4: 5 Feb-26 Feb 2004.

Full of smart dialogues, laugh out loud guaranteed.


Absolute Power
UK, BBC, Sitcom, colour, 2002
Starring: Stephen Fry, John Bird, Zoe Telford

Prentiss and McCabe are an unscrupulous pair who run the blue chip PR agency Prentiss McCabe. Dealing with commercial as well as personal PR, their remit covers everything from political communications to celebrity media relations. Their manipulation skills are tested to the full as they frequently find that their work brings them into conflict with political parties, newspaper editors and celebrities.

A satirical comedy about a world in which style triumphs over substance, tabloids are the new judge and jury and where five minutes of fame is considered a long term career.

More than I can read too .....

Books to man is like shoes to woman, we always buy more than we can read and wear.

Having weeks of holiday, hung around bookshop becomes my daily habit. Of course, my books are piling up too quickly. Following are part of my books, and related topics that I have been following. Since I have to focus on my work-related books in coming six months (at least), I can lend my book to friends over the period. See if you guys are interesting in them.

Politic:

  • The New Prince, Dick Morris
  • Feeding The Beast : The White House Versus the Press, Kenneth T. Walsh
  • The White House Staff – Inside West Wing and Beyond, Bradley H. Patterson Jr
  • Electing The President 2000 – The Insiders’ View – Election strategy from those who made it., Kathleen Hall Jamieson & Paul Waldman
  • No Place For Amateurs – How Political Consultants Are Reshaping American Democracy, Dennis W. Johnson
  • Polling Matters – Why Leaders Must Listen to Wisdom of the People, Frank Newport
  • The Prime Minister and Cabinet Government, Neil McNaughton


History:

  • Empire – How British Made The Modern World, Niall Ferguson
  • The House of Rothschild – Money’s Prophets 1798-1848, Niall Ferguson
  • The House of Rothschild – The World’s Banker 1849-1998, Niall Ferguson
  • What If? – Robert Cowley (Chinese translated version)
  • 晚清報業, 陳玉申
  • 北京的莫理循–Translated from “Morrison of Peking” by Cyril Pearl [George Ernest Morrison 在1897年以英國《泰晤士報》駐清記者身份來華, 親身採訪維新運動、義和團、滿清覆亡、民國成立等巨變, 更在1912年起為袁世凱政治願問. “Morrison of Peking”是澳洲作家Cyril Pearl據Morrison的日記及書信編寫, 於1967年出版的傳記. ]
  • 日本近代史, 林明德
  • 日本現代史, 許介鱗

Social Science:

  • The Working Poor – Invisible in America, David K. Shipler
  • Critial Mass – How one thing leads to another, Philip Ball
  • 行為經濟學 – 理論與應用, 復旦大學

Gambling:

  • Gambling Wizards – Conversations with the World’s Greatest Gamblers, Richard W. Munchkin (Chinese translated version)
  • Poker nation – A High-Stakes, Low-Life Adventure into the Heart of a Gambling Country, by Andy Bellin (Chinese translated version)
  • Hold’em Poker, by David Sklansky
  • Small Stakes Hold’em, by David Sklansky
  • Professional Blackjack, by Stanford Wong


PS: Shall we hold a gathering for members to know each other?


WSJ column "The Numbers Guys"

I enjoy reading WSJ column "The Numbers Guys" a lot. The column examines numbers and statistics in the news, business, politics and health. Some numbers are flat-out wrong, misleading or biased. Others are valid and useful, helping us to make informed decisions.

The column is wrote by
Carl Bialik, a former technology reporter for the Online Journal, is a freelance writer living in Brooklyn, N.Y. He has long had an interest in looking at the way numbers are used, and abused, in the news, business and politics. Carl has a degree in mathematics and physics from Yale University.

He published his reading list in WSJ a month ago, I think it is worth to take a look.

Think3 (7-sep-05)

------------------------------------------------------

Carl's Reading List

August 19, 2005 6:56 a.m.

I have enjoyed reading several books recently on the use and misuse of numbers. Joel Best, a University of Delaware sociology professor, has written two books exposing the subtle choices people make when creating statistics, and the big effects these choices can have. Dr. Best followed up "Damned Lies and Statistics" with "More Damned Lies and Statistics." (The titles play off a famous quote attributed to 19th century British prime minister Benjamin Disraeli: "There are three kinds of lies: lies, damned lies, and statistics.")

In "Tainted Truth," Wall Street Journal reporter Cynthia Crossen exposes the interest groups behind sponsored market research, advertising and, more troublingly, academic and scientific studies.

"Innumeracy," by Temple University math professor John Allen Paulos, explains why his title subject -- the equivalent of illiteracy for numbers -- is widespread and dangerous for society. He followed that book with "A Mathematician Reads the Newspaper," a quirky tour of a standard broadsheet that mixes critiques of numerical misuse with other musings.

Jonathan Koomey distills a career's worth of experience as an energy scientist into "Turning Numbers Into Knowledge." Part III is most germane to this column, with tips on assessing others' numbers and graphs -- plus a gem of a two-page chapter reminding readers that "numbers aren't everything."

The Statistical Assessment Service, a non-profit watchdog group, takes a very modern approach. Articles and shorter posts at Stats.org pick apart misuse of numbers by the media, researchers and industry groups.

And the classic in the genre, Darrell Huff's "How to Lie With Statistics," just turned 50 but is still very relevant. Plus, it's a fun read.

上星期又發書瘟,一口氣買了近10本書,唔知幾時才看得完

書債:

帝國的悲哀 by Chalmers Johnson

New Ideas from Dead Economists by Todp Buchholz 中文版

I Think, Therefore I Laugh by John Allen Paulos

Seeing Voices by Oliver Sacks

Uncle Petros and Goldbach's Conjecture by Apostolos Doxiadis

More What If? Eminent Historians Imagine What Might Have Been edited by Robert Cowley

The Unholy War: The Vatican's Role in the Rise of Modern Anti-semitism by David Kertzer

The Anatomy of Buzz by Emanuel Rosen

An Anatomy of Terror by Andrew Sinclair

星期六, 9月 03, 2005

Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral Economics



看了think3介紹的behaviorial finance書,立即想到幾年前看的這本書,一樣無jargon,無公式,只有無數的例子,但就相當便宜,當時我連行為金融學或投資心理學係乜都唔知,可是看這本書就看得津津有味,頗有一開茅塞之感,因為內裡實在有太多過癮的例子,令你保持有追看的衝動,雖然其後閱歷多了,看到了很多例子的出處,但作為一本入門書,這絕對是交足功課有餘.自己其後也看過不少同類書藉,包括cfa的必讀教科書,但心底裡仍然覺得這本最不俗.誠意推薦對這一科目有興趣的人士,又或希望改正自己投資盲點的人.(當然即使筆者我,也常常明知故犯!盲點就是盲點,現實往往就是知易行難)

星期五, 9月 02, 2005

Big Bang



這是Simon Singh的第3部作品,前作Fermat's Last Theorem及Code Book,告訴我原來科普書也可以這樣富娛樂性及影像豐富的.相比之下,今次講宇宙大爆炸理論,前車太多,註定難有驚喜.

結果一如所料,所以讀得特別快,內裡提到的現象如red shift或3K幅射都已是耳熟能詳,可是居然能叫我不跳讀,作者把人事穿插得引人入勝,而且條理清晰到不能再清晰,重點不在於介紹大爆炸這種宇宙論,而是把一場關於宇宙有盡無盡的辯論描繪出來,於是會有Einstein如何押錯邊而慨嘆聰明一世,也有科學家邀功奪名的鬥爭,脈絡是一套理論如何由小眾演變成主流,總之奇兵突出,從聽了不知多少遍的理論中扭出了一點新意來,令這本書依舊有可讀之處.若果對big bang不熟的話,可讀性當必更高.

順帶一提,Singh在附註中提到,這將是其最後一本著作,往後希望有其他新搞作,這對於忠實讀者如我,頗有可惜之感.

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing


Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing (Hardcover) by Hersh Shefrin

When I worked as Research Assistant under Mr. Edward Kong of EK Investment, I found Edward read a lot of academic journals. I was curious about this and asked him did he find academic research too "theoretical". Edward explained that in investment decision making, knowledge always provide edges. Advance finance research provides new insight on old subject. Although academic research always base on various assumptions that seem unrealistic, however this does not mean we cannot benefit from academic research.

He used efficient market theory as an example. Obviously, the market is not as efficient as the theory suggested, hence, he work backward – If the market is not efficient, what’s wrong with the assumption.

Assumption one of EMT, information is free and equally available, working backward, that’s mean investor with better information can get better results. Assumption two of EMT, given the same information, everyone draws the same conclusion, that means better interpretation and insight on data / event enable investor to earn abnormal results.

In 1996/9, I found Edward spend several days reading a “pillow-like” academic paper. It was research on psychology (yes, psychology, not “psychology on finance” or “behavioral finance”). The book was 1.5 inch thick and full of mathematic formula.

“Well, what the hell! Psychology?” I thought. By that time, I was too busy to learn the basic financial analysis skill. Reading stuff like this was far too advanced for me. But from then on, I have a feeling “psychology” and “finance” have relationship somehow.

At 2000, I found the book: “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing” by Hersh Shefrin. Priced at $HK439, but after I finished a chapter, I bought it without any hesitation.

The book explain all kind of psychology research findings that are related to “investing”, “gambling” and “risk taking” such as “Prospect Theory”, “Heuristic-Driven Bias”, “Frame Dependence”, “Representative-ness”, “Anchoring” etc.

Shefrin explain all the key concepts in story-telling style. No mathematic formula, no tons of data, just experiments after experiment, examples after examples.

Almost all the findings were based on psychological experiments under controlled environment. In most of the cases, you can test yourselves with those experiments (in your mind) before he show you the result. A really joyful reading experience, I found.

Over the last 25 years of research, psychologists have discovered two important facts. (1) As psychologist Lola Lopes pointed out, the primary emotions that determine risk-taking behaviour are not greed and fear, but HOPE and FEAR. (2) Although to err is human, financial practitioners of all types make the same mistakes repeatedly.

The cause of these errors is documented in an important collection edited by psychologist Daniel Kahneman (who was the winner of 2002 Nobel Prize in Economics for his work in “Prospect Theory”, despite Kahneman claims to have never taken a single economics course) and other researchers.

The “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing” provides a painless way to digest the treasures of 25 years of psychology research on human risk-taking behaviour.

星期四, 9月 01, 2005

Suggestion ...

Glad to gather a group of friends have similar interest. Blog is really a wonderful tool to exchange ideas. We can just get in touch anywhere and anytime.

I had setup several blogs for news-clipping and article-sharing. My experience is when the articles accumulate to certain amount, I found it more convenience to classified information by having several different blogs. This also make it easier to gather friends have different interests.

I suggest we can utilize the existing blog and develope on it. As blog is just a equal platform, every member can post article and opinion. It won't make a different by who is the host. Indeed, it is almost a mission impossible for host to post everything !

Take a look. See if fit. If it is all right, I can invite everybody to be member or even co-host the blog together (blog can be co-manage by members, just do some clicking in setup page) Anyway, I'll station in Guangzhou from 20 sep, so I may not have enough energy to keep it as active as now.

(1) www.midnightoil-society.blogspot.com is for china politic / international affair
(2) www.think-3.blogspot.com is for investment related stuffs
(3) www.damocles-sword.blogspot.com/ is for journalist related stuffs

All the best !

Think3

可以不只介紹書咁簡單

It's amazing to find out that everyone is online at 3:00am!謝謝think3的文章,雖然一口氣拋出兩本書的介紹,但也覺得這裡不應只是介紹書,一些好文章或新思潮,也值得在此分享,希望各位盡用這個園地

Buying and selling volatility



Buying and selling volatility

Author:Kevin B. Connolly

近期窩輪再度成為市場焦點,令我想起一本很久以前看的書,當時剛剛接觸窩輪這新奇事物,可是坊間一直較少淺白易讀的衍生工具書藉,不是叫你一知半解,便是用艱深的數學公式把你包圍,後來碰到這本深入淺出的易「啃」入門書──<買賣波幅>,用門外漢都能懂的語言解答發行人如何賺你錢之謎.

買賣波幅與買賣股價不同之處,在於前者需要不時根據正股變化進行對沖「鎖定」利潤或虧損,亦即動態對沖,因此較單純買賣股票遠為複雜,但本書能做到不用艱深數學模型,而能用淺白語言及圖表,讓人掌握這門概念.同時本書能做到不會野心過大,只集中介紹主要概念,故此不會予人有資料過多消化不良之感.對於一向有投資認股証及期權的投資者,不妨一讀以增功力.

美中不足的是,如何決定一隻股份平貴的理論很多,但究竟如何決定波幅平貴及如何尋找入市機會則鮮有書藉提及,此書也少了這一章,令本書只能停留在理論在層次.建議看完這本書後,可挑戰john hull的Options, Futures and Other Derivatives<--絕對好勁!

The End of Oil



趁住油價新高,中石油批股,不如介紹一本講石油的書.過去因為讀過Daniel Yergin的Prize,所以一直不敢開這本書,擔心又係講石油史,近排有了興頭,翻看一下,居然不賴.作者好似係英國記者,採訪了石油業多年,故此例必有很多訪問及親身經驗.本書涉獵很廣,由hydrogen fuel cell到kyoto protocol到中國如何應對能源危機都包羅,若Prize是以歷史來推進的話,則the end of oil可說是石油業的橫切面,算不上深入,常看economist的可以跳讀,但總算做到不長氣,點到即止,但條理分明,不賣弄文筆.

對於石油的將來,作者是悲觀的,因為美國愛油若癡,而中國又極度飢渴,新能源的開發及投資又似乎步履蹣跚,似乎要一鑊很杰的危機,才能令大家的起心肝,這或許是一場大戰爭.ok, we'll see

RAND : Chinese Political Negotiating Behavior, 1967-1984


The Linear Process of PRC Political Negotiations

How to negotiate with China Gov't ? How to read China's behaviour in international affairs ? How do China shape HK political landscape ? How China play on Taiwan politic ? How do Central Govt HK Liason Office "handle" HK political parties & media ?

Learn from the painful lesson of US govt from 1967-1984. "Chinese Political Negotiating Behavior, 1967-1984" is a must read for anyone who have to face China govt, no matter you are politican, journalist, businessman, analyst or fund-manager. Indeed this booklet had been the handbook of former HK Governor Chris Patten -- the last governor who pushed China Gov't to her limit. I have been shocked by how the analysis present in this little booklet still valid today.

In the mid-1980s, US thinktank - RAND (www.rand.org) contracted with the U.S. government to do a retrospective analysis of the official negotiations between the United States and the People's Republic of China (PRC) associated with the normalization of relations between the two countries. The study was in the tradition of earlier RAND research-- especially Fred C. Iklé's pathbreaking work of 1964[1]--and was designed to assess the way Chinese negotiators sought to manage the process of constructing a normal relationship with the United States. Such a study, it was assumed, would also provide a useful contrast with the "adversarial negotiations" that had characterized dealings between the two governments in the period between the Korean War years and the unproductive negotiations of the 1950s and 1960s at Geneva and Warsaw.

The principal investigator of the study, Richard H. Solomon, served as a staff member of the National Security Council during the initial years of normalization talks between the United States and the PRC and was already familiar with much of the negotiating record. Because the study drew on official negotiating documentation, the initial publication of the work was classified Secret, although an unclassified briefing summary was published by RAND in 1985.[2]

In 1994, a federal court action led to declassification of most of the 1985 study, based on a Freedom of Information Act suit that had been filed against the government by the Los Angeles Times. [thank to freedom of information !!!]

RAND is publishing the declassified parts of the study at this time because of the analytical and historical value of the work, and because of the continuing interest to the United States of managing effectively a relationship with a major country that is likely to be of even greater significance in world affairs in the coming century. The reader should be aware that about 10 percent of the original study was not declassified. The deletion of this material from the present publication, however, has not affected the presentation of the author's analysis or the flow of the material.

The book can be ordered on internet at RAND, alternatively, I have a copy for friends.

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Following are summary of the small handbook :

By Richard H. Solomon

Summary

This study of Chinese political negotiating behavior assesses patterns and practices in the ways officials of the People's Republic of China (PRC) managed high-level political negotiations with the United States during the "normalization" phase of relations between the two countries. It is designed to provide guidance for senior American officials prior to their first negotiating encounters with PRC counterparts and to establish control over the documentary record of U.S.-PRC political exchanges between 1967 and 1984.

This assessment is based on analysis of the official negotiating record of U.S.-PRC exchanges during this period (the memoranda of conversation--"memcons"--and reporting cables that document formal exchanges), interviews with more than thirty U.S. officials who have conducted political negotiations with the Chinese, and such additional materials as the memoirs of former senior U.S. government officials, Chinese press statements, and official PRC documentation.

The basic finding of this study is that Chinese officials conduct negotiations in a distinctive, but not unique, manner consisting of a highly organized and meticulously managed progression of well-defined stages. It is an approach influenced by both Western diplomatic practice and the Marxist-Leninist tradition acquired from the Soviet Union and through dealings with the international communist movement. Its fundamental style and most distinctive qualities, however, are based on China's own cultural tradition and political practices.

The most distinctive characteristic of Chinese negotiating behavior is the effort to develop and manipulate strong interpersonal relationships with foreign officials--a pattern termed here "the games of guanxi," or relationship games. This approach to politics is shaped by China's Confucian political tradition. The Chinese distrust impersonal or legalistic negotiations. Thus, in managing a negotiation they attempt to identify a sympathetic counterpart official in a foreign government and work to cultivate a personal relationship, a sense of "friendship" (you-yi) and obligation; they then attempt to manipulate feelings of good will, obligation, guilt, or dependence to achieve their negotiating objectives. The frequently used term "friendship" implies to the Chinese a strong sense of obligation for the "old friend" to provide support and assistance to China.

The Negotiating Process

American officials have characterized negotiations with the PRC as a linear process of sequential and relatively discrete stages which unfold as the two sides explore issues of common concern. This process is illustrated in the following table:

Opening Moves

PRC officials make a determined effort at the outset of a negotiation to establish a sympathetic counterpart official as an interlocutor, to cultivate a personal relationship (friendship) with him; they press for the acceptance of their principles as the basis of the relationship. They also seek to structure a negotiating agenda favorable to their objectives.

The Chinese view a political negotiation as reconciling the principles and objectives of the two sides and testing the other government's commitment to a relationship with the PRC. They do not see it as a highly technical process of haggling over details, in which the two sides initially table maximum positions and then move to a point of convergence through incremental compromises.

To establish a framework for a relationship, PRC officials will press their counterparts at the outset of a negotiation to accept certain general "principles" (such as those embodied in the Shanghai Communiqué of 1972). Such political ground rules are then used to constrain the interlocutor's bargaining flexibility as the negotiation proceeds and to test the sincerity of his desire to develop and sustain a relationship with China. Experience shows, however, that when a PRC negotiator wants to reach an accord, he can set aside the emphasis on principles and reach a concrete agreement that may appear to have little relationship to the principles that were seemingly essential early in the negotiation.

Period of Assessment

Chinese officials are skilled in protracting a negotiation to explore the limits of their adversary's views, flexibility, and patience. They will resist exposing their own position until their counterparts' stand is fully known and their endurance has been well tested.

Facilitating maneuvers. The Chinese try to conduct negotiations on their own territory, as this gives them maximum control over the ambience of official exchanges. They seek to establish a positive mood through meticulous orchestration of hospitality (cuisine, sightseeing, etc.), media play, banquet toasts, and protocol. They may attempt to minimize confrontation or differences of view through subtle and indirect presentation of their positions. They may communicate difficult messages through trusted intermediaries. And when they seek to avoid the breakdown of a negotiation, they may resort to stalling tactics or reach a partial agreement while reserving their own position on important issues on which they do not wish to compromise.

Pressure tactics.

PRC officials will resort to a variety of tactics to put an interlocutor on the defensive and make him feel he has minimal control over the negotiating process. They are skilled at making a foreign counterpart appear to be the supplicant or demandeur in the relationship. They play political adversaries against each other and may alternate hard and accommodating moods by shifting from "bad guy" to "good guy" officials. They may urge a foreign negotiator to accommodate to their position using the argument that if he does not, his "friends" in the PRC leadership will be weakened by failure to reach agreement. And they tend to put pressure on a sympathetic counterpart negotiator on the assumption that a "friend" will make a special effort to repair problems in the relationship.

The Chinese often present themselves as the injured party, seeking to shame an interlocutor with recitation of faults on the part of his government or his failure to live up to past agreements or to the "spirit" of mutually accepted principles. They are meticulous record-keepers and will hold a negotiator responsible for his past words and the commitments of his predecessors. They are skilled at using the press to create public pressures on a foreign negotiating team. And they may seek to trap a negotiator against a time deadline (so that he must make decisions under pressure).

The essential quality of Chinese pressure tactics is to make the foreign negotiator, with whom they have gone to some lengths to develop a personal, or "friendly," association, feel that his positive relationship with China is in jeopardy, that he has not done enough to warrant being considered an "old friend," and that he must do more for the relationship to justify Chinese support and good will. It is this tension of the relationship game that gives dealings with the Chinese much of their distinctive quality.

End Game

When PRC officials believe that they have tested the limits of their negotiating counterparts' position and that a formal understanding serves their interests, they can move rapidly to conclude an agreement.

They may let a negotiation appear to deadlock to test their interlocutor's patience and firmness, then have a senior leader intervene to cut the knot of the apparent deadlock. Agreements are usually reached at the very last moment of a negotiating encounter--or even just after a deadline has passed. Once Chinese leaders have decided to reach an agreement, their negotiators can be quite flexible in working out concrete arrangements.

Implementation

Chinese officials assess the manner in which a counterpart government implements an agreement as a sign of how seriously or sincerely that government views its relationship with the PRC. They press for strict implementation of all understandings and they are quick to find fault.

At the same time, Chinese officials sometimes give the impression that agreements are never quite final. They will seek modifications of understandings when it serves their purposes; and the conclusion of an agreement is the occasion for pressing the counterpart government for new concessions. If they are unable to fully implement an agreement themselves, however, they will ask the counterpart to "understand" their difficulties on the basis of friendship, or they will make excuses that put the burden of responsibility on the other party.

Discussion

Reflecting the workings of the relationship game, American negotiators describe their dealings with the Chinese as at once elating and frustrating. PRC officials can establish a positive mood when they want to build a constructive relationship; and they impress their U.S. counterparts as personally attractive, highly competent individuals with whom it is easy to deal at a human level. On the other hand, Chinese officials--who consider themselves the representatives of a once and future great power-- can adopt a self-righteous and lecturing air, presuming the right to criticize their "friends" (while being highly defensive of their own positions) and requiring that negotiations be conducted on their own terms.

The experience of countries that have established highly interdependent relations with the PRC has demonstrated that the Chinese can be highly demanding and manipulative of those on whom they have established a dependent relationship (as was the case with the "elder brother" Soviet Union in the 1950s), or self- righteously assertive in dealing with those who have established a subordinate relationship with them (as was the case with Albania in the 1960s).

Guidelines for Dealing with PRC Counterparts

This analysis suggests the following "lessons learned" that U.S. officials should keep in mind if they are to be more effective in dealing with PRC counterparts:

(1) Know the substantive issues cold. Chinese officials are meticulous in preparing for negotiating sessions, and their staffs are very effective in briefing them on technical issues. They will use any indication of sloppy preparation against an interlocutor.

Master the past negotiating record. PRC officials have full control over the prior negotiating record, and they do not hesitate to use it to pressure a counterpart.

(2) Know you bottomline. A clear sense of the objectives of a negotiation will enable a U.S. official to avoid being trapped in commitments to general principles and to resist Chinese efforts to drag out a negotiation. Incremental compromises suggest to the Chinese that their interlocutor's final position has not yet been reached.

(3) Present your position in a broad framework. The Chinese seem to find it easier to compromise on specific issues if they have a sense of the broader purposes of their interlocutor in developing a relationship with the PRC. They distrust quick deals, and they appreciate presentations that suggest seriousness of purpose and an interest in maintaining a long-term relationship with China.

(4) Be patient. Do not expect quick or easy agreement. A Chinese negotiator will have trouble convincing his superiors that he has fully tested the limits of his counterpart's position if he has not protracted the discussions. Assume you will be subjected to unexplained delays and various forms of pressure to test your resolve.

(5) Avoid time deadlines. Resist negotiating in circumstances where you must have agreement by a certain date. The Chinese will assume that your urgency to conclude a deal can be played to their advantage.

(6) Minimize media pressures. PRC negotiators use public expectations about a negotiation to pressure their interlocutors. Confidential handling of negotiating exchanges, the disciplining of leaks, and the minimizing of press exposure are taken by the Chinese as signs of seriousness of purpose. Negotiation via the press will evoke a sharp Chinese response.

(7) Understand the PRC political context and the style of your Chinese interlocutor. Despite the difficulties of assessing the domestic PRC political scene, an evaluation of internal factional pressures and the style of your counterparts will help in understanding Chinese objectives and the limits of their negotiating flexibility, as well as in reading the signals or loaded language of a very different culture and political system.

(8) Understand the Chinese meaning of friendship. Know that the Chinese expect a lot of their "friends." Resist the flattery of being an "old friend" or the sentimentality that Chinese hospitality readily evokes. Do not promise more than you can deliver, but expect that you will be pressured to honor past commitments. Resist Chinese efforts to shame or play on guilt feelings for presumed errors or shortcomings.

(9) Develop a strategic orientation to dealing with the Chinese. The blandishments of the friendship game and Chinese pressure tactics are most effectively defended against by developing a strategic orientation suited to American negotiating practices and objectives. An attitude of restrained openness and interest in identifying and working to attain common objectives is the best protection against Chinese efforts to maneuver the foreign negotiator into the position of demandeur or supplicant.

(10) Parry Chinese pressure tactics in order to maintain control over the negotiating process. Chinese negotiating tactics are readily understandable and, in some measure, even predictable. Therefore, U.S. negotiators should develop countertactics that will parry PRC maneuvers and will demonstrate competence and control over the negotiating process. Tactical manipulations applied in excess or for their own sake, however, are likely to erode confidence and undermine the credibility of a negotiation.

[1]Fred Charles Iklé, How Nations Negotiate, New York: Harper and Row, 1964.
[2]Richard H. Solomon, Chinese Political Negotiating Behavior: A Briefing Analysis, R-3295, Santa Monica: RAND, 1985.