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China’s murky state

30 Jan

The weather has been mostly good in Beijing, but there’s something else afoul in the country recently.

The government’s ideological-fueled crackdown on liberties continues to grow, so much so that it might be hard to keep track of them. Internet censorship took a big step recently when the authorities blocked Gmail in late December and then last week blocked mainstream VPNs (Virtual Private Networks, which allow users to access the Internet through private links) on Apple iPhones and iPads.

Then this morning, I woke up to read that the education minister came out and told Chinese universities to stop using textbooks that “promote Western values” or criticize socialism. University academics have also been told to stop criticizing the government, while a province even mulled plans to install CCTV in university classrooms to monitor professors over the past year. Journalists and artists have also been urged (warned) to adhere to Marxist values while accepting tighter control and scrutiny. Churches and human rights lawyers have faced crackdowns of their own as well.

I’ve said before I don’t see things going too well for the country, especially as its economy continues slowing and its government goes on cracking down on everything left, right and center, and spouting Marxist rhetoric. What I’m unsure about is whether the leadership is doing these things because it feels invincible or is desperate.This article sums up why China might be feeling a bit vulnerable, which is indeed facing a host of challenges.

Yet another hospital attack took place, resulting in a doctor dying along with his assailant after both fell down an elevator shaft in a Hebei hospital earlier this week. There is absolutely no excuse for attacking a doctor and killing him. The hospital’s doctors and nurses then went on a march through the streets the next day to mourn their colleague and highlight the lack of security. This has been a recurring problem that has happened across the nation even in Beijing.

In what was a bit of a shocker, a government regulator came out last week and blasted e-commerce giant Alibaba, which launched the world’s largest-ever IPO last September, over the prevalence of counterfeit items on its market websites. Alibaba, owned by China’s second-richest man Jack Ma, hit back at the regulator, the SAIC, with some unusually strong words of its own. This is very interesting since it pits a very wealthy and well-known entrepreneur against a strong organization of the central government. As this article points out, similar clashes have happened in the past and the government has usually come out on top.
The tiff seems to have settled a bit but this raises the question about whether the government will start cracking down on its own large companies, as it has already done on major foreign companies such as drug giants, auto companies and Microsoft and Qualcomm. The regulator has picked a very late time to release its critical report, which it had completed by last July but claimed it had held off from releasing public due to not wanting to affect Alibaba’s IPO. Alibaba’s share prices have dropped significantly this past week after the report. Alibaba’s Taobao site, which lets vendors sell directly to individual consumers, does have a lot of fakes so there is some merit to the SAIC’s report but this is the first time it has openly criticized Alibaba, which many consider a massive and rising star in China’s private sector.

Taiwan’s big firms’ succession issue

4 Aug

A lot of large successful companies in Taiwan are family-owned and managed, but a lot of the original founders have stayed on and retained control. This leads to the obvious problem of what happens when the founder passes away or retires. The main issue is that these founders often like to keep control of their companies, reigning over all affairs and micromanaging. For instance, take Foxconn or Hon Hai, the world’s largest contract electronic goods maker, and its owner Terry Gou:

Some years ago, Mr Gou enlisted the help of a group of academics, including Mr Tang, to develop a successor training plan. The plan was later disbanded after it became clear that no-one would be able to take over from Mr Gou until he started to delegate more.

“He can pick up [the] phone and call Steve Jobs or Bill Gates,” says Mr Tang.

“How can he transfer [these kind of] connections to his successor?”

 

Skyscraper boom and a giant rubber toad

27 Jul

China, along with Hong Kong, has about half of the world’s 20 tallest towers but that’s not enough. However, while previously Shanghai and Shengzhen were building ultra-high towers, smaller and less-famous cities like Suzhou and Wuhan are getting into the skyscraper boom now, mainly for prestige over economic benefits.

The mainland may irritate and infuriate, but sometimes it amuses. As a Chinese home-grown spectacle to rival the famous giant rubber duck that drew crowds in Beijing, Hong Kong and Taipei in Taiwan, a giant toad has been put up in Beijing’s Yuyuantan Park (Old Summer Palace). It’s not exactly as popular or “cute” as the duck, but it seems to be funnier, so much so that it’s been allegedly banned on Chinese news sites.

DSC05044

Shanghai’s Jin Mao Tower, flanked by the World Financial Center on the left, and the Shanghai Tower, China’s tallest tower.

 

 

China’s ever-expanding high-speed rail

16 Jul

One of China’s more impressive achievements is its train network, especially its high-speed rail which has expanded across much of the nation since being started in 2007. It seems like China has gotten so confident and enthusiastic with high-speed rail that it is seriously proposing high-speed rail networks going from China to neighboring countries, as well as across the Asian continent all the way to Europe! It sounds very ambitious and suggests China is a rail power, but it is important to remember that China’s high-speed rail lines cost a ton of money and may not be earning much profit, if at all, and that it was, at least formerly, based on foreign technology. Of course China seems to excel in large-scale infrastructural projects such as highways and dams, and that before its high-speed rail, it also boasted an extensive regular train network which is still in use today.

China’s best smartphone brand

15 Jul

One of the few Chinese homegrown brands that actually has a good, even cool, reputation is Xiaomi. It’s actually been called China’s Apple when it comes to smartphones because it’s supposedly just as cool and stylish. I can’t verify that, but the company’s growth, stats (No. 3 in sales right behind Samsung and Apple) and fans do testify to its popularity. Unlike other Chinese companies that make smartphones like Huawei, ZTE and Lenovo, Xiaomi is strictly a smartphone company though it has branched off into devices like tablets and HDTVs. More impressively, it hardly spends on ads and marketing and sells its phones directly online. Learn a bit more about Xiaomi and its entrepreneur founder here. Xiaomi has continued to expand overseas by launching with India this week (it is already available in Taiwan, Singapore, Philippines and Malaysia). However, Xiaomi has a long way to go before it can really become a popular brand outside of China.

China’s brand conundrum

28 May

Yet another world’s top brands list came out last week, with Google and Apple the top two brands respectively. Several Chinese companies are on the BrandZ Global Top 100 list, which is good. But what can’t be ignored is most people outside of China have probably never heard of them, since none of them are truly globally renowned. This isn’t a new problem nor is it a mystery. The Chinese government, companies, and the public are mostly aware of this problem, with the government pushing for Chinese brands to go global and firms spending more on research and development. Why does it still exist? Copying and counterfeit goods (not to mention fake stores and hotels) is probably the first thing that a lot of people think of, but a closed business environment, and rigid corporate and educational system are also big factors.

In a way, it’s not all bad because for a lot of Chinese firms, China itself is the world. A home market with the world’s biggest population and a restricted business environment, one that has barriers to foreign companies, make for a hugely profitable climate, especially if one is a state or state-backed firm. Yet is this the right way to go? Especially when Chinese firms don’t fare well when going up against foreign competitors, even on home turf.
Banks also favor lending to large firms, which are often state-owned such as mobile telecom operators (China Mobile, China Unicom) and airlines for example, thus allowing them to maintain monopolies. Even the banks themselves (ICBC, Agricultural Bank, Bank of China) are all state-owned (there is one major private bank in the whole country).
And benefiting from limited foreign (and perhaps superior) competition and closed business environment at home is actually a hindrance when competing overseas, which is why success in China for Taiwan companies doesn’t equate to global success.

Besides political and business culture, another big danger is social culture. This leads to complacency and the lack of urgency and desire to innovate or be creative, both due to a culture of copying and of doing whatever is profitable rather than take risks.

From the Guardian article (2nd link above):
We get these endless things from the government saying there should be more innovation and brand building,” says Paul French, chief China market strategist at market research firm Mintel. “But there isn’t anything behind it. The problem is that no one really wants to invest in innovative design. It’s very market-led. So if reports come to the stores that red shirts are selling, they’ll tell their in-house designers to design more red shirts. This means the designers don’t get a chance to do anything.”

There are Chinese brands of course. While some, like Lenovo, were obtained through acquisition, others like Huawei, Haier (home appliances), and Xiaomi (smartphones) are truly homegrown. Chinese tech giants Alibaba, Sina and Tencent dominate local Internet fields like social media, search and e-commerce, and in the case of the latter’s Wechat app, is making an attempt to get into overseas markets. Even so, it’ll be a long, hard journey for Chinese brands to become as well known as Japanese or even South Korean ones.

China in Africa

23 May

There was a time during the past decade when African nations were very keen on investment from China. Now, though the trade and investment has continued to grow, some of this keenness has turned into skepticism. Africans have become more aware of the negative aspects as well as positive and have become more vocal, to the point where patronizing warnings from Western countries like the US are not really needed. These negative aspects include not heeding local laws and regulations, especially concerning the environment, using Chinese labor instead of locals, doing official and business deals that involve bribes and little transparency, and engaging in projects that don’t really benefit the local people and leave countries heavily indebted. This isn’t to say that Western corporations aren’t guilty of some of the same things as well in their dealings in Africa.

Just at the beginning of May, China’s premier made a 4-nation visit to Africa where he announced $12 billion in aid for African countries. ChinaFile discussed how China is doing, noting that while it’s doing good in terms of business, surging to over $200 billion in 2013, winning the “hearts and imaginations” of normal Africans is another. Also, some African governments are able to strengthen and enrich themselves greatly from their relationships with China; not surprising given China has no qualms about the leaders of nations it does business with.

China’s monumental economic woes

10 May

China’s economy is going through a rough period and there are signs of major troubles with key sectors such as property and finance. There’ve been a lot of dismal numbers, such as economic growth in the first quarter of this year having slipped to 7.4 percent, the lowest in 18 months. Yet it’s not numbers that’s worrying but fundamental problems with the economy.

Quartz.com has this article that likens the current problematic state of China’s economy with Japan’s two decades ago, right before Japan suffered a property crash, and consequently went into an economic decline and stagnation that it still hasn’t really recovered from over two decades later.

China’s leaders aren’t foolish, which is why this current leadership has been pushing the message of reform for a long time now. More reform is definitely needed, tough measures need to be taken (for instance letting sketchy companies go bankrupt rather than bail them out), and problems should be tackled rather than swept aside or allowed to continue (the Quartz.com article above talks about this).

The biggest problem is property, which is a major part of the nation’s economy, providing the majority of local government revenue and taking up the majority of bank lending. For a long time, there’s been talk of a property bubble and there’re fears it’s right around the corner. In the first quarter of this year (Jan-Mar), property sales are falling significantly, even in first-tier cities like Beijing, to the point that some developers are offering big discounts on new homes. The vice-chair of a major developer was caught making some dire remarks about this. There are too many homes and offices being built, with seemingly every single mainland city and town in a construction boom in the past decade, prices are sky-high, home sales are lagging, and developers are having problems with cash flow, especially as banks have tightened lending.

Problems with the property market lead to problems elsewhere, which brings us to shadow banking, which refers to non-bank lenders such as trusts, leasing companies and money-market funds, with even state-owned enterprises and shipbuilding companies getting into the act (see the article above). These companies often lend to smaller property developers and other companies that find it hard to get credit from banks. As regulators have focused more attention on shadow banking, the sector has evolved as well, which is not necessarily totally bad, but the issue is if the expansion is going too fast and too out of control.
On the other hand, this article tries to argue it’s not so bad since a shadow banking crash won’t affect real banks and that these banks can easily cover bad loans with their profits in the event of a shadow banking crisis. It’s a bit optimistic in my opinion, as the writers seem to assume the best and ignore serious ramifications, such as saying that if a shadow banking crisis occurs, this will benefit banks since savers will move money back to banks without considering that savers may not necessarily have their savings intact if shadow banking suffers a huge crisis, or playing down the effects on raw material exporting nations if Chinese imports drop (frankly the article’s arguments seem very flimsy).
More convincing is this article which says the failure of shadow banking is a ticking time bomb, and will be very bad. Shadow bank lending has been used to finance many projects and developments that are failing or going out of business, such as the $100 billion industrial project and eco-city featured in the piece that has been all but abandoned.

Meanwhile, overcapacity is a big problem in heavy industry, as sectors ranging from steel to cement to solar panels have too many companies that produce too much that can’t be sold or exported. The government has issued orders such as shutting down old and poorly performing plants (setting targets such as reducing steel production capacity by 27 million metric tons) and limiting the number of new plants.

China is still a place of great opportunity and potential in fields like e-commerce and tourism. But its economic problems are vast and deep, and overcoming these will be painful.

Alibaba and its savvy founder

9 May

Chinese Internet and e-commerce giant Alibaba might be set to have an IPO in the US, which some think could raise as much as $16 billion, more than Facebook’s IPO. However, it’ll likely still focus on its home market in China, where there’s a lot of potential to exploit. The company was founded by Jack Ma (Ma Yun), a former English teacher from Zhejiang, who grew the company from humble origins into a tech behemoth that dominates business-to-business and business-to-consumer transactions in China. What’s more remarkable is that Ma has little tech knowledge, though he seems to have more than made up for that with business savvy, good initiative, and some ruthlessness. Alibaba’s sales volume in 2013 was $248 billion, more than that of Amazon and eBay combined!

Alibaba’s main business is its original site, which bears the company’s name, that allows companies to sell products to other companies. Then there’s Taobao, a site where individuals and small businesses can sell their goods; Tmall, which allows local and international brands like Apple and Nike to set up virtual stores;  and Alipay, a digital payment service.

China’s number one, or is it?

7 May

China might have already surpassed the US as the world’s largest economy according to a UN effort to calculate spending power in 199 countries. But according to the Atlantic’s James Fallows, that doesn’t mean a thing. And he’s right. All it mainly does is make China number one on paper, but in reality, its GDP per capita remains low, many people earn very little, home prices have surged out of reach for many young people, and it has a range of big problems (regional inequality, rural poverty, and widespread air, ground and water pollution etc) that will cost much to fix. 
As Fallows writes, “But the differences not captured by such figures -freedom to or restrictions on travel within a country, who can and cannot go to school, the still unfolding effects of mass urbanization, the nature and availability of health-care systems, above all the country’s environmental catastrophe- are also part of any serious attempt to understand how “rich” or “poor” China is.”
Besides Fallows, there are other intelligent observers like these people who temper and describe the not-so-impressive ramifications of China’s hypothetical surpassing of the US.

And Fallows is also right when he pours scorn on other media outlets that attempt to hype up China based on this statistical bonanza with headlines proclaiming China’s century has begun. It’s a particular peeve of mine. Over the years, there’ve been all kinds of articles and books that portray China as a superpower and this is China’s time, but a lot of it is empty hype based on enormous statistics.

Younger people in Beijing are relying more on their parents to buy homes. This isn’t surprising, given the high costs of homes, the salaries that most people get, and that young people don’t save much. I’d even be willing to wager that this is true for much of the mainland, Hong Kong and Taiwan.