China Challenges

Luring Foreign Talent to China's Wall Street

Brian Schwarz,the author of China Challenges, and Isabel Ding write:

After the State Council's announcement last March that Shanghai would be turned into a global financial center by 2020, you could hear a collective sigh of disappointment in Shenzhen and Tianjin, two other cities which were competing for the title of China’s financial center, and had now lost the opportunity to the Yangtze port city. Hong Kong, the traditional financial center of China, now also has to reposition itself to deal with another nearby city offering many of the same services.

But a lot would have to be done for Shanghai to move up the ranks of world financial centers. Though the city has large stock and commodities markets, it is currently held back by regulations that only allow for small amounts of currency to be exchanged, a small to non-existent market for derivatives, including bonds, futures, and short selling contracts, and a relatively minor banking sector compared to Beijing.

Buy American versus Buy China

Time reports:

"Buy American and Buy China, what kind of impact they have is debatable," says Michael Pettis, a professor of finance at Peking University. "But they are so visible and easy for people to focus on. They become rallying cries." The real danger is that retaliatory steps such as Beijing's order for the government to buy Chinese goods "will spur protectionist sentiment and is at odds with worries about the country's export sector," wrote Ben Simpfendorfer, the Hong Kong-based chief China economist for the Royal Bank of Scotland, in a recent report. Economists say tariffs enacted by the U.S. government in 1930 and subsequent retaliation by Europe curtailed trade and helped prolong the Great Depression.

The financial crisis has deeply affected Chinese manufacturers. The country's exports were down 26% last month compared with the same period last year. But imports have fallen even faster, and China's already massive trade surplus grew to $13.4 billion in May. China has ratcheted up imports of some raw materials such as iron ore. But because prices have dropped so much since last year's highs, the effect on its overall trade surplus has been small.

While China's aggressive stimulus efforts have helped stabilize its economy, there is a risk that if China continues to export more abroad than it takes in, it will undermine weakened manufacturers overseas. That could further provoke protectionist sentiment in the U.S. and elsewhere. "We're going to see a significant rise in protectionism. There's no way around it," says Pettis. "In order to avoid it we need real statesmanship from the U.S., China, Europe and Japan. So of course I'm pessimistic."

General Motors' Sales in China Hit Record High

The Shanghai Daily reports:

GENERAL Motors Corp said today sales in China rose 38 percent to a record high in the first half as it rode on fast growing rural markets boosted by the government's stimulus packages.

GM sold a record 814,442 units in the first six months, helped by its Wuling minivans, Buick sedans and its new Chevrolet Cruze compact cars, the company said in an e-mailed statement today.

"China's vehicle market has benefited from government's stimulus policies and kept the growth momentum thanks to the booming demands in smaller cities and rural areas," said Kevin Wale, president and managing director of GM China Group.

China has offered subsidies to vehicle buyers in rural areas and cut purchase tax by half on cars with engines of 1.6 liters and below in a successful attempt to revive the flagging industry.

The biggest foreign automaker in China said its minivan business will continue to lead the market with the introduction of favorable policies on small engine vehicles. GM's minivan venture, SAIC-GM-Wuling Automobile Co, posted an increase of 49.9 percent in sales to a record 524,598 vehicles in this period.

Ogilvy Report: Marketing in China's Smaller Cities

A new report from Ogilvy China says:

China's 4th-6th tier towns, which account for 37% of China's population, have notably different consumer cultures and retail landscapes not only from the major metropolises of Beijing, Shanghai and Guangzhou but also from 2nd-3rd tier cities, according to "China Beyond," a new study released today by Ogilvy China. Moreover, what works in big cities for marketing firms and brands may not work in the 4th-6th tier locales which range from prefecture level cities to county level towns. Nevertheless, a vast opportunity exists for companies that can tap into local and regional psyches and lifestyles.

Data from China Statistics Handbook showed that rural average disposable incomes in China were 5791 RMB per year in 2008 and continued to grow at a rate of 10.3% in the first half of that year (HSBC, China Economic Spotlight, Aug. 2008). "This demonstrates the huge market potential in lower tier cities. With the government stimulus package directed at small town and rural China, it is expected that these consumers will dip into their savings and give China's economy a helping hand. But for them to do so, companies need to understand what drives their needs, aspirations, and ultimately purchase decisions," said Shenan Chuang, CEO of Ogilvy & Mather Group China.

Notably, the study finds that:

• With the influx of migrant labor, communities have established new rules of engagement and trust. The "web of favors" replaces the time-honored, high-trust relationship in small communities. This is where small, local companies compete with big corporations – by offering timely, relevant and free services to all community members.

• The pace of development is amplified by the anxious youth and their relationship with technology. Most young people, though optimistic about the future, do not know how to use the Internet for information, education and better opportunities. Their online behavior mirrors the lackluster, drab realities of a provincial life. Brands that are able to redirect some of the pent-up energy to fuel entrepreneurship, creativity and consumerism are likely to benefit.

China Lacks Qualified MBA Professors

The China Economic Review reports:

In China, filling this pipeline takes even longer due to the lack of experienced mentor professors. What experienced faculty mentors are available were largely trained up in the old command economy system, which makes their perspective less pertinent. In the case of mentors for emerging business professors, almost all of them must be imported (or convinced to return) from comfortable and lucrative positions overseas, a tough - although not impossible - sell.

At the same time, domestic academic standards are low across the board. In a survey conducted by the Ministry of Science and Technology, 60% of mainland PhDs admitted to plagiarizing work and paying bribes for journal placement. Enforcement of academic intellectual property rights remains contradictory; while doctoral students are frequently required to publish, they are rarely punished for plagiarizing or fabricating research, or for claiming publication of articles that do not exist.

Unfortunately, Chinese business schools cannot import their way out of this problem, even in the short term. While in many of the subject areas (the humanities in particular) doctoral graduates outnumber teaching positions by orders of magnitude, everyone acknowledges there is a global shortage of talented business faculty.

"The lack of flow of PhDs has been an issue for the sector globally for a long time," said HKUST's Cheng.

Is Power Shifting from West to East? Not Really, Says Pei

Meixin Pei writes in FP:

Asia is nowhere near closing its economic and military gap with the West. The region produces roughly 30 percent of global economic output, but because of its huge population, its per capita gdp is only $5,800, compared with $48,000 in the United States. Asian countries are furiously upgrading their militaries, but their combined military spending in 2008 was still only a third that of the United States. Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years. And Asia's combined military budget won't equal that of the United States for 72 years.

In any case, it is meaningless to talk about Asia as a single entity of power, now or in the future. Far more likely is that the fast ascent of one regional player will be greeted with alarm by its closest neighbors. Asian history is replete with examples of competition for power and even military conflict among its big players. China and Japan have fought repeatedly over Korea; the Soviet Union teamed up with India and Vietnam to check China, while China supported Pakistan to counterbalance India. Already, China's recent rise has pushed Japan and India closer together. If Asia is becoming the world's center of geopolitical gravity, it's a murky middle indeed.

Those who think Asia's gains in hard power will inevitably lead to its geopolitical dominance might also want to look at another crucial ingredient of clout: ideas. Pax Americana was made possible not only by the overwhelming economic and military might of the United States but also by a set of visionary ideas: free trade, Wilsonian liberalism, and multilateral institutions. Although Asia today may have the world's most dynamic economies, it does not seem to play an equally inspiring role as a thought leader. The big idea animating Asians now is empowerment; Asians rightly feel proud that they are making a new industrial revolution. But self-confidence is not an ideology, and the much-touted Asian model of development does not seem to be an exportable product.

Grave Outlook for Yao Ming

Yahoo Sports reports:

As the NBA draft approached, the grim truth about Yao Ming’s(notes) broken left foot hung like an anvil over the Houston Rockets. The fear isn't that he's just lost for next season, but longer.

The Rockets and Yao's reps are frightened over his future, and the concern is the most base of all: Does Yao Ming ever play again?

“The realization has hit them that this is grave,” one NBA general manager said.

For now, the Rockets have privately told league peers it could be a full season before Yao might be able to return to basketball. Multiple league executives, officials close to Yao and two doctors with knowledge of the diagnoses are describing a troubling re-fracture of his navicular bone. Three pins were inserted a year ago, but the foot cracked in the playoffs and isn't healing.

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Chinese Olympians investigated for Age Fraud in Sydney Games

The China Daily reports:

China has promised to co-operate with the International Gymnastics Federation (FIG) in their investigation into the age of Chinese gymnasts Yang Yun and Dong Fangxiao.

In a press release on its official website Tuesday, FIG announced it suspected Yang and Dong "of having violated minimum age requirements" at the Sydney Olympics and that it had started to investigate.

Chinese authorities promised to assist FIG, but denied the allegations.

"We have already received notification from FIG and we will communicate with them actively," Lu Shanzhen, head coach of China's women's gymnastics team and vice-director of China's Gymnastics Administrative Center, was quoted by sports.cn on Wednesday.

"The ages of Dong and Yang are in accord with the rules of FIG concerning the Olympic Games. We will work closely with FIG toward the investigation," Lu added.

Yang and Dong helped the Chinese women's team to bronze at the 2000 Sydney Games, where Yang also claimed bronze on the uneven bars.

Chevy Volt will be built and sold in China

AutoBlogGreen says:

The Chevy Volt is, as has been repeatedly said, the car that could save GM. With the auto market in China poised for expansion (at some point), it's no surprise that The General is thinking of making and selling the extended-range electric vehicle (ER-EV) there. The Detroit Free Press is reporting that GM will indeed build the Chevy Volt in China, but that all the Volts built in China will remain in China. Think of it as the Vegas of car sales. After initial production begins at GM's Hamtramck plant and export demand exceeds production there, GM will likely build Volts around the world for local markets. In the meantime, engineering and pre-production work on the Volt is taking place ahead of schedule.

A Powerful Sense of 'Chineseness'

Shi Yinhong writes:

Martin Jacques persuasively argues that a modernising and modernised China will keep its essential and dynamic Chineseness in a new era of "contested modernity", and that the rise of China as both a "civilisation-state" and a nation-state is ending the dominance of the west and ushering in a new era of global diversity in values and power distribution. It is hard to contradict his observation that "contrary to almost universal western expectations after Tiananmen Square in 1989, the Communist party not only survived but reinvented itself and, over the last 30 years, has presided over the most remarkable economic transformation in human history". But his assertion that China's age-old sense of superiority will reassert itself is more controversial.

Throughout China's very long history there has been a persistent theme of continuity and change – the former very tenacious, but the latter sometimes very drastic. Modern China has undergone many major changes. The Chineseness of China is dynamic, shaped not only by traditional ideas of China, but also by contemporary ones.

China's current leaders and, through them, the majority of the Chinese people have a strong belief in Chineseness and its overwhelming importance to national reform and development. This belief in Chineseness is not like the traditional Confucian one, which treated it as a universally applicable value. It is more particular, not assuming that what is best for China is necessarily best for the world. This aspect was introduced by Mao Zedong – before his own revolutionary "universalism" after the 1950s – by his insistence on determining the strategy of the Chinese revolution according to China's particular conditions, and his resistance to the attempts of Comintern to impose a universal revolution.

China's achievements over the past 30 years are a major source of Chinese patriotism today. The success of so-called "socialism with Chinese characteristics" has restored the Chinese people's self-confidence after the disaster of the Cultural Revolution, and in the face of the earlier spectacular success of the west. This self-confidence has now developed in the context of the global financial crisis, which has further dented the west's prestige and increased its dependence upon China. Its effect on China's foreign policy is noticeable. 

Shanghai will Launch a "Financial Talent Award" to Expats

The Shanghai Daily reports:

SHANGHAI will launch a "financial talent award" soon to make the city more attractive to foreign financial specialists, said Fang Xinghai, director of the Shanghai Financial Services Office, yesterday.

The award also allows for a lower tax burden for expatriate financial talents in Shanghai and aims to build the city into an international financial hub by 2020.

"We can't change the standard of the individual income tax on foreigners working in Shanghai - that is a national issue. But we do hope to attract more financial talents into Shanghai by lowering the tax burden on them," Fang said at the First European Union Shanghai International Financial Forum.

He said the award will be given to senior foreign executives working for Shanghai-registered financial firms and details of the incentive will be announced soon.

Compared with Singapore and Hong Kong, the Chinese mainland imposes a relatively high individual income tax of up to 45 percent on foreigners working in the city, which hurts Shanghai's ability to attract foreign talents, said Fang.

He also noted Shanghai will soon set up two special financial courts in Huangpu District and Pudong New Area to deal with financial disputes.

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NYT: Despite Law, Job Conditions Worsen in China

The NY Times reports:

While the accident at the Yiuwah factory was particularly tragic, working conditions elsewhere are worsening. A year and a half after a landmark labor law took effect in China, experts say conditions have actually deteriorated in southern China’s export-oriented factories, which produce many of America’s less expensive retail goods.

With China’s exports reeling and unemployment rising because of the global slowdown, there is growing evidence that factories are ignoring or evading the new law, and that the government is reluctant to enforce it.

Government critics say authorities fear that a crackdown on violators could lead to mass layoffs and even social unrest.

“The economic downturn has given regulators the perfect excuse to ignore the law,” says Zhang Zhiru, director of the Shenzhen Chunfeng Labor Dispute Service, a nonprofit group that supports workers. “I don’t see any fundamental change.”

But workers are fighting back. Earlier this month, the government said Chinese courts were trying to cope with a soaring number of labor disputes, apparently from workers emboldened by the promise of the new contract labor law.

The number of labor disputes in China doubled to 693,000 in 2008, the first year the law was in effect, and are rising sharply this year, the government says.

The law requires that all employees have a written contract that complies with minimum wage and safety requirements. It also strengthens the monopoly state-run labor union and makes it more difficult for companies to use temporary workers or to dismiss employees.

China to Cut Taxes in Effort to Help Exports

Shanghai Daily reports:

CHINA will reduce or eliminate export taxes on nearly 100 categories of goods including some agricultural products and fertilizers starting next month in its latest move to help the country's flagging trade sector.

The cuts are the first outright tax reductions since December 2008 and follow seven increases in export tax rebates since August.

While the policies give at least some relief to the nation's struggling exporters, they contribute little to fixing the main problem: restoring external demand, industry analysts said.

The Ministry of Finance said yesterday that 31 types of goods such as wheat, rice and soya beans will be exempted from export taxes starting July 1.

Direct, effective

Large tax reductions will apply to another 60 categories of products, including fertilizer and chemicals. The tax on phosphate fertilizer, for instance, will be cut from 75 percent to 10 percent.

"The move, similar to the previous increases in export tax rebates, is an obvious bid to counter the falling trade," said Xue Jun, an analyst at Changjiang Securities Co. "A tax cut is more direct and effective than rebates and enhances cash flow."

Chinese Real Estate: Planting the Seeds for the Next Bubble

Kris Tuttle writes:

Recent inputs regarding investor interest in Shanghai property shows it’s again running very high. There are some key structural reasons this is probably a good time to be considering taking some positions here:

1. The Chinese are now making it easier to buy property. A recent offering calls for investors to come up with a 30% downpayment to receive a 4% loan for the remaining 70%. The 3% deed tax and 0.05% stamp duty is now very low. The capital gain tax has been reduced (for resales within 2 years) to 5% of the gain versus what had been 5% of the entire amount.
2. Recent policy changes to allow the local currency to appreciate gradually adds an additional kicker to returns to external investors that makes this even more attractive. Although exchange rates are unpredictable, most feel that the RMB has been kept down structurally and will tend to trend up over time versus other major currencies.

Caution on China is always a good idea and we know that there is still inventory to be worked off in a number of major cities there. However the global investor appetite for this asset class looks like it will be aided and abetted by changes in deal terms and exchange rates.

Economist - Hello again, God of Plague

The Economist reports:

PAINT flakes off the signs that dot the shore of Poyang lake, rendering the faded red characters unreadable. But local villagers know the message all too well: “Danger! Don’t touch the water.” For fishermen and farmers whose fortunes are bound to China's largest freshwater source, disobedience is the only option. The price is daily exposure to the water-borne, parasitic worm Schistosoma japonicum which is carried by the millions of tiny fingernail snails that infest the marshland. It tunnels through human skin, invades the bloodstream and lays eggs. Victims of schistosomiasis, also called snail-fever, suffer chronic diarrhoea, fatigue and fever. In severe cases, infection can lead to swollen stomachs, bladder cancer, liver damage and death.

It is the world's second-most prevalent tropical disease after malaria, affecting 207m people of whom 726,000 are Chinese, according to the most recent official figures, from 2004. People around Poyang, one of the areas where the disease is endemic, laud Chairman Mao for ensuring the number is no higher. He ordered a fierce, if rudimentary, campaign in the late 1950s when cases neared 12m. Scores of peasants were told to sharpen their chopsticks and spear as many snails as they could find. The campaign reduced cases by several million in a decade and Mao penned a poem: “Farewell, God of Plague”.

China and the Future of Electric Cars

AutoGreenBlog says:

"Our goal is not to build a car company," says Better Place CEO Shai Agassi, "Our goal is to end oil." That would be quite an accomplishment, and it's going to take cooperation between the automakers themselves, companies like Better Place that are building and developing an electric vehicle infrastructure and the localities installing them. Oh, and people who drive the cars. According to Agassi, once China gets on the EV train, there's no stopping it.

"Once China does it, you don't have a choice," Agassi said, speaking at WIRED's recent Disruptive by Design Conference. There seem to be definite signs that China will soon become a major player in the electric car marketplace. Here in the U.S., California EV start-up Coda Automotive signed a deal with Chinese automaker Hafei to produce the bones of its electric sedan (pictured) and Volkswagen has teamed up with BYD to produce large-scale batteries for automotive use.

Beijing Says 'Buy China' Directive Not Protectionist

VOA News reports:

China is defending its so-called "Buy China" directive that gives Chinese companies first, and nearly exclusive, priority in winning contracts under the country's nearly $600 billion stimulus program.

When the U.S. government debated adding a "Buy American" requirement to its stimulus bill, China protested loudly. Chinese officials called the move toxic and protectionist.

China is now moving ahead with its own efforts to ensure that its stimulus package benefits Chinese companies.

Buy domestic

An order dated June 1 and reported by Chinese media this week says government investment projects should buy domestically-made products, unless these products or services cannot be obtained within China. It also says that purchases of imports need to be approved by relevant government departments, before the purchases are made.

At a regular news briefing Thursday, Chinese Foreign Ministry spokesman Qin Gang said the "Buy China" directive is not protectionist.

Qin says the purpose of the regulation is to maintain what he describes as a "fair-market environment for competition."

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Coca-Cola, GE, Wal-Mart May List in Shanghai Market

The CER reports:

Coca-Cola, General Electric and Wal-Mart are among US-based companies that may be looking to list on China's stock exchanges, the South China Morning Post reported, citing a note obtained from UBS. In a letter to clients, John Tang, a UBS strategist, wrote that he expected roughly 12 western firms with a "strong presence" in China to offer shares in the yuan-denominated A-share market. "An A-share [initial public offering] allows foreign companies direct access to much-needed [yuan] funding," Tang wrote, adding that US companies would benefit from higher valuations on the mainland's stock exchanges. Listings by major international firms such as Coca-Cola, General Electric and Wal-Mart could also help Chinese investors; such listings would not only expand investors' options, but could also help to improve corporate governance and make China’s bourses more "internationally oriented," he wrote.

In Response to Obama, Beijing creates "Buy China" Provision

AP reports:

China has imposed a requirement for its stimulus projects to use domestically made goods — a move that could strain ties with trading partners after Beijing criticized Washington's "Buy American" stimulus provisions.

Projects must obtain official permission to use imported goods, said an order issued by China's main planning agency and eight other government bodies.

Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing's 4 trillion yuan ($586 billion) stimulus. Foreign makers of wind turbines complain they have been shut out of bidding on a $5 billion stimulus-financed power project.

"Government investment projects should buy domestically made products unless products or services cannot be obtained in reasonable commercial conditions in China," says the order, dated June 1 and reported this week by state media. "Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts."

Beijing's stimulus is aimed at insulating China from the global slump by boosting domestic demand through higher spending on construction of highways and other public works.

The communist government promised in February to treat foreign and domestic goods equally in stimulus spending and has appealed to other governments to support free trade and avoid protectionism.

The Myth of 'Made in China'

At NPR, Robert Koopman, Zhi Wang and Shang-Jin Wei explain: 

First, it means that the U.S. trade deficit with China and Mexico is not as large as meets the eye. What's more, the United States' deficit with countries that make component parts — such as Japan — is probably understated. Yes, U.S. imports from all of Asia over the last 15 years have slightly declined, while China's share of U.S. imports has increased rapidly. But it's not that the world has stopped importing Japanese, Korean, and other countries' products; China is just "indirectly" exporting them instead by buying international components, assembling them, and then shipping them abroad.

Second, understanding that "Made in China" doesn't quite mean what we think it means helps clear up a mystery. Since the economic crisis began, China's exports have dropped significantly, but the impact on its GDP growth, oddly, appears muted. What's going on? Given the low share of domestic value added in China's exports, the Chinese economy's true dependence on exports is only half as large as the headline trade data would lead one to believe. The pain of a reduction in China's exports is shared with other economies that supply components, such as Japan, Korea, Taiwan, Singapore and Hong Kong. For example, for every iPod that the United States decides not to import, the "decline" in recorded exports from China is $150 — but only about $4 of that value was added in China. In other words, China's GDP declines just $4 for each lost $150 iPod. Japan, on the other hand, contributes about $100 to the $150 value and takes the far bigger GDP hit from "China's" decline in exports.

Gender Inequality Widespread in Chinese Workplaces

The Shanghai Daily reports:

SEXUAL discrimination in workplace is widespread in China with one in four female job seekers denied employment because of their gender, a study has found.

The research, released by the Center for Women's Law and Legal Services of Peking University, polled 3,000 women over a year and came up with the result after data analysis and in-person interviews, the China Youth Daily reported yesterday.

According to the report, one in 25 of those surveyed were forced to sign labor contracts containing clauses forbidding them to get married or pregnant in a set period of time.

More than 20 percent said employers cut the salaries of women who become pregnant or gave birth, and 11.2 percent lost jobs for having a baby.

Some 28 percent said employers set different criteria in recruitment and women had to perform much better than their male peers in interviews to get the same job.

More than one-third believed male employees had more chances of promotion, and 52.1 percent attributed it to women having to spend more time taking care of their families. The research also found one in 20 women experienced workplace sexual harassment.

KPMG: A New Dawn - China's Emerging Role in Global Outsourcing

A recent report from KPMG says:

 

Over recent years, China has made major strides in laying the groundwork for a diverse and successful outsourcing market. Central and local authorities alike have demonstrated a quiet determination to promote IT and other business services industries in locations across the country. Their vision is a long-term one, reflected by initiatives to develop education, training and other supporting infrastructure. What is remarkable however is how quickly the vision is now becoming a reality.

Changes Coming to the Evening CCTV News Broadcast

FT reports:

China Central Television, the country's main state broadcaster, is planning to relaunch its flagship news programme in a quest to defend its position as the country’s paramount media organisation in the face of a changing industry.

CCTV wants to make Network News, the news programme with the largest audience in the world, more attractive to viewers by devoting less time to reporting the activities of political leaders, introducing livelier anchors and adding more critical reporting, editors involved in the plans said.

The national evening news programme has no direct competitor and is re-broadcast on all local and provincial news channels, but has found it increasingly difficult to keep viewers from switching to entertainment and sports programmes.

“CCTV is losing out because the news programme is dull and too limited to positive messages only. You cannot do that anymore because citizens’ sources of information have multiplied,” said Tong Bing, a professor of journalism at Fudan University in Shanghai. “The news programme needs a radical overhaul, cosmetic changes will not do.”

Job Interview Revelations in Suzhou

Bill Dodson writes at the This is China! blog:

Interview Revelations
A British friend told us round the table of beers (well, near-beers: Bud and Tiger, mostly) he was disturbed by the answers he had received from three of the five Chinese nationals he was interviewing for a position at the Western company at which he is a top manager. All of the people he interviewed for the middle management position currently held jobs. He asked the simple question, “Why do you want to work here?”
The first engineer answered, “They are closing the factory.”

The second engineer said simply, “The factory is closing and moving operations back to Italy.” Italy! I thought to myself; that s one of the European Union countries most affected by manufacturing outsourcing to China.

The third engineer replied, “They are closing our factory and sending it back to Mexico. Two years ago I helped them bring the operation from Mexico to Suzhou.”

The British manager shook his head over his pint of Tiger Beer, said, “Can you believe that? Just two years after bringing sending all that equipment and getting staff hired and trained in China they’re sending it all back to Mexico!”

Suzhou will truly become a more interesting place.

Urban Chinese Focus More on Saving

The Shanghai Daily reports:

A RECORD number of China's urban residents said they are more inclined to save than to spend, a central bank survey said yesterday - a finding that seemed to contradict an actual rise in retail sales reported the same day.

Forty-seven percent of the respondents said they plan to save more in the future, up 9.5 percentage points from the previous quarterly survey, the People's Bank of China said. Those who plan more investment totaled 37.9 percent, up 8.8 points.

Only 15.1 percent of the respondents said that they will spend more in the future, down from 14.6 percentage points in the previous survey.

The central bank carried out the poll in late May among 20,000 residents of 50 Chinese cities. The survey, conducted every quarter since 1999, seeks to determine the savings, investment and spending plans of urban dwellers.

Shanghai - 28th Most Pricey City for Expats

The Shanghai Daily reports:

THE strong Chinese currency has helped push Shanghai 83 positions higher to rank as the world's 28th most expensive city for foreign staff, according to a new survey by ECA International.

Beijing advanced 78 notches to become the 26th priciest, and Hong Kong jumped from No. 98 last year to No. 29 this year, the human resources adviser said in a report yesterday.

"The strengthening of Asian currencies is the dominant factor contributing to the region being more expensive for visitors than it was 12 months ago," said Lee Quane, regional director of ECA Asia.

"In that period, the yuan has continued to strengthen against the US dollar. Many Western currencies, including sterling, the euro and the Swiss franc, have weakened. As a result, people coming from these economies into Asia will notice a considerable difference in costs compared with 12 months ago," he said.

Tokyo remains the most expensive location in Asia, due largely to the appreciation of the yen against other major currencies, according to the survey.

The report, conducted twice a year, compares a basket of commonly purchased consumer goods and services in more than 370 locations worldwide.

New Orleans Mayor Under Quarantine at Shanghai Hotel

Shanghai Daily reports:

RAY Nagin, the mayor of New Orleans in the United States, his wife and an associate have been put under quarantine in a local hotel, the Shanghai government information office today confirmed to Shanghai Daily.

Their plane landed in Shanghai on Saturday and the passenger, a Frenchman, who had flu symptoms, was later confirmed to have caught swine flu becoming the city's 10th case.

Nagin's office said that the couple and a security guard with them had no flu symptoms. The plane flew from Newark, New Jersey on Friday.

Nagin came to Shanghai for an economic development trip.

The quarantine may upset his scheduled trip to Sydney, where he was to lead a panel discussion on climate change at the 2009 National Summit of the United States Studies Center at the University of Sydney.

"We are aware that American citizens are quarantined in several provinces and municipalities in China. We are unable to provide any information about particular cases under the limitations of the Privacy Act," said a spokesperson for the US Consulate General in Shanghai today.

June 4 and China's "Second-Rate" Telecoms Industry

Bruce Einhorn writes at Businessweek:

Not often that you see someone comparing China's telecom sector unfavorably to India's. China has the world's largest cellular market and, in China Mobile, the world’s largest cellular operator. India is growing fast but it got a much later start and it’s nowhere close to the size of the Chinese market. So have a look at Telecom Asia blogger Robert Clark’s take on yesterday's 20th anniversary of the Tiananmen Square crackdown in Beijing. Clark ties the June 4 crackdown leading to the government censorship and ownership limits that have had a stifling impact on what he calls China's “second-rate” telecom industry. Because of the regime’s interest in maintaining control, he writes, “China cannot permit the growth of an open and competitive telecom industry. It refuses to allow private or – in breach of its WTO commitments - foreign players into the market.”

Clark's right, Beijing was talking a different game back when it was angling to enter the world trade club. Consider this article from the People’s Daily in May, 2000 with the laughably wrong headline “China Braces for Cut-Throat Competition after WTO.” The official Party paper went on to report, “The telecom market, one of the country’s most promising sectors, will eventually be opened to foreign investors, even though domestic players are not believed strong enough to compete with their multinational partners.”

However it's now 2009, almost eight years since China entered the WTO, and China has cut-throat competition only if by cut-throat competition you mean “three companies all controlled by the state.” Meanwhile, as Clark points out, India has allowed significant foreign investment in its telecom sector, and has strong world-class players as a result. “Compare China's system of state-controlled quasi-monopolies with India’s open telecom sector, which has allowed private businesses to nurture world-class telcos such as Bharti and Tata Communications. China Mobile's sole foray abroad has been to buy the smallest and weakest player in Pakistan. Its political stunt in trying to buy into Taiwan is now an embarrassment. Seven years after 3G was launched worldwide, Chinese consumers are today only just getting access to high-speed mobile services, while their government has spent billions on the TD-SCDMA boondoggle.”

Runaway Brides Seek Cash over Husband

The WSJ reports:

XIN'AN VILLAGE, HANZHONG, China -- With no eligible women in his village, Zhou Pin, 27 years old, thought he was lucky to find a pretty bride whom he met and married within a week, following the custom in rural China.

Ten days later, Cai Niucuo vanished, leaving behind her clothes and identity papers. She did not, however, leave behind her bride price: 38,000 yuan, or about $5,500, which Mr. Zhou and his family had scrimped and borrowed to put together.

When Mr. Zhou reported his missing spouse to authorities, he found his situation wasn't unique. In the first two months of this year, Hanzhong town saw a record number of scams designed to extract high bride prices in a region with an oversupply of bachelors.

. . . . .

Thanks to its 30-year-old population-planning policy and customary preference for boys, China has one of the largest male-to-female ratios in the world. Using data from the 2005 China census -- the most recent -- a study published in last month's British Journal of Medicine estimates there was a surplus of 32 million males under the age of 20 at the time the census was taken. That's roughly the size of Canada's population.

Now some of these men have reached marriageable age, resulting in intense competition for spouses, especially in rural areas. It also appears to have caused a sharp spike in bride prices and betrothal gifts. The higher prices are even found in big cities such as Tianjin.

US Hypocrisy on Human Rights and China

My friend Dan Harris writes at the China Law Blog:

1. I love my country -- the United States.
2. Of course I believe in human rights.
3. The US should strive to be a beacon on human rights.
4. When appropriate, and in ways that are appropriate, the US should encourage other countries to maintain human rights as well. Not in an idiotic Jimmy Carter sort of way, but in a sophisticated Henry Kissinger/Bill Clinton/Ronald Reagan sort of way.
5. I supported Hillary Clinton for president up until the very last minute.

But Hillary (and Barack), would you please get a damn clue on human rights, would you please stop embarrassing my country, would you please stop being such hypocrites, and would you please stop using human rights as a way to advance your popularity at home. I am referring to the US (on today of all days) blasting China for human rights violations that mostly took place 20 years ago. I say today of all days because today is the day that President Obama is making nice to Saudi Arabia while touting his next day speech in Egypt. I am not saying that Obama should not be engaging in diplomacy with those two countries, but they are about as far from paragons of human rights as one can get.

Remember this Day

Please take some time to remember what happened two decades ago.

Can China Create the Next Silicon Valley?

Sarah Lacy writes:

Since I got home from China last week, I've found myself in a lot of conversations where phrases like “the next Silicon Valley,” or “just like Silicon Valley used to be,” keep coming up. But while China is swimming in capital and littered with start-ups, I'm going to argue it's not the next Silicon Valley. In fact, it's something far different than I've ever seen before.

If you think about it, Silicon Valley doesn't really move as fast as people say it does. Sure, the rest of the U.S. business world may feel out-lapped by the pattern of companies going from nothing to billions in a few years, but those start-ups are mostly the outliers. For every wunderkind smirking on the cover of a magazine, there are far more entrepreneurs who slogged away for thirty years before ever getting their Nasdaq moments. And there are even more who slogged away for longer and didn't.

And even the breakout Googles and Facebooks of the Valley had the clear benefit of building their companies on top of decades of infrastructure build-out. I mean “infrastructure” in the sense of technology infrastructure—the chips, routers, open source stack, etc.— but I also mean it in the sense of Valley infrastructure that makes it possible to come up with an idea at breakfast and have a company by noon. It’s taken decades of continual boom-and-bust cycles to create the complex fabric of venture capitalists, angel investors, lawyers, term sheets, accounting methods and best practices that a newby entrepreneur waltzing in the Valley today has the luxury of taking for granted.

What makes China so staggering is that everything that happened to corporate America over decades—think the television and media studios build out of the 1950s, the greed of the 1980s, the dot com bubble, the build out of physical and IT infrastructure, current Web 2.0 and CleanTech innovation—is all happening to China at once.

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UAW Rejects GM's Plans to Export China-made Cars to US

The FT reports:

General Motors revealed plans on Thursday to build a small car in the US, capitalising on lower labour costs wrung from the United Auto Workers union as part of the ailing carmaker's restructuring.

GM, which is set to file for Chapter 11 bankruptcy protection on Monday, presented the as-yet-unnamed small car as an example of how its restructuring will revive its domestic operations by bringing down costs and making the cars that Americans want to buy.

Besides high labour costs, heavy competition from used vehicles and volatile demand have held down prices of small cars, deterring carmakers from building them in the US or Canada. Ford Motor is set to produce its small Ford Fiesta in Mexico, starting next year.

Fritz Henderson, GM's chief executive, said: “It takes a special effort by everyone to bring a domestically produced small car to market in a cost-competitive and profitable way – but that is what we are going to do together.”

GM's smallest model, the Chevrolet Aveo, is built in South Korea by GM Daewoo, a joint venture. The new model will be about the same size as the Aveo, classified as a B-segment vehicle.

GM said that it would spend $500m-$600m to retool a mothballed assembly and stamping plant, providing a capacity of 160,000 cars a year. It declined to identify the plant but said it would employ about 1,200 people.

GM indicated earlier this year that it would meet future demand for small cars by importing them from its operations in China.

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Murder Case Creates Uproar in China

WSJ:

A hotel employee whose arrest for the murder of an official sparked a wave of national sympathy in China after her lawyers said she was fighting off a rape attack has been released on bail, the state-controlled Xinhua news agency said.

The case is the latest in a series of scandals in China involving alleged abuse by the rich or powerful.

Deng Yujiao, 21, was arrested May 10 after she allegedly stabbed two local government officials with a fruit knife in the Xiongfeng Hotel in central Hubei province, killing one of them.

Dalian Conflicted over Japanese Investment

The LA Times reports:

Dalian, a Japanese military hub in the colonial years that still bears the stamp of the past, features direct flights to Japan and hotels catering to the Japanese. Many road signs are in Chinese and Japanese.

At a business zone called the Dalian Software Park, Japanese firms make up a quarter of the 450 tenants. Local universities are crowded with thousands of young Chinese studying Japanese, many of them seeking software careers. Others staff new business call centers where multilingual Chinese workers serve the needs of customers in Tokyo and other cities across Japan.

When Ito drives on roads with names like Japanese First Street and Japanese Fragrance Street, he said, Dalian feels like a second home.

"The troubled history between Japan and China is not that remote, but it is in the past," the 52-year-old said. "The new generation seems to have put this behind them. They want to move on."

Yet Dalian remains conflicted. Although Japanese business provides jobs and development capital, many of Dalian's 6 million residents still carry the scars of a war with Japan's Imperial Army.

Seeking Moral Leadership in China

Businessweek says:

Deeper conversation with Chinese entrepreneurs, corporate leaders, and academics indicate that the search for a Chinese moral compass is real and comes from the populace, not just from above. Interviews and surveys with young Chinese business people show the same. They seek meaning and guidance in a society that has been cut off from its traditional roots for a century, culminating of course in the Cultural Revolution. Many are reaching back to Buddhism and Confucius as well as writings of the Taoists and the legalists for orientation and a basis for developing integrity.

A Step Toward Real Global Standards

Here are some snapshots of what we see these days. A 45-year-old Shanghai MBA from a top-ranked Western business school, with experience working with successful entrepreneurs and who is the founder of his own investment firm, has over the last three years become so deeply Buddhist that he rises to meditate at 5 a.m. daily, eats little, works hard but gives away much of his income. "What do I actually need?" he asks. "Very little for myself." An older executive running a midsized company opens a business presentation with a slide on Taoism and states that China seems to have a religion of money but in fact must learn to rely on the Doctrine of the Mean or the balance exemplified by the symbol of the Yin and Yang.

Guns in China

Dan Harris at the China Law Blog writes:

I had this discussion the last time I was in China and one of the lawyers (in front of many other Chinese lawyers from his firm) said it is a good thing China is so tough on guns because if it were not, there would be 1.0 billion people in China, not 1.3 billion and everyone knows who the .3 billion would be and that is why the government is so tough on guns. I raised my eyebrows, smiled, laughed, and then said nothing.

Apparently Chinese government toughness on guns is declining as reports of guns in China seem to be increasing. James Areddy, a crackerjack China reporter for the Wall Street Journal, recently blogged on this in a post entitled, "Bang! Bang! Shots In Shanghai." The post is mostly about a recent gunfight in Shanghai but it also discusses other violence in China involving firearms. For more on guns in China, check out this 2008 WSJ article.

China's Lenovo Struggles Along

EngagingChina blog notes:

More bad news from Lenovo, the HK-based PC maker, which was once seen as the poster-child for a new wave of Chinese multinationals poised to take on the west. Worldwide PC shipments dropped 8.2% year-on-year in the first three months of this year, while the market as a whole only fell 7%. Consolidated sales for the period, its fourth fiscal quarter, fell by more than a quarter to $2.8bn, while gross profit declined 49%.

Results for the 2009 fiscal year are no better. Restructuring charges pushed it into a pre-tax loss of $188m and while its PC shipments grew 2.2%, tumbling average prices meant that consolidated sales from continuing operations dropped 8.9% , while its gross profit margin for the fiscal year slumped to 11.9% from 15% earlier.

China's Reaction to Huntsman

The New Yorker China blog says:

Reading the Chinese media coverage of the appointment of Utah Gov. Jon Huntsman, Jr. (Chinese name Hong Bopei), as the new U.S. Ambassador to China, three things are clear:

1) The Chinese took special note that Obama personally announced Huntsman, which is being interpreted by the Chinese press as a sign that Obama takes the job seriously even though Huntsman is not an Administration insider. The Chinese are acutely aware that Huntsman is not a close friend of the President, in contrast to his predecessor Clark T. Randt, who had been a D.K.E. frat-brother of George W. Bush and was known for a level of personal access to the President that stood out among other ambassadors. Smart move to have a high-profile Huntsman intro by POTUS.

2) Huntsman is being described in some Chinese reports as a “hardliner,” in the words of China Business News, though their evidence is slim. The paper paraphrased Michael Green of Georgetown saying the nominee “is no ‘panda-hugger,’” and the appointment “demonstrates that Obama on some issues wants to show ‘toughness.’”

China's Baidu hit with striking workers in Shenzen

The WSJ reports:

Executives of Baidu Inc., China's leading Internet search company, held talks over the weekend with striking workers who say they are angry over salary cuts and new sales commission policies that they believe are designed to force them out of their jobs.

Hundreds of Baidu employees in southern China have either stayed home or gone to the office and refused to work since May 4.

The industrial action burst into the open on Friday, when several hundred employees of the Shenzhen office marched to their local labor bureau to file a complaint against the company, according to strikers and officials in the labor bureau. In the nearby city of Guangzhou, the labor bureau said it had received complaints from "scores" of employees.

Has the China Price Disappeared?

Businessweek reports:

Over the past three years, in fact, the once-formidable China Price edge has all but disappeared for a number of manufactured goods, according to a new study by Southfield (Mich.) consulting firm AlixPartners, To illustrate its point, Alix assessed the total cost of ownership of five categories of machined products, such as large, cast-aluminum engine parts requiring significant labor and small mass-produced plastic components requiring little labor.

Alix found there has been a dramatic cost shift since 2005. Then, the "total landed cost," meaning price after an item had arrived at a West Coast shipping port, was 22% cheaper on average for Chinese parts than those American-made in the sample AlixPartners studied. By yearend 2008, however, the average price gap with the U.S. had dropped to a mere 5.5%, which is often not large enough to be worth the hassle of sourcing something from halfway around the world.

The more surprising reversal is the comparison with Mexico. While China was around 5% cheaper on average than Mexico in 2005, China is now 20% more expensive. Compared with the U.S., the Mexico Price edge widened to 25% from 16%. "A couple of years ago, outsourcing to China was a no-brainer" says AlixPartners Managing Director Stephen Maurer. "Right now, Mexico looks super attractive."

To illustrate the change, Maurer cites a machined aluminum engine part, for which labor typically accounts for about 30% to 35% of the manufacturing cost. It would have cost $25 in 2005 to make that part in the U.S. The same part would have been made in China for $17. Today, he says, the U.S. price will have risen to $29. But the Chinese-made part will be $25. The Mexico Price? Around $20.

GM to Import Chinese-made cars to the US in 2011

The CER reports:

General Motors (GM) wants to begin importing Chinese-built vehicles to the US in 2011, the Wall Street Journal reported. The company currently makes vehicles in China for sale exclusively in Asia but it believes it can save on manufacturing costs by shipping cars to the US as well. GM revealed its plans, which will eliminate 21,000 local jobs, as part of a broader cost-cutting strategy submitted to the US Congress. GM plans to ship 17,335 Chinese-built vehicles to the US in 2011, rising to more than 38,000 the following year and above 53,000 in 2013. The company also wants to increase imports from other countries, including South Korea, Japan and Mexico. The United Auto Workers union opposes the plan, arguing that GM - which is suriving on government handouts - shouldn't use taxpayer money to subsidize US job losses.

One Year Ago in Shanghai. . .

The Shanghai Daily:

A YEAR ago yesterday the ground trembled in Shanghai, shaking high rises and sending fearful residents and office workers into the streets, wondering what act of man or nature had so completely unsettled their sense of wellbeing.

It wasn't long before the news media were reporting a major earthquake had struck Sichuan Province. Though there was no immediate casualty toll, many locals were well aware that if the buildings swayed half a country away from the epicenter, the quake must have been an extremely powerful event, with profound consequences.

A year later, we know the outcome: The 8.0-magnitude quake - the worst in decades - left 90,000 dead or missing and 5 million people homeless.

And yesterday Shanghai remembered.

Is China Boxing Itself In?

 Randy Pollock writes in the LA Times:

 Which country -- the United States or China -- will make the 21st century its own?

When President Obama recently called for American young people "to be makers of things" and focus on subjects such as science and engineering, it was partly a nod to China's rapid growth. Had he lived, taught and consulted in China for the last 33 months, as I have, he might have urged American students first to follow his example and study the liberal arts. Only technical knowledge complemented by well-honed critical and creative thinking skills can help us regain our innovative edge. China's traditional lack of emphasis on teaching these skills could undermine its efforts to develop its own innovative economy.

I once challenged my Chinese MBA students to brainstorm "two-hour business plans." I divided them into six groups, gave them detailed instructions and an example: a restaurant chain. The more original their idea, the better, I stressed -- and we'd vote for a prize winner. The word "prize" energized the room. Laptops flew open. Fingers pounded. Voices roared. Packs of cookies were ripped open and shared. Not a single person text-messaged. I'd touched a nerve.

In the end, five of the six groups presented plans for, you guessed it, restaurant chains. The sixth proposed a catering service. Why risk a unique solution when the instructor has let it slip he likes the food business?

Though I admitted the time limit had been difficult, I expressed my disappointment and reiterated what I had expected -- originality -- and why. But they'd been so enthusiastic that I couldn't deny them a winner. After a polite discussion of the merits of each idea, the Haagen-Dazs gift certificates were awarded, but not without controversy. Runners-up later complained that an identical concept had been featured on CCTV the night before.

My students weren't recent college grads. They were middle managers, financial analysts and marketers from state-owned enterprises and multinational companies.

China's Geely Going After Saab?

Businessweek reports:

Is Geely, which trades in Hong Kong and is controlled by Zhejiang Geely Holding, based in the eastern Chinese city of Hangzhou, interested in picking up the Swedish pieces of GM and Ford? Lawrence Ang, an executive director of the Hong Kong-listed subsidiary, says there is no truth to either report. "We are not bidding for Volvo," he says, "and not for Saab." However, Ang does allow that talks might be taking place between Geely's parent company and the Detroit pair. "I can only speak on behalf of the listed company," he says. "So maybe it's the holding company, but not us." Wang Ziliang, spokesman for Zhejiang Geely, did not answer calls to his office.