China Challenges

'Unofficial' Money Fleeing China

Cam Hui writes:

There has been much angst over the latest report of China's quarterly decline in forex reserves, which has been described as "hot money" fleeing China. A more important sign of China's health is how much "unofficial" money from tycoons and wealthy officials have fled. If corrupt officials were to take money out of China , than it would be an important sign of the metaphorical rats leaving a sinking ship.

One rough way of monitoring the "unofficial" money flow is to watch gaming revenues in Macau. The Economist discusses Macau's success as a gaming destination [emphasis added]:

Macau’s success is not built purely on the Chinese love of gambling. It is also fuelled by a stampede of nervous money fleeing the mainland. A look behind the scenes at Macau reveals a lot about Chinese corruption, and also about how scared many Chinese businessfolk are about the political climate back home.

Is China Now Number One?

At Seeking Alpha, Scott Sumner writes:

A few years ago the World Bank estimated the Chinese cost of living to be only 1/3 of US levels. Then they re-did the computation and found the ratio was 1/2. Even at that ratio China would have a larger economy than the US right now, even without including Hong Kong. Indeed that would still be true if we assumed the Taiwanese price level also applied to China.

Read more: http://seekingalpha.com/article/319644-is-china-now-number-one?ifp=0&source=email_the_daily_dispatch

Mexico gains on China

The CER reports:

China has been home to the world’s most competitive export industry over the past decade. Its low-cost, low-value exporters have pumped out products ranging from textiles to electronics, in the process ushering cash into the economy and inflating China’s massive currency surplus.

But that competitive advantage has winnowed as the value of the renminbi and local wages increase. Labor prices in southern and eastern China, the traditional base of manufacturing, are growing at double-digit rates. This has prompted some manufacturers to move to China’s interior, where wages remain much lower; however, they often find those savings mitigated by higher transport costs.

As a result, many have speculated that production of these low-value items will trickle to nearby countries like Vietnam, Bangladesh and Indonesia. But in the age of international trade, production could move farther than that. Corporate decision-makers no longer have a clear-cut answer where to place their next factory, said Ivo Naumann, Shanghai-based managing director of consultancy AlixPartners.

“I need an additional plant because I’m running out of capacity. Do I put my next plant into China? Or do I put my next plant into Mexico?”

Overtaken overnight

Of all these possible destinations, Mexico may be the country to benefit most from China’s rising costs. Its products have among the lowest landed costs (meaning the total cost of a product once it arrives at the buyer’s door, including shipping and customs duties) of any manufacturing country, particularly for imports to the US. That’s partially because during the last five years Mexico has experienced very different economic trends than China has: The peso has depreciated against the dollar, and wages have risen roughly in line with the inflation rate.

Read more: http://www.chinaeconomicreview.com/content/heading-south

USHI Links In Mainland China

Forbes reports:

In 2003 Dominic Penaloza became the 40,132nd person to join the U.S. networking site LinkedIn. Not terribly remarkable for a site that now has 135 million users, but for Penaloza it was a lightbulb moment: “I remember distinctly thinking this is something that should work in China. The concept of professional networking is so Chinese.”

Fast-forward and Penaloza is now at the helm of Ushi.com, a Shanghai-based professional-networking site that launched in February 2010. It has 600,000 members, is growing by 100.000 a month and boasts a staff of 60. In September it closed a $3 million round of funding led by New York research firm Gerson Lehrman Group.

“I think this is the right time to invest in a professional social network in China,” says Yunli Lou, managing partner of Shanghai’s Milestone ­Capital Partners, who invested in Ushi.com out of her own pocket in both the most recent round and the earlier angel round. “There are so many small-to-medium-size businesses in China and people switch jobs so much, and there is no pool or platform to find qualified people.”

Read more: http://www.forbes.com/global/2012/0116/companies-people-dominic-penaloza-linkedin-connecting-china.html

College in China Loses Face Over Statues Depicting Donors as Goddesses

The Chronicle reports:

The hometown of China's terra-cotta army boasts two new statues that are rapidly becoming famous, to the chagrin of the college that commissioned them.

They depict Athena, Greek goddess of wisdom, and Nuwa, a Chinese mother goddess, guarding the library of Modern College, an affiliate of Northwest University in Xi'an.

It turns out that helmeted Athena's homely features belong to Ms. Guo, a major donor who is the college board's chairwoman (and who, like many Chinese officials, was identified in news accounts only by her surname). Nuwa portrays Ms. Liu, another donor and board member. The statues have attracted ridicule from China's army of bloggers and tweeters, who hoot that they are proof of corruption, servility to donors, and disregard for academic standards.

Modern College has given no information about the two women's donations or the origin of their funds.

Read more: http://chronicle.com/article/College-in-China-Loses-Face/130243/?sid=gn&utm_source=gn&utm_medium=en

If No Trade Reversal Now in China, Then When?

Micheal Pettis says:

There is developing in Beijing, I think, almost a panic about global economic prospects and the impact of the European crisis on China. This panic is going make the rebalancing process harder than ever because a Chinese rebalancing almost necessarily requires a rapid slowdown in growth as investment decelerates sharply long before a rise in consumption can take up the slack. Weakness in the export sector makes the slowdown all the more costly.

Read more: http://seekingalpha.com/article/318362-if-no-trade-reversal-now-then-when?ifp=0&source=email_authors_alerts

Chinese factories now manufacturing Shanzhai Indian goods

Shanghaiist notes:

This is not a joke: India is now the next frontier for China's shanzhai manufacturers. From IANS via the Times of India:

Chinese manufacturers are increasingly "faking" popular Indian products of consumer goods giants such as Dabur and ITC, undermining the legitimacy of brands and causing losses worth as much as $5 billion annually, officials said.

"A lot of counterfeit Dabur products are made in China. We have conducted at least 20 raids in China but no proper action has been taken by the Chinese," said Ashok Jain, general manager of finance at Dabur India, the country's fourth largest FMCG firm

Buying A Chinese Company? Why China Deals DON'T Get Done.

Dan Harris says:

We lawyers are known as deal-killers. Most lawyers get offended by that moniker and vehemently deny it. Me, I am more than willing to own up to it. Clients go to lawyers all excited about a deal and it is the lawyer's job to point out the risks and to explain which of those risks can be mitigated and which cannot. I am proud of the deals I killed because my killing the deal meant I was doing right by my client. In other words, I was just doing my job. 

I have put the kibosh on many a China acquisition and that is what this post is about. The following is actually an amalgamation of many such potential acquisitions, but for ease of explanation and to camouflage the identities of those involved, I have amalgamated a bunch of them into one. Trust me when I say that the following is incredibly typical, including the retirement of the owner precipitating the need for the deal.

Read more: http://www.chinalawblog.com/2012/01/buying_a_chinese_company_the_numbers_are_different.html

What's Up With The Chinese Economy?

Prieur du Plessis at Seeking Alpha says:

I do not foresee any significant growth in new export orders for China’s manufactured goods. To keep the wheels of China’s industries rolling internal consumption needs to be boosted and consumer confidence restored. I believe that the first of many salvos of stimulatory measures have been fired to rekindle the economy. Recently the reserve requirements of Chinese banks have been lowered and yesterday the China Daily reported that “New measures will be introduced to boost consumption, especially for vehicles and electrical appliances, as export demand weakens. Ministry of Commerce spokesman Shen Danyang also said the ministry is mulling over launching new programs, expected to be announced next week, on expanding domestic consumption.”

The Chinese authorities have despite heavy criticism shown their mettle during the great 2008/2009 crisis by successfully pump-priming the economy and turning the economy long before any of the other major economies. But it is early days still.

Will China’s manufacturing sector continue the apparent recovery in January? I think that the manufacturing PMI will remain under pressure in January – not because of weakening economic fundamentals, though. The impact of the preparations for the Chinese New Year celebrations that begin on January 23 and last until January 28 is significant.

Read more: http://seekingalpha.com/article/317529-what-s-up-with-the-chinese-economy?source=email_global_markets&ifp=0

China: will 2012 be a replay of 2009?

Yiping Huang of Peking University says:

So based on current trends, 2012 should see a soft landing in China. Affected by a sluggish external economic environment, export and import growth will likely halve to 9.8 per cent and 12.8 per cent, respectively. Reduction in net exports could reduce GDP by 0.4 percentage points.

Of the three key components of fixed-asset investment, manufacturing investment is relatively more resilient and infrastructure is more or less a function of government policy. Uncertainty surrounds residential investment, which is likely to slow significantly in the coming year, following sharp adjustment in both property prices and transaction volumes. Despite this, residential investment should continue to grow in 2012 — albeit at a slower pace — due to large development projects, ongoing construction and the expansion of public housing.

Domestic consumption will be key to maintaining the economy, although the pace of its expansion should also moderate. In recent years, retail sales have consistently outperformed GDP.

Read more: http://www.eastasiaforum.org/2012/01/01/china-will-2012-be-a-replay-of-2009/

Is China Ready for 2012?

The Atlantic reports:

It is appropriate that the year began with the Tiger Mom and closed with an official indictment of the management of the Chinese high-speed rail program. The book ends of this year's China narrative capture the zeitgeist in 2011: the ever fiercer duels between the China bulls and bears. Yes, Amy Chua is American, but her story became instantly linked to the general competitive fears that Americans had about what appeared to be an unstoppable juggernaut -- perhaps one of the most overused nouns in describing China. From raising future Ivy Leaguers to clocking the fastest bullet trains, the Chinese can do it all and with exacting efficiency. It was a year in which many latched onto the China story, many more traveled to China for days or weeks and commented on it, and many used the country as a reflection of America's own debilitating dysfunctions. A "juggernaut" it may be, but China's size is also its curse. The country is no longer under the proprietary province of China specialists -- it is now subject to Saturday Night Live parodies and Gary Shteyngart's literary satire. For better or worse, 2011 saw the democratization of the China narrative.  

This debate is due in large part a consequence of this democratization, leading to a proliferation of "takes" on China that make it difficult to separate the good from the bad.

Read more: http://www.theatlantic.com/international/archive/2011/12/is-china-ready-for-2012/250162/

Red Envelopes and Gray Income in China

See Red in China says:

In China, the possibility of “gray income” can be an important factor when choosing a job. “Gray income” simply refers to receiving ”gifts” in exchange for improved service. It is most common when someone controls access to something like health care, education or job opportunities. The difference between this and bribery seems rather arbitrary, but people in China seem to accept the former while being disgusted by the latter.

The prevalence of gray income jumped out at me the other day after a good friend told me of a discussion he had in a local noodle shop with an off-duty policeman and his friend. At some point the policeman’s friend brought up the issue of gray income and how police officers have many sources of it, which the policeman vehemently denied. His friend than countered with a single piece of damning evidence, somehow this lowly public servant was able to afford to send his daughter to study in the US.

I’ve noticed similar disparities between people’s income and the purchases they make, and many Chinese netizens have taken notice too. In my office we joke that doctors’ coats have many pockets, because they need many places to hold red envelopes. Colleagues brush it off by saying that this is simply a way for the patient to thank them.

More often though, gray income is disguised in gift giving.

Read more:

China Rail Fail: 42% Spending Cut in Bullet Train Meltdown

Walter Russel Mead says:

The Panda Lobby, the pundits and policy wonks who want the US to imitate China’s state capitalism, has long celebrated what it claims to be China’s far sighted and effective approach to industrial policy.  China, the Panda pundits tell us, will own the future because of its courageous subsidies to green technology and high speed rail.  The meltdown of the Chinese solar industry has been widely reported; now comes word that the rail program is also in trouble.

Read more: http://blogs.the-american-interest.com/wrm/2011/12/26/china-rail-fail-42-spending-cut-in-bullet-train-meltdown/

The End of the Chinese Dream

Foreign Policy reports:

Despite China's astonishing economic growth, it has gotten harder for people like my friend to get by in the big city. His is not a particularly lucrative profession. Like many in Beijing, he cannot count on his annual pay to keep pace with China's official rates of inflation -- which many economists suspect are lowballed anyway. (The consumer-price-index inflation rate is considered so sensitive that the State Council approves it before it is released publicly.) Even so, every month this year consumer-price-index inflation has exceeded the official average monthly target of 4 percent. Last month state media hailed it as good news that it was, officially, just 4.2 percent.

Anyone in Beijing can point to examples of friends who see rents hiked 10 percent or more in one year. The prices at restaurants keep going up, even as portions are getting noticeably smaller. Throw in the loss of intangibles that money can't buy -- like air quality and food safety -- and you begin to understand the grumbling among some of Beijing's non-wealthy folks that their standard of living seems to be diminishing, even as the national GDP surges ahead at a heady 9 percent.

Could it possibly be true that a swath of people in China's big cities is downwardly mobile, if one compared wages with living expenses?

Read more: http://www.foreignpolicy.com/articles/2011/12/21/end_of_the_chinese_dream?page=full

The Impacts Of China's Real Estate Crash. A Hard Rain Is Gonna Fall.

Steve Dickinson writes:

There are two types of real estate investor in China. The first are pure speculators who treat residential real estate as a source of value, far removed from its original residential use. These investors purchase multiple properties without bothering even to remodel the units for actual use. They are responsible for the spooky flats of empty condo buildings that have become so common in all of China's cities.

The second are the normal citizens who purchase real estate as their primary residence. The high prices of the real estate bubble created by the speculators have created much pain for these normal home-buyers. Recent policies of the central government designed to contain the real estate bubble have been designed to benefit this segment of "normal" home buyers. However, it is probable that the recent collapse in real estate values has damaged these normal home buyers as much as, or even more than, the speculators.

Read more: http://www.chinalawblog.com/2011/12/the_impacts_of_chinas_real_estate_crash_a_hard_rain_is_gonna_fall.html

Apple struggles to take bigger bite out of China

Reuters reports:

It is not that Apple's iPhones and iPads are losing favour among Chinese consumers. The iconic products are flying off the shelves at Apple's five flagship stores in Shanghai and Beijing, unauthorised sellers, and even from fake shops dressed up to look eerily like the real thing.

The problem facing Apple seems to be timing.

Network technology is not sufficient to fully support iPhone and iPad capabilities, while other handset makers supply phones that support the various mobile standards used in China.

A tie up with another telecoms service provider would help catapult Apple sales. But the biggest by far, China Mobile Ltd (0941.HK) with more than 600 million subscribers, may not have matching technology in place commercially until late 2012 or 2013.

In the absence of that, Apple's relatively rigid global pricing structure and limited range of models are allowing more flexible competitors to grab market share at a faster pace.

Apple's smartphone market share has more than doubled since the first quarter of 2010, but others are doing better. Samsung Electronics Co Ltd's (005930.KS) market share has more than quadrupled over the same period.

"Apple's strategy in China is to capture the higher-end segment, which is a big enough market for it to tackle," said Jane Wang, an analyst at UK research firm Ovum.

Read more: http://in.reuters.com/article/2011/12/18/apple-china-idINDEE7BH06Y20111218?utm_campaign=China+-+Bing+News

Tax Reform and Hard Landing in China?

Patrick Chovanec says:

Smart tax cuts can play a role in stimulating innovation and consumption in China, and hence growth.  But the key is cutting the right taxes, and stimulating the right things.  China's current tax system is geared towards subsidizing production (particularly exports) and investment (particularly real estate) at the expense of savers and consumers.  This needs to change, but unfortunately many of the tax "reforms" officials are currently talking about go in the wrong direction.  Let me give three examples:

Lower and middle-income earners account for over half of all income tax revenue in China (compared to the U.S., where the top 10% of income earners pay 71% of federal income taxes, and the bottom half pay only 3%).  This places a huge burden on lower-income earners and suppresses consumption.  The solution, some Chinese policymakers believe, is simple:  make the tax code more progressive.  They even started to shift in this direction earlier this year.  The problem, though, isn't the tax rate -- China's top marginal rate is 45%. 

The problem is uneven enforcement and collection.  SOE employees -- including top management -- receive a lot of their compensation in-kind (free food, free housing, free car with driver, etc) and tax-free.  Business owners can classify their income in ways that avoid taxes.  Officials, we all know, receive much of their income under the table.  The only people who actually pay 45% of their real income are foreigners or Chinese nationals working for foreign companies.  Raising their tax rates -- which are already high -- will just drive people to Hong Kong.

Hear more: http://www.washingtonpost.com/business/chovanec-says-china-faces-harder-landing-than-expected/2011/12/12/gIQApMosqO_video.html

China says will hit U.S. auto imports with duties

Reuters reports:

China will impose punitive duties of up to 22 percent on large cars and SUVs exported from the United States, China's Commerce Ministry said on Wednesday, the latest in a series of trade disputes between the world's two largest economies.

The new duties take aim at vehicle exports valued near $4 billion and come at an awkward time for U.S.-China relations, with China's currency and trade policies becoming a focus of criticism for U.S. presidential candidates.

Vehicles affected by the new duties include the Cadillac Escalade made by General Motors Co, the Jeep Grand Cherokee from Fiat SpA affiliate Chrysler Group LLC and luxury SUVs from Daimler AG's Mercedes and BMW AG.

Chinese officials said the U.S.-built SUVs and luxury sedans were being dumped on the Chinese market and causing "substantial damage to China's domestic industry." Vehicle exports to China had already been subject to a 25 percent tariff and the new tariff will be in addition to that duty.

Read more: http://www.reuters.com/article/2011/12/14/us-china-us-trade-idUSTRE7BD1LJ20111214

Closer to Labour Reform? China’s First Successful Collective Bargaining Case

E-ChinaCities says:

Last October, all was not well at the Guanxing Precision Machinery Product Factory – a Japanese-funded factory that manufactures watch chains for Citizen. The factory's employees were furious that 40 minutes had been deducted from their timecard every day since 2005 (to make up for the time spent going to the bathroom). On October 17th, all 1,178 employees decided to strike, using the tried and true stand outside in peaceful protest method to voice their great displeasure over their skewed wages. On November 6th, with the signatures of 584 people, 10 employee representatives hired the Shenzhen Laowei Law Firm to supply them with legal advice and help with the signing of agreements during their negotiations with the factory's management. The labour and management sides held two rounds of formal negotiation, and on November 19th, both sides signed the memorandum for the negotiation. On November 30th, the employee representatives received the first chunk of compensation for the five years of "40-minute-a-day-overtime". This marks the first time that collective bargaining between labour and management has been successful…without the intervention of the government.

Prospects of future dialogue on labour-management sustainability

According to Duanyi Cheng, the employee's labour lawyer and chief partner of the Laowei Law Firm, the factory's management and the employees' representatives mutually formed a "labour-management relations committee" on December 3rd. Employees can now go through the labour-capital relations committee to raise any appeals to the management, and can also use it to agree to any improvements that the management carries out.

Duanyi Cheng believes that the success of these negotiations could lead to prospects for future dialogue on labour-management sustainability.

Read more: http://www.echinacities.com/china-media/closer-to-labour-reform-china-s-first-successful.html

How far will home prices fall in Shanghai?

Shaun Rein writes:

In interviews with dozens of homeowners my firm conducted in the past several weeks, the majority expected a 10 percent plus price drop, but only a minority said they would sell if prices dropped that much. Less than 5 percent said they were rushed to sell. Over 90 percent said they would hold on to the units no matter how long it took prices to rebound.

Moreover, there is massive pent up demand from both the average Chinese looking for a house to live in and from real estate investors with cash in hand looking for places to park money in, given the lack of alternatives.

...

People in China have the money and the desire to buy homes but have been restricted from buying because of these regulations. They are now taking a wait and see attitude.

While the residential real estate sector is definitely slowing, pent up demand and lack of debt among homeowners will ensure a soft landing.

Read more: http://www.cnbc.com/id/45635543/

China’s 10-Year Ascent to Trading Powerhouse

The NY Times reports:

HONG KONG — As China heads into a weekend of speeches celebrating its 10 years as an official member of the global trade community, the rest of the world may want to contemplate the exported $49 microwave oven and the imported $85,000 Jeep Grand Cherokee.

Sunday is the 10th anniversary of China’s joining the World Trade Organization — a membership that helped turn China into the world’s biggest economy after the United States. Companies and consumers worldwide have benefited from China’s emergence as a top trading partner. And yet, because of special breaks and loopholes for China when it joined the W.T.O., it still shields its domestic markets from foreign competition much more than any other big nation.

Consider that $49 microwave oven and $85,000 Jeep.

Microwave oven prices have plunged in the West over the past decade, largely because China has combined inexpensive labor, excellent infrastructure and heavy factory investment to produce the ovens and a wide range of other consumer goods for export, making creature comforts more affordable to customers around the world.

Further, W.T.O. rules against protectionism have made it difficult for countries in the West to limit China’s sixfold surge in exports during those 10 years, even as the Chinese flood of products has forced factory closings and layoffs elsewhere.

Read more: http://www.nytimes.com/2011/12/09/business/global/chinas-10-year-ascent-to-trading-powerhouse.html?_r=1&pagewanted=print

The Dragon Year Baby Boom

Businessweek reports:

Smart executives know how to read business cycles. In China, some businesses also play close attention to demographic ones—especially the traditional spike in births associated with the Year of the Dragon, which starts on Jan. 23. More women in the world’s most populous nation are expected to try to time their pregnancies to fall in a year that the Chinese zodiac calendar associates with wealth and power. And the trend could be more pronounced this time, given the Chinese government’s more relaxed policies on family size. That may mean higher demand for infant and toddler products in the years ahead. Explains Michele Mak, a consumer sector analyst at BNP Paribas: “The dragon year baby boom is almost a sure thing, which will boost the demand for infant products such as baby formula, diapers, and clothes.”

Five percent more babies are typically born in a dragon year—the last one was in 2000—because many parents want their progeny to be associated with the icon of China’s emperors, says Tak-Hong Cheung, who runs the obstetrics and gynecology department at Prince of Wales Hospital in Hong Kong. That baby bump will add fuel to population growth that’s already expected to reach 1.388 billion by 2020, up from 1.334 billion in 2009, according to the United Nations.

China set a one-child policy in 1979 to curb population growth and drive prosperity. Now, facing an aging labor force, Beijing is allowing couples who are both only children to have two kids of their own.

Read more: http://www.businessweek.com/printer/magazine/year-of-the-dragon-may-give-chinas-economy-a-lift-12082011.html

China Bank Crisis Led by Debt Seen by 61% in Global Poll

Bloomberg reports:

Dec. 8 (Bloomberg) -- Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg Global Poll indicated.

Sixty-one percent of respondents said they anticipate a crash in the financial industry by late 2016, and only 10 percent were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers conducted Dec. 5-6.

Evidence of slowing growth in China -- including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth -- has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion-yuan ($2.8 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-2010 amid the global recession.

Read more: http://www.businessweek.com/news/2011-12-08/china-bank-crisis-led-by-debt-seen-by-61-in-global-poll.html

Cigarettes Consumed in China: 50,000 per second

The China Economic Review notes:

50k: The cigarettes consumed in China every second

Source: Business Insider

Why We Should Thank the Chinese Currency Manipulators

Mark Perry writes:

At a recent event hosted by The Aspen Institute, "Is U.S. Trade Policy Helping or Hurting Manufacturing?" and featuring former U.S. Trade Representative Susan Schwab and former principal economic adviser to Vice President Joseph Biden Jared Bernstein, there was a lively debate on a number of issues relating to trade and manufacturing. While there were differences of opinion on most topics, there was a strong consensus (including among the attendees) on one topic: China is a currency manipulator. Here is a summary of that consensus, as I understand it:

1. China manipulates its currency by keeping the yuan undervalued and the dollar overvalued.

2. That currency manipulation gives China an economic advantage that harms the United States.

3. The United States and other countries should individually or collectively take steps to persuade or force China to stop its manipulation.

4. Solutions to China’s currency manipulation range from direct legislation, like the bill passed recently in the Senate that will impose stiff tariffs on Chinese goods if the Treasury finds evidence of currency manipulation, to other forms of indirect pressure on China to persuade it to stop manipulating its currency.

Let me break from that consensus about China’s currency policy and present an alternative position:

The ‘manipulation’ of China's currency is actually to the distinct advantage of millions of American consumers and U.S. businesses buying products made in China.

In the best of all possible worlds for the United States, China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics, and appliances and send $300 billion worth of these products to U.S. consumers for free every year as a gift or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs, and natural resources at no charge, as a gift to American manufacturers every year. (Note: That’s roughly the amount of goods we will purchase from China this year.)

Read more: http://www.american.com/archive/2011/december/why-we-should-thank-the-chinese-currency-manipulators/article_print

Beijing Girl says, "A man without money is garbage/trash!"

ChinaSmack says:

From Sina Weibo:

@大鹏看天下: Beijing, subway, a girl in red with a thick Beijing accent scolds her boyfriend as “useless”: “A man without money is garbage/trash! Not having money, just thinking about it is frightening! You’ll be nothing in the future, and you want me to marry you, forget it! I’m moving out tonight, bye bye~” Seeing her boyfriend’s silence, the girl angrily leaves leaving him behind. A nosy person secretly recorded the entire incident. After watching and listening, it is truly shameful.

Read more: http://www.chinasmack.com/2011/videos/a-man-without-money-is-garbage.html

Guangdong Factories Hit By Strikes in China Manufacturing Slowdown

Rightsite reports:

Already facing a sharp slowdown, factories in China's manufacturing heartland are now experiencing a rash of labor strikes reminiscent of the worker unrest that swept the country last year.

Thousands of workers at a massive shoe factory in the southern city of Dongguan last week clashed with police as they marched to a local government office to protest the loss of overtime.

The strike at the plant owned by the Taiwanese Pou Chen Group came shortly after 18 managers were laid off because of declining orders, according to the Economic Observer, a Chinese newspaper.

Earlier in the week, 1,000 workers walked out of a plant in nearby Shenzhen that manufactured computer keyboards for leading brands such as Apple and IBM. Employees said they were being forced to work excessive hours on weekdays so that owners didn't have to pay overtime on Saturdays, as required by law. The company acquiesced after three days.

"People had to work so late, they couldn't concentrate any longer," said Zhao Xiaobing, 38, a former employee. "They will have more strikes."

A day before in Shenzhen, 400 workers went on strike in a pay dispute at an underwear factory.  Employees reportedly were denied fair wages and forced to meet unachievable production quotas, according to China Labor Watch, a New York-based workers advocacy group.

Read more: http://rightsite.asia/en/article/guangdong-factories-hit-strikes-china-manufacturing-slowdown?utm_source=RightSite+Newsletter+Mailing+List&utm_campaign=16e4d4995d-RS_EN_Newsletter_2011_11_3011_29_2011&utm_medium=email

China may be at policy turning point

Marketwatch reports:

HONG KONG (MarketWatch) — The bad news coming out of China’s economy in recent days has been more a series of thuds than a trickle.

HSBC’s widely watched preliminary manufacturing Purchasing Managers Index fell under 50 last month to reach a 32-month low, while foreign reserves are now falling, as well as property prices.

But the silver lining in this downbeat news could be an early Christmas gift for equity investors in the form of a decisive loosening of monetary policy. China could be ready to unleash its own big bazooka, giving equity markets a lift.

Following the move last week to ease the reserve ratio requirements (RRR) for twenty rural co-operative banks 50 basis points to 16%, expectations are growing this is the forerunner of a more general easing.

IHS Global Insight released a note last week titled “And now the deluge? – China starts loosening policy in earnest.” They say last week’s initial cuts demonstrate a clear shift in policy bias and to expect a headline RRR cut around the end of the year.

Read more: http://www.marketwatch.com/story/china-may-be-at-policy-turning-point-2011-11-27?siteid=rss&rss=1

China to Cancel College Majors That Don’t Pay

The WSJ reports:

Much like the U.S., China is aiming to address a problematic demographic that has recently emerged: a generation of jobless graduates. China’s solution to that problem, however, has some in the country scratching their heads.

China’s Ministry of Education announced this week plans to phase out majors producing unemployable graduates, according to state-run media Xinhua. The government will soon start evaluating college majors by their employment rates, downsizing or cutting those studies in which less than 60% of graduates fail for two consecutive years to find work.

The move is meant to solve a problem that has surfaced as the number of China’s university educated have jumped to 8,930 people per every 100,000 in 2010, up nearly 150% from 2000, according to China’s 2010 Census.

Read more: http://blogs.wsj.com/chinarealtime/2011/11/23/china-to-cancel-college-majors-that-dont-pay/

Bonds show 60% of Chinese companies dabble in property

The Sydney Morning Herald reports:

Almost 60 per cent of Chinese companies that sold bonds in the past six months invest in the property market, undermining government efforts to limit real estate fundraising and curb inflation.

Seventy-four of 121 companies that filed bond prospectuses since May with Chinabond, the nation's clearinghouse, count one of their main businesses as real estate, have property subsidiaries or invest in the market. Engine maker Zongshen Power Machinery Co. said its parent company is involved in development. Kangmei Pharmaceutical Co., which makes medicine to treat high blood pressure, invests in real estate.

While property values dropped in 33 of 70 cities in October, the most in 2011, home prices rose 2.9 per cent in the past year in Shanghai and 4.4 per cent in Shenzhen.

Read more: http://www.smh.com.au/business/world-business/bonds-show-60-of-chinese-companies-dabble-in-property-20111124-1nw20.html

3 Reasons Why The U.S. Economy Is Better Than China's

An article at Seeking Alpha says:

Source: The United States vs. China— Which Economy Is Bigger, Which Is Better by Derek Scissors, Ph.D, The Heritage Foundation

To read more: http://seekingalpha.com/article/307565-3-reasons-why-the-u-s-economy-is-better-than-china-s?ifp=0&source=email_global_markets

Apple launches audit of Chinese suppliers

The FT reports:

Apple has hired an outside specialist firm to help audit the environmental practices of its suppliers in China following a series of critical reports by activists.

The maker of iPhones and iPads met a coalition of environmental groups in China on Tuesday and told them the firm was engaged in audits of suppliers with which they had found fault. The audits of 11 suppliers so far followed a meeting in August as the coalition prepared to release a sharply critical report.

Read more:http://www.ft.com/intl/cms/s/2/b257cdcc-107c-11e1-8010-00144feabdc0.html?ftcamp=rss&ftcamp=crm%2Femail%2F20111116%2Fnbe%2FAsiaMorningHeadlines%2Fproduct#axzz1e6vOAbbY

China to Get Tough on Employers Shirking Social Insurance Payments

China Briefing says:

Nov. 16 – China is mulling stronger enforcement of its latest Social Insurance Law by specifying harsher penalties for enterprises that delay or do not fulfill their payment obligations towards all five of the required social insurance items.

A draft document of the “Regulations on Social Insurance Declaration and Payment” was unveiled yesterday by the Ministry of Human Resources and Social Security (MOHRSS), clarifying that employers will be required to pay the whole social insurance package, which includes pension, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance. In contrast to the newly proposed Regulations, the previous legal document that is to be replaced (MOHRSS Decree [1999] No.2) imposed most of its emphasis on mandatory employer contributions to only three items (pension, medical insurance and unemployment insurance) and payment on work-related injury insurance and maternity insurance was not strongly enforced.

Read more: http://www.china-briefing.com/news/2011/11/16/china-to-get-tough-on-employers-shirking-social-insurance-payments.html?utm_campaign=20111117_ab&utm_medium=email&utm_source=asia_briefing_mail_list&utm_content=top_2

Obsession with exam scores in China results in dull minds

The Shanghai Daily says:

A POPULAR saying on the Chinese mainland goes: "Exams, exams, exams, the magic weapon of teachers; marks, marks, marks, the lifeblood of students."

Understandably, students do what their culture expects of them: They study hard to achieve good results in examinations. However, examination results are a function of the manner in which examinations are conducted.

As presently conducted, examinations assess mostly knowledge acquisition and retention, at the expense of knowledge application and generation. Typically, school examinations emphasize accuracy in the reproduction of informational content, a relatively low-level cognitive activity.

To concentrate their efforts on reproducing information accurately, students rely on memorization and repeated practice. Symptomatic of the syllabus-bound mentality, teachers cover and students study only or mainly materials prescribed in the syllabus. Students often approach their teachers prior to examinations in the hope of getting "tips" on what questions might be set in examinations.

In short, students have learned to play the examination game; failure to do so means elimination from the educational system - a personal failure, and a disgrace to the family. They view education in utilitarian terms, as a means to an end.

Read more: http://www.shanghaidaily.com/article/?id=487452&type=Opinion

Big City versus Countryside in China

The Shanghai Daily reports:

Complex social relationships and soaring home prices in small cities are major forces driving people back to the big cities, according to the survey.

"Small towns and counties are not a Xanadu (a fabled city of opulence)," said Li Liang, a cartoonist.

"There are lots of construction sites, and pedestrians and vehicles ignoring traffic rules. Moreover, unfairness is more prevalent in the small towns," Li said.

Many young Chinese from less-privileged families say they are judged according to family background rather than ability, claiming offspring from wealthy families get the good jobs because of their parents' networking and wealth.

This phenomenon is apparently rife in small towns and cities. Though unfairness exists in big cities, they at least have greater opportunities, survey respondents said.

"If I was born in a rich family, maybe I would be satisfied with the easy life in small towns," Xu said. "But I have to push myself to work hard just to afford my apartment."

Because of high home prices in big cities, she bought an apartment with her husband in Jiangxi Province as an investment. But she will not move back there to live.

"I have suffered the disadvantage of being born in a rural village. I cannot let my children suffer the same loss," she said.

Read more: http://www.shanghaidaily.com/nsp/Metro/2011/11/12/Young%2Bpeople%2Breturn%2Bto%2Bmake%2Bthe%2Bbest%2Bof%2Bthe%2Bcity/

How Walmart Is Changing China

The Atlantic has this long article:

The world’s biggest corporation and the world’s most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. Will that effort take hold, or will it unravel in a recriminatory tangle of misguided expectations and broken promises?

Read more:

http://www.theatlantic.com/magazine/archive/2011/12/how-walmart-is-changing-china/8709/?single_page=true

Selecting the Right Chinese Students

The Chronicle of Higher Education says:

The toughest question you can ask a Chinese student is also the easiest you can ask an American: "What do you think?" Many Chinese students don't know what they think because their parents and teachers just order them about. Their education alienates them from one another, from the world in which they live, and ultimately from themselves. Unable to construct a self-narrative, they may live comfortably in their bubble but have problems overcoming new challenges. In short, a Chinese education does not prepare most students to study abroad.

And it's easy to figure this out in a 30-minute interview, which must become a mandatory part of the application process if American colleges and universities are to recruit Chinese students who will thrive on campus.

Here's how to conduct the interview. First, it ought to be focused, detailed, and deliberate. Here are some examples of good interview questions that look for empathy, imagination, and resilience:

• Pick a novel or a movie, and discuss the characters. Which character did you identify with? Why? Which part of the book or movie made you sad? Made you angry? Why? What experiences have you had that remind you of events in the book or movie?
• Pick a memorable experience, and explain why it was so memorable. Tell the story. Explain your feelings during the experience. Why did you have these feelings? Do you know anyone either real or fictional who has had a similar experience? Did they behave the same as you did? Do you think their feelings were the same as yours?
• When was the last time you were angry or sad? What made you angry or sad? How did you get over your anger or sadness? What do you think will happen the next time you encounter the same situation?

Persist in asking "why?" Look for sincerity, for logic, and for clarity of thought.

Read more: http://chronicle.com/article/Selecting-the-Right-Chinese/129621/?sid=gn&utm_source=gn&utm_medium=en

Foxconn Building Robots to Solve China Labour Crisis

RightSite Asia reports:

Apple iPhone supplier and Taiwan electronics giant Foxconn moved a step closer to resolving its China labour woes recently by signing an MOU in Taiwan to start a "Robot Kingdom" to automate manufacturing.

The company had already announced in late July that it would be developing robots to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers.

Foxconn currently has 10,000 robots and the number will be increased to 300,000 next year and 1 million in three years, according to its chairman, Terry Gou.

Foxconn, which has been plagued by a rash of worker suicides and other controversial labour issues, signed the agreement with the city of Taichung on October 29th, and Gou was on hand for the signing and to break ground for the first facility in the Robot Kingdom.

The robotics and automation facilities may generate some $4 billion in production value in the next three to five years and create about 2,000 jobs, Gou was quoted as saying.

Read more: http://rightsite.asia/en/article/foxconn-building-robots-solve-china-labour-crisis?utm_source=RightSite+Newsletter+Mailing+List&utm_campaign=0e0f8d7763-RS_EN_Newsletter_2011_11_0911_8_2011&utm_medium=email

Air in many China cities remains highly polluted

Shanghai Daily reports:

Nearly 40 percent of major Chinese cities, including the capital of Beijing, had air pollution exceeding the country's official limits during the first six months this year, according to a wide-ranging environmental report from the state environmental watchdog.

Shanghai's air quality reached the national "fair quality" standard but the results were not comforting. The report showed that inhalable particulates measuring less than 10 microns in diameter, a benchmark airborne pollution indicator, rose by 25 percent in Shanghai during the first half of this year from a year earlier.

The fine particles are small enough to lodge in people's lungs, causing great health risks. The other major air pollutant indicators - sulfur dioxide and nitrogen dioxide, components in acid rain - increased about 17 and 16 percent, respectively, in Shanghai, the report said.

Read more: http://www.shanghaidaily.com/nsp/National/2011/11/08/Air%2Bin%2Bmany%2BChina%2Bcities%2Bremains%2Bhighly%2Bpolluted/

Chinese Students in US - Application Fraud

NY Times reports:

Zinch China, a consulting company that advises American colleges and universities about China, last year published a report based on interviews with 250 Beijing high school students bound for the United States, their parents, and a dozen agents and admissions consultants. The company concluded that 90 percent of Chinese applicants submit false recommendations, 70 percent have other people write their personal essays, 50 percent have forged high school transcripts and 10 percent list academic awards and other achievements they did not receive. The “tide of application fraud,” the report predicted, will likely only worsen as more students go to America.

Tom Melcher, Zinch China’s chairman and the report’s author, says it’s simplistic to vilify agents who provide these services. They’re responding, he says, to the demands of students and parents.

Thanks to China’s one-child policy, today’s college students are part of a generation of singletons, and their newly affluent parents — and, in all likelihood, both sets of grandparents — are deeply invested in their success. At Aoji Education Group, a large college counseling company based in China, one of the most popular services is the guaranteed-placement package: apply to five colleges and get your money back if you’re not accepted at any of your choices. “If a student isn’t placed, we’ve got screaming, yelling parents in the lobby,” says Kathryn O’Hehir, who works in the company’s American admissions department in Beijing. “They don’t want their money back. They want their kid in an Ivy League school.”

Read more: http://www.nytimes.com/2011/11/06/education/edlife/the-china-conundrum.html?_r=2&pagewanted=all

Nike Faces Marketing Challenge in China: Make Running Cool

AdAge Global says:

Can a young woman named Salad inspire young Chinese to lace up and go running?

Nike hopes so, taking a grass-roots approach as it features the stories of ordinary people who choose to jog city streets at night as a way to change local perceptions that the sport is boring, lonely or even a punishment.

"Running is a very poor cousin of the other sports like basketball and [soccer]," said Gavin Lum, strategy director for digital agency AKQA in Shanghai. The target consumers "never see it as something they enjoy doing; it's something very rigorous and painful."

Read more: http://adage.com/article/global-news/nike-faces-marketing-challenge-china-make-running-cool/230717/?utm_source=global_news&utm_medium=newsletter&utm_campaign=adage

China. Smells Like 2008, Gloom And Doom Edition.

Dan Harris writes:

I know nobody wants to hear this and I know this is going to cause me to get hate mail from those whose livelihoods are tied in to China's continuing to boom, but I am seeing all sorts of bad news on the horizon with respect to China's economy.

A client meeting yesterday was the last straw. The client I met with is very sophisticated, very large, and, most importantly, very experienced. The client is a very large commodity seller who sells massive amounts to China. This company typically sells its product to Chinese private companies that use letters of credit. Prior to 2008, this client's Chinese customers pretty much always paid. Then in 2008, they started contesting the letters of credit and seeking lower prices than that to which they had agreed. Soon after that, they started rejecting the shipments entirely. My client told me that in the last 3-4 weeks, nearly all of his non SOE (State Owned Entity) Chinese clients have contested the letters of credit and have sought lower prices of around twenty percent. They are confessing to my client that they cannot get loans and without loans they cannot pay so much.

If it were just that, I might chalk it up to problems in one industry, but it is not just that.

Read more: http://www.chinalawblog.com/2011/10/china_smells_like_2008_gloom_and_doom_edition.html

A Guide to China’s New Foreigner Social Security Tax

WSJ reports:

This summer China passed a new law, which technically went into effect on October 15, requiring foreign workers and their employers to contribute to a social security fund. To help foreigners living in China better understand what the new social security tax means, China Real Time has compiled a list of facts that the Ministry of Human Resources and Social Security has revealed thus far:

1. Pricing

Every city will have its own pricing scheme, requiring companies to pay a percentage of an employee’s salary to the social security fund. The individual contribution will hover around 10% of the employee’s salary. The Ministry of Human Resources and Social Security recommends that every individual check with a local bureau to determine rates.

For Beijing, companies will contribute the following percentage based on an employee’s salary per month, with a salary cap of 12,603 yuan ($1,981):

2. Start Date The law will be implemented by year-end and money will be collected according to an Oct. 15 start date, requiring retroactive payments.

3. Medical Insurance The Ministry of Human Resources and Social Security says the medical insurance plan will allow foreigners to choose which hospitals they’d like to go to. An unspecified percentage of expenses will be reimbursed using the funds from the account.

Read more: http://blogs.wsj.com/chinarealtime/2011/10/28/cough-it-up-a-guide-to-chinas-new-foreigner-social-security-tax/

Companies Need a China-First Strategy

Shaun Rein writes:

Companies need to stop thinking of China as an afterthought and make it an integral part of their corporate planning and product development just as they do with America and Europe. If they don’t, they risk losing out to aggressive, well-capitalized and increasingly innovative Chinese brands.

Such a change in mindset can have a big impact on business. Case in point: Apple. The company turned around its operations in China this year after a lack luster launch of the iPhone two years ago. It introduced the iPhone 4 soon after its release in the U.S., rather than waiting for years as they did previously.

With several hundred million Smartphone users who change their phones on average every nine to twelve months, rather than every two to three years like in America, Apple has a big opportunity in China.

Read more: http://www.cnbc.com/id/45013649/

If China's Economy Is So Great, Why Is Its Steel Industry Hurting?

Forbes reports:

China said this week the country’s GDP grew by 9.1% in the third quarter from a year earlier, among the best growth rates in the world. Industrial production climbed by 13.8% during the period.

Yet if China’s economic growth rate is so good, why is its steel industry, the world’s largest, is such trouble?

Much of  the industry will suffer losses in the last quarter of the year, according to Lan Jie, an analyst at Industrial Securities in Shanghai. “That might continue into the second or three quarter of next year,” he said today in an interview.   That’s already hit shareholders in China’s biggest steel companies hard. Hong Kong-listed Angang Steel has lost 64% so far this year; Shanghai-listed Baoshan Iron & Steel is off by 17% and Wuhan Iron & Steel has lost 17%; and U.S-traded General Steel Holdings has tanked 59%.

The answer isn’t so much on the demand side of the business. Demand for crude steel will probably total about 660 million metric tons in 2011, a rise of about 10% from last year.  That’s less than the increase in GDP because of soft business in real estate, equipment, machinery and autos, Lan says.  

A  bigger problem, as in many other government-backed industries in China, is oversupply.

Read more: http://www.forbes.com/sites/russellflannery/2011/10/21/if-chinas-economy-is-so-great-why-is-its-steel-industry-hurting/

What Do Rural Chinese Want? Online Videos and Their Own Businesses

Ad Age Global says:

While marketers have thoroughly analyzed Chinese in the urban tier-one cities of Beijing, Shanghai and Guangzhou, there's much less understanding about how to effectively target the 721 million consumers in rural communities and the other hundreds of millions in less-developed cities.

Many of the study's findings reinforced existing information about consumers in lower-tier markets. They are more pragmatic than their big-city counterparts with realistic life goals -- owning a business was a common response. Young people carry the burden of their families' expectations and are in a hurry to grow up so they can take advantage of work and growth opportunities available to adults. They are more conformist. They want to travel, but dream of visiting Beijing rather than New York or Paris.

Read more: http://adage.com/article/global-news/rural-chinese-online-videos-businesses/230441/utm_source=global_news&utm_medium=newsletter&utm_campaign=adage

 

Where are the Chinese Good Samaritans?

E-China Cities says:

On October 13th, this common expat anecdote reached a new all-time low, when a two year-old girl snuck away from her mother, wandered into the street of a hardware market in Foshan (Guangdong Province) and was run-over by a vehicle… twice. Meanwhile, a surveillance camera filmed 18 people, completely ignoring the situation, while they passed by the small crippled body lying in the middle of the street. Seven minutes after she was hit by the first vehicle, a 57 year-old rag collector finally noticed the girl and moved her to the curb. The woman tried asking the nearby shopkeeper to help find the girl’s mother to no avail. Moments later the mother appeared and rushed away with the girl. Footage from a surveillance camera filmed the entire shocking and heartbreaking scene.  

As an expat living here in China, it is in moments like these we might feel that, for all of our hard work learning the language and adapting to the cultural differences, we apparently still don’t understand why people act the way they do here (or in cases like this, don’t act). Why do Chinese display such apathy in these sorts of "life or death" situations? Simply put, where are the Chinese Good Samaritans?

Read more: http://www.echinacities.com/expat-corner/why-chinese-see-a-stranger-suffering-and-do-nothing.html

MLK Memorial: From China, with love?

The CSM reports:

The stern, bulky visage of Martin Luther King Jr. now gracing the National Mall has brought forth tears of joy and redemption from onlookers. But for some Americans, the massive monument will forever be marred by where it was made: China.

The MLK Memorial was created by Chinese master sculptor Lei Yixin and the Dingli Stone Carving Co. out of 159 pieces of pink Chinese granite, and, its defenders say, is intended to embrace Dr. King's legacy as a global icon.

"Martin Luther King is not only a hero of Americans, he also is a hero of the world, and he pursued the universal dream of the people of the world," Mr. Lei said through a translator in August, before hurricane Irene pushed back the dedication of the memorial to Oct. 16.

Read more: http://www.csmonitor.com/USA/2011/1016/MLK-Memorial-From-China-with-love

Unhappy China Ranks 125 in World

Forbes says;

Quantifying happiness isn't an easy task. Researchers at the Gallup World Poll went about it by surveying thousands of respondents in 155 countries, between 2005 and 2009, in order to measure two types of well-being.

First they asked subjects to reflect on their overall satisfaction with their lives, and ranked their answers using a "life evaluation" score from 1 to 10. Then they asked questions about how each subject had felt the previous day. Those answers allowed researchers to score their "daily experiences"--things like whether they felt well-rested, respected, free of pain and intellectually engaged. Subjects that reported high scores were considered "thriving." The percentage of thriving individuals in each country determined our rankings.

Read more: http://www.forbes.com/2010/07/14/world-happiest-countries-lifestyle-realestate-gallup-table.html

Why General Motors thrives in China while Failing at its Home Market?

Kee Ideas says:

In his recently published book, Michael Dunne reveals the secrets behind General Motors' phenomenal success in China while at the same time it was going through disasters in the U.S.  "This is the story of how GM got into China, what it confronted, and how it tackled the formidable challenges presented by the Middle Kingdom - an arena of competition entirely different from America. The hard lessons learned will be instructive not just to companies making cars, but to any foreign company with aspirations to make it in China - an enormous market that will remain highly unsettled, and unsettling."

 

Coco Kee of Kee Global Advisors LLC conducted the following interview with Michael to learn more about the "story" behind the story. They worked together in Beijing between 1996-1999 when Coco was the Chief Representative of China Operations for ARA, a firm founded by Michael.

 

Read more: http://keeglobaladvisors.typepad.com/keeideas/2011/10/why-general-motors-thrives-in-china-while-failing-at-its-home-market.html#tp