China Challenges

Chinese Anxiety — In Debate About Overwork, a Glimpse of Shifting Expectations

Tea Leaf Nation says:

Almost half of all Chinese report feeling “more anxiety,” now than they did five years ago. What, exactly, is driving these concerns, or increasing reports of these concerns? Avid followers of China-related news might immediately think of censorship and other restrictions on freedoms, yet reports show that the main sources of anxiety in China lie elsewhere. Furthermore, recent coverage of these concerns has revealed changes in the expectations, dreams, and demands of many Chinese.

Several days ago, a 24-year-old employee of Ogilvy in Beijing died from sudden cardiac arrest, which initial reports say occurred after the employee worked overtime for one straight month. His last post on Sina Weibo, a popular microblogging platform, went viral, drawing countless comments from other overworked netizens, many of whom noted that China had become the number one country in the world for death by overwork.

Studies show that many Chinese are unhappy with their jobs – or lack thereof. This year, millions of Chinese students are graduating and face what is reportedly the worst job market in history. Even if they are able to find a job, their worries will not end. A recent Regus study showed China ranked first among 80 countries in workplace stress.

Read more: http://www.tealeafnation.com/2013/05/in-debate-about-overwork-glimpsing-chinas-shifting-expectations/

Harley Davidson National Rally in China

The Alantic reports:

Last weekend, Reuters photographer Carlos Barria traveled to Zheijiang Province, China, to photograph some of the 1,000 Harley Davidson enthusiasts who attended China's 5th annual Harley Davidson National Rally, part of the company's 110-year anniversary. Harley Davidson only began official sales in China in 2005, and its bikes are considered to be luxury items by Chinese tax authorities, so they are taxed at extremely high rates -- a 2013 motorcycle might sell for 200,000 yuan ($32,500), approximately four times the average annual salary in Beijing. Transportation authorities have also placed Harleys in the same category as electric bikes, horses and bicycles, so they cannot be ridden on highways and major avenues. [18 photos]

See more: http://www.theatlantic.com/infocus/2013/05/harley-davidson-national-rally-in-china/100515/

Why Can't China Make Its Food Safe?

Isabel Hilton writes:

You have to marvel at the ingenuity and enterprise of food adulteration in China: can it really be more economic to get rat meat to mimic mutton than just to raise a sheep? But bearing in mind that I come from a country that only recently discovered that some of its major brands' "value" beef burgers were at least partly horse, an animal that the Brits, perhaps irrationally, don't want to encounter on a plate, I think we have to recognize that China is not entirely alone in this.

In Britain, the industrial revolution, with its separation of food production from consumption, also brought a host of appalling food adulteration that took some time to regulate effectively. In the early 1980s in Spain, a still unexplained episode involving fake olive oil left scores of people with permanent neurological damage. In the West we have a whole separate set of problems around food: maximum returns come not from selling fresh, perishable produce but from processing: hence additives, sugar, salt, colorings and the obesity epidemic.

All that said, the sophistication of Chinese adulteration is impressive. Much of it demands a fairly high degree of technical knowledge, which suggests a certain professionalism  though not a high level of ethics. To pick only a few examples, it is unlikely that it was the dairy farmers who had the idea of putting melamine in milk to mimic high protein levels, the episode that left hundreds of babies with damaged kidneys.

Read more: http://www.theatlantic.com/china/archive/2013/05/why-cant-china-make-its-food-safe/275852/

Japan, US and the TPP: the view from China

Aurelia George Mulgan writes:

A recent article in the People’s Daily discusses US motives in ‘passionately promoting’ the TPP. It identifies two principal reasons.

First, the United States wants to open the door to the Asian market and harness Asia’s rapid economic growth to increase its exports and revive its economy.

The second reason is that the United States wants to gain leadership over the trade system and increase its political influence by setting regional trade rules. Involving Japan in the TPP is not, therefore, simply a question of economics and trade for the United States — it is also strongly political. Without Japan, the TPP will not have as much impact or influence on regional and global trade rules. By inviting Japan to join the TPP, the United States can make the TPP stronger, attract even more countries and turn the TPP into the biggest free trade system in the Asia Pacific region. Furthermore, America can only exert leadership over setting ‘international standards’ by gathering as many allies as it can and establishing a multilateral agreement with substantial outcomes. Its overarching goal is to maintain its leadership and control over the global economic and trade order.

Read more: http://www.eastasiaforum.org/2013/05/05/japan-us-and-the-tpp-the-view-from-china/

China's Investment And Consumption

Micheal Pettis explains:

I have been arguing for several years that once China begins the adjustment process, which I expect to characterize the ten-year period of the current administration, growth rates must slow significantly.

My expectation for long-term growth is that it shouldn't average much above 3-4% annually.

This is what it will take for household consumption to rise to roughly 50% of GDP in a decade if consumption growth can be maintained at its historic rates of around 8%.

But I always warn that this is likely to be an upper limit, not a lower limit, to growth. The key is whether or not it is possible to maintain current levels of consumption growth once investment growth is sharply reduced. A recent paper by the IMF on the topic is very interesting and not encouraging.

Read more: http://seekingalpha.com/article/1425211-investment-and-consumption?source=email_global_markets&ifp=0

Chinese DIY Inventions

The Atlantic reports:

One visible sign of China's recent economic growth is the rise in prominence of inventors and entrepreneurs. For years now, Chinese farmers, engineers, and businessmen have taken on ambitious do-it-yourself projects, constructing homemade submarines, helicopters, robots, safety equipment, weapons and much more. Some of the inventions are built out of passion, some with an eye toward profit, (some certainly safer than others), and a few have already led to sales for the inventors. Gathered here are recent photos of this DIY movement across China. [39 photos]

Read more: http://www.theatlantic.com/infocus/2013/05/chinese-diy-inventions/100511/

China may not overtake America this century after all

The Telegraph reports:

The world's tallest tower should have been built by now. Officials said last
year that the great edifice with 220 floors would be erected in three months
flat in China's inland city of Changsha by March, snatching the crown from
Dubai's Burj Khalifa.

The deadline has come and gone, yet the wasteland sits untouched. It now
looks as if the fin d'époque project – using prefab blocs – may never be
approved. Even China knows its limits.

Prime minister Li Keqiang has asked the State Council to clamp down on the
excesses of the regions. Not before time. A top regulator says local government finances are "out of control".

Mr Li aims to cut China's economic growth to a safe speed limit of 7pc next
year and rein in rampant investment – still a world record 49pc of GDP – before it traps the country in a boom-bust dynamic of frightening scale.

Vested interests are conspiring to stop him, launching a counter-attack from
their power-base in the $6 trillion state industries. Even so, uber-growth is
surely over.

Read more: http://www.telegraph.co.uk/finance/comment/10044456/China-may-not-overtake-America-this-century-after-all.html

 

Have A Problem With Your China Counterparty? DO NOT Go Visit Them.

Dan Harris writes:

A few weeks ago, a China risk consultancy contacted us regarding their own China legal matter.  During our conversation, the caller went off and said that he really liked our posts on how to avoid getting kidnapped in China.  He then told me that so far this year, not a single week had passed without his company having been called in to deal with a “hostage or hostage-like situation.”  He told me that such incidents are way up this year from 2012 and that 2012 had double the incidents of 2011.  He said that nobody seems to believe how prevelant this incidents are but that we should keep writing about them because they are “happening like crazy and with China’s economy continuing to soften, they will only increase.”

I forget about that phone call until today, when I received my second “hostage” call in two days.  Both are very similar to each other and both are very similar to those we have handled in the past.

Read more: http://www.chinalawblog.com/2013/05/have-a-big-problem-with-your-china-counterparty-do-not-go-visit-them.html

China and the End of Extrapolation

Globalist says:

China's growth model has created a number of interrelated imbalances that
will soon retard growth or undermine it. These include:

* The investment- and credit-centric nature of growth

* The still strong role played by state-owned enterprises

* A weak services sector

* Financial repression (read: artificially low interest rates) that punishes
households

* High-income inequality and

* Suppressed factor prices (that is, of land, capital, money and energy)

Without radical reforms, China could only sustain an 8% growth rate at the
risk of exacerbating these imbalances, resulting in probably severe economic and
social disruption.

Read more: http://www.theglobalist.com/storyid.aspx?storyid=9981

China Manufacturers Survive by Moving to Asian Neighbors

WSJ reports:

Read more: http://online.wsj.com/article/SB10001424127887323798104578453073103566416.html?mod=rss_asia_whats_news

The scale of China’s industrial subsidies

Economist reports:

On their conservative calculations, China spent over $300 billion, in nominal terms, on the biggest SOEs between 1985 and 2005. This help often came in the form of cheap capital and underpriced inputs unavailable to international rivals. The glass industry got soda ash for a song, for example. The auto-parts business got subsidies worth $28 billion from 2001 to 2011 through cheap glass, steel and technology; the government has promised another $10.9 billion by 2020. The subsidies to the paper industry topped $33 billion from 2002 to 2009. All industrial SOEs benefited from energy subsidies.

Read more: http://www.economist.com/news/finance-and-economics/21576680-new-book-lays-out-scale-chinas-industrial-subsidies-perverse-advantage?utm_source=Sinocism+Newsletter&utm_campaign=5b8e2a7f18-Sinocism04_28_13&utm_medium=email

China Is Getting Tougher. Stay Flexible And It Will Be Just Fine…

Dan Harris writes:

The American Chamber of Commerce in China recently came out with a survey of its members and hidden and far more publicized fact that 78% of the respondents said they had been hacked was that only 28 percent of respondents view China’s investment environment as improving, down from 43 percent just last year.  In other words, China is getting tougher on foreign businesses doing business in China. Running a foreign business in China has never been easy, but it has in the last few years gotten even harder still.

So what can or should you do?  One, consider whether it makes sense to move some (or in very rare cases) all of your operations somewhere else.  In the last two years, we have experienced an uptick in our clients expanding beyond China (Vietnam and Thailand and returning home have been especially popular lately) or at least considering doing so.  Two, consider not entering China at all by way of actually setting up shop to do business there.  At least think about how you can profit from China’s growth without having to set up and operate a Joint Venture or a WFOE there.  Selling into China via a distributorship relationship or a licensing deal are just two obvious ways that have grown rapidly in popularity over the last couple of years.

Read more: http://www.chinalawblog.com/2013/04/china-is-getting-tougher-on-foreign-business-stay-flexible-and-it-will-be-just-fine.html

Why Economic Change in China Could Come Sooner Than You Think

Foreign Affairs reports:

Indeed, China has had significant bursts of economic reform in the past, most notably in the late 1990s during the premiership of Zhu Rongji. That era proved that bold reform is achievable when three conditions are present: a crisis of political credibility at home, vulnerability to an economic or financial crisis abroad, and a leadership savvy enough to recognize the need for change.

Today, Beijing does face enormous obstacles, and the forces arrayed against reform are numerous and entrenched. But each of these three conditions is once again present in China, potentially boosting the prospects for real and enduring economic change.

Read more: http://www.foreignaffairs.com/articles/139295/evan-a-feigenbaum-and-damien-ma/the-rise-of-chinas-reformers?cid=nlc-this_week_on_foreignaffairs_co-041813-the_rise_of_chinas_reformers_4-041813

2013 Growth Targets in China by Province

The Economic Observer reports:

Source: http://www.eeo.com.cn/ens/2013/0416/242675.shtml?utm_source=Sinocism+Newsletter&utm_campaign=0063a7759b-Sinocism04_17_13&utm_medium=email



Ageing societies: a race against time

Rafal Chomik and John Piggott write:

A large proportion of Asian countries are currently at the top of the working-age population hump. For them, the window of opportunity to prepare for an older population will close within the next decade. Thereafter population ageing is likely to hold back economic growth — something the Chinese government is acutely aware of, referring to population ageing explicitly when it lowered China’s GDP growth target in 2012 to a seven-year low of 7.5 per cent. Future growth will rely more heavily on higher productivity as urbanisation drives farmers to factories, and as technology and education raise the efficiency of existing urban (and rural) workers.

A key difference between advanced countries and the emerging Asian nations, and one that makes it all the more important to capitalise on the demographic dividend, is that the speed of Asia’s demographic transition means that many countries risk growing old before getting rich.

So how can Asian countries take advantage of this window of opportunity? They can start by reforming retirement income provision systems, especially given the retreat of family support. In this regard, four key lessons can be learned from the mistakes and successes of advanced economies.

Read more: http://www.eastasiaforum.org/2013/04/09/ageing-societies-a-race-against-time/

Fewer Foreigners Eye U.S. Graduate Science Programs

WSJ reports:

Students from China may be rethinking the value of a U.S. graduate
degree.

Ending nearly a decade of double-digit growth, applications from Chinese
citizens to U.S. graduate schools declined 5% for the coming academic year amid
worries about unstable funding for science programs and tight immigration
policies.

Debra Stewart, president of the Council of Graduate Schools, says budget
spats in Washington have thrown into question the funding of academic programs
that rely heavily on federal dollars, such as science and engineering. Students
pursuing advanced degrees in so-called STEM fields—science, technology,
engineering and math—often receive multiyear financial-aid packages in the form
of fellowships, but many schools can't guarantee that long-term assistance now
because of the uncertainty of federal funding.

Read more: http://online.wsj.com/article/SB10001424127887323916304578405060631410012.html?mod=rss_asia_whats_news

Silicon Valley Fights Restrictions on Chinese Tech

WSJ reports:

Business groups raised alarms Thursday about a provision in the recently
enacted government spending bill, making it harder for some federal agencies to
buy technology made in China.

The U.S. Chamber of Commerce and 10 technology trade groups representing some
of the large U.S. tech companies, including Hewlett-Packard Co. and Intel Corp.,
fired off a letter Thursday asking congressional leaders to ensure future
spending bills don’t include the language.

The provision prohibits four federal agencies from purchasing certain tech
equipment from China unless they obtain prior approval from the Federal Bureau
of Investigation or other law enforcement agency after a cyber-security risk
analysis. The affected agencies are NASA, the Justice Department, Commerce
Department and National Science Foundation, and it applies to “information
technology systems” produced or assembled in China.

Read more: http://blogs.wsj.com/chinarealtime/2013/04/06/silicon-valley-fights-restrictions-on-chinese-tech/

Beijing Bans 2nd Homes for Singles – Divorce Rate Expected to Drop

Micheal Cole writes:

The recent craze for divorces designed to enable more property purchases may already be on its way out in China’s capital as Beijing banned one person households from buying a second home.

A government announcement on March 1st that homeowners who sell their homes will be levied an income tax as high as 20 percent of the profit they make on the transaction. The new rule’s stipulation that families who own two houses and want to sell one of them would have to pay the higher capital gains tax had led to a surge in divorces as investors attempted to maneuver around the regulations.

Read more: http://www.mingtiandi.com/real-estate/cre-news/20130330/beijing-bans-2nd-homes-for-singles-divorce-rate-expected-to-drop/?utm_source=mtd+real+estate+list&utm_campaign=a8f7c46e61-RSS_EMAIL_CAMPAIGN&utm_medium=email

The Middle Kingdom is becoming a superpower, but it's always going to be No. 2

Foreign Policy says:

Rather than undercutting U.S. influence in the region, the result of China's post-crisis assertiveness has been to push most of its neighbors closer towards Washington. Yet Beijing seems tone-deaf to the tensions it is creating, falling back instead on complaintsabout U.S. containment and trying to resurrect the specter of Japanese militarism. China's leaders should be asking themselves: why has every Asian leader, with the possible exception of Kim Jong Un, welcomed the pivot? The answer: in the last few years, Washington has become more relevant, not less, to Asia's future.

On the economic front, Beijing is taking aim at another pillar of U.S. power: the dominance of the dollar. China is putting in place anambitious long-term plan to turn the renminbi into one of the main international currencies. Chinese leaders often discuss the project in technical terms, about reducing currency risk for their companies, but they also do little to hide their frustrationwith the dollar's privileged status. One Chinese academic even likensthe importance of the project to turn the renminbi into a major reserve currency to China's acquisition of a nuclear weapon in the 1960s.

The politics of the currency plan are themselves an interesting sidebar to the over-hyping of Chinese influence. While American politicians have been worrying loudly about the risk of China owning so many Treasury bonds ("How do you deal toughly with your banker?" Hillary Clinton asked at a private lunch with then Australian Prime Minister Kevin Rudd in March 2009) China has been fretting about how little leverage its U.S. bond holdings give it. The desire to dethrone the dollar is partly rooted in China's frustration that it has absolutely no influence over the Federal Reserve. And yet it has few options other than buying American debt, because the U.S. Treasury bond market is the largest and most liquid in the world. "We hate you guys!" Luo Ping, a senior Chinese banking official admitted in 2009, only half-jokingly. "Once you start issuing $1 trillion-$2 trillion [in new debt]," he said, the dollar will depreciate, "but there is nothing much we can do."

Read more: http://www.foreignpolicy.com/articles/2013/03/28/china_glass_ceiling_number_two?print=yes&hidecomments=yes&page=full

Chinese Students Struggle for Returns on Education in U.S.

WSJ reports:

A recent study by Wei Sun, an economics graduate student at the University of
California-Santa Barbara, found that “hai gui” venture capitalists in China
proved to be less productive and less successful than their Chinese-educated
peers. The opportunity costs of losing “guanxi” while abroad and being trained
overseas proved to be too different from the demands of the Chinese market. But
Ms. Sun suggests that with enough governmental support to incentivize young
people to return to China with greater human capital, “hai guis” have an
opportunity to further contribute to a flourishing Chinese economy.

“I think all the money invested for an American education is worth it, I feel
like they have accumulated better human capital, but I think in the long run
it’s better for China, even if it might take longer for those students and
parents to get the return on their investment,” Ms. Sun says. “But they are
going to be successful in the long run.”

Read more: http://blogs.wsj.com/chinarealtime/2013/03/27/chinese-students-struggle-for-returns-on-education-in-u-s/

Willing to Pay – On the Cost of Living in China

Brian Eyler writes:

In December of last year I made a statement that startled the students enrolled in my Chinese economic development course: that prices overall in China were high relative to prices of goods in the United States. They were surprised because the consumption choices of American college students studying abroad in China often do not go far beyond that of an inexpensive bowl of noodles, a few Qingdao beers on a Friday night, and a bagful of knock-off brand name clothing from the Silk Market.  But the rising Chinese consumer, whose consumption habits require much more than food and clothing, faces a very different basket of consumer goods, and most of those goods are sold at high prices.

To illustrate, here’s a quick look at the prices of housing, airfare, medicine, and cars in China.

Read more: http://www.rectified.name/2013/03/11/willing-to-pay-on-the-cost-of-living-in-china/

Alibaba - The world’s greatest bazaar

Economist reports:

IN 1999 Trudy Dai used to spend all night sending e-mails from her friend Jack Ma’s apartment, trying to answer queries from American customers without letting on that she was Chinese. Ms Dai was one of the first dozen employees of Alibaba, an online listings service Mr Ma, a teacher, had just started. It was already having some success connecting small Chinese manufacturers to potential customers, including the overseas ones Ms Dai was reassuring over e-mail. But the friends and students who made up the workforce were earning just 550 yuan (then $66) a month.

Mr Ma, though, already had big dreams. That year he said: “Americans are strong at hardware and systems, but on information and software, all of our brains are just as good…Yahoo’s stock will fall and eBay’s stock will rise. And maybe after eBay’s stock rises, Alibaba’s stock will rise.”

Since then, Alibaba has come to dominate internet retailing in China, which will soon be the biggest e-commerce market in the world.

Read more: http://www.economist.com/news/briefing/21573980-alibaba-trailblazing-chinese-internet-giant-will-soon-go-public-worlds-greatest-bazaar?utm_source=Sinocism+Newsletter&utm_campaign=c9f76b5b1b-Sinocism03_22_13&utm_medium=email

China Is Engineering Genius Babies

Aleks Eror writes:

It’s not exactly news that China is setting itself up as a new global superpower, is it? While Western civilization chokes on its own gluttony like a latter-day Marlon Brando, China continues to buy up American debt and lock away the world’s natural resources. But now, not content to simply laugh and make jerk-off signs as they pass us on the geopolitical highway, they’ve also developed a state-endorsed genetic-engineering project.

At BGI Shenzhen, scientists have collected DNA samples from 2,000 of the world’s smartest people and are sequencing their entire genomes in an attempt to identify the alleles which determine human intelligence. Apparently they’re not far from finding them, and when they do, embryo screening will allow parents to pick their brightest zygote and potentially bump up every generation's intelligence by five to 15 IQ points. Within a couple of generations, competing with the Chinese on an intellectual level will be like challenging Lena Dunham to a getting-naked-on-TV contest.

Read more: http://www.vice.com/read/chinas-taking-over-the-world-with-a-massive-genetic-engineering-program

China: The Jobs Report

WSJ reports:

A survey of 4,200 mainland employers by human resources consultancy Manpower Group found that the percentage planning to take on more workers in the second
quarter was up. The net employment outlook – the difference between the
percentage of firms planning to take on more workers and the percentage planning
to reduce their work force — rose to 18, up from 14 in the first quarter.

Darryl Green, President of Manpower, said the company was also seeing a
pronounced increase in demand for workers through their own China operations –
which help to place management professionals. “It fell off a cliff in the middle
of last year. There was a pick up at the start of 2013, and after Chinese New
Year things are popping,” he said.

A survey of more than 24,000 employers by 51job.com – a leading Chinese recruitment website – points in a similar direction. The survey found that in the market for experienced workers, 62.4% of firms were planning to increase hiring in the first quarter,
compared to 59.7% in the fourth quarter of 2012. Demand for workers with no
experience was also on the rise.

Read more: http://blogs.wsj.com/chinarealtime/2013/03/15/china-the-jobs-report/ 

China eyes residence permits to replace divisive hukou system

Reuters reports:

China's new leaders are planning a system of national residence permits to
replace the household registration or 'hukou' regime, a government source said,
a vital reform that will boost its urbanization campaign and drive
consumption-led growth.

The hukou system, which dates to 1958, has split China's 1.3 billion people
along urban-rural lines, preventing many of the roughly 800 million Chinese who
are registered as rural residents from settling in cities and enjoying basic
urban welfare and services.

Critics have called for changes for years and a government researcher told
Reuters a "unified national residence permit system" would be adopted as policy
as part of a 10-year urbanization plan to be published after the current annual
session of parliament.

Benefits and entitlement under the new system would be "basically equal", he
said, although the changes would be eased in slowly. He did not say how long it
would take.

"The trend is to dilute the urban-rural household registration divide", said
the researcher, who was briefed on the details but declined to be identified
because the plan has not yet been made public.

Read more: http://www.reuters.com/article/2013/03/06/us-china-parliament-urbanisation-idUSBRE92509020130306

Why A China Crash May Be Imminent

Forbes ays:

It’s obvious that the government is concerned with three things:

1. Local governments are again turning to fixed asset investment, particularly property sales, to boost their revenue and GDP. The problem is that local governments own the land so they’re incentivised to sell that land to get revenues. These governments are already heavily in debt and this is exacerbating the issue.
2. Property sales have led to increased bank lending, as January figures attest too. This is not what the government wants given total credit to GDP is already high, at 190% according to Fitch.
3. More broadly, the property bubble has never really deflated. As economist Andy Xie points out, NBS data shows 10.6 billion square metres of property was under construction at the end of last year, half in residential and the other half in office/commercial. If you put market prices on this inventory, it equates to 1.5x Chinese GDP. Quite the bubble.

Read more: http://www.forbes.com/sites/jamesgruber/2013/02/23/a-china-crash-may-be-imminent/?goback=%2Egde_36656_member_217051151

Brits May Have to Work Until 75, Thanks to China

CNBC says:

A colossal savings glut in China, the world's second largest economy, means
British workers in their twenties will only be able to retire at 75, a report by
the Center for Economic and Business Research (Cebr) showed on Thursday.

According to the report, excessive savings in emerging economies, especially
in China, and the country's growing share of the global economy will keep yields
and interest rates down for many years. This will leave pension funds
underfunded keeping annuity rates low.

Read more: http://www.cnbc.com/id/100503873

What the ‘Unofficial’ Numbers Say About China’s Economy

Wall Street Journal reports:

Stephen Green, China economist at Standard Chartered, says the official numbers
reflect an underestimate of inflation, resulting in an overestimate of real
growth. Using an alternative measure of service sector inflation, Mr. Green
calculates GDP growth at 5.5% in 2012 – putting the world’s second-largest
economy in hard landing territory.

Mr. Green’s choice of a higher deflator – a price index used to strip
inflation out of the calculation of growth – makes some sense. Prices for
services like healthcare and education are rising fast. Still, Mr. Green says
that 5.5% is a guesstimate rather than a firm conclusion.

Read more: http://blogs.wsj.com/chinarealtime/2013/02/22/what-the-unofficial-numbers-say-about-chinas-economy/?utm_source=Sinocism+Newsletter&utm_campaign=a3d80b65cb-Sinocism02_24_13&utm_medium=email

China Distribution Agreements: Exclusivity Is NOT Required

Dan Harris says:

I spoke last week on China IP at Columbia University. During my talk, I mentioned how common it is for the Chinese side in a licensing or a joint venture deal (or really any deal) to claim that the law requires the foreign company to transfer ownership of IP for the deal to go through.  I talked of how when my law firm is confronted with such a situation we ask the Chinese side to provide us with the legal cite to the law that allegedly requires this. To which we typically get one of the following in response:

1. An English language translation of a law that does not exist;
2. A Chinese language version that does not say what the Chinese side says it says;
3. A claim by the Chinese side that it is an unwritten law.

I then stressed how there is no such law, though we have on more than one occasion seen American companies turn over their IP because they believed otherwise.

After my talk, Andrew Hupert told me of how on more than one occasion he has worked with American companies that have entered into exclusive distribution arrangements with Chinese companies based on the assertion by the Chinese company that Chinese law requires such agreements between foreign companies and Chinese companies grant the Chinese company exclusive distribution for all of China.  Andrew described one situation where an American had signed a long-term China exclusivity deal with a Chinese company that had no capabilities outside Shanghai.

There is no such exclusivity requirement!

Read more: http://www.chinalawblog.com/2013/02/china-distribution-agreements-exclusivity-is-optional.html

Companies Seek to Avoid China New Year Hangover

The WSJ reports:

Read more: http://online.wsj.com/article/SB10001424127887323864304578315872427597756.html?mod=rss_asia_whats_news

Returning to Fuling, China

National Geographic says:

In 1996 a Peace Corps volunteer arrived in Fuling, a sleepy town on the Yangtze, to teach English. He went back recently to find the landscape—and his former students—transformed.

Read more: http://ngm.nationalgeographic.com/2013/03/fuling-china/hessler-text?utm_source=Sinocism+Newsletter&utm_campaign=33de00b074-Sinocism02_17_13&utm_medium=email

China’s Risk-Averse Youth Shun Innovation

Bill Dodson wrote:

I recently overheard in an elevator in Suzhou a conversation between bank managers. The bank has a branch in the lobby of the office building and a couple of floors in the building for management and administration. Business for the bank was going quite well. They posted 50 open positions for fresh university graduates to fill. One of the managers commented on how shocked he was that 5,000 graduates had applied for the positions.

The conversation put me in mind of an Economist article in November 2012 about young people in China sitting for civil service examinations”

On November 25th the national civil-service examinations will take place, and about 1.4m people will sit them, 20 times more than a decade ago. Of that number, only 20,800 will be hired by government (millions more sit the equivalent provincial exams with similarly long odds of being hired).”

If one aspect of innovation is supposed to be the risk-taking tendencies, China’s young people have a long ways to go.

Read more:

http://thisischinablog.com/2013/01/24/chinas-risk-averse-youth/?goback=%2Egde_2533354_member_212287893

China has banned TV advertisements touting expensive gifts

FT reports:

BEIJING — China has banned television advertisements touting expensive watches, gold coins and other luxury items as “gifts for leaders” because of concerns that they will undermine public faith in government. The country has been hit by a wave of corruption scandals in recent months, with a string of officials exposed as owning vast numbers of homes, luxury watches and other trappings of illicit wealth.

Read more: http://www.washingtonpost.com/world/asia_pacific/china-bans-gift-ads-in-bid-to-curb-graft/2013/02/06/fd98295a-707d-11e2-a050-b83a7b35c4b5_story.html

Pirates of the Middle Kingdom

CER reports:

Those who live in China can pass entire days using only counterfeit products. Waking up in the morning, a man could shave with a Gillette razor of a suspicious hue of blue before getting into a Mini Cooper with surprisingly small wheels. Once at work, he could switch on his overly cheap Cisco computer and work on Microsoft software that periodically crashes his system, before enjoying a 10:30 am break with a drag on an unevenly burning Marlboro. On his way home, he may stop for dinner at KFG or Pizza Huh.

Anyone who has knowingly lived such a day might think China has no legal protection for intellectual property (IP). Approximately one-quarter of the vendors on the Office of the US Trade Representative list of notorious markets for counterfeiting released in December were websites or companies in mainland China. Yet China’s intellectual property law, on paper, is actually comprehensive, and “it’s been pretty good for a long time,” said Stan Abrams, a law professor at the Central University of Finance and Economics law school in Beijing.

China started earnestly addressing intellectual property law when it acceded to the WTO in 2001 and pledged to improve its protection of IP rights. The country inked an international agreement called Trade-Related Aspects of Intellectual Property Rights (TRIPS) with other countries in 2007 under the supervision of the WTO, which set out minimum standards for the protection of such rights. Since then, the law has been tinkered with on a yearly basis to become the much refined current system, which is largely in line with standards in the West.

Read more: www.chinaeconomicreview.com

 

The Scariest Environmental Fact in the World

See this sobering graph from the U.S. Energy Information Administration (EIA):

As the data show, China is now burning almost as much coal as the rest of the world — combined.

Read more: http://science.time.com/2013/01/29/the-scariest-environmental-fact-in-the-world/#ixzz2K0fHZMBN

 

The Unsafe Side of Chinese Crony Capitalism

HBR says:

Foxconn, the Apple supplier, has attracted worldwide attention for repeated reports of unsafe working conditions. In May 2011, an explosion at its iPad plant in Chengdu killed three employees. But Foxconn isn’t alone: Media accounts of dangerous working conditions at Chinese industrial facilities abound. Some analysts believe corruption is partly to blame—that many companies use their political relationships to circumvent safety oversight and regulations. New research provides backing for this claim, demonstrating a strong link between worker deaths from accidents and the political connectedness of corporate executives.

Read more: http://hbr.org/2013/01/the-unsafe-side-of-chinese-crony-capitalism/ar/1?goback=%2Egde_2533354_member_207013589

 

What's in Store for China in 2013?

Gordon Orr says:

2. Pork or chicken prices rise 100 percent

China’s domestic food supply has been strained for years. The country consumes 50 percent of all pork globally, and rising demand for protein, especially pork, is pushing the system beyond its limits. In July 2011, pork prices surged 57 percent for a number of reasons, including the steady exit of swine farmers from the market beginning in 2010 and an outbreak of disease among pigs in late 2010 and early 2011. That could easily happen again, and on a much larger scale, because of failures in farms or in the extremely rudimentary cold supply chain. Imports could not increase on a scale sufficient to fill the gap. The psychological scars from recent food-safety scandals could lead to panic hoarding of substitute products and drive up their prices, too. Although a better food chain will develop over time, this may take several years.

Read more: http://www.mckinseychina.com/2013/01/17/whats-in-store-for-china-in-2013/?utm_source=McKinsey+Greater+China+Newsletter&utm_campaign=90cfc5fd7f-McKinsey_Greater_China_Newsletter_1229_2012&utm_medium=email

Carrefour and the “Double Standard” Label

Stan Abrams says:

You might remember the trouble Nike got into back in October when some consumers alleged that it  maintained different product quality and pricing standards for Chinese customers than with consumers in other nations. This is by no means the first time that a foreign company has been attacked in China for treating customers differently, and often these charges hold up under scrutiny. The question that is rarely asked is whether it is fair criticism, given that the domestic competitors of these companies engage in the same sort of behavior.

Be that as it may, the latest target appears to be Carrefour, which was recently fined for price gouging in the city of Taiyuan.

Read more: http://www.chinahearsay.com/carrefour-and-the-double-standard-label/

US and China Fight over Accounting Regulations

Foreign Policy says:

Over the past decade, roughly 400 Chinese companies have listed their shares on U.S. stock exchanges. A few are multi-billion dollar state-owned enterprises, such as China Life, China Telecom, and PetroChina. More than 100 were so-called backdoor-listed companies that circumvented the cost and scrutiny associated with an initial public offering by buying and merging into a U.S. firm whose stock was already listed. As U.S.-listed stocks, all of them have chosen to submit themselves to SEC regulation in order to tap U.S. and global investors for funds via U.S. markets.

Because the bulk of their operations are in China, these companies must rely on auditors licensed in China -- in many cases the Chinese subsidiaries of the top global audit firms -- to audit them. For the SEC to accept their audits, these China-based auditors must register and maintain good standing with the board.

The problem is that the Chinese regulator, the China Securities Regulatory Commission (CSRC), refuses to allow the board to inspect the U.S.-registered, China-based auditors, as required by Sarbanes-Oxley. It sees the idea of a U.S. regulator overseeing a Chinese auditor as a violation of China's national sovereignty. For some time now, the board has been negotiating with the CSRC, trying to get them to accept some form of cooperative inspections, or even allow it to observe Chinese inspections. So far, these talks have gone nowhere.

It's not unusual for the United States to get pushback from foreign countries or foreign companies on new regulations. When Sarbanes-Oxley first passed, several U.S.-listed European firms (as well as many U.S. companies) objected to a provision requiring listed firms to perform an annual audit of internal controls, in addition to the traditional audit of financial statements. They argued that this extra requirement was so costly and burdensome, they might no longer bother to maintain their stock listings in the United States, seriously undermining the position of the U.S. capital markets on the world stage. In response, the SEC temporarily suspended the rule for foreign companies, and eventually scaled down the requirement for all companies to a less onerous "top-down review."

Read more: http://www.foreignpolicy.com/articles/2012/12/10/China_accounting_scandal_SEC_Baidu

The Real Labor Market in China

The WSJ reports:

Read more: http://blogs.wsj.com/chinarealtime/2012/12/10/perception-vs-reality-charting-chinas-family-value/

The Insourcing Boom and Moving Out of China

The Atlantic reports:

For much of the past decade, General Electric’s storied Appliance Park, in Louisville, Kentucky, appeared less like a monument to American manufacturing prowess than a memorial to it.

The very scale of the place seemed to underscore its irrelevance. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday. The vast majority of the lot’s spaces were empty; the traffic lights looked forlorn.

In 1951, when General Electric designed the industrial park, the company’s ambition was as big as the place itself; GE didn’t build an appliance factory so much as an appliance city. Five of the six factory buildings were part of the original plan, and early on Appliance Park had a dedicated power plant, its own fire department, and the first computer ever used in a factory. The facility was so large that it got its own ZIP code (40225). It was the headquarters for GE’s appliance division, as well as the place where just about all of the appliances were made.

By 1955, Appliance Park employed 16,000 workers. By the 1960s, the sixth building had been built, the union workforce was turning out 60,000 appliances a week, and the complex was powering the explosion of the U.S. consumer economy.

Read more: http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/?single_page=true&goback=.gde_2966312_member_193393528&

Mr. China Comes to America

James Fallows writes:

Near the end of this year’s second presidential debate, Candy Crowley of CNN pointed out that iPads, iPhones, and other globally sought-after Apple products are all made in China. What would it take, she asked both Mitt Romney and Barack Obama, to “convince a great American company to bring that manufacturing back here?”

I listened to this question with special interest, since I was following the debate, via hotel-room TV, from the Shenzhen manufacturing zone of southern China, where many of those same iPads and iPhones are made. For the few days before the debate, I’d been revisiting PCH International, an outsourcing company I’d first written about for this magazine in 2007, in “China Makes, the World Takes.” The company’s revenues have increased more than sevenfold since then and its workforce has grown almost as fast, despite the years of global recession. This is testament both to its own success and to the nonstop surge of outsourcing contracts to China.

The day after the debate, I walked through the famous Foxconn complex in the Longhua district of Shenzhen, where some 230,000 Chinese workers, mainly between the ages of 18 and 25, turn out products sold under international brand names, from Apple and Dell to Nintendo and Sony. Another Foxconn facility not far away employs another 200,000 people; throughout China the company’s workforce numbers 1.3 million.

Read more: http://www.theatlantic.com/magazine/archive/2012/12/mr-china-comes-to-america/309160/?single_page=true

The New Cultural Revolution in China and Getting a Job

INSTEAD reports:

In May, Guo Jie, a contestant on China’s most popular job-hunting show “非你莫属” – loosely translated as “The job is yours” – fainted on air following intense questioning by the host and an expert judge designated as the “boss”. Guo was armed with three foreign degrees following a ten-year stay in France, and in years past would have commanded a premium in the employment market. However, job seekers like him now have to deal with the host’s comment uttered on the show on that fateful night: “I do not wish to perform this tedious task of separating fact from fiction on this platform.”

That remark has since become the de facto standard opening line on the show. More damningly, the Guo Jie incident serves as a cautionary tale: An expensive foreign education does not always lead to success, but could instead lead to suspicion of diploma-buying.

Read more: http://knowledge.insead.edu/world/china/the-new-cultural-revolution-in-china-2343?utm_source=INSEAD+Knowledge&utm_campaign=653f768585-INSEAD_Knowledge_December_Newsletter_201212_6_2012&utm_medium=email

China's Second-Tier Cities: Sichuan Rises

Chris Devonshire-Ellis writes:

Recent media attention has focused on a slowdown in China. The actual state of play in China that should be watched, though, is rather different. While residents of first and second-tier cities such as Shanghai, Beijing and Shenzhen can still be seen holding Louis Vuitton bags and iPhones, a significantly larger, yet less individually affluent, market has begun to rise within the country. It is within this terrain of lower-tier cities that China’s breakneck growth is now being demonstrated. It’s still a bit too early for these residents to be showing off designer handbags and Apple gimmickry, yet a solid and highly-sustainable growth wave is happening across China’s fourth, fifth, and sixth-tier cities in the central and western regions.

Read more: http://www.newgeography.com/content/003263-chinas-second-tier-cities-sichuan-rises?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Newgeography+%28Newgeography.com+-+Economic%2C+demographic%2C+and+political+commentary+about+places%29

Beijing Judge Gives “Haager-Dasz” Trademark Thumbs Down

Stan Abrams writes:

You probably think this is a pretty easy case. This “Haager-Dasz” trademark was obviously filed in bad faith, and this local company should not be allowed to use it. This is yet another one of those trademark squatting situations, right?

Yes, but that doesn’t mean that the case is, as we say back home, “open and shut.”

Read more: http://www.chinahearsay.com/beijing-judge-gives-haager-dasz-trademark-thumbs-down/

Bear No More - It's Time To Get Beta In China

Econ Grapher writes at Seeking Alpha:

• The Chinese economy has slowed its rate of growth recently, but the drivers
  of this slowdown are known and relatively benign. Monetary policy tightening in
  2010-11, along with regulatory measures to curb property speculation and
  inflation resulted in a slowing of activity growth (this is what you would
  expect when monetary policy tightens). The European sovereign debt crisis and
  subsequent austerity induced recession also put a dampener on external demand
  for exports.
• In the backdrop of this engineered and externally driven slowdown, there
  have been some efforts towards rebalancing the economy away from investment and exports and towards domestic consumption. This is a good idea for China, and
  will ultimately result in lower but more sustainable growth. But this has not
  been a key driver of the recent slowdown, and will take decades to come to full
  fruition.

Read more: http://seekingalpha.com/article/1040051-bear-no-more-it-s-time-to-get-beta-in-china

The Risky Strategy Behind China's Construction Economy

Foriegn Policy says:

The recklessness can be traced to two things: First, local Chinese officials are evaluated for promotions and other rewards based on how well the economy they manage performs. Construction and real estate activities are among the most straightforward ways to stimulate growth. White-elephant construction projects thus offer eager officials a perfect opportunity to impress their political superiors, even if massive developments do not necessarily make any economic sense. Take, for example, the city of Ordos in Inner Mongolia: Its elaborate urban infrastructure and its sea of new flats and office blocks are nearly all unoccupied, making it China's largest ghost city.

Another factor was China's fiscal recentralization reform of 1994, in which the central government raised its own revenue by taking back power from local governments to levy some major taxes. The move lowered local governments' revenues but left their financial responsibilities -- providing education, health care, subsistence allowances, and pensions -- unchanged. So local officials had to find other ways to generate money.

Read more: http://www.foreignaffairs.com/articles/138449/lynette-h-ong/indebted-dragon?cid=nlc-this_week_on_foreignaffairs_co-112912-indebted_dragon_4-112912

China Trademarks. Doing Them With Class.

Dan Harris says:

China breaks out its trademark registrations into 45 different classes, not to mention sub-classes.  And unlike many other countries, China is a “single class application” country, which means that you must file (and pay for) a separate trademark application for each class for which you are seeking trademark protection.  Very roughly speaking, what this means is that if you register your “ABC Trademark” in the class for clothing, you will be protected from trademark infringement just from those who use your ABC Trademark on clothing items.  If someone wants to use your ABC trademark on clocks, cars, kitchen appliances, or any other product or service within any of the other 44 classes, they will be free to do so.

So then what can you do?  Well obviously you can register your “ABC Trademark” in all 45 classes, but that is really no solution at all. It is no solution both because doing that would be prohibitively expensive for all but the largest and wealthiest companies.  It is also no solution because if you fail to use your registered trademark for three years, you risk losing it.

So then what should you do when filing for China trademarks?  We suggest that you register your mark in classes of products you may make or sell in the future, or where there is room for consumer confusion.  Let’s take your ABC Trademark on clothing.  It probably does not make sense for you to register that for kitchen appliances but it might make sense for you to register it for beauty products because so many clothing companies also make beauty products.

Unfortunately, there are no general rules here, beyond that you fully familiarize yourself with China’s various trademark classes and that you figure out as early as possible what classes your products/services best fit into now or may fit into in the future and also what registrations by others are most likely to be confused for yours.

Read more: http://www.chinalawblog.com/2012/11/china-trademarks-when-to-go-full-class.html

Five First Reforms for China’s New Leadership

Brian Klein says:

Without significant reform China’s best days may be behind it as growth slows and opportunity stagnates. Five areas of low-hanging fruit would have a significant near-term impact.

1. Ending the hukou system – What’s old continues to be new as residency permits (dating back to Imperial times) restrict individual rights beyond their hometowns. When convenient, limitations on work are ignored for migrants in factories or on construction sites, but their children can’t attend school, they have no rights to medical care and they can’t buy property. Ending this antiquated system would be a boon for low-end real estate development and reduce costs for companies that currently maintain worker’s dormitories. It would also significantly improve the future workforce with guaranteed education for all in a country struggling with an aging population.

2. Opening the financial sector – Ever since China joined the WTO there were promises of market opening that have never materialized. Western firms have generally limped along hoping one day opportunity would arrive. That day has never come. The end result: a state-dominated sector that starves much of the private sector of needed investment and non-market saving rates. Free up both and a strong consumer class follows. When foreign firms can compete openly for deposits, access money at the same preferential rates as their state-owned counterparts, and offer the full range of banking services in the mainland as they can in Hong Kong times will indeed be changing.

Read more: http://brianpklein.com/wp/five-signs-of-china-reform/

 

Why Chinese Firms' Cross-Border Deals Fall Apart

The HBR Blog says:

During the past decade, Chinese firms have become aggressive cross-border acquirers. Unfortunately they have been struggling to actually close their deals.

Some deals have failed because of national security concerns in the U.S., including CNOOC's attempt to purchase Unocal in 2005 and Huawei's attempt to buy 3Leaf Systems in 2011.

More often, though, Chinese firms have announced deals and are then unable to follow through. For instance, Bright Food was near closing on a deal to purchase GNC for between $2.5 billion and $3.0 billion in 2011, but then had to retract because the companies could not agree on terms and struggled to get Chinese regulatory approval. 

These examples are rather more typical than they should be. According to a study (forthcoming) by Olga Hawn of Duke University, cross border deals involving Chinese companies are almost twice as likely to break down (15% of the time) as deals involving companies from other BRICS countries (8%) and three times as likely as those involving Western multinationals (5%).  

Read more: http://blogs.hbr.org/cs/2012/11/why_chinese_firms_cross_border_deals_fall_apart.html