China Challenges

John Kerry Speaks on China's Ownership of US Treasuries

Stan Abrams notes:

With the U.S. poised to either suffer a downgrade to its bond rating or actually default on its obligations, Senator John Kerry, the head of the Senate Foreign Relations Committee had this to say:

The Chinese are laughing all the way to the bank,” said the former Democratic presidential nominee, because a downgrading of US Treasury securities will mean enormous and completely unnecessary increases in our interest payments to the nation’s largest creditor — and our most important competitor in the international arena.

WTF? The Chinese are freaking out over the situation at the moment, as well they should.

Read more: http://www.chinahearsay.com/john-kerry-doesnt-seem-to-understand-downside-for-china/

China Expats: No rise in tax threshold

The Shanghai Daily says:

THE income tax threshold of 4,800 yuan (US$744) enjoyed by expats in China will remain unchanged when personal tax thresholds are raised.

At present the threshold is 2,000 yuan with an extra 2,800 yuan for expats.

From September 1, China is raising the threshold to 3,500 yuan but the extra sum for expats is to be cut to 1,300 yuan, leaving them with the same 4,800 yuan benefit.

"We've received lots of inquiries from clients about the expatriate deduction," Freeman Bu, an Ernst & Young partner in Shanghai, said yesterday.

"They have argued that the cost of living is also rising for them as inflation is the same for Chinese and expatriates."

"The move is in line with China's aim to revise its tax law to let low and medium income families benefit from tax cuts," said Bu.

"Expatriates are often deemed as high-income earners."

Bu said that expats earning close to 18,000 yuan a month would pay more under the new tax system, which meant that "probably the majority of expatriates will have to pay more on tax." While for Chinese, those earning 38,600 yuan a month will pay more tax.

Read more: http://www.shanghaidaily.com/nsp/Business/2011/07/29/No%2Brise%2Bin%2Bexpat%2Btax%2Bthreshold/

Does Apple Benefit from Fake Stores in China?

Gordon Chang writes in Forbes:

Surprisingly, Apple has been mum about the stunning revelation.  Representatives in both Beijing and Cupertino have declined to offer substantive comments.  If someone opened a fake store in, say, Grand Central Station, the company would be blanketing the media with statements vowing to shut down the offending outlet.

So why would Apple, known for meticulous control of its supply chain, stay quiet when someone has invaded its distribution network in China?  It is virtually inconceivable that Cupertino did not know of the four fake stores, the first of which opened in May.  After all, how could one foreigner aimlessly strolling down the streets of Kunming with her husband find something that an obsessively protective company with hundreds of investigators and lawyers could not?  Moreover, Apple had received a complaint about the fakes filed by a major authorized Kunming distributor.

Perhaps Apple was trying to buy time to find out where the Shenzhen business was getting its wares. 

Read more: http://blogs.forbes.com/gordonchang/2011/07/24/fake-apple-stores-in-china-great-news-for-apple/?partner=commentary_newsletter

View from China: The Debt Impasse

The New Yorker blog says:

"The whole U.S. debt ceiling negotiation is a well-rehearsed soap opera,” commentator Tang Huayuan wrote Monday on Weibo, the Chinese equivalent of Twitter. “Nobody thinks Americans will choose suicide when they have known solutions,” a senior official at the Bank of Korea told Reuters. Indeed, the failure to make progress produced, in Asia, less a hue and cry than a vast, continental groan.

Nobody has more skin in this than China, America’s largest creditor, which stands to see its investments suffer if the United States faces a ratings downgrade and debt default. Publicly, Chinese officials are playing it cool—“They will definitely reach an agreement,” Xia Bin, an adviser to the Chinese central bank, was telling every reporter who would listen Monday—but that has almost nothing to do with what will actually happen in Washington. The Chinese have their own reasons to be stoic: as the top holder of American Treasuries, Beijing is keen to convey calm to global markets, and it also prudent for domestic political reasons. Chinese citizens and hard-liners are already questioning the wisdom of relying so heavily on investment in the U.S., so Chinese government financiers have found themselves in the uncomfortable position of defending their bets. Among the top Chinese discussions unfolding Monday on a popular Web forum hosted by the People’s Daily was a string that tied the debt impasse to a summer-lunch program for American students: “What the hell!” a commentator wrote. “The U.S. owes China God-knows-how-much money and now it’s giving free lunch to its children.”

Read more http://www.newyorker.com/online/blogs/evanosnos/2011/07/view-from-china-the-debt-impasse.html#ixzz1TBu5VJ5L

Trouble for China's SMEs

Want China Times reports:

Chen Yaohua, president of the Dongguan Textile and Garments Trade Association, said the second half of the year is usually a boom season for the textile and toy industries, but added that business will not recover unless credit is eased and labor and commodity prices are reined in.

The China Economic Weekly quoted business leaders in Zhejiang as predicting that nearly 20% of small- and medium-sized enterprises in the eastern province would close down within the next three years, for the same reasons that Mr Chen listed.

Hsieh Ching-yuan, president of the Dongguan Taiwan Business Association, shared the pessimistic outlook with respect to Taiwanese businesses in Dongguan, predicting that over 10% of the members of his association would close their businesses before October, citing a shortage of labor, electricity, materials and orders, and also difficulty in obtaining loans.

Read more: http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20110720000115&cid=1202

China's Tiger Woman!

Foreign Policy says:

Clearly, the best part of yesterday's tense parliamentary session with Rupert and James Murdoch was when Wendi Murdoch leapt up to defend her husband after a spectator splattered a foam pie in his face. She literarily jumped over people to slap the man.

......

The Nanfang website posted a few translated tweets.

• Deng Wendi is a pearl among women!
• Every woman has to learn from Deng Wendi. Be an original wife; be a good step mother; slap protesters; be good in social accessions as well as in the kitchen. She's cunning on the inside and strong on the outside. Act like a tiger woman! Holy cow!
• Deng Wendi is so strong and aggressive! I highly doubt she directed the whole scene to show it to Murdoch! Otherwise, her reaction was unbelievably fast, and she was so brave!
• Mrs Deng Wendi, you are my idol from now on!
• She's a former volleyball player, not an ordinary woman! Whoever fights her will end up losing! That slap just drove up the stock price of News Corp.
• Deng Wendi not only has business wisdom, she is also a good bodyguard! Hey you professionals in the work place, how many skills do you have?
• I am starting to like Deng Wendi now. She is really aggressive! I think her action was out of instinct. She just wants to protect her family. I don't think she lost the faces of Chinese women!

Read more: http://blog.foreignpolicy.com/posts/2011/07/20/what_s_the_reaction_in_china_to_wendi_murdoch_s_action_hero_moves_yesterday

 

 

Chinese Grads struggle despite job growth

The Shanghai Daily says:

DESPITE a big increase in job opportunities, not many more university graduates are securing positions, mainly because their abilities and expectations are not matching up well with employers' needs, education authorities said yesterday.

The number of openings is not the problem, as companies are offering many more jobs this year than last. The Shanghai Education Commission has identified 240,000-plus job vacancies for college graduates, one third more than last year.

But by contrast, the education authorities found only a tiny increase in the number of students who have secured their future employer. More than 86 percent of graduates in Shanghai have landed a job, been accepted by a graduate school or signed up for overseas studies so far, roughly 1 percentage higher than the same time last year.

"Many firms have increasing numbers of job vacancies, but they cannot find suitable employees," said Feng Lijuan, chief analyst at the headhunting firm 51job. "Many graduates are not willing to start from low-level jobs, which they are not able to do well. Their expectations exceed their real abilities."

She advised college students to get more internships to gain practical job experience.

A big number of employers that need graduates with technical knowledge failed to recruit qualified candidates because many local campus courses are too academically oriented.

Moreover, companies favor students from prestigious universities who majored in science and engineering over those who majored in humanities.

All of this is causing problems for many graduates.

Read more: http://www.shanghaidaily.com/nsp/Metro/2011/07/22/Grads%2Bstruggle%2Bdespite%2Bjob%2Bgrowth/

Pork Prices and Inflation

Jack Perkowski says:

Are rising pork prices causing inflation in China? That question may never be asked in a highly developed economy like the United States where increases in prices at the gas pump are felt most directly by consumers, but it is a question that is being asked frequently these days in China where food is such an important part of the budget for most.

In fact, Professor Nie Fengyang, Director of the Division of International Information at the Chinese Academy of Agricultural Sciences, told me that she was confronted with that very question at a presentation she gave recently to a group of Chinese bank executives. I met Professor Nie this week at a United Nations World Food Programme function in Beijing that I attended, along with many Chinese agricultural officials. Professor Nie and her team study issues such as food security (ensuring that China has enough food to feed its population), specializing in meat.

Read more: http://managingthedragon.com/?p=1073

How Do You Hide an Oil Spill? Ask China.

Forbes says:

On Friday, China’s State Oceanic Administration reported that an oil spill in June from two wells in Bohai Bay has polluted 4,250 square kilometers—1,650 square miles—of sea, an area six times the size of Singapore.  Moreover, another 3,400 square kilometers had been contaminated to a lesser degree, according to the agency.

ConocoPhillips, the Houston-based operator of the wells in the Penglai 19-3 field, says only 1,500 barrels of oil had been released in the incidents and that both leaks have been brought under control.  Beijing, as of the 13^th of this month, maintained that oil was still coming out of the wells.

Read more: http://blogs.forbes.com/gordonchang/2011/07/17/how-do-you-hide-an-oil-spill-ask-china/?partner=commentary_newsletter

Employer Social Insurance In China

Dan Harris of the China Law Blog says:

The congruity between foreign and Chinese employees recently got even closer with China's very recent (July 1) enactment of its new Social Insurance Law, which law applies equally to Chinese and foreign employees.

The new social insurance system will cover the following:

• Pension insurance
• Unemployment insurance
• Work-related injury insurance; and
• Maternity insurance.

Local governments (provinces and cities) determine the contribution rates for employers and employees. We generally tell our clients to expect to have to pay about 40% of an employee's wages in social insurance.  

The new law lessens the employer's burden for covering work-related injury costs. The new law also includes penalties against employers that fail to make sufficient or timely insurance contributions. This penalty is set at .05% a day on the outstanding contribution. If the employer fails to pay the penalty, additional fines can be imposed by the local administrative department. If things get really bad, the local social insurance administrative department has the right to collect outstanding amounts directly from the employer’s bank account. The law also requires that each employer register with the local insurance administrative department within 30 days of incorporation and register any employee within 30 days of employment.

Read more: http://www.chinalawblog.com/2011/07/employer_social_insurance_in_china_i_see_foreign_people.html

Shanzhai Phone Sales Set to Decrease in Coming Years

Shanghai Daily says:

SALES of copycat handsets are expected to peak this year in China but will decrease in the next several years, research firm IHS iSuppli said yesterday.

The factors accounting for the decline include strong regulation from the government and the popularity of entry-level smartphones, which will likely grab market share from copycat phones, also known as shanzhai models, industry insiders said.

"End customers are concerned about quality and after-sales services of copycat handsets," Kevin Wang, research director at US-based iSuppli, said in a note. "Existing (shanzhai) players also may leave the smartphone market altogether to seek greater opportunities in other consumer electronic sectors, such as tablets."

Read more: http://www.shanghaidaily.com/nsp/Business/2011/07/16/Copycat%2Bhandset%2Bsales%2Bset%2Bto%2Bpeak/

Chinese Car Brands' Share Is Shrinking Without Incentives

AdAge Global says:

Backed by favorable tax breaks and scrappage incentives (money offered for replacing old cars with modern ones), domestic Chinese automakers enjoyed strong sales and a rising market share over the past two years.

But the party is over. With incentives gone, Chinese brands have lost market share this year, dragged down by their poor brand image and stagnant demand for microvans. Since neither of the issues can be resolved any time soon, the domestics likely will bleed market share awhile longer.

Domestic Chinese brands are known for small cars. Those brands benefited most when the central government cut its sales tax on small cars by 50% in 2009 and 25% in 2010. The domestic brands are also the only automakers that make microvans -- versatile vehicles favored by China's small-business owners and farmers.

In 2009, Beijing introduced a scrappage incentive ranging from 5,000 to 18,000 yuan ($775 to $2,800) to induce farmers to trade in their old microvans.

Thanks to these incentives, domestic Chinese brands grew their share of passenger car sales -- which include microvans -- from 40% in 2008 to nearly 46% in 2010, according to the China Association of Automobile Manufacturers.

Read more: http://adage.com/article/global-news/chinese-car-brands-share-shrinking-incentives/228736/

China Doctors Earning $300 a Month Flock to Drug Companies

Bloomberg reports:

Mao Mengjia gave up a career as a doctor in China because he could make more money selling medicine than prescribing it.

Mao, 26, tripled his income after quitting his job at a hospital in northeastern China to work as a medical sales representative in 2009. As many as 14,000 physicians like Mao will join foreign pharmaceutical companies over the next five years, according to Aon Corp. (AON)’s Shanghai-based human resources advisory firm.

The new recruits will sell medicines made by companies from New York-based Pfizer Inc. (PFE) to Paris-based Sanofi in the world’s fastest-growing major drugs market. Their career-switch is curbing the supply of doctors that China’s government wants in rural and regional areas, where inadequate medical care is hampering efforts to cut infant mortality and prevent diabetes.

“The pay for new doctors is low, which makes it hard to survive,” said Mao, who was one of 30 to graduate in 2005 from the medical college he attended in Dalian, 460 kilometers (286 miles) east of Beijing. Nine of his classmates have jobs in pharmaceutical sales, he said.

Read more: http://www.bloomberg.com/news/2011-07-10/china-doctors-earning-300-a-month-flock-to-drug-companies-tripling-wages.html

Don't Judge China on Phantom Facts

Shaun Rein says:

There are a lot of doomsday scenarios about China’s economy floating around these days and oddly, a number of them are focusing on infrastructure spending and rising local debt rather than the real threat of rampant inflation, which hit a three-year high in June at 6.4 percent.

Famed bearish economist Nouriel Roubini said in a column for Project Syndicate that China’s economy will face a sharp slowdown in 2013 because of too much wasted infrastructure spending.

Similarly, MIT professor Huang Yasheng argues that Chinese incomes are not rising fast enough to offset dwindling export growth and that urbanization has been wasteful.

However, a quick examination of Roubini’s and Huang’s data points show there is little merit in their conclusions because they are both using phantom facts.

Roubini argues that infrastructure spending has been excessive and redundant, creating not needed and unsustainable projects that will cause an inevitable slowdown. A recent article in Reuters quotes Roubini as saying: ‘“I was recently in Shanghai and I took their high-speed train to Hangzhou,’ referring to the new Maglev line that has cut traveling time between the two cities from four hours to less than one. ‘The brand new high-speed train is half-empty and the brand new station is three-quarters empty.

Read more: http://www.cnbc.com/id/43707874

China Auto Parts Market Ripe For Right Strategy

Technomic Asia says:

Twenty percent growth in China’s auto aftermarket in the recent past has slowed to under 10%, but the numbers disguise the opportunities that exist for auto parts companies. There are 350 different models of cars and light vehicles on China’s roads. New car sales since 2006 have doubled from under 7.5 million annual sales to 15 million units in 2010.

Read more: http://www.technomicasia.com/blog/2011/07/09/autoparts2011/

Coal Sulfur from China Prevented Global Warming For 10 Years?

FuturePundit says:

Robert K. Kaufmann of Boston University and a few other researchers have proposed a theory to explain why global warming basically stopped for about 10 years: sulfur aerosols emissions from China's big surge in coal burning (doubling from 2003 to 2007!) have canceled out most of the warming effects of higher carbon dioxide. Accidental large-scale climate engineering. What a fascinating experiment. Massive sulfur never would have been politically approved as an intentional intervention for cooling.

Read more: http://www.futurepundit.com/archives/008172.html

How cutting costs in China sourcing can actually cost you more

David Dayton says:

We work with a client whose buyer chronically asks for us to lower their costs.  Every order, every item, every time, multiple requests.  It’s their MO.  It’s like they were taught in MBA school that “if you don’t try to cut the price, you never now what you can save.”  And while I agree with the logic, pushing it so often, as they have, means that their costs are actually rising.  Specifically:

1. Factories quote higher original prices.  It is actually expected that you will cut prices to a certain degree, but once you are a “known quality” any additional cuts will cost you somewhere else.
2. Factories pursue conscious quality fade to save money. If you’re intent on cutting the prices up front (especially on first orders) you’ll get bitten in the end, guaranteed.
3. Even if you do cut the cost, to be safe from quality fade you have compensate on your own too.  Meaning, other costs go up, namely any 3^rd party testing, QC or management company involved to deal with issues 1 & 2).
4. Replacements/failures rise when standards are high but costs of materials are not raised accordingly.

Read more: http://silkroadintl.net/blog/2011/07/05/how-cutting-costs-can-actually-cost-you-more/ 

Top Chinese universities trade 'dirty tricks' accusations

The Shanghai Daily reports:

TOP Shanghai universities are accusing rivals of dirty tricks campaigns in efforts to secure the best students for their institutions.

On Friday, Fudan University issued a public statement implying competitor Shanghai Jiao Tong University had duped excellent out-of-town students into giving up applying to Fudan.

It has been suggested students received calls from people pretending to be Fudan officials, informing them their application was invalid and suggesting they apply to SJTU instead.

"It's fraudulent," Fudan said on its official microblog. "We reserve the right to sue the engineering college in southwest Shanghai."

This triggered a war of words between faculties and supporters of the two high-ranking universities.

Over the weekend SJTU issued a statement denying the allegations, which it said damaged its reputation.

SJTU also made its own accusations of underhand tactics. "We are very regretful that some other university teachers have been sullying SJTU's image in recruitment fairs in high schools," it said.

Read more: http://www.shanghaidaily.com/nsp/Metro/2011/07/04/Colleges%2Bin%2Bdirty%2Btricks%2Baccusations/

China ends "indigenous innovation" policy

The Shanghai Daily says:

CHINA has repealed a policy favoring Chinese companies in government purchases of computers and other technology that had triggered complaints by some foreign companies and governments that it "violated free trade."

It was the second time in a month that China repealed a technology policy after complaints by its trading partners. The US government announced on June 7 China was withdrawing measures American officials said improperly subsidized Chinese wind turbine makers.

The Ministry of Finance said on Wednesday it would stop enforcing procurement rules that are part of a decade-old "indigenous innovation" campaign to spur domestic technology development. They required government agencies to favor Chinese makers in six areas including computers and clean power.

"This repeal represents a forward step toward leveling the playing field in the government procurement market in China," said Davide Cucino, president of the European Union Chamber of Commerce in China.

Foreign businesses had complained the rules would hamper or eliminate access to fast-growing technology markets in China, where the government often is the leading purchaser of computers and other advanced equipment.

Read more:

http://www.shanghaidaily.com/nsp/Business/2011/07/01/China%2Bends%2Bpolicy%2Bfavoring%2Blocal%2Bfirms/