Wednesday, August 15, 2018

No wide-spread China meddling in US elections - Victor Shih

Victor Shih
Following the investigation into Russia meddling into US elections, California Congressman Jeff Denham has also accused China of the same. While there have been some minor spying incidents, political analyst Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation, does not see a similar effort for interference from China, he tells Politifact.

Politifact:
In her response, Denham’s spokeswoman cited news reports that a staffer who once worked for U.S. Senator Dianne Feinstein had a connection to Chinese spying. 
Victor Shih, an associate professor at the School of International Relations and Pacific Studies at UC San Diego, said, however, there’s no indication the staffer had any role in election interference. 
Shih said another matter from the 1990s, and not cited by Denham’s office, does show one "clear case of China trying to influence elections." 
In 1996, Johnny Chung, a Taiwanese-born California businessman, pleaded guilty to illegally funneling money from China to President Bill Clinton and the Democratic National Committee during Clinton’s re-election campaign. 
Chung later testified before Congress that the donations included $35,000 from the head of China's military intelligence agency to Clinton’s successful reelection effort. The FBI even warned six members of Congress at the time: "We have reason to believe that the government of China may try to make contributions to members of Congress through Asian donors." 
Shih and the other experts we contacted said, however, the Chung matter does not represent a widespread, persistent effort by China to interfere in U.S. elections. China is suspected, he added, of conducting a recent and broad political influence campaign in Australia. 
"Meddling, of course, there are some cases of it (by China in the United States)," Shih said. "But to say that it’s pervasive or everywhere, I think it’s a bit of a stretch."
More at Politifact.

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Tuesday, August 14, 2018

How the central bank dresses up its figures - Victor Shih

Victor Shih
China's central bank PBOC is dressing up its figures. Financial analyst Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation, has for Bloomberg a look at the methods the bank is using.

Bloomberg:
Including asset-backed securities in its measure is a way for the central bank to "dress up" the aggregate financing number to show financial resources are still on the rise, said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance. 
The sudden growth of asset-backed securities may suggest that the authorities are allowing funds and trust companies to use interbank leveraging to finance purchases of asset-backed securities, which will once again jump-start off-balance-sheet credit growth, he said. "Since 2011, marginal financing has come mainly from off-balance-sheet shadow financing," he said. "Regulations in the past year have made the growth of shadow finance problematic. Thus, the increase in on-balance sheet lending was not enough to make up for the shrinkage of shadow financing."
More at Bloomberg.

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Stable elements in China's fast-changing digital reality - Tom Doctoroff

Tom Doctoroff
China's digital world is changing faster than anywhere else in the world, but some elements remain stable, says marketing expert Tom Doctoroff, author of What Chinese Want: Culture, Communism, and China's Modern Consumer to Warc. "Chinese people are so emotionally engaged with the images and experiences they share with the “like-minded” – that is, people who “matter” because they have the same interests.”

Warc:
“China’s digital landscape is evolving rapidly. But timeless cultural truths – that is, a regimented, rules-bound offline world – ensure the relationship between individuals and their online identities remain highly compartmentalised and emotionalized,” said Tom Doctoroff, Chief Cultural Insights Officer at brand consultancy Prophet, in an exclusive story for WARC. 
“Compared with day-to-day reality, [the internet is] a blank canvas of self-expression. That’s why Chinese people are so emotionally engaged with the images and experiences they share with the “like-minded” – that is, people who “matter” because they have the same interests.” This motivation implies two imperatives for brands. First, they must provide a platform for emotional release and creative liberation. Second, they must provide social currency and peer endorsement on a scale unimaginable in the West. 
“In China, pride is never separated from purchase. Self-image is inextricably linked to consumption because: a) there are relatively few ways to express identity given society’s conformism and b) brand choice represents forward advancement,” Doctoroff said. 
Doctoroff advises brands to look toward four key principles when engaging with young Chinese online: encouragement to break through traditional barriers or ‘old world’ expectations, empowerment to try new things, opportunities to project their status and offering a gateway to ‘greatness’. 
“Purchases need to reinforce the new generation’s aspiration to maintain a modern, multi-faceted identity. They want to project discernment in relationships, evolution of social consciousness, worldliness, and contemporary “health and wellness” practices.”
More in Warc.

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Monday, August 13, 2018

How emerging markets turn around the product lifecycle - Harry Broadman

Harry Broadman
Emerging markets have turned around the traditional view on the product lifecycle, as multinational knew them, argues Harry Broadman in his speech on innovation and entrepreneurship. No longer is the US the birth ground of new ideas, who then spread to emerging economy, but innovation from emerging countries conquer the world in its own right.

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Friday, August 10, 2018

Trade war will not derail reform program - Arthur Kroeber

Arthur Kroeber
If the current plans for impose 25% US tariffs on Chinese import are really executed, they will cause damage to China's economy, says economist Arthur Kroeber, author of China's Economy: What Everyone Needs to Know, says at CNBC. But it is unlikely the trade war will derail the long-term reform plans, he adds.

CNBC:
Despite the predictions of a renewed focus on reform, it's unclear whether Beijing will be able to speed up its economic policy changes, which can often take years. 
The government will likely focus on fiscal spending to maintain growth, while the ongoing timetable for structural reform won't be affected, said Arthur Kroeber, head of research at China-focused economic research firm Gavekal Dragonomics. 
The bigger concern for Beijing is whether Trump will forge ahead with 25 percent tariffs on $200 billion worth of Chinese goods. That could hit China's GDP by one percentage point or more, Kroeber said.
More at CNBC.

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US brands fear higher prices as trade war moves on - Andy Mok

Andy Mok
The People's Daily has hit out to Apple for making its capital on the expense of China, but all iconic American brands fear to be hit by the ongoing trade war between China and the US, says business analyst Andy Mok at CGTN.

CGTN:
Apple has now become the first-ever one-trillion-U.S.-dollar publicly listed American company. But with a trade war ratcheting up between China and the United States for over a month now, and the Chinese market being vital to Apple, will the company get away intact? 
According to Andy Mok, founder of Red Pagoda Resources in Beijing, any iconic American brands will be concerned about China-U.S. trade tensions, because they are very visible symbols and could easily become collateral damage. But he pointed out that it's the consumer who will finally bear the price. 
"Apple’s unique position is that it’s shown their customers are very price insensitive that they can get away with charging 800 dollars, 900 dollars, even 1,000 dollars for their smartphone. So I think Tim Cook is very right in saying that this is an attack on the consumer, because I think they will and would be able to successfully pass that through to the final consumer," Mok said during a discussion on CGTN's World Insight with Tian Wei.
More at CGTN.

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Thursday, August 09, 2018

Wrong wishful thinking: the US is winning the trade war - Harry Broadman

Harry Broadman
US media tend to frame their stories by dividing the world into winners and losers. In the US-China trade war they have declared the US the winner, for all the wrong reasons, writes political analyst Harry Broadman in Forbes. In this case, the media framing is creating a dangerous and wrong myth, he writes.

Harry Broadman:
Has the trade war ratcheted up anxiety within China? Of course. There was enough underway even before the trade war began in earnest, not only economically but also on the political side. Many Chinese I know will say privately they are deeply worried about Xi Jinping’s power-grab. Not only did he deliberately stock the highest levels of the Party leadership with comrades who have no substantial independent power-base or public charisma, and thus might qualify as an heir apparent, but he also strong-armed his colleagues to alter the constitution to essentially remove term limits for the top Party position, thus paving the way—at least for now— for Xi to retain his authority as long as he likes. The political ferment these developments have produced among the population have little if anything to do with U.S. trade policy or Donald Trump. Without question, Professor Xu’s public stand is very bold, but he is hardly alone in his views. How Xi responds to Xu will be critically important in assessing China’s political path going forward. 
In this vein, it would not be too Machiavellian for Xi, who desperately wants to maintain, indeed fortify, the lifeblood of the SOEs, to actually grab hold of the trade war with the U.S. as the narrative behind the economy’s growth slowdown. The bully Donald Trump is just the scapegoat Xi and the Party need now. Trump’s actions provide Xi with even greater cover to pump more money into the SOESOB shell game. (Xi’s pet project—the Belt Road Initiative (BRI)—can be seen as another version of the same ruse. BRI is the opportunity for China to seemingly support altruistically the economic development of its backyard (and way beyond) and at the same time export the huge excess capacity of the SOEs.) 
Meanwhile, the naïve Trump trade team is becoming a bit giddy about seemingly making inroads into the belly of the China trade beast. The team is wrong on three counts. 
First, and what should be the most obvious, is that this White House is underestimating the determination, the conviction and, most importantly, the patience—at least for now—of the Chinese. The Chinese are nothing if they are not a patient bunch. To say that all of their initiatives throughout their history have been methodically designed for the long-haul would be a paramount understatement. I know this will come as a shock, but in many other parts of the world, short-termism and instant gratification are a way of life. Recognize the U.S. or its current President here? 
Second, and which is becoming clearer each day to the U.S. population, is that Trump’s war machine is exacting a far greater toll on the U.S. than on China. 
It’s well known that tariffs hurt U.S. consumers both because the imported goods they buy become more expensive, but also because in U.S. markets that are not fully competitive, domestic firms producing the same products as what is otherwise imported would have a shield that allows them to charge U.S. consumers a higher price. (Of course, that is the meaning of “protection” behind an activist tariff policy.) 
At the same time, tariffs hurt firms located in the U.S. that use Chinese imports as inputs in their production process to make finalized products for sale. For them, the issue is how much of those increased input costs can they absorb before they’re forced to raise prices on their finalized products to maintain profitability. The result can be lost sales otherwise made domestically. Or if these U.S. firms export those products to third countries, there will likely be a reduction in U.S. export revenues. Of course, that will increase the U.S. trade deficit. That’s precisely the opposite of the ultimate goal with which the Trump team is singularly obsessed. It’s a fetish that no economist worth his or her own salt would have. But there’s an even more perverse effect: a significant amount of U.S. imports from China are produced by U.S. firms with operations within China. Those U.S. firms will be negatively impacted just the same as if they were actually Chinese firms shipping those imports to the U.S. Guess what will likely happen? Those China-located factories of U.S. firms will redirect their sales of exports from China away from the U.S. towards consumers in other markets—markets that are, by definition, not subject to the U.S. tariffs imposed on China. And if the imposition of U.S. tariffs on such exports from China become long-lasting or highly elevated, it could well create an incentive for those firms to shift production from China to other markets in Asia, especially to countries in the ASEAN, where labor costs are far lower than in the U.S. If the Trump trade team believes its tariffs on China will result in U.S. firms shifting their production from China to the US, they are sadly mistaken.
More in Forbes (here reprinted with the kind permission of the author)

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The high potential of Steinway - Shaun Rein

Shaun Rein
Playing the violin or the piano belongs to the aspiration of many Chinese kids, or at least their parents. The intended purchase of Steinway by state-owned Poly has high potential, says business analyst Shaun Rein, author of The War for China's Wallet: Profiting from the New World Order to Bloomberg.

Bloomberg:
Steinway Musical Instruments, the famous piano maker controlled by US hedge fund billionaire John Paulson, has attracted takeover interest from China Poly Group, according to sources. 
The state-owned conglomerate is in the early stages of considering an offer for Steinway, it is believed. Other suitors may also emerge for the business. 
Steinway should be able to fetch a high valuation given that the company may reach 30 per cent to 40 per cent annual sales growth in China, according to Shaun Rein, founder and managing director of the China Market ResearchGroup. A Chinese company like Poly Group could help improve Steinway’s distribution network in the country, which has been weak so far, he said. 
“Steinway has massive potential in China as consumers love the brand,” Rein said. “As Chinese middle-class families get wealthier, they’ll be willing to spend on a luxury piano for their kids as they see music as a key part of their education. And nobody beats Steinway on that.”
More at Bloomberg.

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Tuesday, August 07, 2018

What do Chinese companies do differently in India - William Bao Bean

William Bao Bean
Chinese companies have been gaining market share in India on a large scale, but in a different way than other foreign companies. William Bao Bean, managing director of the Chinacellerator, looks at their strategies and how they gained market share, for US News. William Bao Bean has a solid business background in both China and India.

US News:
Why are Chinese tech startups looking at the Indian market?
For China, the market develops using a leapfrog methodology. Because (China didn't have) 150 years in retail infrastructure and history, the consumers in China were much more open to embracing e-commerce. So e-commerce penetration in terms of (the) number of transactions is much higher in China versus the U.S. or Western Europe. The challenges and problems that consumers have in Southeast Asia and South Asia are quite similar to the ones you've seen in China over the last decade or so, so the solutions that the Chinese entrepreneurs have developed are more suited to solving the problems in these markets versus the one-size-fits-all (strategies) that you get from, say, Facebook or Google. 
How is China's strategy better than America's when it comes to penetrating the Indian market? 
U.S. companies have gone in direct with their platform that they sell to every country, whereas China failed to bring their own products into India, so what they've done is partner and invest in local players and bring in technology and know-how, especially around areas like artificial intelligence and machine learning. They're not going in under their own brands or with their own products. This strategy is a lot more effective, so it's China-plus-local versus North America. 
Is China also helping India develop through its investments in any way?
No. When they invest, they do inject quite a lot of back-end technology, but to the outside world they are local companies. Previous to this, Chinese internet companies had a strategy of trying to enter the market themselves, but they failed. (Now) they invest in local entrepreneurs, the leading players in commerce and payment and other strategic sectors within the internet ecosystem. So it's an Indian face with Chinese technology and capital.
More at US News.

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Why Heineken is not a sure winner in China - Shaun Rein

Shaun Rein
Heineken rocked the beer industry by buying a major share of China's market leader CR Beer. But business analyst Shaun Rein, author of The War for China's Wallet: Profiting from the New World Order, does not believe Heineken is a sure winner, as it purchased a company whose market share was already declining, he tells at CNN Money.

CNN Money:
CR Beer's brands had about a quarter of the Chinese market last year, Euromonitor data shows, but profit margins of many of these drinks are thin and growth is slowing. 
"This is a tie up out of weakness, rather than strength," said Shaun Rein, head of consultancy China Market Research Group. 
He said that Heineken will be looking to take advantage of the Chinese company's better distribution networks to get a bigger market share for its own beers. 
In return, CR Beer gets a more profitable product to market to Chinese consumers. 
Even with this deal, Rein thinks that Heineken will still have a tough time gaining traction in China, as more consumers upgrade their tastes to premium beverages. 
"Wealthier Chinese have been moving more towards micro breweries and specialty beers," he said. "They're not buying Heineken, Corona or Carlsberg."
More at CNN Money.

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Can Luckin beat Starbucks? - Ben Cavender

Ben Cavender
Competition is a key feature in China's industries, but coffee retailer Starbucks never faced those challenges. Now Luckin emerges, and Starbucks has no longer a free ride, tells business analyst Ben Cavender to the New York Times.

The New York Times:
In May, Luckin sued Starbucks, arguing that the U.S. chain had signed exclusive contracts with commercial property owners that barred other coffee shops from entering the space if a Starbucks was already there. 
It’s not going to be easy to oust Starbucks, which has 3,400 stores in more than 140 cities in China and plans to nearly double that by 2022. 
Ben Cavender, senior analyst of China Market Research, a consultancy based in Shanghai, estimates that it has a 70 per cent share of the market, blazing past other coffee chains like McDonald’s McCafé and Costa Coffee. But the company must prove it can stay on the cutting edge. 
“The challenge is that consumers are much pickier about the experience they get now; they have other good options that have standardized quality and potentially a more interesting environment,” Cavender said. “So Starbucks has to do a better job. It’s not a clear win anymore.”
More at the New York Times.

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Pinduoduo just a 'flash in the pan'? - Shaun Rein

Shaun Rein
The successful IPO of Pinduoduo,  the third e-commerce platform in China after Alibaba and JD.com, took many by surprise. But it does not mean Pinduoduo will be equally successful in the future, warns business analyst Shaun Rein, author of The War for China's Wallet: Profiting from the New World Order, at the South China Morning Post. Just days later, it was accused of hosting counterfeit goods.

The South China Morning Post:
Alibaba has spent millions of dollars in its efforts to fight counterfeits, including using artificial intelligence systems that can automatically identify, take down and block listings that appear to be knockoff or counterfeit goods. 
Whether Pinduoduo’s rapid rise to fame turns out to be a flash in the pan or it becomes a genuine competitor to incumbents like Alibaba and JD.com remains to be seen, according to Shaun Rein, founder and managing director of the China Market Research Group. 
Some of its most popular products are commoditised items like toilet paper or laundry detergent. 
“Many consumers are looking for better value and are becoming more price sensitive on items they don’t care about,” said Rein. “When you’re not rich, you don’t care what toilet paper you use to wipe your butt.”
More at the South China Morning Post.

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Why China does not use its consumer power in the trade war, yet - Victor Shih

Victor Shih
The developing trade war between China and the US focuses on tariffs for commodities, while China could hurt the US really nasty by deploying its consumer power by boycotting products, tourism, and US-related education. Political analyst Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation, explains in Bloomberg why China has not done so.

Bloomberg:
The lack of consumer boycotts is “a bit unusual, but consistent with the Chinese rhetoric that China would be a defender of the global trading order,” Victor Shih, an associate professor and expert on China at the University of California, San Diego, said. “The reality is that the status quo allows China to protect many of its industries, so China wants to maintain the status quo.” 
Don’t count on that forbearance continuing if tensions escalate. In all, Chinese subsidiaries of U.S. companies had about $223 billion in revenue in 2015, according to Deutsche Bank AG. Reduce those sales by just 20 percent – a rather modest target, given what consumer boycotts did to Korean firms last year – and you’ve already done $45 billion in damage, more than equivalent to the 10 percent tariff the U.S. is threatening to levy on a further $400 billion of imports if Beijing doesn’t back down.
More in Bloomberg.

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Thursday, August 02, 2018

Trade war concerns might hamper China's tech companies - Sara Hsu

Sara Hsu
Figuring out who might be hurt by the trade war between China and the US is still be tough, but tech companies like Alibaba and Tencent see their US ties as a liability, says financial expert Sara Hsu to Cheddar. "The trade spat between Washington and Beijing has not only quelled investors’ appetites, it has also discouraged Chinese tech giants from expanding internationally."

Cheddar:
As the U.S. tech sector regained some of its footing Tuesday, last week's tech sell-off continues to undermine some of China's tech bellwethers Tencent and Alibaba. 
Sara Hsu, economist and associate professor at SUNY New Paltz, said that unlike Facebook and Twitter, hamstrung by slower-than-expected user growth, Chinese tech stocks have more serious investment hurdles ahead. 
"There are concerns of a trade war, that it could possibly dampen investment from the United States," Hsu said in an interview Tuesday with Cheddar. "Particularly for Tencent and Alibaba which have a lot of interest in the United States, in terms of trade and investment." The trade spat between Washington and Beijing has not only quelled investors’ appetites, it has also discouraged Chinese tech giants from expanding internationally. 
Alibaba's Founder, Jack Ma, had pledged to create 1 million jobs in the U.S. and increase the amount of goods that ship from America to China. 
Hsu said that China's tech stocks are also faced with tightening liquidity and currency depreciation. 
"There are depreciation pressures on the Chinese currency which is going to affect the earnings report for companies that are listed on the New York Stock Exchange," she said. The Chinese Renminbi has slipped in the past two months and hit its lowest level in more than a year, despite measures by central bankers in Beijing to support China’s currency.
More in Cheddar.

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Belt and Road: not all deals are solid - Arthur Kroeber

Arthur Kroeber
Concerns have been raised about the quality of the deals closed under the wide One Belt, One Road program. Economist Arthur Kroeber, author of China's Economy: What Everyone Needs to Know, admits that some deals could be "wacky", he tells the New York Times.“It certainly is a very capacious arena for opportunists, that’s for sure,” Mr. Kroeber added.

The New York Times:
As the economy shows signs of strain, Chinese officials are sounding caution about the program, taking a closer look at the financing of deals and the number of projects underway. 
That hasn’t discouraged some companies. 
“There are wacky deals that occur under the banner of Belt and Road because this is how every entrepreneur signals that they are in line with the leadership’s political objectives,” said Arthur Kroeber, managing director of Gavekal Dragonomics, an independent economic research firm. 
“It certainly is a very capacious arena for opportunists, that’s for sure,” Mr. Kroeber added. 
In addition to the Chinese-medicine spa in the Czech Republic, there are plans for Chinese cultural centers and theme parks in Hungary, Italy, the Philippines, Russia, Serbia and Vietnam. One construction firm used the Belt and Road plan to justify a deal to build an amusement park in an Indonesian complex that includes a Trump hotel and golf course.
More at the New York Times.

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