Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Former Shanghai-based foreign correspondent Howard French recently returned to Shanghai for the first time after corona and takes stock of its current state, by talking to Chinese and foreign residents in the city. In Foreign Policy he reports about these findings. French: “All I can say with certainty is that we are all in for a turbulent, costly, and possibly dangerous ride.”
Howard French:
In the final of these conversations, I asked a much older Chinese scholar about the mounting tech war between the two countries, in which the United States has been seeking to limit China’s access to the most sophisticated microprocessor manufacturing equipment, advanced graphics chips from companies such as Nvidia, and artificial intelligence technologies.
The scholar said the West badly misunderstands China, underestimating its preoccupation with its standing in the world. This will only push Beijing to strive harder to build these technologies on its own—and ultimately prevail. He clarified that he was not predicting that China would win across the board. The point he left me with was that any perceived antagonism from the West will feed Beijing’s preexistent desire to lead in every field that it thinks matters.
This, he said, will lead China to double down on industrial policies and state-driven investments. Many of these will prove misguided or inefficient in the long run. But in a country of China’s size, with enormous resources not only in national wealth but in human talent, many will also succeed, giving its Western competitors all they can handle over the next few decades. All I can say with certainty is that we are all in for a turbulent, costly, and possibly dangerous ride.
Why business will never be the same in China again, tells consultant Gabor Holch in a wide-ranging overview of how business in China has changed after the pandemic, and how Western businesses can face those changes.
Foreigners have left China in large numbers, but the most important reasons were other than COVID-19, argues intercultural coach and consultant Gabor Holch in his video. Already before the coronacrisis, the exodus was taking place because economic growth was dropping, career opportunities for expats were diminishing and the expat community was already severely hit before the lockdowns, he argues.
China veteran Ian Johnson tells how he got expelled from China and what he found when he returned in 2023 to Foreign Affairs—and discovered what had changed over the past three years with COVID-19 hitting the country. He found a country is in stagnation, he tells in a gloomy diagnosis, although he also discovered dissent was not wholly stifled.
After a slow start, after opening up after COVID-19, China’s economy is showing slow signs of recovery this autumn, says Shanghai-based business analyst Ben Cavender in the state-owned China Daily.
China Daily:
According to the most recent data by the National Bureau of Statistics, China’s official manufacturing and nonmanufacturing purchasing managers indexes both improved in September to 50.2 and 51.7, respectively, from 49.7 and 51 in August. The figures were above the 50-point mark that separates contraction from growth.
Ben Cavender, managing director of the China Market Research Group, said the Chinese economy is moving toward stabilization and is starting to show some signs of recovery.
He emphasized that China’s enduring strengths lie in its substantial infrastructure and manufacturing ecosystems, which are not susceptible to rapid decline. “The government’s emphasis on fostering development of new high-tech industries should also help to create avenues of growth for the economy in the coming decade,” he said.
Nevertheless, Cavender pointed out that the country faces significant demographic challenges, necessitating ongoing efforts to address issues related to local government and corporate debt management. “Right now, the name of the game is stability and doing whatever possible to assure consumers and private businesses that spending and investment are not too risky now, as this would unlock the spending we need to see to get back to normal,” he said.
Business analyst Shaun Rein visits the US for the first time in four years after Covid-19 lockings in China, and he explains why he has become bearish on the country. Consumer confidence is down at a historic low, and an expected revenge purchase after the lockdowns ended stayed away. Foreign companies are pressured by the US to split off their operations, despite a wide range of international CEOs visiting China last month.
The number of unicorns, companies worth more than US$1 billion, exploded globally over the past three years, despite the slowdown caused by Covid-19, says Hurun chairman Rupert Hoogewerf during the release of the Global Unicorn Index 2023 by Hurun Research Institute, at the China Daily. Especially the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) did very well, the report says.
The China Daily:
A total of 63 companies in the Guangdong-Hong Kong-Macao Greater Bay Area have made it onto the Global Unicorn Index 2023 by Hurun Research Institute, an increase of 12 compared to a year earlier and double the number listed on the index before the COVID-19 pandemic.
Among the top 10 unicorns from China listed on the global 2023 index, half are in the GBA, including Guangzhou-based fast fashion platform Shein (ranking 4th), Shenzhen-based digital bank WeBank (ranking 6th), Dongguan-based mobile phone makers Oppo and Vivo, and Shenzhen-based drone maker DJI. …
According to the index, Guangzhou was the Chinese city with the fastest growing number of unicorns in the past year. There were 22 unicorns from Guangzhou in the latest ranking, 12 more than a year earlier.
“The three years after the COVID-19 outbreak were the most active period for unicorns. Over the past three years, a new unicorn was created every day in the world, bringing the total to more than 1,360. Despite economic slowdown, there were over 500 new unicorns globally in the past year, which is equivalent to nearly 10 each week on average,” said Rupert Hoogewerf, chairman and chief researcher of Hurun index.
He said unicorn companies grew rapidly in the first half of 2022, but slowed down significantly in the second half.
“That was because of the US interest rate hikes, the global economic downturn and uncertainties (which) led to investment institutions nearly halting the funding of new projects. The collapse of Silicon Valley Bank further lowered valuations.”
Domestic tourism in China saw a jump, and consumer sentiment is improving more slowly after the zero-Covid policies ended, says consumer expert Ashley Dudarenok at CNBC. Brands are relucted in spending their marketing budgets. Dudarenok said that heading into 2023 and the Lunar New Year, some smaller brands had turned more conservative on China and cut their marketing budgets for the country in half.
CNBC:
More recent data show Chinese consumers are starting to open their wallets again, especially for travel.
During the seven-day Lunar New Year holiday that ended Friday, national tourism revenue surged by 30% from last year to 375.84 billion yuan, according to official figures. But that was still short of 2019 spending.
“Consumer sentiment is better. Spending power is kind of back,” Ashley Dudarenok, founder of China digital consultancy ChoZan, said Friday. “But I don’t think that suddenly from one month to the next things are back … to 2019 or double 2019.”
Dudarenok said that heading into 2023 and the Lunar New Year, some smaller brands had turned more conservative on China and cut their marketing budgets for the country in half.
“Consumer sentiment was really down, nobody knew what was actually coming, and a lot of marketing budget and dollars went into 11.11 [Singles Day] and it was also not successful, so brands did not earn a lot over 11.11” and another shopping festival in December, she said. “Then suddenly China opened. Many people did not expect that [and were] quite startled by this swift development.”
Dudarenok does expect overall consumer trends to continue, whether it’s people in larger cities spending more “on feeling better” or people in smaller cities paying for higher-quality products.
Many analysts expect high levels of savings among Chinese consumers during the pandemic will translate to greater spending this year.
At the policymaker level, Chinese authorities say they’re prioritizing consumption. Premier Li Keqiang led the first post-holiday executive meeting of the State Council on Saturday, and “called for efforts to expedite consumption recovery and keep foreign trade and investment stable,” according to a readout. The meeting said policies to promote the consumption of cars and other big-ticket items would be “fully implemented.”
Japan is hitting China’s citizens with unfair Covid restrictions, and will in return suffer from retaliatory actions by the Chinese, says business analyst Shaun Rein to CNBC. The contrary effects on Japan’s economy will be huge, he says.
Their annual results reveal that food suppliers booked high margins during COVID lockdowns. Pang Pang Xiang (China) Company Ltd was retained by the Shanghai government earlier this year to supply food, and citizens are now shocked by their profits. However, they won’t be able to continue, says Shanghai-based retail analyst Ben Cavender to Reuters.
Reuters:
The company was among those picked by the Shanghai government this year to guarantee the supply of agricultural products during the city’s lockdown of its 25 million residents between April and May.
“The typical supply chain during the lockdown was greatly disrupted, the result was a lot of pricing asymmetry as well as very high demand,” said Ben Cavender, managing director at China Market Research Group in Shanghai.
“This in turn allowed the company to dramatically improve margins over what they normally would be.”
Many Shanghai residents turned to community group-buying to procure essentials during the lockdown, where residents in one community band together to bulk buy groceries or meals from suppliers or restaurants.
Among COVID-related buying customers, group-buying contributed to roughly half of its revenue, with a gross profit margin of 74.7%, according to Pang Pang Xiang’s disclosure.
Pang Pang Xiang’s sales were impacted by the lockdown, however. Its revenue dropped 15% from a year earlier during the first five months, though gross profit jumped 35% due to higher margins.
Cavender said the firm’ margins were on the high end compared to what he has seen in the industry, and that the results will be very difficult to replicate going forward.
While the rest of the world is opening up, China has vowed to maintain its zero-COVID policy, with authorities continuing to stem outbreaks through lockdowns and mass testing. Some analysts believe the government will largely stick with the tough restrictions well into next year.
Political analyst Ian Johnson answers some basic questions on the upcoming 5-yearly meeting of the Chinese Communist Party at the website of the Council of Foreign Affairs. Most Polit bureau members will retire, Premier Li Keqiang will prepare for his replacement in March, and secretary-general Xi Jinping will be re-elected for his third term. What will it mean for Xi’s position?
Ian Johnson:
Will a third term make Xi more assertive, particularly in terms of his foreign policy moves?
That is hard to say because he’s already been quite assertive. Domestically, he’s pursued a scorched-earth policy in areas with many minority populations, essentially forcing them to follow Han Chinese cultural practices. He’s also quashed civil society, reined in religious groups, and put limits on nongovernmental organizations. Internationally, he has allowed diplomats to pursue “wolf warrior” policies, which often means speaking extremely bluntly to officials in host countries; presided over a military buildup in the South China Sea; and pushed a more aggressive policy toward Hong Kong and Taiwan.
These policies have created backlash. Almost all wealthy, democratic countries—including the United States, European Union countries, Japan, and South Korea—now view China as a rival and not just an economic competitor. This has led countries to pursue policies to reduce reliance on China. This is a huge change from a little over a decade ago, when China was seen as a potential partner in the existing international order.
Today, China is instead seen as a disruptor—not on the level of Russia, which has invaded neighbors under President Vladimir Putin, but still as a serious challenge to democratic countries. That seismic shift largely took place on Xi’s watch and is almost certain to continue.
Will there be any big policy announcements during the twentieth party congress, such as economic reforms or a lifting of China’s zero-COVID policy?
Tense relations between China and the US, a pandemic, and limited access to the country are firmly limiting a new generation of China hands to explore a career in the second economy of the world, says China professor Victor Shihin the South China Morning Post. “China was [once] seen as a kind of land of opportunity for young foreigners. That is no longer the case,” said Shih,
The South China Morning Post:
Victor Shih, a China scholar at the University of California San Diego, said reduced economic opportunities, combined with China’s zero-Covid approach, have put foreigners off China who might otherwise be interested in the country.
“China was [once] seen as a kind of land of opportunity for young foreigners. That is no longer the case,” said Shih, who regularly visited the mainland for decades until the pandemic. He described the “golden period” for aspiring China experts as spanning the 1990s to 2017-2018 when foreign nationals with “some Chinese skills” and China knowledge had ample job opportunities in Hong Kong, Macau and mainland China.
Shih echoed the view that Beijing’s restrictive entry policies during the pandemic have made China a less attractive place to be. Indeed, a three-month mass lockdown in Shanghai from April 1 to June 1 prompted many foreigners to flee the commercial hub.
The story that Western companies are fleeing China is as old as the presence of foreign companies in China. China lawyer Mark Schaub looks at the recent flare in Western media and explains why they are wrong, again, in his weekly China Chit-chat.
Mark Schaub:
There has been a lot of discussion about China’s role in global supply chains. Many (often by lawyers or consultants dealing in China who feel dejected) have been predicting that Western companies will be departing China and cutting China out of their global supply chains. Their reasoning includes 1) geo-politics makes investing in China or trading with China less palatable; 2) COVID has awoken Western governments to the dangers of over-reliance upon one supplier (especially if that one supplier is China); and 3) Western consumer backlash due to human rights concerns.
My answer is “Don’t think so”.
For at least 15 years there have been regular reports from some elements of the media in respect of an expected wave of “onshoring” and of moving supply chains closer to their home markets. Back in 2007 a journalist Sara Bongiorni wrote a whole book on trying to live for a year in the US without buying any products made in China. Hers was less a political quest and more just to see if this was possible. It does, however, serve to show that the “China is making everything” concern is not new.
Despite all of this I have seen little evidence in my own practice of Western companies ceasing to source from China. A notable exception is certain clothing that seems to have moved largely to Bangladesh. However, this seems not to have been due to human rights concerns or the strategic importance of Western consumers being able to buy a cheap T-shirt … or rather it is no doubt due in no small part to the strategic importance of Western consumers being able to buy quality products on the cheap. Most of us have an in-built prejudice that exports are unallayed goods whereas imports are a sign of weakness. Rarely do we consider how the importing public has benefitted from trade with China – in the world of 2022 are most consumers worried about East-West geo-political issues or inflation.
We always think this time will be different – COVID lockdowns and a single ship blocking the Suez canal all illustrated how incredibly complex global supply chains could come a cropper in a manner beyond anyone’s control. However, perhaps the better lesson is how quickly logistics can overcome temporary disruptions and how clever they are to work around problems. Even at the height of the Shanghai lockdown workers beavered away in closed loop environments to keep the port open and avoid massive supply chain disruption.
Foreign firms have been isolated more than ever from their China operations because of COVID-19 and the ongoing lockdowns. China lawyer Mark Schaub looks at the situation in 2022: “If you intend to continue with your subsidiaries in China then greater local decision-making power seems to be a likely pre-requisite to success,” he argues in his weekly newsletter. He looks at the good, the bad, and the ugly general managers.
Mark Schaub:
The Bad GMs often have the following traits:
Difficulty in seeking assistance – Often the manager feels it is a solitary responsibility to interpret China and deal with any difficulties which may arise. The problem is that such interpretation may not be objective (i.e. “fish cannot see the water”) or is more complicated and needs HQ support or is serious and HQ has a legitimate right to know what is happening.
Observe not Do – Observers are more comfortable in reporting difficulties to HQ rather than actually tackling the problems. Typically, these General Managers will blame anything other than themselves for a failure to get things done (e.g. the joint venture contract did not give them sufficient powers; the Chinese partner is being mean/difficult/unreasonable; the approvals have not been obtained, etc.).
The Hero – rather than complain about his situation, he revels in any difficult position he may find himself in. Very much like Hollywood movies the Hero cannot be a team player – having others to share the burden would distract too much from the star of the show. When the Hero does communicate with the head office, it is to (1) convince them that they do not understand; (2) cement a position as “our contact in China”. Heroes can normally only survive in General Manager positions if they have a patron in the head office. The reason being that they intend to infuriate everyone else by always replying “this is China”; “you do not understand”; “I have good guanxi” to any normal question one may pose. The good news is that once the patron falls, the hero will normally soon follow suit.
No matter how irritating bad General Managers are, there is a far worse category – the UGLY. The Ugly GMs come in many varieties but some of these include:
The “Partner” – this will typically impact a medium sized company’s WFOE/sourcing operations and flourishes when the General Manager is left to their own devices in China. This isolation has greatly increased since COVID. However, even in the past a visit by HQ personnel will be stage-managed like a Soviet state visit – no chance encounters with any other company personnel. HQ may feel uneasy as to their lack of knowledge of what is happening in their China outpost but are consoled that the venture is making a small profit unlike the JV horror stories. Responsible HQ personnel may resolve to do … something … to investigate its subsidiary in China as soon as there is more time available … but time never does become available … COVID … other fires to put out … other priorities … China is far away. While HQ procrastinates the General Manager will slowly evolve at some imperceptible stage from no longer seeing themselves as an employee but rather as a partner in the HQ’s China business. This is a problem.
The Thief – Unfortunately for some General Managers, the title “CEO” is more an acronym for “chief embezzlement officer” rather than “chief executive officer”. Experience is that since COVID there has been a spike in clients concerns in relation to procurement fraud, embezzlement, diverting funds, competing with the business etc. In my experience, such managers are a small minority but they can be local or expatriate. The most common characteristics are that they thrive in an environment that has little corporate culture, limited oversight, poor controls, no checks and balances and the GM has typically been in their position for a long time. Many people think that there is less such behaviour amongst expatriates. I do not think that is true – it is not that the expatriates are more virtuous they just have not been in their role long enough.
The Megalomaniac – my personal favorite Ugly GM is the Megalomaniac. He resembles the Hero but with two very important differences: 1) unlike the Hero, he does not have the company’s interests at heart – he sees everything as being solely for his benefit; and 2) he does not seek any praise from the head office as he believes they are all deluded fools. Megalomaniacs have either no successor (i.e. no deputy general managers) or an abundance of successors (i.e. five or more deputy general managers). The reason is clear. A potential successor would contradict the main tenant of the megalomaniac’s management philosophy – he is irreplaceable.
