Cloudy skies for China's local governments - Sara Hsu

Sara Hsu

Local governments in China have amassed an amazing amount of debt. Dropping revenue and disappointing economic performance is a major challenge, writes financial analyst Sara Hsu in the China-US Focus. "The outlook for local government financials is not positive."

Sara Hsu:

The outlook for local government financials is not positive. So far, over one-third of China's provinces have not met growth targets this year. Many of the provinces experiencing slow growth are those poorer regions that have been left behind. This means that local governments will continue to have relatively low levels of revenue while under a massive debt overhang. 

The trade war with the US hasn't helped. Local governments took responsibility for maintaining employment in the face of the trade war by boosting business tax cuts and ramping up infrastructure spending once again. This was funded by the sale of municipal bonds. The scale of municipal bond debt has risen massively from $34 billion in 2017 to $183 billion in 2019. Supply has mounted while demand for municipal debt has declined. It seems likely that state-related entities will be forced to hold municipal debt if market demand is insufficient, but this will only exacerbate the drag on growth. 

Short-run challenges may create yet another stumbling block for local governments. Most ominous is the fact that local government municipal debt matures in 2020. This debt load amounts to $283 billion. Circumstances under which local governments took on the debt are not much different from the current situation, meaning that there are few to no sources of new growth. Although the central government has canceled a scheduled decrease in revenue sharing to local governments, the local government fiscal burden is high. 

The local government debt burden is likely to persist due to the overall revenue shortfall and high debt loads faced by local governments. Something has to give, whether it is debt repayments, maintaining full employment, or buoying GDP. It may take more than a financial expert to get local governments on the track to fiscal sustainability once and for all.

More in the China US Focus.

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On sinicizing Christianity - Ian Johnson

Ian Johnson

China's central government has been trying to sinicize religion, and that had especially a major effect on Christianity, writes journalist Ian Johnson, author of The Souls of China: The Return of Religion After Mao. For the New York Review of Books, he reviews Jesus in Asia by R.S. Sugirtharajah, but starts with a thorough overview of Beijing's efforts to curtail Christianity.

Ian Johnson:

Over the past few years, the authorities in Beijing have given churches across the country orders to “Sinicize” their faith. According to detailed five-year plans formulated by both Catholic and Protestant organizations, much of this process involves the predictable palaver of state control: “to actively practice core values of socialism, love the motherland passionately, support the leadership of the Communist Party, obey the law and serve society.”¹ 

But the authorities want more than just political control; they want a say over Christianity’s spirit, too. According to one document, “Chinese styles” are to be promoted in the religion’s “building, painting, music, and art,” and also in Christian liturgy and theology. Other documents speak of reflecting Chinese traditions, but what this means isn’t exactly clear—perhaps filial piety, ancestor worship, and explicitly rejecting foreign influence. 

While these new regulations affect China’s other religions too, they hit each one in different ways. They probably matter least to Daoism, which is an indigenous Chinese religion, and little to Buddhism, which is a global religion but has been in China for so many centuries that it has spawned local schools and practices. But for China’s other two main religions, Islam and Christianity, the rules raise serious concerns. In the case of Islam, the state’s aim seems to be mainly political control of sensitive border regions, because of the faith’s predominance among several ethnic minorities, especially the Hui and the Uighurs, who live in China’s far west. 

Christianity poses a subtler and possibly more profound challenge. This is not only because it has spread among the ethnic Chinese, or Han, majority, who make up 92 percent of China’s population, but also because it has grown fastest not in remote border regions but in the cultural heartland and among white-collar professionals who are supposed to be leading China’s modernization. This makes Christianity the first foreign religion to gain a central place in China since Buddhism’s arrival two millennia ago. Hence the authorities’ unease and their vague desire for Christianity to become something Chinese and nonthreatening. 

These concerns have arisen before. Christianity has had a presence in China for four hundred years. Missionaries such as the Jesuit Matteo Ricci got a foothold in the country by acting like Confucian officials: dressing in gowns, learning the formal language of classical Chinese, and downplaying differences between Christianity and Chinese thought. The Jesuits called God tianzhu, or “lord of heaven,” a plausible term for the Heavenly Father, but not coincidentally also the name of an old Chinese deity. Over the following decades, Christianity spread in North China by fitting into familiar folk religious patterns: offering moral precepts that sounded like Confucian principles or worshipping a virgin saint who seemed much like local female deities. Missionaries in this era, before imperialism made them arrogant, softened unfamiliar or disturbing ideas, such as Jesus’s crucifixion and resurrection.² 

The new effort to sinicize Christianity is something different—and probably unique in its encounter with Asia. In years past, Chinese and other Asian governments were weak, and even if Christianity found followers it was later tarnished by the fact that missionaries arrived along with Western gunboats. Now we have a strong government in Beijing that accepts the reality of Christianity but wants it to conform to Chinese foreign and domestic policy. This isn’t unusual in Christian history—look at the innumerable British churches with tableaux and plaques that glorify British imperialism—but Beijing’s firmness is something new in Asia.

The full review in the New York Review of Books.

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Private companies: not free of government control - Paul Gillis

Paul Gillis

The Hangzhou government raised eyebrows as it announced last week it would send 100 officials to private companies to check on them. Professor Paul Gillis at Peking University’s Guanghua School of Management did not see that much news, he tells Bloomberg.

Bloomberg:

Government agencies may also be heightening their monitoring of the vast private sector at a time the Chinese economy is decelerating — raising the prospect of destabilizing job cuts as enterprises try to protect bottom lines. 

Alibaba is hosting its annual investors’ conference this week in Hangzhou against the backdrop of a worsening outlook for the country. 

“They might be checking whether the [Chinese] Communist Party [CCP] units are working effectively within the companies,” said Paul Gillis, a professor at Peking University’s Guanghua School of Management. 

“While China legitimized capitalism, the level of government influence was never intended to disappear. Occasionally private entrepreneurs forget about this and are reminded of it,” Gillis added. 

Zhejiang is considered the cradle of modern Chinese private enterprise, home to a generation of self-made billionaires from Alibaba’s Jack Ma (馬雲) and Geely founder Li Shufu (李書福) to Wahaha’s Zong Qinghou (宗慶后).

More in Bloomberg.

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Why Chinese like their government - Kaiser Kuo

Kaiser Kuo

It's the economy, stupid, says China commentator Kaiser Kuo in his masterclass for Quora. Journalist and blogger Cory Doctorow  reviews his masterclass " on contemporary Chinese politics, authoritarianism, liberalism and dissidence" for BoingBoing.

Cory Doctorow:

The short answer is "it's the economy, stupid." The dissolute rulers of pre-Revolutionary China governed badly, and between their wealth hoarding and colonial extraction by the British, China was a deeply unequal place whose political instability tipped over into revolution. But the post-Revolutionary Chinese catastrophes -- the Great Leap Forward, the Cultural Revolution -- left tens of millions dead and scarred the psyches of hundreds of millions of others. 

The market reforms of the Deng era changed that, creating massive, sustained growth and (less unequal, but still imperfectly distributed) prosperity. The result is a kind of bargain between the authoritarian technocrats of the Chinese state and its people: "let us govern as we wish, and we will keep chaos at bay and sustain the growth that is lifting you out of poverty." As Kuo notes, this is the opposite of the American doctrine of Benjamin Franklin: "Anyone who would trade a little freedom for a little personal safety deserves neither freedom nor safety." 

This explains why anti-corruption programs are so popular (and why corruption scandals are so politically consequential), even if they hint at the political purges of the Cultural Revolution; it explains why Chinese censorship is so focused on social order and preventing online dissent from erupting into physical manifestations of political anger. 

As China's political star rises and rises on the world stage, many western thinkers are looking to the Chinese people to demand a more pluralistic, participatory state with respect for human rights and democratic fundamentals. Kuo explains why so many people in China are indifferent to this proposition (though Hong Kong is a different story!).

More in BoingBoing.

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Foreign investment law: no big changes - Victor Shih

Victor Shih

China brought the newly adopted foreign investment law with some fanfare, but political analyst Victor Shih does not expect the law will be a game changer, as some hope, he tells at the Deutsche Welle. A level playing field for foreign and domestic companies in China might be far away.

DW:

Beijing says the act offers foreigners equal treatment, greater market access and better legal protection. It will eliminate the requirement for foreign businesses to transfer proprietary technology to Chinese joint-venture partners and protect against "illegal government interference" — major irritants for Western firms and governments. 

China will also amend its intellectual property law and "introduce a punitive damages mechanism to ensure that all infringements will be seriously dealt with," Chinese Premier Li Keqiang told reporters at the end of the parliament's two-week session. Furthermore, Li said China will soon announce shorter "negative lists" of sectors where foreign investment is either prohibited or requires special approval. 

But Western observers remain skeptical. "No, the foreign investment law will not lead to a level playing field for foreign firms and investors," Victor Shih, an associate professor of political economy at the University of California in San Diego, told DW. 

"It doesn't matter what the Chinese government puts on paper. China has a good track record of changing low-level regulations to protect domestic industries," he added. .. 

Victor Shih said Beijing could come up with regulations that make life difficult for foreign companies operating in the country. "There's a lot of stuff that China can do" to protect domestic firms, he argued.

More at the DW.

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China regulates, not bans, blockchain - Mark Schaub

Mark Schaub

China banned in September 2017 ICOs (Initial Coins Offerings) after some high-profile cases of fraud but certainly not block all blockchain activities. Lawyer Mark Schaub looks at the China Law Insight at how the government tries to regulate blockchain, one year after the initial ICO ban.

Mark Schaub:

The dilemma for government was clear. On the one hand blockchain is a revolutionary technology that will have a major impact on the global economy. On the other hand, regulation is critically important in order to protect consumers and investors. Over regulate and you may miss the boost to your economy that blockchain will deliver; fail to regulate and there will be major fall out from consumers and investors alike. 

Malta was the first jurisdiction to provide direct guidance as to the requirements for offering an ICO in early 2018. This guidance was followed up by a Virtual Financial Assets Act that was issued at the end of last year. These regulations provided certainty to both issuers and consumers in terms of what was expected in a coin/token offering. Since Malta, a number of other jurisdictions including Singapore, Hong Kong and Switzerland have released regulations or guidance on crypto-related projects. 

The utility tokens issued in an ICO do not easily fit within established asset classes. For this reason, ICOs were seen as an unregulated area of law. The utility token was not quite a security and more of a digital asset which may have certain rights. Further the utility token may have specific rights; unclearly defined rights or in many cases no rights attached. For this reason, traditional regulations do not neatly apply. In response, and indicative of the conservative approach of many, larger countries, the SEC in the United States of America determined that regardless of whether a token is labeled as a utility or not it could (and likely would) be classified as a security and be required to comply with US securities regulations. 

The importance of blockchain and cryptocurrencies means that governments faced with the dilemma of being hands off, regulating or prohibiting such activities do need to take decisions. As expected the common ground will be regulation. Blockchain and cryptocurrencies are too big for governments to ignore or treat in a laissez-faire manner. 

Equally blockchain and crypto-currencies are too big to just prohibit. Governments will not wish to impede the development of these new technologies. 

In our opinion reasonable regulation is healthy for a number of reasons. New regulations will provide legitimacy to the market. At its peak, the entire crypto market was still less than the market capitalization of the world’s most valuable companies and now sits at around USD 120 billion – or how much Facebook lost in market capitalization in one day, after announcing 2018 Q2 earnings. Accordingly, although too big to ignore, cryptocurrencies’ current importance can also be easily over estimated. A major factor holding back the growth of cryptocurrency is due to the lack of large financial institutions that can be actively involved due to the uncertainty in regulations and lack of risk mitigation tools. Regulation should enable cryptocurrencies to move beyond the scams of the past and evolve to help fund real world applications in sectors such as fintech, medical data, supply-chain management, etc. 

The PRC government’s move towards regulating rather than the outright ban of 4 September 2017 should be welcomed by the crypto-community and investors alike. The ideology that cryptocurrencies would be a completely free, decentralized and unregulated sector was never likely to survive interaction with government or investors. Regulations brings oversight, provides certainty and if done correctly should support the development of the sector.

More at the China Law Insight.

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Religion: a double-edged sword for the government - Ian Johnson

Ian Johnson

The Chinese government has raided a few popular underground churches, illustrating how it sees religion as a double-edged sword, says journalist Ian Johnson, author of The Souls of China: The Return of Religion After Mao, at NPR.

NPR:

IAN JOHNSON: I think the government sees religion as a double-edged sword. 

SCHMITZ: Ian Johnson is the author of "The Souls Of China: The Return Of Religion After Mao." 

JOHNSON: On the one hand, it is promoting some religions, like Buddhism and Taoism and folk religions. But in terms of these other religions that they think have too many foreign ties and can be influenced by outsiders taking a very hard-line approach, it's all part and parcel of a broader effort to control civil society. 

SCHMITZ: Johnson says Chinese authorities are cracking down on churches that are not officially sanctioned by the government. Nearly half of China's 60 million Christians attend these unregistered churches. The raid on Early Rain was preceded by a raid in September by Beijing police on that city's Zion church, which had 1,500 members. In his book, Johnson profiled Early Rain's pastor, Wang Yi.... 

SCHMITZ: At a sermon in September, Wang called Chinese leader Xi Jinping a sinner, while congregants answer with amen. It was this, Wang's increasing political activism, that Johnson says likely contributed to his arrest. 

JOHNSON: He's denounced Xi Jinping lifting the term limits on the presidency so that he could become president for life. He said that this was destroying the constitution and similar to creating a new Caesar.

More at NPR.

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Didi: still a lot of trouble with the authorities - Ben Cavender

Ben Cavender

Ride-hailing company Didi Chuxing, the main competitor of Uber, is trying to move upscale, into self-driving cars, foreign cooperation and projects out of China, but at home, they still face basic challenges, says Shanghai-based business analyst Ben Cavender. Local authorities focus on illegal drivers, according to Reuters.

Reuters:

The ministry (of Transport) said that there are still a large number of illegal cars and it will urge local authorities to target unqualified drivers, which could exacerbate the shortages. 

“Didi’s service times have been drastically affected over the last few months following removal of drivers from the platform who did not have local registration in the cities that they were driving in,” said Ben Cavender, Shanghai-based principal at China Market Research Group. 

“The majority of consumers that we speak to who use ride sharing platforms used Didi first but are increasingly looking at other options.”

More at Reuters.

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Why "House of Cards" got a massive following in China - Tom Doctoroff

Tom Doctoroff

"House of Cards" might be a cynical parody on US politics, millions of Chinese also enjoyed the Netflix production and hade it a huge impact in China. Cultural expert and China expert Tom Doctoroff, author of What Chinese Want: Culture, Communism, and China's Modern Consumer, explains to the Washington Post why. "It essentially confirmed that our government is not so different than theirs."

The Washington Post:

For international viewers under unfriendly regimes, this well-produced caricature of Washington proffers an unspoken truth about the duplicity of American power. And their governments have been all too happy to have their citizens believe that these dark shenanigans are realistic. 

Since its debut, the show has reached millions of viewers in China, as well as top leaders of the Communist Party. Netflix isn’t available in China (and it doesn’t release any data about viewership), but “House of Cards” has received millions of downloads through pirated torrents and third-party streaming websites like SohuTV, which secured the rights from Netflix for the show’s early seasons. Sohu ranked the second season, which features a Chinese oligarch trying to influence a U.S. election and a trade war between Beijing and Washington, as the most popular American show on its site after its 2014 release. According to the site, the first season received 24.5 million views in China, with the largest portion coming from residents of Beijing and government employees. 

“ ‘House of Cards’ had a huge impact in China,” said Tom Doctoroff, the chief cultural insights officer at Prophet, a brand and marketing consultancy, and an expert on the Chinese market, “because it essentially confirmed that our government is not so different than theirs. People took a great deal of satisfaction and maybe a little schadenfreude in that.” 

The show also portrayed Beijing as the United States’ adversarial equal while reaffirming Chinese propaganda about American double talk on democracy and human rights. President Xi Jinping famously referenced the show during a visit to the United States in 2015. Cui Tiankai, China’s ambassador to Washington, said in 2014 that “House of Cards” embodied “some of the characteristics and corruption that is present in American politics ” and that it highlighted the disadvantages of bipartisan politics.

More in the Washington Post.

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Political risks haunt investors - Shaun Rein

Shaun Rein

Overseas investments by private Chinese companies have become under unprecedented scrutiny, causing a severe drop over the first quarter of 2017. Political analyst Shaun Rein has never seen such a political pressure before, he tells the South China Morning Post.

The South China Morning Post:

While there’s no suggestion of wrongdoing, the heightened scrutiny of the companies underscores Beijing’s new attitude towards overseas mergers and acquisitions by private companies. 

The number of major overseas asset purchases by mainland companies plunged by 80 per cent in the first quarter, as Beijing tightened controls on capital outflows and ratcheted up scrutiny into deal funding. 

“Investors right now have to be political experts as much as valuation and financial ones - the political risk now is the highest I’ve seen in the 20 years I’ve been in China,” said Shaun Rein, founder of China consultancy Market Research Group, based in Shanghai.

China experts said the latest administrative measures pointed to the Beijing’s commitment to reduce financial risks ahead of an important political meeting this autumn.

More in the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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Illegal churches: large, and condoned by the government - Ian Johnson

Ian Johnson

Not registered gatherings of religious believers have been a major force in the growing search for religion in China, but - says author Ian Johnson of The Souls of China: The Return of Religion After Mao in the Atlantic - they have largely been condoned by the government, and Johnson does not believe that might change.

Ian Johnson:

China, the world’s rising superpower, is experiencing an explosion of faith. The decades of anti-religious campaigns that followed the 1949 communist takeover are giving way to a spiritual transformation—and among the fastest-growing drivers of that transformation are unregistered churches. 

Once called “house” or “underground” churches because they were small clandestine affairs, these groups have become surprisingly well-organized, meeting very openly and often counting hundreds of congregants. They’ve helped the number of Protestants soar from about 1 million when the communists took power to at least 60 million today. Of these believers, about two-thirds are not affiliated with government churches. In other words, Protestants in non-government churches outnumber worshippers in government churches two to one. 

This fascinated me, and I wondered how it happened. Why were these independent churches so effective in appealing to China’s burgeoning middle class? And how do they survive despite government efforts to rein in religious groups not part of government-run places of worship? To find out, I knew it would be important to report from the ground up. If you rely solely on newspaper headlines and human rights reports, you’ll only understand one aspect of a society: its problems. For instance, after reading the recent Freedom House report about intensifying religious persecution under Chinese President Xi Jinping, you may come away with the impression that in China the main story of religion is repression. But any casual visitor to the country can tell you that the number of churches, mosques, and temples has soared in recent years, and that many of them are full. While problems abound, the space for religious expression has grown rapidly, and Chinese believers eagerly grab it as they search for new ideas and values to underpin a society that long ago discarded traditional morality.

Much more at the Atlantic.

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Appetite for government VC´s might be costly - Victor Shih

Victor Shih

The central government is encouraging its downstream agencies to engage more in sponsored venture capital deals to stimulate innovation. That is not a guarantee for success, says financial expert Victor Shih in Bloomberg and might cost the tax payers a lot of money. 

Bloomberg:

Also on the list was the prevention of investment bubbles and illegal fundraising, major risks in a country where mom-and-pop investors tend to dominate stock market trading and often use their smartphones to invest more than US$1 trillion in personal savings. 

"It's very ambitious," said Victor Shih, a professor at the University of California, San Diego who focuses on Chinese politics and finance. 

"But down the road there might be very serious losses, and it's government money, so tax payers will take a loss," he said, referring to the country's broad ambitions for venture capital.

More in Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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State tightens rules for religious groups - Ian Johnson

Ian Johnson

Religions have become more popular in China, but the government tries now to tighten rules for religious group, writes journalist Ian Johnson, author of the upcoming book The Souls of China: The Return of Religion After Mao in the New York Times. Rules on religion are changed for the first time in a decade.

Ian Johnson:

The finances of religious groups will come under greater scrutiny. Theology students who go overseas could be monitored more closely. And people who rent or provide space to illegal churches may face heavy fines. 

These are among the measures expected to be adopted when the Chinese government enacts regulations tightening its oversight of religion in the coming days, the latest move by President Xi Jinping to strengthen the Communist Party’s control over society and combat foreign influences it considers subversive. 

The rules, the first changes in more than a decade to regulations on religion, also include restrictions on religious schools and limits on access to foreign religious writings, including on the internet. They were expected to be adopted as early as Friday, at the end of a public comment period, though there was no immediate announcement by the government. 

Religion has blossomed in China despite the Communist Party’s efforts to control and sometimes suppress it, with hundreds of millions embracing the nation’s major faiths — Buddhism, Christianity, Islam and Taoism — over the past few decades. But many Chinese worship outside the government’s official churches, mosques and temples, in unauthorized congregations that the party worries could challenge its authority.

Much more in the New York Times. 

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Tax payer will suffer from government adventures as VC - Victor Shih

Victor Shih

China´s State Council, the state´s highest administrative body, has encouraged government agencies to act more as venture capitalists, it announced on Tuesday. A receipcy for disaster, says financial and political expert Victor Shih to Bloomberg, where the tax payers have to suffer from inavoidable disasters.

Bloomberg:

The government’s move deeper into venture capital comes with risks though. The impending influx of cash risks stoking a boom-and-bust cycle, similar to previous government-led efforts in solar and wind power. Public agencies may also come under pressure from officials to put money into the projects of friends or relatives, increasing the chances that taxpayers are hit with losses. 

“The biggest problem with these government venture and even so-called private equity is that like most things in China, it’s not concerned about profitability and economic efficiency,” said Victor Shih, a professor at the University of California, San Diego who focuses on Chinese politics and finance. “If these funds are funded by credit, they will end in disaster because no one will have any skin in the game, which will open these funds to abuse.”... 

The amount of state capital threatens to overwhelm the private firms. Chinese government-backed venture funds tripled their money under management in a single year to 2.2 trillion yuan ($330 billion) in 2015, according to consultancy Zero2IPO Group. 

The State Council in Tuesday’s document emphasized the need to prevent investment bubbles and thwart illegal fundraising, both major risks in a country where mom-and-pop investors tend to dominate stock market trading and often use their smartphones to invest more than $1 trillion in personal savings. “It’s very ambitious,” said Shih. “But down the road there might be very serious losses, and it’s government money, so tax payers will take a loss.”

More in Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on innovation at the China Speakers Bureau? Do check out this list.

Earlier this year we discussed with innovation expert William Bao Bean whether the government funding new projects was a smart idea. The best the government can do is getting out of the way, he says.

 

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The complicated relation between tech firms and the government - Kaiser Kuo

Kaiser Kuo

It´s complicated, says former Baidu communication director Kaiser Kuo about the relationship between China´s booming tech companies and the government. The outside world sees even private companies often as extentions of the government. Wrong, explains Kaiser Kuo in interview with the Young China Watchers.

YCW: The government investigated Baidu because a student died of cancer after receiving treatment from a hospital he found through the search engine. The case highlights how even private companies have to work closely with the Chinese government and how easily they can fall out of favor. How do China’s largest private companies—Alibaba, Tencent—operate in this environment, and do you think it holds them back at all? 

KK: Yes, I think the environment ultimately hobbles much more than it helps. In Baidu’s case, there’s a commonly held belief among Chinese and non-Chinese observers alike that the company is the creature of the Party—a national champion that’s played on an uneven pitch with government help. As I only recently left the company I can’t say too much here. But this is not the first time that Baidu has been thrown under the bus and not the first time it’s been made a scapegoat toward which public outrage has been deliberately directed. The interesting thing about the major Internet companies in China is that many, if not most, were founded by either returnees or by Chinese nationals with extensive Western (and mainly American) exposure. They were initially funded—and sure, there are exceptions like Tencent—by American venture capital and listed on American stock markets. All this was happening under the watch of a Party that ordinarily insists on dominating the commanding heights of any strategically important sector. It all happened too fast, and all the Party could do to assert controls over this creature with so much Silicon Valley, libertarian DNA was to impose ex-post facto controls. There’s always going to be tension between the powerful Internet companies and the Party state. I believe collision, not collusion, will be the order of the day.

More in the Young China Watchers.

Kaiser Kuo is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more political experts at the China Speakers Bureau. Do check out this list. 

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Markets need experts, no bureaucrats to run their business – William Bao Bean

William Bao Bean

China´s call for innovation has caused a lot of action by government departments on different levels. But most initiatives are run by officials or universities, not the experienced business people the markets need, tells William Bao Bean, the managing director of one of the Chinese incubators to Reuters.

Reuters:

Almost 80 percent of the capital for the innovation centres springing up around the country is coming from the government or universities, which are state-backed in China, or a combination of sources, iiMedia said. 

"In any sort of market, you want the experts making the decisions, not some technocrat or bureaucrat," said William Bao Bean, investment partner at venture capital fund SOSV, which invests in startups. "You don't tend to see too many successful companies come out of a government-based decision-making process."

More in Reuters.

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Earlier we discussed with William Bao Bean what governments can do to stimulate innovation. Get out of the way, is his key advise.

P2P in China, a huge opportunity, also for criminals - Sara Hsu

Sara Hsu

Peer-to-peer lending got quite some coverage in China´s media, both as a huge business opportunity, and as an attractive criminal operation ground, says financial analyst Sara Hsu in the Diplomat. Authorities have tried to crack down on crime, but are also afraid to kill a good business.

Sara Hsu:

In general, regulatory crackdowns have centered around reducing risk. The landmark Guidelines Concerning the Promotion of Healthy Development of Online Finance, published in July 2015, emphasize risk control, and encourage industry self-discipline. Regulations put forth in December 2015 require P2P firms to register with local financial authorities and to publicly disclose loan performance. Regulations on non-bank providers of online payment services were issued in the same month to specify how funds would be treated. Many banks shut down P2P third-party payment services at the beginning of 2016 in order to control risks, but these payments have been gradually resumed. Regulatory supervision of individual P2P companies has also tightened in the past year. 

The P2P lending sector remains popular due to funding shortages for micro- and small and medium-sized enterprises, and for lenders, for its relatively high rate of return. P2P sector interest rates reflect those obtained on the curb market (i.e., outside of the formal banking system) and are higher than those associated with bank loans, weighing in on average at 15-18 percent. As on the curb market, many borrowers lack credit history of collateral. Participating in the P2P sector allows borrowers to obtain loans where they otherwise would not. 

Still, P2P sector participants are potentially exposed to business collapse due to liquidity shortages or fraud, both of which are relatively common. Unlike the formal financial sector, the P2P lending sector suffers from a lack of self-discipline. It is not uncommon for business owners to flee when a loan fails. Therefore, even as the P2P sector continues to grow, many such businesses fail, and regulators are attempting to discipline the sector in fits and starts. Addressing all potential pitfalls is a challenge, as is implementing specific financial requirements. Given the pace of regulation, however, one may expect tighter rules to emerge in the near future.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.    

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Should we worry about China´s economy? - Arthur Kroeber

Arthur Kroeber

The ups and especially downs of China´s economy keeps on shocking the rest of the world. What can we expect, economist Arthur Kroeber asks for the Brookings Institute. Did the international markets overreact? In China more commitment to reform is needed.

Arthur Kroeber:

So long as Beijing continues to intervene in markets to guide prices, and fails to deliver on the key structural reforms needed to create a sustainable consumer-led economy, markets both inside and outside China will continue to be nervous about the sustainability of growth, and we will see more “China scares” like the one we endured in January. A clearer sense of direction is required, as is better communication. 

For three decades, China sustained fast economic growth by steadily increasing the scope of markets, even as it preserved a large role for the state. Because investors were confident in the general trend towards more markets and more space for private firms, they were happy to invest in growth. Today neither private entrepreneurs in China, nor traders on global financial markets, are confident in such a trend. By the end of 2015 growth in investment by non-state firms had slowed to only about two-thirds the rate posted by state-owned firms, ending nearly two decades of private-sector outperformance. 

Doubts are amplified by the government’s failure to communicate its intentions. During the last several months of confusion on foreign exchange markets, no senior official came forth to explain the goals of the new currency policy. No other country would have executed such a fundamental shift in a key economic policy without clear and detailed statements by a top policymaker. As China prepares for its presidency of the G-20, the government owes it both to its own people and to the global community of which it is now such an important member to more clearly articulate its commitment to market-oriented reforms and sustainable growth.

Much more on the Brookings Institute.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out our list here.  

China needs less control - Tom Doctoroff

Tom Doctoroff

Government control used to dominated every aspect of life in China. But when the developing service sector really wants to develop, giving up on control is crucial, writes China veteran Tom Doctoroff in the Huffington Post. That means a true change of culture.

Tom Doctoroff:

The problem is also deeply cultural. A service ethos requires the courage to go off script, probe into customer motivations, tailor individual responses, and even make mistakes. It also requires challenging past practices and experimenting with empirically untested solutions. In framework-fixated China, the qualitative dimensions of world-class service are scarier than bungee jumping. Hence the blank stares that greet unfamiliar requests at five-star hotels and the swarms of sales girls at high-end department stores who accost customers without first asking what they want. The same goes for consumer-led online transactions. Bargains, not personalized engagement, rule. 

To reach the next level of prosperity, Beijing's mandarins will need to resist a basic instinct to control, well, everything. Yes, foreigners do not appreciate the exquisite delicacy of the central government's balancing act as it pursues a reform agenda that does not destabilize. But, still, the PRC's upwardly ambitious middle class has achieved critical mass. The country's institutions need to evolve with the times, lest the Chinese people lose faith in a paternalistic government's ability to slowly but surely implement an economic agenda that delivers broad-based opportunity.

More in the Huffington Post. 

Tom Doctoroff is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on cultural change at the China Speakers Bureau? Do check out this list.  

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