How capital flight and US treasuries are linked - Paul Gillis

Paul Gillis

China sees a massive capital flight, putting its currency, the yuan, under pressure. For that reasons, says accounting professor Paul Gillis to the VOA, are capital flight and China´s garage sale of US treasuries closely linked.

The VOA:

An important reason for the slide in yuan is continuous capital flight from China. High-end Chinese savers have demonstrated a strong tendency to sneak money out of the country despite strong official measures to prohibit it. But if these savers lose confidence in the yuan, analysts say they most likely would suddenly try to get their money out of China, which could make the financial crisis a self-fulfilling prophecy. 

"China has experienced significant capital flight. What that means is the Chinese are converting their RMB savings into dollars and investing abroad," said Paul Gillis, a professor at Peking University's Guanghua School of Management. "When Chinese convert RMB into dollars, China uses its U.S. dollar holdings to buy the yuan. If it did not do so, there would quickly be an imbalance between buyers and sellers of the yuan, and the value of the yuan would plummet."

More in the VOA.

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Catholics in China: small but influential - Ian Johnson

Ian Johnson

Recent rumors about better relations between China´s central government and the Vatican has put attention to the small but influential following of the Vatican in China. Author Ian Johnson of the forthcoming book The Souls of China: The Return of Religion After Mao elaborates at the NPR.

The NPR:

Ren (Yanli, an expert on Chinese Catholics at the Chinese Academy of Social Sciences in Beijing) says for China, this is an issue of face. And you might think that for the Vatican, the appeal would be China's 1.3 billion souls and the potential to attract them. But Pulitzer Prize-winning journalist Ian Johnson says it's more than that. 

Johnson, the author of a forthcoming book, The Souls of China: The Return of Religion After Mao, says for the Vatican, this is primarily about those who are already with the church. 

"It's a way to help Catholics in China so that they're part of legitimate church," says Johnson. "And I think from Beijing's point of view, it's a way to make sure this small but perhaps influential group of Chinese is under some sort of structure the [Communist] party could feel comfortable with. They don't like having an underground church. They want to bring everybody into the fold." 

Officially, there are eight bishops in China, appointed by the government-run Chinese Patriotic Catholic Association. The Vatican doesn't recognize them. Then there are 30 Vatican-approved bishops, whom China's government won't recognize.

More at the NPR.

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George Michael changed China - Kaiser Kuo

The sudden death of George Michael triggered off found memories in Beijing, where Michael´s band Wham! was one of the first to hit the stage after China started to open up in the 1980s. "They certainly had in impact on China, says Kaiser Kuo, now himself a rock legend in China, to Reuters.

Reuters:

Mao, the Chinese writer, received his concert ticket from his university — one of several that were given allocations of tickets for students studying literature. 

“We were like blank pages back then. I’d never seen anything like this before in my life,” said Mao, who said he was seated behind students from North Korea. 

“In front of me, the foreign students jumped up to dance, the police quickly came and told them to sit down,” Mao said. 

Despite the tense atmosphere, the Beijing concert has since become legendary among China’s rock royalty. 

“They certainly had an impact on China,” said Kaiser Kuo, the front man of a popular Chinese metal band in the 1980s called the Tang Dynasty. “Everyone knew Wham! songs, even people who would go on to play music that diverged starkly from pop.” 

Chinese took to social media on Monday to mourn Michael, whose 1984 hit “Careless Whisper” was particularly popular in China.

More in Reuters.

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Why soccer in China will fail - Rowan Simons

Rowan Simons

China´s soccer clubs have been spending unprecedented amounts of capital in buying foreign players and improving high-profile stadiums and other infrastructure, hoping to win the World Cup. But the basis is wrong, so the efforts will fail, says Beijing-based soccer expert Rowan Simons to AFP,

AFP:

The world's most populous nation has 25 times more people than England, but lags far behind its 37,000 football clubs, says Rowan Simons, a football author and founder of a private football club in the capital. 

Without grassroots teams and a deep pool of players, he said, "It's irrelevant how much money the government puts into it -- football can never flourish unless people love it."

"In Chinese there's just no history of civic society, that's really at the heart of it," Simons told AFP. "That's why top-down national funding will never work."

More at AFP.

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Outbound M&A will slow early 2017 - Shaun Rein

Shaun Rein

Increased government restrictions on the outflow of capital will severely impend the outbound M&A activities in the first quarter of 2017, after a record year in 2016, expects business analyst Shaun Rein, according to the South China Morning Post.

The South China Morning Post:

China overtook the US for outbound mergers and acquisition (M&A) volume for the first time, with US$219.3 billion of deals announced in 2016, according to data compiled by Dealogic. 

The record-high deal volume came as overseas takeover activity climbed for a seventh consecutive year, according to a full review of 2016 released by Dealogic on Tuesday.

It put China slightly ahead of the US on US$217.69 billion, down from $237.99 billion in 2015, although Dealogic said the figures are based on preliminary annual data. 

A total of 745 cross-border deals by China were announced in 2016, accounting for more than half of Asia Pacific’s outbound volume, which hit a record US$445.1 billion, according to the report. 

But some analysts believe it might mark a near-term plateau, as the Chinese authorities strengthen their scrutiny of outbound M&A activity and tighten checks on capital outflows in a bid to curb yuan depreciation and a draining of foreign reserves pool. 

Shaun Rein, managing director of China Market Research Group, said: “Outbound M&A activity will slow sharply over the first quarter of 2017, as the Chinese government is making it very difficult to get approval to convert currency, even for legitimate business transactions, because they are very concerned about capital outflow pressure.” 

In an attempt to counter the yuan’s steep devaluation, the Chinese central bank has introduced stricter rules on overseas payments and lending, and guided commercial banks to scrutinise reasons for large overseas payments.

More in the South China Morning Post.

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China will use economic, rather than military action - Shaun Rein

Shaun Rein

The seizure of a US drone by China set off alarm bells worldwide this weekend. But when it comes to a standoff between China and the US under president-elect Donald Trump, economic measures will have preference over military ones, writes business analyst Shaun Rein in International Business Times.

Shaun Rein:

Already there are rumours that General Motors or Ford will be penalised for monopolistic behaviour with their distributors in China. Expect that the next major purchase of air planes by state-owned carriers like Air China or China Eastern Airlines will come from Airbus rather than Boeing. American businesses will probably have more difficulties getting visas to the country. The hope is that the American business community exert pressure on Trump to take a softer stance. 

China prefers to use economic sticks to get what it wants and it usually works. With the impeachment of South Korean president Pak, one of the front-runners for the South Korean presidency Moon Jae-in has said he might rethink Thaad missile deployment in order to promote closer China- South Korea ties. This came after pressure from South Korean businesses hit by China blocking tour groups to South Korea and a banning of Korean pop stars in China. 

Going forward it is clear China does not want a military stand-off with the US - they are taking a responsible approach to the international community to focus on economic trade and fill in the vacuum left by the US since Trump is against NAFTA and TPP. President Xi is rumoured to be the first Chinese president to attend the World Economic Forum in Davos in January. 

At the same time, Trump should ratchet down his rhetoric on one China. Beijing will use force if necessary to protect what it considers its sovereignty.

More in International Business Times.

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Fashion brands: After rising wages, robots move in - Ben Cavender

Fashion has been changing massively, as low-cost manufacturing moved from China to other countries, and the fashion brand focus on value, more than on cheap production, tells Shanghai-based retail expert Ben Cavender in Just-Style. And the transition process in fashion brands will continue to cause pain, as robots move in.

Just-Style:

Last year, China's government launched its 'Made in China 2025' programme, aimed at advancing restructuring of the manufacturing sector, upgrading China from a manufacturer of quantity to one of quality, and investing in high-tech sectors and projects like advanced robotics. 

"One thing China is good at doing is making plans for the future," Cavender says. "The whole point of the 2025 programme is 'how do we become the Industry 4.0 leader?' What we're seeing now is massive investment in Chinese start-up companies that are trying to build more efficient robots, building smart factories, looking at big data and analytics, and using it in ways that are effective in the workplace. A Chinese company is right now trying to buy the largest robotics manufacturer in Germany." 

But for all this investment and development, Cavender points out that "tens of thousands" of Chinese manufacturers will go out of business due to the inefficiency of their factories. They are also only just starting to fully realise the value of protecting their intellectual property (IP). 

He adds: "Chinese companies know they need to spend on research and development, and they are spending but still at a relatively low level. The apparel sector [spend] is still less than 1% of revenue. They are also not terribly efficient with how they use their findings. They don't know how to work their supply chain or processes very well. 

"They know there is this need for responsive, faster design, but the reality is nobody knows how to collect data and use it properly. So there is still an opportunity here that if you can do that well and take the time to find the partners that know how to do that, you've already got a leg up on the competition." 

The key to companies capitalising on these weaknesses over the next 15 years, Cavender says, is to be flexible, and invest now. 

"If you're not trying things with automation and robotics now then it's going to be too late. You have to be willing to change and try new things. The biggest reason why the Chinese apparel industry stays healthy is that they're willing to try new things, they're always experimenting." 

He also points to the importance of analysing data from customers, and subsequently building an identity of the customer and knowing what they want. "It's not really truly about technology at the end of the day, it's about teamwork, working together and finding ways to avoid brain drain. You need to find a way to keep those people and get the best out of them.

More in Just-Style.

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China´s move to a cashless society - Andy Mok

Andy Mok

Almost all Chinese consumers use their mobile phone to pay, most overwhelmingly by Alipay. Fintech expert Andy Mok discusses at CCTV the implications. The technology is in place, but the regulators are still slowing the implementation, he says. Regulation by the government is unavoidable, but in a way that serves the consumers. Also participating: Duncan Clark.

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Marketing needs more platforms than only WeChat - William Bao Bean

William Bao Bean

WeChat has been for long the golden grail for marketing to China´s consumers. But those days are over, says innovation expert William Bao Bean, director of the Shanghai-based ChinaAccelerator to TechNode. Marketing needs more platforms than WeChat, although the Tencent tool is still an important center piece.

TechNode:

Born on January 21, 2011, WeChat now boasts 846 million monthly active users and is unquestionably the number one platform to consider when entering the China market. However, with slowing user growth, it is quickly becoming a red ocean with companies fighting harder to attract customers. 

“WeChat used to be an easy way to acquire users. It’s now much harder to get users to follow a WeChat public account. They are overloaded with great content and spam marketing content. WeChat is maturing,” says William Bao Bean, managing director of Chinaccelerator, an accelerator based in Shanghai. 

Aiming for “user acquisition cost zero,” Chinaccelerator has experimented WeChat public account as a marketing tool for its fresh born startups on Batch 10, leveraging high quality content, growth hacking, and conversion. 

William was the first one to tell TechNode the phenomena of startups leveraging WeChat to slash marketing cost last year. However, more recently, he says that putting all your marketing focus on WeChat could be risky. 

Instead of solely relying on WeChat, each company in Batch 10 companies used 10 to 15 different platforms, including Miaopai, Douban, and Zhihu to acquire users. Fashion e-commerce startup Fashory, from Chinaccelerator’s recent Batch 10 used 12 Chinese and international social networks, including Baidu Tieba, Keep, Momo, Facebook, and Snapchat to attract users. 

“WeChat is a closed network, meaning, you need a lot of friends to effectively expose your business. However, when you see other Chinese social networks, like Douban and Zhihu, it’s open platform, and you can get instant exposure,” founder and CEO of Fashory Emmy Teo said. Fashory made 250,000 RMB (36,000 USD) in sales, with over 500 transactions in the fourth week of November.

More in TechNode.

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Developing a new China story - Howard French

Howard French (right)

Journalist Howard French, author of the forthcoming book Everything Under the Heavens: How the Past Helps Shape China's Push for Global Powerdiscusses with Jeff Wasserstrom China´s mindset as a geopolitical power and its problem to reinvent itself in developing a new, true Chinese story during the upcoming era of US president Donald Trump.

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Victoria Secret can get it right in China - Ben Cavender

Ben Cavender

Victoria Secret took on China online, but has now decided to open its first offline retail flagship store in Shanghai. They move very cautiously, says retail expert Ben Cavender in AdAge, and they have a fair chance of getting it right in one of the most difficult retail markets in the world.

AdAge:

Victoria's Secret's planned Shanghai flagship is in a prime shopping space formerly occupied by a Louis Vuitton that closed, a victim of China's luxury slowdown. Signs there announce an opening for fall 2016, though it's still boarded up. The receptionist at the mall's welcome desk said it probably would not open until after Chinese New Year or Spring Festival, which starts on Jan. 27. L Brands, Victoria Secret's parent company, did not respond to Ad Age's questions about the opening date. The brand has said it is planning a flagship for Beijing as well. 

Given the brand's bad experiences with unauthorized shops in the past, "they really want to make sure they get the entry right," said Ben Cavender, director at China Market Research Group. "I think they will take extra time, they need to make sure they get the store experience right and have the right products in the store." 

If the brand offers great customer service and gets it right, it has good potential, Mr. Cavender says: "There's still a lot of room to grow and become pretty strong in the market."

More at AdAge.

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And the real estate bubble persists - Sara Hsu

Sara Hsu

Efforts by China´s financial authorities to tame its real estate sector failed, mostly because China´s investors have few venues to make money, says shadow banking expert Sara Hsu in the EastAsia Forum.

Sara Hsu:

Government involvement in the shadow banking sector is unclear. In the past, authorities have bailed out failed products such as WMPs, but bailouts are far from guaranteed. Neither is the enforcement of interest, as illustrated by a recent case where New China Trust — in an attempt to recover equity investment from a real estate developer — lost a lawsuit. The equity investment was viewed by industry experts as a loan, since it contained a stock repurchase agreement. But the courts did not support this understanding. Inconsistent bailouts and insufficient support for shadow banking interests renders investment in this sector risky and uncertain. 

But a lack of alternatives has made the shadow banking sector a go-to resource for borrowers and investors alike. The stock market volatility that rocked China in June 2015 still resonates and investment in stocks has not fully recovered from the freefall that took place as the asset price bubble burst. Bond markets are shallow and corporate bonds tend to be overrated. The banking sector is associated with low returns on deposits and is also constrained in lending — it continues to prefer state-owned and larger firm borrowers at the expense of private and smaller firm borrowers. 

China’s efforts to liberalise its financial sector and further open up to market forces have been marginally successful but insufficient in the face of increasing demand for returns and loanable funds. Firms and residents are increasingly financially savvy and wish to reap returns on their savings, but this is especially tough in an economy where interest rates and risk ratings do not always reflect real alpha and beta. As a result, we can expect to see asset price bubbles recur. The shadow banking sector will continue to grow in a climate that is failing to integrate market forces into financial products.

More in the EastAsia Forum.

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Trade balance: not a straight forward win-win - Victor Shih

Victor Shih

After the election of Donald Trump as US president and the possible derailment of Sino-US relations, other countries, like Canada, see opportunities in making trade deals. But striking a balance in trade relations is never straight forward, warns political analyst Victor Shih in the Globe&Mail.

The Globe&Mail:

New scholarship adds grounds for skepticism. In “The China shock,” a recent academic article, an international team of researchers showed that the extraordinary rise of Chinese exports since 2001 eradicated millions of U.S. jobs with only “extremely modest offsetting employment.” In other words, they found, after the decade of frenzied trade that followed China’s accession to the World Trade Organization, “U.S. net welfare gains are close to zero.” 

It suggests the need for “a more balanced view about the benefits and pitfalls of free trade,” said Victor Shih, a China scholar at the School of Global Policy and Strategy at the University of California, San Diego. 

Another point of caution lies in China today, which has pushed a plan called Made in China 2025 to massively grow domestic capacity in robots, aeronautical equipment, rail and advanced medical products, among others – some of which overlap with Canada’s areas of expertise. 

“It may not make so much sense to rush headlong into lowering trade barriers with China, because across a large number of sectors the Chinese government is heavily subsidizing industrial goods producers,” Prof. Shih said. 

“Politicians and voters really have to think about this carefully.”

More in the Globe&Mail.

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Starbucks, at last, joins WeChat payments - Shaun Rein

Shaun Rein

When you deal with consumers in China, WeChat and its payment systems, cannot be ignored. Starbucks did so for years, and lost much business, says business analyst Shaun Rein to Bloomberg. The American company now joined WeChat, although concerns about data safety remain.

Bloomberg:

About 200 million consumers use Weixin Pay and Alipay, the system owned by Alibaba Group Holding Ltd.’s financial affiliate, at physical stores because of the ease and speed at which consumers can make purchases. Some overseas retailers have balked at digitized transactions because of costs involved in changing payment systems and concern that data collected could breach customer privacy. 

“Accepting mobile payment would unlock massive value for Starbucks,” said Shaun Rein, managing director of China Market Research Group, in an interview. “Since they couldn’t move customers through the line faster, they were losing 5 to 10 percent of business.”... 

For giants like Starbucks, which is opening stores in China at the pace of more than one a day, the concern was over safeguarding the data of its customer base, said China Market Research Group’s Rein. 

“A lot of chains are concerned about too much user-data controlled by Alibaba,” he said. “It’s their customers, but now all the data goes to the mobile payment providers. There are concerns about confidentiality.”

More in Bloomberg.

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Cross border e-commerce of the future - William Bao Bean

William Bao Bean

China´s consumers have been eager purchasers of foreign products, but getting them at the right price proved to be troublesome. New startups are going to make that choice easier, predicts William Bao Bean, general partner at SOSV and managing director of Chinaccelerator, in TechNode, after closing days of presentations by startups. 

TechNode:

When you think ecommerce, you probably think Alibaba, JD, Xiaohongshu, or Ymatou. However, they better be careful: there’s a fresh batch of startups that are looking to disrupt the cross-border ecommerce market. 

“Chinese consumers have been buying those foreign products for quite some time, but they would have to go there or have daigou to get the items; they don’t know where to get the best price,” William Bao Bean, general partner at SOSV and managing director of Chinaccelerator told TechNode. 

The key focus for Chinaccelerator Batch 10 was cross-border commerce. Among the eleven companies that graduated from Batch 10, five companies were offering cross-border ecommerce: LUXSENS, Fashory, CoolHobo, TrustLuxe, and Groupmall. 

These companies tackle cross-border ecommerce by leveraging their unique strengths. LUXSENS is using data mining and analytics to figure out where the best price is, brand by brand, product by product, and country by country. Fashory is using key opinion leaders (KOLs) on Chinese platforms to find hot items, while CoolHobo uses VR to inspire customers.

More at TechNode.

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