At Davos, Xi Jinping emerged as a global player - Arthur Kroeber

Arthur Kroeber

While the jury is still out on what China´s role will be at the post-Brexit Trump era of global trade, president Xi Jinping did emerge as a global player at the World Economic Forum, tells leading economist Arthur Kroeber at Bloomberg.

Bloomberg:

The Chinese leader has sought to leverage his country’s economic strength into diplomatic clout with multinational initiatives such as the Asian Infrastructure Investment Bank and his signature plan to expand infrastructure along ancient trading routes to Europe. At Davos, Xi announced a global summit on the strategy for May, saying Chinese investment in more than 100 countries had surpassed $50 billion over the past three years. 

Arthur Kroeber, Beijing-based founding partner and managing director at Gavekal Dragonomics, said that provided Xi a platform to demonstrate his overseas clout back home, where the Chinese leader is preparing for a mid-term reshuffle of the party’s leadership ranks. 

“It’s in Xi’s interests to take every opportunity he can and present himself as this leader who is powerful, strong and visionary, to give himself some international prestige,” said Kroeber, author of “China’s Economy: What Everyone Needs to Know.” Xi’s appearance at Davos, which has previous been attended by China’s premiers, is “consistent with the notion that Xi is now the only major authorized spokesman for the whole country.” 

Xi urged other countries to also keep their doors open to Chinese investors, drawing another contrast with Trump, and said he had no plans to devalue the yuan in order to boost competitiveness.

More in Bloomberg.

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Private health insurance: lacking impact - Jeffrey Towson

Jeffrey Towson

While health care insurance has been high on China´s political agenda, the impact of private insurance is still very limited, writes Peking University professor Jeffrey Towson in the Asia Nikkei. Before turning to possible solution, he paints the grim picture.

Jeffrey Towson:  

Local and foreign insurers are lined up to fill this gap but the opportunity remains tantalizingly out of reach. Efforts in private health insurance have been stymied by regulatory constraints; by too few real private secondary care hospitals; by poor consumer awareness of health insurance; and by inaccessible, limited and non-standardized medical data for underwriting and pricing. 

Chinese consumers are becoming wealthier and more sophisticated in their expectations for healthcare. A survey last year by consultancy McKinsey & Co. of some 10,000 Chinese consumers found an increasing focus on eating healthier and safer food, practicing preventive medicine and playing sports. This growing focus on healthy living is great for healthcare and hospitals even if bad for KFC. 

Healthcare demand is also increasing as the population ages. Plus, as China develops, chronic diseases common to developed countries, such as diabetes and obesity, are becoming more common. Overall, the demand for healthcare keeps growing. 

Meanwhile, Chinese public hospitals remain overcrowded, have questionable financial incentives and are often criticized for poor service. While public insurance extends to 95% of the population, this coverage is actually very patchwork. Users are frequently required to pay 10%-35% of the cost of inpatient care. Coverage is limited with most private facilities and many treatments and medicines, especially for cancer, excluded. So despite "universal" social insurance, Chinese consumers still pay over 50% out of pocket for their care. 

There is a "significant increase in the awareness and demand for private medical treatments in China," said Neil Raymond, CEO of Pacific Prime, an insurance advisory company based in Hong Kong. "This means if you have the money, and more and more people do, then you will pay to go to good private facilities." 

This growing gap between supply and demand can be seen in the long lines outside of top Chinese hospitals virtually every day. It can be seen in the numbers traveling to Hong Kong, Singapore and California for care. It can be seen in families' continued hoarding of cash for medical emergencies. It can also be seen in the record number of attacks on hospital workers every year in China.

Possible scenario´s in the Asia Nikkei.

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Exploring the sex trade for my novel Lotus - Zhang Lijia

Zhang Lijia

The story of her grandmother, first a prostitute, then a concubine, triggered author Zhang Lijia´s into writing her latest book Lotus: A Novel. With meticulous research she explored the life of today´s sex workers, and tells in Refinery29, how a middle-class lady explored a secret world.

Zhang Lijia:

I chatted with the salon girls and learned that they were migrants from the impoverished countryside. All three were poorly educated and unskilled: The youngest was in her early teens — the same age as my grandma when she began work at a brothel in 1928. How did these women end up here? I wondered. And how did they reconcile their trade with their conservative upbringing in the village? 

It was at that moment the seed for my novel, Lotus, was planted. Through the lives of these women, I could explore China’s growing gap between men and women, urban and rural — as well as the tug of war between modernity and tradition. 

Because my last book was a memoir, people often wonder if I’ve penned another autobiography: I am always quick to point out that Lotus is purely a work of fiction, not based on personal experience. Keenly aware that my middle-class urban existence is so removed from that of a migrant-worker, I knew I needed serious research. And so I interviewed sex workers in Shenzhen, Dongguang, a neighboring city, Beijing, and other cities. I tried to make friends with these sources, but it proved to be a very challenging task: Their lives are so transient, as they change from one massage parlor to another, from one city to another. They change their mobile numbers — or they simply vanish. 

My breakthrough came after I managed to gain work as a volunteer for a non-governmental organization NGO that is dedicated to helping female sex workers in a northern city in China. The main task of these volunteers is to distribute condoms to sex workers operating at massage parlors and hair salons — all fronts for brothels — in an outskirt of Tianjin. 

They are mostly low-class establishments, and I usually went out with a staff member from the organization, Little Y — a former sex worker herself, who is very skilled in her NGO role. She would sit down and chat over a cup of weak jasmine tea; she would always find something flattering to say. 

“Wow, what a pair of heavy melons!” Little Y would say, pointing at one woman’s robust chest. “Are they real?” She would volunteer that she had had implants herself; on several occasions, she lifted up her top and compared herself to other women who also had breasts enlargement. Little Y’s augmentation was done in a back-alley clinic, and resulted in one of her nipples pointing westward.

More in Refinery29.

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Few US jobs from Alibaba - Ben Cavender

Ben Cavender

Chairman Jack Ma of Alibaba promised US president-elect Donald Trump a million US jobs, but what he might get, says retail analyst Ben Cavender at CNN, are very, very few real jobs. "I don't see a lot of job creation happening."

CNN:

Ma has been pushing since 2015 to increase U.S. sales to China on Alibaba. But getting one million American brands onto its platforms would require a 142-fold increase in business. 

Realistically, what will likely happen is Mom and Pop stores will set up e-commerce stores on Alibaba as a side business to tap into the China market, says Ben Cavender, director with China Market Research Group. 

"I don't see a lot of job creation happening," Cavender said. 

While Ma did not present any concrete plans for job creation, his meeting with Trump was a good "lobby photo opp," says Duncan Clark, chairman of consultancy firm BDA China and author of "Alibaba: The House That Jack Ma Built". 

It could also be seen as a way to curry favor with U.S. regulators. The U.S. Trade Representative put Taobao back on its "notorious markets" list last month, citing an "unacceptably high" level of fake goods. 

Analysts say sophisticated, middle class Chinese consumers have a growing appetite for foreign goods that are more trustworthy than Asian products. Small U.S. companies that specialize in nutrition, supplements, and baby products should do well on Alibaba's platforms, said Cavender.

More at CNN.

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Xi Jinping has few opportunities to push China ahead in Davos - Victor Shih

Victor Shih

President Xi Jinping will visit the World Economic Forum next week in Davos as the first Chinese head of state. It is part of China´s push for international recognition, but political and financial analyst Victor Shih sees at this stage little room for progress, he tells at the Economic Times.

Economic Times:

Victor Shih, a scholar of China's political economy at the University of California, San Diego, said there are actually some global agenda matters on which China's influence "might have peaked in the medium term." 

He pointed to China's push in recent years to have the renminbi counted as an international currency. That has been undermined in the past year by efforts of the Chinese central bank, the People's Bank of China, to withdraw large quantities of offshore renminbi from circulation. The bank has been doing that in order to try to prop up the value of the renminbi and limit capital flight from China, including the transfer of money to Hong Kong by wealthy Chinese. 

"The People's Bank of China continues to claim that renminbi internationalization is important, and of course, at Davos, President Xi may continue to pay verbal homage to that agenda because it would be an important sign of China's ascendance on the world stage," Shih said. "Yet, in the past year, we have seen renminbi deposits outside of mainland China decline by hundreds of billions of renminbi."

More at the Economic Times.

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Alibaba´s one million US jobs: mainly good PR - Jeffrey Towson

Jeffrey Towson

When Alibaba´s Jack Ma met US president-elect Donald Trump and announced he would create one million jobs in the US, it was already taken with a pinch of salt. Mainly good PR, says Peking University professor Jeffrey Towson to AFP, by a Chinese company focusing on the US as its next market.

AFP:

While dominant in its home market, and making forays into Russia and Southeast Asia, Alibaba's efforts in the US have so far failed to find the same success. 

Its business model as a platform offers US consumers no extra benefits, Li said, and it faces dominant local competitors such as Amazon and eBay. 

Even so Ma wants half of Alibaba's revenue to be international within 10 years.

The firm's Ant Financial affiliate, which operates digital payments service Alipay, and Tmall International are likely to be its "primary vehicles" for gaining a US foothold, Jeffrey Towson, professor at the Peking University Guanghua School of Management, told AFP. 

"Alibaba is serious about the USA," he said, adding the Trump meeting was "good PR" for the firm and introduced Ma to many Americans who had not heard of him.

"Every business person in China, and globally, now knows that what Trump wants to hear about is US jobs. So that is what they are all now saying." 

After the meeting the two multi-billionaires praised one another, with the Chinese tycoon calling the president-elect "very smart" and "very open-minded".

More at AFP.

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Prostitution, a free choice - Zhang Lijia

Zhang Lijia

One remarkable conclusion by author Zhang Lijia of Lotus: A Novel  on sex work in China is her conclusion that prostitution in China is largely a free choice, where women are free to enter, and free to leave. Yes, there is economic pressure, but no organized crime or human trafficking on a major scale, she says.

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Fintech, mobile and social commerce in 2017 - William Bao Bean

William Bao Bean

China is becoming fast one of the most innovative markets, explains Shanghai-based managing director William Bao Bean of the Chinaccelerator. Fintech and mobile will leave their marks on 2017, he explains to a non-Chinese audience. While startups have a hard time to find funding, 9% of the startups in Shenzhen get one million US dollar in funding. In stead of joining foreign multinationals, young Chinese prefer now an entrepreneurial career, he tells in The Heat.

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Alibaba moves more into brick-and-mortar - Ben Cavender

Ben Cavender

Internet giant Alibaba paid US$2.6 billion for the retailer Intimate group, another sign Alibaba wants to leverage its online presence to brick-and-mortar retail operations, says retail analyst Ben Cavender to Reuters. Earlier it bought also leading retailer Suning.

Reuters:

In 2015, it invested $4.6 billion in electronics retailer Suning Commerce Group Co Ltd (002024.SZ), its biggest step to integrate online and offline shopping. 

"(Alibaba) is looking for ways to better leverage the technology it has," said Shanghai-based retail analyst Ben Cavender at China Market Research Group. 

"It's always looking for new models and new ways to drive growth, and it has obviously seen a slowdown in online sales... The advantage Alibaba has over a lot of brick-and mortar retailers is that it has probably better customer data than just about anybody else." 

Alibaba grew into China's largest e-commerce retailer with its Taobao and Tmall platforms. In 2014 it invested $692.25 million into Intime and now owns 27.82 percent, with Shen holding 9.17 percent. The pair plan to buy the rest of Intime using internal cash resources and external debt financing. 

Intime operates 29 department stores and 17 shopping malls in China, mainly in so-called first- and second-tier cities. Its profit fell 21.3 percent in the first-half of 2016, saying e-commerce had transformed the competitive landscape. 

Those malls could allow Alibaba to give brands a physical presence or act as collection points for online shoppers, Cavender said. In turn, department stores could use Alibaba's data on popular clothes or colors to choose brands or styles.

More in Reuters.

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William Bao Bean: the man behind one of the successful accelerator programmes in China

William Bao Bean

Often innovator William Bao Bean prefers to give the stage to his China-related innovative startups, but ahead of the MOX - the Mobile Only Accelerator in both Taipei and Singapore in March, E27 profiles the force behind China´s drive for innovation.

E27:

William Bao Bean, SOSV Managing Director and the head of Chinaccelerator, one of China’s most successful accelerator programme, is the managing director for another, mobile-only, programme. It is called MOX, and its goal is to help the best mobile startups go cross border, and reach up to 130 million potential users. 

On January 2nd, the programme kicked-off its second batch that included companies from the US, Russia, Ireland, Hong Kong, Singapore, India, Vietnam and Thailand. “Our goal has been to help the best mobile startups go cross border into mobile-first, mobile-only markets in Southeast Asia, Eastern Europe and South America,” said Bean. 

“This batch represents the best of the best, and our goal is to help them reach 130 million users.” 

The Demo Days will be held on March 7 in Taipei and March 9 in Singapore.

More at E27.

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McDonald´s also sells its China operation - Ben Cavender

Ben Cavender

In line with expectations, McDonald´s has sold a controlling stake of its China and Hong Kong operation to private investors, after competitor Yum did the same last year. With the new financial resources, the China operation can improve fast, says Shanghai-based retail analyst Ben Cavender to Bloomberg.

Bloomberg:

Oak Brook, Illinois-based McDonald’s and rival Yum China Holdings Inc., which owns the KFC and Pizza Hut brands in the mainland, are combating rising domestic competition as they fight to retain middle-class Chinese consumers who increasingly demand high-quality and healthier dining options. The fast-food giant is also looking at further deals in markets such as South Korea, Japan and Southeast Asia as it streamlines its sprawling global operations. 

“Citic and Carlyle’s resources will allow McDonald’s to expand rapidly and refurbish old restaurants, which is expensive to do,” said Ben Cavender, a Shanghai-based analyst at China Market Research Group. “Given that McDonald’s lags behind KFC in terms of store count in China, we can expect them to expand aggressively and invest heavily.” 

Yum China Holdings and Starbucks Corp. plan to add about double the number of stores -- as many as 3,000 in China -- over the same period. 

Under the deal, Chinese state-backed conglomerate Citic and Citic Capital Partners will jointly take a 52 percent stake, while Carlyle will hold 28 percent. 

While Citic and Carlyle are paying a “substantial price,” for 20-year franchise rights, the food and beverage chains are “cash machines,” Cavender said. In contrast, Yum China licensed the KFC and Pizza Hut brands from Yum! Brands Inc. for 50 years, with automatic renewals that could make it possibly indefinite.

More in Bloomberg.

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Unsung heroes - review of Lotus, by Zhang Lijia

First reviews of journalist Zhang Lijia´s touching Lotus: A Novel, are coming in, like here from the Star Tribune, focusing on the Chinese migrants, the unsung heroes who made the country´s economic development possible. "Lotus and Bing, as well as the secondary characters, feel like real, rounded human beings. Zhang portrays them compassionately."

The Star Tribune:

Still, it is a novel, not a sociological treatise. Lotus and Bing, as well as the secondary characters, feel like real, rounded human beings. Zhang portrays them compassionately: At one point Bing remarks that the uneducated migrants from the provinces are “China’s unsung heroes,” whose cheap labor has made the country’s economic miracle possible, and the novel does indeed find heroism in their struggles and conflicts while telling a darn good story at the same time. 

Although the narrative of a young girl from the provinces struggling to make it in the big city is a familiar one, the novel’s texture, setting and thought patterns seem specifically Chinese. While “Lotus” sometimes reads as if it were translated from Chinese (it is not), that is part of its charm, anchoring us in a world outside American experience.

More at the Star Tribune.

Zhang Lijia

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How Airbnb can win in China - Jeffrey Towson

Jeffrey Towson

Uber was the last American firm failing to enter China. But it has not stopped newcomers to enter this tough market. Airbnb is the latest arrival and Peking University business professor Jeffrey Towson gives the US firm some tips on how to win access at his LinkedIn page.

Jeffrey Towson:

2: Airbnb should focus first on dominating China’s outbound home-sharing market. 

In 2015, over 110M Chinese tourists flew overseas – where they stayed in hotels, short-term rentals and / or home-shares. Note: over 50% of tourists in Asia this past year were from China. 

This part of the market is much clearer. First, one side of the platform (the listed homes) is already in place. Second, the price differential for home shares versus hotels in places like New York and London is much more compelling. Especially for families. And third, the chicken-and-egg problem is already solved. The international platform is up and running. Uber did not have this type of cross-border market in China. Airbnb does and should try to dominate it quickly. 

Airbnb’s first line of attack can be a horizontal attack on travel agencies (an MSP vs. VI attack). They can use their big MSP to subsidize the prices to Chinese tourists currently using travel agencies and packages. Chinese tourists do not really travel independently yet. They prefer flight and hotel packages (plus visa and other services). Organized tour groups are also popular. 

However, two MSP competitors are operating in this space, Ctrip and Zhubaijia. Zhubaijia offers all-in-one outbound services, including accommodations, car rentals and customized guided tours for Chinese travelers. They are bundling home-sharing with other services. And they are providing quality control for Chinese families on their trips, such as convenient locations, quality checks, security, etc. However, Ctrip is the big competitor and will discussed in the next section. 

Uber never had this type of cross-border market when it entered China. The ride-sharing market is mostly locally. I would argue it is mostly city-by-city. Adding drivers in Chengdu doesn’t really benefit riders much in Beijing. But home-sharing is a naturally international market. So Airbnb should focus on this outbound segment. The market is big and clear – and they have strong advantages already in place. 

#3: Airbnb should worry about Ctrip. This is their biggest threat. 

In September, Airbnb announced it has had “a 500% increase in outbound travel from China in just the past year.” They also said “since 2008, there [has] been over 2 million guest arrivals from China at Airbnb listings worldwide.” These numbers strike me as pretty suspect (if you have good numbers in 2016, you don’t point all the way back to 2008). But let’s assume they have some decent adoption in China today. 

As mentioned, there is no chicken-and-egg problem for Airbnb cross-border. They already have an international network of apartments and guests. And, most importantly, they already have many of the strengths I mentioned in Part 1: a network effect, economies of scale in operations and marketing, a full suite of features and services, an ability to bundle services, and an ability to subsidize across their MSP. 

I don’t think Chinese competitors can compete with them internationally in home-sharing. It is very difficult to launch an international two-sided network in general. But to do so against an entrenched incumbent is next to impossible. So I think Tujia and Xiaozhu on their own have very little chance against Airbnb outside of China. However, Ctrip is a serious competitor internationally. They are making moves in this area (i.e., their recent acquisition of UK-based Skyscanner). They also are the largest investor in Tujia. Ctrip should worry Airbnb.

More at Jeffrey Towson´s LinkedIn Page.

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The war between US and Chinese platforms - Jeffrey Towson

Jeffrey Towson

Chinese platforms are going global: Ctrip, Didi, Alibaba, Baidu, UnionPay. Global platforms try to enter China: Airbnbn, Uber, Google, Facebook. Peking University business professor Jeffrey Towson welcomes us to the US-China platform war, and explores on his LinkedIn page the battle field.

Jeffrey Towson:

Point 3: Complementary and inter-connected platforms can be particularly powerful. A single platform is good. As mentioned, it can have lots of strengths, particularly when competing against a traditional vertically integrated merchant (VI). Especially, if you can get a network effect and some economies of scale going. 

But complementary networks can be even better. This is when you actually have two different (Multi-Sided Platforms) MSPs serving a common set of users. The two MSPs can sort of amplify each other. For example, Microsoft Word (an MSP) is helped by being on the Microsoft Operating system (another MSP). They both have a user group in common and amplify each other. A mapping application (sometimes an MSP) linked into Wechat (another MSP) is another example. Complementary networks are very common in China, where much of the mobile world has collapsed to a few powerful ecosystems (Alibaba, Tencent, Baidu). 

However, inter-connected platforms are arguably even better. This is when a platform (or set of features) is actually integrated within another platform - to the point that the whole thing becomes inseparable within a service. The feature the user group sees and uses is actually being delivered by several interconnected platforms. For example, advertising-based media (e.g., Yahoo, broadcast TV) is increasingly inter-connected with advertising networks (i.e,. platforms that match advertising buyers with available inventory in real-time). That’s how the ads on Yahoo, Baidu and Google get placed in real-time based on who you are or what you are looking at. There are actually +2 interconnected MSPs delivering this service.

More at Jeffrey Towson´s LinkedIn Page.

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Cosmetic giants deal with pricing gap - Ben Cavender

Shaun Rein

One of the main reasons Chinese consumers buy themselves silly abroad - including Hong Kong - is the high difference in pricing of similar products in mainland China. Cosmetic giants Estee Lauder and AmorePacific have lower their prices up to 30 percent, as also the government is revamping its import fees. More will follow, tells retail analyst Ben Cavender to the South China Morning Post.

The South China Morning Post:

“These global cosmetics names are now narrowing the price gap between China and overseas, and we believe more are probably about to follow suit,” said Ben Cavender, director with the China Market Research Group. 

“The fact that western brands are becoming cheaper in the mainland may also discourage people from travelling to Hong Kong to make purchases,” he added. 

Imported cosmetics used to face tariffs of 84 per cent, reflecting both import and point of sales taxes. 

But the tariffs have now gone down to 29 per cent for most beauty products thanks to policies introduced in 2016 designed to boost domestic consumer spending... 

With incomes rising, Chinese shoppers have become one of the largest single markets for western consumer brands. 

Prior to the tariff reduction, the significant price premium on foreign goods in China saw many mainland consumers shop via cross-border online marketplaces or while travelling abroad. 

Analysts said that stiff competition from rival brands and a weakening yuan might take some of the sparkle off the Chinese market for international cosmetics groups in spite of the price cuts. 

Over the last two years, AmorePacific has pushed ahead with its strategy to make inroads into China, competing head to head with established international players such as Estee Lauder. 

“The market is competitive and the rise of South Korean brands are posing a challenge to the rest of the players in China,” said Cavender.

More in the South China Morning Post.

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China´s economy does well on a micro-level - Jeffrey Towson

Jeffrey Towson

China´s macro economy regularly triggers off predictions of doom and gloom, but at micro level, there is still an amazing opportunity for growth, says Peking University business professor Jeffrey Towson to the Financial Times. “You can keep watching more and more movies and taking more and more vacations."

The Financial Times:

China’s economy has risen to become the world’s second-largest without the existence of entire industries, most of them in the service sector and leisure, which are taken for granted elsewhere. From private aviation to yacht-building, industries are emerging that will help offset the decline of coal, steel and other sectors emblematic of China’s “old economy”. 

Jeffrey Towson, a business professor at Peking University and a former investment executive at the Saudi Arabia-basedKingdom Holding Company, argues that it is easy to be “too pessimistic” about the Chinese economy. “Looking at macro stuff in China does that to people,” he says. “Things are much more optimistic at a micro level.” 

Mr Towson points to “unlimited demand” for everything from entertainment to healthcare, which are growing at double-digit rates and will continue to do so for the foreseeable future... 

“You can keep watching more and more movies and taking more and more vacations,” Mr Towson says. “That is different from buying a washing machine or a sofa. People don’t buy five washing machines.”

More in the Financial Times.

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China: one of the most inequal societies - Zhang Lijia

Zhang Lijia

Social mobility between the generations in China has stalled, argues author Zhang Lijia, even more than elsewhere. While she moved herself from factory worker to a social commentator, and recently wrote Lotus: A Novel on prostitution in China, most Chinese are currently stuck socially where they were born.

Famous for lifting millions out of poverty, and creating the largest group of wealthy, climbing up in the social hierarchy has become impossible for most Chinese, she argues, based on solid social research.

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How I explored prostitution in China - Zhang Lijia

Zhang Lijia

Author Zhang Lijia explored the life of more than ten million women in the sex trade in China for her book Lotus: A Novel. How is the trade organized? How does their life look like, and how voluntary is a choice to go into prostitution? Zhang Lijia spent years on the ground, and comes with a few remarkable conclusions. Organized crime has only little grip on prostitution, and most is organized by women themselves.

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