Labor: China's massive challenge - Ben Cavender

Ben Cavender

Rising wages have already put China in the same cost-league as Portugal and South-Africa, forcing manufacturers to low-wage countries. But that is only one challenge for a major shift in the labor market, says business analyst Ben Cavender to CNBC.

CNBC:

As China's economy expanded at breakneck speed, so has pay for employees. But the wage increase has translated to higher costs for companies with assembly lines in China. Some firms are now taking their business elsewhere, which also means China could start losing jobs to other developing countries like Sri Lanka, where hourly factory wages are $0.50. 

Apparel manufacturing has been hit "extremely hard," said Ben Cavender, a principal at Shanghai-based China Market Research. "The result has been that factory owners have gone on a massive investment spree outside of China."... 

With fewer jobs available — and perhaps more robots buzzing on factory floors — experts maintain unemployment will be an ongoing concern, especially as the government works to maneuver the world's second-largest economy away from manufacturing and toward services. 

"You're talking about a way to re-skill millions of workers, but it's not clear what jobs they're going to be placed into," Cavender said. "They're creating white collar, clerical jobs here as quickly as possible, but it's still not enough to go around."

More in CNBC.

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China's new top-planner did not perform well - Victor Shih

Victor Shin

Amid the reshuffle of China's top-officials, He Lifeng will take the helm at the powerful National Development and Reform Commission. But some senior analysts doubted his skills as a planner. Just look at his work in Tianjin, says political analist Victor Shih in AP.

AP

And yet, in the selection of He as top economic planner, some political observers saw a throwback to a retrograde model of wasteful spending and runaway borrowing that many policymakers in the party blame for dragging down China's economy. 

As the No. 2 party official, He oversaw a building spree in the coastal city of Tianjin that was envisioned to be a new financial hub to rival Manhattan but now sits unoccupied, said Victor Shih, a political scientist at the University of California, San Diego. 

"He Lifeng presided over the largest ghost city in China and built even more empty office towers in it," Shih said. "His reform credentials are questionable to say the least."

More in AP.

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IPO-hungry tech firms might jump the queue in China - Paul Gillis

Paul Gillis

Financial authorities in Beijing are playing with the idea to give tech firms a faster-track IPO in China, says accounting professor Paul Gillis at his weblog. Taking away some of the cumbersome restrictions for IPO's in China might lead to the expected abolishment of variable interest entity or VIE's, a side-track allowing Chinese firms to list in the US, he suggests.

Paul Gillis:

Chinese tech companies often also faced restrictions against foreign ownership. That should have blocked foreign venture capital investments and foreign IPOs, but a workaround was developed. The workaround was the variable interest entity (VIE), which enabled the listing of companies controlled through contracts instead of ownership. VIEs have been a source of pain for many investors, since the contracts proved difficult to enforce and control through contracts proved to be vastly inferior to control through actual ownership. 

A few formerly US listed companies have succeeded in relisting in China. Before doing so they needed to restructure to get rid of the VIE structures and offshore structures (and control features) that had been put in place for the US listings. 

The Reuter’s article points to three companies that may be the initial beneficiaries of the queue-jumping initiative - Ant Financial, the world's most valuable financial technology company, Zhong An Online Property and Casualty Insurance, and security software maker Qihoo 360 Technology Co.  Ant and Zhong An would be doing IPOs, while Qihoo went private in 2016 and would be relisting in China. 

It is not known whether China plans to change its rules to facilitate control structures. Ant is owned by Jack Ma and his associates. Jack Ma insisted on a control structure for Alibaba. It would also appear that it will be difficult for foreign investors to participate in these transactions, since foreigners can only purchase shares on the Chinese exchanges through the Qualified Foreign Institutional Investor (QFII) programs or the Hong Kong Connects. 

I have been hearing rumors that China soon plans to announce that the VIE structure will no longer be tolerated for foreign investment, while at the same time grandfathering existing VIE structures. China had earlier proposed to change the foreign investment rules to exclude companies that were controlled by Chinese from restrictions, effectively encouraging the control structures, but these rules were not adopted when the foreign investment rules were modified last year. 

If VIEs are banned (and the rules are actually enforced), it would likely mean the end of new US listings of Chinese tech (and other restricted sectors such as education and finance) companies. The queue-jumping program might foreshadow that announcement.  The big losers would appear to be US venture capital firms and US investment banks.

More at Paul Gillis' weblog.
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Why and how should prostitution be decriminalized - Zhang Lijia

Zhang Lijia

In China most women enter the prostitution on their own free will. The government is criminalizing them, forcing them into a submissive position. What can be done? Author Zhang Lijia of Lotus: A Novel on prostitution researched the sex trade in China, and possible solutions and discusses government approaches.

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Is there room for paid internet platforms? - Andy Mok

Andy Mok

More Chinese internet users are looking for good answers and are willing to pay for it. Paid Q&A apps emerge in China and business consulent Andy Mok discusses at CGTN America their business models and their chances to succeed.

Andy Mok 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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The success of China's Communist Party - Ian Johnson interviews Sebastian Heilmann

Ian Johnson

Few scholars have looked into the inner workings of China's Communist Party like Sebastian Heilmann,  founding president of the Mercator Institute of Chinese Studies (Merics) in Berlin, a government professor at the University of Trier and author of China's Political System. Journalist Ian Johnson interviews him on the success of the party for the New York Times.

Ian Johnson:

A key question you pose is how much of China’s success can be ascribed to this political system. What’s the answer?

There are several important elements. One is the party successfully sets long-term political goals, such as the modernization of industry or technology, or infrastructure planning. As Deng Xiaoping made clear in the 1980s, it can concentrate resources in priority areas. I see this as a strength in the initial phase of development, from say the 1980s to the mid-2000s.

Another crucial element is experimentation. This is something we ignore in the West — how unexpectedly flexible China’s deeply bureaucratic system can be. This flexibility has been demonstrated in the ability to set up pilot projects in special economic zones, in local tests — such as for housing reform or bankruptcy in state enterprises. Very difficult measures were regularly tested in pilot projects for several years before national laws were enacted.

You show how this flexibility arose from the Communist Party’s revolutionary experience.

This is very important. Because we have to ask ourselves, how did a socialist bureaucratic system get this kind of adaptability that you didn’t see in Eastern Europe? It’s due to the specific historical experiences of this party [in the 1930s and 1940s before coming to power]. It controlled very spread-out and not contiguous districts. So when it tried something like land reform it was done experimentally and in a decentralized fashion. This was fundamentally different from the Soviet Union....

Toward the end of the book you offer several scenarios for how China might develop, and poll Merics staffers for their views. Most support the first scenario, which is a “centralized and disciplined party and security state (the Xi Jinping system).” You are less sure, arguing that the risks are greater than people realize.

I’m not sure that the party can achieve everything it’s set out to do. It’s tried to keep a lid on all changes in society, but I doubt this can work over time. There are different lifestyles and forces in society. I’m not sure they can be unified. I’m very skeptical.

Also, we shouldn’t forget that hierarchical systems are susceptible to shocks. If Xi Jinping became seriously ill, what would happen to the political system? The system has been tailored to him. Or, if there are military skirmishes, how will the nationalistic forces in society react?

This system is built for expansion, especially economic expansion, and setbacks are very hard to justify. It’s easier in Western systems because you can change the government. But in China you can’t. So the potential for disruption is greater than people imagine.

More at the New York Times.


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Ian Johnson will publish his much anticipated book The Souls of China: The Return of Religion After Mao in April.
 

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A business model can help a successful app Meitu - Jeffrey Towson

Jeffrey Towson

Meitu, with 450 million users a leader in China's selfie apps and a growing following overseas, helps to beautify those selfies. But having a good idea is not enough, says Peking business professor Jeffrey Towson to AFP. Having a business model helps even more.

AFP:

Chinese Internet giants like Tencent and Alibaba have struggled to replicate their domestic dominance overseas. 

But Meitu said it had 430 million overseas users as of October last year, compared to around 500 million claimed by Instagram. 

Yet profits remain elusive. Meitu lost CNY 2.2 billion ($320 million) in the first half of last year. 

"Meitu's big problem has always been that it came up with this killer app - and the usage is unbelievable. It's crazy. But they never had a clear business model underneath it," said Jeffrey Towson, professor of investment at Peking University. 

Meitu did not respond to requests for comment.

More at AFP.

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Ant Financial's strategy to go global - Ben Cavender

Ben Cavender

Alibaba's Ant Financial investment of US$200 million into the Korean mobile payment service Kakao Pay illustrates how the leading Chinese payment platform want to gain global dominance, says business analyst Ben Cavender to Reuters. Buying into strong local players is smarter than competing with them.

Reuters:

Ant is currently looking to raise as much as $3 billion in debt to fund acquisitions and further foreign investments, a person with direct knowledge of the matter told Reuters earlier this month. 

"Ant's ultimate goal is to become a global payments monster - the biggest, broadest option for consumers," said Ben Cavender, Shanghai-based principle for China Market Research. 

"The challenge is facing strong local players around the world, so it's cheaper to buy into these companies rather than burning money to steal market share from them." 

Kakao, best known for its online messaging platform Kakao Talk, has in total over 48 million users. Its Kakao Pay unit is a financial services platform which offers services such as bill payment and remittance.

More at Reuters.

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Mixing online and offline retail does not work yet - Ben Cavender

Ben Cavender

Alibaba teamed up with brick-and-mortar retailer Bailian, in the latest effort to combine the best of two worlds. But while the idea seems to make sense, the results up to now have been meager, tells retail analyst Ben Cavender to Reuters.

Reuters:

The deal, which does not include any financial investment in Bailian, is the latest in Alibaba's still nascent efforts to capture a bigger share of the retail market as online sales growth slows. 

It has also spent $4.6 billion on a minority stake in appliances retailer Suning Commerce Group Co Ltd, is leading a $2.6 billion bid to take department store and shopping mall operator Intime Retail Group Co Ltd private and has bought a stake in grocery chain Sanjiang Shopping Club Co Ltd. 

News of the agreement sent shares in Bailian Group firms surging but analysts cautioned it may take several years before returns from using big data can make a significant difference to earnings. 

"There is a big push right now across brands to try and figure out how to mix physical and online shopping but gains so far have been limited," said Shanghai-based retail analyst Ben Cavender at China Market Research Group.

The two firms will initially cooperate on supply chain technology using Alibaba's big data capabilities and will integrate Alipay payments with Bailian Group's existing membership program.

More at Reuters.

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Ian Johnson book tour in April, May, the US and China

Ian Johnson

The long anticipated book The Souls of China: The Return of Religion After Mao by Beijing-based journalist Ian Johnson will hit the shelves in April and May, and is followed by an intensive book tour, mostly along academic institutions in the US and China.

China's society is changing fast, and the rising popularity of new values, and traditional religious are a feature too often ignored in contemporary journalist. Ian Johnson is well positioned to give a nuanced look at the massive cultural change happening since 1949. More details about his book tour your can find here.

His book tour is pretty busy, and it seems unlikely he can book more speeches during this tour, but it might be a good way to suss out what his book is about, and how it might fit into your conference or meeting.

Are you interested in having Ian Johnson as a speaker, do get in touch or fill in our speakers' request form.  

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Most of China rich did not get a degree - Rupert Hoogewerf

Rupert Hoogewerf

If Bill Gates is a standard, getting an education degree is no measurement for later wealth. The Hurun China Rich list discovered that half of its listed 2,000 rich did not finish with a degree, says chief researcher Rupert Hoogewerf in Global Times. Partly that is caused by the chaotic times during the Cultural Revolution.

Global Times:

The annual Hurun University of Life Rich List 2017, released on Tuesday, shows that half of 2,000 Chinese entrepreneurs with assets of at least 2 billion yuan ($300 million) have no degree. 

Rupert Hoogewerf, chairman and chief researcher of the institute, said that "these people might not succeed in accordance with current social standards; however, they made it and created great enterprises, which taught me that a hero may rise from nowhere." 

The report listed the top 100 heroes, with Zong Qinghou, chairman of Wahaha Group, one of China's biggest beverage producers, ranking first. 

According to Hurun, Zong, 72, from East China's Jiangsu Province, ranked No.41 in the Hurun Global Rich List 2016 and No.5 in the China Rich List 2016 with his wealth of $19 billion. Zong ranked No.1 in the China Rich List in 2012 with wealth of $12.6 billion. 

The report said that Zong started work after graduating from middle school and established Wahaha beverage factory in 1988. Over the past 20 years, he built up his drinks empire and is a deputy of the National People's Congress. 

Also on the list are Chinese tech entrepreneur Jia Yueting, chairman of LeEco, who was born in 1973 in North China's Shanxi Province and became an Internet worker after graduating from a vocational school, and SOHO China Chairman Pan Shiyi, a property tycoon, who was born in 1963 and graduated from a vocational school. 

Compared with those who obtained a degree, the average wealth of the top 100 entrepreneurs without a prominent education background is 24.9 billion yuan, 9.6 billion yuan less than those who went on to further education.

The report said that the average age of the latter is six years older than the former with eight entrepreneurs over 70. However, only one of the top 100 "well-educated" entrepreneurs is over 70. "The heroic entrepreneurs are older and deeply affected by the Cultural Revolution (1966-76)," Hoogewerf said.

More in Global Times.

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What makes Confucian countries tick? - Tom Doctoroff

Tom Doctoroff, fmr AP CEO JWT

Western values do not match with Confucian values, but what does Confucian countries like China, Vietnam and Korea tick? Marketing expert Tom Doctoroff lived for two decades in China, and defines on his LinkedIn page what makes the consumers in those countries different.

Tom Doctoroff:

Whenever I am asked what makes Confucian countries -- China, Korea and Vietnam -- really different from the West, it’s not just the lack of individualism—it is the level of ambition. In China, for example, everyone is ambitious. Women want their piece of the sky, just as men do. A study by the Center for Work-Life Policy found that just 36 percent of college-educated women in America described themselves as “very ambitious,” compared to 65 percent in China. A further 76 percent of women in China aspire to hold a top corporate job, compared to 52 percent in America. 

The “tiger mom,” forcing extracurricular activities upon her child to make sure he gets into Harvard 18 years later, is not a myth. Not all mothers are like this, but ambition remains a palpable force in Confucian societies. They were the first to become socially mobile societies; engrained in the Chinese psyche is people can achieve success by mastering convention and internalizing the rules. The desire to get ahead binds people together. From the bourgeoisie in the bustling metropolises of Seoul, Beijing, and Hong Kong right down to the farmers in the fields, all want to be an emperor of their small corner, no matter how modest their origins. 

So the relationship between individual and society in Confucian countries is fundamentally different than in Anglo-individualistic ones. Across the Confucian cultural cluster, brands need to do more so cross-market resources should be pooled accordingly.

More at Tom Doctoroff´s LinkedIn page.

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Exploring China´s flower girls - Zhang Lijia

Zhang Lijia

The leading Chinese magazine Caixin interviews author Zhang Lijia about her book Lotus: A Novel about prostitution in China. "Prostitutes are real people, and I wanted to expose that. Like any job, there are drawbacks. But their lives are not totally bleak either."

Caixin:

Zhang: Every society has prostitution. There is a saying in China: “Bao nuan si yinyu wenbao er si yinyu” — which means once you have food and clothing, you start thinking about sex. I have always been curious about the women who fill this social need. 

Chinese society has become hedonistic after Mao’s regime of sexual purity and sexual repression. China has become materialistic, restless. Other reasons for the growing sex industry include growing wealth, relaxed social control and the resulting growth in individual personal freedom. Plus, of course, China’s population is increasingly mobile. Young migrant workers often can’t bring their wives with them or establish a relationship. Imagine a young migrant laborer on a construction site who works long hours and barely leaves the site, where he probably lives too. How could a man like this possibly provide a home for his family in the city, or maintain a relationship outside the workplace? 

I met many women like the characters in the novel. I met women like Xia. They are old but still in the trade. They are not always sexually appealing, but they know all the tricks of how to flirt and attract men. So everyone finds clients in some way. The oldest sex worker I met was a woman in her mid-60s. Another middle-aged sex worker had a grown-up daughter who was married. Some women really get stuck in the trade and cannot get out. The women have to stick together, but there is jealousy there too. They will comment on appearances: “She is so flat-chested, how does she get clients?” 

Prostitutes are real people, and I wanted to expose that. Like any job, there are drawbacks. But their lives are not totally bleak either. 

When she becomes a prostitute, Lotus has no idea about sexual health. Her clients pay more for sex without a condom, and one man even washes out an expensive condom for later use. What are the pervasive attitudes toward sex education, and what is being done to challenge them? 

Legislation says sex education should be part of the curriculum in schools, but it is not compulsory and it is not enforced. It is not on the government’s list of priorities. There aren’t calls from the public for sexual education, but there are non-governmental organizations providing information on a wide range of things, from HIV/AIDS clinics to promoting openness about sexuality. 

Many prostitutes are not educated about sexual health. Their bosses often tell them that it is OK not to use a condom because they get more money that way. They will say “It looks clean” (referring to the man’s penis) and make them agree to sex without a condom. Many men will refuse to wear a condom. 

One NGO promoting sexual health suggested prostitutes start using “femidoms” (female condoms) because then the women themselves could have control of the contraception and they don't have to rely on their clients wearing a condom. But the prostitutes said they cannot use femidoms because they are too big. In a raid, they will often swallow the condoms they have on their person because condoms (used or unused) will be used as hard evidence by police. But femidoms were too big to swallow so they would not carry them or use them. 

The details about Family Treasure (a character in the book) washing out the condom for later use are true. I heard lots of stories like that. That brand “Golden Gun — Never Flops” is a real brand of condoms, you know!

More in Caixin 

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After China, Trump may turn to the rest of Asia - Shaun Rein

Shaun Rein

Business analyst Shaun Rein told already in his bestseller The End of Cheap China, Revised and Updated: Economic and Cultural Trends That Will Disrupt the World, much of the cheap production was moving from China to other countries. Vietnam, Indonesia and Sri Lanka hope Donald Trump does not find out for the time being, Rein writes in IBT.

Shaun Rein:

Asian nations want predictability and stability in their relationships with America. (Peter) Navarro (director of the US National Trade Council) especially is one who causes unease throughout the region — he has not visited mainland China in more than a decade and does not speak Mandarin. His criticisms about China keeping its currency artificially low and stealing American manufacturing jobs in light industry is outdated. If anything China is blocking capital outflows, raising interest rates in order to strengthen its currency, the Yuan. South-East Asian nations now are exporting to China as that economy transitions to one based on consumption. 

The reality is most low-end manufacturing has already moved out of China to countries like Vietnam, Indonesia and Sri Lanka. Officials in those nations are worried that Navarro will convince Trump to turn criticisms to them once he is done criticising China 

Going forward, Trump needs to show nations in Asia that America is ready to continue to be a long-term predictable partner that will support them in times of danger. By 2050, China's and India's economies most likely will have surpassed America's. Smaller nations are deciding now whether to align with China or the United States. Trump can no longer stay silent on his intentions in the region.

More in IBT

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Second, third-tier cities: today´s winners - Shaun Rein

Shaun Rein

China´s first tier cities seem to be getting out of breath, while second and third-tier cities blossom. Business analyst Shaun Rein has been predicting the shift already for a long time, he tells the South China Morning Post. The rising prosperity of lower-tier cities may boost tourism to cheaper destinations like the Philippines and Thailand, he adds.

The South China Morning Post:

“For years I have been persuading people to focus more on China’s second and third-tier cities,” said Shaun Rein, managing director of China Market Research Group. He said people in lower-tier cities are more optimistic about their future and therefore more willing to spend money than their counterparts living in big cities. 

“First tier cities are becoming pretty much depressing these days, with some of the big companies cutting their budgets. The middle class is feeling the pain of reduced payments,” Rein said. 

He reasoned that with more affordable housing and basic necessities in lower tier cities, residents there are “much more confident” than their first-tier city counterparts and thus feel more comfortable as consumers... 

The rising prosperity of lower-tier cities may boost tourism to cheaper destinations like the Philippines and Thailand, according to Rein.

More in the South China Morning Post.

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Education and tourism might be next in stopping capital outflow - Victor Shih

Victor Shih

The efforts by China´s financial authorities to reduce the outflow of capital has already reduced many investment plans by the China. But financial analyst Victor Shih sees a few more holes in the country´s policies that might be stopped soon too: education and tourism, he tells Sourceable.

Sourceable:

Still, the Chinese determination to choke cash outflows appears to be serious, and could have implications that extend far beyond property and into other sectors whose payrolls and future plans are increasingly dependent on Chinese money, like universities and tourism operators. 

What China is doing with capital controls is similar to its management of the Internet, which Beijing has accomplished with great success. Access to censored websites “is not impossible from China, but it’s just a big hassle, and because it’s a hassle, very few people manage to do it on a regular basis,” said Victor Shih, who specializes in Chinese fiscal policy at the University of California San Diego. 

The goal with currency conversion restrictions “is exactly the same – to create enough friction to deter the vast majority of people from converting sizable amounts of money,” he said. 

There is much more, too, that China could do, Prof. Shih said. Every month, Chinese people spend between $15-billion and $20-billion (U.S.) abroad on services like tourism and education. It’s a huge cash drain, and one that China could pare back by restricting the number of people who can travel and study abroad. 

“I really think this is where it’s all heading – dialling back the clock to the early eighties when all flows, including visits, were tightly regulated by the government,” Mr. Shih said. 

“The leadership would like a certain combination of outcomes – stable growth, and also currency stability, and also no financial risk,” he said. “In order to accomplish that, you just have to control more and more stuff.”

More in Sourceable.

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Prostitution: a career move in an unequal society - Zhang Lijia

Zhang Lijia

Author Zhang Lijia of the much-acclaimed book Lotus: A Novel on prostitution in China discusses with Eric Fish on the weblog of the Asia Society how Chinese women end up in this trade. While triggered off by inequality, it is a way to improve their lives, she says.

The Asia Society:

How had the women you met usually ended up getting into sex work? 

Quite a few women I interviewed worked very hard on production lines in factories for very little money. Then they talked among their friends and found out about jobs in massage parlors. In the beginning, the line is often blurred — some places offer legitimate massages and also sexual services, so women will start off doing normal massages and gradually start adding on sexual services when they see how much more money they can make. 

Most women are migrant workers from rural areas, some are laid off workers from small towns, especially in Dongbei (China’s struggling northeastern region that’s now often referred to as a rust belt). There are also quite a few older women who are divorced or left abusive husbands and cannot otherwise support themselves. When they leave the countryside for the city, very few plan to get into sex work. It’s a hard decision in most cases. Sometimes it’s because of tragic personal circumstances. 

Almost all of the women I knew sent money back to their families — it is out filial duty. One woman I met told me her brother was sent to prison so she supported her sister-in-law and her children for years. I think many of the women need something like that to feel good about themselves and the work they’re doing, so they send a lot of money home. I'm sure they struggle to come to terms with the work, especially since most rural Chinese women grew up with a very conservative upbringing. 

I spoke with one woman who said in the beginning that she always used the phrase chi kui (to get the short end of the bargain) when talking about getting paid for sleeping with men. But then an older more experienced women told her, “Don't think like that, we're making use of them.” So she came to terms with it and now tells other women the same thing. 

What role do you think gender inequality plays in fueling China’s sex trade? 

In my book, Lotus has to stop her schooling because the family thinks they'll just end up marrying her off. Since she’s a girl, there's no point in wasting money on her education. Save the resources for the boy — that’s a common attitude in rural China, especially in the poorest areas. So rural women are generally much worse off than boys in terms of education. The political system, of course, is another problem. Because of the hukou residency system, rural residents still cannot apply for certain jobs. Economic reforms brought a lot of opportunities, but uneducated rural women really missed out. 

Ultimately, that’s part of why prostitution is such a big industry in China. With growing wealth and gender income inequality, I think concubine culture plays big a role. Men used to keep concubines and mistresses as a way to show prestige, and they still do the same. The growing wealth gap between urban men and rural women really magnifies this.

More at the Asia Society.

Zhang Lijia 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.

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