Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Many (Chinese) arrive with hierarchical views of culture and race that tend to place Africans at the bottom, said Howard French, a former New York Times correspondent who wrote the 2014 book China's Second Continent, which chronicles the lives of Chinese settlers in Africa.
Accusations of discrimination have even emerged on a major state-sponsored project: a 482-km Chinese-built railroad between Nairobi and Mombasa. The train has become a national symbol of both progress and Chinese-Kenyan cooperation, though positive reviews have at times been overshadowed by concern over its $US4 billion price tag.
But in July, The Standard, a Kenyan newspaper, published a report describing an atmosphere of "neo-colonialism" for Kenyan railway workers under Chinese management. Some have been subjected to demeaning punishment, it said, while Kenyan engineers have been prevented from driving the train, except when journalists are present.
When asked about the controversy, China's foreign ministry spokesman suggested that Western news organisations had blown the matter out of proportion in an effort to "sow discord in China's relations with African countries."
French, the author of China's Second Continent, said that when it comes to Africa, China has had a tendency to dismiss criticism of its conduct by noting that the West, not China, fuelled the slave trade and colonised the continent.
But that misses the point, French said, by ignoring the treatment of Africans today.
"Their experience is that they are being treated in flagrantly disgusting, racialised ways," French said.
Victor Shih, an associate professor of political economy at the University of California, San Diego, says currency devaluation could be an attractive option for China to offset the impact of the trade war.
But he warned the tactic had limits, as it "could create a panic on the renminbi which becomes difficult to control"...
Shih estimates that even a modest 20 percent reduction in exports to the United States could cause the monthly trade surplus to drop by $8 billion to $10 billion, nearly a third of the average. In addition, a reduction in foreign direct investment, which brought $136 billion into China last year, would also reduce forex inflows substantially, he added.
In China's stock and bond markets, where sentiment is far more fragile, foreign inflows could easily reverse. For example, during the first three trading days this week, foreign investors sold a net $14 billion of mainland stocks under the cross-border Connect scheme, reversing weeks of net purchases.
The most recent data from the State Administration of Foreign Exchange (SAFE) shows that China had total foreign liabilities of $5.3 trillion at the end of the second quarter, of which $1.13 trillion was portfolio investments - equity and debt securities that foreign investors could attempt to offload in the event of market panic.
Broader SAFE data showed China's total external debt, excluding Hong Kong and Macau, at $1.84 trillion at the end of the first quarter, an increase of $455 billion from the end of 2016.
Although not all of those exposures are at risk of fleeing China's shores, analysts say they put the size of China's $3 trillion in foreign exchange reserves into perspective.
Shih said existing capital controls were very stringent.
"Even the billionaire class faces tight restrictions in terms of where they can invest money," he said. "However, there are still ways, and it is likely that corruption is returning, which will undermine Chinese capital control measures."
Dropping stock markets have caused a bloodshed at the 2018 Hurun Rich List where 11% dropped off the list compared to 2017. But also 219 new faces entered the list, says Rupert Hoogewerf, Hurun Report Chairman and Chief Researcher at their website. Alibaba's Jack Ma became number one again, pushing out real estate tycoons.
The Hurun 2018 China Rich List:
l Only 1893 individuals made the cut this year, down 11% from 2130 individuals last year. This is the first drop in the size of the list since 2012. Hurun Report Chairman and Chief Researcher Rupert Hoogewerf said: “A 20% drop in the stock exchange, on the back of a slowing economy and the US-China trade war, resulted in 456 drop-offs this year, the highest since records began twenty years ago.”
l Despite the drop, the number of individuals making the cut of CNY 2 billion is up 89% compared with five years ago, and four-fold that of 10 years ago at the time of the financial crisis. 20 years ago, only eight individuals had CNY 2 billion.
l Jack Ma Yun, 54, & family shot back to Number One in China for the second time in four years. Ma’s wealth increased by US$10bn to US$39bn, on the back of a hike in the valuation of Alipay mothership Ant Financial. ‘Real Estate Tycoon’ Xu Jiayin, 60, of Evergrande and last year’s richest person, claimed second place, followed byPony Ma Huateng of Tencent. Rupert Hoogewerf said: “The Big Three are pulling away from the rest.”
l New faces. There were 219 new faces, led by 38-year old Colin Huang Zheng of e-commerce giant Pinduoduo. Huang started Pinduoduo only 3 years ago and is today worth US$14bn. 5 new faces shot straight into the Top 100 of the Hurun Rich List. Others include ‘Battery King’ Zeng Yuqun of CATL, a battery maker for the e-car industry, and ‘Blockchain King’ Zhan Ketuan of Bitmain. Rupert Hoogewerf said, “The scalability of the market coupled with a strong investor ecosystem is creating big new businesses fast.”
l Others that grew fast included ‘Hot Pot Power Couple’ Zhang Yong and wife Shu Ping, whose wealth shot up ten-fold on the back of an IPO last month. Zhang Yiming, 35, of news aggregator ByteDance, is reportedly in discussion to raise money on a valuation of a staggering US$75bn. Lei Jun of smartphone maker Xiaomi grew 62% to US$16bn to break into the Top 10. Wang Xing of Meituan-Dianping shot up 39 places to 58th.
l Down. Wu Gang, 41, and Huang Xiaojie, both of JD Capital saw their wealth drop 85%, Meitu’s Wu Xinhong and Cai Wensheng saw their wealth drop over 50%, Jiang Bin and wife Hu Shuangmei of acoustic component maker GoerTek saw their wealth drop by over 50%, last year’s richest self-made women ‘Touchscreen Queen’ Zhou Qunfei and husband Zheng Junlong saw their wealth drop 45%.
Registering offshore, through so-called VIE' or variable interest entities, is more popular than ever for Chinese companies, even though the Chinese government tries to stop this circumventing trick. Tencent Music Entertainment was the last one to use it for its IPO and get away with it because investors seldom read the disclosure, says Paul Gillis, accounting professor at the Peking University, at the Nikkei Asian Review. And for good reasons.
The Nikkei Asian Review:
As with the Tencent Music prospectus, VIE risks are regularly disclosed in the IPO process -- for those paying enough attention.
Referring to Tencent Music's discussion of its use of VIEs, Paul Gillis, an accounting professor at Peking University in Beijing, said: "It is extensively disclosed, but the filling is 300 pages long. Many investors do not read it."
Meanwhile, it remains unclear when Beijing will move forward with the draft foreign investment law, as Tencent Music's prospectus notes.
Said Gillis, "If investors cannot stand ambiguity, they should stay out of China."
Gavekal’s Arthur Kroeber pointed out in a bulletin this week (which Over My Shoulder members can read here) “the forces pawing the ground for a fight with China are far stronger, and the reins on them far weaker, than was the case in the NAFTA and trans-Atlantic scuffles.”
He also points out that US businesses with China exposure are caught in the middle and not trying to fight the White House on this.
Kroeber also highlighted this Axios report that the Trump administration is planning a major broadside against China in the next few weeks. That means the relief markets are presently feeling may not last long.
“If North Korea introduces reforms and openness, it will achieve rapid economic growth in the double digits or higher.”
Speaking in an Oct. 2 interview on the Traffic Broadcasting System (TBS) program “Kim Eo-jun’s News Factory,” world-renowned investor Jim Rogers, chairman of Rogers Holdings, said North Korea is currently “in a similar situation to China when Deng Xiaoping came to power in 1978.”
“The positive changes happening in North Korea will make the entire Korean Peninsula a very suitable target for investment,” he predicted.
Rogers also offered a positive appraisal of South Korean President Moon Jae-in’s policies for their role in guiding North Korea toward reforms and openness.
“If President Moon’s North Korea policies succeed, South and North Korea will be able to save a great deal of money and bring tremendous peace not just to the Korean Peninsula but the world,” he said.
“I sincerely hope and believe President Moon’s North Korea policies will succeed,” he added.
Rogers pointed to North Korea’s abundant workforce and natural resources as factors making it an appealing investment target.
“
With [North Korean leader Kim Jong-un] attempting changes, the combination of South Korean knowledge, capital, and know-how with North Korea’s human and natural resources will make a tremendous Korea that even Japan won’t be able to match,” he predicted.
Tencent watcher Matthew Brennan has an in-depth look at how the recent reorganization of the internet giant reflects on the internet in China, especially how the company that became big through WeChat and B2C moves towards a more industrial approach, he writes on his weblog at China Channel.
Matthew Brennan:
“From the management side, the biggest challenge we face is internal organization. Right now Tencent needs to get better at doing B2B.” – PonyMa, Tencent Annual Internal Staff Meeting 2017 Dec 15th.
This quote is from the annual Tencent internal staff meeting last year, it shows the higher management have been aware for a considerable time that change in organizational structure and strategic focus were necessary. Pony Ma when he has given public talks over the past year, they have mostly been focusing on the areas of B2B business most often mentioned would be Tencent’s smart retail solutions.
It seems that higher management has decided that the development of Tencent’s B2B solutions will decide the future potential of the company. B2C business has peaked as the number of mobile internet users has passed its rapid growth stage. User growth for most major internet companies has declined considerably.
Yet when doing B2B internet business in China, Tencent will undoubtably find themselves competing with their arch rival Alibaba and this competition will be tough. Alibaba unlike Tencent has B2B in their blood. From the early days their company started out with the incredibly tough job of making sales of their internet services to factory owners who’d never heard of the web before. Persuading them of the merits for this new way of gaining clients without meeting them in person.
“Many people said we only have ‘B2C’ in our DNA. B2B is not in our blood. I don’t believe that. I think that every evolutionary successful species holds characteristics that weren’t there at the beginning but were evolved over time.”- Martin Lau, Tencent Internal Staff Meeting 2017.
Tencent’s traditional strength throughout it’s 20 years of existence has always been in B2C. They have a proven understanding of how to monetize large user bases. They have access to the deep social graph of Chinese internet users and they are consistently able to produce products that Chinese consumers love to use.
Apart from investment income, Tencent’s main profit model today is to accumulate new users, cultivate their usage habits over time, and make profits eventually through games, user fees, and advertising. This monetization could be said to be a long and indirect process. By contrast, the revenue earned from B2B businesses appears to be more direct and the clients are often stickier. Once the relationship is established, transactions will continue, and the income is more stable than B2C.
After US-imposed tariffs on an additional US$200 billion worth of Chinese products last month and China’s subsequent rejection of a US invitation to hold talks to ease the dispute, Chinese President Xi Jinping toured his country’s northern rust-belt region, sending a message that China would have to rely on itself for future development.
Arthur Kroeber, research head and co-founder of the economic consulting firm Gavekal Dragonomics, wrote in a note on Tuesday that the USMCA may put an end to Trump’s trade position of “picking fights with anyone and everyone”. Washington, he said, would focus its fire on the nation it perceives as the real trade enemy: China.
“The US has confined its economic warfare to a single battlefield, but the fight will be a long one,” Kroeber said.
China has changed its income tax for the first time in seven years, beneficial for the lower income groups, and less for the high earner. Financial analyst Sara Hsu discusses the purpose: more spending might be a motive, but as aging and health care costs loom, many might opt for saving, she says at CGTN. 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.
China's central government and the Vatican closed a deal on appointments of Catholic bishops in China, causing debate among the already divided Catholics in the country, writes journalist Ian Johnson, author ofThe Souls of China: The Return of Religion After Mao at the New York Times. The way the Communist-ruled state church might integrate with the Roman Catholic church might not please all Catholics, he writes.
Ian Johnson:
Several underground bishops in China, including two popular bishops in staunchly Catholic parts of the country, are expected to step down to make way for the bishops appointed by Beijing over the past decade whom the pope has agreed to recognize. In exchange, the pope is gaining some role in the appointment of new bishops. There are about 100 bishops and prelates in China, including underground and approved, and a dozen vacant positions.
Exactly how this will work is unclear. Both sides have described the agreement signed on Saturday as preliminary, and neither has released details. But some informal veto system seems likely. The Vatican could reject candidates suggested by the Chinese authorities, although mainly through quiet consultation rather than formal voting.
In the long run, diplomatic ties could be restored between Beijing and the Vatican.
Some Chinese Catholics see this as helping a church that has been unable to respond to changing times. China is rapidly urbanizing, for example, but many rural Catholics find little outreach when they migrate to take jobs in the cities. A unified church could address that.
“I think if it helps unite the church, then it’s a good thing,” said You Yongxin, a Catholic writer based in the eastern Chinese city of Fuzhou. “If the pope is convinced he can get good bishops appointed through this deal, then we have to trust that he will.”
Indeed, if carried out as advertised, the deal would give the church a formal role in appointing clergy members in party-controlled churches in China for the first time in nearly 70 years. That would be a significant concession by the government. By contrast, Beijing doesn’t give the spiritual leader of Tibetan Buddhists, the Dalai Lama, any say over the appointment of monks or abbots.
Still, the deal came as a shock for many Chinese Catholics.
Paul Dong Guanhua, a self-ordained bishop in the underground church in the northern Chinese city of Zhengding, said it made no sense that Beijing would sign on to any deal that could strengthen the church.
“Well, if there’s an agreement, there’s an agreement,” he said in a telephone interview. “But I find it absurd, and I wonder how many other Catholics can agree with this decision.”
Other prominent underground clergy members, like Guo Xijin, one of the bishops who reportedly would have to step down under the deal, could not be reached for comment. In an interview earlier this year, Bishop Guo told The New York Times that he would step down if asked by the pope.
Rome will also have to win over skeptical Catholics in Taiwan and Hong Kong, said Lawrence C. Reardon, a professor of political science at the University of New Hampshire who studies Beijing-Vatican relations.
The trade war between the US and China has up to now mainly hit headlines, nervous traders and heated political debates, but there is no doubt consumers will feel the burnt too, says financial analyst Sara Hsu to Reuters. Moving away from China is mostly not an option, she says. "It can take up to five years to move from China to another country."
Reuters:
U.S. tariffs on imports from China will not only impact companies but also the consumers said an expert in an interview with China Global Television Network in Beijing on Tuesday.
Sara Hsu is an associate professor of economics at the State University of New York at New Paltz. She said it was not clear what percentage of the tariffs the companies would pass on to the consumers but it would definitely impact the consumers.
“It’s definitely going to impact the consumers in terms of higher cost as well as the companies. So there might be a split in terms of the company taking part of the hit and passing part of cost on to the consumers as well. And starting from January 1, the tariffs will go from 10 percent to 25 percent. So that’s a really significant increase,” said Sara.
China is the largest supplier of textiles and apparel to the U.S. market, accounting for about 40 percent of American imports in the sector, according to the statistics of the United States Fashion Industry Association (USFIA).
The industry relies on sourcing from China to provide American consumers with affordable and varied choices. But the tariffs will impact the multinational companies in the U.S. in the industry, said Sara.
“A lot of the American multinational firms are producing their goods overseas. So that’s why the tariffs on exports from China are going to impact the American multinational companies. And these multinational companies would like to move to a different place, especially given the tariffs that just kicked in. But it’s really hard for them to do,” said Sara.
She added that there would be a high cost for the companies to move and set up shops in other countries with a level of development and have low wages.
It can take up to five years to move from China to another country, Sara said. The situation hasn’t happened yet, but a lot of companies are not reassuring to the U.S. instead of relying on automation in order to produce their products because American labor costs so high.
Luxury, no matter what demographic cohort in China you're talking about—whether it's young consumers who have limited out-of-pocket funds or the man on top of the mountain—is used as a demonstration of the ability to get ahead in the game of life or maintain one's place. And this is largely driven by Confucian culture.
eMarketer:
Could you explain what Confucian culture is and how it's connected to luxury consumption in China?
Tom Doctoroff:
Confucian culture is a combination of rules and regimentation, and [the idea] that the individual does not exist independent of his obligations and responsibilities to others. Therefore, there is a need to obey certain standards; in this case, demonstration of success.
But the other part of Confucian culture that people don't usually think of is that it's a meritocratic culture. Not by rebelling but by mastering the rules, you are able to climb up the hierarchy. Luxury goods and the type of positioning that luxury goods have reflect the aspirations of what people want to project about themselves in society. So luxury is not frivolous at all.
If you look at the role luxury plays in American society, it is relatively minor compared with Chinese society. In the US, these types of expression [aren't required], no matter how subtly they are displayed. In America, people don't have the same rule [to demonstrate] a marker of success, due to the nature of its individualistic culture.
The disappearance of famous movie star Fan Bingbing now three months ago has kept many guessing for the reasons behind it. Being a celebrity in China has some extra risks, explains business analyst Shaun Rein, author of The War for China's Wallet: Profiting from the New World Order, for AP. "There's a greater risk for celebrities to get in trouble with the law and never be able to get a chance at redemption."
AP:
Though China has become the world's second-largest film market, authorities keep tight control on local productions, exercising final say over choice of cast, director and script. If Fan had stepped on official toes, it would be a simple task to retaliate by destroying her career, with Chinese authorities wielding broad powers to detain, interrogate and accuse citizens out of the public eye.
Other celebrities have run afoul of authorities over drug use, excessive pay or tax issues, said Shaun Rein, managing director of China Market Research Group based in Shanghai.
"Then the government really cracks down hard and pretty much destroys their careers for several years if not forever," Rein said. Companies that bet big on a-list Chinese celebrities incur a "huge political risk," he said.
Known as a classical Chinese beauty with almond eyes and porcelain skin, Fan, 36, usually maintains a prominent presence on Weibo, where she has more than 62 million followers. Her account has been largely dormant for weeks, however, with a July 26 "like" about a posting on her charitable foundation being the last activity prior to the deletion of her birthday notice. Photos on social media also appear to show her visiting a pediatric cardiac ward at a Shanghai hospital for a charity event on July 1.
The strongest clue to Fan's status may have been a Sept. 6 notice posted on the website of the Securities Daily, a newspaper published by the official Economic Daily. It stated that the local tax bureau had sent a notice to Fan's studio that she had been "placed under control" — a legal term for being held under investigation. The article was later deleted from the website.
Fan's disappearance has already taken a toll on her lucrative sideline as brand ambassador, throwing those companies' plans into disarray. Australian vitamin brand Swisse issued a statement saying it was suspending use of her image and "continuing to monitor the situation and hope that it is resolved in the near future."
British diamond giant De Beers, who signed with Fang just last year, appears to have already moved on: Another actress, Gao Yuanyuan, represented the company at a store opening last month in the ancient capital of Xi'an. Other firms she endorsed, from duty-free chain King Power to Louis Vuitton and Montblanc are also taking action.
"There's a lot more risk for celebrities in China than in the United States, because the government takes much more of a moral crackdown," said China Market Research's Rein.
"So there's a greater risk for celebrities to get in trouble with the law and never be able to get a chance at redemption."
Arthur Kroeber, research head and co-founder of the financial services company Gavekal, said Chinese leaders’ previous tactics – including “a few buying missions” to Washington, a red-carpet welcome for Trump in Beijing and an attempt to cut a deal with Treasury Secretary Steven Mnuchin – had all failed.
“China will respond with its own tariffs, start squeezing US companies where it can, and dig in for a war of attrition,” Kroeber said.
Alibaba has invested more than $4 billion in Southeast Asian e-commerce group Lazada and other leading tech players in recent years. In June, the company posted that it had bought a stake in Turkey’s local leader Trendyol, while Amazon is still fumbling with the launch of a Turkish service. In India, Alibaba recently invested in digital payments platform Paytm, granting in exchange access to its cloud infrastructure.
Alibaba’s experience building China’s e-commerce market effectively from scratch makes it uniquely suited to entering these markets, according to Ashley Dudarenok, a Chinese digital marketing consultant who is herself a Russian national.
“They are aware that there is not much infrastructure in markets like India and Turkey, and they know exactly how to deal with this sort of aspirational consumer base,” says Dudarenok. “Along with countries in Southeast Asia, Russia is one such market.”
It may be still be poor by Western standards, but Russia has the largest population in Europe and an emerging middle class that offers significant growth potential. As elsewhere, Alibaba is planting its seeds early, ready to reap the rewards when the consumer market matures.
Analysts say while Alibaba has some of the best executives in China’s tech world, it will be difficult for its next-generation leaders to fill Ma’s shoes.
“Ma is critically important to the company,” said China Market Research's Rein. “He is the strategic driver. He is the face of the company. He makes governments and businesses comfortable with working with it.”
“Daniel Zhang does not create the same warm and fuzzy feelings,” Rein said. “Consumers trust Jack Ma. It is part of their loyalty towards Alibaba.”
The focus has been on the Chinese government after US president Donald Trump announced new tariffs. But that might be wrong, says economist Arthur Kroeber, author of China's Economy: What Everyone Needs to Know to CNN. What Trump wants is not getting China into negotiations, but forcing US companies to come back to the US.
CNN:
Several previous rounds of talks between the two sides have failed to make progress. Analysts are skeptical China will be willing or able to do enough to satisfy the Trump administration on some of its key concerns, including Chinese efforts to get hold of US technology and Beijing's ambitious industrial policies.
"The principal objective of the tariffs is probably not to bring Beijing to the bargaining table," Arthur Kroeber, a senior analyst at research firm Gavekal said in a note Tuesday. "Rather, it is to force US multinational companies to pull back their investments in China, so that the interdependence of the two rival economies is reduced."
"Against this aim," he added, "no possible offer by China can cause the tariffs to be lifted."
