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China's economy has rebounded: challenges ahead

China's economy has rebounded: challenges ahead

China’s economy returned to growth in the second quarter after a deep slump at the start of the year, but unexpected weakness in domestic consumption underscored the need for more policy support to bolster the recovery after the shock of the coronavirus crisis.

 

 

Asian share markets and the Chinese yuan fell, partly reflecting the broad challenges facing the world's second-largest economy as it grapples with the double-whammy of the pandemic and heightened tensions with the United States over trade, technology and geopolitics.

 

 

Gross domestic product (GDP) rose 3.2% in the second-quarter from a year earlier, the National Bureau of Statistics said on Thursday, faster than the 2.5% forecast by analysts in a Reuters poll, as lockdown measures ended and policymakers ramped up stimulus to combat the virus-led downturn.

 
 

The bounce was still the weakest expansion on record, and followed a steep 6.8% slump in the first quarter, the worst downturn since at least the early 1990s. “As we previously highlighted, policy support is still needed despite recovering growth momentum,” Betty Wang, ANZ bank’s senior China economist.

 

 

“The possibility of resurgences in local COVID-19 cases, global economic uncertainty and the deteriorating China-U.S. relationship all pose downside risks to China’s H2 growth outlook,” Wang said. Those risks were partly reflected in separate retail data that showed Chinese consumers kept their wallets tightly shut, pointing to a bumpy outlook at home and overseas, as many countries continue to grapple with the COVID-19 pandemic - led by surging infections in the United States.

 

 

Though June indicators and GDP numbers largely beat expectations, Rodrigo Catril, a foreign exchange strategist at NAB in Sydney, said they also revealed “the China consumer remains behind in terms of the recovery story.”

 

 

“It’s very much a story of government stimulus-led recovery, which is very much focused on the industrial side. The consumer remains very cautious. That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that’s obviously relevant for the U.S. as well.”

 

 

Retail sales were down 1.8% on-year in June - the fifth straight month of decline and much worse than a predicted 0.3% growth, after a 2.8% drop in May. Domestic job losses have been one of the worries for consumers, as many businesses struggled to stay in the black. Wanda Film, for example, China’s largest cinema chain operator which has more than 600 cinemas, on Tuesday warned of a first half net loss of 1.5-1.6 billion yuan (£170.4-£181.6 million), after the coronavirus kept its cinemas shut for almost the entire period.

 

 

U.S. Tensions, Structural Issues

In the first half of the year, the economy contracted 1.6% from a year earlier, underscoring the sweeping impact of the virus which first emerged in China late last year and has killed over 583,000 people worldwide. The rising tensions with the United States and the pandemic have added to structural issues that China has been facing for years, including demographic changes, over-investment, low industrial productivity and high debt levels. On a quarter-on-quarter basis, GDP jumped 11.5% in April-June, the NBS said, compared with expectations for a 9.6% rise and a 10% decline in the previous quarter.

 

The IMF has forecast China to expand 1.0% for the full year.
Image: IMF

The government is expected to offer more support on top of a raft of measures already announced, including fiscal spending boost, tax relief and cuts in lending rates and banks’ reserve requirements. But debt worries have kept a leash on China’s stimulus tap. Net fiscal stimulus unveiled so this year amounted to just over 4 trillion yuan ($571.76 billion), much restrained compared the spending burst in other major economies including the United States and Japan. The Institute of International Finance estimates China’s total debt rose to 317% of gross domestic product in the first quarter of 2020, up from 300% in late 2019 and the largest quarterly increase on record.

 

 

The industrial economy offered some hope for the nation as it tries to regain its footing, with output in the vast sector rising 4.8% in June from a year earlier, the third straight month of growth, the data showed, quickening from a 4.4% rise in May. 

 

 

Fixed asset investment fell a less-than-expected 3.1% in the first half from the same period in 2019, moderating from a 6.3% decline in the first five months, while real estate investment growth also quickened to 8.5% in June, thanks to the credit boost.

 

 

While the International Monetary Fund has forecast China to expand 1.0% for the full year, the only major economy expected to report growth in 2020, many analysts caution about the outlook. “Domestic demand will drive China’s recovery ahead, but external demand could be a risk to the growth outlook given the possibility of large second round of coronavirus infections overseas,” said Oshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.

 

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Source: Reuters Gabriel Crossely, Kevin Yao

 

 

 

Greater Bay Area can be the sandbox...

Greater Bay Area can be the sandbox for China’s next stage of market liberalization.

By Andrew Lo, Senior Managing Director & Head of Asia Pacific, Invesco

From the launch of Stock and Bond Connect to the opening of its financial sector to more foreign investments, China has rapidly liberalized its capital markets with great results.

 

 

Yet, the sheer size of China’s capital markets and the complexity of its financial system make opening and integrating with the rest of the world a hugely challenging task. China has traditionally resorted to controlled experiments – in the form of pilot programmes to mitigate potential shocks and secure flexibility to change course as needed. But they also come at the expense of policy optimality, policy consistency and, in some cases, policy confusion and frustration.

 

 

I believe that the Greater Bay Area (GBA) – a plan encompassing Guangdong province in southern China, Hong Kong and Macao – has what it takes to be the sandbox for China’s next stage of market liberalization. The GBA has 71 million people, and a GDP per capita of USD 23,342. We can appreciate the region’s diversity by considering tech hub Shenzhen and Guangdong’s manufacturing prowess.

 

 

Connecting with Hong Kong, an established global financial centre, allows the region to immediately tap into its world-class talent pool, sound legal framework and international best practices to help accelerate China’s plans to liberalize its financial markets.

 

 

Specifically, I see several areas where the GBA could take the lead to help transform China’s economic future, namely:

 

 

  • Developing China’s pension system
  • Liberalizing cross-border financial products
  • Deepening the liquidity pool of offshore renminbi for payments

 

 

The region already offers a rich and deep pool of renminbi savings. The planned pension reform will release more retail investors’ savings into the region’s financial markets. Demand for well-designed and globally diversified investment products and services is on the rise. Investment management industry participants in both Shenzhen and Hong Kong could play a critical role.

 

 

The natural starting point is to allow GBA residents to invest in a wide range of investment and retirement products in the mainland and/ or Hong Kong. To swiftly address product and service gaps, the authorities could implement easy passporting of investment products (including cross-border products) that are already authorized in the GBA’s constituent jurisdictions.

 

 

Capital must be able to flow and convert freely within the GBA. Reinventing the wheel is unnecessary – China has already embarked on several localized schemes to liberalize its currency and markets, so we can start by broadening their scope within the GBA. If oversight of Chinese offshore accounts can be devolved to corporate fiduciaries – starting with the four largest state-owned Chinese banks, for example – I believe that funds can flow more freely within the region.

 

 

Lastly, competition must be encouraged to fuel innovations and help lower the cost of products and services to benefit consumers. The authorities in mainland China and Hong Kong could collaborate to level the playing field for existing capital market participants onshore and offshore within the GBA. This would help foster more vibrant and global institutional participation, thereby deepening China’s financial markets to pave the way for greater internationalization of the renminbi.

Download the full report here.


 

 

Shortening Supply Chains: Mexico's Gain?

Shortening Supply Chains: Mexico's Gain?

The 1990s saw a dramatic shift in manufacturing from sites in North America to sites in developing China. At that time, Chinese labor costs were minuscule, and the economy provided seemingly limitless workers. But that was then. Now, we see a shift in the reverse direction to companies that are moving manufacturing from China to Mexico. Chinese and other Asian companies seeking access to foreign markets are moving manufacturing operations to Mexico or expanding existing production facilities there in order to shorten their supply chains and be more regional.

 

 

In recent years Chinese exports have faced increasing obstacles. Tariffs on Chinese goods and an unfavourable political climate have been complicating exports to the USA. In response to this, Mexico has become an increasingly attractive place for Chinese industry to establish a foothold on the continent:  China’s Hisense Co. announced they were doubling their Mexican investment earlier this year. Foxconn (which currently has five factories in Mexico mainly making televisions and servers) and Pegatron are among companies eyeing new factories as they re-examine global supply chains.

 

 

As the value of the Chinese yuan has been rising, the cost of overseas shipping has surged, and increased competition among Chinese factories has resulted in labor shortages and longer lead times. Due to both distance and fluctuating oil prices, shipping costs are exponentially higher when manufacturing in China. In 2018, shipping a 53-foot container from China to Los Angeles cost close to $5,000. The same container from the border of Mexico (Tijuana) to Los Angeles costs about $600. Thanks to the North American Free Trade Agreement (NAFTA), goods imported from Mexico can enter duty free.

 

 

Mexico's wages are 40 percent higher than China's, at about $3.50 an hour. As a result, overall production costs are comparable in the countries, once you factor in Mexico's lower transport and customs cost. But Chinese factory wages are climbing 14 percent annually. Some analysts, believe that this strong trend will actually position Mexican wages to be 30% less than Chinese wages just two years from now.

 

 

Moving manufacturing from China to Mexico also means less travel expenses for executives, resulting in increased and more effective oversight into operations in similar time zones and, thus, more quality in production and increased productivity. While Mexico still relies on the US and China for inputs, its supply chain is well established. Given the high concentration of manufacturing operations in several industries, businesses can make use of established infrastructure and supply chain networks.

 

 

By bringing the goods of Chinese firms closer to the customer, Chinese firms can increase the demand for their goods. Industries such as automotive and electronics  require fast deliveries. Also delivered is the opportunity to diversify their products into not just the North American market, but also the markets of Latin America..

 

 

The two countries have recognized their mutual goals and complementing assets over the past few years, and taken noticeable steps to form a partnership. Mexico also has a strong reputation for protecting intellectual property, a valuable advantage over China where counterfeit products and IP protection remain a concern. Mexican business sees the current Covid crisis and US-China Trade War as allowing Mexico to attract more investment, lure companies and create jobs from both Chinese Companies looking to take advantage of Mexico’s location and the new North American trade deal (USMCA) and US businesses looking to relocate remote operations from China. Conversely the new government of President Andres Manuel Lopez Obrador is slashing investment in the kinds of infrastructure that manufacturers need: the proposed budget for new roads is down 45 percent, rails and ports don’t fare well and plans have been cancelled for a new world-class airport outside of Mexico City. The government’s new energy policies don’t ensure Mexico will have enough reliable and affordable electricity to support a manufacturing surge in the future. Mexico’s retreat right at the moment of a global manufacturing shakeup means it might just be losing an opportunity for significant gain in the years to come.

How China is strengthening its electric...

How China is strengthening its electric vehicle market during Covid

While COVID-19’s impact to China’s car market has been dramatic, there are already signs of a recovery. The country’s reaction to the crisis shows a commitment to new technologies, signaling how the crisis could build resiliencies moving forward.

 

 

Impact to the economy
The negative impact brought by COVID-19 is becoming more and more significant. As of 28 May, there have been 5.7 million confirmed cases of COVID-19, including 356,000 deaths, reported by the WHO. According to a forecast from International Monetary Fund in April, public health measures to prevent the spread of virus have severely disrupted business activities and international travels. As a result, the global economy is projected to contract sharply by -3% in 2020 while China sees 1.2% growth.

 

 

The automotive sector is one of the top pillar industries for China’s economy and a major employer. In 2019, for example, the automotive sector contributed 9.6% of the total retail sales of consumer goods. The sector also accounted for around 10% of total employment in China (when the entire value chain is considered).

 

 

In China, the so-called “5-6-7-8-9 Characteristics” describes the private economy, which comprises approximately 50% of tax, 60% of GDP, 70% of technology innovation, 80% of urban employment, and 90% of total companies. For light passenger vehicle market, roughly 70% of new car buyers in China come from the private economy sector, mainly small and medium sized enterprises (SMEs), according to the data from State Information Center.

 

COVID-19 placed significant burdens on small- and medium-sized enterprises, the most vulnerable group in China during this crisis. This impact was seen in China’s first quarter vehicle sales. According to the China Association of Automobile Manufacturers (CAAM), sales of passenger cars declined 42.4% year over year during that period. SAIC, one of China’s largest manufacturers, reported a 44.9% percent drop year to date in April. Its SAIC-Volkswagen and SAIC-General Motors joint ventures, which comprise the majority of its sales volumes, dropped 50.4% and 47.7% year over year in retail sales from January to April respectively.

 

 

New energy vehicle incentives and plans
To stimulate the automotive market, several government policies were launched. 10 cities released incentive schemes. For instance, Guangzhou announced a subsidy of 10,000 RMB for New Energy Vehicles sold between March and the end of December. Additionally, a State-level subsidy to New Energy Vehicles that was planned to phase out by the end of 2020 was extended until 2022. Additionally, new commitments were made to investments in infrastructure. The State Grid plans to build 78,000 charging stations at a cost of 2.7 billion RMB in 2020.

 

 

Signs of a rebound
With the gradual resuming of industry activities, auto sales are starting to recover. Retail sales of new light passenger vehicles surged ahead in March, as reported by the China Passenger Car Association (CPCA). While just 250,000 units were sold in February, March’s numbers were four times that amount. Year over year, March 2020 sales were still below 2019 levels, but 40% lower, not the 80% drop seen in February. Sales in April have begun to catch up with just a 3.6% drop year over year.

 

 

China has a 2-month lead on addressing COVID-19 and may be the recovery example for large economies able to contain the spread of the virus and get its citizens back to work.

 

 

Car ownership per 1,000 people vs. GDP per capita in 2019 for main countries
Image: Peng He, using World Bank data

Despite the significant impact of COVID-19 on China’s automotive industry, the market potential is still quite huge. China is still expected to become the largest vehicle market with around 260 million units in operation or 186 units on average per every 1,000 people. At 173 units per person now, there is room in China for more light passenger vehicle purchases. However, after COVID-19, the market will definitely not simply snap back to where it was before the pandemic. According to a forecast from IHS Markit on 21st April, light vehicle sales will decline 15.5% in China for 2020.

 

 

Beyond sales, the real opportunity after COVID-19 lies in the shift from internal combustion engines to cleaner, electric vehicles with the government and industry working jointly. Though oil prices have fallen, reducing the total cost of ownership for internal combustion engine vehicles, China is set to keep its long-term strategic goals for automobile electrification and meet climate change and temperature raise goals set by the Paris Agreement.

 

 

These approaches are the continuation of policies that had been part of a national strategy since the early 2010s. This tact can help the country 'leapfrog' in the automotive space while also tackling key energy and environmental issues, ensuring the country remains both resilient and competitive.

 

 

Other industry leaders could learn from this type of long-term thinking, leveraging the sectors hard times ahead to help further accelerate the development of New Energy Vehicles. That's a move that would surely represent "building back better."

 

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Source: World Economic Forum Research

 

China ushers in the era of Building...

China ushers in the era of Building Economy 3.0

The evolving context of “building” in modern real estate market
In the Chinese language, the word “building” literally refers to the combined meaning of two characters “lou” and “yu”. Chinese characters “lou yu” not only incorporate architectural structure but also the concept of functionality, and has had this interpretation since ancient times. Architecturally speaking, the term embodies different variations of floor area, structures, facades, underground and other aspects.. In terms of functionality, besides residence, the term covers a wide spectrum of functions including research, manufacturing, storage, retailing, working and other economy-related activities. Therefore, in the modern real estate context, the concept of “lou yu” is not just limited to office buildings, but also comprises retail, hotels, apartments, industrial parks, logistics and manufacturing, all of which are a part of the scope of the “building economy”.

 

 

What is the Building Economy 3.0?
Entering 2018, China transitioned its economy from pure growth orientation towards a period of industrial restructuring and upgrading, marking the beginning of a new era for China’s building economy. We define it as the Building Economy 3.0. The difference is the capability of integrating the property market and industries. During the 3.0 era, buildings and the economy will integrate in an unprecedented way, as buildings will no longer be limited to serving as hardware or real estate properties, but rather as a means to drive the economy. Moreover, impetus for the development of the building economy has shifted from being market-oriented to technology-driven.

 

 

An analytical model of the key trends of Building Economy 3.0
Enterprises and people are central to the building economy. The horizontal axis views the needs of enterprises and their people, while the vertical axis measures the economic drivers. Each quadrant demonstrates a future trend of building economy as follows.

 

 

Conclusion
The Building Economy 3.0 is almost at its most technically advanced stage, as it has strongly integrated technological implementation into the entire lifespan of real estate projects, ultimately changing their future development paths. The building economy will continue to put emphasis on the concepts of sustainability and health, collectively realizing China’s strategic goals for sustainable development. Growth of the sharing economy allows idle resources to be better utilized, increasing overall efficiency.

 

 

Investors, occupiers and third parties are all facing new opportunities amid the headwinds and challenges in today’s market. Space and amenities built by investors will continue to highlight the elements of technology and sustainability, while operations will focus on further developing the themes of sharing and inclusiveness. Occupiers will enjoy more eco-friendly, green and healthy building spaces, which should in turn stimulate productivity and work efficiency, and enhance overall enterprise competitiveness. Third parties are dedicated to integrating the latest trends into their services so that their clients will receive the most cutting-edge technology services, helping them achieve value add and promote market change. We look forward to Building Economy 3.0 as a sustained driving force for the future development of the economy and industry.

 

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Source: By Jacky Zhu, Head of Research for West China, JLL

Essential reading to understand modern...

Essential reading to understand modern China

As it is the end of the year, we thought we would share some of the best books that explain modern China from the last couple of years. Some are business focused, some political and some cultural: every topic seems important in understanding China today. The list is by no means comprehensive, but simply some of our favourites.


 

                  

 

                  

 

 

                 

 

 

                 

 

 

                   

 

Ogilvy, Globalizing in a New Economic...

Ogilvy, Globalizing in a New Economic Reality: Making Chinese Brands Matter Globally
Ogilvy China has just released a research report titled “Globalising in a New Economic Reality: Making Chinese Brands Matter Globally”, the report builds on interviews with 40 CMOs of major Chinese companies and insights from Ogilvy experts in Chinese and global brand management. It underlines key challenges currently facing their overseas expansion and presents 7 principles for building sustainable brands on the global stage.
 
 

The main motivation found for Chinese businesses to expand overseas reads the same as everywhere else: growth. About four out of five executives (79%) interviewed cited “new markets for growth” as the primary motivation for entering foreign markets, while domestic competition and the acquisition of advanced tech/skills ranked second (both 32%).

 

 

Hoping to expand overseas, half of the interviewees said they preferred building a new presence from scratch rather than acquiring an existing brand, while 30% chose a mix and match combination of both methods.
 
 

The full report can be downloaded here

China-Pakistan Economic Corridor

China-Pakistan Economic Corridor

China-Pakistan Economic Corridor is a framework of regional connectivity. CPEC will not only benefit China and Pakistan but will have positive impact on Iran, Afghanistan, India, Central Asian Republic, and the region in general. Under CPEC, Pak and China have initiated projects of 17,045 MW of electricity, national level modernization of roads and rail infrastructure, new optical fiber connect with China, development and commercialization of Gwadar port and smart port city, 4 urban mass transit projects in major cities and 9 SEZs. The impact on GDP growth rate is expected to rise to 7% by 2020 from 5.2% in 2017.

 

 

China-Pakistan Economic Corridor has Significance for the development of the region including:

  • Integrated Transport & IT systems including Road, Rail, Port, Air and Data Communication Channels
  • Energy Cooperatio
  • Spatial Layout, Functional Zones, Industries and Industrial Parks
  • Agricultural Development
  • Socio-Economic Development (Poverty Alleviation, Medical Treatment, Education, Water Supply, Vocational Training)
  • Tourism Cooperation & People to People Communication
  • Cooperation in Livelihood Areas
  • Financial Cooperation
  • Human Resource Development
  • Enhance Security and stability of the region

 

 

CPEC Projects

Energy

 

 

Infrastructure

 

 

Gwader Port Area

 

 

Other Projects

 

 

Mass Transit Projects

 

 

Provincial Projects

 

 

Proposed Special Economic Zones

 

 

 

 

 

 

The Digital Silk Road

The Digital Silk Road

Over the past few years, the world has been abuzz with talk of China’s enormously ambitious $1trn Belt and Road Initiative (BRI) - also known as the New Silk Road - that seeks to expand its transportation and energy infrastructure around the world to improve connectivity with the rest of the globe, and perhaps extend both its soft and hard power capabilities.

 

 

One of the most important aspects of the strategy, however, has nothing to do with highways, ports or energy. It’s digital and remains relatively unknown. While the New Silk Road refers to a tangible, physical infrastructure network on land and sea across the Eurasian landmass, the Digital Silk Road deals with a largely unseen and in some ways much more abstract infrastructure which goes along with this.

 

 

The Digital Silk round will play a substantial role in making infrastructure development more viable and efficient. It will also bring advanced IT infrastructure to the BRI countries such as broadband networks, 4/5G mobile networks, e-commerce hubs and smart cities. The upgrade in infrastructure will allow businesses evolve into digital ones, away from traditional industry. The resulting connectivity will allow SME’s to tap directly into global trading markets, including cross boarder logistics systems.

 

 

Chinese companies make their mark

At the forefront of the Chinese digital push are its various telecom companies, who hope to gain global access while at the same time help advance China’s overarching strategic goals. China has also created digital policy frameworks such as the recent Cyber Security Law and Data Protection framework to promote its standards internationally and in particular to countries along BRI.

 

 

The Chinese mobile economy is expanding fast as consumers move away from PCs, landline phones and credit cards, and into a smartphone age, including shopping. The five giants of the Chinese internet age – Tencent, Alibaba, Baidu, Xiaomi and Didi – are incredible companies, their sheer scale and access to capital means the smallest movements from any one of them move trends. 

 

 

China’s rival to GPS

China also intends to extend its coverage of the home grown satellite navigation system (BeiDou) to the 60 plus countries along the BRI by 20220. Currently accurate to around 10m or so (used extensively in China for smartphones, fishing vessels and shared bicycles), the expansion of the satellites network will bring it much closer to the 1m achieved by GPS. Significantly, under military control, the company will allow China to end its dependence on the US GPS network. With BeiDou navigation promising to connect communities currently in a void, many countries have already signed up to embed the technology in infrastructure: Chinese tech giants are no strangers to surmounting the logistical challenges this will bring in installing around developing countries

 

 

Security concerns – or not?

Around the world, the expansion of China’s digital footprint has been accompanied by concerns over whether the connections could be used to expand Chinese intelligence efforts or lead to compromises over the privacy of data.

 

 

In a world in which connectivity is at an all-time high and trust at an all-time low when Chinese companies enter into a market, it should not be viewed as pure market expansion. These internet giants and telecom companies need to ensure proper data protection and economic data sharing.

 

 

The Digital Silk Road is critically important for the sustainable growth of the global economy since it addresses one of the fundamental issues of the 4th Industrial revolution: high speed internet access. Increased connectivity will allow emerging markets to generate data from their businesses, which could potentially become big data in the future. In particular it will be the SME’s along the bath of BRI that will be able to access global markets and improve their operations. What’s clear is that the BRI bridgeheads penetrating its path are digital as well as physical and this will bring larger cyber markets to entrepreneurs allowing them to test and commercialise ideas that originated in small, isolated areas along the route.

 

 

Pictorial: Bound Feet Women of China...

Pictorial: Bound Feet Women of China.

A Living History: Bound Feet Women in China

By Jo Farrel,

 

A selection of images from this long-term project documenting some of the last remaining women in China with bound feet. A tradition that started during the Song Dynasty, foot binding was banned in 1911 but carried on through 1939 when women had the bandages forcibly removed. Although considered just for the elite, the majority of women in this documentation were farm workers from peasant families living in rural areas. Once unbound the feet are disfigured for life with toes broken beneath the souls of the feet.

 

Closer ties for India & China

Closer ties for India & China

This past weekend Indian Prime Minister Narendra Modi attended the two-day long 18th Shanghai Cooperation Organisation (SCO) summit, his 4th trip to China since he entered office. This will be India's first participation in the summit as a full-time member of the organization: India, along with Pakistan, became the full-time members during the Astana summit in June 2017.  With 8 members (India, Kazakhstan, China, Kyrgyzstan, Pakistan, Russia, Tajikistan, Uzbekistan), the SCO represents approximately 42 percent of the world’s population, 22 percent of the worlds land area and 20 percent of global GDP. For the past several years, India and China have been important engines of regional and global economic growth and fostering a strong economic partnership between the two countries, stability-oriented macroeconomic policies and reduced barriers to trade and investment, is seen as a driving force for future growth and to be globally beneficial.

 

 

However the two countries have had a rocky relationship over the last few years, but, when it comes to pragmatic matters like economic opportunities and technology, the two have been able to seek common ground. Notable progress has been made through the recent establishment of two IT corridors, allowing Indian tech companies to have free access to the Chinese market and vis a vis for Chinese companies. Earlier in the year, Prime Minister Modi met with President Xi in China: It was a meeting to solidify cooperative bilateral ties between the two. Both parties agree that friendly India-China relationship is important for growth and global peace, such that it promotes a multi-polar globalized world.

 

 

India may be skeptical of the broader belt and road plan, in particular The China-Pakistan Economic Corridor but it remains keen to engage in some aspects of it, such as the Asian Infrastructure Investment Bank and the chance to bring Chinese investment into the country. A nation hungry for investment, Modi’s India is keen to find ways to catch up with its richer Asian neighbour. China is India's largest trading partner. As of 2017 the volume of bilateral trade between India & China stands at US$84.5 billion. This figure excludes bilateral trade between India & Hong Kong which stands at another US$34 billion.

 

 

Chinese imports from India amounted to $16.4 billion or 0.8% of its overall imports, and 4.2% of India's overall exports in 2014. The 10 major commodities exported from India to the China were :

  1. Cotton: $3.2 billion
  2. Gems, precious metals, coins: $2.5 billion
  3. Copper: $2.3 billion
  4. Ores, slag, ash: $1.3 billion
  5. Organic chemicals: $1.1 billion
  6. Salt, sulphur, stone, cement: $958.7 million
  7. Machines, engines, pumps: $639.7lmillion
  8. Plastics: $499.7 million
  9. Electronic equipment: $440 million
  10. Raw hides excluding furskins: $432.7 million

 

Chinese exports to India amounted to $58.4 billion or 2.3% of its overall exports, and 12.6% of India's overall imports in 2014. The 10 major commodities exported from China to India were:

  1. Electronic equipment: $16 billion
  2. Machines, engines, pumps: $9.8 billion
  3. Organic chemicals: $6.3 billion
  4. Fertilizers: $2.7 billion
  5. Iron and steel: $2.3 billion
  6. Plastics: $1.7 billion
  7. Iron or steel products: $1.4 billion
  8. Gems, precious metals, coins: $1.3 billion
  9. Ships, boats: $1.3 billion
  10. Medical, technical equipment: $1.2 billion

 

Ultimately India’s adjustment of policy towards China is a tactical one: it cannot get enough financial support and investment from G7 countries to develop its infrastructure. The OBOR initiative has shown that China has both the willingness to invest and infrastructure development capability India needs. India-China relations will be highly significant to global economics in the next quarter of this century: a narrowing of the current power gap between the two Asian giants will only assist in this.

 

 

China's Soft Power Struggles

China's Soft Power Struggles

China’s 19th Party Congress concluded with President Xi Jinping promising a rejuvenated China that wields more influence across the world. This declaration comes as the United States, erratic and unpredictable under Donald Trump, seems too preoccupied with turbulent domestic politics to care much about global engagement. In stark contrast to the West’s inward turn, Xi has defended globalisation and the need for global climate governance, and China is seizing this historic moment to reshape the geopolitical order. However, military and economic prowess are not enough; China is turning increasingly to soft power, with significant ramifications both domestically and internationally.

 



Under Xi, China has attempted to utilise economic soft power through the Belt and Road Initiative, which aims to export Chinese-style economic growth through massive investments in infrastructure. More than 60 countries have signed up.

 



At the same time, according to David Shambaugh, China is spending more than US $10 billion per year in a soft power push. Programs include academic exchanges and promotion of language and culture. Among the most visible efforts are Confucius Institutes, government-affiliated teaching and research centres often housed in colleges and universities worldwide. Confucius Classrooms are a similar initiative for primary and secondary schools. There are now 1,579 Confucius Institutes and Confucius Classrooms in operation.

 



In addition to these efforts, China has encouraged its state-run foreign language news media to circulate a well-managed narrative about the country, and it is clear that Chinese media’s global reach is growing.

 



News agency Xinhua has more than 160 bureaus worldwide, while CCTV International – recently rebranded as the China Global Television Network – broadcasts in English, Spanish, French, Arabic, and Russian. Chinese media have also supported training courses for journalists from Asia, Africa, and Latin America. According to a report about training for Ugandan journalists in China, these efforts focus on building a positive image of China and promote a particular model for media’s role in society.

 



Even the film industry exhibits elements of China’s soft power strategy. The country’s domestic film consumption market is tightly controlled by a quota system. While China’s box office value totals US $7 billion – the second largest such market in the world – only 34 foreign movies per year are allowed, although exceptions are granted to those co-produced with Chinese studios.

 



China’s Hollywood ambitions, however, have been tempered by strategic blunders and lagging sales. The proposed US $1 billion acquisition of Dick Clark Productions by Chinese conglomerate Dalian Wanda was blocked by the Chinese government, while the first major movie co-production between American and Chinese studios, The Great Wall underwhelmed audiences and underperformed at the global box office.

 



More broadly, Chinese entertainment has failed to gain the global popularity of soft cultural exports such as K-pop (South Korea), Anime (Japan), and even Bollywood films (India).

 



While these exports are not directly connected to geopolitical positioning, they are crucial for building national brands and goodwill. So far, China lacks this dimension, possibly due to the unwillingness of the country’s cultural industry to produce content that is edgy, satirical, or even lightly critical of the government. The country ranks 25th in an index of soft power strength, below smaller Asian countries like South Korea and Singapore.

 



Within Asia, China’s image is compromised by territorial posturing, while investments benefiting economic elites have led to concerns about the country’s growing influence. In Australia, a recent row over a university lecturer’s comments about Taiwan agitated Chinese students, doing little to soften an external image of China’s defensive posture about Taiwan and Hong Kong. Controversy has also arisen around the alleged control of Chinese students in Australia by the Chinese government.

 



Given the focus on state-supported public diplomacy and cultural initiatives, there is an apparent element of coercion in China’s approach to soft power. Confucius Institutes have encountered criticism in the West for censorship, discriminatory hiring practices, lack of transparency, and repression of academic freedoms. Responding to such concerns, the University of Chicago, Stockholm University, and McMaster University in Canada are among universities that have shuttered the institutes. More recently, a report from the National Association of Scholars, a politically conservative advocacy group, recommended that all universities in the United States close their Confucius Institutes.

 



Beyond these challenges, there is a sizable digital gap in China’s push for soft power. There are Chinese equivalents of Twitter, Facebook, and YouTube, but it’s debatable whether any of them have similar global market potential. Slick new websites targeting a young demographic, such as the Chinese language The Paper and the English language Sixth Tone, are attempting to push the boundaries of critical reporting and have had some success, but both are owned by the Shanghai United Media Group, a state-funded company. If these venues provide an editorially independent space for sharing ideas, they may have the potential to attract global viewership.

 



China’s domestic controls on expression and creativity, particularly as they relate to political sensitivity, limit the country’s credibility in developing soft power, and may be subject to further criticism if efforts to refashion the country’s image gain global visibility.

 



The development of Confucius Institutes and control of Chinese students abroad are indicative of a coercive mindset that may have worked in the pre-opening-up era but is now stale and ineffective. China has rich potential to develop soft power through language, culture, and the creativity and wit of its now-thriving civil society. Openness, transparency, and tolerance of debate are crucial for liberating this potential, but would entail a change of strategic focus that is likely to be unpalatable within government ranks.

 


China’s reserve of soft power capacity is supported in large part by historic economic growth and success in lifting hundreds of millions out of poverty. Given the apparent retreat from global leadership by nativist and populist governments in the West, China must look beyond the Belt and Road and the development of international economic institutions.

 



Focusing on global challenges like climate change, disease, and poverty are another important pathway for establishing global leadership, and can help other countries achieve the same transformational growth China experienced. Soft power may follow as China grows into its new role, but it will also test the country’s ability and willingness to liberalise state-society relations.

 

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Asit K Biswas is the Distinguished Visiting Professor, Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore. Kris Hartley is a Lecturer in Public Policy at the University of Melbourne and a Nonresident Fellow for Global Cities at the Chicago Council on Global Affairs.

This article was originally published by the POLICY FORUM on November 9, 2017.

The race for the World's shared bike...

The race for the World's shared bike rental market.

It is almost two years since Mobike co-founder Hu Weiwei put around 50 bicycles on the streets of Shanghai and drove away. Ofo had a similar beginning, spreading out shared bikes on Beijing’s university campuses. This is how China’s dockless bike rental economy was born.

 

 

Today, bikes are so bountiful that they are literally blocking the streets of Chinese cities. Although both companies have been hesitant to release numbers, the latest iResearch’s data (in Chinese) show that Mobike has 8.65 million daily active users while for Ofo that number climbs to 9.65 million. During 2017, Mobike has raised $1 billion and Ofo $1.15 billion, according to their own data.

 

 

The meteoric rise of the bike rental market has drawn much attention, not just for its disruptive business model, but also because it is one of the first tech trends coming from China that has swept the entire world.

 

 

Different paths, same goal

The two bike rental giants have taken very different roads to success in China. Ofo took the fast route by quickly spreading cheap bikes from campuses to the streets of Chinese cities. It then worked on its technology with the help of investors China Telecom and Huawei by adding GPS tracking and upgrading its locks.

 

 

Mobike was more meticulous in planning: the company first set up its own factory to produce sturdy bikes integrating GPS and QR code authentication and then moved on to expanding their business.

 

 

As Grace Gu, principal at one of ofo’s backer ZhenFund, explained during this year’s ChinaBang Awards, Ofo showed a typical Northern China style of expansion, while Mobike has the Southern China business style.

 

 

“In short, Southern style is bottom-up with a ready product, and Northern style is top-down strategy and later do optimization,” said Gu. The two companies have transplanted their styles into the global arena. Ofo is following its co-founder’s Austin Zhang’s credo “rapid spread, yellow will cover the world” Besides Chinese cities, the little yellow bikes can currently be seen on the streets of UK, US, Singapore, Thailand, Austria, Malaysia, Kazakhstan, and Japan. Last September, the 22nd World Car Free Day the company announced it will be launching in a cluster of four European countries of Russia, Czech Republic, Italy, and Netherlands.

 

 

Ofo also went beyond the simple yet effective marketing tactic the two companies have been using in China. With their flashy colors, the bikes market themselves; all they had to do is offer free rides and the good word was spread by the users. Now, Ofo is taking a more vocal approach: it has teamed up with UNPD to offer grants for green projects and has announced smog-filtering bicycles. It has even gotten Rihanna on board by sending bikes to schoolgirls in Malawi through the singer’s foundation.

 

 

Mobike, on the other hand, has been behaving in the Southern Chinese fashion—slow and cautious. According to the company’s Head of Global Partnerships, the company is now focusing on raising their efficiency through technology and strong support from the local government.

 

 

Mobike has set the same target as Ofo for this year—200 cities. Besides China, the company has so far entered Singapore, US, UK, Italy, Japan, Thailand, and Malaysia.

 

 

But Mobike has been compensating for its lack of speed by investing in AI data monitoring platform Magic Cube which will help operate its bikes and fight illegal parking. The company has also partnered up with tech giants such as Foxconn, Qualcomm, Vodafone, AT&T, Cisco, and Ericsson. This plays in line with the fact that Mobike is at heart a technology company.

 

 

But Ofo is catching up on the big data game. In Japan, Ofo is cooperating with SoftBank C&S’s division for IOT, robotics and the cloud. It was also the first bike rental company to announce implementing near-field communication (NFC) locks which will enable users to unlock bikes even faster.

 

 

Bumps, curbs, and potholes

The two companies have geared up to fight for the global market, but the road ahead will be slippery. The success of expansion into other markets will be in part based on these factors–including population density (i.e., high capacity utilization and high availability), economic factors, conducive environments for safe biking (i.e., physical layouts, base rates of crime, etc.), and state/government regulations that do not hinder growth. One of the bigger issues is gaining the trust of local governments. Bluegogo’s example reminds us that not all cities are willing to take the risk of flooding its streets with shared bikes. The company shipped hundreds of bikes to San Francisco just to have the government issue regulations that would make it unfeasible to operate in the city.

 

 

Even when the cities agree to welcome shared bikes, there are other factors to consider: The Parisian docked bike-sharing scheme Vélib which reported half of its bikes were stolen, some of them being discovered as far away as Romania. And while vandalism and theft are not rare in China, bike sharing companies in foreign markets will be left without the possibility of quickly replacing stolen and damaged bikes.

 

 

Finally, both Ofo and Mobike will have to face local competition. US companies are joining the race: LimeBike already covers nine cities and it is taking on ofo in Seattle along with Spin, while Vbike is starting is growth in Dallas. Even regulation-obsessed Europe has welcomed its first homegrown dockless bike rental scheme Urbo. Recent news from Singapore—both Mobike’s and ofo’s first foothold abroad—has shown that the Chinese bike rental giants could lose out: local company oBike is currently the most popular bike renting option and it is making its way to London.

 

---------------------------------

 

This article first was first published in TechNode: started in 2009 by Dr. Lu Gang, TechNode began as one man’s attempt to tell the world about what’s happening in China’s tech and startup ecosystems. Their annual innovation and entrepreneurship awards ceremony ChinaBang sees the best and brightest of China get recognized for their contributions to their community and industries. Additionally TechCrunch events connect the Chinese startup community with the rest of world.

 

 

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