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Putting China’s growth into perspective.

Putting China’s growth into perspective.

The sheer growth and scale of China’s economy in a global context can be difficult to visualise. An economy which is expected to overtake that of the US by the end of the decade can be difficult to put into perspective. While Chinese GDP has slowed in recent years, its is still growing at a remarkable scale and is perhaps the most important international event since the end of the Cold War. We believe the two graphics below help you to understand this growth phenomenon

 

 

This chart looks at the annual Chinese GDP growth going back to the year 2000, comparing it to the equivalent total GDP of other nations around the world.

 

 

Source: HSBC research, Visual Capitalist.

mHealth: the next evolution in Chinese...

mHealth: the next evolution in Chinese healthcare?

By Daniel Addyson.

 

The Chinese healthcare system is struggling to provide adequate medical access for its 1.4 billion citizens. But the Chinese may have already have built the foundation for sustainability: their love of mobile technology.

 

 

Getting medical care in China

 

 

For a westerner visiting a Chinese hospital for the first time, it’s an eye-opening and sometimes mind-boggling experience. During the few trips I have made to China over the last decade, I’ve occasionally had to visit local hospitals. The scene can be at once chaotic and yet oddly more efficient than the US. Typically, visiting the doctor means going a large hospital (as opposed to outpatient settings like the US), which houses multiple specialties ranging from primary care, to maternity wards, to high-end surgery. Much like standing in line at the grocery store, you grab a ticket and wait in line to see the receptionist, who then directs you to the appropriate specialty center. From there another ticket is taken to wait for the specialist. The process continues on to other specialties if needed, such as X-ray or lab draws, until finally you end at the original doctor, who will examine the accumulated results and make a final determination of the condition.

 

 

When I first encountered this style of healthcare, I was somewhat enamored. I compared the experience to the US, where I had to book an appointment to a primary care physician or specialist, then a separate appointment on a different day across town for a blood draw, then return to the original doctor on yet another day for my follow-up consultation. A few hours of actual medical intervention were stretched into days or weeks. The system I first experienced in China seemed to compact all of that waiting and scheduling into a much shorter span of time. This is the prevailing paradigm of clinical care in China and other East Asian countries. Although smaller outpatient clinics do exist, most care still takes place in large, multi-specialty hospitals.

 

 

The Problem: insufficient capacity

Thankfully, my experiences with healthcare abroad have been relatively minor and infrequent. For the average Chinese citizen, and even expats, the experience can be far worse. Shaun Rein, a US expat and market research expert living in China, writes about his experience with Chinese healthcare in his book, The End of Copycat China: The Rise of Creativity, Innovation, and Individualism in Asia:

I went to 38 doctors. I became used to Chinese hospitals, and they are not pleasant places for everyday people. If you don’t have lots of money to buy VIP time slots or connections to skip queues, you just have to grab a ticket and wait in line to see a doctor. Patient rooms are often filled with dozens of other patients so privacy does not exist. The frazzled, overworked doctors in top-tier hospitals have so many patients to see that they often spend less than a minute per patient.

Rein goes on to describe the causes for the massive inefficiency in Chinese medical care, which in fact are fairly basic: 1) doctors are not paid very well, so it’s not seen as a lucrative or desirable profession to enter; 2) there aren’t enough medical providers to see the number of citizens in China’s rapidly urbanizing cities. Consequently, there are a number of knock-on effects that further exacerbate the problem: social acceptance of bribery (“red envelopes”) for quality care; paying extra to skip waiting queues (“VIP service”); or using personal connections (“guanxi”) to schedule appointments with doctors. The problem even extends to device and pharmaceutical sales, where reps bribe providers to use their products.

 

 

Rein’s assessment is that the situation is gradually improving, and he credits President Xi Jinping’s crackdown on fraud for helping stem the abuses in the healthcare system. However, China is still left with its fundamental problem: quality care is still often unaffordable or inaccessible for many poor and middle-class Chinese citizens. Although the government has plans to dramatically increase the number of medical providers throughout the country , the prospect of overwork and little pay doesn’t make the medical field particularly attractive to Chinese college graduates. This means that there is still a very high risk of chronic shortages of qualified staffing in rural areas and for certain specialties.

 

 

Why mHealth can help

Daxue Consulting and the Brookings Institution have highlighted specific areas where mHealth can help in developing healthcare capacities in the country:

  • Continuity, Quality of Care & Data Access: Using mobile platforms can provide consumers with a pipeline to their medical history: medications prescribed, previous visits to providers, diagnostic results, etc. Rather than trying to navigate a fragmented care environment where a patient might be shuttling between different hospitals and trying to maintain separate sets of medical records, mHealth platforms can consolidate this data and help patients make sense of it. On the same token, data collection from mHealth options allow both patients and providers to better monitor chronic conditions, medication adherence, and other important data points in the care process.
  • Freeing up hospital capacity: One of the primary goals of mHealth is to increase the availability of healthcare by reducing costlier and time-consuming face-to-face communication between patients and providers and replacing it with digital communication. In this regard, mHealth has performed well in a few different areas. Two primary examples are below:
  • Routine counseling: reaching out to patients for follow-up and routine care via phone or app rather than having them come back to an actual clinic. 
  • Digital diagnosis: In addition to patients texting or sending photos to their providers for remote diagnosis, there are a number of initiatives to turn smartphones into self-contained diagnostic tools. App developers and data scientists are using machine learning technologies to identify cancerous skin lesions based on image recognition. Even the way we use our smartphones are being used to predict our health status. These kinds of advances are poised to provide much needed decision support to overworked medical staff.

 

 

Why China is unique: its love of mobile technology

It’s clear that China’s healthcare system is literally at overflow capacity. The country needs innovative solutions to lighten the service burden on major hospitals. Fortunately, China’s love of mobile technology makes mHealth solutions a perfect fit to get better healthcare access to its citizens.

 

 

China’s mobile focus

Healthcare technology companies seeking to make inroads in China face a market that is already primed to adopt mobile solutions. China has embraced mobile technology in a way that’s hard to imagine in the US or other Western nations. According to a Verto Analytics report, “As many as 94% of all Chinese online users use smartphones vs. 70% in the U.S.” In addition to the popularity of smartphone usage, the Chinese market has unique characteristics that make it uniquely open to mHealth uptake:

 

 

  • The prevalence of mobile commerce: Mobile options for everything from shopping to in-store payments to social media are just as, or more, prevalent in China as the West. An illustrative case in point: mobile pay. There are now effectively two options for making payments in China: cash or mobile pay, with mobile being the far more preferable choice with both small and large vendors. Most B2C transactions in China effectively run through one of the country’s mobile payment giants, such as WeChat or Alipay. The Chinese market is also much more open to using mobile options for their day-to-day needs. For example, Rein cites the relative success of mobile grocery shopping in China compared to the US, where uptake has been minimal. Rein explicates a number of reasons for the popularity of digital lifestyle, ranging from convenience to safety concerns from air pollution. These numerous factors have helped acclimate much of the population to conduct business over their smartphones; healthcare companies who can take advantage of this stand to quickly gain substantial market share.

 

 

  • Multi-function smartphone apps: An additional feature that sets China apart is not only the prevalence of mobile options, but the integration of multiple functions into a single app, (ie. payments, messaging, social media, and shopping). Unlike Westerners who are accustomed to apps with one or two primary uses, the successful Chinese model is based on a few apps providing diverse and multiple services. WeChat stands as an illustrative case in point: chat features, ride sharing services, and mobile payments among others, are all housed under one platform. Companies seeking to implement mHealth and telehealth programs in China can leverage existing platforms, which already have wide and stable customer bases, to reach their desired patient populations.

 

 

With Chinese consumers adopting mobile options much more readily than in the West, companies seeking to implement mHealth technologies already have a primed market and the technology infrastructure to facilitate its adoption.

 

 

Challenges to implementation

 

 

Although the market appears ripe, effective implementation in the Chinese market also faces unique challenges. It’s no secret that companies often fail :

  • China’s rural and offline populations: mHealth and Telehealth platforms are frequently cited as ways for providers to reach rural and other low-access populations. But there’s a converse problem: rural populations also tend to have lower access to infrastructures like wireless data that make mobile technologies work. Although the government has made a huge push to consolidate the Chinese population through urbanization programs, roughly 43% of China’s population still lives in rural areas. Additionally, in spite of the high proportion of smartphone users, only 50% of the total population is even online. Smartphone penetration is expected to reach over half the population by 2019, and with it the infrastructure needed to make smartphone use practical (namely, wireless and cellular data access). Nevertheless, companies need to accurately assess their target population before trying to enter the market.

 

 

  • Patient perceptions of quality & safety: Rein’s Copycat China dedicates an extensive amount of space to the concerns Chinese have for quality products and services. With the number of scandals regarding food and medical safety, as well as the prevalent air pollution problem, Chinese consumers place very high value on product quality. mHealth technologies, whether telephonic outreach to patients or digital diagnostics, need to clearly demonstrate that they provide high quality medical care. Consumers need to be convinced that they’d be just as good or better off staying home rather than going to a top-tier hospital for routine medical needs.

 

 

  • Managing providers’ expectations: Providers also need to see the value of putting in the time and effort of new initiatives for medicine. The Brookings Institution report recommends that the government incentivize providers to participate in telemedicine programs, but expectations for mHealth solutions also need to be managed. Digital platforms are typically promoted as a way for more patients to get to doctors. However, doctors who are already overworked need to see how mHealth options can reduce their crushing workload, otherwise they are likely to see little reason to participate.

 

 

Conclusion: Focus on delivery strategy and solving targeted needs

In spite of these challenges, mHealth can be a major win for the Chinese healthcare system and for the companies who provide these services. Rather than trying to foment a major revolution in the Chinese healthcare system, companies interested in implementing mHealth solutions will most likely find success in developing focused, strategic partnerships that solve specific needs for patients. By working with hospitals and government health plans to access patient populations, as well as popular mobile apps to effectively run their platforms, mHealth technologies stand to create substantial progress in improving quality care access in the Chinese health system.

 

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Daniel Addyson is a data scientist and healthcare analytics consultant. His work specifically focuses on health technology and analytics implementation for emerging markets, with a specialization in East Asia. Dan's work can be found at www.linkedin.com/in/danieladdyson

 

 

China's Groundwater Crisis

China's Groundwater Crisis

Two of the world’s most densely populated regions, northern India and northern China, are experiencing high levels of groundwater depletion, according to a 2015 study sponsored by NASA. For these and many other highly stressed aquifers, natural replenishment through precipitation is unable to offset human-led extraction, threatening water quality and supply sustainability. Three notable cases are the Ganges River and Indus Basin (both in India), and the North China Aquifer. Given that these areas account for a significant percentage of the national population in the world’s two largest countries, groundwater depletion should be an urgent policy imperative.
 


In China, significant efforts have been made to address water shortages in scarcity-prone regions, including pipeline transfers, desalination, and stronger urban design standards. Nevertheless, depletion of groundwater continues and the impacts are dire, both for individual users and for urban health and safety in general.
 


In rapidly developing regions, groundwater provides a quick and easy way to satisfy unexpectedly high demand. However, increased usage resulting from population growth, industrial expansion, and lingering agricultural activity is causing water stress where groundwater reserves are already overdrawn.
 


Increasingly erratic weather and saltwater intrusion, both associated with climate change, can alter groundwater levels and quality. The impacts of lower levels are dire; not only is there less to consume, but lower quality can worsen public health crises and burden existing purification systems (or require the purchase of expensive new ones).
 


In China, a population equal to 20 per cent of the world total relies on less than 6 per cent of the world’s groundwater. The overstressed North China Aquifer serves 11 per cent of the country’s population, 13 per cent of its agricultural production, and 70 per cent of its coal production.
 


China’s solutions have, so far, been inadequate. The massive South-North Water Transfer Project has supplied Beijing with an annual 2 billion cubic metres of Yangtze River water since 2014, but is not a long-term solution. The project, costly and imposing as it is, could mask the need to address other water management challenges such as leakage, ageing infrastructure, and wasteful usage. As the largest such project in the world, the transfer also brings negative impacts to source regions, including over-withdrawal during dry seasons and displacement of communities (a common problem for China’s dam projects).
 


Further, a government-led study of groundwater quality, which included source regions for the Yangtze River, found that 80 per cent of the country’s groundwater is contaminated by toxic metals and other pollutants, rendering supply unfit for human consumption.
 


Desalination is another solution with thus-far unrealised potential. In coastal areas near Beijing, restrictions on extraction of groundwater for industrial use have been adopted to force desalination into the supply portfolio, but desalinated water has not been incorporated systematically into China’s municipal water systems. Additionally, the negative impacts of scaled-up desalination on marine and coastal areas may be overlooked at great peril to sustainability and ecological health.
 


The incompleteness of these measures has perpetuated dependence on groundwater, and over-extraction is having severe impacts on Beijing; including that the city is dropping by 11 centimeters (4.3 inches) per year due to the gaps left after extraction, causing subsidence and damage to infrastructure. The problem is particularly acute in the Chaoyang district, which encompasses the capital city’s eastern suburbs – areas that are rapidly expanding with dense, high-rise construction.
 


In the United States, the highly-publicised case of a new luxury tower leaning several degrees only years after construction, due to poor foundation standards, illustrates the legal, financial, and social challenges of building in areas with geotechnical instability. San Francisco’s leaning tower is 57 floors tall, but many in Beijing’s rapidly subsiding districts are far taller. Will it take a disaster to generate calls for robust demand management?
 


According to the authors of the NASA study, “It is important to understand where existing socio-economic tensions may collide with water stress to produce stress-driven conflicts.” In China, the desire for economic growth has long conflicted with environmental protection and public health; crisis-level air pollution is a continuous reminder of this. As water governance occurs largely at the central level, high-level policies should target continued economic growth and urbanisation only within the confines of water resource limits. Efforts such as the “three red lines” initiative require cities to constrain water consumption to enable more effective regional allocation. Similar restrictions could be imposed for water-intensive industries and other heavy users.
 


Water conservation is also dependent as much on individual decisions as on national policy-making. One example is California’s 2015 water shortage. Governor Jerry Brown called for a state-wide reduction in usage of 25 per cent in July 2015, and the state exceeded expectations by reducing usage 31 per cent. Much of this reduction came from changes in personal habits; fewer people watered lawns and washed cars. The state also encouraged municipalities to actively manage demand; in turn, many imposed surcharges on individual users who exceeded stipulated limits. Pricing is a powerful water demand management tool.
 


China’s demand profile for water does not closely resemble California’s; both markets have high usage for agriculture (64 per cent in China and 80 per cent in California), but China’s manufacturing activity as a share of economic output is larger than California’s. Furthermore, Chinese citizens are less likely to use water for lawns and washing cars. However, China must adopt a more aggressive volumetric pricing program to manage demand, particularly for industrial users. On a per cubic metre basis, water tariffs on businesses and individuals are less than 12 per cent of those in Denmark and less than half those in the world’s developed countries. China’s implicit subsidization of water serves little purpose, least of all in prompting conservation and innovation.
 


China has made some effort to address these challenges. The sponge-cities program, a modified version of low-impact development (LID) that focuses on permeable surfaces and water infrastructure, seeks to increase groundwater absorption. The central government has set a target for 80 per cent of Chinese cities to meet sponge-city standards by 2030. This is a crucial step in aggressively and publicly addressing groundwater depletion under urban areas, including Beijing.
 


However, there appears to be a tepid appetite for private investment in these projects. More aggressive inducements may be needed to prompt public-private partnerships for sponge-city development.
 


Addressing the groundwater depletion problem – and in broader measure the growing crisis of water scarcity amidst rapid urbanisation – will require a multi-pronged approach that includes unequivocal political will, transparency regarding the impacts and costs of depletion, creative policy initiatives to manage demand, and support for technical innovations to improve efficiency in usage. Both China’s economic and environmental sustainability are at stake.

 

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Acknowledgements

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 the Department of City and Regional Planning at Cornell University, a Faculty Fellow at Cornell’s Atkinson Center and a Nonresident Fellow for Global Cities at the Chicago Council on Global Affairs. This article was first published by the Policy Forum on 12 April 2017.

 

Less instant noodles and more local...

Less instant noodles and more local food: China's independent travelers

By Michele Gelaotto,

In late 2014 president Xi Jinping, while visiting the Maldives, advised Chinese travelers to eat less instant noodles and more local food when in other countries. Despite the economy slowing, the impact on outbound travel from high-net-worth individuals seems to have steadily grown. The length of travel is also increasing for some, and more Chinese travelers are even taking an entire “gap year” abroad. Historically speaking, the Chinese have never really been interested in exploring the world before. But according to a recent report of Business Intelligence Fung Center, the number of Chinese tourist travelling abroad is constantly growing and could be doubled in 2020 to reach 234 million of tourist. And the tourist’s expenses are growing too. International trips are predicted to rise by 25% over the next three years, while adventure trips, polar expeditions, and road trip travels will increase by 52%, 38%, and 75%, respectively during this time.

 

 

The different demographics of Chinese outbound tourism

 

 

A study by Bank of America Merrill Lynch found that it exits different types of tourism in China.

  • 40% are group’s travelers traveling once every 2 or 3 years and are usually aged between 46 to 54 years old. 81% of them prefer to go with group tours.
  • 35% are semi-independent travelers traveling many times in a year and planning some organized programs but keeping independent. Most of the time, they are between 25 and 35 years old. 66% of this group belongs to the high-income bracket, and their financial standing is expected to increase as their careers advance. The majority hold white collar executive or professional jobs, the annual study found. Once this group hits their 30s, they become much more concerned with their appearance: 9 percent of those in the age group of 31 to 35 have traveled for beauty treatments and cosmetic surgery, compared to 6% of all millennials and 4 percent across all age groups.
  • 25% are independent travelers traveling by themselves and aging between 20 and 25 years old. They’re also more open-minded about staying in hotels that might not focus on catering for their specific cultural and other needs, and the younger contingent (age 18-20) is more willing to stay at hostels and backpacker-type places.

 

 

This not seems to be just the beginning of this new wave. The growth of standard living in China with the emergency of a middle class, an opening mind to the western cultures, the increase of direct flights between international destinations and China and facilities concerning visa process have enhanced this phenomenon. In 2014, China and United States have agreed to lengthen the visa validity short term for the business travelers, tourists and students with 10 years multiple-entry tourist visas.

 

 

China’s young rich travelers are in search of unique and adventurous travel experiences

 

 

The young luxury travelers have high standards when it comes to hotel choice. Personalized service is the biggest area of consideration when choosing a hotel, they also prefer hotel brands featuring “art and design that make the travel experience feel unique and fun,” while demanding high-tech digital equipment. Young Chinese travelers are also more likely to use digital platforms for their trip research, including official WeChat accounts, and word-of-mouth through Wechat friends, as well as Chinese travel booking sites—the three most popular are Ctrip, Qunar, and Tuniu.

 

 

According to data from market research group GfK, this group of consumers are more ‘hedonistic’ in their willingness to spend money to indulge and pamper themselves and slightly less price sensitive. They are looking for meaningful, adventurous and exciting experiences. They are technologically savvy and highly involved in sharing experiences on social media platforms. Brands need to understand the shift from an older organized tour traveler to a new world independent Chinese traveler

 

 

The four to six weeks before the trip is seen as a key time to engage them as they research, plan and book their trips. In the lead up to the Chinese New Year in February, for example, iClick Interactive worked with Michael Kors to help it promote a collection of Lunar New Year of the Monkey products to potential outbound Chinese consumers traveling to the UK, France and Italy.

 

 

While resorts in unique locations have ample opportunity to take advantage of the trend, luxury brands have also been coming up with creative in-store experiences in China and across the world such as special events and product customization. LVMH-owned DFS, which has locations in Bali and across the Pacific Rim, teams up with luxury brands to provide limited-edition items available only in a given location.

 

 

Tech-savvy Chinese tourists

 

 

The new Chinese tourist is digitally oriented, with 50% using mobile booking. When planning their trips, they rely less on travel agents and more on review sites and online accommodation booking, while 30% use social media. They also want to stay plugged in when they get to their destination—63% of all Chinese millennial travelers surveyed said that WiFi is a key amenity they look for in a hotel. This gets even more important as they get younger—among 18 to 20-year-olds, WiFi is important for 70%.

 

 

For the Chinese consumer, digital is key. In the past some luxury brands had the attitude that “we are luxury – we don’t do online” but no one would think that now. As more and more Chinese consumers research products from overseas, a globally aligned branding strategy is essential. Brands coming into China and positioning themselves as very high-end, can face consumer backlash and brand devaluation if products are discovered in home markets that don’t match that perception. Chinese consumers can now see where and how things are being sold overseas and this can undermine whole marketing strategies in China.

 

 

How to travel for free? Become a Chinese KOL

 

 

In China, KOL (Key Opinion Leaders) are very popular among cosmetics and clothes brands. But several travel agencies also had the good idea to offer free trips to stars or celebrities in exchange for them to post their holidays on social networks, including, why not, live broadcasting apps. A few years ago, Yaochen (a very famous Chinese actress) made the buzz by posting photos of her holidays in New Zealand. This led to a crave for the country never seen before.

 

 

Adventure tourism is the real symbol of this second wave of tourism

 

 

A lot more Chinese travelers are now repeat travelers and they’re looking for something more novel. Adventure tourism activities really don’t exist in China like they do elsewhere. Safety is also a top concern as Chinese are often more trusting of foreign adventure attractions following stringent guidelines than those closer to home.

 

 

New Zealand is the top destination for Chinese adventure travelers who can’t find many extreme sports or activities in their homeland. The country is known for outdoor activities transcending the intense sensuality of those in many other regions, albeit, Tourism New Zealand says adventure activities aren’t the most important factor for Chinese tourists making the relatively short hop to the destination. Between 14 and 19% of Chinese who plan to travel to the island nation rank adventure activities and adrenaline rushes as their top motivators.

 

 

In line with the growth in demand for exclusive “adventures”, the Polar regions are becoming particularly sought-after destinations for China’s luxury travelers. Other exotic long-haul destinations such Africa and the Middle East. This means the proportion of luxury Chinese tourists planning on visiting Hong Kong, Taiwan or Macau fell from 32% in 2015 to 19% in 2015, while the Southeast and South Asia regions saw their share decrease from 34% to 24% over the same period.

 

 

Independent Chinese tourists are often more confident and in control of their travel itineraries than previous types of Chinese tourists. And they are often more inclined to participate in adventure activities when they are abroad than when they are at home. Because of this, adventure activities are becoming more and more popular for Chinese globetrotters.

 

 

Adventures this new wave of Chinese tourists are looking for usually include:

 

 

  • Camping in secret spots. Chinese adventure tourists are looking for ways to experience well­-known destinations in an unusual way. As more and more Chinese tourists become repeat travelers, they will constantly be looking for somewhere more novel and intriguing to rest their heads.
  • Zip-lining over volcanos. Anything that can provide a dramatic view of the volcanic landscape and provide some GoPro footage.
  • Riding in a hot air balloon. A growing number of Chinese adventure­ seekers are looking for the best vessel to carry them to the highest heights and to be able to see landscapes from awe­-inspiring angles.
  • Abseiling or caving. For those Chinese tourists who are ready to take their adrenaline­-rushes to the next level, abseiling or caving in exotic locations like New Zealand and Australia are one of their top travel dreams.
  • Tubing, water sledging or river surfing.

 

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Michele Galeotto is an Italian creative with expertise in designing integrated communication strategies. Michele has worked with many forward thinking companies in China or engaging with China. In 2013 he started Design Hotpot, an online platform where he writes about the mushrooming creative industries in China.

 

Beijing reining in Capital Flight

Beijing reining in Capital Flight

China is reining in its record deal-making spree. According to Bloomberg, Chinese regulators will bar overseas investments of $10 billion and above, while leaving room for some strategic deals. They will also restrict overseas investments of more than $1 billion in industries outside a buyer’s core business, as well as foreign property deals of $1 billion or more by state-owned enterprises.

 

 

The moves come in the wake of unprecedented merger and acquisition (M&A) activity in the Asia-Pacific region led by China. So far in 2016, outbound deals by Chinese companies have doubled to $218.23 billion from last year. Chinese companies have been on a record acquisition spree, buying into everything from blood plasma to airline food. Most notable of which are:

 

 

Robot bartenders

Chinese home appliance maker Midea Group Co. agreed in May to the $4.5 billion purchase of Kuka AG, a German maker of industrial robots so nimble they’ve been used to mix cocktails on cruise ships. Kuka machinery also assembles Audi sedans and Airbus jets.

 

 

Clash of Clans

Tencent Holdings Ltd, the Chinese tech powerhouse led by billionaire Pony Ma, is making the biggest acquisition Finland has ever seen as it seeks to build up its universe of entertainment content. In June, Tencent said it will lead an $8.6 billion takeover of Supercell Oy, the Helsinki developer behind popular mobile games Clash of Clans and Clash Royale.

 

 

Lexmark inkjet printers

Chinese investors swooped in on Lexmark International Inc. after the US printer maker reported years of falling sales as it battled cheap ink refills and customers switched to digital documents. Apex Technology Co., a Shenzhen-listed maker of toner-cartridge parts, and PAG Asia Capital led a group in April that agreed to buy the Lexington, Kentucky-based company for $2.5 billion.

 

 

Blood plasma

Chinese drugmaker Creat Group Corp. agreed in May to spend $1.2 billion to buy Bio Products Laboratory Ltd, a supplier of blood plasma products that’s been around for more than six decades. UK-based BPL processes more than 650 tonnes of blood plasma annually from American donors and supplies its products to more than 45 international markets.

 

 

Delta airplane food

HNA Group Co. agreed in April to acquire airline caterer Gategroup Holding AG for about $1.5 billion, putting the Chinese company in charge of your meal if you’re flying Delta, United Airlines Inc. or Emirates. Frequent flyers should take note that HNA could also be carrying their luggage after it bought baggage handler Swissport International Ltd in February.

 

 

Online bingo

Billionaire Shi Yuzhu came up with a solution for Chinese gamers who find Vegas out of reach. A consortium led by Shi’s Shanghai Giant Network Technology Co. announced a $4.4 billion deal in July to acquire Playtika Ltd, which operates casino-style online games such as Bingo Blitz and Caesars Slots.

 

 

A lot of planes

HNA has averaged more than two acquisitions a month in the past year as the Chinese company expands its global aviation empire. One of its latest targets is CIT Group Inc.’s $10 billion plane-leasing business. The purchase will help HNA create the world’s third-largest aircraft lessor, with 910 planes valued at more than $43 billion.

 

 

AC Milan

China has been buying entry into the European leagues in a big way. A little-known Chinese investor group sealed an $830 million deal in September for Silvio Berlusconi’s famed AC Milan club, following the purchase of cross-town rival Inter Milan last year by another Chinese company.

 

 

A heap of garbage

Beijing Enterprises Holdings Ltd, which sells everything from beer to energy, is proving that one company’s trash is another’s treasure. The state-controlled conglomerate said in February it will buy EEW Energy From Waste GmbH, which incinerates garbage to generate power, for $1.6 billion. The deal is the biggest Chinese direct investment in a German company to date.

 

 

“So You Think You Can Dance”

Chinese property tycoon Wang Jianlin, who bought the producer of the Godzilla and Dark Knight film franchises earlier this year, is now expanding his influence into American television. Wang’s Dalian Wanda Group Co. said this month it will spend $1 billion to buy Dick Clark Productions Inc., the studio behind the Miss America competition and the hit show So You Think You Can Dance.

 

 

So, what is the underlying rationale behind the moves? According to experts, it is part of an effort by Chinese authorities to keep China’s money supply within China. A new SAFE (State Administration of Foreign exchange) directive to banks on additional exchange control last week, making it harder to convert RMB (Renminbi) into USD and invest in USD out of China, discouraging capital flight.

 

Besides M&As, the moves would also potentially impact fund-raising by private equity and venture capital funds.

 

Why China could lead the next phase...

Why China could lead the next phase of Globalization

Donald Trump is on his way to becoming the 45th president of the United States. Among his promises are a 45% import tax on Chinese products, the cancellation of the Paris climate agreement and, as was confirmed today, the end of the Trans-Pacific Partnership trade deal.

 

 

If he doesn’t go back on his plans for global trade and international affairs, Trump will give room to other nations to take the lead in shaping globalization. While the US might be taking a step back from the world – a world it helped to create, to a large extent – China in particular can be expected to take on a more prominent role.

 

 

While the US is currently the world’s largest economy, in purchasing-power terms China is expected to overtake it in 2016, according to the International Monetary Fund. China has benefited significantly from globalization. Over decades, it has invested in enhancing its capabilities and built economic links with many countries. It has become viewed as an important overseas partner and investor.

 

 

Something China understands very well is the importance of connectivity – and hence transport infrastructure – for economic growth and development. Its major development framework is the One Belt One Road initiative with its two pillars, the Silk Road Economic Belt and the 21st Century Maritime Silk Road. This development project involves a territory equal to 55% of global GDP, 70% of the global population and 75% of its known energy reserves. “The investments will involve about 300 projects extending from Singapore to Turkmenistan,” reports Reuters.

 

 

One building block of One Belt One Road – also known as OBOR – is the Regional Comprehensive Economic Partnership (RCEP). This China-driven alliance will comprise Australia, New Zealand, China, India, Japan and South Korea – as well as the ASEAN region. In 2014, ASEAN was the seventh-largest economic power in the world. It was also the third-largest economy in Asia, with a combined GDP of US$2.6 trillion – higher than all of India.

 

 

China on the world stage

On the African continent, China is lending billions towards large-scale infrastructure investments, again part of OBOR, and particularly in transportation. One of its flagship projects is the Standard Gauge Railway in Kenya. There’s also the development of deepwater ports in cities such as Dakar, Dar es Salaam and Djibouti. These are likely to become industrial hubs, following the model of China’s development of the new Cameroonian deepwater port of Kribi.

 

 

The Russian Trans-Siberian Railway (TSR) is at the origin of rail transportation between Europe and Asia. Recently Newsweek reported that Vladimir Putin may be envisaging a Hyperloop Silk Road. This could present an alternative to the planned construction of 64,000 kilometres of rail tracks that are intended to strengthen existing pathways between the east and west. CRRC Corp, China’s largest maker of railway equipment, was in talks for a potential investment in Hyperloop One, the company behind the idea.

 

 

Meanwhile, China is launching an $11 billion fund for Central and Eastern Europe, targeting investments in infrastructure and high-tech manufacturing, among other things, both in the region and beyond. Supply-chain operator DB Schenker started running weekly block trains between China and Germany as long ago as 2011. Four years later, the first train carrying containers from China arrived in the Rail Service Centre freight terminal in the Port of Rotterdam.

 

 

With the New Development Bank (NDB), the Silk Road Fund and the Asia Infrastructure Investment Bank (AIIB), China has prepared itself for responses to major financing needs – within and beyond the Belt and Road area. This shows some similarity with the Marshall Plan, the US support plan that helped to rebuild western Europe after the end of the Second World War.

 

 

With the US pulling out of the TPP, as Trump has indicated it will, China holds an advantage. The binding agreement, which connects Asian countries to North and Latin American nations, has been perceived by many as an obstacle to China’s reach and a way to solidify US alliances with other nations in the Pacific region. Other Asian countries with high export potential, such as Malaysia and Vietnam, are expected to benefit significantly from TPP, while countries that did not sign the agreement, such as the Philippines, risk losing out. This could have a disruptive effect on the region due to trade and investment diversion.

 

 

So far, China has faced scepticism and criticism for its international activities. Many have questioned its development in Africa, for example. But China could yet regain a level of moral authority; it could lead the global climate adaption effort if the US pulls away, for instance. It has already warned Trump against backing away from the Paris climate deal.

 

 

What’s in store for relations between the US and China? For a start, there may be tough negotiations over the US import tax on Chinese goods. If both nations find the right balance, they will not only avoid a global trade war, as in the 1930s when the implementation of the Smoot-Hawley tariff act intensified nationalism around the world, but they could also move their bilateral relations to new grounds.

 

 

Whatever happens, if the US pulls away from globalization, China stands ready to fill the gap.

 

 

Source: This article first appeared in World Economic Form 22/11/2016 and is reproduced here in its entirety.

 

 

A football revolution in China?

A football revolution in China?

On the shoulders of Marcello Lippi now rest the hopes of a billion-strong Chinese and their soccer-mad chief, President Xi Jinping, whose ambitions for soccer glory have fuelled a prodigal scramble to buy success. Recently appointed as China`s national team manager, Lippi is one of the most successful managers in history having led Italy to victory at the world cup in 2006. This is off the back of China struggling to qualify from the group stages having lost to the footballing giants of Uzbekistan and Syria. 

 

 

China is investing heavily both in the development of it`s domestic game and in international clubs. Italy's AC Milan and England’s Aston Villa, Wolverhampton Wanderers and West Bromwich Albion are all now in Chinese hands. Chinese firms have bought stakes in Manchester City and Birmingham City, and have expressed interest in Liverpool. Some $2.7-billion has been spent by Chinese acquirers on foreign clubs in the past two years alone.

 

 

So what is so appealing about Midlands clubs? Well, clearly it’s not success on the field. Only West Brom is in the English Premier League and it was the 1960s when they last won any trophies. It`s about the football culture.

 

 

Whilst coaches can be hired from abroad, national team players cannot. Money dose not buy results. Football isn’t built from the top down. You start with children barely able to walk and teach them the culture of football. For many Chinese parents of single children, the path to success lies not on the field but in the classroom. Educators view sport as a distraction and it is this culture that the sport will have to confront.

 

 

China is turning attention to its youth. It has drafted a 50-point “Chinese football reform and development program” which wants kids playing soccer in 50,000 schools by 2025. It is preparing thousands of local trainers and hiring hundreds of foreign coaches.

 

 

The Chinese team currently sit bottom of its group but there are enough games to turn it around and still qualify. This is of huge importance given the stated aim of Chinese Premier Mr Xi, to be a global football superpower by 2050. 

 

 

Demographic gold: changes for the countr...

Demographic gold: changes for the country’s growth model

A new breed of workers is emerging in China, and this time it’s all about quality – not quantity.

 

 

For decades, China’s economic growth has been underpinned by a ‘demographic dividend’ in the form of an ample supply of labour. Today, this growth model is very much under threat. Wages are rising and there are labour shortages, largely the result of China’s decades-long one-child policy.

 

 

Many countries have experienced declining birth rates as their economies have developed, but the speed and magnitude of China’s demographic transition are unprecedented in world history. The UK took about 200 years to complete its demographic transition to low birth rates, and the US took 140 years; in contrast, China’s transition took only about 30-40 years. China has had the biggest surge in college-educated people in human history.

 

 

When China announced it was ending its one-child policy last year, in response to an ageing population, it was headline news around the world. But the truth is its ageing population problem already poses a threat to future growth and we think, relaxing the one-child policy is unlikely to have much impact on reversing the trend. Instead, future growth in China is likely to come from the educated population currently emerging.

 

 

China has had the biggest surge in college or university-educated people in human history. In 2010 only 3.9 per cent of its working population had a degree, compared with an average of 29.6 per cent in OECD countries. By 2015, the number of higher education graduates reached 7 million, almost eight times the figure in 1999, and up from 1 million in 2000.

 

 

Moving to high-end manufacturing

By 2030, estimates suggest more than a quarter (27 per cent) of China’s workforce will have a college degree, similar to the level in Germany, France and the UK. With the world’s biggest pool of educated labour – around 220 million by 2030 – China will be well positioned to compete in high-end manufacturing (such as aerospace and new energy) and modern services (such as finance & the creative industries), opening up vast potential for future growth. The surge in supply of skilled labour should support future growth in China. Standing in the way, however, are the country’s socioeconomic structures, which were designed to suit China’s old demographic profile.

 

 

An industrial upgrade is urgently needed to provide the fast-growing population of skilled workers with sufficient job opportunities. According to a study by Peking University, 49 per cent of college graduates in 2014 chose working in the government sector as their first option, partly because of the lack of opportunities in the private sector. A disproportionate number of China’s manufacturing firms still use old technologies suited to unskilled workers.

 

 

New growth model

Adopting skill-intensive technologies would allow companies to take advantage of the increasingly educated workforce and move to higher-end manufacturing, which generates wider profit margins and, importantly, jobs for the increasing number of new graduates.

 

 

There are widespread doubts about whether China can maintain high growth in the coming decades, especially against the backdrop of extreme bearishness globally. China is becoming less competitive in low-skilled manufacturing but a growth model of higher-end manufacturing will give the country its competitive edge in the next decade. And when you think about what China achieved with its unskilled workforce, imagine what its skilled workforce will deliver.

 

 

How Can China Develop & Sustain a Prospe...

How Can China Develop & Sustain a Prosperous Creative Sector?

By Kiran Patel for China Brain.

 

Background

Driven by the 13th Five Year Plan, Germany’s Industrial blueprint of Industry 4.0 and the government policies of Made in China 2025 and Internet Plus, China is embarking on an exciting journey into the New Industrial Revolution. The 4th Industrial Revolution in China will be driven by policies of innovation, consumerism and efficiency while at the same time maximizing transition towards high-tech, high-yield and low pollutant initiatives. Industry 4.0, Made in China 2025, Internet Plus and the creation of an Internet of Things (“IOT”) have become the key economic triggers of China’s long-term economic strategy. In defining the evolution from ‘Made in China’, to ‘Designed in China’, ‘creativity’ and ‘Innovation’ are the buzz words of President Xi’s administration. When examining China’s potential to develop and sustain a creative innovative economy, it is important to take a step back from the pre-conceived notion of cheap ‘Made in China’ knock-offs and occasionally maligned Intellectual Property (“IP”) practices. From the 4 Great Inventions of yesteryear fast-forwarding to present day innovative and practical mobile shared economy applications such as DidiDaChe, Alibaba’s incredible service integration of E-Commerce, Logistics and Financial Services and integrated ecosystem m-commerce and social media platforms such as WeChat, China certainly possesses a culture of continual innovation and execution.

 

 

With China expected to exceed well over 700million netizens by the end of 2016 and exhibiting phenomenal potential for further growth and penetration, the possibilities for creative sector growth are vast. In addition, possessing a burgeoning Urban Middle Class with growing disposable incomes that have risen to around 27,000 CNY per annum on average according to the National Bureau of Statistics and an incredible appetite for technology and innovation both in terms of products and services among consumers, China is ready to embark on its second economic miracle, with creativity and innovation forming the bedrock. However with such rapid development and exciting opportunities for China and businesses operating within the scope of the key focus areas of the new economic policies of the Xi Jinping and Li Keqiang administration come two caveats.

 

 

Firstly, how can China develop and sustain a society that encourages creativity and innovation to thrive and thus, drive forward a long-term and ultimately sustainable innovation economic vision?

 

 

Secondly, what role if any can innovative Foreign Invested Enterprises (“FIEs”) play in this transition and does the business environment allow for success in the market?

 

 

This article will examine the key drivers towards how China can successfully develop its creative economy and transform it into that of an innovative world leading one, to match its GDP and global economic strength, while also showcasing the key areas of opportunity for FIEs.

 

 

Part I: Building a Platform for Success

Why Evolve?

China’s previous growth model which was tremendously successful is starting to decline due to a weakening demand for exports particularly in the US and Europe, overcapacity and high-levels of pollution. Faced with these key challenges, China has embaked on a journey of economic reform directly linked to innovation policies as the stimulant for sustainable economic growth. The 13th Five Year Plan through its 5 Key Tenets of ‘Innovation’, ‘Coordination’, ‘Green Growth’, ‘Opening Up’ and ‘Inclusive Development’ has laid the blueprint for delivering this new economic vision.

 

 

China’s Current Global Innovation Index Ranking

Currently, according to The Global Innovation Index (16th September, 2016), China while having consolidated its position as the 2nd largest economy in the world ranks 29th in the world behind Slovenia, Malta, Estonia and the Czech Republic. China does not rank amongst the Top 3 Innovation performers in South East Asia (which are ranked in order; Singapore, Hong Kong and the Republic of Korea).

 

 

Fig 1 - Global Innovation Index (Sept 2015) Innovation Quality (Source: The Economist)

 

 

Fig 2: Global Innovation Index, (Sept 2015) Middle Income Countries (Source: The Economist)

 

 

Ranking is based on 3 key criteria: Average rating of top three universities, Number of patents filed per unit of GDP, Cited articles as % of published articles.

 

 

In the ‘Innovation Quality’ category, while China leads the ‘Middle Income Innovation Quality’ category by some distance ahead of Brazil and India taking into account the average ranking of the Top 3 universities, number of patents filed per unit of GDP and cited articles as percentage of published articles, China still ranks far behind ‘High Income Nations’ (Ranked in order: USA, UK and Japan). In a perfectly geared innovative world, China according to the research conducted within The Global Innovation Index would be a global pillar of Human Capital and Research due to the excellent performance of pupils in literary and numeracy skills. The findings of The Global Innovation Index report conclude that in order to successful enact the transition to a creative and innovative economy; China is progressing forward to achieve its undoubted potential.

 

 

Creative Industries in China: The Opportunities

Creative sector industries can be defined as per the visual below. China possesses a rich culture to act as the creative economy catalyst and has significant potential for growth across these highlighted areas, therefore illustrating the great economic benefit that development of a creative economy can hold as China embraces further economic reform.

 

 

The Key Elements for Building a Prosperous & Sustainable Creative Sector

Navigating the transition from a manufacturing economy to a knowledge economy is the key goal of China’s economic shift however development of a prosperous and sustainable creative sector driven by world-class innovation and entrepreneurship is a fundamental component of this process.

 

 

The Oxford dictionary defines creativity as “The use of imagination or original ideas to create something; inventiveness. Bringing into existence! Giving rise to, being imaginative and creative.”

 

 

Creativity is the essence of effective business, whether through creative product and service innovation or generation of creative solutions around a negotiation table. All industry sectors and industries require creativity and innovation at some stage.

 

 

The following elements are the key areas that constitute a prosperous and sustainable creative sector:

  • Education
  • Culture
  • Representation
  • Sector Diversity
  • International Mind-set

 

 

Education

From grass-roots education to professional practice in the real world, education forms the backbone for the evolution of a creative sector. Creativity and kinaesthetic activities should stand on equal footing with literacy and arithmetic in order to drive forward the creation of innovative thinking within China’s creative leaders and innovators of tomorrow. Successful creative economies such as the UK and US have achieved a balance between these three key areas. China’s education system is largely traditionalist, however the education sector is seeing patterns of reform and an increase in demand for extra-curricular creative activities and it will be of interest to view how government policy on education evolves.

 

 

Culture

Culture is the heartbeat of a creative and innovative society and this is an area that holds great potential for China. With a rich history and culture, the opportunities for China to showcase it are immense. Creation of Creative Industry Clusters in Beijing such as 798, Shangdi, Tech Parks such as the Zhongguancun Science & Technology Park and events such as Beijing Design Week are vehicles to leverage creativity and innovation as forces of economic growth.

 

 

Representation

A sustainable creative sector in order to thrive requires strong representation and networks through government vehicles both internally and externally.

 

 

Sector Diversity

Sector Diversity is brought about through creation of a multidisciplinary diverse creative industries sector that promotes cross-fertilisation of people across a wide range of expertise and skill areas as illustrated in the table below.

 

 

International Mind-set

The 2008 Olympics and 2010 World Expo in Shanghai created a two way transformation of perceptions as to how China viewed the West but perhaps more significantly, how the Western World viewed China. These key events also significantly enacted a mind-set shift throughout Chinese society. As Chinese enterprise continues to expand and diversify its reach into new markets and industries and developing new innovative technologies to export, an international mind-set has become an increasingly important characteristic for creative talent. Alibaba’s successful brand expansion into new creative industries and international growth can in part be attributed to Jack Ma’s ability to communicate and engage with the international business community, exuding that precious creative commodity of soft power.

 

 

Can China’s IP Protection Environment Incubate Creativity?

IP is a common buzzword but it is an idea that is the result of a creative process that when registered, transforms into an asset that can be exual Property protection environment can be argued as having obstructed the growth of domestic innovation which has an impact on both Chinese and Foreign Invested Enterprises. With China’s focus shifting towards innovative economic drivers, both Foreign and Chinese firms will require stronger protection of their IP. The signs are encouraging however. There is greater flow of IP in China both from domestic and from foreign invested enterprises than ever before.

 

 

Fig 3 below shows the rapid rise in the filing of utility, design and invention patents between; 2002 – 2012

 

 

Patents Issued by China, 2002-2012

In 2015, 1.1 million patent applications were filed, up 18.7 percent year on year, according to figures from the State Intellectual Property Office (SIPO). About 359,000 invention patents were authorized, 263,000 of which were granted to domestic applicants, 100,000 more than in 2014. SIPO figures also indicate that in 2015, 60.5% of invention patents went to Chinese enterprises, demonstrating a 4.1% increase. With Innovation being one of the 5 key tenets of the 13th Five Year Plan, authorities have rolled out favourable policies to support high-tech companies and encourage investment into research and development, which to date have been successful.

 

 

Part II: Opportunities for Foreign Invested Enterprises in China’s Creative Economy

The development of the Creative Economy as a powerful economic driver has opened up a number of opportunities for FIEs across a number of sectors. The below section highlights these potential growth areas:

 

 

Music, Film & TV

Since the Chinese State Council took the decision to open up commercialisation of the creative sector in 2009, particular focus has been made on the film and television industry, publishing and distribution, printing, advertising, entertainment, cultural exhibitions and digital content. Since the promulgation of the “Cultural Industry Revitalisation Plan” in 2009, China has sought to exercise controlled growth specifically concerning the television industry whereby restrictions have been placed on the export of TV programmes and formats in order to ensure that Chinese broadcasters remain competitive. With the new economic policy direction of China through the 13th Five Year Plan, Made in China 2025 and Internet Plus, funding has been allocated to developing key innovation sectors including entertainment, live music, animation and digital games, TV, film production and distribution, publishing, cultural exhibitions and internet media. Education institutions have established research centres and regional governments have set up city specific plans for developing the creative economy.

 

 

Fashion Design & Retail

China’s growing middle income consumer demographic has created a demand for global fashion brands to continue retail expansion into China. Alongside this, boutique ateliers and independent designers also have an opportunity to export product and sell to a thriving new market. With the changing lifestyles and habits of China’s ‘Middle Income Consumers’ transitioning from being traditionally brand led to quality led, a different approach is needed in order to successfully achieve market penetration. According to a recent study by McKinsey, China’s Middle Income Consumer demographic has seen their disposable income rise to between GBP 6,000 to GBP 23,000 per year in 2015, making this segment an important consideration for FIEs in this sector. In addition, the much-discussed '80后' (post-1980s) demographic in China consists of the 240 million people born between 1980 and 1990. With unprecedented access to technology, consumer goods and social media, understanding what drives their buying decisions is also of great importance. Chinese companies have yet to successfully enter the premium market and foreign companies still dominate the skincare, premium car, sports apparel and fashion sectors, illustrating that FIEs maintain a very competitive proposition for China.

 

 

E-Commerce & M-Commerce

It has been estimated that by 2018, China will surpass the United States as the largest market for cross border e-commerce. Approximately 88.9% of Chinese users access the Internet from smartphones. With the growing use of internet and smartphone technology to make purchases, companies should look towards strategically leveraging the largest e-commerce market in the world. It has been predicted that China’s e-commerce market will reach GBP 3 Trillion by 2020. This is larger than that of the US, UK, Japan, Germany and France combined. This is not restricted to 1st tier cities. Tier 2 cities according to a Jan 2016 survey by The Economist Corporate Network and Admaster have overtaken Tier 1 cities in terms of purchases made on mobile devices. Member companies in the retail sector particularly should pay close attention to leveraging a localized and optimised website, social media, CRM tools and digital advertising to engage the market. Foreign brand-based companies should either focus on developing their own sites to increase traffic or establish relationships with Chinese e-commerce platforms such as JD, Taobao and T-Mall.

 

 

Professional Services (Legal, Financial, Marketing & PR Agency Services)

The Professional Services sector is extremely diverse and carries substantial opportunity for FIEs to prosper within China’s creative economic boom. The demand for financial and legal services will remain buoyant in light of the growing need for protection of IP and patents, which form the backbone of a sustainable creative economy. Aligned with this, we have seen growing M&A activity in the sector as China continues to reach outbound and diversify its investment portfolio into successful global creative sector enterprises. This facilitates the need for financial consulting and accountancy services in tandem with legal services. As Chinese companies continue to expand overseas and integrate more with the wider global economy, effective communications, PR and brand management, as well as the necessary soft skills, will only grow. FIEs therefore operating in this area of professional consultancy services are therefore strongly positioned to enable Chinese businesses to innovate and grow beyond borders.

 

 

Architecture

With the population ratio of Chinese living in cities expected to hit 60% by 2020, development of infrastructure will remain firmly on the government’s agenda. Coupled with this, the 13th Five Year Plan directive of ‘Green Growth’ will ensure that foreign architects and consultancy firms will remain competitive, especially concerning Smart City and Sponge City initiatives. In February 2016, the State Council released a new set of directives focused on the promotion of environmentally friendly urbanization. This will create opportunities for foreign architects and urban planners to export experience and best practice for utilization of green space, creation of mixed use developments, preservation of historical buildings and energy efficient initiatives. Beijing will also host the 2022 Winter Olympic Games, thus maintaining market opportunity for foreign invested architecture firms with a world class pedigree and track record in sports facility and related infrastructure developments.

 

 

Cultural Arts, Leisure & Entertainment

The emergency of a thriving creative industry in China has led to a boom in the cultural arts driven by growing scale of economy and professionalism. The role of foreign enterprises to play in this area is particularly strong commercially and politically with plenty of political capital to be gained through ‘soft power swaps’. The export of cultural initiatives such as museum exhibitions, performing arts and literature, Film & TV and sport remain powerful opportunities for foreign invested enterprises to leverage in tandem with the opportunity to not only succeed commercially, but significantly also build cultural bridges with China.

 

 

Computer Science Technologies

Made in China 2025 and Internet Plus will integrate both industry and Information Technology to form an Industrial Internet. This will open up further opportunities for FIEs in the creative economy for export of automation software in manufacturing and construction. IOT evolution in the Internet Economy will lead to demand for big data and digital marketing services, cloud computing, shared economy and a number of online consumer services. 

 

 

The growth potential of the ‘Industrial Internet’ through linking manufacturing with IOT technologies is strong. In order to make this possible, the Government will be launching fiscal and tax policies to help these industries grow and therefore enabling a sustainable environment for both domestic and foreign invested FIEs to evolve within the Internet Economy.

 

 

In terms of leisure services, digital publishing, internet gaming, software and mobile application development also remain strong opportunities for FIEs focusing on partnership through the creative economy.

 

 

Summary

Looking ahead, these are exciting times for the Chinese Creative Sector and for the foreseeable future FIEs still have in important role to play in the development of the creative economy across a variety of sectors as outlined. In order to move further up the creativity value chain and enable construction of a sustainable creative economy, China is seeking creative partners from abroad through which to deliver upon its need to innovate while at the same time building up its own competencies domestically.

 

 

As the 2nd largest economy in the world, with a final ranking of 29th in the 2015 Global Innovation Index, there is therefore substantial potential for continued growth in the creative sector and for FIEs to add value.

 

 

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

 

 

Kiran Patel has been living in China since 2004 and is currently the Marketing & Communications Director of LehmanBrown International Accountants, a China focused accounting, taxation and business advisory firm. He is also an elected Executive Committee Board member of the British Chamber of Commerce in China.

China’s rebalancing spells changes...

China’s rebalancing spells changes for African trade.

The impact of structural reforms in China coupled with the fall in commodity prices are now being felt in global markets, especially so in resource-rich African economies. Sub-Saharan African economies in particular have been overly reliant on Chinese resource demand for their economic performance. Over the past 15 years, China has become Africa’s largest trading partner and an interdependence or “growth coupling” has become very evident.

 

 

This slowing demand can be seen over the last two years in terms of the value of African commodity exports, amplified by the fall in global commodity prices. In the first quarter of 2015, the value of crude oil imports from Africa was 50% less than it was in Q1 of 2014. In addition, iron ore imports contracted 55% in value terms, while copper imports from the continent slid 39%.

 

 

Nonetheless, China continues to be a key driver of global economic growth, and the recalibrations in its economic makeup will certainly test the resilience of its economy, as well as redefine the commercial relationship and terms of engagement of this Asian giant with key commercial and trading partners, including the African continent.

 

 

Which African countries will be impacted the hardest?

In 2015, almost 80% of China’s crude oil imports from Africa came from Angola, Republic of Congo, Sudan and South Sudan – with Angolan exports making up 61%. Crude oil exports from Equatorial Guinea and Nigeria account for 5% and 3% respectively.

 

 

In iron ore, 95% of Chinese imports from Africa came from three countries – South Africa (62%), Sierra Leone (21%) and Mauritania (12%). Around 73% of South Africa’s total global iron ore exports were absorbed by China, illustrating the country’s exposure to a Chinese slowdown.

 

 

And in copper, 87% of Chinese imports from Africa originated from Zambia and the Democratic Republic of Congo (DRC), with a further 7% from South Africa. Roughly 40% of Zambia’s total copper exports were absorbed by China, 42% for the DRC, and near 60% for South Africa.

 

 

Despite slowing growth, the Chinese government and private companies will continue their long-term strategic geopolitical relationships and investments across the continent. China is invested in African nations for the long term especially in relation to infrasturcture construction.

 

 

Whilst a sizable funding commitment was announced at the sixth Forum on China-Africa Cooperation (FOCAC) to create a US$10bn China-Africa industrial capacity cooperation fund to support investments into value-adding sectors including manufacturing, hi-tech, agriculture, energy and infrastructure by Chinese firms in Africa. It is evident that African nations must rebalance their economies as China dose and a new growth model must be found in the near term. African businesses will need to refocus their value proposition for doing business given China’s own internal recalibration.

 

 

Chinese FDI in Europe at record levels

Chinese FDI in Europe at record levels

Chinese investment in Europe is now at a record high despite a sense of continuing economic crisis in both China and the EU. Last year, Chinese takeovers in the EU-28 reached a record volume of approximately €20 billion, equivalent to an increase of 44 per cent compared to 2014. China has now become one of the main drivers behind global capital flows, growing into one of the three biggest foreign investors in the world. This development has increased the competition for Chinese investment among EU states and could weaken the European Union’s negotiating power with the PRC regarding strategic issues. Forecasts see the next five years as continuing this trend.

 

 

Europe has become one of the main destinations for outbound FDI as Chinese investors have increasingly moved away from developing and emerging economies, focusing on high-income industrial nations instead. The enormous rise in Chinese investment in Europe – 44 per cent more than in the previous year – is largely due to Italian tyre maker Pirelli being taken over by ChemChina (for €7 billion). On average, China has invested €10 billion a year in Europe over the last five years. In the five years prior to this period, it was ‘only’ a billion euros per annum. This underlines the fact that Europe is not just experiencing a temporary trend here. However, while Chinese FDI has been growing, the level of European investment in China has actually been stagnating – or even dropping. Ultimately, this situation is likely to create a considerable imbalance: making it all the more pressing to do away with one-sided investment barriers. This could be achieved by means of the Bilateral Investment Agreement, which China and the EU have been negotiating for the last two years

 

 

Downward pressure in the Chinese economy is boosting FDI

Restructuring the Chinese economy at a time when growth is dwindling is having a direct effect on sectors that are of interest to Chinese investors. Looking at the foreign investments made last year, a considerable mixture of sectorss is apparent, ranging from technology and advanced services to brands and consumer goods. The largest proportion of investments seen in 2015 was made in the automotive sector, followed by real estate, hospitality, information and communication technology, and financial services. What is noticeable here is that Chinese investments are particularly increasing in areas that are not freely accessible to foreign investors in the PRC, such as the finance sector. This ought to strengthen the resolve of the EU’s member states to demand equal conditions for access to China’s markets

 

 

The majority of Chinese investment in Europe was undertaken in Britain, France and Germany. Over the last five years, the figure has amounted to an average of four to eight billion euros a year in these countries. In the last two years, however, certain countries in Southern and Eastern Europe have started to catch up, just like the Benelux countries have. This development has fuelled diplomatic efforts to promote high-level exchanges with China to boost flows of capital. The same thing applies to the ‘16+1’ format that links China with Central and Eastern European countries. The race for Chinese investment has been increasing the amount of friction felt within Europe on key policy issues such as the pending decision as to whether China should be entitled to the status of a market economy from the end of 2016 or whether the EU should negotiate a free-trade agreement with the PRC. 

 

 

Of all the member states in the European Union, Germany is the one that has seen the steadiest inflow of Chinese capital over the last five years. In 2015, the overall amount came to €1.2 billion, dropping slightly from €1.4 billion in 2014. Despite this slight dip, Germany does not seem to have lost any of its attraction to Chinese investors over the years. The automotive industry and machinery/plant engineering alone attracted 400 million euros’ worth of Chinese FDI last year. The biggest deals of all included the acquisition of two automotive suppliers, WEGU Holding and Quin, and Weichai’s second increase of its stake in KION, a producer of forklift trucks and warehouse technology. In fact, Germany seems to be growing increasingly attractive to financial investors from China. In 2015, the sovereign wealth fund China Investment Corporation (CIC) acquired a share in Germany’s largest motorway service station operator, Tank & Rast, and the Fosun Group invested in KTG Agrar. Three record investment projects concerning KraussMaffei, the mechanical engineering firm, the private bank Hauck & Aufhaeuser and environmental engineering company EEW Energy from Waste are currently being finalised. Hanemann and Huotari expect Germany will also benefit from this wave of Chinese investment in the future, particularly in view of the support provided by the Chinese Government and the creation of more financing vehicles such as the new ‘Industry 4.0’ fund.

 

 

The Chinese leadership has strengthened its capital flow controls because of the considerable amount of turbulence felt on the country’s stock markets and financial markets in a bid to stem the enormous outflow of capital. Some of these controls could also apply to Chinese companies that wish to make investments abroad. At the same time, however, the pressure is rising for Chinese businesses to internationalise. If Premier Li Keqiang’s announcement proves to be true that China is going to invest $1 trillion of OFDI globally over the next five years, then it would make China the second-largest exporter of FDI in the world, only one step behind the United States. The Chinese leadership has a knack of making foreign investments by Chinese companies look as if they are of mutual benefit; promises of Chinese investment and flows of capital have long been vehicles of Chinese foreign policy.

 

Pictorial: Chinese Street Food, Chuan`r...

Pictorial: Chinese Street Food, Chuan`r 串儿

The Variety and depth of Chinese street food is incredible, however for this pictorial we have chosen one of our favorites: Chuan`r 串。

All Images © Patricia Calvo

 

 

 

 

 

 

 

 

 

 

 

 

The Globalization of Chinese banking

The Globalization of Chinese banking

With increasing integration into the global economy. There is good reason to believe that the Chinese economy has reached a point where its status as the biggest export country will also soon become the biggest in outbound direct investment.

 

 

This new model requires not only Chinese enterprises to expand their global businesses, but also China's banking sector to accelerate its internationalisation. One particularly striking feature of the multipolar world over the past decade has been the rapid appearance of emerging market multinationals, in particular from the BRICS. These multinationals benefited from globalisation, and, in turn, have played increasingly significant roles in driving globalisation.

 

 

Global business and its conventions have changed in many ways, capital flows are no longer one way - from developed nations to the developing economies. Now both have become capital exporters. In contrast to the weakening of consumption in advanced countries, there is huge from new consumers emerging in developing markets.

 

 

As part of its ‘Go Abroad’ policy the Chinese renminbi has become the second most widely used currency in trade and finance, and ranked fourth in payments, sixth in international inter-bank loans as well as new bond issues, seventh in foreign exchange transactions and eighth in terms of outstanding international bonds. These figures show the main driving force for Chinese banks to follow their customers abroad.

 

 

Meanwhile, with the renminbi's ongoing internationalisation, there have been a new choices for Chinese firms and banks to freely choose their settlement and investment currency, making it easier for them to lower the cost of finance and conversion by raising funds from different onshore and offshore renminbi markets. And so it is unimaginable that the renminbi can become a global reserve currency without support from Chinese international banks.

 

 

Admittedly, Chinese financial service providers lag well behind other enterprises going abroad. There is room for further improvement in providing enterprises with more cross-border products and services.

 

 

Historically, the years before the global financial crisis saw a rapid growth in the cross-border activities of banks. According to the Bank for International Settlements, the average year-on-year growth rate for cross-border bank credit to non-banks from 2000 to 2007 was 15.2 percent. European banks were in the vanguard, with around one-third of their assets outside their home markets. However with the homeward migration of European banks opportunities have opened up.

 

 

Whilst Chinese banks may be facing slowing growth in profitability in the domestic market as financial reforms and the slowing economic growth begin to bite. To some extent, developing their international business can help them diversify income streams and disperse risks.

 

 

Choosing regions of growth is vital to the success of banks' internationalisation. With Chinese trade and investment with the rest of the world becoming increasingly diverse, Chinese banks must further expand their global network so that they can have a larger coverage of overseas businesses: banks are giving greater importance to delivering financial services in Asia, Africa, the Middle East and Latin America. Organic growth within the chosen region will be a fundamental way of developing Chinese global banks, though it may take time to achieve this goal.

 

 

In the early stage of internationalisation, Chinese banks are placing a strong emphasis on corporate banking and cross-border services, rather than retail banking. There is a huge potential in corporate banking in growth areas such as international settlement and cross-border payment, which bring fee-based income. Trade finance, cross-border cash pool management and bank loans have all played important roles in facilitating world trade, investment, manufacture and innovation.

 

 

Risk management capabilities are vital for any bank's survival during its journey to internationalisation. Since global businesses may encounter more challenges than domestic ones, Chinese banks need to revitalise their risk management processes in order to ensure that their capital, liquidity, credit and national risks are all controlled at a level aligned with the bank's global strategy.

 

 

While the Chinese Big Five banks are now on the list of the World Top 10 Banks by market capitalisation, there is still a long way to go to make them truly international. Whilst Chinese banks will continue to pair with Chinese business expanding overseas this will naturally lead to the globalisation of the RMB and an increase of RMB reserves held by foreign nations.

 

 

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