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Soft power and the personality void

Soft power and the personality void

Later this year, both China and the US will go through some fairly major political upheaval. In the States, the people will go to the polls to deliver their verdict on whether they are willing to give Barack Obama another four years to build upon the moderate successes of his first term. If they decide that the country's economic recovery has been too sluggish, his health reforms too radical, or his rhetoric too lofty, they will usher in Mitt Romney as the next President.



When the results are in, and regardless of whether it's Obama or Romney who is sworn in to office, you can be assured that almost every single person in the country will have some view on the man set to occupy the oval office until 2016. This is not necessarily because they will all be politically curious and opinionated, but because such is the nature of politics in the US; both candidates will have been figuratively hung, drawn, and quartered a hundred times over by the opposition in the run up to the elections.


The national media will have wall to wall coverage, exposing any inkling of weakness or scandal in the candidates, and no stone will be left unturned in their quest to dramatize the proceedings. No American will be able to listen to the radio, watch TV, or even surf the internet, without having their day interrupted by some kind of party political broadcast. Nines times out of ten, these broadcasts will take a negative point of view, creating a poisonous, febrile atmosphere between the two political parties.


Outside of the US, anyone with more than a passing interest in the next leader of the free world will easily be able to read up on Barack and Mitt at their leisure, coming to their own conclusions about the choice the American people will make in November.


Meanwhile, around the same time in China, Hu Jintao and Wen Jiabao will (one assumes) be packing up their offices in Zhongnanhai and heading out the door to be replaced by their anointed successors, Xi Jinping and Li Keqiang.

Of course, there will be no elections in China, but nor will there be much of an opportunity for anyone inside or outside of the country to find out much about the men due to take up the position of President and Prime Minister of the most populous nation on earth. To most people inside and outside of China, two faceless Communist Party suits will be replaced with two faceless Communist Party suits. Only a smattering of insiders will have any real and reliable insights into how these men think, what their plans are for the country and to what extent we can expect either more of the same or radical changes in terms of government policy.


The smart money is on more of the same, but isn't it somewhat remarkable that, in this day and age, when China is so focused on building its soft power beyond its national boundaries, that it has not thought it appropriate to invest in educating the world about these two men who are about to take up the hot seats at the pinnacle of power? Xi Jinping did make a well choreographed trip to the US last year, but given how suspicious most nations and people are of China's rise, why has there been such little effort to try and break down the image of the country being run by shadowy, characterless figures, devoid of personality and of public proclamation?


When the author visited Hanoi to attend an APEC business summit back in 2006, the difference between China and the US's approach to building their international image and relationships based on mutual trust could not have been more stark.


The first speaker of the day was Hu Jintao. Hu arrived on time, his speech was placed on the lectern by one of his flunkies just moments before he arrived, and he proceeded to read out the statement in a voice that suggested this was the very first time he had read the words in front of him. He paused for polite applause at the end of his speech, and then departed as fast as his legs would carry him. His entrance and exit were closely guarded by his entourage, who seemed utterly convinced that any interaction with the audience or waiting media could only end in tears. The auditorium was no doubt impressed by the speed and efficiency of his appearance, but there was certainly no feeling of warmth, friendliness or care emanating from the platform.


Next on stage was then Secretary of State, Condoleeza Rice. This meeting was occurring right in the midst of the war on terror, and Ms Rice was not the most popular person in the world at that time. Even more provocatively, she was appearing at an event hosted by the government of a country that the US had entered - also uninvited - forty years previously.


Things did not start well for her as she arrived conspicuously late, but her entrance was immediately captivating. She paused on her way to the stage, shook several of the audience's hands, made sure everyone could see her smiling, and if my memory serves me correctly, she even embraced the person who was tasked with introducing her. She then spoke for 20 minutes using prepared notes, but speaking with utter conviction and passion on her chosen topic - the fact that people would look back at the war in a more favourable light than they see it now.


Most of the audience disagreed with her and I don't think many were won over by her argument. But few could not have been moved by the way she stated that amazing things can happen in current affairs, and to those who kept faith in what they believed in. After all, she said, who could have envisaged forty years ago that a black female Secretary of State would be standing there addressing a friendly audience in Hanoi in 2006? She completed her speech to a standing ovation lasting several minutes and then proceeded to take Q&A for another twenty minutes, clearly enjoying herself and the intellectual debate she was able to enter into with the people fortunate enough to be attending.


The above story is demonstrative of the challenge China faces as it advances its interest on the world stage. America is unpopular in many places, but at least most people know who its leaders are and what they stand for. For all its investments in Confucius centres around the world, and its attempts to turn CCTV into a respected global news channel and voice of the Party (shame about the xenophobic statements by its news anchor then), very few foreigners really feel comfortable with China's rise.


Would it make a considerable difference if there wasn't such a deep personality void at the very top of the echelons of power? We all know what happened to the last senior politician in China who dared to run a 'campaign' around personality, so one suspects monochrome statements from monochrome men in monochrome suits will be the norm for some time to come... but here's hoping that in an era when China is stepping into its role as a global leader, the new Party leaders surprise us all by appearing to at least care what the rest of the world thinks of them.


Reserve rates cut but government still...

Reserve rates cut but government still behind the curve

The accusation of being 'behind the curve' has dogged the current Chinese administration since it took office in 2002. The announcement of a reserve requirement cut at the weekend isn't likely to weaken that charge. A reserve cut had been expected since mid-April. Still, the government failed to act, despite mounting evidence from the provinces that industry was really struggling in the face of anemic global demand and Beijing's own anti-inflation policies.

That rates moved a day after a set of dismal economic data reports highlights again the State Council's inability to reach consensus on policy decisions, and its tendecy to allow problems to build in the system until a set of bad news prompts a kneejerk -- and often overly-aggressive --response.

It has been five years since the collapse of the U.S. housing market, and China has had a relatively good crisis. The government's aggressive CNY4 trillion response helped compensate for lost external demand, and the economy averaged 9.6% growth between 2008 and last year. That stimulus, announced in November 2008, was an uncharacteristically bold response to a once-in-a-lifetime systemic crisis that threatened the global financial system. Since then, it has been business as usual; responding to inflation only when prices have surged to the point of widespread public anger and now tentatively easing policy as private sector firms struggle for survival amid soaring curbside interest rates and anemic domestic demand.

China's current slowdown was engineered by government policy designed to tackle rising inflation and deflate nationwide property bubbles. The rationale has always been that the government's overwhelming control of the levers of the economy meant it could restimulate activity just as easily as it slowed it, and that underpinned this year's confident 8%-plus GDP forecasts. Moves to cut the reserve requirement in December and February boosted confidence that the central government had finally let go of its worries about inflation, and was moving to kickstart growth as price pressures faded and as euro-induced panic weighed on global risk sentiment. The weakness seen in January-February -- and, to a certain extent, March data -- was written off as distortions created by the Chinese New Year holiday.

But the weeks following the end of the holiday season have brought little respite. If anything, evidence mounted pointing to an industrial base struggling in the face of policies designed to keep prices and speculation in check. That it has gone on too long is reflected in business surveys, particularly those produced by HSBC/Markit, which tend to focus on smaller, privately-held firms that exist at the mercy of the unregulated underground financing system.

The index remained below the 50-mark separating expansion from contraction for a sixth straight month in April. More worryingly, the survey indicated that companies are shedding jobs at the fastest rate in 37-months.

The government hasn't been sitting on its hands in recent weeks. The People's Bank of China has injected around CNY400 billion into the interbank market via open market operations since the start of the year, while Beijing has announced key reforms, including the start of a private finance program in Wenzhou, the eastern-seaboard city which has arguably suffered most from the domestic credit crunch.

But it has been negligent in heeding calls from industry for a more aggressive pace of policy easing, including access to credit. While the State Council has debated the economy's need for looser policy and struggled to reach consensus on action -- opting for relative inaction instead -- industry has suffered. This culminated with the release of economic data reports at the end of last week. Trade, industrial output, investment and retail sales growth all fell short of market expectations, triggering a wave of analyst downgrades for growth this quarter and this year.

But the myth of Beijing's apparent insouciance was betrayed on Saturday evening, when the PBOC announced the reserve requirement cut. A cut had been expected ever since the release of first quarter GDP in mid-April. That it followed the miserable April data reports signaled a degree of panic within the establishment, and suggested a realization that officials waited too late to heed industry's call.

The reserve cut has been followed by the predictable flood of analyst reports, instructing clients to expect more loosening moves in the weeks and months ahead. They more than echoed the reports following the December and February cuts, despite the weeks of inactivity that followed. Inflation now appears to be firmly under control, while global economic conditions only appear to be worsening, even without the threat of a partial unraveling of the European Union.

Domestically, weak bank lending activity points to inadequate credit, but also falling demand for loans -- a situation that will require far more than the CNY400 billion that will be released into the system by this week's reserve cut. The reserve cut suggests the government is now suitably spooked about the economy and onside, ready to act to support the domestic economy and achieve 8% growth this year.

But the central government will need to follow up Saturday's move with more policy loosening, including taking advantage of its relatively comfortable fiscal position, if investors -- and corporate officers -- are going to avoid the sense that it's deja vu all over again.


China Brain Predicts, Part One.

China Brain Predicts, Part One.


Trying to predict anything in life is often a futile exercise. Trying to predict anything related to China even more so, especially in light of the events that the first part of 2012 has already witnessed. Disregarding all of this, and some common sense besides, China Brain has put down some predictions for what the remainder of 2012 may hold. Some of these are serious, some of them less so, but all are intended to create some lively debate and discussion. Please do let us know what you think. More to come as and when we feel inspired.


  1. China's GDP growth for the whole of 2012 will come in at a healthy 8.0%. Many doom-laden pieces have been written on the negative impact of Europe's continuing woes on China. Although we are concerned that the Continent is being rocked to the core by a combination of economic stagnation and political upheaval (most recently in France and Greece), we would point out that only 20% of China`s exports head to Europe, that signs of recovery in the US are particularly encouraging, and that many if not most emerging markets are powering ahead. Any renewed moves towards breaking up the Eurozone which have been hinted at by the new French President, could impact our prediction, but we are quietly confident that Angela Merkel will hold fast, as will the Chinese consumer, who is starting to demonstrate an important willingness to spend more at home and abroad. Knowing how much the government likes both round numbers and the number 8, we're quietly confident that there will be no major surprises on this one.



  1. The handover of power will be peaceful in Beijing but bloody elsewhere. With the transition fast approaching and the Party apparently locked in battles of an ideological nature, we remain optimistic that President Hu and Prime Minister Wen will make their exits in relative and appropriate harmony. We are not going to predict, however, how their legacy will be viewed in years to come. At such a critical juncture in China`s history, when Party eyes are focused on machinations in the capital we are likely to see a re-flaring of trouble in the country`s restive regions and a potentially very severe crackdown by the country`s new leaders who will want to be seen as no pushovers.


  1. The number of Chinese dissidents who gain entry into the US Embassy in Beijing: 0. The number who will try: more than 10. Since the Bo Xilai / Wang Lijun ‘incident’ and the remarkable escape of the former prisoner known as CGC, we expect the US embassy to come under increasing pressure to take in more dissidents. We find it highly unlikely that any of them will actually be let in. Two reasons: the US won`t want to risk jeopardizing its relationship with China any further than it already has done by continually providing safe harbor for opponents of the Chinese government. Perhaps more importantly, we can expect a rather large local security presence keeping a close eye on the gate 24/7 from now on.


  1. Chinese outbound investment will surpass last year`s figure of US$60 billion. We're still waiting for the mega deals to start rolling in – well the bankers are – but we expect to see a continuation of Chinese investments characterized by mid-sized acquisitions and large greenfield investments. As mentioned previously, the world is increasingly welcoming Chinese capital, except when it gets close to sectors related to national security. But, from a pragmatic perspective, beggars can no longer afford to be choosers. We boldly predict at least one major (US$10 billion or more) deal in the remainder of the year, which will no doubt get held up in red tape for at least another 12 months after being announced.


  1. Talking of deals…China will approve the Google / Motorola deal. We`re sticking our necks out on this one but if rumours are right that Google has offered the Motorola handset business to Huawei as something of a sweetener, we see little reason for the government to hold up the deal. The impact of a negative decision on China`s ability to pull off deals around the world could also be somewhat cataclysmic.


  1. China will fail to beat its 2008 gold medal haul at the London Olympics. Four years ago, China's rise to the international stage was completed by its talented and young (in some cases, a little too young) athletes, who whipped local crowds into a nationalistic fervor via their haul of 51 gold medals. China Brain expects things to be a lot closer at the top of the medal table this time around. We would be surprised if China took more than 45 golds.


  1. Chinese people will make over a 100 million overseas trips for the first time. As incomes rise and government policies enable more foreign travel, more and more of the population will step outside of the nation's borders for the first time. The impact on popular destinations will be at once exciting and terrifying. Profits will be up, but the thought of another 1 billion Chinese visiting the same places in years to come may push tourists from other nations to visit these sites sooner rather than later. Queuing at Disneyland might never be the same again; new queues will form outside luxury goods stores in Paris, New York, Milan and other cities famous for fashion.


That's it for now. We'll check in at the end of the year on how we did. Let us know if you think we're right, wrong, or wildly off the mark. Feel free to suggest other predictions too.

China goes global, this time its persona...

China goes global, this time its personal

Despite the media’s best attempts to whip us up into a frenzy of fear and loathing, the first serious wave of Chinese outbound investment that occurred felt rather distant to most people in the West. While some people were vaguely aware that the ThinkPad laptop had lost its IBM branding and had morphed into something called a Lenovo, most people were relatively unconcerned that the hungry Dragon was acquiring a serious number of mines and oil fields. After all, unless you were working for a company directly impacted, the bearing of these deals on peoples' daily lives was negligible. The most recent wave of M&A, sparked off by the financial crisis, feels distinctly different. As asset prices across all industries remain depressed, savvy Chinese acquirers are picking up distressed companies that have much less choice in who they sell themselves to or partner with. For many, it’s work with the Chinese or fold altogether.

One senses that the mood is starting to become a bit tense. While local and national governments polish off their shiny new Mandarin investment brochures, looking to the East for investments into greenfield and brownfield sites as well as help with new infrastructure projects, some of their citizens feel decidedly less comfortable about the Chinese buying spree, especially when it comes to treasured national brands. While Volvo slipped into bed relatively quietly with Geely, and the Swedes didn’t seem too overtly bothered by the deal, rumblings are afoot elsewhere.


China Brain suspects that the straw (or wheat in this case) that breaks the camel’s back has just been announced. That is, of course the fact that Bright Foods, a behemoth Chinese food company, has set the British breakfast table in its sights – in the form of the brand Weetabix. Apparently one billion pounds is the offer. Dating back to 1932, Weetabix was family owned for 72 years before eventually being snapped up by a private equity firm. Now, one wonders if the fact that this private equity firm is Texan was widely reported in the British press at the time. Or is the fact that a Chinese company is buying a beloved British brand far more newsworthy?


Whatever the case, this is another example of ordinary people really feeling the impact of Chinese companies’ increasing adventurousness on the global stage, as their balance sheets remain strong and loans are relatively easy to come by. But one can see that some of the new deals are ones that the man on the street might object to a little bit more than previous ones that had no noticeable impact on their daily lives. In Britain, a Chinese retailer has picked up the royal tailor Gieves and Hawkes, while just last month in New Zealand, the government approved an application by the Shanghai Pengxin Group to buy 16 dairy farms which are about as close to royalty as you can get in New Zealand.


The wave of deals is expected to strengthen – unlike the last one that fizzled out a little with CNOOC’s failed mega bid for Unocal. In fact, outbound deals have already tripled since 2006. It would appear that Chinese firms have dramatically improved their understanding of PR and corporate relations, giving themselves a much better chance of success. Ultimately though, the key factor is that the companies they are often interested in have very little choice. Expect some uproar and some gnashing of teeth around the British breakfast table, but a stiff upper lip will no doubt prevail, and a begrudging acceptance that this is the shape of things to come. Just think, in New Zealand, you might be able to eat a breakfast entirely produced by Chinese companies…


Who's up for a game of sponsorship?...

Who's up for a game of sponsorship? Huawei`s foray into sports sponsorship.


If you’ve spent the last week focused on continuing machinations behind the closed doors of Zhongnanhai - where if we believe the rumours to be true, the Party has been pulling itself apart at the seams in order to piece itself back together again - you might have missed the biggest news of the month. That was of course, Huawei’s decision to sponsor the Canberra Raiders Rugby League Team.



The decision to hand over a cool US$1.8 million to see their logo adorning the shirts of a fairly unknown team - certainly to anyone outside of Australia  - may have confused you at first. On closer inspection, however, it becomes clear that the move has everything to do with the Australian government’s decision to turn Huawei’s bid to work on the rollout of a national broadband network. Rather than having a hissy fit and storming back to the firm’s mega campus in Shenzhen, they chose instead to sponsor the Raiders.


The reason is simple. Huawei hopes to ingratiate itself with the locals and throw off its image as an instrument of the PLA, something it has repeatedly failed to do despite a string of attempts in the past and which continues to hamper its expansion into developed markets.


Disregarding Huawei Australia CEO’s outlandish claim that “with Huawei’s 140,000 staff, it’s safe to say that the Raiders have just gained 140,000 new fans around the world”, it does look like a canny piece of PR. It’s sending the right message: you turned us down but we’re not going anywhere; in fact we’re so mad about Australia we’re going to sponsor your rather mid rate rugby league team. This week a team, next week the entire League perhaps?


Foreign companies sponsoring sports teams is nothing new of course. As economic power has shifted West to East, we’ve seen a correlated increase in the number of Western teams sponsored by Eastern firms. Just look at the English premiership. The Japanese were at it in the 1980s – JVC sponsored Arsenal, Sharp sponsored Manchester Utd, and er…Crown Paints sponsored Liverpool (woops).  The Koreans adorn the Chelsea shirt in the shape of Samsung, while Arab nations are now well represented via Emirates’ sponsorship of Arsenal and Etihad’s of Manchester City.


But up until now, we haven’t seen too many examples (at least not to China Brain’s knowledge) of Chinese companies sponsoring Western teams. In the same way Chinese demand has raised prices for assets in the past, should we expect to see a similar effect occurring in sports sponsorship?  We wouldn’t be surprised to see representatives of the many teams who are struggling financially in these times of austerity heading over to China. Much in the same way business junkets continue to arrive on a daily basis attempting to flog all and sundry to the Chinese, who’s to say that they won’t succeed where others have failed? It’s just a shame for Glasgow Rangers that Scotland’s oil has run out, otherwise we would be fairly confident of seeing PetroChina’s or CNOOC’s name on the shirt and an easy way out of their insolvency crisis.


Huawei has made a bold first foray into foreign sports and it is once again blazing the trail for Chinese firms overseas. Its first task is to test whether the Raiders will really live up to the company’s vision, which according to its web site is ‘To enrich life through communication’. Anyone who’s shared more than a few drinks with a representative of an Australian Rugby League team will affirm that their communication style can certainly be colourful. Enriching might be stretching it a bit though. Good on yer’ Huawei.


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