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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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