The best China News & Insight from the web in one place.

Sinosolutions

Editorials

E-commerce & online payment trends for 2014.

E-commerce & online payment trends for 2014.

In a tech market that is moving as quickly as China`s, spotting the latest trends as they develop is crucial to reaching consumers and capturing sales. As of the first half of this year we have seen some interesting developments in both the sites that consumers use and how they pay for products. In China you can forget PayPal and Credit Cards its all about the likes of Alipay and Tenpay.

Only about 1 in 4 Chinese people own a credit card and they certainly don't use them to purchase goods on Tmall or Taobao, instead preferring to use one of the online payment services as below:

 

Payment Method Market Share
Alipay 48.7%
Tenpay 19.4%
Union Pay 11.2%
99Bill 6.7%
China PnR 5.8%
YeePay 3.4%
Huanxun IPS 2.9%
Others 1.9%

% transaction volumes in 2013, according to iResearch

 

China is certainly embracing e-commerce with enthusiasm: advertising from e-commerce companies and websites are filling every available space. Logistics companies are growing exponentially with deliverymen on bikes, trikes and vans lugging packages around every corner of the major cities. It would be interesting to survey how many office hours are lost annually to e-commerce shopping.

 

 

The rise of WeChat and the fall of Weibo.

Weibo continues to lose popularity among China’s netizens with users abandoning it in favor of WeChat. A couple of reasons for this being the tightening of registration requirements for Weibo (requiring real ID`s) along with the appeal to users who prefer a combination of Twitter-like communication with a native mobile chat app experience.

 

 

For companies the prevalence of fake Weibo accounts has taken away the allure of gaining “1 million followers’ since the current going rate is 5 RMB for 1,000 fans and combined with its limited functionality companies are now looking at other platforms to engage consumers. WeChat on the other continues to innovate and improve, now allowing you to pay for some services, call a cab or even make purchases.  WeChat has proven to be a superior marketing platform for business: merchants can advertise their products and send coupons by messaging directly to their subscribers.

 

 

Possibly the most significant development to watch will be the proliferation of more decentralized consumer finance integrated directly into smartphones. In recent months, China’s web giants, Baidu, Alibaba and Tencent have been applying for financial services licenses to be issued by the government. That will allow those companies to offer the same services that the banks do: savings portfolios, loans, insurance, and payment methods. Such new services would include savings and investment in funds like Alibaba’s Yuebao and Baidu’s Baifa, microfinance and peer-to-peer lending.

 

 

But who will process these payments: Alipay v`s Tenpay v`s Baidu.

Alibaba was the first to introduce its hugely popular Alipay system that today accounts for about 50% of all online transactions. It is currently the system used for buying products at the most popular online shopping sites and most importantly is trusted by consumers. However hot on its heals is Tenpay by Tencent which thanks to the popularity of Tencent’s WeChat platform, is projected to grow beyond that of Alipay due to its integration with the platform. Not to be left out Baidu was a late entrant to online payments with its Baidu Wallet. It focuses on mobile payments and the service will be integrated with other Baidu platforms and its 14 apps. Considering its 600 million users this should form a solid base for the system.

 

                           

 

With the continuing expansion of China`s 4G network smartphone users are experiencing faster connections and more bandwidth meaning the ability to receive richer content, such as HD videos, as well as faster loading times for ecommerce sites and apps. This can only translate into an even wider adoption of e-commerce, which is completely mobilized. A Ministry of Industry and Information Technology forecast, which regulates China’s internet, stated that it aims to double the value of China`s e-commerce sales to RMB 18 trillion (USD 2.86 trillion) by the end of 2015 which would imply there is ample room for growth for payment provides, E-commerce sites and the logistics companies that support them.

 

 

Vast amounts of venture capital has poured into the Chinese online retail industry over the last few years and we are now seeing the effects. With a current estimated 250 million e-shoppers and an annual increase of 30 million new users, China e-commerce market is something not to be ignored.

 

A diversified policy towards Africa...

A diversified policy towards Africa.

China’s policy towards Africa over the last year has shown several new trends that illustrate Beijing’s evolving priorities and strategies in the continent that will have significant implications for African Nations.


Peace & Security in Africa.

 

In an unusual shift in policy, China has assertively enhanced its direct involvement in Africa’s security affairs. Two months into Xi Jing ping`s reign, Beijing unprecedentedly dispatched 170 PLA combat troops to the United Nations peacekeeping mission in Mali. This was in contrast to China`s policy of only contributing non combat troops to UN missions. It remains to be seen whether this move changes the PLA`s operating principle of “no combat troops on foreign soil”. China’s choice in dispatching combat troops for the first time in recent history does suggest rising interests, enhanced commitment and a direct role in maintaining peace and security of Africa.


In a further unprecedented and surprising move, China under Xi engaged in open intervention in the South Sudan conflict through direct mediation. In 2013, China’s envoy for African affairs, Ambassador Zhong Jianhua, paid no less than 10 visits to Africa to coordinate positions and mediate in the South Sudan issue. Again, in January 2014, in a rare display of overt political intervention, Chinese Foreign Minister Wang Yi publicly called for an immediate end of hostilities in South Sudan. At Ethiopia’s invitation, Wang Yi traveled to Addis Ababa to meet with rebel and government delegations. He openly urged “immediate cessation of hostilities and violence,” and publicly called for the international powers to back the Ethiopian-led mediation efforts. Given China’s considerable oil stake in South Sudan (China imported nearly 14 million barrels of oil from South Sudan in the initial 10 months of 2013), many believe that China is gradually abandoning its long-term “non-interference” principle to protect its overseas economic interests.


Under Xi Jinping, China has continued its naval missions in the Gulf of Aden whilst enhancing its security cooperation with Djibouti on such matters as local logistical supplies and emergency assistance. China has dispatched a total of 16 ships to the region and escorted over 5,300 ships.

 

 

China’s increasing direct involvement in the peace and security affairs of Africa is also reflected in its rising financial and military contribution to the main regional organization—the African Union (AU)—to help boost its security role in the continent. In 2013, China provided $1 million in assistance to the AU to support its mediation and coordination efforts in the Mali conflict. It has also provided military material assistance to African nations involved in the AU peacekeeping missions under the same framework.


China’s rising involvement in Africa’s security affairs is motivated by multiple considerations: primarily the instability and conflicts in Africa have increasingly become a direct challenge to China’s economic presence in Africa. China has reflected on its expensive lesson during the Libyan civil war in 2011, and is known attempting to take the initiative in preempting similar situations. Equally crucial is President Xi Jinping’s desire to build China’s leadership role and image on the international stage, peace and security issues in Africa being the perfect platform for such a goal.


New aspects of Chinese Economic Cooperation with Africa.


China has expanded its financing to Africa. In a little over a year, China has issued over $10 billion in loans to African nations, and promised a further $20 billion to be leant before 2015. The emphasis of these loans lies in China’s new priority of financing infrastructure, agricultural and manufacturing industries in Africa, a strategy that shifts away from its traditional investment in Africa’s extractive industries.

 

China is further strengthening its cooperation with African nations on developing their manufacturing industries. In the case of Ethiopia, the country is trying to become the center for manufacturing in Africa based on Chinese investment. This would serve to facilitate a shift in China’s own position in the world supply chain and transfer some of its manufacturing industries to Africa, which is eager for industrialization. Whilst this does not necessarily indicate an abandonment of the energy and natural resources Africa has to offer, it does suggest that China is trying to diversify its investment in Africa in pursuit of new investment models whilst defusing criticisms on China’s “exploitation” of African resources.

 


Diversifying the Chinese-African Political relationship.


In separate strategy to improve China’s image in Africa, Xi Jinping`s government is presently eagerly engaging the African media to propagate China’s virtues and beneficial investments in the continent. Under the “China-Africa People to People Friendship Action” plan, Chinese embassies across Africa are seeking collaborations with African NGO`s and have implemented dozens of projects. Although these projects are primarily implemented by NGO`s, they serve to diversify China’s aid model in Africa and promote exchanges and cooperation with society.


During his first year in office, Xi Jinping`s government has demonstrated a major new and diversified policy towards Africa and we wait to see the evolving relationship between the two.

 

Marketing Case studies: Middle Class...

Marketing Case studies: Middle Class Mum`s.

With another 200 Million Chinese people expected to join the middle class by 2025, who will be making the purchasing decisions in these household and what will they be buying?

 

It`s the mothers. The highest percentage of a Chinese family’s disposable income is spent on their child after that it's the household. Mothers, by and large, decide how that money is spent and what brands they spend it on. This means that they control a very large portion of China consumer spending which is often much larger than their husband`s purchasing power. Any company attempting to sell consumer goods in China must understand this demographic and how they think. But what are the top priorities for mothers?

 

 

Health, Education, Household goods & Cars is what we believe mothers care about. Whilst middle class consumers have rising purchasing power and are increasingly willing to pay more for higher quality, brand names, and differentiated features, they are still price sensitive and recognizing who is doing the purchasing is essential to success in the marketplace. Brands need to connect emotionally and forge a strong brand position.

 

Health. The expansion of the middle class is not just stimulating investment in private hospitals but also in dental services, cosmetic specialties, rehabilitation services and elderly care. Spending that would previously have been seen as a luxury items is becoming a standard cost of living for the middle class. Patients usually want to go to clinics attached to the highest-reputation hospitals and private health insurance is now a necessity for many families to facilitate this.

 

Education. In a country as populated as China it`s all about differentiating yourself for the other thousands of equally qualified people and with the one child policy still in force the child is the center of the family. Academic achievement reflects successful parenting and tiger mothers often only allow their children to engage in activities that would help further their academic ambitions: Exam preparation classes, Foreign language lessons, Arts and music classes, role play centers for social education and physical exercises. No expense is too great to further the potential of the families child.

 

Household goods. Buying habits are changing in a subtle shift away from a focus on ‘Value for money” to quality and value added goods that have a track record for good safety. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment.

 

Cars.  Nothing says you have made it better than a car. Demand simply keeps on rising for both domestic and foreign brands with China becoming BMW`s biggest market in 2013.  Increasingly it is women who now make the final decision about which car to purchase and forefront in their minds is Quality & Safety.

 

   

 

As marketers focus on China’s middle class they will also have to prepare to serve an even more affluent upper tier of that demographic which, in many cases, will be located outside of China’s first-tier cities. According to consulting firm McKinsey, China will soon undergo a shift from its current “mass middle class” to a new category of upper-middle-class Chinese consumers. Calling this cohort the “new mainstream,” the firm identifies them as consumers with household incomes between ¥106,000 and ¥229,000 ($16,000-$34,000). Perhaps even more striking, their numbers will swell from just 14 percent of urban households today to 54 percent by 2022, according to McKinsey’s estimates. It is not uncommon for women to keep the family bank accounts in their own names and give their husbands a weekly allowance hence it will be the mothers of this new mainstream that will be holding the purse strings and the demographic that must be catered to. Chinese women are emerging as one of the most confident bodies of consumers in the world. And they have the money to keep on spending.

 

Pictorial: China pre-1900.

Pictorial: China pre-1900.

A selection of incredible photographs from China Pre-1900 showing both the ordinary lives of Chinese people as well as the Empress Dowager Cixi and Foreign troops sent to quell the Boxer Rebellion. The imgaes are taken form the collections of: Albert Khan (1860-1940), John Thompson (1837-1921) and Jonathon Goforth (1859-1936) & China Magazine.

Books: The New Emperors: Power and the...

Books: The New Emperors: Power and the Princelings in China.

By Kerry Brown for China Brain.

 

`The New Emperors’ looks at the nature of power in modern China, and in particular at the key location where most of this power is now placed – the Standing Committee of the Politburo, which, since 2012, has had a mere seven people sitting on it. It is on this body that the key strategic decisions about China’s economic and political direction are made. The members of this group are superficially very similar. They are all men, all ethnically Han, and all in their fifties or sixties, They are lifelong members of the Communist Party, and own total allegiance to it. They have served almost all their professional careers in entities either under its control or at its centre. But looking a little more closely at the biographies of these seven individuals shows that under the surface there is great diversity, and that the current Communist Party of China is not a monolithic entity, but more akin to a dynamic organism, adapting, reshaping, changing and evolving. The sole shared quality is their allegiance to the Party’s continuing hold on power, and its centrality in modern Chinese political life.  This could be called their common cause, as the Party’s faithful servants and guardians.

 

 

In this book, my approach has been to map out a new concept of what power is in modern China, and how people exercise it. I argue that the key issue is not about factions, with their neat delineations and boundaries and misleading rationality, but more networks, loose, liquid and constantly shifting and changing. The concept of network, outlined in works like that of the great Chinese sociologist Fei Xiaotong, serves to capture the dynamism of political debts, allegiances and negotiations in China. The transition from the leadership of Hu Jintao and Wen Jiabao to Xi Jinping and Li Keqiang illustrates this. This was a succession process without overt public campaigning. The sole figure who did seem to be pushing for his promotion onto the Standing Committee, Bo Xilai, failed spectacularly in achieving his aim, and is now in jail for claimed corruption crimes. All the other figures had to promote their cause in a subterranean, calculating way, building up support and capital amongst business, provincial, family, party, ministerial, intellectual and military circles. Those that secured the widest support had the best chance of succession. The final casting vote in the process was the benediction given at the very end by retired former elite leaders, such as Jiang Zemin and Zhu Rongji.

 

The outcome of the process over 2011 and into 2012 was a Standing Committee where membership was largely based on specific constituencies and skills that successful figures brought to a leadership that is faced with some of the toughest issues of continuing reform faced in the country over the last four decades. Of the seven, six had served at the highest level in Provincial government, in charge of major economies, some of them working in two or more large provinces as Party bosses. The exception, Liu Yunshan, figures in the leadership as ideological leader, a former journalist for the Xinhua news agency in Inner Mongolia whose route to the top had largely been through the state propaganda and information management apparatus. His membership shows how critical this area is for the new leaders. The rest had all had provincial and central ministerial records to lay down as evidence of their abilities.

 

In the `New Emperors’ I look at the previous statements, actions and records of the leadership before they were promoted in 2012. In Xi Jinping, we see the member of an elite Party family whose father remains immensely respected and admired, and whose networks were of great assistance to his son in coming through Fujian, Zhejiang and then Shanghai before being brought to the Centre in 2007. Xi Jinping has been called the `peasant emperor’ in China, someone who knew hardship as a youth but who is now seen as a member of the new aristocracy.  Li Keqiang is also linked to former elites through his wife, but has a stronger intellectual background, studying law in Beijing in the 1980s and then completing a Ph D in economy in the early 1990s. Li’s stewardship of Liaoning and Henan provinces shows someone who was able to manage crises, but about whom there are questions over his skills as an implementer.

 

For Zhang Gaoli, the story is simply about an official from the state oil industry who was able to deliver staggering high levels of GDP growth in the provinces he was put in charge of through skillful recruitment of business networks. Zhang Dejiang, a North Korean trained economist, showed different tactics in Zhejiang, and then Guangdong province, using high levels of physical coercion to deal with acrimonious disputes, speaking out strongly against the private sector, but showing total pragmatism when put in charge of provinces with huge private entrepreneurialism, never letting ideology standing in the way of economic success. Wang Qishan is the maverick of the current leadership, someone who came from a mixed professional background, studying history and then working at a think tank in Beijing and only joining the Party when he was already in his thirties. But Wang’s skills as an economist and a diplomat are already proven, and his current task of heading the anti corruption agency shows that he is regarded as someone who gets things done, no matter what enemies he makes.

 

Finally, there is Yu Zhengsheng, a man from one of the most elite family backgrounds, and with the longest and richest provincial experience, but someone who has also suffered greatly, with his sister reportedly killing herself in the Cultural Revolution. Yu is regarded as the `older brother’ on the leadership, someone very close to the family of former paramount leader Deng Xiaoping.

 

Beyond their biographies however, there is the key question of what precisely they believe their mission is, and what sort of world they are trying to create in China. In the final chapter, I look in detail at the words of the three who have said most about their beliefs in the last decade – Xi, Li and Liu. With these figures,  I map out from their own worlds a vision of the world and their role in it. For Xi, this is clearly restoring the moral mandate of the party after too many years of allowing it to be sullied by greed and larceny; for Li, the core issue is unleashing more spaces for growth within China and becoming less economically dependent on the world outside; and for Liu, it is conveying the core message of party ideology and belief to a sometimes unreceptive and disbelieving membership.  For all of them and their colleagues, the great mission is a simple one: to steer China towards becoming a strong, rich and powerful country in the 21st century, and one that has its rightful status restored in the world.

 

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

Kerry Brown is Professor of Politics and Director of the China Studies Centre at the University of Sydney, and Associate Fellow of Chatham House, London. `The New Emperors: Power and the Princelings in China’ was published by I B Tauris in June and available from Amazon here.

 

Can China sustainably manage its domesti...

Can China sustainably manage its domestic tourism sector?

By Roy Graff for China Brain.

 

China has been the world's largest domestic tourism market since 2009, when it registered an astonishing 3.3 billion individual trips. Last year domestic tourists spent ¥2.6 trillion ($417 billion) according to the China Tourism Academy. Whilst foreign countries have been actively encouraging Chinese tourists, who tend to spend a relatively high sum of money during their time abroad, the largest market potential remains within the country. Furthermore, domestic tourism is expected to grow by 10-20% annually in the near future.

 

A good indication of expected growth in the sector can be seen by corporate expansion plans. French hotel giant Accor announced that about a third of its planned 100 new hotels in China are to be opened close to domestic tourist destinations as opposed to cities. Furthermore, Walt Disney & Co. will open a Disney resort near Shanghai in 2015 or 2016. But what does this burgeoning love of travel mean for the environment and is it being sustainably planned? Besides impacting cultural and natural heritage treasures directly, tourism strains water and waste management, consumes vast amounts of energy, and creates vast amounts of pollution. Will China be able to relieve these pressures and make its tourism industry more sustainable?

 

If you were a farmer living on the planes of Western China and dark clouds gathered over the mountains, you would know that a flood may be about to hit your land. Water is a resource you need but too much of it would wash away your newly planted seedlings and possibly your property as well. The same risk of ‘too much of a good thing’ can be applied to the domestic tourism sector in China.

 

The villagers in Dujiangyan, Sichuan province, have developed a sophisticated irrigation system to protect their fields from sudden water surges and ensure that all farmers have equal access to water during dry spells. This so impressed modern archaeologists and sociologists that it has been recognized as a UNESCO World Heritage Site.

 

Jiuzhaigou, another UNESCO World Heritage Site in Sichuan, despite its remoteness, attracts tens of thousands of tourists every day. The area is indeed very beautiful and will see its popularity increasing. However, it also contains a fragile ecosystem, in which wildlife has nearly dissappeared, due to the increasing human activity. Although visitor numbers are restricted by UNESCO, during the peak-season, the amount of tourists often exceeds the limit.

 

All across China, domestic tourism has been booming (so has outbound tourism) and its pattern is changing from people travelling only in tour groups to more independent self organised travel, to ever more diverse regions of China. When you consider that statistic of 3.3 billion trips each year, what environmental impact can we expect as tourism continues to expand?

 

It is China's diverse and until recently, isolated scenic areas and natural wonders that are the areas leading the trend for growth. One example is Guizhou, a minority-dominated and underdeveloped province in South West China, where income from tourism rose by 30%, to ¥186 billion ($29.8 billion) in 2012.

 

 

Chinese netizens often use a phrase 人山人海 (renshan renhai) “a sea of people” to describe the scene around attractions during national holidays. Beaches and mountains strewn with litter after national holidays are becoming a usual vision and unchecked building development in environmentally sensitive areas continues without EIA (environmental impact assessment) or government long term planning and supervision. Water and energy resources are often not adequately managed to ensure local communities are protected while tourists enjoy hot water, air conditioning and imported food. This isn’t exclusively a Chinese problem but the scale of tourism in China outstrips any other place on earth.

 

   

 

Sustainability is an oft-used and abused term that has to all intents and purposes lost its effect of changing people’s behaviour or encouraging actual government action. Peggy Liu, Chairperson of JUCCCE has said that the language of sustainability no longer serves its purpose and we must reassess how we define what is good for people and the planet, starting with simple human ambitions for quality of life and dignity. Even those that benefit in the short term from over development in tourism spots have children and relatives who may wish to enjoy these resources in future generations. This means understanding and addressing issues such as carrying capacity, resource allocation and people flow. We should ensure that local communities across China share in the rewards of tourism growth through employment, nature and tourism education and training. When people who live locally care about the resources that others pay to see, they will do a much better job of protecting these same resources.

 

In China, usually it is the local governments that are in charge of the majority of tourist attractions, therefore there is little transparency in management, and the only criterions used to evaluate performance is the number of sold tickets and profit, hence there is little space for environment protection and sustainability. By rewarding management in a transparent fashion and education, it can be ensured that people in charge of national parks are committed to responsibly operating them by encouraging a transparent administration, adding new benchmarks for performance and ensuring that they commit to long-term sustainable management.

 

Taking a national park as an example, what this means in practice is an accounting system that considers not only direct management costs but also puts value on waste cleanup, effect on surrounding areas, support of local communities through training and employment schemes, increasing the well being of people in the local community and revitalizing the eco-system through re-introduction of native animals and plants. Setting goals for all these things and rewarding management financially for them will offset their reduced income from leasing adjacent land to development and earning additional revenue from concessions and private business operating inside the park.

 

China has an opportunity to become a model of good, long-term planning and sustainable management of its scenic spots. There are companies already taking the initiative in planning and developing new tourist resorts and attractions, thanks to the leadership of visionaries that understand China is facing an environmental catastrophe if business continues as usual.

 

 

However, due to the top-down nature of planning and development in China, a lot of responsibilities lies with the central and local governments, which must pay a lot of attention to the problem, enforce environmental regulations and incentivize private business and park administrations not only encourage economic development, but also bolster a long–term, viable approach that protects both the nature and human heritage for future generations.

 

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

Roy Graff is Managing Director of ChinaContact, a boutique market entry specialist for China’s tourism, luxury retail and hospitality sectors.

 

As a keen supporter of sustainable development and environmental protection he provides pro-bono time to causes he is passionate about. Currently Roy serves as Project Director – Eco and Heritage Tourism at JUCCCE. He has held several volunteer positions including Vice President of communications at PACE (Professional Association for China’s Environment) in China and council member of Tourism Concern in the UK. Roy cooperates with UNESCO, IUCN and other bodies to promote a sustainable and ethical tourism industry in China.

 

Gender equality in modern China.

Gender equality in modern China.

Mao once famously said that women hold up half of the sky – a meaningful comment in a time when the country was run on ideology. Now that the economy is the main driving factor, how are women doing?

 

China is above the global average for percentage of women in the workforce as well as in management positions. It was ranked number 32 out of 136 countries for gender equality in “labor force participation” by the World Economic Forum in a 2013 report. It also has a higher percentage of its women employed than does the US, France, or Germany. This includes a fair number of high-earners with several female Chinese self-made billionaires on the Forbes 500 list in recent years.

 

 

While women have seen increased opportunities in business in recent years, the glass ceiling seems to have only been broken in certain industries. In the business sector, one challenge for young female entrepreneurs in China at the moment is that the current trend for new businesses is IT startups, which tends to be a heavily male-dominated industry. According to a list of female billionaires, women tend to prevail in the food, pharmaceutical and real estate businesses within China’s economy.

 

The 2013 Forbes China list of its richest individuals included three women in the top twenty, all in the real estate field. Despite this similarity, they are a fairly diverse group, with differences in age, education, marital status, and location. Chinese women also tend to lead companies as part of a family unit, often taking the place of their father or co-owning with their husband. As a result, many of them are listed as themselves “and family” on the list, as opposed to men who are generally considered singular leaders of the company.

 

The richest woman in China is Yang Huiyan (7th overall at $7.2 billion dollars), a 32-year old Foshan resident who took over her father’s stake in residential property sales company Country Garden several years ago. Following the completion of her degree from Ohio State University, she took over the company before its 2007 IPO and has recently announced plans to enter the Australian market.

 

                 

                                       Yang Huiyan of Country Garden Holdings                             Dong Mingzhu of Gree Electronics

 

Chan Laiwa, 73, is the 11th richest person in China with an estimated worth of $6 billion dollars. Based in Beijing, she chairs the Fu Wah International Group, making her one of Beijing’s largest property owners with investments in luxury hotels, clubhouses, apartments, and office buildings including landmark architecture in both Beijing and Hong Kong.

 

Wu Yajun, number 20 on the list at a net worth of $4.1 billion dollars, is the co-founder and chair of real estate firm Longfor Properties. The 50-year old divorcee has a degree in engineering and began her career in a state-owned instrument panel factory before making her way to her current position in which she oversees more than 10,000 employees with projects in 21 cities across China.

 

Other notable female business leaders include Chu Yam Liu (chair of fragrances and tobacco flavoring supplier Huabao International Holdings), Dong Mingzhu (President of Gree Electric Appliances), Lei Jufang (chair of pharmaceutical supplier Tibet Cheezheng Tibetan Medicine), and Fan Xiulian (vice chairperson of Xizang Haisco Pharmaceutical).

 

The relatively high percentage of women in the workforce is not surprising given China’s tertiary education statistics. Women make up approximately half of undergraduate students and even more so in graduate programs (although they still only account for about 35% of doctoral students). This is especially impressive given the gender disparity in China, with 118 men for every 100 women, meaning that a significantly higher percentage of women overall receive a higher education degree compared to men.

 

As for gender inequality in Chinese culture, the country is famous for its problem with a massive gender gap due to a preference for baby boys. However, there are actually several cultural norms that benefit working women (and the baby preference is by now quite outdated in urban areas). One advantage of Chinese women is a relatively high minimum age for marriage, thereby encouraging girls to earn a bachelor’s degree before starting a family (not the original intention of the law, but effective anyway). With the law set to age 20 for women and 22 for men, it is nearly the highest in the world, offering women a better opportunity for independence before marriage.

           

Another significant cultural advantage for Chinese women is support for working mothers. Although more young Chinese are now living in different parts of the country than their parents, there is still a dominant cultural norm for grandparents to take care of grandchildren, thereby allowing young mothers to work. Women in China are also legally required to be given 98 days of paid maternity leave (comparatively, the US has no legal requirement for paid leave).

 

While there are positive signs for increased female equality in Chinese society, there are still many challenges. Like most areas of the world, Chinese women still receive lower pay on average in the same position as men (despite laws against this in the country). They also face a higher redundancy rate and are more frequently forced into early retirement. Despite the positive statistics in higher education, there have in recent years been reports about admission policies discriminating against women in certain fields in an attempt to keep the percentage of men higher, such as in languages, which tend to be overwhelmingly dominated by female students. Additionally, equality for women is not developing uniformly across socio-economic groups as rural and especially migrant women still face many challenges that urban women do not.

 

  

 

Culturally, there is also still a pervasive idea in China that women should be married by a certain age and their most important role is to have a child. While this seems to be mostly a pressure from older generations, terms such as “leftover women” and the constant push on young women to find a boyfriend are still creating a stigma for unmarried career women. The cultural practice of expecting the husband (or his family) to provide an apartment for newlyweds also implies that the man is expected to be the main breadwinner, with a wife still economically dependent on him. Unfortunately this is one area in which young women themselves are reinforcing traditional gender stereotypes by looking for men that can provide for them rather than assuming financial independence.

 

In spite of the fact that China has relatively modern laws concerning gender equality, it is still in the governmental sphere that women are really being kept behind. The PRC Constitution has laws regarding gender equality, including that husbands and wives have the same property rights, that they should have equal employment and salary opportunities, equal divorce laws, and it includes better maternity leave rights than some developed countries. However, it remains in the government and state-run sphere that gender equality is at its worst.

Female representation in the Chinese government is extremely disproportionate (though China is certainly not alone in this problem). Women made up slightly more than 23% of the Twelfth National Congress. In comparison, women already made up over 22% of the Congress in 1975 – not a lot of progress in nearly 30 years. More importantly, there has never been a woman in the Standing Committee of the Politburo, the real decision-making body of the government.

 

While there are some nominal attempts to bring women into government positions, these tend to be low-ranking, less significant spots. For example, there are spaces legally reserved for women in local governments, but they are often delegated to the family planning posts – considered more appropriate for a woman.

 

State-owned enterprises are another area in which women are largely excluded from leadership roles. Partly due to the government connections, in which men are so overwhelmingly favored, the percentage of female CEOs in SOEs compared to private enterprises is drastically lower.

 

 

People outside of China may be surprised by the relative gender parity in urban China given international news reports about the gender gap and poor working conditions. However, those inside China are unlikely to find these statistics startling as women clearly make up a significant portion of university campuses and office spaces everywhere you go - a surprisingly positive sign for a nation at this stage of development. While the Constitution has laid an important foundation for women’s rights, it is mostly society and largely women themselves, who have led this phenomenon. Perhaps in a country this large, and especially with an aging population, it is simply not practical to discriminate in the work force. However, there are still clear industries as well as the government sphere which remain a hurdle in the way of women’s equality. Hopefully women’s role as a major force in GDP growth can spur further changes to bring women fully into the economic and lawmaking institutions.

 

A limited Superpower: the next phase...

A limited Superpower: the next phase of development.
A World Bank estimate that the Chinese economy will surpass the U.S. this year to become the world’s biggest (based on purchasing power parity) has received very short shrift in China. There’s none of the triumphalism that might be expected from receiving such an accolade, and the muted response is telling.
 
 
China may welcome the implied power behind such status, but Beijing doesn’t want the responsibility of leading global discussions on pressing issues such as climate change, Israel-Palestine or international financial regulation. As far as the Communist Party of China is concerned, there’s more than enough to be doing at home without having to take the reins on fixing and managing the global system, as the U.S. has done, and Britain did before.
 
 
The findings of the 2011 International Comparison Program from the World Bank estimated that China’s economy is expected to surpass the U.S. this year on a purchasing power parity basis. Economists, including those at Goldman Sachs, have been forecasting for some time that China will become the world’s biggest economy on a GDP basis well before the middle of this century (in nominal terms, China’s GDP was $9.2 trillion last year against the U.S.’s $16.8 trillion, based on International Monetary Fund data). According to the breathless media coverage outside of China, the latest PPP measurement suggests that that day has arrived, providing fodder for those predicting America’s decline and a Chinese century. But the estimates again highlight the flaws of measuring economic size based on purchasing power parities.
 
 
Economists argue that PPP measurements, which are designed to estimate prices in a given country with exchange rates stripped out of the formula, are an inaccurate gauge of economic size. This is in part owing to problems with measuring prices from country to country and the infrequency with which they are measured.
 
 
Statistics agency dismissal
China’s National Bureau of Statistics dismissed the findings a few days after the release of the World Bank report, saying that inflation estimates were underestimated and GDP estimates were overestimated. “Due to its limited methodology and defects in applying the results, it failed to sufficiently reflect China’s reality,” the statistics office said in a short statement.
But China’s muted response to the World Bank report goes deeper than problems with how the estimates were made. In rejecting the World Bank’s assessments, China’s government was acknowledging that this vast and populous country’s economic development is far from a world-beater.
 
 
The Communist Party has long known that it must be careful not to overdo its economic triumphalism, given how much of Beijing’s legitimacy to rule hangs on its ability to raise living standards consistently for China’s 1.4 billion people. As economic growth and incomes slow, the party must be even more careful.
 
 
In an interview four years ago, People’s Bank of China Vice-Governor Yi Gang said China’s economy had surpassed Japan’s to become the world’s second largest. That triggered a similar wave of global coverage about China’s rise which largely failed to report Yi’s qualifications to his statement. Yes, Yi said, China has overtaken Japan, but the pace of economic growth is only set to slow as its base becomes larger and as environmental and resource constraints bite. Asked later in the interview about a Russian forecast that the yuan is set to become a world reserve currency and challenge the dollar’s dominance – something Moscow is keen to see for geopolitical reasons – Yi was even more explicit. “China is still a developing country and we should know our limits,” he said.
 
 
‘...China’s muted response to the World Bank report...was acknowledging that this vast and populous country’s economic development is far from a world-beater.‘
 
 
Even as a newly-assertive People’s Liberation Army throws its weight around in Asian waters, as China presses ahead with high profile ventures such as its ambitious space program, and as the country invests billions in developing and developed economies, its leaders remain very inward looking.
 
 
A limited Superpower
China’s economic rise, coupled with the humbling of the western economies after the global financial crisis, has seen a shift in how Beijing projects its power. It’s perhaps understandable that China’s leadership appears less willing to countenance calls from the West on how to run its economy and its foreign policy (demands for political change and improved human rights have almost always been rejected out of hand). But China’s development is incomplete by a wide margin, and that provides strict limits to its global assertiveness.
 
 
PPP measures may suggest that China is a global leader – and all that that encompasses – but the government’s preferred measures of per capita GDP and urbanization rates suggest the Communist Party has much still to do. China’s per capita GDP stood at just over $6,000 in 2012, according to World Bank statistics, nearly double the 2009 level and in sight of Asian peers such as Malaysia. But it was way below the $51,749 of the U.S.
 
 
In fact, China’s leaders worry that the economy is more likely to be headed in Malaysia’s direction than it is to become a direct challenger of the U.S. for global dominance. Malaysia is often cited as one of a number of countries believed to have fallen into the “middle income trap,” when the dividends of an early push for industrialization fade and income levels languish below developed country rates.
 
 
As wages have surged and its population begins to age, China’s leadership is acutely aware of this risk. The “Decision” document which followed last November’s 3rd plenum is an ambitious blueprint for reform which is effectively designed to avoid this trap through deregulation and integrating China more fully within the global economy.
 
 
Meanwhile the economy slows...
Even as the World Bank report has reinforced preconceptions about China’s supremacy and the end of American dominance, the Chinese economy has slowed sharply towards 7% from as much as 15% during the last decade. A growing number of China bears see growth continuing to slow towards the low single digits this decade, with an increasing share of economic resources channelled towards servicing debt.
 
 
But China’s senior leadership believes that urbanization will continue to spur economic activity. China’s urbanization rate is now at around 53% -- in 2012, more Chinese people lived in urban areas than in rural areas for the first time in the country’s history – and the government sees the proportion rising to 60% by 2020. It foresees urbanization rates rising further towards U.S. levels at around 70% sometime in the decades after.
 

 
Those goals envision nearly 240 million people moving into urban areas, or at least living in upgraded rural areas, some time before the end of the next decade. The need to bring that many people – the equivalent of the population of Indonesia – off the fields and into the cities is a sobering counterpoint to headlines about being the world’s number one.
 
 
China’s government often describes meeting its development goals as an “arduous task”, but it isn’t just lip service. With growth slowing and economic risks rising, urbanizing 240 million people over the next decade or so promises to be considerably more difficult than accommodating the previous 240 million. Faced with that considerable challenge, it’s unsurprising that Beijing isn’t buying into this accolade.
 

 

Going public in the US: Chinese companie...

Going public in the US: Chinese companies and Wall Street.

There is much anticipation for e-commerce company Alibaba’s expected initial public offering in New York later this summer, though 2014 has been a mixed bag for Chinese tech stocks thus far. What is the outlook for Chinese IPOs and what is still bringing them to the US market?

 

  

 

Many recently-listed Chinese companies have had a poor run in the past few months. Chinese internet retailer Dangdang Inc., as well as Youku, Tudou and Renren have all seen serious slumps throughout March and April, with the latter losing 85% of its value since going public three years ago. On the other hand, some more established Chinese companies have had stocks hold stable, including Baidu and Tencent,

 

These few months are especially busy as many companies will try to go public before the Alibaba opening. Earlier this week, JD.com successfully opened to the public above the expected price range at $19 a share. This follows Weibo’s less fruitful IPO in April, which priced at the lower end of its expected range shortly after its parent company, Sina, went through a massive share buyback.

 

 

Despite the cooling off of the Chinese tech share boom in the first quarter, the more important consideration is the IPO itself—a major success for a company in its pursuit of capital and future expansion. Therefore, the continued choice by Chinese companies to IPO in the US is clearly an indicator that this is still an easier route to capital than by listing domestically. As a result, New York Stock Exchange executives predict 15-20 Chinese firms will list there this year, up dramatically from six companies last year and only two in 2012.

 

Significant Chinese IPOs this year:

 

Jumei- online cosmetic retailer. Jumei listed in May at $22 an ADS for a total offering size of about $245.1 million. Founded in 2009, Jumei is China’s largest online beauty retailer with 22% of the domestic market.

 

Tuniu.com- online tour booking website. The Nanjing-based company fell below its initial public offering price in the first few minutes of trading on May 9th in the NASDAQ market, raising about $72 million.

 

                

Zhaopin- career portal. This Chinese online job-market operator was founded in 1994 and has 74 million registered users. Zhaopin filed for an IPO under the ticker symbol ZPN in early May.

 

Xunlei.com- tech company. Xunlei offers downloading services and digital media streaming services and cloud computing platforms. The Xunlei IPO will involve 7.6 million shares priced at $14 to $16 per share for a company value of $114 million to $120 million. The company originally filed to open on the NASDAQ in July 2011 but ultimately postponed.

 

Other Chinese companies reportedly contemplating IPOs in the US this year include Meituan (group-buying website), Vancl (clothing e-tailor), Chukong (mobile gaming), and Tarena (IT training).

 

Why Chinese Companies IPO in the US

 

China is now in its third major wave of companies going public with this generation focused on China’s booming online shopping and mobile communications markets. With their own domestic economy the fastest expanding in the world, why are Chinese tech companies still choosing to IPO in the US? Opening to the public on the US market may seem like an obvious choice to gain more investors and a global reputation. However, several major Chinese companies’ CEOs have recently said that they would in fact prefer to IPO in China, but there are several factors pushing them abroad, rather than the US market pulling them in.

 

Mainland China now has two stock exchanges - the largest in Shanghai with a secondary exchange in Shenzhen, as well as a more internationalized bourse in Hong Kong. However, many Chinese companies are pushed away from listing domestically due to the difficulties of doing so.

 

One major reason is Chinese stock exchanges’ entry requirements are still too high and too lengthy for many companies. In order to list on the Shanghai or Hong Kong market, a company must have been profitable for three years already, whereas both the New York stock exchange and NASDAQ offer an option to qualify for listing based on assets, shareholders equity and market capitalization only. 

 

Chinese companies who can meet domestic requirements must then go through a long, opaque process compared with the US’s straightforward filing, discouraging many from attempting to list domestically.

 

Companies that manage to overcome the hurdles of qualifying to list in Shanghai or Hong Kong, and make it through the lengthy process, then find that overregulation prohibits growth. China’s regulatory agencies greatly benefit the security of stockholders, but to the disadvantage of listed companies’ profits. Chinese firms face limits on daily gains and losses on stock prices that is not the case in the US.

 

In some ways, companies also face more restrictions in their operations when listed in China, such as Alibaba, which also reportedly chose to list in the US over Hong Kong because Chinese regulations would have lessened the company’s choice over its board of directors.

 

Finally, the Chinese market requirements are so focused on maintaining domestic integrity as to prohibit many of China’s own companies due to international ties. Chinese companies with prior foreign investment or foreign banking accounts are not eligible to list in China. Additionally, the Chinese stock market restricts foreign stock trading on its A shares stock market in Shanghai.

 

For these reasons, Chinese companies are reluctant to list on their own domestic stock markets.

 

Domestic Markets and SOEs

 

If China’s domestic stock markets are not receiving many of the large companies who choose to IPO in the US instead, then who is listing in Shanghai?

 

The Shanghai stock exchange is the fourth largest in the world in terms of market capitalization but the majority of its stock is still from current or formerly state-owned companies.

 

Over the past year, Beijing has clearly been manipulating entry to domestic stock exchanges, with a 14-month freeze on IPOs, leading to a backlog of almost 800 companies requesting to go public. This has recently been lifted and shortly followed by a flooding of the market with billions of dollars in new preferred shares by big publicly-traded state-run enterprises. This development is a result of recent government reforms that allowed such fund raising as a kind of back-door stimulus package (as the major investors in these new stocks are also state-owned, thereby simply shuffling money around in the state-connected system).

 

The top five largest stocks on the Shanghai exchange are state-owned enterprises, with many more having close state affiliations.

 

Foreign Investment

 

Foreign investment makes up a small fraction of the Chinese stock market. Despite years of announcements by the government that foreign companies will soon by allowed to issue shares on the Shanghai market, this is still not allowed.

 

Foreign investors currently buy Chinese stocks and bonds through the Qualified Foreign Institutional Investor and the Renminbi Qualified Foreign Institutional Investor programs. Stocks are offered as B shares in foreign currencies, while Chinese investors buy A shares in renminbi.

 

Earlier this month, the Shanghai Exchange announced it would ease restrictions on overseas investors, allowing foreign investors to collectively own up to 30% of a single company (up from 20%, capped at 10% per individual investor).  However, this is considered largely a symbolic move as its unlikely this percentage would be reached.

 

The first quarter of this year has had significant shifting in the Chinese stock exchange with the lifting of the IPO freeze and an upsurge in offered premium shares by major companies. However, these moves only reinforce the notion that the exchange is simply another government tool in the state-manipulated financial system. Additionally, the changes made toward foreign investment are fairly meaningless while real changes, such as foreign shares being issued, have still not materialized.

 

Chinese Steel Industry in the Red.

Chinese Steel Industry in the Red.

China is currently the largest producer, exporter, and consumer of steel worldwide. Despite this position, its domestic steel industry has seen considerable trouble over the past couple of years as environmental problems and inefficient management affect potential output. On the international market, China has become the biggest exporter in the world, but is facing push back from developed countries angry about unfair competition.

 

 

China produced nearly half (48.5%) of the world’s steel in 2013, amounting to about 780 million tons. Its industry is dominated by state-owned companies, the largest three being Hebei Iron and Steel, Baosteel, and Wuhan Iron and Steel with an additional three making up six of the top ten steel producing companies worldwide.

 

 

Domestic Market

The majority of steel produced in China is still consumed domestically with the vast majority used by the construction sector, driven by China’s massive urbanization. However, with new predictions every day about the state of China’s housing market, it’s possible that this outlet for steel is already at its peak. Beijing has recently tried to offset the decreased growth in demand for steel with a moderate stimulus package (1.4 trillion yuan) in new railways, bridges, and other infrastructure, but this has not prevented significant slow down over the past few months.

 

 

International Market

As growth in domestic demand shrinks, Beijing is pushing more of its steel abroad, and now facing accusations of undercutting prices creating unfair competition. China exported nearly 58 million tons of steel in 2013, a 13% increase over the year before. April had the highest export of Chinese steel globally in the past six years, eliciting a preliminary 159.2% tariff from Washington on imported Chinese steel. Massive exporting from China led to at least 17 cases of anti-dumping regulations being introduced against it from economies around the globe including the US, the EU, Japan, and even Taiwan.

 

 

Before the financial crisis, 25% of Chinese steel exports went to North America and the EU, but as with many other industries, China is now having to look to developing regions to push its surplus steel. The past few years have seen significant increases in steel exports especially to ASEAN countries and Africa.

 

        

 

The majority of Chinese steel exports are still in low-cost construction steel, but industry leaders clearly understand the need for a change and are attempting to move into more special steel production. Last year the China Iron and Steel Association urged Chinese steel producers to favor higher value-added products over construction grade steel as the global demand for common steel continues to fall. China’s special steel industry is still in the growth stage, unable to compete with global leaders such as Sweden, Germany, and Japan, but with moderate growth each year. There are several large-scale special steel enterprises in China now, such as Baosteel, CITIC Pacific, Dongbei Special Steel, Tiangong International, and Shanxi Taigang Stainless Steel.

 

 

Stumbling blocks moving forward

Faltering growth in the past couple of years seems to indicate that this is one industry which state ties are holding back as the government emphasizes employment over profit. While these companies are able to receive increased financial backing, they also have more requirements placed on them that are now proving detrimental.

 

 

Government requirements have led to serious overproduction and ultimately created an industry that has seen grave losses over the past few months (the culmination of a longer-term decline of the past couple years). According to the China Iron and Steel Association, China's largest steelmakers posted a combined loss of 2.3 billion yuan in the first quarter of this year. Additionally, China is the only emerging economy forecasted to have a drop of growth in demand for steel this year according to the World Steel Association predictions from October. China’s overcapacity is now estimated to be as high as 300 million tons (330.69 million tons), nearly twice the total output of Europe last year, and expected to grow this year.

 

 

Another reason for overproduction is that Chinese steel companies have recently gotten themselves into some financial trouble purchasing large stocks of iron ore beyond what they can use. Many of these companies use the commodity as collateral for credit. However, as production slowed and the price of iron ore fell over the past several months, steel production companies were left with mounds of surplus ore that either had to be used or sold at a loss.

 

 

Environmental factors have also negatively affected China’s steel industry as the government in Beijing tries desperately to improve air quality without disrupting economic output. Each ton of steel produced in China requires about 0.69 tons of coal in energy consumption, meaning that China’s steel industry by itself consumes about 7% of the world’s coal. As a result of the industry’s affect on air quality, Beijing has ordered 53 factories producing steel, heavy machinery, and chemicals to move out of the city this year.

 

 

As the global market changes and developed countries require less and less common steel, China’s steel industry may require a major overhaul in production methods if it wants to maintain its current level of exports. Because of its state affiliation, its success is vital to employment and the continued development of China’s infrastructure. Unfortunately, it is precisely these heavy requirements that are impeding its flexibility and efficiency.

 

 

Middle Class Status Symbols: Beyond...

Middle Class Status Symbols: Beyond Cars and Watches

The expansion of Chinese wealth and the middle class has led to an incredible demand for luxury goods- clothing brands, accessories, automobiles, and more recently artwork. There have also been the more unusual status symbols such as the fad of the $1.5 million Tibetan Mastiff as a household pet. However, there are few industries that have managed to create a status symbol in China that is exportable internationally. One of these significant, and perhaps surprising, products is the piano. As an exception to the stereotypically low-value added international exports, China is now the largest producer and consumer of pianos. Many international brands are producing their pianos in China as well as one of China’s own homegrown brands becoming the largest exporter in the world. A large, expensive item often prominently on display in wealthy homes in the West, the piano is both an instrument and piece of art, and now being eyed by an expanding Chinese middle class as an increasingly desirable, and attainable, home item.

 

 

Increased disposable income is a widespread phenomenon in China as urban households with an annual earned income between US$9,000 to US$34,000 rose from just 4% in 2000 to about 66% in 2012 and are projected to hit 75% by 2020, according to McKinsey consulting group. Sales trends over the past few years indicate that Chinese consumers are increasingly spending money on household decoration and personal enjoyment, contributing to the increased interest in pianos. Additionally, pianos are considered an attractive item because, unlike a Rolex or Louis Vuitton bag, they also require a large living space- a pricey commodity now in major Chinese cities- adding an additional element of prestige to the purchase.

 

 

The desire to showcase this purchase as a status symbol can be seen in the purchasing statistics. In Europe, only about 40% of Steinway grand pianos are bought for amateur player use. The majority are used in concert halls or music schools due to their size and the impracticality of fitting one into the average living room. However, in China this number is over 65% with a larger segment of the purchasing population wanting it as part of their home decoration.

 

 

In addition to being a decorative addition to an upper class home, the piano has long been considered a possible route to success by Chinese parents. Many parents feel that this is a potential step up in an extremely competitive university environment in big cities like Beijing. Talented young musicians can receive coveted extra points on the Chinese university entrance exam or have the alternative route of a music conservatory instead of having to compete for a spot at Tsinghua or Peking University.

 

 

Now, as more and more Chinese couples are allowed to have a second child, an expensive instrument in the home is an even better investment. In fact, in the first week after the announcement of the relaxed One Child Policy a few months ago, along with a rise in stock prices for companies making diapers and baby formula, piano manufacturing companies’ stock rose ten percent (with these changing prices clearly in response to the new law, evidenced by the drop in stocks for condom maker Humanwell Healthcare Group). These types of products, affected by the expected increase in birthrate have been named “second-child concept stock” and have seen a temporary boom in the market.

 

 

The Chinese piano industry is experiencing a rise in production and consumption as this sector declines in many countries around the world. Since 2008, the traditional piano markets of the US, Europe, and Japan have been negatively impacted by the financial crisis and falling birth rates. In Europe, the number of piano manufacturers declined over the past century from more than 300 to only nine. Meanwhile, China has more than 100 piano makers, now producing nearly 80% of the global total. Its market is also largely supporting international brands. Steinway has seen decreasing sales in Europe and US for years, but has been growing in China every year since 2005.

 

 

Low production costs in China have drawn many famous international piano brands to China, at least for production of their lower-end models. However, Chinese brands are also building more of a name for themselves, attempting to give “Made in China” less of a stigma to global consumers. Pearl River Piano and Hailun Company, the two largest piano manufacturers in China, are both listed on the Shenzhen stock exchange. The former is now the largest piano manufacturer in the world and holds 20% of the domestic market. It is the fastest growing piano manufacturer in the US and Canada with over 300 dealers in addition to exporting to over 80 countries.

 

 

Pearl River Piano may also provide a business model for other high-value added manufacturing companies to consider when exporting abroad. It was the first Chinese company to use its own brand name, rather than simply producing cheap models under a Western brand name. In order to adjust to the market, the company used international sales representatives to raise awareness about the brand, pushing their pianos into over 1,000 American outlets where consumers can try it out for themselves.

 

 

As Chinese salaries remain on the rise, and the concern for children’s education certainly doesn’t seem to be relaxing, the increasing interest in an expensive musical instrument makes sense. Traditional piano markets, now unable or unwilling to absorb the prices of traditional brands, are giving Chinese manufacturers a chance that they have not had in many other expensive items, such as automobiles. This may represent a unique and fortunate opportunity for a Chinese industry in a step up the manufacturing chain in international exports as well as stiffer competition for future conservatory applicants.

 

Sibling rivalries on the global stage...

Sibling rivalries on the global stage, Beijing vs Shanghai.

The rivalry between China’s two largest cities has been ongoing for decades. In the view of many people, Beijing is traditional and culture-oriented, whereas Shanghai is a modern, cosmopolitan city, with a strong focus on business. Over the next decade both are keen to be foremost in the minds of the Global Population, but for very different reasons.

 

The recently released Global Cities Index 2014 by A. T. Kearney placed Beijing and Shanghai at 8th and 18th place respectively for most globalized city. This news was received with mild surprise, especially in Shanghai, as it contradicts the stereotype of many within China that Shanghai is the Mainland’s most international city and thwarts the city on this point of pride. Nevertheless, the question remains: has Beijing ousted Shanghai from its traditional position - the most outward-looking city in Mainland China? Is Beijing not only holding the monopoly over the political power, but also in the commercial sphere?

 

  

 

The Global City Index is based on five factors: business activity, human capital, information exchange, cultural experience and political engagement. Interestingly, what propelled Beijing into the Top 10 for the first time was not political engagement or cultural experience, but the increase in broadband subscribers, museums, international schools and most importantly - business activity. With the rise of Chinese companies, the level of enterprise activity has reached that of New York, Paris or Tokyo. Out of 89 Chinese companies on Forbes Fortune Global 500 list, 48 are headquartered in Beijing whilst only 8 are from Shanghai.

 

Although these companies are vital to the city’s economy, employing around 25% of the cities population and accounting for 60% of the city’s tax revenue, they do little to really make Beijing more global. Rapid expansion and increasing international importance of the country’s SOEs and private companies cannot be denied, but in reality the majority of these corporations are focused on the domestic market and often do not have a presence outside the country.

 

Shanghai conversely beat Beijing in the human capital sphere, as it has a larger foreign-born population. Unofficial statistics put the number of foreigners in Shanghai and Beijing at approximately 300 thousand and 200 thousand respectively. Moreover, Shanghai has been the top destination of FDI in China for years, and landed the 6thplace on the Xinhua-Dow Jones International Financial Centers Development Index, successfully leaving Beijing behind in both measurements. In addition, Shanghai is the world’s busiest port by cargo tonnage and container traffic.

 

Shanghai’s internationalization started nearly 200 years ago, giving it an early lead over Beijing when China was forced to open the city to foreign trade. This was later augmented by the opening of British, French and American concessions. In the 1930’s, Shanghai was a bustling, cosmopolitan and quickly developing city, “The Paris of the East”, with an ever-expanding foreign population. However after the revolution the spotlight was turned to Beijing as the focus of China's political and cultural power.

 

 

Even the cities’ spirits reflect the traditional roles they have played in the past. A stroll in a Beijing hutong will provide scenes more likely to appear in tightly-knit rural communities, whereas central Shanghai is a jungle of steel, concrete and glass, packed with the offices of international corporations.

 

A Norwegian student living in Shanghai, previously residing in Beijing, mentioned Beijing is still the epitome of traditional China for her. However, Shanghai is a bustling city with opportunities one could only dream of (in Beijing). The capital, in her opinion, sometimes feels as if it never expected to be a huge global city. According to her, people in Shanghai are more money-oriented and just love the coolness of the city. The city will never be satisfied with what it has and will constantly try to improve and modernise itself.

 

Shanghai is now taking the next step in its development with the recently established Shanghai Free Trade Zone. Regarded as China’s most significant attempt at deeper economic liberalization since Deng Xiaoping’s era, the FTZ will give foreign companies a lot more freedom and space to develop business operations not permitted elsewhere in the country.

 

The zone was launched last year amid lingering uncertainties, but there are plans to lift remaining currency trading restrictions, allow duty-free imports and open some of the industries for both full foreign ownership and general operations (Microsoft and Sony are both planning to launch their Xbox and Play Station consoles here). If the project succeeds, it will be a major boost for the city’s economy and internationalization, since even more foreign companies, especially in the financial sector, will choose the city as their gateway to China.

 

 

Beijing, on the contrary, has its own development plans, revolving around more integration with Tianjin and Hebei province as a whole. Due to air pollution, population density and the lack of economic development in the latter, the central and local governments are mulling over the concept of combining Beijing, Tianjin and Hebei province in certain respects. Although the full plan has yet to been unveiled, and speculations prevail, the Capital will probably see some of its industries and educational institutions being reallocated to the surrounding areas.

 

All in all, both cities are important global metropolises. China’s continuing rise and increased importance will continue to attract people and companies from around the world to both of them. However, Shanghai should remain the most cosmopolitan and international city in Mainland Chinais evolving at an almost unprecedented rate, it has a larger international population, greater FDI, a higher number of foreign companies and one of the largest container ports in the world. Furthermore, the Free Trade Zone will only deepen the city’s status as forward looking. Meanwhile Beijing, will continue to attract those looking for a deeper connection to the roots of Chinese power, international businesses seeking synergies with SOEs and those involved with China's burgeoning tech & telecoms entrepreneurs.

 

The Chinese Foreign Aid Model

The Chinese Foreign Aid Model

As China becomes a major global aid donor, it offers a new structure and method of aid dispersal different than that of major, Western aid donors. Beijing has attempted to maintain South-South relations with aid-receiving nations, concentrating on specific projects that both countries can benefit from. The difference initially stems from disparate priorities when dispersing aid:

These priorities were decided by Zhou Enlai in 1964 and have continued to be the basis for Chinese aid decisions to the present. Together they form the modern policy of treating aid-receiving nations as business partners rather than aid recipients, staying out of foreign nations’ domestic politics, and using infrastructure as a route to development (while also providing a return for China).

The Organization for Economic Co-operation and Development (OECD) defines aid as:

China however is not a member of OECD and therefore has its own definition including investments that most aid-donor nations do not include. A large portion of Chinese financing is categorized by OECD countries as development finance, but not aid. For example, Chinese banks provide low-interest loans that other nations are not willing to offer. However, they then make a profit off of the interest, and use this money for development projects which employ Chinese workers using Chinese goods.


 

These differences in aid outlook highlight Beijing’s choice to identify with developing, rather than developed nations in many economic matters. Indeed, “China is a developing country” was the opening line of China’s first (and thus far, only) White Paper on foreign aid, released in 2011. This attitude has in some ways allowed Beijing to more effectively address immediate needs in local communities of aid-receiving nations. Additionally, Beijing does not attempt to affect foreign nations’ political structure and does not try to teach developing nations the “correct” way to run a country as traditional donor nations often have- an attitude which is sometimes unhappily received.

 

 

 

However, Chinese projects have also been met with criticism. Quality has been a problematic issue in some overseas Chinese projects, as well as the ratio of return for the local community. Because China often uses its own workers, the local community may end up with a new piece of important infrastructure, but this investment has done little for local unemployment or technological skill and these communities are now in debt. OECD countries, when loaning money to aid-recipients, must make at least 25% of the money a grant, thereby reducing the debt burden on a developing nation. Beijing, however, does not follow this rule. There is some concern among long-term donor countries that heavy investments allowed by Beijing will undo relief programs that have attempted to remove this burden from developing nations drowning in debt. Lastly, it is hard to say whether the long-term affects of China’s reluctance to tie political conditions to aid will be beneficial or harmful to developing countries’ overall advancement.

 

China’s aid is mainly provided by large loans from China’s Export-Import Bank, the China Development Bank (CDB), and the China Africa Development Fund (within the CDB). Other major aid contributors include several state-owned enterprises, including China’s National Overseas Oil Company, the China National Petroleum Corporation, and the China Petrochemical Company, which provide technical and financial support. The structure is overseen by the Ministry of Commerce, with consultation with the Ministries of Foreign Affairs and Finance, and ultimately reports to the Standing Committee of the Communist Party’s Political Bureau.

These are the eight types of aid that Chines provides, funded in three ways: grants and interest free loans are provided through state finances while concessional loans are administered through China Export-Import (EXIM) Bank.

 

Because of the vast differences in calculations and Beijing’s lack of transparency regarding aid figures, it is very difficult to say how much foreign aid China provides. Following the release of the 2011 White Paper on Chinese Aid, the RAND corporation estimated it at nearly $190 billion for 2011, while other experts have said according to Western models of aid, it would only come to about $10 billion- obviously a huge discrepency, indicating that a large portion of China’s “aid” is in projects that other nations would classify otherwise due to their low ratio of grants to loans.

 

According to Beijing’s own reporting, about 80% of China’s foreign aid goes to Asian and African countries. It is unsurprising that China would invest heavily in its own region, and there are plenty of Asian nations that can use the aid for their economic development. Recent aid package offers to Pacific island nations have caused some concern to Australia, historically the major donor to these nations, highlighting the potential for aid to lead to political influence. As for its rapidly expanding investment and impact in Africa, (a phenomenon widely written about, and therefore not covered in-depth here) it’s clearly beneficial for China to have a significant stake in a region which can provide a huge number of development projects and potential profits as well as a large amount of the natural resources that China needs to continue to fuel its own growth.

 

Chinese foreign aid certainly presents a model significantly different from that of traditional aid-donor countries. As its economy continues to grow and requires new areas for investment, both China and aid-receiving countries can benefit from new projects. Chinese aid, particularly in Africa, is being viewed by many as a welcome supplement to Western models. However, there are few who would dispute that Chinese “aid” projects are intended largely to benefit China. It remains to be seen whether China has begun a new model for effective, practical development or is simply becoming the new leader in a long history of exploiters in Africa and the developing world.

Please login here

Create new account / Forgot password?

Create new account

And a little about you

Forgot your password?

Enter the e-mail address you used to create your account and we will send you instructions for resetting your password.

* Please check your email to get the temporary password we've just assigned you

Edit Password

To continue reading this article please register below as a site user. Thank you

Create new account

And a little about you

If you are already a member, please login here