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


Don`t underestimate China: Government support will allow increased market share.

Don`t underestimate China: Government support will allow increased market share.

The first days of 2016 showed that China hasn’t escaped its 2015 woes. On January 4, new data showed that manufacturing activity slowed for the tenth consecutive month in December, and the ensuing sell-off in the stock market forced Chinese officials to halt trading mid-day. Global markets sank, and another bout of volatility on January 7 forced Chinese officials had to halt trading once again. But all the recent talk of China’s troubles has obscured the fact that the country’s companies still pose a formidable competitive threat to many Western multinationals.



The first concern for multinationals is that after a long period of overinvestment, Chinese manufacturers have been slashing prices. Capital investment still makes up a disproportionately large share of Chinese GDP – 44 percent, higher than in Japan (36 percent) or South Korea (38 percent) when those countries were building industrial capacity in the 1970s and early 1990s, respectively. All that investment has created enormous excess capacity in multiple sectors – 94.5 percent of Chinese steel production is produced below cost, for example. That means Western steelmakers will have to weather downward pressure on prices from Chinese firms that are willing to incur losses to move product.



China’s National Development and Reform Commission estimates that $6.8 trillion worth of projects – equivalent to 70 percent of China’s GDP – are making “highly ineffective” returns. Net profit margins, long lower than in the developed world, currently stand at just 2.5 percent, compared to 9.6 percent in the U.S., 6.4 percent in the U.K., 5.8 percent in Germany, and 5.1 percent in Japan.



Cheap, readily available capital has helped sustain investment levels and should continue doing so, despite corporations’ thin profit margins. Chinese banks offer favorable financing to state-owned and formerly state-owned enterprises, bankroll unprofitable projects, and roll over non-performing loans rather than force firms into default. Banks fund these subsidies to borrowers by paying depositors very little interest – 1.75 percent in a country growing some 7 percent a year. They also lend a relatively small percentage of their deposits. The loan-to-deposit ratio in China is just 67 percent. Credit Suisse analysts believe Chinese banks will continue rolling over non-performing loans until the loan-to-deposit rate reaches 100 percent, at which point the central bank could simply print money to prop up loans.



Chinese officials rarely intervene aggressively to reduce excess capacity by forcing state-owned enterprises to slow production or allowing more companies to go bankrupt. Instead, they step in to help them when they run into trouble, because they’re loath to stir up unrest or jeopardize economic growth. “We think that China…is operating a policy of employment maximization at the expense of profit maximization,” Credit Suisse’s equities analysts wrote in their 2016 outlook. Instead, companies have been trying to export their excess production, slashing prices to lure buyers. In December, China’s producer price index fell 5.9 percent from the previous year.



The competitive threat goes beyond prices, as Chinese companies are increasingly producing high-quality goods. Chinese automakers, for one, are quickly closing the quality gap with the West. (See chart) Domestic companies have learned quickly from foreign partners, many of which were forced to form joint ventures to do business in China. Sometimes, officials require multinationals to develop some technology in China or allow Chinese firms to own or have exclusive license to intellectual property. Not all partnerships are official – or consensual – either. China has very weak enforcement mechanisms for intellectual property rights, despite official pledges to crack down on IP theft.



Evidence suggests that the quality of Chinese production will keep improving. China has more than doubled spending on research and development from 0.6 percent of GDP 10 years ago to 2 percent. Chinese innovators apply for 45 percent more patents a year than those in the U.S., though fewer applications are successful. China produces 15 times more college graduates a year than it did in the 1990s, and many have the kinds of skills that can be put to good use in the technical, industrial sectors that China has flagged as strategically important. Out of 7.5 million Chinese graduates in 2015 (compared to 3.3 million in the U.S.), 1.3 million received degrees in science and engineering, compared to 500,000 in the U.S.



In addition, officials have indicated that they will directly subsidize companies in strategic industries. In its most recent five-year plan, the government prioritized creating “national champions” – companies that can become global leaders – in 10 industries, including information technology, robotics, and aerospace equipment. Domestic robotics companies, for example, are expected to take significant market share from foreign firms over the next decade. Such government support will allow companies to rise faster up the value chain and continue taking market share.



Official policies already give domestic companies preferential treatment in China, including high barriers to entry in certain industries. Google, Twitter, and YouTube are blocked, for example, allowing Baidu, Sina Weibo, and Youku to thrive without foreign rivals. The Ministry of Commerce has also been criticized for antitrust rulings that appear designed to benefit Chinese companies rather than prevent monopolies. Many of its most important firms are quickly catching up to those in the West in terms of quality, and the government has no intention of letting major manufacturers fail or forcing them to make dramatic cuts in production to deal with an excess supply problem. Quite the contrary, officials are doing a great deal to push Chinese firms to global prominence. Investors in vulnerable Western companies shouldn’t discount the idea that they will succeed.


Source: Credit Suisse

Pictorial: New China, Harbin Opera House

Pictorial: New China, Harbin Opera House

The Opera House, located in the Northern Chinese city of Harbin and was designed in response to the force and spirit of the northern city’s untamed wilderness and frigid climate. The sinuous opera house is the focal point of the Cultural Island, occupying a building area of approximately 850,000 square feet of the site’s 444 acres total area. It features a grand theater that can host over 1,600 patrons.

















Source: MAD Architects

FOCAC- helping Africa break it`s three...

FOCAC- helping Africa break it`s three development bottlenecks.

The recent Forum on China-Africa Cooperation (FOCAC) in Johannesburg has provided a new direction for cooperation. Ballooning trade figures show the reason: when the forum was first established in 2000, the trade volume between China and Africa stood at 10 billion U.S. dollars. Now China has become the continent's largest trading partner, with the Chinese Ministry of Commerce expecting trade to reach 300 billion dollars at the end of 2015.



Cooperation with China is helping Africa break it`s three development bottlenecks of poor infrastructure, shortage of technical graduates and inadequate funding, accelerating its industrialization and agricultural modernization. The summit has provided strengthened consensus between the world's largest developing country and the continent with the biggest number of developing and underdeveloped countries.



Chinese President Xi Jinping announced that his country will roll out 10 major plans to boost cooperation with Africa in the coming three years.



Covering the areas of industrialization, agricultural modernization, infrastructure, financial services, green development, trade and investment facilitation, poverty reduction, public welfare, public health, people-to-people exchanges, and peace and security.



To ensure a smooth implementation of the initiatives, Xi announced, China will offer 60 billion U.S. dollars of funding support including: 5 billion dollars of free aid and interest-free loans, 35 billion dollars of preferential loans and export credit on more favorable terms, 5 billion dollars of additional capital for the China-Africa Development Fund and a Special Loan for the Development of African SMEs, and a China-Africa production capacity cooperation fund with the initial capital of 10 billion dollars.



  • China will establish a number of regional vocational education centers and several capacity-building colleges for Africa, train 200,000 technicians for African countries, and provide the continent with 40,000 training opportunities in China. Furthermore, China will offer African students 2,000 education opportunities with degrees or diplomas and 30,000 government scholarships. Additionally China will also invite 200 African scholars to visit China and train 1,000 media professionals from Africa.


  • On poverty reduction, President Xi said China will launch 200 "Happy Life" projects and special programs focusing on women and children and cancel outstanding debts in the form of bilateral governmental zero-interest loans borrowed by the relevant least developed African countries that mature at the end of 2015.


  • In order to help Africa accelerate agricultural modernization, China will carry out agricultural development projects in 100 African villages to raise rural living standards, send 30 teams of agricultural experts to Africa, and establish new cooperation mechanisms between Chinese and African agricultural research institutes.


  • On security cooperation, Xi announced that China will provide a total of 60 million U.S. dollars in free aid to the African Union (AU) to support the building and operations of the African Standby Force and the African Capacity for the Immediate Response to Crisis Force.


The Chinese government has also finalised a deal with the Djibouti to build its first international military base, granting China land rights for ten years. Whilst international critics have have focused on the threat of China’s military expansion in the region. The new base, reflects China’s long-term economic goals in Africa more than its current military objectives: as Chinese economic interests expand in Africa it is likely that their military presence will grow as well.  The base will serve a number of different functions: as a logistics hub for naval operations to support Chinese anti-piracy operations, as a staging point for operations similar to the deployment in South Sudan, and a means for ensuring that Chinese infrastructure investments remain secure.



It has become increasing apparent that Western FDI models have not been working in large tracts of Africa. South African President Jacob Zuma said at the summit "Western countries had been in Africa for centuries to rob Africa's resources. They should be admitting what they have done. Some (Western countries) are rich because of the resources they took from Africa. They never thought of helping Africa to develop". Still only accounting for less than 4% of the continents FDI, Chinese investment is equally distributed between good and poor governance countries in the Continent. China`s philosophy to “respect each other's choice of development path and not impose our own will on others” must be given an opportunity to work.



However this is not pure philanthropy. China is using African infrastructure projects to keep its construction industry busy: which has emerged over the years as one China’s most important exports. Constituting roughly one quarter of China’s $10 trillion economy it is slowing alarmingly on the domestic front. Chinese companies have achieved unprecedented penetration of the African construction sector and this trend now shows no signs of slowing. Infrastructure construction in Africa has now become an end in itself.


A 3x3 model for China-Latin America...

A 3x3 model for China-Latin America production capacity cooperation.

Each year route 163, in the Brazilian State of Mato Gross, becomes one of the busiest roads in South American during February and March, as it links soybeans, the country's most important agricultural export commodity, to their biggest market - China.



Numerous big trucks, fully loaded with soybeans, run thousands of kilometers from Route 163 to the ports along the Atlantic Ocean. The soybeans will be shipped to China, 20,000 kilometers away, and then processed into tofu, soy milk and soybean oil. As Brazil's largest soybean-producing area, this region exports 90 percent of its soybeans to China. Local farmers don't know much about China, but they know that China is their biggest buyer



These links between China and Brazil mirror the growing relations between the two peoples, which have been nurtured and consolidated by the strong growth of the agricultural trades between the two nations. During the last decade, the Sino-Brazil agricultural trade has increased six fold.



According to Brazil's Ministry of Development, Industry and Foreign Trade, in 2014, soybeans remained its biggest agricultural export product, with 45.69 million tons in volume and 23.27 billion U.S. dollars in value. Of this total, 33.17 million tons were shipped to China and this number is expected to reach 46 million in 2015. China surpassed the European Union (EU) in 2013 as the biggest market for Brazil's agricultural exports.



Sino-Brazil trade is just a part of the wider Sino-Latin America agricultural cooperation, as China has also made huge progress in agricultural collaborations with other countries like Argentina, Chile, and Peru over the past decade: Sino-Latin American agricultural trade increased from 5.28 billion U.S. dollars in 2003 to 35.33 billion U.S. dollars in 2013, with an annual growth rate of 21 percent.



Latin America has become a crucial source of agricultural products for China, currently making up 19 percent of China's total agricultural imports. To date, China has signed memorandums on agriculture cooperation with 16 Latin American countries, and formed joint committees or working teams with 12 of them. However there now needs to be an evolution in the relationship.



Since the start of the year a fund of 50 million U.S. dollars for Sino-Latin American agricultural cooperation had begun to finance joint projects. Chinatex has begun to provide financial services to Brazilian farmers and is also considering expanding into fertilizers, pesticides and machinery financing. COFCO, has established a strategic cooperation relationship with Nieddera (by purchasing a 51% stake in the Dutch company) and entered the Latin American market with the latter's logistics and warehouse networks in Brazil, Argentina and Uruguay.



Against the backdrop of falling commodities prices, Chinese Premier Li Keqiang has proposed a "3x3" model for China-Latin America production capacity cooperation: the first "3" refers to cooperation in building three arteries for Latin America in the fields of logistics, power and information; the second "3" refers to sound interaction among businesses, society and the government; the third "3" refers to the expansion of the three financing channels of funds, credit and insurance.


China increasingly provides a source of financing and export markets without pressures to adhere to the practices of transparency and open markets principals to Latin America. It is also filling a vacuum left by decreasing interest from US companies in the region.


Does India need to be a Superpower at...

Does India need to be a Superpower at all? An economic comparison of China & India.

There’s no reason why India shouldn’t achieve double-digit annual growth rates and join China as an Asian Superpower.  Whilst India has the resources and the population to become an Economic Superpower they have some serious internal problems that will hinder them becoming a global superpower in the near future. India continues to struggle with poverty, sexism, internal bureaucracy, corruption and regional power struggles. And so perhaps the question needs to be "Does India need to be a Superpower at all?”, whilst it is still dealing with its numerous domestic issues.



However for the scope of this article we will only consider in what economic areas could India catch up to China in the next few years? The following chart breaks it down using data from the latest Global Competitiveness Report.



1. Market size

As it currently stands, India is already a superpower when it comes to internal demand. According to the Global Competitiveness Report, India has the third largest market size – behind China and the US, but ahead of other regional economic powers such as Germany, Japan and Brazil.



But India does have some catching up to do if it wants to surpass China and the US. Both countries have a GDP, measured according to purchasing power parity, of about $18 trillion. India’s, at $7.4 trillion, is still much smaller.



That said, India’s growth rates will almost certainly surpass China’s this year. With an expected growth of 7.5% this year, India is, for the first time, leading the World Bank’s growth chart of major economies.



2. Financial market development

India and China are also close contenders when it comes to their financial market development, coming in at 51st and 54th place respectively in the Global Competitiveness Report rankings.



Both countries have been making great progress in recent years in the availability of venture capital. For example, both China and India have doubled their share in global venture capital in recent years: China jumped from an average of 9% before 2014, to 18% in 2014; India progressed from 3% to 6% in the same period of time.



Both India and China have also seen their stock market capitalization increase dramatically in the last decade (source: World Bank). India’s stock market tripled in size from 2002 to 2012, China’s almost quintupled, and has more than doubled in the last three years.



In June, total Chinese stock market capitalization stood at some $10 trillion, making the Chinese stock markets the second largest in the world, behind only the US. And it overtook India, historically one of the hottest stock markets in the emerging world, with its market cap to GDP ratio.



But as recent news reports have shown, there’s been volatility in the Chinese stock market, with the SSE Composite Index in Shanghai losing almost 40% since June. Meanwhile, India’s star index in Mumbai, has been more stable over the same period.



3. Health, education and work

In other key competitiveness rankings, such as health, education and the labour market, India falls far behind China. In fact, in many areas, it even falls near the bottom of global rankings.



In health and primary education, for example, India comes in at 98th of 144 economies, whereas China sits in 46th place. In higher education, India stands at 93rd, with China ahead in 65th. And in terms of labour market efficiency, India does not even make it into the top 100: it stands at 112th out of 144 measured economies; China finishes 37th.



This performance shows that merely surpassing China in economic growth won’t make India a superpower; it must also ensure its growth is inclusive.



While income distribution and GDP growth indicators in India and China are neck and neck, most of the other numbers suggest China is doing a much better job of taking care of its population of more than 1 billion people. More of China’s populace is getting educated, more Chinese citizens are covered by healthcare and the country has a much larger middle class.



In India large numbers of people do not have access to the basic necessities of life. There are almost half-a-billion people living in poverty: most of them are homeless, disease-stricken and in stuck in vicious circle of poverty. Thousands of people die due to the lack of basic nutrition. Life expectancy at birth is very low and infant mortality is high. Crimes are on the rise: murders, rapes, financial cons, human trafficking etc. Corruption is at all time high. Millions of Indians are still illiterate and the education system that is in place is not really effective. Thus results in large amount of unemployment.




Whilst there has been a lot of progress in the recent years there is still long way to go for India. Economic and military might is not going to solve its domestic problems. Though these factors are important in asserting Indians growing global position, it`s focus must remain firmly on human development issues

The psychology behind social media in...

The psychology behind social media in China: Just why is it so popular?

The collective nature of Chinese culture: Chinese people tend to make decisions collectively, and spend a great deal of time talking to each other. Consequently, recommendations play a critical role in their decision making process. A recent survey stated that 66% of Chinese consumers rely on recommendations; a figure far higher than other countries’.



Freedom of speech: many believe that freedom of speech is a key motivator, the opportunity of expressing oneself generally is a major step forward in Chinese culture. Often individuals do not have many opportunities to make their voices heard. With the equal opportunity provided by social media, anybody can make a statement and even become an overnight sensation. Increased mobile social media tools and devices also give users the flexibility to check, communicate and interact with one another at any time and in anywhere in China, or the world.


Immediate connection: by comparison with traditional media channels, social media enables a vast amount of first-hand information to be shared immediately with no time and geographic limitations. For China this symbolises an evolution of communication methods from one-way broadcast, to a two-way dialogue, now to group discussions.


The popularity of voice messaging: typing in English on a small mobile device can be a nuisance; the process of writing in Chinese on a phone is even more complicated. Not only do apps like WeChat enable the user to combine many methods to interact with one another, but also the user experience has also significantly improved. With many Chinese people travelling between one city and another and international jetsetters roaming around the world; this particular method is having an amazing effect on people’s lives.


However, whilst the Chinese social media scene is vastly different to that in the West, the ingredients for winning business are not so far apart. Similar to the West, social media influences consumers’ decision-making journeys at each and every stage and the basic rules for engaging with them are similar. This is because ultimately the key questions for all marketers remain the same worldwide: where and how can you find your target audience? What are the best ways to engage with the audience and convert them to sales? And how do you measure the effect of your marketing efforts, especially through social media? To help demystify how companies market themselves and their products through social media in China, let’s take a look at the Chinese social media landscape.


The popular social media platforms and tools enjoyed in the West such as Facebook, Twitter, YouTube and Google are not available in China. Instead, a range of local equivalents have taken their place: Sina Weibo, Renren, Kaixin, WeChat, Youku/Tudou. Momo and (a Chinese search engine). According to McKinsey’s China’s Social-Media Boom report, active social media users in China are mainly divided into four groups: social enthusiasts, researchers, readers and opinionated users. Therefore, companies will need to investigate and decide on the right channel for their research or message delivery before proceeding.



Using social media Companies are able to create a buzz before the arrival of their new product and pave the way for a successful launch. With the interactivity of social media, companies can learn from the feedback received from real customers or conduct market research to ensure that new products meet the demands of their customers. One recent success story is that of Volkswagen. Their 2010 marketing campaign started with a core brand proposition. Instead of “making cars for the people”, Volkswagen launched a campaign called “build the cars with the people, for the people”, called “the people’s car project”.


They stimulated and participated in millions of conversations on relevant social networks, listening to what potential customers had to say. They then challenged the local community to come up with ideas focusing on car designs and functions. The participants were given online design tools to create ideas, supplemented with videos, pictures or words if the ideas were too complex to convey. Then the ideas were shared again via social media for further discussion, with engagement incentivised by badges, points and test driving experiences. As a result, they received 50,000 ideas and 450,000 votes on unique and interesting ideas. Their fan base reached 2.9 million. The national campaign of their new models of cars also involves these very ideas. It is unsurprising that these clips were watched by more than 3 million people, creating 19 million views and clicks. With such a dedicated online following, 173,000 people made visits to their promotional events, generating 700 articles of PR. Clearly their ROI would have been significant.


Online and offline marketing activities must now be integrated and complementary to one another to ensure effective marketing outcomes. Perceiving Sina Weibo, Renren, Youku and Wechat, literally, as the equivalent of western platforms such as YouTube, Facebook etc., or applying the same strategies simply wouldn’t work. Overlaying what worked in the West is not necessarily a recipe for success in China.”


With the unstoppable economic momentum in China and the fact that social media is spreading at an explosive pace, it is vitally important for companies to gain a good understanding of how social media works and how they might work for their objectives in China.


Pictorial: Chinese Propaganda Posters...

Pictorial: Chinese Propaganda Posters 1949-2008

Propaganda posters are not only graphically powerful and aesthetically mesmerizing, they also offer an important window into Chinese culture. They represent the history of China from the Chinese government's perspective from 1949 onwards, and show us what the government wanted people to understand. Via these posters we gain an insight and understanding of what the Chinese people have been through and where they are today.



Carry the revolution through to the end.                                                      America out of Veitnam



Defend our Motherland and our Hometown


Long live great Marxism-Leninism-Mao Zedong Thought



Foster a correct spirit, resist the evil spirit, resist corruption, never get involved with it. Anti-American Empire to aim Japan.


Long live the brother friendship of China and Soviet Union.


Long live the friendship between the peoples and the armies of China and the Soviet Union.



Vaccinate everyone, to crush the germ warfare of American imperialism!


Under the red flag of Mao Zedong’s thought, pointing the way to advancement.



With the help of the Soviet Union, we will do our best to realize the modernisation of motherland. Work like the Daqing oilfield workers, run businesses like Daqing oilfield.


Work hard to make the country strong, transform heaven and earth.



Only socialism can save China, only socialism can develop China. The return of Hong Kong, One Country - Two Systems.


Carry out family planning, implement the basic national policy.


Not a government poster but of the style. Sui Feifei, Adidas Olympics poster.


I speak for socialist core values.


Can China become the world’s most...

Can China become the world’s most entrepreneurial economy?

After decades of the fastest economic growth in the world, China’s economy has started to slow down. This is perhaps inevitable, given an average annual growth rate of around 10% was sustained for almost thirty years following the economic reforms introduced by Deng Xiaoping in the late 1970s.



But one area where China continues to develop is in the number of private enterprises being started. China simplified the process for registering businesses in February 2014, and since then there has been a huge leap in the number of new registrations. According to the State Administration for Industry and Commerce, there were 3.65m new registrations in 2014, an increase of 46% on 2013.



These private businesses have driven China’s economic growth in recent decades, and their future prospects play an important role in the country’s continued transition to becoming the world’s largest economy.



A growing private sector

Before the recent jump in business registrations, China had already transitioned from having a mostly state sector economy to a private sector one. By 2012, the State Administration for Industry and Commerce, which registers new businesses across China, reported that there were more than 50m active registered private businesses, 40m of which were smaller “household enterprises. This is a huge shift from 1978 – the year economic reforms began – when there were only 140,000 registered private businesses, generating less than 1% of economic activity.



The private sector now accounts for at least three-quarters of the Chinese economy, and possibly more. Private businesses create 90% of new jobs and are the major employer in many parts of China.



Meanwhile, as the private sector has grown, the state sector has shrunk. In China’s cities, where most people now live, China’s national statistics show that jobs in state-owned enterprises have dropped from over 70% of total employment in 1990 to 25% in 2012.



What is striking about this transformation is that it has been recent. The private sector only really took off in the early 2000s, following widespread privatisation of smaller state-owned enterprises and collectively-owned rural township and village enterprises. In the 1980s and much of the 1990s, private entrepreneurs found it easier to register as collective (that is, state-owned) enterprises than private businesses, discouraging open entrepreneurship.



The role of government

The emergence of private businesses as the driver of China’s economic growth over the past ten years has been one of the most important structural changes in the country since the start of the current reform period. It constitutes a fundamental restructuring of the economy’s ownership away from the state and into private hands. This is a major shift that removes one of the core tenets of the Chinese communist party – that the state owns the means of production.



However, a move from state to private ownership does not mean that the government, and party, have become side players in China’s economy. The state continues to play an important role, in shaping markets, supporting state-owned enterprises and in creating the wider conditions within which businesses grow.



Many private enterprises, especially those traded on China’s own stock markets in Shanghai and Shenzhen, are actually controlled by the state through shareholdings and informal means of maintaining influence. Within this context, the Chinese state and Communist Party continue to prefer and support state-owned enterprises, offering them market opportunities, finance, political support and sponsorship that is not available to private entrepreneurs.



Continuing growth

Continued private sector development will determine China’s future economic growth. In order to enable this, the Chinese government should encourage private sector development in the following six ways:



  • Create the right macroeconomic conditions. The Chinese government can continue to create the wider conditions for economic growth. For example the right monetary policy and continued investment in infrastructure will create opportunities for entrepreneurs to grow their businesses. Ensuring continued stimulation of the economy, and opening up markets to more and more transparent competition will particularly help the private sector to grow.


  • Put the private sector first. The government can ensure that some of this wider macroeconomic development is targeted specifically at the private sector. For example, more contracts for major projects could be awarded to private rather than state-owned enterprises, and government procurement could be opened up more to the private sector. There is a need to loosen the close relationship between the state and the large enterprises it owns and gives preference to.


  • Support as well as sponsor entrepreneurs. The state can give more targeted support to the private sector, both directly to enable growth and indirectly through policy and regulation that is friendly to private businesses. There is also a role for the state to actively and publicly sponsor entrepreneurship, advocating for start-ups and private ownership as a valuable and positive career option.


  • Protect property. The state can reinforce protection of private property, more actively enforcing the 2007 national Property Law. In particular, upholding private property rights in the courts, and finding mechanisms to help entrepreneurs clarify and register their rights would be a positive step. In addition, and as part of the current anti-corruption campaign, more could be done to prevent expropriation from private enterprises by officials.


  • Invest in new and growing businesses. Most new jobs and wealth are created by a small group of fast-growing new ventures that scale up soon after start-up. More and better funds could be made available to private entrepreneurs running these types of business. China’s state banks continue to prefer state enterprises and to be less competitive when lending to the private sector. A strong investment system focused on private enterprises would also inject much-needed capital that would stimulate business growth.


  • Support and fund innovation in the private sector. Developing a stronger national infrastructure for innovation that closely involves private enterprises would create a more competitive economy. Much of China’s research and development is funded in state-owned enterprises and government ministries. Opening this up to private businesses, and finding ways to fund private enterprises would create a much more innovative economy.



This Article was originally published in The Conversation and is reproduced here with the permission of the authur Andrew Atherton.

Books: China, the Future of Travel

Books: China, the Future of Travel

How will the future development of tourism from China affect you?



Within only a few short years, Europe and the rest of the Western world have seen a marked shift in how Chinese experience travel. This is having a major effect on the way which destinations must market themselves to Chinese visitors. Since 2004, Chinese tourists have been playing catch up with the rest of the world in record speed. These days, the talk is of a rising consumer group consisting of self-made millionaires, and senior executives working for multinational corporations. The wealthy elite are not just men, and not just middle-aged. High-flying career women and female entrepreneurs as well as the 20-something children of senior Communist Party officials comprise this niche market for luxury travel and consumer goods. Some of the niche travel categories to emerge out of this are: spiritual journeys (to Tibet, Bhutan, Nepal and India); adventure travel (hiking, climbing, self drive safaris, skiing); cultural travel or a combination of activities. Within China itself the shift in how people travel created a boom in the construction of luxury hotels, both large chains and small boutique offerings. There has also been a massive growth in the budget hotel sector, with local and international chains scrambling to find locations in China’s booming cities. Rural retreats are opening up to offer relaxing therapies to busy business people. The trend towards more individual choices in travel is apparent in the larger cities.



Looking ahead, it is plain to see that the old clichés about Chinese tourists no longer hold true. The sheer size and complexity of the market means that there is demand for almost any type of travel service, provided the seller knows where to look. Chinese who can afford luxury are educated and well traveled. Broadly speaking, they would prefer to be treated the same as clients from other countries while still enjoying special amenities and services afforded especially to Chinese customers.



Current Trends

Fast forward to 2015 and what has changed is that now the constant online chatter through mobile instant chat apps has been accepted as integral to doing business and China is leading the world in connectivity and use of mobile smart phones.



13 years ago, the challenge was convincing travel agents to offer individual travel services, not just group tour packages; since agents were used to collecting commissions from wholesalers for each person that they booked on a group tour. China began to allow its citizens to travel abroad for leisure in the early 90s through a policy known as ADS (Approved Destination Status), which was meant to control the outflow of tourism and link it to a growth in inbound tourism through bilateral tourism agreements. In fact outbound tourism has grown much faster, but from a smaller base, while inbound tourism to China has slowed down due to various factors including pollution, brand image and lackluster marketing initiatives.



Regarding individual travel, only when travel agents saw the ease and speed with which such bookings can be made online and the handsome profit margin on these orders, did they begin to shift towards independent travel. During the three years I spent living and working in China, we connected more than 5,000 travel agents to the online booking system and saw online bookings grow 600 percent. During that time, Ctrip grew to become the dominant online player and led a wave of companies offering online travel service focused on the domestic travel market.



There is no question that a new generation of Chinese travelers has embraced the Internet for their travel research and booking needs. While the share of travel transactions conducted online is still low compared to Western economies, online travel is growing at twice the pace of all travel. The leading OTAs in China are spending big to attract new customers through building loyalty and focusing on brand recognition.



Within only a few years, Europe has seen a shift in how the Chinese travel that is affecting the way in which destinations must market themselves. When Europe joined the ADS agreement in 2003, the Chinese arrived in large, organized group tours that covered 10 or more countries in less than 14 days. Their daily schedule started at 6am and ended late at night, spending most of their time on board a coach and never more than one night in the same place. After the long period in which businessmen traveled in small groups, the first ADS tours consisted of a mixed demographic and included visits to the most famous landmarks in Europe. Tourists saved on accommodation and food in order to have spare cash to spend on shopping. The reason retailers love Chinese customers is that when they travel they feel obliged to buy gifts for their relatives, friends and co-workers. Often what they buy must be unique to the place where they buy it, as another testament to their travel (apart from the ubiquitous pictures).



From 2004 until today, this trend has rapidly changed as Chinese catch up with the rest of the world in record speed. These days, the talk is of a rising consumer group consisting of self-made millionaires, and senior executives working for multinational corporations. The wealthy elite are not just men, and not just middle-aged. High-flying career women and female entrepreneurs as well as the 20-something children of senior Communist Party officials comprise this niche market for luxury travel and consumer goods. Some of the niche travel categories to emerge out of this are spiritual journeys (to Tibet, Bhutan, Nepal and India); adventure travel (hiking, climbing, self drive safaris, skiing); cultural travel or a combination of activities. Within China itself the shift in how people travel created a boom in the construction of luxury hotels, both belonging to large chains and small boutique offerings. There has also been a massive growth in the budget hotel sector, with local and international chains scrambling to find locations in China’s booming cities. Rural retreats are opening up to offer relaxing therapies to busy business people. The trend towards more individual choices in travel is apparent in the larger cities.



The Outlook

Looking ahead, it is plain to see that the old clichés about Chinese tourists no longer hold true. The sheer size and complexity of the market means that there is demand for almost any type of travel service, provided the seller knows where to look. Chinese who can afford luxury are educated and well traveled. Broadly speaking, they would prefer to be treated the same as clients from other countries while still enjoying special amenities and services afforded especially to Chinese customers. The newly updated and expanded China Travel Handbook 2015 launched today is intended to help set into context the media hype and excitement across the industry, and provide deeper insights about this market to people working in the tourism, hospitality and retail sectors. Articles and reports about Chinese tourists can be found everywhere, and I’ve first written about the vast potential of the market in 2005. This book contains interviews and case studies from industry insiders that have many years of experience working in, and with the Chinese outbound tourism market. Each brings their own perspective to form a rounded picture of the opportunities and challenges.






A recognized expert in China tourism and hospitality, ‘China, the Future of Travel’ author Roy Graff founded ChinaContact as a market entry consultancy in 2005 and published the very first edition of the book that same year. The book is available for purchase here: with a 10% discount using the promotional code: chinabrain10

China Scholar’s end of days forecast...

China Scholar’s end of days forecast dismissed but demands attention

A growing army of prognosticators forecasting a Chinese hard landing and the collapse of Communist rule has an unlikely, but distinguished, new recruit: David Shambaugh.


His Thesis may well prove inaccurate but at least some of the symptoms he identifies as contributing to the regime’s ultimate collapse are real and they are eroding faith in the new leadership’s appetite and ability to make the difficult changes need to ensure sustainable development in the years ahead.



David Shambaugh is among the most sober-minded of experts on modern China and respected in both the U.S., where he teaches at George Washington University, and in Beijing, where he has been feted by the government.


Shambaugh’s reputation as one of the more insightful China analysts is why his gloom-laced op-ed in the Wall Street Journal, which predicts a crisis and the end of Communist Party rule in China, has created such a splash.


Critics have been quick to pounce, arguing that the symptoms of China’s collapse identified by Shambaugh have waxed and waned for years and arguing that he underestimates the Governments ability to survive. But Shambaugh’s analysis demands attention in this climate of growing concern about the health and stability of the Chinese economy, as well as the direction of the country under the rule of President Xi Jinping.


His is a risky prognostication – if nothing else, it’s hard to see how this won’t upset influential people in Beijing – but one that can’t be dismissed out of hand.


One of the five fault-lines that Shambaugh says will bring about the end of party rule is the economy, and specifically the leadership’s failure to institute the ambitious package of reforms adopted during the Third Plenum in November 2013.


Premier Li Keqiang said in his 2015 work report last week his government is targeting economic growth of around 7% this year, confirming a widely-anticipated embrace of a slower pace of activity as part of the economy’s “new normal”.


That was the key takeaway from a report which otherwise resorted to the usual list of reform pledges. These reforms, which include capital account opening, interest rate liberalization, a clean up of local government finances and an opening up of industry to private funding, lie at the heart of the Chinese government’s commitment to secure the economy, and the country’s, future.


The Government has opened a free trade zone in Shanghai intended as a laboratory for capital account opening. It has also allowed limited direct trade in equities between the Shanghai and Hong Kong stock markets. The Ministry of Finance has begun sifting through submissions of debt holdings reported by local governments to decide just how much it intends to take onto the central government balance sheet while more provinces are expected to be allowed to sell bonds directly to the market this year. The managers of big state firms have seen their pay slashed while at least token efforts have been made to open state industry to outside investors.


The problem is that this progress has been stuttered so far – Shambaugh says vested interests are successfully blocking implementation -- and the leadership has done a poor job in articulating just how it intends to put its lofty reform goals into practice.


Some officials and advisors believe the government’s targets for this year are too ambitious, while progress on reform has been too limited. The Government was able to muddle through the post-global financial crisis years but the new leadership came to office determined not to repeat the sins of the past, but to remake China and secure its economic future.


The lowering of the economic growth target signals Beijing’s commitment to that process, as well as its acknowledgement that the days of freewheeling growth are behind. Premier Li says China doesn’t need to grow as quickly as it did in the past, and that a burgeoning services sector can provide the jobs needed to allow for a slower pace of expansion.


But his work report was a disappointment to those expecting a more aggressive pace of change. The target for the fiscal deficit this year was increased, but only to 2.3% from last year’s 2.1%. Even with funding carried over from 2014, this points to ongoing fiscal conservatism, with banks continuing to play an outsized role in funding the investment needed to deliver headline growth rates.


In the meantime, Chinese debt levels are continuing to rise and a slowing economy is putting ever greater pressure on the financial system. China's debt load has quadrupled since 2007 and now stands at 282% of GDP. It is on track to hit Spain's 400% in three years, according to the latest unofficial estimates.


Betting against the Communist Party has been a losing game so far. This year marks the 14th anniversary of the publication of ‘The Coming Collapse of China’, a study which has been mocked for the surety of its prediction of the end of the regime. Its author, the lawyer Gordon Chang, continues to insist that China’s hollow, debt-ridden banking system will eventually drag the regime down.


Shambaugh’s previous study was about the Communist Party’s ability to adapt and survive – research which highlights the risk of making bold predictions about the end of days. That said, the new Chinese leadership has successfully outlined China’s problems and the need to fix them. But a leap of faith is still required to see just how the party intends to break with the past and successfully rebalance the economy.


Free Trade Agreements, a force for chang...

Free Trade Agreements, a force for change.

As part of it`s continued efforts to reduce the dominance of the US dollar for International trading and increase its own export growth, China is to increase the pace of its free trade negotiations in 2015.



China will launch Free Trade agreement (FTA) negotiations with Israel and initiate FTA feasibility studies with Colombia, India, Nigeria, Nepal, Maldives and the South Pacific island nations. FTA`s help companies to both diversify their business` and increase their exposure to global markets as well reducing basic cost of goods due to the removal of tariffs: the New Zealand dairy industry is reported to have achieved a fivefold growth as a result of the China-New Zealand FTA.



Currently standing at some 2.32 trillion USD (2014) the slowdown in export growth in China is seen as a clear risk to the stability of the economy in 2015. With the deterioration of international consumption, low global employment rates and rapidly increasing competition from Asia: China has realized it must complete a restructuring to its manufacturing base. Key to stabilizing this slowdown is increasing the number of FTA`s, pushing the Chinese currency to play a bigger role in foreign trade, developing new trading routes in neighboring regions, and exporting more value added products onto the global market.



FTAs are also of significance to its foreign policy. While strengthening economic ties with its trade partners, China is able to maintain friendly and cooperative relations with many countries. Most FTAs include provisions calling for dialogue and cooperation among the trade pact parties.



Currently China has FTA`s will the following countries: Chile, New Zealand, Pakistan, Singapore, Peru, Costa Rica, Iceland, Switzerland,


Negotiations have concluded with: Australia (expected to be signed in May 2015) and South Korea


Info Graphic Source:


FTA`s currently under negotiation with: The Gulf Cooperation Council, Norway, Sri Lanka


And is undertaking feasibility studies with: India, Colombia, Israel, Moldova, Nigeria, Nepal, Maldives and the South Pacific Island Countries.



A further force for change is the rapid growth of the 12 member Trans Pacific Partnership, dominated by the USD and US financial policy: seen by China as restricting its exports due to currency issues.



In order to protect the value of the RMB China must encourage more use of its currency in international trade, swap arrangements between central banks, bank deposits and bond trades. The aim being, implementation of currency settlement agreements, effectively promoting more currency exchanges between different markets to stimulate export and reduce foreign governments dependence on the USD.


China is now demonstrating a greater determination to engage in a higher level of liberalization of trade and integration with its trade partners. FTAs are bolstering China’s status within global production networks and integrating it within the global hub.


Sri Lanka, China and India: rivalry...

Sri Lanka, China and India: rivalry in the Indian Ocean.

For smaller Asian countries it is no surprise that China has emerged in the last decade as an essential trading partner, Sri Lanka is no exception: becoming it’s largest foreign finance partner in 2010, overtaking India and Japan, and as its third largest trading partner (bilateral trade was $3.62 billion in 2013). For China, Sri Lanka is a crucial gateway port providing it with a foothold near sea lanes in the Indian Ocean and entry into what India considers its sphere of influence. The longer term aim being to access and secure crucial oil exports from Iran and the Middle East. 



Utilizing development loans of nearly 5bn USD from China over the last 5 years Sri lanka has heavily invested in numerous infrastructure projects to boost its rapidly growing services sector: China is currently financing more than 85 percent of the Hambantota Development Zone, to be completed over the next decade. This will include an international container port, a bunkering system, an oil refinery and other facilities. Simultaneously the development of the Pakistani port of Gwadar which is to be run exclusively by China, provides an indication of Beijing fast growing influence in the Indian Ocean.


China’s influence is now firmly embedded in Sri Lanka — economically as well as geopolitically: the docking in Colombo last year of a Chinese submarine certainly would have raised a few eyebrows in Delhi and forced India into a re-assessment of its relationship with Sri Lanka. However the new Government of President Maithripala Sirisena might just take a step back to re-asses it`s continued love of Chinese financing.


Current Chinese invested development projects:

$1.5 billion port project in the southern coastal town of Hambantota being built by China Communications Construction Co.Ltd. It has the potential of being developed as the deepest and largest harbour in the world, with a location just half an hour off the world s busiest sea-lane which is used by 100 - 200 ships a day.

Sri Lanka`s 2nd International airport in Mattala has facilitated numerous direct flights between China and other Asian cities.

The Colombo Lotus Tower, being built by CEIEC and funded by Exim Bank of China, which will be the tallest tower in South Asia.

The $1.2 billion Lakvijaya coal power plant in the northwestern town of Norochcholai being constructed by China National Machinery and Equipment Import and Export Corporation (CMEC), with a planned ultimate capacity of 900 megawatts. Once on-line it is estimated electricity costs will fall from the current RS/11 to RS/5.

China and Chinese firms are actively participating in development of Sri Lanaka's highways and expressways, mostly funded by Exim Bank of China and built by China Metallurgical Group Corporation.

(Colombo International deep water Container Terminal, completed in 2013 by China Merchants Holdings International).



The question now is how far the new Sirisena government will be willing or even able to go in addressing concerns about Chinas influence in Sri Lanka that he was vocal about prior to the elections. Whilst the growth of China`s influence may well slow, the new government must also see that nurturing equal relations with all regional powers and in particular India, is in its best interests. The country still needs significant development loans to continue its infrastructure development and attain its 7.4% growth target for 2014. However further loans from China, at rates far above those from the Asian Development Bank or countries like Japan, seem to be off the agenda for now. Interest payments now currently amount to 75% of GDP according to Moody`s, creating a significant debt servicing burden.


China is actively pursuing mutually beneficial relationships throughout Asia and supporting these with infrastructure, loans and joint ventures. With a FTA (free trade agreement) due to be signed into force later this year, Sri Lanka will continue to benefit from its relationship with Beijing, however a reassessment of the long term benefits and costs is certainly underway. It is now very much up to India to turn the political change in Colombo to it`s advantage.


The PPP Dragon, China at No.1

The PPP Dragon, China at No.1

Once the most prosperous nation on earth, the recent report from the International Monetary Fund suggests that we are witnessing a return to this status quo, with China’s purchasing power parity (PPP) adjusted GDP estimated for the year at $17.6 trillion, compared to $17.4 trillion from the US.


Economists have been forecasting for some time that China will become the world’s biggest economy on a GDP basis by mid century. The new PPP calculations do provide fodder for those predicting a Chinese century.



However, 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 power, but it doesn’t want the responsibility of leading global discussions on pressing issues such as climate change 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.


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 regardless of exchange rates, are an inaccurate gauge of economic size, owing in part to problems with measuring prices from country to country and the infrequency with which they are measured. China adds a further level to the problems of calculating PPP figures by centrally controlling exchange rates to keep them artificially low, thus altering the accuracy of PPP figures.


A critical flaw in new report is its failure to include per capita calculations. China’s population of 1.3bn is over three times the size of America’s, thus China has a gross GDP greater than America’s, but its per capita GDP remains level with that of Albania. The Chinese government relies on per capita statistics to measure its economy, acknowledging that Chinese economic development is far from world-beating.


Indeed, China’s per capita GDP was just over $6,000 in 2012, according to World Bank statistics, nearly double the 2009 level and less than Asian peers such as Malaysia but well below the $51,749 of the U.S. In fact, China’s leaders worry that the economy is more likely headed in Malaysia’s direction than 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 with the global economy.


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, as its base becomes larger and as environmental and resource constraints bite.


A growing number of China speculators see growth continuing to slow this decade towards the low single digits, as an increasing share of economic resources are channelled towards servicing debt.


While China’s economic growth may be slowing, its national debt stands at just 24% of GDP, compared to the US national debt of 74% of GDP in June 2014. While China’s debt is growing, its credit situation remains far better than that of the US. This is another important factor for consideration when assessing economic success, and one that falls convincingly in China’s favour.


The Communist Party has long known that it must be careful not to overdo its economic triumphalism, given how much of the Communist Party’s legitimacy hangs on its ability to consistently raise standards of living amongst China’s populace. China remains very inward looking.


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 interested and willing to countenance calls from the west on how to run its economy and its foreign policy. China’s development is incomplete by a wide margin, and that provides strict limits to its global assertiveness.


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 for the first time in its history – and the government sees that rising to 60% by 2020 and towards U.S. levels at around 70% some time 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. With growth slowing and economic risks rising, urbanizing 240 million over the next decade or so promises to be considerably more difficult than the previous 240 million.


Faced with that considerable challenge, it’s unsurprising that Beijing is unwilling to believe the hype related to the latest PPP GDP figures, or to assume the role of a super economy.


Looking to history, the path of the US in becoming a global economic superpower has some comparable features to China’s current state. Despite nominally becoming the world’s largest economy at the end of the 19th century, the US maintained an insular, inward-facing path until the end of the Second World War. It was then that it used its economic advantage to assume the role of a global superpower through financing much of Europe’s post-war reconstruction. It would appear that China remains in this transition period. With each year it claims another accolade of its economic supremacy, but is as yet reluctant to take on a more political role.


The next decade will prove crucial in determining China’s future path. Will economic growth flounder or will we see the much hyped century of Chinese hegemony begin? Will China forge a divide between economic dominance and political supremacy, or will we see a new world order with China calling the shots of both economic and political power?


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