Editorials

A direct policy response to Sino-African relations or a genuine new chapter in the U.S...

It is fair to assert that it has taken America decades to realise the true potentials of an emerging Africa, and that she is only doing so on the heels of growing Chinese influence on the continent. This assertion has led many experts to believe that the well-publicised upcoming US-Africa summit in August is another opportunity for the US to re-strategize and come up with policies that will counter and contain the growing Chinese presence and influence on the continent. Truth be told; there’s growing concern within the corridors of power in most western nations notably; France and the United States that, giving the speed at which China is penetrating Africa, China could soon start enjoying the level of political influence in Africa that was historically held by France and the United States. With this in mind, both countries have had to go back to the drawing board and drastically redesign their African policies, with each one of them emerging with different strategies and policy options to contain the Chinese expansion and grip on the continent. The forthcoming US-Africa summit could be seen as yet another opportunity to re-engage with Africa. However, for this to yield any fruits, many looming questions must be sincerely scrutinised and answered.

Is America stepping in late? Can the Americans match the Chinese success in curbing and nurturing Africa at the same time? Can they move in with full packages like the Chinese do? Have they got the extra money to spend like China? Can the Americans establish relationships based on friendship and mutual understanding rather than the tutor-student relationship that is being perceived by many Africans? Can the Americans compromise on their values for democracy and human rights in favour of a “cordial and friendly relationship”? What of the non-interference policy being advocated and practised by China? A well-known and highly adorable sweetener in the Sino-African relations has no match, especially with proponents and advocates of democracy and the respect of Human rights. With a capitalist system in place, how will America create and bank role state owned corporations to take on big and visible projects in Africa in return for natural resources?

To be able to answer the above questions, one will need a full understanding of the foundations on which these relationships with Africa are established and how they have evolved over time.

It is evident that China’s huge and expanding presence and success in Africa is not by chance or luck. It has been a well thought and worked out strategy in the making for many years. A Chinese foreign minister Li Zhaoxing once stated that “today’s Sino-Africa relationship is viewed by both sides as deep-rooted and forged in years of mutual support “. Well, that is the Chinese narrative, and what they do not also tell the world is that it is an unbalanced relationship in which one out-powers the other in everything, leaving the weaker with little or no bargaining power or a better alternative.

Early foreign policy reforms embarked on in the early 90s by the Chinese government regarding Africa can be credited for the country’s success on the continent. As early on as 1995, the commerce ministry, on orders from the Chinese state council was instructed to reform its Africa policies, prioritising any link between aid and trade. Creating the Forum on China–Africa Cooperation (FOCAC) in 2000 was a clear indication that there was a true commitment within the highest level of Chinese government to foster bilateral trade and relations with Africa. The cornerstone of this commitment was the Chinese believe in the continent and willingness to take risk while the rest of the world’s investment community watched from a safety distance. Note, FOCAC was launched in October 2000; five months after the US congress had approved the African Growth and Opportunity Act (AGOA).

Via partnership programs with host countries, the Chinese government has help fund multimillion dollar projects across the continent, most in infrastructure ranging from road construction, power plants to rail ways. To many Africans, this is the kind of investment and development aid the continent has been yearning for and not development aid in the form of wheat and flour or digging wells. Even if the oil and other natural resources are being siphoned to China, they are at least leaving behind visible investments.

So far Africa seems quite comfortable with that relationship with China, but not to the satisfaction of the US, who sees China’s presence in Africa as being exploitative and on many occasions has had to voice these concerns openly. In 2012, Hillary Clinton, the then US secretary of state while on an African tour warned Africans against unnamed “outsiders” coming to “extract the wealth of Africa for themselves, leaving nothing or very little behind.” It was obvious who the unnamed outsider was. China feeling guilty, quickly responded by accusing the United States of seeking to sow discord between China and Africa while keen to reap benefits for itself from the booming continent. It is indeed a battle between two elephants.

America and other proponents of democracy believe China has no plans to halt its expansion on the continent even when democracy and humans rights are at risk. But fairly speaking, if one was to do a survey in many African countries on what they will choose between visible development and democracy, we all can guess the outcome. Very few will want to compromise any development initiative or project (even with known long term exploitative objectives) for democracy. That is not to say democracy does not have its place. Both should go hand in hand. America seems trapped in a dilemma, given that on one hand they do over emphasised democracy; while on the hand continue to support some autocratic and in some cases military regimes on the continent. These mixed messages have not been doing America any good.

The African Growth and Opportunity Act (AGOA) approved by the US congress and passed into law in 2000 was a golden opportunity for the United States to re-engage Africa and take over the front seat in piloting the continent’s growth. However, the lack of commitment and the limitations with AGOA explains why 14 years down the line; the US is still trying to catch up. First and foremost AGOA which granted preferential duty-free and largely quota-free access to the U.S. market for some 1,800 products from 41 sub-Saharan African countries was a bold and a major step taken by the US to engage with Africa on the trade front, however the details of the program lacked the ingredients required to enhance and kick start growth on the continent. Secondly AGOA highly publicised as a program aimed at encouraging exports from Africa, failed woefully in encouraging new product lines being exploited and exported to America. There was hardly any investment in infrastructures to boost new productivity, whether be it in the garment industry or basket weaving.

The program ended up only facilitating exports in products that would have been exported with or without AGOA. For example, 2008 figures show that African countries exported over $66 billion worth of products to the United States, an increase of almost 30% from 2007. But more than $62 billion, or 94%, came from oil and gas and minerals, products that would have been exported with or without trade preferences. Similar in 2013, oil and petroleum products accounted for over 80% of the exports to the United States from African countries. Hopefully, the shortcomings of the AGOA program that is expected to come to an end in 2015 will be used as a yard stick and learning curve for future engagements with Africa. America had the opportunity in Africa, but lost it to China.

Another bone of contention between the US-Africa relationship is the perception held by many Africans with regards to the Washington consensus. For close to three decades today, the market fundamentalism or neoliberalism (Washington consensus) being implemented by the World Bank, and her sister institution the International Monetary Fund has had very little noticeable impact in developing the African continent and alleviating poverty via economic growth. It is again fair to assert that both institutions failed to jump start the continent’s economy. Many [1]studies have concluded that the strings and conditions attached to most development aid under the Washington Consensus were dampening rather than encouraging economic growth on the African continent. Even still in cases where lesser strings and conditions were attached, the implementation mechanism of policies designed in Washington had very little impact, since they often failed to directly address the problems and challenges facing the struggling masses.

The Washington consensus on a grand scale agreed and encouraged developing countries to export more of their natural resources including cash crops to international markets, so as to raise funds for servicing debts. Countries implementing the Washington Consensus (structural adjustment and stabilisation programs) were often forced to cut spending on vital sectors such as health, education and development so as to meet up with debt repayment plans.

This left many impoverished African countries with no glimpse of hope to ever industrialise and diversify their economies.

Many impoverished countries were often encouraged to concentrate on the production of cash crops similar to other developing countries, which obviously resulted to a surplus in the market and hence leading to a drastic fall in prices on those products and commodities, this to the benefit of the richer and developed nations. Fairly speaking, the Washington Consensus, from its inception was never designed to enhance development, economic growth and fully alleviate poverty in the developing countries. In a real world, it was/is a well-crafted debt creation and collection tool. The only thing the Washington Consensus succeeded in doing was widening the gap between the rich and poor, and creating new oligarchs in countries that were implementing privatisation programs.

Twisting the arms of developing countries to carry out recommended structural reforms at the expense of key functions of the state was never going to be growth enhancing. This may be explains why for over a quarter of a century, the World Bank and the IMF despite spending a chunk of cash, have failed to deliver tangible results in Africa.

Contrary to these conditional and strings development aid, the Chinese aid comes with no strings or conditions attached to it. However encoded within the aid packages are pseudo long term exploitative objectives whose adverse impacts are often too blur to see. The perception being portrait by China is that, they have agreed to deal with African countries as partners in development rather than the master-servant relationship practiced by the western nations in Africa. As per the Chinese narrative, it is a give and take kind of relationship.

The coming of the Chinese with their new model, aka the Chinese full package (Money, Technical expertise and protection from international sanctions) changed the balance. The complete package, from the sound of it is always too good to not tempt many African leaders, especially those with murky human right records. But the big question is, to what extend can these countries rely on China for protection in the event of a unilateral action, say from one of the super powers? For now, and lessons from recent events have shown that the probability of China stepping in and preventing a military action with the use of counter force is close to, if not zero per cent. In that full package, their guaranteed protection ends at blocking UN Security Council resolutions against countries in which their interest is at stake. But as soon as the Security Council is by passed, China has proven not to have the guts to stand in the way. Sadly in some instances, they have quickly switched sides to get closer to the winning group so as to secure their interest when the new group takes over.

Possible policy options if the US-Africa summit fails to achieve its goals

If the summit fails to achieve its defined goals, the US will be left with no option but to concentrate on hotspots where there are conflicts, since it is evident that China often shies away from mingling in internal conflicts. With its military strength, which is also its biggest asset and export, the US will stand to benefit by increasing the exportation of this asset to countries rich in natural resources.

One way to achieve this will be to promote and expand the war on terrorism, so as to militarily engage those countries.

To a lesser extent, encourage espionage to foment new conflicts on the continent, so to have a reason for intervention in favour of a regime that will be pro-American.

Form new alliances and strengthen existing ones with other disgruntled stakeholders such as France who are losing grounds on the continent, for a joint resistance against the Chinese expansion on the continent.

What America should do

It is not yet too late. There is still a void in the industrialisation sector across Africa and the US has another chance to fill that gap. If the Americans will want to remain relevant in Africa for a foreseeable future, then they will have to deviate or shift their strategy from the heavy military oriented interest to a rather economic interest.

Cut down its military assistance to the continent and redirect the resources to visible growth enhancing infrastructure projects. It is pointless to carry on providing military assistance and training regimes that in most cases are the very ones creating the greatest problems. Not cutting down on this will imply that, the US will carry on expanding its military presence on the continent via the Africa Command Centre (AFRICOM), while China on the other hand will carry on expanding its economic presence. It is obvious which one will pay off in the long term.

Rather than embarked on exaggerating the security risk of the continent and scaring off potential American investors, the US should promote and encourage investors to move into the continent and invest in the continents’ infrastructure, so as to turn Africa into the new factory of the World. There is enough cheap and available labour to run that new factory. Infrastructure should be built to take on the production that is currently being outsourced to Asia, in particular China. It will be beneficial for America to have an alternative, and hence reduce the heavy reliance on China who is at the same time a real rival.

With over 200 million people aged between 15 and 24 (the youth bracket), Africa has the youngest population in the world, an asset which the US can exploit for its consumer based economy. With that youth population size, it is evident that cheap and sustainable labour can be sourced from the continent.

After this summit, Obama should multiply the number of trade visits to Africa during his remaining years in the Whitehouse, taking along with him large delegations of potential investors. The era of the “BIG America” perception is fading out, so it will be a miscalculation to seat back and send low level government officials on behalf of the president and expect much in return from the African head of states. Taking the lead and championing such trips will delineate a new level of commitment and readiness to do business. A Long term commitment to invest in key sectors of the economies will be key to the success of this summit.

The US must stop leaning on the risk factor in Africa, because others are taking the risk and succeeding. One of the reasons why security is an issue is because of the huge youth unemployment. Dangerous sects and extremist are exploiting this high rate of unemployment to their benefit. A case in hand is the dangerous extremist sect Boko Haram originating from North Nigeria. The shrinking of the major garment in industry in that part of the country left many youth unemployed and hence vulnerable to Boko Haram recruiters. Therefore seating back and relying on a military response is not an option.

From a Pan Africanist perspective

Africa has a lot to offer and has complete packages as well, which are; expanding markets, cheap labour, and natural resources. They deserve the full attention and respect from their counterparts.It is obvious today that the opportunities in Africa and its potentials far outweigh any challenges the continent might be facing. Now the fastest growing continent in the world with growth estimated at 7 to 10 per cent and home to 7 of the 10 fastest growing economies in the world; Africa really has a lot to offer. The continent must stop portraying itself as a victim and the weakest link during negotiations. To carry on wearing the victims’ hat at the negotiation table is self-defeating.

The continent has what it takes to be in control now and to define the rules of the game on the continent. External actors should not be the ones setting the rules of the game being played on the continent. Despite all the odds and criticism, the coming of the Chinese gave the continent an alternative and a backup to cut loose of the conditionality regime that had governed the continent for many years. It has repositioned Africa and given the continent some leverage over its bargaining power. However, China should not be blindly embraced. Africa must plan now for the long term and its leaders must be conscious of the fact that whatever arrangements they make today, their impacts will determine the future of the continent. Externalising our economic growth and surrendering it to external actors to design and control the pace of that growth is not healthy for the continent and that format is not sustainable.

Africa has one more chance in its history to correct the errors of the past by clinging on these new opportunities, exploiting them to its benefit and get the continent ready for the next wave. Though there is so much interest on the continent and somewhat inflated speculations about its growth potentials, the continent is at a cross road and any policy blunder now will be very costly for its’ future. The purported adoration for the continent will not carry on forever so it must act wisely. If it squanders these opportunities then it will have but itself to blame.

Addressing the high rate of youth unemployment on the continent should be given a priority. Reducing youth unemployment will tackle a majority of the security problems while at the same time creating a consumer base, which will in turn guarantee a sustainable economic growth.

And finally the need to boost intra-regional trade within Africa and speed up the process towards a single trading union is more important now than ever before.

This article was originally published in the African Policy Forum and is reproduced here with the permission of the author. Eric Acha is a policy analyst and the Executive Director of the Africa Policy Forum.

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Of course China Innovates, just look...

China being the worlds largest Smartphone market has invigorated entrepreneurialism and brought to the fore some of the world's most innovative new companies - particularly in field of mobile technology. Relatively new companies such as One plus One, Smartisan, MeiZu and of course XiaoMi are increasing research and development spending by up to 20% a year and bringing to market some incredible new devices set to change the established order. Not only competing on price but also on specifications and design, these companies are set to become global names as they begin an aggressive global expansion policy, particularly in the emerging markets of Latin America, India, Africa and Asia.

China produced some 870 million mobile phones in 2013, with some 70% of these being manufactured by domestic companies catering to the vast lower end of the market, typically less than 2,000 rmb (330 usd). However with the domestic market predicted to slow in 2014 the emphasis will be on delivering higher specification handsets to both telecoms operators and non contract purchasers as well as tapping into foreign markets, in particular those in Asia.

Not to ignore established companies such as Huawei, Coolpad, K-Touch and Lenovo we instead focus on those companies we believe bring Apple-esq build quality and design to their products but at half the price of their foreign competitors.

MEIZU

Jack Wong, Founder, Chairman and Chief Architect: Founded Zhuhai based MEIZU in 2003 as an MP3 player company and began smartphone production in 2006. Committed to developing high-end smartphones since then, they have focused on developing innovative and user-friendly smartphones for consumers. With more than 1,000 employees and 600 retail stores as well as 100 patents in China, the company has built a global presence in Hong Kong, Israel, Russia, Saudi Arabia and Ukraine.

One Plus One

OnePlus is a technology startup committed to bringing the best possible technology to users around the world. Created around the mantra ‘Never Settle’, OnePlus creates beautifully designed devices with premium build quality. OnePlus currently sells directly to global buyers via its website in 15 countries - Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Italy, the Netherlands, Portugal, Spain, Sweden, Taiwan, United Kingdom, and the United States. However the purchase process seems to be a little trickier than expected.

XiaoMi

Xiaomi (little rice) is a Beijing based mobile internet company dedicated to creating an all aspect user experience. Founded in 2010 by Lei Jun, the company has fast become one of the leading tech firms in China. The company is currently valuated at over 10 billion USD and has over 3000 employees. With its new international headquarters in Singapore the company has already landed in Malaysia, Philippines and India, and also has plans to enter Indonesia, Thailand, Russia, Turkey, Brazil and Mexico. During Q2 of 2014, they overtook the top spot from Samsung in terms of shipments in China. Competing primarily on price and design: the newly released Xiao Mi 4 has the same specifications as a Samsung Galaxy S5 at less than half the price

Xiaomi's main portfolio of products includes:

- Xiaomi Phones: high quality and performance Android devices
- MIUI ROM: highly customizable ROM that can be flashed across multiple Android devices
- MiTalk: a preeminent messaging application
- MiBox: A smart set-top box the enriches your TV experience

Smartisan

Founded in early 2012 the Beijing start-up, Smartisan, is both a manufacturer and OS/Android UI design company. It`s name is derived from ‘smart’ and ‘artisan’ combined into a word, meaning "intelligent mobile phone era". Headed by entrepreneur Luo Yonghao, the company is all about the details less than affordability, in both it`s OS and phone design. It`s flagship T1 is a sleek, predominantly glass exterior, higher-end handset using the Android-based Smartisan OS.

Chinese manufacturing plants have been producing foreign brand phones for most of the last decade, so the technical know-how is well established. Combined with the massive pool of design and development talent, domestic brands are now coming to the fore both on the international and domestic stage. They are no longer willing to compete simply on price but taking on the established OEM`s in terms of design and innovation.

With the shift in demand for smart connected devices moving from developed markets to emerging markets (its is estimated one billion devices will be delivered to emerging markets in 2014), Chinese OEM`s seem ideally placed to meet this demand. Although the double-digit growth of smartphones and tablets in emerging countries is a driving force for market entry, the low selling price and margins mean OEM`s will struggle to meet the demands of profitably.

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Electric Vehicles, a strategic emerging...

China is already the world's largest manufacturer of electric bicycles and electric tricycles but only 6,900 domestic-brand electric cars (EV`s) were sold in China in 2013, according to a new report on China’s EV production and sales. That’s in contrast to China’s total car sales for 2013 of 22 million, surpassing 15.6 million in the US. Little demand for EVs means the nation is far off it`s target, set in 2012, to sell 500,000 electric cars in 2015 and five million in 2020. The one caveat being in the booming demand for electric busses. Not to be perturbed the Government has released new incentives to promote what it sees as a strategic emerging industry.

Subsidies will continue for at least the next 6 years and from September the 10% purchase tax will be waived on all new EV`s. Whilst the main factor for the slow take up on EV`s is their price, lack of charging facilities and private investment have also been identified as crucial factors. With new partnerships, Tesla is set to build 40 new Supercharger stations across China.

Aside from the pricey Tesla, no foreign car company is selling an EV in China at the moment. Nissan plans to sell a Chinese version of its all-electric Leaf, which will be called the Donfeng-Nissan Venucia e30, in September. The top selling passenger EV in China last year was the BAIC E150 (pictured below), according to the Paglee report. The Ford Fiesta-sized car starts at a pricey RMB 195,000 (US$31,700) for the electric model, as opposed to just RMB 58,000 (US$9,430) for the identically-bodied petrol model with a 1.3-liter engine.

The Warren Buffet-backed BYD is struggling to generate interest in its growing range of EV`s. The auto-maker, known for its battery technology, aims to triple sales of EVs to 8,000 units this year, including 2,000 buses. But most of its electric cars will be sold to taxi fleets.

2014’s EV sales in China could get a much-needed boost from cash incentives put in place in last year and the new announcements. China’s Ministry of Industry and Information Technology (MIIT) introduced hefty government subsidies to buyers of all-electric or plug-in hybrid cars. The largest subsidy option, of RMB 60,000 (US$9,450), is available to buyers of all-electric cars with a range of over 250 kilometers; the smallest is RMB 35,000 (US$5,690) for plug-in hybrid vehicles that go for over 50 kilometers. These are available only to buyers of domestic-brand cars. Many cities around China have also implemented local incentives in addition to the national subsidies to promote electric vehicles in their cities:

Beijing: Same as national subsidy + free license plate
Shanghai: CN¥40,000 ($6,504) + free license plate (a CN¥70,000 [$11,382] value)
Guangzhou: CN¥10,000 ($1,626) + free license plate
Shenzhen: Same as national subsidy
Hangzhou: Same as national subsidy
Hefei: CN¥20,000 ($3,252)
Changchun: CN¥35,000 ($5,691) to CN¥45,000 ($7,317)

But fundamental problems remain. One is that China’s urban middle class prefer foreign brands. The top-selling three models in China last year were the locally-manufactured versions of the Ford Focus, VW Lavida, and Buick Excelle. Another is that most urban residents in China live in gated apartment communities, meaning people have no personal garage in which to charge an EV. Homeowners in Shanghai can apply for installation of private charging facilities, but they must actually own a parking space inside their compound – which not all property owners do.

The Shanghai Daily reported earlier this year that Shanghai Power Company has received 140 applications for home-based charging ports, but has so far given the go-ahead for just 30 of them. These charging stations can cost as much as RMB 50,000 (US$8,000), which eradicates much of the savings people make from the EV subsidy. A further barrier is that not all real estate companies are open to such modifications being made to parking spots.

Beijing municipal authorities have published a ‘2014 to 2017 action plan’ for electric vehicles, according to Tencent Tech. The initiative centers around building 10,000 charging facilities across the capital by 2017. The first batch of 1,000 will be positioned within a five-kilometer radius of the city center, focused on major transport hubs. But what of the nation’s other cities? Only once a city has a charging infrastructure that’s even larger than its network of petrol stations might EV`s stand a chance of being seen as a viable alternative to petrol driven cars.

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E-commerce & online payment trends for...

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.

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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.

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Marketing Case studies: Middle Class...

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.

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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.

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

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 21^st century, and one that has its rightful status restored in the world.

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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.

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Can China sustainably manage its domesti...

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.

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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.

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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 (7^th 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 11^th 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.

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A limited Superpower: the next phase...

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.

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Going public in the US: Chinese companie...

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 9^th 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.

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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.

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