China might be better geared for a trade war than the US - Arthur Kroeber

Arthur Kroeber

Donald Trump is still rolling up his sleeves, while many analysts are still wondering who might be better equipped for a shake-out between China and the US. For now, leading economist Arthur Kroeber puts his bets on on China, he tells CNBC.

CNBC:

While China will suffer from a trade war with the United States, some experts say the Asian giant has more resilience than the U.S. 

The "Chinese government has plenty of financial resources to step in," said Arthur Kroeber, founding partner of Hong Kong-based financial services and research firm Gavekal Dragonomics. "I think the Chinese government has looked at this and is prepared to act," Kroeber said, speaking by phone from Beijing.... 

"There's an array of things China could do that are not trade related that would enable them to persuade in a personal way," Kroeber said, adding that Beijing could also make China a tougher business environment for U.S. companies operating there.

More at CNBC.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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The two conflicting worldviews of Trump and Xi - Kaiser Kuo

Kaiser Kuo

Two very different worldviews conflicted with each other at the just-concluded World Economic Forum in Davos: those of Donald Trump and Xi Jinping, although Trump was not physically present. Journalist Kaiser Kuo attended, and looked increasing amazement to the developing scenes, he writes at SupChina. "I do see two different worldviews. And I know which one I find much, much more compelling."

Kaiser Kuo:

Of course, there’s a rather glaring irony that an autocrat at the head of a technocratic authoritarian state whose experiments in capitalism began only 37 years ago is now one of the lone voices for free trade. And there’s the fact that while compared with other emerging economies, China’s may be relatively open but certainly isn’t when compared with the economies of developed countries: Many sectors remain heavily protected. But China is, as Xi duly noted, a country that has both benefited from and suffered the ravages of globalization, in its massive wealth disparity and nightmarish environmental problems. 

Xi also got in some good none-too-subtle digs at Trump: “When encountering difficulty, we should not complain, blame others, or run away from responsibilities,” he sniped. And he reaffirmed his commitment to the Paris climate change agreement: “The Paris climate deal is a hard-won achievement…all signatories should stick to it rather than walk away.” He did stop short of denying to the president that climate change was a Chinese hoax. 

No one in their right mind would believe that Xi is staking a claim as inheritor to the entirety of the grand liberal tradition. His years in office so far have been marked by a disturbing deepening of illiberalism in China. And yet it’s easy to see how Trump’s hostility to free trade regimes is giving China an opening — and that should Trump actually tear up NAFTA, a China-centered free trade zone might, as Nouriel Roubini noted in one session I reported, extend all the way to Mexico. 

On Friday, the last day of Davos, as the writers were finishing up their last summaries in the late afternoon, across the Atlantic, the Trump inauguration was underway. Some of us tuned in to hear Trump’s dark descriptions of American “carnage.” (I couldn’t watch, but you could hear people repeating snatches of it in disbelief.) 

It was, as Trump adviser Steve Bannon told the Washington Post shortly after the speech, “an unvarnished declaration of the basic principles of his populist and kind of nationalist movement.” Indeed it was. “I think it’d be good if people compare Xi’s speech at Davos and President Trump’s speech in his inaugural,” said Bannon. “You’ll see two different worldviews.” 

I do see two different worldviews. And I know which one I find much, much more compelling.

More at SupChina.

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How to end double standards for US-listed Chinese companies - Paul Gillis

Paul Gillis

Oversight of Chinese companies listed in the US has been ongoing troublesome, as auditors miss access to much information considered a state-secret in China. Peking University accounting professor Paul Gillis told the  U.S.-China Security and Economic Commission 26 January how to solve the conundrum. (here in pdf)

Paul Gillis:

In my opinion, the major problem with respect to U.S. listed Chinese companies is the inability of the PCAOB to conduct inspections of China based accounting firms. This has resulted in a situation where there is a double standard in regulation. All auditors of companies listed in the U.S. must be inspected, except for auditors of Chinese companies (and companies of a few other minor countries), which are not inspected. While this fact is routinely disclosed in the issuer’s filings, the double standard makes a mockery of U.S. regulation. 

In my view, there are two alternatives to eliminate the double standards. First, Sarbanes Oxley could be amended to remove the requirement that the PCAOB inspect foreign accounting firms. Instead, the PCAOB could follow the lead of the European Union and negotiate regulatory equivalency under which the PCAOB would accept the work of Chinese regulators as their own. I do not think this is the best option, since I think it is unlikely that Chinese regulators will rigorously examine overseas listed companies nor do they have the necessary expertise in U.S. accounting and auditing rules. 

The second option is to terminate the registration with the PCAOB of any auditors that the PCAOB is unable to inspect. The U.S. should require companies that seek to list in the U.S. to agree to follow all U.S. laws. If China determines that a company has state secrets that cannot be disclosed, a company with such secrets should not be permitted to list in the U.S. 

Termination of accounting firm registrations would lead to the delisting of shares of companies audited by the deregistered firms, since financial statements audited by a PCAOB registered accounting firm are a requirement for continued listing. Delisted companies are likely to seek to relist in China or Hong Kong, although they may be required to restructure to eliminate control structures and/or variable interest entity arrangements that may not be permitted in the other jurisdiction. The PCAOB has so far been unwilling to go this far, likely due to opposition from capital markets. 

Another problem with U.S. regulation is the overlapping jurisdiction of financial regulators. There is little secret that there is considerable tension between the SEC and the PCAOB. I believe this both confuses Chinese regulators as well as creating opportunities for Chinese bureaucrats to play one regulator off the other. I think Congress should consider abolishing the PCAOB, transferring the inspection and enforcement activities to the SEC and sending standard setting back to the American Institute of CPAs.

The full statement by Paul Gillis.(pdf)

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Getting to know your China investors might be tough - Victor Shih

Victor Shih

Some concern emerged in Canada when an investment company Leadon Investment Inc had invested US$1 billion in local hotels. Getting to know who is behind those investment vehicles with a China background might be very hard to discover, says financial analyst Victor Shih to the Vancouver Sun.

The Vancouver Sun:

“The problem is that wealthy Asian investors are practised at setting up a series of shell companies to hide their identities,” said Victor Shih, who used to work for the Carlyle Group’s hedge fund arm in New York and is researching the impact of elite networks in China at the University of California, San Diego.

Victoria-based BCIMC is choosing to sell at a time when international capital, especially from mainland China, has shown keen interest in hotel properties as well as trophy office space across North America. 

China’s Anbang Insurance Group paid almost $2 billion for the Waldorf Astoria in New York in 2014. In Canada, Bluesky Hotels and Resorts Inc, a company that says it is backed by capital from Hong Kong and that is connected to Anbang, bought InnVest Real Estate Investment Trust and its 90-plus hotels in Canada in a $2.1 billion deal last year. Anbang also later, through InnVest, bought the Fairmont Vancouver Airport hotel. Anbang also paid over $1 billion to buy the Bentall Centre in downtown Vancouver.

Of interest in all these deals is the federal government’s threshold for reviewing foreign acquisitions, which is $600 million. In April, it will move to $700 million. 

It’s not known exactly what questions or hurdles must be cleared in order for deals to get the green light from Ottawa. Law firms have, in the past, suggested a basic list might at least include information about controlling shareholders. 

Shih has observed Anbang’s various deals as well as the ones that have not proceeded because of intense scrutiny over not being able to tell who owns it. 

“As the yuan weakens and as Chinese growth slows, there is rapidly rising demand among Chinese and Hong Kong investors to diversify out of the region,” Shih said. “That has created a windfall for sellers in North America.”  

As for the risks of not being able to understand the ownership of acquiring companies when there is a large deal, he said: “First, the layers of shell companies buyers use make it difficult to ascertain whether buyers obtained the funds legally or ethically to begin with. Besides corruption income, millions of Chinese investors have been defrauded of billions of dollars by unscrupulous criminals. Obviously, funds derived from fraud would be problematic. 

“More recently, the other risk is the imposition of strict capital control by the Chinese government, which prevented Chinese investors from delivering funds to overseas sellers. That has already created problems for a number of property and entertainment deals in the U.S.”

More in the Vancouver Sun. Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Asahi leaving Tsingtao as market disappoints - Shaun Rein

Shaun Rein

Asahi is selling its minority stake in Tsingtao beer as the beer market in China is not giving it the gain it expected since it entered in 2009, says business analyst Shaun Rein to Bloomberg. “Tsingtao is in trouble,” said Rein. “It’s not premium enough, and it’s not cheap enough.”

Bloomberg:

The overall beer market in China has declined 6 percent in volume since 2013, according to Euromonitor International. Tsingtao, with about 15 percent market share, trails China Resource Beer Holdings Co.’s popular Snow brand, which had 22 percent of the China market in 2015, Euromonitor data show. 

As the Chinese economy slows, mid-market brands like Tsingtao are squeezed, according to Shaun Rein, managing director of China Market Research Group. Some consumers are looking for lower-priced beers, he said, while more affluent Chinese are switching to pricier craft beers or wine. 

“Tsingtao is in trouble,” said Rein. “It’s not premium enough, and it’s not cheap enough.”

More in Bloomberg.

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Why writing in English makes me freer - Zhang Lijia

Zhang Lijia

Author Zhang Lijia of the recently published Lotus: A Novel is a native from Nanjing, but writes in English. Writing in her chosen language makes her feel more free, she explains in an interview with Mengfei Chen of the LA Review of Books.

The LA Review of Books:

Interestingly, writing in English frees me literally as well. It frees me from any inhibition I may have: if I had written the novel in Chinese, I am sure the sex scene would be less explicit. Without the constraints, I can also be bold as I experiment with the language. Because English is not my native tongue, I use different words and I structure my sentences differently, consciously and unconsciously. Of course, my experiment doesn’t always work. But I enjoy the adventure. 

The challenges are obvious. After diligently studying English for 30 years, I have yet to command the language completely. I write slowly, too slowly, in fact; I don’t understand the subtle meanings of certain words; and I am still confused by the use of the definite and indefinite article! 

I find the relationship between the writer and the chosen language fascinating. I speak Chinese with a slight Nanjing accent. [NB: In many parts of China, this accent is viewed as a fairly déclassé one, definitely inferior to that of Beijing, where Zhang has long been based.] When speaking English, I’ve tried to cultivate a refined accent. [NB: She speaks English with what Americans might describe as a BBC accent.] Maybe there’s another reason that I went for English — it makes me feel more sophisticated than I actually am. I probably have not gotten rid of a sense of inferiority because of my worker’s background! 

In addition to a romance and coming-of-age story, readers will be given insights to a full range of Chinese social issues, including corruption, taxation, educational inequities, rural to urban migration among others.  How did you balance the desire and need to include explanatory information about China for readers who might not necessarily know very much about the country with the narrative and characters? 

From the very beginning, I intended to use prostitution as an interesting window to observe the social tensions brought by the reforms and opening up. So I had to provide context to western readers who probably don’t know a great deal about China. In the earlier drafts, I often dumped too much information to a degree that it slowed the narrative drive. Also in earlier drafts, my writing in such parts tended to be journalistic. I cut back some background information – if a reader really wants to know more about certain aspect, he/she can easily Google it. I then sprinkled the necessary information and delivered it in a less journalistic way.

More in the LA Review of Books.

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China´s rich spend more time on travel - Rupert Hoogewerf

Rupert Hoogewerf

Surveys by the Hurun China Rich List not only show that China´s affluent have spent more money in 2016, but increasingly do to while traveling, says Hurun chairman Rupert Hoogewerf in the Luxury Daily. The number of days per month they travel went up again.

The Luxury Daily:

Purchases made while abroad are seen as part of the travel experience for many Chinese consumers looking for goods unavailable at home or unique to a specific location. 

Hurun found that many affluent Chinese are reserving more days for traveling. 

“Chinese luxury consumers continue to be extremely busy, away on business trips for eight days a month on average, up one day year-over-year,” said Mr. Hoogewerf. “Despite this, they take 10 days for holiday, three more days than last year, whilst the super-rich take five more days than last year to 15 and go abroad 3.4 times a year on average, twice for traveling,” he said.

More in the Luxury Daily.

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Comparing China´s generations - Tom Doctoroff

Tom Doctoroff

Marketing guru Tom Doctoroff explores his insights in the different generations he saw in China, born in both the 1980s and 1990s, in a lecture for the Asia Society, just before leaving China after 18 years. "They want a free mind, but within a framework," he tells his audience.

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How bike-sharing differs from ride-sharing - Jeffrey Towson

Jeffrey Towson

After the wars, and eventual merger, of the car-sharing companies, attention has turned to the bike-sharing firms. But bike-sharing is fundamentally different, warns Peking University business professor Jeffrey Towson in E27, and history will not repeat itself. Bike-sharing is not part of the sharing economy, he explains.

E27:

Both companies have their apps, but Ofo lowers friction by linking the app to WeChat without having to download a separate app. The users can either register their mobile phone or log in via WeChat account and unlock bikes on the streets at their convenience. 

While many business analysts predict how the two rivals will merge eventually, Jeffrey Towson, consultant and professor at Guanghua Peking University, thinks otherwise. He explains why bike-sharing is nothing like ride-sharing of Didi and Uber. The professor compares the bike-sharing economy to a vending machine business than a ride-sharing one. 

“Unlike ride-sharing, bike-sharing does not have a network effect,” he says. “The ride-sharing experience is a two-sided network, in which additional riders increases the networks’ value to the drivers and each new driver increases to value each rider. Through customer rating and recording of wait-time, the service gradually improves as its user population grows.” 

“The problem with bike-sharing, however, is that there is no second population of drivers using the platforms and providing the bikes,” he adds. “The bikes are constantly replenished by companies themselves as opposed to each rider adding any value to the other riders. It seems that bike-sharing isn’t really part of the sharing economy.”

More in E27.

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Trump can trigger anarchy in international relations - Arthur Kroeber

Arthur Kroeber

While Trump still has to make his mark on international relations, fears rise that he might disrupt international order in a gross way. Leading economist Arthur Kroeber says it might trigger off international anarchy where China will be unwilling to step into the void, according to the Globe&Mail.

The Globe&Mail:

Even if calm prevails, though, China shows little sign of willingness to supplant the U.S. as either architect or maintenance engineer of the specific ideas that gave rise to the World Trade Organization, the International Monetary Fund and the like. 

If the U.S. under Mr. Trump begins to step away, then, “you end up with a fracturing order,” said Arthur Kroeber, a respected author and China analyst who is managing director of Gavekal Dragonomics. 

“Or, in the words of international relations theorists, you are in a more anarchic world, where the common projects that have bound different countries and regions together – those bonds become much weaker and it becomes much more a matter of individual countries pursuing their self-interest in somewhat narrow ways.”... 

Mr. Trump's presence in the White House means it is suddenly unclear the degree to which the U.S. will continue its position as the world’s chief buyer.

If that happens, don’t expect China to move in. 

“The Chinese have no interest in playing that role,” Mr. Kroeber said. “They have made it very, very clear that their own industrial strategy is to make sure they can basically produce everything and not be reliant on anyone else. And that is a huge difference. 

Because if you are now the world’s second-biggest economy and insist on running a trade surplus, you are essentially saying that everyone else in the world – or most major economies have to be in a deficit.” 

That, then, is the risk posed by Mr. Trump to the system of liberal globalization: that his presidency will be marked by the rise of both his own “Make America Great Again,” and its Asian counterpart, often enunciated by Mr. Xi himself: “the great rejuvenation of the Chinese nation.”

More in the Globe&Mail.

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Luxury is back on track - Rupert Hoogewerf

Rupert Hoogewerf

Austerity marked the luxury goods industry, triggered off by the anti-corruption drive by president Xi Jinping. But the growth figures are back on track, says Rupert Hoogewerf, based on research by his Hurun China Rich report, released on Thursday, he tells the China Daily. Purchases are back on the 2013 level.

The China Daily:

"There is always an inherent demand. For the past three years, (wealthy) people may not have been quite sure, because they didn't want to be too ostentatious," said Rupert Hoogewerf, founder and chairman of Hurun Report. 

"But now as the picture has cleared, their interest (in luxury) has risen back to the surface," he added. 

Apple, Cartier and Louis Vuitton remain the top three favorite brands among the wealthy, while Samsung for the first time drops out of the favored list. And Alipay, the digital payment tool developed by Alibaba Group Holding Ltd, has for the first time outgrown credit cards to be the most preferred way to go shopping, while cash is the least favored. 

Hoogewerf said he foresees China's luxury industry will reach new peaks over the next five years. 

More than 90 percent of the interviewees adopted a positive attitude toward China's economy over the next two years, saying they were confident or extremely confident about prospects.

More in the China Daily.

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Shaun Rein: daring thinker, say Australia´s CPA´s

Shaun Rein

Leading business analyst Shaun Rein has been selected by CPA´s in Australia as on of the top-10 daring thinkers of 2016. Author of The End of Copycat China: The Rise of Creativity, Innovation, and Individualism in Asia, his thoughts on China´s innovative road into the future has triggered off his selection, reports InTheBlack.com.

In the Black:

For most of the past four decades, China’s economy has grown solidly with a model based on heavy investment and cheap production. But that model is broken, says Shanghai-based researcher Shaun Rein, and the environment in China is ripe for innovation. 

China already has successful innovation stories to tell – digital giants Tencent and Alibaba among them – as the country leads the world in its mobile-first approach to the digital economy. 

But for innovation to really take hold and for businesses and entrepreneurs to feel confident enough to invest, Rein says China needs to focus on IP protection, regulation and education. 

He cites US sandwich chain Subway as an example of a business where IP protection went wrong. Entrepreneurs copied the idea and established near-identical franchises across China, making millions off a name to which they have no legal or financial right. 

Rein says a lack of certainty around regulation and a fear that state-owned enterprises will be given priority have made potential investors wary. 

“China’s version of Uber got hit with new regulations because the state-owned taxi fleets didn’t like the killing they were getting in the marketplace,” he says. 

Rein says boosting the education offering in China should also be a priority to grow homegrown talent that Chinese companies can recruit to build their businesses. What they can’t build or create themselves, Rein says they will buy. 

“The Chinese will become the bank roller,” he says. “They are buying technology.”

More winners InTheBlack,com Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? 

Do get in touch or fill in our speakers´request form. Are you looking for more experts on innovation at the China Speakers Bureau? Do check out this list.

 

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Rich migrate less from China - Rupert Hoogewerf

Rupert Hoogewerf

For years the trend seemed irreversible: China´s rich were leaving the motherland in troves. But in 2017 the trend has reversed, says Hurun China rich list composer Rupert Hoogewerf to the South China Morning Post. This year could be a turning point, Hoogewerf says about the findings in the Hurun Chinese Luxury Consumer Survey 2017.

The South China Morning Post.

The proportion of mainland millionaires who say they won’t emigrate has risen for a third straight year to reach a record high, even as a majority say they would like to move to another country, according to a report on Thursday. 

About 44.5 per cent of mainland millionaires with personal wealth of more than 10 million yuan, are not planning to emigrate, according to Hurun Chinese Luxury Consumer Survey 2017. 

“The year of 2017 could be a turning point,” said Rupert Hoogewerf, chairman and chief researcher of the Hurun Report. “The proportion of respondents considering emigration is reflecting stronger confidence.” 

Still, almost half of those polled said they are considering emigrating as an option, though the figure is down from about 60 per cent in 2008.

More in the South China Morning Post.

Rupert Hoogewerf is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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NPR: The underbelly of contemporary China, review Lotus by Zhang Lijia

Zhang Lijia

More reviews are coming in of author Zhang Lijia´s Lotus: A Novel, about prostitution in China, this time from the NPR. The reviewer is rightfully impressed. "We can count ourselves lucky to get this glimpse into the fascinating world of Lotus."

NPR:

The author has a light touch, even when delineating the underbelly of contemporary Chinese culture. She conducted research in the red light districts of Shenzhen, Dongguan, Beihai, Tianjin and Beijing, so there is a documentary verity to the telling, giving starch to fiction that might otherwise be flabby. Zhang also brings a personal stake to the book, dedicating it to her grandmother, who was sold to a brothel as a euphemistically-termed "flower girl," or courtesan. 

Some first novels, especially those birthed in creative writing classes (Zhang, a former rocket factory worker in China, studied at the University of Iowa), go heavy on self-consciously poetic language. The author tries too hard and the reader suffers. The images Zhang gives us, in contrast, are uncomplicated, concise and touching. Young Lotus's "pencil was homemade, simply the broken end of a pencil's lead discarded by her classmates, stabbed into a piece of soft wood." Concerning Bing's emotions, Zhang writes, "He had been like an ant on a hot pan ever since the girls' visit." 

Book groups be advised: Readers will learn quite specific tricks of the trade. Lotus is undeniably earthy but thankfully spare, letting its characters, and its proverbs, do the talking. When Bing wants to get serious with Lotus, we hear about the development a proverbial way: "What luck, this offer. A pancake fallen from the sky, as her grandma would say." We can count ourselves lucky to get this glimpse into the fascinating world of Lotus.

More at NPR. 

Zhang Lijia is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

She will be at a book presentation in New York at February 1, Barnes & Noble on 82nd Street and Broadway, at 7 PM.

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US-China economic relations need a re-set - Arthur Kroeber

Arthur Kroeber

While US president-elect Donald Trump prepares to be sworn in, global business leaders worry what the near future might bring them. A trade war, business as usual or something in between? US-China economic relations for sure need a re-set, tells leading economist Arthur Kroeber, and author of China's Economy: What Everyone Needs to Know® in the Chicago Tribune.

The Chicago Tribune:

Many U.S. business leaders are worried the next president will start a trade war with China that will seriously damage their interests here. Trump's threat to raise taxes on American companies that manufacture abroad - repeated in a Washington Post interview this past weekend - would represent an even more direct risk to the interests of many firms. Instead, what U.S. business leaders want is pressure on China to open its economy further to American investment. 

Arthur Kroeber, managing director of Gavekal Dragonomics, an economic research firm, said frictions had risen because the "material fruits" of the United States' engagement with China had been very unevenly distributed. 

But in a client note, he said the problem could not be solved by "browbeating China to change its trade policies or bullying U.S. companies to move factories back onshore" - partly because job losses have had as much to do with cheap automation as with competition from a global labor force. 

"A sensible re-set" of U.S.-China economic relations, he argued, should not look backward at trade in goods and manufacturing but instead focus on fostering a better environment for investment, "where the U.S. has more leverage and China has more to give."

More in the Chicago Tribune.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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China is not yet embracing economic liberalism - Victor Shih

Victor Shih

President Xi Jinping´s speech at the World Economic Forum in Davos has been greeted with enthusiasm by global corporate leaders, confronted with opposite movements from Donald Trump and the Brexit. But political analyst Victor Shih warns it does not mean China is heartily embracing economic liberalism, he tells the LA Times.

LA Times:

“China certainly seems to be taking advantage of the U.S.’ increasingly shaky commitment to global free trade to portray itself as a potential new leader,” said Victor Shih of UC San Diego’s School of Global Policy and Strategy. 

The country last year launched an international lending organization, which pours millions into ramshackle roads and water pumps. China continues to expand its “One Belt, One Road” initiative, an effort to revive the ancient Silk Road trade routes and spread its influence west. 

Chinese leaders have increased the nation’s aggressiveness in the South China Sea’s disputed waters through artificial islands and the installation of military infrastructure. And they recently offered an alternative to a U.S.-backed Pacific trade pact that withered last year, handing the country an even greater voice in Asian economic affairs. 

But Shih cautioned against assuming the communist nation had fully embraced economic liberalism. He noted that China has pursued “aggressive mercantilist” policies and advocated replacing foreign imports with “made in China” products for more than a decade. Such a policy is far harder to impose in the U.S., he said, despite Trump’s rhetoric. 

“Other industrial economies will find China a troublesome trading partner for some time to come,” he said.

More in the LA Times.

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