Though China has been the global economic star of the last low-growth decade, it remains a totalitarian dictatorship, with its economy shrouded in state secrecy. What we’re encountering in this crisis is the spectacle of a closed society colliding with the forces of complex, free-market capitalism. If we look beyond China, we can find a long history of these collisions, dating back hundreds of years, as both closed societies and capitalism evolved and became more complex. And the history has a clear but unsettling lesson to offer: When such a collision happens, it’s a moment to genuinely worry. ... Since the dawn of capitalism, closed societies with repressive governments have — much like China — been capable of remarkable growth and innovation. Sixteenth-century Spain was a great imperial power, with a massive navy and extensive industry such as shipbuilding and mining. One could say the same thing about Louis XIV’s France during the 17th century, which also had vast wealth, burgeoning industry and a sprawling empire. ... But both countries were also secretive, absolute monarchies, and they found themselves thrust into competition with the freer countries Holland and Great Britain. Holland, in particular, with a government that didn’t try to control information, became the information center of Europe — the place traders went to find out vital information which they then used as the basis of their projects and investments. The large empires, on the other hand, had economies so centrally planned that the monarch himself would often make detailed economic decisions. As these secretive monarchies tried to prop up their economies, they ended up in unsustainable positions that invariably led to bankruptcy, collapse and conflict. ... China is a new case, for it has mixed capitalism and totalitarianism in a unique way. ... The government may not be able to control the stock market, but it does successfully keep a veil over state finances. This is what closed, authoritarian governments have done since the 16th century. ... what we are seeing in this current financial crisis is likely to be only the beginning of the political and societal crisis brought about by a dictatorship’s efforts to simulate the performance of a capitalist economy — but one that only grows. ... There is no historical example of a closed imperial economy facing large capital-driven, open states and sustainably competing over a long term.
Modeled after the wildly popular Japanese group AKB48, Wang’s three-year-old Chinese version similarly auditions young women from across the country, trains them intensively in singing, dancing, and show-hosting for four months, then puts them onstage to perform choreographed routines in live concerts. The regimen—long rehearsals, exercise, and dormitory curfews—seems more akin to the military than to the MTV life. “To make their dreams come true, they need sweat and perseverance,” Wang says. “Most Chinese girls, because the economy is developed and the quality of life is high, lack discipline.” ... During the most recent round of auditions in June, 48 applicants were selected out of 126,000, says Tao Ying, Star48’s chief executive officer. (Applicants can be as old as 22; the youngest band member is 14.) ... Wu is one of the band’s 119 members, who are split into smaller teams, which are rotated in live performances at the band’s 340-seat Shanghai theater, for about seven shows a week. ... plans to start similar girl bands in 10 Chinese cities by 2018. ... Besides keeping up with the band through China’s popular WeChat messaging app and various microblog platforms, fans stay involved through voting for the group’s favorite songs and their favorite band members. That input affects the performer’s career and salary. The most popular ones earn as much as 50,000 yuan a month, and the newest recruits get about 4,000 yuan, Wang says. Fans also meet band members regularly in what Star48 calls “handshake gatherings,” where 10-second individual sessions with their favorite idol are earned after buying a certain number of the band’s songs.
The events of 2015 have shown that China is passing through a challenging transition: the labor-force expansion and surging investment that propelled three decades of growth are now weakening. This is a natural stage in the country’s economic development. Yet it raises questions such as how drastically the expansion of GDP will slow down and whether the country can tap new sources of growth. ... to realize consensus growth forecasts—5.5 to 6.5 percent a year—during the coming decade, China must generate two to three percentage points of annual GDP growth through innovation, broadly defined. If it does, innovation could contribute much of the $3 trillion to $5 trillion a year to GDP by 2025. China will have evolved from an “innovation sponge,” absorbing and adapting existing technology and knowledge from around the world, into a global innovation leader. Our analysis suggests that this transformation is possible, though far from inevitable. ... To develop a clearer view of this potential, we identified four innovation archetypes: customer focused, efficiency driven, engineering based, and science based. We then compared the actual global revenues of individual industries with what we would expect them to generate given China’s share of global GDP (12 percent in 2013). As the exhibit shows, Chinese companies that rely on customer-focused and efficiency-driven innovation—in industries such as household appliances, Internet software and services, solar panels, and construction machinery—perform relatively well.
1. Customer-focused innovation: The Chinese commercialization machine
2. Efficiency-driven innovation: The ecosystem advantage
3. Engineering-based innovation in ‘learning industries’
4. Science-based innovation: Novel Chinese approaches
- Also: McKinsey - Gauging the strength of Chinese innovation (FULL REPORT) > 15min
- Also: Re/code - No. 1 Producer, No. 1 Consumer (Book Excerpt) < 5min
- Also: Wall Street Journal - How Chinese Stocks Fell to Earth: ‘My Hairdresser Said It Was a Bull Market’ < 5min
- Also: Financial Times - China migration: At the turning point < 5min
The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China. ... The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends — a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China. ... In Hong Kong, more than 1,200 currency-exchange shops have seemingly little daily activity. These brightly lit storefronts specialize in helping wealthy Chinese transfer their money overseas. The premium isn’t high — only about 1,000 yuan ($160) per HK$1 million ($130,000) more than bank exchange rates would be if they could do the transaction. ... It works like this: Chinese come to Hong Kong and open a bank account. Then they go to a money-change shop, which provides a mainland bank account number for the customer to make a domestic transfer from his or her account inside China. As soon as that transaction is confirmed, typically in just two hours, the Hong Kong money changer then transfers the equivalent in Hong Kong or U.S. dollars or any other foreign currency into the client’s Hong Kong account. Technically, no money crosses the border -- both transactions are completed by domestic transfers. ... While the first exchange has to be set up face-to-face, customers can place future orders via instant-messaging services such as WhatsApp or WeChat, and money changers set no limit on how much money they can move.
A conglomerate on the order of the old Gulf + Western, China National runs more than 160 cigarette brands, manufactured in about 100 factories across the country, and uses its earnings to invest in banks, luxury hotels, a hydroelectric plant, a golf course, and even drugmakers. Most of its money goes to its owner, the Chinese government; the tobacco industry accounts for about 7 percent of the state’s revenue each year, and China National controls as much as 98 percent of the market. All told, the industry in China employs more than 500,000 Chinese. They are among roughly 20 million people who get some income from tobacco, including members of 1.3 million farming households and workers at 5 million retailers, according to government figures. The extent to which the government is interlocked with the fortunes of China National might best be described by the company’s presence in schools. Slogans over the entrances to sponsored elementary schools read, “Genius comes from hard work. Tobacco helps you become talented.” ... While the growth of its cigarette production has slowed, the company is making more money than ever in the same ways its Western competitors do: by pushing premium brands. Some are low-tar, some are organic, and some feature tobacco from American farmers, whose fortunes have risen along with the demand from China. But China National is being challenged as never before. Faced with a mounting death toll from smoking-related diseases, the Chinese government in the last year has issued a flurry of anti-tobacco edicts and proposed reforms.
Wang Jianlin, one of China’s richest men, is creating a rival to the American dream factory, from scratch. ... Most americans probably associate Qingdao, China, with beer. In 1903, German and British settlers founded the Tsingtao Brewery there, and Teutonic influence can still be seen in some of the architecture in older parts of town. But the city’s temperate climate and coastal setting, almost 350 miles north of Shanghai, lend it an atmosphere that more strongly recalls Southern California, an association lately reinforced by the new buildings going up on the coastline southwest of town. There, on a steep green hillside that overlooks the Yellow Sea, you’ll see a gigantic sign with white freestanding characters: 东方影都, which translates literally as “Eastern Cinema.” It’s like the Hollywood sign that has overlooked Los Angeles since 1923, only bigger. ... On a sprawling 1,200-acre site at the foot of that hill, a gaggle of construction cranes is noisily building Qingdao Oriental Movie Metropolis, a vast development that includes a movie studio, a theme park and entertainment center, a 4,000-room resort-hotel complex, a shopping mall, a 300-berth yacht club, a celebrity wax museum, and a hospital. The Dalian Wanda Group, China’s biggest commercial real-estate developer and the world’s largest owner of movie theaters, has committed $8.2 billion to the project. Wanda Studios Qingdao is the linchpin of the new development, and when it opens its doors in April 2017, it will be one of the largest and most technologically advanced feature-film-production facilities in the world, encompassing 30 soundstages; an enormous temperature-controlled underwater stage; a green-screen-equipped outdoor stage that’s still larger, at 56,000 square feet; a permanent facsimile of a New York City street; and much more. ... In 2011, the research firm IBISWorld named postproduction one of America’s “dying industries,” along with DVD, game, and video rental; newspaper publishing; and photofinishing. ... In 2012 alone, the country added 10 theater screens a day; it now has more than 28,000. Only the U.S., with close to 40,000 screens, has more, and Wanda owns more than 5,000 of those.
They’re a physical commodity, but they’re also a meme — popularized by celebrities, shared endlessly on Twitter and Instagram and Vine, discussed to death by the chittering idea factory that is the English-language internet. ... One of those factories is Gaoke (or “High Tech”) Times, a midsize plant situated on 120,000 square feet in a Bao An industrial park. ... churn out 600 boards in a day, for customers in the U.S., U.K., Dubai, and Australia. ... In the two decades Gaoke has been here in Shenzhen, it has made desktop phones, then DVD players, televisions, mobile devices, and eventually tablets, which today are the largest part of its business. ... About six months ago, at the request of some of the company’s existing tablet customers, Gaoke had started manufacturing them. New product crazes present struggling businesses and eager entrepreneurs alike with an opportunity to leave behind glutted markets, and the nature of China’s booming electronics business is to be adaptable to the whims of a global market. ... Fang Zuoyi estimated that there are at least 1,000 factories in the Shenzhen area making hoverboards. ... It starts when a (typically) Western company, eager to cash in on a product made popular by the social internet, contracts a Chinese factory to make it. From here, the idea spreads throughout the elaborate social networks of Chinese electronics manufacturing until the item in question is being produced by hundreds and hundreds of competitors, who subcontract and sell components to each other, even as they all make the same thing. It reaches its saturation point quickly. It moves from product to product without sentiment. And it is proof that our never-ending digital output, our tweets and Vines and Instagrams and Facebook posts, has the power to shape the lives of people on the other side of the world.
A new arms race in our skies threatens the satellites that control everything from security to communications ... the activities of the mystery “ghost” satellite have given many in the defence and intelligence community pause for thought. ... Space, military officials like to say, is the ultimate higher ground. Since the cold war ended, however, it has been a largely uncontested territory. In January 1967, the US, UK and USSR became the first signatories to the Outer Space Treaty. In it, they committed to keeping the moon free of military testing and not putting weapons of mass destruction into orbit. China joined the pact in 1984. Another 100 states are now signed up. ... Almost every country with strategically important satellite constellations and its own launch facilities is considering how to defend — and weaponise — their extraterrestrial assets. ... Satellites are fragile things: a nudge to their orbit, a tilt of their solar panels towards the sun, a laser blast directed at their sensors or a projectile casually fired into their path are all capable of wreaking permanent, irreversible damage. ... While developed societies are becoming more dependent on it than ever before for almost every aspect of their digital economies, their grip on the technologies that have given them global strategic dominance is slipping. And as more countries around the world look to maximise their military advantages, space is becoming the most obvious domain to contest. ... The 1967 Outer Space Treaty had one glaring omission: it has no limits on the use of conventional weapons. Even as militaries around the world work hard to build their space weaponry arsenals, many are now wondering whether the treaty needs to be broadened.
For much of his 80 years, the Dalai Lama has been present at these strange intersections of religion, entertainment and geopolitics. In old photos, you can see the 9-year-old who’d received the gift of a Patek Phillipe watch from President Franklin Delano Roosevelt. Another twist of the kaleidoscope reveals him tugging at Russell Brand’s shaggy beard, heartily laughing with George W. Bush in the White House or exhorting you to ‘‘Think Different’’ in an advertisement for Apple. ... The economic potency of China has made the Dalai Lama a political liability for an increasing number of world leaders, who now shy away from him for fear of inviting China’s wrath. Even Pope Francis, the boldest pontiff in decades, reportedly declined a meeting in Rome last December. When the Dalai Lama dies, it is not at all clear what will happen to the six million Tibetans in China. The Chinese Communist Party, though officially atheistic, will take charge of finding an incarnation of the present Dalai Lama. Indoctrinated and controlled by the Communist Party, the next leader of the Tibetan community could help Beijing cement its hegemony over Tibet. ... ‘‘My concern now,’’ the Dalai Lama said, ‘‘is preservation of Tibetan culture.’’
Alibaba is the hottest e-commerce company of the past five years, a fusion of eBay and Amazon whose 386 million active users accounted for $394 billion in sales in fiscal 2015—six times the sales volume of its biggest Chinese competitor. The company created a huge marketplace and a sophisticated distribution network just in time to serve a generation of Chinese consumers attaining middle-class prosperity. “We are seeing Chinese consumers adopt new retail formats and online shopping faster than any of their global counterparts,” says Jasmine Xu, president of e-commerce for Procter & Gamble Greater China. Those trends fueled a rise so impressive that even the mighty Amazon became an Alibaba partner ... Today, however, Alibaba looks mortal. Its growth has slowed, hampered by China’s ebbing economy and by competition from a growing crop of rivals like JD.com. Its stock has fallen 26% from its post-IPO highs, from $115 to the mid $80s. To reignite its growth, chairman and founder Jack Ma and CEO Daniel Zhang plan to lean on U.S. companies—brands that hold enormous appeal in China. “This is an incredibly important strategy for the future of Alibaba,” Ma says. ... Alibaba is pitching itself as a shortcut to the world’s most populous market. Alibaba is helping foreign companies with marketing, data analytics, and shipping. And more recently it has sweetened the pot with a newer service, Tmall Global, that lets U.S. brands sidestep many of the taxes, regulatory hurdles, and logistics hassles that trip up foreign companies in China. ... Tmall, went live in 2008 with a business model sharply distinct from Taobao’s. Tmall is Zhang’s brainchild. He positioned it as a marketplace for higher-quality clothing, food, and electronics, with a focus on luxury brands. ... Tmall owes its growth to China’s rapidly expanding, brand-conscious middle class. Currently there are 109 million Chinese people with a net worth between $50,000 and $500,000, according to Credit Suisse, which estimates that those ranks could surpass 500 million by 2022. It’s a demographic that’s very comfortable with e-commerce: 40% of Chinese consumers buy groceries online, for example, compared with only 10% of Americans.
1. The Hollow Alliance: The trans-Atlantic partnership has been the world’s most important alliance for nearly seventy years, but it’s now weaker, and less relevant, than at any point in decades. It no longer plays a decisive role in addressing any of Europe’s top priorities. Russia’s intervention in Ukraine and the conflict in Syria will expose US-European divisions. As US and European paths diverge, there will be no more international fireman—and conflicts particularly in the Middle East will be left to rage.
2. Closed Europe: In 2016, divisions in Europe will reach a critical point as a core conflict emerges between Open Europe and Closed Europe—and a combination of inequality, refugees, terrorism, and grassroots political pressures pose an unprecedented challenge to the principles on which the new Europe was founded. Europe’s open borders will face particular pressure. The risk of Brexit is underestimated. Europe’s economics will hold together in 2016, but its broader meaning and its social fabric will not.
3. The China Footprint: Never has a country at China’s modest level of economic and political development produced such a powerful global footprint. China is the only country of scale today with a global economic strategy. The recognition in 2016 that China is both the most important and most uncertain driver of a series of global outcomes will increasingly unnerve other international players who aren’t ready for it, don’t understand or agree with Chinese priorities, and won’t know how to respond to it.
4. ISIS and “Friends”: ISIS is the world’s most powerful terrorist organization, it has attracted followers and imitators from Nigeria to the Philippines, and the international response to its rise is inadequate, misdirected, and at cross purposes. For 2016, this problem will prove unfixable, and ISIS (and other terrorist organizations) will take advantage of that. The most vulnerable states will remain those with explicit reasons for ISIS to target them (France, Russia, Turkey, Saudi Arabia, and the United States), and those with the largest numbers of unintegrated Sunni Muslims (Iraq, Lebanon, Jordan, Egypt, and across Europe).
5. Saudi Arabia: The Saudi Kingdom faces a growing risk of destabilizing discord within the royal family this year, and its increasingly isolated status will lead it to act more aggressively across the Middle East this year. The threat of intra-royal family strife is on the rise, and a scenario of open conflict, unimaginable prior to King Salman’s January 2015 ascension, has now become entirely realistic. The key source of external Saudi anxiety is Iran, soon to be free of sanctions.
6. The rise of technologists: A variety of highly influential non-state actors from the world of technology are entering the realm of politics with unprecedented assertiveness. These newly politically ambitious technologists are numerous and diverse, with profiles ranging from Silicon Valley corporations to hacker groups and retired tech philanthropists. The political rise of these actors will generate pushback from governments and citizens, generating both policy and market volatility.
7. Unpredictable Leaders: An unusually wide constellation of leaders known for their erratic behavior will make international politics exceptionally volatile this year. Russia’s Vladimir Putin and Turkey’s Recep Tayyip Erdogan are leaders of an unruly pack that includes Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman and – to a lesser but important extent – Ukraine’s Petro Poroshenko. These unpredictable leaders make our list for 2016 because their interventions overlap and conflict. One powerful, erratic leader spells trouble; four spell volatility with major international implications.
8. Brazil: President Dilma Rousseff is fighting for her political survival, and the country’s political and economic crisis is set to worsen in 2016. Contrary to hopes among pundits and many market players, the battle over Rousseff’s impeachment is unlikely to end the current political stalemate. Should the president survive, her government won’t gain the political boost necessary to move on the economic reforms needed to tackle the country’s growing fiscal deficit. If Rousseff is ousted, an administration led by Vice President Michel Temer won’t fare much better.
9. Not enough elections: Emerging markets underwent a historic cycle of national elections in 2014-2015, but this year there are relatively few opportunities for EM voters to make themselves heard at the ballot box. As slower growth and stagnating living standards stoke popular discontent, governance and stability will suffer. Historically, markets have been less volatile in non-election years, but this time will be different. By raising popular expectations, the massive income growth that most EMs enjoyed over the past 10 years has created conditions for a rude awakening.
10. Turkey: After a decisive victory for his AK party in late-2015, President Erdogan will now push to replace the country’s parliamentary system with a presidential one. He’s unlikely to reach his goal in 2016, but his aggressive electioneering will further damage an already battered Turkish business and investment climate. On the security front, there is little prospect of an imminent end to PKK violence, and unrelenting US pressure on Ankara to clamp down on the Islamic State will produce only modest results while making Turkey more vulnerable to new attacks by ISIS.
* Red Herrings: US voters aren't going to elect a president who will close the country to Muslims. China’s economy isn’t headed for a hard landing, and its politics will remain stable. Continued strong leadership from Japan's Shinzo Abe, India's Narendra Modi, and especially China's Xi Jinping will keep Asia's three most important players focused on economic reform and longer-term strategy, reducing the risk of conflict in Asia’s geopolitics.
For centuries, the monks of the Shaolin Temple mostly prayed and practiced martial arts, while living off the land and the donations of worshippers. Under Yongxin, their activities expanded to include food and medicine sales, construction, entertainment, and consulting. In 2006 the temple teamed with a Shenzhen media company to produce Kungfu Star, an American Idol-style TV competition. Shaolin announced last year that it would begin developing mobile apps, including instructional kung fu software. The Shaolin Village project in Australia was only the next logical step in the abbot’s expansionist theo-corporate empire. “If China can import Disney resorts,” he said in March, “why can’t other countries import the Shaolin Monastery?” ... One evening I was sitting in a nearby guesthouse, reading a copy of Yongxin’s memoir, when an old man with a long white beard shuffled over. His son accompanied him and said his father had studied at the temple long ago. The old man stepped to the center of the room and performed an elegant kung fu routine, striking and kicking invisible enemies. Here it was, I thought: living heritage, unsullied by crass commercialism. When the man finished, I applauded and went to shake his hand. “Now give me some money,” he said.
Ten years ago, high tech observers complained that the nation didn’t have enough bold innovators. There were, of course, wildly profitable high tech firms, but they rarely took creative risks and mostly just mimicked Silicon Valley: Baidu was a replica of Google, Tencent a copy of Yahoo, JD a version of Amazon. Young Chinese coders had programming chops that were second to none, but they lacked the drive of a Mark Zuckerberg or Steve Jobs. The West Coast mantra—fail fast, fail often, the better to find a hit product—seemed alien, even dangerous, to youths schooled in an educational system that focused on rote memorization and punished mistakes. Graduates craved jobs at big, solid firms. The goal was stability: Urban China had only recently emerged from decades of poverty, and much of the countryside was still waiting its turn to do so. Better to keep your head down and stay safe. ... That attitude is vanishing now. It’s been swept aside by a surge in prosperity, bringing with it a new level of confidence and boldness in the country’s young urban techies. ... higher education soared sevenfold: 7 million graduated college this year. The result is a generation both creative and comfortable with risk-taking. ... Anyone with a promising idea and some experience can find money. Venture capitalists pumped a record $15.5 billion into Chinese startups last year, so entrepreneurs are being showered in funding, as well as crucial advice and mentoring from millionaire angels. ... Even the Chinese government—which has a wary attitude toward online expression and runs a vast digital censorship apparatus—has launched a $6.5 billion fund for startups.
Fogelson suspects that filmmakers will agree with any opinion he offers in order to get a green light, so he lets them describe the film they really intend to make, then trusts his gut about whether it sounds commercial. Choosing which movies to make is the crux of his job, the hundred-million-dollar decision. When he was eight, his father, the head of marketing at Columbia Pictures, told him, “You need a clear good guy and a clear bad guy, and the audience needs to know what it’s rooting for.” ... “Only make a film you already know how to sell.” ... Fogelson believes that seventy-five per cent of a movie’s success is due to its marketing and its marketability. ... The six major studios, besieged by entertainment options that don’t require people to get off the couch, have bet that the future lies in films that are too huge to ignore. Although they make low-budget films for targeted audiences (teen girls, say, or horror fans), they focus most of their energies on movies that cost more than three hundred million dollars to make and market. Such films are predicated not on the chancy appeal of individual actors but on “I.P.”—intellectual property, in the form of characters and stories that the audience already knows from books or comics or video games. ... STX’s internal data showed that such star-showcase films, within that budget range, were profitable thirty per cent more often than the average Hollywood film. So the studio planned to make a lot of them. By 2017, STX expects to release between twelve and fifteen movies a year, as many as some of the major studios. ... Fogelson looks at comps, too, but then he applies a three-part test. First, can the film be great? (By “great,” he means “distinguished within its genre.” ... Then, Do we know how to sell it? And, Can we make much more in success than we lose in failure? ... We go to the movies now for the same reasons that Romans went to the Colosseum: to laugh, to scream, and to cheer. Comedy, horror, and triumphs of the human spirit still play better in theatres than at home. What plays best of all, of course, is a spaceship going kablooey all over the screen. ... What is novel is the studios’ heavy reliance on the string of sequels known as a franchise.
This memo is my attempt to send the markets to the psychiatrist’s couch, and an exploration of what might be learned there. ... One of the most notable behavioral traits among investors is their tendency to overlook negatives or understate their significance for a while, and then eventually to capitulate and overreact to them on the downside. ... “Everyone knew” for years that the Chinese economy had been overstimulated with cheap financing, and that this had led to excessive investment in fixed assets. … One of the most significant factors keeping investors from reaching appropriate conclusions is their tendency to assess the world with emotionalism rather than objectivity. Their failings take two primary forms: selective perception and skewed interpretation. ... The bottom line is that investor psychology rarely gives equal weight to both favorable and unfavorable developments. Likewise, investors’ interpretation of events is usually biased by their emotional reaction to whatever is going on at the moment. ... in the real world, things generally fluctuate between “pretty good” and “not so hot.” But in the world of investing, perception often swings from “flawless” to “hopeless.” ... There is a general sense among my colleagues that investors have gone from evaluating securities based on the attractiveness of their yield (with company fundamentals viewed optimistically) to judging them on the basis of the likely recovery in a restructuring (with fundamentals viewed pessimistically).
It’s a story that has become a part of business folklore in China. In 1985, Zhang Ruimin, the young general manager of the loss-making Qingdao Refrigerator Plant, decided it was time to turn things around. He got his factory workers to smash 76 defective refrigerators with sledgehammers. To drive the point home—that there would be no tolerance for low quality—he delivered the first blow himself. ... This moment marked a significant turning point in the history of Qingdao Refrigerator Plant (now known as Haier), so much so that the sledgehammer is now housed in the company’s in-house corporate museum. Three decades later, Haier is the world’s largest white goods manufacturer and boasts cutting edge innovation. ... None of this would have been possible without CEO Zhang Ruimin at the helm. He led the company through several path-breaking business model changes, which helped the company build a strong brand, grow both organically and through acquisitions, globalize and evolve a business model where the company “gets close to the customer”. The beauty of it is that he forced the company to change even before competition or technology made it imperative that it did so. ... Zhang is now leading the company through yet another transformation. He is, in essence, ‘breaking up’ the company and throwing rigid organizational structures and processes out of the window. The enterprise will, in effect, become an investment platform and the departments and divisions will be like entrepreneurial teams, which he calls “micro-enterprises”.
No one knows for sure why some societies are more innovative than others. The United States is a highly inventive society, the source of a host of technologies -- the airplane, the atomic bomb, the Internet -- that have transformed the world. Modern China, by contrast, is frequently criticized for its widespread copying of foreign inventions and creative works. Once the home of gunpowder, printing, and other transformational inventions, China is today better known for its knockoffs of almost every imaginable product: cars, clothes, computers, fast food, movies, pharmaceuticals, even entire European villages. The United States gave the world the iPhone; China gave it the HiPhone -- a cheap facsimile of a groundbreaking American gadget. ... Some see deep cultural roots to the pervasiveness of copying in China. But a more common view is that China fails to innovate because it lacks strong and stable protections for intellectual property. ... But American anxiety and anger over Chinese piracy are misplaced. Copying is not the plague that American business leaders and politicians often make it out to be. In fact, far from always being an enemy of innovation, copying is often a critical part of creativity. Although copying has a destructive side, it also has a productive side. Nearly all creations rest on prior work, and the ability to freely copy and refine existing designs fuels fields as varied as fashion, finance, and software. Copying can also foster stronger competition, grow markets, and build brands.
In a 52-story office tower overlooking the leafy streets of this city's embassy district, some 400 deal makers at Citic Trust Co. arrange financing for property developers, steel mills and other businesses starved for cash and shunned by China's traditional banks. ... The lenders at Citic and other institutions that make up China's "shadow banks" have created the closest thing China has to the culture of Wall Street. They take risks that traditional banks won't, going so far as to create investment funds for assets like top-shelf liquor and mahogany furniture. Their top executives drive luxury cars and frequent expensive clubs. ... Now, China's shadow banks—a mélange of trust companies, insurance firms, leasing companies, pawnbrokers and other informal lenders subject to limited oversight ... Between 2010 and 2012—a period during which traditional banks scaled back lending—shadow lenders doubled their outstanding loans to 36 trillion yuan ($5.8 trillion), or about 69% of China's gross domestic product ... At so-called trust companies, a pillar of the shadow sector, assets under management have almost tripled to 8.7 trillion yuan, making the trust industry the second-largest financial-services sector in China, after banks. ... "The future of the industry is now entirely up to the central bank's policy stance," says a senior executive at trust company Ping An.
A naturally occurring oxide, TiO2 is generally extracted from ilmenite ore and was first used as a pigment in the 19th century. In the 1940s chemists at DuPont refined the process until they hit on what’s widely considered a superior form of “titanium white,” which has been used in cosmetics and plastics and to whiten the chalked lines on tennis courts. DuPont has built its titanium dioxide into a $2.6 billion business, which it spun off as part of chemicals company Chemours, in Wilmington, Del., last fall. ... A handful of other companies produce TiO2, including Kronos Worldwide in Dallas and Tronox of Stamford, Conn. Chemours and these others will churn out more than 5 million tons of TiO2 powder in 2016. China also produces large amounts of the pigment, and its industries consume about a quarter of the world’s supply. Most of China’s TiO2 plants, however, use a less efficient and more hazardous process than the one developed at DuPont. Starting in the 1990s, if not earlier, China’s government and Chinese state-run businesses began seeking ways to adopt DuPont’s methods. Only they didn’t approach the company to make a formal deal. According to U.S. law enforcement officials, they set out to rip off DuPont. ... Most trade-secret theft goes unreported. Companies worry that disclosing such incidents will hurt their stock prices, harm relationships with customers, or prompt federal agents to put them under a microscope. Theft of trade secrets also rarely results in criminal charges because the cases are time-consuming and complicated, and it’s often difficult to win a conviction for conspiracy to commit espionage. A 2013 study estimated that China accounted for as much as 80 percent of the $300 billion in losses sustained by U.S. companies from the theft of intellectual property. Often, China won’t even release the records or serve the subpoenas that might contribute to a prosecution. To win in court, companies must prove they properly safeguarded their trade secrets, something many fail to do.
One thing we are exceptionally good at in the West is to blame China for pretty much anything that goes haywire. If you believe various commentators, it is all China’s fault that global equity markets have caught a serious cold more recently and, before that, China was blamed for the extraordinary weakness in industrial commodity prices. They have weakened - or so the argument goes - because China’s growth is not quite what it used to be, and commodity producing countries are over-producing as a result. ... Whilst entirely correct that China’s GDP growth rate has indeed slowed substantially, perhaps someone should consider whether China is as much the consequence as the cause; whether China is in fact a victim rather than a villain? Let me explain. ... I see no reason why the present combination of low oil prices and attractive foreign exchange rates shouldn’t invigorate economic growth across emerging markets ... EM equities could quite plausibly end up being the bargain of the year, although I am concerned about corporate leverage in many EM countries. One would therefore have to step carefully ... Finally a general observation: This is not a repeat of 2008, as many have suggested. An EM crisis is not likely to do nearly as much damage to the financial system in our part of the world, as the GFC did. Why? Because the banking system in DM countries have only limited exposure to corporates in EM countries.
- Also: Foreign Policy - China’s Coming Ideological Wars < 5min
- Also: Quartz - The most egregious examples from the Chinese government’s long, sordid history of data-doctoring 5-15min
- Also: Financial Times - M&A: China’s world of debt < 5min
- Also: Wall Street Journal - Chinese Developers Build in America, but Look for Buyers at Home < 5min
- Also: Financial Times - China’s great game: Road to a new empire < 5min
Her speech was punctuated by European brand names, which functioned as a kind of currency. A maid’s monthly wages, she said, were probably the price of a pair of Roger Vivier satin pumps. A night out can cost half a suède Birkin bag. On Weymi’s last birthday, in March, she’d spent more than two Fendi totes—around four thousand dollars—on drinks in less than an hour. ... The Chinese presence in Vancouver is particularly pronounced, thanks to the city’s position on the Pacific Rim, its pleasant climate, and its easy pace of life. China’s newly minted millionaires see the city as a haven in which to place not only their money but, increasingly, their offspring, who come there to get an education, to start businesses, and to socialize. ... The children of wealthy Chinese are known as fuerdai, which means “rich second generation.” ... President Xi Jinping has spoken of the need to “guide the younger generation of private-enterprise owners to think where their money comes from and live a positive life,” and the government recently held an educational retreat for seventy children of billionaires, who were given a crash course in traditional Chinese values and social responsibility. ... Moneyed people leave China for various reasons. Some are worried about pollution. Others want to secure a good education for their children. ... for affluent Chinese, the most basic reason to move abroad is that fortunes in China are precarious. The concerns go deeper than anxiety about the country’s slowing growth and turbulent stock market; it is very difficult to progress above a certain level in business without cultivating, and sometimes buying, the support of government officials, who are often ousted in anti-corruption sweeps instigated by rivals.
Around Shenzhen, since mid-December a cottage industry of more than 1,000 factories that were churning out the boards has shrunk to a couple hundred. “We maybe lost 50% of our revenues after the Amazon announcement,” says Feng, speaking from his shamrock-green factory floor. ... Unlicensed manufacturers had begun copying Chic’s board immediately after it appeared at the Canton trade show. By the summer of 2015, more than a thousand factories—up to 10,000, by some estimates—were making boards for distributors who sold them abroad online. Factories like Feng’s that had been making LED screens or iPhone cases switched to building hoverboards in a matter of days. And many factories, licensed and otherwise, cut corners on safety standards, often by subbing in cheaper, potentially flammable batteries.
Few developing countries have seen their hopes dashed more by the slump in global commodity prices than Mongolia, this country of three million people that is almost four times the size of California. ... With its vast unexploited reserves of copper, coal and other minerals once estimated to be worth more than $1 trillion, and a neighbor—China—going through a belated industrial revolution, Mongolia looked to have won a ticket into the modern world. ... “We missed the big time; the free ride that we were given,” said Ganhuyag Chuluun Hutagt, Mongolia’s vice minister of finance from 2010-2012. “No matter what happens to China, I thought, we will still find something to sell to them…which was not true, obviously.” ... There is little industry outside of Mongolia’s resources sector and no other country is as reliant on China, to which Mongolia sends nearly 90% of its exports, mostly commodities. ... Residential property prices have dropped by 35% in the past four years, while an estimated 37,000 apartments stand empty across the city, according to estimates from M.A.D. Investment Solutions, a local property group.
While the cash offers can seem too big to refuse, they may also appear to come from the corporate equivalent of deep space, so sparse is the information available on the bidder. ... Anbang is a case in point. The group company, which launched a $13.1bn bid for US hotel operator Starwood Hotels this week, quickly following its offer of $6.5bn for Strategic Hotels & Resorts, has never published an audited financial statement. Neither does it divulge the identity of its ultimate owners, give a full list of its executives or explain how its growing roster of foreign subsidiaries fit within 10 business divisions listed on its website. ... Anbang, which is just 12 years old, astounded the Chinese insurance world in 2014 with successive fundraising rounds that expanded registered capital from Rmb12bn ($1.8bn) to Rmb62bn in less than a year, introducing 31 new investors. This propelled it to first place among insurers, outstripping the likes of China Life and the People’s Insurance Co of China, even though they far eclipse it in terms of premiums. ... A broader concern about China Inc’s acquisition spree stems from questions about why it is happening. Is it being driven by strength, or is it a reflection of the waning vigour of heavily indebted corporations in a slowing domestic market? To a significant degree, analysts say, the exodus of Chinese investment capital is in fact a “quest for cash flow”. ... Data from the 1,627 domestically listed companies, or 58 per cent of the total, that have reported their 2015 earnings show a clear deterioration in fortunes.
Thomas Kelly, the American ambassador here, likes to say that Djibouti today feels like what Casablanca must have felt like in 1940. “All the different nationalities elbowing into each other,” he says. “All the intrigue.” ... About 4,000 soldiers and contractors live here, and they include commandos from Joint Special Operations Command, the team that undertakes the military’s most sensitive counterterrorism operations. After the 2012 attack on the diplomatic mission in Benghazi, Libya, a 150-member rapid response team was established at Camp Lemonnier, assigned to handle future threats to diplomatic personnel abroad. Djibouti is also the U.S. military’s regional hub for drones, and it sends thousands of Predators and Reapers across the region each year.