May 312016
 
can China save the world?

China’s President Xi pledges increased support for technology firms reports Reuters.

While that will be welcome for Chinese tech and manufacturing companies, the question is just how effective top down initiatives like this are in building a vibrant industry.

As the country’s debt balloons and state owned corporations find themselves trapped with legacy businesses and massive inventories, the pressure is on the PRC’s government to find new ways to stimulate the economy, this is a start but it’s hard not think the Politburo will have to find ways to boost small business investment and startups.

Apr 082016
 
old_factory

For all the talk of digital disruption, who would have thought the old fashioned steel industry would be the industry causing the greatest upheaval in today’s economy?

Globally the steel industry is in trouble. In China, the UK and Australia steelmakers are facing a painful time as chronic overcapacity bites.

Beyond the immediate domestic problems of having a major part of its manufacturing industry shut down, Australia faces an added problem as the nation’s economic policies were based on a never ending Chinese demand for iron ore and coal.

OECD “Excess Capacity in the Global Steel Industry" (2015)

OECD “Excess Capacity in the Global Steel Industry” (2015)

The impending collapse of Bohai steel shows the Chinese industrial boom is now in the past and the onus on Beijing’s rulers is to stimulate a domestic services economy.

For the UK, the collapse of their steel industry adds further uncertainty to a nation that’s already putting its global role at stake with the referendum to move out of the European Union.

Should Britain turn away from Europe, they will need to find some compelling reasons to be competitive in the global economy. Fantasies of some sort of Anglo-centric Commonwealth of Nations won’t be enough to sustain the Little Englanders and their high cost of living.

In fact, the British problems of high costs and decades of underinvestment are common across the English speaking world – although Canada, New Zealand and Australia are particularly at risk in the current economic climate given their dependency on commodities and Chinese markets.

That Chinese curse of may you live in interesting times is proving true again, we are about to enter a fascinating economic period. Our business and political leaders, along with our resilience, are about to be tested. The steel industry is the first test.

Apr 032016
 
Xiaomi-smart-phone

Are domestic appliances the next wave of connected devices? Chinese smartphone manufacturer Xiaomi hopes so.

Xiaomi is best known for its cheap smartphones aimed at third world markets and the company’s move into connected kitchen devices marks an expansion into broader areas.

Smartphones being the centre of Xiaomi’s product offerings seems to be the common factor in the expanded range of devices, with the company hoping their ecosystem will be a compelling point of difference in a crowded market.

The idea the smartphone will be the centre of people’s connected lifestyles isn’t new but Xiaomi’s bet on low margin home appliances to drive smartphone sales and subscriptions to cloud services seems a brave move.

It may work however, the business models of tomorrow look improbable today.

 

Feb 062016
 
we need to treat chinese markets carefully

As the Chinese economy adjusts to new economic realities, some of the costs are beginning to be felt.

In China’s North-East where the economy is dominated by state owned enterprises in staid heavy industries, workers are moving to more promising regions and local leaders are worried.

However with the Chinese economy pivoting, things aren’t doing so well in the more laissez-faire South Eastern provinces either with workers giving up their precious New Year’s holidays to protest unpaid wages and unfair treatment.

For the Chinese government, this worker unrest is a serious problem. How the country’s leaders try to address the causes could well have global ramifications as the world’s economy faces the reality of massive economic overcapacity.

Out of the box thinking is needed, but it may not be enough to overcome the fears and needs of ordinary, angry workers. What is clear is that an economic pivot is never smooth.

Nov 262015
 
US-president-obama-China-Premier-Xi-Jinping

In the early 1990s I was working for a British company in Hong Kong and regularly commuting to Taipei. On a Cathay Pacific flight back from Taiwan one Friday afternoon, I found myself on the same flight as the organisation’s Asia-Pacific director who graciously got me into the lounge for a beer.

Over that beer he told me how earlier in the year he’d been asked by one of the pukka English directors why he was bothering spending so much money in business development for ‘third world countries’ like Taiwan and South Korea.

Jeff, as we’ll call the director, laid down a challenge to his board. “Come out and have a look for yourself,” he told them.

Some of the UK based directors took Jeff up and flew out to Hong Kong, first class on BA of course, and then continued on to Taipei where they suitably amazed to be greeted by a first world city.

“They genuinely believed they were going to fly in a DC-3 and be met by a bunch of rickshaw wallas,” laughed Jeff, a long standing English expat. “The Brits don’t get East Asia.”

It seems things haven’t changed much as veteran venture capital investor Mike Moritz made a similar point at a speech in London yesterday that the West doesn’t understand China, particularly Europe.

“People underestimate China, especially in Europe,” Business Insider quotes Moritz as saying. “They have very little sense of the size, strength, and scale of ambition of the leading Chinese technology companies.

Moritz pointed out the fund he leads, Sequoia Ventures, is now placing over half its money in non-US companies with Chinese businesses being high on the list.

The West’s misunderstanding of China goes beyond business, with The Economist warning that many nations are soon going to have to choose between the PRC and the United States as Beijing sets up its own network of global alliances and trade accords.

So far the United States has responded to this with clumsy efforts like the Trans Pacific Partnership, an attempt to quarantine China’s influence in the Western Pacific that actually gives PRC  based businesses a competitive advantage over nations that enter the deal which does little more than strengthen US corporate interests.

Already in Africa, the results of China’s economic efforts are being seen. A good example is the new Ethopian Railway where the Chinese were quick to fund a project that EU and World Bank lenders had dragged their feet on.

Just as English businessmen in the 1990s misunderstood what was going on in East Asia, it seems ignorance of Chinese growth and intentions are even more widespread today. There may be some shocks coming for countries like Australia who assume today’s realities are tomorrow’s.

Nov 082015
 
can China save the world?

A great video by Professor Tyler Cowen on the Marginal Revolution University website looks at China’s successes, the challenges the nation faces and the economy’s likely future.

Ultimately Cowen brings the whole story down to one factor – investment. The post 1979 investment that saw the nation’s productive capacity explode, the post 2008 investments that he believes has distorted the economy and his optimism about China’s future because of investments made in the PRC’s human capital.

It’s fourteen minutes well spent in getting a basic understand of what China has accomplished in the last 40 years and the challenges the nation currently has to deal with.

Sep 122015
 
Li-Keqiang=China-Premier-World-Economic-Forum

Just as I was hitting ‘publish’ on the China goes on the tech offensive‘ post two days ago, Chinese Premier Li Keqiang was delivering a speech to the World Economic Forum on the nation’s economy.

An English translation of Li’s speech is online and what’s particularly notable about it is the continual mention of “mass entrepreneurship and innovation” with the Premier pointing out over 10,000 new businesses are being registered every day in China.

In parts of the speech, Li sounds like one of the small business evangelists proselytizing on why everyone should start their own venture and coupling entrepreneurship with social justice.

“Mass entrepreneurship and innovation is effective in promoting social justice. As long as they are willing and capable, all people could establish themselves and lead a promising life through innovation and entrepreneurship. They could all have an equal chance for development and for moving up the social ladder, and could all enjoy a life of purpose and dignity.”

Probably the biggest barrier for small businesses and startups in all countries is the access to capital, something that Li flags in his speech as being part of China’s opening up to foreign investment.

Should Li and the Chinese leadership unleash the nation’s entrepreneurial spirits, it will see the country’s economy changed radically and that rebalancing towards domestic consumption accelerate.

For the rest of the world worrying about China’s influence and economic might, they could be worrying about last year’s problems.