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

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

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.

Sep 102015

The most important economic relationship in today’s economy is that between China and the United States, despite bellicose chest thumping by both sides their wealth and well being of their industries is inextricably linked.

Against the backdrop of that chest thumping and a slowing Chinese economy, the Chinese and US Presidents are due to meet in two weeks time where trade and security relations between the two countries are at the top of the agenda.

China’s leaders though plan to emphasise their nation’s tech prowess and its importance to the US’s sector, something the New York Times reports has irritated the Obama administration.

What would almost further irritate the US leadership is that US tech giants including Apple, Facebook, IBM, Google and Uber have been invited to attend a Chinese tech summit hosted by Microsoft and the PRC President will be dining with Bill Gates before flying to Washington to meet Obama.

Redmond gets on board

Microsoft’s role in the China Forum is interesting, the company is extending the hand of friendship not just to nations but also to companies that were fierce rivals in the past, just last week the company announced a partnership with VMWare despite deep rivalry in recent years and CEO Satya Nadella is due to appear at next week’s Salesforce conference.

Coupled with Microsoft’s battle to keep offshore customers’ email records out of the reach of US legal jurisdiction, it’s clear Microsoft are playing a long global game with their business plans so the support of China’s initiatives isn’t surprising.

Given China’s strength as an emerging tech powerhouse and its administration’s ambition to move the economy up the value chain, it’s also not a surprise that other US technology companies are reluctant to join the politicians’ games.

Choosing Seattle

The choice of Seattle is interesting as well, while the city is a major tech centre with companies like Amazon and Microsoft based there, it’s far more integrated with the Pacific Rim economies than San Francisco and Silicon Valley. Again this is a loud message to the US tech community.

For China, the success of showing off their technological strengths is an important in sending a message to its East Asian neighbours and the US that the nation is diversifying and shouldn’t be underestimated, a process that Chinese Premier Li described as “a painful and treacherous process” at a World Economic Forum event in Dalian today.

The meeting between Xi Jinping and Barack Obama in two weeks time, and the associated events in Seattle, could well prove to be the marker of where China moved into the next phase of its economic development and its relationship with the  United States.

Jul 142015

Battered by a declining Chinese market for its manufacturing goods, Taiwan is having to look elsewhere for its economic growth.

Startups are one idea report Reuters News describing how the Taiwanese National Development Council set up HeadStart a year ago to create an tech entrepreneur ecosystem by relaxing regulations for registering start-ups, matching funds invested into projects and creating tech hubs.

So far HeadStart has attracted around $US 438 million in funds and now Alibaba founder Jack Ma says he wanted to set up a $300 million fund to support Taiwanese entrepreneurs.

While the Reuters piece focuses on the ecosystem built around fading smartphone maker HTC and the major computer chip fabricators, Taiwan’s strength may well lie in its small business roots as much of the island’s industrial strength has been built, like Japan’s, on its army of small family firms supplying the larger companies.

That Taiwan needs to diversify its economy is a warning to other less advanced economies that depending on a narrow band of exports leaves a nation open to external risks. It might be time for others to be looking at how to encourage their entrepreneurs.

Image of Taiwanese bronze buddha by Shirley B through freeimages.com

Jun 052015
stock investments.

The emergence of Chinese companies and their listing on US stock exchanges has been one of the features of the country’s rise over the last decade.

Now Reuters reports the tide may be turning as disaffected Chinese companies shift back to local stock market listings to counter what they believe are under valuations from US investors.

Two of the notable things about the Chinese stock markets have been the lack of transparency and their volatility.

It may be the current attractive valuations are part of that volatility with the Shanghai Composite stock index having more than doubled this year as opposed to the S&P 500 being up a comparatively disappointing five percent.

For Chinese companies, the relative transparency and discipline of US market listing rules also promised to raise their internal management standards.

The US markets also gained from the Chinese listings as these cemented the nation’s position as the world’s tech centre, with the attraction of American markets fading an opportunity opens for European and Asian exchanges.

Overall, the withdrawal of Chinese companies from US stock exchanges would be a shame for both countries as it makes each of them stronger.