trade | Paul Wallbank - Communications Professional

China goes on the tech offensive

The meeting between US and Chinese leaders later this month could mark the pivot of China’s economy

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.

Rewriting the Silicon Valley playbook

Each region needs its own playbook to create an industrial hub warns veteran entrepreneur Steve Blank

Silicon Valley’s lean startup model may not be relevant to most regions warns writer and entrepreneur Steve Blank.

The lean startup model is based on getting the minimum viable product into the marketplace and should users be enthusiastic seeking investor funding to develop the business further.

Guy Kawasaki described this in an interview last year where he described the minimum viable valuable product idea of getting the most basic service to market at the lowest cost and then getting users and investors on board.

However it might be that model only works where “startup entrepreneurs have full access to eager and intelligent business customers, hosts of industry angels and venture capitalists with money to burn,” reports Canada’s Financial Post.

Blank came to that conclusion on a trip to Australia where he met with sports tech startups: “Meeting with a coalition of entrepreneurs in the tech and sports space, he realized the lean startup framework didn’t account for the vagaries of local economies. Australia sports-tech entrepreneurs trying to scale their businesses would find that their major customers are in the U.S., halfway around the world. And unlike most Valley startups, the Aussies would need to source manufacturing expertise — which means budgeting for several trips to China.

The problems facing Australia’s entrepreneurs probably extend further as the nation’s investors are notorious risk averse and the high cost of doing living means the burn rates for startups are much harder.

Blank’s recommendation is any region looking at establishing a startup community should identify its own strengths and advantages then build its own playbook.

That it’s difficult for other regions to copy Silicon Valley shouldn’t be surprising, since the start of civilisation each industrial or trade hub has risen and fallen on its own strengths and weaknesses.

We can be sure the next Silicon Valley – be it in the US, China, Europe or anywhere else in the world – will have different strengths than the Bay Area today.

Toilet trade wars

Chinese toilet seat buyers find globalisation is a complex business

Chinese luxury goods buyers are upset that their top end toilet seats aren’t manufactured in Japan reports the Wall Street Journal.

It turns out these technologically advanced toilet seats are largely made in China – like many other Japanese, and American, products.

Which creates a problem for those Chinese advocating a boycott of Japanese goods warns the China Youth Daily.

“Japanese goods have permeated every aspect of our lives. If you want to boycott everything, I’m afraid you’ll have to throw away your identification cards, cellphones, land-line phones, elevators, some of which have Japanese components.”

Such are the complexities of globalisation.

We’re crazy, not stupid

Alibaba’s Jack Ma has a fascinating snapshot of how global trade is going through a radical period of change

“We’re crazy, not stupid” is how Jack Ma describes his Alibaba team in an interview at the World Economic Forum in Davos, Switzerland, yesterday.

Much has been written about Jack Ma and the spectacular success of Alibaba and the WEF session with Charlie Rose is an opportunity for Ma to flesh out the story and destroy some of the myths.

One of the fascinating anecdotes Ma tells is how US cherry growers are preselling their harvests to Chinese customers through Alibaba and cites various other primary producers doing similar campaigns as how American small businesses can sell into the PRC market.

Ma’s interview is a fascinating snapshot of how global trade is going through a radical period of change, the shifting of China’s economy and where the future lies for many industries.

Walking Spaghetti Junction’s canals

What does an English motorway junction tell us about evolving trade routes and communication networks?

One of the most maligned places in Britain is Spaghetti Junction, an interchange on the M6 Motorway just north of Birmingham’s city centre in the centre of the nation.

Despite its poor reputation, Spaghetti Junction though has a story to tell — a tale of how physical trade routes change slowly with the motorway being the latest of five major junctions in the area.

Courtesy of Wikipedia — Courtesy of UK Highways Agency and Wikipedia

Immediately below the motorway are the major roads, connecting these and Birmingham were the reason for building Spaghetti Junction in the late 1960s.

Below those are the canals and it’s notable that just as Birmingham lies at the centre of Britain’s motorway network, it also formed the core of the industrial revolution’s canal network and much of the railway system.

Wikipedia describes how critical Spaghetti junction is for the nation’s infrastructure.

Underneath the motorway junction are the meeting points of local roads, the river Tame‘s confluences with the River Rea and Hockley Brook, electricity lines, gas pipelines, the Cross-City and Walsall railway lines and Salford Junction, where the Grand Union Canal, Birmingham and Fazeley Canal and Tame Valley Canal meet.

Despite it’s importance the area is dingy and it’s not a good idea to hang around too long, particularly when you have an expensive camera, but it’s worthwhile to linger for a few minutes to appreciate how important these links were to the industrial revolution.

Following the canals away from Spaghetti Junction gives a feeling of the post-industrial nature of Birmingham’s economy something that the city, like most of Britain, is still struggling with.

Eventually the canal ends in the city’s convention centre district where a tourist can get a safer, and better, appreciation of Britain’s canal system at the Gas Street Canal Basin.

While the basin is a bit twee and touristy it does also give a friendly overview of the canal network that replicates closely the railway system that replaced it and today’s roads.

How these trade routes evolve in the digital economy will be interesting, the recent PayPal survey on the new electronic spice routes illustrates how economies are changing.

Whether our descendents will wander the abandoned motorways and freeways in two hundred years and wonder at our industrial might is something we might want to ponder. Whether what replaces them is another layer of infrastructure is another question.

Pay Pal and the Modern Spice routes

PayPal trace the modern online spice routes with some important messages for retailers.

Online payments company PayPal has released a paper on the The Modern Spice Routes which describes the pattern of online trade across the US, Germany, UK, China, Brazil and Australia.

The results are a snapshot of how online commerce patterns are evolving.

PayPal commissioned the Nielsen Company to survey 6,000 online shoppers about their cross border online buying habits to determine some of the characteristics of global internet commerce.

What immediately stands out in the report is the United States’ dominance with 45% of global market share, China follows with 26%.

At the bottom of the pack is Australia with 16% and, surprisingly, Germany with 13%.

The US itself is an interesting study with the most preferred overseas shopping destination being the United Kingdom followed by China.

Why are people shopping online?

American respondents were overwhelming shopping overseas to access more variety, with 80% of respondents citing the reasons for shopping offshore being “more variety that cannot be found locally”.

Finding more variety was the key factor in all the markets. Even in countries like China and Australia were respondents cited saving money as their main reason for shopping internationally online, more diversity in offerings came a very close second.

That in itself show the opportunity for companies selling internationally – be unique and don’t offer what can be found at the local WalMart or Tesco.

Illustrating this, the PayPal report cited Australia’s Black Milk clothing and Germany’s Hatshopping as two international success stories.

Intra-region trading

An understated point with the report is just what proportion of international shopping is of each country’s spend – in the United States’ case it is only 18% while in Australia it’s 35%.

Illustrating those internal trading patterns are the British and German figures that show online shopping in other European nations is substantial, so intra-EU trade is a considerable factor.

Similarly, the second popular destination, after the United States, for Chinese online shoppers is the Hong Kong SAR. In fact the Chinese statistics show that intra-Asian trade is just as substantial as EU commerce with Japan, Korea and Singapore all feature highly on the list of shopping destinations.

This illustrates a problem for Australia as it has neither the United States’ massive domestic market or a group of closely integrated neighbours and the high level of international online shopping indicates just how poorly local merchants are doing with their internet strategies.

Indeed, for Australia that the proportion of online shoppers buying overseas is so high should be a worry for local merchants.

Today’s modern trade of bulk carriers, courier companies and shipping containers is very different to the spice routes of Marco Polo’s day, the world is evolving around new trading patterns right now.

For businesses like Australia’s retailers those changed trade routes may not be kind to those who can’t change.

Finding a role for Hong Kong in the China story

Hong Kong’s role in the China story as Shanghai rises is discussed by Brian Wong of Seacliff Partners.

The Chinese government’s declaration of a Shanghai Free Trade Zone recently made headlines with speculation the region might be exempt from the nation’s internet blocks.

For Hong Kong, the Chinese government’s move is another blow to the territory’s already declining position as the main gateway to the People’s Republic.

As part of the Decoding The New Economy series of interviews, I spoke to Brian Wong of Hong Kong’s Seacliffe Partners about the challenges facing the territory and the role the former British colony will play over the next few decades.

“Hong Kong, I think, is the perfect bridge between East and West, ” says Brian. “But I think Hong Kong has been in search since the change over in 1997 as to where it really wants to focus itself.

The territory is squeezed between Singapore that has established itself Asia’s leading financial hub and now is positioning itself as a creative centre and Shanghai which has become the new ‘Gateway to China’ with its domestic financial centre and deep water port.

Despite the challenges facing the Territory, Brian sees opportunities in the city’s cultural and business environments.

“One of the great things about Hong Kong still is its international community and its accessibility for creative types,” Brian says. “I think Hong Kong is starting to recognise this advantage.”

“You have a large base of Chinese based manufacturers looking to beyond just low cost OEM manufacturing, what they need is creative design and innovation. If Hong Kong can be one of the big suppliers of that then they have a really good opportunity.”

One area Brian sees Hong Kong has an advantage is in its developing a hardware hackers culture that fits in with the massive manufacturing hubs surrounding the territory along the southern Chinese coast.

“I went to a talk where there was a fellow from Mountain View, California who does a lot of product invention,” Brian tells. “He’s set up a lab in Hong Kong to do product innovation because although he recognises China has a low cost manufacturing base, he doesn’t want to live in Shenzhen.”

The challenge for Hong Kong is to encourage a more entrepreneurial mindset, Brian believes. He also sees Hong Kong having an opportunity in being a conduit for the Chinese diaspora looking at investing into the PRC.

Probably the biggest advantage Brian sees Hong Kong having are in its mature legal and capital markets that Shanghai and other Chinese centres lack – “these are world class,” he asserts.

Ultimately though it may be that Shanghai, Beijing, Taipei or Singapore aren’t threats to Hong Kong at all as each city becomes the centre of certain aspects of a diverse Chinese and East Asian economy.

“I think much like in the United States there is not just one financial centre – you’ve got Chicago, New York and you’ve got different roles for different cities, LA for media and San Francisco as the gateway into the United States.”

“There’s room for more than just one. The question is what does Hong Kong want to be and how does it want to be most valuable to the China story.”

is G’day China a good idea?

Can the proposed China Week be successful in promoting Australian business and trade?

Yesterday’s announcement by the Prime Minister’s of an Australia Week in China may prove far more successful than the G’day USA events the idea is based upon.

G’day USA has been run for a decade and showcases Australia’s attractions, skills and businesses at events in Los Angeles and New York.

It’s been moderately successful but an emphasis on movie stars appearing at black tie Hollywood events illustrates Australian governments’ disproportionate focus in throwing money at US movie producers.

If China Week follows the US example we can expect private, exclusive dinners where Twiggy Forrest, Clive Palmer and the BHP board entertain Chinese plutocrats over bowls of shark fin soup and braised tigers’ testicles.

Should China Week follow that model then it will probably share G’day USA’s middling successes.

The opportunity to do it differently though is great as the Chinese-Australian relationship is far younger and hasn’t been locked into Crocodile Dundee type stereotypes on both sides.

As the Chinese economy matures and evolves, there’s an opportunity for Australian businesses and industries which haven’t been available for exporters to the US.

Done properly, G’day China could help the profile of Australian businesses in many sectors, particularly in those affected by the great Chinese rebalancing.

Let’s hope they do it properly.

Image of the Chinese embassy in Canberra, Australia from Alpha on Wikimedia

Australia and the Chinese Mexican stand off

As China rebalances its economy, a new wave of change is about to sweep global trade.

Twenty years ago visitors to Sanya on the south coast of China’s Hainan Island could find themselves staying at the town’s infectious diseases clinic, converted into a backpackers hostel by a group of enterprising doctors.

The Prime Ministers and Presidents attending of Boao Asia Forum this week won’t get the privilege of staying at the infectious diseases hospital as Sanya’s hotel industry has boomed, bust and boomed again following the island being declared a tourism zone in 1999.

Instead, their focus is on the pecking order of nations and for the Australians the news is not good. As the Australian Financial Review reports, the Aussies have been seated well below the salt by their Chinese hosts.

On the Boao list, Australia is outranked by Brunei, Kazakhstan, Myanmar, Zambia, Mexico, and Cambodia – even New Zealand Prime Minister John Key gets higher billing.

Central and South East Asian countries make sense as countries like Myanmar and Kazakhstan are China’s neighbours with strong trade ties.

That the Kiwis have been given priority over the Aussies by the Chinese government is not surprising in light of this.

An unspoken aspect for the Australian attendees to the Baoa conference is how long Canberra’s political classes can continue their forelock tugging fealty to the US without offending the nation’s most important trading partner.

Mexico’s entry on that list could be one of the most important with consequences for Australia and the world.

During the 1992 US Presidential campaign candidate Ross Perot coined the phrase “the great sucking sound” in his opposition to the North American Free Trade Agreement and the risk of losing jobs to lower cost Mexico.

As it turned out, the giant sucking sound was China – it turned out China’s admission into the World Trade Organisation had far greater consequences for the United States and Mexico than NAFTA.

Mexican manufacturing was one of the greatest victims of China’s rise as US companies found it easier to subcontract work to Chinese factories rather than setup their own plants in Mexico.

Now China is finding its own costs creeping up and labor shortages developing and Mexico is attractive once again. The Chinese and Mexican governments have been working on their relationships for some time.

As manufacturing moves out of China, the shifts in world trade we’ve seen in the last two decades are going to be repeated, this time with Chinese moving up the value chain the lower level work moving to Mexico and other nations.

The leaders at the Baoa conference have their work cut out for them in dealing with another decade of global change.

Australia in the Asian Century – Chapter 9: Deeper and broader relationships

Australia in the Asian Century concludes with a look at how we build relationships into Asia.

This post is one of the series of articles on the Australia in the Asian Century report.

Australia in the Asian Century’s final chapter looks at how Australia can deepen relationships with its Asian neighbours. The chapter is full of fine ideas which don’t quite match the reality of government policies and spending.

Early in the chapter the white paper proposes increasing the number of Australian diplomats in Asia along with opening a new embassy in Ulan Baator, a Jakarta based ambassador to ASEAN and consulates in Shenyang , Phuket and eastern Indonesia.

Fine words, however Australia’s diplomatic corps has been shrinking for the last twenty years so staffing these facilities will require a withdrawal from other regions. The white paper doesn’t identify which countries Australia’s representation would be cut from and the consequences of that.

More importantly, it doesn’t identify how Foreign Affairs and Trade staff will be skilled up to man these facilities, instead we get another worthy ambition.

National objective 22. Australia will have the necessary capabilities to promote Australian interests and maintain Australia’s influence.

Australia’s diplomatic network will have a larger footprint across Asia.

Again, one would surely expect that Australia would already have the necessary capabilities to promote its national interest and maintain influence. Is the white paper suggesting we don’t?

Which leads us to the next national objective;

National objective 23. Australia will have stronger and more comprehensive relationships with countries across the region, especially with key regional nations—China, India, Indonesia, Japan and South Korea.

If we accept the assumption which underlies the entire paper, that Asia is going to continue to grow both economically and in influence then this will happen regardless of what governments do. It’s a meaningless and silly statement which once again ignores most of Asia and simplifies the dynamics.

The Australia Network

One of the great wastes of the Howard years was the dismembering of Radio Australia which was a cheap and effective way of projecting ‘soft power’ across the region. I personally came across this as a backpacker in China where many manual workers in the hard seat carriages practiced their Australian accented English that they’d learned on Radio Australia’s programs.

This was shut down by one of the spiteful, stupid and poorly thought out decisions that were the hallmark of the Howard government.

Replacing this was a new Australia network that replaced the previous awful overseas television service which had been a niche product on Asian cable TV channels – I had it on my Thai cable subscription when I lived in Bangkok. It was rarely watched.

The Australia Network hasn’t been a great success and that is largely due to the funding – the 2011-21 contract was costed at $221 million in the budget papers.

A break out box in the white paper boasts about the Australia Channel and its “mandate to encourage awareness of Australia, promote cross-cultural communication and build regional partnerships.”

Listed is the funding for some other services – Al Jazeera, $359 million in 2009; CCTV, $280 million in 2009 and NHK World/Radio, $226 million in 2008.

With the Australia Network receiving less than a tenth of this funding, it’s no surprise the station looks amateurish and irrelevant. Once again we see the difference between government words and government deeds.

Which brings us to the final two national objectives;

National objective 24. Australia will have deeper and broader people to people links with Asian nations, across the entire community.

National objective 25. Australia will have stronger, deeper and broader cultural links with Asian nations.

Again these are more motherhood statements and barely worth considering. The section itself skates over some of Australia’s most important assets – the cultural diversity and immigrant communities.

That the final chapter spends just a few pages on this aspect probably sums up the entire project – simple, full of motherhood statements and missing the critical strengths and threats to Australia’s, and Asia’s growth.

Overall the paper is a disappointment that tells us little we didn’t already know while stating some big ambitions which successive governments have shown they aren’t capable of delivering.

The message for those building Australia’s 21st Century links with Asia is not to wait for government but to get on and do it.

Australia in the Asian Century – Chapter 8: Building sustainable security in the region

What are the security issues for the Asia in the 21st Century

This post is one of the series of articles on the Australia in the Asian Century report.

The eighth chapter of Australia in the Asian Century looks at the security picture of the region, this is one of the bigger chapters and like some of the others it’s as notable for what it leaves out as for what it says.

National objective 20. Australian policies will contribute to Asia’s development as a region of sustainable security in which habits of cooperation are the norm.

That’s nice, worthy and has been undoubtedly true for most previous Australian governments. Except of course when Australian Prime Ministers join the prevailing colonial power in wars like Iraq, Afghanistan, Malaya, Korea, Vietnam or kicking around the German territories in World War I.

Chapter Eight partly dives into territory already covered in Chapter Three, this time though the analysis does discuss the United States’ role in more detail and makes the observation that US military spending dwarfs that of any other Asian nation – interestingly this is one of the few times Russia gets a mention in the entire report.

Encouragingly, the paper doesn’t confine the concept of ‘security’ just to military matters and takes a broader view of issues such as guaranteeing access to resources, food and water. There is some discussion of climate change and on regional responses to natural disasters such as tsunamis and earthquakes.

One notable omission is that of refugees. Given that most of the asylum seekers arriving by boat are Asian – currently coming from Afghanistan and Sri Lanka – and almost all pass through other Asian countries, it would be expected this issue would get some exploration. Sadly it doesn’t and once again skirting over an important issue detracts from the paper’s substance.

As befits Australia’s most important relationships in Asia, there is a lot of discussion of the three way relationship between China, the United States and Australia with a detailed breakout box in section 8.4.

The discussion on Australia’s relations between China and the US makes an interesting statement;

In managing the intersections of Australia’s ties with the United States and China, we will need a clear sense of our national interests, a strong voice in both relationships and effective diplomacy.

Undoubtedly this statement is true, however successive Australian governments have conflated the interests of the United States with being the same as Australia’s. In recent times Australian leaders have followed the US lead even when it has been clear American policy conflicts with Australia’s Chinese relations.

Moving away from a reflex support of the United States is going to be one of the biggest challenges for Australian governments in the Asian Century and one hopes the process is as gradual and incident free as the white paper hopes.

National objective 21.The region will be more sustainable and human security will be strengthened with the development of resilient markets for basic needs such as energy, food and water.

National objective 21 is an interesting statement in itself – “resilient markets for basic needs such as energy, food and water” smacks of the 1980s privatisation and corporatism that has left Australia with duopoly industries and an excessive financialisation of those markets for basic needs.

It may well turn out to be the case that Asian countries choose not to follow that path, particularly those like the Philippines and Indonesia who have experienced the effects of crony capitalism in recent history.

Chapter 8 of Australia in the Asian Century finishes with a detailed look at the regional efforts aimed at building trust and co-operation on trans-national issues. Much is made of various international groups such as the G20 and the UN.

An interesting case study is that of the Nuclear Non Proliferation Treaty with an examination of Japan’s and Australia’s work in that field. Sadly this is another area that’s let down by the actions of current and previous Australian governments in selling uranium to India.

The nuclear weapons stand off between India, Pakistan and China is another ‘elephant in the room’ issue that doesn’t really get the coverage it should in such a report.

Chapter 8 of Australia in the Asian Century is a very optimistic section of the report however it does hint at the path Australia could follow to being a credible, medium sized economy and influencer in the region. However one has to consider the actions of Australian leaders when asking if the nation is really interested in taking that path.

Australia in the Asian Century – Building the agriculture industry

How can Australia improve agricultural exports to Asia?

Before going into Chapter 8, the Australia in the Asian Century report has a detailed look at the agriculture industry. Which kicks off with National Objective number 19;

National objective 19. Australia’s agriculture and food production system will be globally competitive, with productive and sustainable agriculture and food businesses.

While this objective seems to have already been achieved, the bulk of the chapter does a good job of identifying the opportunity and challenges for the industry.

The examination of trade treaties, biosecurity and food security is a good overview of the industry however it does suffer from a rose coloured view of prospects and government programs.

Issues such as protectionism, genetically modified foods and the running sore of live cattle exports don’t get a mention.

Another aspect of this section is how the aspirations don’t match the actions of governments, for instance the industry capture of regulators – the case of defining free range eggs being a good example – is a real barrier to Australia selling quality produce internationally.

While the section does discuss ‘value adding’, the tenor of the section seems to be focused on bulk exports and really doesn’t identify industries such organics and free range which are an opportunity for the agricultural industry.

Overall though, this section at least does give a reasonably detailed snapshot of an industry and its a shame the paper doesn’t attempt to profile other sectors in the Australian economy.