Expected: a massive bailout of banks - Victor Shih

Victor Shih by Fantake via Flickr

A massive bailout of China's major banks might be one of the options to let them recoup much of the 2.4 trillion Renminbi (255 billion euro) spend during the recent financial rescue operation, says professor Victor Shih to BusinessWeek today.

“The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities.

Chinese officials pledged this week to limit the risks posed by the investment vehicles, which circumvent restrictions on local-government borrowing to channel money into stimulus projects. Yan Qingmin, head of the banking regulator’s Shanghai branch, said March 5 that China plans to nullify guarantees provided by local governments for some loans.

It would not be the first time, China's ministry of finance would jump in to clean up the books of its commercial banks. The five larger banks emerged from the planned economy with many bad loans and a tradition of lending out money without much hope of ever getting it back. That operation has been rather successful, but has suffered a strong setback during the most recent years.
Shih is rather pessimistic when it comes to fast solutions:

He said that if the central government stops lending to the entities now, the cost of a bailout may already be “in the neighborhood” of 3 trillion yuan.

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Victor Shih is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

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China's rich in global top in 15 yrs - Rupert Hoogewerf

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China's billionaires keep on collecting more wealth and the Hurun founder, Rupert Hoogewerf, the China rich list, expects them to reach the global top in 15 years, when the economy keeps on growing, he tells the People's Daily.
The newspaper focuses on Zong Qinghou, the owner of the wildly successful Wahaha group, China's leading soft drinks producer.

The richest man in China is Zong Qinghou, who runs the multi-billion-dollar soft drink firm Wahaha Group. Zong is ranked 103rd on the list with an estimated wealth of around $7 billion. Not only has he nearly tripled his wealth from $1.9 billion in 2008, he has also improved his standing from 376th earlier. 

Plain-suited Zong, who is also a deputy to the National People's Congress (NPC), told China Daily on the sidelines of the ongoing session that he was not surprised at his ranking considering that his company has been extremely profitable in recent times. 

Rupert Hoogewerf, the British founder of Hurun rich report, said Zong's ranking does not come as a surprise. "Wahaha means 'laughing children' in Chinese and is one of the most valuable brands in the country. The self-made billionaire has always been focused on being the leader in the beverage segment ever since he started his firm in 1987," he said.

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Rupert Hoogewerf is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

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A Chinese patriot, heading for European parliament - Zhang Lijia

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Author Zhang Lijia of the bestseller "Socialism Is Great!": A Worker's Memoir of the New China might be building fame fast outside China, but her interview with the Global Times is a breakthrough. While no political activist, she is also not always toeing the official bureaucracy. But at least in the English-language media, times are slightly changing.

"As you know my view is not always in line with the government, though I regard myself as patriotic," she says, even before the interview.

Despite the odd actions of the powers that be, Zhang is no political activist, and her book is no Cultural Revolution related diatribe like many Chinese authors before. Instead she tells the tale of a young woman growing up and working in the Liming factory in Nanjing, one of China's furnace cities, making intercontinental missiles that could reach America.

Her plans for the future are no less remarkable. As Zhang Lijia holds a British passport, she can enter European politics. In the Global Times:

"I've had a great time in China, It's very vibrant and interesting, and I definitely don't have plans to move. One possibility is that I'd like to try and become a Member of the European Parliament. I just think that it's disgraceful that there are no members that are Chinese, they have them from India and everywhere and China has become too powerful to be ignored. They have to understand how to deal with China.

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Zhang Lijia is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch.
Zhang Lijia also contributed to our book A Changing China.
 

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No Yuan appreciations anytime soon - Shaun Rein

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Wishful thinking has led many analysts to call for an appreciation of China's currency, the Renminbi or Yuan. Shaun Rein goes against that trend and says that an appreciation soon would hurt the recovering export industry too much and might cost up to 5 million jobs, he tells Bloomberg.

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Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

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Anti-porn "Whack a mole" strategy - Kaiser Kuo

Kaiser Kuo

China's authorities have gone far in an effort to curtain pornography, even by disallowing individuals to register domain names on the internet. It is not a very efficient strategy, says Beijing-based Internet-watcher Kaiser Kuo to China International Business. 

According to Kaiser Kuo, a Beijing-based digital media consultant who works with companies such as Youku.com, "the main difference in this campaign is the fact that they're going after a choke point they haven't targeted in the past – domain registrars." Kuo suggests that regulators are now being more stringent about only allowing business entities to register .cn domain names. 

After a CCTV investigation in December 2009 revealed a wide array of abuse by people registering .cn domain names, China's Internet administrator CNNIC made business licenses obligatory for all applicants trying to register domain names within China's top level domain. ...

As for the effectiveness of these tactics in the face of a seeming endless supply of inappropriate material on the Internet, Kaiser Kuo uses the current analogy: "Anti-pornography campaigns on the Chinese Internet usually tend to have a ‘Whack-a-Mole' quality to them. You whack it down in one place, but somewhere in the dark recesses of the Internet, the mole pops up."

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Kaiser Kuo is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

Challenge: reduce lending, create jobs - Arthur Kroeber

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China faces this year unprecedented challenges, tells Arthur Kroeber the Wall Street Journal on the day the annual National People Congress (NPC) starts its meeting.

"Last year, Beijing had a simple strategy and a simple message: lend as much money as necessary to keep growth at 8%. This year, the job is trickier: it has to reduce lending, but not so much that growth stalls," said Arthur Kroeber, managing director of research firm Dragonomics in Beijing. "It will be hard to do that without damaging business and consumer confidence."

More in the WSJ.

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Arthur Kroeber is a speaker at the China Speakers Bureau. When you need him at your conference, do let us know. 

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The mismatch at the labor market - Zhang Juwei

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Much of the talk about the growing shortage of labor in China has been much too simple, tells professor Zhang Juwei of the Chinese Academy of Social Science to the Chinese media. Despite the growing labor shortage, some cannot find a job, especially recent graduates

"There is a pretty clear contradiction in the labor market," said Zhang Juwei, a professor and director of the labor and social security research center at the CASS. "Many businesses can't find workers but, at the same time, many people can't find jobs either."...

"If people lose their jobs, of course it impacts social stability," said CASS professor Zhang. "I don't know of any country where that's not true. It involves people's livelihoods and jobs. This is something the government should think about before anything else."

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Debt crisis possible in 2012 - Victor Shih

Victor Shih by Fantake via Flickr

China's debts, caused by its massive rescue plan of the past few years, might trigger off a crisis as debts rise to almost 100 percent of its GDP in a worst case scenario, says professor Victor Shih in Business Week.

“The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer...

By Shih’s count, China’s debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent.

More in Business Week.

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Victor Shih is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

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Billionaires "China's new nobility" - Rupert Hoogewerf

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Rupert Hoogewerf, compiler of the Hurun Rich List, describes China's growing number of billionaires as its "new  nobility, in the Global Times.

The Global Times:

In his eyes, a billionaire in Beijing should usually own three houses, a villa in suburb, a condominium in the urban field and a courtyard house, as well as an art collection of some kind.

A survey from the Hurun report showed that a billionaire in Beijing consumes 6.88 million yuan worth of goods a year.

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Rupert Hoogewerf is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.

China disasters with a chocolate coating

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Time to sit down, read and review book is not high on my dynamic agenda, but when I was recently stuck half a day by a strike of French air control officials, there was a good opportunity to take on the book by Lawrence L. Allen: Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers.
French air control officials should strike more often: the book is a great analysis about the chocolate industry in China by someone who has belonged to the inner circle of at least two of what is called the big five in chocolate: Cadbury, Hershey, Mars, Nestle and Ferrero Rocher.
In theory those 'foreign invaders' were in a pretty good position when they entered China after the country started to open up. Unlike other industries there were no serious domestic contesters and - even better - because of huge barriers in setting up manufacturing installations and the need for chilled logistic have made it very hard for serious domestic competitors. Even now the domestic competition is fairly limited.
But, nevertheless, the well-written book has become a documented road to disaster for most of the chocolate giants, at least for their chocolate business. Allen describes the companies one after another, and even the ones who have initially success are able to screw it up.
The final chapter was about Mars and it was almost a relieve here things went well. The others suffered from poor quality products, constant changing strategies and failing management in general. In that way it is a great book: most companies focus on their achievements and forget about their often dreadful mistakes, although learning from mistakes from others is not only more fun, but also more instructive.
In that way, the importance of the book goes beyond the chocolate industry and even the consumer sector. There will be very business people from larger companies in China who will not recognize much of their own experiences too.
One of the more general conclusions, comparing the successful Mars company with Dove and the failing Hershey's, Cadbury and Nestle is that being a privately owned company helps for the long haul needed in China. They lost money for twelve years, but refused to change their strategy. And after twelve years they started to make money. Public companies are focused on their quarterly results to satisfy the needs of their share holders. In the long run that migh be a receipt for disaster.
For the chocolate industry in China, there is still hope. As Allen puts it, of the 10k run only the first 1k has been delivered. Most still has to come as the country slowly opens up for the delights of chocolate.