Ya Gotta Love Chinese Fixed Asset Investment

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This song, written back in 2010 at the start of China’s 12th Five-Year Plan (FYP), is still relevant today, at the start of the 13th FYP. It describes China’s intention to reform, restructure and rebalance its economy away from an investment-led, export-led growth model to a more consumption oriented economy. It also highlights the challenges of that process and the frustrations experienced by many along the way. (In China you will need a VPN as this video is on Youtube, link here.)

This post originally appeared on LinkedIn.

 

 

 

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What is behind Cisco’s apparent dramatic recovery in China?

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Cisco Executive Chairman John Chambers has offered some very interesting comments to a Reuters reporter in Dubai. He said that Cisco’s business was up by 40% in China in the third quarter. This would reflect a very dramatic turnaround as Cisco’s business in China had been tumbling after the company became one of the main targets of China’s quest for “secure and controllable” technology (replacement with Chinese products) in the wake of Snowden cyberspying revelations. Reuters reported earlier this year that Cisco’s products were being pulled from government procurement lists. But the situation seems to have changed.

Chambers told Reuters: “We spent three years winning the trust of the Chinese government and if you watch most American companies, their businesses in China is down dramatically, so was ours for several years. Do you know how much we grew in China last quarter? Forty percent.”

In June, various news reports said that senior Cisco executives in China had been removed. Then the company announced plans to invest $10 billion in Chinese high tech industries. This was part of a MOU signed with the National Development and Reform Commission in which Cisco agreed to cooperate with Chinese firms and government entities to enhance Chinese innovation, R&D, tech investments and job creation.

During President Xi Jinping’s recent US visit, Chambers was present for the Seattle tech confab and photo opportunities with President Xi. The company had earlier announced a $100 million joint venture with its leading local competitor, the Inspur Group. Inspur is said to hold 51% of the equity. Sun Pishu, the CEO of Inspur, was a member of President Xi’s delegation. The joint venture involves hardware and software development and Inspur reselling Cisco’s equipment in China. In July, Inspur had announced it would invest RMB 10 billion to build seven core cloud computing centers and 50 regional cloud centers in China.

So, is the spike in Cisco’s sales in China a result of selling equipment through — and to — a local competitor which is also investing huge money in cloud computing centers? Foreign tech leaders are finding themselves walking down winding paths to do business in Chinese these days.

This post originally appeared on LinkedIn.

One Belt, One Road, One Puzzle for Foreign Businesses in China

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Graham Norris, the communications director at AmCham China, takes the time to walk us through the new “One Belt, One Road” initiative. He looks at the past history as well as the current prospects. Bottom line: will take some time to find out if there is any there there.

So far, looks like there is potential for Chinese state-owned-enterprise to scoop up Chinese government money to clear their inventory and keep their engines humming. As for foreign business in China? Be careful about getting yourself too caught up in slogans.

As Graham writes:

It seems therefore that the biggest winners from this grandiose project will be state-owned enterprises, especially those with provincial backgrounds. According to the Economist, two-thirds of provinces have made One Belt, One Road a development priority this year, including Qinghai in the west and Guangdong on the coast. Cement maker Anhui Conch is building cement plants in several nearby countries, and steel exports from Shijiazhuang, the biggest steel-producing area in China, rose by half in the first seven months of the year, according to Reuters.

So is there anything for foreign companies to be excited about?

Anything that can arrest the slowdown in the economy, which in the third quarter expanded at its slowest rate since the global financial crisis, would be beneficial for all companies operating in China. But when it comes to specific opportunities, they could be harder to come by. 

Here is the link to the full article: AmCham China.

This post originally appeared on LinkedIn.

The New Odd Couple? Hollywood and China: The Cinematic Interchange of Soft Power

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It is difficult these days to avoid headlines either extolling or decrying the growing ties between China and Hollywood.

The impetus for collaboration is clear. About a dozen new cinemas are built per day in China, according to Forbes. And, don’t forget, Chinese tycoon Wang Jianlin’s Wanda Group for three years has owned, and revitalized, AMC Entertainment Holdings, the second-largest theater chain in the United States.

China’s box office is expected to reach some $5 billion this year, about half the size of the US market. And nearly 50% of these proceeds come from foreign movies, despite a government quota allowing only 34 foreign films per year and various other obstructions.

An impressive lineup from Hollywood and the Chinese film industry — and film financiers from both shores — showed up earlier this month in Los Angeles for the Asia Society’s 6th Annual US-China Film Summit. The organizers marked the occasion by announcing a new partnership between the Asia Society film summit and the Shanghai International Film Festival.

“Our positioning is ‘Based in Asia, Boost Chinese Films and Foster New Talent.’ We are helping the Chinese film industry reach the international level,” Ding Li, the Shanghai festival’s deputy general manager said when announcing the partnerhship. “Through cooperation with the U.S.-China Film Summit, we hope we can together build a quick and complete way for communication between two countries’ film industries, capital, outstanding projects and talent.”

Just as China is attempting to get its voice into the global news mix by building extensive and expensive international news operations through state-owned China Central Television (CCTV) and the Xinhua News Agency, the Chinese film bureaucracy has high hopes of Chinese movies serving as a key driver of country’s “soft power” overseas image-making.

But as veteran China entertainment journalist Jonathan Landreth points out in his China Film Insider blog, this sliver of the China Dream is hardly a glimmer. While on his state visit to the US in late September, Chinese President Xi Jinping referred to watching Sleepless in Seattle and House of Cards in his remarks to the business community. During the visit, director Xu Zheng’s comedy Lost in Hong Kong was released in the US.

Lost in Hong Kong, distributed in the United States by Plano, Texas-based Well Go USA Entertainment, thus far has pulled in about $1.3 million in U.S. ticket sales at 34 screens nationwide and has cracked the top ten of the most commercially successful Chinese-language films to play in American cinemas. Yet its success is dwarfed by, for example, the tenth most-successful Hollywood film in China just this year: Mission Impossible: Rogue Nation, which has raked in $137 million for its co-producers, Hollywood studio Paramount Pictures, Chinese e- commerce giant Alibaba, and the China Movie Channel, a unit of state-run broadcaster China Central Television. For all the hype about boom times in China’s movie marketplace—the box office in the first half of this year soared nearly 50 percent over the first six months of 2014—China can’t seem to land a single hit in what is still the largest theatergoing movie market in the world: the U.S. of A.

Part of the problem, of course, is that Chinese producers and directors must get their scripts approved by China’s censors in order for the movies to be shot and shown in China. These squeezed and scrubbed storylines appear to carry little appeal for foreign audiences beyond students looking to supplement their Chinese language learning. USC professor Stan Rosen, the expert’s expert on Chinese film, offered his views in “Hollywood in China: Selling Out or Cashing In?” in The Diplomat earlier this year:

Chinese success is inherently limited because in China, unlike Hollywood, film is expected to perform several contradictory functions simultaneously. For example, in discussing the film industry, Politburo member and director of the Propaganda (Publicity) Department of the Central Committee of the CCP Liu Qibao has praised the success of Chinese films in the domestic market and noted that China should also become an international movie power, but at the same time he has called for the country’s films to take “socialist core values as a guide” and “contain more elements of the Chinese Dream.” Liu’s comments may appeal to Xi Jinping and his colleagues on the Politburo, but they reflect a lack of knowledge of audience preferences. This introduction of politically correct requirements virtually guarantees a result counterproductive to state intentions. By contrast, Hollywood makes “high concept” films that are meant to have universal appeal, across all cultures, with profit virtually its only motive.

The most recent Hollywood hit in China, Mission Impossible, Rogue Nation, was co-produced by Paramount, Alibaba and a unit of CCTV. This represents just a trickle of the Chinese money that is flooding into the banks in Burbank. Through these investments, Chinese “soft power” seems to be gaining some traction through Chinese sensibilities slipping into the scripts of sino-financed films. According to Rosen, Hollywood’s “success has fueled widespread criticism that the quest for market share has compelled Hollywood to “sell out,” to self-censor in making films that, at best, avoid sensitive social and political issues, and at worst offer an overly positive picture of China under Communist rule.”

Rosen, however, also downplays China’s effect on Hollywood so far. He says that Chinese villains are certainly vanishing from Hollywood movies and various scenes are eliminated, added or enhanced to show China in a positive light. But, Rosen reckons, these sorts of alterations are part of Hollywood’s long success in projecting its own soft power.

For anyone familiar with the history and goals of Hollywood, it should not be surprising that films intended for overseas markets are tailored to suit the demands of those markets. Hollywood has always been concerned with the bottom line, so the reaction to the astonishing rise of the China market represents business as usual. It is this flexibility and ability to adjust that has been a major contributor to its long-term success. In this regard, it is instructive to compare Hollywood’s strategy to China’s efforts to promote its soft power by succeeding on the international film market.

This post originally appeared on LinkedIn.

MIT Picks Hong Kong for Innovation Node Focused on China. Why?

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MIT has collaborated with a number of universities in Hong Kong over the years, so this is one strong reason that Hong Kong has been chosen as the location of an MIT “Innovation Node.” But the focus will be on the manufacturing prowess of China, especially neighboring Guangdong and Shenzhen. This initiative appears to go hand-in-glove with the Chinese government’s focus on entrepreneurship and the China 2025 plan aimed at upgrading the country’s manufacturing base.

So why not locate in Southern China instead of across the border in Hong Kong. Could this be another case where the challenges of intellectual property protection in China once again force intellectual capital to stay outside the border? This is most likely an unspoken part of the motivation. But alumni and funding also make or break these sort of programs.

MIT said that Hong Kong was chosen because it provides “ready access” to Shenzhen and Guangdong:

“MIT today announced the launch of an “Innovation Node” in Hong Kong, a collaborative space that aims to connect the MIT community with unique resources — including advanced manufacturing capabilities — and other opportunities in Hong Kong and the neighboring Pearl River Delta (PRD). Set to launch next summer, the MIT Hong Kong Innovation Node will convene MIT students, faculty, and researchers to work on various entrepreneurial and research projects alongside Hong Kong-based students and faculty, MIT alumni, entrepreneurs, and businesses. By combining resources and talent, the Innovation Node aims to help students learn how to move ideas more rapidly from lab to market…. 

“In addition to the presence of strong research universities, a major reason why MIT chose to establish an Innovation Node in Hong Kong is because it provides ready access to a unique manufacturing infrastructure that encourages rapid prototyping and scale-up, Sodini says. About an hour’s commute from Hong Kong’s Central District lies Shenzhen, a city home to many scientists and engineers — and fast, low-volume manufacturing. ‘Manufacturers in Shenzhen have mastered the ability to take a prototype device to unit quantities of hundreds overnight,’ Sodini says. ‘This unparalleled speed of small quantity manufacturing is unique to Shenzhen.'”

MIT President Raphael Reif cited quality universities, active MIT alumni and funding as reasons for the Hong Kong location:

“Universities in Hong Kong are very strong and the city has significant business expertise,” said Rafael Reif, President of MIT, in an interview with The Wall Street Journal. “In addition to that, you also have manufacturing infrastructure in Shenzhen that can handle small volume manufacturing.”

MIT currently has three centers outside the U.S., in Chile, Japan, and Singapore. The Hong Kong program will be the first one in the world that’s focused on innovation. It will have 5,000 square feet of space that will include a facility equipped with advanced tools and materials for invention and prototyping. Initial funding was provided by Hong Kong-based MIT alumni and other donors.”

This post originally appeared on LinkedIn.

Global Tech Titans Are Walking A Tightrope in China

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Global technology executives are walking a tightrope in China as they balance increasingly aggressive government demands for Chinese partnerships and technology transfers against protecting their own business interests and US security concerns.

China has long sought technology and knowhow in return for market access. But multinationals have been necessarily wary due to rampant IPR theft. As the recent gathering of Chinese and American technology CEOs in Seattle organized by China for President Xi Jinping’s US visit demonstrated, China now believes it has the market size and the muscle to tell foreign tech MNCs to collaborate and cooperate with Chinese companies if they want a future in China.

In such sectors as telecom equipment, high speed rail, and nuclear and wind power, we are already seeing signs of state-sponsored competitors combining economies of scale, tweaked technology and an array of government subsidies and support to undercut MNCs outside of China.

This is forcing CEOs of tech MNCs to inventory their product portfolios to figure out what can be shared or sold to China without sabotaging their company’s future global success. Those on the high-wire today are the producers of backbone equipment and components: semiconductors, servers, routers, switches and the software that ties it all together. (Next on the agenda of Chinese state planners are medical devices and high end industrials such as factory robotics and 3D printing.)

In a January essay in China Brief, Clark Edward Barrett said that Edward Snowden’s cyber hacking revelations had emboldened China to be more forceful with foreign companies.

“China was quick to capitalize on U.S. discomfort from Snowden’s revelations. On June 25, 2013, People’s Daily claimed that the NSA had, ‘for the last 15 years conducted organized attacks, invasions, robbery and supervisory activities against Chinese and Hong Kong Internet and communications systems…and yet has repeatedly denounced China internationally for hacking without evidence, slandering the Chinese government and military in order to tarnish China’s international image’…. A key element of China’s interpretation of the Snowden affair is the claim that the NSA’s activities were aided by the massive technological superiority of the United States in IT hardware, computer operating systems, key intellectual property and the support of U.S. Industry.”

The tradeoffs underway by MNCs are shaped by their position in the China market and the barriers and benefits that China now presents.

  • Cisco’s formidable China market share has been shrinking fast as the government pushes “secure and controllable” local products. This helped fuel plans for Cisco investing $10 billion in Chinese tech and signing an MOU with the National Development and Reform Commission to enhance Chinese innovation, R&D, tech investments and job creation. This followed a $100 million JV with leading competitor, the Inspur Group, which includes hardware and software development and Inspur reselling Cisco’s router and switching products. In July, Inspur announced it would invest RMB 10 billion to build seven core cloud computing centers and 50 regional cloud centers in China.
  • In May last year, Inspur announced an “I2I Plan,” aimed at replacing IBMwith Inspur in smaller server systems. This came as the government began examining whether reliance on IBM servers in the banking system constituted a security threat. In August, IBM formed a partnership with Inspur in which the company’s WebSphere software and Power8 chips would be deployed in Inspur’s systems.
  • Facing a government ban on Windows 8 and increasingly popular and successful local ripoffs of Windows XP, Microsoft has expanded beyond its anti-piracy focus to partnerships and product deals. These include: customized cloud computing for SOE clients with Tsinghua Unigroup(which in July bid $23 billion for memory chip maker Micron Technology Inc.), and selling a localized version of Windows 10 in partnership with China Electronic Technology that replaces Bing search with Baidu.
  • As HP was sorting out splitting itself into two separate companies, and figuring out how to survive in China today, the company in May this year sold a 51% stake in its Chinese server and storage businesses for $2.3 billion toTsinghua Unisplendor (a subsidiary of the Tsinghua Holdings).

The tightrope could get more treacherous for American MNCs as journalists and politicians begin to examine what these partnerships and tech transfers could mean for US national security. The New York Times on October 30th publishedU.S. Tech Giants May Blur National Security Boundaries in China Deals, which looks at a number of companies and deals but focuses on IBM and various Chinese tech companies that have military ties.

Authors PAUL MOZUR and JANE PERLEZ wrote: “While the cross-border partnerships, under which American tech companies share, license or jointly develop advanced technologies with Chinese counterparts, are a growth area for business, security experts are increasingly questioning whether the deals harm United States national security. While the capabilities shared in the partnerships are commercial in nature, such technologies have also become more critical to defense. That is spurring concerns that widespread cooperation with Chinese companies could quickly increase China’s fundamental technological capabilities in a way that could easily help military research and operations.”

IBM responded with this rebuttal: “This misleading study wholly mischaracterizes IBM’s initiatives in China. The OpenPOWER initiative is global and not unique to any one country. All technology provided through the OpenPOWER Foundation is commercially available, general purpose, and does not require a U.S. export license. In addition, all IBM sales and technology licensing agreements comply with U.S. export regulations, and require that partners in any country do so as well.”

No matter how this current conversation sorts out, American tech MNCs should prepare themselves for increased US government scrutiny as they face intensified Chinese government pressure. Those on the China tech tightrope have a vested interest in not letting this turn into a political circus. The US government also has the responsibility to provide air cover for American companies that have no choice but to pursue success in China, as not doing so could threaten their competitive standing worldwide.

This post originally appeared on LinkedIn.

Chinese propaganda and pageantry goes global with “Mao Meets Madison Avenue”

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When Chinese President Xi Jinping went to the US earlier this month, the most notable thing about the visit was the sophisticated staging and messaging. The Washington DC portion constituted a quick drive by, with Xi stopping only for a quick lunch and a couple of Obama dinners and no public events of any note. The focus of the visit was a bearhug from American business in Seattle and some geopolitical pageantry at the UN in New York.

The overarching goal for a Chinese leader is to look all-powerful back home. In this regard, Xi’s visit was a smashing success. Even the inevitable critical reporting from the American press was largely snuffed out by the overshadowing wall-to-wall coverage of visiting Pope Francis and Speaker John Boehner’s decision to seek a saner life and dominate a news cycle.

As the Obama Administration fumed about cyber hacking and formidable market access roadblocks for US tech companies in China, the Chinese president’s office summoned America’s top tech executives to the safety of Seattle on the West Coast, where they were given the opportunity for photo opps and tidbits of discourse with Xi and his entourage.  These tech titans appeared to be grateful for the opportunity and bowled over by Xi’s references to all the books on American politics and culture he claims to have consumed.

Xi’s political and policy comments were restrained and identical, flowing seamlessly from his “interview” with the “Wall Street Journal” that never put him in front of reporters, to his Seattle speech to well over 500 American business executives. Clearly the Chinese Communist Party has figured out overseas staging and messaging. And this was only a warmup for the pomp and pageantry of Xi’s visit to a pandering Britain.

This sophisticated marketing is aimed at the political and business audiences. For the washed and unwashed overseas masses, China now has campy and catchy English language cartoon videos. The most recent video extolling the 13th 5-Year Plan as a thoughtful funfest will leave you humming a tune. The Party has certainly learned that a Pepsodent jingle can brighten your smile.

Huang Zheping pulls this all together on Quartz.

http://qz.com/533850/chinas-craziest-english-language-propaganda-videos-are-made-by-one-mysterious-studio/

“Hey have you guys heard what’s going on in China?” the narrator begins, in English, with an American accent, in this strangely propagandistic music video. “The shisanwu!”
The three-minute animated music video was posted across official Chinese media today (Oct. 27), including the Twitter account of Xinhua, the state-run news agency, and on the website of a Communist Party news site. It is just the latest in a series of videos produced by the mysterious Fuxing Road Studio, and featuring native English speakers spouting a strong pro-China message.

The new video has American-accented performers—represented by a cast of animated characters—gleefully singing and chitchatting about the most boring of topics: China’s 13th five-year plan, or shisanwu, a jargon-heavy document laying out the country’s future economic strategy.

This post originally appeared on LinkedIn.

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