Siah Hwee Ang on the latest happenings surrounding China, including the inevitable slowdown, a call for more investments and imports, keeping multinationals on their toes, the new e-commerce law and the new tech ambitions

Siah Hwee Ang on the latest happenings surrounding China, including the inevitable slowdown, a call for more investments and imports, keeping multinationals on their toes, the new e-commerce law and the new tech ambitions

This guest Top 5, replacing our Top 10s, comes from Professor Siah Hwee Ang, the BNZ chair in business in Asia who also chairs the enabling our Asia-Pacific trading nation distinctiveness theme at Victoria University. 

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

We are always keen to find new Top 5 contributors so if you're interested in contributing, contact gareth.vaughan@interest.co.nz.

1. China will slow down

What goes up has to come down eventually.

When China opened up to the world back in 1978, its economy was growing at 11.7%, compared to a global average of 4.0%.

In 2017, China’s growth slowed to 6.9%, while global economic growth stood at 3.0%.

The average world economic growth in the period from 1979 through to 2017 was 2.9%. In the same period, China’s average growth was a staggering 9.5%.

But, as the second largest economy by GDP, we should expect China’s figures to trend towards the global average as it strengthens its integral position in the world’s economy.

In 2018 alone, China’s GDP grew another 6.6% - representing a dollar value of US$1.18 trillion, the equivalent of Mexico’s GDP in 2017. Mexico is the world’s 15th largest economy. (See an earlier piece on the effects of such expansion on managing relationships with China.)

So, despite China’s attempts to allay fears surrounding a slowdown, the slowdown continues to be inevitable.

More recently, however, China expressed the view that it needs stable growth. As China’s Vice-President Wang Qishan said Speed [of growth] does matter. But what matters more is the quality and efficiency of economic development.

It remains true that a stable, growing China is healthy for the global economy in the mid to long term and that there is little cause for concern at this stage.

2. China wants more investment and imports

As though in response to the US’ claims around its trade imbalance, China is announcing to the world that it wants to have more investment and imports.

On the investment front, China is fast-tracking an investment law that will level the playing field for foreign enterprises in China.

One essential element is the elimination of the requirement for foreign enterprises to transfer proprietary technology to Chinese joint venture partners.

Such legislation is welcomed by foreign enterprises.

But the process itself is more of a worry as there was little consultation around how to implement the legislation fairly.

On the import front, over 3,600 companies from 172 countries and regions took part in China’s first International Import Expo (CIIE) in November 2018.

Around 200 of these companies were Fortune 500 companies.

Trillions of dollars in goods have been committed to be purchased by China over the next 15 years.

Foreign direct investment into China and China’s imports have been on the rise. But the numbers are by no means extraordinary compared to China’s economic growth and exports figures.

Until these two sets of figures become more aligned, we will constantly hear complaints that China’s approach to growth comes at the world’s expense.

3. China is a lucrative market, and that keeps multinationals on their toes

Few multinationals can boast about their growth success in China better than Starbucks.

The US coffee chain accounted for 51% of specialist coffee store chains in China at the end of 2017.

The high-end brand is expected to grow to more than 6,000 stores in the next few years.

And despite its allure – and those of us who visit China will notice the long queues at Starbucks stores, a single local player by the name of Luckin has managed to create some fierce competition for the well-established foreign brand.

Starbucks set up its first store in China back in 1999. It has now more than 3,600 stores in more than 150 cities.

Luckin on the other hand, has more than 1,400 stores in 21 cities. But it was only founded in 2017!

In 2019, Luckin is aiming to dethrone Starbucks’ leading position in the market by opening another 2,500 stores.

Such claims have caught the attention of Starbucks itself, with the company claiming that it won’t be possible for Luckin to catch up so quickly.

Despite being a start-up, Luckin does have strong backing in the form of Singapore’s GIC and China International.

China’s coffee market growth rate stands at 15%, significantly higher than the global average of 2%.

The market size was only 70 billion yuan back in 2015. But it is estimated to more than quadruple to 300 billion yuan by 2020 and then 1 trillion yuan by 2025.

So, it is highly lucrative and we won’t see Starbucks shying away from competition.

But Chinese firms are rising to the forefront of this market, as they do have a local advantage and there is a trend towards supporting local brands. Just ask Apple for a second opinion.

4. China’s e-commerce law

China’s first e-commerce law took effect on 1 January 2019.

The new law seeks to protect the rights and interests of all parties using e-commerce.

The law also categorises operators into ecommerce platforms, merchants on e-commerce platforms, and those doing business on their own websites or via other web services.

The law bans e-commerce operators with dominant market positions from excluding or restricting competition.

Consumer protection is a must – a survey of 12,000 online Chinese shoppers suggested that 70% had been sold knock-off products at some point.

With this newly added transparency, it is likely that prices of products bought over cross-border e-commerce platforms will go up.

While the law does not explicitly ban daigou (private shopping agents), the business license requirements and tax obligations in the new law make daigou less attractive as a channel.

Meanwhile the World Trade Organization is seeking to establish worldwide e-commerce rules.

Having just set its own rules, only time will tell if China will come party with any international e-commerce rules.

Possibility the largest market for consumption through e-commerce channels, China has every right to be cautious about opening this channel too soon.

5. China’s tech ambitions

China’s has clearly articulated its tech ambitions with its Made in China 2025 strategy.

I labelled it Doing a Samsung – the transformation from a low cost low price player to a high value add one.

These ambitions are guided by working backwards – the goal of the country for 2049 is to become one of the superpowers in technology.

And part of its grand strategy is to have its One Belt One Road Initiative (BRI) supporting this process.

Further, the Chinese market is fast becoming a marketplace where technologies are created and patented.

In 2017, China’s domestic patent applications (1.38 million) were already double those of the US. Its applications for trademarks (5.7 million) and industrial designs (1.46 million) also led the way.

Gone are the days when Made in China stood for low cost low price (aka cheap) products. The new Made in China 2025 represents China’s ambition to develop further, and establish a stronger position for its role in world matters.

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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China does not respect copy rights, patents and other claims to intangible assets (e.g. technology, brand etc). This fact is well aligned with that China also does not respect autonomy of ideas, creativity and the right to chose one's own destiny.
The above characteristics of China would mean that it will not be an equal playing field to foreigners as long as the power resides with those who guard these disvalues.

The current situation between China and the US, to put in a very simple word, is that

China will develop and become a superpower in all aspects including economic, culture, military, international finance, foreign polices and etc and the US will do almost anything (legal or illegal, moral or immoral, telling the truth or spreading the false) to stop it from happening.

The result will very likely be the US will fail to do so and will accept and learn how to cooperate and co-exist.

So, the question to NZ is that what are we going to do?

We may learn a thing or two about how China thinks in the recent blockbuster movie The Wandering Earth

I'm planning on watching The Wandering Earth. Long ago I remarked that China didn't seem have a popular science fiction following like Japan and the West. This is essential for moving forward technologically. it's good to see this developing.

The West is incapable of defending itself, turning into a circus freak show, and has abandoned its dream of space travel. Maybe China can pick up the baton and reach for the stars.

China will develop and become a superpower in all aspects including economic, culture, military, international finance, foreign polices

China has a rapidly aging population, a shrinking workforce, horrendous debt problems, and is surrounded by potential military conflicts (Indian and Bhutanese borders, south china sea, Taiwan strait, Senkakus). It's so far away from being a superpower that western navys from halfway across the world routinely patrol near shore shallow waters China claims as its own.

The future for China is a middle income trap, withdrawing further into itself, and engaging in petty nationalist side shows so the communist party can distract the people from worsening economic conditions. We're already seeing that now - Doklam dispute, Huawei angst, beating the Taiwan drum again, nationalistic sanctions against South Korea. It's a dog and circus show because things are no longer going so well at home.

This could all be avoided of course if you accepted the three principles of the people and reformed into a free market democracy. But you won't, and will have to learn the hard way.

"This could all be avoided of course if you accepted the three principles of the people and reformed into a free market democracy."

Hhahahahah ,

I turned my head and look around all the "democracies" and "free markets" in the world. I really cannot stop laughing when I see this part of your comments.

I turned my head and look around all the "democracies" and "free markets" in the world.

You mean all those countries with higher standards of living and more wealth?

Chinese people have done exceptionally well outside of socialist dictatorships. It's not a coincidence.

PS: be honest, are you posting this from a labour camp? I know they get you to do that sometimes.

Actually, China got nobbled by the West, starting with the opium wars. Of recent times, we have taken advantage of her cheap (slave, really) labour and her non-existent environmental regulation - essentially she has been our duck-shove go-to for waste and pollution.

That said, there isn't enough planet left for China to raise it's citizenry to current First-World consumption levels - any more than there is enough planet left to maintain Western consumption levels unchallenged. There will likely be war - using a good deal of what is left, and disadvantaging everyone. The chances are that nobody will 'win', and that remnant local surviving populations are all that remains.

The problem is one of resource-access, this is the only time we can have that fight globally and the screws are coming on.

I am not sure we can even have that fight globally and if we do the "winner(s)" chance of collecting and getting a return on investment is close to 0 IMHO as you say.

As a micro example, watching what the USA's right wing nutjobs want to do with Venezuela is informative. I mean clearly the intent is to secure a large long term [heavy] oil resource to keep the USA functioning for some considerable time into the future. The problem on collecting this is of course you have to secure the resource which is spread over a large area from the "native" ppl. To do this you need to oppress and even enslave the entire population to achieve that, and I cant see how that can work long term its simply to energy costly and vulnerable (leaving aside morals etc).

My biggest worry isnt WW3, its swamping the lifeboats of which NZ is one of the few. Which brings us back to a version of your Titanic analogy. The very rich wont sit on the Stern listening to the band (they are not that stupid) , they'll be / are busy taking over the lifeboat(s). The Q left is how the owners of the lifeboat(s) stops that happening.

Actually, China got nobbled by the West, starting with the opium wars.

Boo hoo. The opium wars were nothing compared to how they treated their neighbours during the qing dynasty. Or how they treated each other during the Taiping rebellion.

less than hahaha.....

Some good points. China has used us, and we have used her.
I’m sure most western economies would have been much weaker were it not for China’s boom of the last 20 years.
But that doesn’t mean we should drop all our principles in the process.

First Opium War (1839–1842) and the Second Opium War (1856–1860) - very embarassing to a China that thought everyone else were barbarians and still embarassing to the Brits because not even the least moral defence. Not many dead compared to Taiping Rebellion a massive rebellion or total civil war in China that was waged from 1850 to 1864 and killed between 20 to 100 million with many more displaced.
Both being influential with Communist Govt of China - fear/hate of foreigners leading to looking the other way when deadly drugs are exported to the west and hyper-fear of rebellion meaning no tolerance of any criticism of the President for life or even acceptance that errors were made in the past by Mao.

Ehem, holiday camps: https://www.bbc.com/news/world-asia-47157111

A racially-based heavily-nationalist state is never so great for those who are not of the right background.

Free Tibet.

China should have been a super power 100s of years ago on a population basis alone. the single biggest impediment to that happening is the fact that is is a one party state, whose one party spends a fair portion of it's resources in keeping it's own population constrained. While it may enjoy short term success, and cause a fair amount of chaos that will reverberate around the world, China will only ever be truly great (and this is true for every country) when the restrictions of information flow and thought, including political thought, are removed, thus unleashing creativity. The human race's greatness is only apparent and possible when we come together as a species. Political division only ever breeds intolerance, which limits what we can achieve. China's autocracy and aspirations to rule the world will be it's downfall.

What a glib commentary.

It's true that China is powering its way forward into a declining democratically controlled world, which doesn't read or sound that great in places, does it? It's also true that the media have their own agendas, so do not believe everything you read or hear, even here.
China has a window of opportunity to advance its agenda & that time has already begun, as you know. And part of that agenda is to make you & me believe that it's people will fight to the death for ... I was going to say King & Country but it's more like Dragon & dungeons - but I'll tell you why it won't happen? Because today & tomorrow there is so much information out there that even the great Chinese Communist Party cannot keep the reality of a better world from their citizens forever. They can try, and they are, really hard, but even today most of those people in China know that the way of the west is best, because every time they look around another family of relatives have left the country. And it's that ability to be able to make our own minds up about how we live our lives that everyone, & I mean everyone, wants. Why do you think there is such a huge refugee problem today? Everyone knows, or has heard about how great the west is, ''Man they give you money for doing nothing in the west. That's the place to be.''
What we have everyone else wants. Don't ever forget that. What we have is pure gold & it's called freedom to vote & to live our lives the way we want to or chose to, legally speaking of course. All the shit you hear from America via its various media these days is democracy in action. Sure, it's not perfect but if you were to promote the American Democratic Party's viewpoint in most countries these days they'd take you out the back & shoot you. Good will win. Believe me.