The rapid deterioration in relations between China and the US over the past 12 months has left many scratching their heads and wondering how we got here. Stephen S. Roach is not one of those people. A former Chief Economist of Morgan Stanley and currently Senior Fellow at Yale University’s Jackson Institute for Global Affairs, Roach has been watching the development of Chinese-US relations closely for more than three decades. For him, a tariff war between the world’s two largest economies was as predictable as it is harmful.
The Sino-US trade tussle has had the greatest impact on multinational corporations in China—precisely the group that the US started out trying to support. Many have begun considering radical courses of action to stay in business.
After years of enjoying the fruits of a booming economy and sharply rising disposable income, life for many of China’s higher earners is getting harder. Amid mounting debt levels and economic headwinds, urban middle-class consumers have responded by scaling back their discretionary spending and reducing luxury purchases—an emerging phenomenon known as the “consumption downgrade.” The newfound frugality of middle-class spenders may be good for their wallets, but it is an unwelcome development for Beijing.
For many in Beijing, the trade war confirms long-held suspicions that the United States is determined to thwart China’s rise as the world’s next superpower. As a result, US demands that China abandon Made in China 2025 have also tended to be viewed by Beijing as being motivated not by concerns over fair competition, but by a desire to make sure America keeps its lead in the global innovation race. Public statements from senior figures in the Trump administration have fueled these concerns—the trade war not as an isolated incident, but part of a longer history of US attempts to undermine rival powers.
Beijing faces some big challenges in 2019. Over the past few months, a catchphrase from the hit HBO drama Game of Thrones seems to have been on everyone’s lips in China: “winter is coming” to the Chinese market. The gloomy sentiment has solid reasons. More businesses are struggling to access credit and a sell-off in the stock markets has exacerbated many firms’ difficulties. Meanwhile, the trade war with the US is making life tough for exporters. How worried should we really be? In this issue, we dig deeper into the issues driving recent headlines, and in many cases arrive at some unexpected conclusions.
“Human beings cannot see with their eyes in absolute darkness, but they can see with their mind,” says Cai Shiyin, an entrepreneur who started the social enterprise Dialogue in the Dark in China.
Hans Tung knows how to spot a unicorn. During his career, he has invested in 11 startups that have gone on to attain billion-dollar valuations, including Airbnb, Bytedance, Slack, Wish and Xiaomi. Tung is also one of the few venture capitalists that feels equally at home on both sides of the Pacific. A native of Taiwan, he moved to California aged 13 and began his career in Silicon Valley, before becoming one of the first VCs at a US firm to move to China full-time in 2005. Since moving back to the US in 2013, he has continued to invest in both markets.
Tattoo culture has exploded in China in the last few years, as the country’s younger generations abandon centuries-old prejudices against the practice and embrace it as an expression of individuality. Chinese millennials are getting tattoos in record numbers, but some are being forced to keep them hidden.
Pronouncements that the Belt and Road Initiative is failing are premature, argues Tom Miller, author of China’s Asian Dream and Senior Asia Analyst at Gavekal Research. He is well-versed in the problems facing the Belt and Road Initiative (BRI) and predicted many of them. In his 2017 book China’s Asian Dream, he warned that China’s preference for cultivating close relationships with individual leaders could be a long-term risk for BRI. Eighteen months on, this looks prescient. New governments have won power in Malaysia, Pakistan and the Maldives, and renegotiating deals signed by their predecessors are high on the agendas.
What a difference a year makes. Last summer, there was a sense of unstoppable momentum behind the Belt and Road Initiative (BRI), China’s trillion-dollar plan to build a network of infrastructure connecting Africa, Asia and Europe. When China hosted its 2017 Belt and Road Forum, 29 heads of state and delegations from another 100 countries traveled to Beijing, hoping to cash in on what President Xi Jinping described as the “project of the century.” This year the landscape, at least from the media’s perspective, looks dramatically different as even China’s closest partners make more cautious noises about the BRI.
Compared to other sectors, Chinese e-commerce firms are among the first batches of firms to embrace automation. China accounts for nearly half of global demand for AGVs, enabling one warehouse to process up to 100,000 orders a day with a staff of 20 human workers, work that previously would have required 300-600 people, according to Beijing-based startup Geek+, a leading domestic robot maker in logistics industry. Other tech giants, like Alibaba and JD.com, have also announced plans to invest billions of dollars to roll out next-generation technologies including totally unmanned warehouses and last-mile delivery robots and drones.
Online data theft is rife in China, affecting more than 80% of Internet users, and tech companies often display a cavalier attitude to using people’s personal information. But things may change. In May, the government implemented new data protection rules called the Personal Information Security Specification, which was hailed by some analysts as a watershed for data privacy, with a few even comparing it to the European Union’s game-changing General Data Protection Regulation law. While there are important differences between the two, Beijing’s new rules appear to reflect a wider shift in the way the Chinese government, companies and consumers perceive online privacy.
Learning how to please Chinese audiences without alienating moviegoers in the US is becoming crucial for Hollywood as box office receipts stagnate in home market but explode in China. Quarterly ticket revenues in China surpassed those in North America for the first time ever in the first three months of 2018, with Chinese cinemas netting $3.15 billion compared to $2.85 billion in Canada and the US. Those figures were boosted by massive takings during the Lunar New Year holiday, always a peak time for Chinese cinemas, but China could become the world’s largest film market in whole-year terms in 2019.
Will two executive-level people doing the same job with the same education background and experience be paid differently? The answer is yes. And unsurprisingly, one of the two is female. How big is the gender pay gap at the executive level? Professor Huang Rong at the Cheung Kong Graduate School of Business, who studied a sample of over 34,000 executives from US publicly traded firms using data spanning an 18-year period, found women executives are paid 31% less than male executives. Although it can partly be explained by objective considerations such as title, experience, company size and performance, a 19% gap still exists.
Economic changes taking place in China are rippling across the world, causing rapid upheaval in global supply chains. Manufacturers are moving to lower-wage economies, the Belt and Road Initiative (BRI) is creating a new web of trade flows and the rise of cross-border e-commerce is accelerating demand for goods from across the world. And then, of course, there is a possible global trade war to factor into the equation. Dealing with all this uncertainty requires ice-cool pragmatism, as FedEx’s China head, Eddy Chan, has learned.
The moment finally came just after Lunar New Year, 2016. That morning, residents in Lintao, a city of 200,000 in the remote northwest, turned on the taps, but no water flowed. The groundwater that provided the town’s supply had simply run out. A year later, Si County, a cluster of settlements 2,000 kilometers to the southeast, also ran dry. After municipal wells began to empty, local schools and hospitals resorted to drilling their own. In the north, which contains nearly half of the population but only 20% of the water resources, there is not enough to meet demand. Groundwater storage on the North China Plain fell at a rate of more than 6 trillion liters a year between 2002 and 2014.
Few thinkers can speak about global governance with as much authority as Kishore Mahbubani. A former President of the United Nations Security Council, Permanent Secretary of Singapore’s Foreign Ministry and Dean of the renowned Lee Kuan Yew School of Public Policy at the National University of Singapore, he has been named “the muse of the Asian century”. In his latest book, due next year, Mahbubani plans to tackle the rising tensions between the US and China. As he explains, the US should embrace a more minimalist and strategic approach to foreign policy to maximize its interests in an era of Asian dominance.
To many people in its home market China, Transsion Holdings is a company name they’ve never heard of. But this smartphone maker, based in Shenzhen, taking over 38% market share, is rising to dominate the smartphone market by with its Tecno Mobile, Itel and Infinix. Its success shows what differences can a small company make by truly catering to consumers’ long ignored needs, as said by local tech expert, “Transsion has succeeded because they addressed the problems of the market directly. They make phones with features that are attractive to Africans.”
You are invited to download the Fall 2018 issue of CKGSB Magazine. “The old world is dying; the new world struggles to be born,” Antonio Gramsci wrote. The Italian philosopher was discussing Europe during the early 20th century, but the phrase appears just as apt when considering East Asia nearly a hundred years later. This […]
For China’s technology sector, the decision of the United States to hit Shenzhen-based telecommunications giant ZTE with a trade ban in April was an abrupt and painful wake-up call. Until then, many in China had grown accustomed to thinking of their country as a global leader in technology. After all, China’s smartphones, high-speed railways and e-commerce platforms were the envy of the world. But in the days following the ban, designed to punish ZTE for violating US sanctions on Iran and North Korea, it became clear that one of China’s most successful companies was totally dependent on American suppliers.