By the short stairs

True to his nickname, “No Drama Obama,” the American president wants it known that he took no umbrage at the fact that there was no stairway waiting to help him descend from Air Force One last week when he landed in Hangzhou. But he’s a little miffed that critics have seized on that incident as symbolic of tensions in the US-China relationship.

New York Times correspondent Mark Landler detected a “sarcastic edge” in Obama’s reply to questions from the White House press corps in Luang Prabang, the last stop of what surely will be Obama’s final visit to the region as president. Obama seemed especially peeved by suggestions that “stair-gate” proves his administration’s much-touted “pivot” to Asia is a flop.

“If this theory about my reception and my rebalance policy is based on me going down the short stairs in China, yes, I think that is overblown,” Obama said. “Any reasonable person, certainly any person in the region, would be puzzled as to how this became somehow indicative of the work that we’ve done here.”

Well, reasonable people can disagree. And sometimes even unreasonable people offer compelling arguments. In this case, Charles Krauthammer (with whom I rarely agree on anything) raises an excellent point. In a recent Washington Post column he observes that no nation pays more attention to matters of diplomatic protocol than China.  China’s leaders, says Krauthammer, are “masters of every tributary gesture, every nuance of hierarchical ritual. In a land so exquisitely sensitive to protocol, rolling staircases don’t just disappear at arrival ceremonies.”

Yes, Krauthammer is a conservative pundit with a political axe to grind. But he makes a case with which few foreign China experts–regardless of their partisan affiliations–would disagree.

About face

China is declaring the G20 economic summit, held in the eastern Chinese city of Hangzhou, a resounding success. But in the aftermath of the confab, it’s not easy to specify what, exactly, was achieved.

The positives: There were no public protests. The US and China renewed old vows to curb greenhouse gases. China’s president Xi Jinping and Japan’s prime minister Shintaro Abe managed to scowl a little less than usual while posing for photos after their bilateral meeting. The final communique refrained from singling out China for flooding global markets with low-cost steel.

For the most part, though, the gathering seemed to reinforce, at least for observers outside China, the impression that this year’s host country is a tense and uptight place.

In Asia’s World City, a push for “localism”

Hong Kong is days away from legislative elections that are unlikely to alter the city’s political power balance but certain to highlight residents’ alienation from their mainland overseers.

I have an essay titled “China’s Hong Kong Dilemma” in the current issue of Bloomberg BusinessWeek in which I ponder the curious rise of Hong Kong’s “independence” movement. In fairness, to call this group a “movement” probably overstates its significance. There is zero chance China’s leaders will permit Hong Kong, which the mainland reclaimed from Britain in 1997, to break away and set itself up as some sort of separate, sovereign entity. Hong Kong relies on China for 70% of its water, most of its food and half its trade. For good measure, Beijing keeps 6,000 People’s Liberation Army troops garrisoned here.

Pro-independence leaders are a fractious and quixotic bunch–nearly all of them idealistic twenty-somethings, fresh from university. To date, their rallies have drawn crowds of no more than a few thousand. But, as with protests here two years ago, a heavy-handed response by Hong Kong’s mainland-controlled government has succeeded in transforming a loose collection of fringe dissenters into high-profile political heroes.

China as soccer superpower?

Chinese tycoons, keen to fulfill President Xi Jinping’s ambition to turn China into a soccer superpower, have invested more than $2 billion in European football clubs since the start of last year, reports Ben Bland in the Financial Times. Among the European teams in which Chinese groups have acquired or invested: Italy’s AC Milan and Inter Milan, England’s Manchester City and Aston Villa, Spain’s Atletico Madrid and Espanol. Many of these investments may pay off. But the article stresses that there is a big difference between the “first division” acquirers such as Wang Jianlin’s Dalian Wanda Group or Fosun International, which have deep pockets and well-developed sports marketing and media strategies, and “second division” investors, for whom there are unlikely to be many synergies. It will be interesting to see if Xi and the Party can will China into global dominance in this sport, which received relatively little state support before Xi came to power. The mixed results achieved by China’s state-led sports machine at the Rio summer Olympic games suggest global victory in soccer could prove a tricky  goal.

Here’s what else we’re reading this weekend….

The “weird irrationality” of America’s China policy

I finally got around to reading Gideon Rachman’s essay in the Life & Arts section of the Financial Times. I know, it was last weekend’s Life & Arts section. But the ponderous title, “War and peace in Asia,” gave me pause.

In fairness, Rachman is a graceful writer. He marches briskly through “5,000 years of Chinese civilization,” Europe’s rise and fall and America’s emergence and decline as the world’s preeminent superpower, arriving finally at what he sees as the paradox of US foreign policy during the Obama years:

The US has deliberately hung back from deeper involvement in the Middle East, partly because it is attempting to preserve its power and resources for a struggle with a rising China. Yet power is also a matter of perceptions. So the vision of America that is less committed to playing the role of global policeman in Europe and the Middle East has–ironically–also sown doubts about the durability of US power within Asia itself.

Rachman believes that, if  Hilary Clinton triumphs in the U.S. presidential election, she will remain committed to the twin pillars of U.S. foreign policy since 1945: maintenance of open global markets and the U.S. alliance system. But Rachman says the stability of those pillars is being steadily undermined by the “easternization” of global economic and political power.

In China, Hollywood tries to think outside the box office

Did you miss Warcraft, the big-budget fantasy flick, when it came to your neighborhood cinema this summer?  If so, you’re probably…an American.

U.S. critics trashed Warcraft even before it hit theaters (“Pricey and preposterous,” sniffed Variety). Online reviewers pelted it with Rotten Tomatoes.  Despite a budget of $160 million, Warcraft grossed $47 million in North America and disappeared almost as soon as it opened.

But don’t cry for Warcraft‘s producers, Legendary Pictures. In China, Warcraft raked in $220.8 million, the third-highest gross of any movie released in mainland cinemas this year.

And now, according to a report in the Wall Street Journal, Warcraft has tapped the China market for even more money. The Journal says Beijing-based online video network PPTV has agreed to pay $24 million for “post-theatrical” rights to the movie — double the value of any previous online video deal for a single movie in China.

Hollywood hopes similar deals will follow. US studios have discovered success in China can give a huge boost to a film’s global box office. (Lest you doubt that, check out the chart below, which lists eight major Hollywood productions that grossed more in China than they did in North America.) But ticket sales at Chinese theaters, after booming last year, have slumped over the last three months. So American studios are scrambling to discover new revenue streams beyond the box office. Many think video-on-demand could be the China market’s next big thing.

In Macau, Wynn doubles down

 

In 2006, not long after gambling mogul Steve Wynn opened his first luxury hotel-casino in Macau, one of his top lieutenants took me on a tour. We began outside at the “Performance Lake,” a multimedia ballet of music lights and water jets, then worked our way along a concourse of luxury boutiques, through the Wing Lei Cantonese restaurant with its giant crystal dragon, across the crowded casino floor, to arrive at last at a special elevator, which whisked us to one of the lavish VIP suites where high-rollers from China came to indulge their passion for the game of Bacarrat. There my guide, a teetotaling Catholic who had risen up the ranks of Wynn’s operations in Las Vegas from blackjack dealer to floor manager to executive vice president for international marketing, offered to teach me how to play Baccarat on the condition that I swear to never forget the game’s first rule: The house always wins.

That rule has certainly held true for Wynn’s operations in Macau–at least until the last two years. In 2001, Wynn Resorts was among the first gaming companies granted a gambling concession in Macau after the former Portuguese colony’s communist overseers in Beijing decided to the end the two-decade monopoly of local tycoon Stanley Ho. As mainland gamblers flooded in, the tiny enclave boomed. By 2014, Macau’s gaming industry took in seven times the revenue of the entire Las Vegas strip.

On Monday, Wynn will throw open the doors to a second Macau resort, the $4.2 billion Wynn Palace. By all accounts, it will be the most expensive casino in the city. But Wynn’s prospects in 2016 are less certain than a decade ago. Macau’s gambling industry has been hit by a triple whammy of a slowing Chinese economy, Xi Jinping’s crackdown on corruption and a broader effort to transform Macau from high-roller haven to mass-market tourism destination. The Financial Times reports that gross gaming revenue fell 34% last year to $29 billion, and the Macau government forecasts a further decline of 13% this year to $25 billion.

China’s equity disconnect

On Tuesday, China’s state council announced to great fanfare a plan that would make it easier for investors outside China to buy and sell stocks traded on the mainland’s second-largest equity board, the Shenzhen Stock Exchange.

In Hong Kong, Charles Li, CEO of Hong Kong Exchange and Clearing Ltd., said the program, dubbed the Shenzhen-Hong Kong Stock Connect, could be up and running before Christmas. The Shenzhen link will be modeled on the Hong Kong-Shanghai Connect, a parallel program launched November 2014 to increase trade between Hong Kong and the Shanghai Stock Exchange.

This ought to be big news. China’s $11 trillion economy is the world’s second-largest, and home to lots of capital and some of the world’s biggest companies. China claims the world’s largest population of billionaires (568 in China compared to 535 in the United States). Chinese companies account for more than 100 of the Fortune Global 500. The market capitalization of the mainland’s two exchanges, Shanghai and Shenzhen, is roughly equal to that of Tokyo and Hong Kong respectively.

And yet the grand vision of “connecting” China’s capital and companies with the rest of the world brought no joy to markets this week. Stock prices in Shanghai and Shenzhen  barely budged today. Among global investors, the responses have been slightly less charitable than reviews of Suicide Squad on Rotten Tomatoes.

What’s the problem?

Will the “Fourth Industrial Revolution” put China Inc out of business?

A story in today’s Wall Street Journal rehearses some facts that have been reported elsewhere (including in this essay on its own Op Ed page). But the key points of the article hold such important implications for China that they are worth considering carefully:

• In 2013, China overtook the United States to become the world’s largest market for industrial robots, according to the International Federation of Robotics. 
• In 2015, Chinese manufacturers bought 67,000 robots, about a quarter of global robot sales.
• China’s demand for industrial robots is projected to more than double to 150,000 robots per year by 2018.
• In May, Chinese home-appliance maker Midea Group launched a $5 billion takeover bid for Kuka, Germany’s most innovative engineering firm, and now owns about 86% of the company.

There’s a big debate raging among experts now about how artificial intelligence and advanced robotics — trends that, thanks to a big branding push by Klaus Schwab and the good folks at the World Economic Forum this January is now often referred to as “The Fourth Industrial Revolution” or “Industry 4.0” — will affect China. Will China, the “world’s factory,” be blindsided from these technologies? Or will it benefit from them?

Xi’s Hangzhou agenda

While President Xi remains huddled with China’s top leaders in Beidaihe for the Communist Party’s summer retreat, in Beijing senior officials have begun trying to shape the agenda for next month’s G20 summit in China’s eastern city of Hangzhou. On Monday, public comments by two senior government ministers stressed that as this year’s host Xi wants to focus on the subject of global economic growth.

Vice Finance Minister Zhu Gungyao emphasized the need for the G20 to reaffirm the importance of global trade and investment and deplore protectionism: “We really do need to make sure that the people, the public, benefit from economic development and growth,” Zhu said. “If people don’t feel like they are beneficiaries of economic development, if they don’t think their lot in life is improving, that’s when they start getting all kinds of ideas.” (Ideas? Like voting for Donald Trump, perhaps? Or withdrawing from the European Union?)

Meanwhile, China’s Vice Foreign Minister, Li Baodong, said leaders at the Sept 4-5 meeting shouldn’t get sidetracked by issues unrelated to economics–for example, competing sovereignty claims in the South China Sea. “The G-20 summit in Hangzhou is about the economy,” he said. “The consensus is to focus on economic development and not be distracted by other parties.”

Sticking to economics is usually a safe bet at global gatherings. But this year, it might actually court discord. After all, growth isn’t necessarily a subject that plays to China’s strengths these days.