China’s equity disconnect

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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? Continue reading “China’s equity disconnect”

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

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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?

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

Xi’s Hangzhou agenda

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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. Continue reading “Xi’s Hangzhou agenda”

Beijing’s cyber-protectionism

An extraordinary coalition of business federations from the United States, Europe and Japan teamed up this week to send Beijing a message: back off of proposed cyber-security regulations that would force foreign firms to store data in China and surrender information and technology to Chinese security inspectors.

The business groups, which included the US Chamber of Commerce, BusinessEurope and Japan’s Keidanren, decried the new rules in a letter sent to Chinese premier Li Keqiang. Other signatories included more than 40 global industry groups representing financial services, technology and manufacturing sectors, and business lobbies from Australia, Mexico and Switzerland.

The petition was a response to draft regulations, announced by the China Insurance Regulatory Commission last month, requiring foreign insurers to use Chinese hardware and software to store and encrypt data. But global firms also are fuming over new banking regulations that would require them to hand over key technologies such as source codes and encryption algorithms to the Chinese government. (Beijing has delayed implementing those rules after protest from Washington.)

China insists it needs tighter controls on cyber-security and the Internet to guard against terrorism. Global companies aren’t buying it. The letter casts the regulations as thinly disguised protectionism and warns they will further isolate China from the global digital economy. The new provisions would “have no additional security benefits but would impede economic growth and create barriers to entry for both foreign and Chinese companies,” the letter declares. Continue reading “Beijing’s cyber-protectionism”

Nuclear power vs people power

China’s leaders often are portrayed in West as all-powerful dictators. I can’t count the number of times I’ve heard American business executives assert that the secret of China’s rapid economic development is the ability of its communist overseers to steamroll domestic dissent. And yet the outcome of anti-nuclear protests this week in Lianyungang, a coastal city about 300 miles north of Shanghai, suggests the reality is a lot more complicated. Continue reading “Nuclear power vs people power”

Choppy water

China’s has been making waves this week, and not just in the swimming pools of Rio.

Over the weekend, the Japanese government charged China with stirring up trouble in the East China Sea by dispatching more than 200 fishing boats into waters near islands Japan occupies but both countries claim.

On Monday, the New York Times published a series of photos collected and analyzed by the Center for Strategic Studies that appears to show China has built reinforced aircraft hangars on the three reefs it controls in disputed waters in the South China Sea. CSIS analysts say the hangars are large enough to accommodate military aircraft–bombers, refueling tankers and transport planes–which would seem to contradict Chinese president Xi Jinping’s September promise to President Obama that “China does not intend to pursue militarization” of the islets. Continue reading “Choppy water”

The enigma of Trump’s China policy

China-bashing is one of the most enduring features of Donald Trump’s policy platform–as we know from last year’s viral  “Chay-na! Chay-na! Chay-na!” montage.  On Twitter, Trump rails about China more frequently than Mexico or even ISIS.

And so it was no surprise that talk about getting tough with Beijing featured prominently when Trump unveiled his economic agenda Monday.

In a speech delivered before the Detroit Economic Club Trump declared “trade enforcement with China” to be “at the center of my plan,” and promised that by standing up to China he would “return millions of jobs into our country.”  He denounced China for manipulating its currency, called for stronger protection of US intellectual property and reiterated his call for the US to pull out of the Trans-Pacific Partnership.

The usual fare. But what was surprising (at least to me) is that for all the times Trump has boasted about “getting tough” with China, so far he’s said practically nothing about how he’d actually do that. Continue reading “The enigma of Trump’s China policy”