Investor Relations - China

In the midst of volatile markets, Chinese share prices have remained remarkably resilient, attracting strong inward funds flow. However the prospect of major fund-raising by the large Chinese banks is re-focusing investor attention on the balance between independent shareholder and government ownership in China. The rumour that China Mobile, the largest telecom operator, may take a significant stake in Shanghai Pudong bank, a deal which has no evident commercial logic, merely reminds investors that majority owned government companies can be expected to do 'national service' from time to time. While the fund-raisings are designed to maintain prudent regulatory ratios, fund raising on this scale (Y44bn for Bank of Communications) prompts investors to review holdings.

The concerns are also focused on the micro-level of operations, in particular that risk that banks may be subject to political pressure to offer un-commercial loans. However recent anecdotal research by BAML, based on interviews with loan officers in rural and city bank offices, seems to offer comfort that the incentives at a local level offer a reasonable balance of risk and reward. At a time when even European country risk cannot be taken for granted, perhaps the Chinese banks remain an attractive proposition in 'interesting times'.

Google Vs Baidu Part II

Earlier this month, Google relocated its Chinese business to Hong Kong. An error this big by the U.S. giant was unexpected. This decision upset the Mainland; China is now implementing the consequences on Google.com.hk
In the eyes of the government, Chinese are very nationalistic and proud citizens. It has been obvious that Baidu is by far more appreciated than Google for two main reasons. First it is Chinese, and secondly, it is more practical.
As said in many articles regarding Google’s removal; Google will be the biggest looser, giving way to Baidu with 389m exclusive local internet users.
Google is also loosing human resources to Baidu. Wang Jing, Baidu’s new Vice-President in charge of engineering was a former Google engineering director. This switch is the first between Google and Baidu high level employees.

Google seem to have adopted a laissez-faire mood. It is hard to believe that such a world giant is loosing towards China. This can mean two things: Google is preparing a counter-attack which is still far away, or China has grown tremendously in power and is now capable of playing with its own rules. The more likely option is the second one, which made of Google an example for the rest of foreign companies.

"Chindia" New Paradigm

Some say a new management paradigm is growing in the East. China and India nurture this new business era, and so far, has shown very rewarding. In short the new paradigm is explained by three elements:
1) The consumer is King; entrepreneurs scale out their businesses to reach non-consumers and create products and services personally tailored to the needs and limitation of the poorest.
2) Employs lean and mass production for high end services (e.g. healthcare: Devi Shetty)
3) Use frugal production by cutting cost until you reach the bone.

This new paradigm is cherisher by some as being innovative and mocked by others by being a mere alteration to previous management models as T Ford (Offered in any colour so long as it is black).

This is a debate and people agree to disagree. However, leaving the academia aside, it is facts that show the success of the new paradigm.

“Multinationals expect 70% of the world’s growth over the next few years to come from emerging market, with 40% coming from just two countries, China and India.” The notion of growth is well associated with the East. But the notion of innovation and high class is more distant.

This is where China and India are putting things on their ears. Tata Consultancy Services, an Indian company ranked top 10 in a US based Global Service IT ranking. Lenovo, a Chinese computer company, new in the 90’s, bought IBM personal computer business less than 5 years ago. Today it ranks fourth PC maker in the world.

Many similar cases happened and are happening as we speak. Back to academia, the new paradigm will inevitably change management in the West due to globalisation. The question is: When will the East influence the Rest?

The Iceberg: China

This blog’s main purpose is to witness and offer insightful comments on the rise of China. Each article written is based on extensive primary and secondary research; the sources being news based.

Being a PR student, I was curious to understand the communication element of China, both internal and external. China Shakes The World: The Rise of a Hungry Nation by James Kynge is an extremely insightful book on the real rise of China.

The review from the South China Morning Post, an English newspaper in Hong Kong, sets the book apart from others: “Kynge’s work ranks among the finest reportage on China’s rise, free of the hyperbole and fear-mongering that tends to characterise such books.”

Aside from the admiration of the book, the review states a strong limitation: the fear of China from others. This fear leads to a lack of communication and understanding between China and the world, mainly U.S. and Europe.

Ironically, One World, One Dream, the slogan of the Beijing Olympics 2008 is paradoxical. On one hand, the notion of unity within the world is pasted on every poster, advertisement, magazine, platform related to the Olympics. On the other hand, the Games in Beijing were a show-off of China’s national power.

Many other examples can illustrate so clearly the ‘issues’ some have with China. However, being foreigners, the label cemented on China, is only the result of a few events. It is common to hear Chinese say that foreigners cannot understand Confucian thinking which is the base of the Chinese culture.

Both sides of this relation are limited by the lack of willingness of communication followed by the destructive habit to judge a book by its cover.

Finger-Pointing

“I think the doctrine of free trade is an outstanding one. The free trade doctrine has propelled the economies of Europe and the US to a soaring path of development over the past 200 years. It has also been a doctrine that Europe and America have propagated as a glorious doctrine. They have brandished the banner of free trade and gone around the world doing commerce and making money, and becoming developed countries. But now that a developing country that is quiet poor and has a GDP per capita of only one-thirtieth of theirs has found a few textile companies that can finally compete with the Europeans counterparts, they want to close their doors and engage in protectionism. This, in fact, is a double standard. When they had a comparative advantage, they encourages the whole world to open their doors, but when they discover that one developing country is becoming more competitive, they say ‘OK, enough. Let’s close the door now.’”

May 2005, Bo Xilai, Chinese Minister of Commerce interview with BBC Beijing.

The current recession excited high tensions between China and America. Since 2008, they each dragged the other to the WTO thrice. The year 2009 has seen numerous demands from America against China of anti-dumping investigations, followed by accusation of unfair protectionism.
Chinese exporters have government base support, which America does not provide for their exporters. This creates an advantage despised by Americans; Chevron Vice-President Peter Robertson spoke for many: “We are not competing with a company. We are competing with the Chinese government. I think it is wrong.”

Both countries created a strong venomous snake with a hobby of tail-catching.

Rise of the Dragon

The currency struggle between China and the US went way over its head. The decision of Tim Geithner, America’s Treasury secretary to postpone the potential Chinese label of a currency manipulator was a wise call. An ancient Chinese proverb says: “to fight with people face to face over advantages is the hardest thing in the world”. The decision of Tim Geithner is strategic; this bilateral currency row will now be on the agenda of future multilateral meetings, which will ease the tension between both parties.



The sought after advantages from China of keeping a low Yuan are to maximise exports employment and offer a competitive production cost.

The latter advantage for China is one reason why the US requires the revaluation of the Yuan; Chinese exports are being unfairly subsidised.

China argues that this demand is for self American protectionism. They also threat that the revaluation of the Yuan will compromise its competitive edge with other Asian countries.

The US is trying to spread its optimistic vision and show the silver lining to China: if the Yuan is stronger, China’s local consumer spending will rise, thus the country can grow its domestic market.

This currency row has an impact on the crucial recession recovery, it is important for both parties to look beyond a single short term advantage.