China Daily | ODI Outlook Promising Overall for 2018

By Edward Tse | China Daily Europe | Updated: 2018-03-09

Despite roadblocks ahead, there will be more opportunities for startups involving Chinese and outbound entrepreneurs

After the peak in 2016, China’s outbound direct investment in 2017 slowed significantly and recorded its first annual drop since 2006. According to the Ministry of Commerce, China’s total outbound direct investment in nonfinancial sectors declined by 29.4 percent year-on-year to $120 billion (97.5 billion euros; £87 billion) in 2017. However, if we take the last five years’ data (from 2012) and take out the 2016 data, the cumulative annual growth rate is actually around 10 percent.

2016 was probably an aberration, as there was a rush by a number of Chinese companies to invest feverishly overseas, causing concern for the Chinese government about the abnormal outflow of capital from China.

Since late 2016, the Chinese government has exercised more stringent controls on capital outflow, and it appears that undisciplined overseas investment is now largely under control.

So what do we expect to see in terms of China’s outbound investments in 2018, in particular as it relates to its two important trading partners and investment destinations: North America and Europe?

Two recent failed deals involving Chinese companies investing in the United States made headlines. US telecom company AT&T walked away from a deal with Huawei, a Chinese telecom equipment and smart device maker, under pressure from the US Congress.

Source: Baidu.com

The US government also rejected the intended acquisition of MoneyGram, a US money transfer company, by Ant Financial, an affiliate of Chinese internet giant Alibaba. Media have reported that on Capitol Hill, there is a prevailing wind of “trust deficit” regarding the US-China relationship on trade and investment.

Similarly, China’s investments in Europe have encountered obstacles from the European Union. Last year, the German government adopted stricter regulations on non-EU countries’ investment in German companies, especially in such crucial areas as energy, infrastructure and high-tech. Also, a few months ago, the European Union launched a probe into China’s high-speed train project from Belgrade to Budapest, alleging that Chinese companies won public contracts without open bidding.

Deals triggering “national security” concerns from the US and EU governments’ standpoint will always raise red flags, and with regard to Chinese companies’ investment, the theory goes like this: The Chinese government is behind everything that Chinese businesses are doing, and State-owned enterprises, because of their government ownership, act on behalf of the Chinese government. By implication, they have motives that are not trustworthy. In addition, the Chinese government employs strong industrial policies that create an unlevel playing field for companies and countries, according to the theory.

I can’t say these arguments are completely fiction. However, this is certainly not the complete picture.

While the State sector is certainly prevalent in China, the non-State sector is actually becoming more important and powerful in its own right. By 2016, approximately 56 percent of China’s total outbound investment in nonfinancial sectors was made by non-State owned companies, compared with only 19 percent a decade ago. Additionally, according to Chinese government statistics, the non-State industrial sector’s revenue in 2016 was close to four times that of the State sector. About the same ratio also applies to total profit.

Source: Baidu.com

Based on a study by the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences, China’s new economy – internet-based businesses ranging from e-commerce to car-hailing services – grew twice as quickly as China’s overall GDP in the past 10 years to 2016. By definition, these new economy companies are mostly, if not entirely, private-sector companies. Entrepreneurship and business innovation are thriving in China, and they come mostly from the private sector.

The Chinese government has applied tighter supervision on Chinese companies’ outbound investment to prevent irrational investments, such as in the areas of real estate, hotels and entertainment.

However, the government continues to encourage Chinese companies to “go abroad”, as long as the reason is considered legitimate. One area in which the Chinese government is particularly supportive of Chinese companies’ participation is the Belt and Road Initiative. Although nonfinancial sector outbound investment slumped by 29 percent in 2017, investment in Belt and Road countries increased by 3.5 percent year-on-year to $14.3 billion, accounting for 12 percent of total outbound investment.

To many Chinese companies, the US and Europe are attractive (and in some cases necessary) markets, and the conditions for manufacturing are becoming more favorable. China’s direct investment in North America has grown at a cumulative annual growth rate of 25.8 percent over the past five years.

For example, Triangle, China’s third-largest tire manufacturer, is going to invest in a $580 million plant in North Carolina this year. Keer Group, a Chinese textile producer, plans to invest $218 million over the next five years to expand the capacity of its facility in South Carolina. Additionally, it has been reported that China’s investment in Germany reached a peak in 2017.

Source: Baidu.com

Recently, Huawei confirmed its long-term commitment in the United Kingdom with a 3 billion euro ($3.7 billion; £2.7 billion) investment. Also, China launched a 3 billion yuan investment fund, backed by State-owned asset manager Shanghai International Group, during British Prime Minister Theresa May’s recent visit to Shanghai. The fund will invest in European manufacturing companies in the medical, chemical and environmental protection sectors, helping Chinese companies to upgrade their manufacturing capabilities.

As China’s innovation and entrepreneurship continue to thrive, there will certainly be more opportunities for startups involving both Chinese and outbound entrepreneurs (especially in the US), as well as for venture capitalists. Technology, especially AI, will increasingly be embraced for enabling innovations by entrepreneurs.

In the past five years, China’s outbound direct investment has grown rapidly in technological industries such as information communication, software and information service (with a cumulative annual growth rate of 53.9 percent). Both the US and China are now leading the world in the development and application of AI, and this trend will likely continue to accelerate.

The interactions between China and the US at the startup and investors’ levels are actually taking place intensively, as there is so much to share and many opportunities to jointly pursue. Much of this has already manifested in cross-border investments between the two countries.

However, roadblocks exist in cross-border trade and investments. The US government has introduced policies to restrict China’s investment in some areas of high-tech, especially when it is viewed as potentially infringing on US national security. It was reported that three key European countries – Germany, France and Italy – have drafted a legal initiative for more rigor in investigating and restricting investments from China.

It would be naive to expect plain sailing for the China-US and China-Europe trade and investment relationship this year. However, I don’t believe all will be bad, either. There will be areas of tension and differences in points of view and policies, but there will also be areas of collaboration and alignment.

“Coopetition” is perhaps the best way to describe the nature of China’s relationship with the US and Europe going forward. After all, it won’t be – and shouldn’t be – a zerosum game, especially not in today’s world of increasing connectivity.

Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China, and author of China’s Disruptors.

 

新浪财经 | 谢祖墀:2018年中国商业与战略十大预测

文 | 谢祖墀

在年初对来年做预测已俨然成为大家的习惯,本文是我对2018年的一些预测。这是我首次根据自己的专业经验做出的尝试,对中国的商业和战略以及中国在世界舞台上不断增加的影响力做出一些预测。

没有任何的预测是能够做到绝对全面的。我的预测也不例外。我尝试将我的一些想法列举,以下是我对2018年的一些预测:

一、2018年中国的GDP增速将约为6.5%。我并没有预知未来的魔法,对于中国GDP的增速是任何人都可以预测的。我在中国不同地方的工作经历让我有机会与各行各业的人士接触并交流。乐观和悲观的预测一如既往地存在。总的来说,我感受到的乐观是比悲观的要多,而且现在的经济势头还在增长。和以往一样,中国的一些领域还会面临挑战,比如那些长期产能过剩的行业,结构性不景气的一些国有企业。有人会质疑中国房地产行业来年的前景,如今中国的负债保持较高水平,引发了人们对金融风险的忧虑。然而,中国的另一些行业却将保持良好的发展。中国社会科学院下属的中国社科院人口与劳动经济研究所进行了一项研究,发现中国的新经济中,以互联网为基础的电子商务或网约车等行业在2006年至2016年间的增速是中国整体GDP增速的两倍。在2018年,新经济对GDP的增长贡献将会继续加大,其中消费、投资和贸易的发展将会持续。总之,除非黑天鹅事件发生,中国的GDP增速将会是世界银行或是国际货币组织预测的6.5%左右。那些所谓“中国崩溃”言论不太可能实现。

二、中国消费者将会继续升级。中产阶级不断壮大,有能力为更多的商品与服务付费。这也不仅仅只是一个预测了,而是一个几乎一定会发生的事情,但这仍是一个重要且值得一提的发展趋势。据研究,中国现在中产阶级的数量在2.5亿到3亿之间。所有的预测都指出,中国的中产阶级数量还将持续上升。消费者的消费结构正在升级,他们需要的不仅仅是基本的产品与服务,他们还在寻找更优质、更健康的生活方式。中产阶级消费者们对数字产品更加了解,更愿意出国旅游,其消费需求与行为更加个性化。

三、中国的创新与创业将会继续蓬勃发展。中国开始摈弃模仿大国的形象,拥有更多或大或小的创新企业,不少是透过科技在商业模式方面的创新。创业精神正在遍布全中国,不仅出现在发达的大城市里,还出现在相对不那么发达的城市里,覆盖各行各业。此外,中国的企业家趋于年轻化,不少创业者都只是二、三十岁。中国政府将创新与创业作为国家发展战略的核心组成部分。2018,我们期待更多创新与创业精神。

四、科技在驱动中国创新中将发挥更大的作用。无线网络和智能手机在过去十年中极大地促进了中国的快速创新。中国的企业家正在寻找下一轮创新,技术将会继续扮演主要的驱动角色。中国接受了不同形式的新技术,包括人工智能、物联网、增强现实以及虚拟现实等。除此之外,中国还在试验其他不同的创新方式。可以肯定的是,不少尝试都会以失败告终,但是一小部分将取得成功。鉴于中国有巨大的市场规模,试验者有机会进行尝试、学习、适应并让市场自然选择最合适的科技,并将其应用到商业当中。

五、中国生态型组织将持续高增长。2017年,阿里巴巴和腾讯成为全球市值最高企业的其中两家,并且排名仍在上升。两家企业都是中国“超大型生态系统”的典范,腾讯和阿里都以核心业务为基础,不断构建多样化的生态系统,最终形成一个超大的生态系统。随着中国深化改革开放,科技颠覆过去的商业模式,腾讯与阿里的业务开始涵盖存在商机的众多领域。每一个超大型生态系统都在试图满足消费者的“生活方式需求”,因此它们都可能成为真正的指数级企业。最终,这些超巨型生态系统会以指数方式进行增长。亚马逊和谷歌等美国的科技巨头是生态系统的主要玩家,他们都非常成功,但是中国的互联网企业似乎能够更好地覆盖不同的领域,创建更大的生态系统。在中国,吉利、滴滴出行、平安和美团点评等企业正在以惊人的速度和强度构建自己的生态系统。显然,对于这类企业而言,获得用户的海量数据是他们的核心目的。即便是摩拜和ofo等共享单车创业公司都自称为数据公司,而不仅仅是共享单车企业,这就意味着他们也会根据消费者的生活方式去构建自己的生态系统。

六、中国国有企业的混合所有制改革将会揭幕。过去几十年中,中国的国有企业改革备受关注。近年来,国有企业混合所有制改革被多次提到,被期待是国有企业结构问题的解决措施。然而,并未有太多与之相应的措施获得推行。2017年,政府批准了中国联通的混合所有制改革。中国政府似乎已经准备在2018年推动此类国有企业改革。不仅是央企会改革,地方性的国企也会成为改革的对象。处于“竞争性行业”的国有企业是改革的主要对象。我们拭目以待,但根据我推断,今年的改革并非纸上谈兵。

七、外企将会有更多在华开展业务和所有权的空间。自30多年前的改革起,中国就不断以渐进的方式解除着行业限制,让外企和民企参与其中。今天,中国的一些行业仍未对外开放,但大部分行业已经全面开放或是处于半开放的状态。我认为,中国逐渐开放的进程仍会继续,但不会出现一夜之间完全开放的局面。2017年11月,中国政府宣布放宽对外资金融机构参与金融服务领域的限制。虽然中国政府并未完全批准外资企业在相关行业的所有权,但开放的范围和规模已经具有很大意义。我期待2018会有更多开放。

八、在华外资企业仍会好坏参半。一些评论者认为(总部在外国的)跨国公司在华的黄金时代已经过去,我并不认同这种观点。中国的增长会继续为跨国公司带来大量机遇,问题在于企业如何看待这些机遇。到目前为止,在华外资企业的绩效表现大不相同。部分跨国企业来到中国,对中国市场感到失望,其中小部分企业甚至决定退出中国市场。也有部分跨国公司进入产能严重过剩的一些行业,目前在持观望态度。但也有一些企业发现中国市场已是他们最重要且最能盈利的市场。在2018年,这样的整体模式仍会继续下去,但会更有活力。我预测,大多数的第三类企业会继续在华投资,其中一部分还会在中国投入巨资。对于离开或是降低对中国市场重视程度的企业而言,他们可能会重返中国市场。对不少跨国企业而言,中国市场太大,太重要,也逐渐是他们全球战略中的核心,因此他们不会忽视。2018年,在中国已经开放的行业会促使跨国公司变得更具竞争力,提高创新能力。

九、跨国并购仍将继续。中国企业对外投资在2016年达到高峰后,开始在2017年收缩,2017年的海外并购投资金额仅略高于2015年,主要原因是中国政府采取了资本限制措施。但中国企业对外投资的热度并未冷却,许多中国企业依然在寻求适当的投资方式。从中国政府的角度看,海外投资必须合情合法。只要中国政府认为符合条件,正常情况下企业就能够获批进行投资。最近两个海外投资的案例是:华信能源在2017年9月宣布收购俄罗斯最大的石油公司14%的股份;吉利在2017年12月斥资33亿美元收购了沃尔沃集团8.2%的股份。我认为2018年海外并购的趋势仍会持续。交易的数量或是价值可能不会猛增,但我相信还是会有所上升的。当然,中国的海外投资可能会被他国政府以“国家安全”为由所禁止,这也会成为中国投资者在海外投资的一大挑战。

十、中国的发展模式将会继续发展。在过去几十年中,所谓的“中国发展模式”是由中央政府自上而下进行指导,而大众创业也做得非常好。该模式造就了中国四十年来的高经济增长,让数亿人脱贫致富。一些评论者对这种模式的合法性和发展模式的可持续性存在质疑,但研究表明中国民众非常支持中国的发展模式所带来的成果。除了政府的引导和基层的创业,“中国模式”还具有高效和强适应性的特点。这是不同地方政府之间的广泛合作和竞争。在过去几年中,每个地方政府尝试构建自身的优势地位,因此不同的地方政府会选择某个特定的领域或是某项特定的科技来重点发展。这种竞争造就了全国的进步,但有时也是一种浪费。在2018年,这类竞争仍会存在,但像粤港澳大湾区、长三角大都市圈、京津冀城市群以及河北的雄安新区等区域城市群会开始成型发展。城市群之中的城市间会相互合作,但竞争依旧很激烈。在2018年,中国模式下的“竞合”能够彰显效用,促进中国的进一步发展。

以上便是我对2018年中国商业与战略的一些预测。正如我先前提及的,这不是绝对全面的预测。比如,我没有讨论一带一路、资本市场、金融改革、房地产市场以及共享经济等重要的议题。但是希望以上内容能为诸位2018年的商业计划提供洞见。

(注:本文图片均来自网络)

关于作者:
谢祖墀博士(Dr. Edward Tse)是高风管理咨询公司(Gao Feng Advisory Company)的创始人兼首席执行官。中国管理咨询业的先行者。过去的20年里,他创立并领导了两大国际管理咨询公司在大中华区的业务。外界评价他为“中国的全球领先商业战略家”和 “谢博士之于中国企业界就如大前研一之于日本企业界”。他曾为数以百计的公司(总部设在中国及其它地区)咨询过所有关键战略和管理方面的业务,涉及中国的各个方面和中国在全球的地位。他还为中国政府在战略、国有企业改革和中国企业走出国门等方面做过咨询。他已发表200多篇文章并出版了4本书,其中包括于国际获奖的《中国战略》和《创业家精神》。谢博士获得了加州大学伯克利分校工程学博士、MBA以及麻省理工学院的工程学学士、硕士。

 

China Daily | Focus on Quality Growth Expected

China Daily, March 4, 2018

The quality rather than just the quantity of China’s economic growth is expected to be high on the agenda as China’s political leaders and officials gather in Beijing for the two sessions, according to experts.

One of the main focuses of the two sessions each year is usually the annual GDP growth target, which is set in the Government Work Report, due to be delivered this year by Premier Li Keqiang on Monday.

However, with achieving high-quality growth now a government priority, at least equal attention is likely to be given this year to how China intends to tackle industrial overcapacity, excess debt, income inequality and poverty reduction, as well as environmental degradation, while also pursuing development.

Stephen Roach, a senior fellow at Yale University’s Jackson Institute for Global Affairs and former Asia head and chief economist of investment bank Morgan Stanley, said it is important for the world’s second-largest economy to secure a sustainable future.

“The senior Chinese leadership has stressed the need for a more sustainable growth model-namely, by shifting from resource-intensive manufacturing to resource-light services. Only then can China enjoy the quality dimension of the growth experience,” he said.

“China is making good progress toward higher quality growth. But the journey has just begun,” Roach added.

Zhu Ning, Oceanwide professor of finance at Tsinghua University, agreed there will be major emphasis on high-quality growth at the annual plenary meeting of both the National People’s Congress, China’s highest legislature, and the National Committee of the Chinese People’s Political Consultative Conference, the country’s top political advisory body.

He said the importance attached to a new and more inclusive growth strategy was made clear at the Central Economic Work Conference, a key meeting held in Beijing in December.

“The focus now is on the development of the overall economy. People have criticized China’s growth about being all about growth’s sake and not about development. We want broader-based, more inclusive development than just the growth of the number,” he said.

With China expected to contribute 35 percent of global growth this year, according to the International Monetary Fund, financial markets across the world will also be paying close attention to the government’s growth target.

Last year, the figure was set at “around 6.5 percent, or higher if possible” and was comfortably achieved, with GDP rising 6.9 percent in 2017-the first time annual growth has accelerated since 2010.

China still needs to grow at a relatively fast pace to meet the government’s aim of becoming a “moderately well-off society” by 2020, in time for the 100th anniversary of the founding of the Communist Party of China the following year. To achieve this, it needs to double the 2010 GDP per capita income level. George Magnus, an associate at the Oxford University China Centre and an expert on China’s economy, said he expects the government target to remain at “around 6.5 percent”.

“China looks to me to be well on course to meet the 2020 goal. On my reckoning, 6.2 percent per annum for each of the next three years should do it. So there is even a bit of a cushion if things go slightly awry for any reason. China can now afford a bit of a trade-off between the quantity and quality of growth in future,” he said.

Louis Kuijs, the Hong Kong-based Asia head of economics consultancy Oxford Economics, also said he expects a target in line with the 6.5 percent of last year, although he believes there are risks of excessive credit growth to achieve it.

“Since China’s leadership is intent on meeting the 2020 target, it is likely it will be met, even though this implies only a moderate slowdown in credit growth with credit already continuing to outpace nominal GDP growth this year.”

Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, a London-based economics consultancy, said the major risk of China not meeting its 2020 target comes from global factors outside of Beijing’s control.

“The goal is likely to be met, but it is not certain. There is a major world recession building up as the global debt problem unwinds. My best guess is that this will emerge between 2020 and 2025. China will be much more affected this time than it was by the global financial crisis,” he said.

It has been suggested that China may soon move away from setting ambitious growth targets.

Neither of the long-term targets of becoming a global technology leader by 2035 or a “great modern socialist country” by 2050 set out by General Secretary Xi Jinping in his report to the 19th National Congress of the CPC in October came with numbers attached.

“It is still an open question,” Kuijs added. “Clearly, many experts, including me, would recommend abandoning specific targets for growth. Setting targets, however, remains a crucial element of economic policymaking in China’s vast government system.”

The two sessions take place as China is marking the 40th anniversary of Deng Xiaoping’s reform and opening-up, which led to China opening up to the rest of the world and a transformation of the economy.

Zhu at Tsinghua University said it is important not to regard any transition to high-quality growth as a move away from the principles that were the basis of reform and opening-up.

“I don’t think we are approaching a big watershed moment where we are moving in to a new growth model. Reform and opening-up was about the market playing an increasingly big role in determining the allocation of resources. I think this path will remain the same. The difference is that the targets are changing fundamentally.”

Edward Tse, chief executive of Gao Feng Advisory, a management consultancy, said he believes China is in the process of moving on from its post-reform and opening-up phase.

“China is entering into a new era, and it is one that is epitomized by both confidence and sophistication. It is also one based on knowledge, innovation and a strong will to drive critical global governance and leadership issues,” he said.

Tse said he believed the new era will combine a role for state direction and a burgeoning private sector.

“The top-down central government directive will continue to be strong. There will also be a role for local governments in the middle layer both competing and collaborating to provide further impetus for driving growth.”

Roach said the major challenge for China in the future will be fitting into a world where it is now a dominant player rather than a developing nation that is catching up.

“There has to be a daunting reassessment of how China’s shifting trajectory fits into the broader world-both from an economic and a geostrategic perspective.”

He said that while China was emerging, its economy was dependent on the rest of the world, particularly for demand for its cheap exports. Now, however, this dynamic has totally shifted, with the rest of the world having a new dependency on China, he said.

“China is now playing an increasingly important role in driving and shaping the rest of the world,” Roach said.

China Daily | The Future of Economy Will Be Inclusive

By Andrew Moody | China Daily Europe | Updated: 2018-03-02

The quality rather than just the quantity of China’s economic growth is set to be high on the agenda as China’s top officials descend on Beijing for the major political gathering of the year, according to experts.

One of the main focuses of the annual two sessions is usually the GDP growth target, which is set in the Government Work Report due to be delivered by Premier Li Keqiang on March 5.

Yet, with achieving high-quality growth now a government priority, at least equal attention is likely to be given this year to how China intends to tackle industrial overcapacity, excess debt and income inequality, as well as environmental degradation, while pursuing development.

Workers assemble cars in a production line in Cangzhou, Hebei province. Mou Yu / Xinhua

Zhu Ning, Oceanwide professor of finance at Tsinghua University, says there will likely be a major emphasis on high-quality growth at the annual plenary meeting of both the National People’s Congress, China’s highest legislature, and the National Committee of the Chinese People’s Political Consultative Conference, the country’s top political advisory body, which begins on March 3.

He says the importance attached to a new and more inclusive growth strategy was made clear at the Central Economic Work Conference, a key meeting in Beijing in December.

“The focus now is on the development of the overall economy. People have criticized China’s growth about being all about growth’s sake and not about development. We want a broader-based, more inclusive development than just the growth of the number,” he says.

Zhu, an acknowledged expert on China’s financial system, says he expects priority to be given to measures to reduce poverty, deal with the environment and tackle China’s debt problem.

“We have already seen a crackdown on environmentally polluting companies over the past few months. The government also lifted 10 million people out of poverty in a single year last year. There have also been other measures to get rid of the implicit guarantees in wealth management products, which will lead to more financial responsibility.”

Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, the London-based economics consultancy, says China’s adjustment to a higher-quality growth model could happen automatically, rather than be forced by policy changes.

“Labor shortages are leading to higher wages and higher productivity, which will bring about the change on its own. Growth, however, needs to be more evenly spread regionally. Western China, in particular, needs to catch up. The savings ratio also needs to fall, and working hours need to adjust to give a better work/life balance,” he says.

Edward Tse, managing director of Gao Feng Advisory and an expert on China’s tech industry sector, believes China’s new industry sectors are already generating high-quality growth.

“Internet-based businesses ranging from e-commerce to car-hailing services have been growing twice as quickly as China’s overall economy for the past 10 years. I expect the contribution from the new economy to continue in 2018, along with an increase in consumption and investment as well as trade.”

With China expecting to contribute 35 percent of global growth this year, according to the International Monetary Fund, financial markets across the world will also pay close attention to the government’s growth target.

Last year, the figure was set at “around 6.5 percent, or higher if possible” and was comfortably achieved with GDP rising 6.9 percent in 2017-the first time annual growth has accelerated since 2010.

China still needs to grow at a relatively fast pace to meet the government’s aim of becoming a “moderately well off society” by 2020, in time for the following year’s 100th anniversary of the founding of the Communist Party of China. To achieve this, it needs to double the 2010 GDP per capita income level.

George Magnus, an associate at the Oxford University China Centre and an expert on the China economy, expects the government target to remain at “around 6.5 percent”.

“China looks to me to be well on course to meet the 2020 goal. On my reckoning, 6.2 percent per annum should do it. So there is even a bit of a cushion if things go slightly awry for any reason. China can now afford a bit of a tradeoff between the quantity and quality of growth in future,” he says.

Louis Kuijs, Hong Kong-based Asia head of economics consultancy Oxford Economics, also expects a target in line with the 6.5 percent of last year, although he believes there are risks of excessive credit growth to achieve it.

“Since China’s leadership is intent on meeting the 2020 target, it is likely it will be met, even though this implies only a moderate slowdown in credit growth, with credit already continuing to outpace nominal GDP growth this year.”

However, Tse, also author of China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business, does not believe 6.5 percent is unrealistic or excessive.

“The perennial prediction of the ‘coming collapse of China’ is unlikely to happen, yet again.”

McWilliams, of the Centre for Economics and Business Research, says the major risk to China not meeting its 2020 target comes from global factors outside of Beijing’s control.

“The goal is likely to be met but it is not certain. There is a major world recession building up as the global debt problem unwinds. My best guess is that this will emerge between 2020 and 2025. China this time will be much more affected than it was by the global financial crisis,” he says.

It has been suggested that China may soon move away from setting ambitious growth targets.

Neither of the future long-term targets of becoming a global technology leader by 2035 or a “great modern socialist country” by 2050 set out by General Secretary Xi Jinping in his report to the 19th National Congress of the CPC in October came with numbers attached.

“It is still an open question,” says Kuijs. “Clearly many experts, including me, would recommend abandoning specific targets for growth. Setting targets, however, remains a crucial element of economic policymaking in China’s vast government system.”

Magnus at Oxford University believes the government’s overall economic strategy would benefit if the government abandoned targets and made growth forecasts instead – the practice in most advanced economies.

“It would be a positive development if the government abandoned targets altogether, letting the economy find its sustainable level, consistent with lowering the debt burden and the growth of new sectors and industries,” he says.

The two sessions gathering takes place as China is marking the 40th anniversary of China’s reform and opening-up, which led to China opening up to the rest of the world and a transformation of the economy.

Zhu at Tsinghua University says it is important not to regard any transition to high-quality growth as a move away from the principles that were the basis of reform and opening-up.

“I don’t think we are approaching a big watershed moment where we are moving to a new growth model. Reform and opening-up was about the market playing an increasingly big role in determining the allocation of resources. I think this path will remain the same. The difference is that the targets are changing fundamentally.”

Tse at Gao Feng Advisory believes China is in the process of moving on from its post-reform and opening-up phase.

“China is entering into a new era, and it is one that is epitomized by both confidence and sophistication. It is also one based on knowledge, innovation and a strong will to drive critical global governance and leadership issues as well,” he says.

He believes the new era will combine a role for State direction and a burgeoning private sector.

“The top-down central government directive will continue to be strong. There will also be a role for local governments in the middle layer both competing and collaborating to provide further impetus for driving growth.”

Kuijs at Oxford Economics believes there are a number of challenges that policymakers will have to face in China’s next phase of development.

“The major challenge for China in the coming decades is to work out whether cementing socialism with Chinese characteristics can be consistent with further opening up and integration into the global economy,” he says.

However, he says the government is aware that the Chinese people will continue to demand a better life and higher standard of living.

“Pushing ahead with reforms to improve China’s health, education and social security systems would increase the chance of those demands being met.”

Yet, with achieving high-quality growth now a government priority, at least equal attention is likely to be given this year to how China intends to tackle industrial overcapacity, excess debt and income inequality, as well as environmental degradation, while pursuing development.

 

CHINADebate’s Interview on China’s Ecosystem Organizations

On February 15th, Dr. Edward Tse was interviewed by CHINADebate’s Malcolm Riddell on New Retail and the Chinese mega ecosystem organizations.

In this interview, Dr. Tse explained what he meant by “The Third Way” of Strategy (as opposed to “Conglomeration” and “Core Competence-Driven”) and described how China’s leading tech companies such as Alibaba, Tencent and JD.com build themselves into “mega ecosystems”, part of which is the New Retail.

‘E-commerce’ is rapidly evolving into ‘New Retail’

In this interview, Dr. Tse explained, ‘New Retail combines of online retail and offline retail.’
– This is now known in China as “O.M.O.” or “Online Merging with Offline” – merging through technology – sensor technology, online payment, artificial intelligence, and so on – to make the customer experience very much hassle-free.’
– This is an entirely new ecosystem for retail.’
– And, besides its own stores, Alibaba and Tencent are now working with a large number of offline retailers, respectively, so that they can build their own New Retail ecosystems.’

New Retail, a ‘third way’ ecosystem among ecosystems

Dr. Tse also discussed, ‘Lots of people ask me, “It seems that all of a sudden there are so many Chinese companies that have become so big, so valuable, so quickly. How did they do it?” I answer…’
– The very best Chinese companies, or the fastest growing Chinese companies are those who adopt the “third way” of thinking about strategy.’
– Using “third way” strategy, they make multiple jumps from business to another business to another business, and so on, but unlike conglomerates, they do not give up their original core.’

Click READ MORE (阅读原文)below to view the full interview.

 

China Daily | R&D Driving China’s Innovation Speed

By Edward Tse | China Daily Africa | Updated: 2018-02-16

The central government’s blessing of entrepreneurship has created a vibrant environment that began at the grassroots

At the beginning of China’s opening-up and reform 40 years ago, the country’s reform architect, Deng Xiaoping, put forward that “science and technology are the primary productive forces”. At the 19th National Congress of the Communist Party of China in October, General Secretary Xi Jinping proclaimed that “innovation is the primary force driving development”.

Behind both of these statements is the philosophy that research and development as well as innovation results in generating key capabilities for the country. R&D investment is generally viewed across the world as the backbone of a globally competitive and innovation-driven economy.

Late last year, the European Commission released “The 2017 EU Industrial R&D Investment Scoreboard”, which covered 2,500 companies from 43 countries that invested the largest amount in research and development last year. These companies recorded a total investment of 741.6 billion euros ($909 billion; £657 billion) in R&D, a 5.8 percent year-on-year increase.

Among the companies covered in the Scoreboard report are 376 Chinese enterprises. Their R&D investment grew by 18.8 percent year-onyear in 2016, compared with a 7.2 percent increase by 822 US companies and a 7 percent increase by 567 European Union companies.

While most of the top companies in the report are from the West, Huawei, a China-based telecom equipment and smart device manufacturer, leapfrogged to sixth place, registering 10.4 billion euros in R&D investment. Huawei’s ranking advanced by more than 200 places between 2004 and 2016. Chinese internet giants Alibaba and Tencent also entered the top 100 on the list.

Source: Baidu.com

Chinese companies are also well known for tech innovation in such areas as drones, electric vehicles, autonomous driving and artificial intelligence. DJI, a Shenzhen-based company, has a global market share of around 70 percent in consumer drones. NIO, a Chinese electric vehicle startup, developed the fastest electric sports car, the EP9, within 18 months and broke the world lap record at the Nurburgring Nordschleife track in Germany. In terms of AI, a Chinese company, Face++, developed advanced facial recognition technology that is widely used in the financial technology, smart retail and many other industries. This technology, now used in more than 200 countries, processes over 30 million requests each day. SenseTime, a Chinese AI company founded in 2014, focuses on innovative computer vision and deep learning technology. In July last year, the company successfully raised the largest single-round investment in AI globally, at $410 million.

For a long time, China was viewed as a nation that relied on low manufacturing costs for exports. And Chinese companies were labeled “copycats” by the West. Very few people believed that China had the ability to innovate. However, the country’s development over the past decade has proved otherwise.

Source: Baidu.com

In fact, innovation is thriving in China. MIT’s Technology Review included nine Chinese companies such as iFlytek, Tencent, Face++ and DJI in its 2017 list of the Top 50 Smartest Companies. So what caused China’s innovation and the entrepreneurship that goes with it to take off? I think it’s because of the following reasons:

1. “Why not me?”: At the end of the 1970s, during the onset of China’s era of reform and opening-up, the Chinese discovered that not only was their economy backward and undeveloped compared with the economies of the developed nations, but the gap between the Chinese economy and those economies was vast. Against this background, Chinese entrepreneurs were spurred by a new sense of purpose and the desire to strive for success and show the world that they, too, could succeed. Although it’s been 40 years since China’s opening-up began, this question of “why not me?” is still the key driver behind the Chinese entrepreneurial spirit.

2. Market opportunity provided by the State economy: For a very long time, China’s economy was dominated by State-owned enterprises. In a market defined by fast changes, intense competition and the need for innovation, SOEs are usually slow to react. Many innovative companies have taken advantage of this market gap and have benefited with extraordinary growth.

3. Transformative and intense competition: China’s process of shifting from a planned economy to a market economy is gradual and will take time. In this process, a wide range of sectors have opened up and, coupled with the allure of the massive China market, we see players from all over the world igniting intense competition. This state of hyper competition forces companies to innovate in order to stay ahead.

4. Chinese society’s pain points: In the process of transformation, pain points that had previously been hidden are now in plain sight, and they provide entrepreneurs with opportunities for innovation.

5. The rise of technology: With the wireless internet, smart devices and social media becoming a core part of the everyday life of Chinese consumers, tremendous disruption opportunities are provided for innovators and entrepreneurs alike.

6. The massive scale of the Chinese market: The size and fast-changing nature of China’s market allows companies to rapidly scale up. At the same time, it provides a platform for innovators and entrepreneurs to learn via trial and error. Leading Chinese companies are also benefiting from high valuations that provide them with the needed capital ammunition to support their growth.

7. Capital resources: Over the past 20 years of China’s development, many venture capital companies and angel investors have benefited from exceptional returns on their investments in China. Regardless of whether these investors came from abroad or were homegrown, Chinese companies have benefited greatly from the vast sums of capital these investors have provided over time.

Against this backdrop, China’s development model plays a crucial role. From the top, China’s central government actively directs the country’s economic development with great results. In this context, the central government has positioned innovation and entrepreneurship as a key national initiative, and with this blessing, a vibrant innovation and entrepreneurial environment began at the grassroots level. In addition, various local governments across China are both competing and collaborating with each other, providing additional impetus for innovation.

The author is founder and CEO of Gao Feng Advisory, a global strategy and management consulting company with roots in China. He is also author of China’s Disruptors.

 

China Marketing Book “Unlocking the World’s Largest E-market”

Media OutReach | February 5, 2018
Business Insider Singapore

China Marketing Book “Unlocking the World’s Largest E-market” offers social media insights to Hong Kong marketers

HONG KONG, CHINA – Media OutReach – 5 FEB 2018 – Marketers who have struggled to capitalize on their Chinese social media presence can rest easy, with the launch of new book “Unlocking the World’s Largest E-market: A Guide to Selling on Chinese Social Media”. In response to growing interest in the world’s biggest e-market, author Ashley Galina Dudarenok has consolidated her 12 years of professional experience in digital marketing in China into an easy-to-read business book.

China has the world’s largest e-commerce economy, with revenues of 7.57 trillion yuan (US$1.17 trillion) in 2017. Hong Kong has strong business ties with China, yet many local brands and small business owners have an incomplete understanding of Chinese consumers and the online channels to reach them. There’s an increasing demand to learn about digital strategies and tactics specifically for the China market but current books on the subject often lack practical solutions. Seeing a gap in the market, Dudarenok decided to publish a book not just for brands seeking to enter China, but also for those who want to expand their presence in China and those who provide services to Chinese tourists abroad.

“Unlocking the World’s Largest E-market” offers practical advice to Hong Kong marketers about selling on Chinese social media. Dudarenok has seen the transformation in China’s online world firsthand. “China is the future,” says Dudarenok, “And marketers and business owners need to understand it if they want to stay relevant.”

The demand for China digital marketing knowledge has also been recognized by Edward Tse, Founder and CEO of Gao Feng Advisory Company. “Social media in China, the world’s largest, digitally-savvy consumer market, is changing at warp speed. With it come new and innovative ways for companies to communicate with their users about their products and services. And the difference between those who know how to do digital marketing right in China and those who don’t can be huge. Ashley’s book is a great read on this topic and it shows how to do digital marketing on social media in China right.”