#90 More on Paris Climate Agreement

China, also known as the coal country for its energy resource, where the legions of workers toiled in the coal mines and often died in the mining activities after exposed for a long time to the soot of the fossil mining. Very often, due to the exploitation of the coal that leads to the collapse of the mining shafts cause the mining accidents. The abandoned coal mines often would collapse due to the hollowed ground and lakes are created.

 

Lately, in Liulong in Nanjing (六家莊), a lake was created and China has begun to build the world’s largest floating solar project to provide electricity to the nearby city. By expanding this to a dozen sites can collectively produce the same kWh of electric power equivalent to a full-size nuclear reactor.

 

Already countries like Vietnam, Singapore, and Taiwan, have sent delegates to visit the site to learn more about this. China is also getting ready to offer this technology to help these countries to tap into the renewable energy.

 

Recently Beijing hosted the Clean Energy Ministerial and a gathering of two-dozen countries for the meeting. These countries also created the three-quarters of the world’s greenhouse gas emissions. The US was there and showed the deep split of the nation as Governor Jerry Brown from California was there acting as the supporter of renewable energy.

 

China is already dominating in the low-carbon energy technologies, for instance, it is producing two-thirds of the world’s solar panels and nearly half of the wind turbines. It is also known for its hydroelectric power and the nuclear reactors.

 

The US and the EU have been accusing Beijing of the unfair practice in subsidizing its green industries and have applied punitive tariffs on the solar panels for instance.

 

At the same time, China is angry with EU because of the refusal to recognize China as the “market economy”. China is still insisting the market economy status should be given automatically after being granted in the WTO for 15 years. Obviously, China has not lived up to its promises in the first place upon the joining. The western countries were expecting that the 15 years would have been adequate for China to have completely complied with the requirements. Taking the opportunity in the joint statement on the climate change, China has shown the unwillingness to cooperate and applied pressure to Germany and other EU countries to bid for the market economy status at the WTO.

 

For the renewable energy, Chinese local governments continue to provide free land, state-owned banks grant enormous loans at low interest, to encourage clean energy industry.

 

Currently, solar energy only accounts for 2% of the electricity need. It employs one million workers and by contrast, the coal is generating 70% of the country’s electricity and it is still employing four million coal miners. We can see that China has a long way to go.

 

US and Japan started the technology for the solar panels in the past half century but were careful not to build large factories fearing that they might have to undercut the price to sell the excessive production.

 

But China has been going the opposite, Jinko Solar and Trina Solar, the world’s largest solar panel producers are going ahead with automated factories in churning out solar panels with consistent quality and at reducing cost. With engaging the robots, quantity has doubled and cost of labor has halved.

 

This enables China to sell to new markets like India and Saudi Arabia which were unexpected before. All this is making it possible with the Paris Climate Accord.

 

The technology as developed can now deal with the extreme heat and extreme humidity because of the different conditions. And for instance, the panels made for the lake of Liulong are said to be waterproof.

 

This brings to the conclusion where the US retreats and China advances and this is a typical example.

 

 

Acknowledgement:

The New York Times Thursday 8, June 2017

FT Tuesday 13, June 2017

 

#89 Dispute over China’s steel export in again in the news

It was found out that export of steel from Vietnam to the US has surged more than tenfold in 2016. China’s export to Vietnam has also increased. This brought into the attention of the US Department of Commerce to investigate if Chinese trading companies have exported the cold-rolled steel, an intermediate product, to Vietnam for the further processing before export.

Both Washington and Brussels are investigating the alleged shipments of Chinese metals from Vietnam to avoid tariffs. This transshipment behavior was common in the old days when the garment and textile trade was governed by the Multi-Fiber Agreement (MFA) until it was abolished.

This transshipment practice through Vietnam can avoid the punitive tariffs in the US while the exporter, in this case the state-own enterprise, can collect export rebate in China. In China there is the excessive capacity and with the use of the abundant hydropower and coal have cut down the energy cost in processing. It is accounting for half of the world’s production of steel and aluminum but the ores are coming from US, UK, Australia and Brazil.

The whole matter is in the tricky situation.

 

Acknowledgement: Financial Times, Tuesday, 15 November 2016

#88 Tough Talk Over WTO’s Ruling on China as the Market Economy

Brussels is trying to convince the EU member states to apply a higher duty rate as the penalty to China’s dumping of steels in the EU market. The deadline is here now to recognize China as a market economy under the World Trade Organization (WTO) rules.

EU Trade Commissioner, Cecilia Malmstrome, is facing the complains on one side from some member states for the collapsing steel price, and on the other side for too protectionist for s sharp rise in duties.

US slapped 266% tariff on some steel products from China since 2015, EU imposed a 21% duty.

Earlier on in a meeting called for the urgent and balances agreement was required for the safeguard of European jobs, ensure fair competition in open market and preserve free trade.

China will have to deal with its overcapacity or this situation will continue to remain as the dispute. The WTO protocols on China will expire in end December. It is going to become a hard call for the EU as China could retaliatory duties against European companies that sell to China.

 

Acknowledgement: Financial Times, Wednesday 9 November 2016

#87 “Our love will last till the end of time” as quoted by ……………..

 

This is a typical example of what had happened in Spring and Autumn and the Warring States (春秋戰國時代) in China, the former one was from 722 to 481 BC and the latter one was from 403 to 221 BC. The Chinese have been practicing this since then and have not stopped. They applied to warfare by then but it is now applying to the modern world and for the business they have been successful as well.

We can use this as the case study for what happened with Uber and its archenemy Didi, and both are car-hailing companies. The two rivals have poured billion of dollars into subsidies for their passengers and their drivers for the market share in China. Both raised money to fund the battle and Didi raised more than $7 billion in debt and equity and a month later $1 billion from Apple. Uber raised $3.5 billion from Saudi Arabia’s sovereign wealth at the same time and issued $1.15 billion in high-yield debt.

Uber’s strategy in China has relied on the heavy subsidy for the rides. Uber was losing more than $1 billion a year in this practice. Then both were under the pressure from their financial backers to do something to reduce the loss.

This was not new to Didi in making the deal with the competition and In February 2015 announced a $6 billion deal consolidated with Kuaidi Dache to form Didi Chuxing.

Uber has the presence in China in 60 cities and is doing 40 million rides per week, whilst Didi is in 400 cities and has 100 million rides per week.

Uber has agreed to sell its Chinese operations to rival Didi Chuxing. This deal marks the latest retreat by a US technology company from a market where most of the western Internet companies had “failed to crack the code” as acknowledged by Travis Kalanick, who is the Chief Executive of Uber.

Others like Google shut its China search engine in 2010 over censorship concerns and Facebook and Twitter are both blocked from the country.

With the deal Uber will receive a 5.89% direct stake in Didi including a share of the future profit equivalent to 17.7%. Didi will also invest $1 billion in an equity stake in Uber.

The battle had been going on for two years and collectively the two companies raised $25 billion between them. In this business the company with the most drivers and passengers win the battle. They came to realize the subsidies are unsustainable. Uber’s competitor in the US, Lyft who is a smaller competitor of Uber may follow by cutting the fare and Ola from India who is already locked in a heavily subsidized fight with Uber India.

The agreement not only effect a financial transaction but also a strategic alliance and both companies are taking seats on each other’s boards. Didi also took a stake in Uber’s competitor, Lyft last year would have created an awkard situation.

Uber has earned a reputation for its hard-scrapping business style, operating independently and aggressively as it is entering into a new market. It could be a delicate situation if Didi is deciding to expand outside China, which currently is its only market.

Uber has freed up its resource and will focus on new technology investments such as the driverless cars.

Uber may say that after the attempt to conquer the China market, Uber succeed to walk away with much less than first hoped for and win also a graceful exit from a battle in China.

Not only Google, Facebook and Twitter have fallen foul of Chinese censors and been blocked, eBay and Yahoo were also defected. We saw Apple ran into a series of setbacks this year and China is no longer their second largest market.

The exit of Uber could probably be the best exit from China than any US company has gotten. Didi’s president Jean Lau said that, “Uber has done better than any Silicon Valley company in China,” when she was announcing the deal. She continued to say that, “We raged an earth-shaking war and when we join hands, our love will last till the end of time.”

This was what we read from the newspaper on Tuesday, 2 August but on Wednesday, 3 August we read that before the deal Didi had been playing the key role and investments in a global anti-Uber coalition with Lyft in the US, Ola in India and Grab in Southeast Asia. Now with the deal with Uber they have all to see how the partnership relationship will happen.

The story goes on …….

 

Acknowledgment: FT Tuesday, 2 August and Wednesday, 3 August 2016

#86 World trade latest situation

World trade has slowed down than first expected. In fact the volume has plateaued over the past 18 months especially when there is the rise in the protectionism globally.

It is become obvious since the US Republican President nominee, Donald Trump, railed against globalization and used the erect of trade barrier to gain support and popularity.

Since January 2015 the volume of goods traded around the world appeared to be stagnant and this is rare in economic history considering that this lasted for 18 months long. This report was based on data collected by the Netherlands Bureau of Economic Analysis.

There are two causes here and the creeping of the protectionism is dragging the world economy is one of the sayings. The other one is the trends of the shortening of global supply chains and the increase of the digital trade.

The IMF and the WTO are warning the protectionist measure that is slowing down the global economy.

But the message from Donald Trump is that he is going to rip the North American Free Trade Agreement (NAFTA) and his rival and he already oppose the vast new Pacific Rim pact, the Trans-Pacific Partnership (TPP) which is awaiting the congressional approval.

The subsidies of local industry have affected the business. The former globalization can lead to localization.

#85 Myanmar is gaining the investment from Japan

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Myanmar was the country we reported very early in 2015 for the potential of production for the clothing in general. This report is the add-on to the previous report for the updating for what is going on.

Japan is in the picture for various reasons and it is now a combination of business and politic. We have to know that Japan has maintained an amicable relationship with Myanmar since long. Japan’s Jetro, the trade promotion agency has the long relationship there. Unlike the western world Japan also has never imposed trade sanctions during the junta in 1990s and 2000s.

Not only the Japanese are investing billion of dollars but also opening the schools to teach the Japanese language has been increased from 44 schools to 200 in the period of five years. The business of the Japanese companies have increased by six-folds in the last five years.

Japan is seeking to reduce their dependence on China and a strong tie to Myanmar will ensure their relationship with its neighbor like Vietnam. Likewise Myanmar has expressed their intention to reduce their dependence on China and it was already in 2011 Myanmar suspended the Myitsone dam project with Beijing.

We already reported that investment led by the Japanese consortiums like Marubeni Corp., Mitsubishi Corp., and Sumitomo Corp. The Thilawa industrial zone which is located at the south-east of Yangon, where dozens of factories are completed or under construction. Membership of the Japanese Chamber of Commerce in Myanmar climbed from 53 to 310 by May of this year. The presence of the Japanese business entities can be higher if they can solve the problem with the power supply and the restrictions on foreign ownerships.

Perhaps what we can see now as the Myanmar’s gain is China’s loss. With the recent terrorist attacks in Bangladesh could drive more Japanese investments there as well.

 

Acknowledgment: FT – Monday, 11 July 2016

#84 Condemning the terrorist attacks

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This is the age of turbulence and while I was summing up all the articles for our July issue on Sunday, 3 July 2016 I saw the breaking news for another car bomb in Baghdad killing another 115 civilians. So far we have seen enough of the terrorist attacks, in March we saw the one at the Brussels airport claimed 32 dead and 340 injured. The shooting in Orlando nightclub on 28 June we saw 49 dead and 53 injured. The one in Atatürk Airport, Istanbul claimed 44 dead, 239 injured.

The one I want to mention especially is in Dhaka, Bangladesh where the terrorist attack claimed 20 lives and out of this 9 of them are Italians working in the textile business. Seven Japanese, an Indian, one American and two Bangladeshis followed this. We have to pay homage to those for dying in the foreign land during their outpost in the foreign country.

We have to take note that we are not in any open wars where soldiers are killed or injured, this is the every day life of the civilians and we are suffering very frequently the loss of the human lives without reason.

This year we have seen the report from Wikipedia that from January to June there were 832 incidents and 7,228 deaths. This is on the uptrend now.

 

我們現正處於動蕩的時代,當我正在對七月份內衣誌的內容作總結,我在電視的突發新聞看到在巴格達有汽車炸彈,殺死了115 個平民。近來我們經歷了太多的恐怖活動,在三月份我們看到布魯塞爾的自殺式炸彈,令到32 人死亡,傷了340 人。在六月28 號奧蘭多市的一個夜總會的一個槍手,用了重型武器殺了49 人,傷了53 人。在土耳其伊斯坦堡的機場,自殺式炸彈殺了44 人和傷了239 人。

我要特別提一下孟加拉達卡市的一家咖啡店,在七月一日在一個恐怖行動中有 20人被殺,當中有 9 名是義大利人,名曰本人,美國和印度人各一再加上兩名孟加拉人,他們都是在我們的服裝行業做事,我們要向他們致最高的敬意,因為他們為了工作在外地做事而犧牲了生命,我的心很難過到。

我們要知道我們並不是身處戰爭中,在戰爭中衹有軍人會死亡或者受傷,這是每天每個平民的生活中,經常無緣故地死亡。

從維基百科的資料,今年一至六月一共有宗恐怖行動,導致死亡,這個縕橫趨勢正在上升。

#83 Understand how the SOEs work in China

China Communist party is moving away from nearly 2 decades of attempt to remodel their state-owned enterprises to the free market mode. This further confirmed their denial of the western value that they began from their educational system earlier on. And this has further been confirmed by the Chinese scholars who called for more Marx and less of the west in economics teaching.

There are educators who want to follow the socialist direction and the economist’s professors wrote to the ministry of education.

Even China is officially communist, China started to abandon the central planning of the economy in the late 70s and gradually embraced the market reforms that have spurred almost four decades of breakneck economic growth.

The tight grip of control over civil society, the military and media is something that can be seen as President Xi Jinping trying to consolidate power further within the party.    

Lately the International Monetary Fund recommended China to create a task force that would help the restructure debt-laden SOEs that can help to recognize and address industrial overcapacity more effectively. China’s debt which rose to a 237% of GDP in the first quarter of the year and provided massive lending design to boost growth.

As of now all major decisions of the SOEs must be submitted and studied by party committees. It involves macro-control, national strategy and national security which rigidified the management process.

In the early 1950s China nationalized all the private business after copying what the Soviet were doing. In the 1980s and 1990s, steel mills, oil refineries, power plants, textile mills were spun off from ministries and at that time the consumer-oriented state-owned enterprises were privatized with outdated technology, product designs and customer services. Few of them survived and a lot of them went bankrupted.

The reform of the late 1990s when some of those most efficient but debt-laden state-groups became the “pillar Industries” and began to look and act like international corporation with shiny corporate logos. With new headquarters in Beijing and listing with P/E ratios in international and domestic stock exchanges that made them unrealistically rich. Almost all SOEs executives are party members and their corporate status gives them the equivalent as the government officials. Most of them are senior party members.

Officially they are all making money, but it is the public knowledge that most of them lost money from 2001 to 2009 and they were using subsidies to offset the lost.

Privatization at this stage will cause unsteady with the society, they need to keep them as employees in the SOEs or otherwise the unemployment will soar.

I recalled in my early days when I started to visit the Canton Fair in the early 70s that everything would be sold and purchase through the China’s Import and Export Corporation. This continued into the early 80s and the state-owned enterprises would receive the hard currencies in the US dollars to allow them to import either raw materials or to buy machinery for modernizing their equipment. They ended up buying what we would call the “white elephants” as they didn’t have the market, the adequate technology and the imported materials to be used in running the machines.

In the late 80s we have seen privatization but soon many of them had fold as they didn’t have market in those days. Since then they came from a long way and now not only they come to the international trade fair but they have the world market going there to teach them the way to produce and to market the world class products.

For China today it is very important to have the country under control. Any imbalance in the social situation is something that President Xi can’t afford. Their policies may sound unpopular and even unreasonable to the western world but their political agenda will come first and foremost.  

The state-owned enterprises were responsible for the 55% of the corporate debt and the SOEs are responsible for 22% of the economic output but China will have to restructure those corporations that will need restructuring, shut those that need to be shut and strengthen market discipline is important.

 

Acknowledgement: Financial Times – Monday, 13 June 2016

#82 What is in the head of the China’s richest man – Jack Ma, Chairman of China’s e-commerce group Alibaba

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Extracts from the man himself at one of his conferences,

“Brands were part of the problems because they failed to compete with the original equipment manufacturers.”

“Fake products are made in better quality better price than the real name.”

“Fake products are using the exactly same factories, exactly the same raw materials but they do not use the name.”

“We have to protect the intellectual properties, we have to stop the fake goods, but those OEMs they are making a better products at a better price.”

“The counterfeits, fake products, and intellectual property theft can be solved with more and more confident than ever.”

I think that it is very clear now this person has no respect of whatsoever, no integrity and his e-commerce should only be restricted in the gangland where it falls in the same belief.

#81 The Red Bull Diplomacy

 

Lately I have been following closely on the Market Economy Status (MES) China is insisting on WTO because this is the 15th year that China has been granted for the admission. It is China’s core strategy goal, once granted it will be difficult to impose steep tariffs on Chinese companies for unfairly dumping low-cost goods into the market.

Already labor unions in Europe are taking to the street to fight against the decision to grant China the MES. The European commission will have to take vote on this very soon.

US has always been very cautious about this and Washington warned Brussels to be careful as if the MES is granted the punitive tariff can’t be applicable to any dumping behavior.

Now the US has given the go-ahead for the country’s biggest steel producer to seek a ban on China’s import. If this will happen this will become the first known case in which trade sanctions could be used in retaliation for alleged China government-backed hacking of commercial secrets.

Too many cheap Chinese steel has hit the global market in recent years and also the international concern about industrial overcapacity issue in China.

It is believed that some four dozens Chinese companies and their US subsidiaries had both acted as a cartel and benefited from the cyber theft of its production theft. This legal battle may last as long as one year for the judge to decide. The final decision will have to come from the new US President.

Another critic came from the US about the overcapacity from China for the steel industry. This was raised at the US-China Strategic and Economic Dialogue.

China mills are producing more steel, cement and other heavy industrial goods than the world market can absorb. This resulted the cheap export that caused mill closures and job losses from Wales to Pennsylvania. China went further to explain the steel overcapacity was brought by the last financial melt down in 2008 and the post crisis measure as taken by China to launch a RMB4 trillion ($609 billion) infrastructure-led investment drive. The Chinese claimed that this contributed half of the globe’s growth from 2009 to 2011. But I would think that with the China economy driven by export market and the excessive production capacity that it had built, if China didn’t take the measure its economy would suffer bitterly.

The boom from Brazil, Africa and Australia has stopped the export of their mineral resources. China could maintain its growth of 7%+ growth up until 2014 and it is trending downward now. Its GDP has been based from export, foreign investments and construction of the infrastructure. The slowdown is hurting China as well.

Price of steel has fallen for 30% last year in according to Platts World Steel Price Index. Company names like Arcelor-Mittal, US Steel, Nippon Steel and Sumitomo Metal, earnings have crumbled. The massive international oversupply caused thousands of job lost.

This is just an example of the oversupply of the steel industry. There are many other industries be it the cement, porcelain, textiles and electronic appliances, the situation is the same. To curb the supply is almost impossible but the consumers are making the verdict by their behavior. It will be interesting to see how the store business will fare in the fourth quarter. It is almost certain that there will be more losers than winners, but who will be the winners …………