China in Focus

Observations of Business, Economic and Social Perspectives in China

 

Hedging on Hedges

There has been much talk recently of a study by China Merchant’s Bank and Bain claiming that a surprisingly large number of China’s wealthier citizens have been moving assets overseas, purchasing property, and obtaining foreign passports. A portion of this is also supported by official government figures. For the most wealthy, the destinations are the Anglo-Saxon countries, as well as Hong Kong and Singapore. Some, according to the report, are even decamping to Russia.

In the ensuing analysis of this, many have put forth the idea that this represents a very troubling brain and wealth drain for China, while others think many of these new rich are merely hedging their assets and keeping their options open, and not really leaving China. And certainly one does not have to leave China to move assets and get another passport.

Both arguments are valid, and it’s probably hard to isolate a single motivation. A good number of high net worth persons from diverse countries have properties in more than one country, and often have more than one passport. Countries like Canada, the US and Australia are immigration cultures with sizable Chinese communities, and it’s not difficult for a Chinese to fit into these societies- especially for those who had attended university or previously lived there.

At the same time, it is also true that some new HNW Chinese may feel more secure with their assets diversified. I doubt there will be a big exodus only for this reason though. Many Chinese can do well in other societies, though likely feel most comfortable on their own turf, speaking their own language, with their network of family and friends around. Furthermore and importantly, China is where their income is generated.

But maybe we need to look at another angle in all this. There was another much-discussed report that came out in early 2011, from McKinsey, on the potential of China’s luxury goods market. The report basically argues that Chinese consumers will spend a lot more money on luxury items in the coming years- Swiss watches, French wines and bags, and art collection, etc. No doubt this is true, and the trend is already visible. 

This notion is also deceptive- not on McKinsey’s part, but on the idea or implication that Chinese wealthy are going to direct a good amount of their money to luxury items, or “things” in general. Or that such things, however attractive, can capture the imagination or aspiration of this group. The definition of wealthy or high net worth is variable, but even including the lower strata of this group there is a limit that one can spend on luxury items, and while tangible and glamorous these are not the priority.

So what is the priority? Where are China’s new wealthy going to spend their money? Many are now just facing this issue, priorities vary, and this period of sorting-out will take some time. Charity is also slowing coming into the picture- slowly. However, there are several early indications of where aspirations lie, which we can roughly label quality of life and children (not that these are mutually exclusive….).

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The Chinese Industrial Swarm

Having been here so long, sometimes the scale and the speed are taken for granted, not noticed in the day-to-day. But once in a while, China jumps out and smacks a surprise into the face of all, even us. Last week in Shanghai was just such a moment.

It’s not Shanghai that surprises so much, but the sight of China’s Industrial Swarm that startles. Much is written in the West of China’s trade and industrial policies, but nothing that I have seen accurately describes the scale, speed and nature of what happens. The conception seems to be that there is some small group of autocrats that make a policy and send out the orders and that the country marches to their tune. There are industrial policies, and they are made in China’s own view of what is best for China. But that is not how it works. How it really works, and what it means is what I’m going to try to describe below. Now China does use other policy sets, frequently, but the Swarm is special and deserves to be segmented out for description.

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Key China Issues - China Entry Guidelines

The purpose of this section is to explore some key issues of this market. 

Should Your Company be in China?

Many companies in the US and Europe are no doubt are viewing China with a combination of interest and puzzlement. The promise of this market is undeniable, but can also be a difficult market to crack, and cannot be approached in the same way as Western Markets. Who is right for China, and how should one proceed in dealing with this market?

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Letter from China, 2019

- Written at the year end of 2009.

It’s 2019 already, here in China. The PRC is getting ready to celebrate it’s 70th anniversary, and as usual everything is being cleaned up and made presentable. The mood is generally positive, and skies are a shade bluer in Beijing and other large cities compared to 2009, or 1999. It seems like 2009, with the world in recession and globalization itself even in question, was a long time ago. Looking back, the attitudes in that period seem a bit strange- such as talk of deflation, with the world just now getting over another major run of inflation. Hindsight certainly helps.

Many things are quite different since 2009, but others very similar. Let’s take a brief look at how things stand now, especially in comparison to that period 10 years ago. We’ll look at this in four areas: the economy, political risk, foreign companies in China, and key trends. We’ll skip anything cultural, sporting, etc. After all, we know what has happened, some of which - like Brazil and Germany winning recent World Cups- one did not need a crystal ball to predict.

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China Characteristics - Do's & Don'ts for China Entry

Here are 7 Do's and Don'ts for China Entry.
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