Once the China baloney reaches this sort of fever pitch, it is time to head for the hills. I think quite a lot of what appears in Red Herring is good, interesting stuff, but this piece from the web site has the feeling of the back end of a bubble:
"The upside is enormous if China gets it policies right, with some ...going so far as to say that Shenzhen's market capitalization could be greater than the Nasdaq by 2013, and Intel could be taken over by a Chinese company within roughly the same time frame."
Cast your mind back 15-20 years and this is the sort of stuff people were writing about Japan.
Don't get me wrong. I'm not China basher. I've been working here for 20 years and continue to see exciting and enormous potential in the market. But the 'swingometer' of business opinion is way out on the extremes of optimism right now and there are going to be some disappointed people.
Bill Clinton, speaking at the China Internet Summit, appears to have joined the sceptics according to another Red Herring piece.
“I don’t think you can continue to grow at 9 percent forever in a fundamentally imbalanced system which requires you to buy enormous amounts of America’s debt every day so that we keep the value of the dollar up and interest rates low, so we can continue to buy your products,” Clinton is reported to have said.
Wednesday, September 14, 2005
Watch your wallets
Which 10%?
In a great case of biting hands which have fed them so generously, ChinaTechNews.com reports on three of China's tech CEOs rounding on Wall Street analysts during the Alibaba.com-sponsored China Internet Summit in Hangzhou. Sohu, Netease and Tencent are all listed companies but their CEOs believe that analysts' judgement of the Chinese Internet industry "is only 10% accurate, at best". We agree....but wonder which 10% they had in mind. Presumably the 10% that suggests their businesses are worth billions of dollars...
Tuesday, September 13, 2005
Where are the China profits?
An interesting piece by Dan Slater today on FinanceAsia.com in which he asked "Where is China's slowdown?". There are always prophets of doom who see the collapse of China around the corner but the latest wave of doubt is coming from some who have been amongst the biggest boosters of China's economy in recent years such as CLSA's Jim Walker.
The problem they are particularly focusing on, and which I have been seeing this a lot with my clients in China, is the profit squeeze: costs are consistently rising while pricing power in the immensely competitive marketplace is negligible. In fact, most companies' prices are falling. You don't need a Nobel Prize in economics to work out what effect that has on a company's financial performance. Some people find that they now have quite large businesses in China but that they are still struggling to get healthy margins from them even if they are profitable.
Walker is predicting that China's economic growth will slow to 5 - 7% next year. The stars he is projecting for 2006 which will maintain current growth rates:
Hong Kong (+6.5%)
Korea (+3.5%)
India (6.6%)
According to FinanceAsia.com Walker "...expects the majority of remainder of Asian economies to witness 50% declines" in GDP growth.
Feisty Mouse
Disneyland opened yesterday in Hong Kong with great fanfare and record-breaking smog blanketing the city. There has been much gnashing of teeth among those afraid of Shanghai that Disney is rumoured to be close to announcing a park there, three times larger than the 'mini-Disney' which they have built in Hong Kong - the smallest of the five parks the group now operates.
The New York Times' Keith Bradsher, writing in the International Herald Tribune, has a different angle on this, though, which highlights the ever-challenging regulatory environment in the mainland. Not long after Rupert Murdoch's efforts to do an end-run around restrictions on foreign ownership of TV channels were torpedoed, Disney now says, according to Bradsher, that any new parks in the Chinese mainland must be linked to access for its TV channels.
As Fons Tuinstra pointed out in his post on the same issue, though, this is pretty much the one thing that the Shanghai city government can't offer Disney! Although President Hu Jintao is now well settled into his job, the administration in Beijing still seems keen to prove its "hard man" credentials and media liberalisation is simply not on the agenda.
Monday, September 12, 2005
20 million 'dealers'
The Alibaba.com-sponsored China Internet Conference in Hangzhou has generated plenty of easy copy for journalists from all over the world. The Indian papers were full of it over the weekend and the People's Daily continues the theme it was addressing last week on how e-commerce is about to take off. It quotes Song Ling of the China Electronic Commerce Association as saying that there are now 20 million "e-commerce dealers". The turn of phrase may be a bit odd but the point seems to be that up to one-fifth of China's regular Internet users are using the web to buy and sell whether for personal or business purposes.
The offshore model
Fons Tuinstra, on his China Herald blog, has an interesting round-up of some of the commentary and issues surrouding the Yahoo/e-mail/journalist jailing story. There was some discussion about the role of Hong Kong in all this as, technically, under Hong Kong's "one country, two systems" formula, Chinese law enforcement officials have no authority to demand anything of businesses based in the Special Administrative Region.
This is cleared up in an update to Fons' post and one thing particularly caught my eye there:
...the servers of Yahoo's email service are actually hosted in Beijing. That would indeed offer Chinese judicial authorities a handle to demand cooperation. And it would indicate that hosting your servers in China might in this case be a less-than-smart idea.
For some years, a number of B2B magazine publishers have kept clear of the Chinese regulatory and legal minefields by adopting an 'offshore model', publishing in other places (usually Hong Kong) and mailing magazines into subscribers in China. It has some limitations but it still works even for publications as august as Fortune. As increasing numbers of B2B publishers look at going the on-line only route, it will be worth considering very seriously the risks and benefits of placing web servers within the borders of China.
Friday, September 09, 2005
Corporate BLOG created
At Hugo Martin's suggestion (on which it has taken me a while to act), we have created a separate, "corporate blog" for BSG where we will post news about our activities and services. Some work still needs to be done on the pages to add feeds, etc. but the basics are there and we welcome your feedback.
Reed criticises itself for 'arms link'
Bloggers like Paul Conley continue to raise concerns about what appear to be continuous encroachments on the editorial independence of business and specialist publications. We were tickled, then, to see this story on the BBC about how the august medical journal, The Lancet, one arm of the vast Reed Elsevier empire, is criticising another part of the company for its involvement in the Defence Systems & Equipment International show in London. You'd love to be at the next Board meeting when the heads of those two business units get to the coffee pot wouldn't you...
Thursday, September 08, 2005
e-commerce trigger
The other side of the online coin in China shows up in a People's Daily Online piece today. For some years, received wisdom has been that online transactions in China were going to be slow starters because not many people had bank cards. This piece suggests that there are now 875 million cards in issue in China, that they account for 30% of retail transactions in the more developed cities and the gross transaction volume on those cards was Rmb24 trillion (US$2.9 trillion) in the first six months of this year. Given that China's total annual GDP is around $2 trillion, I fear for a misplaced decimal point in that last figure but the basic point is clear; limited numbers of cards can no longer be considered a significant restraint on e-commerce in China.
Having been watching this market for 20 years, I often tell clients that there is one mistake I have repeated more often than most: that is underestimating the speed at which things change in China. If you find yourself saying "it will be years before xxx happens...", beware. Six months later, you'll probably find it going on all over the streets of Shanghai and Shenzhen.
Yahoo China and the press
Not much I can add to the wave of comment across the Blogosphere on the accusation that Yahoo's Hong Kong subsidiary assisted Chinese police to arrest mainland business journalist, Shi Tao. There are two business media angles to this:
- Yahoo China (but not Hong Kong, I think) is now controlled by Alibaba.com. They have previously been involved in relatively uncontroversial business areas such as providing an online showcase for Chinese exporters to the world. It will be interesting to see how they respond to the new challenges of involvement in the altogether trickier world of general media and online consumer services in which they now find themselves involved.
- Shi Tao is a business writer for the magazine Contemporary Business News. The view that China is 'light' on business publications when it comes to censorship has frequently been proven wrong by the way in which journalists who are seen to have transgressed are treated.
