Articles on this Page
- 09/17/14--18:29: _US Senator warns re...
- 09/17/14--19:38: _China home prices w...
- 09/17/14--19:49: _China and India's c...
- 09/18/14--16:23: _China’s charm offen...
- 09/18/14--16:34: _Alibaba looks to un...
- 09/18/14--16:40: _Stand-off overshado...
- 09/18/14--17:22: _China's free ride m...
- 09/18/14--17:47: _Chinese property in...
- 09/18/14--19:49: _China's Bank of Com...
- 09/18/14--19:49: _PBOC lowers banks' ...
- 09/18/14--20:49: _China and India’s g...
- 09/18/14--23:49: _Archer Capital Seek...
- 09/19/14--03:06: _GSK hit with China'...
- 09/21/14--17:48: _Can Alibaba keep gr...
- 09/21/14--17:49: _Alibaba's no silver...
- 09/21/14--17:58: _Alibaba IPO leaves ...
- 09/21/14--18:04: _Chinese and US tech...
- 09/21/14--18:13: _Will Alibaba transl...
- 09/21/14--18:18: _The RMB's long marc...
- 09/21/14--19:31: _Nanjing scraps hous...
- 09/17/14--18:29: US Senator warns regulators about Alibaba’s corporate structure
- 09/17/14--19:38: China home prices weaken in August
- 09/17/14--19:49: China and India's common ground
- 09/18/14--16:23: China’s charm offensive in Southeast Asia
- 09/18/14--16:34: Alibaba looks to unlock new markets
- 09/18/14--16:40: Stand-off overshadows China leader's trip
- 09/18/14--17:22: China's free ride may soon be over
- 09/18/14--17:47: Chinese property investors make big bets overseas
- 09/18/14--19:49: China's Bank of Communications starts bond sale
- 09/18/14--19:49: PBOC lowers banks' borrowing costs, cuts 14-day repo rate
- 09/18/14--20:49: China and India’s growing strategic weight
- 09/18/14--23:49: Archer Capital Seeks Asian JV Partner for Brownes Dairy: report
- 09/19/14--03:06: GSK hit with China's largest ever corporate fine
- 09/21/14--17:48: Can Alibaba keep growing without sacrificing high profit margins?
- 09/21/14--17:49: Alibaba's no silver bullet for Australian retailers
- 09/21/14--17:58: Alibaba IPO leaves investors wanting more
- 09/21/14--18:04: Chinese and US tech giants face off in the war for talent
- 09/21/14--18:13: Will Alibaba translate from East to West?
- 09/21/14--18:18: The RMB's long march to internationalisation
- 09/21/14--19:31: Nanjing scraps housing purchase limit
Regulators have not taken adequate steps to protect investors from Chinese companies that use a risky corporate structure to go public in the United States, according to a US Senator.
In a letter to the Securities and Exchange Commision, Democrat Senator Robert Casey of Pensylvannia said he remained concerned about the dangers variable interest entity structures pose and warned that improved disclosure measures alone would not be enough to protect investors.
VIE structures are used by hundreds of Chinese companies listed in the US as a way of circumventing China’s foreign ownership laws. Foreign ownership is prohibited in key areas of the Chinese economy, including in finance, media, education and the internet.
The letter, published in full at The New York Times, comes on the eve of Chinese e-commerce giant Alibaba’s initial public offering in New York, which is expected to raise up to up to $US25.03 billion ($A27.08bn).
Casey also requested regulators provide information to demonstrate they have enough resources to adequately scrutinise the activities of Chinese companies “including over 200 using VIEs” listed on American exchanges.
“Specifically, I would like to know if the SEC is actively engaged in investigative work on the ground in China," Casey wrote.
Paul Gillis, a visiting professor of accounting at Peking University’s Guanghua School of Management, told China Spectator in June that steps to regularise the VIE structure are likely in the next two years.
Read more: Is investing in Alibaba too risky?
Alibaba is expected to start trading under the ticker ‘BABA’ on the NYSE.
The average price of new homes in 70 Chinese cities fell at a faster pace in August, as property developers continued to cut prices to attract buyers amid a market downturn.
The average price of new homes in 70 cities fell for the fourth straight month in August, declining 1.10 per cent from July, according to calculations by The Wall Street Journal, based on data released Thursday by the National Bureau of Statistics.
This compares with a 0.89 per cent on-month fall in July and a 0.47 per cent fall in June. On an annual basis, the average price in August rose 0.51 per cent, moderating from a 2.43 per cent increase recorded in July.
Real estate and construction are important drivers of growth in the Chinese economy, accounting for more than 20 per cent of gross domestic product in the world's second largest economy, when cement, steel, chemicals, furniture and other related industries are factored in, analysts estimate.
Excluding public housing, private sector home prices fell in 68 of the 70 cities in August, up from the 64 cities that posted declines in July. Home prices only rose in the southeastern city of Xiamen, and were flat in the coastal city of Wenzhou.
Housing sales have also dropped this year. Home sales in China in the first eight months of the year fell 10.9 per cent to 3.43 trillion yuan ($559 billion), official data showed on Saturday.
In recent months, local authorities in at least 30 cities have also loosened property restrictions to lure buyers back into the market, but there has been little effect.
Prepare yourself for a glut of feeble anthropomorphic metaphors (elephants, pandas, tigers, and dragons are all anticipated) and bloviating communiqués: India-China diplomacy is underway.
Yesterday, President Xi Jinping began the first Chinese visit to India since the election of Prime Minister Narendra Modi. Laying the groundwork for this trip, Indian Vice President Hamid Ansari traveled to Beijing in June, followed by National Security Advisor Ajit Doval last week.
Xi's arrival is rich with symbolism, as the trip begins not in Delhi, as would be typical, but Ahmedabad. This is the commercial capital of Modi's home state, Gujarat, viewed by many (though not all) as a model of development for the rest of India. It is by some measures the most economically free state in India, and is still frequently invoked by Modi.
All this underscores the commercial dimension of India-China ties, a narrative that suits India, since it glosses over border disputes and regional competition, and reinforces Modi's twin foreign policy priorities of development and regionalism. From inviting the leaders of the South Asian Association for Regional Cooperation (SAARC) countries to his inauguration, to visiting Bhutan and Nepal, to resolving a maritime border dispute with Bangladesh, Modi has given admirably sustained and high-level attention to the India's periphery. This is something the previous government valued in theory but neglected in practice. Modi also decided to visit Tokyo (in September) before Washington (later this month), emphasising that his engagement with Asia would be paramount.
More specifically, the lure of future Chinese investment, a purported US$100 billion over the next five years and 'thrice the investments committed by Japan' during Modi's recent trip to Tokyo, has considerable value and little political downside (notwithstanding Nitin Pai's measured warning that Beijing seeks to use such investments as carrots and sticks). All this is couched in Modi's own cringeworthy neologisms.
The commercial narrative also suits China, which has been selling its proposal for a 'maritime silk road', a high profile but nebulous initiative to recreate a historic Chinese trade route through the Indian Ocean by developing maritime infrastructure and setting up free trade zones. During a visit to India last week, I found that most Indians continued to be baffled by the whole idea and slightly irked at China's reluctance to provide more details. One Indian naval officer has suggested that the scheme is a way for China to 'soften' and re-brand the much-maligned 'string of pearls', and the director of India's National Maritime Foundation has dismissed it as 'essentially a Chinese ploy'.
It was therefore unfortunate timing that the Maldives, which Xi also visited this week, decided to hand to a Chinese a firm a US$500 million infrastructure project which had earlier been in Indian hands. India's imperative for regional connectivity and inward investment clash with its suspicion of China's long-term intentions. This is a structural problem that transcends Modi and Xi, and it will continue to give Sino-Indian commercial ties an awkward, tense edge. This is something that is obviously absent in the official pronouncements but more than visible in any Indian newspaper. Full-throated Indian endorsement of the maritime silk road is therefore unlikely, particularly as India appears to be scrambling to turn an old cultural project for the Indian Ocean, Project Mausam (meaning 'Season'), into a copycat initiative.
More broadly, Xi's visit also has to be seen in the context of Modi's engagement with both Australia and Japan, both US allies concerned about the implications of growing Chinese power and assertiveness.
Modi signed a long-awaited and landmark civil nuclear agreement with Australia, dissected by Rory Medcalf and Danielle Rajendram last week. Although he could not finalise a similar deal with Japan, his visit to Tokyo did yield progress on the bilateral defence relationship, including a Japanese sale (and possible co-production) of the US-2 amphibious aircraft. In recent weeks, Modi's government has also been hyperactively leaking that India is in the 'advanced stages' of talks with Vietnam over the sale of the supersonic BrahMos cruise missile, which has been jointly produced with Russia. India and Vietnam, which the (ceremonial) Indian president is currently visiting, also signed a pointed statement on freedom of navigation in the South China Sea only yesterday.
India is therefore fostering a web of commercial and military ties across the region, the sort of 'middle power coalitions' that Rory Medcalf and Raja Mohan have described in their recent paper, while prioritising economic interaction, avoiding the language of containment or even balancing, and resisting 'a bloc-based Asian order with alliances and counter-alliances'. These relationships don't just strengthen India's regional influence; they also force China to court India more intensively, as it did in the decade after the US-India rapprochement. The trick is in getting the balance right, diversifying and upgrading India's Asian relationships as much as possible without provoking a Chinese reaction or getting dragged into others' disputes.
On the whole, this points to continuity. It is notable, for instance, that after years of condemning the Congress-led Government for pusillanimity in the face of Chinese border incursions, this Government has acted identically, resolving the latest reported incursion, last week, at the usual tactical level rather than escalating the problem. Modi is fine-tuning Indian foreign policy, not recasting it.
Originally published by The Lowy Institute publication The Interpreter. Republished with permission.
China has been in bitter disputes with Vietnam and the Philippines over territorial claims in the South China Sea. But if you were in Nanning this week attending the China-ASEAN Expo, there was little hint of that simmering tension.
Senior Chinese and Southeast Asian leaders, including a ranking member of the standing committee of the Politburo (the most powerful political body in China) and prime ministers of Singapore and Cambodia, senior ministers from Laos, Vietnam, Burma and Thailand have all turned up for the largest trade show in the region.
Chinese vice-premier Zhang Gaoli, a member of the standing committee of the Politburo, downplayed the tension with the China’s neighbors, focusing instead on the booming trade relationship with ASEAN, which is tipped to reach US$1 trillion within this decade.
“The peace and stability of the South China Sea concerns regional development and prosperity and the well-being of the people, hence serving the common interests of all the countries in the region, “ he says.
Beijing is also turning to ancient history to woo its Southeast Asian neighbours.
Chinese president Xi Jinping says the country wants to build a new 21st century maritime silk road with its neighbors, alluding to the maritime expedition of Chinese admiral Zhen He in the 16th century, who explored the region with his large fleet that reached as far as East Africa.
He has been promoting that message this week during his tour of Indian Ocean countries on the proposed route that include India, Sri Lanka and Maldives.
It is not hard to see why China is launching a charm offensive in the ASEAN countries. The region is of both vital economic and strategic interest to China and other regional powers like Japan and the United States.
Economically, the ASEAN countries continue to grow as an economic powerhouse with a combined GDP of $US5.6 trillion and more than 600 million people. China is the largest trading partner for the ASEAN countries, taking advantage of the free trade agreement signed in 2010.
Furthermore, the ASEAN Economic Community will come into existence at the end of 2015, effectively creating one of the world’s largest free trade areas. China wants to further entrench its economic position in the region by building a high-speed railway connecting Southwest China and Southeast Asia.
Zhang Gaoli also called for upgrading the current free trade agreement with the region, encouraging more trade and investment. Chinese businesses, both state-owned and private, are both showing increasing interest in investing in Southeast Asia.
Ministry of Commerce officials even encourage Chinese businesses to invest in the Philippines at a time when the bilateral relationship is at its lowest point due to escalating territorial disputes. The Chinese are busy building industrial parks throughout Southeast Asia to take advantage of the region’s cheaper labour, abundant natural resources and growing consumer markets.
China’s charm offensive is taking place at a time when its Asian rival, Japan, is also making a concerted effort to expand its economic influence in the region.
Japanese Prime Minister Shinzo Abe visited Indonesia, Vietnam and Thailand in January 2013 as his first foreign trip after his re-election. Abe also urged closer security ties with the region at the recent Shangri-La Security Dialogue organized by the London-based International Institute for Strategic Studies.
Abe said, “Japan will offer its utmost support for the efforts of the countries of ASEAN as they work to ensure the security of the seas and skies, and thoroughly maintain freedom of navigation and freedom of over flight.”
This is not to mention the US’ policy of a 'pivot' to Asia, which many Chinese view as Washington’s effort to contain China. “ With a belligerent Japan to its east, being on good terms with its western neighbours [ASEAN] is essential to providing China with much needed strategic stability as it focuses on growing its economy,” says the state-owned English newspaper China Daily.
Beijing’s charm offensive in the region is directed at improving it’s standing at a time when some ASEAN countries are becoming nervous about China’s assertive policy. One of the signature policies is to offer 150,000 scholarships to Southeast Asian students.
Zhang Gaoli, one of the country’s most senior political leaders told ASEAN leaders at the expo that China wants to resolve South China Sea disputes peacefully.
“China is ready to work with ASEAN countries to implement the Declaration on the Conduct of Parties in the South China Sea in a comprehensive and effective manner,” he says.
Peter Cai travelled to Nanning as a guest of the Chinese government.
Alibaba's record-setting stock offering due this week gives the Chinese online group a huge war chest that can help its global expansion.
Yet it remains to be seen whether the initial public offering (IPO) will propel Alibaba into challenger for the dominant technology firms like Amazon, Google and eBay, analysts say.
Alibaba this week boosted the price range for what was already expected to be the biggest stock offering on record, and will raise as much as $US25.03 billion ($A27.08 billion).
Alibaba would have a market value of $US163-$US168 billion based on the new price range.
A final offering price was expected on Thursday, which would allow the stock to trade on Friday, said sources familiar with the deal.
The IPO allows investors to get a piece of the huge Chinese market, but it also will fuel Alibaba's expansion plans.
Warwick Business School professor Qing Wang, who researches Chinese enterprises, said the IPO could be a watershed moment.
"Alibaba's IPO could well be the end of US dominance in the world technology sector," Wang said.
"Alibaba's annual growth rate of more than 30 per cent shows that the gap between the Chinese companies, Alibaba and Tencent, and US companies is getting ever closer."
Wang said that among the global internet firms, the biggest in terms of size are now Google, Alibaba, Tencent and Amazon.
The Britain-based academic said Chinese firms like Alibaba needed to be "highly entrepreneurial and market-oriented" and that this will serve them globally.
The research firm PrivCo said Alibaba, set to launch at $US66 to $US68 a share, is probably worth a lot more - as much as $US100 a share or $US240 billion - because of its "substantial and largely underreported string of private company stake purchases and acquisitions, which the data shows have only been growing in size and pace in recent years."
Other analysts were sceptical.
"Despite its dominance in China, Alibaba won't be sweeping away US market share in the near future," a Forrester Research report said this week.
"Rather, it will take a major acquisition or a number of years for Alibaba to pull together a platform that could compete with major players like Amazon, Apple, eBay, and Facebook."
Indian and Chinese leaders have pledged to resolve a long-running border dispute that led to a bloody 1962 war, with a stand-off between troops on the remote frontier overshadowing a rare summit in New Delhi.
India's Prime Minister Narendra Modi said on Thursday he had expressed concerns to China's visiting President Xi Jinping about "incidents" on the disputed border in the northern Ladakh region, where reports said hundreds of troops were facing off.
"I expressed concern on the incidents on the border and said peace and tranquility on the border is the foundation for good relations," said Modi at a briefing after talks with Xi.
"(Xi) agreed that the boundary question must be resolved soon."
The two countries have long been embroiled in a bitter dispute over their border, with both accusing soldiers of crossing over into the other's territory.
Xi, the first Chinese president to visit India in eight years, said Beijing would work with New Delhi to maintain "peace and tranquility" until the border issue was settled.
The neighbours, now nuclear-armed, fought a brief but bloody war in 1962 over the Indian state of Arunachal Pradesh and are still embroiled in a bitter dispute over the territory.
Last year India accused Chinese troops of intruding deep into Indian-held territory, sparking a three-week stand-off only resolved when troops from both sides pulled back.
Details of the latest incident remain sketchy.
An Indian army official who asked not to be named said there was "an ongoing situation" with Chinese soldiers in Ladakh, while a local MP said about 1000 Chinese troops had crossed into the Indian side of the disputed area.
K. G. Suresh, a fellow at New Delhi's Vivekanand International Foundation think-tank, said the timing was no coincidence and that it echoed an incursion when Chinese Premier Li Kequiang visited Delhi last year.
"I think the timing of the incursion is deliberate," he said.
Suresh said China wanted to convey the message that "you may have the best of relations with our arch-rivals Japan and Vietnam, but you will have to ultimately deal with us".
Modi has rolled out the red carpet for Xi, hosting a private dinner in a luxury riverside tent in his home city of Ahmedabad on Wednesday.
India's newly-elected leader is eager to secure Chinese funding to fulfil his election pledge to overhaul his country's crumbling infrastructure, which has held back economic growth in the country of 1.2 billion people.
But he has also signalled he will pursue a more muscular foreign policy than his centre-left predecessor Manmohan Singh, who critics say was too soft on China.
Eurasia's arc of instability is ablaze. Robert Kagan rails against America's impotence. A cartoon depicts Uncle Sam as a hapless fireman, impotent in eastern Europe and the Middle East; others see America itself as the arsonist. Henry Kissinger launches yet another book warning of chaos amid interdependence. Anglosphere pundits wring their hands over the West's declining influence, the rekindling of ancient feuds and the emergence of illiberal powers who would overturn the current order.
Amid the turmoil, Barack Obama jokes that he envies Xi Jinping: 'can't we be a little bit more like China? Nobody ever seems to expect them to do anything when this stuff comes up.'
Obama's quip, which lit up the Chinese state media, raises a serious point: what does Beijing think about all these troubles?
David Shambaugh's dismissal of China as 'a partial power' has drawn an impressive response. This debate over Chinese foreign policy is well worth reading. Surveying the world's various problems, China may possess abundant material and suasive power, but chooses not to intervene for one or more reasons: principle, indifference, internal preoccupation, or a grander plan to sit out events and wait for the expedient moment to present itself.
Realism, the self-interested pursuit of maximal power and security, would explain China's stand-offish positions on Ukraine and Iraq. Beijing's policy environment is hard for outsiders to read, but the opinions that are visible suggestChinese military solidarity with Russia and suspicion of American machinations in Ukraine are possible explanations. But that may just be the hawks squawking. What is officially stated is China's objection to sanctions on Russia, loudly announced when first-ranked Vice Premier Zhang Gaoli visited Russia's Rosneft oil company. Significantly, that same day Beijing signed up for a handsome stake in Rosneft's Vankor oil gusher, a concession to foreigners Putin has never before entertained, stating, 'but of course for our Chinese friends there are no restrictions.'
China wants the oil to keep flowing. Like in Iran and South Sudan, energy security appears high on its foreign policy priorities.
That is the case in Iraq too. Outwardly Beijing appears unconcerned about ISIS edging closer to its giant southern concessions. Perhaps it is confident others will act. There certainly is a strong feeling in China that Iraq is a mess made exclusively by Washington, and a reluctance to get involved. That would be understandable, yet the 'free rider' accusations have created contortions among those defending China's inaction. A Caixin column argues that China'must advance its influence through the area of trade and economic ties. The Chinese perspective is that the cause of instability in Iraq is fundamentally an issue of the country's economic conditions.'
This is a 'vision of global responsibility which holds economic engagement as the top priority.' At the recent CICA summit in Shanghai, Xi Jinping extolled 'economic sustainable development (as) the premise of security and peace.' China's spectacular boom, the argument goes, has been beneficial for global poverty, and arguably for stability. So, put bluntly, China best helps the world by helping itself.
It's a self-serving truth, like when Washington avows that 'the US Navy protects the world's sea lanes for free trade.'
The bigger question is what happens when China's power outgrows its calculative strategy. At some point, clever and pragmatic might start to look cynical and amoral. It is often said that China didn't create the current global order and therefore is not beholden to it. That raises the obvious question of what system Beijing would prefer instead. As a former Bush Administration official complains about China at the G20: 'They love to show up, but we're still waiting for their first idea.' He may not have to wait long. A new Chinese G20 think tank proclaims that 'China wishes to inject its wisdom and its ability into global management, especially reform of the international financial system. (We) made the fewest number of mistakes in financial management.'
Henry Kissinger's new book says America must stick to its values while reconciling with China and other powers to create a new world order. Whatever arrangement Kissinger has in mind (I haven't read his book yet) it presumably requires greater American consideration of China's realist interests. Beijing will not be the passive bystander Shambaugh sees today.
Originally published by The Lowy Institute publication The Interpreter. Republished with permission.
Over the past three decades, Xu Weiping has been an industrial designer, government researcher and appliance salesman.
Now he's seeking to build a £1 billion (US$1.63 billion) business district on the edge of London, one of a growing number of Chinese developers launching their first projects in big Western cities. His efforts say as much about China's global ambitions as they do about the economic challenges he and the government face at home.
The slowing of China's economy and the government's encouragement of diversification have sparked a global push among Chinese investors and developers. Last year, Chinese investors purchased more than $13.9 billion of overseas commercial property, according to Real Capital Analytics. That is more than the combined total for the four previous years.
The trend has cooled this year along with the country's economy. But the US$4.4 billion in deals in the first half is still more than the entire deal volume in 2012, when Chinese investors bought US$3.7 billion in foreign property, Real Capital said.
Some of China's largest developers are moving forward with construction projects in the U.K., the U.S. and other countries. They are being driven by tight lending by banks at home, increasing competition from smaller developers and declining demand for the large-scale projects that the big companies favor.
London, with a foreigner-friendly tax regime and robust financial framework, is one of the first places they target.
For developers, "it's a game of evolution," said Jingjing Ma, head of Asian investment in the U.K. at DTZ, a real-estate services firm. "The Chinese market is crowded. They have to develop growth overseas."
In the U.K., Mr. Xu was greeted with skepticism when he unveiled plans last year to convert a long-vacant, 35-acre patch of cracked East London asphalt into a magnet for Chinese companies, even though he had the backing of London Mayor Boris Johnson.
But since then, as Chinese real-estate investment in the U.K. and other foreign countries has surged, the project at Royal Albert Dock has gained traction.
Newham Council, the local government authority, granted planning permission this summer to Asian Business Port, the U.K. arm of Mr. Xu's China-based development firm Advanced Business Park. Surveying work has begun. Construction is scheduled to start next year.
A big test for the planned 4.7 million-square-foot complex will come in November. That is when, Mr. Xu says, 10 companies are due to make down payments for buildings that they intend to buy and occupy. He declined to identify the companies, but said, "I think most will come from China, at least at first."
Chinese investors from outside the mainland also have big plans for London. Up the River Thames, Hong Kong billionaire Henry Cheng Kar-shun is funding a £5 billion project on the 150-acre Greenwich Peninsula, where plans call for 10,000 homes, hotels, shops, and 48 acres of green spaces. The scale of the project—where work is under way on 500 homes—"takes so much capital," said Sammy Lee, vice chairman of Knight Dragon, Mr. Cheng's property-development firm. "This is out of reach for most to achieve."
Other Chinese developers active overseas include state-owned Greenland Group, which is involved in two London projects totaling £1.2 billion, as well as a housing complex next to the new Barclays Center arena in Brooklyn, N.Y. In San Francisco, a venture of China Vanke and Tishman Speyer Properties LP is developing two luxury condominium towers.
To be sure, Mr. Xu's Royal Albert Dock project still faces obstacles before breaking ground, such as lining up financing. Its success hinges on building sales, which will fund one-third of the project.
Mr. Xu's company will finance another one-third, while the final third will be financed by banks or international investors. Mr. Xu, 54 years old, said he met two interested Middle Eastern sovereign-wealth funds earlier this month.
For now, the formerly public land 8 miles from central London resembles a parking lot surrounding two abandoned government-protected buildings, which will have to be restored. The shipping industry left the area, heavily bombed during World War II, in 1981. Nearby neighborhoods are among the poorest in the city.
But Mr. Xu has a powerful ally in the administration of Mayor Johnson, which has been courting Asian capital to help address the growing city's lack of homes, and transform unused public land. "In fact, the name ABP, as Asian Business Port, came from a discussion with the mayor and his team," Mr. Xu said.
For Mr. Xu, a U.K. business park catering to Chinese companies reflects his own path out of China.
Mr. Xu studied industrial design in college and after graduation worked as a designer at an electrical engineering factory, and later as economic researcher in the government's rural development department.
In 1990, with 2,000 yuan—the equivalent of about US$400 at the time—he started buying and reselling the backlogs of appliances from factories. He built a business empire from there, founding Zhongnan Equipment Co., which produced domestic appliances based on 10 of his patents, he said.
In 1996, he sold the company and went traveling "to learn more about Western free markets," he said. Part of the trip was to the U.K., where he now spends a third of his time—he owns a home in Barnett, in North London.
Mr. Xu founded Advanced Business Park in 2003, hoping to capitalize on the rise of an entrepreneurial business class in China. The idea was to transform industrial wasteland into business parks for emergent companies.
The London project is his first abroad. Mr. Xu said he was eyeing another opportunity near the current Royal Albert Dock site, as well as prospects in Paris, Frankfurt and New York. He focused first on the U.K., he said, because "the U.K. is a very small country. So if you didn't snatch up the opportunities early enough, there wouldn't be any opportunities left."
One of China's biggest banks kicked off a long-awaited capital-raising spree in the global debt markets Thursday as the country's lenders grapple with souring loans and seek to bolster their capital buffers.
Bank of Communications, the country's fifth-biggest lender, has started meeting overseas investors to sell a type of debt that complies with new global regulations, according to people familiar with the matter. The lender has hired eight banks for the proposed debt offering.
The issuance of such debt, called Basel III compliance bonds, has been popular in Europe and growing in Asia but is only just starting to pick up in China. The Basel III bonds, which comply with tough new global capital rules known as Basel III, are deemed to carry more risk because investors could lose all their money if the issuer runs into trouble.
China's state-owned banks are expected to raise a total of $300 billion in the next five years via this type of debt and from equity sales, both onshore and in overseas markets, according to the country's banking watchdog.
Bank of China, for example, planned to sell $6.5 billion preferred shares offshore and met fund managers in London last month as part of early marketing efforts.
The amount that Bank of Communications is going to raise is yet to be determined, the people said, adding that the bonds will be denominated in both dollars and euros. The bank is meeting investors in Hong Kong, Singapore and Europe. Bank of Communications is rated A2 by Moody's Investor Services, A-minus by Standard & Poor's and A by Fitch Ratings.
Among the joint lead managers are J.P. Morgan Chase & Co., Deutsche Bank AG, Citigroup. HSBC Holdings PLC, Credit Suisse Group AG, Bank of Communications' Hong Kong branch, BNP Paribas SA and Bocom International, according to the people.
China's central bank made a second surprise move this week to ease monetary policy with a cut in short-term borrowing costs for banks Thursday, signaling growing concern in Beijing over the weakening economy.
The action follows a massive cash injection into the nation's top five lenders and comes just days after reports showed weakness in sectors from industrial production to real estate.
It also fuels expectations for more aggressive monetary policy easing down the road, altering the dynamics of a fierce debate among economists over how far Beijing would go to counter slower-than-expected growth. Similar moves in the past by the People's Bank of China have served as harbingers of adjustments to more widely used interest rates.
The latest attempt to boost lending and aid growth was in the money markets, with the central bank Thursday lowering the interest rate on the 14-day repurchase agreements, a short-term loan to commercial lenders, by 20 basis points to 3.50%. The central bank uses such market operations, which fall on every Tuesday and Thursday, to adjust the supply and cost of funds in the financial system.
"This is a significant policy signal. The chances of a benchmark interest rate cut are rising because the central bank is clearly guiding interbank rates lower now," said Liu Dongliang, senior analyst with China Merchants Bank.
Fresh signs of a slowdown in the world's second-largest economy also emerged Thursday as a report showed property prices slid for a fourth-straight month in August.
The weak housing market data followed other indicators of China's deceleration over the weekend, including a sharper-than-expected drop-off in industrial production growth for August to 6.9% year-over-year, the slowest pace since 2009, during the global financial crisis.
The deluge of dismal data has led economists, including those from UBS Securities, ING, Barclays and Royal Bank of Scotland, to say they expect Beijing will miss its 2014 economic growth target of 7.5% by as much as 0.3 percentage point.
The central bank is also injecting 500 billion yuan ($81 billion) into China's five major, state-owned banks, according to a senior banking executive briefed on the decision.
While the cash injection is considered a form of targeted easing measures, which Beijing has deployed in recent months to support select areas such as public housing and small business, the latest cut in the money market interest rates suggests authorities may be tempted to use more potent weapons to loosen credit.
China's leaders have so far appeared to have successfully resisted the temptation of use either large fiscal stimulus or aggressive monetary easing to arrest the economic slowdown. Instead, authorities have relied more on select infrastructure spending and targeted credit easing for banks, such as cutting the reserve requirement ratio for rural and city lenders.
On Tuesday, the official Xinhua News Agency even carried a commentary that described calls for an interest-rate cut as signaling "distrust" in China's reforms.
However, the central bank's unexpected move on Thursday has rekindled hopes for more decisive action.
"This is an important policy signal that China is engaging in more aggressive monetary policy easing to counter the economic slowdown," ANZ economists wrote in a research note.
If economic data remain weak in coming months, "we cannot discount the possibility of an outright 50 basis point RRR cut for the whole banking system, or even a policy rate cut," ANZ said.
The visit of Chinese President Xi Jinping to India this week, so early in the term of India’s new prime minister, Narendra Modi, underlines the growing strategic weight of the relationship between the two countries. Modi’s prime ministership, with its ambition to re-invigorate India’s stalled economic reform and growth, more than any other single factor, promises to accelerate its potential growth radically. Modi has runs on the board with China in bringing Chinese investors to his home state, Gujarat — as of last year about 20 Chinese companies had set up shop — and through his personal engagement.
Their sheer size and growth potential — particularly India’s — mean that China and India will be at the core of the Asian powerhouse over the coming decades. Over the past 20 years, the two countries have already more than tripled their share of the global economy. Adjusted for purchasing power parity (PPP), the Indian economy is now roughly the size of Japan’s. In PPP terms, China’s economy is likely to top that of the United States in the next year or two. One Goldman Sachs estimate suggests that India’s economy will surpass the US economy by 2043. For long the world’s second largest in population, the dynamics of India’s population growth will push it ahead of China’s in less than two decades.
Despite this, India will likely remain a lower-income country well into the century, lagging behind China and its BRICS counterparts unless it can throw off the shackles of outdated development strategies and a culture of bureaucratic inertia — satisfied with benchmarking itself to standards that don’t measure up internationally.
India has the world’s largest concentration of poor people, with more than 840 million living on less than US$2 a day and 400 million on less than US$1.25 a day. By 2050, with the world’s largest population, India will face multiple challenges around urbanisation, infrastructure, jobs, drinking water, and food for its citizens. Ironically, as its size and rising middle-class power lead many to highlight its role in powering the Asian century, unless its poor can be embraced in the process of growth, China-style, India’s escape from the middle-income trap will remain a dream.
Located in the right place and at the right time, how can India thrive, alongside its giant Asian neighbour? What opportunities does China offer India and what opportunities will the rise of India offer China? India is bound to a low per capita growth trajectory unless it can lift its annual growth rate by at least 2 to 3 percentage points. Is China a threat to India’s regaining its growth momentum, or does it offer a way out of continuing economic fragility?
These are the questions that will be at the back of the minds of Prime Minister Modi and his advisers as they welcome President Xi this week.
Although it would be rash to declare that there is any clear national consensus on the answers to these big questions about India’s future and its relationship with China, Modi’s instinct and his temperament will bring a measure of sureness to answering them that may well be the first steps in defining it.
Modi’s vision is of an India that can look out and compete in the world, finding its way with China and all the world’s major economies. It is of an India that will welcome more and more Chinese investment (together with that from Japan, South Korea and other international investors), taking up opportunities in manufacturing and services where China, for example, can longer compete or never could. And that is the India with which China’s engagement is growing deeper day-by-day and with which its leadership is looking to do business. It is not the defensive, protectionist, bureaucratic India that still too often carries the day, as it recently did when it inexplicably scrapped the WTO deal on trade facilitation.
As Sen explains in his piece on the visit this week, for Xi and Modi to redefine the bilateral relationship in this way, ‘the existing policymaking structures and thinking have to be discarded’. This is a big ask but it is one that, one senses, the Indian people were seeking when they swept Modi to power, as they sought new leadership and a transformation in national thinking.
What will drive these changes and India’s deeper integration into Asia with China, of course, is the inexorable force of India’s and China’s demographic dynamics and growing market size. It will do this by leveraging the two countries’ divergent demographics and their trade and geographic and cultural proximity. Failure to understand the force and potential of the growing weight in the India–China partnership continues to wrong-foot analysis in Washington and Canberra (and other places). The pace and scale of bilateral trade and investment growth between China and India is bound to match that of India’s other Asian partnerships.
But what of the baggage of history in the relationship, it might well be asked?
Sourabh Gupta in this week’s lead examines how Modi and Xi might pirouette around resolution of the border issues that have irritated relations for years. With India having signed on in principle to a package deal after four decades of hesitation, Gupta says, ‘the onus is broadly on China to guide the negotiations towards a successful, status quo-based closure. President Xi will likely want to fully size-up the strategic orientation of the new government in Delhi before committing China to a permanent resolution of the dispute. By admitting that the business transacted (by the British) at Simla a century ago was not as sacrosanct as many Indians have been led to believe, Modi can signal that India stands willing — and politically able — to fashion a creative boundary package that is shorn of the baggage of its colonial past’.
There are other important initiatives underway which might later be recognised as the beginning of a new regional cooperation dynamic. President Xi will confirm his invitation to Prime Minister Modi to attend the APEC Summit in Beijing in November (although India is not yet a member of APEC) and for India to participate in the Asian Infrastructure Investment Bank which China is currently in the process of launching.
Peter Drysdale is Editor of the East Asia Forum.
This article originally appeared on the East Asia Forum. Republished with permission.
Private-equity firm Archer Capital is seeking an Asian joint venture partner to invest in its Brownes Dairy business, the biggest producer of milk products in Western Australia state.
Asia's growing middle classes have been changing their diets to include more dairy, wheat and other types of food produced extensively in countries such as Australia and New Zealand. The trend has led to growing overseas interest in companies in Australia's agricultural sector, which are facing tougher times in their home markets.
Archer wants an investor to buy a significant stake in the business and then help Brownes distribute its milk products in markets across mainland China, according to three people familiar with the matter. It comes after the private-equity firm became frustrated at Australia's dominant supermarket operators, Woolworths Ltd. and Wesfarmers Ltd.-owned Coles, pressuring down prices paid to suppliers for milk.
Archer declined to comment.
In recent weeks, several Chinese state-owned enterprises and food companies have been approached about the potential tie-up, the people said. Archer has a shortlist of potential investors following discussions midyear, they said.
Any deal could value the business at around 250 million Australian dollars (US$224 million), they added.
Brownes processes 144 million liters of milk from 61 dairy farms each year, producing white milk, yogurt and flavored drinks for the Western Australian market. Archer bought the business from New Zealand firm Fonterra Co-operative Group Ltd. around four years ago.
Archer's move to put a stake in Brownes on the block coincides with a delegation of up to 30 Chinese dairy producers--including Hangzhou Wahaha Group Co. and state-owned China Resources Enterprise Ltd.--visiting for a dairy industry conference in Melbourne hosted by the Australian Trade Commission, or Austrade.
The group of Chinese dairy producers visited dairy farmland and processing facilities in Victoria, Tasmania and South Australia states, as they investigated possible milk-import deals and purchases of farmland and dairy herds, two people familiar with the tour's itinerary said. The tour was hosted by Austrade, industry lobby group Dairy Australia, and three state governments.
China Resources Enterprise is a Hong Kong-listed conglomerate with interests in food, beverage and brewery operations, including a joint venture with U.K.-listed SABMiller PLC in China's largest beer producer by market share. China Resources didn't return a request for comment, while Wahaha wasn't immediately available for comment.
For Archer, joining with an Asian investor could allow Brownes to increase margins on milk sales, which have been squeezed by an aggressive price war at Australian supermarkets. Retailers have sold own-brand milk for as little as A$1 per liter for the past three years, as they try to attract customers who then fill their baskets with more profitable products.
Local dairy farmers have criticized the Australian retail 'milk war,' claiming it is making many operations unprofitable.
The joint venture arrangement proposed by Archer follows distribution deals recently agreed by Australian dairy producers Norco Co-operative Ltd. and Freedom Foods Group to sell dairy products in China. Fonterra and Beingmate Group Co., one of China's largest manufacturers of infant formula, in August agreed to a deal that would see Fonterra gain access to the Hangzhou-based company's extensive distribution network. Fonterra said at the time it viewed China's infant-formula market as worth around US$15 billion.
Dairy assets have attracted strong offshore interest in recent years from bidders from as far afield as Canada, Japan and China. Canada's Saputo Inc. recently outbid Bega Cheese Ltd. and Murray Goulburn Co-operative Co. for Warrnambool Cheese & Butter Factory Co.
Parmalat Australia, a subsidiary of Italian food group Parmalat SpA, acquired-closely held dairy business Harvey Fresh for A$117 million in April, and Hong Kong entrepreneur William Hui acquired United Dairy Power for A$70 million a month earlier.
GlaxoSmithKline PLC said Friday that a Chinese court found its subsidiary in the country guilty of bribing nongovernment personnel and fined the company close to $US491.5 million.
Chinese state media said it was the largest corporate fine the country had ever issued.
The pharmaceutical company added that it had cooperated fully with the authorities and taken steps to comprehensively rectify the issues identified at the unit.
"The illegal activities of GSKCI [GSK China Investment Co. Ltd.] are a clear breach of GSK's governance and compliance procedures; and are wholly contrary to the values and standards expected from GSK employees, " Glaxo said in a statement.
Separately, Xinhua, China's main state media outlet, reported that Glaxo's former China head, Mark Reilly, was sentenced to between two and four years in prison, though it also reported the sentence was suspended for four years. Mr Reilly will be deported, Xinhua said. Xinhua didn't disclose details of the legal procedures surrounding Mr Reilly, including what he was charged with and what he plead to the charges.
Mr Reilly has been in China for about a year, after saying he was returning there to help Chinese authorities probing the case. Mr Reilly had stepped down from his position as Glaxo's China head shortly after authorities started investigating allegations of bribery at the company. He remained a Glaxo employee. The company didn't comment on Mr Reilly's sentence in a statement early Friday.
The sentences and fine come amid what business groups say is an increasingly chilly environment for foreign companies in China.
Last month a Shanghai court convicted two foreign private investigators who had worked for Glaxo for illegally purchasing personal information on Chinese citizens. The case raised questions about the limits of due diligence and other efforts to collect information in China, a market where industry data and corporate and executive backgrounds can be hard to come by.
In recent weeks the US Chamber of Commerce and other business groups have criticized what they said was a singling out of foreign companies for a growing number of antitrust probes. The probes have ensnared a number of foreign car and car-parts makers as well as technology companies like Microsoft Corp. and Qualcomm Co. The companies have said they will cooperate and abide by Chinese law.
China has said it treats foreign and domestic parties equally according to the law and that stepped-up enforcement is part of an effort to help consumers and to bring more market forces into its economy.
In August, foreign direct investment in China reached its lowest level in more than four years, a drop experts attributed to China's slowing economic growth as well as nervousness by some foreign companies. But they said the slowdown is likely to be temporary given that China remains a solid growth market with a growing consumer base.
Through its successful U.S. listing, Chinese e-commerce company Alibaba Group became one of the most valuable technology enterprises in the world.
But the real success of Alibaba's initial public offering will depend on whether it can keep growing without sacrificing its high profit margins of more than 40 per cent. That means deftly shifting its business model to mobile while fending off stiff competition from Chinese rivals.
Alibaba's shares rose 38 per cent in their trading debut Friday on the New York Stock Exchange, giving the company a market value of US$231 billion, higher than Facebook and Amazon.com. The steep valuation reflects high expectations that Alibaba, which raised US$21.8 billion in its IPO to set a U.S. record, will continue to see strong earnings growth amid a rise in China's middle class.
"Expectations are very high," said Peter Luo, an associate portfolio manager at RS Investments, which bought shares in the IPO. "Now Alibaba has to deliver the growth and meet the expectations."
Hangzhou-based Alibaba's profit margins are already among the highest in the industry. The company doesn't sell products itself like Amazon does. It earns a chunk of its revenue by charging merchants for advertisements on its Taobao and Tmall shopping sites. Thanks to a combination of ads and commission fees, Alibaba is more profitable than its U.S. competitors. In the second quarter, Alibaba's operating margin was 43.4 per cent, much higher than eBay's 18 per cent and Google's 27 per cent. Amazon had an operating loss margin of 0.1 per cent.
How to Taobao.
Alibaba's high margins are now under pressure as it spends heavily to adapt its e-commerce platform to mobile apps. There also is intensifying competition from Tencent Holdings, which is stepping on Alibaba's toes by connecting its popular mobile messaging apps with e-commerce services.
Still, Alibaba's shift to mobile is accelerating. Active users for its mobile apps increased to 188 million in June from 136 million in December. About a third of Alibaba's total e-commerce transaction volume of US$81.58 billion in the April-June quarter came through smartphones and tablets, compared with 12 per cent a year ago.
But growth from mobile isn't without challenges. Alibaba conceded in its IPO filings that merchants are paying lower rates for mobile advertising than they are for PC websites, without giving specific figures.
Many merchants who use Alibaba's Taobao and Tmall participate in auctions of search keywords. For example, when a shopper enters a keyword like "wristwatch," part of the search results shows products from merchants who placed the highest bids for the keyword to make their product more visible. Bid prices vary according to how much merchants are willing to pay Alibaba each time a shopper clicks on their products.
Merchants generally pay 3 yuan to 5 yuan (49 cents to 81 cents) a click, said Atsushi Watanabe, a consultant at Shanghai-based T.U. Business Consulting Co., which helps Japanese merchants use Taobao. Apart from search keywords, some merchants also pay for ads that are displayed on the home pages of Taobao and Tmall.
RS Investments' Mr. Luo said he asked Alibaba executives attending the IPO roadshow in Singapore whether its e-commerce business can be as profitable on mobile phones. Mr. Luo said Alibaba senior executives explained that if consumers spend more time using Taobao's mobile app for product searches and shopping, merchants will start placing higher bids for mobile search keywords and mobile ads will become more lucrative.
Alibaba declined to comment.
Analysts say Alibaba is under more pressure because Tencent is connecting its popular smartphone messaging apps, WeChat and Mobile QQ, with e-commerce services. WeChat, with more than 400 million users, and Mobile QQ, with about 500 million, allow people to, for example, purchase movie tickets or book a taxi in addition to online shopping. Both apps are equipped with Tencent's own electronic payment system. Earlier this year, Tencent bought a 15 per cent stake in JD.com, China's second-largest e-commerce company by transactions after Alibaba, and integrated JD's online store into its messaging platforms. Tencent also is recruiting small businesses to sell their products through WeChat.
Marco Ma, an e-commerce manager for Factory Five, a bicycle shop in Shanghai that runs an online store on Taobao, received a phone call last month from an official at Tencent's WeChat messaging app unit who offered to let Factory Five conduct e-commerce through WeChat free of charge.
Inside the online shops.
Tencent approached Factory Five with the offer around the same time the bike shop was redesigning its store on Taobao's mobile app using software tools provided by Alibaba, Mr. Bates said. But so far, Factory Five's Taobao store generates far more sales than its WeChat store, he said.
Data so far show few signs of threat to Alibaba's e-commerce dominance. Taobao's mobile app accounted for 86 per cent of China's online shopping done through smartphones and tablets in the second quarter, according to iResearch.
But Tencent could be a threat in the future if more consumers warm up to the idea of linking social networks with commerce, Jefferies analyst Cynthia Meng said. "If people are spending so much time on WeChat and Mobile QQ, there will be little time left for other apps," she said.
Chinese e-commerce giant Alibaba has landed on the New York Stock Exchange and its stellar debut is the latest step in a fifteen year journey that has seen the Hangzhou-based company blossom into the world’s largest online retailer – bigger than Amazon.
On the face of it, Alibaba is a silver bullet for Australian retailers. With analysts predicting that as many as 500 million Chinese could enter the global middle class over the next decade, the e-commerce platform is a reliable way of establishing a beach-head in the region and selling products and services to this rapidly expanding consumer market. According to accountancy firm KPMG, more Chinese consumers engage in online shopping that anywhere in the world.
However, e-commerce in China has some unique characteristics and requirements compared to other markets. For example, the Chinese consumer typically prefers to pay upon receipt of their goods rather than in advance, adding a layer of complexity to billing and transactions. Simplified Chinese and its vast character set are also challenging to integrate into a web platform. This is why many retailers look to Alibaba as a default - a ready-made, turn-key solution that sidesteps the quirks of the Chinese marketplace.
Despite its clear benefits, Alibaba also poses a number of risks to e-retailers looking to grow share of mind and wallet in China, particularly those with an established footprint and an international brand presence. For example, if you open a web store on Tmall, Alibaba’s popular B2C platform, the ability to manipulate the look and feel of the user experience is limited.
E-retailers that rely on a strong, vibrant brand identity to drive sales – fashion, luxury, food and drink – often complain that Alibaba restricts their ability to create an online experience that surprises and delights consumers in the same way a dedicated website can.
The growth of mobile shopping – via smartphone, tablet, phablet – exacerbates this issue further. China is the world’s largest smartphone market, and its consumers spent in excess of US $27 billion shopping on mobile devices in 2013. If an Australian retailer relies on Tmall, it allows Alibaba to disintermediate its relationship with its mobile customer base. It loses control of vital customer data, its carefully-crafted brand experience and the opportunity to directly manage and influence the consumer’s path-to-purchase.
The rise of multi-channel shopping has driven the explosive growth of omni-channel commerce solutions. These are platforms that join up the consumer journey seamlessly across channels like mobile, in-store, website, social media, contact centre, ensuring a customer’s experience of a retailer – price, look-and-feel, content – is consistent, contextual and relevant. It is by following an ‘owned’ omni-channel strategy alongside a robust Alibaba presence that leading brands have thrived in China so far.
Product and inventory management are also an important component of a robust omni-channel commerce strategy. For Australian retailers wanting to operate multiple sites in different languages and different markets, the ability to update product information once, and for it to update immediate on any channel, anywhere is enormously powerful. Some platforms – like hybris – offer integration with Alibaba so status and stock data is automatically synchronised with, and updated on, the Tmall storefront in real-time.
Alibaba is vital to any Australian retailer’s strategy in China, as it engages the Chinese consumer and drives growth, but it’s important that brand integrity isn’t tarnished by operating on a platform you can’t fully control. An omni-channel commerce strategy will help to manage a series of ‘owned’ channels in the region – web, mobile, contact centre, social media, allowing the retailer to build a meaningful audience relationship and brand identity.
Stefan Schmidt is the vice president product strategy, hybris
Despite the big pop enjoyed by participants in Alibaba's initial public offering, investors were still hungry after the company made its trading debut at US$92.70 on Friday morning.
Retail investors only got about 10 per cent of the shares sold in the IPO on Thursday night, and some two-thirds of that was set aside for friends, family and employees designated by Alibaba itself, according to people familiar with the deal.
That left just about 4 per cent of the offer for the broader universe of retail investors, a roughly US$1 billion chunk that hardly satisfied demand. Investors anxiously waited at their computers on Friday morning for a chance to buy a piece of the Chinese e-commerce company even as shares at times neared the US$100 mark.
One such investor, Scott Motley, never bought shares after an IPO before, but when he learned about Alibaba a year ago from a couple friends from the Air Force Academy who like to invest in the stock market he knew he wanted in. "We're trying to build up so we can buy our yacht one day," he joked.
Mr. Motley, 34, planned to purchase about US$2,500 to US$5,000 of Alibaba stock, but Friday morning, at the urging of one of his friends, he decided to buy more. He sold some of his Apple stock before Alibaba started trading to free up extra cash. Then he waited.
"I was watching it all morning. Saw it hit the mid-80s, the upper-80s, then boom! It's out there. I pulled up my stock trading app and it showed the sucker is at US$96 and US$97," he said.
He waited for a slight pullback and purchased US$7,500 at about US$93 a share.
Dawn Smith, 58, a news account executive from Denver, said she called the office Friday morning to tell them she would be late. Stationed in front of the TV with the computer on and the buy order ready to go, she originally said she would buy until the price hit US$75. As the price estimates inched up, she reconsidered, "If it goes to US$90, I'm out."
When she could no longer wait at home, Ms. Smith rushed to work and asked to turn on the TV, while continuing to keep a close eye on her online brokerage account. "I have three screens open and keep hitting the refresh button," Ms. Smith said.
When the estimates broke US$90, she was faced with another tough decision. "My absolute no-go-over is US$95," she insisted. If it goes over that, "I am double for sure out."
When shares finally started trading, Ms. Smith said she was able to process her order at exactly US$95. She had originally planned to invest US$3,000 but scaled that down to US$2,000 as the price shot up.
"Thank god I have a flexible job," she said.
Chris Kateyiannis, a sophomore at Ohio State University, had Chinese class from 9 a.m. to 10 a.m. "Apparently I can't set up my orders in advance so I'm gonna be ignoring my Chinese professor on Friday," he tweeted earlier in the week.
Mr. Kateyiannis said he placed an order with an US$81 cap before he walked into class. By the time he got out, the opening range had already risen to US$82-$85. Mr. Kateyiannis decided he was still in, even if he had to buy fewer shares. With his next class beginning at noon, he was able to pick up some shares at US$94.79, right before he had to go to calculus.
The level of demand for Alibaba stock from retail investors surprised Steve Quirk, senior vice president of TD Ameritrade Holding Corp.'s. Based on the number of calls the discount broker received before Friday's trading debut, it didn't appear there would be this much interest in the stock, he said.
Instead, it looks like Alibaba may be the second-largest IPO on TD Ameritrade with respect to first-day trading, falling behind only Facebook, Mr. Quirk said. When Facebook made its debut, roughly 22 per cent of TD Ameritrade's volume came from trading in the social networking company's stock. Alibaba is looking to track at about 15 per cent of TD Ameritrade's daily trading volume Friday, Mr. Quirk said.
As of 1 p.m. EDT, orders for Alibaba at Fidelity Investments were running 10 per cent higher than for Facebook's debut and three times higher than Twitter during the same time frame, according to a person familiar with the matter.
Still, other would-be investors were turned off by the stock's nearly 40 per cent bump when shares began trading just before noon on Friday.
Brent Summers woke Friday morning at 6 a.m. with plans to purchase Alibaba shares once trading began. But as he was getting his four children ready for school at his Chandler, Arizona, home, all the while checking his iPhone and iPad for real-time updates on the IPO, he realized the per-share price would be far above the US$70-something he was willing to pay.
"It's been at fever pitch. I didn't think it would open at US$92.70," Mr. Summers said.
Mr. Summers, 42, said he is working from home and will continue to monitor the stock but doesn't plan to buy Friday unless the price comes down.
"If it pulls back I still may think about putting an order in, but not at peak levels," he said.
Meanwhile, other potential investors plan to closely watch Alibaba trading in the coming days and weeks.
Lucy Zhang, who works at an Internet company in the southern Chinese city of Shenzhen, didn't have enough money for an entry-level subscription to the sale before the IPO. She said she would watch the price in the coming days and weeks and possibly buy shares via her broker in the U.S.
"I may do some quick, short-term investment after the stock is listed, since according to my observations, many Chinese companies rise sharply in the first week or two," she said. "Then I will watch for a good chance for long-term investment."
Alibaba’s spectacular debut on the New York Stock Exchange has signalled the coming of age for Chinese technology companies. The e-commerce giant is valued at over $231 billion, more than Facebook or Amazon and eBay combined.
The successful initial public offering puts the US on notice that global tech exists outside Silicon Valley. While American tech analysts and companies will closely watch Alibaba’s next move, there is another war going on between Chinese tech companies and their American competitors: the battle for talent.
Just prior to Alibaba completing the largest tech IPO in US history, one of Microsoft’s top executives in China defected to the country’s top search engine company, Baidu. Zhang Yaqing, a Microsoft veteran for 15 years and the former chairman of its Asian-Pacific research and development group, joined Baidu as the president for new business, reporting directly to chief executive and founder Robin Li.
This is Baidu’s second significant hire after the company lured Andrew Ng, a Stanford computer science professor who headed the Google Brain artificial intelligence project and also co-founded the online education start-up Coursera earlier this year as the company’s chief research scientist.
Ng told Forbes he left Google for Baidu as the Chinese company offers better resources, organisation nimbleness and Chinese work ethics. “One thing I’ve learned about Baidu is the incredible degree of nimbleness the organisation has. To give you an example, when Kai Yu [a leading computer scientist], decided to build a graphics processor cluster, he just made a decision and then it happened,” he said.
The company, dubbed ‘China’s Google’ established the Baidu Institute of Deep Learning last year to engage in cutting-edge technological research such as big data analysis, human-computer interaction, 3D vision as well as image recognition. A distinguished team of mostly ethnic Chinese scientists joined the institute.
New hires including Wei Xu, who was a research scientist at Facebook and was behind the development of a large scale recommendation platform used in various Facebook products, and Ren Wu, the former chief software architect of heterogeneous system architect at AMD, a leading a semi-conductor company that develops processors.
These moves and new hires would be unimaginable just few years ago. In the past, the best-performing Chinese science and engineering graduates flocked to the US to join American tech companies and leading research laboratories. They still do today but they have another attractive option, their country’s home-grown tech giants such as Alibaba, Tencent, Baidu and Huawei, who are taking on their Western incumbents.
These Chinese tech giants are not only targeting scientists and engineers of Chinese background; they are also hiring non-Chinese talents. For example, Xiaomi, a fast-growing Chinese smartphone company hired Google’s vice president for Android, Hugo Barra, last year. The news sent shockwaves through the tech community.
A US tech website wrote at the time: “A Chinese Android start-up has nabbed a key executive from the Android team itself.” The smartphone maker, which was valued at $10 billion during its last round of fund raising, is the world’s fastest growing smartphone maker.
In 2011, Chinese tech giant Huawei hired the British government’s chief information officer John Suffolk to be its first global cyber security officer. The hire was widely seen as an attempt by the company to address growing concerns about cyber-security issues, especially in light of Huawei’s alleged connection to the Chinese government.
However, not all new foreign hires fit into their new environments. Colin Giles, a former Nokia senior executive, lasted less than a year at Huawei as executive president of its Consumer Business Group. Huawei’s founder Ren Zhengfei said “I personally approved Colin Giles’ resignation and it was very painful for me. He could not survive here and the conditions were not right and we couldn’t keep him.”
Ren emphasised Huawei must adapt and change itself to be more welcoming of foreign talents. “If we can’t keep the best foreign talent, how can we become the world’s best company,” he said in a rare interview with Chinese media in June.
Chinese tech giants such as Baidu, Tencent, Alibaba and Huawei want to shed their images as American copycats and are investing heavily in research to develop new cutting-edge technology. Their new hiring sprees of Western scientists and engineers are a strong indicator of their global ambitions.
These companies are not only competing with Western rivals for market share and consumers, but also for global talent. It is time Western companies took notice.
Alibaba shares will start trading on the New York Stock Exchange in a record-breaking initial public offering (IPO) which could end up raising US$25 billion. Investors have bought into a new kind of internet company – an ecosystem more than a service – which came out of a frenetic battle between emerging Chinese internet giants. Their gamble is that CEO Jack Ma can make an Asian ecosystem work in the West.
As the largest internet company in China, it will become the 8th most valuable technology company in the world, behind the likes of Apple, Google, Microsoft, Facebook and IBM. And, with annual growth rates of more than 30 per cent, the gap between Chinese companies such as Alibaba and Tencent and their Western counterparts is getting closer. In fact, with Alibaba’s listing, Chinese internet companies share the top four spots equally with the US in terms of their market value. In descending order, these are: Google, Alibaba, Tencent and Amazon.
The strong performance and rapid rise of China’s tech firms may shock some – outside of China, Alibaba is not a household name like Amazon or Google. But, with hundreds of millions of users hosting millions of merchants and businessmen, Alibaba handles more business than any other e-commerce company. It is, of course, China’s enormous and fast growing domestic market that has spurred the rise of these tech companies to service their needs.
Fast moving innovator.
But there is more: the competition in this domestic market among Chinese companies as well as with other multinationals is extremely fierce. Successful private companies like Alibaba have to be highly entrepreneurial and customer-oriented to survive, let alone thrive. For example, Alibaba recently introduced online payment platform Alipay Wallet and taxi-calling features in an attempt to compete with rival Tencent’s highly successful WeChat.
There is little doubt that Alibaba is a fast moving innovator in the world of e-commerce. It has created its own model by constantly adding and integrating new functions and features, driven by the needs of its customers and the desire to offer them something that competitors such as Tencent, Baidu and eBay do not have.
In terms of the value proposition and business model, Alibaba differs from its Western counterparts. Take Google and Amazon – they both specialise in one area: Google aims to be the best search engine and Amazon the best online retail store. The way that they have positioned themselves in terms of the market reflects the game they played when they first opened up shop. This was to compete with bricks and mortar companies such as Walmart.
Alibaba is part of the next generation of internet companies. It is first and foremost focused on creating online ecosystems rather than specialising in a niche service. Its main focus is to create new services for customers who have been brought up in and who are highly versed in the world of the internet.
From East to West.
A big question though for Alibaba is whether the innovative capabilities and competences that it developed in a Chinese environment will be transferable to the West. The ability to understand customers intimately and continuously innovate is transferable in principle, but will need significant adjustment before it can become a truly global player like Google and Amazon.
The needs of customers in the West may be very different to those in China, and so the innovative features they have successfully introduced there may not float the boats of Western consumers. Alibaba may also lack the closely knit business network and institutional support that would be critical for the company to create an online ecosystem outside of China. However, these are not insurmountable problems, and their expansion overseas is more likely to start in emerging markets such as Africa and Asia, where Alibaba is much more recognised and admired, than in Europe and North America.
If Alibaba’s Jack Ma can navigate a route to reach Western markets successfully, then there will be others in China waiting to ride in his wake. Competition among Chinese companies in the tech sector is very strong. It comprises some well known names such as Lenovo, Huawei, Baidu and Tencent, as well as some promising newcomers like DJI and Xiaomi. Their battling rivalry has given them the motivation and tools to innovate and promote themselves in a way that gives them a foothold to compete in the global market. And it means that China will continue to chip away at US dominance in the world technology sector.
Qing Wang does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
Over the past several decades, we have seen how the People’s Republic of China’s (PRC) high economic growth and increasing economic integration with other countries have led to a dramatic increase in the PRC’s clout in global output and trade.
Just look at the facts. The PRC is the world’s second largest economy, accounting for 12 per cent of global gross domestic product in 2013. It is also the world’s largest exporter and second largest importer, accounting for about 12 per cent of world trade in 2013. Attracting more than US$110 billion in foreign direct investment (FDI) in 2013, the PRC is the world’s largest developing country recipient of FDI inflows. It is also the world’s largest holder of FX reserves, with a total of US$3.8 trillion in reserves at the end of 2013.
The PRC may be a globally significant economic and trading power, but the market share of its currency, the renminbi (RMB), lags well behind the US dollar and the euro.
RMB internationalization a gradual approach
To align the RMB with its growing global stature, the PRC has embarked on a strategy to internationalize the RMB. Typically, it is taking a gradual approach. In this, it has embarked on a number of initiatives designed to encourage the wider use of the RMB and raise its status in the international monetary system.
These measures include allowing foreign investors access to domestic capital markets, through programs like the Qualified Foreign Institutional Investor and the RMB Qualified Foreign Institutional Investor. It has also increased flexibility of the exchange rate—the RMB trading band has been widened to +/- 2 per cent. Also, through the use of RMB as a settlement currency for cross-border trades, the PRC has been gradually expanding the use of RMB in bilateral trade settlement agreements.
There are other steps being taken, such as the development of RMB deposit accounts and the opening of the offshore RMB market. The PRC has also opened offshore RMB centres, such as in Hong Kong, China; Singapore; and London.
The result has been the emergence of the RMB in the international monetary system. For example, the RMB is beginning to play a role in international trade transactions. In December 2013, the RMB overtook the euro to become the second most used currency in global trade finance after the US dollar. The PRC’s international trade has also grown at a compound annual growth rate of 19 per cent from 2001 to 2013.
RMB bond market getting a boost
The rapid expansion of RMB trade settlement together with other policy and regulatory steps have bolstered the growth of the RMB bond market in Hong Kong, China (also known as the dim sum bond market). From only CNY10 billion in 2007—the year when the first dim sum bond was issued—RMB-denominated bond issuance in Hong Kong, China significantly increased, to CNY372 billion in 2013. In the first 3 months of 2014, bond issuance reached CNY338.8 billion.
The number of bond issuances has likewise climbed steeply from just five in 2007 to 891 in 2012 and 1,160 in 2013, while the number of bond issuers increased from just three in 2007 to 132 in 2013. From January through May 2014, 890 bonds were issued by 107 issuers.
While the bulk of RMB bond issuances originate from companies based in the PRC and Hong Kong, China, issuances from other economies have also grown through the years. In 2010, issuances by firms outside PRC and Hong Kong, China accounted for only CNY5.4 billion. By 2013, their RMB bond issuances amounted to RMB76 billion. As a share of total RMB bond issuance, their share has varied from about 13 per cent to 35 per cent.
Trade settlements have contributed to the rise of the RMB as a global currency. According to SWIFT, the RMB only had a 0.31 per cent share in world currency payments in 2011. In March 2014, however, its share had more than quintupled to 1.62 per cent. The RMB’s ranking in world currency payments has also increased. In October 2011, it was ranked seventeenth in usage but by March 2014, its ranking had shifted to seventh position. Indeed, the RMB is gaining on the Canadian dollar (which held a share of 1.83 per cent, ranking sixth) and the Australian dollar (with a share of 1.84 per cent and fifth in rank).
So while good progress has been made, there is plenty of work to be done. Trade settlements and bond issuance have increased, but from a low base. There have been some relaxation in restrictions on capital flows, but the capital account is still largely controlled. The exchange rate is controlled.
There is a positive trend in RMB as a reserve holding, but it is small compared to other global currencies. Financial markets are not as deep and liquid as those in developed countries, and are much less than those with global currencies. While the accomplishment is impressive, the RMB is far from being a full-fledged international currency.
The PRC is moving in the right direction with these measures and producing positive results. But these developments with the RMB are more a result of the PRC opening up its capital account and deepening its financial markets rather than the pursuit of specific policy goals. All these trends will develop a critical mass over time and have the potential to start transforming the global monetary system.
This article was first published by the Asian Development Bank (www.adb.org). Republished with permission.
Nanjing, the capital city of Jiangsu province, has ended its housing purchase restrictions, signalling the latest move by local governments to shore up China’s housing market.
Nanjing municipal government said buyers were no longer required to produce new homebuyer certificates before they could buy homes in the city. There are only six cities left in China -- Beijing, Shanghai, Guangzhou, Shenzhen, Sanya and Zhuhai -- that still restrict people from buying houses.
Floor space sold in Nanjing dropped 34 per cent during the first eight months of 2014.
House prices have declined across the board during the first eight months of the year, including in tier one major cities like Beijing and Shanghai. House prices dropped one per cent in tier one cities last month, an unprecedented result following years of skyrocketing increases.