Tag: China

Professional’s Guide to Understanding China

I had been hearing a lot about China for the past many years. Mostly, my understanding was based on the news from US & European media and to some extent from the Indian press. The news, either was dominated by over-optimism of the Chinese Economic miracle or by pessimism of an economic collapse or sometimes by concerns of national security & impending conflicts.

This swinging pendulum often confused me and I am sure many of you will agree. China for long had been a closed country and the cold war paranoia didn’t help. The sudden opening up of the economy has helped Chinese and global economies to establish deep ties. But the gap in understanding Chinese economy, business environment, politics, culture, and society still remains.

India & China are neighbors with the potential for bilateral trade to cross US & China’s in the coming decades. But I feel that people from both sides seem not to have a good grasp of the other. In fact, people from both countries have a far better understanding of US than each other.

China is here to stay. Sooner or later, most professionals will encounter Chinese as potential suppliers, clients, business partners, colleagues & even make a few friends. Although the best way to start understanding a different culture/society is by learning the local language. However, for a lot of working professionals with packed schedules taking a significant time out to learn Mandarin might be a bit difficult.  For the enthusiasts,  better get enrolled in the nearest Confucius Institute.

For the rest, I have shared my own experience of how I went about exploring China. It initially started as a curiosity, but later I became engrossed in learning more and more. It was quite haphazard for me….so, I have given it a bit of structure

China and the World

Books form an important component of this journey as Chinese history, society and political-economic system has evolved very differently. There is a need for depth to understand & analyze any news/information regarding the Middle Kingdom. My only suggestion is to keep an open mind.

Books that I have read:

Dealing with China by Henry Paulson Jr (By far the most comprehensive)

China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies are Changing the Rules of Business by Edward Tse (Focuses on the changes happening in the Chinese Economy)

The Hundred-Year Marathon by Michael Pillsbury

Alibaba’s World by Porter Erisman

The China-Pakistan Axis: Asia’s New Geopolitics by Andrew Small

The Himalayan Face-Off by Shishir Gupta

 

Other Books that I recommend:

One Child  Policy: China’s Radical Social Experiment by Fong Mei

Taiwan’s China Dilemma by Syaru Shirley Lin

Will Africa feed China? by Deborah Brautingam

Apart from books, I really recommend watching Al Jazeera’s documentary series 101 East. There are quite a few episodes on China. The Wired UK documentary on Shenzhen was also interesting.

In addition, you can follow USC US-China Institute & Hudson Institute YouTube Channels. Discussions cover a variety of topic (although they can a bit boring sometimes). You can a shorter version of the above books in video discussions.

You can also follow Chinese state media like CCTV International (for the latest Panda Videos), China People’s Daily & Xinhua. Or get counter perspectives from NTD TV.

There a few issues which will decide the direction China is going to take. It is good  to get an idea to keep yourself up to date with them:

  • China’s Anti-Corruption movement
  • Chinese economic reforms under President Xi Jinping
  • One Belt One Road Initiative
  • Chinese business expansion in African Continent
  • China Debt Bubble (estimated to be 300% of GDP)
  • Overcapacity in Real Estate & Infrastructure
  • Aging Population (Negative impact of One Child Policy)
  • The South China Sea (Potential conflict with its neighbors Philippines, Vietnam and US)
  • The East China Sea (Potential conflict with Japan & US)
  • Indo-China border issue

 

Hope this helps !!

From the Dragon’s Heart: The Rise of Chinese Entrepreneurs

The rise of China as a Global power has become are more visible in India today, as Chinese Businesses have made increasing inroads into the Indian market in the past few years. With India becoming the world’s fastest growing economy and poised to continue this path for a decade, Chinese Entrepreneurs are looking to invest in India & bring along their own way of doing business.

In such a scenario, I revisit the book – China’s Disruptors written by Edward Tse in 2015.

The book not only talks about well-known players in India like Alibaba, Xiaomi, Lenevo, Baidu (Search Engine) & Tencent (WeChat) but also not so well known companies like online supermarket Yihaodian, Noah Wealth Management started by Wang Jingo, Real estate giants like Wanda Corporation & Broad Group and China’s very own YouTube – Youku.

A lot of what the author had said about China’s Entrepreneurial culture and Chinese Entrepreneurs is more relevant for the Desi Players today. The reasons are multi-fold:

1. Chinese manufacturers are looking to set-up shop in India: With increasing labor costs in China and anti-dumping duties, major manufacturers of smartphones, solar panels are getting attracted to India’s labor pool and domestic market.

2. Chinese Investors: As Chinese economy slows down, investors are looking for new opportunities in growth. India is right now where China was in 2004 and is the destination to invest for the coming decade.

3. Chinese Internationalisation: Chinese SOEs & Entrepreneurs have been making huge in-roads in the US markets through big-ticket acquisitions. Their strategies will be replicated in India too.

4. Experience of Chinese Counterparts: Lessons from Chinese entrepreneurs who successfully challenged their western counterparts.

What we can learn –

1. A policy focused Forum: India has multiple traditional business forums like NASSCOM, CII & FICCI but it is time, that the new age entrepreneurs of India get a voice of their own in shaping the direction India moving in. The China Entrepreneurs form (CEF) with its serious policy focus even in a restrictive political environment is something we should take inspiration from.

2. Sustainable manufacturing practices: As “Make in India” initiative tries to make us the next manufacturing hub, let’s just take a step back and analyse the mistakes done by China when it comes to the Environment. Polluted cities, un-breathable air and rising healthcare costs are things we can avoid

3. Ditch the Jugaad: The cutthroat competition among Chinese companies made continuous improvement and innovation a necessity to stay ahead of the curve. Sometimes entrepreneurs are even forced to find new opportunities in different areas, as they were never sure of a safe source of constant revenue, which won’t be challenged. Indian traditional businesses have not faced such a challenge before. With increasing Chinese inroads into the market its time to change our approach or perish.

4. Focus on local needs: The author emphasised that the Chinese counterparts were able to outwit their western counterparts because they focused on creation of products & services, which are more in line with local needs rather than just copying the business models of the west. This is how Alibaba was able to beat Ebay and Hengan international challenged the likes of P&G and Kimberly-Clark. However, their Indian counterparts haven’t been so successful in creating such kind of new value-added services and are facing tough competitions – Ola vs Uber, Flipkart & Snapdeal vs Amazon.

What the author missed –

1. IP Laws: The author did mention the lax IP laws in China. But, even giants like Apple are facing issues in getting required help from Chinese Judiciary as they are challenged by little-known startups making knock-offs. In time as Chinese entrepreneurs grow bigger, they will demand better IP Protection. How this shapes up is yet to be seen.

2. The Real-estate Bubble & Overcapacity: China has become infamous for its Ghost Towns. Even private investors are raising alarm bells as the extent of the debt bubble is becomes clearer with estimates saying that the Debt to GDP ratio has crossed 250%. How will this impact the Chinese startup world, is not yet known.

3. Solar Industry: The one sector that the author did not cover was China’s push into Renewable energy – mostly solar PV manufacturing and installations. Chinese giants like Trina, Jinko, Yingli & JA Solar dominate the world PV market. China also added a staggering 34 GW of solar installations in 2016 alone (compared with around 4.8 GW in India). With increasing domestic as well as global for PV Panels, these giants are poised to be major revenue centres of the future.

4. SOEs & the State remain the dominant players: The author’s focus was on the decreasing importance of SOEs in China’s economy. While this was true for the domestic economy, SOEs will play even greater role in China’s outreach to the world. The famous One Belt One Road initiative (OBOR) is primarily driven by SOEs. Almost all major overseas investments were done by SOEs. These include $46 billion in China-Pakistan Economic Corridor and $15 billion mostly in Hambantota & Colombo Ports in Srilanka.

Nonetheless, Edward Tse’s book remains extremely important for Businessman, Policy Makers, Entrepreneurs & Professionals who wish to learn about how China’s disruptors are shaping our future.

The article was originally published on YourStory.

Geopolitical Uncertainty and Business- II

In the last article it was discussed how geopolitical uncertainties effect business companies. Let us now look how some business companies exploit geopolitical instabilities and make profits out of crisis. Corporations take advantage of armed conflicts, sanctions, regime changes etc to do deals that are not in accordance with the international norms and rake in profits.

In 2012, Iran was under the sanctions put by the US and the EU over its uranium enrichment program. It faced great difficulties to trade oil and natural gas, of which it is a major exporter. Due to the ban, Iran’s four biggest oil buyers – China, India, Japan and South Korea – had reduced their imports by at least a fifth to secure exemptions from the threat of U.S. financial sanctions on their companies.During that time Iran was helped by a company named Vitol group to trade its oil to Chinese traders. Vitol bought 2 million barrels of fuel oil, used for power generation and supplied them to the Chinese. Now who is this Vitol group? How did they manage to pull of something under the radar. Well Vitol group is the world’s largest independent energy trader. It is the biggest private company in the world by sales. It is the ninth largest corporation in the world by revenue. It controls roughly 6.5% of the world’s oil market. It has more than 200 supertankers to ferry oil across the globe. On a single day, it handles more than 5 million barrels of oil. The tale of the cargo of Iranian fuel oil involves tanker tracking systems being switched off, two ship-to-ship transfers, and blending of the oil with fuel from another source to alter the cargo’s physical specification. Well, it just sounds like a scene out of a Bond-movie, doesn’t it? Not only Iran, Vitol also had dealings with Kurdish Regional Government, which controls the semi-autonomous Kurdish region of Iraq. The Kurdish Regional Government(KRG)was facing a lot of financial crisis due to budge disputes with Baghdad. On top of that it needed money not only to pay its employees but also in its fight against the ISIS. So, in 2012, KRG with the assistance of Vitol bypassed Baghdad and sold oil independently in the global market. Vitol took delivery of a 12,000-tonne shipment of condensate, a light crude oil, worth more than $10m and helped its sale.

Other traders such as Glencore, Gunvor and Trafigura in oil and Louis Dreyfus and Bunge in grains use the chaos arising out of geopolitical uncertainties to their advantages and make profitable deals.

CPEC – Real cost of Energy projects

Over the past year, many Pakistani, Indian, Chinese and Western experts have given their perspectives on the China-Pakistan Economic Corridor. It is a game changer for some and a strategic concern for others.

I have tried to analyze CPEC by removing all jingoistic and over the top claims from both sides of the border. I will try to minimize repetition, instead take a slightly different perspective and use an Indian example to put my point through. I have also tried to use Pakistani media and government sources to avoid appearing biased.

Positives:

CPEC is a significant investment into a country which urgently needs foreign investments in Energy (Due to consistent power cuts) & infrastructure development. Already China accounts almost half of the total FDI of $1.2 billion for the year 2015–16 and this is bound to increase. Foreign Investment is a far better way to develop the economy than depending on IMF loans.

All details of projects have already been mentioned below. For the Chinese, this new route through gives them overland access to the Persian Gulf through an allied country. Not only will it reduce costs but also act as a security bulwark for oil supplies to the Red Dragon of future conflicts. For Pakistan, this is a major win as it badly needs to develop its infrastructure. The project plan seems to be ambitious and good for Pakistan’s overall economic development. With increasing security concerns being raised by western nations and its neighbors, this surely comes as a boon.in-case

Negatives :

This is how the CPEC looks like as per the Planning commission of Pakistan

Eastern Route – There is a lot of internal political opposition as most of the projects seem to be concentrated in the Punjab province. I think eventually there will be some consensus on this. But, there will be delays. Most of the expansion work is actually happening on Karachi port rather than Gwadar.

The Western Road Way through Balochistan – The western route goes through the treacherous terrains of Balochistan. Apart from the issue of terrorism, the road connecting it to Gwadar has already been converted into single lane rather than the earlier planned six-lane highway.

Over Dependence on China – As per the Prime minister’s office, FDI in Pakistan has been declining over the last decade. China is expected to replace all other investors single-handedly. This combined with reports of Chinese companies planning to bring their own labor has caused some unease among Pakistani economists and planners.

The Energy Projects:

Most of the power projects under CPEC are going to be coal based power plants(investments worth $5.8 billion) which includes a1320 MW power plant in the Thar-I phase project. There is going to be another 1320 MW power plant under Port Qasim Power Project in Sindh . Also, CPEC includes $2.5 billion of investments in liquid natural gas pipeline from Gwadar to Nawabshah. The Quaid-e-Azam Solar Park is up and running, with expansion plans to 1000MW. This is the only solar power project and it has started generating power. Apart from this 100MW of energy is expected to be generated through wind energy.

This is expected to reduce the 5hrs power shortfall that Pakistani cities are facing today.

However, there is very little detail available on the specifics of these projects. Primarily, these were signed as bilateral agreements between Pakistan & China. The bidding process will be limited to Chinese Companies. This is also the first time that Pakistan is going to intake so much foreign capital in a short duration. The projects are funded through loans from China’s Exim Bank.

I tried to find out if India had any similar experiences with sudden large-scale foreign investments in Energy projects. And I came up with the (in-) famous Dabhol Power plant.

Case – Dabhol Power Plant (India):

It was the year 1992 when India had recently come out of a Balance of Payment crisis and was opening its economy through Structured Adjustment Plan under the guidance of IMF. Pakistan today is in a similar situation…only it has become much worse after multiple bailouts.

Dabhol is a place near Mumbai. The now infamously defunct Enron, GE and Bechtel (All US based companies) wanted to invest in India and decided to construct a power plant. The plant was to be Naptha & LNG based. From the beginning, the project was mired in controversy due to lack of transparency in the power purchase agreement. There were many allegations of corruption too. In 2000, when the plant started, the State electricity board ended up paying a per-unit rate of Rs. 4.67 when it was charging Rs.1.89 per unit to its customer. That’s a loss of Rs. 2.78/unit of electricity sold…for a 2000 MW plant, which was one of the largest power plants in the country at that time.

Over time Enron collapsed and the plant continued to be in shambles, still producing electricity and accumulating debt. The investment was not backed by any sovereign guarantees, but state-owned power companies had to take over. To this day, the plant is operating at a loss and accumulated thousand of crores in debt. The Indian government is still planning to revive the plant.

This case should have been the baseline for Pakistani Economic planners. Most of the power plants are going to coal based. The issue is not just environmental, it’s also economic. Although Pakistan has untapped coal reserves in the Thar desert, it might still have to import coal – Adding to the debt cycle. On the other hand, China is planning to reduce its dependence on coal to control pollution in its cities.

And more importantly, there is a lack of transparency in the power purchase agreement. Pakistan seems to have given sovereign guarantees on Chinese investments. So, even when the plants fail or produce unaffordable electricity, Pakistani Government will be ultimately responsible to pay the expected profits to Chinese companies through a contractual obligation. Until Pakistan is sure that they can make the plants profitable, this is an extremely dicey move.

Somehow, this issue has not received much attention in Pakistan (and even in India or the world) and the discussion has been dominated by issues in Balochistan, Pakistani opposition parties & Indian opposition. For China, this is a crucial part of One Belt One Road (OBOR) initiative. There is no doubt that Chinese companies are more than capable of executing big-ticket infrastructure projects overseas. Already, there has been concerns on the financial viability of some such projects – like the Srilankan Hambantota Port which has led to protests in the island. Hoping that this scenario is given due importance before Pakistan is unable to go back on its commitments.

Joy of Women Entrepreneurs

I recently watched the movie Joy on Hotstar. I had previously seen the trailer of the movie but didn’t pay any attention. I wasn’t really impressed by the trailer and knew nothing about the story. In addition, this movie was not that highly rated. Rotten Tomatoes gave this a review rating of 6.3/10 only.

Luckily I got some free time on a cold Sunday evening and decided to check this movie out. And I was in for a surprise.

The movie is based on the struggles of Joy Mangano, the inventor of the now famous Miracle Mop. A 33-year-old divorced mother of 2, working as a booking clerk in Eastern Airlines. She is in a dead-end job, living with her divorced parents and children. Her husband and thrice married father end up living in the basement with her. She is broke, frustrated and has almost given up on all her dreams. The only person is Joy’s grandmother who keeps her hopes up.

Inspite of a not so supportive family and no money, Joy gets unexpected help from her ex-husband, her longtime friend and a TV executive who places faith in her

Although parts of the movie has been changed, overall the story is very inspiring. It clearly deserved higher ratings than it got from reviewers

Joy Mangano

Joy Mangano

Here’s the original miracle mop infomercial with Joy Mangano on QVC :

This was a rare movie on a real woman entrepreneur. I think this might just be only movie of its kind.

There was a scene in the movie near the end, where Jennifer Lawrence as Joy Mangano is shown to have become a matriarch of the business and is investing in other women inventors/entrepreneurs. She says to a new mother who had come to show her invention, that she knows what its like to sit on the other side of the table. That scene stayed with me for a long time as it showed what is missing in the startup-world.

Apart from the western world, women are choosing the entrepreneurial struggles increasingly in China & India. But in India & to some extent in the west, there has always been a lack of existing women entrepreneurs acting as investors in other women entrepreneurs.

A bloomberg article, threw light on the changing dynamics in China where women are dominating the Venture Capital Industry. This includes the largest VC firmed with capital of over $500 million – H Capital founded by Chen Xiaohong

In the US, women make up about 10% of the investing partners and only half of the firms have any women as partners. China, on the other hand, has 17% female investing partners and more than 50% of the VC firms have at least one female partner. More than a quarter of all entrepreneurs in China are women, and 55% of new Internet companies are started up by them according to the Chinese Government. China is showing the example we should follow the lessons learnt from their experience. And this in country where sections of the society consider single women above the age of 27 as “Leftover women

The situation in India is extremely bad. All the major VC firms combined, I think there are only 2…..and I mean really, only 2 women investing partners. One is Vani Kola from Kalaari Capital and other is Bharati Jacob from Seedfund.

There are many reasons. There are fewer number of women in startups. women entrepreneurs who have exited successfully is also very low. Even women corporate executives with deeper pockets have shied away from entering into the VC world. Although, India is considered to be an entrepreneurial country, major women players have traditionally shied away from risk taking through Angel & VC investments in the startup world.

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