Real Estate Purchases as Inflation Controllers

China's development and growth has reached sort of a plateu — which requires new action from the government in this still relatively centrally managed economy.  Over the last 15 years the Chinese government has used successfully real estate as the main driver for regulating Money Supply.  In the West the banking and money supply policies are driven and managed by a central bank (in most cases) — in China it looks like the real estate market is the main pressure valve.  Why?   Well think about it this way:

China's econnomy has been growing steadily with high percentage rates over these last 15-20 years.  As a result, so have been the incomes across the population of the country.  Admitedly, the number of wealthy (really wealthy) Chinese has been growing and the individual wealth of those Chinese has been growing much faster — but a middle class has emerged nevertheless.  That middle class has started consumption — fancy food, cars, motorcycles, electronics, high fashion!!!  Really – over the years it looks like the world's fashion labels have all opened shop in Beijing, Shanghai, Shenzhen….on and on…

So the question is how, does China control inflation?  There is certainly a very rapid growth in the spending power of the Chinese consumer…

The answer is (in my opinion) real estate.  During the period of our discussion, real estate has experienced a huge growth in base prices.  It has become the storage of value and the pressure valve of capturing the disposable income of the middle class and taking cash from the economy — as a result the real estate value growth and its strong pull of cash has taken that same cash away from chasing commodities like food, clothing, etc.

Shanghai real estate       Pudong Skyline

If you look back in the period you will see that food prices have not risen as much as the other parts of the economy like salarries , disposable income and prices for apartments and vilas.   So there you go — thanks to the desire of the Chinese consumer to own real estate, the economy has naturally regulated itself and kept inflation in relative check. 

Do You Know the Leadership in China ?

New Leadership in China

Well folks – it is time to get more information on the new leaders in China — after all they are going to be presiding over one fo the largest economies in the world and hold the power to really impact the world economy based on their actions.  With that in mind I turned to the Chinese Internet resources and tried to find as many possible articles and background information on Mr. Xi Jinping — with a great article from OffBeatChina.com

The Xi Jinping that you don’t know

Alia | December 26th, 2012 – 5:10 pm

In the past few days, Xinhua News, the official voice of the Chinese government, has published a series of profile reports of the members of China’s new Politburo, the highest decision-making body in the country. The move is seen by many as another indication that Xi and China’s new leadership may have a very different management style from their predecessors: the robotic Hu and the “grandpa” Wen who almost never appeared in public with his wife.

Xi, his father in wheelchair, his daughter and his celebrity singer wife

These reports are very similar in formality  – they playback the life stories of the Politburo members to showcase that they, too, like any other ordinary Chinese people, went through hardship, made sacrifices and worked hard for their dreams. This is not the first time when the Chinese media tried to give the country’s officials a human touch. But seldom before did China’s official media openly discuss the “human side” of its leaders – photos of top officials in work settings are everywhere but ones in family settings are rare, if any at all. The personal lives of China’s top leaders, especially after they take power, have always been hidden behind a veil of secrecy. The recent reports of Xinhua , however, made many people believe that a new era has come. The difference? A handful photos of Xi Jinping, China’s new leader, in his early years, solo and with family, including his celebrity singer wife Peng Liyuan. In a Weibo post titled “The Xi Jinping that you don’t know,” People’s Daily thus summarized the life of the country’s new boss:

“1. He graduated from Tsinghua University (top technology and engineering university in China); 2. He was put into jail during the Culture Revolution; 3. He’s good at farming; 4. He worked from a village cadre all the way to Party Secretary; 5. His pen name is Zhe Qin; 6. He built Rongguo Masion in Hebei province; 7. He fell in love with Peng Liyuan at first sight; 8. He is a soccer fan and stays up late to watch soccer games; 9. His daughter’s name is Xi Mingze, which means to be a clean and innocent person.”

Following special profile reports take a similar route and present “the Li Keqiang (new Politburo member) that you don’t know,” “the Liu Yunshan (new Politburo member) that you don’t know,” and so on so forth. But those reports failed to make waves as big as the first one on Xi. After all, what can possibly beat a picture of young Xi riding a bike with his daughter sitting on the back, or a smiling Xi posing with his celebrity singer wife in front of a tourist site.

Xi: a husband and father

If the objective was to tell the Chinese people that their new leaders are “from the people and for the people,” these reports are no doubt successful. Judging from netizens’ responses, the release of Xi’s family-life photos is definitely a smart move. 五岳散人, popular liberal intellectual and social critic in China, commented: “To be honest, the latest special reports from the official media on the new Politburo must be planned by public relation experts, from idea to execution. Of course, such reports won’t be possible without the cooperation of these officials. The human touch is precious.”

Many others even went further and concluded that such special profile reports may be the start of a new era in China’s political life.  Netizen 青衣刀笔吏 commented: “No more blind worship, officials are back on earth. This is an indication that China is shifting from one-man rule to elite rule.” 幽嗅迷迭香 was even more optimistic: “I see the dawn of China’s freedom and democracy.”

Of course, it’s not all rosy.  车海刚, vice chief editor of China Ecomonic Times, saw the move as a start and a start only: “For China to transform into a modern nation-state, China’s officials have to evolve, from Gods, to saints, to human beings, and then to human beings with constraints. These special profile reports have positive effects by making the images of officials transparent. But this is far from enough. We are still at the first two stages and the transition is still top-down. We need to allow free bottom-up discussions.” 中青报曹林 from China Youth Daily shared similar thoughts: “On the surface, Xinhua is singing a song of praise by presenting Xi’s personal life. But it is also to disclose the situations of his family and his child to the public. It’s a noteworthy sign of reform. China’s top decision makers are taking actions [to reform].” 王冉, CEO of China eCapital, pointed out the key next step: “A reform is not a true reform until it is built into the system.”

More pictures of younger Xi

 

Significant Events in China

I decided to post on some really significant events in China – events that have had or are having an impact on a huge number of people – i.e. on most Chinese.  So what are those events you would ask?  Well, here we go

Number 1:  The famous Volkswagen SANTANA that all of us China hands have seen on the streets of various Chinese cities and villages, ridden in by ways of a taxi ride, is having a new look – after 29 years of production !!!  Can you imagine this?  a car model that has survived as a selling vehicle for 29 YEARS!

I looked hard through my photo database and could not find an image — big surprise — sometimes I feel the ubiquitous taxi is in each of my photos from Beijing or Shanghai….. At any rate, since I could not find one quickly I found an image of an old one on the web, and here it is:

Shanghai Volkswagen SANTANA

And here it is (below) the new look of the next generation SANTANA:

 

Number 2: China and the US are in trade talks again.  Now that the new Chinese leadership is in power, one can wonder what impact that will have on the next iteration of China-US trade relations…

Here are some commentaries from the BBC:

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These talks are happening at the same time that China is searching for ways to reduce its reliance on exports for the foundation of its economic growth and the country's focus on propping up the middle class — the growing set of people capable of becoming solid consumers and drivers of economic growth for the country.

This is also a time when China is focusing increasing effort on improving its urban planning — based on statistics I have seen in the Chinese media, the urban population of the country is finally exceeding the rural one — with this change over occuring in 2012.   By some predictions China will have 70% of its population living in major urban areas by year 2030 — this is a very big deal as the country has to figure out how to build cities with stable and functioning infrastructre (think about the floods and drownings that happened in Beijing just a few months ago) to support such urban growth.

Oh, well, I think the Chinese government will come up with a solution — not sure it will be the most "elegant" one but it will be there… Thoughts?

 

 

 

Austin Now Official Site of Formula 1 Racing – CoTA Starts Successfully

Well folks Austin, a town my family and I have called home for over 10 years (apart from living in Asia and Europe) is now the official site of a FORMULA 1 UNITED STATES GRAND PRIX™ races.  The races are certainly bringing another set of exciting events to Austin, but even more importantly, they are adding significant economic activity to the city.  Here are some stats (from CoTA's own estimates / documents):

"…CoTA-hosted events are projected to generate an annual economic impact of $400 million to $500 million, equating to $4 billion to $5 billion over 10 years for Texas. The CoTA-hosted FORMULA 1 UNITED STATES GRAND PRIX™ will attract as many as 300,000 people each Grand Prix weekend, with an estimated 80 percent of attendees coming from outside Texas."  (Source: http://circuitoftheamericas.com/economic-impact)

The venue is pretty amazing — here are links to information you may need (from CoTA's web site):

And here are some pretty good videos to give you a view of CoTA

 

Amazingly the F1 race in Austin over this weekend was broadcasted to a huge number of worldwide viewers.  Here is a YouTube video from one of those international viewers:

 

Well, if you are interested in more info, drop us a line — will give you the insider view — the Austinite view of the topic :-)

Another Apple Competitor Emerges – Have you Heard of the Xiaomi?

Earlier in August this new smartphone — the Xiaomi — was launched in China.  Why is this news?  Well because the Xiaomi is built as a competitor to the Apple iPhone! The Xiaomi's new model is the MI2 (which comes after a successful Mi1 which has been on sale since October 2011)

In speaking with friends of mine in Shanghai, the Xiaomi has certainly caught attention – even among the expat community.  This smartphone is going to be sold at RMB1999 which is about one half of the price of the iPhone!

Here is a link to the company and phone

 

China Picks Up Steam in Overseas Direct Investment – Why Would One Ask?

There have been a number of reports in the last several months about the fact that 2012 will be a record year for China's Overseas Direct Investment.  Per Zhang Yansheng, secretary-general of the Academic Committee of China's National Development and Reform Commission, China's overseas direct investment (ODI) has grown at a rate of 40+% annually between 2006 and 2010.   Here are some of the main points that Xinhua News agency summarized from recent Chinese Government directives:

Overseas investment from Chinese companies will see "explosive growth" over the next decade, as the government has reaffirmed a strategy to encourage enterprises to invest overseas, experts said.

The strategy to grow ODI was reiterated in the country's official 12th Five-year Plan (2011-2015), which was endorsed by China's top legislature in March 2011.

In Q1'2012 China invested $16.55B overseas (as non-financial investments) with $6.2B being M&A activities per report from China's Ministry of Commerce;  The Q1'12 results represented a growth of 95% in comparison to Q1'2011;

At the same time there are reports showing that the ODI is not all smooth sailing for the Chinese investors.  Per report published by People's Daily,   "By the end of last year, China suffered a net loss of $26.8 billion in overseas investments," said Zhou Zhongshu, vice president of the China International Council for the Promotion of Multinational Corporations, at a Beijing conference in late June 2012.

One example of this is the investment Geely Automotive made in Manganese Bronze – the manufacturer of London's well known taxi cab vehicles…..Now you can see those on the streets of Beijing…Here is one (courtesy of Shanghai List)

Now, the key question is "Why the strong growth of investments?"  In my view this is very heavily driven by the strategy of the Chinese companies and Chinese Government to build up its Intellectual Property (IP) portfolio –  no better way to do so.   The ODI and M&A activites are adding significant access for the Chinese entities to both European market and IP rights which in the future will provide nice platform for expansion into the global market.

 

 

China Leads the Way in Clean Energy Investments in 2012

Renewable energy is gaining momentum and attention every month.  That is absolutely the case.  As the world population is growing fast so are its energy needs.  I could have pulled a whole bunch of statistics of the energy consumption by humans around the planet but I do not think that will be necessary — I believe all of us already recognize the importance energy conservation, energy regeneration, and reneables have on all of us.  With that in mind, lets cover some updates on the current status around the world:

First a YouTube video on a brief statistics on the top countries producers of reneable energy in the world

 

How did China accomplished the first place?  Well through a number of huge projects that created a major disruption in the lives of many but certainly brought to reality some huge projects.  Here is another video from YouTube that covers some of these mega projects:

 

This is also an interesting dialog with one of the experts tracking the global investments in Energy generation:

 

 

It is This Time of the Year Again — It is the Gao Kao (高考) in China!

This morning I was greeted by a news article from the Xinhua news agency — the title read " Beijing deploys 7,000 police to ensure smooth traffic for college entrance exams"

The actual news summary is listed below

 

http://news.xinhuanet.com/english/china/2012-06/07/c_131638255.htm

BEIJING, June 7 (Xinhua) — All 7,000 of Beijing's traffic police officers were deployed around the city Thursday to keep the roads quiet during the annual national college entrance exam, the largest of their kind in the world.

The officers are ready to offer immediate assistance to students and their parents, said a spokesman from the command center of the Beijing Traffic Management Bureau under the Beijing Municipal Public Security Bureau.

"Although the number of vehicles in Beijing has reached 5.09 million, traffic on the first day of the exam was much better than that of past years, as many people chose to leave their homes earlier than usual and skip rush hour," the spokesman said.

Police escorted 18 students who were almost late for the exam to their exam venues on Thursday, he said.

The Beijing summit of the Shanghai Cooperation Organization (SCO), which was held Wednesday and Thursday, overlapped with the start of the examination period, resulting in extra traffic cops being deployed to ensure safe and smooth traffic.

Approximately 9.15 million people will take the exams to vie for 6.85 million spots at the country's universities and colleges. About three out of four applicants will be admitted by universities.

 

I remember the days when I was near a test site — a school building usually and the many parents milled outside and of course your friendly police folks who did not allow taxis or personal or company cars to drive by the site as that was a disturbance in terms of noise etc.   Honestly that used to be rather amusing to me — but then I thought about the HUGE ramifications the Gao Kao had on the students taking it and all of sudden I thought — OK, fine, I will conform :-)   and walk on tip toes too by the building…

By some estimates there are about 9-million students taking the exam.   I came across this BBC article on-line that actually has a bunch of videos that can give you a good view of the exam and its importance in the life in China:

   

 

 

 

 

 

The big question though that gets debate a lot in China across all layers of society is whether the Gao Kao really / truly shows the aptitude of students for a given profession and/or major.  There is a lot of discusion about the fact that in their daily preparations for university majority of students focus too much on the actual exam and the techniques to achieve a better score rather than on actual learning…. Oh, well that I think is the age old debate.  But for sure there could be some better way to approach the entrance exams than the mass hysteria and big psychological impact the current Gao Kao has on students and parents.

 

 

Changes in the Progress on Electric Vehicles in China — Was it a Dream…?

Anyone like Electric Vehicles?  Anyone like millions of electric cars?  Oh, no….too many questions.  Well, that is how it feels in the last couple years based on multitude of announcements from many car companies around the globe.  China has been especially focused on the technology and electric cars specifically.  Between 2009 and 2011 there have been many announcements from manufacturers that drove announcements to support also China's government plans for rapid growth in the direction of clean vehicles.

Here are several of them

From the Guardian

China is aiming to put more than a million electric vehicles onto the road each year by 2015, according to the state-run People's Daily. It claims that new plans for the auto industry are about to be published and will make "new energy" – electric and hybrid electric – vehicles a national priority.

From the New York Times:

TIANJIN, China — Chinese leaders have adopted a plan aimed at turning the country into one of the leading producers of hybrid and all-electric vehicles within three years, and making it the world leader in electric cars and buses after that.

 

From Wall Street Journal

SHENZHEN, China — It would seem like a lousy time to get into the car business, especially if you're a little-known company in the developing world. No start-up has grown into a major auto maker in at least half a century.

Wang Chuanfu, the founder and chairman of BYD Co., 1211.HK -0.65%a Chinese battery and car maker, thinks he's got a shot.

And here you can find a special report on Electric Vehicle Charging Stations — please see at this link
One of the Key Players in the Electric Car manufacturing push in China is BYD — Link to their Web site

BYD Electric Car

So these were the big plans — reading through the articles above you can see all sort of big plans — build and sell up to 500K electric cars per year in China by 2015

Subsequently ramp up to 5M vehicles per year by 2020!!!  So very ambitious plans no doubt. 

The reality today is VERY DIFFERENT — BYD has apparently sold only 300 taxis and 200 electric busses in Shenzhen.  So WHY is that?

The answer is actually closer to being simple than you think.   All in all electric cars are VERY expensive.   According to some estimates BYD's vehicles will have to drop 40% in price before they become a real alternative to fuel powered vehicles….And then there are many other hurdles like life of batteries' sizes, weight and reliability…

So all in all this has been a bit of a PR disaster since the promise of electric vehicles, green and energy use reductions, were made so public and garnererd so much attention that rebuffing now will be a problem by itsel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

In conclusion — is the idea still valid?  YES (resounding)!!!   The big question is - when will these costs etc go down so we can all buy an electric car and be NICE!