Foreign businesses positive on Shanghai

Foreign businesses are confident of Shanghai’s growth prospect and eager to engage in the city’s various development strategies, participants said during a briefing by Shanghai’s commerce affairs yesterday.

More than 500 people, including foreign diplomats, executives of foreign-invested companies in Shanghai and local government officials, attended the annual meeting hosted by the Shanghai Commission of Commerce.

“Shanghai will try to maintain a stable economic growth rate and accelerate the industrial restructuring to further raise the city’s growth quality,” Vice Mayor Zhou Bo told the gathering. “We sincerely hope foreign investors will continue to help us in the process.”

Lee Min-ho, director-general of Korea Trade-Investment Promotion Agency (KOTRA) in Shanghai, said South Korean companies are expecting more interaction with China after the implementation of the free trade agreement signed last year between the two countries.

“Our investors are confident that bilateral trade will get a boost this year thanks to the free trade agreement, in particular in areas like fashion, health, cosmetics and tourism,” Lee said.

“Shanghai is an important hub for China’s trade of consumer goods … we will enhance our operation here,” Lee said.

Indonesia’s Consul General in Shanghai, Kenssy D Ekaningsih, said her country was eager to engage in China’s Belt and Road initiative.

“We have seen massive scale of operation in place under the initiative in the past two years,” Ekaningsih said. “It is of huge importance for us because Indonesia stands at a core geographic location in the maritime Silk Road … we hope our presence in Shanghai will play a constructive role in bolstering bilateral economic and cultural interaction,” Ekaningsih said.

Manufacturing continues to decline

China’s economy continued to weaken in February with activity slowing in both the manufacturing and service sectors, according to the latest figures.

The official Purchasing Managers’ Index, a comprehensive gauge reflecting operational conditions in largely state-owned manufacturing companies, fell 0.4 points from January to 49 last month, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing, below the 50 mark that separates contraction from expansion.

It was the seventh consecutive month manufacturing had been below 50.

The official non-manufacturing PMI, a counterpart for the service sector, fell to 52.7 in February, down from 53.5 a month earlier.

Bureau analyst Zhao Qinghe said factors including production being suspended during the Spring Festival holiday, which also led to less demand, were major reasons for the continuing decline.

The manufacturing PMI’s component indexes showed production fell to 50.2 last month, down from January’s 51.4. New orders lost 0.9 points to 48.6, staying below 50 for the second straight month. The purchase volume of raw materials lost 1.1 points to 47.9, while employment retreated 0.2 points to 47.6, both worse than a year earlier.

“The overall performance was disappointing,” Zhao said. “But there were some positive signs such as a small rebound in the price of crude oil that led to higher sub-index measuring the costs of raw materials. Meanwhile, with the implementation of supportive policies, we have seen strengthened confidence among industrial companies.”

The price of raw materials rose 5.1 points to 50.2 last month, above 50 for the first time since August 2014.

Liu Ligang, chief economist at Australia & New Zealand Banking Group Ltd, said the figures suggested policy-makers may take further measures to manage an economic growth target of between 6.5 percent and 7 percent for 2016.

“The proactive fiscal policy will be needed to support investments and we expect the fiscal deficit could be increased to a range of 3 percent to 4 percent of the economic output in 2016, up from 2.3 percent in 2015,” Liu said.

Robert Subbaraman, chief economist of Asia (ex-Japan) at Nomura, said earlier that China needed to expand fiscal investments, but should be cautious not to slow industrial restructuring.

In line with the worsening performance of state-owned industrial companies, their private and export-oriented counterparts also reported weakening activity.

The Caixin China PMI, an indicator slanted toward private and export-oriented manufacturing companies, landed at 48 in February, a five-month low that was down from 48.4 in January, according to the Caixin magazine and research firm Markit.

He Fan, chief economist at Caixin Insight Group, said: “The government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support of the economy in other ways to prevent it from falling off a cliff.”

China’s gross domestic product grew 6.8 percent in the fourth quarter of last year, concluding 2015 with a rate of 6.9 percent, the slowest growth in 25 years.

Qualcomm JV to focus on drones and robots

Thundercomm will have access to intellectual patents from U.S. chip giant

Qualcomm Inc on Monday set up a joint venture with a Chinese tech firm to develop technologies used in drones, virtual reality goggles and other “smart devices” that the U.S. chip giant believes will be the next big thing after the smartphone boom.

The new JV, named Thundercomm, will provide products and technologies for local firms which are building the next-generation drones, robots, VR devices and wearables, according to a statement from Qualcomm and its Chinese partner Thunder Software Technology Co Ltd, or Thundersoft.

The registered capital of Thundercomm was 18.74 million yuan ($2.8 million) and the Beijing-based Thundersoft will control nearly 82 percent of the JV, according to a statement from Thundersoft. An investment subsidiary of Qualcomm took the rest of the new company’s stake.

The JV will be located at the Fairy Peach Data Valley in Yubei District, southwest China’s Chongqing municipality. The inland mega city has become one of the world’s largest manufacturing bases of the smart devices in recent years.

Zhang Shutao, general manager of Thundercomm, said the JV will get to use intellectual patents from Qualcomm.

“We will have a lot opportunities to work with Qualcomm in IP, … the JV will find ways to help customers get access to Qualcomm’s IPs,” Zhang said.

Frank Meng, chairman of Qualcomm China, told China Daily in an exclusive interview earlier this month Chinese startups are set to lead the world in innovation in an array of emerging sectors.

Chinese tech firms are making technological breakthroughs instead of waiting for ideas imported from overseas companies, said Meng.

“Local vendors are coming up with gigantic amount of ideas that suit requirements of Chinese customers. Qualcomm wants to be a part of this new trend that will unlock another trillion-yuan market,” said the 56-year-old.

Ma Longwen, an analyst from Changjiang Securities Co, said the new JV will give an edge to Thundersoft in many areas, including drone making, smart automobile and VR.

“It requires a large number of high-end chips to make a drone, as global orders for drones reaching the highest level on record, the JV is facing a huge market demand because it is endorsed by Qualcomm technologies,” according to Ma.

While sectors such as VR and operating system used in automobiles are not big today, they are set to receive huge user base like smartphones did, he added.

The establishment of Thundercomm was also the first major China investment from Qualcomm since it set up a Guizhou-registered firm to manage investments on the Chinese mainland in January.

Qualcomm is moving its investment focus to inland provinces to echo a number of national strategies aimed to boost economy in the less-developed regions taking advantage of the Internet and new technologies.

New challenges emerge as more workers age

China has a huge number of migrant workers. They usually come from rural areas across the country, and work in cities to seek a better life.

This phenomenon came into being after China’s Reform and Opening up policy was introduced in the late 1970s. It meant a larger labour force was needed to meet the demands of the burgeoning economy. Now, as over three decades have passed, this specific industry faces new challenges and changes.

A new landmark for China’s capital. This building under construction will be the highest one in Beijing in two year’s time. It’s another masterpiece straight out of a designer’s hands, and a masterpiece by its builders as well.

Li Shaohua, now approaching his 50s, is one of them. He has worked for 20 years as a migrant worke and now he worries about his age.

“As I am getting older now. I would like to spend more time with my family. It’s no longer suitable for me to stay in this industry,” he said.

It’s rare to see a young face like Wu Chunxi at this construction site. There are less young workers in China, as a result of family planning policies. Wu says he won’t stay in this industry for long.

“I will stay in this industry for several more years to earn some money. Then I will go back home, start my own family, open a small business, and ensure a happy life for my family,” Wu said.

The average age of China’s migrant workers is higher than ever before. Of the 270 million across the country, nearly 20% of them are more than 50 years old. And their lack of education means it’s difficult for them to acquire new skills.

Li Shaohua graduated from a local middle school in central China’s Hubei province. He says, besides old age, he is also concerned about his education level.

“If I got a much higher education level, I would take a job in the management team. However, due to the lack of education, I could only work here as a worker,” Li said.

Wu Chunxi is luckier since his college education allows him to take a job as an electrician.

“The knowledge I picked up at school, along with the working experience here, makes me learn new things more quickly than others. I can read the circuit diagram, and I learn quite a lot of new things here,” he said.

China’s economy has entered a “new normal” development phase. It features slower growth but higher efficiency. Migrant workers, those that usually remain disadvantaged in terms of age and education are the first to be affected.

Starting from the latter half of 2015, many chose to return back home from cities. The number of returnees reached two million in November, 2015.

Li Shaohua is happy to talk about his plans for his retirement. He can either grow crops or start a business of his own. But one thing he is certain of is that he would encourage his son to get a college education….

China to allocate 100 bln yuan for job losses from capacity cuts

China will establish a 100 billion yuan (15.3 billion U.S. dollars) fund to assist those who are made redundant as a result of industrial restructuring, an official said Thursday.

Allocated over two years, the fund will cover training and job seeking, said Feng Fei, vice minister of industry and information technology, at a press conference.

The processes of dealing with poor-performing “zombie companies,” and undertaking mergers and acquisitions mean that job losses will be inevitable. Thus, re-employing workers will be a major task, Feng said.

Cutting overcapacity was listed as one of the five major tasks in supply-side structural reform along with destocking, deleveraging, reducing costs and shoring up weak growth areas.

The government has stepped up efforts to slash excess production capacity in saturated sectors, especially steel and coal. From 2011 to 2015, 91 million tonnes of outdated capacity in the iron industry and 94.8 million tonnes in the steel industry were eliminated.

Companies scramble to hire skilled labor

More skilled workers are needed in Dongguan, a traditional manufacturing base in Guangdong province, as local companies begin looking for qualified employees after Spring Festival to help transfer their businesses into the high-tech sector.

CKE-Tech, which focuses on production and sales of precision machinery, is looking for about 10 more engineers this year as the company increases its efforts in research and development.

“We are looking for more skilled workers, but it is really difficult to find the right ones,” said Chen Guiping, a human resource manager with the company.

The company will provide about 6,000 yuan ($920) per month for a skilled worker, higher than the previous year.

A growing number of manufacturing companies have increased investment in research and development in recent years, resulting in the need for more skilled workers and engineers, according to Chen.

CKE-Tech is one of the hundreds of businesses ranging from furniture, garments, electronics and toys that are transitioning from traditional manufacturing to more service-oriented models.

By Feb 17, more than 77 percent of Dongguan workers had returned to their jobs, according to the local human resource authority.

In the past, some companies could not begin factory operations after Spring Festival due to a lack of workers.

“But now, a growing number of local companies have introduced high-tech processing equipment, including robots,” said Li Guochen, a professor at Dongguan Polytechnic.

Some labor-intensive businesses, however, have still found it hard to recruit new workers.

According to the Dongguan human resources authority, companies involved in shoes, garments and plastics have a relatively larger shortage of labor for their processing lines.

Workers scramble for day jobs in Hebei

Farmers wait for their potential employers at a roadside labor market in Shijiazhuang, Hebei province.

Wang Shuji is typical of the workers who gather each morning at local labor markets, the self-forming roadside gathering places for those seeking day jobs in Hebei province.

Wang, 43, is a farmer who seek short-term employment in towns or cities near his home. Capable of doing most kinds of odd jobs, he mainly works at construction sites, building walls or carrying materials.

Most mornings, he gets up at 6 o’clock, eats some instant noodles and rides his electric bike the 20-plus kilometers from his home in Dazhaicun village to Shijiazhuang, Hebei’s capital.

“I usually rush there, not to punch in like company employees, but to be picked up by employers as soon as possible,” he said.

After he gets to the market, he must wait for employers to arrive, then rush toward them.

“When an employer came, there would be a stampede toward him or her, just like fans toward singing stars,” Wang said. “But we were not chasing after stars, we were scrambling for jobs the employer was going to provide.”

He speaks loudly, trying to be heard over the other job hunters.

“What kind of workers do you need? How many workers do you want? How much would you pay me for a day? I can do it. Take me. OK, where is the workplace? How should I go? I have an electric bikes, so I can go by myself,” Wang said, recalling the exchanges.

After the questioning, employers usually decide within five minutes whether someone was suitable for the job.

“There are scores of peasant workers there, so the chance of being chosen would be very low if you are not quick enough,” Wang said. “If I came early, I would have more chance to compete for jobs and start a day’s work early, which would lead to more money.”

Yang Kang, manager of a local construction company, said it’s convenient to find temporary employees from roadside labor markets and the pay is relatively low.

“There would be commissions to pay if I find workers through brokerage firms,” Yang said.

Last Friday, Wang waited until 10:30 am, but still didn’t get a job.

“It was common. I usually wait a whole morning or even a day, but get nothing,” Wang said. “The numbers of employers coming here will increase to normal after the Lantern Festival.”

When asked why he didn’t find a steady job that could give him regular salary and spare him the daily competition for jobs, Wang said he didn’t have much choice with only a junior high school education background.

“It’s not that I don’t want a steady and cushy job,” Wang said. “I am very suitable for a stable job like a security guard at shopping malls or factories.”

But he always refused such offers because the jobs are not well paid at just 1,500 yuan ($230) or so for a month.

“I can earn about 3,000 yuan a month on average by finding jobs from the market, though I’m more tired,” Wang said.

Wang said he dislikes formal labor markets as they are far away and not as convenient as the roadside ones. “Besides, it’s complicated for us to register or complete applications,” he said.

Multinationals eye China market as consumption pattern shifts

On its launch day in China, Apple Pay saw over 30 million Chinese bank cards linked to the payment service, an achievement that impressed Apple Pay vice president Jennifer Bailey.

“We think China could be our largest Apple Pay market,” Bailey told media last Thursday.

To lure more customers, some of Apple Pay’s partner banks worked with Starbucks to offer discounts to customers who pay with Apple Pay.

With wages up and people accumulating wealth, the rising middle class is driving a major shift in China’s consumption pattern, making the country a huge market that multinationals can ill afford to ignore.

Increasingly, Chinese are able to afford more than just the bare necessities. Instead, they spend on things they like but don’t need, those “discretionary items.”

According to data from consulting firm McKinsey & Co., discretionary spending is forecast to grow over 7 percent annually between 2010 to 2020, while seminecessities, including health care and apparel, will expand around 6 to 7 percent, all surpassing the growth rate of actual necessities.

The shift is already seen in satisfying results reported by companies selling high-end products, such as Apple.

While an iPhone costs almost five times the average price of a domestic smart phone, Apple has a substantial consumer base in China that not only pays for the phone itself but for the brand.

“There’s an enormous number of people moving into the middle class and I think this provides us with great opportunities to win over some of these customers into the Apple ecosystem,” said Tim Cook, Apple’s chief executive during an earnings call.

“We remain very bullish on China, and don’t subscribe to the doom and gloom kind of predictions frankly.” Cook said.

The Chinese middle class for the first time outnumbered those in the United States in 2015, hitting 109 million at the American standard after purchasing power is adjusted, according to a report by Credit Suiss.

And the number continues to climb. In 2015, China’s national per capita disposable income rose 7.4 percent from 2014 in real terms, outpacing GDP growth.

Seeing the opportunities of an increasingly well-off society, foreign firms are tapping into China’s entertainment industry to monetize on the growing interest in the high-end recreational market.

American film studio 20th Century Fox, for example, told China Daily recently that it had chosen Beijing to be the destination of the world’s first ever Simpsons store.

To be opened in March, the store will offer merchandises related to the American animated sitcom, which has proven to be very popular in China.

The decision followed a similar move by Walt Disney Co., which opened the world’s largest Disney store in Shanghai in May 2015 to huge queues of customers.

The domestic entertainment industry is also taking off thanks to this shift. During the Spring Festival holiday, box office sales surged 67 percent year on year to 3 billion yuan.

Spending on recreational activities including travel, dining, sports, and gaming in China still lags behind the developed world, and “fun” has the biggest potential for growth, said a Goldman Sachs report on consumer research.

“There’s a perception that China’s consumption story has already played out,” said Joshua Lu, co-business unit leader of asia consumer research at Goldman Sachs. “In the coming decade, in a way the story is even more exciting as hundreds of millions will see their income doubling and enter the middle class. That migration will continue to be a powerful driver of the China consumption growth story.”

In 2015, consumption contributed 66.4 percent to China’s gross domestic product, up 15.4 percentage points from 2014.

As China transitions into a more consumption-driven economy, global companies should make smarter, higher-quality products to adapt, too. After all, consumers are what really matter for most of them.

Fosun’s deal for Phoenix ditched

Shanghai-based Fosun has dropped a plan to buy a controlling stake in Israeli insurer Phoenix Holdings because certain conditions for the deal were not met, a statement said yesterday.

Fosun had agreed to buy 52.31 percent in Phoenix from Delek Group in June last year in a deal worth $462 million.

The Chinese company yesterday said the two parties decided to terminate the deal as “certain conditions” have not been “fulfilled or waived,” Fosun International said in a statement filed to the Hong Kong stock exchange.

Neither party is obliged to pay a penalty, the statement added.

Shares of Hong Kong-listed Fosun International lost 1.14 percent yesterday, lagging the 1.03 percent fall in the Hang Seng Index.

In a separate statement yesterday, Delek said it is evaluating other options for the sale of its holding in Phoenix to potential investors.

The termination is the first major setback for Fosun after its chairman, Guo Guangchang, was briefly taken by authorities in December last year to assist an investigation as part of the Chinese government’s anti-corruption campaign.

The Tel Aviv Stock Exchange suspended trading in Phoenix and its parent company Delek after Guo went missing.

Israeli newspaper Globes said last month the country’s Supervisor of Insurance, Capital Market and Savings, Dorit Salinger, was not likely to approve Fosun Group as the controlling shareholder in Phoenix.

Fosun now has over one-third of its total assets invested in insurance, including Yong’an P&C Insurance, Pramerica Fosun Life Insurance, Hong Kong-based Peak Reinsurance, Portugal’s Fidelidade Group, US-based Meadowbrook Insurance Group and Ironshore.

Chinese buyers buoy Shiseido sales

A man checks out a Shiseido Co Ltd’s beauty products advertisement in Beijing. The Japanese company’s China business grew by only 2 percent last year.

One of Japan’s leading personal care companies has reported strong demand for its products from Chinese visitors to the country, despite weaker growth in the Chinese market itself.

The latest figures from Shiseido Co Ltd revealed its 2015 annual sales rose 12.6 percent to 763.1 billion yen ($6.7 billion). Analysts said that the increase was helped significantly by Chinese tourist sales.

The group’s operating income rose 77.4 percent to 37.7 billion yen, but its China business grew by just 2 percent.

“We have seen a substantial increase, both in sales and income, mainly due to our major brands in the domestic market,” said Norio Tadakawa, its corporate officer and CFO, who added both its operations in Beijing and Shanghai struggled last year.

Sales at its Shanghai outlet have been flat for several years, he said, adding the firm is now planning to reverse that with a targeted 10 percent growth this year in China.

In the medium to longer term, he said, “we are seeing more of the middle-class market, so we will keep on expanding consumption and diversification” of products, adding its e-commerce business is expected to grow 20 percent in China.

Tadakawa said Shiseido is also planning a new innovation center in China, which will help the firm grow market share.

He admitted, however, that competition from South Korean brands is intensifying, making its job in China harder.

According to Kantar Worldpanel China, sales of South Korean cosmetic brands are now growing faster than Japanese brands, at 33 percent compared with 11.6 percent, focused mainly on high-end products.

Shiseido’s results followed closely on the heels of those from Japanese beauty care rival Kao Corp, which announced net sales increased 5 percent compared with the previous year to 1.47 trillion yen for the year ended Dec 31.

Its profits increased, said officials, due to the effect of increased sales of healthcare products in markets across Asia.

Net income increased 19.3 billion yen compared with the previous fiscal year to 98.9 billion yen, with beauty sales increasing 3 percent, while cosmetics sales decreased 2.3 percent.

Laurie Du, an analyst at Mintel Group Ltd, the United Kingdom-based research firm, said Chinese consumers have gained more awareness of international brands through frequent overseas travel, especially for Japanese goods bought in Japan.

Du said products made in Japan now represented 29 percent of all skincare product sales by Chinese travelers, which is higher than goods from both South Korea and France.

“Chinese consumers strongly believe in the competitiveness, quality and price of Japanese products,” she said.

Jason Yu, general manager of Kantar Worldpanel China, said it had also seen a significant rise in demand for everyday Japanese fast-moving-consumer products by Chinese buyers in Japan.

But he added that it remains critical for Japanese marketers to expand their product offerings to avoid missing out on what are likely to be growing numbers of Chinese traveling overseas for goods.