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Chinese mainland renews duties on Japanese, Taiwanese solvent

The Chinese mainland will continue to levy anti-dumping duties on methyl ethyl ketone (MEK), an industrial solvent, from Japan and Taiwan for another five years, the Ministry of Commerce (MOC) announced on Wednesday.

The decision was made after a one-year review and will come into effect on Thursday.

The Chinese mainland started to levy tariffs ranging from 9.6 percent to 66.4 percent on MEK from Japan, Taiwan and Singapore on Nov. 22, 2007.

When the five-year anti-dumping measures expired last year, Singapore was delisted, while the other two regions came under review.

After the review, the MOC said domestic producers may again suffer losses to MEK from Japan and Taiwan if the anti-dumping duties were lifted.

MEK is a solvent widely used in making paints, dyes and lubricants.

iPhone 5s props up Apple’s market share in China, but Samsung still leads

With the arrival of the iPhone 5s, Apple regained its spot among the top five smartphone makers in China during the third quarter.

But the biggest gains in the period were made by market leader Samsung Electronics, which saw its smartphone shipments soar 156 percent year-over-year.

In China, Apple’s market share reached 8 percent as a result of a 32 percent year-over-year increase in shipments, according to research firm Canalys. Towards the end of the period in September, the company launched both its iPhone 5s and iPhone 5c models in the country.

The shipment growth gave Apple the fifth position in China’s smartphone market. In a first, the country was among the markets to receive Apple’s latest iPhone models the earliest. Previously, Chinese consumers had to wait months before the device officially arrived.

In another sign that demand has been strong, consumers buying the iPhone 5s from Apple’s China website must wait two to three weeks before the device ships out.
“I think the iPhone 5s was the main driver of the growth,” said Nicole Peng, an analyst with research firm Canalys. Demand for the phone has been so high that the gold-colored “champagne” model initially sold for 10,000 yuan (US$1,630) among unofficial sellers in China’s grey market, she added.

In another sign that demand has been strong, consumers buying the iPhone 5s from Apple’s China website must wait two to three weeks before the device ships out.

“The supply still cannot catch up with the demand,” Peng added. But whether or not the slightly cheaper iPhone 5c will catch on the market is still unclear. “I think in Q4 we will have a clearer picture,” she said. “But I expect the iPhone 5s to do very well.”

Unlike the iPhone 5s, the 5c model is readily available for order on Apple’s China website, which ships the device within a day’s time.

Peng, however, said the bigger story in the third quarter was that of Samsung, China’s largest smartphone vendor. The South Korean vendor widened its lead in the quarter to get a 21 percent market share. Trailing at second place was Lenovo, with a 13 percent share.

While Samsung may be best known for its Galaxy brand of premium smartphones, in China the company is seeing more demand for its low to mid-range handsets, Peng said.

In terms of features, many of these lower-end Samsung phones are comparable to other rival devices from local Chinese vendors. But consumers are attracted to the Samsung brand and its reputation for high quality, Peng said. In addition, Samsung has extensive retail channels in the country, and its phones are easy for buyers to find.

“Samsung has been able to stop the local players from growing as fast,” she added. “Even with the domestic vendors selling more phones, these companies have found it hard to challenge Samsung’s position.”

Behind second place Lenovo, was Yulong Computer Telecommunication with 11 percent market share. Yulong is a local handset vendor that sells phone under the “Coolpad” brand. Huawei Technologies was fourth with a 9 percent share.

Nokia China Dongguan factory employees protest their sale to Microsoft

Nokia is holding an extraordinary shareholder meeting today, where company management expects to get the approval to sell mobile device unit to Microsoft.

This being a strong emotional issue for Finns, we can expect some sort of protest both outside and inside the meeting venue later today. But there’s a group of people already in the streets and protesting Nokia/Microsoft deal. It’s the employees of Nokia Dongguan factory in China.

Apparently they too are not happy that they are being sold to Microsoft and would like to receive some compensation in the process, like their colleagues in Vietnamese Nokia factory did. Posters saying “Do not sell us, we have dignity and human rights” (according to Google translate), could be seen among protesters.

Nokia China representative confirmed the protests, but says that operation of the plant is not affected.

The Painful Reality Of Investing In China’s Hospital Sector

China is desperate to draw foreign investment into its healthcare sector in general, and hospitals in particular. But thus far, the country’s need and ability to do so have been poorly aligned, with many observers wondering why it remains so difficult to make investments in China’s healthcare delivery infrastructure. Private equity investors, to name only one interested party, would love to see China’s hospital market fully open to foreign investment. But thus far, foreign approvals have been few and far between, and deal flow has been slower than many anticipated. This has all left industry watchers wondering what to make: why does it remain so hard to deploy capital in China’s hospital sector? Many assumed the process by which the hospital sector opened to foreign investment would follow a similar trajectory as other industries that were previously closed, but then opened to foreign direct investment (FDI). Now, questions are being raised about whether this assumption is accurate; if not, why; and, what a more realistic set of expectations should be about where foreign capital will be allowed to invest in China’s healthcare system.

In 2011, China announced its intentions to revise the country’s FDI catalog to allow for wholly foreign owned entities (WFOE) of hospitals. This move would have relaxed China’s historical stance on FDI into the hospital sector that had previously forced foreign capital into joint-venture agreements with a Chinese counterpart. Investors had long wanted to see China relax limitations on FDI into this part of the country’s healthcare system in particular. Most analysts pointed to this step as the first in a series of changes that would ultimately allow investors to make aggressive moves within China’s burgeoning private hospital space. Coming on the heels of China’s Ministry of Health making it possible for the privatization of public hospitals, it seemed the moment had finally arrived when foreign capital could go to work in the country’s hospital sector.

Overall, most people anticipated the reform trajectory for hospital investments would look a lot like what had occurred with other industries in China: a series of gradual reforms that began by moving hospitals out of the “restricted” FDI category, then allowing Chinese-foreign joint ventures, gradually increasing the equity a foreign company could have, allowing 100% foreign ownership as long as the holding company was from somewhere like Hong Kong, Macao, etc. and then ultimately 100% foreign ownership regardless of country-of-origin. Thus far, the process of gradual opening for the hospital segment has limped along, fostered most recently by the announcement from China’s State Council in mid-October that further relaxed regulations surrounding private investment in Chinese hospitals. The most recent announcement, while reflecting the government’s ongoing aspiration to draw FDI into the market, had little new to say other than allowing greater freedom for privately owned hospitals to set their own prices and that for-profit private hospitals could apply to receive discounted tax rates. Both are helpful adjustments that add further hope to the idea that China is working to make it easier and more attractive for foreigners to invest in the country’s hospital industry.

Yet, it remains incredibly difficult to invest in China’s hospital space. Most people who have been working in the sector for the last several years will express emotions ranging from dismay to anger over how challenging it is to navigate the country’s maze of regulators and approval agencies. What keeps hold on those investors with the stamina to stick it out is the belief that western entrants will bring products, technologies, care plans and service standards that will easily capture meaningful market share, especially in China’s growing middle class. This group also happens to be the demographic cohort the Chinese government would most like to see the private sector play a more significant role helping provide healthcare for. The handful of successful privately-owned entrants in China’s hospital market prove that patience will be rewarded, and that Chinese healthcare consumers understand and value western care; however, the small number of these successful operators also point towards the painful reality that getting deals done in China remains an enormous challenge.

Some of this difficulty has nothing to do with investing specifically in Chinese hospitals, and everything to do with how rules and regulations that allow more foreign investment in any category are interpreted by local authorities. Some municipalities are eager to see foreign investment, while others may be more concerned about political risk. This is not unique to hospitals; it captures a typical frustration on the part of foreigners who do not fully appreciate that in China, “the mountains are high, and the emperor is far away,” a statement the Chinese use to point out how hard it has always been is for any government across China’s history to get local authorities to do what they want. But some of the difficulty foreigners are encountering as they navigate China’s hospital industry is also a reflection of the simple truth that healthcare in China is a politically sensitive area. As such, the government is moving deliberately and slowly, to make sure that it does not destabilize the public hospital system through a series of reforms that, while good in the short-term for private operators and investors, might cause mid-term problems for the government. During a recent conference in Shanghai, I moderated a panel and asked my fellow speakers if there was any analog industry in China that was as politically sensitive that had ultimately gone through a similar process of opening to foreign investment. Every one of the panelists shook their head “no.”

In the aftermath of this summer’s GSK scandal, this point has been made very clear to foreign investors: healthcare in China is going to be an extremely political issue. Yes, healthcare anywhere always has a political dimension to it, as this week’s back-and-forth in Washington DC over the Affordable Care Act makes all too obvious. But healthcare is even more of a touchy issue in China. For years, Chinese have absorbed terrible pollution, tainted food supplies, and contaminated water. They have done this with the knowledge that for many, the result will be cancer and cardiac disease; however, the price was one they were willing to pay. The hope was that all of these costs would be offset with a growing and vibrant economy that, among other benefits, would foster a modern healthcare and pension system. The simple and painful reality that Chinese people are coming to terms with today is that the country’s healthcare system remains badly out of sync with the demands that are already being put on it, not to mention those strains that will soon exponentially increase as China’s demographic dividend comes to an abrupt end, leaving a rapidly growing number of Chinese who need care for long-term chronic diseases.

The Chinese government understands these pressures all too well. They are equally aware, and troubled by, the realization that to-date the bulk of China’s hospital sector has been controlled by the central government. This has an obvious implication: as frustrations mount, the government is going to be the entity that people blame. This realization has no-doubt driven much of the government’s recent policy adjustments that have diligently worked to make it easier to bring FDI into the country’s healthcare delivery system. The painful reality is that China has three factors coming together that are likely to make it more difficult to fundamentally alter the quality of either healthcare outcomes or customer experience. First, the country’s economy is encountering new headwinds that, among other things, threaten to force the central government to take precious resources away from healthcare investments. Second, the government needs to pull two things off pretty much at the same time: increase capacity (as measured by new hospitals, primary care outlets, expanded national insurance coverage, new drugs, devices and diagnostics) and absorb the costs related to a rapidly aging society characterized by long-term chronic diseases. Third, China is opening its healthcare economy to foreign investment relatively late in its economic liberalization and modernization. Consequently, even though the government feels it needs to be very cautious in its approach, it has to address the chorus of voices from foreign operators who want to make investments more smoothly and quickly, alongside the frustrations of average Chinese who want more coverage and better choices now.

The reform and opening process China is engaged with in its hospital sector is not unique. The stages have thus far roughly followed the sequence of what other previously restricted sectors have gone through. What is different is the pace and timing. In the midst of China’s amazing economic successes, it has only now begun to turn its attention towards making the hospital industry more amenable to foreign investment. While China’s concerns about moving too quickly are understandable, the political and social risks attached to moving too slowly are beginning to mount. Of all the sectors China has moved to open for overseas investment, its healthcare economy in general, and hospitals especially, may need to move more quickly than the authorities would like. The balance between control and flexibility has never been easy in China, but country’s healthcare system cries out for the sort of focused, concerted and expedited effort that China has proven capable of in the past, and must be again today.

Coca-Cola plans more than $4B investment in China

Coca-Cola says it plans to invest more than $4 billion in China over three years.

David Brooks, president of Coca-Cola’s Greater China and Korea business unit, told Bloomberg earlier this week that the company plans to invest the money between 2015 and 2017 to build factories and add new products to its portfolio. The company is also investing $4 billion in China between 2012 and 2014.

Coca-Cola has been expanding in emerging markets such as Russia and China. It aims to reach $200 billion in revenue by 2020, in part by catering to the rising middle class in emerging markets.

Shares fell a penny to $39.82 in midday trading. The stock has risen 10 percent since the beginning of the year.

China’s crazy property bubble

Cui Shufeng is a retired government worker in Beijing. She is one of the lucky homeowners who bought her place long before the housing sector galloped out of reach for the average Chinese salary worker.

“It is ridiculously high,” she says pointing to apartments in her neighborhood. “These homes near the school here are CNY 70,000 (USD$11,400) per square meter. It’s not even worth 7000 yuan (USD$ 1140) per square meter because it’s not even good quality.”

Her concern is on the radar of the central leadership that is expected to discuss economic reforms at the plenary session starting Saturday. For Chinese leaders, the property sector is an emotional and political hot potato. The dream to own a home is a far out of reach for tens of millions of Chinese citizens.

In the latest housing data, new home prices for September rose at the fastest pace in almost three years. In Beijing, new home prices were up 16%, Shanghai 17% and Shenzhen 20% from a year ago.

“The problem is Chinese people have very few investment vehicles. They’ve lost trust in the stock market so they turn to real estate,” says Xu Si Tao, China Director of the Economist Intelligence Unit.

Xu says the central leadership needs to make bold steps in financial reforms to give citizens more options to invest their money.
One measure China is considering is to allow banks to set their own interest rates, creating more competition.

I was in Beijing two weeks ago and visited a luxury villa compound. It was a large site with tens of dozens of completed but mostly empty villas. A worker in the sales office told me the average home was priced at CNY 23 million (USD$3.8 million) and most were sold. He said half were owner-occupied (though I saw very little sign of residents) and the other half purchased as investments.

I was told the supermarket in the center of the compound was open and often used by residents. It was clearly still under construction. When I pointed this out, I was then told the grand opening would be next year. Message: The bubble is alive and growing. These villas are a pretty — and by most appearances, empty — place to park money.

Cui shakes her head at the dilemma facing the government. She doesn’t believe recent curbs will work like a ban on third home loans in Shanghai.

“I don’t think home prices will drop sharply because our economy is still doing okay,” she says. “Our child bought a home in the U.S. recently. The price was about the same as a flat in Beijing, but the area is a lot bigger and the quality is much better.”

Beijing announces list for Nobel-hunting talent recruitment

The Chinese government has announced a list of professional elites that it plans to include in its talent recruitment program — the 10,000 Plan — which aims to provide financial, policy and service support to 10,000 science and technology professionals in China, reports the Hong Kong-based Wen Wei Po newspaper.

The 10,000 Plan plans to recruit 100 world-class scientists that have the potential to win coveted Nobel prizes, 8,000 professionals much needed for China’s technology sectors such as innovators, entrepreneurs, philosophy and social science majors and educators, as well as 2,000 young people under the age of 35 with great potential in other areas.

The organization department of the Communist Party’s Central Committee oversaw the propaganda department, the Ministry of Education and the Ministry of Science and Technology in implementing the program, which had its launch in September last year.

A number of talents have been listed in the program since July of this year, which includes six scientists, 72 technological innovators, 199 “young people with great potential,” 201 technology entrepreneurs, 94 philosophy and social science specialists, 101 educators and 98 engineering experts.

Beijing plans to provide 1 million yuan (US$164,000) in financial support to each of the individuals to carry out research, freeing them from administrative hassles such as applying for grants. The central government will also provide policy and service support.

The program is a successor of the 1,000 Plan, also a recruitment program which launched at the end of 2008. The program has successfully recruited 4,000 individuals at home and abroad including 40 top scientists from developed countries.

Six high-profile scientists have been included in the 10,000 Plan: Liu Zhongfan is a researcher with the Chinese Academy of Science who has made a series of breakthroughs in his research on low-dimension carbon materials; Xue Qikun, also a member of the academy known for his research on scanning tunneling microscopy; Wang Yifang, president of the Institute of High Energy Physics of the academy; Zhou Zhonghe, a Chinese Academy of Science researcher who is an expert in bird evolution; Lu Ke, also a researcher with the academy who specializes in applying nanotechnology on metal surfaces; and Ma Yongsheng, a researcher with the Chinese Academy of Engineering who has carried out research on oil and natural gas resources and their exploration.

Chinese internet users were skeptical however that Nobel prizes could be “attacked” in this way and criticized the government for treating the awards like the country’s sports program treats the Olympic Games, adding that the six scientists named on the list do not carry out their research with the sole aim of winning a Nobel. One of them, Zhou Zhonghe, said people should not focus on the prestige of winning the awards but rather the overall improvement of China’s scientific skills and urged the country’s society to avoid seeking the appearance of success in the short term, according to the Chinese-language Beijing Times.

Jobless Growth In China? Employment Stats Say Recession Has Already Started

Li Keqiang, in a speech released last week, said a 7.2% annual increase in China’s gross domestic product creates 10 million new jobs a year. The premier, therefore, believes each percentage point of growth produces 1.4 million jobs.

Morgan Stanley’s Ruchir Sharma, writing in the Wall Street Journal just before the release of Li’s speech, told us that each percentage point of growth results in 1.6 million to 1.7 million new jobs.

Beijing’s National Bureau of Statistics reported that last year China’s GDP jumped 7.7%. Applying Sharma’s formula, the economy should have created 12.3 to 13.1 million new jobs in 2012. Applying Premier Li’s formula, the number is 10.8 million new jobs.

So how many jobs were in fact created last year? The Ministry of Human Resources and Social Security reported that 767.04 million working-age Chinese—those aged 15 to 59—were employed in 2012, 2.84 million more than in 2011. In other words, the number of jobs increased 0.37% last year at a time when gross domestic product grew, according to NBS, 7.7%.

What makes this even more interesting is that China’s services sector, an obvious job-creator, is expanding fast according to NBS. Services accounted for 44.6% of GDP last year, up from 41.9% in 2011. Output from services grew 8.1% in 2012, a pace faster than GDP.

These figures are hard to reconcile. How can an economy growing in the high single digits with a quickly expanding services sector create so few jobs? There is no iron correlation between GDP growth and employment creation, but the two cannot be this far out of whack in an economy like China’s that has already passed its initial stage of development. In China, economic growth and employment should more or less move in step.

So how fast did China expand last year? Working back from the Human Resources Ministry statistics, the Chinese economy grew 2.0% last year if Premier Li’s formula is correct. It grew 1.7% to 1.8% according to Sharma’s relationship between growth and jobs.

And how fast is China growing now? In 88 cities surveyed by the Human Resources Ministry, the number of available jobs—termed “demand for workforce”—in the third quarter of this year fell by 139,000 (2.5%) from the third quarter of 2012. In 95 surveyed cities, the number of available jobs in the July-September period decreased by 232,000—4.0%—from the second quarter of this year.

Employment data for the third quarter is still fragmentary, but it is consistent with anecdotal evidence from China’s jobs market. For instance, observers report that this year is the toughest hiring season ever. College graduates have even been hired and fired in the same month as employers realized they did not need new hires.

Of course, job-creation numbers are not the only data points available. They are, however, generally consistent with private surveys, such as the China Beige Book and the widely watched HSBC purchasing managers’ manufacturing index.

The National Bureau of Statistics, on the other hand, has issued Q3 figures showing a robust economy, 7.8% growth in the period. Yet Premier Li Keqiang just-released speech on jobs contains a formula that undermines NBS’s creditability, and job creation numbers from the Human Resources Ministry show an economy that from last year to last quarter is moving from a state of low growth to one of contraction.

Online shopping records beaten in China as new era beckons

During a meeting with China’s premier, Li Keqiang, two weeks ago, Alibaba’s founder and chairman Jack Ma made a bold prediction: “We expect 30-billion-yuan-plus (US$4.9 billion) in online turnover on Nov. 11.”

Taobao.com and Tmall.com, key sales platforms under the Alibaba Group, operator of China’s biggest e-commerce platforms, offered big discounts throughout Monday, or Singles’ Day.

By 1:04pm, after 13 hours of sales, turnover stood at 19.1 billion yuan (US$3.1 billion). The amount was the same for the whole of Singles Day last year.

By 9:19pm, turnover exceeded 30 billion yuan, Ma’s stated goal.

“Many products sold out in a flash,” said Xu Yun, 24, who stayed up till 3am and spent 2,800 yuan (US$460) on clothes and cosmetics, at a discount of 50%. “I have bought enough for the upcoming winter,” Xu said.

Sales surpassed 100 million yuan (US$16.4 million) less than a minute after the sale started at midnight. More than 10 million people like Xu were waiting to start shopping.

Singles’ Day, on Nov. 11, became popular after Alibaba tagged it China’s version to Cyber Monday.

“Under the surface of buying products at a lower price, the public are actually enjoying the benefits brought by market-oriented progresses in logistics, financial environment and e-commerce,” said Ma.

Alibaba saw a whopping 1 trillion yuan (US$164 billion) in turnover last year, more than eBay and Amazon combined.

In 2012, China’s online retail sales volume reached 1.3 trillion yuan (US$213 billion). It took only nine months for the country’s online shops to break the record this year. China is poised to surpass the US to become the world’s largest e-commerce market.

Consumption gained momentum after new guidelines in mid-August. Internet-based consumption is expected to grow at least 30% annually to 2.4 trillion yuan (US$394 billion) by the end of 2015.

This year, shoppers have been attracted by online-to-offline (O2O). Shopping malls have been working with e-commerce giants to allow customers to try products in real stores and then purchase them online, offering a more streamlined shopping experience.

Consumption is expected to grow faster as China will soon issue the fourth generation network mobile communications and technology (4G) license. This will make mobile Internet shopping even more convenient.

Behind the online shopping malls are over 5,000 Alibaba staff and hundreds of other workers in payment, telecommunication, internet maintenance and express service departments trying to provide a slick service.

According to Ma, about 9 million online shops have set up business on their platforms. This has led to thousands of jobs as well as a boost for logistics and express delivery companies.

In late October, China’s Cabinet relaxed company registration requirements to ease market access and encourage social investment, giving support to small businesses like those on Alibaba’s e-commerce platforms.

Premier Li expressed support for the country’s burgeoning private enterprises and advocated reforms for a consumption-driven new economy during a conference, which Ma was invited to late last month.

“It is not only that the government trusts private entrepreneurs, it also relies on them,” Li said.

However, it is not only down to trust.

The thriving e-commerce business is made possible by more Internet finance innovations such as third party payment platforms and small loans.

Thanks to increased investment borrowed from renrendai.com, a peer-to-peer (P2P) online lending platform, Yang Zhiming, a razor retailer on Taobao.com, doubled his sales on Monday.

Yang is one of the thousands of small business owners who has benefited from Internet-based micro finance. They had been turned away by major banks due to small scale and insufficient credit record.

More private enterprises are making their foray into the once heavily regulated financial sector, offering small and medium enterprises more financing choices.

“The internet finance boom forced China’s state-owned finance giants to rethink their development strategy, putting more focus on small businesses and enhancing the country’s credit system construction,” said Yang Tao, a senior finance researcher with Chinese Academy of Social Sciences.

Xu Yun said she is looking forward to receiving her products, but is worried how long they will take to arrive and whether they will be in tact.

Last year, an avalanche of deals and parcels almost paralyzed the payment system and logistics, while customer complaints challenged the consumer protection legal system.

“China’s logistics sector is small in scale and too fragmented,” said He Dengcai, deputy director of China Federation of Logistics and Purchasing.

He encouraged more enterprises to outsource their logistics demands to help reduce costs and improve services.

Online payment services are also reported to falter when there are high numbers of transactions. “More payment channels and a safer purchasing system should be developed to ease online shopping,” said Yang Tao.

That may be changing.

Premier Li has said the government will continue to improve public service infrastructures and systems to facilitate market-oriented reform.

“The process of reform may be gradual, but it is determined,” he said.