Chinese Economics Thread

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Chinese smartphones are currently in a very awkward position: not competitive enough to be in the high-end market but reluctant to stay in the low-end market for long. Under such circumstances, in order to compete with international brands that "deign" to enter the Chinese market, it's not enough for Chinese cell phones to just possess market shares. They also need to increase user stickiness.

Days ago, SNDA officially launched its duel-core smartphone Bambook Phone, making its foray into the cell phone market. The phone comes installed with numerous apps of SNDA, sold at RMB 1,299 Yuan. In the meantime, Alibaba has also released a new model of Ali Phone, which was co-produced by Alibaba and home appliance tycoon Haier and priced at RMB 999 Yuan, RMB 300 Yuan lower than a Bambook Phone.

Prior to that, numerous conventional internet companies had been positioning themselves in the cell phone market with "super cost-effective" products. Baidu and Xiaomi are early comers in this field, whereas Qihoo 360 has also released its "exclusive" phone. Besides, there have been plenty of rumors that Renren and Netease are entering the cell phone market. Whoever the participants may be, price war would again be the primary means of competition in the industry, except for the difference of built-in apps.

Meanwhile, a new study report excites many people in the Chinese cell phone market. According to this report, out of the latest top five enterprises in China's cell phone markets, four are Chinese brands, with the exception of Samsung. These Chinese brands are: ZTE, Huawei, Lenovo, and Coolpad.

The aggregated market shares of these four companies exceed 40 percent, and the total market shares of all Chinese brands exceed 50 percent. Chinese brands haven't been so proud for a quite a long time. Since a short glory in 2003, Chinese cell phones have been dragging, whipsawed by foreign brands and copycats and sustaining a miserable existence. Now, it seems that the glory of Chinese cell phones is coming back.

As a matter of fact, these four top-ranking Chinese brands, namely ZTE, Huawei, Coolpad, and Lenovo, have something in common: their smartphones are mainly priced around RMB 1,000 Yuan and their sales are tightly bound with the three major telecommunication operators.

Although this enable Chinese cell phones to gain a chance for survival in the medium- and low-end market, the prospects are not very good. The criteria to measure whether Chinese cell phones have stepped out of the mire are not merely sales, but also sales value and profit.

Although Chinese cell phones take up 50 percent of China's smartphone market, they concentrate in the low-end market. Samsung and Apple have taken away 99 percent of the profit of the cell phone market, leaving only 1 percent for Chinese brands and other international brands to compete for.

Chinese cell phones are still unable to compete head on with foreign brands in terms of technology R&D and brand reputation. With its high profit publicly known, Apple's iPhone4S, priced averagely above RMB 4,500 Yuan, still sells at huge volume. This is the power of brand.

In spite that Chinese cell phones account for 50 percent of the market, the profit of operators' customized phones is meager. In traditional channels, the market is impacted by the operator market and messed up by internet companies' low-price phones.

This year, the price of Chinese smartphones has slipped significantly, and the competition is ever intensifying. This puts Chinese smartphones in a very awkward position: not competitive enough to be in the high-end market but reluctant to stay in the low-end market for long. Under such circumstances, in order to compete with international brands that "deign" to enter the Chinese market, it's not enough for Chinese cell phones to just possess market shares. They also need to increase user stickiness.

Currently, with hardware value in the manufacturing of smartphone becoming more and more transparent, back-end software and service are gradually becoming the focus of competition in the smartphone market. The integrated model of "terminal + software + contents + service" is being adopted by more and more manufacturers.

Facing the trend of integration, the introduction of new apps and service innovation are becoming more and more important and will be the new profit growth point for smartphones in the future. The purpose of internet companies' taking the initiative to work extensively with conventional cell phone makers is to give full play to their advantages in such aspects as ecommerce, search, and internet safety, using their unique apps to hold the users and hoping to gain more market shares in the mobile internet.

As of the end of 2011, the number of global internet users approached 2.3 billion, a growth of 8 percent compared with the same period of the previous year. The number of mobile 3G users worldwide was 1.1 billion, an increase of 37 percent year on year. Besides, statistics show that in 2011, shipment of smartphones globally amounted to 490 million units, whereas PC shipments in the same year was 350 million units; it is estimated that in 2012 the global shipment of smartphones would reach 620 million units.


From "desktop" to "mobile" is the irresistible trend of the internet. Besides, China is still a vast land that is worth of extensive plowing. Amidst the tide of upgrading from function phone to smartphone, there is hidden an enormous consumption potential in the vast three- and four-tier markets and in the rural areas.

Smartphone is an important development opportunity in China's cell phone market. According to the estimate of market research organizations, in 2012, sales of smartphones in the Chinese market would be around 164 million units and the total sales of cell phones would be around 300 million units, the former accounting for 55 percent of the latter.


In the face of the huge market, Chinese cell phone enterprises need smartphone as the terminal, which would make mobile cloud service that is based on cloud computing more user-oriented, and more importance will be attached to user experience, thus extending and enriching the value chain of the entire industry and generating more mobile-based business opportunities.

So, only manufacturers with comprehensive service capability and huge user base could have the upper hand in the completion and change the competition pattern of the whole smartphone market.

 

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The country's transportation network is expected to hit 4.9 million kilometers in three years, with a focus on improving structural and connecting issues, according to the State Council.

The government has vowed to build a national transportation network comprising regular roads connecting counties and villages, railways, highways and waterways, civil aviation projects and pipelines, according to the 12th Five-Year Plan (2011-15) comprehensive transportation network outlook issued by the State Council recently.

National express railways in operation are expected to reach more than 40,000 km, while national highways will reach 83,000 km. The civil aviation network will be further expanded and upgraded to the level where more than 80 percent of the population can use aviation services within a 100 km direct distance.

About 42 national transportation hubs will also be completed by then.

The development of a cross-region and cross-country network for crude oil, petrochemical products and natural gas is also on the top agenda.

In the next three years, the national passenger transport volume is expected to reach 47 billion, and cargo turnover volume is expected to grow 7.2 percent annually to 20,100 billion tons.

During the previous Five-Year Plan (2006-10), the transportation volumes have reached their goals. The current task is to solve the structural and connecting issues, an expert involved with the planning told the China Securities Journal.

The government invested 7,970 billion yuan on the development of the transportation network, an increase of 171 percent compared with the previous period.

 

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China's outbound investment surged in the first half year despite hardships in foreign trade development, Commerce Minister Chen Deming said at a forum in Shanghai over the weekend.

"The complexity of the external economic environment has posed serious challenges to China's foreign trade and economic development," Chen said. "However, Chinese companies are 'going out' at a faster pace. They've spent US$35.4 billion in overseas ventures in the first half year, up 48 percent from the same period last year, among which transnational mergers and acquisitions accounted for one third of the total outbound investment.

"There are some big acquisition cases, for example, China Petrochemical, or the Sinopec Group, has bought a one third stake in an American energy company that produces shale oil and gas for US$2.4 billion. Sany Heavy Industry Co has acquired a 90 percent stake in the global concrete machinery giant Putzmeister Group for 324 million euros (US$394 million)," Chen said.

He added some countries are concerned with Chinese companies investing in energy resources, major construction projects and state-owned enterprises.

In addition, the grim situation in some regions required Chinese enterprises to enhance risk management.

Yi Gang, head of the State Administration of Foreign Exchange, said on Saturday at a forum in Beijing that China's outbound investment will expand massively in the next 20 years.

"Chinese companies have a good chance to acquire overseas businesses as many European and American companies are struggling, market valuations have fallen significantly and overseas regulators are becoming more friendly to Chinese capital," Yi said.

He cautioned Chinese investors to bear in mind return on investment, costs and cash flow when facing a window of overseas venture opportunities.

"Chinese companies must obey market principles and play down national interest. In addition, they must watch out for social responsibility, environmental protection, and especially, security issues," Yi said.

The government has been encouraging companies to buy assets overseas through a "going out" strategy in order to establish internationally competitive businesses.

 

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China's implied oil demand fell 0.4 percent in June from a year earlier to the lowest in 20 months as refineries scaled back production and raised fuel exports to trim bulging stockpiles.

China is the world's second-biggest oil user and still accounts for nearly half of global incremental demand, but an economic slowdown is shrinking its need for fuel.

Implied oil demand has contracted for the second time so far this quarter, and that is likely to further dampen oil prices which have so far fallen by a fifth off the highs they hit earlier this year.

China burned 8.96 million barrels of oil per day (bpd) last month, the lowest since October 2010, according to Reuters calculations based on preliminary government data released on Friday. The data also showed that China's oil consumption for the first half of the year rose a modest 2.2 percent year-on-year to about 9.5 million bpd. Oil consumption for the whole of last year was 6.3 percent more than 2010.

Implied demand is calculated by adding crude oil throughput and net imports of refined oil products, but omits stocks changes which are rarely disclosed in China.

Refineries had scaled back output, and raised exports of diesel due to brimming inventories caused by a lack of buyers and losses resulting from the government cutting fuel prices for consumers three times over the past two months.

Official data also released on Friday showed China's refinery throughput fell 0.6 percent in June year-on-year to 8.76 million bpd, the lowest since October. It was the third straight month of decline.

The June rate was down 3 percent, or 270,000 bpd, from May's throughput rates of 9.03 million bpd.

A REBOUND IN THE SECOND HALF?

The International Energy Agency (IEA), in its latest monthly report, forecast Chinese total oil demand to rise 3.9 percent this year, or 363,000 bpd, to 9.76 million bpd. If achieved, such an increase would mean China would account for up to 45 percent of global demand growth this year, equivalent to about 800,000 bpd.

The IEA projected that oil demand growth would rise to nearly 5 percent in the second half of 2012, citing "cautious optimism" that the Chinese authorities would provide sufficient economic stimulus measures to support such a rate.

"A large infrastructure spending programme and massive injections into the financial markets tend to support this view," the report added.

New refining capacities estimated at 190,000 bpd, and expected to come on stream in the second half of this year, will also boost crude throughput in that period.

Officials also hope cheaper fuel at the pump will mean more of it will be burned. On Wednesday, the government cut prices again, making for a combined reduction of up to 14 percent in gasoline and diesel prices since early May.

 

[Franklin]

China Cities Roll Out Stimulus as Changsha Targets $130 Billion

The central Chinese city of Changsha unveiled an 829.2 billion yuan ($130 billion) investment plan, joining peers seeking to shore up local economies as national growth slows.

Changsha, the capital of Hunan province, is wooing banks to finance 195 projects, which include an airport and subway lines and will take several years to complete, the official China News Service reported yesterday.

Local governments are stepping up efforts to bolster the economy, with the cities of Nanjing and Ningbo saying over the last two weeks that they will introduce measures including tax cuts and incentives to boost consumption. Premier Wen Jiabao said July 10 that promoting investment is the key to stabilizing China’s growth, which has slowed for six quarters.

“We expect Changsha, Nanjing and Ningbo to be the start of a wave of nationwide stimulus packages, with more announcements from other local governments to come,” Shen Jianguang, Hong Kong-based chief Asia economist for Mizuho Securities Asia Ltd., said in a note yesterday. “With the central government’s tight controls on local government lending previously, there has been widespread panic among local governments in regard to the recent downturn.”

Changsha’s plan “will be spread over the next few years and eventually the actual amount of investment recorded could be discounted to a third of its original target,” said Shen, who previously worked for the International Monetary Fund. Fiscal stimulus will be the focus of policy easing in the second half and the central government will expedite approvals of infrastructure investments to stabilize the economy, he said.

Lower Costs

Guizhou, one of China’s poorest provinces, is considering more than 2,300 projects involving total investment of 3 trillion yuan related to eco-tourism, according to a July 24 statement on the provincial government’s website. The statement didn’t say when the investment would begin or how it would be financed.

Growth in China’s central and western regions is outpacing eastern areas as companies shift production inland to take advantage of lower costs. The State Council, China’s cabinet, approved a plan on July 25 to promote development in six central provinces, including Hunan, according to the official Xinhua News Agency.

Changsha’s economy expanded 12.9 percent in the first half of 2012, the local statistics bureau said, compared with national growth of 7.8 percent.

Investment Incentive

The cabinet’s plan “opens the door for local government stimulus such as that announced by Changsha,” Zhang Zhiwei, chief China economist with Nomura Holdings Inc. in Hong Kong, said in a research note yesterday. “As the leadership transition for all provincial governments is finished, new leaders have an incentive to push up investment.”

Zhao Kezhi was recently appointed as the new head of the ruling Communist Party in Guizhou, the Xinhua news agency said in a report dated July 17.

The State Council’s announcement signals policy stimulus will pick up and China’s growth “will surprise on the upside” in the second half, Zhang said. He forecasts economic expansion of 8.1 percent in the third quarter from a year earlier and 8.8 percent in the final three months after slowing to 7.6 percent in the April-June period, the least in three years.

Data on new loans and investment over the next few months will show how big the stimulus is in reality, Zhang said.

Increase Consumption

Fixed-asset investment in Changsha was 351 billion yuan last year, including both public and private spending, Zhang said. Even if the announced amount were to be spent over five years, the implied annual investment would be 160 billion yuan, about 0.5 percent of the nation’s total, he said.

Nanjing, capital of the eastern province of Jiangsu, announced on July 23 a “30-point” plan to increase consumption, including incentives for automobile purchases and loans for affordable-housing construction. Ningbo, a port city in Zhejiang, will implement 24 stimulus measures including a fund to support small businesses and tax cuts for qualified companies, the Ningbo Daily reported on July 17.

More local governments may follow Changsha’s lead as “they probably want to take advantage of the central government’s relaxation of policies and will try to get more new projects approved,” Barclays Plc economists led by Chang Jian said in a note yesterday.

Funds may not come from the central government this year. Chinese authorities see “adequate space in the existing budget to continue to adjust policies to support growth,” assuming Europe’s debt crisis doesn’t worsen, Il Houng Lee, the International Monetary Fund’s senior resident representative in China, said in an interview July 25 in the fund’s Beijing office. Revenue may come in above projections, allowing higher spending, he said.

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Changsha the capital of Hebei province a city of 7 million people in the metro area and 3,6 million people urban has a plan for 130 billion $ in fix assets investment. The people's who made this investment plan needs to be relieved of their duties and needs to be subjected to a drug test and a IQ test. Also a examination needs to be done on their knowledge of basic economics. They also will have to do a psych evaluation to see if they don't have any megalomania disorder. And if megalomania disorder is established then they need to be interned for treatment.

But even crazies sometimes have some good idea's like a metro system for the city. I believe if China wants to make her cities livable and things running smoother than it is now China needs to invest in public transportation.

It's just a proposal and let's hope things won't go that far but in China i'm afraid that it might just be possible.

 

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China CNR Corporation Limited, one of the country's biggest train manufacturers, on Friday began delivering a freight locomotive to Estonia, marking the country's first such export to the EU nation, according to the company.

The train has left a workshop in southern Beijing and will be loaded onto a container ship in the nearby city of Tianjin before heading for Estonia, the company said.

The DF7G-E locomotive had to meet 173 stringent quality standards throughout the design, manufacturing and testing process, the company said. The locomotive is equipped with snowplows on both sides to ensure safe passage during the heavy snowfalls often experienced in Estonia, the company said.

The vehicle will be used to lead heavy-haul and short-haul trains. According to the contract, CNR will send 16 such locomotives to Estonia over the next year and a half in order to upgrade the country's transportation facilities.

CNR was created following a reorganization of the China Northern Locomotive and Rolling Stock Industry (Group) in June 2008. Its products are used in over 40 countries and regions.

 

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A foreign trade factory used to do OEM of hardware and bathroom products for European and Mideast countries now turns to the Chinese market, opening its outlet online. This is LTENG Sanitary Ware, located in Longwan in Wenzhou, Zhejiang Province. In April 2011, LTENG opened its official store on tmall.com. From July when it started sales to December, its sales value approached RMB 10 million Yuan, grossing nearly RMB 1 million Yuan on the "11.11" promotion day alone.

Ke Jinfang, a director of the company, said that: "Without ecommerce, it's hardly imaginable for foreign trade companies such as ours to explore the domestic market".

There are thousands of small- and medium-size enterprises (SMEs) like LTENG Sanitary Ware out there that are obtaining all kinds of service from Alibaba's B2B platform and B2C platforms Tmall.com and taobao.com and third party payment platform Alipay. Liang Chunxiao, VP of Alibaba Group, said that: "as one of the world's largest ecommerce service platform, Alibaba has been progressively building up new commercial infrastructures that include cloud computing, ecommerce service platform, and ecommerce service industry, constructing a better business environment through the internet and providing more and fairer commercial opportunities for small businesses.

For large companies, the deep integration of informatization and industrialization reflects mainly on the enhancement of the companies' control ability, whereas for SMEs the biggest value of the integration lies in helping them to explore the market and gain more commercial opportunities. In it, ecommerce plays a crucial part.

Alibaba was initially known for its B2B business that provides cross-border trade service to small businesses around the world. Now, the platform has evolved into an online community with more than 79.7 million registered users from more than 200 countries and regions. Every day, millions of buyers worldwide look for products and suppliers on the website.

Meanwhile, Alibaba is also helping SMEs to look for domestic commercial opportunities through its subsidiary online retailing platforms tmall.com and taobao.com. Currently, taobao.com has 470 million registered users, creating an aggregate of 2.7 million jobs directly and 7.7 million jobs indirectly. In 2008, sales value of taobao.com exceeded RMB 100 billion Yuan, and in this year, its sales value is expected to reach RMB 1 trillion Yuan, more than the sum total of the sales values of Amazon and Ebay.

Brand building has always been a bottleneck that impedes the development of SMEs. Due to lack of channels and promotion cost, it's hardly possible for SMEs to build up their brands through conventional marketing approaches. Nonetheless, taobao.com and tmall.com provide opportunities for internet brands to make themselves known.

During Tmall's promotion on "11.11" last year, 8 internet brands enjoyed sales of more than RMB 10 million Yuan in a single day, and the total sales of 108 internet brands on that day amounted to RMB 335.6 million Yuan. The SMEs' brand building begins to take shape...

 

[AssassinsMace]

Romney was in Israel recently where he created a stir over a comment linking culture and economic success. Even people jumping on him limited it to Romney's context comparing Israelis and Palestinians. But when you make a general comment like that, it's a general statement about "culture." I was watching GPS on CNN this morning and it was noted that Romney borrowed from economic historian David Landis to make his conclusion but he did not use German scholar Max Webber who said the same thing. But that was a hundred years ago where the countries Webber used as an example that cultually were not capable of capitalism were China and Japan. Today you can see how how stupid that belief was from a supposed Western intellectual. You couldn't say that either 400 years ago. It just goes to show how myopic and self-centered people can be because he was looking at only the now and basing his judgements on that. What was China like a 100 years ago? It was occupied by the superior cultures that could only be capable of capitalism. Maybe Webber was a Kool-Aid drinker believing in the propaganda that they were only there for what was best for the Chinese so if the Chinese couldn't "get it" it was their fault and not anyone elses that China was in the state it was in. And that's the same message today, isn't it? It wasn't me that screwed you, you're just culturally incapable of getting it together yourself. Ironic coming from Romney since he's attacking China for stealing jobs that he sent to China when he was with Bain Capital so he can make money in the name of capitalism where he could enjoy big profits from the under-valued currency.

 

[Equation]

Romney was in Israel recently where he created a stir over a comment linking culture and economic success. Even people jumping on him limited it to Romney's context comparing Israelis and Palestinians. But when you make a general comment like that, it's a general statement about "culture." I was watching GPS on CNN this morning and it was noted that Romney borrowed from economic historian David Landis to make his conclusion but he did not use German scholar Max Webber who said the same thing. But that was a hundred years ago where the countries Webber used as an example that cultually were not capable of capitalism were China and Japan. Today you can see how how stupid that belief was from a supposed Western intellectual. You couldn't say that either 400 years ago. It just goes to show how myopic and self-centered people can be because he was looking at only the now and basing his judgements on that. What was China like a 100 years ago? It was occupied by the superior cultures that could only be capable of capitalism. Maybe Webber was a Kool-Aid drinker believing in the propaganda that they were only there for what was best for the Chinese so if the Chinese couldn't "get it" it was their fault and not anyone elses that China was in the state it was in. And that's the same message today, isn't it? It wasn't me that screwed you, you're just culturally incapable of getting it together yourself. Ironic coming from Romney since he's attacking China for stealing jobs that he sent to China when he was with Bain Capital so he can make money in the name of capitalism where he could enjoy big profits from the under-valued currency.

It's an election year...wait till November gets closer to voting time, then the mud slinging starts flying.

 

[delft]

Romney was in Israel recently where he created a stir over a comment linking culture and economic success. Even people jumping on him limited it to Romney's context comparing Israelis and Palestinians. But when you make a general comment like that, it's a general statement about "culture." I was watching GPS on CNN this morning and it was noted that Romney borrowed from economic historian David Landis to make his conclusion but he did not use German scholar Max Webber who said the same thing. But that was a hundred years ago where the countries Webber used as an example that cultually were not capable of capitalism were China and Japan. Today you can see how how stupid that belief was from a supposed Western intellectual. You couldn't say that either 400 years ago. It just goes to show how myopic and self-centered people can be because he was looking at only the now and basing his judgements on that. What was China like a 100 years ago? It was occupied by the superior cultures that could only be capable of capitalism. Maybe Webber was a Kool-Aid drinker believing in the propaganda that they were only there for what was best for the Chinese so if the Chinese couldn't "get it" it was their fault and not anyone elses that China was in the state it was in. And that's the same message today, isn't it? It wasn't me that screwed you, you're just culturally incapable of getting it together yourself. Ironic coming from Romney since he's attacking China for stealing jobs that he sent to China when he was with Bain Capital so he can make money in the name of capitalism where he could enjoy big profits from the under-valued currency.

I didn't read Max Weber, but understand that he was out to show that capitalism thrived thanks to the protestant work ethic, which was not available in the catholic countries of Europe. He didn't want to know that capitalist practices were introduced in North West Europe by traders from Italian city states, which were run by catholic capitalists. Military interference from France and Spain prevented the development of a larger Italian capitalist state, so the first capitalist state, mostly governed by representatives of the towns, was the Republic of the United Dutch Provinces in what is now The Netherlands.