Chinese Economics Thread

[Piotr]

Foreign brands no longer top choice

Foreign brands no longer top choice for Chinese customers, says survey

Chinese customers are no longer swayed by the lure of foreign brands and would instead prefer to buy more brands that are made in China, a survey said.

According to the 2013 China customers' loyalty study conducted by marketing research firm Epsilon, six out of the 10 Chinese respondents endorsed foreign brands. However, there is a growing preference to buy products that are made in China. Local-brand supporters have grown to 43 percent from 31 percent in 2011, the report said.

Such trends are already visible in the Chinese fashion industry. In March, China's first lady Peng Liyuan sparked off a craze for Chinese brands after dressing up in Chinese-made apparel for diplomatic visits.

Her elegant dressing code was dubbed by netizens as "Liyuan style". Analysts argued that Peng's support for domestic labels had stirred interest in local products and also helped attach a new, sophisticated image to Chinese-made clothes.

"Since local brands started to improve quality, establish appeal and step up their sophistication, they have garnered a bigger share from Chinese shoppers," said Viven Deng, client services director of Epsilon China.

Chinese brands have started to win hearts not only from buyers pursuing extensive product features, but also from picky local consumers who previously stuck to foreign labels, she added.

Qi Lulu, a Beijing college student, who used to be a customer of leading international clothing brands such as Burberry and Polo Ralph Lauren, said she now focuses more on local brands.

"I buy dresses online, and I have found some domestic brands that have exquisite taste," the 22-year-old woman said. Recently, Qi fell in love with a Beijing brand called Liebo, which featured traditional Chinese flavors and colorful patterns.

Self-branded products from other industries, such as cars and consumer electronics, are also growing in popularity. More Chinese people said they would support Chinese-made cars, especially after the Diaoyu Island dispute between China and Japan. Currently, Japan is still the major car vendor in the Chinese car market.

With a more than 1.1 billion mobile population in hand, China has grown into the world's biggest smartphone market. The country manufactured the most number of smart devices, 224 million units, across the world last year.

Four out of the top five smartphone vendors in the Chinese market are domestic brands, with the South Korea-based Samsung Electronics Co the only international player in the list.

Huawei Technologies Co and ZTE Corp even successfully ranked as the world's third and fifth smartphone manufacturer in the fourth quarter last year, according to research firm IDC Corp.
"Previously, Chinese consumers blindly worshiped foreign brands because they were not confident of their own products," Deng with Epsilon pointed out. But since they have gradually widened their knowledge, Chinese buyers have become more mature in their purchases, she said.

"When a Chinese brand absorbs some advanced technologies and forms world-class vision, it will be able to create products that are more suitable for the Chinese market," Deng said. "That is why we say that a local label, based on its deep roots in Chinese culture, can easily touch your heart strings."

The convergence between foreign and Chinese brands will execute a bigger influence as well. "It will be very hard to tell if a brand belongs to China or a foreign country in the future," said Regina Leung, vice-president of the marketing division at Epsilon International.

"Chinese brands, such as Haier and Lining, have expanded overseas and acted as real international players," Leung said.

The widely reported economic slowdown has not dented Chinese consumers' confidence in the future or their enthusiasm for domestic and overseas brands.

The Epsilon survey finds that 75 percent of the respondents in China are optimistic that their individual or family economic prospects will improve significantly over the next 10 years, 11 percentage points higher than the 2011 survey.

"When a car shifts from 100 miles an hour to 69 miles per hour, it's still going pretty fast. The Chinese economy is growing at 7.5 percent and this is still an enormous growth opportunity, especially in terms of under-served customers," Scott Price, chief executive officer of Wal-Mart Asia, said.

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It's very important for China to have strong local brands. Most of profit goes to company that is owner of the brand not to company that is manufacturing product:

...
Earlier this year, ABC's "Nightline" show went into the Chinese factories of Foxconn, where most of the world's Apple products - iPads, iPhones and Mac computers - are manufactured. The investigation revealed that workers earn just $1.78 per hour, work long hours and live in dorms with fellow employees.

Asymco analyst Horace Dediu used the "Nightline" report to estimate that Apple pays labor costs of between $12.50 and $30 for every iPhone it makes, which represents just 2-5% of the iPhone's sale price.

The New York Times has harshly criticized the labor practices of Apple's factories, and featured an interview with a former employee of Foxconn, who said, "Apple never cared about anything other than increasing product quality and decreasing production cost .... Workers' welfare has nothing to do with [Apple's] interests."

Profit
So if the materials cost roughly $188, and Dediu has calculated that an additional $93 is spent on manufacturing its smartphone, (a cost that includes the labor costs, transportation, storage and warranty expenses) we reach a total of about $281 to manufacture an iPhone that retails at $649. This represents a profit for Apple of $368 per iPhone.

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[Equation]

Foreign brands no longer top choice

It's very important for China to have strong local brands. Most of profit goes to company that is owner of the brand not to company that is manufacturing product:

Like sharks in the water, HTC and Xiaomi can smell blood and they're heading that way. Watch out Apple and Samsung, your products are getting too costly.

 

[delft]

Here is an article about the trends in electricity production in China:

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I do not think the article can be shown adequately in our citation boxes, but I can give the main conclusions:
China wants to reduce dependence on the import of fossil fuel for security reasons, it wants to reduce dependence on coal because it doesn't like the air pollution and lastly there is the matter of the increasing greenhouse effect. It does like to produce wind turbines and PV systems for use by itself and for export as it provides work for its people.

 

[xiabonan]

I remember propaganda campaign in US media in 1990s about "bad loans in banks in China" and about "imminent economic collapse of China". It's funny how people who fail to predict US banking collapse of 2008 (US had AAA rating before that) still claim to be experts and still want to lecture others.

To be honest the bad loans and debt situation in China during the 1990s was really really bad. It's much damn worse than today's situation. To add to the pain, the then Premier Zhu Rongji implemented a series of reforms which including allowing many big but inefficient and incompetent state-owned-enterprises to go bankrupt or re-organized or privitized. This led to wide-spread unemployment especially in the Northeast provinces. Some of these people are generations of workers at SOEs, and they just suddenly all lost jobs overnight. The number of "mass-incidents" were far greater and far more serious, it's just that Internet was still a thing back then and not many people have access to it, and let alone social media platforms so the spread of information is rather slow as compared to today.

The 1990s also saw China's transition to a much more market-based economy, with Premier Zhu's reforms in tax systems, liberalising the property market, healthcare market, education system. It was a period of great transition but great pain as well.

The rule of law was pretty much non-existent, rules and regulations regarding many industries were at the very best ambiguous, corruption was much more wide-spread, unemployment and bad loans are much worse than today. Smuggling, prostitution, illegal drugs, and mafias all started to wide spread for the first time since CCP took power in 1949, and even the PLA was doing businesses and involved in smuggling! Of course, the problem got so serious that finally led to the ban on PLA doing any form of business. Fa lun gong was another huge problem as well.

There was a saying during the 90s, that "People who design nuclear weapons are less worthy(make less money) than those selling tea eggs", which pretty much shows the level of sever lacking of funding in weapon and defense system research and development. Just one example, that was the time CAC and SAC all resorted to use their factories and equipment and workers that are meant to produce fighter jets, to produce fridges, trucks, fans, sewing-machines, just to make some thin profit so the factories could keep running and not going bankrupt, and that their workers can have their bare minimum wages. Many workers, engineers, and designers left and started to join businesses and start their own. Many others moved to other countries.

We see now that J11Bs and J10s are churning out at steady rates and J20 and J31 are being tested thoroughly, but how many realise that, just less than 20 years ago, these factories which today are producing world class fighters, were barely surviving on producing small non-military goods?

 

[Franklin]

According to the BBC cracking down on corruption is a bad thing.

The real costs of China's anti-corruption crackdown

China, on 17 February 2014 China has seen a decline in the sales of luxury goods since the drive to root out corruption began

Much has been written about China's ongoing crackdown on corruption, but now one of the world's biggest banks has put a price on it.

According to a report published by Bank of America Merrill Lynch this week, the Chinese government's anti-graft campaign could cost the economy more than $100bn this year alone.

That's a lot of economic activity, something not far off the total size of the economy of Bangladesh, which supports some 150 million people (although admittedly not very well).
Macro effects

Many of the micro effects of Xi Jingping's anti-corruption drive have already been well documented of course; a slowdown in the restaurant trade for example, and a big dip in sales of luxury goods.

Over the past year or so, in Shanghai's posh malls and boutique designer shops - once at the centre of the happy merry-go-round of official largesse and gift giving - you've almost been able to hear the sound of the weeping and gnashing of teeth.

But the BofAML report suggests that the campaign is also having a significant and troubling macroeconomic effect.
A labourer, wearing an improvised protective mask, welds steel bars at a residential construction site in Quzhou, Zhejiang province on 3 April 2014. Officials are reluctant to spend public money on projects fearing corruption allegations against them

Since early last year, it says, government bank deposits have been soaring, up almost 30% year on year.

Even honest officials, the report suggests, are now so terrified of starting new projects, for fear of being seen as corrupt, that they're simply keeping public funds in the bank.

The total cost to the economy of the prohibition on government consumption and the chill on administrative spending is an estimated reduction in growth of at least 0.6% this year.

But it could, the report argues, be as high as 1.5% which, by my rough calculation, gives us the figure of about $135bn of lost economic activity.

The report's authors admit their calculations are a "back-of-the-envelope estimate of fiscal contraction", but even if they are only half right it is an extraordinary amount of money and it highlights some of the challenges facing China's anti-corruption crusader-in-chief, President Xi Jinping.

Since taking office more than a year ago he has made the cause his defining goal, warning that official graft and extravagance threaten the very survival of the ruling Communist Party.

Sex trade

Earlier this week, an unconfirmed news report gave a tantalising glimpse of the seriousness of the project, claiming that the Chinese authorities had seized from the family and cronies of just one individual (Zhou Yongkang, the former powerful politburo member) assets worth more than $14bn.

Taking down such formidable power structures carries very big risks of course.

This week another news report suggests that the former President Jiang Zemin has sent a message to the current leadership, telling them not to let the anti-corruption drive get out of hand.

Evan Osnos in the New Yorker quotes former party elder Chen Yun: "Fight corruption too little and destroy the country; fight it too much and destroy the Party."

The BofAML report gives a clear sense of just how entwined corruption has become with Chinese economic growth.

It is not often that you find corporate bankers discussing the macroeconomic importance of prostitution, but they do so to make a point.

This year, the report points out, the anti-corruption campaign has been stepped up a gear and has targeted the sex trade in dozens of cities.

This has had an adverse impact on some businesses in the service industries, it says.

So perhaps today, Chen Yun would add a third observation to his musings about the difficult balance to be struck when tackling corruption - never mind the Party, fighting graft too hard just might destroy China's economy too.

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[broadsword]

Only a few weeks ago, one journalist, in an article on India's new anti-corruption hero, wrote that China's campaign under Xi had been largely ineffective. Many of them are so blinded by ideology.

 

[AssassinsMace]

That article is what you call "spin." Of course they're going to say China's anti-corruption campaign has a negative effect on the economy because Europeans are the No. 1 benefactor of the corrupt who desire luxury brands. Westerners shouldn't then complain about outsourcing, cheap knock-offs, imbalance trade, etc... because they all contribute to economic activity. If someone buys those products, that contributes to economic activity. Bad quality also contributes to economic activity. Like Western corporations that outsource to China care if the product doesn't last? They do in fact care because if it does last, the consumer won't buy another one to replace it. Voila... economic activity. Maybe some people think that's absurd logic? Like cell phone companies can make stolen smartphones useless to stop cell phone thefts which is the number one crime reported. But they don't because they make money from the thief who sells the phone to someone that has to pay the cell phone company to use it and on top of that the victim of the cell phone theft has to buy a new one. That's economic activity so no one should stop it from happening...

 

[solarz]

That article is what you call "spin." Of course they're going to say China's anti-corruption campaign has a negative effect on the economy because Europeans are the No. 1 benefactor of the corrupt who desire luxury brands. Westerners shouldn't then complain about outsourcing, cheap knock-offs, imbalance trade, etc... because they all contribute to economic activity. If someone buys those products, that contributes to economic activity. Bad quality also contributes to economic activity. Like Western corporations that outsource to China care if the product doesn't last? They do in fact care because if it doesn't last, the consumer won't buy another one to replace it. Voila... economic activity. Maybe some people think that's absurd logic? Like cell phone companies can make stolen smartphones useless to stop cell phone thefts which is the number one crime reported. But they don't because they make money from the thief who sells the phone to someone that has to pay the cell phone company to use it and on top of that the victim of the cell phone theft has to buy a new one. That's economic activity so no one should stop it from happening...

The problem with these kinds of articles is the nebulous definition of "economic cost".

Is the fact that prostitutes and corrupt officials no longer being able to spend money lavishly really a cost to the economy? Anybody who thinks about that for a second realizes it's ridiculous.

This article now claims that officials putting public money in the bank is bad for the economy. Just a year ago, they were saying that China's "reckless" building of infrastructure was creating a bubble.

This article also claims that tackling corruption is reducing economic growth. The question it fails to ask is, why would corruption-driven economic growth be a good thing? Would they prefer their own government to spend 10 million taxpayer dollars (or pounds, since it's the BBC) at hotels and restaurants, or would they prefer seeing that money go into health care? Hotels and restaurants certainly would give a bigger economic boost, in the short run at least.

 

[no_name]

The way to write these articles:

1. Presumption - China is bad.

2. Follow on - Everything they do is wrong.

3. Find reasoning that fits the above and pad the words.

4. Try to add some big word and abstract themes that at first glance people believe they understands.

5. Rinse and repeat.

 

[AssassinsMace]

The problem with these kinds of articles is the nebulous definition of "economic cost".

Is the fact that prostitutes and corrupt officials no longer being able to spend money lavishly really a cost to the economy? Anybody who thinks about that for a second realizes it's ridiculous.

This article now claims that officials putting public money in the bank is bad for the economy. Just a year ago, they were saying that China's "reckless" building of infrastructure was creating a bubble.

This article also claims that tackling corruption is reducing economic growth. The question it fails to ask is, why would corruption-driven economic growth be a good thing? Would they prefer their own government to spend 10 million taxpayer dollars (or pounds, since it's the BBC) at hotels and restaurants, or would they prefer seeing that money go into health care? Hotels and restaurants certainly would give a bigger economic boost, in the short run at least.

They perpetuate the stereotype of Chinese being materialistic. The ultimate materialism is when making money even when it's done from unethical practices is more important in the order of things.

And who's the one always pointing to corruption in China? But let's ignore it when they make money from it. The fact is this is an admission the colonialist mindset is alive and well and they haven't changed. Just as long as they make money from it, they don't care about the negative impact on others. Just by writing this article and getting past editors, does anyone deny they think everyone else is stupid? Another imperialist trait.