EUCCC Conference 2015: The Changing Landscape

I joined the European Chamber Annual Conference 2015: “The Changing Landscape” on 1 December 2015 in the Kempinski Hotel. Many interesting talks and we got some of the presentations. Overall it showed how the economy is changing and the challenges it is bringing.

The program:
Welcome remarks by Jörg Wuttke, President, European Chamber
Keynote Speech by H.E. Hans Dietmar Schweisgut, EU Ambassador to China and Mongolia
Keynote Session with Jin Liqun, President-designate, Asian Infrastructure Investment Bank (AIIB)
Session 1 – Innovation: gateway to sustainable growth

  • He Fan, Chief Economist and Managing Director, Caixin
  • Denis Depoux, Senior Partner & Asia Deputy President, Roland Berger
  • Cyrus Ma, Vice President, SGS
  • Maggie Ma, Vice Chairwoman, Greater China, Nokia Corporation

Session 2 – Is China reshaping the global order?

  • Peter Weiss, Head of Economic & Finance Section, EU Delegation
  • Jurgen Conrad, Head of the Economics Unit, Asian Development Bank
  • James Zimmerman, Chairman, AmCham China

Session 3 – China’s middle class and the rebalancing of the Chinese economy

  • Jonathan Woetzel, Senior Partner, McKinsey
  • Andrew Polk, Senior Economist, The Conference Board
  • Zhang Yanqi, General Manager of West and North Region, Uber China

Session 4 – Financial markets: challenges and opportunities ahead

  • Alfred Schipke, Senior Resident Representative, IMF
  • Logan Wright, Director, Rhodium Group
  • Gary Liu, Executive Deputy Director, CEIBS Lujiazui Institute

See some pictures and a few of the slides I found relevant:
Showing the tremendous impact of modern media and online sales, beating all expectations (the imposing 11/11 sales beating U.S. Cyber Monday); what worries our Chinese friends; debt levels; the SDR issue.
The EU-China Comprehensive Agreement on Investment (CAI) also came up, obviously.

Background: IMF to add yuan to SDR reserve currency basket

The International Monetary Fund has admitted the yuan to the Special Drawing Rights basket of reserve currencies alongside the dollar, euro, yen and pound, Reuters reported. The yuan will have a 10.92% share, in line with expectations, after a review of the weightings formula for the SDR which also cut the euro’s share by more than 6 percentage points. The yuan’s inclusion in the basket from October 2016 is a largely symbolic move with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket, which determines which currencies countries can receive as part of IMF loans.
The addition will take effect Oct. 1, 2016, with the yuan having a 10.92% weighting in the basket, the IMF said. Weightings will be 41.73% for the dollar, 30.93% for the euro, 8.33% for the yen and 8.09% for the British pound. The dollar currently accounts for 41.9% of the basket, while the euro accounts for 37.4%, the pound 11.3% and the yen 9.4%.

More than six months have passed and with the RMB under pressure the SDR story now looks pretty different. But the challenges remain and did not get better. Not at all.

Zombie companies and debt levels in China

President Xi Jinping has since long promised to tackle the zombie companies and overcapacity, in sectors such as iron & steel, cement, aluminum, floating glass and others. At the same time he favors “supply-side structural reforms”. One can wonder when the slogans will be changed into substantial action.
China complains … about the USA and EU complaining about its exports of cheap steel (and some telling me the quality is not always that good…). Real closures in the iron & steel industry are still very modest in relation with the total capacity. Some factories are even restarting production, in part to solve the high unemployment in some regions; journalists to check that out are not welcome at all, threatened by groups of thugs.

Obviously it is all not easy to deal with it as a social safety net is still a vague promise. Workers demanding rear payment of many months of salaries are either beaten up or put in prison in many cases. Keeping “social stability” is still the main headache for the government.
Despite all the talk, private companies are still sidelined by the favorable treatment of SOE.

Recently bankruptcies have increased in China as reported by the Financial Times:

“China bankruptcies surge as government targets zombie enterprises”:
Chinese bankruptcies have surged this year as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy. Courts in China accepted 1,028 bankruptcy cases in the first quarter of 2016, up 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015.

So, is it a promising sign? Something has to be done, while Goldman Sachs estimates that Chinese debt in the economy jumped from 130% of GDP in in 2008 to 235% in 2015. All guesses but for sure the debt levels are up up.
Not easy to get out of those challenges…

Chinese students heading abroad: implications

In 2015 some 500,000 Chinese students headed abroad, with some 300,000 heading to the USA, still the number one destination (46% in 2016), followed by the UK (31%), Australia (20%), Canada (18%). Asian destinations are slowly coming up.
The USA has around one million foreign students, one third coming from China.
Other European countries like Germany and France attract each well under 10% of them.
Most preferred majors are business (27%), engineering (17%) and liberal arts (16%).
Source: China Daily.

Recently the vast majority of the students is returning to China. Add to those the 120 million overseas tourist trips (2015) and one can wonder about the impact on China: in how far do they bring back “foreign influences” such as wondering about the Chinese Great Firewall?

Chinese invent? electricity from hot water

Our office has seen some strange and interesting people. I still remember receiving, many years ago, the inventor of the e-cigarette. I thought it was weird and not “interesting”, and ended up losing the original documentation he had given us. Oh well, the rest is history (and the poor guy actually was virtually eliminated from the booming market…). How one can underestimate/miscalculate!

Just recently we had some Chinese coming to our office to demonstrate their range of new inventions (most all “patented”). Some are combinations of wind energy and other.
They demonstrated (in our much loved kitchen) how they generated electricity by inserting their “generator” in hot water. And yes, the LED lamp worked. They have a series of equipment to generate electricity from … hot water.
But oh well, they are not the first. This technology has been around for some time, a Google search gave a lot of answers:

Observe the large set of cooling fins: they are there to make the temperature difference (in the first link Panasonic uses cold water).
So, this is not going to be a power revolution…

Talking to UCO and CASS MBA Schools

On 13 June I talked to the University of Central Oklahoma, organized by The China Guide. Location: UIBE (对外经济贸易大学). First time I talked to UCO.


On 17 June I had again CASS London Business School, they come every year and the location is always the New Otani Hotel. A rather big MBA crowd, some came later, I guess a sleepless night was the reason…
I also had the chance to listen to Tom Mitchell, the Bureau Chief of the Financial Times in Beijing, interesting overview as all expected.
For both seminars my usual very personal introduction on modern China followed by an exchange on the many challenges China is facing today.