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One Year After Covid-19, China’s Economy Continues to Grow.

by Sarai Fetty

Is There Trouble on the Horizon?

Over a year after the start of the global Covid-19 pandemic, the United States and China continue their competitive sparring for the spot of Earth’s largest economy.  Much has already been said about China’s incredible economic rebound in the final quarter of 2020.  This aim of this month’s blog is to provide a brief review of the industries in China’s economy that are leading the nation’s economic success.  At the same time, there are signs of a coming slow-down in China which will be briefly addressed.

Let’s begin the review by recognizing that China had a very strong first quarter in 2021; GDP rose versus same quarter a year ago by 18.3%.  Adjusting for the 2020 economic impact of the corona virus on China’s economy, this still means that China’s 1st quarter 2021 GDP is more than 12 percent ahead of the same quarter in 2019.  For another comparison point, consider that China’s average quarterly growth rate between 1989 and 2019 was 9.4 percent.  12 percent quarterly growth is a big deal.

China’s economic growth has historically come from three key areas:

  • Increasing affluence and market demands, especially among younger, urban consumers
  • A consistently positive balance of trade (although China has had to face increasing resistance to this over the last few years)
  • Government infrastructure investment 

A review of the leading Chinese industries, ranked by estimated percentage growth for 2021, reveals what will be required to continue growth.  Similar requirements will have to be achieved throughout China’s economy if growth at the Q1, 2021 level is to continue. 

Rank
Industry

Industry Revenue

(Billions)

Percent

Growth
Factors that Drive Future Growth
1
Passenger Rail Transport
$30.9
55.3%
  • Government investment in railways 
  • Robust demand for passenger railway transport  
  • Increases in operating scale
  • Improvements in structure and quality 
  • Increases in transport capacity 
  • Modernization of railway equipment
2
Internet Services
$803
18.5%
  • Significant increase in the number of internet users 
  • Pricing competition will slow industry revenue growth.
  • Growth will attract new industry competitors.  
  • Web portals will continue to play an important role in the industry. 
  • Leading competitors will expand to maintain market share.
3
E-Commerce
$1,800
18.5%
  • E-commerce companies continue to improve services
  • Internet penetration continues to increase
  • Customer sentiment is high 
4
Medical Device
$26.1
18.1%
  • Government healthcare policies and export incentives 
  • Exports
  • Continued increases in domestic demand driven by
  • Continued growth in affluence among certain demographics within China.
5
Toll Road Operations
$73.9
17.7%
  • Large government investment and demands for toll roads. 
  • China’s expressway network gradually being completed 
    • Personal demand for road use 
    • auto ownership increasing
    • Expanding tourism sector expands
  • Commercial road uses increasing 

Despite all of the good news, however, there are signs that China’s economy is beginning to slow. Several important KPIs (key performance indicators) follow:

Is the Chinese Economy Cooling Down?

Examples:

Consumer Price Index:  CPI rose to .9% in April, 2021 versus .4% in March.  Typically, rapid economic expansion can lead to price inflation, which, in the long run, can lead to an economic contraction if the decline in consumer demand results in higher unemployment.

Producer Price Index:  PPI in April, 2021 was 6.8 percent versus 4.4 percent.  Often, an increase in PPI is a precursor to increases in CPI, as wholesalers raise prices to cover manufacturer price increases.  

Balance of Trade:  Chinese imports increased by 43.1 percent in April 2021, versus the same period in 2020, and increased 13 percent over March, 2021 import values.  Obviously, increases in China’s imports. Represent GDP leakage out of the nation’s economy as well as having a significant impact on Chinese manufacturers.  A continuation of this trend could ultimately lead to a reduction in the size of the labor force.

The sources for our research are always listed below. Obviously, data errors will lead to inaccurate summarizing. Before you make decisions, we suggest doing your own due diligence.

Word4Asia occupies a unique niche in the world of consulting to organizations with their eye on China.  We continually keep ‘an eye’ on what is happening in this vital global economy and share our expertise with our clients.  If your plans include work in mainland China, we hope you’ll reach out to us.  We’d enjoy an opportunity to share our over twenty years of active involvement in this fascinating market and country and we’d love to be of service.  To start a conversation, please reach out to Dr. Gene Wood at gene@word4asia.com

All the best!

References:

https://fortune.com/2021/04/16/china-gdp-economy-2021-q1-recovery-losing-steam/

https://www.ibisworld.com/china/industry-trends/fastest-growing-industries/

Giving Thanks: A China-US Cultural Comparison

by Sarai Fetty

America is about to celebrate another Thanksgiving this week.  Thanksgiving, 2020 is actually our 157thannual celebration of the holiday that Abraham Lincoln first introduced during the depths of our tragic Civil War.  It says a lot about our national character that, when our nation’s morale was at a very low ebb, we chose to stop the blood-shed for a few hours and turn our attention to the things for which, we truly believed, we owed a debt of gratitude.

Gratitude is a universal experience.  It is not only dressed in red, white and blue.  Of course, our Chinese counterparts also recognize the importance of giving thanks. Some of China’s earliest customs related to a collective sense of shared gratitude extend back more than 2,500 years.   This is sixteentimes longer than we have celebrated Thanksgiving and tentimes longer than we have been a nation.

Culture Influences How Communities Express Thanks

Over the course of this blog, we have written many times about the cultural differences between the United States and China.  Many of these differences stem from the fundamental way we each perceive the relative importance of the individual and the community.  American culture is grounded in the individual, so American children learn a ‘concrete’ form of gratitude expression; we learn to show gratitude in ways we, ourselves, would appreciate.  On the other hand, community-oriented cultures promote ‘collectivist’ gratitude; expressing gratitude in ways that the people toward whom we feel grateful will most appreciate.  For instance, when a child draws a picture for a loved one, the drawing is most pleasing to the child herself.   It bears reflection that 85% of the world comes from a more community-focused culture.  

The self-versus-group axis that human societies differ along colors everything about how each family, tribe, community or nation relates within and between each other.  Consider some common Chinese expressions that reflect community values:

  • Return the favor for a drop of water with a burst of spring. 滴水之恩,当涌泉相报
  • When you eat the fruit, remember the tree; when you drink from the stream, remember its origin. 落其实者思其树,饮其流者怀其源
  • Cherish the kindness of others. 知恩图报,善莫大焉
  • Don’t forget the good others have done you and seek to return the favor投之以桃,报之以李

Let’s think about a few common American expressions about the importance of giving thanks.  

  • Count your blessings, things could always be worse.
  • He that is hard to please, may get nothing in the end.
  • Never take anything for granted.
  • Thanks cost nothing.

It’s interesting how the value of gratitude is measured in how it will come back and further benefit the grateful one.  Saying ‘thank you’ is almost like a magical incantation used to guarantee that the good fortune continues to fall on the already blessed ones.  That’s not really thankfulness at all!

How Saying “thank you” Is Received In China

Starting from the times when we were young children, Americans have been drilled in ‘minding our manners’.  “Say ‘thank you’!” is something we were taught as children, and as parents, most of us have been careful to continue the norm in our own childrens’ lives.  However, the Chinese response to ‘thank you’ will probably surprise us.  

In the West, over-politeness has always been our fallback position. Whenever we find ourselves in uncomfortable social situations, we retreat into a cacophony of pleases and thank yous, as this is what we have been programed to do. We do it without thought or hesitation, such that it has become more of a reflex than an expression of actual gratitude.

Our heritage includes the golden rule taught to us by Jesus Christ, “Do unto others as you would have done unto you”.  For many people, this is mostly an ‘aspirational’ value, but not something that we put into regular practice.  Many of us believe that saying ‘thank you’ is a sufficient response to a kindness someone has done for us.  However, the Chinese have the Confucian principle of ‘bao’.    Bao is pervasive in Chinese society.  Reciprocity is expected, not just aspirational.  Once again, this difference between our cultures hinges on the community-versus-individual distinction.    In a community-focused society, ‘thank you’ does not equate with reciprocity.  

Seen through a Chinese lens, our repetitive drone of ‘thank you’ that most Americans display seems insincere.  In our culture, saying ‘thank you’ is an indication of being well-raised.  It is something we do to endear ourselves to others. “How polite, he/ she is!”  In Chinese culture, such politeness is associated with formality.  Rather than creating more closeness, our ritualistic use of the words ‘thank you’, actually creates barriers.   When we say it, the Chinese actually wonder why we are establishing more formality in the relationship.  Dropping the (frequently insincere) ‘thank you’s’ creates more closeness.  

Observing the American Thanksgiving Holiday

For some people in modern American society, Thanksgiving is a holiday that is receding into our national folklore.  We associate it with earlier times in our families of origin, and with our national history.  When we imagine it, we see it in sepia-toned, warm and achingly nostalgic versions of the Norman Rockwell painting on the cover of the Saturday Evening Post. Modern life, pock-marked with single-parent families, economic challenges, religious divides, and political friction has had a toll on how we celebrate the holiday.  For some, it is the day where we over-eat and watch football. Little thought about gratitude and blessings is actually given.  Sadly, imagining that painting is about as close as many American get to experiencing a true Thanksgiving anymore.  

For some people in modern American society, Thanksgiving is a holiday that is receding into our national folklore.  We associate it with earlier times in our families of origin, and with our national history.  When we imagine it, we see it in sepia-toned, warm and achingly nostalgic versions of the Norman Rockwell painting on the cover of the Saturday Evening Post. Modern life, pock-marked with single-parent families, economic challenges, religious divides, and political friction has had a toll on how we celebrate the holiday.  For some, it is the day where we over-eat and watch football. Little thought about gratitude and blessings is actually given.  Sadly, imagining that painting is about as close as many American get to experiencing a true Thanksgiving anymore.  

With this in mind, It’s interesting that affluent young couples in China are beginning to celebrate Thanksgiving in their own homes or in restaurants.  Of course, as an imported holiday, the day is perceived differently from the ways we traditionally valued it.   The families who do celebrate an American-style Thanksgiving generally think of it as a time to enjoy a Western meal and thank friends, family, workmates, and teachers or bosses. The day is referred to as “Gan’en Jie” (感恩节,literally: ‘thanks for grace holiday’).  Perhaps China’s version of Thanksgiving is closer to the interpretation found in some American households these days.Turkey is relatively rare in China.  Therefore, people often substitute roast geese or chicken instead. If turkey is part of the feast, its often purchased through one of the larger hotels that cater to foreign travelers.  Also, there are a number of newer Chinese supermarkets in the large cities, like Shanghai and Beijing, that may have a limited amount of frozen turkey available. Food trends are playing themselves out in our own Thanksgiving holidays.  Over the last twenty years, a number of alternatives to the traditional braised and roasted turkey have grown in popularity.  While ‘the bird’ is still our traditional go-to, these have more to do with preparation.  Many of us have tried, or at least heard of other families who enjoy dry-brined turkey, turducken, brined turkey, deep-fried turkey, even tofurky (tofu alternative to turkey.

Sources:

https://greatergood.berkeley.edu/article/item/how_cultural_differences_shape_your_gratitude

https://www.startribune.com/how-cultures-around-the-world-show-gratitude-in-their-ceremonies-of-thanksgiving/565530632/

http://www.bjreview.com.cn/eye/txt/2014-02/10/content_594944.htm

https://www.theatlantic.com/international/archive/2015/06/thank-you-chinese/395660/

A Good Time for Transparency

by Sarai Fetty

What does Word4Asia Consulting do? We help quality non profits who wish to work in mainland China.  It’s important that you understand this in order to appreciate what I am about to share. My words are specific to Westerners who wish to work in/ serve China.  When I speak of transparency I am not using it as a synonym for integrity or honesty. Hopefully, that is a given at least on the part of our clients. Please see the IMC code of ethics.  I am stressing there has perhaps never been a more timely moment for corporate transparency than now. For the following reasons: 

  1. Political tensions between China and USA as two dominant international powers.
  2. Recent news stories about spying and digital espionage.
  3. Out inter-connected world where virtually everything we say and do is known or could be known.
  4. Cameras and audio monitoring are everywhere. Phone apps track every step we take and GPS monitors every mile we drive.
  5. Health concerns/ Covid 19 has created distrust and genuine fear in some people.
  6. Computers; they make all the above factors eternal and retrievable. 
China and USA relations concept. China and US of America flags on metal gears. 3d illustration

 Some organizations may see the above list as a call for greater guile, sneaking and enhancing security.  While there is nothing inherently wrong with appropriate security procedures, sneaking around and deceit are not a good strategy for a productive, long term business relationship in China.  I suggest you consider the following guidelines. 

  1. Decide who you are and what you wish to do, and then declare it and stay in your lane. This is who we are. This is what we do/ don’t do. This is what we want. 
  2. Make sure everyone you work with knows #1 and is able to articulate it consistently and clearly. This should be the case from the National level to the grassroots conversations. 
  3. Assign people in your organization to assure your on-line message is cohesive with your personal words. 
  4. Recognize that privacy for foreigners traveling in China is a privilege, not a right. 
  5. Nothing on the cloud or over 5G is private. Thinking out loud and brainstorming various options and strategies is fine but its best to do it at home or in your office. Doing these things on Zoom, Blue Jeans, phone, text or email may leave you open to greater scrutiny. 99% of the options we consider never happen. So why broadcast them publicly? It only creates confusion and questions. 
  6. Don’t try to hide. It is futile. Sneaking or evasive behavior is basically lack of transparency. 
  7. Accept that terms are defined differently in the West than they are in China. However, humans are fundamentally wired the same despite cultural and linguistic differences. 
  8. While we can disagree on many things, we should be gracious, loving and respectful in all matters personal. 
China and US flags with a handshake on a white background

 Of course Chinese culture is most often less blunt and usually not inclined to say “no”.  Rather, they would prefer to have leaders work through their Zhong jian ren (middle person, negotiator). Our network in China expects us to have the necessary experience to distinguish ming bai(‘they understand); ke yi (‘what you say is possible); dui (‘yeh, sure, why not, I see) and tong yi (‘I genuinely agree with you’).   However, my 25 years of relationship building in China has convinced me that leaders at all levels appreciate transparency.

Initially, we may may have been perceived as naïve; However, over time our Chinese connections have learned that “our yay is yay and our name is nae.”  That, they can ultimately work with – as long as our words and behavior are gracious and respectful.  Outcomes are better when those we wish to work with discover what we said to them is the same truth we’ve said to others, and the same we will be saying in ten years. It’s very important that our actions reflect our words. We may not always get to do what we wish, but the transparent way is the best way. This is true even if we do not receive transparency in return.  

If you choose the truly transparent way, the pay off may not be immediate. It may, in fact, appear to backfire initially. However, we know that since our objective is to build, and sustain long term relationships, the pay-off can be significant.

Post Covid-19 Economic Recovery in China

by Sarai Fetty

Any assessment of current affairs depends upon the selected sources. Our summary here is, in fact, deducted from the information reflected in the sources listed below.  Once, Miami Dolphin Coach, Don Shula, announced a game plan on Saturday.  On Monday morning following the game, a reporter asked Shula why he had changed his game plan at half-time on Sunday?  His response “When I have different information, I reach different conclusions.”  

The Covid-19 pandemic has resulted in an economic crisis in every economy in the world.  Here, in the United States, we are experiencing an economic recession that borders on an actual depression.  Down from a peak of 22 million in April, 2020, US unemployment is still in the 11 million range, or 8.4% of the total labor supply.  Some do not expect employment rates to return to pre-Covid-19 levels until into the next decade and there are three million small businesses that have disappeared and are not expected to return.  Economic conditions around the world are also similarly grim.  However, the Chinese economy is reporting significant improvement since the corona virus breakout.  We think it is important to understand this fascinating nation’s current economic status.

There are two major factors at work in the reported success of China’s economy.

First, the economic hit was never as strong in China as in other economies.  China was better able to contain the virus, due to strong government action, including mass testing (discussed in our August blog).  This enabled the Chinese economy to avoid the long shut-downs that other industrialized and developing nations endured.  Additionally, the CCP responded with “six priorities”, including employment, basic livelihood, company support, food and energy security, stable supply chains, and the more effective operation of government.  Centralized authority does allow for immediate compliance. 

China’s economy has shown comparative resilience versus the US economy in the midst of the Covid-19 pandemic.

Both the United States and Chinese economies are consumer driven.  In the US, consumer spending is more than two-thirds of our total GDP.  Our national government provided several economic stimuli plans to protect the economy; the EIDL small business grants through the Small Business Administration, the PPP (payroll protection program) which enabled businesses to avoid some layoffs and a $600 stimulus check that was sent to every home in the country.  It is important to note that the International Monetary Fund has given only one national economy a positive GDP growth projection in 2020; China. 

As in the United States, China’s economic recovery has been visible for months.  In August, consumer spending was up .5% versus prior year August.  Versus China, Canada, France, Germany, Italy, Japan and the United Kingdom have economies whose economies showed a dramatic contraction during the first half of the year.  Even with a more vibrant economy, Chinese growth in real GDP is expected to be just 1% over prior year. 

As in the United States, China’s economic recovery is not experienced evenly across all income brackets or regions.  China’s wealthiest citizens have fared the best since the pandemic.  In August, car sales were up 12% from prior August; this indicates that Beijing’s car buying incentives are having a positive impact on the economy.  Car sales are so strong that Chinese dealerships have been able to reduce and even suspend planned discount promotions. Similarly, more than a dozen luxury western brands – from fashion to cars – enjoyed double-digit revenue growth in the Chinese market.  In-mall shopping activity has also rebounded.  

Unfortunately, not everyone in China is experiencing the same recovery.  Those in the low to middle income categories have experienced a two-percent reduction in disposable income.  Migrant workers are also experiencing difficulties.  

The US government’s market investment to combat the impact of Covid-19 has been comparatively modest versus other major economies such as Germany and Japan. Economic experts have stated concern regarding the long-term impact of these decisions.

The long-term prediction for China’s economic recovery is V-shaped, according to Christophe Barraud, Chief Economist at Market Securities.  This is because China has a much larger potential for real growth in total output.  According to Barraud, China has a capacity to increase real output by 6% annually, while more advanced economies can only by 1.5%.  In contrast, economic recovery in the United States is projected to be “W”-shaped or possibly “swoosh” (as in the Nike ‘swoosh’) shaped.  Federal Reserve Chairman, Jerome Powell has urged Congress to inject more cash into the economy than the current administration currently has.  US total investment into various post-Covid-19 stimuli is in the range of 15% of GDP.  Conversely, the EU nations have invested 30% and Japan has invested 20%.  Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab, has said “Powell is right to call for more fiscal stimulus to aid the US recovery”.

In this fast-changing world, where decisions about your Chinese projects must be made with reliable information and expertise, Word4Asia is your waiting and reliable partner.  If your plans call for our more than 20 years of success in China, we would love to discuss them with you.  You can reach Dr. Gene Wood at gene@word4asia.com

Our Sources

https://www.google.com/amp/s/amp.cnn.com/cnn/2020/09/15/economy/china-economy-retail-intl-hnk/index.html

https://www.ft.com/content/e0e2940a-17cb-40ed-8d27-3722c9349a5d

https://markets.businessinsider.com/news/stocks/economic-outlook-fed-call-more-stimulus-has-point-strategist-2020-9-1029623447#

 

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