The Re-Birth of the Spice Road

by Joe

“The world needs China, as all humans are living in a community with a shared future … That creates broad strategic room for our efforts to uphold peace and development and gain an advantage.”

— Communist Party “manifesto” on China’s role in the world

Belt and Road

It’s been nearly five years since China first laid out their vision for achieving “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit” under the guiding light of their stupendous Belt and Road initiative.   But what is “Belt and Road”?

One way of understanding Belt and Road is to envision the world – especially Eurasia and Oceania – as a massive wheel with sea, road, rail, pipeline acting as spokes to the outside and Beijing serving as the hub.  Belt and Road may be understood as China’s leadership and capital orchestrating the construction of a massive, multi-national zone of economic and political influence.  68 nations have been included in these plans.

The scope of Belt and Road will take your breath.  When completed, the land-based portion of Belt and Road will travel West from China, through Kyrgyzstan, Uzbekistan, Tajikistan, Iran, Turkey, Istanbul, Russia, Poland, Czech Republic, Germany, Netherlands and Spain.  A maritime path ventures Southwest from China to Vietnam, Singapore, Jakarta, Kuala Lumpur, India, Sri Lanka, Pakistan, Kenya, Djibouti, Egypt, Greece and Italy.  These nations include 69% of the world’s population and 51% of global domestic product. (Oxford Economics)

Examples of BRI Road and Rail Initiatives

Chinese-Thai high speed railway

The Chinese-Thai high speed railway line began in December 2017.  The full line will be 542 miles long, with trains reaching speeds of over 150 miles per hour. Meanwhile Malaysia, given funding as part of BRI, will unveil four major rail projects in 2018.

Moscow-Kazan high-speed railway

One example of projects now underway is the Moscow-Kazan high-speed railway.  This project is slated to begin construction in the current year at a cost of $22.4 Billion and is a centerpiece in Russia’s plans to improve connectivity across its massive nation.  The rail line will connect Moscow with Russia’s third largest city, topping out at 350 km per hour (210 mph) and shrinking the current rail-transit time from 14 hours to just 3.5 hours.  Eventually, the Mosco-Kazan line may extend all the way to Beijing.

The Yamal liquefied natural gas plant

In December 2017, Russia launched the Yamal gas plant in Arctic Siberia, a region rich in hydrocarbon reserves.

Construction of the project was led by China’s China National Petroleum Corporation, one of the largest integrated energy groups in the world with headquarters in Beijing.   Start-up costs exceeded $27 Billion.

 

  

Port Expansion

In addition to the expansion of rail and roadways, the maritime portion of BRI includes expansion of China’s presence in ports along the old Silk Road.  Two well-funded Chinese mega-corporations, Cosco Shipping Ports and China Merchants Port Holdings, have been actively purchasing cargo terminals in the Indian Ocean, the Mediterranean Sea, and the Atlantic rim. Most recently, Cosco achieved their first bridgehead in northwestern Europe by purchasing Belgium’s second largest port, the terminal in Zeebrugge.  That deal followed a raft of other acquisitions in Spain, Italy, and Greece in just the last couple of years. Chinese state firms, which once kept close to their home market, now control about one-tenth of all European port capacity.  These ports underpin the maritime half of the Belt and Road Initiative, winding from the South China Sea across the Indian Ocean, through the Suez Canal and into Europe.

 

Advantages of BRI to China

The investment required to accomplish Belt and Road is astounding; projected costs exceed $1 Trillion.   According to Baker McKenzie and Silk Road Associates, this massive investment will accomplish a few strategic priorities, including:

  • Acceleration of the internationalization of Chinese firms, and creation of world class multinationals and supply-chains.
  • Increasing Chinese exports to the nations included in the Belt Road Initiative (BRI).
  • Increase the competitiveness of Chinese firms on an international basis.
  • Strengthen China’s economic and political role in BRI regions, including Europe.
  • Strengthen the renminbi’s exchange rate on the global market.
  • Improve China’s ability to export industrial products internationally. China has vast excess capacity in cement, steel and other metals.
  • Creation of new markets for Chinese firms such as high-speed rail firms.
  • Quell the volatility within central Asian countries through economic improvement, and thereby generate more stability within China’s own ‘trouble spots’ such as Xinjiang and Tibet.

 

China’s Role in Funding BRI

In 2014, China became a net capital exporter for the first time, with outward direct investment (ODI) surpassing inward direct investment. It is also now the world’s sixth largest provider of foreign aid, according to the Japan International Cooperation Agency’s latest estimate. (Economy Watch, May 2015).    The cost of completing Belt and Road will exceed $1 Trillion, an immense ambition and objective.  In China’s nascent position as lead capital exporter, they have committed to spending roughly $150 Billion a year in the 68 countries that have signed on to these initiatives.  China is positioned to win big – both economically and politically.

 

Belt and Road also factors to increase China’s political clout among BRI nations through debt holdings.  As explained by Scott Morris, Deputy Assistant Secretary, Development Finance, U.S. Treasury from 2009 to 2012, “The rules of the road are really that whoever holds the most debt is going to be calling the shots”.

Two examples explain his point.  For example, consider Kyrgyzstan’s debt from infrastructure projects.  Debt levels and dependence on China are projected to rise from 62% of gross domestic product to 78% during BRI.  At the same time, China’s share of that debt will jump from 37% to 71%.   In a similar way, China’s share of debt in Djibouti will rise from 82% to 91% of GDP as a result of infrastructure funding.  Until now, China’s presence there has been limited to a single overseas military base.  As said by Neil Davidson, a senior analyst for ports and terminals at a maritime consultancy, Drewry Shipping Consultants, Ltd., “At bottom, there is a geopolitical underpinning to a lot of this.”  While Mr. Davidson’s statement was chiefly associated with the port aspects of BRI, the point is easily expanded in this broader way.

While China clearly stands to acquire significant advantages through BRI, President Xi enumerated five principal advantages available to all participants in the initiative; policy coordination, facilities connectivity, unimpeded trade, financial connectivity and people-to-people bonds.

 

Why China’s Belt and Road Will Succeed

China’s ability to negotiate with all players is also the single greatest factor why the BRI will ultimately succeed.  China’s commitment to this project is greater than a “with us or against us” type of foreign policy.  In China’s view, government formation of political bonds with select blocs of countries standing in opposition to other countries is “outdated geopolitical maneuvering”.  Instead, China is forging partnerships of dialogue that emphasize friendship, not alliance.  Hence, we are witnessing China’s constructive relationships with Israel and Iran, Azerbaijan and Armenia, Russia and Ukraine, Pakistan and (ultimately) India, North Korea and the U.S. — crossing all lines and treading all paths in between.

Since their relationships are bilateral, each country or bloc negotiates on their own terms, and deals can be made without the usual ‘politics to complicate business agreements.

Word4Asia is a unique consulting firm serving the unique communication needs of North American organizations with interests in China.  As such, we have expertise in Chinese business, communication, and culture.  If your objectives include a presence in China, we’d be happy to talk with you.  You can reach Word4Asia at gene@word4asia.com.

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The Do’s and Don’ts of Gift Giving in Chinese Culture

by Joe


In Western culture, the Holidays are a traditional time of gift exchanges as we mark the occasion and share friendship and love.  Found in cultures all over the world, it’s as if the custom was coded in our DNA.  Every culture has certain customs, rituals and beliefs that accompany gifting.  For instance, at this time of year, many people celebrate the arrival of the Magi in Bethlehem and the gifts they gave to the newborn infant, Jesus.

With a culture as old as China’s, you can be certain that there is depth to the rituals, customs and even taboos that accompany gift giving.  As an outsider to their culture, Westerners should be careful to properly acknowledge and follow the Chinese customs in order to achieve the desired effect.

Let’s review some of the “do’s and don’ts” of exchanging gifts with native Chinese friends and colleagues.

 

 DO'SDON'TS
When gifting Chinese children with money tucked away in red envelopes (Chinese New Year), be sure to reflect their age in the amount given. More money should be given to older siblings and less to the younger ones. A gift to an older child or teenager should be enough for the child to buy a T-shirt or DVD.Don’t go “over the top” when giving a gift. It’s important not to potentially embarrass the Chinese if they are unable to reciprocate at the same level.
When giving money inside a red envelope, always use new, crisp bills. Folded or dirty, wrinkled bills are in bad taste.

Be aware of the symbolism the Chinese recognize in sound-alike words and avoid making social faux pas. For instance, avoid anything with a four in it. The Chinese word for “four”, 四 (sì) sounds like the word 死 (sǐ, death).
If you’re an expat manager supervising a Chinese team in China, limit year-end bonuses to the equivalent of one month’s pay.Never wrap gifts in white paper or with a white bow. It’s better to use colors like red, which represents “luck”. Pink and yellow are associated with happiness and gold evokes thoughts of wealth and fortune. White, on the other hand, is a funeral color, associated with death.
If you are going to give a gift in a group setting, be certain that the recipient is the most senior person in attendance. Don’t give a gift to a single person if that person is in a group and you cannot offer everyone else a gift, too.
As with giving business cards, always hand the gift to the person with both hands. This is a sign of respect because the gift is considered an extension of the person. When receiving a gift, also accept it with both hands and say thank you.

Never give a clock as a gift. Traditional superstitions regard this as counting the seconds to the recipient's death
When gifting several people in a situation where hierarchy is relevant, such as a company setting, be sure to reflect the difference in status in what is being given to each person.Never give a man a green hat. The Chinese saying "wearing a green hat" means someone's wife is unfaithful.

With today’s regulations and the anti-corruption campaign best not to give money or an overly expensive gift to any government official.


 

To wrap things up, Word 4 Asia sincerely thanks all the wonderful people in our network for for the gift of your friendship and support  in 2017.  We look forward to what lies ahead!

Sincerely,

 

Gene Wood

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A New Era of Consumerism in China

by Joe

A crowded market street in Hong Kong.

If you’re looking for the world’s largest consumer market, you’ll have to look across the Pacific, all the way to China.  While per capita consumer purchases still lag the US, based on the sheer difference in populations between the USA and China, China is the hands-down winner in this contest.  China’s ascendency to King of Consumer Mountain occurred in 2016.  In 2017, the nation’s consumer market will exceed our own by 10.5% ($500 billion).  There are many factors that contribute to this startlng change.

First, economists point to the emergence of a new generation.  These consumers were born between the 1980’s and into the current  century and are collectively referred to as the “Youth Generation”.  Among this segment, consumption is growing at an annual 14% rate—twice the pace of consumers older than 35.   The Youth Generation will exceed 53% of total Chinese consumption by 2020.

Boston Consulting Group recently polled members of this market segment on their agreement with the  following statement: “I feel I have enough things and feel less the need to buy new ones.”  Forty-two percent of Chinese aged 18 to 25 disagreed with the statement, By comparison, 36% of U.S. and EU respondents of that age-group, 32% of Japanese, and only 26% of Brazilians also disagreed with the statement.

Young-generation Chinese also tend to be more sophisticated consumers than those older than 35. They are eight times more likely to be college graduates. They travel overseas twice as much. And they are more brand conscious than older Chinese and U.S. consumers of the same age.  The following products are included in China’s top 20 consumer items list.

  • US fashions
  • Skincare
  • Trendy snacks (kale chips, super foods)
  • Maternity Wear
  • Designer sneakers
  • Beauty accessories
  • Juice
  • Baby accessories
  • Jewelry
  • Fresh produce
  • Wine
  • Natural cleaning products
  • Jewelry
  • Seafood
  • Baby Food
  • Sporting goods
  • Make up
  • Packaged health foods
  • Breast feeding products
  • Gadgets

As in the US, Chinese brands are being sold using a variety of psychographic positioning strategies that build strong emotional connections between consumers and brands.  For example, a top priority of 18- to 25-year-old Chinese consumers buying skin care products is that the brands should “fit their personality” and convey that they are “young and energetic.”

The rise of e-commerce retailing is an incredibly important component in all this consumer activity.  This is attributed in part to the success of Alibaba, Tmall and JD.com, which took advantage of the country’s undeveloped traditional retail infrastructure. “Alibaba, Tmall and JD.com positioned themselves well to capitalize on growing consumer demand by creating their own payment systems (e.g., Alibaba’s Alipay) and logistical services (e.g., JD.com operates a self-owned logistics network).  In 2017, China will comprise almost 51% of total ecommerce sales; the United States is a distant second, making up 19% of total global ecommerce sales.

In addition to offering better prices and wider selections, e-commerce actually stimulates new demand in China by filling many needs that aren’t being met at brick-and-mortar stores. For example, according to Taobao, spending by the average e-shopper on organic and imported food and beverages has expanded eightfold over the past three years. Many popular online offerings, such as organic baby foods, rice, and tea, aren’t carried in local stores.

Chinese consumers also buy higher-priced products online. Our research found that overall consumption of home care products, packaged foods, and personal-care items increases only moderately as Chinese households become more affluent. But according to Taobao sample data, online purchases in these categories increase by around 150% when Chinese households enter the upper-middle class. Online purchases nearly double again among affluent households. In large part, that’s because these consumers can find more distinctive, premium-priced products online.

E-commerce drives consumption growth by helping companies overcome distribution challenges associated with reaching a national market and by dramatically expanding the reach of their brands. We analyzed Taobao sales of several leading premium skin-care brands that already have fairly wide coverage in department stores. We found that only 55% of Taobao’s online sales originated in cities that have those goods physically available in stores; 45% of sales were from the thousands of cities that don’t have those goods in stores. The trend was similar for fashion apparel and baby education products.

Home page of the leading Chinese e-commerce site, Taobao.

An important element in the success of ecommerce, is market penetration of smartphone technology.  There are now 550 million smartphones in use in China.  This is more than twice the number of cellphones used in the US, where smartphones have been adopted by 84% of all mobile phone users.  In contrast, smartphones are in use with 56% of China’s mobile phone users.  Mobile e-commerce, which already accounts for 51% of all online sales in China, compared with a global average of 35%, will grow even faster. On Taobao, a Chinese e-commerce marketplace founded by Alibaba, the share of sales transacted though mobile devices rather than PCs rose from 51% to 62% within the first three quarters of 2015 and reached 68% on the year’s Singles Day (November 11, 2015), one of China’s biggest shopping days because retailers offer special promotions. By 2020, mobile e-commerce is projected to account for 74% of all online sales in China.

Will economic disincentives make the difference in stemming Chinese savings rates? At 50%, China leads all nations in consumer savings. Increasing Chinese consumption could spur economic growth to new heights.

Make no mistake about it, though.  Even with the big increase in consumer purchases, Chinese consumers continue to lead the rest of the world.  The Chinese are great savers; the nation’s savings rate is 50%.  Contrast that with the savings rate in the USA, which is about 2-3%.  France, Germany, Belgium and Spain, all save somewhere in the ballpark of 12 – 16%.  In an effort to further spur the growth of China’s economy, its leaders are encouraging more consumption.  One way of doing this is to create dis-incentives to save by making property investment more difficult and less attractive by assessing property taxes on second properties.  Increasing consumption though, will require improving the way Chinese consumers perceive their nation’s future.  This is a critical shift that must be made in order to break China’s unhealthy dependence on foreign imports.

All of this growth comes at a cost.  Industrial and biological pollution has contaminated almost 90 percent of the underground water in China’s major cities. The World Health Organization (WHO) estimates that one out of four (300 million) Chinese do not have daily access to clean water, and that one out of two (700 million) are forced to consume water below WHO standards.  In addition, China is home to 20 percent of the world’s population, yet only holds six percent of the world’s water resources. China’s water demand is expected to reach 818 billion cubic meters, but there is only 616 billion cubic meters available. Beijing has about 100 cubic meters of water available per person, well below the U.N. standard of 1,000 cubic meters per person, a threshold used to measure chronic water shortage.

Air quality is bad across the country, and lung cancer and cardiovascular illnesses are already rising and could get worse in the future due to factory emissions, vehicle exhausts and cigarette smoke.  Increased industrial output is going to increase the pressure on the environment.  China has been public about their desire to stem their carbon footprint and remain members of the Paris Treaty, a statement that the US cannot make at this point.  Can China accomplish both economic growth and sustainability objectives?

Small and medium-sized enterprises (SMEs) account for a major portion of job growth in any country, including China. Yet, China’s SMEs have found it particularly difficult to access capital. In response, “underground finance” and a shadow banking system have developed as a way to supply credit to private companies, although at exorbitant interest rates. Despite being an illegal activity — until March that is — underground finance has become a big business in China.  Private lending,  the term used for the informal networks of money lenders that have developed outside of China’s banking system, currently funds between two trillion yuan ($317 billion) and four trillion yuan ($634 billion) in loans to SMEs annually.  In March, 2012, China announced reforms in the coastal city of Wenzhou that would legitimize underground finance. These reforms are now spreading to other parts of China as many new “micro finance” companies are being granted licenses to provide much needed capital to China’s SMEs.

Look for more of the same over the next 10 years.  Further reform of China’s banking system and the development of China’s capital markets will fuel a new round of growth and wealth accumulation and will be one of the major new trends affecting the country.

Economic growth from China’s upper and middle classes has helped the nation achieve a leadership position among global economies.

  • An online presence with the key ecommerce retailers such as Taobao will be an important element in your strategy.
  • US Domestic brand strength is important since the Chinese are attracted to well known and recognized western brands.
  • Having a mobile marketing strategy is vital to reach consumers who mostly shop online via their smartphones.
  • Understanding the culture, beliefs, attitudes and opinions of the ‘youth generation’ shopper is important to your brand’s success with these consumers.
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The Architectural Marvels of China

by Joe

Visiting some of the world’s greatest architectural achievements is yet another reason to visit China and being an ancient culture, visitors can enjoy a wide variety of ancient, recent and even modern examples of incredible artistry and engineering.
If what you’re after is a trip into the past, there are many fascinating places to visit including the Great Wall, Forbidden City and the Mausoleum of the First Qin Emperor. Hallmarks of this old style architecture include timberwork combining stone carving, rammed earth construction, bucket arch buildings and many other techniques. Imperial architecture, traditional Chinese residences, Chinese garden architecture and religious architecture. Imperial Palaces were originally built to showcase the extravagant lifestyles of the emperors, as well as to provide a centralized location for demonstrating imperial political control. The imperial palaces were built on a grand scale, sparing no expense to display the majesty and dignity of the imperial power of the time.
The Imperial Palace in Beijing, also known as the Forbidden City, is located in the center of the city of Beijing. The largest ancient palatial architecture in the world is now home to the Palace Museum. Built between 1406 to 1420, the Imperial Palace is a complex composed of 980 preserved ancient wood and stone buildings. The Palace Museum houses and displays artwork, treasures and collectibles from the Ming (1368–1644) and Qing (1644–1911) Dynasties.

 

 

After China’s communist revolution in 1949, the country’s architecture began to take on more of a Soviet-era look with “Stalinist” architecture becoming the common approach to new building projects.  Many buildings acquired a sparse look. Solid grey blocks and simple designs characterized many structures of this period.

The New Socialist Buildings Period is exemplified by the Big Ten Buildings, ten monumental buildings constructed in 1959 to celebrate the anniversary of the founding of the PRC.  These buildings combine Stalinist architecture with traditional elements of Chinese architecture. structures combine Stalinist architecture, traditional Chinese architecture and modern architecture.  A great place to see this type style of building is at the village of Nanjiecun.  Visiting is like going back in time to China of the 1960’s and 70’s.  This village shows what living in a fully-functioning communal village micro-economy (collective wages and labor units) would have been like.  One can see sweeping concrete plazas and broad, empty streets.  Giant portraits of Mao, Stalin, Lenin, Marx loom over the empty plaza where the principle feature is a large ivory-colored Mao statue in the center.

After China’s communist revolution in 1949, the country’s architecture began to take on more of a Soviet-era look with “Stalinist” architecture becoming the common approach to new building projects.  Many buildings acquired a sparse look. Solid grey blocks and simple designs characterized many structures of this period.

The New Socialist Buildings Period is exemplified by the Big Ten Buildings, ten monumental buildings constructed in 1959 to celebrate the anniversary of the founding of the PRC.  These buildings combine Stalinist architecture with traditional elements of Chinese architecture. structures combine Stalinist architecture, traditional Chinese architecture and modern architecture.  A great place to see this type style of building is at the village of Nanjiecun.  Visiting is like going back in time to China of the 1960’s and 70’s.  This village shows what living in a fully-functioning communal village micro-economy (collective wages and labor units) would have been like.  One can see sweeping concrete plazas and broad, empty streets.  Giant portraits of Mao, Stalin, Lenin, Marx loom over the empty plaza where the principle feature is a large ivory-colored Mao statue in the center. Examples of this thrilling style of architecture include the Jin Mao Building and the Oriental Pearl Tower in Shanghai and the National Stadium (the Bird’s Nest), in Beijing.  Some of these buildings have generated considerable controversy, but their status as architectural showpieces familiar to people worldwide is well established.

 

 

In the modern era, China has moved away from its original socialist market orientation and has embraced the market economy.  As China opened up to the world in the 1980s, new architectural styles began to develop that combined elements of all of the older styles while also inventing new elements. The construction of these thoroughly modern and creative structures accelerated during the run-up to the 2008 Olympics in Beijing and the 2010 Expo in Shanghai as China sought to present a modern face to the world.  Part of this ‘new China’ aesthetic was demonstrated in a world-class architectural showcase of buildings unlike any seen elsewhere.

Modern icons include buildings such as the Jin Mao Building and the Oriental Pearl Tower in Shanghai and the National Grand Theater and the National Stadium, also known as the Bird’s Nest, in Beijing. Some of these buildings have generated considerable controversy, but their status as architectural showpieces familiar to people worldwide is well established.

China’s National Stadium, or the Bird’s Nest, as it has become known, is the world’s largest steel structure and the most complex stadium ever constructed. It is “one of the key engineering marvels in the world today.”  The stadium was designed by Swiss Architects, Herzog & de Meuron, and a Chinese Architect, Li Xinggang.  The requirements for its design were that it had to be inspiring and be able to withstand an earthquake.  In order to make the structure ‘light weight’ but earthquake-proof, the strength in 110 000 tons of a new grade of steel, the purest ever developed in China, including 36km of steel struts, was combined with an ingenious design.  The design came from the idea of a single thread wrapped round a ball. Layers of logical geometry give the appearance of randomness and an organic shape. Multiple pentagrams in the interlocking fabric of the elliptical structure are like the stars of the Chinese flag.

Heading to Shanghai?  Be sure to visit the World Financial Center.  It is the world’s tenth tallest building, and the fifth tallest in Mainland China.  Built at a cost of $1.2 billion USD, it stands 101 floors above ground and also includes 3 floors below ground.  The 100th floor features 100th floor observation deck.  This landmark to China’s recent arrival on the world’s economic stage, was actually an Amereican firm, Kohn Pedersen Fox, is managed by the Mori Building Corporation of Japan and was funded by multinational corporations.

Nearby, you’ll also find the 88 story Jin Mao Tower and the Shanghai Tower that towers 400 feet higher than the Shanghai World Financial Center.  These three buildings form a grouping along the Pudong River in the Lujiazui financial district.

One additional example of modern the world’s tallest and longest glass bridge which connects two mountain cliffs in what are known as the “Avatar” mountains (the film was shot here) in Zhangjiajie, Hunan province.  The 6-meter-wide bridge stretches 430 meters over a 300-meter-deep valley between two cliffs in the stunning Zhangjiajie Park.  This bridge was designed by Haim Dotan, an Israeli architectural firm. Gene actually met Mr. Dotan, the creative architect who designed the glass bridge. During their conversation, he shared many creative plans for future projects which incorporate structure into natural landscape.

 

With a history as long as China has, a world of discovery awaits the traveler with an interest in architecture.  If you’re planning a trip there soon, we hope you’ll reach out to Word 4 Asia.  Our vast experience in China travel makes us a resource you will want to explore as you prepare!  Visit us online at word4asia.com for more information.

 

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