Hoop Dreams in China: Yao Ming Leads the CBA

by Joe

The Chinese are fanatical in their love of basketball.  The game has been a part of their culture for nearly as long as it’s been a part of ours, as surprising as that may sound.  In fact, Piengiane, a Chinese government official who had seen the fledgling game being played in America, introduced it to China in 1896.  This was the same year that Dr. James Naismith first hung his peach basket in a Massachusetts gym.

In the following century, the game of basketball took on entirely new dimensions as sports became a major industry across many leagues, including the NBA.  The change was revolutionary.

In China, leaders like the PROC’s first Prime Minister, Chou En Lai, and  Chairman Mao Zedon of the People’s Republic of China have used basketball as a way to improve youth fitness and promote teamwork.  Today, the game continues to be supported by China’s highest officials.

Some of the best Chinese players in the NBA have had their start in the CBA, including Wang Zhizhi (Dallas Mavericks, LA Clippers, Miami Heat),  Mengke Bateer (Denver Nuggets, San Antonio Spurs, Toronto Raptors), Yi Jianlian (Milwaukee Bucks, New Jersey Nets, Washington Wizards, Dallas Mavericks, Texas Legends).  Of course, the greatest of the Chinese players, Yao Ming, previously played with the Houston Rockets for fourteen seasons (1997-2011).  Previously, he played for the Shanghai Sharks.  Yao’s CBA and NBA accomplishments are legendary.

Along the way, the Chinese have thrilled and cheered to the marvelous athleticism of American basketball legends like Michael Jordan and Kobe Bryant whose peerless feats astounded all of us and changed the game.

Chinese basketball has its own version of the NBA, the Chinese Basketball Association (CBA) Sports Company, Inc.  It is the pre-eminent professional men’s basketball league in Asia.   However, for Chinese basketball to continue to grow and attract new players and fans, the league needs continued improvement.  To address that need, Yao Ming was unanimously elected president of the CBA.   As president, he has been empowered by the ‘top brass’ of China’s central government to institute changes that will make the game more competitive.  (source: China National Radio.)

Obstacles to a more competitive league include the fact that the CBA has intense rivalries but no conferences. Officiating is seen as inconsistent at best, corrupt at worst. There’s no free agency for Chinese players, who are bound to their clubs. And those clubs struggle to develop youth talent.  When asked about where he sees challenges he’ll need to address, Yao Ming recently said   “The question reminds me of the year 2004, when our first foreign coach of the national team, Del Harris, asked me the same question,” Yao said. “My answer then was, ‘There’s no biggest problem, because there are problems everywhere.’”  Yao has been very busy instituting reforms in the way the CBA approaches both the game and the business of basketball.

The most attention-getting of Yao’s reform measures is the formation of two national teams, each with an independent coaching staff and roster, to alternately represent China at international events through 2018. The move aims to motivate coaches and players by creating competition between the two squads and involving as many young players as possible.  Like in the United States, youth have many alternatives they can pursue.  He recently said, “Basketball faces stiff competition from sectors such as electronics sports in attracting the young generation.  That’s why we will encourage Chinese basketball to continue its cooperation with the education and entertainment sectors to create a platform where kids can enjoy learning different things simultaneously.”   Another related  challenge is that China is still in the early stages of creating a system to develop young players as they mature.  In the United States, our young players benefit from school team participation, club teams, college teams with sharp-eyed recruiters and attractive athletic scholarships.  A very small percentage  ultimately make the NBA at the end of this long development cycle.   About developing China’s version of this system, Yao Ming has said, “”Before we choose the road for development, we need to make sure what fits us most and what prerequisites we already have.”  True to his culture, Yao Ming is proceeding slowly and methodically.

Professional basketball can be as big a business in China as it is in the United States, if not bigger.  However, in various ways, the profit motive has been elusive.   As with all other aspects of life in China, government officials installed by the Communist Party leadership oversee the sport.   Yao has asked for changes so that more power is shared between the government officials and the team owners that have investments in their teams.  As of this time, new changes in how the league runs will provide the owners more voting power on league decisions and more access to marketing deals.  To orchestrate the privatizing of the CBA, Yao Ming will need to demonstrate the same acumen for team work and leadership that he so skillfully employed on the court.  Of course, to invest more, team owners want similar earnings opportunities as their American counterparts have in the NBA.  Under the previous system, CBA franchises were required to transfer sponsorship earnings to the league, who then take a cut and give millions to broadcaster Infront Sports & Media before dividing the remainder between the sides.  Such a system left franchises with little to invest, and many had lobbied for a system like the NBA’s, which sees teams keep most of the sponsorship they earn.

To play at the same level as American athletes, the Chinese will need to continue to sharpen their ability to communicate with each other on the floor verbally and body-language-wise, and to acquire the same passion for the game.  So far, these traits have been lacking.  To improve in this area, Yao Ming has called on his relationships within the NBA.  Foreign (American and European) coaches are participating in NBA sponsored leagues for hundreds of teams in Beijing and Shanghai under the Junior NBA brand. The goal is to get kids playing the game in environments that prioritize creativity and fun over training-focused activity.  It’s not enough to master the drills that incorporate highest level skills.  Chinese players should ‘feel the game’ the way American players do and they must be able to use the skills with the same finesse as American players do.

To help his CBA players learn to think and play more like NBA players, Yao Ming is encouraging the recruitment of American players.   Playing on CBA teams is an excellent opportunity for older NBA players who are extending their careers as well as an opportunity for other players who have not made it to the NBA.   To attract the best players in China as well as American players, the CBA is offering very attractive salaries.  The minimum salary for a rookie in the NBA is $582,180 and in the CBA is $815,615.

Jimmer Fredette, who in his senior year with the Brigham Young Cougars literally attained ‘superstar status’, is a great example.  In his senior year, Fredette was averaging almost  29 points per game, but once in the NBA only played at so-so levels and lasted only five seasons.  Prior to the 2018 season, Yao recruited Fredette to the Shanhai Sharks to prove what can happen to the social fabric of a Chinese team when American players are added to the roster.  As expected, Fredette changed the culture of the team, made it more American with high-fives, butt-slaps and laughs. The team responded, going 30-8 and making the playoffs, with Fredette leading the league at 37.6 points per game. Fans responded as well, leading to sellouts of Sharks games before the season ended in March with a first-round playoff loss. Fredette’s flair for scoring, and enthusiastic embrace of the local culture, sparked something powerful in China, where he soon was provided a shoe deal and his own commercial.

Yao Ming is also working to professionalize the game itself, in terms of the need for a standard set of rules.  David Shoemaker, who just recently stepped down from his role as CEO of NBA China has commented on  Yao’s efforts in this regard and said, “He wants rules that people understand — a draft for players, more movement [via free agency], rules around salaries and salary caps, things that he as an NBA player had exposure to and now has chance to impart on the league.”

Changing the CBA is going to be a challenging game for Yao to win.  Its been reported that CBA owners pushed back on Yao’s first round of recommendations which included splitting the league into two conferences, increasing the number of games (CBA teams play just three months, plus playoffs) and restricting the court time of non-Chinese Asian players.   Yao has also proposed ending the compulsory play on the national team in favor of the invitation model in place in the US.  As it stands now, compulsory play means that the CBA game schedule is interrupted.

No stranger to on-court injuries, Yao Ming is approaching his new opportunity as though it’s still early in the first quarter.  He’s’ going to play strategically and he’s going to give it his all.  If what we have seen from Yao, the Houston Rocket’s Center, is any indication of what Yao, the President of the CBA, has ahead, he’s going to play this game to win.

 

 

Word4Asia is a Southern California-based consulting company helping organizations accomplish their objectives in China.  We have over twenty years of experience and have put many wins on the board during that span.   Founder and CEO, Gene Wood, is passionate about helping clients as well as being an avid basketball fan who can be regularly seen courtside watching his beloved LA Clippers.   If your organization has aspirations in China, or even if you’d just like to talk ‘hoops’, Gene hopes you’ll reach out.  He can be contacted at gene@word4asia.com

 

 

 

 

 

 

Driving Economic Growth: Behind the Wheel of the Chinese Auto Industry

by Joe

Easier Access for US Auto Makers

A year ago, April, China’s National Development and Reform Commission announced a lifting of the caps on foreign investment in the nation’s auto industry.   The country will remove limits on companies making full electric and plug-in hybrid vehicles in 2018, commercial-vehicle companies in 2020 and the wider passenger vehicle market by 2022, China’s state planner said in a statement.  Additionally, Chinese officials have indicated that tariffs on imported vehicles could be significantly reduced from the current 25% this year.  The Chinese auto market has emerged the largest in the world, with over 28 million vehicles sold in 2017.

 

This topic is a bit of a two-edged sword for US Auto manufacturers and the US economy.  While China’s auto industry grew 13.7% versus the prior year in 2016, in 2017 growth slowed to just 3% over prior year sales.  So, as restricted access to China’s auto-market is noticeably improved, the opportunity is not what it was a short time ago.  Additionally, China continues to eye the US auto market with eagerness.

 

Historically, the US has not been an easy market for China.  Product quality issues, failure to meet tough U.S. safety standards, lack of consumer awareness and ill-conceived import partnerships have combined to limit China’s success.  This has led Yin Tongyue, President of Chery Automobile Company (another major Chinese auto manufacturer) to have said “Entering the U.S. market is like swimming in water that is too deep. We are scared of drowning,” in an interview with a Reuters reporter. “We need more time to prepare. U.S. technology and U.S. consumer habits are too different.”

The Chinese believe that this is that time.  In a recent interview, another Chinese auto industry executive, President Chinei Yu of GAC Motor (one of Chinese leading auto firms) said “We are well prepared to face the challenges in the U.S. market.”

Understanding the Chinese Market Place

A few questions that occur to us as we review this topic.

  • Why is China apparently giving more preference to electric vehicle manufacturers?
  • If US car companies are to succeed in China, what do the need to know about the Chinese market?
  • Since Chinese auto companies are largely unknown to American car buyers, who are the most likely to succeed?

This first issue is perhaps the easiest answered.  China’s economy is state controlled.  Air pollution is one of the most significant domestic issues that China must overcome.  Incentives and mandates issued from Beijing and local governments, including polluted mega-cities such as Shanghai, have boosted electric vehicle growth.  China is looking to leaders in the electric vehicle industry for answers and American corporations like Tesla have taken an important lead in this area.  The Chinese market is ready and hungry for electric vehicles and companies who take advantage, whether it be from easier entry of US produced products through lower tariffs, or products made in Chinese-American plants will satisfy that demand.  In fact, electrified vehicle sales expanded 53% in 2017, to 777,000 vehicles including 652,000 all-electric vehicles and 125,000 plug-in hybrids. (Source: the China Assn. of Automobile Manufacturers)

While competition in China is tough and getting tougher, there is demand for American brands and the perception of American quality.  This is borne out in the following table.  In all but two instances, Chinese manufacturers are producing American/ Western brands for their domestic market.

Chinese Auto Buyer Product Preferences

Recent Consumer Trends

Sedans have declined in popularity whereas SUVs and MPV (Multi-Purpose Vehicle) remain in higher demand.

As stated previously, new energy automobiles have become popular.

Rising interest in ‘intelligent’ cars (auto-pilot features etc.).   Its predicted that intelligent cars, defined as an integration of environmental perception, programmed decision-making and auxiliary driving functions via a modern sensor, remote control, and artificial intelligence system, will realize the connection of automotive and intelligent mobile phones in 2017.  In China, cyber security is viewed as the biggest problem related to these vehicles.

Consumers Preference

The majority of Chinese car buyers are younger than 35 years old and compose more than up 57% of all car consumers.  This segment is focused on brand image/ prestige and is attracted by intangible features like appearance and performance.  It is believed that these features increase the owner’s projected status. These factors are driving the growth in the mid-priced and luxury segments.

 Emissions Are a Primary Focus

The Chinese car universe is not governed by the whims of buyers, the way Americans’ evolving tastes have pushed car companies to leap into increasingly bulbous crossovers. Facing a crisis of congestion and air pollution—and desiring an industrial advantage in building electric cars—President Xi Jinping and his transportation ministers are enforcing a quota on Chinese automakers that 10 percent of car sales be EVs and plug-in hybrids by 2019. That number is expected to increase to 25 percent by 2025—which means multiples of millions of EVs.

 

Word 4 Asia has an exceptional understanding of the major factors in China today.  If your organization is seeking to further its objectives in China, we’d like to talk with you.  Our wide network on the Chinese mainland stands ready to work with you.  Reach out to us today at gene@word4asia.com

Belt and Road: Weighing the Risks and Choosing the Right Path

by Joe

Belt and Road:  Weighing the Risks and Choosing the Right Path

In Word4Asia’s March, 2018 blog, we presented an overview of China’s Belt and Road initiative.   We ended with an optimistic note stating that it’s China’s ability to look past political and economic differences between themselves and potential partnering nations that will ultimately define the success of this tremendous initiative.

This month, we continue our BRI discussion to include topics related to potential involvement by foreign (non-Chinese) firms.  These include risk identification, market related issues, risk mitigation and various methods of participating.

UNDERSTAND THE RISKS

As in any business opportunity, potential gains must always be measured along with attendant risks, and there are many potential risks associated with Belt and Road.

  • Geopolitical risk: Because BRI projects will span across many territories and nations, they are subject to changes in political regimes and bilateral relations.
  • Funding risk: BRI projects are high-costs, requiring significant loans to debtor nations.  Each of these nations have a varied ability to pay back these loans.
  • Operational risks: BRI projects will involve many different businesses and institutions.  Skill sets and competencies will vary among all these stakeholders and these differences open projects to completion delays and cost overruns.

CHOOSE THE BEST PATH

Conduct a commercial viability assessment prior to committing to any BRI project.   Such a study will include reviewing the maturity of the supporting ecosystem and confirming that the project complements the company’s other similar projects.  It includes completing a robust business case that firmly establishes sufficient market demand and a competitive situation that will allow the firm to achieve its profit objectives.

  • Confirm the maturity of the region’s infrastructure: Include the following issues in your analysis:
  • Will the firm’s investment be protected through stability in economic policies within the host nation(s)?
  • Does the region’s infrastructure include the stable, multi-modal distribution of supplies?
  • Are there sufficient supporting facilities in the region? These could include commercial banks, telecommunications systems, basic water and sanitation facilities etc.
  • Is the project under consideration a good fit for firm at this time? For example, should a company with one risky project in Kazakhstan undertake a concurrent, similar project in the same region?

RISK MITIGATION

Exit plans:  Along with having a clear-eyed view of the possible risks involved in a potential BRI project, the firm should also outline a clear exit strategy from the start of the project.

Local Authority alignment:  Cultivating strong, positive and respected relationships with local authorities is essential.

Trusted Partnerships:    Partnerships with companies having prior experience of working with the local government are critical in B&R projects.  Relationships with local companies can provide  insight into how things get done, assure sensitivities to unspoken realities will ensure that key individuals are included in planning and execution.  Failure in this area could easily cause avoidable delays and expenses and, in some cases, even derail projects.

MARKET ENTRY OPTIONS

There are at least six ways foreign companies can participate in BRI.

Investors:  Commercial banks are being invited to participate.  Companies can invest in bankable infrastructure projects, either by co-investing with Chinese players or by investing in partnership with existing Chinese instruments, such as the Silk Road Fund. The Chinese government has thus been seeking foreign investment, in part through its infrastructure bonds.

Suppliers:  Companies can supply advanced construction equipment, machinery, and cutting-edge solutions for infrastructure projects.

Consultants:  Firms with expertise in large-scale infrastructure projects could partner with firms from China by sharing their experiences in designing and developing infrastructure in less developed countries. Consulting can also open paths through Chinese companies to the Chinese domestic market.  Similar opportunities are also open to consultants working in international project management.

Management:  As operators of new facilities and managers of the newly constructed infrastructure,  Chinese company leaders are interested in management experience, especially within emerging economies.  A company can bring its operational experience in managing effectively, profitably, and sustainably to new settings.

 

Word 4 Asia is a consulting firm with a unique focus on China.  If your goals are leading you East, we’d like to talk with you.  Our experience, skills and expansive network may plan a pivotal part in your success!  Contact us at gene@word4asia.com

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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