Archives for posts with tag: economy

At China’s annual meeting of its top legislative body, three draft reports are usually submitted for delegates to discuss and approve.

They comprise the premier’s government work report, the National Development and Reform Commission’s economic development report, and the Ministry of Finance’s budget report.

The documents provide a review of the past year and explain how the central authorities will govern the country in the coming year.

This year’s plenary session will also review and approve the proposed 13th five-year plan for the period from 2016 through to 2020. 

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Here are the five key points to take away from the draft plan and reports.

1. Growth target set at 6.5 to 7 per cent

This year’s proposed target for gross domestic product expansion has been set at a range between 6.5 per cent to 7 per cent.

The range, rather than a specific number, reflects China’s dilemma between pursuing economic growth and pushing ahead with reforms.

Innovation would be the top driving force for future growth, according to Li’s work report.

2. Hong Kong, Macau to play bigger roles in China’s economic development; Taiwan policies to be maintained

Beijing will “elevate Hong Kong and Macau’s positions and roles in China’s economic development and opening up” according to their “distinctive strengths”, Li said.

In its draft 13th five-year plan, also released on Saturday, China pledged to support Hong Kong in furthering its status as a global financial, shipping and trading hub.

He added that Beijing would adhere to previous policies on Taiwan, “firmly oppose secessionist activities” and maintain peaceful development of cross-strait ties.

3. Further interest rate liberalisation; government-managed floating system to stay

China has pledged to further liberalise interest rates and stick to a government-managed floating system.

Beijing aimed this year to keep the yuan generally stable on a “reasonable and balanced level” and to control “abnormal flow of cross-border capital effectively”, according to the annual report of China’s top economic planner, the National Development and Reform Commission.

4. China to boost overseas defence

The premier also pledged to improve China’s ability to protect its citizens and businesses abroad.

China would ensure that the G20 summit in Hangzhou this September would go smoothly, Li said. Beijing would “participate constructively” in seeking solutions for global issues, he added.

The government has budgeted 954 billion yuan (HK$1.13 trillion) for defence spending this year – a 7.6 per cent increase from last year. 

5. Slack officials warned, blundering ones to get second chance, rewards for innovators

Li warned officials against neglecting their duties.

China has been facing a situation in which many cadres chose not to perform their duties at all for fear of making mistakes and getting hauled up amid the country’s ongoing corruption crackdown.

Li warned that the Communist Party would have zero tolerance for officials who slacked off on their jobs. There was room for correction for those who made mistakes and rewards for innovators, he said.

See the full article from the South China Morning Post here.

 

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One of the new notions Premier Li Keqiang put forward in this year’s Government Work Report on March 5 is a “New era of mass tourism”.

In it, the phrase “Paid vacations” appears again as a fundamental aspect of the trend. “We will ensure people are able to take their paid vacations, strengthen the development of tourist and transport facilities, scenic spots and tourist sites, and recreational vehicle parks, and see that the tourist market operates in line with regulations. With these efforts, we will usher in a new era of mass tourism,” he said.

Premier Li’s mention of “Paid vacations” has ignited widespread public reactions.

Liang Jianzhang, co-founder of Ctrip (a leading online travel agency), who views tourism as the most promising industry in the future, believes that the implementation of “Paid vacations” is an incentive to Chinese economy. He maintains that “the average number of travels made by Chinese tourists is still far below that of the developed countries, so in the decades to come, China’s tourism industry will have to make great strides and will eventually become a significant driver for economic growth. During this process, opportunities for innovation and employment will increase”.

In Liang’s opinion, facilitating paid vacations can bring a new cycle of tourism consumption and investment-as long as competent travel products can be developed, stable profit can be expected in the long run.

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As far as public holiday arrangement is concerned, several proposals emerged into the spotlight during the ongoing two sessions, all of which focus on a modification of the current holiday arrangement. NPC deputy, deputy director of Shaanxi Provincial Tourism Bureau CSU Mingzheng proposesthat the Spring Festival holiday should be extended to 10-12 days from the current 7-day vacation.

Whatever the solution, what can’t be denied is the substantial potential China has for tourism and Chinesepeople’s ever-increasing need to upgrade their consumption style. According to reports of theNational Tourism Administration, in 2015, 120 million Chinese went overseas and spent$104.5 billion.

“Tourism is a high-level spiritual need”, said Liang Jianzhang, and this inner driving force candefinitely lead China into an era of mass tourism.

See the full article from China Daily here.

While China’s economy is still blazing ahead at an amazing pace, regions outside the conventional Tier 1 markets may offer the most lucrative opportunities. In 2016, more than ever given the shifting patterns of China’s economy, it will be worth looking at the vast country through the changing fortunes of its cities.

The key to growth may now lie in the “Rising Suns”: Places that few outsiders have heard of, such as Guiyang, Xiangyang and Hengyang, which will shine brightly in 2016, their economies growing by up to 12%. Coincidentally, in their names they all have the character yang, which means “sun” in Chinese.

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A key shift in these markets has made them an ideal growth market: 40% of all Chinese prefecture-level cities will have an average disposable income of at least 30,000 yuan (nearly $5,000) by 2016—an important threshold, at which people start to spend on goods other than food and clothes.

A brief overview on the Rising Suns cities below, see the original article from the Economist here, a synthesised review of the top cities below (from the original post here).

No. 1: Guiyang

China top 5 emerging cities GuiyangGuiyang is the capital of Guizhou province of Southwest China. Guizhou has been the poorest of China provinces with economy heavily relying on state owned enterprises. With the population of 2.8 million, it is now becoming a hub of operations for Chinese giant telecom companies. Private companies are also following the lead with Alibaba setting up cloud-computing facilities in the city.

Guiyang also serves as an important transportation hub for South Western China with Guiyang–Guangzhou High-Speed Railway already operating and three more high-speed rail lines tocommence operations within the next few years.

Disposable income per person is currently at USD 5,100, almost half of China’s average of USD 9,800. Guiyang has been ranked number 1 fastest growing local economy by the Economist.

No.2: Xiangyang

China top 5 emerging cities XiangyangXiangyang is a prefecture-level city in northwestern Hubei province. Xiangyang possesses large water energy resources whilst its mineral deposits include rutile, ilmenite, phosphorus, barite, coal, iron, aluminum, gold, manganese, nitre, and rock salt.

Textile production has been the mainstream industry of the area, however, in the last few years, it has become an attractive destination for industrial transfers, the trend of companies relocating their manufacturing facilities to cheaper locations.

With its population of 1.6 million and disposable income per person stands at USD 4,300 and the city has been ranked at number 2 among China emerging cities.

No.3: Hengyang

Hengyang is the second largest city of Hunan Province after its capital Changsha. The population of the metro area is 1.3 million but if counting the suburbs, it reaches over 7 million people. Hengyang’s disposable income per person is currently USD 4,900.

No.4: Chongqing

Chongqing is a major city in Southwest China and one of the five national central cities in China. Administratively, it is one of China’s four direct-controlled municipalities (the other three are Beijing, Shanghai and Tianjin), and the only such municipality in inland China. Chongqing disposable income per person stands at USD 5,400.

It is an enormous city of 8.9 million people and booming real estate market. It is also one of the fastest urbanizing centers in China with more than 1,300 people moving into the city daily, adding almost 100 million yuan (US$15 million) to the local economy.

No.5: Suqian

Suqian is a prefecture-level city in northern Jiangsu Province. With the population of about 1 million and relatively low disposable income per person (USD 4,100), Suqian is still one of the cheapest location for manufacturing in the province.

Alibaba has been on an acquisition spree, most recently with a Hong Kong newspaper:

China’s Alibaba confirmed that it has “entered into a definite agreement to acquire” the struggling Hong Kong-based newspaper the South China Morning Post (SCMP). It includes all the assets of the SCMP Group, which includes stakes in some web startups. The financial terms are not disclosed.

“The South China Morning Post is unique because it focuses on coverage of China in the English language. This is a proposition that is in high demand by readers around the world who care to understand the world’s second largest economy,” said Joe Tsai, executive vice chairman of Alibaba Group, in a statement. “Our vision is to expand the SCMP’s readership globally through digital distribution and easier access to content.”

Alibaba’s buy-out of the SCMP is the latest in many big moves into media and content by the ecommerce titan. A few months ago, Alibaba paid out US$4.2 billion to acquire China’s top video site company, Youku Tudou. It runs the Youku and Tudou sites, which combine user-generated content with licensed movies and TV series. It also has a film studio.

Tsai explained their decision to the sub-100,000 readership of the SCMP: “So, you’re probably wondering why. Why is Alibaba buying into traditional media, considered by some a sunset industry? The simple answer is that we don’t see it that way.” He adds that SCMP will continue to focus on “editorial excellence” and keeping readers’ trust as it adapts to fit in with fast-evolving new media and the way news is read via social media. No specific plans are revealed.

The newspaper was founded in 1903. Alibaba is acquiring it from Malaysian tycoon Robert Kuok’s Kerry Media, which bought the controlling interest from News Corp in 1993. The SCMP has a paywall, but its slowly rising digital revenues are not making up for tanking print sales.

See the full article from TechinAsia here.

Alibaba also recently invested in music streaming- see more here.

Tencent first became known for its instant messenger service and games, and is now one of the biggest tech firms in the world. The WSJ’s Wayne Ma explains how Tencent got so big.

See video here.

A recent partnership between Chinese internet giants Alibaba and Tencent has pointed to an effort to squeeze the third largest player, Baidu, out of the market.

Recent evidence of this can be seen in the group buying market, though dwindling in the west this model is booming in China. Groupon-type platforms have been growing and according to research firm Analysys International, bargain hunters spent 77 billion yuan (US$12.1bill) in sales through group buying sites in the first half of this year.

Now a merging of Alibaba supported Meituan and Tencent backed Dianping means a single player will have around 80% of the market (Meituan is estimate at about half, Dianping at around 30%). The combined business could be worth US$15 billion.

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The new merged entity would squash rival group-buying site Nuomi, fully owned by Baidu. This deal seems to signify an escalation in movement to push Baidu out of the market. Alibaba and Tencent also merged their taxi-hailing business to form Didi Kuaidi, the largest local taxi sharing app, while Baidu gives financial backing to US brand Uber.

These two recent partnerships of rivals who still compete head-to-head in entertainment, e-commerce and even banking will provide a united front in some of the fastest growing segments. But will this be enough to push Baidu completely out of the picture?

See Bloomberg’s thoughts on the topic here.

A media release from state news agency Xinhua explained the goals of the latest round of guidelines. ‘China will modernise SOEs, enhance state assets management, promote mixed ownership and prevent the erosion of state assets… The government will improve the competence of SOEs and turn them into fully independent market entities,’ said the release.

Why are they doing this? Efficiency.

China says that state owned enterprises are a pillar of the economy. These government companies enjoy a range of benefits. For example, they have easier access to loans. And they have what’s euphemistically described by the state as ‘more favourable policies’. Basically, they have monopolies over certain products.

But SOEs are inefficient. At least, compared to private firms they are. Which is what really matters here. This inefficiency means they’re less resilient when the economy is going south. Like it is now. The State Council said that reforming SOEs is a top priority for Chinese lawmakers at the moment.

What the SOE reform guideline says

Promoting mixed ownership is a top goal for China. The guideline says that SOEs should bring in diverse types of investors. There will be multiple ways they can do this. A few examples are: bonds, share rights swaps, and outright buying stakes in the enterprise. For the first time, the SEOs will be allowed to test the waters of selling shares to employees. Eventually, the government wants these firms to go public. 

guideline holes

In the official report, China claims that executives will be more tightly supervised. They say that a ‘mechanism for accountability’ will be put in place. Apparently, this will help stop corruption and embezzlement. But so far, there are no details on what this mechanism will look like. Or how violations will be investigated and prosecuted.

Also briefly mentioned was the fact that government agencies will no longer be able to intervene in SOE decisions. The thing is, the SOEs will still be ‘administered’ and overseen by the State-owned Assets Supervision and Administration Commission (SASAC). There isn’t an effective separation of state and corporation here — yet.

New foreign stakeholders may or may not have much chance to influence this. Under Chinese law, it is illegal to threaten to withdraw ‘registered capital’. That’s the amount the investor has put in, according to official records. Registered capital can only be withdrawn to pay company expenses. 

Then, there’s the problem of timing. An institutional investor with a significant proportion of shares cannot profit from a purchase or sale within six months. It’s meant to be a defence against insider trading. But it also applies to investment companies.

Overall

The main takeaway is: from an investor’s point of view, SOE reform would have to be thorough and transparent to be worthwhile.

And the Chinese administration is not famous for being transparent.

See this article in full from Money Morning Australia here. And more on the topic form the FT here.