Business & Finance
CKGSB Knowledge - China Business and Economy

CKGSB Knowledge - China Business and Economy Summer 2016

CKGSB Knowledge is an English language business publication focused on China. It features original articles on business and economy in China, the evolution of “Made in China”, policy issues, the rise of Chinese companies, the emergence of Chinese multinationals, and foreign multinationals’ strategy and operations in China. It also features interviews with influential thought leaders and CEOs, both Chinese and global, on trending topics. CKGSB Knowledge provides a unique vantage point from which to discover the latest general and China-specific business trends. It also provides a matrix to understand how emerging markets are transforming the global business landscape.

United States
Cheung Kong Graduate School of Business
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4 Issues

in this issue

2 min.
china faces old problems and pushes into new frontiers

China’s growth is slowing down—the country is expanding at the slowest rate in 25 years. What can China possibly do? As our cover story explains, “…the problems China now faces are not seen as merely cyclical, but structural, and stimulus is not the obvious answer.” So has China exhausted all the policy tricks in its economic playbook? Or is there hope still? I won’t give anything away here. Please read our analysis on page 20. China now has, to put it simply, too much of steel, cement, aluminum, concrete, coal, etc. Overcapacity is harmful for China—not just for its industry, whose profitability is being hurt, but also for its global reputation as more and more countries are joining the ‘anti-dumping’ chorus against China. Once again, what should China do to tackle this thorny…

2 min.
china data

Wind Power, or Hot Air? China’s windfarms generated 168 billion kilowatt hours in 2015, but wasted 33.9 billion kWh, or 20%, as falling utilization rates kept power from reaching the grid. China’s wind power capacity topped 133 gigawatts in February, a full 9% of the total. But wind power generated made up only 3% of power consumed in 2015. Hungry for Investment Alibaba and Ant Financial, which was spun off from Alibaba, invested $1.25 billion in Ele.me, a third-party food delivery service that works through an app. The Chinese name reads: “Hungry?” When Prices Fly Pork prices rose 48% to RMB 25.67 per kilogram year-on-year in April, leading to a 75% boost in imports over a similar period. In February alone, US pork exports to China rose 38% to 15,925 metric tons. Safety Net The government set…

13 min.
capacity for change

‘To absorb the excess supply of steel, more steel mills are built’Yongding Yu Director Institute of World Economics and Politics, Chinese Academy of Social Sciences For more than a decade, Chinese policymakers have promised to rebalance the world’s second-largest economy. The objective has been to transition to a new growth model fueled by services and consumption instead of fixed-asset investment. At the National People’s Congress in March 2007, then-Premier Wen Jiabao warned: “The biggest problem with China’s economy is that the growth is unstable, unbalanced, uncoordinated and unsustainable.” Wen’s words have proven prescient. In 2007 China’s GDP growth peaked at 13%. It then began a long deceleration in 2008. That was interrupted only by a massive fiscal stimulus package that shielded China from the worst effects of the global financial crisis but…

15 min.
the people’s banking

‘The potential [for] innovation in the [Chinese] financial industry is huge’Huang Chen Partner Shanghai-based private financial services company Teng Teng, a 29-year-old professional illustrator living in Shanghai, first began using Alibaba’s online transaction service Alipay when she was still an undergraduate student in 2009. But she says she was very slow in trusting it. “I thought it was dangerous, somebody would take my money,” she says, explaining how she would load the account with just RMB 200 or so at a time. “But I really wanted to try it. It was new stuff.” These days she uses Alipay, as well as Tencent’s newer WeChat transaction service, all about town. KFC, hotels, grocery stores, they all accept it. She uses it with her friends when they split the bill at a restaurant by sending…

13 min.
wanted: a miracle

‘China has reached what I call the ‘fiscal crisis of the state’. At low income levels, government revenues tend to grow in line with GDP growth and government expenses don’t’Salvatore Babones Associate Professor of Sociology and China specialist University of Sydney Concealed behind a still impressive official growth rate, China’s economy is in danger of stalling. Doubts are multiplying over whether outward appearances tell the whole story. Slow growth around the world, little progress fostering domestic demand, and a change in the direction of China’s capital flow are beginning to invite questions over China’s long-term prospects. Add to this increasing skepticism about the official statistics, continuing disappointment over the results of the 2008/9 stimulus program and an overcapacity problem that raises the prospect of protectionism around the world, and China’s reform…

11 min.
china’s capital fright

‘The surprising depreciation on August 11 worked as a wake-up call to the markets’Larry Hu Head of China economics Macquarie Group On August 11 last year, China suddenly cut the RMB reference rate by 1.9%, the biggest one-day drop since 1994. The move sent shockwaves through world markets and raised questions for Chinese people and investors around the globe about not only the currency, but also the direction of the Chinese economy and even the system. The impact of the devaluation was hugely significant for China’s foreign exchange reserves, which peaked in 2014 at a recording-breaking level just shy of $4 trillion. In 2015, those reserves dropped $512.66 billion, or more than 13%, to end the year at $3.33 trillion. Capital flight, partly caused by concern about a weakening RMB, was one…