Chinese business model

China became the world’s second largest luxury market in the year 2009. By constituting 27.5% of the global luxury market share in 2009, China surpassed the United States for the first time in luxury consumption and was only second to Japan. Official statistics reported that that China enjoyed the world’s fastest growth rate of the luxury consumption in the first quarter of the year 2010. Major luxury groups agree that China will become the industry’s largest market in the world in less than five years.

As a matter of fact, luxury consumption in China only enjoys a twenty year history. In this short time period, the Chinese style of luxury consumption has revealed its distinctive patterns.

China’s business model, economic nationalism, has provided unprecedented per capita prosperity. Proof of The Party’s success is demonstrated through the following articles.

China’s wealth American loss

DE BORCHGRAVE: Chinese takeaway
Middle Kingdom is eating America’s lunch in our own backyard
By Arnaud de Borchgrave The Washington Times 5:47 p.m., Tuesday, April 19, 2011

While World Bank President Robert Zoellick warns that the world is “one shock away from a full-blown crisis,” China has broken ground and taken over the economic future of a country whose nearest island to the U.S. mainland is Bimini, only 50 miles away.

The Nassau Guardian editorialized, “The Bahamas has fallen fully into the embrace of China. And the rising empire has been kind with its gifts. … What Bahamians must understand is that when China lends, and it contracts its own workers to do the job, a significant amount of the money borrowed goes back to China with the workers who build the project. They pay their workers with money we borrow. … The Chinese also keep their workers in self-contained on-site camps when they are sent abroad. We barely get them to visit our stores to spend the money we borrowed when they are working in our countries.”

When China invests in developing countries, Chinese labor is part of the deal. A Chinese construction company recently broke ground for Baha Mar, a $3 billion gambling project on Cable Beach, 15 minutes from Nassau’s international airport and 30 minutes from downtown Nassau. China originally said it would require 8,150 of its own workers on-site. The Bahamian government complained the influx was discombobulating the local labor market, and they compromised on a 6,150-strong Chinese labor force.

Some 4,000 Bahamians will also work for the four-hotel, 3,000-room Baha Mar complex, including condos and a Jack Nicklaus signature golf course.

Baha Mar, scheduled to open in December 2014, will be the Caribbean’s largest casino, one area where China trumped Las Vegas a decade ago. Macau, the former Portuguese peninsula colony, overtook “Lost Wages” a decade ago, and is now the world’s biggest gambling mart.

With revenues up 58 percent to $30 billion, three times the size of the Las Vegas take, Macau offers a choice of 24 casinos, 2,762 gaming tables or 6,546 slot machines.

The Venetian Macau Resort is now the world’s largest with more floor space than four Empire State Buildings.

The number of Chinese workers abroad in projects underwritten by China was estimated at 3.5 million in 2005. It is now 5.8 million. In Africa, there are about 1 million Chinese laborers, businessmen and miscellaneous “temporary residents.” In Angola alone, the number is 100,000. Nigeria has 50,000 – all for temporary jobs local labor is not yet qualified to handle.

In Algeria, some 40,000 Chinese built the country’s first national shopping mall, its largest prison, two luxury hotels and a 745-mile east-west highway from Morocco to Tunisia. Some $20 billion in Algerian government contracts are in the pipeline out of which flows payment in oil.

China’s on-site workers get free room and board and each sends home an average of $1,000 a month, for an estimated total of $70 billion in 2009 alone.

Spread over 100,000 square miles of ocean, only 30 of the 700 Bahamian islands are inhabited. But they stretch from 50 miles east of Florida to within 50 miles of Cuba, Haiti and the Dominican Republic.

China is getting far more worldwide influence from its sovereign investment fund than the United States got from a $1 trillion war in Iraq and a half-trillion dollar war in Afghanistan – with several more years to go. With the interest on the money the United States owes China – $1.3 trillion in trade debt – the Chinese are winning friends and influencing people at breakneck speed.

The U.S. property fiasco is in stark contrast to China’s building boom from Macau to Mozambique and from Algeria to Angola. While the United States wrestles with extending the national debt limit past the $15 trillion level as well as reducing the deficit by $4 trillion, there is also the conundrum of how best to manage the $1.3 trillion we owe China’s 1.3 billion people.

China’s problem is coping with a rate of growth of 10.3 percent that is easing back to 9.7-plus percent this year. And the China Investment Corp.’s $300 billion investment fund has trouble keeping up with worldwide demand for infrastructure projects.

China clearly sees a permanent foothold in the Caribbean in its geopolitical future. The U.S. Embassy in Barbados is responsible for eight island nations – Anguilla, Antigua and Barbuda, British Virgin Islands, Dominica, Grenada, Guadeloupe/Martinique, St. Barts, St. Kitts – where the U.S. has no diplomatic representation. China has an ambassador and/or a consul in seven of them; the U.S., not one.

In the Bahamas, the Hong Kong-based Hutchison-Whampoa owns the Freeport Container Port, the Freeport Harbour Company, the Grand Bahama Airport, which boasts the largest private aviation facility in the world, and the Our Lucaya Resort.

In Nassau, the Chinese are building a $10 million embassy chancery to handle the influx of Chinese labor. China is also spending $70 million on improving Nassau’s international airport.

China estimates the Baha Mar complex over the next 20 years will result in $5 billion in incremental tax revenue and a cumulative $11.2 billion addition to Bahamas gross domestic product. By then, too, China should be irreversibly entrenched in the strategic archipelago.

Meanwhile, America (Voice of America) and Great Britain (British Broadcasting Company) are losing their global voices, victims of drastic budget cuts, while China’s voice is gaining strength daily.

Among the recent outreach of the world’s most populous nation: A new broadcasting center now going up at Times Square in New York, part of a $7 billion investment in “global propaganda,” reports Wall Street Journal’s Gordon Crovitz. VOA and BBC, meanwhile, are slashing Chinese-language programs and dozens of other foreign language newscasts.

The dumbest move of all by the Obama administration is to put the VOA’s Arabic programs on the chopping block as the Arab world belches revolution from Algeria to Libya to Egypt to Syria to Bahrain.

“We are in an information war and we are losing it,” Secretary of State Hillary Rodham Clinton testified recently. Then please do something about it. The cost of a couple of F-16s could do the trick.

MAY 26, 2011
Ballmer Bares China Travails

BEIJING—Rampant piracy means Microsoft Corp.’s revenue in China this year will only be about 5% of what it gets in the U.S., even though personal-computer sales in the two countries are almost equal, Chief Executive Steve Ballmer told employees in a meeting here.

Mr. Ballmer’s candid remarks provided a glimpse at the software giant’s struggle with piracy in what will soon be the world’s largest PC market. In China, copies of Microsoft’s core Office and Windows programs are still available on street corners for $2 or $3 each, a fraction of their retail price, despite efforts by the company to curb theft.

In his address to employees at the company’s new Beijing offices, Mr. Ballmer said Microsoft’s revenue per personal computer sold in China is only about a sixth of the amount it gets in India. He noted that Microsoft’s total revenue in China, population 1.3 billion, is less than what it gets in the Netherlands, a country of fewer than 17 million.

China is out to plunder its American partners

Saturday, April 30, 2011 03:06 AM

Thousands of American companies have moved their manufacturing to China, taking their jobs with them. According to the Commerce Department, these companies cut their work forces in the U.S. by 2.9 million during the past 10 years and increased employment overseas by 2.4 million. These companies have cored out our manufacturing base, and the resulting unemployment is destroying our middle class.

American companies have been seduced by the Chinese domestic market with its 1.4 billion consumers. The cost of entering that market exacted by the Chinese government is to force technology transfer to the Chinese joint-venture partner. Technology, by the way, that was in part supported by research-and-development tax credits and grants paid for by American taxpayers. American companies are only too happy to comply with the demands.

What they fail to realize or refuse to acknowledge, despite numerous signs to the contrary in the form of labor laws, antitrust laws, patent laws, indigenous-innovation requirements, etc. — all enacted in the past few years and directed at foreign companies — is that China has absolutely no intention of turning over its domestic markets to foreign companies. Once the Chinese master the technology, they will show the foreigners the door.

A case in point, as reported in Manufacturing & Technology News, is Fellows, Inc., one of the world’s largest makers of office and personal paper-shredders. Its Chinese joint-venture partner forced the shutdown of its manufacturing plant, barred 1,600 employees from entering the plant, stole all of its proprietary manufacturing production equipment and forced the venture into bankruptcy, all in direct violation of their joint-venture agreement. Fellows has lost more than $168 million worth of business and is no longer able to produce personal shredders for the world market. It took its joint-venture partner only four years to steal its technology and equipment and put it out of business. Fellows did have the audacity to take its joint-venture partner to a Chinese court, where its case was summarily thrown out.

Those interested in all the gory details can obtain the public testimony by Fellows before the recent hearing of the House Foreign Affairs subcommittee on Asia.

Fellows’ joint-venture partner, Shinri, is now competing directly against it in the shredder business using Fellows’ custom molding tools that represent the heart of Fellows’ engineering investment and intellectual property, at an economic loss of over $100 million.

This is not an isolated case and is just the tip of the iceberg. It’s the beginning of a planned, systematic approach to rid China of the “foreign dogs.”

Watch out, General Electric, General Motors and all the rest of you, because your days are numbered.


Vice chairman
U.S.-China Economic and
Security Review Commission

From China, an end run around U.S. Tariffs

By Andrew Higgins,

DONGGUAN, China — China’s export juggernaut is not unstoppable: Just ask Lawrence Yen, president of Woodworth Wooden Industries. His factory here in southern China used to ship 400 containers of bedroom furniture to the United States each month. It now sends 60.
That is just what Yen’s struggling American competitors were hoping would happen when, back in January 2005, the Commerce Department slapped import tariffs on Chinese-made beds, nightstands and related wares.

What happened next, though, was not part of the plan: Yen opened a factory in Vietnam and began exporting to the United States from there. Others did the same. He is now building a big plant in Indonesia and hopes to sell even more to the United States.

America’s own furniture industry, said Yen, “can never compete with Asia.”
The result: Imports now account for about 70 percent of the U.S. market for beds and similar items, up from 58 percent before Washington intervened to try and protect domestic manufacturers from Chinese “dumping,” or the export of goods at unfairly low prices.

The United States and China have exchanged accusations of dumping for years and imposed tit-for-tat duties. All along, though, China has generally come out on top: Its trade surplus with the United States rose to $273 billion in 2010, according to U.S. Census Bureau figures, more than three times the level of a decade earlier.

GM sees China as an open road to profits

By Keith B. Richburg, Published: May 13

SHANGHAI – On summer holidays here, Chinese are increasing jumping into their cars and engaging in what was once considered a quintessential American pastime, — the road trip. And that’s great news for U.S. carmaker General Motors, which has ridden the booming Chinese auto market to recover from bankruptcy and now sees mostly a long open highway to bigger profits ahead.

With a mix of high-end Buicks, minivans and low-end Chevrolets, GM has emerged as one of the top sellers of passenger cars in the world’s largest automobile market, surpassing Toyota this year and second only to Volkswagen.

In what was seen as a turning point for the company, GM last year sold more cars in China than in the United States, and the gap is only expected to widen as an increasing number of Chinese grow rich enough to purchase their first car.

By contrast, Ford and Chrysler are relatively late coming to the China market, and their brands don’t even fall in the top ten for sales.

And despite the Chinese government’s efforts to slow the economic growth rate to calm inflation, and even though some cities, like Beijing, the capital, are putting new restrictions on private car registrations to ease congestion, GM’s top official here isn’t worried about a slowdown in sales anytime soon.

“Simple economics say it will” continue, said Kevin E. Wale, president and managing director of GM China Group. China’s economy “is growing between 8 and 10 percent,” he said in an interview at the company’s sprawling campus in Shanghai’s industrial zone. “We don’t see that trend here changing in the next 10 years or so.”

He said he sees the demand for vehicles in China growing 10 percent to 15 percent a year for the next five years at least.

“Even with the recovery in the U.S., the Chinese market is going to be significantly greater than the U.S. market,” he said. “For everyone, China is the most important market. It is the fastest-growing car market in the world.”

How fast is it growing? “It will be greater than the combined growth of the next seven or eight largest markets,” including Brazil and Russia, Wale said. “It’s the big gorilla out there.”

Auto industry analysts agree. In its demand for passenger cars, they say, China today is comparable to the United States in the 1950s, which saw the building of the Interstate Highway System and the explosion of automobile ownership by American families, who came to see driving not only as a means of transport but also as a leisure activity for weekends and holidays.

Current car sales in China – more than 3.3 million passenger vehicles sold in just the first three months of this year – are considered just the tip of the potential demand, since most new vehicles are sold in Beijing and in the major cities along the prosperous east and southern coasts.

The hallmark of China’s growth today is the spread of wealth into what are known as the third- and even fourth-tier cities – places with populations of more than a million people. As the country’s affluence slowly flows inland, more Chinese are moving into the middle class, and the demand for new cars is expected to grow – particularly lower-end, entry-level cars for first-time buyers.

“This is a region where the consumers are much less affluent,” said Klaus Paur, an auto industry analyst and managing director for Asia of Synovate, a market research firm. “Their demands are different.”

GM is offering less pricey, lower-end models exclusively for China, like the new Baojun 630 Sedan, which will sell for as low as $10,800 for a basic car that has cloth seats and limited options.

But GM is also competing hard on the high-end. The company discovered that while the Buick may have lost some of its allure in the United States, it is still seen as a luxury car of choice for many Chinese.

Wale keeps on his wall a framed reminder of why the Buick never lost its luster in China: an old black-and-white photo of Sun Yat Sen, China’s revolutionary hero, sitting in a 1912 Buick. Ever since, the Buick in China has been associated with power and the elite.

GM also has found a Chinese market for its much-maligned minivan, which was discontinued in the United States because of its faded image as a utilitarian workhorse for suburban soccer moms. In China, the minivan is enjoying a renaissance as a high-end vehicle for corporate executives being shuttled around town by their chauffeurs.

China’s appetite for GM cars proved to be a financial lifesaver for the company, which was forced to declare bankruptcy in 2009 and undergo a painful reorganization that saw the discontinuation of some of its best-known brands, like Pontiac, Saturn and Hummer.

It was just at the time of the bankruptcy that China’s auto market began to soar — and GM was already well positioned to take advantage.

“China has been part of GM’s long-term strategic plan for literally almost two decades,” said Michael Robinet, an auto industry analyst based in the Detroit area for IHS Automotive, which tracks the industry. “This is not a Johnny-come-lately windfall for General Motors. Without China, GM would not have been able to snap back as quickly.”

Other analysts agreed. “This was really the lifeline for GM,” Paur said. “At the moment when they were in trouble in the United States, they had China.”

China’s growing importance to GM has led some to suggest the firm is now essentially a Chinese company. But GM officials point out that while they sell more cars now in China, the company generates more revenue in the United States. That’s because GM still sells more of its higher-value cars in America, and with all the optional extras.

Also, company officials say, China’s booming market directly helps the U.S. side of the firm, giving GM a large-volume market to support research and product development that will eventually transfer back stateside.

At GM’s Shanghai campus, for example, construction is underway for a new research facility devoted to developing the next class of electric vehicles.
Meanwhile, Ford is racing to catch up.

At the just-concluded Shanghai Auto Show, Ford announced plans to introduce 15 new models into the China market by 2015. “The new lineup will significantly strengthen our penetration in existing segments and drive new growth in others,” a Ford spokeswoman said in written answers to questions.

“We also plan to double our number of dealerships and workforce in China in the next four years.”

Chrysler suffered some early setbacks trying to crack the Chinese market and has been largely absent in the past few years.

Global Automakers Unveil Local China Brands

By KELVIN CHAN AP Business Writer
SHANGHAI April 24, 2011 (AP)

Some of the new Chinese cars unveiled at this week’s Shanghai Auto Show are affordable for millions of buyers — a happy development for Beijing that might prove costly for the global automakers producing them.

General Motors Co. unveiled the 630 sedan, the first model from its new Baojun badge developed with Chinese joint venture partners. The four-door is based on an older GM car and will have a sticker price of 70,000 to 100,000 yuan ($10,700 to $15,300).

Honda Motor Co. displayed the plain, compact four-door S1 at the auto show, the first from its new Everus line which went on sale this week. Nissan Motor Co. showed off an unnamed car it plans to sell under the Venucia brand next year.

These so-called “indigenous” brands will only be sold in China and their prices are aimed at a segment of the market that is already crowded with cars from lesser known Chinese brands. They’ll also be in competition with the foreign automakers’ existing entry-level models.

Car makers say they are introducing the nameplates with their Chinese joint venture partners so they can tap growth from China’s expanding middle class.

But industry watchers say it’s a new tactic by China’s government, which is unhappy with the failure of state-owned automakers to gain significant market share for Chinese brands since partnering with foreigners.

When global automakers first entered China a quarter century ago, they were required to operate in joint ventures that were aimed at helping local partners learn and grow. Foreign automakers were allowed to keep hold of their technology and other intellectual property in those original agreements. Both parties were happy to split fat profits, but the results have disappointed China’s communist leaders because international brands such as Honda, Buick and Volkswagen now dominate with 70 percent of the market.

Manufacturing Chinese models is the “new cost of market access” for global automakers, said Mike Dunne, whose consultancy, Dunne & Co., specializes in Asia’s auto markets.

“Beijing’s not happy,” so authorities drew up a new set of rules that would require car makers to share their technology if they want to expand in China, said Dunne, who is writing a book on the history of General Motors in China.

Car makers won’t admit it’s happening because it would be “politically incorrect,” he said. Doing so might risk the ire of Beijing.

Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC

By Hui-yong Yu and Christopher Donville – May 16, 2011 7:05 PM ET

Vancouver’s Royal Pacific Realty had such a surge of business during the first two weeks of February that agents and assistants worked day and night shifts to find homes for Chinese buyers visiting during the Lunar New Year.

“It was unprecedented,” saidn Royal Pacific Chief Executive Officer David Choi. “I called them sleepwalkers.”

Sales of detached homes, townhouses and condominiums in metropolitan Vancouver jumped 70 percent in February from January, to 3,097 units from 1,819, and were up 25 percent from a year earlier, according to the Real Estate Board of Greater Vancouver. In March, sales climbed 32 percent from February, to just shy of a record for the month of 4,371 transactions set in 2004. Sales increased by 80 percent from two years ago.

Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive, said Cathy Gong, who moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago.

“The schools here are the best and there are a lot of Chinese people here,” said Gong, whose son is in sixth grade at Shaughnessy Elementary School. Eastern Canada wasn’t an option because “I cannot bear cold weather,” Gong said. Vancouver has the second-largest immigrant Chinese population in Canada after Toronto.

China Curbs Speculation

China, where home prices rose 28 percent in Beijing and 26 percent inShanghai last year, according to the country’s biggest real estate website owner SouFun Holdings Ltd., has taken steps to curb property speculation within its borders. Chinese home prices gained for 19 straight months through December and climbed in almost all 70 cities tracked by the government during the first quarter. Premier Wen Jiabao placed curbs on mortgage lending, boosted down-payment requirements and limited the number of purchases.

“As the Chinese get more and more prosperous, they are diversifying their assets out of China,” said Jim Rogers, an American investor who moved to Singapore from New York four years ago so his daughters could learn Chinese. “Vancouver is very high on the list.”

Pricier ThanNew York

In 2010, Vancouver had the third-highest housing costs among English-speaking cities worldwide, according to Canada’s Frontier Centre for Public Policy. Only Hong Kong and Sydney, another magnet of Asian immigration, were more expensive. Vancouver’s median home price of C$602,000 ($618,000) was 9.5 times the annual median household income of C$63,100, the group said in a study released Jan. 24. Canada had a 4.6 national multiple, making it “seriously unaffordable,” while the U.S. at 3.3 was “moderately unaffordable,” the study showed. To be affordable, the multiple must be 3 or less.

Vancouver was more expensive than San Francisco, London and New York by that measure, the Winnipeg-based center said.

“This makes it all the more difficult for people who are already struggling to get into the market or businesses who can’t hire people to come here because of the high housing prices,” said Peter Ladner, a former Vancouver city councillor and a columnist for the Business in Vancouver weekly newspaper. “There are a lot of people who are really frustrated.”

Unlike London or New York, “we don’t have enough jobs with high incomes to justify” the home prices, said Ladner. He notedAustralia has placed restrictions on foreign home ownership. The British Columbia government also could consider an increase in property transfer taxes for foreigners, he said.

China’s Turning Point

Chinese business model

About Jerry Frey

Born 1953. Vietnam Veteran. Graduated Ohio State 1980. Have 5 published books. In the Woods Before Dawn; Grandpa's Gone; Longstreet's Assault; Pioneer of Salvation; Three Quarter Cadillac
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