The Chief Asia Inspector Blog

From China to Europe... by car !

Another step in the cultural exchanges between the West and China : one of AsiaInspection's employees in Shenzhen just told me about how her brother has started with his wife on last July, 12th a 60,000 kms road trip from China to Europe !
They will cross nearly 20 countries, for about 6 months, and keep a diary online to record their story.

This trip is actually a big thing, since they will be allegedly the first Chinese couple to drive across Europe; they got sponsored by Volkswagen Shanghai (they drive an Octavia model, which was just released on Chinese market early June), HP, Michelin, ... and will donate a part of the income generated by their story to Greenpeace.

I wish a good trip to these modern heirs of the legendary Zheng He !

Chinese cars land in Europe !

... and they are not cheap !

Brilliance, the main Chinese car manufacturer (who also produces BMW cars for local market) has made a discrete but noticeable entry at the Geneva 77th Motor Show this week, with 3 car models on display.

The 500 first cars from the production line in Shenyang, will arrive this month in Germany to be distributed through European retailers.

The story is interesting, with the involvement of many European automotive suppliers in the project, and the design done by an Italian firm : according to Brilliance themselves, the cars they will sell in Europe are already "quite European"; for this line of products, where quality is everything, coming from China does not, for once, necessarily give you a competitive advantage.

It took about 15 years to Japanese cars to settle definitely in Europe : will China do better ?

All bets are on with China gambling craze !

I read earlier this week about how Macau's gaming revenue surged 22% in 2006, surpassing for the first time the Las Vegas (where AsiaInspection will exhibit next week - by the way...) as the world's biggest casino market.

Seven new casinos opened in Macau last year, bringing the total to 24. The number of gaming tables doubled in the period to 2,762, according to Macau's Gaming Inspection and Coordination Bureau.
And this trends seems here to stay : in total, 2.2 billion people live within five hours' flying time of Macau, compared with 410 million in the same radius of Las Vegas.

I have always been intruiged and fascinated to see how Chinese people can be both disciplined, hard working, and at the same time crazy about gambling, to an extent we seldom see in Western countries...

Invest in Shenzhen !

As I keep an eye on real estate prices in Shenzhen, I thought I would share my views on it - especially when you realize how good the investment can be !

See below an ad I received recently :

-Location : Fu Ming Metro Station
-Building Construction date : 2003
-25th floor / 32
-Flat area : 93 sq.meter
-3 bedrooms, 2 bathrooms,
-Towards south, HongKong direction: "Rice Shop" - good Fengshui
-Estimated total price - RMB1,350,000.
-Located in a  florishing area (shops and businesses)
-Estimated Rental price: around RMB 4000

Besides the fact that such a property would probably be worth more than RMB 6-7 M in Paris (not mentioning London), I really believe investment opportunities are great in Shenzhen now, and my advice (free of charge !) is to buy around 1,300 Euros / Sqm, with a 70% mortgage financement plan at a 6% variable rate...

Winners and Losers in China (part 2)

I’ve kept up the suspense long enough. Here is the loser’s side according to John Gittings:

• laid-off state workers (who often weren’t even given the pension money they were entitled to), thought to number around 30 million,
• those needing health and education facilities in rural areas, where such services are no longer free. Rural families now often spend 30% of their income on schooling, and 10% on health,
• women in rural areas, where communities fiercely hold on to the old ways,
• women forced by straightened circumstances and the above mentioned criminals into working at brothels,
• involuntarily displaced people, - 3 gorges – 1,00 million
• migrant workers who have been cheated out of their pay (they often live on their work site).

Gittings also mentioned the growing divide between rich and poor, so that China is starting to resemble India, although he did not mention the 300 million people brought out of absolute poverty since 1979. This analysis will not come as news to anybody who works in China, but every now and then it is good to be reminded of the wider social and economic situation in which we’re doing business.

Even if the Chinese are all winners (on average)

I recently heard sinologist John Gittings give a very good picture of China’s situation today (incidentally, he was promoting his book The Changing Face of China). Saying China is a much more competitive place than it used to be, he put the country’s economic revolution since 1976 in terms of winners and losers. The winners are:
• businesspeople,
• students,
• criminals – with more money sloshing around generally, there are more pickings for parasites,
• urban women, now relatively emancipated,
• and those rural villages which receive money remittances from many of China’s 110-130 million migrant workers.

I'll let readers take a guess as to who the losers may be.

Taking the "fast" out of "fast food"

Here's a blunt indicator of Chinese financial (if not physical) health: fast food chain KFC took nearly a decade until 1996 to set up 100 restaurants in China; now, only ten years on, it already has over 1200 more, and is adding at a rate of 250 a year. The Chinese dig the Colonel: their taste for chicken makes KFC the largest fast food chain in the country, but McDonalds - and 660 other restaurant chains - aren't far behind. The current push is towards drive-thrus.

Why, in a country famed for its delicious noodles and dumplings, are the people salivating for fried chicken and burgers? As prices have come down slightly and disposable income has gone up rather a lot, it's not necessarily the "rice vs. Ronald McDonald" battle you might think. Rather, it’s a case of adding to, not replacing, the traditional diet with American food. China, of course, has a welcoming culture of entertaining family and clients with food; so now people simply eat out more often because they can.

I've found, as this student has, that people in China go to American-style fast food joints for:
the novelty (especially if they're visiting the city - fast food is still near-exclusive to the big eastern cities), the relative cleanliness, the relaxed atmosphere which allows them, unlike in many noodle shops, to linger over their food (ironic as this may be), and the toys - which become lucrative collectors items.

Food is way down the list - people never get filled up by french fries as much as they do by rice, egg and vegetables. But then - we’re not exactly talking haute cuisine!

City + Country = Suburban Sprawl

While I’ve mentioned that China is laying down the groundwork to create the cities of the future in its rural west, it has also been encouraging rural westerners to migrate to the current cities of the more moneyed east (as seen in Gilles Sabrié’s photos). Are these contradictory answers to the same problem of peasant poverty? Probably not; once again, it’s China’s huge population which not only makes these solutions complementary, but makes them both necessary.

But I imagine the western cities solution will probably start to be emphasized at the expense of the longer, eastern migration, as the eastern cities’ girth expands to inefficient levels. Take Shanghai for example. New suburban towns outside the city’s ring road are to house new migrants, but also people who have been moved from the city center (where current density levels are 8 m3 per person). Getting used to suburban living must be nearly as hard for the urban insomniac neon lights-and-adrenalin-junkie as it is for the bewildered and often shunned country migrant. Whether you agree with it or not, the ability of the Chinese authorities to answer problems by moving mountains, rivers and people as if they were figures in a computer game is simply breathtaking!

Start Your Engines

Pundits have been predicting for years that India's clichéd "rise of the middle class" will lead to a large demand for the horseless carriage. Now, with total new-car sales in India expected to increase from 1.2 million cars per year to 1.7 million by 2010, the car companies are jostling for pole position. GM., Ford, BMW, DaimlerChrysler, Honda and Hyundai – an impressive list - are all starting or expanding production in India. Lamborghini and Volvo are zooming into town for the first time to sell their wares, while Mercedes-Benz is to add the swank S-class 350 to its factory list in Pune in a smart move to avoid import costs. At the other end of the market, Honda has launched its Civic and has announced it will pump US$650 million into its Indian business over the next ten years.

Petrol is 47.49 rupees ($1.04) a liter and rising, and the India market is still dwarfed by that of the US, but unlike those of America, Indian sales are driving in the right direction for companies. And the Indian government is literally paving the way: they're spending US$45 billion on 31,000 miles (49,900 kilometers) of road over the next six years.

The Other Tinsel Town

How's this for a bit of global-mix surrealism: 70% of America's artificial Christmas trees - including those in the White House - are made by Buddhists in Shenzhen. In fact, Shenzhen, in China's Guangdong province, is now the world's largest manufacturing base and export center of Christmas-related products, shipping half a billion dollars' worth of Christmas goods every year.

I'm currently in Hong Kong, just over the border from this unusual Santa's factory. You may never have heard of Shenzhen - it gets a little overshadowed by its limelight-hogging neighbor - but if Hong Kong is China's gaudy gateway, then Shenzhen is its impressive front door. In my opinion, it's the easiest city to do business in today in mainland China, ahead of bureaucratic Beijing or even Shanghai, whose revenue per capita Shenzhen has left behind in the dust.

Christmas fripperies are only the star on the top of Shenzhen's money tree: high tech products make up 40% of Shenzhen's industrial output and the city hosts the headquarters for a number of domestic industries, including computer hardware and software, telecommunications and bio-engineering. The annual national high-tech fair has been held here every autumn since 1999.

Less glamorous but still economically important are the low cost factories for toys and electrical goods, often working for Hong Kong and Taiwanese manufacturers. The China Britain Business Council warns that many of them still have atrocious working conditions. But overall, Shenzhen residents enjoy a higher standard of living than those in Shanghai. Two color television sets per household is the average. In 2002, 7% owned cars (many more than in most Chinese cities).   

Another reason why it's relatively easy to do business here is that virtually all of Shenzhen's inhabitants have come to Shenzhen precisely for that purpose. For 20 years, migration to Shenzhen from the North has been controlled on the basis of age and education, with the result that the average Shenzhen go-getter is only 29, and it is very rare to come across people aged over 45. But maybe Santa's there somewhere...