After an initial backorder situation arising from the many readers who had pre-ordered, we’re happy to announce that Supertrends is once again fully available in the US through online retailers such as Amazon.com and Barnes & Noble. For a complete list of places to get the book in the US, check out the Where to Buy link.

Thanks to all of our readers who have helped to make the book launch successful.

Categories: Announcements
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The first trading day after the Asia-wide three-day holiday, and following the weekend announcements of Lehman Brothers Chapter 11 filing and the buyout of Merrill Lynch, China’s stock markets dropped in tandem with Asian and world markets.

China Supertrends has been following the financial implications of the sub-prime crisis for a while now and will comment on this latest development and the state of China’s stock markets in a separate post. Today, Tuesday, September 16, was yet another blood-bath in the markets, but at a time like this it is worth remembering that China’s underlying economic fundamentals remain very strong.

In fact, China just came off yet another strong month of growth. If this is true, what causes the apparent contradiction of one of the world’s best performing economies having one of the worst-performing stock markets?

In brief answer to this complex question, let’s just say that the theory of decoupling - the idea that China and other developing countries are mature enough to continue to develop on their own during an economic decline in the US and elsewhere - is increasingly discredited.  We wrote as much in Supertrends: We are living in an inter-connected world, and nothing, not even neo-Mercantilist policies, a protected currency, nor the world’s largest foreign reserves, can resist the forces that are sweeping our world.  As John Donne famously said, no man is an island. This financial crisis calls to all governments to act.

China, with its strong economic performance in August and year-to-date, may appear to be in the eye of the storm, an island of calm and prosperity. Last week was the Mid-Autumn Festival, and the economists at China’s National Bureau of Statistics were producing new data faster than mooncakes at Wang Jia Sha. Virtually everything seems according to plan.

Starting with the drivers of the economy, consumption continued to show signs of strength, with retail sales maintaining a 23.2 percent pace of growth in August, only slightly lower than July’s 23.3 percent, the fastest rate since 1996, according to the Shanghai Daily.

The level of retail sales growth is far above the most recent inflation levels, meaning retail sales growth is not just about price increases, there is real growth there.  In fact, CPI - the consumer price index, or basic inflation - decreased to 4.9 percent in August, continuing the downward trend, but worrisome PPI - the prices producers are paying for raw materials and commodities - continued to climb, to 10.1 percent in August. PPI increases will, at some point, either result in decreased margins and profits as companies absorb the increases, or get passed on to consumers as price increases, so China is not out of inflationary woods yet.

Many were regarding the fight on inflation to be one of China’s core economic policies of 2008, but in a surprise move today the People’s Bank of China decided to cut interest rates by about a quarter percent, down from 7.47 percent to 7.2 percent and, in perhaps the most surprising move of all, cut the reserve ratio by a full one percent after having just increased it by one percent in June.  Now that the Olympics are over, micromanagement of the economy seems back in style.

But the message, that the economy is ready for a rate cut and wants to increase money supply, could be evidence that the PBOC overshot the mark and caused money supply to shrink too quickly, contributing to some of the summer’s abysmal stock and real estate performance.  Growth in M2, the money supply, decreased to 16 percent in August, down from 17.4 percent in June.  It is important to point out here that we are still talking about an increase of 16 percent, just that the rate of speed it was growing simply slowed down a little.

Is the PBOC acting wisely or foolishly? Time will tell if they are cutting too soon, a knee-jerk reaction to the latest sub-prime casualties, trying to prop up the falling stock and property markets, or if they are presciently avoiding a much harder crash in the wake of Fannie/Freddie/Lehman fallout and other factors yet to come.

While some of this data could be construed as negative, China had a lot of other positive economic results in August. For example, the trade surplus is up by 25.7 percent year-to-date, compared with Jan - Aug 2007 figures.

In August, with industrial output growth the lowest in 18 months, a mere 12.8 percent increase, exports decreased to 21.1 percent from 26.9 percent in July. Imports were down more dramatically, from 33.7 to 23.1 percent, mostly because of commodity import price decreases  (i.e. oil), so the trade surplus actually still got bigger. 

Though slowing its rate of increase slightly, clearly China’s export prowess is not affected significantly by the world-wide financial crises, and despite the 2008 increase in  the strength of the RMB exporters seem to have adapted. The sky, it woud seem, is not falling, though its perhaps a paler shade of grey. Ecnomists, analysts, and the Chinese media make a lot of dire proclamations about how the Chinese economy is in decline but this is better thought of as healthier, sustainable growth.

I could go on. FDI and other investments - still strong. Foreign reserve size- still troubling, but thanks to the Fannie Mae / Freddie Mac bailout, the 20 percent of reserves held in US mortgage debt appears safe.

So the question originally posed, why is there a contradiction? China’s strong economy (with all the usual provisos and assumptions about the data, of course) on the one hand, and its weak stock and property markets on the other. What gives?

Is this a sign that global markets cannot decouple and are doomed to falter together, or is it a sign that somebody needs to act more decisively?  Just as China became a stabilizing force in the Asian Financial Crisis of 1997, is there are way it could use its economic and financial strength to do so again?

No country is an island in our globalized world.  Everybody has a stake.  With the alarm bells sounding, can China passively wait for the U.S. to get through its bailouts, and hope that the world financial system remains intact?  Or does this bell ring for another?  Whom does the bell toll for?  China, it tolls for thee.

Categories: Affluencing, China Supertrends, Consumption, Drivers of the Drivers, Foreign Direct Investment, Globalization, Trade
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We are happy to announce that Supertrends of Future China has just been released in the UK.  You can buy online at Amazon.co.uk, Blackwell, and TSO, and the book is also sold retail at Blackwell’s original Oxford location on Broad Street, open since 1879.

For readers in Japan, the book can be ordered through Kinokuniya and Amazon.co.jp  Yoroshiku onegai shimasu!

Categories: Announcements
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In Supertrends, we wrote about how increasingly-younger working professionals are coming to China, sometimes right after graduation from an MBA program or even undergraduate school. This is a certain trend. Shanghai can even be called the new New York for its growing fashion, club, restaurant, and shopping scenes. And, in the city’s business sector, to paraphrase the immortal Frank Sinatra, if you can make it there, you can make it anywhere.  But are halfpats the new expats?

Halfpats are not an official job classification, just a collective term for people that go to another country to work on their own initiative, rather than being sent by their firms. They come as tourists or students, then stay as workers, sometimes for years. On the other hand, the classic expatriate, in China and elsewhere, is typically an older executive at the managerial level dispatched on a limited-term assignment from the headquarters to an office abroad.

Expats play an important role in bringing experience, trust, and corporate culture to a foreign office. For this, they are often handsomely rewarded with luxurious (compared to local standards) rent and food allowances, tax-differential subsidies, even hardship pay and medical evacuation insurance. A new article by Alan Paul in the Wall Street Journal ponders whether the traditional expat is the Neanderthal to the halfpat’s Homo sapien:

…these old school mainline expats may be endangered. There is another, growing group of expats in Beijing who are younger, more willing to move around and less expensive to employ.

All true.  But I disagree with the idea of halfpats significantly endangering the Neander.. sorry, expats.  Unlike their halfpat descendants, older expats have experience that callow youth simply cannot make up. Furthermore, the very thing that makes halfpats attractive - local presence, Mandarin-speaking, upwardly mobile skills - makes them into flight risks.  They have choices about where to work in China, and may not have a long-term commitment to the foreign firm.

A multinational company in China would be no more likely to hire a halfpat instead of an expat than it would to hire an inexperienced Chinese manager. Every survey I have seen still says there is a shortage of management talent in China, whether foreign or local. The key of course, is management talent.  A halfpat may be extremely competent but, for company politics if for no other reason, nobody is handing them the keys to a multimillion dollar China operation.  So the premise that Paul puts forward is - and I think he must get this, too - partly flawed.  Expats and halfpats are apples and oranges.

Full disclosure, I am a halfpat based in Shanghai.  And, like all halfpats, I sometimes lament the fact I am not an expat.  It is true, I have no luxury villa, no car with driver, nor tuition subsidy to send my kids to school.  I don’t even have kids!  But, like many other people coming to China without a work sponsorship, I gave up comfortable and higher-compensated jobs in other countries for the chance to be here. It was a chance worth taking. And, like that other Sinatra song, “…regrets, I’ve had a few, but then again too few to mention.”

Contrary to the implied conclusion of Paul’s article, that halfpats are going to be replacing expats, I believe that the demand for expats is as strong as ever, and halfpats are a mutually exclusive quantity which may also be increasing, for that matter.

Many foreign firms are still expanding in (or even just entering) the China market, requiring foreign management staff. A recent announcement showed that companies choosing Shanghai as their regional headquarters are still on the increase, now numbering 206, up from just 41 in 2003. While the current HR practice in China is to try to follow a local or local-plus (i.e. the aforementioned halfpats, such as haigui returnee Chinese, or foreigners already living in China) hiring policy, there are not yet enough qualified halfpat candidates available for top organizational positions.

We may also study the preferred habitats of expats to guesstimate their numbers. For example, expensive serviced apartments can be an indicator of expat populations. To make a generalization, halfpats get much lower salaries and little or no housing allowance, so few can afford the US$1500 - $15,000 monthly rents on a serviced apartment or villa in Shanghai. We can therefore take growing supply of luxury residences (as long as they are filled) to mean that the expat market size is increasing. Singapore’s Frasers Property, previously featured in our article on the redevelopment of Shanghai’s Wujiang Road, plans to open 20 new serviced apartment buildings in China by 2010, half of its global increase during that period.

Paul’s WSJ article also points to a barrier for new or returning halfpats:

Longer-term visas have become harder to obtain in China. Many of the visa brokers often employed by halfpats have been shut down and there are rampant stories about expats without full-time employment having to leave China, at least for a while.

But then he continues with the common expectation that visa restrictions will be lifted at the end of September or October after the Paralympics are over, once again swelling the ranks of halfpats. I’m personally not so sure. On the ground in Shanghai, my impression is that during this period of visa tummult, China-based businesses quickly adapted: For example, English schools put their best staff on permanent work visas, and other companies that depended on unlicensed foreign workers made the switch to locals.  There is only unofficial rumor to go on in regard to the government policy after September: While longer business visas are likely to return, the requirements may still be strict.  Young halfpats, however, are nothing if not flexible and creative.

So, while China still remains an extremely attractive place to work in the minds of many young foreign graduates, the job market for those workers is tight, and I don’t expect a big influx of halfpats to displace more-experienced expats anytime soon.

Attention big company managers: Rest easy on your imported beds and high thread count sheets this night, your jobs are not in danger from Mandarin-speaking Young Turks just yet.

Related Information:

Rich Brubaker at All Roads Lead to China has been following the halfpat story for some time, I recommend you check out a few of his posts on the topic here and here.

Categories: Aspiring, China Supertrends, Drivers of the Drivers, Globalization
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