This week in Japan, the G8 leaders pledged to cut greenhouse gas emissions by 50 percent before 2050. In the same week, China announced it would immediately cut more free plastic bags. What is the main point of difference between these countries’ environmental policies? It could be summarized thus: More talk versus real action.

The G8’s move to cut greenhouse gases (primarily CO2) by 50% was immediately decried by some environmentalists and tagged as insufficient by the group of developing countries, including China, on the sidelines of the summit.

For example, the pledge didn’t even make clear whether the cut was to be from 1990 levels (as is the general practice of the UN and the Kyoto Protocol when measuring emissions reductions) or present levels, which would significantly decrease the impact of the pledge. The US in particular has increased carbon emissions in the subsequent 18 years by 20%. From a BBC report:

…the US has refused to set any interim targets for cutting emissions - and environmentalists have criticised the progress at talks as “pathetic”.

Five of the world’s biggest emerging economies said the G8 should increase its targets to more than 80% by 2050.

China, India, Mexico, Brazil and South Africa - who will join talks on Wednesday - also urged developed countries to commit to an interim target of a 25-40% cut below 1990 levels by 2020.

Meanwhile, in China, the Ministry of Commerce on July 11 announced changes to the plastic bag ban policy. Effective immediately, restaurants, bookstores, and clothing stores will also be required to eliminate free plastic bags, charging customers for each one issued. In fact, this was a clarification of the already-implemented plastic bag ban law, which came into effect on June 1 this year.

Is Red China Becoming Green?

One law eliminating free plastic bags does not a green country make, but I believe that China’s environmental policy is frequently unfairly derided by critics as unenforced. In fact, such a broad generalization is inaccurate: Here in Shanghai, it’s true that not every store has implemented the policy at present, and it seems many of the aforementioned clothing, restaurant and bookstores presumed the law was meant to apply to groceries only, but this loophole has now been closed. In hypermarts, supermarkets, and convenience stores, it is already impossible to get free plastic bags, so I expect the new revision will take effect quickly in restaurants and other venues.

In our new book Supertrends of Future China, we cover the plastic bag ban law as an example of China’s new environmental movement and the central government’s willingness to put its words into action. The G8 really should pay more attention instead of just making more hollow promises.

Related information:

For more details on the plastic-bag ban update, the resourceful China Environmetal Law blog has a post on the matter, describing the hitherto unknown-to-me existence of ‘produce department hooligans.’

Categories: China Supertrends, Drivers of the Drivers, Greening, Pro-business Policy
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Shanghai residents and visitors both may recall some of the lively pedestrian malls in the city, the most famous being Nanjing East Road going all the way to the scenic Bund. Shanghai’s Wujiang Road is also famous in the city for serving such delicacies as Shengjian (friend dumplings, most unhealthy but oh so delicious) and fermented tofu (usually served fried) known locally as ’stinky tofu.’ One half of Wujiang Road has undergone a facelift that is indicative of the changing consumer landscape in China.

Retail in China can be a mixed bag: French-retailer Carrefour may be having problems, but China’s Lianhua is doing well, and foreign firms such as Staples and UPS are expanding, even as Bertlesmann China closes its retail outlets.

There are clearly winners and losers, but retail consumption overall is the most important driver of growth in the Chinese economy. The picture is bright, according to a report by AT Kearney that ranks China as the fourth most attractive retail market (h/t to China Law Blog).

Here is my article from the June 30 edition of the Shanghai Star Business Journal, with some before and after pictures for your enjoyment.

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As world energy prices begin to affect transportation costs, the appreciating yuan results in a decreased demand for Chinese exports, and a tighter monetary policy starts to reign in inflation, the question now is how China will avoid a dramatic economic slowdown. If Shanghai’s Wujiang Road area is any indication, retail may be the answer to China’s excess supply, with China’s newly-affluent middle-class consumers increasingly demanding more.

People who have been living in Shanghai for longer than three years will have distinctive memories of the old Wujiang Road, the bustling restaurant street running parallel to Nanjing West Road near the subway station and intersection of Shimen No. 1 Road.

The area directly behind the station used to have Chinese eateries and snack stands, push-cart vendors and colorful events such as a weekly English corner. Now, in much the same way the Huangpu River separates Puxi from Pudong, old from new, Wujiang Road stands divided: East of Shimen No. 1 Road, the street remains much as it has always been, while the western half has recently taken on a new look: Redesigned by Singapore’s Frasers Property and rebranded as InPoint, part of the Jing’An Four Seasons mixed-use residential and retail development, western Wujiang Road is home to a newly-renovated shopping arcade.

The loss of yet another part of Shanghai’s historic past aside, it is hard to deny the new layout and selection is vastly improved.

Where once were about twenty small restaurants and shops now stands a mall with space for more than ninety. Hole-in-the-wall bubble-tea stands have been replaced by four coffee chains including the ubiquitous Starbucks. What once was a Chinese snack vendor selling meihuagao (a rare and delicious baked rice cake with red bean paste inside and topped with dried fruit) is now an Iceason. If you don’t like their ice cream, you can go to one of three other frozen dessert shops, such as a DQ and Cold Stone Creamery, or try Honeymoon Dessert, one of the many Hong Kong and Taiwanese-style snack shops.

Much like the Wujiang Road of old, there are sit-down restaurants galore, but now with a corporate-branded flavor. And that’s not even mentioning the shops: Retailers Levi’s, Tissot, and ONLY, and other sellers of everything from stuffed animals and puzzles to jewelry and baubles.

All this stands in stark contrast to the eastern side of Wujiang Road, with its low-priced stinky tofu vendors, fried dumpling shops, and outdoor crawfish restaurants.

In fact, the transformation of Wujiang Road is not unique, and is merely symbolic of how retail is quickly maturing in China. Shanghai has dozens of revitalized or new shopping areas taking shape, and it seems there is now an international-style mall on every major street to replace what once was a local- or state-owned retailer.

Nationwide, China is home to four of the world’s fifteen largest shopping malls, but many of them, including the world’s biggest in Dongguan, Guangdong Province, are having trouble filling up the space. This begs the retail supply question: If you build it, will they come?

Retail spending has been growing rapidly in China. In 2008, urban retail spending is up 22.3 percent in May year on year, with an average rate of 21.1 percent this year so far compared to the same period last year, according to China’s National Bureau of Statistics. This growth seems likely to exceed 2007’s 17 percent overall increase in retail spending, but this is partly expected due to the increased inflation rate compared to 2007. However, by taking inflation out of the calculation, real retail spending has still grown 13 percent in the first quarter of 2008, according to the World Bank’s most recent China Quarterly Update.

Another important indicator is that in 2007, China’s consumption growth - the portion of GDP growth that covers all the goods and services consumed by households - exceeded the growth due to trade or investment to become the top driver of China’s economy, albeit by a slim margin.

Of course, retail spending is only a part of total consumption, but it is a growing part in China as disposable incomes go up. In 2007, average urban salaries increased 18.7 percent, according to NBS figures, nearly four times the 4.8 percent pace of inflation in 2007, and minimum wage levels were increased in many of China’s largest cities. This excess income will drive new retail spending.

Short-term economic statistics aside, where will the long-term support for retail growth come from? There are three major population segments that will keep retail spending high in China’s cities: The white-collar youth, newly-urbanized migrant populations, and the nouveau riche who are spending on big ticket items in the automotive, housing, and luxury markets.

One study by MasterCard estimates that China will have more than 117 million young people with a yearly income greater than US$60,000 by 2016. A recent survey by website zhaopin.com of 6000 urban Shanghainese white-collar workers found that 80 percent had credit cards, and more than half of them already considered themselves in hock to their cards as monthly “card slaves.” The spending power of more than one hundred million high-income consumers who are comfortable with credit card debt, many of whom will live at home until marriage, will be of growing significance to retail sales.

Second, the urbanization trend in China shows no sign of slowing down. The McKinsey Global Institute estimates China will almost double its urban population to 926 million by 2025, with 219 cities of more than a million inhabitants. Each of these cities will have their own Wujiang Road-style pedestrian malls to stimulate consumers’ taste buds and empty their wallets.

Finally, China’s most affluent people, those who can afford their own cars and homes, are literally driving new trends to support their high-end consumption habits. Cars and homes create much related-goods spending, allowing auto-accessories stores such as Japan’s Autobacs, and home-furnishers such as Ikea, to prosper.

As well, the World Luxury Association reported that in 2007 China became the world’s second largest market for luxury goods such as watches, bags, and jewelry, and will top world leader Japan by 2015.

One only needs to look in a three block radius of the new Wujiang Road to see a healthy microcosm of China’s retail environment: Eastern Wujiang Road for the traditionally-minded, the new InPoint shopping street for young consumers, and Nanjing West Road’s high-end fashion and luxury retailers for the affluent. Some may miss the old meihuagao vendor, but China’s economy is not looking back.

Categories: China Supertrends, Consuming, Consumption, Primary Growth Drivers
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Who wants to be a multi-trillionaire?

Based on the apparent pace of growth in China’s foreign reserves, the State Administration of Foreign Exchange may need to answer this question in a mere three months. Its answer should be an emphatic “Not China.”

In fact, SAFE’s next quarterly announcement of foreign reserves is not due until July but unconfirmed reports have been flying through state and foreign media (covering an unofficial number in China Business News interestingly) that China’s foreign exchange reserves increased by US$74.5 billion in the month of April alone, to reach US$1.76 trillion.

As a point of comparison, the world’s second largest foreign reserves are held by Japan, and in March 2008 they increased by one tenth of China’s apparent April gains - just US$7.6 billion. Incidentally, it was only in February that Japan’s foreign reserves surpassed one trillion for the first time, and they have since fallen back below the trillion mark, once again leaving China the lone member of the trillionaire’s club.

China first hit the one trillion mark way back in November 2006 but, unlike Japan, its foreign reserve increases are usually measured in double-digit billions. If later confirmed by SAFE, April’s increase of US$74.5 billion will be the biggest ever increase, anywhere.

If this pace continues, China’s foreign reserves could reach two trillion as early as August this year.

This is perhaps not the message China’s government wants to send to the world during the Beijing Olympics (”All your money are belong to us”), so there is intense discussion at the highest levels of China’s government over two issues: How to reduce the foreign exchange reserve, and how to use the existing foreign reserves more efficiently.

Reducing China’s Foreign Exchange Reserves

At one time, having enough money on hand to pay for imports might have been a prime consideration, but this has not been the case in China for years. Its current amount of reserves may cover monthly imports 15 times over, or more. What about another main reason countries keep a large foreign exchange reserve on hand, to defend the currency from speculative attack?

China does not allow convertibility of the yuan, which curtails the possibility of a run on the currency, but as well, China, together with the ASEAN countries plus Korea and Japan (the so-called ASEAN + 3), recently pushed forward the Chiang Mai Initiative, a US$80 billion foreign reserve pool that could be swapped to any member country experiencing speculative pressure. In theory, from 2009 this could reduce the need of Asian countries to hold such large foreign reserves. Until then, Asian central banks may feel better safe than sorry and decide to keep more reserves on hand, but China really doesn’t need to do this in the first place, so it needs to more aggressively reduce the size of its foreign currency holdings.

One way to reduce the size of the foreign reserve is to encourage foreign currency outflow. At present, the yuan’s continued and still expected appreciation has actually increased inflows, both as FDI and as hot money, to record levels.

In the first four months of 2008, FDI was up almost 60 percent over the same period last year, while the total number of company registrations actually decreased by 23 percent, according to the Ministry of Commerce. One likely explanation for this is that foreign firms inflated their average investment size so as to benefit from the future yuan appreciation. In fact, for hedge funds and other investors, this is one of the only methods they have to skirt Beijing’s capital controls, sneaking money in as legitimate-seeming FDI. The exact amount of hot money is unclear but can be inferred from known inflows (e.g. announced FDI), the estimated trade surplus, and other data.

To lessen the inward flow of hot money, China could either reduce interest rates to make passive funds less profitable in China, or could revalue the yuan exchange rate in a one-off revaluation similar to 2005 when the original dollar peg was removed. The former is likely to exacerbate China’s current inflation problem, while the latter would shock the country’s exporters. On balance, allowing the yuan to appreciate faster seems the lesser of two evils for the government.

An appreciation will cause outflows for several reasons. Some of the hot money will repatriate, while the stronger Chinese currency will encourage more consumption and imports from abroad. If the trade balance can reverse the current trend of annual surpluses, foreign reserves will dwindle rapidly.

Using the Foreign Reserves more Effectively

The second issue on China’s leaders’ minds is how to use existing reserves more efficiently. Some may even wonder why large foreign reserves are a problem at all. A rich country is a strong country, as this argument goes.

But the foreign reserves are, in effect, sitting in the central bank earning meager returns and keeping the yuan under-valued. Each unit of foreign currency that enters China is bought up by SAFE and yuan notes are issued by the central bank.

China does not actually hold wads and wads of cash, like a high-roller hitting Macau’s new casinos. Most of its funds, especially those denominated in US dollars, are in the form of US Treasury bills and other long term securities. T-bills have a notoriously low interest rate because they are seen as the safest investment available.

With China holding an estimated US$466 billion in T-bills alone according to the US Treasury, earning interest in the low single digits, this means China is literally leaving billions in potential investment income on the table.

Couple this opportunity cost with the depreciation of the US dollar against major world currencies and China’s US dollar holdings are looking even less attractive. Given a common estimate that China’s total foreign reserves are comprised of about 70 percent dollar-denominated securities and cash, and that the depreciation in the US dollar over the last year has been about 10 percent against the yen and 13.5 against the Euro, that is like saying those Chinese reserves in US dollar terms have lost about US$100- 150 billion in spending power.

Of course, China’s Euro and Yen holdings have increased buying power in terms of US dollars, but they only represent about 20 percent and less than 10 percent respectively of China’s foreign reserves. With such low interest returns and the passive depreciation of its US dollar holdings, China is anxious to look for other ways to spend its growing fortune.

In the last six months, SAFE has made a number of portfolio investments abroad in an attempt to diversify and increase returns, while China created the China Investment Corporation, a US$200 billion sovereign wealth fund, in 2007 to place funds in higher-growth areas. [ED: I covered the uses of China's foreign reserves by both SAFE and CIC in an earlier post, The New Gold Mountain.]

At the time of writing, the yuan appreciation has reached 20% against the dollar since that fateful day in 2005 when the peg was finally removed. It has taken three years to get here, and if it takes three more for the next 20%, I worry about the effect this will have on inflation in China as the foreign reserve will continue to surge.

There’s no easy solution to China’s growing problems of inflation and low rate of return on its reserves, but letting the yuan appreciate more quickly is probably the best place to start, for the sake of the Chinese economy, and maybe even the global economy, as a whole.

[UPDATE: June 25 - Two notes which just came to my attention: In regard to how some foreign media have not covered the April 2008 rise of US$75 billion as alarming or even sufficiently surprising, Yves Smith of Naked Capitalism commented yesterday on the apparent nonchalance, and overnight Brad Setser added some data on changes in China's portfolio investments and overall foreign asset growth. On the point of western media attention: I don't think the lack of in-depth coverage on the ramifications is indicative of disinterest. As I pointed out above, the April foreign reserve figure of US$74.5 billion hasn't been officially confirmed and will not be until July, most likely. I held off reporting on this figure in my newspaper column until June 23 expecting a repudiation by SAFE or the PBOC, but their combined silence on this issue has been deafening.]

Categories: Affluencing, Foreign Direct Investment
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Two months ago I discussed in this post the effects of regulation on the stock markets in China. My theory: After the precedent China’s regulators set in April by offering two investor-friendly policies timed to pump up the markets, China’s investors would now get in the habit of looking to the government for a bailout whenever the markets were in trouble.

At the time, I predicted that the existing market fundamentals affecting China (high inflation, decreasing exports, high oil price etc) would eventually re-register with investors, and we might see another dead cat bounce. Well, the cat is back:

The above chart shows China’s CSI 300 Index, the measure of both the Shanghai and Shenzhen stock exchanges.

Two periods to take note of: First, April 20 to 24, when the two regulatory actions were announced, a clear jump in the markets was evident. Overjoyed would be an apt description of investors when their stamp duty was reduced.

Second, May 12 to 19, the week following the Sichuan earthquake, there was market confusion until May 20. Thereafter indexes began their slide over uncertain earnings growth and worries about the 8.5 percent April inflation figure, announced just before the earthquake, started to sink in.

So, what now?

The China Securities Regulatory Commission faces a dilemma: Does it toss the market a bone, perhaps by offering investors margin trading as some are predicting? Or will it finally let modern investors learn a hard lesson in stock market bubbles? As of June 11, the markets are setting new 2008 lows and volumes are dramatically down as investors start waiting for the bailout.

While I am in favor of China’s use of industrial policy to grow the economy, my admiration doesn’t extend to such shallow tactics as propping up the stock markets. Margin trading, suddenly thurst upon the investing public at such an uncertain ecomomic time, would be an unmitigated disaster in my opinion. China’s development needs to be sustainable, so supporting the pusuit of easy money is not one of the solutions China’s leaders should be considering.

Categories: Affluencing, China Supertrends, Drivers of the Drivers, Pro-business Policy
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Many of our readers are interested in setting up a business in China. Whether that is part of a global firm’s strategy to enter the Chinese market or part of an entrepreneur’s ambitions, China presents great opportunities and great challenges: China has something for everybody, but it is not always an easy place to do business and it is getting harder as a result of China’s harmonization of trade rules and tightening of loopholes. The following article, reprinted from my newspaper column, is for the entrepreneurs out there.

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The Beijing-based China Entrepreneurs professional organization made its debut in Shanghai on May 13, with its first in a series of entrepreneurship-related seminars.

The theme of the event was “The State of Entrepreneurship in China” and was well-attended by both foreign and local entrepreneurs who came to Three on the Bund’s Space by Three meeting facility for networking and a roundtable discussion.

Speaking were China entrepreneur Jack Perkowski, founder of auto-parts supplier ASIMCO and protagonist of the book Mr. China as well as author of his own book, Managing the Dragon [Editor's note: He is also the author of the popular straight-talking blog by the same name]; Taiwanese entrepreneur Raymond Chang, who is bringing a new take to home television shopping in Shandong; and Rocky Lee, an American lawyer with DLA Piper who heads its Asia Venture Capital and Private Equity practice.

While the session was informative, it did not have time to address two issues of the current entrepreneurial environment in China that are on people’s minds: How have recent visa restrictions affected entrepreneurship activities, and have regulatory barriers changed for foreign-run start-ups.

Of the two, the visa situation may be the most worrisome to budding foreign entrepreneurs. As reported in the May 26 Shanghai Star Business Journal article on visa regulations, business visas - long the mainstay of businesspeople traveling to China on business as well as for those with no work sponsorship in China - are now much harder to get due to stricter documentation requirements and come with shorter durations. [Editor's note: Frequent China visa coverage can be found on the excellent China Herald blog, for example here, here, and here]

Foreign Chambers of Commerce and governments have been active in petitioning the Chinese government to clarify the changing visa situation because of its potential to disrupt existing trade, but left out of the debate are the legions of entrepreneurs who come to China on their own to study business opportunities and even launch their own sourcing, Internet, or F&B business. The fact that many entrepreneurs may start without a proper Wholly-owned Foreign Enterprise is the start of the problem.

In practical terms, this means their business has no legal status in China. That usually doesn’t stop a wily entrepreneur, who may have an offshore or Hong Kong-based company to handle the legal transactions. The situation now, however, is that those entrepreneurs may not be able to get business visas to continue working on their company and will face tremendous time and money costs to establish a legal presence. At this stage, many entrepreneurs are in limbo or frantically looking for ways to set up a WOFE quickly to sponsor their own visas. [Editor's note: Another view on this issue, entrepreneur's that used to use L (tourist) visas to do their work in China, can be found in this Forbes article, in which Dan Harris of the China Law Blog also discusses the costs and difficulties of setting up a WOFE and getting a Z-visa with it.]

Nobody said doing business in a foreign country would be easy, but China has had a notable number of loopholes which are now starting to be plugged. Ironically, the post-WTO era in China is becoming stricter as China harmonizes regulations in line with international practices, such as the unified corporate income tax rate starting this year.

After six years of WTO membership, China has implemented almost all of the commitments it made to join the WTO, even finally opening up the banking sector to full competition. So in theory this means, for an entrepreneur, the business opportunities are more numerous that ever before? Wrong. For large companies the playing field is wider, but smaller entrepreneurs need a company too and there is still no suitable vehicle for foreign entrepreneurs.

For example, WOFEs are subject to far greater capital requirements and additional regulations compared to locally-owned firms. For a small restauranteur or Internet entrepreneur, the barriers are still as high as they were several years ago and nowhere near as liberal as, for example, business-friendly Hong Kong.

So, facing these challenges and an extremely competitive high-inflation business environment in China, what should new entrepreneurs do, according to the panel?

Chang said that entrepreneurs needed to get out of the tier one cities, such as Shanghai and Beijing, and focus more on the second, third and even fourth or fifth tier cities: 60 to 70 percent of the sales on his TV home shopping network in Shandong come from the rural areas, he said.

Although more geographically-fragmented, the lower tier cities offer much greater opportunities: China’s National Bureau of Statistics says that the third to fifth tier cities have more than double the population of the first two tiers, approximately 234 million people versus about 118 million as of the last major census in 2005. That leaves the majority of China’s 1.3 billion in the less-developed rural areas.

Incomes in the lower tiers are not necessarily poor, the third to fifth tiers have on average half the salaries of the first and second, and 43 percent of China’s GDP is generated in the third to fifth tiers versus 34 percent in the first and second tiers, so there are plenty of under-served newly-affluent customers.

Lee cautioned not to underestimate local firms, saying management teams here are “extremely competitive” and foreigners must be willing to take local salaries to keep their costs in line.

It is clear from the observations of the panel that foreign entrepreneurs have few advantages that cannot be copied, and with the added pressures of visa and an environment not very friendly to small foreign entrepreneurs, it is a long road to success.

Perkowski, long-time China businessperson and former Wall Street banker, repeated the advice he said he was given numerous times on first coming here, and this is still a takeaway for entrepreneurs today, “China is a marathon, not a sprint…Be persistent.”

Categories: China Supertrends
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In a recent post on China’s Human Flesh Search engine, I discussed how the behavior of Netizens in China can be harnessed for good and ill to solve social problems. Occasionally, the online forums in China become vitriolic (much as they do anywhere) for reasons related to China’s strong sense of cohesiveness (which we describe in Supertrends of Future China as a key driver of China’s major trends).

The following article, reprinted (and updated) from my newspaper column on May 23, details how some Netizens have a new target for their anger: Governments, people, and companies that do not donate enough for earthquake relief. While the outpouring of praise for donating companies is generally strong, the praise is reserved mostly for Chinese companies, while the anger is often directed at foreign-related entities.  While there are exceptions when it comes to foreign individuals, the reaction to foreign companies’ donations is often negative even in the face of a large contributions.

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In the aftermath of the Sichuan earthquake, the generosity and compassion of corporations has been put on display by using donation lists in building lobbies, office memos, online bulletin boards, and newspaper articles.

While corporate donors in many foreign countries, if they are listed at all, might be shown alphabetically, here the common practice is to rank organizations together with the amount of money they give and circulate the rankings for all to see.

As a form of peer pressure, this method seems very effective in China in encouraging contributions. But at the same time, lists of foreign corporate donations have caused controversy on China’s online forums.

In the days following the disaster, the netizen community quickly shifted to discussions about the donations of foreign countries and multinationals because the pre-earthquake controversies such as the Olympic torch relay and Carrefour were still unresolved. A new theme has been that there were insufficient earthquake relief donations by multinationals.

In a comment echoed on numerous online forums, netizen “Botage” wrote on Sina.com’s community page on May 15, “Why do foreign companies give so little? Take McDonald’s, KFC, Nokia… they give even less than Chinese companies, it is terrible.”

Another netizen on Sohu.com, “Zongq,” writes, “China has given these foreign companies and brands such a huge market and profits, but when something like the earthquake happens in China, we actually don’t see even humanitarian aid (from them).”

This has had some unfortunate implications for the multinational companies doing business in China, with some Chinese Netizens calling into question their commitment to Corporate Social Responsibility while Chinese companies are lauded for their generosity.

The wave of criticism about donations started against the US government, for donating only US$500,000 to the Chinese Red Cross when it had offered millions more in aid to Myanmar. (Editor’s note: The US also donated 10 million to the International Red Cross to be earmarked for China. In fact, aid to Myanmar was pledged but either not accepted or not delivered because of prevailing political conditions, whereas aid flowed to China much more easily: More here.)

And when it comes to foreign money, even China’s own are not exempt from online criticism: Basketball superstar Yao Ming was pilloried in the media and online forums for “only” offering half a million yuan until he quadrupled his donation. From there, debate extended to how much Chinese firms were giving and how little foreign firms seemed to be giving. Is this criticism justified based on the facts?

Chinese companies have undoubtedly shown their support for the unfortunate in Sichuan. Seventy-five Chinese-listed companies have contributed more than 563 million yuan, nearly US$81 million, as of May 19, as reported by financial news portal Hexun.net (partial English translation here). There is no precedent to compare the actions of the national firms as a group, but donations by 75 large foreign firms, based on a similar ranking list published on the Chinese Website manage.org.cn, have reached about half the national firm’s figure, 350 million yuan as of May 20. Both groups likely have much more to give as time goes on.

One firm in particular, the State Grid Corporation of China, already contributed 76 million yuan in cash, almost US$11 million, and almost twice that in non-cash aid, to be recognized as China’s largest donor.

This firm also topped the Hurun Report’s 2008 Corporate Social Responsibility Ranking (English version, 2007 only, here) and is a paragon of how Chinese would like national corporate citizens to act. Another large donor is China Mobile which, in addition to a large cash donation of 86 million yuan, has also committed to donating possibly billions of yuan to mobile phone subscribers in the afflicted regions by automatically increasing every phone’s account by 100 yuan if it falls below a 50 yuan threshold. Large Chinese banks and insurance companies have also contributed significantly, such as the Bank of China’s 64 million yuan cash donation. Larger Chinese firms are typically donating at the 10 to 20 million yuan levels. Many foreign firms, contrary to netizen opinion, are well within this range.

For example, KFC has donated 15.8 million yuan, while Nokia donated 10 million yuan plus thousands of free mobile phones. The largest foreign donations to date, 30 million yuan each, come from Samsung and Nike, but GE, Chevron, GSK, Toyota and others all have made donations at the 10 million yuan level or above. These are no small amounts by any standard.

It may therefore be said that foreign company donations in total are not as large as those of Chinese national firms, but should they be?

In the Hurricane Katrina disaster in the US in 2005, US corporations donated more than US$547 million, according to USAToday, while foreign firms contributed very little, most of the donations coming to the State Department via the donor countries directly.

Meanwhile, the small donation by the US government aside, US firms’ donations in China as of May 20 have totaled more than US$25 million, a significant amount by just one country’s corporations.

The time and distance factors should also be considered in evaluating foreign firms’ responses to the earthquake. It takes more time to communicate with head offices abroad, plan an appropriate assistance package, and select the best channels to deliver relief.

Many foreign firms likely elected to wait until the initial confusion after May 12 had settled down: Cisco Systems, initially making a donation of US$250,000, generously increased its commitment to more than US$ 1 million several days later, once the scope of the tragedy became known.

In the rush to be the first and highest on the lists, is it possible some people are losing sight of the real purpose of giving in times of need?

Foreign firms are certainly aware of the benefits of being in the Chinese market and take seriously their responsibilities as good corporate citizens, but they must be allowed the time to make a measured response and not be held to the same standards as companies in the country suffering from the disaster. And the most important point of all: no matter the source of the aid, it is for a common good and I think that nobody can disagree on that.

——

Notes:

1 US$ = 7 RMB

The best resource I found for a total list of donations that is semi-regularly updated can be found here.

Categories: Chinese Determination, Inter-Networking
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