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By Grace Ng | The Straits Times | ASIA News Network
November 11, 2011
China is wedged in a tight spot.
The West wants Beijing to support new and tougher sanctions to stop Iran from pursuing its nuclear programme.
Even the United States, which used to refrain from putting too much pressure on China, has begun leaning on the Chinese to sever ties with the Iranians.
But Beijing needs Teheran, its third- largest crude oil supplier, to feed its voracious appetite for energy, and does not want to jeopardise this relationship.
The Chinese dilemma came in the wake of a report on Tuesday by the International Atomic Energy Agency (IAEA) that said it has credible evidence of Iran's work on an atomic bomb design.
This prompted the US to call for stricter sanctions.
Israel went a step further, supporting a pre-emptive military strike on Iran.
International pressure is growing for China, which has significant leverage as Iran's largest economic partner, to play a bigger role in resolving the issue.
For its part, China says it opposes nuclear proliferation in any Middle Eastern country.
Yet it does not favour tougher sanctions, which it says will not eradicate the problem, and will most likely oppose any military action, say analysts.
In short, China is stuck.
"Chinese diplomats are forced to weigh their every word again. The dilemma, which sees China finding it hard to follow or oppose the international community, has become common since the Cold War," state-linked newspaper Global Times said yesterday in an editorial headlined "China's dilemma over Iran goes deeper".
For now, China is calling for more diplomatic talks, rather than action, to defuse the situation.
"Sanctions will not fundamentally resolve the issue," Chinese Foreign Ministry spokesman Hong Lei told a daily news briefing yesterday.
"Dialogue and cooperation are the best way," he said, adding that the United Nations nuclear watchdog should strengthen its communications with Iran to clarify its nuclear activities.
The status quo has actually worked in Beijing's favour. It has benefited from the past four rounds of sanctions against Iran - which China did not veto in the UN - because Teheran is relying even more on business deals with Asian powerhouse.
"Iran has grown closer to China in recent years because relations with the United States and other Western powers have grown so cold," said Professor Zhang Jiadong of Fudan University.
While Beijing has said that it abides by UN resolutions by slowing down business with Iran, its investments there nevertheless hit US$510 million last year.
This may treble to US$1.5 billion next year, Sino-Iranian Chamber of Commerce chairman Asadollah Asgarowladi told a Beijing seminar yesterday.
What Beijing does not want is military action or sanctions so heavy that it would choke the already weak Iranian economy and endanger China's US$40 billion worth of trade with Iran.
Peking University Arabic studies professor Wu Bingbing noted that a key concern for China is American motives for taking more punitive action against Iran.
"Are these measures aimed at resolving the issue or forcing Iran's collapse? We have already seen from previous wars in Afghanistan and Iraq that war has not solved any issues," he said.
But if nothing is done and Iran is indeed developing a nuclear weapon and plans to use it, this could pose a huge threat to global security, and China will not stand to gain either.
After all, a rising power such as China needs, even craves, global stability to support its growth.
"China needs solid evidence that Iran is developing a nuclear weapon before it can act," said Professor Shi Yinhong from Renmin University. "Currently, the IAEA appears to have scattered but inconclusive pieces of evidence."
Until real proof - or a bigger bloc of countries supporting action against Iran - emerges, China can still chew on its dilemma.
Right now, China is not facing great pressure to take a position on how to deal with Iran, as the international community is still divided, said Prof Zhang.
"Russia is opposed to heavier sanctions; Germany and India have been silent. Most countries, including China, are adopting a wait-and-see attitude."
By Kathrin Hille | Financial Times
24 October 2011
The world's leading software industry body warned on Monday of a jump in revenues lost to software piracy in China as the country's government is failing to rein in rampant copyright infringement.
Robert Holleyman, president and chief executive of the Business Software Alliance, said pledges by the Chinese government to help foreign companies gain more revenues from software sales in China and high-profile anti-piracy campaigns had failed to deliver.
"All that activity led us to believe that we'd see some fairly rapid reduction of software piracy in China," Mr Holleyman said. "But none of what I've picked up with our companies indicates that they're seeing the kind of economic growth associated with the sales of software."
The remarks indicate that software market opportunities for companies such as Microsoft are unlikely to keep up with the pace of China's PC market growth, and that intellectual property rights infringement will remain an irritant in relations with the US and China's other leading trading partners.
In late 2010, the Chinese government, responding to growing criticism of its intellectual property rights protection record, promised in talks with the US that it would help increase foreign companies' software sales in the country.
Since last year, Beijing has also been running a high-profile crackdown on the production and sales of pirated goods. The duration and scale of the campaign initially gave rise to cautious optimism among foreign industry executives that real change could be on the cards.
The US government even expressed cautious optimism in its annual report on intellectual property rights protection, saying Beijing's special campaign against piracy might lead to "lasting improvements".
But Mr Holleyman said: "While [piracy as a] percentage of total software sales is coming down somewhat, the US$ losses are exploding." He added that he expected multinational software companies to launch more legal action against Chinese counterfeiters as a result.
In China, 78 per cent of all software sold in 2010 was pirated, according to BSA's 2011 Global Piracy Report, compared with a global average piracy rate of 42 per cent. While this is not among the world's highest piracy rates, China created the second-highest economic damage through piracy as the industry lost $7.8bn in revenues to pirates last year. In the US, the damage was $9.5bn.
But China is expected to overtake the US in that ranking soon as it is set to surpass the US as the world's largest PC market by unit shipments next year.
By Keith B. Richburg | The Washington Post
18 August 2011
China's new rich love luxury products -- imported French handbags, Italian sports cars -- and even more, they love to show off their bling.
That seems to be creating headaches for China's Communist rulers, who after three decades of exhorting their subjects to get rich are facing growing discontent over a widening income gap. Officials now talk about making sure wealth is more evenly distributed, and how to get the rich to tone it down.
As the global economy melts down, and China tries to accelerate its shift to a more consumer-led growth model, Beijing's leaders see luxury items as a lucrative revenue source. Many Chinese now buy luxury products in Hong Kong or abroad to avoid China's high taxes, so officials are debating a move to slash tariffs to encourage consumers to shop at home.
But government is loath to be seen as taking any new measures to support the sliver of the population that can afford that pricey new Hermes bag or latest Ferrari, and has delayed any decision on cutting tariffs, according to Chinese media reports and industry analysts.
"The government is facing a conflict," said Michael Ouyang, representative of the World Luxury Association in China. "They don't want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don't want to limit luxury products because it's good for the economy. So they're facing a dilemma."
It doesn't help the government's case when the rich keep showing off their bling.
Exhibit A might be a 20-year-old woman calling herself "Guo Meimei Baby."
Guo -- whose name "Meimei" means "Pretty, pretty" -- became a recent Internet sensation in China, and prompted a national scandal, when she posted photos of herself on her microblog posing with her collection of imported Hermes handbags and showing off her white Maserati sports car, called "little horse," and her (married) boyfriend's orange Lamborghini, called "little bull."
The initial outrage was over suspicion that she was linked to China's largest, government-run charity. But many here said the "Guo Meimei scandal," as the story became known, exposed a common, and unflattering, aspect of China's headlong rush to get rich: a tendency of China's new super-rich to show off how much money they have.
"People like showing off their wealth," said Yang Xu, who runs a shop called Vogue 2 that specializes in second-hand designer handbags. "The consumption of luxury products has grown too fast. It's beyond anybody's imagination."
In his shop, for example, Hermes bags have become more popular than the Louis Vuitton brands, for a simple reason: They are more expensive.
China's rise in the world market
At a time when Europe and the United States are still struggling with stagnant economies, China has emerged as the premier long-term market for luxury products. Chinese bought $12 billion in luxury goods last year, according to the Ministry of Commerce and industry statistics. China will account for 20 percent of all worldwide luxury sales by 2015, according to McKinsey and Company management consulting firm.
Bentley has sold more cars in China this year than in the United Kingdom, with China now accounting for 25 percent of its sales. Mercedes-Benz in July opened a new design studio in Beijing.
According to the World Luxury Association, the market for luxury products in China grew 20 percent last year and shows no sign of slowing. "In China, purchasing power just keeps getting stronger," Ouyang said. "We are the only country where luxury product consumption is growing year by year."
Experts say the phenomenon of showing off wealth is a complex one, rooted in China's long struggles with poverty and famine, and a sense that expensive possessions confer a higher social status.
"Showing off wealth shows that China's economic development has not been long, and Chinese society's psychology of consumption is still not mature," said Hu Xingdou, an economics professor at the Beijing Institute of Technology. "In China, wealth is the only criteria to measure social status. People hope to show they have a higher social status by wearing luxurious brands."
Many of those who show off tend to be the newly rich, and they are often young -- the children of wealthy parents, the so-called "rich second generation," or young women with wealthy boyfriends or suitors. "They want other people to look up to them," Ouyang said of the Guo Meimei phenomenon. "They want people to know that other people love them and take care of them."
"The deeper reason for this showing-off phenomenon in China is that luxury products help your personal confidence," Ouyang said. "If you wear designer clothes, or carry a designer shopping bag, people will give you more respect. A bartender will give you excellent service. ... If you go shopping or to have lunch, an Hermes bag is like your ID card -- it's a really important ID card."
Wealth and vanity, taken too far
On popular microblogging sites, many in China are openly questioning whether the country's new creed of amassing wealth has gone too far.
For example, a professor at the prestigious Peking University was widely criticized recently after he used his personal microblog to tell his former students not to come visit him if they had failed to make at least $6 million by the time they turned 40.
Also, a millionaire in Shanxi province caused a stir, and became the subject of a video that went viral, after a guard at a Qing Dynasty tomb site told him that the underground tombs were closed to the public. The millionaire began throwing cash at the guard's feet, demanding to go inside and claiming he had enough money to buy the ancient tombs.
But not all luxury consumers here are into showing it off. Zhang Yan, a 30-year-old shop assistant at a shopping mall, has several designer bags and is a particular fan of Louis Vuitton. But when she goes to work, she carries a simple Coach bag, mainly because it is more low-key.
"Some of my workmates can't afford it," Zhang said, "So I don't want to show my Louis Vuitton or something to them."
Even Guo seems to have conceded she perhaps went too far.
In heer first television interview since she caused a stir, Guo, seated with her mother, told a Chinese television host that when she came to Beijing to study acting at the film academy, she became afflicted by "vanity."
A nervous-looking Guo also admitted that only two of her Hermes handbags were real.
Researcher Liu Liu in Beijing contributed to this report.
By Katie Hunt | BBC World News
20 July 2011
In some respects, Hong Kong has never had it so good.
The economy in this former British territory is booming, reaping the rewards of China's rise.
Employment is at an all-time high and the government is so flush with cash, it is literally giving it away - each permanent resident is due to receive 6,000 Hong Kong dollars ($770; £480) later this year.
But try telling Tam Kin Wai, a retired hospital porter, that times are good.
He lives in a "cubicle home" that is barely 2m (6ft) wide with his wife and 13-year old son in Sham Shui Po. They must share a toilet and kitchen with eight other families. "Living costs are always going up," he says.
Bypassed by the boom
Mr Tam is one of about 100,000 people who live in inadequate housing - sometimes these homes are barely bigger than a coffin - according to the Society for Community Organisation (Soco), a non-governmental organisation that works on behalf of Hong Kong's poorest.
"Hong Kong is a rich city," says Soco social worker Chan Siu Ming.
"But so many people live in such a poor situation. I know many people who can't stand upright in their own home."
And it's not just those at the bottom of the economic heap who feel that the city's boom is passing them by.
Hong Kong enjoys many civil liberties unavailable across the border in China, such as the right to protest. But residents cannot vote directly for their leader or for many legislative seats.
According to a University of Hong Kong opinion survey released last week, dissatisfaction with the government over livelihood conditions has reached the highest level since 1992.
These sentiments were made clear at on 1 July, the 14th anniversary of Hong Kong's return to China and an annual occasion for demonstrations.
Turnout, although disputed, was generally agreed to be the highest since July 2004 when half a million people marched to have an unpopular anti-subversion law overturned and the economy was at a low ebb following the outbreak of severe acute respiratory syndrome (Sars).
"What you have is a whole wodge of people who have jobs but are still struggling, " says Christine Loh, the head of the Civil Exchange think tank and a former legislator.
The sources of discontent are wide-ranging but centre on economic issues such as soaring housing prices, inflation and the wealth gap.
Inflation figures due to be released on Thursday are expected to show the city's inflation rate stood at 5.2% in June, its highest in almost three years, driven by rising rents and soaring food prices.
Hong Kong imports 90% of its food and much comes from China where pork prices are at a record high.
Home prices rose last 24% last year and are up 12% so far this year as newly affluent mainland Chinese snap up apartments here.
According to a report by Demographia International, Hong Kong property, at 11.4 times gross median annual household income, is the most unaffordable in the world.
Nearly half the population lives in government or subsidised housing and buying their own home is out of reach for many residents.
Tycoon targeted
And discontent over unaffordable housing is fuelled by the belief that government policy favours powerful property developers over ordinary people.
Even billionaire tycoon Li Ka-shing, once feted by residents for his rags-to-riches life story, has become a target of protests.
Earlier this year a group of young people camped outside the offices of his offices and protesters at the 1 July march carried placards that depicted Mr Li as a devil.
They resent the hold Mr Li's business empire has over the Hong Kong economy where it's often said that anyone living here cannot go though a day without spending money at one of his businesses.
His conglomerates have a dominant hand in key sectors including property development, retail, electricity generation and container ports.
"We remember the days when we called Li Ka-shing superman," says Ms Loh.
"There has been a fall from grace."
Measures
The government has acknowledged that the rising income gap is a problem and is taking some steps to address it, although progress is slow.
In May, it introduced a minimum wage after more than a decade of debate.
And a decision on whether to build more public housing for sale to lower income residents is expected in the autumn.
The cash handout also came in response to public pressure to provide more relief for the less well-off but has been widely criticised.
Pro-business groups are aghast at the idea of unconditional handouts, while Ms Loh at Civic Exchange says it's a short-term salve that does not address underlying problems such as health care and the pension system.
Others just think the money could be better spent on other issues facing Hong Kong, such as worsening air pollution or public housing.
For Mr Tam, perched on the bunk in his tiny cubicle, things are about to look up.
After a four-year wait, the family has been allocated a public housing flat eight times bigger than the their current living space.
But he is one of the lucky ones. There are 150,000 families on the waiting list.
By Brendan I. Koerner | WIRED Magazine
March 2011
In early 2010, somewhere high above the northern hemisphere, Mark Krywko decided he'd had enough. The CEO of Sleek Audio, a purveyor of high-end earphones, Krywko was flying home to Florida after yet another frustrating visit to Dongguan, China, where a contract factory assembled the majority of his company's products. He and his son, Jason, Sleek Audio's cofounder, made the long trip every few months to troubleshoot quality flaws. Every time the Krywkos visited Dongguan, their Chinese partners assured them everything was under control. Those promises almost always proved empty.
As he whiled away the airborne hours, Krywko made a mental list of all the manufacturing glitches that had nearly wrecked his company. There was the entire shipment of 10,000 earphones that Sleek Audio had to discard because they were improperly welded, a mistake that cost the company millions. Then there were the delivery delays caused by the factory's lackadaisical approach to deadlines, which forced the Krywkos to spend a fortune air-freighting products to the US. Even when orders were produced on schedule, Krywko wasn't too pleased with the situation: The company always had precious cash tied up in inventory that took months to arrive after the prototypes had been approved.
The headaches had finally become too exasperating to bear. And so, on that flight, he turned to Jason and said that he was done with Dongguan. "I can't do it anymore," he said. "Let's bring it home."
Jason had been thinking the same thing.
When the Krywkos returned to the US, they searched for a manufacturing partner with the tools and expertise to produce their earphones. They found one just a few miles away from their Palmetto, Florida, headquarters: Dynamic Innovations, a maker of ruggedized computers and other equipment. Sleek Audio quickly signed up.
Today, a year since Krywko's decision to go against the offshoring tide, Sleek Audio has a full-scale manufacturing operation that can be reached via a 15-minute car ride rather than a 24-hour flight. Each earphone costs roughly 50 percent more to produce in Florida than in China. But Krywko is more than happy to pay the premium to know that botched orders and shipping delays won't ruin his company. And so far, the gambit appears to be paying off: Based on enthusiastic customer response, Sleek Audio is now projecting 2011 to be its most profitable year ever.
For US firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and US manufacturing is no longer as expensive. As the labor equation has balanced out, companies--particularly the small to medium-size businesses that make up the innovative guts of America's technology industry--are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet.
"Companies are looking to base their decisions on more than just costs," says Simon Ellis, head of supply-chain strategies practice at IDC Manufacturing Insights, a market research firm. "They're looking to shorten lead times, to reduce the inventory they have to carry." When accounting giant KPMG International recently asked 196 senior executives to list their top concerns for 2011 and 2012, labor costs ranked below product quality and fluctuations in shipping rates and currency values. And 19 percent of the companies that responded to an October survey by MFG.com, an online sourcing marketplace, said they had recently brought all or part of their manufacturing back to North America from overseas, up from 12 percent in the first quarter of 2010. This is one reason US factories managed to add 136,000 jobs last year--the first increase in manufacturing employment since 1997.
The US certainly isn't on the verge of recapturing its past industrial glory, nor can every business benefit by fleeing China. But those that actually build tangible goods should no longer assume that "Made in the USA" is an unaffordable luxury. Unless a company is hell-bent on selling the cheapest goods possible, manufacturing at home makes more sense than it has in a generation.
China's big manufacturing advantage has been cheap labor, but wages--while still low compared with those in the US--have risen sharply in recent years.
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