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No Customers, Closed Stores: Chinese Entrepreneurs Brace For The Worst Amid Coronavirus Outbreak

Zhou Yuxiang was not in the mood for festivities during China’s Lunar New Year holiday this year. The 30-year-old CEO of Shanghai-based software startup Black Lake Technologies had to figure out how to manage his company amid the country’s deadly coronavirus outbreak. Working from home to comply with local quarantine rules has lowered productivity, while expenses remained high as he still needs to pay rent even when no one is using the office.

What’s more, Zhou says, clients are slower to take on new contracts as factories remain shut and production is delayed, hurting his otherwise fast growth.

“This epidemic caused production suspension for a considerable number of factory clients,” he says, who counts 300 factory owners as customers of his cloud-based management software. “Unpredictability on when factories could resume production has increased uncertainty for our first quarter growth.”

As the deadly virus, temporarily called 2019-nCoV, shows no sign of slowing, China’s vast business scene is taking a hit. While some companies, including Zhou’s, hope to recoup any losses before the year’s end, others are suffering a much more devastating blow.

This is because the epidemic’s economic damage is far and wide. It is believed to be more contagious than the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic, causing the Chinese government to impose nationwide mall closures, movie cancellations and factory shutdowns to prevent the disease’s further spread. As manufacturing and business activities cease, first quarter GDP growth will plummet to 3.8%—which equals to $62 billion in lost growth—and drag full-year GDP growth below 6% to 5.4%, according to UBS economist Wang Tao.

Sectors that are hardest hit include catering, entertainment, hospitality, retail and transportation. These businesses tend to have heavy inventory or a lot of expenses, but they can’t generate any meaningful revenue when people stay indoors.

Jia Guolong, founder of popular restaurant chain Xi Bei, told local media this week that his company only had enough cash for the next three months. He still needs to pay rent and salary to more than 20,000 employees, even when his restaurants are largely empty. To preserve cash, Hong Kong’s flag carrier, Cathay Pacific has asked its 27,000 employees to take three weeks of unpaid leave, warning that the condition is as grave as the 2009 global financial crisis. And fast-food operator Yum China is expecting negative impact on 2020 full-year sales and profit, after temporarily shutting down 30% of its stores in China.

While these larger businesses may eventually have the resources to weather through, smaller startups could experience a life-and-death moment. Zhang Yi, founder of Guangzhou-based consultancy iiMedia Research, says he won’t be surprised if a wave of bankruptcies occur. And Wang Ran, founder of Beijing-based investment firm CEC Capital, urged startups to do whatever they can to survive.

“Downsize if you need to, relocate if you need to and lay off people if you need to,” Wang wrote in a recent blog post. “Only those who lived through this can see spring, and have a future.”

Beijing has put out rescue measures. The country’s central bank, the People’s Bank of China, announced on February 2 that it would pump $174 billion worth of liquidity into the markets to help cushion the impact. Local governments have called for rent deductions and more flexible salary arrangements, with the Shanghai municipal government promising tax and insurance refunds to employers who don’t engage in layoffs.

But analysts say business survival may ultimately depend on whether the virus can be contained. Since originating in the central Chinese city of Wuhan in December, it has spread across the country, infecting more than 28,000 people and killing over 500. There are now coronavirus cases around the world, including Japan, Thailand, Germany, the United States and the United Arab Emirates. The World Health Organization declared the outbreak a global health emergency and dozens of nations, including Italy, Singapore and the U.S., have placed travel restrictions from China.

“The longer this drags on, the bigger the damage,” iiMedia Research’s Zhang says. “If it lasts for another month, then it would be unbearable for any business.”

Startups are doing what they can to minimize damage. Black Lake’s Zhou is offering discounted services, especially to clients who are based in the most affected areas. Zhou Wenyu (not related to Zhou Yuxiang), founder of Shaoxing-based software startup Youshupai, is slowing down marketing activities and transferring its first quarter sales goal to the second quarter. And Joanne Tang, founder of travel and marketing agency Infinite Luxury, says she is diversifying to other Asian markets while reminding overseas-based clients not to reduce efforts in China.

“For sure, we are in a challenging time,” Tang says. “We have to monitor how it goes, but we won’t be standing still and just wait until this is over.”

I am a Beijing-based writer covering China’s technology sector. I contribute to Forbes, and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I spent six months as an intern at TIME magazine’s Hong Kong office. I am a graduate of the Medill School of Journalism, Northwestern University. Email: ywywyuewang@gmail.com Twitter: @yueyueyuewang

Source: No Customers, Closed Stores: Chinese Entrepreneurs Brace For The Worst Amid Coronavirus Outbreak

CNBC’s Eunice Yoon reports on how the coronavirus outbreak is expected to take a serious toll on China’s economy. Expect supply disruptions as China takes measures to contain an ongoing coronavirus outbreak, says REYL Singapore’s Daryl Liew. “The sharp action taken by the Chinese government to basically delay workers going back to work is definitely going to cause some supply disruptions,” Liew, who is chief investment officer at REYL Singapore, told CNBC’s “Street Signs” on Thursday. With the virus infecting at least 7,700 and killing 170 in China, authorities have taken measures to curb the disease’s spread. At least three provinces have declared that businesses, other than some essential industries, are barred from resuming work before Feb. 10. In Hubei province, where the majority of cases have been found, resumption of local business has been delayed till at least Feb. 14. A “big question mark” remains over how long the disruptions could last, Liew said, as it depends on whether the situation can be contained. That comes as manufacturing numbers were showing “some normalization,” he added. “It’s a bit of a lagging indicator but the December ISM numbers have all been broadly positive, especially for Asian economies … which suggest essentially that global trade is normalizing. It’s not bouncing back significantly but it is rebounding,” Liew said, adding that that has translated to better manufacturing numbers. “The current virus … and the extended shutdown in China will definitely put a crimp to that,” Liew said. Potential impact on US businesses The outbreak has sent tremors across markets in Asia and beyond in recent days, as investor concerns about the potential economic impact grow. “We’re concerned that there could start to be … some overall impact on the Chinese economy which could lend itself, from a sentiment perspective, to greater concerns … for the global economy,” Shannon Saccocia, chief investment officer at Boston Private, told CNBC on Thursday. That could spillover into the performance of U.S. businesses at a time when the “strain of lower production” is being felt stateside, Saccocia said. “If we start to see that upended by the fact that factories aren’t opening and … we’re not able to get the components that we need from the Chinese economy, you know, that could … certainly slow any sort of manufacturing reacceleration that we were hoping for in the first two quarters of 2020,” she said. The Chinese city of Wuhan, the capital of Hubei province, is the epicenter of the outbreak, and authorities have placed multiple cities in the province under partial or complete lockdown. Wuhan and the surrounding region of Hefei and Jiangsu are major manufacturing hubs that work with American firms. But they have also been shut down due to the virus outbreak. “As an investor, you need to understand … where the supply chain starts and ends and factor in to your expectations … for those companies,” Saccocia said, though she acknowledged that it’s “a little early” to “paint the picture that half of the year is going to be meaningfully lower from a growth standpoint due to this virus.” For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://www.cnbc.com/pro/?__source=yo… » Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC » Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide. Connect with CNBC News Online Get the latest news: http://www.cnbc.com/ Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC #CNBC #CNBC TV

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China’s Richest 2019: King Of Beverages Zong Qinghou Aims To Revitalize Wahaha

When Zong Qinghou travels abroad, he likes to visit local supermarkets. The 74-year-old founder of China’s largest privately held beverage company Hangzhou Wahaha Group isn’t shopping for himself, but doing a little firsthand market research. For example, when Zong visited Singapore in October, he bought boxes of fruit-flavored beer. Staff back in China then study these samples to see if they could be imported into China, or adapted to local tastes.

“Every new product can be used as a reference,” says Zong in an exclusive interview with Forbes Asia on the sidelines of the Forbes Global CEO conference last month in Singapore. Zong, who is chairman of Wahaha, is now under pressure to come up with fresh product ideas to rekindle consumer interest in his company, that he’s spent more than three decades running.

Today In: Asia

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The tycoon, who was China’s richest man in 2010, 2012 and 2013, saw Wahaha’s sales slide from 78 billion yuan ($11 billion) in 2013 to 46 billion yuan in 2017 before rebounding slightly to 47 billion yuan last year. His ownership of the company still gives him a fortune of $8.2 billion, but he is no longer No. 1, ranking instead as China’s 31st richest person.

One of the main reasons for the decline, say analysts, is that Wahaha hasn’t kept pace with changing consumer tastes in China. Unlike their parents’ generation who grew up drinking Wahaha’s cheap but tasty products such as bottled water and milk drinks costing less than 2 yuan, shoppers today want to spend more for something innovative and new. “Wahaha is still very price-focused, and hasn’t captured the trading-up trend as well as it could have,” says Mark Tanner, founder of Shanghai-based consultancy China Skinny.

A Chinese worker checks bottles of Wahaha purified water on the assembly line at a factory in... [+] Yichang city, central China's Hubei province.

Aly Song/Reuters/Newscom

Zong is unfazed. He vows to lift sales by at least 50% next year, to 70 billion yuan. While he concedes that Wahaha’s products was once perceived as cheap and old-fashioned, he says he’s working to modernize his products. The company, whose name is meant to mimic the sound of a child’s laugh, has recently started a major upgrade. Packaging has gotten a makeover to use brighter and more stylish colors, while ingredients like nuts and quinoa have been added to new yogurt lines to appeal to healthier lifestyles. Wahaha has also expanded into nutritional tablets and meal replacement biscuits, which Zong says are in line with dieting trends. He also plans to increase the current number of 6,000 distributors to 10,000 by year end, to ensure better distribution to every corner of China.

Yet perhaps the most notable change is Zong’s willingness to experiment with social media and e-commerce. In 2014, he famously pronounced at a conference that e-commerce was disrupting China’s “real economy.” The company as a result did not have much of an online presence, even as e-commerce exploded across China. “I don’t think traditional sales channels will change much,” Zong says. “People need to enjoy life, and to enjoy life, they need to go outside instead of staying at home hooked on their smartphones.”

Zong, in fact, still expects most sales to take place in traditional brick-and-mortar stores. That said, Wahaha has started to experiment with digital marketing for its products. A series of videos on the popular app TikTok app shows users posting 15-second clips of themselves pronouncing Wahaha in various humorous ways. The clips have been viewed almost one million times.

Some analysts hope Wahaha can do more of such efforts. Jason Yu, a Shanghai-based general manager at research firm Kantar Worldpanel says, “It is very hard to get consumer attention today, and if you want to do that, you have to engage and interact with them nonstop.”

For example, Wahaha’s competitor in bottled water, Nongfu Spring, has gained market share in part because of innovative advertising. One was a campaign where each bottle of Nongfu Spring water gave the buyer the right to cast one vote online for their favorite candidate in a popular TV talent competition show. Nongfu Spring was number one in China’s bottled water market in 2018, with an 11% share versus Wahaha’s 4% share, according to Euromonitor.

Zong’s ambitions, however, reach beyond China. He wants to start producing and selling Wahaha-branded yogurt and milk beverages overseas, after noticing that some Wahaha products are being exported by third-party traders. In the last few years, Zong has visited Southeast Asia, and identified Indonesia and Vietnam as two locations for factories to produce for local markets. Zong says, however, he wants to find the right local partner first before he moves forward with any overseas expansion.

China, he says, will always be Wahaha’s biggest market. Consumption will continue to grow, he says, as the middle class expands and spends on everything from education to travel. “If we can firmly establish ourselves in this market of 1.4 billion people, we can grow very big,” he says.

Don’t discount Zong. He has overcome many challenges in his long career. The entrepreneur didn’t venture into business until 1987, when he was already in his 40s. He started by selling snacks out of a canteen inside a local school in his native Hangzhou, then start producing and distributing milk. In 1988, Zong launched a nutritional drink for children, which became a national hit. Three years later, he acquired a state-owned factory, with sales reaching 400 million yuan the following year.

One of his biggest challenges was a tumultuous partnership started in 1996 with France’s food and beverage giant Danone. After initial success, the two had a falling out, and Zong eventually agreed in 2009 to buy out Danone’s 51% stake in their various ventures for an undisclosed price, although one media outlet put it at roughly $380 million. “Only cooperation based on mutual benefits and mutual respect can last,” he says of the former partnership.

Then in September 2013, he faced another challenge when he was attacked by a knife-wielding man, disgruntled after Zong turned him down for a job. The attacker managed to cut the tendons and muscle on two of Zong’s fingers, but he was back at work just a few days later.

Another big challenge is succession. Zong’s management style is famously budget-conscious and detail-oriented. He often eats at the company canteen with staff, and is known to fly economy class. He personally approves the purchase of all new company cars.

Naturally, Zong has long been looking at his only child, daughter Kelly Zong, to replace him. She’s had plenty of experience, working at Wahaha since 2004. Now 37, the younger Zong has also tried her hand at entrepreneurship, launching a juice brand, KellyOne, three years ago. In 2017, she attempted to acquire the Hong Kong-listed candy firm China Candy, but was unable to acquire 50% of the company’s voting rights. Kelly said in a social media post at the time that the unsuccessful bid had been a “positive and constructive exploration.”

Kelly Zong Fuli, daughter of Wahaha Groups Chairman Zong Qinghou.

Imagine China/Newscom

Zong says he will hand over the reins to Kelly if she wants them. If not, he will groom professional management. “A lot of young people have studied abroad and have a broader vision, and they may not want to manage their parent’s business,” he says. “My daughter is overseeing some factories. Does she want to take on more? That I don’t know.” His move to do digital marketing, led by younger talent, was seen as a positive step towards a new generation having a greater role in the company.

Zong says there is still time to find good professional managers if Kelly wants to follow her own path. He says Wahaha is considering several for future leadership, without going into detail. He is also not ruling out an IPO, a move that would be a major move for the company down the path of diversifying management.

Whatever path he takes, Zong is clearly thinking about laying the foundations of sustainable success for Wahaha.

This story is part of Forbes’ coverage of China’s Richest 2019. See the full list here

I am a Beijing-based writer covering China’s technology sector. I contribute to Forbes, and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I spent six months as an intern at TIME magazine’s Hong Kong office. I am a graduate of the Medill School of Journalism, Northwestern University. Email: ywywyuewang@gmail.com Twitter: @yueyueyuewang

Source: China’s Richest 2019: King Of Beverages Zong Qinghou Aims To Revitalize Wahaha

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Zong Qinghou is the founder and chairman of Hangzhou Wahaha Group which is the leading beverage company in China. Zong was listed as China’s richest man in 2012. As an NPC deputy, Zong has submitted one motion and 12 suggestions this year. He said deputies have the responsibility to represent the ordinary people. CCTVNEWS reporter Su Yuting spoke with Zong to hear his opinion on China’s economic development. Subscribe us on Youtube: https://www.youtube.com/user/CCTVNEWS… Download for IOS: https://itunes.apple.com/us/app/cctvn… Download for Android: https://play.google.com/store/apps/de… Follow us on: Facebook: https://www.facebook.com/cctvnewschina Twitter: https://twitter.com/CCTVNEWS Google+: https://plus.google.com/+CCTVNEWSbeijing Tumblr: http://cctvnews.tumblr.com/ Weibo: http://weibo.com/cctvnewsbeijing

Chinese E-Commerce Giants Report Booming Singles Day Sales

A big screen shows the online sales for e-commerce giant Alibaba surpassed RMB 100 billion or US14 billion at 01:03:59 after the Nov. 11 Tmall Shopping Festival started midnight in Shanghai, China Monday, Nov. 11, 2019. (Chinatopix Via AP)

(BEIJING) — Chinese e-commerce giants Alibaba and JD.com reported a total of more than $50 billion in sales on Monday in the first half of Singles Day, an annual marketing event that is the world’s busiest online shopping day.

Singles Day began as a joke holiday created by university students in the 1990s as an alternative to Valentine’s Day for people without romantic partners. It falls on Nov. 11 because the date is written with four singles — “11 11.”

Alibaba, the world’s biggest e-commerce brand by total sales volume, adopted the day as a sales tool a decade ago. Rivals including JD.com and Suning joined in, offering discounts on goods from smartphones to travel packages.

E-commerce has grown rapidly in China due to a lack of traditional retailing networks and government efforts to promote internet use. Alibaba, JD.com, Baidu and other internet giants have expanded into consumer finance, entertainment and offline retailing.

On Monday, online retailers offered discounts on goods from craft beer to TV sets to health care packages.

Alibaba said sales by merchants on its platforms totaled 188.8 billion yuan ($27 billion) between midnight and noon. JD.com, the biggest Chinese online direct retailer, said sales reached 165.8 billion yuan ($23.8 billion) by 9 a.m.

Electronics retailer Suning said sales passed 1 billion yuan ($160 million) in the first minute after midnight. Dangdang, an online book retailer, said it sold 6.8 million copies in the first hour.

Alibaba kicked off the event with a concert Sunday night by Taylor Swift at a Shanghai stadium.

Chinese online spending is growing faster than retail overall but is weakening as economic growth slows and consumers, jittery about Beijing’s tariff war with Washington and possible losses, put off big purchases.

Online sales of goods rose 16.8% over a year earlier in the first nine months of 2019 to 5.8 trillion yuan ($825 billion), according to government data. That accounted for 19.5% of total consumer spending. Growth was down from an annual average of about 30% in recent years.

By JOE McDONALD

Source: Chinese E-Commerce Giants Report Booming Singles Day Sales

993K subscribers
Nov.11 was Singles’ Day in China, the country’s busiest online shopping day of the year. More than 35 billion RMB was spent on two online platforms, Tmall.com and Taobao.com, which are owned by China’s e-commerce giant Alibaba. A total of 170 million transactions were made during the day.

Getting To Know The Man Who Did The Most To Nourish Free Enterprise In China: Jack Ma

Most everyone has probably heard of Jack Ma and Alibaba. But, few understand the true immensity—and importance—of what Ma, the co-founder and former executive chairman of Alibaba Group, has done. We had a fascinating conversation at the Forbes Global CEO Summit in Singapore, where we discussed what he did at Alibaba, one of the most formidable e-commerce companies in the world, and his future plans and aspirations.

By providing people in China with a powerful online platform to market their products and services with Alibaba, he nourished millions of small businesses — and the cause of free enterprise. Thanks to Ma, countless numbers of Chinese businesses and individuals can obtain loans and other financial services that would otherwise be unavailable from traditional institutions within China. He also enabled small enterprises everywhere, including the US, to easily trade with entities in China.

Having recently stepped down from Alibaba, Ma is moving into philanthropy, big time, to promote entrepreneurship and education, among other things.

Struggling students will take heart at the fact that Ma was a poor student, frequently flunking his exams. Furthermore, his success was not immediate; numerous employers turned him down when he first entered the workforce.

Ma’s story validates Adam Smith’s truth that commerce benefits us all, and free markets are the best poverty fighters ever created.

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Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.
Steve’s newest project is the podcast “What’s Ahead,” where he engages the world’s top newsmakers, politicians and pioneers in business and economics in honest conversations meant to challenge traditional conventions as well as featuring Steve’s signature views on the intersection of society, economic and policy.

Steve helped create the recently released and highly acclaimed public television documentary, In Money We Trust?, which was produced under the auspices of Maryland Public television. The film was inspired by the book he co-authored, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It.

Source: Getting To Know The Man Who Did The Most To Nourish Free Enterprise In China: Jack Ma

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Will China Take Bitcoin To $20,000?

The best way to lose money in the markets is to sell when you are scared and buy/hold when you are happy with your profits.

So it was for me a couple of days ago when bitcoin (BTC) was $9,500. I so wanted to close out 25% of my BTC and leave myself to run the rest, having taken out the cost of my position in cash and thereby run the rest as free carry. You can spin all sorts of narrative why that’s a smart idea or why that’s a dumb one, but the fall was the impetus and the desire to flee a normal human emotion. It is an instinct that traders and especially investors need to control.

Luckily, I’ve been playing the high risk game long enough to wait. When I want to sell an investment solely because it has dumped I wait at least two or three days before making such a move. If and when bitcoin hits $13,500, I will want to load up on more but I will likewise stop myself from buying into bullishness.

So I did nothing with my bitcoin and this happens:

Bitcoin jumped again on Monday

Credit: ADVFN

Once again doing nothing is the best move you can make with a good position.

So in my model, this is China and this is down to the trade war.

Today In: Money

When bitcoin jumps, something bad has just happened in the U.S./China trade talks. We don’t know what it is, but soon enough we will find out.

Well today we get a Trump tweet and up BTC goes again. Yesterday, what happened? I guess whatever it was that made bitcoin pop, also left the U.S. president even more incandescent than normal.

This is still a theory, but it keeps on playing out. So what to do? In the short term the question is, is the China situation going to continue for long?

Continuation of the trade war means BTC up. The longer the war runs, the higher bitcoin will go.

For me it’s likely that the trade war is going to run and run. Both sides can’t buckle and like most wars, sides are prepared to take big losses, not to lose. This means holding through a rollercoaster ride of developments.

If we are in for a trade war of attrition, bitcoin will be above £20,000 by Christmas or sooner.

What we also have here if this theory is right is a gift to the extra greedy. When bitcoin flies, short the Dow, because when BTC flies, for no apparent reason, it is a high probability that something Dow slapping will come out of the trade war in a day or two’s time. While information may flow more slowly in the U.S., whatever goes wrong will nonetheless hit the U.S. equities market soon enough, but meanwhile the bad news will hit the Asia bitcoin market much sooner, about as long as it takes for the participants to get out of their meetings and past the revolving doors.

BTC down on Monday, should also give Dow up on a Tuesday and vice versa. Bitcoin is the gift that keeps on giving to traders.

Gold and the whole platinum group metals (PGM) will follow but at a much more refined and subdued pace; bitcoin delivering another leading signal to the stacker community or any trader that wants to play the dangerous game of levered commodities.

Signals like this don’t come by very often and can’t last for long, but while the stakes are in trillion dollar scale, quite a few million dollar crumbs are going to be left lying around the table.

Be among the first to get important crypto and blockchain news with Forbes Crypto Confidential, a free weekly e-letter delivered to your inbox. Sign up today.

Clem Chambers is the CEO of private investors website ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.

In 2018, Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards.

I am the CEO of stocks and investment website ADVFN . As well as running Europe and South America’s leading financial market website I am a prolific financial writer. I wrote a stock column for WIRED – which described me as a ‘Market Maven’ – and am a regular columnist for numerous financial publications around the world. I have written for titles including: Working Money, Active Trader, SFO and Technical Analysis of Stocks & Commodities in the US and have written for pretty much every UK national newspaper. In the last few years I have become a financial thriller writer and have just had my first non-fiction title published: 101 ways to pick stock market winners. Find me here on US Amazon. You’ll also see me regularly on CNBC, CNN, SKY, Business News Network and the BBC giving my take on the markets.

Intelligent Investing is a contributor page dedicated to the insights and ideas of Forbes Investor Team. Forbes Investor Team is comprised of thought leaders in the areas of money, investing and markets.

Source: Will China Take Bitcoin To $20,000?

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With Currency Manipulator Label, China Trade War Moves Into Unchartered Waters

Last week’s announcement by Trump of more tariffs coming for everything shipped to the U.S. from China and Monday’s move by Beijing to allow for a weaker yuan begins Act III in the trade war.

Here’s the plot twist:

Treasury just hit China with currency manipulator status after market hours on Monday. It came at a time when nothing was trading. Investors were stuck in the Twilight Zone. Tuesday morning is going to be a madhouse rush for “sell China” orders by the algos. Wait for it.

As one hedge fund manager told me, “we’ve just thrown gasoline on the fire.”

Currency manipulator status gives Beijing less wiggle room because if they weaken the yuan to make up for tariffs, tariffs will likely go up to compensate.

We are in unchartered waters. At risk is what amounts to sanctions on key U.S. commodities like soybeans and pork by the Chinese government, and political risk involving Hong Kong as civil unrest continues there, putting its special trade status in the crosshairs of a China-bashing American Congress.

President Trump told reporters last week that he figured China would depreciate the yuan in response to his plan to hike tariffs to 10% on the remaining balance of China imports by Sept 1.

In isolation, a 10% tariff on $300 billion in combination with a 10% yuan depreciation would be functionally equivalent to Chinese households writing a check for $30 billion to the U.S. Treasury. “Trump may not have gotten Mexico to pay for its border wall, but he is getting China to pay (the government) for its tariff wall,” says China bear Brian McCarthy, chief strategist for Macrolens, a big picture investment research firm.

Currency manipulator status makes the trade war worse for China.

Meaningful and enduring negative feedback about China will lead to extreme financial market volatility in Asia, especially in China’s mainland equity market where a gambler’s approach to trading by the dominant retailer investor class there might cash out. And why not? China’s mainland stock indexes are up over 20% this year and this may be seen as the time to take money off the table.

Short sellers shouldn’t discount the possibility of the People’s Bank of China pumping money into the A-shares this week.

It’s too early to start expecting widespread defaults on China’s corporate dollar-denominated debt (which some firms estimate to be around $800 billion). A default would deal a harsh blow to foreign investors who have been big buyers of Chinese bonds as that market opens up and joins the major indexes.

The transmission mechanism from yuan devaluation to global securities is expressed more obviously through Europe and other emerging markets, especially those heavily linked to China — such as South Korea and Brazil. Both currencies had an ugly looking chart on Monday.

Meanwhile, the Fed can potentially isolate the U.S. economy from any economic fallout by cutting rates. Though this opens up a whole other can of worms, namely rates sinking to zero in the event of a recession.

The yuan settled at 7.05 to the dollar today after the central bank set the daily rate at just over 6.9 to the dollar. The currency is allowed to trade within 4% of that daily fixed rate. The yuan is now at its weakest level in over 10 years.

“These moves represent a significant escalation in the trade war,” says Joseph Brusuelas, chief economist for RSM, a global financial advisory firm.

“There is a specific logic and order of operations with respect to the tit-for tat retaliation likely to play out that will not result in longer-term inflation, but will instead create conditions for deflation and negative nominal interest rates along the U.S. maturity spectrum if a longer-term trade compromise cannot be reached,” he says.

Follow me on Twitter or LinkedIn.

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: With Currency Manipulator Label, China Trade War Moves Into Unchartered Waters

Trade War Is Hiding China’s Big Problems

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Getty

The ongoing US-China trade war is a distraction from China’s big problems: the blowing of multiple bubbles and the country’s soaring debt, which will eventually kill economic growth.

It happened in Japan in the 1980s. And it’s happening in China nowadays.
The trade war is one of China’s problem that dominates social media these days. It’s blamed for the slow-down in the country’s economic growth, since its economy continues to rely on exports. And it has crippled the ability of its technology companies to compete in global markets.
But it isn’t China’s only problem. The country’s manufacturers have come up with ways to minimize its impact, as evidenced by recent export data. And it will be solved once the US and China find a formula to save face and appease nationalist sentiment on both ends.
One of China’s other big problems , however, is the multiple bubbles that are still blowing in all directions. Like the property bubble—the soaring home prices that makes landlords rich, while it shatters young people’s dreams of starting a family, as discussed in a previous piece here.

New Home Prices 2015-19

New Home Prices 2015-19

Koyfin

Unlike the trade war, that’s a long-term problem. Low marriage rates are followed by low birth rates and a shrinking labor force, as the country strives to compete with labor-rich countries like Vietnam, Sri Lanka, the Philippines and Bangladesh—to mention but a few.
Then there’s the unfavorable “dependency rates” — too few workers, who will have to support too many retirees.
And there’s the impact on consumer spending, which could hurt the country’s bet to shift from an investment driven to a consumption driven economy.
Japan encountered these problems over three lost decades, even after it settled its trade disputes with the US back in the 1980s. China experience many more.
Meanwhile, there’s the infrastructure investment bubble at home and abroad, as discussed in a previous piece here. At home infrastructure investments have provided fuel for China’s robust growth. Abroad infrastructure investments have served its ambition to control the South China Sea and secure a waterway all the way to the Middle East oil and Africa’s riches.

City overpass in the morning

City overpass in the morning

Getty

While some of these projects are well designed to serve the needs of the local community, others serve no need other than the ambitions of local bureaucrats to foster economic growth.
The trouble is that these projects aren’t economically viable. They generate incomes and jobs while they last (multiplier effect), but nothing beyond that—no accelerator effect, as economists would say.
That’s why this sort of growth isn’t sustainable. The former Soviet Union tried that in the 1950s, and it didn’t work. Nigeria tried that in the 1960s ;Japan tried that in the 1990s, and it didn’t work in either of those cases.
That’s why bubbles burst – and leave behind tons of debt.
Which is another of China’s other big problem s.
How much is China’s debt? Officially, it is a small number: 47.60%. Unofficially, it’s hard to figure it out. Because banks are owned by the government, and give loans to government-owned contractors, and the government owned mining operations and steel manufacturers. The government is both the lender and the borrower – one branch of the government lends money to another branch of government, as described in a previous piece here.
But there are some unofficial estimates. Like one from the Institute of International Finance (IIF) last year, which placed China’s debt to GDP at 300%!
Worse, the government’s role as both lender and borrower concentrates rather than disperses credit risks. And that creates the potential of a systemic collapse.
Like the Greek crisis so explicitly demonstrated.
Meanwhile, the dual role of government conflicts and contradicts with a third role — that of a regulator, setting rules for lenders and borrowers. And it complicates creditor bailouts in the case of financial crisis, as the Greek crisis has demonstrated in the current decade.

Follow me on Twitter.

I’m Professor and Chair of the Department of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. I’ve have also published several books, including Collective Entrepreneurship, The Ten Golden Rules, WOM and Buzz Marketing, Business Strategy in a Semiglobal Economy, China’s Challenge: Imitation or Innovation in International Business, and New Emerging Japanese Economy: Opportunity and Strategy for World Business. I’ve traveled extensively throughout the world giving lectures and seminars for private and government organizations, including Beijing Academy of Social Science, Nagoya University, Tokyo Science University, Keimung University, University of Adelaide, Saint Gallen University, Duisburg University, University of Edinburgh, and Athens University of Economics and Business. Interests: Global markets, business, investment strategy, personal success.

Source: Trade War Is Hiding China’s Big Problems

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Investor Kathy Xu Rockets To 2019 Midas List Top Ten As Power Of Chinese Startups Grows

Kathy Xu, founding partner of Capital Today, debuted in the Midas List top ten.

Kathy Xu, founding partner of Capital Today, made a bold Midas List debut. Photo courtesy of Capital Today

Capital Today founding partner Kathy Xu laughs when she talks about her career-making early investment in Chinese e-commerce company JD.com, which began with a late-night meeting with founder Richard Qiangdong in 2006:

“We met at 10 p.m. and we talked until 2 a.m.!” she tells Forbes. “I gave him five times the amount of money that he asked for — I was so worried that otherwise he’d meet with other investors.”

Capital Today managed to become the startup’s sole Series A investor and Xu’s check — $18 million USD — paid off royally as JD swelled into an ecommerce giant, with Xu working closely with Qiangdong along the way, advising him on key hires and company branding. Two years after JD went public in 2015, her firm cashed out returns of $2.9 billion.

A couple years and a handful of new deals later, Xu is making her bold debut on the Forbes 2019 Midas List, ranking in the top 10 venture capitalists in the world in her first year of inclusion (her work has previously been highlighted on Forbes China’s list of top 25 women venture capitalists in China).

This year’s list features 21 investors who are either of Chinese nationality or work for a firm based in China, the largest number ever on the list and a tribute to the growing power of China’s startup and venture capital ecosystems.

Xu says that Capital Today, which manages approximately $2.5 billion, focuses all its energy on companies based in and serving China and has zero interest in looking outside the country.

“It’s a big enough market, the economy is doing well, the entrepreneurship is great, and we’re starting to see real innovation booming for the first time,” she says. “It’s a lucrative market to focus on.”

Xu says that her team disciplines itself to only five or six deals a year in business-to-consumer companies and spends a lot of time with founders that it invests in.

“There’s more and more money here now, so building a connection with the entrepreneur and spending a lot of time with them is more important than ever,” she says, citing proximity as an advantage over out-of-country investors who only make occasional business trips.

Beyond JD.com, other Capital Today portfolio highlights include Chinese gaming company NetEase, discount e-commerce site Meituan-Dianping, classified listings site Ganji.com (which merged with 58.com in 2015), Yifeng Pharmacy, which went public in 2015, and hot snack company Three Squirrels Snack Food.

Other Chinese investors who made this year’s Midas list are Sequoia China partner Neil Shen, who topped the rankings for the second year running, Qiming Venture Partners’ managing partner J.P. Gan, No. 5, and Hans Tung from GGV Capital, No. 7.

See the full list of Chinese investors here.

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I’m a San Francisco-based staff writer for Forbes reporting on Google and the rest of the Alphabet universe, as well as artificial intelligence more broadly. Previously

Source: Investor Kathy Xu Rockets To 2019 Midas List Top Ten As Power Of Chinese Startups Grows

New Survey Shows China Not Dead Yet

China’s services sector growth rose for the second month in a row and hit its highest level since June 2018 , according to the Caixin China General Services Business Activity Index, released on Friday. Caixin said that increased foreign demand for Made in China goods and improving business confidence helped. The Index hit 53.9 in December from 53.8 in November and 50.8 in October. While the number is generally flat from November, it is much higher than the third-quarter average and comes at a time when trade tensions remain high.

Source: New Survey Shows China Not Dead Yet

Don’t Believe Beijing: China Really Does Rival The U.S. – Kenneth Rapoza

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Liu Qiangdong, better known as Richard Liu here, is already a billionaire. At the 7-Fresh grocery store in Beijing, not far from Liu’s JD.com, there’s this fruit stand that looks awfully similar to anything an American would find at a Trader Joe’s or Wholefoods. It’s organic. It’s small farm friendly. But here at 7-Fresh you can scan a barcode and find out where the apples came from, thanks to a blockchain system they’re running. Meanwhile, over my head is a small assembly line of green shopping bags filled with online food orders. It’s the Jetsons. I don’t think they have this at Wholefoods………….

 

 

 

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