China’s GDP Contraction A Window To Its Post-Coronavirus Future

Media headlines out did each other in broadcasting China’s 6.8% contraction in GDP in the first quarter this year. It was indeed breaking news in that it was the first ever contraction since China started reporting quarterly GDP data in 1992. However, beyond the headlines, there is surprisingly little that is newsworthy. It is not telling us anything we didn’t know already.

A deep contraction was widely expected because of the massive quarantine and lockdown implemented to contain the COVID-19 outbreak, which practically shut down the economy. For example, Wuhan, the epicenter of the outbreak, ended its lockdown only on April 18 after 76 days. Not surprisingly markets largely shrugged off the news. The S&P 500 rose 1.6% on April 17, after Nasdaq flipped into positive territory for the year the day before. Wall Street was not alone, Asian and European stocks also finished the week higher.

The slew of Beijing’s counter-cyclical policies to help the economy recover from COVID-19 has also been well and fully anticipated. Export rebate rates were raised on over 1,000 products to help exporters facing slumping demands. New infrastructure projects, many are planned and budgeted but now moved forward, have started in 25 provinces which will help prop up demand for industrial production and employment.

The People’s Bank of China, the central bank, has been adding liquidity to the financial system by cutting interest rates and reserve requirement ratio, as well as directing more lending to small and medium size businesses through loan guarantees. According to its data, bank loans grew by 11.5% year-on-year in March, the fastest growth rate since August 2018.

This is an impressive feat. China’s central bank is succeeding in raising bank credit growth in the midst of a massive economic contraction, something that is extremely difficult to do. None of these will bring about a V-shaped rebound, but they will pave the way for a recovery that will gather strength through the course of the second half of the year even if the global economy is still in recession.

The real news in China’s GDP contraction, which had come and gone hardly being noticed, is a policy document released without fanfare on March 30 outlining a set of wide-ranging structural reforms to be implemented in the aftermath of COVID-19. Ostensibly these structural reforms are needed, above and beyond the cyclical measures described, to revitalize an economy ravaged by COVID-19.

Upon closer scrutiny, however, it becomes clear that these are some of the deepest structural reforms that had been proposed and debated for the last two decades, and were strenuously resisted and successfully blocked or deferred by local governments. It appears that Beijing is taking advantage of COVID-19 and the unprecedented GDP contraction to ram through tough reforms that would otherwise be harder to do. What are these reforms?

These are deep and sweeping structural reforms regarding land use, the labor market, interest and exchange rates and the financial markets. They are what really matters if the Chinese economy is to become more market driven and efficient. On land use, current restrictions on how rural land can be sold and used for commercial purposes will be lifted, and the system of rural land acquisition and sales will be made market driven. Behind these innocuous sounding policy-speak is the intention of slaying of one of communism’s sacred cows, the public ownership of land. Sweeping indeed.

The removal of the household registration system, the hukou, is the centerpiece for reforming the labor market. This will be implemented nation-wide with the exceptions of a few mega-cities like Beijing and Shanghai. For the tens of millions of migrant workers, they will be able to become fully-fledged urban residents in towns and cities where they are gainfully employed.

They will be able to live with their families and have full access to urban health care, education and social welfare services. Apart from lifting a highly discriminatory barrier that divides the Chinese population into two unequal tiers, at one stroke this reform will also increase urban consumption demand massively, especially in housing, while further enhancing the growth and dynamism of China’s burgeoning service sector.

The integration of benchmark lending and deposit rates with market rates will be the central plank of price reform in banking and finance, which will align them to become more market driven. The RMB exchange rate will be made more flexible. Civil servant salaries will be made comparable with the private sector. The institutional infrastructure for listing, trading and delisting in the stock markets will be streamlined with stronger regulatory oversight, and the development of the bond market will be fast-tracked to offer an expanded range of products in size and varieties. And, finally, the opening up of the financial sector to full foreign participation will be accelerated.

Successfully implementing anyone of these structural reforms would be an achievement. Getting all of them done would be a game changer. This is clearly what Beijing intends to do by seizing the opportunity created by COVID-19 and the unprecedented GDP contraction. For those who welcome engagement with China, be prepared for a more dynamic and innovative Chinese economy. For those who fear the rise of China, get ready to face a more determined China that marches to its own tune.

Finally, the GDP contraction may well be the catalyst that Beijing needs to dispense with the GDP growth target altogether. In the past decades, it has led provincial governments to boost production regardless of real demand in order to meet such targets, burdening China’s economic structure with wasteful over-capacity as a result. Allowing GDP growth to fluctuate with the rhythm of the business cycle would be an even greater achievement. That would be truly newsworthy.

I am the Chief Economics Commentator at Forbes Asia, and a Visiting Scholar at the Lee Kuan Yew School of Public Policy, National University of Singapore. I was the Global Chief Economist and Chair of the Academic Advisory Council at Mastercard from 2009 to 2018. I was the HSBC Visiting Professor of International Business at the University of British Columbia, Canada from 2010 to 2014; Adjunct Professor at the School of Management, Fudan University, Shanghai, China from 2006 to 2011, and Visiting Professor at the Graduate School of Business, University of Chicago, Singapore from 2003 to 2004. I am a Canadian who has spent 25 years working in Europe, sub-Sahara Africa, the Middle East and North Africa, and Asia-Pacific before returning to Canada in 2011. I studied at Trent University, and pursued post-graduate studies at the University of British Columbia and Simon Fraser University in Canada, where I received my Ph.D. I live on Salt Spring Island, off the west coast of Canada, with my wife and cat; where I garden enthusiastically.

Source: China’s GDP Contraction A Window To Its Post-Coronavirus Future

Please follow my Instagram: http://instagram.com/arminhamidian67

China released it’s latest GDP data overnight into Friday, showing the first contraction of the economy since it began publishing the data in 1992. CNBC’s Eunice Yoon reports. China reported Friday that its first quarter GDP contracted by 6.8% in 2020 from a year ago as the world’s second largest economy took a huge hit from the coronavirus outbreak, data from the National Bureau of Statistics of China showed. The contraction in the first quarter is the first decline since at least 1992, when official quarterly GDP records started, according to Reuters. China’s government figures are frequently doubted by analysts. Analysts polled by Reuters had predicted China’s GDP would shrink by 6.5% in the January to March quarter, compared to a year ago. The forecasts from 57 analysts polled ranged from a 28.9% contraction to a 4% expansion. China’s economy grew 6% in the last quarter of 2019. Here are some of the key figures released Friday, on a year-over-year basis: Industrial production dropped 8.4% in the first quarter, and marked a 1.1% decline in March. Fixed-asset investment fell 16.1% in the first quarter. Retail sales fell 19% in the first quarter. Sales of consumer goods fell 15.8% in March, while online sales of physical goods rose 5.9%. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2JdMwO7 » 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

China Stocks Face Increased Scrutiny After TAL Education And Luckin Coffee Reveal Inflated Sales

Staff wear protective masks at a Luckin Coffee shop

Chinese companies seeking financing in the U.S. are coming up against increased scrutiny after accounting scandals emerged from two high-profile firms, casting doubts over plans for new listings and other financing plans.

TAL Education, a New York-listed education firm run by Chinese billionaire Zhang Bangxin, revealed on Tuesday that an employee is suspected of conspiring with outside vendors to inflate sales. The news sent shares of TAL down almost 9% as of Thursday, wiping out $878 million from Zhang’s fortune.

TAL said the employee in question was taken into police custody, and the affected business unit, called Light Class, accounted for 3% to 4% of its annual revenue.

The announcement came less than a week after Luckin Coffee, a Xiamen-based chain that once positioned itself as a challenger to Starbucks, admitted that more than $300 million of last year’s sales had been fabricated. Analysts say the scandals will undermine investors’ confidence in Chinese firms, adding to the challenges of raising capital in an already difficult market.

“There is no denying that investors are now doubting Chinese companies, especially those touting high growth and new business models,” says Zhu Ning, deputy dean at Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University.

Data provider Dealogic says there are currently 15 Chinese companies planning to each raise between $10 million to $125 million in the U.S.

Zhu says it’s likely that regulatory scrutiny will step up, and the new listings might not reach their desired valuations or attract much interest from institutional investors. He says the risk extends to all forms of financing including issuing debt, meaning companies will need to offer higher returns to appeal to potential lenders.

Luckin’s market cap, which had been as high as $10 billion in early March, had fallen to $1.1 billion before the company’s shares were suspended from trading on April 6. The Nasdaq is seeking additional information from Luckin.

Brock Silvers, managing director of Hong Kong-based Adamas Asset Management, points to wider accounting problems in China, where the COVID-19 pandemic has taken such a heavy toll on so much of the economy.

“It is extremely unlikely that Luckin and TAL are the only two fish in the sea,” he wrote in an emailed note. “The underlying problem is that in recent years China investment has outstripped China profitability. That creates massive pressure, both corporate and personal, to produce unachievable results.”

Another Chinese company was defending itself against similar allegations of false accounting on Wednesday. Shares of Nasdaq-listed video streaming site iQiyi initially dropped 4.6% but recovered loss the following day after it was accused by Wolfpack Research of inflating 2019 results and user numbers. iQiyi denied the allegations, saying the report contains “numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”

Still, lawmakers in the U.S. are likely to seize on recent accounting scandals, and there will be renewed pressure for tighter oversight of China-based auditing firms, says Drew Bernstein, co-chairman of New York-based accounting firm MarcumBP. Citing national security reasons, Beijing has long resisted inspections of the China-based offices of the Big Four accounting firms by the Public Company Accounting Oversight Board (PCAOB), which oversees accounting professionals who provide audit reports of U.S.-traded public companies.

To push for compliance, lawmakers from both parties introduced last June a bill to force U.S.-listed Chinese companies to submit audit reports to U.S. regulators, or face delisting. In response to the Luckin scandal, China’s securities regulator, the China Securities Regulatory Commission, says it condemns this behavior and would crack down on securities fraud in line with international laws.

“While delisting of Chinese stocks remains as a “nuclear option,” I see that as a low probability,” Bernstein says. “If we see cross-border cooperation emerge among regulators, that would be a very positive outcome from this.”

Send me a secure tip.

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 Stocks Face Increased Scrutiny After TAL Education And Luckin Coffee Reveal Inflated Sales

Please follow my instagram: http://instagram.com/arminhamidian67

Life in China Has Not Returned to Normal, Despite What the Government Says

Over seven years as a media executive living in Asia, Brian Lee has made the two-hour hop from Seoul to Shanghai more times than he can remember. But his last flight, on March 9, will be difficult to forget. On arrival at Shanghai’s Pudong International Airport, Lee was told that regulations had tightened while he was in the air and all passengers arriving from South Korea now had to submit to 14 days’ government quarantine due to the COVID-19 outbreak.

The New Yorker was driven to a specially requisitioned three-star hotel, where nurses in hazmat suits handed him a mercury thermometer, to self-check his temperature twice daily, and a single plastic trash bag. Meals are left outside his door at 8:30 a.m., 12 noon and 6 p.m. each day. Other than opening his door to pick up his food, he has not seen beyond the drab confines of his room since. “I’m trying to stay active and positive,” says Lee, 27, a business manager for Shanghai-based media platform Radii. “I’ve been doing pushups and trying to do all the reading and writing that I haven’t had time for.”

As cases of COVID-19 stabilize in China and soar across the U.S., Middle East and Europe, the Beijing government has been busy recasting China as a sanctuary from the deadly virus, which has so far sickened 169,000 and killed at least 7,000 across the world. China’s strongman President Xi Jinping even visited the central city of Wuhan, the epicenter of the outbreak, on March 10. China’s strongest leader since Mao Zedong declared that the virus was “basically curbed” across Hubei province, where Wuhan is the capital.

Virus Expert on the Wuhan Coronavirus Outbreak: ‘Don’t Be Complacent. We Must Treat It Extremely Seriously’

Hong Kong infectious disease expert Yuen Kwok-yung discussed the situation of the Wuhan coronavirus outbreak with TIME in an exclusive interview. He warns that the disease is very infectious and control measures must be followed.

When TIME visited Wuhan in the early days of the outbreak on Jan. 22, students were still gossiping in cafes, while shoppers browsed for meat and fish for Lunar New Year festivities. But the city that Xi toured was a ghostly relic after seven weeks of bruising quarantine that has decimated the local economy. Still, China’s official press agency Xinhua has already announced a forthcoming book on how Xi’s “outstanding leadership as a great power leader” defeated the virus. The Great Power War will be available in six languages. State media has engaged in unabashed triumphalism while describing the U.S. response as “floundering.”

But even as Chinese Communist Party (CCP) propaganda ramps up, the experiences of people like Lee show that life across the Asian superpower remains far from normal. Offices are slowly reopening but central heating banned for fear of spreading germs. Taxi drivers hang sheets of plastic behind the front seats of their cabs to cocoon themselves from passengers. One friend in Beijing returned to work to find “the receptionist in a full white hazmat suit.” Another complained that the incessant spraying of germ-killing bleach had murdered all the office plants. The guy who installed my cable TV has also begun hawking medical masks, which are de rigueur for entering any supermarket. Grabbing noodles with my wife means sitting diagonally across a four-person table to comply with social distancing rules. When I tried to book an appointment with a lawyer, it had to be in Starbucks—her office had banned visitors—and even then the barista chastised her for standing closer than four feet while witnessing me signing documents.

More than anything, suspicion has shifted outward. Whereas ethnic Asians have faced prejudice around the globe due to the virus, inside China the tables have turned, with foreigners now the target of suspicion as cases rise overseas. This has been catalyzed by state propaganda leaping on China’s apparent success in stemming the virus as evidence that its political system is superior to Western-style democracy.

It would be “impossible for European countries to adopt the extreme measures that China has implemented” to fight the virus, the CCP mouthpiece Global Times argued in a recent editorial. Sure enough, Robert Redfield, director the U.S. Centers for Disease Control and Prevention, told American lawmakers March 10 that [in terms of infections] “the new China is Europe.”

Security guards bark inquisitions when they see a foreign face—“what’s your nationality? where have you been for the last two weeks?”—so that many outsiders limit their social interactions to where they feel best known. My local barber says he not longer serves foreign customers.

Suspicion is especially pronounced for Italians, given their homeland’s rise to second in COVID-19 cases after China, with 25,000 infected. Ambra Schiliro, president of the Sicily Association in China, says that one Italian under self-quarantine in her Shanghai apartment had angry neighbors call the police to demand she move to a hotel. Andrea Fenn, a member of the Italian Chamber of Commerce in China, says that after some clients came to his office his Chinese partner discretely asked him, “Were they Italian? Where had they come from? Could I vouch for them?” Still, “It was an understandable reaction,” he says, “and nothing compared to the discrimination Asian people experienced in Italy at the beginning of the crisis.”

Spotlight Story
In the Wake of the Coronavirus, Here’s Why Americans Are Hoarding Toilet Paper
Our panic buying represents one thing we can control

Suspicion may be quite natural given Chinese state media’s self-serving tactic of highlighting the number of new COVID-19 cases that have arrived from overseas. On March 16, state media reported that 12 of the day’s 16 new COVID-19 infections were imported. On March 17, it was 20 out of 21. As such, in glaring doublespeak, Beijing’s own travel restrictions are deemed “essential measures,” even as countries that have closed borders with China are denounced.

Stefen Chow was lucky that he was permitted to self-quarantine in his own home upon arriving in Beijing after visiting his family home in Singapore. Only he was allowed to venture outside to collect deliveries, however, while his wife and two young children—aged four and six—couldn’t leave their front door for 14 days.

But much like what’s currently unfolding in the U.S., regulations for each Chinese city differ, and the lack of clarity regarding containment protocols has a chilling effect on business. Currently, even those traveling from Shanghai to the neighboring city of Suzhou for a meeting are technically required to submit to 14 days quarantine, perhaps even at a government facility, meaning few take the risk of venturing beyond the city limits. Those who have stayed at home must also self-quarantine if a roommate or family member returns from overseas or another province.

But in practice, implementation is largely at the discretion of CCP neighborhood committees, known as ju wei hui, or individual security guards — some of whom use their new power to shamelessly flirt with passers-by. “It has been frustratingly confusing,” says Ker Gibbs, president of the American Chamber of Commerce in Shanghai. “People don’t know if they can access their own apartment building, let alone their office.”

Returning to some semblance of normalcy is imperative for the Chinese and global economies. According to official data, China’s manufacturing and services sectors sank to record lows in February, car sales plunged by 80%, and China’s exports dropped 17.2% overall in January and February. As of March 18, China’s economy was operating at 71.% of typical output, according to policy research firm Trivium. Factories are being inspected one-by-one before getting the green light to reopen, but the pace of revival will depend on the nature of business; services can recover much faster than manufacturing, for example, given the latter’s reliance on knotty supply chains. High-tech and highly automated manufacturing also has a greater capacity to bounce back, being less labor-focused.

But with demand expected to crater across every sector, especially as the virus goes global, all anticipate lean times ahead. More than 100 real estate firms across the country filed for bankruptcy in January and February. Officials have been encouraging both state and private landlords to waive rents to prevent more firms going under. “I would still give [the government] reasonably high marks for communication and being proactive with business community,” says Gibbs.

Still, the state is keeping a very close eye on those attempting to re-energize the world’s number two economy. Across China, officials outside office buildings and residential compounds note visitors’ names, contact information, ID numbers and travel history in order to feed to a police database. People in some cities must register phone numbers with an app in order to take public transport. Online retail giant Alibaba has rolled out its Health Code App across 200 Chinese cities that rates users green, yellow or red dependent on travel history and possible contact with infected people. Anyone who has left the city in the past two weeks is liable to get a yellow code, and with green mandatory for access to most malls and office buildings in big cities, few book frivolous travel lest they jeopardize their score. A red code requires 14 day quarantine.

Apart from privacy concerns across what is already the world’s most surveilled state, the app has sparked consternation among those suddenly ordered to quarantine themselves with no explanation why.

There is growing weariness about measures that are little more than box-ticking. Masks are mandatory outside the home despite huge doubts over their efficacy. A temperature test is required to enter any shop, restaurant building, or even pass certain street corners. But these are so casually administered that people with readings so low as to indicate clinical hypothermia are routinely waved by. On countless occasions I’ve been rudely accosted by a supercilious doorman only for him to point the temperature gun at my coat sleeve. It’s especially frustrating since COVID-19 can spread while asymptomatic, rendering these tests ultimately pointless.

Bosses unused to employees working from home are putting them under extreme pressure, believing only increasing workload can ensure productivity at home. Miss Li, who works for Beijing start-up Bytedance and asked that TIME only uses one name as she was not permitted to speak with the media, says that she used to work 9 am to 9 pm, 6 days a week, commonly known by the shorthand “996” in China. “But now we joke that has become 007—midnight to midnight, 7 days a week,” she says.

And despite official efforts to spin the disaster, initial bungling and attempts to coverup the crisis mean the Party’s legitimacy will take a hit. A campaign to ensure the people of Hubei express “gratitude” to the CCP for containment efforts received short shrift. “The government should end its arrogance and humbly express gratitude to its masters—the millions of people in Wuhan,” wrote noted blogger Fang Fang in a post of remarkable bravery given China’s strict censorship.

Another comment appended to the profile of a whistleblower doctor quickly went viral: “The doctor risks her job to take interview, the reporter risks being charged with fabricating rumors to write the article, the media risks being shut down to publish the article, and people on WeChat risk having their accounts blocked to share the article. Today we need this ridiculous level of tacit cooperation just for a word of truth.”

Of course, truth in China is whatever the Party deems it to be. One recent afternoon, I noticed four medical personnel in hazmat suits loitering outside my apartment building. After a few minutes a neighbor pulls up with airport tags on her luggage. The medical staff check her temperature, make her sign various papers and escort her home. She won’t reappear for 14 days. Suddenly alarmed, I opened my Health Code App to check my rating is still green. China may spy victory over the virus, but normal lies a long way off, if it ever returns at all.

By Charlie Campbell / Shanghai March 18, 2020

Source: Life in China Has Not Returned to Normal, Despite What the Government Says

Please follow my instagram: http://instagram.com/arminhamidian67

Mar.12 — The faltering return of China’s oil refineries, power plants and gas importers shows it’s too soon to count on the world’s biggest energy user to revive beleaguered global prices. Meanwhile, while corporate-debt markets shut down for issuers in the U.S. and Europe for a stretch in February, with investors spooked by the economic hit from the coronavirus, China had its busiest month on record. Bloomberg’s Selina Wang reports on “Bloomberg Markets: Asia.”

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

uncaptioned

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

994K subscribers
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

China Growth Nowhere Near Official Estimates, Says Morningstar

China’s third quarter growth rate has fallen to 6%, says Beijing. No it hasn’t. It’s more like 3%, says Morningstar’s China economics team led by Preston Caldwell in a report dated October 29.

While Donald Trump and his economic advisor Larry Kudlow try to convince Wall Street today that trade talks are going well and the two sides will still ink their so-called Phase 1 mini-deal this year, investors are noticing something awry in China. Companies are sourcing product elsewhere in modest, yet increasing numbers. China’s usual high fixed asset investment numbers are falling. Economic policy makers could be afraid of debt burdens and don’t want to overstimulate the economy. Growth is slowing. Industrial production is contracting.

To make matters worse, the full brunt of tariffs hasn’t quite been felt fully by China. The average incremental tariff rate increased to about 12% in the third quarter from about 9% in the second quarter. If Phase 1 talks result in no signed agreement anytime soon, Morningstar predicts it would send the average U.S. tariff rate on Chinese imports to over 20% by the first quarter of 2020.

The dollar/yuan exchange rate has helped offset some of the tariff costs. The yuan has weakened by about 5% since the end of the first quarter. For exporters, China is still cheap.

Today In: Money

The bulk of the third quarter decline was due to the consumer durables index component of the Morningstar proxy for measuring GDP. It contracted 4.1% from 3.8% growth in the second quarter. Morningstar analysts believe there is a chance that the locals may be temporarily pulling back on spending in anticipation for new government subsidies. Still, slowing durables consumption matches the trend in place since early 2017. And stimulus has been trickling in since.

Two of the other Morningstar proxy components that brought them to the 3% figure also saw a marked decline in the third quarter. Their power proxy index is now in line with the other index components after being a positive growth outlier for about two years.

But it appears the real drag that brought Morningstar’s number down to 3% is industrial production. Industrial profits are down 5.3% year over year versus August’s contraction of 2%.

“Neither a surprise nor a market mover,” says Brendan Ahern, CIO of KraneShares in New York. “U.S. tariffs are still exacting their toll on export-focused manufacturers.”

The industrial sector slowdown might also be understated, especially if China is over-estimating inflation, Morningstar report authors warned.

Meanwhile, China’s dependence on credit to sustain economic growth has so far thwarted Xi Jinping’s attempts to convince the provincial governments to deleverage. Debt growth remains above nominal GDP growth rates.

“We’re not surprised that China’s economy has failed to recover, given that credit growth stalled after a slight rebound in the first quarter,” Morningstar analysts wrote.

China-bound investors will be watching for solid Singles Day sales on November 11. If they disappoint, emerging market funds who are mostly overweight China could finally start shifting positions.

China’s A-shares have been outperforming the MSCI Emerging Markets Index all year. Only Russia, as measured by the VanEck Russia (RSX) exchange traded fund, is beating the CSI-300, an index tracking mainland China equities listed on Shanghai and Shenzhen exchanges.

Official consumer spending showed a mixed picture in the third quarter. Nominal retail sales grew 7.8% year over year in September versus a high of 9.8% growth back in June. Real retail sales fell only 30 basis points from August.

China’s National Bureau of Statistics’ household survey data suggests that most of the spending went towards education, entertainment, and “miscellaneous services.”

Morningstar said that their own sampling of alternative consumer sales data such as box office revenue, telecom revenue, and air passenger volume suggests tepid consumer services growth. China’s number crunchers are more upbeat on that and Morningstar’s team is not, which brings their forecast so much lower than official figures.

E-commerce giant Alibaba – the company behind Singles Day – announced this week that Taylor Swift will be performing at the Mercedes Benz Arena in Shanghai where the shopping spree will have their telethon-like tally of sales. If Swift can hype Singles Day shoppers to spend, the China consumer bull narrative will remain in tact. If she fails, and Singles Day ends up being mediocre, all bets are on for more stimulus in the months ahead out of Beijing.

Follow me on Twitter or LinkedIn.

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: China Growth Nowhere Near Official Estimates, Says Morningstar

291K subscribers
China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago — the lowest in at least 27-1/2 years, according to Reuters records. CNBC’s Eunice Yoon reports.
%d bloggers like this: