Tuesday, July 25, 2017

Ownership companies mostly remains opaque - Victor Shih

Victor Shih
HNA was the last in a row of Chinese conglomerates, losing support from their most important financial backers. In the slipstream details emerged about the hidden ownership structure behind HNA. But most of these ownership relations remain opaque says political analyst Victor Shih to Fortune.

Fortune:
Yet HNA has not chosen previously to open its books on the group's ownership structure. That left others to discern that high-level political connections have allowed HNA to borrow freely and expand rapidly, at a time when others have faced hurdles doing so. 
"A company cannot obtain lines of credit without either being a state-owned enterprise or high-level connections with the political elites," says Victor Shih, associate professor of political economy at the University of California at San Diego. "There are hundreds of Chinese companies trying to borrow billions overseas, and only a few obtain these large lines of credit." 
Also under increasing scrutiny is HNA's debt load to state-owned Chinese banks. In December, for example, it bought Ingram Micro for $6 billion—in cash—in a deal partly financed by the Agricultural Bank of China, China Construction Bank, Bank of China, and others, according to information given earlier this month to Fortune. In the minds of some, HNA—a privately held company—is increasingly tied to China's government, through its heavy debt... 
Untangling fine details over HNA's ownership structure is highly difficult, say analysts, who caution that much of the details are inaccessible, through a web of different companies. "The [Chinese] elites are very practiced at using dozens of shell companies to conceal ownership," says Shih.

More in Fortune.

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Monday, July 24, 2017

China develops rules for self-driving cars - Mark Schaub

Mark Schaub
China is moving fast in developing self-driving cars, but also authorities move fast in paving the legal roads for those cars by developing Draft Guidelines, says Shanghai-based lawyer Mark Schaub in Lexology. The ambitious approach is in line with the technological improvements, the government is having on its agenda.

Mark Schaub:
Most of the standards to be established under the Draft Guidelines are recommended (not mandatory) national standards with few exceptions. There are 95 standards to be established under the Draft Guidelines – 11 for Foundation, 28 for General Specification, 47 for Product and Technology Application and 9 for Relevant Standards. 
The Draft Guidelines also reveal that there are 21 standards that are planned to be worked out in next 2-3 years, which includes Advanced Driver Assistance System (ADAS), automatic emergency brakes (AEB), definition of levels of driving automation and in-car T-BOX, and some of them have been in the process of project approval. 
What is Next?The MIIT and SAC have set one month for public comment on the Draft Guidelines which will expire by 12 July 2017. Similar draft guidelines have been prepared by MIIT and SAC and circulated to limited groups for comment in 2016. It is currently anticipated that the Draft Guidelines will be officially issued within the next few months.The Draft Guidelines indicate that a sub technology committee for ICV is under way of formation under the National Technical Committee of Auto Standardization[2] to coordinate the establishment of the standards system of ICV. 
In addition, just one day before the issuance of the Draft Guidelines, i.e., on 12 June 2017, an Industry Innovation Alliance of China Intelligent & Connected Vehicles (“Alliance”) was formed with the guidance of MIIT to facilitate the strategic development of the ICV industry of China. 
Mr. Miao Wei, the current minister of MIIT revealed on the same day when the Alliance was formed that ICV is a high ground whereby China can strategically seize the future of the auto industry and is an important opportunity to upgrade China’s auto industry from merely big to also being strong. The minister also indicated that China is formulating the overall development plan for ICV and is drafting regulations on ICV testing on public roads. 
Recently, more developed countries have facilitated their legislation for automated driving. For example, on 12 May 2017, the German parliament (the Bundestag, the lower house and the Bundesrat, the upper chamber) has approved the amendments of German Road Traffic Act (Straßenverkehrsgesetz, StVG) to allow automated driving. Australia and Japan also issued guidelines and regulations for road testing of automated driving in June 2017. In the market, traditional and new car makers and technology companies are accelerating their investment and products development in automated driving. 
It is clear that the China government is keen to avoid lagging behind the competition in respect of automated driving. Based on the regulations it appears that China sees the development of ICV as a good opportunity to overtake incumbents in China’s auto industry. It is anticipated that more guidelines and regulations will be in place in China soon to further boost the development of ICV.
Many more details on Lexology.

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Investors need to be political experts too - Shaun Rein

Shaun Rein
After record-breaking Chinese investments in 2016, the Chinese government started to pull their financial reins, ahead of a major political decision making conference this Autumn. For investors reading political tea leaves has become as important as analyzing the stock markets, says business analyst Shaun Rein in the South China Morning Post.

The South China Morning Post:
While there’s no suggestion of wrongdoing, the heightened scrutiny of the companies underscores Beijing’s new attitude towards overseas mergers and acquisitions by private companies. 
The number of major overseas asset purchases by mainland companies plunged by 80 per cent in the first quarter, as Beijing tightened controls on capital outflows and ratcheted up scrutiny into deal funding. 
“Investors right now have to be political experts as much as valuation and financial ones – the political risk now is the highest I’ve seen in the 20 years I’ve been in China,” said Shaun Rein, founder of China consultancy Market Research Group, based in Shanghai. 
China experts said the latest administrative measures pointed to the Beijing’s commitment to reduce financial risks ahead of an important political meeting this autumn.
More in the South China Morning Post.

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China: bound to be the first cashless society - Ben Cavender

Ben Cavender
A decade ago, in China cash was king. But in less than another decade, the same country could be the first fully cashless society, says business analyst Ben Cavender to AFP. Cavender estimates China's mobile payment market is already 40-50 times larger than the United States.

AFP:
China was the first country in the world to use paper money but centuries later the soaring popularity of mobile payment has some analysts forecasting it could be the first to stop. 
The gross merchandise value of third party mobile payment rose more than 200 percent to 38 trillion yuan (about $5.6 trillion) in 2016 from a year earlier, according to China-based iResearch. 
The growth of the cash-free system has been supported by China's rapidly expanding e-commerce market as Chinese shoppers increasingly shun bricks and mortar stores. "I think it's really very possible that China becomes the first or one of the first cashless societies in the next decade," said Ben Cavender, a director at China Market Research Group. 
Cavender estimates China's mobile payment market is already 40-50 times larger than the United States. 
Alipay, started by e-commerce giant Alibaba and now owned by its affiliate Ant Financial, and WeChat Pay, which is built into Tencent's popular messaging service, have hundreds of millions of users between them and are China's dominant payment platforms. In Beijing it is hard to find a product or a service that cannot be purchased with a mobile.
More in AFP.

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Apple: a ripple in China's fintech markets - Matthew Brennan

Matthew Brennan
Online payments have gained market share in China very fast, but that market is dominated by domestic players like Tencent and Alibaba, while foreign ones like Apple are less than a ripple, says fintech expert Matthew Brennan at Pymnts.

Pymnts:
Ant Financial and Tencent could both potentially  surpass credit card companies like Visa and Mastercard in total global transactions per day in the coming year, as they offer merchants a cheaper and more accessible QR-based option that is more desirable than a more costly upgrade to payments terminals for cards. 
That nearly ubiquitous presence among merchants online and off in China’s major retail sector has lead to an incredibly mobile-dominated marketplace full of some very loyal customers. 
At present, according to analyst Matthew Brennan, Alipay and WeChat Pay collectively control some 67 percent of the Chinese payments market in major cities — compared to Union Pay’s 22 percent and cash’s 11 percent. 
Apple Pay, which launched in China over a year ago? Less than 1 percent. And not for lack of trying or interest. Apple went into the market with an alliance with Union Pay — the nation’s only state-backed issuer of six billion cards that are accepted at major retail stores all over China. They also enlisted participation from 19 Chinese banks, including its four largest. They even managed to get three million customers to link their cards to an Apple Pay account within the first two days the service was available. 
Full speed ahead? Not so much — it didn’t even make so much as a ripple in the marketplace. According to Brennan’s data, 67 percent of store clerks have no idea how the service even works — and built in, smartphone-based payments tools are an order of magnitude less popular among Chinese consumers than app-based systems that use the more understandable and accessible QR codes.
More at Pymnts.

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Legal challenges of network marketing - Mark Schaub

Mark Schaub
China has become the testing ground of many international network marketing companies, as many Chinese consumers prefer foreign brands. But apart from opportunities, Shanghai-based lawyer Mark Schaub also sees legal challenges of operating in this new promised land, he writes in Lexology.

Mark Schaub:
However, it is very important to note that despite this opportunity network marketers do face real and serious challenges in China: 
Pyramid selling or selling via multi-level marketing (MLM) is illegal in China. 
If Network Marketing companies wish to operate within China it is crucial that they adjust their business in order to operate legally. The main restrictions are that a distributor cannot earn compensation based on sales of products to distributors lower down the hierarchy or “down-line” in the same network. 
Non-compliance can have very serious repercussions: companies branded as being illegal pyramid schemes will face official investigation which will often result in the arrest of person-in-charge of affiliates within China and company executives who travel to China. In addition, the non-compliant company will quickly find out how fragile its business in China is – the Chinese authorities can quickly move to shut down the company’s website and all social media channels – given the importance of social media and the internet in most network marketing companies this will effectively shut down a company’s operations overnight. 
Many international Network Marketing companies are currently using cross-border e-commerce as a means to circumvent regulatory restrictions on MLM. Basically, international Network Marketing companies operate by selling offshore products or services into China and having the business operate offshore to the maximum extent possible. Many of these companies have been very successful in generating revenue and profit in China; some extremely so – indeed China has become the main market for a number of these companies as they abandon less lucrative markets. 
However, these “offshore” Network Marketing companies often fail to take into account the potential fragility of their business in China. They prefer to believe (or possibly pretend to believe) that their offshore model allows them to avoid the PRC’s legal restrictions on Network Marketing. Nothing could be further from the truth. If your business is operating in China then you are required to be compliant in China or risk the serious consequences of non-compliance outlined above. In some cases this will involve obtaining a Direct Sales License in other cases it may involve a fundamental revamping of the business model.
More issues on compliance in Lexology.

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Most Chinese firms not ready for major M&A - Ben Cavender

Ben Cavender
The sudden US$9.3 bn restructuring of the Dalian Wanda deals left many observers flabbergasted. Most companies in China simply do not have the experience to execute this kind of large deals, says business analyst Ben Cavender to the BBC.

The BBC:
The restructuring of the deal was "kind of crazy" said Ben Cavender, senior analyst with China Market Research. 
"It is very concerning, and it's very unusual at this late stage to have a $9bn deal, and then to have another deal with another company in place." 
He added Chinese firms were running into trouble because they did not have the due diligence or vetting in place for large mergers and acquisitions. 
"They put out a lot of press, then the regulators realise there's some issues that need to be addressed. I suspect that's what happened here." 
The initial transaction had been a surprise - not least because it represented a U-turn from Dalian Wanda's ambitions to expand in the tourism sector. 
The three Chinese theme parks had only opened in the past year, and were intended to compete with US giant Disney's ventures in the country.
More in the BBC.

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Wednesday, July 19, 2017

The trouble Wanda is in - Shaun Rein

Shaun Rein
China's richest man, Wang Jianlin, and his company Wanda, got kicked out of the Chinese lending system. Wanda is in deep trouble, says business analyst Shaun Rein to the South China Morning Post. Both in terms of assets backing up his purchases and political leverage.

The South China Morning Post:
The unprecedented instructions would close off any available avenue of financing for the highly leveraged Wanda, which may have contributed to Wang’s decision last week to sell the majority of his hotel and theme park holdings -- including a Harbin park that he’d opened barely two weeks earlier -- to Shanxi magnate Sun Hongbin for US$9.3 billion, in what would turn out to be the largest single real estate sale in China’s corporate history. 
“Wanda is in a lot of trouble,” said Shaun Rein, founder of the China Market Research Group. “ It remains to be seen how much of their growth was built on real asset development with cash flow and how much purely on borrowing money.”... 
“People forget that businessmen need to ensure they are low profile, and always give credit to the Communist Party first,” said Rein of China Market Research Group. “Sometimes as these guys get richer, they forget who’s really in charge.”
More in the South China Morning Post.

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How a game changes society - Matthew Brennan

Matthew Brennan
The Honor of Kings, a uniquely popular online game, is profoundly changing the Chinese society, says social media expert Matthew Brennan at eMarketer. Launched in November 2015 by tech giant Tencent, it even triggered off concerns by China's leadership.

eMarketer:
Tencent’s 2016 annual report stated that the game had amassed 200 million registered mobile users, including more than 50 million daily active users (DAUs). 
And according to data from mobile data provider QuestMobile, Honor of Kings led all mobile gaming apps in China with more than 180 million monthly active users (MAUs) in May of this year. HappyElements-owned Anipop was in second place, with 54.4 million fewer MAUs by QuestMobile’s count. 
That same month, Honor of Kings became the world’s top-grossing game as measured by revenues generated from Apple’s App Store and Google Play combined, according to data from app market research firm App Annie. And according to gaming industry database CNG, the game generated RMB5.5 billion (roughly $828 million) in revenues in Q1 2017 alone. 
Honor of Kings’ popularity has made it close to ubiquitous in China. “Now, wherever you see people using their phones around China, you can see that the game has a huge impact in society,” said Matthew Brennan, co-founder of China Channel. “People are making friends through the game and playing it together as a social activity,” he added.
More at eMarketer.

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Monday, July 17, 2017

US still top-destination for China's rich - Rupert Hoogewerf

Rupert Hoogewerf
Despite the election of Donald Trump, increased immigration barriers to the US and increased animosity between China and the US, the US is still the top destination for rich Chinese leaving their country, says China Rich List researcher Rupert Hoogewerf. Although the number of rich leaving their country is dropping, he tells the South China Morning Post.

The South China Morning Post:
The United States remains the top destination for rich Chinese investors looking to buy property and move overseas, according to a report released on the weekend.
The report, by Hurun Report and Visas Consulting, also said Chinese were more concerned about the depreciation of the yuan and their lack of knowledge about overseas investment. 
The assessments were based on interviews conducted between April and July with 304 Chinese who had already emigrated or planned to do so. Their average wealth was 20 million yuan (US$2.95 million or HK$23 million). 
Canada was the second most popular destination on the list, followed by Australia. Hong Kong was 15th. 
Within the US, the west coast had the greatest allure, particularly Los Angeles, Seattle and San Francisco. New York remained the fourth most popular city. 
For the fourth year in a row, education and “living environment” were the main forces driving rich Chinese overseas, the report said. Another major reason was access to better medical care. 
Nearly 20 per cent of the ­respondents said they were not confident about the country’s growth prospects. 
But the survey also revealed barriers to emigration. Almost 30 per cent of those surveyed said long waiting times were the biggest obstacle, ­followed by language barriers and difficulty in integrating into ­mainstream society. 
“Over the past decade, the number of Chinese rich considering immigration has remained at around 60 per cent, but this year [it] has come down to just under half, the lowest on record, but still not low,” Hurun Report chief ­researcher Rupert Hoogewerf said. 
More than 34 per cent of those surveyed said they were considering moving to a different city in China – a sign that property prices might stay high.
More in the South China Morning Post.

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One Belt, One Road needs much more debate - Zhang Ying

Zhang Ying
President Xi Jinping has embarked into a prestigious outbound investment program, One Belt, One Road (OBOR) worth trillions of US dollars. While the West has received the plan reluctantly positive, there is still much more debate needed at what it means for all participants, RSM business professor Zhang Ying explains in the EUReporter.

Zhang Ying:
Having participated in many forums about OBOR, my general observation is: for the West, OBOR is commonly accepted as a great idea. but the topic invokes lots of questions. Nobody seems to grasp that OBOR can function only as a joint project of all the participants involved. OBOR as an initiative proposed by China, is a global and a century project for helping to rebuild a better world order, however the ownership of OBOR rest with all the involved participants and not with China alone. This becomes evident when you look at the OBOR sister-project —- AIIB (Asian Infrastructure Investment Bank). This project has always been labeled a “crowdfunding, crowd-owned” project. 
Responding to such a concern, I believe that besides the East needs more patient and effort to help the West understand OBOR, including its past evidence, current reality, and the proposed prosperity of the future, more stakeholders need to join, and support more proactively the design of the project. My sense is that most of the audience at current is still confused about the rationale behind it, and couldn’t tell the difference between OBOR economic-social-environment formula and the current ones that each has been used to deal with for the current order of the world; meaning that different parties hold different calculations for OBOR, either desperate to attract Chinese investment, or hostile blaming unbalanced trade with China. Objectively speaking: All of these attitudes are not fact-respecting, with three arguments: Firstly, as for the world order in the past, if accepting the principle of competitive advantage, this opinion shouldn’t be supported, since respecting the rationale of competitive advantage and acknowledging the consequence of competitive advantage for each participants is the condition of free-market market; Secondly, as for the world order in the future, accepting the drive of the change and the consequences of the world order revision is the condition as well. Third, as for the current, accepting emerging countries such as China coming back (or saying catching up) and even leading up especially in terms of economy is the condition for the next round of preparation for globally inclusive growth.
More at the EUReporter.

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Reducing risk, at the expense of reform - Victor Shih

Victor Shih
China's leadership is setting a new economic agenda halfway July, and much of the measures focus on the reduction on risk, even if - says political scientist Victor Shih at Bloomberg - if that means announced financial reforms will be stalled.

Bloomberg:
China will proactively prevent and resolve systemic financial risks, and step up efforts to reduce leverage in the economy, the official Xinhua News Agency reported, citing Xi. He also called for greater accountability for regulators, saying it’s a “dereliction of duty” if they fail to spot and dispose of risks in a timely manner, and stressed that coordination of financial regulation should be improved, and weak links in supervision strengthened. 
“The heavy emphasis on risk prevention will put a damper on much-needed reform in the financial market,” such as developing derivatives markets, said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance. “With the wording on holding regulators for any signs of instability, they will definitely err on the side of caution. But if regulations are too stifling, financial talent may leave the country.” 
Premier Li Keqiang also spoke at the meeting, calling for moderate credit growth and keeping liquidity “basically stable,” according to state television. He backed “professional, consolidated, penetrating” regulation of all financial businesses to reduce risks.
More at Bloomberg.

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Online literature writers make fortunes - Rupert Hoogewerf

Rupert Hoogewerf
While much of the book publishers try to get their act together now readers go online, China boast even a top ten of literature writers, earning more than US$150 million each. Chief researcher Rupert Hoogewerf explains to Global Times why the Harry Potter franchise did so well, also in China.

Global Times:
On Wednesday (last week), the Hurun Research Institute and domestic IP management agency Mopian released the Mopian Hurun Most Valuable Creative Works IP 2017 list, which lists the top 100 most valuable literature IPs in China after 1998. 
Fights Breaks Sphere written by 27-year-old author Tiancan Tudou ranked first on the list. Other well-known works that have been adapted into other mediums such as TV shows or movies in recent years, including Nirvana in Fire, Fighter of the Destiny and Grave Robbers' Chronicles also made it into the top 10. In the Name of People, a novel that was recently adapted into the hit anti-graft TV show of the same name, came in at 21. 
According to Hoogewerf, the ranks of the works on the list were determined by looking at data such as online viewership, number of fans and the number of times a work has been recommended on literature platforms, followed by a second round of assessment during which the Hurun Research Institute and veteran literature editors gave these additional points based on their social influence and literary value... 
Talking about China's IP market, Hoogewerf mentioned the Harry Potter franchise, one of the highest-earning IPs in not just his home country but around the world. 
"The Harry Potter franchise and the huge industry behind it had a great impact on the British economy," he said. 
"And for me, it's a meaningful thing to participate in China's IP industry," Hoogewerf  said, mentioning that he hoped the list will help improve the confidence of people who are considering entering the IP industry.
More in Global Times.

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Friday, July 14, 2017

At the end of a century of shame - Howard French

Howard French
After a century of submission under foreign powers, China is winning back its old glory, and its influence in the region and the world, writes Howard French, author of Everything Under the Heavens: How the Past Helps Shape China's Push for Global Power at the New York Times.

Howard French:
At an ocean research center on Hainan Island off China’s southern coast, officials routinely usher visitors into a darkened screening room to watch a lavishly produced People’s Liberation Army video about China’s ambitions to reassert itself as a great maritime power. 
As enormous, new naval vessels plow through high seas, a deep male voice intones: “China’s oceanic and overseas interests are developing rapidly. Our land is vast, but we will not yield a single inch to foreigners.” 
The 2015 video is one of many signs that China is seeking to emulate the United States’ 19th-century policy of taking exclusive control of security in the Western Hemisphere by excluding foreign powers from the region. Without officially saying so, China hopes to impose a modern version of the Monroe Doctrine on its surrounding oceans.
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VPN access key for innovation - Andy Mok

Andy Mok
Panic struck when media reported China would ban all VPN activity in February 2018, allowing to circumvent China's internet censorship. That was a shock for many, and seems to have been confused with a business licensing system for VPN's. Whatever is going to happen, innovation and startups need unfettered access to VPN, says innovation expert Andy Mok to Bloomberg.

Bloomberg:
China’s government plans to allow businesses to keep using VPNs for access to the outside world -- if they obtain approval for corporate lines and register their usage. But it’s not clear how easily businesses will get VPNs approved and, even if they do, employees may be out of luck when they work from home or from their smartphones on the road. Ambitious entrepreneurs and startups may be hardest hit. 
“VPNs are absolutely critical and foundational to almost any businesses in China, large or small – and especially important for innovative businesses,” said Andy Mok, Beijing-based managing director at Red Pagoda Resources, which advises startups and other companies in China. “Denying access to VPNs in China would demolish the entire stack of the startup ecosystem here.” 
Chinese regulators for now are trying to assuage fears of a wider crackdown. The Ministry of Industry and Information Technology issued a statement Wednesday in which it emphasized its original January notice governing VPN use should remain the main point of reference, and promised not to sever legitimate means of accessing the global internet. Yet frequent users are mindful of the country’s spotty record on that front. 
Many software developers in China rely on overseas code libraries, which may be inaccessible without VPNs. For instance, the popular developers’ site Github was briefly blocked in China in 2013. 
“Despite all the advances that China has made, there’s still a lot of product innovations that happen abroad that entrepreneurs in China can and need to learn from, and they often learn through overseas news sites,” Mok said.
More in Bloomberg.

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Friday, July 07, 2017

Xi-Trump trade deal might be over - Arthur Kroeber

Arthur Kroeber
The deal between presidents Donald Trump and Xi Jinping on a mutual trade peace, reached a hundred days ago, might be over, and was not very realistic to start with, says economist Arthur Kroeber, author of China's Economy: What Everyone Needs to Know® to the South China Morning Post.

The South China Morning Post:
China’s trade surplus with the US was pegged at US$107 billion in the first four months of 2017, according to US Census Bureau data. That puts the surplus on course for a full-year 2017 imbalance on par with the US$347 billion recorded in 2016, which Trump used to back up his anti-China rhetoric before taking office in January. 
“Rumours continue to percolate that Trump is preparing for more aggressive trade action,” Arthur Kroeber, founding partner and managing director at Gavekal Dragonomics, said in a recent report. 
“The basic deal Trump thought he offered Xi at the Mar-a-Lago summit – a light touch on trade in exchange for more cooperation on North Korea – was absurdly unrealistic, given China’s obvious unwillingness to change its North Korea policy.” 
With reports due from the US Commerce Department on steel and aluminium trade and calls for more scrutiny of Chinese investments in the domestic tech sector, Trump has another card to play in Germany.
More in the South China Morning Post.

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US and China dominate list of young billionaires - Rupert Hoogewerf

Rupert Hoogewerf
Young and self-made billionaires are mostly coming from the US and China, says a new listing of the Hurun China Rich List. That should serve as a wake-up call for the rest of the world, says Hurun chief researcher Rupert Hoogewerf to the South China Morning Post.

The South China Morning Post:
In China, the top spot belongs to the man behind drone maker DJI, Frank Wang or Wang Tao in Chinese, with an estimated fortune of $4 billion, placing him ninth. Wang turned his Hong Kong dorm room start-up into one of the world's largest sellers of consumer drones and now supplies 70% of the market. 
All told, the United States is home to 20 of the individuals, followed by China's 18. US-based firms that have created more than one billionaire on the list include Uber, Snapchat and Airbnb. 
Rupert Hoogewerf, the chairman of Shanghai-based Hurun Report, said the rankings should serve as an international wake-up call. The domination by the US and Chinese entrepreneurs "should be pretty scary for the rest of the world", Hoogewerf said. The list also gave insight into the rapid speed at which massive wealth is created in the new economy.
More in the South China Morning Post.  Rupert Hoogewerf is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form. Are you looking for more stories by Rupert Hoogewerf? Do check out this list.  

Xi Jinping has few friends in the Party - Victor Shih

President Xi Jinping's position at the helm of his country seems pretty secure, says political analyst Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation to the Economist. Although, his support at the next layer in the Party seems pretty meagre, he adds.

The Economist:
Even so, Mr Xi’s authority remains hemmed in. True, his position at the highest level looks secure. But among the next layer of the elite, he has surprisingly few backers. Victor Shih of the University of California, San Diego, has tracked the various job-related and personal connections between the 205 full members of the party’s Central Committee, which embodies the broader elite. The body rubber-stamps Mr Xi’s decisions (there have been no recent rumours of open dissent within it). But the president needs enthusiastic support, as well as just a show of hands, to get his policies—such as badly needed economic reforms—implemented. According to Mr Shih, the president’s faction accounts for just 6% of the group. That does not help. 
Admittedly, this number should not be taken too literally: it is difficult to assign affiliations to many of the committee’s members. Doubtless, too, many members who are not in Mr Xi’s network support the president out of ambition or fear. Still, Mr Xi can rely on remarkably few loyal supporters in the Central Committee because he did not choose its members. They were selected at the same time he was chosen as party leader in 2012, a process overseen by the dominant figures of that period, Mr Hu and the long-retired Mr Jiang.
More in the Economist.

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Foreign auditors get more legal space - Paul Gillis

Paul Gillis
China has diminished limits on foreign businesses with its new negative list for 11 free trade zones. That includes accounting, writes Beida accounting professor Paul Gillis at his weblog, although most foreign accounting firms had already workarounds for most legal limitations of the past, he adds.

Paul Gillis:
Accounting was initially off limits to foreign investment. The international accounting firms entered in the early 1980s through representative offices that were not allowed to practice. In the early 1990s they were permitted to enter joint ventures with state-controlled CPA firms. In the late 1990s the state-controlled CPA firms were separated from the state. In the early 2010s the Big Four restructured into special general partnerships (SGP) that allowed up to 20% ownership by unlicensed foreign partners (started at 40% and phased down). 
Allowing any ownership by unlicensed foreign partners was a concession to the Big Four that is unique to China. I believe China is the only country that allows any unlicensed partners in CPA firms. The Big Four were built in China using foreign partners (mainly Hong Kong) although local partners are now in the majority. 
Included in the deal to allow foreign partners was a restriction that said the senior partner of the SGP must be a local Chinese. This restriction likely violated China’s WTO commitments to not have nationality based restrictions, but the Big Four figured out a workaround. They would nominate a local partner to be senior partner of the SGP, but all power was vested in the senior partner of the firm, who typically was a Hong Kong citizen based in Hong Kong. I do not believe any of the Big Four currently have a local Chinese senior partner, but I expect the next generation of senior partners will all be local Chinese. China has removed the nationality restriction on the senior partner of the SGP in the latest iteration of the negative list. I think this will have little effect since the Big Four effectively ignored the rule, although there may be a few Big Four partners with foreign passports whose career prospects have improved.
More at Paul Gillis' weblog.

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