Archive for August, 2015

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10/08/2015

5 Things to Know about Foxconn’s Overseas Ambitions – WSJ

Foxconn, Apple Inc.’s major assembler, has signed a preliminary deal with India’s Maharashtra state to invest $5 billion in factories and research facilities in coming years. But the company, officially known as Hon Hai Precision Industry Co., has a history of making ambitious statements and floating investment ideas that haven’t materialized. Here are five things to know about Foxconn’s overseas ambitions.

Deutsch: Foxconn Logo

Deutsch: Foxconn Logo (Photo credit: Wikipedia)

1 India isn’t its first billion-dollar bet

In 2011, Foxconn agreed to invest $12 billion in Brazil to create a new supply chain that it had hoped will generate jobs. But four years later, Foxconn’s investment in Brazil has been much smaller than the pledged amount. It is still struggling to improve the manufacturing operations at its plants for iPhones and iPads there citing its inefficient labor force. The company has also been in talks for a new plant investment in Indonesia for years.  The Indonesian government once said that Foxconn would invest up to $10 billion, but plans remain in limbo due to political snags.

2 Why India?

While China remains the world’s largest smartphone market by shipments, India has the biggest growth potential for the next 5 years, says Bernstein analyst Mark Li. India recently raised taxes on mobile phones imported to the country to 12.5% from 6%, spurring global handset makers to look at ways to manufacture devices locally.

3 Sign of shift in manufacturing to India from China?

Analysts say it is unlikely that India will overtake China to become the company’s main production base in the next few years as China has an well-established supply chain ecosystem. India still lacks good infrastructure and favorable tax and labor policies, making it a less attractive destination for tech manufacturing.

4 Foxconn Chairman Terry Gou always aims for the best deal

The agreement with the Indian government is non-binding. Foxconn Chairman Terry Gou usually gives a rosy picture about the company’s potential investments when he negotiates with government officials. But only a few investment plans materialize as he wants favorable terms including big tax incentives and free land that most governments can’t accommodate.

5 Foxconn seeks other investment opportunities in India

The company and Chinese e-commerce giant Alibaba Group Holding Ltd. are in talks to jointly invest about $500 million in Snapdeal.com, a five-year-old Indian e-commerce startup. The deal would give Foxconn a retail foothold in India where it has experienced booming demand for smartphones. Foxconn is also setting up a new production site for Chinese smartphone maker Xiaomi Corp. in India.

via 5 Things to Know about Foxconn’s Overseas Ambitions – WSJ.

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10/08/2015

China’s Xiaomi to Make Smartphones in India – India Real Time – WSJ

Chinese smartphone maker Xiaomi Corp. will begin manufacturing phones in the southern Indian state of Andhra Pradesh, according to the state’s highest elected official.

A tweet from the verified account of N. Chandrababu Naidu, the state’s chief minister, said Xiaomi would announce the move today.

Xiaomi’s move follows Taiwanese contract manufacturer Foxconn’s announcement Saturday that it plans to spend $5 billion on factories and research and development in the western state of Maharashtra. Foxconn, known officially as Hon Hai Precision Industry Co. assembles Apple Inc. iPhones and as well as most of Xiaomi’s phones. Foxconn has a plant in Andhra Pradesh.

The Indian government amended its customs rules recently to make it more attractive to make electronic goods in India, as it seeks to boost manufacturing, create jobs and reduce reliance on expensive imports from China.

via China’s Xiaomi to Make Smartphones in India – India Real Time – WSJ.

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10/08/2015

‘Silicon Valley’ China

The following was in answer to a series of questions by a journalist from International Finance Magazine.

The specific questions and answers are:

> Do you think China can be the next Silicon Valley? Indubitably

> What are your reasons? See this paper

> What according to you are the differentiating factors between China and Silicon Valley? Longevity, experience and culture including education system.

> Which are the areas where China scores points over Silicon Valley and which are the areas wherein it needs to improve?Whereas the US has a Silicon Valley and the area around Boston, China has several dozen ‘silicon valleys’ though most are in embryonic stage. Whereas the US Silicon Valley has a long history of success, which breeds success, the Chinese ones are all very new, although the oldest Zhongquancun in a Beijing suburb dates from the 80s; and in 2014 launched nearly 50 tech start-ups. See III.

> What steps does China need to take to have more of AliBabas in the country? See this paper which suggests that steps are already being taken.

> Some say that there is no dearth of money in China and hence there are many VCs and private equity firms. However, what is lacking is a disciplined approach. Your take on this. Agreed. However, the two magnets for investment in the past have been real estate and the so-called stock market, which is another name for legalized gambling.  Both have suffered reverses, property for a while and recently the stock market.  The Chinese investor is a quick learner.  Sooner rather than later they will turn to instruments and institutions that invest in innovation.

> How well are the young Chinese embracing entrepreneurship? The young in general are following the old path of secure jobs in government or established industry.  But with 1.3 billion people, there are enough youngsters interested in innovation and entrepreneurship for them to be a real force.

>Does the education system in China foster this? No it does not, See II – 3. last para.

 ==================

I believe that China is rapidly catching up with the US in innovation and entrepreneurship.  I say this for four reasons:

i. China has always been innovative and inventive.

ii. The Chinese government sees innovation and entrepreneurship as the solution to its rapidly dated ‘cheap’ mass manufacturing. It knows that China is experiencing its version of the industrial revolution in a fraction of the time it took the west and needs a new trick up its sleeve if China is not to be relegated to a third-world nation once again.

iii. China is already innovative and entrepreneurial in practice and speeding up the learning curve at the same speed it took up industrialization after Deng.

iv. Some respected ‘guru’s think so too.

I.   China has always been innovative and very inventive.

 We have all heard of gunpowder, movable press, paper making and the compass.  In 1948, Joseph Needham, Cambridge University set out to document Chinese innovation – https://en.wikipedia.org/wiki/Joseph_Needham Needham had heard a lot about this and was slightly skeptical, so he started professional research on it.  Today, his work – Science and Civilisation in China  – is still in progress although he passed away.  Seven volumes in 27 books have been published so far and the end is not in sight.  To help the lay reader, Prof Robert Temple has written a short book on it – The Genius of China –http://www.curledup.com/geniusch.htm

II.  The Chinese government is focused on innovation and entrepreneurship.

It knows that its current USP, inexpensive and mass manufacturing will not last.  In fact, in some low tech areas it is discouraging any new factories.  It has also been steadily pushing up the minimum wage, thereby discoursing such manufacturing. In my view it has done four specific things to encourage innovation and entrepreneurship:

  1. Five-year plans, in particular:
  1. a. the 12th (2011 – 2015) – http://www.c2es.org/international/key-country-policies/china/energy-climate-goals-twelfth-five-year-plan – which included this section:

              Old pillar industries               The new strategic and emerging industries

1 National defense Energy saving and environmental protection
2 Telecom Next generation information technology
3 Electricity Biotechnology
4 Oil High-end manufacturing (e.g. aeronautics, high speed rail)
5 Coal New energy (nuclear, solar, wind, biomass)
6 Airlines New materials (special and high performance composites)
7 Marine shipping Clean energy vehicles (PHEVs and electric cars)

Sources: “Decision on speeding up the cultivation and development of emerging strategic industries,” http://www.gov.cn, September 8, 2010, http://www.gov.cn/ldhd/2010-09/08/content_1698604.htm; HSBC, China’s next 5-year plan: What it means for equity markets, October 2010.

1.b and the 13th (2016 – 2020) – http://www.chinabusinessreview.com/understanding-chinas-13th-five-year-plan/ – one of whose aims is likely to be “to support emerging industries”

  1. “Made in China 2025” policy – http://www.chinadaily.com.cn/bizchina/2015-05/19/content_20760528.htm -The 10 key sectors are new information technology, numerical control tools and robotics,aerospace equipment, ocean engineering equipment and high-tech ships, railway equipment,energy saving and new energy vehicles, power equipment, new materials, biological medicineand medical devices, and agricultural machinery.
  2. “Mass innovation and entrepreneurship” – http://www.chinadaily.com.cn/business/tech/2015-01/29/content_19436562.htm– “Chinawill foster a platform offering low-cost services in a variety of areasto micro businesses and individual start-ups that show

The government will also step up policy support, such as simplifying registration proceduresand giving subsidies, to innovative businesses. They will improve financing systems to givespecial support to start-up companies, according to the statement.

Although China’s broader economy is slowing, China’s young entrepreneurs are driving awave of startups that has become a bright spot for the economic landscape and an importantengine for future growth.

The number of newly founded companies in China surged almost 46 percent year on year to3.65 million in 2014, the latest data showed.”

China is very aware that the current education system does not foster innovation or entrepreneurship; so it is proposing major reform – http://www.chinadaily.com.cn/china/2015twosession/2015-03/11/content_19783458.htm – Current Chinese education has been criticized by many for being rigid and killing students’ imagination. In many exams, students are supposed to memorize the standard answer instead of putting forward their own ideas.

“Innovation requires the ability to seek different answers to the same question, through which they still reach the right destination,”

http://news.xinhuanet.com/english/china/2015-01/28/c_133954148.htm – “China’s State Council pledged to take various steps to create an amicable environment for innovation and entrepreneurship in order to power growth and generate jobs. … Although China’s broader economy is slowing, China’s young entrepreneurs are driving a wave of startups that has become a bright spot for the economic landscape and an important engine for future growth.

The number of newly founded companies in China surged almost 46 percent year on year to 3.65 million in 2014, the latest data showed.”

III. Innovation in practice

In practice, China now leads in world patent filing – https://chindia-alert.org/2015/05/21/patent-applications-lead-the-worldfocuschinadaily-com-cn/ – though in terms of patents filed in the US it is still behind Japan.

Chinese ‘silicon valleys’ – in addition to Zhongquancun, opened in the 80s – 80s –http://www.forbes.com/sites/ruima/2014/10/20/one-billion-chinese-entrepreneurs/andhttp://www.bloomberg.com/news/articles/2015-03-11/china-s-silicon-valley-sparking-49-technology-startups-a-day.  there are dozens around the country.  It seems the ‘copycat’ syndrome applies to coy-catting innovation and entrepreneurship!- http://www.bloomberg.com/news/articles/2015-07-23/china-wants-silicon-valleys-everywhere

Chinese innovative products include, of course, AliBaba; but also, according to Forbes, in eight ‘industries –http://www.forbes.com/sites/anaswanson/2014/11/30/eight-innovative-industries-china-does-better-than-anywhere-else/:

  1. Micropayments
  2. E-commerce
  3. Delivery services
  4. Online investment products
  5. Cheap smart phones
  6. High speed rail
  7. Hydroelectricity
  8. DNA sequencing

IV.From ‘guru’s

You do not need to take my word for it, see comments by:

  1. Kai-Fu Lee, Google exec – http://blogs.wsj.com/chinarealtime/2015/07/30/behind-the-surge-in-chinese-tech-startups/?mod=chinablog&mod=chinablog
  2. McKinsey & Co – http://www.mckinsey.com/insights/asia-pacific/a_ceos_guide_to_innovation_in_china

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07/08/2015

Where You Can and Can’t Eat Beef in India – India Real Time – WSJ

The treatment of cows, animals considered sacred by India’s Hindu majority, has long stirred political controversy in the country –and now conservatives, emboldened by the first year of the Hindu nationalist government, are stepping up their campaign to protect them.

In many Indian states, the slaughter of cows is already illegal, making it difficult to buy, sell, and, as a result, eat, beef.

Some conservative Hindus want Indian Prime Minister Narendra Modi and his Bharatiya Janata Party government to enact a federal law banning cow slaughter. They are “encouraged to be aggressive under the Modi regime and this is to be expected,” said Swaminathan S. Anklesaria Aiyar, an Indian specialist at the Cato Institute in Washington.

 

The party argues that protecting the animal is in line with India’s constitution, which includes language calling for the prohibition of the slaughter of cows.

In Maharashtra, where killing the animal is illegal, a new law in March banned the possession of beef and also the slaughter of bulls and bullocks. Running afoul of the new law can lead to a jail term of up to five years or a fine of up to 10,000 rupees ($156) or both.

The amendment was passed by the state government in 1995 and received the president’s nod in March.

In the same month, the state assembly of Haryana passed a bill containing stricter punishments for the animal’s slaughter. It is still waiting for the president’s approval, a senior official at the state’s animal husbandry department said.

States such as Uttar Pradesh, Andhra Pradesh and Punjab, which are at the heart of India’s buffalo meat industry, have also imposed complete bans on killing cows. The practice is outlawed in the capital city of Delhi. Other major states with bans include Bihar, Tamil Nadu, Madhya Pradesh, Himachal Pradesh, Karnataka and Orissa.

In Gujarat, Mr. Modi’s home state, India’s Supreme Court upheld the state’s law that prohibits killing of cows, bulls and bullocks in 2005, overturning the decision of the Gujarat High Court that ruled against a blanket ban on bull and bullock slaughter. But in 2011, sentences for people caught killing cows were increased from six months to seven years.

West Bengal, which has a higher than average population of Muslims, is slightly more lenient and allows the killing of cows if they are “fit-for-slaughter.”  A senior official in the animal husbandry department in Assam said that such a certificate would also permit the slaughter of cows in that state but usually only during the Islamic religious festival of Eid.

Overall, 24 of India’s 29 states–including the newest state of Telangana–have imposed penalties  and restrictions of varying degrees on the slaughter of cows and other cattle.

Meanwhile, in the southern state of Kerala, where beef dishes are popular and which has a larger than average proportion of Christians, there is no statewide legislation restricting cow slaughter.

And the northeastern states of Arunachal Pradesh, Meghalaya, Mizoram, Nagaland and the territory of Lakshadweep also have no legislation banning or prohibiting slaughter of cows and other cattle.

Rajnath Singh, India’s home minister, failed to persuade Parliament to pass nationwide legislation banning the slaughter of cows in 2003 when he was agriculture minister. “The moment I rose to present the bill in the Parliament, there was an uproar and the bill couldn’t be passed,” he said in a speech in March.

This time, however, Mr. Singh said the government will do everything in its power to ban cow slaughter in the country. But BJP’s success in getting such a legislation cleared by the Parliament is not guaranteed as it is short of a majority in the upper house.

via Where You Can and Can’t Eat Beef in India – India Real Time – WSJ.

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07/08/2015

China’s Unsinkable Aircraft Carriers – China Real Time Report – WSJ

What should the U.S. do about China’s increased assertiveness in the South China Sea? As the Brookings Institution’s Michael O’Hanlon writes:

Beijing claims almost the whole sea—land formations, seabeds and open waters alike—and of late has been literally creating new facts on the ground, constructing 2,000 acres of artificial islands where only shoals or sand bars once existed. Beijing now says those efforts are nearly complete but acknowledges plans to place military assets on the islands, some of which may include substantial airfields.

Washington is deeply concerned and should continue pushing back against any Chinese enforcement of its “nine-dash line” claim to 85% of the region’s map. But the U.S. can’t stop China from building or modestly militarizing its new islands, nor should it try. Even if it rattles nerves from Tokyo to Manila, Hanoi and Washington, Beijing’s campaign is little more than an asymmetric way of establishing regional military presence—and one that even mimics American behavior over the years.

via China’s Unsinkable Aircraft Carriers – China Real Time Report – WSJ.

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02/08/2015

China to expand medical insurance for major illnesses | Reuters

China will expand medical insurance to cover all critical illnesses for all urban and rural residents by the end of the year, the cabinet said on Sunday, the latest step in a plan to fix a healthcare system that has sparked public discontent.

The State Council said 50 percent of the medical costs will be covered by insurance in a bid to “more effectively reduce the burden of medical expenses”, in a statement posted on the government’s website.

President Xi Jinping‘s government has touted access to affordable healthcare as a key platform of his administration, underscoring the importance of meeting the needs of the nearly 1.4 billion people, many of whom have often complained of large out-of-pocket expenses due to low levels of insurance coverage.

Many people say the cost of serious illnesses such as cancer and diabetes can bankrupt households under the current system.

The aim of expanding health insurance was to “effectively alleviate poverty caused by illness” and to build a strong universal healthcare system, the State Council said.

Since 2009, China has spent 3 trillion yuan ($480 billion) on healthcare reform, but the system still struggles with a scarcity of doctors, attacks by patients on medical staff and a fragmented drug distribution and retail market.

Economists say it is crucial for China to improve the quality of its healthcare if it wishes to remake its economy and boost domestic consumption. They say a stronger safety net will encourage Chinese to spend more and save less.

China’s healthcare spending is set to hit $1 trillion by 2020, up from $357 billion in 2011, according to McKinsey & Co, attracting a rapid inflow of money from private insurers, hospital operators and other investors.

via China to expand medical insurance for major illnesses | Reuters.

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01/08/2015

China’s Bohai bids $2.6 billion for aircraft leasing firm Avolon | Reuters

China’s Bohai Leasing Co Ltd 000415.SZ has offered to buy Irish rival Avolon (AVOL.N) for $2.55 billion, a 55 percent premium over its December initial public offering, the Irish firm said on Friday.

Traders gather for the IPO of Avolon Holdings Ltd. on the floor of the New York Stock Exchange December 12, 2014. REUTERS/Brendan McDermid

Avolon said it was considering Bohai’s $31 per share offer and a rival $30 per share bid from an unidentified bidder and was in contact with both parties.

Shares in U.S.-listed Avolon opened up 20 percent on Friday at $29.8, before falling back to $28, compared to a price of $20 when it listed in December.

Bohai, a unit of aviation and shipping conglomerate HNA Group, earlier this month offered to buy 20 percent of Avolon for $429 million at $26 per share, an offer that is now being put to shareholders.

But it offered to buy the whole company when it was informed of the third party bid.

“Avolon’s Board of Directors has not accepted or rejected either offer and continues to carefully evaluate these … and has authorized its financial advisors to continue negotiations with both,” Avolon said in a statement.

The purchase would boost HNA’s access to a global aircraft leasing market dominated by GE Capital and AerCap Holdings NV (AER.N).

Chinese lessors, mostly backed by state-owned banks, have been expanding in recent years as large carriers such as Hainan Airlines Co Ltd (600221.SS), Air China Ltd (0753.HK), China Eastern Airlines Corp Ltd (0670.HK) and China Southern Airlines Co Ltd (1055.HK) opened more routes at home and overseas.

Ahead of Avolon’s IPO, China Investment Corp (CIC) and AVIC Capital Co Ltd (600705.SS) were in talks to acquire Avolon.

Avolon, which was founded by leasing entrepreneurs Domhnal Slattery and John Higgins in 2010, owns or managed 152 aircraft at the end of June and had over 100 more on order.

via China’s Bohai bids $2.6 billion for aircraft leasing firm Avolon | Reuters.

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