Google's Move Out of China

For years the elephant in the room for Google is how it can stick to its motto of "do no evil" and continue to censor its search engine in China. In Jan. of this year at its annual shareholders meeting Google announced that it will stop censorship in China even if it means they will have to pull out of the Chinese market. This triggered numerous back and forth very public statements by both Google and the Chinese government that resulted in deteriorating relations and Google ultimately (earlier this week) pulling out of China and directing traffic to its Hong Kong site.

For Google, it believes that its search engine was not competing effectively (around 30% market share) with Baidu.com (the Chinese counterpart). By pulling out of China, Google can appease its humanitarian conscious shareholders and focus on better performing markets.

However, feeling that they have lost face, the Chinese government is obviously very unhappy and have gone on the offensive. Under government pressure, Chinese mobile providers have cancelled deals with Google where Google was going to be provide mobile search functions in China and is cautious in selling mobile phones with the Google Android operating system. The second of these consequences may have a huge impact on Google. China is the worlds largest cell phone market and Google has a substantial market share. If it looses the cell phone market in China, Google will face many more issues.

Ultimately, Google can not stay out of China for long. In the long-term, whether for its search engine or mobile phone programs, Google will eventually need to tap into the Chinese market to compete successfully.

The following is a list of events I received from the Organization of Chinese Americans of Greater Cleveland regarding the various events celebrating the upcoming Chinese New Year (Year of the Tiger) on February 14:

Feb 6: Tzu Chi Foundation Chinese New Year Blessings Ceremony, from 2:00pm to 4:00pm. 1076 Ford Road, Highland Heights, OH 44143 Tel: (440)646-9292

Feb 13: Asia Plaza Chinese New Year Celebration with exhibition booths, cultural performances, and others. Starting at 11am until 7pm. 2999 Payne Avenue, Cleveland, OH 44114

Feb 20: Vietnamese Community of Greater Cleveland Lunar New Year Celebration, at Saigon Plaza, 5400 Detroit Avenue, Cleveland, Ohio, 6pm



Feb 20: Chinese Academy of Cleveland, 4:30pm – 7:30pm, 410/person with dinner and entertainment, Auditorium Shaker Heights Middle School, 20600 Shaker Blvd., Shaker Heights, OH 44122, Purchase tickets at Shaker Middle School (Cafeteria) on Jan 30, Feb 6, Feb 23 from 9:45am to 1pm.

Feb 20: Asians & Friends' 15th Annual Lunar New Year Dinner/Show/Dance will be on Sat, February 20, 2010, 6pm at Hunan Gourmet Chinese Restaurant. Ticket price is $35 (with AFC 2010 membership renewal), $40 for non members.

Feb 21: Cleveland Contemporary Chinese Cultural Association Chinese New Year Celebration @ Solon High School, from 1pm to 9pm

Feb 27: at 7pm on Saturday and on Sunday, Feb 28 at 3pm. Off-Broadway hit the New Shanghai Circus performing at about 85 miles away from Cleveland at the Mountaineer Casino with first time ever Dragon Dance Performance by Wah Lum Kung Fu School of Columbus. Tickets: $19 or VIP for $29 (which include preferred show seating; free $25 match play, free food voucher for the All-New Riverfront Buffet featuring an Asian & Noodle Bar Stations.), visit http://www.asianshowpro.com and check out video or order your tickets now!

Feb 28: CPEA’s Yuanxiao Jie celebration at CSU Student Center starting at 4pm

March 6: Downtown Cleveland Public Library Chinese New Year Celebration, starting at 1pm

In addition:

Lion Dance Performance by the Kwan Family:

Feb 6: Pearl of the Orient at 1pm
Hunan Fairlawn at 3pm

Feb 7: Bo Loong Chinese Restaurant at 6pm

Feb 13: Li Wah @ 12pm and 7pm
Gold Dragon at 2:30pm
China Gate at 4:30pm

Feb 14: Li Wah at 11am
Tink Hall at 1pm
Hunan Solon at 5pm

Feb 15: Li Wah at 7pm

Feb 16: Li Wah at 11am

Feb 20: Hunan Akron at 1pm
Gold Dragon at 3:30pm
Chinese School at 5:30pm
Li Wah at 7pm
Hunan Gourmet at 9pm

Feb 21: Imperial Dragon at 2pm
Hunan by the Falls at 5pm
Hunan Solon at 6pm
Bo Loong at 7pm

Feb 22: Hunan Medina at 6:30pm

Feb 25: Imperial Dragon at 7pm

Feb 27: King Wah at 3:30pm
Gold Dragon at 5pm

Feb 28: Imperial Dragon at 7pm

March 6: Cleveland Public Library at 1pm
Rotary Club at 7pm

March 7: Imperial Dragon at 7pm

China became the world's largest auto market in 2009 and reports predict the emerging markets of China, India and Brazil will lead global auto sales in 2010. Foreign auto makers such as GM, Ford, VW, BMW and Toyota have all been increasing their output capacity (esp. their luxury brands)in preparation for the growing Chinese market. Additionally, over the last year, Chinese domestic auto makers are acquiring foreign brands and technology to bolster their own capabilities. In 2010, as foreign auto makers target a luxury auto market in China, Chinese auto makers will likely make push into overseas markets for economy and green cars.

China's Push to go Green

China gets a lot of criticism for being the largest greenhouse gas emitter in the world (United States is second). However, few people know that China is also the world leader in the growth of its renewable energy sector. China hopes to generate 30% of its energy consumption from renewable resources by 2050. This push can been seen in a variety of different governmental measures.

First, Chinese government recently consolidated the energy industry and are pushing for the increase of hydro-electric, wind, solar and nuclear energy plants. China is in the mist of developing a wind farm with the potential for 40GW of power output. In fact the project is so large that is deemed the Three Gorges of the Land. China is also planning on starting construction on 10 new nuclear power plants each year to increase the power output.

Second, China is providing numerous incentives for firms with green energy technology. These incentives take form in tax breaks, lowered capital requirements, subsidies and other preferential treatments. The auto industry is where these incentives are most evident. Auto makers, both domestic and foreign, are encouraged to develop alternative energy cars.

Lastly, China is pushing its domestic industry to decrease pollution. Many of the environmental rules but in place for the Beijing Olympics are being phased in to become permanent. China has set tighter regulations on maximum emissions from coal power plants and close down many of the non-efficient ones.

China is in many ways still a developing country, so it is going to pollute heavily. However, it is encouraging to see that it is taking a step in the right direction. Also the opportunities for firms involved in renewable energy is endless and should consider China a great market.

Recently, trade disputes between China and the U.S. have grown in intensity. This is partially due to the global economic downturn. Countries are starting to look for ways to protect their domestic industries.

Earlier this month, in an effort to protect its domestic tire industry, the U.S. announced that it will impose tariffs on Chinese tire imports for the next 3 years: 35% for the 1st year, 30% for the 2nd year, and 25% for the 3rd year. However, this move may be more detrimental than helpful to the U.S. economy overall.

The United Steelworks Union claims that 5,000 jobs have been lost since 2004, due to the outsourcing of tire manufacturing. They claim that the new tariff would bring more jobs back to the U.S. It would be great if we can generate more jobs in the U.S. as a result of the tariff, but it is more likely that the tire manufacturers will just look to other countries to source their tires. The tariff is likely to help out Mexico more than the U.S. Additionally, as the tire prices increase, it is the American consumer that is hurt.

In a response to the U.S. tire tariffs, China has announced that it is looking into anti-dumping charges against U.S. imports of chicken products and auto parts. China also announced that it will extend anti-dumping duties of between 6% to 84% on U.S. imports of polyvinyl chloride (commonly known as PVC). The two countries are also involved in disputes over steel pipes, music and movies.

No matter what our opinion is on free trade, we can all agree that in this delicate economic climate, a trade war with China will not benefit anyone.

The Rio Tinto story in China has gotten a lot of press recently. For those of you who have not followed the story, on July 5, China detained 4 Rio Tinto employees, including its chief executive in Shanghai, Stern Hu, on suspicions of espionage. Then on August 12, the employees were formally arrested on suspicions of commercial bribery and trade secrets infringement (substantially less serious then espionage). The investigation is still ongoing, but has cause Rio Tinto to pull all of its employees out of the Shanghai office. Some people believe that the Chinese government's actions is partially an reaction to Rio Tinto's failure to close a $19.5 billion business deal with Aluminum Corporation of China.

This is a prime example of how the Chinese government uses its enforcement powers as a negotiating tool. It is highly likely that the Rio Tinto employees may have been involved in various degrees of bribery to gain unfair advantages or access to state trade secrets, but this conduct happens in China on a regular basis at different levels of the government. Corruption is a huge issue in China and, unfortunately, it is part of doing business there. The government often seriously cracks down on these activities when it suits their purposes or when the act is too egregious to ignore. The Rio Tinto case may be a combination of both of these factors. As a businessman in China, it is important to be especially sensitive when it comes to dealing with government officials. You must both know how to grease the gears, but also know what line not to cross.

Recently I was asked about the kind of investment opportunities in China and which industries should see China as a target market. China's Ministry of Commerce provides a catalogue of industries that it deems as either encouraged, restricted, or prohibited. Those companies that are in the encouraged industries listing would likely have a relatively easier time establishing a presence in China. MOFCOM lists the following as encouraged high technology industries:

Electronics and Information

1. Computer and Computer Peripheral Equipments
2. Microelectronics and Photoelectron device
3. Communication Equipment and Products
4. Broadcast and Television Technology and Products
5. Production equipment and test instrument for specialized techniques

Software and Outsourcing

1. System Software
2. Support Software
3. Application Software
4. Outsourcing

Aeronautics and Astronautics

1. Aircraft and Support Products
2. Ground Service Equipment
3. Commercial Carrier Rocket
4. Commercial spacecraft and ground facilities

Advanced Manufacture

1. Automated Machinery and Equipment
2. Key Basic Parts of Electromechanics
3. Instrumentation and System
4. Modern Transportation

Biomedicine and Medical Equipment

1. Biomedicine
2. Chemical medicine
3. Food Biotechnology and Products
4. New-type medical equipment

New Material

1. Metal Material
2. Inorganic Nonmetal material
3. Organic Macromolecule Material and Products
4. Composite Materials

New Energy and Efficient Energy Saving

1. New Type Energy and Equipment
2. Energy-saving Product

Environmental Protection

1. Atmospheric Pollution Prevention and Control Equipment
2. Water Pollution Prevention and Control Equipment
3. Solid Waste Disposal Equipment
4. Environment Monitoring Instrument

Geospace and Ocean

1. Reconnoitering and developing apparatus for energy sources and the mineral sources
2. Equipments for engineering meteraging and globe physical observation
3. Foundation Stability Exploration and Checkout for Large-scale project
4. Ocean Inspection Technology

Modern Agriculture

1. New breeds of choiced animals and plants
2. Fine breed's embryo biologic engineering products of the livestock
3. Biologic pesticide and biologic prevention products
4. New diagnostic reagent and biologic vaccine
5. New fertilizer
6. New high-efficiency feedstuff and additive
7. Agricultural engineering apparatus
8. Apparatus for the storage of agricultural products and byproducts,and the processing of the new tech-products

Outside of these high technology industries, the catalogue also lists numerous other industries that are encouraged by the Chinese government