Chinese Currency Reforms

For years, the U.S. has raised the issue that China has been unfairly manipulating its currency to gain an edge for its export-driven economy. Last month, ahead of the G20 Summit, China announced that it would allow for more exchange rate flexibility in its currency, the RMB, which led to a slight appreciation. China has indicated that the appreciation will be highly controlled and will not be allowed to fluctuate greatly, leaving many to believe that the RMB is still greatly undervalued.

The most significant result of the appreciation of the RMB is that it will put a strain on Chinese exporters and those businesses that rely on Chinese goods (e.g. Wal-Mart), ultimately leading to increased prices for American consumers. Even with only a slight 0.5% increase in June, many Chinese exporters (including those foreign companies that manufacture in China) have felt a squeeze on their profits.

The good news is that the rise in value of the RMB will open up many new opportunities for American businesses. Chinese consumers will have more buying power and will demand more foreign goods. The consumer luxury goods (automobiles, cosmetics, high-end retail) industry will be one of the largest benefactors, a demand U.S. companies are well-positioned to meet. In fact, both GM and Ford have both reported record sales this year and plan on expanding their operations in China. Chinese consumerism will drive the development and expansion of other industries as well.

Also, for those businesses with RMB assets in China, the rise in value of the RMB will also signal a rise in the value of those assets. Therefore, investments into China will likely appreciate in value along with the appreciation of the RMB.

It is inevitable that the RMB will appreciate in value; the only variables are when and by how much. For U.S. businesses, the key is to have a strategy in place so you are ready to take advantage of the opportunity.

Chinese Monetary Reforms

The Chinese government has been making a number of changes in the financial sector that have the potential to be very beneficial to foreign companies. Foreign companies now have unprecedented access to Chinese stock exchanges, which means the ability to tap into a great source of capital not previously available. Regulatory changes have allowed Chinese banks to become more sophisticated in their products and are better able to serve more complicated deals. Reforms have also made it possible for foreign companies to use the Renminbi (RMB, the Chinese currency) in cross border trade settlements. For those making a long term investment in China, using the RMB in account settlements has the potential for greater return on investment as the value of the currency increases.

New Focus for Business in China

For years, China is known as the factory of the world. With an abundant supply of relatively inexpensive labor, China has been manufacturing everything from toothpicks to airplanes for export to consumer nations. However, this trend can not continue. As China’s economy continues to grow at near double-digit levels, cost of doing business in China also grows. Those industries that rely mainly on low-cost labor to compete are increasingly finding themselves moving out of China and the Chinese government is encouraging this.

China is shifting away from its purely export culture. Through new policies and guidelines, the Chinese government has identified 3 new areas of focus: (1) domestic consumption; (2) high-tech and service industries; and (3) development of central and western China.

The global economic downturn had a devastating affect on the Chinese economy. Chinese economy relies heavily on exports. When the western world (U.S. and Europe) stopped consuming, Chinese exports suffered. The downturn forced the Chinese government and businesses to look inward and develop its domestic market. China passed a $586 billion stimulus package late 2008 to jump-start its economy. The government subsidized Chinese consumers to encourage spending. The biggest beneficiaries of the government stimulus package are the Chinese auto industry and the appliance and electronics industry. With the largest population in the world, China is the largest market in the world. The potential is there for foreign companies to start tapping into the Chinese market.

The second shift in the Chinese economy is from low-end manufacturing to high-tech and service industries (esp. alternative energy and healthcare). Through a combination of educating its massive workforce, government incentives, and improvements to its legal system, China is trying to attract more investment in the high-tech and service industries. Thus far, China’s efforts are working. A number of foreign companies are not only moving their regional headquarters to China, but also establishing research and development centers in China.

Lastly, the Chinese government is promoting development to central and western China. For years now, the investment and development have been mainly focused in the eastern and southern China (Shanghai, Beijing, Guangzhou, etc.). By improving its infrastructure (building roads, high-speed rails and airports), China is hoping to draw more investment to central and western China. The cost of doing business in these regions is still very low and there is a huge potential for foreign businesses in these regions.

There are a lot of opportunities in China. The key to success is knowing how to navigate the business and political culture in China.

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.