Chinese Economics Thread

[mr.bean]

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Canberra set to sign for China-led bank

The Australian
October 13, 2014 12:00AM

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AUSTRALIA is close to joining a Chinese government plan to create a $50 billion infrastructure bank despite US objections about the way the cash could be used to extend China’s power throughout Asia.

In a test of regional loyalties, the Abbott government is likely to back the fund next month, complementing a wider agenda at the G20 summit in Brisbane to use mammoth infrastructure spending to lift the global economy.

The Australian has been told the commitment to the Asia Infrastructure Investment Bank is subject to checks on its governance and leadership, similar to concerns expressed by others about voting rights for those who sign up.

An agreement would tighten links between Canberra and Beijing just as ministers enter final talks on a free-trade agreement that could dramatically expand two-way trade already worth more than $150bn a year.

In a sign of Australian concern about Beijing’s actions, Joe Hockey used a closed session of the International Monetary Fund on Saturday to warn against China’s surprise decision last week to impose tariffs on coal imports.

The deal on China’s new bank would deliver hard financial commitments to match the talk from economic leaders in recent days at the G20, the IMF and the World Bank, where many have called for urgent steps to spur growth.

But there are deep tensions around the Chinese plan, with the The New York Times reporting US officials were pressing Australia and South Korea to spurn the new bank because it would undermine the World Bank and the Asian Development Bank, both set up with support from the US and Japan. The US saw the AIIB as a “soft-power” exercise that would draw Asian countries closer to Beijing’s orbit, the report said.

There were doubts yesterday about the scale of US concern, however, with one source saying the Treasury was not alarmed.

Australia and South Korea are said to be working together on *issues around the governance and leadership of the AIIB.

Chinese president Xi Jinping is expected to formally announce the bank when he hosts the Asia- Pacific Economic Co-operation meeting on November 10 and 11.

That could see Tony Abbott signing up to the AIIB in Beijing a few days before he hosts Mr Xi and other leaders at the G20 summit in Brisbane on November 15 and 16.

One source said there was a “reasonable chance” Australia would sign. A second source said he thought the federal government had decided to back the plan.

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Why the US Is Trying to Squash China's New Development Bank

The U.S. has been lobbying Asian nations to persuade them to reject China’s Asian Infrastructure Investment Bank.

if this is true then there is only south korea left. both india and Singapore have agreed to join AIIB. let's see if American arm twisting will work with the south Koreans.

 

[broadsword]

if this is true then there is only south korea left. both india and Singapore have agreed to join AIIB. let's see if American arm twisting will work with the south Koreans.

S Korea will not be dissuaded. There are no espionage or copyright issues.

 

[AssassinsMace]

It says a lot that the US is supposedly quietly lobbying countries not to join because to openly protest against it will bring up, "Why not?" If the US is arguing that China doesn't uphold the will the of the world, then there would be no need to lobby against. And if you've noticed who's even more quiet is Japan. They probably more than the US don't want this to go through. Having them speak up probably works against them more hence why the US is doing the lobbying.

 

[shen]

The fact we read about "quiet American effort" in the press means that someone leaked the story to the press. It could suggest that these "quiet effort" haven't worked, and the last desperate attempt is to drum up public opposition. Expect gloves off nasty tricks phase to begin.

 

[mr.bean]

S Korea will not be dissuaded. There are no espionage or copyright issues.

india and Singapore jumped immediately at the chance to be a major shareholder of a regional policy bank when china offered them, who wouldn't? but china made the offer to S.Korea before india and Singapore but they still haven't confirmed yet and it's because of American pressure. it's interesting to see what seoul's decision will be. Beijing should offer Taipei too, it's a great way to start ''cross strait financial cooperation''.

 

[shen]

india and Singapore jumped immediately at the chance to be a major shareholder of a regional policy bank when china offered them, who wouldn't? but china made the offer to S.Korea before india and Singapore but they still haven't confirmed yet and it's because of American pressure. it's interesting to see what seoul's decision will be. Beijing should offer Taipei too, it's a great way to start ''cross strait financial cooperation''.

South Korea just want to get the best deal the can.

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[Blackstone]

The Harvard Business Review has a good article on Xiaomi's Smartphone business model innovation taking the market by storm, and it's likely to be disruptive all over the world. Regular readers of SDF already know about increasing Chinese innovation across a broad front of science, technology, products, and services, but now the Ivy League's getting the memo.

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Determining which customer to target first is one of the most critical decisions in the entrepreneurial process. Customers that are relatively less risky and more predictable can make it easier for new to firms gain a market foothold. One such set of customers is the nascent middle class in emerging economies.

Why? First, as their financial situation improves they are anxious to buy new things. Not quite able to afford the top brands, they’re nevertheless willing to pay a little more for something they perceive might be close. Second, because they can’t yet afford the high-margin top brands, they’re not all that attractive to incumbents worried about generating enough cash to cover their high fixed and variable costs. So they exist in a sweet spot from an entrepreneur’s point of view: rich and numerous enough to fuel a start-up’s growth and also poor enough not to spur incumbents to respond.

Xiaomi, the four-year-old Chinese smartphone manufacturer, has found just such a sweet spot, and as a result is taking the smartphone industry by a storm. Pundits claim that Xiaomi is just a Chinese copycat of Apple, and not without some reason. Some point to Xiaomi’s product introductions, which are eerily just like Apple’s. Others point out the strong similarities between Xiaomi’s operating system (named MIUI) and Apple’s iOS. What’s more, Xiaomi’s products rank among the best in the industry in terms of performance. All these cues might lead us to believe that it is competing head to head with the leading smartphone manufacturers.

However, looking at the full extent of Xiaomi’s business model reveals just how different – and how disruptive — it is. For starters, unlike Apple, Xiaomi is not targeting premium customers; it’s mostly teens buying those high-quality phones, and hardly at a premium, since Xiaomi’s prices are at least 60% lower. A neat trick. How does Xiaomi pull that off?

To sell high-quality cell phones at so low a price, Xiaomi keeps each model on the market far longer than Apple does. On average, a new version of a phone is launched every 265 days in the industry – down from 345 days in 2009. But Xiaomi doesn’t renew its product for two years. Then, rather than charge high prices to cover the high cost of state-of-the-art components, Xiaomi prices the phone just a little higher than the total cost of all its components. As component costs drop over the two-year period by more than 90%, Xiaomi maintains its original price, and pockets the difference. So essentially its profit formula is the opposite of Apple’s, which collects its highest profits with the introduction of each model and needs to come up with new model after new model to keep those margins up.

When you consider how much easier it might be to profit from plummeting component prices than from continual new feature development (which sooner or later will likely overshoot the needs of most cell phone customers in any event), the disruptive potential of the model becomes clear.

One might worry that other low-end competitors could easily copy this clever model, and to forestall that, Xiaomi has devised a creative way to create some of the mystique Apple is so justly noted for. Essentially it markets its phones to its price-constrained but status-conscious teen base in much the same way that rock band promoters sell concert tickets. Through an online retailer called Flipkart, potential buyers preregister for a short sales window. They’re required to stay online for at least two hours before the sale starts, and then only the first 20,000 lucky buyers get the opportunity to purchase. Human nature being what it is, after this awful experience, buyers end up wanting the phone even more.

Xiaomi is close to meeting its target of selling 60 million phones in 2014 with a business model well suited to expansion into other developing economies. In a classical reaction to disruptive innovation, the largest smartphone manufacturers were at first not motivated to seriously challenge Xiaomi, since they could not be profitable at the price these customers are able to pay. Now that Xiaomi is becoming a significant competitor, the incumbents are still barely reacting, launching simplified versions of their mature flagship products, as Apple did with the iPhone 5c. But these are perceived as outdated, as newer models, like the iPhone 6, are introduced amid great fanfare in wealthier markets, and often end up being discontinued.

So far from being a copycat, Xiaomi presents a knotty disruptive challenge to the largest smartphone manufacturers. As it continues to expand in developing economies by marketing to the emerging middle class, it remains sheltered from the competition by its margins and the way it makes products profitable. Sooner rather than later, as it continues to propagate its new business model, this disruptive competitor is going to change how this industry works.

 

[broadsword]

The Harvard Business Review has a good article on Xiaomi's Smartphone business model innovation taking the market by storm, and it's likely to be disruptive all over the world. Regular readers of SDF already know about increasing Chinese innovation across a broad front of science, technology, products, and services, but now the Ivy League's getting the memo.

Xiaomi's marketing may be innovative but it's products are hardly. It uses the Android operative system, but from what I read, it's workings are Apple-esque, so much so that Jon Ove, Apple's chief designer, is not happy with Xiaomi. Xiaomi may have legal issues if it tries to enter the US market.

 

[Blackstone]

Xiaomi's marketing may be innovative but it's products are hardly. It uses the Android operative system, but from what I read, it's workings are Apple-esque, so much so that Jon Ove, Apple's chief designer, is not happy with Xiaomi. Xiaomi may have legal issues if it tries to enter the US market.

People could accuse others of anything they want, but without proof it's empty talk, or worse. Jonathan Ive, designer of iPhones and iPads, admitted he "might have exagrrated" Xiaomi "copying" in the linked article, and were I Lin Bin, I'd demand Ive try out the Xiaomi and publically apologize if he was wrong.

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Xiaomi, which has become a major smartphone manufacturer, is accused by Apple's Jonathan Ive for copying iPhone designs. Hugo Barra, the vice president of Xiaomi, has consistently denied the accusation.

Reuters
Lei Jun, founder and CEO of China's mobile company Xiaomi, shows the new features at a launch ceremony of Xiaomi Phone 4, in Beijing, July 22, 2014. China's Xiaomi unveiled on Tuesday its new flagship Mi 4 smartphone, aimed squarely at the premium handset market dominated by Apple Inc and Samsung Electronics Co Ltd.

Jonathan Ive, the person who designs the iPhones and iPads, is certainly not happy about the fact that his designs are "copied" by other smartphone brands. According to PhoneArena, when Ive was asked on how he feels about Xiaomi smartphones during the Vanity Fair New Establishment Summit, he answered by saying, "I see it as theft, and it's lazy." He also added that "a beautiful product that doesn't work very well is ugly."

Ive has also accused Xiaomi for copying the design of iOS for its MIUI skin. However, according to the report, later on Ive acknowledged that he might have exaggerated on the issue. Lin Bin, the President of Xiaomi, responded calmly by urging him to try a Xiaomi smartphone.

Bin said that Xiaomi does not put pressure on any person to try their products. Hence, only people who have used their products can rightly judge the quality. Bin even suggested gifting a Xiaomi handset to Ive. He added that he would eagerly wait Ive's feedback after using the handset.

Established in 2010, Xiaomi's popularity has considerably increased in the recent years. According to a report from Canalys, Xiaomi has grown to become the most popular smartphone brand in China, surpassing Apple and Samsung.

According to IBNLive, the major focus of Xiaomi is to increase its productivity. During the first six months of 2014, the Chinese manufacturer has produced 26 million handsets, and by the end of the year, it aims to manufacture more than 60 million handsets.

The Apple iPhone 6 and the iPhone 6 Plus are available for preorders in China. The popularity of the new iPhone 6 in China has resulted in more than 1 million customers preordering the new handsets in every six hours. The iPhone 6 and the iPhone 6 Plus are expected to be released in China on October 17.

 

[xiabonan]

I don't see a problem in "copying" the best out there.

If I can copy to 90% accuracy, and sell at 40% of the price, guess what? I'll still make money.