Tagged: China

The Clash of Two Shanghai Secrets

Thomas Friedman wrote an op-ed article in the New York Times he probably wished it never happened. “The Shanghai Secret“, as the op-ed is titled, received a blistering response from Ann Qiu. It’s not like Thomas Friedman said anything outrageous. By contrary, the article is as inoffensive as it can be, similar to many other written on the subject of China’s extraordinary focus on achieving international reputation in education. Anyone following the PISA rankings knows that the Shanghai region is included in this list as a country. Everyone was surprised when it topped the PISA score ranking in 2009.

After visiting Shanghai’s Qiangwei Primary School, Thomas Friedman declares he found the secret of Shanghai’s schooling performance: ” a deep commitment to teacher training, peer-to-peer learning and constant professional development, a deep involvement of parents in their children’s learning, an insistence by the school’s leadership on the highest standards and a culture that prizes education and respects teachers”. One could think he may have stirred the ire of some American or European teachers who work very hard doing exactly that, but surprisingly it was a Chines educator who took offense of the comments made in this article. Ann Qiu decided to write a replay when she read “what Mr Friedman said to the American people through this very influential newspaper, I couldn’t help feeling upset”. She goes on to say “an American who has interests in China at least should have some basic understanding of Chinese contemporary history. To me, Mr Friedman is not such a person”. That’s harsh. The game is on!

The anger stems from a personal experience shared by many parents in China. There are two frustrations that are brewing in this reply: the students are homework force-fed, they rote learn and they have to pass standardised test as an absolute measure of success in education, and fact that the parents are responsible for the homework working long hours as if they have a second job, unpaid mind you.

While Thomas Friedman quotes a Chinese teacher who said with pride that his job also includes “parent training”, Ann Qiu almost explodes at that thought: “Mr Friedman was applauding a deep involvement of parents in their children’s learning, Chines parents, in fact feel kidnapped by it. […]. Every afternoon, after school time, before dinner time, on a mother or father’s mobile phone, a homework list is sent by the teachers who often are in charge of three major subjects: Chinese, math and English. […]. Through these tools, teachers pass their duties to parents because it then becomes the parents’ job to make sure that their children complete the homework.”

This reminded me of a video I watched in the early nineties about education system in Japan where students and parents were under relentless pressure to perform and produce good results during tests. Young students from primary to secondary school levels would go to coaching colleges after school and then continue to study until late night with just a few hours to sleep before going to school next day. Japan invested in education with a clear goal of creating a skilled and disciplined workforce to establish itself as a global economic leader. It seems China is following the same steps Japan took a few decades ago.

The world scene is a playground for mobile players

Big moves are made by Apple and Nokia in trying to set the path for long-term domination in the Chinese market. The way Tim Cook’s visit in China, was presented by the media you would think he is actually a head of a large state than the CEO of Apple. But if you think about it, Apple IS like a country as it has a market cap that makes it larger than many countries and the European Union’s officials would kill to have its cash reserves. During his tour, He visited Foxconn’s iPhone production line, which employs 120,000 people, just after it was revealed that Foxconn bought a 10% stake in Sharp, he met with Beijing’s mayor, and he had long discussion with the Chinese Vice Premier Li Keqiang who may be the next China leader.

Meanwhile, Nokia worked out an exceptional arrangement with AT&T. The carrier will start selling Lumia 900 at a price that defies gravity, $99, and its device head Jeff Bradley promised the biggest smartphone launch ever.

But this is nothing. Nokia has a very stronghold in China. To protect that advantage, while attacking Apple’s strong base in US, Nokia has accelerated its work in China as well. China Telecom will launch Lumia 800C and Lumia 610 with other carriers lined-up to do the same. Let’s not forget, in China Nokia is the largest smartphone maker. Stephen Elop, the CEO of Nokia has been pressing flesh in China recently working hard to support and grow Nokia’s relationship with the local partners.

Nokia also recruited Adam Guli to help Nokia in its race against Google’s Android and Apple’s iPhone. The US market is big and key to success, but as China will become the largest smartphone market in the world at the end of this year with over 140 million handsets estimated to be sold this year, conquering the Chinese market is vital in the quest for the world domination. The exciting part is that China is far from being done yet.

This is almost like a diplomatic battle with scenes cut from historic movies. And then, somewhere, barely noticed, Mark Zuckerberg, casually dressed, walks through Chinese cities claiming he is on holidays. Yeah, right! There are 460 million reasons why he shouldn’t be just a tourist. Besides, in these smartphone wars, Mark is not really a 100% neutral observer. He needs to pick a winner and have Facebook show up on as many smartphone screens as possible. I would not be surprised he will do something with Nokia, since Facebook has a slight affinity with Microsoft and tensed relationships with the other two.

Who else is missing in China? Steve Balmer? He is too quiet. Something is going on there.

This year will be a huge year in mobile computing. And Windows 8 hasn’t been launched yet! The stakes are high. A lot of commentators have already concluded who the winners are in the mobile phones market. However, I am not so sure. The Asian market has not matured yet, and the Android platform is too fragmented. Nokia new Lumia handset line based on Windows Phone operating system looks superb. Nokia is one of the finest operators in this market and it is perfectly capable to challenge both iPhone and Android systems.  Almost everyone has written off Microsoft. Does Apple or Google think the same? That would be a serious mistake. These action packed visits in China are a strong indicator that the fight in this market hasn’t revealed the long-term winners yet.

Super Black Swan: The Worst Case Scenario

I wrote a few weeks ago about the not so good Japan’s outlook and about the well documented view of how the government debt will soon accrue to the point where drastic, painful and unpopular measures will need to be taken. The tragic events caused by the massive earthquake and the devastating tsunami will accelerate the arrival of that moment.

Initially, immediately after the earthquake, the financial press was mostly focused on the precarious situation of the nuclear plants in Japan, and the  potential impact on the exchange rates. There are many who warn that this could be getting very serious and have consequences for the bond market in US. Other voices, on the other hand argue for a limited impact.

However, right now the media is much quieter and Japan related news are almost forgotten and pushed into the background. It is almost as if everything will go back to normal following a painful but optimistic process of recovery. Now the main talk is about the V shape recovery of Japan.

Is this all that simple? If this was an one-off occurrence in the global markets it wouldn’t be a huge shock, but the problem is this is not the only hot issue. Following the US housing meltdown, the European sovereign debt crisis has engulfed the whole EU. Almost all developed countries are touched by one crisis or another in the same time. On top of this, the Middle East continues to complicate an already unstable situation making anyone nervous at the mere mention of the word “oil”.

Many analysts predict that the funding requirement, which some estimate to be around $200bln,  will force some of the Japanese bondholders to sell US bonds. Karen Maley from Business Spectator describes this scenario very well in an article published in the Australian online financial magazine The Business Spectator (“Will Japan’ Finance Fracture?”, 14 March 2011). Over the years Japan has accumulated large amounts of US bonds in excess of $850bln, the second largest US bond holder in the world. Guess who is the largest one? Yes, naturally, China with its over $1trillion US bonds amassed in a relatively short period of time.

Is it too far fetched to see a situation where both Japan and China will start selling heavily US bonds because Japan needs to pay for its reconstruction and reduce its debt and because China is worried the value of its reserves will diminishing rapidly. This will have a negative impact on the capacity of US government to raise capital and consequently its ability to fund its own public programs.

On 28 September 2005, in an address to Economic Society of Australia Dinner in Melbourne, Ian Macfarlane the then governor of Reserve Bank of Australia (RBA) expressed his optimistic view on the global imbalances which he considered to be of a benign nature protected by an ongoing global prosperity. The imbalances he was referring to were around the flow of money to China and accumulation of debt in US (and Western world in general).  The world had since then experienced turmoil at one end of that imbalance, the USA and Europe. Now all signs are that we will see turmoil at the other end of the imbalance, China. In trying to protect its exports by pegging its currency on the US dollar, after QE1 and QE2, China is struggling to cope with an increasing inflation which threatens to destroy its accumulated wealth. Despite imposing on banks more stringent capital requirements, the consumer prices are still simmering causing an upward pressure.

Europe has a similar problem with US but with a different treatment. The German formula requires constraint. The austerity will reduce demand, impacting on Chinese exports. Will Europe manage to go through all this unscathed?

How quick have we forgotten how close we were to a major collapse two years ago. Now we are all back to the optimistic talk about recovery: the recovery of US housing market, the fixing of the European financial troubles and the defusing of the Japanese debt time bomb. But if you take a closer look and you put all the serious issues together, the prospect of a huge, super black swan flying above our heads is a credible scenario, the worst case scenario.  The changes required by this scenario will be very painful and it will cause a dramatic shift of power and a change in the world financial system. We may witness a Bretton-Woods kind of reform sooner than we think. And maybe that is not such a bad thing in the long run.