The Chinese government is heavily promoting entrepreneurship and there is a natural drive towards innovation as the country’s economy moves into a new phase.
China is quickly becoming known for high-quality innovation, and the creation of new ideas and technology out of what already exists.
China’s history as a manufacturer of the world’s goods has allowed the country to expand on its history as a producer of low quality products made with cheap labour towards more specialised high-value products.
“It is easier to find skilled talent in China than anywhere else in the world. The quality of software engineers is equal to anywhere else, but the cost is one-third the price in China, compared to hiring staff in Silicon Valley.” – Derrick Xiong
Derrick Xiong from Ehang Inc. began his presentation at the Tripartite Economic Summit with an old Chinese saying – “timing, location, and people”.
Ehang Inc. launched the world’s first autonomous air vehicle earlier this year. The mega-drone can carry an individual for about 30 kilometres. Recently Ehang Inc. made an announcement with US company United Therapeutic – a public company with a US$5 billion valuation. The two companies are working together to develop a new system that will transport human organs for transplant patients.
Xiong referred back to the Chinese saying. “It is lucky,” he said, “that China has managed to tie all these things together.” Seemingly by sheer luck, China has got the mix of timing, location, and people right, which has allowed companies like Ehang Inc. to be part of the rapidly growing drone industry in China – the “new era of made in China”.
There is a national drive towards innovation in China and the Chinese government is heavily promoting entrepreneurship as the country’s economy moves into a new phase.
There are many startups emerging in China every day, and plenty of capital flowing around the China market to fund them. “It is very common now to see graduates exploring innovation as an opportunity,” said Xiong. “The most exciting part is that it’s no longer the best option for graduates to go and work in a big cooperation. Choosing an alternative route and working in a start-up or founding a company has become a great opportunity.”
Xiong admitted that when people think of ‘made in China’, they tend to think of low-quality products made with cheap labour. However, things are changing rapidly. The history of ‘made in China’ has given China a strong base to grow from, and allowed them to expand on their existing manufacturing facilities and skills.
Xiong estimates that the amount of time his company spent prototyping their drones would be only one-third of the time spent by other drone companies based outside China.
“This is China’s big advantage,” he said. Companies in France and the United States are announcing they will shut down their consumer drone business, which Xiong attributes to how hard it has become to catch up and compete with the rapid pace of development in China.
Over the past decade, mobile internet has changed the way people live, work, connect, and trade. This hasn’t been ignored by China, and along with the many apps being created and launched from there, a huge pool and demand for talented software creators has been established.
Although hardware companies like Ehang Inc. focus on hardware, they also need to utilise the skills of software engineers. “It is easier to find skilled talent in China than anywhere else in the world,” said Xiong. “The quality of software engineers is equal to anywhere else, but the cost is one-third the price in China, compared to hiring staff in Silicon Valley.”
In the end, Xiong said, there will be a new definition for ‘made in China’. It will be about high-quality innovation, and the creation of new ideas and technology out of what already exists. “China’s combination of timing, location, and people will transform the way we all live in the world.”
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Cartoon and animation has proven to be an excellent medium to successfully integrate culture and characters with a global audience.
The Chinese animation and comic industry is worth US$15 billion, the Chinese gaming industry is worth over US$21 billion.
Collaborative productions such as KungFu Panda (created by a joint venture with Dreamworks Animation) are finding global success.
“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator.” – Tuo Zuhai
Tuo Zuhai from the China Animation Comic Game Group begun his presentation at the Tripartite Economic Summit by asking the audience what they think of when they think of China. He has noticed that since the 2008 Summer Olympics, many people think of the five mascots that were associated with the Beijing Olympic games.
“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator,” he said.
Cartoon is a great medium to tell Chinese stories, said Zuhai. Chinese history dates back thousands of years, and the Chinese government is now beginning to commission people to tell Chinese stories and share that history through the use of animation and cartoons.
Zuhai’s presentation gave three examples of how animation is helping to bring international cultures closer together: integrating Asian characters with world audiences, combining traditional culture with an innovative spirit, and local production combined with world production.
Integrating Asian characters with world audiences
Havoc in Heaven is a Chinese animated feature film that was created in the 1960s the height of the Chinese animation industry. The animation style, and drums and percussion soundtrack used in the film are heavily influenced by Peking opera traditions. Havoc in Heaven received many awards, and was warmly received by Chinese audiences, and also recognised internationally.
Gangham Style, a K-pop single by the South Korean musician Psy went viral worldwide in 2012. It became the first ever YouTube video to reach one billion views, and almost instantly became a household song around the world. The South Korean Ministry of Culture, Sports and Tourism commended Psy for “increasing the world’s interest in Korea.”
Zuhai gave Disneyland as an example of an American business integrating into China. With Disneyland opening in Shanghai in June, they have incorporated Chinese culture into their brand. The typical Disney characters that have come to be expected at Disneyland will be there – including Cinderella, Ariel, Mickey and Minnie Mouse.
But in addition to these, Shanghai Disneyland also includes a giant glass peony blossom, representing nobility and good fortune at the center of the famous fountain, the “lucky” cloud patterns have been painted on some spires of the iconic Disneyland castle, and a traditional dim sum restaurant is present in the Disneytown nightlife area.
Combining traditional culture with an innovative spirit
Monkey King, a film released in 2014, was based on a traditional Chinese classic novel ‘Journey to the West’, and tells the story of how the Monkey King rebels against the Jade Emperor of Heaven – a story about victory against hardships. The reason for the films box office success is because it created a new definition of the relationship between two leading characters. It demonstrated that in traditional Chinese culture, respect is essential – but it did this with a modern spin.
Local production combined with world production
Zuhai encouraged collaborative production. Dreamworks from the United States have a joint production with China on KungFu Panda.
“In 2012, DreamWorks Animation took a gamble and launched Oriental DreamWorks, a US$330 million joint venture that was the first of its kind,” said Zuhai. “What started with the launch of the original Kung Fu Panda film is paying off significantly, with the release of Kung Fu Panda 3 this year.”
The Chinese animation and comic industry is worth US$15 billion. The Chinese game industry is worth over US$21 billion. Every year, China produces more than 200 animation TV series, 50 animated films, and thousands of internet animation and comic products. Creative connections between Hollywood and China are growing, helping to spread culture internationally, and growing the economy of both nations.
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Tax and other changes have been made, but greater affluence and the rapid rise of e-commerce create more opportunities for New Zealand exporters to China, writes Tim McCready.
It used to be said that the biggest challenges to doing business in China were language, culture, and the sheer scale of the market. Now, throw in the rapid pace of change.
Over the past month, a raft of changes to regulations and tax have been introduced by the Chinese government. E-commerce is also evolving at a pace never seen before, and New Zealand’s access to online channels have never been easier.
Though some of these changes are likely to cause price increases, the premium customers New Zealand exporters target tend to make shopping decisions far less based on price and are prepared to pay for the safety and reassurance that comes with the New Zealand brand.
Research by The Boston Consulting Group and AliResearch, the research arm of Chinese e-commerce giant Alibaba, found the increasingly powerful role of e-commerce is rapidly reshaping China’s economy and consumer market.
China has now overtaken the United States to become the world’s largest e-commerce market. In 2010, online transactions made up only 3 per cent of Chinese private consumption. Since then, the number of online shoppers has nearly tripled, with online transactions now accounting for 9 per cent of private consumption.
This growth is expected to continue. China’s Ministry of Commerce expects the country’s cross border e-commerce trade to reach 6.5 trillion yuan (about NZ$1.5 trillion) this year.
Coupled with an increasing demand from Chinese consumers for quality and safe products, it is no surprise this transformation presents an enormous opportunity to New Zealand exporters.
The evolution of e-commerce products in China means that it has never been easier than now for exporters to take advantage of the platform.
This was highlighted last month during Prime Minister John Key’s visit to China. New Zealand Trade & Enterprise and Alibaba signed a memorandum of understanding aimed at developing opportunities for New Zealand businesses to enter China’s consumer market through e-commerce channels and potentially providing access to millions of new customers.
In 2014 New Zealand Post launched an online store for New Zealand products on Alibaba’s Tmall Global. Chinese banks operating in New Zealand also see the importance of e-commerce, and are beginning to introduce their own online shopping malls.
ICBC New Zealand, China Construction Bank, and Bank of China are all actively promoting their own e-platforms and e-commerce consulting services to their clients.
In the wake of the explosive growth of online shopping, China’s Ministry of Finance, the General Administration of Customs and the State Administration of Taxation introduced new tariffs on cross-border e-commerce, effective April 8, 2016.
Online purchases will no longer be eligible for the lower personal tax rate of 10 per cent on parcels worth less than 1000 yuan (NZ$224), or no tax on parcels worth less than 50 yuan (NZ$11.20). Instead, imported products purchased online will be treated as imported goods, and are required to include an 11.9 per cent tax.
Under the current system, many products have been entering China with minimal tax. Although some have reported this tax as a crackdown, others consider it the closing of a loophole in regulation.
Eliminating the tax advantage offshore sellers have over locals helps level the playing field, and makes up part of a pledge by the Chinese Government to protect domestic retailers.
On April 7 all major government bodies in China involved in food and drug control, customs and tax, and business trading, jointly published a cross-border e-commerce retail list of imported goods.
This so-called “positive list” outlines products that are allowed to enter the country via free trade zones. Running to 23 pages, the list initially included wine and infant formula, but omitted adult milk powder and long-life UHT milk – though it has since been revised to allow both.
In addition to the list of prescribed products, China has begun imposing tougher regulations on infant formula products sold online.
Forming part of China’s revision on food safety laws, all foreign infant formula companies will be required to apply for new product registration with the China Food and Drug Administration if they want to continue to sell through cross-border e-commerce platforms.
Companies have until January 1, 2018 to comply, but in the meantime can continue to sell without certification.
Speaking at The Global Food Forum held in Australia last month, Gary Helou, former managing director of Murray Goulburn (Australia’s largest processor of milk and largest exporter of processed food), said that although he is surprised at the “clunky way” regulatory changes are occurring in China, food companies must prepare themselves for more sudden regulatory changes.
Helou’s comments were made in light of media, stock market analysts and investors reacting quickly to the changes in China.
Company valuations – particularly those in the dairy or natural health sector – have recently climbed to new highs. This has been dubbed the “Blackmores effect” after its stock soared more than 500 per cent last year in response to the opportunity in China.
However, confusion over the impact regulatory changes on the bottom line of businesses has resulted in a sell-off in stocks.
Australian health supplements producer Blackmores fell as much as 19 per cent in one day. NZX-listed premium dairy and infant formula marketer, a2 Milk, fell 6.3 per cent.
“Daigou” is the Chinese term given to buying items overseas on behalf of others. Products are purchased by Chinese tourists, smuggled into the country through professional “personal shoppers” or bought through online channels – with international students often acting as the intermediary.
With prices of manuka honey running as high as 1789 renminbi (NZ$400) for a 500g jar in Shanghai, it is often much cheaper to buy products directly out of New Zealand.
Furthermore, there is still a deep concern in China about the safety of products – something that was already in place when the country experienced its melamine scandal a few years ago.
Instead, Chinese consumers seek out products directly from somewhere or somebody they trust.
The grey market is a multibillion-dollar business. It can be argued that daigou can help put innovative new products on the radar.
Some brands estimate daigou is responsible for a significant percentage of sales into China. Imported products can be personally promoted to friends and families, which is undeniably an excellent marketing method – particularly in China.
Recent changes, however, have seen authorities tighten up on the practice. A maximum value of 2000 yuan (NZ$450) per single cross-border transaction has been introduced, as well as an annual cap of 20,000 yuan (NZ$4500) per customer before paying an import duty.
To ensure this is monitored, logistics companies are requiring consumers to register online before they will deliver products.
Furthermore, Chinese authorities are tightening up on inspections of goods entering China through airports.
There have been reports of two-hour delays in Shanghai’s largest airport – and products being dumped at the border – as customs officials inspect luggage and charge tax on items worth more than 5000 yuan (NZ$1120).
China is evolving on a daily basis. Managing that, as well as the more traditional challenge of doing business in China is not easy. But greater affluence and the rapid rise of e-commerce is creating more opportunity than ever.
Assuming New Zealand companies continue to have patience, comply with changes as they occur, and get their products across the border, the opportunities in China for New Zealand businesses continue to be almost limitless.
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Three Chinese banks are now registered and trading in New Zealand.
When the NZ dollar became the sixth currency to be directly traded with the renminbi in 2014, China’s biggest banks looked more closely at the market here. They wanted to boost bilateral economic relationships and support trade, people and capital flows in and out of New Zealand and China.
So far, three Chinese banking corporations — Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China — have made the move. They are identifying New Zealand investment opportunities for their existing Chinese clients, as well as working with New Zealand businesses to expand into the Chinese market.
Their positioning in the New Zealand market has been smoothed by the appointment of former National MPs to chair their local boards: Dame Jenny Shipley (CCNZB); Don Brash (ICBC NZ) and Chris Tremain (BOCNZ).
Trading directly with the Chinese renminbi removed the requirement and associated cost of conversion through the US dollar — a significant benefit for importers and exporters.
ICBC, the largest bank in the world by total assets and market capitalisation, was the first to set up in Auckland in 2014, followed by China Construction Bank and Bank of China. All three are among the largest four global public companies as ranked by Forbes. Agricultural Bank of China, which is third on Forbes’ list, is presently not in New Zealand, although it does have a footprint in Australasia, having opened a branch in Sydney in late 2014.
Here’s how the three Chinese banks are positioned in New Zealand.
Industrial and Commercial Bank of China (Registered November 19, 2013)
In the year ending December 2015, ICBC NZ had assets of $742 million, $70 million in issued bonds, and more than $100 million in mortgages.
Although the bank’s capital base here is small compared with the Australian-owned trading banks, in its first two years ICBC’s focus has been on increasing its profile and establishing itself as a recognised bank here. ICBC NZ has 37 staff in New Zealand, with plans to increase that significantly over the next year, and is the only Chinese bank in New Zealand with a retail banking presence.
Don Brash, chairman of ICBC NZ, says: “During ICBC’s start-up phase, the investment required in people, systems, profile and marketing has been significant. It’s not surprising that we’re not in profit yet, but we aim to as soon as possible.”
ICBC introduced its e-commerce platform to the New Zealand market late last year and has had over 4500 transactions since its launch. The “E-mall” allows reputable New Zealand companies to sell directly into the Chinese market through a secure sales channel. ICBC NZ chief executive Karen Hou says, “New Zealand is an innovative country. The bank wants to learn more from this market, so that we can adapt and launch products and technology here that will be of value to our customers.”
China Construction Bank (Registered July 15, 2014)
The launch of China Construction Bank New Zealand (CCBNZ) took place during Chinese President Xi Jinping’s visit to New Zealand in November 2014. CCB is the largest infrastructure lender in China, and wants to bring this expertise to New Zealand. Its local chairman Dame Jenny Shipley has also served on the parent company’s board.
CCBNZ’s total assets reached more than $400 million at the end of December 2015, with around $300 million coming from loans and advances, 75 per cent of which are to local blue chip companies and small and medium enterprises. At March 31, 2016, the total value of mortgages issued reached $100 million for more than 60 clients.
CCBNZ employs 35 staff, with one-quarter seconded from CCB Group and the remainder locally employed. Last year the bank launched the CCB Enjoy NZ QDII Scheme, providing a one-stop solution for migrant investment applicants, offering foreign exchange, funds transfer and bond investment.
CCBNZ’s total value of issued bonds is currently $120 million, including $90 million issued to local institutional investors in 2015 and more than $30 million worth of immigration bonds. CCBNZ doesn’t plan to operate any retail branches here. Instead the bank does a significant amount of marketing through Chinese social media and New Zealand’s most popular Chinese website, Skykiwi.
Bank of China (Registered 21 November 2014)
BOCNZ was launched here in November 2014, with former National Party minister Chris Tremain as chairman. The bank employs 35 staff in New Zealand, and at the end of December 2015 it had total assets of $208 million. BOCNZ’s clients include major Chinese companies Haier, which bought Fisher & Paykel Appliances in 2012, and telecommunications giant Huawei. BOCNZ hasn’t issued bonds in New Zealand, and doesn’t provide mortgages — but intends to do so in the future.
BOCNZ provides full commercial services to New Zealand companies seeking access to China’s e-commerce market. Last year the bank held a cross-border e-commerce seminar with more than 30 Chinese e-commerce operators, and had 200 New Zealand companies attend.
During the Prime Minister’s official visit to China last month, Immigration New Zealand and Bank of China signed a deal that will help simplify the visa application process for the bank’s high net worth customers wishing to study, visit or invest in New Zealand.
BOCNZ will hold a China-New Zealand Agribusiness Investment and Trade Conference in Auckland later this month to introduce New Zealand agricultural technology, products and services to a Chinese delegation interested in investing in New Zealand.
“China presents great opportunities for New Zealand agribusiness to produce and export more, but companies here need the right partner to support them in making that first step,” says David Lei Wang, BOCNZ chief executive. “By hosting 70 Chinese agricultural companies here, we aim to introduce local agribusinesses to people who can potentially help them access the Chinese market and grow their business,” he says.
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