Shanghai stock market and media control

It happened again - the Shanghai stock market fell close to 9% yesterday. It was the biggest drop in 10 years. However, despite the large drop, it only erased gains made in the past 6 trading days. It was cited to be the cause in a ~3% drop in other markets around the world (notably the US).

To me, the more interesting story is how it was reported by China Daily (the English language state-controlled newspaper). The headline story on the website is "US stocks have worst day since 9/11". In very small print hidden in the middle of the page is a story about the Chinese market performance, which was much worse (Stocks nosedive after record high close). Yes, it's in English, so maybe it's tailored for a different market, but if you read the articles, it is generally friendlier to the Chinese market performance.

Quotes about the US market correction:

• "Traders' dwindling confidence was knocked down further by data showing that the economy may be decelerating more than anticipated...a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession."

• "It looks more and more like the economy is a slow growth economy"

Quotes about the Chinese market correction:

• "Tuesday's fall in the Chinese market was caused not by any bad figures, or gloomy forecast." Yesterday's correction, Dong said, was "a good thing because it will pave the way for a healthy market in the long-run. So long as China's macro-economic environment remains sound, investors still have a good chance to earn from the A-share market."

• "[T]he plunge has nothing to do with the overall economic situation."

Curiously Missing #2

Before coming to China, I was warned that deodorant would be difficult to find. I agree with that and would like to add additional emphasis. It is not just hard to find, but nearly impossible. I have been able to find almost everything (and every major brand) I need at some point. I have only seen one brand of deodorant (Addidas) at Carrefour and the big Watsons drugstore down the street. Chinese people don’t use deodorant. Trust me; I’ve looked at the market for a consumer goods company that sells deodorant. Informal polls indicate that Chinese people (even Westernized ones that lived or grew up in the States) don’t think they need it. That’s not to say that Chinese people don’t smell. It's just that they feel that the concept of rubbing a stick underneath their armpits won’t help their odor.

Chinese New Year Fireworks

I left out of my previous post about Chinese New Year a critical component: fireworks. Today marks the fourth day of the Chinese New Year. While still considered part of the 15th day Spring Festival, it's not particularly noteworthy (other than my last official day of vacation). However, even tonight, in Shanghai, the fireworks are going off like crazy out in the streets. Beginning around 7 o'clock, then ramping up towards 11 PM until finally reaching a climax at just after midnight, the fireworks outside made me feel like I was in a war zone. I tried to record some video with my camera, but I don't think it quite captures the feeling of being surrounded by fireworks from all sides.

The amazing thing about these fireworks displays is that unlike in the United States, they don't seem to be organized by the local government or any other large organization. They are simply people who go out in the streets and light fireworks on their own. There is some regulation - you're supposed to do it in designated safe areas and police are sometimes around to keep the people away from the immediate launch area. But the disperse nature of the displays means that there are fireworks going off in every direction you look. Really exciting when you live near the top of an apartment building. Not exciting if you need to go to sleep for work the next day.

If this is what the fourth day is like, I can't imagine what it would have been like on the first night. I found a clip on YouTube that was taped in Beijing on the first night. Looks pretty crazy to me. It also seems that some people got hurt during the celebration.

Year of the Pig is Here

This past Saturday, February 18^th marked the beginning of the Chinese New Year. (According to Answers.com, my non-blacklisted source of Wikipedia information, it takes places on the second new moon after the winter solstice. That means it’s usually early-mid February.) As I mentioned earlier, it is one of the three major holidays in China. Everybody on my current project team took the week off. The office gives three days of vacation, although by Chinese standards, that’s considered light. Most factories close for 10 days to give their migrant worker population time to go home.

Chinese New Year is a bit like Christmas, Thanksgiving and western New Year’s Eve all wrapped up in one momentous holiday. New Year’s Eve is celebrated by eating with your family. Chinese people like to eat to begin with, but New Year’s Eve is an occasion to go all out and provide a huge feast with chicken, fish, and nian gao, a type of starchy cake made with rice flour. I spent the holiday in Taiwan with relatives and enjoyed an incredible meal there. Kids enjoy this time of year because they receive the traditional red envelope, bearing “lucky money”.

On the first day of the new year, you may see lion dances, in which people put on the costume of a lion and dance to cymbals. The dance is supposed to bring good luck as we begin a new year. The second day is to be spent with the wife’s family. Since traditional (read: old fashioned) Chinese society is male-dominated, women were supposed to be part of the man’s family once they were married. The second day of the New Year was the time for them to be able to rejoin their own family.

I won’t go into all the details of the holiday, since I don’t really know them. Google it or look it up on Wikipedia if you want to know more. Suffice it to say, it’s a huge celebration that involves lots of food, drinking, gifts of money and candy, and rest. Oh, and text messages.

Chicken Arbitrage

Chinese people do not like white chicken meat. They think it’s flavorless and dry. In fact, Katie was very disappointed to find out that KFC (on every single corner in China) does not even offer you a choice. You get legs, thighs or wings. The forces of supply and demand work out similarly on the prices as well. Dark meat is more expensive than the white meat here in China, while in the US, it’s the opposite. So naturally, poultry farms sell the white meat here in the US and ship the dark stuff off to China.

A coworker told me that this also impacts the formula for chicken nuggets. Katie and I went to McDonalds one day and wondered if the chicken sandwiches were white or dark meat. We were told that of course the sandwiches were dark meat, but I never thought to inquire about the nuggets. Remember when nuggets in the US were all dark meat since it was cheaper? Well the opposite is true in China. The white meat is cheaper, so supposedly the nuggets are made of white meat. I read someplace (I can’t find the link right now, but if someone else knows of the story, I will post the link) that during the bird flu scare, American chicken thighs and wings were being burned as fuel because Chinese consumers, the primary market for such products, were no longer buying them. The price fell so low that it was cheaper to burn the fatty parts than fuel oil. Maybe we should be sending our chicken thighs to North Korea instead...

Valentine's Day

Last week, a reader sent me a link to an article about Valentine’s Day in China. This is a great story because it makes a number of points about the Chinese consumer:

1) He is rapidly adopting Western customs, particularly concerning holidays and gifts

2) He is focused more on possessions than experiences. In contrast, the biggest driver of economic growth in the US is services. There was a recent book written about the “experience economy” arguing that people in the US buy experiences, not goods. For example, they go to Starbucks so they can sit in the cafe and feel at ease, not so they can spend $4 on a cup of coffee. Chinese consumers spend on luxury goods. If you believe the theory posited in the book, China is still evolving from a commodity economy to a goods business, unlike the US, which is moving from selling services to selling experiences. Perhaps this is because wealth is something to be flaunted or because there is a large gap between what the mass market purchases and what luxury goods offer. In any case, the Chinese love brands and are often willing to spend money to get them. China has become the largest market in the world for luxury goods. There are more Omega and Rolex stores than Wal-Marts in Shanghai and Beijing.

3) Most people still don’t get paid very much. Despite the demand for luxury, labor is cheap and GDP per capita is likely to remain far below the Western World for the next 30 years. It’s just that there are so many people in China that the top 1% in income comprises a market of 14 million people.

Things could be worse, you could be in North Korea

I just read an article in the Economist about a black market for Chinese cell phones in the region of North Korea near the border. Apparently the internet does not really exist there. There is a small network, but there are only government-regulated sites available on it. Email works, but multiple people generally share one address. The illicit Chinese cell phones are being used to surf the internet over the wireless network which does not stop at international boundaries.

Chinese food

Potato chip flavors

Some people have wondered about the food situation here. Shanghai is a major metropolis. Just like any other city with more than 5 million people (or 14 million in this particular case), you can find any kind of cuisine you could want. Other than the common Chinese restaurants (Cantonese, Sichuan, Shanghainese, etc.) there are of course plenty of French, Japanese, Italian, and “American” restaurants. While I haven’t been daring enough to try the Mexican, there are a number of options available. While these places may be more expensive than your typical Chinese joint, they are affordable for any visitor. More challenging is cooking at home. Most ingredients are available (see my previous post about Carrefour.) However, selection can be sparse and may not always be what you expect. For instance, when buying potato chips, don’t expect to BBQ, salt and vinegar, or even plain salted. Instead, you should learn to love dill and cucumber, roasted pork, and thai curry crab flavor. Also, you will have a difficult time finding things like brownie mix and light beer. The other twist is that since imported items are expensive to begin with and typically favored by more affluent people, the brands of items tend to be the more premium variety. So, there are no cheap cans of tuna, just albacore. De Cecco instead of Barilla pasta (not that I mind), and 60% cacao bars instead of Hershey’s.

Where did all the double-paned windows go?

I read that there’s been a cold snap on the East Coast in the US. Here in Shanghai, it’s nearing the upper 50’s (13 degrees C). During the evenings though, it still dips into the 20’s, making my apartment incredibly cold. It gets cold very quickly because unlike in the US, very few windows are double-paned. I don’t know how people survived without a thin layer of argon gas sandwiched between two hermetically sealed sheets of glass. I remember learning in middle school that glass is a good insulator, but surely they weren’t talking about heat, because as soon as it gets cold outside, my apartment gets cold. I have heard of ex-pats here selecting apartment buildings based on the presence of double-paned windows. Too bad I didn’t learn of that until I arrived.

I've Been Out of the Country...

I apologize for the lack of any posts in the past few days. I have been out of the country on business. The time away from China made me consciously aware of the restrictions that the Chinese government places on media access while in the country. In fact, I hope this post does not run afoul of the government censors patrolling the web.

Just a little bit of background information about the censorship of the internet (many have written asking about it.) The government of China has a control of all network interconnection points between the country and the outside world. At these points, they have filters that allow them to selectively permit access to content from outside the country. Collectively known as the “Great Firewall of China,” it is a fairly effective way of keeping “inappropriate” material out of the hands of the masses of internet surfers. (Note: There are stories of attachments and emails being stripped or blocked, but I have not heard of it personally. This would also require a lot more effort and may only be directed towards certain individuals.) For the most part, it’s unnoticeable. Most websites such as Yahoo News or CNN work just fine. The occasional New York Times article won’t load, but it’s sometimes due to a slow internet connection (or possibly that’s what we are supposed to think.) Some sites like Wikipedia and online gambling sites (but thankfully not InTrade) are completely blocked. The firewall is not without holes. Computers outside of China can act as “proxies” which can download the webpage for you and then send it to you, without the “wikipedia.com” address, effectively getting around the firewall. However, it is much slower, and only available to those technically savvy enough to know how to do it. For more on this topic, I suggest searching for information online, unless you’re in China, in which case you’ll find nothing. There was a good episode on Frontline about “Tank Man” which uncovers much of the censorship in China. I believe this is a link to the epsiode online, but of course, I can't access it from this end, so I'm not entirely sure.

The internet is not the only thing that is censored. Popular media is censored as well. It is so difficult to get a copy of western publications that I saw a September 2006 issue of Time magazine on sale next to a booth selling fake Coach bags. They wanted 20 RMB for it. The bookstore across the street from me is 7 stories tall. It probably contains fewer than 20 titles in English that are not language instruction titles. They are all the types of “classics” you would usually read in 7th grade English, like The Hunchback of Notre Dame. This week, I was in Singapore. I was reminded by others living in China to be sure to visit a bookstore so I could buy books and magazines and stay connected to the outside world. Sure enough I did, and despite the inflated international prices, I stocked up.

The weird thing is that even though I missed it, if I were Chinese, I wouldn’t have noticed it. It’s a little scary how effectively the government can control the media and thus your views of everything going on outside the world.

Useful technology #1

In the United States, I was an enthusiastic user of online bill payment. Katie and I don't even have a bricks and mortar bank. In the 8 years of owning my online bank account, I haven’t gone through a single book of checks. In China, I thought things would be different. When I received my water and gas bills, I was dreading going to the bank to wire money or going to some water company office to pay in cash. However, a coworker informed me of a website called Shanghai Fu Fei Tong (open bill payment) (www.shfft.com). It was set up by the local government to make paying your most common bills easier. It’s not quite as easy as online banking in the US, but it’s not bad, and a lot more secure. Here’s how it works:

You need to register first – for some reason, this requires your passport number or resident ID. (Yet another reminder that China is still a communist country.) After you logon, you select the type of bill you want to pay and the company the bill came from.

Each bill you get comes with a barcode on it. You type in the number below the barcode and the amount of the bill.


Then you enter in your bank account information. I don’t know if all banks participate, but there was a pretty long list.


You enter the password/PIN for your account and hit submit. You wait a few seconds and then get a confirmation of your payment.

The service also allows you to check your mobile phone bill and check your bank account balance. In the US, my bank just mails a paper check to some of the companies that I am paying and I don’t receive a confirmation. I think maybe cities in the US could create something like this.

Super Bowl Sunday

It’s Sunday, February 4th here in China. In the US, it would be Super Bowl Sunday. But here on the other side of the international date line, it’s simply the day before the Monday on which the Super Bowl occurs. To be clear, I am deeply saddened by this. I love watching football (Katie can attest to this). And I absolutely love the Chicago Bears. After years of middling performance, they have finally made it to the big game just as I leave the country.

The good news is that I know I'll be able to watch the game. Not only do I have my SlingBox, but it is also being broadcast on CCTV – the state-run television station. The real issue is going to be timing and atmosphere. Kickoff will be 7:30 AM on Monday morning, not exactly ideal since I have to go to work. Also, there will be no pizza, nachos, or the chips and dip that will make the game complete. Besides, CCTV will surely not broadcast American commercials. I will definitely watch the game even if it means I have to watch from work on a 12-inch laptop screen, but I don’t know how much I’ll enjoy it, especially if the Bears lose.

On a related note, the NFL is coming to China. A pre-season game is scheduled for this fall in Beijing between the Patriots and the Seahawks. I wonder if tickets are on sale yet…

Custom clothes in Shanghai

Shanghai is a great place to get clothes tailor-made. Businessmen in Hong Kong for just a few days used to stop by the tailor shops near the airport and have new suits ready before they left two days later. That’s what Shanghai is like now. There is a large market south of downtown called the South Bund Soft-Spinning Material Market. Ostensibly, the hundreds of booths inside each sell fabric. But I never saw anyone buying bolts of cloth. Rather, you look at the fabric, tell the owners what you want made, and they make it for you. Anyone visiting Shanghai should go and experience it. There are three floors of booths, all very similar and nearly indistinguishable at first glance. However, after walking past every single one, I can say there are distinct categories:

Suit shops – The most popular type caters to businessman. Bolts of dark wool and cashmere blends comprise most of their fabrics. They can make you a suit for 400-800 RMB depending on the fabric. Keep in mind the booths here are not the top-of-the-line Saville Row types. If that’s what you want, you can certainly get that in Shanghai, just not amongst the so-called common folk at South Bund.

Shirt shops – The second most popular category of shops belongs to the cotton merchants. They each have close to a hundred different types of fabric in all different colors, but part of me is still left wanting. Either I’m way behind in the fashion world, or the mainstream Chinese market does not like the same patterns that are common in the west. Still, the shirts fit like a dream and will cost you about 80 RMB. These shops tend to be unisex, making dress shirts for men and women alike. But take a look at the finished goods first to see with which type they have more experience.

Dress shops – These booths have a lot of silk and can make a great looking dress for women. They have all sorts of style books in case you don’t know exactly what you’re looking for. Honestly, I don’t know much more since I’m not in the market for a dress at the moment.

Coat shops – These stores deal in heavy wool and cashmere (probably polyester blends too, but they won’t say that). It’s nice to have a matching overcoat to go with your new suit. Here, you can get one in any shade you want. Black, grey, navy, camel, red, even green – no problem, four buttons or three? ¾ length or pea coat? Cost is probably between 500-1000 RMB.

Additional Note: Many stores can and will do any of the above. Westerners tend to appreciate this, because once they find an owner that can speak English, they are loathe to go elsewhere. I’ll personally take my chances with multiple places.

I just picked up an order today. Being my first time at the market, I diversified my risk amongst 4 shops: 2 for shirts, 1 for a single pair of pants, and 1 for an overcoat.

Pants first: They were an inch too long, but otherwise fine. The owner of the booth said to come back in an hour and they’ll be fixed. I told him to forget it – I’ll just go back next week.

Shirt store #1: Great fit on the two shirts I bought. The French cuffs on one shirt were a little thicker than I expected, but looked good. The best thing about getting custom clothes is that you can specify everything. I picked the cuffs, number of buttons, size of collar, pocket or sans-pocket, and yoke on the back of the shirt. I saw an American couple here buying some shirts for 95 RMB. The owner told their translator that she’d still make money at 65 RMB since they were buying 8 shirts. I feel ripped off for paying 85.

Shirt store #2: Even better fit. Not as good fabric (I chose hastily last week.) But I like the cut and styling better. Here, I saw somebody picking up a shirt with some custom cuff work that I wish I had thought of. He had them use a contrasting fabric on the inside of his French cuffs. Looks great. I ordered another shirt on the spot.

Coat store: Fits fine. I really like the way it turned out, especially since I had replaced the standard black lining with a dark red lining so it doesn’t look like something you get off the rack. I forgot to ask for a loop on the collar to be able to hang it. They attached one in 5 minutes.

All in all, I’m pretty pleased with my visit. I'll probably try out two more shirt booths before settling on one. I’ve also been told there’s a tailor in the nice area of town that has imported Italian and British cottons that make incredible shirts. The prices are substantially higher (400-800 RMB) but the shirts will probably last longer than the 1-2 years I expect my new shirts to last.

Stock Market Fever

There has been a bit of news over here about the performance of stock market. The Shanghai Index has been crazy lately. After rising to a record high on Monday, it has fallen 10% this week, erasing all the previous gains for the year thus far. You shouldn’t feel bad for Chinese investors though, since the Shanghai index returned over 130% last year. Everyone over here talks about the stock market – how it’s expected to grow, or that it’s topped out and has nowhere to go but down. I can’t predict the future, but I can offer some thoughts as to why it’s been doing so well.

First, Chinese companies have not been well managed; they are after all former if not still mostly state-owned enterprises. But as the economy opens up and professional management skills are adopted, it is assumed that they will be more competitive. Second, the government has been slowly selling stakes in some of the largest companies, particularly in the financial services sector. The Bank of China, China Merchants, and the Industrial and Commercial Bank of China have all had their shares listed on foreign exchanges in the past year. The belief by investors is that foreign companies will acquire major positions in a bid to enter the Chinese market. Third, Chinese (and Asians in general) are savers. I don’t mean to be racist when making the comment, but Asian economies have significantly higher national savings rates than Western counterparts. The savings have traditionally gone into the banks (thus the huge number of banks and size of their assets.) However, Chinese households are looking for more places to put their money as they grow in wealth. Banks are capped (by the heavy handed regulatory body) from paying interest above 2.56%. Chinese citizens also aren’t allowed to invest in foreign securities (how are they supposed to buy them when they can’t convert their RMB into any currency?) The only place to put their money is in the domestic stock market. There are only so many companies in the stock market, since state owned enterprises are still dominant in a number of industries. So, with limited supply and growing demand for stock certificates, the prices have skyrocketed.

I don’t know where the market is going from here. But I somehow doubt a company like China Life is worth twice as much as MetLife ($100B vs. $48B) with one third the profits ($1B vs. $3B).