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.