Payment System of Foreign Institutions Opens in China, Cooperation Between Alipay and Apple Pushed

The idea of an Alipay and Apple Pay partnership in China —suggested by Jack Ma this week—didn’t make a lot of sense when he said it.

Alipay is China’s most popular online payment system used for online purchases including Taobao orders, paying utility bills, movie tickets, and other shopping sites. It is not like Visa, Mastercard, or China’s own unioPay, which have a network of tens of thousands of merchants and swipe stations. Walk around Beijing or Shanghai and you’ll see plenty of signs for unioPay, the state-owned processor that enjoys a monopoly within China, and barely any for Alipay.

Apple’s new Apple Pay, meanwhile, is a mostly physical experience. You forgo the hassle of swiping a credit card at the cash register for the ease of touching the iPhone’s home button at two hundred thousand locations that have signed on with Apple. Yes, it has an online component that makes online shopping easier, but its allure is the physical component, just as Alipay’s allure is online.

So when Ma brought up a partnership, it wasn’t clear what Alipay could offer Apple in China: it doesn’t have payment installations across the country and even wher it did—in some stores it previously setup QR codes at cash registers that customers scanned with Alipay—unioPay told Alipay to route them through unioPay’s network.

But Jack Ma doesn’t choose his words lightly. What he says carry weight even if it is difficult to understand. Just two days after he spoke on a stage with Tim Cook in the audience, China’s government announced a massive change to the payments system that supported Ma’s idea of a partnership.

Late Wednesday, China’s State Council, the Communist Party’s 35-member policy board led by Premier Li Keqiang, announced China would open its payment system to foreign companies like Visa, Mastercard, and American Express, which it had long discriminated against. It might have well have added Alipay, which has also been disadvantaged. China has blocked foreigners for more than a decade from issuing their own cards and forced them to use unioPay’s network, handing over a cut of the fees. During that time, unioPay grew into a full-blown monopoly.

Alipay has similarly faced off against unioPay. Last August, Alipay abruptly said it shut down its offline point-of-sales service—the limited physical locations it had—for “obvious reasons” after unioPay said Alipay’s transactions must be integrated into its network. It was a bold power grab, but one with state support.

“Alipay decided to quit offline payments altogether because it does not want to subject itself to unioPay’s control,” China’s business magazine Caixin quoted a source saying at the time.

Jack Ma stopped short of submitting to unioPay’s rules when it came to online payments, however, because the stakes were too big. Alipay handled almost half the $900 billion online payments in China last year, according to iResearch.

Jack Ma is known for staying a step or two ahead of the government without creating feuds. The way he sidestepped unioPay’s monopoly in the mid-2000s by setting up Alipay’s online system with 200 banks is one example. Teaming up with Apple Pay looks like another. A partnership made little sense until China’s government announced it was opening up payments for everyone, which reduces unioPay’s influence on the market and on Alipay. It remains to be seen how the rules will be implemented, but overnight unioPay’s has less sway over Alipay.

Ma’s suggestion of an Apple Pay partnership, knowing a policy change would help it advance, looks prescient. An Alibaba spokeswoman declined comment.

Even though China’s government is intent on allowing foreigner card companies, and by extension Alipay, into the market, it will be years before any build scale to compete with unioPay, which has tens of thousands of agreements with stores, restaurants, and shops.

Forrester vice president Bryan Wang in Beijing sees a potential Alipay agreement as a hedge. “The high-end iPhone 6 user wants to buy something at a department store, and they say, ‘Sorry we don’t accept Alipay—that’s probably not the experience Apple want to bring customers,” he says.

The first conversations Apple had about coming to China happened with unioPay. But the negotiations have been slow to form. For now, Apple Pay is deactivated on iPhones sold in China. Caixin has reported that negotiations are still advancing.

It may be that the potential tie up between Jack Ma and Apple has little to do with China. “What Alibaba may be trying to do is…gain entry into the huge U.S. offline retail market and in return integrate Apple Pay into Alibaba’s online footprint from app stores to online retail stores in China,” says Neil Shah, who tracks the China mobile market for Counterpoint Research.

Apple doesn’t need Alipay and Alipay doesn’t need Apple. But at least now it’s clearer how they would work together. (www.chinainout.com)

Saudi Arabia Increases Export Oil Price in Asia

Saudi Arabia has increased the price it charges customers for its crude oil for the first time in five months, undermining the argument that the kingdom has launched a price war with fellow members of the Opec oil cartel.

Saudi Aramco, the state-owned oil company, said it would sell its benchmark Arab light to customers in Asia at a discount of 10 cents a barrel to the Dubai/Oman contract in December, up from a discount of $1.05 in November.

Concerns about a global supply glut amid weaker demand drove benchmark oil prices to their lowest level in almost four years last month. Since reaching $115 a barrel in mid June, Brent, the international oil marker, has fallen 25 per cent, while West Texas Intermediate, the US equivalent, is down by a similar amount.

Saudi Arabia cut its official prices last month for the fourth consecutive month, fuelling speculation among some analysts that the kingdom had embarked on a price war in Asia to fight for market share. Other analysts said, however, that Riyadh was responding to customer demand.

The move on Monday reflected recent demand from Asia, particularly China, said oil specialists.

The trading arm of China National Petroleum Corporation has been on a huge buying spree over the past few weeks, snapping up millions of barrels of Middle East crude as global oil prices fell to the lowest level in almost four years.

Price reporting data showed ChinaOil has bought more than 20m barrels of Dubai, Oman and Upper Zakum grades in October, many of them from Unipec, the subsidiary of Chinese state oil company Sinopec.

Oil market experts have suggested that China, the world’s largest energy consumer, is taking advantage of the steep dro in crude prices to fill its strategic reserves.

China Cracks Down Internet Firearms Transaction

The rise of ecommerce in China has touched almost every sector of the economy – including an increasingly popular black market for DIY firearms.

For less than $100 one can buy the parts, tools and instructions to make a shotgun. There have been several arrests this year with police swooping on gangs of online gunrunners.

Most recently, two men from Shanxi province were arrested last month for having a small arsenal of guns, firearms parts and ammunition they had bought online on Taobao, the popular Chinese ecommerce website owned by Alibaba, which listed in New York in September in the largest-ever initial public offering and which yesterday released its debut set of results as a listed company.
Police said the suspects also used QQ, an online chat app owned by Tencent, another Chinese internet giant, to find clients and give online tutorials.

online trading in illegal firearms has soared in the past three years, according to Ma Ding, dean of the Institute of Network Security at the People’s Public Security University of China, which trains elite police officers. “The internet has provided a more convenient channel through which buyers and sellers far away can reach each other,” she said. “There is now easier access to the materials and components.”

However, Ms Ma added the quality of the weapons sold online was generally low. In one recent case, a car mechanic named Zhou was arrested in Jiangsu province for modifying air rifles to shoot bullets. He apparently had a fondness for hunting birds and police described his contraption as capable of “shooting a hole in a beer bottle 6m away”.

But some online arms dealers are of a larger scale. In June, a man in Dezhou in Shandong province was arrested for running an online shop on Taobao wher he sold an estimated 130 rifles as well as gun parts to buyers in 22 provinces worth more than Rmb40,000. He also published an online video tutorial on how to assemble guns.

Alibaba is particularly exposed because virtually all small online sellers in China use Taobao. While Alibaba has strict policies prohibiting weapons sales, it has had problems policing sellers of everything from fake goods to uranium and other materials that can be used to make nuclear bombs.

“Taobao Marketplace is an open, user-generated content platform,” the company said in a statement, “and has stringent product listing policies in place prohibiting the listing of any firearms or weapons; the platform will co-operate with law enforcement authorities to remove problematic product listings promptly.”

In most cases, traders have hidden by selling innocuous sounding parts, which can then be assembled into finished guns. In the Shandong case, “Huo” ran a Taobao shop called Chengxin Qidong, or “Honesty Pneumatic components”.

“Internet gun traders may be quite discreet, as they divide their shipments and there is nothing suspicious of the parts themselves” said Ms Ma.

However, she said, police units have begun monitoring forums and online stores advertising certain types of tubing and other parts that can be used in assembling firearms. “The cases are too difficult to crack,” she said. (www.chinainout.com)

Chinese Government to Organize Worldwide Internet Conference

China’s internet tsar has lashed out at US cyber hacking allegations against his country, saying it was in fact the “world’s largest victim” of the practice.

Lu Wei, who boasts the imposing title of minister of cyberspace, told a Beijing press conference that in the past month, 10,000 websites had been hacked in China, along with 80 per cent of government sites. He said the majority of the attacks originated in the US.

“There are some who accuse China of hacking, and here I must stress that we do not permit hacking of others’ networks to attain information,” said Mr Lu, adding: “China is the world’s main victim of cyber hacking.”

US authorities have consistently alleged the contrary: that China-based internet hackers – some with clear links to the government – have been responsible for internet-based espionage as well as attempts to disable US networks. In May, the US indicted five Chinese nationals on cyber espionage charges, saying they were soldiers in China’s army.

Mr Lu said smoothing out the Sino-US relationship was a priority and, to this end, the government had organised a conference, to be held in the scenic town of Wuzhen, Zhejiang province, near the headquarters of ecommerce giant Alibaba, for three days starting on November 19.

Key government figures, as well as the chairmen of China’s three largest companies – Baidu, Alibaba, and Tencent – had all agreed to attend, he said. The goal would be to “showcase the results of the first 20 years of the development of the Chinese internet”.

Despite the war of words between Beijing and Washington, he stressed the majority of the guests at the Wuzhen summit would be from the US.

As to China’s internet restrictions, Mr Lu took a position, common for Chinese officials, who do not publicly confirm the existence of wide-ranging censorship popularly known as the “great firewall”.

“I have never tried to log on to Facebook, so I don’t know if it has been shut off,” he answered in response to a question about why the US social networking site had been blocked in China.

“We will not allow foreign companies to take over the market, take the Chinese people’s money and cause harm to the Chinese people,” he said, when asked vaguely about restrictions on foreign internet sites. (www.chinainout.com)

APEC Meeting Begins Today, China Eyes Asia-Pacific FTA

On November 5th, APEC Leaders' Meeting Week officially begins, the world eyes Beijing again. The APEC meeting week's activities are as follows: from 5th Nov. to 6th Nov. the last senior officials meeting will be held, from 7th to 8th, the 26th APEC Ministerial Meeting will be held, from 10th to 11th, the 22th leaders' Informal Meeting will be held. Some business activities such as APEC CEO Summit, APEC leaders and ABAC representatives dialogue and the leaders’ spouse activity will be held during the week meeting.

Theme of this year's APEC meeting is "to build a future-oriented partnership between Asia and the Pacific", this year's APEC meeting regards "promote regional economic integration," "promote economic innovation and development, reform and growth," "strengthen all-round construction of infrastructure and interoperability" as three key issues.

The meeting is expected to make new breakthroughs in three main directions: First, start Asia-Pacific FTA and take the first step to regional economic integration; the second is to make clear the five pillars including economic reform, innovative growth and to explore new impetus to the Asia-Pacific Economic; the third is to focus linkage development and to outline the Asia-Pacific round interconnection new blueprint. The meeting is expected to achieve three main objectives: to build together the future of the Asia-Pacific partnership, to jointly build an open Asia-Pacific economic pattern and to planning the future direction of APEC.(www.chinainout.com)

Chinese Consumers Tend to Be Rational, Luxury Market Pulled Down

A Bain & Co report released on 14th shows that in 2015 the global luxury goods market will be flat with the condition of this year, the US and Japanese markets will be still dominant, while Chinese consumer will tend to be rational, which will blow luxury goods market.

Bain said the Chinese luxury goods market had been sluggish in demand since 2011, there was a sharp slowdown in luxury consumption in China. Claudia d'Arpizio, one of the researchers, from Bain & Co said, in the past 18-24 months, the enthusiasm that Chinese consumers bought luxuries cooled down, because Chinese government curbed the luxury consumption and upper middle class tended to be rational.

It is reported that this year China's luxury goods sales grow only 2 %, which is below last year's 7% growth.(www.chinainout.com)

China Imports 89,800 Tons of Infant Formula Milk Powder from January to September

From January 2014 to September 2014 China imported 89,786 tons of infant formula milk powder, valued at $1.125 billion, which is obtained from the Chinese Customs by Holstein. Import infant formula milk powder, is mainly from the Netherlands, the amount is about 24,897 tons, accounting for 27.7%; Next is France, the amount is about 12,969 tons, accounting for 14.4%;  third is Ireland, the amount is about 12,631 tons, accounting for 14.1%; Denmark, 10,437 tons, accounting for 11.6%; New Zealand, 7759 tons, accounting for 8.6%; imports from these five nations account for 76.5 % of China's total imports (see figure).

Chinese infant formula milk powder imports tariffs are relatively low. Since 2009 Chinese infant formula has been performing a tentative tax rate of 5%, while the tax rate of infant formula milk powder imported from New Zealand has been 0 from 2012 .(www.chinainout.com)