Chinese Internet Giants Step up to Compete for O2O Market

Chinese fans of fried chicken will soon have a new way of paying for their food fix after Alibaba’s Alipay payments unit hooked up with KFC.

It was the biggest move by a Chinese ecommerce group to diversify through an online-to-offline (O2O) deal.

Alipay’s agreement with KFC China — the country’s biggest food delivery business with 5,000 restaurants across 900 cities — was followed by search engine Baidu saying it would invest Rmb20bn ($3.2bn) over the next three years in Baidu Nuomi, its Groupon-like marketplace.

Analysts said the focus on O2O — wher customers use smartphones to find, order and pay for goods from food to ride-hailing apps — marked a shift in the industry as growth slowed in pure online sales.

Ecommerce groups such as Alibaba have chased growth by buying into “combined channel” merchants, which have an online and offline presence.

Alibaba’s deal with KFC will be the biggest partnership with retailers to allow customers to pay by scanning bar codes using Alipay’s smartphone app.

KFC will be the third big retailer to accept Alipay after Walmart and Carrefour began doing so this year. (www.chinainout.com)

Li Keqiang Visits Europe, Agrees EU to Set up 15 Additional Visa Centers, Willing to Participate in European Investment Plan

图为中国驻法使馆女青年向李克强献花

China agreed the EU would set up 15 additional visa centers

On the afternoon of June 29 (local time) Chinese Premier Li Keqiang and European Commission President Juncker at the European Council headquarters in Brussels, co-chaired the 17th Council of leaders of China and European.

Lee said that China and the EU should follow the trend and do something, improve themselves and go beyond hand in hand, open up a new situation in China-EU relations.

First is the strategic direction of sino-EU relations. The second is to open up a new world of cooperation, to make the "one belt one road", the international production cooperation initiative connected with the European investment plan, to promote interoperability and economic growth, and to develop third-party market. The third is exchanges, mutual learning and mutual support. The fourth is to promote personnel exchanges facilitation. China agreed that EU would set up visa center in the 15 non-consulate cities to facilitate more Chinese citizens to apply for visas to Europe. Fifth is to work together to provide global public goods.

After the meeting, Li Keqiang and Tusk, Juncker witnessed the signing of cooperation documents of China-EU urbanization, infrastructure construction, science and technology, intellectual property, customs, quality inspection and other areas.

EU Business Summit

Willing to participate in European investment plan

On the afternoon of June 29 at local time, Chinese Premier Li Keqiang together with European Commission President Juncker attended the China-EU Business Summit in Brussels, and delivered a keynote speech.

Lee pointed out that as the world's two major economies, China and EU have responsibilities to work together to promote international production cooperation :

First, China is ready to butt the European Strategic Investment Plan, and make breakthrough in the infrastructure build. China is willing to take advantage of other infrastructure team, technology and management, to participate in the 315 billion euros of European investment plans EU recently launched.

Second, both sides can focus on equipment manufacturing, and make breakthrough in the third-party cooperation.

Third, we must face industrial investment demand, and make breakthrough in financial cooperation. China has ample foreign exchange reserves, and it is willing to participate in the European development though buying the debt and direct investment. China will actively consider to establish China-EU joint investment fund and to boost European Strategic Investment Fund.

Fourth, we must make breakthrough in improving the level of trade and investment liberalization. In the principle of mutual benefit, China and EU deal with issues such as trade friction, it’s hopeful that in 2020 trade volume between China and EU will reach $1 trillion. (www.chinainout.com)

China to Become Biggest Cross-border Investor by 2020

China will become the biggest cross-border investor by the end of this decade, with global offshore assets tripling from $6.4tn at present to nearly $20tn by 2020, say researchers.

While much of the total will be in the form of foreign exchange reserves and portfolio investment, a growing share will come from direct Chinese investment in western-developed countries, according to a joint report by the economic research company Rhodium Group and the Berlin-based Mercator Institute for China Studies.

based on the experiences of other countries, China’s global stock of outbound foreign direct investment, which includes investing in corporate mergers, acquisitions and start-ups, will increase from $744bn to as much as $2tn by 2020.

The report’s projections are valuable because official cross-border outbound FDI statistics from China and recipient countries are widely seen as being of poor quality and do not give an accurate picture of real investment flows. In barely a decade, Chinese outbound FDI has gone from almost nothing to $100bn a year, making it one of the three biggest exporters of direct investment globally.

Europe, in particular, has welcomed the Chinese largesse with open arms, especially in the wake of the global financial crisis and sluggish eurozone economic growth.

However, the report warns that surging Chinese investment will also require a change in attitude from recipient markets and their politicians to take full advantage of the opportunities and contain the risks.

“Characteristics such as the size, growth and complementarity of the Chinese economy create unique opportunities for Europe,” the report’s authors said.

“At the same time, some specific concerns that are related to the nature of China’s political and economic system, for example subsidies, China’s authoritarian political system and lack of openness to [foreign direct investment] in China, create particular challenges.”

While early Chinese investments focused on energy and natural resource assets in developing countries, investors are now looking to the US and Europe for opportunities.

Between 2000 and 2014, Chinese companies spent 46bn on 1,047 direct investments in the 28 EU countries, with most of the transactions coming in since the 2008-09 global financial crisis.

The UK is by far the biggest recipient of Chinese direct investment, with a cumulative total of 12.2bn over that period. Germany is second with 6.9bn and France third with 5.9bn.

Following a dro in 2013 to 6bn, from more than 7bn each year in 2011 and 2012, Chinese investment in Europe came surging back in 2014, reaching a record high of 14bn for the whole year.

Europe’s energy, automotive, food and real estate sectors attracted the most Chinese money.

Despite the recent sharp rise and heady predictions for Chinese outbound investment in the future, the country is still trying to catch up.

“China is so unique and important because it is already a major global investor and it has the potential to become the single most important driver of global FDI growth over the next decade,” the report said.

While China is the world’s biggest trader of goods, its share of global financial cross-border assets and liabilities barely reached 3.4 per cent by 2011.

Today, its stock of outbound FDI as a proportion of gross domestic product stands at just 7 per cent, compared with 38 per cent for the US, 20 per cent for Japan and 47 per cent for Germany. (www.chinainout.com)

Luxury Brands Cut Prices in China

According to a report from the "The Wall Street Journal" website, over the years, the world's largest luxury goods companies typically make the price of luxuries sold in mainland China and Hong Kong 25-40% higher than the price in the European countries. 

The US company Bain said, luxury goods sales growth in China was under pressure, the Chinese luxury goods market size accounted for about 1/3 of the total global market size. Take the world's largest luxury goods company LVMH Group for example, in the first quarter of this year its sales in Asia decreased by 6%.

However, Chinese consumers are still buying luxury goods. They just are buying luxury goods in China. In 2014, China's domestic luxury goods sales dropped to about $ 25 billion, a dro of 11%. However, the Shanghai wealth quality research institute said that at the same time the expenditure that Chinese consumers spend on luxury goods abroad rose 9% to $ 81 billion.

Morgan Stanley estimated that in the luxury goods sales Chinese consumers created, more than half of them were achieved in the overseas market: some buy luxury goods during travel abroad, others buy luxury goods by the gray market.

This practice not only affects the luxury goods companies’ control on goods, but also hurts their business strategies in Asia.

In the earlier this year Chanel took measures to cut price in China, while increasing the price of some of Europe's flagship products, in order to reduce the price difference between the two areas. Luxury goods companies need to address the fundamental problem of pricing. Some companies are introducing luxury goods with lower prices in the Chinese market, which narrows the price difference, but does not affect existing merchandise sales.

For the luxury goods industry, the uniform price may in fact be the trend in the future. (www.chinainout.com)

 

Cross-border E-commerce Transactions Surge, Imported Goods’ Price to be Same as Other Countries’

图为万国万购保税进口商品线下体验店

Authorities forecast that China will become the world's largest cross-border B2C consumer market in five years.

By 2020, China is expected to become the world's largest cross-border B2C consumer market, China's cross-border e-commerce will drive the global cross-border consumption to grow nearly 4% on average every year. This is learned from the "Chinese cross-border e-commerce development forum" held recently. For the consumer, the price difference of imported goods through the general import trade that is disappearing and cross-border import e-commerce is expected to achieve the same price as other countries’.

Recently, Ali Institute jointly issued global cross-border B2C e-commerce trend report with Accenture in Beijing and forecast in 2020 global cross-border B2C e-commerce turnover will reach $ 994 billion, benefiting 943 million consumers worldwide.

It’s reported that, in recent years, global B2C market is growing rapidly, in the coming years it will continue to maintain an average annual growth rate of nearly 15%, from 2014 it will deal size will increase from 2014 $ 1.6 trillion to 2020 $ 3.4 trillion. Among them, the global cross-border B2C e-commerce grows rapidly.

In addition, in 2020 cross-border B2C consumers will increase to 900 million from 2014 309 million, with an annual increase of more than 21%, among them the new turnover of China and other Asia-Pacific countries tops with 53.6%.

Data shows that in 2014 China’s consumption abroad exceeded one trillion yuan, overseas visits exceeded 100 million. Insiders said that the price difference of goods through the general import trade lead people to shop abroad, while the cross-border import e-commerce is expected to change this dilemma and to achieve the same price as other countries’. (www.chinainout.com)

China Boosts Development of Cross-border E-commerce, Import and Export Commodities Bill Checked within 24 Hours

Chinese Premier Li Keqiang on June 10th chaired a State Council executive meeting in Beijing, deploying measures to promote the healthy and rapid development of cross-border e-commerce. Related measures include clearance process optimization, cross-border e-commerce exports simplification and classification, record management on operating entities and commodities, import and export commodities bill checking within 24 hours.

The meeting noted that, the promotion of cross-border e-commerce healthy and rapid development and good items imports and exports through the "Internet + trade" would be conductive to expanding consumption, promoting the upgrading and development of an open economy and creating a new economic growth point.

The meeting pointed out, first, we should optimize the clearance process, simplify and classify the cross-border e-commerce exports, implement the record and management on the operating entities and commodity, take facilitation measures on import and export commodities, such as concentrated declaration, inspection, release and bill checking within 24 hours.

Second is to implement refund and tax exemption policy of the cross-border e-commerce retail products, to encourage cross-border electronic payment, to advance payment pilot of cross-border exchange, and to support domestic bank card clearing organization to expand overseas business.

Third is to encourage foreign trade enterprises to provide integrated services like customs clearance, warehousing, financing for cross-border e-commerce, to guide enterprises to standardize their operations, and to combat illegal infringement.

Fourth, to encourage cross-border e-commerce retail export business to expand marketing channels and to cultivate its own brand and self-built platform through overseas warehouses, stores and others, cultivate its own brand and self-built platform. Meanwhile, to reasonably increase imports of consumer goods.　(www.chinainout.com)

Birth of New Reserve Currencies

Some 95 per cent of all global foreign exchange reserves are invested in just four currencies: the US dollar, the euro, the yen and sterling. The central banks of the ‘Big Four’ are all expanding their balance sheets or have been doing so for years with no sign of immediate reversal. They are all trying to convert huge debt problems into inflation problems, and when they succeed their currencies will weaken sharply.

In this currency war, EM central banks risk suffering the most collateral damage. Their reserves – so many of them held in the big four currencies – will be decimated in purchasing power terms. The world will become desperate for alternative currencies to act as replacements for the traditional reserve currencies once their currency debasement efforts really take root. 

So far, only one country, China, appears to have spotted the opportunities presented by this situation. Most others merely watch the dollar in fear.

China’s renminbi will become a global reserve currency in the not too distant future. China will benefit enormously from becoming a global reserve currency – not only will its currency become far more stable, but China will also no longer need so many reserves. The excess reserves can then be used for sovereign wealth fund purposes, including the AIIB. Finally, China will be able to increase consumption, because it no longer needs to suppress domestic demand in order to maintain high levels of reserves.

But the world will need more new reserve currencies than just the renminbi. This means that other large EM countries such as Mexico, Brazil, India and others could also benefit from the opportunity that China is now exploiting. With sensible planning and prudent policy implementation, they too can become global reserve currencies.

Technocrats in EM central banks are aware of these issues but face tremendous challenges in convincing their boards of the need to diversify into other currencies. That is why China’s move is so important. The renminbi’s ascent to reserve currency status will demonstrate the huge benefits of diversifying away from the ‘Big Four’ currencies. China will soon have to sell treasuries as its reserves become true ‘excess’ reserves. It is likely to seek to invest the cash in less mainstream currencies. Other EM central banks will ultimately reciprocate by buying renminbi. As each major EM central bank diversifies, not only will it be good for other EM currencies, it will also help all of them to reduce their excess exposures to the ‘Big Four’ QE currencies. (www.chinainout.com)