“Research Group 21” |

China Housing Market-So Far, the 2014 Numbers Are Down

(Photo: China Daily Mail)

by David Parmer

Before 1987, terms like “supply and demand” and “buyer’s market” were probably unknown in China except to a few specialists. In 2014, the reality of these concepts, if not the theory, is common knowledge. China’s housing market is a good case in point. After a go-go market that looked like it would extend out to the horizon, reality has settled in it seems. Oversupply has arrived in China’s housing market, with estimates of around 50,000+ unsold units in China’s first-tier eastern cities. The market is characterized as having big inventories combined with sluggish sales.

The currency trading website Forex Minute reported on June 13, 2014 that sales are down 11% from a year ago and construction of new properties are down 19% for the January-May period as compared to the previous year. Sellers are taking counter-measures by offering various incentives to buyers, and in some cases price cuts. Evergrand Real Estate has cut prices by 15% according to Reuters and sales are trending upward. Meanwhile,the present oversupply is causing ripple effects throughout the greater Chinese economy. Industries like iron and steel making, cement manufacturing, tile making and furniture wholesaling are feeling the pinch. Workers’ wages in all of the above industries are also negatively impacted by the slowdown. Property investment accounts for a hefty 12% of China’s GDP. The government’s target of 7.5% growth for the current fiscal year could be in doubt.

Some analysts predict deep price cutting in the second half of the year that could result in sales targets for 2014 being met. Also banks seem reluctant to underwrite the housing market, and tight lending seems to be the order of the day. The result could be an adjustment in oversupply, which, combined with price cutting, could see the market beginning to stabilize by early 2015.

http://www.forexminute.com/economic-indicators/chinas-home-sales-decline-11-percent-due-to-weak-demand-35044

Person of Interest: Elon Musk

319px-Charles_Bolden_congratulates_SpaceX_CEO_and_Chief_Designer_Elon_Musk_in_front_of_the_historic_Dragon_capsule.jpg

NASA Administrator Charles Bolden, left, congratulates SpaceX CEO and Chief Designer Elon Musk in front of the historic Dragon capsule that returned to Earth on May 31 following the first successful mission by a private company to carry supplies to the International Space Station on June 13, 2012 at the SpaceX facility in McGregor, Texas. (Photo: Wikimedia)

by David Parmer

If he did not exist…we would have to invent him.

If we were going to write a comic book, what the Japanese call “manga” and hipsters in Seattle call a “graphic novel,” we would need a hero. How about inventing an enigmatic hero, bigger than life who experiences a lonely childhood tinkering with computers on the southernmost part of the planet, then in his teens migrates to one of the most northern countries and begins university studies. After that he gains admission to a prestigious university in that country’s southern neighbor where he studies physics and economics at one of the nation’s top B-schools. He then starts a Ph.D. program at another elite school, but drops out after two days, whereupon he begins his stellar rise, i.e., a rise to the stars. First he hacks the financial system, makes it ridiculously easy to send money around the globe. From this he makes a cool $1.5 billion, then he goes on to co-found an electric car company named after the patron saint of geeks everywhere. He gets electric cars on the road, and along the way releases his patents so that others-without having to license his technology-can also build electric cars. He does this out of altruism, but also to get the industry (of which he is positioned squarely at the forefront) going. Sounds like a pretty good story? Shall we stop there, no, let’s keep going. He has an “interest” in space. He wants to see humans get off the planet, he is worried about our survival as a species. (What if a humongous asteroid hits the Earth? What if some virus threatens to wipe us all out?) So he forms a company, calls it Space X, and launches the first commercial satellite from a liquid fueled vehicle, and then gets a contract to send cargo to the planet’s orbiting space lab. He also plans to modify the cargo vehicle to carry a human crew into the far reaches of space. Well, OK, first to Mars– but a couple of decades before the nation’s space agency plans to do so. That should be enough for a good story, but wait, let’s add more: how about he invests in solar technology? His company becomes the largest provider of solar power systems and he plans a factory to be the biggest producer of solar panels on Earth. Finally, how about we add two wives and five children? OK, done. So what should we call the hero of our manga/graphic novel? Hmmmm. How about Elon Musk?

http://www.newyorker.com/online/blogs/currency/2014/06/elon-musk-shares-tesla-patents.html

http://www.bbc.com/news/technology-27758898

http://www.extremetech.com/extreme/184640-spacex-says-it-will-put-humans-on-mars-by-2026-almost-10-years-ahead-of-nasa

U.S. Issues 2014 Report on PLA

Soldiers_of_the_Chinese_People's_Liberation_Army_-_2011.jpg (Chinese Infantry Photo: U.S. Gov. Def. Wikimedia)

by David Parmer

Public Law 106-65, provides that the Secretary of Defense shall submit a report “in both classified and unclassified form, on military and security developments involving the People’s Republic of China. The report shall address the current and probable future course of military-technological development of the People’s Liberation Army and the tenets and probable development of Chinese security strategy and military strategy, and of the military organizations and operational concepts supporting such development over the next 20 years. The report shall also address United States- China engagement and cooperation on security matters during the period covered by the report, including through United States-China military-to-military contacts, and the United States strategy for such engagement and cooperation in the future.” (Prologue U.S. Defense Annual Report to Congress 2014)

The United States Department of Defense has released its annual report on China’s military. Titled “Military and Security Developments Involving the People’s Republic of China” The report states that the PRC continues its long-range modernization program that will improve its ability to fight and win short-duration high-intensity conflicts. China has focus on Taiwan, but is also the South and East China seas.

Military relations between the U.S. and China are expanding, but the U.S. side has concerns about China’s transparency regarding its real military spending figures.

In 2013, the report continues, relations were good, and the U.S. calls on China “to contribute constructively to efforts with the United States, our allies and partners and the greater international community to maintain peace and stability.”

The report consists of six chapters: four special topics and three appendixes.

Annual update
Understanding China Strategy
Force Modernization goals land Trends
Resources For Force Modernization
Force Modernization For A Taiwan Contingency
U.S.-China Military-to-Military Contacts

There are also four special topics and three appendixes. One of the special topics deals with China’s first aircraft carrier and one of the appendixes deals with China and Taiwan forces data.

China’s reaction was swift, and not positive. In a China Daily (USA) article entitled “Experts take aim at ‘biased’ Pentagon report on China” China’s Ministry of Defense is quoted as stating: “It is completely wrong that Washington issues this so-called report year after year, making irresponsible accusations over China’s normal development of its national defense and military.”

http://www.defense.gov/pubs/2013_china_report_final.pdf

http://usa.chinadaily.com.cn/2014-06/09/content_17573999.htm

Person of Interest: U.S. Secretary of Defence Chuck Hagel

imgHandler.ashx.jpeg (Photo: Dep. of Defense)

by David Parmer

“To question your government is not unpatriotic–to not question your government is unpatriotic.”

On February 26, 2013, then Senator Chuck Hagel was confirmed as the 24th Secretary of Defense of the United States. His confirmation was not without controversy. Nominated on Jan 7, 2013 by President Barak Obama, he faced stiff grilling from congress, particularly his Republican colleagues. His nomination was the first ever to be filibustered. Ostensibly, congress was concerned about his support for Israel, which is a pillar of American foreign policy. Ultimately Hagel weathered the storm and was nominated. One would think that Republicans would be glad to have one of their own in a top position in a Democratic administration, and would have given him a pass. And the reason they didn’t? Probably very simple: from the beginning of his political career, Chuck Hagel has been his own man, i.e. he has followed his conscience and done what he sees as right and good for the country, not just his own party.

Hagel has had a steady, if not meteoric rise to the top. He was born on October 4, 1946 in North Platte, Nebraska the oldest of six children. He attended Catholic high school, started technical school and then volunteered for the U.S. Army. He served in Vietnam, was wounded twice and rose to the rank of sergeant. After the Army, he worked in various jobs in radio, and attended the University of Nebraska, graduating in 1971 with a degree in history. Hagel’s career in politics began when he was a staffer for Nebraska Republican Congressman John Y. McCollistor. After working as a lobbyist, he served on Ronald Regan’s successful presidential campaign. In the 1980s he cofounded Vanguard Cellular Systems, and in 1996 launched his own senate campaign. He was a U.S. senator from 1997-2009. During the Iraq war Senator Hagel was critical of the Bush administration and the policies of his own party. He was openly critical of Bush insiders like Carl Rove. He also strongly opposed Bush’s 2007 plan to send another 20,000 troops to Iraq.

From 2009, following his retirement from the senate and prior to his nomination in 2013, Hagel was a professor at the Edmund A Walsh School of Foreign Service at Georgetown University. He also continued to pursue his various business interests.

Secretary Hagel has come aboard in some interesting times. And the global chess board, once intelligible and potentially manageable, now looks more like a game of Jumanji. As Secretary of Defense he must deal with multiple challenges, including America’s pivot to Asia and its support for its Asian allies in the face of growing disputes with China, Russia’s actions in Ukraine, and the ongoing challenges of terrorism, failed states and the nuclear threat from North Korea.

The spearhead of American power must be sharp, but the spear must be wielded judiciously. And who better to do it than Chuck Hagel, a former soldier who has seen the face of war firsthand and knows the costs of war.

(Compiled from Web sources)

Coming Together To Talk (WEF 2014)

(Photo: World Economic Forum)

by David Parmer

The World Economic Forum will hold its Annual Meeting 2014 in Davos-Klosters, Switzerland from January 22-25, 2014. Simply know as “Davos,” the meeting has been held annually since 1971. The WEF is supported by a thousand member companies. Membership costs an hefty $50,000 a year. Members wishing to attend private industry events at the conference must be an Industry Associate, which costs $137,000, while simple tickets to the Davos conference come in at $19,000. So who comes to Davos at those prices? Lots of people, it seems.

Each year, more than 2500 leaders in business, politics, academia and media get together to discuss a wide range of global issues.

The theme for Davos 2014 is “The Reshaping of the World: Consequences for Society, Politics and Business.” According to the WEF website, this year’s program pillars are:

Achieving Inclusive Growth
Embracing Disruptive Innovation
Meeting Society’s New Expectations
Sustaining a World of 9 Billion

And how does the WEF see itself? Again, from the WEF website:

The World Economic Forum Annual Meeting provides an unparalleled platform for leaders to map the complexity and interconnectivity of our changing world at the beginning of the year. The aim is to develop the insights, initiatives and actions necessary to respond to current and emerging challenges. It achieves this by convening global leaders from across business, government, international organizations, academia and civil society in a series of strategic dialogues that map the key transformations reshaping the world.

The event is said to draw around 2200 participants who attend some 220 sessions. Because the size of the venue and the town itself, Davos is seen as a premier event for networking among the elites. However, not everyone is enamored of Davos. Over the years anti-globalization activists have faulted the meeting for its capitalist bias and contribution toward global destruction of the environment. Others see Davos as merely a talking shop, with few real results coming out of the event and the participants missing the opportunity to make a real difference. Counter-events are staged in various places including a free event in the town itself.

Pro or con, at the end of January, most eyes and much media will turn to Davos for the 43^rd time to watch world leaders in a number of fields as they address the pressing questions facing us in 2014.

WEF (Davos 2014) http://www.weforum.org/events/world-economic-forum-annual-meeting-2014

Si Shen-She’s Got Game

(Photo: gamelook)

by David Parmer

Si Shen’s mobile social gaming company, Papaya, has 80 million users. That’s not too bad. Not too bad for a company that only got started in 2008. Not too bad for a woman who knew from the beginning that she wanted to run her own company in China. Shen grew up in Beijing and attended its prestigious Tshinghua University, where she majored in computer science. She then went on to Stanford University where she earned two Master’s degrees; one in computer management and one in engineering.

From Stanford she moved to Google where she worked for five years, eventually becoming Product Manager and returning to China with Google. In 2008 along with a college friend, Qian Wenjie, she founded Papaya, a social mobile gaming company. Papaya’s first game was Papaya Farm and was hugely successful. It was a big hit on Apple’s App Store. In 2009, just as it was in the process of raising capital, Papaya suffered a major setback: Apple withdrew the game from the App Store. Shen could get not explanation for this move, so she went to Apple headquarters in Cupertino, California to seek an explanation. After being stonewalled, she finally found out what the problem was: her game was able to be used cross platform, i.e. on both Apple devices and Android devices, and this did not suit Apple. Shen returned to China, and decided to move to Android. Although she lost the funding, the move to Android was key to the company’s growth and expansion. (Of note: Apple later returned, and now Papaya’s games are on both platforms.)

In 2011 the company shifted its focus from developing games to supporting third party developers enabling them to reach millions of users worldwide. Still, Papaya has not abandoned the users. On its website the company states: “Android users love Papaya because they can play multiple games and get a complete social gaming experience all in one easy to download and use app.”

In interviews and presentations Shen repeats here simple rule for prevailing in a competitive and ever-changing industry: Never give up.

Compiled from web sources

Papaya website (English/Chinese) http://papayamobile.com/about

2013-Putin Has A Banner Year

Vladimir_Putin_April_2013_interview_to_the_German_ARD-003.jpg (Photo: Wikimedia Commons)

by David Parmer

Russian President Vladimir has had a very good year indeed. It seems like he has moved from success to success. Putin’s American counterpart, Barack Obama’s, year seems to have been just the opposite, with reporters at his final press conference of 2013 asking him if this was the worst year of his presidency. Putin had his own end-of-year press conference, but for him, this year was a record of personal and national achievement.

In September, as the clock ticked down on an attack on Syria, Russia not only urged the U.S not to attack, but also put forth a bold plan to get international inspectors on the ground in Syria to remove its chemical weapons. The plan was accepted and the inspectors began their work. Score one for Putin and world peace.

Putin’s next bold move was to grant political asylum to Edward Snowden, former NSA contractor and leaker of classified information. Putin described Snowden as “noble” but said he had never met Snowden. In his press conference Putin noted that he was not going to justify U.S. surveillance, but that it was conducted for the purpose of combating terrorism.

Putin’s final big success of the year was to get Ukraine to side with Russia instead of the European Union. Russia provided a massive loan and substantially cut the price of gas. Putin described Russia’s interest in Ukraine as fraternal. While Russia did not overtly oppose Ukraine’s Association Agreement with the EU, it clearly looked out for its own economic interests.

And finally, neighbors Russia and China had a year of improving relations, with meetings taking place between President Putin and Chinese President Xi Jinping. Putin said he had a good working and personal relationship with Xi. Improved military ties with China were also promoted in 2013.

What will happen in 2014 for Putin and Russia is anybody’s guess, but the year begins with the Sochi winter Olympics, and the Olympics generally gives a major boost to any country’s national prestige. So maybe once again Vladimir Putin will be on the fast track to continued success.

China’s ADIZ: Can Sun Tzu Tell Us Anything?

by David Parmer

On November 23, 2013, The People’s Republic of China announced an Air Defense Identification Zone (ADIZ) in the East China Sea. Aircraft flying into this zone are required to:

Identify themselves
Report their flight plans
Inform ground control of their exact location

Japan, and its U.S. ally have seen this as an escalation of tensions, and have refused to comply. Both the U.S and Japan have sent military aircraft into the newly-created ADIZ without complying with any of the above-mentioned requirements. Moreover, the area encompassed by the ADIZ covers the territory under dispute between Japan and China, know as the Diaoyu or Senkaku Islands.

The question is why China is declaring this ADIZ at this time, and what advantage does she hopes to gain by doing so? To look for an answer we can turn to China’s pre-eminent strategist, Sun Tzu, ( 544-496 BC) a general during the Spring and Autumn period, and author of the world-famous Art of War. Perhaps China’s strategy can be interpreted by having a look at General Sun’s work.

Many observers see The Art of War as an expression of Chinese Taoist thought, a semi-mystical philosophical system based on the observation of nature and natural phenomena expressing themselves in the polar opposites of Yin and Yang.

In General Sun’s treatise there is a section on Emptiness and Fullness, which could be considered a prime example of Taoist thought.

“Therefore, good warriors cause others to come to them, and do not go to others.”

We have seen Japan and the U.S. sending planes into the ADIZ, as on cue, and almost as if they had no choice. General Sun might say they had been even compelled to do so.

“So assess them to find out their plans, both the successful ones and the failures. Incite them to action in order to find out the patterns of their movement and rest.”

Again, China has incited Japan and the U.S. to action by establishing the ADIZ. The U.S. has made it pivot to Asia. The question is how far it will go in supporting its Japanese ally? The answer is: it will immediately fly bombers into the ADIZ to show defiance and underscore its commitment to Japan. So China now has a clear picture. The U.S. and Japan have been incited to action.

“Test them to find out where they are sufficient and where they are lacking.”

The ADIZ response by the U.S. and Japan gives China a clear picture of the patterns, extent and methods of its response to future incidents should tensions escalate even further.

Tensions in the South China Sea seem to rise almost daily. The parties involved all seem to believe that they are acting strategically and in their national self interest. But what will happen if an “unforeseen incident” happens? If planes are lost or ships fire on one another where will things go from there? Some may say it will never happen, but the probability and possibility seem only to increase.

Quotations from: Sun Tzu, The Art of War, Translated by Thomas Cleary

China-Iran: No Permanent Alliances, Only Permanent Interests

Xi meets Larijani.jpg President XiJinping and Iranian Speaker Ali Larijani (Photo: FMPRC)

by David Parmer

These days, China- Iran relations center on two key points: oil and trade. China is Iran’s biggest customer for crude oil. Iran has been hard hit with U.S. sanctions that have frozen assets and crippled its oil industry. Sanctions are aimed at Iran’s nuclear program, which Iran claims is designed for peaceful energy production, while countries around the world, led by the U.S. see it as a cover for the development of nuclear weapons.

On November 20, 2013, China’s president, XiJinping urged his Iranian counterpart to “seize the opportunity” to improve relations with other world powers at the third round of the current Geneva meetings.

In October, both China and South Korea cut imports of Iranian crude; China to stay within agreed U.S. guidelines. The Financial Times reported on November 22, 2013 that in October 2013 there was a 45% decline in Iranian crude exports, and a resulting cutback in production. Crude oil accounts for 80% of Iran’s exports and half of the Iranian government’s income.

Clearly the pressure is on Iran to come and make some concessions at the Geneva meetings in exchange for easing of sanctions and partial un-freezing of its international assets.
The Obama administration is gambling that it can deal with the less-hardline regime of President Hassan Rowhani. Opposition to any deal comes from Israel and Saudi Arabia. In a world economy experiencing a certain slowdown, a deal to allow Iran greater oil exports could cause a glut in the market and drive down prices worldwide.

As for non-oil trade, Iranian Customs reported $4.06billion worth of exports to China, while Iran imported $5.7billion from China in the first eight months of 2013. One area of China-Iran friction centers around complaints that cheap Chinese goods have flooded the Iranian market seriously damaging smaller Iranian concerns. While China-related infrastructure projects already exist, there is sentiment for more of that type of activity as opposed to the inflow of cheap goods. Moreover, since China pays for Iranian petroleum in Yuan (RMB), Iran’s payments are locked in China’s banks. Estimates of these funds range from $20-47 billion. Reports quoted Iran’s Tasnim News as saying that a deal had been struck between China and Iran during meetings in October 2013 with Speaker Ali Larijani and Chinese leaders in Beijing to fund development projects in Iran using some $22billion of the above-mentioned funds.

(This report was compiled from various Web sources)

New Silk Road Again Links Asia-Europe

Train Uzbek.jpg

(Photo: ADB)

by David Parmer

The Silk Road-just the name brings to mind images of camel caravans crossing vast empty spaces bringing trade goods from one civilization to another. The total distance of the ancient trade routes connecting East, South and Western Asia with the Mediterranean world and North Africa is estimated to be about 8,000 km, or about 5,000 miles. From the second century BC, goods crossed those vast distances and connected civilizations. Then, in the sixteenth and seventeenth centuries with the rise of global navigation and the opening of sea lanes, these ancient trade routes fell into decline and disuse.

Things stayed pretty much the same with little but historical interest until around the turn of this century, when things again began to heat up. Interest in the revival of the Silk Road came from two major sources, the United States and the Asian Development Bank.

The United States needed to supply its forces and coalition forces in Afghanistan after the closure of its Pakistan supply route. In 2009, it created the Northern Distribution Network (NDN) which was a logistics chain that stretched from Europe down to Afghanistan. At the same time the U.S. proposed a new Silk Road. The problems inherent in this venture included complicated customs procedures and the widespread existence of bribery. The US initiative was rated as having mixed results. Meanwhile, the Asian Development Bank had its own vision of a new Silk Road to accelerate growth and reduce poverty in central Asia. To facilitate this vision, it created the Central Asian Regional Economic Cooperation Program (CAREC) back in 1997. Countries involved were Afghanistan, Azerbaijan, The PRC (China) Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan Tajikistan, Turkmenistan and Uzbekistan. To date, it has spent $USD 38 billion to build road, rail logistics and border facilities. Its aim is to develop new road and rail links between central Asia, China and South Asia.

China has long looked west, and seen Urumqi in its western end as the logical jumping off point. And once again, Chinese made goods are headed toward Europe overland. The prime mover this time is not the camel caravan, but is rail transport, a nineteenth-century technology that is still very much with us. Manufactures in China both domestic and foreign are looking to rail as their shipping means of choice. While rail can be up to 25% more expensive than sea transport, the time efficiency is greater. Time by rail is estimated to be 20 days, loading dock to loading dock, a savings of 10 days over sea transport.

Rail is not without its problems. One of the biggest being rail gauges, i.e. track size. China, Turkey, Iran and Afghanistan use standard gauge, while Georgia, Armenia, Azerbaijan and Russia use the wider Russian gauge. This causes delays including off loading and on-loading of China cargo in Kazakhstan were gauges change. Other problems include complicated customs procedures and corruption as mentioned. Of note was a simple customs union set up by Kazakhstan, Russia and Belarus in 2012 which resulted in the elimination of lengthy inspections and the reduction in the amount of theft.

The new Silk Road is already beginning to have far reaching effects. For example, many manufacturers, including computer giant Hewlett Packard have moved to Chongqing in Southwestern China and now ship overland from China to Europe via Kazakhstan, Russia, Belarus, Poland, and Germany. HP’s precedent will clearly inspire others to test the waters and export west along the new/old Silk Road.