Dr. Alex Dong's Blog

How to catch the chances in China

Chinese Economic Status

After around 10 years more than 10% developing, Chinese economy falls very quickly. Based on the official data, the development rate will be between 6% to 7% in 2016.

Chinese Economic Problems

  • Real Estate Market Depression: Real estate problem is closely related with the other two problems. Due to the too fast price increase, lots of hot money went into this area. Hence, the local government sell land to the investor to get extra government income (The details will discuss in the next section). Since the land price is increased, the property cost increases as well. In addition, many investor blindly follow suit. The property price was increased triple times during 2009 to 2014. From 2015, many properties started to keep stock. Investors find the property is too high to afford the bank loan. People will not buy more property even though they have some money. At the same time, bank also find the potential loan risk. They also tighten credit in loan.
  • Over Capacity: Except for the direct price affect in real estate industry, there arise over capacity in many related industries such as: construction material, mining, transportation, etc. The situation in Steel is particular serious. Many big bosses lose all the money in one day.
  • Local Government Debt Crisis: this could be the most serious problem in China currently. The problem is due to two reasons: 1. sell land and 2. the 4000 billions RMB stimulus fund in 2008.Government sell land to get extra income from 2007. In addition to selling these lands, government also use them as deposit to get loan from bank since they were expensive in those years. But along with the real estate depression, the land price drops a lot. That means, government can not afford the loans. To solve this problem, many local governments release more bonds which makes this problem more serious (We will explain the reason in other article). As for the 4000 billions RMB stimulus, many local governments over loan from bank to get the centre government’s investment.

 

Chinese Economic Reformation

Due to so many the mentioned problems, Chinese government also proposed a list of reformation measures. The most particular of these reformations could be: 1. Internent Plus and 2. Chinese Indurstry 4.0

  • Internet Plus: Due the depression of traditional manufacturing industry in current China, Chinese government encourage them to using internet to enhance their business. Follow this trend, o2o (Online to Offline), internet finance (including P2P, crowd-funding, FX, etc) becomes hot in Chinese capital market.
  • Chinese Industry 4.0: China is considering as a world factory for many years. Industry 4.0 was first proposed in Germany which is compared with Industry 1.0 (mechanization: the inventory of steam engine), 2.0 (electrification: the application of electricity) and 3.0 (automaton: the usage of PLC). The key idea of Industry 4.0 is informational. Optimizing the resources and the requirements by using the information technology and sensor networks. In 2015, Chinese government proposed a Chinese version Industry 4.0. Chinese government wish to change China from “made in China” to “invented in China”.

Chances in China

  • Solve information asymmetry: there still is information asymmetry in current China. The asymmetry could be the information asymmetry between the government and normal people, or the asymmetry between people in China and people in western countries. All the business to solve these information asymmetries can have a massive potential market.
  • Serve grey economy: the definition of grey economy is the businesses around the legal boundary but not illegal. For example, the foreign exchange is not legal in China but legal in many countries. These grey economy companies used to compete with amateur competitors since these are grey which can not abstract many outstanding intelligences. And their customers are also amateur. But if they get legal in future, they will meet many professional competitors and attackers. The professional services in marketing, IT security, IT service will be the main requirements.
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