China’s National Love For Live-streaming

December 9, 2016 by shuang Leave a Comment

“Please don’t send gifts to me anymore! Why not buy some snacks if you have extra money?” said Fu Yuanhui, a Chinese Olympic swimmer, after seeing the barrage of virtual gifts such as yachts and sports cars being sent to her via cyber space. Fu, who became famous for her lovely facial expressions and the buzz she generated from her “mysterious power” during the Rio Olympic Games, was live-streaming herself interacting with her fans on a platform called Sina Weibo, the Chinese version of Twitter. More than 10 million people watched this live show and many of them contributed in filling up Fu’s mobile phone screen with virtual gifts.

Though seemingly useless, virtual gifts have more value than is initially apparent. The virtual yachts, sports cars and diamonds are not real ones, but they are paid for with real money by fans, which the live-streamer is then able to cash out proportionally. The prices of gifts range from several cents to thousands of dollars on Inke, a one-year-old live-streaming mobile app that has occupied the No. 1 spot on China’s app store multiple times in the past few months.

Believe it or not, at any given hour, millions of Chinese are live-streaming on their smartphones. Not only celebrities, but netizens from all walks of life are joining the army of live-streamers to showcase themselves performing all kinds of activities. “You can live-stream whatever you want,” said Ge Wang, a student live-streamer studying Communication Management at the University of Southern California. Her graduation capstone project is about how to be an Internet celebrity. Before she started live-streaming this summer, she had already several short videos online. “My friends told me that if I want to get famous, live-streaming would be a good way,” Ge explained.

Welcome to China’s new national reality show industry! Live-streaming is gaining huge popularity among youngsters who are willing to show their personal lives online for fun or fame. Accordingly, the past year witnessed hundreds of new live-streaming social accounts, especially on apps such as Inke and Huajiao, spring up in the country as millions of young internet users became engaged in this activity. No wonder 2016 has been called the national live-streaming year of China.

While China did not invent live video-streaming, it has taken these reality shows to a completely new level. “Dozens of Chinese live-streaming apps almost copy exactly the same format as Twitter’s Periscope and Younow,” Ge explained. Live-streaming is a growing mobile-video market that is hungry for content reflecting young people’s tastes and lifestyles.

Platforms, Live-streamers and Content

Live-streaming has been around in the U.S. for years on social media platforms such as Facebook Live, Flipagram, Instagram Stories, Snapchat, Twitch, Periscope and YouNow, but it is not a mainstream activity in the States. However, China is turning it to a national fever.

Video game live-streaming is the most common type of content initially, which is the same case for both China and America. Live-streamed video-gaming targets hard-core gamers and the shows are usually hosted by professionals. For example, Douyu, a competitive live-streaming platform, which is operated by Wuhan Douyu Internet Technology with investments by Tencent Holdings and Sequoia Capital China, debuted as a live video website for gamers in 2014, but then moved to lifestyle live-streaming last year. It is now claiming 600,000 users who have streamed at least once and 120 million active monthly users.

Lifestyle live-streaming then prospered. A lifestyle live-streaming bellwether is Inke mentioned above, which says over 50 million users have downloaded its app since its establishment. Moreover, China’s biggest social media platform Sina Weibo launched its live-streaming platform in May. Since then, Weibo celebrities and influencers have brought a number of live-streaming shows for fans, for fun and even for charity. Video streaming site iQIYI also launched its live-streaming app Qixiu in the following July.

“Everyone can be a live-streamer,” said Ge, “no matter if you are a celebrity, an entrepreneur or ordinary person.” That’s the truth. Approximately 46 percent of China’s internet population used a live-streaming app in June 2016, according to Hua Chuang Securities.

With popularity largely driven by celebrities and key opinion leaders, live-streaming can be especially useful when famous brand ambassadors serve as hosts to the online events. Alibaba’s Tmall seizes this business opportunity as usual. A total of 49 percent of beauty brands have live streamed on Tmall between April and October 2016, The e-commerce giant, Taobao, follows with 35 percent of beauty brands having live-streamed on the site, according to Jing Daily. This September, prominent make-up brand Guerlain partnered with Yangyang, a Chinese celebrity via Tmall Live. The live-streaming show garnered 2.43 million views, 4.55 million likes and most importantly, more than 10,000 of lipsticks sales.

(Guerlain’s partnership with Yangyang)

Papi Jiang, a Chinese cyber celebrity, drew 20 million viewers for her first live-streaming show in July 2016. During her 90-minute unscripted live-streaming show, which was available on eight leading live-streaming platforms in China, including Youku, Meipai and Douyu, Papi Jiang told jokes and shared with her fans details of her daily life and romances. According to the New York Times, there were more than 74 million views in one day, which exceeded what Taylor Swift’s latest music video, “New Romantics,” received on YouTube in four months.

(Papi Jiang’s first live-streaming show)

Renowned entrepreneurs also seek to take advantage of the platforms to boost their brands among young consumers. Wang Jianlin, the chairman of Dalian Wanda Group and China’s richest man, once live broadcasted himself visiting a company theme park and playing cards on his private jet.

(Wang Jianlin’s first live-streaming show)

“I don’t think Chinese live-streaming has good content,” Ge complained. Ge indicated that current live streaming fever is lacking qualified production. A lot of people are live-streaming their lives all day from squeezing in the metro to eating a bowl of ramen. Moreover, Chinese live streaming apps breed soft porn in a society where such content is tightly controlled. Understandably, Americans don’t need Periscope to watch pretty young women, but Chinese need live streaming platforms to help satisfy their sexual cravings.

(A pretty young woman live streams herself.)

Where is the money going?

It is not uncommon to read such an eye-catching title as “China’s Internet ‘Stream Queens’ Are Being Showered With Cash” if you search for live-streaming related content via Google. Is live-streaming that profitable?

“I made 20 yuan ($3) to 30 yuan ($6) every live-streaming show that lasted for an hour,” said Ge. Ge admitted that she was new to live streaming but professional live streamers are able to earn as much as one million yuan ($0.2 million) in a month. Someone even quits his or her full-time job to pursue a live-streaming career because it pays so much more.

How does live-streaming monetize? Through the collaboration of the app, the live streamer and the viewer.

Admittedly, live-streaming is well known for its interaction. However, many Chinese live-streaming apps have integrated an original tipping feature that motivates people to stream more and generate profit for the apps. Other than leaving comments, viewers can also interact with the hosts by buying them virtual gifts, such as flowers, toys and cars through the streaming platforms. Not only the apps are making a profit, the streamers can also trade the token value of the presents for cash.

For example, one yuan (20 cents) on Inke can buy 10 tokens, which users can in turn use to purchase virtual presents, such as a bunch of cherry flowers (one token), a hug (five tokens), a fleet of virtual Ferraris (3,000 tokens each) or a yacht (13,140 tokens). In other words, if you want to tip your favorable host with a yacht, you have to spend 1314 yuan ($190) for Inke’s tokens. Moreover, Live streamers and Inke split the income from token sales. Different companies set different rules for splitting the income. Inke gets 70 percent of the revenue while Douyu says it splits token income with streamers halfway.

Through digital tipping, live-streamers are incented to live stream more frequently. “If you want to build your loyal fans group, you have to post regularly say every Monday evening at 8 pm,” Ge stressed.

Besides live-streamers and live-streaming apps, adding to the monetization of streams are also e-commerce and games sales. E-commerce platforms such as Alibaba also share a huge slice of the profit in this market as viewers might be tempted to buy the same clothes their hosts wear and gamers are more likely to play the games that the host recommends during live-streaming.

Live-streaming directly gives rise to new forms of advertising for different brands. Brands start to advertise on the apps and users pay to watch their favorite personal reality shows.

Investors are thinking highly of this flourishing live-streaming market as it is generating a huge amount of capital. Investment funds and tech giants, including Baidu, Alibaba and Tencent, have invested heavily in the fast-growing industry. According to Hua Chuang Securities, the live-streaming market reached 12 billion yuan ($1.8 billion) last year. It is estimated to grow to 106 billion yuan ($16 billion) by 2020. Credit Suisse stated in its September research report that it believes the Chinese personal live streaming market will be $5 billion next year — already just $2 billion less than China’s movie box office total ($7 billion) and half the size of its mobile gaming market. In addition, 108 out of 116 live-streaming apps have successfully secured financing.

Furthermore, investors are swooping in. Inke, which now has more than 2 million users, raised 68 million yuan ($10.3 million) in January from Beijing-based web game developer Kunlun Tech. In March 2016, Douyu raised $100 million in a round led by Chinese web giant Tencent Holdings. Enlight Media, a Shenzhen-listed entertainment company chaired by billionaire Wang Changtian, invested 131 million yuan ($20 million) for a controlling stake in live-streaming platform Guagua this May.

Where is the future? Tighter government supervision and better content

Earlier this year, some of the most viral content on these live streaming apps reflected pornography such as topless women in front of the camera and suggested erotic behavior. Those streams were deleted quickly. However, the Ministry of Culture, the national anti-pornography office and other regulators have investigated 19 live-streaming platforms for potentially criminal, pornographic or violent content, according to state media reports. Almost all bigger Chinese streaming apps were named or fined, including Inke and Douyu.

In front of the grey areas that exist on the streaming apps, government is trying to tighten its supervision and the sites are also trying to rein in what users post. Nonetheless, pornographic content is more lucrative as users are more willing to pay the live streamers.

Another future challenge is a tension between the quantity of the production and the quality of the production. Although the streaming industry provides a steady supply of content, the market has a low entry barrier. During the interview with Ge, she mentioned that live-streaming is a good way to pass time as a lot of people can live-stream for a whole day. “Maybe it’s ridiculous but I think people are live-streaming because they get bored,” Ge answered with laughter. One of the most astounding statistics of the live-streaming trend in China is that the most active hours are between 10pm and 4am, with peak usage at midnight. Live-streaming may be an answer to loneliness. Moreover, to drive more short-term profit, live-streaming apps are likely to hire beautiful female hosts to attract users and drive sales of virtual gifts.

China’s web has become increasingly mobile-driven, with more than 92 percent of the country’s 710 million internet users now accessing the web via their mobile phones, according to a report published this month by the official China Internet Network Information Center. Undoubtedly, live streaming dramatically changes and broadens people’s social life as everyone is under the spotlight. Everyone can watch each other.

When asked about her future plans to build her brand, Ge said she gave up starting with live-streaming to get fame. She plans to continue and prioritize making funny short videos regularly to increase her viewership and build her loyal fans group, just like how Papi Jiang accumulated her fans before. She highlighted that only short-form videos are considered good content now. Ge has already gained more than 30,000 views for one of her short videos uploaded to YouTube. “If you want to build your brand, live-streaming might not be a good way as no one will pay attention to you until you become someone,” said Ge.

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Sources:

http://www.wsj.com/articles/live-streaming-apps-flourish-in-china-1462995001

http://www.forbes.com/sites/ywang/2016/06/02/in-china-millions-are-broadcasting-their-personal-lives-online-including-the-countrys-richest-man/#63a0a0e57cb4

http://www.cnn.com/videos/world/2016/08/15/china-live-streaming-matt-rivers-pkg.cnn

http://a16z.com/2016/09/27/livestreaming-trend-china/

http://www.economist.com/news/china/21707070-authorities-wish-they-wouldnt-chinas-netizens-love-sharing-live-video-themselves

http://www.voanews.com/a/china-live-streaming-apps-surging-in-popularity/3356667.html

https://www.techinasia.com/weibo-live-streaming-china

https://www.bloomberg.com/news/articles/2016-11-01/chinese-live-streaming-apps-employing-censorship-against-rivals

Live-streaming in China

http://www.bbc.com/news/world-asia-china-37127904

https://www.bloomberg.com/news/articles/2016-07-04/millions-of-chinese-stream-reality-shows-starring-themselves

Alibaba Creates A Grander Black Friday: Singles’ Day

November 22, 2016 by shuang Leave a Comment

The past Single’s Day (11/11/2016), the world’s biggest online shopping day of the year, has just finished with Chinese shoppers spending $17.8bn in 24 hours. That’s a bit short of the $20 billion some analysts had expected sales to reach but easily surpasses the previous record, last year’s $14.3 billion. But still, a lot.

Let’s look at another number. Shanghai Daily reports that the sales total blew past $1.5 billion, an 8% of the total volume in the first seven minutes of the event.

Singles Day laughs in the face of Black Friday. Last year on Thanksgiving Day and Black Friday, according to Adobe, American shoppers spent about $4.45 billion online (and $12 billion at brick and mortar shops). And that’s over the span of two days and counting all retailers, not just one site. Cyber Monday online sales, meanwhile, were just over $3 billion, according to CNBS.

(Source: Forbes)

Singles Day started as “anti-Valentine’s” celebration for single people in China back in the 1990s. Alibaba, the online retail giant, spotted the commercial opportunity in Singles Day back in 2009 and has encouraged single people to celebrate and buy presents for themselves since then. It takes place in China on November 11 every year.

This resulted in 467 million parcels being delivered after 710 million payments were made, according to Chinese news agency Xinhua.

（Source: Routers）

Ma Yun, the CEO of Alibaba is even more ambitious to promote Singles’ Day globally. Huge international companies are offering big discounts: Apple is offering certain models of its Beats earphone at 50% off, while Nike promotes 60% off on a wide range of shoes and clothes. Even Costco, the local brand of the States is joining this year.

In addition to steep discounts on the site, Alibaba has made an early start to promote the event to build the anticipation for the big day, already generating plenty of buzz from its celebrity line-up at the countdown gala in Shenzhen and an eight-hour fashion show in Shanghai which shoppers can pre-order items and pay later. To push for more sales, the Alibaba has introduced a virtual reality shopping experience and a stream of web broadcasts.

This year, the countdown gala featured appearances from retired NBA star Kobe Bryant, footballer David Beckham and his fashion designer wife Victoria, and U.S. pop band OneRepublic. Jack Ma, the founder of the Alibaba Group, showed up to perform a magic trick, and the new Alibaba Pictures’ film production was also promoted during the gala.

(Source: NPR)

“It’s not thinking about ourselves as an ordinary company. It’s about thinking of ourselves as an economy,” said Ma Yun. “You can use your device, your mobile phone, to connect to this economy to do global business.”

Undoubtedly, Singles’ Day is China’s largest shopping and advertising event, which is a barometer of China’s strong consumer sector. Singles Day reflects the changing shopping habits of China’s consumers. The mobile market is playing a major role. Mobile purchases accounted for 72% of purchases in 2015, up from 43% in 2014, according to the Atlantic.

Is A Rising China More Appealing Than U.S.?

November 4, 2016 by shuang Leave a Comment

“I miss the price of my hair service in Beijing,” said Yuyuhou Li, a graduate student from the University of Southern California studying Strategic Public Relations, after her recent pricy experience in Korean Town. The total cost of having her hair dyed was “about $280, including tips.” In other words, having her hair dyed once in Los Angeles equals to three hair-dyeing appointments at a similar salon in Beijing.

No wonder it seems that living in America is quite expensive, at least in most Chinese people’s eyes. China’s economy is growing at an impressive pace. In the past decade and half, China has risen from ranking second in the world in nominal GDP, to pulling itself from poverty at least in its southern coast. “Made-in-China” label is being used worldwide and the grand hosting of the Beijing Olympic Games shows China’s economic power. Even the great Uncle Sam started to fear the rising eastern star.

Meanwhile, in the hopes of receiving a better education and a better life in the future, Chinese students are rushing to pursue academic degrees in the United States. The most recent figures, from the 2014-15 academic year, show that 304,040 international students in the US hailed from China – far more than from any other country, a 10.8% higher than previous 2013-14 academic year.

Faced with the army of ambitious up-and-coming Chinese professionals, are Americans worried? Yes, they are. The loss of jobs is one of the top three problems that are rated as a very serious problem by approximately 60 percent of the American public, according to a survey in 2015.

Undoubtedly, China is in need of fresh blood for a consistent and steady growth. On the one hand, China is experiencing its reorganization and optimization in industrial structure from labor-intensive industry to high-tech industry. Without those young talents, the process will be much slower. On the other hand, China’s rising wages calls for increasing productivity, which cannot be achieved without technological advancement. Therefore, enticing young talents to come back and contribute is significant.

However, a massive loss of talent for China is endangering the long-term development of the rising country. An estimated number of 2.64 million Chinese have moved overseas to study since 1978, but only 272,900 students returned to China over the forty years, according to the Ministry of Education. Moreover, a 2014 report by Oak Ridge Institute shows that 85 percent of the 4,121 Chinese students who received doctorates in science and engineering from American universities in 2006 were still in the U.S. five years later. The stay rate was 98 percent a decade earlier, which actually marks an improvement.

Such a brain drain seems to indicate that living in the States are more appealing than living in China, especially for a young and upcoming generation. How to make a decision when choosing a country to live and work? Living in an affordable place and working in a promising place are two important factors.

Living Cost & Purchasing Power Parity (PPP)

Pick up an apple from a Walmart in Shenzhen, one of the most developed coastal cities in China, and read the price tag carefully. Those lovely red apples are sold at ¥4.98 （=$0.75）per 500g. Now let’s move the scene to a Walmart in Los Angeles, where a large price tag reading $2.47/lb ($2.24 per 500g) sits on top of those made-in-America apples.

It is not uncommon to see an almost triple price difference between consumer products made in the most developed cities in China and those produced in America. A box of 12 cage-free eggs are sold at ¥12.9（=$1.93）in the Shenzhen Walmart, while eggs in the LA Walmart are more than double that price. Not only groceries, but also basic necessities such as toilet paper and laundry detergent suffer from the huge price gap. For example, Tide detergents of the same size in both China and the US do not break the spell of the three-times price difference.

Both Shenzhen and Los Angeles are coastal cities with a high volume of port trade and technology-intensive industries. However, as the chart below is shown, people would need around ¥35,143.95 ($5,266.80) in Los Angeles to maintain the same standard of life that they can have with ¥21,000.00 ($3123.60) in Shenzhen (assuming you rent in both cities). As the chart below shows, Shenzhen’s living cost is higher than Beijing’s, but still falls way behind Los Angeles’.

(Source: Numbeo)

Purchasing Power Parity (PPP) plays a vital role in evaluating the living cost in the respective country. PPP is arguably more useful than nominal GDP when assessing a nation’s domestic market because PPP takes into account the relative cost of local goods, services and inflation rates of the country, rather than using international market exchange rates, which may distort the real differences in per capita income.

According to the International Monetary Fund, China’s economy surpassed the U.S. in purchasing power for the first time in 2014 and continued to rank in first place in 2015.

(Source:IMF)

With the same amount of money, you can enjoy more goods and services in China than in the United States. For example, Yuyuhou Li can buy the same detergent and enjoy similar hair dyeing services in both Shenzhen and Los Angeles; but in China, where labor and rent are lower, dyeing her hair and purchasing basic daily necessities cost much less than she pays in the U.S.

This round, China beats America by a huge margin.

Per Capita Personal Income

“If I am making money in dollars, living in the United States won’t be that expensive,” said Yutian, Li, a graduate student studying in USC with a major in computer science. There’s no doubt that computer science is one of the most well-paid jobs in the United States. But earning dollars and spending yuan is very tempting because the exchange rate between the yuan and dollar is more than 6:1.

“You earn a lot less money in China, but you can save more,” said Robert Little, who used to teach English at the University of International Business and Economics in Beijing. “America is much more expensive to live in because the cost of living is much higher,” he added.

The National Bureau of Statistics of China reveals that the average per capita personal income in Shenzhen was 73,492 yuan (=11,010.45USD) in 2014. The latest data shows that the average per capita income in Los Angeles County is 42,042 USD, almost 4 times higher than in Shenzhen.

If we divide the items sold at the Walmart in both cities by the average per capita personal income, interestingly, the percentages are so similar.

	Los Angeles	Shenzhen
Apple	0.006%	0.007%
Egg	0.01%	0.018%
Toilet paper	0.03%	0.03%
Tide detergent	0.02%	0.03%
Hair dyeing	0.67%	0.82%

But what causes Los Angeles’ cost of living to run ahead of Shenzhen’s? Although the overheated property market in China has driven the prices up and up, rent prices in Shenzhen are 50.93% lower than in Los Angeles. “My living cost per month is about $3,000,” said Jake Davidson, a senior from Los Angeles studying accounting at USC. According to Jake, he has to pay $1,600, almost half of his living cost, for his rent. In that case, people living in major cities in the United States such as Los Angeles and New York actually suffer more renting pressure.

However, Shenzhen’s hair dyeing services, when compared against average incomes, run higher than Los Angeles’. The comparatively high percentage meets a current trend of more expensive service industry in China’s big cities.

Opportunities Matter

“I prefer to work in the United States,” said Caixin Yang, a sophomore who comes from Chongqing City and now studies economics in America. For her, the United States has more advanced and mature financial systems and markets. “China is under transformation and everything is in a mess,” she said.

The same answer goes with Yuyuhou Li, who thinks highly of a well-established public relations career path in America. “Although the living cost is really high here, especially in LA, working in the United States represents a more stable life,” she added.

In spite of skyrocketing living cost, especially the rent in the United States, Chinese students are eager to earn a degree in the United States. What entices Chinese students who receive education in the United States to choose to make a life in a foreign country even though China has become the second largest economy? Free work culture, decent income and better welfare treatment could be the answer.

“High living cost is not something I value if I choose to stay in the United States or in China,” said Yiling Jiang, 23, studying communication management at USC. He values personal development, opportunities, lifestyle, family, and friends when judging which country is more appealing. Not only Yiling, but all of the five interviewees studying in USC with footprints in both China and America agreed that the U.S. living cost is high but not a huge problem. In fact, the highly rigid bureaucratic working ethics, complicated relationship (guanxi) and unfair career treatment are three main factors that prevent young professionals coming back to China.

In addition, as living environment worsens, China’s most well-educated have begun fleeing the country. Caixin Yang also mentioned her concern in her interview about the long-lasting severe pollution in some Chinese metropolitan cities such as Beijing, the Capital of China.

At the same time, there is still a number of Chinese students who pursue degrees in America prefer to go back to China. Yutian admitted that current American life is more attractive in terms of advanced education and career training, but in the future, living in China will be more appealing to him, as the country’s pace of change is accelerating.

“China has a lot more potential in development and I am willing to be a contributor in this process,” said Yutian Li.

China’s Next Big Export: Creativity and Culture

November 3, 2016 by shuang Leave a Comment

“Have you seen Zootopia?” That’s one of the most frequent questions I was asked by my friends from home and abroad in March this year. With more than 1 billion box office globally including 0.2 billion from China’s market, Zootopia has successfully stampeded across the world including China. Moreover, Kung Fu Panda 3 which was supposed to be perfectly calibrated to Chinese tastes, keeps adding Hollywood grosses

In just the first 3 months of 2016, two Hollywood animated movies —Zootopia and Kung Fu Panda 3 by themselves combined to break 2014’s record of $286 million in box office grosses for American animated features in China. It won’t surprise that only animated movie exported to China from the United States will gross over $500 million in China’s market.

Other Hollywood hits in 2014 such as Dreamworks Animation’s How To Train Your Dragon 2 ($65 million in Chinese theatrical revenue), Universal/Illumination’s Despicable Me 2 ($53 million), Disney’s Frozen ($48 million) and Dreamworks/20th Century Fox ’s Penguins of Madagascar ($40 million) shows how blatant American culture export is and how lucrative China’s market is. Undoubtedly, Hollywood is the most competitive export to China compared to tons of made-in-China products imported to the States each year.

Some people argue that Hollywood is synonymous with America. To some extent, it might be true because American entertainment industry is highly visible in the world, that bear the sign of American culture pervasively. The movies made in Hollywood have shaped many Chinese youngsters’ fashion and attitudes for generations. The American films are entertaining, thrilling, and full of heroism. Now, even children from China can quote lines from American films.

Here is an ideal picture for Uncle Sam: America assembles movies and ships them to China, and China assembles merchandise promoting those movies and ships it back to America. Repeat.

However, don’t forget China has its sanction system. Films cannot play in China unless it is approved by the State Administration of Press, Publication, Radio, Film and Television. American studios with the hope of film distribution in China either submit to Beijing’s censors or become adept at self-censorship. China tightly controls U.S. investment in films in China. Although in 2012, China raised the number of foreign films that can be imported on a revenue-sharing basis to 34 from 20 per year to cater to the rules of WTO, the policy is set to expire and remain unknown yet.

Moreover, China’s footprint in Hollywood is growing. This year, Dalian Wanda Group, the Chinese real estate and entertainment giant, bought a controlling stake in Legendary Pictures, a major Hollywood studio that financed films like “Jurassic World.” Moreover, Wanda is now owning AMC theaters, the second-largest U.S. cinema chain.

(Picture of Wang Jianlin, at the announcement)

At the announcement, Wang Jianlin, the company’s chairman and China’s richest man, said the acquisition will allow greater distribution of Chinese films to international audiences. It marked a milestone that China is entering Hollywood, combating the long entertainment trade deficit and dominant market position of America.

According to Wang Jianlin, Chinese-made films does not generate enough interest in the American market. His move will promote Chinese movies to entertain American audiences.

China is ambitious to launch his next big export of creativity and culture. “Confucius Institute” has left its footprints globally. But entertainment export would hugely impact US-China cultural exchange.

Sanction system might not be a problem. If China has a strict sanction on American films to protect its domestic market. Why not America?

Nonetheless, Wanda’s move makes it seems hard to stop China’s steps into Hollywood.

Will the China’s entertainment trade deficit change ultimately? Who knows?

Love and Hate of a Rising China: U.S. or China, Which is More Appealing?

October 11, 2016 by shuang Leave a Comment

“I miss the price of my hair service in Beijing,” said Yuyuhou Li, a graduate student from the University of Southern California studying Strategic Public Relations, after her recent pricy experience in Korean Town. The total cost of having her hair dyed was “about $280 including tips.” In other words, having her hair dyed once in Los Angeles equals to three hair dyeing appointments at a similar salon in Beijing.

No wonder it seems that living in America is quite expensive, at least in most Chinese people’s eyes. It is well acknowledged that China is rising at an impressive pace. From ranking second in the world in nominal GDP to pulling itself from poverty at least in its southern coast, to the “Made-in-China” label being used worldwide, to the grand hosting of the Beijing Olympic Games. Even the great Uncle Sam started to fear the rising eastern star, going so far as to come up with the China Threat Theory.

Considering all of this, can we safely draw a conclusion that living in China is more appealing than living in the States, especially for a young and upcoming generation? The following aspects might give you some insight.

Living Cost & Purchasing Power Parity (PPP)

Pick up an apple from a Walmart in Shenzhen, one of the most developed coastal cities in China and read the price tag carefully. Those lovely red apples are sold at ¥4.98 （=$0.75）per 500g. Now let’s move the scene to a Walmart in Los Angeles, where a large price tag reading $2.47/lb ($2.24 per 500g) sits on top of those made-in-America apples.

It is not uncommon to see an almost triple price differential between consumer products made in the most developed cities in China and those produced in America. A box of 12 cage-free eggs are sold at ¥12.9（=$1.93）in the Shenzhen Walmart, while eggs in the LA Walmart are more than double that price. Not only groceries, but also basic necessities such as toilet paper and laundry detergent suffer from the huge price gap. For example, Tide detergents of the same size in both China and the US do not break the spell of the three-times price difference.

Both Shenzhen and Los Angeles are coastal cities with a high volume of port trade and technology-intensive industries. However, according to Numbeo’s comparison, people would need around ¥35,143.95 ($5,266.80) in Los Angeles to maintain the same standard of life that they can have with ¥21,000.00 ($3123.60) in Shenzhen (assuming you rent in both cities). As the chart below shows, Shenzhen’s living cost is higher than Beijing’s, but still falls way behind Los Angeles’.

(Source: Numbeo)

In terms of the price gap among different countries, Purchasing Power Parity (PPP) plays a vital role in evaluating the living cost in the respective country.

PPP is arguably more useful than nominal GDP when assessing a nation’s domestic market because PPP takes into account the relative cost of local goods, services and inflation rates of the country, rather than using international market exchange rates which may distort the real differences in per capita income.

According to the International Business Times, China’s economy surpassed the U.S. in purchasing power for the first time in 2014 and continued to rank in first place in 2015.

This round, China wins America by a huge margin.

Per Capita Personal Income

“If I am making money in dollars, living in the United States won’t be that expensive,” said Yutian, Li, a graduate student studying in USC with a major in computer science. There’s no doubt that computer science is one of the most profitable jobs in the United States. But earning dollars and spending yuan is very tempting in the fact that the exchange rate between yuan and dollar is more than 6:1.

The National Bureau of Statistics of China reveals that per capita personal income in Shenzhen was 73492 yuan (=11010.45USD) in 2014. Also, the latest data revealed by the Shenzhen survey group of the National Statistics Bureau shows that the average disposable income of Shenzhen residents was 30524 yuan (=6,868 USD) in 2015. The latest data shows that per capita income in Los Angeles County is 42,042 USD, almost 4 times higher than in Shenzhen.

If we divide the items sold at the Walmart in both cities by the per capita personal, Interestingly, the percentages are so similar.

	Los Angeles	Shenzhen
Apple	0.006%	0.007%
Egg	0.01%	0.018%
Toilet paper	0.03%	0.03%
Tide detergent	0.02%	0.03%
Hair dyeing	0.67%	0.82%

But what causes Los Angeles’ cost of living to run ahead of Shenzhen’s? Although the overheated property market in China has driven the prices up and up, rent prices in Shenzhen are 50.93% lower than in Los Angeles. “My living cost per month is about $3,000,” said Jake Davidson, a senior from Los Angeles studying accounting at USC. According to Jake, he has to pay $1600, almost half of his living cost, for his rent. In that case, people living in major cities in the United States such as Los Angeles and New York actually suffer more renting pressure.

However, Shenzhen’s hair dyeing services are at a higher percentage than Los Angeles’, which meets a current trend of more expensive service industry in China’s big cities.

Opportunity Matters

The same answer goes with Yuyuhou Li who thinks highly of a well-established public relations career path in America. “Although the living cost is really high here especially in LA, working in the United States represents a more stable life,” she added.

In spite of skyrocketing living cost especially the rent in the United States, Chinese students are rushing to pursue education in the United States, in the hopes of receiving better a education and a better life in the future. The most recent figures, from the 2014-15 academic year, show that 304,040 international students in the US hailed from China – far more than from any other country.

An estimated number of 2.64 million Chinese have moved overseas to study since 1978, but only 272,900 students returned to China in 2012, according to the Ministry of Education. A 2014 report by Oak Ridge Institute shows that 85 percent of the 4,121 Chinese students who received doctorates in science and engineering from American universities in 2006 were still in the U.S. five years later. The stay rate had been 98 percent a decade earlier, which actually marks an improvement. This situation results in a massive loss of talent for China.

What entices Chinese students who receive education in the United States to choose to earn a life in a foreign country even though China has become the second largest economy? Free work culture, decent income and better welfare treatment could be the answer.

“High living cost is not something I value if I choose to stay in the United States or in China,” said Yiling Jiang, 23, studying communication management at USC. He values personal development, opportunities, lifestyle, family, and friends when judging which country is more appealing. Not only Yiling, but all of the interviewees agreed that the U.S. living cost is high but not a huge problem. It is the bureaucratic working ethics, complicated relationship (guanxi) and unfair career treatment that decrease the charm of coming back to China.

In addition, as smog worsens, China’s most well-educated have begun fleeing the country. Caixin Yang also mentioned her concern in her interview about the long-lasting severe pollution in some Chinese metropolitan cities such as Beijing, the Capital of China.

Faced with the army of ambitious Chinese up-and-coming professionals, are Americans worried? Yes, they are. Despite current slowing growth rate, plummeting stock markets and a variety of economic challenges that China is facing, Americans are still concerned about economic threats posed by China. The loss of jobs is one of the top three problems that are rated as a very serious problem by approximately sixty percent of the American public, according to a survey in 2015. The other two concerns are the amount of U.S. debt held by Beijing and cyberattacks from China.

At the same time, still, a number of Chinese students who pursue degrees in America prefer to go back to China. “China has a lot more potential in development and I am willing to contribute myself in this course,” said Yutian Li.

Yutian admitted that current American life is more attractive in terms of advanced education and systematic career training, but in the future, living in China will be more appealing to him as China’s is speeding up in making itself better.

In light of a rising China, which country is more appealing? There is no definite answer. Living costs are not scary. Opportunity matters most.

Ants in The Prosperous Era

September 19, 2016 by shuang Leave a Comment

Last week, an article titled “Ants in The Prosperous Era” went viral on WeChat and Microblog, China’s most popular social platforms. All of a sudden, we all know that a woman named Gailan Yang killed her four young children behind her small, mud-brick house in a poor northwestern Chinese village in Gansu Province with an ax and the woman drank pesticide to kill herself later. Gailan’s husband who earned a life hardly outside the village with no more than $20 a day of income committed suicide after learning what happened.

(Gailan’s bedroom)

Over half of the population is under the poverty line in the village where Gailan struggled to live since she got married at the age of 19. According to the article, qualified as exceptionally poor, Gailan spent her days working in the fields “hopelessly.” Gailan took care of her four children in this 10-square-meter wind-blown dangerous house. What’s worse, all of her four children could not be registered with a “Hukou,” official residential permit in China, which means the children could not enjoy the country’s social welfare benefit.

“If there’s no incident like Gailan Yang killing her whole family, who would believe that these disadvantaged people and groups still exist in this prosperous era?” questioned the author, a well-known commentator.

As the world’s second-largest economy, China is among the world’s worst in income inequality. The country’s poverty rate dropped from 88 percent in 1981 to 11 percent in 2014, according to the World Bank.

Yet more than 70 million people in China still live below the poverty line, according to the National Bureau of Statistics, and income inequality is becoming larger and larger. The richest 1 percent of China’s households own a third of the country’s wealth, according to a recent report by Peking University. The poorest 25 percent of Chinese households own just 1 percent of the country’s total wealth, the study found.

Gini coefficient is a widely acknowledged measure of inequality that takes into account income distribution among residents of a country. The higher the Gini coefficient, the greater the inequality is. 40 or 0.4 is the warning level set by the United Nations. As it shown in the graph, China’s Gini coefficient rose to 49 in 2009, from 32 in 1990(the number varies among official statistics and organizational statistics). According to China’s official statement, China has made a great progress in combating inequality, making the lowest number of Gini Index in 2015. However, the number is still expected to be larger in reality.

Among Asian countries, China has ranked the first in earning Gini points speedily according to IMF. This May, IMF warns of growing inequality in India and China. IMF points to the problem with redistribution of incomes as high growth rates are not reducing inequality.

“When a person commits a crime for bread, then society is to blame,” one user wrote on Weibo, China’s version of Twitter. Although it’s discriminating to call people ants in the article, the family killing does shock the whole China’s society and raise an alarm to the abnormal economic development in current China.

Will the new tax regime on luxury imports pave a way for domestic consumption?

August 31, 2016 by shuang Leave a Comment

Have you ever thought of Starbucks or Kate Spade as luxury brands? That’s how Chinese people view them, however. If you are drinking Starbucks, you are classy. If you are carrying a Couch purse, you probably will draw the gaze of some housewives.

The tax burden of importing luxury goods (even Starbucks shown above) is extremely high in China compared with other countries. For example, a Kate Spade striped bag on sale is $99 but the price turns out to be more than $300 including taxes in China’s outlets.

Interestingly, Chinese shoppers account for a third of global sales of luxury goods, but only a fifth of sales take place domestically.

The rest are purchases made abroad—either ordered from overseas websites, bought by Chinese tourists, or smuggled in by personal shoppers known as “Daigou”.

The large price discrepancy inside China and outside China and the stereotype of foreign products with better quality gave a birth to a gray market existing among oversea students who fill their suitcases with luxury items and resell them back home in person or online. Why students? They have a legal identity and they want to relieve economic burden from their families.

“It’s really time consuming to be a student buyer but I really earned my living fee every month, said Xinhui Liu, a graduate of USC Viterbi School of Engineering. According to Xinhui, she earned modestly, with a 10% profit from the original price tag in the market. More often, the purchasing agents earn as high as 50%, but the price they give to their customer is still lower than the Chinese market price after taxation.

However, this gray market is getting squeezed. The import duty rate for importing luxury goods into China is 24.5%, the imported value added tax (VAT)is 17%. The new import tax policy released by the Chinese Ministry of Finance, the General Administration of Customs and the State Administration of Taxation came into effect on April 8. According to the new tariff standard, Chinese tourists bringing international goods worth over 5,000 yuan ($ 748.5) are required to pay hefty tax. Moreover, they would be treated as smugglers if they carry suitcases full of luxury items as before.

In fear of year-by-year domestic demand flow toward foreign goods, Chinese government comes up with raising the import tax higher and higher. But by levying high taxes, it loses tax revenue when it is smuggled back in.

Moreover, my student buyer friends have already come up with methods to combat the increasing import taxes. “It has little impact on my business actually because I use more advanced shipping method now which included tax insurance.”

The act discourages purchasing products internationally. Nonetheless, it stimulates domestic consumption sector, particularly for higher quality goods. China’s economy has relied heavily on net trade compared with the United States.

Will it work? Probably not in the short time. China Consumer Confidence might also be able to tell a story. Understandably, it fluctuated during the past ten years with a peak around 2008 and plummeted in the following year due to the financial crisis. The monthly trend in 2016 shows that China Consumer Confidence goes down in April after the introduction of the new tax regime. In other words, people were not inclined to purchase during that period.

Although the new standard of tariff to import luxury goods might play a role in reforming Chinese industry, it’s not enough. China Consumer Confidence rebounded later in June and July. People are still likely to purchase foreign goods for the sake of quality. Therefore, boosting domestic consumption requires more qualified domestic products combined with supportive policy.

MMM

Money Marks & Media - Spring 2014