In Dutch we say ‘maart roert zijn staart’, which according to my American colleagues translates to ‘March comes in like a lion, and goes out like a lamb’, or March starts stormy but come April, it’s spring. This was not the case in either New York or Chicago this week, where I was visiting American corporate clients with colleagues from our NYC office. This morning I woke up to snow! The bumpy flight from New York’s LaGuardia airport to Chicago’s O’Hare was a further sign that spring has yet to arrive….
When we lived in New York between 2001 and 2004, the city’s pace never ceased to amaze me. Once back in Amsterdam, I had to consciously slow myself down because everything is faster in NYC, even crossing the road. That same pace applies to its real estate prices, the inflow of immigrants and retail consumption. Let me start with the latter. When I visited the Apple Store on Fifth Avenue at 5.30 a.m. (jet lag!) there were at least 40 or 50 people there, mostly tourists, trying out the latest gadgets. The store is open 24/7 and it said that when Hurricane Sandy hit NYC in November 2012 they could not find the keys to shut it down for safety!
Real estate prices are also soaring again on both sides of Central Park. Apartments in 15 CPW (short for Central Park West), one of New York’s most prestigious residential addresses, recently listed at USD 88 million! A bestselling book by author Michael G
ross lifts the lid on this luxury apartment building, home to celebrities such as Hollywood actor Denzel Washington, New York Yankee basketball star Alexander ‘A Rod’ Rodriquez and hedge fund manager Daniel Loeb. (http://www.businessinsider.com/15-central-park-west-facts-2014-3).
Finally, what struck me this visit was the country’s ongoing vitality. Immigrants are one of the reasons the US will not face the demographic headwinds of an ageing population. Taxi drivers in both Chicago and NYC hailed from all corners of the globe, from Tashkent in Uzbekistan to Ulan Bator in Mongolia and various places in China. Youth, energy and a good command of English are some of the ingredients to start a new life in the US. As the song goes, ‘If you make if there…’.
During the meetings with our US corporate clients the conversation naturally turned to economic developments in Asia and Europe. It became apparent that while volatility in emerging markets is a serious setback, these growth markets remain important sources of revenue for US companies. Economic recovery in Europe and the US is still tentative and emerging markets offer opportunities for growth. Ironically, the tapering measures the US Federal Reserve took in 2013 to improve US market sentiment led to outflows from emerging markets as investors brought their dollars back to the US. This hurt US companies exporting to emerging markets, which was felt in the economic recovery at home! Despite economic uncertainty around Russia and Ukraine and ongoing debt problems in China, emerging markets continue to be important to US businesses.
Back to the bumpy flight from NYC to Chicago, where we also went to see clients. Delta Airlines now has wifi on its flights – most convenient for checking emails at 10,000 feet! Usually I use this time to catch up on my reading, but the wifi proved too tempting. So I checked my mail instead and called my daughter in Amsterdam using FaceTime. She was very surprised to see me calling from inside the aircraft at 10,000 feet!
Will the Asian financial crisis repeat itself? Contrary to the crisis of 1997, most Asian economies have shored up their foreign exchange reserves and brought down their external debt. Also, they have moved debt from mostly USD denominated to local currency debt, while China’s economy is holding up – four factors why ING’s economist Van Vliet feels the Asian financial crisis will not repeat itself.
Watch the video and more from eZonomics via below link:
Following an earlier blog after visiting Hongkong and Shanghai in November last year, please find an excerpt from todays FT article on rising housing prices in China – are measures by the Chinese government working?
Please see attached link
By Simon Rabinovitch in Shanghai
Chinese property prices soared again at the start of 2014 but their year-long run of accelerating increases showed signs of losing steam amid the government’s moderate policy tightening.
New housing prices in China’s 70 biggest cities rose 9.6 per cent year on year in January, down from 9.9 per cent in December, according to a population-weighted average. Of the 70 cities monitored by the national bureau of statistics, six posted price declines from the previous month, up from just two in December.
Last week Thursday I addressed the annual forum of Dujat, the Dutch & Japanese Trade Federation that has been very active and successful for the past 30 years in strengthening the ties between the Japanese and Dutch business communities. The theme of the forum was “Made in Holland, Made in Japan”. In my welcome speech, I explored the question regarding what ”Made in…” stands for today in an environment of further globalization and shifting markets, and whether this concept still matters as much as it did 20-30 years ago. It was an interesting discussion about how both countries have different macro-economic challenges to overcome, but both still maintain a strong position in the forefront of technological developments in global markets.
At this year’s event, two macro economists shared their views on the Japanese and Dutch state of economic affairs while two professors shared their views on the theme Made in Holland, Made in Japan. Many Dutch (Bluetooth, wifi) and Japanese (Walkman, calculators) inventions have travelled around the world. Nowadays, more and more Japanese parts are included in an iPhone, but that does not make it a Japanese product. Still, Japanese are known for their quality and Dutch for their inventions, despite the fact it is not visible from the outside of a product.
The Dutch economy is progressing according to ING economist Maarten Leen as the housing market seems to be bottoming. Massive pension reserves, a strong export led economy and a great investment climate according to the OECD and WEF, should help the Dutch economy. The fact that there are such big pension reserves also explains why the Dutch are so gloomy despite the fact that we are one of the wealthiest and happiest people; we have a lot to lose! According to the same statistics the Greeks are also very ‘happy’, also explained by the fact that they don’t really have to worry about their pension reserves…
Currency strategist Hidetoshi Honda from Japanese Mizuho bank described the static state of the Japanese for the past 10 years with close to zero inflation. The current policy of Abenomics is based on three pillars, around monetary and fiscal policy and a focus on growth. Since the Japanese yen and the Nikkei stock index are moving in parallel, any (orchestrated) weakening of the yen is positively impacting the export led Japanese economy, boosting the Nikkei, weakening the yen etc. Also, Abenomics has more staying power. While before the Japanese have had 6 prime ministers over the same number of years, Abe however has retained his approval ratings and therefor can implement more in popular measures, like the recent consumption tax.
The two professors, Kruit from Delft and Fukuda from Nagoya, covered the various developments in their respective fields, robotics, microscopes and nano technology. Especially in microscopes (FEI and Hitachi) and semiconductor (ASML and Nikon) lead globally, which explains Dutch and Japanese technology inside the approximate 7 billion (!) cell phones we use globally everyday!
Interestingly enough the pendulum technology invented by Dutchman Christian Huygens in the 17th century serves as the backbone for the Karakuri technology. The use of springs inside typical Japanese wooden dolls allows them to move mechanically. Even today the technique of Karakuri is applied by Japanese carmaker Mazda, a great showcase of using historic applications in modern automobiles. (http://www.youtube.com/watch?v=yXuT4rDq3TY&sns=em). Watch the enthusiasm the Mazda manager displays in using a very simple technique to produce something simple but esthetic and useful.
While structural changes in the Dutch housing sector seems to provide for a rebounding of the economy, Abe needs structural positive approval ratings in order to continue his three pillars of Abenomics. And the application of Karakuri in present day car making as well as Dutch and Japanese chips in your cell phone shows that it is not the outside but the inside that matters, and that Made in Holland or Japan after many years still indicates state-of-the-art technology.
After returning from a skiing holiday in December, I left for the cold of New York where the first week of the year another record was broken: the largest swing in temperature, downward that was!
I missed the happy-new-years wishes in the office since that is only ‘allowed’ until the Three Kings day. However, since Chinese New Year only starts 31 January, I thought a good way to (re)start my blog is on the new year of the Horse.
2014 is Male Wooden Horse year. Next to the 12 animals (www.chinesefortunecalendar.com) that, according to legend, came to Buddha to meet him on Chinese New Year, the various elements also play a role: wood, fire, metal, water and soil. Since the Horse sign already contains a lot of the element fire, and 2014 is a year of wood and fire, the combination of the two elements does not bode well. According to financial analysts quoted the first couple of weeks, there could be some fiery rebalancing amongst others in the shadow banking market in China!
Back to Budha who announced that the people born in each animal’s year would have some of that animal’s personality. Those born in horse years are cheerful, skillful with money, perceptive, witty, talented and good with their hands. Some famous people who were born in the various Horse years: Rembrandt, Chopin, Aretha Franklin and Harrison Ford.
At Chinese New Year celebrations people wear red clothes, and give children “lucky money” in red envelopes. Red symbolizes fire, which according to legend can drive away bad luck. The fireworks that shower the festivities are rooted in a similar ancient custom. Long ago, people in China lit bamboo stalks, believing that the crackling flames would frighten evil spirits.
Hopefully, the flames are able to frighten the evil spirits of any rebalancing or financial distress!
Also check out this video from Bloomberg on the so-called skyscraper curse….
On the last morning I attend a presentation about Shanghai’s recently announced Free Trade Zone and the opportunities it will offer foreign banks. The presentation takes place during a breakfast meeting of European bank country managers represented in the European Chamber of Commerce in China.
At this moment it is unfortunately still unclear what the exact goal of the Shanghai FTZ is. Is it about further nationalising the Chinese currency, the renminbi? Attracting foreign companies? Facilitating the export of Chinese companies? Or a combination of all three?
The same day, the FTZ is also discussed during our conversations with subsidiaries of several American clients. Here too the feedback is that the exact plans and regulations are still unclear. However, we agree that the spectacular growth of the Chinese economy is behind us and this growth is set to stabilise at around 6 to 7% in the medium to long term. During the transition to a new phase in economic development one of the reasons for the FTZ would indeed be managing the exchange rate, alongside further opening up the Chinese market. Personally, I believe that the FTZ is a next step in the right direction of further opening the Chinese economy. Although it happens at the pace determined by the bureaucrats in Beijing, the introduced reforms are being pushed through.
Looking at the growth in the number of skyscrapers in Pudong – the growth phase is over. Although the Jinmao and Shanghai World Financial Centre towers in the Lujiazui district will soon be accompanied by the largest skyscraper in China – the Shanghai Tower, which will reach a height of 632 meters in 2014. It appears that the ground under Pudong is sinking several millimetres per year, but my local ING colleagues ensure me that the current towers are well anchored. They also told me that there are only two(!) fire trucks with ladders able to reach the 29th floor in the whole of Shanghai. I might stay a few floors down next time, although the view from the 84th floor is magnificent in the morning.
The development of Pudong only started in 1990. Back then, the area was made up of rice fields and a few buildings east of the Huangpu river, looking over the city Shanghai on the other side. Now, 23 years later, the district has one of the most impressive skylines in the world. The developments around the FTZ have led to strong price increases and according to several real estate agents this is set to continue for a while. Nevertheless, several studies praise Shanghai for its regulations which at least ensure an orderly increase, even though that was around 100% for land prices near the FTZ!
The journey continues to Hong Kong where there is also plenty to do around the property market. In the back of the taxi on the way to the airport I realise that I should take the Maglev again next time, that’s a lot faster. The Maglev is the magnetic levitation train between the airport and Pudong, which covers the 30-kilometre track in 7.5 minutes. My taxi driver is stepping on it, but a top speed of 430 km/h is not an option!
During the flight from Amsterdam to Shanghai the smog above northwest China was very visible, a current topic that is often brought up about China. It is a major problem in a number of regions. In Shanghai however it was sunny and we could easily see for 5 kilometers from the 84th floor, while the Shanghai Daily showed a photo of the storm in Amsterdam, which our flights has just narrowly missed.
Back to the Chinese smog and air pollution. Pollution, in the north in particular, has become a growing problem during the past ten years because of the rising number of factories. With winter around the corner, and the heaters on again, the situation just becomes worse. For example, air pollution measurements in Harbin, a city of 11 million inhabitants in the northwest, show particulate matter of 1000 micrograms per cubic meter.
In comparison: the WHO advises that the amount of particulate matter in the air should not exceed an average of 20 micrograms per cubic meter, while 300 is considered hazardous for one’s health. (Studies have shown that Chinese inhabitants living in the north have, on average, a shorter life expectancy of 5.5 years due to the pollution.)
The Chinese government is very aware of the problem and hopes to improve the situation by reducing the burning of coal, promoting cleaner industrial processes and getting tough with industrial polluters. A balance between growth and pollution will remain a challenge.
The next morning, running a lap along the river from the hotel is a good exercise. You need to be on time to avoid the rush hour traffic chaos. Serious trouble breathing isn’t a problem, but you can’t avoid regular coughing. It’s a by-product of a city with an official population of some 23 million, yet it could also be 28 million according to estimates…
There is a handy app that can be downloaded that tells you what the air pollution measurements are. Today they were 50 and 99. The first measurement is according to the Chinese government, the second from the American consulate.
My day is then primarily devoted to visiting the Chinese subsidiaries of our international clients. During these visits it appears that the competition from their Chinese rivals is becoming tougher. While having a good brand, an original product and great service used to be sufficient, now the local needs of the Chinese customer must be catered to. Although Chinese consumers love Western luxury brands, they are increasingly comparing these with good products produced on home soil.
Foreign products are after all more expensive and if they can get a better local product for a lower price they will increasingly continue to do so. An Apple phone costs around 800 dollars in China, while a secretary earns about the same amount per month. For a quarter of the price you can buy a Xiaomi phone that is identical in appearance and functionality. Think global, act local, is therefore becoming ever more important for Western enterprises in China.
The international press is currently paying a lot of attention to the Chinese government’s tackling of foreign companies. Apple, Samsung, VW and also Starbucks have negatively appeared in the news. In the international press it sounds like the Chinese government is only focusing on foreign companies. In Shanghai the image is more nuanced: successful (international) companies are indeed being examined, but the rationale is that consumer programmes, such as Kassa! in the Netherlands, hardly exist in China, or not at all.
Now that consumers can finally raise their voices via the Chinese media, the international public opinion suddenly takes issue with this. To be fair, in the case of Starbucks the criticism is a bit bizarre: the coffee is too expensive! There are also other coffee companies where you can grab a latte, cappuccino or macchiato.
To wrap up, a note about the local housing market in Shanghai. While we have experienced a dive of 20% in the past five to seven years in the Netherlands, people in Shanghai faced an increase per square meter off almost 6% this week! Perhaps it will be up another 6% next week, or perhaps it will dip. Who can say? The ‘good’ news is that there was a 63% growth in new housing in just a week’s time.
For the average employee purchasing an apartment is an almost impossible financial task. A mortgage usually covers 70% maximum and the rest you have to pay yourself. Add to that the weekly fluctuations and you reach the conclusion that you need nerves of steel to enter the housing market. The next blog about Shanghai will be about the new free trade zone initiative, then on to HK!
Although I have made various trips to Japan, including visiting some of the major cultural highlights in Kyoto, Nara, Tokyo and Hiroshima, somehow it never worked out to visit a sumo wrestling match. During my last trip it turned out there were tickets for a Friday afternoon match. Surprised it was not sold out, my Japanese colleagues mentioned that after a long history of Japanese sumo champions the sport is now completely dominated by foreigners, including a Bulgarian, an Egyptian (nicknamed ‘the sandstorm’) and several Mongolians wrestlers. One of the most famous and successful foreign wrestlers is Akebono, Hawaiian Chad Rowan, who became a yokozuna, or grand champion, in 1993. Apparently the last time a Japanese wrestler wan, was in 2006, and since then Japanese public interest decreased.
Attached short movie I found on Bloomberg – including footage on one ‘Morning Blue Dragon’, the Japanese name for Davadorj Dolgorsurengin. He was a very successful sumo wrestler and invested his fortune in various Mongolian industries.
Similar to Davadorj, one of the little sumo wrestlers in Ulan Bator wants to invest in his Mongolian sumo stable if he becomes a champion.
Not far away travelling this week, but giving a guest lecture on doing business in Korea closer to home. This is because of a request from the University of Applied Sciences (HvA), with which we have a partnership, to tell students about my experiences. According to the organiser, his students had never listened this quietly and attentively – something that doesn’t happen to me at home very often!
I highlighted several themes that formed a comprehensive list of important focus points. There is no secret code to doing business in Korea, however, thorough preparation goes a long way.
If you can’t beat them, join them! That certainly applies to the major Korean chaebols (Samsung reported a record profit last week), that are become more active and successful worldwide. Whereas people in Germany, until a couple years back, thought that Hyundai was from Japan (which was convenient to the Koreans as the perception of Japanese quality was very high), it is now clear that Korean cars and mobile phones are taking a leading position.
Catching a ride
To be able to ride along on this success, a long-term relationship is key. Dutch suppliers to these large players and also to other Korean companies should have a long-term focus on cooperation. Koreans are networkers at the core. Often, our local colleagues at ING branches in Korea and our customers know each other from military service, hometowns or university. A senior manager in Korea can rotate within the marketing department, yet be active in finance a year later. Maintaining relationships over long periods is very important.
What is also very important, as it appeared during the recent trade mission to Seoul, is the concept of loss of face and etiquette. Stemming from Confucianism, there is a strict social hierarchy, which means that seniority matters during delegate introductions. The first to introduce is the highest in rank, then the next, etcetera.
At the conference table it’s the same protocol, only the highest in rank sits in the middle, the second on his right-hand side, the third on his left and so on. When you introduce your delegation, you do so on the basis of seniority, with people on the other side of the table looking from left to right and right to left until everyone has been introduced. And the same goes for the other side of the table.
Diplomacy at its best
Two weeks ago something nice happened. When introducing the Dutch delegates – guests may go first – this did not happen according to the protocol above, as the highest in rank first introduced all members to his left and then to his right. The Korean CEO then did exactly the same, against protocol, out of respect for the guest. This was diplomacy at its best.
Queen Wilhelmina once did something similar during a banquet with Paul Kruger, President of the Boers in Transvaal, South Africa. Kruger drank water from a silver bowl that was meant to cleanse your fingers, not to drink! To save the face of her guest, the Queen also drank from the bowl.
Finally, I have some examples of the group v.s. the individual, avoiding conflicts and respect. The picture of Bill Gates holding his left hand in his pocket while shaking brand new President Park’s hand with his right, was vastly commented on mainly outside Korea. It indicated a lack of respect to greet the President of Korea like this. Personally, I believe the Koreans will not have held it against him, because he is not Korean. However, showing you have studied Korean culture and Korean manners is appreciated.
In addition to the Amsterdam students, there were also a number of Korean participants in the forum. Just to be sure, I have checked whether they agreed with my observations about these particular Korean ways of doing business. After sharing some memories about Seoul, they said they recognised the truth in my remarks about doing business in Korea. This felt reassuring. Or was this a case of saving face?
This is the third and final blog following a trip to North East Asia mid-September
From Tokyo’s Haneda Airport to Gimpo in Seoul, the smaller airport close to the city centre. Although landing on hypermodern Incheon airport is no burden, as your suitcase is usually on the belt before you even have a stamp in your passport (no, that doesn’t mean the queues at immigration are terribly long… but the drive to the city is). It is now over a year since we moved from Seoul to Amsterdam, and I enjoy coming back every time.
This time, I arrive in South Korea as a participant of the Amsterdam trade mission led by Mayor Van der Laan. Together with companies from the region, including Deloitte, Kia, AKD, Schiphol, AON and start-ups DriveUgo and The Student Hotel, in addition to the Amsterdam Chamber of Commerce (KvK) and the VU University, the most important goal is to strengthen ties with a large number of Korean companies that have picked Amsterdam as their European business location. In addition, we would also like to attract Korean businesses, students and talent to Amsterdam.
We visit eight South Korean companies, where we are received will the utmost esteem and jointly discuss new plans for European expansion, exchange gifts and have our picture taken for the archives. Most CEOs express their appreciation for the fact that the Mayor of the Dutch capital personally comes to thank them in Seoul for their investments in Amsterdam.
The usefulness of this type of mission is often underestimated in the Netherlands, as the presence of the considerably heavyweight dignitaries, together with the local Dutch ambassador, ensures that the entire management teams of severalchaebols (the large industrial conglomerates) are present at the other end of the table. This doesn’t happen very often in normal meetings. As we conduct business on an international scale with most Korean companies, particularly in Europe, these visits prove most useful to perpetuate relations at a high level.
From a macro-economic perspective, mainly middle-sized Korean exporters suffer from the cheaper yen (see Abenomics in the previous blog about Japan) and the therefore more expensive won. Of all the Asian currencies, the South Korean won has increased most in value, while almost all other emerging market currencies decreased in value compared to the US dollar.
There are indeed positive reports from larger steel factories that are seeing an improving market in ship construction. In addition, Korean conglomerates remain internationally active in securing gas and oil, as the country has no natural supplies of its own. They way in which the government cooperates together with banks, credit insurers and other private sector players works like a well-oiled machine. Perhaps an export model to also explore in the Netherlands?
In addition to the meetings with companies there was a grand networking dinner (150 guests) with classical and modern Korean musical entertainment. From the 22nd floor of the Plaza Hotel across the newly renovated City Hall – one of the few older buildings to have survived the fury of the Korean war – I looked out over the wide boulevards where pop star PSY performed before 80,000 fans. In the distance, set on the slopes of the Blue House, lays the official residence of the President, and behind those hills is the Pyeongchang Dong district, where we happily lived for 3.5 years.