What are rare earth minerals?

Rare earth minerals or rare earth elements (REE) are a group of 17 minerals that share similar chemical features in the periodic table plus yttrium and scandium. They are considered ‘rare’ not due to lack of supply in the earth’s crust, but rather because extracting, refining and processing them requires tremendous effort and investment. They are used to make multiple high-tech commercial products like hybrid electric motors and hybrid batteries, computer hard drives, mobile phones and camera lenses, portable x-ray units, stadium lights, flat-screen TVs, energy-efficient light bulbs, fiber optics, glass additives etc. These resources are everywhere in our daily use and most of them are from China.

Rare earth minerals, a Chinese monopoly

Today, the production is mainly concentrated in the country. Although China has 30% of the global deposit of rare earth minerals, China attributes 90% of the output. Not only being the top producer in the world, China is also the top user, roughly 70% of global mined production is consumed by China’s downstream industries. For instance, about 75% of global production of neodymium-iron-boron permanent magnets is demanded by domestic industries. Chinese car brands like Byton and all the automotive industry could benefit from this monopoly.

Source: USGS – The evolution of the production of rare earth minerals

Imposed limits on exports of rare earth minerals in China

In 2009, China started to limit exports of these minerals to build up domestic manufacturers to keep more of the profits that would otherwise go to Western and Japanese producers of mobile phone batteries and other products. The restrictive export quotas on rare earth minerals in China made global technology producers concerned about insufficient supply. Hence they tried to reopen or develop new mines in the United States and other regions. Also, Japan and some other countries now recycle rare earth materials.

WTO regulation against rare earth minerals in China

Some countries leaders fear the Chinese monopoly over rare earth minerals, so they attempt to regulate the situation. In March 2012, the European Union, Japan and the United States submitted a complaint to the World Trade Organization regarding rare earth quotas. China started implementing export quotas in 2005. The purpose is first and foremost national: “to protect its natural resources and ensure a sustainable economic development”. Prices increased from 2010 as well as for terbium, a mineral which price increased nine times in a few months. It was the first trial trying to regulate the Chinese monopoly, the country lost the appeal.

An asset for Chinese diplomacy

The important amount of rare earth minerals in China gives the country a strategic advantage in its diplomatic negotiations. For example, the resource was leveraged during the diplomatic tensions with Japan in 2010.

Source: Google maps – The Diaoyu or Senkaku islands

The Diaoyu Islands (Senkaku in Japanese) are maritime areas disputed by both countries. On these islands, Japan captured the captain of a Chinese trawler. This event increased diplomatic tensions and lead to the embargo of rare earth minerals against Japan. China sold just 30% of rare earth minerals to Japan compared to the previous year. This embargo seriously affected the Japanese technology industry which depends on the supply of rare earths minerals from China. The country keeps a strong advantage over rare earths because it takes an average of 25 years to construct a functional mine.

Is the advantage of Rare earth minerals in China overestimated?

Perhaps the advantage that rare earth minerals brings to the country is overestimated. First, rare earth minerals are, ironically, not that rare. In fact, there are several mines around the world: such as in mountain passes in California, in Australia and Vietnam. Second, a rare earth minerals embargo for diplomatic reasons would have terrible consequences for Chinese companies. There would also be retaliations from other countries that are victims of the embargo. Hence, the economic cost is too significant.

Moreover, the use of rare earths as a diplomatic weapon goes against China’s long-term strategy. The country wants to upmarket in its production and focus more on high technology. An embargo on rare earths would lead to an increase in the world price of these minerals and would therefore ultimately be negative for Chinese technology companies, which could see the price of their subcontractors and the entire production chain increased. Also, if the price goes up, some mines would be tempted to re-open again as there will be opportunities for investors.

Mining rare earth minerals is a significant source of pollution

It is difficult to reverse the damage done by extracting rare earth minerals. Yet they are necessary to produce all electric vehicles, which are the poster-child of anti-pollution. The extraction of rare earth minerals in China pollutes and produces toxic waste. In Inner Mongolia, villages near the Baotou mine have levels of radioactivity 32 times higher than average. Whereas, at Chernobyl, the measured radioactivity is only 14 times higher than normal.

Source: Pixabay – The Baotou mine in China

Western countries have stopped the mining of rare earth minerals under environmental constraints. In 1998, the United States was forced to close the open pit mine at Mountain Pass, California, after thousands of liters of radioactive water were accidentally released into the environment. In addition, many countries refuse to allow this type of mine to be built on their territory. Even though in the past several countries produced rare earths, they all stopped because of the danger for the environment. It is difficult to reopen such mines in countries today, public opinion would be against it. This reinforces the undisputed Chinese monopoly for these resources.

China’s rare earth materials shapes our lives in more ways than we know

In conclusion, rare earth minerals are becoming significant components of our lives. They are the source of materials for smartphones, new energy vehicles, and can be found in all the high-tech objects of our daily lives. China concentrates the production of these rare earth minerals and has a strategic advantage. Countries that produce manufactured goods have become dependent on China’s rare earth material exports. This advantage should be balanced, as mining is very harmful to the environment. Moreover, even if it could be a geostrategic deterrent, the use of quotas or restrictions against foreign countries could be harmful for the Chinese economy as some retaliations will come.

Author: Enzio Cacciotto

Rare earths are a necessary material of new energy vehicles

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China’s startup hype started from the central government

Entrepreneurship and innovation have always been on the mind of top decision makers

Since 2008, China’s central government has already extended a warm welcome (in the form of grants and other perks) to attract top talents back to China. Its goal is to promote high-level innovations and technological breakthroughs, which naturally contributes to employment and economy.

In 2014 in the Summer Davos Forum, the Prime Minister Li Keqiang first coined the term “Mass Entrepreneurship and Innovation”. In 2015, he kept advocating the entrepreneur spirit in the National People’s Congress and many other important occasions. Since then, the notion of starting up and being your own boss gained momentum.

Over the years, the Chinese government has focused on the youth as the main propeller of innovation

The plan called “Implementing Opinions on Deepening Innovation and Entrepreneurship Education Reform in Higher Education Institutions” issued by the State Council in 2015 further lowered the entry barriers for university graduates to start a business. All sorts of business plan competitions were put in place with generous grants to realize the winning proposals. For example, China College students’ Internet Plus Competitions are target local graduate students, while the Chunhui Cup targets overseas students. Also, startup experiences could be converted into school credits. What’s more, university entrepreneurs can extend their school years if they decide to pursue a business idea.

All those measures were established to reach the objective in 2020: a sound university entrepreneurship education system, significantly enhanced students’ innovative spirit and skills, and a significant increase in the number of students engaged in entrepreneurial practices.

Internet is transforming almost all the industries, representing great opportunity for mass innovation

The term “Internet Plus” was coined to inspire people with the prowess of information technology, and is regarded as a national-level strategy. All the aspiring entrepreneurs in China’s startup scene are thinking how to disrupt a traditional industry with the mighty internet.

Online to Offline (O2O) is a famous term born in this context. The logic is to combine the online and offline experience to facilitate life. Ride-hailing market leader Didi, food delivery platform Eleme, e-commerce giant Taobao, short-lived bike-sharing unicorn OFO are all examples of the O2O business model. The customer value chain has one part done online, usually product configuration and mobile payment, and another part delivered offline.

In addition to O2O business model, Internet Plus also gave birth to new business models in various industries. Coupled with media, it became new media, embodied by WeChat official accounts. Married with finance, it turned into FinTech, which made investing, money wiring, and short-term renting way more convenient. E-commerce is the best illustration of how internet switched the retail business online and scaled up its influence while cutting down fixed costs.

The benefit of internet spills over to non-for-profit areas too. For example, online education market leader Hujiang put forward a Corporate Social Responsibility program in 2015, with an aim to mitigate the education inequality in China. Ant Forest, a carbon-reduction program introduced by Alipay increased user stickiness by planting real trees on their behalf.

The mobilized public and the honorable badge of failure

The unwavering support from the government and the widespread of internet capabilities enabled the creative minds to unleash their potential.

According to National Bureau of Statistics, the improvement of general business environment in China has given rise to business registrations. Especially in the tertiary sector, where the legal entities registered with IT services has quadrupled from 2013 to 2018. Other booming industries include technological services, leasing and professional services, with a CAGR of 23%. Public administration and social organizations only grew 2% on an annual basis. Those figures clearly outline the confidence and concentration of digital services promoted in the entrepreneurial wave.

Data source: National Bureau of Statistics, Number of Chinese legal entities in 3 sectors

The increased ease of starting up and technological advancements propelled the establishment of enterprises. Compared to individual economic units, registered enterprises soared in 5 years, taking a whopping 75.6% of total legal entities.

Data source: National Bureau of Statistics, Number of Chinese enterprises registered has soared

Furthermore, the tide of Mass Entrepreneurship and Innovation translated into the numerous young enterprises. In 2013, SME (small and medium enterprises) represented 95.6% of the total registered companies. In 2018, they represented 98.5%, showing the liveliness of Chinese entrepreneurial energies.

Data source: National Bureau of Statistics, Young enterprises take the lead

There are many stories and lessons about startup failures, which is how 95% of startups end. But with the mainstream endorsement and regulatory privileges, failures are more and more seen as a badge of honor. For the new generation of Chinese entrepreneurs, many are driven by dreams and opportunities, some are forced to venture for lack of job prospects, yet others are blindly following suit. In 2011, only 1.7% of university graduates opted for starting up a business. This percentage peaked at 3% in 2016 then slightly dropped to 2.7% in 2018. This change implies that government promotion was effective, and that China’s startup scene is cooler headed than before.

On the one hand, it’s the government’s job to put all the necessary support in place to ensure new ideas come out alive after market selection. There are more and more incubators, governmental subsidies, and free startup resources and mentors. On the other hand, it’s entrepreneurs’ job to hone their entrepreneurial skills and think long and hard about their fundamental business logic.

The fallen unicorns made investors more cautious about the fundamental business logic

After the two roles played by the government and the entrepreneurs, the third player in China’s startup scene is the investors. Whether it’s business angels or venture capitalists or private equity firms, they are the guardians of solid business sense and financial resources.

The loudest failure in the recent history of China’s startup scene is the bike-sharing platforms. Began in 2014, OFO and Mobike had been the super stars to solve the last mile mobility issue. Even with around 8 billion RMB of investment across several rounds for each company, they had been controversial in their ability to generate profit, to respect public order, and to protect local environment. In the end, OFO filed for bankruptcy and Mobile got acquired by Meituan for merely 2.7 billion RMB.

This contrast of capital zeal and the market failure illustrate the short-term mindset of some investors. To claim the maximum market coverage, which seemed to be the key success factor in the sharing economy logic, the companies and the capital both prioritized buying bikes over risk control. The lack of a sustainable company culture and conflicts of interest at the top management level went unaddressed.

Source: Sina Finance, the mountain of abandoned sharing bikes

Such a vivid example will lead the investors to favor sound business models over those benefiting from over-evaluations of other investors. It’s good for the society because it creates less bubbles, but it also means tougher financing for the entrepreneurs. For any newcomer in China’s startup scene, there are several dangers that could be detrimental to its fundamental business logic.

Competition and acquisition from conglomerates like BATJ

It’s almost a common knowledge that once a startup is big enough, it will be bought by one of the tech giants in China. The famous Baidu, Alibaba, Tencent, JD and other rising giants like ByteDance, NetEase, Didi, Meituan won’t hesitate to make a bid to make their own ecosystems stronger.

But first of all, the startup has to survive the competition by those giants. A great dark-horse example is Pinduoduo, whose founder Colin Huang recently became the second richest person in China. The notion of Social + Ecommerce in the long tail market made this startup successful, in an era where everyone thought Alibaba and JD had occupied all the room of growth. In theory, the existing e-commerce giants could quickly take over Pinduoduo in its cradle. In practice, neither of them followed the startup to compete in lower-tier cities.

Tencent, being the social networking giant, strategically invested in both JD and Pinduoduo, to combat with Alibaba in the e-commerce arena. That’s the best outcome for the startup, with the owner taking 46.8% of the shares and 89.8% of the voting rights.

Other startups don’t have the same luck, many were bought to be dissembled into existing projects of the giant company. For example, ByteDance bought Zhaoxi Calendar, a niche time-management app, whose product team was integrated into Lark, another acquisition realized only 2 month before.

Copycats and price war

Even if a startup didn’t make enemies out of the tech giants, diligent copycats and the resulting price war could put an end to their cash inflow.

The Chinese market never lack duets. Didi and Uber China in ride-railing sector, Meituan and Eleme in food delivery online business, Mobike and OFO in bike sharing economy. When there is oligopolistic competition, the consumers are the happiest. Huge amounts of discounts are up for the taking, as long as they lead to market share. However, price wars are destructive to both competitors, as the customers attracted by low price are not necessarily loyal. Once the price incentives are out of the table, usually due to the serious drain on financial resources, the market share might shrink back.

One sure thing to note about China’s startup scene is that, there is no shortage of copycats. Demonstrating this, there are more than 20 startups which share the same shared-bike business model.

Source: Tencent news, Shu Ke Shi, 20 startups in bike sharing industry

Illegal activities that suck the margin into the shadow

Luckin coffee has made its fame by publicly stating financial fraud to SEC. Its business model was clearly unsustainable, as it had a loophole in its expansion strategy. It’s strength in marketing and storytelling did not compensate its unsatisfactory risk control department. And this Achilles’ heel has costed its healthy financial performance.

Basically, Luckin’s expansion strategy is based on customer referral. As a startup, the number of referrals is directly linked with GMV, KPI, and valuation of next financing round. It’s therefore understandable how much marketing and budgetary resources are pooled to facilitate leads conversion. However, instead of using elaborative verification methods to ensure the referred customer is a real person, Luckin only used a phone number to validate the referral. Once the referral is validated, both the referrer and the referee enjoy discounts. The result of a weak risk control is constant loss of profit due to a highly developed grey industry of fake phone numbers.

In the highly competitive battlefield as the China’s startup scene, nothing is too despicable to be true. Entrepreneurs owe it to their teams and investors to pay attention to not only the legal competitions, but also illegal activities.

In conclusion, China’s entrepreneurs keep pushing forward despite setbacks

China’s startup scene is quite lively thanks to the government’s Mass Entrepreneurship and Innovation guidelines, mobilized public and responsible investors. Even though system-level crises, industry-level fluctuations, and company-level setbacks keep striking one after another, the qualified entrepreneurs will seize the opportunity in the distressing time, fearless as always.

Author: Della Wang

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Delayed retirement in China is to be expected in the coming years

Current official scheme of retirement in China

Currently, all men retire at age 60, while blue-collar women at 50 and white-collar women at 55. Workers in health-harming professions such as underground, high-altitude, labor-intensive jobs enjoy a 5-year reduction. So do men and women who can prove their illness or disability.

This has been the case since the founding years of People’s Republic of China in the 1950s, regardless of the fact that the life expectancy rose from 57 to 77 years old in the past 60 years. Globally, as societies age, most developed countries set the retirement age around 65, and treat men and women equally. This gap reveals a delicate yet imperative task for China to make retirement reforms before it can no longer afford to.

Considerations for reforming retirement in China

The modification of official retirement scheme requires comprehensive understanding of the 5 following issues, according to Gongcheng Zheng, professor at Renmin University of China.

1. Life expectancy: an extension of life expectancy naturally entails to an extension of working years.
2. Labor market: if the labor supply surpasses the demand, then keeping the elderly in the workforce would hamper the career progression of the young; inversely, if there is not enough labor supply, the elderly has to be withheld.
3. Education: the more educated the worker is, the more human capital goes to waste if the worker is let go too early.
4. Societal aging: as the population ages, the average age of the general workforce also has to rise, respecting intergenerational equality and sustainability. Otherwise, the Chinese elderly might overburden the working adults.
5. Gender equality: if the female workforce quit the labor market sooner than the male counterparts, then the nation essentially deprives women of their rights and voices in the active participation of the society.

Currently in China, all five of these issues check out. According to National Bureau of Statistics, life expectancy and the level of education keep rising over the years. Urgently, the labor supply shrinks at a rate of millions every year and is expected to continue. Jian Su, the director of China Center of Economic Research pointed out to Tencent news that the 410 million second-wave baby boomers born from 1962 to 1978 will exit the labor market, further reducing the domestic labor supply for another 20 years. What’s more, the aging trend is irreversible, and feminist groups have louder and louder voice. No matter much how people debate over the years, the delayed retirement is coming in China, recently confirmed by Ministry of Human Resources and Social Security (MOHRSS for short).

Data source: National Bureau of Statistics, the China’s workforce keeps shrinking

A possible reform rollout plan

There has not yet been an official announcement of reform rollout plan, but the clock is ticking. According to the Outline of the 13^th Five-year Plan of the Ministry of Human Resources and Social Security (MOHRSS), a reform of retirement in China needs to see the day by 2020.

Source: daxue consulting analysis, possible retirement reform rollout plan

Considering the delicacy and severity of such task, the then-Minister of MOHRSS Weimin Yin emphasized the importance of baby steps and flexibility. After the announcement, the society will be given another 5 years to adjust to the new reality. In addition, individuals should have some discretion over the exact exit age in a set range, depending on their profession, location and health condition. Furthermore, provincial differences should be taken into account, as the 5 issues discussed above don’t score the same across regions.

Life after retirement marks a new search for meaning

The psychology of retirement

It is widely acknowledged that retirement is a process, not a simple action. Before the set retirement date, the retiree-to-be would already start daydreaming about their retired life. Then comes the honeymoon phase where they rediscover the joy of freedom and novelty. However, soon they would taste frustration as the rhythm slows down and lack of meaning seeps in. In this stage, many would feel lost, upset or even depressed for the loss of goals or feedback loops. After self-readjustment and assistance from the family and society at large, most of them would recover and find a new direction in fit with their retired life. Finally, and ideally, they will again be at peace and ease with their new expectations and limitations, effective in their objectives and content with their self-value.

According to the 4^th National survey on China’s elderly in 2015, watching TV and volunteering are among the top choices of activities for retirees. Traveling for Chinese seniors, on the other hand, is getting popular too.

Data source: Ministry of Civil Affairs, Top activities for Chinese retirees

According to the Report on the Living Conditions of China’s elderly initiated by China Research Center on Aging, the newly retired seniors in China represents a new driver for internet growth. As mobile consumption spreads to the older generation, more and more of the retired people turn to internet for recreation. 

Data source: China Research Center on Aging, Top online activities by Chinese retirees

Reinsertion to society is a rising demand to revitalize the newly retired

According to the Report on the Living Conditions of China’s elderly, a total of 17% of male and 10% of female retirees still exercise a profession. Out of the working retirees, 86% of them are in the agriculture industry, 7% in construction industry and very few in social or service sectors. It’s safe to say that a staggering majority of Chinese working retirees live and work in rural areas.  

In cities however, many retirees find it hard to be reemployed, due to high legal risks posed on the employer and a reduced number of suitable opportunities. As a consequence, only 7% of the urban retirees are back to working life, compared to 40% in rural areas. Most retirees who successfully re-enter the urban society  are those with transferable expertise, such as accounting or medicine. Compared to Japan and Korea whose government issue policies to support retiree reinsertion, China is lacking.

Fortunately, the private sector is actively finding solutions, such as an online labor market dedicated to the retirees. With endorsement from China National Committee on Aging, the precious human capital resided in healthy retirees will hopefully be re-empowered after their retirement in China.

Increased income is also a main motivation to improve life after retirement in China

It is great news that the financial situation of the elderly in China improved drastically over the years. According to the 4^th National survey on China’s elderly in 2015, the urban retirees annual income per capital reached 23,930 RMB in 2014, while that of rural retirees was 7,621 RMB. It implied a 5.9% and 9.1% of CAGR from the year 2000 for the urban and rural retirees respectively. Furthermore, the income gap between the urban and rural areas got reduced. While the guaranteed income dropped from 90% to 80% of total income for the urban retirees from 2000 to 2014, that of the rural retirees increased from 14% to 36%.

Younger retirees could use more income

A deeper look at the source of income shows that labor income cannot be neglected for the younger retirees. In fact, income from work outweighs pension, family provisions or minimum guaranteed income until the age of 68, based on a paper published by Peng Du, professor of gerontology in Renmen University of China. After 68, family provisions take the lead, while pensions fluctuate around 20% of the total income.

This explains why, the younger bracket of the retirees (aged 60-69) actively looks for opportunities to put their energy and expertise to use. As loving parents, they generally don’t want to be a financial burden to their middle-aged children. Working after the official retirement age gives them more income to lead an easier life in the future.

In summary, the in the future, Chinese will retire later but better. And once they retire, many would search for new forms of meaning and income. Even though there is still a lot to develop in the silver economy in China, the rising life expectancy presents new challenges and opportunities for the elderly industry in China as well as for the retirees themselves.

Author: Della Wang

Learn more about the consumption of Chinese retirees, check out our silver economy report

This article Retirement in China: Preparing for 410 million second-wave baby boomers to exit the labor market is the first one to appear on Daxue Consulting - Market Research China.

While discovering how Chinese view to this issue, we should consider the factors that influence the information dispersed in the country. The Chinese government has a firm stance against protests in general, and this certainly influences the way school lessons and the media covers protests. Hence, as the series of events develops, the Chinese media tends to convey protests in a negative light by focusing on the violence.

To understand how Chinese people react to Black Lives Matter protests in the United States, Daxue Consulting conducted social listening on different Chinese social media.

The most discussed topic on Chinese social networks

On May 28, 2020, three days after Floyd’s death, the subject quickly went viral with an increase in the number of searches for the keyword 黑人 heiren (black person) on Baidu, the Chinese search engine. Baidu searches for ‘Black Lives Matter’ took longer to appear, peaking on June 6, 2020. This peak occurred thanks to a Black Lives Matter demonstration in South Korea. This close-to-China event has shed more light on the subject, fueling Chinese reaction to the Black Lives Matter protests.

Chinese netizens search for Black Lives Matter and related keywords – Source: Baidu Index

As shown in Baidu’s demand map, which indicates the search trends of Chinese netizens, the keyword ‘black person’ is closely linked to 歧视 黑人 qishi heiren (discrimination against black people), 美国黑人 meiguo heiren (African American), and 种族歧视 zhongzu qishi (racial discrimination).

Chinese netizens search for Black Lives Matter and related keywords – Source: Baidu Index

On Zhihu, a Chinese question-answer website similar to Quora, the topic reached more than 140 million views on June 5th. Under this topic, the questions reflect the Chinese netizens’ misunderstandings over the events happening in the United States.

Source: Zhihu. Chinese people react to the Black Lives Matter protests in the United States

What do Chinese netizens say about the Black Lives Matter protests?

Majority of Chinese netizens question why the protest movement has more impact on the American society than the COVID-19

When it comes to qualifying demonstrations of support in the United States, we observe that ‘riots’ (暴乱 baoluan) is much more used than ‘march’ (游行 youxing), the main form of peaceful protest. It shows that the riots strike more Chinese people’s mind than the peaceful demonstrations.

Among the questions of the Chinese netizens, many tackle racism in the United States, trying to understand why this social problem has become so crucial after the tragic event of May 25, 2020.

It’s true that if racial discrimination is a hot topic in western societies, it’s a relatively new subject for China, which opened up to the world relatively late. Therefore, it is hardly conceivable for Chinese people that COVID-19, which has killed more than 100,000 people in the United States, has less impact on American society than the death of a black American following a violent arrest.

Source: Zhihu “Chinese people react to the Black Lives Matter protests in the United States”

The top answer to the question highlights the uniqueness of American racism, in contrast to a globalized Coronavirus. The netizen also says that the United States blames the Coronavirus on China, making the American government less accountable for it. Thus, the American government’s responsibility for racism in its country has more substantial repercussions on the American society than its crisis management of the Coronavirus.

Source: Zhihu. Chinese people react to the Black Lives Matter protests in the United States

Another bases its answer on figures, displaying clear racial discrimination from the police. A comment under this response sums up: “Their frustration has been accumulating for too long.”

Source: Zhihu

Diversity and racial discrimination are a relatively new concept for Chinese society

To further understand why the death of George Floyd tipped an entire country into protests to support black people’s rights, some questions like the one below explore the causes of racial discrimination in the United States.

Source: Zhihu Chinese people’s thoughts on racial discrimination in the United States

These questions about racism in the United States show that this is not a mainstream topic in China. Even if the country attracts more African and international students, it has only been since the few recent years. Although China has around 1 million foreign residents, it makes less than 1/1400 of the total population. And when it comes to Chinese demographics, Han Chinese make up more than 90% of the Chinese population. Thus, reflecting that diversity is a relatively new concept in China, a netizens questions  even if racial discrimination exists in China.

Source: Zhihu

This ignorance of racial discriminations from the United States and more broadly from western societies may explain the absence of large-scale demonstrations of support from the Chinese, whether on the street, or even on social networks.

Therefore, support reactions are limited to specific groups, which are closer to the black American culture.

Chinese Hip-Hop musicians show their support to Black Lives Matter protests

In another article, we spotlight the rise of rap music in China, strongly influenced by American rappers – the majority of whom are black. A symbol of the influence of African American rappers on Chinese rappers, a rising Chinese Indonesian rapper, Rich Brian changed his stage name from ‘Rich Chigga’ (the contraction of ‘Chinese’ and the n-word) after admitting the original name was a naïve mistake.

Label 88rising – whose artists include Asian artists like Higher Brothers and Rich Brian – has posted its support of the protests, calling for awareness for equality everywhere. In its last statement, the company says that it “wouldn’t exist without the contributions of Black art and culture.” The company claims it is leveraging concrete actions to support the Black community on an ongoing basis.

Source: Instagram. Chinese hip-hop musicians show their support for Black Lives Matter protests

Higher Brothers, China’s hottest rap export, posted a black image on Instagram. It features the text: “We will use our channels to invite conversation and support national and local organizations for change. All of us need to strive to be the change we want to see.”

Rapper Vava – one of the best-known hip-hop artists in China – also posted a black square, along with the #blacklivesmatter.

Source: Instagram. Chinese hip-hop musicians show their support for Black Lives Matter protests

However, during the height of the Hong-Kong protest last year, these same rappers were posting as part of a social media campaign to support the crackdown in Hong Kong and drum up nationalism in China.

And it seems that the scenes of protests in the US are precisely the occasion for Chinese to draw conclusions on those that have been ongoing in Hong Kong for over a year.

Riots in the United States recall bitter memories of those in Hong Kong

A series of comments comparing the management of the Hong Kong riots and those taking place in the United States has swept the Chinese web. The impotence of the Chinese during the Hong Kong protests compared to the deployment of the National Guard in the United States has greatly fueled debates on social media.

According to Chinese netizens, the issue of racial discrimination in the United States and the management of the rioters by the American government demonstrate the limits of the American democracy and model. An article on WeChat claims that the Hongkongers are more considered to belong to the Chinese people than are black Americans in their own country.

Source: WeChat. Chinese people react to the Black Lives Matter protests in the United States

A comment under this article calls into question the idea of ​​democracy and freedom that the United States has so much defended, notably through its recent support for the Hong Kong youth.

Source: WeChat. Chinese people react to George Floyd’s death and protests

Most Weibo users criticizes the United States’protests

On Weibo, a Chinese social media platform with more than 340 million users, the debate is lively. Netizens’ posts seek to show the violence of the police during the demonstrations in the United States, by sharing shocking videos and pictures. Comments under a picture showing a man in a wheelchair reportedly seriously injured by the police vehemently criticize the United States.

Source: WeChat. Chinese people react to George Floyd’s death and protests

Since the most viral posts are often the most shocking, an impressive quantity of diverted and modified images has fueled extreme views on the events in the United States.

As already illustrated above, this is the perfect opportunity for Internet users to mock American democracy. Below, images shared on Weibo illustrate the squeaky sarcasm of Chinese netizens.

Source: Weibo. Chinese people react to George Floyd’s death and protests

Going further toward the criticism of the United States and the ongoing political cold war between the two countries, some photoshopped images show American demonstrators waving pro-China signs and the Chinese flag. However, these pictures are far from reality, as illustrated below.

Source: Weibo, photoshopped pictures of the demonstrations circulating on Weibo

However, some Chinese netizens follow American host views about the riots

Although the focus quickly shifted to political considerations by comparing the riots with those of the year spent in Hong Kong, on Zhihu, Internet users are still trying to understand the exact reasons behind the sometimes-violent demonstrations.

Thus, a video of Daily Show’s host, Trevor Noah, was massively shared. The host is very popular in China because of his views against Donald Trump. In his video, he shares his thoughts about American society and explains why riots are necessarily taking place throughout the country.

Source: Zhihu, Chinese people discuss Trevor Noah’s viewpoints towards the protests on Zhihu

The answer below shows that the Chineze netizens understand his point of view in its attempt to justify the riots.

Source: Zhihu

Some netizens turn political, “The riots will speed up America’s disruption”

Finally, the question “How the American riots will end” has been seen over 1.3 million times on Zhihu. On social media, the Chinese believe that the Black Lives Matter protests will profoundly impact the United States’ stance on the international stage.

Source: Zhihu Chinese netizens question how the ‘riots’ will end

According to comments on WeChat, the riots are unlikely to shake the American foundation but to further destabilize the leading world power. And China could benefit from that.

Source: Zhihu

On social networks like Weibo, the Black Lives Matter movement is an opportunity to denounce a very subjective Americanism of liberties. Chinese netizens point out Trump’s hypocrisy for encouraging other nations to protest while suppressing his own people when they protest.

On Zhihu, Chinese netizens try to understand the deep causes of African American racial discrimination. Chinese people’s thoughts on racial discrimination show that this not a mainstream topic in Chinese society. Thus only a few raise their voice to support the movement, for example Chinese hip-hop artists.

However, the fact that they rely on Trevor Noah’s point of view – he is seen as politically friendly – shows that although they try to understand the heart of the subject, Chinese reactions to the Black Lives Matter protest are somewhat tinged with nationalism and political activism.

Interested in learning what Chinese netizens say about international events?

We also used social media listening to see how Chinese netizens reacted to the Notre Dame fire and how Chinese netizens reacted to the Yellow Vest riots in France.

How is China suppressing the spread of COVID-19?

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

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This article How Chinese netizens react to the Black Lives Matter protests in the US is the first one to appear on Daxue Consulting - Market Research China.

Reasons why couples divorce in China

Initial pressure to marry

Divorce is a complicated social phenomenon and affected and restrained by many factors such as career plans, income, preferences, habits, physical situations. Many young Chinese people receive pressure from their parents and society to marry before the age of 30. Additionally, both women and men are educated at a higher rate than ever before, creating a world of opportunity for themselves, yet facing expectations to marry young and have a family. Women may be pressured into marrying early, knowing that they will be considered ‘leftover women’ by society if they are single after 30. As a result, many marriages were formed under pressure and end in divorce.

Economic issues

Another reason for divorce stems from economic issues. Although women are becoming closer to men in the career playing field, the expectations for men to take their share in childcare and housework have not changes as quickly. This results in less communication and a breakdown in relationships between couples.

Simplification of registration

Third is the simplification of divorce registration in China. These simplified divorce laws also state that whoever purchased the home of the couple gains sole ownership of the property. Thus, many couples who normally would be afraid of losing half of their property, no longer have to worry. Due to the simplicity of the Chinese divorce process, more Chinese couples are beginning to file for divorce.

Legal loopholes

Fourth, divorces in China are also a way to take advantage of a loophole in Chinese laws. In 2016, news broke that people were happily divorcing in Shanghai for more favorable deposit rates on property purchases. In a similar way, Chinese parents are now beginning to separate to get their children into better schools. By divorcing, one of the parents is legally allowed to switch their place of residence and place their children in a school outside of their original residential district.

Different attitudes toward divorce in China: suffering vs. freedom

In Zhihu, a topic named “what kind of experience is divorce?” gives rise to 11 thousand followings, 22 million views and thousands of comments talking about their experiences when going through a divorce in China. Some people treat divorce as relief, but there are still many ones who are struggling.

Divorce makes life much harder for some

In China, some couples still feel pain after divorce, since they think divorce increases their both physical and spiritual burden. First, many divorced people choose to divorce because they experienced abuse, derailment or suffered in other forms. Even after the divorce, they are still unable to let go of the past. Second, the cost of divorce leads to a heavy financial burden. Children growing up with a single parent will be faced with much more psychological and emotional problems than their peers who grow up in normal families. If so, parents will pay more in the future to treat children’s psychological and mental problems. Meanwhile, the cost involved in the assignment of property. Property may suffer a loss during the process of assignment because of the dispute. These factors are also why some couples choose not to divorce.

Divorced people in China gradually look for new lives

There are also numerous couples notice that divorce is not the end of life, and they still have the power to pursue happiness. In The Couple is not the Same Birds, a documentation won the thirteenth FIRST Youth Film Exhibition nomination, the director compares his divorced parents’ lives between 18 years ago and now. The couple got divorced because of interminable disputes. They felt sad for their past happiness and their reasonless decision to their marriage, but gradually understood that divorce made them get rid of further distress.

Children living in divorced families in China

Divorce may relieve couples, but children are usually the worst victims. Zhihu’s comments show that plenty of children are affected by their parents’ divorce in China. They feel their need is ignored and they are abandoned. Especially some other children would make fun of them and gossip relatives may also tease them. Tan, the son of the couple in The Couple is not the Same Birds, expressed his hate to parents. In the court, he was asked who he wanted to follow and he felt despair. After grown-up, he got out of the family shadow, but held the view that he did not believe in love anymore.

In contrast, there are also children live happily after parents’ divorce in China. Rather than bear parents’ disputes, those children prefer to grow up in a more peaceful environment. A harmonious family is beneficial to children’s physical and mental development. Qilin Guo, a famous crosstalk actor’s son, appreciates his stepmother’s care. His parents divorced due to a broken relationship, but his stepmother makes him feel the warmth of home and led him to become an excellent actor.

Divorced consumers in China

Now, in China, divorce is no longer regarded as taboo. Increasingly more people think divorce is often an appropriate decision. Thus, more attention is accumulated in using divorce as a bridge to promote various industries. More companies gradually make their products fit for the topic of divorce and develop the market for divorced people.

General consumption portraits of divorced people in China

Dating apps help divorced people pursue new happiness

Dating applications are useful tools to help divorced people to chase new happiness. Zhenai.com is such a platform with the official website and real stores. It allows users to target people based on certain criteria. One of these criteria is ‘divorced’, making it so divorced people can easily find other divorcees. .

Connect advertisements with the topic of divorce

Advertising is another helpful way to combine products with the topic of divorce to attract customers. In 2014, Rejoice launched a mini film talking about a couple’s journey from meeting to divorce, triggering over 40 million views in just four weeks; and it promoted a hashtag “#IBelieveInLoveAgain” to call for keeping love alive. Terence Lam, P&G Greater China hair care marketing general manager, said “We believe that no matter how complicated relationships can be, there is always a way to smooth things out. This is a position worth taking for our brand, to have a strong point of view on this cultural phenomenon”. Divorced people can feel empathy with advertisements and link themselves to the products and the brands, which stimulate the sales of products.

A dissolving taboo

In China, divorce is in an increasing trend for various reasons related to economic, legal, and psychological factors. People also hold different views to divorce that divorce can bring freedom and also pain. Meanwhile, more companies started to design services catering to divorced consumers and connect their products with the topic of the divorce.

Author: April Peng

Learn more on the legal issues on marriage in China

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At the beginning of the 21st century the Chinese government began to make systematic use of new mediating technologies to measure the trustworthiness and financial creditworthiness of individuals and businesses. Establishing an online financial credit system was seen as key to better integrating China into the global market economy. The first credit-scoring companies were established in the 1990s, and following this the People’s Bank of China (PBC) established an enterprise and personal credit database. While initially focused on financial aspects like loans, the system was extended to the measurement of personal and corporate trustworthiness in relation to contract fulfillment and legal commitments. Discontent with widespread corruption in private and public institutions and with fraudulent company practices officially encouraged the Chinese government to launch a plan in 2014 for a full-blown national social credit system (SCS).

The “Planning Outline for the Construction of a Social Credit System (2014–2020)” focuses on restoring trust and improving ‘sincerity’ in government, commercial and societal affairs. Furthermore, it aims on raising judicial credibility and the ‘honest mentality and credit levels of the entire society’, with international competitiveness and a ‘harmonious Socialist society’ as the ultimate goals. Hence, the system isn’t only directed at citizens, it also targets businesses, and the Chinese government itself.

Does China’s social credit system seek to address the issues within the market?

The current legal system of regulatory checks and balances guiding the Chinese market is weak. There is widespread rule-breaking in areas such as IP violations, contracts, environment, labor violations, tax, and scams and fraud. As a result, this has fostered a low-trust market environment.

To address these issues, China’s social credit system seeks to set up a regulatory architecture to gather data on people and companies to define and determine trustworthiness. This serves as an info-intermediary to inform the government and regulators, and to grade all players within the greater business ecosystem such as companies and the public so they can take action. And lastly, to turn these data gathered insights into actionable and legitimate determinations that either restrict market access to those who don’t follow the rules, and to improve market access for those who do.

How does the social credit system help execute the government’s plan?

For China’s social credit system to work effectively there needs to be data interoperability between businesses, the local government, and Beijing. At present no single government agency has enough data or power to carry out the tasks detailed by the SCS alone. Therefore, the social credit system was created to bring all of China’s state agencies together to share data and cooperate in restricting market access to rule-breakers. It is made up up three interconnected components: a master database, the blacklisting system, a punishment and rewards mechanism. Beijing seeks to use these three primary components in conjunction to guide China through the next phases of development.

Connecting data across all state agencies: How it’s collected and where it’s stored?

To solve the issue of data interoperability, the National Development and Reform Commission (NDRC) created the National Credit Information Sharing Platform (NCISP) (全国信用信息共享平台). The NCISP is controlled by the central government and is the primary clearinghouse for social credit files on individuals and corporations. Government documents lay out in great detail exactly which records the central database will contain, which government agency will contribute which datasets, as well as which records will be open to the public and which won’t.

The NCISP is divided into 3 groups, with the top at the national level, the middle at the provincial level, and the municipal at the lowest level. In looking at the diagram below created by Trivium China, each center node is surrounded by a wide range of societal institutions, government bodies, and business organizations, with each having its own database, ratings standards, and blacklists. Data flows from the outside nodes to the center, and then from the center node up to the higher levels of government. Therefore, it is no wonder why pulling together this data, both structured and unstructured would lead to issues of interoperability. And as a consequence, may lead to legal errors, system inefficiencies and bureaucratic irresponsibility.

[Source: Trivium China, National Credit Information Sharing Platform]

Relevant authorities for implementation and enforcement

The National Development and Reform Commission and the Central Governmental Agencies designed the national discredited blacklist and credited redlist system, constructed the cyberinfrastructure to publicize information, and built the multi-agency joint sanction cooperation to punish discredited people. Yet it is mostly the local governmental agencies that implement these policies by collecting and uploading data, classifying and punishing people. Interestingly, many local governments also construct their own municipal SCSs and reconfigure the meaning of “trustworthiness” and “credit” in their local practice. Unlike the severe fragmentation among different agencies in the central government, local governmental authorities can better coordinate (or force) different departments to work together at the local level.

While there is still no cross ministry SCS agency at the central governmental level, municipal governments will commonly establish a new municipal governmental agency, for example, often with the name “XX SCS center/office,” to design and implement municipal SCSs. Although some cities’ municipal SCS for businesses are divided according to the different social fields under different governmental jurisdiction, the municipal SCS for individual persons is always united into one system on the local level. (See figure below for further details on the SCS for individual persons).   

Thus, the system is very intricate, with a multitude of players seeking to govern a field while simultaneously designing, implementing, supervising, cooperating, and inputting data into various systems and labelled blacklists. When different actors in different industries and professions bring their own formulas to solve the problem and contribute to the system there results in a lot of position overstepping and mismanagement.

[Relationships among social credit systems for natural persons in China]

China’s social credit system is a merging of technologies

China’s social credit system is run by the state. But its development and functioning relies heavily on close cooperation with big Chinese internet companies like Alibaba, Baidu, Tencent and SenseTime. These provide technical infrastructures, and mine and process huge amounts of data harvested from countless sources and data-points, including geo-location and online payments. Simultaneously, the government is constructing several national data platforms for collecting, storing, sharing and mining population data with a focus on ‘integrating these separated platforms into centralized data infrastructures.

For example, one of the more famous and widely used apps Alipay has a form of credit collection, namely the Sesame Credit score. In practical use, Alibaba has begun to leverage the app’s popularity to try to solve a conundrum such as the lack of trust between buyers and sellers online. In 2016, Alibaba signed another data-sharing MOU with the central government, promising to expand its involvement in meting out penalties and perks. Agreements like these between China’s digital ecosystem strong players are only the beginning of a slow integration between the SCS and the world of e-commerce and digital payment.                                   

Although some commercial companies, such as Ant Financial and Liulian Technology (Shenyang), helped different governmental agencies to build their own SCS models or cyberinfrastructures, there is no evidence that commercial SCS data is included in any municipal governmental SCS calculation to date.

[Source: Alipay Screenshot, Ant Financial’s credit system]

How do businesses search for information on companies and punishment measures?

Businesses can find all related information regarding the SCS on the NCISP. Below are translated examples of what the menu looks like when performing a “search” for registered companies using their social credit numbers on the platform. A searcher can begin by choosing a city or by company SCN. Furthermore, by scrolling alongside the left side menu, you can see the respective ‘punishments’ the SCS is responsible for to companies who break the rules. As you go down the list the punishments become more severe. They go from listing an entity as merely partaking in an abnormal operation to labeling it a “dishonest entity.” Then from exposing companies to random checks to handing out administrative punishments, freezing assets, and on to sending out cancellation notices for business closure. And lastly, to being blacklisted. Thus, the repercussions for all businesses in China are not to be underestimated.

[Source: National Enterprise Credit Information Publicity System website, China’s corporate social credit system website explained]

To provide a case example of how the SCS works, recently there was an announcement from the Shandong Provincial People’s Government. It reported that to “reduce corporate credit risk” (降低企业信用风险) during the current Coronavirus (nCoV) crisis, enterprises with delayed deliveries, deferred payments, overdue contracts, and other dishonest behaviors will not be put on the dishonest entities black list. Below is a translation of the text, which is declared on the 12th measure.

  [Source: Shandong Provincial People’s Government]

What companies need to know about the blacklists and redlists

The “blacklist & redlist” mechanism is widely used across different sectors to build the social credit system. A blacklist is a public record of companies (and individuals) found in serious violation of existing regulations. A redlist is the opposite – a public record of companies (and individuals) that have been consistently compliant. Blacklists are for entities with adverse credit information and redlists are for entities with good credit information. Important to note is that insofar blacklists are not yet centralized, but rather the state, provincial, municipal and local agencies manage their own blacklists. The primary focus of most of these blacklists is on the regulation of malpractice in the business environment.

How Blacklisting Works?

• Step 1: State agency determines the company is non-compliant
• Step 2: State agency puts the company on a blacklist
• Step 3: The blacklist is sent to the NCISP and included in the company’s social credit file in the master database
• Step 4: Other state agencies get access to the blacklist
• Step 5: The public can see blacklist data as well

The system for blacklisting is very complex and organized by different agencies and by different levels of government. Below is a table chart which outlines some of the categories, leading agencies, and purpose and subject of their blacklisting mandate.

[Leading agencies involved in China’s social credit system blacklisting system]

Here are a few ways in which companies can be put on the blacklists

• Not honoring legal obligations
• Failing to pay employees
• Fraudulent financial activity
• Tax evasion
• Import-export offenses
• Endangering public health and safety

However, this list is set to get much longer as regulators in the fields of medicine, travel, education, sports, agriculture, e-commerce, energy, and others start to create and hone their own lists to discourage behavior like:

• Excess energy consumption
• Polluting the environment or endangering ecology
• Operating without the right licenses
• Safety violations and accidents
• Counterfeiting, fraud, and IP violations
• Poor production quality

Redlists are structured along similar likes as blacklists: there are a few big major redlists at the national level, and then a whole series of local redlists at the city and provincial levels

What is in China’s Corporate social credit system?

• Basic company registration data
• Braches/Subsidiaries
• Executive-level personnel
• Annual Reports
• Social insurance payment history
• Provident fund deposit history
• Administrative licenses
• Administrative penalties received
• Inspection records
• Awards and honors
• Utility payment history
• Red and blacklist records
• Equity structure (shareholders, legal representative, stock info)
• Tax information (taxes paid and owed, tax rate, tax period, etc)

Important to note is that most of the data from above do not come from high tech sources, but rather are derived mostly from the records generated in the course of your business operations such as customs, tax, and utilities. Furthermore, regarding the data above, some of it is self-submitted, like the annual reports and details of personnel. So in essence, there currently still remains a small level of control.

Social Credit Score components for companies

There are five ancillary aspects of the SCS that only apply to companies and organizations.

1. The National Credit Information Publicity System
2. Unified social credit numbers
3. Company grading systems
4. The new random inspection system
5. Credit commitment letters

The National Credit Information Publicity System

Corporate social credit records are available to the public via the National Enterprise Credit Information Publicity System (NECIPS) 国家企业信用信息公示系统, a website which contains compliance data on any company with a license to operate in China, including local subsidiaries of foreign companies. NECIPS’s public records include information on key shareholders and personnel, operational licenses and permits, inspection results, notices of company dissolutions, notices of frozen assets, operational irregularities, and any past violations.

NECIPS is set to become ground zero for corporate due diligence, and will be a key resource for companies to monitor the state of their own credit records. But the site is more than just a clearinghouse for data discovery; it’s also a data management portal. Company representatives can sign up for an account and upload basic company data and annual reports.

[Source: China’s enterprise social credit publicity system screenshot]

Unified Social Credit Numbers

In 2015, as a preliminary stepping stone to implementing the enterprise social credit system, the central government began assigning a new code – the Unified Social Credit Number (统一社会信用代码) – to each domestic company and organization. The USCN has now replaced traditional business license numbers on business registration certificates as the primary code by which an enterprise is identified. A USCN can be used to search for information on any China-registered company the National Enterprise Credit Information Publicity System.

[The Unified Social Credit Number is circled in red]

Corporate grading systems

As we’ve seen in previous sections, under China’s social credit system, market regulators will treat companies differently depending on their social credit record. Companies with good social credit will enjoy simpler bureaucratic processes, decreased inspection rates, and other perks. Companies with poor social credit may have higher taxes, be subject to more frequent inspections, be barred from participating in government procurement, and other repercussions.

The determination of who has good credit and who has bad credit will largely be based on four different types of grades that companies will receive: Comprehensive Public Credit Rating, Operational grades, Industry association grades, and Financial credit scores.

The new random inspection system

In 2015, Chinese regulators took a step towards cracking down on corruption by implementing a new safety and production inspection system called “Double Random, One Open” （双随机，一公开), wherein both the company to be inspected and the inspector are randomly selected (hence “double random”), and the inspection results are openly published (“one open”).

[Double Random, One Open inspection system notification]

The government’s goal here was to standardize the timing of inspections so that inspectors can’t excessively target one company while ignoring another, and to standardize the inspection process so that inspectors don’t have as much discretionary decision-making power. While random inspections aren’t a core component of the SCS per se, the results of these inspections are publicized on the National Enterprise Credit Information Publicity System website, and are included in a company’s social credit file.

Credit commitment letters

One of the most recent additions to the SCS is something called the “credit commitment system”, which was introduced in a national policy released in July 2019. The system encourages companies to sign standardized letters promising to operate in good faith and to honor social credit regulations.

Signed credit commitment letters are openly published on the National Enterprise Credit Information Publicity System website and are included in the company’s social credit file. Companies with good credit who have signed credit commitment letters may have various bureaucratic applications pre-approved on the strength of their promise.

Myths & weaknesses of China’s corporate social credit system

The SCS is not a fully integrated and unified system, which is often the way it is portrayed in the West. In practice, the system is highly fragmented and technically complex, consisting of a variety of social credit initiatives and projects at the local and regional levels that will unlikely be fully integrated at the national level. The data is not high tech and new. Regarding the definition of trust. The idea that the social credit system will artificially increase levels of “intentional trust” may not materialize. Therefore, SCS may not address the actual underlying social issues. Lastly, there is high potential for abuse. If the system is built in such a way that it is open to abuse, allowing fraudulent companies to come away with good credit records, it will call into question the entire system’s validity.

Uneven implementation across industries

While it is clear that the SCS will eventually have ramifications for every company doing business in China, policymakers have placed a special focus on implementation in industries they feel are most in need of regulation. This has been particularly evident in the roll-out of Comprehensive Public Credit Grades, the central government’s new four-tier rating system for enterprises. 

In September 2019, the NDRC announced the completion of credit evaluations on 33 million Chinese market entities. To put that into perspective, there were 34.7 million total companies registered in China in 2018, so the evaluation covers most registered companies in the market. But only a tiny portion of those results have been made public. Furthermore, these ratings have not been incorporated into any of the searchable, centralized platforms, but published in Excel spreadsheets. Also, there has been no word on whether or not these grades will eventually be added to, and viewable via, the main public portals.

Data dispersion

Two main platforms were created to serve credit data to the general public: the Credit China website and the National Enterprise Credit Information Publicity System (NECIPS).  But data sharing between the two is patchy at best, with records that appear on one often being unsearchable on the other. Making matters worse, several state agencies host their own credit data platforms with equally poor interconnectivity, haphazardly transferring data from and sharing data with NECIPS, Credit China, and each other. 

Boundaries of the system aren’t clearly defined

Social credit policy at the national level has encouraged provincial and city governments to extend the system by developing blacklists, rewards, and punishment schemes for their own jurisdictions. But policymakers are very much aware of the social credit’s potential to exceed its own mandate. Deputy Director Meng Wei stressed that social credit must have a clearly defined legal basis, and outlined the “Three Prevents”:

1. Preventing credit record data collection from expanding beyond reasonable and appropriate boundaries.
2. Preventing the unauthorized creation of blacklists and related punishments.
3. Preventing the unauthorized or illegal applications of the credit system.

What we know

• China’s corporate social credit system will be used more broadly to regulate the commerce sector. In June 2019, the State Council released a guidance document that calls for establishing three components — a credit commitment system, a credit report mechanism, and a classified credit regulation — as the basis for inspecting businesses.

• China has already built credit profiles for 33 million enterprises and organizations, including foreign companies. By some estimates, over two-thirds of China’s regional governments have released or are in the process of releasing local social credit initiatives. 

• Companies will be evaluated based on compliance with their specific industry regulations.

• There is no set of blanket standards guiding how companies will be evaluated. Instead, China’s central and local governments have published a total of 1,500 documents defining over 300 rating requirements for companies in different industries, but several have yet to be released. Understanding exactly which types of criteria companies will be evaluated on will be crucial to maintaining a healthy score.

• Companies can land themselves on both a blacklist and a “red list.” So far, China has compiled a total of 51 blacklists for non-compliance with laws and regulations.

• The blacklist for the commercial sector has been divided in two parts: the joint credit punishment list for dishonest entities, which restricts a company’s direct sales and commodity quotas, and the special attention list, about which not much is known other than companies that find themselves on the list will face “stricter regulations.

What we don’t know

• What the rating system will look like? Recent policy documents have made mention of a “Comprehensive Public Credit Rating” (公共信用综合评价) which is a national corporate credit evaluation that will determine how companies will be treated depending on their social credit scores. But exactly what the rating will look like, and how much it will matter, has been unclear.

• It is unclear how the national-level rating system will synchronize with the various rating systems developed by local governments and industry regulators, whose ratings will also be taken into account in the comprehensive evaluation of a company.  But, it has been reported that while the national-level rating will serve as a foundational metric, city and provincial-level ratings will take priority.

• Can (and how fast will companies be able to) get off of a blacklist?

In summary, there are many questions to be answered. Like, will there be a meta-score based on all the available ratings for every company? A standardized system for the types of treatment companies will receive based on the results of their evaluations? How the algorithms will calculate the score? Will it be immune to biases against foreign companies? Strategic industries? However, the draft PRC Social Credit Law might answer some of these questions, but for now, the timeline for this legislation is unclear. 

What does the enterprise social credit system mean for companies operating in China?

Carrying out the above steps will bring a company up to date and position it well to effectively manage the effects of the Corporate SCS. However, as the System continues to adjust, expand and improve, companies need to stay on top of further developments. An effective monitoring system that provides companies with the ability to react quickly needs to cover two dimensions. First, the close observation of government-side changes to ratings and rating requirements. Second, the internal monitoring of business operations with regard to the sustained fulfillment of, sometimes changing, requirements. This will necessitate regularly checking a company’s rating scores across all ratings and the monitoring of entries about the company in the different databases.

How to prepare for China’s enterprise social credit system

Every company in China, regardless of size or ownership structure, needs to expect that all its operations in the Chinese market are in one way or another, either via scale ratings or compliance records, tracked and recorded by the mechanisms of the Corporate SCS. However, the implementation status of the Corporate SCS, and with it the intensity of data transfers, tracking and recording, still varies between different industries and locations. Most of the key industries that are front-runner industries with regards to the System, meaning the coverage of the ratings is already far advanced, includes the automotive and chemical industries, as well as the entire logistics industry. Foreign business invested in these sectors will need to prepare.

Early and thorough preparation is the key for companies to tackle the challenges of the Corporate SCS. With enough preparation, companies will avoid being surprised by the accelerating implementation of the ratings, or suddenly being faced with a rating downgrade, or even a classification as a distrusted enterprise, followed by all the potentially severe consequences.

The corporate social credit score system is likely to have a huge impact on China’s business environment. Any company whose operations extend into the Chinese market must invest in understanding the SCS and its potential to impact their operations, as well as how to engage with it to minimize risk.

For those already active in the market, taking a stand still and “wait to see how the system develops” is the wrong move. Companies need to be proactive and begin creating an internal mechanism for tracking the system’s growth and impact.

What to keep in mind

• Understand exactly what the system requires from your company
• Assess where your company stands regarding the requirements
• Design and implement effective adjustments
• Continuous monitoring
• Exchange with government authorities

Author: Jeffrey Craig

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Jacques Chirac, center-right socialist politician, served as the president of France for 12 years from 1995 to 2007. He was best known globally for taking France into the Eurozone and his opposition to the Iraq war during his political career. However, his reputation experienced a little bit of damage when he was convicted for embezzlement and misuse of public funds in 2011. Despite Jacques Chirac’s political events, his close ties with China should be noted.

The death of former French President Jacques Chirac: One of the most discussed topics on Chinese social media

The death of former French President Jacques Chirac was one of the most talked-about topics on Chinese social media on Sep 26^th and Sep 27^th, generating hundreds of thousands of news, comments and pictures on social media.

According to the SEO tool Baidu Index, searches for the keyword“希拉克” (Chirac)  spiked on Baidu for the period from Sep 26^th to Sep 30^th, and a peak was reached on Sep 27^th.

Looking at WeChat Index, we can also see a peak in searches on each Sept 26^th and Sep 27^th.

For both Baidu Index and WeChat Index, “Chirac” was the most searched keyword out of a list of keywords: “Former French President Jacques Chirac passed away”; “Jacques Chirac”; and “Chirac”. Although this may be an indication that Chinese Netizens are not familiar with him, they did demonstrate interest in this news and the French President himself.

Two hashtags – #Former French President Chirac passed away and #Chirac generated discussion on Weibo. Referring to Weibo Index, the former reached a highest total readership of 1.7 billion at Sep 30^th. The topic was ranked amongst ‘hottest topics’ on Weibo trends on Sep 26^th, where over 87 million reads were reached.

Chinese netizens’ perception of Jacques Chirac and view towards his death

There is no doubt that Chinese netizens want to learn more about the former French President Jacques Chirac, which is not only shown from the fact that they are constantly searching up on Chirac, but also from the articles posted by KOLs or official news authorities. Apart from announcing the news that Jacques Chirac had passed away, most of these articles included a brief life story about him and the ties that he holds with China.

Chinese netizens’ perception of Jacques Chirac was very positive in general. Netizens agreed with many KOLs or news authorities that portrayed him as a ‘Good old friend’ of China. From the comments section of related Weibo posts, it can be seen that many Chinese remembered him as been an exceptional and wise leader who loved Chinese culture and for his contribution towards China-France relation. Despite that many accounts like China Daily also highlighted his notions against war, most positive comments still focused on his view regarding China instead of his other political event. There are a few negative comments that mentioned about his embezzlement conviction, but most netizens either overlooked or did not know about this issue.  

Perception of Jacques Chirac in China: seen as a real Chinese Culture Fan

As seen from the Weibo and Wechat posts, Jacques Chirac was clearly recognized by Chinese Netizens as a political leader who had shown deep interest and love towards China and Chinese culture. A Zhihu article suggested that Chirac demonstrated his extensive knowledge of China through exploring Ancient Chinese bronze, Chinese poetry, dynastic order and many more. As a communist country, Chinese people share a strong sense of patriotism. They especially welcome and embrace those who share similar feelings about their culture and their country, which is the case for Jacques Chirac.

 ‘Golden 10 years’ of China-France relation

Chirac visited China four times during the 12 years of his presidency and was the first Western leader who visited the Terracotta Warriors. His affection for Chinese culture and frequent visits to China became the fundamental of the ‘Golden 10 years’ of China-France relation. As many Chinese Netizens remembered, the relation between the two countries was strongest when he was in position. The establishment of “global partnership” and “global strategic partnership” were all organized by the former French President Jacques Chirac with China. Let alone the political reasons, Chirac’s appreciation of China is definitely one of the major reasons behind this friendly relationship. Citing on one of the Zhihu comments below, this netizen applauses Chirac for having been a politician who understands the importance of a strategic plan for a country, rather than a politician who cares nothing but poll results.

Chinese Netizens’ current view on China-France relation

Chinese Netizens’ current view on China-France relation is, to an extent largely dependent upon their perception and expectation of the current president  Emmanuel Macron. The proposed collaboration with China’s Belt and Road Initiative by Macron on his visit to Xian on Jan 8^th,2018, is expected to bring a “new spring” of China-France relation. Furthermore, the video of Macron’s attempt to speak the Chinese phrase “make the Earth greater again”(“让地球再次伟大”) went viral on Chinese Social Media may imply to the Chinese that he embraces the Chinese culture and is ready to explore deeper. The current vision of Netizens is fairly positive in general and is sought to continue in the near future with the collaboration of both countries.

Overall, China-France relation has always been quite stable throughout the years, especially due to contributions of the former French President Jacques Chirac. Chinese people are yet to wait and see what the current French president Emmanuel Macron will do to manage and maintain the relationship between China and France.

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“The dividend of government policies is a key factor behind China’s AI development.”

Baidu co-founder and CEO Robin Li was quoted saying at the 2018 Baidu World Technology Conference in Beijing. 

One of the Chinese government’s greatest ambitions, with the Communist Party at the forefront, is to make China the world leader in artificial intelligence and the world’s first innovation center by 2030. As stated in a previous article on AI by Daxue Consulting, the Chinese government established the Next Generation Artificial Intelligence Development Plan (AIDP) in 2017. The financial resources dedicated to this new plan are equal to China’s ambition: $22 million per year, a sum that contributes to a budget that should reach $59 million by 2025.

China’s AI development plan prioritizes research and innovation in applications of AI in the Chinese military and defense industry, as well as insecurity and surveillance. The aim is to become the world’s first innovation center by 2030, and the country certainly has a chance to win the AI race against the US.

AI used by the Chinese government: tech companies at the party’s orders

China’s AI development: Champions at the forefront of innovation

In 2018, the Chinese government took a major step forward in China’s AI development plan by announcing that China’s technology giants Baidu, Alibaba and Tencent (BAT) along with leading facial recognition companies Flytek and SenseTime, officially became China’s “AI Champions.” This new position benefits technology companies by ensuring them a position at the forefront of the innovation race, freeing them of the competitive threat of state-owned enterprises. However, collaboration with the government on national security and military applications of AI in China is the price to pay for this strategic position.

The Chinese government has specifically entrusted certain tasks to the local technology giants to achieve its Development Plan. Alibaba Cloud must dedicate its research in AI for Smart Cities, Baidu in the sector of autonomous vehicles, Tencent in medical imaging, and iFlytek in voice recognition. The Chinese government has also set up a Strategic Advisory Committee made up of leading technology universities, the top AI experts in Chinese technology start-ups and “AI Champions.” The “Made in China 2025” plan is another essential plan, which aims to increase China’s autonomy in AI, and reveals how it has become a national priority for the Chinese government.

Public and private: dual use of AI technologies in China

The use of AI in China essentially implies a dual-use factor: both actors from the public – the Chinese government- and private sector benefit from the synergies of the interdependence relation. For example, the same technology that powers autonomous vehicles can be used in commercial vehicles in the same way as in military AI-enabled drones in China. On the other hand, the company that specializes in natural language analysis and automatic translation, YaTrans, collaborates with the Chinese government on counter-espionage by making its NiuTrans system available to the Ministry of State Security. Similarly, computer vision is widely used in facial recognition in China for commercial purposes and is also used for military applications, including automated image analysis.

There is then a military-civil fusion approach elevated to the level of “national strategy” that allows China to transfer dual-use technological advances. The government promotes resource sharing and institutionalizes links between the People’s Liberation Army, the defense industry, the private sector, and universities.

AI innovation in China needs for data

In addition, AI technology works based on an enormous amount of data. China is the country with the most potential for AI development, mainly because of its wealth of data to train AI systems. China is on track to have 20% of the world’s data by 2020 and 30% by 2030.

With fewer obstacles to data collection and dissemination, China is accumulating an unprecedented database. With increasingly powerful computers, new algorithms, and an extensive database, China becomes the country with the most advantages to lead the development in machine intelligence. The 800 million Chinese Internet users and 700 million smartphone users are the keys to China’s AI development.

AI security systems in China allowing the government access to data

To obtain such amounts of data from the Chinese population, in 2017 the Chinese government enacted a law on personal data and cybersecurity requiring all companies, both domestic and foreign, to make all data collected from users available to the government.

Data allows the Chinese authorities to know and track the population: location, customs, political opinions, affinities, sociability. Similarly, it feeds the AI algorithms that will be able to refine their precision in facial and voice recognition, and in identifying suspicious behavior. In turn, as AI technology is largely owned by private companies, commercializing it in the market is always an option, or at least is what the authorities say.

Article 7 of China’s National Intelligence Law gives the Chinese government the authority to obtain any assistance and cooperation from tech companies to Chinese military and security services. The Chinese government is increasing the pressure on technology companies, subjecting them to intense scrutiny. According to press reports, companies have noticed a growing pressure to fall in line with Beijing’s mandates during 2018.

Likewise, public and private sectors are united in a close relationship of dependence: the needs of the Chinese government in security and military direct the R&D investment in tech companies. The latter can develop AI devices thanks to the entry of vast amounts of data, partly made available by the Chinese state.

Military applications of AI in China: the advent of unmanned wars

Development of AI in the Chinese military is a state priority

The Chinese government’s AI development plan (AIDP) strategy states that the country will promote all kinds of research to lead innovation in national defense. The Chinese People’s Liberation Army (PLA) sees the transformation of today’s informative ways of warfare into future intelligentized warfare a source of national advantage for China. AI in the Chinese is a priority, and this strategic vision makes it easier for the PLA to achieve its desired capabilities by using breakthrough AI technology from the private sector. China’s state-owned enterprises dominate its defense industrial base, which Jane’s – a journal specialized on global defense industry- rates as the most advanced in the Asia-Pacific region.

According to the official PLA, dictionary defines an “artificial intelligence weapon” as: “a weapon that uses artificial intelligence to automatically pursue, distinguish and destroy enemy targets; it is often composed of information gathering and management systems, knowledge base systems, assistance to decision-making systems, mission implementation systems, etc.”.

Today, the PLA funds a wide variety of AI projects, and the Chinese defense industry collaborates with many private tech companies in an extensive R&D program. Among other military applications, the PLA hopes to improve its future capabilities by leveraging AI to create intelligent and autonomous unmanned systems, intelligent support in command decision-making, data fusion, and information processing. Without wishing to establish an exhaustive list, the following are an example of military applications of AI in China.

Autonomous weapons in China: Unmanned Aerial Vehicles (UAVs)

Unmanned aerial vehicles (UAVs), also known as drones, are intelligent autonomous weapons with AI-integration. The intelligent drones in China are mainly used by the military, as it is supposedly forbidden for commercial use. Thanks to the speed and accuracy of identifying potential threats and transmitting information to military bases, the use of UAVs reinforces military efficiency. No need for pilots, drones can attack remotely by pressing a single button from the operation center.  

During the 12th China International Aviation and Aerospace Exhibition in November 2018, China presented its latest stealth combat drone model. Conceived by a state-owned company, the CH-7 is a UAV the length of a tennis court with a 22-meter (72-feet) wingspan. In addition, also shown at the exhibition was the TYW-1 is a high-altitude, high-strength UAV used by PLA Navy (PLAN) and PLA Air Force (PLAAF) primarily for reconnaissance.

The Chinese defense industry is beginning to incorporate higher levels of autonomy into its UAVs: it can operate with a high degree of automation, taking off and landing independently and involving minimal human intervention in tracking and attacking targets thanks to the weapons incorporated.

Unmanned Surface Vessel (USV)

Last year, the state-owned China Shipbuilding Industry Company (CSIC) launched it’s Marine Lizard, which is not a UAV, but an autonomous amphibious landing vehicle, a type of USV. The vehicle can be used for protection in an amphibious assault force, providing anti-aircraft support with armaments and avoiding an obstacle, and its weapons are controlled remotely.

Military Command decision-making in China

Another field where the PLA is expanding military intelligence in China is on military command decision-making, that takes advantage of the potential of AI, as well as big data, cloud computing, and machine learning. Leveraging AI in improving military capabilities in command decision-making introduces a uniqueness on the battlefield, where human cognition will no longer be able to keep pace with AI in future wars. AI technology supports commanders’ decision-making on the battlefield through advanced prediction, option, and impact assessment capabilities. The PLA is leveraging AI technology to “enhance” decision-making of fighter pilots or commanders of submarines.

AI and Cybersecurity in China

Military computer systems are vulnerable to cyberattacks, which can result in the loss of classified military information and damage to military capabilities. However, AI-equipped systems can autonomously protect networks, computers, programs, and data from unauthorized access. In addition, these AI security systems in China can anticipate cyberattacks by logging patterns, allowing counter-attack tools to be developed to deal with them.

Current research of military applications of AI in China

The PLA is working in partnership with many academic institutions and AI expert companies for the support of the dual-use of AI in China and military research. Hoover Institution makes an extended description of current research projects in AI in the Chinese military:

• Using AI-enabled image processing and target recognition technologies to detect ships in satellite imagery.
• Using machine and deep learning for the analysis of underwater acoustic signals.
• Implementing an AI decision-support system on nuclear submarines.

AI used by the Chinese government in surveillance and security

“I look forward to a world in which AI will make it impossible to commit a crime without being caught”

A scholar at a Chinese think tank told the Center for a New American Security.

Video surveillance AI-technology in China

Hikvision, owned by the China Electronics Technology Group Corporation’s (CETC) 52nd Research Institute, has pursued collaboration with the PLA to provide its AI-enabled video surveillance technology for national defense and security purposes in China.

Facial recognition in China: tech companies working for the state

Face++, Megvii’s powerful AI-enabled devices

Technology start-up Megvii was founded by the Chinese government to collaborate with the police in security and law enforcement. Its Face++ facial recognition device is designed to find criminals, detecting faces by analyzing data with facial points, and confirming the identity of the person with extreme precision. The system is powered by data provided by the government: China has a pervasive surveillance network with 170 million security cameras in its Skynet system and 400 million more in the pipeline. Moreover, Face++ is an open platform where any developer can create their own app, contributing to data sharing. Face++ becomes the most extensive facial recognition platform in the world, with more than 300 thousand developers from 150 countries using it. 

Isvision

China is building the world’s most powerful facial recognition system, ambitioning to identify any of its 1.3 billion inhabitants in less than three seconds. The system is being developed since 2015 by Isvision, a Shanghai security company, in collaboration with the Chinese Ministry of Public Security. The system is connected to the police and their database of suspicious citizens, allowing them to be recognized and tracked. Isvision AI-powered facial recognition devices have already been installed in some important squares in Beijing, and in Xinjiang and Tibet, where certain “ethnic conflicts” persist. 

SenseNets

SenseNets was established by video surveillance company NetPosa Technologies and AI start-up SenseTime in 2015. SenseNets is also part of the government’s Skynet project, the national system for fighting crime and preventing potential disasters in China. It specializes in three types of systems: facial recognition, to identify potential suspects and fight terrorism; crowd analysis that facilitates and accelerates decision-making; and human verification to compare facial images with ID card identity photos.

LL-vision

In March 2018, local police in Beijing tested a new surveillance device: smart glasses with facial recognition and car plate identification, that then match the data in real-time with a suspects’ database, or a “blacklist,” according to Reuters. The AI-powered glasses are manufactured by the AI start-up LLVision, that collaborates with the government on security matters, or as LLVision CEO Wu Fei says, in “noble causes” (Reuters).

China’s success in artificial intelligence brings economic growth to the country through investment and talent as well as the development of economies of scale. There is a boom in the number of AI companies and start-ups in China, innovating relentlessly, and widely selling its technology across many industries (Know more about the AI landscape in China in Daxue Consulting).

While most of the AI companies in China collaborate with the government within the dual-use strategy, some of them are selling military and security technology abroad. For example, DJI, the Chinese company world leader in consumer drones, was selected as the sole drone provider to the New York Police Department. Moreover, China has become the primary exporter of UAVs with clients in the Middle East, such as Egypt, Iraq, Saudi Arabia, and the UAE. Ziyan UAV’s attack helicopter drone Blowfish A2 is gaining increasing interest in the Middle East.

China doesn’t seem to want to slow down the development of lethal autonomous weapons. However, there have been concerns from within the Chinese government to avoid an AI arms race, and Alibaba’s chairman said that new technology such as artificial intelligence could lead to World War III.

Despite these concerns, China’s leadership is continuously pursuing global AI dominance and its use in the military and surveillance.

Author: Ines Beneyto Brunet

Our AI in China White Paper is available to anyone looking to learn more about the role of artificial intelligence in Chinese industries.

See our report on AI in China:

This article Modern tools for managing humanity: AI used by the Chinese government | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Chinese insurance market

In recent years, medical and living expenses have gradually increased. A comprehensive security plan is an effective way to cope with high medical expenses and loss of returns. In addition to Mainland Chinese insurance products, more people now prefer Hong Kong insurance products.

According to the statistics of the China Insurance Regulatory Commission, in 2018 the coverage of insurance provided by the insurance industry was 6897.04 trillion yuan, an increase of 66.23% over the same period last year. Among them, the insurance coverage of property insurance companies was 5777.37 trillion yuan, an increase of 90.65%; the cumulative new insurance coverage of life insurance companies was 1119.67 trillion yuan, an increase of 0.10%.

The number of new Insurance policies increased by 66.13% over the same period of last year, to 29.972 billion. Among them, property insurance companies signed 28.263 billion new policies, an increase of 70.10%; life insurance companies added 809 million new policies this year, a decline of 8.46%. In 2018, Chinese insurance depth was 4.22%, while the world’s average insurance depth was 6%, with a difference of about 1.8%.

Insurance coverage and the amount of property insurance are rising, while that of the life insurances are showing a downward trend. The insurance coverage and the amount of Insurance policies in the Chinese market are still large.

Mainland Chinese insurance products: What insurance products are the most popular?

According to the statistics released by the CIRC, the number of cargo Insurance policies in China is 4.89 billion, up 31.91% from the same period last year, while liability Insurance policies are 7.277 billion, up 81.70%. Guarantee Insurance policies in China increased by 35.62% to 2.286 billion, while vehicle Insurance policies increased by 12.09% to 448 million. In this year, there were 89 million new personal Insurance policies in China, down 19.86%; 55.491 million life Insurance policies, down 20.35%; 3.201 billion medical Insurance policies, up 41.7.28%; 6.499 billion accident Insurance policies, up 16.851%.

It can be seen that in the Chinese insurance market in 2018, the number of liability Insurance policies is the largest, accounting for 33.77%, while the number of accident Insurance policies ranks second, accounting for 30.16%. The number of cargo Insurance policies ranked third, accounting for 22.69%, followed by the number of guarantee Insurance policies accounting for 10.61%.

Trend Analysis of Overseas Purchase of Insurance Products in Hong Kong

Hong Kong insurance has only recently become popular, but it has actually been sold for many years, mainly in coastal cities like Beijing, Shanghai, Guangzhou, Shenzhen,.

According to a statistical analysis of the Hong Kong insurance Authority, Mainland Chinese come to Hong Kong to insure. The main Insurance products in Hong Kong Mainland Chinese buying are high-end medical insurance, high-returns savings-dividend products, high-security major disease products, and life products.

In 2018, Mainland Chinese contributed 460,000 Insurance policies to Hong Kong, averaging about 40,000 policies per month. The annual premium was HK$47.6 billion, averaging about HK$4 billion per month.

According to data from the Hong Kong insurance Authority. The statistics of new single Insurance policies, the number of major disease insurance purchased by Mainland Chinese is the largest ever, and continues to rise. The first three quarters of 2018 accounted for 62.9%, much higher than the same period in 2017, showing that Hong Kong’s major disease insurance has a strong attraction for Chinese Mainland visitors, followed by life insurance, accounting for 28.5%, which is significantly lower than the same period in 2017.

Why Mainland Chinese prefer to buy insurance in Hong Kong?

A prospering economy upgrades people’s consumption levels: the rapid development of China’s economy, the improvement of people’s living standards and the upgrading of consumption put forward higher requirements for the quality of life and the degree of security.

Pricing advantage of Hong Kong insurance: Pricing is more advantageous because the mortality rate and incidence of major diseases in Hong Kong are lower than in the Chinese Mainland. Similarly, the premiums for major diseases or life insurance are lower than those in the Chinese Mainland. The average price of the same kind is about 30%.

International financial center and mature competitive market: the investment environment of insurance companies in Hong Kong is more mature. As one of the three major financial centers in the world, Hong Kong’s major asset allocation of insurance funds is more biased towards equity products such as stocks and real estate. Therefore, Hong Kong’s savings-dividend products are expected to yield higher returns than Chinese Mainland products.

In September 2015, the CIRC stipulated on ‘Improving Policy Reform of Dividend-based Personal Insurance Premium Rate for Chinese Mainland Insurance Companies’ that all dividend-based insurance should have an expected annual returns rate of no more than 3.5%, otherwise it would need to be submitted for examination and approval. In contrast, the Hong Kong insurance Authority has no revenue-related restrictions, and the yield of Hong Kong insurance products tends to be much higher than 3.5%.

Hong Kong insurance market: The most popular types of insurance in Hong Kong

Here is the main product structure of Hong Kong insurance, the long-term insurance products which can be divided into two parts: Protection type products and Investment type products. And among them, protection type products can be divided into medical products insurance, major disease insurance, life insurance and accident insurance, while investment type products are composed of savings-dividend products and investment-linked products.

Among the Chinese Mainland residents, the most popular types of insurance in Hong Kong are major disease insurance and savings-dividend products. Their advantages and functions are described below with specific case.

Insurance in Hong Kong: Major disease insurance

Major disease insurance- there are many kinds of major disease insurance, and their design is more humanized. The majority of Hong Kong’s major disease insurance options cover more than 100 categories, while many in the Chinese Mainland cover around 70 categories. Besides, the dividends are high, the insurance coverage is higher, and the rates are lower. The overwhelming majority of Hong Kong’s major disease insurance have dividend distribution, the dividend rates are generally 3-4%, while those in the Chinese Mainland are relatively low.

Insurance in Hong Kong: Savings-dividend products

Savings-dividend products-the expected dividends of insurance products are higher in Hong Kong. The annual compound dividends rate of Hong Kong products is about 6%, and that of domestic insurance is about 4%. Apart from that, its Dollar insurance policy in Hong Kong, which diversify the exchange rate risk. Hong Kong insurance is denominated in Hong Kong dollars or US dollars, while the Chinese Mainland is settled in RMB.

The contrast between Hong Kong insurance and mainland Chinese Insurance Products

Starting with the advantages of Hong Kong insurance, as the following table shows：

The premium rate is low, and insurance coverage is high: with the same protection content, the premium in Hong Kong is only one-third or even one-second of the premium purchased in the Chinese Mainland. The reason why the price is so much lower than that of the Chinese Mainland is mainly because Hong Kong’s insurance premiums are formulated by the standards of the developed countries. Hong Kong’s health care system is sound, and its basic insurance premiums are very cheap. In addition, Hong Kong insurance Market competition is fierce; the price is relatively cheaper.

Expected returns are higher: in addition to security, Hong Kong insurance also has higher expected returns. Hong Kong’s savings-dividend insurance is indeed about 1.5-2% higher than that of the Chinese Mainland. Especially after the CIRC has imposed restrictions on the pricing rate of the Chinese Mainland, the advantages of Hong Kong’s products are obvious.

Wider protection scope: major disease insurance in Hong Kong usually cover nearly 100 diseases, more than 50 major diseases, and more than 30 mild diseases. The coverage is relatively wide.

Correspondingly, the advantages of Chinese Mainland insurance over Hong Kong insurance are listed below:

Convenient and efficient: The Hong Kong insurance purchasing process is cumbersome. Not only are you going to Hong Kong personally, but there are also a lot of formalities involved, including the fact that the maximum quota is $5,000 for credit card brushes.

Exchange rate issues: There is a risk of exchange rate fluctuations between RMB and HKD.

Protected by Chinese Mainland law: Insurance products purchased in the Chinese Mainland are protected by the Chinese Mainland law. In the event of problems in insurance purchased in Hong Kong, the Hong Kong insurance Complaints Bureau will accept insurance claims of less than one million yuan, and more than one million yuan case will have to sue in Hong Kong.

Opportunities for foreign enterprises in the Chinese insurance market

The Chinese insurance market is still in its early stages of development and has great potential for future growth. Compared with the penetration rate of 5% to 10% in mature European and American markets, the current Chinese insurance market is only about 4%, belonging to the starting market camp, and there is still much room for development compared with other markets. Looking forward to the future, with the development of economy and the maturity of social structure, the per capita output value and the penetration rate of life insurance will increase simultaneously, which is also the driving force for the vigorous development of life insurance market. Foreign enterprises can seize this opportunity for development.

Author: Zichun LI

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This article Chinese insurance market: Mainland Chinese buy insurance products in Hong Kong and make asset allocation | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Food imports into China exceed 60 billion dollars. In 2017, China imported 61.65 billion dollars worth of food, indicating a rise of 11.1% compared to 2016. The biggest Chinese imports were meat, dairy, and seafood. The meat was valued at 9.5 billion dollars with dairy and seafood valued at 9.3 billion and 8.5 billion dollars, respectively. There were also increases in growth in imported foods into Сhina in other sectors such as tea and nuts. At the 2018 Boao Forum for Asia Annual Conference, China announced measures to reduce tariffs and expand imports meaning larger import numbers will be seen in the near future. Chinese Customs also strives to strengthen surveillance to ensure the quality of freshness of Chinese imports. The overall demand for imported goods in China in 2018 has increased as the standard of living in China has improved, and Chinese consumers display a higher degree of willingness to buy more imported goods.

Increasing demand for imported goods in China

The increase in demand for imported goods in China is not beyond that of a few factors. The driving factors for Chinese consumers involve quality, convenience, and experience. Consumers no longer hold the thought that foreign goods are only quality goods and take into consideration convenience and the experience they will gain from the product when selecting which imported goods they will buy. The variety and exoticness of imported food in China shows to be of growing importance within the food market because it provides a different experience for the consumer. Another factor is the increasing development of cross-border e-commerce channels. These channels, or e-commerce platforms, make buying imported goods in China more convenient and efficient, especially imported food. An increase in the health consciousness of Chinese consumers has also given rise to a health food trend.  Health foods are food products that have specific health functions or minerals and supplement vitamins. The health food trend shows thatChinese consumers are changing their eating habits to avoid health issues and things like a high-fat diet. This has led to an interest in organic and plant-based foods, additive-free food, and functional health food. Seafood is a favorite among food imports into China because they are attractive to health conscious Chinese consumers for having heart health and improved functionality of the brain and nervous systems benefits. Imported seafood is not only often considered as more nutritious, but also safer due to water quality and strict quality control. The best selling imported organic foods are pork, beef, oil, and fresh milk. Overall, the biggest food imports were meat, dairy, and seafood.

Chinese consumer perception of overseas food brands in China

Chinese consumers are exhibiting a higher willingness to import and purchase foreign consumer goods. For overseas food brands in China, consumers focus on safety, price, and ingredients. Chinese consumers have gradually moved from the notion that foreign goods are only quality goods to selecting which imported goods in China to buy by taking into consideration factors such as safety, raw material quality, and design. Safety predominantly refers to food. In recent years, China has encountered some food safety problems, which has affected the perception of domestic food brands. From these occurrences, food imports into China are trusted more than domestic products as they are verified as ‘safe’ through the inspection process and are subject to strict quality control.

Chinese consumers’ perceptions of food imports by country

North America: United States of America, Canada

What Chinese consumer think of American Food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of American food perceives it as:

• Fast food
• Monotonous
• Unhealthy
• Genetically modified
• Has large portion sizes

American Food in Shanghai, China

Utilizing local restaurant, hotel, and shop locating service Dianping, we can see that there are over 15 American restaurants in Shanghai. This indicates that American food has a foundation in Shanghai. Within the American restaurants rated through the service, more than 50 percent of them are located in Puxi. Multitudinous American fast food restaurants such as McDonald’s, KFC, and Burger King, also line the streets and alleys of Shanghai.

American food promotions in China

In the eyes of Chinese consumers, American food is associated with fast food. Coincidentally, American fast food chains thrive in China. These restaurants, more than others, carry out promotions of American food in through digital platforms. Firstly, American fast food restaurants like KFC and Pizza Hut uses platforms such as Weibo to promote in-store deals, new releases, and general items on the menu. This form of digital advertisement is joined by display ads in commercial areas and among other platforms.

Restaurants also like to make use of KOLs. KFC works with celebrities such as singer LuHan, actor 朱一龙 (Zhu Yi Long), and singer 王俊凯 Wang Jun Kai, also known as Karry Wang) for various commercials and promotional materials. They use these individuals to gain the attention of various consumers. These commercials and ads featuring KOLs are played across every digital platform, including streaming platforms like Youku and iQiyi.

Other types of restaurants generally do not use KOLs for promotion and use traditional ways of advertising or commercials that feature mainly the product and not KOLs.

Chinese consumers’ perception of Canadian food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of Canadian food perceives it as:

• Healthy
• Inexpensive
• Simple
• Sweet

Canadian food in Shanghai, China

In Shanghai, it seems that Canadian food does not have a well-established foundation. According to Dianping, there are very little Canadian restaurants. The number of restaurants present amounts to less than 10. Among these restaurants, the majority are in Puxi.

Canadian food promotions in China

As Canadian food has yet to have an established foundation in Shanghai, promotional content on Chinese digital platforms for its cuisines are hardly seen for restaurants. However, on Weibo, there are specialty Canadian food brands that have accounts specifically for the promotion of products such as health food.

These companies do not use other forms of promotion, such as KOLs. This is likely due to being small in size and have little presence in China. Once Canadian food starts to establish a good foundation in China, we may see more digital promotions for its food and the utilization of KOLs in its promotion.

South America: Brazil

What Chinese consumer think of Brazilian food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of Brazilian food perceives it as:

• Unique
• Delicious
• Sweet and salty
• Healthy

Brazilian food in Shanghai, China

Brazilian food is no stranger to individuals living in Shanghai. There are over 50 Brazilian restaurants listed on Dianping. This shows that Brazilian food has a well-established foundation in Shanghai. Among the top 20 restaurants, many have an average rating of 3 to 4 ½ stars.

Brazilian food promotions in China

Multiple Brazilian restaurants in China use digital platform promotions. On Weibo, there are accounts for various kinds of Brazilian restaurants. 巴西烤肉(Brazilian Barbeque), for example, seems to be a favorite among Chinese consumers. Many Brazilian Barbeque restaurants in China’s large cities have a Weibo account. These restaurants do not utilize any KOLs for promotion. The accounts seem to promote the services the restaurants provide, such as events or catering, and the food which is often photographed in an organized, artistic, or elegant way. But these accounts do not look to be very active, meaning that this form of digital promotion may not be highly utilized even though there are many accounts. This may be the same case for other types of restaurants.

Oceania: Australia, New Zealand

Chinese consumers’ perception of Australian food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of Australian food perceives it as:

• Unique
• Delicious
• Rich seafood
• Multicultural
• Have rich and fresh ingredients
• Reasonably priced
• High in calories

Australian food in Shanghai, China

Just like Brazilian food, Australian food has a well-established foundation in China. Dianping reports more than 50 Australian restaurants resides in Shanghai with “澳大利亚” or “澳洲” in their name and/or description. Most of these restaurants are in Puxi. Among the top 20 restaurants, there is an average rating of 3 ½ stars or more.

Australian food promotions in China

Like Canadian food, Australian Food companies in the health food aspect of the food and beverage market have accounts on digital platforms rather than specific restaurants associated with the terms “澳大利亚食品” and “澳洲食品”. Along with these accounts, Australian food producers and food information accounts exist.

These accounts promote the quality of the products associated with the account and informational content (e.x. health food brand accounts promotes the freshness of their health food product and the benefits of the product) without the use of KOLs. Similar to the Brazilian Barbeque accounts, most of these accounts are now inactive as well.

Chinese consumers’ perception of New Zealand food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of New Zealand food perceives it as:

• Delicious
• High-quality milk and meat
• Fresh and rich, especially seafood
• Expensive vegetables
• Reasonably priced meat

New Zealand food in Shanghai, China

New Zealand food has some form of foundation in Shanghai. On Dianping, there are approximately 27 restaurants listed. Of which, the majority are in Puxi. The top 15 restaurants have a rating of 3 stars or more.

New Zealand food promotions in China

Using the terms “新西兰食品” (New Zealand food) and “新西兰餐厅” (New Zealand restaurant), no results were found on Weibo. The few accounts that appeared using 新西兰食品 were New Zealand pet food brands here in China.

Western Europe: France

What Chinese consumer think of French food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of French food perceives it as:

• Delicious
• Elegant
• Has small portions
• A representative of Western food
• Like a combination of food and art
• Light taste
• Healthy
• Romantic
• Wonderful wine

French food in Shanghai, China

With over 100 restaurants listed on Dianping, it can be said that French food has a very well-established foundation in Shanghai. Restaurants receive a rating of 4 to 5 stars and are mostly located in Puxi.

French food promotions in China

Using the term “法国餐厅” (French restaurants), multiple french restaurants appear in the search. However, these accounts have gone inactive. Other than these inactive accounts, no other French restaurants seem to use digital platforms such as Weibo for food promotions.

East Asia: Japan, South Korea

Chinese consumers’ perception of Japanese food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of Japanese food perceives it as:

• Delicious
• Various tastes: sweet, spicy, salty
• Greasy
• Strong flavors
• Less variety of vegetables
• Fresh and rich
• Safe
• Wonderful snacks and desserts

Japanese food in Shanghai, China

Japanese food seems to have a well-established foundation in Shanghai. There are well over 200 restaurants listed on Dianping, most of which are listed with a rating of 4 ½ stars or more.

Japanese food promotions in China

From sushi to curry to ramen, various Japanese cuisines and foods are trendy in China. Ramen restaurants are particularly present on Weibo. Using the search term “日本拉面” (Japanese ramen) many ramen restaurants appear in the search.

Some of these accounts are active and have good online presence through the platform. Newly opened Naruto Yen Ramen uses various promotional techniques in China. Not only does the restaurant have a promotional video covering the grand opening ceremony and posts of the ramen, but it also interacts with user-generated content (or consumer-generated content in this case) through microblogging. There seems to be no signs of use of KOLs among any of the accounts.

What Chinese consumer think of Korean food

Compiled from data collected on Zhihu and Weibo, Chinese consumers of Korean food perceives it as:

• Delicious
• Relatively simple
• Strong flavor
• Spicy
• Pickled Greasy

Korean food in Shanghai, China

Like Japanese food, South Korean food is also popular in Shanghai from Korean barbeque and cuisine restaurants to Korean Fried Chicken fast food restaurants. There are way over 200 restaurants labeled under Korean Cuisine listed on Dianping indicating that there is a stable well-established foundation for South Korean food in China. The restaurants mostly receive ratings of 4 to 5 stars.

Korean food promotions in China

Korean food is not a rarity in China, and seeing Korean celebrities’ photos throughout a Korean restaurant is common. Korean restaurant chains utilize Korean Celebrities in promotional materials. For example, with Korean hot pot restaurants, Korean celebrities can be seen on display menus or ad boards that are displayed outside of the restaurant. Like American food, it seems Korean fast food restaurants such as Korean Fried Chicken chains, use digital platforms for promotions. Popular Korean Fried Chicken chain 蜜哆哆炸鸡 (Midodo Chicken) has an active Weibo account and utilizes it to promote its food products. The account features brand generated content as well as microblogs user-generated content from consumers. The chain also has its own website where you can learn about the business, contact them, inquire about services and more.

Food export to China procedures

According to information provided by HKTDC Research, there are approximately eight steps on how to export goods to China from other countries. Among these steps, you also have to obtain the proper documents for approval by their respective authorities. The first steps involve registration on the administrative level–registration of operator and with Customs– followed by an application for quotas and licenses. To import any goods to Mainland China, overseas producers must register in China. After application approval, you proceed to sign a trade contract and exchanging formalities, along with an application for commodity inspections. Lastly, you receive verification and write off formalities. Once this process is completed, you can proceed to have Chinese imports of your produce.

Approval information for food imports into China

For Chinese imports, some commodities are categorized as special commodities. Food products are one of those special commodities. Food products with pre-packaged food labeling require approval documents by the correct approval authorities. Prior to the import of pre-packaged food products to China, the importer or agent should apply to the designated inspection and quarantine authorities for inspection. The agent presents samples of the Chinese labels of the products and documentary proofs of contents specified together with a letter of undertaking from the enterprise concerned. Through on-site inspection and label examination, the designated inspection and quarantine authorizes will review the format of the labels and specifically inspect the batches selected. After verification of the documents, the authorities will release the imported pre-packaged foods that were not selected for inspection based on the letter of undertaking issued by the importer or agent.

Food labeling for exporting to China procedures

How to export goods to China from any country requires the presence of a Chinese food label for each and every commodity. The label should have the correct Chinese characters and be submitted to the corresponding authorities for approval before the import of the prepackaged food product.

Author: Shyaiah Mitchell

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