The Economist, July 29th – Aug 4th, 2017

Didi Chuxing, SoftBank grab stake in Uber competitor

SoftBank and Didi Chuxing provided the bulk of a recent $2.5 billion investment in Grab Taxi, a ride-hailing firm headquartered in Singapore and operating in seven countries.

AI in China

A cyber-security law that came into force in June requires foreign firms to store data they collect on Chinese customers within the country’s borders; outsiders cannot use Chinese data to offer services to third parties…

AI is a technology with the potential to change the lives of billions. If China ends up having the most influence over its future, then the state, not citizens, may be the biggest beneficiary.

China and Russia

Russia needs China far more than China needs Russia. And Russia feels uncomfortable about such an unbalanced relationship…

Since 1991, Russia has provided nearly 80% of all China’s arms imports (worth about $32 billion over the period).

The Kremlin used to worry about China’s efforts to reverse-engineer them. But Alexander Gabuev of the Carnegie Moscow Centre says that Russia now recognizes that China’s technological advance is unstoppable. Russia might as well make money from selling arms to China while China still has an interest in buying them from abroad rather than making them itself.

In terms of finance:

With Russia’s access to international capital markets now severed as a result of sanctions, China has become Russia’s main source of funds.

A senior Russian banker in China says, “Our government wants Chinese money without the Chinese.”

Meanwhile:

China has become the leading trading partner for all the former Soviet republics (apart from Uzbekistan), as well as the region’s largest investor.

The Economist, July 22nd – 28th, 2017

Sun’s out

On July 15th, Sun Zhengcai (孙政才) (孫政才) – the Politburo’s youngest member, who was seen by some as a potential successor to Xi Jinping – was sacked from his position as Chongqing’s Party Secretary.

After a brief interregnum, Sun succeeded Bo Xilai (薄熙来) (薄熙來) as Chongqing Party Secretary, and according to the Economist:

A cloud appeared over Mr Sun in February, when party investigators accused him of failing to clear Mr Bo’s “toxic residue”.  Now Mr Sun is said to be under investigation for violating party rules…

the new chief of Chongqing, Chen Min’er [(陈敏尔) (陳敏爾)], is Mr Xi’s man.

China in Africa

China will soon open a military base in Djibouti, its first military base abroad since the Korean War.

According to the Economist:

In 2014 the number of African students in China surpassed the number studying in either Britain or America…

Afrobarometer, a polling firm, found that 63% of people in 36 African countries consider China to be a positive influence.

McKinsey… looked at five measures of Africa’s economic connection with the world: trade, investment stock, investment growth, infrastructure financing, and aid.  It found that China is among the top four partners in each of these.  “No other country matches this depth and breadth of engagement,” it enthused.

McKinsey’s work suggests that there are as many as 10,000 Chinese companies operating in Africa, 90% of them privately owned.  Many also reported earning juicy returns…

However:

It is far less certain that Chinese investments in big infrastructure… will ever show a return… there is even less chance of recovering the cash sunk by Chinese state-owned firms into poorly governed places such as Angola and the Democratic Republic of Congo…

In a decade or so China may find itself in the position the West once did, of having to write off many of their loans to African governments.

China Inc

Chinese state-owned enterprises (SOEs) are on the march, drawing on government support and making conquests at home and abroad.

While SOEs account for less than a fifth of Chinese output today, there are still more than 150,000 of them, and those enterprises take in about half of all bank loans. Since 2008, the ratio of company liabilities to equity for state-controlled companies in China has exceeded that of non-state controlled companies. In addition, investment by SOEs has grown faster than private-sector investment since 2015.

According to the Economist:

The “One Belt, One Road” strategy – the core of Mr Xi’s foreign policy – has made foreign expansion an explicit part of their mandate.

and Chinese policymakers are using mergers to create “national champions.”

Indeed, part of the rationale for the mergers is to prevent SOEs from butting up against each other as they go abroad to win business.

In addition, quick progress in establishing “state capital investment and operation” companies (SCIOs) to invest in new high-tech sectors seems to set to extend the state’s reach into the private sector, just as

State-backed private-equity funds, which can be seen as forerunners to the investment function of the SCIOs, are already making a big impact.

The Economist, July 15th – 21st, 2017

China’s conscience

Liu Xiaobo (刘晓波) (劉曉波) was a supporter of the 1989 Tiananmen Square protests, and in his non-violent struggle for democracy and fundamental human rights in China, he went to prison multiple times.

He was an active participant in the writing of the Charter 08 manifesto, which called for human rights, more freedom of expression, more democratic elections, the privatization of state enterprises and land, and economic liberalism.  He signed it along with more than three hundred Chinese citizens, and the manifesto was released on 10 December 2008.  Two days before the official release of Charter 08, Liu was taken into custody by the police.  On December 25, 2009, he was sentenced to 11 years in prison and 2 years’ deprivation of political rights.

While in prison, he was awarded the 2010 Nobel peace prize.  In May, 2017, while still in prison, he was diagnosed with terminal liver cancer.  He died on July 13th.

According to the Economist:

His dignified, calm and persistent calls for freedom for China’s people have made Mr Liu one of the global giants of moral dissent…

 A Bolshevik in Beijing

In May, Cai Qi (蔡奇) was elevated to the post of Communist Party chief of Beijing.   The previous occupant was Guo Jinlong (郭金龙) (郭金龍), a holdover from Hu Jintao’s time in power.

According to the Economist:

There is no doubt that Mr Cai… is the president’s man.

Moreover, Mr Cai is:

…all but certain to be elevated directly to the ruling Politburo later this year, without first tarrying on the lower rung of the Central Committee.

Ethnic minorites

In the early 1950s, a census was conducted in China which allowed respondents to describe their ethnic identity in any way they liked, producing more than 400 categories.  Researchers were dispatched to look more closely at the situation, and officials decided that China had a total of 38 indigenous ethnic groups.  By 1979 the number had increased to 56.  Since then, no further groups have been recognized.  The biggest group is the Han, which reportedly makes up 92% of the population.

The algorithm kingdom

In January, Qi Lu, one of Microsoft’s bosses, announced that he was going to become chief operating officer at Baidu.  According to Lu, “We have an opportunity to lead in the future of AI.”

In October 2016 the White House noted that China had overtaken America in the number of published journal articles on deep learning.

What does China have going for it in the realm of artificial intelligence?

According to the Economist, in addition to computing power and money, the country also has data, and increasingly, research talent.  Government support has also been important.

As far as research talent is concerned, China has strong skills in math and a tradition in translation research.  Also, most big universities have launched AI programs.

As far as data is concerned, China has 1.4 billion people and about 730 million Internet users, more than any other country.  In addition, almost all go online from smartphones, which generate much richer data than desktop computers because of their sensors and propensity to be carried around.  Also, people in China tend to use voice-recognition services more often than in the West, so firms have more voice snippets to improve speech offerings.

Among other companies, according to the Economist:

Megvii Technology’s face-recognition software, Face++, identifies people almost instantaneously

and:

The firm already enables Alipay and Didi, a ride-hailing firm, to check the identity of new customers (their faces are compared with pictures held by the government).

Container shipping

On July 9th, the owners of Orient Overseas Container Line (OOCL), the world’s 7th biggest container shipping line, announced sale of the company to the China Ocean Shipping Company (COSCO), a state-owned Chinese shipping giant, for $6.3 billion, valuing OOCL at 40% above its book value.  The deal would make COSCO the third largest container shipping line worldwide.

A Hong Kong company, OOCL was founded by Tung Chao-yung.  Under his eldest son, Tung Chee-hwa, the company survived financial difficulties in the early 1980s with the help of Chinese money, and Tung Chee-hwa went on to become Hong Kong’s first leader after Hong Kong was handed over to China in 1997.  OOCL’s current chairman is the founder’s second son, Tung Chee-chen.