Category Archives: International

China sues Alibaba

China sues Alibaba

Just in case you missed this. Alibaba is the Chinese version of Amazon.

Following is from CNBC News:

“Chinese regulators hit Alibaba with a 18.23 billion yuan ($2.8 billion) fine in its anti-monopoly investigation of the tech giant, saying it abused its market dominance.

Regulators opened a probe into the company’s monopolistic practices in December. The investigation’s main focus was a practice that forces merchants to choose one of two platforms, rather than being able to work with both.

In a Saturday statement, China’s State Administration for Market Regulation (SAMR) said this policy stifles competition in China’s online retail market and “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers,” according to a CNBC translation of a Chinese-language statement.

The government said that “choose one” policy and others allowed Alibaba to bolster its position in the market and gain unfair competitive advantages.

Alibaba Launches A100 Strategic Partnership Program | Business Wire

In addition to the fine, which amounts to about 4% of the company’s 2019 revenue, regulators said Alibaba will have to file self-examination and compliance reports to the SAMR for three years.

The company said in a statement it accepted the penalty and will comply with the SAMR’s determination. Alibaba said it fully cooperated with the investigation, conducted a self-assessment and already implemented improvements to its internal systems.

“Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development,” the company said.

The company added it will hold a conference call on Monday at 8 a.m. Hong Kong time to discuss the fine.

The announcement is the latest development in China’s crackdown on its technology companies. Regulators have been increasingly concerned about the power of China’s tech giants, particularly those who operate in the financial sector.

Much of that heightened scrutiny has sharpened around the business empire of billionaire Jack Ma, who founded both Alibaba and Ant Group.

Ant’s highly anticipated initial public offering was abruptly suspended in November shortly after Chinese regulators published new draft rules on online micro-lending, a key part of the company’s business. The China Securities Regulatory Commission also summoned Ma and other Ant execs ahead of that announcement.”

Home Ownership in China

Twenty years ago, China’s real estate market didn’t exist. It wasn’t until the mid-90s that a series of reforms allowed urban residents to own and sell real estate. People were then given the option to purchase their previously government-owned homes at incredibly favorable rates, and most of them made the transition to being property owners. Now with a population provisioned with houses that they could sell at their discretion and the ability to buy homes of their choice, China’s real estate market was set to boom. By 2010, a little over a decade later, it would be the largest such market in the world.

When we talk about how people afford houses in China today, more often than not we’re not talking about individuals going out and buying property on their own — as is the general modus operandi in the West. No, we’re talking about entire familial and friend networks who financially assist each other in the pursuit of housing.

At the inner-circle of this social network is often the home buyer’s parents. When a young individual strikes out on their own, lands a decent job, and begins looking to pursue marriage, getting a house is often an essential part of the conversation. Owning a home is virtually a social necessity for an adult in China, and is often a significant part of the criteria for evaluating a potential spouse. As parents tend to move into their children’s homes in old age, this truly is a multi-generational affair. So parents will often fork over a large portion of their savings to provision their children with an adequate house – often buying it years in advance. If parents are not financially able to buy their kids a home outright, they will generally help with the down payment, or at the very least, provide access to their social network to borrow the required funds.

Take for example the case of Ye Qiuqin, a resident of Ordos Kangbashi who owns two houses across the country in Guangdong province, where she is originally from. Together with her fiancé, she makes roughly US$3,200 per month from running a cram school. For her first home she made a down payment of roughly US$20,000; of which $3,300 came from her parents, $10,000 came in the form of loans from her sister and friends, and the rest came from her savings.

To decrease the amount of volatility in China’s often hot property market, there are very strict rules as to how much money people can borrow from the bank for purchasing real estate. Although this slightly varies by city and wavers in response to current economic conditions, for their first home a buyer must lay down a 30% down payment, for the second it’s 60%, and for any property beyond this financing isn’t available. So for people to buy homes in this country they need to step up to the table with a large amount of cash in hand. In fact, 15% of all residential property in China is paid for in full upfront.

Why there is so much liquid cash available for these relatively large down payments is straight forward: the Chinese are some of the best savers in the world. In fact, with a savings rate that equates to 50% of its GDP, China has the third highest such rate in the world. As almost a cultural mandate, the Chinese stash away roughly 30% of their income, which is often called into use for such things as making a down payment on a home — which is the most important financial transaction that many Chinese will ever make.

Another way that Chinese home buyers are able to afford their down payments is via the country’s Housing Provident Fund. This fund began when the country started privatizing urban housing as way to help residents afford to buy their homes. Part of this fund included a government initiated savings plan where employees are given the option to invest a portion of their monthly earnings and have it matched by their employer to assist them with buying a house.

Once the down payment is accounted for, getting mortgages in China is a relatively straight forward affair, and the standards for qualifying are relatively low. For the most part, a borrower’s monthly salary must be at least twice the monthly repayment rate of the loan. Interest rates hover around 6%. On average, those who have these loans will devote between 30% and 50% of their monthly income towards paying them back.

While there is much talk in China and abroad about the increasing number of Chinese home buyers taking out mortgages, relative statistics should quell the hype. Just 18% of Chinese households have mortgages, compared with half of all home owners in the USA. China’s home mortgage-to-GDP ratio was just 15% in 2012, whereas in the USA it was a staggering 81.4%. Although monthly wages in China tend to be relative low, non-performance on mortgages is virtually unheard of — in 2013 the default rate was a mere 0.17%.

Although we must remember here that China’s banks are fully owned by the Communist Party, and social stability often takes precedence over the raw pursuit of profit, so their lending practices cannot be compared like-for-like against those of Western banks.

Part of China’s boldness when it comes to spending relatively large amounts of money on housing comes from the assumption that wages will continue rising. Nominal income growth in urban China has been going up at a 13% clip annually over the past decade, while annual per-capita disposable income has risen from $1,800 in 2006 to around $4,800 today.

China’s Communism

China’s Communism

I have real problems with Communism in China. They have a poor record concerning human rights and do not have an effective system of representing their workers (which was the initial intent of Communism). The more positive side Free Trade and entrepreneurship is alive and well. We visited China in 2018 and have another trip scheduled for the fall of 2020. The tours are very inexpensive, and we surmise that the Chinese Government partially subsidizes them. There were a half dozen venues that were required that were shipping opportunities. What surprised me was that only one of them (The Jade Shop) was government-owned. All of the others were privately owned. All of these businesses provided very professional marketing presentations.

All of our accommodations were in four and five-star hotels that would rival any other hotels we have experienced. Without exception, all of them provided phenomenal breakfasts. As you would expect, most of its infrastructure is very new. I asked our tour guide how all of the improvements were funded. He reminded me that the government owns all of the lands, and they are everyone’s landlord. Beijing typically offers 70-year residential leases and 50-year commercial leases. Our guide further stated that the government had collected over $30 trillion US in lease income over the last 20 years and that currently, they were taking in over 2 trillion annually. The total Chinese National Debt is just under $5.5 trillion US. Their annual GDP is in the $11 trillion US range, and that calculates to a debt to GDP ratio of approximately 50%. By comparison, the current US debt is $24.9 trillion, and the current annual GDP is $21.4 trillion. This equates to a debt to GDP ratio of 117%. Keep in mind that the Chinese Government only owns the land; most of the commercial development and many of the residential improvements are privately owned. The government is communist-controlled, but the economy is more capitalistic and free trade. Their economic system seems to have evolved into a hybrid system. My term for it is “tight rope” capitalism.

Homeownership in China is higher than it is here. In Xiamen, a coastal city with a perpetually hot property market, $300,000 for an apartment is normal — even though the average wage is around $1,000 a month. Even for the city’s middle-class residents, who make between $1,200 and $5,000 per month, the price seems prohibitively high.

However, the people of China can afford to buy these extremely expensive properties. In fact, 90% of families in the country own their homes, giving China one of the highest homeownership rates in the world. What’s more is that 80% of these homes are owned outright, without mortgages or any other leans. On top of this, north of 20% of urban households owns more than one home. So with wages so out of whack with real estate prices, how can so many people afford to buy so many houses? This is all in a country where $5 can get you a bulging armful of food from the local market, and $70 gets you a bunk on a train that’s going all the way across the country. This is a good question that deserves a detailed explanation