What China Wants, China Plans to Get
March 14th, 2006http://www.amcham-shanghai.org/AmChamPortal/MCMS/Presentation/Resources/News/News.aspx?Guid={787692D1-280E-4710-9475-D7061FB81F88}
SHANGHAI -- China, the world's fastest-growing major economy, is hoping to turn its voracious appetite for raw materials to its advantage by using its heft as a consumer to get better prices.
The long-range strategy, still in its infancy, calls for China to transform its young futures markets into global price setters for products ranging from oil to metals to cotton. In the shorter term, China hopes to overhaul its procurement system, better coordinating the many separate purchases it now makes in global markets, in part to avoid unwittingly bidding against itself.
China's heavy dependence on imported raw materials gives it a strong incentive to hold down prices. The country imports almost 30% of its oil, 45% of its iron ore and 44% of its requirement for 10 nonferrous metals, according to Zhu Zhixin, vice chairman of China's planning ministry and an outspoken advocate of overhauling the country's purchasing. But China's approach to the challenge shows that as it integrates itself into the global economy, it isn't willing to surrender entirely to market forces.
Futures markets allow buyers and sellers to limit their price risks by agreeing to exchange a commodity at a specified time in the future at an agreed-upon price. Chinese officials, however, view them largely as venues to control prices. "If we want to increase our competitiveness, then we must develop futures [markets] to grasp our right in setting prices for bulk commodities," Zhou Zhenqing, a member of the financial and economic committee of the National People's Congress, said earlier this month.
China is now the world's leading consumer of copper, for example, using 20% of the world supply, or almost 1? times as much as the U.S. But, rather than being set in China, global copper prices are determined on the London Metal Exchange, where traders -- based partly on their forecasts of Chinese demand -- have bid up copper prices threefold over the past four years.
Key Chinese policy makers argue that influence over the market should shift eastward as China becomes the biggest buyer of global commodities. Jiang Yang, chief executive of the Shanghai Futures Exchange, noted in a recent speech that grain futures were invented in China during the Song Dynasty some 800 years ago.
Chinese officials aren't satisfied with suppliers' explanation that unprecedented demand from China justifies unprecedented pricing. Indeed, a Chinese copper trader who racked up heavy losses in recent months -- and inadvertently sent copper prices soaring -- may have been trying to signal that Beijing thought London copper prices were far too high, by putting in massive orders to sell the metal there.
China's long-term answer to its raw-materials crunch is to build up its own futures markets. Those exchanges, one each in Shanghai, Dalian and Zhengzhou, are considered among the most modern parts of China's financial system. In recent years, they have been restructured to focus on products the country uses in vast quantities: copper, aluminum, oil, rubber, soybeans, wheat, corn and cotton.
The goal is to make them "a determining force in setting prices globally," says Wang Weiyun, the head of research at the Dalian Futures Exchange, which trades agricultural products.
A crisis in cotton led to China's strategy. In 2003 and early 2004, China National Cotton Reserve Corp. had an estimated $72 million loss after traders on the New York Board of Trade bid up cotton futures prices by 40% in just a few weeks. China's view was that traders on the world's leading cotton exchange had overreacted to a Chinese government forecast of a shortfall in the nation's cotton production. Rather than simply considering how to improve its trading performance on cotton markets overseas, China set up its own cotton-futures market.
Less than 18 months after Chinese cotton-futures trading began in June 2004, cotton volume on central China's Zhengzhou Futures Exchange sometimes tops that of the Nybot, the bellwether market for cotton. More importantly, the Chinese market is emerging as an alternative venue for pricing. "We talk about the Chinese futures [prices] every day," says Ed Jernigan, a cotton trader and analyst who runs his own firm in Nashville, Tenn.
The credibility of China's futures markets is crucial to the country's commodity strategy. That means futures prices on Chinese exchanges can't vary too much from world prices. But in a bid to expand their influence, China is urging state-owned importers to specify in long-term purchase contracts with foreign suppliers that prices reflect those set on the Chinese exchanges.
While the Chinese government can't unilaterally set prices on the exchanges, it does have influence. In China's futures markets, which are flush with speculators, government trading houses tend to be the most important players, even if they aren't always the biggest traders. Government influence is magnified by the fact that Chinese futures markets still lack some of the participants, such as hedge funds, and some of the access to information that help to keep trading active in the West. The government said this month it may open Chinese commodity exchanges to foreign traders, though under strict controls.
Overseas, meanwhile, China is trying to become a savvier trader on markets such as the LME and the Chicago Board of Trade, which trades soybeans and grains.
The country's strategy often involves simultaneous trades on foreign and Chinese exchanges using arbitrage, a tactic that seeks to exploit price differences between markets. But no trading strategy comes without risk.
Over the summer, Chinese trader Liu Qibing, working for the Chinese agency that stockpiles commodities for the government and the military, bet massively that copper prices would fall from then-record levels. Instead, they rose another 30% and left the government on the hook for hundreds of millions of dollars in potential losses. The bill for those losses starts to come due today on the LME.
Around the end of last year, as copper's price on the LME began to rise faster than on the Shanghai Futures Exchange, Mr. Liu started "shorting," or selling copper, in London and making offsetting purchases of the metal in Shanghai, traders familiar with the activity say. To profit, he had to make more money in one market than he lost in the other.
As copper started to reach new highs above $3,000 a metric ton in July and August, hedge funds started betting against him in London, where Mr. Liu's massive plays amounted to pledges to sell hundreds of thousands of tons of copper at prices far below what they are today, Dow Jones Newswires has reported.
By mid-November, copper exceeded $4,000 a ton, and it closed at a record $4,467 in London this month; yesterday, it closed at $4,426.
China's government has made no public comment about the 37-year-old Mr. Liu, and his whereabouts are unknown, but its efforts to signal that global copper supplies are ample and that prices should fall suggest it is taking responsibility for Mr. Liu's losses. As unofficial estimates of those losses topped $200 million, the State Reserve Bureau, where Mr. Liu has worked 15 years, and state-owned Chinese trading houses began an aggressive campaign aimed at wrenching the London copper price lower before today -- the delivery date for the copper Mr. Liu contracted to sell on the LME.
The campaign has included copper auctions from state stockpiles and heavy sales of copper on the Shanghai Futures Exchange. As of a result, nervous traders in London have been watching the metal's price on the Shanghai Futures Exchange more closely than ever.
China's Workers See Thin Protection In Insurance Plans
March 14th, 2006http://www.amcham-shanghai.org/AmChamPortal/MCMS/Presentation/Resources/News/News.aspx?Guid={B63D581B-3024-4EEA-9D31-064C1284F996}
SHANGHAI -- Hu Cunxi thought he understood the financial risks of "big sickness" -- or "da bing" -- the common Chinese term for cancer, stroke and other life-threatening diseases.
He had edited a popular Chinese manual on household finances that encourages readers to load up on medical insurance. He himself had bought a policy from a unit of New York-based insurer American International Group Inc. He saw it as prudent backup to the government-mandated coverage he received as an editor at the state-owned Shanghai Financial News.
Five years ago, Mr. Hu's wife, Cao Meihua, a high-school teacher, was diagnosed with "big sickness." Then Mr. Hu himself fell ill. Now both husband and wife, who are in their late 40s, are battling advanced cancer, and occupy adjacent wards of a Shanghai hospital.
China's high-cost hospital system swiftly overwhelmed the insurance coverage they had through their state jobs. Mr. Hu's AIG policy wasn't designed to cover such medical calamities. Their treatments have consumed their life savings and his parents' retirement nest egg. They are now broke.
"We used to be white-collar workers," says Mr. Hu, who seethes with anger about the quality of his government insurance. "Now, we're in poverty."
More than two-thirds of China's 1.3 billion people have no health insurance at all, and many cannot afford any medical care. But under China's pay-as-you-go health-care system, even those with insurance are often forced to make agonizing decisions about whether they can afford treatment for serious illness. Problems with insurance coverage have become a crisis for China's growing urban middle class, eating into support for the ruling Communist Party.
As recently as the late 1970s, the Chinese government controlled all hospitals, employed all doctors, and offered almost universal health-care coverage. In the cities, the state provided insurance to civil servants, factory workers and their families. Collective farms provided care in the countryside. But the entire system began breaking down in the early 1980s as market-style reforms led collective farms to disband and money-losing factories to close. Tens of millions of workers were left without jobs or insurance.
A decade ago, Beijing began looking for a new health-insurance model. In 1998, government authorities introduced a national program called Basic Medical Insurance. All employers are required to provide employees with some coverage for both routine medical problems and "big sickness." To fund the plan, workers contribute 2% of their salaries, on average, and employers contribute an additional 7.5%. Family members, however, are not covered, and children must rely on limited insurance programs provided by schools. Authorities enforce the requirements for state companies, but large parts of the booming private sector ignore it.
The government plan has many gaps. At the end of 2003, it offered insurance protection to 109 million urban workers. That constitutes less than 20% of China's approximately 600 million urban dwellers. Coverage in rural areas is even spottier. Studies show that three-quarters of private-sector employees remain uninsured.
The Basic Medical Insurance itself is limited. Typically, it covers 70% to 80% of hospital charges. Patients must pay the rest, in cash. Seriously ill patients who cannot raise sufficient money are forced to check out of hospitals, or to opt for less expensive courses of treatment. Basic drugs are covered, but expensive new medicines such as powerful anti-cancer drugs are not.
"It's a real problem," concedes Mao Qunan, spokesman for the Ministry of Health. "People should consider commercial insurance."
Chen Ailian, a 65-year-old volunteer at the Shanghai Cancer Recovery Club, was diagnosed with breast cancer 17 years ago. "If I had got sick today, I would never have survived," she says. She needed surgery, so her state-owned sewing-machine factory sent a note to the hospital promising payment. The operation cost $500, but she didn't have to pay any of it.
Today, hospital emergency rooms demand cash up front, whether or not a patient has insurance. Insured patients pay for everything from gurneys to emergency surgery, then apply for reimbursement later. Those without cash are denied treatment.
A Wrenching Decision
In 2003, He Guofu turned up at a Shanghai emergency room six hours after suffering a stroke. The surgeon told Mr. He's wife, Sun Yuanzhen, that her husband needed surgery to relieve pressure on his brain. He told her it would cost $7,000 to operate, paid in advance, but warned her there was only a 50-50 chance the procedure would help.
Mr. He, who worked at a state-owned construction company, and his wife, a retired statistician, were not poor. They both had insurance. But they didn't have that kind of cash on hand, and Mr. He's employer refused to advance it, even though insurance was likely to reimburse at least some of it.
Ms. Sun hesitated. It was a Friday night. She decided to think about it over the weekend. The 50-50 odds worried her. By Monday, she had decided to borrow the money, but the surgeon told her it was too late to operate.
Her indecision still tortures her. Her husband, who is 54, is now bedridden and requires spoon-feeding, and Ms. Sun struggles to pay her teenage son's school fees. She regrets that she didn't scramble to raise the money and gamble on the surgery. "Everything was a blur," she says. "I was so confused."
Health-care costs in China are rising rapidly, turning hospitals into symbols of unfettered capitalism. Chinese and international health experts blame runaway costs in part on an effort to make treatment more affordable for the poor. Authorities capped prices for basic drugs and procedures at below-market rates. But they let hospitals compensate by profiting on almost everything else, from advanced drugs to sophisticated diagnostic tests.
That decision created an incentive to provide high-end treatment that has transformed Chinese hospitals, making world-class care available to those who can afford it. Even small-city hospitals, once technological backwaters, boast CT scanners. In each of the past five years, Shanghai hospitals have spent nearly $100 million on sophisticated medical equipment, says Hu Shanlian, a professor of health management at the city's Fudan University and an adviser to the Chinese government. Drug sales account for 45% of the revenues of Shanghai hospitals, he says. "The health system is really in a crisis," he says.
Doctors, many of them employees of state-owned hospitals, also have an incentive to steer patients toward high-cost treatments and drugs. The average monthly pay for Shanghai doctors is less than $400, not much more than a taxi driver working overtime can make. But they can double their incomes through bonuses earned by prescribing tests and by dispensing drugs with high profit margins. Few medical systems in the world link doctors' pay so directly to revenue from patients, health-care economists say.
Mr. Mao, the Ministry of Health spokesman, contends that market forces have gone too far. "If you only trust the market, you will have a disaster," he argues. The government needs to play a leading role, he says.
The practices of hospitals and doctors are only lightly regulated by Beijing, and there is little self-regulation. China lacks the kind of medical professional associations that set ethical standards, hear complaints and punish wrongdoers in the U.S. and other countries.
When Chinese authorities decided on the national insurance plan, they failed to recognize an inherent design flaw: The system reimburses hospitals for at least a portion of whatever care they choose to deliver. In effect, government economists acknowledge, the state has become a blank check for doctors. The system encourages doctors to overprescribe expensive drugs and tests, economists say, then to charge patients for whatever their insurance does not cover.
In the U.S., health insurers guard against that outcome through "utilization review," a process under which they evaluate the medical necessity of hospital treatment. Tests and procedures deemed unnecessary are not reimbursed. Although the effectiveness of such reviews varies, the process discourages blatantly unnecessary treatments. In China, there are typically no such review procedures.
Most health-insurance plans in the U.S. also set out-of-pocket maximums for patients facing medical catastrophes. In addition to protecting seriously ill patients from financial ruin, the caps provide another incentive for hospitals to control costs: Large bills have to be justified to the insurance companies responsible for paying them.
A World Bank study of China by economists Adam Wagstaff and Magnus Lindelow concluded that patients with insurance are sometimes persuaded to undergo far more expensive treatments than the uninsured. Chinese doctors have "strong incentive to favor high-tech care over basic care," which may be more costly and sophisticated than necessary, the report said. Insurance may "actually increase the probability of large out-of-pocket payments," the report concluded. There is no formal complaint procedure for patients, the economists added.
The Ministry of Health's Mr. Mao says the government has spent two years negotiating with hospitals over how to make drug prices and profit incentive systems more reasonable. "It's a very complicated issue," he says. "It takes time. We don't want to get it wrong and then have to start all over again."
The Chinese government's share of total health spending has plummeted. Between 1978 and 2003, private outlays as a percentage of total health-care spending rose from to 60% from 20%, government figures show. The shift comes as chronic diseases such as cancer, which are costly to treat, replace contagious ones like tuberculosis as the biggest burden on the medical system.
Chinese government officials have acknowledged that health care has become such a financial burden to people, even to those with insurance, that it threatens social stability. President Hu Jintao has pledged to increase government health spending.
The government is trying to expand state insurance coverage to more people in cities and the countryside. In cities, officials are trying to set up a network of government-funded community health centers as a first stop for patients. They would provide basic care and advise patients about treatment options, drugs and hospitalization.
Adding Coverage
Before "big sickness" struck in 2000, Mr. Hu, the editor, and Ms. Cao, his wife, were making nearly $5,000 a year. In China, that put them at the bottom edge of the middle class. They had married late and were childless, which gave them some financial freedom. They bought a two-bedroom apartment with a $25,000 mortgage from China Construction Bank.
They both had insurance through their state employers. Like growing numbers of upwardly mobile professionals, they decided to supplement it for extra peace of mind. Believing that his government insurance would cover any "big sickness," Mr. Hu turned to American International Assurance Co., a unit of AIG, for personal accident insurance.
Like other Western insurers, AIG is betting demand will grow for private health insurance to cover gaps in government coverage. Mr. Hu's insurance agent at AIG, Wu Caihong, does a brisk business selling "big sickness" policies that offer lump-sum cash payments to policyholders who fall ill. She says she tells her customers that extra medical insurance "isn't a nice-to-have, it's a must-have."
Ms. Wu says that after selling Mr. Hu the accident policy, she tried repeatedly to persuade him to buy "big sickness" coverage. But by then, Mr. Hu's wife had contracted breast cancer, and Mr. Hu had no spare money for premiums on a new policy.
Ms. Cao, who had retired from her teaching job, still had government insurance coverage, but it did not cover the expensive form of chemotherapy she needed. Mr. Hu went into overdrive to make ends meet. He set out to earn extra cash at night by editing books he hoped would sell to China's hobbyists. He dashed off 11 books in four years, including a history of Chinese teapots and a collector's guide to subway tickets. But sales were disappointing, and the extra work has earned him to date only $1,500.
Last year, doctors informed Mr. Hu that he had stomach cancer. He also learned that his government insurance would not cover the kind of chemotherapy he needed. To save money during his first year of treatment, he relied on a mixture of medicines covered by his insurance. This year, after the cancer spread to his liver, he switched to a more powerful drug regimen recommended by his doctor. The new drugs were much more expensive -- and he had to buy them himself.
The more aggressively they battled their cancers, the deeper he and his wife pushed themselves into debt. They borrowed money from friends and relatives. Mr. Hu tried to sell their apartment, but he found that superstitious Shanghai buyers shun houses where "big sickness" has struck. He says even old friends, worried that being around him would bring bad luck, stopped dropping by.
So far, they have spent about $25,000 for her treatment and $12,000 for his. "When you get this disease, there's no bottom line," says Mr. Hu, a scholarly man who now has dark rims beneath his eyes. A Communist Party member, he is furious that so few drugs are covered by his government insurance.
In desperation over their illnesses, Mr. Hu and his wife have turned to religion. He became a devout Christian after a group of elderly women from a local church stopped by his hospital bed to pray. A black Bible sits by his pillow in the hospital ward. These days, he relies on donations from members of his congregation to help foot his hospital bills.
Ms. Cao's breast cancer has spread to her lungs, leaving her close to death. "We're both intellectuals. We're supposed to know about insurance," she says. "But we realize now that insurance just doesn't work. If you want to stay alive, you have to pay yourself."
Shortage of Managers In China Sends Recruiters To India And Philippines
March 14th, 2006http://www.amcham-shanghai.org/AmChamPortal/MCMS/Presentation/Resources/News/News.aspx?Guid={42A31EE1-8559-48A3-8B39-7364BB94B6FF}
SHANGHAI -- Tired of the revolving door of Chinese managers and the rise in salary with each new hire, Paul Stepanek decided it was time to find cheaper talent elsewhere. So he went to India.
For roughly the same salary his previous Chinese quality-assurance manager received, Mr. Stepanek recruited 32-year-old Indian engineer Sandeep Sharma, who speaks English and has about a decade of experience.
"We've had a new manager every year for the past seven years. When you lose a manager...you lose all the history that you've had and all the training that's gone into it," Mr. Stepanek says. His company, USActive, helps U.S. firms buy metal and plastic machine parts in China and helps manage their factories, including that of Milwaukee-based manufacturer Jason Inc., where Mr. Sharma works.
As foreign companies like Jason set up Chinese factories in droves, there is an increasing shortage of competent managers capable of dealing with foreign clients. With English-language skills more important than a mastery of Chinese for these positions, companies are recruiting from India and the Philippines -- a trend that is expected to get bigger before enough local Chinese are trained by multinational companies in English and other skills to begin filling the gap.
"Anybody in Shanghai can go out and look for a job tomorrow and get a job that's going to pay 20% to 100% more than their current salary, because there are so many companies that are coming into China every week, every month," says Mr. Stepanek, an American who speaks fluent Mandarin Chinese and has lived and worked in Taiwan and China for 18 years.
During the next decade or 15 years, China will need 75,000 executive-level managers who can work both in China and in a global setting -- compared with an estimated 3,000 to 5,000 now, predicts Andrew Grant, who last year published a report, "China's Looming Talent Shortage." Mr. Grant leads the Greater China practice of global consulting firm McKinsey & Co.
"A lot of people had the somewhat superficial assumption that China's a very large place with lots and lots of people. Therefore the notion that there is a talent shortage in any way, must just be a misnomer," Mr. Grant says. "But now they are taking the challenge seriously."
For Mr. Sharma, who hails from the northern Indian state of Himachal Pradesh, China's booming growth has been a door to the world. His departure for Shanghai in November was his first trip out of India and his first time on a plane.
"I [didn't] want to be a frog in a well. I wanted to dive into the sea," says Mr. Sharma, who calls Shanghai "a city of dreams." He hopes his work there will eventually lead him to the U.S. or other locations where Jason has operations.
Mr. Sharma doesn't speak Chinese, but is taking lessons. Some of the Chinese staff who speak a bit of English help him, or he manages with body language. The inability to speak Chinese wasn't an issue in hiring Mr. Sharma, Mr. Stepanek says, as most of Jason's client base is in the U.S.
Technology-related companies and those in the service industry that deal with the West are also bringing in employees from India and the Philippines.
Filipino managers and staff are visible in some Shanghai clinics and high-end restaurants. Most don't speak Chinese.
Jesus Yabes, the Philippine consul general in Shanghai since 2002, says he has seen a noticeable rise in Filipino professionals coming to China for work. An increasing number, especially those with some ethnic Chinese background, are learning to speak Chinese, he adds.
But Mr. Yabes doesn't expect demand for Filipino employees to stay strong in the long term, as more Chinese people learn English and receive training or a Western education. Mr. Yabes also hopes for an improvement in the Philippine economy that could support the return of professional managers back home.
Sareet Majumdar, President of IC Intracom Asia, a trade-consulting firm, has a Filipino manager who oversees export projects in southern China. "Eventually, I hope to replace all my foreign managers with local Chinese talent," he says.
It might happen sooner than he expects.
McKinsey's Mr. Grant says he has seen a strong push in the past year by Chinese state-owned companies to hire consulting firms or work with multinational firms to start training employees. Multinationals are hiring smart local Chinese who don't have fluent English skills, and training them, he says.
"That should help close the gap in the short-term," he says. But for China to cope with the demand for managers that can work in an international environment in the long term, Mr. Grant says, a fundamental change is needed in the education system to raise the quality of university graduates.
In the meantime, smaller companies with tight costs may have to find creative solutions. Mr. Stepanek is on his next recruiting search -- this time to the Czech Republic and Slovenia.
Talent Shortage in China v.s. Do You Feel?
March 4th, 2006I found this piece "Talent Shortage in China" on AESE web site and compare to the blog "Which Countries Feel the Pain of a Talent Shortage" I read yesterday on Teleo.
The AESE article pointed out that shortage in China was real and a serious issue. But the survey on Taleo told me that not many hiring manager were aware this (only about 20% surveyed admitted shortage).
"There is a management gap that will take 10 years to fill," said Paul Reilly, the chairman and chief executive of executive recruiter Korn/Ferry International. "There is a huge shortage."
"China produces 10,000 MBAs a year, but the problem is experience," Reilly adds.
My experience tells me that there is really a shortage of talent at very top level, because not so serious at middle level. Top level talent may take more than 20 years to develop, while China's reform didn't start until late 80's. That explains the talent gap in China
Monster in China - where are the billion people?
March 1st, 2006I found today that chinahr.com officially added monster.com link to its front page. This maybe a very natural thing after chinahr.com's majority shares were aquired by Monster.com last year. I checked Monster.com homepage and found china and korea are added to the geo choices.
This move is still a very interesting thing to me:
1) It seems to me that both China and Korea monster sites are now established by acquiring local job board. Other Asian monster sites including HK, Singapore and India - all of them are English sites and bear same look and feel as rest of Monster sites. Language seems still a barriar even to the big player like Monster, so buying an establish local job sites seems much easier and cheaper than building them from scrach.
2) While the 2 new added sites (China and Korea) seems still using their own databases and can not directly link to the rest Monster databases worldwide. So I still have to buy seperate corporate accounts as an agent if I REALLY want to seach cross regions. I don't know how Monster gonna solve the problem.
e.g. If I purchase a HK monster account including region - 'China', but the problem is it does not include new Monster China'd databases. The HK (or all Englissh Monster) database only has candidates registering directly to English Monster sites. While you are thinking buying a potential billion names, you can instead only access a few thousands people in that region. Crazy to think - where are the billion people? :)
I was excited initially to assume that I can now consolidate my job board accounts, but it seems that I have to maintain both accounts for a while. Converting two databases with different structures is no easy thing if not impossible. I will see how Monster will come up with any better idea to consolidate them.
TZ