In August 2010, the China Daily reported, “The number of private enterprises reached 7.5 million, accounting for half of China’s gross domestic product, 70 percent of the nation’s technical innovations and 60 percent of its patents.” In addition, “China’s top 500 private companies have surpassed State-owned enterprises in many indicators, especially tax payments and employment creation, according to a report from the All-China Federation of Industry and Commerce.”
In fact, Bloomberg.com says, “Many of the world’s richest self-made women are Chinese,” and Psychology Today.com tells us, “Women own more than 40% of private businesses in China.”
Meet one of those women. Judy Leissner was 24 when she became the CEO and President of 168-acre Grace Vineyard in Shanxi province, south of Beijing after she quit her job at Goldman Sachs.
The first grape-vine plantings were in 1997 and the first vintage in 2001. Judy started the winery because her father liked to drink. Today, Judy produces a quality wine—about 700,000 bottles annually.
Most people do not know that quality wine is produced in China. In fact, Judy has competition since there are about 400 wineries in China.
Judy says there is an opportunity in China to make a lot of money in a short period of time, because the country is developing and growing.
The difference between the wine market in China and the rest of the world is that most drinkers in China must drink because they have to. It’s part of the culture of doing business and developing guanxi.
In an update, Grape Wall of China.com visited Grace Vineyard in September 2011, and Jim Boyce says he visited Grace CEO Judy Leisser. He says, “About a week ago, she sent an email that the wines Grace bottled under screw cap earlier this year are doing fine and, if all goes well with final trials, the winery will switch closures this year for its entry level and premium level wines. Grace’s Premium Chardonnay ranks among the better Chinese wines and is found in top hotels and restaurants in Beijing and Shanghai.”
In addition, in an interview at 24×75.com with Judy Leissner October 17, 2011, she was asked how different the work environment for Grace Vineyard was compared to Goldman Sachs where she worked prior to becoming CEO of the vineyard in Shanxi Province. She said, “Goldman Sachs is a fast-pace, can-do, efficient place.” However, for the winery, she said, “The whole atmosphere was rather sleepy.”
In another question, Judy was asked about social responsibility and what those two words mean. She responded with, “We guarantee our growers basic income… Grace is a perfect example of an environmentally friendly and sustainable business. We provide many jobs for people from nearby villages.”
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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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The CIA Factbook [where I found the data used in this post] says China’s GDP [Purchasing Power Parity or PPP] was more than $10 trillion and its real GDP growth rate was 10.3% in 2010, foreign exchange and gold reserves were about $2.9 trillion and its external debt was $529 billion. The current account balance was a positive $305.4 billion (2010 est.) Public debt was 16.3% of GDP (2010 est.).
India’s GDP [PPP] was $4 trillion with a growth rate of 10.4%, reserves were $287.1 billion and its external debt was $316.9 billion. The current account balance was a negative – $51.78 billion. Public debt was 50.6%.
Brazil’s GDP [PPP] was about $2.2 trillion with a growth rate of 7.5%, reserves were $288.6 billion and its external debt was $396.2 billion. The current account balance was listed as a negative – $47.36 billion. Public debt was 54.7%.
Russia’s GDP [PPP] was a bit more than $2.2 trillion with a growth rate of 4%, reserves were $479.4 billion and its external debt was $538.6 billion. The current account balance was a $71.13 billion. Public debt was 9%.
South Africa’s GDP [PPP] was $524 billion with a growth rate of 2.8%, reserves were $43.84 billion, and its external debt was $109.4 billion. The current account balance was a negative – $9.987 billion. Public debt was 33.4%.
Summary for the BRICS
The BRICS combined GDP [PPP] for 2010 was $18.9 trillion, overall growth of GDP was 7%, foreign exchange and gold reserves were about $3.99 trillion and its external debt was almost $1.9 trillion so the BRICS had more than twice the reserves than it did external debt. The current account balance was a positive $168.263 billion
The WEST
The Economic Health [or should I say Illness] of the United States
Meanwhile the United States GDP [PPP] was more than $14.6 trillion with a GDP growth rate of 2.8%, reserves were $132.4 billion and its external debt was $14.71 trillion, which means debt is more than 111 (one-hundred-and-eleven) times that of reserves. The current account balance was a negative – $470.2 billion and public debt was 62.9% of GDP.
The Economic Health [or should I say Illness] of Canada
Canada’s GDP [PPP] for 2010 was $1.33 trillion with a GDP real growth rate of 3.1%, reserves of foreign exchange and gold were $57.15 billion, and its external debt was $1.181 trillion in June 2011. The current account balance was a negative – $48.5 billion (2010 est.) and public debt was 84% of GDP (2010 est.)
The Economic Health [or should I say Illness] of the European Union
Member states of the EU (year of entry) — Austria (1995), Belgium (1952), Bulgaria (2007), Cyprus (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Finland (1995), France (1952), Germany (1952), Greece (1981), Hungry (2004), Ireland (1973), Italy (1952), Latvia (2004), Lithuania (2004), Luxembourg (1952), Malta (2004), Netherlands (1952), Poland (2004), Portugal (1986), Romania (2007), Slovakia (2004), Slovenia (2004), Spain (1986), Sweden (1995), United Kingdom (1973)
The CIA reported that in 2010, the European Union had a GDP [PPP] of $14.82 trillion with a GDP growth rate of 1.8%, there is no listing for foreign exchange and gold reserves. However, the current account balance was a negative -$11.07 trillion with external debt of $16.08 trillion as of June 2011. Public debt is listed for each member country but not for the European Union. For example: Germany’s public debt was 83.4% of GDP, the United Kingdom was 76.1% and Greece was 142.7%. Source: CIA Factbook
Summary for the WEST
The WEST’s GDP [PPP] was $30.75 trillion, the average GDP growth rate was 2.56%, external debt was $31.971 trillion and the current account balance was a negative – $11.525 trillion.
As of 2011, the five countries that make up the BRICS were among the fastest growing emerging markets.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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When you read something disparaging or criticizing another individual or a country such as China or one of its BRICS partners, you may see something like the question Troy Parfitt recently asked in a comment on this blog: “What about China’s debt problem?” The immediate thought after reading Parfitt’s entire comment might be that China has a debt problem that will slow or stop its economic progress leading to a crises.
In fact, few readers dropping by for the average thirty seconds to read a blog post will take the time to find out the facts to see if the claims of critics are as bad as they sound.
The result is that individuals motivated by cultural biases that resort to using confirmation bias in what they write will often leave behind a negative image of the subject they have criticized.
A cultural bias is the phenomenon of interpreting and judging phenomena by standards inherent to one’s own culture, and confirmation bias is a method used to support this.
Confirmation bias (also called confirmatory bias, my side bias or verification bias) is a tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true. As a result, people gather evidence and recall information from memory selectively, and interpret it in a biased way.
Another example of country’s economic health may be found in the spending and saving habits of its households. Canada’s household savings rate in 2008 was 3.8%, the United States was 2.7%, the EU total was 5.8%, the Russian Federation was 12.6% in 2005, Germany’s household saving rate was 11.2%, Greece was a minus -7.3% in 2006, and the United Kingdom was a minus – 4.5%. Source: Global Finance magazine
On page 45, Table 1, the GDP per Capita and National Saving Rate (annual average) for China was 54.4% up from 35.6% in 1980-1990. Wow! More than fifty-four percent saved (annual average) out of what a family earns!
On page 43, Figure 6, there was a chart comparing the saving rates of China with the United States. In 1980, the US saving rate was about 12.4% but by 2008, it was down to almost 5%. By comparison, China’s household saving rate was closer to 15% in 1980 and climbed from there to about 30% by 2008. After the 2008 global financial crises rolled across the globe from New York, the household saving rate in China jumped allmost 20%. Talk about saving for a rainy day!
If a financial crises is coming to China, that household saving rate tells us that the average Chinese family is getting ready to survive it.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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It may be no secret that China’s economic health will have an impact on the rest of the BRICS countries in addition to America and Europe. India and China need the resources of Brazil, Russia and South Africa and those three countries prosper due to the business from India and China.
For a better understanding of the BRICS, I turned to Investopedia for a definition, which said, “The BRIC thesis posits that China and India will become the world’s dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials.
“It is important to note that the Goldman Sachs thesis isn’t that these countries are a political alliance (like the European Union) or a formal trading association – but they have the potential to form a powerful economic bloc…”
Due to lower labor and production costs, many companies also see the BRICS as a source of foreign expansion opportunities.
In addition, what was once only an acronym has become something else.
Although the BRIC acronym came into existence in 2001 when there was no real political organization among the four original countries, on June 16, 2009, due to the 2008 global financial crises, the leaders of the four BRIC countries held their first summit in Yekaterinburg, Russia, and issued a joint declaration. Since then, they met in Brasilia in 2010 and again in Sanya, China in 2011.
In 2010, South Africa launched efforts to join the BRIC group, and the process of its formal admission began in August. Later in 2010, the BRIC countries expanded to include South Africa, becoming the BRICS.
The next meeting of the BRICS is scheduled in New Delhi, India, March 2012.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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Because of the structure of China’s land ownership and banking system, the risk of losing money is much less than in the West and when the government resells property that lost value the first or second time around, the government banks collect another 30% to 60% down payment and also makes money off the interest of the new loans, and the property still belongs to the government—it is only leased for 70 years with an option to extend the lease.
In America, private property seldom belongs to the government. Even when the government repossesses property for any reason, it is usually sold at auction for very low prices with little to no chance to make up for what was lost.
In China, however, the government recycles the money mostly in a loop while the US government is not part of the loop—except when baling out private sector banks, and the money flows in one direction toward the private sector while adding to the national debt.
In addition, in China, Bloomberg reported in December 2011, that China’s property sector equals about 12 percent of China’s GDP and then Bloomberg goes on to discuss property values in China dropping 10, 25, 40 and even 50 percent or more—something that is still devastating the economy in America.
To learn more about property values dropping in China, I suggest reading More on Property Downturn at Patrick Chovanec’s An American Perspective from China
Chovanec wrote, “The revenue shortfall is making it hard for some cities to pay for basic services like police and hospitals, much less repay the massive amount of debt they borrowed for stimulus projects – which, according to this report from Bloomberg, may be much larger than official statistics suggest.”
However, before I move on with more about the BRICS countries, let’s not forget what caused China to borrow for stimulus projects in the first place—the 2008 global economic crises, which led to about 20 million Chinese losing jobs. Is it possible that the 2008 economic tsunami from New York is finally being felt in China?
Interestingly, Global Issues.org says, “While Europe and the US consider more socialist-like policies, such as some form of nationalization, China seems to be contemplating more capitalist ideas, such as some notion of land reform, to stimulate and develop its internal market…”
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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In China, where do you think most or all of the money from those 30% to 60% down payments mentioned in Part 2 go? For a first-time property sale, the government owned banks loan the money to private citizens or businesses to buy property owned by the government. Once the loan is complete, the down payment and the amount of the loan flows to the same or another government owned bank and then the buyers make payments with interest to the government owned bank that holds the loan.
When re-sales of these properties take place, the first mortgage on the leased property is paid off and the second loan is either 70% (for a buyer’s first home) or 40% (for a second home).
Thirty percent of property in China is bought with cash.
Due to the high required down payment, the risk to China’s government owned banks is much less than the risk in the US private sector banking system, which really has no risk, since the government often steps in to make up for the losses in the private sector while ending up increasing the national debt.
In China, even when property values drop, the bank, which the government owns, may repossess the property (that the government always owned) and resell it. This means after a property has dropped 50% of its value in China, the government may lose either 30% or 10% of the value of the loan. In the US, if a bank cannot re-sell the house at the current value, then it losses all of the value of the loan.
However, when the same property that was repossessed is sold again, the down payment will be between 30% to 60% in addition to the fact that 30% of property sold in China is bought with cash.
In the long run, will the government owned banks in China make a profit or a loss?
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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China’s banking system has undergone significant changes in the last two decades and is functioning more like western banks than before but remains owned by China’s government.
That is a significant difference. For example, in America, there are no government owned banks but the public sector insures any risk taking the private sector banks take. This means that private sector banks may lose trillions and the government will step in, as Washington D.C. did in 2008, and go deep into debt to save the banks from drowning and taking America and the West’s economies down with them into a black hole.
The biggest difference between the west and China is the money trail.
In America and the west, most people borrow from private banks to buy private property and when the value of the property drops, as it has in the United States, and the borrowers walk away letting the bank reposes a property that is worth much less than the loan amount, much of the money is gone—when the house sold, the equity went to the previous owner and any mortgage that existed was paid off. The US government made no money on the deal (property tax goes to state governments).
It doesn’t work that way in China because the banks are owned (and controlled) by the central government and so is the land. A better idea of the difference between buying private property in the west and government owned property in China comes from Global Property Guide.com that says, “The slowdown (drop in property values in China) follows market-cooling measures first introduced in April 2010. The campaign intensified in 2011. The down payment for first-time buyers’ mortgages was increased to 30% from 20%, and for second homes rose to 60% from 50%.”
By comparison, in America, down payments may be as low as no money down or 3.5% and as high as 20% depending on the loan and the qualifications of the buyer/s.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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In 2001, Jim O’Neill, the chief economist for Goldman Sachs, coined the BRIC acronym to represent the combined economies of Brazil, Russia, India and China. He was also so bold as to predict that by 2032, or sooner, the BRIC would overtake the six largest western economies (which includes America) in terms of economic might.
Then in 2010, South Africa joined the BRIC turning that acronym into the BRICS.
In fact, the International Monetary Fund (IMF) has predicted that China, a member of BRICS, will beat the United States as the world’s largest economy by 2016 with a GDP of $19 trillion compared to $18.8 trillion for the US.
There are about seven billion people on the planet and almost half live in Brazil, Russia, India, China, and South Africa. The US, by comparison [I prefer factual comparisons over opinions], holds less than 5% of the world’s population. However, I thought I’d throw in this comparison as a footnote. The King’s College of London reported that in 2009, “More than 9.8 million people are held in penal institutions throughout the world… About 2.3 million were in the US,” which means 23% of the total global prison population was in America.
About prison slavery in the United States.
Did you pay attention? A country [the US] with less than 5% of the global population has 23% of the global prison population.
By comparison, the five BRICS countries [without the freedom American citizens seem to enjoy] has almost half of the world’s population but only 35% of the global prison population.
What does that tell us—that the more freedom and wealth a country has, the more crooks it grows and attracts?
Anyway, the world’s combined GDP, according to The World Bank was more than $63 trillion (US) in 2010. The GDP of the US was $14.6 trillion, while the BRICS’ combined GDP equaled about $11.6 trillion (US).
Recent drops of property values in China, sometimes reaching 50%, caused dire predictions in the Western media that China’s economy would soon crash and take the BRICS down with it causing their economies to suffer as well.
However, it is best to understand China’s economy and banking system to see if this wishful thinking on the part of China’s Western critics is valid.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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Carter did not suggest a subject for this post, but he did ask that I include the promotional video for his next book with whatever I wrote, and it “rather” fits the topic I decided to write about, which is that most of America may learn something from those Americans that “really” want to do business in China and India.
Besides, Carter’s photos of India are as stunning as those he took of China are.
Vikas Bajaj wrote the NYT’s piece, and we learn that Amazon is moving into India and whatever Amazon’s plans are for entering India’s consumer market, Amazon is not talking.
However, “while dozens of electronic commerce firms have recently sprung up to capitalize on India’s growing Internet use” Bajaj wrote, “they have a problem. Indians are not yet comfortable with shopping on the Web. Many of them remain unwilling to use credit cards online. So the Indian retailers have gone to great lengths to gain customers. Customers may pay in cash on delivery, and the company fields delivery squads to ensure shipments get to customers quickly.”
What we learn from this quote is that cultural differences influence how people shop but culture goes deeper than shopping habits, which is a fact that many Americans do not understand.
In addition, a Blog at Stanford.edu says, “Approximately half of Amazon.com’s revenue comes from outside the United States, according to the company’s Senior Vice President of International Retail, Diego Piacentini. This makes global strategy a key component to the company’s continued success,” and “Amazon aims to be the ‘most customer-centric company on the planet’.”
Then Matt Harvey, who wrote the post for the Stanford Blog, asked, “But what do you build, and how do you act, to make this mean something?”
The answer may come from Amazon’s Diego Piacentini when he said, “When Amazon began doing business in China in 2004, some of the company’s core values came into conflict with traditional business practice.” Meanwhile, Goldman Sachs was quoted in 2010 saying Amazon has competition in China with Taobao.com.
Taobao.com, the Chinese equivalent of eBay, generates estimated annual sales of close to $60 billion—about 75% of all online retail sales in China while, according to Goldman Sachs, Amazon had only $750 million in annual sales in China in 2009 with estimates that Amazon sales in China would increase to $1 billion in 2010. Amazon has a long way to go to catch up with Taobao.
The moral of this story is that Western retailers such as Amazon must learn to do business in other cultures such as China and/or India without attempting to change the people.
They must “start with the customer and work backwards”, which isn’t what most of America’s politicians and religious leaders are doing and the best quote that explains why comes from a Henry Kissinger quote that I have used before. “American exceptionalism is missionary. It holds that the United States has an obligation to spread its values to every part of the world.”
From what I understand, two of the world’s greatest conquerors, Alexander the Great and Genghis Khan, knew the key to hold an empire together was not to change other cultures but to allow those cultures to remain unchanged, so why can’t the rest of the West learn from them?
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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Until recently, I didn’t know what the BRIC was. Now, because I spend so much time researching topics about China, I often run into the BRIC.
The BRIC is Brazil, Russia, India and China. In the next few decades, these countries could become the wealthiest nations on the globe alongside America.
Jim O’Neill, who works for Goldman Sachs, talks about the BRIC in the embedded video.
In fact, O’Neill is the one who thought up the acronym for BRIC.
When he stepped into his position at Goldman Sacs, he wanted to know how the world might change economically by 2050.
They discovered that China would become the world’s largest economy before 2050 possibly reaching 45 trillion dollars–twenty times larger than today, and the rest of the BRIC economies would have a much larger share of the global economy too.
Projections also show that India, Russia and Brazil would become larger than the current G7 bypassing Canada, France, Germany, Italy, Japan and the United Kingdom.
Only the US would remain in the top five.
If you are a doubter, consider that the BRIC economies are already having a huge influence on the world, and the potential growth of the middle class in the BRICs could explode four hundred percent in the next decade, which would increase demand for cars, energy and oil.
Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.
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Posted by Lloyd Lofthouse 
