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CEO Daily: Saturday, 29th April

Good morning.

I’ve been on the road the past week, visiting Tokyo and Singapore with city officials from Guangzhou, China for the latest in a series of “roadshows” to preview themes we’ll discuss at this year’s Fortune Global Forum. Guangzhou will be our host city this year. (Mark your calendar: Dec 6-8! Register here.) As you might expect, Guangzhou’s government and business leaders have been pulling out all the stops to showcase their city’s advantages as an investment destination.

So far the roadshows have been a lot of fun–candid, often jocular and, for me at least, surprisingly informative. One of this week’s clearest takeaways is that Guangzhou has a lot of friends. Events in both cities were packed, with more than 200 people in attendance at each.

In Tokyo, I learned that in 2016, two-way trade between Japan and Guangzhou jumped to nearly $13 billion, a 12% gain from the previous year; that more than 600 Japanese companies–including giant manufacturers like Toyota Motor Corp (NYSE: TM), Honda Motor Corp. (NYSE: HMC), Takeda Pharmaceutical Co. Ltd. (TYO:4502), and Hitachi Ltd. (TYO: 6501)–have investments in Guangzhou; that last year, Japanese direct investment in the city totaled more than $5 billion; and that among Guangzhou’s foreign residents there are more Japanese than any other nationality.

In Singapore, I was reminded that trade and investment between the two cities is facilitated by bonds of language and culture; many of Singapore’s ethnic Chinese trace their ancestry to southern China and speak some variety of southern dialect such as Hokkien, Teochew, Hakka or Cantonese. And government leaders from the two cities have been actively collaborating on research, innovation and new ventures for years, most notably by creating Sino-Singapore Guangzhou Knowledge City, a sprawling 123 square-kilometer business and research park near Guangzhou’s Baiyun International Airport. The project, launched in 2010, is a 50-50 joint venture between the Guangzhou government and Ascendas-Singbridge Group, an industrial park developer jointly owned by Temasek, Singapore’s sovereign wealth fund, and JTC Corporation, a state-owned property company.

At the Singapore event, I moderated a panel that included Prof. Alexander J.B. Zhender, a Swiss microbiologist who remembers visiting Guangzhou in 1979 when three cars downtown were enough to create a traffic jam. He now serves on the board of trustees at Singapore’s Nanyang Technological University, which is building a vast research center inside Knowledge City to develop new technologies for next-generation electric vehicles, nutrition and food science, and pollution control.

Another Singapore panelist was Derrick Xiong, a mainland native who earned his electrical engineering degree from NTU, and after a few frustrating years knocking around Silicon Valley, returned to Guangzhou to co-found EHang Inc.,which designs and manufacturers aerial taxis that wouldn’t seem out of place in a Star Wars movie. Last week, while the Internet was ooh-ing and aah-ing over a YouTube video of the Kitty Hawk Flyer, a “flying car” prototype partly funded by Google’s Larry Page, EHang was putting final touches on a fleet of 500 drone taxis that are fully developed and scheduled to begin commercial operation in Dubai this July.

That’s exactly the kind of innovation will be spotlighting at the Fortune Global Forum. In Singapore, I noted that the Lion City was the host of the First Global Forum in 1995. Singapore’s founding prime minister, the late Lee Kuan Yew, delivered the keynote for that gathering, and also the first Global Forum in China, which was held in Shanghai in 1999. In his Shanghai address, Lee predicted that, if China stuck to the policies of market “opening and reform” set forth by Deng Xiaoping, by 2050, its economy could grow to $20 trillion, and be four-fifths the size of the US economy. He also estimated the Pearl River Delta, the region that takes in Guangdong province, Hong Kong and Macau, could have a GDP “rivaling that of France.”

If anything, the Sage of Singapore was too conservative. As of 2016, well short of the halfway point to 2050, mainland China’s GDP had grown to roughly $11 trillion, about two-thirds that of the US, while the GDP of Guangdong province alone is half that of France.

See below for the China stories I’ve been following this week. And enjoy your weekend.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Politics and policy

  • “In the name of the people”: Financial Times correspondents Sherry Fei and Charles Clover penned a wry piece Friday examining “In the Name of the People,” the blockbuster Chinese television drama tackling the subject of political corruption. Only a decade ago, official corruption was a taboo topic on Chinese television. Programs weren’t allowed to even hint at the idea Party officials were anything less than model citizens. But on “In the Name of the People,” the FT  notes, “crisp red RMB100 notes are as ubiquitous as crooked officials with luxury cars and foreign mistresses.”  The program, which aired the finale of its 55-episode first season Friday, has become a ratings sensation in China. Many describe the saga as the Chinese equivalent of America’s “House of Cards.”  But as the FT points out, both programs have struggled to keep ahead of reality. In recent weeks Xi Jinping’s war on corruption has taken an unexpected turn, as fugitive billionaire Guo Wengui, in Twitter volleys and a mysteriously aborted interview with Voice of America, charged the Party’s most senior leaders with precisely the sort of skullduggery depicted in the popular TV series. Financial Times

 

  • China’s “most wanted”: The Guo saga is complicated and confusing, especially if all you’re following is incremental daily developments. For the larger context, I highly recommend lead features in the last two editions of the Week in China, the excellent independent digital  magazine published in Hong Kong by my friend Steve Irvine and sponsored by HSBC.  The current issue profiles Wen. Last week’s issue profiles Hainan-based HNA Group’s founder Chen Feng. Week in China

 

  • Other fugitives: Guo is hardly the first tycoon to have fled China claiming secret knowledge of wrongdoing by senior party officials. But, as this piece in Quartz points out, Guo has been able to challenge Beijing so publicly because he’s rich, media savvy, protected by bodyguards — and able to hurl his so far unsubstantiated charges from the safety of Western exile. It would appear that Guo is shuttling back and forth between  the United States. The Economist thinks Guo has China’s leaders “rattled.”  China’s state media seem to be working overtime to discredit him. He’s been accused, among other things, of trying to bribe a senior government security investigator. Interpol has issued a “red notice” that Guo is a wanted man. Meanwhile, China’s anti-corruption authorities have published foreign addresses for 22 “most-wanted” suspects they believe are living in exile. South China Morning Post

 

Business and Technology

  • China’s ride-hailing giant goes global: Didi Chuxing, the Chinese ride-hailing juggernaut that drove Uber Technologies out of its home market last year, has raised more than $5.5 billion from investors, securing the largest round of funding ever for a technology company, and is said to have set it sights on markets beyond China. The new financing, which several media accounts suggest could value the company at $50 billion, would make Didi the second-most valuable start-up in the world behind Uber. Investors in the new round included Japan’s SoftBank, the U.S. Silver Lake Kraftwer, as well as China’s China Merchant’s Bank and Bank of Communications. They join the company’s prior investors, Tencent, Alibaba and Apple. But Didi will face stiff competition overseas, not only from Uber but other homegrown ride-hailing ventures. Many of China’s domestic tech leaders have struggled to established a significant presence outside their home market. New York Times

 

  • Netflix strikes a licensing deal in China:Netflix, the global streaming video giant, has reached a licensing deal with China’s leading streaming platform, iQiyi. So far China has been the one major market Netflix has failed to crack. Last October, CEO Reed Hastings seemed to abandon the possibility of Netflix establishing a presence in China saying the likelihood of doing so “doesn’t look good.” Terms of its agreement with iQiyi, which is owned by China search giant Baidu (NASDAQ: BIDU) were undisclosed. iQiyi claims 20 million paid subscribers for its VIP service and 500 million monthly viewers for its free service. The company’s share price surged 6% after it announced the deal. But Netflix sought to downplay investor’s expectations, saying in a statement “We expect revenue from this licensing deal will be modest.” The company added, “We still have a long-term desire to serve the Chinese people directly, and hope to launch our service in China eventually.” Motley Fool

 

  • China’s tech giants wage “proxy wars” over bike-sharing: Like the U.S. and the Soviet Union during the height of the Cold War, China’s two tech superpowers, Alibaba and TenCent, have long history of waging proxy wars through other companies in their portfolio. They slugged it out indirectly via their two ride-hailing subsidiaries, Kauidi Dache and Didi Chuxing, until agreeing to merge the two companies and cooperate. Then the next skirmish was over food delivery, pitting Dianping against Meituaun. The latest battlefront is bike-sharing, where Alibaba’s Off is challenging TenCent’s Mobile. TechinAsia reports that Ant Financial, Alibaba’s financial affiliate, has announced that it will add six bike-sharing apps to Alipay, it’s mobile payment system, welcoming not only Ofo, but apps for other Mobike competitors YouonBike, UBike, Bluebike, Hellobike and Funbike.  TechInAsia

 

Banking and finance

  • The world’s largest money market fund: Yu’e Bao, an investment product offered by Alibaba affiliated Ant Financial Services Group, had amassed $165 billion in funds by the first quarter of 2017, overtaking JP Morgan Chase & Co.’s U.S. government money market fund to become the largest money market fund in the world. Funds in Yu’e Bao have snowballed to that vast total in just five years. More than 70% of individual Yu’e Bao accounting have balances of less than RMB 1000, or about $145. The product’s Chinese name, which means  “leftover treasure,” hints at its origins as an account created to hold cash left idle in the accounts Ant Financial customers created to pay for purchases. Financial Times

 

  • Anbang under pressure:  Anbang Insurance Group Co.’s far-flung overseas investments, including the Waldorf Astoria Hotel and an aborted bid for Starwood International, earned the Chinese company headlines around the world. They also drew intense scrutiny from China’s regulators. In an interview with the Beijing News, Anbang’s chairman, Wu Xiaohui, said Anbang will henceforth focus on more traditional insurance businesses. But he denied media reports that he has been detained by Chinese corruption investigators, saying “we have always followed all the regulators’ requirements.” Wall Street Journal