The World’s Largest Human Migration

The journey home to the Chinese Spring Festival begins on the 21st of January. Over the past weeks China has been preparing to ensure the smooth running of services during Earth’s largest annual human migration. According to a National Tourism Conference on Spring Festival on Monday, 4th February, a total of 406 million train journeys are expected during this period, an increase of 30.89 million (8.2%) over the previous year. This year marks the first time that passenger traffic during the travel season for the Spring Festival exceeds 400 million.

GUO Zhuxue, vice president of the China Railway Corporation, stated the country would continue to expand the frequency and range of its Fuxing express trains. The 17-car Fuxing high-speed train and the centrally-driven electric Fuxing trains reach a top speed of 160 kilometres per hour and will be used for the first time this year.

China’s rail system will serve more than 10 million passengers daily during the holiday period, and more than 60 percent of its passengers will travel home on high-speed trains. Last year, China built 86,000 kilometres of roads, including 6,000 kilometres of highway, bringing the total road length to 4.86 million kilometres. With 190 million private cars currently driving across the country, there will be a greater number of people traveling on the road during Chinese New Year. “Motorways will continue to be free for small cars during this year’s Spring Festival,” said Deputy Transport Minister LIU Xiaoming.

The cause the world’s largest annual human migration is the desire to spend Chinese New Year at home with one’s family. Like Christmas in the West, the Spring Festival is a time spent with family and loved ones. As Chinese New Year is upon us, we find ourselves reflecting on the past year and those who have helped to shape our business. It’s been an exciting year for us all! We hope the year of the Chicken has been just as memorable for you, your colleagues and your loved ones. We look forward to working with you in the years to come. We wish you all a happy and successful year of the Pig.

China Business Intelligence

What is the next big thing in China’s venture capital sector?

The start of a new year often serves as a point for reflection and forecasting. What will happen in China’s capital markets over the next 12 months? What is the next big thing in China’s venture capital sector? Hampton Group has followed 9 leading Chinese venture capitalists. Over the next weeks we will find out from China’s leading experts what in their eyes important developments of 2018 were and what we can expect of 2019.

SHENG Xitai, Founding Partner at Hongtai Capital Holdings

Before even talking about the buzz topics “science and technology”, we have to focus on the fundamental basics: “What is the core purpose of a capital market?”  The capital market has two core functions:

The first one is in plain words: “to make money”, also known as financing.

The second is to increase the wealth of the people participating in the capital market.

Without liquidity, companies cannot “make money”, entrepreneurs cannot increase their wealth, and the core functions of the capital market are gone. This is the core issue. To increase the liquidity of the capital market, the most important strategy is to reduce the threshold for new investors to enter.

According to reports the current investment threshold for Science and Technology is set around RMB 500,000 (£57,000). I think this threshold should be lowered down to RMB 300,000 (£34,000), RMB 200,000 (£23,000) or even RMB 100,000 (£11,500). A reasonable investor threshold is an important condition for ensuring market activity. If you can’t help small and medium-sized enterprises to “make money,” the market eventually won’t be able to sustain itself.

A functioning capital market is reliant on a sound legal system. Therefore, there are two prerequisites for creating a strong capital market in the science and technology sector:

First, increase penalties for fraudulent enterprises, and impose severe penalties on issuers who have obtained significant benefits through fraud;

Secondly, more mature markets have a comprehensive information disclosure procedure.

The primary importance of the registration system is to improve the legal system. Therefore, full information disclosure key component. Disclosing sufficient information, stating the business model clearly, and disclosing suppliers and customers truthfully, are key decision making information in the capital market.

The registration system must be combined with penalties. Currently China’s securities supervision, after financial fraud in listed companies is found, severely penalises intermediary agencies, while the penalties for issuers and actual controllers is very mild. In practice, if a company is fraudulent, it can be difficult to even find their accountant. Channels and methods of investigating such companies are limited. This makes the risk of listing a fraudulent company worthwhile to some individuals.

From a regulatory perspective, it is also unpractical to use a company’s “net profit” as the main listing indicator. Companies have some flexibility in their accounting methods and can easily adjust them to reach their desired “net profit”. Some companies that are in their early development stages require continuous investment as they are not yet profitable, yet they may be the industry leader in their area.

In the past China’s science and technology enterprises were “forced” to look at overseas capital markets. There were no adequate provisions for them in China. I believe Alibaba’s listing in the US in 2014 was a great achievement in China’s development. Since its listing, the company’s market value doubled. However, because Alibaba is listed in New York, China benefited little of the listing. It is a shame that the Chinese capital market has missed a whole generation of internet technology.

This year, after the reform of the listing system by the Hong Kong Stock Exchange, a large number of new companies, including Xiaomi, went public in Hong Kong. Having worked in the venture capital over the past few years, I discovered that this group of unicorns was cultivated in the past ten years. If we miss out on them, we risk waiting another ten years.

Science and technology is a major opportunity for the revitalisation of China’s capital market. It carries the historical mission of leading China’s industrial transformation, and bridging entrepreneurial enterprises, venture capital and capital markets.

What kind of business will matter in the future? First, we need to change our mindsets, especially our regulatory environment. All companies must strive to catch up with the leaders in the stock market.

Ping An Insurance: Research investment in the next decade will reach RMB 100 billion

Ping An Insurance’s management revealed today on the group’s technology-themed investor open day research investment budget for the next decade. In order to support the group’s “financial + ecological” strategy and to promote future performance growth, the group expects that their research investment will reach RMB 100 billion (£11 billion) in the next decade. Specifically, Ping An will spend 1% of its annual revenue on research and development of financial technology and medical technology. Ping An Insurance has invested a total of £6 billion in research and investment in the past decade.

Ping An Insurance is China’s biggest insurer, with £90 billion in premium revenue.  It reigns supreme as the industry No. 1 by profit and return on equity. Its market capitalisation, at $136 billion, is 74% larger than the country’s old standard, China Life, and 64% above the largest listed pan-Asia insurer, AIA. By this measure it is the world’s largest insurer except for Berkshire Hathaway.

To make sense of these startling numbers — and of Ping An’s rise to No. 10 on the Forbes Global 2000 list — look beyond the stodgy insurance business and into the realm of high technology, whose branches reach into every aspect of commerce in China and eventually show up in the mobile handsets of Chinese consumers.

Sir Peter Bonfield speaks at the 2018 Zhongguancun International Innovation Forum

With 10-40 billion or even a trillion or more connected things, another important issue will be Cyber security. Bilateral and global cooperation on this issue will be crucial. – Sir Peter Bonfield

Sir Peter Bonfield CBE, FREng senior adviser to Hampton Group spoke about the need for global corporation for innovation in semiconductors at the 2018 Zhongguancun International Innovation Forum in his role as chairmen of NXP.

NXP was spun out of Philips in 2006. Today, it is the leading automotive electronics, artificial intelligence, and IoT semiconductor company in the world. NXP was a hot topic for China-watchers in 2018. Qualcomm abandoned its $44bn takeover of the Dutch company, after Chinese regulators rejected the deal in July.

Semi-Conductors are a core focus of the Chinese government.  Semiconductors, and China’s over-reliance on America’s technology, is a central theme of the so-called ‘US-China technology cold war’. Semiconductors are at the heart of the issue.

In his speech Sir Peter Bonfield cautioned: protectionism in the name of innovation makes no sense – it is cooperation, on a global scale, that is the source of, and that will help drive innovation forward. Of course there are issues that need to be addressed, and not ignored. But solutions can be found through building understanding and trust, and having a balanced approach to fostering and protecting innovation.

As part of the “Made in China 2025” initiative, Chinese officials have set the semiconductor industry a goal of reaching US$305 billion in output by 2030, and meeting 80 per cent of domestic demand. In 2016, China produced US$65 billion of semiconductors and supplied 33 per cent of the domestic market.

In April 2018, China’s Ministry of Industry and Information Technology announced the opening of investment of foreign money into the second phase of its China Integrated Circuit Industry Investment Fund. The fund, which was first unveiled in 2014, aims to build a $31.7 billion investment chest to promote “leapfrog development” in China’s integrated circuit industry.

The ZGC Forum is one of China’s leading forums on innovation and development. Each year the event attracts leaders from across the globe. This year the Chinese Minister of Science and Technology, the Mayor of Beijing, the President of the Chinese Academy of Science and CEOs from over 800 leading technology and investment companies from countries such as the United States, Israel, Britain and Germany are attending.

This year’s forum celebrates a remarkable year with the 40th anniversary of China’s reform and opening. The theme for this year is “International Innovation and High-Quality Development.” The previous ZGC forums have successfully built a bridge for cooperation and exchange between China and the international scientific, economic, knowledge, and political communities. Each year, the event includes world leading professionals such as Nobel Prize winners, academics, scientists, and entrepreneurs. Previous distinguished guests include Nobel Prize winner James Morris, Turing Prize winner Butler Lepson, Baidu founder and CEO Robin Li, New York Stock Exchange Chairman Jean-Michelle Hessels, Innovation Works founder and CEO Kai-Fu Lee, and Xiaomi Chairman Ray Jun.

1.76 million cars but no traffic jam? In the metropolis of Wuxi, China is testing connected driving

The city of Wuxi shows how China plays a leading role in autonomous traffic – thanks to government support and international technology.

Connected driving is already part of everyday life in Wuxi.

A drive through most Chinese city centres consists of blocked roads, concerts of honking motorists and long queues, yet in the new centre of Wuxi none of this can be seen. Traffic is running smoothly.

This is a minor miracle. The number of cars in the metropolis northwest of Shanghai has doubled since 2011 to more than 1.76 million. However, the Chinese are testing the networked driving of the future in this part of the city centre. Unhindered traffic flow, improved safety and efficiency are the main goals of the highly-equipped traffic technology.

Cars, buses, traffic lights and electronic signs are networked, share traffic information and warn of potential hazards. The cars are connected to the infrastructure and the other road users via the LTE mobile network. In Wuxi, the world can marvel at how China wants to get involved in connected driving at the top of the world.

The project has the backing of the Chinese government. Also involved are German companies that contribute important technological know-how. Last Monday (10 July), China and Germany signed an agreement during their intergovernmental consultations to expand cooperation and exchange in autonomous driving.

Audi technology for better traffic flow

Audi brought “Traffic Light Information” traffic technology to Wuxi, allowing data exchange between cars and traffic lights. By knowing how long the green light will last, drivers can adjust their speed accordingly.

The traffic lights use information forwarded by vehicles to calculate whether it should switch faster or slower in order to improve traffic flow. According to Audi’s calculations, such a system could reduce CO2 emissions by 15%.

The first trial for Wuxi began last September at six intersections. Now Wuxi is in the second testing phase. By the end of July, one sixth of the city will be equipped with the special LTE and 220 traffic lights with radio modules.

By 2019, the technology should work nationwide and be installed in about 100,000 cars.

In addition to Audi, the city, the network operator China Mobile and the network equipment supplier Huawei are involved in the project. It is promoted and supervised by the Ministry of Security, the Ministry of Industry and Information Technology (MIIT) and the Ministry of Science and Technology.

Cooperation between public and private sector is exemplary

“In terms of cooperation between government and private sector, Germany is far ahead,” says Michael Adick, head of the Chinese car division at Accenture. Kevin Li of Strategy Analytic, sees this as the strength of the Chinese project. “Connected driving is complex, it involves public and private data and has many players. The earlier they coordinate, the faster they can find common standards.”

Xiong Wei, who oversees technology giant Huawei’s Wuxi project, believes that, “If you want to grow networked driving, you need the support of a central government. Unfortunately, Europeans find it difficult to reach a consensus among different countries. But with China’s strong government, it’s easy.”

Audi managers in China made similar suggestions: “Europe could do so much more. But everything is discussed to death. China simply provides the better environment. That’s why we have to develop here.” Audi plans to expand its development department in China from 280 to 650 employees over the next few years. 200 of them are solely dedicated to work on networked and autonomous driving.

Technology and expertise are moving where demand exists: Audi has produced the “Traffic Light Information” for more than four years. So far, the manufacturer has already tested the system in Ingolstadt, Berlin and Las Vegas. But in Wuxi, it’s happening for the first time on a large scale and using the LTE instead of Wi-Fi.

This is facilitated by Huawei. “Not only do we want to offer solutions, we also want to build an ecosystem that in the long run can be used not only in China but worldwide. That’s why we have invited many foreign companies,” says Huawei manager Xiong. In the process, they have companies known for strong research and development.

Cities seek solutions to clogged roads

China’s systematic approach to mobility is outlined in the national “Medium to Long Term Car Development Plan”. It states that 10% of cars in China will be equipped with systems for connected driving by 2020. 25% of all cars entering the market are expected to be able to offer Level 4 or Level 5 driver assistants (make part or all of the driving decisions themselves) by 2025.

There are two approaches to advancing autonomous driving: either the car itself becomes smarter and makes decisions on its own, or decisions are made at a traffic centre that is networked with the infrastructure. China has shown to favour the second approach, because it allows better control of traffic flow. Clogged roads are a big problem in Chinese cities.

But the IT Ministry wants to test all options. In selected provinces in the north, for example, driving in icy and snowy areas is tested. Other cities are also involved in the project. But Wuxi is the most complex testing area – driving is not used in a sealed off test zone, but in the city centre.

In addition, all key decision-makers are involved from the start. This is important because not only the technology in the car is important in networked driving, but also communication with public infrastructure, telecommunications networks and other road users.

Decentralised initiatives and local experiments are popular testing methods of the Chinese government. China commonly approaches changes “from the point to the surface” – meaning if the project proves successful in the administrative practice of a region, nationwide laws are enacted and the projects implemented nationwide.

In China, plans are realised faster because the government has a vision, recognises Accenture consultant Adick. “Digitization does not just happen inside a company, it’s promoted along the entire value chain by the government”

Chinese are more open to new technology

Furthermore, Chinese citizens are generally more open to new technology. According to a study by Boston Consulting Group, Chinese are fundamentally more open-minded than Europeans when it comes to autonomous driving. 75% said they would sit in a robot car, compared with 45% of Europeans.

However, China has to catch up. Huawei manager Xiong admits that compared with the US, the technology of networked driving is still lagging behind. “But we’re narrowing the gap very quickly, because we’re investing a lot of resources, bringing all the players together and looking at how to use it. America does not understand that in connected driving, businesses can’t compete. It’s joint effort.”

“Cooperation has its advantages, but also pitfalls. You learn a lot from each other, reports, employees from Huawei and Audi. After all, one does not know each other’s industry so well. At the beginning of such a development it was not all about profit,” Xiong commented. “We want to bring the entire industry forward and the more data you can collect, the better you can do research.”

For taxi driver Wang Xiubao, all these developments have long become part of everyday life. Since last summer, a chip has been installed in his taxi’s window, which tracks how many cars are at a traffic light for how long. “I cannot wait to start the next phase of the tests,” he says proudly. “I think it’s good that we are worldwide at the forefront of this technology.”

A New Chemical Giant is Emerging in China

The Chinese chemical companies Sinochem and ChemChina are planning a merger. Together, both companies would form a new world leader.

A mega-merger is said to be planned to form a new chemical giant in China. The two state-owned companies Sinochem and ChemChina want to join forces to become a global leader in industrial chemistry, as the financial publication “Caixin” reported on Saturday, citing insiders. The new $120 billion company will be directed by Sinochem head Ning Gaoning.

However, there is still no concrete framework for how the merger should proceed. Sinochem did not want to comment on the reports. Equally ChemChina, who had acquired Swiss agrochemical group Syngenta for estimated $43 billion last year, has also issued no comment.

Merger talks between the chemical companies were first reported in late 2016, but dismissed by both sides as rumours. Reuters reported last year that the two corporations had accelerated negotiations around May after the competition authorities approved the acquisition of Syngenta by ChemChina.

The influence of Chinese banks in Europe is increasing

The Agricultural Bank of China has celebrated the opening of their London branch this Tuesday. This is the latest step in the expansion of European business operations of the ‘Big Four’ – Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and Agricultural Bank of China (ABC).

Earlier this year ICBC received their banking license in Switzerland. ICBC – the largest bank in the world by total assets and the most valuable bank in the world by market capitalization – has been licensed by the Swiss Financial Market Supervisory Authority Finma as a bank. Starting their European operations in the UK in 1995, it was formally established in 2013 in the City of London and has since expanded its operations from London to all major European cities, opening their latest branch in downtown Zurich.

ICBC, headquartered in Beijing, is one of the largest credit institutions in China, with more than 460,000 employees and just under 20,000 branches. The financial group was founded in 1984 and completely restructured in 2005, whereby the transformation into a private company took place. In addition to serving business and private customers with all industry-standard banking services, its core business also includes other credit card and e-banking services. The company reported revenue of £115.7 billion for the fiscal year 2016, with a profit of £32.1 billion.

The dominance of Chinese financial institutions has been growing for years. As the data service SNL Financial announced in 2015, four of the world’s five largest banks alone now come from China. Due to currency effects, European and Japanese banks fell behind. The top five also include the Agricultural Bank of China and the Bank of China.

The influence of Chinese banks in Europe, which has become increasingly noticeable and increasing for some time now, is an extension of the growing role they already play on other continents. According to Merrill Lynch, Chinese banks in Australia, for example, have already spent a considerable share of the new syndicated loans together with Japanese competitors in the recent past. In this way, they are chasing away significant market shares from down turning European banks in Australia.

The arrival of powerful Chinese banks is relatively new to the European market. The weakness of European financial services gives Chinese banks the best chance of gaining a foothold in financial markets, which are among the most competitive in the world.

Alistair Michie, Group Business and Government Advisor, speaks at the Third Annual China Global Think Tank Innovation Forum 2018

The Annual China Global Think Tank Innovation Forum gathers experts and leaders of many leading global think tanks and plays a key role in shaping government policy worldwide.

Hampton Group Group Business and Government Advisor Alistair Michie was invited to give the keynote speech at the Third Annual China Global Think Tank Innovation Forum, in his role as Chairman of the International Advisory Board of the Centre for China and Globalisation (CCG). In his speech, Alistair warned of the dangers of an increasing ‘knowledge deficit’ in the West on Asia and especially China.

In past 40 years, China has modernised and industrialised at a speed and scale unprecedented in human history. China is fast approaching the point where it will become the largest global economy, and have almost a quarter of the world’s population. However, there is an increasing ‘knowledge deficit’ between the world and China.

China’s biggest challenge is to communicate with the world. Recent Chinese government policies have aimed to support tackling this ‘knowledge deficit’, but there are very limited practical solutions. Most Chinese officials lack international experience and therefore do not understand the challenge – let alone the ability to deliver solutions.

Furthermore, teaching about Chinese culture, civilisation and history is almost totally absent from school curriculum in high income countries outside of China. This results in little motivation by students to pursue studying China at university. When China is studied at universities outside of China, the focus is on ancient liberal arts history. Yet key areas such as economic, industrial and scientific history of China or contemporary China studies are rarely focused on.

In addition, the speed of change of China makes it a great challenge for curricula and knowledge to keep pace outside of China. The boards of major businesses and organisations have not recruited members with real knowledge to advise on how to minimise risk and optimise success and explain the ‘knowledge deficit’.

Alistair called for research and practical policies that can be presented to governments world-wide to tackle the ‘knowledge deficit’. Without such action, several challenges will appear – such as the ongoing trade tensions between the US and China – founded on ignorance, misunderstanding and miscalculation.

The Library

Just as Hampton Group is named for the London suburb where the company was founded in 2005, The Library blog is named for the historic building that now serves as our UK Headquarters – The Old Library in Hampton Hill.

Hampton Group Becomes an Advisory Partner to National Museums Liverpool

Hampton Group is pleased to announce it has become an advisory partner to National Museums Liverpool (NML). Under the framework of this partnership, Hampton Group provides advice to NML on its relationships with businesses and individuals with an interest in China and the China’s First Emperor and the Terracotta Warriors exhibition.

Hampton Group Vice President Andrew Methven said ‘It has been a pleasure to work with campaign director Martin Kaufman and the National Museums Liverpool team in supporting this exhibition over the past six months. The objectives of the exhibition are very much aligned with the mission of Hampton Group, which is to promote “communication across cultures” and also improve understanding and cultural exchange between China and the UK.’

Hundreds of thousands of people are expected to visit the China’s First Emperor and the Terracotta Warriors exhibition before it closes on 28 October. They will be immersed in Chinese cultural heritage and come face to face with 10 figures from the First Emperor’s burial site – one of the world’s greatest archaeological discoveries.

In an interview before the exhibition’s opening ceremony, David Fleming, Director, National Museums Liverpool stated that ‘The Terracotta Warriors exhibition is surely one of the most important exhibitions we have ever held here. It is an unmissable opportunity to see some of the terracotta army up close.’

While celebrating the past, the China’s First Emperor and the Terracotta Warriors exhibition also speaks to the present and future. Xi’an was the eastern starting point of the ancient Silk Road, a precursor to the Belt and Road Initiative which is now driving development in countries across Asia, Africa and Europe.

At the opening ceremony, Chinese Ambassador to the UK, His Excellency Liu Xiaoming, recognised the prescience and importance of the exhibition, stating that it ‘serves as a bridge of understanding and friendship in the “Golden Era” of China-UK relations, and opens a window on today’s Belt and Road Initiative.’

Hampton Group wishes the ongoing China’s First Emperor and the Terracotta Warriors exhibition every success now that it is open, and looks forward to working with National Museums Liverpool throughout the run of the exhibition.

For further information on National Museums Liverpool, visit their website.