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Boao Forum for Asia

Defenders of free trade

Boao Forum in China warns that barriers to globalization will reverse growth worldwide and widen the wealth gap

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April 3-9, 2017
By CARMEN HO
in Hong Kong
For China Daily Asia Weekly

Against a backdrop of rising protectionism around the world and with globalization under threat, particularly in the Western narrative, high-level government officials and business executives gathered for the Boao Forum for Asia (BFA) annual conference in South China’s Hainan province.

Delegates to the March 23-26 event shared their insights on the theme of Globalization and Free Trade: The Asian Perspectives. The discussions highlighted the importance for Asian countries to support further economic integration and play a bigger role in safeguarding global free trade.

The conference in Boao — the town where the BFA is headquartered — served as a platform to promote globalization as the solution for present-day challenges. A total of 44 formal discussions addressed a range of topics that are key to Asia’s development, including the Belt and Road Initiative, free trade deals, fintech and innovation.

In a letter, President Xi Jinping called on forum participants to pool their wisdom to solve the major problems facing the world and regional economies and to push a more dynamic, inclusive and sustainable globalization process.

The president lauded the role of the forum in building an Asian consensus, promoting Asian cooperation and upgrading Asian influence since its establishment 16 years ago.

During that time, Asia has risen to prominence as one of the drivers of economic growth worldwide. Led by China, Asia is also emerging as the main defender of globalization, and representatives shared their insights as to how that will drive economic growth in the region and the world. With initiatives like the Belt and Road, China is moving toward becoming the regional, if not global, stabilizing power.

However, as emphasized at the forum, it is hard to determine the long-term global business landscape. Will trade protectionism prevail or will globalization continue to flourish? Much of the future will depend on how Asia moves forward, said delegates.

“Globalization is not an abstract concept. The Belt and Road Initiative, proposed by President Xi Jinping three years ago, is China’s solution for globalization, which seeks to build a common destiny for human beings through consultation, co-construction and sharing,” said Zhou Wenzhong, BFA secretary-general.

The Belt and Road Initiative reflects Beijing’s positive stance on internationalism and cross-border trade and investment. It will connect many regions in Asia, the Middle East, Europe and Africa along the ancient Silk Road routes through major infrastructure projects such as the building of logistics, energy and manufacturing facilities.

Meanwhile, Chinese companies are already expanding their global presence. Overseas mergers and acquisitions led by Chinese enterprises have been on the rise in recent years, with a shift away from low-level manufacturing to innovating and exporting high-quality products.

“The primary growth driver is enhanced quality, better and unique innovation, and high global aspirations among business owners. China is slowly but with increasing success changing its business model from purely back-end, low-margin manufacturing toward own propriety products and solutions that are in demand globally,” Martin Roll, a global business strategist, told China Daily Asia Weekly. Roll is a CEO mentor and adviser to Fortune 100 companies.

With domestic growth slowing in China, it makes sense for companies to look outward for growth opportunities. However, the transition is not without difficulties. Key challenges include raising quality standards nationwide and shedding the negative image of ‘Made in China’ products.

Lanterns hang at the BFA International Convention Center ahead of the Boao Forum for Asia conference. Credit: BAO FAN / IMAGINECHINA



“Craftsmanship is a reflection of values. As an enterprise, (we) should put food safety and quality at the top,” Lu Minfang, president of Mengniu Dairy Group, said at the forum.

Roll said: “China has traditionally been known for a thriving counterfeit market which reflected badly on its IPR (intellectual property rights) law and enforcement, and in turn negatively on China’s image. Additionally, China for long had been known as the world’s factory in many industries.”

Noting that changing long-held perceptions is indeed a herculean task, he added: “China is bound to challenge this current state and alter its country-of-origin effect in a very positive direction over the next 10 to 15 years as Chinese manufacturers are slowly but steadily embracing branding as the primary strategic driver of financial value, and proving to the world that Chinese brands can be trusted.”

In recent years, China has been hogging global headlines for its economic growth, ever-increasing wealth index and improvements in technology. With its robust manufacturing and outsourcing sectors, Chinese exports have been contributing to the country’s phenomenal economic growth, and with that, huge advances in quality levels, innovation and IP.

The increasing visibility and global reach of Chinese brands such as Lenovo, Haier and Huawei are examples of the changing market dynamics.

According to the Internet Finance Report 2017, released at the Boao Forum, China has accumulated abundant experience in mobile payments and online fundraising. It is in a strong position to export its Internet financial services and standards to economies along the Belt and Road. This will leverage China and the region’s open attitude to trade and, perhaps, enable the country to vault into the next phase of growth.

“China has made significant progress in innovation models. In the past 15 years, China has moved gradually from specialized innovation to products and technological innovations, approaching closer to the basic framework of innovation,” Zhang Yaqin, president of online search giant Baidu, told the conference.

“(China) has acquired many patents in basic framework innovation such as in artificial intelligence, auto-piloting and deep learning, walking at the world’s forefront of innovation,” Zhang said.

According to Gregory Gibb, CEO of Shanghai Lujiazui International Financial Asset Exchange Co, known as Lufax, who also spoke at the forum, partnerships between Chinese Internet companies and banks will unleash huge potential.

“Currently, Chinese banks generate 60 to 80 percent of their profits from corporate customers. Their individual customer base just started to grow over the past 10 years. Most Internet companies know little about finance. Once they team up with banks, they can better serve the country’s individual customers,” said Gibb.

And the changes in market dynamics are not exclusive to China. “Despite Asia’s historical focus on manufacturing and trading activities, the global landscape could potentially face a wealth of new Asian brands in the coming years,” said Roll.

The forum participants agreed that globalization and freer trade are inevitable outcomes of scientific and technological advances which have led to substantial economic and social progress in many countries. However, they warned against neglecting pressing issues such as the widening wealth gap in rapidly developing countries.

“Asian countries should collectively push for a more inclusive globalization, promote balanced and fair development, and reform global economic governance,” said Vice-Premier Zhang Gaoli in his keynote speech at the Boao Forum.

Reversing globalization is unlikely to solve problems, said members of the forum in a joint declaration. Doing so could even create greater challenges for growth across the world. Instead, nations worldwide should adapt to the globalization trend.

Former French prime minister Jean-Pierre Raffarin, who spoke at the forum, warned that having only bilateral interactions at the expense of the inclusiveness of globalization could cause trade imbalances.

Hans-Paul Burkner, chairman of The Boston Consulting Group, told the conference that with tension and protectionist measures rising, countries need to “continue to open up and to encourage the fair exchange of goods”.

One key measure to achieve that is the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade agreement between the 10 member states of the Association of Southeast Asian Nations and the six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).

“A successful conclusion of the RCEP will be welcome in at least maintaining the momentum of multilateral trade opening,” said Manu Bhaskaran, director at Centennial Asia Advisors, a subsidiary of global advisory firm the Centennial Group.

“The highly export-oriented economies such as Singapore, Malaysia and Thailand are still very much driven by the US and to a lesser extent Europe.

“Although the share of exports going to China has risen sharply, some of this includes components used by Chinese companies to manufacture goods ultimately consumed in the rich countries, so the export shares do not give a true picture of Asia’s continued dependence on the US in particular,” Bhaskaran said.

He said Asian countries are keen to intensify their access to their own region. They “want to maximize export growth, so they will push exports wherever there is an opportunity”.

China powers ahead Nation tops survey in terms of economic strength while Singapore is named most competitive economy

April 3-9, 2017
By HAKY MOON
in Hong Kong
For China Daily Asia Weekly

Responsible for 30 percent of world economic growth last year, China came in first in terms of economic strength in the Asian Competitiveness Annual Report released on March 23 at the Boao Forum for Asia annual conference in South China’s Hainan province.

Although behind Singapore and Hong Kong in terms of overall competitiveness, the Chinese mainland maintained ninth place but came out as the strongest economy in the region, according to the report released by the China Center for International Economic Exchanges (CCIEE).

“The Chinese economy is resilient and has great potential,” Vice-Premier Zhang Gaoli said at the Boao Forum.

In the report, Singapore was named Asia’s most competitive economy for the fourth year running.

“Singapore’s efficient administrative services, convenient business environment and world-class infrastructure lifted it to its first placing among the 37 Asian economies surveyed,” Wang Jun, a researcher at the Beijing-based think-tank CCIEE, said at the forum.

Launched in 2009, the report ranks 37 economies in Asia including Australia and New Zealand but excludes 16 smaller economies in the region.

In the most recent findings, the top six positions for the most competitive economies are taken by Singapore, Hong Kong, South Korea, Taiwan, Australia and New Zealand. The ranking remains unchanged over the past three years.

Singapore’s overall best ranking in Asia is based on a range of measures. It placed third in infrastructure as well as human capital and innovation capability among the 37 economies. The city takes fourth place in economic strength and comes sixth in social development.

The city-state shines in other surveys.

Singapore is ranked fourth in the world for innovation capability — behind Switzerland, Finland and Luxembourg — and first in Asia for offering the best intellectual property (IP) protection, in the World Economic Forum’s Global Competitiveness Report 2016-2017.

This comes as no surprise given Singapore’s robust and business-friendly IP regime which enabled the island nation to emerge as the IP hub of Asia.

Singapore’s GDP grew 2 percent in 2016, exceeding the government’s growth estimate of 1 to 1.5 percent.

China, meanwhile, boasts GDP growth of 6.7 percent in 2016 — an enviable increase, especially in times of global economic downturns.

Zhang added that “growth would be backed by sufficient human resources, an enormous market, a strong real economy, technological improvements and a complete infrastructure”.

In terms of infrastructure, China has improved its traffic network density and Internet bandwidth.

The CCIEE report expects China’s business environment to improve in the coming years with the Chinese government launching rounds of reform and strengthening the country’s legal system.

Zhang said the country will vigorously create a fair environment for investors, and that foreign and domestic players will be treated equally. He said China is expected to remain one of the top destinations for foreign investment.

The CCIEE report also praises China’s innovation-driven growth model, which includes healthy investment in scientific research and higher education.

“The country increased capital input in scientific research but also maintained the percentage of national fiscal educational expenditure over total GDP of more than 4 percent for three consecutive years,” the report noted.

China’s emerging and distinct strength lies in innovation.

Zhang Yaqin, president of online search giant Baidu, highlighted that China has made significant progress in innovation models in the past 15 years. In his view, the country has moved from specialized innovation to product and technological innovations.

In fact, the Chinese government’s efforts to boost patent applications in new ideas in telecom, computing, semiconductors and medical tech has exerted remarkable influence on the number of patent applications filed in China.

A woman poses with a Chinese flag at the financial district in Shanghai on Oct 2 last year. Credit: AFP

In 2016, Chinese patent applications surged 45 percent, according to the World Intellectual Property Organization. This puts the country on track to overtake Japan and the United States to become the largest user of the international patent system within two years.

China’s interest in moving further up the value chain is reflected through a recent Dialogue on Innovation agreement with Australia.

In a bid to support strategic science, technology and innovation collaboration, the Chinese government signed an agreement with Australia on March 26.

According to the agreement, both countries will contribute up to A$6 million ($4.6 million) to six joint research centers over the next three years. The funding is primarily focused on advanced manufacturing, medical technologies, pharmaceuticals, and resources and energy.

Meanwhile, in the CCIEE report, among economies that ranked lower than expected was Hong Kong, which has been running behind Singapore for the last three years.

In particular, the city did not fare well in higher education and innovation, ranking 10th among the 37 economies in the index, seven places behind Singapore.

Hong Kong’s business community has frequently cited the capacity to innovate as a major concern, according to the report. And these concerns have been reflected in other reports as well.

In terms of its performance in global rankings of innovation and competitiveness, Hong Kong dropped two places to ninth in the Global Competitiveness Report last year, which highlighted challenges for the city to “evolve itself from one of the world’s foremost financial hubs to an innovative powerhouse”.

Meanwhile, India, the star performer in the emerging economy segment, only ranked 30th in terms of overall competitiveness, dropping four places compared to 2015.

India has long been compared to China due to its explosive market potential because it is the only country that has a population comparable to China at 1.31 billion.

However, in terms of commercial and administrative efficiency, India dropped another place to 34th among 37 economies.

Although it has a long way to go to catch up with China, there is more to India than meets the eye. Despite Prime Minister Narendra Modi’s demonetization initiative, which could have dampened economic momentum, India’s GDP grew by a faster-than-expected 7.8 percent last year. India’s demonetization exercise withdrew two high-denomination notes from circulation along with a range of other measures.

“This (India’s GDP growth) raises the possibility that these initial estimates of the growth impact of demonetization could well be underestimated, with the possibility of revisions to official GDP data later on,” noted Brian Coulton, chief economist at Fitch Ratings and a speaker at the Boao Forum.

“Fitch now expects Indian GDP to grow by 7.1 percent for fiscal year 2016 to 2017, before picking up to 7.7 percent in both fiscal year 2017 to 2018 and 2018 to 2019,” Coulton said.

By and large, the competitiveness of major Asian economies was unaffected by the turbulence in global politics and markets last year, according to the CCIEE report.

“Countries should enhance domestic reforms while enhancing their policy coordination, to avoid a new round of financial crisis,” said Cai Esheng, former vice-chairman of the China Banking Regulatory Commission, at a Boao panel discussion.

Fintech bridges gap for the under-banked Advances in technology could help people who previously struggled to access financial services

April 3-9, 2017
By HE WEI
and MA ZHIPING

Financial technology — or fintech — could contribute to the real economy by bridging the financing gap for under-banked individuals and small and medium-sized enterprises (SMEs) lacking a credit history, industry experts said on March 23 during the Boao Forum for Asia 2017.

The four-day conference, themed Globalization and Free Trade: The Asian Perspectives, took place from March 23 to 26 in Boao, South China’s Hainan province.

Services built around technology breakthroughs — including big data, cloud computing and artificial intelligence — could build solutions specific to particular finance needs and bring banking to those who need it the most, the experts said.

Fintech, defined as the use of technology and innovative business models in financial services, is catalyzing changes in finance that have extended the sector’s geographic reach and the availability of financial products, said Ma Weihua, former head of China Merchants Bank.

“Fintech should serve the real economy and the substantial demands of customers,” he said.

Mobile phones — along with cloud computing and big data — could help people in underdeveloped areas access basic financial services, Ma said.

Gregory Gibb, CEO of Shanghai Lujiazui International Financial Asset Exchange Co, a peer-to-peer lender also known as Lufax, said that funding requirements by SMEs and individuals now account for 15 percent of China’s total loan market and will climb to 30 percent in three to five years.

“Fintech is the right way to address that surging need,” he said.

Li Dongrong (right), head of the Internet Finance Association of China, shakes hands with Elle Kim, vice-president of Samsung, at the Boao Forum on March 23. Credit: WANG ZHUANGFEI / CHINA DAILY

Liu Shi, founder and chairman of Billions Finance, said that fintech can help traditional lenders to find solutions that enable them to compete in their established markets, as well as helping to improve their own processes.

For instance, companies using cloud services can save up to 90 percent of budgets that would otherwise be spent on maintaining and supporting a complex IT infrastructure, Liu noted.

Fintech can also tap financial institutions for a wealth of information from data held on potential customers, providing a granular level of detail previously unattainable. Financial firms can then create tailored lending plans for each borrower based on risk assessments.

For instance, JD Finance, the financial arm of e-commerce firm JD.com, has issued loans to date worth 250 billion yuan ($36.3 billion) to more than 100,000 SMEs, and 10 billion yuan to more than 4 million farmers.

Chen Shengqiang, CEO of JD Finance, said machine learning, a leading algorithm of artificial intelligence, has been adopted in its virtual credit card service Baitiao to automatically assess the creditworthiness of more than 200 million people in China.

Similarly, China’s largest Internet finance firm, Ant Financial, evaluates customers’ purchasing and spending habits to assess how creditworthy they are and give entitlements such as deposit waivers on a variety of services.

Contact the writers through hewei@chinadaily.com.cn

Belt and Road to boost digital finance China’s rapid growth in services such as mobile payments and peer-to-peer lending can assist other economies

April 3-9, 2017
By MA SI, DAI TIAN
and MA ZHIPING

China is in a strong position to export its Internet financial services and standards to economies along the Belt and Road Initiative, as the country maintains an “obvious” edge in the booming sector, a key report said on March 23.

The Internet Finance Report 2017, released at the Boao Forum for Asia, said China has accumulated abundant experience in mobile payments and online fundraising, which can help other economies develop Internet finance services.

“Other economies can learn from China’s experience in leveraging cutting-edge technologies to boost financial efficiency and strengthen risk control. The move will help boost the integration of global financial sources,” it said.

The report comes amid explosive growth in China’s Internet finance sector. It said dynamic initiatives such as mobile payments, peer-to-peer lending, online insurance and others were emerging all the time and were rapidly changing people’s lives.

As of October 2016, the Chinese mainland had about 1,850 online peer-to-peer lending platforms, with total transactions in the first 10 months of last year exceeding 1.59 trillion yuan ($231 billion), data from the report showed.

It said Chinese players such as Alibaba Group and Tencent were aggressively extending their financial presence to South Korea, Japan and other overseas markets.

“With the internationalization of payment systems as an initial move, more and more Chinese Internet financial companies will go out on the hunt for equity investments and acquisitions, to set up their global branches,” said Hu Bin, deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

The Belt and Road Initiative — the drive to improve connectivity along the historical Silk Road trading routes — will see China build new trade and investment ties with multiple economies, which will offer a great opportunity for the overseas expansion of Internet financial companies, Hu said.

But the report said things needed to be learned in the expansion of business abroad.

“It is of crucial importance to partner with local financial service providers. Only by respecting local culture and policies can Chinese players thrive in foreign countries,” the report added.

It said Internet finance should be inclusive and focus more on promoting the development of the real economy, as cutting-edge technologies lowered operating costs and boosted efficiency.

“More efforts are needed to regulate the burgeoning sector as services become increasingly decentralized.”

In addition to financial regulators, the report proposed that information management agencies, public security bureaus and other related government agencies should get involved to improve regulation.

Contact the writers through masi@chinadaily.com.cn

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