The China bubble situation is looking ominous today.

Beijing, Shanghai and Guangzhou sales all fell in September, even though developers continue to add inventory. If Sales don’t pick up in October, the bubble prick may finally happen.

Real-estate investment rose 9.9% in Q1/Q2, Exports fell 23.4%, yet bad loans will help us “protect 8″ (8% GDP growth/year)

Why is Focus Media (does elevator TV ads in China) valued at $1.4B? Considering sunglass maker Oakley with 30 years of reliable operations, excellent brand image, huge gross margins, and world wide distribution sold for $2B to LUX, I can only say it’s off by at least a zero. How do “investors” keep forgetting the lessons from each prior bubble?

China claims yet another 7% rise in FDI. OK. From where? The western economies are stretched for cash and not investing. If that FDI number is accurate, there is only one reasonable source: hot money. And if there’s that much hot money here, it’s going to hurt when it goes.

Shanghai Int’l Board to open, with RMB denominated shares. Last time this was tried was in Japan’s 1991 Hyper-Bubble. Japan closed the exchange in 2004 due to lack of participation.

• Why are there banks on every corner?
• What are the functions that banks provide that can’t be managed more efficiently online?
• Why do we have ATMs when “Cash Cards” (like the Hong Kong Octopus) work so well for small transactions and “Bank Cards” like Visa or Wall Mart’s own credit card processing system are so much more efficient than cash?
• Once we get rid of the paper (money) trail and make everything electronic, then we can also radically simplify and improve the efficiency of tax collection.

If we had let the archaic, over leveraged banking system fail the way it was designed to, there would have been more pain that we’re seeing now, but some truly innovative, highly efficient institutions would have emerged and banking could have had a renaissance.

Instead, special interests were allowed to take over…

Jim Rogers has a great interview that he did as part of a 2 hours special on CNBC:

“Banks have been going bankrupt for a few hundreds of years. The world has not come to an end. And Ross, the way the system is supposed to work is that when somebody fails, you let him fail. You let competent people take over the assets. Reorganize the assets and start over again. What we’re doing now is we’re taking the assets away from the competent people and giving them to the incompetent people and saying ‘now you can compete with the competent people with their money!’. This is just propping up the system. This is not going to solve the problem. Do you remember zombie banks from the 1990s in Japan? This is not going to solve our problems at all, we’re going to carry it over and over and over and over again. We’re going to be reporting on this for several more years.”

There are a lot of things going on right now.

• Chinese Gov’t driving in wrong direction. China Bubble is getting ready to Pop!
• Broadcast Media, Physical Media and Middle men are being creatively destroyed!
• Global labor force is doubling (China, India and Brazil) so labor supply far outstrips demand for labor.

First, I expect that the Chinese economy is now in full “bubble mode” and will be popping sometime soon.

• Caijing Magazine, through government support has exposed some of the largest corruption cases in the country is going to stop covering corruption – so now who is watching?
• Urban China Real Estate prices have been increasing 20%/year for at least 5 years and even the new Shanghai World Financial Center is 70% empty.
• Wen Jiabao just went to the World Economic Forum summit in Dalian and announced that China’s GDP growth target “appears to be achievable“, which the US press will read as “9% AGAIN!” Perhaps they should read How China Cooks Its Books.
• Meanwhile, everywhere I go Taxi rides are down, the reported rail freight numbers for 2009 are 30% below last year, night clubs are empty, KTVs are closed. People are not consuming. Retail sales are down 12%.
• Factories in the south that closed have not yet reopened – perhaps 50,000,000 people are out of work, and the last 2 years worth of college graduates have been unable to find jobs.
• Yue Yuen, the Shoe Factory I visited here on my first trip to China has reported it’s biggest loss ever.
• The largest rail line in China reports freight loads down by 12%.
• Banks call my WOFE registered phone number on a regular basis explaining how it would be beneficial to take out a loan.
• When asking people “how’s the economy”, everyone says it’s doing great.

Second, What will happen next? I’ve set myself up to be a middle man, an intermediary between US producers and Chinese consumers. This is what I’ve been doing for movie cameras and this is what I can provide value doing long term. My value is largest for products that are more complicated (specialized technology products) since these are more difficult for local providers to support.

• MEDIA: Physical Media (Newspapers, Magazines, CDs, DVDs) and Broadcast Media (TV, Radio) is finally being “creatively destroyed” – being replaced by a more efficient (low distribution cost, large selection) medium – the Internet.
• DISTRIBUTION: Middle Men will become less and less relevant.
• POLITICS: The Internet makes voting extremely efficient. Not only can we reshape the way we elect our representatives, but we can reshape the purpose and power of our representatives, returning the power to the people.
• BANKING: We all bank online. We no longer need a bank branch on every corner. Banks can lease space in the Grocery Market and put their ATMs there. Remember, ATM is “Automated Teller Machine” – if the Teller can do it, we can surely make a machine that can do it.
• MOVIES: Movie Theatre (in terms of the box office) is a Retail Service (atmosphere, seating, timing, snacks) and not likely to be affected, however changing media consumption habits will impact the requirements for future feature films.
• RETAIL: The 25 and under generation downloads everything over the Internet. The iTunes Music Store is the largest Music Store on the planet (in annual revenue)
• MOBILE: The iPhone is the only smartphone that meets the definition of “a computer in your pocket”, but Apple is not going to be able to lock MSFT, DELL, etc out of this market. Google will try hard to get in too.
• COMPUTING: 10 years from now, the AVERAGE person will only use a desktop computer for the times that lots of research of lots of text input is required, but notebook/laptop computes will be like desktop computers. Laptop (R&D, Professional Content Creation, Finance & Accounting). Desktop (High End Media Creation. “Time Clock” office workers who shouldn’t bring devices home)

Third, in terms of creating products or services, be aware that long term the consumption market will not grow significantly, but the supply of labor for all forms of production markets will grow, driving labor prices down in nearly every sector. Going forward, anyone who is directly trading labor for income could find themselves in trouble, especially if their labor was at a premium due to their location.

Depending on your product or service, you’ll need to alter this list, but this can help you get started:

1. Create a Chinese Company name and Chinese names for your key Products/Product lines
   (in modern mainland China phonetic translations rather than translated meaning is optimal. In Taiwan and Hong Kong, better to simply use the English names. for example, Chinese people can’t pronounce “Nike” so they say “nàikè”. In Mainland China it’s typically an operating flaw to use english for anything important)
   
2. Chinese Language operational/interaction instructions
3. For Business to Business products, Chinese can often accept USD pricing
4. EMAIL is not a good lead generation tool for Chinese clients – but it is a good way to transfer attachments. Instead:
   • Exchange Business cards at Trade Shows
   • Engage in online communities
     (However, beware most active online community members lack the ability to buy)
   • Establish your own promotional seminars
   • Chinese language website with: Address, Phone Number and MSN information
     (Chinese people want to stop by or talk to a human about it, now)
   • Create service center to handle Phone/MSN/Walk In inquiries. Operating hours vary by product category. Staying open later in China is typically more useful than opening earlier.
   • Learn how to quickly identify customers who have the financial ability to purchase your products,
5. China Customs is a very slow (typically delays shipments 3-5 days) so all efforts should be made to repair product in country
6. Import Tariffs are very high, so don’t let product diverted from Hong Kong (0% VAT, 0% Tariff) compete with your Mainland China sales (17% VAT, 10+% Tariffs) and distribution plans.
7. Be Careful: in Chinese culture “tricking” someone for your personal gain only proves that you are smarter than they are, and if a Chinese person has a good opportunity to make money that they don’t take (even if it is “wrong” in western eyes) then their friends and family would accuse them of being dumb.
8. Be Aware: that the more that someone speaks a language, the better they get at it, and the less they speak one, the worse they get at it. When you meet the Chinese guy that speaks really great english and claims to protect you and “unlock a market of 1.3 billion customers” for you, most likely this guy is not connected at all and only knows how to trick western people out of their money.
9. Legal system is unlikely to grant proper recourse, especially in native vs/ foreigner cases. You should always sign proper contracts, but if you are taking any risk on the part of your partner, YOU MUST REQUIRE A DEPOSIT (押金) in exchange for that risk. If the Chinese partner can save 1¢ by pretending the contract does not exist, then they will try it.
10. Chinese customers are EXTREMELY PRICE SENSITIVE, and are particularly unwilling to pay for services.
11. Long term, the Middle Men in China will be out of work, but in the short term, for most sales you are far better figuring out a way to with multiple resellers (avoid letting one crook control your destiny). Depending on volume and cash flow requirements, working with large stocking distributors is probably not the optimal way to operate because they have very fat margins, and with a fat margin it’s too easy for them to divert product back into your other markets. On the plus side, Agents can also keep you insulated from the darker side of Chinese business practices.
12. Keep costs down. If you operate like a traditional international company while in China, it could be very difficult to make a profit, but all of your suppliers will take profits.
13. Chinese customers want to hold the product in their hand and are particularly weary of Internet sales.

Do you have trouble remembering each of the different years in the Chinese system? There is a poem that old Beijing people like to say that just combines the 12 heavenly branches (地支) with the 12 years, and when you read it off, it sounds like it’s an actual little story because of the similar words (形声字).

Note that the Heavenly Stems (天干) are： 甲、乙、丙、丁、戊、己、庚、辛、壬、癸

The Heavenly Branches (地支) which are used in calculations in conjunction with the heavenly stems are：子、丑、寅、卯、辰、巳、午、未、申、酉、戌、亥。

And a simple listing of the years are: 鼠、牛、虎、兔、龙、蛇、马、羊、猴、鸡、狗、猪

子鼠丑牛 zǐ shǔ chǒu niú
寅虎卯兔 yín hǔ mǎo tù
辰龙巳蛇 chén lóng sì shé
戊马未羊 wù mǎ wèi yáng
申猴酉鸡 shēn hóu yǒu jī
戌狗亥猪 xū gǒu hài zhū

In Mac OS X Leopard (10.5) and earlier, the Finder “Info” window for an application would allow you to enable and disable specific language packs. This was probably one of the least frequently features of the finder for average users, and so it was removed in Snow Leopard.

Unfortunately, I used that feature all the time Primarily to disable the horrendous Chinese localization (halfway done) that is Adium. For me, reading Chinese is easy and reading english is even easier. But when a set of menus is half Chinese/half english, then my eye just automatically skips over the Chinese part, skipping to the english part I can read without even thinking…

There is a FREE utility that you can download to get this functionality back. It’s called “Language Switcher“. Language Switcher will even allow you to launch two instances of an application, both in different languages. Take a look!

This was taken from a comment (not the original article) on seekingalpha, but I think that it is 100% on.

They [CHINA] cannot transition to a consumption driven economy any more easily than we [USA] can transition to an investment and export driven economy; there will be painful adjustments. Current tensions identified by the author are symptoms of these underlying stresses and China’s determination to be something more than a source of low cost labor to the western world and evolve into a super power in its own right.

What distinguishes the two countries is that China has an idea as to what direction it wants to move towards; the US bogged down in deleterious debates as to how to share an ever shrinking economic pie. China will eventually eclipse the economic power of the US, it’s only a matter of timing. Along the way, there will be natural frictions as China and the US rebalance their relationship.

[From Will Chimerica's Demise Take Down Global Economy? -- Seeking Alpha]

It’s been nearly 4 years since I first wondered how an income statement is supposed to look in Chinese, and today I think I basically have that answer – the short version of it anyway. Perhaps I’m just an operations guy at heart, but I’ve always been more attentive to the Income Statement than to the Balance Sheet. Granted there are ways to work the numbers on both sides – Enron for example took liberties with the Balance Sheet to make the Income Statement look good. Generally speaking though, if the Income Statement is good, then it will eventually show up on the Balance Sheet.

The Baidu Encyclopedia has a nice Income Statement article you can check out - much better than the Chinese Wikipedia Income Statement page.

Revenues 销售收入 xiāoshòu shōurù
- COGS 成本 （chéngběn）
- Returns 退货 （tuìhuò）
= Gross Profit 毛利 （máolì） （Gross Margin 毛利率 máolìlǜ）
- G&A 行政 （xíngzhèng）
- S&D 营销 （yíngxiāo）
- R&D 研发 （yánfā）
- Other 其他 （qítā）
= Operating Profit (EBIT) （纯利） chúnlì
- Interest （利息） lìxī
- Taxes （税） shuì
= Net Income （净利） jìnglì

Many western people fearfully view China. China is seen as a great capitalist opportunity and as a geopolitical and economic rival. The numbers that come from China look far better than numbers from anywhere else. Why? Because it’s Standard Operating Procedure for most companies in China to keep two sets of books – and it’s customary to pay a higher price if you actually want tax receipts. In short: China numbers are like ENRON, but much bigger…

The horrible news today is that the best corruption watchdog: Caijing Magazine is slashing it’s scope of reporting by 20-30%. There will no longer be reporting on politics or social issues. Source: foreignpolicy.com.

In related news, Caijing does have a very interesting article about why the Yen failed to reach reserve currency status, and that article is eriely similar to the situation that China is facing right now:

In the 1960s, when the yen was fixed at 360 to the U.S. dollar, the Japanese economy grew at an average 10 percent per annum. In the 1970s, when the yen began to appreciate during an oil shock, growth slowed to an average 5 percent.

Following massive stock market and real estate bubbles after the 1985 Plaza Accord, the yen appreciated sharply against the dollar. In 1992, the Japanese currency rose to 128 to the dollar from 239. Appreciation continued until April 1995, when the yen hit 80, and then followed a reverse course until falling to 147 in June 1998, a decline brought to a halt only after joint intervention by the Bank of Japan and U.S. Treasury.

Source: caijing.com

Jet Li and Tony Blair launch 1000 village plan to tackle climate change from Dan Chung on Vimeo.

As the Qing Dynasty was crumbling and the Chinese people were at war with themselves, foreign powers swooped in to divide up the spoils, effectively dividing up the country. There were more than 80 treaty ports established in China – both on the Pacific and on major inland waterways.

This is a map of the foreign enclaves that were established at the time, but does not yet included all 80 of the treaty ports. The important lesson to learn here is that when you here about some of the colonies that were in China, you perhaps think of Hong Kong and Shanghai, but looking at just this partial map should help you see (as it did me) the extent of the colonization prior to the establishment of the People’s Republic of China.

In addition to the foreign enclaves listed here, entire provinces were controlled by specific foreign powers:

• UK: Hong Kong, New Territories, Guangdong Province. Yangze River Valley
• FRANCE: Yunnan, Guangxi, Hainan, and Guangdong Provinces
• GERMANY: Shandong Province
• RUSSIA: Parts of Liaoning and Shandong Province.
• JAPAN: All of Dongbei (Liaoning, Jilin, Heilongjiang, Inner Mongolia) and Taiwan

If you’ve still got any doubts about China being divided up between the world powers of the time, take a look at this political comic from the period: UK, Germany, Russia, France and Japan dividing up China…

The Treaty of Nanjing signaled the end of the First Opium War between the British Empire and Qing Dynasty. The treaty was signed and negotiated aboard the British gunship HMS Cornwallis while anchored at Nanjing.

Prior to the treaty, the Thirteen Factories in Canton had a monopoly on foreign trade with China. After the treaty, five ports were opened for trade:

• Canton (Shameen Island until 1949)
• Amoy (Xiamen until 1930)
• Foochow (Fuzhou)
• Ningpo (Ningbo)
• Shanghai (until 1949)

In addition, the island of Hong Kong was made a crown colony, ceding it to the British Queen “in perpetuity”. In 1860 the colony was extended with the Kowloon peninsula and in 1898 the colony was given a 99 year lease of the New Territories.

The Treaty of Tianjin, signed at the end of the Second Opium War opened 10 more chinese ports of foreign trade including: Niuzhuang, Danshui, Hankou and Nanjing. It also opened the Yangze River to free navigation by foreigners, and secured the right of foreigners to travel freely to the internal regions of China.

In short, the Qing Dynasty was very weak in the 1850-1900 time period, and foreign powers exploited that for their own gain.