Baby Blues Threaten Asia’s Top Economies 2011 Tohoku Earthquake: Physical and Economic Tragedy? U.S. Companies Struggle to Establish E-Commerce in China

Issue No. 5, Spring 2011

ia’s d As le idd nt R sce A


Staff List


Pamela Hidajat Yun Qi Mok Jessica Cheng Da Eun (Jill Seong) Madeline Culkin Yuijiao (Stella) Zhang Joy Chua Ke Hu Limin Zhu Richard Wei Chelsea Dengel Brandon Ho Priscilla Ong Mahina Wang Rebecca Kim SoYoung An Josephine Chen Tiara Kurniani Xi Lin Michael Hong Justin Boon Jessica Chen Moqian Chen Joori Kim Neha Sahay Jessie Zhang


Tully Cheng Ethel Hoon Vincent Tieu Nam To EDITORIAL SoYoung An Suthinee Buranaphong Tully Cheng Jeanine Chong Xianyi Seth Chua Brandon Ho Denis Hurley Nolan Jones Iwan Kurniawan Olena Nazarenko Priscilla Ong Dominique Wang Jason Wright Melody Xie Andy Xu John Yoshida



Foreign Correspondent Catherine Zhang, Northwestern University

5 6 8 12 15

|Editor’s Letter



| 2011 Tōhoku Earthquake:

Physical and Economic Tragedy? by Naoki John Yoshida Negative short-term economic effects may be mitigated by benefits from reconstruction Top Economies by Priscilla Ong Governments grapple with falling birth rates in the face of changing mindsets and gender inequality Liberalization by Jason Wright FTAs remain crucial to trade integration and economic growth in Asia

Table of Contents


| Renminbi Bonds in

| Baby Blues Threaten Asia’s

Hong Kong – Foreign Investors’ Window to China’s Currency by Melody Xie Dim sum bonds are going out, and synthetic RMB bonds are coming in Anglo-Austrian Mining Giant Bullish but Cautious by Denis Hurley Despite macroeconomic uncertainty, robust fundamentals contribute to a rosy outlook


| BHP Billiton: Outlook for the

| Future Trends in Asian Trade

20 29
22 25

| Formula One’s Race to the

East by Andy Xu Speeding towards Asia, the F1 drags fame and waves of tourists along


| U.S. Companies Struggle to

Establish E-Commerce in China by Catherine Zhang China’s unique online landscape presents challenges to hopeful market entrants Facebook’s Viral Diffusion is Missing in Japan by Tully Cheng Cultural differences explain why domestic social network sites are more popular


| The Facebook Phenomenon:

27 29

| Will Gigantic Groupon Find

Success in Korea? by SoYoung An The arrival of GrouponKorea shakes up the Korean social commerce scene Where the Tracks Lead by Dominique Wang Sprawling its mammoth tentacles across China, will the High Speed Rail bring greater economic gain than pain?

| High Speed Rail in China:



38 41

| Asia’s Exotic Foods


Table of Contents


| China’s Housing Bubble

by Olena Nazarenko The Chinese government works to safeguard its troubled housing market from collapse

by Priscilla Ong An exploration of the most bizarre delicacies of the continent redefines the limits of exotic cuisine

| The Big Guys, Not Who You


Expect: The Growing Problem of Obesity in Asia by Jeanine Chong Too much economic prosperity might lead to widening girths throughout Asia

43 45

| The Culinary Pride of the

Japanese by Brandon Ho A food tour that offers a glimpse of Japanese creativity and their pursuit of perfection

| Virtuous Commerce:


33 36

| Emily Sutanto: The Activist,

Lobbyist and Entrepreneur by Iwan Kurniawan A creative entrepreneur connects a farmers’ cooperative to the global food market in China by Nolan Jones Riding the rising dragon promises rewards to those who can navigate the complex Chinese market

Revisiting the Promise of the Merchant by Seth Chua Xianyi Historical musings: can contemporary capitalism and moral obligation fit together?


| The State of Venture Capital


Dear Readers,


he Orient has captured the imagination of the Occident from the days of Ancient Greek artisans to mercantile colonists and beyond, but never more so than now in the twenty-first century. With each passing year, Asia unveils a revamped self, maturing economically at an astounding pace and rightly earning the admiration of the world. However, despite Asia’s current success at modernization and development, the future of its soaring ascent is less clear, as the tensions created from growing too quickly without carefully addressing domestic and societal issues are ripping apart the fabric of her society. This fifth issue of Business Asia seeks to evaluate these very challenges; for example, the cover article forecasting the terrible denouement of falling birthrates as well as an article describing the rising levels of obesity throughout Asia point out massive social problems, and articles discussing Japan’s devastating Tohoku earthquake and China’s swelling housing bubble indicate economic woes due to flawed economic and political systems. Additionally, the dichotomy of the online world between Western and Asian users is explored in great detail, a fascinating phenomenon because in the most open communication medium in the world, a cultural divide is found. Nevertheless, the magazine does not leave readers in despair, for an air of optimism is woven throughout, through introductions of visionary entrepreneurs like Emily Sutanto who fights to increase the welfare and income of Indonesian rice farmers, praises of the Chinese government’s attempt to increase the number and length of high speed railroads, and expressions of hope for freer trade in Asia. Closing with the debut of our opinion column, we leave readers pondering, perhaps for the first time, about shifts in the philosophy of commerce. Business Asia has matured as a publication over a brief two and a half years. Our team boasts members from over ten different countries, and reaching audiences across the country, our magazine will be distributed to Harvard University, the Massachusetts Institute of Technology, Northwestern University, the University of Pennsylvania, and the University of Chicago in addition to Cornell University. I would like to express my gratitude to everyone who has invested so much time and effort in this publication, and especially extend my thanks to Pamela Hidajat, our former Editor-in-Chief, for all her devotion and hard work that built this magazine into what it is today. Finally, we value your opinion, as a reader, as a fellow intellectual concerned about Asia, whose course of development will undoubtedly shape our future. If you have any comments, suggestions, or would like to contribute to our magazine, please let us know by contacting us at BusinessAsia.Journal@ Yun Qi Mok Editor-in-Chief

Editor’s Letter

General Business

2011 Tohoku
Physical AND
By Noaki John Yoshida, Cornell University
2:46PM JST, Friday, March 11th.
A devastating magnitude 9.0 earthquake, the 4th largest in the world since 1900, hit the coast of northeast Japan. Followed by tsunamis of up to 25 feet striking the coast, the natural disaster caused chaos and devastation throughout the northeast as whole towns were washed away and a nuclear plant was severely damaged in the worst nuclear accident since Chernobyl. Over 27,000 people have been killed or remain missing and the number is still feared to be even larger. Amidst continuing reports and accounts of the physical devastation, the impact of this tragedy on the world economy has been very much discussed. As the third largest economy in the world, Japan and its problems could potentially create ripples in all sorts of industries. This article examines the economic reaction, especially outside of Japan, to potentially the costliest natural disaster in recent history. Short Term Reaction In the days immediately after the earthquake, various parties tried to digest how much damage occurred. As the earthquake occurred on Friday, companies and investors had the weekend to digest information before acting upon it. The impact would be tremendously negative, but the question remained, exactly how much total damage was done? In the days following the earthquake, the performance of the Nikkei, Japan’s benchmark index, and the movement 6 • BUSINESS ASIA • Spring 2011 of the Japanese yen provided some immediate color to the worldwide economic reaction. Financial markets are often seen as a good way to get a feel on the general sentiment about economic direction, although they tend to overstate changes. Understandably, the Nikkei fell 6.2% when markets opened on the Monday following the earthquake, especially as many foreigners looked to rid themselves of their Japan risk and exposure. When the situation at the troubled Fukushima nuclear reactor seemed to take a turn for the worse the next day, the Nikkei fell another 10% before it rebounded. The huge swings in the Nikkei show higher volatility and uncertainty within Japan, but reactions were relatively muted in other markets worldwide. In fact, the S&P500 index has shrugged off what has occurred in Japan, with the index higher than pre-earthquake levels as of March 26th. The yen additionally caused major waves in the aftermath of the earthquake when it appreciated drastically to a historical high, breaking the 77 JPY/ USD level for the first time. With Japan owning over 2 trillion USD in foreign assets, repatriation to help pay for the costs of rebuilding is expected, meaning a higher demand for yen is anticipated. The immediate appreciation of the yen was primarily due to front runners who acted on this expectation, although presently the G7 countries have agreed to intervene and temporarily weaken the yen. The continuing strong yen poses a problem for Japan’s many export-

General Business

Photograph by: Kordian Source:

Economic Tragedy?
driven companies and remains under the spotlight. What Next? Moving forward, there are several tangible challenges that face the country in the coming weeks and months. Some of the country’s energy infrastructure has been crippled, with nuclear reactors in Fukushima being particularly troubling; over 8% of Japan’s energy capacity will be offline. With the drop in energy capacity, rolling blackouts have currently been instituted to try to conserve energy. However, energy rationing isn’t a sustainable solution. The nuclear reactors may take years to be repaired, which will make it necessary for Japan to import more energy from abroad, pushing energy commodity prices higher. However, this demand increase should be offset by the reduced economic activity as a result of the earthquake and thus overall commodity prices shouldn’t see much impact. It’s important to note that the energy supply situation is highly localized to Japan and that companies around the world will only be impacted by the rise in energy prices, which many companies already have hedges against. On the manufacturing side, the temporary shutdown of factories in Japan have created, and will continue to create, disruptions to the supply chains of a wide variety of different products in industries such as semiconductors, electronics, and automobiles. Japan is known to be a big producer of components and other high-tech supplies necessary for products, accounting for approximately 60% of the world’s silicon wafer supply. However, most products should return to normal production in the near future as capacity elsewhere is used until factories within come online. Most of the factories themselves have sustained little physical damage. Companies around the world will only temporarily see decreased sales revenue. The consumer may only see longer wait times for products, such as Apple’s iPad 2 which already is taking 3-4 weeks to ship. Overall in the next few months, there will be a drop in production and Japan’s GDP growth will take a temporary hit before accelerating again due to reconstruction. The impact globally will most likely be minimal, with the problems having to do mostly with Japan. In fact, the years of reconstruction to help rebuild infrastructure in Japan may be able to stimulate some global demand, perhaps leading to higher growth. Within Japan, there remain unresolved problems such as the effect of radiation on the farming industry, as well as the threatening shadow of how the Japanese government will pay for the reconstruction. Policy around the world will be important to help support future challenges. However, the national tragedy has given Japan the opportunity to unify after years of internal conflict and provide fiscal and financial stability. As such, one should remain cautiously hopeful of the future. It will surely be a long and difficult road, but Japan will recover, showing the same resilience displayed after the Hanshin earthquake 20 years ago. BUSINESS ASIA • Spring 2011 • 7

General Business

Baby Blues Threaten Top Asian Economies
By Priscilla Ong, Cornell University


sia’s booming economies have for years been greatly admired for their tenacity and resourcefulness, but a shortfall in one crucial area – babies – threatens to render today’s tigers toothless. Falling fertility rates are a common problem in advanced societies all over the world, but they are an especially significant problem in Asia and pose a major problem for the future of its economies. With an average total fertility rate of 1.18, Hong Kong, South Korea, Singapore and Japan are amongst the bottom 15 countries of the 195 countries ranked by the United Nations. China, with its one-child policy, will undoubtedly face the same problem in the future. Despite policies such as baby bonuses and improved parental and childcare leave policies, governments have been unable to curb falling birth rates. This article will explore the causes and impacts of falling birth rates, why current policies are not working, and lastly, what governments can do to mitigate this problem. Causes of declining birth rates One obvious cause of declining birth rates is a general change in attitudes toward marriage and family in today’s world. In pace with the ferocious economic growth of the Asian tigers in recent decades, the 8 • BUSINESS ASIA • Spring 2011

societies of these Asian countries have also advanced rapidly. Minja Kim Choe, a family and gender expert at the U.S. Congress’s East-West Center, has observed that as compared to half a century ago in Korea, “an increasing proportion of men and women view marriage as not necessary for (a) full and satisfying life” and that “the view that ‘it is necessary to have children’ has declined substantially.” Similar changes in attitudes are also evident in other modern Asian societies such as China, Japan, and Singapore. An increasingly busy life at the workplace, changing societal expectations of young couples (whereby having children is not as much of a priority as before), and the increasing opportunity costs involved in bringing up a child all serve as discouraging factors for young couples. The fundamental Confucian values that contribute to societal expectations in Asian countries also play a part in their low birth rates. In contrast to more progressive societies like Sweden, where men are expected to play a more equal role in childrearing such as taking up to six months of parental leave during the child’s first year, Asian societies are still deeply traditional in nature. Societal expectations reflect these conventional values accordingly; the man is often viewed as the leader and breadwinner of
Photograph by: Jennifer Chong Source:

General Business

the family, while women are still expected to be the primary caretakers of children in the family. These deeply entrenched societal attitudes are also reflected in the fundamental economic and social policies of the countries, with inflexible labor markets that do not favor part-time workers and insufficient support for women attempting to balance a successful career and family life. Hence, in a modern society where more women are entering the workforce and pursuing career success, women are now more hesitant when considering the possibility of starting a family as they face heavy demands in multiple aspects of their lives. With their societal obligation to care for the children and inadequate support from government policies, many women, unsurprisingly, just opt not to have children at all. Impacts of falling birth rates Falling birth rates have disconcerting economic impacts for Asian countries. Firstly, they have a direct effect on reducing labor markets. With fewer births, the labor force will shrink in the future. Besides spelling trouble for the service and manufacturing industries that rely strongly on human resources, a reduced labor force would exert an upward pressure on wages, decreasing the competitiveness of Asian economies. At the same time, falling birth rates also decrease the adaptability of the workforce. To maintain the size of the workforce with fewer entrants every year, governments will have to raise retirement ages and encourage workers to stay in the workforce longer. The workforce would thus comprise of more older workers and fewer educated younger workers with more relevant and up-to-date skill sets. This is already happening in Japan, where in certain regions, the average age of the members of agricultural cooperatives is seventy years old. These residents are working not only to buoy retirement earnings but also to energize the local economy, as the government realized that there was not enough of a
Photograph by: Toby Oxborrow Source:

traditional workforce available to build or staff most typical industries. In the long term, even with skill redevelopment courses, Asian labor forces would lose their competitiveness and vigor as the skill sets of labor forces become obsolete. Lastly, falling birth rates combined with lengthening lifespans skew a country’s demographic shape dangerously toward an inverted pyramid shape. In other words, the ratio of the elderly to the young is far greater than normal. This has worrying impacts for Asia’s economies, as ballooning healthcare and pension costs weigh the economy down with additional expenses and necessitate greater government spending and increased taxes, as the burden of supporting a large ageing population falls on a smaller active labor force. For instance, Japan is already severely experiencing the effects of an aging population. By 2015, a full quarter of its population will be above sixty five. From the 1970s to the 1990s, Japan’s government expenditures on social services tripled from 6 percent of its GDP to 18 percent. At present, maintaining fiscal sustainability and covering commitments to retirees would require a sizeable net tax increase of 19% of its GDP. At the same time, a higher proportion of the elderly in the population implies lower savings rates, which translate to less investment and slower productivity growth of the labor force, threatening the overall competitiveness of Asian economies in the long run. Why current policies are not working The baby bonus is a policy that has been introduced in many Asian countries in the last decade as an effort to curb drastically falling birth rates. The baby bonus is a government payment to parents of a newborn baby or young child to help families with young children meet their expenses. By providing a measure of fiscal assistance, governments are hoping to encourage couples to have more children. In Singapore, the Child Development Credits scheme (also known as the Baby Bonus Scheme) was implemented in 2001 and allows couples to receive up to S$10,000 (US$7,900) in the form of cash gifts and government contributions for their first child, and up to S$18,000 (US$14,300) for every subsequent child. Since 2007, due to pressure from the Japanese government, major employers in Japan have also started offering financial incentives to its employees for having kids. Most recently, Taipei has also started offering NTD20,000 BUSINESS ASIA • Spring 2011 • 9

General Business

(US$680) for every baby born this year. However, empirical studies show that baby bonuses have not been effective so far in raising birth rates, as they provide little incentive for couples deciding whether to have a child. Since the bonuses offered are only a small fraction of the couples’ annual income and are practically negligible when considering the long term costs involved in bringing up a child, they do not factor into couples’ decisions to have a baby. Many parents who have taken advantage of the baby bonuses are couples who had already planned to have a child anyway. Improved parental leave and childcare policies are other measures taken by governments in Asia in an effort to encourage women in the workforce to have children. Many women opt not to have children for

mothers strike a better work-family life balance, their efforts are insufficient and have had little impact on fertility rates. Worldwide, Asian countries still provide the least number of statutory weeks of maternity leave. Women in Singapore and Taiwan are entitled to just 8 weeks, and in Hong Kong, 10 weeks’ leave. In addition, the general consensus is that companies are only working with these policies under pressure from governments. Employees are still being penalized for the resulting loss in productivity and business continuity for the company, thus limiting the popularity of parental and childcare leave policies. For instance, paternal leave is taken up by less than 0.4% of men in Japan, and many have returned to their jobs only to find out that their time off has resulted in a downgrading of their employment status.

Besides spelling trouble for the service and manufacturing industries that rely strongly on human resources, a reduced labor force would exert an upward pressure on wages, decreasing the competitiveness of Asian economies.
fear of losing their jobs after returning from maternity leave or being passed over for promotions if their commitment to family life is perceived to adversely affect their productivity. Maternity leaves also mean that women must forgo part of their income for a few months, a disincentive that few can afford. Governments thus hope that friendlier parental leave and childcare policies will provide more support (financial and otherwise) to women. These policies also strive to create a more family-friendly corporate environment where companies are subsidized for their temporary losses. In 2003, Japan implemented new initiatives including an incentive budget of almost $90 billion for childcare leave. Also, as part of the government’s program to encourage paternal leave, companies could receive up to $80,000 for instituting liberal parental leave. Despite governments’ attempts to help 10 • BUSINESS ASIA • Spring 2011 Looking to model examples Therefore, it seems that the policies aimed at curbing falling birth rates have had little effect on countries’ actual fertility rates, despite their governments’ efforts at encouraging couples to procreate with incentives such as baby bonuses and better parental and childcare leave policies. What, then, is the key to addressing this dearth of babies? To answer this question, we can look to the United States and the Scandinavian societies – countries which have successfully tackled this problem over the past few decades. In contrast to the dangerously low birth rates of 1.0 to 1.5 in advanced societies all over the world, they instead have fertility rates of 2.1 and 1.8 respectively. Sociologists studying fertility rates in Europe point to a key factor that contributes to high birth

General Business

Photograph by: Gustav Source:

rates in the Scandinavian countries – gender equality. Because of greater gender equality, these progressive societies have a greater social commitment to day care and other institutional support for working women, which gives these women the opportunity to have more children. Other policies such as paternal leave have also created societies where men are expected to help out in the child care process right from the beginning, allowing for a new definition of masculinity to emerge. In 1974, Sweden became the first country in the world to replace maternity leave with parental leave, implementing laws which reserved at least two months of the generously paid, 13-month parental leave exclusively for fathers. This has benefited mothers’ paychecks, while allowing fathers to share the load of caring for a new born child. Today, eight in ten fathers in Sweden take a third of the total 13 months of leave allowed. Companies have also come to expect employees to take leave regardless of gender and fathers are not penalized at promotion time. This unique culture stands in sharp contrast to the feudal values that govern Asian societies, where the burden is still primarily on the woman to care for the children. Gender inequality thus explains why Asian societies, with their traditional family structures, hold the records for the lowest fertility rates in the world. While the Scandinavian countries have

achieved high birth rates through a neo-socialist system, America has a completely different system of laissez faire. With almost no state subsidy for child care and a less progressive society than the Scandinavian’s, it may thus seem surprising that the U.S. has an astonishing fertility rate of 2.1. The reason behind this is its flexible labor market. As Hans-Peter Kohler of the University of Pennsylvania writes, “women are deterred from having children when the economic cost – in the form of lower lifetime wages – is too high.” Compared with other high-income countries, this cost is diminished in the American labor market which allows more flexible work hours and makes it easier to leave and then re-enter the workforce. An American woman can choose to put her career on hold for three to five years to raise a family, and expect to be able to resume working. This happens far less easily in Asia, where rigid labor markets discourage women from considering the option of working part-time or temporarily suspending her career. To truly tackle this problem, governments should strive to implement policies that reduce the economic cost to women in Asian economies, such as encouraging employment stability and putting pressure on companies to be more accepting toward part-time workers. Conclusion Therefore, it seems that falling birth rates can be explained by more than just insufficient financial support for couples, which governments in Asia have been trying to remedy, albeit ineffectively, through policies like baby bonuses. Instead, they are the result of more fundamental gender inequalities, which explain why improved parental and childcare leave laws have not worked, and an inflexible job market. While it may be difficult for Asian countries to work towards the social model of the highly progressive Scandinavian countries in the short run, their governments could try to boost birth rates by seeking market-based solutions to work-family conflicts. This would allow them to address the problem of falling birth rates while still remaining competitive. At the same time, while revising their childcare and parental leave policies to lessen the load on mothers and allowing them to better balance their careers and family lives, they should also encourage the changing of fundamental societal attitudes towards gender equality and the roles of men and women in caregiving to improve the effectiveness of these policies. BUSINESS ASIA • Spring 2011 • 11

General Business

Future trends in Asian trade liberalization
By Jason Wright, Cornell University


he expansive and rapid growth of export-driven Asian economies over the past two decades has been largely coincident with the development of various free trade agreements, most notably the successful negotiation of the Asia-Pacific Economic Cooperation (APEC) forum in 1989 and the Association of Southeast Asian Nations (ASEAN) Free Trade Area in 1992. Regional economic integration and trade liberalization have been an instrumental component of Asia’s economic growth, and will continue to be so for the foreseeable future. Yet the slowdown in global trade talks, in particular the prolonged delay in the Doha round negotiations at the World Trade Organization (WTO), have motivated Asian countries to develop bilateral free trade agreements as alternatives to multilateral trading regimes like the WTO. 12 • BUSINESS ASIA • Spring 2011

The proliferation of free trade agreements has accelerated immensely since 2000, when only eight were in effect. Today East Asia has in place 74 FTAs, with dozens more under negotiation. The changing nature of trade terms in Asia has the potential to create disruptions in commerce and have conflicting effects on multilateral trade agreements, in large part due to the highly politicized nature of individual trade agreements and inevitable overlap between complicated labeling and certification rules on Asian firms. This phenomenon has been referred to as the Asian “noodle bowl”, which has been the modus operandi for Asian trade talks for the past few years. While trade agreements are almost always designed in a manner that benefit domestic business environments, some critics such as Masahiro Kawai and Ganeshan

General Business

Wignaraja of the Asian Development Bank argue that “the plethora of overlapping and complex FTAs in East Asia carries the risk of becoming unwieldy and making business cumbersome.” The divergence between increasing trade volume and decreasing export share in East Asia seems to confirm that changes in trade policy since 2000 have increased trade flow at the expense of the competitiveness of Asian firms. Still, critics who point to the marginal impact of bilateral FTAs as an argument for slowing or ceasing entirely the ongoing process of trade liberalization are misguided. Several Asian countries are now in the midst of critical negotiations over landmark trade agreements, and a failure to conclude these negotiations in a timely manner could send a new wave of protectionism across the continent. Instead,

Asian policymakers should work to craft FTAs that facilitate regional economic groupings and the eventual consolidation of bilateral agreements. Kawai and Wignaraja, among others, have proposed incorporating elements of global trade talks into Asian FTAs, such as including WTO-plus provisions and using FTAs as a vehicle for concessions on global trade “sticking points” like agriculture. At the same time as Asian countries seek to liberalize trade with the West, some scholars have called for the development of a “pan-Asian FTA”, with proposals ranging from an expansion of ASEAN to a South Asian Free Trade Agreement. The main benefit of intraAsian free trade, as opposed to individual negotiations with Western countries, is that it can facilitate regional trade policies that maximize and equally distribute BUSINESS ASIA • Spring 2011 • 13

General Business

the benefits from trade among countries that often compete for similar markets in a way that is consistent with the WTO. For example, one proposal for the SAFTA argues that “the SAFTA should, at a declared later date, graduate into open or autonomous trade liberalization by accepting the two basic pillars of the WTO, namely the most-favored nation (MFN) clause and the national treatment (NT) for trade with nonmembers of SAFTA.” This process, however, relies on continued action on individual FTA negotiations themselves. At the center of Asian trade talks in the past few months has been South Korea, who has found willing trade partners in both the European Union and the United States. The EU recently completed the ratification process for what its Parliament calls “the most ambitious trade agreement the EU has ever negotiated,” the EU-South Korea FTA. While the USSouth Korea FTA (KORUS) still awaits ratification in the United States, prospects look increasingly promising. President Barack Obama’s continued influence and political capital have created favorable conditions in the 112th Congress, alongside sizable support from business and labor. Although there is always a possibility that new, controversial issues could divert Congressional focus on free trade accords and derail ratification, lawmakers in South Korea should seize the opportunity to implement these two pacts while political support still exists. A recent report from the Congressional Research Service emphasized the strategic necessity of the KORUS FTA for the promotion of trade liberalization in Asia, claiming “the fate of the KORUS FTA is likely to be seen as a bellwether for broader U.S. trade policy, which is now in a period of re-evaluation... This raises questions in the minds of U.S. policymakers and other experts, regarding the future role of the WTO and multilateral negotiations in shaping the international trading framework. The 14 • BUSINESS ASIA • Spring 2011


KORUS FTA will likely play a role in this reassessment. For better or worse, its rejection or indefinite delay might call into question the viability of FTAs as a serious U.S. tool to strengthen economic ties with major trading partners.” The consequences of failure to successfully conclude KORUS could be fatal to global economic engagement with Asian economies. Future proposed trade agreements, such as the oft-mentioned TransPacific Partnership (TPP), FTA negotiations with Japan and Taiwan, and trilateral negotiations that would include Japan, South Korea, and China, could suffer. While much work remains to be done to strengthen these agreements, FTAs will remain the path to Asian economic integration for the indefinite future. Domestic protests, opposition from South Korea’s Democratic Party, and uncertainty surrounding ratification in the United States have all held up ratification in the National Assembly. South Korean lawmakers must act swiftly to ratify these pending free trade agreements. The rest of Asia should follow suit by developing trade agreements that further Asian integration with the global economy. They must not allow “noodle bowl” concerns to hold up trade liberalization entirely. The fate of trade integration and economic growth in the region depends on it.

General Business

Formula One’s Race To the East
By Andy Xu, Cornell University


ive red lights illuminate, signaling the start of the first Korean Grand Prix! Following the ranks of Malaysia and Singapore, Korea’s inauguration into the Formula One calendar is another bold move to shift the world’s sports-entertainment map to Asia. It will be one of seven races to be held within Asian time zones this season. The world’s flashiest, most expensive and technologically advanced sport is looking for growth outside its traditional centers in Europe, and Asia is the key new market. Why Asia and why now? Japan’s Suzuka and Fuji Speedway circuits date back to the early 1960s and their fan bases rival that of many countries in Europe. Lately, Asia is also home to a new trend: hosting an F1 race has become a status symbol to showcase growing economic strength. Consider Singapore, which in 2008 hosted its first F1 event. The city-state spent 150 million Singapore dollars for the right to host ‘Grand Prix’ events for five seasons with the Singapore Tourism Board sponsoring 60% of this contribution. Singapore in turn reaped a bounty of tourism benefits. Asia and F1 share multiple common interests, but racing is arguably not on top of the list. One of latest tracks to debut is the Abu Dhabi circuit, a course which runs through a hotel, boasts 20

turns and features Yas Island Marina, a water park and sports facility. Despite these flamboyant displays, the flat and featureless Abu Dhabi track has been criticized for a lack of overtaking spots. As an avid Formula One fan since CCTV started broadcasting races in 2003, I found Abu Dhabi’s F1 race painful to watch. The wide chicanes and excessively long straights add little character to the racing and hardly live up to my dreams of exotic motorsport. Although the Formula One circus will roll into China’s financial capital which is holding its seventh annual Shanghai Grand Prix this month, the sport is a long way from piercing the market and raising the level of the local motor-racing culture to dizzying heights. Observations into motives of these new venues suggest that it’s all about business, not sport. Locations such as Malaysia and Abu Dhabi with no history of indigenous motorsport have spent hundreds of millions of dollars to build circuits and buy the rights to hold major races. Unfortunately, the growth of local markets for F1 has been limited. For instance, evening race times in Singapore unfortunately coincided with unpopular afternoon European TV slots. Two weeks ago, the season kickoff in Bahrain was canceled because of political unrest in the country. Broadcasting BUSINESS ASIA • Spring 2011 • 15

General Business

and motor-racing events in China were temporarily called off throughout summer in 2008 to make way for the Olympics. I attended the Shanghai Grand Prix in 2009 and found that the attendees were mainly made up of groups with company-handed tickets rather than motorsport fans. It is widely known that the circuit is not making money through the direct sales of tickets, which at around 1000 RMB a piece can more than pay for a family’s monthly food costs. The Shanghai municipal government paid all the bills for circuit construction, supporting infrastructure and the $50 million per year to host the race.

Asia is also home to a new trend: hosting an F1 race has become a status symbol to showcase growing economic strength.

With around a third of F1 World Championship races now taking place in Asia, the sport offers unprecedented business opportunities for each region’s key companies, who wish to associate their products with the spectacle that is Formula One. Because most F1 sponsors and half the teams are made up of car manufacturers, China remains a priority with its status as an emerging car manufacturing hub, and so is Asia in general. The manufacturers build and sell cars in China, the largest potential market in the world, where car sales have surpassed the US in January this year. The health of Asian financial markets and

The problem also extends into the realm of business and sports culture in China. China won 51 gold medals in the Olympics and most sports are supported by the state. Perhaps a future solution is to develop Chinese drivers and national teams, similar to what Force India has done to generate local support in the sport.

the sport’s approach to the region remains a key to its own future. Bernie Ecclestone, head of Formula One Management, has also highlighted recent global partnership agreements that F1 has signed with Korean electronics giant LG and Swiss bank UBS and said that these had generated further confidence in the sport to the benefit of teams. “There are an awful lot of companies who want to get involved in Formula 1,” he enthuses. Ultimately, to transform Asia into a profit center in the long-run, it is essential to spark greater interest in F1. For ardent fans, F1 is about adrenaline, not advertising. I don’t just smell burnt tire in the air. I’m sure you also sense the palpable excitement racing through Asia all round.

Photography by: Mike Renlund Source:

16 • BUSINESS ASIA • Spring 2011

The Window to China’s Currency for Foreign Investors


Photography by: Meng He Source:


erhaps you’ve heard of all of the food metaphors from various news sources made on ‘dim sum’ bonds in the past year. First introduced in 2007, dim sum bonds rose sharply in popularity in 2010, when the Chinese government loosened previous regulations on renminbi (RMB) circulation in Hong Kong. Dim sum bonds, issued in Hong Kong and denominated in RMB, are debt instruments that allow investors to gain exposure to the otherwise highly restricted currency. They provide the issuers, foreign companies that hope to continue expanding in China, an opportunity to directly raise funds in the local currency, as opposed to being exposed to higher risk from foreign currencies1. Because of the anticipation of the Yuan’s appreciation, issuers are also able to
Any corporation can issue a dim sum bond, foreign or domestic. Until 2010, only Mainland China-incorporated financial institutions were permitted to issue dim sum bonds.

borrow at low rates—an example would be Unilever’s recent issuance (March 2011), where the multinational conglomerate was able to price its bond at a yield of 1.15%. Similarly, McDonald’s issued an investmentgrade two-year dim sum bond with an interest rate of only 3% last August. Caterpillar followed the lead a few months later and raised the equivalent of $156 million USD with bonds that paid just 2% per year. Synthetic RMB bonds are another type of debt instrument that is quickly gaining favor in the fixed income market. Synthetic RMB bonds are often considered the “substitute” for dim sum bonds. While dim sum bonds are attractive to both parties, they can be a hassle to issue because issuers need the government’s approval when sending their bond proceeds onshore. On the other hand, synthetic RMB bonds do not face this problem. Synthetic RMB bonds are synthesized—that is, they are denominated in renminbi but settled in US dollars or Hong Kong dollars. BUSINESS ASIA • Spring 2011 • 17


Chinese property developers have started a trend since the end of 2010 when Shui On Land tapped the market with its three-year synthetic offshore renminbi bond. These bonds are, similar to dim sum bonds, also issued at a much lower yield than their plain-vanilla USD counterparts. An example is China SCE Property’s fiveyear synthetic RMB bond, which was sold at a yield of 10.5%, and on the same day, China South City issued similar bonds (USD) at a yield of 14.25%. The current issuance of dim sum and synthetic renminbi bonds is relatively small—less than 100 billion Yuan total as of January this year. However, China, seeing to further foster the globalization of its currency, has begun to soften barriers in the market. Recently, the People’s Bank of China (PBOC) granted approval to another eight overseas banks to trade in the onshore

debt capital markets at Barclays Capital affirms that the market “offers significant potential beyond the Chinese real estate sector,” and that “we [can] expect to see a broader range of private sector Chinese issuers exploring this market,” according to FinanceAsia. The relatively low coupon rate for issuers, an opportunity to gain access to the renminbi for foreign investors, and the Chinese government’s desire to internationalize the Yuan are some of the more prominent reasons that the renminbi bond market will soar. Several other factors will also fuel the continued expansion of this market. One of the major factors is the acceleration of the amount of renminbi trade settlements in Hong Kong2. In January, the Hong Kong Monetary Authority (HKMA) announced that Hong Kong branches of


interbank bond market. Moreover, understanding that there is an enormous amount of growth potential for renminbi fixed income instruments, banks such as HSBC and Citi announced the launch of benchmarking tools for investors: the CNH bond index and the Dim Sum Bond Index, respectively. These developments are amongst the reactions of the market to quickly address previously perceived problems. For example, China Bond Research mentioned that in order to provide a more active, liquid market for renminbi bonds, there must be greater diversification in the entities that issue these bonds. Already, we can see a growing number in the volume of bonds issued by Hong Kong and foreign entities. Furthermore, Jon Pratt, head of Asia 18 • BUSINESS ASIA • Spring 2011

mainland banks would be able to offer RMB directly to Chinese enterprises that will be making overseas investments. This will not only allow room for the expansion of other RMB products and services, but also enable Chinese State-Owned Enterprises (SOEs) to complete direct foreign acquisitions more easily. In addition, worries of inflation will push the government to have SOEs transfer RMB funds abroad. As a result, the volume of RMB deposits in Hong Kong will continue to expand, which provides further opportunity to use this growing reservoir of funds for investments in the renminbi fixed income market.
In fact, the accumulation of RMB in Hong Kong was one of the main reasons dim sum bonds came to exist in the first place.


Other components are developing derivative services and continuing to encourage the growth of Hong Kong-based IPOs denominated in RMB. This would allow a wider range of investors to increase the amount of Yuan they hold offshore. Moreover, the expansion of this market would further the diversity of the types of bonds issued, such as in terms of credit quality or the structuring of the bonds. One of the basic things we’ve learned from modern economics and finance is that where there is demand, there will be supply. There is already unmatched demand for renminbi bonds. When Caterpillar issued its dim sum bonds last November, the bonds sold out within 20 minutes. What’s more is that these bonds were seven times oversubscribed, despite the low coupon rate. A similar situation occurred when Shui On Land first announced its synthetic offshore issuance in December—the bonds were over 21 times oversubscribed. A month later, the Hong Kong based real estate company came back with a second issuance that raised RMB3.5 billion ($531 million). Though still considered “nascent,” renminbi bonds are highly sought after and the industry is quick to respond to any obstacles that may be in the way of developing a mature market. Indeed, its development is a win-win situation for all parties involved. And perhaps in just a few months, we will be seeing securities named after TVB or LKF.3
TVB is one of the biggest TV stations in Hong Kong, and LKF is the city’s clubbing district. Sorry, I couldn’t resist. After all, what is a good article (about RMB bonds, especially) if it does not end in a lame joke or metaphor?

BUSINESS ASIA • Spring 2011 • 19

Outlook for the Anglo-Australian Mining Giant Bullish but Cautious Investing


or Australia’s BHP Billiton, the world’s largest diversified mining company by revenue, the 2008 financial crisis and the subsequent recession seemed to portend the end to an era of burgeoning revenues and profits. Yet, two and a half years after the implosion of Lehman Brothers, it is evident that BHP’s unwelcome respite from rapid growth was decidedly short-lived. After a brief hiccup, the crucial rapid Chinese economic growth has resumed, in stubborn defiance to the government’s attempts to implement countercyclical macroeconomic policy, while the global economy continues its healthy recovery. On February 16, 2011, BHP announced earnings for the second half of 2010 at $10.5 billion and revenues of over $34 billion, an increase of 71% and 39%, respectively, from the same period in 2009. The improvement was capped by a 10% dividend increase and the commencement of a $10 billion share buy-back program. Both BHP Billiton Ltd. (ASX) and BHP Billiton Ltd. (NYSE: BHP) attained new 52-week highs in early March but have since retreated slightly. BHP’s ADR shares have climbed over 110% since March 2009. The company’s outstanding performance over the last 24 months relative to its major competitors clearly indicates that it has the potential to rise further. However, despite record earnings in 2010, robust predictions for 2011, and a steadfast commitment to expansion and diversification through acquisitions and organic capital investment, recent geopolitical events and macroeconomic uncertainty should give BHP new

reasons for concern. One might also argue that BHP’s sensational recovery-fueled ascent from its 2009 nadir has run out of steam. The company’s fundamentals are impeccable, but independent and external forces could arrest its expansion. Bullish outlook The company’s P/E ratio of about 16 is lower than the sector average, while its profit margin is nearly 24%, significantly higher than its competitors. Its dividend yield of approximately 2% is slightly disappointing, given the company’s strong balance sheet and cash position, but understandable due to its significant commitment to future expansion and diversification. Moreover, its five year dividend growth of over 20% indicates the company’s commitment to increasing its yield. Additionally, BHP boasts a relatively low level of long-term debt. BHP benefits from resource-type diversification and significant economies of scale. Mining facilities involve high start-up costs but subsequent expansion at existing facilities can be achieved cheaply. The company predicts robust long-term demand for its products and consistent future profitability. According to BHP’s most recent half year earnings report, BHP “expects to be profitable even during market downturns.” The company has been pursuing a strategy of diversification across basic resources, including an aggressive drive into potash, oil, and natural gas. In late February, it acquired Chesapeake Energy’s shale gas assets in the

20 • BUSINESS ASIA • Spring 2011


United States for $4.75 billion, increasing its total gas assets by nearly 50%. BHP intends to increase its oil and gas production by 50% by the end of the decade. The mining giant also plans to spend $80 billion on capital investment through 2015. Additionally, a strong balance sheet affords the company the wherewithal to make further acquisitions to supplement organic growth. Digging Deeper Despite rosy internal predictions, potential risks to BHP’s continuing stellar performance abound. BHP, like many major basic resource producers, is heavily reliant on the strong Chinese economic growth to support prices and drive EPS growth. Chinese demand comprised 63% of the global demand for metallurgy coal, 56% of that for iron ore, and over one third of the global demand for aluminum, copper, and nickel in the twelve months ending on June 9, 2010. Decelerating growth or inflationary pressures in China would undoubtedly cut into BHP’s earnings. Slowing global growth, and the consequent reduction in resource demand, would also cut into the miner’s earnings. In addition, government regulation has been a constant headache. The previous Australian government under Prime Minister Kevin Rudd imposed the burdensome Mineral Resource Rent Tax in July 2010, which will cut into earnings and depress future investment in the country. Compliance with environmental regulations is always difficult and is unfortunately exacerbated by

national regulation differences. Finally, BHP’s sheer size and market share in the mining sector have made it the target of competition regulators around the world. An attempt to acquire Rio Tinto, another Australian mining giant, in 2008, and a subsequent effort to form a joint partnership with the firm both failed partially as a result of fierce regulatory opposition. Its attempt to acquire Potash Corp. of Canada also collapsed in the face of regulatory resistance. The disparate global web of anti-trust laws could hamstring the company’s expansion efforts. A final risk is the failure to integrate new acquisitions and diversify production without creating structural inefficiencies. Despite macroeconomic uncertainties and independent exogenous hazards to continued growth, BHP’s current situation is decidedly favorable. It is unrivaled in efficiency and productivity among its major competitors and is well positioned to benefit from further economic expansion globally, and in the developing economies of East Asia in particular, without being overexposed to potential deceleration in China’s GDP growth rate. Its current financial figures are flawless and expectations for the future are bright. Shares of BHP Billiton have had a remarkable run since March 2009 and further growth looks set to continue. With an optimistic outlook and the music still playing, it’s still not too late for investors to buy in and join the party.
Photography by: Joost J. Bakker Source:

BUSINESS ASIA • Spring 2011 • 21



By Catherine Zhang, Northwestern University

22 • BUSINESS ASIA • Spring 2011

Photography by: Mishel Churkin Sources:


decade ago, cynics could easily argue against the proposal for US companies to establish online businesses in China. They pointed to the slow internet transaction speed, the lack in number of internet users, the low level of interest in online spending, the delayed adoption of safe methods of payment, and a multitude of other deal-breaking rationales. Today, the online landscape in China has changed entirely. In 2008, 220 million people in China were web users, overtaking the number in the US, and making China home to the world’s largest online population. Chinese e-commerce sales topped $38.5 billion in 2010, with an annual growth rate greater than 100%. With soaring numbers and drastic increases in sales revenue, US companies from state to state joined the bandwagon, with the deep faith that China was the iconic location for business expansion. As much as this initial impression of the Chinese e-commerce landscape is notable and even heartening for American business leaders, it is actually no less difficult for a US company to establish e-commerce in China as compared to a decade ago. Facing harsh technical and cultural obstacles, many US companies have actually found it a tremendous challenge to penetrate China’s e-commerce market. Competition Many US firms fail to realize that the sweeping increase in Chinese web users was made possible mainly due to the establishment of popular and widespread local internet sites. China’s e-commerce sites such as, and strongly dominate the online shopping market. This makes it extremely difficult for US companies to push forth their own brand names, especially in a nation where their name would be completely new and foreign. Take eBay’s attempt for example. In 2003, eBay entered China’s C2C market by acquiring EachNet, China’s number one online auction company at the time. Within a year, eBay occupied only 35 percent of China’s C2C market, with Taobao occupying 50 percent. Today, eBay continues to lose market share every year in a market dominated by Taobao, which occupies more than 80 percent of the C2C market share. The Law When discussing the impact of Chinese law

on US e-commerce, a couple of big-name companies come to mind: Google, Facebook, and Twitter, just to list a few. Google’s refusal to comply with China’s censorship laws, combined with its decision to pull out of China and redirect all mainland users to hk, has led to its long-term “battle” with the Chinese government. The move by Google left the field open to domestic giant Baidu, whose shares have climbed more than 50 percent ever since Google announced its decision in January 2010. “The ongoing battle between Google and China sometimes reads like a spy novel, featuring a giant technology company clashing with a cadre of totalitarian overlords,” as an illustration by an online blogger goes. The argument about e-commerce laws cannot be made without the discussion of Facebook and Twitter. Simply put, both of these dominating social network sites in the US are banned in China. Instead, the top social networking sites include QQ, 51, Renren, and Kaixin. Culture Though overstated, it must be said that Chinese culture is indeed different from Western culture. While many online businesses have adopted Alipay (China’s answer to PayPal), Chinese consumers still do not have nearly the same level of trust in online transactions as US consumers do. China is a country where counterfeiting and the production of dangerously flawed products is rife. Consumers in China still prefer to physically examine their products, determine the quality, and if satisfied, pay in cash. This preference is only strengthened by scandals that cast doubt over the operations of online companies. Alibaba’s recent debacle is a case in point. In February 2011, Alibaba announced that the company’s CEO and COO would both resign to accept responsibility for the company’s involvement with fraudulent activity. An investigation found that sales managers and supervisors had “either intentionally or negligently” accepted 2,236 fraudulent dealers. However, there are other cultural factors that are not intrinsically embedded in the minds of Chinese consumers and therefore are more likely to be accommodated by US companies. From minor issues such as the color of a web page or the style of a layout, to more critical decisions involving marketing and advertising strategies, culture plays a significant role. BUSINESS ASIA • Spring 2011 • 23



Groupon presents an interesting case. In March 2011, Groupon set up its first deal in China. On one hand, Groupon’s success in the US and the fact that there is no single dominating coupon site in China suggests that it could prove to be very profitable. On the other hand, while Groupon does capitalize on top social networks in China such as QQ, Sina, Kaixin, and Renren, critics frequently argue that Groupon is an “example of minimal localization,” with its Chinese e-commerce website having the exact same layout as Groupon in the US. There is no direct evidence that Groupon is tailoring its efforts to the tastes and preferences of Chinese web users. Then there was the Tibet advertisement during the Super Bowl, where Groupon made light of the political controversy between China and Tibet and drew criticism from thousands of viewers across the globe. As reporter Rob Schmitz expresses rather crudely but accurately, “One of the first rules you learn when you do business in China is to steer clear from the three most sensitive issues among the Chinese -they’re known as ‘the three T’s:’ Taiwan, Tiananmen, and Tibet.” We still anticipate seeing whether the Tibet ad will jeopardize Groupon’s partnership with Tecent and its sales in China in the coming quarter. Geography About 45 percent of web users in Shanghai shop online, while 85 percent of net surfers in the US do. The numbers are even lower in regions like Sichuan, Zhejiang, and Jiangsu, all of which have online shopping populations of only between 20 and 30 percent of their total web users. The low and uneven distribution of online shoppers makes it difficult for US companies to set up headquarters and deliver products throughout the nation. The size and vast distances in China also limit the scope of e-commerce. US companies usually limit deliveries to major metropolitan areas. The lack of high-tech mailing infrastructure in rural parts of the country hinders a US company’s ability to deliver products. The meaning of it all Finally, we should take a closer look at our financial information and reassess the meaning of the tremendous growth in the number of internet users. The rapid proliferation of internet usage should not be 24 • BUSINESS ASIA • Spring 2011



“it is important, however, for firms to recognize the obstacles and risks involved with expanding e-commerce into China.”

taken at face value. The boom in internet users is mostly due to the diffusion of internet usage to groups with lower educational backgrounds and incomes. Three quarters of Internet users in China have an income of less than RMB 2000 per month, about US$300. In 2008, online spending accounted for only 0.66% of total retail spending in China, and 70% of all purchases in the B2C market are paid cash-on-delivery. These statistics make the sales prospects of e-commerce in China slightly less promising than they initially seemed. The goal here is not to bash at the thought of establishing online businesses in China, nor to suggest that firms do otherwise. It is important, however, for firms to recognize the obstacles and risks involved with expanding e-commerce into China. Firms need to consider all possible perspectives when strategizing business and marketing plans for such an expansion: it is important to understand not simply the business landscape in China but the entire online landscape; not simply the trade and censorship laws but also cultural norms and preferences; not simply the large cities that reap in sales but the entire geography of the nation. Finally, the fact is that it is still much easier for US companies to enter the Chinese online market through existing Chinese channels and networks rather than try to establish their own e-commerce system in China. For example, Levi’s entered China’s market through Taobao, and Groupon and by partnering Tencent. In terms of e-commerce, we have to agree that US companies looking to expand into China should “Think globally, act locally.”

The Facebook Phenomenon:
Facebook’s Viral Diffusion is Missing in Japan
By Tully Cheng, Cornell University


Is Facebook in Trouble? Founded in February 2004, Facebook has grown into a social network giant with over 500 million members. While countries such as the United States, Australia, and United Kingdom have embraced the Facebook fever, Japan has surprisingly steered fairly clear from this social networking site. With a huge population of one hundred million citizens, Japan only has two million of its residents using Facebook. What is the cause of Facebook’s lack of penetration in Japan? The answer is not that the Japanese are opposed to networking sites; in fact, the phenomenon can be summed up in one word: Mixi.

Mixi, which was founded in 2004 by Kenji Kasahara, is a specialized social networking site that has obtained over 21.6 million users since May 2008 and currently controls an 80% share of the social networking market in Japan. Similar to other social networking sites, Mixi allows its users to send and receive messages, organize groups and events, and write in their own personal diaries. However, unlike Facebook, MySpace, and Friendster which are looking for every opportunity to expand, Mixi restricts its access to Japanese citizens. Registration on the site requires a legitimate Japanese cell phone number which prevents frauds and hoaxes. BUSINESS ASIA • Spring 2011 • 25

Why do Japanese People Prefer Mixi over Facebook? At first, it may appear that the Japanese population prefers Mixi over Facebook because Mixi is a domestic company. However, this does not explain why Twitter is doing so well in Japan. In order

Nevertheless, the largest problem of Facebook is privacy. In a survey, 89 percent of Japanese internet users have confirmed that “they are wary of using their real names online.” The Japanese cyber population emphasizes anonymity by using nicknames and pseudonyms. Facebook’s requirement of real names is a concern to the Japanese population. Maiko Ueda, a user of Mixi, notes that she is suspicious of “how open it [Facebook] seems.” “What if strangers find out who you are?” she exclaims, “or someone from your company?” Even more damaging to Facebook’s marketability are Facebook’s recent privacy issues. In the past, personal details and information were sent to outside corporations and privacy data were accidently made public. In a society where privacy is of great concern, leaks of personal information are detrimental to Facebook’s reputation. How is Facebook Trying to Reestablish it’s position? How big is the Japan problem to Mark Zuckerberg and Facebook’s future? Pretty big. Zynga, the notorious creator of online games such as Farmville, has chosen Mixi as its medium in Japan. Farmville was released through Mixi this December, and Robert Goldberg, the CEO of Zynga, expects further business cooperation between Mixi and Zynga to come. Nevertheless, it is too early to count Facebook out of the running. To compete against Mixi, Facebook has created a feature which allows users to link their accounts with Mixi. While connecting with friends on Facebook, Mixi users now have the option to directly update their status and posts on Mixi from Facebook. With the inclusion of this new feature, Facebook intends to win over a large portion of Mixi users. But the battle for supremacy is far from over, and moreover is not limited to the Facebook-Mixi relationship. Gree and Mobage-town are also fast growing social networking sites in Japan which deter Facebook’s penetration into the region. According to recent statistics, Gree has attracted over 22.5 million users while Mobage-town also has over 20 million users. All three sites now allow third-party developers to create apps for them. If Facebook plans to successfully occupy the Japanese market, it must update its interface to overcome its current deficiencies and become a better social networking site than its current competitors.

to understand the Japanese preference for Mixi, we have to dig a bit deeper. For starters, Mixi began as a response to the creation of Friendster, which was developed much earlier than Facebook. Thus, Mixi had already begun setting up a social network structure within Japan before Mark Zuckerberg even initiated the Facebook Project at Harvard. Furthermore, Mixi is more culturally oriented toward the Japanese society than Facebook. A complaint that many Japanese citizens have is that Facebook’s Japanese-language site is awkward to use. While Facebook allows users to show their “Relationship Status” and “Interests,” Mixi permits users to display their “Blood Type” and “Footprints.” In Japanese culture, blood type is believed to be a strong indicator of one’s personality, and is very important in determining compatibility with other people. Similarly, the characters in Asian languages are very different than those in Western prose; many Asian languages require fewer characters to convey the same message. Thus, while the Twitter tweet fills the role of shorter messages, Mixi fills the role of longer “diary posts.” Facebook is thus left as a clumsy in-between product. Whereas Facebook fails to capture these cultural considerations, Mixi shows itself to be more in tune with the Japanese culture.


26 • BUSINESS ASIA • Spring 2011

Will alsofindSuccess
By SoYoung An, Cornell University



n recent years, it has become normal for us to expect Wifi in all public places such as libraries, cafés and even buses. It is now not unusual to watch people “Skyping” in cafés with their laptops or smartphones anymore. Furthermore, the development and popularity of online social network services such as Facebook and Twitter have allowed us to reconnect with or talk to high school friends who live in opposite ends of the world or whose contact information was long lost. Internet, smart-phones and computers have penetrated our daily lives to such an extent that they have finally become an essential part of it; Korea was not an exception to this phenomenon. As a result of the growing popularity of smartphones and online social network services, its related businesses – existing and new – have poured into the industry. One of the recent innovative businesses is “Social Commerce.” Social commerce is a subset of electronic commerce in which sellers are connected to online social networks. Today, the concept of social commerce has been broadened to a range of

social media tools and content used in the context of e-commerce, such as social advertising and social shopping tools. One of the representative aspects of social commerce is social shopping, in which consumers can get huge discounts for products or services by sharing their online shopping experiences, since they are in effect advertising those products. Since consumers can obtain the same products or services at a much lower price through social commerce websites, that industry has gained enormous popularity over the past three or four years in the U.S., and finally arrived in Korea about a year ago. Like the U.S., the popularity of social commerce burst in Korea. Korean consumers were enthusiastic about this service, as they could now get high quality products and services with even better deals. Reflecting this fact, 600 publicly registered social commerce websites have been created in a year, and still more websites are being created in Korea. Some of these websites have been successful, generating huge profits, but some have failed due to the fierce BUSINESS ASIA • Spring 2011 • 27


competition in this industry. One of the biggest and the most successful social commerce websites is ‘TicketMonster’, which was established in May 2010. It was also the first proper social commerce business that opened in Korea. Benchmarking the world’s biggest social commerce firm is Groupon; it has generated 20 billion won (about 2 billion US dollars) in the seven months since its establishment. Considering the market size and population of Korea, this has become one of the rapidest growing IT ventures in Korea. Starting from TicketMonster, other social commerce businesses with similar structures have entered the industry, and are constantly vying for shrinking market shares. In Korea, the three most powerful social commerce firms with the largest market shares are TicketMonster (the biggest), Coupang, and We-MakePrice. They have all been created within Korea and have had no competitors outside of the country until Groupon launched GrouponKorea this March. As mentioned earlier, Groupon is the world’s largest social commerce firm, established in 2008, and has been branching out to other countries, developing globally. Many experts anticipated that GrouponKorea would cause measurable damage to existing firms in Korea with its worldwide reputation and strong capital. However, since its launch, GrouponKorea has not broken into the Korean market industry yet.

One of the biggest reasons is that Groupon chose an inopportune moment to enter the industry, as it did so after strong competitors had already firmly established their reputations. Furthermore, Groupon has not tailored their marketing strategy specifically to Korean tastes, whereas Korean social commerce firms operate their businesses entirely according to local preferences; Groupon’s strategy of importing the same operating structure they use in the U.S. might not be suitable for the Korean market. However, affirmation of GrouponKorea’s failure is too soon as it has been open only for about six weeks. In this short period, GrouponKorea has been ranked between fourth and twentieth place in various social commerce ranking websites in Korea. This shows that GrouponKorea has more power than any other newly created social commerce firm, and undoubtedly has the potential to capture a larger market share, taking customers away from the three other powerful Korean social commerce firms with its enormous capital. Whether or not they see GrouponKorea as a formidable competitor, TicketMonster, Coupang and We-Make-Price have started producing T.V. commercials to further promote themselves. This suggests that the competitiveness of this industry will only become fiercer. GrouponKorea’s reaction is sure to be interesting, and I am looking forward to seeing how it will manage its future in Korea.

28 • BUSINESS ASIA • Spring 2011

High-Speed Rail in China: Where the Tracks Lead

By Dominique Wang, Cornell University



alf a century ago, the construction of nearly 50,000 miles of the Interstate Highway System increased productivity and reduced costs in America. A similar process is going on half way around the globe in China right now. But instead of concrete being poured for highways, tracks are laid for high speed rails. With generous financial support from the Chinese government, 11,000 miles of highspeed rail (HSR) lines are currently under construction or being upgraded, in addition to the 5,193 miles of HSR network currently in service. By 2015, the country will boast a HSR network of over 28,000 miles (45,000 kilometers) covering all major cities. But make no mistake; these monumental infrastructure ambitions don’t come cheaply. This year alone, constructing 8,060 miles of high-speed rail will cost China 700 billion RMB (106 billion USD), more than the total output of the African nation of Djibouti in 2009. Why spend all that money then, you might ask? For one, the rapid HSR expansion coincides with the country’s surging tourism development. According to the UN World Tourism Organization (UNWTO), China will be the most frequented country

in the world by 2015, by which time its high-speed lines extending 16,000 km will surely stimulate local tourism and related industries. Wuhan, for example, received a 35.6 percent increase in visitors in the first seven months since the Wuhan-Guangzhou high-speed line opened in December 2009. Even more significantly, Wuhan saw a 37.826 trillion RMB increase in revenue from tourism, or a 43.8 percent jump from the same period in 2008. This increase in revenue from tourism translates to more employment opportunities as well. For example, after the Beijing-Tianjin Railway opened as the nation’s first HSR in August 2008, swarming tourists spent a staggering 95 trillion RMB in Tianjin. To meet the increased demand, over 100,000 people were trained for Tianjin’s tourism and hospitality industries. To a lesser extent, the economic impact will even help create new urban centers and increase property price. Aside from tourism, the tracks also serve a less glamorous but perhaps more significant purpose. The newly built passenger designated HSR will open up freight capacity, reducing cost and ensuring the timely delivery of goods and commodities. Currently, cargo often has to give way to passenger transport in China’s over-taxed freight rail system, and as a result, BUSINESS ASIA • Spring 2011 • 29

businesses are forced to move them on more expensive and less efficient trucks, often creating massive traffic congestions. For every ton of cargo, freight carried by rail costs nearly 70% less than carriage by truck, uses 77% less energy and produces 91% less carbon dioxide emissions. An expansion in the passenger train HSR network will free up rail capacity to put freight back on trains, generating huge savings and preventing traffic congestion to the likes of the nine-day epic jam last summer. For an export economy like China, cheaper transportation cost undoubtedly means greater economic gain. The Chinese HSR building boom is not without criticism. Amid concerns that the HSR service is not catered to the average traveler and that ticket prices are too high, critics of the HSD expansion are also raising worries over the potential financial risks. Because of the hefty cost of building the railways, railway construction and railcar companies are increasingly relying on bank loans and bonds to finance these enormous projects with repayment commitments that may be difficult to meet given the less than optimistic revenue outlook for some routes. For instance, despite bringing in revenue for local businesses, the aforementioned Beijing-Tianjin line will not make enough profit for annual interest payments on its loans. The uncertainty surrounding the financial future of HSR has led one commentator to assert that the sprawling HSR construction is dictated by “political impetus” rather than “market needs.” Despite increasing public concerns about the massive undertaking, an 870 mile high-speed link between Beijing and Shanghai is set to open in June this year, indicating that the program is showing no sign of slowing down. Whether China is overreaching with its HSR boom is yet to be seen. One thing is certain, however. With a $13 billion deal with Iran hammered out and plans to bid for California’s HSR, China has captured the attention of the world with its high-tech trains and creativity. Besides the economic development the HSR may bring, the high speed lines stretching to the most remote corners in China may perhaps bring the country of 1.3 billion the spirit of adventurism the Interstate Highway System in the U.S. created. And perhaps one day, one can, just as the Chevy Volt commercial so proudly proclaims, take “last minute detours and spontaneous acts of freedom” in the good ole’ US of A, in China. 30 • BUSINESS ASIA • Spring 2011


China’s Housing Bubble

By Olena Nazarenko, Cornell University

Real Estate


ver since 2004, a year prior to the origin of the United States housing bubble, the collapse of which resulted in people defaulting on their mortgage payments, foreclosure on houses by banks, hikes in unemployment rate, and decreased demand in commodities, a housing bubble has been stealthily inflating in China. Presently, three years after the United States bubble burst and seven years in the making, the Chinese housing bubble is shrouded with speculation and fear of the potential consequences of its collapse. The cost of housing has been rising continuously in the cities of Fuzhou, Xiamen and Shanghai, with a 1.1 to 1.5 percent growth since January. This is a slower increase in pricing compared to trends over the past five years, which saw a 140% increase in housing prices in Beijing and Shenzhen. Currently, residential housing investments make up 6% of China’s GDP—a figure eerily identical to that in the United States at the height of its housing bubble. The housing market crash in the United States

has been partially attributed to lowered interest rates, which were set to allow home ownership for low income families. Banks were to blame as well, as they ignored toxic mortgages and extended credit to people who were clearly not able to pay off their mortgages with their income. Furthermore, speculation was prevalent, with both borrowers and lenders convinced that housing prices would only increase. As both parties assumed that prices would rise, housing seemed like a good investment, further fuelling speculation and purchasing. Current speculation and increased property investment in China mirror events in the United States prior to the collapse of the U.S. housing bubble. With no desire to see the severe effects of a housing bubble burst, China is taking precautions to cool down its market. These precautions include raising property taxes in two major cities and implementing higher down-payments for second homes, methods which ultimately discourage continuous purchase of real estate and restrict the rights of foreigners to purchase BUSINESS ASIA • Spring 2011 • 31

property. However, these changes were not welcomed by everyone. There have been reports of couples divorcing or faking divorces in order to purchase more property, and sales taxes on property are regularly set below 1% (with the exception of Hong Kong, which boasts a 5% property tax). Investment in real estate continued to rise in the first two months of this year by 24.9% to a price of 1.74 trillion Yuan, according to the National Bureau of Statistics. This increase in prices is due to the perception of investment in housing as a typically safe way to achieve high returns on one’s investment. At the same time, China’s urbanization is also contributing to increased demand for housing as workers migrate to the larger cities in search of work. China hopes for a better outcome with the construction of subsidized housing for rent or sale to low-income residents, an undertaking expected to cost 1.3 million Yuan ($198 billion dollars), which is a third of what China spent on its economic stimulus package during the financial crisis. The goal is to allow for continued growth, while preventing further speculation and curbing inflation. The most feared outcome of property speculation is stagflation. Though this outcome is unlikely—the economy is expected to grow another 9.3% this year—the risk of increased prices during April, which would result in a downturn for economic growth, is still prevalent. Chinese officials therefore plan to construct 10 million units of affordable housing this year, and 26 million in the next four years, to prevent consumer inflation. The increased demand for housing is not an indication of a shortage of land, but rather, evidence as to the sheer number of apartments that are uninhibited. According to a nationwide report of electricity usage, 64.5 million apartments may be empty, as they were bought solely to invest capital in a traditionally safe market. Although speculation about the possibility of the bubble bursting has been ongoing for the past couple of years, no one is truly certain as to when the housing market will collapse. However, there is no question that China’s economy is of great concern for the whole global community. If, or when, the housing bubble bursts, all nations will see a decrease in demand for commodities, ranging from the steel outputs of Brazil—China is the world’s largest consumer of steel— to iron ore from Australia. After taking into account the commodities used to construct the housing units 32 • BUSINESS ASIA • Spring 2011

Real Estate

including the appliances, furniture, décor and much more that goes into each unit, housing contributes about 17% of China’s GDP. The demand for these commodities will decline with the collapse of the housing market. Unlike the United States, China does not rely heavily on imports, thus it is likely that China’s domestic market will take a large hit. Beyond this, the effects of a slowdown of the Chinese economy will be felt all over the world. Decreased Chinese demand for Brazilian steel would hurt Brazil’s economy, which would in turn have less capital to import goods from the United States. One way or another, all markets globally are tied to the success or failure of the Chinese market, and there is no doubt that in the future, this housing bubble will affect us all.

Emily Sutanto: The Activist, Lobbyist and Entrepreneur

By Iwan Kurniawan, Cornell University

“Farmers are getting poorer and poorer – it’s the law of the jungle here you know.”
-Emily Sutanto, Founder of Bloom Agro, 2011



n 2007, Emily Sutanto had an unlikely meeting with a farmers’ cooperative that would serve as a catalyst to change both her life and theirs. Prior to meeting with the farmers, Emily was concerned with advancing her career as a performing artiste in Singapore. Over a conversation with a family friend about the struggles of rice farmers in Indonesia to access markets, Emily was inspired to help the farmers increase their income. She traveled six hours southeast of her home in Jakarta to Tasikmalaya, where some 2,000 rice farmers representing 25 farmer groups from the Simpatik Farmers’ Cooperative were flailing. Their innovative production methods using the System of

Rice Intensification (SRI), had increased their rice yields, but dealing with Indonesia’s infamously bureaucratic government prevented them from accessing lucrative overseas markets. The farmers’ challenge was to capitalize on the demand for fair trade and organic goods in international markets. In founding PT Bloom Agro, Emily galvanized the loosely organized cooperative, obtained international certifications, convinced the government to end their export ban on rice, and connected the farmers to the global organic food market. Through Emily’s efforts and diligent cooperation with the farmers, Bloom Agro became the first fair-trade, organic rice exporters in Indonesia. BUSINESS ASIA • Spring 2011 • 33


Emily Sutanto Emily grew up in a Chinese-Indonesian family in Jakarta. Her father, a successful businessman in the construction and coal industries, is a public figure, a role rare for Chinese-Indonesians in modern Indonesian politics. He is very active in representing Indonesia in the Association of Southeast Asian Nations (ASEAN). As is the custom with many wealthy Indonesian families, Emily was sent to neighboring Singapore for education. She then continued her higher education in Australia and the United States, before moving to Singapore to pursue her career in entertainment. Upon returning to Indonesia she found it hard to fit in, and labeled herself a “sufferer of Third Culture Kid syndrome.” The culture and norms in the conservative Indonesian society seemed at odds with the free spirit she had become. In 2008 Emily found her calling when she stumbled upon the story of the Simpatik cooperative in west Java through a family friend over dinner one night. Although the cooperative already existed, she arranged their training and certification in organic farming and improved the cooperative’s internal governance. Capitalizing on her family network and channeling her enthusiasm into the organic rice business, Emily convinced the Ministry of Agriculture, Ministry of Trade, Ministry of Finance, and Bureau of Logistics to change the regulations and allow specialty rice – the type of rice the cooperative grows – to be exported. Bloom Agro Emily launched Bloom Agro in 2008 with three goals: promote sustainable agricultural practice, improve farmer livelihood and income, and fill the growing niche market for organic rice in Indonesia and abroad. The current role of the company is the distribution of organic rice through domestic and international wholesalers. The company started with just Emily running its full operations. Emily has since recently employed a local to conduct quality control on rice harvests in Tasikmalaya. Simpatik Farmer’s Cooperative and Organic Certification Bloom Agro works with the Simpatik Farmer’s Cooperative in Tasikmalaya, West Java. Simpatik gathers some 2,300 farmers with an aggregate land size of 340 hectares that are certified organic. One of Bloom Agro’s first tasks in establishing the business 34 • BUSINESS ASIA • Spring 2011

was to obtain organic certifications for the farmers. In general, organic certifiers assess the processes and inputs that occur during production from planting to harvest. Each country or region requires its own certification standards. To enable Bloom Agro to export rice to different countries, Emily needed to certify the Simpatik cooperative under a number of different international organic standards. The process was a large challenge for Emily because it was expensive and difficult to assemble and train all 2,300 farmers under one standard. In addition, almost all the farmers in the cooperative did not read or write English, the only language in which paperwork was available. Emily expressed her frustration at the process, saying, “Some farmers did not even have a signature!” Bloom Agro responded by hiring an external consultant to develop the cooperative’s internal governance standards, facilitate meetings, and provide basic training within the cooperative. The Simpatik farmers went through a lengthy process to receive education about organic standards, modify farming to cater to the standards, and complete a large amount of paperwork. Over the course of a year, Simpatik received the Institute of Marketecology (IMO) Fair for Life certification (Social and Fair Trade), and United States Department of Agriculture (USDA), Japanese Agricultural Standard (JAS), and the European Commission organic certifications. Additionally, the cooperative’s mandate and internal laws were set, and training in organic farming methods commenced. By investing in their training and certification, Bloom Agro secured exclusivity in distributing the cooperative’s products under the organic labels. Simpatik Farmers often sell excess rice in the local market, but are not permitted to use the organic certification or labeling. Under the agreement between Bloom Agro and Simpatik, Bloom Agro purchases the season’s output in fulfillment of international orders and domestic demand. The IMO Fair for Life certification mandates that the farmers receive a premium for their rice, which in Indonesia is well above the government set price. After fulfilling export orders, the farmers are at liberty to sell their surplus harvest to the local market. Since the farmers only have access to the organic USDA and IMO certification under the Bloom Agro brand, the farmers usually sell their remaining crop as healthy rice, for which they have become regionally known.

System of Rice Intensification The Simpatik Farmer’s cooperative grows rice using a method of production known as the System of Rice Intensification (SRI). The farmers of Tasikmalaya were introduced to SRI methods back in the 1990s and were among the pioneers of SRI in Indonesia. In 2007, Emily paired up with the farmers of Tasikmalaya to help them reap the benefits of SRI by obtaining a higher premium on their products. This system reduces inputs of fertilizer, seed, and water by up to 50%, while increasing yields by an average of 47%. Whereas the Green Revolution of the 1970s and Golden Rice changed the inputs that rice farmers used, SRI represents a departure from these top-down solutions to increasing agricultural production by changing the methods used to plant and grow rice, rather than relying on new seeds or fertilizers. SRI achieves higher yields than conventional farming by: • • • • Reducing the number of seedlings planted per hole Spacing seedlings further apart Planting young seedlings that have more root tendrils than older seedlings Manually weeding paddies instead of relying on flooded land to control weeds.

and personal network to export rice to several other countries. As of the close of 2010, Bloom Agro had exported rice to the United States, Germany, Singapore, Malaysia and Dubai. In 2010, the company exported 70 metric tons of organic rice, and by February 2011, confirmed orders had jumped to 200 metric tons. The United States, Germany, Singapore and Malaysia remain the main destination of exports, and in these markets Bloom Agro rice is sold under the importers’ brands. In Dubai, Bloom Agro is exporting under its own brand name, SunQuator. Bloom Agro specializes in indigenous Indonesian rice varietals, such as Red Rice, Injin Black Rice, Sintanur Rice, and Cherang Rice. Moving Forward Since founding Bloom Agro, Emily has been able to organize the cooperative, obtained international certifications, lobbied the government to end their export ban on rice, and ultimately, connected the farmers to several international food markets. While Bloom Agro remains in its early stages of operations, Emily has already achieved plenty for the Simpatik farmers and ensured an attractive future for them. Today, she continues to work to open new international markets and has also started opening the domestic market for the farmers.


After adopting SRI farming, the Simpatik cooperative has had an abundant supply of rice. Emily believes that rice supplies will be sufficient to meet demand as she grows her business. Connecting the Farmers to Overseas Markets Emily’s painstaking efforts to promote the welfare and income of the farmers did not go unheard. Through a connection, researchers at SRI International Network and Resource Center (SRI-Rice) based in Cornell University were alerted to Emily’s activities in Indonesia and sent a representative to Indonesia to understand Emily’s work with the Simpatik farmers and the SRI methods employed by the farmers in depth. Fortunately for Emily, the representative’s trip to Indonesia worked wonders for Emily and Bloom Agro. Through another connection right out of SRIRice, Bloom Agro was able to send her first rice export out of Indonesia and to the United States via a specialty rice distributor, Lotus Foods. Since Bloom Agro’s first export, Emily has been able to leverage her attendance at trade shows BUSINESS ASIA • Spring 2011 • 35

The State of Venture Capital in China
By Nolan Jones, Cornell University



hina is a nation of extremes: extreme heat and extreme cold; extreme poverty and extreme wealth; extreme risk and extreme opportunity. Venture capital is the perfect example of this dichotomy within China. While some firms have secured massive returns, these windfall profits are not without significant risk. In order to understand venture capital in China, it is important to first understand the history of business and investment within the world’s rising dragon. Standing as the world’s second largest economy, China is showing no signs of slowing down. This emerging market environment combined with almost a quarter of the world’s population makes China a region of huge opportunity for venture capital investment. This all began with Deng Xiaoping’s policy of reform and opening in the late 1970’s that brought China onto the world economic stage. As the Chinese Communist Party (CCP) began loosening its hold on the Chinese economy, entrepreneurial endeavors and private enterprises began springing up. Privately owned firms have grown in number from essentially zero in 1979 to well over one million by the turn of the century. This skyrocketing of China’s market economy 36 • BUSINESS ASIA • Spring 2011

has propelled China to its unprecedented GDP growth that has continued since the 1980’s. Initial foreign venture capital investments in China, mostly in the tourism and hotel industries of large cities such as Beijing and Shanghai, proved lackluster largely due to lack of expertise and practical experience. However, as China has continued to ensconce itself on the world stage, its foreign enterprises have quickly matured and become just as sophisticated as Western companies. Despite these incredible economic opportunities, emerging markets also have their risks. One important aspect of successful venture capital investment is the ability to curtail risk through due diligence, managing personnel, monitoring the investment, and planning careful exit strategies. The ease of carrying out these safeguards is largely dependent on bureaucratic and industry-specific infrastructure that allows for institutional stability. This is a large concern for China as the CCP has refrained from taking a strong stance to ensure these necessary safeguards. Another potential barrier for venture capital investment in China is the lack of intellectual property rights. With little precedence or opportunity for political recourse, and essentially no enforceable

laws protecting intellectual property, venture capital firms face a unique obstacle in managing their investments in China. However, these barriers have not stopped China from creating a thriving, dynamic market for venture capital investment. The CCP is increasingly showing signs of acknowledging the importance of ensuring foreign investors safety of their money in China. The venture capital industry in China has also made strides to unify its standards and codify market research information in a way that makes investment more feasible. China took a big step forward towards achieving the goal of institutional stability by establishing the China Venture Capital Association in 2002. This organization serves as a venture capital industry trade group with the goal of “[promoting] the interest and the development of venture capital and private equity industry in the Greater China Region.” The increased stability of the Chinese private investment market has given venture capital firms the green light to increase their investments in China. However, two competing models for investment have quickly arisen. The first model follows the normal Western venture capital procedure of early-stage capital investment. The joint Israeli-Chinese venture capital firm Infinity I-China has seen huge profits using this method in China. By investing in the early stages of the IT company Digital China, Infinity I-China was able to monopolize on the company’s exponential growth. In just over one year (from September 2008 to October 2009), the venture capital firm garnered a return of $16 million on an $8 million investment. This is just the most recent in a long line of successful investments in China for Infinity I-China. In 2004, Wu Yi, the Chinese vice-premier of economic affairs, issued venture license number 00001, affording Infinity I-China the unprecedented opportunity to invest in both Yuan and dollars. Along with this, the firm was given the rights to expand their operations from Beijing into Shanghai, Hong Kong, and Suzhou. Infinity I-China’s successes are just one example of the potential benefits of earlystage capital investment. The second model for venture capital investment in China takes a more conservative approach, adopting a late-stage investment strategy. Andrew Rickman of the UK-based Rockley Group claims that the first model of early-stage investment in China is “truly terrifying.” Because China’s policy of economic reform and opening has only recently opened up the

Chinese market to private enterprise, the start-up sector is still extremely volatile. Rickman’s group has achieved its success in China through what it calls post-revenue investments. It hinges on the Chinese practice of entrepreneurs securing family loans and community investments for their start-ups. This allows the Rockley Group to quickly identify the companies that have the sustainable power and stability to warrant an investment. In a nation like China, Rickman believes that the most effective venture capital investment is one that focuses on bringing increased capital and more efficient technology to already successful companies. By making these already viable, revenue-producing firms more efficient, cost-effective, and environmentally friendly, the venture capital investment can increase productivity and therefore profits. This model of venture capital investment emphasizes investment in public service sectors, such as consumer companies, health and safety, green technology, and most importantly healthcare. Regardless of the model of investment used, venture capital firms will increasingly look towards China as they seek to diversify their portfolios. Standards and professionalism in the industry are constantly on the rise, and the creation of organizations such as the China Venture Capital Association provides an even greater level of confidence to foreign investors. China presents a unique set of challenges and obstacles for western investors, but a well-managed venture capital firm with a leader who understands the nuances of the Chinese market can expect substantial profits from the rising Asian giant.


BUSINESS ASIA • Spring 2011 • 37

Asia’s Exotic Foods
By Priscilla Ong, Cornell University

38 • BUSINESS ASIA • Spring 2011


sia is known not only for its diverse cultures and traditions, but also for its smorgasbord of exotic delicacies that never fail to astonish even the most seasoned traveler. For most people, thoughts of exotic Asian cuisine bring to mind Taiwan’s Chau Tofu (smelly Tofu), the pungent and yet strangely sweet flesh of Malaysia’s durians, or even Japan’s Fugu (blowfish) sashimi, whereby improper preparation could lead to poisoning or even death within hours. However, in this article, we seek to redefine the limits of exotic cuisine as we take a trip across the continent exploring the weirdest and most unusual food items, from lamb’s brain in India to silkworm pupae in South Korea. Solely reserved for those with a wild sense of adventure, these bizarre delicacies will shock and awe at every turn. 1. Oriental Chicken Feet, Hong Kong Creatively named “Golden Phoenix Talons”, this popular dim sum (steamed snacks in bamboo baskets) dish can be found in Hong Kong, China, Taiwan, and Singapore. To avoid any unfortunate choking incidents, the toenails of the chicken claws are first removed. The chicken feet are then deep fried or steamed to give them a light and fluffy texture before being stewed in a sauce flavored with black fermented beans, bean paste and sugar. Chewy skin and gelatinous cartilage make up most of the edible meat on the leg and have a distinctly different texture from chicken. For those trying this delicacy for the first time, it is advisable to sample with care to avoid choking on the tiny bones! 2. Bird’s Nest Soup, China Famous for its purported health benefits, bird’s nest soup is an expensive Chinese delicacy that can easily cost up to $100 a bowl. It may thus seem strange that some believe that it should be more appropriately named ‘saliva soup’. However, it is true that this Chinese soup is literally made from saliva; more specifically, it is prepared from the nests of Southeast Asian cave swifts that build their homes using their own saliva. Bird’s nest soup is prepared by soaking and steaming the nests in chicken broth, and the solidified saliva gives the resultant soup a unique gelatinous texture. 3. Cobra Heart, Vietnam In northern Vietnam, snake restaurants are a popular choice for tourists looking for a unique culinary

experience with a taste of local culture. When you first arrive at a snake restaurant, you will be able to select your own meal from a cage full of cobras. After taking a seat, your snake will be brought to you live, with a glass of rice vodka. The chef will first slice the snake’s head off and drain the cobra venom, which is only dangerous when injected intravenously, and blood into the vodka. Next, the still-beating snake heart is carved out and dropped into the glass, and the resultant heart-bloodvenom liquor concoction is meant to be downed in one go. Apparently, you might still feel the snake heart beating in your throat! In addition, the rest of the cobra does not go to waste; snake soup, snake spring rolls and barbecued snake are all common culinary options on the menu at snake restaurants. 4. Tarantula, Cambodia During the years of terror under the Khmer Rouge, the starving citizens of Cambodia turned to deep-frying these giant, hairy arachnids out of desperation. Since then, tarantula has become a common everyday snack for the residents of Skuon in Cambodia. Giant tarantulas the size of a human palm are deep-fried in oil and garlic, and then dipped in lime juice and pepper sauce. The taste has been described as a cross between chicken and cod. Eating tarantula is an extraordinary experience as one can enjoy the contrast between the crispy legs, the white fleshy meat of the head and body, and the pasty brown goop of the abdomen (consisting of organs and eggs). 5. Sannakji (Live Octopus), South Korea Sannakji is a common delicacy enjoyed by locals and tourists alike. A live octopus is chopped up and served immediately, with its still wriggling tentacles and body parts seasoned with sesame oil. Sannakji is extremely chewy, and special care should be taken to chew meticulously before swallowing due to choking hazards presented by the octopus’ suction cups. People often describe the exciting sensation of feeling the active suction cups sticking to their tongues or the roofs of their mouths as a unique part of the Sannakji experience. It is rumored that each year in South Korea, eating Sannakji hastily or carelessly results in approximately six deaths, as people choke to death from suction cups sticking to their throats.


BUSINESS ASIA • Spring 2011 • 39

6. Smoked Bat, Indonesia It seems that the people of Indonesia have overcome their fear of the chilling legend of Count Dracula, as smoked bat is commonly eaten as a dessert dish there. Bats smoked to crispiness might look gory, like skeletal brown mice with huge frozen grimaces, but they reportedly taste delicious and just like beef jerky.

Believed to be an aphrodisiac, it is an extremely popular local snack in the Philippines and is offered by street side vendors and restaurants alike. The proper way to eat balut is to first make a small opening on the pointed end of the egg to sip the broth. Next, the shell is removed and the egg is seasoned with salt. Lastly, the duck fetus is all that remains, and can be consumed with appropriate gusto. While balut is often described as being delicious, tasting of duck and duck 7. Lamb’s Brain, India liver, consuming it may be daunting to some, as one Lamb’s brain is a delicacy eaten most often in may encounter feathers, bits of beak and tiny bones of India. The dish is prepared first by boiling the brains to the partially formed duck fetus in the process. get rid of their distinct smell, and then frying them. It can either be served alone, or with curry, fried tomatoes, and Indian bread. When cooked, lamb’s brain has the consistency and color of tofu, and is described as being tender with a light, mild flavor. Condiments such as chili and olive oil are therefore often added to enhance its taste. 8. Beondegi (Silkworm Pupae), South Korea Literally meaning “chrysalis” or “pupa” in Korean, Beondegi is a common street side food item in South Korea. The silkworm pupae are steamed or boiled, and then heavily seasoned. Often eaten as a Bird’s Nest Soup snack, Beondegi is sold by street side vendors by the cupful. It is also available at restaurants, as well as in cans at grocery and convenience stores. It has a rubbery texture and a gooey inside that explodes in your mouth upon biting, and tastes like its seasoning with subtle nutty overtones. It seems that people either love it or hate it, since the appearance of the little bugs might be a little off-putting for some of us! 9. White Ant Eggs, Thailand In Thailand, what seems like watery porridge containing whole rice grains often turns out to be white ant eggs soup. White ant eggs soup is a delicacy made Fried spicy frog from a mixture of eggs, half-formed ant embryos, and whole ants. It is considered a tasty and healthy snack, by virtue of its nutritious and protein-rich ingredients. This flavorful soup has a mild sour taste (a bit like lime), and the soft eggs pop gently in your mouth. Fully grown white ants are sometimes grilled and served together with this unique dish. 10. Balut, the Philippines Balut is a fertilized duck egg with a nearly developed embryo inside that is boiled in the shell. Oriental Chicken Feet 40 • BUSINESS ASIA • Spring 2011


The Big Guys, Not Who You Expect:
The Growing Problem of Obesity in Asia
By Jeanine Chong, Cornell University



or years, rising levels of diabetes, heart conditions, high blood pressure, and other diseases associated with being extremely overweight have been publicized as immense threats to western societies; the United States in particular has been hounded as the heaviest and most at risk nation in the world. Rarely, if ever, have Asian countries

been thought of as areas with obesity problems, but statistical evidence has proven that more consideration should be given in the future. While levels of obesity in eastern countries are still considerably lower than those in their western counterparts, the rates at which obesity is increasing in all countries are equal – at about one percent per BUSINESS ASIA • Spring 2011 • 41

year. In addition, increasing levels of cholesterol and coronary heart disease plague peoples across Asia. In 2010, an estimated 285 million people were afflicted with diabetes in the world, and new estimates suggest that by 2025, 380 million people will be living with diabetes, half of whom will be living in Asia. It is also important to note that more than 70% of diabetic children in Asia are diagnosed with Type 2 diabetes, which is most commonly caused by obesity. What happened to the assumption that, on average, the two skinniest types of people were Asians and vegetarians? The next statistic might shed some light. In recent years, most Asian countries have seen increased levels of high serum total cholesterol (TC) and coronary heart disease, except for Singapore. TC trends in Singapore showed similar results to those in the United States and the United Kingdom; they were increasing from the 1950s to the 1980s with subsequently decreasing levels due to awareness of bad diets and lifestyle. Singapore is also the only country in Asia that became completely urbanized by 1980. Therefore, burgeoning modernization is directly linked with escalating TC levels. After realization of this imminent health danger, the UK and the US both took steps to tackle this threat (though in both places it still is a challenging problem). Now, as many Asian countries step into the urbanizing limelight, they must also weather the damages it brings to the population. Thus, the origins of the expanding waistlines in the East are exactly the same as those in the West, but as the East is modernizing at an accelerated rate in a shorter amount of time, the resulting damage to healthy living is also hyper-accelerated, greatly straining the already struggling healthcare systems in a variety of countries. As more countries shift their economy from an agricultural to an industrialized one, a more sedentary, fat-rich diet and lifestyle will undoubtedly consume the working population. Downsizing agricultural economies leads to a less independent country in terms of food. As a result, there is an injection of highly processed, unhealthy foods into the daily diets of civilians. For example, China, one of the fastest growing industrial economies on the Pacific Rim, now ingests seventeen times more vegetable oil per capita than it did 20 years ago. Compounded with decreased levels of exercise, adolescents in China are being hit by the brunt of the obesity pandemic. In an environment that very much emphasizes academics over athletics, 42 • BUSINESS ASIA • Spring 2011

Mrs. Su stated that her overweight son “leaves for school at seven in the morning, and doesn’t return till seven in the evening. So after eating and finishing his homework, it’s 10 o’clock, and there’s no time for anything else such as exercise.” In response to cases like Mrs. Su’s son, Liu Tao, weight loss hospitals have been cropping up across the Chinese landscape. In other places, such as Singapore, “Fit and Trim” programs have been established in public schools to reduce instances of childhood obesity, thus targeting the greater issue looming behind the newly inflated silhouettes of Asians – health care. Those who have weight related health issues require expensive and extended medical attention, which puts a huge strain on healthcare systems; eventually the high price tag will come at the expense of the rest of the population. New policies in Southeast Asia might be the way to relieve some of that economic stress. The policy cuts off free health care services for patients earning more than a specified income, but does not change public hospital policies towards patients earning below that threshold. In Malaysia, ten years ago, roughly 20 percent of the populace used private hospitals, but policy makers hope that by 2020, 40 percent will. Singapore has been successful in bids towards private hospitals (moving from 20 percent of patients using private hospitals to 50 percent between 2007 and now) largely due to movements that allow for adjusted procedure prices depending on the income of the patient. China has shown interest in following the successes of the two aforementioned countries. Nevertheless, focus should not be shifted away from the central problem. Bird flu, swine flu, and a variety of epidemics over the years have dampened awareness of the burgeoning Asian obesity problem. As much as the rest of the world, the girths of Asians continue to grow, and appropriate actions to fix the burgeoning problem must be taken.


The Culinary Pride of the Japanese

By Brandon Ho, Cornell University


or a college student on a tight holiday budget, going on a culinary tour of Japan can prove to be taxing on the wallet. But for any college student

of their food as the Japanese. At least that was what I discovered during my trip to Tokyo and Osaka during winter break. Wherever I went, I found food in some


In fact, I have never seen a people more proud of their food as the Japanese.
for that matter, not visiting Japan and not savoring what its cuisine has to offer is one of the things in life which I’m sure you will regret. Step one: Forget California rolls (avocado is almost never found in sushi in Japan), fake wasabi (American restaurants use a mix of Western horseradish instead of the real McCoy), and civilized noodle-eating (slurping noodles noisily is embraced as a compliment to the chef). Step two: Approach Japanese food culture with an open mind. Step three: Enjoy! In fact, I have never seen a people more proud size, shape or form. Plastic food models mimicking anything from ramen noodles to sushi platters provide passers-by with more than a peek into what a restaurant has to offer. Like bees to honey, locals and tourists alike find themselves entranced by how lifelike these models are, from the angle at which a slice of tuna drapes over a ball of rice to the sheen reflecting a good sheet of seaweed. The “food floors” of major departmental stores are a culinary theme park that requires no admission fee, but dispenses the same fun and adrenaline. Whizz past dazzling displays of multiBUSINESS ASIA • Spring 2011 • 43

colored mochi (rice balls with mixed fillings), pickles, tempura, and assorted desserts, and be pleasantly surprised by the painfully exquisite inventions which only the Japanese can conjure. Even convenience stores serve up irresistibly intricate bento sets (rice boxes with sides and pickles), a far cry from what we know of dried-out Manhattan deli takeouts. There is definitely truth to the saying that goes, “the Japanese eat with their eyes”, while many other cultures eat with their stomachs. It’s difficult not to admire the Japanese for their culinary pride and prowess, but it is equally hard to dismiss the thought that they are going way too far. Food in Japan enjoys a divine status. Chefs pursue it with so much passion and precision that any blemish on its taste or presentation calls for a sort of selfimposed harakiri (samurai-style suicide). Ever heard of cows being fed beer and bathed in sake, so that their beef ends up tasting better? Ever eaten sushi off a naked body, lying supine on a buffet table? Ever been to a restaurant where the chef tells you what to eat, and not the other way round? This is Japanese cuisine for you; nowhere else in the world is the line between eccentricity and refinement such a thin one. Through my whirlwind food tour in Japan, I came to the realization that great cuisine does not occur by chance – it takes immense effort and a patient abidance by a set of rules and habits, and its greatness will shine through only in the long run. During my 3-month summer internship as an assistant cook in a Japanese fine-dining establishment, I met a chef whose only task for years was to learn how to cook rice. He taught me about the little things that mattered – the precise water-to-rice ratio, the way to cool the rice, the tossing of rice without breaking the rice grains etc. As I got bored at the end of just one day learning how to cook Japanese rice, I could only imagine the intense passion that he had for perfecting his craft. Don’t call the Japanese crazy for donning each morsel of food in its own beautiful outfit and seeking perfection on every plate. Instead, admire them for their creativity and relentless pursuit of the best – and only the best. Perhaps burning a hole in our wallets for Japanese food is justified after all.


44 • BUSINESS ASIA • Spring 2011


’ll be honest: I’m a student of history, but I’m a man of the present; I might identify as a raging liberal, but also as a hardcore conservative; I don’t like business, but I love the joys money can bring; I am confused with morality, but I’m sure of virtue. We are all confused, the world we live in is confused, and our morality is confused (that is not to say we are immoral). #rage In this existential dilemma, I’ve been lately having trouble reconciling my consumerism with my addiction to moral obligations. How can I readily consume luxuries while other people, the world over,

(samurai class) in payments of rice; naturally the tax burden fell heavily on farmers, but the samurai lived luxurious lifestyles, and needed money to sustain it, but they only had rice to sell. As a result, the economy was warped, and rice was procured from the peasantry in ever-increasing amounts that went straight and exclusively into the pockets of merchants. Strangely enough, in Tokugawa Japan, the Confucian disdain for these merchants was essentially state ideology. The regime was financially propped up from the ideological scapegoats. Therefore in reality, the ruling class, not

Virtuous Commerce:
By Xianyi Seth Chua, Cornell University

Revisiting the Promise of the Merchant

starve? Is he really less worthy of a filet mignon (or food, even) because he is uneducated? What can I do? #bleak (I really should stop with this lame effort to be cool with twitter references. Well, I try.) #unbleak. I was reading about philosophy in Tokugawa Japan (Early Modern Japan 1700s-1800s) when my professor directed the class in a very interesting direction. We discussed the money economy in terms of the enforced rice economy of Shogunate Japan. Taxes were collected by the rulers
Photograph by: Stuck in Customs Source:

the merchant, had become the greedy profiteer. It was in this political landscape where Yamagata Banto was born. He was born in 1748 to a peasant family and was adopted into a wealthy merchant family, the Masuya, in which he grew into fruition and which he brought to new heights. Achieving success, he became deeply involved in the Kaitokudo Merchant Academy in Osaka, a school founded by merchants in the pursuit of ‘truth’. Though his writings were deep and at times existential, his writings on the present and BUSINESS ASIA • Spring 2011 • 45



redistribute goods. He believed that the political market economy, and thus I infer commerce as well, is meant to make society more equal rather than mainly benefiting the wealthy. Tokugawa Japan levied no formal taxes on the merchant class, but Yamagata Banto argued that the nouveau riche should take part actively in supporting society. In essence, Yamagata perceived commerce as a curious creature. Unlike contemporary capitalism, driven by material self-benefit, his ideas can be read as an alternative. Commerce needs not be driven by self-interest, but by social concern. He wrote that the alleviation of mass famines, which were prevalent in his lifetime, could be better administered if the rulers hinged on the merchants’ wealth and economic principles to deliver aid to those in need. his role as a merchant are especially fascinating. He Maybe, like Yamagata, we can realign ourselves, asked the same questions that I lose sleep over: “How re-imagine our economy, and rethink commerce. can we save others from pain and suffering? How can Maybe Bill Gates giving away half his wealth would we make others care?” #firstworldproblems. Thus, the not be the exception, but the norm. (Yes, I do think most compelling thing about Yamagata as a merchantgiving $200,000 from a net worth of millions is not philosopher, or perhaps philosopher-merchant, was sincere. #ragingliberal) Maybe I should give up my his concern about virtue. At the center of his hefty consumerism that is, in part, feeding this cycle. Maybe tome Yume no shiro (In Place of Dreams), his concerns I’ll see this in my lifetime, maybe not. Hey, I guess about virtue were in fact essentially stemming from what is most critical for change is not the change itself, those raised in Confucian morality. Curious, aren’t they, but talking about it. So this is my voice, adding to the these magnificent contradictions of our existence? chorus. Where is yours? His belief in commerce was akin to that British P.S. I began writing this article before the imperial expression, “Jesus Christ is Free Trade, Free disaster in Japan, I’d like to express the solidarity that I Trade is Jesus Christ.” (It slips my mind who said it, hope we all share with any victim of the calamity. It’d but guess what? I learnt that in class too, a different be interesting to reflect upon the level of involvement class. I really am milking this education.) They operate of major companies in the rescue and reconstruction on the same principle, although the latter lacks the effort, as opposed to past disasters. Perhaps it is a subtly concealed Christian evangelism and the obvious function of the media that these donations are better cosmopolitan outlook (flag: sarcasm). Yamagata recorded, or maybe we are evolving from individualistbelieved that commerce was the best way to save the driven capitalism. I truly hope so. people, and most importantly it could serve as a way to

In essence, Yamagata perceived commerce as a curious creature. Unlike contemporary capitalism, driven by material self-benefit, his ideas can be read as an alternative. Commerce need not be driven by self-interest, but by social concern.

46 • BUSINESS ASIA • Spring 2011


List of Sponsors

Choose Holiday Inn Express Dalian, set between the city’s financial and commercial districts, just off the Shugang Road expressway.

No. 189 Tianjin Street Dalian, 116001 China P. R.C.
Front Desk: 86-411-88138888 Fax: 86-411-82532333

Set in a modern high-rise property, the glass-fronted Holiday Inn Express Dalian hotel overlooks the seafront and the mountains. We’re located on pedestrianised Tianjin Street, buzzing with trendy shops, and just 100 metres from Zhongshan Square’s banks and businesses. Once you stay with us, you’ll understand why on-the-go travelers love Holiday Inn Express.