Hong Kong, China (CNN) – Alarm bells rang in Hong Kong's gold industry this week when it was discovered that several well-known jewelry stores were duped into buying fake gold.
Scammers always lurk about the precious metal, but these criminals seemed to go the extra mile. Normally, a jeweler will inspect scrap gold by literally scraping the gold and heating it. If the gold changes color, that's a red flag that it’s faux.
In this scam, the fake gold was a mixture of about 50% real gold bullion and 50% different alloys like copper, iron and rhodium. When jewelers heated the fake gold to test its authenticity, the color did not change.
"It may not be high-tech, but it is sophisticated, for sure," Haywood Cheung, President of the Chinese Gold & Silver Exchange Society, told me. Cheung added he does not know how the scammers were able to manipulate the alloys to keep its gold appearance under heat.
The fake gold nuggets and gold scraps looked real because it was coated with pure gold, Cheung said. Jewelers did not discover the fraud until the metal was melted down and irregularities appeared.
Cheung estimates jewelers lost about HK $2- 3 million (US$260,000-$387,000) because of the scam. As a result, local jewelers will take more skeptical look at gold brought in for resale. One extra measure could be cutting the metal in half for inspection, Cheung said – a process sellers typically don’t like.
How can consumers be sure gold objects they buy are real? Cheung says jewelers have identified the fake gold before sale, so jewelers do not risk their reputation by claiming the faux gold is real. "(The situation) affects the industry more than it affects the public for the moment. It does not affect the public because … the jewelers, the goldsmiths, will absorb the cost of the fake gold."
The demand for gold in China has been voracious. China imported four times more gold so far this year than last year.
Gold is traditionally a safe haven for investors and demand soars when there's uncertainty in global markets. Gold prices keep hitting record highs and hovered over $1400/ounce for the first time in early November.
Hong Kong, China (CNN) – For the past decade, a small company in Estonia has struggled to carve out a slice of the rare earth industry dominated by China. Now Silmet Rare Metals suddenly finds itself on the map as a result of recent trade disputes between China, the U.S. and Japan over rare earth minerals.
"We've been trying to get in the door for the past ten years, Suddenly, we're the prettiest girl at the dance," says CEO David O'Brock.
The story of Silmet Rare Metals is an interesting one. Its factory in the port town of Sillamäe, Estonia was originally a uranium enrichment plant for the Soviets during World War II. In the 1970's, the factory buildings were transformed into a rare earth metals and minerals production facility. Today, Silmet purchases raw materials from a Russian mine and then processes out rare earth elements that can be used in the auto, glass and electronics industries.
O'Brock is an American who has lived in Estonia for 12 years and runs the 500-employee company. He says Silmet produces 3,000 tons per year – just a fraction compared to China's 130-140,000 tons per year.
The recent political disputes and China's chokehold on the industry have made many international manufacturers very nervous about their future supplies of rare earth minerals. The situation has put Silmet in the enviable position of being the hottest ticket in town.
Unfortunately, says O'Brock, he can't take full advantage of the demand and has to turn away potential new customers. "We're a very small producer on a world scale. Our bottleneck has always been raw material. Because we don't source from China, we don't have enough capacity for what the world needs," he says.
Silmet is sticking with its longtime, if small, customer base of about 15 companies from the U.S., the EU and Japan. While Silmet cannot take on new accounts, it is taking advantage of surging market prices. O'Brock gives an example of the cheapest raw earth metal: Cerium which is used in the glass industry.
Last year, cerium sold for $3.50 per kilogram. Today Silmet sells it to his customers for $40 a kilogram – a 1000% price increase! Do his customers complain?
"They understand the political situation and the market forces," O'Brock says. In other words, they have no choice. Silmet is a private company and will not release financial figures. After pressed for some perspective, the CEO acknowledged that Silmet has never made a profit until this year.
Sometimes, a little controversy can be good for business.
Currencies are a confusing lot. "Any review of currencies is full of contradictions and paradoxes," said Mark Konyn, CEO of RCM Asia Pacific. Nonetheless, we're going to give it a go. Konyn gives me a good guide as to what's going on in the Asia-Pacific region.
By now, we all know that China's yuan is under the microscope for being dramatically undervalued in order to make Chinese exports cheaper. But Konyn points out the yuan is not the only undervalued Asian currency against the US dollar. In fact, several other emerging markets have cheap money. The only difference is these countries are starting to allow their currencies to appreciate while staying undervalued. Konyn believes the message is two-fold:
1) Foreign investors are still welcome but they'll have to pay more to buy assets in these markets.
2) These emerging markets are focused on improving their domestic spending power rather than relying on exports.
So what countries are we talking about?
Thailand, Malaysia, South Korea, Singapore and India
Why are their currencies rising? Konyn summarizes each country's situation:
Thailand – the Thai baht has appreciated 8.5 percent so far this year because of remittances, a trade surplus and foreign investment.
Malaysia – the government's planned privatization agenda, the reclassification of Malaysia from "emerging" to "advanced emerging," and strong direct foreign investment.
South Korea - the won has appreciated 5 percent since August because of its current account surplus (surplus from trade in goods and services) has exceeded expectations.
Singapore – Strong capital inflows, good economic fundamentals and a monetary authority committed to overall tightening that will drive appreciation. Singapore uses the exchange rate to manage inflation.
India - the rupee has hada strong rally the past 15 months because of strong inflows of foreign investment. However, Konyn believes the rupee will lose ground by the end of the year because of a few warning signs: India's high inflation rate and its current account deficit (it imports more than it exports).
Japan is the big paradox in Asia. The yen is overvalued and the government is having a tough time pulling it down. The government intervened on September 15 by selling billions of dollars worth of yen, but the impact has been slight.
"Despite the obvious economic problems, international investors have viewed the yen as a safe haven in the current circumstances. Unfortunately, this has pushed the yen higher," Konyn said.
Hong Kong, China (CNN) - Where's the best place to sit at work? It's a simple question. But when I asked a local feng shui expert, I didn't get a simple answer. More on that in just a moment.
Feng shui literally means "wind water" in Chinese. It's the ancient belief that energy flows through your surroundings and it is up to you to harness the "good energy." Several years ago, I was intrigued enough by this philosophy that I took a beginner's feng shui class in Texas, where I was living at the time.
I quickly realized it was complicated. Not only do you have to use your birthday and a formula to determine your element, there was also something about a tortoise shell, compass directions and more calculations. I don't remember anything from that class except that my element is "wood" and I need to avoid placing fire elements (e.g. red vase or red carpet) in my home. Red symbolizes fire and fire burns wood.
Fast forward to today. I live in Hong Kong, where people take feng shui pretty seriously. You only have to look around the city to see that architects often include feng shui in their design. In Repulse Bay on the island's south side, there's a well-known apartment building with a large hole in the center. The hole is to allow the dragon (the Chinese symbol of good fortune) access to the sea to drink water.
You can also apply feng shui to your office.
That brings us back to the question, where's the best place to sit at work? Feng shui Master Raymond Lo says that first, a feng shui expert needs to come to your workplace to evaulate the energy flow. He emphasizes the boss needs to sit where the best energy is.
"If the boss is happy, the company makes money," Lo says. Then the middle managers should be assigned the next most "auspicious" spots in the office. Lastly, the rank and file take up the remaining floor space. Lo also says there is also something called "money energy" - and no one should place their desk where money energy intensifies. This is where the conference room should be - a place where strategy is planned out.
To make things even more complicated, Lo says good energy is dynamic and moves around. So over time, the most auspicious energy can migrate to different locations in your office. I told you, feng shui isn't easy.
Hong Kong, China (CNN) – Roxanna Blanco was fed up with her job search in the U.S. After sending out resumes for more than a year and coming up empty-handed, the recent graduate from San Diego State University was ready to make a bold move. She decided to leave the country.
"I was having coffee with my mom and I said, 'I think I want to move to China. I think I'm going to China'."
Blanco, 25, got online and started applying for English teaching jobs in China. She got three job offers. She chose a teaching position that paid $24,000 a year in Shenzhen, China. She had no idea where Shenzhen was but was ready for an adventure. Blanco flew to Shenzhen where the culture shock hit immediately. " I didn't leave my hotel room for two days because I was just so scared." She eventually got over her fright to find an apartment and start her job teaching English to a classroom of 30 Chinese toddlers.
Job recruiters in Asia are not surprised to hear stories like Blanco's. The international recruiting firm Hays has seen a 30 percent increase in job applicants looking for work in Hong Kong and mainland China. Most of the applicants are from the U.S., Europe and Australia. The good news is companies are hiring.
Hays Asia Regional Director Emma Charnock says, "We're seeing demand for expatriates spike again in Hong Kong. In Shanghai and Beijing, predominantly it's about Chinese returnees or Mandarin speakers."
According to Hays, employers are looking to hire in these sectors:
1) Banking – Experienced deputy branch managers are needed in first-tier cities such as Beijing and Shanghai.
2) Finance – High demand for finance executives with IT knowledge. Demand for senior tax professionals with strong local government relationships and/or knowledge of Chinese tax system.
3) Engineers - Especially with high-speed rail experience to help with China's high-speed rail initiative.
4) Architects and Urban Planners - China's housing boom and urban sprawl.
5) Teachers - Especially math and science teachers at international schools on the mainland.
Roxanna Blanco is already on her second job in Asia. She now works in Hong Kong at an education center where she's an English language tutor. While she is a little homesick and would like to return to California, she plans to stay in Asia for at least another six months. With unemployment in the U.S. now at 9.6 percent, Blanco says she is just too nervous to test the American job market again.
"I feel like there's so much more opportunity here and I really need to take advantage of that. I think almost every expat or foreigner you talk to here... that's been working... will tell you the same thing: It's kind of scary to go back home . It's too good to leave and they're not going to leave."
Simon Lui likes to be self-sufficient. He says, "If I need it, I develop it." The 28-year old computer science instructor needed faster information about the MTR (Hong Kong's subway) so he simply designed an app for his iPod Touch.
The app - called ecMTR - gave him data on each stop, the fares and the arrival time of the next train. Turns out other commuters wanted the same information and downloaded his 99 cent app more than 35,000 times.(The MTR itself recently asked Liu to disable his app so it could launch its own official MTR app. Lui says he didn't fight the request and obliged – although he still thinks his app is better.
Before disabling that app, Lui managed to pocket US$24,255 from all the downloads. (Apple has a 30/70 policy with app developers. Apple gets 30 percent of revenue while the developer pockets 70 percent.) In the past two years, Liu has designed six more paid apps from music games to war games netting him nearly US$40,000.
According to the Financial Times, app downloads could become the principal income driver for cell phone providers in developed countries over the next three years. That may not come entirely as a surprise when you look at the burgeoning marketplace of the apps. At last count, Apple's app store has 250,000 offerings.
Lui is a full-time computer science instructor at Hong Kong Polytechnic University. He creates apps in his free time. His most popular is TinHa War (roughly translated to "World in Peace.") It's a war game from the 1980's that kids used to play on paper. Liu spent six months designing TinHa War, writing code for a few hours every night after work. In the four months it's been available for downloads, Lui has made US$12,500 on this app alone.
So can anyone be an app developer? Lui says you need a combination of persistence and skill. Here's his advice:
1) Have a clear idea of what you want to create
2) Learn Objective C code(this is the code needed for iPhone, iPod and iPad apps) Although Lui describes the code as difficult to learn he taught himself the language by using Stanford University tutorials online, found here: http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=384233225
3) Keep practicing the code. You'll get better by trial and error.
An historic journey is happening now...and no surprise, it's to feed China's appetite for energy.
The SCF Baltica is a large tanker that has just made it safely through the Arctic Circle to deliver 70,000 tons of gas condensate (a natural gas extract) from Russia to China. This is the first time a tanker of this size has been able to make the journey through the Northern Sea Route. It's now headed for its final port destination just south of Shanghai.
There are two interesting angles to this story:
1) This route through the Arctic cuts down the distance traveled by almost a half. The route from Murmansk, Russia to Ningbo, China covers 7,000 nautical miles. This is down from the 12,000 nautical miles it takes on the traditional route through the Suez Canal.
Sergey Frank, CEO of SCF Group, is taking the journey on board his tanker. I spoke with him via satellite phone and asked him how much money the shortcut is saving his company. He says, "That depends on the freight market but today, the freight market in the tanker business is not great. But anyway, the one day capital cost is $20,000 to $25,000. Any day of savings from these logistics is definitely improving the economics of the business."
2) Global warming. You only have to connect the dots: A huge oil and gas tanker can make it through ice fields in the Arctic today because of the effects of global warming. And even then, the SCF Baltica tanker is being escorted by two nuclear-powered ice breakers. Sam Chambers, journalist and author of "Oil on Water," tells CNN, " It is unquestionable that this route has only become possible thanks to global warming, as sailors have been trying to - and failing - to find an Arctic route for centuries. Just a couple of weeks back Canadian authorities found an old sunken British ship in the far north that had met its end attempting the elusive Arctic passage."
Whether we like it or not, the Arctic is the new frontier for oil and gas transport. According to SCF Group, the information collected on this historic voyage will be entered into a database to plan future Arctic crossings with larger ice-class tankers.
Hardcovers and paperbacks need to make much more room for their digital cousins. The annual Hong Kong Book Fair is in town this week and for the first time, there's a section on digital publishing.
Considering the book fair attracts about 900,000 book lovers, the digital section is getting heavy foot traffic and lots of eyeballs. About two dozen companies showcased their digital offerings. Two especially caught our eye.
The first, Kiwa Media of New Zealand, sells Q Books, interactive children's books that can be downloaded onto the iPad (which was launched this week in Hong Kong), iPhone and iPod Touch.
Derek Judge, creative director for Kiwa, demonstrated how a child can "read" a book on an iPad. He opened up a digital children's book titled "Milly, Molly and the Bike Ride." There's a drop down language menu which gives you the options of English, Chinese, Spanish or Italian. He selected Chinese for text and narration. All of the text turned into Chinese characters.
When he put a finger on one character, a computerized voice pronounced that word in Chinese. There's also a color palette from which a child can choose colors to fingerpaint the story's images on the touchscreen.
"I had a girl yesterday that grabbed my iPAD off me, sat down on the chair and was playing with it for an hour," he said. "She was coloring in. She did some fantastic coloring ins. This was a four-year old. She was tapping words in Italian and spelling them out. So that's exactly what it is: it's entertainment and a children's book but it's engaging."
Kiwa Media offers 15 children's books for the iPad and 18 for the iPod and iPhone. Kiwa Media is the conduit for different publishers to offer their childrens book as a digital application. According to Judge, the publishers set the price but the average download costs about US$4.
The second company, Hanvon, is a Chinese firm that has come out with the Chinese equivalent of Amazon's Kindle. Company representative Bo Bo Wong powered up Hanvon's newest model, the N618, adding: "This is the first time we have a wifi model in Hong Kong."
The N619 has 5,000 books pre-installed in the e-book reader. The books can be read in traditional and simplified Chinese characters as well as English. Wong says you can also download most other books and newspapers that are available online. The N618 has been on the market in China for a few months and sells for US$430.
Last week, Amazon announced it sold more e-books than hardcover books in the past three months. Jeff Bezos, CEO of Amazon.com calls this "astonishing" especially since the online retailer has been selling hardcover books for 15 years while Kindle books have been available for just under 3 years.
As we saw at the Hong Kong book fair, this trend towards digital publishing is also turning the page on the traditional book fair.
Sam Goodman is a Canadian who went to China in 1995 to study Mandarin. Along the way, a craving for Western sandwiches made him an accidental entrepreneur, as creating food for foreign students turned into the restaurant “Beijing Sammies.” Goodman eventually opened five locations with a 100-person staff and $1 million in revenue. Goodman got out of the sandwich business and is now a management consultant and chief operating officer of Climate Action, an environmental services company. But his experience as an entrepreneur in China – navigating a nuanced landscape of cultural, political and economic hills to climb – led to his book, "Where East Eats West: The Street Smarts Guide to Business in China."
Goodman shares his short list of top biz mistakes Westerners make in China.
1. Any variation of “doing-things-like-you -did-back-home.”
You’re not back home anymore.
2. Overestimating the mystique of Face and Guanxi (network/relationship)
Understanding the concept of face in China is important, but Goodman says don't over-mystify it. To put it simply, face is appearance over substance. Goodman writes, "It's not just what you say, but how you say it. Did you say the right things? (What you thought doesn't really matter.)"
3. Misunderstanding how (much) Face and Guanxi affects your business.
"In the West, if you make a mistake it's understood that this happens. If you fall off your horse, you get back on. In China if you do something wrong, your family loses face. That's much more important."
4. Seeing China as one market
"Western Companies need to understand that China is really many markets (just like Europe) with different characteristics."
China is a “high context” communication culture, which is to say the words used is the least important tool. The situation – how, when and who is saying what – speaks more than words.
6. Thinking a contract is binding
"In the West, a contract is black and white. In China, it's relationship based. Don't be surprised if after you sign a contract in China, the Chinese come back and want to re-discuss a clause."
7. Long term goals with no term implementation
"Large corporations come into China with a 'long term strategy", then bleed money month after month, year after year always thinking that things will turn around in a few years and the bleeding period is necessary to 'lay a foundation'."
8. Confusing language skills with management or business skills
A good Mandarin or English speaker doesn’t necessarily mean they have a head for business.
9. Assuming price and quality are connected
"Westerners tend to think: the higher the price, the higher the quality. In China, asking a high price is an issue of Face."
10. Managing by remote control
In his book, Goodman writes, "Folks here like to make deals eyeball to eyeball with people they know who also know other people they know."
Five years ago, Garuda Indonesia was an airline that seemed to be on a path of constant turbulence. It was losing money year after year, battling allegations of corruption within the state-owned enterprise and stained with a questionable safety record. Today, Garuda is a symbol of what's possible in the difficult airline industry. You need a leader with focus.
Emirsyah Satar, 50, is the CEO of Garuda. Now in his fifth year as the head of the national airline, he has turned Garuda from problematic to profitable through staged planning. “In the first two years, just surviving was good enough. And then the next two years was the turnaround stage,” he said. Now the airline is embarking on the growth stage.
The son of an Indonesian diplomat who grew up in Mexico City and Prague, Satar went on to become a banker and then the CEO of Bank Danamon, Indonesia's fifth largest bank. In 2005, he was brought to Garuda as President and CEO and he made drastic changes from the start.
"What happened in 2005, the business model was just not working,” Satar said. It increased accountability at all levels in the organization. And in the short term, Satar decided less was more: “We got out of routes where we were losing money … it was ok if we reduced our market so we could become profitable again."
He positioned Garuda as a “premium airline” and told his staff not to worry about local competition. With a domestic population of 240 million people, he bet focus on the cream of the crop would keep Garuda afloat while it restructured. His bet paid off, in part because Indonesia sidestepped the brunt of the global downturn thanks to the strength of its domestic market: Indonesia's economy is still growing at around 4 percent.
While Garuda is still juggling $700 million in debt, the state-owned enterprise has been able to turn a profit the past two years. Satar has plans to make what he calls a "quantum leap." By 2014, he wants to bring the fleet from the current 66 to 116 aircraft.
The big challenge now is getting a stalled IPO back on track. Satar had wanted to bring Garuda public this year, but the global downturn put a halt to that. Now he's shooting for an IPO for June 2010. The airline is also in the process of restructuring its debt, which Satar hopes to have completed by the end of this month.
Then there was the issue of safety. In the past decade, a string of crashes involving various Indonesian airlines eroded the public trust in Indonesian air safety. In March 2007, a Garuda plane overshot a runway in Yogyakarta and crashed, killing 21 people. In June 2007, the European Union banned all Indonesian airlines in European airspace. Satar hired an American consultant and and cracked down on safety issues. In July of this year, the EU lifted the ban on certain airlines included Garuda.
The airline now plans to get into the long-haul market, starting with an Indonesia-Amsterdam route by June 2010. That will be followed by routes to Frankfurt, London, Paris, Rome and eventually in 2012, Los Angeles.
"We (Garuda) travel to Australia, Japan, Korea, China and these people still travel. And Bali is still a good attraction," Satar said.
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