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China International Import Expo (CIIE) Opening Keynote

History

CIIE 2018 is actually the first of its kind so itself doesn’t have a rich “history” to tell. But there are two other exhibits in China worth noting – 1.  Canton Fair (广交会) in Guangdong & 2. Expo 2010 (2010 世博会) in Shanghai

Canton Fair was first held in 1957 Spring and has two sessions (spring session & autumn session) a year (62 years and 124 sessions so far) . Its official name was Chinese Export Commodities Fair, which highlights its origin and main function – exports. Its name was changed after the 100th session and has been China Import and Export Fair since then.

World Expo (or World’s fair, International Exposition, etc.), held every 5 years, is more of a showcase than an purposeful event. China won the bid to host Expo 2010 in 2002, one year after it won the 2008 Summer Olympic Games in 2001. CIIE is held in Shanghai.

What did Xi Say

I watched live keynote and took the following notes –

Part I – welcome & intro

  • President Xi welcomed the guests, briefly introduced the CIIE and highlighted that CIIE is the “first expo with import theme on a nation’s level”

Part II – importance of a global economy

  • President Xi used “irresistible trends” according to history to describe the inevitable future of openness, collaborations and global trades/economy. President Xi mentioned “the better world” several times
  • President Xi suggested three points using “every country” as subject
    • be open and open more room for collaboration
    • push for technology & science advancements, as the driver for human’s growth, also highlighting the word “together”
    • be more inclusive and let every country make progress; reduce inequalities globally

Part III – what China did and will do

  • China has made significant progress due to reform and opening, and will continue to do so on a greater scale
  • China will do the following
    • Increase import proactively: support the consumption upgrade; lower the tariffs; host CIIE annually
    • Lift limits on foreign investments in certain industries: finance & services (opening accordingly), agricultural & mining & manufacturing (deeper openness), telecom & education & healthcare & culture (accelerate); especially in education and healthcare, foreign ownership percentage will increase. In the future 15 years, good imported might exceed $30 trillion, services imported might exceed $10 trillion
    • Make business environment better: a combination of “pre-establishment national treatment” and “negative list” will be used; protection on IP is highlighted; an interesting “torchlight” metaphor also mentioned here – President Xi said every country should improve their business environment.
    • Pilot area on the next level: Hainan is highlighted here
    • Push for multilateral and bilateral collaborations: WTO reform is mentioned here; several regional collaboration framework is mentioned here

Part IV – be confident in China’s growth potential

  • President Xi mentioned a few numbers to support the argument that China is making solid progress this year
  • President Xi also talked about the difficulties/dilemma which should naturally occur as things always have two sides; but be confident about China’s economy, its resilience, strength and growth

Part V – Shanghai is great and has its unique positions

  • President Xi announced three decisions about Shanghai
    • expand free trade pilot zone
    • establish a market for tech/innovation in Shanghai Stock Exchange (科创板), supporting Shanghai’s financial role and tech/innovation center
    • make integrated Yangtze River Delta region a national level strategy

Part VI – closing

Takwaways

Shanghai’s role reinforced.

  • The center of import will shift from Guangdong to Shanghai. Export center might still remain in Canton Fair.
  • Domestic financial center strengthened; global financial firms (mostly have already had presence in HK and Beijing) should expand and locate in Shanghai (especially for the new board on SSE).
  • SSE will be part of the overall push to let tech companies IPO in domestic market (aimed to compete with SZSE, HKEX, Nasdaq); but this kind of effort has been made several times – ChiNext on SZSE, NEEQ (new three board), etc.. really need a series of efforts/reforms to vitalize the market
  • Currently major startups/tech companies are in Beijing or Shenzhen;  Shanghai will play a more important role.

Baby Bear Climbing the Cliff and 3 Takeaways

A truly inspiring short video of a baby bear trying REALLY hard to climb the cliff

– shot in Jun. 2018 in Russia and originally published here two days ago. (I first saw the video here)

Three takeaways –

1/ NEVER give up & KEEP trying (different paths) after fallbacks (no matter how far you have fallen. [for baby bears]

2/ BE patient & wait for others who are behind. You being there and showing confidence might be the best support. [for bears on top of the cliff]

3/ DON’T operate drone like that. The major fall at 1:13 is due to the approaching of the scary drone. [for human observers]

The video was downloaded from Twitter so that it can be seen from where Twitter/Youtube currently doesn’t operate.

Global Warming and Lobsters

Here is a perfect follow-up on last week’s blog of Global Warming and Wine.

Clearly, global warming will not only drive vineyard northward, but also lobsters. And it is happening now as animals can move freely.

Source: Reuters

[The following is from Reuter’s special report on The Great Lobster Rush]

Lobster industry was a nautical gold rush. Two generations ago, the entire New England coast had a thriving lobster industry.

Today, lobster catches have collapsed in southern New England, and the only state with a significant harvest is north in Maine, where the seafood practically synonymous with the state has exploded.

Now lobsters keep running to the north and going deeper in the water. Maine might be in trouble after another 5-15 years.

Rising temperatures along the bottom of the Atlantic Ocean will force American lobsters (H. americanus) farther offshore and into more northern waters, a new study finds. Credit: Natalie Renier, Woods Hole Oceanographic Institution

That’s happening not only to lobster, but literally to all marine species.

In the U.S. North Atlantic, fisheries data show that at least 85 percent of the nearly 70 federally tracked species have shifted north or deeper, or both, in recent years when compared to the norm over the past half-century. And the most dramatic of species shifts have occurred in the last 10 or 15 years.

Summer flounder’s center of species | Source: NOOA/Oceanadapt, Rugster U., Reuters

Similar findings in a map of predicted migration – marine species are moving northward to colder waters.

Source: Pew

Read more on:

Q4 Record Sales & Starbucks’ One Problem + Two Opportunities

Starbucks posted a stellar earnings result today, with net revenue at record level of $6.3bn, beating expectations in many aspects.

Starbucks up after hours with earnings beats | Source: CNBC

While a single beat doesn’t indicate a new stage of growth, in the long run there are three issues I think matter the most and should be watched closely.

1 | Problem: Frappuccino’s decline

It was an problem Starbucks facing over the years. People are leaning towards healthier products (at least a very obvious trend in Cali), which usually means less sugar and less calories. That’s a problem for Starbucks’ Frappuccino, as explicitly mentioned in CEO’s presentation in June.

How did/will Starbucks address this? Product Mix & Innovation

Strategy a) Big push for healthier product lines – Nitro Cold Brew & Refresher series etc.

Starbucks Nitro Cold Brew | Source: Starbucks

– Nitro Cold Brew “is expected to be available in nearly 1,500 stores in 26 markets by the end of 2017″ (SBUX Jul. 2017 Press Release) -> “[Starbucks is] accelerating this platform to more than 2,800 stores by the close of fiscal year 2018, up to more than 6,000 stores by year-end fiscal year 2019″ (SBUX Q3 Earnings Call Transcript). A 4x availability expansion for cold brew in 3 years.

– Several new products in the Refresher category were introduced, e.g. “Dragonfruit” introduced Jun. 2018, “Pink Drink” introduced last year, etc.

Dragon Fruit | Source: Starbucks
Pink Drink | Source: Starbucks

Strategy b) Instagramable & limited edition within the Frappuccino category

– Unicorn Frappuccino (Apr. 19-23, 2017), Zombie Frappuccino (Oct. 26-31, 2017), Christmas Tree Frappuccino (Dec. 7 – 11, 2017), Crystal Ball Frappuccino (Mar. 22-26, 2018), Witch’s Brew Frappuccino (starting Oct. 25 for a limited time while supplies last)… among many others.

– Plus, Starbucks’ new Frappucino recipe has fewer calories and less sugar, part of its efforts to reduce sugar by 25% by 2020.

Unicorn Frappuccino | Source: time.com
Zombie Frappuccino | Source: Starbucks
Christmas Tree Frappuccino | Source: Starbucks
Crystal Ball Frappuccino | Source: Starbucks
Witch’s Brew Frappuccino | Source: Starbucks
2 | Opportunity – Digital Interactions

Starbucks Rewards could serve a similar role as Amazon Prime. In past last 3 month, loyalty program accounts for 14% of all transactions and US loyalty members contributed 40% of US sales. That’s what happened in the Amazon case, where its Prime members out-spend non-members significantly.

Digital relationship makes it easier to incentivize purchases, market new products/initiatives, bring in more collaborations (e.g. Spotify, Pokémon GO), expand membership offerings and more.

Starbuck’s push for afternoon consumptions is also facilitated by the digitalized promotions.

The room to grow digital relationships is still large – currently 15.3 million global active members, only representing ~22% of its 70 million global customers base. “Additionally, drive-thru, out-the-window and Mobile Order and Pay combined grew to more than 50% of the way customers are ordering, up more than 10 percentage points in just two years” according to COO.

3 | Opportunity – China Growth

It’s more debatable on Starbucks’ China future. Just want to highlight a few sure things.

Starbucks took full ownership in China East & opened flagship Roastery in Shanghai in 2017 – definitely the right moves here.

China’s coffee consumption will explode, even considering major cities alone. Younger generations will consume more coffee and they will represent an increasing proportion of the overall urban population.

China coffee consumption potential | Source: Starbucks 6/19 Presentation

Coffee even has a role to play in China’s GDP growth by boosting workers’ average productivity and the “culture” of working overtime.

Herding effect is stronger in China and “Instagramable & Limited” strategy may provide better outcomes if properly implemented.

Other things worth noticing – Starbucks’ food, packaged goods with Nestlé, next-generation store design, coffee supplies, SKU outside the Starbucks’ core products, etc…

140 -> 280: How Twitter’s Length Limit Shapes The Language Used

Social network platforms such as Twitter and Weibo, are where we post our words/expressions, and is taking an essential role in todays’ Modern Communication.

Interestingly, but not surprisingly, they are also providing a feedback loop to change our ways of communication (and our thinking – but that’s another different story). After all, we are one of those animals with natural herding inclinations.

Taking a very simple example – as Twitter was becoming more popular, people started to lean heavily towards the use of new abbreviations, partially due to its 140-word limit. (Similarly, when Blackberries were popular, certain abbreviations were created, used and spread among professionals in texts & emails)

In 2017, Twitter officially made its “140-word limit” a history [Weibo ended the limit in 2016] and doubled the character limit to 280. One resulting impact is that people are spelling out abbreviations and acronyms more often, according to Twitter’s report.

Source: TwitterData

TwitterData also touted that “people are saying ‘please’ (+54%) and ‘thank you’ (+22%) more.” in the first year of doubling limit.

[Something worth noting on the data – 1) need to consider the difference in total number of tweets 2) need to consider other ways of saying ‘please’ and ‘thank you’…]

It is really nice that people could be more friendly and polite (not excessively tho). It would be even nicer if people could inherit their concise and efficient use of language in the 140-word era & all the other positive impacts Modern Communication made on us.

Apple’s Pricer New Products and 2-Way Strategy

Today Apple announced new products of three lines of business – MacBook Air, iPad Pro and Mac mini.

MacBook Air 2018 Gold | Source: Apple
iPad Pro 2018 11-inch and 12.9-inch | Source: Apple
Mac mini 2018 | Source: Apple

Besides the new features and superior performance, Apple seems to be more addicted to aggressive price tags. Today’s event is the latest episode of a series, starting from the 10-year anniversary model iPhone X last year.

[discussion below is based on the most basic consumer version of each product]

9/12/2017 – iPhone X introduced @ $999, a 30% increase from the high-end phone (iPhone 7 Plus @ $769) one year before

5/27/2018 – updated iPad introduced @ $329, flat with the new iPad debut price in Apr. 2017.

7/12/2018 – updated MacBook Pro @ $1,799; the price seems to be the same as Oct. 2016’s debut price with Touch Bar, but is a 20% increase in terms of available low-end option (MacBook Pro with no Touch Bar @ $1,499).

9/12/2018 – iPhone XR @ $749, increased by 7% ($50) compared to the low-end phone last year (iPhone 8 @$699) ; Apple Watch Series 4 @ $399, increased by 21% ($70) from a year ago @ $329.

10/30/2018 – new MacBook Air @ $1,199, a 20% increase from the old model years ago @ $999; updated iPad Pro @ $799, a 23% ($150) increase from previous Jun. 2017 version @ $649; new Mac mini @ $799, a 60% increase from the old model years ago @ $499; redesigned Apple Pencil 2 @ $129, increased by 30% from $99 when it was introduced 3 years ago

The 2-way strategy looks clear: 1. use entry-level new products (e.g. iPad & iPhone XR) to attract new users and compete with other firm’s often lower-priced products. Educational market and some international markets are important here, especially for new-user growth, ensuring an increasing number of total active users in Apple’s ecosystem and getting more market shares in terms of shipment. So there is barely any increase in price. 2. raise prices by 20-30% in other product lines to keep margin (for example Apple Watch price increase might be more associated with costs) or to compensate lower margins in entry-level products.

Apple’s overall average gross margin from 2016 to present is actually lower than the average from 2014 to 2015 (38.44% vs. 39.63%, down ~120bp), even with higher gross margins from service revenues weighing in more recently.

Yes We Humans Are Vulnerable as Always

Coincidentally, a few incidences involving people’s death/missing happened during the last weekend and became headlines around the world.

In the US, massive shoot developed in a Pittsburgh synagogue, leading to at least 11 deaths.

In Chongqing, China, a bus ran off a bridge into deep water of Yangtze River with an estimate of 15 on board.

In Indonesia, a Boeing-737 MAX with Lion Air crashed into the sea after took off with 189 people on the plane and 0 survivor has been found so far.

[May those taken from us rest in peace]

While there are different reasons (or direct causes) behind these tragedies, they all reminded us of how vulnerable our species is. Technology and society advancements have their own ways of going wrong.

Our ancestors don’t have much direct advantages to survive their world; yet we have conquered and shaped our planet to an ever increasing degree over our history. We can protect ourselves from stronger animals which would otherwise make us their food; we can fight destructive fires which would otherwise burn our settlements; we can cure those deadly pandemics which would otherwise wipe out half of a continent’s population or even an entire regional population…

However, things made to combat threats could go wild and we can’t resist.

The tools we created and the capabilities we built into them dwarf our physical/natural abilities. We are not very much improved genetically as a species over the last 1 million years (and not very much different from genus Pan as genus Home).

Naturally we can’t survive a gunshot and can’t find a way out under deep water from a closed room (e.g. bus, plane).

Although life expectancy has gone from 20 to 40 to 80 and may go to 160 in the future, we are still humans.

Sometimes we just need to forget all those achievements and just be human.

Life is valuable because it is limited. May everyone of us enjoy it.

Two Reflections from Physics on Investing

1.
What Physics says

Intense sub-planck undulations are seen as glimmers of distortions when zooming out, and are smoothed out on a higher level. Vice versa, seemingly flat world could be surprisingly dynamic if viewed in a sufficient close manner.

Figure 5.1 By sequentially magnifying a region of space, its ultramicroscopic properties can be probed | Source: The Elegant Universe by Brian Greene
In the investment world

Fluctuations in prices within a short time frame, however dramatic, could be (at least partially) smoothed out in a longer period of time. Vice versa, more details or clues of changes could possibly be found behind the scene even if prices stay the same in a week/month/year.

2.
What Physics says

While sub-planck variations are cancelling out with each other, some changes are constant and going in certain directions, although might be immaterial/unsensible on a daily basis – e.g. our universe is ever expanding.

Google results for "universe is ever expanding", Quora

In the investment world

Certain underlying trends (company, industry, economy, society, species, planet, etc.) are happening definitely in the long run. Trying to uncover those trends and making investments according to those should be an effective long term approach.