 Good afternoon. This is the Monday after Thanksgiving. A great American holiday. We have Russell Liu back from Beijing. We're going to ask him some questions about what's happening over there and the weather and so forth. I'm Ray Tsuchiyama and we are co-contributors to this show devoted to China's economy, what's happening and the trends going forward and going up the value chain, which we will go more in detail to explain what that means in the context of the new Trump administration and the global economy and also the impact to the manufacturing heartland in the United States. But first, welcome back, Russell. Thank you, Ray. It's great to be back. I just left before two major seismic shifts in China. First, I left the day before it snowed. It was the coming of winter. And I left when the renminbi was much more devalued. And the renminbi is the Chinese currency name. That's correct. And when you first started going to China, how many renminbi to a dollar? It was eight renminbi to a dollar. And then it went down all the way to six. Very strong. It's way back up towards eight. Now it's that the latest was 6.89 and 6.9 is coming to seven, which a year ago would have been just ludicrous to think about. The trend was going down in terms of the US dollar vis-a-vis the renminbi. Now in very crude or very simple terms, that makes Chinese exports to the US cheaper. Yes. And it's interesting, but also it's because it's part of a macro shift in the China's changing its economic drivers, its platform, the major policy. The major policies that China has changed now is that they're going to rely less on dependence on foreign exports. They would get all investors in China to manufacture, send it out, and that was how their economy was driven. They're going to do a different shift now. They're increasing domestic consumption. So we're going to talk about domestic consumption and how does that affect all of us here? Why are the Chinese investing outbound? These are critical things. This policy is making changes. And China's economy is stabilizing before the GDP went up at double digits, you know, 12, 13, 14, unmanageable. Very difficult to manage. And they're looking to 5% on your GB. So at that time it's more of a sustainable economy. Oh, the kind of economic kind of movements also. There's been the emergence of a middle class right now and they have money to buy things. This is very reminiscent when Japan started emerging into the world with this strong economy. And there were like a series of things that every urban family needed like a refrigerator, an air conditioner, a car, and those kind of things for each household. That's one area which is related to demand for consumer goods. They've been pent up. I mean, just barely when I started going to China people still had clothing rations. There were no restaurants. I mean, this is a great pent up demand. That's one area. The other area, as you know, is that low costs made making things in China manufacturing a great advantage. Now there's other countries in Vietnam, Indonesia, Cambodia, Bangladesh, even India, and maybe in Latin America and Africa coming up and their labor costs have been cheaper than China as you look at the long term. So these are trends coming together. Now for the short term, right now we talked about the Trump administration and its kind of mantra of bringing manufacturing jobs back to America. Now this is very strange to think about because that's where the jobs went to in China in the first place for the last 20 years. So why aren't Chinese companies coming back to a land of high costs? Very good point, Ray. And this is what we have to understand is the old China and the new China. The new China today, there's a consumer class. They want name products. They want good quality. They want major brands. They want innovation. And in China, they're not ready domestically to have. They don't have that innovation technology of brands. So what they need to do is they need to come up with the unique products, offerings, a value proposition, high technology, innovative things. So they're going to have to come to the U.S. They're doing a shortcut. They're coming to the U.S. to buy brands, to learn technology. A number of couple of years I've been working on bringing Chinese major companies to do R&D centers to adventures with major American technology companies. So they take that technology, learn the management skill, how to do these things back to China so they can transplant the skills that they've learned in the U.S. so that they can be more competitive and to create that domestic market in China. So that's why they're coming to America. We talked, but Donald Trump talks about bringing back the jobs to America. And so I've got a lesson to tell today and recent headlines when a large glass maker that's called Fuyao in China had made then a major transaction and they're buying and creating manufacturing hubs in OGM plants in Moreno, Ohio. I used to be with a firm called Tafts in his house years ago. This is their country, the heartline of America. And the prediction I made was that they could eventually come up to the U.S. They're going to start to buy the value chain and they're going to create jobs in America. Now those products made in those former GM plants they're going to renovate, invest. That means more money into the local economies. So when the products come out, where are they going to be sold? Are they going to be sold in the U.S. or exported out to other markets back to China or Europe or North America? Where are the product markets? Well, the big markets is, for example, like Fuyao Glass was the only manufacturer for American automotive industry. Now they're closer to the American market. They're right there. Ten years ago, the Japanese suppliers were in America. They bought acquired U.S. companies for the supply chain. For example, when Toyota haunt the open of the U.S., they needed to get that companies in America because it's cheaper to make it in America. Even though the higher wages, you cut the shipping costs. You cut all that cost and you move up the value chain. So that's what the Chinese are doing, very similar to the Japanese strategy. Plus, so the old term for us, K&S, all the firms that use the supply to Toyota move with them to Ohio or Michigan or Tennessee or wherever. But also, Toyota and others built very good relationships with local U.S. companies to meet the specs, which was very, very high quality kinds of precision machining and so forth. So that brought up standards for American companies to sell into the finished product. And when the finished product came out, it was a U.S.-made car. That's right. And that was a contribution of Japanese companies. They had brought the specs, the technology, the precision. They had great quality. Same thing in China. They've come to a point where these OEM manufacturers have high quality, use the latest technology in China to create the product itself. So they're bringing it back in the U.S. And they're going to rehire all these people. They're going to pay them parity with the U.S. wages and hire. And it's going to be an interesting lesson for us to watch carefully, because my prediction is that more Chinese companies are kind of going to come. They're in the manufacturing and supply chain. And eventually, they're going to bring their own brands into China and the U.S. automobile manufacturing areas. Now, when Japanese companies came to America during the 80s and 90s and so forth, they brought their own brand of Japanese management. We don't hear very much anymore. However, it made a very strong impact to management practices throughout the world, especially to car companies, to quality control, Kaizen, just-in-time kind of inventory and so forth. Now, with your experience back in China, I've seen some of the big factories in the Guangdong province or Shenzhen and so forth. Are there anything unique that you see? This is something that the Chinese have developed as a managerial tool or process or leadership skill that they could import or bring to America. Well, I think American workers are great. I think they have all the skills necessary. I think it's maybe a little slightly different management. I think the Chinese are different in the sense that they are very adaptable to environments. It's like Chinese restaurants around the world. They will localize. That's my observation. They localize more than any other people. So I think that there's going to be a positive effect. And I think that the Chinese, especially want to feel part of something great. And I don't think they're going to impose maybe very similar management styles in China. In fact, one of the things that's very different than Japan, if we look at what China has done over the years, over three-quarter million Chinese students are in the U.S. universities. And they're the ones that are going to be a very good pool that's going to bridge the two cultures together. So I see that they'll hire a lot of these students that will graduate from U.S. universities. And it's very interesting because most Chinese now, parents, I've been in programs where they ask me, we're looking for sending our child, he's six, seven years old, to study English in America for the summers. And they're starting to think like that. And so I think you see them being very adaptable. So I think they will localize. I don't think there's going to be a real cultural issue. So these new plans, of course, to the workers who will be hired in those localities in the Midwest, Ohio, Michigan, Indiana, so forth, they will welcome any company of any nationality to be completely honest because they want jobs. I mean, high-paying jobs are left during the last 20, 30 years. Now that's one huge movement which you've alluded to happening as we speak. And so the other part that you mentioned was the consumer revolution going to be happening. And you're talking about brands. And of course, the Chinese consumer is very global now. I mean, the Chinese consumer is very perceptible about brands. And as we know, the Japanese brands have taken decades, but they've become synonymous with quality. Just like the Sony's and Toyotas and Panasonic's and many, many brands. I don't hear much about Chinese brands yet. I've known of the Huawei's, the Hyres and Lenovo's and so forth. But in the consumer side, you're talking about B2B, you know, Glass and ODM's two manufacturers. We're talking about B2C, which is the consumer end. Now, one idea that I'm hearing from you, they must have developed their branding or a way to sell their products, innovate their products within the Chinese market first and then go overseas. Do you see any products that are really selling or innovative companies within the local Chinese market that you see would have opportunities abroad? Well, I still think that it's not at that matured stage of development where you'll see a lot of Chinese brands that are going to cross-border and go into the U.S. I think the concentration in Chinese policy really is for the Chinese brands to build up domestically and at the same time, gathering technology skills from the West by buying the name brands in the U.S. bringing into China. That's still a much more competitive market. And for example, Red Bull, which is American, which is a Chinese distributor in China. Now, he's coming back. He's investing in Hawaii. He's got a hotel that he's purchased in Kauai. So we're going to see more and more Chinese companies diversifying. We're seeing, for example, in services industry, in the movie industry, we're seeing the Dalian's Huandong as follow-up, legendary pictures. It's a lot of related to the consumer industry. We'll get back to that more in detail as we take a break and we'll be back in a few minutes. Thank you. Hi, I'm Chris Leitham with The Economy and You and I'd like to invite you each week to come watch my show each Wednesday at 3 p.m. Aloha, I'm Richard Emory. I'm with co-host Jane Sugimura of Kondo Insider, Hawaii's weekly show about association living. The purpose of these videos is to educate board members and Kondo residents about issues relating to association living. We hope they're helpful and that they assist in resolving problems that affect the relationship between boards and their residents. Each week, Thursday at 3 p.m., we bring you exciting guests, industry experts, who for free will share their advice about how to make your association a better place to live and answer a lot of very interesting questions. Aloha, we hope you'll tune in. Yes, my friend, he's Jay's ex-partner. Thank you and we're back in the middle of a lively discussion about the changes happening today and in the new future about the Chinese economy, now the second largest in the world, along with very interesting kind of signs of change, such as the renminbi declining in value to vis-a-vis the US dollar. Now, when we ended with Russell speaking, we were talking about the shift to creating a much more consumer demand economy within China and to get away from the heavy manufacturing and exporting. Now, when we talk about consumer demand, we talk about people traveling and buying things and having a good time, and that sounds like Hawaii. That sounds like tourism. That sounds like finally Chinese consumers going to places and buying items in Japanese presence for their friends and family back home, which of course adds to the local economy. And of course, but there must be every other state that's trying to promote their own state and locality to invite Chinese investment and tourism renminbi. Now, coming back to a very local place, Hawaii, where does Hawaii fit in all this? It's not a heavy manufacturing area, but it is a hub of global tourism. Ray, that's an interesting point, but first of all, Hawaii does have an office in Beijing. It actually was formed years ago, it was one of the first offices in China. It was approved by the State Council, which is the highest authority in the country. Only one of two offices that were approved by the highest level. And all the offices of these different states have representative offices in China. They're very active. I've been to many receptions where the governor would come to China and they would bring all the industries of that state. So Hawaii's very unique because we don't have a heavy manufacturing industry. We're not like Ohio, where Fuyao is investing close to $700 million to put back in the US. So we don't have that, but we've got to remember the new China, we have to ask ourselves, what will be the key drivers for the new China? And there's going to be four or five things. One is information technology. A second is e-commerce, like Alibaba. Alibaba, yeah. A third is going to be healthcare. As they have more money, they want better healthcare. And I'm going to talk about this. Okay, medical tourism. Medical tourism, we'll talk about that. And then there's consumer discretionary. And that is tourism. We have 100 million tourists from China that go outbound. So we're like every other state. In fact, we had a major conference here the way tourism authority. And this year was the first time the focus was on China as a driver. And I think it's very important to focus on it because with this comes a lot of money. Tourism. Medical tourism, educational tourism, sports tourism. Let's take one thing at a time here. And let's go into what you just said about medical tourism. And I think we can describe it in this way, that there are many now people in the middle class in China, maybe very wealthy people. I mean a number of billionaires and millionaires have skyrocketed recently. And they would love to go to a first rate hospital for some of their treatments while taking a vacation, right? I just had a meeting those days with another male in Chinese who was in here and he's associated with a company which places key business people, brings them from China to the U.S. to the major hospitals. So, you know, again, we're competing with some very... The Mayo Clinic. The Mayo Clinic. In Minnesota. Anderson. Virginia Mason in Seattle. Cleveland Ohio Center. Major Center. So we need to develop this niche, which is a good niche. So they are bringing a first group of CEOs here. And how do you tap into that group? Well, I've been talking with somebody from a major Chinese company, the travel tourism group, and they're interested. They're tied in with the high wealth bank clubs in China. They're tied in with insurance companies. So you need to create a sustainable model. You need to have services here. You need to educate that market about Western medicine. And also bringing very high level Chinese medicine here, where the advantage of this place, Hawaii, is because maybe you can have a longer stay for these people who want to rest and who need a place where there's no pollution. Now, but going back to the hospital network in Hawaii itself, don't you feel that in order to make this network attractive and competitive vis-a-vis this Virginia Basin or the Mayo Clinic or Cleveland hospitals, they have Chinese speaking nurses. They have Chinese DVDs. They have Chinese food. They have a lot of infrastructure already that makes a visitor from Dalian or Kanjin feel at home and also have the first rate medical care. So what I'm saying is it's just like, it's not like a hospital in Hawaii can just sit there and have business start up. There have to be a lot of planning and business strategy. Well, there's a lot of strategy involved. Yes, we don't have a very good infrastructure or language infrastructure. However, many of these high wealth people will have assistants who speak English and to bring them over with them. They're trusted where they can do business and also at the same time have that English language capability. So I'm not worried about the weekend. As long as we have coming with these executives there are certain key translators. And over time, like we develop the Japanese tourism as it gets bigger and bigger, we can develop the language capabilities. And that's a good point. It always makes it feel comfortable when a nurse will say, anyhow. Right, right. That's a whole kind of promotional or development of the ecosystem. But this goes back to a show we did long ago on the development of Chinese language, Putawah, Mandarin in Hawaii itself, and the school system. So that's lacking now. That's right. It's not happening. But I'm going to pause it. I think the principal of Waipahu has Mandarin there. So I'm going to visit him. Okay. I mean, that's a great time when we have some, in our own community who take risks with visionaries. All right. And you mentioned Jack Ma, Alibaba, and e-commerce. And this does not sound relevant to me because Hawaii, of course, doesn't have a great e-commerce center. What are you thinking about that kind of aligns Hawaii to the world of e-commerce? Well, I think e-commerce, what does it mean? Well, we've got a strong industry tourism, hooking up with C-trips, a major, major through the internet. Because most Chinese are able to, they're techno-savvy. They book tours to the E-trips, having more partnerships, having more local vendors tie up with C-trips. So welcoming the same way we have, what was the Japanese tour group? JTB. JTB. You know, I think C-trips would be a comparison and to bring in these tourists. But again, the problem which we have, we need to develop our infrastructure. If we're going to tap into this consumer discretionary into tourism, we need to have more hotel accommodations. With occupancy rates up to 80%, there are litter and overs of the Chinese. That's why we're saying, investor, China Oceanwide coming to Hawaii, to develop four hotels. And also to do a major development in Kapolei. So we're seeing that. And that's good investment for our economy. But we need to open up more to find avenues for Chinese investors. So you just mentioned we have an office in Beijing. We're ahead of the curve. The state government seems very pro-investment. But this seems not to be a concentrated, organized strategy in all this to make it part of our future economy. This seems to be part of the puzzle, but not yet put together for Hawaii. Yeah. And I think we have also a big, big area of opportunity is for educational tourism. We don't need the Chinese to stay here a long time, but the coming here during the major holidays to winter breaks, to summers. We need to get our schools more involved. We need to build capacity. They want to learn English. They want to come here and be in American world. And I think Hawaii is a good place. We don't have MITs. We don't have Harvard's. But we have good college preparatory schools. And I think that's a plus. And I think we have to look at the value that we give, that niche. And we need to bring these educational schools together to create programs where the state will be able to help drive and to help all these schools that can provide this. Right now, looking at the Japan-Hawaii relationship, there are cities where there are very extensive relationships like Hiroshima, for example. That's been a long one between Hawaii and Japan. And there's also cities in Nagasaki, Fukuoka, in Kyushu. My grandparents came from Komodo. What are the key cities in China that would be the most receptive to really promoting Hawaii within their areas? So there's a kind of a symbiotic relationship that they will be sending people and having a very good relationship with the government and educational academic institutions in Hawaii. What cities are there? You mentioned Hiroshima, Fukuoka. They seem to be outside of the major areas. That's where the immigrants came from. And it seemed to be culturally where a lot of the old immigrants that came to Hawaii from Japan were from there. But China is different today. China is very different. The old Chinese that are here came from Guangdong and came from Zhongshan, these areas. But I think the areas that have the money are Shanghai, Beijing, or the cities right around Shanghai. I think the second tier cities, right around Shanghai and Beijing are good bases. But again, everybody wants to come to Hawaii. They know Hawaii is beautiful. Places where the pollution is bad, where they have a lot of money. Even Chengdu would be nice to have a relationship with. There's a lot of people that want to come here. I think the problem is that there are not a lot of people in Hawaii who have connections or relations back with modern China. Here's something that is a focus, that there's a historical relationship with China, with our Chinatown. But that seems to be a world of the old China, the Guangdong, Sun Yat-sen. But Sun Yat-sen is revered in the mainland China also. But it's being old. And if you go to people here locally, they don't have any concept of what's happening in Womao today, or on the Bund, or Nanjing Lu, or whatever. I mean, it's sometimes ahead of Hawaii. There's a big disconnect. There's no family relationships. They've all left China. They have no concept of the language. They don't speak the language. They speak Zhongsan, very village language. Same thing with the Japanese immigrants. And they don't have relationships with the new China, with the people who have money, and the people who are... I think many of the Chinese actually know more about the Americans than we know about them, especially for the current contemporary China. Plus, you used to realize all the money here for the local Chinese are invested into property lands. And so there's no need for them to go to China. So, again, there is a very... There's an economy, so I think we need to develop more relationships. Well, I think that's the theme of our next show. What is modern China all about? What is this great world of Alibaba and Levenovo and, you know, all the big cities and the consumer? What is that all about? I think that's what we should be talking about. Money and excitement, progress of modern world. And explaining to our viewers. And that's the end of this show, but there's more to come on the growth of China. And thank you, Russell, for your insights. Thank you, Ray. And I'm excited because that's where I've been for 13 years. And we'll get back to explaining the new China and to people in Hawaii and all the positives coming up for a relationship. Thank you very much. Thank you.