China Promises IP Defense, But Firms Worried: Shanghai Notebook

(Bloomberg) — China’s massive import expo is starting to wind down in Shanghai. From million-dollar shoes to robots and toys, here’s what Bloomberg’s reporters saw as the highlights.

There’s been hundreds of deals and agreements signed at the expo, according to Bloomberg calculations. A lot of those have been energy and commodity deals, like Chinalco’s agreement on Thursday to buy 22 billion yuan ($3.2 billion) worth of bauxite, coal and .

The expo is meant to showcase China’s willingness to open its economy, buy more from other nations and make it easier for foreign firms to do business here. Partly that revolves around the question of how China will protect foreign technology and intellectual property. Accusations that it has stolen or forced foreign firms to transfer billions of dollars of American technology are at the heart of the trade war, and how China deals with that will partly determine the future of the conflict.

President Xi Jinping pledged on Monday that the nation will strengthen protection and crackdown on IP theft, and on Thursday, officials explained to foreign executives how they would do that, while also defending the nation’s actions.

IP Defense

After a slideshow detailing China’s efforts to cut down on fake goods, a senior commerce ministry official said that it’s “unrealistic to expect any country to root out counterfeiting and IP infringement completely.”

“One can’t say that because there is counterfeiting in China, that our nation’s technology development is made through theft. That is groundless,” said Wang Hejun, director-general of the Treaty and Law Department of the Ministry of Commerce.

Nonetheless, many foreign executives are still concerned. Markus Beck of Switzerland’s Fehlmann AG is in Shanghai to sell his company’s milling machines and tools. IP protection in China is something that he and others have to deal with, but he also asserted confidence in the sophistication of the company’s product.

“On a certain level, you can copy the shape, but you can’t copy what’s inside,” he said.

That sentiment was echoed by several exhibitors in the high-tech manufacturing hall.

Some of Wednesday’s Deals

U.S. Disinterest

U.S. companies have a comparatively limited presence at the expo, even though the closed nature of China’s market is one of President Trump’s complaints. There’s less than a third as many American companies as Japanese firms exhibiting, and no officials attended. That may reflect the fact that with both sides slapping tariffs on each other and little sign of a detente, there’s less money to be made exporting to China now than there was before.

Dalong Guo started exporting California’s “Big Smooth” brand wines to Shandong a year ago, but extra Chinese tariffs on the wines makes profit margins too thin to compete with Australian and French products.

“We hope Trump will change his mind and not continue the trade war. This trade war is bad for everybody,” said Guo, at the expo. He’d already stopped exporting American pork to China after the previous round of tariffs.

“Some of our clients like U.S. wine, which is a bit stronger than French wine, with a darker color and a fruitier flavoring” but U.S. wine makers care little about the Chinese market as their domestic market is big enough for them, he said.

Million-Dollar Shoes

Some of the goods on display in Shanghai aren’t what you’d normally see at a trade show – a $4.3 million pair of diamond-encrusted pink high heels.

The shoes are the most expensive piece presented by Gènavant, a London-based luxury brand started by designers Jimmy Choo and Reggie Hung. The brand is using the import expo as a fashion show to launch their products in China, according to Managing Director Tao Xiao.

They’ve already had some orders for the customized shoes, Tao said, which are made to order in Italy and then fitted with the jewels in Taiwan. That may be an indicator of the levels of inequality in the nation – while regular consumers have been struggling recently with higher rents and rising prices, there is clearly still demand for luxury goods and conspicuous consumption.

For those on a more modest budget, they’re also displaying other shoes, starting at $50,000.

Trade War Benefits Brazil

Other nations are looking to take advantage of the shakeup to global trade caused by the current dispute between the U.S. and China.

The Brazilian government invited Marcelo Sobrinho to attend the expo to introduce Ferrucci and Maithe shoes to the Chinese market for the first time.

The trade war “isn’t good for China, and it’s not good for the U.S., but it’s helping other countries grow up,” Sobrinho, an exporter, said in Shanghai. Marcelo heads to the U.S. next, to try and take advantage of the reduction of some U.S. tariffs earlier this year and get into that market too.

America’s Finest Ginseng

In case you were concerned about how the hardy American ginseng farmer is faring amid the U.S.-China trade war, the Shanghai import expo has provided an opportunity to catch up.

The root, much prized in China and throughout Asia for its believed medicinal qualities, is an ingredient in various warming dishes like the Korean ginseng chicken soup samgyetang. It was included in the goods China imposed retaliatory tariffs on in September.

Producers of the American variety, panax quinquefolius to be precise, still have the benefit of selling at about half the price of Chinese types despite the extra duty, according to Gorden Jiang chairman of Rocky Mountain (Fuzhou) Drug Co.

It’s just the middle-men that get squeezed, he explains, and that may mean they’ll shift to Canadian ginseng instead.

Modest Deal-Flow

At the end of the second day of Chinese President Xi Jinping’s signature import trade fair in Shanghai, foreign companies had signed a smattering of deals to sell goods into the world’s second-largest economy.Here’s a selection:

Nestle’s Anti-Dementia Dog Food

A pet food tailored for dogs above age 7 that claims to slow aging and the onset of dementia has gone viral at the import fair following a curtain-raiser story by the state-run People’s Daily. Roey Wang, e-commerce sales supervisor at Nestle Purina PetCare, said the products are imported from Australia and the company plans to localize production in their factory in Tianjin next year.

That highlights a conundrum around the trade fair itself. Importing is fine, but making in China is usually cheaper. In future, products made in Tianjin using exactly the same recipe will be sold for less than the imported ones, which are now available on Alibaba’s cross-border e-commerce platform, according to Wang.

U.K.’s Legal Worries

The U.K.’s International Trade Secretary Liam Fox just put his finger on a complaint that foreign business leaders in China have long made: local laws are applied unevenly and the rules of the game can change overnight.

“I think the regulatory environment and the legal underpinning, I would say, are probably the two that U.K. investors will want to see improved certainty,” Fox said, speaking at the China International Import Expo in Shanghai Tuesday.

Fox went on to call on Xi Jinping to set down a “firm timetable” for his latest pledges to open the economy further, echoing other responses to the Chinese president’s aspirational — but vague — keynote speech delivered at the opening ceremony of the trade fair Monday.

The expo, attended by more than 3,000 foreign companies, is part of China’s efforts to boost domestic consumption and re-brand itself as an importer of goods, shifting away from the export-led model that helped spark the trade war with the U.S.

See below for more details.

Agricultural Opportunity

U.S. exports of soybeans to China have collapsed as the trade dispute worsens, hurting farmers in the Midwest. But it’s an opportunity for farmers in Brazil and for food producers elsewhere in Asia, who can step in to fill the U.S.-shaped void.Companies like Chia Tai (China) Investment Co., a subsidiary of a Thai holding company, see a chance to increase sales of meat and other foodstuffs to China, especially with promises to open up to more imports, the company’s Vice-Chairman Xue Zengyi said.

“As a global food company, we can source substitutes globally to meet Chinese demand and help offset the impact” of the rising cost of soybean-based animal feeds, he said in Shanghai at the International Import Expo.

SOEs and Flight Attendants

How to stand out as a hard-working State-Owned Enterprise in an event brimming with them? China Eastern airlines, headquartered at the nearby Shanghai Hongqiao airport, has decided to grace the Import Expo with a phalanx of female flight attendants.

120 flight staff are there to help with ribbon-cutting and MC duties at any deal-signing ceremonies, according to Wang Jue, an official at the carrier’s cabin service department. They were selected from a pool of 6,000 air hostesses, based on factors like past performance and political allegiance — being a member of the Communist Party is a big plus.

Xi’s Speech

Chinese President Xi Jinping opened the International Import Expo in Shanghai on Monday, giving a speech that was long on promises to support globalization and open the economy, but short on detail.

Read More: China’s New Love of Imports Leaves Long Road to Trade Balance

While Xi’s address was welcomed by many, it fell flat for others who had hoped for more detail on how China will reduce the barriers to its economy.

“It seems like there were good statements and good headlines, but what we want are concrete actions and a concrete timetable of reform,” said Carlo Diego D’Andrea, the Shanghai chairman for the European chamber of commerce. “We can’t let the CEOs of European companies in China to set up their businesses on a foundation of hope that reform will come.”

Others were more optimistic, emphasizing the importance of Xi’s message and the Expo itself, even as some U.S. and European executives have snubbed the event.

The speech “gave entrepreneurs like me a lot of confidence,” said Bai Eryun, general manager of Inner Mongolia Erdos International Trade Ltd.,31 which exports woolen products. “Opening up, cooperation and multilateralism are the future.”

Trade War is ‘Most Stupid Thing’

Alibaba (NYSE:) co-founder Jack Ma was much less reserved in his comments on the trade war with the U.S., telling a forum on the sidelines of the expo that it the “most stupid thing in this world.” China is shifting from being an exporter to an importer, he said, adding that manufacturing is no longer creating jobs, service industry creates all the jobs.

Overseas Chinese Bring Alpacas Home

Woolly timetables aside, evidence of China’s growing influence in global trade abounded at the Expo.

Maggie Chen immigrated from Shanghai to Australia in 1988, setting up Product of Australia Trade Pty Ltd in Melbourne. She’s back now at the International Import Expo, looking to expand her alpaca wool product business in China’s massive market. In Australia, her company has about 20 people producing toys and other goods, and it opened a physical store in Shanghai in 2016.

A few booths away from hers, Warmipura Arte Exportaciones S.A.C. is also selling products ranging from stuffed alpaca toys to slippers made of the animal’s wool. A 50-50 joint venture set up in Peru, the company is solely focused on the Chinese market, according to sales manager Liu Jiao’e. The Chinese cofounder established the firm there in 2016, hiring local families to make handicrafts and then exporting them to China. Sales have doubled to 1 million yuan ($145,000) in two years, Liu said, and have the potential to grow.

Robot Ping-Pong

In 1971, the visit of an American table-tennis team to China began the normalization of relations between the cold war adversaries.

Now, Japan’s Omron Corp. is turning to the same tool, using a ping-pong playing robot to demonstrate its sensors and artificial intelligence technology to Chinese customers at the import expo in Shanghai. The cameras constantly analyze the human opponent’s actions and can predict when the player is preparing a “smash,” even before paddle hits ball, according to engineer Satoshi Yase. The technology aims to understand human intentions, he said.

That can be useful on factory floors, improving worker productivity through automation, PR spokeswoman Linda Zhu. The technology in the robot is already being used in China, especially in the semiconductor and car sectors, she said.

Robotics and automated production are sectors where China is attempting to develop world-class industry as part of its “Made in China 2025” plan. So for Omron, what is an attractive market now could disappear in a few years, as Chinese companies look to replace imported technology. But at least for now, the company has a monopoly on the ping-pong robot sector.

Japan All Out

Judging by the number of companies attending the China International Import Expo this week in Shanghai, Japan sees plenty of opportunities to expand exports.

There’s over 400 firms from Japan exhibiting their wares at the show, more than double the number from South Korea, which is in second place. Companies are aiming to take advantage of the growing middle-class in China, showing off goods like a Japanese energy drink that claims to preserve collagen proteins, or a Korean cooking machine.

Also included in the list of “hot products” were frozen Canadian wild snow crabs, Ukrainian breakfast oatmeal and Japanese pearl necklaces.

The U.S. Soybean Export Council has a display promoting sustainable methods of soybean production and techniques for circulating water in fish-farming ponds.

Some reporters trying to use the Internet at the massive National Convention and Exhibition Center have been handed a sign of the times: Foreign nationals were given a nifty VPN that allows them to circumvent China’s web censorship; Chinese nationals were not.

To contact Bloomberg News staff for this story: Jing Yang de Morel in Shanghai at [email protected];Matthew Boesler in Shanghai at [email protected];Miao Han in Shanghai at [email protected];Natalie Lung in Hong Kong at [email protected];Yinan Zhao in Beijing at [email protected];Niu Shuping in Beijing at [email protected]

To contact the editors responsible for this story: Jeffrey Black at [email protected], James Mayger, Timothy Sifert

Source: Investing.com