Featured faculty: Ma Xufei
Written by Pan Jingyi

Cross-border capital flows are no longer just about money. When multinational companies build factories or expand operations overseas, they bring along technology, management know-how, supply-chain connections, and access to international markets. In this case, inward foreign direct investment is often viewed as an engine for local growth and competitiveness.

However, many also view foreign investment cautiously, citing concerns about potential harm to domestic industries. Policymakers around the world have issued regulations to limit foreign investment, such as national security screenings, sector-specific prohibitions, capital requirements, and the like, to safeguard local interests.

For China, foreign investment is paramount. The Ministry of Commerce reported that 70,392 new foreign-invested firms were established last year, a 19 per cent year-on-year increase, while pledging more policy support. Meanwhile, Chinese companies are actively expanding abroad and venturing into advanced technologies. There is clear evidence that foreign capital can boost local businesses, but to what extent?

“Over the past two decades, provinces in China that attracted significant foreign direct investments have experienced a rapid increase in the establishment of local firms, while less foreign-invested regions continue to struggle,” says Ma Xufei, Professor of the Department of Management at the Chinese University of Hong Kong (CUHK) Business School. “Hence, we take a detailed approach to explore how foreign firms influence local entrepreneurs.”

Professor Ma’s new study, Beyond direct impact: Exploring inward FDI’s multifaceted effects on new venture creation, takes a close look at the conundrum. In collaboration with Luo Lingli and Lei Linan of Zhejiang University, as well as Yamanoi Junichi of Waseda University, Professor Ma finds that foreign investment brings opportunities for local startups, within certain limits.

The 48 per cent threshold

The team analyses data covering all Chinese-registered firms from 2013 to 2023, and discovers that more foreign investment isn’t always better. The effect depends on whether foreign firms and new local enterprises or startups operate in the same industry and region.

When foreign companies operate in the same industry and province as local firms, the benefits to local counterparts increase up to a point, and become detrimental as they move further, forming an inverted U-shaped trajectory. Such benefits peak when foreign firms account for 48 per cent of all the sales in a specific industry and province.

Below this threshold, local firms can learn technologies, managerial expertise and marketing insights from their foreign counterparts through knowledge transfer, or Professor Ma calls it spillover. “At this level, foreign firms still struggle to adapt to local markets, providing local entrepreneurs with novel opportunities to capitalise on,” he says.

“Supportive environments often have clearer rules, which make it easier and cheaper to do business, helping local entrepreneurs create and scale up their new ventures.”

Professor Ma Xufei

The pattern changes once foreign presence becomes too strong. As foreign investment rises, competition intensifies, and the space for new entrants narrows. At this stage, foreign firms’ domination drives up costs and attracts local talent with higher pay and benefits. “As a result, the influx of foreign competitors can discourage local startups and make it harder for them to survive,” he adds.

The gravity of local ecosystems

Entrepreneurial environments also shape the extent to which foreign investment helps or harms local businesses. Specifically, the study indicates that the more developed a region’s non-state economy, or how much a region is driven by private businesses and market forces rather than government control, the more it enhances the positive spillover effects.

A stronger non-state economy encourages cooperation between local and foreign firms and facilitates positive spillover. “Such supportive environments often have clearer rules, which make it easier and cheaper to do business, helping local entrepreneurs create and scale up their new ventures,” Professor Ma says.

However, there’s a caveat. Supportive non-state economy also allows foreign firms to expand more effectively and compete more aggressively, even dominating key resources such as top suppliers and skilled talent, thereby helping them surpass the 48 per cent threshold. If this happens, local startups may find it harder to survive.

Looking for a safe haven for local growth

So, how can local entrepreneurs make the best of inward foreign direct investment? The study finds that instead of competing head-to-head, local entrepreneurs can learn from foreign friends and apply the know-how to related industries or other regions with similar customers, products, or operational requirements.

For instance, if foreign automakers invest heavily in a region, local startups in related industries, such as auto parts manufacturing or electric vehicle batteries, can benefit by supplying these firms or adopting their production techniques. In regions with significant foreign investment in the technology sector, startups in software development or IT services may leverage the knowledge and customer base built by foreign firms.

“Local entrepreneurs can identify the related industries by analysing value chains and looking for suppliers, distributors and customers of foreign-invested industries. After that, they shall identify industries that share labour pools, technologies, or customer bases,” Professor Ma adds.

“By redirecting their target markets to related industries or neighbouring regions, local entrepreneurs can use what they learned with less direct competition from foreign firms.”

What can policymakers do?

While foreign investment can be a powerful engine for learning and growth, its benefits to local communities are not guaranteed. Therefore, Professor Ma suggests that local regulators implement targeted investment promotion, balanced competition policies, cluster development, and regular monitoring.

Attracting foreign firms in industries with high growth potential can be achieved by offering tax incentives, subsidies, or streamlined regulations. Regulators should also support local firms through subsidies, training, or access to financing to ensure they can coexist with foreign firms.

To facilitate spillover further, industrial clusters where foreign and local firms can collaborate would provide infrastructure and networking platforms. “The regulator should also continuously monitor foreign direct investment levels to ensure they do not exceed the threshold where competitive pressures outweigh learning opportunities, and adjust the policies accordingly,” he adds.

The findings can also be partially generalised to other countries, especially emerging markets, but with caution. Countries with diverse regions and significant economic disparities may experience dynamics similar to those of China, but countries with a weak non-state economy may observe different effects.

“The type of industries also matters,” says Professor Ma. “The presence of multinationals in industries like technology or manufacturing may generate effects comparable to those observed in China, but other sectors like agriculture or resource extraction might behave differently.”

Finally, heightened geopolitical tensions and restrictions imposed by certain countries on investment in China have hindered spillovers from foreign firms. In this regard, Professor Ma suggests that the government take proactive steps, such as encouraging local enterprises to fill the knowledge-transfer gap by providing research and development grants and innovation subsidies.

More investment in infrastructure, workforce skills, and industrial clusters would also help spread advanced technology more widely within the country.

“Local firms must also invest in building their own capabilities, for example, through training programmes or partnerships with domestic universities, and develop alliances with other domestic firms to compensate for the loss of foreign expertise and networks,” he adds. “They could also look for investment opportunities in neighbouring countries.”

The post How foreign investment shapes Chinese startups first appeared on China Business Knowledge.

Featured faculty: Philip Zhang Renyu and Lin Yunduan
Written by Putro Harnowo

Not everything needs to carry meaning, especially on social media. Take 67, a nonsensical expression Gen Alpha uses to confuse adults, for example. While digital platforms can forecast trends by analysing users’ behaviour, humans are inherently unpredictable and easily swayed by others. Algorithms may struggle to keep pace.

Digital anthropologist Brian Solis said, “Social media is about sociology and psychology, not technology.” This can explain many inconsequential trends exploding online. Within their social network, people randomly influence and are influenced by others, even when they don’t actually know each other.

“You may have heard of the six degrees of separation, where everyone in the world is connected through a chain of no more than six acquaintances. It means that everyone is actually more connected than they realise through social networks,” says Lin Yunduan, Assistant Professor of the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School.

Social networks lie at the intersection of many disciplines, from sociology and marketing to even politics. Understanding how ideas spread within communities or whether a new product thrives in the market amid unpredictable human behaviour becomes critical.

Given that people respond to one another in messy, often unpredictable ways, it can be hard to pin down why an idea catches on, or why a product takes off in one community but not another. To cut through that complexity, Professor Lin introduces the fixed-point approximation, a method that distils the back-and-forth of social influence into a clear picture of how these behaviours ultimately settle across the network.

“Imagine it as if a group of people want to schedule a gathering. It starts as an unspecified plan, as anyone may still change their minds. When someone confirms they can make it, their friends may become more likely to join, but when someone who confirmed later cancelled due to a sudden change, this can also ripple through the group,” she says.

“The fixed point refers to a certain level where, after these influences play out, each person’s likelihood of adopting an idea becomes steady and doesn’t change anymore.”

Predicting the trends with a mathematical formula

In a paper titled Nonprogressive diffusion on social networks: Approximation and applications, Professor Lin and Associate Professor Philip Zhang Renyu from the same department collaborate with Zhang Heng of Arizona State University and Max Shen of the University of Hong Kong to develop a deterministic approach to decode interactions within the unpredictable social network.

The fixed-point approximation starts from a few interpretable ingredients, including network structure to know who is connected to whom, intrinsic value or how much each person likes or dislikes the new idea before influences from others, noise distribution or the unpredictable whims that sway a person’s mind, and network effect intensity or how sensitive a person is to being influenced by their connections.

“Basically, we try to find a middle ground to estimate how people will behave under the influence of a network structure.”

Professor Lin Yunduan

This framework offers a way to capture social influence at scale without tracking every possible chain reaction in the network. Instead, it estimates each person’s likelihood of adoption under peer influence. For example, in a small neighbourhood, A has a 90 per cent chance of buying and B has a 30 per cent chance.

The approach is most reliable for people embedded in large, well-connected communities, since no single contact can easily dominate the outcome, and the influence of many peers creates a more stable signal. By contrast, for individuals with very few connections, the prediction can be harder, since one friend’s decision can meaningfully tilt the result, and random factors play a larger role.

To address those outliers, the paper proposes a small add-on step. After producing the main estimate, it focuses on low-connection individuals and generates many plausible scenarios for what their close contacts might do, then averages the results to refine that person’s adoption likelihood.  Professor Lin provides the formula of the framework in a GitHub repository here.

“Basically, we try to find a middle ground to estimate how people will behave under the influence of a network structure,” she says. “The approach does not require simulating every possible ripple through the network, yet it still captures the influence patterns accurately, turning messy, shifting interactions into a clear picture of each person’s likelihood of adopting a new trend.”

The researchers have examined their framework using five actual Facebook networks available in an open-access digital archive. The results show that the framework can accurately measure the likelihood of a new idea adoption, with an average error of less than 3.5 per cent. The graph below illustrates the framework’s efficiency in a small network compared with real-world results.

The researchers also compare it with other models that examine interactions within a network and find that their framework is 70 to 230 times faster than the basic simulations and 23 to 30 times faster than the advanced simulations.

Wider adoption in businesses and communities

A strong suit of fixed-point approximation is its ability to quickly pinpoint the key actors to maximise the adoption of a trend or idea, while accounting for unpredictable factors within a social network. This framework can be used in any practical setting where one’s behaviour impacts others.

“For instance, in a product launch, someone will purchase the new product, and these first purchasers may influence others to follow,” Professor Lin says. “Our framework can help to identify which first purchasers have a high downstream impact more quickly. These purchasers don’t necessarily have large numbers of followers, but are those positioned to spread adoption efficiently through their networks.”

While the framework can operate offline, digital platforms have advantages due to their infrastructure, connectivity and ability to utilise data in real time. Therefore, the framework would enable platforms to respond more quickly to market changes and stay ahead of competitors, while also adjusting their strategies over time to sustain momentum.

Another strong point of fixed-point approximation is its ability to help firms set pricing strategies by accounting for network influence. For retailers, this means the framework can help measure how many customers are likely to purchase a new product at different prices and set realistic sales goals.

Beyond profits, government or community leaders trying to spread an important message or encourage a new behaviour can use this framework to identify key community members whose participation will most effectively encourage others. The framework can also help understand how to seed these messages within the community to achieve widespread adoption.

The post How to forecast trends amid uncertainty first appeared on China Business Knowledge.

Featured faculty: Ko Chiu-yu
Written by Putro Harnowo

The fuss and feathers around bitcoin and cryptocurrency sometimes obscure the basic technology behind them. Indeed, blockchain, as the fundamental technology, has the potential to revolutionise industries beyond finance.

Blockchain is a distributed, encrypted digital ledger or record that everyone can see and agree on through computers. Its unique feature has opened a new mechanism called a smart contract, a self-executing agreement implemented as code on a blockchain that automatically performs actions without a middleman. Once deployed, this contract has a unique and immutable address that prevents unauthorised changes.

Leveraging this technology, a new study by Ko Chiu-yu, Associate Professor at the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School, examines how smart contracts can be utilised to solve disputes in the supply chain.

“Supply chains involve multi-tiered arrangements with numerous bilateral contracts. When disruption arises, figuring out who should bear the loss can be complicated,” says Professor Ko. “Smart contracts can automatically manage, track, and settle these losses fairly, especially when an action of a party initiates sequences of unanticipated damages that affect others.”

For instance, when a supplier fails to ship a component on schedule to an electronic assembler, the assembler would face compensation demands from the distributors for delayed delivery. A question then emerges: When actions of a party affect another party’s agreements with a third party, how should the liability be shared between the initiator and other parties for the damage?

In a study titled Sharing sequentially triggered losses: Automated conflict resolution through smart contracts, Professor Ko and his collaborators propose “the fixed-fraction rules” to fairly share responsibilities among parties in a supply chain. Each liability is split between the party that initiated the problem and the other parties that caused further damages later in the sequence.

Professor Ko compares it to a choose-your-own-adventure game with a dial. One end shows 0, which means the first party is responsible for all the costs, and the other end shows 1, which means everyone only pays for their own mistakes. The easy middle ground is to split the costs fairly between the initiator and the next party affected, using simple fairness principles like “let’s all chip in equally so nobody gets the short end” to keep the peace.

“Smart contracts can automatically manage, track, and settle losses fairly, especially when an action of a party initiates sequences of unanticipated damages that affect others.”

Professor Ko Chiu-yu

How can blockchain help?

Along with Jens Gudmundsson and Jens Leth Hougaard of the University of Copenhagen, Professor Ko takes a step-by-step approach in creating the fixed-fraction rules. They began by defining core allocation principles to balance fairness and incentives, making liabilities shared among each party based on a fixed fraction of the total loss.

A party is only aware of the agreements it participates in, so each party is only responsible for the loss associated with its own purview. Therefore, the initiator shall cover the rest of the loss since they could have done something to avoid the damage. For the loss incurred by several connected parties, the liabilities are shared equally among the initiator and the other parties. With these rules, the initiator is incentivised to avoid starting the chain of loss while also acknowledged for their limited control over further damage.

“The fixed-fraction rules operate on a similar principle to a common term in the supply chain called fixed share rate contracts, where the costs, risks, or liabilities arising from issues like delays, defects, or product recalls are shared among the involved parties based on predetermined fixed fractions,” says Professor Ko. “These terms have been shown to incentivise improved product quality.”

In ensuring fairness, the researchers further set out four principles. First, if losses occur in two different cases, the system can simply add up each party’s responsibility from both cases to get the total loss. Second, if the system combines two separate losses into one, the way of sharing the liabilities should stay fair and consistent. Third, if the number of parties involved changes, the responsibility shares also adjust accordingly. Lastly, parties not involved in causing any loss shouldn’t be responsible for anything.

To illustrate, the researchers extend the model to a scenario represented by a loss tree below, where any party can initiate the chain of loss. When B fails to meet its agreement with E, a total loss of US$19 occurs, which is calculated from a direct link with E and indirect links with F and G. According to the fixed-fraction rules using a benchmark middle-ground split, B pays US$14 to cover the full loss with E plus half of the losses with F and G (each taking an equal half as the balanced default for shared accountability). Accordingly, E cover the remaining US$5.

This approach ensures the initiator bears primary responsibility without overburdening downstream parties, maintaining incentives for prevention across the chain. Meanwhile, A, C, and D aren’t affected.

The fixed-fraction rules can be implemented in smart contracts by storing the agreements in a loss tree. Involved parties shall make deposits to cover potential losses, and with a set of functions, the blockchain can automatically compute and distribute liabilities in case of damage. If everything goes well, the deposits will be returned to conclude the deal.

The future of smart contracts

Supply chain is not the only one with an interwoven network. Given its ability to address the chain of loss, Professor Ko believes that fixed-fraction rules can be applied in other industries, such as automating cost-sharing in loan defaults, handling group claims after disasters in insurance, sharing penalties for construction delays in real estate, and many more.

However, there is a limit on how the rules can work, since their success depends on reliable data sources and integration with their supporting ecosystem. In many countries, the legal framework for smart contracts is also still evolving, and there is no uniformity in regulation about blockchain worldwide.

“Complex and high-value disputes will likely be settled through courts, as it takes time and effort to verify evidence and examine the terms stated in the contracts,” says Professor Ko. “Therefore, automatic conflict resolution works best for clear-cut, data-driven disputes with less room to argue, and facts can be verified automatically.”

With that being said, smart contracts will work best to settle smaller disputes, such as in delivery delays verified by sensors or tracking systems, e-commerce issues confirmed by delivery logs, and licensing or intellectual property breaches tracked through secure digital records.

In the era of AI, Professor Ko anticipates technologies to enhance smart contracts to be more adaptive by using predictive analytics to detect patterns and prevent disputes. Natural language processing would also be able to interpret ambiguous terms, and automated verification may validate data and trigger more accurate settlements.

“By combining AI-driven analysis with smart contracts for complex cases, and monitoring regulatory compliance in real time, technologies can improve efficiency, especially in sectors such as public services, e-commerce, and insurance,” he adds.

The post Can blockchain solve supply chain disputes? first appeared on China Business Knowledge.

Featured faculty: Paul Whelan
Written by Ellis Ng and Putro Harnowo

Foreign exchange or forex is the largest and most liquid financial market in the world, with a daily trading volume of US$9.6 trillion, according to a 2025 survey by the Bank for International Settlements. This number is significantly higher than the stock markets, which are estimated to be around US$700 billion per day.

Forex traders buy and sell currencies to make profits on differences in exchange rates over a global, decentralised market. With low capital requirements and the flexibility to trade anywhere, forex trading may appear easy, but practice suggests otherwise. The forex market is highly volatile and influenced by global politics and economics.

Although various methods have been designed to anticipate price movements and manage risk, forex traders suffering huge losses are not uncommon sights. A notable example is US$900 million lost by world-renowned investor Warren Buffett in 2005, signalling the unpredictable nature of foreign currency investment.

As the most widely traded currency, the US dollar is involved in more than 80 per cent of all forex transactions. Some argue that this domination may change amid intensifying trade and geopolitical tensions, along with US tariffs and protectionist policies that could potentially weaken the greenback’s hegemonic position.

However, Paul Whelan, Associate Professor in the Department of Finance at the Chinese University of Hong Kong (CUHK) Business School, remains cautious about anticipating dramatic changes to established patterns. “It’s too early to know if US tariffs will change the norm. The fundamental driver, consistent global demand for US dollar-denominated assets, remains robust despite shifting geopolitical dynamics.”

Although predicting currency market movements accurately is impossible, Professor Whelan’s recent study reveals a fascinating cycle that also demonstrates the persistent appeal of the US dollar. Every day at precisely 9.55am in Tokyo, 2.15pm in Frankfurt, and 4pm in London, the US dollar strengthens dramatically, only to weaken just afterwards. It’s a systematic pattern researchers have now quantified, revealing daily swings exceeding US$1 billion across global currency markets.

“Rather than market inefficiency, we find the daily swing pattern as a structural feature of the currency market driven by the prevalent demand for US dollars,” Professor Whelan says.

“The fundamental driver, consistent global demand for US dollar-denominated assets, remains robust despite shifting geopolitical dynamics.”

Professor Paul Whelan

What causes the billion-dollar daily swing pattern?

In a paper titled Foreign exchange fixings and returns around the clock, Professor Whelan, along with Ingomar Krohn at the Bank of Canada and Philippe Mueller at Warwick Business School, examined 21 years of high-frequency trading data and discovered a daily swing pattern around specific moments known as fixings. Fixings refer to the times when currency exchange rates are officially published, calculated by aggregating bids and offers to establish a reference price for valuing and executing international transactions.

Several key fixings are used worldwide, but the most prominent ones are the Tokyo, Frankfurt and London fixings, which have provided benchmarks for major currencies such as the yen, euro and pound, the top three currencies traded against the US dollar. Banks in Tokyo simultaneously publish their fixing at 9.55am, Frankfurt-headquartered European Central Bank announces its fixing at 2.15pm, and London-based Thomson Reuters updates its WM/Reuters fixing at 4pm, all in local time.

If converted to New York’s Eastern Time Zone (ET), Tokyo fixing happens at 8.55pm, Frankfurt at 8.15am, and London at 11am ET. As shown below, these fixing times are not exactly aligned, creating W-shaped patterns where the US dollar appreciates before the fixings and depreciates immediately afterwards.

Tokyo fixing is especially important as Japan doesn’t apply daylight saving time, a common practice among Northern Hemisphere countries where the clocks are set forward by one hour in spring and back by one hour in autumn, resulting in a change in time difference between Tokyo and other cities in the study throughout the year. From spring through autumn, the W-shaped pattern near the Tokyo fixing shifts by about one hour.

“Japan’s non-observance of daylight savings time serves as a quasi-natural experiment to prove the reversal is really tied to the fixing time,” says Professor Whelan.

What makes the finding striking is its consistency. The analysis of the nine most frequently traded currencies against the US dollar reveals a pervasive and highly statistically significant daily pattern across different time periods, suggesting that this isn’t a temporary market quirk but a fundamental feature of how global currency markets function.

The researchers believe that the pattern is driven by demand for US dollars at around major currency fixing times. Traders and financial institutions that facilitate foreign exchange transactions accumulate US dollars to meet this demand, causing the greenback to appreciate against other currencies. Right after the fixings, the dollars are sold back, leading to a price drop.

These findings highlight important considerations for managing currency risk. For corporations holding international operations, the real-world implications are significant. “Cross-border businesses might take into account timing around fixings to address pricing uncertainty,” says Professor Whelan.

Currency markets don’t always follow the logic

While identifying the daily swing pattern may help mitigate investment risk, it is worth noting that foreign exchange remains volatile due to the significant influence of external factors and trading behaviours. Another study by the researchers, Uncovered interest parity in high frequency, highlights that currency markets are not perfectly rational or predictable.

The researchers explore an investment strategy called a carry trade, which involves borrowing in low-interest-rate currencies, such as the Japanese yen, to invest in assets denominated in higher-interest-rate currencies, like the US dollar. According to the uncovered interest rate parity (UIP) theory, exploiting the interest rate differential shouldn’t yield consistent profits, as currencies with higher interest rates should gradually depreciate to offset the interest gains and maintain market balance.

However, the fact that some traders can still make profits from a carry trade has been perplexing. The researchers sought to determine how and when such an anomaly occurs by analysing foreign exchange market data spanning more than 25 years, focusing on nine of the most heavily traded currencies that account for 75 per cent of global daily average trading volume.

The results show that when major currency markets are closed or less active, mostly at night, the UIP theory tends to hold in diminishing carry trades. However, during daytime at US trading hours, currencies with higher interest rates tend to appreciate instead of depreciate, which contradicts the UIP theory. Most of the profits from carry trades are actually made in short bursts when major economic news comes out, such as the Federal Reserve’s announcements or major economic reports, during trading hours.

“Important economic news, like major reports or announcements, can cause sudden and big changes in currency prices as they show whether the economy is doing well or poorly,” says Professor Whelan. “Holding onto currency investments during these times is risky because prices can jump unexpectedly. To be willing to take this risk, investors need to expect higher returns as compensation for facing these shocks.”

On average, big news days account for only 17 per cent of all trading days in the sample, but contribute to two-thirds of the extra profit beyond normal market fluctuations. However, the probability of losses remains non-negligible, particularly during periods of market turbulence or when currencies behave abnormally.

Currency markets are more nuanced and less predictable compared to other financial markets. While classical theories provide a helpful framework, real-world data reveal consistent patterns of deviations. Market expectations and reactions are vital in understanding currency movements, more crucial than relying on interest rate differentials.

The post What really drives foreign exchange rates? first appeared on China Business Knowledge.

Featured faculty: Li Wendong
Written by Gigi Wong

Those who have worked long enough may still recall the feelings of receiving their first paycheques. After years passed, many would have realised how far they had come, and more importantly, how their personalities or the people they know had evolved over the years. At some quiet hour, a random thought may pop up: Do we shape our income, or does our income shape who we are?

A new study suggests our personalities and our paycheques may be more intertwined than we realise, each influencing the other over time in a reciprocal dance. “When income increases, it signals that the current career progress is significant and the status in society is improving,” says Li Wendong, Associate Professor in the Department of Management at the Chinese University of Hong Kong (CUHK) Business School.

Professor Li’s latest study challenges the assumption that our personalities are relatively fixed and set in stone, that a person is always either an introvert or an extrovert, agreeable or argumentative, cautious or reckless. Furthermore, his paper titled A continuous time meta-analyses of reciprocal relationships between personality traits and income suggests that some personality traits can also predict future income changes.

His study also found an overlooked drawback of pay rises. Positive reinforcement that comes with income increases may lead employees to stick to routines and conventional ways of doing work, eventually limiting them from exploring new approaches to improve their performance.

“Such a positive reinforcement likely prompts employees to exploit the current effective work methods and strategies further. Over time, changes in such behaviours, thoughts and feelings likely foster personality change.”

“Thus, after a pay rise, organisations may also consider using incentives to motivate employees to come up with novel strategies to complete their work responsibilities and think out of the box to spur creativity and innovation,” he adds.

Which came first: pay rise or personality change?

Along with his PhD students, as well as Zhang Zhen of Southern Methodist University, Zhang Xin of Shanghai University of Finance and Economics, and Christian Dormann of Johannes Gutenberg University Mainz, Professor Li analysed data from 11 large national and regional longitudinal studies in the world involving 134,551 participants in total.

Studies were included if they measured at least one of the Big Five personality traits and individual income at three or more time points. These personality traits refer to five broad dimensions of personality that make each person unique, including emotional stability, conscientiousness (e.g., being dependable and hardworking), agreeableness (e.g., friendliness), extraversion (e.g., being outgoing), and openness (e.g., being curious and open to new experiences).

The team integrated findings across all the studies, which followed participants over periods ranging from four to nineteen years. The researchers also examined patterns of personality change and income shifts within the same individuals over time, painting a much richer picture than a simple snapshot study.

They found that conscientiousness and emotional stability tended to increase following a boost in income. The results also demonstrated significant effects of income changes on subsequent changes in both traits.

“While an income increase can make employees more stable and reliable, it may also reduce their tendency to seek novel strategies and goals — that is, their exploratory, creative and risk-taking behaviours may decline.”

Professor Li Wendong

In other words, a fatter paycheque seems to make employees more disciplined, dependable, poised, and unflappable over time. On the other side, as expected, people who became more conscientious and emotionally stable went on to see larger income increases over the next several years.

On the contrary, there was a negative reciprocal relationship between extraversion and income: being more extroverted seems to make people less likely to earn more money later on and earning more salary appears to make people more introverted at a later point in time. The effects of conscientiousness, emotional stability, and extraversion on income fluctuate over time, with the strongest impact occurring around one year after personality traits were assessed and tend to weaken afterwards.

Other personality traits have a negative relationship with the pay rise. The effect of income on changes in agreeableness is negative and the relationship between agreeableness and change in income is unclear.

“Increases in conscientiousness and emotional stability are positively related to subsequent increases in the employee’s income over time,” says Professor Li. “Our analyses also revealed that the reciprocal effect between extraversion and income was negative and significant across different time points.”

Success rewires our inner traits

Income-personality link cuts both ways, but what explains these intriguing connections between who we are and what ends up in our bank accounts? The researchers propose a few rationales, drawing on the cybernetic Big Five theory.

As mentioned above, pay rises reinforce our current strategies and behaviours at work, and in turn, motivate us to hone and further exploit those strategies. This results in deepening the motivational stability or conscientiousness quality, as well as emotional stability and social stability.

However, the cybernetic Big Five theory suggests that income increases are less likely to provide incentives for employees’ exploration and risk-taking behaviours, which may further enhance extraversion and openness traits. Based on empirical findings, the researchers posit that all five traits above correspond to one of the two broad dimensions of the Big Five that are associated with career strategies: stability and plasticity traits.

Extraversion and openness are included in plasticity traits, which encourage exploration by generating novel strategies when old plans prove insufficient, or when environmental changes occur, allowing for adaptation in uncertain environments. Stability traits comprise conscientiousness, emotional stability, and agreeableness, which primarily serve to maintain stability and prevent disruption to ongoing strategies for achieving long-term goals.

When experiencing a career setback, employees are likely to adjust their strategies and explore novel approaches or acquire new strategies to advance their careers —a characteristic of openness. They may also become more extroverted and enhance their social capital for career development or for exploring other alternatives. These changes over time may get habitualised across various life domains.

“The idea that income increases confidence and exploration remains a theoretical possibility, but our empirical evidence suggests that, over time, higher income may instead lead to more stability and less exploratory behaviour or lower extraversion, likely because employees settle into effective, established work strategies rather than seeking novelty,” Professor Li says.

Career development and pay incentives

The upshot is that our personalities are not entirely fixed to our job descriptions. As we progress through our careers, our personality inevitably gets imprinted by our professional successes and stumbles, but those experiences also get funnelled back into further shaping our future fortunes, for better or worse.

According to Professor Li, the findings have important practical implications for employees and organisations. Earning a higher income may make us more conscientious and emotionally stable over time, but also diminish our extroverted and explorative tendencies to find novel strategies.

Employees should be mindful of these potential shifts, he advises, to better navigate their career development. Organisations, too, should take note that the common workplace practice of using pay rises to motivate staff may have some unintended consequences on employees’ personality development.

“Given that many organisations tend to employ pay rises as an important incentive scheme to motivate their employees, the findings suggest that organisations should also be aware of positive and perhaps, unintended consequences of pay rises,” he adds.

“While an income increase can make employees more stable and reliable, it may also reduce their tendency to seek novel strategies and goals — that is, their exploratory, creative and risk-taking behaviours may decline. This may lead to adverse consequences for organisations in adapting to new and uncertain environments.”

To mitigate the adverse effects of pay rises, Professor Li emphasises the importance of acknowledging the benefits and risks, and find a way to balance stability and creativity. Companies need to adopt practices that encourage employees to explore new ideas, such as supportive management and more job autonomy, to foster intrinsic motivation and creativity.

The post Your paycheque may change your personality, and vice versa first appeared on China Business Knowledge.

By Ellis Ng

Positioning a company’s brand can be a complicated process, especially in today’s world, where even luxury brands struggle to gain dominance. Take a look at LVMH, the owner of Louis Vuitton, and Kering, the owner of Gucci and Bottega Veneta. Both have grappled with shrinking consumer spending and reported a significant drop in China sales.

In these hard times, it’s natural for companies to rethink of positioning themselves closer to the mainstream in search of success. However, does giving in to popular taste will guarantee success? Recent research sheds light on how brands can effectively guide consumer decisions through strategic positioning.

“Positioning is one of the most important strategic decisions for brands, but as technology advances, market and consumer tastes are ever-changing,” says Tony Ke, Associate Professor in the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School. “It is not uncommon for some brands to chase the trends by adding new products to their portfolio. This will create the discrepancy between the product portfolio and the brand positioning and thus leads to brand dilution.”

Brand positioning requires careful planning. Therefore, in a new paper titled A model of product portfolio design: Guiding consumer search through brand positioning, Professor Ke along with Shin Jiwoong of Yale University and Yu Jungju of Korea Advanced Institute of Science and Technology, came up with a theory to help brands connect with their customers more meaningfully. The study also identifies conditions under which brands should adopt a niche positioning strategy rather than a mainstream one.

“Traditional marketing theory does not really distinguish between brand positioning and product positioning, and when it does, it talks about brand positioning totally separate from product positioning,” Professor Ke says. “Our theory of product-based brand positioning recognises both the difference as well as the link between brand positioning and product positioning.”

Niche vs. mainstream

Brands have become shorthand for consumers, and their positioning provides critical information about the characteristics of a firm’s products, making it easier for consumers to look for what they want. Product positioning, on the other hand, focuses on the specific attributes and characteristics of an individual product within the brand’s portfolio.

“When we want to shop for a new jacket, we may visit our favourite brand first, even though we do not know what designs of the new season will be offered by this brand,” Professor Ke says. “This simple observation implies that brand is guiding consumer search for products.”

Professor Ke used this idea to propose a theory using a Hotelling line model to visualise how brands position themselves in a market. Named after economist Harold Hotelling, the model illustrates how businesses position themselves in a market to maximise consumer reach. The mainstream brands are positioned close to the centre of the Hotelling line to appeal to the mass consumers, while niche brands are positioned near an endpoint to appeal to a specific group of consumers.

“It is not uncommon for some brands to chase the trends by adding new products to their portfolio. This will create the discrepancy between the product portfolio and the brand positioning and thus leads to brand dilution.”

Professor Tony Ke

The researchers then analysed how different factors affected the firm’s optimal positioning strategy, considering variables like search cost, consumer preferences, and the firm’s ability to position its various products in the market. Search cost refers to expenses or efforts consumers must take when searching for products before making a purchase decision.

The niche brand positioning allows firms to stand out and better match the specific tastes of their consumers, especially when search costs are high. Mainstream positioning allows brands to attract a larger number of consumers, but they may dilute their unique identity by offering a wide range of products. However, if many consumers are interested in the brand, maintaining a mainstream position won’t be a problem.

“Many great brands start as niche brands, such as Arc’teryx and Patagonia. Even the name of these brands hints at their niche origin,” says Professor Ke. “Yet, they become very successful because of the clarity of their brand positioning.”

Why is it good to be niche?

According to the theory of product-based brand positioning that the researchers propose, consumers may not know the exact details of every product, but they understand the overall style or type of products the brand offers. Based on this information, consumers can decide whether to search for a specific brand by visiting the store.

Therefore, a brand’s position can convey crucial information that guides the consumer’s search decisions. Instead of having to search through multiple brands to find what they want, consumers can use their understanding of brand positions to narrow down where they look for. Niche positioning naturally provides more information that facilitates consumer search because it restricts the spread of the product portfolio and hence guarantees the consistency between the brand position and the designs of all products under the brand.

A good example of a successful niche brand is Lululemon, which is known for its activewear and lifestyle apparel. “Lululemon builds a very consistent product portfolio,” says Professor Ke. “Consumers know if they want a particular style, say a pair of violet yoga pants with a slim fit and high waist for warm weather, they can get it at Lululemon.”

The theory then implies that a consistent portfolio will save consumers’ search costs. Lululemon, with its limited designs and rich selections, is thus clear and informative with its branding, Professor Ke says. “The brand itself tells consumers lots of information about the products under the brand,” he adds. “If they go to a different brand, there is a chance they can get some selections of yoga pants, but they may not get the exact thing they want.”

And that has helped Lululemon, which is currently enjoying breakout popularity. It now has more than 100 stores in mainland China and saw a 34 per cent year-on-year revenue rise in the last quarter.

Brand positioning in the e-commerce era

Brand building takes time as consumers form their perception about a brand over interactions with its products. Search costs, to some extent, “lock” consumers to their favourite brand by limiting their consideration set. The rise of e-commerce is likely to disrupt branding in general, Professor Ke says, with some merchants focusing less on brand positioning and more on grabbing consumer attention.

“The rise of e-commerce has lowered consumers’ search costs, and our theory thus predicts that brand positioning would become less important, as consumers can now freely explore more products from different brands, consistent with the market trend of ‘brandless’,” he adds. “Indeed, instead of using brands to guide consumer search, e-commerce platforms have powerful recommendation algorithms that could steer consumers to products or brands.”

However, Professor Ke argues that branding itself remains a comprehensive concept. “Besides guiding consumer search, the brand is an important social device that allows patrons to signal their wealth, taste and social status, and this aspect will not be altered by the advancement of e-commerce,” he says.

As big Chinese brands seek breakout success, with BYD attempting to make inroads in the electric vehicle market, Chagee and Luckin Coffee in the beverages market, and Pop Mart in the toys market, they should be more patient. Instead of constantly rolling out new products to chase market trends, companies can focus on the consistency of their product portfolio. This is the organic way to build a brand that lasts and resonates with consumers. For companies with diverse product capabilities, instead of throwing everything under one brand, they can consider building a house of brands to segment the market, like what P&G and Unilever did, says Professor Ke.

“Chasing the market trend is risky because it leads to brand dilution,” he adds. “Staying focused on their product portfolio is important. You cannot put everything that you can make, or you can sell under one brand, which will make the brand lose its identity.”

The post Stay niche for better branding first appeared on China Business Knowledge.

By Lisa Kennedy

Boosting productivity by building high-performing teams is a key survival strategy for companies in tough economic times – and few sectors have faced tougher conditions over recent years than the real estate industry. But how exactly do you mix and match staff with different characteristics and performance levels to create more effective teams, especially when managers have to assign jobs on the spot or have no effective way of assessing the qualities employees possess that are critical to teamwork, such as soft skills?

A new study has introduced a quantitative approach for making the best matches between real estate agents with widely differing latent characteristics and performance levels to build teams with the greatest likelihood of completing property deals.

Entitled Heterogeneous complementarity and team design: The case of real estate agents, the study was conducted by Mandy Hu Mantian, Associate Professor of the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School, in collaboration with Yan Xu of Virginia Polytechnic Institute and State University, Chu Junhong of the University of Hong Kong, and Andrew Ching of Johns Hopkins University.

It found that real estate firms could boost the number of deals they successfully conclude on sales and rentals if they restructure the agent teams following the quantitative approach. As real estate agencies typically earn a commission based on a percentage of the property’s sale price, even a small increase in successful deals can translate into significant revenue.

“Given that the average value of a property in mainland China is 2.16 million Chinese yuan (US$324,000), this translates to a financially significant improvement,” says Professor Hu, underscoring the practical implications of research findings in team restructuring to boost sales. “Furthermore, this restructuring strategy does not incur any additional hiring costs and, therefore, the expected output gain translates to profits directly, which is especially valuable for firms facing staff shortages or hiring freezes.”

A large evidence base

The study applied the proposed quantitative model to the context of 484 sales agents at Lianjia, one of mainland China’s largest real estate brokerage companies, from 2011 to 2017. The agents all worked across 17 stores in the Beiyuan subdistrict, a business zone in Beijing, and their income came primarily from commissions on successful deal closures. During the period, they worked on 56,146 properties and successfully closed 17,842 deals.

“Store managers make team assignment decisions when a property owner first visits a Lianjia store to list the property for sale or to rent,” says Professor Hu. “The first agent to interact with the owner automatically joins the property’s sales team. In addition, the manager might assign extra agents who are available at that moment to the property’s team. The management also prioritises maintaining workload fairness among all agents.”

“The findings suggest that we may want to pair up agents who show moderate differences in their working ability.”

Professor Mandy Hu Mantian

The researchers were given the complete team assignment history of every agent and detailed characteristics of all the properties assigned to them. They analysed the performance and collaboration data of all teams with one or two members, which jointly accounted for 94.4 per cent of properties handled over the period. They found that by dividing the agents into six types based on their solo performance and teamwork effectiveness in completing deals—where agents with the lowest success rates are labelled as type 1 and the highest performers as type 6—it is not necessarily the case that pairing a low-performing agent with a high-performing one in two-agent teams would increase the success rate.

Next, the researchers developed a quantitative model with a cutting-edge technique to figure out the latent compatibility of agents to work with each other.  The model also incorporates observed data on agents’ gender, home province, education level and age, which was used for further team performance analysis.

The best team players

The study found that the agents with average solo performances (latent type 4) are the best team players. For all agent types, except the best solo performer (type 6), the probability of closing a deal is greatest when paired with type 4. Pairings involving another type 4 agent have the highest chance of success, followed by matches with a type 5 and type 3 agent, respectively.

Type 6 agents always performed best when working alone. Teams that combined a low-performing agent of type 1 or 2 with a high performer from type 5 or 6 were less productive than when type 5 and 6 agents worked on their own.

“Teaming up agents of the same type generally does not yield superior performance compared to pairing two agents of different types, with the exception of type 4,” says Professor Hu. “On the other hand, pairing up agents of very different types also hurts performance. These findings suggest that we may want to pair up agents who show moderate differences in their working ability.”

The researchers found that working in a multiple-agent team often requires coordination and may be more suitable for agents with certain work styles. Type 6 may be very independent but not very adept at coordinating with others, while type 4 is better suited to a collaborative work environment. Restructuring all teams within a company using the above formula is found to increase the number of successful deals struck by agents by 26.6 per cent.

Gender and education also matter

Taking into account demographic factors of gender and education level, the researchers found that the likelihood of closing a deal would be higher if teams included at least one female member and the members were older or had more education. However, the age or education gap among members should not be too large.

Changing the gender mix of teams to the optimum level would raise total expected output by 2.3 per cent, while assigning all agents with the same education level increased overall performance by just one per cent. Compared to the 26.6 per cent increase following the proposed method, the common practice of paring agents based on observed demographic information may not achieve optimal results.

Professor Hu says the main results show how managers can utilise the proposed model and historical teamwork performance data to reassign existing employees in a more effective way that enhances overall performance, which will lead to better results than using demographic information.

“When new hires join the company, managers can consider using observed demographic information to create teams with gender diversity or assign agents with similar educational backgrounds or ages to the same team,” says Professor Hu. “Once the new hires have been working at the company for enough time to assess their sales performance, managers can then gauge which type they belong to. With this information, team assignments can be further optimised.”

The post The matchmaking secrets for high-performing teams first appeared on China Business Knowledge.

By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

There are many avenues for insurance companies or insurers to invest and generate profits while fulfilling their financial obligations. Among various options, bonds are particularly appealing due to their relatively stable returns and low risk. As a matter of fact, bonds play a crucial role in the overall investment strategy of insurers.

The US National Association of Insurance Commissioners (NAIC) points out in its Year-end 2023 capital markets update that the US insurance industry has a total investment of around US$2.85 trillion in corporate bonds, which accounts for 35 per cent of the industry’s total cash and assets. The European Central Bank also reported in September last year that US insurers hold nearly 40 per cent of US corporate bonds.

In many countries, insurers are highly regulated and mandated to report the value of their investment in financial statements to regulators and investors. Considering its significant portion, an estimated value or “fair value” of invested bonds would affect the insurers’ balance sheet and overall financial health. While insurers can value their own bond investments, many outsource this task to third parties to enhance transparency and comply with regulatory requirements.

However, a new study found that insurers strategically switch between external sources to seek out favourable fair value estimates of their bond investments. This practice is called fair value opinion shopping, which involves selecting sources that provide higher estimates and potentially inflate the real value of bond investments.

“There is a very common way of valuation where insurers switch the pricing sources, called third-party source switching behaviour,” says Koo Minjae, an Assistant Professor of Accounting at the Chinese University of Hong Kong (CUHK) Business School.

“There might be some opportunism going on when switching the pricing sources to get a more favourable estimate that is more consistent with what the insurers want: boosting their assets. After looking at certain instances where different sources generate conflicting estimates, we found that the opinion shopping motive dominates.”

Opinion shopping could impair financial reporting transparency and lead to mistrust among investors and policyholders. Policyholders may also misallocate and make inefficient investment decisions if the financial statements are misstated or inflated.

Opinion shopping vs. objective valuation

In the research paper titled Third-party source switches: Objective valuation or fair value opinion shopping? Professor Koo, along with Konduru Sivaramakrishnan of Rice University and Zhao Yuping of the University of Houston, analysed documents submitted to the NAIC by US insurers on their investments in bonds and other securities. The researchers obtained a sample comprised of 662,528 security-insurer-year observations from 1,852 unique insurer-years from 2014 to 2017.

The result confirmed that insurers strategically switch between third-party sources to either provide objective valuations or inflate fair value estimates by opinion shopping. While both motives exist, opinion shopping tends to be prevalent. The study highlights that opinion shopping is more widespread among financially weaker insurers with lower risk-based capital ratios. Opinion shopping is also more common among illiquid bonds or securities that are not traded frequently.

Furthermore, the researchers found that insurers engage in block-switching behaviour, where they strategically switch the price source for groups of securities rather than individual ones to make it less obvious to the regulators or the auditors. This can result in changes in fair value estimates for multiple securities within a block.

“We found evidence of opportunistic opinion shopping among insurers, even when they are regulated to disclose the source and pricing vendors at the security level.”

Professor Koo Minjae

As US insurers are regulated at the state level, with each state having its own regulations, Professor Koo and the team further interviewed several regulators. Many admitted that some insurers may opportunistically inflate their value estimates.

“What the regulators typically do is compare the same securities owned by an insurer with those of other insurers,” says Professor Koo. “If they think that the price is deviating quite a lot from other insurance companies, the regulators would advise or recommend the relevant insurers to readjust their financial statements.”

This comparison method is quite normal for valuing level-two assets that have no regular market pricing, such as bonds that are traded in not very active markets. Companies usually infer bonds at this level with other bonds that have similar interest rates or maturities.

Meanwhile, level-one assets are the easiest to value for their readily observable and transparent prices, such as listed stocks. On the other side of the spectrum, level-three assets have no observable market prices and can only be valued based on internal models or “guesstimates”.

Indicative signs of opinion shopping

In an additional analysis of 280 unique price sources, Professor Koo and her team found that the “Big Five” external price sources accounted for 63.2 per cent of the market share during the sample period, dominated by Intercontinental Exchange and followed by Bloomberg, Thomson Reuters, S&P, and Markit. These top players have more capital and the ability to better estimate the value of the securities.

Surprisingly, after re-estimating the effect of switches to Big Five and non-Big Five sources, the researchers found that switches to non-Big Five are associated with a greater deterioration in fair value estimate quality than switches to Big Five price sources. This result is consistent with opinion shopping.

“If we see some cases where the securities had been measured by Big Five but not anymore, there is a likelihood of manipulation ongoing,” says Professor Koo. “In such cases, the insurers might have switched to a vendor that can give them more favourable estimates.”

Enhancing fair value estimates

There is much literature on a fair valuation, and according to Professor Koo, the general view is that companies manipulate or engage in opportunistic inflation of the fair valuation to boost their assets. For example, opinion shopping can also be found among hedge funds, which are not mandated to disclose their security holdings, giving them incentives to inflate their value estimates.

Although insurers need to maintain their risk-based capital in a highly regulated industry, this does not apply to the less-regulated mutual fund industry.

“We found evidence of opportunistic opinion shopping among insurers, even when they are regulated to disclose the source and pricing vendors at the security level,” says Professor Koo. “Public companies are not mandated to disclose at the security level, so in that case, we are suggesting that there can be more opportunistic opinion shopping going on.”

To enhance the fair value estimates, Professor Koo recommends using multiple pricing sources for the same securities, instead of relying on only a single source. Regulators could also help by carrying out cross-validation and verification. For instance, state regulators can observe in real-time how the same security is valued by different states or different insurers in different states.

“The disclosure itself should be more transparent, in the sense that there may be something going on when insurance companies switch from a certain source to another,” she says. “Therefore, there should be more mandatory disclosure on why insurers are switching to another source.”

Lastly, more frequent external auditory reviews and regulatory reviews may be necessary. Currently, regulators only review an insurance company once every three to five years. “This frequency should be increased to verify and cross-validate the insurers’ estimates,” Professor Koo adds.

The post How insurers inflate bond values to mask underperformance first appeared on China Business Knowledge.

China’s financial services sector has experienced burgeoning growth in the past two decades. Hong Kong and Shanghai rank among the top 10 Global Financial Centres in 2023, according to the Global Financial Centres Index 33. By the end of 2022, the country’s financial institutions had a total of 419.64 trillion yuan in assets, increasing 9.9 percent year on year. Among them, banking institutions had assets worth 379.39 trillion yuan, which increased by 10 percent compared to the previous year.

#CUHKWhitePaperSeries | Space Tourism Isn’t Science Fiction Anymore

Coinciding with the rapid capital market development, initial public offering (IPO) activity has also risen sharply. PwC’s Global IPO Watch 2022 reported the total amount of funds raised through IPOs in China’s domestic markets constituted about 39% of the global proceeds last year, replacing the U.S. as the world’s number one in terms of IPO proceeds for the first time.

Vibrant as other developed markets may be, China’s financial industry is shaped by one important factor that makes it unique like no others in the world. Guanxi, a Chinese social concept of interpersonal connections with implications for the exchange of favours, has long been dominating the Chinese socioeconomic landscape. Previous studies define that guanxi connections are characterised by trust in family-like relationships and instrumental exchanges that run alongside affective bonds. Business networking in the West carries no such elements. In the realm of finance, guanxi often plays a considerable role in shaping the behaviours of economic agents. While this purposeful networking behaviour has potential benefits, it can also bring undesirable consequences.

In this Chinese University of Hong Kong (CUHK) Business School White Paper, we conducted a series of studies into how the guanxi culture has led to the development of a unique financial sector in China and examined the impact of guanxi between different actors in China’s financial sector.

First, we look at how social ties between fund managers and analysts affect their behaviours and business decisions, and how they reciprocate the benefits they receive from each other. We then ask whether guanxi connections between investment bankers and auditors affect the IPO process and firms’ post-IPO performance. The third type of guanxi ties we discuss are those between auditors and audit committees. What negative implications and benefits do such ties bring? In what way can they undermine audit quality? Fourth, we look at how guanxi ties between financial analysts and firm management affect the acquisition and dissemination of bad news surrounding problematic firms. Lastly, we highlight the implications of our findings.

To find out more about a specific topic, click on the links below to navigate to the relevant chapter:

INTRODUCTION – Where Guanxi Matters: The Modern Chinese Financial Sector

PART I – The Influence of Guanxi on the Fund Manager-Analyst Relationship

PART II – Does Guanxi Affect the IPO Process in China?

PART III – Guanxi and Auditing

PART IV – Can Guanxi Help Analysts to Uncover Bad News?

CONCLUSION – How to Counter Negative Effects of Guanxi Ties in Financial Sector?

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The post Where guanxi matters: The modern Chinese financial sector first appeared on China Business Knowledge.

Have you ever imagined reaching for the stars, space walking on the moon, and watching Earth rising with a cup of coffee at a space hotel? For most people, getting to the space is nothing more than a dream. Although space travel sounds futuristic, it is turning into reality. Virgin Galactic first blasted off to suborbital space on July 12, 2021 and Blue Origin soared past the edge of space on July 20, 2021. Then, Space X launched Resilience which carried 4 civilians into space on Sep 15, 2021, making it the world’s first spacecraft to carry all civilian passengers.

Space tourism refers to members of the general public, such as civilians and space tourists, visiting space solely for recreational purposes. It covers spaceflights for various distances: suborbital, orbital, and beyond the Earth’s orbit. For example, Virgin Galactic provides suborbital trips that reaching around 100km altitude and passengers can enjoy several minutes of out-of-seat weightlessness and breathtaking views of Earth in space costing US$450,000. In 2022, it already attracted 800 customers signed up for the trips. SpaceX offers even more expensive orbital trips that reaching an altitude of almost 600km and can keep passengers in space for several days costing US$55 million. China is also catching up quickly (with 370 commercial space-related companies set up as of 2021) and it is expected to start suborbital travel in 2025, which costs around 2-3 million yuan (US$285,00-US$427,000).

With the continued advancement of space technology, space exploration has become a key mission for many nations including the U.S. and China. For example, the U.S. plans to return to the moon and establish a lunar colony over the next few years. China also built its Tiangong space station in 2022 and is planning to get to the Moon in 2030. The Chinese State Council pledged to “make the space industry an important part of the nation’s overall development strategy.” The rapid development of space technology will further lower the costs of space tourism and the space tourism market is expected to grow rapidly. The global market for space tourism is estimated to reach US$1.7 billion by 2027, and the U.S. and China are the two biggest potential markets for space tourism. North America is the leading market for space tourism, with a market share of more than 40 percent. Asia-Pacific trails closely behind, with a market share of about 30 percent. The Chinese space tourism industry is forecast to be worth US$401 million by 2027, making it the second largest in the world.

Having civilians travelling to space will be a breakthrough in human cultural development. As space tourism hits mainstream commercialisation, who would be more interested to spend money on enjoying the breath-taking views of Earth in space? Moreover, a luxury space hotel Voyager Station is scheduled open for business in 2027. In order to generate revenue, what activities and foods should space tourism companies provide to tourists once reach orbit? Since space tourism is still expected to remain relatively expensive, what about the masses who are still unable to afford space travel? Is there a way for them to experience space travel in a cheaper fashion? What lessons can companies seeking to develop space tourism learn?

These are some of the questions I sought to answer in this Research White Paper.

To find out more about a specific topic, click on the links below to navigate to the relevant chapter:

INTRODUCTION – Space Tourism Isn’t Science Fiction Anymore

PART I – Consumer Reactions to Space Travel across Cultures

PART II – Space Hotel and Space Food

PART III – Space Travel Opportunity for Public?

CONCLUSION – Future Direction for Space Travel

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The post Space tourism isn’t science fiction anymore first appeared on China Business Knowledge.