Despite their scale and feats of strength, industrial robots are designed using fairly simple technology. When most people talk about cutting-edge robots with artificial intelligence, they are usually talking about service robots, which are destined for more open-ended problems – interacting with children, for example, or defusing mines.

Examples of well-known service robots include US-based iRobot’s popular Roomba home vacuum robot, Honda’s humanoid Asimo (which was falsely rumored to be headed for rescue work at the Fukushima nuclear accident site) and the advanced humanoid Nao robot made by Aldebaran Robotics, which danced its way through the International Conference on Robotics and Automation (ICRA) held in Shanghai in May.

“Service robots are completely different animals,” said Andy Kirkwood, managing director of Global Robots. “They are a big step forward.” 

Robot milkmaids

The International Federation of Robotics has a long list of other applications that range from the simple to the sophisticated: There are robots for milking cows (the DeLaval AMR), assisting with knee surgery (the Blue Motion Cyberknife), and exploring the deep sea (the Atlas Maridan).

Given the wider scope of potential applications, there is a far more diverse cluster of companies making these human helpers, including some Chinese companies. Shanghai XPartner, for example, makes an educational robot called Dragon Guard that it displayed at ICRA this year, and it also sells robot kits to hobbyists. More lucratively, perhaps, it also produces a line of demining robots for the military.

Some makers of industrial robots do dabble in service robots – Tom Zou, chief operating officer of Kuka Robotics, said his firm is trying to break into the market in Japan – but their experience does not give them much of a competitive advantage. Industrial robot manufacturers are accustomed to serving a few massive customers and producing products designed to last a lifetime, and they have no particular advantage in the all-important field of artificial intelligence.

Like industrial robots, service robots are starting to sell well in China, and manufacturers have taken note. US-based iRobot, for example, recently announced it will begin marketing its line of cleaning robots here next year.

There hasn’t been much concern expressed by organized labor yet, but perhaps there should be. Robots are good at jobs that follow fixed rules, be they simple guides or complex algorithms. That means more jobs are at risk than one might think. Sure, robots can clean pools and vacuum floors. But wait: Robots can also analyze X-rays, guide surgery and manage stock portfolios, tasks which were reserved for comfortably paid middle-class humans.

Given the rote training methodology used in Chinese universities, employers often complain that Chinese college graduates are unable to think out of the box. In the next decade, companies may be able to buy employees that think inside the box, right off the shelf.

Once again, we are hearing worried noises about the possibility of a reduction in Chinese purchases of US government bonds. An article in the July 28 South China Morning Post quoted the State Administration of Foreign Exchange (SAFE) as saying that China would press ahead with diversification of its US$3.2 trillion in foreign exchange reserves, and that it does not intentionally pursue large-scale foreign currency holdings. “Officials have long pledged to broaden the mix of the country’s huge reserves – as much as 70% of which are now in US dollar assets, according to analysts’ estimates – but the process has been gradual,” said the article.

The threat of a looming US default seems to be driving this concern, although I’m not sure that the People’s Bank of China is really worried about getting its money back. After all if the US defaults, it will be mainly a technical default that will certainly be made good one way or the other. Since the PBoC doesn’t have to worry about mark-to-market losses, unlike mutual funds, I think for China this is largely an economic non-event (not that there isn’t good mileage in pointing to the sheer silliness of the US political process). Still, for domestic political reasons it needs to be seen huffing and puffing over American irresponsibility.

Leaving aside the fact that we have heard the same thing for the past several years, and nothing has happened, shouldn’t we nonetheless be worried? Won’t reduced purchases be disruptive to the US economy and to the US Treasury markets? No, they won’t, and anyway they aren’t going to happen. First of all, remember that the PBoC does not purchase huge amounts of USG bonds because it has a lot of money lying around and doesn’t know what to do with it. Its purchase of USG bonds is simply a function of its trade policy. You cannot run a current account surplus unless you are also a net exporter of capital, and since the rest of China is a net importer of capital, the PBoC must export huge amounts to maintain China’s trade surplus. To keep the RMB from appreciating, in other words, the PBoC must be willing to buy as many dollars as the market offers at the price it sets. It pays for those dollars in RMB. It is able to do so by borrowing RMB in the domestic markets, or by forcing banks to put up minimum reserves on deposit.

What does the PBoC do with the dollars it purchases? Because it is such a large buyer of dollars, it must put them in a market that is large enough to absorb the money and – this is the crucial point – whose economy is willing and able to run a large enough trade deficit.

This last point is what everyone seems to forget when discussing Chinese purchases of foreign bonds. Remember that when Country A exports huge amounts of money to Country B, Country A must run a current account surplus and Country B must run the corresponding current account deficit. In practice, only the US fulfills those two requirements – large and flexible financial markets, and the ability and willingness to run large trade deficits – which is why the PBoC owns huge amounts of USG bonds.

From “China Lookout – Strategy: Follow-up on our 50-100% upside call,” Wendy Liu, RBS head of China research, August 18

In the near term, we believe that markets have been overly extrapolating economic challenges in the US and EU to China. Regarding the MSCI-China, the much-feared earnings downgrades since May have so far been proven wrong; imminent issues over Chinese banks’ capital adequacy, local-government finance vehicles and fresh equity raising have failed to arise. Concerns over China’s fixed-asset investment should also be proven wrong again this year: 35% of China’s FAI is enterprise FAI, and that grew by 33% during the first half of the year. Despite much concern, private sector property FAI still grew by 36% year-on-year during the first half. At the ground level in China, people still prefer property over stocks as a store of value, based on our checks.

For the medium term, we are calling for the MSCI-China to rise 50-100% through 2012, reflecting a correction of the current mis-pricing, and the process for developed markets’ capital to flow into faster growing markets, including China.

From “The US Content of ‘Made in China,’” Galina Hale and Bart Hobijn, Federal Reserve Bank of San Francisco, August 8

Although globalization is widely recognized these days, the US economy actually remains relatively closed. The vast majority of goods and services sold in the US are produced here. In 2010, imports from China amounted to 2.5% of total GDP. A total of 88.5% of US consumer spending is on items made in the US. This is largely because services, which make up about two-thirds of spending, are mainly produced locally.

Chinese imported goods consist mainly of furniture, household equipment, other durables, clothing and shoes. Whereas goods labeled “Made in China” make up 2.7% of US consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents goes to  services produced in the United States. In other words, the US content of “Made in China” is about 55%.

During the last six months, most Chinese companies that listed on US exchanges through reverse mergers have had the stuffing beaten out of them. Valuations have dropped sharply as a rash of short-seller attacks and fraud investigations launched by the US Securities & Exchange Commission have sent investors running for the hills.

But there are exceptions to this story: AutoChina International, for one. China Economic Review identified AutoChina as a dud last October, when we published a company report highlighting its continued and risky reliance on credit injections (a criticism that remains valid). The company now is facing both allegations of fraud from short-sellers and an investigation by the SEC, which caused a temporary stop in trading on June 30.

Despite these events, AutoChina’s share price remains surprisingly resilient. When it resumed trading the next day, AutoChina shares soon climbed back towards US$25, roughly the same level as one year ago. As of mid-June, short positions comprised only about 1.75% of the company’s outstanding float, compared with ratios of 30-50% for some of the reverse-merger stocks that dive-bombed earlier this year.

Defensive maneuvers

With these glaring short-comings, why haven’t short-sellers deflated AutoChina’s share price further? For one, the fairly high proportion of insider ownership is probably dampening movements in the company’s stock price – as of March, eight directors and executive officers held more than 70% of the company’s outstanding shares. Interestingly, a high proportion of insider ownership is one of the factors that Fitch Ratings recently highlighted in a report that counseled investors on minimizing their exposure to companies with corporate governance problems.

On most days, only a handful of trades are made in AutoChina’s stock. That has likely prevented short-sellers from gaining the momentum they need to make money. Some bloggers have suggested that AutoChina shares have been boosted by a “short squeeze” – meaning that the company’s stock price started to trend upward, forcing short-sellers to temporarily cover their losses by abandoning short positions and buying shares. Indeed, this squeeze might have been started by company insiders buying up shares themselves. Short squeezes usually occur in stocks with a small market capitalization and public float, like the company in question.

What is the takeaway here? For those who have criticized short-sellers for bullying the market, the example of AutoChina shows their job is not an easy one. Short-sellers who are moving to target Chinese companies listed in other markets should also take notice. The most successful Chinese frauds appear to be those that fly under the radar: No matter how egregious the facts are, short-sellers cannot make money if no one cares.

Renewed demand for global and regional R&D centers and campus-style headquarters since the end of the global recession has fueled business park growth as foreign and Chinese companies increase efforts to expand in China, according to a Jones Lang LaSalle report.

“While the business park market is continuously developing in Shanghai, its neighboring cities are attracting more attention from both domestic and foreign companies due to their low land cost, accurate market positioning, and complete supporting facilities,” Tammy Tang, Head of Business Parks and Consultancy for Jones Lang LaSalle China, said.

Currently, the average rental among business parks in Shanghai has reached RMB3.40 per sqm per day, doubling that of its neighboring cities. These higher rental costs have scared away many prospective companies, leading them to consider setting up their operations in the newly emerging cities around Shanghai instead.

In comparison to the business park zones in Shanghai, the newly emerging nearby cities are adapting their economic structures and upgrading infrastructural facilities. City governments have also offered incentives for companies to relocate specific business functions to these parks, particularly in the perceived high-growth sectors such as R&D centers, customer experience centers, training centers, call centers, and data centers, the report noted.

“Many business parks are still in the ‘industry park zone’ era, relying mainly on providing factory buildings to manufacturing companies. Integrating the diversified functions of industrialization and urbanization is the only way to drive the future development of park zones,” Tang added.

The report cited Taicang Science & Education New Town as an example of a town in the Yangtze River Delta that offers attractive policy support. Focusing on cultural industries and innovation for its growth, the Town has provided a package of industry incentive policies including financial support and talent introduction.

With ever-growing market interest in the Yangtze River Delta area and the geographical advantages of being adjacent to Shanghai, the report added that it strongly believes the investment potential of the newly emerging nearby cities will be increasingly tapped and improved in the future.

Li Peijia, an employee at an accounting firm, moved into affordable housing in Shenzhen

“Chinese people believe you have to have a house in order to have a family, so we feel very lucky. However, in the area that I live in now, our rooms are pretty small and it’s close to the road, so it’s noisy. The apartments that were given to government officials are more comfortable. If the program is really intended to help average people, it would be better to build the apartments to meet average people’s demands.” 

Mark, a 33-year-old engineer, bought price-capped housing in Beijing’s Chaoyang district

“I was among the first to buy price-capped housing when it was launched in the capital in 2008. I was able to get a two-bedroom apartment because the prices for commercial housing dropped that year, so most buyers chose commercial houses instead. It has facilities like schools and hospitals, and also has commercial units that are expected to sell for US$4,630 per square meter, so the developer can make a profit.” 

Chen Weizhi, a 58-year-old laid-off worker, bought an affordable unit in Shanghai

“To qualify for the program, we had to have a per-capita living area of no more than 15 sqm and an annual household income of no more than US$10,801. Our new apartment is in southwestern Shanghai, and is mixed in with resettlement housing and commercial property. I think the apartment itself is quite good, but there aren’t any supermarkets nearby.” 

Mr. Chen, a retiree, bought an economically affordable house in Hangzhou late last year

“To qualify for affordable housing in Hangzhou, you must be living in a house smaller than 48 sqm and have an annual per-capita household income of less than US$3,704. My new apartment is in the suburbs, really far away. It’s not completed so I have no idea what it will actually look like, but it’s mixed with low-rent housing. I’ve heard that the quality is not great, and there are no clear regulations yet regarding inheritance or sales. But it’s better than nothing.” 

Ms. Liu, a retiree, bought an economically affordable apartment in Hangzhou in 2008

“Once my application was approved, it was nearly another three years before I received my unit, a 90-sqm apartment in a high-rise building. The project has many quality issues and construction was halted once due to a conflict between the contractor and constructor. But we’re happy to finally have an apartment of our own.” 

Fanny, an employee at a Property Management FIRM, bought an affordable house in Shenzhen

“My family had to meet about six criteria to get affordable housing, including earning less than US$4,094 in the last two years, having less than US$49,387 in assets and obeying the one-child policy. We didn’t exaggerate any of our personal information, but it’s very common in Shenzhen. Overall, I think the program is great. Property prices in Shenzhen are so high, people with low incomes can work their whole lives and never afford to buy a house.” 

Zhang Qiang, a 35-year-old engineer, lives in price-capped housing in Beijing’s Tongzhou district

“I bought a two-bedroom house for about US$741 per sqm in a Longfor Properties development in 2009. Property nearby was going for around US$926. Since I’m single, I should have received a one-bedroom apartment. But because the apartment layout wasn’t good there were only around 100 applicants for more than 1,000 apartments. I thought there wasn’t enough publicity and the process wasn’t transparent enough. Many good apartments were bought by people as investments, to rent out rather than live in. There are always people exploiting loopholes.”