Buffett : US Wall St like a Church with Raffles

Buffett Compares Wall Street to Church With Raffle  

By Andrew Frye and Natalie Doss 

Warren Buffett, chairman of Berkshire Hathaway Inc. Photographer: Nelson Ching/Bloomberg 

"You should go broke. And I think your wife should go broke, too" Buffett says of CEOs whose firms require bailouts - AFP

Use of derivatives 'makes mockery' of federal rules, he says. 

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said Wall Street is like a church that benefits society, then falters by operating a gambling venture on the side.

Wall Street “does a lot of good things and then it has this casino,” Buffett, 80, said today at Fortune magazine’s Most Powerful Women conference in Washington. “It’s like a church that’s running raffles on the weekend.”

Buffett relies on investment banks to help finance acquisitions such as his $27 billion purchase of railroad Burlington Northern Santa Fe and to offer derivative contracts that allow him to speculate on stock markets. Omaha, Nebraska- based Berkshire invested $5 billion in Goldman Sachs Group Inc. in 2008 at the depths of the credit crisis. Buffett has also faulted Wall Street for excessive bets on U.S. housing.

“People have a propensity to gamble, and it gets made easier and easier for them,” Buffett said. “One of the problems we still have is we have unbalanced incentives for managers of huge financial institutions.”

Buffett has called for greater accountability from bank executives whose risk-taking produces losses for shareholders and imperils the economy. The use of derivatives has allowed banks to add risk and “makes a mockery” of federal rules designed to limit losses, Buffett said. “You should go broke,” he said of chief executive officers whose firms require government bailouts to protect society.

‘Your Wife Should Go Broke’
“And I think your wife should go broke, too,” he said. 

Berkshire, where Buffett serves as CEO, weathered the financial crisis without taking a capital injection from the U.S. government. Some of Berkshire’s biggest investment holdings took bailouts, including Goldman Sachs, the most profitable Wall Street firm, which got $10 billion in taxpayer funds. Wells Fargo & Co., which counts Berkshire as its biggest investor, got $25 billion.

Buffett reiterated praise for financial-company bailouts, and said government’s treatment of shareholders won’t create a so-called moral hazard in the equities market. Stockholders of companies including insurer American International Group Inc. and Citigroup Inc. lost at least 90 percent of their investments, Buffett said.

“The common shareholders did not get bailed out of those institutions, they lost hundreds and hundreds and hundreds of billions,” Buffett said. “There is no moral hazard in terms of big financial company stockholders.”

Goldman Sachs

Goldman Sachs and San Francisco-based Wells Fargo repaid their U.S. rescues.

Buffett built an equity portfolio of about $55 billion by buying and holding stocks of companies that he believes have durable competitive advantages. Berkshire is the largest investor in Coca-Cola Co. and American Express Co.
 
His investment in Goldman Sachs came with warrants that enable him to buy $5 billion of the company’s stock at $115 a share, compared with yesterday’s closing price of $146.57. Exercising the option at that price would generate a profit of more than $1.3 billion.

Buffett’s pronouncements on markets and on the economy are watched by policy makers and investors. Buffett, the world’s third-richest person, oversees more than 200,000 employees at Berkshire and the company’s more than 70 subsidiaries. At the conference today, he said his businesses are “coming back” after the recession. When asked for his outlook on equity and fixed-income markets, Buffett said investors buying bonds after yields fell this year “are making a mistake.”

‘Stocks are Cheaper’

“It’s quite clear that stocks are cheaper than bonds,” Buffett said. “I can’t imagine anyone having bonds in their portfolio when they can own equities.”

Buffett said wealthy individuals should pay higher taxes. The billionaire, who said he probably pays a lower tax rate “than the cleaning lady,” criticized cuts made under former President George W. Bush. President Barack Obama, whom Buffett advised during his election campaign, is seeking lawmaker support to phase out breaks for families making more than $250,000.

“I have no tax shelters, I have no tax accountant, my tax shelter really was the Bush administration,” Buffett said. “They took care of me. They thought here’s this endangered species, kind of like the bald eagle out in Omaha, and if we don’t take care of this guy they’ll all quit working and we won’t have any arbitrageurs or hedge fund operators. So we’ve gotta give this guy a special kind of break.”

Lawmakers are considering measures to raise revenue under the shadow of a U.S. deficit previously forecast by the White House budget office to be a record $1.47 trillion for 2010 and $1.42 trillion for fiscal 2011, which started Oct. 1.

“If you’re not going to get it from guys like me, why should we get it from the people who served us lunch today,” Buffett said.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Natalie Doss in New York at ndoss@bloomberg.net.
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

Currency wars 'hurt global markets', World leaders seek currency peace,China yuan reform

Currency wars 'hurt global markets'

International Monetary Fund and European Union warn nations  against undervaluing their currencies.

Dominique Strauss-Kahn, IMF Managing Director, says re-balancing currencies should be the main goal [AFP]  Global policymakers clashed over currency policies as Western leaders warned China and other emerging markets that widespread efforts to weaken exchange rates threaten to derail economic recovery. Officials around the world fear that a rush to undervalue currencies may trigger trade tariffs and other measures that could damage global economic growth. Using exchange rates "as a policy weapon" to undercut other economies and boost a country's own exporters "would represent a very serious risk to the global recovery," Dominique Strauss-Kahn, the International Monetary Fund (IMF) director, said ahead of Friday's twice-yearly IMF meeting. European officials said on Thursday that a rapidly rising euro, victimised by an undervalued US dollar and Chinese yuan, could threaten eurozone recovery and vowed to press both Washington and Beijing to take action. European Union leaders contend that the euro - currently at an eight-month high of more than $1.40 - is being squeezed in a  transglobal race for trading income. "The euro is currently bearing a disproportionate burden in the adjustment of the global exchange rate," a spokesman for Olli Rehn, the European Union Economic Affairs Commissioner, said. "This may affect recovery of the European economy," the spokesman stressed, reiterating that the yuan is "still significantly undervalued." 'Singled out' But China, which the West accuses of keeping the yuan artificially weak to promote exports, has rebuffed the criticism. Al Jazeera's Melissa Chan, reporting from the Chinese capital of Beijing, said that while China is typically "singled out" as a currency manipulator, within the country, there is an understanding that its economy must move "from an export-driven model to a consumer-based one". "But while everyone knows that China has a trade surplus with the United States, few know that China has a trade deficit with countries like Brazil, South Korea and Japan." On Wednesday, Premier Wen Jiabao told the European Union to stop piling pressure on Beijing to revalue the yuan, saying a rapid exchange rate shift could unleash disastrous social turmoil in China. "Many of our exporting companies would have to close down, migrant workers would have to return to their villages," Wen said during a visit to Brussels. "If China saw social and economic turbulence, then it would be a disaster for the world." EU Commissioner Rehn's spokesman also contended that US currency policies were also troubling the European Union and said the EU would raise the same complaints it did with China on Wednesday "to the Americans, to Geithner too". Competitive devaluations However, Timothy Geithner, the US treasury secretary, continued his attacks on countries with large trade surpluses, saying they must let their currencies rise lest they trigger a devastating round of competitive devaluations. "When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same," Geithner said on Wednesday, in remarks that appeared aimed at China. Some economists suspect that it suits the United States to have a weak dollar and a strong euro when the pace of recovery is so dependent on winning the competition for exports with emerging powers such as China, India, Russia or Brazil. Low interest rates in Europe and Japan and expectation that the Federal Reserve will launch another round of money printing that could weaken the dollar have pushed currencies to the top of the agenda at the IMF meeting and at Friday's gathering of finance leaders from the Group of 20 economies. Al Jazeera's Steve Chao, reporting from Tokyo, Japan, said that while the Yen is seen as a stable investment, "hordes of speculators" have switch to the currency, driving its value up. This, he said, lead to a "rebellion of sorts" as the government had to take unilateral action in manipulating its currency. "And there lies the vulnerability. Facing major pressure from Japan's own industries, the Bank of Japan slashed interest rates to zero, and sold off a trillion yen," our correspondent said. "That marks the largest one-day currency action ever in this country." Newscribe : get free news in real time  World finance leaders seek currency peace International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn (R) and World Bank President Robert Zoellick chat at the beginning of G-24 ministers meeting during the annual IMF-World Bank meeting in Washington October 7, 2010. Credit: Reuters/Yuri Gripas By Emily Kaiser WASHINGTON | Fri Oct 8, 2010 12:27am EDT WASHINGTON (Reuters) - World finance leaders on Friday will try to soothe simmering currency tensions which threaten to drag on an economic recovery that is already too slow and uneven for their liking. The Group of 20 finance ministers scheduled a working breakfast on the sidelines of this weekend's International Monetary Fund and World Bank twice-yearly meetings. The smaller G7 grouping of advanced economies holds a closed-door dinner later on Friday. Neither group is expected to issue a formal statement, but G20 officials said foreign exchange matters will be discussed at both events amid concerns that countries will intentionally weaken their currencies to pursue export-led growth. China, usually at the center of the currency debate, has company this time. Officials are still leaning on Beijing to allow the yuan to rise more rapidly, but Japan's intervention last month to weaken the yen put Tokyo on the hot seat, too. The United States can also expect criticism over its seemingly benign neglect of the sinking dollar, which has led investors to chase bigger returns in emerging markets such as Brazil, driving up asset prices and inflation. "What we all want is a rebalancing of the global economy and this rebalancing cannot happen without ... a change in the related value of currencies," IMF Managing Director Dominque Strauss-Kahn said on Thursday. The currency strains are symptomatic of a deeper problem: most advanced economies are not growing rapidly enough to reduce unemployment despite trillions of dollars in government stimulus spending and emergency loan guarantees. U.S. Treasury Secretary Timothy Geithner may get an unpleasant reminder of that when U.S. monthly employment data is released on Friday -- right in the middle of the G20 breakfast. Economists polled by Reuters think the report will show virtually no net growth in employment, with the jobless rate ticking up to 9.7 percent. For Geithner and most of his European counterparts, options for providing more stimulus are limited because either politics, creditors or both prevent them from amassing significantly larger piles of government debt. Until rich nations find their footing, emerging markets will be the strongest source of global growth. So far, they appear to be up to the task. The IMF expects emerging markets to grow at three times the pace of advanced economies. Those countries are clamoring for greater decision-making power at the IMF, commensurate with their growing economic prowess. This has been another thorny issue for G7 and G20 leaders who have yet to agree on how exactly to divvy up power when no one wants to relinquish their own position. The United States thinks Europe ought to give up some if its seats on the IMF executive board, while European countries have proposed a seat-sharing rotation. IMF officials are scheduled to attend Friday's G20 breakfast, and are hopeful that some progress can be made toward resolving reform issues by a G20 leaders summit in Seoul next month. (Editing by Leslie Adler) Newscribe : get free news in real time Related Video IMF,World Bank try to ease tensions China to further reform of yuan exchange rate formation mechanism:senior official 08:38, October 08, 2010     Increases the bookmark twitter facebook digg Google Windowslive Delicious buzz friendfeed Linkedin diigo reddit stumbleupon China would continue to further the reform of the formation mechanism of its currency (RMB) yuan exchange rate, but a sharp rise in the value of the currency would damage the Chinese economy, a senior official of the People's Bank of China (PBOC), China's central bank, said here on Thursday. "Chinese Premier Wen Jiabao said recently that a steep appreciation of yuan would cause social unrest and serious unemployment problem," Yi Gang, vice governor of the POBC, made the remarks at a Thursday seminar, one part of the International Monetary Fund and World Bank annual meetings program. Yi contended that although some currencies had depreciated against the U.S. dollar during the financial crisis, China kept its currency basically stable, greatly contributing to the global economic recovery. China announced in June this year that it would further the reform of the formation mechanism of the yuan exchange rate to improve its flexibility. Yi noted that Chinese enterprises were still mostly at the lower ladder of the global industry chain. China has registered surplus in trade in goods, but deficits in services trade, and had surplus in processing trade with deficits in general trade. China further deepened the reform of the yuan exchange rate mechanism in July 2005. The yuan has appreciated by 22 percent against the U.S. dollar since then. During this period of time, however, China's trade surplus against the United States has still increased by a large margin, Yi said, adding that yuan appreciation cannot help the United States to solve its trade surplus problem. "We have had surplus in trade with the U.S. and the EU, but deficits in trade with South Korea, Japan and the Association of Southeast Asian Nations (ASEAN). Doesn't all this show that it is an issue of trade structure instead of a mere exchange rate?" Wen said earlier this week in Brussels. China has made big efforts to invest in social safety network building, infrastructures, urbanization process, environmental protection in recent years, to stimulate domestic consumption, industrial restructuring and boost domestic demand, Yi added. Source:Xinhua Newscribe : get free news in real time  Wen's speech at the 6th China -EU Business Summit (Xinhua) Updated: 2010-10-07 18:20 BRUSSELS - The following is the full text of Chinese Premier Wen Jiabao's keynote speech delivered at the 6th China-European Union Business Summit here on Wednesday: Confidence was the keyword of my speech at the China-EU Business Summit two years ago when the financial crisis just broke out. Today, the keywords are calmness, wisdom and courage. With so many Chinese and European business leaders sitting in front of me, I would like to focus on several issues the EU business community is concerned with and use this opportunity to make a few clarifications so as to eliminate misunderstandings and boost our cooperation. It is a basic fact that the bilateral trade and investment between China and the EU have been growing rapidly. EU statistics show its overall exports declined in 2009 due to the impact of the financial crisis. However, its exports to China increased by 4 percent. In the first half of this year, EU exports to China surged by as much as 42 percent. Last night, I paid a brief visit to Germany. I told Chancellor (Angela) Merkel that the monthly bilateral trade between China and Germany averaged about 10 billion US dollars, and that the 2010 total would probably surpass 120 billion dollars. The trade between China and the EU was worth some 400 billion dollars in 2009, and it would likely exceed 500 billion dollars this year. These are the basic status quo and facts. Related readings:  ROK FM to attend IMF-WB meeting ahead of G20 Summit  ASEM summit kicks off in Brussels Nations hope ASEM Summit will help bind them closer together  Introduction to China-EU summit  Cambodian PM to attend ASEM 8 summit in Brussels On the exchange rate of the Chinese yuan, I said yesterday when meeting with the Euro Group troika that European political and business leaders should not join the "chorus" to pressure China to appreciate the yuan.  Again, let's take a look at some basic facts. The yuan has appreciated by an accumulated 55 percent in terms of the real effective exchange rate since China initiated the reform of the yuan exchange rate mechanism in 1994. Some major currencies have all depreciated during this period. China further deepened the reform of the yuan exchange rate mechanism in July 2005. The yuan has appreciated by 22 percent against the US dollar since then. During this period of time, however, China's trade surplus against the United States has still increased by a large margin. We have registered surplus in trade in goods, but deficits in services trade. We have had surplus in processing trade, but deficits in general trade. We have had surplus in trade with the US and the EU, but deficits in trade with South Korea, Japan and the Association of Southeast Asian Nations (ASEAN). Doesn't all this show that it is an issue of trade structure instead of a mere exchange rate? The euro exchange rate experienced large fluctuations recently, but it was caused by the US dollar, instead of the yuan. How can you place the blame on China? The imbalance of trade is caused by structural problems against the backdrop of globalization. It should not be politicized. We pursue balanced and sustainable trade, and in no way seek surplus. In the cold winter in January 2009, I visited Europe and brought with me not only the confidence needed to overcome the financial crisis, but also a procurement delegation to place orders to the European countries. The EU is a strategic partner to China, and China did not look on unconcerned when some eurozone countries were in trouble. We continued to hold and buy euro-denominated bonds and helped Iceland, Greece, Spain, Portugal and Italy in their most difficult time. We will continue to render assistance and tide some countries over their difficulties. China is a friend indeed and I believe the entrepreneurs here all know it. You should not pressure China on the yuan's appreciation if you consider the issue from another perspective. Many Chinese export enterprises have profit margins of only 2 to 3 percent, 5 percent at most. Should the yuan appreciate by 20 to 40 percent, as demanded by some people, a large number of Chinese export enterprises will go bankrupt, the workers will lose their jobs and the migrant workers will have to go back to the rural land, making it hard for society to remain stable. The world will by no means benefit from a crisis in the Chinese economy. China contributed about 50 percent of the global economic growth in 2009. It is a huge market with great potentials for many enterprises. Once again, I would like to tell our friends in the industrial and business community candidly: Don't pressure China on appreciation of the Chinese yuan. We will stick fast to the reform of the yuan exchange rate mechanism. The reform involves developing a managed floating exchange rate system based on the market supply and demand and adjusted to a basket of foreign currencies, to gradually allow more flexibility in the yuan exchange rate while maintaining its basic stability on a reasonable and balanced level. If the yuan exchange rate is unstable, enterprises will also be unstable. So will be employment, and society in general. Should China have problems in economy and society, it will be disastrous for the world. The second question is whether the investment environment in China is good or not. I would like to tell you that China will steadfastly push forward its reform and opening-up process and will in no way deviate from the path. Only through reform and opening to the outside world will China develop further. The basic policies that have been established in the reform and opening-up drive will not be changed. The only changes that have taken place are that foreign investment is now under better and more orderly regulation. Entrepreneurs' concern for the investment environment does not go beyond three aspects -- intellectual property, innovation and government procurement. I can tell you in a responsible manner that all foreign businesses that are legally registered in China are entitled to enjoy national treatment, and that all products made by foreign-invested enterprises in China are made-in-China products. We will protect not only your intellectual property, but also all your legitimate rights and interests. The third question regards the export of raw materials, specifically the export of rare earth. As a long-time researcher on rare earth metals, I have a say on the issue. There are two kinds of rare earth metals, the heavy rare earth elements and the light rare earth elements. China has rare earth deposits in different regions, with the heavy ones located mainly in the south, such as Jiangxi Province. The light ones are mainly in the north, such as Baotou City in Inner Mongolia. In the 1980s and 1990s, there was a lack of well-regulated management over rare earth metals in China, and also a lack of extraction technologies in the country. Some countries bought a large amount of rare earth metals from China at low prices in a period of time when management over rare earth in China was the most chaotic, and even now they still have a considerable stockpile, which they know very well. China contributes a large proportion of the global rare earth output, which far outdoes its share of the world's total rare earth deposits.  We haven't imposed, and will not, impose an embargo on the industry. We are pursuing a sustainable development of the rare earth industry, not only to meet the demand of our own country, but also to cater to the needs of the whole world. We not only need to accommodate the current demand, but also, more significantly, need to take a long-term perspective. It is necessary to exercise management and control over the rare earth industry, but there won't be any embargo. China is not using rare earth as a bargaining chip. We aim for the world's sustainable development. China wishes to forge more extensive, deeper and closer economic and trade ties with EU countries. The EU is now China's largest partner in terms of trade and investment,ahead of the United States and Japan. To be frank, the EU has done a better job in relaxing restrictions on high-tech exports to China. For instance, there is cooperation on the Galileo satellite project, with Airbus and there is nuclear power cooperation, to name a few. This morning, the Belgian King also mentioned to me about cooperation on the fourth generation micro-nuclear technology. It is in the fundamental interests of both China and the EU to develop bilateral trade and economic relations. Standing here today, I am feeling under a heavy responsibility. I will try my best to promote China-EU trade and economic cooperation and overcome the temporary difficulties and problems that have emerged in the process of cooperation. So, let's join hands to promote the development of China-EU trade and economic relations and jointly usher in broad prospects for future development of the China-EU comprehensive strategic partnership. Newscribe : get free news in real time

China's Competitive Edge In The Outsourcing Space

Egidio Zarrella, 10.07.10, 06:25 AM EDT

China's calculated move from being the world's factory to becoming the world's back office is increasingly becoming a reality, as our recent outsourcing survey finds.

Egidio Zarrella

China’s size, infrastructure and talent pool all indicate a promising future for outsourcing over the coming decade. The numbers speak for themselves: in 2009, industry revenues totalled $13 billion and they are projected to grow to $44 billion by 2014, according to IDC KPMG analyses and Datamonitor.

As China comes to the fore in this space, India remains ahead of the game, which is not surprising given it has a 20-year lead in this space. To put it in context, the vendor industry in India is worth around $60 billion, whereas in China it is a fledgling industry, worth around $25 billion. However, the key point is that it is no longer an India play, as multinationals are increasingly opting to have a balanced portfolio, with outsourcing centers located in a number of countries and regions. This is in order to mitigate potential social, economic and political risks, and to avail of favourable government incentives, which tend to vary from country to country.

China’s outsourcing industry has also been shaped by different factors to those of India. Its growth has been founded on the domestic market as well as nearby overseas markets such as Japan and Korea. It continues to branch out into new markets, taking advantage of its strong infrastructure and talent pool, as well as diverse language skills. Our latest survey (KPMG Pulse Survey: Shared Services and Outsourcing in China) confirms the extent to which outsourcing has become prevalent amongst organizations across Asia. These activities are no longer the preserve of US and European companies looking to offshore their back office functions.

Eighty-one percent of the 280 Asia-based respondents said they had a strategy that involved outsourcing. China was their number-one choice of location, ahead of India and Singapore. Most respondents said they had outsourced to more than one other country, with many still choosing more developed hubs like Singapore and Hong Kong as well.

It is important to note that Asian companies outsource just as much as their Western counterparts, as they all look for efficiencies in their supply chains. To illustrate this point, the survey indicates that almost 80% of respondents either have shared services in one location or two, as well as outsourcing various functions.

One of the key drivers to outsource is that of demographics. Australia, Korea and Japan are aging populations, and as a result they are increasingly tapping into the workforce of countries like China, India, the Philippines and Malaysia. In contrast to India, where the industry moved up the value curve sequentially, it appears that IT Outsourcing (ITO), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) functions are all emerging simultaneously in China. This is a seismic shift as China increasingly becomes home to more of the world’s intellectual firepower.

China’s scale--and the number of potential outsourcing cities and service providers to choose from--offers huge opportunity for the market ahead of its competitor nations. Organizations are able to source multiple suppliers within one country, which reduces their dependence on a single location or supplier. It has a large domestic market, a government that invests heavily in infrastructure and a large pool of graduates that form the workforce. It offers good logistics operations, in addition to competitive wages. It does now need to shift from manufacturing into services, in order to maintain its competitive edge. Its main consumers in Europe and the US are purchasing less and this means their importance to China will lessen as its economy continues to expand. There will be less opportunity to sell its goods to overseas markets. This will equate to steady volume growth, while margins continue to fall and investment in factories and equipment will decline. Hence the need to shift its focus to services.

Current developments are encouraging, as we continue to see China’s political leadership support the growth of the outsourcing sector. This is evidenced by the series of Five Year Plans, where the foundations were laid for the development of the service outsourcing industry. There are now twenty-four designated outsourcing cities and over 9,000 service providers in China.

While India has tended to provide outsourcing for US and European organisations, China has mainly serviced the Korean and Japanese markets, partly due to geographical proximity and similar time zones. Our survey found that outsourcing strategies are no longer just about cost arbitrage. Equally or even more important is the need to ensure access to a reliable supply of abundant and skilled talent. China’s workforce boasts an impressive array of language skills, both Asian and European.

The government has made English a priority in schools and universities, boosting the country’s ability to win business from western markets. Another source of high quality skills is the large number of Chinese returnees who have the much needed project management experience. While China has a massive pool of outsourcing professionals, special domain expertise is crucial in order to maintain a competitive edge.

Government support continues to play an important role, with more encouragement being given now to domestic companies to outsource as well. China plans to train 1.2 million service outsourcing professionals by 2013, while 1 million college graduates are expected to find jobs in this sector within the same time frame. Financial subsidies for training and tax incentives also help to drive more interest in this sector.

Infrastructure is crucial, as without adequate telecommunications and transportation networks, it is difficult to attract investors and multinationals. China has invested heavily in a modernized telecommunications network with high-speed broadband connections in the major cities. It has also developed technology parks to further attract multinationals to locate here.

China has also made rapid progress in the development of shared services facilities. Accounting and finance already surpass IT as the most common functions being conducted by shared services centres in China, while HR functions are increasingly being outsourced or offshored. In terms of moving up the value chain, as service providers expand and the industry continues to mature, many are providing higher-value services. The government has also initiated a drive to encourage multinational corporations to set up research and development (R&D) centers in China. There are now over 1,200 R&D centers established by multinationals across China, benefiting from the vast R&D talent pool, according to numbers provided by the Ministry of Commerce.

It is also increasingly looking at the potential of its domestic market, particularly for automotive, telecommunications and financial services. Historically, the domestic service providers have primarily served the local government and state-owned enterprises (SOEs). While they may have an edge over the international players in the local market, they are limited by their size and experience of managing large scale and complex projects. The anticipated domestic demand on outsourcing services is a major differentiator compared to India, where the outsourcing industry is more offshore demand-driven.

No one destination will offer everything on the checklist and a new paradigm is emerging in which multinational companies assess several attractive markets, scoring them on their existing strengths. Companies increasing want global sourcing, not simply from India or China, but from both. As Chinese companies grow in size and complexity, the business case for setting up outsourcing arrangements becomes stronger. India remains a juggernaut in this space however the key differentiator for China is the rising potential of its domestic outsourcing industry.

Egidio Zarrella is a Partner in the Advisory practice at KPMG China.

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