US farmers: China's rise is good

Nice FT story with charts on how “US farmers cash in on China demand.”

US ag exports to China now surpass those to Japan, the EU and South Korea, all of which are declining while China’s imports come out of nowhere in 2000 to almost a five-fold increase since.

Biggest flows are soybeans (Indiana’s reason to live) at almost $10B, then cotton (under a billion), then nuts (peanuts at just $140m), tobacco, wheat and corn.

The bad spot:  China bans our beef since the minor BSE scare in 2003 that sent our beef exports plummet from $1.3T to about $.3T overnight (still hasn’t recovered).

Sign of the times:  the first US grain export depot built in 25 years since on the West coast, so say goodbye to a bunch of those barges heading down to the Big Easy on the Mississippi.

As US politicians lose sleep over the trade deficit with China and the dollar-renminbi exchange rate, American farmers are eyeing a record $14bn in exports there this year.  So naturally the logistical landscape is being reformatted.

Hyped this one a while back in a column, and yeah, exports “exploded” after the Chinese joined the WTO in 2001.  One expert says that one-third of the price on the Chicago Board of Trade is determined by China.

For now, US dairy exports held up, awaiting new Chinese certification reqs. Our poultry faces a lot of “antidumping” obstacles, so work to be done.

China’s government has made self-sufficiency in ag production a national goal, but that’s a dream at best, given how much of China’s breadbasket is located at or below the 35^th parallel, meaning more and lengthier droughts as global warming kicks in more extensively.

We are likely to have China over a breadbasket soon enough, my friends, despite Beijing’s attempts to buy up farmland all over the Gap.

For now, Canada remains the top destination for US ag exports (which I find stunning!) at $16B, then China at $13B, then Mexico at $13, then Japan at $11b, the EU at $8B and the ROW at $38B.

That’s a heap of billions—almost 100!

Beijing floats the notion of a basket value-setter for the yuan

A good and hopeful sign announced in a WSJ story: 

China will consider publishing a so-called effective exchange rate for the yuan against a range of other currencies in an effort to de-emphasize its value against the dollar, a further indication of how Beijing plans to manage the yuan since effectively decoupling it from the U.S. currency.

Last bit seems a bit kind: China announced a decoupling and we go a nice little spike there right off the bat, but a bit pokey since.

Still, this is a good and smart and inevitably move by Beijing, and something I’ve been arguing for going back several years:  the need for an “asia” to join the euro in balancing the dollar. We all know the yuan will be its center of gravity, just like China will play Germany in an Asian Union, and so I chose—not too naively, I believe—to interpret this as a small step in that direction.

The basket of currencies is expected to be based on the host of major currencies of countries/union with whom China has the most trade.

Skeptics cite the vagueness of the description from the vice governor of the People’s Bank of China, and no doubt there will be zigging and zagging and nothing done with any great speed.  The point is just the floating of the concept for now.

A strict linking of the yuan to a basket of currencies is unlikely in the near term, analysts say, as it would mean the yuan could fall against the dollar when the greenback is rising against other currencies, which could enrage parties in the U.S. calling for yuan appreciation.

So, for now, experts describe the announcement as part of an “education campaign” designed to get parties both inside and outside China used to thinking about its inevitability.

Again, a good, smart move by China.

Chart of the day: China's expected slowing growth

To be filed under “economic reality”:  A WSJ chart that projects likely decline of Chinese GDP growth rate in the years ahead.

Simple enough logic: the bigger the economy, the harder it is to get the same percentage growth. Plus, once all the easy extensive growth achieved, harder to make the intensive growth happen (productivity and innovation versus just building more-more-more!).

Then there’s the rising cost of labor as the labor pool shrinks relative to the rising dependency ratio (nonworking youth and accumulating pool of elders that will transform China into a civilization that got old before it got rich).

Yes, China will move manufacturing inland and westward to develop its interior (that which isn’t lost to competitors both near and far), but that will degrade the cost advantage further.

Peaking of labor population driven home in accompanying chart on jump page (peaks in 10s and then declines to pre-90s level through 20s, 30s,40s—ad infinitum.

Other jump-page charts show that China is following the same path as Korea and Japan previously—the golden period cannot last forever, because this isn’t a new economic model whatsoever.

Heavy will lay the crown of world’s biggest energy consumer

Series of WSJ and FT stories on the International Energy Agency declaring China the world’s energy demand center, an old slide of mine that goes back to the year 2000.

Humble China disputes the charge!  The IEA counters that China’s official figures have been so bad in the past that they’ve led lots of energy trackers to issue projections that are routinely ratcheted up or down with great statistical violence over the years.  I can attest to this:  when I put out the Asian Energy Futures report a decade ago, I was forced, within a year, to amend the report because the new Dept. of Energy figures so altered its projections on China in just one year’s time that it rendered the report stunning obsolete in some of its assumptions. 

The latest IEA numbers put China at 2.52T metric tones of oil equivalent, about 4% higher than the US, which was the world’s largest consumer of energy for the vast majority of the 20^th century—as in, since it rose to economic prominence in the earliest years of the century.

China is claiming this happened only because the US was in recession and the IEA botched its numbers on China’s actual use, but this is a nonsense reply in terms of clear trends.  China is simply on a rocketing course, so arguing about which month it actually overtakes the US is silly.  Look at it this way, in 2000, the US consumed twice the energy of China and just a decade later China consumes slightly more than America.  Our annual efficiency improvement now stands at 2.5%, while China’s is 1.7%.

And understand that China uses coal to a stunning degree (well over half its energy), while the US share is dropping from its historical range of 40%, thanks to increased use of gas.

Now, at first blush, everyone on both sides will take this as a matter of ego, as in, “check out how powerful China has become!”

But over time the reality will set in:  China is now the most vulnerable economy in the world, and it doesn’t have a military that matches that immense dependency.

Then all we have to do is sit back and see how China likes that new burden, because all the world’s antiglobalization forces, both “soft” and deterministically kinetic, will catch on to this new reality soon enough.

China is THE globalizing/shrink-the-Gap force today

Cool series of global trade charts from Bloomberg Businessweek.  One in particular shows the growth in Chinese exports to regions over the past decade.  Seventy-two percent increase to Europe, 410% to North America, 593% to rest of Asia (to include Persian Gulf), 1800% to Africa and 2133% to LATAM.

Corporate exposure to China, in terms of how much of their revenue comes from China:  Siemens and Boeing only around 7-8%, but Intel at 17%, Yum Brands (like KFC) at 34%, and major mineral companies like Valle and Billiton in the range of 20%.

Top US export by far to China is soybeans at almost $10B.  Would seem to account for the vast fields I see all over central Indiana.  Semiconductors second place at $5B.

Most fascinating to me, the huge upticks in Chinese exports to Gap countries over the past decade, clearly marking China as THE globalizing force on the planet today.

Hermes' trojan horse market entry strategy

Interesting FT story on Hermes, the luxury brand, creating a special subsidiary that’s completely separate from the Hermes line to pursue a market expansion strategy in China.  The goal is a Chinese brand, from Chinese designers, using Chinese production.

Question is whether Hermes is diluting its primary brand or finding a way around growing Chinese protectionism.  Hermes will continue its 18 stores in China and the main line will create no specific products for the Chinese market.

It’ll be interesting to see if the strategy works.  Are the Chinese ready to shift loyalties to a Chinese luxury brand or will they want to stick with their foreign favorites?

Chinese in the Rear View Mirror May Appear Larger than They Are

FT story on how the West’s diet industry “drools over China’s desire to lose weight.”

Fat Chinese?  Yup.  A stunningly fast outcome of the one-child policy is the supersizing of the “little emperors,” who are supposed to fight over insufficient number of Chinese women WRT marriage AND take care of their parents and grandparents in their old age AND (according to whack-job Western demographers) somehow be willing to join the military and fight overseas wars because of their “surplus” status AND (according to this story) will have to do all these things while fighting their own personal battles of the bulge.

These poor fellows.

Better read Paul French’s book, already out:  “Fat China:  How Expanding Waistlines are Changing a Nation.”

Remember such trends when you scan all these “China will rule the world” tomes and fend off the litany of expert predictions of why we must go to war with China over developing region resources.  China isn’t merely moving up the production scale with speed, it’s likewise moving up the Western scale of social problems with equal speed.

I mean, how many “literate peasants” do you expect will be willing to lay down their lives in overseas adventures for these chubby little emperors back home?  Given China’s loooong history of military adventurism distant from its shores (hmm, where did I put that volume?)?

Many-fat destiny beckons . . . 

Mistaking resource dependency as strength

WSJ piece on China stepping up global mining buys.

When we’re talking acquisitions that link China to Australia, Canada and Brazil, I see only win-wins for everybody—the global demand center getting deeply in bed with extant global players.

But lots of Chinese investment on this score see it moving into Africa, a trend we tend to assume plays only to China’s advantage—like taking a lot of responsibility for African stability will only be a good thing for China when it was never the case for the West in the past.  Yes, by bringing in Western firms, China spreads the risk a tad bit, but eventually, when things go bad in certain places, it’s unrealistic to think the West will pony up the requisite security to save China’s bacon just because Western firms are involved.

So go easy on the widespread assumption that China merely gains influence and no responsibility on this path, because that is strategic naïveté of the worst order.

Open season on Chinese business practices

FT front-pager.

One thing for GE to bitch and moan, as Americans as expected to complain about China, but another for Siemens and BASF, two traditional ostriches, to squawk so.  If anything, these guys have been vocal China boosters in the past.

But their unprecedented complaints come "against a backdrop of rising discontent among foreign businesses operating in China."

Especially striking is that the German CEOs said this to Wen Jibbao's face--in Beijing!  Wen countered with bland denials that the investment environment had deteriorated.

Merkel tried to smooth it over afterwards, but I think we're seeing the start of something big.

Being numero uno means being the world's biggest target for complaints.  We'll see how China likes that.

Chart of the day: China's loosened peg changes little

WSJ story noting that, after China's pledge to ease its peg to the dollar, the yuan has gained a whopping 0.7% over a month. Based on the 2005 de-pegging, no big change as hoped for.

Early judgment, yes, but the first month gives a strong hint that we won't get much relief this way.

The fight for depegging within China has been led by the People's Bank of China, but for now it seems that this view has not won out.

So expect more Congressional threats and some action, after a while.

Next pressure point will be the IMF's review of the Chinese economy.  China and the IMF have feuded specifically over this issue.

Chinese custom meets the FCPA

The Chinese have a wonderful custom of gift-giving, which is why, whenever I go there, I pack a lot of small gifts--especially preferring to give out books.  If you don't, you'll end up feeling weird when your Chinese hosts give you all sorts of gifts at each stop, a lot of it being traditional crafts with company or agency logos attached.

But here's the rule for Americans or any company that lists here: whenever gov officials are involved, to include state-run companies, there are strict dollar limits on the value allowed for gifts exchanged. These limits aren't all that hard to meet, so long as you're not in the serious graft business.

But even in that more exalted realm, US agencies are more vigorously prosecuting violations of the Foreign Corrupt Practices Act (FCPA):

In late June, more than 150 executives from Siemens (SI), the German industrial giant, met in Beijing to discuss compliance with Chinese and U.S. anticorruption laws. That a multinational would spend millions to strategize about avoiding bribery charges in a country where bribery is rampant shows how much business is changing in China.

U.S. prosecutors, empowered by the Foreign Corrupt Practices Act of 1977 (FCPA) to investigate allegations of bribery anywhere in the world, have been stepping up their activities in China, where a tradition of gift-giving in business often degenerates into serious graft. The FCPA bans U.S. companies from bribing foreign officials. It also applies to foreign companies like Siemens that list their securities on U.S. exchanges. Companies that violate the FCPA face millions in fines, and executives can go to prison.

Yes, yes, it's a thin red line that separates pleasant custom from corruption.

Says one former USG official involved in compliance, it's all about "reconciling Chinese customs of entertainment and gift-giving with the culture of compliance."

Beware of enabling middlemen, says the article, because they can get you in trouble.

The more you connect, the more you're subject to the rules--and customs--of others.  I see this rule-set clash going down rather quietly, like the rustling of red envelopes.

The ultimate opportunity insurance policy for your Chinese kid

Interesting NYT story on a nifty trick being pulled off by a China-based consultancy WRT to America's 14th Amendment that says, anybody born here is a US citizen, no matter where the parents come from.

Zhou and Chao, a husband and wife from Taiwan who now live in Shanghai, run one of China's oldest and most successful consultancies helping well-heeled expectant Chinese mothers travel to the United States to give birth.

The couple's service, outlined in a PowerPoint presentation, includes connecting the expectant mothers with one of three Chinese-owned "baby care centers" in California. For the $1,475 basic fee, Zhou and Chao will arrange for a three-month stay in a center -- two months before the birth and a month after. A room with cable TV and a wireless Internet connection, plus three meals, starts at $35 a day. The doctors and staff all speak Chinese. There are shopping and sightseeing trips.

The mothers must pay their own airfare and are responsible for getting a U.S. visa, although Zhou and Chao will help them fill out the application form.

At a time when China is prospering and the common perception of America here is of an empire in economic decline, the proliferation of U.S. baby services shows that for many Chinese, a U.S. passport nevertheless remains a powerful lure. The United States is widely seen as more of a meritocracy than China, where getting into a good university or landing a high-paying job often depends on personal connections.

"They believe that with U.S. citizenship, their children can have a more fair competitive environment," Zhou said.

There are no solid figures, but dozens of firms advertise "birth tourism" packages online, many of them based in Shanghai, and Zhao said the number has soared in the past five years. But he said that many are fly-by-night operations, unlike his high-quality service.

"The customers we serve are very successful and very affluent," he said.

'We are not snakeheads'

Zhou and Chao insist that everything they do is legal, noting that the 14th Amendment to the U.S. Constitution, ratified in 1868, says anyone born on U.S. soil has the right to citizenship.

The environment that allows for "life, liberty and the pursuit of happiness"--still our greatest competitive advantage.

Chinese ex-pats: vulnerable strangers back home

Disturbing WSJ feature about a subject that has long intrigued me WRT my Chinese-born daughter, Vonne Mei.  Whenever you hear about "foreign nationals" being arrested in China, it is almost invariably a China-born Chinese who later got citizenry elsewhere and then returned for work, only to suffer this jeopardy.

Frankly, it is why we readopted Vonne Mei in US Courts.

Bottom line: no matter your citizenry, if you're China-born Chinese and you're in-country, you can suddenly find yourself in a grey zone--but only so far as the Chinese government is concerned.  

When things go well and there are opportunities to be grasped, the overseas Chinese, with their inside-track appreciation of the distinctive modus operandi in the People's Republic, ride high. When the complex nexus of national interest, party-family ties, local power brokers and influence peddlers is antagonized, however, these intuitive insiders, the commercial compradors with local knowledge, are particularly vulnerable. The protective sheath of foreign citizenship proves to be little more than a gossamer.

And yeah, I do find that notion a bit scary when considering any return visit with my daughter, not so much that she might get in trouble but that I could inadvertently do the same by antagonizing someone powerful. I think it's a rather far-fetched concern; it's just not something I'd have to worry about traveling anywhere else with her.

Why?  Because, it's still the case that the Chinese government retains--in its mind--the prerogative to declare what is and isn't fair according to China's unique situation and national needs:

The Chinese authorities claim a monopoly right to define and interpret the nation's unique conditions. In reality, social change, evolving attitudes and widespread aspirations continue to challenge the status quo. 

But the Party claims the right to decide, when it chooses, to declare what any Chinese, caught on its soil, owes the state--no matter the citizenship.  The dynamic has a sort of mafia-like ring to it--as in, no matter how you may view your new situation, the Chinese government retains the right to pull you back into the family and to punish you at will.

How long can that version of Chinese exceptionalism last? Hopefully not much longer, because it represents the myopic selfishness of a scared state, and the Chinese people deserve something a helluva lot more mature.

WPR's The New Rules: Globalization's Staying Power a Triumph of American 'Hubris'

There’s no question that globalization, in its modern American form of expanding free trade, just went through its worst crisis to date.  But while economists debate whether or not we in the West are collectively heading toward a 1938-like “second dip,” it’s important to realize just how myopic our fears are about the future of a world economy that America went out of its way to create, defend, and grow these past seven decades.

Read the entire column, which you can consider my oblique response to Peter Beinart's "Icarus Syndrome" book, at World Politics Review.

See the references for my inspiration on this piece.

The India-China rivalry in south Asia

FT full-page analysis by James Lamont that depicts India worrying that its economic clout in South Asia isn't translating effectively into local influence in the face of rising Chinese efforts to do the same.

Nepal is depicted as a potential flashpoint, a la the short but bloody 1962 war between China and India in the Himalayas.

India doesn't even have a rail link with its neighbor, we are told.

By comparison, China – Asia’s other great emerging economic power – has made huge efforts to improve relations with its neighbours during the past decade, settling a number long-running border disputes, making large investments in infrastructure and offering preferential trade terms.

Tensions between China and some of its neighbours have increased, however, especially over what some countries see as Beijing’s increasingly assertive approach to territorial disputes in the South China Sea.

A lack of regional cohesion will put the area at an economic disadvantage to the more dynamic markets of east Asia.

It also poses big security risks for India, most importantly from China, in what is likely to become a tussle for regional dominance in the coming decades. Ashok Mehta, a retired general and respected security analyst, says that if China one day controlled the heights of the Himalayas in Nepal, it would have no need of a nuclear arsenal trained on India. He views the country as a strategic linchpin whose loss would cost New Delhi dearly.

I will admit, this is the one bilat in the world that worries me WRT great-power war potential, and it all involves the very relativistic fears of falling behind.

The weird thing is, it's India that is racing ahead economically in south Asia, far faster than its neighbors, who, in turn, are more welcoming to Chinese economic penetration as a balancing function.

India, it would seem, needs to borrow a page from Turkey's foreign policy of "zero problems with its neighbors."

A new breed of young female workers in China

NYT story, which presents not-your-average, just-off-the-farm-and-willing-to-work-at-any-price female laborer:

If Wang Jinyan, an unemployed factory worker with a middle school education, had a résumé, it might start out like this: “Objective: seeking well-paid, slow-paced assembly-line work in air-conditioned plant with Sundays off, free wireless Internet and washing machines in dormitory. Friendly boss a plus.”

As she eased her way along a gantlet of recruiters in this manufacturing megalopolis one recent afternoon, Ms. Wang, 25, was in no particular rush to find a job. An underwear company was offering subsidized meals and factory worker fashion shows. The maker of electric heaters promised seven-and-a-half-hour days. “If you’re good, you can work in quality control and won’t have to stand all day,” bragged a woman hawking jobs for a shoe manufacturer.

Ms. Wang flashed an unmistakable look of ennui and popped open an umbrella to shield her fair complexion from the South China sun. “They always make these jobs sound better than they really are,” she said, turning away. “Besides, I don’t do shoes. Can’t stand the smell of glue.”

Assertive, self-possessed workers like Ms. Wang have become a challenge for the industrial titans of the Pearl River Delta that once filled their mammoth workshops with an endless stream of pliant labor from China’s rural belly.

In recent months, as the country’s export-driven juggernaut has been revived and many migrants have found jobs closer to home, the balance of power in places like Zhongshan has shifted, forcing employers to compete for new workers — and to prevent seasoned ones from defecting to sweeter prospects.

Long predicted by demographers, China starts a long uphill climb on labor costs and demands.  The supply of young workers has peaked and will drop by a third over the next decade or so.

As usual now, we are told that this generation ain't interested in the "eat bitterness" sacrifices of their parents, nor are they interested in returning to the land:

Guo Yuhua, a sociologist at Tsinghua University, said the new cohort of itinerant workers was better educated, Internet-savvy and covetous of the urban niceties they discovered after leaving the farm. “They want a life just like city folk, and they have no interest in going back to being farmers,” said Ms. Guo, who studies China’s 230 million-strong migrant population.

Listen to this 28-year-old male laborer:

“Money is important, but it’s also important to have less pressure in your life.”

WHAAAT?

The generational divide should strike any developing/developed economy as familiar:  parents see lazy kids who expect entitlements and kids see parents afraid to buck the system and make their legitimate demands known.

I would say the ideological infection is complete.

China's squeeze play on US software industry

WAPO story by way of WPR's Media Roundup.

Subject is China's squeeze play on American software providers:

Nearly four out of five software applications running on PCs in China have been stolen instead of paid for, the market research firm IDC has found. China has made commitments to the U.S. government to reverse this trend by enforcing intellectual property rights, but IDC data show no discernable progress. Indeed, between 2005 and 2009, the commercial value of stolen personal computer software in China doubled, to $7.6 billion. Roughly half that amount should have been paid to U.S. companies, which could have used the money to hire more U.S. workers and invest in research and development for new products.

With most of this rampant theft occurring in Chinese businesses, the economic impact reaches far beyond the software industry. Software is a critical tool for production in every sector of the economy. Stealing gives Chinese companies an unfair cost advantage over their paying American counterparts.

Beijing late last year compounded matters for the software industry and several others -- from makers of clean-energy technology to producers of telecommunications equipment -- by instituting a heavy-handed "indigenous innovation" strategy that excludes foreign companies from important segments of the Chinese market, such as government procurement, and tries to compel transfers of intellectual property rights for key technologies as the price of market access. This squeezes us at both ends -- shutting many of our innovative products out of the market and stealing the rest.

The industry is fighting mad and pushing the Obama Administration for a generalized get-tough stance that avoids the past tactic of complaining about one trade obstacle, only to have it removed and replaced by a new one two steps over.

The hope?  Correcting the relationship like we did with Japan previously:

In Japan, for example, software theft was pervasive in the early 1990s -- accounting for two-thirds of all PC applications. In little more than a decade, however, thanks to public education and a strong judiciary system, the piracy rate there has dropped to 21 percent, a level on par with that of the United States.

So a discouraging and encouraging message at the same time. Nice piece.

Because what goes around, comes around

Couple of WSJ stories.

Beijing lets Google keep a toe-hold in China while Baidu’s grip on domestic searches reaches dominance level at nearly two-thirds.

Still, the Party does well by not shutting out Google completely, because soon enough, Western markets will retaliate more fully against would-be entrants like telecom equipment provider Huawei, which is already fighting an uphill battle in India.

The more China plays this game at home, the more it will face the same abroad.

Chart of the day: China's banks moving on up

Economist story on IPO for China's huge Agricultural Bank, which, BTW, raised about $19B and will end up with $22B when all is said and done--the biggest IPO in history when all the additional possible shares are issued.

The event, says The Economist, "ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world."

Now that the catch-up has occurred, warns the newspaper,
"success will force the model to change."

So no "Beijing consensus," says The Economist.  "Though neat, such a conclusion looks wrongheaded."

Not that Ag Bank's future isn't bright. It has 320m customers and only 1% of them have mortgages, so growth is guaranteed.

And yes, the government could easily loan and spend its way out of the Great Recession by commanding banks to lend like crazy.

But:

Even admirers, though, cannot fail to spot China's bad-debt problem. Those who think capitalist democracies have an unrivaled talent for generating dud loans should consider the Middle Kingdom.

Bad, politically motivated management in the past meant that by the late 1990s, almost a third of all loans in China were to zombie state-run enterprises, thus requiring China to lead the world in bank bailouts for most of the last decade.

The latest binge, as the newspaper calls it, is likely to trigger similar dynamics in the sense of overbuilding capacity.  Yes, the gov can afford the hit, but that's mostly because the Chinese save at such a high rate, meaning banks don't need to turn to debt markets.

Real change to the system will come, as always, with success.  The more the middle class emerges, the more banks will need to clear up space on balance sheets to loan out money to individuals and small firms, and "The heavy lifting of financing infrastructure and state companies will shift to bond markets."

In the end, China's banking system will not be all that different from the West's.

The concluding argument of the editorial:

China’s banks could then end up looking a lot like banks elsewhere, although the state will still have control. Yet even that could change gradually. At current growth rates China’s banks will need capital injections every few years. The government may tire of these shakedowns—its participation in this year’s equity raisings has been a little grudging—and allow its stake to be diluted instead. And, as China’s banks claim their rightful place among the global leaders, they will find doing big foreign deals is hard when the government has a hand on the steering wheel. The rise of China’s banks is stunning and a little frightening. Yet they are not the pallbearers of market-based finance, just a work in progress.

Beware the bullshit artists who claim China is somehow making a new model of development happen.

Disney's penetration of Asia goes way beyond theme parks

pic here

FT front-pager on Disney expanding its language schools in China, with a goal of almost 150 schools and $100m in revenue. By 2015, it wants to be training 150k Chinese kids each year.

The curriculum features Disney characters, obviously.  A growing Chinese middle class "means there is no shortage of parents willing to pay $2,200 a year for tuition of two hours a week." 

I heard that last bit in spades from the Gymboree international franchise operators: there is almost no limit to what parents will pay in emerging markets to get their kids ahead of the pack--typical of countries on the rise.

The hidden benefit is also fairly obvious, as far as Disney is concerned:

But the schools also enable Disney to forge a bond with a new generation of consumers who may be unaware of the company's characters and stories.

This is crucial because gov quotas on foreign films restrict Disney's marketing there.