HaavBline

Investing in China: Why the Nine Nations Matter

Excellent 2nd article from professor Chovanec, and I hope this to be a very long series of articles to come. I am recommending my nephew, who joine Tsinghua's IMBA program this year, to sign up for your classes.

Regarding the appearance for regional officials to neglect comparative strengths and pursue the same 'pillar industries' identified by the central goverment, I think there is probably more stories to it. China continue to be contrained by the severe damages resulted from the Cultural Revolution, most high-level officials are likely to be in their 50s-60s, the lost generation that missed their prime education opportunities in the 1960s-70s and owned got remedy educations at best. It is easier to get central funding and less risky for them to follower central goverment guidance when making provincial and local development plans.

This situation probably creates an excellent opportunity for entreprenuers to take advantage of the real regional comparative strengths neglected by the regional goverments and since the goverment allocates resources to pillar industries, it presents lots of opportunites for Private Equity to fill the vacuum and profit handsomely.

China: Consequences of the Sleeping Lion Awakened

You do not own the English language, my friend. You are not even from England.

Go to India and you will know what I mean instantly.


On Nov 16 09:23 AM Tony Petroski wrote:

> The title said "Consequences of the Sleeping Lion Awakened."
>
> I missed reading anything about that. Instead I read an article touting
> the mightiness of China and the Chinese economy.
>
> Note to the communist handlers: In english the phrase is "sleeping
> giant."

China's Nine Nations

An excellent concise primer. And timely too, as many people feels the need to acquire a deeper understanding about China.

"And it’s just the tip of the iceberg — I hope to expand on this framework and explore it further ...."

That would be great. Anxiously awaits. Huge subjects, so much to explore.

As China tries to spread developments to the whole country, how effectively are they removing the internal trade barriers that existed among provinces/regions. How are these internal integrations developing? and how much do they create new opportunities and new challenges that would support the future growth of China driven by internal growth? As we now demand China to do?

Some regions are on the verge of being transformed in new directions by new drivers of inter East Asian Integration. The Southwest 'Shangri-La', the poorest region in China, seems to be stirring with the coming full implementation of the China-ASEAN FTA.

Will China's Growth Be Maintained by Government Stimulus Alone?

I wouldn't mind owning a small piece of the New Ordos and wait for people to move in eventually. In fact, the OLD Ordos dosen't look so bad either.

How Taiwan Is the Alternative China

A good video. You can't expect much in a 4 minute video. The statement that 'Unlike China, Taiwan's people are free to travel' is quite out of date. In fact, since Taiwan started to allow mainland Chinese to travel in groups there, the mainlanders have poured in as much as the limit set by Taiwan allows. They are now a very common sight at tourist attractions, including the popular might markets shown in this video.

Chinese Exports: Can Emerging Markets Replace the U.S. Consumer?

The author raised an interesting question but failed to dig into it meaningfully.

By volume and value terms, China-EM trade is and will continue to be only a fraction of China-US trade. But China is pursuing this trade because from China's viewpoint, they see much opportunity that foreign observers can not see from trade volume stats alone.

China-EM trade is growing at a much faster pace then China-US or China-EU trades. For example, China-Africa trade grew at 40% pace in 2008 while trades to OECD countries were tanking. So the China-EM trade growth volume could be comparable in the near future even though total trade volume remains much smaller. This is the part stat and chart readers can easily project and comprehend.

The qualitative element is this: China enjoy much better terms and quality in its China-EM trades comparing to China-US or China-EU trades. China-US trades, for example, consist of a very high percentage of foreign owership, in the form of brand names, sales channels, IP, even export factory management. In this trade relationship, US gets the tuna steak while China gets the fish bones, so to speak.

In China-EM trades, on the other hand, much of Chinese owership is involved. From financing, infrastructure service to brands, to IP to factory, there are much less western involvement ('taxing' from Chinese standpoint). It may be lowly smelts, comparing to pricey tuna, but China gets much of the fish meat rather than just the bones.

Two More Myths About Business in China

Your point may be correct. But Shaun Rein's observations are more useful for his target audience, which are foreign companies who wants to sell to China.

Pragmatically, China's rurual poor is simply not on the radar screen of these foreign companies.

On Nov 13 10:51 AM huangthomas wrote:

> The author has a tendency to use anecdotal evidence to generalize
> to the entire society. It is not a scientific study of the society,
> it is simply a story telling of subjective opinions. The story of
> Anna, she used to live in Tokyo, now move to Shanghai, is an example.
> How representative is she for Chinese? There are 800mill rural resident
> in China. They are completely forgotten by the author

Two More Myths About Business in China

Like most things, standards of 'desperation' is only relative. Since you have only been to China for 10 years, you have no idea how low standards of 'desperation' could be thorough most of last century in China.

From the eyes of most Chinese who suffered through last century's desperate periods of imperial collapse, warlordism, Japanese invation, civil wars, 'great-leap forward' and cultural revolutions, you may sound like a cry baby.


On Nov 13 09:54 AM semuren wrote:

> "The desperation that marked the lives of many Chinese over the last
> century is gone. "
>
> Sorry, but that is BS. I have lived in China for about 10 years and
> there are still many people whose lives are filled with desperation.
> Sure, over all things are much better, economically, than they have
> been, but statements like that above betray a truly superficial knowledge
> of the country.
>
> I think I will never forget the man in line behind me Peking Union
> Medical Center in Beijing. My wife, father-in-law and I had all gone
> there at about 4AM to stand in line to get an appointment for my
> wife. Of the three of us one got an appointment. But the man in line
> behind me, like me did not get an appointment. I do not know his
> story. Maybe he came from somewhere far from Beijing or maybe not,
> but he simply lost it when he realized that he was not going to be
> able to see the doctor. In a way it was annoying. So many other were
> in his same shoes. But I can see why he started to scream and shout;
> why he simply could not accept that he, or whoever in his family
> was in need, was simply not going to have a chance to get medical
> care.
>
> That man felt desperation. No doubt about it. We got an appointment
> and my wife went on to get needed surgery. But if we had not I have
> the financial and citizenship status to take my wife to Bangkok or
> the US and get proper medical care. Most Chinese are not in that
> position.
>
> Sure things here are better than they have been in the past but it
> is not as rosy as analysts of the urban middle class consumer might
> have you believe.

China's 'Infrastructure for Resources' Policy

Even as astute an investor as tradermark is still underestimating China's fundamental economic strength, although he is certainly on the right track.

"Ironically this has a double benefit to China as it not only secures resources in the long run, but the infrastructure projects help employ a good number of people." .

Actually, both China and Africa derive MULTIPLE benefits from their relationship. Affordable Chinese infrastructures enhance productivity and bring prosperity, which create demand for affordable Chinese products. Chinese exports to Africa is zooming in unison with imports from Africa.

"China is conquering Africa as it becomes the preferred trading partner of the continent's dictators."

If you think only dictators and failed states are clinging to deal with China, you would be badly mistaken. China's combination of capital, capacity, low-cost, market demand and willingness to take risk and hardship is very hard to resist for any emerging economy.

Did China Buy Too Much Copper?

Agree with this call. A correction would be timely as China digest the huge stockpiles of commodities.

China's Recovering Export Sector: Less than Meets the Eye

The slower rebound in Chinese exports is consistent with the reality of slow recoveries of US and EU economies.

From Bloomburg:
"Alibaba.com Ltd., China’s biggest online commerce site, expects the nation’s trade recovery to weaken in the first quarter of next year because of “flat” overseas demand", according to its CEO.

This is noteworthy because Alibaba.com is a dominant e-commerce platform used by Chinese small and medium exporters and enjoys a first-hand knowledge of export status months before any meaningful statistics become available.

China's Improbable Economic Growth Figures

There are so many loose ends in this casual analysis I think it is a waste of my time.

Why the Dollar's Decline Is Good

Good or not good, the Dollar's decline was inevitable. It will EASE a lot of US problems for the short term, but noot SOLVE our problems. Only once again delaying those problems down into the future.

Opportunity in the Brazilian Real and Chinese Renminbi

I agree the long term bullish cases for both Chinese RMB and Brazillian Real. But ‘non-deliverable forward contract’ seem like a rather complicated and cumbersome investment vehicle for lazy investor like me.

What about the ETFs? There are CNY and CYB for the RMB and BZF for the Real. WisdomTree has been running ads for CYB on CNBC recently.

China Signs $5.5 Billion Russian Trade Deals Including Energy and Mineral Plans

On paper, Russian oil and gas are very attractive to the Chinese. They are neighbors and the energy supply can be delivered economically though pipelines. But the Chinese has long found that dealing with the Russian can be most unpleasant and risky.

The Russians had been playing the oil pipeline game between the Chinese and the Japanese for more than a decade. The Chinese had long given up on the Russians and pursued their energy needs all over the world from Central America to Africa to Latin America and Canada. It would be nice if they now get access to Russian oil and gas, but they know they can not count on the Russians to honour their 'plans' and 'aggreements'.

The global financial crisis proves that it is the Russians who made a big strategic error for more than then years in their economic development by treating the East Asian markets as only a fall-back market and negotiating lever, rather than seriously developing the Asian markets to complement their focus as energy supplier for Europe. With European energy demand tanking, the Russian GDP this year will shrink by 9%, and that is why the Russians now are scrambling for China deals. They will now need to redouble their efforts to repair their credibility problems with not only the Chinese but also the Japanese and Koreans, as the East Asians have developed alternative sources.