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 Becoming a 'Middle-Class' Nation

You are right. It will get harder as China grows closer to the global adverage. But there is still a long way before China gets there, as the China Daily recognize that China has progress to only 'lower middle-class' status, and per-capita GDP still rank somewhere close to #100 in the world (was #107 in 2007, I think).

Continuing moving up from a low base toward middle-income will take another 15-30 years. Meanwhile, since China is a huge economy that covers some extremely difficult terrains, the leading edge of it will be quite advanced while the trailing edge will remain very 'challenging' for a long time.


On Sep 09 03:44 PM dshark wrote:

> 90% of it has been in the last 30 yeas, Nil before that. Also when
>
> your starting from a 1$ is it easy to jump to $2, it's gets exponentially
> harder as you catch up to the rest of the world and try to manage
> growth and people.
>
> SHARK

China Becoming a 'Middle-Class' Nation

Susan:

I wonder if it is appropriate to post entire articles from another publisher?

No one is arguing that China's statistics are up to western standards. Still there are plenty varifiable information to confirm China's tremendous growth over years.

Can China fake the $2T forex reserve and the $1T+ US goverment debt they hold? Can China fake the endless new infrastructures the build? Can China pay for all those foreign resource acquisitions with worthless RMB? Will the consumers respond to goverment's car buying insentives with such gusto if there are no hidden wealth in China? Can there be a #1 car market if only the corrupt officials get rich, as many China-bashers are insisting?

China Becoming a 'Middle-Class' Nation

Excellent article.

China-doubters will point to the Chinese source (China Daily) as 'questionable', but any objective observers who looks at big pictures can neglect all Chinses official statistics and still come to the same conclusions.

It is not important to argue wether China is now 'lower middle-income' or still working their way toward that goal. It is clear that China has been consistently moving UP toward that direction at a very decent pace, and that direction and pace will continue despite the burst of global financial bubble. There is no doubt that the middle class continues to grow quickly.

In addition to the accumulation of financial reserves, few people pay much attention to the significance that China now has accumulated a surplus of 'college grad' reserves. This is much more meaningful that most people realize.

30 years ago, at the end of the Cultural Revolution and the beggining of the current modernization drive, China faced an extreme shortage of educated elite, a whole generation of young elites wasted a decade away from universities, which were all closed. This situation led to the fundamental limitations faced by China's reformist leaders in the past 30 years which resulted to the TWO glaring deficiencies within the impressive success of China's development.

1. With a extreme shortage of educated capable officials, China must allocated the small pool of them to big cities in coastal regions. Goverments in vast rural and inland areas had to put up with unqualified officials who has absolutely no need skills to handle moderrnization programs.

2. A advanced service industry, which requires a large pool of educated employees, could not be developed.

To address these problems, China has been expanding university enrollments at a much faster pace that GDP growth rate in the past 10-15 years. (Quality is going to suffer for sure) And now faces a different problem, finding jobs for a surplus of millions of college grads.

This virtually garantees that new Chinese goverment policies will focus on modernizing rural and inland goverment administrations with new college grads and the development of the serivce sector to assorb large numbers of these educated youths. The much expanded pool of educated youths will now support three main DOMESTIC drivers of future economic growth, continued vast urbanization, rural and inland development, and service sector development. And as a result, China will develop into a much more balanced economy in the next 30 years.

Chinese Fuel Price Hike Provides Short Term Support for Sinopec

Good article.

Sinopac lives or die by goverment gasoline prices controls. This makes it the most difficult choice for either investors or traders. PTR or CEO are a lot easier to analyze.

I'm Slowly Rebuilding My Chinese Position

Your criticism is wellcome. Anybody who post on the internet should not be thin-skinned toward criticism.

I never claimed to 'really know China'. But I do see a lot of people who knows LITTLE about China making silly comments as if they are real experts. I am merely pointing out the holes in their story. It is up to you to judge by yourself.

What's the point of an internet forum if everybody just cheers on blindly and swallowed whole the junk written by whoever on a whim?


On Sep 02 12:10 PM Persian wrote:

> Haavbline,
>
> You are a real prick on this message board. You think you really
> know China, huh? I see that you've been resorting to unwarranted
> personal attacks against other people on SA like doubleshort and
> another fellow Tony who is in finance and lives in China.
>
> No surprise really with any insecure chump hiding behind a PC with
> a picture of grumpy baby that you are.
>
> Loosen up and act like an adult.

I'm Slowly Rebuilding My Chinese Position

Great timing is the 2nd part of the success story. The first part is choosing CAF as the trading vehicle for long China positions.

China has a track record of world leading economic growth and this will continue in the forseeable future. For long-side investore or traders, it makes perfect sense to invest in China and/or trade China markets.

For investors, China will outpeerform in the long term. For long-side traders, you want to trade a volatile market with a long term up trend which improves your chance of success. Shanghai A share is probably the best volatile, inefficient, but robust market for traders.

CAF tracks the volatility of Shanghai A shares, as a close-end fund, its premium/discount from NAV also fluctuate accroidng to market emotions. This makes it a better trading vehicle for good market timers to outperform the Chinese market. So by choosing CAF as a long trade vehicle, you will have better chance of successful trade.

I use FXI as my Asian core holdings to ride China's long term growth, buying when prices are right and rarely sells. I use CAF as trading vehicle the same way tradermark suggest, to catch the extra potential gain of the volatile, inefficient Shanghai A share market.

When I feel like hedging my Asian investments, I use EWJ as my heding choice. Shorting EWJ makes sense because Japan is trapped in a long term bear market. Even as there is finally a regime change in Japan, the down trend remains until the new governing party proves they can indeed turns things around.

I'm Slowly Rebuilding My Chinese Position

There you go. In the 80s, if you have been to Shenzhen, Guangzhou, Dongguan, you have seen the leading edge, the best of China. This is no longer the case since the 90s. Dongguan especailly are still stucked with low-end export-only manufacturing. The rest of coastal China have been transforming at a faster pace, with newer infrasturce and more advanced industries for the last two decades.

So with even 30 trips to China. you remained exposed to only a small part of China which actually has been relatively stagnant (by Chinese standards) in this decade.

Shoe people in Dongguan, meanwhile, are more likely to be Taiwanese or Overseas Chinese businessman doing brand name shoes. Whereas a Wenshou shoe guy is more likely to be local, doing no-name shoes. But they are not afraid to venture into dangerous places across the world to sell their wares


On Sep 01 03:26 PM doubleshortetf wrote:

> I'm in the electronics and pharma industries and spent most of my
> time in Pearl River Delta from ZH to GZ to DG to SZ. Met few shoes
> guys in the KTVs in DG and these guys preferred doing business in
> DG than WZ.
>
> Back to Bloomberg stories on ordinary folks speculating in the metals
> portend greater bubble than the last bubble from pre Beijing Olympic
> bubble a year ago.
>
> On Sep 01 02:56 PM HaavBline wrote:

I'm Slowly Rebuilding My Chinese Position

Well. You claimed to have been to China 30 times and you only know Wenshou as the Shoe capital of the world? Seriously doubt your claim.

Wenzhou people is famous for their extreme entreprenuering ways. They migrated to every corner of the world. They speculated in flocks in anything that can make quick profits. Wenzhou broke loose from communism as soon as China decided to "reform and open-up" in late 1970s. They were the earliest success stories in China outside the 'special economic zones' without the benefits of favarable policies.

Wenzhou women engaaged in business activities as much as men. In fact usually a whole extended family throw themselve completely into a business in order to get an edge toward success.

There was a time when "the Wenzhou model" was widely studied and (attempted to) emulated in China. But Wenzhou's unique culture is difficult to emulate even in China. These days they are watched over because of their extremely speculative ways can be a problem.




On Sep 01 12:50 PM doubleshortetf wrote:

> Hmmm,
>
> Wenzhou is the "shoes" capital of the world so one might think the
> housewives might hoard leathers or future contracts in rubber. But
> speculating in all too volatile metals they have zero clue about?
>
>
> This sentence from the Reuters article captured the unfair game the
> Chinese CCP and SOEs resort to:
>
> "It's like the father suddenly told the creditors of his debt-ridden
> son that his son won't pay any of his debt," said a lawyer from the
> derivatives risks committee of the Beijing Lawyers Association.<br/>
>
> www.reuters.com/articl...
>
> Pig farmers in Guangzhou province were buying copper or nickel, Liu
> wrote, citing CCTV. Residents in Wenzhou city of Zhejiang province,
> “famously investment savvy,” are reportedly using bank loans to stockpile
> copper scrap, with one merchant saying he has stored 20,000 tons...
> Housewives in Wenzhou may have stockpiled metals as “they just have
> too much cash on hand

Morgan Stanley's Wang Misreads China

I am not an economist. But it seems to me those economist who accuse other economists of not knowing the basic concept about the Foreign Exchange Reserve is probably at risk of living in the Ivory Tower themselves. In this case, Qing Wang from Morgan Stanley China is talking about make best USE of the Foreign Exchange Reserve, not about who OWNS that Reserve. That is not as much of a conflict as you might think.

I think a close enough analogy can be made to house owernership. Many American house 'owners' now have close to ZERO equity of the house they 'own', yet they continue to have the right to live in it and can make whatever use or abuse of the house even thought their mortgage banker own close to 100% of the equity of the house.

All central banks in the world have a way of deciding how the Foreign Exchange Reserve can be invested, managedm or leveraged, even though technically they don't 'own' those reserves.

Trade Deficit with China Continues to Expand: Why?

Peter Navarro is "America's top business economist"?

This is not funny.


On Aug 13 12:23 PM Howard Richman wrote:

> By the way, America's top business economist, Peter Navarro, is saying
> about the same things as me about our trade with China. Check out
> his interview in the Huffington Post about his new book:
>
> www.huffingtonpost.com...

Trade Deficit with China Continues to Expand: Why?

Simplistic thinking.

Use your arithmatic skills! If Mexico get a chance to double the product they can manufacture there and double their exports to US, they wouldn't need to by 75 cents from us because they would have all the over-capacity problems from China and would not need our exports.


On Aug 13 12:03 PM Howard Richman wrote:

> HaveBline predicts that if we balanced trade with China:
>
> "Trade deficit against Mexico multiplies, factories booms south of
> the border. Author takes a chance to wade across the river and apply
> for jobs there."
>
> There is a huge difference. Mexico imports 75 cents from us for every
> dollar we buy from them. China imports 25 cents from us for every
> dollar we buy from them. Mexico does not practice mercantilism (the
> strategy of maximizing exports while minimizing imports). China does.
>

Trade Deficit with China Continues to Expand: Why?

Let's look at this dream scenario:

1. China ups its Yuan by 50% against the Dollar, as the author always wished. In effect forgiving some $500B of American sovereign debt, giving history's biggest deadbeat a second chance.

2. Export factories in China close shop and move them to Mexico. Trade deficit against China plummet. Author rejoice.

3. Trade deficit against Mexico multiplies, factories booms south of the border. Author takes a chance to wade across the river and apply for jobs there.

4. He gets rejected for inadquate language skills and preparedness for harsh work enviroment.

Can China Manufacturers Make the Transition from Products to Services?

Commenters seem to miss the point.

"In early 2008, the Chinese government announced plans to invest in the service sector. This investment involved capital bailouts and tax breaks, covering everything from professional services though to IT outsourcing."

"service sector" in the current context for Chinese goverment, actually mean any business that offers higher margin than factory manufacturing, employs knowledge workers, and moved up the value chains. This include establishing Chinese 'brands' overseas for Chinese manufactured goods, a 'service' aspect of manufacturing industry.

China now has the huge surplus of college graduates to pursue major expansion of more knowledge-intentive survice industry, this will make Chinese economy more balanced and robust in the future. There are high end and low end service industries, from investment services, IT services, healthcare serivce, retirement services to security serivces etc. Servicng industries are big employers that typically higher margined.

Fixing China Trade Is Key to a Sustainable Recovery

Morici is a one-dimensional single-issue 'economist'. He sees everthing only in terms of trade. Every problem will go away if we balance trade with ONE country. Magic.

This is the same old tune he has been playing for more than a decade. You need only to read one word and already know the whole article, not a single new thinking.

He never saw overleveraging as a problem, he never saw financial engineering as a problem. He has been barking up the wrong tree all this years. This is good enough that although he gets his share of air time for his simplistic jingoistic views, he has not been taken seriously.