In recent months, Sarkozy's actions regarding the Dalai Lama and also the Beijing Olympics, has created much tension between the two countries, but now the language in the Chinese press seems to be stepping up a bit in its intensity and it would be wise for the French government to appreciate the political gravity of this situation:
刘建超称，中方已经多次就欧盟轮值主席、法国领导人执意要会见达赖喇嘛一事阐述了中方的严正立场。 对于中方的立场，法方应该非常清楚。(1)
For a national press that is known in recent years for its implicit hinting at initiatives and opinions, this leaves no doubt what the message is, and we can see it in three spots in this one sentence, which roughly states that China has told the EU Chairman and French leaders repeatedly that it is not in favor of their seeing the Dalai Lama and that the French should be very aware of this.
But let's look at the language used for a moment:
已经多次 = already multiple times
中方的严正立场 = China's ardent stance
对于中方的立场，法方应该非常清楚 = regarding China's stance, France should be very clear
For me, the red flags here are the use of multiple, ardent, and very clear (in particular the 'very' in very clear). I am not suggesting that we never see strong language from the Chinese press and national spokesman, Liu Jianchao, who is quoted here. But this thorn in China's paw will not go away and they augmentation of severity in tone is a blatant sign that China is determined to rid itself forthwith of this international assault on their reputation.
All disputes of such force are simply bargaining chips in international diplomacy, and one would have to applaud France for milking this for all it is worth; in contrast, it seems as though the US has begun to move beyond the issue of the Dalai Lama. Perhaps this means that France feels they and the EU have not received enough collateral in order to drop the issue.
From a young American investor's standpoint looking at China, France and the EU arguably are simply tangential issues and do not directly affect our ability to invest profitably in China's growing economy. However, I would say just the opposite. There is much that President Obama and our leaders can continue to glean from the relationships that China has with the other major international economies, and the EU and Japan are arguably as important to China as is the US. From a human rights standpoint, I am willing to accept an ongoing debate on the Tibet issue, but from a geopolitical perspective, it is time for all players to settle up and move on.
(1) 4 December 2008 http://news.sohu.com/20081204/n261025122.shtml
Thursday, December 4, 2008
Thursday, September 25, 2008
REITs in China - how long, how long will we sing this song?
Awesome piece from Zepplin Real Estate (26 Sep 2008 http://www.real-estate-tech.com/gb2312articles/hkej486_S.htm) on the return of REITs over the long term in which he argues that REIT returns may not be as stable as otherwise believed due to fluctuations in market rents, financing, and the 90% dividend rule. Before we get in to this, understand that REITs are very new in Asia and especially Hong Kong (just 3 years old), so much background information is needed to come on market to educate prospective investors...
In late 2005, Guangzhou's city government did a sort of "backdoor" listing of several high profile real estate investments on the Hang Seng in what has been recognized as China first unofficial REIT. The launch was both engendered by and consequently triggered huge debate about the future of this industry in China. 3 years later, we still do not have a REIT industry to speak of in China and there are many reasons for this. First of all, the whole securities market is teeming with neophytes and REITs are very complex financial instruments. The ability to master their intricacies takes years. Secondly, the real estate industry as a whole was getting far to out of hand when this REIT was listed, so the government's relevant bureaus had to take considerable action in other areas of the real estate world in China. Thirdly, at about this same time, another mounumental REIT was being listed in Hong Kong. The Link REIT, as it is known, came under immense pressure from holdouts who demanded higher compensation for the land they were giving up as well as where they were moving to. Some retailers (Link is a big retail REIT) held out for a very long time and received handsome buyouts. Finally, the REIT security model ties in deeply to the general reform of the Communist Party in recent years. Since 2001 (perhaps even as early as 1998), when it became clear that China was here to stay as a market-oriented capitalistic economy, the grandeur of communism's ideals began to fade among more liberal party members and even among some staunch advocates of Maoism. So, over the last three years, especially at the 2006, 2007, and 2008 Peoples' Congresses, we have seen this debate square off in the press and we can infer that there is a polarization of the issue at the highest levels. (Personally, I think it is great because you have a new country in which the old vanguard is disgusted at the new found wealth and glory of the entrepreneur class - has all the makings for a 2-party system, but alas, I digress). In the 2007 Property Law, things really changed for the first time as the government address the issue of lease renewals for factory owners, home owners, and commercail building owners. Now what we have is a situation where you can automotically renew your lease on buidlings you own. A small negotiation with the government and proof of ownership will show the way. Inheritance is also taken into consideration. Simple fundamentals to westerners, but for the world's largest communist country, this break down has taken an exceptionally long period of time because it places individuals that to this day believe in a panacea stemming from Communism versus extremely wealthy industrialists, cadres, and more.
In late 2005, Guangzhou's city government did a sort of "backdoor" listing of several high profile real estate investments on the Hang Seng in what has been recognized as China first unofficial REIT. The launch was both engendered by and consequently triggered huge debate about the future of this industry in China. 3 years later, we still do not have a REIT industry to speak of in China and there are many reasons for this. First of all, the whole securities market is teeming with neophytes and REITs are very complex financial instruments. The ability to master their intricacies takes years. Secondly, the real estate industry as a whole was getting far to out of hand when this REIT was listed, so the government's relevant bureaus had to take considerable action in other areas of the real estate world in China. Thirdly, at about this same time, another mounumental REIT was being listed in Hong Kong. The Link REIT, as it is known, came under immense pressure from holdouts who demanded higher compensation for the land they were giving up as well as where they were moving to. Some retailers (Link is a big retail REIT) held out for a very long time and received handsome buyouts. Finally, the REIT security model ties in deeply to the general reform of the Communist Party in recent years. Since 2001 (perhaps even as early as 1998), when it became clear that China was here to stay as a market-oriented capitalistic economy, the grandeur of communism's ideals began to fade among more liberal party members and even among some staunch advocates of Maoism. So, over the last three years, especially at the 2006, 2007, and 2008 Peoples' Congresses, we have seen this debate square off in the press and we can infer that there is a polarization of the issue at the highest levels. (Personally, I think it is great because you have a new country in which the old vanguard is disgusted at the new found wealth and glory of the entrepreneur class - has all the makings for a 2-party system, but alas, I digress). In the 2007 Property Law, things really changed for the first time as the government address the issue of lease renewals for factory owners, home owners, and commercail building owners. Now what we have is a situation where you can automotically renew your lease on buidlings you own. A small negotiation with the government and proof of ownership will show the way. Inheritance is also taken into consideration. Simple fundamentals to westerners, but for the world's largest communist country, this break down has taken an exceptionally long period of time because it places individuals that to this day believe in a panacea stemming from Communism versus extremely wealthy industrialists, cadres, and more.
Friday, August 29, 2008
Summer's Gone and We're Back from China
It's been an eventful summer - May in Philadelphia, June and July in Shanghai and Beijing, and just wrapped up August in Philadelphia. Wharton-Lauder has been great so far. Let's kick off the fall by getting right into it. This past week, I saw two items of language in English and Chinese that highlighted amazing uses of colloquial language by Warren Buffett and a Chinese blogger, Cheng Shi.
Last week, Buffett, in classic form of criticizing the common Wall Street dogma showed what happens to speculators when it's time to pay the pied piper...
Speaking on Friday on CNBC television, Buffett said some housing-related businesses in his Berkshire Hathaway Inc conglomerate are struggling as the economy works off past excess in making credit available. 'You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,' said Buffett, who in March was called the world's richest person by Forbes magazine.(1) This English term is eerily similar to the Chinese idiom, 水落石出, one of my favorite classics, that means literaly, "Water recedes stone out." The English version, while a bit more colorful, is far less common than the Chinese version. But, what is most interesting is how they both perfectly identify the extent and shade of emotion that accompanies a financial crisis, namely, that speculators are left standing with not security at all, a plight that is ironically derived from the asset-backed securities which created the vanished wealth in the first place.
And herein lies the link to our next headline, taken from Chengshi's blog entry this week: 油价下跌：昙花一现还是趋势反转？ (2) "Oil prices fall: is it a transient flower or the reversal of a trend." 昙花一现 means fleeting, transient, or vanishing as soon as it appears. Although the author goes on to lay out his reasons for the temporary nature of oil's recent retreat, one could read into it so much more about the state of the current world credit market. Is the volatility going to settle with a decline in world oil prices, or is the damage much deeper than investors are willing to admit?
From the view in China, there is no major economic slowdown or recession in sight. As a result, that is going to continue to put massive pressure on world commodities and drive consumer price growth worldwide. The moment at hand is thus an incredible buying period for cheap blue-chip stocks, especially those that are currently experiencing unreasonable price hammering due to credit exposure. Identifying which of these are consumer monopolies and destined to survive with high return on equity ratios is our mantra for purchasing enormous long-term returns today.(1) 22 August 2008 http://biz.yahoo.com/rb/080822/buffett.html
(2) 22 August 2008 http://cheng10.blog.sohu.com/
Thursday, May 8, 2008
A Tale of Two Chinas
On back to back nights of April 28 to 29th, I attended separate talks on China that demonstrated a remarkable contrast of outlooks different interest groups have on industry in China. The first night was the latest installment of the Beijing Olympics Series put on by the Asia Society. They had some really quality speakers including Alexandra Harney, author of The China Price: The True Cost of Chinese Competitive Advantage, Paul Midler, President of China Advantage, Daniel Rosen, Principal of China Strategic Advisory, and Alan Schoem, Global Product Risk Practice at Marsh. First of all, I found their level of knowledge to be very deep, particularly Paul and Alan who waxed eloquently all night about the real challenges in China. Let me highlight a few of the issues they raised:
China makes everything, not just cheap stuff, from toys to airline parts. It's not that suppliers themselves are corrupt or skimming, but more often what happens is that they have a large network of suppliers themselves that they cannot readily police, so we have to be conscious of the whole supply chain when trying to identify problems there.
The US Consumer Products Safety Commission has about 390 employees. The equivalent body in China, the AQSAQ has 55,000!!! They are also strapped for cash and years behind the US and the EU. Moreover, the Federal Government of the US increased the budget for the Consumer Products Safety Commission to $80mm from $63 million last year, which in government budgets amounts to a huge increase.
Eventually there will be convergence in China for export and domestic quality products and that will help improve quality dramatically across the board. And, we can even see this happening today. There is a force pulling Chinese companies up the value chain and it is not just the CCP. They want their own brands now, and in order to receive marginal value for the products under those labels, Chinese companies will have to dovetail marketing with quality. Consider Haier. 10 years ago, no one in America knew this white goods maker. Now they have a substantial chunk of US market share in air conditioners and more.
Quality problems in China amount to one of two basic problems.
1: factory didn't know better - specifications mistake
2: willful corner cutting
AQSAQ can help to solve #1, but there is really little the organization can do about #2. Maybe penalties, maybe enforcement, but really very little in general.
The overriding theme of the night was that at the heart of the problem, and where the real responsibility lies is with corporations as huge as Proctor and Gamble all the way down to my business - it is with the exporters, the importers, and the factories. It is our job to make sure that quality is tested and bad product is not released.
The will is certainly there to change certain industries. For example, Mr. Schoem talked about the fireworks industry in Hunan Province, whence comes over 60% of US imported fireworks. It turns out that a number of years ago, the US Fireworks Standards American Fireworks Safety Lab was created to pemit imports of fireworks under the agreement of enforcement of stringent safety requirements. Hunan's government worked closely with the US authorities, and today, 90% AFSL-tested fireworks from China comply with mandatory standards. That compares with rates as low as 50% for compliance of similar product from other countries.
This is a nice segue into the talk on the 29th, when James Filippatos, Assistant Administrator for International Aviation at the Fedearl Aviation Administration (FAA) gave a talk at the National Council on China-US Relations. Mr. Filippatos' talk was truly a gem. He described his experiences in China with aplomb. Moreover, he introduced to me the fact that over the last four years, Chinese aircraft have had the safest record of any country in the world. He then reminded us that 15 years ago, Chinese planes were so dangerous that the US would not let them fly here. Now there arae 23 daily flights between the US and China and that number is sure to grow rapidly. The Chinese equivalent of the FAA, the CAAC, got together with the FAA to make this all possible. They emphasized that no matter what, the Chinese market needed better pilots, airplanes, and operational know-how. According to Mr. Filippatos, this is an unprecedented success story for the FAA and CAAC. The two bodies have trained hundreds of personnel and generally instilled a desire to constantly improve. We reap the benefits of that improvement every day.
Quick fact - one of the major factors deterring the expansion of its domestic commercial flight industry is that China's military controls 80% of the skies in China. The US equivlent is may 2 - 3$%. Wow - that negotiation is going to be a very long process. D
Moreover,
China makes everything, not just cheap stuff, from toys to airline parts. It's not that suppliers themselves are corrupt or skimming, but more often what happens is that they have a large network of suppliers themselves that they cannot readily police, so we have to be conscious of the whole supply chain when trying to identify problems there.
The US Consumer Products Safety Commission has about 390 employees. The equivalent body in China, the AQSAQ has 55,000!!! They are also strapped for cash and years behind the US and the EU. Moreover, the Federal Government of the US increased the budget for the Consumer Products Safety Commission to $80mm from $63 million last year, which in government budgets amounts to a huge increase.
Eventually there will be convergence in China for export and domestic quality products and that will help improve quality dramatically across the board. And, we can even see this happening today. There is a force pulling Chinese companies up the value chain and it is not just the CCP. They want their own brands now, and in order to receive marginal value for the products under those labels, Chinese companies will have to dovetail marketing with quality. Consider Haier. 10 years ago, no one in America knew this white goods maker. Now they have a substantial chunk of US market share in air conditioners and more.
Quality problems in China amount to one of two basic problems.
1: factory didn't know better - specifications mistake
2: willful corner cutting
AQSAQ can help to solve #1, but there is really little the organization can do about #2. Maybe penalties, maybe enforcement, but really very little in general.
The overriding theme of the night was that at the heart of the problem, and where the real responsibility lies is with corporations as huge as Proctor and Gamble all the way down to my business - it is with the exporters, the importers, and the factories. It is our job to make sure that quality is tested and bad product is not released.
The will is certainly there to change certain industries. For example, Mr. Schoem talked about the fireworks industry in Hunan Province, whence comes over 60% of US imported fireworks. It turns out that a number of years ago, the US Fireworks Standards American Fireworks Safety Lab was created to pemit imports of fireworks under the agreement of enforcement of stringent safety requirements. Hunan's government worked closely with the US authorities, and today, 90% AFSL-tested fireworks from China comply with mandatory standards. That compares with rates as low as 50% for compliance of similar product from other countries.
This is a nice segue into the talk on the 29th, when James Filippatos, Assistant Administrator for International Aviation at the Fedearl Aviation Administration (FAA) gave a talk at the National Council on China-US Relations. Mr. Filippatos' talk was truly a gem. He described his experiences in China with aplomb. Moreover, he introduced to me the fact that over the last four years, Chinese aircraft have had the safest record of any country in the world. He then reminded us that 15 years ago, Chinese planes were so dangerous that the US would not let them fly here. Now there arae 23 daily flights between the US and China and that number is sure to grow rapidly. The Chinese equivalent of the FAA, the CAAC, got together with the FAA to make this all possible. They emphasized that no matter what, the Chinese market needed better pilots, airplanes, and operational know-how. According to Mr. Filippatos, this is an unprecedented success story for the FAA and CAAC. The two bodies have trained hundreds of personnel and generally instilled a desire to constantly improve. We reap the benefits of that improvement every day.
Quick fact - one of the major factors deterring the expansion of its domestic commercial flight industry is that China's military controls 80% of the skies in China. The US equivlent is may 2 - 3$%. Wow - that negotiation is going to be a very long process. D
Moreover,
Wednesday, April 23, 2008
Blood in the Streets
I saw this in the Shanghai Daily yesterday and realized that it's official: there is now blood in the streets all over Western Europe and the US in terms of the property sector:
"Spanish builders are tempting reluctant home buyers with free cars, mortgage holidays and hard cash as they try to lift the crisis-hit housing sector. Some are also diving into the rental market. At this month's annual property fair in Madrid, the number of promoters was down by a third on the previous year, many of them victims of the deepening housing crisis. With fewer buyers milling between models of white-washed housing estates, there were scant queues to see sales representatives." [1]
The question is, why did this appear in the Shanghai Daily? The answer: propaganda. The regulators in China have continued to put enormous pressure on the property sector and as a result, they need to be able to justify their actions. One way to do that successfully is to point the finger at the alternative, which conveniently is much worse right now. In fact, this is great for the government as they take aim at developers and buyers alike in a common chorus, "Slow down."
[1] April 24, 2008 Harding, Ben and Clara Vilar, Copyright Shanghai Daily Information Network
"Spanish builders are tempting reluctant home buyers with free cars, mortgage holidays and hard cash as they try to lift the crisis-hit housing sector. Some are also diving into the rental market. At this month's annual property fair in Madrid, the number of promoters was down by a third on the previous year, many of them victims of the deepening housing crisis. With fewer buyers milling between models of white-washed housing estates, there were scant queues to see sales representatives." [1]
The question is, why did this appear in the Shanghai Daily? The answer: propaganda. The regulators in China have continued to put enormous pressure on the property sector and as a result, they need to be able to justify their actions. One way to do that successfully is to point the finger at the alternative, which conveniently is much worse right now. In fact, this is great for the government as they take aim at developers and buyers alike in a common chorus, "Slow down."
[1] April 24, 2008 Harding, Ben and Clara Vilar, Copyright Shanghai Daily Information Network
Friday, April 18, 2008
Lobbying in China
Scott Kennedy's 2005 "The Business of Lobbying in China" is interesting. It's one of those books that is extremely exciting at the beginning as he breaks down how major corporations lobby in Beijing and get together in some instances but often times point the same finger at each other. However, at one point, he is so unsuccesful in keeping the reader involved because he gets so caught up in the names, functions, and history of China's major commercial associations, such as the SELA, PEA, CTVEA, ACFIC, MOFERT, and many others. Nevertheless, there are some interesting revelations, such as the fact that ACFIC, a non-profit organization, publishes the China Business Times. Also interesting was that the roots of the current associations system emerged out of the Mao era, which seems strange given the fact that these are very commercial bodies today. Back at the very beginning of Maoist China (early 1950s), being private was acceptable, however as time passed of course it became terribly taboo. Consequently, many of the associations that were built on private businesses shut down or suspended operations until the late 1980s.
Tuesday, April 8, 2008
Asia Society Meeting on Carbon Trading
Last night (4/7/08) at the Asia Society in New York City (70th St/Park Avenue), there was a terrific talk entitled "Carbon Trading Update: Business Opportunities for Asian Sustainable Infrastructure".
The main point of the talk was laid out early on by moderator Jon A. Anda, President, Environmental Markets Network and a trustee for the Asia Society (also a former Vice-Chair at Morgan Stanley).
Mr. Anda went through some basic background of the last several years that the carbon trading market has been around. He said that:
-Efficient CO2 mkt enables an efficient dynamic hedge of climate risk
-We don't have the tools yet to hedge the risk of BAD climate changes - the technological "tools" are simply not there yet
-We must limit quantities because you simply cannot tell people to "stop using carbon" and then just tax them more, for it will turn out like the cigarettes epidemic, where smokers just keep smoking and paying the higher taxes
If the US went to 80% reduction (70% by Senate) off its current usage ('08), the EU: 60% off it's 1990 usage (Merkel), and China 35% off its projected 2012 usage totals, then we would have an industry of hundreds of billions of dollars indeed possibly trillions.
And continued with the goals of the discussion, specifically to answer the following:
Carbon Trading: Is it a Good Idea?
Carbon Trading: Can it work?
Carbon Trading: Does it have a chance of being adopted in the US and then globally?
It was my general feeling that the panel of four that Mr. Anda moderated all answered yes to those three questions in one form or another.
First, a couple of definitions that I had no knowledge of going into the evening:
CCS - Carbon Capture and Storage - (from Wikipedia) Carbon capture and storage (CCS) is an approach to mitigate global warming by capturing carbon dioxide (CO2) from large point sources such as fossil fuel power plants and storing it instead of releasing it into the atmosphere. Technology for large scale capture of CO2 is already commercially available and fairly well developed. Although CO2 has been injected into geological formations for various purposes, the long term storage of CO2 is a relatively untried concept and as yet (2007) no large scale power plant operates with a full carbon capture and storage system.
CDM - The Clean Development Mechanism - an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. A crucial feature of an approved CDM carbon credit is that it has established that the planned reductions would not occur without the additional incentive provided by emission reductions credits, a concept known as "additionality". (Wikipedia)
The panel was awesome. It featured:
Paul Ezekiel, Head of Global Carbon Trading, Credit Suisse
Peter Ho, Country Director, China, EcoSecurities
Timothy Profeta, Director, Nicholas Institute for Environmental Policy Solutions (@ Duke)
V Raghuraman, Head of Energy, Envt, & Natural Resources, Confed of Indian Industry
The contrast of opinions and projections was awesome. If I could highlight one major point I took from each panel discussion member, it would be:
Ezekiel:
The CDM has 2 phases:
2005- 2007, which failed miserably because of its market design in which over-allocation of free carbon allowances killed the market, and we saw 0 impact on emissions.
2008-2012 Expecting much improvement based on a new market design and many of the "kinks" worked out.
Raghuraman:
India: A mixed outlook on CDM because they started late and as such are forced to mitigate.
Most big industrial players in India are public, however most initiatives come from the private/NGO sector, therefore we see a disconnect right now between those that want to implement and those that should implement. In fact, many of India's upcoming projects are not looking at CDM.
Profeta:
The US political outlook on the subject in terms of chances of passing this bill are:
10% chance this congress
90% chance next congress
All US presidential candidates: Clinton, Obama, and McCain are in favor of a system, most strongly backed by McCain of all candidates who got on board back in '01. This will happen next presidency (we should note that the McCain - Lieberman Carbon Reduction Senate Bill was written by Dr. Profeta, and later it transformed into the current McCain-Warren Bill) There will be a debate on Senate floor before the Memorial Day recess. The US is studying a 70% reduction in emissions by 2050 from the 2005 level.
There are currently 2 main issues:
1) CDM is under political attack
2) The US can and probably will go to another trading system and only allow for 15% of its emissions buying on Europe's carbon trading markets
There are 45 billion pounds of greenhouse gases released into the atmosphere every year
67% of the total between now and 2050 is in the US and China.
Therefore, a bilateral deal could solve 2/3 of the problem
Ho
There are profit model issues here that need to be considered.
They looked at a wind farm investment in China that had an IRRof 4-5%, but if CDM credit trading could have been included, then the IRR would jump to 9-10%.
Moreover, this credit trading system is opposite to traditional building. In housing, you get the loan first, then you build. There are no such loans for CDM structures - you only enjoy the benefit three years after the reduced emissions are realized.
The main point of the talk was laid out early on by moderator Jon A. Anda, President, Environmental Markets Network and a trustee for the Asia Society (also a former Vice-Chair at Morgan Stanley).
Mr. Anda went through some basic background of the last several years that the carbon trading market has been around. He said that:
-Efficient CO2 mkt enables an efficient dynamic hedge of climate risk
-We don't have the tools yet to hedge the risk of BAD climate changes - the technological "tools" are simply not there yet
-We must limit quantities because you simply cannot tell people to "stop using carbon" and then just tax them more, for it will turn out like the cigarettes epidemic, where smokers just keep smoking and paying the higher taxes
If the US went to 80% reduction (70% by Senate) off its current usage ('08), the EU: 60% off it's 1990 usage (Merkel), and China 35% off its projected 2012 usage totals, then we would have an industry of hundreds of billions of dollars indeed possibly trillions.
And continued with the goals of the discussion, specifically to answer the following:
Carbon Trading: Is it a Good Idea?
Carbon Trading: Can it work?
Carbon Trading: Does it have a chance of being adopted in the US and then globally?
It was my general feeling that the panel of four that Mr. Anda moderated all answered yes to those three questions in one form or another.
First, a couple of definitions that I had no knowledge of going into the evening:
CCS - Carbon Capture and Storage - (from Wikipedia) Carbon capture and storage (CCS) is an approach to mitigate global warming by capturing carbon dioxide (CO2) from large point sources such as fossil fuel power plants and storing it instead of releasing it into the atmosphere. Technology for large scale capture of CO2 is already commercially available and fairly well developed. Although CO2 has been injected into geological formations for various purposes, the long term storage of CO2 is a relatively untried concept and as yet (2007) no large scale power plant operates with a full carbon capture and storage system.
CDM - The Clean Development Mechanism - an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. A crucial feature of an approved CDM carbon credit is that it has established that the planned reductions would not occur without the additional incentive provided by emission reductions credits, a concept known as "additionality". (Wikipedia)
The panel was awesome. It featured:
Paul Ezekiel, Head of Global Carbon Trading, Credit Suisse
Peter Ho, Country Director, China, EcoSecurities
Timothy Profeta, Director, Nicholas Institute for Environmental Policy Solutions (@ Duke)
V Raghuraman, Head of Energy, Envt, & Natural Resources, Confed of Indian Industry
The contrast of opinions and projections was awesome. If I could highlight one major point I took from each panel discussion member, it would be:
Ezekiel:
The CDM has 2 phases:
2005- 2007, which failed miserably because of its market design in which over-allocation of free carbon allowances killed the market, and we saw 0 impact on emissions.
2008-2012 Expecting much improvement based on a new market design and many of the "kinks" worked out.
Raghuraman:
India: A mixed outlook on CDM because they started late and as such are forced to mitigate.
Most big industrial players in India are public, however most initiatives come from the private/NGO sector, therefore we see a disconnect right now between those that want to implement and those that should implement. In fact, many of India's upcoming projects are not looking at CDM.
Profeta:
The US political outlook on the subject in terms of chances of passing this bill are:
10% chance this congress
90% chance next congress
All US presidential candidates: Clinton, Obama, and McCain are in favor of a system, most strongly backed by McCain of all candidates who got on board back in '01. This will happen next presidency (we should note that the McCain - Lieberman Carbon Reduction Senate Bill was written by Dr. Profeta, and later it transformed into the current McCain-Warren Bill) There will be a debate on Senate floor before the Memorial Day recess. The US is studying a 70% reduction in emissions by 2050 from the 2005 level.
There are currently 2 main issues:
1) CDM is under political attack
2) The US can and probably will go to another trading system and only allow for 15% of its emissions buying on Europe's carbon trading markets
There are 45 billion pounds of greenhouse gases released into the atmosphere every year
67% of the total between now and 2050 is in the US and China.
Therefore, a bilateral deal could solve 2/3 of the problem
Ho
There are profit model issues here that need to be considered.
They looked at a wind farm investment in China that had an IRRof 4-5%, but if CDM credit trading could have been included, then the IRR would jump to 9-10%.
Moreover, this credit trading system is opposite to traditional building. In housing, you get the loan first, then you build. There are no such loans for CDM structures - you only enjoy the benefit three years after the reduced emissions are realized.
Sunday, April 6, 2008
Remarks about Guanxi
My weekly book review this week brought me back to a fantastic publication from 1994 entitled, "Gifts, Favors, and Banquets: The Art of Social Relationships in China" by Mayfair Mei-hui Yang. This is an incredible piece that goes through the history of Guanxi and also some proven techniques that shed light on how to effectively work through getting things done in China. There is so much to be said on this topic, but I want to include a quotation from the very beginning of the book which provides a historical root for the practice in China. Before reading it, here is the lesson: giving and receiving is a fact of life, rite, etiquette, and ancient precedent (the source, The Book of Rites, is from the first centure BC) in China, and it needs to be studied cautiously as part of any due diligence or planning period in investment ventures in China.
太上贵德
其次务拖报
礼尚往来
往而不来
非礼也
来而不往
亦非礼也
Translation:
In the highest antiquity they prized (simply conferring) good;
in the time next to this, giving and repaying was the thing attended to.
And what the rules of propriety value is that reciprocity.
If I give a give and nothing comes in return,
that is contrary to propriety;
if the thing comes to me, and I give nothing in return,
that is also contrary to propriety
-Li Ji (Book of Rites) "Qu Li,"
1987:7; Legge 1885:65 [1]
[1] Yang, Mayfair Mei-hui, 1994, New York, Cornell University Press.
太上贵德
其次务拖报
礼尚往来
往而不来
非礼也
来而不往
亦非礼也
Translation:
In the highest antiquity they prized (simply conferring) good;
in the time next to this, giving and repaying was the thing attended to.
And what the rules of propriety value is that reciprocity.
If I give a give and nothing comes in return,
that is contrary to propriety;
if the thing comes to me, and I give nothing in return,
that is also contrary to propriety
-Li Ji (Book of Rites) "Qu Li,"
1987:7; Legge 1885:65 [1]
[1] Yang, Mayfair Mei-hui, 1994, New York, Cornell University Press.
Friday, April 4, 2008
China, Laos, and the ASEAN sphere of influence
When I saw this headline, "Laos: Laos-China trade reaches 241 mln USD" I was immediately reminded of my trip to Laos last year. [1] No, it wasn't the beautiful temples in Vientienne, or the awesome scenery throughout the hills, nor the hiker paradise around Vang Vienne, nor that amazing coffee shop (and greater commercialization in general) in Luang Pra Bang. What struck me about this was just how readily apparent China's sphere of influence has become over the last five years in ASEAN, nowhere more apparent than in Laos. We crossed the border into China by bus in February of 2007, in a very similar fashion to how I had done so 5 years earlier. The glaring difference was that 5 years ago, the Laos side of the border was a no-man's land but the it was absolutely under the total control of the Laos authorities. Even though Chinese cars were crossing through at that point, they were still dealing entirely with Laos border patrol. Last year was totally different. Instead of dealing with Laos patrol, Chinese tourists were being carted through exclusively by Chinese tourist group leaders backed by pseudo-China authority. It was incredible! They barely even acknowledged they were in another country. Moreover, you could tell who was paying whom under the table, and to my even greater shock, the Laos authorities did not pay even nominal attention to what the Chinese tourists and group leaders were doing logistically to get across the border. Well, I guess that's how it is now.
[1] 4 April 2008 Thai News Service (c) 2008 Thai News Service
Thursday, April 3, 2008
General Liu Yazhou on China, Japan, and the United States (Part II)
In the second part of General Liu's interview, he continues with his smoke and mirrors by challenging the common notion that China is the major enemy of the US in the current global environment. Instead, General Liu contends that Japan has continued to be the US' top concern over the last 60+ years and that remains in effect today,
"I have always believed that the primary adversary of the United states in Asia is not China but Japan. It is quite probably that not a few knowledgeable persons in the United States share this belief. The United States defeated Japan sixty years ago. That was a difficult and hard-fought battle for the United States, and Japan left it with a deep impression indeed. Japan's stalwart national spirit, well-equipped educational system, and highly developed science and technology - all these combined drew respect from the world. In Churchill's words: "Japan's war machine is frightfully efficient." In only three months' time Japan drove the British and U.S. forces out of the Pacific and Southeast Asia. What country had done so in the past? And what country will be able to do that in the future? Toward the end of the war, when Japan was at the end of its tether, it still drew up a plan called 'break a hundred million pieces of jade [committing suicide].' Awed by this display of determination, the United States finally resolved matters by dropping the atomic bomb. What sort of understanding did the United States gain by fighting this war? It concluded that Japan was a fear-inspiring enemy. The qualities a country displays in wartime can also be displayed in times of peace, although in different domains. This is manifestly evident from Japan's post-war flying economic advances...Japan was a pile of rubble in 1945. It was more or less the same level with China in the 1960s. Then China started its 'Great Cultural Revolution' and tormented itself whereas Japan's economy began to take off. in less than twenty years, Japan left China far behind and was way ahead, catching up with the United States. However, the United States consistently kept a choke hold on the Japanese economy. Japan was highly adept at manufacturing 'small' products but could not make a single 'large' product. Then, with the advent of the science and technology revolution, Japan once again tried to push ahead. Not daring to leave matters to chance, the United States hurriedly concocted an Asian financial crisis and succeeded in curbing the impetus of Japan's spurt forward. The United States knows that China is a country that places inordinate importance on ideology, goes to extremes, is very good at waring itself out, or what might be called "self-destructing," and cannot get is act together. The Japanese are a highly cohesive people. China is like an old man; Japan is like a youngster. China is lethargic, whereas Japan brims with vitality. That is why the United States is much more wary of Japan than China."
I'll interrupt General Liu here only to say that he is sending a signal here. Everything that Japan did from 1960 to 1989, China has now duplicated in every respect other than the average standard of living for its people. Infrastructure is world class, technology has moved forward, higher education is booming, and the people feel young again. Moreover, there is a determined advance underway in China's political circles - the leaders are made by the time they are forty. Many of our closest colleagues in government are making impacting economic decisions on their locales and these leaders are usually between 35 and 45 and have extensive experience abroad. The old man argument does not fool anyone. If anything, it expresses the fact that China finds itself wiser and more capable of taking on an opponent years ahead of it.
General Liu continues,
"That is why the United States has kept Japan so rigidly under its thumb. The United States is much more wary of Japan than of China. So now we can understand why the United States formulated a peace constitution for Japan, a constitution under which Japan forever anjures warfare. The United States is very selfish. It is not doing this for China or Asia but only for itself. It has done this so that when it eventually dominates the world it will have one less opponent and one more helper. In accordance with the U.S. design, today's Japan has become an economic colossus but remains a military dwarf and a political midget. As Shintaro Ishihara put it, "The United States has cut away Japan's testicles and Japan can only serve the United States as a court eunuch." Today, Japan is literally and faithfully serving the United States as a global court eunuch."
Well, I do not want to treat General Liu's metaphor with any type of indifference, because the truth of the matter is that I could not agree more. For a nation as militant as post-Meiji Restoration Japan was, the US has certainly caused an unnatural turnaround in their sovereign mission. Perhaps General Liu then is also signaling a glaring opportunity for China's sovereign desires.
General Liu also mentions that the US has put up more defenses against China in the forms of Taiwan and North Korea...
"The United States feels that having Japan as its only military dog is not enough, so it has bred the 'Taiwan Independence' military dog. These two dogs are keeping watch for it over China...The current focus of the Asian strategy of the United States is on firmly controlling Japan and at the same time guarding against China. 'Hold on to one, and keep an eye on the other.' And if possible possible, 'Swallow' yet another. Which one? North Korea."
General Liu seems to make a good case for the US' recent policy in Asia. I believe that once again we are going to see a war fought in North Korea, but this time it will be political and economic, not militaristic. Frankly, the recent negotiations between South and North Korea about liberalization would seem to favor the United States, as South Korea is every much in the US' pocket as it is in China's. However, if you talk to entrepreneurs in China, many of them have been buying and selling across the Jilin border town of Dadong into North Korea for years now, apparently giving the Chinese the upper hand in terms of economics. Of course we know that the US has an uphill battle to fight politically, given that almost all of North Korea's anti-West rhetoric over the last 50 years has been explicitly aimed at the US. Moreover, during that time big brother China was North Korea's only true ally. Nevertheless, if the US can meander into North Korea's political circles through South Korea, then it ultimately will have the best chance at setting up another front against China.
Finally, General Liu hits on a subject that really makes one think...
"However, that is not the end of it. The Asian strategy of the United States has still another and deeper level, a core level-preventing China and Japan from joining hands...Everyone thinks that is impossible, but Americans believe it is possible. Americans are always able to look ten or more steps ahead when they formulate strategy. We are doing quite well if we manage to look one day ahead. They are able to look two days ahead, three days ahead, and even farther. The biggest difference between China and the United States is the difference in the level of strategic considerations. The United States takes the whole world into consideration, enabling it to look farther ahead. Our perspective is regional, and that is why we are a notch inferior in our calculations. The United States knows that under the present circumstances, its position in Asia cannot be shaken by the individual power of either China or Japan, and the sole possibility of anything happening is if china and Japan join hands."
True. And we also have to read between these lines and realize that even General Liu himself finds that condition impossible under the present circumstances, because he knows that the leadership in Beijing and the will of the people of Japan is nowhere near ready for this. Why? First of all, because life for Japan has been great under the direction of the US. Moreover, the economic benefits that Japan enjoys from its trade relationship with China fall far short of the total benefits it receives in return for its current relationship with the US, including: greater access to world capital markets, a steady flow of immigration to the United States, preferred status among other nations for entering and leaving the United States, preservation and growth of its own culture, the highest standard of living in the world, etc. Can China offer this? Moreover, can China get over its own animosity for Japan? That of course remains to be seen.
[1] Chan, Alfred L Chinese Law and Government, vol. 40, no. 2, March - April 2007, pp45-49
"I have always believed that the primary adversary of the United states in Asia is not China but Japan. It is quite probably that not a few knowledgeable persons in the United States share this belief. The United States defeated Japan sixty years ago. That was a difficult and hard-fought battle for the United States, and Japan left it with a deep impression indeed. Japan's stalwart national spirit, well-equipped educational system, and highly developed science and technology - all these combined drew respect from the world. In Churchill's words: "Japan's war machine is frightfully efficient." In only three months' time Japan drove the British and U.S. forces out of the Pacific and Southeast Asia. What country had done so in the past? And what country will be able to do that in the future? Toward the end of the war, when Japan was at the end of its tether, it still drew up a plan called 'break a hundred million pieces of jade [committing suicide].' Awed by this display of determination, the United States finally resolved matters by dropping the atomic bomb. What sort of understanding did the United States gain by fighting this war? It concluded that Japan was a fear-inspiring enemy. The qualities a country displays in wartime can also be displayed in times of peace, although in different domains. This is manifestly evident from Japan's post-war flying economic advances...Japan was a pile of rubble in 1945. It was more or less the same level with China in the 1960s. Then China started its 'Great Cultural Revolution' and tormented itself whereas Japan's economy began to take off. in less than twenty years, Japan left China far behind and was way ahead, catching up with the United States. However, the United States consistently kept a choke hold on the Japanese economy. Japan was highly adept at manufacturing 'small' products but could not make a single 'large' product. Then, with the advent of the science and technology revolution, Japan once again tried to push ahead. Not daring to leave matters to chance, the United States hurriedly concocted an Asian financial crisis and succeeded in curbing the impetus of Japan's spurt forward. The United States knows that China is a country that places inordinate importance on ideology, goes to extremes, is very good at waring itself out, or what might be called "self-destructing," and cannot get is act together. The Japanese are a highly cohesive people. China is like an old man; Japan is like a youngster. China is lethargic, whereas Japan brims with vitality. That is why the United States is much more wary of Japan than China."
I'll interrupt General Liu here only to say that he is sending a signal here. Everything that Japan did from 1960 to 1989, China has now duplicated in every respect other than the average standard of living for its people. Infrastructure is world class, technology has moved forward, higher education is booming, and the people feel young again. Moreover, there is a determined advance underway in China's political circles - the leaders are made by the time they are forty. Many of our closest colleagues in government are making impacting economic decisions on their locales and these leaders are usually between 35 and 45 and have extensive experience abroad. The old man argument does not fool anyone. If anything, it expresses the fact that China finds itself wiser and more capable of taking on an opponent years ahead of it.
General Liu continues,
"That is why the United States has kept Japan so rigidly under its thumb. The United States is much more wary of Japan than of China. So now we can understand why the United States formulated a peace constitution for Japan, a constitution under which Japan forever anjures warfare. The United States is very selfish. It is not doing this for China or Asia but only for itself. It has done this so that when it eventually dominates the world it will have one less opponent and one more helper. In accordance with the U.S. design, today's Japan has become an economic colossus but remains a military dwarf and a political midget. As Shintaro Ishihara put it, "The United States has cut away Japan's testicles and Japan can only serve the United States as a court eunuch." Today, Japan is literally and faithfully serving the United States as a global court eunuch."
Well, I do not want to treat General Liu's metaphor with any type of indifference, because the truth of the matter is that I could not agree more. For a nation as militant as post-Meiji Restoration Japan was, the US has certainly caused an unnatural turnaround in their sovereign mission. Perhaps General Liu then is also signaling a glaring opportunity for China's sovereign desires.
General Liu also mentions that the US has put up more defenses against China in the forms of Taiwan and North Korea...
"The United States feels that having Japan as its only military dog is not enough, so it has bred the 'Taiwan Independence' military dog. These two dogs are keeping watch for it over China...The current focus of the Asian strategy of the United States is on firmly controlling Japan and at the same time guarding against China. 'Hold on to one, and keep an eye on the other.' And if possible possible, 'Swallow' yet another. Which one? North Korea."
General Liu seems to make a good case for the US' recent policy in Asia. I believe that once again we are going to see a war fought in North Korea, but this time it will be political and economic, not militaristic. Frankly, the recent negotiations between South and North Korea about liberalization would seem to favor the United States, as South Korea is every much in the US' pocket as it is in China's. However, if you talk to entrepreneurs in China, many of them have been buying and selling across the Jilin border town of Dadong into North Korea for years now, apparently giving the Chinese the upper hand in terms of economics. Of course we know that the US has an uphill battle to fight politically, given that almost all of North Korea's anti-West rhetoric over the last 50 years has been explicitly aimed at the US. Moreover, during that time big brother China was North Korea's only true ally. Nevertheless, if the US can meander into North Korea's political circles through South Korea, then it ultimately will have the best chance at setting up another front against China.
Finally, General Liu hits on a subject that really makes one think...
"However, that is not the end of it. The Asian strategy of the United States has still another and deeper level, a core level-preventing China and Japan from joining hands...Everyone thinks that is impossible, but Americans believe it is possible. Americans are always able to look ten or more steps ahead when they formulate strategy. We are doing quite well if we manage to look one day ahead. They are able to look two days ahead, three days ahead, and even farther. The biggest difference between China and the United States is the difference in the level of strategic considerations. The United States takes the whole world into consideration, enabling it to look farther ahead. Our perspective is regional, and that is why we are a notch inferior in our calculations. The United States knows that under the present circumstances, its position in Asia cannot be shaken by the individual power of either China or Japan, and the sole possibility of anything happening is if china and Japan join hands."
True. And we also have to read between these lines and realize that even General Liu himself finds that condition impossible under the present circumstances, because he knows that the leadership in Beijing and the will of the people of Japan is nowhere near ready for this. Why? First of all, because life for Japan has been great under the direction of the US. Moreover, the economic benefits that Japan enjoys from its trade relationship with China fall far short of the total benefits it receives in return for its current relationship with the US, including: greater access to world capital markets, a steady flow of immigration to the United States, preferred status among other nations for entering and leaving the United States, preservation and growth of its own culture, the highest standard of living in the world, etc. Can China offer this? Moreover, can China get over its own animosity for Japan? That of course remains to be seen.
[1] Chan, Alfred L Chinese Law and Government, vol. 40, no. 2, March - April 2007, pp45-49
Tuesday, April 1, 2008
General Liu Yazhou on China, Japan, and the United States
Last week I read one of the most astonishing and in-depth policy papers about the Chinese point of view of East Asian military strategy that I have ever seen. It was so impressive that I think it deserves a summary and comment here. I must mention the whole essay is actually excerpts from an interview between General Liu and a reporter from a 2005 article in the Beijing monthly, Dazhanlue guan. Our source is the translation found in the March - April 2007 edition of Chinese Law and Government. This article is so impressive and causes for cogitation on so many issues that I will have to devote more than just one entry to it. Finally, a brief introduction on General Liu copied verbatim from the beginning of the journal is as follows, "The son of a regular soldier in the Eighth Route Army, Liu was born in 1952, joined the People's Liberation Army (PLA) at age fifteen, rose through the ranks accruing extensive command experience, and became deputy political commissar of the PLA Air Force in 2003. Also an accomplished and prolific writer of report literature and novels since the 1980s, Liu has increasingly turned his pen to strategic thinking and military matters and is now one of China's most influential strategic thinkers." [1]
Interestingly enough, Liu starts with Europe before getting into the discussion of East Asia. He states, "In those years (post-WWII), the United States adopted a defensive stance in the face of the menacing concentrations of Soviet tank formations. But now the Soviet Union has collapsed, and the United States has gone on the offensive. However, one should not infer from this change in its offense-defense posture that the United States has shifted its strategic focus away from Europe. In fact, so long as the U.S. objective is to dominate the whole world, Europe reamins its center of gravity, its basic bearing point. It plants one foot on its own land - the United States - and the other foot on Europe. Doing so enables it to stretch out both its arms to cover the whole world. Asia does not furnish the conditions for shoring up the U.S. ambitions...When the Iraq war broke out, Europe saw through the United States' intention of controlling the center of the world as a prelude to taking control of the European continental plate, and they opposed that war with exceptional vigor - in fact, more vigorously than some of the Arab countries. But the United States fought the war anyway, and Europe was forced to swallow the bitter pills."
Fascinating. This is something that stares us smack in the face every day, but I believe we often forget about or overlook the significance of our military bases in Germany and southern Europe, or the reason the UK followed us right into Iraq with barely even batting an eye. The question is, what impact will this have on our Asian strategy?
Before he gets into talking about Japan, he spends a quick minute on a key point about the oversight that most Chinese have when studying the Taiwan issue,
"Those of us who have a world perspective can sense the heavy pressures to which others are being subjected, but those of us who merely have a Chinese perspective only sense that the United States is using the Taiwan issue to cause trouble. Actually, the pressures to which China are subjected are relatively minor compared to those offered by other countries and especially Russia. At first sight, it would seem that the exacerbation of the Taiwan issue places China in a dilemma. If China engages in an all-out arms race with the United States or, in other words, engages in an all-out arms race with Taiwan, it will ultimately be worn down by the United States, just like the Soviet Union. Yet if China maintains a policy of low military spending and devotes its financial resources to economic construction, the disparity will further increase and China will be helpless before the U.S. military blackmail."
From General Liu's perspective then it seems as though China has no way out. But much of this comment is smoke and mirrors and not a very good job of misdirection at that. What we should read between these lines is that there is no intention of China to engage in an arms race with T@iw@n (TW) when it fully believes that its colossal economic influence over TW can be converted into an equally effective political influence over time. Hence, one of General Liu's implicit suggestions of how to resist the expanding US world takeover is to be fought on the steps of the Yuan and TW's other political institutions. This goes a great way to explain why the Communist Party has been so active in inviting TW's leaders such as Lien Chan to tour the mainland and strengthen the political ties between the "two" countries.
[1] Chan, Alfred L Chinese Law and Government, vol. 40, no. 2, March - April 2007, p3
Interestingly enough, Liu starts with Europe before getting into the discussion of East Asia. He states, "In those years (post-WWII), the United States adopted a defensive stance in the face of the menacing concentrations of Soviet tank formations. But now the Soviet Union has collapsed, and the United States has gone on the offensive. However, one should not infer from this change in its offense-defense posture that the United States has shifted its strategic focus away from Europe. In fact, so long as the U.S. objective is to dominate the whole world, Europe reamins its center of gravity, its basic bearing point. It plants one foot on its own land - the United States - and the other foot on Europe. Doing so enables it to stretch out both its arms to cover the whole world. Asia does not furnish the conditions for shoring up the U.S. ambitions...When the Iraq war broke out, Europe saw through the United States' intention of controlling the center of the world as a prelude to taking control of the European continental plate, and they opposed that war with exceptional vigor - in fact, more vigorously than some of the Arab countries. But the United States fought the war anyway, and Europe was forced to swallow the bitter pills."
Fascinating. This is something that stares us smack in the face every day, but I believe we often forget about or overlook the significance of our military bases in Germany and southern Europe, or the reason the UK followed us right into Iraq with barely even batting an eye. The question is, what impact will this have on our Asian strategy?
Before he gets into talking about Japan, he spends a quick minute on a key point about the oversight that most Chinese have when studying the Taiwan issue,
"Those of us who have a world perspective can sense the heavy pressures to which others are being subjected, but those of us who merely have a Chinese perspective only sense that the United States is using the Taiwan issue to cause trouble. Actually, the pressures to which China are subjected are relatively minor compared to those offered by other countries and especially Russia. At first sight, it would seem that the exacerbation of the Taiwan issue places China in a dilemma. If China engages in an all-out arms race with the United States or, in other words, engages in an all-out arms race with Taiwan, it will ultimately be worn down by the United States, just like the Soviet Union. Yet if China maintains a policy of low military spending and devotes its financial resources to economic construction, the disparity will further increase and China will be helpless before the U.S. military blackmail."
From General Liu's perspective then it seems as though China has no way out. But much of this comment is smoke and mirrors and not a very good job of misdirection at that. What we should read between these lines is that there is no intention of China to engage in an arms race with T@iw@n (TW) when it fully believes that its colossal economic influence over TW can be converted into an equally effective political influence over time. Hence, one of General Liu's implicit suggestions of how to resist the expanding US world takeover is to be fought on the steps of the Yuan and TW's other political institutions. This goes a great way to explain why the Communist Party has been so active in inviting TW's leaders such as Lien Chan to tour the mainland and strengthen the political ties between the "two" countries.
[1] Chan, Alfred L Chinese Law and Government, vol. 40, no. 2, March - April 2007, p3
Sunday, March 30, 2008
AMB Expanding China Holdings
I must say that I was extremely pleased to see that AMB is growing its China portfolio. As a believer in the enormous potential value that China's real estate industry holds for experienced American developers and real estate asset managers, I trust that our country's top firms will derive enormous profits from China in the future. On Saturday, the Shanghai Daily reported that,
"AMB Property Corporation, a world leading developer and owner of industrial real estate, announced yesterday that it had acquired approximately 133,100 square meters of land in the Xiuzhou Logistics Park in Jiaxing of Zhejiang Province. The company said it planned to build a 74,612-square-meter distribution center on the site, its latest effort to expand its distribution network throughout the country...AMB announced earlier it planned to operate US$1 billion to US$1.5 billion worth of assets in China by 2010. It currently runs a portfolio of approximately 185,882 square meters of distribution spaces in Shanghai, Kunshan and Ningbo. ProLogis, a United States developer, owner and manager of distribution facilities, has also recently expanded its footprint in the city through land acquisition in the same logistics park." [1]
If you look at AMB's past, China is a natural fit for them because they tend to raise their money privately. That matches well with the value-based investing that long-term investor industrial real estate investors are looking for in China. As Moghadam says, AMB, " 'has never raised money on Wall Street beyond our IPO.' Since its initial public offering, AMB has gone in the opposite direction of most REITs by retiring more than 6 million shares of stock through buybacks." [2]
AMB raises most of its cash through private capital - institutions and other funds that look for a leading industrial real estate firm to offer predictable returns on prime industrial complexes. What's amazing about AMB because it is an industrial REIT, its fortunes are barely connected at all to those of the general residential real estate market. In fact, its 2007 earnings of $2.96 per share were nearly triple 2006 earnings and almost double 2005 earnings. [3] Hence, while the residential market was still booming in the US, AMB was going through a bit of a slump. Likewise, while the residential market began to tank, AMB's profits grew nicely.
AMB is also a company to take note of because its approach. This move into Jiaxing, along the Yangtze River Delta, should signal to investors that the company now has its feet wet in China after investing in Shanghai, Kunshan, and Ningbo. Therefore, it will feel comfortable going after properties that need greater managerial expertise to derive value out of them in order to really position its investments in China to derive significant profit margins.
[1] by Cao Qian 29 March 2008 Copyright 2008 Shanghai Daily Information Company
[2] Bergmann, Paul, Maverick Real Estate Investing, Copyright 2004 by Literary Productions
[3] Standard and Poors, March 30th, 2008
"AMB Property Corporation, a world leading developer and owner of industrial real estate, announced yesterday that it had acquired approximately 133,100 square meters of land in the Xiuzhou Logistics Park in Jiaxing of Zhejiang Province. The company said it planned to build a 74,612-square-meter distribution center on the site, its latest effort to expand its distribution network throughout the country...AMB announced earlier it planned to operate US$1 billion to US$1.5 billion worth of assets in China by 2010. It currently runs a portfolio of approximately 185,882 square meters of distribution spaces in Shanghai, Kunshan and Ningbo. ProLogis, a United States developer, owner and manager of distribution facilities, has also recently expanded its footprint in the city through land acquisition in the same logistics park." [1]
If you look at AMB's past, China is a natural fit for them because they tend to raise their money privately. That matches well with the value-based investing that long-term investor industrial real estate investors are looking for in China. As Moghadam says, AMB, " 'has never raised money on Wall Street beyond our IPO.' Since its initial public offering, AMB has gone in the opposite direction of most REITs by retiring more than 6 million shares of stock through buybacks." [2]
AMB raises most of its cash through private capital - institutions and other funds that look for a leading industrial real estate firm to offer predictable returns on prime industrial complexes. What's amazing about AMB because it is an industrial REIT, its fortunes are barely connected at all to those of the general residential real estate market. In fact, its 2007 earnings of $2.96 per share were nearly triple 2006 earnings and almost double 2005 earnings. [3] Hence, while the residential market was still booming in the US, AMB was going through a bit of a slump. Likewise, while the residential market began to tank, AMB's profits grew nicely.
AMB is also a company to take note of because its approach. This move into Jiaxing, along the Yangtze River Delta, should signal to investors that the company now has its feet wet in China after investing in Shanghai, Kunshan, and Ningbo. Therefore, it will feel comfortable going after properties that need greater managerial expertise to derive value out of them in order to really position its investments in China to derive significant profit margins.
[1] by Cao Qian 29 March 2008 Copyright 2008 Shanghai Daily Information Company
[2] Bergmann, Paul, Maverick Real Estate Investing, Copyright 2004 by Literary Productions
[3] Standard and Poors, March 30th, 2008
Thursday, March 20, 2008
China vs Rio/BHP
The standoff that is going on right now between Rio Tinto, BHP Billiton, and China is amazing. This is one of China's very first tests of macro supply chain that will determine how much China can control price hikes in iron ore for decades to come.
China has summarily refused to accept Rio Tinto and BHP's 71% price increases.
Although they seem to indicate that the reason is the increase is too high, that is a bit hard to accept given that they handled Vale's 65% price increase just two months ago. No, there is much more at stake with Rio Tinto, BHP, and China.
China wants a much bigger piece of the deal this time, and they have decided to strike while the iron is hot. If they can continue to stave off the spot market shipments for a few more months, Rio Tinto and BHP will effectively lose several billion dollars in revenue. That may cause the market to hammer their share prices and give China more leverage to buy a much larger stake of the planned merger than was originally anticipated. My guess is that China wants at least 25% of the new company with two or three board members to boot.
This battle is about the future of China's steel industry and several downstream industries that flow from there such as automotive and construction. They are betting that they can sweat it out longer than BHP and Rio Tinto's shareholders. My guess is that they are correct.
Thursday, March 13, 2008
Maotai: A Consumer Monopoly?
I was particularly struck by an article I read last week that mentioned Maotai liquor's net profit was up over 83% last year. [1] That's a phenomenal year by the measure of any mature growth stage company, and it is strange to see beverage companies produce such amazing results.
Given that I am a huge fan of the Oracle of Omaha, Mr. Warren Buffet, I began to wonder, would Buffet ever consider investing in this company? What I am really interested in is whether or not Buffet would consider Maotai Liquor a consumer monopoly?
I believe it is and here is why:
With rare exception, no matter what liquor shop or decent restaurant you go to in China, the vendor must provide certain brands off baijiu (sorghum wine - Chinese vodka/whisky). It is my belief that one of those two is Maotai. (The other brand in my opinion is Wuliangye).
An extension of this means that Maotai will be able to dictate to its vendors price increases, instead of the vendors putting pressure on Maotai that they will cease to carry Maotai unless they lower prices. Evidence of that came in the same article..."Kweichow Maotai has raised ex-factory prices of it s products by an average of 20% from January 11." [1] Again, the distributors and retailers are really helpless to rises in factory prices of Maotai because they have to carry the brand or they will lose patrons.
Next, how recognizable is the brand? Well, Maotai liquor is not only recognized among the Chinese domestically, but I would say that millions of foreigners from an earlier generation could even tell you that Mao Zedong's "official" drink was Maotai. Despite that bit of infamy, Maotai is definitely one of the most widely recognized brands in all of China.
Finally, can Maotai lose this positioning? Can management "screw things up?" I doubt it. Again, typical of most consumer monopolies, once you attain a certain position in the market, it is very difficult to screw things up. Even if millions of Chinese started overdosing on Maotai at local restaurants, I simply cannot see any way the Chinese government would let them go under. Remember, the vast majority of Maotai is being consumed in China. Thus, despite the international brand recognition, the baijiu is being consumed domestically, so any problems that may arise would be considered a "China" problem and not subject to outside political influences.
This means that for those fundamental investors, do your homework and research Maotai's traditional PE ratios and return on equity numbers. Then, sit back and wait for the market to hammer its share price, and then jump in and hold on for the long term.
FDI 'Slowdown' in February is Comical
According to an article in the Shanghai Daily today, Foreign Direct Investment into China slowed drastically to a year on year rise of...38.3%! [1] You know times are good when slowing down to 38% growth represents a drastic reduction. Of course, when your main barometer shows inflation charging ahead at 7 - 9%, then you probably need that much growth in investment just to stay ahead.
What really struck me about this article however was the following...
"New foreign-funded firms fell 38.02 percent to 1,454, as investors focused on bigger and more capital-intensive projects, said Li Maoyu, an analyst at the Changjiang Securities." [1]
As a sign of the times, this plainly means that the central government is much more interested in encouraging larger scale projects that not only will help the macroeconomics of China, but also are more easily controlled by the central authorities. Furthermore, it is a sign of the continued changing demographics of China as urbanization continues to steamroll ahead and China's tier-2 and tier-3 cities consolidate and attract millions of migrants.
[1] Wang Yanlin, Shanghai Daily, March 13, 2008, (c) Shanghai Daily Information Company
What really struck me about this article however was the following...
"New foreign-funded firms fell 38.02 percent to 1,454, as investors focused on bigger and more capital-intensive projects, said Li Maoyu, an analyst at the Changjiang Securities." [1]
As a sign of the times, this plainly means that the central government is much more interested in encouraging larger scale projects that not only will help the macroeconomics of China, but also are more easily controlled by the central authorities. Furthermore, it is a sign of the continued changing demographics of China as urbanization continues to steamroll ahead and China's tier-2 and tier-3 cities consolidate and attract millions of migrants.
[1] Wang Yanlin, Shanghai Daily, March 13, 2008, (c) Shanghai Daily Information Company
Tuesday, March 11, 2008
China Transportation - Subway or Rapid Transit?
Earlier this week, the following story about Wuhan's subway system expansion really struck me,
"City In Central China Plans To Spend $40B On Subway System...Wuhan, capital of Hubei province, plans to spend CNY300 billion (US$40 billion) to expand its subway system, Xinhua said. It will be extended from seven to 12 lines with 309 stations by 2015. Once the expansion is finished, 66% of the city's 8.7 million people will be able to find a subway station within 600 meters of their home, Xinhua said." [1]
"City In Central China Plans To Spend $40B On Subway System...Wuhan, capital of Hubei province, plans to spend CNY300 billion (US$40 billion) to expand its subway system, Xinhua said. It will be extended from seven to 12 lines with 309 stations by 2015. Once the expansion is finished, 66% of the city's 8.7 million people will be able to find a subway station within 600 meters of their home, Xinhua said." [1]
Certainly for China's mega cities, of which Wuhan truly belongs in the mix, building a massive underground system is in order and will effectively reduce congestion in the years to come. But, what about China's smaller cities? Does the benefit outweigh the cost for cities such as Qingdao, Dalian, and Shenyang? Are there better and cheaper alternatives for Wuxi, Changzhou, Suzhou, and Hangzhou?
Yesterday, I was given a fantastic opportunity to put that in perspective when I visited with Professor Ralph Gakenheimer of the MIT's School of Architecture and Urban Planning. Dr. Gakenheimer specializes in urban planning and transportation planning and brought to my attention an interesting alternative to subway lines that has really caught on in Latin America, Europe, and increasingly the North America and Asia. That system is something called Rapid Bus Transit, or Rapid Transit. What happens in a system like this is that the municipality builds an extra lane exclusively for buses that will stop only at express points in a city or along a highway. To get on and off the bus, you need to have entered similar to a subway where your fare is already paid so that passengers get on and off the bus quickly. Dr. Gakenheimer says average stop times are reduced to 20 seconds and falling.
[1] 3 March 2008, Dow Jones International News (c) 2008 Dow Jones & Company, Inc.
Thursday, March 6, 2008
March 4th Asia Society Talk Notes
I had the absolute pleasure earlier this week of listening to four China hands talk politics, law, economy, and much more at a meeting at New York's Asia Society on Park Avenue in New York. Moderating this four-person discussion was Howard Chao, Partner and Head of Asia Practice for O'Melveny & Myers LLP. He was joined by Nicholas Lardy, Senior Fellow, Peterson Institute for International Economics, Jonathan Woetzel, Director, McKinsey & Company, and Jimmy Hexter, Director, McKinsey & Company. Woetzel and Hexter's new book, "Operation China: From Strategy to Execution" was available after the talk for attendees. Here are some highlights from the talk:
Dr. Lardy began the talk with an overview of China's macro-economic barometers. One of th things I found most astonishing was that China's current account surplus is between 10 & 11% of GDP. By comparison, he noted, Japan's greatest account surplus in the 1980s was 4% of its GDP. That means that China seriously has a lot more cash stored up than even Japan did.
He went on to say that the jump in China's prices is not restricted to just food prices and the overall CPI, but rather the PPI, a barometer of price movements in machinery, is also up and accelerating more aggressively than the CPI.
Next, he talked about why there was so much craze for investments in stocks and real estate by showing us the following:
CPI: up 7%
Savings % offered by banks: 0.71%
So, your real savings rate is greater than negative 6%. Apparently, this is a textbook case of how you create a bubble in other asset classes. Of course, when you have 300 million people urbanizing, you are going to need huge amounts of capital investment in capital-intensive projects.
Next, Dr. Woetzel noted some interesting trends as well going forward...
Migration: From 1990 to 2007, apparently 250million urbanized, but mostly through establishing new cities and shifting boundaries. That's not going to happen because of land restrictions in the future. Effectively since that time, there have been only 100mm migrants to the major cities. Looking forward, there will probably be another 250mm migrants headed for the cities and a total urban population of 1 billion urban.
That is going to drive macro costs of health, education, and food way up. And the greatest burden will likely be on 3rd and 4th tier cities.
Jimmy Hexter then weighed in on China business strategy by explaining that the winners in China historically were those that executed bold strokes of strategy - whether through gaining advantageous licenses, exclusivity, or other sundry tools. However, as we look forward, the winners will most likely be those that deliver excellence of execution. Specifically, companies that can migrate world's best strategies and get their domestic operations to perform better at sourcing, procurement, manufacturing, sales, distribution, and development will win.
By his account, there is an enormous opportunity to improve performance in China, with increasing outputs by 30-50% via this shifting global best practices to result.
60%+ of exports are machinery and electronics
As far as the effect any rising world raw material prices will have on causing countries to shift to Vietnam and other Asian export economies, not likely to happen any time soon. Dr. Lardy cautioned us to remember that Veitnam's total exports amounted to $40billion in 2007, whereas
China's topped $1 trillion.
There was also a discussion of the transient talent pool in China. Here's why they move from one job to another:
1) Influence - want opp to drive performance
2) Promotion
3) More money
What they really want boils down to greater inclusion and recognition. Until they get it, we're likely to continue to see rates as high as 40% job turnover every year in China (in the US by comparison, it's 20%)
The final major topic that was discussed was capital flows in China. What we are seeing is huge amounts of capital being raised around the world, and a good portion of it is flowing to Asia and in particular, China and India. China has become a gigantic player in trade and finance, yet locally, allocation of capital has been poor because, as a result of the negative savings rate mentioned above, a large swathe of unsophisticated investors operating under duress are forced to enter a capital market that they do not really understand.
There was a great comment made about private equity investments in China. Apparently, right now, the players there that are doing well are small China private equity companies that are doing well investing in small companies with niche regional markets. For large caps, it is difficult right now because of high valuations, struggles for control, and disagreements over management.
This was a great talk put on by the Asia Society and we will continue to update you as more relevant talks occur.
Dr. Lardy began the talk with an overview of China's macro-economic barometers. One of th things I found most astonishing was that China's current account surplus is between 10 & 11% of GDP. By comparison, he noted, Japan's greatest account surplus in the 1980s was 4% of its GDP. That means that China seriously has a lot more cash stored up than even Japan did.
He went on to say that the jump in China's prices is not restricted to just food prices and the overall CPI, but rather the PPI, a barometer of price movements in machinery, is also up and accelerating more aggressively than the CPI.
Next, he talked about why there was so much craze for investments in stocks and real estate by showing us the following:
CPI: up 7%
Savings % offered by banks: 0.71%
So, your real savings rate is greater than negative 6%. Apparently, this is a textbook case of how you create a bubble in other asset classes. Of course, when you have 300 million people urbanizing, you are going to need huge amounts of capital investment in capital-intensive projects.
Next, Dr. Woetzel noted some interesting trends as well going forward...
Migration: From 1990 to 2007, apparently 250million urbanized, but mostly through establishing new cities and shifting boundaries. That's not going to happen because of land restrictions in the future. Effectively since that time, there have been only 100mm migrants to the major cities. Looking forward, there will probably be another 250mm migrants headed for the cities and a total urban population of 1 billion urban.
That is going to drive macro costs of health, education, and food way up. And the greatest burden will likely be on 3rd and 4th tier cities.
Jimmy Hexter then weighed in on China business strategy by explaining that the winners in China historically were those that executed bold strokes of strategy - whether through gaining advantageous licenses, exclusivity, or other sundry tools. However, as we look forward, the winners will most likely be those that deliver excellence of execution. Specifically, companies that can migrate world's best strategies and get their domestic operations to perform better at sourcing, procurement, manufacturing, sales, distribution, and development will win.
By his account, there is an enormous opportunity to improve performance in China, with increasing outputs by 30-50% via this shifting global best practices to result.
60%+ of exports are machinery and electronics
As far as the effect any rising world raw material prices will have on causing countries to shift to Vietnam and other Asian export economies, not likely to happen any time soon. Dr. Lardy cautioned us to remember that Veitnam's total exports amounted to $40billion in 2007, whereas
China's topped $1 trillion.
There was also a discussion of the transient talent pool in China. Here's why they move from one job to another:
1) Influence - want opp to drive performance
2) Promotion
3) More money
What they really want boils down to greater inclusion and recognition. Until they get it, we're likely to continue to see rates as high as 40% job turnover every year in China (in the US by comparison, it's 20%)
The final major topic that was discussed was capital flows in China. What we are seeing is huge amounts of capital being raised around the world, and a good portion of it is flowing to Asia and in particular, China and India. China has become a gigantic player in trade and finance, yet locally, allocation of capital has been poor because, as a result of the negative savings rate mentioned above, a large swathe of unsophisticated investors operating under duress are forced to enter a capital market that they do not really understand.
There was a great comment made about private equity investments in China. Apparently, right now, the players there that are doing well are small China private equity companies that are doing well investing in small companies with niche regional markets. For large caps, it is difficult right now because of high valuations, struggles for control, and disagreements over management.
This was a great talk put on by the Asia Society and we will continue to update you as more relevant talks occur.
Monday, March 3, 2008
Non-communist Officials - What a Joke
Boy this type of article really pisses me off...I simply do not understand this: "China to opt for more non-Communist officials." [1]
Now we get this...two minsiters appointed from without the ranks. Can they defy the party? Can they provide some basis for checks and balances? Can they survive by taking a position of dissent? Let's ask Zhao Ziyang how that worked out for him. That's like an all-star game in basketball - you know, the type of game where everybody is really on the same team, nobody's fouling, nobody's playing defense, and the outcome is really just nominal. That's my microcosm for these appointments. The message is clear: Life is quite good in the political spheres of China these days.
The article begins by stating, "More eligible non-Communists are expected to become high-ranking officials in China following last year's appointments of two non-Communist ministers, said a spokesman of the forthcoming annual political advisory session. Many non-Communist personages have taken up posts at government departments and judicial bodies since China started its reform and opening up (toward the late 1970s), said Mr Wu Jianmin, spokesman for the First Session of the 11th National Committee of the Chinese People's Political Consultative Conference (CPPCC). Mr Wan Gang, of the China Zhi Gong Dang (Party for Public Interest), was appointed minister of science and technology last April as the first non-Communist party cabinet minister since the late 1970s. Two months later, Mr Chen Zhu, non-party member, became minister of health. Their appointments represented major moves of the Communist Party of China (CPC) in enhancing socialist democracy and pushing forward multi-party cooperation and political consultation under the leadership of the CPC, Wu said at a press conference on the eve of the annual political advisory session."
Sorry folks, that is what is known as propaganda and I have a real problem with it - the same type of irk I recall when reading about the labor unions in WalMart that were headed by communist party members. Here's what bothers me so much. It's the way that the central communist party believes that things are really different in this dynasty. They're not. The power structure is still in tact - strong central monarchy backed by a unifying military and pervasive dissidents throughout the provinces with growing wealth. The only difference this time around is that Beijing has to deal with the whole outside world, and not just 'the old barbarians at the gate.'Now we get this...two minsiters appointed from without the ranks. Can they defy the party? Can they provide some basis for checks and balances? Can they survive by taking a position of dissent? Let's ask Zhao Ziyang how that worked out for him. That's like an all-star game in basketball - you know, the type of game where everybody is really on the same team, nobody's fouling, nobody's playing defense, and the outcome is really just nominal. That's my microcosm for these appointments. The message is clear: Life is quite good in the political spheres of China these days.
[1] 3 March 2008 The Statesman The Financial Times Limited. Asia Africa Intelligence Wire. All material subject to copyright. (c) 2008 All rights reserved
Sunday, March 2, 2008
China Technology Gap Narrows
Interesting article yesterday in Maeil Business about the technology gap shortening between Korea and China...
Now, I really have no idea how you would effectively measure this; it seems so onerous and dubious, yet at the same time it does seem to me that Cherry cars are about 4-5 years behind Hyundai cars and Haier is about the same length behind Samsung in electronics. But, I am not so sure how far you can go with this. For instance, there really are no major Korean lap top manufacturers out of Korea that we see competing on a global level on a daily bases. Moreover, when was the last time you saw a Korean telecom company try and bid for a US telecom company. Moreover, Chinese companies are on spending sprees to buy technology abroad - and they currently have much deeper pockets than their rivals in Korea. For that reason and the following additional reasons, we think this convergence will accelerate in the coming months:
1) Economies of Scale - Korea cannot possibly compete with China in numbers or foreign reserves to buy companies/technologies abroad
2) FDI - China is just crushing Europe here, let alone Korea
3) Technology transfer - astute China policy necessitates this in many investment deals
4) Reputation - now this needs some qualification. I am referring specifically to biotech and an incident in which one of Korea's most famed scientists, Hwang Woo-suk, falsely advertised successful fabrication of human embryonic stem cells by cloning. You will not see many Americans going to Korea for stem cell surgery - but they're flocking to China. The technology gap here in terms of revenues per unit of technology is most likely in China's favor and if not it will be within a year or two, not four.
[1] Korea-China Technology Gap Narrows to 3.8 Years 2 March (c) 2008 Maeil Business Newspaper
With Chinese enterprises pursuing at a frightful speed by means of an industrial spy or imitating industrially advanced nations, the technology gap between chief industrial corporations of Korea and China was found to be narrowing at a fast rate. According to the Korea Institute for Industrial Economics & Trade (KIET) on Sunday, a research conducted November last year, on 608 major companies in 10 core industries such as automobile, electronics, shipbuilding and semiconductors, evaluated the overall technology gap between Korean and Chinese manufacturing industries at 3.8 years. Technology gap between Korea and China had been evaluated at 4.7 years in 2002, 4 years in 2004 and has continued to narrow down.[1]
Now, I really have no idea how you would effectively measure this; it seems so onerous and dubious, yet at the same time it does seem to me that Cherry cars are about 4-5 years behind Hyundai cars and Haier is about the same length behind Samsung in electronics. But, I am not so sure how far you can go with this. For instance, there really are no major Korean lap top manufacturers out of Korea that we see competing on a global level on a daily bases. Moreover, when was the last time you saw a Korean telecom company try and bid for a US telecom company. Moreover, Chinese companies are on spending sprees to buy technology abroad - and they currently have much deeper pockets than their rivals in Korea. For that reason and the following additional reasons, we think this convergence will accelerate in the coming months:
1) Economies of Scale - Korea cannot possibly compete with China in numbers or foreign reserves to buy companies/technologies abroad
2) FDI - China is just crushing Europe here, let alone Korea
3) Technology transfer - astute China policy necessitates this in many investment deals
4) Reputation - now this needs some qualification. I am referring specifically to biotech and an incident in which one of Korea's most famed scientists, Hwang Woo-suk, falsely advertised successful fabrication of human embryonic stem cells by cloning. You will not see many Americans going to Korea for stem cell surgery - but they're flocking to China. The technology gap here in terms of revenues per unit of technology is most likely in China's favor and if not it will be within a year or two, not four.
[1] Korea-China Technology Gap Narrows to 3.8 Years 2 March (c) 2008 Maeil Business Newspaper
Thursday, February 28, 2008
The Effects of Steel Prices Rsing
Rio Tinto, BHP Billiton, and Vale are major corporations and they're going to get theirs too, there's just no two ways about it. After Rio Tinto and BHP Billiton merge in two years, that neew mammoth $400 billion company will probably set its sites on Vale, assuming of course Vale has not ammassed its pile of smaller acquisitions to compete. We shall see.
On Tuesday, Xinhua gave a pretty nice summary of the recent iron ore price hikes, their inevitability, and their effects on steel prices in the coming year. Let's break this article down into those three sectoins:
1) Price hikes...
"After Brazilian mining conglomerate Vale hammered out 2008 benchmark prices for iron ore fines with Japanese and Republic of Korea (ROK) steel makers last week, Baosteel Group, China's largest steel maker, agreed on the price for fiscal 2008, accepting the Brazilian miner's price hikes that ranged from 65 percent to 71 percent compared with 2007."
71%!! I'm confused now because the rule of 72 is only supposed to be for compounded returns - so what happens if you get there in one year? Does 72% = 100% if it's one year? No, of course not, but if it did that probably would require me to immediately find a finance professor.
What's more, the article says that an almost identical hike occurred two years ago...
"Since China joined the international pricing negotiations in 2004, the price has risen every year. Price negotiations for 2004 ended with an 18.62 percent increase, followed by a 71.5 percent rise in 2005 and a 19 percent increase in 2006."
Now we can use compounding equations, and by such numbers, it would appear that steel prices have risen 2.5x over the last four years. What is this doing on a practical level? Let me give you a quick insight into our world. Two of my clients in the last week have said that their products are now more competitive if made in the North America - one in the US and one in Mexico. I am certainly not suggesting that this will be the case for years to come, and perhaps this is because their current China suppliers are in East China (as opposed to the cheaper western and central regions), but nevertheless, I do think this is a sign that things are moderately changing across various industries.
2) Inevitably. Basically, according to the article, this hike was going to hit China whether they liked it or not, whether they negotiated hard or not, and whether they neotiated early or not - it was all numbers...
There was no way around this. Especially given the fact that Chinese steel makers have enjoyed fat profits over the last two years as China's stock market has boomed.
3) Pricing effects
Well, we alluded to it above, but they make it quite clear in the article what the price increases are likely to be on steel tonnage...
"
1) Logistics
2) Quality
Baosteel is one of the world's best steel plants and there are grades and qualities of steel that you need for certain applications that are available at perhaps two or three more factories in China. Secondly, the country is so large that regionalism plays a huge role in determining which steel ends up in which factory.
At the end of the day, the iron ore price hikes, in addition to oil, are the largest drivers of industrial price inflation. If we use this though as a basis for comparison, then what is the industrial subsidy equivalent for China's large subsidies on refined oil/gasoline? I would say that this question gets answered every day by those that find the real deals in China and those that just cannot seem to be profitable in China.
On Tuesday, Xinhua gave a pretty nice summary of the recent iron ore price hikes, their inevitability, and their effects on steel prices in the coming year. Let's break this article down into those three sectoins:
1) Price hikes...
"After Brazilian mining conglomerate Vale hammered out 2008 benchmark prices for iron ore fines with Japanese and Republic of Korea (ROK) steel makers last week, Baosteel Group, China's largest steel maker, agreed on the price for fiscal 2008, accepting the Brazilian miner's price hikes that ranged from 65 percent to 71 percent compared with 2007."
71%!! I'm confused now because the rule of 72 is only supposed to be for compounded returns - so what happens if you get there in one year? Does 72% = 100% if it's one year? No, of course not, but if it did that probably would require me to immediately find a finance professor.
What's more, the article says that an almost identical hike occurred two years ago...
"Since China joined the international pricing negotiations in 2004, the price has risen every year. Price negotiations for 2004 ended with an 18.62 percent increase, followed by a 71.5 percent rise in 2005 and a 19 percent increase in 2006."
Now we can use compounding equations, and by such numbers, it would appear that steel prices have risen 2.5x over the last four years. What is this doing on a practical level? Let me give you a quick insight into our world. Two of my clients in the last week have said that their products are now more competitive if made in the North America - one in the US and one in Mexico. I am certainly not suggesting that this will be the case for years to come, and perhaps this is because their current China suppliers are in East China (as opposed to the cheaper western and central regions), but nevertheless, I do think this is a sign that things are moderately changing across various industries.
2) Inevitably. Basically, according to the article, this hike was going to hit China whether they liked it or not, whether they negotiated hard or not, and whether they neotiated early or not - it was all numbers...
"Baosteel, the partly state-owned representative of China's steel makers in the pricing negotiations, faced a challenge. The miners were holding out for higher prices, while other major Chinese steel producers wanted a favorable pact. Given the huge share of the market that China represents, Baosteel may have believed it had more bargaining power than it did. CISA estimated the 2008 price rise at only 20 percent.
So Baosteel waited -- but others negotiated.
'Even if Baosteel had concluded negotiations first, the price hike would not be lower,' said Hu (Kai, a senior analyst with the Chinese Umetal.com website.)"
There was no way around this. Especially given the fact that Chinese steel makers have enjoyed fat profits over the last two years as China's stock market has boomed.
3) Pricing effects
Well, we alluded to it above, but they make it quite clear in the article what the price increases are likely to be on steel tonnage...
"
The China Securities Journal reported on Monday that 57 domestic steel mills had raised their prices after the benchmark price was settled. And on Tuesday, the newspaper reported that Baosteel had raised steel prices for the second quarter of 2008. Its prices for major cold- and hot-rolled products will rise 800 yuan (111 U.S. dollars) per ton in the second quarter, compared with the first quarter, Tuesday's China Securities Journal quoted an announcement by Baosteel as saying.
Considering that Baosteel has a heavier reliance on imported iron ore than other domestic competitors, a 65-percent iron ore price rise could translate into cost mark-up of 258 yuan for Baosteel, as against 116 yuan for other domestic steel makers, according to statistics from Chemease, a business information provider on Chinese chemical commodity markets.
But a price hike of up to 800 yuan would offset its cost mark-up and also provide ample profit margins, said Chemease analysts."
1) Logistics
2) Quality
Baosteel is one of the world's best steel plants and there are grades and qualities of steel that you need for certain applications that are available at perhaps two or three more factories in China. Secondly, the country is so large that regionalism plays a huge role in determining which steel ends up in which factory.
At the end of the day, the iron ore price hikes, in addition to oil, are the largest drivers of industrial price inflation. If we use this though as a basis for comparison, then what is the industrial subsidy equivalent for China's large subsidies on refined oil/gasoline? I would say that this question gets answered every day by those that find the real deals in China and those that just cannot seem to be profitable in China.
Source: 26 February 2008, Xinhua's China Economic Information Service, "Iron ore price rise could force China steel rationalization" (c) 2008 Xinhua News Agency. All Rights Reserved .
Thursday, February 21, 2008
China's Credit Market Keeps Humming Aon
Great article in today's Asian Wall Street Journal by Professor Victor Shih of Northwestern. Professor Shih writes that although credit and broad money supply has tightened in the West, the opposite is true in China.
"Despite a cascade of State Council decrees restricting bank lending this year and a high-profile Politburo meeting in November that focused on the risk of inflation, bank lending last month grew by over 800 billion renminbi ($112 billion) -- equivalent to 22% of the total loan quota that Beijing's technocrats meted out to state-owned banks for 2008." (-Victor Shih, "China's Credit Boom", Asian Wall Street Journal, February 21, 2008)
Shih adeptly identifies this standoff as,
"an unusual game of chicken. China's major banks, all of which are majority state-owned and run by managers appointed by the Communist Party, are simply ignoring decrees issued by the highest authorities. In a state-dominated banking system, this is as unexpected as mid-level managers blatantly acting against the wishes of both the CEO and the board of directors. Formally the technocrats have the full backing of the ruling Communist Party and can dismiss any banker at any time. However, senior state bankers do not behave as if they take the threat of removal seriously. They've stared down such threats before, anyway -- in China, elite political discord has often compelled banks to disobey formal decrees."
I would add that this is a quintessential power struggle in China and one that will plague the Communist Party for as long as it continues to build wealth. I would also say that this is the modern version of a classic battle between the wealthy and the King in China. If this were the 1680s, we could clearly see similar factional divides between Emperor Kang Xi and the feudal princes Wu San-kuei, Shang Chih-hsin, and Keng Ching-chung (from "Emperor of China: Self Portrait of K'an-hsi" by Jonathan D. Spence, Vintage Books, 1988). The same nobility versus the king proxy struggles happened throughout European history and, let's face it, the history of the entire world ever since one person wanted something another had. But, the contemporary version of Chinese history, which is where we find ourselves today (and let's not kid ourselves, that's how the Chinese see it - they're just passing through China in the current dynasty), has an added element to it. This time the stakes are higher. 3000 - 1000 years ago, the rest of the world meant nothing to China. 800 years ago, it was the Chinese who got annihilated by the Mongols, (when David and Goliath were one in the same and no one could stop them). 150 years ago it was the Europeans who destroyed China. Now, with momentum, size, a growing military, and everybody's factories, the pie is a lot bigger and, most importantly to the Chinese, the face they stand to gain, both on an individual level and a national level, is far greater than ever before in history.
So, if you're watching the economy hum along at 9, 10, 11, and even 12% growth, and you have connections, the only mandate from heaven is to keep the wheels turning and the money flowing. That's why, as Shih astutely points out, today's biggest enemy is inflation...
"The Chinese government needs to continue monetary tightening by raising interest rates and the bank's reserve requirements. Furthermore, Messrs. Hu and Wen need to overcome internal opposition and make it clear to bankers that flouting central decrees begets serious consequences, including dismissal. Otherwise, they risk allowing inflation to spiral toward dangerous levels. In the opaque Chinese political system, strong signals, in addition to decrees and laws, continue to be necessary ingredients of credible policies."
The key policy is all of this is pricing. The biggest winners politically are going to be those that can continue to stem inflation. Given that, maybe the motivations and intentions of the bankers is in fact to prime inflation to fly through the roof and purposely sabotage the current administration in some sort of Pyrrhic Victory. (Or maybe I need to ease up on the conspiracy theories).
Wednesday, February 20, 2008
Report 4 on Four of China's Tier-3 Cities: Changzhou
Changzhou is really beginning to stake its place among the major tier-3 cities in the Yangtze River Delta (YRD) such as Wuxi, Cixi, Taizhou, and several others. In fact, at its current growth rate and projections for the future, it could conceivably rank as a tier-2 city within the next 10 years, assuming a sustained dose of foreign direct investment (FDI) and port/road infrastructure construction. The main reasons are that much like Suzhou and Wuxi before it, Changzhou is close to Shanghai and the labor force is skilled. Moreover, at 3.4 million, it is in a population growth spurt that could easily see the total population balloon to over five million over that same 10-year period. This is definitely a city to watch over the mid-term.
Changzhou (Chinese: 常州; pinyin: Chángzhōu; formerly known in English as Chang-chou, Changchow) is a prefecture-level city in southern Jiangsu province, People's Republic of China. It was also known as Yanling, Lanling, Jinling, and Wujin previously. Located on the southern bank of the Yangtze River, Changzhou borders the provincial capital of Nanjing to the west, Zhenjiang to the northwest, Wuxi to the east, and the province of Zhejiang to the south.
Located in the East China, the most prosperous Yangtze River Delta, Changzhou lies in-between the two metropolitan cities of Shanghai and Nanjing. It is about 100 miles from Shanghai and 70 miles from Nanjing. With a cultural history of over 2500 years, Changzhou is also a rising modern industrial city. It covers a total area of 180,000 acres, and 11,000 acres are urban areas. The total population in Changzhou is 3.415 million, including 840,000 urban residents.
Changzhou has a solid industrial foundation. There are over 20,000 various manufacturing companies, forming a complete industrial structure including mechanical, metallurgy, electronics, textile, garments, chemicals, pharmaceuticals, plastics, building materials and foodstuff. The six main industries in Changzhou are power industry, engineering machinery, automobile, motorcycle and their parts, power transmission equipment, electronics, new-style textile and garments. It has formed numerous brand products such as the diesel engines, loaders, power transformers, city buses, special and micro motors, DVD and indigo blue denim, etc. By now, the percentage of new and Hi-Tech enterprises accounts for 50% of the economy.
Administration
The prefecture-level city of Changzhou administers 7 county-level divisions, including 5 districts and 2 county-level cities.
- Zhonglou District (钟楼区)
- Tianning District (天宁区)
- Qishuyan District (戚墅堰区)
- Xinbei District (新北区)
- Wujin District (武进区)
- Jintan City (金坛市)
- Liyang City (溧阳市)
Infrastructure and Transportation
-Located just south of Chang Jiang (Yangtze River), Changzhou is situated on the main Shanghai-Beijing rail line and is one of the main stops on the busy Shanghai-Nanjing route. Changzhou also has its own airport approximately 15km from the city centre. There are flights to Beijing, Guangzhou, Shenzhen, Shenyang, Kunming, Harbin and Dalian.
- Changzhou Airport's seat occupation rate has remained above 65% for several years and actually hit 70.8% in September 2007, according to the latest news released by the airport. The passenger throughput experienced a year-on-year increase of 12.95% in the first nine months of 2007, and increased by nearly 100,000 person-times when compared with the volume in the whole of 2005. The passenger throughput continued to set new monthly records in July and August. Thanks to the increase in transportation capacity, Changzhou Airport's cargo and mail throughput has experienced rapid growth. The cargo and mail throughput increased by 11.89% year-on-year in the first three quarters, and set a new monthly record in September.(China Industry Daily News, 11/6/07)
-By the end of June 2007, the downtown area of Changzhou City had 21 concrete producers and a total of 30 production bases (mixing stations) with more than 60 concrete production lines and 498 registered agitating trucks, with the annual designed concrete production capacity and the transfer pump capacity standing at 18 million cbm and 12 million cbm respectively, according to the latest information from the Secretary Office of the Changzhou Municipal Concrete Association. Based on preliminary statistics, the concrete producers in the downtown areas produced and supplied 4.6 million cbm of concrete to the market in the first half of 2007. (9/10/07, China Financials Daily News)
-Changzhou City plans to complete an investment of RMB1.058bn in the construction of trunk roads in 2007, and actually completed RMB705M in the first eight months, accounting for 66.6% of the annual target, according to the latest information released by the Changzhou Municipal Government of Jiangsu Province. (9/20/07 China Industrial Daily News)
-Jiangsu Province's Changzhou City invested RMB4.948bn in transportation projects in the first three quarters of 2007, according to the latest news released by Changzhou City's Transportation Department. Of the total, the investment in expressway construction reached RMB3.8bn, increasing by 13.4% year-on-year, and accounting for 76.8% of the total. Investment in expressways and national and provincial trunk route highways hit RMB2.137bn and RMB930M respectively, up 8.1% and 3.74% year-on-year, while the investment in rural expressways experienced a year-on-year increase of 41.79% to RMB660M.(China Industry Daily News, 10/16/07)
-Changzhou plans to invest RMB5.07 billion in traffic construction this year to build a 102 -kilometer long highway, two high-quality passenger-transportation lines, add 300 taxis to the roads and begin a number of other projects. The national highways 104 and 312 both pass by the city, and it is additionally linked to the surrounding cities in Jiangsu province as well as those in Zhejiang, Shandong and Hubei by long distance bus routes. Changzhou is situated on the main Shanghai-Beijing railway line and there is an urban rail project currently underway and due to be completed in 2015. The city also has a regional airport located 15 kilometers from the city center. Changzhou has a Category A cargo transport port located on the southern bank of the Yangtze river. There is also a passenger ferry in Changzhou, and the Beijing to Hangzhou Grand Canal which passes through the city is being expanded to include eleven 1,000MT-class berths and thirty-one 500MT-class berths as well as affiliated loading and unloading equipment. (China News Digest, 1/14/08)
Human Resources
-Changzhou is an educational hub and is home to several universities (including Ho Hai University, Changzhou Campus and Jiangsu University of Science and Technology) and middle schools (including Changzhou Middle School and Changzhou International School).
-The resumption of MG car production by Nanjing Automobile Corporation has helped to cement the relationship between a Birmingham university and a counterpart in China. The Technology Innovation Centre at the University of Central England has long been working with universities in China. Senior officials from Changzhou University Town have been among those visiting Longbridge to view NAC-MG's resumption of new MGTF production. (Birmingham Post, 6/20/07)
Economy
NANJING, March 20, SinoCast -- Changzhou, a city in China's eastern Jiangsu Province, has a thriving capital market, which supports a lot of companies to go public. The city now has 13 listed companies with 14 stocks, raising CNY 5.041 billion. Seven China-listed companies such as Changchai Company Limited, Changlin Co., Ltd., Far East Industrial Stock Co., Ltd., Jiangsu Xincheng Real Estate Co., Ltd. raised CNY 2.611 billion by issuing eight stocks. The rest six companies went public on oversea stock markets, raising CNY 2.43 billion. Three of the companies were listed on oversea stock markets last year like Changzhou Galaxy Electrical Appliance Co., Ltd. and Changzhou Trina Solar Energy Co., Ltd., raising nearly CNY 1 billion. The city plans to list five companies on oversea stock markets, and to encourage two listed companies to refinance and one company to issue bonds, to raise at least CNY 2 billion this year. As more companies in the city are listed, big investment organizations march into the capital market. Nine securities companies have set up 13 operational bodies with total transactions of CNY 106.273 billion last year. (9/27/07 Sinocast)
Companies
Trina Solar Limited ("Trina Solar" or the "Company"), a leading integrated manufacturer of solar photovoltaic products from the production of ingots, wafers and cells to the assembly of PV modules, founded in 1997, announced today the following updates relating to its previously stated capacity, operational, and technology roadmap targets that were achieved in the quarter ended December 31, 2007:
-- 150MW integrated capacity achieved for ingot, wafer, cell and module
production
-- Successful ramp up of new cell production lines No. 3-6
-- Increased in-house cell processing to over 75% for the Q4 2007
production
-- Realized in-house cell efficiency rates of up to 17.0%
(monocrystalline) and 15.6% (multicrystalline)
-- Commenced commercial production of 220-watt multicrystalline-based
modules
-Changzhou Dongfeng Agricultural Machinery Group realized an export value of RMB190.66M in 2006, up 34% year-on-year, and the company continued to maintain significant growth in exports in 2007, announced sources at the group on July 2nd. The group exported RMB94.2M of agricultural machines in the first five months of 2007, up 52% year-on-year. (7/3/2007)
- Swedish garden equipment maker, Husqvarna, has announced plans to build a new plant in Changzhou in China. The plant, which will cost around SEK 70mn (US$ 10.91mn EUR 7.64mn), replaces an existing plant and will increase the group's annual production by approximately 1 million units. Husqvarna plans in addition to invest SEK 20mn to increase production in the Zenoah facility in Kawagoe in Japan as well as expand its R&D operation. (Esmerk Swedish News, 11/6/07)
- Changzhou Pharmaceutical Factory Co. Ltd. in eastern China's Jiangsu Province announced yesterday that the company aims to develop a formulation department in the European Union after it received EU Good Manufacturing Practice (GMP) certification last week. The company is one of only a few Chinese drug makers so far to be awarded the EU GMP certificate for finished drug production, along with Zhejiang Huahai Pharmaceutical Co. Ltd., Zhejiang Hisun Pharmaceutical Co. Ltd., Wuxi Kaifu Pharmaceutical Co. Ltd., and Zhejiang Conba Pharmaceutical Co. Ltd. Industry insiders agree that more and more Chinese pharmaceutical companies are eyeing the European Union or the United States as potential markets for their generic drugs. (11/14/07 China Business Newswire)
- CHANGZHOU, China, Dec. 11 /Xinhua-PRNewswire/ -- US-based Biomet Inc., one of three largest medical devices manufacturers in the world, on the 11th signed an agreement with the Changzhou National Hi-Tech District, eastern China's Jiangsu province, Biomet has decided to make an investment of US$15 million in the Changzhou Export Processing Zone mainly for production of orthopaedic implants and medical devices…Han Jiuyun, Vice Mayor of Changzhou municipal government, noted in his speech that development of the medical industry was given priority in Changzhou's ''Eleventh Five-Year Plan,'' and Changzhou would continue to improve its excellent platform for receiving transferred international industrial capital so as to provide Chinese and foreign businessmen with even better, faster and more effective services. (PR Newswire, 12/11/07)
-S3 Investment Company, Inc. (SIVC) announced that its Redwood Capital, Inc. subsidiary has signed Changzhou HaiJai Metallurgical Machinery Manufacturing Co. Ltd. (CMMC), a provider of metal fabrication, as a new client for its reverse merger services. Redwood Capital will assist Changzhou HaiJai Metallurgical Machinery Manufacturing Co. with efforts to access the U.S. capital markets through a reverse merger into a U.S. public company. (Knobias, 5/15/07)
-China's Do How Chemical restarted September 23 its styrene monomer plant at Changzhou following a three-day shutdown, a company source said Monday. The 210,000 mt/year plant was shut September 20 as the Changzhou State Power Company, which supplies it with power, was undergoing a turnaround. The SM plant was running at 50% nameplate capacity as of Monday, a source said. The company expects to ramp up operating rates to 100% by Tuesday night, he added. Loss from the shutdown was estimated at 2,000 mt, leaving Do How with no spot supplies for September. In October, however, the company would have around 4,000 mt of SM for the spot market, the source said. In May, US private investment firm Ewing Management Group acquired an 80% controlling stake in Do How Chemical, the remaining 20% being held by Chinese investors. (Platts Commodity News, 9/24/07)
- CHANGZHOU, China, June 25 /Xinhua-PRNewswire/ -- Changzhou National Hi- Tech District announced today that on June 24 it was promoted to be one of the first international service outsourcing base cities at the provincial level in Jiangsu. The two special parks in Changzhou National High-Tech District, namely Changzhou Software Park and the Changzhou National Animation Base, have become the important carriers of the industry, and the district was selected as one of the top five "International Service Outsourcing Demonstration Zones in Jiangsu." Six enterprises in the district, including OKI Software Technology Co., Ltd. and Changzhou CIC-Futong Technologies Co., Ltd., were recognized as the first "Key Enterprises Undertaking International Service Outsourcing in Jiangsu Province." Changzhou began developing its fledgling animation industry in 2000. So far, 31 deals have been signed worth 520 million yuan. (9/27/07, China Daily; 6/25/07 PR Newswire)
- Changzhou XD Transformer Co., Ltd. completed the installation and testing of six ZHSFPTB-112000kVA/220kV three-phase on-load tap-changing autotransformers according to the requirements of a Kazakhstan-based electrolytic aluminum plant, and has put the equipment into operation 100 days ahead of schedule. With a total value of RMB140M, this is one of the cooperation projects between the Chinese and Kazakh Governments, contracted by China Nonferrous Metal Industry's Foreign Engineering and Construction Co., Ltd. The transformers are 12m long and 8.5m wide, weigh a total of 400t and consist of a main transformer and a voltage regulation transformer. (China Industry Daily News, 10/11/07)
-Changzhou Wujin Natsteel, now wholly owned by Taiwan's Walsin Lihuwa, is investigating a possible expansion into stainless melting and rolling in the future. Walsin Lihuwa, one of Taiwan's major stainless producers, recently purchased NSL China Investments - Changzhou Wujin Natsteel's parent company. Walsin Lihuwa is now keen to produce stainless at the newly acquired Changzhou plant, according to sources. (3/19/07, Steel Business Briefing)
- Walsin Lihwa Corp (1605.TW), the world's third-largest supplier of copper wire, said it will proceed with its expansion in China as planned, regardless of new mainland labor regulations that will increase costs for manufacturers starting next year. "Our expansion is moving forward in accordance with our previously set road map," Walsin spokesman Lin Wang-tsai said. "The increase in labor costs is not seen as significant enough to put us off track," he added. Under the new Chinese labor rules that take effect Jan 1, companies must sign their employees to labor contracts. Short-duration contracts will be more closely controlled: after two consecutive short-term contracts the worker's next contract will have to be open-ended. (Xinhua Asia, 12/20/07)
-Peoria Tube Forming Corp., an Illinois firm that makes metal tubes and pipes for the likes of Volvo and Caterpillar, has 60 employees in Changzhou -- almost as many as the 70 workers it employs in its home factory, according to the company's president, Rodger Butler. All but two of the firm's Changzhou employees are Chinese, and all of them were recruited at the city's large and recurring job fair, Butler said. Peoria Tube's wholly owned Chinese subsidiary, Pacific Changzhou Tubing Co., accounts for $3 million of annual revenue, Butler said, compared with $12 million in annual revenue from the U.S. operation. Although the Peoria shop still leads in producing revenue, Butler said the company sees its greatest growth potential in Changzhou, where labor costs are much lower than in the United States and only 25 to 30 percent of the labor costs in more famous Shanghai. (New York Times, 3/21/06)
Real Estate
- Kardan NV says its real estate subsidiary GTC Real Estate will purchase an additional land plot in Changzhou, China, located next to the land plot that was acquired earlier this year. The group adds an additional 90,035 square metres of land and approximately 252,000 square metres of building rights to the project announced mid January, when Kardan said it would develop its sixth real estate project in China after winning a tender to acquire 104,000 square metres of land for 18.4 mln eur. With this acquisition, the original land plot (of 104,000 square metres with building rights up to approximately 290,000 square metres) will be increased to a total of 194,035 square metres with building rights up to approximately 542,000 square metres. (AFX International, 2/1/08)
-Howard Johnson Hotel, a five-star hotel brand under the USA-based Wyndham Group, signed a cooperation agreement on the Kaina Business Plaza project on April 9th with Changzhou Rojana Real Estate Development Co Ltd, a subsidiary of Rojana Industrial Park Public Co Ltd in Thailand. Howard Johnson will join the Kaina Business Plaza project, the tallest project in Changzhou City. They will provide hotel management services to the project and property management services to the project's hotel apartments. Their cooperation marks the development in Changzhou City of a new type of residential accommodation, the hotel apartment. (4/11/07, China Industry Daily News)
- In recent months, Changzhou City's vacant apartment area saw a rapidly increasing trend. By the end of 2007, the City's vacant apartment area covered 658,000sq.m, with the vacant area of residential apartments and business operations apartments accounting for 263,000sq.m and 300,000sq.m respectively, surging by 28.5%, 47.8% and 9.7% year-on-year. However, the vacant office space in the City dropped by 50.1% when compared to the end of 2006 to 14,000sq.m last year. (China Industry Daily News, 1/22/08)
-Investment in Changzhou City's real estate development reached RMB22.5bn in 2007, surging by 31.6% year-on-year. In terms of apartment types, completed investment in the development of residential apartments, office buildings and business operations apartments was RMB15.92bn, RMB670M and RMB3.38bn respectively, surging by 29%, 32.8% and 29.1% year-on-year, with other investment soaring by 54.3% to RMB2.53bn. The completed apartment area in Changzhou City exceeded 6 million sq.m in 2007, with the year-on-year growth rate exceeding 50%. More specifically, the completed residential apartment area covered more than 4.7 million sq.m, soaring by nearly 60%. (China Industry Daily News, 1/22/08)
-Harbour Centre Development (51) said it succeeded in bidding a piece of land located in Changzhou, the PRC with a site area of4.43 million sqft and a total GFA of about 8.68 million sqft at Rmb1.47 billion through its wholly-owned Cheer Sky Investment. The group said it will develop the Changzhou land into residential and hotel properties. (12/30/07, ET Net News)
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