TEST PAGE

What is The China Story?

2008-03-14T23:04:00.001-07:00

What is the China Story? What is the hype about? I search the internet there is little information on this hype up topic.

Introduction
The rise of the Chinese Economy begins with "The Chinese Economic Reform". Deng Xiaopeng pushed forward the reform in the late 1970s which bring about

1. Foreign Investments primarily from Taiwan & Hong Kong come to China to setup factories.
2. China Trade Export increase consistently.
3. China to U.S trade gap increases and so is it foreign reserve.

25 years later we are witnessing the "Economic Miracle".

1. Robust GDP growth of approximately 10% per annum
2. Yuan/USD appreciation 5 %( 2006), 6.7 %( 2007), 8 %( 2008), 8-10% per annum (2010)
3. Massive Rural to Urban migration estimate 0.1Billion people per annum
4. Interest Rate Disparity i.e. low interest rate in US & Japan vs. rising interest rate in China leads to massive inflow of liquidity into China
5. Excess liquidity due to Chinese people wealth increase
6. In average companies report 20% profit increase year on year.

In the next 20 years

China is still poor compare to the West. Middle class comprise only 5% of the population compare to 50% in the West. The economic change has only just started. McDonald and KFC for example is cheap fast food restaurant outside China but is a luxury here. Credit card and medical insurance are still very unpopular but are growing rapidly. Five to ten years from now a substance of companies' earning with come from these kinds of new business activities.

So is it another dot com hype and why do people care?

Foreign institutions have been the substantial share holders of many H Share companies since IPO. I am listing a few H Share companies; you will see the all familiar big investment banks e.g. Morgan Stanley, JP Morgan, etc. They normally own 5% - 49% of the company. Foreign institutions are not allowed to own 50% or more. But 48% of Ping An Insurance is a lot of money. Consider the share price had rocket 10 folds from $HK10.33 to peak of over $HK110.

Foreign H Share substantial holdings as of 2007

China Life Insurance Company H Shares (2628.HK)
J.P. MORGAN CHASE 7%
LEE SHAU KEE (Richbo) 5%

ICBC (1398.HK)
SOC SEC FUND 17%
Goldman Sachs 20%
Allianz SE 8%

Ping An Insurance Group (2318.HK)
HSBC Holdings 48%

Bank of China (3988.HK)
RBS China Inv 28%
SOC. SEC Fund 15%
Temasek Holdings 15.5%
Morgan Stanley 5.5%

China Shenhua (1088.HK)
J.P. Morgan Chase & Co 10%
Merrill Lynch & Co 7%
Alliance Berstein 6%
Taurus Investment SA 5%

Conclusion

Foreign financial institutions own a big part of the Chinese Stock Market and has made huge profit from its recent 3 years rally. There are many more non financial related winning parties e.g. Wal-mart, McDonald, KFC, Johnson&Johnson, and the list of big names is long. They are all making huge profits from China in their own ways. It is not a hype.

What is The China Story?

2008-03-14T23:04:00.000-07:00

Foreign H Share substantial holdings as of 2007

China Life Insurance Company H Shares (2628.HK)
J.P. MORGAN CHASE 7%
LEE SHAU KEE (Richbo) 5%

ICBC (1398.HK)
SOC SEC FUND 17%
Goldman Sachs 20%
Allianz SE 8%

Ping An Insurance Group (2318.HK)
HSBC Holdings 48%

Bank of China (3988.HK)
RBS China Inv 28%
SOC. SEC Fund 15%
Temasek Holdings 15.5%
Morgan Stanley 5.5%

China Shenhua (1088.HK)
J.P. Morgan Chase & Co 10%
Merrill Lynch & Co 7%
Alliance Berstein 6%
Taurus Investment SA 5%

Conclusion

1984 Shenzhen photos with Apocalypse Now Brando Funny Remixed.

2008-03-13T09:39:00.001-07:00

Part of the remixed transcript.

"
Horror.
Horror.
Willard you have right to call me a murderer. You have a right to kill me.
You have a right to do that...
But you have no right to cry to wept like some grandmother.
God I wanted to tear my teeth out !
"

This is the orignal clip.

WILLARD (v.o.)
"On the river, I thought that the minute I looked at him, I'd know what
to do, but it didn't happen. I was in there with him for days, not under
guard - I was free - but he knew I wasn't going anywhere. He knew
more about what I was going to do than I did. If the generals back in
the Trang could see what I saw, would they still want me to kill him?
More than ever probably. And what would his people back home want if
they ever learned just how far from them he'd really gone? He broke
from them and then he broke from himself. I'd never seen a man so
broken up and ripped apart..."

KURTZ
" I've seen horrors...horrors that you've seen. But you have no right to call
me a murderer. You have a right to kill me. You have a right to do that...But
you have no right to judge me. It's impossible for words to describe what is
necessary to those who do not know what horror means.
Horror. Horror has a face...And you must make a friend of horror. Horror and
moral terrorare your friends. If they are not then they are enemies to be feared.
They are truly enemies. I remember when I was with Special Forces...Seems
a thousand centuries ago...We went into a camp to innoculate the children.
We left the camp after we had innoculated the children for Polio, and this old
man came running after us and he was crying. He couldn't see. We went
back there and they had come and hacked off every innoculated arm. There
they were in a pile...A pile of little arms. And I remember...I...I...I cried...
I wept like some grandmother. I wanted to tear my teeth out. I didn't know what I
wanted to do. And I want to remember it. I never want to forget it. I never want
to forget. And then I realized...like I was shot...Like I was shot with a
diamond...a diamond bullet right through my forehead...And I thought:
My God...the genius of that. The genius. The will to do that. Perfect,
genuine, complete, crystalline, pure. And then I realized they were
stronger than we. Because they could stand that these were not
monsters...These were men...trained cadres...these men who fought with
their hearts, who had families, who had children, who were filled with
love...but they had the strength...the strength...to do that. If I had ten
divisions of those men our troubles here would be over very quickly. You
have to have men who are moral...and at the same time who are able to
utilize their primordal instincts to kill without feeling...without passion...
without judgement...without judgement. Because it's judgement that
defeats us. "

KURTZ (to Willard)
"I worry that my son might not understand what I've tried to be.
And if I were to be killed, Willard, I would want someone to go
to my home and tell my son everything. Everything I did, everything
you saw... Because there is nothing I detest more than the stench
of lies. And if you understand me, Willard, you'll do this for me."

1984 Shenzhen photos with Apocalypse Now Brando Funny Remixed.

2008-03-13T09:39:00.000-07:00

1980s Shenzhen photos comparison

2008-03-12T19:41:00.001-07:00

The photos source is from www.sznews.com but this site is in Chinese so I will help my readers with the description translation.

A 27 year old small town.

http://www.sznews.com/news/content/2007-08/24/content_1455209.htm

1983 Shenzhen River border between Hong Kong and Shenzhen & now.

Shenzhen DongMen when the special economic zone just established & now.

1979 Shenzhen Dongmen flooded after heavy rain & now where McDonald is.

1983 Shenzhen Shekou village & now (where foreigners work and live)

1983 Shenzhen Hong Kong border & now.

1983 Shenzhen Shennan Road Electronic Square & now.

1980s Shenzhen photos comparison

2008-03-12T19:41:00.000-07:00

1979 Shenzhen Dongmen flooded after heavy rain & now where McDonald is.

1983 Shenzhen Shekou village & now (where foreigners work and live)

1983 Shenzhen Hong Kong border & now.

1983 Shenzhen Shennan Road Electronic Square & now.

Chinese Economic Reform

2008-03-12T18:10:00.001-07:00

Wikipedia has an article on the subject I thought I will share this with my readers in order to better under the China Story.

Since Deng XiaoPeng started the Chinese Economic reform in 1978 it have helped lift millions of people out of poverty, bringing the poverty rate down from 53% of the population in 1981 to 8% by 2001. Chinese economic reform has been undertaken through a series of phased reforms.

1983 Shenzhen Shennan Road at the village where the (地王大厦）Shun Hing Square is locate today, shown in the center of the google map below.

1983 Shenzhen Shennan Road (Source http://www.sznews.com/)

Today Shennan Road has become Shenzhen people's pride. (Source http://www.sznews.com/)

Shennan Road from Google Map.

In general, these reforms were not the results of a grand strategy, but as immediate responses to pressing problems. In some cases, such as the closing of state enterprises, the government has been forced by events and economic circumstances to do things that it did not want to do. As of 2005, 70% of China's GDP is in the private sector. The relatively small public sector is dominated by about 200 large state enterprises concentrating mostly in utilities, heavy industries, and energy resources.

The reforms of the late 1980s and early 1990s focused on creating a pricing system and decreasing the role of the state in resource allocations. The reforms of the late 1990s focused on closing unprofitable enterprises and dealing with insolvency in the banking system. After the start of the 21st century, increased focus has been placed on narrowing the gap between rich and poor in China.

Chinese economic reform, unlike perestroika, has been an economic success, generating over two decades of rapid economic growth. The standard of living of most Chinese has improved markedly since 1978. The CCP goal of modernization also seems to be moving forward. Throughout China one can witness the rapid modernization of infrastructure, including new superhighways, airports, and telecommunications facilities - for instance, Shanghai now has a magnetic levitation train.

The first parts of Chinese economic reform involved implementing the household responsibility system in agriculture, by which farmers were able to retain surplus over individual plots of land rather than farming for the collective. This was followed by the establishment of TVE's, which were industries owned by townships and villages. An open door policy was introduced by which the PRC began to allow international trade and foreign direct investment. These initiatives immediately increased the standard of living for most of the Chinese population and generated support for later, more difficult, reforms.

The second phase of reform occurred in the 1980s and was aimed at creating market institutions and converting the economy from an administratively driven command economy to a price driven market economy. This difficult task of price reform was achieved using the dual-track pricing system, in which some goods and services were allocated at state controlled prices, while others were allocated at market prices. Over time, the goods allocated at market prices were increased, until by the early-1990s they included almost all products.
In the late 1980s the Chinese economy was still transitioning steadily, as it moved cautiously away from central planning and gradually adopted some more of the institutions and mechanisms of a market economy. The process of economic reform began in earnest in 1979, after Chinese leaders concluded that the Soviet-style system that had been in place since the 1950s was making little progress in improving the standard of living of the Chinese people and also was failing to close the economic gap between China and the industrialized nations.

The first major success of the economic reform program was the introduction of the responsibility system of production in agriculture, a policy that allowed farm families to work a piece of land under contract and to keep whatever profits they earned. By 1984 the responsibility system had dramatically increased food production, and the government had eliminated the people's communes--the hallmark of Chinese socialism for over twenty years. In most other sectors of the economy the role of government was reduced, managers were given more decision-making power, enterprises were encouraged to produce for profit, the role of the private sector increased, and experimentation with new forms of ownership began in the state sector. Constraints on foreign trade were relaxed, and joint ventures with foreign firms were officially encouraged as sources of modern technology and scarce foreign exchange. With rising incomes, greater incentives, and rapid growth in the service and light industrial sectors, the People's Republic of China began to exhibit some of the traits of a consumer society.

Movement toward a market system, however, was complex and difficult, and in 1987 the transition was far from complete. Relaxing restrictions on economic activity quickly alleviated some of China's most pressing economic difficulties, but it also gave rise to a new set of problems. Inflation--the greatest fear of Chinese consumers--became a problem for the first time since the early 1950s, and along with new opportunities to seek profit came growing inequality in income distribution and new temptations for crime, corruption, and Western cultural styles, regarded by many older Chinese people as decadent and "spiritually polluting." The state still owned and controlled the largest nonagricultural enterprises, and the major industries were still primarily guided by the central plan.

Thus, the Chinese economy in the late 1980s was very much a mixed system. It could not be accurately described as either a centrally planned economy or a market economy. The leadership was committed to further expansion of the reform program as a requisite for satisfactory economic growth, but at the same time it was compelled to keep a tight grip on key aspects of the economy--particularly inflation and grain production--to prevent the emergence of overwhelming political discontent. Under these circumstances, forces in the economic system worked against each other, producing what the Chinese leadership called internal "contradictions." On the one hand, the economy was no longer tightly controlled by the state plan because of the large and growing market sector. On the other hand, the market could not operate efficiently because many commodities were still under government control and most prices were still set or restricted by government agencies. Under the leadership of Deng Xiaoping, the entire nation was "riding the tiger"--making great progress but not entirely in control--and therefore unable to stop the process without risk.

Despite the burst of progress in the 1980s, the Chinese economy still shared many basic characteristics with the economies of other developing countries. The gross national product per capita in 1986 was ¥849, or about US$228 (at the 1986 exchange rate), reflecting the low average level of labor productivity. As in many countries that did not begin sustained industrialization efforts until the middle of the twentieth century, the majority of the Chinese labor force--over 60 percent--was still employed in agriculture, which produced around 30 percent of the value of national output. Agricultural work still was performed primarily by hand. Modern equipment was in general use in industry but was largely typified by outdated designs and low levels of efficiency.

In other respects China's economy was quite different from those of most developing nations. The most important difference was that the Chinese economy--although in the midst of far-reaching changes--was organized as a socialist system, directed by a central planning structure. The predominance of state and collective ownership, firm central control over the financial system, redistribution of resources among regions, rationing of grain, and subsidized provision of housing resulted in a pattern of income distribution that was much narrower than those in almost all other developing countries. There was relatively little true capitalism in the form of private ownership of productive assets. Agricultural land was farmed under lease by farm households but was formally owned by villages, towns, and townships--the collective units that had replaced the rural commune system.

In the mid-1980s most Chinese were still very poor by American standards, but several important measures indicated that the quality of their lives was considerably better than implied by the level of gross national product (GNP) per capita. According to World Bank data, in 1984 energy consumption per person was 485 kilograms of oil equivalent, higher than that for any other country ranked as a low-income country and greater than the average for lower middle-income countries. In 1983 the daily calorie supply per capita was 2,620--11 percent above the basic requirement and nearly as high as the average for countries classified as upper middle-income countries. Significantly, infant mortality in 1985 was 39 per 1,000, well below the average for upper middle-income countries, and life expectancy at birth was 69 years, higher than the average for upper middle-income countries.

Despite the major economic gains made by China since 1949 and the dramatic advances of the 1980s, serious imbalances and deficiencies have persisted. Contributing to these deficiencies were the political turmoil that disrupted the economy during the Cultural Revolution decade (1966-76), insufficient flexibility in the planning process, and serious inaccuracies in price structures. Power shortages, inadequate transportation and communication networks, shortages of technicians and other highly trained personnel, insufficient foreign exchange for procurement of advanced technology from other countries, and inadequate legal and administrative provisions for both foreign and domestic trade further hindered modernization.

An important by-product of the reform program since the late 1970s has been an enormous increase in the amount of information available on the economy. The government collected and published basic national economic data in the 1950s, but the centralized statistics-keeping system broke down at the end of the 1950s, and very little statistical information was available during the 1960s and early 1970s. It was not until 1979 that the State Statistical Bureau ended the statistical "blackout" with the publication of an economic statistical communique. In subsequent years the State Statistical Bureau published larger and more frequent compendia, including annual almanacs of the economy and annual statistical yearbooks, which became progressively more sophisticated and informative. In addition, most provincial-level units and cities, as well as the major industries and economic sectors, such as coal mining and agriculture, began to produce their own specialized statistical yearbooks. In the early 1980s, numerous new periodicals, many of which specialized in economic data and analysis, started publication. Although Chinese statistical definitions and practices still differed from those in other countries in many respects and the accuracy of some figures was called into doubt even by Chinese economists, foreign analysts in 1987 had access to a rich and growing body of data that would support extensive analysis of the Chinese economy.

However the transition to a market based system in the early 1990's created two major problems. First the end of central planning required the creation of mechanisms to set monetary policy, and a system of banking and capital markets. Work was done throughout the 1990s to put these systems in place.

Another problem involved that of state owned enterprises. Under a system of fixed prices, the inputs and output prices of SOE's were fixed, allowing them to use the difference to fund social services. Once input and output prices were market based, most of the SOE's then became extremely unprofitable, both because they were responsible for social service provision to their employees and because they were producing outputs that no one wanted to buy. This was temporarily resolved by borrowing from the banking system, but this created the problem of massive non-performing loans. In the late 1990s and early 2000s, this problem was dealt with by the closing of unprofitable state-owned factories and the development of social security systems.

Chinese Economic Reform

2008-03-12T18:10:00.000-07:00

Wikipedia has an article on the subject I thought I will share this with my readers in order to better under the China Story.

1983 Shenzhen Shennan Road at the village where the (地王大厦）Shun Hing Square is locate today, shown in the center of the google map below.

Dog

2008-03-11T11:11:00.000-07:00

Retail

Inventory

The Factory

Dog

2008-03-11T10:54:00.001-07:00

If you find this disgusting then do not click HERE.

Dog

2008-03-11T10:54:00.000-07:00

If you find this disgusting then do not click HERE.

The Chinese Military Budget vs The U.S. might not be as low as you think.

2008-03-11T08:52:00.001-07:00

First the U.S. is afraid of China's military spending and now people are not afraid anymore because they figure the U.S.'s spending is ten times higher than the Chinese. Actually it is six times higher shown in the chart below. You can find this and other related figures in this World Military Spending article.

To reiterate this general view, George Bush once regarded China as 'Strategy Competitor' has since changed his stance to be 'Strategy Competitor'. You can read the full report from Foreign Policy Research Institute site.

A Chinese general once said the U.S. Military Spending is ten times bigger than us. If the U.S. is afraid then they must lack courage.

However the REAL Chinese spending might not be as low as you think. The above chart shows in 2008 China's Military Spending is $USD122M vs. the U.S. $USD711M. Roughly this is 1 to 6 ratios. The problem with this is the figures are in US dollar. According to wikipedia I figure the average salary in the U.S. is nothing below $USD 1000/month. However in China we are talking about $USD100-300/month. $100 if you are a factory worker and $300 if you are lucky enough to work in an office.

So while $USD1000 can pay for less than one U.S solder, you can get ten in China. Similarly you can feed your solder and provide them with accommodation much cheaper in China. So instead of 1 to 6 ratios, it could be China 2 vs. U.S. 1. China is actually spending more than the U.S. on military. Ok so you can not get the state of the art technology in China no matter what you pay. But you can get a cheap clone for a fifth of the price. One F16 might not have enough missiles to shoot down five Chinese cheap fighter jets.

The Chinese Military Budget vs The U.S. might not be as low as you think.

2008-03-11T08:52:00.000-07:00

Housing Market in China

2008-03-11T03:28:00.001-07:00

People including Hong Kong typcoon Mr. Li Shau Kee who turned $HK50 billion to $HK200 billion believes that in the long run properties market in China has a huge potential. One reason is China is still undergoing the process of rural to urban population migration. That is people leaves small villages in China and go to big Chinese cities to look for jobs and then start their own business. These people will need housings. The statistics is like there are 12billion people in the whole China and only 4billion are in big cities like Shenzhen and Shanghai. So there is a lot more to go. I can confirm this trend because my wife is born in rural china and so is her whole family and now they are in the big cities. However the problem is average salary in big cities are less than 2000 yuan. Blue collar which is the middle class who sits in he office makes less then 3000 yuan in average and right now that is less than 5% of the population. The house price is very high. A typical house in a small city cost 300,000 yuan and in big city cost 50,000 yuan. So right now, not even the blue collar can afford to buy house. The only people who can are right business people. The rich people in China are very rich and so the poverty gap is huge in China.
So what does this mean ? Should we buy Chinese property stocks or not ? In the long run yes but in the short run, I think there is an over supply and property price is too high and stock P/E is still high despite market correction. Let's look at the below photos taken in Nanning in Guangxi. As far as the eye can sees on both sides of the road, these are new building waiting to be sold. So really there is too many new properties and I do not think there is that much real buyers. Yes there housing price rose enormously since 2005 but a lot of these are due to local and foreign speculators who bought big chunk of properties to push up prices. The price is too high for any ordinary users to purchase. So I think property price is too high and the stock price of these property stocks are too high also with average P/E over 45. But in the long run China is still very underdeveloped. The below is A photo of the current Nanning City, note very flat and not much high rise building. Photo B is Walmart in Nanning. Now just image the whole city starts to look like photo B and imagine the property price then.
Photo A
Photo B
Too hard to imagine ? Not me because I kind of witness this kind of change in Shenzhen. In 2004, the train station and it s nearby roads are dusty and dirty and now it is beautiful. It just took 2-3 years. So in the long run, these properties and companies who make these properties will worth even more. Especially when the yuan is appreciating 7% per annum.

The Long Bull Market?

2008-03-11T03:27:00.001-07:00

Many believe China is going through a prolong bull market from 2005 to 2010. Those who believed in, stuck with the story and had bought shares since 2005 had made over 110% annual return since 2005. For those of you who can read Chinese, Professor Ching had written many books on the subject.
"Five years of great prosperity"
"Long Bull Market. Change Trading Style"
"Value Investing"
"Long Term Buy. Do Not Sell."
"Warning! Beware of The Stock Market."
These books can only be found in China's bookstore. I mention Profession Ching and his books because I wish to show our readers how Chinese People view their country and economy. You will also notice how the Chinese' investment approaches differ from the west.
Professor Ching's blog is http://840924.blog.sohu.com/ (in Chinese only).
Basically Professor Ching and his followers believe that they are value and qualitative investors similar to Warren Buffett. Their strategy is to pick big companies with good future earnings like Bank, Energy, Property and Financial stocks. As the title of one of his book suggests, once they buy they will hold onto them for a long time. I do not totally agree with Professor Ching. For example I do not believe that buying shares with PE ratio of over 50 is buying value. Also Professor Ching recently contradicts his 'Buy and Hold' theory and told his followers to sell in June 2008 before the Chinese Olympic and then buy back in 2009.
However Professor Ching has a lot to say about the China Story and its economy. I will talk about this in my other article "The China Story" but now I wish to briefly mention the strange behavior of the Chinese Stock Market and you might find that the market behavior resemble Professor Ching's investment theory.
To remind our readers, the Chinese stock market started its bull run in the middle of June 2005. The Shanghai SSE Composite index was 1000. By end of 2006 the index has more than doubled it value to above 2000. By November 2007, the index tripled it value again to reach a peak of 6000.
I wish to highlight that the Chinese Stock market price movement is somehow different than the Dow Jones Industrial index for example. Firstly, one will notice that the market index can keep on doubling itself year on year without any corrections. In January 2007 there was a market correction and Chinese people were queuing in the morning to buy the shares at a lower price. Secondly you will find that Chinese people keep pouring money into shares with exceptionally high PE ratio. At first I felt that this is due to their immaturity with trading. However after reading Professor's Ching's books I wonder if they know something we don't.
The January 2007 correction was triggered by the Chinese government who were worried that the stock market was rising too rapidly. Hence they announced that they will raise the stock transaction levy. After the market fell, the government denied the announcement to prevent a further possible market crash. Chinese people were very angry at the government and went to the government office to complain. One can see that the Chinese government is not as mature in handling this kind of matters.
In July 2007, Chinese stocks listed in China and Hong Kong had another major correction trigger by the sub prime issue. Once again, in China people queue up in the morning to buy shares at the lower price. And in Hong Kong there was a rumor about the 'Straight Through Train'. Which basically means the Chinese government will allow its people to directly invest in Hong Kong. This had pushed the Hang Seng index from 22000 points to its peak of 33000 in November 2007, approximately 50% in four months. It is rumored that the mainland Chinese people had sent their money via the black market channel to Hong Kong and bought shares. One can again feel that the mainland Chinese people behave very differently in their trading methodology with investors in the West.
The November market fall is a different story. It proved to be the start of a down trend. However many still believes that China stocks will keep rising. The reasons include - 1. Rising Yuan, 2. Increase GDP, 3. Or let's put it this way, China is an emerging market with very little and if it was to become the U.S then the existing companies will be doing much more business and worth much more in the future. I will cover this in my article 'The China Story'.
Finally what is to become of the 5 years of great prosperity and the long bull market? It is 2008 and we are still 2 years away from the end. Right? To analyse this question let's look at the share price performance of China Life Insurance which is listed in U.S, Hong Kong and mainland China. (Note I am not trying to answer the question because I don't claim to know the answer but I will provide knowledge and insights for the readers to come up with their own answers. This is my style you will see in pretty much all my articles. )
We can look at the share price of China Life Insurance for our purpose because other Chinese share price pretty much follows the same pattern. The IPO price of China Life Insurance in 2003/12/18 was $HK3.59. Peak price in November 2009 is $HK53. Current price is $HK28.

From a technical analysis which your author claims to be an expert, one can see that in January 2007 the share price appear overbought. One can use the longer term moving average as the fair price. The share price fall back onto the moving average's fair price and then continue its bull run. You can see the same kind of action in July 2007. Because of this kind of movements many including Professor Ching had reaffirmed their view on the Long Bull Run theory. In November 2007, again the share price is overbought but this time the share price has broken through the moving average. We are in a Bear Market. Despite the price had fallen 50%. The China Story is still intact i.e. GDP will continue to rise, the Yuan will rise again the U.S dollar by another 8% and company will still report strong earnings. Therefore there is still a possibility that the price can continue to sour this year.
The flip side of the story is inflation in China is at a record high and Chinese government is pulling the reign to prevent further inflation. The world is at the start of a recession. The global market sentiment is bad. So PE ratio investors willing to accept are lower.
Where are institutions and the business putting their money? In the recent HSBC annual general meeting Stephen Green says they will continue to invest in emerging markets like China, India, Russia and Brazil. In think in the longer run this is a good strategy because no matter what the market sentiment is at the moment. These emerging markets are still growing very rapidly. Earning will continue to improve rapidly. Unless company earnings fall into a negative feedback cycle as explain in George Soros' "Alcamy of Finance". In a way a lot of Chinese companies' earnings in 2007 came from share price appreciation from Chinese stocks they own. If the stock market do well then their earnings improve which also lead to higher share price of the companies and the cycle continues. However the sub prime issue had triggered a negative cycle. The market is not doing well and so their earnings will be weak, etc, etc.

Purpose of this coverage

2008-03-11T03:26:00.000-07:00

For years I have heard that many foreign investments had entered into China to tap its huge potential market. At the time when I heard the story about making one dollar from selling to the billions of people in China then we can be billionaires I didn’t quite visualise how the China I know fit into the story. From the places I have visited in China, I could still see that the average wage is $USD100-$USD200 per month. I not talking about the very rural area but the places like Shenzhen and Shanghai. So I was wondering how do foreign corporation make moneys from these people when they don’t have the money. I hope to paint a picture for those who like to know the real China vs the China story.
Within the last few years, the Chinese Stock market soars like it never did before. Companies report huge earnings growth. At the time of this writing, it is Christmas 2007. The Chinese stock market is below 20% from its peak. Chinese stock market is face with fear of the US recession, credit crunch from the US subprime problem, record high inflation in China, the Chinese government’s monetary policy to dampen the economy and not to mention fear of Chinese stock & housing market bubble. Some people including Asia’s Warren Buffett (Mr Li Shau Kee) still believes in the Long Bull Market and told people that he had bought $HKD10Billion worth of Shenhua, Cnooc, China Life, CMB, China Overseas and the HKEX. I have followed his advise and bought some too. I have read all these companies’ financial report like a good investor do. While I am in China, I have been observing the some changes. So I can write a few words about these sectors to try to bring some life to these sectors’ research report. See if there are any hypes …..
I have also added a section on Geely auto because I bought some shares on Geely based on pure technical analysis. Then the stock fell eventhough the new low is higher then the previous low. I think we have all seen this kind of result from trading purely from a technical point of view. Because of my affinity with Geely auto. I have kept my eyes open and noticed that there aren’t too many Geely car in the street. So I decide to write a section on the auto industry to show the things I have seen and compare it with the financial report

Housing Market in China

2008-03-08T17:55:00.001-08:00

People including Hong Kong tycoon Mr. Li Shau Kee who turned $HK50 billion to $HK200 billion believes that in the long run properties market in China has a huge potential. One reason is China is still undergoing the process of rural to urban population migration. That is people leave small villages in China and go to big Chinese cities to look for jobs and then start their own businesses. These people will need housings. The statistic is there are 12billion people in the whole China and only 4billion are in big cities like Shenzhen and Shanghai. It is estimate 0.1billion people migrate to cities each year. So there is a lot more to go. I can confirm this trend because my wife is born in rural china and so is her whole family and now they are in the big cities. However the problem is average salary in big cities are less than 2000 Yuan. Blue collar which is the middle class who sits in he office makes less then 3000 Yuan in average and right now that is less than 5% of the population. The house price is very high. A typical house in a small city cost 300,000 Yuan and in big city cost 50,000 Yuan. So right now, not even the blue collar can afford to buy house. The only people who can are right business people. The rich people in China are very rich and so the poverty gap is huge in China.

So what does this mean? Should we buy Chinese property stocks or not? In the long run yes but in the short run, I think there is an over supply and property price is too high and stock P/E is still high despite market correction. Let's look at the below photos taken in Nanning in Guangxi. As far as the eye can sees on both sides of the road, these are new building waiting to be sold.

So really there are too many new properties and I do not think there is that much real buyers. Yes the house price rose enormously since 2005 but a lot of these are due to local and foreign speculators who bought big chunk of properties to push up price. The price is too high for any ordinary users to purchase. So I think property price is too high and the stock price of these property stocks is too high with average P/E over 45. But in the long run China is still very underdeveloped. The below is A photo of the current Nanning City, note very flat and not much high rise building. Photo B is Wal-mart in Nanning. Now just image the whole city starts to look like photo B and imagine the property price then.

Photo A

Photo B

Too hard to imagine? Not me because I witness this kind of change in Shenzhen. In 2004, the train station and it s nearby roads are dusty and dirty and now it is beautiful. It just took 2-3 years. So in the long run, these properties and companies who make these properties will worth even more. Especially when the Yuan is appreciating 8% per annum.

Housing Market in China

2008-03-08T17:55:00.000-08:00

The Long Bull Market?

2008-03-08T17:26:00.001-08:00

Many believe China is going through a prolong bull market from 2005 to 2010. Those who believed in, stuck with the China Story and had bought shares since 2005 had made over 110% annual return since 2005. For those of you who can read Chinese, Professor Ching had written many books on the subject.

"Five years of great prosperity"

"Long Bull Market. Change Trading Style"

"Value Investing"

"Long Term Buy. Do Not Sell."

"Warning! Beware of The Stock Market."

These books can only be found in China's bookstore. I mention Profession Ching and his books because I wish to show our readers how Chinese People view their country and economy. You will also notice how the Chinese' investment approaches differ from the west.

Professor Ching's blog is http://840924.blog.sohu.com/ (in Chinese only).

Basically Professor Ching and his followers believe that they are value and qualitative investors similar to Warren Buffett. Their strategy is to pick big companies with good future earnings like Bank, Energy, Property and Financial stocks. As the title of one of his book suggests, once they buy they will hold onto them for a long time. I do not totally agree with Professor Ching. For example I do not believe that buying shares with PE ratio of over 50 is buying value. Also Professor Ching recently contradicts his 'Buy and Hold' theory and told his followers to sell in June 2008 before the Chinese Olympic and then buy back in 2009.

However Professor Ching has a lot to say about the China Story and its economy. I will talk about this in my other article "The China Story" but now I wish to briefly mention the strange behavior of the Chinese Stock Market and you might find that the market behavior resemble Professor Ching's investment theory.

To remind our readers, the Chinese stock market started its bull run in the middle of June 2005. The Shanghai SSE Composite index was 1000. By end of 2006 the index has more than doubled it value to above 2000. By November 2007, the index tripled it value again to reach a peak of 6000.

I wish to highlight that the Chinese Stock market price movement is somehow different than the Dow Jones Industrial index for example. Firstly, one will notice that the market index can keep on doubling itself year on year without any corrections. In January 2007 there was a market correction and Chinese people were queuing in the morning to buy the shares at a lower price. Secondly you will find that Chinese people keep pouring money into shares with exceptionally high PE ratio. At first I felt that this is due to their immaturity with trading. However after reading Professor's Ching's books I wonder if they know something we don't.

The January 2007 correction was triggered by the Chinese government who was worried that the stock market was rising too rapidly. Hence they announced that they will raise the stock transaction levy. After the market fell, the government denied the announcement to prevent a further possible market crash. Chinese people were very angry at the government and went to the government office to complain. One can see that the Chinese government is not as mature in handling this kind of matters.

In July 2007, Chinese stocks listed in China and Hong Kong had another major correction trigger by the sub prime issue. Once again, in China people queue up in the morning to buy shares at a lower price. And in Hong Kong there was a rumor about the 'Straight Through Train' which basically means the Chinese government will allow its people to invest directly in Hong Kong stock market. This had pushed the Hang Seng index from 22000 points to its peak of 33000 in November 2007, approximately 50% in four months. It is rumored that the mainland Chinese people had sent their money via the black market channel to Hong Kong and bought shares. One can again feel that the mainland Chinese people behave very differently in their trading methodology when compare with investors in the West who tend to be more cautious.

The November market fall proves to be the start of a down trend. However many still believes that China stocks will keep rising. The reasons include - 1. Rising Yuan, 2. Increase GDP, 3. Or let's put it this way, China is an emerging market with very little and if it was to become the U.S then the existing companies will be doing much more business and worth much more in the future. I will cover this in my article 'The China Story'.

Finally what is to become of the 5 years of great prosperity and the long bull market? It is 2008 and we are still 2 years away from the end. Right? To analyse this question let's look at the share price performance of China Life Insurance which is listed in U.S, Hong Kong and mainland China. (Note I am not trying to answer the question because I don't claim to know the answer but I will provide knowledge and insights for the readers to come up with their own answers. This is my style you will see in pretty much all my articles. )

We can look at the share price of China Life Insurance for our purpose because other Chinese share price pretty much follows the same pattern. The IPO price of China Life Insurance in 2003/12/18 was $HK3.59. Peak price in November 2009 is $HK53. Current price is $HK28.

From a technical analysis which your author claims to be an expert, one can see that in January 2007 the share price appears overbought. One can use the longer term moving average as the fair price. The share price fall back onto the moving average's fair price and then continue its bull run. You can see the same kind of action in July 2007. Because of this kind of movements many including Professor Ching had reaffirmed their view on the Long Bull Run theory. In November 2007, again the share price is overbought but this time the share price has broken through the moving average. We are in a Bear Market. Despite the price had fallen 50%. The China Story is still intact i.e. GDP will continue to rise, the Yuan will rise again the U.S dollar by another 8% and company will still report strong earnings. Therefore there is still a possibility that the price can continue to sour this year.

The flip side of the story is inflation in China is at a record high and Chinese government is pulling the reign to prevent further inflation. The world is at the start of a recession. The global market sentiment is bad. So PE ratio investors willing to accept are lower.

Where are institutions and businesses putting their money? In the recent HSBC annual general meeting Stephen Green says they will continue to invest in emerging markets like China, India, Russia and Brazil. In think in the longer run this is a good strategy because no matter what the market sentiment is at the moment. These emerging markets are still growing very rapidly. Earning will continue to improve rapidly. Unless company earnings fall into a negative feedback cycle as explain in George Soros' "Alchemy of Finance". In a way a lot of Chinese companies' earnings in 2007 came from share price appreciation from Chinese stocks they own. If the stock market do well then their earnings improve which also lead to higher share price of the companies and the cycle continues. However the sub prime issue had triggered a negative cycle. The market is not doing well and so their earnings will be weak, etc, etc.

The Long Bull Market?

2008-03-08T17:26:00.000-08:00

Many believe China is going through a prolong bull market from 2005 to 2010. Those who believed in, stuck with the story and had bought shares since 2005 had made over 110% annual return since 2005. For those of you who can read Chinese, Professor Ching had written many books on the subject.

"Five years of great prosperity"

"Long Bull Market. Change Trading Style"

"Value Investing"

"Long Term Buy. Do Not Sell."

"Warning! Beware of The Stock Market."

These books can only be found in China's bookstore. I mention Profession Ching and his books because I wish to show our readers how Chinese People view their country and economy. You will also notice how the Chinese' investment approaches differ from the west.

Professor Ching's blog is http://840924.blog.sohu.com/ (in Chinese only).

Basically Professor Ching and his followers believe that they are value and qualitative investors similar to Warren Buffett. Their strategy is to pick big companies with good future earnings like Bank, Energy, Property and Financial stocks. As the title of one of his book suggests, once they buy they will hold onto them for a long time. I do not totally agree with Professor Ching. For example I do not believe that buying shares with PE ratio of over 50 is buying value. Also Professor Ching recently contradicts his 'Buy and Hold' theory and told his followers to sell in June 2008 before the Chinese Olympic and then buy back in 2009.

However Professor Ching has a lot to say about the China Story and its economy. I will talk about this in my other article "The China Story" but now I wish to briefly mention the strange behavior of the Chinese Stock Market and you might find that the market behavior resemble Professor Ching's investment theory.

To remind our readers, the Chinese stock market started its bull run in the middle of June 2005. The Shanghai SSE Composite index was 1000. By end of 2006 the index has more than doubled it value to above 2000. By November 2007, the index tripled it value again to reach a peak of 6000.

I wish to highlight that the Chinese Stock market price movement is somehow different than the Dow Jones Industrial index for example. Firstly, one will notice that the market index can keep on doubling itself year on year without any corrections. In January 2007 there was a market correction and Chinese people were queuing in the morning to buy the shares at a lower price. Secondly you will find that Chinese people keep pouring money into shares with exceptionally high PE ratio. At first I felt that this is due to their immaturity with trading. However after reading Professor's Ching's books I wonder if they know something we don't.

The January 2007 correction was triggered by the Chinese government who was worried that the stock market was rising too rapidly. Hence they announced that they will raise the stock transaction levy. After the market fell, the government denied the announcement to prevent a further possible market crash. Chinese people were very angry at the government and went to the government office to complain. One can see that the Chinese government is not as mature in handling this kind of matters.

In July 2007, Chinese stocks listed in China and Hong Kong had another major correction trigger by the sub prime issue. Once again, in China people queue up in the morning to buy shares at a lower price. And in Hong Kong there was a rumor about the 'Straight Through Train' which basically means the Chinese government will allow its people to invest directly in Hong Kong stock market. This had pushed the Hang Seng index from 22000 points to its peak of 33000 in November 2007, approximately 50% in four months. It is rumored that the mainland Chinese people had sent their money via the black market channel to Hong Kong and bought shares. One can again feel that the mainland Chinese people behave very differently in their trading methodology when compare with investors in the West who tend to be more cautious.

The November market fall proves to be the start of a down trend. However many still believes that China stocks will keep rising. The reasons include - 1. Rising Yuan, 2. Increase GDP, 3. Or let's put it this way, China is an emerging market with very little and if it was to become the U.S then the existing companies will be doing much more business and worth much more in the future. I will cover this in my article 'The China Story'.

Finally what is to become of the 5 years of great prosperity and the long bull market? It is 2008 and we are still 2 years away from the end. Right? To analyse this question let's look at the share price performance of China Life Insurance which is listed in U.S, Hong Kong and mainland China. (Note I am not trying to answer the question because I don't claim to know the answer but I will provide knowledge and insights for the readers to come up with their own answers. This is my style you will see in pretty much all my articles. )

We can look at the share price of China Life Insurance for our purpose because other Chinese share price pretty much follows the same pattern. The IPO price of China Life Insurance in 2003/12/18 was $HK3.59. Peak price in November 2009 is $HK53. Current price is $HK28.

Purpose of this coverage

2008-03-08T17:24:00.002-08:00

For years I have heard that many foreign investments had entered into China to tap its huge potential market. At the time when I heard the story about making one dollar from selling to the billions of people in China then we can be billionaires I didn’t quite visualise how the China I know fit into the China Story. From the places I have visited in China, I could still see that the average wage is $USD100-$USD200 per month. I not talking about the very rural area but the places like Shenzhen and Shanghai. So I was wondering how do foreign corporation make moneys from these people when they don’t have the money. I hope to paint a picture for those who like to know the real China vs the China story.

Within the last few years, the Chinese Stock market soars like it never did before. Companies report huge earnings growth. At the time of this writing, it is Christmas 2007. The Chinese stock market is below 20% from its peak. Chinese stock market is face with fear of the US recession, credit crunch from the US subprime problem, record high inflation in China, the Chinese government’s monetary policy to dampen the economy and not to mention fear of Chinese stock & housing market bubble. Some people including Asia’s Warren Buffett (Mr Li Shau Kee) still believes in the Long Bull Market and told people that he had bought $HKD10Billion worth of Shenhua, Cnooc, China Life, CMB, China Overseas and the HKEX. I have followed his advise and bought some too. I have read all these companies’ financial report like a good investor do. While I am in China, I have been observing the some changes. So I can write a few words about these sectors to try to bring some life to these sectors’ research report. See if there are any hypes …..

I have also added a section on Geely auto because I bought some shares on Geely based on pure technical analysis. Then the stock fell eventhough the new low is higher then the previous low. I think we have all seen this kind of result from trading purely from a technical point of view. Because of my affinity with Geely auto. I have kept my eyes open and noticed that there aren’t too many Geely car in the street. So I decide to write a section on the auto industry to show the things I have seen and compare it with the financial report

Purpose of this coverage

2008-03-08T17:24:00.001-08:00

For years I have heard that many foreign investments had entered into China to tap its huge potential market. At the time when I heard the story about making one dollar from selling to the billions of people in China then we can be billionaires I didn’t quite visualise how the China I know fit into the China Story. From the places I have visited in China, I could still see that the average wage is $USD100-$USD200 per month. I not talking about the very rural area but the places like Shenzhen and Shanghai. So I was wondering how do foreign corporation make moneys from these people when they don’t have the money. I hope to paint a picture for those who like to know the real China vs the China story.

Within the last few years, the Chinese Stock market soars like it never did before. Companies report huge earnings growth. At the time of this writing, it is Christmas 2007. The Chinese stock market is below 20% from its peak. Chinese stock market is face with fear of the US recession, credit crunch from the US subprime problem, record high inflation in China, the Chinese government’s monetary policy to dampen the economy and not to mention fear of Chinese stock & housing market bubble. Some people including Asia’s Warren Buffett (Mr Li Shau Kee) still believes in the Long Bull Market and told people that he had bought $HKD10Billion worth of Shenhua, Cnooc, China Life, CMB, China Overseas and the HKEX. I have followed his advise and bought some too. I have read all these companies’ financial report like a good investor do. While I am in China, I have been observing the some changes. So I can write a few words about these sectors to try to bring some life to these sectors’ research report. See if there are any hypes …..

I have also added a section on Geely auto because I bought some shares on Geely based on pure technical analysis. Then the stock fell eventhough the new low is higher then the previous low. I think we have all seen this kind of result from trading purely from a technical point of view. Because of my affinity with Geely auto. I have kept my eyes open and noticed that there aren’t too many Geely car in the street. So I decide to write a section on the auto industry to show the things I have seen and compare it with the financial report

Purpose of this coverage

2008-03-08T17:24:00.000-08:00

For years I have heard that many foreign investments had entered into China to tap its huge potential market. At the time when I heard the story about making one dollar from selling to the billions of people in China then we can be billionaires I didn’t quite visualise how the China I know fit into the story. From the places I have visited in China, I could still see that the average wage is $USD100-$USD200 per month. I not talking about the very rural area but the places like Shenzhen and Shanghai. So I was wondering how do foreign corporation make moneys from these people when they don’t have the money. I hope to paint a picture for those who like to know the real China vs the China story.

Within the last few years, the Chinese Stock market soars like it never did before. Companies report huge earnings growth. At the time of this writing, it is Christmas 2007. The Chinese stock market is below 20% from its peak. Chinese stock market is face with fear of the US recession, credit crunch from the US subprime problem, record high inflation in China, the Chinese government’s monetary policy to dampen the economy and not to mention fear of Chinese stock & housing market bubble. Some people including Asia’s Warren Buffett (Mr Li Shau Kee) still believes in the Long Bull Market and told people that he had bought $HKD10Billion worth of Shenhua, Cnooc, China Life, CMB, China Overseas and the HKEX. I have followed his advise and bought some too. I have read all these companies’ financial report like a good investor do. While I am in China, I have been observing the some changes. So I can write a few words about these sectors to try to bring some life to these sectors’ research report. See if there are any hypes …..

I have also added a section on Geely auto because I bought some shares on Geely based on pure technical analysis. Then the stock fell eventhough the new low is higher then the previous low. I think we have all seen this kind of result from trading purely from a technical point of view. Because of my affinity with Geely auto. I have kept my eyes open and noticed that there aren’t too many Geely car in the street. So I decide to write a section on the auto industry to show the things I have seen and compare it with the financial report