Saturday, October 15, 2005



FILM, MANCHURIAN CANDIDATE: Allow me to introduce our American visitors --

PAUL SOLMAN: When I was growing up, the monomaniacal Red Chinese were Hollywood's baddest actors.

Censorship and economics

PAUL SOLMAN: But what does a culture of repression have to do with economics? Well, we Westerners assume that political freedom and technological innovation go hand in hand. And indeed, innovation is essential. For China to keep growing, it has to evolve into a more advanced economy; has to innovate because right now it relies almost entirely on exports, says MIT's Yasheng Huang.

YASHENG HUANG: Japan is usually viewed as a country obsessed with export and foreign trade; the ratio is about 20 percent. The US is a free trading nation; the ratio is about 20 percent. China has 70 percent of its GDP tied up in foreign trade.

PAUL SOLMAN: The Chinese economic miracle. You see it in the glitz and glimmer of the big cities, the hustle and bustle of new businesses. China's economy grew a dazzling 9.5 percent last year, leading the world, as it has the entire past decade. But to MIT's Yasheng Huang, the miracle isn't how fast China is growing, but how far it still has to go.

YASHENG HUANG: If you look at the economies after the Second World War, which succeeded in catching up and overtaking the West, each single one of them is located in East Asia.

PAUL SOLMAN: Huang is talking about South Korea, Taiwan, Japan, Hong Kong, and Singapore.

YASHENG HUANG: How come you have an economy that is growing around 8 to 9 percent churning out poor returns? That shows to me that the investment returns must have been very low, and probably even negative.

PAUL SOLMAN: The returns on the money invested in its publicly traded companies, that is. If the stock market goes up, those companies are presumably making money. If it goes down, they're presumably not. Even the so-called father of Chinese venture capital, high party official Cheng Siwei, agrees that the vast majority of Chinese companies are losers, not worth investing in.

CHENG SIWEI: I think only 30 percent of the listed companies are valuable to invest.

PAUL SOLMAN: 30 percent?


Misinvestment: secrecy and no accountability

PAUL SOLMAN: Now, it's not that nobody's making money in China. It's just that, with government control of both the media and investment, there's no transparency, no way to know if firms are profitable; especially state-owned firms, more interested in preserving jobs than being competitive, says Finance Professor Chun Chang.

PAUL SOLMAN: The banking system also shows how badly investment has been directed in China up to now, as our colleague Darren Gersh of the Nightly Business Report found when he looked into it in some depth.

DARREN GERSH: Even official statistics show that China's banks are technically insolvent. If economic growth falters, some fear China's banking system could collapse.

PAUL SOLMAN: The point is: Investments by stockholders or banks are only as good as the profits they generate. If China has been misinvesting its money, that would help explain why it's lagged so far behind its East Asian neighbors, which suggests that the Chinese economy could turn out to be less miracle than mirage.

Sounds like VaporWare and THE BIG BANG! all rolled up into one to me. Is this what the analyst at Citigroup are talking about?


Blogger chris said...

Goldman Unit Gets China Investor Status
The Wall Street Journal - 10 Oct 2005 - By Dow Jones
(Copyright (c) 2005, Dow Jones & Company, Inc.)

SHANGHAI -- China's securities regulator said it approved Goldman Sachs Asset Management International as a qualified foreign institutional investor, or QFII, allowing it to invest in China's capital markets.

Goldman Sachs Asset Management International is an investment-advisory unit of Goldman Sachs Group Inc., which also received its QFII license in July 2003 with an initial investment quota of $50 million. It received an addition quota of $100 million this year in April.

The China Securities Regulatory Commission, which posted the announcement on its Web site during the weekend, didn't say what Goldman Sachs Asset Management's investment quota would be.

China's QFII program allows foreign institutions to invest in and trade yuan-denominated bonds and Class A shares listed on the domestic exchanges, subject to various restrictions.

8:39 AM  

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