Thursday, October 28, 2010

Rich Girlfriends and AIA Asia IPO

AIA, the Asian life insurance arm of AIG, raised $17.9 billion by pricing its IPO at the top of its range. The pricing of the IPO, likely the world's third biggest, comes as new listings proliferate in Asia. The AIA IPO is expected to generate up to $355 million in fees for banks involved in the sale.

That's not the big news, not even Kuwait's $1bn investment in the IPO. There were some juicier news about some of the other IPO bidders.

The Standard / Mandy Lo

Thursday, October 28, 2010

Two girlfriends of tycoon Joseph Lau Luen-hung each plonked down a whopping HK$5.6 billion to grab a massive share of insurer AIA Group's retail tranche.

The big-ticket subscriptions by the girlfriends of Chinese Estates (0127) chairman Lau account for more than 50 percent of AIA's retail tranche, sources told The Standard.

And their personal bids to grab such a huge portion of the public offering could well be a world record. The women - Yvonne Lui Lai-Kwan and Chan Ho-wan - have emerged as the biggest potential investors, trouncing large fund houses.

The subscriptions, made separately as their "personal investments," add up to a staggering HK$11.2 billion.

Rumors are rife that the subscriptions were applied for by Lau, but his spokesperson denied the reports and declined to comment further.

Lui and Chan were the biggest retail subscribers for AIA, each accounting for almost 50 percent of the retail portion.

The two women will be allotted at least HK$509.6 million worth of shares each - 9.1 percent of their total subscription, the source said.

They could each post a paper gain of HK$50.96 million if AIA shares rise 10 percent on their trading debut tomorrow, as they did earlier this week in the gray market for institutional investors.

As lovers of Lau, who frequently invests in listing candidates, it is no surprise that Lui and Chan are testing their luck with AIA.

But the huge amount involved has drawn intense market attention. There is speculatio

n that the subscriptions were Lau's latest gift to his girlfriends, or it could be an investment for his children's education.

Lui gave birth to a boy in August, after having a daughter in 2003, while Chan gave birth to a girl in 2008.

Lau has invested in numerous large IPOs including Agricultural Bank of China (1288), Sinopharm Group (1099) and Evergrande Real Estate Property (3333).

AIA, the Asian arm of American Insurance Group, priced its IPO at the top of its range at HK$19.68.

It seeks to raise funds to repay bailout debts owed by parent company AIG to the US government. AIA starts trading tomorrow.

AIA's total fund-raising size, including institutional and retail tranches, was boosted by 20 percent to HK$138 billion from HK$115.27 billion after the warm market response.

The insurer's IPO is set to become the third largest in the world.

Monday, October 25, 2010

Mama, Don't Let Your Sons Grow Up To Be Scrabble Players

From Wall Street Journal:


Forum For Technical Chartists

Just doing my friends a favour here, if you are technically inclined, if you have lost hope on reading/predicting the markets via fundamentals ... this may be for you.

Day 1- Schedule

Here is the proposed schedule for Day 1, Saturday, Oct 30, 2010

Please come early to register and pay at the door. We expect a large crowd on that day.


Day 2- Schedule

Here is the proposed schedule for Day 2, Sunday, Oct 30, 2010:


There are 3 types of ticket fee available:

1) Special Invitation Fee (For TTR Subscribers, Book Buyer, Invitees, TG Users): RM 288 per pax

Early Bird Special Discount Cash (Bank-in before Oct 26, 2010) : RM 288 per pax

2) Public, general audience and walk-in fee : RM 358 per pax

3) Master the Markets Main Course Graduates Only : RM 188 per pax (Those graduates who attended Main Course Workshop conducted by Bill & Martin).

The convention spans over 2 days.

Registered and paid participants will receive a copy of Tom Williams’ Master the Markets Book – An introduction to Volume Spread Analysis (VSA).

Please take note: There’s a special session for TradeGuider Malaysia Buyers on Friday morning, Oct 28, 2010 at our office at Phillip Capital Management, K.L . The session time details will be announced soon.

To register for the 2 days event, please type in your name, email and contact number below.

If you have any queries, you can email to or call 016 322 3386.

Kuan yew's Oktoberfest With Spiegel

SPIEGEL's Interview with Lee Kuan Yew

"It's Stupid to be Afraid"

Singapore's first-ever prime minister, long-time government head and current political mentor Lee Kuan Yew talks about Asia's rise to economic power, China's ambitions and the West's chances of staying competitive.

SPIEGEL : The political and economic center of gravity is moving from the West towards the East. Is Asia becoming the dominant political and economic force in this century?

Mr. Lee: I wouldn't say it's the dominant force. What is gradually happening is the restoration of the world balance to what it was in the early 19th century or late 18th century when China and India together were responsible for more than 40 percent of world GDP. With those two countries becoming part of the globalized Trading world, they are going to go back to approximately the level of world GDP that they previously occupied. But that doesn't make them the superpowers of the world.

SPIEGEL: Their leading politicians have publicly discussed the so-called "Asian Century".

Mr. Lee: Yes, economically, there will be a shift to the Pacific from the Atlantic Ocean and you can already see that in the shipping volumes of Chinese ports.
Every shipping line is trying to get into association with a Chinese container port. India is slower because their infrastructure is still to be completed. But I think they will join in the race, build roads, bridges, airports, container ports and they'll become a manufacturing hub. Raw materials go in, finished goods go out.

SPIEGEL: You've been the leader of a very successful state for a long time. Returning from your time in China , are you afraid for Singapore 's future?

Mr. Lee: I saw it coming from the late 1980s. Deng Xiaoping started this in 1978. He visited Bangkok , Kuala Lumpur and Singapore in November 1978.I think that visit shocked him because he expected three backward cities. Instead he saw three modern cities and he knew that communism -- the politics of the iron rice bowl -- did not work. So, at the end of December, he announced his open door policy. He started free trade zones and from there, they extended it and extended it. Now they have joined the WTO and the whole country is a free trade zone.

SPIEGEL: But has China 's success not become dangerous for Singapore ?

Mr. Lee: We have watched this transformation and the speed at which it is happening. As many of my people tell me, it's scary. They learn so fast. Our people set up businesses in Shanghai or Suzhou and they employ Chinese at lower wages than Singapore Chinese. After three years, they say: "Look, I can do that work, I want the same pay." So it is a very serious challenge for us to move aside and not collide with them. We have to move to areas where they cannot move.

SPIEGEL: Such as?

Mr. Lee: Such as where the rule of law, intellectual property and security of production systems are required, because for them to establish that, it will take 20 to 30 years. We are concentrating on bio medicine, pharmaceuticals and all products requiring protection of intellectual property rights. No pharmaceutical company is going to go have its precious patents disclosed. So that is why they are here in Singapore and not in China .

SPIEGEL: But the Chinese are moving too. They bought parts of IBM and are trying to take over the American oil company Unocal.

Mr. Lee: They are learning. They have learnt takeovers and mergers from the Americans. They know that if they try to sell their computers with a Chinese brand it will take them decades in America , but if they buy IBM, they can inject their technology and low cost into IBM's brand name, and they will gain access to the market much faster.

SPIEGEL: But how afraid should the West be?

Mr. Lee: It's stupid to be afraid. It's going to happen. I console myself this way. Suppose, China had never gone communist in 1949, suppose the Nationalist government had worked with the Americans -- China would be the great power in Asia -- not Japan , not Korea , not Hong Kong, not Singapore . Because China isolated itself, development took
place on the periphery of Asia first.

SPIEGEL: Such a consolation won't be enough for the future.

Mr. Lee: Right. In 50 years I see China , Korea and Japan at the high-tech end of the value chain. Look at the numbers and quality of the engineers and scientists they produce and you know that this is where the R&D will be done. The Chinese have a space programme, they're going to put a man on the Moon and nobody sold them that technology. We have to face that. But you should not be afraid of that. You are leading in many fields which they cannot catch up with for many years, many decades. In pharmaceuticals, I don't see them catching up with the Germans for a long time.

SPIEGEL: That wouldn't feed anybody who works for Opel, would it?

Mr. Lee: A motor car is a commodity -- four wheels, a chassis, a motor. You can have modifications up and down, but it remains a commodity, and the Chinese can
do commodities.

SPIEGEL: When you look to Western Europe , do you see a possible collapse of the society because of the overwhelming forces of globalization?

Mr. Lee: No. I see ten bitter years. In the end, the workers, whether they like it or not, will realize, that the cosy European world which they created afte
r the war has come to an end.

SPIEGEL: How so?

Mr. Lee
: The social contract that led to workers sitting on the boards of companies and everybody being happy rested on this condition: I work hard, I restore Germany 's prosperity, and you, the state, you have to look after me. I'm entitled to go to Baden Baden for spa recuperation one month every year. This old system was gone in the blink of an eye when two to three billion people joined the race -- one billion in China , one billion in India and over half-a-billion in Eastern Europe and the former Soviet Union .

SPIEGEL: The question is: How do you answer that challenge?

Mr. Lee: Chancellor Kohl tried to do it. He did it halfway then he had to pause. Schroeder tried to do it, now he's in a jam and has called an election. Merkel will go in and push, then she will get hammered before she can finish the job, but each time, they will push the restructuring a bit forward.

SPIEGEL: You think it's too slow?

Mr. Lee: It is painful because it is so slow. If your workers were rational they would say, yes, this is going to happen anyway, let's do the necessary things in one go. Instead of one month at the spa, take one week at the spa, work harder and longer for the same pay, compete with the East Europeans, invent in new technology, put more money into your R&D, keep ahead of the Chinese and the Indians.

SPIEGEL: You have seen yourself how hard it is to implement such strategies.

Mr. Lee: I faced this problem myself. Every year, our unions and the Labour Department subsidize trips to China and India . We tell the participants: Don't just look at the Great Wall but go to the factories and ask, "What are you paid?" What hours do you work?" And they come back shell-shocked. The Chinese had perestroika first, then glasnost. That's where the Russians made their mistake.

SPIEGEL: The Chinese Government is promoting the peaceful rise of China . Do you believe them?

Mr. Lee: Yes, I do, with one reservation. I think they have calculated that they need 30 to 40 -- maybe 50 years of peace and quiet to catch up, to build up their system, change it from the communist system to the market system. They must avoid the mistakes made by Germany and Japan . Their competition for power, influence and resources led in the last century to two terrible wars.

SPIEGEL: What should the Chinese do differently?

Mr. Lee: They will trade, they will not demand, "This is my sphere of influence, you keep out". America goes to South America and they also go to South America. Brazil has now put aside an area as big as the state of Massachusetts to grow soya beans for China . They are going to Sudan and Venezuela for oil because the
Venezuelan President doesn't like America . They are going to Iran for oil and gas. So, they are not asking for a military contest for power, but for an economic competition.

SPIEGEL: But would anybody take them really seriously without military power?

Mr. Lee: About eight years ago, I met Liu Huaqing, the man who built the Chinese Navy. Mao personally sent him to Leningrad to learn to build ships. I said to him, "The Russians made very rough, crude weapons". He replied, "You are wrong. They made first-class weapons, equal to the Americans." The Russian mistake was that they put so much into military expenditure and so little into civilian technology. So their economy collapsed. I believe the Chinese leadership have learnt: If you compete with America in armaments, you will lose. You will bankrupt yourself. So, avoid it, keep your head down, and smile, for 40 or 50 years.

SPIEGEL: What are your reservations?

Mr. Lee: I don't know whether the next generation will stay on this course. After 15 or 20 years they may feel their muscles are very powerful. We know the mind of the leaders but the mood of the people on the ground is another matter. Because there's no more communist ideology to hold the people together, the ground is now galvanised by Chinese patriotism and nationalism. Look at the anti-Japanese demonstrations.

SPIEGEL: How do you explain that China is spending billions on military modernisation right now?

Mr. Lee: Their modernisation is just a drop in the ocean. Their objective is to raise the level of damage they can deliver to the Americans if they intervene in Taiwan. Their objective is not to defeat the Americans, which they cannot do. They know they will be defeated. They want to weaken the American resolve to intervene. That is their objective, but they do not want to attack Taiwan .

SPIEGEL: Really? They have just passed the aggressive anti-secession law and a general has threatened to use the nuclear bomb.

Mr. Lee: I think they have put themselves into a position internationally that if Taiwan declares independence, they must react and if Beijing 's leadership doesn't, they would be finished, they would be a paper tiger and they know that. So, they passed the anti-secession law to tell the Taiwanese and the Americans and the Japanese, "I do not want to fight, but if you allow Taiwan to go for independence, I will have to fight." I think the anti-secession law is a law to preserve the status quo.

SPIEGEL: Another critical point in Asia is the growing rivalry between China and Japan .

Mr. Lee: It's been dormant all this while, right? But I think several things happened that upped the ante. They possibly coincide with the policy of Japanese
Prime Minister Junichiro Koizumi. There is this return to "we want to be a normal country." They are sending ships to Afghanistan to support the Americans, they sent a battalion to Iraq , they reclaimed the Senkaku islands, and most recently, they joined the Americans in declaring that Taiwan is a strategic interest of Japan and America. That raises all the historical memories of the Japanese taking away Taiwan in 1895. Then they're applying to be a permanent member of the Security Council. So, I think the Chinese decided that this is too much. So, they have openly said they will object to Japan becoming a member of the Security Council.

SPIEGEL: Well, the United States said the same to Germany .

Mr. Lee: Exactly. So, the whole process is trying to define the position for the next round, maybe in 10 to 15 years, by which time the world will be a different place.

SPIEGEL: Can the Chinese convince their North Korean ally Kim Jong-Il to get rid of his nuclear program?

Mr. Lee: North Korea is a riddle wrapped up in an enigma. The leaders in North Korea believe that their survival depends upon having a bomb -- at least one nuclear bomb. Otherwise, sooner or later, they will collapse and the leaders will be put on trial like Milosevic for all the crimes that they have committed. And they have no intention of letting that happen.

SPIEGEL: Who can stop them? The Americans?

Mr. Lee: Yes, but at a price, a heavy price.

SPIEGEL: Could the Chinese do it?

Mr. Lee: Possibly. By denying food, denying fuel, so they would implode. But will the Chinese benefit from an imploded North Korea ? That brings the South into the North. That brings the Americans to the Yalu River . So, the North Koreans have also done their calculations and know that there are limits.

SPIEGEL: So Kim is in a strong position?

Mr. Lee: If I were Kim I would freeze the programme, tell the Americans you can inspect, but if you attack me, I will use it. That leaves the Americans with the problem of checking and verifying and intercepting ships, aircraft, endless problems.

SPIEGEL: Would that save Kim's regime?

Mr. Lee: In the long run I think they will implode sooner or later because their system cannot survive. They can see China , they can see Russia and Vietnam , all opening up. If they open up, their system of control of the people will break down. So they must go.

SPIEGEL: If the six party talks fail, do you foresee an arms race in Eastern Asia?

Mr. Lee: If the nuclear program is frozen, there won't be an arms race. Eventually, it is not in China 's interests to have an erratic Korea nuclear-armed and a Japan nuclear-armed. That reduces China 's position.

SPIEGEL: Many Americans fear that China and the US are bound to become strategic rivals. Will this become the great rivalry of the 21st century?

Mr. Lee: Rivals, yes, but not necessarily enemies. The Chinese have spent a lot of energy and time to make sure that their periphery is friendly to them. So, they settled with Russia , they have settled with India . They're going to have a free trade agreement with India -- they're learning from each other. Instead of quarreling with the Philippines and the Vietnamese over oil in the South China Sea , they have agreed on joint exploration and sharing. They've agreed on a strategic agreement with Indonesia for bilateral trade and technology.
SPIEGEL: But the Americans are trying to encircle China . They have won new bases in Central Asia .

Mr. Lee: The Chinese are very conscious of being encircled by allies of America . But they are very good in countering those moves. South Korea today has the largest number of foreign students in China . They see their future in China . So, the only country that's openly on America 's side is Japan . All the others are either neutral or friendly to China .

SPIEGEL: During your career, you have kept your distance from Western style democracy. Are you still convinced that an authoritarian system is the future for Asia ?

Mr. Lee: Why should I be against democracy? The British came here, never gave me democracy, except when they were about to leave. But I cannot run my system based on their rules. I have to amend it to fit my people's position. In multiracial societies, you don't vote in accordance with your economic interests and social interests, you vote in accordance with race and religion. Supposing I'd run their system here, Malays would vote for Muslims, Indians would vote for Indians, Chinese would vote for Chinese. I would have a constant clash in my Parliament which cannot be resolved because the Chinese majority would always overrule them. So I found a formula that changes that...

SPIEGEL: ... and that turned Singapore de facto into a one party state. Critics say that Singapore resembles a Lee Family Enterprise. Your son is the Prime Minister, your daughter-in-law heads the powerful Development Agency...

Mr. Lee: ... and my other son is CEO of Singapore Telecoms, my daughter is head of the National Institute for Neurology. This is a very small community of 4 million people. We run a meritocracy. If the Lee Family set an example of nepotism, that system would collapse. If I were not the prime minister, my son could have become Prime Minister several years earlier. It is against my interest to allow any family member who's incompetent to hold an important job because that would be a disaster for Singapore and my legacy. That cannot be allowed.

The interview was conducted by editors Hans Hoyng and Andreas Lorenz.

Translated from the German by Christoper Sultan / 2005

Sunday, October 24, 2010

The Miele Guide, Asia's Best Restaurants

Following is a list of Asia's top 10 restaurants, according to The Miele Guide:

1. Iggy's, Singapore

2. L'Atelier de Joel Robuchon, Hong Kong, China

3. Robuchon a Galera, Macau, China

4. Jaan, Singapore

5. Antonio's, Cavite, Philippines

6. Mozaic, Bali, Indonesia

7. Zuma, Hong Kong, China

8. Cilantro Restaurant & Wine bar, Kuala Lumpur, Malaysia

9. L'Atelier de Joel Robuchon, Tokyo, Japan

10. Caprice, Hong Kong, China

Singapore restaurant Iggy's reclaimed its crown as the top dining spot in Asia in the third annual edition of a regional dining guide which saw a Malaysian restaurant make the top 10 for the first time.

Iggy's run by restaurateur Ignatius Chan topped the list of Asia's 20 best restaurants in the 2010/2011 Miele Guide, knocking last year's top choice, L'Atelier de Joel Robuchon in Hong Kong, into second place. Iggy's topped the inaugural list in 2008/2009.

Celebrity chef Robuchon saw his three Michelin-starred Robuchon a Galera in Macau retain its third-place listing in the guide, which covers 450 restaurants in 17 countries. The Parisian chef's Tokyo venue shot up to number 9 from 20 last year. China had the most restaurants in the top 20 with eight -- six of them in Hong Kong -- followed by Singapore, with five, reflecting which parts of the region are recovering fastest from the recent economic crunch.

"I think restaurants had a hard time last year. I'd go into some places and see only corporate customers," said Aun Koh, director of Ate Media, the Singapore-based company that publishes The Miele Guide.

"But they're coming back now. I think Singapore and Hong Kong have bounced back really well, but I still worry about Japan."

Cilantro Restaurant & Wine Bar in Kuala Lumpur became the first Malaysian restaurant to make the top 10.

A rise in restaurants opened by big-name foreign chefs across the region, especially in Singapore, has helped spur local chefs on to new efforts, Koh said.

"There's been a lot of pressure on chefs and restaurants to keep standards high consistently. They think, 'I'm going to compete with these guys now,' it's pushing them to get better."

The Miele Guide was created in 2008 to better recognize Asia's best chefs and restaurants, and is selected after several rounds of public voting and judging by experts.

Like last year, Robuchon's Tokyo restaurant was the only Japanese entry in the top 20 even though Japan as a whole had the greatest number of restaurants in the guide, with 56.

Koh attributed this to an overabundance of success that meant votes were split. In addition, many of Japan's better restaurants have nearly "cult" status and might not be as well known to casual visitors, especially from other countries.

Overall, he said, the guide tended to show that Asians place a high value on physical comfort when eating good food -- not surprising given the climate in much of the region.

"You can go to a lot of these restaurants in jeans and a nice shirt, but you don't have a snooty waiter looking down at you," he said.

The 17 countries in the guide are Brunei, Cambodia, China, India, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.

Tuesday, October 19, 2010

Moving China Up To The Next Level


When China's GDP surpassed Japan's in the second quarter of 2010, the international media gave this milestone considerable coverage. But with natural disasters, environmental problems and the property bubble to cover, the domestic media hasn't given it as much attention.

Mallika Sherawat

Perhaps it is because China has over ten times as many people as Japan which puts China's per capita income at less than one tenth of Japan's - hardly something to celebrate. Nevertheless, it is useful to look back at how far China has come, study the risks it faces in the future, and, if the country can overcome the existing challenges, explore how much further it can go in the next decade.

China's economy took off in 2002 and since then nominal GDP has grown at 18.5%, and exports in dollars at 21.7% (I have extrapolated the economic performance for the remaining months of 2010). The nominal GDP has increased 2.9 times, and exports 3.8 times in USD and 2.9 times in RMB. Japan had a similar performance in the 1960's, Korea and Taiwan in the 1980's, but they are much smaller. In terms of scale, what China has done is unprecedented.
When growth is sustained over many years, with the miracle of compounding there is a huge long-term impact. Twenty years ago China and India had about the same value in GDP, yet this year China's GDP is roughly four times that of India.

Reform and opening up, China's policy center over the past three decades, has undoubtedly been the most important factor. China is now the largest exporter in the world. Having virtually no exports three decades ago and almost none even two decades ago, the country's exports have risen 5.2 times over the last decade. 'Being the workshop of the world' is the most important part of China's economy today. Without China's export success China's economy wouldn't be nearly where it is today.

Joining the WTO made a critical difference to the country's export success, giving multinational companies (MNCs) the confidence to base significant production in China. As China's domestic market grows, it gives MNCs another strong reason to keep production in China. No other country can offer economies of scale that combine selling locally and exporting abroad with low production costs.

Mallika Sherawat

However China no longer offers the lowest production cost. The labor cost in Bangladesh is merely one-fourth of China's. Indonesia's labor cost was twice as high as China's before 1997 and is now comparable to China's and rising at a much slower rate. Industries that do not require the supply chain to be nearby may exit China - for example the shoe and garment industries - but most others will stay since relocation is not an easy solution. Many manufacturers will simply pass their higher costs on to consumers and MNCs may just have to accept lower profit margins.

Infrastructure development has been a competitive advantage for China, and is the result of the government's ability to mobilize resources. Land and credit are usually constraints on infrastructure development in most other countries, but state ownership of land and banks has allowed China to develop large infrastructure projects while also benefiting from economies of scale.

The national expressway system is a good example of this. Only an interconnected system of such a large size can deliver economic benefits due to the so-called 'network effect'. In a dozen years China has completed over 60,000 km of expressways and another 30,000 km are under construction. The expressway system has made the national population more mobile, integrated villages and small cities into the national economy, and sharply decreased logistics costs.

The development of ports and industrial parks has encouraged OEM industries (original equipment manufacturers) to locate in China. Together with the highway system, this made it possible for China to become the largest export country in the world.

Mallika Sherawat

China was also early to embrace the Internet - and this laid the foundation for China to be part of and benefit from the global economy. In addition, China's large and productive labor force has contributed more than any other factor to China's growth. Until five years ago the nominal wage had been stagnant in nominal dollar terms for over a decade, even though labor productivity had been increasing at nearly 10% per annum and total factor productivity at over 4%. The increase in productivity of Chinese labor meant declining prices for western consumers, rising profits for MNCs, and rising tax revenues for the Chinese government. This saw more MNCs coming to China for production, and Chinese local governments in China continue to invest in infrastructure to attract them.

China's rapid growth has also coincided with a weak dollar. The dollar index peaked in 2002 and has declined by one third since. The dollar's weakness is due to globalization and technology, a result of driving liquidity into emerging economies, particularly China's. Though the tendency is to blame a crisis on slow growth, actually crises always seem to follow periods of high growth in emerging economies. It is the problems that are allowed to accumulate during the high growth period that cause both the crisis and subsequent slow growth. Nothing hides problems like high growth so policymakers tend to try and sustain it for as long as possible in the hopes they can outgrow the problems. But history teaches us that this is usually not possible. The longer the growth lasts, the more intractable the problems become.

China's money supply has quadrupled in the last eight years, growing at 19% per annum, and if the off-balance sheet expansion of the financial institutions and underground financial activities are included, the money supply may have grown at 11% per annum. During the same period the nominal GDP has grown at 18.5% so if one compares the official GDP data and monetary data, it does not seem cause for concern, as the two are about the same. But there are two potential problems to consider: nominal GDP has been inflated by the property bubble, thus the rapid monetary growth is also probably a bubble; and real monetary growth is much higher.

China's electricity consumption grew at about 13% per annum between 2002-10. Historically China's real GDP has grown faster than electricity consumption - the ratio of electricity consumption increase to GDP increase is called elasticity and it was around 0.8 during the 1990s. Heavy industry has been leading the current growth boom, thus the economy has become more dependent on electricity for growth, so the elasticity should have increased and I suspect it wouldn't be more than one. Hence, it is reasonable to guess that China's real GDP has grown at 13% over the past eight years, which would put the GDP deflator - the broadest inflation gauge - at 4.5%

So far, inflation has mostly occurred in land and commodities. Land prices have increased on average by more than ten times since 2003, 30 times in some hot coastal cities, and more than 100 times in the most speculative areas. It is reasonable to believe that China's land price is highest among all the major economies today, even though China's average wage is one tenth that of developed countries.

Land price inflation has shown up in the nominal GDP through rising property sales of over 14% of GDP last year. Much of the investment has been due to the collateral value of land, with local governments borrowing enormous amounts of money (probably around 17% of the total bank lending) to fund or subsidize investment to create GDP. The loans are secured with land, so without high land prices such financing would be impossible. With fixed investment being driven by the government and close to half of GDP, it is easy to see how the land bubble has accounted for a large portion of the growth during the current cycle.

Mallika Sherawat

Recent manufacturing investment, for example, is due partly to high land prices. Local governments have been competing fiercely for manufacturing investment and many companies have learned how to extract enough benefits from local governments that they do not need to put up any equity capital for investment. They often ask for free land and use that as collateral for a bank loan. They then lease equipment from the manufacturers who have used the leasing contracts to obtain bank loans. This explains why so many companies have been able to continue expanding with a negative cash flow: expansion is critical to their survival as new investment brings in the cash they need to sustain themselves.

Profit drives investment, which in turn powers employment, and that then grows consumption. When profit is due to asset appreciation and not sustainable, it may lead to crisis. Large bubbles often occur during prolonged prosperity, when people stop paying attention to risk and there is excessive demand for risky assets, leading to an asset bubble that prolongs prosperity beyond the normal cycle.

Mallika Sherawat
Possibly half of China's bank lending is going into property-related businesses or local governments that are pledging land as collateral. While the current boom has catapulted China ahead of Japan to become the world's second-largest economy, we must remember the excesses in this cycle and the need for an adjustment as soon as possible. Nothing reveals the vulnerabilities more than the banking system's exposure to unsustainable economic activities that are dependent on land appreciation. China should proactively bring about the needed economic adjustment.

Monday, October 18, 2010

Bull Back In The China Shop?

Looks that way. China's stock market came flying out of the gate after being closed from the end of September through October 7th. Since then Shanghai Composite is up by more than 7.75%. China had been one of the weakest performing countries for the past 6 months. The index has now entered a new bull market as well. A bull market is defined as any 20%+ gain that was preceded by a decline of at least 20%. From its low on July 5th, the Shanghai Composite is now up 21%.

Darryl Guppy: Increasing currency volatility, central-bank intervention, continued weakness in the US dollar and a crescendo of poorly informed opinion prior to mid-term US elections all add up to market moving events.

Meanwhile, China has been quietly offering support for beleaguered European nations battered by the ongoing debt crisis. This is very significant for a market that has been closed for almost two weeks because of the confluence of holidays.
The Shanghai market has been moving in a prolonged sideways trading band. Support is near 2,580 and resistance is near 2,680. These are the key trigger levels and they also provide a method for calculating the potential upside or downside movement. The width of the consolidation band is measured and used to set the target.
A break below support at 2,580 has a target near 2,480. A break above resistance near 2,680 has an upside target near 2,780. Moves above or below these trigger levels have a high probability of moving rapidly. This gives rapid access to good profits for an upside breakout, but it also points the way to quick losses in a downside break.
On balance, we remain bullish for two reasons. The first reason is the long term inverted head-and-shoulder trend reversal pattern. The consolidation is consistent with this type of pattern, although it has continued for longer than usual. The second reason is the powerful upsurge in the short trading period between the two holiday breaks. This surge developed despite the increase in tensions with Japan and continued attacks on the valuation of the renminbi. In this sense, the news in the last week was already accounted for in the index activity last week.
Our bullish bias is tempered by the continuation of volatility within the consolidation band. This is not a market for the nervous.

Comments On The Budget

Much of what's there is already out there already, so nothing really new.

Oil & Gas - Uzma looked interesting on Friday, may be a big beneficiary for the small company.

Housing for first home buyers - OK, good move.

Public transportation - This will be a key mover and shaker.

PNB 100 storey tower, hmm ... sounds like over reaching here.

Finance - More prop traders, that is just institutionalizing what some heavy hitting stockists are already doing, whats new?

Khazanah and EPF getting PLUS is very good. It also paves the way to set a benchmark to acquire the other tollways. Litrak will be upgraded.

The two mega projects that could capture the most attention from investors would be the RM12bn high-speed rail project and the RM2.5bn WiMAX rollout. For leveraged exposure to WiMAX, YTL e-Solutions’ fee arrangement with YTL Power appears quite attractive. YTL Power will roll out WiMAX nationwide on 18 Nov.

It will provide free service to 400,000 university students for usage within their campus for a limited time. YTL e-Solutions will be paid an annual fee of RM75m and a 10% share of revenue above RM500m for its WiMAX licence. Fees will flow directly to the bottomline.

YTL Communications Sdn Bhd, which is gearing to launch its WiMAX-based services on Nov 18, is expected to sign an agreement with US-based Sezmi TV for a new personalized digital television content offering on its network. The agreement will give YTL Comms exclusive rights to offer hybrid TV services, comprising traditional TV, on-demand and Internet content to Malaysia and the Asian region. It may take YTL Comms a year to roll out the services in Malaysia. The overall cost of bringing digital TV on its network to TV screens and also extending services to the region may be whopping RM1b to RM2b.

Saturday, October 16, 2010

Better Late Than Never - This Is An Exceptional Movie

I can't tell you how long this DVD has been sitting on my desk.... I was skeptical at first when I saw the cast. I thought this was an over the top highly commercialised venture tapping on top Malaysian Chinese singers. The film was released in April, so its my bad, as my circle of friends do not have a lot of Mandarin speakers, I was kind of out of the loop even though I watch a lot of Chinese movies and series.

The movie was the brainchild of Ah Niu (Tan Kheng Seong), who probably put all his wealth and resources into the movie as he wrote, acted and directed the film.

The cast was a veritable list of Malaysian singers who made it big in Taiwan, Singapore, HK and Malaysia. For a Malaysian singing in Chinese, you had to break through the Taiwan market first before even gaining acceptance in Malaysia and Singapore. Taiwanese are so open to genuine talent.

He managed to rope in the combustible Gary Chaw, the "prodigal" Eric Moo (who still insists he is Singaporean when he grew up in Kampar), the likable Victor Wong, the very charming Fish Leong, and of course the delectable Lee Sinje. There were even cameos by Penny Tai, Nicholas Teo.

Amazingly, the cast acted extremely well and natural. There were some "over" by Gary and Eric, but still pretty good.

The storyline is nostalgic, the lensing was 110% beautiful, it lovingly captures the images. Its a very Malaysian story, I heard that many of the audience were multi racial and they enjoyed the film just as much. Despite the numerous cast members, the story unfleshed itself very well, you felt for each individual character, their persuasions, their fears and motivations.

The story was set in a small town near Ipoh and later in Penang, capturing the small town feeling of old. Veteran actor Angela Chan and Chan Kwok Kwan were splendid.

Its 1 hour 45 minutes but you will be engrossed by the movie. Thankfully the movie did very well in local theatres grossing RM4m before meeting even greater success in Taiwan and Singapore.

I think Ah Niu has deep film making talent. I am glad he risked it all and got more than that in return. You should go and buy the DVD (not the pirated ones please) and you will be pleasantly surprised.

Its bittersweet, its web of relations were genuine and sincere in execution even though its more of a coming of age movie. The film's pacing, framing and story telling were superb. It is top class because there is a tendency to be too explicit, the film was restrained to allow for the audience to reflect and feel with the characters.

Unfortunately the movie will not enjoy entertainment tax rebate as it has been classified as a foreign movie. OMG!!! The reasoning given was that it does not meet the criteria for a 20% rebate as less than 60% of the movie script was in Bahasa Malaysia. The Federation of Chinese Associations of Malaysia president Tan Sri Pheng Yin Huah as saying that the Treasury Department should waive the tax. Sigh ...

Ice Kacang Puppy Love (2010)

Anyways, its a brilliant effort! Don't let the film title put you off, it will be the best movie you have watched in a long while.

Friday, October 15, 2010

Richest Women In The World, Half Of Them From China

Hurun Research Institute came out with its latest rich list report. Whats amazing is not the overall China rich but the standing of Chinese women in wealth accumulation. I can safely say that the bulk of rich ladies, mostly inherited their wealth from their families or got the wealth following the death of their husband. The capitalistic China is still young, hence not much wealth is passed down as there is not much wealth to pass in the first place.

This also points to the fact that there is probably "more equality" for women in the business or corporate world in China, and that should be studied more closely by these so called "gender equality champions" of the world like the US and Europe. Its not enough to just have laws that promote equality and discourages gender bias, there are still invisible glass ceilings and plenty more "attitudes and structural discrimination" in these so called developed nations.

Even so, gender bias is still a long way from being totally equal, even in China where they have half of the world's richest women billionaires.

Interesting Facts From The China Rich List:


(12 October 2010,Beijing) Hurun Research Institute today releases the Hurun Rich List 2010, the twelfth annual ranking of the richest individuals in China. The Hurun Rich List 2010 ranks 1363 individuals with personal wealth of one billion Chinese yuan (US$150 million) and follows on from the earlier release on 29 September of the Hurun Top Five.

Despite the domestic stock markets down 10% over the past year, the richest Chinese have seen their fortunes continue to grow fast: the average wealth of the Hurun 1000 grew 64% over the past two years and 26% in the past year.

Today there are 1363 individuals with billion Chinese yuan (US$150 million), up from 1000 last year and only 24 ten years ago. There are 189 US Dollar billionaires that we know of, suggesting that China today has more billionaires than anywhere else in the world, 400 to 500 billionaires, surpassing even the US.

65-year old Zong Qinghou of Wahaha is the richest man in China with a personal fortune of US$12 billion. ‘Drinks King’ Zong has grown Wahaha into China’s dominant drinks business with expected profits this year of US$1.5 billion and 30,000 employees. This year, Wahaha finally settled its protracted dispute with France-based Danone. Zong, who, together with his wife and daughter owns 60% of Wahaha, has jumped up from twelfth place in last year’s list.

Li Li & family caused a sensation when Hepalink went public in May, catapulting him straight into second place on the list with a personal fortune of US$6 billion. Li Li, 46 years, his wife Li Tan and her cousin Shan Yu founded the business in 1998 and together own a 75.6% stake. Hepalink makes heparin,a blood thinner purified from pig intestines, used to prevent blood clots. This is the first time a pharmaceutical tycoon has made it into the Top Five of the Hurun Rich List.

Top Ten of Hurun Rich List 2010

2010 Rank

US$ billion





1 *


Zong Qinghou & family




2 *


Li Li & family






Zhang Yin & family


Nine Dragons Paper

Recycled paper

4 *


Liang Wen’gen



Heavy machinery

5= *


Robin Li Yanhong



Search engine



Yan Bin


Ruoy Chai




Liu Yongxing & family


East Hope




Wang Jianlin






Zhang Jindong






Xu Rongmao & family




* New to Top Ten

Liang Wen’gen is proof of the adage that if you want to make money in a gold rush, sell shovels to gold miners. 54 year old Liang jumped 16 places to fourth with a personal fortune of US$5.4 billion. Liang sells construction equipment to businesses feeding off the great Chinese urbanisation boom and has, in the process, made himself richer than any property developer.

Liang’s wealth rose sharply largely after listing a second subsidiary, this time in Hong Kong. The only company from the Hurun Top Five headquartered in China’s poorer Western regions, Liang has overseen Sany’s growth into one of the world’s biggest makers of construction equipment, with sales last year of US$4.5 billion and 46,000 employees. Liang has 58.2% of the group.

Robin Li Yanhong saw his wealth double year on year, placing him fifth on the list with US$5.3 billion. 42-year-old Li has Google’s departure from China to thank for Baidu’s sharp share increase, and is this year lining up Baidu to take on Taobao in the online shopping market.

Yan Bin has grown his fortune on the back of a strong performance in sales of Red Bull energy drinks in China, which are expected to hit US$800 million this year. Fifty-six year old Yan started his business in Thailand and is also known by his Thai name of Chanchai Ruayrungruang. Apart from Red Bull, Yan owns the luxury Reignwood Group, which includes the best-known golf club in Beijing.

‘Paper Queen’ Zhang Yin, 53 years, sees her wealth grow by almost a billion US dollars to US$5.6 billion on the back of growth in the domestic retail market. Li Li’s rise, however, drops Zhang down one place to third. Notwithstanding this, Zhang remains the richest woman in China, and the richest self-made woman in the world.

Property King Wang Jianlin of Wanda is one of only three people from last year’s Top Ten to increase their rankings, up three places to seventh with a personal fortune of US$5 billion. Wanda has announced that by the end of this year, it expects to have 42 completed Wanda Plazas and 18 five-star hotels around the country, and owns the country’s largest cinema chain. Wanda is one of four companies in the Top Ten, including Wahaha,East Hope and Ruoy Chai not yet to have gone public. Wang is a big collector of art.

60-year-old property tycoon Xu Rongmao is the most consistent performer of the Hurun Rich List, having been in the Top Ten now for ten years.

Liu Yongxing, the winner of the Hurun Most Respected Entrepreneur of the Decade in 2008, drops down two places to seventh with US$5 billion. Starting out with pig feed, Liu’s most valuable business today is industrial manufacturing of alumina.

Zhang Jindong of Suning has risen to seventh place with a personal fortune of US$5 billion. Suning has eight individuals on the Hurun Rich List. With 1100 stores, Suning has seen its market value pull away from its rival Gome, owned by 41-year old Huang Guangyu, who continues to make the headlines, despite being in jail. Huang, ranked 21 with US$3.5 billion, is locked in a battle with the current chief executive of Gome. Gome also has 1100 stores under its brand, 740 of which are held by the listed company that is a third owned by Huang. Huang used to be the richest man in China in 2008,but was sentenced to fourteen years in jail for graft and embezzlement. Zhang owns 31.7% of Suning.

Astonishingly, Chinese women now make up eleven of the twenty richest self-made women in the world. Of the nine non-Chinese, three made their fortunes in the fashion sector (Zara, Benetton and Gap) and three are from the UK.

Hurun Self-Made Women Billionaires 2010



Wealth US$m



Industry / Company




Zhang Yin


Nine Dragons Paper




Wu Yajun


Longfor Property




Chen Lihua


Fuhua International




Rosalia Mera *






Xiuli Hawken


Renhe Group




Elena Baturina *


Construction,Private equity




Zhu Linyao


Huabao International




Doris Fisher *






Oprah Winfrey *


US television hostess




Zhang Xin


SOHO China




Guiliana Benetton *






Chen Ningning


Pioneer Metals Holdings




He Qiaonu


Orient Landscape




Huang Xi


Zhongsheng Group




Ruth Parasol #


Internet gambling




Meg Whitman *


eBay former CEO




Mary Perkins #






Dai Weili






Zhou Yaxian


Shenguan Holdings




JK Rowling *


Harry Potter writer

Source: All wealth calculations from Hurun Rich List 2010 except for * World's Billionaires Forbes 2010 and # Sunday Times Rich List 2010

In the battle of the sexes, businesswomen in China are growing at the same speed as that of the men. The key difference is that the average wealth of the Top Fifty Richest Women is still only a third that of the Top Fifty Richest Men.

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