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The Legacy of Mao

In a recent visit to Beijing earlier this year, my business partner decided to  conduct a poll with every Chinese we met along the way.  The question is a  rather difficult one to answer: How would you rate Mao on a  scale of 1 to  10 baking in everything he has done over the cause of his  life?

The answer of this crude poll was a tight range from 6 to 8.  The answers    generally started with the perspective that Mao did a lot of great things in  his  early years (advancing the rights of women, promoting  modernization  of  industrial production, etc.), followed by some mistakes.

The interpretation of his mistakes fell under several camps.  1) That Mao  was  so far up on top, he had no idea about what was happening at the ground level.  In other words, he had no way of knowing the turmoil that his decisions/commands had caused; hence, we cannot hold him responsible; 2) A few sacrificed for the benefit of the whole.  Yes, tens of millions died, but the country as a whole attained stability and progress and emerged stronger than before; or 3) We got to analyze him in the historical context.  China had been invaded and controlled by foreigners for decades, including the Qing occupation, civil war, korean war, WWII and the Japanese invasion.  Mao unified the country and that was what the peasants wanted at the time.

One comment is universal – it is a complicated matter.  How should one judge a leader who has done a lot of good things but made one or two huge mistakes?  Should we judge Mao’s legacy based on the aggregate result?    Or, were the damages and turmoil caused in his later years simply unforgivable?

Fraud ADRs

A reliable friend once told me that in his opinion 50% of Chinese ADRs are fraud.  He then explained to me that since companies are generally valued at much higher multiples in domestic stock markets in China, all Chinese companies will seek to get listed domestically first.  The problem is that domestic listings are limited and unless you are a stellar company and have connections to the SEC-of-china, your best bet is to list as ADR in overseas market.  That is, the lesser quality stocks actually get listed abroad; a reversal of what it used to be earlier in this decade.

Betting against these stocks seem to be a sure-win…. the timing, however, is difficult to gauge.  Let’s say you are  75% sure that a company is fraud, when will they get exposed is unpredictable.  The stock can rally on fake information for a long period of time.  When there is an opportunity, there are people monetizing – just came across this site: Muddy Waters, who claim they can “sees through appearances to a Chinese company’s true worth.”  With services like this being publicized, I’m guessing the ADR bubble will burst pretty soon.

If increasing domestic consumption is a key objective for China… there’s much work to be done to make this possible.  The problem is not one of consumption; it is one of encouraging consumption domestically.  There are several problems with the current retail environment in China: 1) consumer confidence and protection – the trust that products are genuine and safe, 2) price – tariffs/tax and other reasons for price premium on quality products, 3) choices – limited SKUS available.  Chinese consumers have repeatedly demonstrated their willingness to spend, from milk powders in Hong Kong, to new iPads in NYC.  The question is, how can we remove the barriers for Chinese to spend in their own country.

China’s wealth

Bloomberg on March 4th: Wen Jiabao Sees Billionaires When Communists Convene as Wealth Gap Widens

Key Stats in the article: The richest 70 of the 2,987 members have a combined wealth of 493.1 billion yuan ($75.1 billion)… By comparison, the wealthiest 70 people in the 535-member U.S. House and Senate, who represent a country with about 10 times China’s per-capita income, had a maximum combined wealth of $4.8 billion.  Average wealth of top 70 members in China is close to $1bn, while in the US, it is close to $7mn.  And yes, it is US dollars, normalized already for currency. 

In China, everything can made it bigger, faster and quicker.  And building wealth is no exception!

About 8 years ago, I thought that China needed some public relations help.  The West was not giving it any credit, and no one was quite paying attention.  While I spent a couple of years in business school, I founded a club that focuses on business opportunities in the Greater China region, with my eye in China.  I remembered having to justify why the club has a place for existence, and that it will have a lasting existence.  I remembered having to explain why we are not looking to start a Chinese culture club, but a China business club.

Then the Olympics came along.  I started writing this blog before the Olympics, and then I had a hard time keeping it up.  I was suffering from China exhaustion.  The hype was incredible – suddenly China was the darling of the world.  Look, they can get thousands of people dancing totally in sync!  But more importantly, look at how much money they have.

After that, we have the global meltdown.  Global ex-China.  Suddenly, China is not only interesting –  maybe, just maybe, they have it all figured out better than we have.  Perhaps democracy is not the best solution afterall.  Look, the Chinese can build highspeed railways overnight – they are clearly better than we are.  Even Obama said so.  The power of having autocratic control.  We envy.

I’m not suggesting that we need to start China bashing.  The ruling party deserves a lot of credit for moving the country forward.  And I do hope it will continue to do so for decades.  It is true that the majority of the people are moving forward in a way they have not experienced before.  I think, however, that both the Chinese  and the West are starting to make excuses for the Chinese government for unacceptable behaviors (in areas of human rights and freedom of speech).  It’s tolerable or even expected as long as the country is moving forward.  This has always been Chinese government’s argument.  That the sacrifice of a few is necessary for the good for the country.

For me, the pendulum is starting to swing the other way.

It has been a long hiatus since I’ve written.  I have not lost interest in China – rather, I got preoccupied with some major changes at my day job…

What prompted me to log back on is this fascinating book I just finished reading: Country Driving: A Chinese Road Trip by Peter Hessler.  I can’t quite summarize it here; you have to read it from front to back to really get the feel.

Fake Eggs

This is old news, but I am still fascinated by the concept of fake eggs.  I can’t believe this is even possible…

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20090424-fakeegg-23

You can read all about it here.

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