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!

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How the pendulum swings.

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.

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Hummers going to China

This is a sad news indeed.  A Chinese company bought the Hummer brand and will be bringing this gigantic (ugly ass) car to China! 

I hate Hummers.  And especially Hummers in crowded cities.   In New York City, they even have Hummer limos which is the most obnoxious car in the world.  They literally take up the entire road when they turn. 

Who needs a car like this?!

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Why do Chinese save? (Or, why don’t Americans save)

I came across this post by Michael Pettis on his analysis on why he thinks Chinese saves much more than the US.   There are multiple reasons listed, most of which relates to policies and how Chinese do not have a safety net, how the credit system is not in place yet. 

I think the real question is: why are Americans saving so little, and the Chinese saving so much? 

In my mind, there’s one simple answer.  Americans have formed the habit of spending their future projected earnings, and the Chinese have formed the habit of insuring their future with current and past earnings.   

Digging a layer deeper, Americans are confident that good and better days, will come while the Chinese worry that good days will not last.   

I agree with Pettis that the reason is not purely “cultural” but largely sociological.

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Please leave a message after what?

Wang JianShuo, as always, wrote a thought provoking post a few days ago, titled, “Why people don’t use v-mails in China“?  I have always pondered about this, as well as the question raised in his related post “Do you have a calendar“.

Wang’s perpsective is that Chinese people don’t use v-mails because they have leaped over the technology and adopted SMS and IM.  If the objective for using v-mails is to reach others when they are not reachable…  then the internet and mobile phones should have eliminated the need because (technically) everyone is now reachable 24/7. 

There is certainly merit to this argument.  I also agree with some of the comments on his blog that social ettiquettes also come into play.  While it is impolite in the US to take a phone call in the middle of a face-to-face meeting, it is impolite in China not to pick up your phone when it is ringing. 

The question then is, are these differences in ettiquettes shaped by culture, or by habit?   If we had mobile phones in the 70s and 80s, would we have voicemails today?  If we had IM and SMS in the 90s, would we use emails the same way we do?  I think not.  Just look at the teenagers today; with no legacy habits, their behaviors resembles those in China.

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Too many college grads already?

The WSJ ran a piece this week titled “China Faces a Grad Glut after Boom at Colleges“.   This issue of oversupply of college graduates in China is not new… it has been written about back in 2006 here, and in 2007 here.  

Together with everything else in China, higher education has expanded at a rapid pace.  Here are the key statistics (from the WSJ article):

 

 

 

 

 

 

 

 

 

University enrollment in China 30% per year consistantly over the past 10 years.  This growth surpasses China’s GDP growth, and greatly surpasses growth of “white collar” jobs.  Today, Chinese universities churn out >6mn graduates every year.  I have heard that even in prestigious universities like Peking University and Tsinghua University, 30-50% of students will not land a job right after graduation. 

Some people argue that China needs to reduce its university enrollment so that more of the graduates can land a job.  Philosophically, I do not agree with this approach.  Education creates hope and economic/social mobility within a society.  At the individual level, it makes no sense to take the opportunity away.  It is easy to say that there is nothing wrong being a farmer or construction worker when we are not the ones doing it.   Having said, once given the opportunity, it is up to the individual to make the best use of it.

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Regional superiorities

I recently discovered Jenny Zhu’s blog which I find very interesting.  Jenny is the face/voice of Chinesepod, the language 2.0 company.  I was reading her post on “Language Snobs and Regional Superiority” and thought it brought up a few interesting observations.

Beijing and Shanghai are two of the proudest cities in China.  It is not unlike other major cities like New York or Hong Kong where being a native is considered a privilege.  While the official language in China is Putongua, native Chinese can tell where someone is from based on their accents.  The implications of this is huge – it is much harder for someone from an “inferior” province to make it in Beijing/Shanghai since they’re generally looked down upon.  In addition, Jenny pointed out a practical reason for discrimating against non-locals in business dealings – it is more difficult to trust someone who does not have local ties.   In other words, it is easier to fraud a stranger than a friend.

There is an excellent film, “Beijing Bicycle“, which touches on how a migrant teenage boy struggles to make it in Beijing.  It does a great job depicting the challenges he faces as an outsider.

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China’s New Money

What would you do with a Billion USD in China?   I suppose it is not much different from what one does with a Billion dollar in the US – making the next 10 Billions I suppose…

There are many things fascinating about China today, one of which is the incredible speed in which individuals accumulate wealth.  To date, there are 100+ known billionaires in China, just behind the US; almost all of whom got instanteously rich through IPOs of their family businesses.  When you combine the economic opportunities of an emerging country with a 21st century financial system, you have one explosive wealth creation machine. 

Here is the list of the richest known billionaires in China.  The stories behind this new wealth is equally fascinating.  Here’s one example of one of these transformational stories. 

#3 Xu Rongmao (许荣茂)

“Xu grew up in Fujian Province, the oldest of the eight children. After graduating from high school during the Cultural Revolution in the 1960s, he was sent to the countryside to work as a barefoot doctor. In the 1970s, he emigrated to Hong Kong and worked as a textile worker.

In 1988, he claimed to invest RMB$1.2 million in a knitting factory in his hometown, but he intended to build a hotel instead, although investments in private hotels were forbidden at that time. However, as soon as the construction was completed, the government policy was changed to allow private owners to have their hotels. Then Xu became the owner of the first private three-star hotel in China. He then started to invest into developing residential complexes and resorts in Fujian.

In the 1990s, he pushed his real estate business into Beijing and Shanghai just before housing prices rose up.

In the 2000s, he expanded his business by acquiring listed companies and changing their names. They are Shimao Holdings (listed on the Shanghai Stock Exchange) and Shimao International (previously listed on the Hong Kong Stock Exchange), while the latter was privatized by him in 2007. ^[2]His third company, Shimao Property, was listed on the Hong Kong Stock Exchange in 2006.”

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Horse Racing making a Comeback

This Saturday, the first horse racing match (the first legal one anyways) was hosted in Wuhan as a test for the revival of horse gambling in China since 1949.  Growing up in Hong Kong, horse gambling has always been a large part of life – we had 2 and sometimes 3 matches per week.  The matches and pre-match warm-ups are show live on TV; even though I don’t gamble (well, too young to do so anyways), I became familiar with the names of the best horses. 

I see pros and cons for horse gamblings.  It is a form of entertainment if played moderately – it’s very social and brings people together.  It focuses the society on money; the objective for playing, obviously is to win money.  It is a bit like drugs – certainly addictive, and somewhat therapetic.  It gives hope and (presumably) equal chances to everyone.  It is often also used as an escape for the difficulty of “life”.

Gambling in any form has destroyed families and lives.  China needs to proceed with caution. 

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Worldwide “depression”

The mood is really somber these days…  everyone has recession on their minds; news media is making pink slips a spectator sport.  Recently, a friend from China visited and told me that 12,000 factories have already been shut down in southern China since there are almost no xmas orders from the US.  Think about all those lives that have been affected.  Last night, prime time news reported that the number of children in the US going hungry has increased from ~400k to ~700k from 2006 to 2007.   That’s a 75% increase in a relatively good year (compared to 2008). 

It is one bad news after another.  To top this out, many economists are comparing this to the Great Depression – I certainly hope they are wrong, but with all these talk, it is difficult not to become emotionally depressed.   

Here’s the cycle of acceptance used to illustrate clinical depression generally.  I think we are somewhere in transition between anger/aggression and depression.  Half-way point to happiness!

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