Postcards from China
It is impossible to fully appreciate the quality of China’s economic growth without visiting and studying the Chinese economy and polity. That’s exactly what we did, as Alpha took eight clients to China as part of the recent “Think Global/Portfolio Construction Forum” BRIC Study Tour to China. We added Hong Kong (where we visited the UBS Risk Management team, the folks managing our Asian POWER Shares product) and Singapore, where we spent the day with Lion Capital.
During the China study tour we visited the Bao Steel operation in Shanghai – this is China’s largest steel mill and concentrates on high value added steel components. It was amazing to see iron ore offloaded from ships that had begun their voyage in Australia!
Bao Steel Works Shanghai
We also visited the Beijing Nokia factory – where my very own Nokia N 95 was actually made. It is obvious that China’s manufacturing sector is using the most advanced technology in the world – a long way from the “sweatshop” image that many of us have.
Nokia Factory Beijing
We focussed attention on the political sustainability of this economic miracle – with a day long seminar (based at the Great Wall of China cultural centre) with Professor Xi Su Wang. Xi Su was the 1st PRC academic to be granted a visa to study in the US, after Nixon recognised the PRC. Xi Su holds a PhD from Harvard and an MBA from MIT – so he presents a rational, westernised view of China’s polity.
Professor Xisu Wang – seminar at Great Wall of China Cultural Centre
In short – the PRC has recoiled from the monstrous excesses of the Cultural Revolution, and has seemingly realised that there can be no more Tianamen Square massacres. Instead of Stalin and Mao, the PRC is firmly based on the meritocracy advocated by Confucius.
Sure, human rights aren’t what we would expect in the West, but the personal satisfaction of the average middle class Chinese we met is obvious – as is their growing economic prosperity.
We had some fascinating presentations from distinguished China observers, including Chris Wright from Austrade. View Chris’s short video on “Why China’s growth is Sustainable” here.
What we saw in China’s urban regions was amazing. China has the power, through its centralised political structure, to really make urban planning decisions that put Australia to shame. Shanghai’s population of 18 million people is housed in a modern, beautiful metropolis: half of which didn’t exist 10 years ago!
Shanghai Urban Development Centre
And finally, we saw how China is using the 2008 Olympics, and its memorable heritage, to network with the world. China, for all of us on the Study Tour, represents a paradigm shift in the global economy.
Beijing Olympic Site
Beijing Forbidden City
If only the Chinese stock market wasn’t a bubble! Since Chinese citizens can’t invest offshore (apart from a recently opened and very small facility which is strictly rationed). As we show elsewhere in this month’s newsletter, the China A share market is trading at massively inflated PE ratios and so we prefer to get our China investment exposure via the stock markets of the Asian economies which sell to, and buy from China – for example, South Korea, Taiwan, Hong Kong and Singapore.
