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 潜水年余,冒个泡. Shan Weijian's speech last month(ZT) |
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wolfskin
头衔: 海归中尉
加入时间: 2004/02/21
文章: 33
海归分: 4555
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作者：wolfskin 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Thursday 25 March 2004
>
>China, bi-flation and exploding televisions
>By Steven Irvine 24 March 2004
>
>China's growth model is not sustainable, Newbridge's Weijian Shan tells
>1600 delegates at CSFB conference.
>
>It was a luncheon speech that must have put some of the delegates at
>CSFB's Asian Investment Conference off their food. Newbridge Capital's
>co-managing partner, Weijian Shan delivered an incisive and brilliant
>speech (without notes) on China's current growth model and why it must
>change, or else fail. Here we reprint the speech in full:
>
>I am talking today about a subject that has caught the imagination of
>almost every investor in the world, and that is China. China has
produced
>the most spectacular growth in the past 25 years - in fact, no country
in
>the world has ever been able to grow as fast for such a sustained
period
>in world history.
>
>In the past 25 years the average growth rate - in real terms - was
about
>9% per annum. The question is, in this fast growing economy, how much
>return would you have made from investing in arguably the best Chinese
>companies? These companies first came to Hong Kong to list in 1993, and
if
>you invested in the Chinese enterprises index then you would, 10 years
>later - have lost about one third of your capital. Indeed, throughout
that
>period you were underwater more than not. If you had held till today -
>that is if your investors had not fired you by now - the return would
be
>24%. During the same period of time the US economy grew about 3% per
annum
>and if you had invested in the Dow Jones you would have made a return
of
>about 188%. The Hang Seng index would have given you a return of 84.7%.
>
>So what is going on? Why has the fast economic growth rate not
translated
>into a high return for investors?
>
>I recently read a report talking about bad loans. It said that Japan
was
>number one in absolute terms. But in terms of the bad loan ratio, China
>was the worst. S&P estimates about 45-50% of Chinese loans are bad.
What
>does that mean? I believe NPLs are a very good measure of the
inefficiency
>in the economic system. It captures both types of inefficiency:
productive
>and allocative.
>
>There you have a paradox. China is the most inefficient economy
producing
>the fastest growth rate the world has ever seen. How can this be? How
can
>an inefficient economy continue to grow like this?
>
>History shows there are examples of economies which are inefficient and
>are still able to produce rapid economic growth rates. The Soviet Union
>produced very rapid economic growth in the 1950s and 1960s. Was Soviet
>growth real?
>
>After its collapse, the Russian economy shrank very rapidly, until it
was
>only 10% of the size of Japan. I would argue, however, that the Soviet
>economic growth rate was real. There was a real economy.
>
>If you had visited Moscow before the fall of communism you might have
been
>interested to discover that the principal cause of fires in the city
was
>exploding television sets. In Moscow hotels the television would have a
>sign covering the screen which said "Please keep a safe distance from
the
>television because it may explode at any time".
>
>Why were they making exploding televisions? It turned out that there
were
>TV producers who were only producing exploding televisions. Obviously
>there was demand, and year after year the factories just turned out
more
>exploding televisions. There was real supply and real demand.
Everything
>was real until after 1990, when Sony came in. Why would you then buy an
>exploding television?
>
>All those manufacturers producing shoddy products became worthless
>overnight. That's why the Soviet economy shrank. But it was there.
>
>Yet why did it grow for such a long period of time? There were two
>necessary conditions for such an inefficient economy to grow so
rapidly.
>One was a high savings rate, much of which was forced. The other was a
>closed economy. Without competition, consumers have to buy whatever is
>available.
>
>Of course, I am not suggesting that China is a closed economy. In fact,
>trade now represents about 60% of Chinese GDP, which is far greater
than
>that of the US or Japan. So China now depends more on international
trade
>than America or Japan. China is an open economy as far as the trade
>account is concerned.
>
>So what are the necessary conditions for allowing the Chinese economy
to
>grow at such a rapid pace. The first condition is a high savings rate -
>which at 42% is among the very highest in the world. Such savings are
>translated into investment, which pushes the economy forward. The
second
>condition is capital controls.
>
>If you look at data that shows the price differentials of those Chinese
>companies that are listed both in Hong Kong and Shanghai, you note that
>the price in China is twice as much - for the same stock! That means
the
>return on capital in China is about half that in Hong Kong. A rational
>investor would bring money to Hong Kong to buy the stocks there. It
>follows that without capital controls money will flow out of China.
>
>With capital controls, the banks are able to channel all this capital
into
>investments - which in turn is responsible for economic growth. Now,
the
>question is: what is the catch?
>
>The catch is that if the economic system is inefficient, much of the
>investment may be wasted or become NPLs in the banking system. And
>therefore you will find that the cost of Chinese growth is the NPLs in
the
>banking system, which the country has to pay for sooner or later.
>
>That's why I call Chinese growth, borrowed growth. Chinese economic
growth
>is not demand-driven but supply-pulled. It is driven by capacity
expansion
>which is financed by bank loans which came from the high savings rate.
>
>Last year the money supply went up 20%. Local currency loans went up
21%.
>Foreign currency loans went up 27%. Fixed asset investment, or capital
>formation, went up 27%. And all this investment produced economic
growth
>of 9.1%, with industrial output up 17%.
>
>That's just the average. The growth is much more spectacular by
sectors.
>If you look at personal computer production, it grew by 83.2%, sedan
car
>sales by 80.7% and air-conditioning units by 47.4%. The growth in such
>areas is truly explosive.
>
>This is all driven by large amounts of investment in these industries.
I
>would argue that most of the impetus for the money supply increase came
>from outside China, due to the inflow of foreign capital. The central
bank
>is obligated to buy dollars or whatever currency and convert them into
the
>local currency. So every dollar that comes into China translates into
an
>increase in the money supply of Rmb8.3.
>
>The increase in fixed asset investment last year was 27%. I saw data
for
>the first two months of 2004, that it was up 53%. That is hot.
>
>What does that imply for an investor? There is a debate as to whether
the
>Chinese economy is overheating. Usually overheating is accompanied by
>inflation. But last year the CPI rate was 1.2%. In January it rose to
>3.2%, but then in February it came down to 2.1%. So it seems that
>inflation is not a serious threat.
>
>But China is an economy of such diversity. The average doesn't really
tell
>you anything. My analogy is that if a person has one foot in a fire and
>one foot in ice, before you know it he is dead, but his average body
>temperature looks normal.
>
>That's what you see in China today. I call it bi-flation. There is both
>inflation and deflation in the market. If you look at the prices of raw
>materials and intermediate goods they all went up in price
substantially
>last year. We're talking about 30%.
>
>At the same time, investment has created so much overcapacity in the
>system that prices for finished products have become depressed.
Therefore
>you see the price for durable goods come down 4.6%, for telecoms
equipment
>and electronics 6.5% and for cars 10%. And the trend is continuing.
>
>What does this do to your business? On the one hand the price for all
your
>materials goes up 30%, on the other hand the price for your finished
>products have come down 10%. Your margin is severely squeezed.
>
>And you have borrowed from banks to make all this investment. Now,
without
>the cashflow, you are becoming more dependent on banks, just as your
>ability to service those debts has diminished. This increases the risk
of
>adding to the stock of NPLs in the system.
>
>NPLs are thus the cost of economic growth in China. And also, by
bidding
>up commodity prices, China is paying a higher price for its raw
materials
>from abroad, while Chinese companies are selling their products at a
lower
>price worldwide. So China buys dear, and sells cheap. Thus China's
terms
>of trade have significantly worsened in the past year or two. That
means
>China is really subsidising the rest of the world.
>
>You may be asking me what is Newbridge doing in a country like this? I
do
>believe there are places that can make money, where overcapacity and
>over-competition will not harm your profits. If you are careful enough
>there are still a lot of good investment opportunities.
>
>For example, between 1949 and 1996 it took China 47 years to reach a
>production capacity of 100 million tonnes of steel from 50,000 tonnes
in
>1949. The next 100 million tonnes were added in six years, and by the
end
>of the year China will reach 300 million tonnes.
>
>That's very rapid growth. Why would you invest in the steel industry in
>China? But look at Baosteel - it supplies 60% of China's steel plates
for
>cars. With that kind of technology and market share, you know that
company
>cannot be easily imitated.
>
>Another example is milk. The consumption of milk has been growing at
more
>than 100% for the past three years. The supply of milk has increased so
>much that the margins have become very thin. But to my knowledge there
is
>only one company making the paper cartons for milk. This particular
>company is doing extremely well.
>
>There are 47 mobile handset makers in China. They don't make money. But
>China Mobile does.
>
>So there are pockets of opportunity in China for foreign investors. But
>you need to be careful.
>
>The question is: can the current pace of economic growth in China be
>sustained, given all the problems? I don't think that this type of
growth
>is sustainable, if nothing is done, particularly in regard to the
banking
>sector.
>
>In 2007, China will have to open the banking sector to foreign banks.
By
>that time, depositors will have a choice. The foreign bank is not
likely
>to loan their money without regard to cashflows. Regardless of the
savings
>rate a lot of money will be diverted away from all these capacity
>expansion projects. And therefore this type of growth cannot be
sustained.
>
>And in five or six years China has said it will make the capital
account
>convertible. Then you will see an outflow. You will not be able to
capture
>all of the capital for capacity expansion purposes.
>
>In the longer term, the Chinese population will age precipitously and
in
>the next 10 years money will be withdrawn from the banking system by
those
>retiring. That's because the social pension system is underfunded.
>
>Therefore sooner or later, this type of growth will not be sustained.
>
>Fortunately the Chinese leaders have the wisdom to tackle the problems.
I
>was pleased to hear Wen Jiaobao say that this year China faces a bigger
>challenge than SARS, when he talked about the need to readdress
>macro-economic policies.
>
>The government has taken measures to clean up the banking system. That
>will put Chinese growth on a much sounder footing and is welcome news
for
>investors.
>
作者：wolfskin 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 潜水年余,冒个泡. Shan Weijian's speech last month(ZT) -- wolfskin - (12003 Byte) 2004-3-27 周六, 01:50 (2089 reads)
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