Shenzhen

Fever-Detecting Goggles and Disinfectant Drones: Countries Turn to Tech to Fight Coronavirus — Wall Street Journal

Drones spray disinfectant over South Korea. Police wear thermal imaging goggles to detect fevers in China. And a chatbot fields coronavirus questions in Australia.

The tech industry has long touted how ubiquitous connectivity, flashy gadgets and big data can improve people’s lives. The novel coronavirus epidemic is putting that bold promise to the test.

Health officials across Asia-Pacific, home to the first waves of virus contagion, have sought to repurpose existing technology to combat the fast-spreading virus. They are using smartphone-location tracking to piece together movements of suspected cases, developing government-run apps to monitor individuals’ health and keeping an eye on people’s temperature in the street with thermal goggles.

These new responses supplement traditional tactics such as quarantining sick people and canceling mass public events. But the tech-savvy tactics have yet to demonstrate broadly whether they are more game-changer than gimmick. Still, countries elsewhere might look to these solutions as the epidemic spreads.

The global number of confirmed coronavirus cases rose above 110,000 on Monday, according to data compiled by Johns Hopkins University, with infections found in 108 countries and regions.

In South Korea, the country hit hardest by the virus after China and Italy, the government rolled out a “Self-Quarantine Safety Protection” tracking app to keep digital eyeballs on the roughly 30,000 people officials told to stay home for two weeks. If a person brings their phone out of the permitted area, a mobile alert gets beamed to the individual and their government case officer.

The technology comes with a rub: It isn’t available on Apple Inc.’s iPhones until March 20. The app only works on handsets that run Google’s Android operating system used by hometown brands, Samsung Electronics Co. and LG Electronics Inc. Voluntary downloads since Saturday’s launch have been low, a government spokesman said.High-Speed Trains, International Flights: How the Coronavirus Spread

In Singapore, a Southeast Asian country hit in the early stages of the virus outbreak, health officials are asking citizens to monitor their own movements with the QR code, the black-and-white bar code used for mobile payments. A scan of these codes, found in taxis, office lobbies, tourist attractions and colleges, bring people to a webpage where they are asked to input their names, contact details and on occasion declare their health status. The voluntary scans allow authorities to reverse engineer a citizens’ whereabouts in case they fall ill or come into contact with a patient.

In Singapore’s Nanyang Technological University, where students, staff and visitors scan such bar codes to leave a digital trail of the locations they visit in the university, the data helped the university probe whether any of their 33,000 students had come into contact with a cleaning contractor who worked in the school after that person was diagnosed with Covid-19, said Tan Aik Na, a senior vice president at the university.

The system has limits. Claudia Thong, a 21-year-old Singapore university student, scans QR codes pasted on the front doors and interiors of classrooms each time she attends lessons. Some students, however, can’t be bothered to scan the codes, she said. Faculty and staff have been asked to remind their students and guests to perform the QR code check-in, the university said in a statement.

Australia’s health department directs worried citizens to a virtual assistant named “Sam.” But inquiries for “coronavirus” go unrecognized, with the site suggesting the correct spelling is the two-word, “corona virus.” A follow-up question about anxieties relating to “corona virus” produced suggestions that had nothing to do with the respiratory illness.

The chatbot will soon be updated to refer people to Covid-19 resources, an Australian health-department spokesman said.

In China, where the largest Covid-19 outbreak has occurred, cities have deployed a variety of eye-catching technologies to diagnose and contain illness. Through measures such as social distancing and isolation, China has managed to limit the outbreak mostly to Hubei province, where the infectious disease emerged and where the majority of cases have occurred.

Unmanned aerial vehicles, typically used to spot forest fires or for police surveillance, can now scan crowds in China and spot someone hundreds of feet away running a fever, said Kellen Tse, deputy general manager for Shenzhen Smart Drone UAV Co., a drone company working with two Chinese provinces. The drone, which uses thermal imaging, sends alerts about those unwell to on-the-ground officials.

“China is unlike other countries,’ Mr. Tse said. “We have a large population, that’s why we’ve turned to technology to be more efficient.”

In Shanghai, digital devices are attached to the doors of those sequestered, according to the city’s state-television channel. People are allowed to go out to empty their trash and pick up deliveries, but unauthorized door movements trigger an alarm to the neighborhood police station, a policewoman told the broadcaster in an interview.

Chinese technology firm Baidu Inc. said this month that it helped develop an algorithm for Beijing subway officials to single out commuters not wearing masks. The image-recognition algorithm, which Baidu developed and tested seven days after a request from the city’s metro administration, runs on the video feeds from subway cameras and flags individuals without a mask or who don’t wear one properly.

Shenzhen, China’s tech-manufacturing center, requests that drivers entering the city scan a QR code and leave their contact details and travel history. Police officers wear thermal helmets and goggles to identify pedestrians who may be unwell, the Shenzhen government said on social media.

But the new-age tactics have their limitations. Commercial drones can only fly for about 20 minutes before needing a lengthy recharge, and the tech-heavy defenses are expensive, said Peter Fuhrman, a Shenzhen resident and chairman of China First Capital, a boutique investment bank. He credits the conventional response of the masses of volunteers and paid monitors deployed in Chinese neighborhoods with thwarting the virus.

“Fittingly, people, not machines, made all the difference here,” said Mr. Fuhrman, who has stayed in Shenzhen since the country’s outbreak began in January.

In South Korea’s hard-hit city of Daegu, private drone companies have been deployed to help disinfect public places at the local government’s request. A single drone can load around 2.5 gallons of disinfectant and spray an area of up to 105,000 square feet—or about the size of a typical Walmart store.

“It takes about 10 to 12 minutes to use it all up,” a Daegu city official said.


https://www.wsj.com/articles/fever-detecting-goggles-and-disinfectant-drones-countries-turn-to-tech-to-fight-coronavirus-11583832616?mod=hp_lead_pos12

My Salute to China and Shenzhen During the Coronavirus Epidemic

过去四个多星期以来我在热爱的深圳家乡跟中国人民一起度过这个特殊时期。 在疫情当中我特别钦佩中国人民的勇气和同舟共济,以及医务人员的奉献精神, 中国老百姓凭借超乎常人的自律、耐心和意志力,平和且又坚定地忍受着各种生活和工作上的不便,共度时艰。我对中国人民和中国政府壮士断腕般坚定地控制疫情表示衷心的感谢。中国一定会打赢这场关键战役。中国加油!

I’ve been here in Shenzhen, my adopted hometown, continuously from the start of the Coronavirus epidemic. While this city and the country are still confronting a monumental crisis and short-term economic uncertainty, the worst seems to be behind us. I want to say how grateful and inspired I am by the bravery, collective will and purpose, endurance and resolve of the Chinese people and its government. We fight and we prevail together

China Merchants Steams in to Compete with SoftBank’s Vision Fund — Financial Times

 

China Merchants Group has been adopting new technology to resist foreign competitors for nearly 150 years. Founded in the 19th century, the company brought steam shipping to China so it could compete with western traders.

Now an arm of the Chinese state, CMG has been enlisted once again to buy up technology at a time when global private equity is vying for a share of China’s burgeoning tech market.

The country’s largest and oldest state-owned enterprise, CMG said this month it would partner with a London-based firm to raise a Rmb100bn ($15bn) fund mainly focused on investing in Chinese start-ups.

The China New Era Technology Fund will be launched into direct competition with the likes of SoftBank’s $100bn Vision Fund, as well as other huge investment vehicles raised by top global private equity houses such as Sequoia Capital, Carlyle, KKR and Hillhouse Capital Management.

“They have been very important to China in the past, especially in reform,” said Li Wei, a professor of economics at Cheung Kong Graduate School of Business in Beijing. “But you haven’t heard much about them in technology . . . It’s not too surprising to see them moving into this area, upgrading themselves once again.”

CMG is already one of the world’s largest investors. Since the start of 2015 its investment arm China Merchants Capital, which will oversee the New Era fund, has launched 31 funds aiming to raise a combined total of at least $52bn, according to publicly disclosed information.

But experts say little is known about the returns of those funds, most of which have been launched in co-operation with other local governments or state companies.

Before New Era, China Merchants Capital’s largest fund was a Rmb60bn vehicle launched with China Construction Bank in 2016. While almost no information is available on its investment activity, the fund said it would focus on high-tech, manufacturing and medical tech.

CMG’s experience investing directly into Chinese tech groups is limited, although it has taken part in the fundraising of several high-profile companies. In 2015 China Merchants Bank joined Apple, Tencent and Ant Financial to invest a combined $2.5bn into ride-hailing service Didi Chuxing, a company that now touts an $80bn valuation. It also invested in ecommerce logistics provider SF Express in 2013.

Success in Chinese tech investing is set to become increasingly difficult as more capital pours into the sector.

“Fifteen billion dollars can seem like a droplet in China,” said Peter Fuhrman, chairman and chief executive of tech-focused investment banking group China First Capital, based in Shenzhen. “We’re all bobbing in an ocean of risk capital. Still, one can’t but wonder, given the quite so-so cash returns from China high-tech investing, if all this money will find investable opportunities, and if there weren’t more productive uses for at least some of all this bounty.”

CMG, however, has always set itself apart from the rest of the country’s state groups. It is unlike any other company under the control of the Chinese government as it was founded before the Chinese Communist party and is based in Hong Kong, outside mainland China. Recommended Banks China Merchants Bank accused of US discrimination

The business was launched in 1872 as China Merchants Steam Navigation Company, a logistics and shipping joint-stock company formed between Chinese merchants based in China’s bustling port cities and the Qing dynasty court.

Mirroring its New Era fund today, it was designed to compete for technology with foreign rivals. At that time it was focused on obtaining steam transport technology to “counter the inroads of western steam shipping in Chinese coastal trade”, according to research by University of Queensland professor Chi-Kong Lai.

Nearly a century later, after falling under the control of the Chinese government, CMG became the single most important company in the early development of the city of Shenzhen, China’s so-called “window to the world” as it opened to the west.

Then led by former intelligence officer and guerrilla soldier Yuan Geng, the company used its base in Hong Kong to attract some of the first investors from the British-controlled city into the small Chinese town of Shenzhen, which has since grown into one of the world’s largest manufacturing hubs.

Its work in opening China to global investment gained CMG and Yuan, who led the company until the early 1990s, status as leading figures in the country’s reform era.

Today the company is a sprawling state conglomerate with $1.1tn in assets and holdings in real estate, ports, shipping, banking, asset management, toll roads and even healthcare. The company has 46 ports in 18 countries, according to the state-run People’s Daily, with deals last year in the sector including the controversial takeover of the Hambantota terminal in Sri Lanka and the $924m acquisition of Brazilian operator TCP Participações.

CMG did not respond to requests for comment. But one person who has advised it on overseas investments said the Chinese government was using it in the same way the company opened up Shenzhen to the outside world, helping “unlock foreign markets”.

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China’s Technology Future and What It Means for Silicon Valley — Bay Area Council Research Report

 

The Bay Area Council Economic Institute, the leading think tank and public policy organization in the Silicon Valley, has just published a comprehensive and timely research report on Chinese innovation, titled “China’s Technology Future and What It Means for Silicon Valley“. The author is Sean Randolph, Senior Director at the Institute.

You can download a copy of the complete report by clicking here.

Sean was kind enough to seek out my views on this topic and we shared a lively dialogue, both in person here in China, and by email once he returned to San Francisco.

The report does an excellent job contrasting China’s overarching future goals in technology and innovation with the current state of affairs. It takes a balanced view: “While recognizing China’s advances, it would be a mistake to think of China as a remorseless juggernaut sweeping everything in its path. Having a plan doesn’t guarantee success, and not everything works.”

The report looks deeply both at some of China’s leading technology companies — including the “BAT” along with Huawei and car-maker Geely — and more broadly at how Chinese companies, both state-owned and private, regions and universities all align themselves with broader national goals to upgrade the level of China’s indigenous innovation.

What does all this mean for Silicon Valley, the world’s most important and successful breeding ground for high-value innovation? It’s here, in offering answers and perspective, that the report achieves its greatest value.

Here are some particularly insightful passages:

“China’s relationship with the Silicon Valley/San Francisco Bay Area is unique, in part due to the deep historical and demographic ties between the Bay Area and China, but also because the region’s technology sector—the world’s largest—most highly concentrates the assets of technology, investment and expertise that relate to China’s goals to accelerate its own technological development.

Bay Area technology companies, such as Intel, Apple, and Cisco, and venture firms, such as Sequoia Capital, DFJ (Draper Fisher Jurvetson), and Kleiner Perkins, have been active investors in China for decades. Now, reversing the historic trend in which virtually all investment flowed from the Bay Area to China, Chinese companies have started sending investment capital and other resources to the Bay Area through mergers and acquisitions, equity investments, and the establishment of research and innovation centers and accelerator programs.”

The attraction of China’s market can be compelling, but [Silicon Valley] companies also must consider whether their core technology can be protected, and whether their position in the Chinese market can be sustained if that technology is compromised by competitors.While few US companies are leaving China, government policies and weak IP protection have caused many to keep their best technology at home and others to stay away.”

The report appears at an especially critical time in the development of US-China technology policy and investment. Congress is moving to tighten the CFIUS controls on Chinese technology investment in the US. China, meanwhile, is pushing ahead with new and more restrictive policies at home, leading to companies like Amazon selling off assets in China.

Let’s hope the tide reverses. A more open and reciprocal trade and investment relationship between China and the US would benefit both, benefit the world.

 

 

 

After Wanda Deal, Chinese Property Developer Faces Debt Risk — The New York Times

A Dalian Wanda property in Nanchang, China.

BEIJING — The Chinese property developer Sunac China Holdings has turned into one of the country’s biggest white knights, swooping in to help troubled companies with too much debt. The risk: Sunac is amassing its own large pile of debt in the process.

Sunac has more than doubled its debt load in a year to $38 billion. Its deal this week to buy a portfolio of theme parks and hotels from the Dalian Wanda Group, the heavily indebted Chinese conglomerate, will add to the tab. At $9.3 billion, the acquisition is larger than the market value of Sunac.

“The problem for Sunac is twofold,” said Peter Fuhrman, chairman of China First Capital, an investment bank. “They themselves are already rather overleveraged and they are not paying distressed prices.”

Sunac is offering a much-needed lifeline.

For years, China fueled growth by providing easy credit. Chinese companies borrowed heavily, using the money to fund aggressive expansions.

As the economy now slows, companies are increasingly running into financial trouble, with some having to borrow even more to pay their debts. Policy makers are worried that the country’s Passover level of corporate debt could threaten the broader financial system.

Sunac, China’s seventh-largest property developer in terms of sales, has been able to tap into its financial strength to help companies under pressure. Since 2012, Sunac’s property sales have grown at double-digit rates nearly every year, giving it the firepower to scoop up assets and land plots.

Before the Wanda deal, Sunac in January pumped $2.2 billion into LeEco, a tech firm struggling to pay off its creditors. This May, it paid $1.5 billion for an 80 percent stake in Tianjin Xingyao, a property firm known for leaving its projects uncompleted.

In 2015, Sunac made a play to rescue Kaisa, pledging $1.2 billion to take over the troubled property company; it later pulled out after Kaisa did not meet certain conditions for the deal. That same year, it announced a partnership with the cash-poor Yurun Holding Group, which ran a business empire ranging from sausage making to property and finance.

It is a remarkable turnabout for the company’s founder, Sun Hongbin.

Mr. Sun started his career at the Lenovo Group, where he was promoted to run enterprise development. But he had a falling out with Liu Chuanzhi, the founder of Lenovo, over a business dispute. Related to the dispute, Mr. Sun was sentenced in 1992 to five years in jail for misappropriation of public funds.

After his release in 1994, he met with the founder of Lenovo and apologized, according to the website of The People’s Daily, the ruling Communist Party’s official newspaper. The Lenovo founder eventually lent Mr. Sun about $74,000, which he used to start a predecessor real estate firm to Sunac.

Lenovo did not immediately respond to a request for comment.

When Mr. Sun started Sunac in 2003, he focused on the cities of Wuxi and Chongqing and then moved on to China’s most developed cities, among them Beijing, Shanghai, Tianjin and Hangzhou, building apartments with names like Beijing Fontainebleau Chateau. Sunac built its residential projects in good locations near city centers and was aggressive in acquiring land plots — with higher debt.

 Sun Hongbin, the founder and chairman of Sunac China Holdings.

“People who have failed are those who have been defeated by themselves,” Mr. Sun told a newspaper, China Business News, in 2013. “But I often tell others: After you fail, you can start again.”

With the Wanda deal, Sunac is extending its reach into tourism, paying $9.3 billion for 76 hotels and a major chunk of its 13 tourism projects, in the country’s largest property acquisition ever. The purchase will help Sunac diversify its business, which is hurting from government restrictions on home sales as Beijing seeks to cool a frothy property market. It also strengthens the company’s hand in an industry dominated by bigwigs like the China Vanke Group and Country Garden.

“Within the housing industry, the powerhouses are really strong,” said Lu Wenxi, an analyst for Centaline Properties who is based in Shanghai. “If you don’t gobble up the fat ones, it is easy to be eaten up by others. Taking on more projects will prevent you from being eaten.”

Investors have rewarded Sunac for the deal. Shares of Sunac rose 14 percent in Hong Kong on Tuesday after they resumed trading after the deal announcement.

But the deal will add to an already significant debt load. In 2016, the company’s net gearing ratio — a measure of total debt to shareholders’ equity — rose to 121.5 percent, from to 75.9 percent in 2015. Fitch Ratings recently downgraded the company’s credit rating to BB-, saying Sunac’s acquisitive approach had made its financial profile “more volatile.”

Wanda is helping finance the acquisition. Sunac, in a statement to the Hong Kong Stock Exchange on Monday, said Wanda would procure a loan for the company worth about $4.4 billion.

Seller financing is not uncommon, both in China and the West. But Wanda’s role means that Sunac doesn’t have all the money upfront.

“In my experience, I’ve never seen it anywhere,” said Lester Ross, a Beijing-based partner with the law firm WilmerHale, who has advised deals in China for the last 20 years. “No client that I represent would accept a deal like that where you’re responsible for raising the money to pay for somebody else.”

Sunac did not return multiple calls for comment. The company said in a statement to the Hong Kong Stock Exchange on Tuesday that the deal with Wanda “will add a large number of prime land reserves and property assets for the company at a reasonable cost.”

The LeEco deal is also prompting concern.

Sunac invested $2.2 billion in LeEco, buying minority stakes in three of the conglomerate’s more stable businesses, including the smart TV affiliate Leshi Zhixin, Le Vision Pictures, and Leshi Internet. The two companies don’t have many overlapping interests, and LeEco’s finances have continued to sour. Before the Wanda deal, shares of Sunac were falling on fears that LeEco’s problems would spread.

In a January news conference, Mr. Sun said many people had tried to dissuade him from investing in LeEco, adding that several were “resolutely opposed” to it.

“I seriously considered their views, but I don’t think their opinions are sufficient to change my mind,” he said.

Article as published in the New York Times

New Year gambling hints at Chinese entrepreneurial vigour — The Financial Times

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FT beyondbrics

With about every major leading economic indicator in a tailspin, it’s easy, even obvious, to be bearish about China. But, one sign of economic activity could hardly seem more robust: the crowds and cash at gambling tables during this year’s Chinese New Year.

The two-week long lunar New Year celebration finally drew to a close on Monday with the Lantern Festival. Here in Shenzhen, China’s richest city per capita, no sooner do the shops all shut down for the long break than the gambling tables spill out onto the street, like the cork flying out of a bottle.

Gambling, especially in public places with large sums being wagered, is illegal everywhere in China. All the same, the New Year is ready-made for gamblers and street-corner croupiers to gather. For one thing, most police and urban street patrols are also away from their jobs with family.

Along with over-eating and giving cash-stuffed red envelopes, gambling is the other main popular indulgence during the New Year. Most of it happens behind closed doors with families gathered around the mahjong and card table. But parts of Shenzhen soon take on the appearance of an al fresco Macau (see photo).

 

 

 

 

 

 

 

 

 

 

This year, from what I could see, the number of punters and sums being wagered was far higher than years past. This matters not only as a statement of consumer optimism here but also as affirmation of the love of risk-taking that helps make China such a hotbed of entrepreneurial activity.

The two forces operating together – not only at street corner casinos — are perhaps the best reason to be optimistic that China’s economy may yet avoid a “hard landing” and continue to thrive.

In my neighborhood, the favorite game on the street is a form of craps where people bet on which of six auspicious animals and lucky symbols will turn up. Hundreds of renminbi change hands with each roll. No small bets allowed. The gambling goes on from morning until late at night.

It’s a game that requires no skill and one that also gives the house a huge advantage, since winning bets only make four times the sum wagered. This puts it in a somewhat similar league with punto banco baccarat, the casino game Chinese seem to like the most. It’s also game of pure chance, where the house has a built-in edge.

In China, gamblers’ capital flows to games with unfair odds, where dumb luck counts for more than smarts. In this there is cogent parallel with the investment culture in China. China is simply awash in risk-loving risk capital.

Street-side gambling is popular during the New Year break in part because the other more organised mainstream forms of taking a punt are shut down. Top of the list, of course, is the Chinese domestic stock market. It’s rightly called the world’s largest gambling den. Shares bob up and down in unison, prices decoupled from underlying economic factors, a company’s own prospects or comparable valuations elsewhere.

The simple reason is that almost all shares are owned by individual traders. Fed on rumors and goaded by state-owned brokerage houses, they seem to give no more thought to which shares to buy than my neighbors do before betting Rmb200 on which dice will land on the lucky crab.

The housing market, too, traces a similar erratic arc, driven far more by short-term speculation than the need to put a roof over one’s head. Billions pour in, bidding up local housing prices in many Chinese cities to a per-square-foot level higher than just about anywhere in the West except London, Paris, New York and San Francisco. Eventually prices do begin to moderate or even fall, as happened in most smaller cities this past twelve months.

The other big pool of risk capital in China goes into direct investment in entrepreneurial ventures of all sizes and calibers. Nowhere in the world is it easier to raise money to start or grow a business than China. In part, because Chinese have a marked preference for being their own boss, so the number of new companies started each year is high. The other big factor, call it the demand side, is that there is both a lot of money available and a great enthusiasm for investing in the new, the untried, the risky.

Before coming here, I used to work in the venture capital industry in California. VCs there are occasionally accused of turning a blind eye toward risk. Compared to venture investing in China, however, even the most starry-eyed venture investor in Silicon Valley looks like a Swiss money manager.

Just about any idea here seems to attract funding, a lot of it institutional. China now almost certainly has more venture firms than the rest of the world combined. No one can keep proper count. Along with all the big global names like Sequoia and Kleiner Perkins, there are thousands of other China-only venture firms operating, along with at least as many angel groups. In addition, just about every Chinese town, city and province, along with most listed companies, have their own venture funds.

I marvel at the ease with which early-stage businesses get funded, the valuations they command and the less than diligent due diligence that takes sometimes place before money moves. Of course, a few of these venture-backed companies hit the jackpot.

Alibaba or Tencent are two that come to mind. But, initial public offering (IPO) exits for Chinese startups remain rare, and so taken as a whole, venture investing returns in China have proved meager. But, activity never seems to wane. Fad follows fad. From group shopping, to what’s known in China as “O2O” (offline-to-online) thousands of companies get started, funded and then often within less than 18 months, go pffft.

With the New Year celebrations winding down, the outdoor gambling tables in my neighborhood are being put away for another year. Work schedules are returning to normal. For all the headwinds China’s economy now faces, Chinese household savings are still apparently growing faster than GDP. This means Chinese will likely go on year-after-year amassing more money to invest, to gamble or to speculate.

 

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Government cyber-surveillance is the norm in China — and it’s popular: Washington Post

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Government cyber-surveillance is the norm in China — and it’s popular

Xi photo

 

 

 

 

 

 

 

 

 

 

 


 

SHENZHEN, China

When they met most recently, President Obama extracted from his Chinese counterpart, Xi Jinping, a solemn pledge to rein in Chinese surveillance and hacking of U.S. government agencies, companies and individuals. The backsliding seems to have begun almost immediately , with new reports of attacks by Chinese hackers in the United States. This conflict is not only a matter of competing national interests. At its heart are radically opposed conceptions of personal privacy and the legality of government monitoring.

Within China, government monitoring of private communication is not only common, but it is also explicit, institutionalized and generally quite popular. How much so? Just about every time I get an international phone call on my Chinese mobile phone, I’m pinged within seconds by a text message. It’s an automated message from the anti-fraud department of the city of Shenzhen’s Public Security Bureau (PSB), China’s version of the FBI.

This message informs me in polite Chinese that the PSB knows I’m on the phone with someone calling from outside China, and so I should be especially vigilant, because the caller could be part of some scheme to steal my money or otherwise cheat me. The phone number for the anti-fraud hotline is included. International fraud is, as of now, the only criminal activity that China’s government uses the mobile network to warn me about.

I do like knowing the Chinese police are on the job, warning and protecting the innocent. But I find it a little unsettling that they know immediately when I get an international call and are eager to inform me that they are keeping tabs. There’s also the fact that I get these messages every time my 83-year-old father calls from Florida. Does the Chinese security apparatus know something about him that I don’t?

China Mobile is the world’s largest mobile phone company, with more than 800 million customers. To generate that automatic anti-fraud text message, international calls routed across the network in all likelihood pass through a server layer controlled and monitored by the PSB; calls from certain countries get flagged, and the text message is dispatched as the call is taking place. This isn’t cyberspying. This is a deep integration.

It’s not only the PSB. Upon landing on a trip to another country, I usually get an automatic Chinese-language text message from the Chinese Ministry of Foreign Affairs reminding me to behave politely and providing me with emergency contact numbers. It’s a neat bit of coding. China Mobile reports to the foreign ministry, and perhaps other departments as well, when a user’s phone begins seeking a roaming signal outside China. The system then generates the text welcoming the user to that country and populating the message with the number for the nearest Chinese embassy and consulate.

The U.S. National Security Agency has ways, if Edward Snowden’s revelations are to be believed, to detect when a U.S. mobile phone is being used anywhere in the world. But it goes to a lot of trouble to keep a user from knowing that. Not so the Chinese state.

I’ve asked Chinese friends about this, and none expressed the slightest quibble about their government knowing where they travel or when they receive international calls. The government is just trying to be helpful, they explain. There’s no real civil liberties debate about it, not even in the online channels where criticisms of Chinese policy are voiced.

In contrast, the United States has gone through a particularly bitter and protracted national debate over whether and how mobile phone companies, along with email providers, should share information and communications metadata with the NSA. It’s not certain how much U.S. companies actively assisted the NSA in its domestic surveillance. But it’s beyond doubt that none cooperates to the extent China Mobile evidently does with the PSB.

In the past several years, China has introduced some of the world’s toughest laws, regulations and guidelines on data privacy. These tightly circumscribe what data companies can collect and introduce strict penalties for privacy breaches. Xi cites the laws as evidence that China has zero tolerance for hacking.

The quizzical result is: E-commerce giant Alibaba must not share anything about my Taobao account and is legally and financially responsible if my account gets hacked. But state-owned China Mobile (along with its two state-owned rivals, China Unicom and China Telecom) will freely share my private data with government departments at the national, provincial and local levels.

According to China’s latest cybersecurity law, all companies operating in China, foreign and domestic, must share private data with the government to aid in official investigations. No specific mention is made of state-owned enterprises such as China Mobile. So, we don’t know if China Mobile is required, encouraged or expected to share data that isn’t part of any official investigation — such as who is getting international calls or traveling outside the country.

Some U.S. companies, including Apple, have introduced encryption techniques that make it harder for the NSA to access user data and conversations. No such effort is underway in China, nor, as far as I can tell, is anyone seriously suggesting it.

I’m no civil-liberties purist, so I don’t particularly mind getting these text messages from the Chinese government. But it does serve as a vivid reminder that while living in China I’m subject to a set of rules and an official mind-set that are the obverse of those in the United States. Online and mobile communication privacy as we Americans understand it simply does not exist here.

https://www.washingtonpost.com/opinions/cyber-surveillance-is-a-way-of-life-in-china/2016/01/29/e4e856dc-c476-11e5-a4aa-f25866ba0dc6_story.html

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The Economist Survey on China Business

Econ

Econ survey2

With a timing that can only be described as exquisite, the Economist today publishes their in-depth survey of business in China. It appears at a time when the media is brimming with stories, often in my view overblown,  about China’s economic problems and challenges. The Economist survey provides light where there’s been way too much heat of late. I couldn’t recommend more highly taking the time to read it in full.

Please click here to go direct to the survey on the Economist website. It includes nine separate articles, each offering a banquet of analysis, ideas and insights on where China’s economy, both private sector and SOE, is heading.

The author of the survey is Vijay Vaitheeswaran, the China business and finance editor. This is the first Economist China business survey in many years. It was certainly no small undertaking. China’s size, complexity and ever-morphing business environment make a comprehensive future-looking summary of this kind difficult in the extreme to do well.

I got to meet Vijay during his research phase. I took him for Tibetan food in Shenzhen. He ended up quoting me briefly in one of the articles in the survey.

Vijay paid particular attention to accelerating innovation cycles in China’s hardware industry. He spent a few days in Shenzhen including attending a kind of hacker forum for hardware geeks. He calls Shenzhen “the world’s best place to start a hardware firm” and visited my favorite exemplar of this, 18-month-old mobile phone brand OnePlus.

Quick aside, since the launch of its new model, the OnePlus 2 six weeks ago, the waiting list to buy one has grown to over five million people. If OnePlus’s factories can keep pace with the exploding demand, the company is on track to sell over $2 billion of phones in coming twelve months.

While overall highly positive about China’s economic prospects and the ambitions of its vast pool of private sector entrepreneurs, the survey sounds a note of caution. It argues that the less efficient state-owned sector appears more and more like an unevolved creature from a foregone era.  They are, the survey warns, sucking up too much of China’s capital and achieving too little with it, all the while fighting to maintain the cozy monopolies that keep the far more dynamic and efficient private sector shut out.

How much market? How much government control and ownership? All countries struggle to find a balance. China stands out because the private sector has come so far so fast. Thirty years ago when I first set foot in China there was no private sector to speak of. Now, in all but the so-called “commanding heights” of China’s economy, entrepreneurs run rampant. 1.4 billion Chinese benefit from this fact every day.

 

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Free Trade Zones, The Next Phase of Economic Reform — China National News TV Interview

CCTV logo

CCTV

It is the world’s most watched nightly news report, China’s CCTV 7pm evening news program, “Xinwen Lianbo” (新闻联播). Simultaneously broadcast on most terrestrial tv stations in China, it has a nightly audience estimated at over 100 million.

This past week, the level of broadcast Chinese on this news program took a brief, steep dive. The reason: a short clip of me speaking Chinese led off a news report about recent economic reforms in Guangdong Province and the introduction of pilot free trade zones in Guangdong‘s three largest cities, Shenzhen, Guangzhou and Zhuhai.

You can watch the video by clicking here. (You may need to sit through a pre-roll advertisement.) My contribution is mentioning how comparatively easy it is to register a business in Shenzhen Qianhai,  the most ambitious of Guangdong’s free trade zones.

I was out of the country in Europe when the broadcast was aired, so didn’t get to watch it live. But, I knew instantly something was going on. As I sat in a lunch meeting in Switzerland at 1:15pm (7:15pm China time), calls and messages started flooding in from friends and acquaintances watching the report in China.

 

The Shenzhen Unicorn — Week in China Magazine

week-in-china

 

OnePlus Two

A sizeable quotient of the techno-hip crowd in the US and Europe is counting down the days to the launch next week of the newest Android mobile phone by China’s OnePlus. It’s called the OnePlus Two and follows a little more than a year after the 18-month-old company’s first phone, the OnePlue One, went on sale in the US and Europe. With barely a nickel to spend on marketing and promotion, OnePlus insouciantly dubbed its OnePlus One a “flagship killer” claiming it delivered similar or better performance than Samsung, LG and HTC Android phones costing twice as much.

The tech media swooned, and buyers formed long online queues to buy one from the OnePlus website, www.oneplus.net, the only place the phones are sold. In little more than six months last year, OnePlus sold over one million phones.

The new OnePlus model is rumored to be built around a new top-of-the-line Qualcomm processor, and features a larger screen, an upgraded in-house version of Android software, fingerprint recognition. Price? Around $300. It will be available, as was the OnePlus One for most of the last year, on an “invitation-only cash-upfront” basis to prospective buyers. How to get a coveted invitation remains something of a dark art. New OnePlus owners are given a certain number of invitations to send to whoever they please.

The July 27th launch will be an online event broadcast in virtual reality. OnePlus manufactured and is giving away a cardboard virtual reality viewer said to be as good or better than the ones sold by Google for $20. The viewers have been flying out the door for the last month.

To read complete article, click here.

 

Can Mass Smuggling Help China’s Sagging Economy?

Futian Kouan

As it struggles with a weakening economy and now a bearish stock market, China has recently taken two giant steps to stimulate the transition to a consumer-led economy. One is official policy and the other is a more spontaneous, chaotic, possibly illegal but ultimately perhaps more effective.

In May, China announced it would slash tariffs on a range of goods from imported shoes to cosmetics to lower prices and boost spending at home. The other step may do more in the short-term for lowering high consumer prices in China and narrowing the gap with goods sold in neighboring Hong Kong.

Quietly but rather systematically, Chinese Customs has begun permitting, at least at one border crossing, smuggling on a truly gargantuan scale. Thousands of Chinese are passing through Shenzhen’s Futian Kouan (also sometimes known as Futian Port) crossing every hour, with most pulling huge wheelie suitcases or hand-trucks laden with the products sold in Hong Kong that are most in demand here in China — milk powder, electronics, diapers, food, candy, even luxury products like designer bags and watches.

At a guess, several tons of merchandise is being moved every hour from noon until 10pm into China this way. What was once one of the most fiercely policed Customs posts in the world has become at various times an open channel through which anyone with the cash and energy can bring goods in without a risk of confiscation or payment of the high official Chinese Customs duties.

There was always smuggling between Hong Kong and Shenzhen. But, until recently, those doing the smuggling tried to hide the fact they were evading the rules. The whole idea of smuggling, after all, is to try to pass unnoticed through Customs. Not any longer, not some days at Futian Kouan.

The Futian Kouan border has become the key link in what is probably the world’s largest free-form wholesale network in the world — cross the border into Hong Kong the morning, head right for the shops, haul the goods across the border at Futian Kouan in the afternoon, then sell through shops back in China that evening.

There’s plenty of money to be made. Prices in Hong Kong are often one-third to one-half lower than in the PRC. If you remove the worry of being stopped at Customs, well, then it’s harder to think of many easier ways to turn a quick profit.

Why Chinese Customs is turning a blind eye is not certain. Is it an effort to encourage more consumer spending in China by allowing in more low-priced stuff from Hong Kong? Or is it a way to torpedo the effects of new visa rules in Hong Kong to limit the number of Chinese on shopping trips? Hong Kong caused further aggravation in Beijing by voting down China’s plans for electing Hong Kong’s next leader.

Whatever the reason, the overall impact of the crowd smuggling is not insignificant. Shops have bloomed in Shenzhen and further afield selling the goods pulled across the border. The only downside is that the Futian Kouan border crossing, once rather sleepy, has become inundated by the foot traffic of entrepreneurial Chinese going to and from Hong Kong to buy in bulk. Lines at immigration are at least four to five times longer than previously.

There’s been no official announcement that Customs is now occasionally taking a relaxed attitude at Futian Kouan. But, word has clearly spread.

The border separating Shenzhen and Hong Kong is the busiest in the world, with at least ten million people crossing every month. There are four main border stations. Two connect directly between the Shenzhen and Hong Kong metro systems. The other two are for cars and buses.

The busiest crossing of the four, at least until recently, Lo Wu. Here, there’s no sign of any new tolerance for big-time smuggling. Uniformed Chinese Customs officials stand just outside the immigration channel. Most anyone pulling even a single suitcase is directed to one of the nearby x-ray machines, where each bad is inspected. Fines and confiscation remain routine. No one would dare try to walk into China at Lo Wu crossing, as they do now at Futian Kouan, pulling a hand-truck piled with crates of stuff bought in Hong Kong.

As at Lo Wu, it is also possible at Futian Kouan to connect on foot, once you’ve passed through both Hong Kong and Chinese immigration and Customs, from the Hong Kong to the Shenzhen Metro systems. But, Futian Kouan is not a main stop on the Hong Kong Metro. There are three to four to fives times more trains every hour to Lo Wu. The Lo Wu trains used to be packed at all hours of the day. These days, far less so. Now, Chinese queue up at Hong Kong Metro platforms specifically to catch the less-frequent trains terminating at Futian Kouan.

With such large crowds and long lines, I stopped using Futian Kouan when I cross back from Hong Kong. But, I still feel the splashback from the tide of bodies and merchandise moving across the border. Most who cross at Futian Kouan then get on the Shenzhen Metro. Technically, anyone carrying even one large suitcase is supposed to buy a special ticket, and those with lots of bags are meant to use other means of transport. These rules seem to be no more strictly enforced than those at Futian Kouan Customs. Result is, most days on my rush-hour ride home, Chinese bulk shoppers fresh in from Hong Kong will try to squeeze in, with their 200-300 pounds of loaded boxes and bags. (See photo above.)

In Hong Kong, over the last nine months, there’ve been anti-PRC demonstrations, as well as some unfriendly chatter, from people complaining about the crowds of Chinese bargain-hunters arriving each day. Hong Kongers, not affectionately, refer to the Chinese as “locus shoppers”.  New rules then came in limiting Shenzhen residents to one trip a week to Hong Kong. Fewer Shenzhen residents now cross every day, but those that do, are making up for it by bringing far more back with them on each trip, while Chinese Customs officials silently oblige.

If headstong people in Hong Kong needed any reminding, it’s China that calls the shots.

 

 

In China, Newspapers Can Still Thrive

Newspapers, as everyone knows by now, are a crummy business, being slowly but surely pounded to death by two major forces they can’t control. First, news is now available for free, instantly, online. So, no need to wait for – and pay for — tomorrow’s newspaper to find out what’s happened today. At the same time, Google and Craigslist have created a far more efficient, and generally far cheaper,  form of advertising online than traditional print advertising.

On the whole, it’s a very gloomy picture. But, there is one new newspaper business model that not only goes from strength to strength, it will likely continue to make big money for many years to come. It’s the free newspapers distributed on subway and metro systems. The first one appeared in Sweden in 1995. Shenzhen, where I live, this year got its first entrant, called “地铁早8点”( “8 O’clock” in English). These free newspapers seem inoculated from every pathogen that is killing off the big urban newspapers around the world like the New York Times, LA Times, Le Monde, South China Morning Post. 

Start with the fact they are free. That certainly makes it easier to find readers. Next, there’s guaranteed, efficient and low-cost distribution. In the case of 8 O’clock, the paper is handed out by reps or left in big piles weekday mornings at many of Shenzhen’s 137 subway stations. Based on my daily subway commute, I’d say the newspaper is now being read by well over 60% of the people on my morning rush-hour train. The newspaper is bulging with ads. By any standards, this is a both a business success and a repudiation of the notion that print newspapers are sledding towards extinction.

The key to success for 8 O’Clock is knowing who its readers are and what they want to read about. 8 O’Clock, like most free subway newspapers, attracts mainly under-40 office workers. They have very clear editorial tastes, and these differ in some key ways from the many newspapers that are now headed for the boneyard. For one thing, 8 O’clock doesn’t try to break major stories or even stay current on political or economic stories fighting for headlines elsewhere. Instead, it offers its readers a mix of brief articles about celebrities, sports stars, oddball “human interest” tales and the occasional local scandal. Around half of each page is pictures, either advertising copy or outsized art work accompanying the short articles.

8 O’Clock is owned by the biggest traditional newspaper publishing company in Shenzhen, called Shenzhen Press Group. It has ten other newspapers in Shenzhen, all using the conventional paid-circulation model. This offers some obvious traps for Shenzhen Press Group, most obviously in selling a product at newsstands with some strong similarities to the one it’s giving away for free in subway stations.  But, against that, Shenzhen Press Group is reaching people with 8 O’clock that most likely never buy paid-for newspapers. What’s more, Shenzhen Press Group already has an in-house advertising team and deep knowledge of the local market to sell ads efficiently in 8 O’Clock. A full-page color ad sells for around USD$25,000-$35,000, depending on the day of the week and placement. Readership is somewhere around 300,000 a day.

Beijing, Shanghai, Shenyang and Guangzhou all have their own free subway newspapers. All seem to be thriving.  Other countries also have them, including US, UK, Germany.

China is the ideal place for free subway-distributed newspapers to thrive. Start with the fact, of course, its cities are huge and subway ridership dwarves that of most Western cities. But, as important, the newspaper industry in China is relatively new. Chinese aren’t imprinted in the way that so many Americans and Europeans are about what newspapers are for. The popular ones see themselves, unashamedly, as for-profit vehicles: an effective advertising medium. Not as a civic trust.

The editorial goal is to get enough people reading articles at the top of the page to deliver big audiences, efficiently, for the advertisers renting space at the bottom. For 8 O’clock, the advertisers are mainly large auto brands, hospitals, realtors and big chain stores all of whose businesses are thriving in China’s booming domestic economy. 

In cities like Shenzhen, Shanghai and Beijing, purchasing power, along with property prices, are reaching first world levels. There’s massive net migration into large cities in China, compared with stagnant, or declining populations in most big Western cities. The subway systems are themselves mainly new, with extensive networks – 14 lines in Beijing, 11 in Shanghai, five in Shenzhen, with two more on the way. As the systems grow, so too will the profits of the free subway newspapers like 8 O’clock.

A generation ago, there was basically only one newspaper of any importance and readership in China, the Communist Party’s People’s Daily (“人民日报”).  It’s still published, and has changed little down the years, a slim sheaf of turgid and often theoretical writing barely leavened by photos or ads. Meanwhile, thousands of newspapers and magazines have entered the market with a broad range of content.

All major media in China are still subject to censorship and, in theory, under the control of the Party’s propaganda department. But, 8 O’clock has ample scope to provide what Shenzhen’s subway commuters are after, at a price they can’t argue with.  A financially healthy newspaper serving a financially prospering city– 8 O’clock will keep waltzing compared to the wretched papers in the US and Europe.

The Greenest and Maybe Cleanest Vehicle on the Road

scooter

Is this the zero-emissions green vehicle of the future? For the masses, possibly not.  For me personally, maybe so. It’s a battery-powered electric scooter, with solar panels for recharging during daylight hours.

I’ve become a big fan, and a minor authority, on battery-powered electric scooters. I’ve owned a few. A Chinese-made electric scooter was my primary form of urban transportation while living and working in Los Angeles until moving to China last year.

Though I never saw another one on the road in LA, I’m a passionate believer in this mode of transport. In China, electric scooters are almost as common as passenger cars, with upwards of five million sold every year. The streets and sidewalks are crowded with them. They run on lead acid batteries, the same kind used in car batteries.

The electric scooters sold now in China rely on plug-in battery rechargers. That’s the biggest drawback of driving one. Lead acid batteries can take up to eight hours to recharge. This new solar-powered recharger should solve that problem. The battery recharges automatically as you ride around, as long as there’s sunlight. Assuming the solar recharger works, this electric scooter becomes a street-legal perpetual motion machine, never needing, at least during daytime, to stop for a recharge.

I met the inventor, Zhao Weiping, at a trade exhibition. I could barely contain my excitement. We discussed the science, the capacity of the solar panels, and the potential to upgrade the batteries to lighter, longer-lasting lithium batteries. He’s only built prototypes so far. He expects the cost, for a base model, to be around Rmb3,000 ($440).

With lithium batteries, the price goes up to around $750. Lithium batteries take half the time to recharge.

Another benefit of lithium: the batteries weigh less than half lead acid ones. Less weight means less drag and so farther range on a full battery and faster top speeds.  Engineer Zhao guesses top speed should be about 50kph (30mph) compared to 30kph (18mph) for lead acid models.

To me, it sounds like the ideal form urban transport: zero emissions, reliable, fast enough to keep up with traffic, and will rarely, if ever, require mains electricity to recharge. In other words, zero cost per kilometer traveled.

It gets better: in much of the US, including California, you don’t need a driver’s license or insurance to drive an electric scooter, and you can drive it legally in bicycle lanes. Of course, few traffic cops know any of these facts. I was pulled over routinely in California, while riding my electric scooter. Eventually, I created a plastic-coated car card with all the relevant clauses of the state traffic code. I’d present it to traffic police, and they’d usually let me head off after a few minutes.

In LA, I drove a Chinese electric scooter upgraded with lithium. Top speed was about 24 mph. Recharging time: four to five hours. As commutes go, my 9-mile trip to work was about as pleasant and relaxing as any could be. Most of my route was along the Pacific Ocean, and then through some of the hipper areas of Santa Monica and Venice. When the roads were crowded at rush hour, I’d switch into the bicycle lane. You can park anywhere on the sidewalk, just like a bicycle.

The biggest hazard is pedestrians. The scooters are so quiet that people don’t hear it coming. I had a few near misses.

I never understood why so few in California ride electric scooters. I never saw another one on the road. California is certainly one of the most environmentally-conscious places on earth. Motorized transport doesn’t get any greener than electric scooters. Zero emissions, zero fossil fuels, zero direct carbon footprint.

Those green credentials were never my main reasons for riding an electric scooter. I liked the convenience, the tranquility, the absence of traffic and the sheer exhilaration of riding it.

Exhilaration, however, is instantly transformed into despair when your battery runs out of juice.  It happened to me a few times, when I miscalculated the range. Open throttle riding, going uphill, lots of stops and starts can all drain the battery rather quickly. The meter showing battery life is, at best, unreliable. When the battery is empty, the scooter will shudder once, then conk out completely.

Run out of fuel with an internal combustion engine, you call the AAA or find a gas station. Run out of electricity with an electric scooter and your only real choice is to push the vehicle home for recharge. I’ve had to do it more than once.

Engineer Zhao’s solar-powered recharger should make that problem less common, if not eliminate it altogether. At worst, if the battery empties, you park it and in daytime, come back in a few hours and drive it away. Limitless range should make for limitless enjoyment.

Yes, but will Engineer Zhao’s machine work? Talking with him, it’s hard not to be confident it will. The solar panels are powerful enough to keep the batteries recharged and light enough not to create a lot of extra drag. The only way to find out, of course, is to get one. I’m thinking now of commissioning Engineer Zhao to build me one, with lithium batteries.

If it works, I’ll help Engineer Zhao get venture capital funding to build his company. My gut tells me I’m not the only one who’d ride around on one, and that there could be a very big market in the US, Europe and China for this solar-charged scooter.

I don’t particularly relish the idea of driving any sort of vehicle on Shenzhen’s streets. Driving is chaotic. Accidents common. Pollution awful. There are no bicycle lanes. But, I’m prepared to put my money – and perhaps my health – on the line to prove this is a vehicle with a future and perhaps even a mass market.

Wish me luck.

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ChiNext: One Year Later, Celebrating a Success

Zhou dynasty from China First Capital blog post

This past Saturday, October 30,  marked the one year anniversary of the founding of the ChiNext (创业板) stock market. In my view, the ChiNext has been a complete and unqualified success, and should be a source of pride and satisfaction to everyone involved in China’s financial industry. And yet, there’s quite a lot of complaining and grumbling going on, about high share prices, high p/e multiples,  “underperformance” by ChiNext companies, and the potentially destabilizing effect of insiders’ share sales when their 12-month lockup period ends.

Let’s look at the record. Over the last year, the board has grown from the original 28 companies to 134, and raised a total of 94.8 billion yuan ($14bn). For those 134 companies, as well as hundreds more now queuing up for their ChiNext IPO, this new stock market is the most important thing to ever happen in China’s capital markets.

Make no mistake, without the ChiNext, those 134 companies would be struggling to overcome a chronic shortage of growth capital. That Rmb 94.8 billion in funding has supported the creation of thousands of new jobs,  more indigenous R&D in China, and provided a new and powerful incentive system for entrepreneurs to improve their internal controls and accounting as a prelude to a planned ChiNext IPO.

China’s retail investors have responded with enthusiasm to the launch of ChiNext, and support those high p/e multiples of +50X at IPO. It is investors, after all, who bid up the price of ChiNext shares, and by doing so, allow private companies to raise more capital with less dilution. Again, that is a wholly positive development for entrepreneurship in China.

Will some investors lose money on their investments in ChiNext companies? Of course. That’s the way all stock markets work. The purpose of a stock market is not to give investors a “one way bet”. It is to allocate capital.

I was asked by a Bloomberg reporter this past week for my views on ChiNext. Here, according to his transcript,  is some of what I told him.

“For the first time ever, the flow of capital in China is beginning to more accurately mirror where the best growth opportunities are. ChiNext is an acknowledgement by the government of the vital importance of entrepreneurial business to China’s continued economic prosperity. ChiNext allocates growth capital to businesses that most need and deserve it, and helps address a long-standing problem in China’s economy: capital being mainly allocated to state-owned companies. The ChiNext is helping spur a huge increase of private equity capital now flowing to China’s private companies. Within a year my guess is the number of private equity firms and the capital they have to invest in China will both double.”

A market economy functions best when capital can flow to the companies that can earn the highest risk-adjusted return. This is what the ChiNext now makes possible.

Yes, financial theory would argue that ChiNext prices are “too high”, on a p/e basis. Sometimes share prices are “too high”, sometimes they are “too low”, as with many Chinese companies quoted on the Singapore stock market. A company’s share price does not always have a hard-wired correlation to the actual value and performance of the company. That’s why most good laoban seldom look at their share price. It has little, if anything, to do with the day-to-day issues of building a successful company.

Some of the large shareholders in ChiNext companies will likely begin selling their shares as soon as their lock-up period ends. For PE firms, the lock-up ends 12 months after an IPO. If a PE firm sells its shares, however, it doesn’t mean the company itself is going sour. PE firms exist to invest, wait for IPO, then sell and use that money to repay their investors, as well as invest in more companies. It’s the natural cycle of risk capital, and again, promotes overall capital efficiency.

There are people in China arguing that IPO rules should be tightened, to make sure all companies going public on ChiNext will continue to thrive after their IPO. That view is misplaced. For one thing, no one can predict the future performance of any business. But, in general, China’s capital market don’t need more regulations to govern the IPO process. China already has more onerous IPO regulations than any other major stock market in the world.

The objective of a stock market is to let  investors, not regulators, decide how much capital a company should be given.  If a company uses the capital well, its value will increase. If not, then its shares will certainly sink. This is a powerful incentive for ChiNext company management to work hard for their shareholders. The other reason: current rules prohibit the controlling shareholders of ChiNext companies from selling shares within the first three years of an IPO.

The ChiNext is not a path to quick riches for entrepreneurs in China. It is, instead, the most efficient way to raise the most capital at the lowest price to finance future growth. In the end, everyone in China benefits from this. The ChiNext is, quite simply,  a Chinese financial triumph.


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