China is neither a sure thing for retirement riches – nor is it a bubble ready to burst or a money pit of stock scams. Instead, it’s an evolving and rapidly developing market and the second largest economy on the planet that should be part of everyone’s retirement accounts.
I’ve been traveling to and working in China going back many, many years starting back when the nation was just beginning its massive and highly successful transformation.
Along the way, I’ve had the privilege to work with, teach and lecture at Webster University where my father is Chancellor and where I’m an adjunct professor and board member of the University’s George Herbert Walker School of Business.
Webster was the first US university to gain licensing and approval for campuses in China and is perhaps the only university that has a stand-alone entity rather than just partnerships with local institutions or the government.
With campus and teaching facilities in Shanghai, Beijing, Chengdu, and Shenzhen – Webster has been a great source of local knowledge and economic and market research – crucial for any investment in this nation.
Rick Foristel has been the regional director of Webster China since the early days of the initiative. And over the years, he has developed a great network of local business and government leaders that have served the University well – not to mention aiding my understanding of companies and the economic and market developments in China.
In addition, Rick has been a great friend.
Periodically, Rick pens some missives and comments on local conditions on the ground in China. In this issue I’m providing you some of his recent writings to me.
Rick Foristel, On the Ground in China:
In China, I’ve noticed undercurrents and mood changes from people I know, but this is a big, diverse country. I think it is best to consider what we are hearing and seeing, and how events might affect us.
Some Downturn, at Least in Shanghai
I have been noting more and more closures of small retail businesses, not just one, but several at a time and at high profile locations, like Shanghai subway stations. In the past few weeks I’ve seen doors shut and shelving hauled at shop locations at both the Shanghai South Railway Station and at Long Bai Xin Cun.
Businesses close and the empty spaces add to the overall vacancy rate at the same area. Long Bai Xin Cun is on the west of Shanghai, just minutes from the new newly opened Hong Qiao Shanghai Airport and adjacent to Little Korea. In 2009 large numbers of Koreans returned to South Korea from Shanghai because of the economic downturn. 100,000 take away 20,000 based on media accounts.
Add them up: the 2009 downturn, the end of the Shanghai Expo and now three months of austerity measures, meaning fewer loans from banks. Shanghai Daily reported this past week, “the number of new residential projects (full apartment complexes) opening in June will be 39% fewer than last year.”
Fewer projects like these mean fewer jobs at the factory level, where people make all the materials that have gone into the residential apartment boom.
Not Enough Jobs for Bright Graduates
At the same time, there is the problem of new graduates from all over China. There’s a backlog from the past three years in Beijing, where graduates and others are looking for anything that looks like a job. Thousands of young people live in small cubes, together known as si he yuan.
These are not office cubicles, but cage-like living spaces. The government is trying to figure out how to find something to do with this month’s new graduates.
At the recent G8 meeting, President Nicolas Sarkozy noted China “still has considerable poverty.”
Electricity and Coal, Again
Coal – the mining of, transport to and processing of – might be a bright light in terms of opportunity. Domestic coal mining and production is in double digit growth, according to the China National Coal Association.
It means money on energy is being spent internally.
There is a lot of activity in the sector, and the government is trying to get coal out of the ground, even as others seem to get in the way, even this past week:
The Mongolian who was killed, Mergen – who, like many Mongolians, was known by a single name – had been involved in protests before over the expropriation of grazing lands for coal mining. He had been trying to block a convoy of trucks from driving through grazing lands, and now a protest is brewing, according the L.A. Times, in Inner Mongolia.
Even though inflation is a bad word in China, the price for thermal coal is up, while the entire country is set for blackouts throughout the summer. The government is choosing conservation rather than buying more coal, or passing on the cost of production to users and end consumers. Conservation will be mandated by the government shutting off electricity.
The Drought
Certainly no one needs a drought in the middle of all of this, but it is the worst in 70 years, says China Daily in its Weekend Edition. It has been dry since January of this year in the provinces of Hubei, Hunan, Jiangxi, Anhui, Jiangsu and Zhejiang. It is affecting land crops and aquaculture.
With the drop of fresh water to the sea, salt water is backing up the Yangtzee, making it impossible to pipe fresh water to reservoirs in Shanghai. For now, the tide has gone out, and it appears that Shanghai can store water for the next couple of weeks, until the tide rolls in again.
Changes in Transportation
Some bright news: In Beijing, where there are 4.89 million cars in operation — and only 2.17 million parking places, says the Beijing Transportation Commission — the government increased gasoline prices and doubled the price of car parking in Beijing.
This has led to some drivers garaging their cars, and taking bicycles and public transportation to work. Each weekday, 21.44 million people use public transportation in the capitol city.
And, in Shanghai the government-owned car company, SAIC, says that it will be rolling out both hydrogen fuel and plug-in cars. Likely, they are not talking to the electric power people, who count on coal to produce electricity.
The new plug-in battery cars — in addition to cell phones, laptops and pads — rely on rare earth elements. During May, Beijing imposed new policies on the regulation of rare earth mining, processing and selling in China.
At present, reports China Daily, China supplies 95% of the global demand for rare earth elements. We might look for the consolidation of the entire industry, with a result that would look more like current telecommunications and oil industries.
The Original, 20th Chinese Entrepreneurs
From Wenzhou, a long-time hotbed of entrepreneurship 215 miles SSW from Shanghai:
Many times, when you are trying to find an apartment for rent, the landlord is from Wenzhou, who is using individual apartment units as reliable investments spun off from wealth created by Wenzhou craft and factory operations.
Beijing has asked the Wenzhou money people to invest in something other than more apartments and commercial buildings. The government wants them to invest in innovated fields, including renewable resources, according to the China Daily.
Lower Middle Class Chinese Moving About China
Finally from Shanghai: we just hosted students and a professor from Webster Geneva for two days of discussions, talks and tours in Shanghai. They almost all complained to us about our selection of budget accommodations, Jingjiang Hotel on Siping Road. The property is a national chain operated from Shanghai, and is a SoE.
The biggest complaint was the very hard bed — not unusual for Chinese people, but not workable for Westerners. And yet, the location was fully booked, including our group.
Other players in the budget hotel China market include Home Inns and Management, Shanghai Motel Management (Motel 168 and 268), 7 Days Group Holdings, and Haunting Inns and Hotels.
China Daily reports Morgan Stanley is trying to divest a 59% interest in Shanghai Motel Management. From 2000 to 2008 the budget industry grew at 82% a year, but in the first quarter of this year, net income fell substantially in several of these companies.
Rick Foristel is the China Regional Director for Webster University (www.websterchina.com) which is committed to leading global education has over 107 campus locations around the globe and is based at its home campus in Saint Louis, Missouri (www.webster.edu).
{ 3 comments… read them below or add one }
This is certainly a wonderful write-up. Thank you so much for bothering to summarize all this out for us. It’s a great help!
good article
John Hill June 13 Exellent insight for investing .