“No Chinese jetliner has crashed since the 2004 Batou tragedy, even though China’s aviation is growing so fast that its airlines have flown more than 8.5 million hours since then. Statistically, that amounts to the best safety performance in the world in the past three years.”
China has its bad time in 90’s and earlier this decade. But with top-down mandates, aggressive enforcement, and expert advice from airplane manufactures like Boeing changed that.
Western companies have long viewed China as a strategically important market. But “strategically important” often implies big things in the future, but profitless for now. They all believed the scale and depth of China’s market, but had no idea how and when they can generate profits from it. That was the popular view in late 90’s. In a 1998 survey, one third of multinationals were losing money in China, and another quarter of them were barely making even.
Now it’s a totally different story. The latest survey says 83% of the surveyed companies’ China operations were profitable in 2006. At the mean time, 58% of the companies enjoyed an increased profit from China.
Here’s an extreme example. The Yum Brands, which owns KFC and Pizza Hut restaurants would report an operating loss if not counting the $65 millions operating profits from China. People at KFC certainly know better how strategically important a market China is now.
With the booming economy, mainland China now has about 320000 “super-rich”, those (defined by Merrill Lynch) who have at least $1 million of financial assets. Among them, 4540 people have a net worth of $30 million, estimated by Merrill. According the same report, the average net worth of the group of wealthy is about $5 million, a number only lags behind Hong Kong in the Asia-Pacific region. Chinese and foreign banks are now chasing this rising class of wealthy for private banking service. CitiGroup Inc.’s Citibank(China) Co. and Bank of China now offer separate programs to cater to China’s upper crust, providing them wealth management service with their own bankers. Citibank(China), with its branches in Shanghai and Beijing, targets clients with a net worth of at least $10 million. BOC’s privating backing threshold is $1 million. Now BOC says it has about 100 to 200 private banking clients.
For now, one of the urgent issue for BOC is the lack of talents and experiences in private banking. BOC is now partnered with Royal Bank of Scotland to get financial planning expertise and management advice. The partnership may become a joint venture once they get regulatory approval, probably in next 12 or 18 months. BOC also views its newly opened wealth management service as a training ground for its private bankers.
While the U.S. China Strategic Economic Dialogue is held in Washington, a lot of discussions about Chinese economy and U.S. China relationship are published in the Journal. As I recall, WSJ includes pet food scandal, trans-import and of course the “not-so-satisfactory” dialogue progress in recent reports. Today, they listed a series of numbers to sort out U.S. – China relations.
The U.S. trading deficit in goods with China is $232.6 billion ($287.8B import minus $55.2B export) is greater than the deficit with both European Union and OPEC, the second and third largest trading deficit U.S. posts with. Among the $287.8 billion imports from China, 80% are consumer goods. The top four goods categories are computer parts, household goods, toys/recreation and computers, each accounts more than 10% of the total imports by value. China accounts 80% of US toy market by value, half of the footwear market and near half the TV and consumer-electronics market. Among U.S. exports to China, semiconductors, civilian aircraft, soybeans(!), plastic materials and raw cotton top the list.
Dollar dominated assets account about two-thirds of China’s $1.2 trillion foreign-exchange reserves. The $420 billion in treasury bills is about 20% of all the foreign-held debt of the U.S. government. China’s recent investment of $3 billion to the U.S. private equity firm Blackstone is widely reported by national and local news coverage.
Here are two quotes from the economic dialogue:
“There is a growing skepticism in each country about the other’s intentions. Unfortunately, in America this is manifesting itself as anti-China sentiment as China becomes a symbol of the real and imagined downside of global competition. ” — Henry Paulson, Treasury Secretary.
“We should not easily blame the other side for our own domestic problems. ” — Wu Yi, Chinese Vice Premier.
An interesting story to reflect how immature Chinese stock market is.
Chinese investors are very glad to see 8s while buying stocks. Yan Caigen, featured in the front page story, bought Jilin Yatai Co. stocks just because the stock’s ticker number 600881 contains a double-eight. Fortunately, Yatai was doing very well after his purchase and earned him about $50000.
A lot of investors are feeling lucky now in China. With the booming stock market, it’s hard to pick a poor performing stock. The benchmark Shanghai Composite Index is up 56% this year and quadruple its level at mid-2005. People are crazy about the bull market, and they are pulling money from the personal saving account, from real estate, or even from retirement saving to the stock market. Up to now, everybody seems happy with this. Individual investors make up 60% to 80% of trading in China. While I got my US dollars exchanged to RMB in one of Construction Bank branches in Beijing, an old lady next to me are buying the stock funds. While she has no idea about stock share, return, or even the transaction fee charged to her account, she didn’t hesitate at all to continue her investment with the help of the teller. Or I should say her gamble.
Back to the luck number, the kick-off time for Beijing Olympic Games is 8PM, on 8-8-2008. The three keys 6, 8 and 9 wear out first just because they have the best homonyms in Chinese. I guess I’m lucky too. My cell phone number 606-6876, randomly assigned to me by T-Mobile, may worth thousands of yuan with this many 6 and 8 in it.