The gold rush is on in Shanghai
By Allen Wan, CBS.MarketWatch.com
Last Update: 10:22 PM ET Dec. 28, 2003
SHANGHAI (CBS.MW) - It's not California during the Gold Rush but Shanghai does have the smell of a place where anything is possible.
Hundreds of thousands of Americans, Europeans, Japanese and other foreigners are flowing into China's financial capital, transforming the city from what was still a communist backwater back in the late-1980s into an international city that may soon rank up there with New York and London.
The wave of foreign businessmen, bankers and freelancers have been joined by another 3 million Chinese from other provinces, many of whom are migrants jamming into what is already one of the most crowded cities in the world.
"Basically, Shanghai is very hot and lots of people are moving here -- companies, migrant workers, foreigners," said Bob Dodds, vice president at investment bank China International Capital Corporation.
Dodds, a New York native and longtime China resident, has had a bird's-eye view of the changes, having first arrived in Shanghai back in 1988 as a student at one of the local universities. Now as a senior banker at one of the country's top banks, Dodds gets flooded with resumes from the best and the brightest -- many of whom could work anywhere in the world but choose to take lower pay for a piece of the action in China.
The American Chamber of Commerce in Shanghai has been a major beneficiary of increased interest in the city and China as a whole. Membership is up 25 percent in 2003 to 2,300 members, making the organization the largest of its kind anywhere in the world.
"There is a small rush but it's going to get bigger," said Philip Branham, president of AmCham Shanghai and Asia-Pacific director of operations at construction and engineering company Fluor (FLR: news, chart, profile). "You're seeing a lot of smaller- and medium-sized companies coming in," he told CBS MarketWatch.
The third wave?
Call it the third wave for lack of a better term. First were the Coca-Colas (KO: news, chart, profile) and Motorolas (MOT: news, chart, profile) of the world. Then the Intels (INTC: news, chart, profile). Now, it's a lot of smaller companies from middle America which have come to realize that survival may mean sleeping with the enemy, so to speak.
China's booming economic growth has had a lot to do with its allure to companies and individuals alike. The economy, which grew at more than 8 percent per annum on average over the past decade, is expected to rise another 9 percent this year, fueled by exports and foreign investment.
Shanghai's average wages are also probably the highest in China, going as high as 5,000 yuan a month ($625) though day laborers are lucky to earn a third of that. Some young foreigners are getting 8,000 yuan off the plane -- not a lot but more than enough to get by in a country where annual income per capita barely cracks a grand.
And then there's Shanghai's own unique charm. Dubbed the "Paris of the East" prior to the Second World War, the city is seeking to cement its reputation as the most open of China's cities as well as reclaim its status as the country's economic hub from Hong Kong.
It was Shanghai's potential as a world-class city that drew Canadian-Chinese architect David Leung to the commercial capital. Leung, who had worked on London's famous Canary Wharf development, left Jakarta back in 1999 following ethnic riots and came to Shanghai back in 1999 as a one-man show.
He now runs a 20-person office at DKL Maestro International and is looking to expand that by 50 percent. "I've got more work than I can handle," said Leung.
But working in China isn't without its unique set of problems. For Leung, it's the rampant copying of his designs and work. "I had one guy I hired who left after a few years and opened an office right upstairs. The first thing he did was to call my clients."
Unbowed by setbacks to his fledgling business, Leung says he believes "there's still enough to go around." He thinks the widespread piracy in China has to do with culture and education -- or the lack thereof. "The Chinese think that copying is the highest form of praise."
But for American multinationals that have been pouring billions of dollars into the mainland, the pervasive infringement of intellectual property rights could ultimately sour the bullish investment mood with other nations in Southeast Asia as well as a fast-rising India picking up the slack.
Open pirates
Along the city's main shopping street of Nanjing-lu, it's not uncommon to see pirates set up shop -- not in back alleys -- but in prime rental space hawking the latest Hollywood blockbusters and music CDs for barely a dollar.
"Although the situation has continued to improve, many multinationals on the mainland continue to be concerned," Charles Browne, president of Dupont (DD: news, chart, profile) China told CBS MarketWatch. "This worry in some cases has resulted in slowing down their investment plans."
The results are beginning to show. Foreign direct investment in China plunged 39 percent in November from year-ago levels and is unlikely to grow by 10 percent from last year's $57 billion as Chinese officials had predicted.
Earlier this month, Chinese premier Wen Jiabao pledged to crack down on counterfeiters and bootleggers as part of efforts to placate Washington as China's politically contentious trade surplus soars past the $100 million mark against the United States.
Fluor's Branham hopes that it more than talk. "My personal feeling is that he has to effect change to people and not just rules and regulations," he said. "If he has truly made a shift in the government thought process, then it will work."
Others like recent émigré Robert Wilson, chief operating officer of Seattle-based coffee wholesaler Berardo Coffee, are undaunted by China's mounting problems.
Looking out from his store-front window on a busy corner near the Shanghai Hotel, the American probably wonders if his fledgling business will be successful enough that local rivals will even want to copy his company's logo like they did with rival Starbucks (SBUX: news, chart, profile). "I just get a feeling that anything is possible here."
Tuesday December 9, 6:20 AM
H-share futures make respectable debut
By Jame DiBiasio
Yesterday (Monday) saw the debut of the Hong Kong Futures Exchange's H-share futures contract, in which 1,367 December contracts switched hands. Brokers believe this is a respectable start and expect the contract to see volumes of 10-15% of the Hang Seng Index by the end of the week. Yesterday, 20,813 December futures contracts on the HSI traded.
Hedge funds are likely to be the biggest players in the new market, which makes it easier and cheaper to short H shares than buying the basket of stocks.
Although in 1998 the HKFE introduced a red-chip futures contract that was a flop (it remains listed but is not traded anymore), brokers have bigger expectations for the new Hang Seng China Enterprises (H shares) Index.
John Chung Lee, head of research at KE Absolute in Hong Kong, explains the red-chip index was dominated by one stock, China Mobile, which accounted for 51% of the weighting. The fifth-biggest stock was Legend, with a mere 2.7% weighting. Fund managers could simply trade China Mobile and one or two other stocks and easily replicate the index.
That's not the case with the H-share index, he says. The biggest constituent, PetroChina, comprises only 21% - a situation similar to HSBC's role in the HSI. Sinopec is the other giant, at 16.9%. The futures market for the Hang Seng is very liquid, because given the diverse constituency, it is an effective hedging tool. Brokers hope the new index to follow suit.
Other big names among the 32 constituents include China Telecom (8.4%), Huaneng Power (7.4%) and Aluminum Corporation (4.6%). The value of one contract as of 28 November is HK$182.500 and, like the HSI Futures, available months are the spot month, the next calendar month and the quarters.
Lee believes the concept of H shares is also easier to grasp. H shares are issued by mainland-based companies and enjoy equal legal value to A shares. Red chips are actually Hong Kong-incorporated companies with the majority of their business in China - a concept that today could apply to most "Hong Kong" companies, including many in the HSI.
Brokers also hail the timing of the new product, which should capitalize on the booming IPO market for Chinese names. H-share companies have raised over HK$150 billion ($19.3 billion) via IPOs since 1993.
delayed charts for HHI:
legacy.futuresource.com |
