Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2118)	12/19/2003 9:45:18 AM
From: RealMuLan	Respond to of 6370

China fever Local funds are going towards ill-conceived mainland projects Stephen Brown There was a most extraordinary picture in this newspaper during the week; it showed an artist's impression of the massive six lane motorway that will run out to sea for thirty two kilometres east from the coast of Shanghai. This motorway will link the mainland with the huge new container port complex being built in the treacherous waters off that coast. But, of course, the best location for any port expansion on the east coast of China is Ningbo, which is undoubtedly one of the finest deep water ports in Asia. Ningbo shipped under two million containers last year, or a mere 10 per cent of Hong Kong's throughput, and retains enormous potential for expansion. Ningbo, however, has one fundamental problem in that, as far as the party officials in Shanghai are concerned, it is not within the Shanghai administrative boundary. Growth in Ningbo does Shanghai no good at all. In Shanghai's great face game, and it is of course face that is all that matters to those guys, Ningbo is unwanted competition. So, as the existing ports in Shanghai run up against their design capacity and technical issues, such as silting, the local bureaucrats there have decided they need a huge new port all to themselves. The motorway into the ocean will provide access to this new complex being built in rough waters amidst the high winds and rip tides. Billions of US dollars in extra costs will be involved in developing and servicing the port complex at Yangshan, and the extra pollution and traffic congestion the long journey offshore creates will be enormous. But, darn it. Shanghai could not let the freight traffic go elsewhere, even if Ningbo offers a much more cost effective solution to the import and export companies based in and around the region. The game is, of course, to overtake Hong Kong's container throughput figures as soon as possible. Shanghai must be able to boast it has achieved superiority in the physical handling of metal boxes, a business that creates little or no value anyway. This snaking highway is, therefore, the result of the perverted logic that Shanghai needs to divert growth away from Ningbo to ensure its own increasing prestige and vitality. But this project is mirrored by similarly inefficient projects throughout China, and these projects are exactly why the Hong Kong equity market in the last fortnight has seen large Chinese companies raising very substantial amounts of money. International and local investors have been very keen to sign up every time the call for more money has gone out. China Telecom is buying assets from its parent, and so is China Mobile. Anhui Conch, the leading cement company in China, just raised new money and the Bank of China sold down some of its shares this week in its Hong Kong entity. In the insurance sector, China Life has raised a few billion US dollars and the automobile industry will continue to raise as much money as possible. We are even promised some mainland banks will soon also be coming to raise money. All this activity merely goes to show that China is addicted to the Hong Kong capital market, which is the mainland's only window onto the world's open capital markets. And, just as China is addicted to us, the investment bankers in Hong Kong are equally addicted to the mainland, as it promises Christmas bonus payments as big as its population. However, retail investors buying new share issues are not putting money into new investments in China. The money they proffer will almost invariably end up being used to buy existing assets from private state controlled businesses. In short, the capital being raised in Hong Kong is typically being used to patch up previous poor investment decisions just like those being made in Shanghai. Given that the mainland's financial authorities are not stupid, it is fair to assume that while this particular bout of China fever remains virulent as much money will be taken out of the local equity market as possible. And good luck to the mainland authorities. They have more than enough bad debts and value destroying investments to offer to ensure that everyone who wants a little piece of China can get it. - Stephen Brown is head of research at Kim Eng Securities thestandard.com.hk