May 31, 2007
China bubbles and pork

It's a truth universally acknowledged that China's stock market has all the hallmarks of a bubble. As further proof, The Standard reports on a sample of Chinese bloggers' reactions to yesterday's stock market sell-off. That so many bloggers are even talking about the stock market is the first piece of bubble evidence today. The second are the reactions themselves:

"If you want to drag down the market, why you don't you also drag down the unaffordable medical and educational fees so that we could have a better life too?" one blogger exploded, obviously hoping to deliver the message to the regulators.

"Now that you can sleep well with everyone scared away [from the stock market], our nightmare has begun because we have kids to feed and a whole family to take care of!"...Some retail investors said they would take their revenge today.

"Now that all stocks have become cheaper than ever, I would pour in all my money, including that saved for my children's education, into the market and give you not just a headache, but a big terrible fever!" another blogger wrote.

And today's third piece of evidence:
Currently, 100 million people in China have brokerage accounts - nearly one-tenth of the country's population. Mainland media reports say there are people quitting their jobs to become full-time stock traders. In several cases, their investments have reportedly earned them three times their monthly salary in a week.

Monks have even left their monasteries to try their luck on the stock market.

Remind you of the late 90s, perhaps? And here's the final piece of evidence:

burglar.jpg


"If you don't want to be a burglar, invest in stocks." - City police department.

In other Chinese economic news, the rapidly rising price of pork is having a big impact both in China and Hong Kong. Yet another symbol of excess liquidity chasing not enough pork?

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[boomerang] Posted by Simon at 09:09
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May 30, 2007
Cartel proof

Does Hong Kong need some kind of anti-trust/competition law? Let's take a look at yesterday's Government property auction, as reported in The Standard:

Tuesday's auction also saw Manhattan Garments, controlled by Liberal Party chairman James Tien Pei-chun, outbid K Wah International (0173), Chinachem and four unidentified bidders to secure the other lot on Tsing Lung Road in Tuen Mun for HK$960 million - the high end of market estimates of HK$800 million to HK$1 billion. The sale price was 64 percent above the HK$585 million opening bid.

Manhattan Garments general manager Patrick Chow Kwok-choi said the company would be the sole developer and may commit about HK$1.5 billion to develop townhouses. Manhattan chairman James Tien said 60 to 70 townhouses ranging from 2,000 to 3,000 sq ft each will be built on the site. He estimated construction costs at between HK$2,000 and HK$2,500 psf.

The legislator expects the townhouses to sell for about HK$10,000 psf, representing a potential profit margin of more than 40 percent.

Now I agree they are taking on a good degree of risk and these estimates may not pan out. But at a 40% profit margin, that's a pretty good return on risk. The more interesting question is how does the cartel decide who gets what?

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[boomerang] Posted by Simon at 11:57
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May 29, 2007
Inside the fake factory

Apologies for the prolonged absence.

To keep you going while I get back into things, Justin Mitchell visits a factory making fakes watches in Shenzhen...at least I think the factory is real. The tag line beings "Inside a counterfeit factory in Shenzhen..." The metaphysics of whether a factory could be real or fake while making fakes is something best left to someone else.

On another note, it has been incredibly clear in Hong Kong the past week or so, as the rain washes away the typicaly haze and pollution. The shame of this city is it is beautiful to look at when you can see it.

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[boomerang] Posted by Simon at 13:14
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May 11, 2007
Hiatus

This site will be going into hibernation for about a week as I'll be travelling to one of the few places left in the world where there is no internet. You're welcome to guess where...and it's not North Korea.

My co-bloggers are welcome to contribute during my absence (or at any other time).

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[boomerang] Posted by Simon at 12:18
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May 09, 2007
Collusion in Hong Kong

So what will it take to force the HK government into enacting a competition law? Perhaps yesterday's land auction. The SCMP reports:

A Sino Land-led consortium won a residential site in West Kowloon for a less-than-expected HK$4 billion yesterday after the government issued an unprecedented warning to developers over their conduct during the bidding.
Last week, the Lands Department sent a letter to the Real Estate Developers Association reminding developers they must "behave properly" during the auction - which was interpreted as a warning against colluding during the bidding process to keep down prices.

At the last major sale, in March, Sino Land acquired a Tai Po site after its chairman, Robert Ng Chee-siong, was seen during the bidding holding discussions with Nan Fung Development. The privately owned Nan Fung then dropped out of the bidding and after the auction the two companies announced they would jointly develop the site.

Sino Land and Nan Fung were the major partners in yesterday's winning consortium, which also comprised K Wah International and Chinese Estates Holdings. They secured the 86,758 sq ft site on the 29th bid of the auction for HK$6,147 per square foot yesterday, about 10 per cent less than analysts estimated.

When collusion hurts the government's coffers, you can be sure the next step will be anti-trust and competition law. It's OK if cartels keep prices high to rip-off consumers or flat buyers, but if developers are going to game the government they're in for a hell of a fight.

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[boomerang] Posted by Simon at 10:02
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Taiwan's boxing ring

brawl.jpg

If this happened on the street, people would be charged with assualt. But in Taiwan's parliament, it's all ok...

Rival lawmakers exchanged punches, climbed on each other's shoulders and jostled violently for position around the speaker's dais Tuesday, as Taiwan's legislature dissolved into chaos over an electoral reform bill...
And some interesting characters were involved:
One of the main protagonists was Yen Ching-piao, a KMT-aligned independent lawmaker who has been convicted of corruption, attempted murder, illegal possession of firearms and attempting to pervert the course of justice, but is free pending an appeal.

Yen, a short, squat man with owlish eyes and the piercing look of a mafia godfather used his large physical presence to try to create a corridor to Wang, but to no avail.

During the melee a small group of police stood by without intervening.

Man, imagine how much interest there would be in Legco if they did this kind of thing.

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[boomerang] Posted by Simon at 09:41
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May 08, 2007
Vini, Vici, Visa

While Hong Kong's press was whipping up a frenzy of worry about the disaster that was to be golden week, the Mainlanders who weren't coming or who were coming but weren't going to shop actually went and spent their backsides off.

Labor Day Golden Week proved to be a roaring success with 505,170 mainlanders pouring into Hong Kong between April 28 and May 7, according to figures supplied by the Immigration Department on Monday.

This was a massive 21 percent jump on the 415,446 who visited Hong Kong last year over the same period, and came despite the bad publicity the city has been getting in the mainland media, including reports of shoppers being ripped off by unscrupulous traders.

But the biggest surprise of the Golden Week bonanza was the fact the Tourism Board received only 13 complaints from April 28 to May 6, an average of one complaint for every 40,000 visitors.

According to a Tourism Board spokesman, these were mainly about the services provided by hotels or rude staff. There were no complaints concerning shopping.

One of two things has happened: all the media focus has forced the tourism and retail trade to clean up their act, or it was all a beat up over a couple of isolated incidents. Actually, there's a third, more sinister theory...perhaps the tourism trade got a few ideas from those Falun Gong displays at the various tourist spots around town.

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[boomerang] Posted by Simon at 09:34
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May 07, 2007
Bottom dollar tourism

On the weekend the SCMP had yet another article on the "Mainland tourist rip-off" theme they've been hammering away on for weeks. This time a reporter joined a trip from Beijing (I think). It cost 1,888 yuan for 4 days including flights, accomodation, meals etc. The reporter was staggered that the food was ordinary, the tour guide put the hard sell on them and they went to many shops where the guides get a commission.

What's the shock? If you pay so little for a trip to the Big Lychee, do you really think you'll be dining at Spoon and shopping at IFC? Do you think the tour guides are doing it because they love showing Hong Kong off to mainlanders out of the goodness of their hearts? There are legitimate tourism issues such as fakes in Hong Kong. But not having a tour that's up to scratch because you pay bottom dollar isn't one of them. If mainlanders are coming to Hong Kong for a view of hard-boiled capitalism, they're getting a front row seat.

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[boomerang] Posted by Simon at 09:05
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May 03, 2007
Macau riots

Macau's Labour Day riots have at least achieved some measure of success: they've got people talking. There's plenty of advice streaming out of Hong Kong as to what the problem is and how to fix it, while newspaper editors give thanks to the protesters for filling many column inches. Jake van der Kamp in today's SCMP gives a concise summary (reproduced below the jump) of why ordinary Macanese workers felt pushed into rioting. And in all the reporting, at least in Hong Kong, there's just a hint of schadenfreude. For many years Macau has gathered the garlands while Hong Kong faced the brickbats...and one can sense the smug smirks in Hong Kong Government offices as they say "But that would never happen here..."

More interesting is this article in the (still gated, still the same old) SCMP which looks at the differing media responses in Macau and Hong Kong to the riots:

The media in Macau was more muted than their Hong Kong counterparts yesterday in their coverage of the Labour Day march in which police fire on protesters. While Hong Kong papers ran reports questioning the police's handling of the protest, Macau's focused on the force's insistence that opening fire was justified.

"It is down to a difference in culture," Chinese University political analyst Ivan Choy Chi-keung said. "Macau is a place dominated by pro-Beijing, pro-government people, and you can see many civil groups are set up and run by these people."

He said the disparity could be traced back to the 1960s - while Hong Kong's leftists were sidelined, those in Macau gained the upper hand. Mr Choy, who taught at the University of Macau in the early 1990s, noted that Hong Kong was a more open society.

"The big newspapers in Hong Kong are kind of anti-government - cynical about the government," he said. "The two biggest Macau newspapers, the Macau Daily News and Jornal Va Kio, are owned by pro-China people and in sympathy with the government."

Perversely, the Macau riots reveal an openly capitalist economy. Open immigration has kept wages down even though per capita GDP is shooting through the roof. Growing inequality has lead to resentment and anger that has spilled over to the streets. What is the solution? Some kind of redistribution of wealth to keep the poor quiet, for example through housing subsidies? That worked in Hong Kong. Or just wait and hope the trickle-down effect can override the downward pressure on wages from mainland immigration?

And most of all, are the right people watching? In many ways Macau is a microcosm of the large economic and social forces at play in China. The stresses of inequality, the impact of migration (in China's case, from the farm to the city), the discord between growing GDP and a lack of real wage growth, social order, corruption and more. They might hope it's an isolated incident, but Macau could well be China writ small, in more ways than one.

macau.jpg


"Incensed by a lack of jobs and low pay while mainland labour floods in to drive Macau's casino boom - and accusing the government of corruption - the protesters mounted the most direct challenge yet to Chief Executive Edmund Ho Hau-wah, calling on him to step down."
SCMP, May 2

I cannot substantiate that bit about government corruption, although historically I don't think anyone ever bothered to do so in Macau. It has always been taken as a given. I can, however, substantiate the complaints about low pay and immigrant labour.

Pardon me if you remember seeing the first chart here only a short while ago in this column but when a chart makes a strong point I think it worth repeating. It is certainly worth repeating in the context of the so-called riots in Macau. This is a town that operates on a fascist economy and Macanese workers have reason to protest.

The red line in the chart represents Macau's gross domestic product per capita in pataca of the day terms. It is shown here as an index with a base of 100 for December 1999, the month of the handover to Chinese sovereignty. Since that time, GDP per capita in Macau has more than doubled.

Now look at the blue line. It represents pay for workers in Macau's gambling dens. There is no doubling here. Using that same index base of 100 for December 1999, these people were paid 138.20 at the end of 2006, seven years later.

This works out to a compound average gain of less than 5 per cent a year, which is not much when you remember that these pay figures are expressed in pataca of the day terms, which are not adjusted for inflation, and inflation in Macau is now running at 5 per cent a year. But gambling workers are among the best paid workers in Macau. Look at the green line. It represents the average pay of service and sales workers and this, over the seven years of Macau's existence as a special administrative region, has gone from 100 to only 113.7, a compound average gain of less than 2 per cent a year.

Macau's economy has grown rich. Macau's workers have not. The money has gone elsewhere, mostly into the pockets of casino operators, although others undoubtedly also benefited. I think it safe to assume that the operative rule here required only that the money go into pockets that were already well-filled, as I say, a fascist economy.

This obviously leaves you with a question, however. In normal circumstances any economy that has boomed as much as Macau's has done would soon encounter a shortage of workers and wages would rocket up as employers competed for the few idle hands left to employ. Why has this not happened in Macau?

The second chart gives you the answer to this question. Macau just imported the workers, mostly from the mainland but also quite substantially from Hong Kong, which seems unusual but I suppose was done to get English-speaking hotel staff.

Over the past two years alone, the proportion of non-resident workers on the employment rolls has doubled from 12 per cent to 24 per cent. Over that period, 57,000 new jobs were created in Macau, quite an achievement from a base of 229,000 jobs.

Three-quarters of these new jobs, however, were filled by immigrant workers.

Take note here also that we are talking only of declared foreign workers. I am far from confident that all non-Macanese workers declared themselves. The immigrant effect is almost certainly even greater than the figures suggest.

And undoubtedly this did a great deal to keep wages down. That's why I think it can be taken as no surprise that Macanese workers staged a protest on Labour Day. It could even have been enough to make them riot. But they didn't really. It was Macau's police who came closer to doing that.




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[boomerang] Posted by Simon at 10:43
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May 02, 2007
Froth and bubble

Just keeping a track of these things for my book: "China didn't even the bubble, but...":

New A-share trading accounts opened by frenzied mainland retail investors look set to exceed 10 million for the year next week when China's stock market resumes trading after the Labor Day holidays.
Some 4.75 million new accounts were likely added in April alone, according to the latest data from the China Securities Depository and Clearing Corp.

The single-day record of 311,110 new accounts was set April 24. For the five days ended last Friday, a total of 1.48 million new accounts was recorded - a weekly record...Many mainland investors are suspected of opening more than one account - inflating the number of retail investors entering the market - nevertheless the speed of new accounts being opened over the past two months is dramatic.

And are you still puzzling why the A Shares (ie those listed on Chinese exchanges) are at such massive premiums to H Shares (shares in the same companies but listed in Hong Kong)? This might help:
It is believed the new accounts would have become active immediately. Assuming each account holder invested a conservative 20,000 yuan (HK$20,302) into the A-share market, this translates into more than 4 billion yuan pouring in each day for the past three weeks - a staggering 60 billion yuan.
As an example: Chalco is worth almost the same as Alcoa, based on its A shares. The A shares closed at 18.51 yuan, while the H shares closed at HK$9.29. The HK dollar is pretty close to parity with the yuan. So the A shares are double the H shares, but because there's not way to go short those A shares the arbitrage remains wide open (put that in your efficient markets theory). Here's a quote from the article:
A shares, available only to mainland residents, trade at a premium to their Hong Kong counterparts as China's markets are flooded with funds but short on investment options, while investors in the Hong Kong market tend to be more rational and cautious, Yip said.

For example, A shares of Jiangxi Copper (0358) closed Monday at 25.12 yuan, or a 127 percent premium over its H shares, which closed at HK$11.20. Sinopec Yizheng Chemical Fibre (1033) trades at a 300 percent premium of its A shares over its H shares.

Naturally this has lead to Hong Kong fretting that it will lose its status as the main centre for raising capital for Chinese firms. But if you're a Chinese firm, you're doing yourself a disservice if you don't offer shares into such a market.

At least you can tell your grandkids you were there during the madness.

Update: Over at Marginal Revolution, some bubbles can be good for the economy.

And Philip Bowring on China's baby steps bubble.

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[boomerang] Posted by Simon at 11:56
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May 01, 2007
Things you didn't know could kill you

SADS: Sudden Adult Death Syndrome.

Useage: The Chinese judge accused of corruption died of SADS, not cuts to his face, gashes across his lip, mistreatment by China's police, torture or stubbing his toes. "There were no reports that torture was used to extract a confession, or bodily harm caused by guards, or an assault by cellmates."

Of course not.

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[boomerang] Posted by Simon at 14:15
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Pandas and people

Some innovative thinking in Hong Kong today.

Item 1: "Tsang promises to adopt new approach towards policymaking". What is this brave new way for our newly "elected" and enlightened leadership to guide our fair city?

Chief Executive Donald Tsang Yam-kuen yesterday pledged a full-scale change in the government's attitude to policymaking, with public opinion at the core of its new approach.

As well as seeking deeper and broader public involvement, the government would establish communication channels with the public early in the process, Mr Tsang said.

It's just crazy enough to work....until it clashes with the interests of the 3 Bs: business, Beijing, and the bureaucracy.

Item 2: Hong Kongers' approval of the central government's policies has shot up in the past two months, according to the SCMP. What caused this jump?

Beijing's gifts of two giant pandas to Hong Kong has paid off, with a survey showing people's satisfaction with state policy towards the city surging to a 12-month high. Those happy with the central government's policies rose 7.5 percentage points to 49.3 per cent over the past two months...The figure is the second highest since the survey began in 1997.
Pandas pay off.

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[boomerang] Posted by Simon at 09:34
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