Yesterday (May 15th) we ventured out for our last corporate tour of Shanghai visiting Corning, Lord and hearing from ChinaVest.
The Corning trip was fantastic. We heard from the CEO of Corning China and I found it to be the most candid discussion about doing business in China we have heard to date. He talked a great deal about how most CEO’s in China he knew spent, on average, 30% of their time on government relations and wished they could spend at least 50%. Government relations in China is far different from what we know in the US. The contract lobbyist model would never work in China. It’s too confusing. Chinese officials – public and private sector – need a strong sense of trust and it takes time to build that trust with them. Another major message that he left us was two fold. One, the intellectual debate over whether or not to do business in China is long over. Two, you can’t put your toe in the water in this market. When you decide to jump in, you must do so with gusto and the operation on the ground must have the entire support of top management at home. This explains why Corning has enjoyed such a strong presence in China and will continue to grow and invest here.
After a tour of the Corning fiber production operation, we left for Lord. Lord manufacturers a variety of vehicle parts and has some form of part in every car produced in the world. I found Lord’s presentation about being an ex-pat in China most interesting. Our presenter, the head of operations at Lord China, has been in the country for two years with a wife and children. His take: “An ex-pats assignment is an adventure, not a fairy tale.” The quality of healthcare in China varies greatly. We’ve heard from most ex-pats that if you have anything beyond a broken finger, you need to get care in Hong Kong. He pays about $4,000 US dollars for a townhouse and $21,000 for his daughter to attend an international elementary school. I asked him about practicing religion in China. He happened to be practicing Catholic and he is able to attend a special mass for foreigners on Sunday’s which requires a passport for identification to get into mass. High mass for Chinese Catholics is practiced on Saturday’s.
Finally, we came back to our hotel for a presentation from ChinaVest, a merchant and investment bank in Shanghai. Get this: in April alone, more than 5 million stock trade accounts were opened in China. The markets are red hot and so is business. Consider construction. On average, one building a day goes up in Shanghai. Every year, China is building the equivalent of two cities of Boston. Interestingly, we learned that the reason for the incredible Shanghai skyline stems from the fact that the former mayor of Shanghai is an architect and when the building boom began, he invited some of the world’s most prominent architects to design some of the most incredible skyscrapers you have ever seen. Infrastructure will be a big play over the next five years through China’s “Go West” initiative. In the private equity markets, investors are paying huge premiums – 31 times equity value/EBITDA, on average. Sixty-eight private equity funds are operating in China and invested $12 billion by the end of last year. Sourcing deals in China is very difficult. You make money typically when you buy, not sell. Due to a lack of transparency, due diligence and valuations are also challenging. Also interesting is China’s social welfare investment. To accommodate China’s large aging population, the government has set aside $200 billion for a social security fund. More than likely, they will invest the fund in US and international blue chip stocks making the IBM’s of the world quite happy. A big question in our business discussion is whether or not the market will crash. Many believe it has to but worry about what that will do to world markets. Considering the ripple effect the Shanghai Exchange caused in February, it could be huge.
We ended our night with a trip to the Shanghai circus which had a very similar feel to Cirq. Afterwards, we headed out to a night on the Bund – an incredible waterfront property with lots of bars and a breathtaking view of Shanghai. We celebrated Kate’s 30th birthday.
Today is a travel day. We take a bullet train (travels 250 miles per hour in about nine minutes) to the airport and then catch a flight to Hong Kong. Objective #1 in Hong Kong: get fitted for a hand made suit.
Stay tuned.
The Corning trip was fantastic. We heard from the CEO of Corning China and I found it to be the most candid discussion about doing business in China we have heard to date. He talked a great deal about how most CEO’s in China he knew spent, on average, 30% of their time on government relations and wished they could spend at least 50%. Government relations in China is far different from what we know in the US. The contract lobbyist model would never work in China. It’s too confusing. Chinese officials – public and private sector – need a strong sense of trust and it takes time to build that trust with them. Another major message that he left us was two fold. One, the intellectual debate over whether or not to do business in China is long over. Two, you can’t put your toe in the water in this market. When you decide to jump in, you must do so with gusto and the operation on the ground must have the entire support of top management at home. This explains why Corning has enjoyed such a strong presence in China and will continue to grow and invest here.
After a tour of the Corning fiber production operation, we left for Lord. Lord manufacturers a variety of vehicle parts and has some form of part in every car produced in the world. I found Lord’s presentation about being an ex-pat in China most interesting. Our presenter, the head of operations at Lord China, has been in the country for two years with a wife and children. His take: “An ex-pats assignment is an adventure, not a fairy tale.” The quality of healthcare in China varies greatly. We’ve heard from most ex-pats that if you have anything beyond a broken finger, you need to get care in Hong Kong. He pays about $4,000 US dollars for a townhouse and $21,000 for his daughter to attend an international elementary school. I asked him about practicing religion in China. He happened to be practicing Catholic and he is able to attend a special mass for foreigners on Sunday’s which requires a passport for identification to get into mass. High mass for Chinese Catholics is practiced on Saturday’s.
Finally, we came back to our hotel for a presentation from ChinaVest, a merchant and investment bank in Shanghai. Get this: in April alone, more than 5 million stock trade accounts were opened in China. The markets are red hot and so is business. Consider construction. On average, one building a day goes up in Shanghai. Every year, China is building the equivalent of two cities of Boston. Interestingly, we learned that the reason for the incredible Shanghai skyline stems from the fact that the former mayor of Shanghai is an architect and when the building boom began, he invited some of the world’s most prominent architects to design some of the most incredible skyscrapers you have ever seen. Infrastructure will be a big play over the next five years through China’s “Go West” initiative. In the private equity markets, investors are paying huge premiums – 31 times equity value/EBITDA, on average. Sixty-eight private equity funds are operating in China and invested $12 billion by the end of last year. Sourcing deals in China is very difficult. You make money typically when you buy, not sell. Due to a lack of transparency, due diligence and valuations are also challenging. Also interesting is China’s social welfare investment. To accommodate China’s large aging population, the government has set aside $200 billion for a social security fund. More than likely, they will invest the fund in US and international blue chip stocks making the IBM’s of the world quite happy. A big question in our business discussion is whether or not the market will crash. Many believe it has to but worry about what that will do to world markets. Considering the ripple effect the Shanghai Exchange caused in February, it could be huge.We ended our night with a trip to the Shanghai circus which had a very similar feel to Cirq. Afterwards, we headed out to a night on the Bund – an incredible waterfront property with lots of bars and a breathtaking view of Shanghai. We celebrated Kate’s 30th birthday.
Today is a travel day. We take a bullet train (travels 250 miles per hour in about nine minutes) to the airport and then catch a flight to Hong Kong. Objective #1 in Hong Kong: get fitted for a hand made suit.
Stay tuned.
1 comment:
Harris, please send me some photos of Shaghai's bldgs and skyline - when you get back and have time.
GTB
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