A midnight stroll through the Jing’an Temple area of Shanghai

As I left my apartment around 12:30am as Wednesday was ushered in here in China, I braced myself for the cold, windy weather which lie ahead.  I was en-route to the nearest convenience store near my apartment in Shanghai to buy a re-charge card for my mobile phone, which has been running through its 100 rmb credit faster than usual thanks to various important incoming calls from the states these past few nights.

New York City (where i’m from), has a cliche saying, “the city that never sleeps.”  Perhaps this is true, in the sense that there are people who love to enjoy themselves into the wee hours of the morning, and therefore there are people who are required to provide services for those that have the luxury of enjoying themselves into the wee hours of the morning.

To be honest, Shanghai isn’t really the “New York City of the East,” which it undoubtedly aspires to be, but it is no less a city that never sleeps.  However, the restaurants and convenience shops are not filled entirely with party-goers seeking a late night snack, but instead with down to earth people from both Shanghai and afar (Chinese migrants, not laowai a.k.a. foreigners), who have worked their friggin a$$ for 12+ hours and are enjoying a decent meal, a few Tsingtao beers or baijiu (Chinese white liquor which packs a serious punch).

As I walked into the convenience store to buy myself a re-charge card for my mobile, and yes, I admit a bag of Lays potato chips (I am very gringo when it comes down to certain things), I gave a “migrant” looking guy a nice ninhao), which is the respectful way of saying hello in Chinese… and something a migrant worker would never expect to hear from a laowai (foreigner).  The store clerks who know me quite well at this point because I’m a frequent customer said their hellos and asked me if I was cold from the weather and strong winds.  I naturally replied that I was and that I was hoping spring would soon come, impressing myself that I was capable of saying such in Mandarin.

As I approached the counter to pay for my chips and re-charge card, this migrant worker (which I confirmed at this point by hearing his utter total inability to speak legitimate Mandarin), whips out a wad of money I estimated at around 3000-4000 rmb.  This is the amount of money a Shanghainese taxi driver earns in a month.  The mere fact he has such money in a giant wad inside his pocket tells me two things.   First, China is a lot like Latin America in the sense the masses are excluded from the main stream banking sector.  If they were not, would this kind migrant worker not save his money in a bank? Second, China’s saving rate is not anywhere near what the West thinks it is.

I don’t believe that this guy was dis-encouraged from saving his money in a bank because of the exact same reasons poor people are in Latin America.  In Latin America many are not allowed to open bank accounts because they lack legal titles on their property or have insufficient funds to be worthy of a bank account… but rather, here in China I believe it is because the costs of doing so probably so outweigh the benefits of having your money safely deposited in a bank account that its simply not worth it.

Something to think about…

Peru-China FTA to induce 10,000+ Peruvian companies to pursue exports to China

Peru and China’s bilateral Free Trade Agreement became effective March 1st.   According to officials at Peru’s Foreign Trade and Tourism Ministry (Mincetur) the agreement could potentially prompt some 10,000+ companies to begin exporting to China.  Read more about it in this article from Andina

All in all, the official message expressed by major media is that trade with China = good. I personally this doubt this is the full story. I’m pretty sure a great many Peruvian industries are not so happy they will be competing with “made in China.”

For example, I’m sure the companies which make all the cloths sold at Lima’s Gamarra Market are shaking in their boots right about now.

On the other side, as Michael Reid explains in his book, The Forgotten Continent: The Battle for Latin America’s Soul, the rise of China and other countries which offer Latin America countries alternative markets for their exports has empowered Latin America with far more freedom to develop on their own terms than every before in history.  With new markets, Latin America is no longer as heavily dependent on the United States, and China is at the center of this shift.

There’s always two sides to the story and I’m barley scratching the surface here.  I’m sure readers from Peru to China have many other reasons to argue both sides of the equation.

Attracting Chinese tourists to visit Chile

Spain’s Banco Santander and China Construction bank plan JV

Banco Santander, Europe’s second largest lender is planning a joint venture with China Construction Bank (CCB).  The story grabbed CSA’s attention because the JV is not targeting China’s urban centers, but instead China’s rural farming villages.

According to this China Daily article, the JV will begin with a registered capital pool of about 3 billion yuan ($438 million), and could rise to a whoppin’ 5 billion yuan ($730 million) within 3 years.  CCB will invest 1.8 billion yuan and hold a 60% stake, while Santander will hold the balance.

This pool of capital will then be allocated to 100 village banks which will hold a 51% stake in of the new entities, each of which will have a minimum of 1 million yuan in registered capital.

Village banks are financial institutions set up primarily for farmers and should have a registered capital of at least 1 million yuan. They can accept deposits and also conduct lending activities.

The CCB proposal, which would create the first financial holding company in the country, and a new model to develop rural finance, is yet to be approved by the State Council, according to the sources.

“The model could help to create a unified plan to develop China’s rural financial services network. It would also help to introduce foreign banks’ advanced experience in rural financing,” the sources said.

Banco Santander already has a strong presence in rural lending, both in Europe with its subsidiary Banesto Bank, and also in Latin America where the bank has made tremendous inroad in the past decade.

Currently foreign banks are only permitted to hold a maximum 20% stake in Chinese financial institutions located in urban centers.  This criteria however does not apply for village banks in the country side.

CSA believes this is a good strategy for the Spanish banking conglomerate to expand into new markets which remain relatively untapped… especially by foreign entities. Rural China is a huge market with more than 230 million farming households which desperately need financing to develop and support their farming.

Chinese Demand for Iron Ore – CNBC

China may have little choice but to pay more for iron ore, due to growing demand and the country’s dependence on overseas supplies, says James Campbell, commodities reporter at Dow Jones. He also discusses the tug of war between Chinese steel mills and big miners over pricing, with CNBC’s Sri Jegarajah and Martin Soong.

Shanghai to Challenge HK on IPO’s

It seems the latest buzz is how Shanghai is set to challenge Hong Kong’s status as the world’s IPO “fund-raising king.”  CNBC, Bloomberg, China Daily, Reuters, etc are all talking about it.  CSA asks, is this a legitimate claim?

It is difficult to argue with the numbers.  According to this article, HK is expected to raise about $47.7 billion this year in 2010, while Shanghai is predicted will attract about $55.7 billion.

The key question to ask is, who is raising this money?  Hong Kong has the institutions, history and legal framework for international company’s to list on its bourse, while Shanghai does not.  In other words, the mainland may attract more money in IPO’s, but the money is going to be raised primarily by mainland company’s–specifically ones state owned entities.

Shanghai is preparing a international board which will allow foreign company’s to list on the mainland but, when this will come online is anybody’s guess.  Shanghai still lacks a developed insurance market, many private company’s on the mainland fear listing because of the potential of being forced to pay higher taxes after they make their accounting public / transparent, margin trading and short-selling is limited, the bond market is small, and stock market futures were only introduced today (see this Bloomberg article).

Nonetheless, there are company’s working on getting access to Shanghai.  The China Daily reports the first company’s which are hoping to list on the mainland’s A-share market are HSBC and the global exchange group NYSE-Euronext.  HSBC, is essentially the main player in HK’s HengSeng inde, while NYSE-Euronext represent the investors vehicle for investing in shares of the New York Stock Exchange its its European Counterpart.  Once again CSA asks, “where do regular company’s from abroad fit into this context?

In this article from the China Daily, Terence Ho, a analyst with Ernst & Young explains “Currently, the two places have different roles.  Hong Kong caters to millions of international investors while Shanghai mainly targets domestic investors. In the short term, Shanghai is unlikely catch up with Hong Kong in terms of international exposure and liquidity.”

CSA is inclined to agree with Mr. Ho, the two markets do have different roles at the moment.  As hungry as company’s around the world are tap mainland capital, China would rather have both financial centers fill different niches at the moment.

Shanghai will only come to dominate the Hong Kong’s IPO market once its financial services expand and it develops the framework for facilitating the listing of international company’s on the mainland.

China-ASEAN FTA – CCTV

China-ASEAN Free Trade Agreement came into effect at the start of the new year.  CCTV9 reports:

When everyone’s bullish on China… be careful

Markets soured higher across the world today, Monday Jan 4, 2010… mostly on news of China’s manufacturing data, which was better than expected.  This CNBC video provides a few perspectives that are not quite as bullish and offers some good insight if you’re a China investor.

Don’t adopt a ‘buy and hold’ strategy when investing in China, advises Chi Lo, head of overseas investment at Ping An of China Asset Mgmt.

China-Peru FTA goes into force this February

China’s second FTA with a Latin American nation will become active this February 2010. A mile stone for both country’s, the agreement seeks to boost bilateral trade to new levels.

Here are the basic facts and forecasts, provided via this article from Nasdaq.com. For the record, author Sophie Kevany, is a superb journalist who is actually based in Peru. This article does not do justice to her credo of true investigative journalism I have read in the past, but no less is always a good source for all that is Peruvian finance.

Check out her other articles on the WSJ, Decanter (yes she even writes about Peruvian wines and spirits), and well, just google her name and you’ll be greeted with a swarm of informative pieces about Peru and the greater South American region.

LIMA -(Dow Jones)- Peru’s free trade agreement with China is set to come into force early February, and it is expected to boost total trade values to an estimated $8 billion in its first year.

The treaty was ratified earlier this month by a supreme government decree, meaning Peru’s congress will not vote on it, state newspaper El Peruano said Wednesday.

The treaty excludes so called “sensitive products” such as textiles, shoes and clothing, Peru’s Vice Minister for Trade and Tourism, Eduardo Ferreyros, told El Peruano.

Trade between the two countries is expected to total about $5.5 billion in 2009. Of that, exports to China from Peru are expected to reach $3 billion, Ferreyros told state news agency Andina, while imports from China should total about $2.5 billion.

-By Sophie Kevany, Dow Jones Newswires; 51-198-903-8043; sophie.kevany@ dowjones.com

China’s private sector ventures into Latin America

A private Guangdong based firm by the name of Rixin Development, has reached an agreement to buy a majority stack in the ownership of a Chilean iron ore mine.

Rixin Development will acquire a 70% stake in the Chilean property.  Such a deal shows the power of China’s up and coming company’s.  For starters,  Rixin Development is listed only on a local provincial enterprise information website,  sdwin.com.  The company does not have its own home page.  Officially it is a “trader for home appliances, textiles, auto parts and so on, and importer and exporter of various products and technologies.” However, I wish any readers the best of luck if they undertake the challenge to find any further information from a official company medium.

If you follow Alibaba.com’s 101 on how to avoid being scammed in China, such a deal should probably send alarm bells off.   Perhaps in the post, economic-recession world of 2010, the traditional elements which define a professional entity are no longer necessary.  Especially when your a developing Latin American country hungry for investment… or a private investor in China, STARVING for investment opportunities in a very over-saturated market with little options on where to park your capital and have it grow at the same time.  It is clear, the deal is going through and that the company is legitimate.

Li Zihao, president of Rixin was recently quotes saying, “privately-owned companies are in a better position to invest in overseas natural resources.” Time will tell if this is actually true, or if the central government is content with allowing such a dynamic to emerge.

Read a more comprehensive article on the facts (which are known) surrounding this deal via this article over at ChinaMining.org.