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…

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.

Fear not, CSA will continue to function as a bastion of information exchange for all that is China and Latin America’s ever evolving, dynamic relationship—specifically focusing on South America (a land I am personally connected to being half Peruvian).

What brings this change? Well for starters, your humble author and webmaster is no longer residing in the western world. I have set up shop in Shanghai, China and this is where I will remain for the indefinite future. Adapting to a totally new routine in a foreign land has led me to examine why I first started this site.

The answer to this question can be summarized in the following two bullets –

• To share with the world any news I stumble upon concerning Latin American countries and China. More importantly the growth of trade between the two regions.
• To offer my own perspective and analysis from time to time on a specific development with the rest of the world and thereafter encourage debate and exchange of ideas with other likeminded people.

While these two main bullets may remain the foundation of which CSA stands upon, now that I am living in China I would like to add insight into the world of China-Latin America from the stories I have to share from living here these past few months. This includes, the opinion a group of taxi driver’s playing cards, old ladies who press my cloths who ask me about Obama, and dream about going to Brazil one day.

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.

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.

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.

In addition to Colombia, the article also shares data complied by Economatica on the growth of the other major stock exchanges in the region, which is what CSA will be sharing with you today.  To read the full article from the Latin Business Chronicle click here.

Colombia – Best performer in Latam last year, IGBC (Colombia’s benchmark) stock index has grown in value by 927.9% during the past 10 years, and average decline in value of transactions in 2008 was 2.3%—lower than all other countries in the region

Brazil – Latin America’s largest stock market, Ibovespa (Brazil’s benchmark) stock index has grown 301.3% during the past 10 years, and the average decline of transitions in 2008 compared with 2009 was 13.6%.

Mexico – IPC (major benchmark index in Mexico) has grown 250.5% during the past 10 years, and the average decline in transactions last year was 13.9%

Venezuela – The Caracas stock index has grown by 916.5% during the past 10 years, and the average decline in transactions was 29.5% last year—the second worst in Latin America.

Argentina – The Merval inces has grown by 321.3% during the past ten years, and had the worst average decline in transactions last year, suffering a decline of 54.4%.

Peru – The Lima stock index (IGBVL) has been one of the regions best performing in the past few years.  Seeing growth of 671.1% during the past 10 years, and a decline in average transactions last year of 21%.

Chile – Last but not least, Chile’s IPSA index has grown by 218.8% over the past 10 years, and the average decline in transactions last year was a mere 3.6%-second best next to Colombia.

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.