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Facts of China Life
By
Gary LaMoshi
HONG KONG - To be rich is glorious,
Deng Xiaoping exhorted his comrades, and it's so much
more glorious when everybody knows about it. Last week,
China strutted its nouveau riche stuff across the world
stage. Smart investors stayed out of the way.
On
Wednesday, insurance giant China Life completed the
largest initial public offering in the world this year,
raising a whopping US$3.46 billion, after raising
allotments and pricing shares at the high end of
estimates. In their first trading session on the New
York Stock Exchange, China Life shares soared 27
percent. In the Hong Kong debut the following day,
shares rose 26 percent.
That strong performance
was no surprise. Three of Hong Kong's leading tycoons -
including Li Ka-shing, the local counterpart of Warren
Buffett as an investing trend setter - pledged to take a
combined $500 million in China Life shares, prompting
Hong Kong investors to dive in head first. Banks ran out
of application forms for the offering. One brokerage
reportedly suspended operations temporarily because of
the strain on its capital due to overhanging China Life
orders.
Flipper, faster than lightning
With Hong Kong banks paying 0.01 percent (yes,
that's one-one hundredth of 1 percent) on deposits and
US interest rates only marginally higher, no wonder
investors are looking for something better. Those who
got their China Life shares at the offer price and got
out near the high on the first day of trading made nice
money, an annual return of more than 9,000 percent. That
sounds a lot sexier than the actual net of about $1,000
after fees and commissions, still not bad for a
half-day's work.
For those who didn't flip,
China Life shares finished the week slightly below their
first day close. Given the track record for China
issues, China Life has likely begun its long slide into
the investment scrap heap. Sure, there's a growing
market for insurance as the Chinese masses get
wealthier, but (ahem, communist) government regulation
suggests that China Life won't become the capitalist
powerhouse that its Western counterparts were in their
heydays.
There have been some good investment
opportunities in China to be sure. For example, mainland
Internet stocks (see Halloween and China's IT stocks,
November 11) have been among the best performers in New
York over the past two years. However, the overwhelming
majority of Chinese stock offerings have not produced
winning returns.
The only sure winners in these
offerings are the companies that scoop up the public's
money. For everyone else, it's a gamble, and the casino
is rigged (see China's stock market binge, August
30). Perhaps no statistic is more telling than this one:
mainlanders, living in the midst of an economic miracle
and with few options for investing spare renminbi,
choose to put their money in the bank instead of China's
stock markets.
Frankenstein
shares
China Life, like most companies China
opens to overseas investors, is state-owned. It's been
sliced and diced to create a Frankenstein offering of
selected viable parts in order to pass muster with
regulators and tempt investors. Bolted on to the top of
this monster as its brain is the State Council of the
People's Republic of China.
The State Council
has many constituencies to satisfy, and foreign
investors will never climb very high on its list. That's
because no foreign investor can threaten the Communist
Party's monopoly on power the way domestic rivals or
mass unrest might. Foreigners also get limited respect
since investors keep falling over themselves to get a
piece of the Chinese dream, as they have for the past
century and a half. If the Chinese leadership had a good
deal to offer, ask yourself, why would they offer it to
you and the rest of the overseas investing public?
That view may seem outdated, looking at the
China that Deng invented and Zhu Rongji revved into the
world's fastest-growing nation for a decade. But two
other incidents last week, providing background music
for flipping your China Life shares, indicate that the
political leadership remains intimately involved with
the economy in pursuit of its own interests.
China's leading car maker, Shanghai Automobile
Industrial Corp (SAIC), wants to buy South Korea's
Ssangyong Motor, that nation's fourth-largest surviving
car company with a dominant position in sport-utility
vehicles. But China National Blue Star Group, a chemical
company that provides some supplies to the auto
industry, likes what it's seen of China's booming car
market enough to make its own bid for Ssangyong.
This high-stakes acquisition contest didn't play
out in the offices of Ssangyong's bankers or lawyers,
but in a Beijing meeting of China's National Development
and Reform Commission, a body that reports directly to
the State Council. As with any good political decision,
both companies apparently left the meeting thinking
they'd won the nod to bid for Ssangyong. In a wise
saying that anyone tempted to think of China as just
another economy ought to frame and hang on the wall, a
Blue Star spokesman declared: "The Chinese government
treats all companies equally - SAIC is state-owned and
we are state-owned. This is a market economy, not a
planned system." One with distinctly Chinese
characteristics, though.
This dispute between
Chinese suitors will more likely result in heartaches
for Ssangyong's sellers rather than a higher price.
Whoever winds up with Ssangyong, the new Chinese state
owners probably will continue to play by rules that suit
themselves. (State-controlled companies, such as
Singapore Telecom, buying assets overseas raise a host
of competitive and even security questions to be
examined in a future column. That Europe has the most
experience with such situations is reason enough for
alarm.) It's been that way with China's membership in
the World Trade Organization (WTO).
A report
from the US Trade Representative released last Friday
charges that China maintains barriers to foreign
competition in its domestic markets in contravention of
WTO rules. That's hardly surprising, given that China
enjoyed wide access to export markets as a low-cost
producer before joining. Zhu Rongji pursued WTO
membership to strong-arm domestic companies into reform,
not because he believed in free trade (see The mystery behind Zhu's miracle,
February 22).
China is by no means alone among
nations in formulating trade and other international
economic policies with an eye toward domestic concerns.
What makes China different is that economic interests
don't merely influence political policies; the two are
joined at the hip. Those are the facts of life in China
and the facts of China Life.
(Copyright 2003
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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