George Chen

Chinese bankers, overconfident?

March 11, 2011

By George Chen
The opinions expressed are the author’s own.

Are Chinese bankers overconfident? Or perhaps global investors are too suspicious of China?

My Shanghai holiday

March 10, 2011


By George Chen
The opinions expressed are the author’s own.

While Chinese lawmakers gathered in Beijing for the annual parliamentary meeting, I returned to my hometown Shanghai for a holiday.

Ex-DE Shaw, Goldman partners launch new fund

March 2, 2011


By George Chen

HONG KONG, March 2 (Reuters) – A former partner of D.E. Shaw and an ex-Goldman Sachs partner are setting up a new firm to raise about $500 million for a China-focused private equity fund to join the growing competition for deals in the world’s No.2 economy, sources told Reuters on Wednesday.

Why property prices in China won’t fall

February 25, 2011


By George Chen
The opinions expressed are the author’s own.

Let’s face it — it appears there is only upside for property prices in China.

No Bargains in China for

February 7, 2011
As the world’s No.1 daily deals website, which Google once tried to acquire for $6 billion, prepares for the launch of its China portal, it has apparently run into trouble finding the right URL to bring its service to the hundreds of millions of potential Chinese consumers. Chicago-based has opened an office in Shanghai and hired a team to help it launch its China portal as soon as possible, according to people involved in the plan. However, even before getting the wheels properly in motion, it has encountered in an unexpected and uncomfortable  hurdle – both and, its first and most obvious choices for a local web address, have already been snapped up by a copycat. According to, China’s internet watchdog and web domain regulator, both addresses are owned by Chinese national Ren Chunlei. Local media described Ren as the CEO of, which claims to be China’s No.1 group purchase site. A quick visit to shows that it’s almost identical in layout to the front page of, although the two sites have no official connection. They are two independent companies – one a U.S. company headquartered in Chicago, the other a Chinese company based in Beijing. The domain takes you to the same site. In the “About Us” section, the Chinese copycat apparently makes no effort to hide the fact that it started its online daily group purchase business in China using exactly the same business model as “On Feb. 18, 2010, taking as a reference and combined with our own experience, we decided to launch the group purchase project,” the company says. In December, acquired three deal websites in Asia – Hong Kong-based uBuyiBuy, Singapore’s Beeconomic and Taiwan’s Atlaspost — expanding its reach across East and Southeast Asia. Now you can access the three local sites, already part of’s global online shopping network via the three local domains:, and One natural scenario could be that acquires the Chinese imitator and obtains ownership of the two Chinese domains, but people familiar with the situation said this was unlikely given the potential valuation of such a deal. On the other hand, has a China partner – Tencent, which runs China’s most popular instant messaging provider QQ, so it doesn’t make much sense for it to acquire or tie-up with another Chinese company. Protection of intellectual property rights (IPR) has grown to become a core issue in U.S.-China economic relations, and Chinese President Hu Jintao vowed to make more progress in the field during his recent state visit to the United States. is actually not alone. In the wake of the rapidly growing popularity of the world’s No.1 social networking site, more than a dozen copycats emerged in China, including, now the No.1 social networking site in a country where access to Facebook is blocked by the government. Fortunately, Facebook successfully registered the domain as early as in 2007, showing that the U.S. internet giant certainly remains interested in the Chinese market.


Tax, the new revolution in China

January 28, 2011
Tax, the new revolution in China Karl Heinrich Marx spent most of his lifetime studying how to distribute social wealth fairly, and later Vladimir Ilyich Lenin concluded that revolution should be the way. In China, Mao Zedong picked up some ideas from Marx and Lenin and a “new China” was eventually created. We all know what has happened since then. Today in Shanghai and Chongqing, two of the richest cities in China, the local governments discussed how to distribute and balance social wealth, ideally for every citizen in the country. They decided to use financial tools rather than revolution, hence the new property tax, which Chongqing Mayor Huang Qifan, considered a Liberal who helped Shanghai open up its Pudong New Area, said could help the city increase revenue from property to 200 million yuan this year. The reaction? An online poll on China’s top portal showed this morning that nearly 60 percent of respondents voted against the property tax plan and more than 40 percent said they did not expect the new tax to lower property prices. Experts and scholars are now interested to see how Shanghai and Chongqing are going to collect the tax –0.6 percent for Shanghai and 0.5-1.2 percent for Chongqing, both announced on Thursday evening and effective from today — in a peaceful and practical way. Others cast doubt over the policymaking process — shall we have a consultation with taxpayers or at least go through local lawmakers, who are considered “representatives of the people”, for ideas before making a decision? The mayors of Shanghai and Chongqing both said the new tax they plan to collect, mainly from the fast-growing middle-class, will mainly be spent on building more cheap, affordable public housing for low-income people, hence redistributing social wealth. A very socialist idea. In my humble view, three factors are worth bearing in mind: First, all things considered, I don’t think the new property tax will bring prices down. Second, the property tax is a strong political signal from the government aimed at winning the hearts and minds of the poor, but it could certainly hurt the feelings of the middle-class. Third but not least, watch out, Hong Kong, Australia, Canada and so on, you may see more Chinese immigrants buying property, little by little, if not in a rush from tomorrow. So, should we pay a bit more attention to Hong Kong developers? Maybe they’ll see better earnings this year if there are more property buyers from the mainland. Oops! What is Donald Tsang going to do to keep the city’s property prices from climbing? That’s another story, but at least most people in Hong Kong don’t believe that socialism can really work.


Property under attack in China

January 27, 2011
Property under attack in China While U.S. President Barack Obama hopes to see a quick property market recovery to boost investor confidence, China’s intentions for its own property market are the diametric opposite – not because it wants to damage investor confidence, but rather to cool growing social unrest prompted by fast-rising property prices. On Jan. 26, Chinese Premier Wen Jiabao hosted a cabinet meeting to discuss the latest property market situation. As a result of the top-level meeting, Wen announced his new “eight-point” guidelines, considered by many analysts as the toughest so far and probably his last major effort to curb property prices: 1. Local governments should set 2011 property price-control targets and make them public 2. Land supply for affordable public housing should be stepped up and the pace of construction increased 3. Properties sold within five years of purchase will be subject to a sales tax based on the selling price 4. The minimum down payment requirement on second homes will rise to 60 percent from 50 percent 5. Land supply for residential property this year should be no less than the average annual figure from the previous two years 6. Home-purchase limits will be adopted nationwide. Local governments should limit home purchases by non-local residents and those who have already purchased more than two homes. 7. Local government should take responsibility for stabilising property prices (in other words, those who fail to do their job could be punished) 8. Increased education to encourage more sensible property investment to create a more stable market for the long term Wen, whose nickname is “Grandpa Wen” for his usually warm public personality, has pledged to rein in property prices before the end of his final term in office in 2012. But time is short and progress has so far been limited, so he has decided to take action once again. Among the eight points, the most important is of course to raise the down payment minimum for second-home buyers. Local media have already reported a sharp rebound in property transactions, one or even two times more than usual since the beginning of the year in some big cities such as Shanghai and Beijing. With the anticipation of more policy curbs, Chinese home buyers feel compelled to sign deals more quickly and more aggressively. Early this week, official think-tank the China Academy of Sciences released its 2011 forecasts, including an estimate that property price growth may slow but will still rise about 12 percent on average. Such forecasts should serve as clear cautions to Premier Wen if he wants to keep his promise before he retires. Ironically, property prices have risen more than ever before since Wen took power. Of course, you can’t blame him. All this, I say, is a natural process and the result of strong economic growth and increasing personal wealth. But just like a coin, everything has two sides. Those who get rich (as late Chinese leader Deng Xiaoping said “let some people get rich first”) are happy to get their homes. Those who miss the chance … oops … perhaps Premier Wen can do more to get them on track. For global fund managers, who are still talking about the beautiful China story: Wake up, please, because 2011 looks like a truly strange and difficult year for China, if not for the whole world. Chinese banks are under pressure, thanks to endless reserve ratio increases. Property is now under attack. Commodities prices continue to rise in global markets and most people say it’s too complicated to understand how commodities and futures products work. So, tell me which is relatively speaking the safest area to put money? Perhaps property if you are a firm believer in yuan appreciation, which could be even faster this year for the sake of Sino-U.S. relations? I do believe President Hu Jintao doesn’t mean to disappoint President Obama after his successful state visit. Apparently, Zhang Xin, CEO and co-founder of leading Chinese developer SOHO China, is still a big fan of the business. There is little reason to expect new measures by the Chinese authorities to rein in property prices will be any more effective this year than in 2010, she said. What happened in 2010? It was considered the toughest policy year for real estate in China. And the result? Property price rose more than 20 percent on average. “So what, you say? Do what I do. The property market is already out of the government’s control. It’s too late,” a fund manager summed up the recent property policies for me when we had lunch recently. Then he ordered another glass of wine despite complaints about his lower bonus this year, given mediocre fund performance in 2010. My fund manager friend is probably what Deng was talking about — those who get rich first. He’s now looking to buy his third home in Shanghai.

Hu, Wen

Winning Hu’s heart

January 19, 2011
From working lunch to “private dinner”, Texas ranch to the White House, and George Bush to Barack Obama, you can clearly see the differences in the approaches of the two U.S. presidents to welcoming Chinese President Hu Jintao. The aim is almost the same, to win the heart and mind of Hu before the United States tries to convince him and his country to increase cooperation with the U.S. on a range of tough issues – for example, North Korea. Influential Chinese newspaper The 21st Century Business Herald reported that First Lady Michelle Obama would “supervise White House chefs” over the food to be served during the state visit. Earlier, Obama said he would treat Hu to a “private dinner”, a very rare arrangement for visiting heads of state to the U.S., affording the two gentlemen private space for a more frank conversation at the White House. The Chinese-language report highlighting Michelle Obama’s supervisory role at the private dinner was an attention-grabber and one of the most-read articles on many leading Chinese news portals so far this week. Many Chinese netizens praised Mrs. Obama’s kind offer to treat China’s “top boss”. It would seem that before Obama has even had a chance to win the heart and mind of Hu, his wife has already scored brownie points among the Chinese public. Things were very different just five years ago.  In 2006, when George Bush was president and invited Hu to visit, he initially suggested that Hu visit his private ranch in Texas. When the news went public, the reaction in China must have surprised Bush. Many traditional, middle-aged Chinese people didn’t really like the idea of Hu being received at Bush’s personal ranch instead of the White House. Some Chinese scholars also publicly criticized the idea, which they believed failed to reflect the seriousness and importance of Sino-U.S. ties. In the end, Hu didn’t go to the ranch, but had to settle for lunch at the White House. No dinner? Chinese people generally prefer dinner to lunch. Lunch is a more specific, purpose-focused meal, for example the business lunches that bankers in Hong Kong so often attend. Lunch is about the talk more than food. It’s not really about winning the heart and mind of the guest, but a more pragmatic approach to make him help you solve certain problems. The Chinese way of dealing with friendships is that you’d better bring your Chinese friend to a formal dinner – the more formal, the better it demonstrates how serious you are about the relationship.  This time, Obama scored the point. A private dinner at the White House, the counterpart of Zhongnanhai, where Chinese leaders live in Beijing, sounds like a sufficiently friendly and serious approach to please Hu and improve the Sino-U.S. ties. For various reasons, Hu’s last visit to the United States was not considered a successful trip by many political analysts and scholars. Remember the story about the Chinese national anthem played at the White House on Bush’s official reception for Hu? Thank God. The anthem was correct – the one for the People’s Republic of China. But it was announced by the U.S. solider responsible for hospitality at the ceremony as the anthem of the Republic of China, in other words Taiwan! Imagine how Hu may must have felt when he heard the words: “Now, the national anthem for the Republic of China”. Many things have taken place in the five years since, and the rise of China is something no one can ignore, although whether the rise is peaceful or an emerging threat to the region or even the world is a subject of debate for many. It seems Obama understands China better than his predecessor, or he has to understand China better given its bigger impact on world affairs. The more prudent rather than self-important, and a more personal rather than state-arrogant approach by Obama towards Hu and China may reflect new attitude toward Sino-U.S. relations for both sides. However, that doesn’t mean the international community should hold up their hopes too high for the outcome of the meeting. A private dinner may help win Hu’s heart, but you can’t expect him to immediately get tough on North Korea after he returns home. The same goes for Sino-U.S. trade, yuan appreciation and so on. Chinese leaders prefer to “proceed step by step” or  循序渐进 as they say in Chinese. So, how should we measure the success of Hu’s trip to the United States? My personal view is that the top priority for Obama and the U.S. government is to win Hu’s heart and mine first. Once you make him happy, improve mutual trust and create some sort of chemistry, then you just need a spark to start addressing the other issues.

HuBy George Chen
The opinions expressed are the author’s own.

The least safe stock in China?

January 7, 2011
Is history going to repeat itself? I am talking about the 2008 market crash in China, which was partly triggered by a company’s mega-sized fundraising plan. The company is Ping An Insurance, whose Chinese name literally means “safe” and is China’s No.2 insurer. Ironically, Ping An may be considered one of the most “unsafe” stocks in the market given its bumpy trading track record. Yesterday, shares of Ping An slumped soon after the market opened and many investors cited market rumours about Ping An’s new plan to raise as much as 100 billion yuan (US$15 billion) as the cause of the slump. The buzz spread fast and wide in the market. By midday, a number of brokerages including CITIC Securities issued research notes to clients saying Ping An needed more money to boost its capital base and expand business, in particular after its landmark acquisition of Shenzhen Development Bank, though different brokerages had different views on the potential size of the fundraising. Some said 40 billion yuan would be enough. But still, 40 billion yuan? That’s a ton of money. Read more. In early 2008, Ping An surprisingly announced its 160 billion yuan fund-raising plan, mainly to cover its investment losses abroad and quickly gained massive criticism not only from investors but also from some regulators. In addition to the impact of global financial crisis, Ping An’s 2008 fund-raising plan, which didn’t work out in the end, became a trigger to turn China’s stock market into a bear market from bull-run. To me, it is understandable why many retail investors in China often like to brand Ping An as one of the most “irresponsible” listed companies, though the company claims it has won many corporate governance awards. Late on Thursday, Ping An Insurance (Group) of China Ltd was forced to issue a brief statement, saying it does not have any refinancing plans in the Shanghai stock market, as it shares fell to a three-month low on fundraising rumours. However, the insurer did not say if it intended to raise funds on Hong Kong’s H-share market in the statement posted on the Hong Kong stock exchange. The spokesman for Ping An declined to elaborate further. As you can tell, the buzz about Ping An’s fund-raising is not going to end anytime soon in the market. Ping An is often considered a must-have stock for portfolio reason among institutional investors at home and abroad. The rumor about Ping An’s mega-sized fund-raising plan came amid growing expectations that many other Chinese financial institutions and developers may have to raise more money in 2011, which some investors have already thought of as “a year of fund-raising”. Just few days before the end of 2010, I remember the official China Securities Journal had a front-page article to praise China’s top securities regulator Shang Fulin’s work in 2010, saying under Shang’s leadership, China has become one of the world’s biggest stock market by market value from “little known” in recent years and it also afforded the largest amount of IPO fund-raising in total in the world in the past year. Oops! The editor for the story must forget compare these facts with the other more interesting thing — China is also the worst stock market in terms of its performance among all major economies in 2010. And the reason? I will say we should partly thank those big fund-raisings. And 2011? It seems to be just another year of fund-raising in China’s stock market. One day after the buzz about Ping An’s fund-raising plan, Agricultural Bank of China, one of the country’s Big Four state lenders, also announced its 50 billion yuan bond issuance plan. Minsheng Banking Corp, a leading non-state lender, is also said to raise 3 billion yuan via private placement soon. Hurry up, fund-raisers! The earlier, the better, before you drive the investors mad. I asked my colleague Samuel Shen in Shanghai who stay in touch with China’s top fund managers closely if the new fund-raising buzz about Ping An could trigger the Shanghai index into a bear market. He replied me: “Are we already in a bull market?” He’s right. Then we concluded since 2011 is going to be “the year of rabbit”, maybe “bumpy” is the best word to describe the outlook of the market. What’s your say, my friend?


Two cities, one problem

January 5, 2011
Shanghai and Hong Kong are often considered twin cities from a historical and economic perspective, and the two cities do face many similar challenges. One of the most burning issues is the ongoing property struggle between the government, investors and developers in the two Asian strongholds of business and investment, and of course home to growing populations. The Shanghai property stock index jumped more than 5 percent on Jan. 4, the first trading day of 2011 and the surge of Shanghai-listed property stocks gave a strong boost to the Hong Kong market. Given the bigger influence and impact of China’s economic development in Hong Kong since it returned to Beijing’s control in 1997, some traders often joke that the Hang Seng Index is like Shanghai’s mistress these days – your happiness depends on your master’s mood. Usually, if the Shanghai market rises, Hong Kong’s benchmark Hang Seng Index will follow suit. When the Shanghai index falls, the HSI can fall further and faster. This week, Chinese property counters, trading at low valuations compared with their historical averages, mostly soared after local media reports indicated that the authorities could delay a new property tax because of disputes between the central, city and provincial governments, and property owners and investors. Apparently, the new property tax issue in mainland China, which some in the market had expected to be implemented as soon as possible to further curb rising prices, is running into the typical bureaucratic holdups. On average, property prices in the four first top-tier Chinese cities – Beijing, Guangzhou, Shanghai and Shenzhen – rose more than 20 percent in 2010, according to local media reports, with Beijing recording the fastest rise of 42 percent on year. It’s understandable for the Chinese government to seek to control property prices via tax, an old-fashioned solution that has prompted some analysts argue that China is becoming more like a command economy, rather than the market-oriented economy it claims to be. More interesting, even Hong Kong, known as one of the world’s leading free markets, has drawn up a special bill to allow the local government to impose an additional stamp duty on short-term property transactions. So, what is a short-term property transaction from the viewpoint of the Hong Kong authorities? Buyers who sell within two years of purchase are considered potentially speculative. The special bill has won the hearts of local residents who are struggling to climb onto the property ladder, even for less than 300 sq ft, but the bill also faces growing criticism and objections from market activists, developers, pro-business lawmakers and of course, property investors. The Donald Tsang administration announced the new property tax last November, but the bill is pending approval from lawmakers of the former British colony before it can be put to work. Some activists and analysts believe the special bill will hurt Hong Kong’s image as a market-oriented free economy, which is the core reason Hong Kong remains a top destination for foreign investment. The Real Estate Developers Association of Hong Kong (REDA) issued an open letter to the media including Reuters last night saying the industry group supported the objectives behind the introduction of the new “Special Stamp Duty” targeting short-term speculation but was concerned the new rules would also affect “genuine home buyers”. Last year, when Hong Kong implemented the city’s first-ever minimum wage policy, at least HK$28 per hour (US$3.6) for low-income workers, The Economist magazine published an article commenting that the introduction of a minimum wage “marks the further erosion of Hong Kong’s free-market ways”. Let’s not be emotional. We know how poor Hong Kong people can be. Local friends tell me Hong Kong can be a nightmare for the poor but a paradise for the rich. The city is home to Li Ka-shing, who rose from poverty to become one of the world’s richest men, as well as the very poor who can only afford to live in a cage and eat twice a day. For a very long time, the poor didn’t really resent or complain about the rich, partly because many traditional Chinese are what might be called believers in destiny. With the rise of the younger generation, the atmosphere of dissatisfaction is apparently growing in the city. Technically and from a more academic perspective, moves such as the Special Stamp Duty on short-term property transactions and  the minimum wage policy could much to shake Hong Kong’s long-standing position as the world’s leading free market. Are we talking about capitalism or socialism for the future of Hong Kong’s economy? If Shanghai, one of the richest cities in mainland China must take the route of so-called socialism with Chinese characteristics to develop its economy and markets, it will be interesting to see what Hong Kong does next to please both Beijing and global investors.

DonaldBy George Chen
The opinions expressed are the author’s own.