George Chen

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

Did you miss the biggest breaking news item in China’s investment circle yesterday? I am not talking about another big IPO or M&A deal. I’m talking about Wang Gongquan, an influential veteran private equity investor in Beijing.

Wang was a co-founder and senior partner of CDH Venture Partners, a leading investment firm headquartered in Beijing. Considered one of the early birds in China’s venture capital world, Wang was a general partner with U.S. technology investment heavyweight IDG before he established CDH Venture Partners in 2005.

In March, Qihoo 360 Technology, one of Wang’s investment portfolio companies, went public on the New York stock exchange. As one of the early investors in Qihoo, the maker of the second most popular web browser in China, behind Microsoft’s Internet Explorer, the successful IPO made Wang more famous in China. And of course, the billionaire is getting even richer.

Yesterday, he became a newsmaker in China again, but not for anything related to his investment matters. Wang wrote a brief post on his personal micro-blogging site, to officially announce that he had decided to quit all posts and escape the public eye to enjoy a private life with his significant other.

Given Wang’s high professional reputation and background, his decision quickly drew massive public comments from ordinary people to tycoons such as Pan Shiyi, the top boss of SOHO China and one of China’s leading property developers. By Wednesday Wang’s personal announcement became one of the most actively discussed topics with almost 1 million reposts of it and comments on Sina.com, China’s No.1 portal.

Most sent congratulations, with some even describing Wang as China’s King Edward VIII, who gave up the British throne for his romance. You may not agree with Wang, and you might not even agree with me and wonder why I think such a personal story is worth mentioning.

Please think twice; don’t you think the reason that some businessmen occasionally lack ethics and investors care more for short-term profit than long-term value is because they put too much emphasis on money? This is exactly a key issue that challenges the long-term and sustainable development of China’s economy.

People close to Wang describe him as a maverick. Wang cares about citizen’s rights in China, a rare commitment that few Chinese institutional investors publicly comment on or show support for. He has sponsored non-government organisations to support low-income groups. When someone like Wang decides to give it all up for the sake of his private life, I wonder if this says something about the society that we are living in.

Chinese Premier Wen Jiabao recently called on businessmen to be more socially responsible when he commented on the country’s widespread food safety problems. Some local private equity investors told me they felt less confident about the consumer industry, which some foreign investors had been keen on for years.

“It’s like a time bomb. You just don’t know who’s next,” said one investor friend.

He’s right. This week, local media reported that even famous hot pot restaurant chain operator Little Sheep, which U.S. restaurant giant Yum! plans to acquire, allegedly had issues with pork balls sold at some of its outlets in the wealthy southern Chinese city of Guangzhou.

Again, think twice. When a well-respected veteran investor like Wang suddenly takes early retirement, do you feel a twinge of concern about the market and society to some extent?

There’s a simple question we should regularly ask ourselves: what do I really want?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Wang Gongquan’s popular Sina Weibo (micro-blogging) page seen on May 18, 2011

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

I am hearing more complaints these days from trader friends about how boring the market is these days. Why boring?

Trading volume is low and there are apparently more risks than opportunities as investors seek clear signals about the central bank’s monetary policy direction and about what global funds think of China for the second half of the year.

With investors uncertain about the outlook for the Shanghai and Hong Kong stock markets, some are beginning to rethink their positions on Japan. Concerns about radiation are easing and I hear more people talking about the big potential for Japan’s market and economy to rebound amid massive reconstruction there. An old and new question then arises: can we bet on the Nikkei, again?

Australia also looks like a good bet to some rich Chinese investors. They say the property market alongside the long beaches in Australia offers profit-taking opportunities over the next few years.

Remember my recent column about many rich Chinese trying to emigrate in the next few years? Australia is always a popular destination. A number of local media reports also indicated some family members of top Chinese leaders already bought nice villas in the resource-rich country whose diplomatic relations with China have been up and down in recent years.

In China, an influential fund manager friend told me privately: “The property market in China is basically done this year and next year before Premier Wen Jiabao retires and we get a new government.” But he quickly added: “Premier Wen must do something to keep his promise to keep property prices under control, and he’s done almost all he can. The next government will be a different story.”

So, until we see clear signs of how much further China’s property market can go, some investors are naturally starting to shift their focus. Japan? Australia? What’s your say? I think the same logic can apply to China’s stock market amid record high banks’ reserve requirement ratio, now already 21 percent for most banks, and the country’s benchmark interest rate that Beijing keeps raising so far this year.

The fast-changing market sentiment about investors shifting focus in Asia may be a bad sign or even a sort of warning to the Chinese government, which is keen to fight asset bubbles but also doesn’t want to see huge foreign money outflows and a lack of confidence in its capital markets.

The Shanghai exchange remains keen to launch an international board to welcome HSBC “home”. If the main board of its local currency yuan-denominated A-shares sinks, how can you convince investors of the value of the new international board?

Li Daokui, an influential adviser to the People’s Bank of China, said yesterday that the valuation levels of most A-share companies were pretty low and he saw investment opportunities. To some investors, this is almost government propaganda to encourage buying.

However, he also warned that Beijing needs to raise interest rates further to rein in inflation and that’s not really good news for stock investors.

Remember what Warren Buffett said? Choose right and sit tight. However, Mr. Buffett may also be feeling a bit lost about his Chinese investment portfolio these days. Oh yes, that’s just another China story …

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A woman carrying an umbrella walks past an office building that includes a China Telecom office and a branch of the Industrial and Commercial Bank of China in central Beijing August 25, 2010 REUTERS/David Gray

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.

Meng Liang, a partner and Greater China CEO for D.E. Shaw, one of the world’s largest hedge funds, has resigned from the firm to join hands with Kevin Zhang, a former Goldman Sachs partner who was co-head of its Asian Special Situations Group from 2005 to 2009, to launch their own investment firm, said the sources with knowledge of the matter.

Meng and Zhang, both Yale MBA graduates, received some capital commitment for the new fund from some Chinese entrepreneurs whose companies were invested by Meng and Zhang when they were with D.E. Shaw and Goldman, one source said.

“The private equity industry in China is becoming more rewarding and more mature,” said Poddy Feng, an analyst at industry consultancy China Venture.

“Setting up your own PE fund is now especially attractive for experienced senior professionals and there still seems to be an ample supply of deals in China,” Feng added.

The departure of Meng, who helped D.E. Shaw open its Greater China business out of Hong Kong in 2007, has been internally announced at the firm, said the sources who declined to be identified as they were not authorised to speak to the media.

Some high-profile and profit-making deals led by Meng for D.E. Shaw included Rongsheng Heavy Industries, China’s top private shipbuilder, which raised $1.8 billion from its Hong Kong IPO late last year, and GCL-Poly Energy, China’s No.1 solar company by market capitalisation.

During Zhang’s days at Goldman, he helped the U.S. investment bank invest in China’s top meat processor Shuanghui and Western Mining among other deals — two of the most profitable investments Goldman ever made in China.

Meng, a former co-head of China investment banking at J.P. Morgan before he moved to D.E. Shaw, declined to comment when reached by telephone. Zhang, was not immediately available for comment.

STAR BANKERS

Meng was made managing director at J.P. Morgan in 2004 after he helped the firm expand its merger & acquisition advisory business into an industry leader in Asia.

Meng was the first Chinese appointed partner of D.E. Shaw, once the world’s No.4 hedge fund by assets under management.

Zhang was also one of the first Chinese partners appointed at Goldman. Zhang’s former colleague Fred Hu, who was also a Goldman partner, also recently launched his own fund after leaving the firm, according to media reports.

Despite high-flying career at the investment banking and hedge fund industry, many senior industry executives have chosen to open their own outfits since the financial crisis and more money inflows are seen into Asia, in particular China and India.

Last week, Reuters reported that former Goldman Sachs star trader Morgan Sze was set to launch his $1 billion-plus hedge fund, registering Azentus Capital with the Hong Kong market regulator this week.

Photo: People look at an electronic board at a brokerage house in Shanghai December 27, 2010. REUTERS / Aly Song

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

When people from the southern Chinese boomtown of Shenzhen began rushing to neighboring Hong Kong to buy cheaper daily necessities just few months ago as mainland inflation rose high and fast, some Hong Kong residents were apparently unhappy. This time, it may be the turn of Shenzhen residents to complain about the buying power of Hong Kong people.

For what? Real estate.

Hong Kong media including the Chinese-language, pro-Beijing newspaper Wen Wei Po reported that average prices for new properties launched for sale in Shenzhen last month rose more than 16 percent on year, partly driven by buyers from Hong Kong after the former British colony, now led by Chief Executive Donald Tsang, issued special tax in early November aimed at curbing property price rises by targeting short-term speculators.

Some Hong Kong housewives have already complained of a surge in local dairy product prices after more Shenzhen parents went to Hong Kong to buy baby formula and  related products. A large package of baby formula may be about 100 yuan (about US$15), but a new apartment in Shenzhen is now worth several million yuan.

If you talk about luxury villas, prices are closer to 10 million yuan or even above, yet still much cheaper than the equivalent space and location in Hong Kong.

Some people may argue the trend of Hong Kong people going to Shenzhen and other second-tier cities in nearby Guangdong province to buy property is nothing particularly new, but the recent tigtening property policy move in Hong Kong has certainly given the phenomenon greater impetus.

Since the new tax policy was implemented, local media have reported a drop in new property transactions in Hong Kong, while the number of Hong Kongners going to Shenzhen for property has surged. According to one agent interviewed by local broadcaster Phoenix TV, if you have visited Shenzhen in recent weekends, you are likely to have bumped into many visitors from Hong Kong scouting locations with their property agents.

Technically, it could become more difficult for non-mainland Chinese to buy property in Shenzhen as the local government is also planning its own price-curbing policies to ensure affordable flats for local residents. But many sales agents apparently have a different view.

Property agents are encouraging rich Hong Kong people to purchase real estates in Shenzhen for one simple reason — as the Hong Kong government is asking for an additional 5-15 percent tax if you sell your property within 6-24 months of purchase, why not just go to Shenzhen to buy something and bet on the fast appreciation of the yuan.

In 24 months, how much further will the Chinese currency have risen? And the Hong Kong dollar? Could be a sound strategy?

Many Shenzhen developers even organize virtually free weekend trips for Hong Kong people “to enjoy a day in Shenzhen”. You pay just HK$100 (about US$13), basically to cover the bus ticket, and join a group with a professional property guide to tour some of the newest developments in Shenzhen.

Post-tour dinner or massage (which the city is really famous for)? It’s your call!

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A construction worker carries a bucket of paint as he walks among high-rise apartment blocks in Xiangfan, Hubei province December 8, 2010. REUTERS/Stringer