George Chen

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

It could be the perfect story to show how China Inc and its American partner can work together for a win-win result, but Chinese consumers are having second thoughts on this.

Earlier this year, upscale U.S. handbag and accessory maker Coach said it planned to list in Hong Kong to reflect the growing importance of China’s luxury market. Coach didn’t give a timeframe for the IPO plan, but one thing is fairly certain – before Coach launches its IPO, its local partner in the small city of Dongguan, near Hong Kong, will aim to rise $200 million first.

The company, Sitoy (Dongguan) Leather Products has hired Bank of America-Merrill Lynch for a Hong Kong listing by the end of November. In IPO marketing materials distributed to potential investors, Sitoy described itself as the largest handbag OEM (original equipment manufacturer) in China, although it didn’t name any of its clients.

However, Chinese netizens quickly found out from the company’s website (www.sitoy.hk) that one of Sitoy’s OEM clients is Coach, a  New York-based brand popular among China’s fast-growing middle-class. In China, Coach prices are far lower than those for top-tier brands such as Louis Vuitton and Gucci, although it is still considered a luxury brand among consumers in the world’s No.2 economy.

“Why not buy expensive Caoch bags directly from the Dongguan factory? I believe the cost must be very cheap,” said one Sina Weibo user in response to the news. Foreign brands — not only luxury fashion brands but also consumer electronic makers — have many OEM partners in China, although they are often reluctant to identify them to avoid such unsatisfaction from local customers.

In a company newsletter dated May 31, published on Sitoy’s website, the top headline is about senior executives of Coach visiting the factory and expressing satisfaction with Sitoy’s products for Coach. It’s now seems likely that at least some of Coach’s handbags are designed in New York but manufactured in Dongguan.

Coach was already in trouble after Chinese media pointed out that Coach handbags are much more expensive in China than they are in the United States, sometimes with a difference of hundreds of U.S. dollars. When the news about the OEM factory in Dongguan started circulating on China’s Twitter-like micro-blogging service Sina Weibo, some consumers felt they had been cheated after spending thousands of yuan on a bag that was probably made in Dongguan, a city whose reputation is usually linked with cheap labor costs.

On Sitoy’s website, the company expresses pride in being an example of the small city’s success as the world’s factory for shoes, garments and so on. Sitoy is in a position to list in Hong Kong, largely thanks to cheap labor costs and strong OEM demand from global clients such as Coach. But the case of Sitoy and Coach that is causing such frustration among Chinese consumers also raises the question of how luxury brands can keep selling at high prices while reducing costs.

Other fashion and leather brands including Salvatore Ferragamo and Burberry have said they do not plan to manufacture products in China, although Burberry has chosen other countries such as Turkey to make some low-end products such as T-shirts.

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

Photo: A Coach store in Hong Kong’s Central financial and business district, seen on Dec. 6, 2008. REUTERS/George Chen

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

Who is perhaps the most hated man in Washington as well as on Wall Street these days?

Your guess? Not Muammar Gaddafi, not some Al-Qaeda extremist, not Kim Jong-il, but a man named David Beers. You may never have heard of David Beers but every financial policymaker in the world knows his name.

A Wall Street veteran and a graduate of the London School of Economics where he has endowed a scholarship in his name, he is the global head of sovereign credit ratings for Standard & Poor’s. For a Reuters story in details, click here.

To the surprise of some investors, if not everybody, the United States lost its top-tier credit rating from Standard & Poor’s, just days after rival agency Moody’s decided to extend its Triple-A rating for the United States. The chain reaction from S&P’s downgrade is obvious.

From London to Hong Kong, this is really the only story that investors care about and are talking  about. How will the Hong Kong and Shanghai stock markets open on Monday? How much will the market lose further this week?

These questions themselves are scary enough, aren’t they? Some economists and central bankers have tried to ease investor worries in the past 48 hours. They caution against overreaction because S&P is so far the only leading global rating agency to downgrade the U.S. We still have Moody’s and Fitch.

If Fitch also retains a triple-A rating for the United States, technically the U.S. government probably won’t be too worried about the outlook for its currency and dollar assets. S&P’s downgrade must be appreciated and welcomed by a small but ambitious player in the ratings industry.

Beijing-based  Dagong also downgraded the United States, although the impact was of course extremely limited and some investors have already dismissed Dagong’s downgrade as a political rather than financial decision. Read my last column ”Banking on a Triple-A rating (Part 1)” on Reuters.com to see more drama behind the scene in the world of ratings.

I won’t elaborate on the potential impact on global markets of the S&P downgrade. Your mailbox should be full of research notes about this from your brokers and investment bankers. See how much email you receive today about the downgrade.

Probably, the more emails, the more serious and bigger the impact will be.

Central bankers certainly don’t want to see another financial crisis but they are no smarter than most of us. Now we have a game of market sentiment rather than a debate among central bankers and economists. The market will naturally express what it thinks and then we will see how it goes.

For better or for worse, S&P this time has made a difference as it apparently wins the public relations game among the big three ratings agencies. This may even be a motive for the decision to downgrade the United States … I hope not.

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

Photo: David Beers, Managing Director of Standard & Poor’s sovereign and international public finance ratings group listens to reporters during a Reuters Investment Outlook Summit in London, June 9, 2010 REUTERS/Benjamin Beavan

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

You may think I am overly cynical today but let me first ask you a simple-yet-complicated question — what is fair?

Global ratings agency Moody’s said yesterday that the United States will retain its top AAA credit rating after President Barack Obama signed a bill to raise the federal debt ceiling. However, we heard very different opinions from China on the credit rating of the world’s No.1 economy.

A Chinese ratings agency yesterday downgraded the U.S. from A-plus to A, saying the deal to lift the debt ceiling would not solve underlying U.S. debt problems or improve its debt-paying ability over the long term.

Dagong Global Credit Rating, a relative newcomer to the sovereign debt rating realm and little known outside of China, said in a statement that the U.S. decision to raise the borrowing ceiling would  not change the fact that the growth of its debt had outpaced overall economic growth and fiscal revenue.

Global ratings agencies are “unrealistic” in their assessment of U.S. credit, overestimating the ability of the U.S to pay off debt, Dagong’s chairman Guan Jianzhong told our correspondent Lucy Hornby in Beijing. Click here to watch the full TV interview online, brought to you by Reuters Insider.

I’m not going to tell you which rating is more accurate. Readers of my column on Reuters.com are mostly professional investors, so I am sure you have your own clear thoughts on this. The opposing views from Moody’s and little-known Dagong interest me purely because I really don’t know these days who is really telling the truth in the financial market.

When almost nobody is reliable and you can only rely on yourself, it’s really quite a scary feeling, isn’t it? Let’s imagine — today the U.S. budget ceiling adjustment took place in China, or perhaps France. What would the reactions of  rating agencies be?

I am of course not a ratings expert but I don’t think it’s rocket science. It’s just a decision on a combination of numbers and facts without any subjective thoughts or emotions.

Moody’s decision to keep the United States “Triple-A” and Dagong’s decision to downgrade the U.S. (made, some people say, for the sake of Beijing’s political agenda in Sino-U.S. relations) actually mean the same thing — that such ratings are merely subjective rather than based on facts and are in fact a potential and indirect risk to global economic recovery.

In the statement issued by Dagong downgrading the United States, the firm should probably have noted in its disclaimer that the U.S. Securities and Exchange Commission had denied Dagong’s application to become an officially recognised bond rater in the U.S.

Since then, Dagong has often verbally attacked the credibility of the SEC and the U.S. government. Google the news and you will find more buzz about the bad relationship.

So, tell me, who do you believe these days?

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

Photo: A Moody’s sign on the 7 World Trade Center tower is photographed in New York August 2, 2011 REUTERS/Mike Segar

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

Two Chinese dotcom companies have apparently become the latest victims of the growing market concern about China “concept” stocks in the wake a series of accounting scandals.

Online video firm Xunlei Ltd and Chinese e-book firm Cloudary Corp have postponed their U.S. fundraising plans. They both blamed volatile global markets. Volatile markets? Really? Aren’t the markets always volatile?

More or less, to some extent. We still see other companies lining up to list in the U.S. although the near-term outlook for China IPOs to land in the U.S. market doesn’t look too bright. In return, such concerns — warranted or not — are growing about Chinese companies listing in Hong Kong and Singapore.

There were some early signs about Xunlei’s difficulties to go public. It failed to win direct investment from News Corp. And some analysts say Xunlei could face challenges from some Hollywood movie makers over copyright issues.

For Cloudary, it’s a different story. The company changed its name from Shanda Literature before the IPO plan, as the firm seeks to brand itself as an e-book maker and seller — trying to convince U.S. investors it could become “China’s Kindle maker”. In the end, the rebranding campaign didn’t make headway.

Maybe what the two companies should really blame is not the volatile market but the investment bankers they hired who should have gotten them to list faster and earlier. Remember the match-making site called Jiayuan.com? It may be a good idea to revisit my previous column “Is China exporting a dotcom bubble?“.

The reason I mention in particular the two Chinese dotcom companies today is to reflect the growing difficulties of selling so-called China concept stocks. China is not just a concept any more. Investors are getting more cautious and are asking more questions.

That should send a message to other Chinese companies considering public listings. For investors in Hong Kong, isn’t it time to review the China concept and related stocks that you hold in hand?

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

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

It’s been a month since my last column on Reuters.com as I have been on the road for a while.

When I travel in New York and London, my identity is more like that of a consumer with a dash of journalistic observation. People usually say Hong Kong is a shopping paradise but in my view, Hong Kong is no longer my favorite city for shopping. For U.S. fashion brands such as Cole Haan or Banana Republic, prices are much cheaper in New York. It’s the same for London if you’re a big fan of Burberry or Paul Smith.

The American people I know complain far less about the financial crisis than two or three years ago. Instead, some of them say they actually enjoy some of the benefits. Rents are cheaper. Food is cheaper. Transport companies are unable to raise ticket prices.

Prices for some nice homes in the historic Embassy Row, Washington D.C., look attractive to me. How much can you buy if you have $1 million? You can probably buy a nice house in downtown Washington or a tiny flat in Asia’s financial centre Hong Kong. $1 million is no longer a dream for many Chinese people thanks to the yuan’s appreciation. Let’s face it — America is cheaper and the Chinese are getting richer.

But the Chinese have their own problems; they don’t feel that rich at home.

The inflation reading for June hit a three-year high of 6.4 percent year on year, and Goldman Sachs said we may see further highs in July or even August. During his recent trip to Britain, Chinese Premier Wen Jiabao, often known as “Grandpa Wen” in China for his kind and down-to-the-earth image, claimed the inflation problem had been solved. He may need to think twice after seeing the angry public reaction in China on the rapid rise in consumer prices, especially food.

You may also want to hear what China’s central banker governor Zhou Xiaochuan said about inflation: he asked the media and public not to “overreact” to the June figure and apparently tried to prove he was doing a good job.

The central bank had many things to deal with, not only inflation, for example international payments, he said at a recent meeting. Mr. Zhou, I respect you as an intelligent and influential central banker, however, to ordinary Chinese such as my parents in Shanghai, your comments on inflation simply make them feel almost hopeless about the outlook for their purchasing power.

Perhaps the Chinese Communist Party, which is celebrating its 90th anniversary, wants to send this message — it’s not that bad to be Chinese. Go abroad and buy whatever you want and you will be proud of holding yuan and being Chinese.

Perhaps I’m too simple and naïve?

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

File photo: Shoppers walk up Fifth Avenue in front of the Cartier jewellery building in New York, December 7, 2008. REUTERS/Chip East

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

Chinese Premier Wen Jiabao once said there’s something even more important and precious than gold — people’s confidence.

In recent weeks, I’m afraid global investors have been losing confidence in Chinese stocks from the New York to Shanghai markets. Sino-Forest Corp became the latest victim of a slump in overseas-listed Chinese companies. The company earlier this week accused short-seller and research firm Muddy Waters of defamation for alleging in a report that it had fraudulently exaggerated its Chinese forestry assets.

Unfortunately, this is just the beginning of the hit to confidence over Chinese stocks, especially small caps listed at home or abroad, for example in Hong Kong, Singapore, New York and even on the second-tier board of the London Stock Exchange.

If you look at yesterday’s trading carefully, you may find investors suddenly became more cautious on small-cap Chinese stocks after the Sino-Forest case. There were already signs with the growing dotcom bubble exported by some Chinese Internet companies to Wall Street.

Remember matchmaking website Jiayuan.com, which recently listed on the Nasdaq? These days it’s in trouble with investors and users, who say its service may not be as good as its claim to be China’s No.1 online matchmaking site suggested. Read my previous column “Is China exporting a dotcom bubble?” here.

In China, the capital market doesn’t lack for bad news — fast-growing inflation, maybe 5.5 percent year on year in May to reach a 34-month high (official data to be released on June 14), slower economic growth amid tightening monetary policy and worsening liquidity in the banking system, and escalating property prices. There’s plenty of bad news, for sure.

Now we get the latest bad news (or even worse). Is China Inc still credible?

A friend at one of the Big Four auditing firms is saying the Big Four are becoming more picky about choosing Chinese corporate clients for IPO audit reports. In the past, clients were arrogant enough to be selective about the Big Four firms. Now it’s apparently the other way around.

One of the Big Four has put all ongoing China IPO audits on review. What does that mean for the public market and private equity business? It’s summer, which is to say holiday season. When you can’t see clearly, why not scale back and take time to think things through?

Take it easy. Confidence is gold!

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

Photo: A worker cleans the exterior of a CRH 380A bullet train serving the newly built high-speed railway between Shanghai and Beijing during its debut test at the Hongqiao Railway Station in Shanghai May 11, 2011. REUTERS/Carlos Barria

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

I remember a veteran trader once told me of the three scenarios under which one should sell stocks.

First, sell when you start to sense the government is beginning to tighten market liquidity, indicated for example by a sudden influx of IPOs or a tougher monetary policy. Second, sell when you see almost everyone, from monks to neighborhood grandmothers, is buying. Third, when you see big banks such as Goldman Sachs downgrade their economic forecasts, which basically means they know they misunderstand something and have to fix the misunderstanding, sell.

So, this week Goldman Sachs trimmed its economic growth forecasts for China to 9.4 percent this year, from 10 percent previously, citing a recent run of surprisingly weak data, high oil prices and supply constraints. Goldman’s report created a buzz in the market, pushing some investors to sell further amid already weak sentiment. More banks are expected to follow Goldman’s move to trim their China forecasts in coming days and weeks.

Will Beijing be happy to see economic growth finally slow a little amid concerns of possible overheating in some sectors, for example, real estate? The answer is both yes and no. Yes, Beijing expects to see some cooling of the economy, but if it extends too far it could lead to massive money outflows, which would be an even bigger headache for the government than high property prices, in my view.

If you don’t trust Goldman Sachs’ forecast, you should trust gold prices — some traders shared a trick with me to forecast the timing of a market rebound. When you see gold (and other commodities) prices start to cool, then it may be an opportunity to buy stocks.

In the secondary public market, the most common question you can hear in China these days is: “where is the bottom?” Apparently, there’s little confidence of a reliable answer. Some say 2,700 points and others expect 2,600 or even 2,000 points if Beijing doesn’t do anything to improve market liquidity.

To tell you the truth, I’m more worried about the IPO market. According to IFR China, a Thomson Reuters service, Beijing-based online clothing retailer Vancl was looking to raise $1 billion from a U.S. listing in the fourth quarter, possibly the largest Chinese Internet listing this year.

One of my friends, who used to be a customer of Vancl only to give up in the end, was amused by the news. He bought some shirts from Vancl that were cheaper than what you might pay at a store, but the quality was also cheap.

These are details that investors and fund managers on Wall Street may not be fully aware of. What they learn about China is just a vague so-called “China story”. But what is the China story?

The growing question about the “China story” is the same as asking what the “China model” is. My political science professor tried to convince me there was no such thing as a “China model” — or “Beijing consensus” in other words — but just a China experience for the reference of others. And I say there is no “China story” in general.

China is so big that nothing can be simply translated into a uniform system. Even in the garment industry, every company has its own circumstances and problems and investors should do a better job of investigating before putting in real money.

Businessmen always say the IPO is not the end, but a new beginning for a company. But when you feel the global market environment is not so healthy, why struggle to list? You may say you want a bigger challenge.

Well, it’s true the market is undergoing a very challenging time. Do you know what my veteran trader friend plans to do this season? He just told me he has decided to take a holiday in June. “I’ll be back when I can get a clearer view of the market,” he said.

Does this make more sense to you than just a vague “China story” that your wealth manager is still trying to sell to you?

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

Photo: A man walks past an advertisement by HSBC promoting China’s renminbi or yuan related products and services, in Hong Kong May 17, 2011 REUTERS/Bobby Yip

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

So, Dominique Strauss-Kahn has resigned with immediate effect. But to the International Monetary Fund it’s hardly the end, just a new beginning.

So who will be the new leader of the IMF? In Beijing, there’s growing ambition and confidence that a Chinese candidate should be appointed, or at least considered.

Zhu Min, a native of Shanghai who experienced the horrible Cultural Revolution and then managed to be admitted into the prestigious Fudan University after the political movement ended, is widely considered and promoted by domestic media as a strong Chinese candidate for the top IMF post.

In the West, Zhu is probably not so well known, although he made his reputation in the banking world after he helped the Bank of China go public in Shanghai and Hong Kong. Last year, Zhu was named by Strauss-Kahn as his special advisor in the IMF, providing Zhu with an international platform from which to raise his profile.

Zhu also studied at Princeton University and John Hopkins University where he obtained a doctorate degree in economics. He speaks fluent English. He’s also widely considered in the financial industry as a master of presentation and communication skills — he led the IPO roadshows for the Bank of China in 2006. Later he was promoted to be a deputy governor of China’s central bank, the People’s Bank of China.

Another possible candidate promoted by domestic media and some scholars and economists is China’s central bank chief Zhou Xiaochuan. Some money-losing Chinese investors say Zhou knows how to do nothing but raise banks’ required reserve ratio again and again, which is already at a record high of 21 percent.

Zhou is no stranger to the West. To some extent, he may be considered even more influential in moving global markets than U.S. Federal Reserve chief Ben Bernanke, especially in the wake of the global financial crisis as the world looks more to China for economic trends.

Zhou, who was born in 1948 and took the top central banker post at the end of 2002, could retire next year when Vice-President Xi Jingping is expected to take over the top leadership from President Hu Jintao and a new administration is formed. Were Zhou to move to the IMF, he could earn some decent money as central bank chief in addition to keeping a high profile on the global financial stage. Whereas now he is considered a civil servant, Zhou’s monthly salary may be just a couple of thousand yuan.

Neither Zhou nor Zhu have made any public comment on their interest in the post, but Zhou last night said something meaningful for China in a statement on the central bank’s website. Zhou noted that the IMF’s future leadership should reflect the growing clout of emerging economies, joining other developing nations in pressing for greater influence on the world stage.

The reason I raise the topic here is not just because of the importance of the IMF but more so because Beijing’s growing ambition in international financial affairs could reflect its growing determination to make the yuan more internationally powerful.

I am not saying Beijing wants to make the yuan fully convertible anytime soon, but it’s clear the government is keen to use the yuan, a symbol of its strong economic development as well as a political weapon to defend its role and influence in global affairs.

This is good news for capital markets. If Beijing had shown no interest in the IMF, I might have been worried.

When you harbor the ambition of putting your man in the top IMF seat, you know you have to be part of the global game. When you play the global game, you must obey some of the rules, which means China’s economy must become more open and its currency stronger.

Beijing already has supported Taiwan-born Justin Lin to take the post of chief economist at the World Bank. It now has its sights on the top IMF post. As a native of Shanghai, I wish my Shanghai fellow Zhu Min the best of luck.

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

Photo: Zhu Min, special adviser to International Monetary Fund Managing Director Dominique Strauss-Kahn, attends a session at the World Economic Forum in Davos January 26, 2011 REUTERS/Vincent Kessler

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

There are growing signs that something is brewing in relation to China’s foreign exchange rate regime.

When Hong Kong traders returned from the Easter break, many were surprised to be told by their mainland colleagues about growing market speculation that Beijing might be planning a one-off deal to lift the value of the yuan — some say by as much as 10 percent.

Others are more cautious. They say a one-off revaluation sounds unlikely although Beijing may relax foreign exchange controls by setting new “game rules” around the upcoming Labour Day holiday in the first week of May. The Financial Times yesterday ran a nice scoop about sovereign wealth fund China Investment Corp being set to win new funds, likely $100-200 billion, as Beijing seeks to diversify its massive foreign exchange reserves, now exceeding $3 trillion.

I support the idea of further empowering CIC. If Beijing wants to reduce its exposure to U.S. debt, expanding direct investment worldwide is a very workable solution. Will Beijing make a formal statement on its ambition to boost CIC’s shopping power abroad during the Labour Day holiday?

Don’t forget we will soon have one of the most important U.S.-China summits with the annual Strategic and Economic Dialogue (S&ED) meeting in Washington on May 9-10. Of course, the yuan exchange rate will naturally be a focus of the dialogue. If CIC invests more in the United States, that may help the U.S. add more jobs. But then you may naturally think of another question — will the U.S. be happy to take so much money from China yet restrict its investment to some “boring” sectors?

Before the new S&ED meeting, Senate Majority Leader Harry Reid and other U.S. lawmakers back from a trip to Beijing said on Tuesday they had been assured that China would allow its currency to continue to rise against the U.S. dollar.

The yuan rate is now indeed a double-edge sword. Chinese leaders including Premier Wen Jiabao have repeatedly indicated at recent meetings and in state media reports that the government may consider allowing the yuan to rise to help curb rising inflation. That may well explain why the market is full of speculation about possible new yuan policy changes in the coming weeks.

Beijing does have a habit of making surprise policy announcements during holidays.

But April is almost over. It’s also the last month for Jon Huntsman as the top U.S. representative in China. He will officially leave the post of U.S. Ambassador to China at the end of April. Some speculate he may run for the 2012 U.S. Presidency. I am more persuaded by other opinions that he would have better chance by teaming up with a Republican candidate to run for vice-president.

Even if he and his presidential candidate fail, the media and public attention should be enough to allow him to aim for the White House in 2016.

Wait a minute … did I just suggest that President Barack Obama is too strong to fail? If you’ve seen Inside Job, the award-winning documentary film about the financial crisis, you may have different thoughts on Obama and his core values.

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

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

“Will you marry me, Nasdaq?” that may be the message Jiayuan.com is keen to send to the Nasdaq and potential investors.

Jiayuan.com, an online dating service founded by a student of the Journalism School of Fudan University in 2003 and whose name means “a good destiny of love” in Chinese, today applied for an initial public offering in the United States. It’s the latest in a series of Chinese Internet technology and social networking companies to apply for a U.S. listing in recent months.

Now, I’m not a chartered financial analyst or Internet industry expert, so I just want to look at this wave of IPOs from a more personal perspective. First of all, I do believe there’s a reason behind the current rush of listing applications; it’s not mere coincidence!

The financial crisis changed the global landscape for many sectors, not only the financial industry but also many consumer-driven services. Wall Street investors have long been worried about the performance of traditional media companies such as the New York Times Co, while Google and Apple are already too expensive for some.

Youku.com and Renren.com, clones of YouTube and Facebook in China, naturally sound like a more comfortable investment solution to many Western investors who may have missed the previous gold rush for Google and Apple and are looking for something similar with a cheaper price tag.

Thanks to public relations agencies and global media outlets, once you give Renren.com a nickname like “the Facebook of China”, investors have a tendency to be wowed no matter how much they know of the differences in business models between Renren.com and Facebook, or about the way Renren.com really works and its impact on Chinese users.

Let me suggest, dear investor, that before you subscribe to the Renren.com IPO, you register an account and post a message – by the way, be careful you don’t  post anything politically sensitive or your post will likely disappear rather quickly  – or set up an event and upload some photos to share. User experience is important before deciding to pour big money into the “Facebook of China”.

If you don’t speak or write Chinese, such a test could be challenging. How about asking a friend in China how they feel about Renren.com. Don’t just ask the banker or asset manager trying to sell you the IPO, you need your friend’s personal feedback. In my not so financially professional view, that could be more important than reading through hundreds of pages of IPO prospectus.

Of course, I’m not just picking on Renren.com. You should do the same for any of the upcoming China IPOs , including Jiayuan.com. There are many stories of successful love and marriage on Jiayuan.com, however, none of them involved anyone I know of.

Jiayuan.com says it operates the largest online dating platform in China and had more than 40 million registered users at the end of March. However, only 4.74 million of those user accounts were active, on average, during the first quarter of 2011 and less than 1 million of them were paying accounts. This dating site is seeking up to $100 million from a Nasdaq IPO.

“Don’t be fooled by the apparent prosperity of the industry. What is important is how much you can achieve … and whether your products are attractive. So don’t be dazzled by sudden changes in the market, which is on fire,” said Robin Li, founder and head of China’s largest search engine Baidu, which has a much bigger market share than Google in the world’s No.2 economy.

When Renren.com announced its IPO plans, Chinese media were overjoyed. Numerous newspapers carried similar headlines proclaiming that Renren.com, from China, would become the world’s first big social network IPO. It does make me feel that Renren.com is now more powerful than Facebook, at least for Chinese media.

As my editors often warn me when I report breaking news, “First be right, and then be first.” The same should also apply to the likes of Renren.com.

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

Photo: An employee is seen through a glass wall as she walks past the logo of Youku.com above the reception desk at the company’s headquarters in Beijing, December 9, 2010 REUTERS/Soo Hoo Zheyang