George Chen

High net worth individuals: China’s new export

April 20, 2011


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

From Paris to New York, London to Hong Kong, when you see more Chinese people shopping in high-end retail outlets, you know they are indeed growing rich. What if I tell you that many rich Chinese are actually planning to become non-Chinese in the foreseeable future?

Income gap matters

April 12, 2011

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

We’ve been talking about accelerating inflation for some time, and it has resulted in another tough issue for the government to address — with much care — the growing income gap between rich and poor.

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.

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.


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.

Beijing debates the yuan

December 30, 2010
There’s apparently growing debate in Beijing over the possibility of interest rate reform next year. The latest opinion was voiced by a senior central bank official, who said the government should lift the ceiling on bank deposit rates to help rein in accelerating inflation in the world’s second-biggest economy. Will this happen in 2011? It seems much more likely than the possibility of a fully convertible yuan anytime soon. “China should allow deposit rates to float upwards. It would gradually enable the market to price in expectations of interest rate rises,” Sheng Songcheng, head of statistics at the People’s Bank of China, said in an article published on the central bank website late on Dec. 29. “That would help change negative real deposit rates and curb inflation,” he added. If Sheng had published the article as a commentary in a local newspaper, it would more likely have been considered his personal opinion, but posted on the central bank’s website, the top headline on the front page no less, it’s certainly something to be taken very seriously. In my view, Sheng’s article was published not only for the market to analyze but also as a pitch to the top leaders in Beijing for more serious consideration. Beijing controls China’s interest rate market by setting a ceiling on deposit rates and a floor on lending rates. This protects banks from competition and ensures they have a decent interest rate margin, which is around 3 percentage points now — that’s partly why banking jobs in China are very popular and considered one of the most stable jobs, in particular with big state-owned lenders. Many people say working for a bank in China means you have an “iron rice bowl”. The interest rate margin provides a safe and stable channel of profit for banks. Whatever they do, they have the “3 percentage points” to make money. However, given that the rate is fixed by the central bank, it may also explain why local people often complain about the service they receive at big banks in China. How bad? You should consider it normal if you are stuck in a long queue for about 30 minutes or even an hour before you reach the teller. The central bank usually raises both loan and deposit rates, like the newest rate increase on Christmas Day, which leaves the profit margin of banks unchanged. If interest rate reform really takes place next year, we should see a lot of interesting stories about the banking industry. At least, I do hope more competition can bring Chinese financial consumers better service. In fact, any move towards a more market-oriented interest rate reform is not just about the banking industry. Such moves will also affect the foreign exchange rate of the yuan, which may well explain why some officials at the State Administration of Foreign Exchange don’t really like the idea of a free interest rate market. They say it may encourage more speculative money inflows to bet on faster yuan appreciation, making the foreign exchange regulator’s job more difficult or less important to some extent. Why less important? You might think they would be busier fighting a faster rising yuan. Yes and no — if you have some decent central bank sources in Beijing, you may come to know that there’s always a strange tension between the PBOC and the SAFE, similar to the tension between interest rates and the foreign exchange rate. I remember a SAFE official once privately told me that the day the yuan becomes fully convertible may be the same day the offices of the SAFE are closed. This may sound extreme but think — the SAFE’s job is to control the yuan, the more convertible the yuan becomes, the less controls you need. Then that will also affect many people’s jobs, promotions and even their political careers. Does this explain the unique relationship between the SAFE and the PBOC? Currently, the SAFE is one rank lower than the PBOC as foreign exchange regulation is considered a function of the central bank in China. The current head of the SAFE is Yi Gang. He is also a deputy governor of the PBOC and reports to central bank chief Zhou Xiaochuan. However, some SAFE officials believe SAFE should play a more important and independent role in making foreign exchange policy and related matters, given the significance of the yuan, which often has a major impact on China’s diplomatic relations such as the ties with the United States. To some extent, some market observers say the unique tension and internal bureaucracy between the SAFE and the PBOC actually serve to slow currency reforms and the internationalisation of yuan. So, who’s going to have the final say? The State Council, China’s cabinet led by Premier Wen Jiabao and President Hu Jintao of course. Hu is going to meet U.S. President Barack Obama next month and the two gentlemen will for sure touch upon the yuan issue. From all the signs I can see here, China is ready to let the yuan rise faster next year, so our American friends should be happier. In return, at least Hu deserves a better reception during his visit. Remember Hu’s last visit to the United States? It was not considered a very successful or happy trip by some political observers. Meanwhile, the yuan debate will continue at home, but this time The central banks seems determined to push forward interest rate reforms first to make Chinese people feel happy. Then Hu and Wen should be happy too. Some people say central bankers are the real politicians in China, and I sense their counterparts at the Federal Reserve are going to perform a similar role. Do you agree?

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

Beijing’s Christmas gift to Europe

December 23, 2010
Beijing’s Christmas gift to Europe If the heavy snows engulfing London’s Heathrow Airport are the last thing Europe wants to see, then a big cheque from Beijing could be the best Christmas gift the continent — once the centre of the world, but apparently no longer — could receive this year. The Chinese government is ready to buy 4-5 billion euros (US$5.3-6.6 billion) of Portuguese sovereign debt to help the country ward off debt market pressure, the Jornal de Negocios business daily reported on Dec. 22. Without citing any sources, the paper said a deal reached between the two governments would lead to China buying debt via auction or in the secondary market during the first quarter of 2011. The news of Beijing seeking to invest in Portuguese bonds soon helped the euro gain ground against the U.S. dollar and bounce up from an all-time low against the Swiss franc on Wednesday. It also boosted U.S. investor confidence in bank stocks at home. The potential new credit crisis in many European nations such as Greece, Spain, Portugal, Ireland and even Italy has been a growing global concern for capital markets. Beijing’s help could certainly ease such worries to a large extent if the news can be officially confirmed. China’s central bank has chosen to remain silent on the report, so far. Premier Wen Jiabao, often dubbed Grandpa Wen at home for his easy-going personality with ordinary people, visited a number of European countries including Portugal and Greece earlier this year. At the time, Wen’s trip was already considered a new sign of China’s growing influence in Europe, with Beijing expected to help with its national debt problems as nobody would think of turning to the United States for such a role in the wake of the financial crisis. Will Portugal be the last European nation to get Beijing’s help? Unlikely. Greece is also understood to be on the waiting list to for capital for its new sovereignty bond issue. However, if such aid continues, Beijing may face twin pressures from the United States and its own people. Beijing has complained about the U.S. government’s so-called “carrot and stick diplomacy” since the days of Mao Zedong, the country’s first Communist state head, Now it’s becoming less arguable whether China will take the same approach with so-called “friendly countries”. The United States may monitor Beijing’s financial aid for Europe closely to check for links between the money and human rights issues. Domestically, Beijing is concerned about social stability, in particular after inflation hit repeated highs this year. Some local media reports suggested that university students in some third- and fourth-tier cities had started to protest about increasingly expensive food bills on campus. Does this remind you of anything from more recent Chinese history? On the other side, the Chinese economy itself is far more open than when “New China” was founded by Chairman Mao in 1949, as the country still relies heavily on external trade. When we look forward to 2011, the global market environment to a very large extent is clearly linked to developments in the European debt issue. Beijing is helping Europe extricate itself from this potential new credit crisis as it also wants to avoid any negative external impact on its own economy next year. Something pretty interesting I found out this week about China, which I also take as a good sign of Beijing’s more open-minded attitude towards the world: When China’s top banking regulator Liu Mingkang met a group of Hong Kong reporters briefly in Beijing just few days ago, Liu said “Merry Christmas” and asked the Hong Kong media types to pass on his wishes to the people of Hong Kong. Liu studied in London for some years in the late 1980s, so he must know what Christmas means in the West, even though Chinese Communists should not believe in any religion. Just five or six years ago, Chinese media were still very careful about reports concerning Christmas. Even if they mentioned it in articles, it should not be carry any religious overtones. Not so many years ago, a Communist official could even be sacked or demoted for speaking about Christmas or related matters in public if he was not careful. Today, Liu wishes you all a merry Christmas and Beijing is actually offering the whole of Europe a Christmas surprise via its commitment to support Portugal’s debt issue. Clearly, the world has truly changed within just few decades. So, are the rules of the game now being set by global politics and markets?


Moutai, the stronger spirit of China?

December 17, 2010

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

Have you ever tried Kweichow Moutai, the Chinese liquor also known as baijiu? If not, I am afraid some people may say you don’t really know China that much.

LePad, China’s answer to the iPad

December 14, 2010


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

If Apple calls its tablet computer the iPad, what will China’s Lenovo name its new rival product? The answer: LePad. No kidding.