China Special Report from The Economist

A must read series of China articles published by The Economist in June 2011.

Rising power, anxious state

Hedge-fun titan John Paulson got burned by a China company

Have you heard of Muddy Water Research? A so called equity research firm specialized in shorting Chinese companies listed overseas via reverse takeover. Muddy Water has attacked 4 companies since last summer and the first three ones were small- and micro-cap Chinese companies traded in the U.S. The company now goes after the big fish and its last prey was a Chinese company called Sino-Forest traded in the Canadian Stock Exchange.

Sino-Forest had over $6B market cap before the attack and John Paulson, the renowned hedge-fund manager, owns about 14% of the company. Since the short attack on June 2nd, the company's stock has plunged from 20 to 5, or over 75%. At one point of time, Paulson had more than $300MM paper loss.

Read more about the story.
Big Funds See Red in China    by WSJ 6/9/11
Sino-Forest clobbered by short-seller's report   By Reuters 6/3/11
Sino-Forest Plunges as Short Seller Block Targets Stock Owned by Paulson  by Bloomberg 6/3/11

Stephen Roach is bullish on China

Nowadays, it is not so easy to hear a positive voice about China. But here comes one from Stephen Roach, who is a Yale faculty and the Non-Executive Chairman of Morgan Stanley Asia. More importantly, Roach is a well-known long-time bear.

Here is his recent bullish view about China

Ten Reasons Why China is Different    May 2011

Will China have a debt problem?

We all know that the Chinese government has shoveled 4 trillions Yuan since 2008. But how much debts do central and local governments carry? A few recent articles may give us a clue...

The Trillion Dollar Question: China’s Local Government Debts Mystery Revealed    06/2/2011
China always has more debts than you think        06/02/2011
China Economy: Clean-up Of Local Government’s Debts    06/01/2011
China to clean up billions worth of local debt   5/31/2011

Richard Duncan's new article, "China: Every Boom Busts"

Richard Duncan, the former global head of investment strategy at ABN AMRO Asset Management in London, wrote an article about China recently.He argues that the growth of China's economy is largely depends on the debt-fuelled consumption from the U.S. consumers. Once people in the U.S. slow down consuming goods imported from China, the boom will bust.

But have U.S. consumers ever learned the lessons of stopping buy stuffs that they do not really need? There is an old Chinese saying, "It is easy to step from thrifty to sumptuous, but it is hard to do so in an opposite way"

China: Every Boom Busts  by Richard Duncan on May 3, 2011

"The Future of Chinese Growth" by David Beim

David Beim, a former banker and now a professor at Columbia Business School, published an article in March 2011 analyzing the growth models of China in the past 30 years as well as the bumpy road the country is facing ahead for its further development.

The author summarizes the past 30 year's development of China into three growth phases, the 80s, the 90s and the first decade of this new century. Based on the composition of GDP, he analyzes China's past/future growth under different models, which includes investment-driven, export-driven, and domestic consumption-driven growth.

He concludes that the golden age of Chinese super-growth is likely near to an end. In the meantime, the country holds bright future but has come to a crossroad where a new growth model is needed badly to replace the old one.  The only question remains is that whether China can stimulate domestic consumption fast enough to fill the gap left by investment- and export-driven growth.

The link of David Beim's full article
The Future of Chinese Growth  March 2011

Bloomberg: Poll: China’s Yuan Convertible by 2016

Take a look of what Bloomberg' survey about the future of China's Yuan.  I personally do not believe it will happen so soon.


Poll: China’s Yuan Convertible by 2016