What is The China Story?

What is the China Story? What is the hype about? I search the internet there is little information on this hype up topic.

Introduction
The rise of the Chinese Economy begins with “The Chinese Economic Reform”. Deng Xiaopeng pushed forward the reform in the late 1970s which bring about

1. Foreign Investments primarily from Taiwan & Hong Kong come to China to setup factories.
2. China Trade Export increase consistently.
3. China to U.S trade gap increases and so is it foreign reserve.

25 years later we are witnessing the “Economic Miracle”.

1. Robust GDP growth of approximately 10% per annum
2. Yuan/USD appreciation 5 %( 2006), 6.7 %( 2007), 8 %( 2008), 8-10% per annum (2010)
3. Massive Rural to Urban migration estimate 0.1Billion people per annum
4. Interest Rate Disparity i.e. low interest rate in US & Japan vs. rising interest rate in China leads to massive inflow of liquidity into China
5. Excess liquidity due to Chinese people wealth increase
6. In average companies report 20% profit increase year on year.

In the next 20 years

China is still poor compare to the West. Middle class comprise only 5% of the population compare to 50% in the West. The economic change has only just started. McDonald and KFC for example is cheap fast food restaurant outside China but is a luxury here. Credit card and medical insurance are still very unpopular but are growing rapidly. Five to ten years from now a substance of companies’ earning with come from these kinds of new business activities.

So is it another dot com hype and why do people care?

Foreign institutions have been the substantial share holders of many H Share companies since IPO. I am listing a few H Share companies; you will see the all familiar big investment banks e.g. Morgan Stanley, JP Morgan, etc. They normally own 5% – 49% of the company. Foreign institutions are not allowed to own 50% or more. But 48% of Ping An Insurance is a lot of money. Consider the share price had rocket 10 folds from $HK10.33 to peak of over $HK110.

Foreign H Share substantial holdings as of 2007

China Life Insurance Company H Shares (2628.HK)
J.P. MORGAN CHASE 7%
LEE SHAU KEE (Richbo) 5%

ICBC (1398.HK)
SOC SEC FUND 17%
Goldman Sachs 20%
Allianz SE 8%

Ping An Insurance Group (2318.HK)
HSBC Holdings 48%

Bank of China (3988.HK)
RBS China Inv 28%
SOC. SEC Fund 15%
Temasek Holdings 15.5%
Morgan Stanley 5.5%

China Shenhua (1088.HK)
J.P. Morgan Chase & Co 10%
Merrill Lynch & Co 7%
Alliance Berstein 6%
Taurus Investment SA 5%

Conclusion

Foreign financial institutions own a big part of the Chinese Stock Market and has made huge profit from its recent 3 years rally. There are many more non financial related winning parties e.g. Wal-mart, McDonald, KFC, Johnson&Johnson, and the list of big names is long. They are all making huge profits from China in their own ways. It is not a hype.