China: Communism to Capitalism

In May, I had the pleasure of travelling throughout China and Hong Kong with 32 of my classmates from Ivey. The purpose of Ivey’s China Study Trip is to complement the extensive in-class knowledge gained from our GLOBE module. This module focuses on the increasingly global nature of business and includes topics such as economics, international trade, technology, government and public policy, entrepreneurship, and corporate governance. China has been splashed all across the headlines over the past few years as a model of growth and a case-in-point when it comes to the success of globalization. Reading about it is one thing, however, experiencing it is another thing altogether. Although China and globalization is generally outside the purview of this blog, I thought it appropriate to write about my experiences.

One aspect of the trip I really enjoyed was having the opportunity to read the newspapers in China - South China Morning Post and The China Daily. I was amazed at the depth and breadth of activity that is going on in these economies. In North America, we hear only about the high level activity, such as China growing its GDP at +8% for decades or the undervaluation of the Yuan relative to the USD. These tidbits of information are great for a macro perspective on China, but they do little to help one understand the context and the nitty-gritty details of why and how this is all occurring. For that, you have to see for yourself by visiting the country, talking to business-people, and by reading the newspaper.

Here is a small list of the things that I witnessed in the newspaper and in person during my two weeks in China and Hong Kong:

• In one issue of the newspaper, I saw four separate capital raises totaling billions of (converted) Canadian dollars alone. In comparison, the new equity issue market is practically dead in Canada, and I was astounded that one of the Chinese equity issues was 38x over-subscribed! This demonstrates how much appetite for investment opportunities there is in China.






• Pepsi decided to spend $2.5bn over three years to build new plants and expand R&D efforts in China. This piece of information is further proof of international firms making strategic investments and building out their capabilities in China.

• China celebrated the one month anniversary of index futures trading on the newly formed CSI 300 Index, an index of 300 large-cap stocks that trade on the Shenzhen and Shanghai stock exchanges. The establishment of Chinese stock futures demonstrates the financial liberalization that is occurring daily.

• Beijing announced a goal of eliminating smoking inside all public establishments. This data point really highlighted to me how progressive the Chinese government is. It realizes that for it to reach G7 status and become a true super-power, it must make dramatic and sweeping changes to its society.

• Probably most telling of China's economic rise to power, is the symbolism contained in the picture below. While I was there, an exact replica of Wall Street’s Charging Bull statue was unveiled on the Bund in Shanghai.



These data points are small pieces of information by themselves. However, when you see these occurrences on a daily basis, you start realize that economically and culturally speaking, something really special is going on in China. Although I doubt much of my investment research and activity will focus on Asia going forward, I definitely have a new found appreciation for Asia and the impact these countries will have on the world in the future.