Sunday, January 31, 2010
While I am in the mood, I would like to post my favorite article in the past week which is about the commercial endeavors of Wen Jiabao's son Wen Yunsong, who now runs a PE outfit called New Horizon Capital. It has big money behind it in the form of Temasek and Softbank. Due to his genius and a first-rate education from Northwestern University, the fund has landed several high profile deals already. Although he is flying high now, he may become a point of vulnerability for the Hu Jintao faction. With his son in such a high profile situation, Wen will be vulnerable to blackmail by the princelings, who are also engaged in their own private equity activities across China. I am not saying there is dirt, but the chance is that there is some dirt on Wen junior. So, in the run-up to the 18th Party Congress, I think Wen will, as usual, wait and see which way the wind blows and throw his weight behind the likely winner. Given his son's vulnerability and the princelings' ability to deliver sweet-heart deals, Wen may not be a reliable ally to Hu.
Exclusive: China PM's son eyes $1 billion fund for deals
Mon Jan 25, 2010 1:46am EST
*By George Chen, Asia Private Equity Correspondent
HONG KONG (Reuters) - New Horizon Capital, whose co-founders include the son of Chinese Premier Wen Jiabao, aims to raise a $1 billion private equity fund to invest in domestic industry leaders ready to make initial public share offerings.
This would be the third and largest private equity fund for New Horizon, which had about $500 million under management since it was established in 2007, according to sources with direct knowledge of the matter.
New Horizon Capital recently completed raising $600-$700 million for its latest fund by a first closing date, with capital commitments from Japan's Softbank Corp (9984.T) and Singapore state investor Temasek Holdings TEM.UL, the sources said.
It started pitching the fund as early as 2008, but found it tough going as a result of the financial crisis and suspended the fund until early 2009, the sources said.
"That was a very tough time, but now people are willing to pour money into the fund again since China is still the focus worldwide," said one of the sources.
Softbank, run by influential Japanese tycoon Masayoshi Son, and Temasek were long-time investors since the firm launched its first fund in 2007, the source added.
The sources declined to be identified because of the sensitive nature of Wen's family background. A representative for New Horizon Capital could not be immediately reached for comment.
BACK FROM THE U.S.
Wen Yunsong, also known as Winston Wen, helped form New Horizon Capital in 2005, a few years after graduating with an MBA from Kellogg School of Management at Northwestern University in the United States, according to the sources close to Wen.
Between graduation and the launch of New Horizon Capital, Wen started a telecoms equipment maker whose key clients included large banks and securities firms, according to Chinese and Hong Kong media reports. Wen later sold the company.
Beijing, which historically viewed private equity firms as speculators, is becoming more welcoming to foreign private equity funds that are boosting investment in China and creating jobs, which the government sees as key to maintaining social stability.
Despite Wen's background, New Horizon Capital is considered a foreign fund because of its legal structure and the foreign sources of its dollar capital.
New Horizon Capital's first fund was launched in 2007. Soon afterwards, Wen and his management team, which includes long-time friends from his U.S. days, made some quick investments in privately-held Chinese enterprises with potential to be market leaders.
"They have a very stable team ... They were schoolmates or old friends. They know each other very well," said another of the sources.
Private equity investment in China has a brief history, but New Horizon Capital has had some notable achievements.
It recently bought a large stake in Shenzhen-listed wind power producer Xinjiang Goldwind Science & Technology Co (002202.SZ), a leading wind power equipment maker in China. Goldwind is looking to raise $1.5 billion via a Hong Kong listing this year, Reuters reported last week.
Other New Horizon corporate investments, such as Yingli Green Energy (YGE.N) and Kingsoft (3888.HK), have already gone public.
New Horizon Capital is also an investor in Shineway Group, China's top meat processor, in a landmark buyout deal led by Goldman Sachs (GS.N) a few years ago.
It is also an investor in Jiangsu Rongsheng Heavy Industries Co, China's biggest privately-owned shipbuilder, along with Goldman Sachs and other funds. The company is seeking to list in Hong Kong, Reuters reported last year.
(Editing by Chris Lewis and Ian Geoghegan)
I came across your blog today when surfing the web. Lately I've been very puzzled by the issues in China. I am hoping maybe you can help shed some light. I know my questions are not related to the current blog entry.
1. Given China's growth rate is consistently higher than 8% a year, strategically, it seems very logical to stockpile on commodity when the price is relatively low. Why should China hold pieces of US treasury paper can be inflated away instead of holding commodities that it needs for it's growth? As such, how does one distinguish between speculation vs. strategic stockpiling? Granted some stockpiling is not centrally planned but that just proves that market and price works in China too right?
2. China's current housing bubble is very different in nature than the US sub-prime bubble. In China, there is no sub-prime mortgages.
- All first time home buyers must put down 20% down. For buyers of 2nd home and beyond, they must put down 40% payment.
- The average down payment for home purchase is 50%
- The Chinese are famous for their frugal ways (savings rate is nearly 40%).
- Rental price in China are dirt cheap relative home price.
Over leverage is primary cause of pain during an asset bubble. From data on Chinese home buyers, they are not the one's taking on excess leverage. Which economic players (the central gov, the local gov, the banks, the developers, and the home buyers) are taking on excessive leverage in China? More importantly, how/why is the excessive leverage taken on?
3. There is also a lot of concern of growing non-performing loans in China.
At what point is the ratio of none performing loan relative to GDP becomes a problem? How close is China to that danger? At least to me, the damage from a trillion RMB non performing loan doesn't seem that big when the economy is almost 5 trillion _dollars_.
Can the Chinese use it's 2 trillion foreign reserve to help directly or indirectly with the excess non-performing loan problem and how?
Dear Readers, after a long absence, I post an excellent piece by John Garnault of the Sydney Morning Post. The only issue I take with his piece is that I don't think Hu avoided Shanghai out of fear. That might have been true in Chen Liangyu's last days, but with Yu Zhengsheng in charge and a new PAP commander, I think Hu has nothing to fear. His absence from Shanghai probably was due to intentional neglect stemming from the desire to not raise Shanghai's profile any more than is necessary. With recent consolidation of power (which I agree), Hu feels more secure to give Shanghai more credit in the run-up to the Shanghai Expo. This may also suggest that Hu is trying to make an alliance with Yu Zhengsheng, a princeling with close ties to the Deng family. This would make sense, if Yu would bite, as this would be a good balance against the Jiang-Zeng axis.
Battle for Shanghai takes centre stage in Hu's strategy
February 1, 2010
Just as the world is adjusting to a harsher, more assertive and, frankly, scary China, there are reminders the country could swing back the other way.
The President, Hu Jintao, didn't just surprise Australian diplomats by turning up with four hours notice to the Australian Pavilion at the Shanghai Expo 10 days ago. The visit confirmed that last year's diplomatic rancour between China and Australia had been buried and China wants to be friends again. But Chinese observers saw something more significant: "It's now safe for Hu Jintao to go to Shanghai."
Amazingly, Hu had not been publicly seen in Shanghai for at least two years. In fact I can't find reports of Hu passing through China's most glamorous city since June 2006. That's akin to Barack Obama governing America sans-New York, or Kevin Rudd micro-managing Australia without touching down in Sydney.
In the closet warfare of Chinese elite politics, Shanghai has been the political bastion of Hu Jintao's predecessor and nemesis, Jiang Zemin. Hu's arrival in Shanghai was seen to offer proof that he is getting the upper hand in his war of attrition against Jiang's "Shanghai Gang".
To over-simplify, Hu's key protégés are associated with the China Youth League and a more liberal, egalitarian and intellectual outlook, while Jiang's protégés are more closely linked with the security, propaganda and military apparatus as well as strategic state owned companies, particularly oil. More importantly, when China's elite are divided they tend to make doubly sure the rest of the country is locked down.
If Hu's apparent confidence is well-placed, it explains some other signs that suggest the recent political freeze may not be forever. First is the re-emergence of the super-educated and one-time student leader, Vice-Premier Li Keqiang.
Li was Hu Jintao's chosen heir until Jiang interrupted those succession plans in September 2007. Li seemed in political trouble as recently as July. But since the last key Communist Party Central Committee meeting in September he has been everywhere (as has another of Hu's once-wounded allies in the standing committee, Premier Wen Jiabao ). Li is obviously in line for future premier, or maybe one step higher.
Li's speech at the World Economic Forum in Davos on Thursday was more conciliatory and made more sense than anything we've seen recently from a Chinese leader in the international arena. It was all about China's need to correct its own economic imbalances, rather than dancing on the grave of the US-led global financial order, and co-operation on a slew of global challenges. The significance of Li's speech lies not so much in what he said, but that the internal politics permitted him to say it.
Equally significant was the announcement of a new energy policy body, which strengthened Li's standing just before he took the stage at Davos. Until now, China's energy policy has been notoriously captured by vested interests, particularly those associated with the state-owned behemoth Petrochina and the People's Liberation Army.
Although the new National Energy Commission lacks teeth, two things are notable. First, its formation had been on hold - some would say the whole country has been on hold, including the next leadership transition - while Hu pushed some of Jiang's acolytes out of the Central Military Commission and replaced them with his own. (Some say the new line-up to control the People's Liberation Army has been settled; others caution nothing is settled in China until it is publicly announced.)
Second, the new energy commission is stacked with liberally-oriented policy makers and Hu's men (the two categories are not the same but substantially overlap).
At the head of the commission is Wen Jiabao, followed by Li Keqiang. It includes Li's underling You Quan, leaders of the National Development and Reform Commission (NDRC) who work easily with Hu (Zhang Ping and Zhang Guobao) as well as market-oriented policy makers like Zhou Xiaochuan (head of the central bank) and Liu Mingkang (the banking regulator).
Nowhere to be seen is Xie Zhenhua, who is in charge of climate change policy at the NDRC. Xie is internationally respected for his grasp of climate change policy. But he also owes his political resurrection (after a massive Petrochina oil spill) to the Shanghai Gang. And it was his finger-pointing outburst at Obama behind closed doors at Copenhagen that arguably did more than any other single recent event to turn Western opinion away from engaging China to fearing it.
Another notable absentee is Wang Qishan. Wang is widely known and respected in the West. But he has also been trampling over the economic policy turf that was, some thought, reserved for Li Keqiang.
Gone from the formal energy policy scene is Jiang's crony Zhang Dejiang, who was meant to be in charge of energy policy in the State Council. Zhang has been wounded by a recent corruption probe into Shenzhen Airlines, according to a source with connections with the Central Discipline and Inspection Commission, which Hu controls. Indeed, it seems that most of the top-level corruption scalps over the past year are linked with Jiang in one way or another.
Events since the Tibetan uprising in March 2008 have shown it was naive to assume China is on a slow but inexorable march towards a more liberal political system and a more co-operative international outlook. But it would be equally wrong to assume China's recent political hardening - which spilled into the international arena with the arrest of Stern Hu and aggressive diplomacy at Copenhagen - marks a new, inexorable trend.
Hu Jintao is no Mikhail Gorbachev and China is hardly on the brink of a glasnost moment. But China's future hinges, in part, on the battle for Shanghai.