China is planning another “engine of growth” just outside Beijing that is supposed to rival the Pearl River Delta (Shenzhen, Guangzhou, etc) and the Yangtze River Delta (Shanghai, Suzhou, etc):

China’s next building site | Building the nation | Economist.com

Given the proximity to Beijing among various other factors, I believe this one will succeed. However, its not always a pretty process (think environment, workers’ rights, corruption, cultural uprooting of migrants). I have seen a lot of centrally planned Chinese cities that didn’t quite turn out as dreamy as planned.

If Shenzhen and Shanghai are the examples to follow, we can expect to see about 10 million people migrate there in the next 10 years. To say it another way, we can expect to see another Los Angeles size city spring out of nowhere before my nephew reaches junior high.

I can’t remember how “Field of Dreams” ends, but here’s a lesser cited passage from the movie I found on the internet:

Mark: You’re going to lose your farm, pal.

Ray Kinsella: Come on, it’s so big - I mean, how can you lose something so big?

It is fascinating to watch the Chinese Communist system that was all about the farmers so quickly urbanize.

Side Note 1: Just think how cool Beijing would have been if they’d just built it on the coast in the first place…
Side Note 2: Also, keep an eye out for Chongqing at the headwaters of the Yangtze in central China. This is a hugely strategic development zone that will also urbanize like mad in the very near future (it’s already started)…

technorati tags:china, tianjin, shanghai, shenzhen, urbanization

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I am going Kashgar this weekend:

This is one of the first stops on the way to China if you’re traveling the Silk Road. When you look at it from this angle, it’s really amazing that the Han Empire (aka “China”) has such far western reach.

We’ll be much closer to Baghdad than Beijing…

technorati tags:Kashgar

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According to “Official Energy Statistics from the U.S. Government” released on Tuesday, it looks like the basic proportion of world energy sources won’t change much in the next 20+ years:

International Energy Outlook 2006 - World Energy and Economic Outlook

And actually –just eyeballing it here– it looks like the slope on the Renewables curve might even be less than that of the Oil curve. Definitely less than Coal and Natural Gas.

Of note is the flatline on Nuclear. I haven’t formed an educated opinion yet on whether that is a good thing or a bad thing. In the context of our addiction to fossils, I’m leaning towards bad.

As an indicator of how much the American public seems to care, I offer some statistics:

• “An Inconvenient Truth”
• A thoughtful film about the perils facing our environment by ex-Vice President Al Gore
• Released May 24
• US Box Office: $490,860
• “Nacho Libre”
• A “C+” rated summer non-blockbuster starring Jack Black
• Released last weekend
• US Box Office: $28,309,599

Not to mention “Da Vinci Code” and “X-Men” at $144m and $122m, respectively. And, just think of the energy used to air condition all those movie theaters…

Sorry, Al.

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The Shanghai Stock Exchange reopened for IPOs this month after a 14-month break to reform the non-tradable shares (NTSs). Before the reforms, NTSs comprised 63% of the total outstanding shares, causing all sorts of pricing and liquidity problems.

The China Securities Regulatory Commission (CSRC, similar to the SEC in the US but with a distinct Communist Party flavor) is hoping to bring greater transparency and corporate governance to the domestic markets. However, many of the new shares to be issued in upcoming IPOs will only be A-Shares, which cannot be purchased by foreigners.

Dow Jones Shanghai Index (Oct 2002 - Today):

I predict Shanghai will have a very strong showing over the next few years. But, to be sure, it will be well-coordinated to play into Chinese domestic interests, which are not always aligned with those of foreign investors. IPO trends will pick up where they left off last year, focusing largely on highly regulated segments: infrastructure, financial institutions and industrials.

I’m not an investment professional (OK, maybe I am, but not a banker or trader.. regardless, don’t take my advice), but I think the real opportunity for foreign investors in China is technology and consumer growth companies propelled to the market by the current wave of private equity washing over the country. This will take a good 3-4 years to play out, during which time other positive reforms will likely be implemented, but even then there will be pressure to list overseas.

Don’t Call It a Comeback
What’s interesting to me is to think about how Shanghai and Hong Kong will play together in the long run and how foreign investors (and by extension, the venture firms they’ve funded) will drive respective IPO activity. What will be the exit strategy of choice 4 years from now? Because it makes a difference how you structure a company today.

At this moment, the HKSE clearly dominates for IPO’s. But it wasn’t always so and the SSE is poised to make a run with many large offerings such as Bank of China and Air China waiting in the wings. As recently as 2001, the SSE beat the HKSE 2 to 1 on IPO funds raised. However, 2005 was 25 to 1 the other way in a growing market. Of course, Shanghai was shut down for 2/3 of that year, but still. Also, the SSE will have to manage downward price pressure since supply has had a large step increase due to the NTS reforms and the retail demand has not caught up yet.

In the end, being the preferred IPO destination for Greater China companies is not a slam dunk for either exchange. And, you can be sure the Chinese government will have their hands in everything, at least on the SSE.

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According to the Pew Global Attitudes Report released last week:

http://pewglobal.org/reports/display.php?ReportID=252

technorati tags:china

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Here’s a film that –over 20 years later– should get more attention than it does. I mean, everyone I know has seen Top Gun (1986) about 15 times.

This movie –starring Sam Waterston (yeah, the guy from Law and Order) and Haing Ngor with a well-played supporting role by John Malkovich– is a true story about a NY Times reporter and a local translator/journalist covering the secret bombings of Cambodia by the US in 1975. To make a 2-1/2 hr long movie short, the reporter makes it out alive to win a Pulitzer Prize and the translator is caught in the brutal re-education camps of the Khmer Rouge where 3 million people were killed (out of a population of 8m). He finally escapes 3 years later to reunite with his family in NYC. I cried at the end.

I appreciated this film on many levels. The acting was superb, the cinematography awesome, the sound track impactful (including a sweeping score mixed with local Cambodian music and John Lennon’s “Imagine” at the end).

What really struck me, though, and the reason I decided to write a review, is the objective and balanced portrayal of events. In the context of the US withdrawal from Vietnam, the protests at home, global power politics, the Watergate scandal, etc, etc, it would have been too easy for a Hollywood film to point fingers and try to blame the greater powers. But, instead, the film focused on individuals and the human experience.

On a personal level for me, after living in China for the last 3 years, I have met a lot of people playing various roles in China’s rise to “developed country status”… high ranking govt officals, entrepreneurs, factory workers, finaciers, domestic migrants struggling to make sense of their move from the farm to the city. But recently, I have been reading and thinking mostly about the geo-political impacts of China’s rise and how it affects the US… so, trade organizations, foreign policy, national competitiveness, blah blah blah… The Killing Fields reminded me to take a balanced view.

Thankfully, what’s currently going on in China is not a war or violent revolution (I hope it stays that way) but there are still a lot of human rights and freedoms that need to be taken into serious consideration by foreign governments and multi-national corporations. This films makes the point in the main character’s Journalist of the Year acceptance speech that countries and groups of people should not be thought of only “in the abstract as instruments of policy”, which in today’s world also includes corporate policy. A message still relevant in 2006 and beyond.

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…at about 4:15a in Shanghai in the summer.

I half-wrote about 7 potential blog essays this weekend. They all started by hand in my notebook over lunch while exploring the city on my new bike. Then, I’ve been digging around the internet all night to fill in the gaps until the sun came up. None are done yet. I’m not good at writing quick off-the-cuff entries, maybe because I never feel like I’ve read about or thought through the topic thoroughly enough, which is a problem given the sheer volume of information and opinions available today. Maybe because I start to ramble after an internet fueled bout of insomnia.. I didn’t even drink coffee today (yesterday)…

Current Conditions in Shanghai:

Sunny

High: 82°
Low: 71°

Note: I don’t believe the 3.11 mi of visibility. I couldn’t see across the river on Saturday.

Here’s a message I posted to an expat chat group in China after a flurry of other posts. I felt compelled to contribute. I’m not an accountant, but I spent an exorbitant amount of time figuring this out. It can get complex if you let it.

Anyways, here’s a quick brain dump. Hope it helps…

First, here’s a link to give you the basics on Individual Income Tax (”IIT”) in China.

The truth is that enforcement is difficult for both the US and Chinese govts, but accountants, attorneys and government agents will always tell you the strictest rules (and often try to get you to pay them to handle it for you). Some people make their filing decisions based on risk of being audited. The more I asked around, the more I realized that many people I met were cutting corners with a low *perceived* risk. I am told that the trigger for the US IRS to even think about an audit on a citizen working in China is a gross annual income of US$250,000. Apparently, this has held true since the US and China signed some tax treaty 20+ years ago. And, I’ve never heard about any expats getting put in Chinese jail for tax evasion. It’s kind of a personal decision on how to handle things. You may have a chance to allocate salary accross different jurisdictions like China, HK and the US. HK being the lowest tax jurisdiction with a flat tax of 16%. If you want to run for Senator some day, it may not be worth the risk to save a few hundred bucks on taxes… Also, your company may take a different stance on the risk question. My policy is to take the high road and do it all by the book. The fact that so many people bend the rules (sometimes unwittingly) may muddy the waters when you are asking around for tax advice from non-professionals.

Regarding the “Foreign Earned Income Exclusion”, pretty sure it is $80,000, which is not to say that you don’t pay taxes on that income, only that you don’t pay additional US tax on that income. You still have to document that you paid tax in China. I think there are ways to do it so that you don’t have to pay double up front. Max out your deductions for US tax if you think you will get a big refund. Or don’t file anything in the US at all until the end of the year. (Note: the US tax deadline for expats is June 15 not Apr 15.) The cut off to qualify for the exclusion is that you need to be out of the US for 330 days in any rolling 12-month period. You can prorate that period across 2 US tax years. Depending on your salary range, you may find that the Chinese and US (federal) tax rates are about the same, so this may not even matter that much. If your salary is high, it won’t matter at all because your Chinese tax will be higher anyways.

By the way, be careful with terminology. A “tax deduction” is different than a “tax exclusion.” The math works out differently.

Also, I have learned that it does not matter what banks are invovled: US, PRC, HK, super secret private numbered Swiss acct. All these rules still apply. The only thing that matters is where you physically earned your income (which, admittedly, gets to be a fuzzy topic once you dig into it).

Lastly, the IRS has some decent info on these topics at www.irs.gov, although that site seems to be blocked today by our friendly Chinese internet censors. I wonder if it has to do with Google talking smack this week about their own decision to cave on censorship policies.. but that’s a whole other topic.