COMEBACK

mixed feelings about the return to the blogspot. When launching it, I had cherished a dream of breaking into the business world. The dream finally came true, but at great cost. I am not sure whether it is a dream or a nightmare. But I keep smile on my face, and keep confidence in tomorrow after tomorrow.

I come back, and will post more stories on the blogspot.

Foreign media fall short in explaining ICBC move

Industrial and Commercial Bank of China(ICBC) made the headlines of the world media, by announcing that it has bought 20 percent of Standard Bank of South Africa for $5.6 billion in cash - the biggest foreign acquisition by a Chinese commercial bank yet.

Actually it is not really eyebrow-raising, since Chinese government has consistenly encouraged banks to expand business abroad, however, most foreign media has failed to give a clear picture of the driving factors behind the move by ICBC. They mostly talked about that China is making Africa its very strategic source of oil, raw material for its booming economy, hence the move by ICBC could better serve those Chinese companies doing business in Africa. Besides, Beijing-based ICBC is flush with cash to pay for foreign expansion after raising a record-setting $US21.9 billion ($A24.3 billion) in an initial public stock offering in Hong Kong in October, 2006.

But all the analysis failed to touch the real bottom of the issue. It would be very illuminating to understand the background for the ICBC move. Currently Chinese banking regulator has tried to reduce the currency liquidity and repeatedly raised the banking deposit rate to force banks to cut down on loaning, but on the other hand the regulator has to give outlets for the great amount of capital possessed by banks. Therefore it will be a great solution to encourage the banks to invest abroad.

Besides, the stocks of Chinese banks have been so popular with investors that they have been overpriced. This could be evidenced by the great IPO performances of such state-owned banks as ICBC and Construction Bank. According to the Tobin's Q theory, this would be a great opportunity for banks to invest abroad.

However, the media's mission is to be the first to report, not to write academic articles, so it is not surprising that they stop short of giving the full picture.

Chinese puzzle on stock market

Former Fed chairman Alan Greenspan expressed his concern about the bubble of Chinese stock market in a speech at the LSE on Monday evening. It was not the first time that he used the word "bubble" to describe the bullish (or bubbly) Chinese stock market.

However, over the past year while outside experts keep forecasting the China bubble through the crystal ball, the Chinese stock market has kept bullish for very long. When the index soared to the point of 3,000 from 2,000, there was mounting speculation on bubble going to burst. But the market continued to shoot upward as the Index has crossed the point of 4,000. In China, talk about stocks is as common as English talk about weather. There is a joke which says " now in China the buying and selling of stocks has become a national game".

So how much weight should we give to the argument by Mr. Greenspan, who has been hailed as the greatest central banker who ever lived? Should we turn deaf ear to it, or should we really need sit up and take notice?

As a matter of fact, even Chinese scholars themselves have expressed concern over the stock bubble, arguing that the market has been distorted and become very hard to be explained through normal economic theory. For example, in the stock boom, many junk shares or shares of ST companies (those listed companies which have been under special treatment for bad performance) turned out to record fastest increases in stock prices. The market is probably being manipulated by some unhidden hands or insider trading, which could turn out to be a timed bomb. Besides, some scholars pointed out that most of the listed companies are not the best performing companies such as the foreign-owned companies or privately-owned companies. so the market boom is not really sustainable and doesnot really reflect the true performances of those listed companies.

But how could we explain the continuous boom of the Chinese stock market?

Clearly, we are talking about the stock market in a country whose economic and political system is so different from the rest of the world. So the western economic theory should not be simply generalised to the Chinese market. There are some factors which have supported the continous boom. Firstly, its the continously fast growth of Chinese economy which constitutes a favorable macro environment for the stock market. Secondly, the continous appreciation of Chinese currency Reminbi means the value rise of Chinese properties, which consequentially will be reflected in the stock market. Thirdly, also due to the expecation on appreciation of Renmibi, international hot money continues to flood into China, and stock market, along with property, become the major hunting ground for investment. This has also contributed to the boom of Chinese market. Fourthly, inflation is still there in China, which could increase the turnover of some listed companies and lead to a unreal fantasy that the companies are performing well.

But no matter how long the boom could continue, it is certain that the bubble is right out there. The question is how big that bubble is? Is it not serious so that there would be only a minor market correction, or it will turn into a big disaster, both economically and socially, for both China and abroad?

It is a Chinese puzzle. Greenspan could assert that there is bubble, but I challenge him to give a clear picture on how serious the bubble is.

Call a MAC, ok, lets call their bluff

KKR and Goldman Sachs have threatened to back out of their $8 billion buyout of upscale audio equipment maker Harman International Industries Inc., adding that they are under no obligation to complete the merger because "a material adverse change" in its business had occurred. In deal parlance, it is "Call a MAC".

I was not surprised by the news, since that the prevalent credit crunch has forced many buyout firms to rethink their M&A deals which were negotiated when cheap credit was easily available.

The "material adverse change" is actually a clause in the merger agreement, but it is hardly invoked in the past. However, under the current circumstances, the clause, acting like an opt-out clause, started to work like a last straw for those buyout firms who have regretted on their deals.

The material adverse change, however, is hard to be invoked given the very strict criteria to be met. Therefore, the withdrawal of KKR and Goldman Sachs could result in a legal fight with Harmann.

I doubt that the two private equity firms are really serious about their withdrawal, given the uncertainty in "calling the MAC" . It could be a negotiating tactic to force Harmann to lower the price of the deal.

So lets call their bluff and look at how the drama plays out.

Dominate but Don't Abuse!

The European court upheld the ruling by EU regulators against media giant Microsoft. The ruling has more than 100 pages, but it conveys a very simple but straight message: you can dominate but can't abuse it.

There is nothing wrong with dominance, and what competition law or anti-trust law goes against is the abuse of market power. The European court found that Microsoft not only dominate but also abuse their power by those "tying" tactics or refusal to share its system with competitors. That is also why EU only focused on the anti-competitive business behavior of Microsoft, but not consider the software giant's dominance on its Office applications.

The case also evidenced the power of Europe in setting global rules of game. American business, powerful as they are, have been so committed to or reliant on European market that they have to abide by the European regulations. Microsoft even thanked European courts for the hard work put into the ruling process! You got a slap in both sides of your face, but still force your smile .....

Can Grade make the grade

Hi, Ncapitalism is back after a "dissertation leave"!

Today there have been a lot of media reports(Guardian, FT) on Michael Grade's ambitious plan to "double the ITV income by 2012". As reported, Grade wants to cut regional programming from 17 to nine, and wants to increase in-house production, among others.

Can Grade make the grade?

The regional programming cut would be very controversial and very uncertain. There is a danger of union strike in protest, since hundreds of jobs would be lost as a result of the cut. More importantly, it is still uncertain whether Ofcom would give go-ahead to the cut.

It looks like a paradox for ITV, a commercial public service broadcaster (PSB). They have enjoyed great benefits of being PSB, like very cheap spectrum and visibility at the EPG, among others. But on the other hand, the commercial broadcasters feel the PSB remit is restraining their ability to generate more advertising revenue.

However, the paradox is not an issue. ITV unnecessarily will need to cut back on their regional programming to revigorate their business. It reminds me of the book "Doing what matters", written by James Kilts et al. When Kilts took over at the Gillette, the business got many problems, like decline of market share, flat sales and earning, acquisitions not deliversing, among others. Kilts could easily go for the divesting of some acquired business, instead he chose not to divest but focus on three strategies: ZOG, FE and TI.

ZOG means zero overhead growth,aiming to control costs and invest the savings in research and marketing. FE is functional excellence, meaning achieving best-in-class capability and performance at the best possible cost. TI stands for Total Innovation, meaning that continous innovation to come up with game-changing products.

The strategy had revived Gillette, without making any divestment, and it is quite instructive for the ITV. Could ITV control the cost through other ways except the cut on regional programming? Has they achieved the best quality programming with the least cost? Has they been continously working to deliver new game-changing products?

So these are what really matters. It makes no sense to focus on the psb remit, which the ITV has really benefited a lot from.

Busy with dissertation

hi, I am working really hard on my dissertation, so that I can't find time to do reading or writing, but will make up for it shortly after submitting my paper on Sept. 2
See you soon