China Money Podcast - Video Episodes

Andrew Teoh, founding partner of Ameba Capital, tells China Money Podcast host Nina Xiang that when he makes investment decisions, he would consider a sale to Chinese Internet giants, BAT (Baidu, Alibaba, Tencent), as potential exits. He shares his view on what assets BAT are likely to acquire in the next year.

Andrew Teoh, founding partner of Ameba Capital, tells China Money Podcast host Nina Xiang that there will be more mergers among Chinese technology companies in 2016, which will create clear industry number twos. In particular, the O2O (online-to-offline) sector will see more mergers as the availability of capital decreases.

Andrew Teoh, founding partner of Ameba Capital, tells China Money Podcast host Nina Xiang that he likes social network-based B2C start-ups now as Chinese consumers become more sophisticated and want quality, brand and seamless shopping experience.

Andrew Teoh, founding partner of Ameba Capital, tells China Money Podcast host Nina Xiang that as China's capital markets changes, the RMB will become a more important currency in both early stage and late stage investments in China, different from the past when the U.S. dollar dominated in both investment and exits.

In this episode of China Money Podcast, guest Xia Mingchen, a Hong Kong-based principal at Hamilton Lane's fund investment team, spoke to our host Nina Xiang. Xia says Hamilton Lane likes distressed debt and special situations strategies in China. They will likely outperform as the Chinese economic transition provides plenty of opportunities for corporate restructuring. Don't forget to subscribe to China Money Podcast for free in the iTunes store, or subscribe to China Money Network weekly newsletters. You can also subscribe to China Money Podcast’s Youtube channel or Youku channel.

In this episode of China Money Podcast, guest Xia Mingchen, a Hong Kong-based principal at Hamilton Lane's fund investment team, spoke to our host Nina Xiang. Xia says as the Chinese economy re-balances, private equity fund managers need to focus more on sector expertise and post-investment management of their portfolios. Don't forget to subscribe to China Money Podcast for free in the iTunes store, or subscribe to China Money Network weekly newsletters. You can also subscribe to China Money Podcast’s Youtube channel or Youku channel.

In this episode of China Money Podcast, guest Xia Mingchen, a Hong Kong-based principal at Hamilton Lane's fund investment team, spoke to our host Nina Xiang. Xia says he prefers country-specific private equity funds over pan-Asian vehicles, because local expertise is critical in achieving success in the region. Don't forget to subscribe to China Money Podcast for free in the iTunes store, or subscribe to China Money Network weekly newsletters. You can also subscribe to China Money Podcast’s Youtube channel or Youku channel.

Mark McFarland, global chief economist at private bank Coutts & Co. Limited, tells China Money Podcast host Nina Xiang that Hong Kong-listed Chinese Internet leaders and banks are preferred sectors for gradual market re-entry.

Mark McFarland, global chief economist at private bank Coutts & Co. Limited, tells China Money Podcast host Nina Xiang that China has plenty of room to loosen monetary policy if needed, and is likely to cut bank reserve requirement ratio two or three times by the end of 2016.

Mark McFarland, global chief economist at private bank Coutts & Co. Limited, tells China Money Podcast host Nina Xiang that the RMB has limited space to depreciate further and the Chinese government will be able to keep a relatively stable exchange rate going forward.

Mark McFarland, global chief economist at private bank Coutts & Co. Limited, tells China Money Podcast host Nina Xiang that investors should look beyond the current slowdown to realize that an economic slowdown in China is good for everyone as there will be less waste of resources.

Leon Liao, gaming analyst at investment bank Jefferies & Co., tells China Money Podcast host Nina Xiang that he likes Macau casino operators Galaxy, SJM Holdings Limited, Sands China Limited, and Melco Crown Entertainment (ADR).

Leon Liao, gaming analyst at investment bank Jefferies & Co., tells China Money Podcast host Nina Xiang that Macau's junket system is consolidating as casinos' revenues plummet, with weak operators shutting down.

Leon Liao, gaming analyst at investment bank Jefferies & Co., tells China Money Podcast host Nina Xiang that Macau's gaming sector may have reached bottom range after a significant drop from its peak levels.

Tian X. Hou, founder and CEO of T.H. Capital, tells China Money Podcast host Nina Xiang that Qihoo 360 Technology Co.'s US$9 billion take-private transaction will go through at a reduced price.

Tian X. Hou, founder and CEO of T.H. Capital, tells China Money Podcast host Nina Xiang that U.S.-listed Chinese healthcare companies should consider returning to the Chinese domestic stock market as their listing venue.

Tian X. Hou, founder and CEO of T.H. Capital, tells China Money Podcast host Nina Xiang that despite the market correction in China and the government's temporary suspension of the IPO market, most U.S.-listed Chinese companies with plans to go private should try to proceed to complete the transactions.

Tian X. Hou, founder and CEO of T.H. Capital, tells China Money Podcast host Nina Xiang that even though some U.S.-listed Chinese companies are pursuing go-private deals for short-term profits, but the current wave of privatization deals will be beneficial for China's stock market in the long term.

Tian X. Hou, founder and CEO of T.H. Capital, tells China Money Podcast host Nina Xiang that for big Chinese Internet companies listed in the U.S. such as Baidu and Sina, they should consider listing its new businesses branches domestically.

Manav Gupta, founder and chief executive officer of Hong Kong-based Internet Of Things (IoT) accelerator Brinc, tells China Money Podcast host Nina Xiang that Hong Kong is the best place in the world to ensure the success of an IoT start-up business.

Manav Gupta, founder and chief executive officer of Hong Kong-based Internet Of Things (IoT) accelerator Brinc, tells China Money Podcast host Nina Xiang that wide-spread human microchip implants may happen sooner than expected.

Manav Gupta, founder and chief executive officer of Hong Kong-based Internet Of Things (IoT) accelerator Brinc, tells China Money Podcast host Nina Xiang that the IoT sector's key challenge in the future is how to connect all the smart hardware and to integrate them via data centers and on the cloud globally.

Manav Gupta, founder and chief executive officer of Hong Kong-based Internet Of Things (IoT) accelerator Brinc, tells China Money Podcast host Nina Xiang that the IoT sector's future is what he calls IoT 2.0, where smart devices talk to each other and are integrated to enhance people's lives.

Manav Gupta, founder and chief executive officer of Hong Kong-based Internet Of Things (IoT) accelerator Brinc, tells China Money Podcast host Nina Xiang that the IoT sector could be a US$7 trillion market opportunity.

Theodore Shou, chief investment officer at South Africa-based fund of hedge fund manager Skybound Capital, tells China Money Podcast host Nina Xiang that China-focused hedge funds will continue to outperform despite the recent market gyrations and the slowing economy.

Theodore Shou, chief investment officer at South Africa-based fund of hedge fund manager Skybound Capital, tells China Money Podcast host Nina Xiang that some Chinese macro strategy hedge funds suffered losses after the Chinese People's Bank of China devalued the RMB last week as they made big currency bets.

Theodore Shou, chief investment officer at Cape Town, South Africa-based fund of hedge fund manager Skybound Capital, tells China Money Podcast host Nina Xiang that investors now value risk control more after the Chinese stock market correction.

Theodore Shou, chief investment officer at Cape Town, South Africa-based fund of hedge fund manager Skybound Capital, tells China Money Podcast host Nina Xiang that the most recent Chinese stock market crash reveals that many Chinese hedge fund managers merely had exaggerated "beta" in the past, and they failed to achieve "alpha" during the past few months.

David Ji, director, head of research and consultancy of Greater China at property consultancy Knight Frank, says China's ghost cities are not a problem of oversupply.

David Ji, director, head of research and consultancy of Greater China at property consultancy Knight Frank says real estate in China relating to the country's new economy are still attractive.

David Ji, director, head of research and consultancy of Greater China at property consultancy Knight Frank says the Chinese property market is stabilizing and in early recovery stage.

In this episode of China Money Podcast, guest Dr. Marc Faber, renowned investor and publisher of The Gloom, Boom & Doom Report, speaks with our host Nina Xiang. Dr. Faber shares his thoughts on why China's economic problems are solvable, explains the reasons behind his belief that China is likely to keep its currency stable, and rebukes the argument that capital may be flying out of China for a lack of confidence in the world's second largest economy. Read an excerpt or watch an abbreviated video version of the interview. Be sure to listen to the full interview in the audio podcast. Don't forget to subscribe to China Money Podcast for free in the iTunes store. Q: We are in your spectacular house in Chiang Mai, Thailand. The walls are covered with pictures from China's Maoist era and the Cultural Revolution. From where you stand, how is the Chinese economy doing? A: In order to understand China, you have to go back in history. After the revolution and the opening up, the growth during the 1990s up until now has been mind-boggling. In 1980, China consumed 2% of the world's industrial commodities. By 2000, it was 12%, and now it is 47%. Now the growth in China is obviously slowing down. But if you look at the U.S., there were 19 recessions during the 19th century, then the Civil War, World War I, the Great Depression, World War II, the Korean War, the Vietnam War, and the country continued to grow. So, I wouldn't be too worried about the problems in China for the near term. I think it's solvable. Hopefully, it is painful because the society needs some pain from time to time, then the economy takes off again. Q: Where do you think the pain will be specifically? A: Obviously, in the property market. There are a lot of property developments that will not have positive returns. There is also over-capacity in some basic industries, steel and other basic materials. That's where pain will be. Q: What is the biggest risk the economy faces? A: The biggest risk is that credit has grown far more than economic activities. The debt-to-GDP ratio has increased dramatically. Essentially, China is borrowing economic growth from the future. Once the debt reaches a level where it's difficult to maintain the pace of growth, the economy automatically slows down. But what is frequently missing in the discussion of credit is what is credit used for. If you look at Korea and Japan in the 1950s to 1970s, credit was used for capital spending, infrastructure, plants, education, research and development. That credit generates cash flow, which can repay the debt. The worst credit is what the U.S. has, which is consumer credit. People borrow to buy a car or a washing machine. That does not generate income and becomes burdensome to the household. Some people argue that China has overbuilt roads, tunnels, bridges and trains. But I don't see it that way. In the U.S. during the 19th century, the country constructed lots of canals and railroads. All the canal companies, including the Erie Canal, went bankrupt. About 95% of the railroads had to be refinanced or went bankrupt. But the network facilitated the country's trade and commerce significantly. So China is doing the right thing. Q: Sounds like you are not too worried about China's elevated debt level? A: We live in a world with excessive liquidity created by money printing of central banks. That liquidity flows into real estate, stocks, bonds, art and commodities from one place in the world to another. Relative to the U.S., China's stock market has become inexpensive. So, we had recently this huge bull market in Chinese stocks with colossal speculation. It doesn't mean that the whole thing will collapse and make new lows. But after this burst of volume, we could easily see a significant correction. I bought China Life Insurance at HK$21, and now it's close to HK$40. It almost doubled in less than six months. I think it can easily drop 20% to 30%. Q: The U.S.

In this episode of China Money Podcast, guest Benjamin Fanger, co-founder of Chinese distressed debt investment firm Shoreline Capital, talks to our host Nina Xiang about the changes he saw in the distressed debt investing space over the past ten years, where he sees future opportunities, and how his firm controls downside risks in a highly specialized investment arena. Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store. Q: Can you first give us some background on Shoreline Capital? A: I co-founded Shoreline Capital with my partner, Zhang Xiaolin, in 2004 when we were still studying at the University of Chicago Booth School of Business. Currently, we manage around US$650 million investing in distressed debt in China, with over 30 people in the company. Q: And, you are currently raising a third fund with a US$500 million target? A: That's correct. Q: During the past 10 years, how has the distressed debt investment space changed in China? A: It has changed significantly. Back when we started the firm, it was not clear what would happen in courts if you were trying to enforce debt. Since that time, the legal environment has improved significantly. The types of investments you can do have also expanded. Ten years ago, there were probably opportunities only in the non-performing loan (NPL) space. Today, there are other types of investments given the decelerating economy. Q: How has China's legal environment improved, specifically? In 2007, China enacted a new enterprise bankruptcy law, but the new law hasn't been tested that much? A: I think the more relevant laws for what we do are creditor rights enforcement, not bankruptcy laws. Creditor right enforcement in China has much more predictability nowadays than before. Let's say if you could do ten things in courts in London or New York to enforce your rights as a creditor, you could only do three things with predictability in China ten years ago. Today, you could probably do four or five. Q: Can you give an example of the things you can do now but couldn't before? A: I'll first say some things that a creditor has always been able to do in China. They include doing searches for titles of a borrower's assets, putting liens on those assets, and taking the borrower to court. You could also auction certain types of assets off the borrower, things that are not sensitive in the eyes of the local government. An example of some new things you can do as a creditor in China is pursuing fraudulent conveyance. In a developed court, if a borrower transfers all its assets to another borrower, creditors can sue that (second) borrower as well. Ten years ago, courts in China were not very familiar with fraudulent conveyance. But today, it's more predictable to pursue this in Chinese courts. Q: But there are still many things beyond your control. How do you manage that risk? A: We price those things that we cannot do with predictability in Chinese courts to zero, and give value to the few things that we can do. But in some cases, Western courts would be less predictable than in China. Let's say I have a borrower who has defaulted on a loan. I have a complete set of loan documents that I have bought from the bad banks in China. If I go through due diligence and find that the borrower owns an office building, but it's not my collateral, then I can go to a court in China and do a pre-trial attachment of that asset and essentially become a secured creditor. In essence, putting a second-lien on that asset. This is a very predictable process in courts in China. But this process could be quite difficult if there are counter-claims or other complications in courts in developed markets. Q: Your business initially was to invest in NPLs in China. Can you explain how did it work? A: We would buy a portfolio of NPLs from the Asset Management Companies (AMCs),

In this episode of China Money Podcast, guest Eric Solberg, founder and CEO of Asia-focused private equity and wealth management firm EXS Capital, talked to our host Nina Xiang. He discussed how he is preparing to invest in China's property sector in its downturn, and why he thinks there are attractive investment opportunities in the Chinese steel sector. Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store. Q: You resigned from Citigroup Venture Capital International Asia in 2007 and started EXS Capital. What was your consideration behind that decision? A: In early 2007, private equity deals in Asia were very expensive. The average public market PE multiple was 60 times. CVCI has raised a US$4.3 billion global emerging markets fund at that time. As all partners, I was required to invest a very large portion of my net worth, in fact, Citi was going to loan me a lot of money, so that I can make a large personal investment in this fund. But I was concerned that valuations were too high. So I resigned. I withdrew all my money from the fund and sold my Citi stock at US$54, which went all the way down to 97 cents. That turned out to be a lucky decision. Q: What happened to that fund? A: In my understanding, the fund invested very aggressively in 2007 and 2008. That fund was sold recently to a much smaller group. I am no longer involved in that fund, but my guess is that the fund didn't lose a lot of money, also didn't make a lot of money. It did get investors the type of performance they were hoping for. Q: Give us more background on EXS Capital. What does the name stand for? A: It's a play on the initials of my and my son's name, which is Xavier. But we call it "excess" capital, because we think everybody needs "excess capital"; it's our private joke. Essentially, we believe that the volatility in the Asian markets makes the typical closed-end, finite life private equity funds difficult. So if you can have either permanent capital, or can do this on a deal-by-deal basis, we think Asia is the best place to do private equity. Q: Your firm did try to raise an evergreen fund, but it wasn't successful? A: We did try to raise a permanent capital vehicle around 2011. At that time, investors are putting a lot of money into domestic Chinese or Indian funds. There weren't the appetite for that new type of vehicle. Some day, we may go back to that idea now that we've built a longer and stronger track record. But in the meantime, our deal-by-deal basis approach has given us a great deal of flexibility. Q: Chinese private equity firm Capital Today is planning to raise a private equity fund with a 28-year fund life. What do you think will be its biggest challenge? A: Frankly, I don't think that's a right way to do it. Taking a standard private equity fund model, and just making the fund life very long, doesn't solve the problem. If you look at more sophisticated evergreen funds such as Golden Gate Capital and General Atlantic, they have rolling mechanisms to allow investors in and out, and to periodically realize investments. That more creative approach is a better solution. Q: Can you tell us more about a deal you did in China, which was a buyout of a distressed shareholder in a Chinese residential project called Project Byblos? A: We were working with a developer who had a single project with a 3900-unit residential project in Southern China on the coast. This developer was originally financed by a Southeast Asian group, which got into trouble after the global financial crisis. The developer saw this as a good opportunity to buy out this Southeast Asian group. We raised some money for the developer, and structured the deal to give incoming investors minimum IRRs (internal rate of return), as well as sharing the upside with the developer. That worked out well.

In this episode of China Money Podcast, senior strategist for Greater China at BNP Paribas Investment Partners Chi Lo, talked with out host Nina Xiang about the future policy direction of the Chinese central bank; why he believes the biggest risk in the Chinese economy is a property correction and its knock-on effect on banks and other sectors; as well as his advice for investors on building exposure to China now. Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store. Q: Earlier this month, the People's Bank of China (PBoC) announced a selective bank reserve requirement ratio (RRR) cut of 0.5%. Now the big question on everyone's mind is: Will the Chinese central bank extend the RRR cut to all Chinese commercial banks. What's your view? A: It depends. I think the PBoC's policy move will be data dependent in the next few months. It will depend on how the economy reacts to the selective RRR cuts and also the mini-stimulus packages implemented in the past few months. If the numbers react well, then I don't think there will be a need for a universal RRR cut or an interest rate cut. We think the PBoC is taking a universal RRR cut and interest rate cut as a last resort. Our base case forecast is for the Chinese economy to recover during the second half of the year. Therefore, no major further monetary loosening is needed. Q: Which economic indicators do you think the Chinese government will focus on to determine if the economy is responding well to their policy measures? A: I think they will focus on bank credit, because that's a key leading indicator. They will also focus on electricity power output, transport volume growth, as well as the property market. Depending on how deep the property market correction will go, the authorities will decide how much easing they want to put into the economy. Q: Some economists argue that an across-the-board RRR cut will not stimulate bank lending that much. Do you agree? A: Overall, I do. The smaller and rural banks in China have about 7% excess reserve above the official minimum bank reserve requirement ratio. For the other banks, they also have excess reserve ratio of 2% to 3%, which means they are already putting aside 22% to 23% of reserves, above the official 20% official RRR. So it's hard to tell if the RRR cut will be effective. The problem with the Chinese economy is that the system is too used to bailouts when something goes wrong. This time around, Beijing has been holding off any significant bailout because its policy objective has changed from "growth quantity" to "growth quality". It's not easy. It's painful. Q: So you see there will be more pain, more bankruptcies in the economy? A: You already see property developers and corporates jumping and yelling that there is not enough liquidity. But the truth is that the amount of liquidity now is just less when compared to past cycles, but it's still (ample). When you look at the total aggregate financing numbers, there is still a lot of money being pumped into the economy. This is a normalization of liquidity growth in China. Q: In another word, it's China's own tapering? A: You can say that. Actually, China tapered much earlier than the U.S. Federal Reserve. China started tapering about a year ago. Q: How should China manage the process of injecting market disciplines in the economy, but also not to go too far to cause unwanted social pressure? A: On a macro level, a growth rate of 7% to 7.5% is what I call the "pain threshold." China's Premier Li Keqiang recently reiterated that he wanted to see 7.5% GDP growth this year. I don't think they will be very strict about the 7.5% objective. As long as there is progress on structural reforms, Beijing will be okay with growth lower than 7.5% but above 7%. Bankruptcies will also rise, and this is part of Beijing's game plan.

In this episode of China Money Podcast, returning guest and legendary investor Jim Rogers, chairman of Rogers Holdings, spoke with our host Nina Xiang in Singapore. Mr. Rogers shared his views on the world economy and markets, in particular, why people should be concerned about tough times ahead as the unprecedented artificial liquidity comes to an end. He also discussed bitcoins, and why he missed the best opportunity to invest in the virtual currencies. He shared some personal experiences about returning to his hometown of Demopolis, Alabama, and the joy of seeing his daughters excel in the Chinese language. Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store. Q: What worries you the most in today's world and economy? A: What worries me the most is that for five or six years, all the major central banks have been printing huge amounts of money. It's the first time in recorded history that we have the Japanese, British, European and Americans all printing money at the same time. So we have this artificial ocean of liquidity, which is making markets do well, but it's not doing much for the economy worldwide. When it ends, we will all pay a terrible price. Q: What's your assessment of the current geopolitics risks? A: There is always geopolitics risk. We have had wars since the beginning of time, and we will have more. Politicians have always made foolish mistakes throughout history. They will make mistakes again, and we will all pay for it. Q: Do you see that any potential conflict will be limited to regional and small-scale ones? A: Let's hope so. Unfortunately if you look back at history, all wars started with small incidents. I would expect we'd see bigger conflicts in the next ten years. Q: In China, we have seen more frequent terrorist attacks and mass protests lately. Just last week, there was another bombing in Xinjiang province. How big a threat do you see this type of turbulence pose to the economy? A: Whenever there are bombs going off, people become worried. People tend to get more aggravated or agitated when things slow down. China is slowing down at the moment. But will this mean the end of prosperity in China? I doubt it. Q: What is the best way for the Chinese government to handle this? A: Normally, the best way is to try to provide some kind of accommodation, so the Chinese and the Uighurs can be satisfied. Killing each other doesn't usually solve the problem. Q: Do you think the Chinese government will be able to keep stability and avoid the dramas that are currently going on in countries like Thailand? A: China will see more social unrest going forward, but I don't see the Chinese government failing. In fact, we are going to see more social unrest throughout the world, because we are in this artificial situation where a lot of money is being printed, but many people are not participating in the recovery. We are going to see more turmoil in the next decade. Q: Strangely, I also have this vision that I'm going to experience starvation one day, or worried about being trapped in dark rooms... A: That's what a lot of people are going to experience, because we are in this artificial liquidity. So, you should go back to that dark room, if you can find it, and put some food in the closet. So when that period comes, you have some extra food, or a flashlight. If it doesn't happen, then it doesn't matter. Q: You have always said that the RMB will continue to appreciate much more in the long term. So the 3% depreciation of the Chinese currency this year is only a temporary adjustment, right? A: The market has 3%, 13%, 23% correction all the time. So it's good that the Chinese currency is starting to fluctuate. That's how the markets work. If it's only going up, it's artificial. Q: Have you invested in virtual currencies like Bitcoin? A: No,

In this episode of China Money Podcast, guest Bing Lin, portfolio manager at Hong Kong-based US$1.4 billion-under-management Keywise Capital Management, speaks to our host Nina Xiang about why he believes there are still many major overseas listed Chinese companies with fraudulent accounting practices, and how 2014 will be a great year for shorting certain overseas-listed Chinese stocks. Read an excerpt below, but be sure to listen to the full interview in audio, or watch an abbreviated video version. Don't forget to subscribe to the podcast for free in the iTunes store. Q: China announced plans to launch a Shanghai-Hong Kong stock connect pilot program in six months. How will this impact hedge funds investing in the Greater China region? A: In general, I think it's good news. We will see the valuation gap among large cap stocks between the two stock exchanges close up. Also, for some small- and mid-cap stocks listed in Hong Kong, their valuation might increase. While for some domestic Chinese small- and mid-cap stocks, they will see negative impact because of their relatively high valuation. Q: We did see the Hang Seng China AH Premium Index, a measure of the valuation gap between the A-share and H-share market, rise to 95 on the news. That's very close to the 100 level that signals parity between Shanghai and Hong Kong listed shares. What type of trading opportunities does this create for hedge funds before the program's official launch in about six months? A: We are buying high quality names (based on fundamental research). For example, there are many small- and medium-sized companies listed in Hong Kong that are generating earning growth of 20% to 30% year after year. But they are traded at single digit multiples. The reasons are that there is little (research) coverage on these stocks, and big institutional investors and local Hong Kong investors tend to buy mostly big-name stocks. In China, the small- and mid-cap stocks are trading around 30 to 40, over even higher, multiples. So with the current regulatory change, we think it will serve as a catalyst for value to be realized. Q: The Shanghai Composite is valued at 7.6 times 12-month projected earnings, compared with five-year average multiple of 12.1. Do you see the market sentiment turning any time soon? A: The Chinese macro environment is weak, and the stock market is undervalued. But it's hard to time the market. If the macro issues in the Chinese economy, including bad loans in the banking sector, risks in shadow banking, over-supplies in the property market, are dealt with, they might provide catalysts for the stock market to turn around. Q: Now let's talk about Keywise Capital. Give us a brief introduction of the firm? A: We are a Hong Kong-based hedge fund with US$1.4 billion under management. Our strategy is long-short equities. We typically buy high quality names at reasonable prices, and short those with broken business model or accounting fraud in the Greater China region. Q: A short position Keywise engaged in was China Metal Recycling Holdings, which has been wound up because of accounting fraud. Do you still see many opportunities to short Chinese companies based on accounting fraud? A: Based on my experience and observation, I think there is still widespread accounting abuse among listed (Chinese) companies, even some large ones. There are no strong forces in Asia, in general, to go against those companies. Due to culture issues and regulatory framework, hedge funds here have not been aggressive in pursuing those opportunities. Q: What type of accounting abuse is there? A: For example, revenue recognition. We are seeing some companies booking revenue on a gross revenue basis, which will massively inflate their revenue. A lot of companies also have unfair related party transactions, such as acquisitions. They may be paying inflated price to a small business,

In this episode of China Money Podcast, we feature guest Theodore Shou, chief investment officer at Cape Town, South Africa-based fund of hedge fund manager, Skybound Capital. Shou talked with our host Nina Xiang about his projections for the development of China's hedge fund sector, why he is bullish for China-focused hedge funds' ability to continue to outperform global peers, and why fund-of-funds in emerging markets will remain relevant for limited partners for a long time. Read an excerpt below, but be sure to listen to the full interview in audio, or watch an abbreviated video version. Don't forget to subscribe to the podcast for free in the iTunes store. Q: What do you think are some new exciting policy initiatives in China that will spur the growth of the hedge fund sector here? A: One is the Qualified Domestic Limited Partners (QDLP) scheme that Shanghai initiated about one and half years ago. But it's progressing behind expectations. There are six global hedge fund managers who have been granted the QDLP quota. Also, fifty onshore domestic hedge fund managers are registered with the Asset Management Association of China (AMAC) last week. This is probably the first time that the Chinese regulators are recognizing private collective investment schemes. Previously, it was mostly long-only mutual funds who are recognized. Going forward, I would expect most of the relatively big hedge funds to register with AMAC. Some of the smaller funds will choose not to register, so there will be sort of a differentiation between fund managers. Q: Why do you think the QDLP scheme hasn't progressed as well as expected? A: I think the largest drawback is the lack of transparency from the regulators. The QDLP program was launched some time ago for private equity funds. The rules relating to private equity funds were made clear almost on day one. But when it comes to hedge funds, the effort was mainly led by the Shanghai Municipal Office of Finance Service. It's not at the central government level. No official rules have been laid out by any regulators, and you can't see the name of the six global hedge funds on any official website. As to the six global hedge funds, they have been very quiet regarding their fundraising activities. From other sources of information, I learnt that the Shanghai government is encouraging and facilitating them to raise capital. But the actual situation is very opaque to the outside. Q: What kind of new financial instruments do you think will be launched soon to facilitate hedging strategies? A: In the past few years, we've seen the launch of stock index futures, which allow hedge funds to short the market. More recently, China introduced a pool of single equities that are available for shorting. This pool works very much like a central clearing mechanism, making it easier to monitor and track stock borrowings. That pool has been growing to cover more than 500 stocks. I think single stock options will be launched this year. There are already warrants to retail investors now. Why not introduce better structure instruments for institutional investors. Another key development will be more relevant to large cap and blue chip names. Currently stock trading is settled on T+1 basis, meaning that stocks you buy today will only be settled tomorrow. This year, we think the Chinese exchanges are likely to begin settling trades on a T+0 basis, at least for the top 500 stocks. This will improve the turnover of hedge funds' books. Q: In 2013, China-focused hedge funds outperformed the Hang Seng Index, returning 16.1% on average compared to the index' 0.1% performance. China-focused hedge funds also outperformed global peers. Is this a one-time occurrence? A: Not at all. I think this is a natural outcome from the developments of the Chinese markets and its macro economy. Nowadays, investors are flooded with negative news on China: concerns of a financial crisis,

In this episode of China Money Podcast, our featured guest is Goodwin Gaw, managing principal and founder of Hong Kong-based private real estate management firm, Gaw Capital Partners, which manages US$7.5 billion. Gaw talked with our host, Nina Xiang, about where in the Chinese property market he sees price corrections this year, why his firm is staying on the sidelines investing in Hong Kong, and his thoughts on Gaw Capital's performance. Read an excerpt below, but be sure to listen to the full interview in audio, or watch an abbreviated video version. Don't forget to subscribe to the podcast for free in the iTunes store. Q: Are you concerned about the recent market jitters on the financial health of Chinese property developers? A: In China, you have to go along with the government policy. The government policy now is actually to promote steady growth in the housing sector. Every time when the market goes up too much, the government puts the brakes on. We are in this type of situation where the government is trying to take away excessive liquidity in the market, so that the (housing) prices may correct or slow down. There will be tightening in some of the developers' finances. It's actually a good opportunity for us to put capital to work in China. Q: How big will this type of distressed opportunity be? A: I think it could be quite big. This new government has strong resolution to change the economy structurally, which will create volatility in the market. Particularly in high-end homes in tier I cities where there are a lot of speculative investments, meaningful correction should take place. Q: How big a correction? A: For some of the high-end residential projects in Beijing and Shanghai, a correction of 10% is probably not excessive. I'm less concerned about residential properties in tier II or tier III cities because they are still experiencing high growth. The government policy there is to encourage more supply and better housing to meet housing demand. Q: But you believe that's where troubles in commercial property might be? A: Yes. There have been massive investments in shopping centers and office space in a lot of these tier II and tier III cities. The problem is that these cities are populated more by domestic companies, private entrepreneurs and state-owned enterprises. They historically would rather own their property than rent. So it's harder to build investment grade asset and fill them with enough multinational companies. Q: Any predictions here about the scale of price corrections? A: I would say for the big tier II cities like Chengdu and Nanjing, correction is less. But a 10% to 15% correction is not out of the question in the next five years. (The bigger concern) is the retail property sector in certain cities like Shenyang. I've never seen so many shopping centers in one city. On top of that, Chinese consumers are quickly adopting e-commerce. As a result, there might be a shake up for these type of properties. Q: With your projections in mind, what kind of impact will they have on Chinese banks? A: It may be a little bump. Remember, China is a closed system. Municipal debt is central government debt. Banks are state-owned. Banks lend mostly to SOEs. So it's almost a test of the will of the central government. Do they want someone to fail? As a private businessman, you have to take a bet on the government's resolve. Q: Your bet is that this government will let default happen? A: If they believe it's not contagious, they will probably let some small firms fail. Just to set an example that they are not going to protect everyone. That's purely my own guess. Q: For Hong Kong's property market, do you agree with the mainstream projection that a correction is coming this year? A: Hong Kong's low tax environment, as well as it's currency being pegged to the U.S. dollar and the high-growth economy of mainland China,

In this episode of China Money Podcast, we feature guest Kevin Parker, CEO of New York-based investment management firm, Sustainable Insight Capital Management. From 2004 to 2012, Parker was the global head of Deutsche Asset Management, which managed US$750 billion as of January 2012. Parker shares his thoughts on the growth of sustainable investing, explains why China is setting the global environmental policy this year, and how China is likely to lower the cost of electric vehicle productions going forward. Read an excerpt below, but be sure to listen to the full interview in audio, or watch an abbreviated video version. Don't forget to subscribe to the podcast for free in the iTunes store. Q: Let's start with something fun. You own and have run a bio-dynamic winery in Southern France called Chateau Maris Cru starting from the late 1990s. What's the best and the most difficult part about running your own winery? A: The best part is drinking (the wine), of course. After a career on Wall Street with a telephone in one hand and sitting in front of a computer and moving money around, (it's nice) to make something tangible. Something that people can taste, feel and enjoy. (Our) winery has been bio-dynamic, or organic, for 17 years. Being a sustainable farmer for 17 years gives me certain credibility (to discuss sustainability issues). But it takes about seven years to convert a vineyard away from the use of pesticides, fungicides and synthetic chemicals to a completely natural approach. You see that the soils really come alive. Being a New Yorker and naturally impatient, it taught me something about time and patience. Q: You left Deutsche Bank at 2012, and Sustainable Insight Capital Management (SICM) started operation in February 2013. Tell us some background of your company? A: Back in the early 2000s, many organizations such as the Carbon Disclosure Project, Investor Network Against Climate Risk, popped up to focus on sustainability. Today, there are signatories representing over US$90 trillion that have signed the carbon disclosure principles. There are almost US$40 trillion who have signed the United Nations' principles for responsible investing. Our research shows that managements who are focused on sustainability outperform their peers (financially). But markets are inefficient and are not accurately pricing this factor. Therefore, SICM was founded to capitalize on this opportunity. We believe that the reallocation of capital based on sustainability principles is the only powerful source large enough to solve our environmental problems. We are an asset management business with the backing of two prominent investors in the sustainable investing field. One is The Kresge Foundation; the other is a family office from Palo Alto, California. Currently we have about US$120 million under management. Q: Is it a traditional asset management business? A: At the moment, it is. But on our list of things to do is to introduce alternative (investment funds) as well. Q: Your firm just published a report, in which it forecasts that China is going to set the pace of environmental policy this year. How? A: I think China has been underestimated in terms of the (impact) of its environmental policy. China has created enormous problem for itself. In the theory of the tragedy of the commons, one of the players has to realize that the path they are on leads to their own destruction. Because China has the biggest problem, it leads to a necessity of leadership. Q: And China is investing a huge amount right now. During the 12th Five-Year Plan, the environmental protection sector in China is going to reach RMB5 trillion in market size, and it will grow at about 15% to 20% a year. Are these reasonable projections? A: We haven't looked at China specifically. But globally, it is around US$1 trillion a year (of investments in this sector) required. But during the last several years,

In this episode of China Money Podcast, guest Tim Draper, founder and managing director of Menlo Park, California-based venture capital firm Draper Fisher Jurvetson (DFJ), speaks with our host Nina Xiang about the history of DFJ's investment activities in China, where he is focused on funding the next big tech companies, his big misses in China, and his views on the next tech bubble that he thinks is coming right now. Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store. Q: Let's start with the Macro. Investors, particularly foreign investors, have been concerned about an economic slowdown in China. Do you share that sentiment? A: Even an economic slowdown in China means a growth rate much higher than most of the world. So I'm not concerned at all about a slight lowering of the Chinese growth rate. I actually think that the Chinese economy is one of the most promising in the world. Q: DFJ is closing down its China and India offices. Why? A: We found that we are better off working with affiliates in these countries, rather than (running) DFJ company owned (operations). We have DFJ Dragon, DFJ Compass and DFJ ePlanet in China. We found that trying to make decisions on companies that far away was a very difficult process. We want more local control, so that the local partners can make decisions. DFJ is still very active in China (through our affiliates). It's just that we've made a shift in strategy to make decision-making more local. This does not impact any of our global network (funds), including DFJ Dragon and DFJ Compass. Q: DFJ first entered the Chinese market in 1999 with a partnership with ePlanet Capital, running a US$650 million fund. How did that fund get started? A: I have always wanted to invest in China. In the beginning, we invested in things that seemed to have good government connections. Those didn't work out. Then we started to invest in young, driven entrepreneurs who wanted to make great things happen. Then we invested in Baidu, Focus Media, ePay, Fastweb, Skype, etc. Q: This fund reportedly realized over 30% gross internal rate of return (IRR)? A: We never disclose this information. But the investors are very happy. The IRR would depend on when the investor sold their Baidu (stocks). If they are still holding (those shares), they are doing really, really well. Q: But DFJ ended the partnership, and started DFJ Dragon in 2006. Why did you move on with another partner? A: We had different approaches to venture capital. ePlanet went on to raise their own fund, and we set up DFJ Dragon, DFJ China and DFJ Compass. Q: DFJ Dragon's first fund was a US$200 million vehicle raised in 2006… A: No, it's less than that. Q: Less than US$200 million, and you invested in around 30 companies. What are some proud investments from that fund? Q: YeePay looks very promising. Hudong is exciting too. It's a for-profit Wikipedia in China. Also, advertising network for mobile Donson is growing very quickly too. What's really remarkable about that fund is that…here in Silicon Valley, if we invest in 30 companies, we would expect about half of them to go out of business. But DFJ Dragon only lost one, maybe two companies out of 30. Q: Why do you think that is? A: For one thing, the growth rate in China is providing great opportunities. If their business isn't quite working out, they might change direction a little bit and go after other opportunities. Q: For those companies that didn't work out, what went wrong? A: They tend to be either too early, the founders didn't get along, or they came up with their product and nobody wanted it. So our business is very simple. If the founders are getting along, they keep at it no matter what, don't run out of money, and find a market of customers who they can delight,

In this episode of China Money Podcast, guest Anla Cheng, partner at Sino-Century China Private Equity Partners, talks with our host Nina Xiang, about the importance of protecting intellectual property for companies in China's financial information sector, why she thinks China's IPO market might open sooner than expected, and her hopes for the realization of substantive reforms in China. Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store. Q: Can you give us a brief introduction of Sino-Century China Private Equity Partners? A: Sino-Century was founded in 2005 by three partners. Our founder, Dr. Hong Chang, used to work at the municipality in Pudong, Shanghai. He was one of the 25 financial architects who built the Pudong district. Therefore, he's very close to the build-up of China's financial center. We launched our first RMB fund in 2007 focused on small and medium enterprises (SME). We focus on three sectors: financial information and services, which is the mainstay of our fund. About 50% of our assets are invested in this area. The other two are high-end manufacturing and sustainable environment. Q: Do you currently only manage one fund? A: We are onto our second fund. Our first fund initially planned to raise US$150 million. Then the financial crisis hit and we closed at US$73 million. It is mainly in RMB, but also has about 15% of assets in U.S. dollars. We had several exits already and were hoping for another exit last year. Then the IPO market got closed. But we are on the "queue," of which there are about 800 companies waiting to go public in China. There are about 40 to 80 companies that already received approval to list, one of which is a company we invested in the financial information sector. We are in the final stage of marketing our second fund, which we are targeting US$250 million. It's going to be predominately in U.S. dollars because our founder has always a vision to become an international fund. Q: There are media reports saying that Sino-Century invested RMB84 million in Wind Info for a stake of 7% to 9% in 2007. Are they accurate? A: Yes. Initially, we invested about US$12.7 million for a stake above 7%. Two years after we made the investment, CITIC PE bought a share at about three times of our valuation, and our share got diluted a bit. Q: Intellectual property is critical in this sector. Wind Info has sued competitors for IP infringement last year, and others have sued Wind Info for the same cause. Do you think lawsuits are effective in protecting IPs in China? A: Probably not as effective as in other places, but at least it's a beginning. Wind Info's pending lawsuit (against Zhejiang Hithink Flush Information Network Co.) is dragging on a bit but I believe Wind Info has a strong case. Q: What are some other tactics for companies in China to protect their IPs? A: One thing they could do is to always stay on top of the changing curve, and constantly come up with new products and ideas. Also, if you look at Bloomberg, it probably faced similar issues. But it got very big very quickly through acquisitions. I wouldn't be surprised if Wind Info does the same thing. Q: Among the biggest five companies in China's financial information sector, Wind Info is the only one that remains private. How do you see it evolve in the future? A: Right now, the competitors are more focused on retail, not institutional. Wind Info still has a strong hold among financial institutions. Earlier on, when we initially started working with Wind Info, it wanted to expand to Europe and the U.S. quickly. We advised that it would probably be more prudent to have a foothold in areas within Southeast Asia that read and speak Chinese. So Wind Info expanded into Singapore, Hong Kong and Taiwan first, and then into other regions within Asia.

In this episode of China Money Podcast, returning guest and veteran investor Jim Rogers, chairman of Rogers Holdings, talked with our host Nina Xiang on his reading of China's third plenum meeting, why China should open its financial markets completely "this afternoon", and what Chinese stocks he has been buying lately. Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store. Q: The just completed third plenum meeting provided a road-map for China's future reforms. It created this renewed sense of optimism about China's future. Do you share that feeling? A: I was quite delighted to see what they said. The one overriding point is that the market is going to make the final decision. That is contrary to what is happening in the U.S., and that is why the world is moving to Asia. Q: The policy initiatives may look near perfect on paper, but no doubt the most challenging part will be implementation. What do you see as the biggest risk in implementation? A: In the past few years, the momentum (for reform) in China has slowed because of vested interests and their fear of losing power. The new leadership now says let's move on and just do it. But it won't happen with a snap of the finger. Q: What would you like to see in China's financial reform? A: They should make their currency, the RMB, convertible this afternoon. They started (currency reforms) in 2005 and have taken many small steps. But China is no longer a weak economy. It is the most successful country in the past thirty years. There is nothing to fear. Q: Interest rate liberalization, floating the currency and opening up capital accounts, which one should come first? A: I would think all of the above this afternoon. But they've been very slow and only taken small steps. Deng Xiaoping says you cross a stream by feeling one rock at a time. That's correct. But there comes a time when you get to the other side, and let's move ahead. China is on the other side now. Q: How worried are you about capital outflows if the capital accounts are opened now? A: Of course there will be capital outflows. The RMB may even go down for a while. But just do it and get it over with. There will be a lot of capital inflows as people like me want to put money into China. Have you ever heard of people smuggling money into a country with capital controls? No. People in China are trying to get their money out. But there are also many people who want to rush into China. This is the point of a free and open market. Trust me, it's not the end of the world. The Australians, Germans and Japanese used to worry about (opening up capital accounts). But somehow they all survived. Trillions of dollars flow in and out everyday in the foreign currency market. China will survive too. Q: You have been bullish on the RMB for a long time, but the RMB only appreciated for roughly 12% since 2008. You can't say that it's a great performance as an investment? A: That depends on what you compare with. There are many other currencies that were down. We presume one has earned interest as well even if it's just put into a CD (certificate of deposit). Don't forget that those interests get compounded. But you are right, there are many other investments that could have made a lot more money. But the point is the currency has continued to appreciate and will continue to appreciate. It may be double or triple in the next 10 to 20 years. Q: Are you buying Chinese company shares now? A: Yes. Q: Can you give us a couple of those names? A: I've never bought Chinese domestic A shares in my life because it's always more expensive. But I've been buying H shares and overseas-listed Chinese companies for the first time in a while. One company I bought was HollySys, a supplier of automation and control applications to China's subway and railway sectors.

In this episode of China Money Podcast, our guest is Stephen Roach, current senior fellow at Yale University’s Jackson Institute of Global Affairs and former chairman of Morgan Stanley Asia and the firm's chief economist. He spoke with our host, Nina Xiang, on the Fed's tapering of its quantitative easing programs and its impact on China; a potential U.S. default and what that means for China's over US$3 trillion foreign reserves; and why he believes the fears of a China slowdown are vastly overblown. Listen to the full interview in the audio podcast, watch an abbreviated video version (coming soon) or read an excerpt below. Be sure to subscribe to the podcast in the iTunes store. Q: What impact will the U.S. Federal Reserve's reduction of its quantitative easing (QE) programs have on China? A: The policy experiment of the Fed is very risky. It's untested. It's unconventional. In my view, it's a big mistake. Initially, the policy grew out of a deep and legitimate concern of the U.S. and the world economy in crisis. Lacking a leeway in cutting interest rates, which were near zero, the Fed embarked on asset purchases, or liquidity injections. The Fed continued to do it even as the crisis ended and the economy attempted to recover. Last month, when the Fed surprised the market by backing off from QE, it found out that it might be difficult to get out from what could be a "policy trap" that it set itself. China would be adversely impacted if the global economy were dealt a blow by the Fed's policy withdrawal. Where China is exposed to any direct impact (from the U.S.) is if the U.S. were to default on its sovereign debt. China, with its US$3.25 trillion foreign exchange reserves and the biggest share being U.S. dollar assets, could be hit very hard. Q: With the U.S. in the middle of a government shutdown, can you walk us through what you think is the worst-case scenario if a U.S. default takes place? A: It's pretty straightforward. The yields of U.S. treasuries will go up. They will no longer be given the premium of the riskless assets that lies at the core of the world's financial systems. How much it will go up, for how long? It's hard to know. That would certainly result in a loss in the value of any Treasury-based securities. Q: If you were the governor of the People's Bank of China (PBOC), how would you manage China's foreign reserves differently? A: The dollar-denominated concentration of China's reserves is very much tied to the currency policy of the PBOC. If the Chinese government were to significantly reduce their exposure to U.S. dollar-based assets, then the RMB would rise, possibly significantly, against the U.S. dollar. The RMB has risen close to 35% against the U.S. dollar since mid-2005. The Chinese exporters have dealt with it well and managed to maintain their competitiveness. If there were to be a sharp further appreciation of the RMB because of a U.S. default or other reasons, it would put pressure on Chinese exporters. A U.S. default, which I still believe is a low probability outcome for a sustained period of time, or intensification of U.S. trade frictions that could cause retaliatory reactions from the Chinese, could cause the RMB to appreciate suddenly. But ultimately, I think the best case is to expect gradual further appreciation of the RMB. Q: What policy initiative would you like to see coming from the Third Plenum of the Party Congress in November? A: I like to see initiatives aimed at providing broader support to Chinese consumers. The top of my list is to inject public funds into the social safety net institutions like social security and healthcare. The enrollment has increased a lot, but the assets in these plans are small and the benefit streams are limited. I like to see interest rate liberalization for deposits, and I'd like to see Hukou reform. Q: About China's property market, when do you think the bubble will burst?

In this episode of China Money Podcast, guest William Shen, senior partner and head of Greater China at Headland Capital Partners, talks with our host Nina Xiang, about why he sees 4S automotive dealerships in China as the next great opportunity, how Chinese consumers are changing, and what the impact of the economic slowdown has on Headland's investments. Listen to the full interview in the audio podcast, watch an abbreviated video version or read an excerpt below. Be sure to subscribe to the podcast in the iTunes store. Q: Can you give us a brief introduction of Headland Capital? A: Headland Capital was established in 1988. For the past 25 years, we have invested an aggregate of US$2.7 billion into around 150 companies based in Greater China, South Korea and Southeast Asia. Our main focus is either providing growth capital for high growth companies or helping companies perform buyouts. We were part of the HSBC Group and did a spin out in 2010. Q: Headland has invested heavily in the Chinese consumer sector. How has the economic slowdown impacted the companies you've invested in? A: The Chinese consumers are still consuming. We are still talking about double-digit annual growth in retail sales. But there are far more choices today than five years ago. If someone's total budget for clothing, for example, has increased 40% or 50% than five years ago, the amount of choices may have doubled or tripled during the same time. Therefore, as a brand, maintaining their market share becomes more challenging. For example, in the apparel industry, the old model of operation is to use a good brand sponsor, advertise on TV and sell your products via a wholesale model. You, as the brand owner, do not operate the retail outlets. You rely on a few thousand wholesale distributors across China to sell your products. In the old days, when choices were few, this model worked for well-managed brands. But with the influx of fast fashion and foreign brands, consumers are becoming far more discerning. So without decent control at the retail level, you wouldn't know which design is selling faster or slower, and inevitably there will be inventory buildup. So in order to do well in the apparel industry, you need to operate your own stores or work very closely with selected distributors today. Q: So the consumer companies you've invested in, did they experience a dip in sales? A: Sales are still growing but at a slower rate since 2011 and 2012. It's keeping a steady rate now. Under this operating environment, if you try to make your shareholders happy by beating industry benchmark, eventually you could get into trouble. Because the demand is just that much. So under the current environment, what we need is steady growth in revenue but more focused on operational efficiency. Q: What do you mean by steady growth? A: Let's take the example of Yonghui Superstores. It was growing at a compound annual growth (CAGR) of 40% to 45% before 2010. Last year, growth moderated to 40% or slightly lower than 40%. This year, growth slowed to 23% during the first half. Obviously, as your base gets bigger, your growth rate should slow down. But even from same store sales growth, it has slowed. But I think it's important that you don't pursue growth for the sake of growth. Q: With the Chinese consumers changing, where do you see great future investment opportunities in this sector? A: We feel one type of company that can reach gross revenue of more than US$10 billion is in the luxury auto sales market, meaning the 4S auto dealerships. 4S stands for Sales, Service, Spare parts and Survey, so it's not just about new car sales. A very well-managed hyper market could potentially generate RMB500,000 to RMB600,000 on a daily basis. In China, a 4S store is affiliated with certain brands, such as BMW or Audi. But a group operator can simultaneously run multiple brands. Q: How fragmented is this market in China?

In this episode of China Money Podcast, guest Arthur Kroeber, founding partner of GK Dragonomics, talks with our host Nina Xiang, about why he's less optimistic about China's growth in the next couple of years, how the alarmist headlines about capital outflows from China is overdone, and why the 7% number that everyone believes to be the minimum rate required to provide sufficient employment for China's labor force is total nonsense. Listen to the full interview in the audio podcast, watch an abbreviated video version or read an excerpt below. Q: Lately, there have been some media stories on capital outflows, or even capital flight, out of China. How concerned are you about this possibility? A: I'm not terribly concerned for two reasons. One is that the Chinese government still maintains significant capital control measures. There have been some talks that the government will eliminate these controls in the next few years, but I think it's unlikely. The broader point is that China has been used to having one-way capital flows for a long time. Everybody wanted to get their money into China, no one wanted to take it out. Many people thought it's a big problem for the world that China was like a Hotel California for capital: you could check in, but you could never check out. But now we are seeing capital flows in both ways, and with various volumes. Foreign reserve accumulation slowed down dramatically. Lately, we saw some net capital outflows. But this is part of the normal process of the economy adjusting from rapid economic growth on intensive investments to a slower one that's more consumer-driven. Q: What are the specific capital control measures in place right now? A: It's very difficult for Chinese institutions and individuals to move money out of China. Any outflow is regulated under the qualified domestic institutional investor program (QDII) and limited by an annual quota. For individuals, it's close to impossible to move large amounts of money offshore. Chinese companies have been going out to do mergers and acquisitions or greenfield investment overseas. The outward foreign direct investment now runs somewhere between US$50 billion to US$80 billion a year. These are regular capital outflows for every economy. The only concern is if people lose confidence in the economy and everyone takes his or her money out. But that's a very remote possibility. Q: During the Asian Financial Crisis in 1997, some Southeast Asian countries had foreign debt-to-GDP ratios well above 100%. What are some factors that caused the Asian Financial Crisis but are not existent in China right now? A: I think the similarity between the two is that both had incredibly high investment-led growth for a long time. But the differences are huge. First of all, the Asian economies were mainly running current account deficits in the 1990s. China has been running a very sustained current account surplus. Secondly, the Asian countries did a lot of external borrowings, while China has basically none. Finally, China's domestic financial system has a lot of liquidity across diversified assets. That's not the case back in 1997. Q: What would make you become concerned about capital outflow getting out of control in the future? A: On the domestic front, if you see a continued rapid increase of credit-to-GDP ratio, then I'd be concerned that the foundation of China's growth is unstable. That could lead to economic malaise and make people want to put money elsewhere. The second concern is if the government relaxes capital control measures too early. Historically, some sort of financial turbulence usually follows the freeing of interest rates. China is in the process of liberalizing its interest rates now. Any problem caused by interest rate liberalization can be contained with capital control in place. But if capital control is loosened too early, that could lead to problems.

http://www.youtube.com/watch?v=5LAiHWAvIMk In this edition of China Money Network, Tian X. Hou, founder and CEO of T.H. Capital, shares her thoughts on why Qihoo's stock is just starting a major bull run, why Sina is undervalued and what Baidu should do to advance forward in a mobile world. Listen to the full interview in the audio podcast, watch an abbreviated video version or read an excerpt below. Q: How will China's economic slowdown impact Chinese overseas listed Internet stocks? A: Not that much. The Chinese Internet companies raise money from private funds and public markets. They spend their money buying advertising and traffic online. So the Internet becomes a self-feeding economy. China's credit crunch and liquidity issues have little to do with Chinese Internet companies. Q: In May, Qihoo 360's stocks were trading just above US$40, and you had a buy rating with a price target of US$52. Today, the stock is trading around US$51. Where do you think it will go next? A: Currently, we are using 2014 earning projections. I think if we use forecast numbers further out, we could see the stock trading between US$67 and US$87 at the end of next year. Qihoo's strength comes from several places. One is its monopoly in PC security software, or its anti-virus software. It's literally used on every single PC in China. When users install the software, they are asked to use Qihoo's browser and set up a Qihoo personal page. This set-up enables Qihoo to gain search market share in a second. Qihoo launched search service last August. Over night, it gained 8% market share. Today, it has 16% of the search market. Another strength is Qihoo's web game hosting business. Because they have a lot of traffic, they are able to sell traffic to web game owners or developers. Even though each web game may be small, but the aggregate of all the games is huge. As the host, Qihoo is growing this business very rapidly. Lastly, Qihoo's Android app store is number one in China with 110,000 apps and billions of downloads. Just two months ago, it was number two. Qihoo can do two things with this platform. It distributes enterprises' mobile apps. Everybody needs a channel to distribute their apps. Qihoo plays that role and charge money. Qihoo also operates a mobile game hosting service. It's similar to web game hosting service but on mobile. There is great revenue potential in this business as well. So Qihoo's potential growth is just starting and the company is in a fast-moving upward trend. Q: What are some major risks you see with the company? A: The company could raise more money in a secondary offering, or they could buy other companies. These could cause the stock to set back temporarily. Also, the strong personality of Qihoo's CEO Zhou Hongyi could potentially create issues for the company. Q: For Sina, you've had a price target of US$89 for some time, but the stock seems to suffer from a lack of direction. It's currently around US$55. Are you still holding on to your projection? A: Very much. All the Chinese stocks that we recommended "buy" have enjoyed a good run. Sina is the only exception. Sina's Weibo is more than social media. It has a very authentic user base. Sina somehow thought it could monetize Weibo quickly so monetization schedule got pushed back several times. Some investors therefore doubt whether Sina can monetize Weibo. Weibo's traffic, including mobile, is 1 billion times a day. That compares with 800 million for Baidu and 400 million for Alibaba's Taobao. But if you look at advertisers, Baidu has about 400,000, Alibaba has almost 800,000 vendors. Weibo's advertisers are negligible. If we look at Weibo's recent strategic alliance with Alibaba, the potential value creation is being under-estimated. What you see now, display of Taobao vendors on Weibo, is just regular traffic direction. There will be another potential revenue source coming from a specially designed product that is...

http://www.youtube.com/watch?v=e__tu2rWRew In this episode of China Money Podcast, co-founder of Amalfi Capital, Tristen Langley, talks with our host, Nina Xiang, on Alibaba Group's US$586 million acquisition of an 18% stake of Sina's Weibo, her investment firm's winning and losing bets, and the future challenges facing China's e-commerce industry. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt below. Q: Alibaba Group just bought 18% of Sina's Weibo for US$586 million, valuing the Chinese twitter-like site at US$3 billion. Do you think it's a fair valuation? A: Weibo has almost 500 million users, and is still growing. Compared to Twitter and other U.S. comparable, the valuation is probably modest. But this is a very strategic alliance. So a lot of the valuation is driven by Alibaba's motivation to leverage Weibo's audience. It's estimated that 14% of Weibo's traffic is being pushed onto Alibaba's Taobao site. That sort of potential synergy makes the valuation very reasonable for Alibaba. Q: Sina expects that the new strategic alliance will generate US$380 million in extra revenue over the next 3 years. Do you think users' habits will be changed? A: Any group who communicates on a free platform and doesn't expect to be marketed to can be disengaged (when there is an effort to sell products to them). But by this alliance, Taobao has an opportunity to innovate around product discovery (among Chinese consumers). I think the ways consumers become aware of products still haven't been fully explored in China. Another thing is, Alibaba has a lot of cash. I did a quick tally of Tencent, Netease, Baidu, Focus Media, Qihu, Sina and Alibaba, there are all together US$13 billion of cash sitting on their balance sheet. Q: Where do you see as some good new venues for these companies to invest the cash? A: We've seen (misjudgment) over time. Netease, for example, was putting their cash towards pig farms in 2010. Thank goodness that Netease is now looking to develop their own content and games. So I think the cash should go into their own innovations. It's estimated that about 18% of the options from 2010 to 2012 were given to Weibo's management team as an incentive to create value in essentially a start-up within a big public company. Tencent has proven that this kind of investment (into start-ups within a big company) can have a clear internal rate of return (IRR) and be extremely advantageous. Q: Alibaba is facing competition on all fronts. How do you see China's e-commerce industry's competitive landscape evolving in the next few years? A: The offline and online worlds are going to meet in ways that present unprecedented challenges. For example, Suning Appliance bought Redbaby, an online e-commerce site for baby goods and now expanded to other products. Redbaby started from catalog services, developed into online e-commerce, to telephone ordering. This merger with Suning will present extreme challenges just integrating the back-end systems. But Alibaba and Taobao are still well ahead of the game. It's up for others to catch up, form alliances to take on the gorilla in the room. Q: Tell us some background on Amalfi Capital that you co-founded? A: Amalfi Capital is a global technology investment fund with a long-short equity strategy. Co-founder, Paul Waide, and myself founded the firm in 2010. We interview around 500 entrepreneurs, engineers and CEOs from around the world every year. We build this thematic approach to profile about 50 companies from that group. Then we choose about 20 to 30 companies that we invest in. Our portfolio has a 60% to 80% exposure in China. Q: When you were working at venture capital firm, DFJ (Draper Fisher Jurvetson), you led its investment in Skype. What was the most difficult judgment you had to make at that time? A: Back in 2003 when Skype was launched, Voice-over-IP was nothing new.

http://www.youtube.com/watch?v=U3maSJJfaiQ In this episode of China Money Podcast, founder and CEO of Beijing-headquartered, US$500 million-under-management HAO Capital, Simon Eckersley, talks with our host, Nina Xiang, on HAO Capital's investments in the healthcare and environmental protection sectors, the firm's plans for future fundraising, and some key methods it uses to help portfolio companies grow. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt below. Q: First, give us a brief introduction of HAO Capital? A: HAO Capital is a Beijing-based private equity firm. We take minority stakes in growth businesses in China, and focus on healthcare, consumer and light industrial (including clean tech) sectors. We started raising our first fund in 2005, and closed in 2007 with US$100 million. We raised our second fund of US$400 million from 2007 to 2008. We've done a number of co-investments worth around US$50 million as well, so we currently manage over US$500 million. Q: Going back in history, can you share with us your experience of raising your first fund back in 2005 and 2006? A: At the time, there was less competition in terms of the number of (China-focused) funds. But then, a lot of LPs (Limited Partners) were also not really focused on China, as it's still a fledgling private equity market. It's different today. Looking at our own LPs, they are invested in (many more) China funds compared to back then. Q: What is the average size of your investment, and how many active investments do you have now? A: On average, we look at investments in the US$20 million to US$50 million range. We currently have 14 active investments between the two funds. The first fund is almost fully paid back. We've exited a lot of the investments from that 2006 and 2007 investment vintage, and are only managing a couple of investments from that fund. We started investing the second fund in 2008, and is now about 80% invested. We've exited or partially exited a couple of investments, but are still managing most of that portfolio. Q: And one of the portfolio companies is SKR, a company focused on diagnostic imaging medical equipment. It has a joint venture with Chinese electronics maker, TCL Corp. Can you share with us the latest on this investment? A: The per capita spending on medical equipment in China is a few dollars compared with hundreds of dollars in the developed countries. It's obvious that China's healthcare market has enormous potential for growth. But there are actually very few medical equipment companies of any scale in China. There are a lot of small regional companies. Many of them don't have the research capabilities to develop Generation II or Generation III products after launching Generation I products. They also tend to lack management talent. Today, the high-end medical equipment market in China, such as MIR, PET-CT scan, ultrasound, is really controlled by GE, Philips and Siemens. They take, in certain subcategories, 75% to 100% of the market share. So, we partnered with a group of executives headed by Zhi Chen, former president of GE Healthcare in China, to form SKR. And SKR has a joint venture with well-known Chinese consumer product manufacturer, TCL Corp., to create TCL healthcare whose vision is to enter that high-end medical equipment market and become a national champion. Several decades ago, GE, Philips and Siemens, all moved from consumer products to healthcare equipment, leveraging their manufacturing capabilities, brand and scale. So from TCL Corp.'s perspective, it is following the trajectories of its Western predecessors. One of the central themes for this business' growth is through acquisition. That's something we have been focusing on during the past six months. There are a number of opportunities that we are in the process to realize and will give a significant boost to the business.

http://www.youtube.com/watch?v=NUmWy3CI8XQ In this episode of China Money Podcast, head of non-listed real estate Asia in APG, one of the largest pension fund asset managers in the world with assets under management of approximately €325 billion, Daan van Aert, discusses with our host, Nina Xiang, APG's investments in China such as car parks and logistic warehouses, his views on the Chinese residential property market and if distressed properties in China present good opportunities for investors. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt below. Q: APG is one of the largest pension fund asset managers in the world with €325 billion under management. Give us some background on AGP's investments in Asia, and what kind of role does Asian real estate play in APG's overall strategy in Asia? A: APG started an office in Hong Kong in 2007 with a mandate for private equity real estate and infrastructure investments. Shortly after, we expanded our team to include listed real estate equity and emerging market equity. Since we started, our portfolio in Asia has grown from €1 billion to €9 billion under management. Of the €9 billion assets currently under management, €6 billion is in both listed (€4 billion) and private (€2 billion) real estate. In terms of geographical breakdown, about 70% to 75% of our total real estate portfolio is in developed markets such as Japan, Hong Kong and Australia. The rest is in emerging markets, and China takes about half of this portion. Q: How much capital are you deploying every year into private real estate? A: We don't have a target. What we do is to look at our already large existing portfolio and focus on strategies and the right partners to add value. If we can find interesting strategies and strong partners, then we will invest more money. During the last few years, we have been investing considerable amount of money continuously. Our real estate portfolio has grown from €1 billion in 2007 to €6 billion, from both investment appreciation and new allocations. That gives you a sense of our growth. Q: What is the average size of your investments and how many investments do you usually keep in your portfolio? A: We serve very large institutional clients, therefore we won't look at transactions under US$75 million. In terms of the number of investments we have, we don't really have any preferences, as our global real estate portfolio is already very diversified. Q: Among some major categories of real estate: residential, retail, office buildings, logistics, which segment(s) do you find the most attractive in China right now? A: We think logistic warehouses are the most attractive sector. China's strong growth - not only in imports and exports, but also in domestic consumption - is leading to enormous amount of flow of goods. The need for quality logistic warehousing is gigantic. In addition, the amount of capital spending for developing logistic warehouses is less compared with office buildings and retail properties, for example. The challenge is that it's difficult to buy land to develop logistic warehouses, as the land sales and tax revenues are less attractive to local governments. We have already invested in a logistic property in Shanghai, and we think there is still room to increase our investments in this category. Q: You've invested in Australian logistics properties, Indian hotels and car parks in China. Are there any sectors that you would avoid in China now? A: In general, we are less interested in the office sector because of its cyclical nature. In China, you usually cannot buy and hold a whole office building because lots of transactions are what we call "strata title sales," where the developers are selling the building floor by floor. This makes it harder to buy and manage a whole building, and creates difficulties later on when you want to sell.

http://www.youtube.com/watch?v=6wlELp1QMI8 In this episode of China Money Podcast, guest Chenggang Jerry Wu, principal investment officer of IFC's (International Finance Corporation) climate change fund, discusses IFC's commitment to Chinese private equity funds in the climate change sector, the new opportunities arising from China's pollution treatment efforts, and what he looks for in a first-time fund manager. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt. Q: Can you first give us a brief introduction of IFC's climate change fund and your role in managing the fund? A: IFC is the largest multilateral organization focused on emerging markets' private sectors. We invest more than US$10 billion a year into private sectors across emerging markets. We started investing in private equity funds in 2000, and have invested in more than 130 funds in emerging markets. I believe IFC invested in roughly 10% of all the private equity funds ever existed in emerging markets. We currently have an active portfolio of more than US$2 billion. Clean tech and energy efficiency is one of our focuses in our private equity investments. IFC started investing in these areas in 2007. Up until now, we have invested in 17 funds in total, and on average we invest in three to four funds per year. The main focus includes traditional clean tech, renewable energy (both upstream manufacturing and downstream power generation), and all sorts of resource efficiency and environmental services (such as recycling, water efficiency, sustainable agriculture and sustainable forestry). IFC has a subsidiary called IFC Asset Management Co., which is a fund manager that leverages IFC's own expertise and resources with the capacity to raise funds from third party investors. IFC Asset Management Co. set up a Fund of Funds (officially called the Climate Catalyst Fund), which just had its first closing of US$500 million, to invest in climate change funds. IFC put US$75 million into it, and it will do further fundraising in the future. I'm not directly managing that FoF. I started in the current position in 2011, and my role is to provide pipeline and resources of the IFC to the FoF, so that they can decide whether to co-invest with IFC or not. I also manage IFC's own investments in the climate change area. Q: On IFC's website, it describes the IFC Climate Catalyst Fund as part of IFC's strategic focus on addressing climate change across emerging markets. Specially in China, what investments have you made? A: Given our investment focus, you can probably guess that China is the largest focus of the fund's portfolio. Up until now, roughly 30% to 40% of the fund's portfolio is focused on China. Our focus includes environmental services, waste recycling, renewable energy and energy efficiency. We have also invested in funds investing in water efficiency, water recycling and water treatment. As you may know, the clean tech and renewable energy sector in China has gone through tremendous adjustments during the past two years. The issue of overcapacity, the European debt crisis and changes in subsidy schemes in Europe have negatively impacted China's export-oriented clean tech sector, especially the solar sector, and to a less extent, the wind sector. A large number of Chinese companies will not survive. But I believe we are at the end of the adjustment, and in fact, it may be a good time to get into the sector again. Moreover, given the recent headlines about China's (grave) pollution situation, we see this area as having great potential. The new leadership will take pollution treatment seriously. Q: Do you invest only in private equity funds, or individual projects, or both? A: IFC does both. For myself, I invest only in private equity funds. We prefer to avoid venture capital funds because intellectual property rights are often at the risk of compromise in emerging markets.