April 25, 2017

If you were to read only one thing…

WSJ – ‘Apartheid Without the Racism’: How China Keeps Rural Folks Down – Mark Magnier 4/24

  • “An epic property boom restricted to city dwellers has opened a wealth gap that continues to widen in China, setting back a state campaign to ease poverty and shunting rural dwellers from the middle-class dream.”
  • “China’s system of hukou, or household registration, a decades-old legacy of the planned economy, binds most Chinese to their place of birth, and denies those outside China’s booming megacities the right to buy property inside them.”
  • “That has largely shut them out of one of history’s biggest wealth transfers: 98% of Chinese housing is now in private hands from virtually none a generation ago. Over the past decade, housing prices have increased as much as 700% in cities like Beijing and Shanghai. Property now accounts for 70% of personal wealth in the country.
  • “’Housing is everything in China,’ said Li Gan, a professor at Southwestern University of Finance and Economics. Unless the Communist Party privatizes land, which is unlikely, farmers will continue to lose ground, he said.”
  • “In 1978, when China embarked on economic overhauls, city dwellers earned about twice as much as rural residents; they now earn about 3.5 times as much, according to a study released in April by Paris School of Economics professor Thomas Piketty and World Bank consultant Li Yang.”
  • “Studies by the Asian Development Bank and the University of Michigan suggest China’s rich-poor gap is even higher once property and hukou status are taken into account. ‘The urban-rural wealth divide is much greater than the income divide,’ Southwestern University’s Mr. Gan said.”
  • “Often, the difference comes down to a line on a map.”
  • Across China, urban residents accumulated wealth at twice the rate of rural dwellers between 2002 and 2010, leaving city dwellers with a nest egg six times larger, mostly because of housing, according to a 2015 study by Shi Li and Haiyuan Wan in China Economic Journal.”
  • “The opportunity cost of a rural background becomes even starker when considering the insider deals handed to urbanites who lived in apartments associated with their government jobs when China started to privatize housing.”
  • “China has for decades talked about overhauling the hukou system, which economists say undercuts economic growth. Political resistance is strong as city officials balk at providing services to more people.”
  • “’The hukou system is kind of like apartheid without the racism,’ said Scott Kennedy, a China expert with the Center for Strategic and International Studies. ‘The life chances of rural and urban Chinese are vastly different.'”
  • “Beyond access to appreciating property markets, rural residents are also boxed out of good schooling and a range of other services in major cities.”

Worthy Insights / Opinion Pieces / Advice

FT – Can the bankers sell Saudi Aramco? – Nick Butler 4/23

Real Estate

FT- Why are hedge funds raising their bets against US shopping malls? – Miles Johnson 4/24

  • “The logic of the trade is simple: the financial health of mall operators is ultimately decided by their tenants and eventually the wider market will wake up to this. It hinges on one fairly simple idea – that the broadly held belief that ‘A’ malls are different to other malls is a fallacy. The hedge funds believe that, when reality dawns that many of the largest tenants of prime malls are also experiencing difficulties, their shares will experience a violent downward re-rating.”


Vanity Fair – Jack Ma to World: Prepare for Decades of Pain – Maya Kosoff 4/24

  • “Ma warned… that the education system must change to account for seismic advancements in technology – including artificial intelligence, robotics, and manufacturing automation – that will disrupt the labor market and create massive societal upheaval.”

WSJ – Once-Flush Startups Struggle to Stay Alive as Investors Get Pickier – Eliot Brown 4/23

  • “In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.”
  • “For some startups, investor demand is still robust. Much of the money still being invested is pouring into the upper echelon of highly valued startups like Airbnb Inc. and WeWork Cos., or younger ones with clear paths to profit.”
  • “Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.”
  • “But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers.”
  • “’They’re like the walking dead,’ said David Cowan, a partner at Bessemer Venture Partners, who expects a steady stream of failures.”
  • “In 2014 and 2015, more than 5,000 U.S. tech startups collectively raised about $75 billion, according to Dow Jones VentureSource—the largest amount in any two-year period since the dot-com boom.”
  • “Much of that money went to a small share of tech startups: 294 such companies raised at least $50 million apiece. Almost three-quarters of those companies—216—have neither raised money nor been acquired since the end of 2015. Startups tend to raise funding every 12 to 18 months.”
  • “Seemingly every week lately, a well-funded startup is slashing jobs or pulling the plug.”
  • “In recent months, mobile-search startup Quixey Inc. shut down after raising over $100 million, health-benefits broker Zenefits—which has raised more than $500 million—laid off nearly half of its staff, and blogging platform Medium cut one-third of its employees after raising $132 million.”


FT – Kaisa Group’s recovery suggests investors have selective memories – Tom Mitchell 4/25

  • “Put another way, would you buy the bonds or shares of a company that admitted just five months ago that it cannot explain how almost $9bn flowed into and out of its coffers over the course of three financial years?”
  • “In Kaisa’s case, following the money is like wandering through a maze with many dead ends… the number of still unanswered questions is shocking. The Rmb35bn in borrowings – tapped from unidentified ‘non-bank financial institutions’ – flowed into Kaisa at a time when investors were increasingly worried about the gearing of Chinese property developers.”


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