However, this appears not to be the case. I often glance at Chinese stocks, mostly the 30 or so that are traded in the US. A good example is Jinpan International (JST) which makes power transformers and distributors for electical grids in China. I was looking at this earlier in the year when it appeared to be cheap on conventional stock measures (price-to-earnings, etc.). I appears on the face of it to be a no-brainer in terms of potential because China is expected to have a huge demand for power over our lifetimes. However, I was having a difficult time coming up with solid information about this company either from its website or from financials (this is not solely a language problem because I do speak and read some Chinese). Something didn't smell right. Then this past August came the following announcement:
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Jinpan International Limited (AMEX Ticker Symbol 'JST') Announces Resignation of Chief Financial Officer
Updated: Friday, August 16, 2002 10:25 AM ET
HAINAN, China, Aug. 16 /PRNewswire-FirstCall/ -- Jinpan International Limited (Amex: JST, news), a British Virgin Islands corporation listed on the American Stock Exchange (the "Company") announced that on August 15, 2002, Grace Zhu resigned as CFO of the Company.
Jinpan International Limited wishes Ms. Zhu all the success for the future.
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This announcements sets off giant alarm bells ringing in my head. No detail of what has been going on with the company's finances, and no press releases since August.
It's the corruption, stupid!
An analogy I would like to give for China today is fin-de-siecle France in the late 18th Century. A basically rich country heading towards revolutionary turmoil. I know that China is a "been there, done that" country in terms of revolutions, but the corruption even by the government's own admissions there is a gigantic problem.
No matter whether China *in aggregate* becomes powerful economcally (in terms of semiconductors made or steel tons shipped) the surplus of its economy is going to be entirely siphoned off by a parasitic class of communists and criminals (actually one in the same).
Until their regulatory/governmental system is completely revamped I believe that
1) Most stock investors there will have their money stolen from them over time
2) Most foreign direct investors there will have their trade secrets pilfered
Yes, some American companies are making good margins out of China through the global trade system (Wal-Mart, which books the difference from cheap Chinese labor, etc.), but their investments there could come back to haunt them in the long run.
Fasten your seatbelts!
Something very weird is going on with their banks. In Beijing and Shanghai every third building is a bank. Who needs that many banks and what are they doing??
Of course, America has *institutionalized* corruption in our banking system. Folks like JP Morgan and Fannie Mae are happy to take private profit while the risks are "socialized".
To the best of my knowledge, Walmart doesn't manufacture in Red China or sell into the Red Chinese market. Buying stuff from China and selling it into the home market has been a successful strategy for centuries (with periodic time outs for wars and revolutions.)
The flip side based on what I can recall is that selling into China or attempting to manufacture there has rarely been successful. The most notable "success story" was the opium trade.
American corporations are gaga about Red China, but the optomism is precisely that ... and a boat load of optomism and a hundred dollars will buy you thousands of shares of what were once considered promising tech stocks.