Is Having a "News Service" Enough?

Great news! A new service will provide in-depth business news about China in English. Unfortunately, this is just a rehash of an experiment that's been tried before, and failed.

Cai Business Indepth (CBID) has been launched in Hong Kong to provide dedicated English-language coverage of the China market, and boasts a staff of 30. (See www.chinaindepth.com) Affiliated news outlets (The Hong Kong Economic Journal, Caijing) will support the effort.

The effort is laudable but is doomed to failure. It has two big problems. First, although it plans a modest investment in resources (i.e. a reporting staff numbering several dozen) to generate content, it does not have a credible plan to pursue financial reporting in China. To bore through the obstacles that exist in China today to getting at the details of critical stories, it would take several dozen investigative teams with a broad mandate and a very unusual combination of ingenuity and tenacity.

The other problem is the business model. CBID expects to sell subscriptions at $250/month to businesses. This is a daring expectation, and could very well be a real value to many businesses -- if the reporting involved was truly revealing and advantage-imparting. Unfortunately, there is no indication that CBID will be in the position within the foreseeable future to provide such reporting.

Don't take my word for it: this exact model was attempted over a decade ago in Chicago by an outlet called China Online. Same blah content, same lack of incentive for corporate subscribers.

What CBID -- or any outlet like it -- needs to succeed is simple: some good old fashioned muckraking. That means investigative reporting that gets at the tough truths, plus a connnection to a broad reading public that is avidly consuming that reporting, and offering feedback on what really matters. In short, the reporting needs to foment, to be part of, and to derive strength from a larger public conversation.

Is there a chance of that happening any time soon in the China market? I don't think so . . . .

China: What Would Warren Buffet Do?

I've spent a fair amount of my career doing business with China. For some years now, I've felt that the market at large is out-of-step with any realistic view of the situation on the ground in China.

Most of my views are grounded in the simple proposition that an information environment in which free expression is sharply curtailed ultimately has increased risk and/or decreased opportunities for returns. I wrote about this at length in my general blog several months ago. I also believe that the reason the Chinese currency is weak is not so much that the government is artifically depressing it, but that it is inherently weak -- there's just not that much worth doing with it, relative to options in other parts of the world, with other currencies!

The spectacular growth of the Chinese economy and the near-universal fever of foreign investors to get into China frequently makes me wonder whether I'm just getting cranky in my old age. Moreover, the intense scrutiny that so many economists have placed on the Chinese RMB, without any of them adopting my position, makes me wonder whether I'm way off base.

However,the recent spate of problems at the giant assembler Foxconn and the strikes at Honda's transmission plant in China are finally leading some observers to point out that maybe the jig is up in China. In particular, they are asking, "Did you think people there were going to work for a pittance forever?" Bearish sentiment on China seems to be emerging.

What prompted me to launch a blog dedicated to China was the news today that the Agricultural Bank of China had a successful $19 billion IPO. It struck me that this is a perfect illustration of my belief that no one is paying attention to fundamentals in the China market. As the New York Times reported, the bank has needed to be bailed out by the Chinese government to the tune of $50 billion about ten years ago, and assumed $120 billion of the bank's bad loans two years ago. The quality of the remaining assets the bank owns is unknowable. (See "information environment," above.) The bank's customers are . . . farmers.

I'm trying to think of a reason a prudent investor -- a Warren Buffett, say -- would take up the shares of the Agricultural Bank IPO. Maybe there's some simple, fundamental-based explanation I'm missing? Maybe, even considering everything, the value to the investor is positive? I posed this question to a friend who watches the China business scene carefully. "Before I go out on a limb," I said, "Can you backstop me? Can you think of any reason, given the history of bad loans they have had to be bailed out of, and their lack of a path forward, that it makes any sense for the public to take up these shares??" The answer I got back? "I'm flabbergasted that they seem to have gotten this done . . . ." Well, I guess I'm not the only one who's cranky about China!