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http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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Industry is moving west and money is flowing into those areas -- no question, says Singapore-based Mark Mobius, executive director of Templeton Asset Managements emerging- markets group. But in one fell swoop, bad loans can wipe out any profits you make. Mobius, who manages $50 billion, holds just $9.6 million worth of Agricultural Bank stock, according to data compiled by Bloomberg.
Big Banks
The economic health of China -- and its banks -- is increasingly important as the world economy teeters on the brink of another financial crisis. China has accounted for more than 40 percent of global growth since 2008, according to Bloomberg data. It holds 31 percent of all foreign reserves. Of the worlds seven biggest banks by market capitalization, four are Chinese. Agricultural Bank, with a market value of $136 billion, ranks No. 3 in China, behind Industrial & Commercial Bank of China (601398) Ltd. and China Construction Bank Corp. (939), and vies for fourth in the world with Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) After three decades of searing growth that has averaged 10 percent a year, the country as a whole will grow at 8 or 9 percent in the second half of this year and in 2012, according to Qu Hongbin, Hong Kong-based chief economist for China at HSBC Holdings Plc. (HSBA)Year-over-year growth in the third quarter fell to 9.1 percent, Chinas National Bureau of Statistics reported on Oct. 18. Investors polled in a Bloomberg survey in September said they expect China to grow only 5 percent annually by 2016, half the current rate.
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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City of 33 Million
Even the relentless migration of Chinese from the countryside to the city is occurring at a faster rate in inland areas, which house some of the countrys great conurbations as well as the farmland that feeds the worlds largest population. From 2005 to 2009, the number of urban dwellers in inland China rose by more than 4 percent compared with a 2.7 percent increase in the East of China, according to HSBC. A prime example: Chongqing, a sprawling municipality of 33 million people -- one and a half times the size of Beijing or Shanghai. Located on the Yangtze River 1,450 kilometers west of Shanghai, its GDP tripled to 793 billion yuan from 2004 to 2010 while Shanghais merely doubled. Wuhan, a city of 8.4 million also on the Yangtze River, Chengdu, capital of the western province of Sichuan, and Chongqing have attracted investors such as Ford Motor Co., Intel Corp. and Pfizer Inc. Founded in 1951 by Mao Zedong to finance rural cooperatives, Agricultural Bank has by far the widest reach of Chinas big four lenders. It has more customers -- 320 million - - than the U.S. has people. And its 23,500 branches far outnumber the 16,200 outlets operated by Industrial & Commercial Bank of China (1398), known as ICBC, the worlds biggest bank by market value.
Earthmovers
While Agricultural Banks total assets of 11.46 trillion yuan are smaller than ICBCs 14.9 trillion yuan, theyre close on the heels of Bank of China Ltd. (3988), with 11.48 trillion, and Construction Bank,
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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with 11.8 trillion. Stokes, the Australian billionaire, says he decided to invest $250 million in Agricultural Bank shares based on his personal experience. In 2000, he acquired the franchise to sell Caterpillar Inc. earthmovers across a swath of rural China, from the North Korean border to the windswept prairies of Inner Mongolia. Stokes says he had never been previously tempted to invest in Chinese bank IPOs. Our focus is in the regions, and Agricultural Bank is a story we understood better than most people, he says, sipping tea in his art-filled private office just outside Sydneys main business district.
Loyal Customers
Even though the stock has declined since the IPO and the lockup period has expired, Stokes plans to hold on to his shares. He says the banks customers are similarly loyal. Agricultural Banks deposit base is probably the soundest of any bank in the world, he says. One such customer is Lai Kebin, 45, who says Agricultural Banks backing helped him lift himself out of poverty and into Chinas newly wealthy class. Lai has built his fortune by exploiting the lush sugar cane fields of Guangxi autonomous region, 2,000 kilometers south of Beijing. Lai was raised in the regional capital, Nanning, a city of 6.7 million, in a family so poor that they could afford only cotton shoes for him to wear to school. He spent his first eight years in the workforce toiling at a low-level government job before the speeches of reformist leader Deng Xiaoping inspired him to set up his own sugar firm, Yong Kai Group.
Entrepreneur Expands
Within a year, Lai had got his first loan from Agricultural Bank. Back then, the Yong Kai Group was worth 3 million yuan (about $520,000) and employed 200 workers. Today, its one of Chinas top 10 sugar producers, according to the China Sugar Association. This year, Yong Kais revenue will top 10 billion yuan and employees will total 3,000. In 2007, a Citigroup Inc. (C)venture capital unit invested $50 million in Yong Kai. Lai says he plans to sell shares in Hong Kong at an unspecified date. Like many Chinese entrepreneurs, Lai has also expanded into real estate. In the process, he and other developers have transformed Nanning, until recently a city of mostly two-story buildings, into a highrise metropolis of office towers and condominiums. Those residential apartments include a development called Fond England guarded by concrete soldiers with British army bearskin hats.
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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Lai credits his success to Chinas leaders decision to encourage rural development, as well as to the financing he received from Agricultural Bank.
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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Global Investors
Qatar Holding LLC bought $2.8 billion of shares, and the Kuwait Investment Authorityacquired $800 million. Singapore sovereign wealth fund Temasek Holdings Pte. invested $200 million, and Li
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011
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Ka-shing invested $100 million. Standard Chartered Plc (STAN), the London-based bank that makes most of its profits in Asia, invested $500 million; Dutch lender Rabobank Groep NV invested $250 million, the same as Stokess Seven Group Holdings Ltd. (SVW) Stokes is digging deeper into the market in more ways than one. His earthmoving equipment unit, WesTrac China Ltd., has signed a deal with Xiang under which Chinese contractors buying his earthmovers, which sell for $100,000 to $300,000, will be able to finance the purchases with Agricultural Bank loans. The transformation taking place in rural China means they are moving from wheelbarrows to excavators, Stokes says. Until now, getting finance for our customers has always been a challenge. The loan deal is giving Stokes some return now for his ties to Agricultural Bank. As Chinas economic engine continues its shift toward the burgeoning hinterland, Stokes says hes willing to wait for his bank stake to pay off. To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net. Stephanie Tong in Hong Kong at 6542 or stong17@bloomberg.net To contact the editor responsible for this story: Laura Colby at lcolby@bloomberg.net
2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
http://www.bloomberg.com/news/print/2011-10-24/china-boom-to-bust-concerns-reveale... 11/19/2011