China Money Podcast – Audio Episodes

In this special Chinese New Year's edition of China Money Podcast, we look at the fortunes of the Chinese stock market and various zodiac signs in the year of Black Water Snake, 2013. Asian brokerage firm CLSA Asia-Pacific Markets released its Feng Shui Index in 2013. The tongue-in-cheek index points to a strong first half for the Hang Seng Index during 2013, with the second half dominated by volatile movements in both directions. The whole year, however, will end up higher. CLSA says the past five Snake years – back to the Water Snake of 1953 – are not encouraging. Snake years are marked by major transformation and change, including Pearl Harbour (1941), Twin Towers (2001), Tiananmen (1989), Fall of the Berlin Wall (1989), Great Depression (1929), recessions (1953, 2001), revolutions (1917, 1989) and major conflicts (1941, 1965). In terms of sectors, CLSA expects the best performances from those traditionally associated with Metal (the likes of broking and financials) and also Water (such as gaming and logistics). If you are Roosters, Cows and Dogs, fortune will be outstanding this year. But Pigs, Tigers, Sheep and Snakes would need to work hard to improve their luck. Happy Chinese New Year to all of our listeners and subscribers.

Visit www.ChinaMoneyPodcast.com for more great interviews! In this episode of China Money Podcast, guest Paul Gillis, professor of accounting at the Guanghua School of Management at Peking University in Beijing, discusses Caterpillar's $580 million write-down in its acquisition of Zhengzhou Siwei. Prof. Gillis explains the three most common accounting tactics Chinese companies use to cheat and defraud foreign investors, and what can foreign investors do to prevent themselves from being duped. Listen to the full interview in the audio podcast, or read an excerpt. Q: Caterpillar is taking a $580 million write-down on its acquisition of Chinese mining company, Zhengzhou Siwei, after discovering a "deliberate, multi-year, coordinated accounting misconduct." Key background: 1, What Caterpillar bought for roughly $700 million was Hong Kong-listed ERA Mining Machinery, which is a shell company that owns Zhengzhou Siwei, a Henan province-based mining equipment maker. 2, Zhengzhou Siwei was absorbed by ERA through a reverse merger in 2010 and never went through a formal IPO process. So Paul, can you use your imagination, and picture what you think happened when Caterpillar's CFO told the CEO about this massive loss in their C-suit? A: I imagine that was a pretty awkward situation. It's very embarrassing for anyone at Caterpillar to be involved in a deal like this. I'm sure there is a search for the guilty parties on the way. ....... About Paul Gillis: Paul GillisPaul Gillis is professor of accounting at the Guanghua School of Management, Peking University in Beijing, China. Gillis is a member of the Public Company Accounting Oversight Board (PCAOB)'s Standing Advisory Group. PCAOB is a nonprofit corporation established by the U.S. Congress to oversee the audits of public companies. Gillis also authors China Accounting Blog.

Visit http://www.chinamoneypodcast.com for more great interviews! 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 $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 $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 $500 million, to invest in climate change funds. IFC put $75 million into it, and it will do further fundraising in the future. ........

visit http://www.chinamoneypodcast.com for more great content. In this episode of China Money Podcast, guest Sam Gupta, CEO of Grand Trunk Capital, explains why he is bullish on the Indian economy and markets, why Indian banks will consolidate in the next two years, and the reason why he prefers to work with the management team. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt. Q: First give us a brief introduction of Grand Trunk Capital? A: Grand Trunk Capital is a private investment partnership, (managing money) for institutions and family offices. We focus on special investments in India. Previously I managed a fairly large fund in partnership with Soros Management called QIF Management. QIF Management was at points in time the largest overseas investment fund in India. The strategy (of Grand Trunk Capital) is to focus on five or ten best investment ideas across sectors and geographies within the Indian markets. We are not a trading fund. We tend to take longer term and focused positions in Indian companies where we think there is sufficient mispricing and where we see sufficient upside down the road. Our strategy is very search based, value driven and focused on catalysts. Q: Can you talk about the performance of the (Grand Trunk Capital) fund? A: The fund was up 42% in 2012. We had a very bullish view on the banking system in India, and started buying some Indian banks towards the middle of the summer. That worked really well for us. We also took opportunities in the media space because of the catalyst of regulatory changes. One of our largest investments, (United Spirits), was bought out by Diageo, the world's largest liquor maker, at a significant premium. That's an investment we got into in early 2012. .....

In this episode of China Money Podcast, guest Prof. Chen Zhiwu, professor of finance at Yale University, discusses why he is an overall pessimist when it comes to China's long-term economic prospects, why he is worried about the economic spillover from China and Japan's dispute over Diaoyu Island for 2013, and why he thinks inflation will run rampant in China for the next ten years. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt. Q: Economists are generally optimistic about China's growth this year — you included. What are some potential roadblocks that could surprise us all on the down side? A: I think whatever domestic economic challenges there may be in 2013, the Chinese government will be able to use policy tools, or if necessary, accelerate infrastructure spending, to fight them off on a temporary basis. But whatever they do for the short-term benefit can create structural problems that will be difficult to overcome down the road. For 2013, the geopolitical risk may surprise people, especially given the noise from Japan and China over the disputed islands. Such hot button geopolitical factors tend to be underestimated by financial market participants. So I'm personally concerned for its impact on the economy. ......

In this episode of China Money Podcast, listen to Kevin Carter, co-founder and CEO of California-based Baochuan Capital Management, and Kenny Li, CEO of Shanghai-based KKM Capital discuss the pros and cons of international hedge funds investing in China's A-share market through the QFII program; and how international hedge funds can raise money from China's wealthy individuals and giant institutional investors. The comments are made at a joint event held by the Hedge Fund Association and Bloomberg on Jan 5, 2013, in Shanghai. Listen to the full interview in the audio podcast, subscribe to our podcast in iTunes, or read an excerpt. Kevin Carter on investing in Chinese equities outside of the QFII program: I spend a lot of time with some of the largest QFII holders in the world, most of which are long-term US institutional investors. Whether they are actively trading or not, they are not moving in or out of the QFII system. The Bill and Melinda Gates Foundation said to me that they can take the money out, but if they try to, they are worried about the political ramifications. If you look at the market capitalization of all Chinese equities, you can probably divide it as 60% A-share and 40% Hong Kong and New York-listed. So you can invest in almost half of the Chinese stock market without getting QFII quota, (which is what we do). Some U.S. investors don't understand this. I spoke with a number of U.S. university endowments that wanted to have QFII (quotas). I asked them if they have invested in any Chinese stocks in Hong Kong or New York. They said: No. When asked why, they replied with a blank face: We are not sure. A-share sounded more "Chinese." I pointed out to them that big Chinese names like China Mobile and Tencent are not available in the A-share market. Of course, the argument for investing directly in the A-share market is that there are great consumer names that are unavailable elsewhere, such as Guizhou Maotai or Wuliangye. But the risks are that the A-share market is a more speculative and manipulative market. Kevin Carter on the high cost of short selling Chinese stocks: Though stocks for short selling will become more available in the future, it's still very expensive. Cost of borrowing Chinese stocks to short can often be 8% to 10%. As a person who spent most of my career in shorting, I can say that it is a tough business. The most you can make is 100% if a stock price goes from $10 to 0. But if it goes against you, unlike a long position where your exposure gets smaller, your exposure gets bigger. So when A-share market becomes easier to short, investors should be very careful because it is a fast way to lose money.......

In this episode of China Money Podcast, guest Derek Sulger, co-founder of Lunar Capital, discusses why he likes to take controlling stakes, how he manages to return capital to LPs at a satisfactory rate, and the reasons behind his passion for baby apparel. Listen to the full interview in the audio podcast, subscribe to our podcast in iTunes, or read an excerpt. Q：Can you first give a brief introduction of Lunar Capital? A: Lunar Capital is a private equity firm headquartered in Shanghai, with 30 investment professionals primarily located in Shanghai and Chengdu. We also have an office in Hong Kong. Our focus is middle-market private enterprises that are in the consumer sector and where we can take a large or majority controlling stake. We then use our experience as entrepreneurs and professional managers to add value to the company. Q: Last year in 2011, you completed two exits through trade sales (selling to a strategic buyer). Since the IPO market essentially closed for Chinese enterprises, private equity firms in China have been desperately searching for alternative exits such as trade sale or secondaries. Already, private equity-backed mergers and acquisitions have increased 53% compared to last year. Why did you initially not focus on IPO exits? A: We like the idea of building good businesses, meaning companies that are profitable, growing and have real value to future shareholders. Whether that future shareholder is an individual who buys shares of our companies in the public market, or a strategic acquirer, it does not matter. We have already been relatively indifferent between IPO exits and trade sale exits. I think it's a great thing for China that an M&A culture is evolving. That means we can be on both sides. Aside from the two strategic sale exits in 2011, we also acquired majority shares of two companies in 2012. And we are in the process of acquiring a few more that will either be closed this year or early next year. Q: So, what are some advice and lessons that you can share about selling to Chinese strategic buyers? A: I think people have to just use common sense. That means focus on margins, profits and sustainable growth. Often in China, people get into these really outstanding growth rates, but they never asked themselves: Are these growth rates sustainable? I would personally much rather invest in a company with lower growth rate but that is sustainable over ten years, than a higher rate growth that may only be sustainable for one or two years. I'm an enormous believer of the compound effect of slow growth. In China, slow growth might be 15% or 20% a year. But that is a phenomenal opportunity when compounded over several years. ........

In this episode of China Money Podcast, guest Piau-Voon Wang discussed the investment strategies of Adams Street Partners, a global private equity firm overseeing more than $20 billion, and the precious lessons he has learned from investing in Asia and China for over a decade. Listen to the full interview in the audio podcast, or read an excerpt. Q: Adams Street Partners has a long history in fund of funds investing. Previously on China Money Podcast, we had guests from two other Fund of Funds in the region: Pantheon and Squadron Capital. What are some differences between you and those two peers, particularly in your activities in Asia? A: Yes, we trace our history back to 1972 when we first invested in private equity, initially in North America. Then we expanded into Europe in the 1990s, and in Asia during the past 12 years. Our main differentiating factor with our peers is our research-oriented approach to the market and a focus on portfolio construction. For example, we believe diversification is the main form of risk management in private equity. Hence, we have a very diligent diversification policy on funding investment across time, subclass, and geography. We often commit same amount to funds regardless of their fund size, to achieve the required level of diversification. This is unique. We also employ the same global standard in how we choose a fund to back. So in a sense, we are trying to find and invest in the best private equity funds anywhere in the world. Q: You were born in Malaysia, went to Nanyang Technological University (NTU), and you have been with Adams Street since 1999. How did you initially get to know and later join Adams Street? A: I was trained as an accountant at NTU, and started my career at Arthur Andersen in the early 1990s. I went on to become a mutual fund manager from 1994 to around 1996. I wanted to go to the venture capital side after being disillusioned by some of the practices in the fund management industry. So I became an aspiring venture capitalist in Southeast Asia between 1996 to 1999, also made some pre-IPO investments in Greater China region during that time. .......

In this episode of China Money Podcast, listen to the highlights of a panel discussion on investing in China and India featuring Gary Rieschel, co-founder of Qiming Ventures, Simon Eckersley, founder and CEO of Hao Capital, and Sam Gupta, founder of In...

In this episode of China Money Podcast, guest Jenny Gao, managing partner of Mandarin Capital, talks about how her fund helped an Italian company to penetrate the Chinese market, and why she is betting on the future of China's Dagong Global Credit Rating's future in Europe. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt. Q: You are only the second female guest on our program's one-and-half-year history. So let's start with your personal career. You initially worked at one of China's three policy banks, the Export and Import Bank of China. How did you get into the private equity industry? A: I worked at the Export and Import Bank of China (Exim Bank) ever since the beginning of its operation in 1994. The Bank is very much involved in the business of providing loans to Chinese companies to invest abroad, as well as undertaking big construction contracts and exporting machinery goods. During that time, I accumulated lots of networks among big Chinese State-Owned Enterprises and big Chinese private companies that were engaged in China's "Go Global" businesses. When Mandarin Capital Partners was set up in 2007, my managing partner, Alberto Forchielli, asked Exim Bank to provide the best support in terms of talent to support the fund's business in China. I was picked by the Exim Bank's management to work at Mandarin, and that's how I started doing private equity. Q: In way of background, Exim Bank is one of three major investors in Mandarin's first fund. The other two being China Development Bank and the second largest Italian bank, Intesa San Paolo? A: Yes, they were the three cornerstone investors and each provided EURO 75 million in the fund. At the end of 2007, we raised EURO 328 million in total. ......

http://www.ChinaMoneyPodcast.com In this episode of China Money Podcast, guest André Loesekrug‐Pietri, founder of A Capital, explains why his fund's China-Europe cross-border strategy will thrive even in the current world economic malaise, how did he become attracted to the Chinese markets, and why his new fund was able to secure two star institutional investors. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt. Q: first, a brief introduction of A Capital? A: We are a European growth capital fund focused on investing in European companies that have strong growth potentials in China. Once we make the decision to invest in (a European company), we bring a Chinese strategic co-investor that has the resources and expertise to make this European company succeed in China. Q: You have both a Euro fund and a RMB fund. The Euro fund has a target size of €250 million. How much have you raised so far? A: We have raised a significant amount of that. Our fund is relatively new, just a bit over a year old and we've done two deals so far. Several months ago, we had our first closing with two major investors, one from China and the other one from Europe. Q: These are the Belgian Federal Holdings and China Investment Corporations? A: Yes, both of them invested in our Luxemburg fund. Our fund is actually a regulated fund, even thought only funds with over €500 million are required to be regulated in Europe. We decided to be regulated by the Luxemburg Financial Authority because of the quality of our investors. We have a second, RMB fund that we have set up in cooperation with the Beijing Municipal government, specifically, Beijing's Office of Financial Works. The fund is unique in that it is allowed to raise money in RMB in China and invest overseas. The two funds invest in complete parallel terms. The RMB fund is a tool for us to allow Chinese LPs to invest overseas through our vehicle......... André Loesekrug-Pietri is founder and managing partner of A Capital, a private equity firm focused on Chinese outbound investments. Previously, André cofounded CEL Partners, a European growth capital fund dedicated to China focused on clean tech and healthcare. He also developed Jaccar Capital Fund, a PE fund for Vietnam and China, and managed Burelle Participations until 2005. He has both German and French citizenship.

In this episode of China Money Podcast, guest Liao Qiang, director of financial institutions ratings at Standard & Poors, explains why he thinks a banking crisis is unlikely to happen in China, and why the frantic calls for a Chinese banking collapse are all misplaced. Listen to the full interview in the audio podcast, or read an excerpt. Q: In a recent report, you warned that Chinese banks' credit risk will emerge in the next few years as economic growth slows. Just how bad will Chinese banks' credit get? A: We have to differentiate the loan quality of the banks and the banks' own credit quality. Regarding Chinese bank's underlying loan quality, we definitely see rising credit losses in the coming years. In fact, Chinese banks have already been reporting higher corporate delinquencies during the past six to ten months. We believe this trend will continue until the end of next year because of the time-lag effect of economic slowdown and the surface of bad loans. Q: What's your estimate for where the NPL (non-performing loan) ratio will peak? A: Now Chinese banks' NPL ratios are around 1%, a very low level. We are likely to see an increase of two to three percentage points, which means an NPL ratio of around 3% to 4% at the end of 2013. But let me get back to the credit quality of Chinese banks. We have a somewhat optimistic view on them as we do have a stable outlook for Chinese banks at the present. That is after we are factoring in the potential deterioration trend of loan qualities and profitability. Q: How much a systemic risk do you see in China's financial sector? A: We don't see severe pressure on the Chinese banking sector. Although we might see a jump in non-performing loans in the coming quarters, we believe the banks have the resilience and adequate liquidity to absorb the potential credit losses. The Chinese government has been protecting the banks' earning capacity by providing them with a stable and wide net interest margin. We believe currently the banks can absorb as much as 300 to 350 basis points of new bad loans, every year. That's why we believe a system-wide crisis is still a very remote scenario. Q: Government rescue is widely expected if situations get worse than expected. How much of an impact will another banking sector rescue cost the Chinese government? A: In a harsh hard-landing scenario, we do believe credit losses could be beyond the banks' earning capacity. That would require government assistance. When we rate the credit worthiness of the Chinese government, we already factored in a possible hit from the banking sector. So even in a hard landing scenario, it still won't affect the credit rating of the Chinese government. Q: Many experts argue that China has never had a true economic cycle. Similarly, we can argue that China hasn't experienced a credit cycle either. Do you agree? A: China has experienced some mild economic cycles from 2008 until now. However, there is some truth to the observation that China hasn't had a severe economic and credit downturn. This is something that might happen in the next few years. Q: Now let's look at your credit rating for Chinese banks. Bank of China is rated A. Another U.S. bank, JP Morgan, also has its senior unsecured debt rated as A. But we can reasonably suspect that the equal ratings are based on completely different factors. Can you explain? A: When we rate Bank of China or its peers, we do factor in extraordinary government support into the rating. But I should caution here, that there is no guarantee from the government. It should be interpreted as that the government might extend extraordinary support to those important banks in the system. We have been doing this not only for Chinese banks, but also for other major banks around the world. It is dependent on if the bank is state-owned, or if it carries systemic risk to the banking system. So for Bank of China,

Please visit http://www.ChinaMoneyPodcast.com In this episode of China Money Podcast, guest Hubert Tse answers ten questions about the QFLP (Qualified Foreign Limited Partner) program: from what QFLP allows foreign investors do, the pros and cons of becoming a QFLP, to what the future of QFLP program holds. Listen to the full interview in the audio podcast, or read an excerpt. Q: Just last week, news reports came out claiming that Shanghai has been approved to start the so-called RQFLP test program. Before we talk about this new development, let's first explain what QFLP (Qualified Foreign Limited Partner) program is? What does the QFLP program allow investors to do? A: Shanghai was the first city to launch a QFLP pilot program in 2010. Beijing and Tianjin followed later. It allows foreign investors to form an onshore RMB fund to invest in private Chinese companies. The foreign investors need to first set up a foreign management entity onshore with a minimum registered capital of US$2 million. When you get the QFLP approval, then you can set up a QFLP fund. You can raise money from both domestic and international investors. Once you get the approval, the USD can be converted to RMB. Q: Which institutions so far have established QFLP funds? A: We have known that big private equity players such as Blackstone, TPG, Carlyle, have all established QFLP funds. JPMorgan also has a QFLP fund in Beijing. But there are quite a number of domestic and regional players who have set up QFLP funds in Shanghai. We have seen big domestic security firms and fund managers who do not have a lot of private equity experience partnering with experienced foreign private equity firms under this program via a joint-venture........... Hubert Tse is senior partner at Shanghai-based law firm, Boss & Young. He has advised Chinese and global financial institutions on the structuring and formation of onshore and offshore funds, investment advisory operations in the PRC, and the QDII, QFII and QFLP programs. He holds a B.Com, LL.B. from The University of Queensland.

In this episode of China Money Podcast, guest Yukon Huang, senior associate at Washington D.C.-based Carnegie Endowment and former World Bank China director, shares his observations on China's next leadership, the possibilities of any bold reforms and the Chinese economy's long-term trend in the coming decade. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. INTERVIEW EXCERPT Q: China's economy has been growing at an average of over 10% for the past twenty years. No economy can grow that fast forever. Third quarter GDP was out at 7.4%. Do you think the turning point has finally arrived? A: Over twenty years, China has actually never grown lower than 7.8% for the annual basis. So it's very likely that, of course, this year's growth is likely to be lower than anything that has been experienced over the last two decades. But over the last month, there are some positive signs. Investment seems to be responding, or picking up. Retail sales is a little bit better. The export picture improved a little bit. So, some would guess, and I think it's probably true, that some time over the next month or two, the economy will bottom out, and will actually turn upwards. But even a rebound will probably not lead to GDP growth next year much higher than 8%, because the global environment is still lackluster. Q: Does that mean China is going to enter a phase where lower economic growth is the norm? A: China's economy is a maturing economy, a middle-income economy. It's going to move to upper middle-income (economy). Ten or fifteen years from now, China will enter what you would call high-income (economy). You don't find high-income economies growing at 10%, or even 8%. A 5% or 6% is actually a very strong performance. Why should China want to grow at a higher rate? Ten years ago, China wanted to grow at 9% or 10% because it had a major employment concern. But China today is quite different. It's an aging society. The labor force is already shrinking. So China doesn't need to grow very fast to generate jobs, but to create better-paying jobs with higher value. So now, it is the quality of the growth that matters, not the quantity........ Yukon Huang is senior associate at Washington D.C.-based think tank, Carnegie Endowment, where he researches on China's economic development and its impact on Asia and the global economy. He has a rich and long history studying the Chinese economy and policy issues, having served as the World Bank's China director from 1997 to 2004. Previously, he worked at the U.S. Treasury. Mr. Huang holds a B.A. from Yale University and a M.A. and Ph.D. from Princeton.

In this episode of China Money Podcast, guest Thomas Hugger, CFO of Leopard Capital, a private equity firm focused on investing in Asian frontier markets, discusses the successes and failures of his firm's investments in Cambodia, the impact on frontier markets from a slowing Chinese economy, and why frontier markets offer better risk-return profiles than emerging markets. Q: First give us a brief introduction of Leopard Capital? A: Leopard Capital was founded in 2008. Our general goal is to make private equity investments in frontier markets. We've raised two funds so far. In March 2008, we raised our first private equity fund to invest in Cambodia. Another fund was raised to invest in Haiti. We are hoping to launch two additional funds to invest in Bangladesh and Bhutan this year. We've met hundreds of potential institutional investors or high-net-worth individuals. They are extremely interested in Asian frontier markets, but they are concerned to invest their money for ten years in a private equity fund in a single country like Cambodia. They want more diversification and more liquidity. So earlier this year, we launched a fund to invest in listed equities in Asian frontier markets, including Cambodia, Bangladesh, Laos, Vietnam, Sri Lanka, Pakistan, Mongolia, Papua New Guinea, and Myanmar. This is our Leopard Asia Frontier Fund, which I manage at the moment......... Thomas Hugger is CFO of Leopard Capital, a private equity firm focused on investing in frontier markets, particularly Asian frontier markets including Cambodia, Bangladesh, Laos, Vietnam, and others. Hugger spent 27 years in private banking, most recently as managing director at LGT Bank in Hong Kong. Earlier, he worked at LGT Bank in Zurich and Bank Julius Baer in Zurich and Hong Kong.