October 30, 2008
China Daily
A Sino-Russian pact on a pipeline from Siberia to supply oil to China's northeast was among the agreements witnessed by Premier Wen Jiabao and his Russian counterpart Vladimir Putin in Moscow on Tuesday.
Russian media reports said Moscow's agreement to move ahead on the long-delayed project was won with pledges of financial support from Beijing.
The pipeline, which extends from western Siberia to the Pacific coast, is to be connected to China from the Siberian city of Skovorodino, 70 km north of the Sino-Russian border. The cost of the pipeline spur has been estimated at $800 million.
Russian pipeline monopoly Transneft and China National Petroleum Corp (CNPC) agreed to build the spur to carry 15 million tons a year of oil (300,000 barrels per day) between the countries' trunk pipelines from 2009. This would be enough to meet 4 percent of China's annual demand.
Russia's top energy official, Deputy Prime Minister Igor Sechin, said Russian oil firms would receive "considerable" loans from China in return for increased oil supplies and that the exact amount would be determined by individual projects.
"Financing is required to realize major projects," Sechin told reporters after the signing ceremony.
Three industry sources close to talks reportedly said the countries were in talks to secure between $20 billion and $25 billion in Chinese loans in exchange for greater supplies of Russian oil.
Wen listed cooperation on resource development first among five proposals for economic cooperation with Russia.
"Energy cooperation is an important part of the China-Russia strategic partnership," said a statement issued after Wen's meeting with Putin. "The two sides support deepening cooperation in developing oil and gas resources."
Apart from the pipeline agreement, Xinhua reported, the two countries agreed to:
work jointly in oil production and processing, natural gas production and in chemical industries;
extend cooperation in nuclear energy, including the construction of Tianwan nuclear power plant in Jiangsu province, uranium mining, post-processing of spent fuel and the treatment of nuclear waste;
strengthen long-term cooperation in space technology to ensure the completion of the 2007-09 space cooperation program as scheduled;
promote cooperation in nanotechnology, energy saving, ecology and rational utilization of natural resources;
enhance cooperation in such areas as trade and project financing, and export credit insurance; and
further cooperate in the civil aviation sector, including joint manufacturing of large civilian helicopters.
Wen concluded his three-day official visit to Russia yesterday and left for Kazakhstan to continue his two-nation tour.
China Daily, Xinhua and agencies
Sunday, November 2, 2008
China Creates 9 Million Jobs In Three Quarters
October 27, 2008
Xinhua News Agency
The Ministry of Human Resources and Social Security said on Monday that the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers be re-employed.
The Ministry's spokesman Yin Chengji said at a news briefing that by the end of September China had a registered unemployment rate of four percent, with about 8.3 million being unemployed. The unemployment rate was the same as what the country had at the end of last year.
Yin said the government has transferred 219,000 labors from areas, which were hit by a massive earthquake on May 12 in southwest China's Sichuan province, to other places for new jobs. Another 865,000 people were aided by the government to find jobs in places where they live.
The spokesman said the government would take further responsibility of creating jobs, by offering taxation, financing and other incentives for start-up businesses.
Further coordination with related governmental bodies will be made to increase employment of graduates from colleges and universities.
About 215 million workers joined the nationwide urban pension system, nearly 274 million participated in the basic medical care system, 122 million were in the unemployment insurance mechanism, 135 million were covered by the work injury insurance and 88 million were in the maternity insurance, the ministry figures show.
The government will start tryouts to establish a pension system in rural areas and expand the urban pension system to rural migrating labors, Yin said.
Xinhua News Agency
The Ministry of Human Resources and Social Security said on Monday that the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers be re-employed.
The Ministry's spokesman Yin Chengji said at a news briefing that by the end of September China had a registered unemployment rate of four percent, with about 8.3 million being unemployed. The unemployment rate was the same as what the country had at the end of last year.
Yin said the government has transferred 219,000 labors from areas, which were hit by a massive earthquake on May 12 in southwest China's Sichuan province, to other places for new jobs. Another 865,000 people were aided by the government to find jobs in places where they live.
The spokesman said the government would take further responsibility of creating jobs, by offering taxation, financing and other incentives for start-up businesses.
Further coordination with related governmental bodies will be made to increase employment of graduates from colleges and universities.
About 215 million workers joined the nationwide urban pension system, nearly 274 million participated in the basic medical care system, 122 million were in the unemployment insurance mechanism, 135 million were covered by the work injury insurance and 88 million were in the maternity insurance, the ministry figures show.
The government will start tryouts to establish a pension system in rural areas and expand the urban pension system to rural migrating labors, Yin said.
China's Economy Can Be Steered Toward Soft Landing
October 29, 2008
By: Yu Yongding (China Daily)
China still enjoys a generally smooth economic development even as the international financial tsunami continues to engulf the whole world and its aftermath is yet to unfold.
Since July last year, the country has been plagued by rising inflation because of an overheated economy, with the CPI increasing to 8.7 percent in February year-on-year. To bring the intractable inflation under control, the central government adopted a tight currency policy. As a result, the CPI has shown a downward tendency in the past two months. Coinciding with the declining CPI is the slowdown of the country's gross domestic product (GDP), investment and trade surplus.
This should not cause us excessive worries. As early as four years ago when the 11th Five-Year Plan was drafted, the central government set an explicit goal of realizing a basic import and export balance in foreign trade in 2010. The macro-control has also promoted the country's economic restructuring although it slowed down the fast-running economy to a certain degree.
The current economic slowdown is only normal in its long-term development track. Since the 1990s, the country has experienced two economic development cycles, in which different development speeds alternated.
The deteriorating US financial crisis has affected China's exporting environment, thus unavoidably curbing its economic growth. However, with a well-operating fiscal performance and an astronomical amount of foreign reserves, we should have full confidence to curb any possible serious slide in our economy and bring it to a soft landing.
The country should still stick to a restrictive financial policy aimed at curbing inflation. We have no need to excessively worry that such a policy might hamper the country's economic development, if it can maintain a growth of no lower than 9 percent.
There was once a prevailing opinion among some economists at home that the appreciation of the yuan, China's currency, was the main culprit behind its year-long flying inflation. This is in essence a misconception about the relationship between inflation and currency revaluation. It is common sense that currency appreciation always helps stem inflation. It was precisely the misconception that caused many people to strongly oppose the country's move to appreciate the yuan in 2003 and 2004.
The current inflation is caused not by an appreciated yuan, but by an overheated economy and external pricing impacts. It is an indisputable fact that the appreciation of China's renminbi lowered the prices of imported oil, soybean and iron ores, thus helping contain inflation.
Some people also think that expectations about the yuan's appreciation caused the inflow of a lot of international hot money, which, in their view, would result in an excess of capital fluidity. As a matter of fact, any abrupt and large or marginal appreciation of the yuan would preempt possible chances for international speculative capital to flow to China.
Also, it is inaccurate to attribute the inflow of hot money in the past years to people's expectations about an appreciated yuan. Driven by its pursuit of a bumper return, a lot of international capital flowed to the country's rosy property industry in 2005 and 2006 and to its bullish stock market in 2006 and last year.
It is for sure that no international hot money would come to China only for the meager profits gained through expectations of a 3 percent appreciation of the yuan. Also, with a set of workable capital monitoring and management systems in place, any speculative international capital can be completely kept away from China's door.
In drafting a policy for the yuan's appreciation, the country's original goal was to promote a transformation of its economic structure and lower its economic dependence on external demands, but not to curb inflation. Under this established strategy, the country should not change its currency policy just because of the change of economic development cycles.
Any export increase through adhering to the yuan's low exchange rates is essentially to subsidize foreign countries, especially the US, through sacrificing the national interests. In the face of a devalued dollar and an aggravating inflation in the US, any attempt to pursue a rapid trade surplus growth is only for the interests of foreign trade sectors at the expense of the whole economy.
It is known that the country can stimulate domestic demands and increase public spending to offset any possible negative effects on its economic growth to be brought by the decline of trade surplus following the yuan's appreciation.
To reduce to a minimum the negative effects brought by an appreciated yuan, the country should further strengthen the capital control system. It is very necessary for the central bank to strengthen control and management on the movement of trans-national capital to stop excessive foreign capital entering the country's low-priced stock market. At the same time, we should also be on a high alert against any abrupt exodus of hot money, which would also cause strong impacts upon the national economy.
The author is former director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences
By: Yu Yongding (China Daily)
China still enjoys a generally smooth economic development even as the international financial tsunami continues to engulf the whole world and its aftermath is yet to unfold.
Since July last year, the country has been plagued by rising inflation because of an overheated economy, with the CPI increasing to 8.7 percent in February year-on-year. To bring the intractable inflation under control, the central government adopted a tight currency policy. As a result, the CPI has shown a downward tendency in the past two months. Coinciding with the declining CPI is the slowdown of the country's gross domestic product (GDP), investment and trade surplus.
This should not cause us excessive worries. As early as four years ago when the 11th Five-Year Plan was drafted, the central government set an explicit goal of realizing a basic import and export balance in foreign trade in 2010. The macro-control has also promoted the country's economic restructuring although it slowed down the fast-running economy to a certain degree.
The current economic slowdown is only normal in its long-term development track. Since the 1990s, the country has experienced two economic development cycles, in which different development speeds alternated.
The deteriorating US financial crisis has affected China's exporting environment, thus unavoidably curbing its economic growth. However, with a well-operating fiscal performance and an astronomical amount of foreign reserves, we should have full confidence to curb any possible serious slide in our economy and bring it to a soft landing.
The country should still stick to a restrictive financial policy aimed at curbing inflation. We have no need to excessively worry that such a policy might hamper the country's economic development, if it can maintain a growth of no lower than 9 percent.
There was once a prevailing opinion among some economists at home that the appreciation of the yuan, China's currency, was the main culprit behind its year-long flying inflation. This is in essence a misconception about the relationship between inflation and currency revaluation. It is common sense that currency appreciation always helps stem inflation. It was precisely the misconception that caused many people to strongly oppose the country's move to appreciate the yuan in 2003 and 2004.
The current inflation is caused not by an appreciated yuan, but by an overheated economy and external pricing impacts. It is an indisputable fact that the appreciation of China's renminbi lowered the prices of imported oil, soybean and iron ores, thus helping contain inflation.
Some people also think that expectations about the yuan's appreciation caused the inflow of a lot of international hot money, which, in their view, would result in an excess of capital fluidity. As a matter of fact, any abrupt and large or marginal appreciation of the yuan would preempt possible chances for international speculative capital to flow to China.
Also, it is inaccurate to attribute the inflow of hot money in the past years to people's expectations about an appreciated yuan. Driven by its pursuit of a bumper return, a lot of international capital flowed to the country's rosy property industry in 2005 and 2006 and to its bullish stock market in 2006 and last year.
It is for sure that no international hot money would come to China only for the meager profits gained through expectations of a 3 percent appreciation of the yuan. Also, with a set of workable capital monitoring and management systems in place, any speculative international capital can be completely kept away from China's door.
In drafting a policy for the yuan's appreciation, the country's original goal was to promote a transformation of its economic structure and lower its economic dependence on external demands, but not to curb inflation. Under this established strategy, the country should not change its currency policy just because of the change of economic development cycles.
Any export increase through adhering to the yuan's low exchange rates is essentially to subsidize foreign countries, especially the US, through sacrificing the national interests. In the face of a devalued dollar and an aggravating inflation in the US, any attempt to pursue a rapid trade surplus growth is only for the interests of foreign trade sectors at the expense of the whole economy.
It is known that the country can stimulate domestic demands and increase public spending to offset any possible negative effects on its economic growth to be brought by the decline of trade surplus following the yuan's appreciation.
To reduce to a minimum the negative effects brought by an appreciated yuan, the country should further strengthen the capital control system. It is very necessary for the central bank to strengthen control and management on the movement of trans-national capital to stop excessive foreign capital entering the country's low-priced stock market. At the same time, we should also be on a high alert against any abrupt exodus of hot money, which would also cause strong impacts upon the national economy.
The author is former director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences
Reform, Opening Up Lead to China's Sci-Tech Boom
October 22, 2008
Xinhua News Agency
MOSCOW -- China's science and technology have progressed in many areas since the country adopted the policy of reform and opening up 30 years ago, a Russian China expert said in a recent interview with Xinhua.
China has made tremendous scientific-technological achievements in the past 30 years, said Yakov Berger, a China expert with the Far East Institute of the Russian Academy of Science. "It began to explore the universe and make peaceful use of atomic energy. Above all, it reached leading world levels in these fields."
The invention of transgenic rice by Chinese scientists not only meets domestic demand, but also contributes to the solution of global food shortage, he said, adding China has achieved breakthroughs in health care and renewable energy exploration as well. Moreover, China has caught up with or even surpassed some developed countries in science and technology in terms of many indicators, Berger said, "For example, Chinese research results quoted by scientific-technological documents have increased significantly in recent years."
Meanwhile, China's investment in basic research grew from 1 percent of its gross domestic product (GDP) to 1.5 percent, and the number is expected to reach 3 percent in the future, he said, noting the percentage would be even higher in some high-tech sectors.
China is faced with the shortage of intellectuals during the development of innovative economy, as is the situation in Russia. However, China is nurturing scientific brains while putting research projects into practice, said Berger.
China is striving to be an economic and political world power in the coming decades, but to achieve that goal, it has to become a scientific powerhouse first, he said.
Unlike the early stage of its reform and opening up when its vast low-cost workforce contributed a great deal to China's economic miracle, science and technology has begun to play an increasingly important role in China's economic growth, said the Russian expert.
China used to manufacture simple goods with its cheap labor, but today it has increased the technical contents of these products, he said.
Berger noted a large number of core technologies are still under the control of Western countries, and in this regard China should take advantage of technological advances to change its mode of economic growth.
The 17th national congress of the Communist Party of China in October, 2007 set the goal of building an innovative nation, indicating a new mode of development for China, he said.
The Chinese leadership has realized the country has to narrow down the gap with the West in many key areas of science and technology so as to ensure a smooth economic and social transition in this century, he added.
On cooperation between Russia and China in science and technology, Berger said the two countries have great potential in this regard and scientists of both countries have interest in bilateral cooperation.
The two sides are carrying out fruitful cooperation in such areas as aviation, energy, environmental protection, gene engineering, biological medicine and energy conservation, which will further expand the basis of cooperation, he said.
China also maintains cooperation with many other countries and such interaction facilitates the advancement of science and technology in the world, he said.
Xinhua News Agency
MOSCOW -- China's science and technology have progressed in many areas since the country adopted the policy of reform and opening up 30 years ago, a Russian China expert said in a recent interview with Xinhua.
China has made tremendous scientific-technological achievements in the past 30 years, said Yakov Berger, a China expert with the Far East Institute of the Russian Academy of Science. "It began to explore the universe and make peaceful use of atomic energy. Above all, it reached leading world levels in these fields."
The invention of transgenic rice by Chinese scientists not only meets domestic demand, but also contributes to the solution of global food shortage, he said, adding China has achieved breakthroughs in health care and renewable energy exploration as well. Moreover, China has caught up with or even surpassed some developed countries in science and technology in terms of many indicators, Berger said, "For example, Chinese research results quoted by scientific-technological documents have increased significantly in recent years."
Meanwhile, China's investment in basic research grew from 1 percent of its gross domestic product (GDP) to 1.5 percent, and the number is expected to reach 3 percent in the future, he said, noting the percentage would be even higher in some high-tech sectors.
China is faced with the shortage of intellectuals during the development of innovative economy, as is the situation in Russia. However, China is nurturing scientific brains while putting research projects into practice, said Berger.
China is striving to be an economic and political world power in the coming decades, but to achieve that goal, it has to become a scientific powerhouse first, he said.
Unlike the early stage of its reform and opening up when its vast low-cost workforce contributed a great deal to China's economic miracle, science and technology has begun to play an increasingly important role in China's economic growth, said the Russian expert.
China used to manufacture simple goods with its cheap labor, but today it has increased the technical contents of these products, he said.
Berger noted a large number of core technologies are still under the control of Western countries, and in this regard China should take advantage of technological advances to change its mode of economic growth.
The 17th national congress of the Communist Party of China in October, 2007 set the goal of building an innovative nation, indicating a new mode of development for China, he said.
The Chinese leadership has realized the country has to narrow down the gap with the West in many key areas of science and technology so as to ensure a smooth economic and social transition in this century, he added.
On cooperation between Russia and China in science and technology, Berger said the two countries have great potential in this regard and scientists of both countries have interest in bilateral cooperation.
The two sides are carrying out fruitful cooperation in such areas as aviation, energy, environmental protection, gene engineering, biological medicine and energy conservation, which will further expand the basis of cooperation, he said.
China also maintains cooperation with many other countries and such interaction facilitates the advancement of science and technology in the world, he said.
Wednesday, October 29, 2008
Buffet Moves Into China
October 29, 2008
By: Ding Wenlei
Warren Buffett is financing BYD Co. Ltd.'s auto dream with a strategic investment of $230 million
American investor and businessman Warren E. Buffett has found a "really long hill" in China to snowball his wealth. The "Oracle of Omaha" is known for his investment wisdom as well as his famous likening of finding investments to a snowball. "The important thing is to find wet snow and a really long hill," he has said.
BYD Co. Ltd. is Buffett's long hill in China and his first investment in a company here. MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc., Buffett's conglomerate holding company headquartered in Omaha, Nebraska, announced on September 27 that it paid $230 million for a nearly 10-percent stake in the Shenzhen-based battery producer and automaker.
Established in 1995 and listed on the Hong Kong Stock Exchange in 2002, the BYD has seven production facilities located in different regions around China.
"We are very impressed by BYD's outstanding management team and its research and development capability, especially the capability of translating technologies to products," said David Sokol, Chairman of MidAmerican, at a press conference.
Buffett did not attend the news conference, but said in a statement that he was impressed with the management record of BYD's President Wang Chuanfu.
The investment sage is worshipped for his powerful, long-term investment strategy. He has traditionally shied away from technology-oriented companies and favored simple and mature businesses he understands. Some of his most famous investments include American beverage company Coca-Cola Co. and razor maker The Gillette Co., now owned by Proctor & Gamble Co.
But why would Buffett invest such a large amount in BYD, a company focused on hi-tech batteries and electric cars, as his first strategic investment in a Chinese firm?
Value Investing
Buffett is a high-profile proponent of "value investing," or the strategy of selecting stocks that trade for less than their intrinsic value. The intrinsic value of a security refers to the present value of all expected future income generated by the asset.
Such securities may have high dividend yields, low price-to-earning (PE) ratios or low price-to-book (PB) ratios. A low PB ratio, which compares the market value of a company to the value of its total tangible assets minus liabilities, could indicate the stock is currently undervalued and may have potential for future growth.
Buffett is known for his ability to calculate the intrinsic value of a business and then buy that company at a discount to its intrinsic value. In the case of BYD, Buffett bought the company's stock at a price of HK$8 ($1) per share when the PE ratio was less than 8 and the PB ratio was only 2.5.
It appears to be a real bargain for Buffett. BYD's shares had lost 45 percent of their value when their price dived from HK$77 ($10) per share at its peak to the current HK$8 per share in the past year, partly because of legal disputes between BYD and rival Foxconn International Holdings Ltd. over alleged patent infringement.
But Buffett has been focusing on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price, because future distributions are only based on assumptions. He has stressed the long-term profitability of target companies.
Apart from the requirements related to "intrinsic value," a solid management team and good returns for shareholders, Buffett's other criteria for investment picks include companies that must have at least $5 million in after-tax earnings and have demonstrated consistent earning power. Zhou Jun, a company analyst at Investor Journal affiliated with the Economic Observer, said BYD basically meets all these requirements.
BYD reaped a net profit of 1.6 billion yuan ($235.3 million) last year, up 44.2 percent year on year. In the first half of this year, the company's net profit was 596 million yuan ($87.6 million), which ranked BYD among the top 30 of all 207 Hong Kong-listed industrial companies in terms of after-tax earnings.
In terms of consistent earning power, Buffet requires a company to have a sustainable competitive advantage, what he calls an "economic moat" that protects the company's profitability from competitors. BYD's moat, according to Zhou, lies in the company's leading technological advantages in rechargeable batteries and electric cars. This moat has enabled BYD to maintain a gross profit-to-sales ratio of more than 20 percent in the past five years, he said.
BYD's Moat
Analysts believe BYD's most attractive asset for Buffett is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
Wang Chuanfu, President of BYD, said that electric vehicles would allow people to be less reliant on petrol-energy and reduce greenhouse gas emissions and air pollution.
At the press conference, Sokol called BYD's technologies "a game changer" to seriously reduce emissions of carbon dioxide and address problems related to global warming in the future.
BYD has risen from obscurity in a few short years to be one of the world's largest makers of rechargeable batteries for cellphones and other uses, with Nokia Corp., Motorola Inc. and Samsung Electronics Co. among its customers.
The battery maker acquired 77 percent of Shaanxi Qinchuan Auto Co. in 2003 in a controversial move to make fuel-efficient compact and subcompact cars for the Chinese market. The fast-growing auto-making unit currently accounts for nearly a third of BYD's revenue. Backed by its technological advantages in rechargeable batteries, the auto dark horse is now marrying its battery technology with plug-in hybrids that can also run on petrol as a back-up fuel and all-electric cars.
MidAmerican, an electricity and natural gas provider in the midwest and west United States, sees plug-in electric cars as the best alternative to fuel-powered engines, because the country already has the infrastructure to supply electricity for recharging vehicles almost anywhere.
Sokol said that MidAmerican was impressed with BYD's ability to produce electric cars that have a range of almost 190 miles on a single charge and can be 80 percent recharged in 15 minutes. By comparison, General Motors Corp.'s electric-powered vehicle, the Chevrolet Volt, has a battery range of just 40 miles on a full charge.
BYD plans to start selling F3DM hybrids in China at the end of this year. It says the batteries for the car will last 10 years or 2,000 charging cycles.
Buffett's $230 million investment gives BYD capital and credibility to pursue its ambition of making environmentally friendly hybrid cars and becoming the world's No.1 automaker by 2025. Wang said at the press conference that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire Hathaway's money to accelerate research.
In a new move to integrate the upstream supply chain for its electric cars, BYD acquired SinoMOS Semiconductor (Ningbo) Inc. for about 200 million yuan ($29.4 million) on October 6.
By: Ding Wenlei
Warren Buffett is financing BYD Co. Ltd.'s auto dream with a strategic investment of $230 million
American investor and businessman Warren E. Buffett has found a "really long hill" in China to snowball his wealth. The "Oracle of Omaha" is known for his investment wisdom as well as his famous likening of finding investments to a snowball. "The important thing is to find wet snow and a really long hill," he has said.
BYD Co. Ltd. is Buffett's long hill in China and his first investment in a company here. MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc., Buffett's conglomerate holding company headquartered in Omaha, Nebraska, announced on September 27 that it paid $230 million for a nearly 10-percent stake in the Shenzhen-based battery producer and automaker.
Established in 1995 and listed on the Hong Kong Stock Exchange in 2002, the BYD has seven production facilities located in different regions around China.
"We are very impressed by BYD's outstanding management team and its research and development capability, especially the capability of translating technologies to products," said David Sokol, Chairman of MidAmerican, at a press conference.
Buffett did not attend the news conference, but said in a statement that he was impressed with the management record of BYD's President Wang Chuanfu.
The investment sage is worshipped for his powerful, long-term investment strategy. He has traditionally shied away from technology-oriented companies and favored simple and mature businesses he understands. Some of his most famous investments include American beverage company Coca-Cola Co. and razor maker The Gillette Co., now owned by Proctor & Gamble Co.
But why would Buffett invest such a large amount in BYD, a company focused on hi-tech batteries and electric cars, as his first strategic investment in a Chinese firm?
Value Investing
Buffett is a high-profile proponent of "value investing," or the strategy of selecting stocks that trade for less than their intrinsic value. The intrinsic value of a security refers to the present value of all expected future income generated by the asset.
Such securities may have high dividend yields, low price-to-earning (PE) ratios or low price-to-book (PB) ratios. A low PB ratio, which compares the market value of a company to the value of its total tangible assets minus liabilities, could indicate the stock is currently undervalued and may have potential for future growth.
Buffett is known for his ability to calculate the intrinsic value of a business and then buy that company at a discount to its intrinsic value. In the case of BYD, Buffett bought the company's stock at a price of HK$8 ($1) per share when the PE ratio was less than 8 and the PB ratio was only 2.5.
It appears to be a real bargain for Buffett. BYD's shares had lost 45 percent of their value when their price dived from HK$77 ($10) per share at its peak to the current HK$8 per share in the past year, partly because of legal disputes between BYD and rival Foxconn International Holdings Ltd. over alleged patent infringement.
But Buffett has been focusing on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price, because future distributions are only based on assumptions. He has stressed the long-term profitability of target companies.
Apart from the requirements related to "intrinsic value," a solid management team and good returns for shareholders, Buffett's other criteria for investment picks include companies that must have at least $5 million in after-tax earnings and have demonstrated consistent earning power. Zhou Jun, a company analyst at Investor Journal affiliated with the Economic Observer, said BYD basically meets all these requirements.
BYD reaped a net profit of 1.6 billion yuan ($235.3 million) last year, up 44.2 percent year on year. In the first half of this year, the company's net profit was 596 million yuan ($87.6 million), which ranked BYD among the top 30 of all 207 Hong Kong-listed industrial companies in terms of after-tax earnings.
In terms of consistent earning power, Buffet requires a company to have a sustainable competitive advantage, what he calls an "economic moat" that protects the company's profitability from competitors. BYD's moat, according to Zhou, lies in the company's leading technological advantages in rechargeable batteries and electric cars. This moat has enabled BYD to maintain a gross profit-to-sales ratio of more than 20 percent in the past five years, he said.
BYD's Moat
Analysts believe BYD's most attractive asset for Buffett is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
Wang Chuanfu, President of BYD, said that electric vehicles would allow people to be less reliant on petrol-energy and reduce greenhouse gas emissions and air pollution.
At the press conference, Sokol called BYD's technologies "a game changer" to seriously reduce emissions of carbon dioxide and address problems related to global warming in the future.
BYD has risen from obscurity in a few short years to be one of the world's largest makers of rechargeable batteries for cellphones and other uses, with Nokia Corp., Motorola Inc. and Samsung Electronics Co. among its customers.
The battery maker acquired 77 percent of Shaanxi Qinchuan Auto Co. in 2003 in a controversial move to make fuel-efficient compact and subcompact cars for the Chinese market. The fast-growing auto-making unit currently accounts for nearly a third of BYD's revenue. Backed by its technological advantages in rechargeable batteries, the auto dark horse is now marrying its battery technology with plug-in hybrids that can also run on petrol as a back-up fuel and all-electric cars.
MidAmerican, an electricity and natural gas provider in the midwest and west United States, sees plug-in electric cars as the best alternative to fuel-powered engines, because the country already has the infrastructure to supply electricity for recharging vehicles almost anywhere.
Sokol said that MidAmerican was impressed with BYD's ability to produce electric cars that have a range of almost 190 miles on a single charge and can be 80 percent recharged in 15 minutes. By comparison, General Motors Corp.'s electric-powered vehicle, the Chevrolet Volt, has a battery range of just 40 miles on a full charge.
BYD plans to start selling F3DM hybrids in China at the end of this year. It says the batteries for the car will last 10 years or 2,000 charging cycles.
Buffett's $230 million investment gives BYD capital and credibility to pursue its ambition of making environmentally friendly hybrid cars and becoming the world's No.1 automaker by 2025. Wang said at the press conference that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire Hathaway's money to accelerate research.
In a new move to integrate the upstream supply chain for its electric cars, BYD acquired SinoMOS Semiconductor (Ningbo) Inc. for about 200 million yuan ($29.4 million) on October 6.
Friday, October 24, 2008
China's Economy Has Ability to Recover From Slowdown
October 22, 2008
Xinhua News Agency
Experts attending a think tank strategic dialogue at the ongoing China-ASEAN Expo have shown confidence in China's steady economic growth despite the extensive downturn in the world economy.
China's gross domestic product (GDP) grew 9.9 percent during the first three quarters of this year, 2.3 percentage points lower than the same period of last year, the National Bureau of Statistics said Monday. China's GDP has grown with an annual average 10.6 percent since 2003.
Hadi Soesastro, executive director of Center for Strategic and International Studies of Indonesia, said that 9.9 percent is already a good achievement. "We could not simply think China's economy has sagged. China has made great achievements in improving the social interests for the public."
China has spent great amount of money on environmental protection, energy saving, greenhouse gas emission control and social welfare. The social interests and long-term effects are incalculable, he said.
"In consideration of the ongoing global economic crisis, 9.9 percent is still a good figure. China's economy is somewhat resistant to the outside impact and is easy to escape from a standstill," said Nguyen Van Nen, director of planning and promotion department of Vietnam Cooperative Alliance.
China's slowdown under the background of global recession is an opportunity for the country to readjust and transform, said Sheng Lijun, a researcher with the Lee Kuan Yew School of Public Policy, National University of Singapore.
"China should promote its technology innovation and transform itself from a traditional manufacturer to a modern industrialized country, setting a sound basis for its sustainable development," he said.
The weak demand in the West could make Chinese products oversupplied. The mounting protectionism also has a negative impact on Chinese economy, Sheng said. "China can invest in domestic infrastructure as well as that in ASEAN countries. The return is guaranteed."
"I think China's returning to a 10 percent growth rate needs two years at most. I am quite confident about that," said Tan Sri Mohamed Jawhar Hassan with the Institute of Strategic and International Studies of Malaysia.
The global market slipped into a recession in the 1997 Asian financial crisis and China also slowed down its pace. Chinese economy, however, gained a momentum soon after that and moved to a new high, he said.
"Now China's economic quality and the ability to recover is much better than 10 years ago. It will keep an 8 percent increase at worst," said Hassan.
China's steady growth is vital to the development of ASEAN countries. The China-ASEAN Free Trade Zone is expected to become the third largest free trade zone in the world in 2010 and the ties between China and ASEAN are set to become closer, said Nguyen Van Nen.
The close ties and strengthening cooperation between the two sides will definitely improve their resistance to the economic risks, he said.
"In the long run, I am optimistic about China's economy," he said.
Xinhua News Agency
Experts attending a think tank strategic dialogue at the ongoing China-ASEAN Expo have shown confidence in China's steady economic growth despite the extensive downturn in the world economy.
China's gross domestic product (GDP) grew 9.9 percent during the first three quarters of this year, 2.3 percentage points lower than the same period of last year, the National Bureau of Statistics said Monday. China's GDP has grown with an annual average 10.6 percent since 2003.
Hadi Soesastro, executive director of Center for Strategic and International Studies of Indonesia, said that 9.9 percent is already a good achievement. "We could not simply think China's economy has sagged. China has made great achievements in improving the social interests for the public."
China has spent great amount of money on environmental protection, energy saving, greenhouse gas emission control and social welfare. The social interests and long-term effects are incalculable, he said.
"In consideration of the ongoing global economic crisis, 9.9 percent is still a good figure. China's economy is somewhat resistant to the outside impact and is easy to escape from a standstill," said Nguyen Van Nen, director of planning and promotion department of Vietnam Cooperative Alliance.
China's slowdown under the background of global recession is an opportunity for the country to readjust and transform, said Sheng Lijun, a researcher with the Lee Kuan Yew School of Public Policy, National University of Singapore.
"China should promote its technology innovation and transform itself from a traditional manufacturer to a modern industrialized country, setting a sound basis for its sustainable development," he said.
The weak demand in the West could make Chinese products oversupplied. The mounting protectionism also has a negative impact on Chinese economy, Sheng said. "China can invest in domestic infrastructure as well as that in ASEAN countries. The return is guaranteed."
"I think China's returning to a 10 percent growth rate needs two years at most. I am quite confident about that," said Tan Sri Mohamed Jawhar Hassan with the Institute of Strategic and International Studies of Malaysia.
The global market slipped into a recession in the 1997 Asian financial crisis and China also slowed down its pace. Chinese economy, however, gained a momentum soon after that and moved to a new high, he said.
"Now China's economic quality and the ability to recover is much better than 10 years ago. It will keep an 8 percent increase at worst," said Hassan.
China's steady growth is vital to the development of ASEAN countries. The China-ASEAN Free Trade Zone is expected to become the third largest free trade zone in the world in 2010 and the ties between China and ASEAN are set to become closer, said Nguyen Van Nen.
The close ties and strengthening cooperation between the two sides will definitely improve their resistance to the economic risks, he said.
"In the long run, I am optimistic about China's economy," he said.
China's Population May Hit 1.5 Billion in 2033
October 23, 2008
Shanghai Daily
The population on the Chinese mainland is expected to reach 1.5 billion in 2033, an official revealed at a forum in Beijing today.
The population will see an annual increase of about eight million people in the next decade and may reach 1.36 billion in 2010 and 1.4 billion in 2020, said Li Bin, director of the National Population and Family Planning Commission.
The number of people above the age of 65 is expected to reach 320 million by 2040, which will make up nearly 22 percent of the population. The elderly segment was only 8.1 percent of the population in 2007, Li said.
In addition to the pressures of a greyer population, the country will also battle a sex-imbalance that may seriously disrupt social stability, Li warned.
The sex ratio, or proportion of males to females, has been getting increasingly skewed since the 1990s as many Chinese couples show a strong preference for boys.
The ratio has reached 119.92 in 2000 from 108 in 1981, which means 119 boys are born against every 100 girls across the country, according to the National Population and Family Planning Commission.
In five provinces, the figure even surged above 130, the commission said. Analysts say a proportion of 106 boys for every 100 girls can be considered normal.
China will have a male population of up to 30 million in 2020 who may not be able to find wives and partners because of the gender imbalance, Xinhua news agency cited Li Weixiong, a member of the People's Congress and also deputy director of China Economy and Society Reach Committee, in a previous report.
Meanwhile, China is also expected to see its largest population mobilization when 300 million people enter urban centers in the next two to three decades, Li warned.
Shanghai Daily
The population on the Chinese mainland is expected to reach 1.5 billion in 2033, an official revealed at a forum in Beijing today.
The population will see an annual increase of about eight million people in the next decade and may reach 1.36 billion in 2010 and 1.4 billion in 2020, said Li Bin, director of the National Population and Family Planning Commission.
The number of people above the age of 65 is expected to reach 320 million by 2040, which will make up nearly 22 percent of the population. The elderly segment was only 8.1 percent of the population in 2007, Li said.
In addition to the pressures of a greyer population, the country will also battle a sex-imbalance that may seriously disrupt social stability, Li warned.
The sex ratio, or proportion of males to females, has been getting increasingly skewed since the 1990s as many Chinese couples show a strong preference for boys.
The ratio has reached 119.92 in 2000 from 108 in 1981, which means 119 boys are born against every 100 girls across the country, according to the National Population and Family Planning Commission.
In five provinces, the figure even surged above 130, the commission said. Analysts say a proportion of 106 boys for every 100 girls can be considered normal.
China will have a male population of up to 30 million in 2020 who may not be able to find wives and partners because of the gender imbalance, Xinhua news agency cited Li Weixiong, a member of the People's Congress and also deputy director of China Economy and Society Reach Committee, in a previous report.
Meanwhile, China is also expected to see its largest population mobilization when 300 million people enter urban centers in the next two to three decades, Li warned.
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