The Bull Run To ChinaLeah Nathans Spiro
Vendors hawking T-shirts at the Great Wall. A standing-room-only McDonald's two blocks from Tiananmen Square. To money manager Michael F. Holland, vice-chairman at brokerage Oppenheimer & Co., it seemed as if China's long-suppressed entrepreneurial spirit was flourishing everywhere. But the highlight of his 10-day fact-finding jaunt in early November was an hour-long meeting in Beijing's Forbidden City with Zhu Rongji, China's senior vice-premier and economic czar, to discuss a possible joint venture. "I am a jaded old war horse. I was awestruck," says Holland.
On Wall Street, everybody who is anybody, from money manager Julian Robertson to buyout maven Theodore Forstmann, seems to have just visited China. In New York, four separate conferences on investing in China were held during one week in November. U.S. investment banks are staffing up in Hong Kong, vying for China experts, and currying favor with Chinese government leaders. "During the 1980s, we were interme-diaries for hundreds of billions incapital flows out of Japan. That gameis over, and the focus has shifted to China," says John S. Wadsworth Jr., head of Morgan Stanley Asia Ltd.
So far, U.S. firms haven't chalked up big profits from China connections. But that hasn't stopped them from betting that despite a Communist Party clinging tenaciously to power, China's economic reforms are now irreversible. Many on Wall Street believe that China is commercially and financially coming of age and that the reform program presents big opportunities. And bankers expect the huge inflows of capital into Chi-na from wealthy overseas Chinese to continue.
Much of the excitement stems from the potential for China's equities. Despite serious problems with Chinese accounting practices, on Oct. 9, Brilliance China Automotive Holdings Ltd., a Bermuda holding company that owns the largest minibus manufacturer in China, became the first Chinese company listed on the New York Stock Exchange. The stock has since soared from 16 to 32. "We're likely to see some 5 to 10 transactions in 1993 as high-profile and lucrative as this," says Bryant W. Seaman, a director at First Boston Corp.
LONG SHOT. But China's regional stock market in Shanghai has plunged lately. That hasn't stopped Merrill Lynch & Co. from underwriting an offering by Shanghai No. 2 Textile Machinery Co., a state-owned operation converted into a corporation whose shares are traded on the Shanghai exchange. "The standards for disclosure and investor protection in China aren't as high as Western standards," says Hank Tsang, a Merrill director in Hong Kong. "It's really a matter of gambling with higher risks for the opportunity of higher returns."
Lured by hefty tax breaks from the Chinese government and the prospect of fat finder's fees, U.S. investment banks are seeking to broker joint ventures between Chinese and American companies. In mid-November, M. R. Beal & Co., an African-American-owned investment bank, ushered a group of 56 businessmen from Shenzhen, a special economic zone near Hong Kong, to meet with potential partners in the U.S. "We want to promote ourselves to the world," says Dao Ming Zhao, director of Shenzhen Petrochemical Co., which has hired an American accounting firm to help it gain a U.S. exchange listing.
The biggest payoffs, American investment bankers feel, could be direct investments in Chinese real estate or infrastructure projects. "The next wave in China will be principal investing as partners with the Chinese," says a U.S. investment banker with three such deals in the pipeline. Oppenheimer is negotiating with the government on such projects as highways and theme parks.
Wall Street, though, has a long history of chasing hoped-for bonanzas that turn out to be dry holes. Little has come from forays into Eastern Europe and the former Soviet Union. China's current open-door stance could be hurt by friction between Hong Kong's pro-democracy government and China, which has sent the Hong Kong market plummeting. And President-elect Bill Clinton may take a tougher line with China. "It could all blow up in the next month," admits one U.S. banker. But in the meantime, Wall Streeters are likely to keep scrambling to implement Communist leader Deng Xiaoping's slogan: "To get rich is glorious."
TABLE: WHAT U.S. INVESTMENT BANKERS ARE UP TO
Taking Chinese companies public in China and the U.S.
Teaming up with the Chinese government to make direct investments in infrastructure projects
Brokering joint ventures between U.S. and Chinese companies