IE China: Final Reflections

My International Experience trip to Shanghai, Nanjing, and Beijing was extremely educational and informative. Hearing from Chinese citizens working in the financial sector and experiencing daily life in the country adds important perspectives to what I have read in the press. I’ve summarized some of my final impressions below:

China’s Economic Growth
Three things in particular struck me about China’s economic growth. First, and unsurprisingly, the speed and scale of growth is impressive. I heard several Chinese citizens say something to the effect of, “We’ve completed this major task [property development, stock market development, etc.], and it’s all been done in the past 20 years.” The streets of Nanjing were coated with the dust of construction and development as the city prepares to host the 2014 Summer Youth Olympic Games. I was also struck by the unevenness of China’s growth. Spectacular new buildings rise proudly next to older, much lower quality buildings. The most surprising example of this phenomenon was the modern Shanghai Stock Exchange building sitting across the street from a decades-old apartment building.

Finally, I saw some aspects which made me question the quality of growth. I was surprised that some of the newer buildings appeared to be aging quickly. No building surprised me more than the Beijing National Stadium (“Bird’s Nest”), home of the 2008 Olympic Games Opening and Closing Ceremonies. The building was showing visible wear that I wouldn’t have expected from a building less than four years old.

Finance in China
Our trip was finance-focused, and the trip produced several insights. First, the Chinese market is full of inefficiencies because it has an enormous retail investor base but lacks institutional investors. Institutional investors have demonstrated much more success beating the market in China than elsewhere because of the heavy retail investor participation in that market. Second, some practitioners expressed to our group how security selection in the Chinese market could be approached differently than in the West. Because of the large-scale government intervention, industry selection may be more important than single security selection, as the government can quickly prioritize one industry over another. Security selection would still play a role, though.

In addition, many of the top financial firms in China have strong connections to the government and benefit from those relationships in, for example, getting IPOs approved. On the other hand, government can be unpredictable or have burdensome restrictions, such as longstanding short-selling restrictions (which have recently been relaxed). So government can be beneficial or harmful, or often both, to a particular company.

Miscellaneous Observations
As best as I can tell, the rules of the road in China are as follows: the person who gets in the way is the person who has the right of way. I felt like movements of traffic participants were one step removed from anarchy. I think I irritated the person in front of me on the bus as I repeatedly gasped about one perilous situation or another. On the other hand, I appreciated several traffic management features. Signals at larger intersections featured clocks that counted down the seconds until the signal changed, and larger streets had separate and protected lanes for bicycles and motorcycles. Overall, my time in China allowed me to see the growth, innovations, shortcomings, and hope for a developing economy.