China Tells

Imagine yourself to be the poker player on China’s side. These are the cards in your hand: the biggest USD reserve in the world (2 trillion USD) with an uncertainty on its value, the record trade balance with major trading partners such as USA, an economy with its urbanization rate at about 40% which is way lower than the world average (50%), a nation with 1.3 Billion people of its GDP per capita at around $5000 which is about one eighth of the richest league. On top of that, China has already grown at a world record speed, and need to continue to grow at such a speed for at least another decade, if she is serious about her pursuit of becoming an influential power in today’s world.

One of the moves from this poker player, is to form a state owned company called CIC (China Investment Corporation) with 10% of its USD reserve (200 billion) to make more efficient use of the capital. It probably helps to go through the list of CIC’s major holdings so far:

1. Blackstone, USA, Financial, 9.9%, 3 Billion
2. Morgan Stanley, USA, Financial, 9.9%, 800 Million
3. Visa, USA, Financial, 100 Million
4. JC Flowers, USA, PE Fund, 80%, 4 Billion
5. Diageo Drinks, Beverage, 1.1%, 365 million
6. Tesco, Supermarket, 0.5%,
7. CITIC, China, Financial, 40%, undisclosed
8. Teck Resource, Canada, Mining, 17.2%, 1.74 Billion Canadian Dollar
9. Noble, Hongkong, Commodity Trading, 12.91%, 850 million

Several observations from the above list:

1. Private equity investments are seriously over-valued
2. Financials returns are still unclear and vulnerable to bigger fall out
3. A trend of wind change from Financials to Commodity sector.

IT is interesting to note that, CIC’s quest in Teck and Noble is consistent with the move from other SOEs in the appetite for material and energy producers. Below is the list:

1. Chinalco: 3 Billion in Morococha, Peru, 9% in Rio Tinto, 19.5 Billion
2. Sinopec: 7.2 Billion, Canada, Addax
3. Yanzhou Coal Mining, 2.9 Billion, Australia, Felix Resource
4. China Minmetals, 1.39 Billion, Australia, Oz Minerals
5. Petro China, 1.7 Billion, Canada, Athabasca Oil Sands Corp
6. China Government, 16 Billion, Venezuela, Oil

The question is: is the world ready for China’s stomach?