SVB Bank: ‘Made in China’ to ‘Invented in China’

9 Feb

The Chief Representative of China SVB met with us in Innovation Park (so hip, so modern) and provided our class with a lot of information on how the banking sector interacts with the Chinese government. Here are some photos of the discussion, including the supposedly rare snowfall. Thanks to Ruben, there were several Shanghainese that day to arrive at their car with a little message.

So I will try my best to take you on the same fact journey that we went on to learn about how China has developed in the past 10 years and how it compares to the United States.

  • Before 2000 there were virtually no private equity or VC’s in China
  • In 2010 there were 200 IPO’s by Chinese companies, way more than the US
  • China has 2 stock exchanges, the Shenzhen stock exchange and the Shanghai stock exchange
  • The PE multiplier is much higher in China than in the US
  • The average American company takes 10 years to IPO (most companies do M&A’s)
  • The average Chinese company takes 4 years to IPO.
  • China wants to go from everything being ‘Made in China’ to “Invented in China’
  • Part of the startup success in China is due to the fact that loans used to be extremely difficult to obtain. Banks used to ask, ‘Do you own property or land?’ No land, no loan. Nowadays, banks value IT and people as assets- and loan out money accordingly
  • Result? There are 65,000 billionaires in China

Macro Trends:

  • Low cost manufacturing is a thing of the past! Well, kind of. Nowadays the focus is leaning more towards innovation.
  • A major problem in China is high housing, local people need low cost government housing. Bubble? What do you think?
  • The income disparity is w   i    d   e    r – despite the standard of living increase.
  • There was 250 million people living under poverty, now there is only 30-40 million.
  • For every $1 bank deposit, the bank has to put 19.5 cents into their required reserve. So, if I deposit $100 into a Chinese bank they can only lend out $80.
  • The government fears social unrest and works to have a minimum of 8% annual GDP growth to prevent rebellion.
  • China is somewhat reluctant to play a role in international markets.
    • Only 12% of GDP is dependent on exports
    • The government is trying to increase consumption
  • There is an ecosystem in the works for entrepreneurs. There isn’t really a sophisticated one in place right now. (Opportunity?!)
  • There is a lot of competition amongst Chinese cities, regions, and the world. This offered up a LOT of insight as to the way China plays ball. Basically every Chinese city has its own government and money. Every quarter, each district governor meets and gets a report card based on where they stand compared to the total 11 districts. There is fierce competition to become ‘the best’, and the drawback is that if every district has the same goal (Ex; steel plant growth) then their will be over capacity issues in certain areas/industries. Otherwise, it has proven to be very powerful and effective.

Great speaker, good tea, good company. My fingers are tired from typing, confirming that we learned a lot during this presentation. Time for dumplings!

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3 Responses to “SVB Bank: ‘Made in China’ to ‘Invented in China’”

  1. Abby Jeffords February 10, 2011 at 2:28 am #

    The real estate situation came up in this meeting, as it did in almost every single meeting we had on our trip, but funnily enough, only a couple of our presenters took a stab at providing us with a prediction for the future of the real estate market in China. Here’s my shot at forecasting and answering Lola’s “Bubble?” question above.

    I believe that the current bubble in the Chinese real estate market will not burst for a very long time. If it is true that every male must purchase a residence in order to secure a wife, there will never be a lack of demand for housing in any part of the country. It is true that there is currently a push to increase the availability of lower cost housing, but based on the sheer size of the Chinese population, and the anticipated continued growth, I don’t think construction can keep up! What do you guys think?

    • Lola Catero February 10, 2011 at 6:26 pm #

      It’s is true that the ritual of buying a house is very much a part of their culture, almost a ‘right of passage to their adulthood’- that will help delay a bubble if it happens. I think that the possibility of a bubble burst is still very real, but strategic long term planning on the governments part could avoid one. Whether they focus more on short term economic growth and balance that with long term prosperity remains to be seen.

  2. Ruben Mkrtichyan February 19, 2011 at 6:05 pm #

    I agree with Abby, the demand will grow or stay the same, but what if people face a situation where even if they really need to buy a house , they simply will not be able to afford one. Won’t this lead to the decrease in housing prices?

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