China with a capital C

Scott Jagow Jul 5, 2007

TEXT OF INTERVIEW

Scott Jagow: China has a voracious consumer appetite. People are getting richer. They want other people to know it. They are buying and spending. Spending and buying. So many foreign companies are making a fortune right now, or at least staving off troubles at home by selling things in China. Today, Toyota and Ford reported some pretty impressive sales growth for the first half of the year. Toyota sales in China were up 77 percent. Ford sold 25 percent more cars than the first half of last year. Both those companies though are still behind GM and Volkswagen in China.

China’s also seeing a boom in companies going public. A report out today says the Chinese stock market could see $52 billion in IPOs this year. That’ll put it on track to outdo every other country in the world. But after this figure came out, Chinese stocks plunged. We turn now to Robin Kwong, a Financial Times reporter in Hong Kong. Robin, first of all, what’s driving all this IPO activity?

Robin Kwong: I think one of the points to keep in mind is that these aren’t necessarily IPOs of completely new companies. In fact the majority of this is actually by companies that are already listed in Hong Kong or they’re companies that are IPOing with both a simultaneous Shanghai listing and also a Hong Kong listing. So a large part of this is a wish by the Chinese government for them to return home to a mainland stock listing because there’s this huge liquidity problem and they want more listings on the stock markets for investors to pour their money into.

Jagow: But then today the Shanghai index drops 5 percent, investors don’t seem to like it. Why not?

Kwong: Well one of the things to keep in mind is despite sort of the jitters in the last few weeks, the Shanghai index has gone up incredibly since a year and a half ago. The Chinese government has repeatedly said that they’re worried about a stock market bubble so what the investors are worried about right now is a policy risk, of China taking really stringent steps to cool off the stock market which would cause it to crash right now.

Jagow: How are other countries reacting to this? For example, the U.S., it might be missing out on some of these IPOs.

Kwong: I think it’s sort of an ongoing issue in the U.S. with sort of stricter regulations on listings with Sarbanes-Oxley that the U.S. is missing out on IPOs generally but I think the concern with China is added to the fact that the Chinese government really wants these companies to list in China, and there are still a lot of state-owned companies and state-owned companies pretty much have to do what the government wants them to do.

Jagow: Alright, Robin Kwong, the Financial Times reporter in Hong Kong, thanks so much for joining us.

Kwong: Thank you Scott.

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