Category: Econ & Business

Asia Private Equity

Here’s an excerpt from the July 6 edition of the Asia Private Equity newsletter. You may want to re-read Saru’s earlier posts on Chinese currency as background.
RMB Notes Part 1
RMB Notes Part 2

These days, however, there is really no place in America that hums with the kind of 24-hour activity that Beijing has. But this week in Beijing, an official of the State Administration for Foreign Exchange (SAFE) showed up at one of China ‘s principal private equity events and delivered enough bad news to make every Beijing Duck eating capitalist dyspeptic. SAFE, the government agency that has brought private equity in China to its knees in six short months by issuing two controversial circulars in January and April, is, according to the official, pretty pleased with itself and the progress it’s making in developing regulations to prevent rich Chinese entrepreneurs from secreting away hundreds of millions from their IPOs in the U.S., in banks in the Cayman Islands or other places.

The problem with the understandable desire of Chinese authorities to tax its citizens is that in trying to accomplish that goal, it has effectively brought down the curtain on the clever legal structures, WOFEs, developed in 1999, which private equity firms have used for the last six years to get their money back out of China investments. And according to SAFE’s Li-Ping Lu, there is nothing on the horizon, other than a bunch of cranky Chinese and American VCs, that is likely to change the current situation.

When Lu shared those and other less positive views, the PE professionals in Beijing this past week turned as surly as a bunch of striking teamsters. WOFEs are, it seems, pretty much dead in the water. And until somebody in the Chinese government does or says something different, private equity firms are having to retreat into joint ventures (sometimes referred to as Chinese PE roach motels–investors check in, but they don’t check out) or giving their portfolio companies bridge loans until or even more troublingly, working with Chinese partners on the basis of “gentleman’s agreements.” When is the last time you saw a VC fork over a million for a handshake?

To paraphrase Bill Murray in the movie Groundhog Day, it’s going to be a long, hot summer. And it’s never going to end.

— Editor Jerry Borrell (jerry.borrell@thomson.com)

Crazy — Namco and Bandai to Merge


VS.

I’m too tired to think of anything but postal privatization these days, but here you go:

Japanese toy and game firms merge
May 3, 2005

By Shingo Ito

Japan’s top toy maker, Bandai, known for its Gundam sci-fi robots, yesterday announced it would merge with Pac-Man maker Namco to survive tough competition in an ever tighter market of fewer and fewer children.

The merger, which would create Japan’s second-largest toy and game firm after Sega Sammy Holdings, could take on the dominance of Walt Disney, Bandai president Takeo Takasu told a news conference.

“It is the best match considering the characteristics and strengths of both companies,” Takasu said.

“In terms of content, Disney may become our competitor and as for the location [of game arcades], we will compete with Sega.”

The two companies said they needed to consolidate to face up to demographic realities in Japan, which has one of the world’s lowest birth rates as young people increasingly push back marriage, leaving the population ageing quickly.

“Global competition is intensifying in the world’s entertainment industry as technological innovation has enhanced the networking environment,” the two companies said in a joint statement.

“On the domestic market, we face the strong need to win customers with the number of children decreasing and hobbies and pastimes diversifying,” the statement said.

What better way to celebrate the 25th birthday of Pacman, the character that built Namco into what it is today, than to destroy the company as it has always existed? Just for the hell of it, here are some reviews from some of both companies’ great products:

Mobile Suit Gundam: Gundam vs. Zeta Gundam

July 4, 2005 – I’m lazy, and I’m writing this review (if you even call it that) in an attempt to equalize the absolutely astoundingly high reviews some of you gave this game. Why not give the general public some respect. A good show does not reflect a good game, so use some common knowledge, and throw your fanboyism out the window. Here are some quotes by Ed in his recent mailbag that I would like you all to read:

“Yeah, it’s obvious that this is a game for the fans. It has the word Gundam in the title three times over so that the idiots who like the series couldn’t miss it even if they tried. Seriously, who the hell has the franchise name done in triplicate? But as for the casual gamer who wants to jump into it, I couldn’t recommend it at all. The battles were boring, the controls pathetic and the graphics could barely hold up the meager attempt at any visual style they tried to project.

As an overall experience, the game was just lacking in several ways. After hours of play I couldn’t see any reason to go on unless you really loved the sword-wielding bots.

How about Namco?


Namco Museum Volume 1

PATHETIC EXCUSE FOR A GOOD GAME
I played this game and I hated it. The game isn”t even worth playing because it has so little to it. Its just the same boring games rereleased so namco could make a quick buck from an old classic. I wouldn”t even give this game 1star if I had the choice.

Looks like they both suck. Case closed. Just kidding, they are two of the coolest companies ever.

Taiwan Retailers voluntarily removing US beef from shelves amid mad cow fears

More in our continuing coverage of mad cow disease panic.

Taipei Times reporting that some retailers are voluntarily removing American beef from their shelves following the recent announcement of a second confirmed case of BSE (mad cow disease) in an American animal.

Some local supermarkets and those in Shin Kong Mitsukoshi Department Store (新光三越), Breeze Center (微風廣場) and Pacific Sogo Department Store (太平洋崇光百貨) have echoed the Consumers’ Foundation’s (消基會) call to halt the sale of US beef.

However, other major retailers, including Carrefour, RT-Mart (大潤發), Tesco and Costco, have claimed they will abide by the government regulations and continue to sell their stock of US beef. Removing beef products will lead to immense financial losses given US beef’s dominance in the market.

Costco, the nation’s largest importer of US beef, has sold an average of 22.5 tonnes of US beef, or NT$10 million (US$320,000), per week since the import ban as lifted on April 16.

No word yet on whether Yoshinoya Taiwan will be continuing to use imported American beef. I just found an actual 24 hour open Yoshinoya only a few minutes bike ride from my apartment (and next door to a Mos Burger!), so as long as they serve gyudon I’ll be eating there, regardless of this irrational fear resulting from isolated cases. BSE is certainly worth being scared of-a terrifying disease where your brain basically rots in your skill-but so far there’s no evidence that anyone has actually eaten meat from an infected US animal, in contrast to the genuine outbreak in Britain several years ago in which dozens of people died.

Bandai lists top cartoon characters in Japan: Anpanman #1 4 years running


Yahoo News (Thanks 2ch):

According to Bandai‘s “Children’s Favorite Cartoon Characters Ranking” released on June 22, “Go! Anpanman” was the top choice for boys and girls for the fourth year in a row.

At #2 and below were, in order: “The Precure Duo“, “Pocket Monsters“, “Winnie the Pooh“, and “Hello Kitty“.

Anpanman was overwhelmingly preferred by the 0-2 age bracket, with 58.6% choosing him as their favorite. For 3-5 year olds the top was “Precure” (LINK NOT SAFE FOR WORK), a show popular among young girls. “Pocket Monsters” was the favorite for both the 6-8 and 9-12 age brackets.

On Anpanman’s popularity, Bandai gathered, “There are lots of characters that show up on the show, and the stories, where the goodguys always win, are easy to understand and entertaining for both children and their caregivers.” (Metropolis magazine online has a good article on the origins and popularity of Anpanman)

The survey asked the opinions of 2000 caregivers of children 12 or under in the beginning of April of this year.

NEWS FLASH OMFG: FAMILY MART TO OPEN IN AMERICA!!!!!


AP brings good tidings:

Japan’s ‘Family Mart’ to Open in U.S.
06.21.2005, 09:14 AM

AWESOME Japanese convenience store operator FamilyMart Co. said Tuesday it plans to open 200 stores in the U.S. over the next four years, the first in California.

The inaugural U.S. store will open July 20 in West Hollywood, California, under the name “Famima,” the nickname widely used by Japanese.

It will offer traditional Japanese convenience store staples like “omusubi” rice balls, “bento” box lunches and sushi, as well as U.S. fare like takeaway sandwiches, the company said in a statement. < -- I've died and gone to heaven! "We would like our American customers to experience a new shopping style," it said. FUCK YEAH, I have been waiting for this for EIGHT YEARS!!! The store will also feature wireless Internet access, an ATM, a copy machine and an eat-in area, it said. COOL! The company said it plans to have three U.S. locations by the end of the year and about 200 by February 2009. OPEN ONE IN DC. I BEG YOU. FamilyMart already has about 11,500 stores, including franchises, in Japan and other Asian locations including South Korea, Thailand, China and Taiwan.

Guess what? When “Famima” opens in DC, I never have to go to Japan again! I’ll just eat lunch there every day! Haha! I never thought Forbes Magazine would make me feel like dancing on air, but then I never expected this either! Joy!

University seeks protection after students dry up

The From the Japan Times has just reported the first case of something that a lot of people have been expecting for a long time.

Hagi International University in Yamaguchi Prefecture was expected to file for protection from creditors with the Tokyo District Court as early as Tuesday due to a shortage of students, city officials said.

The institution will be the first university to apply for court-led rehabilitation in Japan due to a student shortage, the Education, Culture, Sports, Science and Technology Ministry said Monday.

Similar cases may follow due to Japan’s declining child population.

Most readers already know that low birth rates in a number of industrialized countries, in particular Japan and South Korea, have fallen below the death rate, meaning that the total population will soon start declining. The most obvious sympton of a declining population of young people is the closure of schools. With less young people, there is obviously less of a need for schools to educate them. Is this the first school closure of many? What’s the real story behind Hagi International University?

The private university with four-year international studies courses, the institute’s single department, was founded in 1999 with 4 billion yen in subsidies from the Yamaguchi prefectural and Hagi municipal governments.

This sentence should be a massive red flag. Haji International University was a complete and utter joke. Aside from the utter arrogance of giving the prestigious label of ‘university’ to a tiny school with only a single department and a handful of students, Hagi International University never had any reason to exist in the first place. Japan’s coming population decline has been a widely known issue for years now, and nobody with even the slightest bit of common sense would have ever come up with a plan to actually build a NEW one in 1999!

The university has tried to recruit 300 students a year, but enrollment has fallen considerably short of expectations from the first year, with only 22 students enrolling in 2004 and 42 in 2005.

To deal with the shortage, the university increased admissions of foreign students in 2001. But immigration authorities became increasingly reluctant to issue visas to students from China after many foreign students disappeared after entering the country.

What stupidity. I suppose this school was nothing but another of the utterly superfluous public works projects that Japanese local government is famous for. If any of the officials involved in the establishment of this school still have their jobs, they absolutely deserve to lose them now. In fact, they probably could also stand to be investigated for corruption or illegal profitering. Four billion yen in government subsidies went into the construction of this abomination of a ‘university’ which has now filed for bankruptcy protection, and I would be willing to bet that some fraction of that money ended up in the wrong pockets.

Japan’s population decline is a serious issue, and there may very well be consequent school closures in the future, but this particular case is no such thing. Hagi International University only ever had a total student body of 194 students, out of a planned capacity of 1200. Clearly even if Japan’s population were holding steady, or even growing at a moderate rate, this school was built far, far too large to ever be sustainable.

Post Computex Photo gallery. Part 1 – Gear

There are a lot of candidates for the center of the world’s IT industry: Cupertino, Redmond, Palo Alto, Tokyo, Seoul, – but these days it seems to be Taipei.

The definitive expression here is DIY, widely known in English speaking countries as an acronym for Do It Yourself, but here in Taiwan adopted as a uniquely specific lexical item referring just to the homebrew computer industry. If you walk into any of the many, many, many expansive computer stores in Taipei you will be overwhelmed by a selection of parts unavaliable at all but the rarest of US computer stores, and more interesting struck by the odd lack of brand name desktop systems.

“Here in Taiwan, if you can’t make your own PC you’re not a man,” I was told earlier today by a Taiwanese guy named Kevin. This is a sentiment that I can imagine evoking a kind of cultural jealousy in hardware geeks throughout the entire planet.

This little number from Foxconn has the distinction of being one of the coolest and best looking PC case designs I have seen. They also have the fine distinction of having provided one of the exhibitor ID tags that was used to sneak me into the show.

On Sunday I had the pleasure of attending Computex, Taiwan’s trademark computer and technology expo, the largest in Asia and the second largest of its type in the world after Hannover, Germany.

Of course I took a number of photos, and here is a sample of them. I have divided photos into two parts: Gear and Girls, since as everyone knows the motivation for attendance at these tech industry shows is based almost equally on both of those things.


Some of the literally hundreds of case designs on display.


This is exactly what we’ve all wanted for all these years! Screw laptops, next time I buy a portable I want something that looks like Q cobbled it together.


This isn’t an ipod shuffle, but an unreleased prototype product of the socalled iVogue mp3 player line from Jetway. They estimated a July release date, but the website doesn’t even have a listing for these products yet, much less pricing information.


Easily the most impressive piece of actual new technology I saw at the show. This is an experimental prototype CPU cooling system, from Korean manufacturer KM Korea. The demo had a chip of some kind running at about 50 celsius, quite hot to the touch. You press the button and it activates their cooling device, and the heat instantly drains away from the chip surface, cooling it to about 15 celsius in only a couple of seconds. I have no idea how it works, and where the heat is being dissipated to. Perhaps the table concealed some kind of wormhole, through which the heat is sent into whatever dark dimension in which Cthulhu waits.

More beef with the Japanese government

Well, it wasn’t hard to see this one coming. Although I must admit, I thought it wouldn’t happen until shortly after the ban on U.S. beef imports was lifted.

The Australian Broadcasting Corporation today ran this story on fears that Japan would raise the tariff on frozen beef imports 11.5 % to 50%, up from the current 38.5 %.

If any of this sounds vaguely familiar, that’s because it’s all been done before.

Following Japan’s first mad cow hysteria a few years back, Japanese beef consumption fell, for domestic beef at least. To compensate for the fall in supply, more beef had to be imported. (Those of you in Japan at the time might remember Yoshinoya’s now sadly ironic 100% American Beef campaign.) The resulting increase in imports triggered the tariff, which took effect on August 1, 2003 and lasted until the following April.

Now there is talk of that same tariff taking effect this August as well.

How can Japan get away with this you ask?

Well, it’s easy. Under the Uruguay Round, Japan agreed to lower tariffs on imported beef from 50% to the current 38.5%. However, it retained the legal right to reinstitute the 50% tariff in the event that imports increased 17% or more on a quarterly basis.

The reasoning behind allowing such recourse was to safeguard domestic producers against sudden surges in imports, which is very much the idea behind other types of safeguards also allowed under WTO regulations.

According to the WTO:

safeguard measures are defined as “emergency” actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member’s domestic industry.

The catch is that these temporary measures were meant to protect against unfair trade practices. They were never intended to be used as an unfair trade practice.

Theoretically, safeguards give domestic producers of cattle or any other traded good time to restructure the industry or take some other sort of defensive measures to increase competitiveness. But the fact is that the competitiveness of Japanese cattle farmers is not the issue here.

The issue here is that domestic beef consumption is rising to once normal levels, and that has automatically triggered the tariff. Ironically, as pointed out by an article in yesterday’sAsahi print edition (sorry, I couldn’t find this online), imports of frozen beef are actually 28% below 2004 levels!

Clearly the danger here is not for Japanese cattle farmers, but for Japanese consumers who will inevitably have to bear the cost of the tariff and its misuse by their government. The cost of beef has already risen by 20% wholesale and 10% retail since the ban on U.S. imports. Now consumers face another potential price hike because of the tariff.

As for the winners, we have the domestic beef industry, in spite of turning up 15 cases of BSE in recent years, and agriculture interests within the government, which doesn’t make out too badly itself, given the destination of those potential tariff revenues.

News Marathon 9: Press Release: East Japan Bank to Begin Selling Japan Investment Trust Management Co.-managed “Japan Good Dividend Rebalance Open”

This is to inform that East Japan Bank will begin selling Japan Investment Trust Management Co.-managed “Japan Good Dividend Rebalance Open”.

The money management fund “Japan Good Dividend Rebalance Open” is a fund operating with the objective of bringing equal-weighted investments by ranking the Nikkei 500 stocks used in the average in order of highest predicted dividend earnings yield, and using the top 70 brands as investment targets.


(1) Using stocks on the market in Japan’s securities markets, the fund operates with the proactive goal of developing trust funds.
(2) In operation, the fund ranks the Nikkei 500 stocks used in the average in order of highest predicted dividend earnings yield and uses the top 70 brands as investment targets.
(3) In investments, we operate fund allocation to each brand with the goal of always bringing equal-weighted investments. However, depending on the scale of trust funds, stock price changes of capitalized brands, and wether the trust funds have entered redemption reserves the fund may not be equal-weighted investments.
(4) The fund will undertake review of the capitalized brands and adjustment of the capitalization ratio (rebalance) once a month.
(5) The fund will undertake a closing of accounts 4 times a year (the 7th of Jan., Apr., July, and Oct. (when that day is a holiday it will be done on the next business day) and shall as a rule pay dividends at those times. The dividend amount of the January account settlement shall be decided based on the baseline price standard if the baseline price is above the initial principal.

END.

Why Paul Krugman Should Stick to Economics

Full disclosure — I am not a huge Paul Krugman fan. I do not mean that in the sense that I do not like the man or his work. For the most part, I do. I only mean that I own just one of his many books, and that happens to be the International Economics text book he co-authored with Maurice Obstfeld. (I have, however, read everything he has written on the Japanese economy.)

Nevertheless, I do recognize that not only does Professor Krugman understand economics, but he also has a brilliant gift for making it understandable (and even enjoyable) to others.

Consider this example from today’s NYT:

Here’s how the U.S.-China economic relationship currently works:

Money is pouring into China, both because of its rapidly rising trade surplus and because of investments by Western and Japanese companies. Normally, this inflow of funds would be self-correcting: both China’s trade surplus and the foreign investment pouring in would push up the value of the yuan, China’s currency, making China’s exports less competitive and shrinking its trade surplus.

But the Chinese government, unwilling to let that happen, has kept the yuan down by shipping the incoming funds right back out again, buying huge quantities of dollar assets – about $200 billion worth in 2004, and possibly as much as $300 billion worth this year. This is economically perverse: China, a poor country where capital is still scarce by Western standards, is lending vast sums at low interest rates to the United States.

Yet the U.S. has become dependent on this perverse behavior. Dollar purchases by China and other foreign governments have temporarily insulated the U.S. economy from the effects of huge budget deficits. This money flowing in from abroad has kept U.S. interest rates low despite the enormous government borrowing required to cover the budget deficit.

Low interest rates, in turn, have been crucial to America’s housing boom. And soaring house prices don’t just create construction jobs; they also support consumer spending because many homeowners have converted rising house values into cash by refinancing their mortgages.

(To see the point o read the rest of the story here. Trust me, it’s worth it.)

Now, compare that to his May 16th op-ed, “Staying What Course?,” which is nothing more than another liberal gripe about the War in Iraq. And the New York Times has enough of those already.

It doesn’t require a PhD in Economics from MIT to see that the United States, “isn’t just bogged down in Iraq; it’s deteriorating under the strain. We may already be in real danger…” Any reader of the NYT who happens to be in a semi-conscious state would have picked up on this in reading through the 24 pages that preceed the op-ed section.

So please, Mr. Krugman, I have absolutely no objection to your criticizing the policies of the Bush Administration, and most often I even agree with you. But please, please, stick to economics.