h/t to China Digital Times for this picture posted on Netease.
It is timely as my director and I were talking about the difficulties of new graduates finding good jobs now, and the fact that all the babies born in 2007 (year of pig) and 2008 (Olympic babies) are probably going to create a very tight education and labor market circa 2026.
In any developing economy, there is a feeling that one must take advantage of any opportunity. for China’s part money has flowed into nearly ever sector of the economy from domestic and foreign investors..
From a manufacturing perspective, the same mentality also exists. Manufacturers will cut to the bone to get business, and there are some firms who have done very well through this system in knocking down costs.
When I read the Cargonews Story (free subscription) Mainland ports take off the gloves and focus on integration I was not surprised to learn that the ports themselves have also been agressively pricing and attracting business from neighboring ports.
The bruising rivalry between ports in the Yangtze River Delta - most notably that between Shanghai and Ningbo - is over, and the focus is now on integration and quality rather than boosting box numbers.
It is something that is prevalent in the trucking, warehousing, and other areas of logistics, however as few manufacturers or traders operate at this level it is a problem that many would not see DIRECTLY on a regular basis.
I say directly, because there are tons of indirect costs that result, and some of these costs are why we see logistics account for 20% of GDP in China vs. less than 10% for US/ EU.
Through our recent research on the Yangtze, we ran into a lot of cases where Shanghai port had investments in upstream ports, and at first I thought it a bit odd. We were told of the “synergies” being created and how ports were trained by the Shanghai Port officials… which made sense at the time, but apparently that wasn’t the whole story.
“It is quality instead of just quantity that should be the goal of Shanghai. It’s high time for Shanghai and other delta ports to improve their software environment and ocean services.” Xu Peixing, a Shanghai Port Authority director
He noted Shanghai has injected more than US$134 million in port facilities in Wuhan, Chongqing, Anqing, Yangzhou, Nanjing and Nantong over the past two years and Ningbo is no longer a staunch rival.
Xu pointed out that Shanghai and Ningbo were jointly investing in the fifth-phase construction of Longtan port in Nanjing.
In the end, this integration and collaboration should have a positive impact on the shipping industry, and that benefit will trickle through to the manufacturing community as well.
The volumes of containers and break bulk items going through the various river and sea ports have been growing at a rapid pace, and that will only continue if everyone looks to the long term and works together.
For much of the last 2 years, I have been working to convince people that the opportunities in China go far beyound the city limits of Shanghai, Beijing, and Guangzhou. that if a firm looks at the cities of Wuhan, Chengdu, Xi’an, and Xiamen, they will uncover that there are some very interesting opportunities there, some strong talent, and financial rewards.
So when I read Chilton Investment sets sights on western China in the China Daily, I immediately saw this as a post. According to Richard Chilton Jnr, the company’s chairman and chief executive
Chilton Investment had visited Chengdu and Chongqing this year and found many high-quality companies with limited access to capital.
“For most of them, we were the first western investors to visit,” he said.
and al I can say is that it is about time. while I know there are firms (more manufacturing and real estate) focused showing interest (my second tier reports are one of All Roads most heavily trafficed posts), the fact is that many PE/ VC funds have shied away believing that the best deals are here.
The problem is that for firms in Shanghai, there is a tour that everyone makes and with so much attention, so much “love”, the expected valuations are off the chart… but it is easy right? the executives speak English (pay premium for that), they are McKinsey trained (pay premium for that), and their PPTs have embedded flash (pay premium for that).
Case in point, 2 years ago I was working with a portfolio of assets in Nanjing that offered a 90% chance of a 200% gain in 12-18 month time frame. the company holding the assets was going through bankruptcy court and was looking to roll out from their debt. The assets were clean, we had support from the court.. yet no one would bite.
why?
Following the piece on Prologis last week, it was a bit fortuitous that we would see an article in today’s Shanghai daily announcing Ascendas’s plan to raise nearly a billion USD.
For those that are not familiar with Ascendas, it is a Singaporean REIT with close ties to the Singaporean Government. Where Prologis was an early mover in the warehousing/ 3pl facility secotr, Ascendas (through their ties to the Suzhou Investment Park) went for the build to suit facility sector.. and it has paid dividends.
Much like Prologis, the Ascendas developments are world class (I will make trip next week to visit one of the Suzhou facilities), and though they initially had high hurdle rate expectations and were hated by all the big real estate firms Ascendas has done well expanding into other projects in Dalian, Hangzhou, Nanjing, Shenzhen, Suzhou, Tianjin, and Xi’an
And given their interest in raising a billion USD, the list is sure to include other cities (Chengdu, Chongqing, and Wuhan are my first guesses…Wuxi perhaps if the city can guarantee the water supply…. Guangzhou if there is a guaranteed power supply).
For Manufacturers who were once looking for a reliable infrastructure to build on, Prologis and Ascendas are definately making the job of finding space much easier. The only question is can you afford the rent.
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