Wednesday 06 Oct 2021 | 18:33 | SYDNEY
Wednesday 06 Oct 2021 | 18:33 | SYDNEY

More on China rise


Stephen Grenville

15 November 2007 15:20

Sam Roggeveen's short post on China, arguing it is no longer rising but is risen, brought this response from reader Julian Rowberry:

China have risen a great deal.  They still have a great deal further to rise.  But the only conclusion I can gather from Petrochina is that their equity market is under an asset inflated bubble, due to capital restrictions with real interest rates negative. Class A shares in Shanghai are clearly not priced the same way as they are out of China.  The exact same shares traded at Shanghai, in Hong Kong are traded at massive discounts.  With their rampant inflation, bank deposits earn less interest than erosion through inflation.  A rising asset class is too tempting. Exxon Mobile is decades ahead of Petro on quality of tenements, experience and research & development. PetroChina earnings grew less than 2% to $11 billion, whilst Exxons were $20 billion.  Petro, traded in Shanghai, where only 2% of the company was sold, trade at 54 times earnings. In Hong Kong, 22 times earnings (The hang seng had risen 50% since it was announced a plan for mainland Chinese to invest there. Clearly, the Hang Seng has been trading at a premium expecting a massive influx of capital). Exxon trades at 12 times earnings in an open market.  This very clearly displays the fact that China's markets are shut off to foreigners and overseas markets are no go to most mainlanders.

I'd need a financial adviser's licence to answer this properly, so I'll duck the issue of overvalued and inconsistent share pricing. But it might make sense for China to allow its citizens to invest in the outside world (maybe step-by-step opening rather than open slather). This would take some of the upward pressure off the exchange rate and put more of the foreign assets in the hands of the Chinese public, which will ease the pain in the central bank's balance sheet when the renminbi appreciates. It might mute American's bleating for a while, as well. But at the same time let's hope the Chinese public understands that investing overseas is, in risk terms, only one step short of a gamble at the Macau casinos.