Thursday, 22 March 2018

Review: The China Hustle

Dan David goes to Washington to ring warning bells, but no one listens
This documentary is required viewing for anyone who invests in China stocks. That practically means everyone. The producers of Enron: The Smartest Guys in the Room have made a film that complements The Big Short with a China angle.

The China Hustle talks about how the United States was barely recovering from the financial crisis of 2008-09 and the big stock traders needed to climb out of the red. What did they do? They looked to China.

Meanwhile Chinese companies were looking to the west for legitimacy -- or more importantly, money. How did they do it? Through reverse mergers. Reverse mergers are when a company finds a shell company that is listed on the stock exchange and buys it out but still retains the shell company's public listing. Boom! Overnight it becomes legit. Over 400 Chinese companies have done this in the US.

And with the keen interest in China, investors flocked to these stocks that promised crazy returns. Many people made lots of money, including one of the main characters, Dan David. He lists off several companies where he made 300, 500, 1,000 percent profit. He'd buy stocks at say US$1 and sell at US$5, and so on.

The film asks what is capitalism? Is it good or bad?
But then he gets curious and wonders if he and his partners are just lucky and decided to do some due diligence. He got some people to check out one of these Chinese companies and found that its real production numbers were no where near what it had claimed on paper in its filings with the Securities and Exchange Commission (SEC).

They surreptitiously set up cameras from outside the factory compound to monitor the traffic and assumed that there would be tons of trucks coming in and out, but in reality there was hardly anything going on.

One of their researchers posed as a man selling tea and wanted to give a sample to each staff member so he asked the guard outside how many staff there were. He said 40.

So David realized that there could be many more companies taking American investors for a ride and dug up more evidence. He start shorting those stocks and brought down those Chinese companies, and in the process won big.

Jim Chanos has been shorting China stocks for years
He wasn't the only one. There were a handful of others who realized the same thing, but did their research in different ways. That includes Carson Block, who named his company Muddy Waters after the Chinese saying, you cannot fish in clear waters.

The documentary also talks to Jim Chanos, who has called out the Chinese economy to be so laden with debt that it will collapse soon, but we have yet to see that happen. This is perhaps because the Chinese government is desperately trying to keep it all together, so much so that they detain the CEOs of companies and force them to get rid of assets to curb the risks, like in the cases of HNA and Wanda.

In the end these traders believe US$30 billion to US$50 billion was taken from American investors and the film names Chinese CEOs who have disappeared with hundreds of millions of dollars.

Where did that money go?

In real estate, particularly overseas like Hong Kong, Vancouver, New York, Sydney and shopping sprees for jewellery, art, cars, handbags, clothes and so on.

Carson Block of Muddy Waters brought down Sino-Forest
The China Hustle also exposes how the auditors, the SEC, the government, no one is really making these Chinese companies accountable; nor can the American authorities force Chinese CEOs to testify or give back the money. The Chinese government can't punish companies that have listed overseas either. There is no Chinese law against defrauding foreign investors.

Hong Kong gets some scenes in there when David addresses a room full of traders at the Asia Society in Admiralty, persuading them to help him short a Chinese stock. In the end it was his biggest win to date.

In the end, there is a big hint that more investigation needs to be done on Alibaba, though it's difficult to get a clear picture without all the paperwork available. One stock market blog says that even though Alibaba is trying to be more transparent, as of November 15 last year, it was the most heavily shorted stock in the world, with an open short position of US$23.1 billion according to financial analytics firm S3 Partners.

So -- it's a lesson that if something is too good to be true, it is. And we the general public need to be very careful about where we put our money. The China dream is just a mirage...

The China Hustle
Written and directed by Jed Rothstein
82 minutes

Wednesday, 21 March 2018

More Women in Higher Places

Carrie Lam at the annual Democratic Party dinner where she donated money
Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor has revealed some interesting surprises up her sleeve these past few days.

Yesterday she was the first city leader to donate to the Democratic Party -- Hong Kong's biggest pro-democracy party. At their annual dinner, Cheng donated HK$30,000 of her own money to sponsor former Democratic lawmaker Fred Li Wah-ming as he sang a Cantonese song. Overall the performance raised HK$320,000.

Baroness Lady Hale will be joining the Final Court of Appeal
And then today Cheng announced that for the first time, two female will join Hong Kong's top court to become the first female non-permanent judges in the city's judiciary.

Baroness Brenda Hale of the UK and Beverley McLachlan from Canada were already pioneers in their respective countries to become the first female judges in their top courts.

As a result, the Court of Final Appeal will now have 14 foreign judges. While the appointments are pending approval from the Legislative Council, it is believed local lawyers and lawmakers across the political spectrum are pleased with the news.

Alberta native McLachlan, who is 74, was the first female chief justice of any top court in the British Commonwealth. She retired last December. Lady Hale, 73, is currently president of the UK's Supreme Court. Both are known to have liberal views.

...As will Beverley McLachlan of Canada
Finally Hong Kong's top court is getting with the times and it's fantastic news to have such qualified female judges. Now do they know what they are getting into, that the judiciary is being politicized, mostly by the government, and by extension Beijing?

Tuesday, 20 March 2018

HK Housing Prices Continue to Soar

Can you live in a 209 sq ft home that costs US$1 million?
Just when you think property prices can't get any worse, they do.

A flat slightly bigger than a shipping container has been sold for HK$7.86 million (US$1 million), which is HK$37,651 per square foot. A shipping container is 165 sq ft.

The 209-square foot flat is located on Pokfulam Road in Sai Ying Pun, which is part of an 11-unit development built by Kowloon Development. So far the company has sold 60 percent of the flats at Emerald House that range from 209 sq ft to 310 sq ft and cost as much as HK$11.29 million.

The microflats are being built in Sai Ying Pun
And just as you are shaking your head in disbelief, the latest survey shows that 27 percent of Hong Kong people don't ever expect to own a flat. The survey by REA Group, a digital advertising firm that specializes in property, says of 1,003 respondents carried out by Nielsen, 16 percent have no plan to buy property at all because the prices are beyond their reach.

Home prices rose for the 22nd consecutive month in January. If the average Hong Kong person makes about HK$17,200 per month, it will take them 30 years of monthly income to afford a HK$6 million flat. That means not buying anything, let alone eating anything.

REA Group says this inability to afford housing leads to social issues like couples delaying marriage. And as young people can only afford tiny flats that minimizes the amount of stuff they can have in them, and living in tight quarters can also cause more friction between people. Also having to live in a small place long term is hardly good for one's mental health.

How much stuff can you squeeze into a microflat?
But that's the reality in Hong Kong -- the government isn't doing enough to step in to build social housing, or help young people get their foot in the door to help them towards owning a flat.

Financial Secretary Paul Chan Mo-po isn't doing much to help this segment of people, only homeowners with a small break of not having to pay government rates for a whole year. Whoohoo.

If he helped more young people move a giant step forward closer to owning a flat, perhaps there would be more optimism in the city -- that there is hope, that they can feel proud of being in the city and feel more welcome as residents.

However it seems the government doesn't have that kind of long-term thinking. It only wants to build an even bigger war chest... for what?

Monday, 19 March 2018

Picture of the Day: Handmade Dumplings

Twenty dumplings filled with minced pork, chives, mushrooms and ginger
I made more dumplings again yesterday and resolved to use some good quality ingredients. I headed to City Super, a high-end supermarket that specializes mostly in Japanese ingredients.

Originally I was only going to get the wrappers because they are refrigerated -- the other supermarkets I have visited put the wrappers in the freezer for some reason. Once they defrost, they are surely soggy? And I've tried the wrappers in the wet market, but they are on the thick side.

I saw that minced pork was 20 percent off and bought half a kilogram that had gone through a very fine grinder. Because it was all one solid pink colour, I couldn't tell if there was any fat in it. So I went to Wellcome to buy more pork with a bit more fat in it as dumplings need that for flavour. It was also half the price...

At the wet market I bought chives, mushrooms and ginger.

It turns out over 750 grams of pork, mixed with chives and finely chopped mushrooms and grated garlic are enough to make 60 dumplings. I followed my mother's instructions and after making four of them I boiled two to check the taste. The pork was on the very lean side (ie not much taste), and unfortunately I ran out of sesame oil so I added more olive oil and Shaoxing wine for flavour.

This time I endeavored to try another method of wrapping them and watched a few YouTube videos to get the gist of how to wrap them in different ways. In the end I settled on making pleats on one side much like gyoza. The wrappers I bought were quite thin so my wrapping wasn't very even, but improved as I went along.

I can't wait to make another batch of dumplings again -- this time with a bit more fattier pork -- because I still have another 60 wrappers in the refrigerator!