China: Day 5

China Day 5: Shanghai

Today began with discussions on the Chinese financial system and regulatory environment, followed by a guest speaker coming from the Private Equity space.

The Chinese financial system is an interesting one; a handful of state-owned banks used to issue 100% of loans. These days other banks are allowed to participate (though restrictions are tight), so state-owned banks currently control about 50% of the banking market. The Chinese government still restricts what interest rates can be charged to what clients, and what valuation impairments can be taken on loans.

One of the recurring themes we have heard from speakers (both locals and expats) is the issue of corruption. Our speaker today emphasized that his greatest challenge in investing in China has been corruption – and not necessarily government corruption, but corruption by entrepreneurs of potential investments.

He gave a recent example of a medical equipment company in which his fund was considering investing. The owner, a well-known and respected Ivy-league educated entrepreneur, had filed a copy of the US technology patent with the local Chinese government to give proof of his business’ technology. Our speaker went to the local government to inspect the patent, and the US patent clearly indicated that the entrepreneur did not own the technology, but his prior employer did. When our speaker called the entrepreneur on the item, apparently did the entrepreneur not only keep going with his business (though of course our speaker chose not to invest), but the entrepreneur also fraudulently modified the patent to show himself as owner and re-filed the document with the government to fool future potential investors. This, our speaker explained, was one of many examples where he let his guard down around a seemingly trustworthy entrepreneur, only to be nearly burned.

With class wrapping up by 12:30pm, we spent the afternoon on a sightseeing tour around Shanghai. We first visited the Jade Buddha Temple, then Yuan Gardens. The Jade Buddha temple was interesting, but much more commercialized that other temples I’ve visited in Thailand/Vietnam, etc. The somewhat small temple complex had at least three gifts shops and a “Buddha tea room” where they served tea (and tried to convince you to buy some).

The Yuan gardens are a walled garden sitting within the Yuan Bizarre, a huge open market complex. It’s a bit bizarre (pun intended) – the bizarre is unbelievable crowded/chaotic, and the walled gardens are fairly peaceful and very green. We wandered the gardens, and I made my first souvenir purchase – snacks for my office in NY.

From there we returned to the hotel, and I joined a member of my learning team (who has an apartment in Shanghai) and a few other classmates for dinner in the French Concession. After the Opium War, Shanghai was divided into “spheres of influence,” or “concessions,” and this section of town belonged to the French. We had a great dinner, then wandered the streets for an hour or so walking towards a local massage massage place my colleague recommended. We didn’t find the place until ~11:30pm, but it was still packed with locals! I had a fantastic back/shoulder/leg massage for ¥30 (~ $5). Nice!