UNDERCITY

<The Wall Street Daily>: painful lessons on investments in 2008.

2008 is a very painful year, but we can still learn something from it so that we wont lose everything. Here are they 12 points that I have learnt.

1.       Be responsible for your financial standing.

This means everyone should understand that where your investment went to and the reason. Do not believe everything that spoken by your financial adviser, because you are the one who will ultimately own the result, not them.

2.       Never ever believe in only one ‘master’ in finance, no matter how great he/she is.

Thank god, not so many people did the same thing as Bernie Madoff, but most of the professors on the Wall Street lost at least 40% of their assets in this year.

3.       Never ever put your money in the field that you don’t familiar with.

Based on that reason, I refused to suggest my customer to buy Fannie Mae and Freddie Mac’s stock even though they were esteemed by lots of insider. Imagine even their CEO still cannot understand what they do. I feel really easy about it. However, other stocks like Amazon or Anheuser-Busch, they rarely embarrass you.

4.       Make additional investments.

Are you guys laughing at me right now? I don’t blame you. The total amount of your savings reduced at least 40%. Nevertheless, that means you need to invest more to get your money back.

5.       It is not that save to do what everyone is doing.

The most popular investment usually doesn’t have a happy ending, such as the technology stock (1999), the real estate (2004) and the new market (2006-07).

6.       Your grand-mother is always right.

Save means earn and the debit is always dangerous. If you found that to borrow 10,000 dollars from bank is easier than to find an available pumper, then the finance is in trouble.

7.       P.Smith is also right.

Who is P.Smith? He is one of the characters created by P.G. Wodehouse, a famous comedic from England. He always warns people how dangerous it will be, if we confuse the unusual with the impossible. Obviously, the passing year is unusual, but too many people still think its impossible.

8.       Buy enough bonds.

Yes, they are not so exciting. However, that’s exactly the point that I am trying to say. It means nothing to you, if all the ‘long-term’ investments in the stock market failed before you hit the end.

9.       When someone provides you with high quality products that you can easily understand, for example the TIPS (Treasury Inflation-Protected Securities) with more than 4% yield rate. Refuse other low quality products.

10.   Avoid unnecessary risks.

For those who invested Citigroup, Wamu or General Motors’ stocks, the decrement for them are higher than most of the rests. Usually, the most terrible mistake is what you have bought, not what you have missed.

11.   Do not swallow the predictions made by the professors, especially when they have the same opinion.

Remember, most of the financials successfully made 12 predictions during the past four downturns, but missed the current one. Based on my experience, when I see the title like <Ponds will rise in 2009 because famous financials anticipates the bank will slow down the reduction of interest> on newspaper, I know that something bad will happen in England.

12.   Still trying to predict the trend or the bottom of the market?

Yes, maybe the 7550 line is the bottom of this downturn. However, people said the same words on 11971, 11740, 10963, 10365 and 8176. There must be one day that they will be right.

China's Winding Road To Reform

Thirty years ago this week, Deng Xiaoping and the Chinese Communist Party turned their backs on Maoism and embarked on a reform program that led to the most remarkable period of wealth creation the world has ever seen. From today's vantage point this process appears surprisingly smooth. But it hasn't been, and still isn't. Understanding the real history is key to understanding where the country could go from here.

Above all, there has never been total agreement in Beijing about the wisdom or course of reform. Nor has there been a clear roadmap. Rather, especially under Deng, it was a fairly personal process. He could launch reform because in 1978 China was in a state of ideological and economic exhaustion, and internal opposition to 'following the capitalist road' was weak. The adoption of pragmatism as a guiding principle was popular because people were so fed up with political campaigns and class struggle.

Deng also played a crucial role as 'paramount leader' at key moments in the 1980s and early '90s pushing through changes using his personal prestige when reform seemed to be foundering. Meanwhile, in the early stages economic reforms created many winners and very few losers, as private enterprises started small, coexisting with the state-owned industrial dinosaurs.

In Deng's famous phrase, China's policy makers adopted a gradualist approach, 'crossing the river by feeling for the stones.' Small-scale experiments often led to success on a national scale, such as allowing farmers to keep what they produced from private plots and the establishment of special economic zones along the coast. Foreign enterprises' high level of participation in the Chinese economy was never planned, it simply evolved. But the lack of a reform blueprint also led to some notable failures -- China's stock market remains dysfunctional because it started as a no-cost source of money for state-owned enterprises. Allowing the market to become a viable source of capital for entrepreneurs would hurt these companies and those who own their overpriced shares.

This gradualist approach, and the underlying lack of consensus, had political consequences. During the 1980s, reformist and hardline forces within the Communist Party still fought over the pace of reform, and intellectuals had a modicum of freedom to debate the need for political reform. The crackdown after the 1989 Tiananmen Square massacre sharply reined in that debate, but within a few years economic reform and growth were back on track. By the mid-90s, the Party successfully recast itself as a collection of society's elites from all backgrounds, including entrepreneurs. The only competition over policy was between technocratic elites and leaders of patronage networks, while the government bought the allegiance of intellectuals with improvements in their lifestyles.

China became a remarkably laissez faire economy in the late 1990s and early 2000s. The government's revenues as a share of GDP shrank to around 11%, from 31% in 1978. At the same time, Beijing unilaterally cut tariffs and joined the World Trade Organization, while shrinking the public sector. In the space of a few years starting in the 1990s, inefficient state-owned enterprises shed about one-third of their workforce, by some estimates 60 million jobs. As a result, for about three decades the 'socialist market economy' churned out double-digit growth year after year.

Unfortunately, the rapid increasing period is nearly to its end and the global economic crisis is not the only reason. Today the pendulum is swinging back toward ideological competition and big government. With the country still without a true consensus on the virtues of free-market reform, the communists-turned-capitalists are morphing into European-style social democrats.

In the late 1990s, the bureaucrats set out to re-establish their power. Beijing fixed a target of restoring national revenue to 20% of GDP by improving the tax collection system. Last year, revenue hit 20.8% of GDP, growing by 32.4%, far ahead of economic growth of 11.4%.

Spending has risen just as fast, and this is now part of an ideological shift back toward statism. Government leaders portray themselves as the answer to every problem, expressing their willingness to use public resources to help those left behind by the new prosperity, rather than counting on new businesses to create jobs. While China's social safety net remains small in comparison to European countries, it is expanding rapidly. Given that China remains a poor country and has a rapidly aging population, this may not be sustainable.

Meanwhile, after welcoming foreign trade and investment to a degree seldom seen in a developing country, Beijing is quietly shifting tack to impose some nontariff barriers to foreign products and investment. The state is pushing the creation of new national champions, enterprises that are tied to the government by various ownership structures and enjoy generous financing from the state-owned banks. A new labor law goes far beyond basic workplace protections, incentivizing workers to organize and instigate disputes with management.

All of this is reducing the opportunities open to the true private sector, which has been the engine of China's rapid growth. As growth slows and the politically well-connected cadre managers enjoy the lion's share of opportunities, inequality and resentment grow. If this prompts the government to expand spending further to buy off the discontented, the virtuous cycle of economic reform could turn into a vicious cycle of ever greater government intervention.

In the political sphere, the close alignment of government and business elites means that any emerging opposition to the Communist Party will likely be antibusiness. And indeed we see evidence of this -- among intellectuals, a nationalist movement advocating greater government control of the economy known as the 'new left' is the hottest trend.

In the past year, the Internet has finally begun to show potential as a tool for citizens to share information about government corruption and abuses, and to organize to seek redress. But at the same time, the Net has unleashed the 'angry youth,' nationalistic 20-somethings who support a stronger central government.

None of this means that China is necessarily going to reverse course after 30 years of reform. But the straight-line projections some have drawn of the country's growth are too optimistic. The drawbacks of the Communist Party's monopoly on power are becoming more evident, as vested interests protect their control on the economy by holding back development of the banking system and stock market that would benefit entrepreneurship.

The coming year is expected to be critical, both economically and politically. China's export-dependent economy is especially vulnerable to a global slowdown, and the 20th anniversary of Tiananmen is coming up in June. However, the Communist Party has shown itself adept at adjusting to new challenges. We can expect that the feeling for the stones will continue, even as the pace of reform slows.

度过了相当懒散的一个圣诞节...但还是很惬意的...卧在沙发上看碟...读书，翻译，吃冰镇的西瓜....不错...

Turtules, reture or stay?

Many medium are making a big fuss about the rush for oversea student, which we call ‘turtles’, to return to China while the current global economic crisis. More than 50,000 oversea students will return to China in 2008 according to the announcement made by the Chinese Education Ministry, which is going to double the number in 2004. Put it in a large scope, it means 1/6 of the total amount of oversea returnees from 1978 to 2007.

It is always a hot issue for oversea students on making their decision to whether go back to China or not. I, however, have already made my mind to pack up and returned to China before the economic crisis on August this year. The most frequently asked question to me from my friends who still stay in the US is, how you feel like your new life in China?

Admittedly, it is a very tough question. There are hundreds answers on both sides and hardly one single statement could jump out and overtake others. Nevertheless, people will always respond to incentives. If the circumstance in China is concerned to be able to bring more opportunities and better career development, rarely an oversea student can said ‘no’ to his/her native land.

One of my friends in the US went back to Beijing few days ago and took a chance to have an interview during his two months holiday. For a person that holds an oversea qualification and working experiences, however, it is not so easy for him to be given that opportunity. Despite of having parties every night, his now put all his efforts on the preparation for that interview like he did for his final test back to the school time.

By far the most common concern for oversea students is the income in China. However, the fact is the current income level in china hardly matches the same position in foreign countries. I even heard that few companies that were offering awarding salary packages to oversea returnees, are now reduced the size of the package because of the increasing amount of applicants with oversea education background. Somehow I start to worry about the negative effects it may have made for some truly skilled person to decide turning back to China. Anyway, here goes the 1^st question: Are you willing to take the paycheck cut?

Certainly, the income level can not only be judged by numbers but also by certain circumstance. That includes the inflation rate, pensions and medical services etc. After experience the highest inflation rate in the past ten years, the living expense in Beijing or Shanghai is almost as high as NYC. For those who come back with nothing but a great passion, most of the attractive jobs are all in these cities. As a result, it is nothing easier for them to return.

Apart from this, one of my other friends in Washington is more concerned about the environment and food safety issues. Most of his friends and colleagues are suffered from whether cancer, hepatize and/or hypertension, some of them have passed already. He started to consider more about healthy issue after he arrived in the US and have lost almost 20 pounds through going gym and doing other exercises regularly. This could be another important issue for oversea students to consider seriously.

For all the people like me, however, the marginal benefits for going back to China are obvious. For instance, we will be able to take care of our parents. Even though it is much easier for people to travel around the world, parents that are able to accommodate their life style to fit in foreign countries are still not much. Before a complete system of social security and retirement pensions have been established by the Chinese government, we are going to be the only hope for our parents after they get old.

Review: How did China loss 2,000 billion Yuan from acquiring oversea corporations?

Chinese people were so proud of their 1.8 trillion of currency reserves in US dollar and it seems like the ‘Sleeping Giant’ is going to awake. At the meantime, after lost more than 70% of the assets in their pockets, our ‘capitalist’ finally woke up to reality and ceased all the activities. According to a statistics, a total amount of 2,000 billion Chinese Yuan has been paid as the tuition.

Back to few years ago, when the Chinese government was encouraging their subdivisions to establish their own businesses, almost every governmental department followed this command. However, the command was executed without any thought. The companies were started with only a few random people and a rented office. Sometimes there were only one or two companies under one department, but in general, the number is a double-digit.

A failure can be easily anticipated. As a matter of fact, these enterprises disappeared much faster than we thought. It is said in the air that nice out of ten of these companies were unprofitable, and the one that seems fine was actually falsified its accounting statements.

Just before these terrible images faded, a new issue has been thrown into sharp relief in China, which is acquiring corporations in foreign countries. Even though it is such a new topic for the majority of Chinese, the steps of those who ranked as the top level in state-owned enterprises are amazingly haste. The lack understanding of the market and poor preparation led to a fateful fail which cost 2,000 billion Chinese Yuan within few years, nothing has changed.

We are not against the participation to the global market. In fact, we encourage business owners to walk out from their local communications in order to broad their horizons. However, that is based on a substantial understanding in international trade; the political, culture, history and environment background of the destination and a reasonable plan. The risk will increase significantly without these factors.

Apart from this, another primary reason that can be observed for this smashup is that all of these enterprises are fundamentally owned by the Chinese government. Neither the directors, nor the CEOs will be charging money from their own bank account for their lost. Will they pay more attention if there is a close connection between the consequence and their personal interests?

Today, the voice from the theorists and the business circles once again presents that it is a great opportunity to acquire oversea corporations while the downturn of the western economic system. Nevertheless, I would like to warn our business owners that this is yet sure an opportunity for China as a whole, not until we did our comprehensive research and an all-round analyze. Otherwise, it is just another lose.