Stephan Seissl's Blog

Bankers vs. Consultants

2008-09-15T20:26:00.002+02:00

Maybe not the right day for this video, but I still find it priceless ;-)

Damn It Feels Good To Be A Banker -- A Wall Street Musical from Leveraged Sell-Out on Vimeo.

Zattoo - Excellent TV Streaming Software

2008-05-25T20:24:00.004+02:00

Are you also one of these Internet freaks who keep surfing the web and checking e-mails even when you are watching TV? I definitely am and I was pleased when I first heard about Zattoo, a streaming TV player which currently offers up to 70 TV channels (depending on your country of residence). It is already available in Belgium, Denmark, France, Germany, Norway, Spain, Switzerland and the UK and further countries are to follow soon. While the first player versions were quite jerky, Zattoo's current player delivers quite a good picture and it is really suitable as a TV replacement (but maybe still not for your huge plasma TV, though :-)). So why keep watching TV with your laptop on? Just turn off the TV and switch on Zattoo!

Subprime Explained

2008-05-04T20:38:00.002+02:00

Already some months old, but still the best video on the subprime crisis that I have seen so far:

Merry Christmas

2007-12-24T16:03:00.001+01:00

I hope that everyone is able to enjoy this day with his or her family.
I wish you a merry Christmas!

Climate Change Performance Index: China ranks 40th, the US 55th...

2007-12-08T15:02:00.000+01:00

German NGO Germanwatch recently published its 2008 Climate Change Performance Index (CCPI). The CCPI is a measure of the climate protection performance of the 56 most polluting countries, which together are responsible for over 90 per cent of global emissions. I think this index is extraordinarily innovative because it not only takes into account the current emission levels, but also the trend in emission levels as well as policy actions directed towards energy-efficiency and emission reduction. The three top ranks are occupied by Sweden, Germany and Iceland. Interestingly, they are closely followed by Mexico and India with their scores being positively influenced by policy actions and the emission trend. The remaining top 10 positions are held by Hungary, the UK, Brazil, Switzerland and Argentina.

Alarming though are the positions of the world's two top-polluters, China and the US (China is currently responsible for 18.8% of the world's energy-related CO2 emissions, the US for 21.4%). With China ranking 40th and the US 55th, those countries with the largest possible lever on emission reduction are not found in the top ranks. But while China has improved by 4 positions during the last year (from 44 to 40), the US has lost 2 ranks (from 53 to 55). China of course has to improve further and implement more emission reduction measures, but we nevertheless have to bear in mind that the Middle Kingdom is still a developing country (at least in its rural areas). Though the ranking trend shows that the country is already moving into the right direction. When talking about the US, I think that it is a shame that the political leaders of the country which led the world's economic development after the second world war and also initiated the informational revolution in the nineties is today still totally ignorant to the issue of climate change, which has been a scientifically proven fact for several years and even more since the publication of the recent UN climate reports. For the benefit of the world, let us hope that reason soon also makes its way to the White House - and if not during this presidency, then at least in the course of the following...

Back online

2007-12-05T23:07:00.000+01:00

After two months of suffering without an Internet connection, I am finally back online. Assuming there are still people checking my blog once in a while, there will soon be new posts. Stay tuned.

Japan - Asia Could Not Be More Convenient for International Guests

2007-09-11T16:09:00.000+02:00

We all have probably heard about Japanese efficiency, the country's high level of organization as well as the people's wealth. Having experienced Japan in reality for some days, I would like to share my experiences with two well-known Japanese stereotypes: the public transportation system as well as Japanese English skills.

When it comes to public transportation Japan is in my opinion second to none (having lived in Switzerland for almost six years I think I know what I am talking about :-)). When our train arrived in the station at Osaka airport, suddenly a cleaning team appeared and meticulously defected all cars before it pushed a button which automatically turned every seat so that it would face the direction of train. Quite impressive. Taking the Shinkansen bullet train from Kyoto to Tokyo was an even more remarkable example of Japanese engineering skills - making the 513 kilometres in 2 hours and 15 minutes including three stops yields an average speed of over 250 km/h. Well I think I do not have to add that Japanese trains are punctual...

As for Japanese English skills, I had expected the worst (even though I knew that Beijing would probably not be beaten...) - only to find that is quite easy to get around in Japan with English. Indeed most Japanese will answer your question "Do you speak English?" with an appointed "No!". The funny thing though is that they will nevertheless understand you when you keep talking in English and will even answer your questions. I have to quote the following dialogue from the Tokyo railway station:

Me: "Do you speak English?"
A Japanese railway official: "No!" (shouting with a humorous undertone)
Me: "Hm, then you certainly won't be able to tell me where I can buy subway tickets..." (already walking away)
RO: "Subwayticket? YoustillintheJapanrailsection! Gooutandyouwillfindticketmachinewhereyoucanbuysubwayticket!!" (the missing spaces can only slightly insinuate the speed of his spoken English :-))

Well, I do not know whether it is just a lack of self-confidence or part of the Japanese manners but even though Japanese people mostly deny it, they do understand English quite well. When compared to China and especially Beijing, Japan was heaven on earth and after having spent six weeks in the US, where public transportation is not usable or even nonexistent, Japan felt like being back in the developed world...

I always knew it...

2007-08-29T15:32:00.000+02:00

It was on the summit of Mt. Washburn in Yellowstone National Park where I recently met a hiker. In this remote environment it was natural to start a lively chat about wildlife (he showed me pictures of a bear he had seen on his hike), the mountains and – of course – personal backgrounds. Instead of the usual short «lovely!» as a response to revealing Austria and Switzerland as my home countries he replied: «Oh, it's nice over there. I was in Switzerland last week and hiked for a couple of days in Vorarlberg and Eastern Switzerland». This was followed by a detailed monologue about Swiss and Austrian (hiking) areas. After having told him about the route to come he did provide me with details on almost any national park destination which could be of interest to me. My natural conclusion was that he must either be a professional hiker or retired. But I proved to be wrong: he was a law professor who seemed to add vacation days to any of his professional trips. Maybe some of us should rethink their career plans and appreciate the long-term advantages of an academic career. For me, this had never been more obvious than on the summit of Mt. Washburn :-)

USA - A Country of Contrasts

2007-07-27T15:48:00.000+02:00

After having traveled the US for almost two weeks now, I think it is already time to reflect upon this fascinating country because the last days were full of amazing impressions.

Even though it is not my first time here, it is now that I have fully realized that the US is probably best described as a country of severe polarities: mega-cities and undiscovered nature, a relatively small number of incredibly rich people living the American dream in opposition to a vast majority struggling every day for their dream to become true one day, openness towards people from all over the world in contrast to a certain indifference towards occurences outside the continent are only some examples that come into my mind.

But for me - and this is admittedly my subjective impression - the most important insight arises in comparison to my recent stay in China: when I left the Middle Kingdom last December I was happy on the one hand because I would soon see my friends and family again but on the other hand I knew that from the day of my departure I would miss out on something important. I never had this feeling during the last two weeks: not in Boston, not in Chicago and not even in the financial capital of the world - New York city. I really enjoy the US - people and the country alike - but today I am more sure than ever that the future hub of the world economy will be Asia and not the US.

Nevertheless, I am looking forward to great days in the "Wild West" and its national parks trying not to think about economics and business :-)

Ms. Pacman - A Hostile Takeover Defense Strategy

2007-06-23T01:23:00.000+02:00

For anybody who was, is or will be an intern or a full-time employee in an investment bank, I would really like to recommend the Investment Banking Monkey's Blog. Even though maybe a bit exaggerating at times, the stories feel so real when you have seen an investment bank from the inside - this blog (together with comps, presentations and models) kept me awake in the office after midnight ;-)

I have found this video also on the Monkey's blog. It's maybe the funniest way to illustrate an anti-takeover strategy in M&A - enjoy!

An Engineer, a Physicist and an Economist

2007-06-17T23:23:00.000+02:00

Unlike stock markets, my blogging activity has been at an all-time-low during the last weeks due to something which we could call "intense end-of-study activities", e.g. job interviews and a thesis... As both projects have recently been completed and my spare time has become more abundant again, there is finally time to read non-university related books again :-) Well maybe not totally non-university related, but nevertheless very recommendable to anyone who is interested in financial markets is Benoit Mandelbrot's "The (Mis)Behaviour of Markets", an introduction to fractals as a means of modelling financial markets. Today, I stumbled across the following joke, which is, according to the author, and old one - nevertheless it was new to me and I think it is quite funny :-)

An engineer, a physicist and an economist find themselves shipwrecked on a desert island with nothing to eat but a sealed can of beans. How to get at them? The engineer proposes breaking the can open with a rock. The physicist suggests heating the can in the sun, until it bursts. The economist's approach: "First, assume we have a can opener..."

Data Crunching ;-)

2007-05-01T11:42:00.000+02:00

Another Nr. 1 Ranking for Switzerland - This Time: Tourism!

2007-03-11T17:46:00.000+01:00

The World Economic Forum (WEF) recently published its first Travel and Tourism Report Competitiveness Report, which ranked Switzerland Nr. 1, closely followed by Austria and Germany. While Switzerland does not lead the rankings in the three subindices "Regulatory Framework" (Nr. 1: Singapore), "Business Environment and Infrastructure" (Nr. 1: USA) and "Human, Cultural and Natural Resources" (Nr. 1: Austria), the country is positioned at a constant second place which makes it the overall leader in the ranking.

Even though tourism is a rather small sector in Switzerland (with spendings by foreign tourists of CHF 13.7 bn 2005, the industry can not challenge the revenues of most large Swiss companies), the study emphasizes that Switzerland (together with Spain) is the only high-income country having declared tourism a prioritized sector.

According to the WEF, the following factors were especially important for Switzerland's Nr. 1 position in the ranking: the country's first-class security and hygienic standards, quality of human resources due to a high number of unrivalled and prestigious hotel management schools, infrastructure as well as the country's cultural and natural resources (Switzerland is home to six UNESCO World Heritage sites).

As far as my own experience is concerned, I think that the outcome of this report is more than justified, even though I personally believe that the Swiss tourism sector has to conduct considerable investments - especially when it comes to ski resorts - in order to stay competitive when compared to other skiing countries (for example, Austria's ski resorts have invested heavily in their infrastructure during the last years - during the current season, €523 mn have been invested into ski lift infrastructure). An interesting article on Swiss tourism and its challenges was recently published by Zurich's leading newspaper, NZZ.

Wake Up! The World is Flat.

2007-02-10T12:34:00.000+01:00

"China does not just want to get rich. It wants to get powerful. China doesn't just want to make GM cars. It wants to be GM and put GM out of business. Anyone who doubts that should spend time with young Chinese." (Friedman, 2006, p. 422).

This is a quote from "The World is Flat", the recent bestseller by US journalist Thomas Friedman, which describes those forces which led to the world as we know it today. Even though Friedman's approach might be more journalistic than academic, his book delivers the right message: political and technological innovations have put a large part of the world on a level playing field where a design student in a rural Chinese village fights with the same weapons as a professional design company in London - and both are competing for the same customers.

The books systematises what most of us have just started to realize in their everyday lives: through the (new) Internet, which has been made possible by increased bandwidth and object-oriented programming concepts like AJAX, the way we do things has changed dramatically. People collaborate all over the world, we share thoughts through blogs, we call our friends all over the world for free via Skype, we use online tracking systems for our parcels and connect through social networks - just to mention a few things which we certainly did not do ten years ago. All you need to participate: a PC and an Internet connection.

Jointly with the rapid economic development of India and particularly China, this will lead to enormous changes in the world's balance of power. I chose the above quote from the book because it exactly corresponds to my own impression of China after spending four months at Tsinghua University, China's most prestigious educational institution: China will not only continue to be the world's largest production site, it will soon also take the lead in geopolitical, cultural and global economic aspects. And this change is happening faster than anyone can imagine, so roll up your sleeves...

Dr. Eugen von Keller Confirmed My Own China Impression

2007-01-10T23:01:00.000+01:00

Today, the recently formed Beijing alumni chapter of the University of St.Gallen hosted its "China Talks", which comprised of experiences by three students as well as a presentation by Dr. Eugen von Keller, Roland Berger's President for Asia-Pacific.

Even though most people in the audience were anything but China-freshmen, including several University of St.Gallen professors, Mr. von Keller managed to impress us by presenting data which does not appear in everyday newspapers. I recall for example the fact that today, 22% of the world's total steel output can be found on Chinese construction sites. In addition, he showed a graph stating a compound annual growth rate of Chinese insurance business of over 40% within the last decade. Furthermore, according to the presentation, China is today producing 75% of all toys sold in the world.

Unfortunately, due to the limited amount of time and another lecture, Mr. von Keller could only cover a small part of his presentation. I am looking forward to receiving his slideset, which will probably contain some more data surprises confirming my own impression about the Chinese economy.

Non-Performing Loans - Still a Bottleneck in the Chinese Banking System

2006-12-03T19:05:00.000+01:00

As most of my courses at Tsinghua University include interesting aspects of the Chinese economy, there is another part of one of my papers that seems to be worth sharing: the issue of non-performing loans (NPL), which has puzzled both banks and the government for a long time:

When the Chinese banking system is discussed on an international basis, it usually does not take a long time until the topic of non-performing loans (NPL) is brought up. Since 1998, Beijing has injected 105 billion USD into the banking system (Farrell et al., 2006, p. 36) and – according to Bremner (2006a) – transferred NPLs worth roughly 400 billion to four state-managed asset management companies (AMC). Even though officially reported NPLs have fallen from 31 per cent of total balance sheet values in 2001 to 10 per cent in 2005, nevertheless 60 per cent of this decline is due to the shift to AMCs described above. So far, the average recovery rate within those AMCs has only been 20.5 per cent (Farrell et al., 2006, p. 14 & 32).

The reduction of the NPL ratio is also fueled by a sharp increase in overall lending activities: between 2001 and 2004, Chinese banks issued new loans amounting to between 156 and 331 trillion RMB, which represented between 13.3 and 23.3. per cent of total GDP (Id., p. 34).

Nevertheless, the remaining NPLs still have a total value of 125 billion USD representing 6.5 per cent of China’s GDP. While all above numbers are based on official bad loan rates, the actual rate may be even higher: According to a study by UBS, the true value of NPLs lies around 500 billion USD, 200 billion higher than the official value (Anderson, 2004).

Interestingly, China’s NPLs have become a much sought-for investment opportunity for international banks: according to PricewaterhouseCoopers, international investors like Morgan Stanley or Goldman Sachs have bought NPLs totaling over 15 billion USD and the market is not expected to slow down soon (PwC, 2006, p. 2). Even though this shows that the distressed securities market has become a reasonable investing opportunity, it nevertheless does not hide the fact that China does indeed still have a serious non-performing loan problem.

China’s NPL issue is most probably due to the special lending patterns and missing balance in the financial market. A recent study by McKinsey and Company has identified three main factors leading to those anomalies in lending patterns:

Weak Governance And Lack of Commercial Mindset: State ownership of banks in China is extremely high as the government still controls 83% of all assets in the financial sector. This number is also very high when compared to Eastern Europe’s transitional economies where state ownership today on average is below 15% (Farrell et al., 2006, p. 35).
Operational Weaknesses: Even though the large banks have already taken measures to improve their management and lending skills, those are still low compared to other countries. Especially the lack of good internal credit assessment capabilities is a big problem, as lending decisions today are still often based on incomplete data with insufficient analysis in many parts of China, due in part to the poor quality and unreliability of many companies’ financial statements (Farrell et al., 2006, p. 37). A study by Nihon Keizai Shimbun shows that state commercial banks today grant 96% of loans at a multiple of less than 1.3 of the government benchmark. In comparison, local credit cooperatives seem to spend more time on credit risk assessment: they only make 18% of their loans below a multiple of 1.3 of the benchmark. (Farrell, Lund & Morin, 2006, p. 6). In addition, the country is still in the early stages of developing a credit bureau and lacks full coverage of large rating agencies (Id, p. 19 & 38; Ye, 2006).
Decentralized Structure: Even though China is a socialist transformation economy, economic central control is weaker than one would expect, which is also true for the financial sector: local organizations still have a large degree of autonomy, making it more difficult to establish corporation-wide standards (Farrell et al., 2006, p.40). Thus, lending decisions on the provincial level are more likely to be influenced by local politics. Furthermore, the sharing of credit information among banks is not established so that lenders who defaulted with one bank can easily get loans from another bank (Id.).

References

Anderson, J. (2005). How to Think About China. UBS Report.

Bremner, B. (2006a, Feb. 06). Banking on China’s Reforms. BusinessWeek Online Edition. Found on November 27, 2006 here.

Farell, D., Lund, S., Morin, F. (2006, July). The promise and perils of China’s banking system. The McKinsey Quarterly.

Farell, D., Lund, S., Rosenfeld, J, Morin, F., Gupta, N. & Greenberg, E. (2006). Putting China’s Capital to Work: The Value of Financial System Reform. McKinsey Global Institute Report.

PricewaterhouseCoopers (2006, May). NPL Asia. Issue 7. Found on November 27, 2006 here.

Social Change in China - It is Everywhere

2006-11-13T10:52:00.000+01:00

Due to a heavy workload at Tsinghua's MBA Program, it's been a long time since my last post. As things are getting a bit more relaxed now, I would like to share a paragraph on social change in China with you (it is part of a paper that Willi Steinmark and I composed for a course here):

Chinese society today is in the midst of a process of rapid change – when compared to Chairman Mao Zedong’s era, it is in mere turmoil. The Chinese Communist Party is currently facing social challenges which before 1978 not even the most progressive of its members would have believed to come true.

From a macroeconomic perspective, one of the most astonishing facts about Chinese society is its high level of income inequality. This year, the country’s Gini coefficient has reached a level of 0.447, making Chinese total income even more unequally distributed than US income[1] (United Nations Development Programme 2005, p. 55). When compared to Europe, this development becomes even more apparent: Most European nations are today characterized by Gini coefficient values between 0.25 and 0.35. China’s Gini coefficient becomes even more tangible when one looks at the different buckets of income distribution: When society is ranked by income, in 2004 the top one percent earned 6.1 percent of total income, the top five percent earned nearly 20 percent and the top ten percent made up for 32 percent of total income in China. (People’s Daily, 2004a)

When it comes to rural-urban differences, current data should also be a cause for concern: Based on the first half of 2006, average annual income of the rural population is 1,797 RMB, while it is 5,997 RMB in urban areas (Li, 2006). Nevertheless, income inequality within cities is even higher: according to the Chinese Academy of Social Sciences, 60 percent of urban residents live off incomes lower than the national average (People’s Daily, 2006).

Driven by income differences between cities and the rural area, millions of migrant workers leave their rural homes each year seeking for jobs and wealth in the cities. Today, there are said to be over 130 million migrant workers in the country’s more than 450 cities (China Daily, 2004). As jobs are not abundant in China’s cities for low-skilled workers today, rural migrants are often forced to seek other ways to earn their living: 60% of all street markets in China are said to be run by people from out-of-town (Ferdinand, 1996, p.6)[2]. Disillusioned by urban reality, a large number of migrants engage in criminal activities. One estimate of the early 1990s says that approximately 80% of all criminal offences in Beijing were committed by migrants or vagrants (Id., p. 7).

Possibly caused by the rising level of income inequality or not, Chinese society today goes through other severe aspects of change: crime, drug consumption and sexual uproar.

Even though current crime statistics seem to be relatively stable, the last three decades have seen a sharp increase in criminal cases throughout China. While the country reported about 750,000 criminal cases in 1983 (New York Times, 1983), this number has increased to 2,13 million in the first half year of 2005, leading to a total number of over 4 million criminal offences throughout the year (YNET, 2005).

When it comes to drug consumption, the development is even more severe : While in 1983, the Public Security Bureau arrested only ten people for drug-related crimes and seized 5 grams of drugs for the whole country, between 1991 and 1999 the police confiscated over 40 tons of heroin alone. In 1991, China had 14,800 registered drug addicts – in the year 2000, this number had risen to over 650,000 (People’s Daily, 2000 and Ferdinand, 1996, p. 484).

Another aspect of the growing emancipatory tendencies of the Chinese people is sexuality. People’s Daily is talking about a “sexual revolution” (People’s Daily, 2003) and the data confirm this definition: While in 1989, only 15,5% of Beijing residents said to have had sexual relationships before marriage, this number has grown to 70% in 2006 (Beech, 2006). Among China’s urban population, the average age of first sexual experience has dropped significantly: While people in the age group of 31 to 40 on average lost their virginity at 24.1 years, today’s 14-20 year olds report this figure to be 17.4 years – a drop of almost 7 years within two decades (Id.).

China is moving...

[1] The Gini Coefficient is a standardized measure of income distribution within a country and was developed by the Italian statistician Corrado Gini. Its value ranges from 0 (total equality) to 1 (total inequality).

[2] Ferdinand, P. (1996). Social Change and the Chinese Communist Party: Domestic Problems of Rule. Journal of International Affairs, 49, No. 2.

Pollution - The Price of Economic Development

2006-10-16T18:21:00.000+02:00

After having praised China's current economic development, I think the time has come to talk about negative aspects of the actual situation as well.

Beijing is China's largest car market and today the city is already crowded with over 2.4 million cars. Every day, about 1000 cars are licensed leading to even more crowded streets and of course even more emissions. Those numbers and the fact that most cars lack a catalytic converter have led to the city being now the most polluted in the whole world.

When measured by the Chinese "Air Pollution Index" published daily by the Chinese State Environmental Protection Administration, the value for Beijing constantly lies above 140. This is over two times as high as the normal value of 60 reached by Los Angeles, which is today the most polluted US city. A blogger regularly records those values and publishes them here.

Still much more frightening is the fact that Beijing's air pollution index on some days has already hit a value of 500, the actual maximum of the scale. A value as high as that is surely hazardous to human health - sometimes the local government advises people to stay at home and keep their windows shut.

My own experience tells me that nothing of this is exaggerated. When I first came here in August, I sometimes had difficulty breathing. Unfortunately, the human body seems to adapt to those conditions. Nevertheless, look at those pictures in order to grasp Beijng's pollution reality.

In this video you can see the view from my window on a polluted, but still quite regular day - I miss our fresh Austrian and Swiss air!

P.S.: Let me just add one little comment: When you have lived in Beijing for a while, you cannot take things like this seriously :-)

"Der China-Code" - One of the most Impressive Books I Have Read for a Long Time...

2006-10-05T18:13:00.000+02:00

German journalist Frank Sieren has lived in China for over ten years and is today one of the most sought after German-speaking China experts. In his current book "Der China-Code" he thoroughly describes the historical pillars of China's economic development and surprises the reader with interesting facts. He particularly analyses the effect of China's recent economic rise on the German economy and investigates the business activity of German corporations in China.
In the automotive sector, Volkswagen was the first foreign carmaker to be allowed into China by the Chinese goverment in the late eighties, thus providing the company with a headstart over all other international competitors. Naturally, VW soon had a market share of over 80%, but until today it has completely lost its leading position and is now fighting to keep about 15% of the market. The other two prestigious German automotive companies, BMW and DaimlerChrysler, first downplayed the importance of the Chinese market and then realized that they were already too late to make a profitable market entry. Both companies are today struggling to sell only some hundred cars per year.

But - to me - the most surprising story is Sieren's analysis of the Chinese business activities of the German Transrapid consortium, which is led by steelmaker ThyssenKrupp and Siemens. This story differs substantially from what people in Europe are used to hear about the project:

After over 30 years of development, Siemens-CEO Heinrich von Pierer managed to sell the first Transrapid train in 2001 - it should be built as a test project between Shanghai and Shanghai International airport. Furthermore, the Chinese government was thinking publicly about building a 1300 km Transrapid train between Shanghai and Beijing.

While China was longing to get its magnetic train even at a high price (the country even offered to pay 50 m EUR more), the German consortium apparently committed a lot of serious mistakes:

First, ThyssenKrupp wanted to sell a large amount of faulty and overpriced steel to its Chinese customer, who complained about the Germans who were treating them like employees.
Second, Thyssen is also said to have delivered lots of defective rail elements, which led to a serious project delay. Only days before the first official test drive of the Chinese Prime Minister Zhou Rongji and the German chancellor Gerhard Schröder, the train kept suffering from immediate blackouts leading to sudden standstills in the middle of the track. Luckily, the test drive worked without any problems, but only two minutes after the political delegation left the observation room, the train again came to an unplanned halt.

In this project, Sieren concludes, the Transrapid project and the German economy as a whole, have lost a great portion of their credibility in China - leading to a decision by the Chinese government not to build the Beijing-Shanghai train. Iinstead, a contract with a consortium led by the Japanese Shinkansen train corporation was signed soon afterwards.

Apart from providing interesting historical and economic facts, this book tries to galvanize all those of us who still think of the European - and especially the German - economy as being superior to the Chinese. Even though this might still be true in most cases, both Europe and the US will have to be extremely innovative and hard-working in order not to be surpassed by China as the world's leading economic region.

"Der China-Code" is a must-read for everyone who cares about the future of the German and the European economy - STRONG BUY!

Everyday Life and Biking at Tsinghua University

2006-09-27T07:28:00.000+02:00

One has to get used to every new place - this is also true for Tsinghua University, which has a n enormously huge campus covering over 2.6 square kilometers. Thus, the only reasonable way to get around is by bike. Given the fact that the university has about 30,000 students who only go by bike and about 15,000 faculty and staff who mostly go by bike, this results in about 40,000 bikes on campus. As a result, every bike would still have a generous space of about 65 square meters - unfortunately, the university has lots of parks and houses without bikes, which makes everything more concentrated...

The heavy bike traffic paired with aggressive buses and cars is something unusual for Western minds - nevertheless, after some weeks it becomes quite usual to be nearly hit by one bus a day...

Even though I only managed to grab a very light example of biking at Tsinghua on film, it still gives you an idea about how everyday life works here.

Switzerland - The World's Most Competitive Country

2006-09-26T16:51:00.000+02:00

Despite current political turbulences concerning the introduction of one of the toughest immigration laws throughout Europe, Switzerland is still in a leading position when it comes to economic aspects.

Even though the country has always been at the forefront of international banking (over one third of the world's international portfolios is managed in Switzerland), it has now even become number one in terms of overall competitiveness, according to the World Economic Forum.

Nevertheless, the report shows some weaknesses in terms of the sixth pillar, which is market efficiency: the cheese, chocolate and banking nation's competitiveness would suffer from high costs of agricultural policy and trade barriers. This perfectly corresponds to my own experience and opinion: I think that Switzerland is one of the most interesting and competitive economic areas in the world. But it will need a reform of its agricultural policy and the still existing trade obstacles in order to keep its position of one of the leading world economies.

China is changing faster than ever before - everyone knows this but wait until you SEE it...

2006-09-18T13:09:00.000+02:00

Four weeks ago, I started my exchange semester at Tsinghua University's School of Economics and Management, which is said to be China's most prestigious business school.

I am fascinated by the rapid both social and economic development of this country, which is truly unbelievable. The change can be seen and felt everyday in the changing faces of the largest cities Beijing and Shanghai but also in the growing self-confidence and openness of the Chinese people. They are willing and eager to challenge the largest global economies and I am sure they will prevail soon.

China is already the fourth largest ecomony in the world and has been able to sustain double-digit growth for several years now. And believe me, there is no sign that this will change soon.

With respect to exports, China is already number three worldwide (behind the US and Germany) and receives the second-largest amount of direct foreign investment (behind the US).

But all this data becomes negligible when you look at foreign currency reserves: China has by far the largest amount of curreny reserves. The country now holds nearly one trillion USD, mostly in US currency. In other words, US consumption is to a large extent financed by Chinese exports. China is the largest holder of US federal bonds which makes the US highly dependent on China. In case China would entirely change its currency reserves from USD into EUR, this would set the USD/EUR exchange rate at over 2 USD/EUR instantaneously...

This data and the last four weeks in my life have shown me, that for any internationally-operating company, China is not an option but a must. The sooner interntional companies begin to understand this country and adapt to its culture and rules, the sooner profits will materialize.

One comment on the fotos, which represent the current development in Beijing: the upper foto shows a traditional on-the-road bike repair shop, which is still common in the city. The foto below shows one of the growing number of high-end shopping malls specializing in designer clothing - you can find anything from Gucci to Burberry's there...

What makes stock prices move?

2006-05-19T22:57:00.000+02:00

It is information, I would say - and expectations.

Even though the strong-form market efficiency theory primarily shaped by Fama, French and Jensen might not hold entirely, I am convinced that stock prices are only responsive to different pieces of news thrown at the market - leading to the assumption that econometric analysis of price movements is not an accurate way of explaining them (even though some advanced econometric tools like the Engle-Granger GARCH processes allow to describe price movement patterns better than white noise processes, those patterns in my opinion only reflect responses to pieces of news). Furthermore, I believe that technical analysis is no serious approach to the problem, though the wide use of the concept might have led to the presence of "self-fulfilling prophecies" with respect to technical analysis.

Assuming that information and expectations are the only factors that makes stock prices move, the next question to be answered should be: Which piece of information (positive or negative, economic information or stock-specific) results in which movements depending on the state of the market (bull or bear) and the expectation level of the respective stock?

Maybe all those factors could lead to an information model of the stock market (or single stocks) helping companies to predict movements in their stock price, depending on the expectation level of the market with respect to the companies stock. Even though a large number of event studies have dealt with this problem - especially with the analysis of price movements in M&A processes, I think that so far there has been no paper trying to integrate all the factors into a single model.

MMORPGs - Virtual Realities are Creating Virtual Economies, but Real Money

2006-03-25T14:04:00.000+01:00

Massively Multiplayer Online Role Playing Games (MMORPGs) have seen a tremendous growth during the last years. Besides, they may change the way the world works...

The most important difference to classic computer games is that the virtual worlds being constructed in those games continues to evolve, even if the user does not play the game. The evolution of the game not only depends on the ability of the individual player, but on the collectivity of actions of all players.

Economically and socially, the most interesting applications in the MMORPG area are games like Project Entropia, Second Life or There, where the virtual world offers a fully-functioning economy with a tradable currency which can also be converted into real money. And here is where the economic potential starts: through the convertability of virtual into real currency (e.g., in Second Life the online currency is called Linden Dollar), online gaming talent can be materialized to cash. Incredible, but real: people start to spend real money on virtual goods like shoes, T-shirts or real estate - and those activities are not limited to small sums: Last October, a user of Project Entropia spent USD 100,000 on a virtual space resort. The virtual money earned in the games can easily be converted into real currency through online services. This page for example just offered me USD 837.5 for 250 Linden Dollars...

In the MMORPGs, people start to build houses, shops, casinos and even stock exchanges - the only limit is the user's creativity. This sounds amazing, when it it is reduced to the gaming aspect. But when you think a little bit further, there could be serious consequences with respect to both economy and society. When more and more people start to build businesses and earn money in the virtual reality, there will be a growing number of people who quit their regular jobs, because they can earn a larger salary with online gaming. In consequence, the virtual economy grows and allows more and more people to earn their living virtually. Thought out, this leads to a decrease in the number of available employees for the real economy and consequently, an economic downturn. Apart from that, addicted online gamers will suffer from social isolation in the real world - the question is whether this is really a problem, because real social networks could be replaced by virtual ones...

This is frightening in a way, but maybe the economy will be saved by a self-regulating process: Assumed that the supply of real goods decreases due to the lower availability of real workforce, the prices will rise (because even virtual workers need real food ;-)), which will lead to an increase in the value of real money when compared to virtual money. This will make real activities more interesting again and will attract virtual workers to become real workers again. So maybe there is still a future for the real world :-)

International Investors and a Stormy Skiing Weekend

2006-03-05T21:54:00.000+01:00

Wow! This was my impression of the Private Deal Conference (privateDC), which was held in Zurich and Interlaken from Friday 3, 2006 until today. (even though I am a little biased because of my position as a part-time analyst with BrainsToVentures, the host of the conference... Nevertheless, I try to be as objective as possible :-))

Over 120 investors from Europe, the US, China and Russia met at the SWX Swiss Exchange in Zurich to discuss investment opportunities and several topics related to private investing in an international context. But the most fascinating aspect of privateDC was to meet amazing people from all over the world dedicated to private investing. The investors, VCs and entrepreneurs enjoyed it as we did - we already got high-quality blogging coverage!

On Friday evening about 30 attendants and the b-to-v team went to Interlaken to enjoy a skiing and wellness weekend together. Even though our hotel did not recommend us to do so, the "diehard" part of our group went skiing on Saturday - just to find out that stormy weather conditions and skiing do not fit together :-) We ended up in the world-famous Röstizzeria, which turned out to be a good alternative to being blown away by an alpine storm... Altogether, the day was an impressive experience and reminded me of how small human being are compared to the power of nature...

Today, we limited our activities to the spa and sauna area before starting an odyssey to St.Gallen - well, in the end we made it :-)