Duking it out over China
Updated: 2011-09-16 10:39
By Ariel Tung (China Daily)
NEW YORK - Can China hurt you? The loaded question was debated at the recent Bloomberg Markets 50 Summit, a conference that brought together leaders in finance, business and government, but what ensued became more of a verbal boxing match between several heavy hitters.
Morgan Stanley Asia Non-Executive Chairman Stephen Roach fired first. He said the world will be thankful for China's shift to consumption-led growth because it will drive global growth for the next decade.
Roach, a leading economist on Asia and author of The Next Asia, argued on Thursday that the change in China's growth model will be "a great opportunity for investors around the world".
Roach countered that the massive urbanization taking place in China is evidence that the consumption model is happening. Twenty-five years ago, about 25 percent of the nation was urbanized. Today that figure is close to 50 percent. At least another 310 million Chinese people will move from the countryside to the cities, according to the Organization for Economic Co-operation and Development (OECD).
"The Chinese are very focused in their 12th Five-Year Plan (2011-2015). The numbers are very clear. They are going to generate jobs and increase wages of workers. The higher purchasing power created will be allocated to more spending as well as savings," Roach said.
Carson Block, founder of Muddy Waters Research, also challenged Roach's analysis and said that he is missing the point.
"You are looking at the government statistics. In China, collection of data are challenging for the government. You really have to look around you. You can learn a lot more about the macro picture in China by observing around you," said Block, who started out his short-selling business in China for a little more than a year ago.
Today, Block is widely known as a major short seller of Chinese companies. Including Sino-Forest, Muddy Waters has released reports on five Chinese firms and in each case the company's stock plummeted. Three of the companies have subsequently been delisted.
Spreadtrum Communications, however, has rebounded from an initial 34 percent tumble after CEO Leo Li organized a conference call with investors to address doubts raised by one of Muddy Waters' reports. As of Thursday, Spreadtrum's stock was trading at $20.67, close to its initial stock price before Block's critical report of fraud at the company.
On Sept 12, Block announced that his firm was shorting the stock of Silvercorp Metals Inc, a Chinese silver miner accused of fraud by an anonymous short seller last month. Shortly after Block's Twitter post saying that he's shorting Silvercorp, the company plunged 20 percent.
After Block's move to sell off Sino-Forest and the huge following it created for him, Bloomberg Businessweek's put him on its list of 50 most influential players this year alongside policymakers and thinkers such as US Treasury Secretary Timothy Geithner, IMF's Christine Lagarde, Chinese Vice-Premier Wang Qishan and Zhou Xiaochuan, governor of the People's Bank of China.