I have told anyone who will listen that China is a deflationary depression waiting to happen. Banks that neglected their cultural homework, ignored preposterous P/E valuations, and brushed off gaping macroeconomic inefficiencies, such as Morgan Stanley, are now paying the price of being too fashionable too late in the race.
Morgan Stanley’s Chinese prize loses some shine
By Jamil Anderlini, Paul Betts and Andrew Hill
Published: February 25 2008 18:25 | Last updated: February 25 2008 18:25
More than 12 years after it helped set up China International Capital Corp, Morgan Stanley is preparing to sell its 34.3 per cent stake in the top underwriter of initial public offerings in the world’s biggest IPO market.
Most likely the stake will go to one of a handful of US private equity firms.
But while access to the largely closed Chinese brokerage industry is tempting, bidders for the stake, including TPG, Bain Capital and others, are realising the prize is not as sweet as it first looked.
For one thing, the Chinese stock market is down nearly one-third from the highs it reached last October, trading volumes are around a third of what they were at their peak in the middle of last year, and just yesterday the securities regulator said it planned to rein-in large secondary listings in the domestic market.
As for CICC itself, Morgan Stanley has been sidelined by Levin Zhu, the firm’s powerful chief executive, who is also the son of former Chinese premier Zhu Rongji. Many in the Chinese financial world privately say Mr Zhu rules CICC like his own kingdom, while Morgan has progressively ceded control.
Anyone who buys a piece of CICC could be buying a troubled relationship.
The vast majority of Chinese “capitalism” is the same old Communist clan networks, thinly veiled with “capitalist” ownership structures. The subservience of economics to politics, lack of respect for spirit of contract, institutional inefficiency, and state subsidies have not really changed. Once the Chinese lower class realizes how quickly the pie is shrinking, “red capitalism” will join dirigisme, METI, and Nixonism in the trash heap of economic history. Anyone who read “Mr. China” or “One Billion Customers” would have considered those facts before blowing billions of dollars on a luridly overpriced bank purchase.