Ruchir Sharma: China’s Illusory Growth Numbers; Huge new flows of credit and public investment are delaying needed reforms and inflating a real estate bubble

Ruchir Sharma: China’s Illusory Growth Numbers

Huge new flows of credit and public investment are delaying needed reforms and inflating a real estate bubble.

RUCHIR SHARMA

Oct. 30, 2013 7:09 p.m. ET

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Beijing appears to be on track, yet again, to hit its official growth target. According to China’s National Bureau of Statistics, gross domestic product rose 7.8% in the third quarter of 2013, well on its way toward hitting the official target of 7.5% GDP growth for the year. But can these numbers be trusted? Beijing has a long tradition of setting and then claiming to exceed high growth targets, which makes growth appear both rapid and stable. For years, China reported much less volatile economic growth than other developing nations, but lately volatility has all but disappeared. Since the start of 2012, China has reported a GDP growth rate within a few decimal points of the official target—every quarter. Read more of this post

Top Chinese Banks Post Biggest Bad-Loan Surge Since 2010

Top Chinese Banks Post Biggest Bad-Loan Surge Since 2010

China’s top four banks posted their biggest increase in soured loans since at least 2010 as a five-year credit spree left companies with excess manufacturing capacity and slower profit growth amid an economic slowdown. Nonperforming loans at Industrial & Commercial Bank of China Ltd. (601398), China Construction Bank Corp. (939), Agricultural Bank (1288) of China Ltd. and Bank of China Ltd. (3988) rose 3.5 percent in the three months to Sept. 30 from June to a combined 329.4 billion yuan ($54 billion), according to data compiled by Bloomberg News based on third-quarter results. Profit rose to 209 billion yuan. Read more of this post

‘The Human Brand’: Our Relationships with Companies

‘The Human Brand’: Our Relationships with Companies

Oct 24, 2013 Books North America

Customers describe how they feel about companies and brands in profoundly personal ways. We hate our banks; we love our yoga pants. We can’t stand the cable company, but we consider our smartphone one of our very best friends. How are we making these judgments? According to a new book titled, The Human Brand: How We Relate to People, Products, and Companies, by Chris Malone, an expert in customer loyalty, and Susan T. Fiske, a professor of psychology at Princeton University, our perceptions are the result of spontaneous judgments on warmth and competence – precisely the same elements that drive our impressions of other people. As a result, customers evaluate, judge and form relationships with companies in ways that are remarkably similar to how they evaluate and behave toward people. Malone recently talked to Knowledge@Wharton about his book. To achieve success in the future, companies must build more genuine relationships with customers that display warmth, competence and worthy intentions, says Malone, who got his MBA at Wharton and has held senior marketing positions at companies such as Coca-Cola, ARAMARK and Choice Hotels. An edited transcript of the conversation follows.

Knowledge@Wharton: Your book’s hypothesis is that we relate with companies in much the same way that we do with people. Explain.

Chris Malone: In their struggle for survival, primitive humans were forced to develop a genius for making two specific kinds of judgments quickly and accurately. One: What are the intentions of other people toward me? And two: How capable are they of carrying out those intentions? In the academic world, these dimensions of perception are called warmth and competence. Warmth involves whether we view others to be honest, trustworthy, kind or friendly, while competence relates to whether they seem capable, intelligent or skilled. These spontaneous perceptions drive most of our emotions and behavior toward other people. Read more of this post

It’s Time for Chinese Firms to Play Offense Against the Shorts; Boosting transparency from the start can keep investors from questioning the books

It’s Time for Chinese Firms to Play Offense Against the Shorts

Boosting transparency from the start can keep investors from questioning the books.

MATT FORNEY AND PAUL GILLISMatt Forney

Oct. 30, 2013 12:55 p.m. ET

Once again, China has New York on edge. Despite renewed faith in China’s economy, a sudden shock among investors has reversed a steady climb in the share prices Chinese companies listed in the U.S., and rising fears of Chinese firms may even imperil the pending initial public offerings of four Chinese firms that have filed with the Securities and Exchange Commission. The sudden volatility of Chinese stocks comes from one source: short-side attacks. The most prominent shorter, U.S.-based Muddy Waters, struck again last week with its 81-page skewering of NQ MobileNQ +11.26% a Chinese maker of mobile-phone security software. The report says the company’s cash balances are misstated, revenues are inflated and customers are non-existent. NQ Mobile denies the allegations and has released information on its bank accounts and taken the extraordinary step of transferring some of its cash to another bank. Read more of this post

A World Without Maps

A World Without Maps

MELIK KAYLAN

Oct. 29, 2013 4:42 p.m. ET

Measuring and Mapping Space: Geographic Knowledge in Greco-Roman Antiquity

Institute for the Study Of the Ancient World

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Ptolemy’s Earth, from a Florentine manuscript (c. 1460). New York Public Library

The contradiction may seem insuperable—that the main point of an exhibition about ancient maps is that there weren’t any, or any that have survived. But don’t let that put you off. The show at the Institute for the Study of the Ancient World (ISAW) is titled “Measuring and Mapping Space: Geographic Knowledge in Greco-Roman Antiquity.” Its explanatory circular tells of focusing on “ancient cartography and the ways in which Greek and Roman societies perceived and represented both the known and unknown worlds.” All of which certainly suggests that you will see maps. And you will, but not what you expect. Read more of this post

‘Mission in a Bottle’: Making Honest Tea

‘Mission in a Bottle’: Making Honest Tea

Oct 28, 2013 Books Podcasts North America

When Seth Goldman and Barry Nalebuff, co-founders of Honest Tea, set out to make a tea that they would want to drink, they knew they wanted to create a product that wasn’t too sweet and build a brand that was socially responsible and environmentally friendly. But they had no idea what it would take to get the tea to market. Their new book, Mission in a Bottle: The Honest Guide to Doing Business Differently and Succeeding, tells the story of their start-up in a graphic novel format. Nalebuff is a professor at the Yale School of Management; Goldman, a graduate of the school, is one of his former students. Recently, Knowledge@Wharton had an opportunity to talk with Goldman and Nalebuff about how they created a financially sustainable company that serves a mission, how they navigated the beverage distribution challenges, why they decided to sell the company to Coca-Cola — and how they did it on their own terms. An edited transcript of that conversation follows.

Knowledge@Wharton: The simple answer to why you started Honest Tea — and it’s on all of the bottles — is that you were thirsty. You talk in the book about how you wanted to create a beverage for people like you, who thought most of what was already on the market was too sweet. But what was it about tea that really captured your imaginations, that told you this was the venture you wanted to pursue as entrepreneurs? Read more of this post

China’s talk of reform leaves investors cool toward state giants

China’s talk of reform leaves investors cool toward state giants

5:02pm EDT

By Umesh Desai and Vikram Subhedar

HONG KONG (Reuters) – For all the grand talk of far-reaching reforms when China’s leadership meets early next month, foreign investors have refused to become carried away, with most choosing to shun the country’s mammoth state-owned enterprises (SOEs). The new leadership has been in place for a year, and investors are keen to see its strategy to keep the world’s second largest economy growing, as it enters a more mature phase of slower expansion. Read more of this post

High Tech’s Secret Weapon: The Whiteboard; Fast, Big and Easy to Use, These Dry-Erase Boards Are a True Innovation Tool

High Tech’s Secret Weapon: The Whiteboard

Fast, Big and Easy to Use, These Dry-Erase Boards Are a True Innovation Tool

FARHAD MANJOO

Oct. 30, 2013 5:52 p.m. ET

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The headquarters of the popular note-taking app Evernote are typical of many Silicon Valley firms. There’s a cafeteria brimming with free food, vending machines offering up free tech supplies, and conference rooms bearing morale-boosting wacky names. (Evernote’s theme is videogames: You might have a meeting in Ace Combat, Elder Scrolls, or Dig Dug.) And then there are the whiteboards—or, more accurately, the whitewalls. When the company moved last year into the Redwood City, Calif., building, it painted almost every surface with IdeaPaint, a substance that makes walls amenable to dry-erase markers. Read more of this post

China Companies Line Up for U.S. IPOs

China Companies Line Up for U.S. IPOs

Debut of 58.com Thursday Will Show Market’s Appetite

PAUL MOZUR in Beijing, DANIEL INMAN in Hong Kong and TELIS DEMOS in New York

Oct. 30, 2013 3:45 p.m. ET

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When China’s equivalent of Craigslist sells shares in New York on Thursday, it will offer the best indicator yet of whether U.S. investors have found a taste for Chinese stocks again after a two-year case of indigestion. 58.com Inc. is set to list on the New York Stock Exchange on Thursday, the first in a string of Chinese Internet companies looking to debut in the U.S. in coming months. A strong reception for 58.com would indicate that investors have become more comfortable with Chinese shares after alleged accounting fraud at a handful of companies hammered some of these stocks two years ago and led to a broad retreat by U.S. investors. Read more of this post

In the Global Movie Business, China Aims for a Starring Role

In the Global Movie Business, China Aims for a Starring Role

Oct 29, 2013 Strategic Management Asia-Pacific China

“Chinese Titan Takes Aim at Hollywood,” said a New York Times report last month, referring to the plans of Wang Jianlin, China’s wealthiest investor and founder of the $30 billion real estate group Dalian Wanda, to build a movie-themed real estate project in the upscale seaside town of Qingdao. Price tag: 50 billion Yuan ($8 billion). “It is estimated that China’s film box office revenue will surpass North America’s by 2018 and will double it by 2023 — that is why I believe the future of the world’s film industry is in China,” the Times quoted Wang as saying. Read more of this post

A decade after SARS swept through the world and killed more than 750 people, scientists have made a troubling discovery: A very close cousin of the SARS virus lives in bats and it can likely jump directly to people

Study: Bat-to-Human Leap Likely for SARS-Like Virus

GAUTAM NAIK

Updated Oct. 30, 2013 7:07 p.m. ET

A decade after SARS swept through the world and killed more than 750 people, scientists have made a troubling discovery: A very close cousin of the SARS virus lives in bats and it can likely jump directly to people. The findings create new fears about the emergence of diseases like SARS, or severe acute respiratory syndrome. The virus spread quickly from person to person in 2003 and had a mortality rate of at least 9%. Worries of a severe pandemic led the World Health Organization to issue an emergency travel advisory. Read more of this post

Research for AIDS Cure Advances as HIV Fought in Monkeys

Research for AIDS Cure Advances as HIV Fought in Monkeys

Antibodies derived from the blood of HIV-infected people suppressed the virus in the blood of monkeys in two studies that suggest the experimental approach may improve AIDS therapy or point the way toward a cure. One study showed that a single injection of antibodies reduced the simian, or monkey, version of HIV to undetectable levels in three to seven days — much faster than regular AIDS drugs — and the effect lasted for almost two months. The research, led by Dan Barouch, professor of medicine at Harvard Medical School, is published today online by the journal Nature. Read more of this post

Teva, the world’s largest generic-drug maker, have plunged 42% since their 2010 peak. Now the man hired to turn the company around just 18 months ago is gone, and analysts say it may be tough to find a replacement

Teva Seen Struggling in CEO Search as Board Under Fire

The shares of Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest generic-drug maker, have plunged 42 percent since their 2010 peak. Now the man hired to turn the company around just 18 months ago is gone, and analysts say it may be tough to find a replacement. Jeremy Levin, a former Bristol-Myers Squibb Co. executive, joined Israel-based Teva as chief executive officer with a reputation as one of the industry’s top dealmakers. A rift over the company’s future with Phillip Frost, the U.S. billionaire who is board chairman and Teva’s biggest individual shareholder, led to Levin’s ouster, opening questions about the ability of a high-powered replacement to manage Teva going forward. Read more of this post

Peter Zaldivar’s Hotel Shilla Pitch at Invest For Kids Chicago

Peter Zaldivar’s Hotel Shilla Pitch at Invest For Kids Chicago

Posted: 29 Oct 2013 11:24 PM PDT

Peter Zaldivar’s Presentation at Invest For Kids Chicago

•    International focus; looks for smaller underloved companies
•    Hotel Shilla (008770) 
•    $2.4 billion market cap
•    2 hotels in Korea (10% of sales) and duty free shops (90% of sales)
•    6 locations generate $6 billion of sales
•    Duopoly – 35% versus 50% Lotte (private)
•    Fast growth of 15% and accelerating
•    Barriers to entry are scale and government licenses
•    Chinese are getting richer – number of rich Chinese are growing substantially
•    Korea wants tourism and China is only 90 min away
•    Cosmetic surgery – world center for plastic surgery
•    Most important thing is that they sell luxury brands for less (as in 40% less than in mainland China)
•    South Korea has a tourist police force that verify authenticity
•    Chinese half of customer base and growing at 30% per year
•    More Chinese are getting passports – still less than 10%
•    Yet Hotel Shilla is trading at 17.2x 2014E earnings
•    28% upside in a base case
•    69% upside implied by a slight premium to comps
•    Same P/E as European counterparts would imply a 60% gain

Rally in China Internet Stocks Begins to Stall; Much of Gains ‘Built on Hope’

Rally in China Internet Stocks Begins to Stall

Much of Gains ‘Built on Hope’

MIA LAMAR

Updated Oct. 30, 2013 5:45 p.m. ET

HONG KONG—A blistering four-month rally in Chinese Internet stocks is starting to stall as investors question whether expectations are running ahead of reality. After months of big gains, shares in Chinese Internet stocks have roughly doubled so far this year and are now valued at around 30 times expected 2013 earnings, BarclaysBARC.LN +0.90% said in a report. That compares with a gain of around 30% this year for the Nasdaq NDAQ -0.79% Composite Index, home to U.S. technology bellwethers GoogleInc. GOOG -0.56% and Apple Inc., AAPL +1.59% Barclays said. Read more of this post

Internet Games Prove Challenging for South Korea

October 31, 2013, 7:21 AM

Internet Games Prove Challenging for South Korea

By Jaeyeon Woo

South Korea’s government may find it difficult to stake out a winning position regarding online games if victory means coordination between the appendages of two arms of government. On one hand, ruling-party lawmakers are calling for measures to curb the playing of online games, citing antisocial side effects, while on the other, a ministry says the industry is an important cog in a strategy of vouchsafing the country’s economic success in creative industries. Read more of this post

Facebook’s Feast Can’t Last Forever; Social-Media Company Still Remains a One-Trick Advertising Pony

Facebook’s Feast Can’t Last Forever

Social-Media Company Still Remains a One-Trick Advertising Pony

MIRIAM GOTTFRIED

Oct. 30, 2013 6:31 p.m. ET

What’s not to like?

Facebook FB -0.78% reported third-quarter earnings Wednesday that beat expectations. But all eyes were on its revenue, particularly the portion that came from mobile. Overall revenue rose 60% to $2.02 billion, with ad sales rising 66% to $1.8 billion. Mobile ads represented 49% of that, up from 41% in the second quarter. Facebook’s ability to manage the shift to mobile is crucial. And its ability to do so while also rapidly expanding overall revenue means it isn’t simply moving sales around. Read more of this post

UPS Crunches Data to Make Routes More Efficient, Save Gas

UPS Crunches Data to Make Routes More Efficient, Save Gas

United Parcel Service Inc., the world’s biggest package shipping company, is using data from customers, drivers and vehicles in a new route guidance system that will save time and money and reduce fuel burn. The On-Road Integrated Optimization and Navigation, or Orion, system is being introduced this year to 10,000 of the Atlanta-based company’s 55,000 U.S. drivers, UPS said today. Orion has been in development nearly 10 years and is the company’s biggest technological advancement in the same timeframe, UPS said. Read more of this post

Drones Delivering Pizza? Venture Capitalists Wager on It

Drones Delivering Pizza? Venture Capitalists Wager on It

Commercial drones will soon be populating U.S. airspace, and venture capitalists like Tim Draper are placing their bets. Draper, an early investor in Hotmail, Skype and Baidu Inc., is now backing DroneDeploy, a startup that’s building software to direct unmanned aircraft on land mapping and the surveillance of agricultural fields. Draper even expects drones to one day bring him dinner. Read more of this post

New rule to ring in costly accounting change for telcos

New rule to ring in costly accounting change for telcos

12:47pm EDT

By Huw Jones

LONDON (Reuters) – Standard setters have reached broad agreement on the first global rule telling companies how to book revenues in a reform that may encourage listings and bump up IT costs for telcos. Revenue is the most important line in a company’s earnings statement and policymakers want to make it easier for investors to compare firms and help bring down the cost of capital by making markets more efficient and transparent. The new rule is part of wider efforts to create a single set of global accounting standards. Read more of this post

Twitter hit with $124 million lawsuit over private stock sale

Twitter hit with $124 million lawsuit over private stock sale

2:15pm EDT

By Nate Raymond and Jonathan Stempel

NEW YORK (Reuters) – Twitter Inc was sued for $124 million on Wednesday by two companies claiming the social media darling fraudulently had them organize a private sale of its shares to stoke investor interest for an initial public offering then canceled it. In a lawsuit filed in U.S. District Court in Manhattan, Precedo Capital Group Inc and Continental Advisors SA accused Twitter of using the aborted sale as a way to give the money-losing company a $10 billion market valuation and higher IPO price. Read more of this post

Psychic scammers find fertile haunting ground in Internet age

Psychic scammers find fertile haunting ground in Internet age

Tue, Oct 29 2013

By Jeffrey B. Roth

GETTYSBURG, Pennsylvania (Reuters) – As pre-Halloween witches and ghouls sprout up on U.S. lawns, experts are warning people to be wary of modern occult scammers who have moved online to hawk virtual voodoo dolls, revenge spells and otherwise “haunted” items. While the idea of spending money for a magic spell – to help with an endeavor or to inflict pain on an enemy – has been around for centuries, experts say the anonymity of online transactions can encourage people who would otherwise never think of visiting a storefront psychic to fall for a con. Read more of this post

Asian consortium including Korea’s E-Land in exclusive talks to buy Italy’s luxury leather goods brand Bruno Magli

Asian consortium in exclusive talks to buy Italy’s Bruno Magli

2:25pm EDT

MILAN (Reuters) – Italian luxury leather goods brand Bruno Magli said on Tuesday its hedge fund owner Fortelus has begun exclusive talks to sell the entire company to a consortium of Asian investors. Bruno Magli said London-based Fortelus is expected to close the deal with a group of investors including South Korean retailer E-Land and Hong Kong-based private equity firm CDIB Capital in November. The luxury shoe and handbag brand dates back to the early 1900s when two brothers and their sister set up a workshop in their basement with a share capital of 35 old Italian lira, according to the company. E-Land has been acquiring outlets, leisure holdings and fashion brands since 2009, and already owns upmarket Italian bag and wallet maker Mandarina Duck. CDIB Capital is owned by Taiwan-based investment and merchant banking group China Development Financial (2883.TW: QuoteProfileResearchStock Buzz).

Coffee drinkers treated to more arabica as prices sink

Coffee drinkers treated to more arabica as prices sink

1:17pm EDT

By Sarah McFarlane

LONDON (Reuters) – Coffee drinkers in Brazil, America, Eastern Europe and the Middle East are expected to down more arabica beans in their brew in the coming year as cheap prices attract additional demand for the higher spec product. A surplus from top grower Brazil after two successive bumper crops helped drag arabica prices to a four-and-a-half-year low this week, which is likely to prompt roasters to increase the use of the bean in their blends. Read more of this post

Trick or Treat? Grain hedgers haunted by the ghost of MF Global

Trick or Treat? Grain hedgers haunted by the ghost of MF Global

6:05pm EDT

By Christine Stebbins

CHICAGO (Reuters) – Two years ago on Halloween thousands of U.S. grain farmers got the scare of their lives when broker MF Global collapsed and more than a billion dollars of their money went missing. MF Global customers have now, through a court-appointed trustee, recovered about 98 percent of the money, which had been in supposedly “safe” margin accounts. The balance is expected by year’s end. Read more of this post

PwC gobbles up Booz & Co as Big 4 rebuild in consulting

PwC gobbles up Booz & Co as Big 4 rebuild in consulting

4:15pm EDT

By Dena Aubin and Kevin Drawbaugh

(Reuters) – PricewaterhouseCoopers said on Wednesday it agreed to buy Booz & Co., ratcheting up an aggressive move by large audit firms back into the lucrative consulting business more than 10 years after U.S. regulators tried to tease apart the two sectors. PwC PWC.UL, one of the world’s Big Four audit firms, said it will buy corporate consultancy Booz for undisclosed terms. Subject to approval by Booz’s partners, the transaction was the latest in a string of similar acquisitions. Read more of this post

Bank stress tests should address government debt holdings: Weidmann; sovereign debt holdings should over the medium term be treated the same way as corporate bonds, which are not treated as a risk-free asset

Bank stress tests should address government debt holdings: Weidmann

3:50pm EDT

DARMSTADT, Germany (Reuters) – The upcoming European bank stress tests should address banks’ holdings of sovereign debt, European Central Bank Governing Council member Jens Weidmann said on Wednesday. The ECB will run a series of checks on banks’ balance sheets before it will take up responsibility as the euro zone’s banking supervisor late next year and Weidmann said the tests would be a success if afterwards trust returned to the sector. “And this should also include for example that the stress test also stresses government bonds, which is currently under discussion,” Weidmann said without providing further detail for how exactly such holdings should be looked at. Weidmann, also the head of Germany’s Bundesbank, said in a speech banks’ sovereign debt holdings should over the medium term be treated the same way as corporate bonds, which are not treated as a risk-free asset. Currently Basel-III bank rules treat sovereign debt as a risk-free asset, which means that banks do not have to allocate extra capital to compensate for a potential loss in value.

 

Is It Wrong for Shareholder Value to Rule Business Thinking?

Is It Wrong for Shareholder Value to Rule Business Thinking?

Oct 30, 2013 Strategic Management Video

It has been a business maxim for years: Shareholder value trumps all when it comes to measuring corporate success. But by overrating shareholder value, management could focus too much on short-term stock price measures, given that outsized executive compensation often is fueled by stock options. And focusing too much on the short term can hurt a business over the long run, says Eric W. Orts, a Wharton professor of legal studies and business ethics. There are better measures of corporate success, he points out in an interview with Knowledge@Wharton about his new book, Business Persons: A Legal Theory of the Firm.

An edited transcript of the conversation follows. Read more of this post

Exchange Failure Prompts Commodity Bourse Audit: Corporate India

Exchange Failure Prompts Commodity Bourse Audit: Corporate India

India’s commodities futures market regulator has sought an audit of the Multi Commodity Exchange of India Ltd. after a related spot bourse failed in August. The Forward Markets Commission wants to examine large expenditures by the MCX and related-party transactions, Ramesh Abhishek, chairman of the regulator said in an interview. The MCX has set up a panel to run the bourse after the government in July ordered the National Spot Exchange Ltd., founded by MCX Vice Chairman Jignesh Shah, to halt trading. Read more of this post

U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers

U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers

The U.K. Treasury is to examine the case for capping the fees that pension funds are allowed to charge savers, in an effort to prevent exploitation of a new auto-enrollment system. Starting in April 2015, every employee will be signed up for a pension plan unless he or she opts out. According to the Treasury, this will mean as many as 9 million people saving for a pension for the first time or increasing their savings, and an extra 11 billion pounds ($18 billion) invested each year. Read more of this post

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