BRUIN

BUSINESS
VOLUME 3 ISSUE 4
WINTER QUARTER, WEEK 8
REVIEW
Want To Work In Asia?
Interview with PricewaterhouseCoopers
Hong Kong Division — P.12

China and The Crisis

What Asia is Doing to Recover — P.30

Housing Bubble In China?

International Real Estate — P.24

CHINESE MARKETS
 INSIDE

News of the Week 4 Overview 18

China Drives the Global Economic Recovery
With Its Holdings in the U.S.
An Interview with Professor Tornell 19
Professor Tornell’s Thoughts on China’s
Calendar 6 Economy
Events from February 19 through March 9 The Housing Bubble 24
Business School Profile 7 A Possible Crash in the Housing Market?
Booth School of Business
University of Chicago
The Chinese Financial System 26
Rules, Regulations and Developments in
Investment Banking 10 the Chinese Financial System
Recent Investment Banking News Chinese Tech Companies 28
Accounting 12 Lenovo, TCL, and The Shanghai Electric Group
A Look at an Internship In Hong Kong The Government’s Reaction 30
Consulting 14 What Are They Doing for National and
International Recovery?
Deloitte Case Competition
Career Tips from Kaplan Test 16
Prep and Admissions
Insight on How to Get into Different
THE CHINESE MARKET
Professional Schools
ISSUE
 BBR STAFF
PRESIDENT | Sunny Wong
EDITOR IN CHIEF | Benjamin Lo
VICE PRESIDENT, OPERATIONS | Julie Chen
VICE PRESIDENT, MARKETING | Christine Liu
VICE PRESIDENT, FINANCE | Eric Park
ASSOCIATE EDITOR |Cristina Yamasaki
Jesus Heredia
OPERATIONS | David Vayzner
FINANCE | Stephen Moock
Jin Sun
Andrew Edwards
MARKETING | Stephanie Ju
Robert Chang
Chris Young
Steven Laird
Jane Kim
CREATIVE DEVELOPMENT | Junior Bustamante
Amorette Jeng
Lona Zhao
ADVISORS | Fred Kim
Dmitry Shuster

PHOTOGRAPHY
CREDITS
Cover | “weim”
Table of Contents | Henry S., Adrian van Leen,
Credits Page | Flashon Studio, Kai Hendry, Peter Morgan
Benjamin Earwicker, Daniel Cubillas
Business School Profile | Jane Kim
Accounting | Max Mak, C.H. So, Panda Chan
Investment Banking | Ben Schafer, Sebastian Fissore,
“patriarca12”, Maria Li
Consulting | Deloitte
Kaplan Career Tips | Razvan Caliman, Ivan Prole
China Title Page | “weim”
Overview |
Interview with Professor Tornell | Sergio Roberto Bichara,
“Clix”, Ivan Petrov
The Housing Bubble | “netean”, Michal Zacharzewski,
“Augapfel / Christopher”
Chinese Tech Companies | Svyatoslav Palenyy,
Michal Ufniak, Przemyslaw Szczepanski
The Government’s Reaction | Caijing.cn.com
Bruin Business Review - News of the Week 4
Bruin Business Review - News of the Week 5
Bruin Business Review - Calendar 6
BUSINESS SCHOOL
PROFILE

BOOTH SCHOOL OF BUSINESS

University of Chicago

Jane Kim Staff Writer

W ith a rapid increase in globalization and the current
international economic crisis, demand for MBA
(Masters of Business Administration) degrees is rising. Ac-
cording to the Financial Times, the Booth School of Business
at the University of Chicago is ranked 9th internationally for
its International MBA (IMBA) program. The two-year IMBA
program at Booth emphasizes its curriculum on issues of in-
ternational business and fostering fluency in a foreign lan-
guage. Diminishing possibility of a language barrier, Booth
fosters fluency by requiring students to study abroad for one
academic term through Booth’s International Business Ex-
change Program, which also helps students attain internships
and volunteer projects while abroad. Students can choose
from a wide range of classes including managerial leadership
courses, such as Strategic Leadership and Managerial Ac-
counting, to elective courses, like Investment and Finance in
China and Enhancing Personal and Organizational Creativity.

“…the University of Chicago Center
in China aims to assist ongoing research
and collaborate with nearby
Chinese universities
and research
institutions.”
Many international clubs and co-curricular activities exist
outside Booth’s lectures. Students involved in the Emerging
Markets Group on campus investigate relevant issues con-
fronted by many of the world’s developing countries. During
the school year, this group hosts speaker events and confer-
ences on microfinance—a field in finance that deals with ex-
tending small loans to those with little or no collateral. An-
other group, the European Business Group (EBG), provides
Booth students with career advancement opportunities in
Europe. Current and past EBG members have held positions
abroad at companies including McKinsey & Company, CB
Richard Ellis, Merrill Lynch, and Accenture.
Students at the Booth School have access to its expansive
alumni network—42,000 alumni located in 101 countries,
including the United Kingdom and Kenya. Ahead of leading
MBA schools such as the Harvard Business School and the
Stanford Graduate School of Business, the Booth School sur-
passes both with its percentage of international faculty (40%)
and students (40%) . In addition to having one of the most
diverse and distinct student and faculty population, the Booth
School of Business has 4 different campuses and numerous
research centers worldwide, including London and Singapore.
In 2008, a proposal for a University of Chicago Center in China
was set forth for consideration. This is due to the growing
Bruin Business Review - Business School 9
global economic power of China and because Chinese stu-
dents constitute the largest group of foreign graduate stu-
dents at the University of Chicago (UC), according to the UC
Ad Hoc Committee on China. Booth’s Ad Hoc Committee pro-
posed creating a permanent space in China to reduce long-
term costs of renting out conference rooms, holding semi-
nars, and conducting research. Using it more as a study cen-
ter than a campus, the University of Chicago Center in China
aims to assist ongoing research and collaborate with nearby
Chinese universities and research institutions. In addition,
multi-purpose rooms are created to hold workshops and fac-
ulty and graduate student meetings. Approved by the Presi-
dent and Provost of the Booth School, the center is currently
being established in Beijing and is scheduled to open fall
2010. By arranging each Chicago student with a Chinese
roommate and providing students with local knowledge of
the city including famous historical sites, public transporta-
tion, and nearby restaurants, Booth students not only gain
knowledge in the classroom but also experience and familiar-
ize with the Chinese language and culture.
As the first and only U.S. business school to have permanent
campuses in three continents, the Booth School of Business is
pertinent to students interested in an international business
career.

Recent News in
Investment
Banking
By Robert Chang
Staff Writer
OBAMA THROWS
SUPPORT TO VOLCKER
The fierce debate on Capitol Hill over
how to prevent another economic col-
lapse rages on. Recently, President
Obama switched sides from supporting
the moderate regulations proposed by
Treasury Secretary Timothy Geithner to
the more strict regulations suggested by
former Federal Reserve Chairman Paul
Volcker. The new proposal, dubbed
“Volcker’s Rule”, will forbid commercial
banks proprietary trading. Banks collect
money from deposits and use most of
this money in loans to borrowers, but
they also use some of the money for
speculative investing in order to maxi-
mize profits. Speculative investments
that include mortgage-backed securities,
a name that should sound very familiar
to a nation still recovering from the fi-
nancial meltdown they caused. Mortgage
backed securities are investments that
get their value from mortgage payments,
when too many people default on their
mortgage payments the securities be-
come worthless. This was the primary
cause of 2008 financial meltdown.
Bruin Business Review - Investment Banking 10
Advocates of
the rule argue
that Wall Street
uses depositors’
money to make
speculative investments in order to maxi- into reserves or government securities,
mize company profits to no benefit of not volatile markets.
their commercial banking customers.
But increased risk and potential damage
They argue that banks make dangerous
investments under the protection of gov- was not the only consequence of Bank of
ernment insurance, a measure designed America’s proprietary trading. Its size not
only caused it to fall harder, but the US
to fuel cheap lending, not risky entrepre- government could not afford to let it
neurial behavior. Some banks would only dissolve because it had large stakes in
be minimally affected by this, Wells both the commercial and investment
markets. This created a dilemma, B of A
Fargo only makes 2.5% of its profit from
trading revenues. But the financial giant was too large to survive but too impor-
Goldman Sachs gets a whopping 55% tant to fail. This forced the government
to use taxpayer dollars to keep it alive.
percent of its income from its proprietary
trading arm. The Volcker plan is aimed at preventing
banks like Bank of America from being
In his address to Congress, Volcker “too big to fail,” a term that dominated
government discussions during the wave
pointed out a conflict of interest that
stems from commercial banks funding its of bank failures in 2008. The argument is
own investments from its clients’ that banks that are too large to safely
money. When the banks make good in- collapse in the free market need to be
saved by the government and the tax
vestments, this greatly increases revenue
and allows banks to lend at lower rates. payers, by putting a wall between finan-
But when things go south in the financial cial and commercial markets the banks
will be able to dissolve more safely than
market, as they did drastically at the end
of 2008, this association can cause the in 2008. It will also prevent financial
harm to spread to the commercial sec- companies from growing too quickly by
tors. For example, Bank of America, one limiting their focus to a either proprie-
tary trade or commercial banking.
of the biggest bank failures during the
meltdown, suffered as both one of the
biggest commercial banks AND invest-
ment bank. This caused B
of A trouble on two fronts “The Volcker plan is aimed at
as families defaulted on
their mortgages and the preventing banks from being
mortgage-backed securi-
ties plummeted in the
„too big to fail,‟ a term that
market. The Volcker plan dominated government dis-
hopes to put commercial
banks on safer ground by cussions during the wave of
forcing its loose change bank failures in 2008.”
support. By proposing strict limitation on banks, the govern- “This pattern of a slight bump
ment can capitalize on the outrage against Wall Street caused
by the corruption and compensation controversies of the last before a large rally is a repeating
few years. John Varley, chief executive of Barclays argues that
the Volcker plan is not only unfair to banks, but also ineffec-
phenomenon in emerging
tive as a crisis prevention policy. Varley claims that some markets.”
banks, including his, do not use commercial funds for their
financial arms and the plan will only force banks to close legiti-
mate operations. Even democrats like Senator Mark Warner
argue that the plan is unfair to banks. The Volcker plan will
also do nothing to prevent the main contributing causes of the
financial meltdown. Mortgage-backed securities will still be
traded by strictly financial banks and the securities rating sys-
tem will still be broken.

Whether this is an effective prevention tool will be debated

for months to come during the long process for lawmakers to
turn Volcker’s rhetoric into an actual bill.

EMERGING MARKET SHARES TAKE HIT,

INVESTORS PREDICT A BULL MARKET
Drastically falling prices in emerging market funds halted ear-
lier this month and many investors expect a swift rally. The
drop in stocks, led by China, hit in mid-January after the Peo-
ple’s Bank of China tightened the state’s monetary policy to
curb volatile inflation. On January 19 the MSCI Emerging Mar-
kets Index peaked at 42.80 before dropping 10% to 28.28 by
the end of January. Prices bottomed out at 36.83 on February
8 and look to be on the rise.
vestors to expect a huge surge in emerging world prices,
greatly overcoming January’s losses. Analysts at Morgan
Stanley predict that the MSCI Emerging Markets Index will
rally by 34 percent by the year’s end. Experts in the field have
noted that this pattern of a slight bump before a large rally is a
repeating phenomenon in emerging markets.

The Chinese government is expected to loosen capital flows in

order to meet growth expectations; this has caused many in-
 Bruin Business Review - Accounting 12

Q&A With Grace Chan

On Her Internship in Hong Kong
The “Big Four” (Big 4) refers to the four largest public accounting firms in the world: PricewaterhouseCoopers (PwC), Ernst &
Young, Deloitte, and KPMG. Together, these four firms deal with the vast majority of audits for large corporations around the
world. The Hong Kong PwC office provides professional for auditing, tax, and advisory services. Its clients are some of the largest
organizations in the world, such as the Bank of China.

Grace Chan is a recent UCLA alumna who currently works at PricewaterhouseCoopers in the tax department. She interned in the
international tax department for Deloitte in Hong Kong, China, in the summer of 2008.

More importantly, I would encourage students to talk to their

BBR: How did you find this internship and why did you
choose tax?
GC: I applied online for the position. During the process I kept
in contact with the HR department in Hong Kong. I did not
express a preference for tax or audit. I was placed in the tax
department. I worked with the international tax group, be-
cause I was not fluent with the local language or fully aware
of all the customs. In audit your time is primarily spent at the
client site. However, I thoroughly enjoyed the tax internship
and found the work interesting.
BBR: How did you prepare for your current role while at
UCLA? Did you find any classes that were particularly helpful?
GC: Our accounting program definitely prepares you for
working in a Big 4 environment. I would recommend taking
Auditing (Management 123) as well as Individual and Corpo-
rate Tax (Management 127A and 127B) to better understand
what they’re about. Our accounting classes also prepare you
well for the CPA exam. However, you’ll learn the most on the
job. Excel and ten-keying skills are an absolute must.
“I would encourage students to talk
to their professors as well as other
recent grads who are working in the
accounting profession so that they
will know what to expect. It is
extremely important to understand
the lifestyle and demands of the
job.”
professors as well as other recent grads who are working in
the accounting profession so that they will know what to
expect. It is extremely important to understand the lifestyle
and demands of the job.
BBR: What’s the working environment and lifestyle like in
Hong Kong?
GC: Working in Hong Kong is very interesting. The lifestyle is
fast-paced and the people work very hard. They are generally
a bit more on the serious side, but they also know how to
“You have to be willing to step out of
your comfort zone in order to
communicate and try new things.”
joke around. The environment is more globally oriented. In
Hong Kong, there are many ex-patriots, so I met people from
Britain, France, and Australia. It is also really convenient to
grab lunch or dinner, because there are so many shops and
restaurants, and the public transportation is amazing.
BBR: Were there any sort of language or cultural barriers you
had to overcome while interning in Hong Kong?
GC: There were some language and cultural barriers that I
had to overcome. Maybe the most important thing that I
learned was that it is only awkward if you make it awkward.
You have to be willing to step out of your comfort zone in
order to communicate and try new things. I was a little bit
uncomfortable speaking Cantonese because I was pretty sure
that I was butchering the tones and pronunciation, but then I
realized that some of my coworkers were equally
 Bruin Business Review - Accounting 13

uncomfortable speaking English. This realization helped me to

relax a little bit, and even if I sounded a bit funny, or if they
couldn’t understand what on earth I was trying to say, we’d
usually get a good laugh out of it and get someone else to
translate. I even got to brush up on my French when I was in
Hong Kong.

BBR: I understand that there are different accounting stan-

dards over in China. Was it difficult for you transition to the
new standards?

GC: To be honest, the transition wasn’t that difficult. As an

intern, my knowledge of the U.S. taxation system was only
very limited to begin with, so it was not a radical change. Also,
because I worked in the international tax department, about
half the projects that I worked on actually dealt with U.S. tax.
The tax system in Hong Kong is different from the Chinese tax
system, and in general, most tax systems in other countries
are less complex than the U.S. tax system.

BBR: What did you enjoy most about your time while interning
in Hong Kong?

GC: I enjoyed meeting people from all over the world and get-
ting the chance to explore Hong Kong. I’ve gone to Hong Kong
many times before, but only for short vacations, so the chance
to fully immerse myself in a different culture for three months
was an eye-opening experience. It’s very different to vacation
somewhere and to work somewhere. I also became good
friends with some of my coworkers and we still keep in touch To learn more about interning in
to this day.
Hong Kong, visit:
BBR: What are some tips and recommendations you would
give students who are interested in working abroad in East
Asia?
http://www.pwchk.com/home/eng/
GC: Simply put, I would tell them to be open to trying out new students_internships.html
things and to go for it!

Email
hk.graduate@hk.pwc.com
for any questions about the
internship recruitment
process.
Bruin Business Review - Consulting 14
Bruin Business Review - Consulting 15

SURVEY SAYS:
Admissions Officers Share Insight
with Kaplan Test Prep and
Admissions
To ensure that prospective business, law and medical school
students receive accurate and up-to-date information on key
trends and relevant issues in the admissions process, Kaplan
Test Prep and Admissions annually surveys admissions officers
from programs across the U.S. Following is advice based on
insights from Kaplan’s 2009 surveys of admissions officers at
top MBA programs, law programs and medical programs:
For students getting ready to apply to business school:
 GMAT vs. GRE: Though increasingly the most competitive
MBA programs are accepting both, if you are a student
considering applying to business school, take the GMAT – it
gives you more options. 76% of business schools told us
that they only accept the GMAT for admissions, while 24%
accept both the GMAT and the GRE. Of the GMAT-only
schools, only 5% said they are considering shifting to a pol-
icy of also accepting the GRE.
 A Low GMAT Score is an Application Killer: If you are a stu-
dent whose GPA is not where it should be by the time you
apply, it’s critical to achieve that highly competitive GMAT
score: 44% of business schools say that a low GMAT score
is the biggest application killer. Kaplan’s new GMAT course
featuring the first-of-its-kind virtual test prep center that
allows students to manage their course progress, access
online resources, connect with their teachers or fellow
GMAT prep classmates, attend live online business school
admissions events and more, can help you do that.
Bruin Business Review - Career Tips 16
For aspiring lawyers preparing for the LSAT:
 Your LSAT Score is Key: For the four years Kaplan has been
conducting this survey, admissions officers have said that
an applicant’s LSAT score is by far the most important ad-
mission factor.
 Law Schools Look At Your Highest LSAT Score: 76% of law
schools evaluate an applicant based on his or her highest
score submitted. Just a few years ago, most schools evalu-
ated applicants on the average score of multiple LSATs
they submitted. Advice: Prepare adequately and aim to
score high on the first LSAT you take. But if you do need to
take it again, it’s good know that law schools say they
evaluate you only on the highest score.
For those who have their sights on practicing medicine
and are readying for the MCAT:
 Don’t Wait for Your MCAT Score: If you haven’t received
your MCAT score by the end of June, 70% of admissions
say to submit your application without it, and then submit
your MCAT score as soon as you receive it.
 Be Careful About Social Networking: 30% of medical school
admissions officers say that they or a colleague have re-
ceived a Facebook or MySpace friend request. Only 15% of
schools said they have a policy in place on visiting appli-
cants’ social networking pages and 100% of those that do
have policies prohibit admissions officers from taking a
peek. Advice: Social networking is the “Wild West” of the
admissions process – make sure that what you have posted
doesn’t embarrass you or make sure you keep it private,
but focus most importantly on your MCAT score and GPA.
Kaplan Test Prep and Admissions (www.kaptest.com), a division
of Kaplan, Inc., is a premier provider of educational and career
services for individuals, schools and businesses. Established in
1938, Kaplan is the world leader in the test prep industry. With
a comprehensive menu of online offerings and a complete array
of books, Kaplan offers preparation for more than 90 standard-
ized tests, including entrance exams for secondary school, col-
lege and graduate school, as well as English language and pro-
fessional licensing exams. Kaplan also provides private tutoring
and graduate admissions consulting services.
Chinese Markets
Bruin Business Review - Chinese Markets 18
Bruin Business Review - Chinese Markets 19
Bruin Business Review - Chinese Markets 20
Bruin Business Review - Chinese Markets 21
 Bruin Business Review - Chinese Markets 22

Q & A With Eric Park

Staff Writer

Professor AARON
I recently had the opportunity to sit down with Professor BBR: Many currency experts have stated that the Yuan has
Tornell of the Economics department at UCLA to discuss vari- been valued at an artificially low level for years, what kind of
ous topics in regards to China’s economy. Topics discussed in market adjustment do you see in regards to the Yuan’s ex-
this interview include Yuan’s exchange rate, its trade with change rate?
the U.S. and the state of the Chinese housing market.
AT: There are many views on what the exchange rate should
Aaron Tornell specializes in International Finance, Economic be in China. The view I subscribe to is that of the real exchange
Development, and Political Economy. He obtained his under- rate. In each country, there are two types of goods. The two
graduate degree from ITAM (Instituto Tecnológico de types of goods are those that are traded internationally and
México) and his Ph.D. in Economics from MIT. He has served consumed domestically such as haircuts. As countries become
as an advisor to Minister of Finance of Mexico and has richer, the prices of non-tradable goods rises and the price ratio
worked for a private investment firm. of non-tradable goods to tradable goods will rise. Over time, as
China becomes richer, the Yuan will undergo real appreciation
BBR: In the 4th quarter of 2009, China reported that its econ-
omy grew by 10.1%. China’s economy has become one of the “It is important for the Chinese
fastest growing and largest economies in the world. What are
some of the factors you see as the driving forces behind this government to set sufficient
emergence?
requirements on banks to possess
AT: In the last few years, China has become the most impor- enough reserves to cover losses on
tant exporter in the world. China is now exporting a tremen-
dous amount of consumption goods and many of the products mortgages in the event that loan
bought here in the U.S. are exported from China. The high
growth of China in recent years has come from an increase in
borrowers default on their loans.”
their amount of net exports. Growth in China has not come
from an increase in domestic consumption. This means that with respect to other currencies such as the dollar. The nomi-
savings in China are very high, which means that the disposable nal exchange rate will appreciate between the present and the
income of the Chinese people is mostly saved as opposed to future. How fast this nominal exchange rate will appreciate
consumed. These savings are reflected in their current account depends on other factors such as financial markets. Eventually,
surplus. over time a real appreciation of the Yuan will occur and the
cost of Chinese goods will increase as China’s domestic wages
and non-tradable goods rises.

BBR: Economists have been speculating in recent months that

China will experience its own housing bubble. What are your
thoughts on this situation?

AT: China has experienced a growth in the rate of credit given

by banks to its citizens. This has allowed its citizens to purchase
more assets such as real estate, which has lead to an increase
in the prices of real estate. In theory, the rental prices of
homes should be similar to that of mortgage payments on a
purchase of a home. A bubble occurs, when the prices of real
estate are significantly higher than that of rent prices and this is
currently what is occurring in China.
 Bruin Business Review - Chinese Markets 23

China must insure that its banking system stay afloat. It is

important for the Chinese government to set sufficient re-
quirements on banks to hold enough reserves to cover losses
on mortgages should people default on their loans.

BBR: Banking regulation has been a hot topic in the U.S.

since the onset of the recession, how do you think U.S. bank-
ing principles differ with that of Chinese banking principles?

AT: In the U.S., banks collect deposits from its customers and
lend those deposits out to other customers and can also use
these funds for other speculative activities. U.S. commercial
banks and investment banks are not separated. The question
today is whether the U.S. government should impose limits
on the activities of banks. In China, the banks are subject to
much more stringent banking rules as banks are limited on
the activities in which they can engage. For instance, foreign-
ers cannot invest as freely in Chinese institutions as there are
few qualified foreign investors and the Chinese bond market
is not as deep as it is here in the U.S.

BBR: What action do you believe the U.S. needs to take in

regards to its trade deficit with China and what negative ef-
fects do you think will occur if this problem is not remedied?

AT: A current account deficit occurs when the private sector

is not saving enough or when government expenditures are

“Over time, as greater than that of the taxes it collects. If the U.S. continues its
current account deficits and the deficit’s percentage of U.S. GDP
China becomes grows faster than the U.S. growth rate in G.D.P., fewer countries
richer, the Yuan will be willing to lend to the U.S. at low interest rates. The U.S.
government is able to finance its debt to China through the sale
will undergo of U.S. treasury bonds to China. China currently owns more than
$2 trillion worth of U.S. treasury stock and because of that there
real apprecia- is a mutual dependence between the two countries.

tion with re- BBR: Considering China’s past government regulations and laws
along with current market conditions, where do you see China’s
spect to other economy heading in the next 5-10 years?
currencies such
AT: China’s economy is growing faster than other major econo-
as the mies and the income per capita rate is increasing but its growth
rate will decrease and level off as the income per capita rate
dollar.” catches up to major economies such as that of the U.S. and Ja-
pan. However, China must deal with its substantial poverty rate,
as there are over 700 million in China living in poverty.

CHINA’S HOUSING BUBBLE
By Stephen Moock
Staff Writer
Plan on investing about 80 times the average an-
nual income of a Beijing resident for a standard
1,000 square foot apartment. Prices have not al-
ways been so high. In 2009 China’s real estate
market grew at a rate that put the pre-crisis US
housing market to shame. According to Bloomberg
News, average housing prices rose over 57% on the
year. While at first, the rapid growth of China’s real
estate economy was viewed as a testament to
China’s successful stimulus package which ex-
panded lending to individuals seeking to finance
their homes. However, soon analysts began to real-
ize the rate of growth could not be withstood for
much longer without the formation of a bubble
prime for popping. "It's definitely a bubble," said
Beijing real estate broker Xu Xiangdong.
Most new construction is centered
on the luxury market.
Bruin Business Review - Chinese Markets 24
China’s Stimulus Package
China’s $586 billion stimulus package passed in Decem-
ber 2008 and was an important catalyst that initiated
and fueled the housing boom. Much of the enormous
sum was devoted to promoting lending and develop-
ment in the real estate sector. The scale of this stimulus
package is overwhelming. While the US spent $787 bil-
lion in federal stimulus funds for everything from bailing
out banks and automakers to building roads, our GDP is
still $13.8 trillion compared to China’s $4.3 trillion. The
14% of their GDP that China spent on stimulus is nearly
triple that of the US, and it included many lending initia-
tives that encouraged people to buy new property.
These initiatives had a direct effect on the public’s ability
to purchase property.
Property Value Surges
The stimulus was certainly effective, and it undoubtedly
motivated 1.6 million people of China to invest in real
estate. Urban areas have seen the most explosive
growth. Shanghai’s Pudong district saw a rise in prop-
erty values of 57% over the course of only a few months
in 2009. According to Bloomberg News, Gloria Gu, a
resident of this district, moved into a $483,000 apart-
ment so her son could attend a reputable kindergarten
there. She was shocked that several months later there
was a unit in her building similar to her own which sold
for $615,000. Rapid increases in value like this cause a
frenzy of investors to buy every property they can get
their hands on. As a result prices continue to soar and
bring in more investors.
”Shanghai’s Pudong
district saw a rise in
property values of
57%”

Flipping Homes
The housing market is also booming in older rundown
areas of less populated cities. They have become very
attractive for people looking to buy, remodel, and
quickly sell houses. This process known as flipping has
become so common because the loans that are re-
quired to refurbish a home are more readily available
due to the measures put into place through the stimu-
lus package. The Chinese government had been ob-
serving this practice and decided to reinstate the sales
tax of 5.5% on homes that are being sold within 5 years
of purchase. This policy has not been very successful in
slowing down the trend of flipping.
Will the bubble burst in 2010?
The New Luxury
The rising housing prices have caused people to buy
and sell current properties and there has been a huge
increase in construction as well. The problem is that
90% of the new construction is being developed for
the luxury market, and now more than ever this is a
market which is not affordable to the vast majority
Chinese citizens. According to the Wall Street Journal,
“Bin, a 27-year-old employee of a telecommunications
company in Beijing, paid 980,000 yuan (about
$144,000) in August for a two-bedroom, 97-square-
Bruin Business Review - Chinese Markets 25
foot) apartment. But he was able to afford even that
modest dwelling only because his parents and those of
his fiancée paid the 30% down payment.” This leaves
thousands of newly built apartments, homes, and con-
dos unoccupied. Upper class investors are purchasing
such properties as second, third, or fourth homes and
leaving them sit untouched as they gain value by the
second.
”This leaves thousands
of newly built
apartments, homes,
and condos
unoccupied.”
All of these seemingly unsustainable price increases
would lead one to believe that the bubble is ready to
burst. Many analysts believe that prices are rising too
fast, lending is occurring too quickly, and construction
is occurring too rapidly to be sustained. Eventually this
all has to either slow down, or come crashing down.
Analysts have projected that this will take place during
2010 and China will sink into a depression bringing the
rest of the world down with it. If a crash such as this
occurred, it would also mark the end of the spectacu-
lar China growth story. China would have to sit back
and watch as its dreams of global economic leadership
dissipate at least for the time being that is.
Bruin Business Review - Chinese Markets 26
Bruin Business Review - Chinese Markets 27
 Bruin Business Review - Chinese Markets 28

THE GROWTH OF
With such nicknames as “Tech Dragon” and “Silicon
Dragon”, in recent decades, China has proved its techno- Chinese
Tech Companies
logical prowess to the world market. Consumers look to
Chinese technology companies for products rangingfrom
cell phones to semiconductors. Seeing and acknowledging
this success, private investors also entered the stage by
funneling large sums of money into technology compa-
nies. There has also been growing talk about a tech race
BY STEFANIE JU
between China and the United States. This fear has led
many Americans to seek greater understanding of the STAFF WRITER
Chinese technology boom. As a powerful competitor in the
global technology market, China provides an array of com-
panies that challenge global powerhouses such as Mo-
torola and IBM. Three examples of these companies are
Lenovo, the TCL Corporation, and the Shanghai Electric
Group.

Lenovo is a multinational computer technology corpora-

tion and is currently China’s largest manufacturer of both
desktop and notebook personal computers. These com-
puters are highly recognizable in the United States, and
are sold at such popular technology retail sites as Best
Buy and Circuit City. As of July 2009, Lenovo held approxi-
mately 29% of China’s PC market. But this influence in
the technology industry extends outside of China’s bor-
ders. As the fourth largest seller of PCs in the world,
Lenovo competes with American companies like Hewlett
Packard and Dell. Its combined sales for the fiscal year
ending March, 2009 totaled $14, 901 million, showing an
8.9% growth in sales.

Lenovo has been manufacturing quality computers since
the 1980s. Formerly known as “Legend”, it introduced its
very first self-branded “Legend PC” to the market in
1990. In the mid 1990s, Legend was listed on the Hong
Kong Stock Exchange. In 1996, approximately a decade
after its inception, Legend became the market share
leader in China. In 2005, Lenovo acquired IBM’s Personal
Computing Division for $1.75 million. According to IBM’s
website, this agreement was a marketing alliance in
which Lenovo “receive*s+ sales and marketing support
from IBM” in exchange for its products being “integrated
into IBM Global Services offerings”. This agreement gives
Lenovo permission to sell IBM PCs until sometime this
year. Not content with solely being a PC distributor,
Lenovo issued a statement of intent to purchase Lenovo
Mobile Communication Technology, a company that
ranks third in China’s mobile handset market. This pur-
chase will further expand Lenovo’s sphere of influence;
not only will it be one of the largest PC sellers in the
world, but it will also provide a significant amount of mo-
bile phones to consumers.
“The ‘Tech Dragon’ has
proved its
technological prowess
to the world market”
The TCL Corporation is another large-scale Chinese
technology company. It is an electronics manufacturer that
began selling its products overseas in the 2000s. It is China’s
main manufacturer of cell phones and televisions. TLC also
makes household appliances, personal computers, and other
technological goods, but its focus lies with the two former
mentioned products. Today, these products are sold in over
40 countries, under four different brand names: TCL, RCA,
Thomson and Alcatel. Its main competitors in the global mar-
ket include Nokia and Haier.
 Bruin Business Review - Chinese Markets 29

Established in the 1980s, the TCL Corporation spent its

time manufacturing consumer electronics such as tele-
phones and cassette tapes during this decade. With its
successful launch of a self-branded big screen color TV, the
TCL brand’s popularity grew throughout mainland China
and Hong Kong. In the 1990s, the TCL Corporation ex-
tended its product list by creating “TCL International Elec-
trical Appliance Co.”, “TCL Electronics” and “TCL Telecom-
munication Equipment Co.” With the creation of these
extensions of the TCL brand, the corporation quickly ex-
panded its influence in China, and around the world. Tin
2002, the TCL Corporation was ranked number 6 among
the ‘most valuable brands in China’. Its cellular phones
sales are the 3rd largest in the China market (competing
against international brands, as well).

In quarters one through three of 2009, the TCL Corpora-

tion’s gross profit totaled $3,617 million. This was up from
$2,987 million in the previous year. The corporation has
been steadily growing in the past decade. According to its
website, its global market share of LCD televisions was
8th largest in the world in 2008, as compared to 13th in
the previous year. Both statistics point to the TCL Corpora-
tion’s steady growth in global influence.

“As a powerful
competitor in the The Shanghai Electric Group is a government-owned corpora-
tion based in Shanghai. As China’s largest electrical and me-
global technology chanical equipment manufacturer, this corporation produces
power for much of the country. According to its website, its
market, China most popular products include: elevators and air-conditioning

provides an array of units. In producing these products, the Shanghai Electric

Group hopes to increase its global competitiveness and influ-

companies that ence. Shanghai Electric Group’s mission statement include

three major strategies to create a world-recognizable brand

challenge global include: “core business concentration, self-mastered innova-

tion, global resource consolidation”. It has a very long history

powerhouses such as that dates back to one of its subsidiaries being established in
1880. However, the company has existed as a state owned

Motorola and IBM” enterprise since 1949 and has achieved a number of break-
throughs in its field since this time. This growth and Shanghai
Electric Group’s positive credibility (that comes from time in
the industry) allows it to retain an influential role in its indus-
try. In the fiscal year ending December 2008, the Shanghai
Electric Group’s sales totaled $8,594.5 million. As compared to
the previous year, this was an 11.4% growth. In sales of spe-
cific products like fire-powered generating equipment, the
Shanghai Electric Group holds a 30% market share. However,
this has been a drop from previous years.

Chinese technology companies seem to exhibit great strength

in terms of market share, and the three companies profiled in
this article also show strong (and steadily growing) sales num-
bers. It seems as if the “Tech Dragon” does pose somewhat
of a threat to other technology companies around the world.
Bruin Business Review - Chinese Markets 30