Fortune: IDG - first company to form joint venture in China

Fortune interviews Patrick McGovern, founder of IDG. Since China has been the reason for the recent economic rebound happening here in the U.S, no wonder for info tech, it can do the same.

"I made my first trip to China in 1978, before it had diplomatic relations with the U.S. I was going to fly from Tokyo to Moscow and noticed that I could take an Air Iran flight from Tokyo to Beijing, and then go on to Moscow the next day. When I got to Beijing, the immigration people told me I had to have a visa. I said, "No, I'm just here for a day in transit." Finally they all went into the back room and wrote out a visa on a piece of rice paper. They said, "Never tell anyone where you got this." So I went into town and saw all these people buying newspapers and magazines, and I thought, "This is a publisher's paradise." When China opened the door for U.S. joint ventures at the end of 1979, I immediately arranged a tour for seven U.S. technology companies. Within three months we had the project approved by the Chinese State Council and the Bank of China. We had our first issue out [of a version of Computerworld] in September 1980.

Does China's economic miracle seem sustainable?

The Chinese are putting tremendous emphasis upon education, graduating something like 700,000 engineers a year, compared with only 70,000 in the U.S. They traditionally save about 40% of their income. So China is going to have lots of talent and lots of capital to put to productive uses. I see its rapid growth continuing for at least the next ten years."

Fortune: Kerry On China

Kerry has been wish-washy again, this time on copyrights.
He has become the defender of big business this time.

"The intellectual-property rights enforcement in China is just unacceptable, period. You have to stand up and say "Look, here's our list of priorities ... and we've got to work together to make it happen." They [the administration] have been very haphazard about engagement with China. Now in the last months, because we've been criticizing them in the course of the primaries, you suddenly see secretary Evans, and you suddenly see Cheney, go over in this flurry of support.... It's a dollar short and a day late."

Fortune: New Economy vs Old Economy

Fortune has some interesting statistics:

"Last year China consumed half of the world's cement output, one-third of the steel, one-fourth of the copper, one-fifth of the aluminum."

"The price of steel rocketed earlier this year, and some suppliers put customers on allocation. Ditto for copper and aluminum. Some contractors in Florida can't get cement at all. Nothing like that has happened in ages."

Fortune: Bill Ford's Move in China

Bill Ford of Ford Motors, co. announces that Ford will triple its output from China to
65,000 vehicles this year.

"So far Bill Ford's profits-over-market share plan has paid off in spades and given him some breathing room. With North America running more smoothly, Ford, Padilla, and the OCCE can focus on weaker parts of the Ford empire. Yet another new president has been installed at Ford of Europe, which, the joke goes, has had more bosses than the Vatican has had popes. Ford also needs to play catch-up in China. In June it announced plans to more than triple output there this year to 65,000 vehicles, but that is still only one-tenth of what GM will make."

WSJ -Private Equity Taps Into China; Savvy Investors Start to Profit Amid Better Market Opportunities

Private equity firms such as J. P. Morgan, Goldman Sachs, Carlyle are flocking
to China to get their own scoop:

WHEN J.P. MORGAN Partners, then known as Chemical Venture Group, spent $10 million to buy 20% of a Chinese wood-products company in 1995, such investments by financial investors were rare. Finding a company worth investing in was difficult, as was buying a significant share -- not to mention cashing out.

The company, Plantation Timber Products, at the time wasn't particularly impressive either. It made thick fiberboard in Leshan, a remote town in China's western Sichuan province, about five hours by bumpy road from Chengdu, the nearest major city.

Now, though, a highway has cut traveling time to 90 minutes and Plantation Timber is churning out high-quality boards that go into furniture, as well as wall and floor panels. Its products are sold both abroad and to busy property developers across China through a national distribution network. On June 21, J.P. Morgan sold its stake in Plantation Timber to Carter Holt Harvey Ltd., New Zealand's largest forest-products company, for $134 million.

After a decade of disappointment and delay, private equity in China finally is coming of age. "For those who have patience, there are more opportunities, even though it is still hard," says Henry Cornell, a managing director with responsibility for private equity world-wide for Goldman Sachs.

Private-equity firms raise money from institutions and wealthy individuals, and use the money to invest both in mature companies and start-up businesses.

The Plantation Timber sale is one of several this year for foreign investment funds in China and comes just as New York investment banks Goldman Sachs Group Inc. and Morgan Stanley have presided over the Hong Kong listing of Ping An Insurance Co., China's third-largest insurer, in which the two firms invested 10 years ago. That deal gives the two initial investors a return of 15 times their original investment.

Several developments are making private equity in China a more attractive proposition. For one thing, "exiting" -- or cashing out of -- an investment through a lucrative sale to a strategic investor or a stock-market listing has become easier. In addition, government authorities now are more flexible in agreeing to attractive terms.

Newbridge Capital Ltd., for example, recently purchased a large stake in Shenzhen Development Bank Co., a deal that gives the private- equity firm, an affiliate of Texas Pacific Group and Blum Capital Partners LP, control over a Chinese bank, the first time that has happened. In coming weeks, private-equity firm Carlyle Group says it is aiming to finalize a $400 million investment in China Pacific Life Insurance Co.

"Those two deals will be looked at as a milestone," assuming the Carlyle deal goes through, says Howard Chao, a lawyer who commutes between Shanghai and the U.S. West Coast for O'Melveny & Myers LLP. "They signify the opening gun for private equity in finance in China."

Carlyle alone intends to spend almost $1 billion this year in China. That is about as much as all private-equity funds spent last year in China, according to data compiled by Warburg Pincus LLC. It is a fraction of the total direct foreign investment in China of more than $50 billion last year, underscoring just how difficult it has been to do deals there.

As conditions for private equity in China have improved, so has the choice of investment possibilities. In the past, investors could do little more than inject capital into ailing state enterprises or form joint ventures with partners who often stole from the joint venture to subsidize their own wholly owned operations. Now, outside investors can find local entrepreneurs who have started up companies.

Such returnees speak the same language as their foreign investors while being able to find their way through a bureaucratic maze that still frustrates outsiders. Peggy Yu, a founder of DangDang.com, an Amazon lookalike, has an M.B.A. from New York University and money from both Soft bankCorp.'s Softbank China Venture Capital and International Data GroupInc. of Boston. Kewei Yang, armed with a doctorate from Johns Hopkins University of Maryland, is president and chief executive of Analogix Semiconductor Inc., has offices in Silicon Valley and Beijing, and is backed by IDG, among others.

Along with the returning top executives,There now is a generation of middle managers in China with extensive experience in the Chinese subsidiaries of Western multinational companies.

"We see much better flow, with real companies and real deals," says Arnold Chavkin, chief investment officer at J.P. Morgan Partners, the private-equity arm of New York investment bank J.P. Morgan Chase & Co. "At the state and local government level, entities want to bring in foreign partners. They see foreign investors as a way to help them grow their companies faster."

Investors today scour China for opportunities not only in manufacturing but in a broad array of services that recently have opened up to cater to China's rapidly expanding middle class.

Plantation Timber is an obvious play on the growth of the housing market in China. But the people who use its timber products aren't just in the big cities; farmers in Sichuan are buying its products with proceeds generated from sales of cash crops such as asparagus, according to Cheng Zhang, a senior vice president at Plantation Timber. An investment Carlyle made in Pacific China Holdings Ltd., a department-store chain, is paying off handsomely as China's middle class grows.

Still, the market faces substantial hurdles. Exit strategies remain a challenge, given China's underdeveloped financial markets. Also, Most deals remain small, a frustration for the largest investors. "We like to do deals where we can impact the profit for Goldman Sachs," Mr. Cornell says. "But in China, we are looking at small deals. And there are very few bargains."