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EBIG in the Sweet Spot in China
Taking an In Depth look at China — EBIG delivers a strong portfolio of companies located in China and doing business in China.
EastBridge Investment Group focuses on small to medium-size high-growth companies in China and India offering IPOs, Joint Ventures and Merchant Banking services. The business model is to set up wholly owned subsidiaries as EBIG enters new business sectors and continues to find companies in India and China to provide listing services on the U.S. stock market. Most of the wholly owned Chinese subsidiaries will be spun off as publicly trading U.S. companies in 12 to 18 months.
EastBridge’s shareholders will receive stock certificates or their brokerage accounts will be notified via electronic deposits just prior to the subsidiaries and listing clients going public.
EastBridge investors will ultimately own a diversified portfolio of rapidly growing Chinese and Indian international companies traded on U.S. stock exchanges.
So the question of China’s economic stability is crucial to investment decisions EBIG makes.
GDP Growth Sustainable
The consensus is that China’s economic development is sustainable, short of an extreme catastrophe defined as a world war or civil war, or a major environmental crisis. Few economists are concerned over China’s growth in GDP. The real economic issue for economists comes in the form of an ‘asset bubble.’
GDP growth has consistently been in double digits. Officials this year raised interest rates in an attempt to control inflation and prevent the economy from overheating. Liquidity and inflation are the economic issues facing China.
Economic growth is rapid in China which has developed a large trade surplus and capital flow. This adds cash to the system, and as that money moves into the system, it is important to remove it from circulation to prevent inflation. This is done principally by raising reserve ratios. There is no cap on China’s central bank reserve ratios.
Too much money in the system can push up asset prices, particularly real estate and stock market prices, and these are the issues that concern policy makers. China has a pattern of raising reserve ratios by half a point every month or two. As this continues inflation is being controlled. This is a tried and true mechanism for controlling excess liquidity in countries that are facing large inflows of capital.
Overview China’s Economy
China is no longer a controlled economy. The fact is that over 57% of the non-farm portion of China’s economy is controlled by the private sector.
China’s development is much like the United States 200 years ago with a highly developed Eastern and a promising, underdeveloped inland “frontier.”
China’s consumer represents a diverse market both culturally and economically. The 1.3 billion inhabitants speak a variety of languages. Living standards are divergent.
Eighty percent of foreign-owned companies in China are profitable.
Unlike the U.S., China has made it a national policy to train the scientists and engineers whose research drives growth. This will continue to be a strong driver of economic growth for China.
Promoting Consumption and Developing Capital Markets
In terms of China’s real economy the promotion of consumption is well underway with the rapid expansion of the middle class. In addition China’s Central Government is strongly supporting the development of the capital market.
China’s growth has generated significant corporate profits, which typically re-invested in production. China has historically had a strong saving rate which translates into returning dollars to the system through savings. Foreign money flows into China’s assets including real estate, factories, services, and other means of production. These investments raise domestic liquidity.
Excessive liquidity has the potential to create overcapacity in production causing asset inflation in stock and property markets. Overcapacity in a fast-growing economy can check inflation by keeping the supply of goods ahead of the demand. Production overcapacity can impact specific sectors but that situation does not currently exist in China.
Investing in Science and Engineering
An oft-cited (and often-disputed) statistic is that China every year graduates 600,000 engineers from its institutions of higher learning. The United States produces about 70,000 engineers a year. The latest such end-of-U.S.-supremacy prophesizing can be found in the 2007 National Academy of Sciences report titled, Rising above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future. Many academics dispute the accuracy and/or significance of those numbers, saying they don’t reflect that on a per capita basis, the U.S. is still significantly ahead in producing engineers. On a general level much China’s population lacks education.
China has decreed a 15-year “Medium- to Long-Term Plan for the Development of Science and Technology.” Among its declared purposes: to reduce China’s dependence on foreign technologies. To do that, it calls for an increase in the portion of GDP spent on research and development – currently about 1.4% — to as much as 2.5% by 2020.
China is now outspending Japan in R&D, making it second only to the United States, according to the Organization for Economic Co-Operation and Development. OECD predicted last year that through 2006, China would have spent the equivalent of $136 billion on R&D, compared to Japan’s $130 billion and $330 billion for the United States.
Auditing Challenges
The risks in China, from an audit perspective, are high but companies are trending toward world-class accounting standards.
These are the companies EBIG pursues and transparency is crucial to their investment decision.
A Strong Economy Forward
Investment banking firms and major accounting firms who once focused on multinational clients doing business in China, now seek out local small and medium enterprises. Mergers and acquisitions are fertile ground in China and these businesses require IT capabilities, auditing and insurance.
It is likely that China’s economy will continue its growth of 10% or more per for the next three to five years led by investment and exports. General discussion of China’s overheating began in 2003, and that has been wrong quarter after quarter, year after year, for the last four years. The consensus is that there are no economic signs of overheating in China.
Source: Wharton
EastBridge Investment Group Corp.
2101 E. Broadway, #30, Tempe, Arizona
Tempe, Arizona
Phone: (480) 966-2020
Fax: (480) 966-0808
Email: info@ebigcorp.com
Investors Email: investors@ebigcorp.com
Website: http://www.ebigcorp.com
Source: Eastbridge Investment Group and BBC
About: EastBridge Investment Group focuses on small to medium-size high-growth companies in China and India offering IPOs, Joint Ventures and Merchant Banking services. The Company targets industries in electronics, real estate, auto, metal, energy, environmental, bio science, food and retail distribution.
Forward Looking Statements: The information in this release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements to the future financial performance of the Company. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectation or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, fluctuations in foreign currency exchange, the impact of competitive services and pricing, or general economic risks and uncertainties.
Disclosure: Pentony Enterprises LLC was compensated 430,000 restricted shares directly from the company for profile coverage. Pentony Enterprises LLC is not a registered investment adviser or broker/dealer. Pentony Enterprises LLC makes no recommendation that the purchase of securities of companies profiled in this web site is suitable or advisable for any person or that an investment in such securities will be profitable. In general, given the nature of the companies profiled and the lack of an active trading market for their securities, investing in such securities is highly speculative and carries a high degree of risk.
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