Cyrillic Partners

The thinking goes like this: China’s middle class is growing and the Chinese people have more disposable income to make vice-related purchases. An abnormally high relative saving rate may be an indication of repressed demand for goods and services related to leisure consumption. The U.S.-China currency exchange is stable compared to the way the dollar is tanking against the Euro. And so called “vice” investments tend to be robust in good times and even better during a recession. So why not invest in Chinese brewers, vintners and distillers?

Here’s a few picks:

Tsingtao Brewery Company Limited: Sells Tsingtao, Hans, Laoshan and Shanshui beers. Sold 5.05 million kiloliters of beer in 2007 both in China and abroad. The company is 27% owned by Anheuser-Busch and has 12.8% of the domestic beer market.

Recent News: Profits fell 19% due to increases in the corporate tax and disappointed analysts.

The problem: global barley prices are up 13 percent.

More to come.

U.S. Treasury Secretary Henry Paulson said the Yuan isn’t appreciating fast enough to reduce the protectionist effects of an artificially low currency.

“A more flexible currency is especially important now, when the risks of inflation are clearly rising in the Chinese economy,” Paulson said in a speech to the Asia Society in Washington and Bloomberg reported.

The Yuan has appreciated about 6% against the dollar in the past year. (Maybe the U.S. should just weaken the dollar some more so that China can catch up!).

China has been growing great guns, as Bloomberg points out: China’s economy, the world’s fourth largest, expanded 11.5 percent in the third quarter from a year earlier. The central bank has raised interest rates five times this year to curb rising stocks, property prices, an acceleration in fixed-asset investment, and the highest inflation in a decade.

Paulson has been complaining about China’s currency for more than a month now. Read our last story on it.

French President Nicolas Sarkozy has also been vocal on a loser Yuan. Read our story on it.

[Image from Bloomberg]

French President Nicolas Sarkozy went to China and complained about the Government’s strangle-hold on the Yuan and begged the government to let the currency appreciate against the Euro. Reuters has the story.

Keeping the yuan low makes it easier for Chinese businesses to export their goods. Other countries, especially the U.S., are complaining that China’s currency policy is giving its exporters an unfair advantage over domestic suppliers.

Henry Paulson, secretary of the U.S. Treasury, made similar statements earlier this month. He said China needs to loosen its choke-hold on its currency and let it adjust to market prices and appreciate faster. The secretary said China was “out of step,” with the rest of the world’s perception of what it needs to do with its currency. (Read our story about his statements here.)

Some pundits have opined that the U.S. is attempting to replicate China’s protectionist currency policy–devaluing the dollar to stimulate exports and domestic production. I wouldn’t bet on that actually happening however.

[Image from FoxNews.com]

[This essay first ran in Thomson Financial’s Private Equity Week Wire]

Russia celebrated the 90th anniversary of the Bolshevik Revolution earlier this week with marches in Moscow. But Silicon Valley saw a different type of revolution taking hold and celebrated in a decidedly different way.

Vladimir Vinokurov, Russia’s Consul General in San Francisco, hosted a bevy of high-profile financiers at his home in Pacific Heights to celebrate the final close of DFJ-VTB Aurora. Venture capitalists and statesmen drank Stolichnaya and sang “Moscow Nights.”

The $150 million fund is appropriately named. Just as its namesake cruiser, anchored at St. Petersburg, fired the first shot in the Bolshevik Revolution; the fund symbolizes Russia’s first shot at revolutionizing its economy toward technology entrepreneurship.

The fund, which has offices across Russia and in Silicon Valley, is the first recipient of money from the Russian Venture Company (RVC). The RVC is a public-private partnership backed by the Russian government. It started out as a fund-of-funds designed to stimulate technology startups through investing in venture capital as a minority limited partner.

This week, however, the government authorized an expansion of the RVC, doubling its monetary commitment to $1.25 billion. The government also tasked it to consider direct investments in startups and establish market development programs. The RVC has backed three firms so far and plans to solicit proposals again in February.

The increased RVC fund size dovetails with certain proposed regulatory changes approved Thursday for further government consideration. The changes are designed to emulate Regulation D in the U.S. and include provisions to protect intellectual property. Experts expect the changes to pass into law before the end of the year.

But Russian hearts must be swayed if the startup revolution is to be sustained. No single government program can remove the stigma of a failed business, or roll back generations of zero-sum thinking. Silicon Valley may have the one model that Russia is supremely positioned to execute: combine brilliant people with money and sprinkle marketing on top.

Taking the precepts of entrepreneurship from the intellectual to the actual requires courage, commitment and trust. Succeeding with startups calls for a character that must be cultivated; and no tree that bears fruit grows overnight.

-Alexander Haislip

[Thanks to Wikipedia for the image]

(Imagine the lol caption: “Ur yuan…needs mowr floatin”)

Henry Paulson, secretary of the U.S. Treasury, said China needs to loosen its choke-hold on its currency and let it adjust to market prices and appreciate faster, Bloomberg reports. The secretary said China was “out of step,” with the rest of the world’s perception of what it needs to do with its currency.

Paulsen continued to smack China around, going so far as to imply it was all talk and no walk: “China’s leaders have pledged to carry out the economic reforms necessary to rebalance their economy,” Paulson said and Bloomberg reported. “Implementation is the name of the game. To enable market forces to efficiently rebalance the economy and spread prosperity to all the Chinese, China needs more flexible prices, including a much more flexible, market-driven exchange rate.”

Keeping the yuan low makes it easier for Chinese businesses to export their goods. Other countries, especially the U.S., are complaining that China’s currency policy is giving its exporters an unfair advantage over domestic suppliers.

Then there’s the real kick in the pants, via Marketwatch: He [Paulson] said the Bush administration remains committed to an open economy, “even in the face of rising protectionist sentiments in the U.S.”

If I were China, I’d raise an eyebrow and offer an “O Rly?” Cause just earlier this week President Bush called for tighter import controls. Not that that’s protectionist…

President Bush called for strict import supervision and the expansion of both the FDA and Health and Human Services to monitor products coming into the U.S. (Thanks to Lolpresident.com for the image.)

Free market economists can’t be too keen on the measure, which would act as a barrier to trade and prevent an efficient long-term equilibrium.

“For many years we have relied on a strategy based on identifying unsafe products at the border,” Bush said and Reuters reported. “The problem is that the growing volume of products coming into our country makes this approach increasingly unreliable.”

If unsafe products are truly a problem the U.S. public should be concerned about, why has no business developed to independently inspect and certify the goods coming in? Silicon Valley developed just such a company during the dotcom boom. Remember Verisign? One of the company’s many businesses is its VeriSign Secured Seal, which says that a business is what it says it is and any transactions you make on its site will be safe. It is a Certificate Authority.

Certifying is a good business to be in, unless you’re the government. Private businesses step in to help when people have real concerns about doing business with a group, country, or business that they’ve never worked with before—as VeriSign did during the nascent days of eCommerce.

But is this really designed to protect American consumers? It’s pandering to the least common denominator: the mid-west mother of two-point-five children who is freaked out about Chinese-made toys containing lead paint.

“This is not about China,” Health and Human Services Secretary Mike Leavitt said and Reuters reported. “This is about insuring that we have safe products.”

Right…you can just imagine him cutting his eyes when he says it. You can bet China will be pissed off about this though.

Based on “Abortion: Prohibition or Prevention?” Time, October 29. Unfortunately, the map is not reproduced online.

If you look at the world abortion map published by Time, you would see a big red spot: Eastern Europe. It’s the only part of the world with 105 abortions per 100 births. Nowhere else are the statistics as freightening, and the next highest is East Asia, specifically China, with the number falling in half 51 per 100.

China has long had a one-child per family policy that might explain its high rates, but what about Eastern Europe? So what is going on there? My best guess is that contraception methods used in Eastern Europe are not good enough.

My experience suggests that the above statistics are not true for all the Eastern Europe, Belarus at least, would be an exception. Most of the the Eastern Europe and especially countries of the former Soviet Union, have not had a high use rate of birth control pills (BCP), until recently. And the lack of use of BCP and
substitution for other methods is what, I believe, mainly drives the abortion rate up.

Indeed, my recent research based on the data offered by Ministry of Statistics and Analysis of Republic of Belarus, suggests that since early 1990s the usage of BCP has increased by four times! That’s led to a decrease in abortion (now guess the number!), yes it is four times lower for the same period of time, thus reaching almost the same level as U.S. and U.K.

This I guess what the economist should call a pure substitution effect. Now why would the rest of Eastern Europe not use the BCP? Is it that they still have a myth that you will became fat and die from cancer if you use them? Or is it because abortions are provided free of charge, while the BCP are very costly (comparative to the salaries), and are about 20USD per month.

My take? Costs matter. Prove me wrong.

India will turn to private enterprise to build out the infrastructure it needs to sustain a 9% GDP growth rate over the next five years, Montek Singh Ahluwalia, the deputy chairman for India’s Planning Commission, tells The McKinsey Quarterly (You can download the whole interview here: McKinsey Quarterly).

“About three-quarters of the of the increase in infrastructure investment above the business-as-usual projections would have to be privately funded,” he says. “The public sector cannot mobilize resources on this scale.”

There are lots of other interesting nuggets in the interview, but this one in particular jumped out at me. The business press has been talking about this problem for a while now. BusinessWeek did a great story on it earlier this year. I remember the cover image was of a crumbling stone elephant.

India will be a great economic experiment: a real crucible for the libertarian ideal of free markets and private enterprise. It’s an evolving case study that will no doubt be fodder for countless text book anecdotes.