Feature: U.S. investors eye new frontier in Chinese market

11:40, January 02, 2010      

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When investors open their books for a new year, without doubt that China will be a hot spot that they can't afford to miss. And for many who have closely followed the country's rise from economic slowdown, there are still uncovered opportunities lying in this vastly diversified market.

"We believe that there's a lot of momentum in the market," Matt Comyns, CEO of JLM Pacific Epoch, told reporters. Comyns has compiled a list of 60 reasons to be bullish about China, one of which is the great potential in many cities whose names most westerners haven't even heard of.

"China has more than 100 cities with more than 1,000,000 people in (each)," he said. "The story of the recovery has been in the second and the third-tier cities."

To explore business opportunities in less known Chinese cities has become more appealing. In late September, 2009, world's leading mail system provider Pitney Bowes inked a deal with Digital China, in a bid to expand its business to small- and medium-size companies across China.

The Stamford, Connecticut based company entered Chinese market more than a decade ago, but its high-end hardware and software tools and services that support effective customer communications have been only available to large companies in cities like Beijing and Shanghai.

"With the tremendous growth of the Chinese economy, (there are) more and more opportunities for small and medium sized companies to do mailings for both transaction purposes and marketing purposes," Michael Monahan, CFO of Pitney Bowes told Xinhua.

Digital China appears to be a perfect partner. As China's largest information technology distribution and service company, Digital China has a presence in six hundred Chinese cities and a network of more than five thousand resellers and system integration partners.

Many U.S. investors have noticed that the Chinese government's vast efforts on inland/western development have led to GDP gains in inland provinces that have significantly outstripped traditional coastal counterparts.

Comyns gave an example that 13 provincial level regions reported double-digit GDP growth in 2008, with Inner Mongolia region leading with 16.2 percent GDP growth compared to 7 percent for the coastal Shanghai region.

One Chinese company which is rooted in the Inner Mongolia region has made it to the Nasdaq Global Select Market in 2009.

Zishen Wu, CEO of Yongye International, Inc., didn't impress Wall Street investment bankers when he showed up in old worn shoes covered with dust. But when he told them his company's patented plant nutrient would boost production by 10 to 30 percent and has been popular among Chinese farmers, he finally went home with the largest investment a Chinese agriculture technology company has obtained in 2008.

Just a year later, Yongye successfully switched from OTC board.

More and more companies like Yongye have attracted U.S. investors. By December, 2009, Nasdaq has had 32 new listings from China, including 9 initial public offerings (IPOs), Robert McCooey, senior vice president of New Listings and Capital Markets of the NASDAQ OMX Group, told Xinhua.

One highlight of this year's new listings from China, McCooey pointed out, is the "great geographic diversity."

"We have companies from all different industries and provinces. We have our first listing from Tianjin; we went from no listing in Henan Province to 4 listings," McCooey said, "And now we have listings from 11 to 12 different provinces in China."

McCooey had traveled three times to China since May 2009 and planned to visit more. "There are tens of thousands enterprises in China with global aspirations, and Nasdaq is expecting more of them in the future," he added.

Global aspirations are not unique to large brands. Overseas investors have become aware of the less known small and medium-sized enterprises (SME) in China, which have constituted an essential part of the national GDP as the government establishes policies and funds aimed at promoting innovation and entrepreneurship.

Statistics indicate that over 60 percent of GDP, half of collected taxes, and 70 percent of the import and export value had been contributed by SMEs by the end of 2008.

U.S. capital market more frequently opened arms to these Chinese SMEs. In April 2009, Changyou.com Ltd marked the first IPO on Nasdaq and was the largest Chinese IPO on a U.S. exchange since December 2007.

Less than six months later, another Chinese online video games operator Shanda Games became the third largest IPO in the U.S. market in 2009 with 1 billion U.S. dollars it has raised.

Another area that Chinese companies have submitted great performances in 2009 is the green energy. New York-listed solar companies like Suntech and Yingli Green Energy have far outperformed the big board.

For foreign investors, Chinese government's policy and measuresto spur the SMEs have been another huge plus.

"China is a green tech leader," Comyns said, "China is spending30 billion dollars on green technology as part of its current stimulus plan. An example of a new policy recently unveiled is the 'Golden Sun' initiative, which aims to achieve solar power generation by 2011."

In 2009, China decide to launch venture capital foundation for small businesses, to issue first batch of pool bills to help small firms raise funds, and the Nasdaq-style board ChiNext started trading by the end of October.

Looking ahead, China's growing story will involve more cities with potential and more companies with entrepreneur spirit in a government-backed environment. U.S. investors will set to explore new territories of prosperity as to benefit from the rising economy.

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