China’s Fire Sale of the Century

A decade ago, when China was struggling to clean up its banking system, regulators pulled a rabbit out of a hat. They set up a series of “bad banks” – called Asset Management Companies (AMC) – and took Rmb 1.4tn ($125bn) of debt off the hands of the four State Banks in Beijing. It was a big success, leading to the listing of the “Big Four” banks in Hong Kong and a healthier financial system. Now, they’re trying to pull the same trick again – this time across the country.

Can China Bail Itself Out?

Chinese economists are quick to point out that the country has plenty of money to pay off its debts and could easily avert a financial collapse. The government, they say, could function as lender of last resort. How does one confirm whether there are sufficient resources in China to provide adequate capital for a massive collapse in economic activity, including a popping of China’s property bubble?

The Risks of Trusts in China

We collected data on 6500 Trust products. The risks are rising in the 12 trillion yuan trust industry, including money flowing to local government investments.

McDonalds Versus Yum Brands. Who Will Win in China?

We attended investor meetings and store visits for both companies in September 2013 in Shanghai

Yum Brands has outpaced McDonalds in China on almost all metrics, looking at 2008-12 CAGR sales, ops profit, store expansion, margins. This is through first mover advantage and a flexible local team. The food scare for chicken supply and avian flu hurt 2013 results with 1H 2013 sales falling 6.3% YoY. Yum says it “will take some time” for margins (now 18%) to return to 20% and appears to be using this period to experiment with format and menu diversity. McDonalds is focused on a) rolling out its brand name to smaller cities and b) cutting costs. Given the diversity of its current menu and formats, KFC has the higher risk/reward profile.

Survey of KFC in China

OCR conducted a survey of sixty consumers in six Chinese cities. We asked them what they liked or didn’t like about KFC and its competitors. Two-thirds of respondents have concerns about the safety of the chain’s food more than three months after the problems with its chicken suppliers came to light. A surprisingly large number felt KFC could improve the taste and price of its food. These issues could contribute to problems in China as Yum Brands tries to maintain KFC’s large market share. KFC Survey in China

Contact

Orient Capital Research Lamma Island, Hong Kong 852-9530-4348 (Hong Kong) andrew@collierchina.com