Steve Hemingway

I have not posted here for some weeks. This does not mean that things have not been happening in China, either in the economy in general on in those parts in which I have an interest. I have purchased three futher properties in Zhuhai. Prices are now increasing compared to the summer and I have had to pay another 500 yuan a square meter. I have continued to invest in the Springfield development which has indicated itself to be in an area of high rental demand. I am continuing to achieve yields of around five percent.

I am in the forthcoming process of registering a Chinese company. This will be wholly owned by my UK investment vehicle. This has proved (like so many things in China) not quite as straightforward to set up as might have been hoped. I have had to get quite a bit of information about the investing company in order to satisfy the Chinese authorities. The good thing is that I have now found an excellent firm that is able to obtain notarized documentation which they will arrange to be pagename=OpenMarket/Xcelerate/ShowPage&c=Page& cid=1007029391440"> postilled
, both by the Foreign and Commonwealth Office, and by the Chinese Embassy. Now I know that the service I require is called apostilling a search in Google reveals hundreds of specialised firms that provide this service (e.g. net/ companyformation/overseas.htm?GCID=S15681x009&KEYWORD= apostille& gclid=CMjX69ONv48CFRAUQgodzlIsYg">this one. I now have contacts who can notarize Chinese names, and Powers of Attorney in Chinese in London. We have templates for a number of Chinese legal documents (especially leases and powers of attorney) so please contact us if you would like some help with these matters.

I will be able to invest via a corporate entity in China. This corporate entity has shares which legally may be owned by a foreign corporate entity. I may set up an SPV in the UK to supply capital to this Chinese company, probably mainly in the form of debt. This should allow UK investors to invest in a UK (or maybe IoM) entity, which I imagine is preferable to investing directly in a PRC enterprise. Obviously, I would be very interested to hear from you if you are interested in providing any kind of finance to this entity.

One requirement of the Chinese authorities is that a company has a real office, out of which it operates, and has directors who are appropriate persons to run it. This is all very scary as I generally feel that the chances of my passing an interview with some inscrutable Chinese civil servants, even with a good interpreter helping me out, is small. I am of course also anxious that the exact business area in which I plan to operate is

I am now receiving rent from all six of my apartments in Zhuhai. The efficiency of my agent there is nothing short of astonishing. In one case the interval between my offer being communicated to the sales agent and the property being occupied by a tenant and actively yielding rent was a mere four days (offer on Thursday, tenant in place by Sunday). I anticipate that void periods will be very short in Zhuhai.

Thanks to some excellent support from my colleagues and associates in China I have made excellent progress. I have not made much progress in the vital area of finance. I would desperately like to leverage my capital. I have a lot of equity in my UK property investment company. My Chinese investment is currently ungeared. If you are an adviser, an investor, a bank - anybody who is involved in the supply of capital - then I desperately need your help. I am principally looking for debt, but if you would like some kind of equity stake then would also be possible. Please call us to obtain detailed information about the performance of my China investments.

xml=/news/2007/08/21/ncancer121.xml">This article caught my attention. There has been outrage today that Rudi Guilliani has a ad which implies that prostate cancer survival rates are dramatically lower in the UK under its system of (expensive) socialized medicine than in the US.

The outrage seems to be that money is needed for medical care in the US. It is as if it is perfectly OK for more people to die from preventable illness in the UK because at least we don't require patients to have money.

The US system is a deeply flawed one, to be sure, but to defend the British system because it is morally superior even though it has worse health outcomes seems deeply perverse. But as Nigel Lawson once said, the NHS is the closest thing Britain has to a national religion.

It is handy to have some crunchy stats on the current state of British Education:

* 11 year-olds: 25% leave primary school without sufficient ability in reading and writing to tackle the secondary school curriculum.
* 14 year-olds: almost 30% do not reach the expected levels in English, Maths and Science to tackle GCSEs.
* 16 year-olds: almost 60% do not achieve a GCSE grade C or better in all the three core subjects of English, Maths and Science.
* After 11 years of state education at a cost of over £75,000 per child, pupils are leaving school functionally illiterate, innumerate and unskilled:
* 40% do not achieve at least a C grade in GCSE English.
* Some seven million adults in England cannot locate the page number for plumbers in an alphabetical index to the Yellow Pages.
* 47% would be unable to achieve a grade G at GCSE maths.
* The OECD finds that Britain has the second highest level of low-skilled 25-34 year olds in the 30 countries of the OECD – twice the level of Germany or the USA.

(see this page). I always believed that in a world of the internet, in a country with a free press, statistics like these would be widely known. Unfortunately neither parents nor politicians wish to face the reality of the British education system today. The Labour Party has a visceral hate of private education to the extent that a politician like Charlie Falconer was told that he could never be selected for a winnable seat because he had chosen to have his children privately educated. The Liberal Party, trying to position themselves to the left of Labour have a broadly similar position.

The Conservative Party is subtly different. Mavericks like Boris Johnson occasionally point out the nakedness of the emperor, but generally they are too timid to take on the Education establishment. Any discussion of the failings of state schools tends to end up looking at the relative success of private schools, and it is an article of faith in the Conservative that to support private anything is to throw away votes. I think that the Cameroons secretly like to have a failing state system, because this means that their own offspring, privately educated, have huge advantages over the rest of their cohort in the job market. Politicians may look to their own jobs first, but the jobs of their offspring are not far behind.

Maybe I am being too cynical. Certainly many people realise that state schools fail not only bright kids, but average ones too. But as the main parties agree to keep any radical reform of Education off the agenda things will remain dismal. No wonder that nearly all new jobs created in the economy have gone to foreigners. As the Economist points out "in the two years from the spring of 2005, 540,000 foreigners have found jobs in Britain while 270,000 British workers have lost them." (here).

One of these days a politician will speak out about this subject without hypocrisy. I am not going to hold my breath.

I urge you to read this article and to give thanks to God for not being at the mercy of People who run Housing Benefit Departments.

In my day-job as a letting agent have a very limited contact with Housing Benefit Offices. My experience is not as negative as that of Intrepid Carpet, but I can well imagine what it is like for him. Generally Herts Lettings will not let to any tenants on Housing Benefit, not because we think that they will be bad tenants, but because we don't want to have to deal with Housing Benefit. Random amounts of rent are paid in an irregular stream, generally at intervals of one week or four weeks. Strange gaps appear around the end of the fiscal year. Generally the benefit is not sufficient to cover the rent and the tenant has to pay a supplement, usually via a monthly standing order, to compensate. Without a very good accounting system it is virtually impossible to keep track of arrears.

The bigger problem is that there really is no mechanism through which claimants are ever going to receive anything other than the most unsatisfactory treatment from the authorities. There is no economic incentive for councils to employ staff who are remotely efficient and so benefit offices, I am sure, will attract the most useless sorts. Failing to reply to written communication is no unheard of in business, but it is inconceivable that anyone ever loses his job in the state sector for this kind of failure.

Part of the problem is that benefits are impossibly complicated. There are hundreds of benefits that may be claimed and neither claimants nor staff are likely to be able to understand them. Nobody loses except the taxpayer, but since they are such a diffuse group they can never overcome the power of the vested interest.

Intrepid Carpet thinks that things might be a bit better under the Conservatives. I think this is unlikely although it is conceivable that some simplification might be attempted.

I had never previously heard of The Corner House. It has today succeeded in challenging the government's decision to drop the investigation into the Al Yamanah arms contract on the grounds that failure to do so would result in Saudi Arabia refusing to cooperate with the UK in anti-terror activity. Read more here. The Corner House challenged the govt. under the OECD's Anti-Bribery Convention, which the UK signed in 1997.

I wish them well.

I have had a very busy time this week. This is a short note to indicate what I've been doing. I will try add some detail to this entry later, but I there is a >50% probability that I will never get around to do doing so.

I have been staying in Zhuhai from Monday to Saturday. The main objectives of this week are as follows:

1. Set up my wholly-owned foreign enterprise, provisionally called Ying Wei Trading (Zhuhai),
   
2. Meet with some useful China/HK-based contacts such as Fung Kam Wing and David Harris, and David Rawlings,
   
3. Make contact with a developer who might be interested in allowing Herts Lettings/Ming Wei Ltd to act as an agent for UK investors
   
4. Investigate the property market in Zhongshan, Tan Zhou, Dongguan, and Guangzhou, Chongqing and Chengdu,
   
5. Get an update on the state of the Zhuhai market,
   
6. Find out more about the overall China real estate market
   
7. Try to understand more about the rules for operation and taxation of Chinese companies,
   
8. Find some local factories with good, exportable products, but with no export licence.
   
9. Visit and make use of the new office for the company,
   
10. Enjoy the weather and the food
    

On the first task I haven't yet had confirmation that the name is not already registered, but I have found that my first choice (Ming Wei Trading, based on the 'given' part of my Chinese name) is not available. The basic registration of the company is complete, with the necessary forms having been signed by me, the authorised translations of the various documents relating the investor (Freshfield Analysis Ltd.) having been made, the fees paid etc. etc. Inevitably in these matters, communication has been less than 100% successful, with the result that the final registration of the company will be delayed. The main problems were that (a) the capital should have been retained in the UK until the company was ready to go, rather than having been transferred to China, to my account, in anticipation of this and (b) that the company registrar requires a bank reference from my bank. Unfortunately the latter is available in response to a request in writing, signed by the directors, and therefore will take weeks to be prepared.

I have met David H, a very interesting and knowlegdable guy. He gave me a lot of information about the market. He is very well informed about business in China generally and has a lot of contacts here. Lua and I were very impressed by his command of Mandarin.

I met Kam Wing. He has done a huge amount of analysis of investment opportunities in the China market. Like David he is very bullish about opportunities here, and has some very specific ideas about exactly how to maximize his risk-adjusted returns. He was particularly bullish about HK, which certainly has some excellent characteristics: mature market, constrained supply, China proxy, premier league status, common law system based on use of English as a business language.

I have visited plenty of developments, but have not had any discussions with individual developers.

I have visited Tanzhou, Zhongshan, Guangzhou. These are interesting places with some impressive developments - especially Guangzhou - but are a sufficiently compelling proposition for me that I regret my decision to start my China investing in Zhuhai. I am travelling to Chongqing later today, and going to Chengdu the following day.

My light-reading while waiting around here has been
Why China? Why Now?It is a fairly mammoth work, and certainly corrects the impression that I might give occasionally that everything in the China real estate world is rosy. It's conclusions are consistent with my, much more impressionistic, ones, for what that's worth.

I have been given some details of the taxation status of China enterprises. As long as they engage in export-linked activity they seem to get large subsidies. A profit tax is payable, but at a low rate. I have an expert who can give more detail. I suspect that the taxation is municipality-specific, and likely to change without notice.

I have decided to try to act as an export agent for local producers. I have registered licences in quite a variety of activities. I have not yet found any suitable suppliers, unfortunately. This can be done much more efficiently by my Chinese-speaking colleagues anyway.

Ying Wei Trading has a cosy office in an industrial estate very near the new 'Gree Development' iin (I think) Xiangzhou, Zhuhai. It has a nice Gateway PC with a fast broadband connection. If you are every in ZH you are welcome to borrow it! You can even take a nap on the sofa!

I have, as ever, been extremely well-fed in China. One of the better meals was taken at my hotel, the Paradise Hill Hotel, in Jida. I cannot recommend this highly enough. Visit its website, which is much less impressive than the hotel itself.

Interestingly, Zhongshan is the headquarters of Agile Property Holdings, one of the more interesting HK-listed property stocks. Its shares have recently slumped from about 2.5 to 1.8 and look as though they are heading back down to 0.8 where they were a year ago. I suspect that if they hit 1.5 they will be a strong buy.

It is easy to set up a limited company in HK. This is one of the many sites that offer the service at the click of a button. I am thinking of using a corporation to hold property in HK and possibly China. I have been told that it is possible to use a HK-registered company as a way of getting around the restrictions on foreign ownership of apartments in Shenzhen, Beijing and Shanghai. I have not been able to establish this with complete certainty as Chinese estate agents are not famous for their detailed understanding of local ordinances elating to foreign ownership.

HK is a very attractive jurisdiction on account of its Common Law tradition, English Language basis and low-tax policy. Corporate taxes are applied only to activities within HK itself, so establishing a HK company to do business in China should not result in any tax payable to HK authorities.

Costs are reasonable, although financial reporting requirements are quite strict, at the moment. I am holding back from spending more money on another overseas incorporation now, but if anyone would like to share the costs of a corporate veil then please get in touch.

I have always been enthusiastic about ownership of residential property through a corporate structure. I now believe that HK incorporation would have been a better bet for me than UK incorporation, but there is no point in crying over spilt milk, or sunk costs.

There is near panic over the loss of 25 million sets of personal details - NI numbers and bank details, as well as addresses. I really don't understand how this is a big problem. When I sign up a new tenant (a credit operation, for sure) then I always get sight of some photo ID - usually a passport. It simply would not be possible to rent a property from Herts Lettings as someone else just by having the data that was possibly stolen from the NAO.

I have bought things on eBay and been stunned that people will still insist on being paid by cheque rather than by BACS on the grounds that they are unwilling to reveal their sort code and account number, even though they do so every time they write a cheque (and require me to by virtue of asking to be paid by cheque).

Banks vary a great deal in their interpretation of money laundering regulations. I find that a fax to Cater Allen with a SWIFT Code and an account number is more than enough to get money to (for example) China, but if I try to make an international funds transfer using Intelligent Finance I have to provide name and address details not only of the beneficiary but also of the beneficiary's bank. This can be very tiresome over the phone and has resulted in my giving up on IF as a way of sending money abroad.

I have just signed up with OzForex. This was fairly tedious 'compliance-wise', but now promises to get me much more competitive exchange rates than any high street bank is ever going to give me, and, I hope, be rather quicker at transferring money to overseas beneficiaries. Frankly if the rates were the same I'd still choose to go with OzForex as it allow beneficiary details to be entered online, rather than via phone or fax. I am slightly amazed that Cater Allen doesn't require international TTs to be requested via a letter written on vellum and delivered by a courier riding on horseback, such is their aversion to all things modern.

Chengdu is the capital of Sichuan Province. It is flat and chilly (at least in November), but beautifully laid out and very pleasant, in terms of air quality, food, service and transport.

Apartments are somewhat lower-rise than Guangzhou, or Chongqing, and are often well maintained. The city has generally more settled, almost genteel feel, compared to the wild west of the rapidly expanding towns in Guangdong. Prices are reasonable, maybe six to ten thousand renminbi per square metre, with yields around five or six percent.

On the whole the city has a good feel. Although it might be thought that the place has lost influence since Chongqing became an independent municipality, and therefore independent of the smaller provincial capital, it is the case that some of the poorest parts of Sichuan became Chongqing's problem after 1997.

There is a lot of high-tech industry in the town, as well as a lot of food-based industries, especially the those based on the famous Sichuan spices. There is inward investment from HK and Singapore, which, I am sure, will result in steady economic growth.

Somehow however, I feel that the city is just not exciting enough for me to want to invest there. I also felt somewhat negative about the raw capitalist feel of Guangzhou, which is the opposite of quiet Chengdu, but this is my emotional response to the city.

My guide to the city, Yan, was so unremittingly enthusiastic about her adopted home that I feel very guilty writing this entry. Really, Yan, it's nothing personal. I would much prefer to live in Chengdu than in Chongqing; it's just that my investment preferences are the reverse of my personal ones.

Chongqing is a pretty major economic player in China. With 32 million people and bags of mineral wealth, as well as two navigable rivers, a big airport and a lot of money and encouragement from central government it has a lot going for it. It is China's fourth independent-of-provincial-capital municipality after Beijing, Shanghai, and Tianjin.

The Three Gorges dam has improved navigability of the Yangtze as far as Chongqing. The city also has the Jialing river, which has a confluence with the Yangtze at Chongqing. This page shows that Chongqing welcomes foreign investment in more-or-less any industry you could think of!

My impressions from my all-too-brief visit to the city were that it is a thriving hub, with bags of investment in property and infrastructure and cheap property, but reasonable yields. There is certainly a huge supply of new-build offices near the CBD, and offices are very cheap there - maybe as low as 5K RMB/ sq m. LiChao suggested that yields on retail could be as high as 7% with their magic in selecting an appropriate location.

My own feelings are that this is a major conurbation with prices comparable with Zhuhai, and well worth further investigation.

It seems an eternity ago that Amazon came up with the idea of providing shop fronts for independent merchants to sell stuff on its website. At the time I thought that it was a bonkers idea, but I must say that for selling surplus-to-requirements books it really is pretty good. The monetary side is handled totally seamlessly, refunds are easy, the delivery note generated is good etc. etc.

There has been a hiccup with my shop recently - somehow I stopped getting any orders. I really don't know where they have been going, and I actually still don't know. I can view my orders on the Amazon site, although the navigation, ten years on, remains fairly atrocious.

At the moment I am selling only books. I may look to selling some high-tech gizmos in the near future, but I'll have to think long and hard about chosing Amazon over eBay. Books are a no-brainer, because in Amazon all one has to do is enter the ISBN. I wish I could obtain a cheap USB bar-code reader that would automate even that process!

my Amazon shop

IBM Keyboards were awesome. They are very interesting in that they are PC peripherals that stopped getting better some time before the PC got going, and amazingly, they can continue to be used with the latest desktop, and in principal, laptop, PCs.

There is a lot of stuff about keyboards on the web. Wikipedia is a good place to start. Clickykeyboards.com (inevitably) is another good place to look. Dansdata.com is a great read. It's so wonderful to read a guy whose feelings about keyboards are like mine. I got here because I borrowed a colleagues PC and was appalled at how bad the rubber-dome keyboard was. I replaced it with a Compaq Model RT-102 keyboard, P/N 120664-001 A. This is no match for an IBM tank, but I am pretty sure it has the buckling-key mechanism that is so satisfying to type on. As Dan says, it's so nice it just makes you want to type.

I should be working, not looking for keyboards, but they do make a difference. For a long time I resisted moving to a laptop because I knew that that the keyboard would be useless. I was right, as my fingers tell me now.

These elusive firms exist - NAI Global, LiChao (website entirely in Chinese), Chinese Estates Holdings Ltd., E-house China (Holdings) Ltd., CB Richard Ellis.

I am looking to use a firm to handle the negotiation with vendors, to sort out paperwork, and generally to smooth my passage to owning more commercial China real estate. Li Chao, the only firm we have spoken to charges 1% of the transaction price as fees for doing local market research, negotiating with the vendor, advising on tenant demand, expected yields, capital grown expectations etc. etc.

If you have any experience of using one of these kinds of firms in China please advise.

It seems almost unbelievable that any page on the web should make reference to a piece of graffiti I remember from Oxford in the 70's. But in fact the mighty Wikipedia has not only the page with a picture, but also a (plausible) explanation of what the graffiti is about, which was an enlightenment to me.

You can tell that I have not been very productive today.