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China Update – Day 4

It’s Tuesday morning here in Beijing — last day of the conference. Yesterday was awesome — the day began with some opening from Rodman & Renshaw’s Chairman of the Board, Wesley Clark, who introduced keynote speaker Colin Powell (by the way, how many of you knew Powell’s middle name is “Luther”?).

It doesn’t get much better than Colin Powell! He gave a fun, thoughtful, self-deprecating talk, but despite his down-to-earth demeanor, you could feel a deep level of compassion and gravitas. I had the opportunity to shake his hand and get a quick picture and I whispered to him that I was also of Jamaican descent (on my Mom’s side), and he gave me a quick smile.

The Rodman event itself is not unlike other investor conferences I’ve attended — an executive from the company presents a brief overview on the business, key metrics, and other details on the business. As all of these companies are public, there are additional details and filings with the Securities & Exchange Commission (SEC).

Two general comments: First, it sure is interesting to see capitalism and the entrepreneurial spirit alive and well in China! And second, there are definitely some interesting value plays of Chinese companies trading on American public markets. Some of the better deals have substantially lower P/E ratios than comparable American companies. I only have positions in 4 Chinese companies (see link), but come away from this event feeling very good about expanding my Chinese portfolio.

China’s “One-child” Policy

Attending a tour of a company called China Cord Blood Corporation (NYSE: CO) on Sunday, I was reminded of China’s one-child policy. Essentially, in order to manage population growth, the Chinese government prohibits many married couples from having more than one child.

China Cord Blood, based in Beijing, is a cord blood bank, providing storage services of umbilical cord blood stem cells from newborn babies. As with cord blood banks in the US, parents pay a one-time fee for initial processing when the baby is first born (CCB charges ~$735), and then an annual fee (~$91/yr) for storage. The premise is that stem cells can be applied toward regenerative medical therapies for Leukemia, Type 1 Diabetes, brain injury, stroke, etc. I knew a little bit about the business from of an SEO project I took on several years ago for Family Cord — at the time we helped get them to page one in Google on the term “cord blood”.

The executive from CCB specifically cited the one-child policy as a key driver of the business. Because so many Chinese families are limited to one child, parents take extra precautions — such as cord blood storage — to ensure their progeny’s health.

Another company presenting at the Rodman & Renshaw conference, China Education Alliance (NYSE: CEU), also mentioned the one-child policy as a revenue driver. CEU’s primary business is test preparation services for 6-18 year-olds. Obviously, as many families have only one offspring, the parents dedicate all resources to that one child. The Chinese take education very seriously — education expenses are the third largest expense in a family’s budget, after food and housing.

Back in January, I read an article about the shortage of women in China and some of the social problems arising out of the one-child policy. So it was interesting today to hear about the business impact from the Chinese government’s “family planning” mandate.

Twitter & YouTube (and others) banned in China

We’ve heard stories about government intrusion and censorship in China, including a recent stand-off with Google, but a couple of real-life examples have hit me just 24 hours into my trip: attempts to log onto Twitter & YouTube, for example, yield “dead links”. There are ways around this using Proxy Servers, but you have to be a bit resourceful, and I’m not looking to go out of my way to upset the Chinese government.