Eyewitness Account by Zimin Lu

 

 

I.                   Background

 

The Nanda US Alumni delegation visit to Jiangsu Province (June 23 - June 30) has kept me hype even before the trip. I was the ad-hoc coordinator for the Financial Investment and Management subgroup that consisted of thirteen professionals from Wall Street and Main Street.  I had a few tele-conferences with the committee before the event. According to the president of the delegation Dr. Xiao Baichun, the organizing committee had thousand calls and emails for the preparation. Dr. Xiao and Mr. Gao Pong, the general secretary of the Nanda Alumni, actually made trips and met all parties receiving the delegation. So the year long project paved the way for the delegation to be successful.

 

II.                The tour

 

Nanjing (June 23-25)

 

We spent the first two days in Nanjing. Dinner reception on June 23 at Xiangwu Hotel at the bank of Xiangwu lake gave us a sense how this delegation was perceived. The hosting parties included the Department Jiangsu Province Organization, the Office of Jiangsu Province Oversea Chineses, and Nanjing University.  Three hosting parties made speech welcoming the delegation. Dr. Shao’s speech was extremely appropriate and humorous.

 

June 24 morning was devoted to presentations. After the opening ceremony addresses by the Governor, Nanda Vice President, Department heads of the Department of Organization, Jiangsu Province and Jiangsu Province Oversea Chineses, we divided ourselves into three groups: finance and management, IT, and Biomedical and new materials. My talk was the second of the five presentations. We covered Risk Management, Energy Strategy, Revenue Management, Credit Card market and Legal Risk for commercial transactions.  Simultaneously we had interactions with local business leaders. I talked to the Nanjing manager from Gongdong Development Bank. The bank’s business model is savings and loans, very low tech from our point of view.

 

We visited Jiang-Ning Development Zone in the afternoon and had a dinner at the Lakeside Jingning Hotel. I was quite confused with the name. Jiangning Hotel should be at the downtown area. Later I heard the lakeside is one of the franchises of the Jingning Hotel we saw it raising during our undergraduate years. The night was fun, some of us went to a karaoke place to sing, paid by the VP of Nanda. It was quite relaxing I found.

 

We visited Xian-ning University City and a pharmaceutical company on June 25. I was very impressed by the CEO, his vision and experience. His management team are young and energetic. They sought after talents from Overseas. The biomedical group had discussion meeting with them. 

 

 

Zhengjiang (June 25-26)

 

It was boring for the information session. My jet lag was still with me, so I took the opportunity to have a power nap.  One of the participating business leader was Dr. Chen Ling, Nuclear Physics, 80’.  He recognized my face. He is the president of a photo-electric device company with 100 MMUSD in assets. He is a US educated Ph.D. and works for this company for two years, a successful story by people that I know.   

 

Dangyang

 

Dangyang is a city that belongs to Zhengjiang.  One third of optical lenses in the world are manufactured in Dangyang.  People from Dangyang had a unique way to express their welcome. They sent a police car to lead our way.  We never received such a star treatment in US like this one.

 

 Changzhou (June 26-27)

 

Changzhou has two development zones, very impressive. They encourage biomedical, IT outsourcing and Cartoon production. The living quarter is covered by trees and flowers.  It is a very attractive investment environment by my standard.

 

The assistant mayor is a Nanda professor. He had a unique insight towards investing a business in China.

 

Wuxi (June 27-28)

 

Again two zones.  Wuxi is going to re-built along the Tai-Lake. Wuxi’s development zones are among the firsts in the nation, ranking the number two after Suzhou.

 

The vice mayor of Wuxi is a karaoke fan. He invited all of us to sing after dinner.

 

Suzhou (June 29-30)

 

Suzhou-Singapore industrial park and Suzhou New District are two federal level development zones.  They offer 3 MMUSD of start up fund, 200 m2 office space and 100 m2 living space. That is the best deal we have seen. The leadership program is under experts’ review. It includes the aspects of innovation and commercialization.  If a project is new and high tech, and low pollution, then it is an ideal project.  Again, biomedical, IT outsourcing and high tech are among the favorites.  Unfortunately, financial services are not yet on their radar screen.

 

III.             Final Thoughts

 

Although my wife and I go back to China almost every year for the last five years, the first hand interactions like this one with the government officials, business leaders, and zone developers never happened before. It gives me the first impression how the development zones work and what the factors are to be successful in this exciting environment. I felt our expertise is extremely useful for this area with 30% annual growth. I believe that it is of once a life time opportunity for those of us with technology, patents, etc. to open a business in China and to be your own boss.  It was a little disappointing that financial services are still ahead of them, but I am very confident that we can participate the economic miracle in some ways.  

 

We discussed the opportunity cost, which includes the current cash flow and kid’s education. I think the opportunity can be framed as a (real) call option. The strike price is the opportunity cost. The underlying of the call is also a call option (a call for success in China). Time to maturity is about two years for the opportunity will be no longer there. The volatility can be very high, depending on each person’s perspectives.  The higher the volatility, the more valuable of the call option is. So the uncertainty may not be a bad thing.

 

When to exercise the option?  It does not make sense to exercise if the option is out the money. If the underlying call is worth much more than the opportunity cost we should exercise the option and go home to start a business now. If the opportunity cost is higher than the call value, then we should wait.

 

The critical step for the decision is to value the underlying call. The strike price for that call is your initial investment (money and time), the underlying is the worth of your business (PV of the future cash flows).  If you have already had a business plan, this option should be deep in the money.   Its value is approximately PV – Initial Investment.  Compare this to the opportunity cost:   PV- Initial Investment – Opportunity Cost. If this number is significantly positive, then we should exercise the option.

 

Oh, well, it is easy said than done.  I here just give you’re a theoretical framework to assist your decision. But do not try to over-analyze. You can talk to death or just do it.

 

This the observation through my particular lens.  Best of luck, my fellow delegates, keep me informed of your progress.