l e t t e r  f r o m  b e i j i n g 

h u a  l i 



Late February–early April 2001

You can often hear your own heartbeat; you might also sense the pulse of a chance. How would you feel if the two vibrations became one?

I jumped back again across the Pacific into the turbulent water of the Beijing stock market. I wanted to see how the Chinese people would seize the new opportunity that had suddenly come into their own hands. How would they face the challenge of their fate?

Let me first tell you an old Chinese legend. One day, two country brothers, one a bit tricky and covetous, the other honest and hard working, find in the mountains a cave of treasures. A fairy by the gate allows them to go inside, but tells them to take only what each wants the most without lingering, for a heavy gate would shut down at any moment and seal the cave. The honest brother goes in first, takes for himself a golden hoe, and then comes outside right away. Next the tricky brother goes in. He likes everything. One thing after another he picks up; he desires just one more thing. He forgets about time. The gate falls and there he is, inside forever.

China’s B-Share

As our world was turning, the stock market in the United States went South and other markets followed. On the opposite side of the globe, however, more and more Chinese (“more and more Chinese” means millions upon millions of them), after a lot of tasting of Coca Cola and Big Macs, have come to recognizing a great power called “Capital.” Particularly, they see its magic strength in the securities markets. “B-Share” is a class of stocks in China formerly designated for overseas investors and traded only in foreign hard currency, which the majority of Chinese supposedly do not possess.

After the government’s slow, long wooing of foreign investors, it turned out that B-Share had unfortunately chased a lot of those foreigners away because of its poor transparency, inept management, and mediocre yields. Besides, foreigners have never easily comprehended China and the Chinese. As a result B-Share prices had remained as low as twenty or thirty cents per share, and were stagnant. In comparison, the “A-Share” market, open only to Chinese investors, was booming.

One morning, having been working successfully on the economy, and noticing that sitting in the central bank were seventy billion U.S. dollars in personal deposits owned by domestic Chinese, the government pronounced a fiat and broadcast it to the nation and the world. It came as a shock and was implemented that very day. On February 19, 2001, the B-Share market would halt trading completely for reform and reopen one week later to all citizens in the world.

Chinese citizens from far and near, from all walks of life, each carrying “a little bag of money” earned at work and kept for years if not a lifetime, are approaching the gate of B-Share ownership with tremendous enthusiasm, hope, and caution.

In the first two days after the government’s pronouncement, over 340,000 new B-Share trading accounts were set up, waiting for the market to reopen, surpassing the total number of accounts opened in the previous ten years. The telephone company’s statistics showed that the number of daily long-distance calls from all over China into Shanghai, where the B-Share headquarters is located, rose to 100,009,000 per day versus an usual daily number of 45,000 calls. I landed in Beijing on February 24, two days before the reopening. I felt the pulse of the Chinese dragon and dove into the water where he is without any hesitation.


Real Tests Inside the Gate of the Cave

No sooner had I squeezed into the B-Share market then I found that I had come upon a fantastic bonanza. Stock prices were soaring ten percent day by day. (Within ten weeks, the B-Share index would double, then triple.)

I was restless, rushing about Beijing, chasing big money, scolding myself and blaming mistakes on others. To my great regret and dismay, during all of the sleepless weeks to come, I would come so very close to grabbing a million U.S. dollars, yet would be kept a fingertip away. How come? Because I got inside the gate of first opportunity late, because I picked two wrong stocks based on others’ opinions, and because the trading house used a computer system that responded too slowly. If only...

Quietly listening to me tell my experiences, a B-Share fellow trader said something I would not forget: “It is fate that does not permit you to win those million dollars. That money is destined not to be yours. It’s all determined by your past, your current psyche, your characteristics, your capability of operating stocks, your attitude toward winning and losing. And right now, please be very careful not to overreact to this hot market, you could be badly burned.

“So calm down, remain in your usual position as an ordinary citizen, and try again when the next chance comes. In the meantime, you need to change and grow, do your homework in market research, and do it diligently. Be careful of the level of your desire and keep it constantly under control.

“Over several years in the stock market, I’ve seen many people who learn their lessons too slowly. These are the lessons of life, too. Playing stocks well is just as hard as being a good human being. I am not perfect, but if I win thirty thousand in one day, I don’t act extremely happy, doing nothing but celebrating; and if I lose thirty thousand in a blink, I am just as calm as if no big deal has happened. The important thing is not to stop learning and to correct yourself tomorrow.”

This is a young man in his thirties, Mr. Li, who was laid off several years ago from a factory, and since then has evolved into a full time investor in the stock market. An old Chinese saying goes: One conversation with a wise person is worth more than ten years of reading books.

Mr. Zhuang, a retired taxi driver in his late sixties, has never dreamed of playing with his life-long savings using a high-tech electric box. When he approaches a computer and reaches out to the keyboard, his fingers are shaking. A younger fellow sees his shaking hand and kindly offers to help punch in the numbers on the keyboard. Mr. Zhuang does need more money to “fill up the vegetable bucket”-- a Chinese expression meaning “bringing food to the table.” Additionally, the recent mandatory changes in the medical care system (somewhat similar to that of the United States), mean that his health insurance will no longer be covered completely by the government. So many things make him afraid of this B-Share market: major stock traders might be manipulating the ups and downs of prices; foreign investors might suddenly withdraw from the market for some unknown reason. What if a computer virus should launch an attack? What if a fight between the Mainland and Taiwan blazes into the fire of war? For most Chinese small investors, fears like Mr. Zhuang’s could easily overwhelm their confidence or desire. They are vulnerable in the face of various unintended and unforeseeable possibilities. Their personal financial conditions have limited their perceptions, understanding, and capacities for risk. Nevertheless, they’ve made their individual decisions based on various personal situations and have entered the B-Share market.

It is a matter of surviving and learning to punch those keys on their own and they must use their own heads now! Confronting the weakness of human nature, you always need support and encouragement, and there’s plenty of that in Chinese society, inside securities houses, for instance: they are so much different than in the independent and individualized Western world.

The trading houses every day flock with the movement of black-haired heads. You hear heated discussions, concerned suggestions, provident warnings, and valuable advice. Arguments born of disagreement fill up the halls with their noise. With mutual help, traders combine their strengths and wisdom, hanging on for the long-term and growing gradually, using special strategy when wrestling with bigger guys. Every one is becoming less fearful and more tenacious as a result. They still need to be protected just yet, though.

In whom? Policy, Policy, Policy.

Teacher Pan is respected by many for his insight into macro- and microeconomic movements inside and outside the nation. He was a math teacher in a middle school; and now involved in trading stocks, he has quickly mastered the most sophisticated models of financial analysis, using the best computer system on the market.

Often, his enthusiastic analysis and freely-offered advice produce great value. Very often, by the end of the trading days you see him circled by men and women seeking his thoughts and opinions.

On one occasion, Teacher Pan asked me how I invested in the stock market in the United States. I told him, “You sit down in a nicely furnished office in your financial institution. Your financial advisor cordially brings you a cup of coffee with just the right amount of cream and sugar. Not like you guys: everyday you bring your own water or tea bottles from home. Your advisor is usually equipped with the most advanced financial software system. Instantly he can get the necessary data. Several times a day, he can hear on the wire top financial experts on the floor of the New York Stock Exchange talking about trading developments. Answering your questions, considering your requests, the well-trained advisor patiently explains strategies and scenarios, draws charts and calculates data, indicates all sorts of possibilities and solutions – and then together you work out your investment plan. Of course he’s well paid for all of this...”

“What is the difference in terms of basic mechanisms, between their stock markets and ours?” Teacher Pan asked intently. Several people were drawn into our conversation from their computer screens. “There’s a fundamental difference between us,” I replied, “and that is the degree of government or administrative control imposed on the market. In their markets, the types of stocks and bonds, volume, and prices – all decisive moves – are determined by the ‘market forces’ – this means economic measurements such as productivity, profitability, positive environments and so on, influence supply and demand. Political influence is kept at minimum; stock performances are ruled by the mechanism of the market. Whereas the stock market here is indeed a market in the Chinese style. The government by far and large controls various aspects of all stock operations, which are coordinated with the Five Year Plan. The government uses administrative means – it regulates the movement by which stocks are offered to the public, their distribution, scale and speed, rather than allowing a free market operated by industries, investors, financial forces, and their interactions.” I can feel that my speech sounds convincing, since I’m from the United States.

“What you just said is a fact, not a solution.” Teacher Pan sank into deep thought and continued, “We are all facing a series of tests inside the Chinese stock market, a test of the government, of our economy, of the B-Share, and of every one of us. And an unprecedented solution is by no means easy to figure out. China is now destined to transform herself into a market economy, but only in a different manner, not just a copy of the West.

“Obviously our stock market is still young, immature, even distorted from time to time. It cannot be compared with the well-developed Western markets. What the West cannot match is the size of our potential market. We have tremendous room for development. Foreign capital is increasingly attracted to us, and domestically, we have the expectation and vigor of 1.3 billion people. Chance follows its own path. ‘When the sun isn’t in the West, it’s in the East.’

“Naturally, a course of transition is needed, during which there are going to be structural reforms at all levels, pain and confusion, many successes and failures. Therefore, during this period positive, effective control and regulation by the central government is crucial. I’d trust the current government and its policies, because they have helped boost our economy. Their reforms have corrected mistakes and protected the market and its benefits to small investors like us. At present, there are about thirty million investors – about one in every four Chinese is here. Our government is the biggest player, far more powerful than George Soros and the other financiers. We know there are distortions, we know their ‘black hand’ is manipulating prices. Our future is still not completely certain. Regardless of all that, we must trust the government. All this growth, all these promising changes have created a good leadership. ‘Sometimes a structure creates a hero.’ So we should have trust in our leaders. Their policies will protect us from being eaten up by greedy evils...”

“Teacher Pan,” I interrupted, “But this trust in the government is the biggest test of all.”

Part One



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