Half-Course: Investment and Finance in Emerging Markets-China
Course Number #1435
Associate Professor Li Jin
Early Winter, 15 Session half-course
Compared to capital markets in the US, China's capital market is characterized with all sorts of problems: inefficient financial intermediaries, severe financing constraints for all but the largest State Owned Enterprises, rigid government policies, under-developed legal and institutional frameworks with insufficient protection to minority shareholders against insider expropriations, unsophisticated retail investors subject to irrational hubris, rampant insider trading, weak arbitraging force which is often insufficient to bring the prices back to efficient levels, an overly active government which is prone to change the rule of the game halfway, etc. Yet this is also a market that has in the past decade attracted one of the largest pools of foreign direct investments and portfolio investments, offering some of the most spectacular returns to players with a deep understanding of the markets, and generating some of the most fascinating dynamics on the evolution of the markets.
Through a series of newly developed cases, this course offers a detailed analysis of China's capital markets, ranging from the overall assessment of the macro-economic environment and political context, to the detailed micro level study of the financial service industry, the specific players, instruments, and individual transactions. The course covers companies in a wide range of industries and stages of development, from food catering to home appliance retailing to natural resource extraction to property and casualty insurances, and from fledgling firms with burning financing needs to industry leaders contemplating about the consolidation of the whole industry through mergers and acquisitions. Through the cases and notes, discussions, and guest presentations, students explore the opportunities and challenges presented by the quickly evolving capital markets in China. Throughout the course we consider interactions between a firm's financial decisions and its business strategies, and put the business decisions into the political and cultural context.
While we touch upon the recent history, the main focus of this course is on the current status of the markets, and, more importantly, its future trajectory. Students are encouraged to take the perspective of different decision-makers, such as policy makers, investment professionals, and corporate managers. For instance, students may have to take the perspective of the manager of an American insurance company trying to penetrate the Chinese market, or the head of a Chinese air conditioner manufacturer deliberating on its financing options, including listing on NYSE, or the Chinese policy makers deliberating on the best changes of the rule of the game to improve corporate governance for listed firms in China.
The course will focus on three interrelated modules that affect China's capital markets. First, the course provides the political and macro-economic context of China's capital markets. Second, the course looks at the various players, instruments, market segments, and representative transactions on the market. Third, the course examines some of the hot issues that highlight the challenges as well as opportunities facing market participants going forward, highlighting mergers and acquisitions, private equity and venture capital investing, and Chinese enterprises' unavoidable investments outside of China.
This course is designed for students who are interested in understanding the unique aspects of the capital markets in China. This certainly includes those who want to work in China, but could also include people who anticipate some interactions with Chinese corporations and Chinese investors later in their careers. With China looming large on the international stage, future business leaders will find themselves increasingly having the desire to understand their Chinese competitors, clients, and, in some cases, capital providers. Many of the insights gleaned from the course can be readily applied to other emerging markets, thus this can also be a good course for people interested in understanding the functioning of emerging market capital markets in general.