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The Philippines should woo the Chinese and convince them to invest
their money in the Philippines. The Philippine Senate and the
Chinese should set aside their brouhaha over the ZTE NBN overpricing scandal.
Money over the NBN is a peanut compared to what Manila can secure in
loans and investments from the Chinese.
The ZTE deal was scuttled anyway with money
changing hands and the reputation of some seemingly respectable
people badly tarnished.
The Chinese are awash with cash. They have more
than $1.8 trillion in foreign reserves and they don’t know what to
do with it. Reserves are a kind of checking account against which a
country charges its expenses in foreign currency – for
importations, payments of debt interest and principal, and
investments overseas.
At present, the $1.8 billion is being managed by
the People’s Bank of China, the Chinese central bank. But the
People’s Bank of China apparently has made some miscalculation
while deploying its reserves.
About $1 trillion of the $1.8 trillion has been
spent to gobble up United States government securities or IOUs and
debt notes issued by Fannie Mae and Freddie Mac, according to
estimates by The Economist magazine. The US has increased interest
rates which means the yields on US Treasuries are down. Fannie Mae
and Freddie Mac have both been hit badly by the US subprime mortgage
crisis which means their bonds are now next to useless, unless the
US government rescues both mortgage financing agencies with massive
capital infusion.
US bonds earn about three percent annually, says
The Economist. But the US inflation and the appreciation of the yuan
meant an effective decline in yield of 10 percent, thus wiping out
the three percent interest yield. Seven percent of $1 trillion
translates into $70 billion —the amount of free money that the
Chinese have in effect given the US government. Put another way, the
Chinese have in effect given the Americans a blank check to buy 14
aircraft carriers! You think there is tension between Beijing and
Washington DC? The Americans have found a way to screw up the
Chinese and that is by selling them worthless bonds.
The $70 billion is about twice the Philippine
international reserves and can easily pay for the Philippine foreign
debt of $57 billion with some change to spare.
The Chinese central bank also organized the
China Investment Corporation with $200 billion in funds for
investments overseas. CIC quickly invested $3 billion of the $200
billion in the Blackstone Group May last year. The $3 billion
investment has lost 43 percent of its value.
So by now the Chinese are trying to regroup and
rethinking how best to invest their cash hoard. This opens up an
opportunity for the Philippines to tap into this gold mine. Unlike
the Americans, the Filipinos won’t sell them a rotten bill of
goods.
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Speaking of mismanagement, I had a talk recently
with an alumnus of the Asian Institute of Management. He rues the
decline of AIM as the premier management school in the Philippines
and the rest of Asia. “AIM used to be the Harvard of Asia,” he
recalls. “Now, no more.”
It seems that the school that trains rich people
to become first-rate managers cannot manage itself. It used to have
a huge chunk of property. Half of that was given to the Ayalas who
readily converted it into a condominium of dormitory units for
children of the rich and famous. Underpriced, the units quickly sold
out. AIM used to be debt-free. Now I don’t know how big a debt it
has incurred. And there is tension between the AIM management and
the professors and the tension is not of the creative kind.
In the meantime, the University of the
Philippines is moving fast to regain its lost prestige. On its 100th
year, UP has raised P5 billion in public and private funds to
improve its facilities, boost pay scales, and expand meaningfully
even while increasing tuition fees tremendously. One of the groups
that has cashed in on the rise of the new UP is the Ayala Group.
Where did the Ayalas educate themselves? Harvard, of course.
One guy who never went to Harvard but has
seemingly outsmarted the Ayalas is Henry Sy Sr. His BDO bank is now
bigger than Bank of PI. His malls attract more people than Ayala
malls. He has more extensive property holdings and far larger
development projects. Lately, he has acquired National University
(NU) for a song and is putting up an eight-story P500-million new NU
main building in Manila.
It seems Henry Sy will create a chain of NUs—a
university inside most if not all of his 31 SM malls.
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