Huaneng Case

You have been hired as an international

investment banker by a large U.S. institutional

investor who is considering purchasing HPI

stock. Provide an analysis of:

i) China as an investment destination

ii) key success factors

iii) HPI's strengths and weaknesses.

? World's largest country by population (nearly 1/5 of the world's

population)

1989 1990 1991 1992 1993

Total Population (millions) 1,126 1,139 1,156 1,173 1,185

Growth rate 1.15% 1.49% 1.47% 1.02%

Source: EIU Country Report. September 9. 1994

? Largest country of Asia, one of the largest of the word:

9 596 961 km2

? One of the largest economies in the world: since 1978, the Chinese economy had expanded at an average rate of nearly 9%.

1989 1990 1991 1992 1993

GNP at current market price (Rmb billion) 1,599 1,77 2,024 2,404 3,138

Real GNP growth 4.4% 4.1% 8.2% 13,00% 13.4%

Source: EIU Country Report. September 9. 1994

? Since the late 1970s, China set up reforms to open its market.

? In the late 1970s: the government relaxed its control over many industries to move

from a centrally planned economy to more of a market-oriented one.

? In the 1980s: in order to facilitate modernization and encourage foreign investment and the import of advanced technology, China began establishing special zones for foreign investment: Special Economic Zones (SEZs) . The original four were Shenzhen, Zhuhai, Shandou, and Xiamen.

? In the 1990s:

? The government wanted to move toward a socialist market economy. Under the planned economic system, the state was determining production and pricing. In a market economy, the state creates a stable and competitive economic environment through the application of laws and regulations.

? The government allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises.

? The government granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state, such as energy, communications and transportation.

? The government authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges.

? Partly due to these reforms, since 1988, the

amount of Direct Foreign Investments has

almost been multiply by 10.

1988 1989 1990 1991 1992 1993

Direct foreign investments (M$) 3,194 3,392 3,487 4,366 11,007 27,515

Growth 6.19% 2.80% 25.20% 152.10% 149.97%

Source: Jetro, Financial Times, June 27, 1996