Bethany Allen talks to Junheng Li about her book, China's credit bubble and her bicultural foundation for entrepreneurship.
Junheng Li is a Shanghai native and author of the new book Tiger Woman on Wall Street: Winning Business Strategies from New York to Shanghai and Back. A graduate of Middlebury College in Vermont and Columbia Business School, Li founded JL Warren Capital LLC in 2009, a leading independent equity research firm in New York that focuses on Chinese companies and the Chinese economy. From making her first million before age thirty, to heading an equity research firm, and now a regular contributor at Forbes with appearances on CNBC and Bloomberg, Li is making waves.
The hour I spent with the charismatic Li makes it clear why she has developed a reputation for efficiency, controversy and fierce honesty. Her new book paints no rosy picture of China's investment environment. Rather, Li warns of the dangers of joining the "Red Party," her term for the rampant yet unsubstantiated post-Recession optimism that drove many investors to dump millions into fraudulent Chinese companies.
Li's expertise has led her to hold unapologetically tough views on some controversial recent issues. I ask her about the future of China's credit in 2014, and whether or not the credit bubble will burst in the near future. "The question is not if but when," Li replies. China is forming the biggest credit bubble ever recorded, says Li, and it's still growing. New credit continues to be issued to the debt that is going bad; in financial terms, this is known as NPL -- non-performing loans.
While the conventional view is that China's record-breaking economic growth will outstrip the credit crunch, allowing China to grow its way out of the debt burn, Li isn't so optimistic. She tells me that the central government benefits from the tax revenue generated from economic growth. The problem, however, is that debt issuers are usually local governments that do not benefit from rising tax revenue; GDP growth can't help them in the way that many China economic analysts led us to believe.
The economic effects of Chinese President Xi Jinping's anti-corruption campaigns have also captured Li's attention. She tells me that her firm JL Warren recently did a study of the luxury industry in China with a focus on high-end Swiss watches like Omega, Cartier and Rolex. The findings are dramatic. She estimates that a full 60 percent of the luxury spending was not for personal consumption but rather for gifting, among which a large portion relates to corruption in business, government, the military, as well as going towards the mistresses of the privileged, connected and corrupted.
"I recently attended several investor conferences in China," Li tells me. "All the companies mentioned that their businesses have been affected by the campaign, from rail, to pharmaceuticals, to entertainment and travel -- every industry and sector." Some impacts are direct, such as a reduction in the sales of luxury items, while others are indirect. For example, if key managers of a company are targeted for a corruption investigation, such investigation reduces morale, causes anxiety and creates distractions among both the leadership and the employees of that company.
Yet despite her often critical outlook, Li cares deeply for the future of China, including its new social trends and the well being of her fellow overseas Chinese. An up-and-coming thought leader, Li readily offers her advice to aspiring leaders.
"To become a thought leader, it takes top-notch performance in your field, combined with the freedom, ability and willingness to speak your mind and challenge status quo assumptions," says Li. Her firm JL Warren is known for conducting meticulous due diligence for companies in real time on the ground in China, and it is this kind of high-quality research that serves as the most important foundation of her book and other writings.
Besides expertise, thought leaders need a degree of independence. Employees at major banks are subject to necessary but increasingly onerous regulations and compliance requirements. "With those limitations, I would not have been able to write an investment book in such an honest and open way," Li explains. "So putting the two factors together, I am uniquely positioned because I have both the performance-based authority and the freedom to speak my mind forcefully."
Li writes in her book about how she is the product of both her Chinese upbringing and her American education and career. I ask her how she has managed to meld these two very different experiences into complementary strengths. Li replies that from her Chinese upbringing, she developed a fierce work ethic, discipline, and intense focus, while her American upbringing gave her the courage and ability both to dream and to fail.
"Together," Li says with a determined smile, "these two diverse skill sets gave me a strong foundation for entrepreneurship."
Starting out 2014 with a lecture tour throughout England that includes an engagement at London School of Economics, Li is truly making the best use of that strong entrepreneurial foundation. As she continues to make waves on Wall Street, I look forward to seeing where she ends up. And will she publish another book? "It's only a matter of when, not if."
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Bethany Allen is a freelance writer based in New Haven, CT. She holds a Master's degree in East Asian Studies from Yale University. Contact her at bethanyallen311@gmail.com.
This article also appears in China Hands.