Apparently, a nation with a communist party can grow -- so long, that is, as the economy is based on capitalism. Of course, we're talking about Red China, which still has a very strong Communist Party, but policies that are really about making lots of yuan.
This week brings more evidence of China's remarkable transformation: Chinese travel information and services firm Ctrip.com International (Nasdaq: CTRP ) went public at $18 per share and surged 89%. It was the best first-day IPO performance in over three years.
(The prospectus, incidentally, talks much about such things as profits and shareholder value and warns against government intervention.)
The timing looks right. From 1998 to 2002, China's GDP grew roughly 7.5% per annum (last year, the country accounted for 16% of the growth in the world economy). This has propelled aggregate expenditures on tourism, which grew at a 12.8% annual rate during this period.
Indeed, the economic development in China is breathtaking. There are 397 million fixed phone lines; 200 million households with cable television; 69 million with access to the Net; and 200 million cell phones. China is no longer a rural backwater; more than 200 cities boast populations exceeding one million.
Of course, other Chinese companies have juicy stock charts, too, including Sina (Nasdaq: SINA ) , Chinadotcom (Nasdaq: CHINA ) , Aluminum Corp. of China (NYSE: ACH ) , and CNOOC (NYSE: CEO ) . And U.S. companies are aggressively entering the Chinese market, as evidenced by Yahoo!'s (Nasdaq: YHOO ) purchase of 3721 for $120 million and eBay's (Nasdaq: EBAY ) purchase of EachNet for $150 million.
So, will the success of Ctrip.com, in the early stages of its growth curve and with its moonshot IPO, pave the way for more China IPOs to bloom in 2004? Maybe. But remember, this a tiny company (approximately $20 million in sales for 2003) with a market cap that defies all conventional valuation metrics.
A more pressing lesson is that a moonshot IPO can make for great day trading, but buy-and-hold investors had better be careful.
Tom Taulli is a professor of finance at the USC School of Business (don't worry, but he does come out of his ivory tower). You can reach him at tom@taulli.com.
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