Monday March 15, 2010

China shipping fasteners to Europe via M’sia to avoid duty

By DAVID TAN

davidtan@thestar.com.my

GEORGE TOWN: Domestic mild-steel (or carbon-steel) fastener manufacturers are facing intense competition in Europe from China-made mild-steel fasteners shipped via Malaysia to avoid an anti-dumping duty imposed by the European Union (EU).

China-made fasteners have been slapped with an anti-dumping duty rate of an average 87.3% imposed by the EU since February 2009.

Chin Well Holdings Bhd senior manager Richard Yeap Soon Thong told StarBiz that since then, the selling price of Chin Well’s mild-steel fasteners in Europe had to be lowered by at least 20% to compete against China-made fasteners.

“This eats into our profit margin. Otherwise, we could have marked up our pricing by 20% to 30% per tonne. The competition from Chinese fasteners has pressured Chin Well to lower its selling price of fasteners per tonne to RM4,000 and RM5,000,” he said.

Richard Yeap Soon Thong

Some local and foreign manufacturing companies are providing re-packing services for China-made fasteners and shipping them out with their generalised system of preferences (GSP) and made-in-Malaysia certificate of origin documents which enable them to enter Europe with respective duties of 1.2% and 3.7%.

“The profit to be obtained from such re-packing and shipping services is high, about 7% of the invoice for each shipment of container, which is about US$20,000 or about RM80,000.

“In the country presently, there are only six major steel fastener producers, of which four specialises in manufacturing mild-steel fasteners, producing collectively 4,000 tonnes to 5,000 tonnes of fasteners monthly.

“Since China was hit by the anti-dumping duty from EU, Malaysia’s monthly export of fasteners to the EU has increased substantially by about four to five times.

“This is the feedback we got from our distributors and wholesalers in Europe,” Yeap said.

In 2009 Malaysia exported 99,000 tonnes of all types of fasteners, comprising screws, bolts, nuts, coach screws, screw hooks, rivets, and cotter-pins, compared to 55,000 tonnes in 2008, according to data obtained from the Ministry of International Trade and Industry (Miti).

“We have informed and updated Miti on the matter, lest Malaysia is also slapped with anti-dumping duty from the EU. The Miti office from Penang has recently informed us that they are working with the EU Anti-Fraud Office (OLAF), the port authorities, and the customs to check the abuse,” he added.

ED Fastening Sdn Bhd managing director T.W. Teh said as a result of of the situation, the company had suffered a sizable loss of market share in Europe.

“Our revenue for 2009, due to price competition and loss of market share in Europe, has dropped to about RM5mil, otherwise the it could easily be 50% more,” he said, adding that Europe generated about 35% of the company’s revenue.

The European Anti-Fraud Office (OLAF) customs unit head, David Murphy, said in an on-line news report on Feb 9 that millions of euros worth of China-made goods were being fraudulently passed off as Malaysian-made by using the Port Klang Free Zone trans-shipment hub, where imported Chinese goods were transferred to another container and re-exported using the invoice of a Malaysian company.

“Some firms also use false documents to obtain certificate of origin, which declares that the goods are of Malaysian origin. OLAF is working closely with Miti to tackle the problem that also exists at other major trans-shipment hubs such as the Jebel Ali free zone in Dubai and Singapore,” Murphy said.

He added that the real risk to Malaysia was that commercial action might be taken by the EU against Malaysian companies, thereby affecting legitimate manufacturers.

When contacted, Miti, in a statement, said the ministry was scrutinising the applications for the export of fasteners to the EU.

“All exporters were required to provide additional documentation including letter of indemnity from the exporter for non involvement in transhipment or import-export activity using GSP form A in the Free Trade and Industrial Zone.

“The ministry also carried out on-site verification visits to the fasteners’ manufacturers premises to verify their capability and capacity of producing fasteners for export market.

“We are also work closely with other Malaysian authorities such as customs, port authorities, and free zone authorities to ensure there is no transhipment of fasteners from China,” it said.

The Miti statement also noted that “in a statement dated Feb 9, OLAF said it was highly satisfied with the cooperation from Miti and other government authorities relating to the evasion of anti-dumping duties.”

Malaysian Iron and Steel Industry Federation (Misif) president, Chow Chong Long, acknowledges the occurance of such transhipment cases due to the liberalisation of trade.

“We have tried in the past to obtain the monthly figures of steel products coming in and going out of the country from the Department of Statistics Malaysia. The figures would help us detect whether there is excess of steel products being brought in and leaving the country given our present capacity and allow us to follow up with the Government to take timely and appropriate action.

Chow added that “the Government should look into ways on how it can get Misif access quickly the latest data on the export and import of steel products into Malaysia.”

“The problem is that the Department of Statistics Malaysia is always three months late with its data,” he said.

The Federation of Malaysian Manufacturers’ northern region chairman, Datuk O.K. Lee, said Malaysian manufacturers should tap into their capabilities to produce high-value added products to compete against China-made goods and not resort to providing such re-packing and transhipment services that could undermine the country’s image.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/15/business/5836383&sec=business

From Times Online

March 14, 2010

Difficult year ahead for China admits Premier Wen Jiabao

China faces a difficult year as it works to maintain economic growth and spur development, but it would not be bullied into boosting the value of its currency, Premier Wen Jiabao said today.

In a wide-ranging press conference at the end of China's annual session of parliament, Mr Wen said Beijing was not ready to withdraw stimulus measures put in place in late 2008 to pull the world's third-largest economy out of the crisis, and denied criticism that China is keeping its currency undervalued in order to boost exports.

He also said that he would not allow the US to push China on the issues of China and Tibet, and claimed he was snubbed at last year's Copenhagen climate change summit.

Keeping the yuan stable was "an important contribution" to global recovery from the economic downturn, Mr Wen told hundreds of reporters gathered at the Great Hall of the People for his only formal press conference of the year.

Related Links

• China economy grows at slowest pace in 15 years

• Chinese exports fall at fastest pace in 13 years

"This year is going to be the most complicated year for the economy," he said.

"We will maintain the continuity and stability of our macroeconomic policies," he said, adding that as circumstances change, Beijing would make every effort to make its policies "more flexible".

During the two hour press conference, Premier Wen also repeated China's stance that a recent dip in relations with the United States was entirely the fault of Washington for allowing the Dalai Lama to visit the U.S. and approving the sale of arms to Taiwan.

"The responsibility does not lie with the Chinese side, but the United States," Mr Wen said. "We hope the U.S. will face the issue squarely ... so as to restore and improve China-US relations."

Speaking just after the country's annual legislative session ended with the approval of a budget that extends job-creation and welfare programs to deal with a rapidly expanding rich-poor gap, Mr Wen said

China had to be wary of a "double dip" recession this year as it sought to balance growth, economic structural adjustments and inflation expectations. 

China "must have firm confidence" in dealing with any economic problems, he said. "The only way out and hope when facing difficulties lie in our own efforts," he said during the televised news conference

China, the world's third-largest economy, escaped the worst of the global financial crisis by ordering $1.4 trillion in bank lending and government stimulus.

Although economic growth bounced back to 10.7 percent in the final quarter of 2009, authorities say the global outlook is still uncertain, amid worries that the torrent of lending is adding to inflation and fueling a dangerous bubble in stock and real estate prices. 

When asked if China would play a bigger role in international affairs, Mr Wen said China was still a developing country and was focused on improving living standards across the country. 

He said the government would reform its controversial exchange rate controls but will keep its currency "basically stable." He gave no indication when Beijing might allow its yuan to rise against the US dollar — a move sought by Washington and other trading partners.

Critics say the yuan is kept undervalued, giving China's exporters an unfair price advantage and swelling its trade surplus. China has allowed a roughly 20 percent rise in the currency's value against the dollar since 2005, but re-imposed tight control after the global financial crisis hit.

Related Links

• China economy grows at slowest pace in 15 years

• Chinese exports fall at fastest pace in 13 years

Beijing has more than $800 billion of its foreign reserves invested in U.S. Treasury securities, and Mr Wen said the value of the U.S. dollar was a "big concern." He said he wanted to see the United States "take concrete steps to reassure investors," but gave no details of what Beijing wanted done.

Mr Wen promised to increase imports to promote trade and appealed to other nations to oppose what he said was rising global protectionism. He complained that some countries were trying to boost exports by weakening their currencies, but did not name any. 

The budget passed by the congress called for a 10 percent rise in spending to fuel the economic recovery, with more money for low-cost housing, pensions, and other social programs for the country's 1.3 billion people.

The priorities extend Mr Wen and President Hu Jintao's years long efforts to spread the benefits of economic growth more broadly across a rapidly changing society. This year, inflation is a looming challenge, with housing prices soaring and worrying rises in food prices that consume as much as 40 percent of household incomes. 

Mr Wen said inflation is a serious concern, along with endemic corruption and a yawning gap between rich and poor that leaves millions of migrant workers and farmers without basic government aid. 

"These are enough to affect social stability, and even (affect) the consolidation of state power," he said.
Speaking of his perceived snub at Copenhagen in November, when China was blamed by some for undermining efforts to reach a binding he was criticized for skipping a meeting of top leaders attended by President Barack Obama, Mr Wen said he was never formally notified of the event and had sent Vice Foreign Minister He Yafei to register a protest. Wen said no explanation had been given about the failure to issue a formal invitation.

"So far no one has given us any explanation about this and it still is a mystery," he said.

http://business.timesonline.co.uk/tol/business/economics/article7061436.ece?token=null&offset=0&page=1

China Responds To Google: Go To Hell

China Responds To Google: Go To Hell

Henry Blodget |
Jan. 14, 2010,

China's initial public response to Google's threat is in, and it's what one would have expected: Go to hell.

Now the two can start negotiating quietly behind the scenes.

We still expect this war to be resolved in a compromise in which both parties declare victory and reserve the right to kill each other later. There's a substantial chance, however, that Google will be forced to actually follow through on its threat and leave the country. (Backing down at this point would be a disaster).

There's no chance, meanwhile, that the Chinese government will allow itself to appear to be pushed around by a pissant Internet company. So Google had to have expected this.

FT: One of China’s top censors on Thursday reaffirmed the state’s commitment to monitoring the internet, showing no signs of compromising in the face of Google’s threat to quit the country.

Wang Chen, head of the State Council Information Office and deputy head of the Communist party’s propaganda department, said internet media “must live up to their responsibility of maintaining internet security”, including censoring content.

“We must do our best to intensify self-discipline among internet media to guarantee internet security... Online media must treat the creation of a positive mainstream opinion environment as an important duty,” he said.

"A positive mainstream opinion environment." And we thought our media was bad.

http://www.businessinsider.com/henry-blodget-china-responds-to-google-go-to-hell-2010-1

Jim Chanos: China Is Headed For A Huge Crash

Nov. 11, 2009,

 

The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos. Read the whole thing >

 

Chanos is reportedly attempting to short the entire Chinese economy. What's fueling the short case against China?

 

• The $4.3 trillion Chinese economy is under-performing despite a $900 billion stimulus program.
• China seems to be cooking its books. For instance, it reports that car sales are surging while gasoline consumption is flat. Is that realistic? Or are state run Chinese companies just stock-piling cars?
• China may have too much capacity. The central planners built out productive capacity for a booming economy but China is stalling. In nearly every sector of the economy, China is in danger of producing huge quantities of goods with no buyers.
• China's economic and political posturing signals that its leaders have no idea what is in store for them. The result may be a surprising economic collapse, akin to what happened when the housing bubble popped in the US.

 

http://www.businessinsider.com/jim-chanos-china-is-headed-for-a-huge-crash-2009-11

Beijing is trying to prevent the property bubble from bursting.

China vows to keep ‘hot money’ out of property market

Beijing is trying to prevent the property bubble from bursting. — Reuters pic

BEIJING, Jan 10 — China vowed today not to let foreign speculative investment affect the property market, the latest expression of official concern that real-estate prices are racing ahead too fast.

The directive from the State Council, China’s cabinet, will serve as a guideline for local authorities and ministries, including the People’s Bank of China and the China Banking Regulatory Commission, to work out detailed policies.

“Relevant departments must enhance monitoring of loans and cross-border investment to prevent illegal inflows of capital into the property market and to avoid the impact of overseas hot money on China’s real-estate market,” the cabinet said.

It said the central bank and banking regulator should step up oversight and “window guidance” of mortgage lending.

About one-sixth of China’s nearly 10 trillion yuan (RM5 trillion) in new loans last year flowed into the property sector.

Concerned that a property bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as restricting sales tax exemptions, have been relatively mild.

The cabinet urged local authorities, especially in cities where housing prices are rising sharply, to increase the supply of affordable housing.

It reiterated that it would curb house buying for “investment and speculation purposes” and keep the minimum down payment for purchases of second homes at 40 per cent.

China’s central bank said this week that it would pay particularly close attention to the property market in 2010 while managing inflationary expectations. — Reuters

China tightening could undo risk markets

COLUMN - China tightening could undo risk markets: James Saft
Wed Dec 30, 2009 11:20am
By James Saft

HUNTSVILLE, Alabama (Reuters) - The key decision for global markets in 2010 will very likely not be made in Washington but Beijing, where emerging inflation and a property bubble may push China to begin reining in expansionary policies earlier than will suit the developed world.

After returning to a breakneck pace of growth with amazing speed, there are already signs that China is weighing steps to curtail the bank lending that has been a huge source of stimulus, helping to drive property and other asset prices sharply higher.

"We emphasize the role of the reserve-requirement ratio, although the ratio was internationally seen as useless for years and it was thought central banks could abandon the tool," Chinese central bank Governor Zhou Xiaochuan said at a Beijing conference on Tuesday.

"Besides benchmark interest rates, we also put emphasis on managing the gap between deposit and lending rates", Zhou said.

Put simply, that implies that China may take steps to limit the amount of money banks are allowed to lend and to drive the margins between what they pay in interest and what they charge higher, both steps which will cool growth and speculation.

China's central bank on Wednesday followed up by promising to exercise tighter control over bank lending next year while reaffirming a long-standing pledge to maintain "appropriately loose" monetary policy.

Even if you don't own a million dollar apartment investment in Shanghai -- kept empty of course because cash flows are for the little people - this could spell trouble.

Zhou "today signaled the end of the global market bounce that has been in progress since the end of last winter," Lombard Street Research economist Charles Dumas wrote in a note to clients.

"The only major addition of liquidity in the world economy over the past year has been in China. That is about to be withdrawn. Risk assets look like an unwise place to be in early 2010, especially commodity futures and the government bonds of countries with large deficits and/or debts. For risky investments worldwide, this could mark a turning point from 2009's massive rally."

China's banks will lend about $1.4 trillion in 2009, roughly double 2008's allocation. Official estimates put inflation at a tepid 0.6 percent for the year to November, but this is in contrast to media reports about bulk-buying by Chinese consumers concerned about a rapid rise in the price of staple foods.


THE POWER OF NARRATIVE

Reflationary efforts in China have almost certainly had a positive impact on global economic conditions, possibly affecting market prices for securities more than fundamental demand. On the broadest measure, money supply in China is growing at an astonishing 30 percent annual clip, more or less double its usual rate of growth this decade.

By Lombard Research's reckoning, China has been doing the heavy lifting. Even with a range of extraordinary policies such as quantitative easing, combined money growth in the United States, euro zone, Japan and Britain is barely positive. But adding in China's efforts, this rises to a more normal 6 percent range.

But China could be cutting back -- through loan controls, interest rates and ultimately by allowing the yuan to rise in value -- just as other sources of liquidity such as the U.S. quantitative easing program are withdrawn. Perhaps this is all part of the grand plan, and perhaps the rise in asset prices over the past nine months will be confirmed by a self-sustaining recovery even without further growth in stimulus.

There are at least three other possibilities. First, it may be that tighter policy in China retards a recovery and hurts asset prices. But there is also a chance that China genuinely needs tighter policy but the United States, Europe and Britain do not.

If so, further signs that China is serious about addressing its nascent property bubble and inflation should be quite nasty news for equities and other risky assets. Finally, there is the possibility that China is the bellwether for inflationary issues that will crop up elsewhere soon, though this seems a long shot.

Risk assets could get hit if it looks like the Fed's hand is being forced regardless of what the U.S. central bank does about interest rates and its exit plan. Withdrawing monetary stimulus will hurt, but what might hurt even worse is if the Fed were forced to extend measures to the point at which it starts looking desperate rather than masterful.

We are operating under a common narrative in markets: that the authorities are both willing and able to do what it takes. This may or may not be true, but it gains tremendous force simply because people subscribe to it.

China may make this simple narrative quite a bit more complicated.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

http://in.reuters.com/article/economicNews/idINIndia-45053620091230?sp=tru

Recession Elsewhere, but It’s Booming in China

http://www.nytimes.com/2009/12/10/business/economy/10consume.html?pagewanted=1

The inflation in China's mainland cast a shadow over Chinese economic performance.

MARKET WATCH NO. 27, 2008


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Date：2008-7-9 10:33:00
Source：[BiMBA] Browse：[106] Comments：[0]


TO THE POINT: The inflation in China's mainland cast a shadow over Chinese economic performance. Most recently, it was further jacked up by rising electricity and refined oil prices. The mainland refined oil prices were edging up in line with international levels, putting more pressure on consumers. One-year iron ore prices also lifted substantially up 96.5 percent. China Development Bank was determined to buy more Barclays shares, ignoring market uncertainties. Merrill Lynch warned of risk growth in 2009.

By LIU YUNYUN

Chain Effects of Oil Price Hikes

Chinese mainland refined oil price hikes have caused a series of chain effects on both major oil consumption enterprises as well as people’s lives, resulting in jitters about inflation.

Beginning on June 20, the benchmark gasoline and diesel oil retail prices were marked up by 1,000 yuan ($145) per ton, while the price of aviation kerosene was up by 1,500 yuan ($218) per ton.

The Central Government controls refined oil prices. The last time such hikes took place was last November, when international crude oil price reached around $90 per barrel. The international oil price has surged nearly 50 percent since then.

Inflation is expected to go up along with oil prices. Merrill Lynch & Co. Inc.published a report on June 20, arguing that, although the National Development and Reform Commission (NDRC) forbids price increases in public utilities and taxies, the impact of such hikes will be quickly passed on to consumers through other channels, especially food prices in urban areas. Merrill Lynch thus raised its annual consumer price index inflation forecast in 2008 to 7.5 percent from the previous 6.9 percent.

Impact on listed companies: Share prices of two mainland oil giants-China Petroleum & Chemical Corp. and PetroChina Co.-climbed upon the news. The markets expected the price hikes would cover some of their losses in the refined oil section, though it was still one third less than that of the international prices.

Other A-share listed companies were not so optimistic. Some complained the price hike would push up their production costs, and pose a negative impact on their revenue. For instance, Jiangsu Qionghua Hi-tech Co. Ltd. published a notice on June 23, noting this round of price hikes would add 1.15 million yuan ($164,000) to their costs in the second half of this year.

On airlines: Chinese airlines will have to bear the biggest burden. Tianxiang Investment Consulting Co. Ltd. estimated in its June 20 report that airlines’ profitability will deteriorate. The whole aviation industry is expected to spend an extra 10 billion yuan ($1.43 billion) on fuels. Earnings per share of Air China Co. Ltd., China Southern Airlines Co. Ltd., and China Eastern Airlines Corp. Ltd. will go down 0.15 yuan, 0.75 yuan and 0.45 yuan respectively, according to Tianxiang Investment Consulting.

However, National Business Daily cited an anonymous NDRC official stating that the government would come to the rescue. It was reportedly to raise fuel surcharge up to 50 percent of the original prices to offset losses incurred by airlines. Tianxiang argued the surcharge hike could only cover 60 percent of the cost surge.

On public transportations and railways: The prices of public transportation, taxi and railways were forbidden to rise, according to an NDRC emergency notice on June 23. It ordered local governments to strictly check the chain effects of oil and electricity price hikes.

The NDRC urged operators to find other ways to increase profitability, and vowed to cut tolls for vehicles carrying agricultural products.

Compromising on Iron Ore

China’s leading steel mill, Baosteel Corp. Ltd. agreed with Australian suppliers to an increase of 96.5 percent on iron ore prices, much higher than the 65-71 percent increase set with Brazilian suppliers. The agreement was reached after months of arduous negotiation as suppliers required higher freight fee.

Analysts expected the earnings of Chinese steel mills would go down, but the mills would quickly pass the cost surge onto consumers to offset the rising cost. The move would eventually jack up the runaway inflation.

Baosteel agreed on June 23 to pay 96.5 percent more to Australian Rio Tinto’s Pilbara Blend Lump for 12 months beginning April 1, 2008. In February, Baosteel had agreed to pay 65-71 percent more to Brazil’s Cia Vale do Rio Doce for ore fines.

The Australian side argued the shipping cost from Australia to China was much lower than that from Brazil to China, thus demanded a higher shipping fee from the Chinese side.

Baosteel stated in a notice to Xinhua News Agency that the iron ore price was set after “friendly negotiation,” and showed “both sides’ commitment to safeguarding sound market order and maintaining long-term friendly cooperation.”

Major suppliers are calling the shots in deciding iron ore prices, posing enormous pressure on domestic steel makers. Judging by Japanese experience, the Chinese companies should buy stocks and aim to become one of the major shareholders of suppliers, therefore they will be able to share the profit of rising iron ore prices, said Shan Shanghua, Vice Secretary of China Iron and Steel Association.

CDB Defied Market Turbulence

Amid global financial market turmoil, China Development Bank (CDB) stated it would increase its presence in the British bank Barclays Plc by acquiring more of Barclays shares.

Barclays, Britain’s fourth largest lender, announced on June 25 it would raise approximately 4.5 billion pounds ($9 billion) through the issue of 1.58 billion new ordinary shares.

CDB did not reveal how much more it would spend on Barclays. But a CDB official said the decision was aimed at consolidating the bank’s position as Barclays’ biggest shareholder and showing its confidence in the British bank’s strategy and prospects, according to Xinhua News Agency.

Barclays Chief Executive Officer John Varley said in a press conference he would use half the proceeds to bolster the bank’s capital adequacy, while the rest will be used for other business opportunities, including possible acquisitions, increasing consumer lending in Asia, and investment banking in the United States.

However, the depressing international financial markets had increased uncertainties for this transaction. CDB became a major shareholder of Barclays last year, and is now holding 3.1 percent of Barcalys’ shares. CDB bought Barclays shares at about 7.2 pounds, but the latter’s share prices has dropped half to around 3.3 pounds at present.

Xi Yangjun, financial professor at Shanghai University of Finance and Economics, believed it was a golden opportunity to buy Barclays shares. “The bank’s share price is at a very low level, mainly because of the subprime mortgage crisis. But the bank’s internal management did not show any problem,” said Xi.

Easing Energy Tension

China’s first coalbed methane (CBM) pipeline is expected to function at the end of this year, after which CBM will run from Shanxi Province to the east part of the country.

China National Petroleum Corp. (CNPC) announced the pipeline, 35 km long, would be capable of carrying 3 billion cubic meters of CBM each year.

CBM is a new energy source with no pollution and high in caloric value. It is a form of natural gas extracted from coal beds. In recent decades it has become an important source of energy in the United States, Canada, and other countries.

CNPC stated that natural gas supplies will fall 60 billion cubic meters short of demand in China by 2010. “The project will make use of CBM in a more economic way and supplement sources for the west-east gas pipeline and ease the gas supply strain,” CNPC said in a public statement on its website.

From BEIJING REVIEW:
http://www.bjreview.com/business/txt/2008-06/30/content_130473_2.htm

Chinese shares tip into a bear market

Chinese shares tip into a bear market

The Shanghai stock exchange suffered another major fall on Wednesday, closing down 4.3pc to bring the declines over the past two weeks to around 20pc, a technical bear market.

By Malcolm Moore in Shanghai
Published: 11:10AM BST 19 Aug 2009


A Chinese investor monitors screens showing stock indexes at a trading house in Shanghai on August 19, 2009. Photo: AFP

Until this month, Shanghai had been the world's best-performing stock exchange, recording a rise of 89pc as money poured into the market from China's fiscal stimulus policies.

Banks loaned more than £700bn in the first half of the year, and analysts believe a sizeable proportion of that cash flowed directly into speculation. Even after the latest reversal, Shanghai is up some 53pc this year.

State-owned behemoths led the declines, with Baoshan Steel dropping 7.18pc to 7.11 yuan and Angang Steel falling 6.23pc to 13.25 yuan.

PetroChina, China's largest oil producer, fell 2.33pc to close at 12.99 yuan.

China's enormous banks are also reporting interim results this year, and analysts believe their revenues will be down because of lower interest payments.

Property shares were also hit by fears that the housing bubble may also pop. Vanke, the country's largest developer, fell 5.58pc to 11 yuan.

Investors, who maintain a firm belief that the Chinese government will intervene to prop up the market, took flight when no such relief appeared. The only sign of government aid came in the form of editorials in three influential newspapers, talking up the benefits of buying shares.

"Investors are disappointed that regulators failed to take any concrete steps to support the market," said Chen Huiqin, at Huatai Securities.

Chinese institutional investors are also cashing out, in the hope of finding better returns elsewhere after Shanghai's phenomenal rise, according to Zhang Suyu, a strategist at Dongxing Securities.

Other analysts said the falls in the market did not reflect the health of the broader Chinese economy. "Rocketing and slumping has always been a characteristic of the market. It took only one year for the index to rise from 1,664 to 6,124 points and vice versa," said Dong Dengxin, a professor at Wuhan Science University.

The Shanghai exchange is all but closed to foreign investors, while Chinese investors have few other options to place their money, since they cannot buy overseas shares. Consequently, the exchange remains extremely volatile, according to local brokers.

How We Tripled Our Money in a Year

How We Tripled Our Money in a Year
By Tim Hanson
June 24, 2009


This past year was an exciting one to be an investor. At one point in March, stocks were down well more than 50% from their 2008 highs. Yet amid this chaos, we at Motley Fool Global Gains identified a promising small company with a strong and growing core business that was selling for a dirt cheap 4.5 times earnings.

Since we recommended that stock to our members in October 2008, it's returned more than 200%. During that time, it has also listed on a major exchange and vastly expanded its production and distribution capacity. Thus, even though it's not quite the deal we got back in October, the stock remains on our Best Buys list.

But before I get to the stock, I want to tell you how we found it and provide a few points that can help you identify similar things for yourself.

You find what you're looking for
You may have heard (sometime, somewhere) that the market is efficient. That means that at any moment, all of the available information on a stock has been incorporated into its price. While I believe that's generally true, I don't believe it's true all the time. What's more, it's less true in certain market segments than others.

For example, take a popular U.S. megacap like Apple (Nasdaq: AAPL). It's tracked by 45 sell-side analysts, has earned a rabid following of fans and detractors, and everything from its products to the health of its CEO are reported on every day in the media. This, in other words, is a stock whose price is largely efficient. If you choose to buy or sell Apple stock, you're likely not doing so with any kind of informational advantage over your counterparty.

That, however, is less likely to be the case if you're buying and selling stocks that most other market participants aren't even paying attention to. Specifically, that's small stocks, foreign stocks, and especially small and foreign stocks.

Which brings me back to my story
The stock we discovered at Global Gains that's more than tripled in less than one year is a small Chinese fertilizer company called China Green Agriculture (AMEX: CGA). In hindsight, at less than 5 times earnings last October, it looked like a clear winner. The company's organic fertilizers were coming into favor as the government encouraged farmers to increase food production without a destructive environmental impact. Further, government efforts to aid rural farmers were giving those farmers -- China Green's customers -- increased purchasing power. Finally, there was a clear catalyst in the new 40,000-metric-ton manufacturing facility that the company planned to open with the capital it raised in a private placement.

Yet the market either wasn't paying attention here, or it was far too focused on the perceived risks of investing in China Green Agriculture. Those included a very short track record as a public company, an over-the-counter stock listing, and no permanent CFO.

How, then, were we able to get comfortable with recommending China Green's stock?

Elementary, my dear Watson
The simple fact is that we traveled to Xi'an, China, last June, and spent two days visiting with the company and touring its R&D and production facilities. We talked extensively with management about their plans for the future and their perceived market opportunities. And we got answers to every question we had about the company.

This doesn't mean we walked away 100% confident. After all, a company visit, while an important part of our research process at Global Gains, will never reveal the full story. But the visit enabled us to get comfortable enough to recommend that our members buy shares at less than 5 times earnings within the context of a diversified portfolio.

And the result speaks for itself. Not only is it up more than 200%, but it's outperformed other well-known China plays, such as PetroChina (NYSE: PTR), Baidu (Nasdaq: BIDU), and China Mobile (NYSE: CHL), as well as other well-known fertilizer plays, such as PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS).

Your takeaway
Now, you may not have the resources to travel to China to check up on all of the small, cheap, and fast-growing companies there that you may be interested in owning. But short of that, the lesson is that the only way you're going to be able to take advantage of the inefficiencies that exist in the stock market is by doing an extraordinary level of due diligence. That means going through the filings with a fine-toothed comb, checking up on a company's auditor to make sure it has a good reputation, and doing extensive analysis of the numbers to make sure they're good, but not too good to be true.

Yet if you can make company visits a part of your research process, I encourage you to do so. We travel to China each and every year with Motley Fool Global Gains and have found that it's the best way to identify both the most promising ideas as well as potential disasters.

In fact, we're headed back to China in July to meet with more than a dozen promising names in cities such as Shanghai, Xi'an, and Harbin. While we may not find another company that will triple our money in less than a year, we do believe our intelligence from the ground gives us -- and can give you -- an advantage in the market.

Tim Hanson is co-advisor of Motley Fool Global Gains. He does not own shares of any company mentioned. China Green Agriculture is a Global Gains recommendation. Apple is a Stock Advisor pick. Baidu is a Rule Breakers selection. The Fool's disclosure policy is Zen.

http://www.fool.com/investing/international/2009/06/24/how-we-tripled-our-money-in-a-year.aspx

The recent commodity story has been all about China

A new period has emerged over the last few years. Growing economies, particularly China, have experienced strong growth and inflation simultaneously. They have tolerated inflation, and let growth rage on. Commodities have had a renaissance. There has been debate about whether China will try to cool inflation, but in the meantime, commodity prices have soared as the hungry dragon searches the world for raw materials.

----

For instance, you could have bought Australian dollars in 2003 as a kind of commodity play.

• The widespread view then was that Chinese demand for commodities would drive prices higher, and that Australia was well placed to benefit as a supplier.
• There were other things in favour of the Aussie dollar, such as strong growth and relatively high interest rates, which gave added confidence.

You would have done well during this perid, given the usual lacklustre environment for trading in commodities.


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Long periods of high growth and high inflation are rare
The recent commodity story has been all about China
Warning: Watch out for US dollar exposure in commodities trading

A 'Copper Standard' for the world's currency system?

A 'Copper Standard' for the world's currency system?

Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.

By Ambrose Evans-Pritchard
Last Updated: 2:41PM BST 16 Apr 2009
Comments 83 Comment on this article

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

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"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.

The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.
If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.

Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.

While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.

One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html

China sees opportunity in failure

China Business
Mar 19, 2009



China sees opportunity in failure
By Antoaneta Bezlova

BEIJING - Differences between the United States and Europe over how to restore global economic growth have given rise to speculation here on whether a failure to agree on a grand strategy at the upcoming Group of 20 (G-20) summit might create room for China to assert its national agenda.

"It is well remembered that the collapse of international talks at the 1933 London summit laid the foundation for the US's consequent emergence as a dominant financial power," said an editorial in the China Business News at the weekend.

"With the US-based financial system facing unprecedented challenges, could a failure at the upcoming London meeting serve



to advance China's aspirations for the creation of a new financial order?" the editorial asked.

Officially at least, China has declared low expectations regarding the outcome of the April 2 summit of the leaders of the G-20 countries. Wu Xiaoling, former vice governor of the People's Bank of China, told a financial conference in Shanghai at the weekend that the summit was unlikely to bear much fruit.

"It is impossible for any concrete agreements to be reached at the G-20. We should not put much hope on it," Wu said. "That's why we should have our voice heard."

Low expectations aside, Beijing has invested substantial effort in preparing for the global summit. Officials from the ministries of Commerce and Finance, the Central Bank and the banking regulatory commission have been dispatched to London since early March to forge and present a united strategy at the meeting.
Divided into working groups, they have been laying the ground for China's participation in sweeping talks, including reform of the International Monetary Fund (IMF) and other multilateral bodies, the size and timing of coordinated stimulus measures and the inception of a global regulatory system.

Indications of China's stance came during the weekend's meeting of the G-20 finance ministers' preparatory to the April 2 summit. Finance Minister Xie Xueren called on the global community to accelerate the reforms of international financial institutions and to build a new financial system, which is "fair and square, compatible and orderly".

Speaking from Shanghai, Wu Xiaoling echoed Xie's statement, saying developed nations should shoulder greater responsibility in protecting the interests of developing countries and give emerging economies more power in international bodies like the IMF.

"The IMF should increase the share from emerging economies, and treat all members equally," Wu said. "A new set of rules should be set up to regulate the world economy, with a focus on global superpowers."

The meeting of the G-20 finance ministers revealed also the scope of existing disagreements between the US and Europe. US officials, backed by Britain and Japan, are seeking to line up global support for more government-backed stimulus measures.

European nations, though, are wary of such debt-fueled stimulus measures and have pushed for more regulation and oversight to prevent further deterioration of the global economy.

The split between the US and Europe and the deepening economic downturn have provided a distraction from the debate about China's role in creating global economic imbalances that had dominated economic circles in late 2008.

But to China's chagrin, the divergence of opinions has also pushed the summit agenda towards discussing an increase in financing to the IMF, instead of debating the much-anticipated reform of the financing body.

"What should have been the core issue of the summit - how to reform the IMF - has now been left by developed nations to fall by the wayside," Xu Mingqi, economist with the Shanghai Academy of Social Sciences, told the financial conference.

Xu argued that instead of debating how to redistribute voting rights inside the body, world leaders should decide on the creation of a monetary mechanism to be applied to countries issuing hard currencies that would work to protect the interests of global investors.

A similar concern was voiced by Chinese Premier Wen Jiabao during his once-a-year meeting with the press last week. Wen said he was "worried" about the safety of China's assets in the US, and asked Washington to provide guarantees that it would protect their value.

China is the largest holder of US Treasury bonds. As of December 31, the volume of the country's investments had reached US$696 billion.

While China also grapples with the implications of slumping global demand for its export-driven economy, Beijing sees the crisis as an opportunity to advance its own priorities of raising the country's global profile and acquiring more say in international financial institutions.

Over the past few months, Beijing has taken the first steps towards transforming its controlled, partially convertible currency into a regional currency by pushing loans and some trade settlements in yuan across Asia.

At the same time, China has said that it would use its huge foreign exchange reserves to contribute to the bailout fund of the IMF on the condition that its share of voting rights in the international body is increased.

Currently, the voting rights of the BRIC countries, namely Brazil, Russia, India and China, in the IMF are 9.62% of the total, together accounting for about half of the voting rights that the US holds.

Some Chinese economists have cautioned against committing any funds to the IMF before the removal of the US's right to veto in the IMF.

"Even if China decides to inject a large sum of money, it is pointless to increase its weight in the international financial organization," Yu Yongding, president of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, told the China Daily. This is because the US holds veto rights in the decision-making process of the IMF.

But other experts see more room for advancing China's priorities by cooperating directly with the US. "In solving the crisis I would place more hope in the G-2, or the US and China, rather than in the G-20," said Liu Yuhui, economist at the Institute for Financial Studies of the Chinese Academy of Social Sciences.

"I expect few concrete results to emerge from this G-20 meeting," Liu said. "Currently, the IMF is an institution of rigidly allocated financial power and it would take a long time to change the status quo."

(Inter Press Service)


http://www.atimes.com/atimes/China_Business/KC19Cb01.html