December 31, 2008

China to Build 5 High Speed Rail Lines in 2009

Xinhua is reporting that Beijing will spend nearly $88 billion (US dollars) on railway projects for 2009, double the rate of 2008. New rail projects include 5 passenger-dedicated high speed rail lines:

These rails will link the central city of Wuhan to the southern city of Guangzhou; Zhengzhou in central Henan Province to Xi'an in northwest Shaanxi Province; Ningbo to Wenzhou, both in east China's Zhejiang Province; Wenzhou to Fuzhou in southern Fujian Province; and Fuzhou to Xiamen, also in Fujian.

High speed rail will then link Xiamen - entry point to and from Taiwan - all the way to Ningbo, itself connected to Shanghai by a new massive bridge. The choice of these rail links seems specifically designed to hasten the economic integration with Taiwan.

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Hamas Using Chinese Missiles?

So says Israeli General Benr-David according to an Internet source. The allegation is that Chinese rockets developed but not put into production by Sichuan Aerospace have somehow fallen into the hands of Hamas insurgents in the Gaza Strip...

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December 30, 2008

China Steel Continues Consolidation

The Hebei Iron & Steel Group is further consolidating and will now have one listed entity after Tangshan Iron & Steel buys the shares of Handan Steel and Chengde XinXin to form one mega company.

China's steel industry is consolidating as part of a larger plan to center important industries around 1 to 3 core businesses. The overall scheme of the State Council is to corporatize the Chinese economy into a mostly private oligarchy but with significant state control.


December 29, 2008

End of the American Mill Town

In a few weeks the special safeguard provision protecting textile production in the USA will expire on 12/31/2008. The safeguard on textiles allows Washington to put quotas and other restrictions on textile imports from China. It was put into the US-China trade agreement, codified into law as the China Trade Relations Act, in order to placate political interests of Congressmen and Senators from mill town districts where unskilled textile jobs predominate. The textile industry in the USA has had seven years to prepare stategies, improve products, and make adjustments in response to textiles imported from China by American businesses seeking the best price and quickest production. Many if not all USA textile manufacturers will not survive competition from China in a true free trade environment. The American consumer will benefit from even lower prices for textile products. The mill towns of the South and Midwest will either adapt or die out. And that is not a bad thing.

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Burma Gas for China

Offshore natural gas fields being developed by a group of international companies led by Daewoo and including India's Oil and Natural Gas Corp., will be delivered to Yunnan Province of China via a new pipeline. The pipeline will traverse much of Burma or Myanmar and allow the country access to the gas along the way.

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December 26, 2008

Blame China (Again)

The New York Times is laying the blame on the world financial crisis once again on China. Because it is the Chinese saving glut to blame for America's ills. Why, without China saving and investing hundreds and hundreds of billions in the USA, Americans wouldn't have been able to fund destructive land wars in Asia and buy gas guzzlers and marble counter tops for their apartment conversions.
This is an old tired web of deception first postulated before the crisis even hit. It is the sign of strong character to own up to your mistakes. China is not to blame for the current mess in global financial markets. The so-called leader of the 'free' (read: capitalist) world, the USA, needs to focus attention to its own values and the sooner the better.

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December 24, 2008

Yuan Trade Settlement - Big Step Toward Currency Convertibility

Beijing will soon allow several trials of Yuan trade settlement. First trade between the Pearl River Delta megalopolis, China's export powerhouse, and the Yangtze delta region - the "Dragon's Head" of Shanghai. And trade between the Hong Kong and Macau special administrative areas. Additionally, certain businesses in Hong Kong may also settle in Yuan. On the horizon will be a trial to settle trade between Yunnan and Guangxi and ASEAN nations in Yuan. (source:Dow Jones/WSJ)
This is a very significant change and important to watch closely as it represents a first step toward Beijing's plan of turning the Yuan into a regional Asian currency.

In a related move, Beijing will allow Taiwan banks operating on the mainland to offer Yuan services.

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Beijing: More Stimulus Coming

The Standing Committee of the National People's Congress heard today a report from Zhang Ping head of the National Development and Reform Commission. Minister Zhang informed China's legislature that the economic condition of the nation continues to deteriorate and the slowdown has spread from coastal regions to the interior. Exports and investment growth - the biggest levers of the Chinese economy - have slowed rapidly, Zhang confirmed. Business profits and government receipts are dropping.
The report advises China's government that the situation is unprecedented and the outcome not clear. Beijing will respond with an additional stimulus of 120 billion Yuan at the end of the 4th Quarter, a figure that should be matched by governments on the local (county or municipality) level. Much of the stimulus will be used on infrastructure projects and housing for the poor.


December 23, 2008

China Supership Redux

This post is bumped up since the NY Times is now blathering that " If China does decide to build the carrier, it will no doubt increase tensions with the United States, Taiwan and Japan, among other governments," etc.

first posted Nov. 17, 2008

At present the only aircraft carriers in China are old Soviet ships docked in ShenZhen and Tianjin as tourist attractions. But news that a loose-lipped Chinese defense official told foreign reporters that China may build an aircraft carrier of its own someday has some sources buzzing.
Not since the rumours of a mysterious Chinese "supership" in 2001 has there been so much hot air about the looming threat of China's navy. Of course the idea that a single Chinese aircraft carrier perhaps appearing sometime in the next decade could compromise the USA's 11 aircraft carrier battle groups is absurd.

But consider this: the USA military-industrial complex is very concerned about its prospects under President Obama. A China threat scare could help ensure that the new Democratic Party controlled Congress doesn't try to touch the $1 trillion spent each and every year by Washington on defense spending.

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China Review Editor John Powell Dies

John W. Powell died in San Francisco last week at 89. He and his wife Sylvia (who died in 2004) were made infamous in the McCarthy era for alleged sedition against the US military because they published Chinese government reports of germ warfare used on Chinese troops in the Korean War. The Powells published the China Monthly Review in Shanghai (where John Powell was born) until they moved to San Francisco after the Chinese Communist Party solidified control over the country. The charges against the Powells were eventually dropped but the couple were blackballed from journalism work.
The China Monthly Review offered information and views on China outside the purview of TIME magazine founder Henry Luce's media empire. As such the issues remain valuable sources for that misunderstood era. The Sinomania! library has a small collection of China Monthly Review issues.

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China Bank Rates Cut Again

The People's Bank of China cut interest rates 0.27% today but the expected move was not enough to excite equity markets in Shanghai (the Shanghai Composite Index is back down below 2,000) or Hong Kong.

In related news, Beijing is committed to do more to shore up the property market - believed to be the key sector of China's economy right now and critical to avoiding a hard landing of the Chinese economy is a robust property market. Beijing will fund a massive house building campaign - 1.3 million homes for low-income families - similar in concept to Uncle Sam's house building program in the late 1940s. (Source: Bloomberg)

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December 22, 2008

TRADE WAR: Unions, WTO, and Chinese Steel Pipes

For much of 2008 the United Steelworkers union and the following US steel makers: Maverick Tube Corp., U.S. Steel Corp., Tex-Tube Co., TMK IPSCO Tubulars, Northwest Pipe, ACIPCO, and Stupp Corporation, have petitioned Washington for protection against imports from China of specialty steel pipes used chiefly in the oil & gas industry. The US International Trade Commission today granted their wish with a countervailing duty up to 40% on Chinese imports.

Meanwhile, Beijing has requested its first ever prope by the World Trade Organization (WTO) into the matter and on similar duties imposed on certain imports of vehicle tires.

The USW is one of the most vocal critics of trade with China. I suspect that we will see many such trade disputes over the course of the next year in particular and certainly between now and 2013 when the protectionist loophole in the China Trade Relations Act expires.

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China Oil Consumption Falls 3%, Imports Down

NEW YORK (Reuters) - Oil dropped nearly 6 percent to below $40 a barrel on Monday on signs the global economic malaise was slowing fuel demand further. Apparent oil consumption in China fell by 3.2 percent in November from a year ago, according to Reuters calculations, while crude imports into the world's No. 2 energy consumer dropped to the lowest level this year. (source)

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Condi Rice's Last Official Trip: China

Out-going USA Secretary of State Condoleezza Rice will visit China after the New Year to commerate the 30th anniversary of normalized relations between China and the USA. Ms. Rice has not commented on what her final meetings may concern.


December 19, 2008

Beijing Agrees to Hong Kong Stimulus

China's central government will agree to Hong Kong Chief Executive Tsang's requests to ease the financial crisis and stimulate Hong Kong's economy. The Chinese central bank will facilitate currency swaps and existing and new transport infrastructure projects will move forward including the Hong Kong-Macau-Zhuhai bridge, and new railways to further integrate the Pearl River Delta megalopolis.


December 18, 2008

TECRO Top Clinton Foundation Donor

The Taipei Economic and Cultural Representative Office or TECRO, the defacto embassy of Taiwan in the USA, is named as a top donor of the Clinton Foundation in the $1-5 million category. Two businesses based on mainland China also gave but much smaller amounts.

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Gunboat Diplomacy: Enter China

The admission by Beijing's Foreign Ministry that it was seriously considering sending warships of the People's Liberation Army Navy (China's navy) to the Gulf of Aden has certain quarters of the Internet abuzz. Officially the US Navy Command in the Indian Ocean (based in Bahrain) welcomes the help of the Chinese navy to fend off the pirates operating off the long (over 1,800 miles) coastline of Somalia.
A new UN Security Council resolution authorizes cooperation by nations in responding to pirate attacks.

Earlier this month a Chinese cargo vessel, the Zhenghua 4, was attacked by pirates. Approximately 5 Chinese ships enter the Gulf of Aden each day and that number will increase once new port operations at Piraeus, Greece, are complete.

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December 17, 2008

Chrysler China Looking for New Partner After Chery reports on Chrysler China chief inspecting Great Wall Auto and developing plans for a small car and hatchback under Chrysler brand for export markets. China is Chrysler's largest market year-to-date outside North America and sales grew 217 percent to 20,655 units in the first ten months of this year.

Chrysler will shut production at all 30 USA factories next month the company said today. Meanwhile GM and Shanghai Automotive (SAIC) just openend a brand new plant in Shanghai.

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Apple Plans 2009 iPhone Launch in China

Apple may begin offering the iPhone in China sometime next year according to reports using China's home grown TD-SCDMA standard and possibly China Mobile as the carrier. China Mobile has well over 300 million subsribers so this could be big news for Apple.

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December 16, 2008

World Bank's Zoellick: China Must Maintain Growth

Speaking to a crowd of reporters in Beijing, World Bank President Robert Zoellick (former Deputy Secretary of State and Trade Representative in the Bush administration) praised China's efforts to stabilize its economy and said the most important thing China can do in 2009 ("a very difficult year for world economy") is maintain growth. Zoellick is meeting with Chinese officials pressing for continued reform and opening markets.

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Chinese Scientists Achieve Bose-Einstein Condensation

A project team of the Chinese Acadamy of Sciences succeeded in putting ultracool atoms on a chip and achieving Bose-Einstein Condensation (BCE) becoming only the 5th nation in the world to perform this feat. BCE was first recorded in the USA in 1995. China is the second Asian country after Japan to develop the technology. Applications including precise atomic time keeping and quantum information storage.


December 15, 2008

Made in China: World's First Mass Produced Plug-In Hybrid

The Chinese BYD firm, part owned by Warren Buffett's Berkshire Hathaway, unveiled the F3DM in ShenZhen today. Target market currently is fleet purchases by 14 Chinese cities. The car has not yet met the requirements for the highly protected USA auto market but the F3 could appear by 2010 around the same time GM plans to roll-out the electric Chevy Volt.

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Taiwan Reunification Watch - Now Direct Daily Flights

Beijing and Taipei today announced new direct daily flights, shipping routes, and postal links as the 60 year old tension in the Taiwan Straits subsides (source: Reuters).

This situation is similar to Hong Kong after the handover agreement in 1984 when trade ties were growing strongly but exploded shortly afterwards. For example, the China-Hong Kong reexport trade grew from $7 billion (US dollars) in '83 to near $24 billion by just 1987. Today China is Hong Kong's leading supplier and export market.

According to the Reuters link above the value of China-Taiwan trade in 2007 was $90 billion. We can expect this number to swell significantly in the years ahead. Taiwan manufacturers have been relocating production to the mainland for years now and this process will only accelerate with direct links. What we are witnessing is the peaceful process of economic absorption. When (or if) there is ever a political reconciliation between the two rival political parties of the Chinese Republic, it will be an anti-climax just as it was in Hong Kong in 1997.

Seen in the context of the China-Korea-Japan summit this past weekend, it appears that East Asia is coalescing around China.

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As Economy Slows China Speeds Financial Reforms

A noted Chinese economist forecasts economic growth declining in China to the third quarter of 2009.

Over the weekend China's all-powerful State Council released a series of reform measures to the country's financial system.

The headline grabber is an increase of M2 money supply of 17% next year but more important are some rule changes that could boost the Shanghai and ShenZhen stock markets:

New futures in steel and grain

A big push for corporate bonds particularly of companies in infrastructure building and supply. For example, insurance companies are encouraged to invest in such bonds and banks will be allowed to buy and sell bonds offfered on the exchanges.

Creation of Real Estate Investment Trusts (REIT) on a trial basis.

And further reform of the Yuan including trade settlement in Yuan with neighboring countries.

Morgan Stanley in Hong Kong believes the actions taken to date by Beijing will be enough to keep China out of recession but plenty of risks remain.

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December 12, 2008

China-Korea-Japan Summit Opens

An important first step for a self-directed regional integration of northeast Asia began today in the Fukuoka, Japan, with a summit between China, (South) Korea, and Japan.
Topics on the agenda include stabilizing banks, joint oil and gas exploration, and security issues.

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December 05, 2008

Shanghai Disneyland?

The South China Morning Post reported at the start of the week that the all-powerful National Development and Reform Commission will give the green light for a Disney theme park in Shanghai Pudong district -- a concept dating back to at least 1990. Of course the SCMP has a history of news scoops that fail to materialize. But according to the LAT-WP (Los Angeles Times - Washington Post) news service there's plenty of talk on the ground in Pudong. The Walt Disney Company has not confirmed any plan for a Shanghai Disney park.

Paulson In Beijing: US-China Relations "Vital"

BEIJING - In closing remarks today at the 5th session of the US-China Strategic Economic Dialogue, out-going Treasury Secretary Paulson said "the U.S. – China economic relationship will continue to be vital to the health of our two economies and the global economy" and generally praised the cooperative efforts to date between the USA and China to stabilize the global economy in the midst of the Panic of '08.

Several measures were unveiled including a $20 billion committment for each nation's export/import banks to extend credit to worthy importers.

The Strategic Economic Dialogue was started by Presidents Bush and Jiang. It has already lasted through China's presidential transition. Will it survive under President Obama?

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December 04, 2008

China Non-Performing Loans at $185 billion

Months into the Panic of '08 emerges again the meme that China's bad bank loans (AFP) or non-performing loans or NPL will sink the Chinese economy and doom any investor. This is an old line and was possibly relevant at the beginning of 2006 but not now.

By way of comparison, the US banking industry average of non-performing loans to total assets stood at 2.65% at the end of 3Q (September 30, 2008) a substantial increase from the historical trend. If you use data from the Fed (2006 was the most solid I could find) that figure stands around $309 billion. The US Government has committed trillions in liabilities to solve its financial crisis. Beijing is still sitting on the world's biggest heap of dollar bills. I don't see how the non-performing loans in China can be that serious a problem by comparison.

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December 03, 2008

Chinese Car Maker to Buy GM?

According to a blog at the Wall Street Journal, GM is shopping itself to its Chinese partner Shanghai Automotive Industry Corp. (SAIC). Other rumours circulate that Hong Kong listed Chinese car maker Dongfeng may be interested in buying GM. An outright takeover is highly unlikely due to GM retiree's entitlements and Congressional xenophobia but a sale of assets such as Buick is possible. Buick began assembling cars in Shanghai back in 1928 and was one of the first American brands to reenter the Chinese market.

As it stands, GM's China operations are able to fund themselves as they are profitable and the only growth area in the company. GM's joint venture in Shenyang is expanding production to 150,000/year -- not far off the entire monthly production of GM vehicles in the USA.

GM will sell the Chevrolet Cruze next in China and plans to introduce 10 new models by 2010. One way or another GM is turning Chinese.

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December 02, 2008

Remember it was Bill Richardson who Exposed Wen Ho Lee

Obama has named Bill Richardson to be his Secretary of Commerce in the new administration beginning 2009. Lest we forget, it was Bill Richardson who led the shameful anti-Chinese witch hunt against Dr. Wen Ho Lee and fed the American media disinformation about Lee and by so doing undermined his President's own standing with his conservative adversaries and the American people. Richardson is a buffoon who infamously said during his brief run for the Presidency that he believed being gay was a choice. Obama is rewarding Richardson with a position in his cabinet as payback for Richardson's quick endorsement and to pander to latino support of his government.

Looking back on the Wen Ho Lee moment:

The Case of Wen Ho Lee ("Charged With Being Ethnic Chinese," Pacific News Service, 2000)

Watch NORichardson's recap of 60 Minutes Wen Ho Lee expose.

Sign a petition to tell Congress to say NO to Richardson's confirmation.

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New Mega Skyscraper for Shanghai

The construction of the new Shanghai Center mega highrise tower is underway in the Lujiazui area of Shanghai's Pudong district (China's self-styled "Wall Street"). Designed by American A&E firm Gensler, the building will be a staggering 632 meters (over 2,000 feet) high with 121 floors when completed around 2014. The building is already generating controversy and has been criticized in the Chinese press as extravagent and wasteful.

Skyscrapers do tend to follow economic crashes. Big projects take years to plan and finance and often can't be stopped once they are under construction. The Empire State Building in New York City began just months after the 1929 stock market crash. When it was completed a few years later the world was mired in the Great Depression. The building dominated the New York skyline for decades after that and wasn't topped until a generation later. Will the Shanghai Center see a similar fate...?


Place Your Bets! The Track Returns To China

Decades after horse racing and betting was banned by the Communist Party in China, the Orient Lucky City Racecourse in Wuhan - once China's horse racing capital - was given the green light this week for horse racing and wagering on a trial basis. The prizes are lottery tickets but the idea of legalizing horse racing and betting in China is openly discussed. This is another big new trend to watch closely...

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December 01, 2008

ARJ21 is no Y-10

The ARJ21 700 series regional passenger jet produced by the China Commercial Aircraft Corp. or COMAC successfully made its maiden flight test over the weekend in Shanghai. The ARJ21 seats around 78 passengers and already has several orders including a big purchase by GE - the license holder of the aircraft’s jet engines.

This is not the first time the Chinese have made a passenger jet plane. Back in 1980 the Y-10 made its maiden flight and several were produced for domestic use. For years the rumour has been that the Y-10 was a reverse engineered Boeing 707 a model China began buying in 1972. For many reasons some of them political the Y-10 was never successful.

Today the aerospace industry like every facet of Chinese society and economy is profoundly different. State-controlled COMAC, based in Shanghai, is envisioned as traded public company sometime in the medium to long term and plans to focus next on large commercial jet planes similar in size to the A320 or Boeing 737. The roll out for the larger jets is expected sometime between 2016 and 2020. COMAC could become real competition to Europe and Boeing after that.

The ARJ21 sells for about $30 million each and GE says it should be certified for use in the USA as soon as 2010.

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Chinese Volvo?

Ford Motor Company announced today it may sell Volvo as part of its larger strategy to refocus and save its core business. No details were given by Ford but speculation is that a Chinese or Indian or even European firm could acquire Volvo. The Volvo brand is increasing in China and the Volvo S80L sedan was designed specifically for the Chinese market to compete with the Audi A6 the most popular status sedan in the country.

Just 2 weeks ago Chang'An Ford Mazda Auto Corp. broke ground in Chongqing on a new production facility - Volvo's third largest - to make the wheelbase for the new S80 cars. Whoever buys Ford's stake Volvo is likely to become more Chinese in the near future.

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