Sinomania!

A vaccine for swine flu H1N1 virus developed by Sinovac Biotech was approved by China's drug regulators. Sinovac says it is the first tested swine flu vaccine in the world. Sinovac shares trading on the American Stock Exchange (AMEX: SVA) are up over 40% on the news.....

The landslide victory of the Democratic Party of Japan (DPJ) over the Liberal Democratic Party (LDP) cannot be overlooked. One party rule has ended in Japan. The LDP has run Japan since 1955 not long after the USA ended its occupation. The DPJ has a long history of relations with China. The man most likely to be the new Japanese Prime Minister, Yukio Hatoyama, said on the campaign trail he would not honor Japan's World War II dead (considered war criminals by many Asian nations) at the Yasukuni Shrine, long a point of contention with Beijing. And Hatoyama has said he wants to emphasize Sino-Japan ties and views the future as a multi-polar world. Are the days of the reliable Japanese satellite waning for the USA....?

Beijing's Civil Aviation Administration authority approved 270 direct flights (non-charter) between Taiwan and China on 32 routes covering most of the country and as far inland as Chengdu, Sichuan. The flights were anticipated and the move is a major step for cross straits peace.....

As with the border between USA and Mexico, drug wars in Burma or Myanmar are leading to violent clashes and refugees. Back in 2002 the military of Burma's ruling junta cracked down heavily on poppy growers and related drug refining in the autonomous Shan state along the border with China and Thailand. After fields and villages were destroyed the opium business moved into the Eastern Shan area.

Eastern Shan is ethnically Chinese and its most powerful resident is a man named Sai Leun aka Lin Mingxian, a former Red Guard under Mao, called by some Western Press a Chinese drug lord or "warlord." He is head of an entity called the National Democratic Alliance Army-Eastern Shan State (NDAA-ESS) which just celebrated a 20 year cease fire with Burma's central government. The most powerful militia group in Shan is the United Wa State Army (there is no Wa state) with perhaps as many as 20,000 soldiers. The Wa are in a standoff with the ruling junta. Interestingly, Eastern Shan has (or had?) the highest concentration of pro-junta militias. Its primary town is Mung Ton said to be a haven for drugs and prostitution frequented by Chinese tourists.

There is legitimate trade in the region. Part of Shan state is juxtaposed between China (Yunnan Province), Laos, and Thailand. Just this week a Chinese envoy from neighboring Xixuangbanna autonomous prefecture (famed for its elephants and a popular tourist park) was sent to the region to discuss the recent run up in transit fees being charged in the Shan state. There is a larger effort guided by Beijing to increase trade in the region. A possible Kunming to Chittagong railway (discussed earlier on this blog) could go through the Shan state. And a gas pipeline under development by Korean multinational Daewoo, China National Petroleum Corp., and others, may go through northern Shan state. And several dam projects along the Salween River are planned for Eastern Shan.

Yunnan Province is relying on increased energy projects, transport links, and trade through Burma for future growth with the full backing of Beijing. Instability and chaos on the border will only setback these efforts. Beijing has sent troops to the border and a "senior diplomat" to confer with the ruling junta.

Much of the information in press coverage of this crisis originates with the US Campaign for Burma and the Shan Herald News Agency (shanland.org). Both are funded (in part) by Washington's National Endowment for Democracy (NED)....

Wang Jianzhou, the Chairman of Hong Kong and New York listed China Mobile (NYSE: CHL) is making an emperor-like inspection tour of Taiwan and has met or will meet soon the heads of all Taiwan telecom and high tech majors (Chungwha Telecom, Acer, HTC), signed agreements to develop 4G technologies, and a contract with Taiwan pop star Jay Chou to be the company's spokesman. And a meeting with Taiwan vice economic minister may occur. China Mobile is still waiting for Taiwan's approval to acquire a stake in Far EasTone Telecom. The company is also not denying that it is pursuing a domestic Shanghai share listing next year to raise more funds. China Mobile is the largest cell phone company in the world in number of subscribers....

Chinese imports of Russian crude oil rose 30% in the 2nd Quarter and were up 37% Year-on-Year to around 347,000 barrels/day.

Meanwhile the East Siberian Oil Pipeline is on schedule with the Skovorodino to Daqing (China's biggest oil refining center in Heilongjiang Province) link expected to go online October 2010. [corrected text:] It is anticipated that the pipeline will have a capacity of 15 million tons of crude oil a year when it is fully operational....

Pakistan Railways Minister Haji Ghulam Ahmad Bilour says the government of Pakistan has awarded a 72 million rupee (just under $1 million US dollars) contract to an "international consortium" for a feasibility study of the China-Pakistan railway connection project. Minister Bilour's predecessor said much the same thing back in 2007. But no progress was made.

The Pakistan-China rail link envisioned will connect Havelian north of Islamabad, the northern limit of Pakistan's railways, 750 kilometers (approximately 466 miles) to the Chinese border. The railway would roughly follow the Karakorum Highway through territories plagued by separatist violence.

A bigger hurdle may be on China's side as the railway must go through the Khunjerab Pass at 4,693 meters or over 15,000 feet. But China accomplished a similar engineering feat when it built the world's highest railroad - the Qinghai-Tibet passage. To complete the connection to the Chinese railway network will require approximately 350 kilometers or 218 miles of track from Kashgar - the fabled "gateway" to China - to the border.

Pakistan's railways are now connected to Europe through Iran. A freight train carrying 20 containers left Islamabad on August 14 - the inauguration of the Islamabad-Tehran-Istanbul rail service. The train arrived in Turkey yesterday (August 25). With the Pakistan-China border connection, Chinese exporters could use the route as a land bridge for goods from western China as an alternative to loading containers onto ships at Gwadar Port. Such a scenario may explain Beijing's decision to shelve development at Gwadar for the time being.

According to the Associated Press of Pakistan, the Dong Fang Electric conglomerate headquartered in Chengdu, Sichuan, has an agreement to build the rail link with Pakistan Railways. Dong Fang already has two branch offices in the country....

Concerned about overcapacity and overinvestment in certain sectors, Beijing has put the following industries on notice: steel, cement, plate glass, coal chemical, poly silicon (the key component in solar panels), and wind power. All will be "guided" by relevant government departments in the following areas: market access (share issues & loans), land use (access and sales), and environmental supervision (pollution control). Lately, overcapacity in the solar sector has been an issue globally with excess supply bringing down prices. Look for greater consolidation in these industries and with luck the grooming of major potential Chinese multinational corporations.....

The GM board rejected the latest deal of the Opel sale to the Magna offeror much to Berlin's chagrin. Now it appears all parties are back in negotiations but rumours are rife that GM may actually try to keep Opel and raise cash by leveraging or even selling its assets in China. The recent round of manager shuffling at GM China certainly leads one to believe that direction of GM's most profitable and important component is unclear. Despite the drama in the executive suites, GM China continues to advance. Only 2 weeks ago GM celebrated its one millionth vehicle sale in China....

Speaking in Beijing on a tour with the American Foreign Policy Council, former US House Speaker Newt Gingrich emphasized the need for USA and China cooperation in global affairs, according to Xinhua reports. Mr. Gingrich is thus entirely in agreement with the revised Obama policy on China. In 1997, just a few months before the showy Hong Kong "handover", Newt made a point of confronting Beijing over Taiwan. Are neoconservatives losing their sinophobia?

Beijing's mammoth South-to-North Water Diversion project is reaching a critical point in the Central route. Farmers and villagers - up to 23,000 people - in the area around the huge Danjiangkou Reservoir are being relocated to new townships. The reservoir is the water source for the Central route of the water diversion project that will take Yangtze basin water northward to parched north China. The Eastern route will utilize much of the old Grand Canal built centuries ago by Chinese to facilitate trade and distribution more than water supplies. A Western route that would transfer headwaters of the Yangtze to that of the Yellow is still under exploration. Water may well become one of the most valuable commodities in the future and Beijing's efforts to alter its complex hydrology could have a big impact on China's future....

The Wall Street Journal is reporting that the chairman of BYD group (part owned by Warren Buffet) says the company will bring the electric vehicle (EV) sedan, the e6, to the USA in 2010. The first production run will be limited and the car will retail around $40,000 (US dollars) with a range of 249 miles/day....

Chinese and Danish chemists in a collaboration between the Chinese Academy of Sciences and the Nano-Science Centre of the University of Copenhagen have created "nano-chips" that use nano wires created from organic and inorganic materials. The new material is a replacement for silicon and the nano-chips appear to be an improvement upon silicon-based microchips. China is fast emerging as a major global innovator in nano technologies....

Factory orders are back up in the Pear River Delta of Guangdong/Hong Kong and the Shenzhen Labor and Security Bureau says the city has 60,000 unfilled factory jobs. Earlier this year Beijing urged provinicial and county level bureaucrats to encourage migrant workers to stay home to avoid high unemployment and unrest in China's big cities. Now some areas (labor shortages are also reported for Wenzhou, Zhejiang) need low-skilled workers back. Is this a sign that the Chinese boom is sustainable? Former Morgan Stanley analyst Andy Xie, famous lately for his bear-case scenarios, says much is at stake and China could be heading for a fall if structural change doesn't come to China and its co-dependent cousin USA....

The Mexican government announced this week that the mega container port envisioned for Punta Colonet on the Baja Norte coastline about 150 miles south of San Diego will begin development this year, possibly within a month. The port aims to rival LA/Long Beach as a hub for Asian imports.

Hong Kong ports conglomerate Hutchison-Whampoa (0013.HK) (majority share owned by billionaire Li Ka-shing) and Union Pacific Railroad planned to jointly develop the port with Mexico but that deal fell apart in 2007. The Panic of '08 threatened to kill the port plan altogether.

Details on what private-public partnerships may arise at this date are unknown but the Mexican government says it is committed to build extensive infrastructure. The operator of the port will be revealed in December 2009. Will it be Hutchison-Whampoa? The company already operates at 4 Mexican ports and is famous for its concession to operate the Panama Canal.....

Prior to its acquistion of failed auto maker Chrysler's assets, Italian auto major Fiat entered into a joint venture with rising Chinese auto company Guangzhou Auto. Today it is revealed that under this JV Fiat will build Chrysler Jeep Compass SUVs in the city of Changsha. In other China auto news, Changan Auto will build a third production plant in megacity Chongqing to expand its Changan Ford Mazda partnership....

A report by McKinsely & Company consultants urges outright cooperation between the USA and China in clean tech efforts particularly electric vehicles, solar power, and carbon capture. As readers here know, Sinomania! has urged convergence between the globe's most dynamic giants from its inception....

Australian Minister for Resources and Energy Martin Ferguson announced today in Beijing a $50 billion (Australian dollars) liquified natural gas (LNG) deal that will unite PetroChina and ExxonMobile to exploit the giant Gorgon gas fields off the western Australian coast. In the trade deal, ExxonMobile will supply PetroChina with 2.25 million metric tons of gas a year for 20 years. The Gorgon gas fields have been under exploration and development for many years and considered the largest resource project in Australia. Gorgon lies just offshore Barrow Island, a protected natural reserve with unique species. Environmental hurdles are to be expected....

Hardly. After gaining almost 100% this year (at least in terms of B Shares), the Shanghai Composite has fallen 16% this month including two big drops Monday and last Friday that shocked watchers. The question is though why were so many shocked? Roller coaster rises and dips are to be expected with Shanghai where most of the action is domestic anyway. The top Qualified Foreign Institutional Investors that are allowed to own and trade domestic Shanghai shares - the bulk of the market - have invested around $11 billion only in an exchange valued in the trillion$. Many analysts now believe Shanghai will sink again. If so I think the Shanghai Composite could settle back to the 2K to 3K range. Overall though, not good news for the global economy....

President Obama has tasked the National Economic Council and the National Security Agency with a review of the USA's export control system. The Aerospace Industries Association welcomed the news and will work with the effort. Readers will recall that during the USA-China Strategic and Economic Dialogue lessening restrictions on certain high technology products (super computers, satellites, etc.) exports to China was discussed. The effort is a first step in undoing the restrictions placed on exports to China during former President Clinton's first term in response to the shameful Cox Committee investigations into whether technology "secrets" had been given to China.

Exports of high-value technology products to China could well become a potentially huge and lucrative new market for an American industry that still has an advantage and help close the gap in the US-China trade deficit....

The Pakistan Business Recorder says a Chinese delegation that recently visited Islamabad formally told Pakistan that the Coastal Oil Refinery project at Gwadar port was off the list of investment targets through June 2010. Additionally, without the refinery, Beijing has shelved plans for a pipeline and transit corridor from Gwadar to the Karakoram Highway at the Chinese border.

The announcement is a major blow to Pakistan's plans to develop volatile Balochistan province and provides proof to foreign investors that Pakistan is in danger of "failed state" conditions.

For Beijing, the decision to slow or even halt developments at Gwadar is a setback for China's desire for a shorter and safer route for Persian Gulf oil into western China and a potential outlet to emerging markets in the Middle East and Europe for Chinese goods as manufacturing migrates to the Chinese interior.

Overall, the decision to pull out of Gwadar reflects the current financial conditions and the regional instability due to the Obama surge into Afghanistan....

According to reports today China Unicom (NYSE: CHU) ordered iPhones valued at nearly $1.5 billion (US dollars) and will make the iPhone officially available to its subscribers in September. The iPhones will use standard WCDMA with 3G connectivity.....

GM will export mini-vans made by its joint venture with Shanghai Automotive (SAIC) and Liuzhou Wuling Auto branded Chevrolet in a new agreement to markets in Latin America, the Mid East, and north Africa. Since mid 2008 Wuling N200 vans have been exported to Peru as Chevrolets. According to one report, 150 China made Chevrolet vans left port of Guangzhou today....

State controlled oil giants Sinopec of China mainland (NYSE: SNP) and Chinese Petroleum Corp. of Taiwan are teaming up for oil exploration and development off Australia. Units of the two oil majors are already jointly developing an offshore area in the Taiwan Straits.

Meanwhile, oil prices spiked up on news of all-time record imports of oil in China to 4.6 million barrels/day in July....

The WTO released its official dispute recommendations (details here) on a trade dispute brought by the USA over China's restrictions on audio-visual and printed publications. The results overall are mixed - the WTO did not agree with USA claims on printed materials. But Hollywood is claiming a significant victory in its desire to expand and control distribution of movies in China. Given the popularity of Hollywood films among Chinese - the new Harry Potter flick was debuted for the first time in China simulataneously with its American release and Transformers 2 has broken box office records in China this summer - Hollywood may have good reason to celebrate.....

The 13th China-India meeting on disputed borders drew little interest let alone new borders on the maps of either nation. Despite increasing trade ties and on-going top-level talks at international summits such as the Shanghai Cooperation Organization Chinese and Indian positions on borderlands with Tibet remain unresolved. Public opinion on both sides is heated even though the borders themselves are a legacy of the British Empire....

The National Energy Administration in Beijing plans massive wind power installations by 2020. The first such wind farm of 10 Gigawatt capacity in Jiuquan, Gansu Province, near China's first (founded 1958) and most famous space center, is underway with Huaneng Power and several other companies - including foreign businesses - involved.

Meanwhile, Huaneng Power (NYSE: HNP) and Duke Energy signed a non-binding memorandum of understanding in Beijing for collaboration in clean coal, carbon capture, energy savings, and renewables. The venture opens the door for Huaneng investments in the USA.

In related news, GE will sell 9 gas turbines to a Fujian power company for over $100 million (US dollars). GE manufactures the gas turbines at plants in South Carolina and France....

China Mobile (NYSE: CHL), the world's largest mobile phone operator, and Lenovo (formerly IBM PC unit) will begin sales next month of the "O" Phone - a Chinese version of the iPhone that uses the China developed TD-SCDMA 3G standard. Details on the "O1" can be found at the link.

China Unicom (NYSE: CHU) and China Telecom (NYSE: CHA) offer 3G services that use international standards and handsets. Executives of Apple are in China this week to negotiate the long anticipated debut of the iPhone in a partnership with China Unicom....

In another example of economic and financial cooperation between Beijing and Taipei, China UnionPay atm and credit cards will be accepted on Taiwan with a swiping ceremony possibly tomorrow (Friday). UnionPay is China's monopoly card issuer and has a growing network of ATMs around the world.....

The USA Treasury will sell $75 billion in bonds next week and has promised to include more TIPS or Treasury Inflation Protected Securities. Speculation is that Beijing requested (demanded?) more TIPS in the mix of sales although Treasury refuses to comment when pressed as to whether China was behind the new emphasis on longer term TIPS including the possibility of 30 year bonds.

Meanwhile gold output rose over 13% in China for the 1st Half of 2009 to 146.5 tons. It is widely believed that Beijing buys most if not all domestic gold production. That leaves open speculation that Chinese gold reserves have grown by over 146 tons already this year....