Sinomania!

China will complete a 3 lane highway in 2010 from Gilgit in the Gilgit-Baltistan area of Pakistan to Sost a town near the Pakistan-China border and the Karakoram Highway. And two new air routes will run from Gilgit and Skardu to Kashgar, Xinjiang. Skardu is a valley town on the headwaters of the Indus River with great agricultural potential. Chinese companies are also busy with several hydroelectric projects in the region. These projects were discussed with reporters by Pakistan's Information Minister Qamar Zaman Kaira who is also governor of Gilgit-Baltistan. A trade show sponsored by the Lahore Chamber of Commerce will open January 4 to showcase the investment possibilities of Gilgit-Baltistan.....

Saudi Aramco will end its lease of 5 million barrels of oil storage capacity at the big Statia Terminals on the Caribbean island Saint Eustatius and word is Chinese oil major PetroChina will take over the lease. Neither PetroChina nor NuStar Energy the Texas based owner of the facility is saying much publicly.

Why PetroChina needs the storage capacity is a matter of speculation at this time but possibly reflects PetroChina's deal last week with Venezuela's national oil company (PDVSA) to buy 500,000 barrels of oil per day. Interestingly St. Eustatius is neighbor to St. Kitts and Nevis which maintains fruitful ties with Taiwan....

The quasi-independent USA federal International Trade Commission voted unanimously today to impose countervailing duties on imports of Chinese oil country tubular goods. Although Chinese imports amount to less than 25% of America's consumption of the goods in terms of value and under 1/3 overall, the ITC ruling means that the Obama administration believes domestic industry is threatened by Chinese imports. The original petitioners were US manufacturers and the United Steelworkers union. The duties are intended to protect 5,819 jobs in 8 states including political swing state Ohio....

The US Department of Commerce's International Trade Administration imposed anti-dumping duties of 145.18% on imports of Chinese steel grating in a ruling released today. The mandatory respondent - Ningbo Jiulong Machinery Manufacturing Company, Ltd., alone received an extra duty of 14.36%. The petition was brought by American steel makers Alabama Metal Industries and Fisher & Ludlow.

Alabama Metal Industries was acquired in 2005 by steel conglomerate Gibraltar Industries (NASDAQ: ROCK) whose shares rose today. Gilbraltar's major owners (apart from institutional holders such as mutual funds) are Brian Lipke, CEO and Chairman of the Board since Gibraltar's beginning in 1972, and Lipke family members. Lipke lavishes contributions on politicians of all stripes including Democratic Senator Chuck Schumer of New York (where Gibraltar is based). Imports of steel grating from China increased from $8.8 million (US dollars) to over $90 million between 2006-2008.....

A century ago China stubbornly stuck to a silver standard for its currency while the USA, British Empire, and Japan chose gold to back their currencies. The decision to stick with silver may have led to the rapid deterioration of China's preeminent position in trade, the collapse of the ancient Qing Dynasty, and the Chinese civil war. Earlier this year Beijing revealed that it quietly added to its gold reserves for years and that China had amassed over 1,000 tons giving it the world's 5th biggest gold stash. The faded great powers of Europe (Germany, France, and Italy) still have more but the USA is tops with nearly 9,000 tons in Fort Knox and Wall Street vaults.

Remarks by Ji Xiaonan, a senior mandarin at the Chinese State Council's State-Owned Assets Supervision & Administration bureau, reveal that Beijing may aim to displace the USA and own 10,000 tons of gold within less than a decade. Ji Xiaonan was quoted in the highly influential Economic Information Daily in late November. The newspaper dates back to 1981 and is often used to air visionary ideas on central government policy. Ji said that within only 3 to 5 years China could accumulate 6,000 tons of gold which would put Chinese reserves ahead of all nations but the USA.

Beijing's method of acquiring additional gold is not to buy directly on world markets but to mine it. The surprise increase in Chinese official gold reserves came from domestic purchases and Beijing is pushing for acquisitions of foreign gold mines. And so today in Canada mining stocks rose on news that Tongling Nonferrous Metals Group and China Railway Construction Corp. will take over Corriente Resources a Vancouver based mining conglomerate with interests in gold mining in Ecuador.....

Russian Prime Minister Vladimir Putin helped opened the new Kozmino oil terminal on the icy coastline of Russia's Far East today. The first shipment of crude from new fields in eastern Siberia will sail to a customer in Hong Kong. While the Kozmino terminal and part of the giant East Siberia Pacific Ocean (ESPO) pipeline is complete the final pipeline to the coast and deep inside China are still under construction. When completed (date unknown at this time) almost a fifth of the approximately 80 million tons per year of crude the pipelines carry will flow directly to China. Russian producers claim the crude - called ESPO blend for now - is comparable to middle east oil grades and its price is tentatively based on Dubai blend....

The action may switch back to Shanghai from Hong Kong in the new year according to some analysts at least in terms of raising funds on the stock market. It is estimated that 380 billion Yuan or over $55 billion US dollars in capital may be raised on the Shanghai Securities Exchange in 2010.

Seven of the top 10 IPOs in 2009 were China shares (see chart).

Rumours persist that foreign companies may be allowed to list on Shanghai too....

An amendment to China's renewable energy law puts the regulations under direct central government control. The amendment also strengthens the requirement of power companies to connect renewable energy producers to electricity grids.

As the first decade of the 21st Century comes to a close China now has the world's largest electricity transmission network at 375,000 kil0meters or over 233,000 miles of transmission lines. And there are big developments ahead. Throughout the nation China's utilities plan to install 150 billion smart meters to allow greater flexibility in rate pricing.

State Grid, the 15th biggest company in the world according to Fortune magazine, sold 20 billion Yuan (just under $3 billion US dollars) worth of 7 and 10 year corporate bonds on Christmas Eve. The money raised will be used in part to build an ultra-high voltage transmission line from Fulong, Sichuan, near the Xiangjiaba hydroelectric dam to a high voltage AC station at Nanhui, Shanghai. And State Grid may partner with Duke Energy to build transmission lines in the USA....

The EC-175 helicopter was successfully tested yesterday in the skies above France. Jointly developed since 1995 by aerospace conglomerates Eurocopter and AVIC (of China), the EC-175 is a medium-lift twin-engined helicopter that can hold up to 16 passengers depending on configuration. The helicopter is the "product everyone is waiting for" in the civil aviation market according to Eurocopter spokesman. Both China and France have a production line and expect deliveries to begin in 2012. Although originally intended for the oil and gas industry, the EC-175 is being marketed for search and rescue missions and could easily have military application....

Preliminary talks on trade issues between Beijing and Taipei will occur during Christmas week. The meetings are expected to determine a timeframe for formal talks on the Economic Cooperation Framework Agreement or ECFA. ECFA could be a limited free trade agreement and sweep away decades of restrictions between Chinese investors on both sides of the contentious Taiwan Straits. The ever vocal opposition Democratic Progressive Party (DPP) on Taiwan is spinning a thunderous media cycle claiming ECFA would cost millions of jobs and end Taiwan's independence. But even American allies of the DPP admit a trade agreement would diffuse the dangerous tensions and military buildup in the region.

I fully expect ECFA to happen in some form well before 2012 the year of Beijing's Communist Party congress and Taiwan's next presidential election. And once it does come to pass it will be high time for the US federal government to honor its commitment in the Sino-US joint communique of 17 August 1982 and end arms sales to Taiwan. The recent bruhaha on both sides of the Straits over the discovery of a Chinese blogger that the Obama administration is possibly pushing United Technologies sale of Blackhawk helicopters to Taipei is a perfect example of how 27 years later the US continues to fan flames in the region.

The 1982 communique says:

6. Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends to reduce gradually its sales of arms to Taiwan, leading over a period of time to a final resolution. In so stating, the United States acknowledges China's consistent position regarding the thorough settlement of this issue.

7. In order to bring about, over a period of time, a final settlement of the question of United States arms sales to Taiwan, which is an issue rooted in history, the two governments will make every effort to adopt measures and create conditions conducive to the thorough settlement of this issue.

A successful trial run of the new Guangzhou to Wuhan high-speed railway has cleared the way for regular service to begin December 26 betweeen the capital cities (respectively) of Guangdong and Hubei Provinces. Both cities are major industrial centers and travel time is now reduced from 10 (or more) hours by train to 3 hours. The trains will travel at an average speed of 350 kilometers or well over 200 miles per hour and make 15 stops at major points including Changsha. The high-speed rail corridor is part of the larger Beijing to Guangzhou high speed rail line under construction....

New joint ventures with US businesses highlight the growing convergence of the Chinese and US auto industries in electric vehicle (EV) development.

ZAP Hangzhou is California startup ZAP (OTC BB:ZAAP) and the Holley Group of China, the world's largest producer of electric meters. The venture will develop an EV and also charging infrastructure for electric taxis. In 2007 ZAP formed a joint development with US-China JV Advanced Battery Technologies (NASDAQ:ABAT).

Shanghai Advanced Traction Battery is a tie-up between A123 (NASDAQ: AONE) a lithium-ion battery systems maker out of the Boston area and giant Shanghai Automotive Industry Corp. The company will work on battery systems for a SAIC EV to come out in 2012.

Lastly, Geely Holding Group and Johnson Controls will form a cooperation around EVs for Geely Automotive to include auto parts and battery systems according to reports....

Beijing's National Development and Reform Commission (NDRC) is deregulating the sale of coal. New regulations say the central government will no longer hold an annual pricing conference. Instead individual power generators have a month to negotiate prices for 2010 coal deliveries with mining companies directly. The new rules also give priority to transporting thermal coal for power generation on Chinese railroads over coal for direct industrial use (coking coal for steel for example). Railroad companies can no longer allocate quotas prior to actual delivery contracts banning broker middleman from buying up quotas for spot coal sales. The end result may provide price stability overall but indications are Beijing will tolerate higher electricity rates as a result of these reforms.

China like the USA relies on coal for the majority of its baseline electricity generation. But China's dependence is higher - coal accounts for around 75% of electricity production - and China consumes more coal than any other nation. And coal use is growing and is expected to rise for the next few decades even as its use for power generation declines with more nuclear, hydro, and alternative energy production. The UN Copenhagen Climate Change Conference will end without addressing (let alone solving) this essential point: no real progress on air pollution can happen without reducing the reliance on coal for electric power by China and the USA.....

Draft regulations posted last week by Beijing's Ministry of Industry and Information Technology recommend closing all steel mills under 1 million metric tons capacity and all specialty steel mills producing under 500,000 metric tons. In addition new environmental requirements will restrict waste water and sulphur dioxide emissions and the amount of coal per ton of steel. It is estimated only 80 of the up to 400 steel mills in China can meet the new regulations. Earlier this year the powerful National Reform and Development Commission decreed that consolidation must occur in China's huge but fragmented steel industry.

If the measures are implemented and successfully enforced it will have wide ranging impacts on global trade and pricing for several industrial commodities including iron ore, coal, nickel, and the export and import of steel products....

Reuters reports that Beijing Automotive Industry Holding Corp. or BAIC will acquire the intellectual property (designs and technology) of the Saab 9-5 and 9-3 series and production equipment for an undisclosed amount. The 9-5 and 9-3 are the latest versions of the Saab sedans which replaced the 900 series vehicles made famous in the '90s by comic Jerry Seinfeld. BAIC has a history going back 25 years of acquiring foreign technology and entering into joint ventures including recent efforts to buy GM's European division Opel....

Beijing made tourism a "pillar" of the Chinese economy in the 11th 5-year plan that ends next year. At the recent central government Work Conference on the economy, support for developing the tourism industry was stressed. It is expected that 40 million Chinese will travel outside the confines of the People's Republic in 2010 and head for Asia first followed by Europe and America. By 2020 100 million Chinese tourists are predicted to travel outside China.

The Pacific island nation Fiji just opened a travel bureau in Shanghai and Fiji is banking on more Chinese tourists coming to the island paradise via new air service from Hong Kong on Air Pacific and partner Cathay Pacific Airlines. For the year Fiji is hoping for 11,000 visitors from China.

In the USA Chinese tourists spent an average $7,200 per person according the US Commerce Department. The Chinese rep for the New York Travel Bureau said the agency was expecting an increase in Chinese visitors who often come to shop. In Beijing today, Canadian Prime Minister announced that Canada was declared an "approved" outbound destination for Chinese travelers, a designation that will make it easier for Chinese to get visas and arrange outbound travel....

China solidified its conquest of Pipelineistan energy resources on Monday when Kazakh President Nursultan Nazarbayev signed into law the 2007 agreement to jointly develop pipelines to bring gas into China from Kazakhstan and Turkmenistan. Around 50 million cubic meters of gas will move annually into the Chinese pipeline network also under construction. The estimated cost of the projects is $20 billion (US dollars). Work will be done in Kazakhstan by China National Petroleum Corp.'s subsidiary China Petroleum Pipeline Engineering and local firm KazStroyService. There are two "west-east" pipelines through China (see map) that bring Caspian Sea region resources through Xinjiang all the way to Shanghai and Guangdong Province. A third such pipeline is now in development.

Beijing will loosen the infamous hukou system in a bid to hasten urbanization and get Chinese to consume more. The Central Economic Work Conference of China's central government met over the weekend and announced reforms of the hukou or household registration system to allow rural migrants to gain citizen's rights (access to eduction & housing mostly) in small to medium sized cities. The expansion of hukou rights may allow many migrants to settle in the cities where they find work.

The Work Conference embraced the concept, mostly imposed on China by Western partners, that consumption must be a driving (if not the driving) force in the Chinese economy. The conference said the goal was for consumption to replace public spending. Yet a more rapid settlement of migrants to China's growing mega cities will only increase the need for more infrastructure - roads, railroads, subways, housing, electricity, etc., which is reflected in the dominance of investment as a major force in China's economy. Stocks in property companies rose today, some analysts say on the news. But rural migrants are at the bottom of the elaborate class structure in China and usually too poor and too conservative to quickly become materialistic consumers.

The hukou system began in the early 1950s as a way to prevent Chinese cities from becoming overrun by poor rural migrants and end up like the major cities of the so-called developing world, that is overwhelmed by slums and unplanned development. The system became a major component of the centrally planned economy at the height of Mao's dictatorship and ultimately held back China's cities. Since 2001 it has been relaxed to varying degrees at the Provincial level and in national policy. Also as with so many laws in China it is often completely ignored....

There are around ten (10) Chinese companies listed at the Australian Securities Exchange (ASX) and two more may soon be added: Rongtai Logistics, an e-commerce logisitics business in steel trading and Gansu Biotech will pursue backdoor listings. Both businesses will set up shop in Adelaide capital of South Australia and home to a growing Chinese expat community....

Coming this week to NYSE and NASDAQ three new Chinese initial public offerings. CCM is Concord Medical Services that leases radiology equipment to cancer centers throughout China. CCM will trade on NYSE and was originally priced between $9-$11 per share. Also at NYSE is TRO, Trony Solar Holdings, the leading Chinese maker of thin film solar modules. In a crowded market, ShenZhen based TRO hopes to raise up to $200 million. And on NASDAQ NKBP is the symbol for China Nuokang BioPharma offering shares between $10-$12. NKBP derives much of its revenue from hemocoagulent drug Baquting. (All prices quoted are US dollar.) So far this year, Chinese IPOs are among the best performers in the world (see chart).

In related news, the shares of AsiaInfo Holdings (NASDAQ:ASIA) are soaring today on news that it will acquire its chief competitor Linkage Technologies. Linkage, a developer of core operating systems used by China's telecom giants, was set to IPO this week in New York....

A mystery is deepening at the Port of Vancouver. A 60,000+ ton panamax class cargo vessel is scheduled to arrive mid December with intent to load up with a cargo of Canola or more specifically Canadian rapeseed ("Canola" is a trade brand that means literally Canada and oil). The news has excited Canada's futures markets for many believe the cargo of canola may be China bound. If so, it means Ottawa and Beijing have sorted out the suspension of canola trade imposed by Beijing on November 15 when China declared canola imports must be cleared by a phyto-sanitary certificate that the canola was free of Leptosphaeria maculans or blackleg. The restriction was sudden and Canada believes it is neither a health nor safety issue. China is Canada's number 1 market for canola, buying over 2.8 million tons last year. But no destination is yet recorded for the unnamed vessel.....

In Shanghai today GM announced it will cede control of its 12 year old highly successful (and lucrative) joint venture with Shanghai Automotive group to its Chinese partner SAIC Motor Corp. With a controlling interest of 51% SAIC Motor will be able to run Shanghai GM independent of Detroit. Further, a new joint venture will be formed in Hong Kong called General Motors SAIC Investment Ltd. to expand into India and carve market share in the subcontinent for the Wuling microvan and other products....

At a confab around the Marintec China 2009 convention, currently underway in Shanghai, Wei Jiafu - head of Chinese shipping giant COSCO (China Ocean Shipping Group Comany, Ltd.) - revealed to reporters that the company was working with Chinese nuclear authorities to explore developing nuclear powered container ships. Captain Wei Jianfu gave a grim outlook for traditional ship orders saying he believed 40% of backorders will be cancelled or postponed. In other news, Chinese, Taiwan, and Korean shipping companies will respond to the slowdown in global trade by literally slowing down and employ "super slow steaming" a method begun by the Maersk Line for greater fuel efficiency and reduce emissions....

New guidelines issued by the Chinese State Council (the Cabinet of China's central government) encourage foreign investment in tourism specifically, according to some translations, allowing foreign businesses to set up joint ventures for travel outside China. The Chinese domestic tourism market is already open to a degree. For example, 100% ownership of hotels by foreign investors is allowed.

Beijing is pushing tourism - where China has immense potential - and all related services to account for an ambitious 5% of GDP within 5 years. By contrast tourism's share of GDP in the USA has been flat at just under 3% since 2001.

Overall, foreign direct investment (FDI) in China rose 5.7% in October. Although total FDI is down compared to 2008 the first 10 months of 2009 China received over $70 billion (US dollars) in foreign investment....

The 2009 Turkmenistan Electric and Scientific Exhibition opens next week in the capital Ashgabat. Turkmen President Gurbanguly Berdimuhamedov was in Rome last week being wined and dined, taken to the racetrack, and signing deals with Italy's oil major ENI while PM Berlusconi promised to send a film crew to broadcast Turkmenistan's charms to Italian travelers.

Meanwhile US special envoy for Caspian Sea energy David Stein was in Baku, capital of Azerbaijan, where leaks say the government is coming close to a deal with Turkemenistan to divvy up the middle of the Caspian and allow a pipeline between the two nations to connect with the Nabucco pipeline project.

Years in planning, the Nabucco pipeline project is the hope of the EU, Germany in particular, to move away from dependence on Russian gas imports. Russia and Turkemenistan are in stalemate over a gas pipeline that is largely complete but not in use. Russian President Medvedev has just arrived in Italy on the heels of his Turkmen counterpart and will visit Turkmenistan later this month.

Turkmenistan may have the world's fifth largest recoverable reserves of natural gas. The country exports electricity to neighbors Iran and Afghanistan and also throughout central Asia via a Soviet era grid system. With American assistance neighboring Uzbekistan has built its own modern grid and announced this week it would soon withdraw from the legacy transmission system and potentially leave parts of the region at Uzbekistan's mercy just in time for Winter weather.

But while Europe, Russia, and all the "stans" compete, the Turkmenistan-China gas pipeline will begin delivering gas to China in mid December.....

Despite numerous bilateral summits, extension of credit by China, and big new energy deals, Russia-China trade collapsed -34.4% over the Janury-October 2009 period and will most likely end the year at below 2008 levels Russian China trade rep Sergei Tsyplakov said today. Imports from China to Russia fell almost -50% to $13.8 billion (US dollars) value.

The trade figures are more a reflection of the poor state of Russia's economy. While Russia continues to profit from its oil and gas sector Prime Minister Putin scolded Russian industry at a party congress in St. Petersburg last weekend. Putin said Russia "need[s] to clear the economy of hopeless, outdated and money-wasting industries" and singled out the nation's auto industry as a particularly dire sector with output down 60%. Retail sales in Russia fell -8.5% in October and many foreign retailers including majors Walmart, Carrefour, and IKEA, are pulling out as they see their businesses fail to materialize or bog down in red tape or corruption....

Politicians of so-called developed nations bemoan the ever growing trade deficits with China that cause damage at the national level and do everything they can to retard Chinese imports. But on the ground many work to the opposite effect and want more China trade to reap the benefits of expanded jobs and fees associated with processing and distributing Chinese goods.

Just today officials at the St. Louis, Missouri, international airport approved a multimillion dollar deal with air cargo firm Aeroterm to develop an air freight center for China trade in hopes of turning St. Louis into the "Midwest China Hub", a logistics center for heartland America. Across the globe in Shanghai and Ningbo, officials from the Port of Le Havre, France -- that nation's biggest container port -- are visiting Chinese shipping companies to secure even more trade and are planning a major logistics and distribution center for Chinese goods entering Europe.

So when national governments complain about increasing Chinese imports attention should be focused as much - if not more - at home.....