Sinomania!

So says a former Fed official as the USA seeks well-capitalized banks to clean up Wall Street's big financial mess. Of course that comment simply means that Congress won't balk if Canada banks start buying up American assets. Of course, Canada is not China financially either. Unlike Canada, China is sitting on a the world's largest collection of dollar bills and American debt. As the current election cycle is showing, bigotry and ignorance of the world beyond the United States' coastlines may sell politically but it continues to do serious damage to the now short-term prospects for American citizens.

In a related note, the remainder of the BRIC countries (Brazil, China, India) will attend Treasury Secretary Paulson's emergency G7 and later G20 summit starting tomorrow. Russia is already regular member. Will we see a new Bretton Woods emerge? We'll find out Saturday when the meeting is supposed to make an announcement.

According to an "exclusive" at Bloomberg, Beijing is reconsidering whether to introduce derivatives and further liberalize China's financial sector. Hank Paulson's supreme reputation is seriously tarnished and that has diminished his still considerable guanxi with the State Council. I predict China will turn more to Europe now as its primary model.

General Motors (GM) celebrated its 100th birthday today 100 floors above Shanghai announcing the groundbreaking of its quarter billion dollar R&D and Asia-Pacific headquarters Shanghai facility and that GM's long anticipated electric vehicle the Chevy Volt will go on sale in China by 2011.

Already the China Investment Corp., China's sovereign wealth fund, owns close to 10% of Morgan Stanley. The latest speculation is a bigger investment maybe even a partial take over is in the works.

Announcements of oil and gas development deals between Chinese oil majors and Iraq and Iran may be spooking markets as much as fear of tropical storm Gustav in the Gulf of Mexico.

PM Maliki's government in Baghdad will revive Sadaam Hussein's 1997 deal with China to develop a small but important oil field in southern Iraq. Meanwhile, Iran's national oil and gas companies are in new discussions over production-sharing arrangements with China National Offshore Oil Corporation. Are these actions the rarely mentioned "Asian Energy Security Grid" in action?

In India. At this point of the SARS "epidemic" in 2003 world media had already declared a global catastrophe. Perspective...

According to a "source with direct knowledge" Reuters reports that Hunan Changfeng Motor Company backed away from talks with GM trying to sell its Hummer brand.

And no it is NOT to keep the lights on in Beijing during the Olympics...

Disruption in coal supplies and shortage of generation and transmission capacity in China is affecting China. Particularly hard hit is aluminum smelting.

A massive infrastructure build with even more cental investment spending is looming in China's future. More on that soon!

Courtesy the Reuters UK press digest here's what the Chinese papers have to say:

CHINA SECURITIES JOURNAL
-- The China Securities Regulatory Commission issued rules under which brokerages must appoint compliance officers to help them strengthen internal controls and obey securities industry regulations.
-- Western Securities, which is planning a domestic stock market listing, reported that net profit in the first half of 2008 fell to 401 million yuan ($58.6 million) from 760 million yuan a year earlier as the stock market slumped.
-- More than 60 percent of domestically listed Chinese retail companies have said their profit growth continued in the first half of this year, thanks to stable economic growth and rising incomes, according to local consultancy Wind.

SHANGHAI SECURITIES NEWS
-- Chongqing Steel (601005.SS: ) estimated net profit in the first half of this year jumped at least 60 percent from a year earlier, helped by rising product prices and expanding output.

-- TCL Corp (000100.SZ: ) said trade in its shares would be suspended for one day on Tuesday pending a major announcement.
-- Property developer Beijing Huaye (600240.SS: ) said its controlling shareholder had promised not to sell newly tradable Huaye shares on the market through 2009, and in the following year would only sell shares at a minimum of 12.00 yuan.

-- Net profit at Guoyan Securities (000728.SZ: ) tumbled more than 50 percent in the first half of this year, mainly because of a 140 million yuan operating loss in core business.

CHINA BUSINESS NEWS
-- Baosteel Group has agreed to buy an 8 percent stake in southern China's Zhanjiang Port through the purchase of new shares in Zhanjiang, making Baosteel the third largest shareholder in the port, which may eventually go public, a senior Zhanjiang executive said.

FINANCIAL NEWS
-- Insurance companies have paid claims totalling 386 million yuan by July 12, which represents 86.4 percent of total claims.
-- Analysts said the huge increase in savings deposits, by 1.378 trillion yuan in June, indicated that consumers were more conservative due to high inflation.
-- China's foreign exchange reserves increased by an average of $42.2 billion per month in the second quarter, higher than the monthly trade surplus plus direct foreign investment, reflecting the pressure of capital inflows in anticipation of appreciation of the renminbi, said analysts.

CHINA DAILY (www.chinadaily.com.cn)
-- A BBC documentary alleging China has violated the UN arms embargo in Darfur is biased and made with ulterior motives, China's special envoy for Darfur said. Liu Guijin said "China's arms sales were very small in scale and never made to non-sovereign entities. We have strict end-user certificates."

-- Government departments should coordinate to monitor capital in the form of foreign direct investment, which could be a source of "hot money", said Zhang Ming, an economist at the Chinese Academy of Social Sciences. Zhang estimated speculative funds amounted to $1.75 trillion.
-- The Sichuan earthquake has left 1.4 million farmers in about 4,000 remote villages in absolute poverty. A State Council anti-poverty official said the government should "pump in a minimum of 12 billion yuan ($1.75 billion)" into the poor villages in the coming three years to ensure the villagers' basic necessities in Sichuan, Gansu and Shaanxi provinces.

PEOPLE'S DAILY
-- China will promote a household contract system in the management of collective forestry land and ownership of trees nationwide, an important step to boost the enthusiasm of farmers in planting and increase their income.
-- China's agriculture products are safe and can be used for visitors at Beijing's August Olympics. ($1 = 6.84 yuan)

from the Xinhua Finance newsfeed:

-China's Hu leaves for Japan to attend G8 climate change session
-Q2 business prosperity index rises to 137.4 vs 136.2 in Q1
-China to buy additional 300,000 tons sugar at 3,400 yuan per ton
-China economy expanded at 'decent' rate in Q2 - JPMorgan
-CITIC Bank sees H1 net profit up over 150 pct yr-on-yr
-Bank of Ningbo sees H1 net profit up 85-90 pct
-Vanke H1 property sales 24.13 bln yuan, up 38.1 pct yr-on-yr
-Chongqing Changan Auto June vehicle sales 18,053 units
-General Motors H1 China sales up 12.7 pct yr-on-yr at 590,126 vehicles
-China Railway Group units wins 2.95 bln yuan worth of contracts
-Exim Bank to auction 10 bln yuan in 3-yr floating-rate debt
-China Shipping Group to auction 100 pct of terminal unit for 2.6 bln yuan
-Alibaba Group invests 2 bln yuan in online auction unit Taobao.com
-China NDRC approves two alumina projects involving total capacity 1.5 mln tons
-HK-listed CNOOC Ltd reports new discovery in Bohai Bay
-China Eastern Airlines to lease three A340 aircraft from ICBC unit
-Western Mining completes approval process for FerrAus deal
-SDIC, Dutch group Vopak to build crude storage facility in Hainan
-Asia Environment completes placement of 50 mln shares to KSC Fund
-Singapore-listed Bio-Treat reaches settlement with Abax; no material impact seen
-China NDRC approves nation's first offshore wind power project
-Singapore-listed Jiutian Chemical to invest in new methanol facility
-Huaneng Group wins approval to build two wind farms
-BoComm raised to 'BBB+' on capital strength, risk management - S&P
-Hong Kong-listed Agile Property's rating unaffected by Morgan Stanley deal-S&P

Investment advisors and analysts -- Howard Gold and Nicholas Vardy are but two examples -- are warning not to "put a dime into Chinese stocks" at least until the bottom is reached in Chinese stock markets. Since 2008 began, Shanghai A and B shares have lost 40% or more and are down even further compared to Shanghai's peak in October 2007. The Shanghai Composite was down over 5% today alone.

Last May I pondered if the Shanghai Composite would end up like the NASDAQ or Nikkei bubbles -- watch my video on YouTube. I was surprised to see Shanghai go up all the way past 6,000 later in the year. Many analysts now believe the index will need to sink all the way to between 1,000-2,000 to hit bottom.

But I think comparison to the far more mature NASDAQ and Nikkei markets is simplistic. There are too many variables with Shanghai and its latest incarnation goes back only to 1990. Will foreign buyers be allowed into the A market? Will A and B shares finally merge? Will outflows by individual Chinese retain investors be extended to every investor? I think it is entirely too premature to dismiss Chinese stocks as important and long position investments, particulary in new technology (green & alternative energy) sectors.

The first China bash talking point in the US presidential election cycle is circulating and it's a particulary goofy one relating to the renewed interest in drilling for oil on the continental shelf off the eastern seaboard. China, according to Republican Congressmen, is already drilling there off Cuba! None other than Vice President Dick Cheney has refuted this claim but it is widespread on talk radio and TV - Sinomania! first heard it on CNN a few days ago. Unfortunately, like Obama's Muslim past, it is a fabrication that repeated enough is taking hold in minds willing - and wanting - to believe it.

Beijing will allow key price increases in the energy sector giving oil and gas majors approval for close to 18% price hikes, the second double digit increase in less than a year. Fuel remains subsidized in China and undervalued to world markets.

The announcement brought down the spot price for a barrel of oil more than $4 today.

Electric utilities will also get a rate hike - something sought after before last Winter's devastating snow storms -- to increase kilowatt hour charges just under 5%.

The 4th Strategic Economic Dialogue bilateral talks between China and the United States are underway in Annapolis, Maryland.

The Chinese delegation is emphasizing joint cooperation on energy and the environment stressing that the world's number 1 and 2 oil importers have much to gain by working together.

Treasury Secretary Hank Paulson said that both nations are responsible for "maintaining a stable, secure and prosperous global economic system."

It is only a matter of time before China becomes an issue in the Presidential elections. Will the strategic dialogue fall victim to politics by year's end?