Top-tier casino operator Wynn has always bet on VIP gamblers. Now it is adopting the same approach with its stock market flotation. Wynn is trying to trump half a dozen recent poor Hong Kong market debuts by shunning fickle retail investors and handpicking money managers who are likely to stay the distance. It remains to be seen whether this strategy can help justify its valuation premium.

Most Hong Kong retail investors sell their shares on the first day of trading for a quick profit. By putting 90 percent of the shares in the hands of institutional buyers, Wynn is aiming to avoid the hit when its shares start trading on Friday.

That's probably why the stock has not fallen in grey market trading, even though it was priced at HK$10.08, at the top end of the HK$8.52-$10.08 range.

Wynn has specifically obtained a waiver from the Hong Kong stock market to prevent retail investors from holding more than 30 percent of the total shares offered. But this effort turned out to be unnecessary, as private investors are simply not interested.

Retail demand for Wynn Macau is so weak that small investors are only taking 10 percent of the offering. It appears that Asian high rollers are more interested in gambling in Macau's casinos than investing in their stocks. Many have been burned in the past by the stocks' high volatility.

Investors are also deterred by the rich valuation. Wynn Macau has valued itself at around 16 times forecast 2010 cashflow, much higher than the 7.5 times enjoyed by Macau gambling tycoon Stanley Ho's SJM Holdings.

That is not to say Wynn does not deserve some premium. First, it has always been an investor favourite in the U.S., with a stable institutional investor base. Money managers hold as much as 60 percent of Nasdaq-listed Wynn Resorts. SJM, in comparison, has 1.4 percent institutional ownership.

Second, Wynn's casino and hotel in Macau looks more modern than SJM Holding's dimly-lit and smoke-filled Grand Lisboa complex. The luxurious look helps it attract a younger client base and broadens its appeal to non-gamblers as a conference venue.

Third, the majority of Wynn Macau's revenues is earned from VIP clients who typically place large wagers. This focus has given its casinos better returns per table and a better return on equity than industry peers. But high-end gaming can also be more volatile.

Some of the new investors in Wynn Macau are already shareholders of Wynn Resorts, though the proportion is unclear. Wynn's Macau casino already generates 50 percent more cashflow than the Las Vegas casino, and the offering gives investors -- who have limited opportunities to invest in the gaming industry at home -- a new outlet.

They are also attracted by the world's largest gaming market: Macau's total revenue is more than double the amount generated by the Las Vegas Strip in 2008. But local investors know very well that Macau's dependence on Chinese high-rollers can also be its Achilles heel. Changes in Chinese visa policies can lead to big swings in visitor numbers. Macau is also suffering from overcapacity in China, where there are about 30 casinos of varying sizes.

While it looks like Wynn's existing investor base has helped it to draw strong demand for the Macau spinoff, it may be a one-off. The future looks a lot less certain for highly-leveraged Macau Sands, a unit of Les Vegas Sands, which is hoping to go public in Hong Kong later this year. Without help from the VIPs, the Sands might have a harder time getting such a good valuation.

China might have good environmental reasons to restrict the production of rare earth metals, but export quotas and duties are not the way to do it.

Instead, it should raise environmental standards which will force consolidation in the production of these metals, which are key to green technologies. That will improve China's environment, give it greater control over output, but reduce the risk of a trade battle.

China dominates the global production of rare earth metals -- a collection of 17 chemical elements in the periodic table that are key materials for making hybrid cars, wind turbines and smart phones. This is unusual, as China depends on imports from abroad for most of its raw materials. However, the country's control of supply has not helped it control prices.

Although demand has been rising more than 10 percent each year, prices were a third lower in 2005 than in 1990, mainly because of a surge of exports. Meanwhile, China's reserves are being used up rapidly. They now account for only half of the world's total, down from almost 90 percent in 1990.

In response, China has started to impose quotas and duties on rare earth exports in the hope that less supply might help improve prices. This has had some success: since 2004, exports from China have shrunk by about 10 percent each year. But it has angered China's trading partners. Concerned that China wants to use its resources mainly for its domestic consumption, the U.S. and EU both filed complaints with the World Trade Organization earlier this year.

China's move to restrict exports looks poorly coordinated with its recent resources acquisition frenzy. If this is how it behaves when it is the dominant supplier of a valuable resource, how can it complain that the rest of the world does not want to sell it more?

A better solution would be for China to raise environmental standards in rare earth production. This would squeeze out smaller producers and give China greater control over exports.

Production in China has soared mainly because swarms of small, unregulated Chinese miners have ignored the environmental harm of rare earth extraction. To get these elements, miners pump potent acid into holes in the ground, where it dissolves the minerals and ends up in artificial ponds which can be leaky. It is a bitter irony that the very elements needed to produce green technologies exact such a large environmental toll.

This disdain for the environmental costs of rare earth production gives China an advantage over its trading rivals. Explorers in Canada, Brazil, Australia and South Africa are not producing much at current price levels, mainly because they have to bear much higher environmental and labour costs, and cannot compete with China on price.

China does charge resource taxes for mining, but the tax is lower than in other countries and covers fewer resources. Unlike most other countries, it does not tax the use of land, forests, water and the ocean. The duties for using mining areas is only 6 percent of the value of the output, much lower than 20 percent in European countries and 12.5 percent in America.

In addition, Beijing subsidizes electricity to a level that is cheaper than in other developing countries such as Mexico and Brazil. That's why industries like steel and non-ferrous metals that use a lot of energy thrive in China.

China's central authority has been trying to consolidate the rare earth industry since the 1990s, but has made little progress because low exploration costs has drawn in more firms. The fragmented sector also undercuts Beijing's efforts to negotiate better prices in the global commodities market.

This is the reverse of China's situation in iron ore, where it is the largest importer but has little bargaining power over the biggest mining firms. But the outcome for the nation is similar.

It is time China realised it is better to price in the real costs of the environment, energy and health to force industry consolidation. As China gets richer, it can afford to sacrifice a little growth for the sake of the environment and to get the bargaining power it craves.

Other countries may still complain about China's attempts to control the price of rare earth. But their protests will be harder to justify. After all, haven't Western countries been arguing for years that China's low environmental standards give it an unfair advantage? The WTO has also increasingly sided with countries that present a strong environmental argument.

If China now uses higher environmental standards to give it greater clout in rare earth exports, it will be hard for the West and the WTO to object.

A dozen or so companies have raised money in Hong Kong over the past month to cash in on rebounding equity markets, but that window is threatening to close after a string of poor debuts.

   Glorious Property was the latest, falling by 15 percent on its debut on Friday. Its poor performance came on the heels of China South City, a real-estate developer in Guangdong province, which had the worst trading debut in Hong Kong this year by falling 23 percent.
 
  Even companies in more stable businesses, such as men's clothing retailer Lilang and sports shoes maker Peak Sport, also fell below their offer prices last month.

   One reason for the wobble is that issuers and investment banks seem to have been greedy. IPOs are generally priced at a discount to comparable listed stocks to reflect risk and to encourage trading in the after market. But with strong investor demand, they have steadily been whittling away at the discount and relying on the froth in the market to get issues away.

   Of late, IPOs have often been more than 100 times oversubscribed with institutions as well as retail investors vying for stock. Thanks to cheap and freely available money, it has been possible for investors to borrow to fund their IPO purchases. Banks have been offering interest rates on IPO loans as low as 1.8 percent.

   But market sentiment has changed dramatically, with the Heng Sang Chinese Enterprises Index <.HSCE> down almost 10 percent in the past two weeks. This has suddenly made IPOs which had set aggressive ranges seem expensive. Glorious Property actually priced its IPO towards the bottom of the range but it still received a poor response.

   From a position of excessive enthusiasm, sentiment has now snapped the other way. Retail investors have become more cautious. Some banks have stopped offering IPO loans to retail investors, which will further temper demand for new issues.

   But the message hasn't yet got through to some issuers. Las Vegas casino company Wynn Resorts priced its Hong Kong IPO at the top of its indicated range, which values it at a much higher multiple than Macau gambling tycoon Stanley Ho's flagship casino firm SJM Holdings. This looks pretty daring.

   Issuers are starting to widen their pricing range on the downside to take account of softening demand, but this only solves part of the problem. A wider band makes it even more difficult for investors to calculate the risk involved. Retail investors are particularly vulnerable, because they cannot place price limits on their orders and so risk paying the most expensive price in the range.

   It looks as if investment bankers are going to have an uncomfortable time of it in the near future. They still have 30 to 40 companies in the pipeline which were trying to make the cut before a second-dip in the market and economy. Persuading investors to buy them may take all of their ingenuity.

Faced with a backlash against foreign investors, Beijing may
be tempted to offer shares in the last of its big four banks to
a domestic audience.

That decision may reflect China's new found confidence in
the wake of the credit crisis. But it also means Chinese investors
will retain full responsibility for the country's weakest bank.

The Agricultural Bank of China might end up just listing in
Shanghai without any endorsement from foreign institutions,
bankers close to the deal say. The bank claims it is still
keeping its options open.

But if AgBank pursues this path, it would be in sharp contrast
to the privatisation of China's three other large banks, all of
which attracted foreign strategic investors before listing in
both Hong Kong and Shanghai.

There are three explanations for this change of direction.
First, China has become a lot more confident in its banks, which
have weathered the financial storm better than their foreign
counterparts.

This means it has less need for foreign banks to
provide a seal of approval before launching a public offering.
China's Social Security fund is expected to be AgBank's only
strategic investor, though China Life also stands a good
chance of participating, bankers say.

AgBank is probably not happy with the arrangement, as its
chairman has said it wanted to have foreign strategic investors
and failure to attract them will be regarded as a loss of face.
But the post-credit crunch list of qualified foreign investors
with deep pockets and rural banking expertise is very short.

When China formulated its plan for bank reforms at the start
of the century, diversification of the investor base was one of
its key goals. Bringing in strategic -- particularly foreign --
investors was seen as beneficial to improving the ownership
structure of the state-owned banks and breaking the "blood ties"
that existed between banks and various government departments.

Foreign investments also helped put a value on the banks'
equity which provided a guide to the flotation price. But
Beijing has rightly become more wary of foreign investors after
supposedly long-term strategic partners such as Royal Bank of
Scotland and Bank of America cashed in their
investments in Chinese banks in order to raise much-needed cash.

After the recent meltdown, the idea that Western
institutions have anything to teach China's second-largest bank
about risk management also seems fanciful.

But the authorities should not get carried away by the
history of successful IPOs of Chinese banks. AgBank is much
weaker than peers such as ICBC and CCB, whose stock prices
have roughly doubled since they went public three years ago.

The bank only published its first audited annual report this
April. As recently as 2007 it was technically insolvent, with a
non-performing loan ratio of 24 percent, before a $30 billion
capital injection and massive bad debt carve-out.

Agbank's NPL ratio dropped to a more respectable 4.32
percent by the end of 2008, but is still more than double the
level of other state-owned lenders. Its loan loss reserves as a
proportion of total NPLs was just 63.5 percent, compared with
156 percent for the 12 other listed Chinese banks at the end of
2008, according to Fitch.

Earnings have been under pressure from weak asset
quality and high expenses associated with AgBank's
massive 24,000-branch network.

Listing in Shanghai does not mean AgBank will have to
compromise on valuation. For dual-listed companies, domestic
shares trade at a 12 percent premium to their Hong Kong
counterparts because there is a lot of money chasing
a limited pool of investments.

By excluding foreign investors, Beijing can boast that it is
keeping all the upside from rural reforms and urbanisation to
itself. But if things do not work out as planned, Chinese investors
will have to bear all the losses.

If current trends continue, China might swing to a trade deficit
in the not-too-distant future. Given that China has enjoyed more
than a decade of strong exports, this may sound a bit far-fetched.
But even if it happens, this would not necessarily be something for
the world to worry about.

Some economists have recently sounded alarm bells about the
possibility of a Chinese trade deficit. They argue that if the
Chinese current account surplus shrinks, it would leave Beijing
with less spare cash to buy U.S. Treasury bonds. Then who would
fund the U.S. budget deficit -- and, by implication, U.S.
consumers?

Those worries are largely misplaced. First, it is unlikely
to happen any time soon. In order for China to have a trade
deficit next year, imports would have to outgrow -- or shrink
less than -- exports by at least 23 percentage points.

In August, exports fell 23.4 percent while imports fell 17
percent. So while the trade surplus is diminishing, a deficit is
not around the corner.

If China's trade surplus shrinks, it will most likely be
caused by a contracting U.S. deficit, in which case Americans
will be saving more and the U.S. will be less dependent on
overseas investors to finance its government debt. That would be
a sign that the long-overdue rebalancing of the global economy
was beginning to take place.

It would not be so bad for the Chinese economy either,
because China is a lot less dependent on exports than many
people assume. Although exports have accounted for a whopping 50
percent of the economy in the past few years, the contribution
of net exports to economic growth is actually much smaller,
because a lot of what China sells abroad is low value-added
assembly work.

In the same way, one cannot just look at China's large
imports number and jump to the conclusion that China is a big
end-user of the world's goods. China's imports accounted for a
third of its gross domestic product last year, versus about 17
percent in the U.S. during the same period. But this is because
a lot of what China imports, such as computer parts, eventually
finds its way abroad.

On average, net exports contributed 1.4 percentage points to
annual GDP growth between 1979 and 2007, according to the
Statistics Bureau, much less than the contribution from the
other two drivers -- consumption and investment.

The transition to a more balanced trade account will take
time. In particular, it will need a push from foreign exchange
reforms, as the currently undervalued yuan encourages exports
and discourages imports. China allowed the yuan to rise
gradually for a few years after 2005, but has re-pegged it to
the dollar since the start of the credit crisis.

It will take time before Beijing is confident enough to
remove some of the export incentives, or at least not pile them
up as it has done in response to the crisis. A more equalised
trade account will probably not hurt China's overall growth that
much, but will help in making the world economy more balanced.

It is hard to be very optimistic about China's proposed stock market for start-up companies. After all, similar attempts in other countries have a decidedly mixed track record. Why would China, where small private companies face an uphill battle against state-owned firms, be any exception?
Nevertheless, there are reasons to believe that the start-up market, set to debut in October, offers better potential than previous efforts in Singapore, Germany and Hong Kong.
The country has a big reservoir of fast-growing small companies with real profits. In the past, they have opted for listing on foreign exchanges such as the Nasdaq. Though they were attracted by the prestige of a foreign listing, they also faced a home market that favours size over quality.
Indeed, China, home of internet stars such as Baidu and Sina, is the second-largest foreign supplier of companies to the Nasdaq.
But the exodus has almost ground to a halt. Beijing has tightened its grip on foreign listings because it wants to keep the best growth companies at home. Only companies which already have overseas structures can list their shares abroad, but even then they have to jump through a lot of regulatory hoops.
Obtaining a domestic listing will become much easier, as Beijing has ambitious plans to float hundreds of companies on the new market each year. Maintenance fees are lower and disclosure requirements are less stringent when listing at home.
And companies will not necessarily need to compromise on valuations, since Chinese equities routinely trade at a premium to their foreign counterparts because there is a lot of liquidity chasing a limited pool of stocks.
Although institutional participation is likely to be limited because the small size of most start-up companies, the new market is expected to draw in a large amount of retail investors who favour more volatile small-caps.
No wonder that about 150 companies have already lined up to list on the new market. With a potential universe of 50,000 private companies nationwide, there will be no shortage of new supply in the next few years.
Chinese stock market regulators are wary of the lack of success by Western countries in creating markets capable of funding early-stage companies. Easdaq, Europe's answer to the Nasdaq, rumbled along for years before finally disappearing. Germany's Neuer Markt, launched during the dot-com boom, soared and then collapsed along with the rest of the stock market bubble.
In an effort to make a good start, the regulator has picked companies with the best track record of sales and profit growth for the first batch of listings. Most of them already qualify to list on the market for small-and medium-size companies, which is also part of the Shenzhen Stock Exchange.
The first 13 companies to go public almost look a bit too old-fashioned, with leading positions in markets such as railway transport electricity systems, lithium batteries, and medical devices. However, being boring is actually better than being too adventurous at this stage.
China has set the standards for listing on the new market much higher than Hong Kong's growth enterprise market to avoid overly speculative companies. Like the Nasdaq, China requires companies to have a three-year operating record and a history of profitability.
Yet while it is good to set the bar high, it is even more important to keep it there by de-listing companies promptly if they fail to comply with listing rules.
One of the major reasons that the mainland market has a lot of moribund companies is because the regulator does not force de-listing. American exchanges de-list hundreds of companies a year.
Beijing has finally given the green light to the market for start-up companies after 10 years in preparation because it understands that small private companies, the most vibrant sector of the economy, will be the drivers of China's next stage of growth. It also does not want to wait until the market gets too hot as then will be more speculative behaviour.
Most of these markets suffer because they cannot attract a sufficient number of long-term institutional investors, so they end up as either illiquid or relying on much more speculative retail investors. This will be an even bigger problem in the retail-driven Chinese market.
Although the start-up market is necessary to provide some much-needed funding for small enterprises, Beijing should avoid getting too ambitious. There were initial talks about bringing as many as 500 companies public a year. But at that speed, disclosure and approval standards will inevitably be compromised.
The low success rate of markets for start-up companies has underscored the importance of not getting carried away. Early investors will walk away at the first sign of disappointment, and the markets are rarely granted a second chance. China should concentrate on getting off to a good start and build it up its new market slowly.

   The U.S.-China tyre dispute threatens to spill into other sectors and further squeeze Chinese exporters’ already razor-thin margins. It might seem mind-boggling to many that Chinese manufacturers are still hanging on to weak overseas markets even though the domestic economy looks much healthier and surely offers more potential.

    But there are structural reasons why the grass is greener outside China. The risk of not getting paid, or getting paid late, is significantly lower when dealing with foreign buyers. The cost of international shipping has dropped so much that it can be cheaper to send goods over the Pacific Ocean than across the country.

    In addition, selling to large buyers such as Wal-Mart creates enough volumes to compensate for weak margins. Moreover, Chinese exporters get all sorts of export rebates and local government incentives which help to lower their costs.

    But as the tyre spat has illustrated, Washington can slap punitive duties on Chinese imports simply by pointing to a significant increase in imports from China.  By imposing penalties in this case, President Obama has opened the door for a slew of similar complaints against Chinese goods. It will only be a matter of time before other countries, worried about where those displaced Chinese exports might end up, start to follow suit.

    That’s why Chinese policy makers need to get more serious about stimulating domestic spending. It is time for Beijing to revamp a system built over the past three decades that explicitly and implicitly favours exports and to encourage manufacturers to prioritise selling to the domestic market .

    A good first step would be to reduce some of the export incentives China offers to certain industries.  These effectively subsidise foreign consumers at the expense of domestic customers. For example, Chinese tyre-makers get about 9 percent tax rebate on the value of the products they sell abroad. That’s why tyre makers can afford to price exported tyres more cheaply than the ones sold at home, according to Xu Qiyuan, a researcher at China’s Social Science Academy.

    To date, however, China's response to the credit crunch has been to boost incentives to prop up export markets. Beijing raised export rebates on 3,802 items from April 1. Textile exporters also got an increase in their rebate to 16 percent from 15 percent. This activity is not illegitimate and many countries subsidise exports. But the US enforcement action shows that this policy may have practical limits. 

China needs more than just a change of heart on subsidies. Longer term  Beijing needs to  foster the development of a healthy credit culture for suppliers so they can get paid on time, and improve China's transportation infrastructure in order to reduce the cost of moving goods around the country , and most importantly, break down local protectionism that discriminates against suppliers from other provinces.  It may seem odd but China still needs to create a single internal market.

    Despite all the talk about Chinese consumers unwilling to spend because of a lack of a social safety net, one important reason that they don’t buy much at home is because prices are often too high. When “frugal” Chinese consumers go to Hong Kong or London, they immediately become big spenders, splashing out thousands of dollars on clothing, cosmetics, bags and watches.  The irony is that a lot of the things they buy are actually made in China, but are simply not available there, or cost much more.

    Moreover the lack of a single market hampers foreign companies seeking to sell to China. Although foreign executives might fancy China as a giant market with 1.3 billion customers, the reality is that it is extremely fragmented, so economies of scale are hard to achieve. Transporting goods from one province to another can incur hefty tolls levied by local governments which want to drum up local revenue and make it harder for companies to break into their local markets.

   The credit problem also needs to be addressed. Big Chinese retailers only pay for goods on delivery. An exporter, by contrast, gets a letter of credit when the order is placed, and this can be cashed in to finance production.

   China's rebalancing away from export dependence has barely begun, and it will take a long time to change attitudes. But now would be a good time to make a start. The recent trade disputes over Chinese tyres and toys should serve as warning shots. China's leaders must start the domestic market more friendly to suppliers and consumers.

One of the biggest debates about China today is whether it is at the stage of asset price inflation or has entered into a bubble. Here are some useful quotes from leading bubbleologists to help you decide:

Charles P. Kindleberger, author of Manias, Panics and Crashes: A history of financial crises, uses the term bubble to mean any deviation in the price of an asset or a security or a commodity that cannot be explained in terms of the “fundamentals”. Small price variations based on fundamentals are called “noise”.

Kindleberger and co-author Robert Aliber explain further: The bubble involves the purchase of an asset, usually real estate or a security, not because of the rate of return on the investment but in anticipation that the asset or security can be sold to someone else at an even higher price; the term “the greater fool” has been used to suggest the last buyer was always counting on finding someone else to whom the stock or condo apartment or the baseball cards could be sold.

In an effort to determine how bubbles form, Robert Shiller focuses on a psychological feedback loop among investors, who become ‘attracted to an investment irrationally because rising prices encourage them to expect, at some level of consciousness at least, more price increases. A feedback develops - as people become more and more attracted, there are more and more price increases. The bubble comes to an end when people no longer expect the price to increase, and so the demand falls and the market crashes.’

All this wisdom is helpful, but it is still very difficult to distinguish between a rise in asset prices caused by irrational exuberance and one which is driven primarily by improving fundamentals.

Take Chinese property as an example. Billions of dollars of infrastructure money has improved the value of the land so property prices deserve a revaluation. The demand for property seems to have drive up prices to the point that rental yield becomes very low, indicating that prices might have gone ahead of themselves.

That’s why I will save this for the last quote. ‘The first lesson about bubbles,’ according to Allan Meltzer, ‘is that all explosive movements are not bubbles.'

(Credit goes to Andy Rothman, China strategist at CLSA who compiles the quotes)

Why are the U.S. and China trading blows about something as mundane as car tyres at a time when the world is trying to avoid slipping back into trade protectionism?
It's not purely about the $1 billion worth of tyres China sells to the U.S. every year. It has more to do with the $100 billion of automotive vehicles, parts and engines America buys from abroad. China is worried about the direction of U.S policy. Beijing fears that the administration may find ways to thwart China's future plans to ship vehicles to America.
China may not yet export cars to America, but it already exports a growing number of parts. Cars are in the pipeline. A recent spate of bids from Chinese companies such as Geely for failing U.S. and European auto brands have shown that it has the ambition to be the next Japan or Korea.
Auto sales are the only bright spot in U.S. consumer spending due to the Treasury-financed "cash for clunkers" program. Fears about stimulus dollars leaking abroad are one of the reasons the U.S. trade unions have been aggressively pushing for anti-dumping tariffs.
The worry is that the U.S. has imposed the tariffs under a law designed to protect domestic U.S. producers from being damaged by a sudden surge in imports from China. Determining whether this has occurred is a bureaucratic exercise in which experts determine whether such damage is occurring and propose remedies. But there is a political circuit breaker -- the president has discretion in whether to implement remedies.
At least four similar, so-called Section 421 petitions were filed during the presidency of George W. Bush, according to the international trade commentator, Scott Lincicome, but none were approved. In this case, Obama came down on the side of the union. This has raised fears in Beijing that there will be more cases in coming months.
The Chinese side seems to fear that Obama is bending too much to domestic constituencies such as union and producer interests. Washington needs to be careful about this. Since it wants to export its way out of recession, it should not agitate China, which is potentially a major purchaser of U.S. exports.
China does not want the Obama presidency to set a precedent by discriminating against Chinese goods at this time. Moreover, it is concerned that other countries might follow suit and start to target Chinese goods as well. Its reliance on exports is potentially the big weak link among China's recovery.
That's why Beijing, which has limited its protest mostly to words in recent years for fear of more retaliation, quickly spun into action this time. China's counterpunch is equally forceful. It is launching an anti-dumping investigation into imports of U.S. chicken products and vehicles.
The idea is presumably to raise the political cost for Obama of taking his pen out of his pocket every time a Section 421 case, which specifically targets China, is presented for his signature.
During the first half of this year, 89 percent of China's chicken imports came from America, representing a fifth of all U.S. chicken exports. In comparison, tyres account for just 0.4 percent of the value of goods what China sells to America each year and 0.07 percent of China's total exports.
While it is no secret that America subsidises its agriculture industry, China also spares no effort in helping exporters and putting up import barriers to protect domestic manufacturers. For example, China agreed in August to stop some discriminatory charges it imposed on imported U.S. auto parts after a World Trade Organization ruling from September 1.
After chicken, U.S. soybeans might be the next target. As much as 40 percent of China's soybean imports came from America last year. And this year, China's soybean imports increased by 28 percent.
The last time China took retaliatory measures was during the "garlic trade war" against Japan and South Korea in 2000-2001.
Washington and Beijing have vowed to cooperate in seeking to revive global economic growth, but the dispute over tyres has laid bare the two countries' continued friction over trade. This could spill into the G20 summit later this month and Obama's scheduled visit to China in November.
In previous meetings between the top leaders of the two countries, mostly the U.S. lectured and China listened. Now Beijing is more outspoken about expressing its own concerns and many at home are calling for more tit-for-tat policies.
It remains to be seen how the U.S. will react to a more assertive China.

Google's former China head Kai-Fu Lee wants to create China's next internet giant in a factory. He believes that by combining the smartest entrepreneurs, the shrewdest business people and the brightest business ideas, he will be able to create five highly sellable companies a year. That sounds like an ideal model for venture capital, but is he being realistic?

Lee's plan, formulated while he spent time in hospital over the summer, follows a battle with Beijing regulators who wanted to censor Google  searches that lead to pornographic sites. It has drawn strong support from investors.
 
Lee has managed to raise $115 million in just one month, winning support from YouTube Inc. co-founder Steve Chen, as well as Foxconn Electronics, Legend Group, New Oriental Education and venture firm WI Harper Group.
   
They believe that as China embraces a start-up culture, Lee's business, which is a mix of venture capital and development lab, will be well positioned to capitalize. Lee's plan is to hire 100 to 150 young engineers, help nurture their ideas, then spin off 50 to 75 of them a year with
funding from his venture, whiling hiring new people to make up for the loss.
  
However, it looks as if his company, called Innovation Works, has yet to line up ideas or engineers. This kind of "incubator" model became popular in the U.S. and Europe during the dot-com boom, but most of them just burned through a lot of money and then folded.
 
Lee and his backers believe that China's market is more favourable, as it is at a crucial point regarding "cloud computing" and mobile technology, and there is a strong need for early-stage funding.
 
The new fund is still starting off, but Lee plans to expand from its base in Beijing to places such as Taiwan, the Asian hardware manufacturing base and his hometown.

Investors are attracted by Lee's reputation as the single largest magnet for talent in China. Lee, who went to school in the United States, has won a loyal following from Chinese students
through his numerous coaching books, public speeches and blogs, although critics say he has spent too much time promoting his personal brand.

An expert in speech recognition technology, he founded Microsoft's China research lab in the late 1990s. When he left to join Google, Microsoft sued him for violating a promise not to join a competitor.

Nimbler local rival Baidu now dominates China's search market with 75.7 percent in terms of total search queries, dwarfing Google's 19.8 percent share, according to iResearch. At Google, Lee was caught between the Beijing authorities who insist that foreign web companies censor the
Internet and his U.S. bosses who demanded he drum up more business in China.
 
He has wanted to break away from his corporate role to start his own company for a decade, but it looks as if he is stuck in the corporate mindset. Lee is adopting an almost a planned
economy approach to an industry that has always relied on markets to determine who is the fittest to survive. Indeed, he is even promising to tailor-make companies for interested
foreign investors.
 
A factory model lowers the risk for investors as they will enjoy more control, but that also means less incentive and ownership for entrepreneurs, since their roles are reduced to
that of employees. Why would young people take their ideas to Lee rather than make a go of it themselves?
  
Unlike Silicon Valley, China does not have an ecosystem where start-up companies can easily find angel investors. Even though China is a hotspot for venture capital, with $50 billion
chasing mid- to late-stage projects, less than $1 billion in total is earmarked for early-stage projects.

Lee prides himself on his doggedness in chasing after talent. One year while at Google he made offers to graduates, only one of which was initially rejected. He called the student, found out that his girlfriend thought Google was a bit of a start-up, then asked for his girlfriend's number and called her up. That year he achieved a 100 percent offer acceptance rate.
  
Nevertheless, it remains to be seen whether Lee can retain his ability to attract and inspire the best young people now that he is no longer at Google. He needs a lot of them to make his dream come true.