Giant on the move
As gold prices surge to a new record, China's retail investors are trading more of the yellow metal, often using borrowed money. This is further evidence that recent high prices may not be sustained.
Like investors around the world, Chinese individuals are buying gold because they are worried about inflation. After all, Beijing has already pumped an unprecedented amount of money into the system, sending asset prices higher. But Chinese retail investors are also known for their herd behaviour. Despite the recent sharp rise in gold prices, many have decided to jump in.
This is lucrative business for Chinese banks. During the first six months, mid-sized Xingye Bank, which offers gold trading business with Shanghai Gold Exchange, traded 20.9 billion yuan ($3 billion) worth of gold for its clients, almost three times as much as they did last year.
Other than earning a commission for buying and selling for their clients, the bank is also making a gamble itself. It traded 15.3 billion yuan ($2 billion) worth of gold on its own account, up 15 percent from last year.
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.
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.
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.
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.
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”.
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.
from The Great Debate (Commentary):
If you want to gauge the current state of China's construction boom, look no further than Hong Kong's dynamic neighbour, Shenzhen. Defying the searing heat of the Chinese summer, construction workers are busily building a state-of-the-art stadium for the 2011 World University Games.
I was there last week on a five-day tour organized by Guangdong Province, and the stadium was the first stop, indicating how intensely proud officials are about the "Lotus Flower" stadium.
from The Great Debate:
China has talked about plans to allow foreign companies to float on its domestic stock markets for at least a decade, but that's all there has been: talk.
Now would be a good time to convert some of that talk into action. Beijing has been struggling with its own investment strategies: the state gets feeble returns on the U.S. Treasury bonds it owns, and its equity stakes in foreign financial firms are well under water.