The Great Debate

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

China’s bubbly stock market is making heroes out of some unlikely companies. And none more so than BYD Co. , in which Warren Buffett plans to take a 10 percent stake.

BYD has a much-hyped project to manufacture electric vehicles. Its shares have surged 140 percent in the past three months and 440 percent in the past year. They now trade at 74 times of current year profit and 54 time of next year earnings. That is double the level of capital goods companies and four times the multiple on which Chinese automakers trade.

BYD seems to have become the “poster child” for environmentally friendly transport. For all that, it has not yet sold any electric cars in its home market, though it has hundreds of trial customers in the government. The project may have real substance and it’s fair to say that Buffett has probably done his homework. But meaningful earnings are at least two to three years away, assuming those trials are successful.

Meanwhile, BYD’s real business is producing conventional cars and cell phone components. These do not support the company’s stratospheric multiple. Investors seem to have bid up the shares, taking their lead from Buffett. But they should remember that Buffett bought in at around HK$7 a share, and now the stock is trading at HK$42. Moreover, Buffett’s investment is under consideration in Beijing, and the company does not expect a decision until October.

Dr. Gerard Lyons is chief economist and group head of global research, Standard Chartered Bank. The views expressed are his own.

The world is witnessing a shift in the balance of power, from the West to the East. This shift will take place over decades, and the winners will be:
- Those economies that have financial clout, such as China
- Those economies that have natural resources, whether it be energy, commodities or water, and will include countries, some in the Middle East, some across Africa, Brazil, Australia, Canada and others in temperate climates across, for instance, northern Europe
- And the third set of winners will be countries that have the ability to adapt and change. Even though we are cautious about growth prospects in the U.S. and UK in the coming years, both of these have the ability to adapt and change.

China is at the center of this shift.

The scale and pace of change in China is breathtaking. Against this backdrop of dramatic change, let me look at China’s impact on the global economy, especially in the aftermath of the financial crisis.

- John Kemp is a Reuters columnist. The views expressed are his own. -

Reports that China has asked for a discussion about reserve currencies at next week's expanded Group of Eight summit in Italy has added to confusion about whether the country wants to dethrone the dollar from its status as the world's sole reserve currency. But the very fact the issue has been pushed onto the agenda suggests that a fundamental shift is underway.

Given the U.S. government's enormous borrowing requirements over the next decade to cover the bank bailout, fiscal stimulus and deficits in Social Security and Medicare, the dollar's reserve status depends on emerging markets' continued willingness to accumulate U.S. liabilities rather than switching to other stores of value, such as the euro or the IMF's Special Drawing Right (SDR).

As the largest buyer of U.S. Treasury securities, China can break the dollar's reserve currency status any time it wants. But it would risk large losses on the stock of U.S. debt that it has bought already. The resulting unstable stability is the foreign exchange version of the Cold War stalemate based on "mutually assured destruction".

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

While China has been outspoken in expressing concern about the United States printing too much money, those worries might be better focused at home. No country beats China when it comes to effective monetary easing.

Beijing has scrapped lending quotas, adopted a loose monetary policy and kept interest rates at a four-year low to boost liquidity and promote growth. The policy has worked. China has lent out more money in the first four months of this year than the whole of 2008. Money growth in China is up more than 25 percent this year, versus about 10 percent in the United States.  Click here for a related graph.

– Eric Auchard is a Reuters columnist. The views expressed are his own –

The Chinese government has backed away from mandating filtering software on all personal computers in China, in a move that averts a dangerous escalation in its censorship powers.

But however controversial and unworkable China’s plan to require Internet filters on PCs proved to be, Western firms have largely themselves to blame for creating and selling such filters in the first place.

–Wei Gu is a Reuters columnist. The opinions expressed are her own–

Chairman Mao used to say the truth is always kept by the minority.

A little-known private Chinese machinery company’s bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays like Chinalco’s for Rio Tinto have failed.

True that private sector firms face an uphill battle in China against more dominant state-backed firms, but it seems like double standards when Western observers, who extol the virtues of the private sector taking the driver’s seat, praise Chinalco’s deal but dismiss Tengzhong’s bid for Hummer.

Chinese media’s disapproval of Sichuan Tengzhong Heavy Industrial Machinery’s move has tempered concerns about technology and job transfers to China, as well as questions whether China’s military was behind the bid.

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

America may have fallen out of love with Wall Street, but China hasn’t. That’s one way to read CIC’s just-announced $1.2 billion investment in Morgan Stanley — funds that allow the investment bank to repay Tarp money to the U.S. Treasury.

This looks to be an aggressive vote of confidence in the beating heart of U.S. financial capitalism.

— Wei Gu is a Reuters columnist. The opinions expressed are her own. —

When U.S. Treasury Secretary Timothy Geithner told students at Peking University that China’s holdings of U.S. Treasury bonds were safe, his answer drew loud laughter from the audience.

Even economist and columnist Paul Krugman, who is often critical of U.S. economic policy, found himself defending America when he was repeatedly asked the same questions in China recently: Will you (U.S.) underwrite the value of China’s holdings of U.S. government debt? Will you be prepared to pay a much higher rate of interest against the risk of high inflation and dollar depreciation?

– James Saft is a Reuters columnist. The opinions expressed are his own –

Sure, seeing your economy shrink at a 15 percent annual clip is depressing, quite literally, but if you believe in even a tepid global economic recovery in the second half, then Japan is actually attractive.

There is no way to sugar coat the first quarter Japanese gross domestic product figures released on Wednesday: they are breathtakingly bad viewed from virtually any angle.

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

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.