TRANSCRIPT:
Beijing Puts On The Squeeze?: Sinomania! Volume
I Episode 21, June 21, 2007
Records are smashed in Hong Kong and Shanghai
but will Beijing squeeze the market?
A massive new IPO in China’s hot energy sector;
And US-China superpower summits continue, this
time behind closed doors.
PLEASE DON'T SQUEEZE THE ... MARKET?
Hong Kong H-shares reached an all-time high June
21 closing at 2,207.97 and the Hang Seng index
briefly smashed a record just shy of 22,000 points
to close at 21,954.67 on June 21st. Speculation
is surging that Hong Kong may catch sinomania
after July 5 when new rules from China’s Securities
Regulatory Commission will allow mainland brokerages
and funds to invest in Hong Kong markets including
bonds and futures. For now Hong Kong will be the
only area outside the mainland where domestic
Chinese securities firms can invest their expanding
cash.
Markets on the mainland have recovered all recently
lost ground and are again flirting with new highs.
The Shanghai Composite closed at 4,230.82 on June
21 only about 100 points below its record peak.
And the CSI 300 index -- one of the world’s biggest
gainers this year -- which is made up of a mix
of the best performing A share companies on the
Shanghai and Shenzhen exchanges, reached a new
record on June 19 but closed down slightly on
June 21 at 4,197.28.
But indications are that Beijing is taking seriously
the views of many economists that China is too
hot and the money supply growing way to fast.
At a meeting late last week of China’s State Council
-- the congress and cabinet in miniature that
runs the day-to-day central government -- Premier
or Prime Minister Wen Jiabao said that new big
investment projects will be stalled and that China’s
monetary policy needed to be “appropriately tight.”
What measure will be used to create the appropriate
tightness of Chinese money is uncertain but most
China-watchers believe it will be in the form
of tax reform on two counts: One is the elimination
of export tax rebates on nearly all export categories
including areas that China dominates globally
such as apparel, shoes, and toys. The second is
the elimination of tax on interest earned on bank
deposits which will in effect raise deposit rates,
and cause a possible increase in lending rates.
Beijing’s hope is that Chinese exports will slow
enough to stave off trade wars particularly in
the USA although that effort will not appease,
in my view, a US Congress hell bent on making
China America’s scapegoat. The other actions are
designed to tighten money in China without appreciating
the Renminbi, China’s currency, more than the
4-6 percent currently planned for this year.
Whether these efforts will be successful is anyone’s
guess. Beijing now seems convinced that Chinese
markets are headed for a crash – a prediction,
as regular viewers know, anticipated by the outside
world from the start of the year. But the Chinese
people think otherwise and reports are that Chinese
are forgoing spending on big consumer durables
in order to put cash in the stock market. I still
believe my projection that the Shanghai Composite
will reach 4,600 by 2008. But as always, stay
tuned!
IPO REPORT
PetroChina, China’s oil major now ranked as the
4th biggest company in the world in market value
and a major challenger to traditional powerhouses
Exxon/Mobile, Royal Dutch Shell, and British Petroleum,
announced on June 20 that it will IPO on the Shanghai
exchange as a domestic A share. The offering has
not been priced and will be discussed at PetroChina’s
shareholders meeting August 10 before submitting
application to China’s securities regulator. The
domestic listing could raise up to $6 billion
US dollars making it the biggest Chinese IPO so
far this year.
PetroChina is already listed as an H Share on
Hong Kong and listed on the New York Stock Exchange
under symbol PTR. In New York, PTR was up almost
3.5% June 21 to $152 dollars and 5 cents a share.
There is an active campaign by the “Darfur genocide”
crowd to dump PetroChina shares because the company
is the most active foreign oil producer in Sudan.
But one of the most famous American investors,
Warren Buffett, said at his company’s annual meeting
this year that he has “no problem with what PetroChina
is doing.” Buffett’s company, Berkshire Hathaway
voted to keep its shares of PetroChina and ignore
the coalition of aging Hollywood and music stars
that are trying to blame China for sectarian atrocities
in Sudan while ignoring the impact their own countries
oil companies have on the situations in Nigeria,
Guinea, or the middle east.
And speaking of big American investors, Microsoft
announced that it will buy a significant stake
in a Chinese television manufacturer, Sichuan
ChangHong electric. The investment is to fund
a joint project to develop TVs that will connect
to computers and the internet, according to Microsoft.
US-CHINA SECRET TALKS
The US State Department kicked off two days of
talks with China on Wednesday, part of a “senior
dialogue” that is conducted behind closed doors
and supposed to touch on a broad range of issues.
The State Department is giving no specifics but
you can see the start of the talks in a video
clip posted at the Sinomania! China News page.
My speculation is that the talks will center
on competing energy interests and ascertaining
where China is in oil and gas development in the
Sudan and Iran while China will gauge US progress
in the southern oil fields of Iraq and with Caspian
Sea pipelines.
The talks take place as Iraq’s Kurdish President
Talabani visits Beijing and Admiral Fallon, the
new head of the US central command or CENTCOM,
travels to Turkmenistan to meet with the new Turkmen
president.
