TRANSCRIPT: Chinese Stocks Break New Records,
Pussyfooting Around Currency, and Democracy comes
to Japan with implications for US-Japan-China
Sinomania! Volume I Webisode 26, July 31, 2007
Democracy in Japan?!
Chinese stock markets reach new highs again and
And is Bush Pussyfooting Around China…
RECORD HIGHS AGAIN AND AGAIN
At the end of last week the Shanghai Composite
index broke past 4,300 for a new record high and
has been breaking records ever since. Even as
we speak, the Shanghai Composite has briefly pierced
the 4,500 mark making my prediction that the index
will reach 4,600 by 2008 seem modest and in sight.
The index closed July 31 at 4,471.032, a new record
Performance is the same across the boards with
the CSI 300 breaking records every day since July
25 and closed July 31 at 4,460.564. And B Shares
have surged as well, Shenzhen B Shares reached
new record levels last week and continue up, Shanghai
B Shares are advancing well but are still below
their May 21 peak.
The current run up in share prices is occurring
despite new policy initiatives from Beijing designed
to cool down the economy. In the past week alone,
there was a half percent increase in banks' reserve
requirement and an increase of just over a quarter
percent in bank lending and deposit rates.
So are we in a sucker's rally or in the process
of creating a new plateau? Only time will tell.
The biggest IPO story of the week is the surprise
announcement from Jack Ma, the flamboyant founder
and CEO of Alibaba one of China's biggest e-commerce
firms (40% owned by Yahoo!) That it will IPO on
the Hong Kong exchange in the near future - no
timetable or details are available but the sale
could raise almost $1 billion US dollars, cash
to use for global expansion.
At a conference in the Philippines, Rodrigo Rato,
Managing Director of the IMF - the International
Monetary Fund - said that China and India will
be the new engines for world economic growth in
years ahead. Rato further declared that China
this year overtook the USA to become the biggest
contributor to world economic growth.
Meanwhile US Treasury Secretary Hank Paulson
is in China for the fourth time this year to plead
once again for more rapid appreciation of the
Yuan. Paulson knows that the US Congress has bipartisan
support and is moving forward with anti-China
Last week, the fundamentally mis-aligned China
currency bill (discussed in an earlier episode)
was passed by the Senate Finance Committee with
only one vote against. Republican Senator Chuck
Grassley of Iowa said the bill will force the
White House to stop "pussyfooting around" with
In response, Paulson and other Bush cabinet members
sent a message to Grassley and the other Senators
behind the measures warning them that such action
could weaken the United States and "trigger a
global cycle of protectionist legislation."
But these words fall on deaf ears with so many
politicians focused only on next year's elections.
I've warned for some time that this backlash was
coming and a Bush veto most likely won't stop
it. The repercussions could be profound. This
is an another important development to watch.
DEMOCRACY COMES TO JAPAN
With a landslide victory in the upper house of
the Japanese parliament, the Democratic Party
of Japan or DPJ at long last ended at least partially
Japan's one-party rule in the most significant
political development in Japan since the end of
the United States occupation in 1952.
Already the DPJ is taking Washington head on
with a threat to veto any extension of emergency
anti-terrorism legislation that allows Japanese
assistance to American policing of Middle Eastern
The DPJ, led by Ichiro Ozawa is largely unknown
to US officials used to dealing only with their
close allies, some might say puppets, in the Liberal
Democratic Party or LDP that have controlled Japan
for over half a century. Ozawa left the LDP around
14 years ago and brought himself and his center-right
Liberal Party into the DPJ in 2003. The DPJ is
a curious mix of ex-LDPers, socialists, and conservatives.
Ichiro Ozawa's views are also mixed and his real
intentions are subject to debate. In the not so
distant past, he was well known for ardent nationalism
and a desire for remilitarizing Japan. At the
same time, however, Ozawa has a long record of
criticizing the honoring of Class-A war criminals
at the Yasukuni shrine by Japanese Prime Ministers,
which is perhaps the main bone of contention between
Japan and China, in particular. The General Secretary
of the DPJ, Naoto Kan, has also criticized the
Yasukuni shrine and visited Nanjing where he apologized
for the Japanese military's massacre and atrocities
there in 1937, the infamous Rape of Nanking.
An official apology from Japan for the brutal
war and occupation it waged across China from
1932 to the 1940s is the most sought after diplomatic
victory desired by the Chinese government.
If Ozawa and the DPJ are successful in forcing
an early general election in Japan and they actually
unseat the Liberal Democratic Party - certainly
no easy feat, one thing will be clear: the direction
of Japan's relations with the USA and China would
no longer be certain. And that has huge implications
for the future.