TRANSCRIPT: China Toy Recall - Markets &
IPOs - Western Banks Catch Asian Flu?...
Sinomania! Volume I Webisode 28, August 14, 2007
Crisis in Toy Land! Washington's Latest Trade
Spat with Beijing;
The Asian Flu in Banking Moves West;
And Chinese Markets Defy Gravity!
CHINESE TOY RECALL
The announcement today by the U.S. Consumer Products
Safety Commission that it compelled giant toy
maker Mattel (Symbol: MAT)
to recall millions of Chinese made toys including
famous American brands such as the Barbie doll
led to new heights of hysteria in American media
with a flood of attention-grabbing headlines and
TV reports on the new Chinese bogeyman literally
hiding under the beds of America's children.
Washington politicians were quick to defend American
youth. Democratic Senator Dick Durbin of Illinois,
who is running for reelection and receives the
bulk of his PAC money from Labor, has demanded
that the Chinese toy invasion be stopped at the
border! This despite the fact that no one has
been injured or harmed by any of the toys
recalled according to Consumer Products Safety
Commission chairman Nancy Nord herself.
Ms. Nord said the recall was "intentionally large"
to get as many of the affected toys off the shelves
and fulfill the Nanny State's duty to protect
future citizens from parents who've not taught
their children that ingesting toys is a bad idea.
Today's action and earlier moves by the US Food
and Drug Administration - the FDA - reveal that
Washington is taking its trade spat with Beijing
to a new and different level.
Imports of Chinese goods are expected to be up
by $3 and a half billion dollars to $63.5 billion
for the second quarter. That puts 2007 on pace
for another record US trade deficit with China.
Stymied by its inability to control China trade
relations Washington appears now to be using the
policies and regulations of the FDA, the Consumer
Products Safety Commission, and other government
entities as weapons in trade disputes.
But who's really at blame?
Is China to blame? The toys were made in China,
yes, but Mattel's factories and workers in China
were built and are paid by US dollars - direct
foreign investment from Mattel and other companies.
By building factories and relocating jobs to China
multinational corporations such as Mattel get
increased profit margins and by contracting out
production and other services they get to skirt
regulations in the USA.
Who's responsible for quality control? Ten years
ago in 1997 Mattel added what it calls "Global
Manufacturing Principles" to its corporate responsibility
policy. The company created a highly successful
and imitated council to monitor its lofty global
principles which include statements on safety
and hazardous materials. Only two weeks ago Mattel's
investor relations celebrated the 10th anniversary
of this program.
In the wake of the toy recall it is apparent
that Mattel's global manufacturing principles
and program are an utter failure.
And what about inspection? One area rarely mentioned
in the media frenzy on Chinese toys is the fact
that only a small percentage of shipping containers
entering the United States are inspected, ranging
from one to maybe 6% at some West Coast ports.
And that's X-ray scanning - hand inspections are
CHINA STOCKS DEFY GRAVITY
Chinese stocks are on a steady climb since the
last episode reaching a new record high almost
every day. The Shanghai Composite Index closed
August 14 at 4,872.785 already hundreds of points
above last week. The CSI 300 closed up again today
at 4,795. The Shenzhen Composite closed down slightly
since the week began but is still in record territory
Shanghai B shares are still an exception with
some small gains over the past week and closed
August 14 at 323.168. The Shanghai B index is
still one of the best performing classes of stocks
in the world right now up over 130% in both Yuan
and US dollar terms since the start of the year.
Buoyed by the Chinese bull market, a string of
big Chinese brokerages is planning IPOs mostly
on Shanghai's domestic market: GoldState Securities
of Shanghai is planning a $4 to $5 billion dollar
(US dollar) IPO on China's domestic exchanges
early next year; Merchants, Everbright, and Orient
securities are names rumoured to be planning IPOs.
The stocks of financials such as brokerages are
doing very well. The price of CITIC Securities,
a company discussed in an earlier episode, is
up over 500% so far this year.
Qingdao Port Group, which operates China's largest
crude oil import terminal, plans an IPO for later
this year to raise funds to expand its port capacity.
The company also handles iron ore imports which
are surging to feed the demand of China's ever
growing steel industry. The IPO may raise over
half a billion US dollars on domestic exchanges.
Shenzhen Airlines is discussing an IPO that may
raise up to $1 billion dollars probably on the
Shenzhen Stock Exchange sometime next year. No
other details at this time.
Speculation continues to swirl about the massive
cash infusions from world central banks. Was a
collapse of the so-called developed world's banking
system averted by the European Central Bank or
ECB and the United States Federal Reserve last
week? Both institutions poured billions of dollars
into their banking systems. Even today, the ECB
injected another 7.7 billion Euros, around $10
billion US dollars. Canada has also added cash.
The reason, most observers say, is to restore
confidence in the aftermath of big losses in America's
mortgage and bond markets. Over half - a record
amount - of the US corporate bond market is now
considered "speculative" the new euphemism for
But the reaction outside the Atlantic Alliance
has been more muted. The Bank of Japan added around
$5 billion dollars but it is a move it makes on
a regular basis having done so about 20 times
previously. Australia similarly added only a small
amount of cash and the rest of Asia has an abundance
China as we reported in last week's episode is
capitalizing some of its last remaining state-controlled
banks but that is a process removed from the credit
problems of overseas markets.
Indeed it appears that ten years after the "Asian
Flu" financial meltdown that Asian banks may have
healthier assets than banks in the West.