TRANSCRIPT: Heavyweight investors debate whether
Chinese equities are overvalued; markets summary
for the week past; and a Special Report on the
17th Party Congress - Hu picks for whom..?
Sinomania! Volume I Webisode 37, October 24, 2007
The Race Is On: Will It Be Xi or Li For China's
My Report on the 17th Party Congress;
And Two Famous Investors Weigh In On Whether Shanghai
The fourth quarter is well underway and the 'B'
word is once again in the news with the big wigs
inside and outside China warning that the Shanghai
bubble could pop at anytime.
Warran Buffet tells investors to be 'cautious'
of Chinese stocks reminding reporters in China
that the venerable Berkshire Hathaway buys stocks
that have growth potential over price rises. In
an interview last week on the new Fox Business
Channel, Buffet said he sold his remaining holdings
of PetroChina - as recently as three weeks ago
Berkshire Hathaway owned more than three percent
of the company's shares. Given the pace of deals
and new projects underway at PetroChina and the
growth potential of its markets worldwide one
has to wonder whether Warren Buffet sees something
in the anticipated IPO of PetroChina on the Shanghai
A share market to avoid. Does PetroChina's meteoric
rise signal a hard fall in the future? Or are
the dynamics of the 21st Century oil and gas sector
too hot for Warren Buffet to handle?
Buffet's views were seconded by Wang Zheng a
manager at the Chinese brokerage Everbright Securities
who told a Bloomberg reporter it was about time
to "pull out" of Shanghai.
For an alternate view, Jim Rogers, co-founder
of the Quantum Fund along with George Soros, told
the British Daily Telegraph that Chinese equities
are not a bubble yet. Rogers said the Shanghai
Composite could see 9,000 before he'd quit. "I
do not want to sell Chinese stocks," he said.
"I want to own them forever and I want my daughter
to own them." Rogers' daughter is four years old.
Meanwhile yet more foreign investors may soon
get action in Shanghai. Regulators on Taiwan have
given approval for native mutual funds to buy
stocks in Hong Kong and in mainland China. Taiwan
funds can put up around half a percent of their
assets in China proper, most likely Shanghai where
many Taiwan-based businesses have returned or
set up shop, but they may spend as much as ten
percent of assets on Chinese companies listed
in Hong Kong. Both figures add up to billions
in new cash seeking opportunities in China. Another
sign that prices will continue to rise.
The Shanghai Composite Index dropped back below
6,000 late last week and there it stays closing
October 23 at 5,843. The CSI 300 Index plunged
since our last show and is now hovering just above
5,500. Shanghai B shares are back just above levels
from the start of the month, they closed October
23 a hair above 370. ShenZhen Bs are far above
their August troff but down as well on October
23 closing at 763.138.
SPECIAL REPORT: 17th PARTY CONGRESS
The 17th Party Congress of the Chinese Communist
Party last week in Beijing by all appearances
affirmed President Hu Jintao's hold on national
level political power. Former President Jiang
Zemin's senior allies did not move forward. This
is interpreted to mean his influence is waning.
But in the process of consolidating power Hu has
surrounded himself with eight rivals and or potential
successors at least one of them still connected
to Jiang Zemin.
The selection of Xi Jinping and Li Keqiang as
new members to the standing committee - the politburo
- the top decision making body of the party has
generated the most buzz.
The media outside China have already declared
Xi China's next leader after Hu is most likely
reelected to a second and final five year term
as President by next year's National People's
But is it so certain?
Xi Jinping, is said to be a protégé of Jiang
Zemin, admittedly one only very recently elevated
to national office. Xi was elected to be the Chief
of the Party Secretariat in charge of the day-to-day
running of the party.
But Li Keqiang has yet to be given a clear role.
Indications are he will be a new chief Vice Premier.
Li is from the Communist Youth League, said to
be Hu Jintao's base.
What is missing from most reports is awareness
of how the party's composition is changing and
where power is most likely to come from now and
in the future.
Party delegates were selected during a nine-month
period that began last October. The selection
of delegates takes place within electoral blocks
of party members. The most significant block growing
in power is the Communist Youth League where Hu
it is believed has most influence. Communist Youth
League members are obviously younger but also
more educated and more likely to be an independent
Overall, the composition and number of party
delegates is growing. Unlike the National People's
Congress that attempts a form of proportional
representation based on population, the number
of Chinese communist party delegates increases
with the number of party members and thus growing
the influence of the party in the country. Ten
years ago 58 million party members selected a
little over 2,000 delegates to the party congress.
This year more than 73 million party members selected
over 2,200 delegates to the 17th Party Congress.
Delegates are getting younger and more representative
of the population. For example, in the 2007 Congress
20% of delegates are women, over 10% are ethnic
minorities, such as muslims, and almost a third
are younger grass roots members. Over 70% are
under 55 and 416 delegates are under 45.
The base of the party is no longer 'gong, nong,
bing' - workers, peasants, and soldiers - as it
was under Chairman Mao. Today, the base of the
party is made of 50 million professionals from
self-employed entrepreneurs to engineers in state-owned
corporations to managers in every capacity, this
group has assets valued at almost one and half
trillion US dollars. They are probably the largest
single political class in the world. They are
the new face of the party in China.