TRANSCRIPT: General Motors puts
its future in China, Chinese demand pressures
coal prices - a new commodity boom, new Chinese
investment funds, and a markets update...
Sinomania! Volume II Webisode 48, February 13,
2008
Is GM Turning Chinese?
Is Coal the new Oil?
New Chinese Funds, And a Market Update…
SHANGHAI SUBURBS
General Motors posted another record
loss this week and now wants to lose its union
labor force. GM is offering buyouts to all 74,000
union workers in the United States. This is yet
another sign that GM is shifting its production
overseas and I expect a lot of it will end up
in China.
GM says its China operations are
the one bright spot for its future. Last year
GM sold over one million cars in China, a surge
of 18 and a half percent. Indeed GM is poised
to overtake Volkswagen in the success of its Chinese
investments.
Just last month, GM and Shanghai
Automotive Finance sold almost $2 billion Yuan
worth of bonds backed by its car loans, the first
ever securitization of car loans by an automobile
financer in China.
In its efforts to fast track production
of the Chevy Volt electric car, GM announced Monday
a new global organization for hybrids and electric
cars that will be partially based in Shanghai.
Through a German consulting firm GM is recruiting
engineers and senior managers for a future operation
in Shanghai.
And visitors to Detroit’s new international
air terminal are greeted with Chinese announcements,
signs, and even a China UnionPay ATM. UnionPay
is the ironically named debit card network in
China. Detroit is ready for an influx of Chinese
moneymen and business travelers when the new Northwest
Airlines Detroit – Shanghai route starts a year
from now.
Across the Detroit River in Ontario,
the Canada China Business Council is actively
encouraging Chinese direct investment in the region’s
depressed auto and auto parts industries. China’s
actual foreign direct investment in Canada is
nearly one and a half billion dollars with more
anticipated.
All this activity makes me wonder
why opportunistic politicians in America are so
worried about the Mexican border when parts of
Michigan and Ontario may become Shanghai suburbs.
MARKETS AND MONEY
Stock markets reopened and are broadly
down with what I call a “hong bao” effect, cashing
out in the wake of spending on New Year lai see
or gifts of cash and other expenses such as traveling
or partying the nights away during the week long
holiday.
The Shanghai Composite Index fell
sharply in the first hour of trading February
13, struggled to make its way to my 4,600 baseline,
and closed down at 4,490.72. The CSI 300 Index,
Shanghai and ShenZhen B shares, were much the
same with two or more percent declines February
13. Markets in Hong Kong rebounded by about the
same amount while Taiwan shares are flat.
There is renewed bullishness on
Chinese stocks from big investors. Morgan Stanley’s
call is up for emerging markets equities and there
are several new funds. The investment targets
are Chinese financials, property or real estate,
select big Chinese state-owned and mixed ownership
conglomerates, Hong Kong Red Chips, and investment
is aimed at greater China with Hong Kong, Taiwan,
and Singapore all in the mix. The trend is China’s
domestic growth and the companies that benefit
from the unstoppable urbanization of Chinese society.
Barings Asset Management of London
will premier two new China funds in May: the Baring
China Growth Fund and the Baring China Select
Fund. The select fund will be open ended. The
funds will be managed by Baring’s Hong Kong China
Fund team. Another London listed fund, JP Morgan
Chinese Investment Trust claims it can pick the
“long-term winners” among Chinese stocks. Manager
Emerson Yip told the London Financial Times the
fund looks for strength in return on equity and
focuses on industry leaders such as China Mobile
which makes up almost ten percent of the fund’s
holdings.
Legg Mason and Citibank China will
bring mutual funds to Chinese individual investors
this year. Many Chinese want to invest in other
emerging markets and the potential is enormous.
According to one market analysis, Chinese mutual
funds assets may grow to almost one and a half
trillion US dollars by 2016. At the end of last
year China passed Japan in net flows to long-term
mutual funds. Remember, as Chinese invest in these
mutual funds capital amassed in China will be
returned to China’s traders and investors.
IS COAL THE NEW OIL?
Will 2007 be remembered like 1993,
the year China became a net importer of oil with
massive implications for world oil supply, prices,
and “energy security”? Last year, China became
a net coal importer despite being the world’s
largest producer of coal with the third of fourth
largest coal reserves.
The reasons behind China’s coal
squeeze are many: reform and consolidation in
China’s mining industry – Beijing shut down around
10,000 inefficient and dangerous mines, transport
remains a problem despite great expansion of railways
and highways, incredible demand for coal by China’s
power industry and huge rural population, and
a recent ban on exports from Beijing to build
up coal reserves after the unusual and unusually
long winter cold snap in central and southern
China.
The result of China’s hunger for
coal is major pressure on world prices as global
demand can’t be met. Japan normally relies on
China for a tenth of its coal imports. Both the
US and China have many new coal-fired power plants
under construction as they turn to coal to lessen
their dependence on Middle East oil.
The question then, as featured on
page one of Tuesday’s Wall Street Journal, is
will Chinese demand do to global coal prices what
Chinese demand did for oil? If so, it could lead
to further inflation as some major economies shrink
– the perfect recipe for stagflation in America,
Japan, and maybe even Europe.
Of course for investors, there’s
always an upside: Appalachian coal futures doubled
over last year’s levels and exports of coal to
China is opening mines and creating jobs in many
of the most declined areas of the United States.
