Roy Ho’s Blog

The latest toll from CNN is more than 20k deaths, 160k injured, 15k still missing, 5 mil homeless, 4400 aftershocks, and unspecified number of dams are in danger, what can we learn from this natural disaster?  China has successfully minimized, thus far, the domestic political fall out of this natural disaster, can China turn this natural disaster into a contribution to the rest of us?  Will China use this event to let the Tibetan issues drop off the radar?  This could be one event that China can score some points before the Olympics starts.  

First of all, China finally learnt to take the initiative to release information themselves.  On the contrary, Myanmar is reluctant to release any information.  Although the freedom of the press is still very limited, by taking the initiative to release the news, even the bad news, China has now become a reliable source of information.  The threat of rumor (of disease, of higher death toll, of dam damage, of corruption in the local areas, inefficiency of government led relief effort) has been starved off.  This leads to a government of higher mandate, rubbing the next round of unrest off to appreciate the governance of the Beijing government.  

Secondly, accepting foreign experts to help eases the diplomatic tensions with Japan and leads a more peaceful atmosphere with Taiwan.  It also shows the confidence of Beijing government. 

Thirdly, China used different military units to assist the relief effort.  This earned a lot of credit among the overseas Chinese for the Chinese military due to Tiananmen Massacre back in 1989.

The west will see if China will use this event to divert all international media attention away from Tibet and quietly cancel all the Tibetan talks that have been in progress.  Is China using this as a pretext to their advantage?  If China can honor the promise of another round of talk with Dalai Lama’s representatives, then China can show some positive outcome in this issue, China may be able to weaken the international pressure on this front.  

A painful lesson China may have to learn is big infrastructure project are not only costly to build and maintain, but also risky to sustain over a long period of time.  Man is infinitely small before any kind of natural disaster.  Although no nuclear energy facility has been damaged, the stati of different nuclear related production facilities remain unknown to the outside world.  Many dams in the region are still under threat.  Now millions of residents are now under threat.  If China can share the lessons with the rest of world, China can now truly make a tragic disaster into a lesson for all to benefit.  

What kind of dam designs is more stable?  What kind of fault line makes an ideal dam location unsustainable?  Once we factor in the risks involved, are these dams still as financial viable as the electricity they generate?  Even though Japan may have the best expertise in earthquake, Japan never has that kind of experience in dams.  Netherland probably is the expert in dams, but they never experience with dams on fault lines.  Can China overcome this event and share the experience?  This will convince the hawks in the west that China is truly a peaceful stakeholder.  

China finally accepted some foreign rescue teams to their earthquake rescue effort.  China now accepted Japan’s rescue team, Taiwan’s team.  These are the only 2 countries where experts have been allowed to aid the relief effort.  All other countries’ aids are material assistance.  UK, Poland, Russia, Saudi are among the donors list.  However, the name US has not been surfaced.  China also appealed, for the first time, for “earth-moving equipment” according shanghaiist.com.

Myanmar is having a hard time with the cyclone as well.  The death toll is also in the magnitude of tens of thousands.  Myanmar has not been accepting foreign rescue teams either, in fear of conspiracies.  Myanmar has strong ties with China especially because it has very little foreign trade.  Now that China is accepting foreign experts to assist, will Myanmar allow some foreign experts?  Can Myanmar allow the same countries that China accepted? 

Since China accepts foreign aid, one can donate to US Red Cross’ China earthquake dedicated fund (see below).  And Red Cross cannot even establish a dedicated fund for it.  Unicef has a dedicated fund (see below).

What if no aid was provided to Myanmar?  Is that what the Myanmar junta wants?  Myanmar junta may have gotten the wrong side of conspiracy.  It is the scenario of no-aid that they should fear.  The case of no-aid means no country wants to do Myanmar any favours; no country wants Myanmar to return any favours; no country sees any values of Myanmar.  The worse is all these countries want the populace to suffer enough to revolt, much like intent of any boycott, the Iraqi case prior to the Gulf War 2.  The worst is action is already taken, but Myanmar junta does not even know.  When foreign experts come, Myanmar can control the quantity of the experts, the nationalities of the experts, can control the area of exposure, can monitor their movements and can know what these foreign experts know.  There is nothing more available than knowing what your opponents know and do not know.   

If China can accept Taiwan’s experts, can Myanmar accept Thailand’s civilian experts of Buddhist religion?

Donation to US Red Cross:

China earthquake dedicated fund: american.redcross.org/site/PageServer?pagename=ntld_china_relief_fund_0508&s_subsrc=RCOProfile_China&s_src=F8DWA001

International general relief fund: american.redcross.org/site/Donation2?idb=0&df_id=1094&1094.donation=form1&s_src=F8EWG002&s_subsrc=Myanmar%20Cyclone

Donation to China Red Cross:

www.redcross.org.cn

Donation to Myanmar through US Unicef:

secure2.convio.net/unicef/site/Donation2?df_id=3381&3381.donation=form1&gclid=CPa506P2qJMCFRLoxgodmVqkng

Updated information about China Earthquake And Your Money is edited into the same link.  Myanmar is not accepting aid staff.  What about China?  There is no news about China accept to date.  China still has 26,000 people under debris.  However, we do not see any media response to this refusal.

In fact Thailand got a very firm answer that Myanmar will not be accepting aid either.  There was an international outcry.  Robert D. Kaplan, a national correspondent for The Atlantic and a fellow at the Center for a New American Security even used Albright’s argument that human rights trumps state rights to justify unilateral aid assistance.  

Myanmar’s worried about these aid staff.  Myanmar suspects the aid staff will facilitate some covert operations of the west, or some sort of color (Orange in Ukraine) revolution will come out of these aid staff.

Currently, China only accepted civilian, non-governmental organizations’ (NGO) aid. 

China has declined aid offered from Taiwan, not responded the offer of rescue dogs from Czech, among many others.  Is China embarrassed about accepting aid?  Is China also worried about foreign governmental staff?  Is this a double standard of the media?  Or does it actually expose some special interests of the countries offering aid staff to Myanmar?  This uneven media/international response toward China may only make Myanmar more suspicious.

*The Institute for Radiological Protection and Nuclear Safety said China’s governmental research nuclear reactors and reactor fuel production facilities in China could be damaged.  They are within 44 miles to the center.  Nuclear generation sites are 600 miles away and should be fine.

CNN continues to report the newest death toll caused by China’s earthquake.  What stocks are affected by this earthquake?  This natural disaster in China is a lot closer to America than Myanmar’s simply because China is a lot more involved in the global economy.

More than 2 dozens of Chinese public traded companies can be found in the States either as stocks or as ADR.  The PetroChina (NYSE: PTR) is the first one to be affected because it has fields in Sichuan, the province where the quake occurred.  Those oil wells are now shut.  This company is the largest oil company in China.  Nippon Oil (TSE only) has a joint venture with PetroChina.  

China Telecom (NYSE: CHA) may get the worst hit since it has 10% of all land lines in the region.

Sinopec (NYSE: SNP), which is developing a field in Sichuan may see decrease in revenue.  Damage to this gas field is unknown.

China Life (NYSE: LFC) is also dropping since it is expected to have a lot more life insurance claims.  This life insurance company is the largest in China.  The selling pressure is short term since the life insurance penetration in that area is low.  In fact, the price has come back up after the initial drop.  This selling pressure only lasted for 1 day.

PICC Property & Casualty (other-otc: PPCCF) may actually get a bigger hit than the life insurance companies.

Negative impact on HSBC will be minimal since this bank has very exposure to this geographic area.

Qingling Motors (OTC: QGLHF) will get negative impact.  This area has some exposure to auto factories and circuit design.  However, the foreign trade is not concentrated here. 

Huaxin Cement’s price is going up already, in anticipation of more infrastructure projects.  Huaxin is traded in Shanghai only.  Lafarge SA (OTC: LFRGY), of France, is the parent company of Huaxin.  Cement company Anhui Cement is other-otc: AHCHF.

Construction equipment companies that have a presence in China will do well.  Check Caterpillar’s (NYSE CAT) exposure in China or Hong Kong.  Its competitors are Deere, Gehl.  Astec builds road construction equipements and components (NASDAQ ASTE).  Check its exposure in China or Hong Kong.  A strong exposure will be a good sign.   

All medical supplies companies are going up in China and Hong Kong.

Foreign companies such as IBM, Intel, Wipro (NYSE: WIT) have sites here.  Japanese Toyota and Hitachit also have sites here. 

This earthquake will drive up inflation in China.  Given the tourism brought by Olympics, Chinese yuan is expected to appreciate until the end of the games.

If your desired company cannot be found in the States, find a proxy company in Hong Kong stock exchange, or ADR in the states.  If you are interested at funds, then get an Asian (or Far East) fund that has a heavier emphasis of infrastructure and medical supplies industries, a heavier emphasis in Hong Kong.  A lot of companies in China may get suspended if it has a big swing in price.  Hong Kong does not have such restriction.  This gives your mutual fund manager a greater flexibility.

The earthquake in China will certainly have a death toll of over 10,000.  This quake can be felt as far as Taiwan and Thailand.  UN aid relief agencies have very limited roles in China.  Most charities still rely on Hong Kong to work with Chinese goverments.  Of all agencies, UNICEF has the best working relationships with China. 

Is this a man made disaster?

The epic center is 600 km away from the Three Gorges Dam, the largest in the world.  It holds 9.5 cubic miles of water (Denver is a mile high).  That amount of water is approximately equal to 40 million metric ton.  With that much weight sitting on a quake zone, it is very likely to alter the movements of the plates.  And if the weight is acting against the geological movements, it can induce more earthquakes than normal. 

There is precedence: Koyna Dam in India, earthquake in 1967.

The area is not a major economic centre, not a hot tourism spot, not a major manufacturing site.  The immediate economic damage is well contained.  Shanghai index may get affected.  However, Hang Seng Index in Hong Kong is more reliable to measure the magnitude of the problem.

The reaction will be a much greater challenge to the government.  It will measure the maturity of emergency response team in China.  How is China’s FEMA doing?  How will the local financial system, at the county level, sustain the resources exchange?  How does China recover the transportation system?  It now seems the snow storms earlier this year were more like a preparation exercise for all the troubles China is now facing. 

Will China use this opportunity to divert more resources to Tibetan areas and score more points?  Will Dalai Lama be able to make a stronger case for his involvement / return to heal the wounds?

In the states, capitalism is blamed for the environmental crisis.  The opposite, i.e. communism, could be worse.  

Humanitarian crisis stops at three too.  CNN reports North korea is having yet another famine.  North korea is now having famine as often as Japan is changing its prime minister.  By being a nuclear power, why isn’t this famine getting the attention from the US as Myanmar?  North korea is just as close to china as Myanmar.  Its strategic value should worth to the US than silence. 

The big difference is the position of South Korea.  Ever since 2008 election, the new South Korea government takes a non-negotiable position toward North Korea.  All peace efforts from the previous governments now go wasted.  Actions toward famine relief in North Korea will have less funding and less political traction.  With South Korea taking such a position, US will not be too interested at it either.  

Another famine in North Korea will give China more pressure on this humanitarian crisis.  Refugees from North Korea have been a major problem for about 10 years now.  Thus, China has become more active in ending this Korean peninsula civil war in the recent years.  

In fact, an existing Korean conflict serves Pentagon’s purposes.  An existing Korean conflict does not only justify US military bases in Korea, but also to an extent the bases in Japan as well, in its effort to contain China.  

However, the military base in Thailand cannot serve the purpose to Myanmar as Korean military to China.  Myanmar was the last life line China had during WW2.  The Burma Road supplied all China needed to sustain the war against Japan.  Once China can go through Myanmar, there is the open Indian Ocean.  Navy from Thailand can do very little to stop.  Korean bases can keep the China as if it were a land locked country.  Besides, Myanmar got oil and gas.

Furthermore, Japan also does not want to see a unified Korea, similar to Japan does not want to see a unified China.  A unified Korea will drive the Korean electorate’s attention from ending a civil war to tension against Japan.  

Since Bush continues to look for a legacy item, Bush may try to get something done with North Korea.  In fact BBC just reported North Korea handed over 18,000 pages of documents of its nuclear activities.  If aid to famine will produce any value to Bush, it may get worked out.

US has a military base nearby in Thailand.  And Thai has already been cleared by Myanmar governemtn to help.  All assistance can go through Thailand, similar to how aid was sent to Afganistan or Iran.  Why does US insist on direct aid to the Myanmar government? 

Every country wants to have a better relationship with another country.  Having a direct correspondence is just a good tactic to relationship building.  However, such direct correspondence was not on the table when Iran had an earthquake.  So, why Myanmar?

Disaster of this scale require multiple countries to help.  In fact, no amount of help will be enough for disaster of this scale.  China will provide a lot of assistance.  After all, this area affects all the transportation / infrastructure China has been building in Myanmar.

It is good for Pentagon’s strategists.  China has a strong military tie with Myanmar.  China can use the seaport of Myanmar freely.  The next stop for China will be thousands of miles away, days away by ship around Singapore in the island Hainan.  To the west, Parkistan is another ally.  US wants to increase its influence on Myanmar.  Having some first step relationship building exercise is important. 

Myanmar also has rich resources.  Oil field is only part of the story.  Myanmar has a lot of minority problems.  Areas near China (norter Myanmar) has always had multiple militas.  Areas near India is another conflict prone area for either Myanmar or India.  Britain used the northern Myanmar and parts of India adjacent to Myanmar as the spring board to Tibet back in 1800’s.  Making this country available for US to place a pawn somewhere, anywhere is important to Pentagon. 

China now has to face US bases from Japan, South Korea, Central Asia and Afganistan.  Nepal receives US training in its civil war against the Maoists.  UScan very well complete its enclosure on China.  

Forbes published a few articles related to patent laws that are English friendly in the last 10 weeks.  The patent universe is likely to change very soon.  And Rumsfeld probably would not like this idea. 

The legislature has been considering patent laws reforms for the past few years.  The pressure of this reform comes from major corporations, which hold a lot of patents, have been getting sued by patent trolls, or patent speculators, for royalty fees.  Additional royalty fees of course cuts into the profit margin.  However, intellectual property suits are costly to fight simply they are so difficult to understand (and thus higher legal fees).  

For some industries, intellectual property (IP) lawsuits affect the legal fees and royalty fees.  However, for some industries, these lawsuits affect their capitalization the suit hits the news.  These are the IP-centric industries, such as IT and medical industries.  

When RIM, the maker of blackberry, got sued for patent infringement, its stock price dropped to its knees.  After all, RIM has nothing but blackberry.  And even if RIM’s patent is not void, a heavy royalty fees will seriously affect its profit.  

A key element of the reform is revolved around unique concept of American patent system: first to invent versus first to file.  The congress will remove the first to invent rule and make US to be in sync with the rest of world: first to file.  In the first to file rule, one needs not be an inventor, but just to be the first to walk into the patent office to own all rights of the invention.  

The first one to be disadvantaged is obviously the legal industry.  However, not many people will feel sorry for that.  And we will skip.

A loss to one may be a gain to another.  Here are some of those:

The second to be affected (not necessarily disadvantaged) are the medical and IT industries.  A lot of drug patents are expiring, just like the copy rights of a lot of Disney characters.  For these US giant pharmaceuticals to stay afloat, they need new patents.  They either have to invent or find other people’s invention to file before the inventor does.  So, the firms that are better industrial espionage will do better.  

Some items are affecting directly the rights of the inventor: 1) Damages will be restricted as well, a classic republican cause; 2) Challenges will be for the entire life span of the patent rather than a probation period; 3) Disclosure of invention will be required prior to granting the patent. 

Who gets the benefit out of this?  Infringers.  Infringers will be able to have a cap on the compensation to the patent owners, able to challenge the patent until the patent runs out (yes, they can), able to learn the invention before it is patented and therefore free from paying royalties fees, and no injections from the inventor to stop the infringements. 

Alright, how does it relate to Rumsfeld? 

As a defense hawk, Rumesfeld is interested at slowing the China’s economic growth.  Making it cheaper for patent violation is a big favour for the medium enterprises in China.  Inventors lobby groups probably would want to get more funding from pharmaceuticals and hire Rumsfeld to be the lobbyist for a cause that its core constituents probably does not have the funding nor the votes for.

China wants to meet Dalai Lama’s representatives.  Why is it announcement now?  What can this meeting accomplish? 

Beijing made the announcement today because EU trade delegation arrived Beijing.  Currency exchange rate is a big topic, trade barrier is of course another.  Some of it is very logistics, such as business visa issuance.  In any event, having a nice announcement today can delay and defuse some tensions.

CNN reports the story here.  Similar to other media outlets, CNN has already put sandbags on this meeting: don’t expect much because this meeting could be a PR ploy to defuse all the possible upcoming Tibetan activists may stage.  And even if Dalai Lama is fully convinced that this meeting is unproductive, Dalai Lama will still send his representatives to meet China.

Why will Dalai Lama still want to meet China for an unproductive meeting?

If he does not, he will be blamed as spoiler.  However, China probably wants this meet bad enough that they must have relaxed the conditions of meeting.  After all, Dalai Lama already said both sides have been in contact since early April.  So they are already in talks for weeks to set up a talk.  The announcement from the Beijing is an indication that at least Dalai Lama is comfortable with the agenda, even if that agenda may have unproductive outcome.  

There are a few things we can observe.  If we see a series of talks stretching out, then please do not celebrate that as an indication of progress.  That only means to stall the protests word wide and divert political pressure of the foreign governments from their domestic constituency asking for do-something. 

The place is likely to be within Mainland China, to symbolize that it is an internal affairs.  If it were in a third party, China would be afraid that the meeting has evolved into a nation-to-nation meeting.  However, the question remains: where will it take place, in China?  The location would be an indication how serious Beijing takes this meeting.  

Will this be a publicized or secretive meeting?  The press of course would not get invited during the talk.  But will there be photo op announced to the press in advance? Will there be joint announcement?  If there will be joint announcement, then this will be a meeting of substance.  

Even if Beijing is not intent to just stage another stall tactics and meant well to accomplish something, it is still practically difficult.  Positions of both sides are clear since they already spent a few decades to sort out the differences.  Beijing hates to be seen as to giving concessions to separatists.  Beijing waited for 8 years for President Chen of Taiwan to retire from office and waited a few decades on the issue of Dalai Lama.  Holding off another 5 or 10 years does not bear additional political costs, both domestically and internationally.  

Beijing simply is stretched at this moment to have a serious talk.  All resources are diverted to Olympics.  And Beijing sees that it is much easier to accomplish something from the Taiwan problem.  Therefore, for whatever remaining energy and resources from the top leadership will be dedicated to Taiwan.  For Dalai Lama, the meeting has to be measured against the level of civil servants Taiwan enjoys.  

Zimbabwe got a new twist.  CNN reports Mugabe decides not to atten the submit to be held in Zambia, its neighbour.  However, the opposition (Tsvangirai) is attending.  This will give the Tsvangiraia great opportunity to sell his plan of stabilization and strengthens Tsvangirai’s edge both internationally as well as domestically. 

The instability in Zimbabwe affects copper’s prices.  However, the copper price has been receding from its historical high.  This Zimbabwe episode will provide a support price level to copper.  So, this price will probably slow down.

Further down, Sino Union Petro & Chemical secured an oil field with Madagascar, expected to be worth 2B barrels.  China will own 50% of the venture. 

Chinese oil exploration firms have been trying to secure sites overseas with little success.  This is a firt major break not only for them, but also to Madagascar as well.  Madagascar has not produced oil for 60 years, reports Reuters! 

This company is not traded in LSE nor NY.  It is traded in HK only. 

This will also strench India’s resources as well.  Although India is not in as an urgent need as China in terms of resources.  Over the years, China is slowly moving in East Africa (more so than Africa in general), the traditinoally perceived sphere of influence by India.  Not that India has navy bases all over the place, but it has a lot of migrants and control a big portion of trade in East Africa.  It will only be a matter of time for India to express its security concern not only about the Himalaya border and Parkistan, but also about pan India Ocean security issues with China.  These oil exploration companies will have to learn that getting listed in London and NY helps them mitigate political risks.

For India, issues such as Kenya and Zimbabwe will have to become the leverage points for it to enter the stage.  It is probably too late for this episode.  But next time.