Power And Dollar

Where are Beijing and Taipei heading to?

Beijing and Taipei just signed their agreement to have direct flights (36 flights / annum).  In addition to establishing direct flights, both sides will also establish visa granting offices.  What are the important and relevant points here?

 

It is too early to say which entity will carry this function on the Taipei side.  On the Beijing side, it is obvious that will be China Travel Services .   This is a company total owned by the Beijing government.  The implication here is Taipei needs to have a debate about what to be done about Mainland China companies operating in Taiwan.  This is something Taiwan did not prepare for. 

 

What Taiwan should really want is: if there is any grease to be distributed on the Mainland side, make sure the grease is distributed to a non-government owned entity.  If that is not possible, then make the recipient as remotely government controlled as possible.  Diluting (or weakening) the influence of Communist Party is the goal when unification comes.  Since reciprocity is a must in an agreement like this, Taiwan has no problem in instituting such a condition on its own end.  If Mainland doesn’t like it, it just becomes another chip on the table.  So the requests can work out like these: the tourist companies need to be publicly traded which no stocks are owned by government or government owned companies.  The visa applications will be collected by tourist companies and forwarded to a government agency.  

 

In fact this office establishing was not on the original agenda.  This again shows Taiwan has a lot more development potential for its negotiation staff.  And it also shows Taiwan needs to check its own inventory: what chips does Taiwan have, especially Mainland China will get stronger annually?

 

Outside of this agreement and moving forward, what Taiwan needs is some space in the international arena.  And Mainland China President Hu is really selling the co-inhabitant atmosphere.  Hu is selling so hard for the following reasons:

1)      Hu is having his second and final term of presidency.  Taiwan is the holy grail for any Mainland China or Taipei president;

2)      Tibet gave China a bad rep and Olympics is coming;

3)      Sichuan earthquake, no matter how well Mainland China government performed during the crisis, is still a negative.

 

For relationship and confidence building purposes, now is the time to give more exposure to Taiwan.  APEC could be a place for it since Mainland China should be very confident about its own influence there.  WHO is another place since sovereignty is not as prominent as health security in that organization.  If Hu wants this as his accomplishment, then he needs to dance with Taiwan: Give more love offense to Taiwan.  

 

We all know the famous line of Roosevelt: “we have nothing to fear but fear itself.”  However, will this same line work if a Mainland Chinese president says it while the audience is Taiwan voters?

June 13, 2008 Posted by | business, China, Current Events, economics, 香港, opinion, politics, Taiwan, wordpress-political-blogs, 台灣, 中國 | Leave a comment

First Democratically Elected Chinese Mayor

Democracy and human rights often accompany each other when the developing countries are criticized.  Ever since Bush 2, US is now on the human rights violation list too.  China is of course a major human rights violator.  However there is something interesting going on:  China is contemplating having a mayor (among 18 other political reforms) democratically elected.  Protecting human rights requires a reliable judicial system.  The outcome of this study becomes important not only for China human rights activists but also others who study China’s financial sector.

 

Well, China’s mayors have always been “democratically” elected.  It’s just they always have one candidate.  But now, China is getting a (yes, one) mayor position to be elected with multiple candidates.  The proposal is not studying the question of “if” but “how”.

 

What is the significance?  Why there? Why now?

 

The city is Shenzhen, a city next to Hong Kong.  The first impact is on Hong Kong.  Multiple candidates are allowed for Hong Kong mayor election.  However, the mayor is elected by 800 electors, hand picked by China.  However, China’s election is always elected by residents of the municipalities.  Therefore, once Shenzhen’s proposal is implemented, this will be a pressure for Hong Kong to have a more democratic election.  

 

Shenzhen has always been the most open spot in China.  It is the closest spot Hong Kong, the place for most open information, most new ideas.  This city has the Nasdaq of China.  The first hi-tech companies started in Shenzhen.  It has the longest traditional of R&D firms in China.  Motherboards, solar panel companies were all first started here, either through Hong Kong capital or through foreign companies with a management base in Hong Kong.  This would be the place with the most educated voters.  In addition, this city has the least political influence of all economically charged municipalities, unlike Guangzhou (the capital of Guangdong province) Shanghai or Beijing.  So, of all suitable municipalities, this city has the least political risk.

 

This election is still years away since it is still in the proposal stage.  Elections are anything new to China.  Timing is the second significance.  China chose to start this process now probably in anticipation of more serious talks with Taiwan.  Taiwan has a mature democracy.  For a unification of Mainland China and Taiwan, Taiwan will obviously demand a more democratic Mainland China, as a delay tactic or not.  Therefore, some sort of reform will be inevitable.  Thus, this is the pre-emptive strike on the Mainland China part.  

 

Among the 18 other items are direct election of congressmen (instead of Communist Party appointment); more judicial independence; transparency of public officials’ income and asset; public debate before voting; the separation of executive, legislative and judicial powers; strengthening the management of public finances; monitoring the government owned enterprises; reform of public education; reform of public medical services; delegation of local authorities to manage local economy.  

 

The implementation of judicial reform will strengthen the credibility of Shenzhen courts, especially when Shenzhen is getting more and more complicated cases, not only personal property dispute, but also securities laws, patent laws, foreign trade laws.  The multiple candidate election and direct election of congressmen will give more influence to the new middle class residents, who tend not to be party members.  These changes will actually make Shenzhen a more attractive securities market and become more competitive against Shanghai’s securities market.

May 28, 2008 Posted by | China, Current Events, election, 香港, opinion, politics, Taiwan, Thoughts, Tibet, wordpress-political-blogs, 台灣, 中國 | , | 2 Comments

China Earthquake And Your Money

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.

May 13, 2008 Posted by | banking, business, China, Current Events, economics, 香港, finance, Investment, market, opinion, politics, stock, Thoughts, trading, wordpress-political-blogs, 国事, 中國 | 2 Comments