Tag Archives: The Wall Street Journal

Foreign Investment Still Pouring Into China

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Today was the day we were able to lock in our profits on the October Covered Calls on BIDU. We have made substantial returns with this strategy in the last 4 weeks. On Monday we get to do it again with the October calls. If you’re interested, sign up for your free two week trial.

The big news out of China today is the continue influx of foreign investment capital. Despite well known short sellers like Jim Chanos out there claiming China’s is going to fall of a cliff, and the newly minted king of short seller Carson Block (of Muddy Waters Fame) stating the Chinese consumer is overstated, the global investment community continues to pour money into China.

According to the Chinese Commerce Department, $8.4 billion flowed into China in DFI (Direct Foreign Investment) last month. Not only is this a giant number, it’s also up 11% over the previous month.

In 2011 (through end of August) FDI in China has risen 17.7% to $77.63 billion.While this still seems like a positive bet on China, it’s having a negative effect on the overall Chinese economy in the form of fueling inflation.

All this capital pouring into the country is keeping prices high, and inflation is the #1 problem the Chinese economy faces today.

China could put collars on the influx of capital to hold inflation down, but the Chinese would never turn their back on other people’s money. It’s not their way. They will take all the money offered. It’s a one way street. China will have to control its inflation through other means.

Here’s today’s news out of China:

  • The Chinese markets eaked out a tiny gain in Friday’s trading- The Shanghai A shares were up .09%, the B shares up .08%.
  • The Wall Street Journal reports the Chinese Ministry of Information is becoming more concerned about how internet use is effecting Chinese society. As a result, the Communists Party’s Politburo visited Baidu this past week to discuss the future of content that will be allowed. The stock is likely to be trading below its true value on perceived issues relative to both censorship and its corporate structure. This is a highly successful public company that has raised billions in foreign capital. In my view, the Chinese government will do nothing to derail the BIDU success- it would only discourage the influx of foreign capital.
  • The People’s Bank of China reported 49.6% believe consumer prices will continue to rise in the next quarter, up 4.1% from the last survey. 72% prices have risen “too high to accept”. This is the sort of information that might cause the government to continue aggressively tightening, and derails a “soft landing” scenario.
  • The Chinese government has disclosed it will invest $4.69 billion in infrastructure in Tibet between now at 2015 in 225 infrastructure projects.

 

 

A Sleepy Monday In Late August for China

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  • It’s a sleepy Monday morning on what is traditionally a very slow week in the markets. The news is dominated by Hurricane Irene, and the images out of Vermont are heartbreaking. The rest of the Eastern Seaboard seems to have handled it very well.

  • In Monday trading, the China markets sold off a bit. The Shanghai A shares gave back 1.36%, and the B shares 1.15%. The A shares seem to be trapped in a range between 2640 and 2740 for now.
  • The Wall Street Journal carried an article written by Yukon Huang of the Carnegie Endowment. He suggests China economic numbers are badly skewed by two major factors- the amount of low end household spending that occurs in the “underground” economy in order to avoid taxes, and the government expenditures which, in China, act almost like household expenses. He believes middle class consumption is grossly understated in China.
  • Bank of America economists Lu Ting forecasts China will be tightening bank reserve ratios once again in September. Short term- probably a negative for the markets, but longer term there’s nothing more important than bringing inflation under control.
  • China industrial profits rose 28.3% in the first 7 months of 2011 according to the National Bureau of statistics.
  • The Financial Times reports solid profits from China’s oil industry paves the way for further off shore investment.
  • That’s enough for today. More tomorrow.