Inflation More Than Washington Behind Yuan’s Rise Against Dollar

When U.S. Treasury Secretary Henry Paulson arrives in Beijing on Wednesday, the Chinese currency might coincidental break through the symbolic seven to the dollar level. As Richard McGregor writes in the FT “the currency has become a litmus test of Chinese responsiveness to U.S. complaints on trade.”

Yet what really is driving the recent strengthening of the yuan — it has risen more than 15% so far this year, more than in the previous two and a half years — is domestic inflation not Washington’s grumbling. Beijing is finding it increasingly difficult to sterilize the economy against the inflationary impact of the foreign exchange reserves piling up because of the trade surplus.

With inflation running at a 12 year high, that has become a more important policy imperative than supporting exporters and inefficient state owned enterprises that are in no fit state to compete against imports. Plus it gets it a few bonus brownie points in Washington — if not Brussels or Tokyo.

Olympic Flame Comes With Tibetan Protests

Despite unprecedented attempts to ensure a protest-free hand over of the Olympic flame to the organizers of the Beijing Olympics, Greek police scuffled with pro-Tibet demonstrators gathered outside the Athens stadium where the ceremonial transfer was due to take place.

On Tuesday the flame formally sets off from Beijing for the Kazakhstan capital, Almaty, the first stop on an 85,000 mile relay through 19 countries that is followed by a three-month tour of China, including a controversial and highly symbolic leg that will see the flame carried up Mount Everest.

This Olympic flame will be carried further than any before it. Every step of the way, inside and outside China, will be taken in the shadow of Tibet.

Li Ka-shing, Facebook and QQ

East Asia’s richest man, Li Ka-shing, has pumped another $60 million into the social networking site Facebook run by Mark Zuckerberg, a fellow billionaire if one less than a third Li’s age.

Li said during a Hutchison Whampoa earnings conference call on Thursday that he was upping his previous $60 million investment, made last November and which gave him 0.4% of the company. But he didn’t say by how much, and clearly no one thought to ask him. Reuters has now run down a number.

What does Li hope to get for his $120 million? One clue comes from what he said on Thursday, that he saw some synergy between Facebook and the 3G services of Hutch’s mobile phone business. That makes some sense given that China has 465 million mobile phone users but only 172 million Web ones.

And while Facebook is having a hard time figuring out how to make money out of all the users of its Web site, you don’t need to be a rocket scientist to make money off IM and SMS mobile phone services. Just look at Tencent/QQ. In 2007, at $523 million, it had four times Facebook’s revenue, with a fifth of that coming from mobile services. Tencent also reported a $224 million operating profit last year. Facebook lost $50 million.

Li has a head that is both old and wise. If he can crack the China market for Facebook that $15 billion valuation on Zuckerberg’s site won’t look quite so mind-boggling.

Tearing Up The Script In Tibet

The best laid plans…

The tightly scripted official tour of Tibet for a group of foreign journalists ran amok for 5 mins in Jokhang, Tibet’s holiest temple. Thirty young monks surrounded the tour party and shouted that there was no religious freedom in the region, that the government was lying about who was responsible for the riots that had broken out on March 10., that so-called worshipers in the temple had been shipped in and that paramilitary forces that had surrounded the monastery since the riots that started had withdrawn only shortly before the foreign journalists arrived.

The visiting journalists were then escorted away as security forces surrounded the monks, many distressed and weeping, according to this report by the FT’s Geoff Dyer, one of the journalists on the trip.

By any measure, it was a remarkable act of defiance, as effective as it was courageous.

Xinhua reported it thus:

A tour by overseas reporters to cover the aftermath of the Lhasa riot was interrupted by a group of lamas at the Jokhang Temple on Thursday morning. The tour, however, soon resumed.

More than a dozen lamas stormed into a briefing by a temple administrator to cause chaos.

An officer with the Information Office of China’s State Council, the organizer of the media tour, said the coverage of the reporters went on as scheduled.

Phew!

Xinhua subsequently reported that Chinese officials said none of the monks involved would face reprisals. It also quoted Tibet’s second ranking official Baema Chilain as saying: “What [the monks] said is not true. They were attempting to mislead the world’s opinion. The facts shouldn’t be distorted.”

This Bystander is reminded of a Polish proverb he once heard in the old Soviet Union: Only the future is certain; the past is always changing.

Foreign Press Taken To Tibet

A group of Beijing-based foreign correspondents has been being escorted to Lhasa to report on the situation there, Xinhua reports. This 26-strong “international media delegation” includes representatives of the AP, the Financial Times, the Wall Street Journal, the Russian, Japanese and Taiwanese news agencies, al-Jazeera and the South China Morning Post. TV media such as CNN and BBC appear to be absent from the officially organized three-day trip. What will be interesting is not so much what the delegation reports as how they report it.

Fact Checking Two Views Of Tibet

Xinhua annotates screen shots from Western TV and websites to show up reporting errors in their coverage of Tibet.

This follows Sunday’s apology by German TV station RTL for using a picture of Tibetan protestors in Katmandu in a report on the recent disturbances in Lhasa.

More Xinhua excoriation of the CNN, BBC and the Berliner Morgenpost here.

Pick at the little errors to unravel the greater truth.

Bank Profits Trimmed By Subprime Losses

China’s banks are taking their lumps from losses on trading mortgage-related securities, even while the strong domestic economy is boosting profits.

Bank of China reports a larger than expected $1.3 billion of subprime writedowns while Industrial & Commercial Bank of China, the world’s largest bank by market capitalization, reported $400 million-worth. Bank of China says it has sold down its exposure to subprime mortgage-related mortgages to $5 billion from $9.5 billion in August. ICBC says it holds $1.2 billion of such securities, the same level as last June.

Both banks were announcing their 2007 results: net income up 65% at ICBC and 31% at Bank of China. The average for China’s 14 publicly traded banks is 70%.

That number will shrink substantially this year as the government turns the screw on bank lending as it tries to damp down inflation.

Ma Wins Taiwan Presidency

Given the party leadership’s preoccupation with the pro-independence disturbances in the west, the election results to the east will be a relief of sorts.

Taiwan’s voters elected the Harvard-educated Ma Ying-jeou, the opposition Kuomintang party candidate who favors closer commercial and political ties with China, as president to succeed the strongly pro-independence Chen Shui-ban. Two referendums calling for the government to work for the island’s entry into the U.N. also failed.

Thanks to its sweeping victory in parliamentary elections in January, the Kuomintang also controls two thirds of the seats in the legislature. None of that will necessarily mean that Ma will drive many or even any rapid changes in the relationship between Beijing and Taipei, which Beijing still considers to be a renegade province — and certainly not while Beijing has unfinished business in the far west.

China Cracks Down On Web Video Sites

The investigation started a long time before the recent troubles in Tibet, but the lesson will not be lost on web sites in China offering video that may not be to the authorities’ liking.

The State Administration of Radio, Film and Television has banned 25 sites, taken over five and warned a further 32 for violating the recently announced rules governing video web sites and requiring sites offering audio and video content to be licensed. The punishments followed a two month investigation that concluded today, according to Xinhua.

The violations were of the prohibition on “obscene, fear-inspiring or violent content or program tat might endanger nation security and interests, or for offering such services without the required qualifications and certificates.” Among those hit with a warning was tudou.com, one of China’s most popular video sharing sites.

Meanwhile, on Tibet directly and this Bystander’s theme of the past couple of days, this Xinhua headline says it all

Arrest warrants issued against 24 criminal suspects in Lhasa riot.

Two Views Of Tibet

This Bystander noted earlier how Beijing’s clampdown on media coverage was polarizing views inside and outside of China about what is happening in Tibet. The FT‘s Richard McGregor and Jamil Anderlini have done the reporting to back up my assertion. This paragraph is telling:

One intellectual from Beijing, usually vehemently opposed to the party, said Tibetans had been “slaves” before China “liberated” them, an act repaid with ingratitude and violence. “How could Tibet be a country without China?” this person said. “They didn’t have anything to eat before they were liberated.”

Meanwhile the BBC is reporting that the last foreign journalist is being expelled from Lhasa.