Monthly Archives: July 2007

Grain Inflation

We know of the high prices and short supply of pork and eggs. The new farm commodity to watch is  grain following the storms and floods. The Agriculture Ministry has warned that it will be difficult to stabilize supplies this autumn. That could suggest that government maintained stocks are low (stock levels are a closely kept secret). Another straw in the wind: Taiwan says that it won’t be able to import China’s wheat to keep down prices on the island because China will be importing itself.

The price of wheat on the world market is been at an 11-year high. The global balance between supply and demand is tightening because of wet weather in Europe and the demand for biofuel feed-stocks in the U.S. China is one of the world’s leading wheat producers. Since 2003 it has switched from being a net exporter to a net exporter. Here by way of background is a speech given in Beijing this month by Gerald A. Bange, the USDA’s chief economist.

Any rise in grain prices is another unwanted push on the inflation pump.

A tip of this Bystander’s tifter to the China Law Blog, for being the first publicly to notice this blog. Time will judge quite how inconsequential a footnote to history that is, but meanwhile, I appreciate your encouraging words. 

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China’s Spreading Capital

China has made what is thought to be its biggest investment in an overseas company — China Development Bank’s $3 billion 3.1% stake in Britain’s Barclays Bank.  Singapore’s state investment agency Temasek is taking a 2.1% stake in Barclays. The money from the two Asian institutions will be used in part to finance Barclays’ increased bid of $93.4 billion for Dutch-based ABN Amro. Should that deal go through, CDB will raise its stake in Barclay’s to 7.7%.These two investments are likely to raise eyebrows in Europe, where there is growing concern about Asian, U.S. and Middle East companies and state investment agencies owning big companies in industries governments consider to be strategic. AFX reports E.U. trade commissioner Peter Mandelson as saying that golden shares could be used to protect European ownership in politically sensitive key industries. Golden shares, which give governments a blocking shareholding, are illegal under E.U. competition law, except in the arms industry.This all seems like the first rumblings of the sort of xenophobic concerns that were expressed in Europe and the U.S. over Japan’s emerging foreign investment in the 1980s and 1990s. As China starts to recycle its trade surplus dollars through foreign M&A and shop abroad for the technology, brand names and local market production it will need to move up the ladder of economic development, there will inevitably be more of these protectionist calls.


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No Clean Hands

Cans of hot dog chili sauce made by a U.S. food company, Castleberry’s Food, are suspected to be contaminated with the botulism bacteria. Here’s a report. No cleans hands, so to speak, anywhere, it seems.

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A Turning Point?

This China Bystander is developing a fascination with the food and drug safety issue. Yes, it is news — latest development: three companies at the centre of the complaints have been shut down by the authorities. But a moment’s reflection prompts the thought that the issue has become a proxy for China’s adjustment to economic development. England and Germany and then the U.S. went through a similar experience as they industrialized — a transformation from capitalism raw in tooth and claw — inhuman labour conditions, unsafe products, inadequate regulation — to being a society that encourages people who, in the words of Abraham Lincoln, try to improve their lot in life–and thereby the lot of us all. It will be a stumbling, messy process in China, as it was in Europe and the U.S. It is foolhardy, even quixotic, to try to identify history’s turning points as they happen. We may just be witnessing a government pragmatically trying to prevent a trade war that is in no one’s interest. Then again, we might well be in the midst of something far more significant.

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Economy Will Grow Briskly Regardless of Rates Rise

Today’s hike in interest rates comes as little surprise given Thursday’s strong growth and inflation numbers. But a 0.27% increase in commercial banks’ benchmark one-year deposit and lending rates to 3.33% and 6.84% respectively won’t in itself do much to dampen inflation or the overheating economy (GDP grew by 11.9% year or year in the second quarter — a ‘blistering pace’, says the Peoples Daily). Real interest rates are still negative. Expect more administrative controls on investment and credit, much as happened to cool the economy in 2004. But with corporate profits growing strongly, inflation being caused mainly by high food prices and export demand remaining vigorous, the economy should continue to grow briskly.

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Internet Stock Tipster’s Prosecution Being Weighed

The fate of Wang Xiujie, better known as the popular stock-tips blogger Daitou Dage 777 and who was detained by police earlier this month, is being weighed by authorities in the north-eastern city of Changchun, according to the People’s Daily, with a decision on whether to take him to court to be made in the coming week.

Wang’s arrest was part of China’s attempt to crack down on the proliferation of unregulated investment advice companies and private “hedge funds” that have helped fuel a frenzied rise in stock prices over the past 18 months. By some estimates, private funds now have $50 billion under management – roughly a third of the formal sector, according to a Financial Times report.

Wang, 35, set up his site, named for a kung fu character, in 2005, and more recently was running a text messaging stock tips service, reportedly earning more than 13 million yuan for his investment advice. Beyond self aggrandizement, a bit of resume padding and shameless self-promotion (none of which are unknown in the investment world, of course), it is unclear what Wang has done wrong and whether he has crossed some unmarked line between selling stock tips and runnng an investment business without a licence, or whether he has gone beyond that to misappropriating money.

Chinese investors are continuing to open individual brokerage accounts at a rapid rate and Wang is likely to be used as a warning to other unlicensed investment tipsters as regulators continue to try to damp down a frothy-looking market.

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U.S., E.U. To Jaw Jaw On Food Safety

Chinese and U.S. officials will meet in Beijing at the start of August to discuss food safety, the People’s Daily reports. The goal is to agree rules on dealing with tainted food exports and other consumer products by the end of the year. The discussions will be intended to take some of the sting out of the tit-for-tat suspensions of chicken and pork exports from Tyson Food and six other U.S. companies following the U.S.’s imposition of restrictions on seafood exports from China.

The talks will follow a visit by E.U. Consumer Protection Commissioner Meglena Kuneva due next week. The E.U. and China signed a memorandum of understanding on cooperation for consumer goods safety last January. An E.U. report last year said nearly half of the reported unsafe products in Europe came from China, with toys and electrical appliances the most complained about.

Update: The U.S. is to review its rules intended to keep out harmful imports, Reuters reported. Health and Human Services Secretary Michael Leavitt, whose department includes the Food and Drug Administration, will lead a panel of administration officials charged with recommending ways to improve import safety in 60 days. “This is not a slap at China”, White House spokesman Tony Snow said.

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