NEW INVESTMENT STRATEGY FOR CHINA, AN IPO UPDATE, AND A LOOK AT MARKET NUMBERS
By Ben Calmes
© Sinomania! 2007

First aired: March 14, 21:40 (PST)

[THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.]

(BEGIN VIDEOTAPE)
ANNOUNCER: Hello! And welcome to Sinomania! For the week of March 17, 2007 – happy St. Patrick’s!

Chinese shares continue to make up lost ground -- we look at the numbers and some interesting price movements in the wrap; IPO news: a weak debut and a de-listing slow down new issues; And a preview of what to expect from this year’s National People’s Congress with big changes on how China and Chinese invest their money.

NPC 2007

China’s National People’s Congress is in session right now and Tuesday begins the debate on what may be two incredibly important and revolutionary new laws: one to establish a legal definition of private property, another to equalize corporate taxation of foreign and domestic companies in China. The vote will happen on Friday March 16 before the closing session of Congress. I’ll have an in depth look at the work of the NPC in next week’s show.

One idea that is green-lighted is the creation of a national investment company modeled on Singapore’s Temasek. The creation of an investment arm under Finance Ministry is a direct result of the policy, discussed in earlier segments of this program, of diversifying how China manages its ever-growing foreign reserves. It is unlikely that there will be any direct impact on say the buying of United States debt, for example, as mentioned already by Treasury Secretary Paulson who seems little troubled by this change, secure in the knowledge that Japan will always be there for America and probably remain, for some time at least, the primary lender to the US Government.

Another idea is to allow Chinese individuals to convert their Yuan holdings into foreign currency and directly invest overseas. Agence France Presse reported that such a move is being looked at by the all powerful State Administration of Foreign Exchange or SAFE. The director of SAFE, Hu Xiaolian, is quoted as saying that Chinese companies will be encouraged to issue corporate bonds including bonds denominated in foreign currencies. Hu Xiaolian is a rising star in national politics and increasingly one of China’s most powerful women.

Come back next week for a full look at this year’s legislative session in China!

IPO REPORT

In early a company called TOM Online premiered on NASDAQ promising riches from cell phone services in the world’s cell phone market. Under symbol TOMO, the company made a big initial splash and raised almost $200 million US dollars. It quickly declined, built back up throughout much of 2005 and started a high-profile joint venture with Ebay. But TOMO peaked early last year and with new regulatory changes in China’s mobile phone business its revenues began to sink and the stock along with them. This Monday TOMO was the market leader with an almost 27% gain but that was due to the buyback price of $15.56 from its parent the TOM Group which plans to buy back the stock and de-list the company. TOM is primarily owned by Li Ka-Shing, Hong Kong’s richest man, who no doubt hopes to stop the bleeding and reinvent the company, perhaps through its languishing Ebay project TOM-Skype, an Internet phone service.

An update on our IPO report on Xinhua Finance Media – the company debuted Friday on NASDAQ with symbol XFML. XFML opened at $13 but fell instantly, declined again on Monday almost 5% at ended the day trading at $10.80. It was the weakest debut of the year to date on Wall Street and no doubt reflects uneasiness in Chinese equities given the roller coaster effect so far this year.

Despite the slowdown in Chinese IPOs, Tongjitang Chinese Medicines is still on for its IPO on the New York Stock Exchange this week or next under symbol TCM. Watch for it!

Beijing Automobile Industry Holding, a state-owned firm with partnerships agreements with DaimlerChrysler and Hyundai, is looking to list as an IPO sometime in the near future but will probably float its auto parts business as a separate IPO. No more details at this time but it shows the continuing consolidation among auto companies in China.

In a related note, Shanghai Automotive and First Automobile Works Group both say they are not pursuing a possible purchase of Chrysler but have been mentioned as in talks with DaimlerChrysler along with Chery Automobiles, as recently as March 8. Most analysts inside and outside China say it is highly unlikely a Chinese company will make a play for Chrysler. Meanwhile Chery is on for producing vehicles for import to America within two years.

THE WRAP

Shanghai and Shenzhen markets continue to gain lost ground and are almost back up to the record high positions before the February 27 dip. Both markets close up slightly at the beginning of the week. The Shanghai Composite index closed at 2,955 up a little more than half a percent while the Shenzhen Component index closed at 8,131 down 0.19% -- charts for both of the indexes are located at the top of the Sinomania! China Sharewatch webpage. The Shenzhen composite index closed at 769.9 and is getting tantalizingly close to its record high of 776. Chinese markets overall remain significantly higher than their January 4 start.

Positive price movements of note include TOM Online, mentioned earlier, and Trina Solar up over 9%, Trina Solar is now a part of NASDAQ’s clean edge index that focuses on renewable fuels and alternative electricity generation. Comtech Group, up over 7% on an analyst upgrade by W.R. Henbrect, and on the downside, ASAT Holdings down almost 10% on lower revenue growth.

May the luck o the Irish be with you on Saint Patty’s Day!

I’ll see you next week!