China Focus : Rule of Law or Rule of Smog ?

Misty days as Beijing remains shrouded in smog and intrigue as pilots learn to land blindly. Good news is that the people will get a holiday during the APEC summit next month.

Highlights of Communique of the 4th Plenary Session of the CPC.

“To realize the rule of law, the country should be ruled in line with the Constitution.

The National People’s Congress and its Standing Committee should play a better role in supervising the Constitution’s implementation.”

China : 1.36 billion

CPC : about 3,000 members

Standing Committee : about 150 members

The anti graft campaign will go on as 6 members of the party linked to former security czar, Zhou Yong Kang (sponsor of Bo Xilai), were expelled although Zhou’s fate is unknown.

Remember what I said last week ?

All is not good it would appear and it is not too difficult to imagine that there is possibly some cracks in power behind the iron curtain.

Different views on China this week. Some bullish, some bearish.

Main story was the growth article out of WSJ on sharply slower growth.

“BEIJING—China’s growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy”

Yet 3Q GDP defied critics, coming out as expected at 7.4% and industrial production figures rose for the month of September.

Bad news on the property front as new home prices fell in all but 1 city.

But cities were quick to respond with 20 Chinese cities rolling out home purchase subsidies yesterday.

The only positive is that China is taking on the world as Ottawa becomes the next yuan trading hub and the yuan will trade directly with SGD from next week.

Nonetheless the HK protests hang heavy in the background as the CNH continues to trade weaker than the CNY, albeit the gap closing in the past week.


It would seem that China is cutting off their nose to spite their face as Chinese stocks sink on the delay of the Shanghai-HK connect, stock trading link, that is rumoured to be on the back of the HK protests.

But I have no doubt who will win when even Kenny G says he loves China and ditches his HK protest selfie.

And Mark Zuckerberg gets an honourary appointment into Tsinghua University after giving a Mandarin address to an assembled forum.

China is on their own mission and my view remains that it is all about themselves that the moment.

“My opinion is that China is not a hurry for their stock market to rally from here or for growth to over heat again or to revive their property market back to speculative levels.”

Meanwhile another bankruptcy in LDK Solar (whose stock price’s high was $76.75 back in 2007, trading at $0.17 now).

Chinese banks are reporting slowing profit growth, according to estimates, down to 8.2% compared to 10% a year ago, with China Construction Bank’s profit growth at a 5 year low.

Frustrated multinational companies are looking to trim their Chinese operations as the graft clampdown continues and the companies claim anti competition by the government.

And in a show of nonchalance, PBOC withdrew liquidity this week, shame facing all the strategists who had lauded their cash injections into banks and calling for a market rally.


The Talk To The Hand approach continues as ADB worries about the new Chinese funded Asia Infrastructure Investment Bank.

Its all smoggy, if you ask me but I am starting to see pockets of opportunity in stock space as China bashing continues.

Read this excerpt from a trading commentary on Bloomberg.

The first and only ETF to cover all investable China shares has only raised $5 million in assets, even while posting a 14% return since inception. The Deutsche X-trackers Harvest MSCI All-China ETF (CN) tracks A shares, B shares, H shares and N shares, as well as P chips and Red chips. All other China ETFs track only one or a portion of those shares. Deutsche X-trackers Harvest is also outperforming the largest China ETF, the IShares Large-Cap ETF (FXI), which is up 11% since May.

The currency is likely to take a breather in the coming week as the world focuses on the US and Japan, along with all the economic releases into month end.

I do not think there is anything interesting in bonds as well and I would still steer clear of property names.

Good luck !

CNH Bond Prices (Indicative)