China Worried about US Debt Downgrade and QE3

With China holding 1.16 trillion dollars of US debt, the current crisis and what the Fed decides to do about will have implications to China. Many believe that the US will undertake QE3 (quantitative easing) which allows more cash in the system, but has the effect of devaluing the US dollar.  Countries like China and Russia have already warned the US about the effects of these policies, yet with a high unemployment rate trillions of dollars worth of debt coupled with growing entitlements, the US has little room to maneuver.

Asia Set to Follow the Middle East

As Middle Eastern markets tumbled on the news of the S&P downgrade of US sovereign debt all eyes are on Asia, most notably China and their markets’ reaction to the downgrade.  The assumption is that there will be a sell off roiling markets in Europe and then back on Wall Street.  With news that the S&P could in fact do another downgrade if the proposed cuts are not made has supercharged the potential catastrophe in the markets.

Pakistan to Maintain Close Chinese Relations

It has been agreed that “cordial relations” will be maintained between China and Pakistan.  According to Inamul Haq (the country’s former state Minister for Foreign Affairs), everyone is in total agreement on this.  At a recent seminar, he said that Chinese investments and projects in Pakistan had reached $25bn and that this figure was increasing all the time.  He said,I believe that the US will not leave Afghanistan which is a center from where they can watch China, Pakistan, Iran and other important regional players.  Afghanistan is home to billions of gold and copper reserves while same is the case with Pakistan which has untapped reserves of gold, copper, oil and gas worth billions of dollars.”

Efforts by Chinese Government

In addition, according to an article in Dawn Prof. Zhong Rong said the Chinese government had been making significant efforts to “ensure economic development in Xinjiang province.”  The country is about to invest substantial capital in Xinjiang to try and increase the GDP ratio “and per capita income of the people of Xinjiang Province.”

Asian Stocks Rallied, But Will it Last

With news from President Obama that there has been a debt ceiling deal within a day Asian stocks rallied from their current slump, yet the rally as positive as it is could sputter if the US congress fails to pass the deal and doesn’t raise the debt ceiling by Tuesday.  Many Asian countries are particularly sensitive to the USA debt situation since many (most notably China and Japan) are holders of US debt.

Although a default may happen, many argue that an Asian fear of defaulting on their obligations is an over reacting since the the US Government would take care of that first. Even without that fact, Asia’s connection to the US consumer base is vital and with a default or just a downgrade, the USA economy would be imperiled even more hurting Asia’s economy as well.

Big Burmese Bucks

In the last year, Burma was the recipient of $20bn in foreign investments.  Not only is this figure alone  impressive, but it is a huge development when looking at last year’s figure which was $302m.

So where did all of this money come from? Well, according to a recent BBC News article, it seems the Chinese are pretty big fans of Burma, making the largest investment of foreign countries, mainly in power-based projects.  Indeed, according to another Chinese-investment-based news report, Chinese companies have been the financier of a great deal of Burma’s major hydropower projects, despite political unrest in the region.

It has not been an easy ride all the way for China making these investments though.  Nonetheless, according to the Ministry of National Planning Development, its staggering $8.27bn investment from March 2010-11 was substantially larger than the next country in line being Hong Kong at $5.3bn and then Thailand at $2.94bn.

In addition, it was reported that “China is looking only for minerals, they are looking for economic benefit. That is all. That is damaging the country. They are not even making peace.”  So the fact that China has been desperate to make such efforts at pursuing investment returns, no matter what the cost, hasn’t been great for the country.  For sure it on some level makes sense for China to invest in places the West avoids as it doesn’t have to deal with such a high level of competition but still, various events including the work conducted “on the China-backed Tasang Dam in Burma proves that China is not immune from the same geopolitical concerns that keep others from parking their capital in ‘rogue states.’”

Political Impacts

Of course, the political scene is bound to have an impact on all of this too.  When polls were taken in Burma last November, it was the military based parties that won the most amount of seats.  Indeed, just looking at the 2008 constitution, a staggering quarter of seats were anyway reserved for this group.  It might have been just this fact that led to the criticism of polls by western nations and opposition groups; it seems that there is no choice pretty much, but to back a military-based party.

The Changing Face of the Chinese Economy

Many investment partners today have their eyes on China.  And for good reason.  Consumer spending in China is predicted to come close to doubling by 2015 in the retail sector alone, according to a new report by the Chinese Academy of Social Science (CASS).  And this comes on the back of spending that has already been increasing a great deal, as companies like ARC Investment Partners have noted.

From 2006 to 2010, retail spending saw an average growth rate of 18.1% each year, according to the National Bureau of Statistics.  It is Chinese women who are leading this wave of consumer spending and that are helping to secure the future economic growth in China.

As reported in a recent financial newsletter by Adam Roseman of ARC Investment Partners, 3000 women were recently surveyed in 12 Chinese cities by China Market Research Group to see what their spending habits are like.  85% of those surveyed said that they planned to spend more in the coming six months than they did in the previous six.

This key sector of the economic market in China has yet to be taped into by western brand managers – but women are not only influencing the household budgets in China.  They are influencing the overall decision-making in the home and even in the homes of their parents.  Forbes has actually reported, in a report last year, that half of the world’s 14 self-made billionaire women are Chinese.  Raised in one-child families in China, millions of girls have been told that their parents’ futures’ rely on them; and they are fulfilling those expectations to ensure proper care for their retiring parents.

POW Wow Goes East?

It seems like Spiderman may be climbing the Great Wall China in the near future.  Apparently, as reported in a recent Google news article, POW Entertainment creator Stan Lee has just joined up with an investment company in Hong Kong “that aims to roll out a new superhero franchise targeted at Chinese and foreign audiences.”  Magic Storm Entertainment is the name of the new company that is set to work on its “first film project later this summer.”  Lee is incredibly excited, and commented in a statement, “I have been eagerly awaiting this great opportunity — a chance to combine the best of American superhero epics with the best of Chinese and Asian classical filmmaking for a motion picture that would be excitedly received worldwide.”

 

New Characters for China?

 

There is no news right now if there will be a development of new characters for the new movie or if a new story will be written for this “flagship characters, many of which have already been adapted for the big screen.”  Right now no one knows if the movie will feature real actors or be an animation either.  Time will tell.

 

Getting Down to Business

 

In terms of business, the partnership will take place between Panda Media Partners and Ricco Capital Holdings as well as a conjoining of POW! Entertainment with Fidelis Global Enterprises, headed by Eric Mika (former Hollywood Reporter publisher) a media consulting company.  It’s likely to be a success given historical statistics of Lee’s company.  Indeed, over 2 million comic books “have been published in 75 nations and in 25 languages,” so clearly this is a good sign for the new Chinese venture.

 

Or is it?  Maybe not. Apparently, according to the Google article, they “do not appear to have a big following in mainland China.”  Does that mean all hope is lost?  Absolutely not.  Lee’s characters have been adapted in movies that have “done strong business in China, which is “fast becoming one of Hollywood’s key markets despite a quota that effectively limits the country to 20 major foreign productions a year. Lee’s strategy is likely to capitalize on the popularity of those movies.”

 

No Nickel and Diming

 

At the end of the day, the $$$s speak for themselves.  There is no fear of lack of success when Spiderman climbs the Great Wall of China.  And this is because of how successful Spiderman I, II and III have been in China, reaping a combined $30m.  It seems like that simple statistic is all the data Lee will need before he starts enjoying a plate of deep-fried rice and bowl of wonton soup.

Chinese Seek Out Investment Opportunities

China: Challenge and Opportunity

According to Jhal Nath Khanal, Prime Minister of Nepal, “Chinese investors are looking for investment opportunities in every nook and corner of the globe.” Addressing a Trans-Himalayan Border Commerce Association yesterday, he added a request that “the business community furnish details of the prospective areas wherein we can invite Chinese investments in our country.” He sees being a neighbor to China as “both a challenge and opportunity for us.” This was a rather interesting choice of language since in Chinese, the symbol for challenge is the same as that for opportunity. Geographically, he noted, Nepal has the opportunity to greatly benefit “from the development taking place” there.

At the same time however, Nepal recognizes its need to “attain anything that is closer to stupendous Chinese development.”

According to an article in the Nepal Telegraph, there will be an expansion of the Kathmandu-Tatopani Kodari highway and once the border point of Rasuwagadi starts operating to full capacity, “trade between Nepal and China will increase substantially.” Further, Durga Bahadur Shrestha (Trans-Himalayan Border Commerce Association chair) demanded that the Prime Minister “immediately initiate widening the Kordari highway,” with the “existing link being converted to a six lane highway.”

Of course, all geographical improvements and additions in these areas will have a positive impact on trade which will then in turn, improve the situation for potential investors. The more access there is to each place, the easier things are for any kind of trade and investment and this is what Nepal is counting on.

China to Invest in Cambodia?

According to the Cambodian Ministry of Commerce, a group of Yunnan province investors (in China) has been looking into Cambodian investment opportunities and has found the possibilities most favorable there. The delegation, led by deputy chief of China International Economic Development and Cooperation Office, Cao Junde, met with Cham Parasidh, the Cambodian Minister of Commerce and Vice Chair of the Council for the Development of Cambodia. According to an article in China Daily, the Ministry said that “some of the investors have showed their interest in investing in mining, oil and gas exploration, rice mill and hydro-electricity in Cambodia.” Anyway today, China is Cambodia’s largest foreign investor, with figures reaching $8bn by the end of last year. So it seems like it’s worth the two countries developing better ties as well.

Other Chinese Investments

In other areas of China, investments are being made in Cambodia too. The country’s east Jiangsu province has been looking into investment opportunities there also. The country’s Prime Minister, Hun Sen, is currently visiting China for five days and met with the secretary of the Jiangsu Provincial Committee of the Communist Party of China (CPC), in Nanjing, Luo Zhijun. Jiangsu has a lot to be proud of, having successfully worked hard to get China out of the global financial crisis. The rapid growth of China’s economy has also been beneficial to Cambodia. As well, according to a report in China Daily, Hun Sen said that the “Hongdou Group Co., Ltd., a Jiangsu-based enterprise in clothing, tire, biological pharmacy and real estate, is building an industrial park in Sihanoukville Province, southern Cambodia.” The PM is hopeful that both parties can work together “to develop the industrial park.”

Hun Sen has been working hard to establish and develop good relations between the two countries, especially in regards to “friendly communication, bilateral exchanges and cooperation.” Of course, the PM’s visit will only lead to a further development of “mutual understanding, promote pragmatic cooperation and establish a win-win relationship between the two countries.”

Chinese Goes East

It seems like there are going to be increased investment opportunities in Russia for China since the former country is in the process of “restructur[ing] its economy and reduc[ing] its reliance on commodities.” This can be seen through Fuyao Glass Industries Co. Ltd., which is one of the world’s biggest auto glassmakers which is now planning on investing $200m in a Russian glass factory. It actually marks Fuyao Glass’ first time branching out onto foreign soil. According to the company’s chairman Cao Dewang, production is set to begin at the end of 2011 and supply glass for over 3 million cars each year.

Increased Business Opportunities

There could be even more business opportunities for Russia with further deregulation of its domestic market which will be good for foreign enterprises. This is already being witnessed by China Investment Corp’s investment plans in Russian “infrastructure, negotiable securities and real estate.” Russia is definitely happy about Chinese investments that according to Federal Financial Markets Service head Vladimir Milovidov will “promote bilateral cooperation on trade and finance.” As well, Russia sees how good China’s financial market supervision policies are for their country.

Great Financial Plans Ahead

Since things are going so well in Russia and China doesn’t want to miss out, the latter country plans to invest $12bn in its market to “boost bilateral trade” by the year 2020. In the first six months of 2010, China invested $260m in Russia which was “58.5 percent higher than the same period of the previous year.” But former Russian ambassador to China Igor Rogachev pointed out some realities: “although China has become Russia's biggest trading partner, China is still not a major investor in the Russian market.”

India Investments Encouraged in China

Beijing Seminar Good for Investment

At a seminar today held in Beijing, India invited Chinese companies to come and make investments in China. The seminar, entitled, ‘India-China Business & Investment Seminar- Opportunities in IT, Engineering & Allied Sectors,’ was organized by Municipal Government of Yangzhou and Confederation of Indian Industry (CII) and Indian Consulate in Shanghai. The aim of the seminar is to encourage Chinese companies to make investments in India while giving them an overview of the country’s “FDI policy, basic tax and business laws, financing options,” facilitating a more informed decision prior to making the investment.

According to an article reporting on the seminar, attendees at the conference included: “Chief Representatives, CEOs and senior executives of Aditya Birla Group, BHEL, ICICI Bank Ltd , Infosys, Jiangsu Sterlite Tongguang Fiber Co Ltd, Elgi Equipments, L&T, MphasiS, Mahindra Satyam, NIIT, PTC Global, SBI, TCS, Tata Steel , Thermax, Wipro Infrastructure Engineering and CII.”

Increased Indian-Chinese Cooperation

It is hoped that there will be further cooperation between the two countries in the following areas: IT and Engineering, and more. According to Vice-Mayor of Municipal Government of Yangzhou Wen Daocai, this “joint initiative [is] offering a unique opportunity to Yangzhou based companies to engage with Indian companies.” New policies will be encouraging Chinese companies through helpful policies, fast approval and financial aid. In addition, through various components like growth, manpower and macro-economic stability to name but a few, India is now able to offer “attractive returns to prospective Chinese investors.”

Anticipated Investments

There are many opportunities these days for Chinese companies to invest in India, especially in the areas of infrastructure, freight, subway and SEZs and currently there is an anticipated trillion dollars worth of such investments. At the seminar, both Indian and Chinese companies were given the opportunity to “forge new business alliances as well as promote two-way investments.”