I get a strong suspicion that too many people are too overweight in Chinese stocks now. The reason for this is that after posting the China Tax and China Labour Law changes on a number of sites, there has been absolutely no response at all on most. High profile names ignore the posts, nobody commenting at all, either pro or against.

It therefore suggests to me that lots of people are presently very overweight in China stocks, they have got caught with the market weakness, and are now holding at a loss - waiting to sell any rise.

If, and its only an "if", the market weakness continues, and more and more of these people are trapped into China plays - you can foresee, imv, a lot of weakness coming into that sector, as more and more give up and bail out.

Quite remarkable that so many got duped into buying "China" as a safety against US/EU credit fears and recessions - only to now find its not as safe as they thought, and China stocks are also falling.

My own suspicions were that the China stock dream would go into breakdown and start its fall once the 2008 Summer Olympics had passed and the government can afford the luxury of upsetting lots more people and not caring about "face" during the Olympics that the world will be watching.

Is there another boom left in them before the Olympics comes and goes ? Will the boom not happen as its sold into ? Will they all meakly fade now and continue to do so ? Will they just keep on booming and not fall back again ?

Please discuss !!

http://news.yahoo.com/s/nm/20080323/lf_nm/china_korea_dc


South Korean investors quit China over rising costs By Langi Chiang

Sat Mar 22, 8:27 PM ET

QINGDAO, China (Reuters) - Scores of South Korean-owned factories are closing surreptitiously in eastern China as their owners flee rising costs, leaving behind embittered workers like Li Hua.

Li and more than 200 colleagues have been fighting for a year to get the six weeks' wages they were owed when the owner of the toy factory where they worked fled during the 2007 Lunar New Year holidays.

"I went to work on the first day after Spring Festival, only to be told that the Korean boss had run away and the factory had been closed," Li, a 30-year-old mother of a little boy, recalled.

Her case is not a rarity in Qingdao, a major seaport and industrial city in eastern China which sits across the Yellow Sea from South Korea. A two-hour flight from Seoul and home to about 100,000 South Koreans, the city is a hub for South Korean factories benefiting from cheap labor.

But lately, a growing number of South Korean factories have abruptly closed down and the South Korean owners have disappeared as a slew of policies, including rising labor costs and an end to tax breaks, bite into their profit margins.

Many of the factories ............

PP I am worried about your state of mind. Over on a rival site you make over 200 posts a day, host 90 threads and regularly post on 5 different sites. You have set up duplicate threads for Chinese stocks, wiped many of your own posts (to eradicate any possiblility of criticism)and constantly change your mind. This behaviour would seem to be obsessional, manic and delusional. Not to mention the fact that you need to get a life.

pp is my hero ok. You can get lost, zscrooge

zscrooge, I am more worried about those people who now follow and post about posters, as opposed to discussing stocks and shares and markets and sentiment.

Although it is possible to understand that the present market falls have pushed some into financial oblivion, and with that perhaps immense personal stress, which is perhaps making them turn their "anger" on to BB posters.

Sad, but true.

As it seems "zscrooge" is going to be "stalking" me with abusive posts etc... I will add them to the "Squelch" facility. I really do not want the threads to fill up with nonsense posts by zscrooge.

What that means is I will be unable to read their posts.....so don't expect any responses to anything they post in future. If you find they are still filling the boards with nonsense posts, I would suggest emailed Moneyam support and complaining.

If anyone wishes to "Squelch" this poster then click on the link below, and add their name to your "Squelch" list.

http://www.moneyam.com/InvestorsRoom/squelch.php

An interesting article that highlights the ongoing changes and challenges :

http://www.chinatradeinformation.net/macro-economy-report/next-generation-of-light-industry-in-china-2.html


Next generation of light industry in China

For three decades, China has reaped the benefits of the decision to open up its economy. In many years, exports grew more than 20 percent and large swathes of south China became developed and affluent in the process.

But this very successful model faces an array of challenges, foreign and domestic, in a changing world. What worked in 1978, and for so many years thereafter, isnt working the same way anymore and China has the task of reshaping its economy to generate the next round of growth.

Processing trade, which provided jobs for as many as 35 million to 40 million workers, many of them migrants, has accounted for 51percent of Chinese exports. Its role and structure are about to change.

Exports have been hailed as one of the three economic growth engines, together with consumption and investment, of Chinas development. Exports contributed 2.5 percentage points, or 22 percent, to gross domestic product growth last year.

The trade engine is running more slowly. The monthly trade surplus came to 8.56 billion U.S. dollars in February, less than half the January figure of 19.49 billion U.S. dollars. Certainly, some of the decline was caused by an unusual convergence of events.

The Lunar New New holidays and the severe winter weather that disrupted transportation contributed to the sharp decline in February, but the trade gap had been narrowing since October, according to official figures.

THE NEXT GENERATION OF LIGHT INDUSTRY

Chinese exporters face a new round of challenges. Just as China once took over from former cheap manufacturers in Japan or the Republic of Korea (some of whose manufacturers themselves came to China for lower costs), a new group of competitors is making itself felt: Vietnam, Bangladesh, even some nations in Africa. Some manufacturers in China, foreign and domestic, will end up going overseas to cut costs.

Other challenges include labor, which is becoming costlier and could become scarcer within a few years; higher costs for all manner of inputs as world commodity prices surge; a stronger currency and higher interest rates, and weakening economies in major overseas markets.

Many of these factors were at work when deals were signed at the 18th East China Fair held in Shanghai earlier this month. Orders at this annual event, seen as a barometer of foreign trade trends for the coming year, only grew 3.52 percent year-on-year to3.67 billion U.S. dollars. Orders from the United States even contracted, by 1.5 percent.

Our company got only slightly more than 800,000 U.S. dollars worth of contracts, barely half that of last year. It was my worst experience since I began attending the fair three years ago, said Ma Tao, a salesperson for a glassware maker from east Chinas Shandong Province.

Theres little that export-oriented garment manufacturers and ceramic makers can do. They have become used to doing processing trade, which means taking orders from overseas companies looking for a cheaper place to produce. Costs in China have been kept low primarily through cheap labor.

But labor is no longer so cheap. A new labor law, which took effect on Jan. 1, has already significantly raised wages. Companies in Guangzhou are paying 1,160 yuan (about 165 U.S. dollars) per month, 13 percent more, for new staff this spring.

The traditional cost advantage has been further eroded by the faster appreciation of Chinas currency. Exporting companies have had to raise their prices.

Another issue is higher input costs: inflation and surging world prices for commodities are hitting light industry hard. The producer price index for Chinas industrial products rose by 6.6 percent in February over the same month last year. The overall cost of raw materials, fuel and power surged 9.7 percent from a year earlier. Analysts forecast that textile prices would rise another 5 percent to 10 percent after March as a result of more expensive cotton and nylon yarns.

Now that Made in China is no longer so cheap, old clients are looking for new suppliers in surrounding countries. The pressure is particularly severe on the textile industry, a typical labor-intensive business that depends largely on exports. Equipped with few advantages but low prices, garment makers have been trapped between two unpalatable choices: losing orders or taking lower profits.

Chinas textile and garment exports in February dropped 32.9 percent from 10.3 billion U.S. dollars in the previous month, largely due to weakening U.S. and European demand and the severe winter storms, customs authorities said. The total for the first two months was 25.6 billion U.S. dollars, up only 9.6 percent from a year earlier, compared with an increase of about 20 percent in the past years.

There are so many choices. Companies can move overseas or go to cheaper locations in Chinas inland areas. They can try to re-orient their sales toward domestic consumers, whose incomes are rising. They can go into other lines of business. Or they can go out of business, as many already have.

In only half a year, our export cost was pushed up by 10 percent and profit reduced by 40 percent, said Shen Yaoqing, vice-president of Shangtex Holding Co., a major Shanghai-based textile manufacturer that exports about 2 billion U.S. dollars worth of products annually.

Our company is on the brink of failure, Shen said.

In the Pearl River delta, companies with overseas investment, mainly those from Taiwan, Hong Kong and Macao, have been leaving. According to preliminary figures from the Shenzhen Bureau of Trade and Industry, more than 500 companies, whose annual production was valued at 15 billion yuan, have left the city since 2005.

More than 1,000 smaller shoe makers out of some 6,000 went bankrupt last year, said Asian Footware Association secretary general Li Peng.

TIME FOR A NEW PARADIGM

Smarter and nimbler companies are revising their strategies. They have shifted away from quantity and to quality. Hodo Group, a garment maker in eastern Jiangsu Province that also has a domestic brand, said it had shifted last year to higher value-added garments.

Lu Li, assistant manager, said We developed new textiles and designs, which would help us lift export prices.

But even strong companies are seeing their profit margins squeezed as the government scales back preferential policies for labor-intensive and export-oriented processing industries. For example, China cut export tax rebates on garments by 2 percentage points to 11 percent, last June.

A joint study by Booz Allen Hamilton and the American Chamber of Commerce in Shanghai found that 54 percent of the overseas manufacturers that had solely-owned or joint-venture bases in China said that China is becoming less competitive, and 20 percent had already decided to move at least part of their operations in China to such places as Vietnam or India.

A few Chinese companies are also moving manufacturing to Vietnam or Indonesia, which have cheaper resources and labor costs. China Customs said that in February, outsourcing trade was 31 million U.S. dollars, or 8.5 percent of total foreign trade.

Its certainly a marked turnaround from the wave of capital that flowed into coastal China 30 years ago.

Behind all these changes lies a shift in government policy, driven by a recognition that Chinas current export structure wont support economic development the way it used to.

China encourages technical innovation, which would help reduce the high energy consumption involved in manufacturing that had drawn international criticism.

China also has a persistent gap between its well-developed east and the poor central and western regions, which could be at least partially reduced if industry moved inland.

Another issue is the changing structure and, potentially, the size of Chinas labor force. The processing trade cant provide suitable jobs for millions of university graduates, whose number is expanding every year.

We are not moving labor-intensive industry out. It is our advantage, said a senior official with the Minister of Commerce. It is true that processing trade is restricted by the rising land, power and labor costs in eastern China. But the middle and western parts of the country have cheap resources. With government support policies, it is possible to move the processing trade industry inwards.

There wont be many companies moving out of China, especially with the right policies, Wei said.

Companies do face some higher costs if they move inland, such as those for transportation. But inland regions such as Qinghai, Gansu, Yunnan and Guizhou Provinces saw more than 100 percent increases in investment in garment and textile processing trade in the first half of 2007, according to the China Chamber of Commerce for Import and Export of Textiles.

As for eastern China, the government aims at promoting services, which would provide jobs for educated workers.

One example of such trade is a software development zone established in 1998 by the government of northeast Chinas Dalian City, which is getting orders from Japan and other countries.

Chinas 10th Five-Year Plan set a target for the foreign service trade at 400 billion U.S. dollars by 2010. The figure for 2006 was already half the way there, at 191.8 billion U.S. dollars.

Chinas exporters face an increasingly complex domestic and global situation. But, as Premier Wen Jiabao stressed in his government work report this month, China should speed up the transformation of foreign trade patterns and encourage the export of higher value-added name brand products.

A challenging year lies ahead. As earlier export orders are filled, its likely that Chinese exporters will feel the pinch of a slowing world economy. But Minister of Commerce Chen Deming remains optimistic, saying that China is expected to achieve steady growth in exports in 2008 despite the trade surplus shrinking last month.

http://www.spiegel.de/international/business/0,1518,543929,00.html

March 28, 2008

MANUFACTURERS STRUGGLE TO COMPETE

China's Factory Blues
By Dexter Roberts

Rising costs and regulation have led to shutdowns and restructurings in China like those that tore through America's heartland.

Multi-national .......................

A piece on BBC's newsnight last night may be of interest to thread readers. Should be available through BBC's iPlayer until the end of the week. Basically points out the human/environmental cost of Chinas great leap forward, and the associated economic risks if things go wrong (which there may already be signs of). Given the importance of China in the global economy it's probably worth a look........

Strawbs.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0pqYaEyBKQY&refer=home

ADB Cuts Asia's Growth Forecasts, Warns of Inflation (Update1)

By Shamim Adam

April 2 (Bloomberg) -- The Asian Development Bank lowered its economic growth forecasts for the region as a global slowdown weighs on exports and..................



*********************************

http://moneynews.newsmax.com/money/archives/st/2008/4/1/110745.cfm

Chinas Inflation Obscuring Olympics

Tuesday, April 1, 2008 11:07 a.m. EDT

Investors who figure that the August Olympic Games will................................... The approximately $23 billion in Olympic-related investment wont have a big impact on the macroeconomy and total fixed asset investment, says Matthews China Fund manager Richard Gao.

Looming over other economic considerations is inflation, which threatens to become rampant despite the central bank's best efforts to control it.

China's consumer prices rose at their fastest pace in nearly a dozen years last month, climbing 8.7 percent from the same month last year and up from the 7.1 percent January rate.

Though only 5.4 percent of the 56 foreign-owned companies operating in China recently surveyed by the Nikkei Business Daily reported already feeling the ill effects of Chinas inflation rate, more than 70 percent fear they will feel it soon.

Nearly half of these firms expect China's blistering economic growth to slow after the Olympics end this summer, and almost a third are moving to shift their production outside of China due to concerns about foreign exchange rates, rising wages and employee retention difficulties.

A recent survey of 20,000 households in 50 mainland China cities showed that a record 49.2 percent of Chinese urban consumers think prices are unacceptably high, though fewer now.............................

Worth a read :

http://money.cnn.com/2008/04/02/smbusiness/rising_yuan.fsb/index.htm?postversion=2008040311

Rising yuan crunches outsourcers' bottom line

China's currency is hitting record highs against the U.S. dollar - a problem for apparel companies and others that rely on low-cost Chinese manufacturing.

Last Updated: April 3, 2008: 11:03 AM EDT

(FORTUNE Small Business) -- The Chinese yuan reached a record high against the dollar last week, the latest in a series of sharp rises that are changin............................

These from the official mouthpieces of the Communist Party, so should be taken as "official".

I do wonder if some people in the West have forgotten just how damaging inflation is.......and how long it stays with you.....and how hard it is to fight it........




http://english.people.com.cn/90001/90776/90884/6386585.html

ICBC says China inflation rate to hit 8% in Q1

April 04, 2008

The Industrial and Commercial Bank of China (ICBC) is forecasting an 8 percent increase in the country's Consumer Price Index (CPI) for the first quarter of 2008. The official government figures come out in mid-April.

The bank said in a report issued on Thursday that the CPI would hit 8.2 percent in March, sl.......................


+++++++++++++++++++++++++++++++++++++

http://www.chinadaily.com.cn/bizchina/2008-04/03/content_6590455.htm

Statistician: China risking overall inflation
By Tu Lei (chinadaily.com.cn)

Updated: 2008-04-03 15:47

China faces overheating of its fast-growing economy, as price rises could turn into overall inflation from core inflation, said Xie Fuzhan, lead economist with the National Bureau of Statistics.

To tape the inflation, Xie said, the government should strictly curb investments and proje............................

http://news.theage.com.au/china-frets-over-inflation-policy/20080408-24kh.html

China frets over inflation policy

April 8, 2008 - 3:50PM

Premier Wen Jiabao ended China's annual parliament in mid-March with a surprisingly gloomy outlook for 2008, despite the nation continuing its breakneck economic growth.

"I am afraid that this year might become the most difficult one for the Chinese economy," Wen said after the parliament endorsed his economic policies designed to curb inflation and promote more sustainable growth.

"The biggest concern is price rises," Wen told reporters. "This has made the lives of people, particularly low income groups, more difficult."

The government's long-term policy to stimulate domestic demand and reduce China's reliance on its export-oriented industries is also proving difficult to achieve, Liu Lingling, an economist at Beijing's elite Qinghua University, told Deutsche Presse-Agentur DPA.

"The prices of raw materials and labour are much lower than they should be," Liu said.

Several factors are hampering government efforts to raise domestic demand beyond the affluent cities of the east and south.

The low wages for ordinary jobs limit the purchasing power of most Chinese and food-price inflation makes consumers less likely to spend on non-essential items, while many are scared off by soaring prices in the over-valued property market.

"Chinese people haven't revolted because they were too poor in the past and so they were easy to satisfy with little money," Liu said.

"But 30 years have passed (since China launched economic reforms), and people have begun to demand wage rises," she said.

The government has moved to control prices of grain, pork, cooking oil and other key commodities amid the rising inflation, which hit an 11-year high of 8.7 per cent in February.

Many Western critics say that China's suppression of the value of its currency against the dollar is making its exports cheaper, and fuelling an annual trade surplus of more than $US200 billion ($A216.26 billion) with the United States alone.

China could help to control inflation and reduce the trade surplus by allowing the renminbi to appreciate faster, the critics argue. But Liu disagrees.

"If the renminbi rises faster, it will pull the global economy more," she conceded.

"China will buy more and other countries could export more to us ... (and) Chinese may invest more in foreign countries."

But Liu said government attempts to control inflation have had "little effect" during gradual appreciation of the currency, which has gained more than 10 per cent against the dollar over the last two years.

Prices of crude oil and other raw materials in the international market are rising faster than the Chinese currency, "so you get no benefit from the renminbi's appreciation," she said.

If China's trade surplus does fall this year, that could also reduce its demand for raw materials and hit economic growth in South-East Asia and countries such as Brazil, Liu said.

A recent report by economists from People's University in Beijing estimated that a 1-per-cent rise in global energy prices adds an extra 0.1 percentage point to China's consumer price inflation.

Slowing economic growth worldwide, the rise in the dollar against other currencies, and the effect of the US credit crunch on Chinese capital markets "will add more uncertainties to China's economic outlook this year," the report said.

The report forecast gross domestic product (GDP) growth of 10.5 per cent this year and state media quoted economist Liu Fengliang, one of the authors, as saying there were "signs of relief" from the risk of overheating.

The World Bank in February forecast slightly slower but "solid" economic growth of 9.6 per cent for China this year, following 11.4-per cent growth in 2007, the highest rate since 1994.

"The slowdown in the global economy should affect China's exports and investment in the tradable sector," David Dollar, the bank's China director, told reporters.

"However, the momentum of domestic demand should remain robust and a modest global slowdown could contribute to rebalancing of the economy," Dollar said.

Despite the ruling Communist Party encouraging private enterprise and foreign investment since the early 1980s, it is still trying to maintain credibility with ordinary people through the price controls and measures to help poor rural areas, redundant state workers and other social groups.

Government price subsidies for coal, electricity, gas, food and other commodities, which are relics of 60 years of tight state planning, continue to distort the economy, Liu said.

"The change in the mode of production, for every country in the world, takes decades," she said.

"But our government promised to restrain inflation in a few years, as well as to maintain economic growth. It is very difficult."

Nice piece from Eunice Yoon

http://business.blogs.cnn.com/2008/04/15/is-china-losing-its-edge/

April 15, 2008

Is China losing its edge?

Americans are used to hearing about the growing influence of China. Every week seems to bring another screaming headline about how the communist nation is an economic juggernaut set to dominate the world. Yet the country may be in danger of losing its competitive edge. Over the past two decades, China has transformed itself into a manufacturing machine. The country has been able to convince companies to set up factories there with its cheap labor, huge market potential, and business-friendly rules. Chinese manufacturers have been churning out everything from T-shirts and toys to television sets for cheap, helping to keep global consumer prices down. These exports have been fueling Chinas economic boom, accounting for roughly 40 percent of gross domestic product.


New labor laws are likely to make China less competitive.
However, soaring costs are now threatening Chinas manufacturing might. Prices of fuel and raw materials are up, eating into manufacturers dwindling profit margins. Surging prices of food staples such as pork have propelled Chinese inflation to an 11-year high, driving up workers wages. Wages, by some estimates, are already growing by up to 30 percent every year as companies compete for skilled labor.

In addition, a new labor law, requiring stronger employment contracts, is complicating the hiring and firing process for manufacturers. A dispute arbitration law comes into effect in May. Employers say the new laws restrict them from laying off substandard workers even in times of economic difficulty. They say the rules shifts the bargaining power in favor of employees at a time when factory owners are already facing labor shortages and the possibility of a U.S. recession. These laws, combined with tougher environmental standards, higher corporate taxes, and an appreciating Chinese currency which makes goods from China more expensive overseas are adding to manufacturers financial woes.

These changes are due largely to the Chinese governments recent campaign to start prioritizing human welfare over speedy industrial growth. For decades, authorities emphasized the need for rapid economic development, often overlooking poor working conditions or pollution. The new labor and environmental policies are meant to address those problems, by prodding manufacturers into better corporate behavior. Beijing authorities are also looking to encourage Chinese manufacturers to move away from producing basic goods towards advanced products. They want China to follow in the footsteps of Japan, South Korea, or Taiwan and step up the global manufacturing ladder.

Yet China may not be ready for this economic transition. Unlike its exporting Asian rivals, China has to consider the welfare of over a billion people, many of whom are still unemployed. Low-end manufacturing is a labor-intensive industry, requiring tens of millions of workers. A shift of support away from this sector could lead to an unwelcome loss of jobs at a time when the government is desperately trying to raise the standard of living for the nations poor and prevent social unrest.

Chinas economy, though growing fast, is also said to be at a less developed stage than the economies of Japan, South Korea, or Taiwan when those countries started to rely less on light manufacturing. Some pundits say consumers in those nations had greater purchasing power than the Chinese do now, allowing governments to rely more on domestic spending as a driver of economic growth. China is in the midst of deploying the same tactic encouraging citizens to shop yet the average Chinese consumer is still inclined to save.

Moreover, the competitive environment for countries has dramatically changed. Companies can open and close factories more swiftly than they have been able to in the past as governments compete aggressively to attract investment by offering tax breaks and other financial incentives. In other words, nations can gain and lose competitiveness more quickly than in years prior.

China has already started losing thousands of manufacturers. According to an industry body, the Federation of Hong Kong Industries, over 10-percent of the 70,000 factories operating in the Pearl River Delta, the countrys manufacturing belt, will shut their doors this year. Some manufacturers are investing heavily in new equipment and technology, thereby reducing their workforce, but many are moving operations to lower-cost countries such as Vietnam. Beijings frequent trade rows with Washington are also prompting manufacturers to look to diversify their production bases. Some U.S. politicians, fairly or unfairly, criticize the Chinese for their safety standards and their currency, the yuan. These lawmakers argue the yuan is artificially cheap, contributing to Americas ballooning trade deficit.

However, that criticism may soon subside. With the threat of inflation growing in China, authorities there have little choice but to allow the yuan, which only de-pegged from the U.S. dollar in 2005, to appreciate further. A stronger yuan would help reduce import costs and curb economic growth by muting demand for Chinese goods. Chinas efforts to protect workers rights and the environment could also silence Beijings critics in Washington. And though China will likely remain a formidable player in manufacturing due to its economies of scale, the country is no longer the mecca for manufacturers it once was. Other nations stand to benefit if investment is diverted away from China.

China, in the coming years, may appear to be less of a threat to the U.S. economy than it is today.

Looks like the bubble on the Chinese markets is will and truly over for now :


http://www.marketavenue.cn/upload/NEWS_36285.htm

Sell China stocks, Morgan Stanley: Credit Suisse

Updated: 2008-04-28 Source:ChinaPost

Keywords: Shanghai Composite Index.. mutual fund.. central bank.. deposits.. China Enterprises Index.. inflation.. investment..

China's shares are a "sell" even after the government stepped in to support the world's fourth- biggest stock market, according to Morgan Stanley and Credit Suisse Group.

Corporate earnings growth this year may disappoint, Morgan Stanley analysts Jerry Lou and Allen Gui said in a report Friday. Chinese companies' Hong Kong-listed 'H shares' are more attractive than yuan-denominated 'A shares,' Credit Suisse's Vincent Chan wrote in a separate note.

The 17-year-old Shanghai Composite Index fell 0.7 percent Friday. It surged 9.3 percent Thursday, the most since Oct. 23, 2001, after the government lowered the tax on stock trading in the latest action to stem a market slump that wiped out US$1.7 trillion of market value.

"Given earnings deceleration, we do not think such a rally can last," Morgan Stanley's Lou and Gui wrote. "The government's cut of the stamp duty seems to suggest that it is running out of silver bullets."

The benchmark CSI 300 Index plunged as much as 39 percent this year to become the world's second-worst performer amid speculation government steps to quell inflation would hurt corporate profits. The Shanghai Composite tumbled as much as 41 percent in that time. The slump sparked official moves to bolster equities. China in December tripled to US$30 billion the amount overseas institutions can invest in yuan-denominated stocks and bonds. Two months later, regulators ended a five-month freeze on the sale of new mutual funds.

Regulators on April 20 required shareholders selling more than 1 percent of a stock to do so in single trades, to keep the transactions off the open market. The government had initially tripled the stamp duty last May in an attempt to cool a rally driven amid optimism an expansion in the world's fastest-growing major economy will boost profits.

The CSI 300 Index surged almost sixfold in the two years through 2007. China analysts this month are still the most bullish they've been since November, according to data compiled by Bloomberg.

The 300-member CSI 300 is still valued at 22 times estimates for this year's earnings, more than the Hang Seng China Enterprises Index's 16 times. The Hang Seng index tracks 42 H shares traded in Hong Kong.

"There is no compelling reason for A shares to be more expensive than H shares," Credit Suisse's Chan, Hong Kong-based head of China region research, wrote in his report. The A shares are "even more vulnerable to China's inflation problem."

The analyst on April 3 predicted in a Bloomberg Television interview that A shares would decline. China's inflation stayed close to an 11-year high of 8.3 percent last month, prompting the central bank to ask commercial lenders to set aside a record 16 percent of their deposits in reserve last week.

Analysts may also downgrade their estimates for Chinese earnings, Chan said. The average market expectation for earnings growth of 34 percent in 2008 leaves "ample room" to disappoint investors, as companies face a slowdown in investment income and higher costs, Morgan Stanley's analysts wrote.

China Watchers may be interested in this Economist article :

http://www.economist.com/displayStory.cfm?story_id=11290833

Economics focus

An aberrant abacus

May 1st 2008

Coming to terms with China's untrustworthy economic numbers

AS CHINA'S importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country's official statistics are notoriously ropy. Some commentators accuse China's government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?

One reason to be suspicious of GDP figures is...............

You have to love the way China works sometimes. Rather than combat inflation (cannot do that as it might upset the masses before the Olympics, so its a nice nice happy worker policy until the Olympics are over) they are now going to feed inflation by increasing wages even more to compensate for inflation (keeps those workers happy).

You can understand it, the last time inflation was rampant was 1989 - and the problems then are not forgotten (Tienanmen), so they want no riots prior Olympics....too many people watching.

Wages have already risen a lot this year, due to the new labour laws, and forget the official numbers you see advertised, China has a very good statistical way of avoiding showing how much labour costs are now, its simply that "wage" figures given out in the media are only state run firms. All private firms wages are not taken into account when you see the "average wage" figures in the media. :) Clever ain't they :)

However, these short term measures on inflation and easing the pain are only going to lead to more and longer pain further down the road...........it will all catch up before too long.........




http://news.ino.com/headlines/?newsid=20080507001521

China Plans Wage Hikes; Could Threaten Inflation - Economists
5 hours ago

BEIJING (AFP)--Southern China's Guangdong province is the latest area in the nation to unveil plans to raise wages, state media said Wednesday, a move economists worry runs counter to endeavor to rein in inflation.

Guangdong provincial labor authorities said in a 2008 plan that they aimed to establish a regular salary-increase system and raise wages of all employees in the region by 12% or more this year, the China Youth Daily reported.

Other areas in China have announced similar polices, including the financial hub of Shanghai, where a salary-rise guideline for this year called on companies to lift employee wages between 5% and 16%.

This is meant to help households, especially low-income families, cope with the country's surging inflation, which has fueled government fears of potential social unrest.

China's inflation reached 8% in the first quarter. In February, it climbed to 8.7%, the highest in almost 12 years, before easing slightly to 8.3% in March.

But analysts voiced concern that salary increases risk exacerbating the inflation problem that they are supposed to alleviate.

If companies are told to pay higher wages, they may have to raise prices to stay out of the red, economists argued, warning this could be the beginning of a vicious cycle.

"The problem will get worse if salaries and price rises take turns," Ma Qing, a Beijing-based analyst for the think tank CEB Monitor Group Ltd, told AFP.

He argued this would lead to social tensions by widening income disparities.

http://ap.google.com/article/ALeqM5i_GnchsrOsWq07cOXj7f17XcUnjQD90K3V102

China's April inflation near decade-high levels

By JOE McDONALD 12th May 2008

BEIJING (AP) China's inflation rose in April to near decade-high levels, according to data released Monday, increasing pressure on Beijing to cool rapidly ascending prices and avert possible unrest ahead of the Summer Olympics.

The government also released data showing China's trade surplus fell by 1 percent in April. That could help to ease inflation by reducing the amount of money flooding into the booming economy.

April's consumer prices rose 8.5 percent compared with the same month last year, the National Statistics Bureau said. That was up from March's 8.3 percent rate and just short of February's 8.7 percent, the highest inflation in 12 years.

"It is still far too early to claim success in the battle against inflation," Goldman Sachs economists Yu Song and Hong Liang said in a report to clients.

Consumer prices have jumped since mid-2007, driven by food costs that hit 22.1 percent in April. The government has been trying to slow down the rising cost of pork, grain and other items by boosting supplies and placing a ceiling on the price of basic goods.

Meanwhile, the government ordered Chinese banks to increase the amount of money they hold in reserve, the fourth time this year, to curb lending and control inflation. The central bank raised the amount of deposits that banks must keep in reserve by 0.5 percent to 16.5 percent the highest level to date.

Economists say Chinese bank deposits are growing so fast that the increased reserves have had no direct impact on lending, but are meant as a signal to bankers to reduce credit.

Soaring food prices are especially worrisome to Beijing because they hit China's poor the hardest.

There have been no reports of demonstrations, but inflation in the 1980s and '90s set off protests an embarrassment that communist leaders want to avoid ahead of August's Beijing Olympics, which they hope will showcase China as a prosperous, stable society.

A senior economic official, Vice Premier Wang Qishan, said Friday that Beijing will stick to tight monetary policies to cool inflation, but announced no new initiatives.

Beijing has raised interest rates repeatedly over the past two years.

Prices began to rise in mid-2007 as China ran short of pork, grain and some other basic goods.

The government has attempted to assure the public that China has enough grain and is paying farmers to raise more pigs. Efforts to boost food supplies, however, were hampered by the most severe winter storms in decades, which wrecked crops and disrupted shipping.

The sharpest inflation has been limited to food but costs of raw materials and energy are edging up.

April's nonfood inflation was 1.8 percent, matching March, which was the highest in more than a year, according to the government data.

Producer prices rose 8.1 percent in April, driven by rising energy costs, according to the government.

April's 22.1 percent rise in food costs was fueled by a 68.3 percent jump in the price of pork, a 46.6 percent increase in that of cooking oil and a 13.6 percent increase for fresh vegetables.

China's global trade surplus in April fell by about 1 percent from the same month last year to $16.8 billion amid weaker global demand for Chinese goods, according to government data.

The trade surplus with Europe jumped by 34.8 percent to $12 billion (7.8 billion euros) while that with the United States saw much slower growth, rising by 4 percent to $13 billion, according to the Chinese customs agency.

The growing Chinese trade gap with the 27-nation European Union has prompted the EU to join Washington in lobbying Beijing to ease currency controls and import barriers.

The recent hike in oil price can only add to thier problems,i think the bubble will burst,its a case of when will it hapen.

The more they let the boom continue to protect sentiment ahead of the Olympics, the bigger and more violent the bust could be after the Olypmics (and its media spotlight) is gone.


http://business.smh.com.au/chinas-growing-inflation-threat-20080602-2kmn.html

China's growing inflation threat

June 2, 2008

Page 1 of 2

Six months after the People's Bank of China signaled a stepped-up battle against inflation, it has only fallen further behind in the fight.

With inflation the highest in almost 12 years, central bank Governor Zhou Xiaochuan has.....................