SmallCapInvestor.com: China Stocks

Downturn continues to plague China

Thu, 09 Oct 08 06:20:44 -0400

News of the successful passage of the bailout plan notwithstanding, the Dow Jones Industrial Average plunged as much as 800 points Monday, setting yet another new record for a single-day point drop and dragging the index below the key psychological level of 10,000 for the first time since 2004. All other major indexes followed suit, dropping 7% or more, and falling U.S. markets sent global stocks spiraling, as European and Asian investors scurried to the relative safety of other investment vehicles.

The ongoing downturn continues to be a thorn in the side of the Chinese economy, which grew 10.1% in the second quarter, the fourth straight quarter that growth has slowed. Swiss bank UBS projects China's economy will grow a total of 9.6% this year, down from 11.9% in 2007. Slower economic growth and the global credit crunch are battering export markets and softening demand for real estate, which makes up 10% of China's gross domestic product.

The Chinese property market has fallen on hard times, with sales volumes and prices dropping precipitously since early this year. The Chinese government, which last month slashed interest rates to help counter the slump, could make a number of other moves to further prop up the sagging marketing. These moves could include further lowering interest rates, reducing down-payment requirements, lowering or eliminating land appreciation taxes and allowing home buyers to deduct mortgage payments against their personal income tax.

Bear in mind that while China's growth is slowing, its government still has a budget surplus and about $1.8 trillion in reserves with little public debt. If worse comes to worse on this side of the pond, say experts at TD Securities, a U.S. depression wouldn't necessarily spell economic disaster for China, since only 7% . . .

The bailout and China: The potential impact extends well beyond U.S. borders

Thu, 02 Oct 08 06:20:45 -0400

One week after Lehman Brother's demise sent markets at home and abroad tumbling, there's more to worry about: the House of Representatives' rejection of the would-be monumental bailout of the American financial industry. Monday's no vote came dealt a serious blow to the legislation, which President Bush says is needed to prevent a "painful and lasting" economic downturn and "send a strong signal" of confidence to U.S. markets and restore stability to the global economy.

The political elite are pulling out all the stops to revive talks on the stalled bailout plan, which is aimed at preventing a possible collapse in the U.S. financial system — an event that would cause a severe domino effect that would threaten China's growth progress and the entire global economic landscape.

The initial failure of the financial rescue package, formally known as the Emergency Economic Stabilization Act, has left markets reeling from Wall Street to Tokyo and initially caused oil prices to fall steeply amid fears of a global recession. The Dow Jones Industrial Average lost 7% of its volume and plunged a record 777 points Monday, its steepest single-day drop on record. Japan's Nikkei average slid 4.1% Tuesday hitting a three-year low, while Hong Kong's Hang Seng opened down 5.5% and Taiwan's leading index closed down 3.6% (after briefly falling more than 6%) following the bailout plan defeat. (Mainland China's markets are closed this week for the National Day holiday, so the affect of the news on the Shanghai exchange won't be known until next . . .

Infant formula scandal sours faith in Chinese products

Thu, 25 Sep 08 06:20:33 -0400

Chinese authorities have found the industrial chemical melamine in baby milk made by almost two-dozen producers. This suggests the nation's problems with toxic infant formula extends well beyond products produced by Hebei province-based Shijiazhuang Sanlu Group Co., the nation's leading producer of powdered milk and the initial target of the probe (Beijing's State Council said that the company received complaints of contamination as early as December 2007 but failed to act on them). Sanlu was 43%-owned by New Zealand-based Fonterra Co-operative Group Ltd., the world's largest dairy exporter, until Wednesday, when Fonterra chief Andrew Ferrier announced the company was cutting its stake in Sanlu by nearly 70%.

Government investigators since have found that 69 batches of formula (as well milk and yogurt) made by some of China's best-known producers including Mengniu Dairy, the nation's largest milk company, were contaminated with the chemical, according to a statement by China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the Chinese agency that monitors food and product safety. (Melamine, which is normally used in nonfood products, was found in tainted pet food exported from China to the United States last year.)

China's state-run Xinhua news agency reported Tuesday that an estimated 54,000 babies have been sickened by the tainted formula. Close to 13,000 are still hospitalized, including 104 who are in serious condition. So far, four infants have died as a result of acute kidney failure after drinking the bad milk. The news prompted the resignation of Li Changjiang, the once well-respected head of the AQSIQ. Following a wave of product safety scandals involving lead-laden toys, toxic seafood, bad toothpaste, watered-down jet fuel, inferior tires and other faulty products, the agency became the target of increased . . .

Lehman's fall and China's markets

Thu, 18 Sep 08 06:20:39 -0400

Lehman Brothers Holdings Inc.'s (NYSE:LEH) announcement early Monday of plans to file for Chapter 11 bankruptcy capped off a roller-coaster weekend on Wall Street that saw already shaken U.S. markets rattle further due to woes at other major financial firms and the federal government takeover of beleaguered mortgage financiers Fannie Mae and Freddie Mac.

Strangled by the subprime crisis and plunging real-estate values, the storied investment banking titan collapsed under the weight of $60 billion in bad debts on its property holdings. The fall of the venerable 158-year-old Wall Street institution marks the beginning of the largest corporate bankruptcy case in U.S. history, based on total assets before the filing ($639 billion as of May 31).

Much like the Enron bankruptcy in 2001, Lehman Brother's crash-and-burn not only permanently reshapes the American financial landscape, it is already causing a ripple effect that is sending shudders through global markets. In wake of the news, the Dow Jones Industrial Average tumbled over 500 points, Chinese share prices closed sharply lower, Hong Kong stocks nosedived to their lowest level since Oct. 27, 2006, and the Shanghai composite dipped below its psychologically important 2,000 level — amid fears that the bankruptcy would stoke further troubles in the United States financial sector.

Asian governments closed the doors of Lehman’s operations from Tokyo to Seoul in an effort to reassure investors that effects on regional companies with exposure to the bank would be limited. The Bank of Japan pumped 2.5 trillion yen, or $24 billion, into Japanese money markets, Taiwan's central bank infused the foreign-currency interbank market with $3.59 billion, and the chief of the Hong Kong Monetary Authority told the local media of plans to make a similar move to help give the . . .

China Stocks: China Sky One Medical, Inc.

Thu, 11 Sep 08 06:20:31 -0400

Although it only relatively recently caught on in the West, Traditional Chinese Medicine (TCM), is not new age; it’s old age. This time-tested medical science has been practiced for some 5,000 years in China. Indeed, in that country it’s a highly trusted form of conventional medicine, not an alternative feel-good science. For evidence of how seriously this form of folk medicine is taken, one only need look toward the growing number of Chinese drugmakers and biotech companies that are merging ancient herbal remedies with modern Western science to create drugs to treat everything from arthritis to impotence to cancer.

China Sky One Medical, Inc. (AMEX:CSY) specializes in Chinese medicine products and is gearing up to tap a growing share of China's multi-billion dollar drug market, about 20% of which is TCM pharmaceuticals. The Chinese pharmaceutical market has grown at an average rate of 15% annually over the past several years, and is projected to maintain double-digit growth over the next few years, making China the sixth-largest drug market by 2011, according to Research and Markets' China Pharmaceutical Logistics Industry Report, 2008.

Operating exclusively in China, through its subsidiaries Harbin Tian Di Ren Medical Science and Technology Company (TDR) and TDR’s subsidiaries, China sky develops, manufactures, markets and sells branded, over-the-counter plant- and herb-based pharmaceutical and medicinal products and nutritional supplements. The company’s primary products are external-use remedies based on traditional Chinese herbal medicine including creams, ointments, sprays, powders, skin patches and herbs. It also engages in tissue and stem cell research through TDR's wholly owned subsidiary, Harbin Tian Qing Biotech Application Company. In all, China Sky manufactures . . .

China Stocks: China Fire & Security Group

Thu, 04 Sep 08 06:20:44 -0400

The 2008 Summer Olympics focused attention on China like no time in recent history. The high-tech opening and closing ceremonies gave the world a glimpse of how far the Middle Kingdom has come.

There are still many areas, though, in which the Chinese lag behind. As China has grown more prosperous and attracted Western investment, the Chinese government has made a significant push to enact a body of laws to bring China up to snuff on regulatory matters and match the quality and security standards of the United States and the European Union. In addition to passing legislation in the areas of financial transparency, intellectual property and labor issues, China has made significant strides in beefing up its industrial safety image.

One area that has received attention is fire codes. Last year, officials passed a new set of national fire codes that prompted Chinese companies to upgrade operations and fully comply with the new standards. According to experts, few are in compliance (three-quarters of iron and steel companies, for example, are still working to meet the new regulations).

An enterprise at the center of Chinese industry's efforts to catch up to the developed world is China Fire & Security Group, Inc. (Nasdaq:CFSG), a leading industrial fire protection product and solution provider. Based in Beijing, Chinese Fire is engaged primarily in the design, manufacture, sales and maintenance of a . . .

China Architectural Engineering: Pushing the envelope

Thu, 28 Aug 08 06:20:02 -0400

Softening global economic conditions have created a rough patch in the commercial real-estate market, causing some experts to fear the worst is yet to come for companies involved in the construction of office buildings, shopping centers and malls.

Indeed, amid the credit crunch, high oil prices and inflation concerns, activity in the U.S. commercial real estate market has slowed even more dramatically as jobs fade and the economy weakens.

Even China's construction boom hasn't been immune, experiencing a marked slowdown since last year (albeit one that pales in comparison with the slump in the United States). Even so, offset by ongoing urbanization, the Chinese market continues to show a strong appetite for apartment complexes, offices and retail space.

One player fairing well in the challenging yet rewarding environment is China Architectural Engineering, Inc. (Nasdaq:CAEI), a leading provider of custom architectural solutions for developers or commercial and public works projects. CAE specializes in the design, engineering, fabrication and installation of high-end building envelope systems, including curtain wall systems (glass, stone and metal), steel construction systems, roofing systems, eco-energy-saving building conservation systems and related products. Through its subsidiaries, CAE's principal business is the design, manufacture, installation and maintenance of structural glass . . .

China Precision Steel an attractive niche play

Thu, 21 Aug 08 06:20:55 -0400

To keep up with its impressive growth story, China is devouring more raw materials than any other nation. Its use of commodities is remarkable: China consumes nearly 30% of the global aluminum and zinc supply, a quarter of its copper and it produces and consumes one-third of the world's steel.

Steel is as valuable as gold to the Chinese, who require huge amounts of the material to feed booming demand from its unprecedented infrastructure build-out and manufacturing, automotive and shipbuilding sectors. Steelmakers and steel product producers in China have aggressively expanded their operations and stepped up production in recent years to meet these needs.

One company cashing in on this ever-growing demand is China Precision Steel, Inc. (Nasdaq:CPSL), formerly OraLabs Holding Corp, a value-added steel processing company that manufactures and sells high-precision, cold-rolled steel products. Its roughly 40 specialty products are mainly used in the manufacture of automobile parts and components, appliances, kitchen tools, microelectronics, saw blades, textile needles, and food packing and containers. It also provides the heat treatment and cutting of medium- and high-carbon hot-rolled steel strips. Though the company primarily does business in mainland China through its wholly owned subsidiary, Shanghai Chengtong Precision Strip Co., Ltd., last year CPSL began exporting products to Thailand, Indonesia, the Philippines and Nigeria.

The company had a solid third quarter for the period ended March 31. Revenue grew 61% year over year to $18.7 million. Net income came in at $4.6 million, or $0.10 per diluted share, a 231% increase over the year-ago quarter. Gross profit rose 58% to $5.3 million. Exports accounted for 19% of revenue a 2.3% increase from the previous year. In a move to secure a stable supply of raw material, the company advanced suppliers $26.8 million during the quarter, reducing its amount of cash on hand to $14.3 million. With investment and new construction expenditures expected to reach $20 million, CPSL may need to access capital markets (the company plans to invest in a new production line for high-quality stainless steel and a new cold roll . . .

Healthy outlook for Sinovac Biotech

Thu, 14 Aug 08 06:20:44 -0400

While it's well known that international corporate giants are funneling big bucks into research institutes in China, lesser known is the Chinese government's efforts to make the nation a world leader in medicine, science and technology. Examples of its push to beef up innovation can be seen at state-run research labs such as the China Academy of Sciences, a broad collection of R&D facilities currently undergoing significant reforms and expansion that officials hope will become a major high-tech incubator. The Academy already has a leadership role in the field of biotech.

One of the Academy's partners in China's race to innovate in the biotechnology industry is Sinovac Biotech Ltd. (AMEX:SVA). Sinovac researchers have worked closely with government scientists to tackle illnesses (such as the outbreak of bird flu in Hong Kong). The company does business under its majority-owned subsidiary, Sinovac Beijing, and its wholly owned subsidiary, Tangshan Yian. A leading domestic vaccine producer, the biopharmaceutical company is engaged in the research, development and commercialization of agents that protect against human infectious diseases including hepatitis, influenza and SARS.

Sinovac's portfolio of State Food and Drug Administration-approved products consists of Healive, a vaccine against hepatitis A virus; Bilive, which is used to prevent infection from hepatitis A and B; and Anflu, a seasonal influenza virus vaccine. Four pipeline drugs are also in development. They include two vaccine candidates for the H5N1 strain of bird flu (pandemic influenza) as well as a vaccine for the Japanese encephalitis virus, and another for SARS (Severe Acute Respiratory Syndrome), a potentially deadly virus with flu-like symptoms that attacks the lungs.

Compared with Big Pharma drugs designed to battle cancer, high blood pressure, depression and high levels of bad cholesterol, pharmaceuticals such as those produced by Sinvac maintain a decidedly lower profile. But the vaccine maker doesn't seem to mind, especially given growing concerns about the threats posed by hepatitis, Avian flu, SARS and drug-resistant new viruses.

After all, in the aftermath of the 7.9 magnitude earthquake that rocked China on May 12, business was a good for Sinovac, as provincial CDCs stocked up on vaccines to inoculate children against possible outbreaks of hepatitis A and B. Immediately after the disaster, China's Ministry of Health purchased $2.86 million worth . . .

China Automotive Systems on fast track

Thu, 07 Aug 08 06:13:54 -0400

On China's vast system of roads and highways, where traffic was once almost exclusively made up of bicycles, two-wheel modes of transport are increasingly sharing the pavement with cars of every stripe—from a wide range of American, European and Japanese imports to a host of affordable offerings from homegrown automakers.

In fact, the automotive industry in China has grown by leaps and bounds in the past several years, thanks to the country's 2001 entry into the World Trade Organization and its phenomenal economic progress. Annual sales of passenger vehicles doubled between 2003 and 2007, driving China past Japan into the spot of the world's second-largest vehicle market after the United States.

While the global auto industry is being battered by sagging economic conditions that have caused consumers to put big-ticket items on the back burner, China's vehicle sales continue to increase, albeit at a slower pace than in previous years. And in one segment of the automotive sector, a domestic player is accelerating fast, grabbing market share and expanding its alliances with automakers to cash in on the automotive boom. Meet China Automotive Systems, Inc. (Nasdaq:CAAS), a top supplier of automotive steering systems and components to Chinese automakers and, to a lesser extent, the American market...