QuantWorks

China: Revaluaing the Yuan Would Hurt the US Economy

Here's a Wall Street Journal article which states China's perspective that revaluing the Chinese yuan would hurt the US economy.  The argument is that, while the yuan is undervalued, the US economy is too depending on low costs from China.

Behind the calls for revaluation lies an erroneous assumption — that rectifying the trade imbalance will aid the U.S. economy. In reality, say the authors, the growing Chinese surplus has strongly benefited U.S. companies and consumers. U.S. companies have achieved strong profits by tapping China’s low labor and production costs. They note that more than a quarter of China’s exports are generated by U.S.-owned corporations, who eventually pass on the savings to American consumers. In addition, China’s central bank has been able to buy U.S. debt, further sustaining the U.S. economy.

I've always thought this, but the article states it rather eloquently.

Modern Chinese architecture

China is coming out with some really cool architecture.

China reduces taxes on the poor

China has recently doubled their tax cutoff point from 800 yuan to 1600 yuan per year, thus reducing taxes on the poor.  According to Yahoo's currency converter, 1600 yuan is roughly equivalent to $197 US.

China has 3.5 million private and non-govermental companies

According to the All-China Federation of Industry & Commerce, China has 3.5 million private, non-govermental companies:

China today has nearly 3.5 million such private companies, according to the All-China Federation of Industry & Commerce, a Beijing trade association. Revenues in the private sector skyrocketed from $5 billion in 1989 to $241 billion last year, accounting for 15% of China's gross domestic product.

For emphasis, please note their revenue increased from $5 billion in 1989 to $241 billion last year.

China's economy grows at 9.4%, exceeding expectations

Bloomberg reports that China's economy grew 9.4% versus prior year, which was more than expected.  The Chinese economy grew by 9.5% in the prior quarter.  Growth has been fueled by demand for cell phones, restaurant meals and travel.  Speaking of cell phones, look at our recent report on surging stock China Techfaith Wireless (CNTF).

Stating the obvious:  Most companies would be happy to see revenue growth of 9-10% each year, so it's impressive that to see the GDP of a country with 1.3 billion people (each of who is also seeing their incomes rise 9-10% each year on average).

China Techfaith Wireless (CNTF) soars 30% in 4 trading days

Since our original report on China Techfaith Wireless (see China stock China Techfaith Wireless (CNTF) started with a buy rating), the stock fell from $9.45 to about $8 a few days later when fears of inflation due to a temporary increase in oil costs hit the market.

For those of you who saw this as a great buying opportunity, you've been greatly awarded by a recent run-up in stock price.  CNTF's stock price has risen from $8 on 10/14 to $10.39 on 10/19, a 30% increase in 4 trading days.  CNTF announced their revenue and profits would fall within the range analysts had predicted.  Also, Business Week came out with an article that was bullish on China Techfaith Wireless, giving CNTF another boost.  Importantly, Business Week mentions CNTF is ahead of rivals in developing 3G models.

China Techfaith Wireless (CNTF) gets a boost

China Techfaith Wireless (CNTF) reported today that their FY05 revenue and earnings will be on the low side of their guidance.  This is actually good news since their stock price has actually fallen about 50% since their IPO.  Based on a Kaufmann Brothers report, we estimate their 12-month stock price potential to be between $15 and $23.

Today's news was actually good news and CNTF's stock price was up nearly 10% today (Oct 17).  This is a great sign since the Chinese cell market is in a temporary slump since many companies are scaling back operations to gear up for the rollout of 3G.  See the following Cellular News article on 3G Wireless Will Reshape China's Telecom Landscape.

Further fueling CNTF stock rise today is an Business Week article on CNTF called TechFaith: A Firm Grip On Handset Design.  Business Week is bullish on CNTF, saying "TechFaith's models are all over China -- and, increasingly, the world."  CNTF, which was founded by former Motorola employees, is partially owned by Qualcomm (QCOM) and Intel (INTC).  Importantly, Business Week says that CNTF is further along in 3G work than rivals, something that will help best position CNTF for the upcoming 3G boom.

Rumor: Shanda no longer developing set-top box

The president of China's Shanghai Media Group has resigned from the board of directors for NASDAQ-listed Shanda Interactive (SNDA), fueling rumors that Shanda will not be developing a set-top box that would bring games and the internet to millions in China.

Chinese President Hu Jintao applauds China's political stability and impact on Chinese economy

At a meeting of the G20 in China, Chinese President Hu Jintao says that political stability is a key factor in driving economic growth in China.  He says:

China has ample labor resources, large demand in its domestic market, a high savings rate, and social and political stability.  All these have been favorable conditions for the relatively high economic growth in China.

Projections are that, by 2020, China will have a GDP of 4 trillion USD (or 3000 USD per capita).

Hat tip to Forbes

China to have a $100 billion trade SURPLUS in 2005 (up from 32% in 2004)

According to Bloomberg, China's trade surplus will be $100 billion in 2005, compared to $32 billion for 2005.  For comparison purposes, the trade deficit for the US was $620 billion in 2004 and will likely amount to about $730 billion in 2005.

Bloomberg mentions that China is the world's leading exporter of mobile phones and computers.  That's why we like the Chinese cell phone manufacturer China Techfaith Wireless (CNTF), a company we think is undervalued at the moment.  Thus, China benefits not only from increased consumption within their own country, but also from gaining more and more business since they still have a low cost of goods.