Plenipotentiary

“When a diplomat says yes he means perhaps; when he says perhaps he means no; when he says no, he is not a diplomat”, someone once said . Let’s hope China and Japan remember this in their current testy dispute over an arrested fishing boat captain and competing ownership of some deserted East China Sea islands (‘Diaoya’ in Chinese or ‘Senkakau’ in Japanese), which are 300 odd kilometres from Taiwan. Of course, it is not so much the islands themselves but what is underneath them that counts i.e. natural gas; and in 2008, China and Japan agreed to develop this resource together. But China halted these negotiations when the captain was arrested after his vessel ran into two Japanese Coast Guard cruisers. And what really vexes the Chinese is the fact that Japan is intending to prosecute the sailor under domestic law, implying that it ‘owns’ the islands. Note, too, that Japan is China’s second largest trading partner after the US and - vice versa - China is Japan’s largest, buying some $120 billion worth of stuff in 2009.

Elsewhere, it has been a pretty ordinary sort of week with gold hitting a new all-time high ($1291.00), the US and China continuing their playground squabble about the value of the Yuan (which incidentally breached 6.70 yesterday), more property tax rumours in China and Hong Kong shares continuing to move ahead year-to-date. Less routine was a rise (+0.11%) in the Shanghai Composite on the last day before the holidays – the first since 13 September. It seems that appliance makers gained on the prospect of consumer spending during the first of two national vacation periods, which overshadowed declines in commodity producers and caution on property (as above). A Bloomberg investor poll also underlined divergent opinions on China i.e. while more than half of respondents say they are bullish about China’s prospects for long term investments, around one third take a bearish view. I think it is only a matter of time before the ‘one third’ shrinks. But as J P Morgan (1837-1913) said when asked what the stock market will do: “it will fluctuate”.

Shanghai Composite:
Today: closed for holiday
Tuesday: +0.11% at 2,591.55 at close
This week: -0.3%
YTD: -20.9%

Hang Seng:
Today: +0.11% at 22,047.71 at close
This week: +0.4%
YTD: +0.8%

Oil futures: $75.35
Gold futures: $1292.60
Euro/$ spot: 1.3377

Headlines

• Global poll says China will not let Yuan rise much; but opinion is divided on investment attractions
• Obama says China has not followed through on Yuan; although the currency rises to highest since 1993
• China says picking on the Yuan is “short-sighted and unwise”
• US import duties are imposed on Chinese and Indonesian glossy paper; plus countervailing charges
• China understands need to shift towards domestic consumption, says World Bank
• China may unveil a property tax in October to dampen house prices, says China Business News
• Economic growth in 2010 will be faster than 2009, says Statistics Bureau
• Minimum wage to rise by at least 20% per annum for five years, says Morning Post
• More Chinese households see higher prices in the next quarter, says PBOC