Our friend Andy Rothman from research firm CLSA sent out an interesting chart last week following the release of China’s macroeconomic data for the month of September.

As you can see from the chart, private investment (Non State-Owned Enterprises) growth accelerated to 37 percent on a year-over-year basis, a more rapid rate than that of state-owned enterprises. This is the first time we’ve seen this happen since October of last year and it is the fastest rate of growth since November 2007.

While the Chinese economy expanded 8.9% in Q3, propped up by easy credit & continued government spending programmes, Europe, US & Japan continue to flounder. The world’s 3rd largest economy has recorded 7.7% overall growth in the first 9 months of 2009, with officials saying they are confident that the much talked about annual growth target of 8% will be achieved.

Last November, as it became clear that the global economy was heading into a recessionary period, central government implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels. Via this stimulus package, China has implemented a number of schemes that impact practically all sectors in the economy; real estate/construction, transportation infrastructure, agriculture, social services, industry, earthquake reconstruction, technology advancement and rural development being amongst those receiving special focus.

This commentary originally appeared in Forbes

Treasury Secretary Timothy Geithner and Morgan Stanley Asia Chairman Stephen Roach have both been arguing that China needs to spur its domestic consumption by fixing its creaking health care and pension systems, so that older people start to spend. Will that really work?

The typical Chinese retiree has lived through a world war, a civil war, famine, the Cultural Revolution and political economic turmoil that make the current malaise smacking the U.S. look like almost nothing. Do you really think they will trust new policies so much that they stop saving and suddenly start spending? It is doubtful. Moreover, older Chinese have mostly missed out on the economic boom since 1978. They retired before the gold rush of the last few years, or they've been working in state-owned enterprises where the pay stays low. Even though their savings rate hovers around 60%, they don't have much money socked away.

Wall Street, “Main Street,” politicians and philosophers continue to debate the reason for the housing collapse/credit crisis/global economic pandemonium. The differences of opinion may rage on for decades.

Unfortunately, it will always become a “which-came-first-chicken-or-egg” argument. Was it the ever-greedy chain of business people… from the greedy mortgage broker to the greedy lender to the greedy “Wall-Streeter” who sliced/diced sub-prime loans into tradeable (now toxic) securities? If so, is more regulation of financial entities the way to stop them from deliberately misleading the public?

Many stock market indices in Asia have performed very well this year compared to developed markets. For example, China’s Shanghai Composite Index is up 59%, India’s Sensex is up 76.5%, Taiwan’s Weighted Index is up 65.5%, Singapore’s Straits Times Index is up 52.2% YTD as of Oct 12th. European indices have risen about 20-30% this year. The S&P 500 has increased 21% YTD. As growth continues to be sluggish in the developed world, investors are flocking to Asia for higher returns.

So should you invest in Asia?

Third Quarter Earnings

About 1,600 out of the total 1631 listed companies will announce their third quarter results in October. The interim report showed that overall the net profit in 2Q was CNY 484.752 Billion ($70.97 Billion), down 14.58% from a year ago but up 36.27% comparing to 1Q.

Credit risks

The astronomic bank loans inevitably stressed the banks’ balance sheets. In their mid-year reports, 14 banks listed in Shanghai and Shenzhen Exchanges posted a YoY 6.9% drop on pretax pre-provision profit and a YOY 3.1% decline on net profits. Minsheng Bank and Shanghai Pudong Development had the best YOY net profit growth, 7.82% and 6.37% respectively. On the other hands, China CITIC Bank (CHBJF.PK) and China Merchants Banks were the worst, -16.3% and –37.6% respectively. The surges in lending eroded the net interest margin by 88bp and the total interest incomes fell 9.9%. China CITIC Bank achieved the second highest growth on the new loans and notes (44.8%) while suffered 100bp drop on its net interest margin.

On the last trading day of September before the long National holiday, Shanghai composite was up a slight 0.9% at 2779.43 on a low volume. The news that China Banking Regulatory Commission approved CNY 10billion funds to be released into the market after the holiday propelled the market above 2800 in the middle of day. However, the market retreated ever since. Advance : Decline ratio was 3.5:1. Overall, Shanghai composite fell 6% in the third quarter of 2009.

October will be a short trading month, only 16 trading days. What will the market looking for after the long holiday?

Working in Southeast Asia at different points in the 80s and 90s, I marveled at the blind adoration of Mark Mobius. When the emerging market guru arrived in Taipei or Hong Kong for a speech, it was always a celebrated event. The financial media fawned over his presence the way that the entertainment media currently fawn over Angelina Jolie.

I have great respect for Mr. Mobius… don’t get me wrong. Yet I am always concerned by a buy-n-hold-forever attitude for any country’s stocks.

By Daniel Harrison

Matt Hougan’s recent article on Morgan Stanley’s China A-Share closed-end fund (CAF) brings some much-overlooked discussion to the table of Chinese mainland-listed share valuations, and to what extent they are overpriced.

The United States has imposed trade penalties on tires coming into the country from China and China responded by filing a complaint with the World Trade Organization (WTO), calling the move protectionist and a violation of global trade rules.

The trade disputes between the United States and China are likely to ripple throughout markets, however, major impacts will be felt in the United States as the supply of cheap goods could drop off.

China grew its industrial production by 12.3% last month. That is good or great in any environment. When the world is in a recession, it is undoubtedly great. China’s retail sales grew right along with it by 15+%. Could the economic world look any rosier for China?

The answer is apparently “yes”. People are questioning China. They are suspect of its banks. They are suspect of the numbers the government is providing. Why do they doubt it economic numbers? The answer would seem to be that the numbers just seem too good to be true. Are they?

click to enlarge

Source: ODCE, Ministry of Commerce, China Statistics Bureau, Tralac report (2007), World Trade Atlas (2008), MOFCOM

This commentary originally appeared in Forbes.

Last week a drunk and deranged man stabbed two people to death and injured 14 others in Beijing. A few days later, another disturbed man stabbed a foreigner. The police response was not only to arrest both miscreants but also to ban the selling of kitchen knives at large retailers, including Wal-Mart (WMT), until after Oct. 1, the National Day holiday. That might seem an ineffective overreaction to tragic but isolated events, but it says a lot about how the government works in China and how businessmen need to navigate it.

The Obama Administration waited until the wee hours of September 11th, 2009 to quietly inform Americans of its decision to slap new tariffs against low-end tire imports from China. Coming only days before this week's important G-20 meeting in Pittsburgh, an occasion when China will likely renew its campaign to push the world towards a post-dollar economy, the timing of the announcement seems particularly ill-advised.

To be frank, it is like waving a red flag in front of a bull. It is not surprising that China instantly retaliated with their own duties on U.S. auto parts and agricultural products.

Even as China has recovered significantly from its correction and US markets charge higher, the Baltic Dry Index remains in a downtrend. As shown in the first chart below, the Baltic Dry peaked at the start of June and has headed steadily lower since then. China's Shanghai Composite peaked about a month later, but it has rallied nicely since the start of September. The Baltic Dry led the fall in China during the summer, so is it now suggesting that China's recent bounce is a pump fake, or is it just lagging this time around?

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This commentary originally appeared in Forbes

It has been 52 weeks since the end of capitalism. Except that it didn't end, as so many predicted, after Lehman fell on September 15, 2008. Oprah Winfrey and Donald Trump remain enormously popular. The bankers at firms like Goldman Sachs (GS) are still reaping massive profits as they develop new carbon credit and insurance products.

This might not end well.

Last week, during what's becoming a routine Friday night bad-news dump, the Obama Administration announced it would slap 35% tariffs on imports of Chinese tires as an anti-dumping measure.