What we’ve been reading recently:

Imagethief : Enzaji Leer is caught red handed with the bomb! - Imagethief links to WSJ scans of an English phrasebook for Public Security officers during the Olympics | imagethief psb olympics english

Letter from China: Angry Youth: Reporting & Essays: The New Yorker - Evan Osnos examines China's new patriotic youth | Carrefour Olympics angry fen-qing youth youth

A Vision in Concrete - The Atlantic - A lot of attention has been paid to Beijing reinventing itself through architecture. It's interesting to compare what's happening in Beijing to the creation of Brasilia in the late 1950s under the guidance of architect Oscar Niemeyer and planner Lucio Cos | architecture beijing brasilia design niemeyer urban

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Call us impatient, but we’ve got a new riboflavin-of-the-month. And no, it’s not that Riboflavin.

Yesterday we bought 100 shares of Hubei Guangji Pharmaceutical at 17.00, our first foray into the Shenzhen market. Guangji is the world’s largest riboflavin supplier by production capacity, with a 90% market share in China, itself one-third of the global market. Also known as vitamin B2, riboflavin is mainly used in animal feed and as a food additive.

For the uninitiated, 2007 was something of a banner year for riboflavin, with prices sky-rocketing and Guangji riding the tide to post a 14-fold sales growth for the year. German chemical-making giant BASF must have noticed and summarily crashed the party by resuming regular riboflavin production in the third quarter of 2007.

Prices have plummeted since, down 70% from their 2007 peak, as of March. Guangji’s shares have dropped from its October high of 48.90 to 17.00, as of Thursday.

Still, Guangji is bullish on B2, announcing earlier this year that it expects net profits in the first half to grow by 170-270%. Not exactly 14-fold, but not too shabby.

Also, Guangji’s P/E ratio is currently at 17.82, lower than the average P/E ratio for others in the pharmaceutical industry, which leads us to hope we nabbed while it’s undervalued.

Say what you want about China’s record with piracy – movie piracy in particular – but DVDs are getting harder to find in Beijing.

Standing on any city corner four years ago, one could throw a stone toward any compass point and be guaranteed to shatter the window of a shop selling the latest pirated Hollywood hit for as cheap as RMB6.

This, of course, led US and European lawmakers to complain vigorously of losses felt by the global film industry. IPR lawyers have embarked on regular pilgrimages to pirate havens such as the Silk Alley, where they would pick up IPR-infringing movies and give them a solid karate chop. It’s not like they don’t have a point. The Motion Picture Association (the international counterpart of the Motion Picture Association of America, or MPAA) estimates that the worldwide movie industry lost US$18.2 billion in 2005 and that the piracy rate in China is around 90%. Furthermore, experts say that the Chinese movie industry suffers the most from movie piracy in China, as most Chinese people, well, like to watch Chinese movies.

China has long said it will get serious about cracking down on movie piracy, and anecdotally it has seemed that the number of DVD stores has decreased over the years. Not that it’s been any harder to find a movie when you want one, of course. But, with the Olympics on the doorstep, it appears China has finally laid down the hammer, at least for the duration of the games.

Having read an article in the LA Times with the ominous line, “DVD shops have pulled their stocks of pirated Hollywood films”, representatives from China Economic Review’s Beijing bureau hit the streets and did some old-fashioned shoe-leather reporting. For purely work-related purposes, of course.

The story was the same at several DVD mainstays throughout the city. Shelves once stacked with the latest Hollywood and Bollywood releases have been replaced with a paltry selection of “legal” offerings selling for around RMB30, if not more. Many of these are classic films, which is perfect for those who want to spend their weekends watching Cary Grant down a couple of gibsons, but won’t get the Brangelina monkey off your back.

As one would expect, the crackdown is strongest in the areas most frequently trafficked by foreigners. For the moment though, it appears that DVDs are still available the further you stray from the city’s center. At the time of writing, one establishment near our Beijing bureau’s offices continued to peddle their pirated wares. Among the offerings were Step Up 2 and P.S. I Love You, leading to perhaps a more pressing question: Why were these movies made in the first place?

What we’ve been reading recently:

Chinese try contraception to avoid Olympics | Reuters - Olympics slang gets saucy with clever wordplay | ao-yun bi-yun contraception mandarin olympics slang

CaiJing: Cancer’s Dark Cloak Spreads Over China - “China is paying more attention to cancer prevention and rural spending, but smoking and pollution inflict a heavy toll.” | cancer china health insurance medical

China’s war on nature - Noted historian Niall Ferguson weighs in with his take on the Olympics, nationalism and the environment in China | Niallferguson environment nationalism olympics

NYTimes.com: Western Magazines Find a Receptive Audience in India - The Indian magazine market may have some lessons for foreign publishers studying China | China India magazine media publishing

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What we’ve been reading recently:

Here's Another Olympic Sport: Skewering the Mascots - WSJ.com - The painful story of the birth of the Fuwa: the designer has not yet been paid the RMB1.00 fee he was due for his creations. | fuwa mascot olympics

SCMP - Sichuan nuclear plants on drawing board - The China National Nuclear Corp's plans for at least one 600MW nuclear plant in quake-hit Sichuan, backed by State Grid | earthquake energy nuclear power sichuan stategrid

Enjoy it while you can: Lots ‘o Websites unblocked in China [updated] - Kaiser Kuo on an apparent easing of the Net Nanny's grip. Regrettably, it seems mostly confined to Beijing for now. | censorship gfw internet kaiserkuo olympics

Yunnan's ethnic minorities at the end of the Qing Dynasty - GoKunming has posted some interesting photos of ethnic minorities in south China around the turn of the century taken by French consul Auguste Francois. | minorities yunnan

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Beijing’s much-anticipated Olympic traffic restrictions – in which cars will be allowed onto the roads on alternating days depending on whether their license plates end with even or odd numbers – went into effect on Sunday. The restrictions will take an estimated 45% of Beijing’s 3.3 million cars off the road. The government hopes that will both ease congestion and reduce Beijing’s world-famous air pollution for the Olympics.

After a few days under the new regime, the results are muddled. As far as congestion is concerned, the effect has been almost immediate. Major thoroughfares such as the Second Ring Road are always going to be congested, even with half of the vehicles off the roads. But my daily commute, which can take as much as 30 minutes in a cab during rush hour, was completed in just over 10 minutes yesterday at the peak of what is normally gridlock conditions.

As to that other, and arguably more important, goal of improving air quality, the jury is still out. The skyline is still hazy. Without doubt, the weather these past few days has been an improvement over the worst that “Greyjing” has to throw at you. But I still haven’t seen anything approaching the crystal blue skies the government is hoping for.

Admittedly, it’s probably too early to make any definitive judgments on the success of these traffic restrictions in cutting down on Beijing’s air pollution. But this is where we stand as of now.

There are some interesting side effects to the restrictions, however. In speaking with a higher-up at the Beijing headquarters of a multinational-conglomerate-death-star-type company, she mentioned that the company had decided not to hire a private car for its CEO, who will be visiting the city for the games. Having a private car available for the duration of the chief’s stay would have meant hiring two cars, one with an even-numbered and one with an odd-numbered plate, to the tune of around RMB5,000 per day – a price tag they deemed too steep. Keep in mind, this is a huge firm with deep pockets.

Their solution? They’re paying a cab driver to be on retainer for them, since cabs are exempted from the restrictions. At least one driver will be coming out ahead by the end of the games.

Another rough week-and-a-bit for the Capitalist Roader Fund, but we’re still not taking any action other than biting our fingernails. Anhui Conch (600585.SH), once hoped to be the foundation of the fund, has been acting more like a pair of cement shoes: it’s now down more than 31% since June 3. We still believe in the company’s fundamentals, but we’re starting to wonder if it might be worth dropping it for now and picking it up again later at what would almost certainly be a lower price. We’ll probably just wait it out, but watch this space.

Our other purchase, Industrial and Commercial Bank of China (ICBC) is down a less-grim 6.47%, meaning we’re out 18.3% for the fund overall. On the bright side, we’re still outperforming the Shanghai index which is down a bit less than 22% since June 3.

The volatility of the markets has meant we’ve seen a couple of encouraging days here and there, but the overall picture has not been bright. China Southern Airlines (600029.SH) is the least-poorly-performing of the stocks we’ve been monitoring closely, but it’s still down more than 5% since July 7, when we started watching. Fortunately, a “five-star” safety award, given to the airline for 169 consecutive months of trouble-free flying, suggests the airline’s fleet is faring better than its share price.

Ultimately, we’re not in a buying mood right now, and a bit of liquidity is always nice – especially with the RMB’s biggest one-day gain in four months coming the day before the CSI 300 officially became the world’s worst-performing index this year.

But we’re not going to be selling our holdings either. We don’t expect to witness huge gains in the current environment anyway, and we think both Anhui Conch and ICBC continue to have potential. Besides, exiting the market would make for a boring fund, so we’ll continue to wait it out.

And, in the “we couldn’t make this stuff up if we tried” category, BOCOG, the Beijing Olympic organizing committee, outdoes itself again. The top story in today’s Shanghai Daily is headlined “‘Go China’ banners banned for Olympics.” That might be eye-catching, but for our money, the real news is what else has been banned:

“The rules forbid banners and flags larger than two meters by one meter. Also banned are the flags of non-participating countries, flash photography, drunkenness, nudity, gambling, sit-ins, demonstrations, guns, ammunition, crossbows, daggers and goods thought to be flammable, caustic or radioactive.”

Now, there’s nothing in there that’s terribly surprising. The banning of flags of non-participating countries is presumably aimed at keeping Taiwanese flags out of stadiums, since Taiwan of course attends the games as “Chinese Taipei,” not “Taiwan” or (heaven forbid) “Republic of China” (by the way, Shanghaiist recently linked to an AP article discussing what exactly Taiwan will be called). There’s probably something in there, too, about keeping flags of the Holy See away, to avoid drawing unwanted attention to China’s off-again, off-again relationship with the Vatican.

But crossbows? Does that mean regular bows and arrows are all right? Wait! It gets better:

“The banned list also includes soft drink containers, musical instruments, whistles, long umbrellas, cigarette lighters, radios, glass cups, skateboards, roller skates, bats, unauthorized walkie-talkies, laser pointers and loudspeakers … Small quantities of lip gloss and sunscreen will be allowed, as will fountain pens.”

As fashion-conscious print media Luddites, we’re heartened to hear that we’ll be able to apply lip gloss while composing Olympic blog posts in longhand with our fountain pens. Still, the ban on long umbrellas does put a crimp in our capitalist roader style.

What we’ve been reading recently:

New Republic: No Country for Young Men - Mara Hvistendahl writes in The New Republic on what the one-child policy may mean for crime rates in China as a generation of frustrated men grows up. | newrepublic onechildpolicy

The New Yorker - The Financial Page: Let the Bad Times Roll - Surowiecki says a recession is the best time to start a magazine, historically speaking. Starts with an interesting anecdote about BusinessWeek’s founding, six weeks before the crash of 1929 | magazine media publishing

Economist: Inflation roundtable: Why do we care? - Just a matter of shoeleather and menu costs? Not quite, says this blog post. A commenter says: “The role of the central bank is to act as the communal memory, to recall the pain of inflation when all around have forgotten, or have never known.” | china economics inflation

Economist: In the stocks - China’s securities exchanges have gained influence although their actual regulatory powers remain weak. A rebuke from them could send a stock’s prices sliding, according to a new Columbia University study | CSRC china corruption securities stocks

Economist: Policing the frontiers of finance - A Peterson Institute study says opening a developing economy to foreign capital flows does more harm than good; China’s case is used to show some interesting counter-examples and problems | capital china economics

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It isn’t surprising that China’s first successful hostile takeover bid for an overseas company concerns commodities. Neither is it surprising that Sinosteel, the country’s second-largest importer of iron ore, is involved.

China’s voracious appetite for iron ore and the M&A ambitions this has nurtured among steelmakers keen to secure supplies in a climate of rising commodity prices was the subject of a report in the July issue of China Economic Review. The people we spoke to for the report - all of whom are directly involved in the industry or advise on deals relating to it - agreed that Sinosteel was one of, if not the, most aggressive Chinese player.

Chinese interest in Australia’s high-quality iron ore hit the headlines in February with Chinalco’s investment in Rio Tinto. Buying into one of the big three global mining firms was audacious. But Chinalco’s approach - bringing American steelmaker Alcoa on board as if to stress that this was a commercial rather than a state-driven transaction - displayed a deal-making savvy that had been notably absent in previous attempts by Chinese firms to participate in high-profile overseas investments.

Sinosteel’s aggressive takeover of Midwest has taken things to a new level - and it probably won’t be the last such deal.

“Working on China-related deals two or three years ago, I once gave a presentation to an interest group in which I said Chinese investors did not yet have the appetite for hostile takeovers,” a Chinese lawyer working for an international law firm told China Economic Review. “But I am sure we will see a lot of more of these over the coming months and years. Chinese investors are increasingly sophisticated.”

The lawyer said he was currently working on two commodities-related investments by Chinese firms in Australia. He added that one of these deals could well end with an aggressive takeover bid.

The million-dollar question is: Will Australia reach a point at which it becomes uncomfortable with the level of Chinese investment?

Chinese steelmaker Shougang found itself on the wrong side of the regulator when one of its subsidiaries tried to buy a stake in Mount Gibson Iron. There were concerns that, should the deal go through, Shougang would hold too much sway over Mount Gibson because the Chinese firm held a significant stake in a company that was already a Mount Gibson shareholder. More recently, Shougang’s bid for a stake in Australian iron-ore miner Property Resources was also rejected.

However, the Australian government has gone to great lengths to say that the country still welcomes Chinese investment. According to Finance Minister Lindsay Tanner, Australia’s assessment of foreign bids is “agnostic” when it comes to the nationality of investors.

It remains to be seen whether or not public opinion - and, as a result, political sentiment - can hold firm to these principles.