Any bets on the following? I predict that the rmb exchange rate against the dollar will shift into the sevens by the end of April and will stabilise around 7.79 by the end of the year.

So it appears the
wait for UBS is over and its US$212 million bid for 20% – and
management control – of brokerage Beijing Securities has been approved.
The big question is whether this means the pipes have finally been
unblocked and we’ll see foreign investment into the financial sector
flow through like the good ol’ days of 2005.

The answer is who
knows and, given the severe bout of second thoughts with which leftwing
opponents to privatization appear to have infected the Chinese
leadership, decisions are likely to be slow, careful and on a
case-by-case basis. It’s no secret that Chinese brokerages are badly in
need of help – just look at their balance sheets – so a logical
assumption would be that the other investment banks will gradually be
allowed to buy stakes in them.

The Citigroup-led consortium’s
bid for 80% of Guangdong Development Bank is more complicated. Like
most of the older banks in the region, it is in dire straits and so a
big smile and a wad of greenbacks (perhaps make that a mountain) would
normally be welcomed with open arms. But give Citigroup GDB and HSBC
will intensify its lobbying for 40% of Bank of Communications. And then
80%…

Management control is the extra strawberry on top of the sundae – nice if you can get it. Newbridge
Capital may have management control of Shenzhen Development Bank but,
like the UBS Beijing Securities deal, this comes on top of a minority
stake. This appears to water down the precedent somewhat.

But
what of precedents? Carlyle’s bid to takeover construction equipment
producer Xugong (unlike the financial sector, there are no buyy-out
barriers in construction) has apparently become stuck in a rut due to
doubts about selling to a private equity firm with a tendancy to buy in
and then cash out. But didn’t Newbridge Capital do exactly the same
thing with Korea First bank?

Buying a stake in a Chinese firm has
always involved navigating through some particularly misty waters. The
current climate of antagonism towards foreign buyouts only adds to this.

An unsettling race seems to have started in Japan, where frontrunners to take over the top spot after Koizumi are already trying to out-do one another in their scaremongering over China. Taro Aso, the current foreign minister, and Shinzo Abe, the chief cabinet secretary, have both criticized Hu Jintao for stating his displeasure at Prime Minister Koizumi’s annual visits to the Yasukuni shrine, which honors Japan’s war dead, including some four convicted war criminals. Mr. Aso also raised concerns about China’s military spending and lack of transparency.

It is easy to sympathize with the Chinese (and Koreans) when they protest the honoring of Japanese generals who were responsible for unspeakable atrocities during the war. And these countries are right to demand that Japan admit to its militaristic past in its own textbooks. But on this last point, China has a lot of admitting of its own to do, and a lot of missing pages in its own schoolbooks. Those who live in glass houses…

Still, Japanese investment in China grows larger every year. And with each generation of new Chinese leadership, there is an increase of reality-based policy and an embrace of the modern world. Perhaps in our children’s lifetimes we will see these neighbors admit their respective pasts and agree to let them stay where they belong: behind them.

Premier Wen is off to visit Australia, one of China’s most important trading partners. A scholar from that nation has observed that the trading relationship resembles a classic developed economy-developing economy setup – except that Australia is the developing country in this case. The Aussies export loads of raw materials to China, like iron ore, wool and fruit, while China sends tons of value-added goods like computers and clothing back down under. And the hot topic of discussion today is going to be how to extend the scope of those raw materials to include uranium to fuel China’s ambitious nuclear plans. The Australians, for their part, want to increase auto exports to China.

Both areas are issues of contention. There will be much gnashing of teeth over the uranium, on two fronts. One is that Australia currently has a ban on uranium mining in all but three mines across the country, though it could potentially be one of their biggest exports. The other, naturally, is whether to sell something that could be turned into nuclear bombs to an officially Communist, and truly authoritarian nation like China. The US has lost credibility on this issue since it mysteriously agreed to start sharing nuclear technology with India without forcing them to join the Nonproliferation Treaty.

The auto parts case is being taken up by everyone now. The US and the EU are teaming up against China by bringing them before the WTO for their handling of car parts imports. The rich nations want to get in on the action, as China’s car purchases speed up. But China, wisely, wants foreign carmakers to source their parts locally. It’s a natural form of progress, and one that every well-developed economy has practiced at one time or another. But try telling that to the dying giants of Motor City, USA.

Senators Schumer and Graham have wisely delayed the vote on their punitive bill on imports from China until September, long after Hu Jintao’s White House tour, but just in time for another showdown in the runup to November’s elections. It’s interesting to note, however, that neither senator is up for re-election this year: they are both slated to face their constituents in 2010, which hardly paints their sabre-rattling as election-year posturing.

In the meantime, a new bipastisan Senate duo have emerged with a fresh idea on China, one that does not threaten to prohibit the cheap goods that we Americans so dearly love from entering the country, but that can still show the voters that Congress is "doing something" about China. Senators Charles Grassley (R) and Max Baucus (D) have proposed that the Treasury Department decide whether China is a currency manipulator. Though under pressure from many in the past, the Treasury has so far refused to take this step. China wins this round, it seems.