Which Segment will Be the Spotlight in 2007?

Since the second half of 2006, many people in China have been
keen on investing in the local stock market that has doubled its
index in six months and even attracted nearly US$80 billion hot
money from abroad, according to an investigation by a newspaper.
Investors are in a crazy heat to buy publicly traded shares
regardless of the company's operational performance and
industry, and most people enjoy the happiness of making money
from speculation. Presently we can often see a long queue in a
bank waiting to buy a newly issued local Open-end Fund that
specializes in buying and selling shares. Something that this
sight taught me is that China has become a place to make money
easily.
     Recently the Chinese government announced that the GDP
growth rate reached 10.7% for the year 2006. It may sound good
or bad, in your own opinion, but I was worried. The digit
significantly overshot the control target that was designated
by the central government. Such a high rate must force the
government to execute more control policies that are surely more
severe than existing ones.
     In the early of January 2007 the Ministry of Commerce
announced preparation of some encouraging policies to
accelerate the development of the six provinces in central China.
Energy and logistics are listed as the key segments to be
developed in the region.
     By the sub-segments of petrochemical and related
industries, some analysts see good prospects for domestic potash
fertilizer, soda ash and organic silicon. High demand from the
agriculture sector has caused a tight supply of potash
fertilizer. New focus on China's energy deficit gives more
opportunities to the local manufacturers of organic silicon. The
raw salt price is falling and will remain on the low side
throughout the year 2007, which will bring greater profits to
soda ash manufacturers.
     Recently disclosed statistics reveal that the imports of
many petrochemical downstream products, such as polyethylene
and polypropylene as well as polyvinyl chloride decreased in
2006. The forecast that the growth of the world economy will slow
down in 2007 hence implies a negative impact on the demand for
petrochemicals. Furthermore many players are shifting their
attention from petroleum to its alternatives.
     The rubber industry has moved into the spotlight in 2007
and will start a super cycle, pulled by huge demand from China,
India, Russia and Brazil. Supply shortages will appear in many
segments of basic industrial materials, a futures dealer
commented.
     REACH issued by EU will become effective in June this year,
this will cross an important hurdle for China's chemicals
exporters. The opening up of oil products and fertilizer markets
will be another huge challenge for local companies.


Zhong Weike
January 31st, 2007