Year 4706, the year of the rat, begins on February 7th in China this year. With the celebration just under a month away, it’s tempting to use the time to procrastinate on making predictions on what will happen in China is 2008 as it’s technically not the new year here yet, but unfortunately, China doesn’t wait.

The Shanghai stock market continues to defy expectations -- up nearly 100% in 2007. Most of the commentary on the Shanghai market depicts the average Chinese investor as unknowledgeable and following the herd. However, a recent study that we’ve (kapronasia) just completed with Amber (www.amberinsights.com) shows that individual Shanghai A-share investors are actually much more market savvy than commonly thought.

According to a recent statistic published by China Union Pay, Chinese banks have issued more than 1.3 billion debit, credit and ‘quasi’-credit cards through the end of September. This means that, on average, every man, woman and child in China now carries a piece of plastic. Quite a staggering number and, at first glance, quite promising.

Two years ago in 2005, GE agreed to buy a 7% stake in Shenzhen Development Bank, which at the time was worth US$100M. However, the deal had been held up due due to disagreements amongst the shareholders, one of which was the private equity group TPG. Most of the disagreements centred around government requirements on share restructuring as the initial agreement would have significantly diluted TPG's stake in the bank. TPG eventually did agree to modified terms, but yesterday Shenzhen Bank terminated the agreement.

Not to miss the ‘invest in China’ boat, yesterday, Bear Stearns and Citic Securities announced a co-investment partnership agreement. If everything is approved by the regulators, which it likely will be, Bear, the darling of the CDO market, will invest US$1B in the Chinese brokerage, which will convert to a 2% stake over 6 years with the option to increase that to 7%. Conversely, Citic will invest the same in Bear, which will convert to 6% stake in Bear over 40 years, and will have the option to increase this stake to 9.9%. Most of the non-Chinese operations will likely be a co-branded operation and it’s yet unclear what the Chinese operation will look like.

For the past few weeks, most of the major news in China has centred on the Communist Party Congress. This is an pretty important event in China that happens once every 5 years and usually results in a number of far-reaching policy and people changes throughout the country and government.

The China Banking Regulatory Commission recently reported Chinese banking industry numbers and for a brief comparison:

Lead Toys

With recall troubles dating back to 2005 when a toddler in the US ate a loose magnet and later died, the toy manufacture Mattel has been in the centre of a toy recall that has thousands of class-action lawyers around the world drooling. The company has gone through numerous recalls in the past few months, the largest being for 18 million playsets plagued by another loose magnet.

This past weekend Craig Barrett was in China for the ceremonial groundbreaking on the brand spanking new site for Intel’s latest US$2.5B factory or “fab”. Scheduled to start production in 2010, the fab is the largest investment by Intel in China to date and represents Intel’s “continued commitment to China."

This week Singapore Airlines (SIA) bought a ~16% stake in China Eastern, a domestic Chinese airline, which is in the worst financial condition of the big three Chinese carriers. This by itself is groundbreaking news as it’s the first foreign investment in a domestic Chinese airline, but when you consider the recent takeover bid for Qantas in Australia and indeed SIA’s own failed bid for takeoff slots in Australia, it becomes even more interesting as a comparison of markets and their openness to change.