China Investment Report
Discovering Quality Chinese Stocks, Shares, Chinese Companies, Investment Opportunities and Reports

China Investment Report Current Issue:

I. Taiwan – Overview
China considers it to be one of its provinces. Taiwan considers itself to be independent. Despite a grafting scandal, the current pro-independent president does not want to step down, causing a major political turmoil. It’s time to invest there.

II. Taiwanese Value Companies – Companies in traditional industries trading at below two times book values.

III. Taiwanese Technology Companies – Products of several Taiwanese technology companies have major domestic and international market shares.

IV. Issues Revisited (from last report) – Where will oil prices go? Where is the best place to open a company as well as to open a brokerage account?

I. Taiwan – Overview
China considers it to be one of its provinces. Taiwan considers itself to be independent. Despite a grafting scandal, the current pro-independent president does not want to step down, causing a major political turmoil. It’s time to invest there.

Our faithful readers know that the themes of our China Investment Report frequently involve contrarian’s investment philosophy such as “buy when there is blood on the street”.

In the summer of 2001, I made my first trip to Taipei, Taiwan. Being a person born in mainland China, Taiwan is a place that is mysterious to me, because the people there, though ethnically Chinese, came under the influence of the indigenous locals, people who emigrated there from mainland China several hundred years ago, the Japanese, and then the newer mainlanders who went there between the years of 1945 and 1949. As usual, I talked to my friends about investing in the Taiwanese stock market. “Don’t do it. The market is not good. People got bankrupted from investing in the market.” Many friends didn’t even bother to discuss the depressed stock market at that time.

That was the first year in which the pro-independent president, Chen Shui-Bien, took office. He made several pro-independent remarks which angered the mainland Chinese government. At that time, the summer of 2001, the Taiwanese stock market index, or the TSEC Weighted Index, was in the 4000’s, versus today’s 7100’s. I called several brokerage companies trying to open an account there, and they told me that as an American passport holder, I was not allowed to purchase Taiwanese shares. Disappointed, and after I returned to the United States, I purchased the shares of a Taiwanese company, AU Optronics Corp. (AUO), which was trading at 0.75 times book value, 5% yield, and below 15 times P/E values.

Taiwanese stock market normally reacts with political news. When the relationship with the mainland worsens, the stock market normally goes down. When there is a political turmoil, normally the prices of the shares drop. However, this time in November 2006, when Mr. Chen was involved in a corruption scandal, the market did not react. Here goes the second investment philosophy of our China Investment Report: “When bad news come out, and the market does not react accordingly, buy as much as you can.”

Before you buy, I will give you some background information about Taiwan.

Taiwan – Economic and Political Background

Economically, Taiwan has a dynamic capitalist economy. Its real growth in GDP averaged about 8% during the most part of the past three decades, except the recent years, in which Taiwan experienced a recession. Exports have grown even faster and have provided the primary impetus for industrialization. Inflation and unemployment are low; the trade surplus is substantial; and foreign reserves are the world's third largest. Traditional labor-intensive industries are steadily being moved offshore and replaced with more capital- and technology-intensive industries. Taiwan has become a major investor in Mainland China, Thailand, Indonesia, the Philippines, Malaysia, and Vietnam. Because of its conservative financial approach and its entrepreneurial strengths, Taiwan suffered little compared with many of its neighbors from the Asian financial crisis in 1998-1999.

In 2005, Taiwan had revenues of $41.67 billion, and expenditures of $50.26 billion (including capital expenditures of $14.4 billion). Its exports amounted to $189.4 billion and imports $181.6 billion, running a trade surplus. The currency, New Taiwan Dollar, has been gradually appreciating against the US dollar

(Abridged)

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