TO THE POINT: The United States' blatant arms sales to Taiwan will lead to a substantial loss for American companies that have huge economic interests in the Chinese mainland due to sanctions imposed by the Chinese Government. Newly listed companies have experienced declines in their share prices from IPO prices since the middle of January, raising concerns for the healthy development of China's stock markets. Railway construction in China topped the world in 2009. Computer giant Lenovo Group begins to see substantial profits after a sales decline last year. Hainan Island is undergoing a dramatic housing price surge on the news of the Central Government's decision to build the island into an international tourist destination.

By LIU YUNYUN

U.S. Paying the Price

All U.S. companies related to the $6.4-billion arms sales to Taiwan will lose large orders from the Chinese mainland.

At a press conference on February 2, Ma Zhaoxu, spokesman of the Ministry of Foreign Affairs, said China would place sanctions on U.S. companies that insisted on selling arms to Taiwan. Their market share in China could be crippled by their presumptuous actions.

U.S. companies involved in the arms sales to Taiwan include the Boeing Co., United Technologies, Lockheed Martin Corp. and Raytheon Co., among others. Raytheon has failed to secure business with the Chinese mainland since 2004 as a result of its repeated arms sales to Taiwan.

Rockwell Collins Inc. was reported to have sold Link-16 terminals for fighters, surveillance aircraft, and bombers worth $340 million to Taiwan. However, compared to possible orders from the Chinese Aviation Industry Corp. to build aircraft with Rockwell's independent intellectual property rights, the American company's arms sales to Taiwan was not a smart business decision.

Boeing's fate in China has aroused the biggest concerns. Boeing is expected to sell $37 million worth of Harpoon missiles to Taiwan, but will probably lose billions of dollars in orders from the Chinese mainland, as the price of the missiles is even less than the cheapest Boeing 737 civil aircraft. At present, more than half of the civil airplanes in the mainland are produced by Boeing. The U.S. aircraft maker also predicted China will need 3,700 more airplanes worth $400 billion in the coming two decades.

Stock Conundrum

At the beginning of the year, the threat of a depression loomed large over the Chinese stock markets. From January 4 to February 5, the benchmark Shanghai Composite Index dropped nearly 10 percent on rumors of tightening monetary measures and interest rate hikes.

February 3 marked Goldlok Toys Holdings (Guangdong) Co. Ltd.'s first day of trade on the Shenzhen stock market for small and medium-sized enterprises. But the company saw its share price fall 1.87 percent from its initial public offering (IPO) price of 21.98 yuan ($3.22), making it the first company whose stock prices fell behind the IPO price in five years on the Shenzhen market.

IPO companies on the main board—the Shanghai stock exchange—also suffered. China XD Electric Co. Ltd.'s share price lingered under its IPO price since its debut on January 28.

From mid-January to February 5, about 20 newly listed companies saw share prices drop below their IPO prices in succession.

A large-scale price decrease of this nature has yet to occur on mainland stock markets. The root cause of the decline is companies' and their sponsors' greediness, said analysts.

Issuers ignored the necessity of reasonable pricing to reap as much money as possible from the market. Goldlok Toys' price/earning ratio (P/E ratio) rose as high as 70.90, whereas a normal P/E ratio should be under 30.

Railway Rush

China experienced a railway construction frenzy in 2009 with investment totaling 700 billion yuan ($102 billion), the biggest single-year investment in history.

The mileage of Chinese railway in operation reached 86,000 km, ranking second in the world. The mileage of high-speed railway was 2,319 km—the longest in the world.

On December 26, 2009, the world's longest high-speed railway—the Wuhan-Guangzhou High-Speed Railway--was put into operation, connecting the two cities, which are over 1,000 km apart, in three hours. The railway provided a needed boost to the travel, catering and recreation industries along its route.

The large-scale railway construction strongly boosted domestic demand for iron and steel, cement, machinery and other related products. Last year, the railway industry created 6 million jobs, according to the People's Daily.

At present, about 85 percent of timber and crude oil, 60 percent of coal and 80 percent of iron and steel are transported by rail.

However, the vigorous development of China's high-speed railway has to some extent crippled the aviation industry, forcing airlines to close air routes that encountered severe competition from the railways. After the Wuhan-Guangzhou High-Speed Railway began operating on a normal schedule, passengers on flights from Wuhan to Guangzhou dropped 11.5 percent.

Striking a balance between railway and airline development poses a unique challenge to the authorities.

Lenovo Reboots

Thanks to the world economic recovery, Lenovo Group, the world's fourth largest personal computer (PC) manufacturer, posted a net profit of $80 million in the third fiscal quarter ending December 31, 2009, reversing a $97-million loss in the same period of the previous year.

Strong sales revenue, which increased 33 percent year on year to $4.8 billion during the quarter, propped up net profit and increased its global market share to 9 percent, according to its quarterly report filed to the Hong Kong stock exchange.

China remained Lenovo's biggest market. Its sales in China surged 45 percent year on year to $2.3 billion, accounting for 47 percent of its total.

The company also benefited from consolidated PC sales in both emerging and mature market. By the end of December, total sales revenue in the emerging markets, including India, Russia, and the Middle East regions, totaled $857 million, up 53 percent year on year. Mature markets, including Western Europe, Japan and Australia, rose 13 percent to $1.7 billion.

"Lenovo will focus on the mobile Internet market this year while maintaining its competitiveness in the PC market," said CEO Yang Yuanqing. Yang said Lenovo would not be satisfied with the 9-percent global market share but would try to acquire a much larger share.

Hainan Heats Up

Since the Central Government announced to build southernmost Hainan island into an international tourist destination, the tropical island has experienced an influx of hot money as investors hope to be a part of the future economic surge.

One housing project in Haidiandao in Haikou, the provincial capital of Hainan, sold at 15,000 yuan ($2,200) per square meter in 2009. But after the news broke about Hainan's future as a tourist destination, the price rose to around 30,000 yuan ($4,400) per square meter.

Property dealers even refused to take mortgages, and only accepted full payment in cash. In extreme cases, some are selling apartments and houses before construction has commenced on their acquired land.

Wei Liucheng, Secretary of the CPC Committee of Hainan Province, said he was also caught off guard by the sudden surge in the real estate industry. Wei admitted Hainan lagged far behind the standards of an "international tourist destination" in many aspects.

Many feared another bubble burst in Hainan, as the island experienced a dramatic property downfall 14 years ago due to a sudden pullout of speculative money.

"The current housing price is way beyond local people's capability. Meanwhile, the high housing prices directly pushes up consumer prices, which add heavy pressure to the local people's living costs," said Xu Yan, a director of the Zhejiang Commerce in Hainan.