We are grateful to:

. Andrew Leung based in London for "China -- Watch this Space!"; and
. Dr Harald Malmgren based in Washington DC for "Complex Turbulence in World Financial Markets and The China Risk."

Andrew Leung has over 40 years of experience in a variety of senior positions working closely with Mainland China, including Hong Kong, with a focus on commerce, industry, finance, banking, transport, social welfare and diplomatic representation. He has addressed numerous local and international business and strategic forums, groups and organisations on China, including making regular television appearances. He has commented extensively on China for various organisations including ATCA. His audience includes finance and investment houses, institutional investors, large businesses, think tanks, senior officials and business schools. Andrew was twice sponsored personally by the US Government on month-long visits to the United States, including the last visit to brief Chairmen and CEOs of multi-nationals post-Tiananmen Square. He was also sponsored by The Economist as a speaker at the China conference in Berlin with the German Foreign Affairs Institute. He was invited to brief personally the Duke of York and the Lord Mayor of London prior to their China visits.

Andrew is on the Governing Council of King's College London; the Advisory Board of Nottingham University's China Policy Institute; and the Executive Committee of the 48 Group Club with historical and working links with the Chinese leadership. He has been appointed as a Global Representative for Changsha City, China. He chairs the China Interest Group of the Institute of Directors' City Branch. He is a Senior Consultant with MEC International. He is a Visiting Professor of the International MBA Programmes of China's Sun Yat-Sen and Lingnan Universities and a Visiting Professor at the Graduate School of Management, NIMBAS University, Holland. Andrew is a Fellow of the Royal Society of Arts (FRSA) and has been elected to its Executive Committee for the London Region. He was awarded the Silver Bauhinia Star (SBS) in the 2005 Hong Kong's Honours List. He has qualifications from the University of London, Cambridge University, The Law Society and Harvard Business School. He speaks Cantonese and Mandarin and practices Chinese calligraphy and fine art. He writes:

Dear DK and Colleagues

Re: China -- Watch this Space!

This seems to be another instance when China sneezes and the rest of the world catches a cold. Mainland China shares registered a drop of some 9% on Tuesday 27th, the sharpest one-day fall in a decade, and the world's leading stock markets all ran for cover.

I was asked why at CNBC Europe's Power Lunch TV interview this morning. After all, the size of China's stock market is not that large. I said it was a combination of salient factors. First, the China Mainland market (the 'A-shares') was already showing an alarming sign of being in a bubble. It has risen by 130% in a single year. Ordinary citizens are known to raise mortgage loans to bet on shares. In China, where stability is paramount, there is increasing speculation that the leadership will be cracking the whip to rein in some of these excesses at next week's National People's Congress in Beijing. When nervousness mounts, the mood is that the devil will take the hindmost.

Second, along with Alan Greenspan's warnings about the US economy, the International Institute of Management (IIM) was re-ringing the alarm bells about the US's accumulated huge national and consumer debt as well as her weakening global competitiveness, even in some service sectors (Policy White Paper -- US Economy Risks and Strategies 2007-2017). More people are beginning to wonder if the emperor has still got enough clothes on.

Third, it is not the size of China's stock market but the fact that China has become so intertwined with the global economy, from financing US deficit spending, suppressing world inflation and interest rates, providing off-shored manufacturing, influencing commodity prices, to diverting international trade and investment flows. All these are magnified by financial concentration and imaginative leverage amply explained by our distinguished ATCA colleague Dr Malmgren.

I also said that China's fundamentals remain generally robust. Indeed, the same IIM Report seems to ask where investors would rather put their money -- in an economy that continues to spend alarmingly more than it produces or in one the other way around. That, of course, is a gross over-simplification. Notwithstanding her dazzling achievements, China is very much caught in her own success. Huge challenges are looming in energy constraints, environmental degradation, unbalanced regional development, declining export profitability, inadequate social and healthcare provision, and struggles to invent her own products and build a better brand as a nation.

But China is a land of paradox and opposites, as long exemplified in her ancient philosophy. She is decentralized as much as she is centralized. All of the above challenges have been crystallized and flagged up in her remarkable 11th Five Year Plan (2006-10) including Sustainable Development, Balanced Development, Innovation, and Governance (if not 'Government') for (if not 'by' ) the People. Party Secretaries have long had to showcase their ability to deliver the goods if they want to further their political careers. NGOs and indeed Christianity are becoming increasingly noticeable. The road ahead is still long and tortuous, but decades of consistent, double-digit growth in a country with the population the size of a fifth of mankind is not likely to come about with a wobbly foundation.

As I mentioned in my recent think-piece (China and the Middle East: an Eastern Alchemy for Global Harmony, ATCA, 17 February, 2007), China has recently approved the creation of a State Foreign Exchange Investment Corporation to diversify the investment of her foreign currency reserve (initially 'just' its annual increment of USD 210 billion). More than catching a cold, the world has to watch this space.

Best regards

Andrew Leung

[ENDS]

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