Analysis: One industry that has had a great quarter along with semiconductors is the automotive industry - parts and cars alike. Thus far in the earnings season, we have had mostly just the American auto parts makers reporting earnings. In the coming week, we are also going to have some of the Chinese auto parts makers reporting as well. One of the first to hit the stage is Wonder Auto Technology (WATG) on Monday. The company is an automotive electrical parts maker that is predicted to report earnings per share at 0.19, which is a penny decline from one year ago, but I am fairly confident the company is going to have a very hefty earnings beat.

What first attracted me to Wonder was the fact that auto parts makers across the board are killing earnings. The auto parts industry has seen twelve out of sixteen of its reported companies since the beginning of June hitting earnings. Many of these companies have had very strong quarterly beats above 100% and even some have had profits while losses were expected. The companies with the most exposure to China have also been among some of the best. Borg Warner and Autoliv are two that have stood out in China.

By Jared Cummans

The impact of the recent global economic slowdown was first felt by consumers around the world who were forced to cut back on purchases in order to endure the recession. While some consumer segments such as the wealthy, have begun to spend again, the events of the last two years have also had a profound, and perhaps lasting, impact on the business of investing and the methodologies that guide the portfolio construction process. As the growth gap between the world’s advanced and developing economies widens, many U.S. investors have tossed aside the conventional wisdom that called for making a significant allocation to domestic equities in favor of a more global approach.

By Dan France

They say timing is everything and China New Borun Corp (BORN) probably couldn’t have had worse timing for its recent IPO. The offering was completed during a period of market volatility and an environment in which planned IPOs were being postponed or withdrawn altogether. As of June half of the IPOs completed YTD were priced below expectations and BORN was no exception. BORN was initially expected to price in the $12-$14 range during the week of June 7. By mid-week the scaled down price range was $8-$9 and it finally priced on June 11 at $7. The shares sold off following the offering before recently stabilizing and finding support at around $5.

Americans won't be spectators in China's next big changes; we will be deeply involved, whether we like it or not.

That’s because the critical transition China is going through will affect our businesses and our livelihoods.

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Radient Pharmaceuticals Corporation (AMEX: RPC) announced a new plan to sell its China subsidiary, Jade Pharmaceuticals Inc. Jade has signed a letter of intent to merge with Shanxi BaoTai Pharmaceutical Co., a privately owned company located in Taiyuan China. When the transaction is closed, Jade plans to merge the combined entity with an unnamed public company, and the public company will move its listing to the NYSE Amex.

Both Jade and BaoTai produce drugs for the cancer market. At one point, Radient placed a $20 million value on Jade, though no financial details of the transaction were disclosed. Radient said it would offer bridge financing to facilitate the merger of Jade-BaoTai with the public company.

Gulf Resources (GFRE) will be reporting second quarter results in a little less than two weeks and the consensus analyst estimate of $36.97 million in revenues does not take into consideration Gulf's seasonal sales trends and bromine price increases. By my estimate, revenues could be $46.0 million in the quarter. Gulf's revenues are broken down into bromine, crude salt, and specialty chemical sales. Bromine reserves are found mainly in the U.S., in the Dead Sea and in China, which account for 96% of the world's total bromine production. Gulf Resources is the largest bromine producer in China and one of a few companies with a bromine exploration license in China. The bromine demand in China is larger than the domestic supply, which has led to significant price increases. The Company has $56 million in cash ($1.60 per share in cash) and no debt.

Bromine Sales

AsiaInfo-Linkage,Inc. (ASIA)

Q2 2010 Earnings Call

July 28, 2010 8:00 PM ET

As we've been writing for the last month, the Chinese economy and hence the local markets continue to rule the world. See China Market Rules the World on June 30th. Wednesday night, the Shanghai market surged over 2% and made a very impressive jump off the 50EMA showing signs of more gains coming in August.

Copper has also been surging and met coal prices remain steady so the commodity stocks such as Massey Energy (MEE), Alpha Natural Resources (ANR) and Freeport-McMoran (FCX) continue to be our favorite domestic stocks to play this theme.

At the end of my previous article (3 Chinese Growth Stocks in Value Territory), I asked readers if they would like me to cover a specific company mentioned in further detail. Suffice to say, there was a large audience that were curious about one company in particular: Universal Travel Group (UTA).

Universal Travel Group appears to be a bargain on the surface, however, its long-term future is dependent on things out of its control (or at least recently out of its control). Here's a quick look at what the company does and where its priced:

<<Read Part 1

Two quick follow-ups pulled from the news, which reinforce the points I made yesterday, before moving on to the topic of structural reform in Chinese banks:

VisionChina Media Inc. (VISN)

Q2 2010 Earnings Call

July 28, 2010 8:00 pm ET

USANA Health Sciences, Inc.

Q2 2010 Earnings Call

July 28, 2010 11:00 am ET

Charm Communications Inc. (CHRM)

Q2 2010 Earnings Call

July 28, 2010 08:00 am ET

China-Biotics (CHBT) gets it. It is all about becoming the dominant supplier of bulk probiotics to the Chinese functional food industry. After that, it can take on the world.

Over two years ago, the China-Biotics strategy was to increase the number of its retail stores from 60 in April 2008 to 300 stores by April 2009. As of March 31, 2010, the Company had 111 retail stores to sell its Shining branded probiotics supplements, which is an increase of 1 store from its 110 retail stores as of September 30, 2008. Sales from its 111 retail stores only accounted for 14% of last year's sales. What happened to the additional 189 stores? The Bulk Probiotics Opportunity is Much Bigger.

A lot of people have asked me to write about the recently “leaked” CBRC report on dodgy local government debt. Here is what the article in Monday’s Bloomberg had to say about it (and note especially that delicious second paragraph):

Mainland banks may struggle to recoup about 23 per cent of the 7.7 trillion yuan (HK$8.81 trillion) they have loaned to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.

Investors have recently been obsessed with discounting 'Fat Tail' risks i.e. extreme economic outcomes like deflation and hyperinflation. PIMCO among others has been chasing the investment fashion du jour with a fund protecting investors from a 15% plus downside move. In fact, efforts to protect against another disaster, which helped drive up the relative costs of the most bearish credit derivatives to the highest in two years, look like an incipient bubble to me. One which is being fully taken advantage of by Wall Street. The Taleb 'Black Swan' thesis hasn't just gone mainstream, it's become a cliche. And that's a classic example of behavioral finance in action; earthquake insurance sales soared after the 1994 San Francisco event.

Leverage is the common 'facilitator' for these cascading crises within a closely coupled system. While it remains systemically high, it is now gradually reducing in the private sector and recent central bank actions have created effective 'firewalls' between institutions. There are plenty of low probability but investment game changing events to be aware of, from the ongoing Iranian nuclear saga escalating to a North Korean regime implosion. But the acute fear of a rerun of the 2008/9 market slump reflects more the psychological scars inflicted on investors than a strictly objective assessment of the outlook and long-term expected returns.

Five years ago, all I had to worry about was producing enough to earn a small profit. Now I spend time dealing with employment issues, environmental regulations, tax policies, trying to increase market share and staying ahead of competitors. The pressure is much worse.

Welcome to the suddenly changed and increasingly pressured world of Chinese corporate management.

Earlier this month, GE CEO Jeff Immelt expressed disappointment that the Chinese government is not all that interested in buying Western imports. As Gomer Pyle would say, “surprise, surprise, surprise!”

One man who’s not surprised is former LA Times China correspondent Jim Mann. Since leaving journalism, Mann seems to have made a career of writing books telling Americans that what they see in China is just their imagination.

A couple of weeks ago, I published a column outlining my doubts about the health of China’s banking system in the lead-up to the Agricultural Bank of China (AgBank)’s IPO. Given the lackluster performance of that share launch – despite the considerable political capital Beijing mobilized behind making it a success – it seems I was hardly alone in my concerns.

Now some concrete data is starting to emerge regarding the potential size of the problems that may be lurking on China’s bank balance sheets — in particular, the losses that may be incurred from risky stimulus loans made to development entities (known by some as LGFVs, or Local Government Financial Vehicles) sponsored and supposedly guaranteed by provincial and local governments. Earlier this year, China’s central government nullified those guarantees, noting that local authorities often lacked the financial wherewithal to stand behind them. The China Banking Regulatory Commission (CBRC), which had previously been touting such loans as safer-than-safe, launched an internal study to get some handle on just how big a problem they have on their hands.