Easy Money >>> FOREX

You can blame China’s uncertain market on the government.

Chinese officials on Wednesday debated a plan that gives China’s State Council the power to cut or cancel its tax on bank deposit interest. The 20% tax was imposed in November 1999 to boost spending after the Asian financial crisis.

Although the tax is a huge cash cow for the country’s national government it collected more than $28 billion from the tax as of 2006 it’s a pain in citizens’ backsides.

It’s also the main reason that the Chinese stock market has been on a tear. Citizens would much rather put their money into stocks and see the returns than pay the deposit tax.

But with the tax eased or even removed, putting money into banks would be less risky and more attractive for Average Joe China.

Decision Pending

The Chinese central government said the proposal would be studied and a decision delivered Thursday. Although it’s fallen from its all-time high May 29, the benchmark Shanghai Composite Index has climbed 49.5% this year after soaring 130% last year. While the tax beefed up consumption and investment and added financial revenue, China’s fast growth in fixed-asset investment and growing inflation means it needs a new approach, economists say. The composite rose 2.65% Wednesday to 4079 at news of the proposal.

The three main Chinese exchange traded funds also picked up slightly at the news. One of the biggest, iShares FTSE/Xinhua China 25 Index, () had seen a slight pullback over the past week but rose 1.36% to 127.74 on thin volume Wednesday. SPDR S&P China, () which debuted in March and also tumbled in the past few days, inched up almost 1% to 66.49.

The third fund, PowerShares Golden Dragon Halter USX China Index, () rose 0.26% to 25.26.

Relief Rally

The slight boost Wednesday is likely the result of relief at the news of both the tax cut and a bond issue by China’s Ministry of Finance, analysts said. If the $200 billion bond issue goes directly to the People’s Bank of China, there won’t be an effect on liquidity and the markets. But if the bonds go to market, the reserve ratio will rise and further reduce excess liquidity.

With the top holdings of all three ETFs heavy in Chinese telecom, financial and energy companies, it’s uncertain how the two policy shifts will affect them. Such companies are interest-rate sensitive; financial companies, for instance, hold the loans for Chinese makers of consumer and infrastructure products.

With 25 stocks and $4.9 billion in assets, the FTSE/Xinhua fund has half of its top 10 holdings in financial or telecom, including giant China Life Insurance. ()

The fund is up 55% for the year and has a sturdy IBD Relative Strength Rating of 90.

Tahera Diamond Corp., which opened the first diamond mine in Nunavut, on Wednesday went into court-orderedprotection from its creditors citing insufficient cash to fund its operations.

Tahera said it soughtprotection under the Companies’ Creditors Arrangement Act, “as its current cash flows and cash on hand would not allow it to meet its current obligations and its obligations with respect to the 2008 winter road resupply. Tahera 3-month stock chart

On the Toronto Stock Exchange, shares of Toronto-based Tahera finished down 6.5 cents at7.5 cents. The stock’s one-year high was $1.38.

The bankruptcy protection filing was approved by an Ontario Superior Court judge.

PricewaterhouseCoopers was appointed by the court to monitor the company’s operations and assist in developing a restructuring plan.

Tahera said its board of directors determined that the creditor protection filing was in the best interest of its stakeholders due to low interest in Tahera’s recent equity offering and the absence of any viable strategic alternatives.

The company’s Jericho diamond mine is about 360 kilometres southwest of Cambridge Bay in western Nunavut.Nunavut’s only diamond mine is Tahera’s main asset.

Irving Paper Ltd. says it has examined the possibility of moving operations out of New Brunswick if energy rates don’t become more competitive.

“The factors that make us competitive or not competitive are whether we have access to competitive wood supply and competitive energy,” Mark Mosher, vice-president of Irving Paper told CBC News. “That will really determine our continued ability to reinvest in New Brunswick.”

J.D. Irving Ltd., Flakeboard Company Ltd. and Fraser Papers Inc. asked the provincial government for a break on power rates in January.

The forestry companies argue thatpower rates in New Brunswick are nearly 30 per cent higher than the North American average.

Mosher said Irving has studied what it would cost to move its Saint John mill to Quebec, where energy rates are lower.

“We’ve done enough analysis to say that if we were to move our paper mill to Quebec, we would have a significant advantage over our operation here in New Brunswick, quite frankly,” Mosher said.

About 350 people currently work at the mill in Saint John.

Mosher said it is hoped that the government will support lower energy rates so the move won’t be necessary.

Energy Minister Jack Keir ordered the Energy and Utilities Board to review the three per cent rate increase by NB Power last week.

Keir said the review isn’t because of pressure from forestry companies.

It is about ensuring transparency for ratepayers so people understand why energy prices are rising, said the minister. Post a commentPeople have commented on this story Recommend this story People have recommended this story Story Tools: | | Text Size: | | Story comments (0) Sort: Most recent | First to last

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