Today is relatively quiet on the China-financial-news front (the SSE Composite was down 36 bps, but not much else happened), so rather than discuss the most recent numbers and events and their possible implications for financial policy, I want to write about something a tad more theoretical. For the past two months there has been a big buzz about a paper (.pdf) by Carmen Reinhart and Kenneth Rogoff (which I will refer to as R/R) called “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.” As the title implies, the authors examine the historical evidence of financial crises over a long time frame in an effort to develop an understanding of the causes and consequences of financial crises.

As someone who has been interested for a long time by the history of international capital flows and financial crises (a big part of my book The Volatility Machine was an examination of developing country crises over the past 200 years), it was a dead certainty that I would read the R/R piece, and sure enough I have just finished it. It was a great pleasure to see so many references to some of the classic and obscure books on financial history that I have read so often that I feel almost as if they were old friends.

3SBio Inc. (NSDQ: SSRX) joined the parade of China biopharmas reporting sharply higher revenues. In the first quarter of 2008, 3SBio saw its sales jump 57% to 55.5 million RMB ($7.9 million). Gross profit climbed 56% to 50.6 million RMB ($7.2 million). However, net income did not keep pace, rising a much smaller 22% to 14.2 million RMB ($2 million).

Apparently, 3SBio spent a lot of money to create the increase in revenues, because the cause for the shortfall in net income was higher spending in the sales, marketing and distribution category. This item climbed 65% to 25.6 million RMB (US$3.7 million), a figure that represents 46% of the company’s revenues. In the battle between promoting revenues or profits, 3SBio came down heavily on the side of revenues, and net income suffered as a result.

The stock of Yingli Green Energy (YGE) is all over the place, opening up in the $27s, then falling to the $25s and now in the $26s. This is what happens when hordes of speculators jump into a stock only for an earnings trade. I am looking over the earnings released yesterday morning and it looks quite solid to me on first glance, with the all important gross margins coming in at the 24% range. Sequential revenue growth was only 9%, but that is more of a capacity constraint issuerather than anything to do with demand.

Either way, they crushed the analysts expectations for earnings (part of it was currency exchange of course), but since they only guided "in line" for the future in terms of revenue, perhaps that is leading to the seesaw action yesterday. Who ever really knows; it makes little sense to me. The key (to me) is maintaining gross margins and profitability - on both those counts Yingli scored very well. Also nice to see some new markets open up, France and South Korea (the United States is still nowhere to be found as we are too busy promoting corn ethanol) I have cut back this position for now as its now full of speculators and daytraders, and I was able to lock in some very good profits, and moved on to other fare in the sector with better value. But I'll rebuild this position on the next selloff.

• Total net revenues were RMB 1,595.0 million (US$227.5 million), an increase of 9.8% from RMB 1,453.2 million in the fourth quarter of 2007 and an increase of 272.2% from RMB 428.6 million in the first quarter of 2007.
• Gross profit was RMB 392.3 million (US$55.9 million), an increase of 9.1% from RMB 359.6 million in the fourth quarter of 2007 and an increase of 337.8% from RMB 89.6 million in the first quarter of 2007.
• Gross margin was 24.6% in the first quarter of 2008, in line with 24.7% in the fourth quarter of 2007 and an increase from 20.9% in the first quarter of 2007.
• Net income was RMB 223.5 million (US$31.9 million), an increase of 61.5% from RMB 138.4 million in the fourth quarter of 2007 and an increase of 2,580.5% from RMB 8.3 million in the first quarter of 2007. Fully diluted earnings per ordinary share and per American depositary share [“ADS”] were RMB 1.73 (US$0.25), compared to RMB 1.07 in the fourth quarter of 2007.
• “Our results largely demonstrated the successful execution of our vertically integrated strategy at the operating level and growing demand for our products in our end markets, including Spain, Germany, the United States and Italy, as well as new and emerging solar markets such as Korea and France.
• Our commercialization of 180 micron wafers at the beginning of February 2008 illustrates our strong capabilities in R&D.” (this is key, down from 200)
  
• “I am also very pleased that our expansion plan remains on track and that we currently expect to be able to achieve production capacity of 600 MW before mid-2009, ahead of schedule.

• As a result of a higher average selling price compared to the fourth quarter of 2007, the lower polysilicon usage per watt resulted from successful research and development efforts and the lower processing cost attributable to continuous improvement in operational efficiency of the Company’s vertically integrated business model, the Company was able to maintain its gross margin despite an increase in the average cost of polysilicon in the first quarter of 2008.

• PV module shipments in the estimated range of approximately 255 MW to 265 MW, which represents a 78.9% to 86.0% increase compared to 2007.
• Net revenues in the estimated range of approximately US$969 million and US$1,020 million, which represents a 74.1% to 83.3% increase compared to 2007.

I sold out most of my Ctrip.com (CTRP) in early May in the upper $60s as the stock had made a huge run. [May 2: Bookkeeping: Cutting Ctrip.com to Almost Nothing] The company posted very good earnings but some vague future guidance has the stock down 10%+  to the $56 range, so I am going to buy back what I sold off here in the $56-$58 range. This allows me to get back the shares I sold off for a 14-16% discount from where I sold them not 2 weeks ago. I still find the valuation hard to swallow, but this company has been a personal favorite for years and is never "cheap". If the stock falls to the lower $50s I'd increase my position more.

I've increased my stake from 0.1% of portfolio to 1.3% with this AM's purchases.

• Chinese travel Web site operator Ctrip.com International Ltd. said Wednesday its first-quarter profit jumped on higher airline ticket sales.
• Net income rose 52 percent to 98.8 million RMB ($14.1 million), or 1.43 RMB per share (20 cents per share) from 64.9 million RMB or 0.96 RMB per share.
• The company said it earned 27 cents per share excluding expenses for stock-based compensation. Analysts polled by Thomson Financial expected profit of 18 cents per share, including stock-based compensation expenses, on sales of $46.5 million.
• Sales rose 47 percent to 366.7 million RMB ($52.3 million) from 249.2 million RMB.
• Chief executive Min Fan said the company was able to achieve strong results despite challenging weather conditions. Several analysts noted that the company was hurt by snowstorms in the first quarter.

• Citi analyst Catherine Leung maintained her "Buy" rating and said the company had a very strong first quarter. However, she said the company was meeting turbulence in the second quarter, primarily because of the recent earthquake in western China.
• Shares of Ctrip.com International Ltd. plunged Thursday after Chinese travel Web site operator lowered its second-quarter outlook, primarily because of the earthquake that struck western China Monday. The company said late Wednesday it expects growth of 30 percent, compared with a previous estimate for growth of 35 percent.

WuXi PharmaTech (WX) is a small position that has languished for a long time that has popped severely the past 2 sessions - I don't see any news but maybe good news about earnings at the end of the month is leaking out. Either way, I am going to cut this position to "tiny" (sub 0.1% stake) and buy back on any material pullbacks. That said, for the first time in eons the chart is looking nice, but we have a 30% pop in just a few weeks so I'm going to lock it in.

This is one of the contract research organizations, a sector I really like, but based in China where it should have a major labor cost advantage. Selling in $23.20s; so far this stake has been a money loser for the fund. [Nov 2: Two New Foreign Positions Added Today] Luckily the other name I bought on the same day in early November has been a huge winner for us.

Disclosure: Long WuXi PharmaTech in fund; no personal position

I am beginning a stake in Chinese gaming company Perfect World (PWRD) in the $30.70s. I tried to buy this 2 days ago near $29 but Marketocracy.com did not have it in their database (ugh). So now it is ready to be bought, so I'm paying up 5.8% from where I had wished.

Perfect World is part of a cohort of Chinese gaming companies (some others include Giant Interactive (GA), Netease (NTES), and Shanda Interactive (SNDA)) Unlike American video games, I don't have any sophistication or window into which games actually will be the big winners since many are based on domestic folk lore/tradition and the like. Not being a 14 year old Chinese teenager, I don't have that knowledge base, so I don't which company will have the "hot games," but I like the space, and I chose Perfect World vs peers for some other factors

1. lower end of valuation on forward estimates vs peers
2. smaller share count versus peers (which means any incremental revenue gains will be better reflected in earning PER share) and
3. (as of Tuesday) it had fallen back to a key support level. (which it has since bounced off)

• Chinese online gaming company Perfect World Co. said Monday that it swung to a fourth-quarter profit and beat analysts' estimates as online game operation revenue jumped, aided by the launch of some game expansion packs.
• For the quarter that ended Dec. 31, Perfect World earned RMB 146.2 million ($20.1 million), or RMB 2.48 (34 cents) per ADS. This compares with a loss of RMB 11.1 million, or RMB 0.43 per ADS, in the same quarter last year. In the most recent quarter, Perfect World used a much greater number of share to calculate its earnings on a per-share basis. Analysts polled by Thomson Financial expected, on average, a profit of 27 cents per share on $29.8 million in revenue.
• The company's revenue rose to RMB 258.4 million ($35.4 million) from RMB 60.8 million in the year-ago quarter.
• The company also said the number of active paying customers for games that follow its item-based revenue model rose to 1.6 million -- up 159.9 percent from the year-ago quarter.