Chinese and Hong Kong stocks closed higher on Monday after natural resources cmopanies were boosted by a jump in copper prices following Chile’s earthquake. Chile is currently the world’s largest producer of the metal.

Hong Kong’s Hang Seng index gained 2.17%, or 448.23 points, to close at 21,056.93. Meanwhile, Chinese stocks rose 1.18% on the Shanghai Composite, which ended up 35.90 points at 3,087.84. Trading volumes were heavy on both exchanges.

In recent trading, May copper futures were up about 8 cents, over 2%, at $3.36 a pound on the Comex division of the New York Mercantile Exchange. The commodity reached as high as $3.48, its strongest point since January, in electronic trading over the weekend after the 8.8 magnitude quake struck Chile.

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U.S. and international markets moved lower during today’s session following China’s move to curb bank lending and cool down its economy. However, the losses were partially offset by more bullish confidence in the European Union following Greece’s troubles.

China’s announced an increase in bank reserve requirements by 0.5% for the second time in five weeks in order to limit lending to consumers and businesses. The country is hoping that the move will help slow down the country’s rapid economic growth.

The country’s Bureau of Statistics noted on Thursday that annual inflation had more than doubled in January versus the prior month, to 4.3%. Meanwhile, the average housing price rose 9.5% last month from a year earlier, which is the fastest rate in 19 months.

Luckily for the country, the rising asset prices have not yet impacted consumer prices, which had caused unrest in the past when eroding workers’ spending power. Obviously, this is a bad situation as it can lead to class division and other socioeconomic problems.

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Chinese stocks retreated on Wednesday following a move by the government to curb lending. The Chinese government has been telling some major banks to curb lending, which could cloud their outlook and put a damper on economic growth in the country.

While the move to limit growth is ultimately good for the economy, according to many economists, the slowdown will surely constrict the country’s investments and slow down the rapid growth in household wealth that came on the heels of the boom.

Currently, these concerns are merely rumors and not confirmed fact. But ultimately, rumors are all it takes to move the markets. Hong Kong’s Hang Seng index fell 1.31% or 283.75 points to 21,394.23, while China’s Shanghai index fell 1.04% to 3,213.17.

Major Chinese banks also moved lower during the session. Bank of China dropped 2.93%, China Construction Bank fell 2.65%, and Industrial and Commercial Bank of China dropped 1.98%. Meanwhile, other financials were also lower, forcing the average down 1.42%.

Notably, there are several actions that have already been taken that are not simply rumors. China’s central bank has ordered at least two banks to lift their reserve ratios by 0.5%, while also clamping down on excess liquidity via raising short-term debt yields over the past two weeks.

Combined, the speculation and confirmed actions have led to a global drop in equity prices. Latin American stocks in particular were hit as China represents a major export market for raw materials and commodities from countries like Brazil.

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Toyota Motor Corp. (TM) has the best-selling Prius, General Motors Corp. (GM) will soon roll-out the highly anticipated Volt, while Honda Motor Co. (HM), Ford Motor Company (F), Daimler AG (DAI) and every other large automaker either has hybrids on the market or is planning to introduce them – but a key component of the electric motors in hybrids is almost completely controlled by China.

The New York Times today published a story titled “China Tightens Grip on Rare Minerals.” It is a little known, but increasingly important fact, that China produces “more than 93 percent of so-called rare earth elements,” and specifically more than 99 percent of two particular elements, dysprosium and terbium, that are key components in hybrid cars.

Despite increasing demand, China appears to be ready to tighten worldwide supply in a move to get manufacturers into China as well as ease the incredible environmental burden China has so far allowed its mining practices to take:

China’s Ministry of Industry and Information Technology has drafted a six-year plan for rare earth production and submitted it to the State Council, the equivalent of the cabinet, according to four mining industry officials who have discussed the plan with Chinese officials. A few, often contradictory, details of the plan have leaked out, but it appears to suggest tighter restrictions on exports, and strict curbs on environmentally damaging mines.

Beijing officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China. “Rare earth usage in China will be increasingly greater than exports,” said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute.

The move to tighten control of rare earth metals, is also, according to some, born of sheer necessity:

“Sometime in 2011 to 2012, Chinese domestic demand will surpass Chinese domestic production,” says Jack Lifton, an analyst and consultant who specializes in what he calls the “technology metals” and advises mining industry clients developing rare earth projects in North America. “This means no more Chinese exports of rare earths, other than in finished goods made in China that they allow to be exported.”

A Toyota Prius requires between 2 and 4 pounds of rare earth metals for its electric motor – a requirement that may become increasingly difficult if not impossible to meet. Concern about a crippling shortage may seem overly dramatic, but the United Kingdom’s Times notes that about 20% of Japan’s imports of rare earth metals are already believed to enter through the black market because supply is so scarce.

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Chinese solar companies Suntech Power (STP), Trina Solar (TSL), Yingli Green Energy (YGE), JA Solar (JASO), LDK Solar (LDK), and China Sunergy (CSUN) have all performed terribly recently as have their U.S.-based counterparts First Solar (FSLR) and Evergreen Solar (ESLR). A look at China’s rise to become the global leader in solar energy shows how the country has, in the process, destroyed the basic economics of the industry – hurting both Chinese and American solar companies.

The New York Times ran a frontpage article today titled “China Racing Ahead of U.S. in the Drive to Go Solar.”

The article’s takeaway is that despite President Obama’s ambition to make the United States “the world’s leading exporter of renewable energy,” China is actually walking the walk rather than just talking the talk:

“I don’t see Europe or the United States becoming major producers of solar products — they’ll be consumers,” said Thomas M. Zarrella, the chief executive of GT Solar International, a company in Merrimack, N.H., that sells specialized factory equipment to solar panel makers around the world.

Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.

Tellingly, Chinese-based Suntech Power Holdings [[STP]] will become the second-largest supplier of photovoltaic (PV) cells in the world this year behind Arizona-based First Solar, Inc. [[FSLR]].

But there is a darkside to China’s impressive growth for those looking to capitalize on the rise of Chinese solar companies:

Chinese companies have already played a leading role in pushing down the price of solar panels by almost half over the last year.

Indeed, less than two years ago the average U.S. retail price of a 200-watt module was $1500 while now it is less than $650.

From an investment-perspective, the real story here is that, thanks in part to China’s aggressive strategy for growing its solar industry, the solar market is flooded with products for which there is no demand. Demand for solar panels is largely dependent on government subsidies because solar energy is still more expensive to produce than using fossil fuels or even wind power (even with the drop in the price of solar panels), and these government subsidies worldwide are being scaled back due to tax revenue concerns. The decrease in subsidies is only compounded by dampened demand due to the worldwide economic downturn. Basically, the economic downturn is a double-whammy for solar demand: it hurts demand the way a recession hurts demands for all kinds of products while also decreasing government revenue on which solar subsidies (and much solar demand) depend. Global demand for solar panels is expected to drop nearly 20% this year.

Even worse, this decrease in demand is being met not with a decrease or even flat supply, but with an increase in supply – total solar cell manufacturing capacity will be up more than 50% this year, and is projected to grow at an astonishing annual rate of about 50% for the next 5 years.

This sobering mismatch – increased supply and decreased demand – is taking its toll on Chinese solar companies’ stock prices over the last month:

• Suntech Power Holdings [[STP]] is down 29%.

• Trina Solar Ltd. [[TSL]] is down 16%.

• Yingli Green Energy Holdings [[YGE]] is down 29%.

• JA Solar Holdings [[JASO]] is down 29%.

• LDK Solar Co. [[LDK]] is down 25%.

• China Sunergy Co. [[CSUN]] is down 17%.

This terrible performance is during the same period that the S&P 500 gained 5%. American solar companies are not immune, given the global nature of the solar market:

• First Solar, Inc. [[FSLR]] is down 24%.

• Evergreen Solar, Inc. [[ESLR]] is down 27%.

Looking back 12-months leads to an even less flattering profile for most of these stocks, with many losses far greater than 50%.

The simple fact is the blood-letting is probably only going to continue. Save for First Solar and Trina Solar none of these companies are profitable – and with the very bad economics of the market right now there is no reason to think any of them are going to become profitable or get more profitable any time soon.

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China Nepstar Chain Drugstore (NPD) was Monday’s top Chinese stock mover after shares jumped nearly 10% after announcing a special cash dividend.

China Nepstar Chain Drugstore [[NPD]] added nearly 10% per share, or some $66 million in market capitalization, Monday. The Shenzhen, China-based retail drugstore chain announced disappointing second quarter results. EPS were only $0.02 compared to analysts’ expectations of $0.04 and revenue was only $78 million compared to expectations of $86. Worse, same-store sales, a key indicator for retailers, dropped 1.3% from the same period a year earlier.

The key development driving today’s gains was China Nepstar’s announcement that it will play a one-time cash dividend of $1.50 per American Depositary Share to shareholders of record as of September 25.

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Sinopec, formally known as China Petroleum & Chemical (SNP), is making headlines for an impressive first half but shares are down anyway. With refining results effectively totally dependent on government fuel price mandates and other company results weakened, the market has reason to be less than impressed.

China Petroleum & Chemical Corp. [[SNP]] is down about 1% in midday trading yesterday after opening higher despite impressive mid-year results, fellow Chinese energy company PetroChina Co. [[PTR]] being up and the energy sector as a whole gaining. What is wrong with this picture?

China Petroleum & Chemical, better known as Sinopec, exceeded analysts’ expectations by more than 20%, posting about $4.9 billion in profit for the first six months of the year largely thanks to China’s easing of strict control of domestic fuel prices.

Unfortunately, China’s government has since lowered the price of petroleum and diesel – which is especially bad for Sinopec given that other operating revenue and income fell by 30% from a year ago. In other words, refining fuel for domestic use was the bright spot for Sinopec thanks to higher prices, but those prices are at the whim of the government, leaving concerns about the second half of 2009.

Sinopec is optimistic however: “Looking into the second half of this year, the state will continue applying proactive fiscal policy and relatively easy monetary policy…increasing domestic demand [for fuel].” Also, the company notes crude oil prices are expected to rise internationally in the second half of the year.

The market seems skeptical though.

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China Nepstar Chain Drugstore (NPD) and China Petroleum & Chemical (SNP) announce second quarter earnings on Monday, August 24th.

China Nepstar Chain Drugstore Ltd. [[NPD]] announces second quarter earnings at 8:30 am EDT on Monday. The Shenzhen-based retail drugstore chain that also offers its own private label products is expected to announce EPS of $0.04 on revenue of $86.16 million. If on-target, EPS will drop 50% year-over-year on a sales increase of 1%.

China Petroleum & Chemical Corp. [[SNP]], better known as Sinopec, announces interim 2009 results at 3:30 am EDT. The Beijing-based oil and gas company does not have analyst estimates of its results.

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Berkshire Hathaway’s (BRK-A) investment in BYD is old news, but the company – and Berkshire Hathaway’s confidence in it – continues to intrigue.

Though I had heard of BYD (listed on the Hong Kong Stock Exchange) in passing last fall when Berkshire Hathaway Inc.  [[BRK-A]] bought 10% of the Chinese battery and car company for approximately $230 million, I ran across this comment Berkshire co-Chairman Charlie Munger made about BYD’s CEO to Fortune:

“[BYD CEO Wang Chuan-Fu] is a combination of Thomas Edison and Jack Welch – something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it.”

That is a serious compliment coming from Warren Buffett’s right-hand man. The same Fortune articles notes Wang’s frugality- “the last time BYD executives traveled to the Detroit auto show they rented a suburban house to save the cost of hotel rooms.”

The full article from April is still available on CNNMoney, and it is certainly worth reading. BYD could offer a serious opportunity – even though the company’s shares are up some 500% since Berkshire Hathaway’s investment – but at the very least the article gives insight into the psyche of a true entrepreneur and innovator.

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Goldman Sachs Group (GS) raised its estimate for China’s 2009 economic growth.

The “vampire squid wrapped around the face of humanity,” also known as Goldman Sachs Group Inc. [[GS]], raised its already strong estimates for China’s 2009 economic growth to 9.4% from 8.3%.

Goldman’s analysts based their increase on the country’s “strong momentum” combined with it being unlikely that the government will take immediate steps to slow growth out of inflationary concerns.

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