Tuesday March 16, 2010 - 13:33:47 GMT
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Your recommended daily allowance of China
Greece Gets EU Financial Lifeline Pledge (Bloomberg)
Democrats Raise Pressure on Obama to Demand China Allow Yuan to Strengthen (Bloomberg)
â€śIf you don't own a dog, at least one, there is not necessarily anything wrong with you, but there may be something wrong with your life.â€ť
FX Trading â€“ Your Daily Recommended Allowance of China Opinion
Have a look at this gem from Ambrose Evans-Pritchard: Is Chinaâ€™s Politburo spoiling for a showdown with America? I wonâ€™t comment on it since weâ€™ve included much of these same ideas frequently in the pages of Currency Currents already; nevertheless he presents these ideas forcefully and succinctly. Hereâ€™s an example of the Chinese delusion that Evans-Pritchard points out:
Days earlier the State Council accused America of serial villainy. "In the US, civil and political rights of citizens are severely restricted and violated by the government. Workers' rights are seriously violated," it said.
Sure, thatâ€™s the nightmare scenario in the US ... if complacency among US citizens ever allowed intrusive socialist and communist ideas to permeate the private sector. But it is my belief weâ€™re a long way from that point, assuming any current and future hints of political and civil rights violations are nipped in the bud. Other countries, who will remain nameless, are a far closer to said violations.
And then thereâ€™s this piece by Jeff Harding in The Daily Capitalist: China's Fragile Economy, Its Housing Bubble, and What It Means To Us: Part I. Again, hereâ€™s an excerpt:
4 Important Things to Know About China
Before I go into the details of what is happening in China right now, there are four things about China to consider.
First, most economic statistics from China are inaccurate. This is the result of state, top-down driven economic planning. The nice thing about a planned economy is that they can pretty well dictate what GDP will be because of the way they calculate it. What they mean by â€śGDPâ€ť is very different than what other countries mean by GDP.
China counts the funds that are distributed from Beijing to local governments and entities as spent when distributed. Retail goods are calculated as sold when factories ship goods, not when they are purchased by consumers. This is an artifact of communist central planning that brought them the ruinous Five Year Plans and the Great Leap Forward (Backward) of Mao Zedong.
Local or regional bureaucrats responsible for allocating resources or implementing policies are often corrupt, inept, and lie about the results of their efforts. What comes to mind is the school in Sichuan province (the so-called â€śtofu-dregs schoolhouseâ€ť) that collapsed during the earthquake in 2008 because local officials were bribed, paid off, colluded, whatever, by the contractor who was responsible for the shoddy product. You can multiply that ten thousand times. No one knows what is really spent and what goes into the pockets of corrupt officials.
Second, local and regional governments and state-run enterprises are in serious financial trouble because of the real estate bubble. A big revenue source for local and regional governments is from land sales to developers. Weâ€™ve all heard the stories of landowners and tenants getting kicked off their land to make way for a new block of homes or condos. Their compensation is small, and you can guess where a lot of the money goes. The local entities borrowed lots of money to finance developers. Beijing is so worried about the financial solvency of local governments that Premier Wen Jiabao announced at the National Peopleâ€™s Congress last week that it will issue 200 billion yuan worth of bonds on behalf of local governments.
In a â€śworst-case scenario,â€ť the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroupâ€™s Hong Kong-based chief economist for greater China, said yesterday.
â€śThe most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,â€ť said *Northwestern University Professor Victor Shih] who spent months researching borrowing by about 8,000 local government entities. â€¦
Su Ning, a deputy governor at Chinaâ€™s central bank, said March 8 that a â€śfairly high proportionâ€ť of total lending last year went to the funding vehicles. Chinese banks extended a record 9.59 trillion yuan of new loans in 2009. Su sees â€śa big riskâ€ť from local-government guarantees for money borrowed to fund infrastructure projects that may not generate returns, he said in Beijing.
Third, much of their â€śgrowthâ€ť is fake. Money sent to districts and municipalities to spend is not organic economic growth. Much of current GDP growth is a myth since most of it comes from government stimulus. Building roads and bridges is good because China needs to build its infrastructure, but it is very wasteful and inefficient. Whatever it is, it is not real organic economic growth: governments only spends money, they do not make money (actually they do in a perverse sense when they print it).
Fourth, China is still a big, robust, developing country. Despite what I said above, there is real growth and wealth. Deng Xiaopingâ€™s â€śto get rich is gloriousâ€ť revolution released Chinaâ€™s potential. It may be inefficient, and at times corrupt, but it is real. But, they are not immune to the laws of economics.
I look forward to tomorrowâ€™s entry: Part II â€” The governmentâ€™s dilemma: to tighten and risk a crash or inflate until it blows up.
For good measure, hereâ€™s a piece by Gideon Rachman in the Financial Times today. And an excerpt:
But in other, more important ways, China is a much more serious challenger to American hegemony than Japan ever was. The most obvious point is demographic. Americaâ€™s population is more than twice that of Japan; it is less than a quarter of Chinaâ€™s. Japan was (and is) also a democracy, an American ally and the base for some 50,000 US troops. China is, by contrast, a geopolitical rival. If China keeps growing fast then inevitably its economy will, at some point, become larger than that of the US â€“ and that process will certainly change the global balance of power.
Interestingly, Rachman notes several of the key risks facing China but still believes the future is Chinaâ€™s.
For now the markets await the FOMC monetary policy announcement this afternoon in the US. Before that we get US data on building permits, chain store sales, housing starts and import/export prices.
The latter two items have the most market-moving potential: disappointing housing starts numbers would hurt risk appetite, while import/export prices might have a more direct impact on the dollar if they donâ€™t come in near expectations.
[Chart not available in text format.]
The bucks moved higher with import/export prices of late, but the last several years tell a story of tight negative correlation.
More than likely, any US dollar move on import/export numbers will be limited ahead of the FOMC.
John Ross Crooks III
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