China Drops a NUKE!

[Mega]

http://www.ft.com/cms/s/0/b576ec86-7...nclick_check=1
Mike

[thedanimal]

Re: China Drops a NUKE!

Can someone with a better understanding of global money flows explain if this itself is inflationary?

It seems to me if their reserves are now moving rather than sitting still that eventually those dollars can find their way back to the US and contribute to the iTulip POOM. However, I'm not entirely clear on the why or how they end up back in the US rather than staying where they are or ending up anywhere else.

Thanks.

[coolhand]

Re: China Drops a NUKE!

It also sets up a potentially interesting geopolitical conversation b/t the US & China, given that we have thwarted their attempts to buy strategic/natural resource assets in the past (Unocal i think?)

I may have read about this here:

US: "China, we need you to keep buying our dollars. However, you can only use those dollars to buy things like golf courses & buildings & stakes in private equity funds. They cannot be used for anything of tangible, strategic long term value. "

China: "F-off."

[FRED]

Re: China Drops a NUKE!

USA Fire Sale, 2nd Meeting, June 2009: Political capital call - Eric Janszen

Cheng: Again, our interest is only in purchasing as many short term Treasury bonds as necessary to maintain the purchasing power of our current dollar holdings and to manage our exchange rate as we see fit. We will use our long duration US securities holdings as collateral to buy assets such as oil and metals in Latin America, Africa, Australia, and Canada that we need here in China, to improve the living standards of our people. These are, after all, their savings. In return, the United States will reduce its foreign lending requirements by cutting wasteful spending, starting with your bloated military. The U.S. will cease to meddle in our internal affairs. Your Congress will stop berating us for "manipulating" our currency. We will diversify into other currencies and implement foreign exchange programs with our trade partners, providing convertibility of the yuan directly into currencies other than the dollar. The U.S. dollar will over time cease to be the major global reserve currency but will become equal to the euro, yen, and yuan.

That is, as you say in your country, “how we roll.”

Thank you for coming. more...

[Slimprofits]

Re: China Drops a NUKE!

The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

Qu Hongbin, chief China economist at HSBC, said: “This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets.”

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies.

“Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

from the article

[D-Mack]

Re: China Drops a NUKE!

It also sets up a potentially interesting geopolitical conversation b/t the US & China, given that we have thwarted their attempts to buy strategic/natural resource assets in the past (Unocal i think?)

I may have read about this here:

US: "China, we need you to keep buying our dollars. However, you can only use those dollars to buy things like golf courses & buildings & stakes in private equity funds. They cannot be used for anything of tangible, strategic long term value. "

China: "F-off."

The "Going Out Strategy" could lead to a date or two with USPACOM, USAFRICOM, STRATCOM or other entities.

[we_are_toast]

Re: China Drops a NUKE!

I don’t know how much you travel around China. Tom and I do a fair bit, and most recently we were in Guiyang. I thought I’d seen insane excess in the past – 200 thousand square meter malls completely empty next to apartment complexes with 40 thousand units and 30% occupancy rates, etc. etc. But what we saw over there is rather hard to fathom. It seems the Guiyang city mayor had the same idea as the Shenzhen mayor – to move the old downtown to a piece of undeveloped land.
Of course Guiyang has a quarter the population and probably a quarter the per capita income of Shenzhen. They built sprawling new government buildings about a 20-minute drive north of town. And then the residential high rise projects started going up. From driving around the area, Tom and I figured well over 100 20+ storey buildings.
What was most distressing was that the development has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town. Every building we got close enough to see was either incomplete/under construction, or empty. Our tone gradually went from “Haha, another one!” to “Oh my God, another one.” We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon. The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction.
Back in the city proper, every neighborhood we saw was a convulsing mess of buildings being torn down, new ones being built, and unfinished high rises starting to crumble.

http://mpettis.com/

Something doesn't seem to add up here. We assume that all the dollars that China has gotten from it's export surpluses has been going into "savings" in the form of U.S. Tbills. Then where has all the money come from for the massive expansion that China has been doing at the same time? And how about the $500 Bln stimulus? And the purchase of raw materials and foreign companies? How can they save it and spend it at the same time?

If they've used the Tbills as collateral for their expansion and foreign purchases, then someone else is going to have a big problem in a dollar devaluation and the threat to cash the Tbills is empty.

[metalman]

Re: China Drops a NUKE!

http://mpettis.com/

Something doesn't seem to add up here. We assume that all the dollars that China has gotten from it's export surpluses has been going into "savings" in the form of U.S. Tbills. Then where has all the money come from for the massive expansion that China has been doing at the same time? And how about the $500 Bln stimulus? And the purchase of raw materials and foreign companies? How can they save it and spend it at the same time?

If they've used the Tbills as collateral for their expansion and foreign purchases, then someone else is going to have a big problem in a dollar devaluation and the threat to cash the Tbills is empty.

the source of that meme... Economic M.A.D. Revisited: Turning point

was it ever confirmed?

[GeraldRiggs]

Re: China Drops a NUKE!

Mega:

For God sakes please tone down the subject titles!!!!

When I get on iTulip and see your title I expect to see something earth shattering not that China is going to buy more real assets with their dollars. Hell, they've been doing this for some time now without the fanfare.

When the SDHTF.....use that kind of title, not before.

Thanks.......JMHO.

[touchring]

Re: China Drops a NUKE!

http://mpettis.com/

Something doesn't seem to add up here. We assume that all the dollars that China has gotten from it's export surpluses has been going into "savings" in the form of U.S. Tbills. Then where has all the money come from for the massive expansion that China has been doing at the same time? And how about the $500 Bln stimulus? And the purchase of raw materials and foreign companies? How can they save it and spend it at the same time?

If they've used the Tbills as collateral for their expansion and foreign purchases, then someone else is going to have a big problem in a dollar devaluation and the threat to cash the Tbills is empty.

Part of the money goes to US treasury, but a big amount in both public and private hands (probably no one in the world knows the size) is being stashed in Swiss banks, hong kong banks, singapore banks.

A lot of money is also flowing in from the West into greater china. I bet that at least $100 billion from US stimulus money (the plunder) for banks has gone to Asia.

[metalman]

Re: China Drops a NUKE!

Mega:

For God sakes please tone down the subject titles!!!!

When I get on iTulip and see your title I expect to see something earth shattering not that China is going to buy more real assets with their dollars. Hell, they've been doing this for some time now without the fanfare.

When the SDHTF.....use that kind of title, not before.

Thanks.......JMHO.

yeh, like when they really drop a nuke... or launch it, as the case may be...

[blazespinnaker]

Re: China Drops a NUKE!

What people don't realize is that this is hugely bullish. A powerful and important nation such as China is fully going to engage the world on all levels.

It's like the sulking super genius / inventor / leader who had been hiding in the corner is coming out to actually Do Good.

The world is a complex interdepentent place. The sooner everyone grows up and accepts that the sooner we're all going to be better off.

[FRED]

Re: China Drops a NUKE!

What people don't realize is that this is hugely bullish. A powerful and important nation such as China is fully going to engage the world on all levels.

It's like the sulking super genius / inventor / leader who had been hiding in the corner is coming out to actually Do Good.

The world is a complex interdepentent place. The sooner everyone grows up and accepts that the sooner we're all going to be better off.

EJ writes in:

The question is, why did they decide to make a public announcement of a policy that has been in place for many years? Why now?

Hudson writes to me today: "My guess is to bring pressure on the US to give them an exchange-rate guarantee in $/yuan rates -- like the US gave Germany in the late 1960s.

They can now say, "If you don't give us a guarantee, we've got to protect themselves -- and you'll be hurt even more."

I agree with this.

[goadam1]

Re: China Drops a NUKE!

Stimulus at work:

HONG KONG -- Plans by Wynn Resorts Ltd. and Las Vegas Sands Corp. to take their Macau assets public reflect a revival of optimism about the Chinese gambling enclave's prospects even as those for Las Vegas remain dim.

Wynn is looking to raise $1 billion to $2 billion in an initial public offering of its Macau assets in Hong Kong, and has appointed Morgan Stanley, J.P. Morgan Chase & Co. and UBS AG to handle it, according to a person familiar with the matter. Further details on an offering remain unclear. A Wynn spokeswoman in Macau declined to comment.

At Sands, Sheldon Adelson, chairman and chief executive, has said he is eyeing a Hong Kong listing of the company's Macau assets, among other options, to raise about $3.5 billion. That listing could come as early as the fall.

View Full Image

Associated Press
Wynn's IPO plan marks revived optimism in the gambling city of Macau. Visitors at the Wynn Macau last year.
The plans by the two Las Vegas casino operators will test renewed optimism over Macau sparked by China's continued economic growth, shifting political winds and signs that the casino companies are getting a handle on a key business cost.

[coolhand]

Re: China Drops a NUKE!

Is there anything to read into the growth rate? I mean - $143mm in 07 to $41B in 08...that might be the only thing that grew faster 08/07 than bank mortgage-related losses!!