>   
>   (email exchange)
>   
>   Attached is an interesting article from the FT discussing the investment slowdown in China.
>   While the official picture remains one of a gradual slowdown, more anecdotal data on
>   electricity production and bank loans suggests that the slowdown is much more severe – this
>   is likely to negatively impact the EM and the Asian suppliers to China such as Australia and
>   Korea.
>   

Full article: China Investment Boom Starts to Unravel

The discount rate cut doesn’t actually do anything for the economy- growth or inflation- but does show their concern.

And the relatively low Q1 state lending is showing the actual continuing policy constraint.

As previously discussed, China has what they consider an inflation problem, and there are precious few, if any, examples of inflation fights that didn’t cause hard landings.

Ch Headlines:

China to lower reserve requirement ratio
Q1 GDP slows in 29 provinces, regions
China 2012 Growth Forecast Cut to 8.1%, Citigroup Says
China 2012 Growth Outlook Revised to 8% From 8.2%, JPMorgan Says
China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

CIC Stops Buying Europe Government Debt on Crisis Concern

By Andres R. Martinez

May 10 (Bloomberg) — Gao Xiqing, president of China Investment Corp., said the nation’s sovereign wealth fund has stopped buying European government debt on concerns about the region’s financial turmoil.

CIC will continue to look for new investments in Europe as part of its strategy to boost allocations to infrastructure, private-equity assets as well as emerging markets to help boost returns, Gao said. CIC, with an estimated $440 billion in assets, is the world’s fifth-largest country fund, according to Sovereign Wealth Fund Institute.

“What is happening in Europe right now is of course of concern,” Gao said in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”

Europe’s turmoil is reigniting on the second anniversary of policy makers’ first attempt to prevent Greece’s woes from spreading. That raises fresh doubt over the strategy just as Greece’s election spurs concern that the country may not meet the terms of its international rescues and will seek a solution outside the euro.

Boy in China reportedly sells kidney to purchase iPhone and iPad

April 6 — A teenage high-school student in China sold his kidney for an illicit transplant operation and used the proceeds to buy an Apple iPhone and iPad, state press said on Friday.

The 17-year-old boy, who was paid $3,500, was recruited from an online chat room and is now suffering from kidney failure and in deteriorating health, the Xinhua news agency said.

A surgeon and four others have been arrested and are facing charges of illegal organ trading and intentional injury.

The kidney donor, only identified by his surname Wang, agreed to the April 2011 operation in the central province of Hunan without his parents’ consent, the report said.

One of those detained was a hard-up gambler identified as He Wei, who acted as a middle-man between a hospital worker and the teenager.

Health ministry statistics show that about 1.5 million people in China need transplants, but only around 10,000 transplants are performed annually.

The huge gap has led to a thriving illegal market for organs.

• Austerity everywhere keeps domestic demand in check and export channels muted
• Non govt credit expansion pretty much stone cold dead in the US and Europe
• Rising oil energy prices subduing global aggregate demand
• US federal deficit just about enough to muddle through with modest GDP growth
• Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
• Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
• All good for stocks and shareholders, not good for most people trying to work for a living
• Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

Part of the general move of the current govt to exit deflation via weakening the yen, as previously discussed. Look for Japan to be increasing total fx reserves, and in multiple currencies. The only thing that might stop them is being called on it by the US Treasury secretary.

Japan to purchase 65 billion yuan in China government debt

By Stanley White

March 13 (Reuters) — Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.

The timing of purchases hasn’t been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan’s Finance Minister Jun Azumi said.

Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.

China said on Monday it would continue its purchases of Japanese government debt but would reduce purchases when the yen is rising as China and Japan, holders of the largest and second-largest currency reserves, look to limit exposure to the dollar.

“We feel this is an appropriate amount when considering our mutual goal of strengthening economic cooperation between Japan and China,” Azumi told reporters.

Japan and China agreed at a summit in December to facilitate trade between the yen and the yuan as part of a broader push to strengthen economic cooperation.Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.

The timing of purchases hasn’t been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan’s Finance Minister Jun Azumi said.

Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.

China said on Monday it would continue its purchases of Japanese government debt but would reduce purchases when the yen is rising as China and Japan, holders of the largest and second-largest currency reserves, look to limit exposure to the dollar.

“We feel this is an appropriate amount when considering our mutual goal of strengthening economic cooperation between Japan and China,” Azumi told reporters.

Japan and China agreed at a summit in December to facilitate trade between the yen and the yuan as part of a broader push to strengthen economic cooperation.

Looks like China is still in ‘inflation fighting’ mode as state lending over there is functionally like federal deficit spending here.

As previously discussed, while China may successfully engineer a soft landing in their fight against inflation, I’ve never seen anything but hard landings elsewhere when fighting inflation. And with China a ‘first half/second half’ story, a weak first half generally means an even weaker second half.

China says January lending down 28% from year ago

February 12 (AFP) — Chinese bank lending fell 28 percent in January from a year earlier, official data showed, suggesting Beijing is reluctant to open the credit valves too quickly for fear of reigniting inflation.

State-owned lenders issued 738.1 billion yuan ($117.26 billion) in new loans in January, down 288.2 billion yuan from the same month last year and well short of analyst forecasts for one trillion yuan, the central bank said Friday.

Banks handed out 640.5 billion yuan in loans in December.

Chinese banks typically ramp up lending at the beginning of the year to avoid losing quotas issued by regulators and the effects of changes in monetary policy. Analysts said the weaker-than-expected data partly reflected the earlier than usual Chinese Lunar New Year holiday, which fell in January, and the government’s still tight restrictions on credit.

Mark Williams, an economist at Capital Economics in London, said it was the lowest December to January increase since 2007.

“It is hard to escape the feeling that the weakness of lending was at least partly a reflection of the slow pace at which policy is being eased,” he said.

Late last year the central bank eased lending restrictions on banks and analysts expect similar moves this year as authorities try to spur economic activity and prevent a collapse in the property market.

But most experts had forecast another easing of bank reserve requirements before the week-long Lunar New Holiday and the government’s failure to act suggests it does not expect a sharp slowdown in economic growth.

There is growing evidence that the world’s second largest economy is slowing as turmoil in eurozone countries and weakness in the United States hurts demand for Chinese exports, a key driver of the Asian giant.

The International Monetary Fund this week warned that an escalation of Europe’s fiscal woes could slash China’s economic growth by half this year, and it urged Beijing to prepare stimulus measures in response.

But Chinese leaders, worried about reigniting politically sensitive inflation, have signalled their intention to move cautiously and fine-tune policy as needed.

Must be a student of MMT?

China Should Weigh Fiscal Boost if Euro Crisis Deepens

Feb 8 (Bloomberg) — China should consider fiscal stimulus if Europe’s sovereign-debt crisis sparks a recession there that affects the U.S., Asian Development Bank Managing Director-General Rajat Nag said.

“The European crisis is a major cloud on the horizon,” Nag said in an interview at the ADB’s Tokyo office today. “Countries, particularly China, have to consider the possibility of coming in with necessary fiscal stimulus if the euro zone crisis becomes more serious and if the effects of that spillover into the U.S.”

The International Monetary Fund said two days ago that a worsening of Europe’s debt turmoil could almost halve China’s growth rate, which the lender projects at 8.2 percent in 2012. Fitch Ratings said yesterday that a “hard landing” for the nation was a key risk for the global economy.

“Our assessment is that the situation will probably not be a hard landing,” Nag said. “If the euro zone crisis resolves itself in an orderly fashion, China could still grow at over 8 percent in this calendar year.

Out of the goodness of their hearts.

Not if, but Wen-

China’s Wen Suggests Euro Funding After Meeting With Merkel

Feb 6 (Bloomberg) — Chinese Premier Wen Jiabao raised the prospect of contributing to the euro-area’s bailout programs, telling Chancellor Angela Merkel that China may be prepared to assist in resolving its debt crisis.

The Chinese government is considering funding options for the temporary European Financial Stability Facility and its permanent successor, the European Stability Mechanism, through the International Monetary Fund to help stabilize the monetary union, Wen said yesterday after meeting Merkel in Beijing. China has previously said that it needs more detail on any plan to contribute funds to the euro area.

China is “investigating and evaluating ways, through the IMF, to be more deeply involved using the ESM and EFSF channels in solving the European debt issue,” Wen said at a briefing alongside Merkel, who arrived in China early yesterday on her fifth visit to the world’s most populous country as chancellor.

Trojan horse
They just want to support their exports.

Premier Wen says China needs to help Europe – report

Feb 5 (Reuters) — Chinese Premier Wen Jiabao said that China needs to help Europe stabilise its markets due to strategic considerations in its relations with the region, the official China Securities Journal reported on Monday.

China also needs to keep its policy on imports and exports stable via more encouragements rather than restrictions, the newspaper quoted Wen as saying during a visit to China’s southern province of Guangdong earlier this month.

“Europe is now in a debt crisis,” Wen was quoted as saying. “We must consider our relations with Europe from strategic needs, maintaining our nation’s own interest.

“On the other hand, Europe is our largest export market. Europe is our biggest source of technological imports. Helping Europe stabilise its markets is thus helping ourselves.”

Reads like inflation fears are still there which should temper growth initiatives:

China economy faces downward risks in 2012

Feb 1 (Reuters) — China’s economy faces downward risks in 2012, as weakening external demand cuts into growth of the country’s export sector, the Finance Minister Xie Xuren said in remarks published on Wednesday.

He also said inflationary pressures in China remain strong as international markets are awash with cash, which has helped push up global commodity prices.

“There exists some downward pressure for the economic growth. As the external demand is now fading clearly, Chinese exporters are facing increasing difficulties,” Xie said in an article published in the ruling Communist Party’s mouthpiece magazine, Seeking Truth, which was posted on the central government website, www.gov.cn.

China’s economy, which grew at its weakest pace in 21/2 years in the latest quarter, looks to be heading for an even sharper slowdown in coming months, although an official survey of purchasing managers showed a slight upturn in factory production in January.

Xie also emphasized the important role of fiscal policy in maintaining China’s steady and relatively fast economic growth and said Beijing would continue to implement a proactive fiscal policy this year.

China’s fiscal deficit and government debt ratio, both of which remain within a safe and comfortable zone, are expected to give much scope for the government to keep its proactive fiscal policy, Xie added.

China’s nationwide fiscal revenues jumped 25.8 percent to a record high of 10.37 trillion yuan in 2011, leaving the country with a fiscal deficit of 519 billion yuan, lower than the budgeted 900 billion yuan.

“It is necessary and also possible for us to continue to implement a proactive fiscal policy,” he said. Xie also said that his ministry would provide more fiscal support to small to mediumsized enterprises and step up efforts to cut taxes for some selected sectors to restructure the economy away from exports and towards domestic consumption. “We will further improve tax cut policies in some areas to promote the development of enterprises and boost household consumption,” he added. Beijing has unveiled a slew of tax breaks to help cashstrapped small firms cope with rising costs and has also allowed them to issue more bonds and tap other sources of financing to ease the funding squeeze. The finance ministry also vowed to guarantee enough funding for key construction projects in the 12th five year plan period. Chinese Premier Wen Jiabao also said at a state council meeting on Tuesday that the central government would back funding to major projects already under way to ensure steady growth in investments.

China 2012 Budget Deficit May Rise Slightly

Feb 1 (Bloomberg) — China’s budget deficit may rise slightly or be almost unchanged this year from 2011, Gao Peiyong, a researcher with the Chinese Academy of Social Sciences, wrote in a commentary in today’s People’s Daily.

China may control fiscal expansion this year as maintaining consumer prices is a main problem for the country, Gao wrote

China may cut tax, rather than increase spending to continue conducting positive fiscal policies, according to Gao.

2012 Economic Fundamentals Remain Sound

Feb 1 (Bloomberg) — China’s economic fundamentals remain sound and the country has some advantages that will promote development this year, Finance Minister Xie Xuren wrote in Qiushi article posted on the central government’s website today.

China has “huge” domestic demand potential, Xie writes

China still faces downward pressure on economic growth, “relatively large” inflationary pressure and potential economic and financial risks, Xie writes

China’s deficit rate and debt rate are in a “safe range,” Xie writes

China Says it Will Implement Proactive Fiscal Policy This Year

Feb 1 (Yonhap) — China said Wednesday it will implement a proactive fiscal policy this year in a bid to drive up growth amid growing signs of a global economic slump.

Chinese Minister of Finance Xie Xuren, said in a statement that the government will use financial functions to maintain stable and rapid economic development in China.

China’s economic growth slowed last year, with its gross domestic product growing 8.9 percent on-year in the fourth quarter, slowing from 9.1 percent in the third quarter and 9.5 percent in the second quarter.

Over the course of the year, China’s economy expanded 9.2 percent in 2011 from a year earlier, down from 10.3 percent on-year growth in 2010.

Xie noted that China’s economy is facing downward pressure stemming from external shocks.

“The country’s exports are facing increasing difficulties, affected by significantly weakening external demand,” he said. “New drivers for economic growth need to be developed.”

The country’s export growth has begun slowing on falling global trade.

With global economic uncertainty lingering, including the European fiscal crisis, China has been looking to transform itself into a consumption-oriented economy by raising domestic demand.

I’ve been watching the fundamentals for the exchange rate to deteriorate for the last couple of years. Could be the timing is now right with FDI flows as well as trade flows looking like they may have turned.

China Forex Reserves Dip for 2nd Month in Dec

May 25 (PTI) — From K J M Varma China’s foreign exchange reserves amounting to over USD 3 trillion declined for the second straight month in December, snapping the trend of years of accumulation.

Chinese lenders bought USD 142.5 billion on behalf of their clients in December, while they sold USD 157.8 billion, marking the second monthly deficit, China’s State Administration of Foreign Exchange (SAFE) said in a statement.

The December deficit stood at USD 15.3 billion, up from USD 800 million in November.

China sits on the world’s largest forex reserves.

The SAFE data came after the central bank had said earlier this month that the country’s yuan funds outstanding for foreign exchanges fell to 25. 36 trillion yuan in December.

Analysts said the deficit, like falling yuan funds, is a result of a narrowing trade surplus, a slowdown in the growth of foreign direct investment and weakened expectation for yuan’s appreciation.

Last year, Chinese banks bought USD 1.6 trillion in foreign currency, and sold USD 1. 23 trillion, leading to a surplus of USD 367.8 billion, the SAFE statement said.

Reports of the decline came as China starts celebrating the lunar New Year, or the Spring Festival from January 23. This will mark the beginning of the ‘Year of the Dragon’, according to the Chinese Zodiac that assigns one animal, real or fabricated, to each year, repeating every 12 years.

However, experts say that this year is expected to be a tough one for China as it is seeing a declining trend in exports which is narrowing the decades of trade surplus.

Besides the dip in the forex reserves, China also saw a decline in the double digit growth rate in its economy, which grew by 9.2 per cent in 2011, with official projections that it will decline to 8.5 per cent this year in the face of falling exports and global financial crisis.

China’s trade surplus fell to 6-year low at USD 155 billion in 2011 amid shrinking exports market, even as its foreign trade surged by 22.5 per cent to hit an all-time high of USD 3.64 trillion.

The annual trade surplus narrowed to 14.5 per cent year-on-year to USD 155.14 billion in 2011, according to the General Administration of Customs (GAC).

China is the world’s second-largest importer and is expected to become the top importer in 2-3 years and contribute to global economic recovery, a senior research fellow from the Center for US-China Relations, Tsinghua University, Zhou Shijian, was quoted by the official media here as saying.

More signs the western educated kids are taking charge.
Instead of the public sector spending more than it’s ‘income’
seems they are working on expanding private sector debt?
And tax cuts for institutional investors to buy equities?

Good luck to them…

Chinese Agencies Working on Fiscal Steps to Boost Consumption

Jan 18 (Bloomberg) — Commerce Ministry spokesman Shen Danyang says his agency, central bank and finance ministry are working on such steps

* China will support wider use of credit, bank cards

* Agencies will submit plan to State Council

* NOTE: State-run China Securities Journal today reported govt may introduce tax cuts, other preferential policies for institutional investors to encourage long-term stockholding

China PBOC Asks Banks to Refrain From Lending Too Much

Jan. 13 (Bloomberg) — The People’s Bank of China’s regional branches asked banks to refrain from lending “too much” in early part of the year, Reuters reports today, citing unidentified people in the banking industry.

Shanghai PBOC branch told banks that 1Q new loans shouldn’t exceed 40% of total new loans last year, according to Reuters

My proposals remain:

1. A full FICA suspension:

The suspension of FICA paid by employees restores spending which supports output and employment.
The suspension of FICA paid by business helps keep costs down which in a competitive environment lowers prices for consumers.

2. $150 billion one time distribution by the federal govt to the states on a per capita basis to get them over the hump.

3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.

Call me an inflation hawk if you want. But when the fiscal drag is removed with the FICA suspension and funds for the states I see risk of what will be seen as ‘unwelcome inflation’ causing Congress to put on the brakes long before unemployment gets below 5% without the $8/hr transition job in place, even with the help of the FICA suspension in lowering costs for business.

It’s my take that in an expansion the ‘employed labor buffer stock’ created by the $8/hr job offer will prove a superior price anchor to the current practice of using the current unemployment based buffer stock as our price anchor.

The federal government caused this mess for allowing changing credit conditions to cause its resulting over taxation to unemploy a lot more people than the government wanted to employ. So now the corrective policy is to suspend the FICA taxes, give the states the one time assistance they need to get over the hump the federal government policy created, and provide the transition job to help get those people that federal policy is causing to be unemployed back into private sector employment in a more orderly, more ‘non inflationary’ manner.

I’ve noticed the criticism the $8/hr proposal- aka the ‘Job Guarantee’- has been getting in the blogosphere, and it continues to be the case that none of it seems logically consistent to me, as seen from an MMT perspective. It seems the critics haven’t fully grasped the ramifications of the recognition of the currency as a (simple) public monopoly as outlined in Full Employment AND Price Stability and the other mandatory readings.

So yes, we can simply restore aggregate demand with the FICA suspension and funds for the states, but if I were running things I’d include the $8 transition job to improve the odds of both higher levels of real output and lower ‘inflation pressures’.

Also, this is not to say that I don’t support the funding of public infrastructure (broadly defined) for public purpose. In fact, I see that as THE reason for government in the first place, and it should be determined and fully funded as needed. I call that the ‘right size’ government, and, in general, it’s not the place for cyclical adjustments.

4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.

Here my presumption is there’s more to life than burning our way to prosperity, with ‘whoever burns the most fuel wins.’

Perhaps more important than what happens if these proposals are followed is what happens if they are not, which is more likely going to be the case.

First, given current credit conditions, world demand, and the 0 rate policy and QE, it looks to me like the current federal deficit isn’t going to be large enough to allow anything better than muddling through we’ve seen over the last few years.

Second, potential volatility is as high as it’s ever been. Europe could muddle through with the ECB doing what it takes at the last minute to prevent a collapse, or doing what it takes proactively, or it could miss a beat and let it all unravel. Oil prices could double near term if Iran cuts production faster than the Saudis can replace it, or prices could collapse in time as production comes online from Iraq, the US, and other places forcing the Saudis to cut to levels where they can’t cut any more, and lose control of prices on the downside.

In other words, the risk of disruption and the range of outcomes remains elevated.

China Should Seek ‘Relatively High’ Deficit

Jan 5 (Bloomberg) — China should seek a “relatively high” fiscal deficit this year to stabilize the economy, Jia Kang, a researcher at the Ministry of Finance, wrote in an article in China Finance magazine.

A growth rate of at least 8% this year is acceptable, Jia says.

This is peculiar.
This supports the yuan vs the yen,
supporting Japan’s exports to China.

Could be more evidence of China’s inflation concern?

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (Nikkei) — Japan will likely purchase yuan-denominated bonds issued by the Chinese government under a proposed bilateral currency and financial agreement, The Nikkei learned Monday.

Japanese and Chinese officials are working out plans to have the pact signed when their leaders meet for a summit this coming Sunday. The agreement will be pillared on the purchase of Chinese government bonds using Japan’s foreign exchange fund special account, along with the joint establishment of a green investment fund.

Japan seeks to diversify its forex fund special account, which now focuses on dollar investments. It also aims to strengthen economic cooperation with China by supporting that nation’s efforts to turn the yuan into a more international currency.

The bond purchases may total up to 10 billion dollars’ worth, or roughly 780 billion yen, with buying carried out in stages through the special account.

The Chinese government counts Japanese government bonds among its foreign-currency reserves. Through cross-holding of bonds, Japan and China will be better poised to exchange information on financial developments in the bond market and elsewhere.

The Japanese government also plans to aid Chinese efforts to nurture an offshore market for yuan-denominated transactions.

The proposed joint fund for environmental investment would feature the participation of the Japan Bank for International Cooperation and private-sector companies from the Japanese side. Details of the fund’s size and investment percentages are to be fleshed out in the near future.

Thailand and Nigeria are among the countries that hold yuan-denominated government bonds through their central banks. Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.

China’s government bond offerings totaled 1.4 trillion yuan in 2009, up 55% on the year.

Such issuances have recently increased in Hong Kong. Overseas investors can acquire government bonds issued on the mainland, but regulations — including a ceiling on purchase amounts — remain strict. top

China Bond Purchases Could Help Ties: Finance Minister

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (NQN) — Finance Minister Jun Azumi on Tuesday confirmed a report that Japan is considering buying Chinese government bonds, arguing that such purchases will offer the two countries significant advantages while strengthening bilateral economic ties.

At a news conference after a Cabinet meeting, Azumi said Japan should hold yuan-denominated bonds as a means of strengthening diplomatic relations.

Azumi said no official decisions have been made on the matter, and that Tokyo will discuss the issue at a future Japan-China summit. He also suggested that the two nations may be able to strike an agreement when Prime Minister Yoshihiko Noda visits China.

Best I can tell the jury is still out as to whether China is going through
the ‘hard landing’ scenario that began when modest first half state lending was
followed by lower second half state lending, all to control inflation.

Note the recent social unrest that could be inflation linked.
All we know is the regime change risk was sufficient for them to cut back on growth.
And so far not much sign of anything of consequence in the pro growth direction,
which means the political concerns over inflation are still there.

The currency could also be heading south fundamentally due to inflation.
Net fx reserves may be down to minimum levels
after factoring in their dollar debt that has been indirectly supporting the yuan.
And with foreign direct investment tapering off,
that source of currency support seems to have subsided.

While slower growth in China hurts some US companies,
lower resource costs for the US are consumer friendly.

If gold has lost enough of it’s bid from central bankers,
it could be headed back to it’s marginal cost of production, 1980′s style,
which is where it goes without global central bank accumulation.
I recall the buyers earlier this year included the Greek and Mexican central banks,
as well as the central bank of Bangladesh.
I suppose with high unemployment,
govt figures it might as well put people to work in the gold mines? Whatever!
Anyway, the final leg up for this cycle may have been the spike after Chavez
opted to take delivery of his gold, which he now has,
debunking the speculation that it wasn’t there to be delivered.

Next is whether Congress lets the FICA cuts expire and take maybe 1% off of Q1 GDP.
The President just said he wouldn’t veto the Republican plan, so they may work something out.
But with their bent on ‘paying for it’ no telling what the final result will be.

China headlines:

China’s Manufacturing May Contract a Second Month
Foreign Direct Investment in China Falls as Factories Slow
China Money Rate Rises Most in 2 Weeks
Yuan Forwards Fall for an Eighth Day as Manufacturing May Shrink
Chinese Cut Back on London Luxury Homes as Stock Losses Bite
China Money Supply Growth Slows to Weakest Pace in Decade
China Affirms Property Curbs Amid ‘Grim’ Outlook
China’s Stocks Fall to Lowest in 33 Months on Economic Concerns

Reads to me like policy is moving back towards growth and ‘inflation?’

I don’t expect runaway inflation but enough to continue to fundamentally continue to weaken the currency.

China’s currency has been fundamentally weakened for the last couple of years, while being supported vs the dollar by foreign investment, speculation, and what looks to me like the indirect expenditure of dollar reserves. Should the currency starts falling against the dollar it will tell me those factors have run their course.

Hu Pledges More China Imports as IMF’s Zhu Sees ‘Soft Landing’
China’s Stocks Rise Most in 3 Weeks on Bank Loans, CPI Outlook
China’s Hu pushes for larger global role
Obama warns Hu of U.S. frustrations on trade
Major yuan rise no cure for U.S. economic ills-China’s Hu
China’s Imports Rise Sharply, While Export Growth Slows
China New Loans Rise More Than Expected in Loosening Signal
Former China Banking Regulator Says China 2011 Growth Above 9%
China’s economy on right track: IMF
IMF See Little Decrease in Incentives for Saving in China
Former PBOC Adviser: China’s Economy May Grow 8%-8.5% Annually Over Next 10 Years – Report
China’s Property Market Experiencing ‘Soft Landing’, Fan Says

Reads like the inflation problem was worse then most thought, and that a hard landing might still actually be happening. No way to actually tell in real time.

With China a first half/second half story, as previously discussed, January will bring a fresh slug of new govt. lending/spending that should at least moderate any fall that’s in progress.

However, if the anti inflation fiscal policies continue, and spending/lending is materially down from last year, the weakness should persist and potentially get a lot worse.

Property Prices Collapse in China. Is This a Crash?

By Gordon Chang

November 6 (Forbes) — Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.