Category Archives: China

Re: Chinese stimulus

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(email exchange)

Yes, thanks, as expected!

>   
>   On Tue, Mar 17, 2009, at 8:47, wrote:
>   
>   Looks like China is interested in prosperity as well, just leaving the Europeans behind!
>   

Last November China announced a CNY4trn stimulus package. The first part of the money started to be spent at the end of February on a high speed rail network forming a triangle between Shanghai, Hangzhou and Nanjing, cutting travel times between the cities of up to 8 hours down to just 1 hour. Trains will run at upto 350km an hour – (do you realise the fastest train in the States is between New York and Boston, that for a 5 minute period only gets up to 80mph).


Overall the country will invest CNY600bn in railways this year, and a minimum of CNY600bn a year until 2012.


When you look at infrastructure projects on the ground like this, and combine it with the development in the local bond market (both local authority and corporate bonds), and the major international development with ASEAN +3 (free trade area next year plus the trial renminbi bloc), the economic and financial development with most of the former USSR in terms of the Shanghai Cooperation Organisation, and the push towards a free trade agreement with the Gulf Cooperation Council, is it really that difficult to see China achieving the 8% GDP growth target that it is aiming for?


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Obama on quality of US securities

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Obama Says Investors Can Be Fully Confident in US

by Kim Chipman and Alan Bjerga

Mar 14 (Bloomberg) — President Barack Obama said investors can have “absolute confidence” in Treasury bills as he sought to assuage China’s concern about the safety of its holdings of U.S. debt.

“Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the U.S.,” Obama said today at a press conference in Washington after meeting Brazilian President Luiz Inacio Lula da Silva.

Sounds a lot like all the other CEOs just before they defaulted.

This is embarrassing. Maybe some day we will have a president who can give the right answer-

The US government makes payment in dollars by crediting accounts at its Federal Reserve Bank.

This process is not inherently constrained by revenues.

The notion of solvency is inapplicable.

Chinese Premier Wen Jiabao, whose country is the single largest overseas owner of U.S. government debt, said two days ago that he was “worried” about holdings of Treasuries and wanted assurances that the investment is safe.

Take him to the Fed and show him how the debits and credits work.

The U.S. is counting on overseas purchases of its debt to finance Obama’s $787 billion package intended to help pull the world’s biggest economy out of a recession.

Federal spending is in no case inherently revenue constrained.

This kind of unanswered rhetoric perpetuates the myths that diminish our real standard of living.

Obama noted today that investment flows into the U.S. are rising. Total net purchases of long-term equities, notes and bonds increased to $34.8 billion in December, compared with net selling of $25.6 billion in November, according to a Treasury Department report last month.

This has nothing to do with solvency. Maybe some day we’ll get a president who understands that.

“I think it’s a recognition that the stability not only of our economic system but also our political system is extraordinary,” Obama said.

The main reason foreign governments accumulate USD financial assets is to keep their own real wages and standard of living down to drive exports to the US.

That’s a ‘good thing’ for us that Obama also doesn’t understand.

He said the private sector has helped make the country the world’s “most dynamic economy.”

OK, whatever ‘dynamic’ means in this context.

Lula, who presides over the world’s 10th-biggest economy, said he’s concerned that investor “flight” toward the relative safety of U.S. securities will mean there’s less money to invest in emerging economies.

He’s just ignorant about how the monetary system works.


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US assures China on debt quality

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A world gone mad!

When China’s US securities mature, the Fed debits their securities account at the Fed and credits their bank account at the Fed.

What’s the fuss???!!!

Treasuries Fall as Stocks Rise, China Comments on Debt Safety

by Susanna Walker

Mar 13 (Bloomberg) — The Obama administration sought to ease Chinese Premier Wen Jiabao’s concern about U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.

“There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said today.

Wen earlier said that China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” he said at a press briefing in Beijing.

Wen’s words contributed to a decline in Treasuries, before the losses were recouped. Yields on benchmark 10-year notes rose as high as 2.96 percent, from 2.85 percent late yesterday, and were at 2.87 percent at 3:17 p.m. in New York.

White House National Economic Council Director Lawrence Summers, asked today about Wen’s remarks, said overseas “confidence” in Treasuries would be hurt without the administration’s steps to end the economy’s decline.

President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of debt sales to fund a $787 billion stimulus package. China held $696 billion in U.S. Treasury debt as of Dec. 31, more than Japan’s holdings of $578 billion. The total foreign holdings of U.S. Treasury debt at the end of last year was $3.1 trillion.

Treasury’s Response

The Treasury also offered a response that sought to reassure investors.
“The U.S. Treasury market remains the deepest and most liquid market in the world,” Treasury spokeswoman Heather Wong said in an e-mailed statement. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long- term deficit in half over the next four years.”


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China News Highlights

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Looks like they are showing signs of having bottomed as well, and continue to push demand with fiscal adjustments to sustain employment?

The post Olympic lull also contributed to the Great Mike Master’s Inventory liquidation which seems to have run its course by late December.

Highlights

China Textile Industry Lobbies for Higher Export Rebates, Loans
Standard Chartered says China’s stimulus spending could top 5 tr
Yi Says Chinas Rapid Loan Growth Is Positive ‘Overall’
China First-Quarter GDP to Rise 6.5%, CPI to Drop, Journal Says
China Has Little Room to Cut Rates, Central Bank’s Yi Says
China Unlikely to Maintain Rapid Loans-Growth Pace, Wu Says
China predicted to become world’s No 2 economy by 2010
China has room to further cut interest rates


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Re: “The 7 Deadly Innocent Frauds” DRAFT comments

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>   
>   Here are some comments — this was interesting reading, and I do think it
>   makes sense on strictly a macro level (which is obviously what he’s going for).
>   

yes!

>   
>   #1 explanation is interesting, especially regarding the example of parents and
>   children with coupons. I do feel, however, that the author doesn’t give much
>   consideration to the inflationary results of the ‘govt check don’t bounce’ thesis
>   (I’m referencing the debate the author describes at the Australia conference).
>   While it’s probably true, I do think inflation has a material impact (at least at
>   the micro level, which I suppose isn’t really the point of this article).
>   

Right, the point is inflation is the issue, not solvency or sustainability. But critics of deficit spending never even attempt to quantify the inflationary aspect.

Instead, they seem to focus on ‘money supply’ for their inflation forecasting and ‘inflation expectation’ issues, both of which are not causal, but that’s another story.

>   
>   Under #2, I think the rhetoric about do we have to send goods and services back
>   in time to pay for historical debt is a red herring and not applicable (and I’m not
>   surprised the Senator couldn’t really say much about it off-hand while his wife ‘got
>   it’). It’s the debt servicing that people worry about, and that is in current terms
>   (no time machine required). However, the thesis of gov’t checks not bouncing
>   speaks to how the debt can be serviced.
>   

yes, and that distribution is entirely in the hands of the living who are in no case ruled from the grave.

>   
>   Paying off China — to book a Treasury Note sale, the gov’t on its own books would
>   debit cash (for the receipt)

yes, and the Tsy’s account at the Fed is debited. right now we have a self imposed constraint that says the tsy’s balance at the fed can’t be negative.

but that is not an operational constraint, just a self imposed constraint

>   and credit the liability (to book the obligation).

again, via the Fed.

>   The buyer’s accounts mentioned wouldn’t really be booked by the gov’t I don’t think,
>   but I get the point.

the buyer’s funds go to the fed where they are ‘accounted for’ as owning the securities.

>   
>   #3 and #7 go together in what is really being discussed is the use of leverage
>   (spending more than what you have). As long as the discussion stays at the macro
>   level, that’s fine as the gov’t can just keep printing money (again, ignoring any effects
>   of inflation).
>   

and by printing you mean simply ‘spending’ as that’s all there is- changing numbers on bank accounts. using the word ‘printing’ rather than ‘spending’ is used by the mainstream to color thinking in a fixed fx direction that no longer is applicable.

>   
>   But, it is quite a slippery slope to intertwine micro-level examples such as a hybrid car
>   factory and such as once you leave the gov’t level, leverage can have catastrophic
>   results (see the current deleveraging in the economy and how that’s affecting people on
>   a micro level). All this is fine as long as you have no monetary constraints, but for anyone
>   with no access to a US$ printing machine, it falls apart.
>   

Included with my 3 current proposals to reverse the current situation is the govt funding an $8 hr job for anyone willing able to work.

The other two are a full payroll tax holiday and $300 billion to the states on a per capita basis with no strings attached. Together they restore demand, output, and employment.


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China News Highlights

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Looks to me like they are serious about spending their way to 8% growth.

Particularly with their heads on the line, or worse.

We can’t seem to agree on same without being forced into it by a major war.

Highlights

China Says 8% Growth Within Reach Using $585 Billion Stimulus
China Exporters Blame Yuan in ‘Life and Death’ Crisis
China to Boost Commodity Imports, Increase Stockpiles
China to ‘Significantly Increase’ Spending, Wen Says


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China’s domestic demand firming?

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As I’ve said for a very long time, the last thing we need is a billion new consumers in the world competing for resources.

But by failing to unilaterally sustain domestic demand at a time when the rest of the world wants to export to us, we are causing exactly that to happen.

It’s still not too late as China remains leveraged to exports, but that will change if that channel remains closed.

China Manufacturing Index Rises on Stimulus Spending

by Li Yanping and Nipa Piboontanasawat

Mar 4 (Bloomberg) — A Chinese manufacturing index climbed for a third month, adding to evidence that a 4 trillion yuan ($585 billion) stimulus package is pushing the world’s third-biggest economy closer to a recovery.

The Purchasing Manager’s Index rose to a seasonally adjusted 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A reading below 50 indicates a contraction.

Stocks rose after output and new orders expanded for the first time in five months. Chinese Premier Wen Jiabao may announce extra measures to reverse the nation’s economic slide at the annual meeting of the National People’s Congress starting in Beijing tomorrow.

“There are more noticeable signs that China’s economy is bottoming out,” said Zhang Liqun, an economist at the State Council Development and Research Center.

The Shanghai Composite Index rose 2.4 percent as of 10:47 a.m. local time.

While manufacturing contracted for a fifth straight month as the worst financial crisis since the Great Depression cut exports, the PMI is up from a record low of 38.8 in November.

Surging loans, growth in retail sales in January, and an increase in electricity output and consumption from the middle of last month are signs that government measures have shown “preliminary results,” according to Premier Wen.

Recovery ‘Very Likely’

A recovery in the first half is “very likely,” central bank Vice Governor Su Ning said yesterday.

Industrial-output growth in January and February may be higher than in November and December, Zhang forecast. Still, he cautioned that “seasonal factors” may have boosted the output and new-order indexes, which could fall again.

“The government’s stimulus investment has finally started to take effect,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “However, a recovery may be short-lived as export demand may get worse in the second half and the outlook for consumption is uncertain.”

The manufacturing index likely got a boost from factories resuming production after a Chinese Lunar New Year holiday in January, Xing said.

The output index jumped to 51.2 from 45.5 in January and the new-order index climbed to 50.4 from 45.

Export Orders

A measure of export orders rose to 43.4 from 33.7. The employment index rose to 46.1 from 43, the first increase in six months.

The premier may unveil a record 950 billion yuan budget deficit for this year to cover government spending on the economy and welfare, according to the China Business Journal and Wen Wei Po newspapers.

The slowdown has triggered speculation that the government will increase the stimulus package announced in November. An unidentified planning-agency official said today that more will be spent, Reuters reported.

Officials have indicated 8-10 trillion yuan of “government-sponsored investment” is possible, Stephen Green, Shanghai-based head of China research at Standard Chartered Bank Plc said yesterday.

A separate purchasing managers’ index, released on March 2 by CLSA Asia-Pacific Markets, showed manufacturing contracted for a seventh month in February.

“Manufacturing activities may only start to recover from March after more projects break ground in spring,” said Sun Mingchun, an economist at Nomura Holdings Ltd. in Hong Kong. “Economic growth may start to pick up from the second quarter onwards.”

Steel Glut

A glut of steel at ports in China, the world’s biggest maker of the alloy, shows mills were too quick to boost output on expectations the stimulus package unveiled in November would spur demand, according to Bank of Nova Scotia.

Steel stockpiles at Shanghai’s main port have jumped 44 percent this year to 2.1 million metric tons on Feb. 27, the highest since Bloomberg began compiling the data in June 2006.

While China’s economy is the only one of the world’s five biggest still expanding, the pace has slowed for six straight quarters. Growth in the three months through December was 6.8 percent from a year earlier, the smallest gain in seven years. That compares with a 13 percent expansion for all of 2007.

Tongling Nonferrous Metals Group Co., China’s second- biggest copper smelter by output, said Feb. 27 that profit tumbled last year after prices slumped in the fourth quarter.

Lenovo Group Ltd., the world’s fourth-biggest personal- computer maker, said Feb. 25 that it will cut 450 jobs in China to reduce costs after demand fell in the U.S. and China.

20 Million Jobs

China’s government said last month that 20 million migrant workers had lost their jobs because of the slowdown.

Jia Qinglin, a member of the Communist Party’s Politburo, urged a “vigorous employment policy” in his speech yesterday at the opening meeting of the Chinese People’s Political Consultative Conference.

“China will pick up in the second half of this year as the stimulus package” begins working, Vivek Tulpule, the chief economist at London-based Rio Tinto Group, said yesterday in Canberra, Australia. Rio is the world’s third-biggest mining company.


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China to bolster oil reserves

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It’s not a lot but seems private inventories are low and were probably liquidated in the last 6 months.

China to bolster oil reserves

by Sun Xiaohua

Mar 2 (China Daily) — China is accelerating the build-up of its oil reserves to avoid the economic dislocations the country suffered in 2008 from fluctuations in the world oil price.

China’s National Energy Administration (NEA) recently released a plan to build nine large refining bases in coastal areas over the next three years, sources with the China Petroleum and Chemical Industry Association said last week.

The plan involves building three 30-million-ton refinery bases in three cities (Shanghai, Ningbo and Nanjing) in China’s economically dynamic Yangtze Delta and six 20-million-ton bases in other coastal areas from Tianjin in the north to Guangzhou in the south. It will also facilitate major joint-venture refinery projects between Chinese companies and partners from oil-producing countries such as Venezuela,Qatar and Russia.

The refinery scheme is part of China’s plan to bolster its oil inventories. The NEA announced at a national energy conference in early February that China will, in addition to the current four strategic petroleum reserve (SPR) bases, build eight new ones by 2011. The program will increase China’s strategic crude reserve capacity to 44.6 million cu m, or 281 million barrels.

The country will also increase its refined oil reserve to 10 million tons by 2011, a source familiar with the stockpile plan told China Daily in February.

“China’s attentiveness to its oil reserve capacity has grown in tandem with its rising dependence on imported oil,” said Pan Jiahua, an expert with the Chinese petroleum society.

China, the world’s second largest oil consumer, relies on imports for about half of its oil needs. It imported 178.9 million tons of crude oil in 2008, up 9.6 percent from the previous year, according to the National Development and Reform Commission.

But China cannot simply take advantage of attractive prices and store as much oil as it wants because its current reserve capacity is not commensurate with its energy appetite.

Customs statistics shows China’s crude imports in January even fell 7.99 percent year-on-year. A slowing economy bears most of the blame but analysts said the country’s limited capacity also played a role.

Zhao Youshan, head of the petroleum distribution committee of the China General Chamber of Commerce, an industry group, recently submitted a proposal to oil-related government agencies, calling for using tanks controlled by private companies to store more cheap oil.

Zhou said in his proposal that China’s more than 600 private oil companies have 230 million tons worth of storage tanks, almost ten times the capacity of the eight new SPR tanks combined.

China has massive private oil storage facilities, built up by oil companies since China opened its oil markets to private operators in the mid-1990s. But State companies, mainly China National Petroleum Corp (CNPC) and China PetroChemical Corp (Sinopec), basically control oil-importing licenses and hundreds of private oil distributors and refiners are currently sitting on empty tanks.

Zhou said in his report that the industry slump last year has left many private oil companies broke and that some of the survivors are struggling with the high maintenance cost of empty tanks.


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Cruzan confusion

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Transcript from a local meeting with our non voting representative to Congress. Must be the Democratic Party’s script:

Christensen: Stimulus Will Help, But Won’t Solve All Problems

by Carol Buchanan

Feb 19 (St. Croix Source) — “In her presentation she mentioned that the money for the stimulus package would be borrowed and the first question from the audience was “Who was the money to be borrowed from?”

Much of the U.S. debt is already financed by China through the sale of federal securities such as Treasury Bills, and Christensen assumes that nation will also be the purchaser of new securities floated to finance the stimulus.

That answer was immediately followed by the question, “What if China cuts us off?”

Christensen said that, from what she has heard and read, China and Japan and other nations who purchase United States securities, financing the debt, would not cut off the United States because the United States would then be unable to buy their products. It is in China’s interest for the U.S. economy to be strong enough to buy the goods it produces.”


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Clinton Urges China to Keep Buying U.S. Treasury Securities

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We don’t need China or anyone else to buy our securities to finance our stimulus plan. And acting like we do and going on the defensive like this is radically counterproductive at best.

And isn’t she pledged on record to helping US jobs rather than increasing exports? Yet here she’s pushing the notion that China should buy our bonds to help us resume buying their imports?

The informed position is to first recognize that imports are real benefits and exports real costs, and therefore we benefit by foreigners net saving $US financial assets of any type, as it allows us the benefit of more imports and improved real terms of trade.

And this is what happens when you are hopelessly out of paradigm:

Clinton Urges China to Keep Buying U.S. Treasury Securities

by Indira A.R. Lakshmanan

Feb 22 (Bloomberg) — Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama’s stimulus plan, saying “we are truly going to rise or fall together.”

“Our economies are so intertwined,” Clinton said in an interview today in Beijing with Shanghai-based Dragon Television. “It would not be in China’s interest” if the U.S. were unable to finance deficit spending to stimulate its stalled economy.

The U.S. is the single largest buyer of the exports that drive growth in China, the world’s third-largest economy. China in turn invests surplus earnings from shipments of goods such as toys, clothing and steel primarily in Treasury securities, making it the world’s largest holder of U.S. government debt at the end of last year with $696.2 billion.

China’s leaders understand that “the United States has to take some very drastic measures with the stimulus package, which means we have to incur debt,” Clinton said. The Chinese are “making a very smart decision by continuing to invest in Treasury bonds,” which she called a “safe investment,” because a speedy U.S. recovery will fuel China’s growth as well.


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