Posted on 08/29/2010 10:23:09 PM PDT by JustTheTruth
China's Hayman declaration
30 Aug 2010
In most years something very memorable occurs at the Australian Leadership Retreat on Hayman Island. Last year the Chinese were stopped from attending because China discovered that the then Prime Minister Kevin Rudd would be in attendance. Rudd had fallen out with the Chinese leadership (Building bridges with China, September 1 2009).
In 2010 Rudd was not there and the Chinese came in force and some of their messages are still ringing in my ears.
By far the most dramatic was the declaration that China did not plan to buy any more US treasury securities or bonds. The person who made the statement does not make that decision, but he is closely connected to the China hierarchy. He explained that the $US2.5 trillion of China’s foreign reserves held in US dollars was burdensome because it limited the flexibility of monetary policy and any appreciation of the Chinese currency would cause loss. China would therefore not be a buyer of US dollars but would not sell. China would look to diversify its holdings and was a buyer of European and Japanese government bonds as well as other currencies.
A statement along those lines in more normal times would have seen the Hayman phones running hot to sell US dollars.
But at the moment the US dollar, as the world currency, is gaining considerable support from the Middle East and other areas. In addition China is looking to increase imports and to reduce its surpluses. But longer-term when the main supporter of a particular asset says that they will withdraw their continued support, the value of the asset will fall. If China follows through on the Hayman declaration it is not good long-term news for the US currency.
But the Chinese also had some special messages for Australia. In particular, the rise in iron ore prices has had a huge impact on China and so China wants long term contracts with price stability, which will protect Australia if there is a price fall.
The problem for Australia is, of course, that if we accepted a lower price now, would we really be insulated against a fall in later years?
The Chinese said at Hayman that Australia would be insulated, but in the light of the Stern Hu affair there is limited trust. Companies like Rio Tinto and BHP want to maximise current gains and BHP, in particular is pressing for market pricing – the reverse of what China seeks. The Chinese repeated that they wanted a long-term trade agreement with Australia and obviously the price of iron ore would be part of it.
Although Australia has approved the vast majority of Chinese proposals to invest in Australia, there is clearly a belief in China that we take an unrealistically tough view of Chinese investment.
We have always been proud of our democratic institutions but China took the Australian election as an example of the shortcoming in the Western democratic system. While emphasising that they did not want to be critical, they pointed to the cost of the system and the difficulty for governments in taking a long-term view. The message was clear – do not criticise the Chinese system.
It was also clear that there were some underlying difficulties in the Chinese economy. While China had sufficient land to feed the population there were problems with the supply of water, while those living in rural areas were paid at rates equal to about one third of those that were working in the cities.
It seems that China wants to cut unoccupied apartment prices by about 10 to 15 per cent and to achieve this the government developers to sell their stocks. China is undertaking all sorts of measures to force these dwellings onto the market at prices that buyers can afford. And this is one of the factors behind the fluctuations in the Shanghai composite index.
If China does reduce its housing prices, the Australian housing market will emerge as one of the few developed countries where house prices have not been corrected as part of the global financial crisis.
Meanwhile, the days of China growth rates approaching 10 per cent have gone. It creates just too many problems. We are going to see growth rates of around or a little below 9 per cent in the a years ahead. Eight per cent seems to be a floor.
Treasuries and other U.S. debt instruments will, at some point, be recognized as the junk bonds that they have become. If you're locked into anything not short-term, it is time to start thinking about your exit strategy before rates climb.
“The Chinese move slowly and steadily to secure their interests. Continuing to finance an unwieldy and unmanageable level of debt in the USA - so that individuals and governments can continue to live way past their economic means - is not in China’s interests, so they’re putting the brakes on that direction.”
Neither, though, is this action cost free for the chinese. The consumption of their goods in the US will surely go down... but our gravy train had to end sooner or later.
Assuming that interest rates will go way up, if you have a low rate fixed 30 year mortgage, that would be a good thing, not something you want to escape from. If you have a fixed interest deposit paying 1% though, that could be a problem.
Ah, Globalism.
This should be the lead news story on the MSM.....as it is, we will never hear about it.
I think this is just bluster. If the Chinese or any other country run a trade surplus with the US, that surplua of dollars has to spent on US goods and services. If they stop buying bonds, they will buy something else. Actually, I do not blame anyone for selling treasuries at their current prices they are very expensive and would be quite profitable for a lond term investor.
Banks back switch to renminbi for trade
http://www.ft.com/cms/s/0/182a2b70-b130-11df-b899-00144feabdc0.html
By Robert Cookson in Hong Kong
Published: August 26 2010 17:55 | Last updated: August 26 2010 17:55
A number of the world’s biggest banks have launched international roadshows promoting the use of the renminbi to corporate customers instead of the dollar for trade deals with China.
HSBC, which recently moved its chief executive from London to Hong Kong, and Standard Chartered, are offering discounted transaction fees and other financial incentives to companies that choose to settle trade in the Chinese currency.
No, it is all about debt and the ignorance of the American people that thinks they can have whatever they want as long as they can borrow to pay for it.
“....China would look to diversify its holdings and was a buyer of European and Japanese government bonds as well as other currencies.
A statement along those lines in more normal times would have seen the Hayman phones running hot to sell US dollars.
But at the moment the US dollar, as the world currency, is gaining considerable support from the Middle East and other areas.....”
So what’s he saying with the above, and then he states:”
But longer-term when the main supporter of a particular asset says that they will withdraw their continued support, the value of the asset will fall. If China follows through on the Hayman declaration it is not good long-term news for the US currency.”
So then he’s saying China as the “MAIN SUPPORTER”...well of course as our industry, our “assets” not all, but a substantial amount have shifted to China, but the Middle East is interesting for the Muslim situation isn’t it.
Sets head to spinning.
>Assuming that interest rates will go way up...
Interest rates going way up would be a huge nail in the coffin, affecting everything in the country.
> If the Chinese or any other country run a trade surplus with the US, that surplua of dollars has to spent on US goods and services.
LOL! Excuse the laugh - you owe me a keyboard.
Where on earth did you ever get that notion?
They can - and do - spend that surplus everywhere else in the world, particularly in the EU and parts of Asia where they are building quite a bit of clout.
.
FWIW, the PEOPLE have started to figure out that they can’t do that.
The GOVERNMENT, OTOH, that’s a different story.
Think again. How China's taking over Africa, and why the West should be VERY worried
Here is how one poster put it: "While China invests in businesses, energy, metals, cheap labor (???) we invest in food stamps, unemployment compensation, stimulus tax ‘credit’ checks, illegal immigrants, public sector unions, you can see where this is headed."
So if everything else is worse, you would rather be paying a higher interest rate on your mortgage? I agree that high interest rates are painful. I just don't agree with the article's advice about being locked in long term: "If you're locked into anything not short-term, it is time to start thinking about your exit strategy before rates climb." Maybe what the author was thinking was better than the way he expressed it.
” Here is how one poster put it: “While China invests in businesses, energy, metals, cheap labor (???) we invest in food stamps, unemployment compensation, stimulus tax ‘credit’ checks, illegal immigrants, public sector unions, you can see where this is headed.”
Right now, we are in self-destruction mode.
......The Chinese move slowly and steadily to secure their interests......
a growth rate of 10% is neither slow nor steady. The fact is capitalistic exuberance have created lots of problems. Last week we saw close up one such problem.
The explosion of interior business and trade produced such rapid growth in transport that the growth of infrastructure, roads and bridges, was unable to keep up. The need for road maintenance was overcome as well. The increase in traffic destroyed roads. The result was the mother of all gridlock as roads were closed for mandatory maintenance.
China as a nation experiences the same problems as any small business. In hard times one wonders how he will make it. In good times one wonders how he will ever marshal all the forces to keep up.
odd, the ChiComs sell us stuff, then use the money to purchase the debt the .Gov creates to keep the bread and circuses going, and yet it has nothing to do with Globalism?
Now that whole industries have relocated to China, where do you suppose that money comes from to purchase that massive amount of debt?
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