BRIC+ News & comments

[Billy T]

At http://www.chinadaily.com.cn/video/2012-04/12/content_15035649.htm is a 30 minute interview (English sub titles) of Wei, telling about his 40 years (20 of them in Africa, almost every Arfician country) working to build Chinese African trade and social assistance. (For last three years, China has displaced the US as Africa´s main trading partner.)

Here are some quote from the associated article at http://usa.chinadaily.com.cn/weekly/2012-04/13/content_15036676.htm

“…Wei, China's former deputy minister of commerce and current secretary-general of the think tank China Center for International Economic Exchanges, is committed to promoting China-Africa trade cooperation. … "The most encouraging thing in my 40 years of service was to see Sino-Africa economic and trade cooperation develop by leaps and bounds." … the value of China-Africa trade had increased from just $1 billion (0.77 billion euros) a year in 1980 to $126.9 billion in 2010, and will reach $300 billion in three to five years, Wei predicts.

But China's relationship with Africa is about much more than trade:
"We have offered sincere economic assistance within our own capacity to African countries without any political conditions, and that aid is in line with the needs of Africa and its people. "We are helping African countries build capacity for self-development by training local people and sharing technologies with them, and encouraging Chinese enterprises to invest in Africa to increase employment, all of which local people welcome.
"African people feel that China's aid to them is sincere, and many of them look on us as 'Chinese brothers'."

Billy T comment:It is not just the economic war China is winning - It is winning the war for hearts and minds too. That is a little easier for China, as it too was exploited, not doing the US / European exploitation of the third world for 250+ years.

 

[Billy T]

"... {Gasoline prices in China} rose by as much as 5.8 percent today {7April12} … China last increased fuel tariffs by as much as 4.6 percent on Feb. 20. … After today’s adjustment, gasoline in China will retail at $1.05 a liter on average, according to Bloomberg calculations based on prices set by the NDRC for the country’s provinces and regions. That compares with $2.17 a liter in the U.K. and 97 cents a liter in the U.S. …” {As I recal, 3.7L = 1 gallon, so US gasoline must be about $3.60/ gallon now, on average.}

From: http://www.bloomberg.com/news/2011-...ase-fuel-retail-prices-starting-tomorrow.html

China was losing ~$10 per barrel it refined. Now only about $2 per barrel. (as I recall there are about 50 gallons in a barrel so China still has a small (~4 cent/gal) subsidy on gasoline.

Interestingly, the shale oil from Canada, mainly goes to the gulf coast refineries, but will not reduce US gas prices. Keystone EX pipeline would increase the amount, but it too would mainly be shipped to China.

US with its history of stable govenment has much more refinery capacity than it needs for US gasoline demands, which are actually decreasing as average MPG goes up and poor economy has nearly ended "just joy riding around". Refined product is a major and growing US Export. Also many US refineries, not on the ocean, are shut down. Natural gas, now at less than $2/ million BTUs, is not encouraging to the refinery owner´s long term prospects either.

Delta Airlines will probably buy a closed refinery in PA and thereby try to hold down its fuel cost by making its own. If not near a ocean port, owning a US refinery is not a good investment. Delta is expecting a good deal.

 

[Billy T]

"... Mei Xinyu, a senior researcher at the Ministry of Commerce, said the $12.7 billion increase in US Treasury holdings should not be considered as a net increment but a "reconstruction" of the foreign reserves that involved shifting some investment in euro-denominated debt to US Treasuries.

The gain in China's holdings was the second monthly rise in a row, after an overall reduction of $163 billion in the second half of 2011. The increase in US Treasury holdings came as China's trade surplus continues to shrink this year, having an overall quarterly trade surplus of just $900 million.... "
From: http://usa.chinadaily.com.cn/business/2012-04/18/content_15075788.htm

BT comment: A less than 8% reversal of the 163 billion net sold in 2H11 might be mistaken as a change in China´s policy to spend its dollar assets for real assets. That is why Mei Xinyu made the comments he did. I agree. China has long planned to reduce it dollars in reserves, and not just as a percentage, but in absolute face values (even more in pruchasing power, as dollar declines). China has greately stepped up buying of oil and minerals and even gold recnetly.

But it is not just raw material and energy resources China is spending its surplus of dollars on:

"... Shen Danyang, spokesman for the Ministry of Commerce said many developed and developing nations are searching the world for capital that can be used to spur their economies and, as a result, are welcoming {direct } investment from China. ... China's outbound investment in non-financial sectors increased by 94.5 percent in the first quarter from a year earlier, rising to $16.55 billion, the ministry said on Tuesday at a media briefing, without disclosing figures for particular regions.

Of all Chinese outbound direct investment in the first quarter of 2012, about 40 percent, worth about $6.2 billion, went into mergers and acquisitions.
"China's outbound direct investment may continue to increase rapidly this year," Shen said. "But we probably cannot expect to see growth that is as high as 100 percent, {YoY} as we saw in the first quarter, be sustained." ... "

From: http://usa.chinadaily.com.cn/business/2012-04/18/content_15075676.htm

Below is photo of production in Hung Yen province, Vietnam factory which China now owns. China is building the economies of other Asian countires as soon will trade mainly with them, not the brankrupt US & EU as they will not need loans from China with which to buy Chinese products:

Wages in China have increased so much that now China must "outsource" labor intensive tasks and even so, unlike the US, China has a labor shortage, forcing wages even higher (~10% real annual increases)! In a few days this photo may only be seen at above link as China Daily prevents long term uploads of photos.

 

[Billy T]

China´s switch from export to domestic market economy is now more than half done (faster than I predicted years ago):

Domestic sales grew (YoY) 14.8% in 1Q12 alone! verse 0.8% growth for the US´s domestic sales.

The domestic market is now 60% of total GDP. Net exports (and FDI) is only 2.4% of GDP, down from 10.1 only four years earlier*

Data from this video: http://www.uncommonwisdomdaily.com/14116-14116?FIELD9=2

*Not in the video, but as I recall China actually had two months in 2011 with trade deficits; one was due to important holiday that closed factories and ports and may have increased imports (as presents). I think China is now one of the largest, if not the largest, buyer of fine wines (> $250 per bottle) and > $100,000 works of art.

 

[quadraphonics]

The domestic market is now 60% of total GDP.

So you're apparently still on your tactic of lumping together consumption and investment to overstate Chinese domestic demand, eh?

That, or you simply mis-quoted a statistic about GDP growth as one about GDP.

 

[Billy T]

So you're apparently still on your tactic of lumping together consumption and investment to overstate Chinese domestic demand, eh?

That, or you simply mis-quoted a statistic about GDP growth as one about GDP.

No, Clearly you did not visit the link I was quoting from. I returned there and paused it, so can quote exactly the caption that appears:

"China´s domestic spending now accounts for 60% of the GDP growth" Immediately after that appears, the speaker says :"China has transformed itself from an export to a consumption driven economy." You are correct, however, that the 60% figure referres to GDP growth, not total GDP. The speaker next statement about China having transformed itself into a "consumption economy," made me less careful than I should have been.

As you well know the GDP growth was dominated for years by infrastructure building. For several years purchasing power of salaries has had real low double digit growth, more than half of all Chinese live in cities, and their out of pocket medical cost have been cut in half (from 2/3 of the cost to1/3) - that releases a lot of buyng power - why China now has more than half the world´s pigs eating a a lot of imported corn etc. as pork the their favorite meat (fish excluded).

 

[quadraphonics]

No, Clearly you did not visit the link I was quoting from.

Actually I did. That's why I speculated that you were misquoting a stat about growth.

As to the site you linked to: it's a borderline-unreadable mess, and has a distint air of crankiness.

"China´s domestic spending now accounts for 60% of the GDP growth" Immediately after that appears, the speaker says :"China has transformed itself from an export to a consumption driven economy." You are correct, however, that the 60% figure referres to GDP growth, not total GDP. The speaker next statement about China having transformed itself into a "consumption economy," made me less careful than I should have been.

Here's an interesting suggestion: why don't you look up how much of GDP growth has been attributed to consumption each year, going back to (say) 1980. I.e., if this 60% figure is supposed to impress us as a sure sign that Chinese consumption is becoming dominant, then we should see much smaller figures in past years, no?

But, I don't think we will see that. In fact, I think we'll see that consumption has always accounted for a big chunk of growth (it would be almost impossible for the situation to be otherwise), and that its main competitor for the lion's share of growth has always been investment and not exports.

The point being that "export led economy" never implied "exports account for most of the GDP growth." And so pointing out that exports aren't a particularly huge portion of gdp growth doesn't demonstrate that a country isn't an "export-led economy. " Nor, for that matter, does showing that consumption represents the lion's share of gdp growth - that is also normal and expected in "export led economies."

As you well know the GDP growth was dominated for years by infrastructure building.

Do I know that? Have you actually looked at the graphs? Infrastructure has been fairly volatile, in fact: in some recent years it's been huge (basically stimulus to paper over the global economic downturn). In years farther back - when China was indisputably in export-led mode - it was all over the place: a major component of growth some years, and a small piece of the pie in others.

The basic point being that your approach of trumpetting cherry-picked numbers from one point in time - with no context - and claiming that is definitive evidence of some major trend, is ill-posed. You should be providing charts that show the actual trends over useful time scales. And paying less attention to crank sites that exist to tell you what you want to hear about China.

For several years purchasing power of salaries has had real low double digit growth,

And since the GDP was growing at high double digits during that time, that growth rate amounted to a contraction of household income as a share of GDP - the telltale sign of an export-led economy. It will take several years of "rebalancing" towards consumption for it to regain the share of GDP that it had as recently as the late 90's (which time was itself almost 2 decades deep into an export-led growth phase).

The point being that China has spent so long driving up the share of investment and exports in the GDP that, by now, pretty much any non-suicidal economic policy is guaranteed to increase consumption's share. The resulting increases in consumption don't indicate that China has emerged as a consumer economy - quite the opposite: they indicate that they've maxed out their ability to suppress consumption, and now must unwind their industrial policy and allow consumption to recover. It will take 10+ years of that process to result an actual consumer economy.

Short story: you're way off when you say that China's transition to a consumer economy is "more than half done." In fact, it's only just now started in earnest.

 

[Billy T]

By edit next day:
Front page of 28Ap12 Estatdo de S. Paulo, (Probably most widely read newspaper in all of South America) has graph and main headline that translates as:
"Infant Mortality falls 47.5% in Brazil." From the graph covering five decades, deaths prior to 1 year per 1000 live births were 131.2 in1960, 29.7 in 2000 and in 2010 were only15.6, which is still at least twice EU, Canada & USA´s rate, but a huge improvement and fast made. (47.5% drop in last ten years!)

Perhaps the Bolsa Familia program should be expanded (now monthly payment for keeping kids in school, vaccinated, etc.) to give about $50/ month to pregnant woman who goes to the free health care system clinics for pre-natal care, check-up, every two months. Few in rural areas get any now.


An update on Brazil:

"... One of Brazil's most favorable characteristics is a strong banking system that didn't fall prey to the so-called "innovation” known as loan securitization and derivatives. This extravaganza nearly destroyed developed economies but is largely absent in emerging markets such as Brazil. ... The Brazilian economy has been run in a characteristically sober fashion for the past 10 years, especially when compared to its Latin American peers. Brazil was a no-show at the credit-expansion and easy-money party of the past decade.*

Brazil's net public debt as a percentage to gross domestic product (GDP) peaked at about 63 percent in 2003, and reached a low of about 35 percent in 2008. Currently the figure stands at about 37 percent of GDP and should continue to fall to 2008 levels this year.

Brazil took advantage of the recent commodity boom to accumulate vast amounts of foreign reserves. Brazil now holds about USD352 billion in foreign reserves in its coffers, funds that can be used to support the economy amid periods of high capital outflows. These foreign reserves can also be deployed as needed to pay down debt.

Brazil doesn't face an imminent deflationary cycle as the country boasts strong employment and credit growth. Although inflation is manageable, it remains a red flag.

Unemployment of 6 percent is close to historical lows and represents a sharp reduction from the unemployment rate of 13 percent in 2003. Meanwhile, the country's minimum wage for workers and retirees was recently boosted by 14 percent to USD350 per month. By contrast, the country's official poverty line is demarcated at a monthly wage of about USD40.** ..."

Quote from 4/26/2012 Email: "Bullish on Brazil" by Yiannis G. Mostrous of Investing Daily

* That may take the prize as most understated claim this year. Brazil still has a basic interest rate of 9%, down several percent from 13% of a few years ago to stimulate economy as European (and even Asian demand has fallen). Nothing like the FED controlled US near zero rates. Fortunately, Brazil´s economy is what China wants - mainly domestic consumption. Exports make up about 12% of GDP (11% last time I saw the data).

** This plus the the very successful, nearly 10 years old, "bolsa familia" (monthly transfer of wealth to the poor IF they keep their kids in school until age 18 and they get all of their needed free vaccinations ) has moved millions into the cash economy and nearly paid for itself via the taxes on the multiplier effect as they now buy in stores, etc. Brazil´s lowest economic class (E, A being the highest) may soon be almost empty. The middle & near middle classes C & D are growing. Classes are define by complex index that includes things owed (car or not, etc.) as well as income.

 

[elte]

Brazil apparently still has a favorable amount of available natural resources compared to its population size. Prudent economic management has been crucial in the country's good economic health, too, for sure.

 

[Workaholic]

An article discussing Labor in China and the USA

The US Labor Movement and China

http://www.counterpunch.org/2012/04/27/the-us-labor-movement-and-china/

Excerpts:

Notwithstanding this dismal situation for labor rights in this country, the U.S. labor movement is fixated on vilifying China and its human and labor rights situation as a cover for protecting U.S. workers from competition from albeit much lower paid Chinese workers.

The master of ceremonies (MC) who led the discussion for the U.S. trade unionists – a quite typical labor leader who harbors profound anti-Chinese resentments — met in advance with all of us who would be attending the meeting to go over the ground rules, the primary rule being that, notwithstanding the shortcomings we know to exist in U.S. labor law, we were not to share those openly with our Chinese visitors lest they go back home and use this as propaganda against us.

These facts are undoubtedly inconvenient, for they underscore how the U.S. labor movement is not so different from the caricature it has painted of the official labor movement of China. Thus, while U.S. unions criticize the Chinese labor movement, known as the All-China Federation of Trade Unions (ACFTU), as being government-captive and controlled, the AFL-CIO itself can be similarly critiqued.

Meanwhile, the fascinating fact we discussed about China is the unprecedented strike and protest wave occurring throughout that country and being led by workers – 90,000 of such “mass incidents” taking place last year alone. And, as the labor professors from China explained, much to our surprise, these strikes are being led by workers with no unions at all, are indeed uncoordinated (leading our MC to candidly compare these strikes to those in the U.S. which were led by the Wobblies in the 1920’s), and are being tolerated by both the Chinese government and the ACFTU. The result of this is an increase in wages for workers in China. We also discussed, quite ironically, that if, as the labor professors do in fact desire, China adopts some type of U.S.-style labor law, it will be done for the very reason that the U.S. government and employers acquiesced to our labor law in the first place – because it will lead to “industrial peace” and quell the strike wave now impacting China.

In other words, China needs a U.S.-style labor law, the argument goes, in order to control its workers better and to obtain the type of compliant and acquiescent work force we see in this country – a workforce which continues to see its standard of living drop further and further with barely a peep in response.

Comment: The above seems to support the theory that China is indeed moving rapidly towards a domestic economy by allowing rapid increases in personal income. While I can't say I've witnessed any strikes or work riots in my time in China (past two months I have been part of the hiring team here), I can say that salaries are indeed increasing rapidly as well as Chinese consumption (iphones, clothes, high class food, etc.) Another thing that is increasing is spending on Social Safety nets (insurance, retirement funds etc.) The Chinese government has been increasing these amounts (the amount the companies have to put in per worker) every few months or so.

 

[Billy T]

... I can say that salaries are indeed increasing rapidly as well as Chinese consumption (iphones, clothes, high class food, etc.) Another thing that is increasing is spending on Social Safety nets (insurance, retirement funds etc.) The Chinese government has been increasing these amounts (the amount the companies have to put in per worker) every few months or so.

Yes.I said the same:

... For several years purchasing power of salaries has had real low double digit growth, more than half of all Chinese live in cities, and their out of pocket medical cost have been cut in half (from 2/3 of the cost to1/3) - that releases a lot of buying power - why China now has more than half the world´s pigs eating a lot of imported corn etc. as pork the their favorite meat (fish excluded).

But it is the Chinese elite that is really “living high on the international hog”

“… Philip White, president and chief operating officer of Sotheby's International Realty Affiliates LLC, a luxury property broker, says that during the past five years international buyers have increased to around 20 percent of the total transactions Sotheby's closed. While the motivations of these buyers vary, the strength of their home-country currencies against the US dollar is a key factor because it makes purchases relatively inexpensive, White says.

International buyers prefer properties in metropolises such as New York, Los Angeles, San Francisco and Miami, brokers say. For instance, Brazilians tend to congregate in South Florida, while Chinese customers seek properties in the Bay Area. "The city is closer to China, the weather is warmer and there is a large established Chinese community," White says of San Francisco. "I guess that's why Chinese investors flock to buy properties there."

New York City's priciest borough is another favorite for Chinese buyers, Tsao says. "Many of my customers are purchasing properties because their children will be attending school in the city. Most of them are attending Ivy League schools on the East Coast. So a property in Manhattan is an ideal situation for them." Chinese buyers are looking for good quality and are willing to pay a fortune for it, brokers say. The properties they seek are spacious and costly, typically exceeding $1 million. …”
From: http://usa.chinadaily.com.cn/weekly/2012-04/27/content_15155111.htm

The idyllic Laulan Ducos, a medieval-style chateau, with surrounding vineyards that produce wine was the latest addition to Shen's business empire comprising of more than 300 jewelry stores. - the 22-hectare chateau in Bordeaux seemed a priceless investment and a natural addition to his new wine business, rather than being just an expensive holiday home. {One of about 15 French chateaus rich Chinese have bought in the last five years}

Data provided by the International Wine and Spirit Research shows that China surpassed Britain as the world's fifth-largest wine consumer last year, with annual consumption set to surpass 250 million cases (12 750-milliliter bottles a case) by 2016.

Apart from the wine trade, the French chateaux are also turning out to be perfect holiday homes for the well-heeled Chinese who have been adding luxury cars, designer clothes, high-end accessories and private yachts to their shopping baskets in the last few years.
“… China is the largest importer of wine from Bordeaux and domestic consumption of the beverage is believed to have soared by nearly 110 percent last year. Dong says that most of the French vineyards that are up for sale have price tags ranging from 3 million euros to 20 million euros. …”

From: http://usa.chinadaily.com.cn/weekly/2012-04/27/content_15155107.htm PS if photo is no longer posting go to this link to see Shen's chateaux. (China Daily usually blocks up-load of photos after a few days.)

Napeolian was right: “When the dragon awakes, the world will shake.”

 

[kmguru]

Two items from Business-week...

http://www.businessweek.com/articles/2012-03-01/india-miracle-interrupted

http://www.businessweek.com/articles/2012-04-25/indias-growth-story-dims-on-s-and-p-downgrade

 

[Billy T]

"... While some other fast-developing countries such as China struggle to switch from an export-led to a consumption-based growth model, Indonesia is ahead of the game: Consumer spending accounted for 55 percent of gross domestic product in 2011; the comparable figure for China in 2010 was 35 percent. ..." From: http://www.bloomberg.com/news/2012-...-china-as-middle-class-consumption-soars.html

BT comment: probably true but considering how much bigger the Chinese GDP is, the annual increases in domestic sales in China are at least 4 times larger than in Indonesia. It is not easy to make big percentage changes in your GDP when your´s is world´s second largest.

 

[Billy T]

I posted the fact that more than half of the world´s pigs live (and die) in China in old post 365 of this thread. Here is more modern "pig data":

"... Nowhere is China’s growing love of meat more evident than in pork. Here are some fascinating facts ...

Three-fourths of the meat that China consumes is pork, and its pork consumption should hit 52 million tons in 2012 — far, far ahead of the 8 million tons consumed in the U.S.

Half the world’s pigs — 476 million — live in China. Historically, the Mandarin symbol for a house in China was a roof with a pig under it.

You know that the U.S. has a strategic petroleum reserve. Well, China is building one, too — AND it has also created something we don’t have, a strategic pork reserve.
That’s where pork is stored against the calamity that the pork supply runs short in China … the better to stave off potential riots sparked by pork shortages. ..."

From: http://www.uncommonwisdomdaily.com/are-you-ready-to-go-hog-wild-for-profits-14165?FIELD9=2

And China´s people are rapidly moving "high on the hog" compared to US which is switching to "franks and beans."

15 months old data.
Bar chart is from my post at: http://www.sciforums.com/showpost.php?p=2677836&postcount=365

Note the current 476 million pigs vs the earlier 400+ million data, means China is adding almost more pigs EVERY YEAR than exist in the USA! (but don´t dispare: - Americans are eating increasingly more franks and beans at rate of increase that China cannot match. )
Here is why at least some US farmers will have jobs during the coming depression (If Brazil does not under cut their soy price):

 

[quadraphonics]

The average home price in US is $146,200 per sq foot.

LOL what? No, it's $146,200 per house. The per-area number is $92 per sq. foot.

Your number there would imply that the average US house costs around $300 Million. Surely you recognize that such is ludicrously incorrect, on its face?

So Average US home costs more than 15,000/m^2 or about 7 times more than the average of the 10 most expensive cities in China.

No, that's totally wrong. The per-area cost of the average US home is well less than half the per-area cost of the Chinese properties in question.

If you compare the biggest, most expensive cities in the USA (NYC, LA), the per-area cost becomes similar to the numbers for the most expensive cities in China.

If compared to the average home price in China´s 100 largest cities US homes are about 15 times more expensive.

That's also surely false, because of the same mistake of confusing the per-area price in the US with the total price, but I don't see where any data on prices in China's 100 largest cities was provided.

Because US homes have lost about 30% or more of their value, just this loss would fully pay for five new average Chinese homes!

Nah, also false.

 

[Billy T]

To Quadraphinics

Thanks for the correction. Yes I quoted from two different sources and failed to note one was house prices, not per sq meter, etc. so I have deleted that confused post.

 

[Billy T]

Brazil is starting to fight back against US´s currency war. I.e. do what US has been doing for more than a decade in part because making the dollar drop in value is only way the US can pay off the growing fixed dollar amounts of debts and in part to help US exporters (at the expense of exporters in more responsible countries like Brazil). The US can not "grow it way out of debt" because most of its future obligations to pay are indexed to inflation, (Social Security payments, rapidly growing as Baby Boomers retire, and TIP bonds, being two of the main indexed obligations).

"Fighting back" - I.e. in last year Brazil has dropped its basic interest rate down from 13.5% to current 9% to make hot money and carry trade (borrowing in US at 2% or less to get big profits just with CD- like deposits in banks) less attractive; however, the big news is of the last month, April, and last Friday:

In April, the bank central bought 7.2 billion dollars from the open market. That drove Brazil´s dollar reserves at end of April to 374.2 Billion dollars. More important in immediate effect was with dollars more scarce in the open market it now takes 1.92 Real to buy a dollar, up from only 1.79 about a month ago - I.e. the Real has been weakened several percent to help Brazil´s exporters.

And that surely is just the beginning: Two can play the "To hell with long term inflation effects, drive down the value of your currency game." In Brazil´s case it is only to help Brazilian exporters as Brazil´s banks are very sound and government debts are relative small. (Unlike the US, Brazil can and will pay its debts with Real still having most of the purchasing power it had when the bonds were bought. I.e. more than 2 year maturity US bonds are a sure way to lose purchasing power.)

Brazil did have until yesterday a problem which was stopping the basic interest from falling below 9% - a very popular type of saving account among the masses called "Poupança." Earnings on it are not considered taxable income but few big investors used it as the interest rate was slightly more than 0.5% per month (or with compounding 6.53% per year) and they could do better in net return with a taxed but higher rate investments such as 12% per year, etc.

If basic rate fell to 8.5% then the untaxed Poupança would yield more than the taxed investment with 8.5% (or less) as the basic rate.* To be able to lower the basic rate more, the rules for Poupança changed on Friday. Now when basic rate is 8.5% or less Poupança only pays 70% of the basic rate, not the old 0.5% +TR formula. For example instead of getting 6.53% when the basic rate drops to 8.5% (as it surely will in a month or two at most) Poupança will yield 5.95% annually and less when basic rates is lower than 8.5%.

I don´t think Brazil will follow the US down to near zero interest rates but lower rates are coming (along with special taxes on short term hot money invested in Brazil, etc.)

SUMMARY: Brazil has finally decided to fight back in the US started currency war. - Some what too late as it has already lost most of it former jobs in in low-value-added, high-labor-cost, industries like making shoes, etc. Process called "de-industrialization." Perhaps Brazil did not do so sooner as until a couple of years ago, US was Brazil´s main trading partner, but now China is and rapidly pushing US well below it in value of mutual trade. Soon Brazil may join China in telling the US to "Go to Hell" -We don´t much need you to buy our goods and we will cease buying your treasury bonds (as China has in net for more than a year now).

* If Poupança were the investment with highest net return, then almost over night many billions would be switched into poupança with complete collapse of funds for loans as poupança funds can only finance homes and a few other thinks I forget.** - For example Brazil´s sales of new cars (nearly 3 million per year) would drop by 90+ % as all sales would be 100% cash buyers, etc.

**Poupança and another more compulsory saving system tied to you salary called FGTS mainly finance construction. The first is quite like the US´s old Home Saving and Loan Accounts and the second quite like Social Security, but income from neither is taxed. (Unlike in the US, the money in FGTS is not lent to government for its current expenses, but to people wanting and needing lower cost mortgages.) "TR" is a small positive adjustment which compensates for inflation erosion. I.e. your Poupança increased 0.5% each month in purchasing power. The TR was very significant back when Brazil had strong inflation, but not now.

 

[Billy T]

Here is the Chinese version of QEx "Quantative Easing":

Moody's estimated that China's banking auditor had failed to include $540 billion in bank loans to local governments. That class of loan is likely to go bad at a high rate ... because local governments lack the revenue base to pay interest on the loans in the face of a slowing economy and falling land prices.{Developers no longer buying land from the governments too}

China has started to roll out a solution to this bad-loan problem that it has successfully used in the past. It has started to bury the bad loans by transferring them from government-controlled banks to government-controlled special entities.

Four state-controlled asset-management companies—(1) China Cinda Asset Management, (2) China Huarong Asset Management, (3) China Orient Asset Management, and (4) China Great Wall Asset Management—have been busy buying up real-estate debt to the tune of $8 billion so far, ... Regulators have urged the asset-management companies not to extend their buying binge too far, but estimates put the appetite of these companies alone at 20 times current holdings. ..."

Billy T comment: Just as US did with the "toxic trash" but the US agencies were called Fanny and Freddy. Even if these four of China do buy up 20 times 8 billion (160 billion) that is only about 6% (mental calculation) of the 2.9 TRILLION the FED now has on its books.

Yes China can destroy it currency as US is doing by buying up the "bad paper" but they will need to step up their effort by 2,900 / 160 = equals 18 times to just get where the US already is in transferring bad debts to the tax payers.

When one considers they are growing GDP at 8% and US at <2% with real danger of negative growth still in 2012, the nature of US´s problems becomes more clear, if you thing China has even a slight problem.

Not to mention the fact that China has a mono-government that can and does take needed actions, not the US´s which is so badly divided that it can not even pass a budget for the last three years. (The house has passed one this year but it will soon collapse in the Senate.)

Hint for the "economically dense" - When the FED, Fanny or Freddy or these four Chinese agency take onto their books "assets" (toxic trash") and pay for them - that is pumping out printing press money. China is doing so little of it that they Yuan is appreciating, not sinking in value (except for a few months now as the euro dives to new lows).

 

[quadraphonics]

China has started to roll out a solution to this bad-loan problem that it has successfully used in the past. It has started to bury the bad loans by transferring them from government-controlled banks to government-controlled special entities.

That isn't a "solution." It's a shell game to make the balance sheets of the banks look better than they are. The structural problem remains, it just gets accounted differently. In many cases, the loan repayments that the "cleaned" banks are due from the "special entities" never materialize, and the banks simply collude with the government to account their balance sheets as if they did.

http://www.bloomberg.com/news/2012-05-10/china-s-big-banks-look-more-like-paper-tigers.html

More to the point, the balance sheets publicized for China's banks and financial institutions have lost much of their credibility. Since they're arms of the government anyway, this doesn't immeidately bite them the same way it would in, say, the USA, but they remain misleading exercises in politicized bullshit.

Billy T comment: Just as US did with the "toxic trash" but the US agencies were called Fanny and Freddy. Even if these four of China do buy up 20 times 8 billion (160 billion) that is only about 6% (mental calculation) of the 2.9 TRILLION the FED now has on its books.

You're only considering a tiny fraction of the bad loans that China has piled up over the past years. They spent fully 50% of their GDP on loans last year - what percentage of that do you think will be non-performing? Historically for the banks in question, the rate has been around 20-25%. Which would suggest that about 1/8 of China's GDP last year was basically poured down the drain, and then papered over with sham accounting. The bad loans in the Chinese financial system run to trillions of dollars - which is a big reason why your fantasies of a currency attack on the dollar will never happen: they'll need all those reserves (and more) to recapitalize their banking system when it all finally goes up in flames.

Hint for the "economically dense" - When the FED, Fanny or Freddy or these four Chinese agency take onto their books "assets" (toxic trash") and pay for them - that is pumping out printing press money. China is doing so little of it that they Yuan is appreciating, not sinking in value (except for a few months now as the euro dives to new lows).

The exchange rate value of the yuan is not linked to the bank money supply in the same way as in the USA, since the yuan is not fully convertible. Not to mention that its value was already very repressed in the first place.

But the larger point is that China is not particularly setting up for currency devaluation with this policy. What they're headed for is a financial crisis, which is much much worse. At some point, the government won't be able to hide bad debt any longer, the Chinese financial system will sieze up, growth will grind to a halt, and China's economy will stagnate for an extended period. It's a question of "when," not "if" China's banking system is going to crash.

 

[Billy T]

That isn't a "solution." It's a shell game to make the balance sheets of the banks look better than they are. The structural problem remains, it just gets accounted differently. In many cases, the loan repayments that the "cleaned" banks are due from the "special entities" never materialize, and the banks simply collude with the government to account their balance sheets as if they did. ...

Yes I agree. In fact that was the main point of my post:

Here is the Chinese version of QEx "Quantative Easing":
... It has started to bury the bad loans by transferring them from government-controlled banks to government-controlled special entities.

Four state-controlled asset-management companies—(1) China Cinda Asset Management, (2) China Huarong Asset Management, (3) China Orient Asset Management, and (4) China Great Wall Asset Management—have been busy buying up real-estate debt to the tune of $8 billion so far, ... Regulators have urged the asset-management companies not to extend their buying binge too far, but estimates put the appetite of these companies alone at 20 times current holdings. ..."

Billy T comment: Just as US did with the "toxic trash" but the US agencies were called Fanny and Freddy. Even if these four of China do buy up 20 times 8 billion (160 billion) that is only about 6% (mental calculation) of the 2.9 TRILLION the FED now has on its books.

Yes China can destroy it currency as US is doing by buying up the "bad paper" but they will need to step up their effort by 2,900 / 160 = equals 18 times to just get where the US already is in transferring bad debts to the tax payers.

When one considers they are growing GDP at 8% and US at <2% with real danger of negative growth still in 2012, the nature of US´s problems becomes more clear, if you thing China has even a slight problem.

Not to mention the fact that China has a mono-government that can and does take needed actions, not the US´s which is so badly divided that it can not even pass a budget for the last three years. (The house has passed one this year but it will soon collapse in the Senate.) ...

China has learned from the US the shell game of taking bad paper out of the banking system and pretending the bad debts have been fixed. Only they are doing much less of that than the US has. - Why my post starts by calling it the "Chinese version of QEx..."

I forgot to give the source of my QUOTES. Here it is: http://www.moneyshow.com/investing/...na-27819/Can-the-Central-Banks-Keep-US-Safe?/ I read more than half of everything that Jim Jubak writes and occasionally buy stocks he is buying - IMHO he is one of the best commentators around. I am just repeating what Jim was saying in part - read the original and you will see that.

Here BTW is Jim´s text and video poking fun / ridicule / at all the many folks who think China is in trouble economically but the US is solid. : http://www.moneyshow.com/investing/article/43/VideoTrans-27797/Is-it-Twilight-for-China?/