America Frets About the Economy as China Buys 'Stuff' 39 comments
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While the US frets over loan modification programs and scary words like Nationalization, China buys stuff. Base metals stuff. Iron ore stuff. And some stuff called “oil.” In the past few weeks, investment and operational arms of the Chinese State have reached out across the world to pick up distressed assets. The first strike was on Rio Tinto (RTP), which, like other global resource companies, completed a large debt-funded acquisition just prior to the credit crunch. Chinalco swooped in with 20 billion, and, as they say in Australia, “No worries, mate.” Next up was another debt-burdened Australian miner, Oz Minerals. This time China Minmetals was the suitor, and they offered to buy the whole company for cash.
But the biggest deals were yet to come. Just after rumors swirled that China Investment Corporation and China Shenhua Energy wanted to take a starter position in a third Australian miner, Fortescue Metals (FSUMF.PK), China unveiled its coup de grace: a $25 billion multi-year deal with Russia. And this time it was not for iron ore, but rather, the master commodity: oil. And they’ve just followed that blockbuster up with a similar deal with Brazil’s Petrobras (PZE).
What seems to have escaped wider observation, however, is that deals such as these are a clever way for China to dehoard itself of dollars. This has been a favorite theme of mine for years, as an investor and chronicler of global energy supply. On Tuesday I wrote the following on Twitter: Russia has oil and needs dollars. China has dollars and needs oil. Kismet! Wait. Perhaps there are other observers out there. In Thursday’s LEX column in the FT of London: “China has what Russia wants: masses of US dollars. Russia has what China wants: energy. Hence Tuesday’s oil-for-loans agreement between Moscow and Beijing.”
I’m glad to see someone else is paying attention.
My view is that the United States has been sleepwalking and navel gazing for years, while China locks up resources around the world. Especially in Africa. If the US now is willing to buy houses, or at least the loans on those houses, why not buy resources? I think the US Treasury would be better off with a future income stream from North American Oil and Gas, than on the dim hope of recapture from AIG’s (AIG) portfolio of credit default swaps. Enough with the fretting. If our government is going to print money, and buy paper, perhaps we should buy some “stuff” as a hedge, alongside.
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Different countries have different needs. The U.S. already have locked up the best resources it needs for the forsealbe future, while China feels very insecure about its lack of access to the natural resources it will need for its future development. All high quality low risk resources in the world remain in the control of the developed countries since colonial era and it never really changed, even though newly independent former colonies nationalize their resources they are mostly locked up right away by western resources companies such as the Big Oils and China's attempts to buy some access to these resources has been blocked before, forcing themm to develope resources in high risk, unstable countries in far away places.
The current global crisis presents China a golden opportunity to greatly improve the risk profile for their future needs. They can easily spendt $200B on resources and it would not affect their ability to hold and continue buying US Treasuries.
Continue holding US Treasuries at least until US recovers from the current crisis benefits US as well as China by helping to keep world economy from going further into a downward spiral, which could destroy both countries. But that does not mean China does not have the means to take advantage of the biggest fire sale in many decades.
Please do not mix up our ideas of rights with our requirement to survive as a country. We can and should support human rights but lets clean up our own country first.
we should realize China is buying for 5 -10 yrs in future and we do good to cover for one year!
> Mark Antony,
> have you been asleep for the past 6 months?
> BDI shipping index has been surging back so strong?
I have been watching BDI all the time. BDI index has been surging back strongly that is a FACT. Why don't you have a look yourself:
www.dryships.com/pages...
As for global trade data. The US census bureau has better data than the talking heads:
www.census.gov/foreign...
The US import from China in October, 2008 was a record breaking month. That's a FACT.
Yes. Wish I could say the same for you.
On Feb 22 05:05 AM Goushi wrote:
> "My view is that the United States has been sleepwalking and navel
> gazing for years, while China locks up resources around the world."
>
>
> or could it be that our government is controlled by NWO, neo-Marxist,
> socialist cabal criminals who are only interested in global warming
> caps, outsourcing the industrial base of this country under the lie
> of "fair trade" open borders, homosexual marriage and the destruction
> of our economy, freedoms, morals and way of life by replacing it
> with an entitlement society. Ya think?
On Feb 22 07:27 AM jpe123 wrote:
> I have said for a long time that America will rue the day they viewed
> the rise of China as friendly. This is a dangerous country with an
> eye on global domination and we are supporting their every move.
On Feb 22 09:42 AM prudentinvestor wrote:
> Meanwhile, China busily acquires global resources. Next, they will
> start looking at European and US distressed companies (like AA, DOW,
> GE, IP, etc). They will try to acquire positions in these companies,
> so they give us back our paper dollars to use for bailouts.
>
> If this continues, the net result will be that our incompetent financial
> industry, and the irresponsible spendthrifts amongst our general
> populace, will have transferred our valuable, world-leading companies
> to the Chinese, in return for their mega bonuses, trinkets and McMansions.
On Feb 22 11:34 AM SW Richmond wrote:
> Yes, it's obvious that China has figured out what to do with their
> USD reserves.
And the best part is they're doing it with the money America borrowed from China to by crap from China!
On Feb 22 07:27 AM jpe123 wrote:
> I have said for a long time that America will rue the day they viewed
> the rise of China as friendly. This is a dangerous country with an
> eye on global domination and we are supporting their every move.
-From A US Expat In Guangzhou
On Feb 22 06:05 PM Sober Realist wrote:
> It's funny what unpredictable twists and turns occur in history.
> While it may appear to many that China is sitting pretty, they have
> a lot to worry about.
> Statistics from China's regime are as untrustworthy as our government's.
> So when the CCP reports "4.2% unemployment rate on registered <br/>(urban)
> workers for the end of 2008, as reported by Xinhua News Agency on
> Jan. 21, 2009.", don't believe it. Experts believe the total unemployment
> for urban and rural workers is around 25%. China's growth rate is
> also most likely well under the 6% figure touted by the regime as
> a "critical threshold required to absorb incoming young workers and
> maintain sufficient jobs for the workforce in general."
> What's this adds up to is that the financial crisis is hitting China
> from the bottom up.
> How long will the tens of millions of destitute Chinese migrant workers,
> who were the lifeblood of China's once humming factories, stay patient?
>
>
> China's Demographic Time Bomb:
>
> A recent study by the Institute of Economic Affairs found that "of
> all the pensions systems we studied, China’s was possibly the most
> complex, the most inequitable (relatively rich urban dwellers receive
> very generous pensions from age 50, poor rural workers receive nothing),
> entirely inflexible (people cannot transfer benefits between regions)
> and riddled with corruption – entirely unsuited to meet the oncoming
> crisis."
> China's one child policy has created a demographic time bomb consisting
> of "4-2-1 problem, one child supports two parents and four grandparents."
> "Even if China’s economy continues to grow rapidly, its per capita
> income will still be a fraction of ours during the demographic transformation
> – China will grow old before growing rich. China’s high savings rate
> has often been commented on – this is not surprising given its rapidly
> ageing population."
>
>
>
>
>
>
>
>
Don't be fooled by the recent BDI "surge":
"The shipping rebound is more about supply than demand
The other index that investors are getting excited about is the Baltic Dry Index, which measures the cost of shipping dry bulk commodities such as iron ore. After plummeting 95% since the summer, it has now bounced 200% in the last few weeks.
But again, taking this as evidence of resurgent Chinese demand for commodities may be reckless. Speculators had booked ships with the intention of flipping the contracts; once rates crumbled they abandoned these contracts, dumping a large number of unbooked ships on the market and forcing down spot rates.
That depressed the BDI to exceptionally low levels. But with that excess supply fading – helped by large numbers of vessels being laid up because of low rates – the glut of ships has reduced a little. Lower supply rather than higher demand is probably what's driving up shipping rates."
seekingalpha.com/artic...
Feb 19th 2009
"Industrial production fell in the latest three months by 3.6% and 4.4% respectively in America and Britain (equivalent to annual declines of 13.8% and 16.4%). Some locals blame that on Wall Street and the City. But the collapse is much worse in countries more dependent on manufacturing exports, which have come to rely on consumers in debtor countries. Germany’s industrial production in the fourth quarter fell by 6.8%; Taiwan’s by 21.7%; Japan’s by 12%—which helps to explain why GDP is falling even faster there than it did in the early 1990s (see article). Industrial production is volatile, but the world has not seen a contraction like this since the first oil shock in the 1970s—and even that was not so widespread. Industry is collapsing in eastern Europe, as it is in Brazil, Malaysia and Turkey. Thousands of factories in southern China are now abandoned. Their workers went home to the countryside for the new year in January. Millions never came back (see article)."
www.economist.com/opin...
On Feb 23 12:47 AM Mark Anthony wrote:
> On Feb 22 06:19 PM Sober Realist wrote:
On Feb 22 08:05 AM Borscht wrote:
> Americans are not approaching their twilight years. We are a comparatively
> young population.
So in that sense, we are a comparatively young population. Yes we have a demographic bomb from the baby boomers of the '40's, but if we can keep our tradition of renewal and reinvention through immigration and keep a relatively open economy, we'll survive this crisis. When I speek of immigration, I'm talking legal immigration. Protectionism and state-owned banks prevent economic creative destruction.
Notably absent from the major headlines of today was the report from China that total exports had declined 18%, and that imports had plummeted by 43%. The reason offered for the disparity between the two declines is the fact that a majority of China's imports can be characterized as partially assembled items that eventually show up as exports 3 months down the road. Hence, the import decline is indicative of a massive decline of orders "in the pipeline" These latest numbers come in complete contradistinction to the Chinese Government's projections of at least 6% growth in GDP this year. Arguments concerning the legitimacy of "The Party's" official statistics aside, we fully expect Chinese GDP projections to be revised downwards from here. The story of spectacular Chinese growth has been a popular one indeed. In reality, the country has made significant strides over the past 20 years, and has emerged as an economic power to be reckoned with. However, any suggestion that they are somehow immune to the entrenchment of the American consumer is a suggestion dislocated from reality.
thevalueatrisk.blogspo...
China Growth Recovery Won’t Boost Stocks, Says Morgan Stanley
By Chua Kong Ho
Feb. 24
www.bloomberg.com/apps...