China Continues to Funnel U.S. Dollars into Commodity Investments 45 comments
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There was yet another news item out on June 8th concerning still more investing by China in the infrastructure of another commodity-producing nation. While there was nothing especially noteworthy about this one, particular investment, it does not only reinforce an obvious trend – but also counters yet another myth about China's investment policies.
The media in the “old” economies of U.S. and Europe like to portray China as a pariah who invests primarily in the oppressive regimes of the world. However, this particular news item concerns a Chinese investment in the copper industry of Zambia – one of the most-stable and most-progressive of African governments.
The fact is that China is willing to invest in almost any and every nation on Earth, and does so without the rampant hypocrisy of countries like the U.S. While the U.S. continues to spout rhetoric about its “strong commitment to human rights”, it continues to prop-up some of the most regressive regimes in the world – in the Middle East.
In most of those countries, not only are women denied the right to vote, they aren't even allowed to get driver's licenses. These ruthless dictatorships openly engage in torture and other despicable human rights violations – and after decades of U.S. “sponsorship"... most of these countries have not made even the slightest movements toward more progressive policies. The reason for this is that the U.S. perpetuates the power of the tyrants through its military “muscle”, preventing the healthy evolution of these societies.
Meanwhile, China invests around the world without discrimination, and without inserting its own army into these nations to prevent their evolution into more progressive members of the global community.
To evaluate China's approach versus that of the U.S., we need look no further than China – as an example of a developing economy.
The Chinese government is obviously far from perfect. However, it's citizens enjoy one of the most-rapid increases in their standard of living of any nation on Earth – with the extremely powerful underlying fundamentals of China's economy guaranteeing that this evolution will continue indefinitely. Indeed, apart from the structure of its government, it is hardly recognizable as a “communist” nation.
Meanwhile, there is now the free movement of people into and out of China, greatly improved foreign access to China's economy, and a slow but steady liberalization of attitudes in a government notorious for being slow to implement social change.
The difference between China and Middle East dictatorships propped-up by the U.S. is that there was no large, U.S. military presence in China preventing positive evolution in this nation.
The other side of this news is the continuing trend of the Chinese government to dump U.S. dollars in return for “hard” assets (like commodities).
China has already engaged in currency-swaps worth hundreds of billions of dollars, with nations all over the world. In every one of those “swaps”, it is getting rid of U.S. dollar-denominated assets in return for the undervalued currencies of commodity-producing nations. Thus, it is simultaneously turning a profit as it dumps dollars, while increasing the supply of worthless “greenbacks” in global markets – ensuring that the down-trend for the U.S. dollar will continue indefinitely.
In the case of Zambia, where China has not engaged in any currency-swap, the $400 million China is investing in Zambia would all be either U.S. currency, or U.S. Treasuries.
Thus, with every step, China demonstrates it can successfully manage its huge, U.S. dollar-holdings without suffering losses – while maintaining a large enough “mortgage” over the U.S. economy that it can make sure the U.S. government does not misbehave with its economic policies toward China (see “China now in firm control of U.S. debt markets”).
Yes, the deal with Zambia was just another small economic development – but as is often the case, the symbolism is huge.
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Simple as that.
On Jun 13 01:16 PM RiskReturnOptimizer wrote:
> Buy DBA before you heard mainstream media report that China is buying
> agr commodities to hedge US dollar risk ... they need to feed 1.4
> billion people regardless of dollar value.
On Jun 13 02:13 PM shootpar2001 wrote:
> YES!
> America has gotten many things wrong.
> Many things right also, I think that there would be a lot more oppressive
> (world wide) if not for the U.S.
> Americans (not necessarily our pols) have done more for the world
> than any other nation (do not even try to dispute) period.
> We have made mistakes and will continue to, but I do not see the
> world jumping fences, riding in containers, forging passports, etc.
> to get to China et al.
> Enough said, let's get back to making money on this site.
In the Maoist years, China was closed, but China has a mercantile history as well. I don't sense that China is interested in going back to isolationism. I think it would be boring compared to the odd behaviors of tourist groups.
I don't sense an inclination for military imperialism either. The U.S. and U.S.S.R. are recent case studies of what's wrong with that model, but one can go back to the Romans for other cases on point.
As for free speech, I would say the U.S. has an illusion of that. As Ron Paul has recently pointed out, politicians are ok with criticism of politics because they want to do it too. Watch out if you criticize a corporation, however. Their politician friends have passed legislation to let corporations SLAP (strategic legal-intimidation against protest) persons without their own personal stable of furiously dangerous lawyers.
Politicians don't care if they are criticized. Criticism is attention, which is what they seem to want more than anything. My hunch is they brag to each other about how they can take it. The more furious the criticism, the better they like it. Words don't decrease the corrupt bucks they can bring in, and U.S. people have notoriously inaccurate recall anyway.
Freed from the costs of counter-productive military bullying, China has many advantages. If China can help other countries improve their class-mobility statistics, China will wield great influence in the immediate future.
Some of you may have read my warnings to the nursery business on SA before, but if China decides to move into the nursery business, they will have huge market advantages. It's probably not a question of if this is going to happen.
Meanwhile, I know of a state trying to sell grass seed to China. Maybe the same Chinese guys who want to buy Hummers will buy grass seed, but I observed nitrogen-setting clover in highway medians. This makes more sense than grass to me. I don't recall seeing grass in China. Obsessiveness about grass lawns is as inscrutable to me as basing an agricultural economy on high-input corn. Marie Antoinette could hire legions to care for grass. Most ordinary people don't get it.
I'm in Chinese solar and thinking of getting in deeper.
Glen, I suggest that you go to China and live with an average family for at least 6 months to learn the truth, or if you are interested in how the poor farmers are suffering go to the North or Northwest of China and visit a farmer's family. If you are really sincere I can hook you up with a family who lost their beloved ones in the Tiananmen Square massacre. One of my friends who were not a “baby student” but a factory worker at the time had a bullet hole on his leg. A spectrum of people ranging from government officials to news anchors to workers to students were thrown in jail, and many lost their life in that horrific event. If you study the modern Chinese history you will know that all major political evens have had the support of the industrial labor force. The reason the Chinese government went that far as to kill its own people in the thousands, is because they were sensing some major danger to dethrone their regime. Quoting one article to smear the fact and blame the US propaganda for misleading the people is rather naive and irresponsible to say the least. Hongwei might be a little harsh but only people who really understand what was and is going on can react like that.
"China" is a very popular word nowadays especially when discussing the economy and the current recession. Who do you believe when it comes to the numbers? The numbers from the US government, the Fed, or the numbers from the Chinese government? Let's say be careful with both. Many commentators sound they truly know what is going on in China. Let me entertain you with some info/numbers that you will not likely to see here in the US. Much has been said about the impressive progresses made in China, so I won’t waste my time here. The following may sounds negative but it really is just meant for giving a more realistic view of China. They are not in any particular order. I will try to be as subjective as possible, and let you be the judge of China’s reality. It should give you a sense of magnitude, if you don’t quite agree with the numbers being quoted:
1. The two major reforms embarked by the government have both failed by the government's own admission: the education reform and health care reform. The percentage of university students from the rural area (mostly the country side) has dropped more than 50% in the last 30 years, due to inability to pay for the tuitions. Is not uncommon to read the news of people with severe injuries or diseases die in front of a hospital because the hospital pushed the patient out when they found out the patient had no money to pay for the emergency visit. These two areas happen to be among the most corrupted professions in China. If you don't know how to bribe, the chances are you may not get into the best universities even if you qualified, or get the best medical treatment. The moment you run out of money in the hospital, even if you may die, all treatment would stop until you wire in more money, or you simply have to leave;
2. The theme for the government 's current 5-year plan cycle is to promote stability. The reason is because the majority of the population has really been left behind in this accumulation of wealth. There is a very popular saying in China: "the richer the country, the poorer the people." so there is a need to distribute some of the money to the poor to ensure the social stability;
3. A news clip from a couple of weeks ago: More than a 100M tons of iron ore were stock piled in China in recent months. They even discovered a shipment in Tianjin harbor apparently without a buyer! It turns out that that particular shipment was from Australia, because the transportation cost is very low so why not just put the inventory in a cheaper location – China. The Chinese government thus had to warn the industry to stop such a chaotic activity because the domestic demand actually has been dropping!
The China demand theory is flying all over the place because there is such a need for those who pump the market, not necessarily a fact;
4. The money from the government to any project typically will go through a few layers and get 5-25% thinner, depending on the size of the project. Billions of dollars actually went into the pocket of very few. That money will eventually leave China and go somewhere else (US or Canada). I remember a few years ago when I was telling a friend how much money can an athlete make in the US, he laughed at me and said “Michael Jordan’s wealth is nothing. There are so many Chinese hiding in the US with dirty money, who are many times richer than him”! The total amount of money funneled out of China by corrupted government and bank officials exceeds 500B USD while millions of Chinese people are struggling to feed their children;
5. By the government’s own admission, there are 6 million prostitutes in China (Per quote from WHO). The real number far exceeds that. It is estimated that it is a 100B - 150B USD industry if you include other services (hotels, restaurants, bars, etc, that are benefiting from it). Guess who is really behind all this and who is making the big bucks? 10 out of 10 have police backing or they would never survive and prosper. Now you should understand why it is not stopping: It is an income for the government and job opportunities!
6. The official non-farm unemployment rate published in Jan. 2009 is 4.2%. If you do some math yourself based on indirect official numbers you will get a far more different picture:
a. New unemployment: official number: in 2008 in Southern China there were more than 670 thousand factories closed their doors and more than 6.7M workers lost their jobs. Unofficial number: more than 1m factories closed and more than 20m lost their jobs.
b. New to the market: more than 10.3m new graduates with bachelor or master degrees are in the market, plus at least 6m-7m high school graduates, so the total is at least 16m-17m looking for jobs.
c. The total for people in the job market: 36-37m;
d. There are two versions of so called official numbers in China when it comes to the unemployment rate: one version is THE official one with 2008 number as 32m out of the 0.8b who can work. The other version is from the Chinese Academy of Science: 76.8m out of 0.8b, which accounts for about 9.4% unemployment rate, a more believable number in reality. All in all, we would have a total of 0.13b people unemployed, and this is being conservative! The unemployment number in China being mentioned for the rural area is as high as 34.7%!
e. The salary drop per survey in Southern China is about 10%, and many companies eliminated overtime pay and bonus.
The bottom line: if you really want to have something to say about China, do your homework first.
Enough about the Chinese politics. China has made much progress. That is a fact. But if you think everyone is better off nowadays in China, or socialism is better off, you are wrong. Talk to a high school graduate with top score in the national entrance exam who had to settle for the rest of his life working the hard labor to support his family and forget his dreams. I can assure you that it is not hard to find one at all. A significant percentage of the population actually has suffered, because they can no longer afford the medical and education cost.
It doesn’t mean I am a fan of the current US economic policy myself either. I am becoming a believer of the conspiracy theory. All of sudden, all the market manipulation seemed so apparent, right in your face. The government, the banks and the Fed are choreographing a temp fix， in the name of the people. They are so desperate this time that they don’t even bother doing it with a little more subtlety, a testimony of the word “brings the worst out of them”. Look at the timely upgrade, news leak, who got bailed out who got closed, the GM case, and predictable unemployment number adjustment. We are in deep s**t in the long run. All we can do is be alert and protect ourselves. Don’t fall for the pump and dump scheme. Don’t listen to the CNBC bull-s**t. Do your own homework.
We need to attract investment into the US with preferable tax treaty, and create more jobs for the millions of Americans who are in dire need, but not more government jobs. I do believe China did a much better job in attracting foreign investment in the past three decades. Our current system does not encourage investment and innovation. We keep losing our manufacturing base, our technologies to Asia, mostly China. We will pay heavily because of this mistake.
I very much agree with Mr. Moon Kil Woong’s analysis. He still has the coolest head.
You may wonder what makes me qualified to discuss anything about China? I spend 30-40% of my time in China nowadays. I have been to the most developed cities and the most underdeveloped villages. I do have tons of stories to tell, but I digress.
Jeff, you need to go to Africa go see how China invests there, how governments are corrupted, how Chinese prisoners are used as virtual slave labor, how concessions are granted in exchange for military hardware etc. Money talks. It just talks louder in Africa because the poverty there is so deep. And the Chinese have lots of money to talk with.
Where the West offered handouts, free food, missionaries, expired medication and lip service for the litany of African problems, the Chinese have come with a better offer.
They are building factories, roads, dams, ports, rail-lines, trucking hubs and distribution facilities. They are giving Africa what it wants but you can trust me on this.....
IT is not free and it is not cheap for Africa. It comes with a big cost to any of the nations involved. But lets give China credit. It is doing what the West was too afraid to do. That is to develop properties, build infrastructure and to do so with an expectation of a return. To do it without the fear of losses. "Corporate Head-office China" has no shareholders to report to. And most of the world is not interested enough or educated enough about Africa to see the new exploitation there.
Africa is the last Wild West. The last great region on the globe for discovery and it will belong to China this Century. But Africa seems to have no idea what interests it has really sold out too. Or they cannot afford to turn away the only real suitor they have.
To really understand Chinese ambitions and it's efforts to access it's share of global resources you need to see how they operate in Africa first-hand.
On Jun 12 12:47 PM ccgirl wrote:
> 100% agree, the big head US ppl should actually open up your eyes
> and see the world. Look at world pain and suffer you caused for other
> citizens of th world, while in the name of liberty. The basic human
> right is to live, not war or death.
> -a chinese girl
I got so annoyed with your Anti-American position that I read in your first few paragraphs that I did not even bother reading the rest of your article before I fired off my first answer. (Gee, I guess I have a short fuse).
Anyway, you made a few excellent comments toward the end of your article that I think are important for any investor to understand when they question China's trade surplus and foreign reserves. That US dollars (and the risk they entail) are already being unloaded. The third world is gladly taking it on as China reduces it's exposure. They are signing deals in Dollars now than they can easily pay later and by doing so, shift the burden of currency devaluation to poorer and less sophisticated nations. Good comments Jeff.
The Author wrote:
"China has already engaged in currency-swaps worth hundreds of billions of dollars, with nations all over the world. In every one of those “swaps”, it is getting rid of U.S. dollar-denominated assets in return for the undervalued currencies of commodity-producing nations. Thus, it is simultaneously turning a profit as it dumps dollars, while increasing the supply of worthless “greenbacks” in global markets – ensuring that the down-trend for the U.S. dollar will continue indefinitely".
And just who elects stupid US politicians?
Stupid Americans. That's Who!
On Jun 13 09:51 PM hwbyrne wrote:
> I can't believe you think it is the people of the USA with "big heads."
> The people of the USA are the most reasonable and compasionate on
> the planet Earth. It is stupid US politicians that make stupid policies,
> just as in China, a stupid policy is going to hurt millions of people.
> Remember when Mao ran his policy of "Cultural Revolution" where he
> starved 5 million Chinese and destroyed 200 years of Chinese culture?
> China's economy is going through the same steps the USA did 60-90
> years ago. It will be interesting to see how China evolves in the
> next 20-30 years, when their GDP should then equal that of the USA's.
>
On Jun 13 09:41 PM cameroni wrote:
> Oh Lord,
>
> Jeff, you need to go to Africa go see how China invests there, how
> governments are corrupted, how Chinese prisoners are used as virtual
> slave labor, how concessions are granted in exchange for military
> hardware etc. Money talks. It just talks louder in Africa because
> the poverty there is so deep. And the Chinese have lots of money
> to talk with.
>
> Where the West offered handouts, free food, missionaries, expired
> medication and lip service for the litany of African problems, the
> Chinese have come with a better offer.
>
> They are building factories, roads, dams, ports, rail-lines, trucking
> hubs and distribution facilities. They are giving Africa what it
> wants but you can trust me on this.....
>
> IT is not free and it is not cheap for Africa. It comes with a big
> cost to any of the nations involved. But lets give China credit.
> It is doing what the West was too afraid to do. That is to develop
> properties, build infrastructure and to do so with an expectation
> of a return. To do it without the fear of losses. "Corporate Head-office
> China" has no shareholders to report to. And most of the world is
> not interested enough or educated enough about Africa to see the
> new exploitation there.
>
> Africa is the last Wild West. The last great region on the globe
> for discovery and it will belong to China this Century. But Africa
> seems to have no idea what interests it has really sold out too.
> Or they cannot afford to turn away the only real suitor they have.
>
>
> To really understand Chinese ambitions and it's efforts to access
> it's share of global resources you need to see how they operate in
> Africa first-hand.
On Jun 13 09:51 PM hwbyrne wrote:
> I can't believe you think it is the people of the USA with "big heads."
> The people of the USA are the most reasonable and compasionate on
> the planet Earth.
On Jun 13 10:39 AM FDNY RET wrote:
> Well it took us 20 years to unload all our cumbersome wealth on China.
> Did we think they'd be dumb-(as us)- enough to return the favor by
> buying Cadillacs??.
>
> So they're running around the world cornering all the commodities
> to continue fueling their booming GDP machine!.
>
> But with Us and (dragging the rest of the world down with us)--flat
> broke!!--Have they figured out who their buyers are going to be??.
>
> Not India!, they just want to do a China copy for their own economy.
Oh, really? Ask the Guantanamo detainees recently released to Bermuda and Palau how compassionate and reasonable they think Americans are. Ask the Cubans, ask the Iraqis, the Afghans, the Iranians or the Pakistanis! Ask any of the long and distinguished list of people and countries that Americans have interfered with through their CIA, in the name of 'freedom', how compassionate and reasonable they think Americans are. America may not be all bad but America has allot to answer for.
On Jun 13 09:51 PM hwbyrne wrote:
> I can't believe you think it is the people of the USA with "big heads."
> The people of the USA are the most reasonable and compasionate on
> the planet Earth.
On Jun 14 03:46 AM Dave Wrixon wrote:
> It is just as easy to advance credit to the average Chinese peasant
> as it is to Americans. They are certainly less currently indebted,
> and they are probably more likely to pay the money back.
On Jun 12 11:35 AM Mono wrote:
> nice jeff
>
> no one can see past their face when it comes to china and us debt.
> like anything else, if you only take the superficial...you will end
> up believing the superficial. tic data does show that china is still
> adding to their debt positions, but using them as collateral for
> loans. if they default they lose the dollar and keep the currency/resource
> which they acquired in the exchange. win win for china while still
> removing culpability for where the us debt market is going. "We are
> STILL buying treasuries....can't blame us"
>
> good read
There have been two major national development programs going on in China (not including any stimulus projects): the Greater West Development Program and the The North East Revival Plan. Because these two regions have been pretty much left behind. Most of the poor people live within those regions.
Your logic of "Not arable = No agriculture = no farmers" does not apply to Asia.
Do your home work.
On Jun 14 11:11 AM coreopsis wrote:
> Readers of SA: I don't think this is a real post at all. Please
> note that this is the first time post of this 'individual'.
>
> From the very beginning, he seeks to cast aspersions of those of
> us who are active in China.
>
> Yet the suspicion begins right at the start: he cites the farmers
> of the 'North or Northwest'. Just where would these farms be? Inner
> Mongolia (north), Xinjiang, Gansu, Qinghai, Shaanxi (northwest) are
> largely Gobi desert. Google agricultural map China and you'll see
> this land is not arable. These areas are, in fact, used for wind,
> solar, energy conversion (methane) and other resource-related projects
> that supply the eastern cities.
>
> The guy is probably SoberRealist under another name (the arguments
> are very similar) or other right-wind polemicist, maybe CIA or ex-CIA.
>
"The main components of the strategy include the development of infrastructure (transport, hydropower plants, energy, and telecommunications), enticement of foreign investment, increased efforts on ecological protection (such as reforestation), promotion of education, and retention of talent flowing to richer provinces. As of 2006, a total of 1 trillion yuan has been spent building infrastructure in western China."
I could suggest that you 'go ...do your homework' but would prefer to simply ask you to go.
On Jun 14 06:14 PM Noah's ark wrote:
> 22% of the agricultural population reside in the two regions I mentioned
> (North and NW). If you consider four other provinces included in
> the Greater West Development Program the number would go up to 41%.
>
>
> There have been two major national development programs going on
> in China (not including any stimulus projects): the Greater West
> Development Program and the The North East Revival Plan. Because
> these two regions have been pretty much left behind. Most of the
> poor people live within those regions.
>
> Your logic of "Not arable = No agriculture = no farmers" does not
> apply to Asia.
>
> Do your home work.
>
> On Jun 14 11:11 AM coreopsis wrote:
You appear to be part of the paranoid lunatic fringe. I don't know Noah's Ark, but it appears he may have something useful to say. My purpose is to seek out the truth and not take, at face value, the information set forth by any government, whether that be the U.S. or China.
On Jun 14 11:11 AM coreopsis wrote:
> Readers of SA: I don't think this is a real post at all. Please note
> that this is the first time post of this 'individual'.
>
> From the very beginning, he seeks to cast aspersions of those of
> us who are active in China.
>
> Yet the suspicion begins right at the start: he cites the farmers
> of the 'North or Northwest'. Just where would these farms be? Inner
> Mongolia (north), Xinjiang, Gansu, Qinghai, Shaanxi (northwest) are
> largely Gobi desert. Google agricultural map China and you'll see
> this land is not arable. These areas are, in fact, used for wind,
> solar, energy conversion (methane) and other resource-related projects
> that supply the eastern cities.
>
> The guy is probably SoberRealist under another name (the arguments
> are very similar) or other right-wind polemicist, maybe CIA or ex-CIA.
>
The export model Asia has used for massive growth over the last several decades is dead. China is still obsessed with over-capacity and they'll pay for it with lots of bad loans. "State owned firms are absorbing commodities to produce unneeded capacity and over investment." See William Gambles latest posting:
seekingalpha.com/insta...
Many others agree with this assessment.
China is on a raw materials stockpiling binge that has helped raise commodities prices around the world but is unsustainable in the long term, the NYT writes. "At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing," it writes.
"It may seem counterintuitive to some, but this crisis is going to be a long-term crisis primarily for high-savings, trade surplus countries. Just look at what happened to the US in the1930s," writes Michael Pettis. See here:
www.financialexpress.c.../
And China's latest stock market rally? It's a bubble:
www.truveo.com/overcap...
On Jun 14 07:41 PM Sober Realist wrote:
> Coreopsis,
> You appear to be part of the paranoid lunatic fringe. I don't know
> Noah's Ark, but it appears he may have something useful to say. My
> purpose is to seek out the truth and not take, at face value, the
> information set forth by any government, whether that be the U.S.
> or China.
>
The history talks are nice, ( sometimes even interesting ) but not productive. If U.S. dollars are buying Treasuries or commodities they are being used and eventually will find their way home. Let's exchange ideas on how to potentially make a profit on these movements.