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Former Analyst at Thomson Financial and currently a high frequency trader at a proprietary trading firm.
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  • China Bubble Watch - Week of 8.21.10 0 comments
    Aug 21, 2010 2:38 PM | about stocks: FXI, FXP
    This is a summary of happenings in China, much of which confirms our own thesis that the West has a grossly distorted view of the path and progress of China, and is woefully under pricing the probability political and economic risks in China.
     
    8.16.10
    In light of China's GDP exceeding Japan's recently, to become the world's second largest economy, Strafor's Rodger Baker questions whether GDP is a measure of China's strength or not.
    • Source - link
    • Are they creating wealth or is it simply a flow through economy due to being an export led economy?
    • GDP growth not the only measure of strength, pointing to weak and sometimes negative profit margins.
    • Every effort they've put forth to transition to a consumer led economy has led to social unrest.
    • To more a more consumer led economy Predicts a crises as its an unsustainable crises.
    • History Squared Notes: The Chinese Commerce secretary said margins on exports are 2%. Increasing the Remnimbi by anything in excess of this will wipe out that industry.
     
    8.16.10
    Yale Professor and Morgan Stanley economist Stephen Roach and Atlantic Monthly James Fallows appeared on the Charlie rose show to discuss China. - link
    • Roach believes surplus can of labor and 30 year reliance on exports, which will be declining in the world, faces challenges but the government is up to the task.
    • Fallows: pollution and environment should be ranked higher among China's problems
    • Fallows: notes that China has 0 of the top 200 colleges in the world
    • Roach: lectured at 15 and says he's impressed with curriculum, course offerings, and students
    • Roach: services industry is non existent, manufacturing is capital intensive, and they need a social safety net
    • Fallows: if you go to a hospital, you need to pay cash up front and will be kicked out when cash runs out.
    • Roach: exports are going to be slower due to US and Europe, but GDP can still grow 7-8% over next several years
    • Fallows: political unrest less dependent on GDP growth, than a sense that things will be better
    • Roach: spoke with leadership, frustrated with saber rattling on trade by US heading into elections
    • Roach: officials admire Silicon Valley, sees US as wounded, and are worried about Treasury holdings
    • Fallows: looking at history rises of powers are typically accompany conflict, but views within the people of China towards the US are non hostile
    • Roach: next 5 year plan due out in early next year
    • Roach: basically believes the Government will due a 180 on the entire way their government and economy is run -
    • Roach: 40% of population in India and China who will both achieve 8% growth
    • HistorySquared Notes: Both believe major restructuring both politically and economically are needed, while Roach believes it will happen. We're dubious it can happen without a crises, which is often what it takes to change human behavior.
     
    8.16.10
    • China Selling Treasuries link
    • China has sold 6% of it's Treasuries in May - June period been a net seller of Treasuries recently, which has been picked the government lending to itself via QE, US consumers, Japan, and Switzerland amid others, further stoking concerns of a US Treasury Bond bubble.
    • HistorySquared notes: It's somewhat stunning to see Treasuries continue to rally despite Chinese selling. They still have $860 billion, which is purportedly underreported by $400 billion due to the notoriously opaque nature of PBOC financial transactions.
     
    8.14.10
    Stratfor - Chinese GDP and Questions of Strength - link
    • Chinese Two Start General Liu Yazhou said in Hong Kong's Phoenix magazine that China must reform or perish, stating that the choice is between American style democracy or a soviet style collapse.
    • George Friedman notes that this probably comes as a shock to the American people who believe it's on a course to reform, when it reality it's facing a Soviet style collapse.
    • "China is far from a capitalist country," Friedman says. "It is simply a country with rich people who make even more money."
    • Tensions are rising between the two power due to military exercises with South Korea, and the Chinese.
    • Rising prices are creating higher prices are creating big problems for the poor.
    • HistorySquared Notes: The rising prices are due to the imported inflation from loose US monetary policies combined with the predictably unpredictable weather patterns.
     
    Came across a few figures on China 's Concentrated Wealth
    • Source unsure
    • 600 million people make less than $3 a day
    • 300 million people make between $3-$6 a day
    • History Squared Notes: The wealth in china is highly concentrated. Higher food prices are impacting 3/4 of the country's population to a very large degree. Lower exports could be a trigger to major social and political unrest.
    • HistorySquared Notes: The Chinese military is 1 million strong, made up of the poor, whose families have been left out of the China miracle.
     
    CNBC Word had China Market Research's Shaun Rein on as a guest
    • Original Airing Date Unsure 
    • Food inflation, listed at 3.3% is distorted
    • Rein noted that food prices surging, mentioning how on prices at he and his wife's favorite restaurant, a Brazilian BBQ joint, has seen prices rise from 68 RMB 3 years, to 98 RMB (time undetermined), then surging to 120 RMB 3 months ago.
    • Egg and pork prices leading price gains
    • Wages inflation is surging, noting it's another way to correct a trade surplus. 
    • He notes that there had been 1 million china graduates, but there's 6 million college graduates today.
    • Deteriorating demographics
    • Companies like Nike Labor moving to Sri Lanka, Vietnam 
    • Factories more automation
    • HistorySquared Notes: There's been rumblings that China's colleges are weak academically, purported not one qualifying to be among the top 200.
     
     


    Disclosure: None
    Themes: China, Historysquared Stocks: FXI, FXP
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