Spook

Yet Another Huge Economic Number Coming out of China. Hard to Believe

Group of Chinese businessmen were is Taiwan in the last few months buying everything, take for example LCD panel, consumer sales in US were down, yet LCD panel maker in Taiwan are very optimist about the second half of 2009.

What people outside Asia normally see are the trend in cities like Shanghai and Beijing as well as the slump in pearl delta, but there are developing cities elsewhere in China were consumer spending is up a little.

I agree with Mark that people who never step foot in China does not know China well enough.

Rio Tinto's Chinese Mistake

As more news gets reported by different agencies, the clearer the picture becomes.

* February 12, Australian stimulus plan fail in senate,
* February 13 China announce a $19.5 billion bid, the same day Australian senate pass the stimulus plan,
* March 25th, Australian government approved Chinalco bid,
* June 5th, the Chinalco-Rio Tinto deal collapse,
* June 30, the iron ore price negotiation between China and Australia pass without a resolution
* one week later China announce it will stop stockpiling of iron ore
* following day, China arrest 4 Rio Tinto employees
* July 10, Reuter reported that China Shougang head of the iron ore department had been detained.
* over the weekend, news indicated that Rio employee bribe head of Shougang iron ore department to determine what's China bottom line.

Looks like Rio used this information to walk away from $19 billion deal and strong stance against China asking for iron ore discount. Wall Street Journal reported that Australian government is asking for more detail on the arrest, seems like the Aussie knew this will bite back.

Here we have Rio asking China financial help to repay their debt, entice them with a $19 billion deal, then decided that they probably can screw the Chinese by dealing with BHP, I don't think the Chinese will let it go easily.


> First, Rio rejected chinalco's bid, and a week later, Rio's employees
> were arrested for "spying".
>
> Let supposed these Rio employees were stealing state secrets for
> a long time, and China's "secret police" have been investigating
> for a long time. Then, China state officials will stop Chinalco's
> bid on Rio for the sake of state security since the deal started.
> But of course, we all know what happened. Chinalco had the full approval
> from the state government for the go ahead to buy Rio.
>
> Yeah, sure, of course we do not know what is going on behind that
> "closed door", so why should we all speculate? Because we like dramas!

GM: Cuts and Outsourcing

Yes, you are not buying cars from a communist built labor force, but the large screen LCD in your house, the desktop computer you and your family use, the cellular phone that you have on your belt, are all build in communist China, by the communist laborer, paid by communist currency, exported to you in exchange for your dollar.

Wake up, 80% of what you buy and use in US are made in China. more than 50% of Walmart product are made in China. Its a trend and its inevitable, the only edge you have is the technology, patent and the core of most of the product, the software.



> about the lead based toys! As for me I will never buy a car from
> a Communist build labor force. Americans could build these cars but

Must Read for China Investors: Fact and Fiction in China

I think you are confusing with doing business and owning a business.

Doing business in China is the same as conducting business anywhere, in fact conducting business with a Chinese is far more easier than the western business person. All is based on trust, first impression and a short contract.

But owning a business in China is totally different, you don't want to do that unless you are a citizen, you are married to a local person, or you have the right connection. Otherwise its like investing on a ponzi scheme.


On May 10 08:11 PM Jasper M wrote:

> "None of this is to say that investors should avoid China."
>
> On the contrary, to the extent they are true, that is exACTly what
> this is saying.
> Socialist dictatorships are Bad for Business.
> It was easy for the Chinese to look like angels, climbing up from
> the state that Mao left them. But they are still way more socialist
> than, say, England, and I wouldn't do business there, either.

Must Read for China Investors: Fact and Fiction in China

Yes, to really observe and understand China market, one have to visit China once and see it for themselves.

> I would advise
> the author to go to China and see for himself that he is off-base.

Why AIG Wasn't Allowed to Fail

AIG is a victim of their own greed, underwriting those CDS without fully understanding how toxic it is, but short term money was being made left and right, no time to sit back a take a second look on what was happening.


> AIG and the big banks have gamed the system. They have become successful
> at widespread extortion of the taxpayer and the government is caught
> in the web. And this is all legal, apparently. There are no prosecutions
> of any significance going on here. No laws have changed so guess
> what? Let's get into the CDS business!
> I'm sure there are lot's of buyers so we can grow really fast and
> pay ourselves lots of money in the process (especially those bonuses!).
> Then when we started defaulting on our contracts good ole Uncle Sam
> will step in. No Problemo! Just rinse, repeat, and laugh all the
> way to the bank.
>
> The CDS business should be shut down or at the very least heavily
> regulated. Now let's here from all the morons who think otherwise......but
> full disclosure only please, lol.

Japan Defends Dollar’s Status, China Tears It Down

The last thing you want to offend a Chinese when dealing with them is to let them loose face, recent Rio Tinto rejection vote against Chinese foray, then the strong stance in iron ore price reduction will speed up the Chinese move against western currencies.

However, it will be very interesting if there will be a study on which countries will be affected if US dollar will not longer be the supercurrency.


> I think you hit the mark on that one. The Chinese have been trying
> to buy natural resource assets for years. The latest salvo is the
> Repsol YPF overture in Argentina.
>
> But way back, there was the Unocal decision - completely unjustified.
> It was protectionism plain and simple. Then came the Rio move -another
> slap in China's face. And I should point out that the Germans have
> done a number of things which makes clear they don't want Chinese
> money either. So, it isn't just Anglo-Saxons doing this.
>
> The Chinese are pretty fed up with all of this. It is no wonder
> they are now viewing their western currency reserves as sunk costs
> and looking to a new monetary regime.
>
> Remember also that Russia and China will make things ugly at the
> U.N. for the U.S. on issues like North Korea or Iran unless they
> get traction on this issue.
>
> It would be wise to remember the failed deal between Chinalco and
> Rio Tinto. The Chinese were deeply insulted by the rejection of their
> proposal and it must impact their decisions on building foreign reserves
> in any currency, if the Anglo-Saxon economies are unwilling to allow
> them to buy strategic assets.
>
> As it stands they must feel that Western governments are playing
> them for fools, as they suspect the Fed, and several other central
> banks intend to inflate their debt problems away and yet they find
> themselves blocked from buying the natural resource assets they need
> for their own economic growth. They may be using the leverage they
> have with the US to prevent this continuing.

GM: Cuts and Outsourcing

Follow what the high technology companies had been doing for the last 20 years, outsource and subcontract. It may not provide more manufacturing job in American, but it will make these companies more competitive, efficient, survive and still the master of their own fate.

GM, Chrysler can look for a company somewhere in Asia to build a car to their specifications that meet the federal requirement, you save lots of engineering cost, manufacturing cost, and labor cost. And as part of WTO, you get to import the car from Asia as a quota. GM and Chrysler then can concentrate their effort in marketing and sales worldwide.



> Well. . . I guess you got tha off your chest. Anything constructive
> to offer?

Is Sony Too Big to Be Fixed?

But with globalization and deflation, strong competition from Samsung on LCD TV, Wii and Xbox on game entertainment, Samsung and iPhone on mobile phone, it will be hard for Sony to raise the price and not clobber by the competitor.

Maybe Sony have to admit its course, like every technology and electronic company, every 8 to 12 years, the industry evolve itself, the leader become the second player, and the runner up become the leader.

If China Is Recovering, How Will We Fare?

Ah, the myopic view, lets take a moment and look at the industries position, right now Taiwan companies ship or produce the bulk of the world computers, monitors, notebook, cell phones, have almost half of the share of LCD panel and big chunk of LCD TV. Which is pretty much translated as what Taiwan ship regardless of where it was build are with quality.

If you noticed that the Taiwan stock market is still climbing for weeks now, yet US market is still depress, northern and easter Europe is not growing, then where do they sell their wares?

China. Again, China government subsidize large portion of the sales of LCD TV to Chinese rural area in February, one Taiwanese company who benefit on this is Chi Mei (anti-communist and a pro-DPP supporter).

In March, it was cell phone and other consumer products that is being subsidize, with billions of dollar to spend, the export industry may be down, but the local industries are up.


>
> What are we going to sell them? Salmonella laced peanuts?

Something Is Happening in China: How Investors Can Profit

I will the report a merit, although not sure how the PMI is being interpret.

In the 4Q of 2008, everyone here in Taiwan to China slam their brakes on forecasting and ordering, due to a sharp decline in sales in US and in Europe, as well as pilling inventories.

Since January, we noticed that the domestic retail in China has some activities, retailer and reseller will ask around for inventories, brand is no longer an issue, he who have stock and deliver get the orders.

Local information here also shows that China government subsidize a Taiwan LCD TV maker late last year, not only to help it survive, but to use the product to promote it to remote regions, one way of China stimulus.

All these index is not leading to export, but to local consumption.

I know there are few readers here that are already based in China, whats their thought on this?

China Should Be a Manufacturing Giant

If the history is correct, America came into becoming the world manufacturing giant during World War II and after World War II, US manufacturing lead and capacity remain unchallenged in all these year.

How did US with 5% of the world population responsible for 20% of global manufacturing? couple answer.

- purchasing power, after World War II, US per capita income became the world highest, this lead to US consumer to afford spending.
- As US consumer spend, manufacturing react with supplying more, this lead to the colonial mentality in the third world nation until mid 80's, that anything made in USA, is the best.
- unchallenged manufacturing, until 80's/90's, US manufacturing remain unchallenged until the Japanese catch up, which eventually lead to US start outsourcing in order to compete.
- the value of goods produce, even though the US outsource a lot of manufacturing to Asia, the most expensive item still remain in US for manufacturing. This value alone still stand above all manufacturing combine.

Of course, this advantage will remain until another country match it and surpass it.

Chinese Retaliation - Detained Rio Executive Should Make Us Nervous

Agree with what Canadian Re..... says, news only state of 4 Rio employee being arrested and no mentioned of non Rio personnel. If the Stern Hu is indeed stealing state secret, then there must be an accomplice who have access to state secret, whoever this person may be is probably being sentence for execution.

But lets look at this as "what if this is a real case of spying?",
* February 12, Australian stimulus plan fail in senate,
* February 13 China announce a $19.5 billion bid, the same day Australian senate pass the stimulus plan,
* March 25th, Australian government approved Chinalco bid,
* June 5th, the Chinalco-Rio Tinto deal collapse,
* June 30, the iron ore price negotiation between China and Australia pass without a resolution
* one week later China announce it will stop stockpiling of iron ore
* following day, China arrest 4 Rio Tinto employees

Too coincidental? somehow Australia must have known some critical information in order to walk away from all these deal.

China Signals End of Commodity Stockpiling

Agree with CautiousInvestor, China have been hoarding commodities when recession hit, with 2 trillion in reserve, it can afford to buy all the raw materials available.

But isn't it coincidental that China will stop hoarding raw materials 4 days after talk with Rio Tinto on iron ore price cut failed to materialized?


> All of the dry bulk containers ships are bound for China, with demand
> arising from strategic stockpiling, stimulus spending and speculation.
>
>
> Surprisingly, in my view, this has been viewed as an indication of
> economic recovery when it is clear there is no final demand beyond
> China's borders.
>
> China' State Board, who is anything but dumb, will not continue to
> compete against itself and bid up prices in abundant commodities.
> And speculation owing to stimulus lending spilling unto the hands
> of arbitrageurs is certain to end.
>
> Together these developments will remove the pricing floor beneath
> the commodities China has been hoarding.

A Look at U.S.-China Trade

Agree with David, not a China problem, more with US long term problem.


> I am a little puzzled why America sees this as China's problem.