Do They Really Yuant a Higher Yuan?

[marvenger]

Re: Do They Really Yuant a Higher Yuan?

Walmart is the largest private employer in the US. Does Walmart want a stronger Yuan?

[touchring]

Re: Do They Really Yuant a Higher Yuan?

One reason I hold sing dollars.
BTW check this out:http://www.cigionline.org/sites/defa...20report_2.pdf

Sing dollar is not safe in the long run. the sing bubble is almost as huge as the chinese bubble.

[bill]

Re: Do They Really Yuant a Higher Yuan?

Sing dollar is not safe in the long run. the sing bubble is almost as huge as the chinese bubble.

I agree currencies need to be traded. Not a bad hold since my purchase in 2002.

[Rajiv]

Re: Do They Really Yuant a Higher Yuan?

There was a set of interesting articles on China at "Israel's Financial Expert"

The Next Black Swan- A Yuan Devaluation

In 11 big surprises for the next decade we wrote:

China Bluff Exposed, Regime Overthrown- China's communist regime continued to print money, lending it to everybody that wanted and didn't want it. The giant housing, infrastructure, and manufacturing bubble came to a violent crash when the debts where not paid and inflation forced the authorities to tighten despite massive unemployment. The combination of high inflation and high unemployment in the urban centers took the people to the streets. The Chinese citizens refused to accept state intervention in the economy and their personal life demanding more personal and economic freedom resulting in prolonged civil unrest which almost reached a full scaled civil war. The collapse of the Chinese regime and economy resulted in a colossal bust for commodity prices, albeit temporarily and caused a severe recession in Australia, Brazil, Russia, Argentina, and the Gulf States.

Well we predict that one of the next big shocks to the global financial system, happening probably as early as 2011 is not a Yuan revaluation as many expect but a Yuan devaluation!

China has a trade deficit

One of the big changes that emerged in the global financial scene in 2010 has been the emergence of a trade deficit in China. And if China’s trade deficit persists, There is a very high risk of yuan devaluation. This of course contrasts with forecasts this year from economists and investors including Goldman Sachs Group Inc.’s Jim O’Neill and Stephen Jen of BlueGold Capital Management LLP that the yuan will strengthen.

China has kept the yuan at 6.83 per dollar since mid-2008 to shield exporters from the global recession and a contraction in world trade. The U.S Treasury Department said in an April 15 report that is “seriously considering” labeling China a currency manipulator, according to U.S. Senator Charles Schumer.

China reported a trade deficit of almost $8 billion in March, compared with a $24 billion surplus in October, as imports grew faster than exports. China’s trade deficit in March, of $7.2 billion, was the first monthly deficit since 2004. It couldn't come at a more auspicious time, for China that is. Beijing is in the middle of a tug-of-war with Washington over the value of its currency, and the deficit takes the steam out of the American position that the yuan is grossly undervalued. Politicians in Washington (and many economists) have insisted that China purposely keeps the yuan (also known as the renminbi) at an artificially cheap level, giving its exports an unfair cost advantage in global markets and fueling China's persistent trade surpluses. If those surpluses have vanish, so does the American argument.

Still, economists are not changing their view that China will need to allow the yuan to appreciate to fight inflationary pressures and slow down a potentially overheating economy. Here's what Jun Ma, chief China economist at Deutsche Bank, had to say on the matter in a note to investors:

Many people wonder whether (the March deficit) would become a meaningful argument for China to avoid or delay its exchange rate reform. Our answer is no, as this monthly deficit is a symptom of economic overheating and a few other one-off factors and is thus tentative in nature. We expect China's trade balance to return to surplus a few months later, and the outlook for the RMB to resume flexibility should not be affected.

Yet there's another way of looking at this picture. ......
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The collapse of the Asian growth model

Over the last three decades there has been a dramatic shift in the stance of development policy with import-substitution being replaced by the export-led growth. A significant concern with this latter model is that it may risk turning global growth into a zero-sum game. This can happen if one country’s export growth comes by poaching of domestic demand elsewhere or by displacing exports of other countries.

Rather than focusing on production for domestic markets, countries were advised to focus on production for export. This shift away from import-substitution toward the export-led growth was driven significantly by the economic troubles that emerged in the 1970s. At that time many developing countries, who had prospered under regimes of import-substitution, began to experience slower growth and accelerated inflation.

This led to claims that the import-substitution model had exhausted itself, and that the easy possibilities for growth by substitution had been used up.second factor fostering adoption of the export-led model was the shift in intellectual outlook amongst economists in favor of market directed economic activity. Import-substitution requires government provided tariff and quota protections, and economists increasingly came to portray these measures as economic distortions that contribute to productive inefficiency and rent seeking.

The shift in policy stance was also propelled by the empirical fact of Japan’s spectacular success in growing its economy in the twenty five years after World War II, and by the subsequent growth success of the four east Asian “tiger” economies - South Korea, Taiwan, Hong Kong, and Singapore. All of these economies relied on increased exports.

The problem is that the export-led growth model suffers from a fallacy of composition whereby it assumes that all countries can grow by relying on demand growth in other countries. When the model is applied globally in a demand-constrained world, there is a danger of a beggar-thy-neighbor outcome in which all try to grow on the backs of demand expansion in other countries, and the result is global excess supply and deflation.......
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Say hello to China's Price/Wage spiral

The price/wage spiral represents a vicious circle process in which different sides of the wage bargain try to keep up with inflation to protect real incomes. Thus, this process is one possible result of inflation. It can start either due to high aggregate demand combined with near full employment combined with an increase in the credit and money supply. As the spiral evolves, business owners raise prices to protect profit margins from rising costs, including nominal wage costs, and to keep the real value of profit margins from falling. At same time wage earners try to push their nominal after-tax wages upward to catch up with rising prices, to prevent real wages from falling. So "wages chase prices and prices chase wages," persisting even in the face of a recession. The spiral is also limited if labor productivity rises at a quick rate. Rising labor productivity compensates employers for higher wages costs while allowing employees to receive rising real wages, and allowing the company's margin to stay the same.

Of course if the money supply does not expand, then the "price wage spiral" would not occur. Business, after all, does not attempt to "protect profit margins", it tries to maximize profits. The reason that high economic growth and inflation are often observed together is that when the government creates inflation by printing fiat money, the inflation tricks capitalists into increasing production, which created the illusion of an economic boom. The "spiral" of increasing prices and wages, however, can only continue as long as the government continues to intervene in the economy by inflating the money supply.

If it were not preceded, accompanied, or quickly followed by an increase in the supply of money, an increase in wages above the "equilibrium level" would not cause inflation; it would merely cause unemployment. And an increase in prices without an increase of cash in people's pockets would merely cause a falling off in sales. Wage and price rises, in brief, are usually a consequence of inflation. They can cause it only to the extent that they force an increase in the money supply.

Well, China has been printing a lot of money for a long time in order to keep the Yuan low which befitted their export sector. As a result of their policy they accumulated massive foreign exchange reserves, and had giant trade surplus. Since China over one billion people and since most of them where farmers up until the 1990's the money printing didn't cause wages to rise dramatically. (money flows to places where supply is tight and China had abundant labour)

So the money went in to commodity, real estate, and stock prices in China. But now something totally different is happening. China trade surplus is gone, food prices are rising and wages too. This, combined with weak exports, a weak euro is killing China corporations margins and we have a classic wage and price spiral.
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How to profit from the coming collapse of China

Why will China Collapse?

China’s old growth model is dead-

Rather than focusing on production for domestic markets, countries were advised to focus on production for export. This shift away from import-substitution toward the export-led growth was driven significantly by the economic troubles that emerged in the 1970s. At that time many developing countries, who had prospered under regimes of import-substitution, began to experience slower growth and accelerated inflation.

The problem is that the export-led growth model suffers from a fallacy of composition whereby it assumes that all countries can grow by relying on demand growth in other countries. When the model is applied globally in a demand-constrained world, there is a danger of a beggar-thy-neighbor outcome in which all try to grow on the backs of demand expansion in other countries, and the result is global excess supply and deflation.

This appetite for cheap Chinese exports, which had at one point seemed insatiable, means that the West has come to owe China over 2 trillion $. China has become the world's biggest creditor, but creditor nations running persistent trade surpluses has two historical examples. The US economy in the Twenties and the Japanese economy in the Eighties.

In both of the previous examples a failure to allow exchange rates to adjust to the new reality created a large speculative pool of credit that, in turn, led to overvalued domestic assets and, eventually, an economic crisis. When economic activity worldwide is growing at a healthy clip, China’s higher share of exports to GDP is welcome. When the opposite holds true, China is the one that suffers the most.

China's growth has been based largely on one-time changes in behavior that cannot be repeated. Over the past generations the percentage of people employed has almost tripled; it cannot triple again.

(See: The collapse of the Asian growth model )

China is in a Price wage/spiral

China and other countries have tried to implement policies to boost domestic consumption as advanced nations are unlikely to absorb the region’s excess production, but just can't boost demand and imports by 80% in one year, since a) it is artificial, and b) it leads to very high inflation.

Well, China has been printing a lot of money for a long time in order to keep the Yuan low which befitted their export sector. As a result of their policy they accumulated massive foreign exchange reserves, and had giant trade surplus. Since China over one billion people and since most of them where farmers up until the 1990's the money printing didn't cause wages to rise dramatically. (money flows to places where supply is tight and China had abundant labor)

So the money went in to commodity, real estate, and stock prices in China. But now something totally different is happening. China trade surplus is gone, food prices are rising and wages too. This, combined with weak exports, a weak euro is killing China corporations margins and we have a classic wage and price spiral.

Since China produces simple products and since China has focused on quantity and not on quality there is no significant productivity growth to offset the money printing. Once the movement to the cities was exhausted (there is no demand for more Chinese peasants producing more Nike shoes…)

(See: Say hello to China's Price/Wage spiral )


China has a giant housing bubble that is financed by a ponzi scheme

As China’s economy weakened in late 2008, private lenders began demanding money back from distressed private companies. Loans from state-owned enterprises may have kept many private companies from going bankrupt. It has served to re-channel bank lending into cash for individuals and businesses that were in the lending business. This money has flowed into asset markets, especially real estate. Prices have risen at a record pace at a year where the export sector is very weak.

(See: 50 facts about China's Bubble Economy )

Local governmental officials, that are demanded from the government to produce double digit GDP growth numbers give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurastiction. some of them are active partners in shark loan businesses. For example, a party secretary of legal affairs, that controls the public security bureau, which is a court and prosecutor division of government in yongkang city, in zhe jiang province tired to run abroad using a passport in 2009 after he found out he can’t repay 60million Yuan. In li Every scheme has a ring leader who's job is to collect money from all the participants in the ponzi scheme. When some of these ponzi schemes blow up, the party leaders always get bailed out first, and some even ask local business owners to lend them money, and then bail out their own personal fund. After that the ring leader turns himself in and gets protection from the local government.

Most of the funds that are collected in this classic ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game.

(See: The Secret Engine Behind China’s Housing Bubble- The Ponzi Shark Loan Finance )

How to profit from the collapse
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China’s Shark Loan Ponzi Finance- A Few Selected Stories From The Chinese Press

As mentioned in our latest article, stories about the Chinese Ponzi finance scheme are all around in the Chinese press, in the local newspapers and on internet.

For those of you who haven’t read The Secret Engine Behind China’s Housing Bubble- The Ponzi Shark Loan Finance here is a short summary of the scheme:

Local governmental officials, that are demanded from the government to produce double digit GDP growth numbers give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurastiction. some of them are active partners in shark loan businesses. For example, a party secretary of legal affairs, that controls the public security bureau, which is a court and prosecutor division of government in yongkang city, in zhe jiang province tired to run abroad using a passport in 2009 after he found out he can’t repay 60million Yuan. In li Every scheme has a ring leader who's job is to collect money from all the participants in the ponzi scheme. When some of these ponzi schemes blow up, the party leaders always get bailed out first, and some even ask local business owners to lend them money, and then bail out their own personal fund. After that the ring leader turns himself in and gets protection from the local government.

Most of the funds that are collected in this classic ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game.

For those of you who want additional proof here are a few selected sources from the internet:

1. If you google “private shark loan” in Chinese you can find 1.87 million hits, with a lot of stories about the subject.

1. On March 1ST the largest financial newspaper in China, First Financial Daily, published an article titled: “Disclose of the Secrets of the Profit Chain of the “Real Estate Flip Flop Group” that provided private capital for real estate developers”

The article stated that the source of the high return of “China Real estate flip flop group” is the interest difference between ultra low bank loans and so called “private loan”, that they provide to real estate developers.

The article states that the annual interest rate of official banks is 7%, while the loans in the black market are as high as 100 %

The article also describes in great detail flow of funds from the local bank, to the private shark Loan Companies and finally to the real estate “flip flop group” that buys the houses from the developers.

Since this article was also published in internet, there are total 964 comments on this article; Are Chinese researcher read a large amount of the comments where similar groups around China try to advertise themselves through the internet.

Read full story HERE,(In Mandarin)

2. Chinese internet forums are all full with stories about shark loan operations. The above link is a 2010 April 18 posting which mentions the shark loan frenzy in “ Qingdao City” of Shandong province.
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[GRG55]

Re: Do They Really Yuant a Higher Yuan?

Let's see now...G20 meeting scheduled to start in Toronto in one week.

Yep, right on que...

Peg is dead as China vows yuan flexibility

Michael Wei and Benjamin Kang Lim
BEIJING
Sat Jun 19, 2010 8:48am EDT

(Reuters) - China will gradually make the yuan's exchange rate more flexible, the central bank said on Saturday, indicating that it was ready to break a 23-month-old dollar peg that has come under intense fire from abroad.
The People's Bank of China all but ruled out the one-off revaluation or major appreciation hoped for by critics, saying there was "no basis for big fluctuations or changes" in the exchange rate...

Mission accomplished!

From the G20...

JAPANESE PRIME MINISTER NAOTO KAN
On the Chinese currency:
"China has already set out to allow some flexibility. Our finance minister has welcomed this and the United States has also made similar remarks.
"There was no discussion at this meeting that mainly focused on the yuan. I think it was because this issue has turned a corner."

CANADIAN PRIME MINISTER HARPER ON CHINA CURRENCY MOVE
"The declaration has an important commitment to greater exchange rate flexibility going forward. And as we know, the Chinese specifically have made that commitment to the world coming into and at this summit. And I'm confident that the Chinese will fulfill that commitment. And as we all know, when you make commitments like this on the world stage you will be held accountable for them."

ANDREI BOKAREV, RUSSIA'S DEPUTY SHERPA
On omitting a yuan reference in communique: "The majority of the members of the G20 welcomed the plans of the government of China on introducing a floating yuan rate. But in the final communique this phrase will not be in there at the request of the Chinese side."

[GRG55]

Re: Do They Really Yuant a Higher Yuan?

Watch out: yuan may fall as volatility picks up

SHANGHAI | Fri Jul 2, 2010 4:52am EDT

(Reuters) - Now that China is staying true to its word and letting the yuan trade a bit more freely, analysts and investors outside the mainland may not be prepared for one potential outcome: a yuan drop...

...The fundamentals arguing for substantial yuan appreciation have changed since the financial crisis: China is running smaller trade surpluses, and economists see the potential for the shrinking current account surpluses to turn into deficits in coming years.

As a result, the basis for steady but slow yuan appreciation versus the dollar is not as strong as five years ago -- one reason why Beijing keeps emphasizing flexibility in its pushing forward the reform of its currency system...

[jk]

Re: Do They Really Yuant a Higher Yuan?

a freely convertible yuan might lead to a steep drop as foreigners repatriated funds and mainlanders moved money abroad to diversify their holdings.

[touchring]

Re: Do They Really Yuant a Higher Yuan?

a freely convertible yuan might lead to a steep drop as foreigners repatriated funds and mainlanders moved money abroad to diversify their holdings.

not just that, China has been printing a lot of money, the inflation is so crazy, wages have to be raised 50% to keep up with inflation the last year or so.