Bank Lending Leads to Garlic Boom!

In further evidence that China’s excessive bank lending is leading to an asset bubble, commodities have risen faster than the 77% rise in the stock market.  Just one example: Garlic prices are 10 times one year ago.

China’s New Commodity Boom

Though other factors are at play, e.g. that garlic protects against swine flu and is the health rememdy du jour in China, the crop’s rise is largely attributable to too much liquidity, particularly in Jinxiang, where garlic is grown in China.

As one of the commenters on the article describes, the article is somewhat debatable in how it attributes blame for the price rise.  The Economist blames hot moey flows (or suggests it as a culprit) but the commenter points out that bubbles are usually not caused by international capital trade.  He explains that bubbes are are caused by domestic monetary expansion, of which China has been hard at work over the past 12 months.   The lesson here is that restricting foreign investment will not stop China’s financial woes, it will add to them in the long term.

China May Follow Dubai’s Debt Fiasco

http://news.alibaba.com/article/detail/trade/100210029-1-china-may-follow-dubai%2527s-debt.html

http://211.234.100.245/www/news/nation/2009/12/123_56506.html

By Lee Hyo-sik
Staff Reporter

China may face a full-blown debt crisis in the future, following Dubai’s footsteps, as the world’s fastest growing economy has been sustained by borrowed money from financial institutions and fiscal stimulus, a renowned financial analyst claimed Tuesday.

Richard Duncan, who is famous for his bestselling book “The Dollar Crisis,” said China’s banks had accumulated huge non-performing loans over the past few years from financing unprofitable real estate development and other projects, adding the Chinese government has spent excessive amounts of taxpayers’ money to artificially prop up its economy.

“Like Dubai, China has been supporting economic activities through excessive leverage from financial firms and large fiscal spending, creating a bubble in the real estate sector and weakening the financial sector soundness,” Duncan said, who was here to attend an international conference marking the fourth anniversary of Hana Financial Group.

He then said China was already in deep trouble, pointing out that a number of property developments and other businesses financed through bank loans have failed to generate profits. Non-performing loans are piling up rapidly and as a result, the health of the financial industry has deteriorated, the analyst said, adding China’s fiscal stimulus has not achieved its intended goal and, in many cases, taxpayers’ money has been wasted.

Duncan then said China’s ratio of state debt to gross domestic product (GDP) had recently expanded to 14 percent yet the Chinese economy has been growing by only 10 percent.

But he said China would not face the Great Depression or other crises of a similar magnitude as its government debt is relatively small compared to those of other major economies, insisting its projected annual growth rate should come down to 6 to 8 percent from the current 10 percent.

Duncan said Asia’s economic growth model had hit a stumbling block with the U.S. economy collapsing under huge debts accumulated by consumers’ reckless spending.

The analyst argued that without large-scale government spending the U.S. economy would have contracted severely and its financial system would have broken down.

Even at the cost of enlarging its fiscal deficit, the U.S. government will likely continue to bolster its sagging economy. But the bigger problem is that manufacturing activities account for an increasingly smaller portion of the U.S. economy, while the services sectors account for a larger portion of GDP, Duncan said, noting that this could turn the U.S. into a more protectionist nation, which would have a negative impact on the rest of the world.

leehs@koreatimes.co.kr

To save your time, long story short, according to Richard  Duncan at Hana financial group forum, like Dubai,  Chinese economy will undergo crisis. Businesses financed by bank loan cannot perform well, and doesn’t make profit. It is creating real estate bubble and weakening financial sector.  Accumulated leverage operating will be cause of next crisis.   But he said it doesn’t face great depression. by June.

Dubai crisis gives China chance to buy oil, gold

Dubai’s debt crisis could be China’s opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

No Chinese banks have yet reported exposure to debt from Dubai World, a flagship firm that last week said it was seeking to delay debt payments by six months. Some Chinese real estate and construction firms have limited exposure to projects in the emirate, state television reported this weekend.

China’s $2.27 trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council’s state assets commission, told the Economic Information Daily.

“That could give China a buying opportunity to put some forex reserves into gold or oil reserves,” Ji was quoted as saying by the paper, which is widely read by Chinese officials.

Another paper, the China Youth Daily, quoted Ji as saying that a team of experts from Beijing and Shanghai had set up a task force last year to look at the issue of gold reserves.

“We suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years,” the paper quoted him as saying.

That is in line with many officials’ view that China should decrease the proportion of its $2 trillion foreign exchange reserves held in dollar-linked investments and raise its gold holdings to diversify its portfolio.

China last acknowledged a change in its national gold holdings in April, when Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told Xinhua news agency that the country’s reserves had risen to 1,054 tons from 600 tons since 2003.

But it did so by buying domestically produced gold to help soak up unsold output. It has not yet shown any interest in buying from international gold markets.

“If the gold price comes down for a while, we might take the opportunity to buy a bit,” the Economic Information Daily, run by Xinhua news agency, quoted economist Li Yining as saying.

Li added that China must gradually diversify the asset and currency composition of its foreign exchange reserves. He recommended buying more land, mines and equity stakes in companies.

Wu Nianlu, a professor at the central bank’s graduate school, expressed concern about the safety of China’s non-bond holdings.

“Strictly speaking, almost half of our country’s foreign exchange reserve is not stable in value and is of high risk,” Wu was quoted as saying by the same paper.

Reference: www.reuters.com

by Scott

Long story short, because of Dubai’s debt crisis, USD rose, gold and oil prices went down. It is opportunity to by gold and oil for big USD holder, China.

by June

Talking about the Price of Housing in China again

BLOOM

China’s National Housing Price sees a strong boost in Q3 and Q4 of 2009. The average housing price in 31 cities across the country is about 6800 RMB/square meter, which is about USD 1000/square meter. This is already the highest in the last three years. Based on such number, one need to pay about USD 100,000 for an apartment of 100 square meters. Given that China’s GDP per head is about USD 3000, it takes about 33 years for an average Chinese to own a flat.China’s house prices jumped the most in 14 months in October, adding to concern that record lending may create asset bubbles in the world’s fastest-growing major economy.

China’s central bank and banking regulator may “soon” issue measures to limit the use of debt in real-estate purchases to rein in price gains, a Shanghai official said on Nov.9th. Asian economies from Hong Kong to Singapore are fighting rising property values, which threaten to mimic the U.S. mortgage bubble that roiled the world economy.

In China, $1.27 trillion of new loans this year and inflows of cash from investors betting that the yuan will appreciate threaten to inflate bubbles. The statistics bureau reported month-on-month house price gains for 65 of the 70 cities in October.

RISK

Requirements of 30 percent down payments for mortgages for first homes and 40 percent payments, plus higher rates of interest, for second homes, already limit risks, one official said,If there is some kind of collapse in the real-estate market going forward, the impact on the financial system is going to be very minimal.

In Shanghai, apartment prices still lag behind those in financial centers elsewhere. The city is the 66th most expensive for residential real estate, Global Property Guide reported in February, citing a purchase price of $2,918 per square meter for a 120 square meter apartment.

REFERENCE

Monaco, Moscow, London, Tokyo and Hong Kong took the top five places. New York was No. 6 at $14,898 per square meter. Beijing was No. 77.

Singapore’s central bank said yesterday that it may be necessary to implement more measures to counter real- estate speculation. The island nation has barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments that are still being built.

In Hong Kong, where a 28 percent jump in home prices this year has sparked a public outcry, Financial Secretary John Tsang said Nov. 4 the government was “very concerned” about the “sharp” rise.

In the latest Chinese data, price increases were led by Guangzhou in the south and Nanjing in the east, the statistics bureau said. Property sales by value jumped 79.2 percent in the first 10 months of the year to 3.15 trillion yuan ($460 billion). By floor area, sales rose 48.4 percent.

What do you think about the price in China in next year?

Housing And Marriage Talk

I am a shy, quiet, and hidden Korean exchange student June.
I think I have to finish posting this before Alan posts new article. ^^;

Last week, a couple of classmates asked me ‘how Korean girls think about housing and marriage’.

At first, I should explain the ways of Korean housing.

We can buy a house(or flat), or rent. And we have several ways of rent-a-house.
Thus, I can draw this 5 housing option.

0. buying house.
1. 月貰 monthly rent.
2. 傳貰 lease of a house on a deposit basis. pay deposit at the beginning of contract period, and get back when the contract expired.
3. mix 1 & 2
4. Stay in his or her parents house.

For example, I rent my hut through 3. It has kitchen, bedroom in same space and seperate bathroom. This is similiar with studio.

333 thousand HKD deposit and 650 HKD monthly payment.
I think this is very cheap one in Seoul.

I majored electrical engineering in university, and worked as an engineer for several years. I mean, I lived a man’s life. I had just few female colleagues. I mean, I lived a man’s life. So I had to ask my high school friend.
She graduated women’s university, always she shares how common Korean girls’ view.

If they marry after some dating and love each others, the man prepare house through the way of 0 or 2.
If they meet each other with a view to marriage, the man should buy the house, but not always. They want to start their new life on stable status. If they could not prepare any house, they have to make more effort to buy a house.
In conclusion, prepartion of house is man’s role.

According to her opinion, it’s common.
I have to comment some more about this.

Right after the university, even the guy saved whole of salary for a couple of years, he cannot pay deposit in seoul. That’s too expensive, mission impossible. (Or, the house must be very old one.)
That means, buy-a-house or rent-a-flat becomes a duty of ‘grown-up’ son’s parents.
Does it make sense?

No.. I don’t think so.

Why should they buy a new house for his son? They have to prepare their silver age also.
Now the son makes his own family.

(One of my friend said that I am crazy, and she thinks -she is pretty sure-, buying a house is duty of man’s parents. I said she is crazy.)

On the other hand, a friend of mine will marry next year.
She is a lawyer, and her boy friend is a public prosecutor.
Her bf has some debt from his parents.
Therefore she decided to prepare house, and will help payback his debt.

I think, everything depends on their own situation.

Well, in some cases, girls consern about men’s appearance, wealth, health, their parents, and height.

But, we know, almost of girls are very generous their own boy friends.
Is that a matter of love? Haha, or chemistry..

Hmm.. as many other countries, Korean marriage is a big deal for everyone.

Wow.. it’s already about 4 am.. ==;;;

Unfair horse racing

Far from the class topics, now I try to play devil’s advocate.
(Actually, I was hesitated.)

I believe all of you know this story.

We have horse racing for a long time.
Horses run and run, without seeing sides and listening to any other sound, just run straight.
The first horses group had enough carrots.
Going through the track, they ate lots of carrots, got stronger, made the track dirtier and also sometimes took others’ carrots.
First group horses now have carrots, sugar, and moreover IPOD with exciting music.
They know they cannot run that fast as before they did any more, they can enjoy running with music, though.

The second group members have to run faster to catch up the first.
One developed carrot-sesami energy drink, therefore they can make more energy with less amount of carrots. They also make the track dirtier.

The third group .. never ran yet. They don’t know what to do, but just sell carrot and they are busy fighting each others.

Now, one suggested that all have to clean the track and store carrots, because we don’t have enough energy for our sons and grand daughters.
And also he or she argues we have to make regulation to recover and save the earth.

Big players agree to the proposer.
They also worry about that.
Some take the initiative, try to show their effort making regulations,
Does it mean that they will stop running?
Who does have rights to make second and third group stop using energy,

under the reason of saving the earth issue?
And who should clean the track?

Well, factories move to another land which has relatively weaker regulation, like developing countries.
Developing countries cannot force strong regulation because they want to keep going, even there is severe polution as everyone can predicts.

In real world we live in now, every country acts like one single real life.
I mean, we are selfish, we have patriotism, we have nationalities.
Honestly, one of the reason why to help third group is.. to live longer. Those are who have the last carrot farm.

We have to watch inside devil’s mind, we act as an angel at the same time. How can you persuade devil?

Give me.. one more tylenol..

China’s Growth Led by Productivity, Not Just Investment and Labor

The Economist this week notes that, contrary to popular opinion that China’s growth has been fueled by over-investment and cheap labor, much of its growth is also attributable to Total Factor Productivity, or TFP.  According to The Economist, China actually has a “secret sauce” that is propelling it ahead of other labor focused developing economies like Brazil, or over invested (at least at one time) economies like Russia.  By comparison, China’s TFP is growing at 4% annually, and rich developed countries typically grow at 1%.  The aforementioned Russia and Brazil are hovering just over zero.

Read the article here:

http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=14844987

What is TFP?  TFP is the piece of a country’s productivity equation that is not a direct input of labor of capital.  In the Productivity equation ,  A is TFP.  The article explains that, if a country becomes 3% more productive, and labor and capital account for 2%, TFP is 1%.  So, the portion of productivity growth that is NOT labor or capital growth is TFP.

This is important for China as it signals the likelihood of a longer term growth trend, that labor costs and volatility in investment flows cannot hold back.   To keep such a growth rate in its productivity going though, China faces other obstacles.  Technology, innovation and production efficiency are the keys to the country’s long-term growth.  But, the Economist says, this depends on the country’s openness to foreign direct investment and trade, education and the flexibility of labour markets.  These tend to be bigger question marks for China.

China’s ability to sustain its rapid TFP growth is in question.  First, in the shorter term, China’s TFP growth will depend on how quickly global trade rebounds.  Its own domestic stimulus will of course boost TFP, something other countries (including rich and developed ones) will benefit from as well.  But without further reform, TFP growth will certainly stall.   Capital intensive productivity growth can happen for only so long without further easing of restrictions on foreign private firms.  The article provides a suggestion to further open the service sector to private firms.  Further, labor productivity growth can only happen for so long before workers demand more wages and benefits and other countries become more quality competitive.  Fixing this problem will require China to ease migration restrictions to allow workers to further flood in from rural to urban areas.  This would actually decrease labor productivity growth (training new workers, less quality focused jobs, etc…) in the short-term.

Perhaps the most important question for longer term Chinese competitiveness is: where this TFP growth is really coming from?  As one of the commenters in the article asked, is this coming mainly from Foreign companies pushing their suppliers or local branches for cost competitiveness?  OR is it Chinese innovation and the country’s own push to make operations more efficient?

China’s Concern About U.S. Deficit

The NEWS:

China hopes that the United States will keep its deficit to an appropriate size to ensure basic stability in the U.S. dollar exchange rate, Chinese Premier Wen Jiabao said on Sunday.

“We have seen some signs of recovery in the U.S. economy … I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities,” Wen told a news conference in Egypt.

“Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy,” he added.

The premier had expressed concern in March that massive U.S. deficit spending and near-zero interest rates would erode the value of China’s huge U.S. bond holdings.

BACKGROUNDS:

China has amassed $2.27 trillion of foreign exchange reserves, the world’s largest stockpile. The vast majority (analysts think about two-thirds) is invested in dollar-denominated assets. China is the single biggest holder of U.S. Treasuries, owning at least $776.4 billion of U.S. government debt at the end of June.

Washington’s ballooning deficit means that it needs investors to buy government debt more than ever, but, paradoxically, the scale of issuance means that China’s share of new purchases has been getting smaller. As recovery from the financial crisis effectively forces the U.S. savings rate higher, domestic buyers have become the most important source of incremental demand for Treasuries, making the United States relatively less vulnerable to changes in foreign demand.

U.S. commentators fret that gives Beijing might stop buying more debt and possibly selling what it holds.

Apart from an extreme trade war scenario, it is unlikely that Beijing would ever dump its U.S. holdings as this would send shockwaves through the market and only serve to undercut the value of its remaining U.S. investments.

If the single largest buyer of U.S. government debt — China — sold it off or vowed to buy no more, the immediate impact would be downward pressure on the dollar. One of the United States’ strongest claims for the dollar’s status as a key reserve currency is that it runs “the deepest, most liquid capital markets in the world,” so if its top buyer dropped out, that claim would ring hollow and the dollar’s status would be called into more serious question than it is already.

Reference: www.reuters.com

Dollar Falls as Manufacturing Grows; Oil, Copper, Gold Rally

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGYpGVQ8NdkA

By Justin Carrigan

Nov. 2 (Bloomberg) — The dollar slid against high-yielding currencies, led by the Australian dollar, as China reported a surge in manufacturing and investors bet factory production in the U.S. accelerated. Oil, copper and gold climbed.

The so-called Aussie advanced versus 15 of the 16 most- traded currencies as of 10:12 a.m. in London, and the Swedish krona gained against all 16. Oil added 1 percent in New York while copper rose 0.7 percent in London and gold rallied 0.8 percent. Futures on the Standard & Poor’s 500 Index increased 0.7 percent, indicating the benchmark gauge for U.S. equities may rebound from its steepest weekly drop since May.

Manufacturing in China expanded at the fastest pace in 18 months, according to a purchasing managers’ index from HSBC Holdings Plc. The U.S. Institute for Supply Management’s manufacturing index probably climbed to the highest level in three years, a Bloomberg News survey showed. Australian TreasurerWayne Swan today increased the government’s forecast for growth, fueling speculation the central bank will raise interest rates tomorrow for the second consecutive month.

“The markets have taken a step back and said: hold on, the global economy is recovering and we’re not in an environment where risk aversion is going to shoot up on a sustained basis,” said Daragh Maher, the London-based deputy head of global currency strategy at Calyon, the investment-banking arm of Credit Agricole SA.

Dollar Index Falls

The dollar fell most against the Australian currency, dropping 0.7 percent, sending the Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus some of the U.S.’s biggest trading partners, down 0.1 percent.

The pound fell for a second day against the dollar on speculation the Bank of England will extend its bond-buying program this week to revive Britain’s shrinking economy. Sterling also snapped a five-day gain versus the euro asRoyal Bank of Scotland Group Plc said it may be forced to sell assets “not initially contemplated” to shore up its finances.

The dollar’s decline buoyed commodities, while China’s manufacturing report revived optimism that the world’s biggest consume of metals will buy more raw materials. Copper for three- month delivery on the London Metal Exchange rose $45 a metric ton to $6,525. Crude oil for December delivery added 61 cents to $77.61 a barrel on the New York Mercantile Exchange. Gold for immediate delivery climbed as much as $8.35 an ounce to $1,053.76, the highest price since Oct. 26.

Rice Rallies

Rice futures on the Chicago Board of Trade advanced for a fifth day to the highest level since Jan. 12 as India, the world’s second-largest grower, resumed imports for the first time since the 2005-06 marketing year. Rice for January delivery jumped 1.4 percent to $14.89 per 100 pounds.

The Shanghai Composite Index climbed 2.7 percent, its biggest gain in three weeks and the steepest advance today among benchmark indexes in the world’s 25 largest equity markets. SAIC Motor Corp., the country’s largest carmaker, jumped 6.3 percent after third-quarter profit rose more than ninefold.

The 22-country MSCI Emerging Markets Index lost 0.6 percent, while South Africa’s rand weakened 0.9 percent against the dollar, the steepest decline among developing-nation currencies tracked by Bloomberg.

U.S. futures advanced even after CIT Group Inc., the 101- year-old commercial lender that saw its funding dry up in the credit crunch, filed for bankruptcy yesterday. CIT’s decision to seek court protection may give bondholders new notes at 70 cents on the dollar plus common stock. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.

Stocks Fluctuate

The Dow Jones Stoxx 600 Index of European shares was little changed after the worst weekly slump since July, as RBS led banks lower.

Lloyds Banking Group Plc slipped 2.9 percent in London. The bank, which is 43 percent owned by the U.K. government, is trying to persuade bondholders to exchange their debt for riskier investments that could convert into equity, as part of its 25 billion-pound ($40.9 billion) fundraising plan, the Financial Times reported, citing people close to the matter.

The MSCI World Index of 23 developed countries rose as much as 70 percent from March 9 through Oct. 19 as economies from France and Germany to Hong Kong exited recessions. The Federal Reserve spent, lent or guaranteed $11.6 trillion to revive growth and held interest rates near zero to unlock credit markets.

Rate Speculation

The global gauge has since retreated 5.8 percent as speculation increased that central banks will need to raise interest rates, while reports last week showed that U.S. consumer confidence, personal spending and new homes sales dropped.

Treasuries led declines in government bonds, with the yield on the 10-year note rising 3 basis points to 3.41 percent.

Pending U.S. home sales, due from the National Association of Realtors at 10 a.m. in Washington, jumped 6.4 percent in August, according to the median estimate in a Bloomberg survey of economists.

To contact the reporter on this story: Justin Carrigan in London atjcarrigan@bloomberg.net

Last Updated: November 2, 2009 05:19 EST

---

2009.11.14 omitting some more…

 

I, actually  last week, was interested in oil-copper relation, but I fished this article, and

http://www.moneymorning.com/2009/05/12/china-imports/

In this old article, it just said about raising iron, copper import.

OK. through this chance, I searched about dollar-fall, dollar hegemony, and pax dollarium.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aG71H79tz6hQ

Through this economic crisis, a crisis of pax dollarium will have been raised along the discussion. As international currencies, USD are used for many years, however, does it going to lose its hegemony now? I only found out document from Samsung Economic Research Institute(SERI). The conclusion was ‘No’. There is not suitable currencies to replace USD as a world’s currencies, and US gov’t will not let USD fall without any action. This is like, for a while we speak English as the international common language, not Esperanto.

Wanted : New Cool Handsome Pretty Members!!

Hi!

If you did not join any group, even if you take this class,
I want you. ^^*
We want 3 more nice members.

Please leave your e-mail address as a simple comment below.

June.