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Old 02-25-2014   #721
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FTSE 100 pushed down by Chinese jitters. Perhaps more interesting then the exact movements are the biggest losers in China and abroad.

China:

Quote:
Shanghai recorded its worst day in seven months with the composite index dropping by over 2% as fears are heightened that a collapse in the property bubble is getting ever closer.

It’s been property development companies that have borne the brunt of the sell-off, but the real fear is that any slowdown in the property market will be felt across the board with consumption of everything from small electronics to cars likely to suffer.
the World:

Quote:
Mining firms led the fallers, dented by the news that the Shanghai composite index had recorded its biggest fall in seven months (see 8.25am for details). Rio Tinto and Anglo American are both down over 3%, on speculation that the Chinese property market is heading for a fall.
Australia be aware.
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Old 02-27-2014   #722
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Krugman does once again look to China. Check the links in the original.

Quote:
RED SPREADS

Uh-oh. Chinese equivalents of the TED spread and other gauges of financial stress in the US have widened sharply. The widening in the TED spread was one of the key reasons I was already very scared in late 2007. If past is prologue, we should be very worried about China now.
He points to Bloomberg which has a nice article about the resent moves in the financial world of China. As usual I find the development of the trust porducts/WMP interesting. A huge growth indeed. As I have written before the combination of much capital on a short leash is big trouble if you as a counterpart have troubles to get liquidity. Even more so if the cost of capital goes up and your loans turn bad. You will get squeezed from both sides.

Quote:
Trust Products

About 5.3 trillion yuan of trust products will come due this year, up from 3.5 trillion yuan in 2013, Haitong Securities Co. estimated last month. Assets in all trusts surged 46 percent in 2013 to a record 10.9 trillion yuan, the China Trustee Association said in a Feb. 13 statement.

China averted its first trust default in at least a decade in January as investors in a 3 billion yuan high-yield product sold by China Credit Trust Co. to fund a coal miner that collapsed were bailed out days before it came due. A similar product created by Jilin Province Trust Co. is also missing payments, Shanghai Securities News reported.
Careful readers will have noticed that quite a few argue for short-term interventions by the Bank of China which go against the stated long-term goals.

Quote:
Default Concern

In a sign of default concern, the premium for five-year AA rated corporate notes over the sovereign widened to 337 basis points on Feb. 12, the most in two years. At least a third of China’s 200,000 steel-trading firms will collapse because of the credit crisis, the official Xinhua news agency said Feb. 7, citing industry estimates.

The slowdown may fuel bank bad loans, which surged 28.5 billion yuan in the final quarter of 2013 to 592 billion yuan, the highest since September 2008, according to China Banking Regulatory Commission data. The economy will probably expand 7.5 percent this year, the slowest since 1990, according to the median estimate in a Bloomberg survey.

Credit-default swaps on Bank of China rose 32 basis points to 153 this year while those on Industrial & Commercial Bank of China Ltd. climbed the same amount to 165, CMA prices show.
At least in that aspect the Red economy works practically the same way we have seen in the West, not surprising indeed. In the long run a higher cost of capital should be help to allocate it far more efficiently. Obviously this is bringing much pain.
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Old 02-27-2014   #723
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I forgot to mention perhaps the most important aspect of the rapid increase of money flowing into the trusts, the ponzi-like stability. It is of course no pure Ponzi, but most like most bubbles it incorporats more or less of it's logic. As long there are big gains money keeps flowing in so even if the trust is unable to earn enough in the short-term there is enough liquidity to pay out the investors. Given the staggering increase of roughly 50% in wealth managed only the dumbest, most arrogant or most unlucky trust managers could blow it recently. It is perhaps no suprise that the last big fund had seemingly concentrated all the loans regionally and in single sector, coal. In this case the severe difficulties within that industry hit the trust with full force.

Overall far more trust assets are chasing good enough returns to match the ~10% promise to the rich and influential clients. They roll over mostly under a year. As I said before it feels like a fuse snaking to a big bomb through the legs of chain smokers.

It is important to point out that a similar bubble happened back in the 2005-2007 in the Chinese stock market when everybody seemed to speculate there. Prices rose incredibly fast to incredibly heights only to come crashing down to deep lows. The memory of that crash has kept many out of that particular market which would be actually quite cheap if the earnings of the SOE would be sustainable. Now the smart money seems to be mostly in trusts aka WMP.

Nobody knows when the trust bubble will burst but if something can not go on forever it will end. Hopefully the Chinese manage to make the landing as softly as possible.
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Old 02-28-2014   #724
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Another perspective on economic issues:

http://blogs.reuters.com/anatole-kal...ancial-crisis/
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Old 02-28-2014   #725
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It is always good to see a contrarian view. Personally I think that the respected author argues himself into a bind over credit growth.

Quote:
A severe slowdown in China is viewed as among the greatest risks facing the world economy this year, and Thursday’s dismal news on Chinese manufacturing output exacerbated these fears. But the really important news from Beijing pointed in the opposite direction: Bank lending in China, instead of slowing dramatically as many economists had expected, accelerated in January to its fastest growth in four years.

...

To welcome stronger bank lending in China is not to deny that credit growing at double the gross domestic product growth is unsustainable and will ultimately have to be curbed. The Chinese authorities themselves clearly believe this. The government and the central bank want to reduce credit growth and to replace the unregulated, opaque “shadow lending” system with properly supervised, well-capitalized modern banks.
It is importat to keep in mind just how big the intertia of credit growth and how high the pressure from many sides is to keep clubbing. Public entities, SOE, banks, trusts want to keep the party going as everybody has profited for such a long time and continues to do. The behaviour has become deeply ingrained and there is no doubt that most of those credit has not gone to consumption but to investment...

Quote:
Policy will therefore have to be prioritized. And the financial reform objective is proving a less important priority than industrial restructuring and maintaining an acceptable rate of growth.

Whenever possible, China will likely try to move ahead on all three objectives. But if there is a serious conflict, maintaining an adequate growth rate will trump credit restraint and financial reform
Without going into the details it seems to me very likely that under such circumstances the priorities are not caused by clear overall economic analysis by the leadership (doing also much clubbing) but by the all the understandable pressure against financial reforms.
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Old 03-19-2014   #726
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There have been a few positive steps in various areas lately. Clearly it is far too early to see how those get implemented in depth and width and how they will work. I will write a longer comment in the next days.

A short video shows Chinese buying, effectively, a good deal of European security. This is just one example of the 'attraction value' of soft power. Perhaps more revealing then the property market are the investments in classic Portuguese agricultural business such as vineyards and pig farms. High-quality 'European' food has become increasingly attractive for the better off due to the status and all those scandals in China. This snippet pales of course in importance compared to problems above, but it fits nicely into the narrative.
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Old 03-20-2014   #727
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What makes a superpower? Nuclear weapons and military capabilities? If so, China is much closer to Russia than to the United States. Economic strength? If so, then we should also consider Japan, Germany, and France for nominations as 'superpowers'.

From wikipedia:

Quote:
Alice Lyman Miller defines a superpower as "a country that has the capacity to project dominating power and influence anywhere in the world, and sometimes, in more than one region of the globe at a time, and so may plausibly attain the status of global hegemony."
What is 'dominating power and influence'? Is it the capability to unilaterally press one's agenda on another state? If that's the case, then it precludes the United States, since the US cannot exert 'dominating power' 'anywhere in the world' (i.e. Crimea). According to realist IR, relative power is more important than absolute power, and therefore thinking in those terms, I think we can come to a better understanding if China (or any other state) is truly a 'superpower'.

According to a national power index I am developing, the power of the top 3 states (US, China, Russia) is statisically distinct from the next 7 (Japan, France, UK, Germany, India, Brazil, Italy). If we move Japan from the second group to the first one, there is still a major difference, so perhaps we should consider Japan a candidate as a 'superpower' as well.

It's not until we reach #5, France, that the difference between the top powers and the next tier becomes more similar. So I would say that yes, China is a superpower, insofar it's ranked as the second strongest state on my index and is in the top category of powers that also include the United States (#1), Russia (#3), and Japan (#4). But that should also tell us something about the nature of a 'superpower'; it's not necessarily predicated on one profile of capabilities.
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Old 04-13-2014   #728
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Meanwhile, all's well on the domestic front...

http://www.worldpropertychannel.com/...gency-8176.php

Quote:
SWAT Team Rescues Chinese Developer from Furious Customers
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Old 04-15-2014   #729
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Another one:

http://www.forbes.com/sites/gordonch...-really-worry/

Quote:
Furthermore, some crucial indicators were down for January-February. Residential and commercial property sales were down 3.7%, total property sales by floor area were down 0.1%, and construction starts by area were down 27.4%. This data suggests there will be a decline in the services sector later this year.

The normally optimistic analyst community was stunned. “This is terrible,” said ANZ ’s Liu Li-Gang.
Quote:
So why do we have to worry about a China that will not be able to afford its military? Generals and admirals, who seem to have wide influence in Communist Party circles these days, just might not scale back their plans. They could instead think they have a limited window to achieve long-held goals, both to take territory from neighboring countries and to make the international waters of the South China Sea an internal Chinese lake. China’s “senior commanders,” the Economist reports, “are spoiling to show what their shiny new stuff can do.”

As the vital signs of the economy have deteriorated, the tempo of the country’s aggressive acts have quickened. In the last few years, the Chinese in the South China Sea seized Scarborough Shoal from the Philippines and are now ringing their vessels around Manila’s Second Thomas Shoal, sent army patrols deep into Indian-controlled territory, and infringed Japanese sovereign waters and airspace around the Senkaku Islands in the East China Sea. China’s craft threatened South Korean fishermen and harassed U.S. Navy ships on patrol. Last October, Beijing, in a coordinated effort across the main state media platforms, boasted about its ability to kill tens of millions of Americans with nuclear-tipped missiles launched from submarines. There was no apparent reason for the incendiary publicity campaign.

There may be only one thing more dangerous than a strong China—a weak and faltering one.
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Old 04-15-2014   #730
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I don't want to conjure a SU-style implosion but Yegor Gaidar's book contains a gem of quote:

When Gerorgy Shakhnazarov, aide to Mikhail Gorbachev asked in the early 80s, "Why do we need to make so many weapons?" Chief of the General Staff Sergei Akhromeyev replied, "Because through enormous sacrifice we have created first-class plants that are no worse than what the Americans have. What, are you going to tell them to stop working and make pots and pans instead? That's simply Utopian."
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Old 04-19-2014   #731
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Default 20% of Chinese farmland is toxic

Just what drives China's expansion? Well maybe it is this, with my emphasis:
Quote:
Unbridled industrialization with almost no environmental regulation has resulted in the toxic contamination of one-fifth of China's farmland, the Communist Party has acknowledged for the first time.

The report, issued by the ministries of Environmental Protection and Land and Resources, says 16.1 percent of the country's soil in general and 19.4 percent of its farmland is polluted with toxic heavy metals such as cadmium, nickel and arsenic. It was based on a soil survey of more than 2.4 million square miles of land across China, spanning a period from April 2005 until December 2013. It excluded special administrative regions Hong Kong and Macau.


In a dire assessment, the report declares: "The overall condition of the Chinese soil allows no optimism."

Link:http://www.npr.org/blogs/thetwo-way/...s-contaminated


There is a link to an offocial PRC news agency report and The Guardian report.


Might this loss of productive land explain Chinese interest in overseas agricultural land purchase and of course earning foriegn exchange to enter the world food market.
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Old 04-20-2014   #732
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Several of the recent posts indicate PRC is perhaps rotten to its core internally, and I tend to agree with many that PRC faces significant domestic challenges. Some will likely interpret this as a PRC that is too hamstrung by domestic issues to lash out, while others will see a more dangerous PRC that will seek to mitigate the impact of their domestic challenges by potentially lashing out at one of their neighbors to generate a nationalistic spirit that distracts their citizens from their dissatisfaction with their government. Some member states of the European Union think the U.S. underestimates China as a threat and sees a historical parallel to Nazi Germany's rise.

The most dangerous adversaries we have had historically since the American Revolution have been rotten on the inside (domestic/economic issues) (Nazi Germany, USSR, Iraq, Iran, etc.), but that alone doesn't prevent them from being dangerous. In may in fact make them more dangerous.
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Old 04-21-2014   #733
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Quote:
Originally Posted by Bill Moore View Post
Some member states of the European Union think the U.S. underestimates China as a threat and sees a historical parallel to Nazi Germany's rise.
Who's saying that on the European side? Not saying it isn't so, I just haven't heard it.

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Originally Posted by Bill Moore View Post
The most dangerous adversaries we have had historically since the American Revolution have been rotten on the inside (domestic/economic issues) (Nazi Germany, USSR, Iraq, Iran, etc.), but that alone doesn't prevent them from being dangerous. In may in fact make them more dangerous.
It does make them more dangerous. There's no telling what could happen in the event of serious domestic economic upheaval and/or social strife. As much as we dislike the current Chinese order, the last thing we'd want to see would be it's fall, because the most likely successor would be the PLA, in one form or another.

I do suspect that our fears about China may be misdirected in many ways. We hear way too much talk like "if China keeps growing at it's current rate, by 20__ they will uy us all and have us for breakfast. The danger isn't that China will grow forever and swallow the world, the danger is that China will stop growing and go berserk over it.
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Old 04-21-2014   #734
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Quote:
Originally Posted by davidbfpo View Post
Just what drives China's expansion? Well maybe it is this, with my emphasis:
So. Once again, Lebensraum.

Also,

Quote:
China's seizure of a Japanese cargo ship over a pre-war debt could hit business ties, Japan's top government spokesman has warned.

Shanghai Maritime Court said it had seized the Baosteel Emotion, owned by Mitsui OSK Lines, on Saturday.

It said the seizure related to unpaid compensation for two Chinese ships leased in 1936.

The Chinese ships were later used by the Japanese army and sank at sea, Japan's Kyodo news agency said.
http://www.bbc.com/news/world-asia-27068466

See also
Japan in China: 1937 - 1945
http://council.smallwarsjournal.com/...ad.php?t=14255
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Old 04-22-2014   #735
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Quote:
Originally Posted by AdamG View Post
So. Once again, Lebensraum.
Probably not. The Senkakus and the Spratlys combined couldn't accommodate the population of one city block in Beijing or Shanghai, and Beijing isn't showing any interest in any territory that could provide lebensraum. The current efforts seem less aimed at measurable material gain that at fueling jingoism and national pride as a distraction from an increasingly lousy domestic state of affairs. If the Chinese really needed lebensraum it would be easier to move people west to Xinjiang, which has more of it than anyone the Chinese would be likely to conquer, than to go out looking to conquer it.

Somewhat superficial review:

http://online.wsj.com/news/articles/...15182434090254

but this quote caught interest:

Quote:
Visiting Manila in February, U.S. Chief of Naval Operations Admiral Jonathan Greenert answered a hypothetical question about China seizing Philippine-controlled territory in the Spratlys. "Of course we would help you," he said initially—before adding: "I don't know what that help would be specifically. I mean, we have an obligation because we have a treaty. But I don't know in what capacity that help is."
That's obviously not a very reassuring statement, but it does raise the question of what the US could or would do if China makes a move on Second Thomas Shoal, the current object of contention.

Worth noting that China can't exactly "seize" the shoal: there's nothing to seize, it's underwater. The Philippine garrison (8 marines) lives on an ancient LST that was run up on the reef back in the 90s. The current Chinese strategy appears to be to force a Philippine withdrawal by harassing resupply missions and preventing efforts to repair the ship, which is structurally very unsound and at serious risk of collapse. The Chinese could of course take the ship or destroy it with the greatest of ease, but seem more interested in just letting it collapse, which would force a Philippine withdrawal. There's some question over whether the hull will survive another typhoon season; it's apparently in pretty bad shape (the shoal is not in the usual typhoon track but catches heavy seas from typhoons passing north and from the June-Oct SW monsoon). Typhoon season starts in July, so the window for major repair is very short.

Given those circumstances, how would the US usefully intervene? Possibly by helicoptering in needed materials, equipment, and technicians fpor repairs (large vessels can't get close enough, shallow water)...
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Last edited by Dayuhan; 04-22-2014 at 09:11 AM.
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Old 04-24-2014   #736
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Default Vulnerabilities

Once more hat tip to the Australian Lowy Institute e-briefing for its maritime dimension. First
















Then imported oil (in 2012).
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Old 04-24-2014   #737
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Default Chinese Navy tries to copy Top Gun

I am sure holes will be picked in this and it is not clear if the aircraft carrier is fully operational:http://www.lowyinterpreter.org/post/...LCC=454764420&
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Old 04-25-2014   #738
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The maritime trade graphics are interesting, and illustrative.

The the percentage of the world's merchandise and commodity trade passing through SE Asia is often interpreted as a threat from China, on the assumption that China could do great damage by interrupting that trade. What that assumption fails to recognize is that the vast majority of that trade is moving in or out of China, and that China is the party most vulnerable to any trade disruption in the area. The graphics above represent less a threat from China than a threat to China: a trade interruption in the Starais of Malacca, or further abroad in the Indian Ocean, where the PLAN has virtually no capacity to project power, would be a problem of staggering dimensions for China, which depends on trade more than any nation in the world.
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Old 05-02-2014   #739
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Interesting...

https://ph.news.yahoo.com/eu-firms-h...051120343.html

Quote:
EU firms help power China's military rise

As China boosts its military spending, rattling neighbours over territorial disputes at sea, an AFP investigation shows that European countries have approved billions in transfers of weapons and military-ready technology to the Asian giant.

China's air force relies on French-designed helicopters, while submarines and frigates involved in Beijing's physical assertion of its claim to vast swathes of the South China Sea are powered by German and French engines -- part of a separate trade in "dual use" technology to Beijing's armed forces...
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Old 05-03-2014   #740
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Probably exaggerated to some extent, but worth considering:

https://medium.com/war-is-boring/8a12e8ef7edc

Quote:
The Chinese Military Is a Paper Dragon

...China’s military buildup, along with an aggressive foreign policy, has inspired a fair amount of alarm in the West. Some American policymakers consider Beijing to be Washington’s only “near-peer competitor”—in other words, the only country with the military might to actually beat the U.S. military in certain circumstances.

But they’re wrong. Even after decades of expensive rearmament, China is a paper dragon—a version of what Mao Zedong wrongly claimed the United States was … in 1956.

China’s military budget has grown by double-digits year after year, but inflation has eaten away at the increases. China’s army, navy, air force and missile command are wracked by corruption—and their weapons are, by and large, still greatly inferior to Western equivalents...
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