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Goldfinger

China: 18% Money Supply Growth In August

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

``At the end of the day, it doesn't matter who is China's central banker because all financial decisions are made at the premier and vice-premier level,'' said Beijing-based lawyer Guan Anping, a former trade ministry official and legal aide to Vice Premier Wu Yi, who oversees China's financial industry.

...

``Unless the Chinese allow the exchange rate to go up, I'm worried about the stability of the economic system,'' former Federal Reserve Chairman Alan Greenspan said in a speech in London on Oct. 2. ``The exchange rate will create more economic problems than they know.''

The country's money supply expanded more than 18 percent in August and consumer prices rose 6.5 percent from a year earlier, the most in a decade. Chinese stocks yesterday rose to a record for a fifth straight day and spending on property and factories is predicted by the central bank to rise as much as 26 percent this year.

(1) Now you know who is responsible for this mess (the prime minister himself).

(2) Are they serious: 18% in one month, or is that a YoY number?

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Japan in the 1980's??

Japan had its bust in 1989 and still has not recovered, is China going the same way?

Interesting question - China now is in a very different stage of development to Japan in 1989 so I'd say not. That's not to say it isn't heading towards a bust of some sort but maybe something more like what happened to Thailand during the Asian currency crisis. Either way, you can't let your economy get totally out of control and then not expect something bad to happen.

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Interesting question - China now is in a very different stage of development to Japan in 1989 so I'd say not. That's not to say it isn't heading towards a bust of some sort but maybe something more like what happened to Thailand during the Asian currency crisis. Either way, you can't let your economy get totally out of control and then not expect something bad to happen.

China quite obviously need their own '1929' experience such that it becomes ingrained into the populace.

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China quite obviously need their own '1929' experience such that it becomes ingrained into the populace.

The recent events in Burma were sparked by anger at inflation weren't they? If the same happened in China it could get very messy.

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Fingers crossed they keep on their current path for another month or two, otherwise I'm going to have a much more expensive holiday.

The question is How long before it happens though? If its still another 2/3 years away then there's still time to make another 200/300% profit by investing in the Chinese SM which seems to be going balistic at the moment.

My small investment in FXC.LSE (chinese tracker) has made about 10% in the past 2 weeks but I'm guessing its rather risky at the moment. Mind you, that's what I thought 2 years ago when it was sitting at 30% of todays price.

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The question is How long before it happens though? If its still another 2/3 years away then there's still time to make another 200/300% profit by investing in the Chinese SM which seems to be going balistic at the moment.

My small investment in FXC.LSE (chinese tracker) has made about 10% in the past 2 weeks but I'm guessing its rather risky at the moment. Mind you, that's what I thought 2 years ago when it was sitting at 30% of todays price.

I'm only going for a week mid november, I reckon it won't happen before then.

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

China Tells Banks to Set Aside Bigger Reserves to Cool Economy

...

Lenders must park 13 percent of deposits as reserves from Oct. 25, up from 12.5 percent, the People's Bank of China said today on its Web site. The required ratio is the highest in almost a decade.

Seven increases in the reserve requirement and five interest-rate rises this year probably failed to stop the economy expanding faster than 11 percent for a third quarter, a government report may show next week. Surging exports have pumped money into the world's fastest-growing major economy, fanning inflation and fueling a boom in shares and real estate.

``Inflation is a priority for policy makers because in China, it is not just an economic problem, but also a political risk,'' said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. ``The Chinese government wants a `harmonious society', but how can you have one with prices going up?''

...

Money supply is surging because the government wants to hold down the yuan, forcing the central bank to sell the currency and pump cash into the banking system.

How stupid are they? Do they seriously think that they can curb a global currency problem (that they themselves help to create at fast pace) by their salami-tactics mini-hikes every month?

Edited by Goldfinger

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I begin thinking that the US and possibly also Europe should actually impose tariffs to counter China's currency destroying tactics. The crash will come sooner or later anyway. We better get it now, before it comes much worse later.

I think they Chinese have no clue how bad this will pan out for them. Tianmen Square will look like the Muppet Show if they carry on like this.

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I begin thinking that the US and possibly also Europe should actually impose tariffs to counter China's currency destroying tactics. The crash will come sooner or later anyway. We better get it now, before it comes much worse later.

I think they Chinese have no clue how bad this will pan out for them. Tianmen Square will look like the Muppet Show if they carry on like this.

I have wondered why the yanks / Europe havent done this but its obvious why. We are so addicted to cheap chinese goods tariffs it would be the equivalent of a smack addict asking his dealer to up his prices.

The CB's / Govts know that the threat of serious tariffs will force the Chinese to revalue effectively exporting huge inflationary pressures into the western economies. I dont think the VI's / govts give a toss about the effect on manufacturers.

Edited by Kurt Barlow

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Not sure how much domestic demand there is from the emerging Chinese middle classes.

At a guess not enough so I'd guess they'd still keep pumping out exports while sucking in raw materials and increasing the surplus.

I wonder if they'll ramp up their cash exports.

Probably blow it all on advanced military tech from Russia!

Will be interesting to see how they manage the uneven development.

Edited by Ash4781

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I think they Chinese have no clue how bad this will pan out for them. Tianmen Square will look like the Muppet Show if they carry on like this.

Hi GF, I think that the Chinese do not have such a one-dimensional policy as to control their nation's currency at any cost. The Chinese government has five-year plans which have very clearly laid out objectives. Some of these objectives require a weak currency and so raising the Yuan too much might affect certain objectives of the current five-year plan in detrimental ways. Unlike many countries, China has a very well-defined sense of continuity in governmental planning. This is one possible benefit of a system with only one executive political party.

The current five-year plan runs from 2006-2010. The last plan was fully completed ahead of schedule. These five-year plans are devised by the National People's Congress and then given over to the Communist Party to execute. You can read about the current five-year plan at this link :

http://www.gov.cn/english/2006-03/06/content_219504.htm

http://www.gov.cn/english/special/115y_index.htm

Best,

L

Edited by Luminist

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So, Luminist, don't you think it would be time for them to revise their currenct currency strategy, even if it is written into the 5-year plan?

That depends on what you call a good measure of political and economic success doesn't it? If they reach all the objectives of their 11th 5-year plan on time, then it doesn't matter to them if they revalue the Yuan or not. For those that don't know, they have been very slowly allowing the Yuan to appreciate, its just that those on Capitol Hill wish that they would make the process go faster. However, China as ever has always preferred to do things at her own pace, and most definitely not at the behest of foreign ex-central bankers.

Just curious GF, the way you put it, you make it sound like the Chinese economic situation has been a disaster. If they are having an economic disaster, I would like to know just how you would describe the economic situatiuon that we are in in this country

Best,

L

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Just curious GF, the way you put it, you make it sound like the Chinese economic situation has been a disaster. If they are having an economic disaster, I would like to know just how you would describe the economic situatiuon that we are in in this country

No, my point was that the are heading towards a disaster IMO. Yes, the disaster we're heading towards here in the UK might be even worse.

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No, my point was that the are heading towards a disaster IMO. Yes, the disaster we're heading towards here in the UK might be even worse.

ok, but I would like to point out that the 18% money supply growth statistic that you have put in the title thread may be shocking on an absolute level but things are merely relative. For example, to a country that is growing its real economy at 20% p.a., a money supply growth of 18% would soon lead to deflationary effects.

Now, according to the Bloomberg article, China's economy has been growing recently at 11.9% (easily beating their 5-year plan growth of 7.5%, a figure which would give any Western economic planners wet dreams) so money supply growth is outpacing real economic growth by about 6% p.a. according to Bloomberg's 18% p.a. figure. Now, if you compare this to the situation in the US or the UK, money supply growth has been about 14% p.a. but the real economy has been growing at barely 3% p.a. leading to a greater than 11% difference, nearly double China's.

So maybe it is the Chinese who should be telling us that our currencies here in the West are too weak and that we need to be thinking of raising their value instead

Best,

L

p.s. GF, your title implies that the money supply increased 18% in August. This is wrong and Bloomberg has it wrong too. The 18% figure is an annualised year-on-year figure. Read this communique from the People's Bank of China : http://www.pbc.gov.cn/english/detail.asp?col=6400&id=913

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ok, but I would like to point out that the 18% money supply growth statistic that you have put in the title thread may be shocking on an absolute level but things are merely relative. For example, to a country that is growing its real economy at 20% p.a., a money supply growth of 18% would soon lead to deflationary effects.

Now, according to the Bloomberg article, China's economy has been growing recently at 11.9% (easily beating their 5-year plan growth of 7.5%, a figure which would give any Western economic planners wet dreams) so money supply growth is outpacing real economic growth by about 6% p.a. according to Bloomberg's 18% p.a. figure. Now, if you compare this to the situation in the US or the UK, money supply growth has been about 14% p.a. but the real economy has been growing at barely 3% p.a. leading to a greater than 11% difference, nearly double China's.

So maybe it is the Chinese who should be telling us that our currencies here in the West are too weak and that we need to be thinking of raising their value instead

Best,

L

p.s. GF, your title implies that the money supply increased 18% in August. This is wrong and Bloomberg has it wrong too. The 18% figure is an annualised year-on-year figure. Read this communique from the People's Bank of China : http://www.pbc.gov.cn/english/detail.asp?col=6400&id=913

Exatcly. China is going to have trouble no doubt. Probably even similarly to the great depression in America.

But the US, UK, and the west in general is absolutely screwed in comparison.

China will have growing pains.

WE will be having massive strokes and coronaries.

And didn't America end up the leading Superpower after they recovered?

Also, the fact that they are a communist country will help them deal with problems better than we will I think.

If there ends up a deflation there, they are easier able to deal with any kind fo shortages rationing etc that might come nto play.

we haven't had to wait in line for a meal since the last time we were at mcdonalds.

Edited by Mr Nice

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