Tuesday, September 9, 2008

china crisis looming?

Main Bank of China Is in Need of Capital

It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac. Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Posted by sold out @ 08:26 AM (1049 views)
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22 thoughts on “china crisis looming?

  • japanese uncle says:

    Rumors have it that mother of all bad-debts exists in none but Chinese banking system (this is almost a public knowledge). Worse news after bad. How long will it last in this lunatic world?

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  • I read some time ago the the Chinese government was loaning businesses money without them being required to pay it back hence the ability of Chinese business to undercut everybody else.

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  • I just don’t get it – does Wall Street control China? When is China going to wake up and spend its hard-earned dollars before they are worthless (rather than force their own banks to buy yet more of them – hence the recent dollar bounce)? At the moment the Chinese government are keeping their own population employed in return for bits of green paper. Ultimately, however, they must realise that they can sell stuff to their own industrious middle class, and cut out the Yanks. Then it truly will be: goodbye dollar.

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  • I believe the Chinese banking system is reminiscent of the wild west, how can they have cash flow problems with all the US$ they have.

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  • japanese uncle says:

    Can anyone believe that adequate auditing is being carried out in this land of nepotism? God knows how much unserviceable debt is hidden in the ever undisclosed books of business among those countless firms without minimum financial discipline.

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  • Are you talking about China or that other well known Asian powerhouse ?

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  • China thinks not one or two or five but hundreds of years ahead.

    The plan, build up its industry on the back of American greed, once the infrastructure is there (i.e. real value), cut the Americans loose.

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  • japanese uncle says:

    Stillthinking

    Of course I am talking about China. Japan as you imply has some financial discipline issues which however tend to be much more readily disclosed than those in China where these issues are basically dictated by party leaders and their relatives. (For this matter, UK and US will certainly prove no better than this in a few years time with the potential bad debt nuclear time bombs hidden hitherto but now exploding as triggered by the accelerating HPC in each banking system.) Having said that, Japan has other sort of big problem which China shares to an extent, ie huge bad debt in the form of US treasury bills. With enough military power China can, if prepared to withstand the consequences not only to China but to the rest of the world, sell out the bonds triggering the dollar inferno, whereas a Japanese PM simply cannot do the same without risking his own political life. Look what happened to Ryutaro Hashimoto immediately after his notorious statement ‘One may wish to sell out treasury bills’. He was buried by the scandal involving his Chinese mistress who proved to be an agent of the Chinese intelligence service. Heaven forbid.

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  • I suspect that if anything goes wrong there will be lots of executions of corrupt bank officials…kinda makes you want to bring capital punishment back into this country, at least for a year or two.

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  • japanese uncle says:

    Just FYI

    Chinese industries cannot operate on their own without importing vital components such as engines in automotive industry from Japan. Korea and other Asian countries are the same for this matter. Regional integration is quickly progressing in South-East Asia, with Japan being a hub. Given the indigenous talent, India will be the most promising nation to take over Japan.

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  • gardeniadotnet says:

    matt_the_hat >The plan, build up its industry on the back of American greed, once the infrastructure is there (i.e. real value), cut the Americans loose.

    Yes, that makes sense.

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  • The Telegraph has a very different viewpoint:

    Telegraph: Secret investments reveal China’s stealthy advance into UK Plc

    The Chinese central bank, one of the most secretive in the world, is amassing shares in many of Britain’s blue-chip companies. Malcolm Moore in Shanghai and Mark Kleinman in London report

    While many investors, spooked by the deepening economic gloom in Britain and abroad, have taken fright from equities, Beijing has been piling in. In total, investment entities either controlled by or affiliated to the Chinese government now own stakes in at least half of the FTSE100, and probably considerably more.

    An analysis by The Sunday Telegraph reveals today that the People’s Bank of China, the country’s central bank, owns shares in many of Britain’s household corporate names, including Cadbury, HSBC, the London Stock Exchange, Marks & Spencer and Tesco.

    These previously secret investments are in addition to known stakes in BG Group and Drax Group, the energy companies, and Legal & General, Old Mutual and Prudential, the insurers.

    In total, the stakes held by the People’s Bank are valued at about £9bn, according to the share prices of the companies concerned last week.

    Are you still sure this bank is running out of money??

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  • @drewster

    Have you not seen the 4 sale signs when you enter immigration!!

    The US of A is trying to limit the control of sovereign wealth funds on strategic assets, the UK government in the same infinite wisdom that lead to the sale of half the gold reserves and a significant amount of natural resource in the north sea have just said come on in boys plunder as you may. Traitors.

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  • still renting says:

    @drewster

    That’s typical Telegraph scaremongering. “Nasty Foreigners are taking over!”

    Total market cap of the FTSE All-Share (basically UKs 800 largest listed companies) is £1.7 trillion, so £9bn is about 0.5%.

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  • @still renting

    Yep but I don’t think the chinese are interested in Experian, ITV, kingfisher, morrisons, permission, thomas cook to name some of the blue chips, then Foxtens etc. Just a controlling share in ROYAL DUTCH SHELL, RIO TINTO, BP, BHP BILLITON, ASTRAZENECA, BAE SYSTEMS should do the trick. Still not worried.

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  • Still Renting says:

    @ m_t_h

    Well, we could go with the list you just made up, or the list from the article which includes Cadburys and M&S.

    “Chinese seize control of UK chocolate and middle aged womens clothing suplies. We are defenseless, say government.”

    Seriously, I’d be surprised if Chinese banks don’t have considerably larger holdings in UK blue-chips. We might see it as common sense, and even a vote of confidence in the future of British business.

    Do you really think they’d be able to turn off the oil or gas in the UK, even if they had a controlling stake in BP, Centrica or whoever?

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  • still renting says:

    @ m_t_h

    Well, we could go with the list you just made up, or we could use the one in the article, which includes Cadburys and M&S.

    “Chinese seize control of UK chocolate and middle-aged women’s clothing supplies. We are defenseless, say government.”

    Seriously, I’d be surprised if Chinese banks don’t have considerably larger investments in UK blue-chips. We could see this as a good thing, even a vote of confidence in the long-term future of British business.

    Do you really believe that they’d be able to turn off the oil or gas, even if they had controlling stakes in BP, Centrica, etc?

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  • >>Do you really believe that they’d be able to turn off the oil or gas, even if they had controlling stakes in BP, Centrica, etc?

    No I think they would leave that to russia

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  • still renting says:

    @ m_t_h

    Agreed Russia represents a very serious threat to UK energy security. I assume you’re changing the subject to Russia because you realise that Chinese banks buying shares is not actually a threat to this country or part of some great conspiracy?

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  • still renting says:

    Apologies for the duplicate comment, btw.

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  • Come on China has more money than it knows what to do with, do you think they are interested in the dividend yield of M&S, or stopping energy to a little flee like the UK. They have a natural resource problem, i.e. they don’t have any (or no where near enough), they need to take control of big western companies to secure their energy needs, not for now, not for the 5 years of a parliamentary term (the window over which our politicians work over) we are talking the 21/22 century. These are the long term strategic moves that a dictatorship like china can take. Their not worried about what house prices will be next month!!! Chinese banks buy what the government tells them, if they need to throw a few smoke and mirrors (i.e. M&S) then so be it.

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  • still renting says:

    @ m_t_h

    Yes, China has more foreign currency than it knows what to do with, and investing it abroad is the only way to put it to use without stoking inflation at home. Until a couple of years ago they were investing almost all of it in US Treasuries, but now they’ve started to diversify, not least because treasuries don’t look like such a good investment nowadays. So they’re investing in equities all over the world, as well as private equity (or SWF) type investments and large projects in emerging markets. Only the latter can really be attributed to attempts to control future energy and raw materials sources. The rest of it really can be about investment returns, (including M&S’s dividends), just like investors all around the world.

    Owning international energy firms will not help them secure future supplies, except where it helps them gain expertise in exploiting resources more effectively. In a situation where energy markets no longer functioned, countries would have little choice but to forcibly nationalize energy assets, and rely on foreign alliances or go to war to ensure adequate supplies, in which case “ownership” would become pretty irrelevant.

    The best way for China and others to secure their future energy needs is to ensure they can afford to pay for them on the open market, and to maintain good relationships their suppliers. As they are well on their way to becoming the world’s largest economy, they shouldn’t have too much difficulty.

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