Spot China’s “Hot Money” Time-Bomb [zerohedge]

Over the weekend, FT noted that China’s central bank reported that companies and individuals sold RMB 684 billion ($109 billion) worth of foreign exchange and bought an equivalent amount of Chinese currency in January, a record for a single month. On the chart below, please point out the Chinese “hot-money” inflationary ticking time bomb (hint: highlighted).

Why “time bomb”? For the answer, we go to the simplest definition of inflation, which is as follows: “when too much money chases too few goods and services.”

In January, the money in domestic circulation via FX conduits just soared by a record amount, without a comparable increase in goods and services. All else equal, this is called the “hot money” effect, and manifests itself in a surge in Chinese inflation usually with a 3 month lag to whenever the Chairsatan starts experiment with the US monetary base.

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China Central Bank Says It Is “Fully Prepared For Looming Currency War” [Zerohedge]

Just in case Lagarde (and everyone else except for the Germans, who have a very unpleasant habit of telling the truth), was lying about that whole “no currency war” thing, China is already one step ahead and is fully prepared to roll out its own FX army. According to China Times, “China is fully prepared for a looming currency war should it, though “avoidable,” really happen, said China’s central bank deputy governor Yi Gang late Friday.” We look forward to the female head of the IMF explaining how China is obviously confused and that it is not currency war when one crushes their currency to promote “economic goals.” Of course, that same organization may want to read “Zero Sum for Absolute Idiots” because in this globalized economy any attempt to promote demand (by an end consumer who has no incremental income and stagnant cash flow) through currency debasement has no impact when everyone does it. But then again, this is the IMF – the same organization that declared Europe fixed in 2009, 2010, 2011, 2012, 2013 and so on.

More on China’s FX troop deployments:

Yi, vice governor of the People’s Bank of China, made the comment amid widespread concerns that the world’s major economies would drive down their units to gain a trade advantage through monetary easing policies. 

A currency war could be avoided, Yi said, if policymakers in major countries observed the consensus, reached at the recent G20 meeting, that monetary policy should primarily serve as a tool for domestic economy.

G20 members promised that they would not wage a currency war, but none have shown signs of scaling back monetary easing that has injected a flood of cash into global markets. They worry that removing the stimulus will plunge their economies into another recession.

“China is fully prepared,” Yi said. “In terms of both monetary policies and other mechanism arrangement, China will take into full account the quantitative easing policies implemented by central banks of foreign countries.”

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Ecobank sees more benefits in China-Africa trade [xinhuanet]

NAIROBI, Feb. 6 (Xinhua) — Pan-African commercial bank Ecobank Group is positioning itself to play a bigger role in facilitating the growing trade links between China and Africa, the head of the bank’s operations in Kenya said on Wednesday.

Ecobank opened a representative office in Beijing in December 2012 and has a strategic partnership with the Bank of China.

The intention is to make it easier for businesses easily settle their transactions by using integrated banking infrastructure in different countries.

“There is a growing interest by Chinese and African business people to use a financial provider with presence in many countries because this makes it easier to settle transactions,” Ecobank Kenya MD Tony Okpanachi told Xinhua in Nairobi.

He said there has been sustained increase in foreign direct investments from China to Africa in the last few years and this is bound to continue, underlying the bank’s plan to upscale its operations to benefit from the high volume trade.

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Chinese companies to make larger investments in Iran: Ambassador [presstv]

 

Chinese Ambassador to Iran Hu Hongyang (file photo)

Chinese ambassador to Tehran says his country’s companies are prepared to make greater investments in infrastructural and economic sectors of the Islamic Republic.

Yu Hongyang told IRNA on Wednesday that the illegal moves by certain countries in imposing unilateral sanctions against Iran will not shake Beijing’s determination to invest in the country.

He added that 70 Chinese companies are currently active in various infrastructural projects in Iran.

Yu further noted that Chinese firms are offering their services to Iranians in the fields of railroads, dam construction, and drip irrigation.

The Chinese ambassador stated that the determination of the Chinese and Iranian governments and nations to expand bilateral relations has led to ever-increasing trade exchanges between the two Asian countries.

 
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Huge gold imports into China/Japanese Pension funds eyeing gold for first time/Unemployment in Spain rises to 26.6%/ [harveyorgan]

Gold closed up $16.00 to finish the comex session at $1661.50  Silver also followed gold rising by 39 cents to $30.42. Today we saw gold and silver actually strength as the Dow fell deeper into the red.
Demand for physical continues to strength despite the crazy antics of our bankers. Today we witnessed a huge increase in physical imports into China through Hong Kong to the tune of 91 tonnes of gold last month. Also silver imports are rising as well.  The USA mint saw a big rise in silver eagle sales. The Shanghai physical exchange continues to show huge strength with a total monthly sales of 19.5 tonnes of gold turnover.
The bankers will have massive trouble shorting gold as turnover sales continue to strengthen each and every month.

With gold shares performing poorly despite gold/silver’s rise, expect more of the same raiding by the bankers as they try and quell these two precious metal’s demand!!

In other news, Greece again is in need of cash.  Today, the Greek banks announced that due to the Greek haircut on the bonds it held, its income was curtailed badly.  Thus the Greek banks have a non performing problem coupled with a lack of income.  The EU set aside 50 billion euros and already the banks need more than that.

Unemployment again rises in Spain, this time a record 26.6% and all of Europe has an unemployment level of 11.8%.

 

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Why the Chinese Demand US Gun Control [thedailybell]

Chinese State Media Demands US Citizens Be Disarmed …The official Chinese government news agency, Xinhua, has demanded the US immediately adopt stricter gun control measures to reduce the number of firearms the US populace is permitted to possess. The Chinese state-controlled media’s statement, titled “Innocent Blood Demands No Delay for US Gun Control,” is primarily focused on the Newtown tragedy in which 26 Americans were killed by a mad gunman. Twenty of the victims were young children. The Chinese government stated, “Their blood and tears demand no delay for the U.S. gun control.” – Breitbart

Dominant Social Theme: The Chinese are rightfully concerned with US violence.

Free-Market Analysis: The Chinese have weighed in … Breitbart is reporting that the Chinese government is concerned about US gun violence (see above excerpt). This is notable because it tends to support certain dominant social themes we have noted before.

We do believe that the Chinese, like the Russians and the rest of the BRICs, are part of an effort to create global governance. The British – the City of London being an integral part of this larger effort – virtually ran China and India once upon a time.

While British influence has eroded among the civilian population, chances are the power elite behind past depredations remains quite influential with the political and military class.

There are suppositions that Western powers wanted communism to come to China in the form of Mao because that helped crush China’s unique culture and set the stage for the current quasi-capitalism that now engulfs China.

And as we have pointed out recently, both China and the US are converging on a new kind of sociopolitical and economic system that may mimic Germany’s National Socialism more than any other political paradigm.

For this reason, we’re not surprised top Chinese officials are calling for more gun control in the US. This suits the Chinese system, which is intended, we have no doubt, to more closely merge with European and North American systems over time.

The availability of guns is an impediment to totalitarianfascism or whatever else the power elite has in mind. Here’s more from the Breitbart article:

The Chinese government states:

“The past six months have seen enough shooting rampages in the United States. Just three days ago, three people were shot dead at a shopping mall in Oregon. Two weeks ago, a football player shot his girlfriend dead and then committed suicide. Five months ago, 12 people were killed and 58 wounded in a shooting spree at a midnight screening of a Batman film in Colorado.”

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How the Chinese press sees Gold reserves kept in U.S.

Link to original article translated by Google

China’s Huaxia Bank says rogue employee sold troubled wealth product [newsdaily]

The deposit products, issued by the Zhongding Wealth Investment Center, were sold by an employee at Huaxia’s Jiading branch, in a Shanghai suburb, Huaxia said in a statement late on Sunday.

Huaxia did not say what position was held by the employee, who has left the bank, nor did it say whether the employee had been dismissed or had left voluntarily.

The bank also did not say how much money might be involved. It said only that it was “aware” of reports that the investments could not be repaid when the product matured, but Huaxia did not confirm those reports.

In a separate statement on Monday, Huaxia said the products the employee sold were four Zhongding-issued instruments, available since 2011, which were backed by returns from a pawn shop and a car sales company in the poor but populous inland province of Henan.

Chinese banks offer proprietary and third-party wealth management products that offer higher investment returns than regular savings accounts to attract and retain wealthy depositors.

Typically, each bank generally sells a number of financial instruments it has approved. In most cases, the small print reminds investors that the bank does not guarantee performance.

Investment products packaged by private equity firms, like the one issued by Zhongding, are not routinely offered by bank branches.

Critics worry that the wealth management products are poorly regulated and might potentially conceal overlapping obligations that the distributing banks would be required to honor if an economic slowdown led to widespread default.

Huaxia, which distributes other third-party wealth management products, said those products are operating normally and are up to date in their payments.

 

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China’s retail investors have given up on the stock market; could we be approaching the bottom? [SoberLook]

China’s retail investors have lost all confidence in the nation’s stock market. In spite of improving economic fundamentals (see discussion), the market continues to plunge. Unlike many other emerging markets, China’s domestic stock market trading is dominated by retail investors. And many feel they have been duped, as the market hits new lows.

JPMorgan: – Of the households with stock market investments, 77% had not made a profit. The stock market has been the worst performing asset class over the last 5 years from various investment instruments available to the retail investor. If a retail investor put Rmb100 into the CSI300 5 years ago and left it, it would only be worth roughly Rmb 47 today…

 

Shanghai Stock Exchange Composite Index (source: Yahoo Finance)

China’s brokers have spent the last few years hyping the market, with a positive projections each new year. And each year retail investors have been disappointed.

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U.S. Intensifies Military Encirclement of China [BoilingFrogPost]

china

With the emergence of China as the world’s second-largest economy and its concomitant renewal of (comparatively minor) territorial claims in the East China Sea and South China Sea, the stage is set for a U.S.-Chinese confrontation of a nature and on a scale not seen since before the Sino-Soviet split of 1960.

Following the expansion of the North Atlantic Treaty Organization throughout Europe over the past thirteen years – every European nation is now a full member of or involved in one or more partnership arrangements with the U.S.-led military bloc except for Cyrus, which is under intensified pressure to join the Partnership for Peace program – which has enforced a cordon sanitaire on Russia’s western and much of its southern frontier, it was inevitable that the U.S. and its allies would next move to encircle, quarantine and ultimately confront China.

In the past decade the Pentagon has begun conducting annual multinational military exercises in nations bordering China (Khaan Quest in Mongolia, Steppe Eagle in Kazakhstan) and near it (Angkor Sentinel in Cambodia), has with its NATO allies waged war and moved into bases in nations bordering China – Afghanistan, Kyrgyzstan, Pakistan and Tajikistan – as well as nearby Uzbekistan, and, even before the official announcement of the strategic shift to the Asia-Pacific region, acquired the use of new military facilities in Afghanistan, Kyrgyzstan, Pakistan, Australia, Singapore and the Philippines.

President Obama’s current visit to Cambodia, Myanmar and Thailand and Defense Secretary Leon Panetta’s simultaneous trip to Australia, Cambodia and Thailand are exemplary of this trend.

Early this year NATO announced the launching of its latest, and first non-geographically specific, partnership program, Partners Across the Globe, which began with the incorporation of eight Asia-Pacific nations: Afghanistan, Australia, Iraq, Japan, Mongolia, New Zealand, Pakistan and South Korea.

Since the summer of 2010 the U.S. has been courting the ten members of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam), several of whom are embroiled in island disputes with China, for inclusion into a rapidly evolving Asian analogue of NATO which includes the eight above-mentioned new NATO partners and is intended to be a super-Cold War era-like bloc subsuming the former members of the Central Treaty Organization (CENTO), Southeast Asia Treaty Organization (SEATO) and Australia, New Zealand, United States Security Treaty (ANZUS) into a systematic initiative aimed against China.

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Tax bills prompt Chinese to ditch US passports [scmp]

For many wealthy mainland Chinese who immigrated to the US, an American passport is a genie that cannot be put back in the bottle.

More and more of them are thinking about renouncing their US citizenship, something that would have been almost unimaginable a decade ago, when getting a US passport was the ultimate status symbol in China.

Wu, a 31-year-old housewife who asked to be identified only by her family name, said she started toying with the idea about a year ago. “I regret it to death, all of my friends regret it to death,” said Wu about taking out US citizenship. “I’m never going back.”

Behind her change of heart is tax. Under US law, American citizens and permanent residents, known as green card holders, are taxed on their worldwide income regardless of where they live. Other countries, including China, tax their citizens’ global income. But it is the US, with its sophisticated systems and the long arm of its taxman, that has the highest profile.

In March 2010, Washington stepped up its tax collection efforts by enacting the Foreign Account Tax Compliance, or Fatca, aimed at cracking down on tax dodgers abroad. The regulations are set to be finalised before year’s end, and the US Internal Revenue Service (IRS) expects the tightened compliance to generate as much as an extra US$9 billion over the next decade.

America’s long history of tax collection, starting with the 16th amendment to the constitution that gave Congress the power to levy and collect taxes, makes paying tax a serious legal issue that many immigrants do not realise when they decide to become citizens. The law even extends beyond life to a dead person’s estate.

afp.jpg

 

 

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China Says It Must Add To Gold Reserves To Promote Yuan Globalization And As An FX Hedge [Zerohedge]

Back in September, when we provided the monthly observation on what has become a record year to date surge in Chinese imports of gold from Hong Kong, we reminded readers that “in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a “task force” last year to consider growing China’s 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. Has China managed to accumulated 6,000 tons yet?  We won’t know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany’s 3,395 tons and second only to the US.”

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The Gini Is Out Of The Bottle: Did China “Outcapitalism” The US, Or Did America “Outcommunism” China? [Zerohedge]

In several days, the ornate theatrical spectacle that is the Chinese Communist Party’s 18th Congress (captioned here) will come to a triumphal end, with a new leader, Vice President Xi Jinping,carefully hand-picked after the Bo Xilai fiasco, from among the equal of equals, with just one thing on his mind. No, not how to transfer $5 billion from that Swiss bank account to Singapore without being noticed.

 

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Is China heading to match the U.S. gold reserve level? [mineweb]

Surely the biggest non-news gold story of the day was the statement by David Gornall of Natixis, the London Bullion Market Association’s Chjairman, that gold is somewhat underrepresented in terms of the percentage of it held in China’s foreign reserves.  “”When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction,” Gornall told the Association’s annual conference being held this year in Hong Kong. “The country has only 2 percent of its reserves in the form of gold compared with the U.S. at 75 percent.”

That this fact has been self evident since China last announced a 76% increase in its gold reserve back in 2009 to bring its gold holdings up to all of 1.8% of its foreign reserve holdings doesn’t seem to have impacted the media reporting on this statement as seemingly something new.  With the U.S. and a number of European countries holding more than 70% of their forex reserves in gold it has long been felt that China is likely to be moving to increase its holdings of the yellow metal – although to bring it up to the kind of percentage of foreign reserves of the U.S. or Germany could be difficult to do in any kind of orderly market except over a prolonged period of time.

The implication of Gornall’s comment, of course, is that China is not only looking to increase the proportion of its reserves held in gold, but that it may already be doing so without reporting it – a position often noted by Mineweb in the past, but seldom acceded to by gold’s establishment.  Given that it took China six years before it made any announcement of its last gold reserve rise back in 2009, and admitted at the time that this increase had been built up over the previous period, but put into a state account which it did not feel it necessary to report, has led many gold analysts to assume that the country has been doing the same again, and quietly accumulating gold, but without announcing it in its ‘official’ reserve figures.  Indeed, given that China is currently the world’s largest gold producer, and has been since 2007, and that its announced gold imports have been rising substantially year on year – and that it does not export any of its gold, the odds are that it is indeed building its gold reserves, and will announce an increase when, and only when, it feels it is opportune to do so.

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Where Now for China’s Gold Market?

The latest from the London Bullion Market Association conference in Hong Kong… 

THE ANNUAL conference of the London Bullion Market Association – the “premier professional forum for the world’s bullion market” as Haywood Cheung of the 100-year old Chinese Gold & Silver Exchange put it this morning – is taking place right now in Hong Kong.

 

The timing could hardly seem more urgent. Hong Kong has always had great importance to the global precious metals market – particularly since the 1970s, as several speakers noted on Monday, day one of the LBMA’s two-day 2012 conference. But while Hong Kong’s dominance as Asia’s bullion hub may yet be challenged (it beat off “stiff competition” to be this year’s Asian LBMA venue, Cheung writes in the South China Morning Post; Singapore removed general sales tax from gold last month, and now its gleaming new freeport vaults are already booked out, with a second facility being discussed), it’s Hong Kong which remains “the gateway to China”.

 

And China remains the big prize for the record 700+ delegates from 279 different miners, refiners, banks, dealers and secure logistics providers gathered here from 39 countries. 

“China’s appetite for gold has increased rapidly,” explained Albert Cheng, managing director for the Far East at market-development organization the World Gold Council after lunch today, “with gold demand growing by an average 24% per annum since 2007. 

“China’s share of global gold demand doubled from 10% in 2007 to 21% in 2011.” And as Cheng’s chart shows above, China in fact overtook world #1 consumer India in the first half of 2012.

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Google services blocked in China [computerworld]

Computerworld – Google confirmed a dropoff in traffic to its sites in China on Friday, echoing an online report that the company’s services are being blocked there.

All Google services are inaccessible in China, according to the Google Transparency Report , which monitors traffic to the company’s sites around the globe.

The Web site Greatfire.org , which tracks Internet access in China, also reported that Google sites and searches were being blocked there.

“We’ve checked and there’s nothing wrong on our end,” wrote a Google spokeswoman in an email to Computerworld.

As of 5 p.m. ET Friday, (6 a.m. in Beijing) the blockage had been going on for 12 hours. Industry watchers will keep an eye on China to see what happens when its citizens wake up and attempt to go online to check their Gmail accounts or perform Google searches.

This latest blockage comes as China is ushering in a change in its government. Every 10 years, China holds its Communist Party Congress, which is focused on appointing new leadership. The 18th Party Congress began on Thursday.

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Is the Yuan About to Replace the Dollar as the World’s Reserve Currency?[Mish]

Once again we are seeing articles and research papers stating the Chinese renminbi (yuan) is about to replace the dollar as the global reserve currency.

Here is a working paper by Arvind Subramanian and Martin Kessler at the Peterson Institute of International Economics stating The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?.

 A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or  xplicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development.

The same authors present a case in the Financial Times article China’s currency rises in the US backyard.

 East Asia is now a renminbi bloc because the currencies of seven out of 10 countries in the region – including South Korea, Indonesia, Taiwan, Malaysia, Singapore and Thailand – track the renminbi more closely than the US dollar. For example, since the middle of 2010, the Korean won and the renminbi have appreciated by similar amounts against the dollar. Only three economies in the group – Hong Kong, Vietnam and Mongolia – still have currencies following the dollar more closely than the renminbi.

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China police crack down after riot over new factory [france24]

AFP – Authorities in east China ordered a security crackdown Sunday after thousands of locals clashed with police during a protest at the construction of a chemical plant.

In the latest environmental unrest to erupt in China, police at Ningbo city in Zhejiang province fired tear gas Saturday night after six days of demonstrations over the project, online reports said.

“In recent days some unreasonable activities such as illegal gatherings and rioting have occurred, seriously impairing the normal work and life of the people and severely impacting overall development and stability,” said a statement on the website of Ningbo’s Zhenhai district government.

At an emergency meeting late Saturday local Communist Party officials insisted that the chemical plant project had not been formally approved and agreed to listen to the protesters’ demands, the statement said.

The government also ordered police to “maintain stability in accordance with law”, rhetoric that often signals a heavy-handed crackdown.

Photos posted on the www.molihua.org website, which monitors social unrest, showed protesters facing off against thousands of riot police as security forces streamed into Ningbo’s Zhenhai district where the 55.9 billion yuan ($8.9 billion) plant is to be located.

 

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Chinese currency plays complex, crucial role in U.S. economy []

A bank clerk counts U.S. dollar notes near bundles Chinese renminbi notes bank Hefei central China's Anhui province Friday Oct. 

The Chinese currency has taken center stage in some of the economic policy debates leading up to the election. That is because of the perception that China is the source of all our jobs woes as their economy continues to grow at a rate four times as fast as ours. The theory is that by keeping their currency artificially “cheap” against the dollar, it encourages America to import more goods from China — while encouraging job growth there to make all those products.

But this discussion of the Chinese currency leads to some interesting revelations of our general ignorance about Chinese currency, and our trading relationship. For instance, what is the proper name of the Chinese currency?

You’ll hear two terms — and both are correct, technically. The renminbi is the name of the currency system, literally meaning “the people’s currency.” The yuan is the main unit of currency within the renminbi. There are also the jiao (1/10th of a yuan), and the fen (1/10th of a jiao).

This is similar to the British currency system, which is known as “Sterling,” while the unit of currency is called the British pound. In America, we refer to our currency system and the individual currency using the word “dollar.”

You will often see the renmimbi written as RMB — which is pronounced basically the same as the spelled out word. Since both renminbi and yuan can be used interchangeably, RMB is the easiest way to talk about the Chinese currency.

Where Americans get in trouble is with the pronunciation of the yuan. It is not pronounced like the “won” in won-ton soup!

Because of the tonal quality of the Chinese language, I am told that few Americans will ever pronounce it correctly. The easiest written explanation I have seen is this: “It sounds like the abbreviation for the United Nations. Saying “U.N.” without taking a pause between the “U” and the “N” sounds very similar to one way a native Mandarin speaker would say the name of the Chinese currency.”

 

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The “Renminbi Bloc”: China’s next step to the end of dollar supremacy [dailyreckoning]

China has quietly taken a huge step toward supplanting the dollar as the world’s reserve currency.

A report from the Peterson Institute for International Economics concludes a “renminbi bloc” has formed in East Asia. That is, since the Panic of 2008, seven out of 10 major economies in East Asia have tracked the renminbi closer than the dollar. That includes South Korea, Indonesia, Malaysia, Singapore and Thailand.

The lone holdouts are Hong Kong, Vietnam and Mongolia.

Indeed the report finds the currency’s influence extending beyond China’s backyard. Turns out the renminbi is now the dominant reference currency in India, South Africa, and Chile.

Read more: The “Renminbi Bloc”: China’s next step to the end of dollar supremacy http://dailyreckoning.com/the-renminbi-bloc-chinas-next-step-to-the-end-of-dollar-supremacy/#ixzz2AUmF3duZ

China vows to boost ties with Gabon [xinhuanet]

LIBREVILLE, Oct. 25 (Xinhua) — China is determined to widen cooperation with Gabon and boost existing pragmatic relations between the two sides, according to a senior Chinese official on a visit to the Central African country.

The pledge was made at a meeting held Wednesday between Gabonese Prime Minister Raymond Ndong Sima and Ai Ping, deputy head of the International Department of the Communist Party of China (CPC) Central Committee.

Ai hailed the Sino-Gabonese friendship forged by leaders of generations of the two nations, saying it has taken root in the heart of the two peoples.

He pointed out that the friendly exchanges and cooperation between the two nations have yielded abundant fruits.

“In the new international situation, the cooperation between China and Gabon is very essential because the two countries are both engaged in reinforcement of their economies, protection of the environment and improvement of the well-being of their citizens,” he said.

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Asian economies turn to yuan [chinadaily]

A “renminbi bloc” has been formed in East Asia, as nations in the region abandon the US dollarand peg their currency to the Chinese yuan — a major signal of China’s successful bid tointernationalize its currency, a research report has said.

The Peterson Institute for International Economics, or PIIE, said in its latest research that Chinahas moved closer to its long-term goal for the renminbi to become a global reserve currency.

Since the global financial crisis, the report said, more and more nations, especially emergingeconomies, see the yuan as the main reference currency when setting their exchange rate.

And now seven out of 10 economies in the region — including South Korea, Indonesia,Malaysia, Singapore and Thailand — track the renminbi more closely than they do the USdollar. Only three economies in the group — Hong Kong, Vietnam, and Mongolia — still havecurrencies following the dollar more closely than the renminbi, said the report, posted on theinstitute’s website.

The South Korean won, for example, has appreciated in sync with the renminbi against thedollar since mid-2010.

China has long vowed to raise its currency’s global sway, along with the rise of its economy,which became the world’s second-biggest last year.

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China Bashing and the US Election [acting-man]

Protectionism is Back in Fashion

 

Of course protectionism is always fashionable, so it is perhaps not entirely correct to state that it is ‘back in fashion’. However, there are occasionally  stretches of time when politicians at least give lip service to supporting free trade. As soon as they begin talking about ‘fair trade‘ it is time to hold on to one’s wallet however. We will never understand why the policy has so much popular support (protectionism is widely held to be a ‘populist’ policy), given that the population at large is bound to be the major loser when protectionist barriers to trade are erected. After all, they merely serve to protect a select few producers to the vast detriment of all consumers.

Consider in this context the currently highly popular ‘China bashing’, which has  become the modern-day replacement of the ‘Japan bashing’ of yore (which was equally moronic). In essence, US politicians are demanding from China to raise its prices. How stupid is that? It is the functional equivalent of Wal Mart customers complaining to the retail chain’s management that it isn’t charging them enough. No-one would ever get such an absurd idea – and yet, it is the declared policy of the US to get China to do just that.

Given that a presidential election is imminent, China bashing has gone into high gear. Mitt Romney, in another desperate attempt to differentiate himself from his  opponent, promises to declare China a ‘currency manipulator’ the very moment he comes into power. Of course it is true that China is a ‘currency manipulator’, but so is everybody else.  Moreover, contrary to conventional wisdom, the  party that is disadvantaged by this is China, not its customers. Its customers get to buy things more cheaply than would otherwise be the case, which is an unalloyed  boon for them. As they save money by purchasing cheap goods from China, they have funds available that can be used for other purposes (either for saving and investment or additional consumption). Lastly, the idea that the Chinese yuan is ‘undervalued’ is highly questionable given the amount of money printing that has taken place in China over the past decade.

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China Sums Up US Financial Innovation: “Smart Kids Picking People’s Pockets Is Not Very Good” [Zerohedge]

When fringe-blogs highlight the reality of the US banking system and its financial engineering as nothing but overly complex three-card-Monte, it can be shrugged off; but when the head of China’s sovereign wealth fund (yes the same one that will bail the world out) notes that the JPMorgan loss highlights a system that has become too complex, perhaps some should listen. As Bloomberg BusinessWeek reports, Gao Xiqing of CIC stated that “I think we do need to slow down a little bit instead of rushing up to all these fancy derivatives.” The fact that the ‘whale’ loss was not a rogue trader but a systemic decision gone wrong on weak risk management of an overly-complex position was “the single most revealing thing” to Gao as he expressed concern about a society in which “all the best engineers are engineering financial products.” Summing up the entire ethos of US financial innovation he concluded: “You have all the smartest kids to design these products, the only purpose of which is to get money out of other people’s pockets, that is not very good.”

 

Via Bloomberg BusinessWeek:

JPMorgan Chase & Co. (JPM)’s $5.8 billion trading loss this year showed that the financial system is getting too complicated for even respected institutions, the president of China’s sovereign-wealth fund said.

 

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Marc Faber vs. Jim Rogers Conversation

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