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China
intends to start selling dollars! THIS IS HUGE! The dollar rally is DEAD.
China
Daily reports that Chinese imports will get forex fund boost.
(emphasis mine) [my
comment]
Imports
to get forex fund boost
By
Wang Xu (China Daily)
Updated: 2009-02-19 07:42
The
government will use its abundant foreign exchange reserves to boost imports
and domestic demand as part of its efforts to check the economic slowdown
caused by the global financial crisis.
Addressing a press conference yesterday, Fang Shangpu, deputy director of the
State Administration of Foreign Exchange (SAFE), said the administration
would introduce more measures to support Chinese firms to expand overseas,
too.
But the government is determined to keep the yuan's rate "generally
stable", another SAFE official said.
Fang's remarks confirm what Premier Wen Jiabao told the World Economic
Forum in Davos last month - that China could use its foreign exchange
reserves to boost the domestic market.
As a step toward that, the government will send a business delegation to
four European countries later this month with purchase orders worth 15
billion yuan ($2.2 billion) for technologies, equipment and other goods. [They
would send a delegation to the US too, if we had a manufacturing sector that
is (small exaggeration).]
SAFE will encourage trade credit and cross-border financing, and take steps
to match these actions with proper risk management, Fang said. A number of
Chinese companies are already said to be pursuing major merger and
acquisition deals overseas, most noticeably in the raw materials sector. [China
is snapping up the world's resources and military technology at firesale
prices. It will probably emerge from this as the new superpower…]
Government spokespersons, including SAFE officials, denied Internet
reports that the yuan would be devalued at 6.95-7 against the US dollar. [They
are focusing on domestic consumption. Devaluing the yuan would counteract
that strategy.]
Keeping the yuan exchange rate at "a reasonable and balanced level"
is conducive to not only China, but also many other economies, said Deng
Xianhong, another SAFE deputy chief. "It will contribute to the fight
against the global financial crisis, too."
The country has about $1.95 trillion in foreign exchange reserves, the
world's largest [True number is around 2.3 trillion now]. And it has
the lion's share of investment in low-risk, low-yield assets such as the US
treasury bonds [which will make China a net seller of treasuries as it funds
other uses of its reserves]
The government de-pegged the yuan from the US dollar in July 2005, after
which the Chinese currency has risen about 20 percent against the greenback.
But since the country's economic growth dropped to a seven-year low of 6.8
percent in the fourth quarter of 2008, there has been speculation that the
yuan could be devalued to bolster exports. [Unlikely, China is experiencing a
drought and devaluing its currency would put even more upwards pressure on
food prices.]
China Daily
reports that China seeks "more active" use
of forex reserves.
China
seeks "more active" use of forex reserves
(Xinhua)
Updated: 2009-02-17 19:44
The power of China's huge foreign exchange reserves, which stand at nearly
$2 trillion, might start to be felt more around the world as the country
seeks to use those funds "more actively" as the global economic
crisis grinds on, experts said.
"The government has sent clear signals," said Yin Jianfeng,
deputy director of the Institute of Finance and Banking of the Chinese
Academy of Social Sciences, a government think tank.
He said Beijing was likely to shift its strategy from passive to active
reserve management, a change he said was especially urgent and an obvious
response to the financial crisis.
Premier Wen Jiabao said in an interview with the Financial Times during
the Davos forum that the country was exploring more efficient ways to use its
reserves to boost domestic development.
China's reserves hit a record $1.95 trillion at the end of 2008, the largest
in the world and far exceeding those of Japan, the second-largest foreign
exchange holder with $1.03 trillion.
To play it safe, China's huge reserves have usually been invested in
low-risk but low-yield assets, such as US government bonds.
According to the US Treasury, China held $681.9 billion worth of US
government bonds as of November.
China should find new ways to use these funds more efficiently, get a
higher return and support domestic development, said Yin.
The government has long sought to diversify the use of its reserves as part
of a larger reform drive.
"We hope to use the money to buy equipment and technology, which are
urgently needed for the country's development," Wen told the Financial
Times.
Forex reserves must be spent on foreign trade and overseas investment, he
said. [In order for China to spend its forex reserves, it will have to sell
treasuries…]
GOOD POSITION
Massive reserves have put China in a good position to increase imports to
meet domestic demand, said Yin, and this was very likely to be a major way to
effectively use the money.
Imports fell for the four months ended in January, often faster than exports
declined, as global trade shrank amid the economic and financial crisis. The
reserves could be used to reverse that trend.
China's imports and foreign investment have been limited to date, to some
extent, by restrictions imposed by other countries. However, the crisis
has prompted some nations with much-needed technology to ease those
restrictions.
The United States and China signed an agreement on Jan 13 that allows US
exporters to sell certain dual-use items to China without acquiring
permission from the government. Dual-use refers to products that can
have either civilian or military uses.
Wen also revealed during his trip to Europe last month that China would
send a delegation there to procure advanced equipment and technology.
BOOST TO WORLD
Importing more advanced equipment and technology would boost China's domestic
investment and provide effective economic stimulus, said Zuo Xiaolei, chief
economist of China Galaxy Securities Co Ltd.
"China's increase of imports will surely contribute to the economy of
the exporters and thus help the world economy recover," Zuo said.
She warned that it would be dangerous either to use the reserves for
budgeted spending or subsidies to boost consumer spending [China is doing
both]. Either use could fuel inflation [likely] or a depreciation of
the yuan [unlikely].
Zhao Xijun, deputy director of the Institute of Finance and Securities at
Renmin University, said China had other choices. Apart from purchasing
crucial technology, equipment and resources, it could also make direct
investments through commercial banks or support State-owned enterprises'
overseas acquisitions [China is planning on doing both these also].
For example, Aluminum Corp of China, or Chinalco, announced on Feb 12 it
would invest $19.5 billion in mining giant Rio Tinto Group, bailing out the
latter while securing for the state-owned Chinese company access to more
resources. This deal would be by far the largest overseas investment
by a Chinese company.
"To buy more strategic assets, energy and resources would also be a
very important way to efficiently use the reserves. It would help preserve
and enhance the value of the reserves," Zhao said. [Agreed]
NEW DESTINATIONS
Zhou Xiaochuan, governor of China's central bank, the People's Bank of
China, has also said that China should consider diversifying the destination
of its reserves. [I have talked about this before. If
China moves it massive reserves, the dollar will weaken against whatever it
starts buying]
Speaking on the sidelines of an Asian central bankers' meeting earlier
this month in Malaysia, Zhou asked: "is it time for China to consider
using the reserves somewhere else, instead of concentrating too much on the
United States?" [Yes it is.]
That could be a hint that China will shift the use of its reserves to put
more into developing countries and emerging markets [This would weaken the
dollar against those currencies]. These countries offer growth
potential, richer resources and lower labor costs but they need funds for
development, analysts said.
China Daily
reports that China may use forex reserves to help oil
firms.
China
may use forex reserves to help oil firms
(Agencies)
Updated: 2009-02-17 10:53
This file photo shows a crude oil wharf in Hainan province. China is
considering using part of its huge foreign exchange reserves to help State
oil companies explore for overseas resources, a report said on Tuesday. [CFP]
China is considering using part of its huge foreign exchange reserves to
help State oil companies explore for overseas resources, the Shanghai-based
National Business Daily reported on Tuesday.
The newspaper said the national energy working conference, which closed
earlier this month, had discussed the proposal.
According to the proposal, the government would use a slice of China's
$1.95 trillion in foreign exchange reserves to set up a special fund to
finance offshore oil exploration. [Not good for treasuries or the dollar]
China's foreign exchange holdings are heavily invested in
dollar-denominated assets, and Chinese researchers and officials are calling
for a more diversified use of the reserves that are the world's largest.
Fan Wenzhong, a State-owned assets supervision official in Chongqing city,
said in an interview with the Shanghai Securities News on Monday that the
government should use its reserves to set up a $200 billion overseas industrial
fund and a $100 billion "social development" fund.
AFP reports that China sets out on spending spree in
Europe.
China
sets out on spending spree in Europe: govt
5 hours ago
BEIJING (AFP) — Chinese Commerce Minister Chen Deming left for
Europe Tuesday at the head of a 300-strong team charged with spending
billions of dollars on European products, the government and state media
said. [I highlighted this trip in my earlier entry on Premier Wen’s "trip of
Confidence" to Europe]
The procurement team, which will visit Spain, Germany, Switzerland and
Britain, could end up spending 15 billion yuan (2.2 billion dollars) or
"considerably" more, the China Daily reported.
"The Chinese government's organisation of the trade and investment
mission to Europe comes as the world economy is facing recession due to the international
financial crisis," said Gao Hucheng, a vice commerce minister.
"It shows China's determination to open up its market and push for
the revival of the world economy by strengthening cooperation with other
countries in the world," he said in a statement on the ministry's
website. [It also shows China’s desire to use its
abundant foreign exchange reserves to boost domestic economic growth.]
Officials from industry associations in the sectors of food [China
is experiencing a history drought], textile, mining
[China
is gobbling up the world’s natural resources] and
health insurance [China is expanding its domestic health
coverage to boost consumption] were part of the
delegation, the statement said.
Commerce ministry spokesman Yao Jian said last week that the delegation
would mainly buy technology and equipment.
Xinhua news agency said the delegation would be made up of about 300
officials and business people.
The China Daily cited Yao as saying that the country's demand for European
goods was growing as a result of the roll-out of a four-trillion-yuan
economic stimulus package that includes huge infrastructure projects. [Good
for Europe, not so much for US]
"Europe has an obvious edge [over the US] in
providing us with the equipment we need," he said, according to the
paper. [Europe, especially Germany and Switzerland, is much
stronger in engineering then the US. (In the US, we focus more on finance and
business) ]
My reaction: China
is mobilizing its dollar reserves! The power of China's huge foreign exchange
reserves, which stand at over $2 trillion, will be felt around the world as
the country seeks to use those funds "more actively". This is VERY
bearish for the dollar and treasuries.
1) The government will use its abundant foreign exchange reserves to boost
imports and domestic demand as part of its efforts to boost its economy.
2) The country has over 2 trillion in foreign exchange reserves, the world's
largest.
3) The lion's share of Chinese reserves are invested in low-risk, low-yield assets
such as the US treasury bonds. These assets will likely suffer because of
China’s plans to mobilize its reserves.
4) The government has sent clear signals that it is shifting its strategy
from passive to active reserve management and exploring more efficient ways
to use its reserves to boost domestic development.
5) Zhou Xiaochuan, governor of China's central bank, the People's Bank of
China, has said:
"To buy more strategic assets, energy and resources would also be a very
important way to efficiently use the reserves. It would help preserve and
enhance the value of the reserves,"
“China should consider diversifying the destination of its
reserves”
"is it time for China to consider using the reserves somewhere else,
instead of concentrating too much on the United States?"
6) A number of Chinese companies are already said to be pursuing major merger
and acquisition deals overseas, most noticeably in the raw materials sector.
7) Aluminum Corp of China (Chinalco) announced on February 12 it would invest
$19.5 billion in mining giant Rio Tinto Group, bailing out the latter while
securing for the state-owned Chinese company access to more resources.
8) China is considering using part of its huge foreign exchange reserves to
help State oil companies explore for overseas resources. The government would
use a slice of China's $1.95 trillion in foreign exchange reserves to set up
a special fund to finance offshore oil exploration.
9) Fan Wenzhong, a State-owned assets supervision official in Chongqing city,
said in an interview with the Shanghai Securities News on Monday that the
government should use its reserves to set up a $200 billion overseas
industrial fund and a $100 billion "social development" fund.
10) The crisis has prompted nations with much-needed technology to ease those
restrictions. Military technology is now much more widely available. (I have
been expecting this: the US is selling off military secrets in a doomed
attempt to save its economy)
11) The United States and China signed an agreement on January 13 that allows
US exporters to sell certain dual-use items to China without acquiring
permission from the government. (Dual-use refers to products that can have
either civilian or military uses.)
12) China will shift the use of its reserves to put more into developing
countries and emerging markets. These countries offer growth potential,
richer resources and lower labor costs but they need funds for development.
13) Chinese Commerce Minister Chen Deming left for Europe Tuesday at the head
of a 300-strong team charged with spending billions of dollars on European
products. The procurement team, which will visit Spain, Germany, Switzerland
and Britain, could end up spending 15 billion yuan (2.2 billion dollars) or
"considerably" more.
14) China’s demand for European goods is growing as a result of the
roll-out of a four-trillion-yuan economic stimulus package that includes huge
infrastructure projects.
15) Europe has an obvious edge over the US in providing China with the
equipment it needs. Europe, especially Germany and Switzerland, is much
stronger in engineering then the US. (In the US, we focus more on finance and
business)
16) The use of reserves for budgeted spending or subsidies to boost consumer
spending could fuel inflation (which will force China to drop dollar peg).
Conclusion: Buy gold and get out of the dollar NOW! (BEFORE China
starts selling treasuries).
Eric
de Carbonnel
Market Skeptics
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