Category Archives: China

Huarong’s Shadow Bank Bailout: This Changes Everything

Two days ago, we learned that the Chinese government was behind the bailout earlier this year of a trust product—a type of financial product that the central government has heretofore emphatically distanced itself from. Huarong Asset Management, using a 3 billion RMB loan from the Industrial and Commercial Bank of China (ICBC), the trust product seller, was the mystery lender behind the January bailout of the Credit Equals Gold trust product, the Financial Times reported on August 31. ICBC and Huarong Asset Management are both state-owned entities.

New Zealand Prime Minister John Key, the Whale Oil Blog, and International Organized Crime

A new book is causing a stir in New Zealand. It’s called “Dirty Politics“. From the blurb:

Early in 2014 Nicky Hager was leaked a large number of email and online conversations from Cameron Slater’s Whale Oil blog. Many of these were between Slater and his personal allies on the hard right, revealing an ugly and destructive style of politics. But there were also many communications with the prime minister’s office and other Cabinet ministers in the National Government. They show us a side of Prime Minister John Key and his government of which most New Zealanders are completely unaware.
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Ilargi: Say Bye to the Bubble

Yves here. Only with the fullness of time will we know whether Ilargi’s “the end is nigh” headline will have coincided with the crack that signaled the sell-by date of the officialdom-induced post crisis rally. But Ilargi makes more interesting points than simply, as many done, point out that the bubble party has to end and the unwind is not likely to be pretty.

Whose Oil Will Quench China’s Thirst?

As the heir-in-waiting to the title of world’s largest economy, China finds itself in a strange position in terms of its oil consumption.

In September 2013, China became the biggest net importer of crude, beating out the U.S. for the first time. This came as no surprise, given how rapidly China’s thirst for oil has grown, although landing in top place happened a little ahead of U.S. Energy Information Agency (EIA) predictions that it would take place in 2014. However, where the U.S. has been shoring up its own internal production, China has lagged behind. Between 2011 and 2014, U.S. oil production rose by 31 percent, as opposed to China, which saw its own production increase by a little more than 5 percent over that time. This leaves China utterly dependent on oil imports, a vulnerable position to be in at a time when its economy is beginning to wobble.

Michael Hudson and Leo Panitch on BRICS Development Bank Salvo v. the Dollar

Yves here. I’ve refrained from saying much about the announcement of the plan to establish a $100 billion development bank by the BRICs nations (Brazil, Russia, India, and China) because the hype is ahead of the reality. Yes, it is true that the US has been abusing its role as steward of the reserve currency. QE has been a huge bone of contention in all emerging markets, since hot money has flooded in, while the Fed has, in an insult to the collective intelligence of the leaders of these countries, tried claiming that it has nothing to do with the influx. And they are bracing themselves for the tidal retreat when the Fed starts tightening. The US’ efforts to use sanctions to punish Russia have also focused the minds of these countries.

However, the formation of a development banks falls vastly short of the infrastructure needed for any country’s currency (or a basket of currencies) to displace the dollar.

Are US Bonds the Next Widow Maker Trade?

One the markets that has been least easy to predict this year has been US bonds. The long term US bond bears, that are often monetarists at heart and believe QE will bring inflation, have been queuing up to short. Likewise, post-Keynesian’s have pointed at Japan and laughed about secular deleveraging and widow-maker trades.

The fact is, the bears have been wrong all year, and even with recent inflationary rumblings are still wrong.

China Attacks Oz Banks for Laundering Flight Capital

Yves here. China is cracking down on flight capital, starting with Australian banks. As the most casual readers of the business press know, the international wealthy, particularly Russians and Chinese, have been using residential real estate in “world cities” as their favorite lockbox. As we’ve written, it’s stunning to see how much real estate has been hoarded in London. Mayfair was depopulated during the petrodollar recycling of the 1970s; now much of Belgravia, Chelsea near Sloan Square, and Kensington are visibly underpopulated. Vancouver has been bid to the sky by Chinese flight capital. New York is a big destination for Russian and Chinese investors, and Chinese money has been pouring into Australian real estate.

The Chinese move may be an admission of stress on the financial system.

France Has Hissy Fit Over BNP Paribas Fine and Dollar Dominance

France appears to have taken its public relations strategy for dealing with $8.9 billion fine against BNP Paribas from an old saying among lawyers: “If you have the facts on your side, pound the facts. If you have the law on your side, pound the law. If you have neither on your side, pound the table.” Here’s the guts of the French compliant, which is that the US is abusing the power of dollar dominance:

Michael Klare: Energy Companies Persuade Emerging Economies To Embrace Environmental Destruction, Erm, Growth

How major energy companies are selling their former first world product, fossil fuels, to the third world, replaying Big Tobacco’s ploy.

The Birth of a Eurasian Century: Russia and China Do Pipelineistan

Russia and China, along with other developing economies, are exploring ways to create an Eurasian alliance to go toe-to-toe with the US economic hegemony.

The Chronic Exporters’ Curse?

Why the much-envied position of being a chronic exporter isn’t quite a bed of roses.

Ilargi: A Stampede of Elephants in the China Shop

On the danger that China’s overgrown shadow banking system poses to the economy, and the practical and political obstacles to curbing it.

Pettis: 11 Reasons China Can’t Escape from Its Debt Overhang

China’s increasing debt level has goosed the economy. What form might the hangover take?

Are Administration Claims of Progress on TransPacific Partnership Negotiations in Japan Credible?

As readers may know, the mislabeled trade deal known as the TransPacific Partnership hasn’t looked like it has great odds of being consummated. But the Administration has been browbeating Japan, and has also been talking of breakthroughs in negotiations. Has the dynamic changed?

Reserve Currency: Is the Yuan Tearing Down the US Dollar?

40 central banks have invested in yuan. Should the US be worried?