2011.08.29 Most recently, there is a debate on whether the 21st Century belongs to China or not. "Belongs" can be interpreted in two ways. The first is high achievements and the second is controlling. Both can give you the other as consequence. High achievement without control will like showing the cash outside a bank which tempts robbery. To continue to have high achievement, you need the help of controlling. This goes back to the intention of controlling. Using controlling to boost one’s achievement growth organically is a natural self-defense course. Appling controlling to get others’ resource to increase the achievement for the growth of control is aggression. I also see the use of direct military involvement to grow achievement never evolves to distinction. It will happen in the future history. But this type of “belongs” will shrink with the delinquency coming with the achievement like the Roman Empire. China's building of a world dominance is a consequence of its economic growth. During its path, productivity of tangible good is used rather than Keynesian Economy which builds growth from debt and services. China’s growth depends on the saving of people or austerity of the people which is the traditional of Chinese. We see the growth of the Keynesian Economic countries fall one by one. American and the British had the mega economic experiment using the Keynesian  economy and I see it as a failure. In the past history of China points to similar path. The prosperity led to the change of productivity economics to Keynesian. With the American and British falling, it creates a void of economic leadership that could be filled by China as the world factories. It will not be difficult to see the world  hooked on to the economy of China. The void is feeding the growth of China. The result is high economic achievement. How long will this domination continues? The major competitor is not from the BRIC. It will be the African continent which have comparable population. This may take another half a century.

2011.04.28 Silver has been ballistic as identified on 2011.04.18. It becomes daily high every day except last two days which was a correction. If trading out two days ago and want to a further down to buy back, the window of opportunity closed in 24 hours. In the coming days, silver could break the U$50 major psychological barrier. Once broken, many retail investors and follower can easily pushes silver to U$60. At U$60, after another 20% gain, there is the really resistance due to profit taking. This will the moment of true to test how much the correction will be. Today the RSI was dropped from 2011.04.18's 93 to 79. Some steam has been blown off. Lets see if the RSI continues to push. If the rally continues, RSI will rise. The question is how fast silver is going to rise.

2011.04.25 China's story, even spells out explicitly, Western experts still misread the message about inflation control. The guiding principle of Chinese government is simple; control only applies to the speculators, not the low income. The high percentage of retired civil servants remains living on the meager retirement pension with minimal adjustment. The decision is correct not to index to the real inflation rate because it is hard to measure and the base of these pension is too low to do any real benefit. The major expense on pension is huge. Any unrest arise from the dissatisfactory retiree will be violent. So the price control comes in handy. With the huge foreign exchange reserve, China's price subsidize to low income  can be wide and deep to reduce the impact of the inflation. For those speculators, we shall see more measures to increase the cost of investment and restrictions on what could be invested.

2011.03.13 The world stock market experienced a 5.0 quake after the Japan's earth quake on Friday early morning. The considerations were the slowing down of the Japanese economy that could cut short the world's economic recovery. As the damage statistics emerged, the destruction was serious, death tolls were mounting but the infrastructure was quickly stabilized. This is destruction of wealth in huge scale. All properties and assets lost will be replaced. The lost of productivity and the insurance companies will suffer financial lost due to huge payout. Japan economy suffered from the stagflation during the last two-three decade because saving was sky-high, real-estate was also sky-high but price did not change and the people's living standard did not advance. While economist continues to rate Japan suffering from deflation but everything is so expensive that people could not afford it. The money supply is plenty because of low interest rate but still there is no results on stimulus because of the low disposable income. If there is real deflation, the price should be much comparable to the international price of the food, real-estate and discretionary. We read the report of how the social welfare system in Japan is broken that caused many old age citizens starved to death because the financial supplement could not meet the living standard. This is a contradiction statement of deflation. The facts draw to a conclusion that the Japan economy is not in a deflationary cycle. It is in a inflation cycle that slows all the money velocity. The only chance for the companies to make money is not in Japan through exporting, high price or not. Japanese yen's high value does not necessary translate to lower export. Forget those numbers. They only quote the statistic to scare people. Now the infrastructure has to be rebuilt. The money velocity is not limited by the price tag. This could be a sad example to say that Japan could emerge from the stagflation cycle through the quake. Who would be the beneficiary? First, Japan has a very strong tie with China at the government, investment and social level. Although it is very difficult to migrate to Japan, there is a huge population of Chinese heritage. This due to the historic linkage starting from the beginning of the modern China. One of the less known fact is that the Chinese high-tech industry is pretty much helped by the Japanese who exports the slightly older generation technologies just lower than the state of art technologies. There are many manufacturing equipments owned by Chinese factories are supplied by Japan. The maintenance of these equipments are under the terms that they are maintained by Japanese technician only. As time goes by, these dependencies will be eliminated when the Chinese high-tech industry get more mature. But the result will be a reverse flow of investment and technology export due to the business relationship. Take Taiwan as an example. During the 1980's, Taiwan businessmen invest in China. Now their partners invest in Taiwan. This is a great opportunity. In the coming years, Japan may win back title of world's second largest economy when America falls to the third. Before that happens in coming decade, Japan and China could share the second place many years because of this quake. During the Szechuan quake, everyone believe China will have a major setback. The result is higher domestic GDP that took over the export. As long as there is saving for the country, the economy could not be too bad.

2010.12.13 "'Interest rate hike cannot be ruled out. said Zhang Xiaojing, senior economist at the Chinese Academy of Social Science." reported in "More policies to curb inflation" (By Xin Zhiming of China Daily 2010.12.13). The news report also indicates "A surplus of market liquidity is a major contributor to inflation". So the verdict is out. The Chinese government is going to talk down the inflation as well as impose hard measures to bring down the inflation. The market liquidity is singled out because the speculation increases the luxury spending as well as the luxury real-estate. A bubble creates another bubble. Although food inflation is serious but interest rate hike is not the solution to curb food inflation. With all these in mind, it seems banks' reserve ratio will increase considerably. Tax will be targeted to specific import items. At the same time, import to energy and raw material for manufacturing and domestic consumption will be stabilized perhaps through strong price control. With over U$2T reserve, Chinese government could subsidize the targeted area without any problem or hesitation. To echo China's new world leadership, the report also quote Sun Lijian, economist at Fudan University "US quantitative easing has led to increased liquidity in the market and much of this capital has targeted China." To fix this incoming liquidity, the governments have to do a lot of serious negotiation. But this will not happen soon when Bernanke buying the US government bonds.

2010.12.12 It is not more in silence mode. Since the beginning of the economic reform by Deng Xiaoping, China avoided any attention from the public by working in a stealth mode. Its infrastructure building caught very little attention until She built the first production magnetic levitation car from Shanghai Airport to Shanghai. She continued to export deflation to the rest of the world (with cooperation with Wal-Mart and other multi-nation companies). The battle of UN's Security Council seat was won much earlier than that which caught American in "surprise" when the supporting vote came from high alphabet countries from Africa and South America. The securing of energy supply (beat Japan by winning the first gas pipeline in Russia) from Russia, South American countries and Middle East (including UAE also captured some energy assets what secured by Japan). She also provided majority export of the rare earth metals that are vital to the production of high tech electronics, high speed jet engine turbine (vanadium to coat the edge of the blade) and many high speed steel alloys. This does not include one quarter the world axle, PC mother boards and TV. The list goes on and on without much notice from the rest of the world. In 2008, China had the coming out party, Beijing Olympic. The world was shocked by the precision of the operation, the showing of the huge LED TV, and the world class project management for the Olympic venues. Today, the world leader image is fortified by another announcement. "China ready to assume world obligations" (Xinhau News Agency, 2010.12.12). Foreign Minster (the most powerful Chinese person to the outside world) Yang Jiechi made this statement. In his statement, he repeated China's role on managing the world's financial crisis, economic recovery, reducing the carbon emission in the Summit of the Forum on China-Africa Cooperation (FOCAC). Along this, the world unity and China-Africa relationships were mentioned. There are a few things needed to discuss about the timing and the events the announcement is made. First after the Cancun G20 meeting. The G20 meeting has been reduced to a food event and photo-op. There were shadow meeting before and after the event lead by China and rotated by China's allies. Each time the shadow meeting made announcement counter the bluffing from the G20. This time, China attacks the impotent of the West managing their balance sheet and the world recovery by telling them China is the real master of the universe. Don't play the RMB appreciation game. There Second the FOCAC. Africa is only doing a U$91B bi-lateral trade in 2009. But the rate of growth is staggering. In 2000, the trade volume was only U$10.6B. A 27% compounded annual growth rate. Africa has a much larger population than North America and Europe. So don't count on the West to be the major trading partner in the next decade. Third the carbon reduction refers to the 2005 emission level. This is a ridiculous. The carbon emission in 2005 is at most 50% of the current if not less. So China is doing a lot of threat and a lot of PR but there is still no announcement on the rate hike. It should be some time soon but the rate hike could not be large because all the reports pointing the the food inflation which will be much worse if the rate hike is large. The control will very much coming from the bank's reserve ratio, additional tax to high volume trading activities, import luxuries and domestic luxuries.

2010.12.11 When the Central Economic Work Conference is undergoing at Beijing, the government media start to shape the tone of the announcement. China Daily's article Tightening policy to be outlined in conference (By Wang Bo 2010.12.11) points the cause of the inflation at the economic stimulus started two years ago. The article from Xinhau News Agency China's Nov CPI up 5.1%, a 28 month high (2010.12.11) the food price increase contributes 74% to the CPI (11.7%) jump. Another major cause of inflation is supply. The same report also hinted the price control imposed by the government is not observed by vendors. If the demand on food has to suppressed, raising interest rate will not work. In a developing country, the food demand (quality and quantity) will increase due to the increase of income. Although the wealth fortune still has to spread to the inland of China, the quality of life is improving from extreme harsh to a less harsh. For 1.2B population, this remains an extreme cause of food inflation. Chinese government choose price control to reduce its effect. Food, at least stable food, is inelastic. The only way to resolve this specific type of food inflation is by supply.

2010.12.10 (Updated) Japan's 2010 3rd Quarter GDP is below China for the first 3 quarters by U$0.01B above China (China's GDP tops Japan in Q3) amount to U$3.96B. This is a strong indicator that China sustains the ahead position. GDP can be divided into two parts: domestic consumption and export. China's trade surplus hits U$22.89B in Nov or 35% is a very good gauge to tell us whether there is internal overheat or not. The surplus is due to the increase of export to Russia 73% and Africa 48%. The export to America and Europe rose by 30% and 33% respectively. Import rose by 37%. So the import growth is higher than the export. This could be a dangerous sign for inflation. Inflation is rising which is a 10 years old problem. In a rapid growth economy, this is normal especially when China arises from almost zero. However, the import are infrastructure and energy related. Infrastructure has been planned. Energy shortage is well documented. So these are not the main causes of inflation. Food is the the major cause but food shortage is again an old problem due to the infrastructure deficiency. The infrastructure development to revolute not just the manufacturing but also the agriculture through increasing machine application.

The overheated economy we are familiar refers to the overheated in majority of the population, income classes, industries and geographical location. As the result, raising interest rate will cool down the economy because higher interest rate has the overall effect. In China, the economy overheat is very much limited to some industry (not agriculture), very limited income classes (who ride the economy wave but not those in the inland) and specific area (luxury housing). By raising interest rate to cool economy can harm most of the population and will undo what the Chinese government has done. One example is the liability for the retired population will increase because their pension (until most recently, all retirees are civil servants) is indexed. To some extend, the interest rate hike has to be done but will be in a must moderate rate and specific so that they can be target properly. Tomorrow, we are going to see the real deal.

2010.11.28 Establishing the Chinese currency as the world trading currency is not something new. A strong country (political, diplomatic, economic, military and social order) will implicitly create a strong currency. This currency does not require any reserve. Reserve is the reference currency that create a confident and act as a damper to reduce the volatility of the currency. The value of the reference currency should be as stable as possible and does not change overtime in ideal situation. Gold is not because it rose 4 time to U$ in last decade. Chinese currency as world trade currency happened a few times in the last two millenniums. During the Han Dynasty, the Tang Dynasty and the Qing Dynasty. Each time, the role was dissolved with the weakening of the political, diplomatic, economic, military and social order. Some foreign factor induced and some self inflicted. The advantage of the world trading currency does not end up have a high demand which can be a disadvantage because it will push the value high. The major benefit is to simplify the trading and the exchange volatility which always kills the trade. It is not necessary high value currency means disadvantage. The U$ was strong and highly demanded after the Bretton Wood I & II agreement but it never stopped American world trade. World trading currency could not be adopted without military action. If it can be, IMF's withdraw right will be the world trading currency.

To satisfy these conditions, it is not necessary to meet all, China has gone through significant changes in all dimensions. Diplomatic strength could easily be the stronger factor while social order could play both end of the spectrum. China's social order is in a flux. It faces the modernization of social culture, wealth re-balancing, people movement to use the geographical diversity of the country and amalgamation of tribes. China has much more success outside the country. With over half century culturing the high alphabet countries (African and Near East countries tend to start with S-Z), the diplomatic policy path the world trading currency status for RMB. In a very limited scale, China had this experiment with the high alphabet countries starting 1960's when no one lent a hand to them and willing to share the wealth. It was China's policy to starve the citizen to build these relationship. Is this right? This is a trade-off. It may not be justified but the result is positive. It brought the Communist government a seat in UN Security Council unseated the KMT from Taiwan. The forming of the ASEAN created a major influence in the 3rd world countries in Asia before and after China exported cheap merchandizes at the end of last Millennium. The more recent development including the trade settlement in RMB between Hong Kong and Mainland China starting in the 2006. This is direct deviated from U$. There are more subtle way to mobilizing countries to weaning from U$. The approach is to form a basket of money that does not have to be RMB only. But in time when trading with China increase, the weight will increase. With the devaluation game of U$ getting serious, the Middle East added to the list of countries use a basket of money for trading. GlobalResearch.ca has a report on the this: China and Russian Developing Yuan-Ruble Trade Settlement, 2009.10.17 by Washington's Blog. The importance of this article is that the work started last year. The report on November 23 is the outcome. According to this report, the work started years early and quietly.

It will be very difficult to sketch a timeline for the unseat of U$ as world trading currency. Will RMB be the one? It is also questionable. Perhaps it is only an ideology if it uses a basket of money or a single currency because it always creates problem and volatility during world political struggle.

2010.11.23 Everyone is playing a chicken game of who going to ditch the U$ first; in public. China has been trading with the ASEAN (Association of South East Asian Nations) in RMB. Japan has trade the UAE with Yen; China in RMB. Russian has been trading with the Europe with limited ruble. In general they all accept the trade settlement in U$. Now, Russia and China announce that their bilateral trade will be settled in their own currency reported by China Daily (China, Russia Quit Dollar, 2010.11.23) The meaning is more than superficial. The first sign is that China has been using trade payment to get ride of the U$ because China practice the foreign exchange control. All companies have to buy the U$ from government. Now the level of U$ reserve must be at a level that the government is comfortably to hold on for the meantime. Or there is a short to mid term stability of the U$ that China is not in a hurry to dump U$. This will apply to Russia. The announcement is also at at very critical timing when the Irish bailout happens. The writing of U$ is not better than Euro is on the China wall. The U$ is not a safe heaven. The signal also have a sight negative impact on the demand of U$ for year end settlement this year and will be much deeper next year. The trading period for this year is just one and a half month to go. So the trade volume not using U$ is limited. But next year it will be more significant because China pays Russia not just for the natural resources but also the construction of the gas pipeline to China from Europe. With the leader going to use ruble and RMB as trading currency, more smaller Asian, European and African countries will follow suite to trade Russia and China using ruble and RMB which will further reduce the U$'s international trading currency throne. On the surface, this does not mean much. The deep currency has wide implication. The hope for China to buy T-bill may be fading slowly. This is the response to American's demand to appreciate RMB. With RMB in higher demand, it will naturally appreciate. With the less demand of U$, it will depreciate more. The abyss is getting wider.

2010.11.20 At Beijing, China hosts the Third China International Copyright Expo which is addressed by the World Intellectual Property Organization (WIPO)'s director general Francis Gurry (China's IPR protection is appreciated, China Daily 2010.11.19) . Some Western observers may laugh on this because they all allege the intellectual property piracy (IP) problem in China; ranging from software, to hand bag, to electronics. Lets step back and asked who still dispute about the invention of gun-powder? For centuries, Western either denies the IPR or even has a few attempts to say the invention was developed independently a few centuries later after imported from China and was used by the Western military campaigns. IP piracy will never completely eliminated. There are two parts of it: the premeditated infringement and the economic bridging for the have-not. The crying-foul by the Western is because they have. The software piracy in China for many individual is because have-not. By suppressing these have-not IP piracy, is to suppressing the have-not development to have. Lets make a simple analogy. Robbers who are being forced into will stop to do that if they can find a job. This is the foundation of social remand. If we beat up those IPR pirate without help, the hidden agenda is fulfilled. So far we do not see anyone who attack the software piracy in China takes any positive action to understand and rectify and to help the have-not. To properly address the problem. cost to use should be adjust to the market bearable price of the region. The fee should be higher at the developed countries and the fee will be lower at the under developed countries. This will stimulate the consumer demand in a tangible way rather than exclusion. For example, the pirate copies of the Windows operating system is due to perceptively expensive. The license comes with the manufactured PC is actually much lower than the retail version of the operating system. By make it affordable, the Windows piracy in the West is much reduced. There are many details need to be iron out and identified. This is only a rough example to illustrate the approach.  

2010.11.10 "China is going to raise interest rate to fight inflation that will kill demands and chill out the economic recovery of the world." This is what the enterainyst claims. This is what people believes. The entertainyst goes further to yell "sell commodities, buy safe asset bond". The last recommendation tells you where the source is coming from. China's economy is never overheated in general. It does in pockets. The high end and luxury housing market has tremendous speculation but, at the same time, tremendous need from the people who evacuated to give ground to the high-rises and factories. Housing for ordinary people is always tight in China. To help the common people who do not understand mortgage, loans are available at reasonable rate. However, banks have instruction from that loans to speculators are definitely tighten through higher reserve ratio. Speculation at the stock market has gone crazy, so the government raised the stamp duty (i.e. the tax on trading on top of commission) for those frequent trader. The objective is to bring the Chinese economy down to 9% GDP growth rate rather than 12% which will create an abyss between the highly developed east cost and the still agriculture centric west. Five years ago, we remember when China was at 9% GDP growth the world had difficulty to meet the supply of base metals and the hydrocarbon (petroleum) to China. Why we believe there is an excess now when the 9% now is much bigger than the 9% 5 years ago. Is this some sort of manipulation by the West? To cool, or the proper term should be economy adjustment like the discount rate, can be done through many methods other than raising interest rate. One of the simple way is to cut the subsidize on petroleum product to let its price rises slowly to the real market value. The others will tax the luxury goods such as automobile which will become the biggest market of the world. China has to do a very delicate job on economy adjustment that will not cause harm to lower income class but suppress the spending spree of the new middle class.

2010.10.23 The effect of China raising 25 bps prime rate is volatile. Interpretations come from the far sides of the both ends of the spectrum. The temperature of Chinese economy is very close to red hot but not white hot. To reduces the temperature has to be very careful. In some pocket, the temperature is white hot. These are the speculation area. For day to day life, the small industry will be impacted by the overnight discount rate because they need the short term money. For the longer term, those established will not be impacted. Those in floating rate are the business people, as mentioned earlier, will be impacted. The profit margin is low. This will force the industry to choose better product, better practice and better strategy to move a better economy rather than running sweat shop. When China started to move from export dominated to a balanced export and domestic consumer model, many small business were eliminated. This is way too capitalistic but China has never been a pure Communist country. She borrows the principle all along and pragmatically adept to whatever works. If we understand this clearly, there is no surprise we hear the shouting of "China disappoints small industry", "China overheats the economy with excessive stimulus." Up to now, China introduces stimulus either through infrastructure investment (Olympic for product introduction and trade relationship building, rebuilt Sichuan after earth quake) or through the re-announcement of old project (railway for transportation). The continuous gradually tightening specific pocket (increase bank's capital ratio to reduce speculative real-estate investment, raise stamp or tax on stock trading). With all these "misinterpretation", sometimes, one could wonder are these "misinterpretation" form the West (or specifically from the investment research firms of the West) has hidden agenda to move the market. The introduction of CDO by John Paulson in collaboration with Goldman Sachs is an example. The CDO had been advertised and promoted by marketing sub-prime loan is an example. In this case, CDO will not fly if there is not enough sub-prime loan. There are sudden mushroom of sub-prime loan lent to consumer who did not have sufficient knowledge to understand the risk. Why did this happen?

China 2010.09.02 The news of China moves the market. The market is entering an irrational phase that it could be the beginning of a serious bear market crash or the last phase of a bull rally. Or it could be the combination of both (bull then bear as part of the bear market correction) which makes the situation danger. This is the microeconomic view. From the macroeconomic view, the fog of war shrouds the growth engine or engines of the world. There is no question that BRIC countries combined together have the potential to replace American as the world's biggest economy but cannot replace American as the world's biggest consumer market. So if the BRIC grows at a pace faster or greater than the American's shrinking, the world's demand on material will grow. This is the key for the future trend of commodities. Unfortunately, economists have not get used to the American centric analyst which leading to inaccurate results. With export to the West continues to decline during the coming years, the world's economy's growth has to lie on the internal consumption. This is the development of the consumer market of the BRIC countries. We observe, subjectively, that the living standard has been improved. While the income average is only a meager fraction of the West but the population size makes up to a certain extend and it remains climbing by the fact that exporting deflation is not one of the major export fro the BRIC. The following is quoted from the newsbite from ASPO-USA today:

"China continues to grow. China’s manufacturing increased modestly in August after several months of contraction as the government implemented measures to rein in credit and slow housing speculation. Beijing also announced that passenger car sales rose 59 percent in August over 2009. While there is still trouble ahead, particularly the likely slowing of exports to the US, China’s GDP is still expected to grow by about 9 percent for the rest of 2010 and 2011.

"India reported this week that its economy grew by 8.8 percent in the 2nd quarter as compared to last year. The New Delhi is trying to increase this to 10 percent. It seems clear that increasing demand for oil from Asia will be with us for a while. "

The newsbite shows the consumer market is continue to grow in a very rapid pace. Again, this rapid pace in percentage is not necessary the long term view because of the small base of reference. But the increasing volume (absolute) is what we watch out.

2010.08.08 US and Republic of Korean (South Korean) Navy will have a joint military exercise in September 2010 at the Yellow Sea despite China's pretest. (China Daily 2010.07.22) While American continues to depend on China's export of hard money to buy the T-bills, this is a strange move because military exercise is always regarded as a thread to the non-participants of the place conducted. Like during high tension period with Iran, American will perform military exercise at the Middle East. Yellow Sea is not Korean's territory. China's Foreign Ministry spokesman Qin Gang states that "We resolutely oppose any foreign military vessel and aircraft conducting activities in the Yellow Sea and China's costal water that undermine China's security interests." Other than a treat to the country directly, the military exercise is usually used as a precursor to claiming the sovereignty of the territory. American has tried at the Canadian Arctic Sea in order to create a passage through the North Pole by having the American's Costal Guard drove through the area without consulting Canada to demonstrate that Canada could not exercise her sovereignty right by proper protection of the area. China could not take this kind of challenge lightly because of the rich petroleum and many other natural resources (such as fishery) from the area. This is a bold and calculated action on American's part. While American continues to send high rank financial official such Tim Geithner to China to request the support of the U$ through appreciation of RMB (not excluding the possibility of requesting to hold and continue to buy treasuries), which means that she publicly admits that China is her creditor but contrarily performs such an offensive attack on China's sovereignty right. We should not take this action likely on the political side but can totally discount it on the economic side. The ASEAN countries is under the influence of China; full stop. There is nothing Korea and Japan (non-ASEAN members) could do anything to China rather reaping the profit of cheap labour and investment. The purpose of this exercise is related to China's stepping up to buy the Canadian Tar Sand assets. American is importing 1.2 million barrels per day from the Tar Sand. Under the NAFTA it is as secure as domestic production. However, with the asset purchased by Chinese companies, some tar sand output will be directed to China. It is known that the export is for sure but the detail on volume is not in public knowledge yet. This is a thread. American is trying to give China a warning shot but this is a very traditional Cow Boy style but she makes a big mistake to try to correct something that is a macro trend. The Gun and Rose spirit remains which has to be changed if American wants to gain the support of China.

2010.07.21 On July 2, 2010, CNBC reports that "GM's Auto Sales in China Top US for First Time". On July 20, 2010, IEA report "China overtakes the United Strates to become world's largest energy consumer". In both cases, it is the total that China exceeds American not the per capita. This is the key point because with 1.3 billion of population, i.e. about 4 times of American, it just means the potential up side will be way higher if there is a catch up, even it is not at par. All these indicate China is on track to her growth. During the 1940 while China was on silver standard, American forced the rise of silver to bear the deflation upon China. Now American forcing China to appreciate the yuan. It is repeating the same exercise but this time the effect will be different because China will use the saving to buy out American. Stay tune for the new development.

2010.07.01 Is China's economy slowing down and the GDP will shrink with the PBoC tightening the credit? We know that China has a U$500B infrastructure rebuilt project which actually includes U$350B from previously announced railway modernization project. There is another infrastructure rebuilt in China's cyberspace. She is going to unify the internet, television and telecommunication. A 300B yuan or U$44B is planned to integrate 12 cities first then pushed to the rest of the country later. The report from China Daily (Trial launched to converge TV, web and phones on 2010.07.02) indicates there may not be any visible results for the first few years. This is interesting. Is this pork barrel project? No this is a needed project but the result could be much invisible if it does right because it paths for the future. This is a true railway project of the 21st Century. Is the capital tight? No, if it is tight, such advance infrastructure project will not be done. Is there such a demand? Judging from the growth of China's Internet 2 project, this is real and realistic growth management. This is not an overbuilt. This is a health sign. Let do not judge China's growth rate by some other country and give the planning bureau of China some credit.

2010.06.27 RMB is floating again. China resumes to use the reference basket of money to evaluate the RMB. There could be a wild card on what is in the basket down the road. The current components consist of fiat currencies. In the future, there is a very high possibility to fortifying it with precious metals. The objective of adding precious metals is not to harden RMB which is hard enough but to stabilizing the world economy. By adding gold in to the money basket, it could be the beginning of gold standard again. Rather than back RMB by gold fully, which means China has to buy up gold held by the rest of the world which basically drives RMB and gold to the sky. This high value RMB and gold is no good to anybody. However, the present of gold in the money basket could stabilizing the value of RMB which reduces the volatility. This will be the key success to import and export planning. One could ask how will gold stabilize the value of RMB. It is by using weighed factors. Gold  could be heavily weighted but not backed. There is no need to have any physical gold involved because it is not backing the currency. But how could the gold tie to the RMB? This will be coming from the IMF's withdrawing right. Yes, there will be reform in IMF and it will happen in not too far future. Another way to stabilizing RMB is to create a synthetic future contract for the RMB to avoid it runaway. This future contract is the RMB denominated bond. The issuing of RMB bond has already begun. The RMB bond is purchased now using the RMB current value. When it is matured, if there is no roll over (it may be as doubtful as can be) the bond could be converted back to other currencies which is selling RMB. This is what happens to the U$ which was shorted by borrowing U$ for other currency. When expatriated, the U$ rally. Why RMB would not be pushed higher when the bond mature? I strongly believe it is not China's intention to become the first top two world settlement currencies. By holding the third position and leave the top to U$ and German mark, the expatriation could be reduced yet, there is influence in the world trade stage. In the Far East, the ASEAN (Association of South East Asian Nation) will continue to trade using the RMB to a greater extend but it remains in the family. The trade and the exchange is being closely managed by China. The runaway risk will be reduced to minimal. As the result, China uses ASEAN to take on the low price manufacturing while she took up the role of high price (high tech and big ticket items such as automobile), China controls the quality of trade and enjoy the import of deflation from the ASEAN and West while manages the appreciation of RMB within a reasonable rate.

2010.06.21 The “unpegging” of RMB to U$ was over exaggerated and completely blown out of proportion by many entertainysts. The statement from China says limited floating, not completely free float. According to PBOC, the change is needed as the balance of payment is reaching equilibrium. This confirm the view point of currency volatility risk. The spokesperson also says “"With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," ” It is imperative that the unpeg does not mean a good thing for the American. When China started to peg, she did it to protect the export from the volatility of the currency movement. Any volatility in currency is japerdy to import/export trade because of the currency risk. It does not really just to keep the RMB low for export. Whether the RMB is really low to stimulate export is one way to see it but this also implies less U$ to be received. You are talking about giving up profit. We see how bad it could be when the Chinese low cost/profit margin manufacturing collapse due to the margin vapourized during the 2007-2009 world economic crisis. When there is no pegging, one should also consider the two ways street scenario. With such powerful currency control and huge FX reserve, the RMB could be driven down. How, sell RMB in contract in directly through bonds. When bonds are matured, the money in RMB will be converted back to other currencies. This is happening and happening fast. Today, when the reallity of unpeg sinks in, the American stock market is less enthusiastic, the commodities market almost tanked. This is a true reflection.

2010.06.21 Japan and China have been actively pursuit oil deals in Middle East. Japan has non-Government operated oil companies drilling and producing for her country. China has been actively buying oil from Saudi. The most recent news was joint venture with BP in Iraq. Association of Peak Oil and Gas Study's June 21 Peak Oil Review quoted "The Saudis reported last week that during 2009 56 percent of their exports went to Asian markets. The US share of Saudi exports dropped from 20 to 14 percent between 2008 and 2009 while the EU’s share dropped from 12 to 10 percent." We have witness the declining of world oil production while American and European are not increasing the production. The Asian's demand form China and India is just start to ramp up, the supply and demand equation is definitely tilted to the demand side notwithstanding the short term fluctuation. This explains a very steep contango for oil future. To confirm this conjecture, we have to identify whether the reduction of the Saudi export to American and Europe are caused by the increase of Asian purchase.

2010.06.12 According to the National Development and Reform Commission of China, the first half of 2010 China's CPI will increase by 2.6%. This is a very special announcement (China Daily report http://www.chinadaily.com.cn/china/2010-06/13/content_9972697.htm). The number is higher than many countries' target 2% inflation rate. Last year the CPI was up by 3.1%. By this standard, China's inflation needs attention. This is not the first time that China taking attack at the inflation. The string of action to cool down housing speculation, lower export tax to reduce local supply, raising reserve and many others are foresight to control the inflation. Although the rate may be higher than the 2.6% but she is not sitting on the hands. The proactive action is the hallmark of the current generation of Chinese government. We should praise these type of well orchestrated economic planning.

2010.05.29 There is a series of junior employee suicide at one of China's biggest electronic contracted manufacturer FoxConn. As of today, there are 12 suicides. A recount of such event was seldomly available from any official or semi-official China news media but there is a summary report with details from China Daily, Foxconn shines light on China's factory problems 2010.05.28. Labour dispute and low wages issues exist at all stage of development of labour movement. But it will not be faced and taking positive action if the industry is at a struggling and declining trend. Consider the textile and coal mining child labour during the Nineteenth Century British Industrial Revolution, there was not much of positive action from the employer to manage the problem until East India Company had its firm grip on the world. First, the workers had a better living if they could swallow the bitterness. Their complain was just empty words. Second, the social attitude towards the issue was not sympathetic enough to create the mass opinion that trigger the change. The mass opinion is generally the product of the mass media which in turn controlled by the upper echelon. The upper echelon will take action if their is impact on their profit. Foxconn incident is an example. The sadness and the concern impairs the productivity and availability of labour. This affect Foxconn's competitiveness. By weighing the impact on factors, this results a general salary increase of 20% as reported by the China Daily, 20% raise for Foxconn workers 2010.05.29. There are two observations. China is more open and progress as oppose to the West's reports. (This does not imply China is as progressive as it should be. It also reflects the dark side of the wealth ripping off the poor.) The human right movement is progressing. Human right is a social culture development. It has to going through its growing pain and develop the culture and it is not something you can just install and go. The second observation is that when the West is alleging the declining of the growth in China, the truth may surprise the West because a dying company will not do a massive raise for the base worker. An implication of this is that there is a real threat of inflation in China which means China will have many more future actions to curb inflation which will be misinterpreted by the West again to weaken the economy. China's small step action is calculated and monitored closely. A very different discipline from the West. Will Deng Xiaoping's experiment successful? This is the real question.

2010.05.03 While everyone is worry and biting nails on whether Greek will have the bail out money, there is a side story that did not catch the attention of many. Don Coxe has been identified Greeks' financial problem is only the canary of many sovereignty debts. It is not just PIIGS. How does it play out will have a profound impact on the world's financial world. Guild Investment published a commentary that the debt default could trigger a 10% market correction around the world. Therefore, it is many country's interest to put a soft cushion for the default. According to a INK Report on April 26, 2010,China is going to give a lending hand to Greek. "the stakes are extremely high for China and other countries to get the Greek situation under control. So it is not a big surprise that over the weekend People’s Bank of China Deputy Governor Yi Gang said that China was “part of the force” helping to stabilize the Greek situation according to Bloomberg news". The bad news is that the problem is much bigger and the good news is that China will be part of fire brigade.

 2010.04.026 Last G8 meeting, there is another shadow meeting by BRIC to influence the outcome of the G8. China was the conduit or might be the leader of the pack. Today's G8 Summit at Halifax, China has vested major interest on Iran which is a trading partner and oil supplier. Tehran also  the centre of the Islamic world which China is more than happy to be friend with. The sign of no shadow meeting indicates China is preparing this G8 meeting and the G20 at Toronto this summer very intense, very seriously and very focus. Negotiation has already started to cleanup the agenda. Early report indicates that RMB revaluation is no long on the table which has been ferociously driven by the American. This is a piece of humble pie the West has to take. We most probably would not hear any outcome of the exciting and animated exchange of words during the private small meetings. If not, we have to embrace major volatility around the world.

 2010.04.015 The current notion of economic recovery gears on the economic health of the West is a wrong assumption. The notion of higher oil price can hurt the world's economy recovery is also dead wrong. The Western analysts remain equate the American to the world even fair and square the BRIC is rising. The demand waning at the West does not shrink meaningfully but the BRIC's growth is stronger every day. The destruction of demand at the West is made up more than enough by the East as the domestic consumption at BRIC expand. The issue of BRIC's currencies will also rise which means the cost of commodities to the BRIC countries will be less impacted by higher U$ prices.

 2010.04.011 The focus on China seems only on one thing: when will her economy implode? This has become the spectator's sport for entertainysts. By shoehorning and throwing out the terms such as overgrown, overexpand, overheat without any analytical fact to support their justification, it becomes a spitting contest sideshow. These entertainysts use two contradicting pieces of partial information distortedly. The first piece is the growth rate of the Chinese economy is too fast at the 7-12%. The second is the majority of the Chinese population does not participate in the economic growth and these people are below poverty line. By taking the information out of the context both are true and create calamity impact on the health of the GDP. On the other hand, when statistician compares, a proper reference model must be used and just use this model rather than using part of the model conveniently. For example, the criticism on overheated real-estate speculation will soon create a collapse that implode the economy like the American. Guild Investment's April 7, 2010 commentary Global Market Look Good to Us, points out that for some small group of real-estate investment, the overheat exists for these multiple properties purchased for speculation purpose. At the same time, it is a hundred years old housing problem that shortage of the housing (forget affordable or not) is a major concern of the state. Significant reports on the shortage profiling are ignored. These reports usually bear the sensation headline like innocent citizen evacuation for high rise or farmland endangered by the expansion of apartments. Guild Investment points out one of the most important safeguard mechanism to reduce housing bubble is the 50% down payment rather than the 0% or negative (i.e. rebates or home equity) down payments in the States. When you satisfy the 50% down payment rule, your capital leverage is significantly handicapped as oppose expanded by the negative down. Lets get back the first point regarding the reference model. China's economy has been suffered since the Treaty of Nanking when the West marched in China and asked for compensation. The industry and commerce further hampered by the Sino-Japanese war which basically stripped the rich mineral resources from the Northeast area of China. After the Second World War, civil war engineered by Russian and American continued a period of success on manufacturing and financial industry around Shanghai but did not spread to the rest of the country. With the founding of People's Republic of China, the sanction of the West prohibited the growth until Dang Xiaoping in the 1980's. So we are observing a handicapped base that did not participate economic growth over 100 years for one billion population which is about 4 time the population of America who is enjoying 25% of the worlds productivities while China is enjoying 3-5%. When you compare with such a small base, the yardstick has to be normalized for a proper reading. The proper analysis will not be discussed here but leaves it to some other specialist. Perhaps the most escaped economic development in China is the Shanghai World Expo. While the construction of the 2008 Olympic Games, the entertainysts predicted the collapse of the commodity demand after the Game. It did for a short while and than it picked up which had been explained as speculated hording of commodities by citizen which was predicted to a cave in. The question is why the construction of the Shanghai Expo was not included in the consideration? Expo has its root traced to do trade since last century. It always benefit the hosting country because it becomes the exhibition and trading ground for local import and export. This Expo will be no exception. It will promote the newly transformed export model and high end products. The export model has been fortified by shifting from American heavy to world heavy especially the growing demand of non-Japan Asian countries' Association of South East Asian Nations. Many of them is now using RMB to settle the trade. Through ASEAN and friends of African, Arabian Peninsular and South America, China is now is the first nation of world export. This will help the conversion of trade settlement currency from U$ to RMB. The Shanghai Corporation Organization manages Russian and her friendly countries. World Economic Forum provides a strong bonding between European countries and China's trade. This could potentially reduce the influence of the International Clearance House of the West but that will be another story. With a steady hand, China is pulling Asia, Africa and South America out of recession. The result is further insulating the Non-US Friendly countries from the American. The first conflict will be surfacing. Most probably on the nuclear weapon of Iran who is a major trading partner and oil supplier of China.

 2010.04.02 The Sino-American healthy relationship continues to have its more than normal share of attention on the China Daily. There is a second report today, Hu, Obama vow more cooperation to mend ties 2010.04.02 on China Daily. This time, the report is not from Xinhua rather it is directly by China Daily. This is an escalation on the authority on the view point of the matter. This report disclosed that the call was not originated by China but by Obama. This means China is still on the upper hand that Obama is willing to deal a better card, i.e. use the 'currency manipulator label' as carrot to coerce China to follow his agenda. This is another type of threat the China would not take 10 years ago and will not take it now. The report emphasis the one China policy which is another way to say sovereignty. American gets lost. American continues to believe that the greedy American based multi-nation companies will give up the China market so the Obama government could use this as a bargaining chip. The pawn used in this poker game is Google. Does Google really want to given up its Chinese business or it is actually losing ground to Baidu? Does Google really support freedom of information? No. Any security expert and many leak indicated otherwise. Forget about a conspiracy leaked about the CIA tapped into search engine. There are many information sanctioned by the US and Western government supported by Yahoo and Google. They even tap who search the information such as nuclear weapon or virus implementation. You can only searched using some other engines. This is a political play that China waiting the American to make the first move. There is another point mentioned in the report; Iran. This China's trading partner will be pressure point for China. It is not the currency. But this pressure point cannot be touched. The consequence will be devastating to American unexpectedly. It could very possibly the significant rise of RMB but at the same time, the offloaded manufacturing by Vietnam and Indonesia will not happen because China will absorb all their export by its domestic market using the high valued RMB which these country will be prefer to the U$. American will suffer massive inflation while the expatriated revenue from China will be decreased because the Chinese will retaliate.

 2010.04.02 On April 2, 2010, Chinese President Hu Jintao made a statement on the Sino-American relationship, according to a Xinhau report published on China Daily, Hu: Healthy, stable ties benefit China, US, 2010.04.02. This is a short report but it covers trade, sovereignty and nuclear security. In another word, the scope is everything. There is unusual backdrop of this report. It quotes Hu's discussion with Obama over a phone call. Although this calls are not rare but rarely reported. It could be a hint, as Chinese always do, a subtitle way to tell the American that there are many things Chinese strongly disagree on the phone call. In this call, most probably, it is initiated by China who wants to find some middle ground to protect her interest while American is aggressively doing something that displease the Chinese. On the economic side, there is a possibility of trade measures is not something China wants. The continuous pressure to push China to appreciate the value of RMB is another way that ties to sovereignty and trade. This is equivalent to China to ask the American to increase the bond rate to protect the value of the gigantic Chinese  foreign exchange in U$. In this report, China issues a warning that it will not tolerate any single side action that could infringing China's trade and sovereignty right. This message signals a beginning of an era that China will not bow to every wishes of American. If American does not get this message, the result will be very messy. On top of this complication, China also puts the stake in the ground on the Iran nuclear security. She does not agree with the American's approach. This is the precursor to warn American not to repeat Iraq. China is an important trade exporter to Iran and Iran is a major petroleum supplier to China. There is no way China will accept invasion of Iran that interrupts her benefit. There is another China Daily report Sino-US tensions show no sign of easing 2010.03.26 has explicit details on the trade issues which include a statement made by the Vice Minister of Commerce during his Washington visit. From this report it also shows a flurry of Chinese minister level bureaucrats visiting Washington which is a very significant sign.

 2010.03.30 Stratfor has an interesting discussion on China's options under the pressure of American's currency revaluation. This article China: Crunch Time by Peter Zeihan also present some very less known fact about Bretton Woods Agreement on the trade promotion.

 2010.03.28 Unical is the trough of the China buying spree limited by the Congress. Since then the rule has been relaxed, a lot. Does China flexing the creditor muscle or what? Not necessary. Energy is always a strategic reserve for American or any nation just like the port container terminals. It is not desirable to be controlled by a foreigner no matter how poor you are. Just take a look at Hong Kong. Every freighter had to stopped at Hong Kong before transport by barge to the much shallow Pearl River or through train to the inland. Now Hong Kong is the independent political nugget that also help the China's financial and economical activities. During the 50's to 90's, Brits skimed much of the profit from this entrepot terminal. Most recently, the American entertainysts have not comment on the vital development of invasion of Chinese automobile industry to the home land America. First, the Hummer deal (gone sour), now is the Geely buying Volvo. Volvo is the Swedish pride but the American really spoil it to make it no different from any Ford car for just U$1.8B. What makes Volvo so important is exactly why Geely failed to enter the North America or World market two years ago: crash test. Volvo is famous for its cabin's safety. Now, rather than spends a few years to figure out how to pass the crash test, the technology is handed to China on a silver plate. The U$1.8B price is a bargain price consider what will happen when the Americans have to down size to a smaller car. While the Big 3 auto-manufacturer still making gasoline T-rex, Geely can easily fill the need of lower purchasing power American. For those green guys, the Chinese BYD electric card is coming. The importance of these changes are two fronts. The first is that the export to America is not just those in Wal-Mart. It is the higher price item. Not just a bit higher, it is the American's first love, automobile. Second, the infiltration of Chinese investment is no longer up held by the Congress when the real administration (the big companies) says yes even it means losing business in the future.  Will China going to revaluate the RMB? This will mean less revenue for China but lower price for American for the good sold in America. The Congress wishes to wane the cheap stuff made in China sold in Wal-Mart but now it is out flow the more money by buying big ticket items made in China. The higher the RMB, the more competitive because China will be building manufacturing plan in America using either the devaluated U$ or grant from Congress. These American built cars may have lower profit margin but China will make it as competitive as hell. China can sacrifice the FX reserve for nothing, why can't it sacrifice more for a pound of American's flesh. The competitiveness is not measured by price. It is by the ability to grow the industry and know how. China could almost pay American to take these product. Because it grows the manufacturing industry. China has the FX reserve to finance the lose until its heavy industry is on the top of the world while its domestic economy grows to feed the Chinese citizen. China purchases Bombardier trains five years ago to run the Tibet railway. Now it is selling train to Montreal, Bombardier's home turf. Scary not?

 2010.03.18 A very insightful analysis on China's "bubble economy" and other major economies by Guild Investment's newsletter "WE SUGGEST THAT INVESTORS LISTEN TO WHAT CHINA IS SAYING" published on March 18, 2010.

2010.03.17 There is a market believe that American is reducing the consumption of petroleum products so there is not enough demand to support the current level of oil price. With words from OPEC that the price is in there expected range, the oil bull takes a hit. Although there is a general believe that China's growth could support the demand. However entertainyst has been singing from the old song sheet that the "mild" growth of the China will disappear soon and quickly face a economy collapse. Right after these comments, China publishes the January economy growth is 28% year over year. To someone, 28% growth is falling through the floor of demand destruction without seeing the fact that deals after deals sealed by the Chinese state own petroleum companies. It starts make somebody wonder why. First, even EIA also publishes the stats that American is not cutting down petroleum consumption NOW. After the financial crisis in 2008 and 209, people are resuming the consumption habit which will also include the merchandize transportation. If there is any destruction of demand, it is returning. The government would like the people to believe greener future by telling people are reducing consumption. The story from EIA is not. There is a interesting stats included on the imported goods. After a significant reduction in 2008 and 2009, it is more or less recovered by forecast. Is this pacifying the people? If the increase in petroleum consumption is based on the thesis of the recovery, is this too optimistic? The following is from the EIA March 10, 2010 report:

*Projected **Includes transportation diesel, heating oil and some bunker fuels. In 2008, transportation diesel (on-highway, railroad, and vessel bunkering) accounted for 70 percent of total distillate fuel usage (EIA, Fuel Oil and Kerosene Report, December 2009, Table 13). Source: EIA, Short-Term Energy Outlook, March 2010.

Second, the American big oils are losing reserve without ability to replenish the reserve because of wrong focus on high expensive oil like those in deep sea area of the Gulf. In order for them to buy cheap reserve, they have to talk it down. This is definitely a good conspiracy theory. We know we are facing peak oil plus end of cheap oil. This is not just for American. The domination of American's big oils have been fading along the control of world through the American based company is just fading day by day.

Third, American always think they are the centre and master of the universe without knowing that things have changed. To understand the world, we have to diversify our research.