"The 21st Century will be the American Century."
~ Barack Obama (this week at Town Hall Meeting, failing
to notice movement by the United States into Third World)
"The 2010 Decade will be dominated by China
in a great awakening." ~ Jim Rogers (successful
independent investor and sage global trend observer)
TRADE WAR & FIAT VIRUS
Take a brief tour through China,
and cover a reasonably diverse set of representative
stories. This report is a brief look, an update on
the ongoing mystery that is China. It reflects great challenges from eroding
Chinese wealth tied to the US$ wagon, without going into detail on the banking
issues. It describes some recent inroads made by China into South America,
building partnerships. It gives some recent glimpses
to the trade war ramping up relentlessly with the
USGovt, guaranteed to inflict great damage. It covers
the rapidly deteriorating relations with Japan, concealing the rivalry and urgent need
to keep the Yen currency down. The USGovt aggravates
much of the friction with empty headed laws. It brings
to light some infections from the fiat currency virus,
like millions of empty homes, apartments, and buildings.
The emphasis in keeping job growth brisk has yielded
enough empty homes to house entire small nations.
has begun to flex its muscles, but some important
weak spots show visibly. These are growing pains,
if not childbirth pains.
◄$$$ EMPTY PROPERTY IN CHINA
COULD CONTAIN AN ENTIRE SMALL NATION OR TWO OR THREE,
OR HALF OF AMERICA. THE PLAN TO EMPLOY
PEOPLE HAS GONE HAYWIRE. OVER 60 MILLION HOME UNITS
REMAIN EMPTY. ENTIRE DEVELOPMENTS AND BUILDINGS ARE
VACANT. PRICE CRASHES ARE IN PROGRESS. $$$
The quip byline is that enough vacant properties
lie empty in China to house over half of America, or a couple small
nations. Sad but true. The Beijing
authorities have investigated the high vacancy rate
for Chinese prope rty. Finance Asia
reports that 64 million apartments and houses have
remained empty during the past six months. Make
the assumption that each unit serves as home to a
typical Chinese family of three. Then the vacant properties
could accommodate 200 million people, which accounts
for 15% of the 1.3 billion national population. But
instead, they remain empty, a grotesque imbalance.
For cultural reasons, few prefer to rent. Most prefer
to own. Their stock market has given investors huge
headaches from topsy turvy times, often under pressure.
The interest paid on bank deposits comes nowhere near
coverage to offset price inflation. So the tendency
is to purchase a new property, sometimes as a place
to store their wealth. In all too many cases, finding
a renter is not an objective. Extapolate the conditions
and behavior by a few hundred million, and the result
is enough vacant properties to house over half of
America. See the Business Insider (CLICK HERE).
This neighborhood shown in the picture is empty.
◄$$$ WATER SHORTAGES HAVE REACHED CRISIS LEVEL
IN CHINA. THE NATION HAS NEVER BEEN BLESSED WITH
AMPLE WATER RESOURCES. THE DAWN OF INDUSTRY HAS MADE
THE PROBLEM WORSE. $$$
In northern China,
vast farm fields have developed cracks up to 10 meters
(33 feet) deep. They resemble desert lands of Africa.
Many farmers in Chifeng city have had to delay harvests
in order to avoid injury. According to the Chifeng's
water bureau, 62% of the city's 51 reservoirs have
run totally dry. More than 250 thousand people are
short on drinking water. In the southwest Guizhou province, a drought affected more than 600k people and nearly
250k head of livestock in August. Parched soil
in rice fields aer covered with cracks in entire regions.
The officially estimated water shortage in Beijing
will soon reach 200 million to 300 million cubic meters,
even as the city waits for a new diversion of water
supply from southern China. The donation comes from areas that will
suffer shortage as a result, but Beijing has power and pull. Hundreds of other Chinese cities face varying
levels of water shortages and water quality in deterioration,
even as industries continue to pollute water. See
the CNN article (CLICK HERE).
Industrial development places great strains on a nation's
water systems. Fresh sources are needed, and filthy
contaminants from effluent must be processed. China has neither the advantage
of natural supply nor mature processing methods in
place. Toxic water levels, major health problems,
and public demonstrations have resulted. The leading
nations in the world for fresh water supply are Canada and Russia. Wars have been fought over water. Wars
were routine in the Old West during frontier times
◄$$$ EXPANSION INTO SOUTH
AMERICA CONTINUES IN GREAT STRIDES. THE CORE OF LATIN-SINO
TRADE WILL BE BRAZIL. A GIANT PORT FACILITY IS UNDER CONSTRUCTION.
THE USGOVT INVESTS IN DEAD BANKS, WAR & NARCOTICS,
BUT CHINA IN TRADE & FACILITIES.
huge new port highlights the Chinese determined initiative
into South America. The infrastructure
investments guarantee to them access to soy, crude
oil, and other vital resources. The Sao Joao da
Barra port will be the largest in Brazil
with capacity to handle the largest ships in the world.
Its giant concrete pier juts nearly two miles out
into the South Atlantic and boasts an unusual nickname,
the Highway to China.
Even Mandarin language facilities have been set up
locally. The entire Superporto do Acu is a $2.4 billion
port and industrial complex on the Rio de Janeiro coastline. It might qualify as the
largest industrial port complex of its type in the
world. It surely is the most visible symbol of China's
rapidly accelerating drive into Brazil
and South America. Initiatives
such as this will lock in access to important natural
resources and its bolster commercial support base
in the developing world. Chinese companies such
Iron & Steel have committed to assist in building
a $5 billion steel mill at the port complex. The Brazilian
logistics company LLX is in line to receive $billions
in Chinese investment. Millions of tonnes of iron
ore, grain, soy, and millions of barrels of oil are
expected to pass through the superporto each year
on their way to Asia. While the
supply will do much to quench their hunger for natural
resources, the flip side is that the supply will not
reach the United States. Consider it another link in the
chain that strangles the US, whose government is far more interested in
bank welfare, war seizures, and the narcotics business.
is soon to become Brazil's top foreign investor. Its companies
benefit from the Chinese plowing of $20 billion in
the first six months of 2010, compared with $83 million
in 2009, a 240-fold rise. A recent study by DeLoitte
predicted that Chinese investments in Brazil
could hit an average of about $40 billion per year
between now and 2014, with Chinese funds targeting
sectors in telecommunications, infrastructure, farming,
oil, biofuels, natural gas, mining, and steel manufacturing.
Other South American nations are in Chinese focus
has signed $5 billion of bilateral deals with China in year 2010, including $1.7 billion toward
construction of a hydro-electric dam and $1 billion
investments for oil exploration and infrastructure
projects. That compared with Chinese investment of
only $56 million in 2009. Chinese companies directed
$1.4 billion into Peruvian mining operations in year
2010. Even rogue nations are lined up. In April Hugo
Chavez announced that the Chinese Govt has established
a $20 billion credit line toward the so-called Bolivarian
revolution. They already have large stakes in the
oil industry. It will be interesting to see how China reacts to basic fraud,
theft, and crony payola that are routine by the Chavez
Michael Klare, author of books on Chinese pursuit
of global resources, believes China has deployed
an aggressive strategy that goes far beyond business
transactions. They are building partnerships. He said
"[China is] the shopaholic of
planet Earth... The Chinese authorities understand
that to sustain the country's continued growth, they
will have to ensure that its industries are provided
with adequate supplies of energy, minerals, and other
basic raw materials. They seek to fashion a multi-polar
world in which no single power (read the United States) plays an overwhelmingly
dominant role. To this end, they seek to bolster
ties with rising regional powers like Brazil
Africa... There are many in Washington
who worry about China's
growing presence in Africa and Latin
America. They claim that this poses a threat to America's long-term strategic interests."
For clarity, Klare openly noted that the USGovt fixation
and the war on terror meant there had been virtually
no reaction to inroads made in Brazil. Minor dissent is indeed
heard in Brazil,
from critics like the prominent economist Antonio
Delfim Netto. He complained of Chinese neo-colonialism,
pursing a strategy to purchase Brazil after having bought Africa.
See the UK Guardian article (CLICK HERE).
◄$$$ LIGHT BULB PRODUCTION HAS GONE TO CHINA, AS A RESULT OF A USGOVT ENERGY CONSERVATION
BILL, UNINTENDED CONSEQUENCES BY DIMWITTED POLITICIANS.
WATCH FOR NUMEROUS TRADE WAR ADVANTAGES IN THE CHINESE
CAMP, AS A RESULT OF SLIPSHOD MYOPIC USGOVT LEADERSHIP
AND OPTIMAL CORPORATION DECISIONS. $$$
The Most Favored Nation status given to China in 1999 was a watershed event. The light
bulb story makes for another late chapter in the saga.
The last major General Electric factory making
ordinary incandescent light bulbs in the United States is closing in September. The
product is the flagship discovery traced to its roots,
whose inventor was Thomas Alva Edison in the 1870s.
One of the greatest inventions in world history, by
one of the world's greatest inventors, will soon be
manufactured by GE plants in China and other plants overseas.
Many such US
plants became instantly vulnerable as a result of
a 2007 energy conservation bill passed by the USCongress.
It set standards that essentially banned ordinary
incandescent bulbs by 2014. The law will require millions
of American households to switch to more efficient
bulbs. The resulting savings in energy and greenhouse
gas emissions are expected to be immense. But the
move also had unintended consequences. The leading
product to replace the older light bulbs are called
compact fluorescents, or CFLs, made almost entirely
overseas, mostly in China. Finding themselves at the
unemployment line will be 200 workers from a GE plant
Virginia. Jobless Americans can use Chinese made bulbs.
The story reveals the incredible stupidity and disconnect
of the USGovt. The USCongress is inhabited by lawyers,
elite scions, and freaks who often know nothing about
engineering, chemistry, manufacturing, or business
development. They passed a law to satisfy a political
agenda without even bothering to consider the impact
on the USEconomy. Myopia is thicker than a Mr Magoo
cartoon, as the legislators grandstand to proclaim
that the new clean energy policies will create jobs.
It will, in China. One is reminded
of the California
high speed railway project that resulted several months
ago in significant jobs for Chinese workers that satisfied
the specific contract provisions. The epitaph is simply
written. An industry that has flourished in the United States for over a century, founded by an
American genius, has now been entirely outsourced
overseas, one more nail in the coffin for the US
manufacturing base. Neither US economists nor politicians
have a freaking clue about business development, job
growth, or anything selfsame. They deserve every harsh
criticism doled out by the Jackass in recent years,
who is actually too kind. Their corruption is exceeded
by their stupidity. See the Zero Hede article (CLICK
and the Washington Post article (CLICK HERE).
Although not a Chinese fiat virus story, it is a flip
side US fiat virus story.
◄$$$ TRADE WAR FRICTION HEATS UP. WHILE FAR
FROM A CLIMAX, PLENTY OF HEAT IN DISPUTES OVER LACK
OF CURRENCY EXCHANGE RATE ADJUSTMENT AND VAST ACCUMULATION
OF RESERVES. THE USGOVT IS LEADERLESS, HELPLESS, AND
A VICTIM OF ITS OWN HORRENDOUS POLICIES OVER A FULL
The US Treasury Secy Tim Geithner has issued his
harshest attack to date on the Chinese currency policy,
the latest skirmish between the superpowers. The intensity
has risen in US attacks, but the theme is the same,
amidst no change. Geithner appears as a minor caricature
figure who does not fill his own chair and whose voice
squeaks like a boy. The USGovt displays its weakness
and fumbling actions. The USCongress conducts regular
meetings to discuss Beijing's usage of exchange rate fixing (as in
narrow bands) for trade advantage. The pace of Chinese
Yuan climb is painfully slow, which permits continued
strides for China's export sector. It
encourages outsourcing of production and jobs from
the United States, but often with
full indirect encouragement by the mindless members
of the USCongress and active investment by US corporations
in recent years. Recent friction has come over steel
producers and credit card companies. More grievances
are piling up in tires, aluminum, paper, and steel.
The consensus has firmed that the US and China are
adversaries, not enemies, but if the Obama Admin continues
to pushes the trade agenda, the relationship will
turn more hostile and antagonistic. Open hostility
and blatant conflict with nasty damage is certain,
like next year.
◄$$$ CHINESE RELATIONS WITH JAPAN HAVE TURNED
EXTREMELY SOUR. THE SURFACE STORY IS TERRITORIAL DISPUTE.
THE UNDER-CURRENT HAS TO DO WITH ASIAN DOMINANCE AND
BEIJING BANKERS LIFTING THE YEN CURRENCY DURING
RESERVES DIVERSIFICATION. THE AREA OF THE INCIDENT
IS HOTLY DISPUTED, A STRING OF INTERMEDIATE
Tensions betwen China
and Japan have escalated suddenly
and sharply. In fact, the Chinese Govt has broken
off high level diplomatic contacts. Incidents have
occurred where the Japanese flag has been burned in
public places without restraint. Last Sunday, China broke off high level government contacts
as the Associated Press described,
"over the extended detention of a [Chinese]
fishing boat captain arrested near disputed islands.
The rare move pushed already tense relations to a
new low, and showed China's
willingness to play hardball with its Asian rival
on issues of territorial integrity... Beijing
has suspended ministerial and provincial level contacts,
halted talks on aviation issues, and postponed a meeting
to discuss coal." The Chinese fishing
vessel collided with two Japanese
Coast Guard boats in the
East China Sea, a territory claimed by both countries. The boat's
captain was arrested on suspicion of deliberately
ramming the official vessels. The captain has been
detained, charges pending, as the situation has been
This all occurred ironically at the anniversary of
the 1931 Japanese invasion of China. The reaction by Beijing
has been swift and forceful, indicative of its newfound
muscle and perceived prestige. Chinese Premier Wen
Jiabao has threatened further action against Japan unless the Chinese sea
captain is released. The boat was seized in waters
long disputed in territorial resource battles.
Wen charged Japan
for full responsibility in the entire incident, demanding
his immediate and unconditional release of the captain,
in order to bring bilateral relations between China
and Japan back on track. The Chinese
leader canceled a planned meeting with Japanese leaders
at a United Nations summit in New
York. The meeting between Wen and his Japanese counterpart
Naoto Kan on the sidelines of the summit was deemed
inappropriate. See the Zero Hedge article (CLICK HERE)
and the BBC Asia-Pacific article (CLICK HERE).
The Senkaku Diaoyu
Islands where the incident
occurred lie north of Taiwan
and south of the Japan's
of Japan. The island chain extends all the way to Taiwan.
The area contains rich fishing grounds and probable
oil & gas deposits. The location highlights the
scarce resource battle in the region. Under the surface
are two major areas of friction. Japan
has been for four decades the undisputed powerhouse
in Asia. Its manufacturing base,
excellence in factory production processes, consistent
innovation, and annual sizeable trade surpluses brought
it prestige. Like the Americans, the Japanese gave
a great deal of technology free, in the hope of building
partnerships. The exchange was done through subsidiary
corporations in a transition toward Chinese ownership,
the same reckless model employed as with the US corporations.
A great rivalry has developed, as China
has doubled Japan
in its total reserves wealth, and surpassed Japan in USTreasury Bonds owned. Tokyo has the cooperative ear of the US bankers, but Beijing sits
opposite a chess board from the same US bankers. The Tokyo clan actually act more like US lackeys. The Beijing
clan is fiercely independent, to the contrary. The
other immediate issue extends from the diversification
underway by China away from USTreasurys,
and toward to a greater extent the Japanese Govt Bonds.
Their move has strengthened the Japanese Yen currency,
a VERY unwanted development. Beijing allocations have actually helped to weaken the Japanese export
trade which is vulnerable, to the anger of Tokyo political and banking leaders. China does not back
off. They have a deep war chest with which to weaken
and retain dominance, a strange angle indeed!!
Their primary motive is preservation of assets, but
the Yen currency is a casualty in the line of fire.
◄$$$ SOROS CLAIMS CHINA
RUNS THE WORLD, WITH GROWING POWER AND INFLUENCE.
IT IS THE INDUSTRIAL SUPPLY ENGINE. A GREAT POWER
SHIFT IS IN PROGRESS, AIDED BY REFUSAL TO MAKE THE
CHINESE YUAN CURRENCY FULLY CONVERTIBLE. THE YUAN'S
CONTROLLED EXCHANGE RATE ENABLES CONTINUED LABOR ARBITRAGE,
BUT WITH HUGE FIAT VIRUS PROBLEMS LOCATED IN RESERVES
(SAVINGS). ANY TRADE SANCTIONS WOULD RENDER GREATER
HARM TO A VULNERABLE USECONOMY. HENCE THE STRAINS
AND CAPITAL DRAIN CONTINUES. $$$
George Soros might be a duplicitous type, but he
is brilliant. My only question is of his deeper loyalty,
hidden grand positions, and public sincerity. He offers
a great summary of the Chinese chpater being written.
Here are his views. China has become the industrial engine that runs
the world, relegating the United
States to second fiddle in both
economic power and global influence. Soros said, "The
shift is phenomenal. I have never seen anything like
it. There is no parallel because the rise of power
typically takes decades." The US financial crisis accelerated the power transfer
by shutting down the US
consumer, whose voracious consumption demand powered
numerous upstart economies. After a full decade,
China finds itself in the
driver's seat of a global locomotive running on a
supply side engine. The transfer of wealth is
the direct result of the US willingness to consume
more than it produces and Chinese willingness to produce
more than it consumes, Soros explained succinctly.
China received tremendous Western aid in the form
of investment capital and technology transfer to accumualte
the wealth generated by its cheap labor. The end result
is Western poverty and Chinese wealth, much to the
surprise of ignoramuses occupying economist chairs
and banker thrones.
A key element of the process has been the benefit
to the state by keeping its currency undervalued through
a peg to the USDollar, Soros believes. Very true,
but even with a much higher Yuan currency exchange
rate, the vast difference in wages would still power
a significant wealth transfer, just not as quickly.
Soros believes if China were to allow its currency
to be traded in global markets, it would replace the
USDollar as the premier global currency easily.
However, China does not want such reform since the change
would destroy the machine, in his words. As a result,
a more gradual change is more likely to result from
increased domestic consumption inside China,
from changed culture, the maturity of a new generation,
as growing national wealth translates into increasing
wage expectations, he expects. He calls the US
helpless to do anything meaningless to force a quicker
liberalization of China's currency policy.
Trade sanctions as part of a wider trade war would
be destructive to both sides. Furthermore, Chinese
officials realize that the USEconomy is in a weaker
position, and cannot afford a trade war. The massive
holdings of USTreasury Bond debt provides great leverage
See The Street article (CLICK HERE).