The Dumping Begins: Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested

Tyler Durden's picture

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross.

From Asia Times:

Dollar-denominated risk assets, including asset-backed securities
and corporates, are no longer wanted at the State Administration of
Foreign Exchange (SAFE), nor at China’s large commercial banks.
Chinese government has ordered its reserve managers to divest itself of
riskier securities and hold only Treasuries and US agency debt with an
implicit or explicit government guarantee. This already has been
communicated to American securities dealers, according to market
participants with direct knowledge of the events.

It is not clear whether China’s motive is simple risk aversion in
the wake of a sharp widening of corporate and mortgage spreads during
the past two weeks, or whether there also is a political dimension.
With the expected termination of the Federal Reserve’s special facility
to purchase mortgage-backed securities next month, some asset-backed
spreads already have blown out, and the Chinese institutions may simply
be trying to get out of the way of a widening. There is some
speculation that China’s action has to do with the recent deterioration
of US-Chinese relations over arm sales to Taiwan and other issues. That
would be an unusual action for the Chinese to take–Beijing does not mix
investment and strategic policy–and would be hard to substantiate in
any event.

Furthermore, demonstrating just how seriously China is approaching a populist-driven adversarial stance with the US, was earlier speculation that instead of unpegging its currency (a move much desired by the US administration in its goal to further weaken the dollar and make China less competitive in the export market), China would reduce its trade balance not by the traditional way of currency inflation, but by the economic textbook footnote approach of raising salaries.

Higher labor costs would cut Chinese export competitiveness
while boosting domestic spending power and sustaining economic
growth, according to the bank. Premier Wen Jiabao’s government
has been pressed by U.S. and European officials to end a 19-
month yuan peg to the dollar to help diminish trade and
investment imbalances that contributed to the credit crisis.

“Wage increases are a better option because they largely
benefit Chinese workers,” Tao Dong, a Credit Suisse economist
in Hong Kong who has covered the Chinese and Asian economies for
more than 15 years, said in an interview yesterday. “Currency
appreciation will only result in Chinese exporters losing out to
competitors in countries such as Malaysia and Mexico.”

The strategy may limit gains in the yuan to 3 percent this
year, according to Tao. This month’s 13 percent increase in
minimum wage in eastern China’s Jiangsu province indicates that
higher pay will play an important role in officials’ efforts to
rebalance growth in the fastest-growing major economy, Tao said.

The wage decision “argues against a large one-off yuan
revaluation,” Ben Simpfendorfer, an economist with Royal Bank
of Scotland in Hong Kong, wrote in a note this week.

One thing is certain - China will now focus on doing precisely the opposite of what America would urge Chinese authorities to do, in order to establish itself as the focal point of negotiating leverage and increasingly humiliate the Obama regime. If this involves selling USTs or corporates (both fixed income and equities) so be it. This is further confirmed by carefully worded disclosure in today's copy of China Securities Journal:

The China Securities Journal, a government-backed daily, accused the U.S. in a tough-worded front page editorial of playing the "exchange rate card."

It said that, just as China didn't interfere with Federal Reserve purchases of U.S. Treasuries, "the U.S. has no right to interfere in China's exchange rate policy."

"Whether or not to appreciate is our own business," the newspaper said.

"Whether it will appreciate, when and by how much is an integral part of China's monetary policy."

It is not clear when the asset divestiture directive takes place or if it is already being enforced. Juding by the afterhours action in futures and the currency markets, some dumping may already be taking place. Alternatively, we now know just who it is that sell into every rally (yes, even in this market, every buyer is matched with a seller).

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Scooby Dooby Doo's picture

Must be the big sell-off.

Stu's picture

And so it begins.

Stevm30's picture

Historians writing about this in the future HAVE to include the two feet of snow on the ground in Washington DC.  It makes for a perfect setting for a world crisis.

Anonymous's picture

I'm skeptical about the news article. Had the Chinese actually notified US securities dealers to this effect as it claims, S&P E-Mini would be tanking as the price of borrowing money by corporations would be expected to rise a lot. It has drifted a little lower in the last seven hours.

Anonymous's picture

That's a solid point. There has been no major fluctuation in the market to indicate the reality of a Chinese divestment of U.S. assests. Although, if ever they do decide to enforce harsh polices like the one cited in the article there would obviously be a significant hemorrhaging of the financial system here at home.

Number 156's picture

We may now witnessing the opening salvos of economic warefare.

This can only end in tears.

Gold...Bitches's picture

This can only end in tears.

thats why gold is attractive.

Anonymous's picture

Yeah, gold is fabulously awesome... when you're hungry and cold. Because it's so good at providing you shelter and it tastes great with some butter and salt.

Oh right. Gold is only worth something if there are people who have the disposable income to buy it or the resources to use it for something. But good luck feeding yourself with your stockpile of it when everything tanks.

Want to know what's REALLY worth something in a real crisis? Food, drinking water, shelter, guns and bullets, and knowledge. That's it.

Anonymous's picture

I am in agreement with your security in Gun's & Butter {so to speak} can you tell me how this will effect me in real terms, rather than the eco-gobblety-gook that mean little or nothing , unless in laymens terms. Regards, Donald

Anonymous's picture

And I hope it includes India, because they've been way too far under the radar considering how many jobs they received from us.

Anonymous's picture

Who sent the jobs there....of course the cannot be taken forcefully. You do not seem to be very well informed.
Why Did You not keep your jobs? Ask your Corporations.

Anonymous's picture

Who sent the jobs there....of course the cannot be taken forcefully. You do not seem to be very well informed.
Why Did You not keep your jobs? Ask your Corporations.

Anonymous's picture

Delicious golden tears, for those well prepared.

Golden shower for those not prepared.

JackES's picture

Glad to see they act finally

Problem Is's picture

On the edge of oblivion

A ship of fools sailing on

Rip it up... move down

Rip it up... move it down to the ground

Across the nation, around the world


Scooby Dooby Doo's picture

Is Goldilox/Cramer going to redefine BRIC out of spite?

I mean de-acronymize or whatever.

docj's picture

So, how much cashola are we talking about here?  Eh?

docj's picture

BTW, looks like insiders are back to selling as fast as they can.

Scooby Dooby Doo's picture

They are up to their eyeballs in Freddie/Fannie/Farmer-ie.

docj's picture


Hey, doesn't Da Fed have a metric crapton of that on their balance sheet too?

What could possibly go wrong?

Number 156's picture

We will start finding out tomorrow morning. when the markets open.

They're going to start a stampede in asset backed securities.

putbuyer's picture

It's funny. I still often try to educate the drones on yahoo message boards that not all shit goes up, even with good cooked books. They never listen.

The movie "The Road" was interesting. I suspect these same idiots will be killing humans for food.

Missing_Link's picture

Why even bother posting there?  They can't be educated.

Anonymous's picture

Right, with a name like 'Putbuyer' you should be posting here anyway - where the prevailing belief is that all markets HAVE to go down all the time, and when they don't actually go down it is solely due to "stupidity"/"book-cooking"/"PPT"/"Federal Reserve". ANYTHING but ACTUAL MARKET ACTIVITY which would just be way too confusing.

Don't bother putting any contrarian/optimistic info on here either - ask Leo about how immature these boards can be with contrarian information.

Ripped Chunk's picture

Whaaaaaa!  I want to go back in time to 1997!

faustian bargain's picture



ozziindaus's picture

Easy fix. Offset dump by an FR monetization pump followed by sales of F18's to the Dalai Lama.

Scooby Dooby Doo's picture

I'm sure the Lama is getting his F-18's from the Chinese. It's 14% off all flying objects for Valentines day week.

Anonymous's picture

ROTFL! I love it.

Trifecta Man's picture

The Dalai Lama.  I never saw that painting.

Tahoe's picture

bounced at 1063.00 @21:41EST.

Anonymous's picture

hory sheet

Anonymous's picture

Well, when you're the last man standing with cash, as Buffett says. Are they devious enough to destroy US and Europe financially? Hell, why not, they'd just buy commodities on the pennies for the future versus paying on the dollars. The sad thing is they could do it, heck, they got enough real estate for 15 years.

Anonymous's picture

The middle kingdom was always very self-sure, self-centered, and self-sufficient. It was always the barbarians that brought tribute to them. Their culture reigned supreme. Western trade wanted their porcelains, their lacquerware, teas, spices, silks, ornate hand carvings, jade. They wanted gold and silver. Early western fortunes were made on the Chinese exports. Like selling beads to Indians. Except the grubby uncivilized group was the Europeans.

China only opened to global trade upon force, and then by desperation to rebuild. Now that they have sufficiently mastered the engineering techniques and scientific method of the west (and now that the West is totally broke), they will shut the borders and concentrate on a renewed kingdom.

Funny thing that. We NEED them. They really don't need the West. They have goods, production, a surfeit of savings. Time to dump the presumptuous round-eyes. China's the future. The west will be internecine warfare and bickering about the rapidly dwindling remainders of a once-great set of nations.

Anonymous's picture

Thank you!

It is good to see someone who actually knows what is going on with China. 9 times out of 10 people will say "China needs the U.S. to buy its stuff" but that frame of logic is based off of lack of knowledge.

Since when did a population of 1 billion need a population of 330 million to buy its goods when the smaller population doesn't have any money? Thinking in smaller terms, could you imagine 3 people building goods all to sell to 1 person and that 1 person has nothing to offer in return for those goods?

Unfortunately there is only a small list of possible outcomes from this scenario.
1- The U.S. goes into protectionism mode (which it is already starting to do by imposing tariffs on imported goods)- Worst possible idea as it is too late to do so.
2- The U.S. pays off its debts by selling away resources (land, oil access rights, fisheries rights etc)- Possible but not probable. I don't see the citizens of the U.S. going for this, but who knows, I've heard toll roads/bridges are already being sold to foreign companies to manage.
3- The U.S. imposes inflation to be competitive on a global scale in terms of manufacturing and real goods production. - This would anger anyone who currently holds American debt as it would lose its value tremendously. Also it would anger U.S. citizens who would not want to work for pennies a day to be competitive with china's manufacturing.

Cursive's picture

A lot of ZH regulars think the dollar is shit.  Well, gold sinks and shit floats.  That's life.

KevinB's picture

I often hear this, but whenever I'm done and I look, it's at the bottom of the bowl. It never floats.

I must have some heavy shit, man.

Quantum Noise's picture

I'm sure the Chinese had something to do with it... who knows how much Pb is in the Chinese version of Yellow No.5....

Anonymous's picture

I know this is off topic but, I as a nutritionist I will tell you that a healthy fesses will float not sink. Most likely too much meat in your diet needs more fiber from fruits and vegetables.

Ripped Chunk's picture

Better get on that puffed wheat diet..........................................or sink

Anonymous's picture

I think it means you are a healthy eater. If you eat junk food, greasey food, your poop will float. At least, that's my understanding, but I'm not a poop expert, although I've been told I'm full of it more frequently than I would like.

Anonymous's picture

Shit only floats if you eat enough roughage

Anonymous's picture

Shit only floats if you eat enough roughage.

Anonymous's picture

Ducks and witches float- must mean they weigh the same and are both made of wood. Burn the witch!

Anonymous's picture


Gilgamesh's picture

China trade balance +$14.2B vs fcast +19,2

let's see about that bounce...

Going Down's picture

'Nuf Said

To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.

--Sun Tsu

Gubbmint Cheese's picture

meanwhile S&P futures say, "Pthh.. whatever.. China doesn't have the balls.. " they are off 7..



1984's picture

The Chinese don't bluff - hard to save face...