• Sprott Money
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"On The Ground" First Person Report On Chinese Inflation

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Mon, 01/24/2011 - 11:06 | 898602 apberusdisvet
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No wonder PMs are disappearing from the shelves; 6 more months of this and the PM market worldwide will have an epiphany (let's hope).

Mon, 01/24/2011 - 11:44 | 898755 More Critical T...
More Critical Thinking Wanted's picture
"On The Ground" First Person Report On Chinese Inflation


The question is, how long will bureaucrats of the Chinese communist party be able to keep the yuan's exchange rate artificially low, in a centrally planned fashion.

They will sooner or later face the realities of economics, the realities of physics and, if food riots elsewhere are any indication, the realities of angry mobs burning the ruling elite's homes.

If it happens they will have no-one else but themselves to blame - they have trillions of reserves and are still devaluing their currency in a predatory fashion?

If the yuan was traded in a free market, non-manipulated, trade-balanced fashion it would be roughly 30%-40% stronger than it is today - and the average Chinese household would not pay 40% for its food but probably only 20%. (as not only would externally controlled prices be lower, but their wages would be worth more as well.)


Mon, 01/24/2011 - 12:48 | 898803 More Critical T...
More Critical Thinking Wanted's picture


Btw., as a reply to the GOP/libertarian talking point "but the Fed is printing money!", you need to learn a bit more about how the Chinese keep the yuan devalued: they are printing about 2-3 trillion dollars worth of yuans, per year.

Non-sterilized Chinese currency manipulation and capital controls scheme puts the Fed's (largely sterilized!) money printing in shade.

They do this despite having absolutely no reason to ease monetarily: the Chinese have an over-heated economy that is blowing bubbles as we speak, they have no significant unemployement, they have rapidly rising inflation and they have very low wages. Compare that to the US, which has every reason to do monetary easing: a depressed economy, high unemployment and deflation risks.

Mon, 01/24/2011 - 13:08 | 899068 AnAnonymous
AnAnonymous's picture

 they are printing about 2-3 trillion dollars worth of yuans, per year.


The bit of difference: effects are mainly felt in China, contrary to the US, that is flushing away their problems onto the world.

Mon, 01/24/2011 - 17:56 | 899512 More Critical T...
More Critical Thinking Wanted's picture


Where did you get this "leave the poor Chinese communists alone, blame the bad lazy US workers for their troubles!" nonsense from - new GOP talking points, or a new Ron Paul memo?

Facts are showing the exact opposite: the bad effects of massive, state-controlled, centrally planned protectionism by the Chinese Communist Party are being felt everywhere else in the world: what China does amounts to dumping cheap, authoritarian dictatorship sponsored slave labor on pretty much every other labor market in the world.

The effects are massive: estimates are that these protectionist efforts have moved at least 1.3 million jobs to China from the US alone. What China does is not voluntary: there is no natural mechanism through which a free market economy like the US can protect itself against such aggressive mercantilism - unless you are arguing for steep punitive import tariffs on Chinese goods ...

In comparison, the easing the Fed does is not only a couple of times smaller, it is also based on justified macro-economic need (high unemployment and looming deflation in the US - none of which is the case for China), and it is also entirely voluntary: it's not like developing nations are forced to accept excess liquidity.

No, developing nations are in fact soliciting foreign investments to their free markets, and a fair portion of foreign capital is being used to build up their economies and improves the standard of living there. It's called "foreign investments" for a reason.

Their policy makers might be (rightfully) concerned about a portion of foreign investments causing bubbles, but it's not like they were forced to accept those monies - they are offering public shares in companies and they use free-floating currencies. If there's any bad bubble developing isn't it better to let it pop sooner rather than later, and fix whatever economic structure allowed that bubble to form?

So please grow some brains and start using it already!


Mon, 01/24/2011 - 13:58 | 899236 chumbawamba
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China makes stuff that people want to buy.  The US destroys stuff that people want to keep.

Enough said.

I am Chumbawamba.

Mon, 01/24/2011 - 14:43 | 899451 woolly mammoth
woolly mammoth's picture

chumbawamba, why do you choose to be a poseur?

Mon, 01/24/2011 - 15:46 | 899721 chumbawamba
chumbawamba's picture

I don't know.  I guess to give intellectually challenged douchebags like yourself an easy target.

Do you feel less irrelevant now?

I am Chumbawamba.

Mon, 01/24/2011 - 11:58 | 898811 EscapeKey
EscapeKey's picture

The chinese monetary base is exploding, and they have a mountain of bad debt waiting to be liquidated. The equation is not as simple as you portray it.

Besides, a 40% appreciation in the currency would not lead to a reduction from 40 to 20% from the pure maths aspect alone.

Mon, 01/24/2011 - 12:04 | 898829 More Critical T...
More Critical Thinking Wanted's picture


Indeed the 40%->20% figure I cited is just a guesstimate and the real result might be anything between 35% and 15%.

Agreed wrt. the Chinese monetary base: what the Chinese are doing is equivalent to printing a massive amount of money to keep the yuan devalued - on an enormous scale that puts the Fed's easing efforts into shade.


Mon, 01/24/2011 - 12:14 | 898869 EscapeKey
EscapeKey's picture

It's also a convenient way of not having to liquidate bad debts, of which up to 25% of all business loans are, according to some estimates.

Mon, 01/24/2011 - 12:46 | 898977 More Critical T...
More Critical Thinking Wanted's picture


Bad loan write-downs are probably partly financed via the artificial spread between the savings rate (to ordinary Chinese citizens, which rates are artificially low) and the business loans (which rates are artificially high).

I.e. it's taxpayer financed and because there's no competition to CCP controlled banks those spreads do not go down.

That is good in a sense - it makes the financial system more resilient and absorbs loan losses / bubbles to a certain degree - at least in theory.

It's bad in another sense - central planning makes their behavior largely correlated and decreases transparency in practice - so the systemic risk of having unknowable unknowns (tons of bad loan) increases :-)


Mon, 01/24/2011 - 12:51 | 898999 EscapeKey
EscapeKey's picture

Except, of course, the banks haven't yet written down loans on any significant scale.

Mon, 01/24/2011 - 12:59 | 899025 More Critical T...
More Critical Thinking Wanted's picture


How do we know that? Statistics of failure released by authoritarian dictatorships (such as China) are generally highly doctored. The low-level statistics are usually pretty accurate, but only a very elite circle of high party officials is allowed to see the summaries.

But yes, if the past gives us any idea I'd too argue that in such circumstanced doomed projects are still being pursued, until the very last possible moment and some more.

A wikileak of raw Chinese economic data would be really useful :-)


Mon, 01/24/2011 - 13:28 | 899132 BurningFuld
BurningFuld's picture

Here is an interesting take on what exploding food prices might do:

Competitive Currency Appreciation

… spiking food prices will likely cause competitive currency appreciation.
Foreign exchange reserves exist for just this time of emergency. Central banks around the world will lower domestic food prices by either directly selling off their reserves to appreciate their currencies or by using them to purchase grain on the world market.


The Author points out that this will be very bad for the World Reserve Currency


Mon, 01/24/2011 - 12:14 | 898872 bonddude
Mon, 01/24/2011 - 12:28 | 898938 bonddude
Mon, 01/24/2011 - 12:30 | 898944 bonddude
Mon, 01/24/2011 - 11:49 | 898773 bankonzhongguo
bankonzhongguo's picture

What city/district?

China is a large and populous country.

Just because real estate in Pacific Palisades is strong, does not mean Detroit is on the rebound.

Mon, 01/24/2011 - 11:06 | 898604 Fred123
Fred123's picture

Wonder if China will hyperinflate before the US does.....

Mon, 01/24/2011 - 11:09 | 898622 Sudden Debt
Sudden Debt's picture

Well, they bought foreing assets with their newly printed money.

Who cares if they hyperwhatever.



Mon, 01/24/2011 - 11:19 | 898671 topcallingtroll
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why do you think we are cozying up to Vietnam?  They will produce our ipads once china bites the big one.  That big black QE monster that BEN keeps shoving down their throat.  They seem to like it so keep it up Ben.

Mon, 01/24/2011 - 11:54 | 898764 GoinFawr
GoinFawr's picture

Uh oh, you need real gold to buy real estate in Vietnam, not paper 'gold'.


"The other major difference in the buying process in Vietnam is that all transactions are carried out in pure gold. While this seems like a quirky and antiquated system, it means that any buyer in Vietnam needs to keep a very close eye on the cost of metals for the best time to buy, as the fluctuating markets could make your property suddenly much more expensive."

And then some. Doesn't seem quirky or anitquated to me...

Mon, 01/24/2011 - 14:58 | 899510 Non Passaran
Non Passaran's picture

Except that a foreigner can't do that.

Tue, 01/25/2011 - 02:14 | 901774 GoinFawr
GoinFawr's picture

I think that may depend on who the foreigner is.

Mon, 01/24/2011 - 11:10 | 898613 Sudden Debt
Sudden Debt's picture



a chinese....


Mon, 01/24/2011 - 14:52 | 899482 RockyRacoon
RockyRacoon's picture

I am fixed for life SD!  Just got the following email from... wait for it... The Bernank!

Get a load o' this:

Bank Federal Reserve Board
33 Liberty Street, New York, Ny 10038,
United States Of America

Attn: Fund beneficiary,

Contract Fund Credit From Bank Federal Reserve Board

This Is To Let You Know That We Received A Payment Credit Instruction From The Federal Government Of Nigeria To Credit Your Account With Your Full Contract Fund Of Us$10.5million From The Nigerian Reserve Account With Our Bank.

However, What We Required From You Is Your Banking Particulars Where You Want Your Fund To Be Transferred.

{1}. Your Full Name And Address:
{2}. Your Telephone, And Fax Numbers:
{3). Your Bank Name And Address:
{4). Your A/C Name And A/c Numbers:
(5). Your Swift Code / Routing Numbers:
(6) .Your Current Occupation:

Be Informed That Transfer Will Commence Immediately We Hear From You With The Account Information.
Once More, Bank Federal Reserve Board Will Not Hesitates To Credit Your Account Within 24hours In Accordance With Fund Release Order Regulations.

Your Immediate Response Is Highly Needed To Enable Us Commence For The Transfer.

Congratulation To Your Contract Fund.

Best Regards,

Mr. Ben S. Bernanke
Chairman Federal Reserve Board

Whodathunk that The Bernank and the Nigerians were so coordinated?

Mon, 01/24/2011 - 11:08 | 898615 DonnieD
DonnieD's picture

3rmb to 4 rmb is a 33% increase, not 25%.

Mon, 01/24/2011 - 11:12 | 898633 billwilson
billwilson's picture

That just proves he's a Westerner, not a Chinese.

Mon, 01/24/2011 - 11:15 | 898653 Cash_is_Trash
Cash_is_Trash's picture

Cheers from Brazil where foodstuffs go up every week and portions get smaller.

- Hungry Trillionaire

Mon, 01/24/2011 - 12:02 | 898822 EscapeKey
EscapeKey's picture

Look, there is no inflation. How many times do Bernanke have to tell you this?

From his place in the ivory tower, a loaf of bread has increased from 0.000000001% to 0.0000000011% of his annual income. See? Insignificant.

Mon, 01/24/2011 - 15:52 | 899735 sushi
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Los Angeles — McDonald’s Corp. plans to raise prices this year to help offset an expected rise in its grocery bill for the 10 commodities that account for around 75 per cent of its food preparation costs.

Food prices are rising around the globe and the world’s biggest restaurant chain expects its costs to rise 2 per cent to 2.5 per cent this year in the United States and 3.5 per cent to 4.5 per cent in Europe.

Mon, 01/24/2011 - 11:10 | 898627 Peterpaul
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Please note that prices ALWAYS increase substantially in the weeks before the Chinese new year. That is not to say China is not experiencing inflation in everything but births of second children, but keep in mind this is a cyclical condition. I lived in China, specifically Hang Zhou and Shanghai, from 2001-2006 and every year the prices increased for raw foods products in the month of the Chinese New Year, only to have the prices drop in the month after...

That said, my contacts in China say prices have gotten ridiculous.

Mon, 01/24/2011 - 12:20 | 898900 bankonzhongguo
bankonzhongguo's picture

Within the last year, some of my China hands who seemingly have multiple apartments/homes in; Beijing, Shanghai, Shenzhen and Shenyang all went silent about how great their real estate fortunes are.  Some of those guys who would call every day are down to a text message per quarter. Hubris.

Did anyone see that Lang Lang China piano stunt at the White House?  Let that be your green shoot for China and your personal prospects therein, along with ICBC buying into Bank of East Asia for $140MM and the yuan accounts.  Owned.  Does that translate as "Gouyou"?  Wait till BOA goes hat in hand to BOC.  The BOC GM guys must be humiliated.  But then again, its all good fun merrily hunting 'jackals' together.

Mon, 01/24/2011 - 15:01 | 899524 Non Passaran
Non Passaran's picture

Maybe they're simply too busy spending the proceeds.

There's been little (or rather no) talk of falling real estate prices. If you disagree, post your source.

Mon, 01/24/2011 - 11:11 | 898629 Sweedumz
Sweedumz's picture

Needs more figures. Get this guy to do a few ZH interviews with the locals. Put things in more perspective. It's investigative journalism worthy of a T-shirt at least!


I note this is one of the few (scant) ground level reports from China on the inflation subject. You shouldn't pass up an opening Tyler!

Mon, 01/24/2011 - 11:35 | 898730 NOTW777
NOTW777's picture

think of his safety

Mon, 01/24/2011 - 11:12 | 898635 Sudden Debt
Sudden Debt's picture





Mon, 01/24/2011 - 11:14 | 898648 eigenvalue
eigenvalue's picture

Bruce Lee is utterly useless in Modern China. The police can shoot you with machine guns.

Mon, 01/24/2011 - 11:17 | 898662 topcallingtroll
topcallingtroll's picture

Jackie chan can dodge those bullets by jumping up fences and over buildings in a single bound.

Mon, 01/24/2011 - 11:58 | 898812 Zero Debt
Zero Debt's picture

He wouldn't have to, he's a commie now

Mon, 01/24/2011 - 11:21 | 898677 lead salad
lead salad's picture

Or they can just bring in the tanks.

Mon, 01/24/2011 - 11:12 | 898638 eigenvalue
eigenvalue's picture

For example, a bowl of dumplings I typically get for lunch has gone from 3rmb ($0.44) to 4rmb ($0.59). 

A 3rmb bowl of dumplings is only 100g. Is the author on a diet?

Mon, 01/24/2011 - 11:19 | 898667 Rogerwilco
Rogerwilco's picture

Not everyone eats like a fat Amelican.

Mon, 01/24/2011 - 12:15 | 898874 Sudden Debt
Sudden Debt's picture

15 cents won't kill them. I wouldn't even pick up the change if food would cost that much over here :)

A lauzy spagetti already costs 22 euro without drinks over here!


Mon, 01/24/2011 - 12:24 | 898919 haskelslocal
haskelslocal's picture

Good point Sudden Debt. For if a "new" player sits down wanting to play the high-roller game, then they'd best be ready to ante up. It's part of the game, part of bankroll management.  

Mon, 01/24/2011 - 11:12 | 898640 TorchFire
TorchFire's picture

You know it's bad when you are concerned you may not be able to sustain your daily lunch of dumplings.  Perhaps we should all start refining our palates....McDumpling anyone?

Mon, 01/24/2011 - 11:12 | 898642 alter ego
alter ego's picture

China is loosing the currency war against US.

US is exporting inflation all over the world in a

faster rate than the countries can tolerate or


China is waiting, but I believe they wont

de-peg their currency with the US dollar, I think

they would prefer to start a real confrontation

with America using their proxy dog (NKorea)

before accept the terms and conditions from



Mon, 01/24/2011 - 11:17 | 898659 Cash_is_Trash
Cash_is_Trash's picture

I sense the onset of another WORLD WAR

Mon, 01/24/2011 - 11:42 | 898761 snowball777
snowball777's picture

Guess who plays the role of Germany this time...

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