Just What Is China Buying?

Tyler Durden's picture

Something strange is going on in China. On one hand, as the chart below shows, China's trade surplus is growing and growing, and just hit record highs. In other words, China is - on paper - receiving record amounts of foreign currencies in exchange for its (mostly) goods exports.

That much is clear in the Chinese (record) trade balance chart below:

 

Yet on the other hand, a chart from Deutsche Bank shows something very peculiar: even as China's foreign reserves should be rising, they are not only dropping, but just suffered their biggest quarterly drop in the past decade!

 

This validates what the TIC data has shown recently, namely that China has not only not been adding to US Treasury but reduced its TSY holdings to the lowest since February 2013, and that contrary to what some have alleged, China is not using Belgium as an offshore-based conduit for Treasury accumulation.

 

A bigger question is just what is China buying "off the books" to account for this reserve decline, amounting to about $100 billion in Q3, or is this merely due to even more off the books "capital flight" as some has speculated. Or is China indeed actively buying commodities - either as shown here previously for Commodity Funding Deals involving gold or in physical bulk, perhaps to quietly fill up its new Strategic Petroleum Reserve (see "Record Oil Tankers Sailing to China Amid Stockpiling Signs") - and bypassing the official ledger in doing so. If so, which commodities is China buying, and how big will the foreign reserve plunge be in the fourth quarter.

For the answer to the latter we will check back in a little over a month when the "official" data is released. As for the former, one can only speculate.

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hedgeless_horseman's picture

 

 

Just What Is China Buying?

Africa.

They would buy the Africans, too, but that is no longer politically correct, so they just rent them.

markelshark's picture

Well, what were they buying in 2012 when foreign reserves dropped?

Jeff the Terrible's picture
Jeff the Terrible (not verified) markelshark Dec 19, 2014 2:35 PM

I would never buy an african

 

http://y2u.be/VI6tBwVjyOY

Richard Chesler's picture

The banksters bought an african and they're still happy as a clam.

 

Pumpkin's picture

Oh shit! That made me laugh! :)

SoberOne's picture

US Green Cards and high end real estate.

BaBaBouy's picture

The Answer Is AU, Bitchez!
I.E. Why Hasn't China Reported Its GOLD Reserves In Many Years???
...Mass Hoarding On The Cheap...

americhinaman's picture

correct in spirit.  chinese reserves are (contrary to popular belief) not all in USD-denominated assets.  as the USD rally accelerated in the 3q, the USD value of the assets decreased by a small fraction.  redo the charts denominated in, say, EUR and you'll see that they have still been growing.

other than that, they always sell what has risen and buy what has fallen.  so likely they have bought or contracted for energy, BRICS currencies for reserve and Asia D Bank purposes, and a variety of commodities.  likely they have sold treasuries and various developed market equities.

basically, they haven't been doing anything out of the ordinary.  but the fact that they do prudent things as a government, is quite extraordinary in this world of inept governments.

Stuck on Zero's picture

I have it on good faith the the Chinese are buying and importing millions of women to take home as wives.

Ruffmuff's picture

I kinda of doubt that. There are too many ex-wives unspoken for, even with QE type incentives. And with no guaranteed refund policy, the deal ain't ever gonna happen.

J S Bach's picture

"Just What Is China Buying?"

 

Answer: Time.

Dubaibanker's picture

China is insulated from the rest of the world.

Not only the Chinese have things under control domestically but they have very wisely started diversifying and investing outside China over the last couple of years and we have seen major IPO's, major bond issues and major asset purchases worlwide without any disrimination to any region, religion, caste, creed, colour etc. (Their motto is simple: if you are in trouble: Call China).

Hence, all profits of Volvo, Peugeot, Motorola, AMC, Nexen, real estate in Toronto, NYC, Italy, US, Australia, Canada, Malaysia etc will now be flowing back into China which was not the case barely 5 years ago.

There is no logical reason why Chinese stock markets should crash.

I would suggest Zerohedge to compare stock market capitalisation of Shanghai with NYSE or FTSE or DAX and show it here. Let us see the reality and not just the index performance over a period of time.

While the NYSE market cap has risen from USD 11 trillion to USD 17 trillion between 2003 to 2013 which is a multiplier of 0.58.

The multiplier of Shanghai, Shenzen and various other Asian markets are 10 times more. And in many cases, these stock markets did not even exist a decade ago like Dubai or Saudi or Vietnam etc.

Kazakhstan has gone from USD 2,426m to USD 26,228m which is a multiplier of 9.81 between 2003 to 2013.

Shenzen is a multiplier of 8.49.

Philippines is 8.37.

Colombo is 5.93

and Shanghai is 5.93.

While Deutsche Borse was a multiplier of 0.79, Athens was actually negative and our friends at Nasdaq were 1.13 despite all the noise of Apple and FB.

All this indicates that while NYSE and Nasdaq have indeed grown a bit but the others are rising at such a fast speed that NYSE/Nasdaq/FTSE/DAX don't even have time to lick their wounds. The speed is simply ten times greater! May the force be with you!

The data was until year end 2013 so am sure today these numbers for Western economies are lower while Shanghai has risen! 

Comparing market cap of Shanghai to BRIS is also unfair to BRIS mostly because S Africa's currency has declined 100% in last 5 years, India has declined 50% in last 5 years and Brazil too has declined about 60% in 4 years. While China's currency has APPRECIATED in last 5 years from about 7.00 to 6.22 today! Poor BRIS! It is not China's fault that BRIS cannot stand up on their feet because they aligned themselves to Western propaganda at most times in their economic history due to their inherent weaknesses, awful corruption and allowing western corporations into their countries and let profits flow back to US and EU. The same cannot be said for China. Ditto for Russia, which is why they are in a bit of a turmoil at present time, thanks to western intervention.

Indices alone dont make no sense whereas the market capitalisation shows the breadth and the depth of the market and the fact that wealth is being distributed more equally and to more citizens thus creating robust employment as well as robust tax revenues for the Govt and hence more stability and not less stability.

All data comes from here: http://www.world-exchanges.org/statistics/annual-query-tool

There is indeed a method to the madness of China buying the rest of the world!

Rock On Roger's picture

Amazing

They're stacking

And growing like crazy.

 

Hmm.. Are they growing because they're stacking, or stacking because they're growing?

Dubaibanker's picture

Either way you cut it Roger...they are growing...doesn't matter why. They are stacking because only they have the $$$ to stack. They are also growing due to the same and now they dont have a smaller base like they did a decade ago, but is 5 times larger in GDP and 10 times larger over 2 decades. These are spectacular numbers at a time when the entire world is struggling since 2008.

They were a nobody 30 years ago, smaller than Germany, Russia, UK or India individually. Today, China is larger than all of these 4 combined. They worked very hard for 30 years to get here.

Not only they are the uncrowned king but they will keep stacking so high, that the rest of the world combined will be smaller than them! Just give them another decade! But if all of us keep slowing the way we are and keep selling everything to the Chinese, they might be bigger than all of us even before this decade is out.

And then the question will be: And, now what? We wish we wouldn't have pissed the Chinese the way we did in 2014!

winchester's picture
winchester (not verified) Dubaibanker Dec 20, 2014 2:26 AM

let me guess...... german bullshit about china what SOCGEN FROG BULLSHIT IS ABOUT RUSSIA ????

TheObsoleteMan's picture

"They worked very hard to get here?" Seriously? WHAT WASN'T HANDED TO THEM, THEY STOLE. The Chinese aren't some miracle workers, western bankers {with the full complicity of the politicians} financed the entire thing. Why marvel at the cities that seemed to spring up over night in China, just look at American cities {especially the ones that were chief manufacturing centers} hollowed out, a shell of what they were just thirty five years ago. All that was ONCE here, was moved over there by the multinationals. Wasn't that long ago you couldn't pick up a magazine or watch a TV program where they weren't selling investment opportunities in China, and people ate it up like apple pie. Investment for them, DISINVESTMENT for us. What fools, they helped to finance their own demise. Don't get the idea that China is mighty enough to survive a global financial crisis, because they won't. Japan will be the first, then Europe, then China. HOW CAN THE FACTORY OF THE WORLD SURVIVE WHEN IT'S CUSTOMERS ARE NOT SENDING ORDERS BECAUSE THEY ARE BROKE? Chinese invincibility my ass. What will happen there will be nothing short of a hell on earth.

SAT 800's picture

I fogot to report here what I bought. I bought back my April '15 Feeder Cattle Futures Contracts @209 on Thursday; that I sold short on Oct. 9th.; and reported here at the time; at a price of 232. Profit-$34,500.  The chart is posted on the CME page; it'll be a good example for you to study.

Dubaibanker's picture

Stealing has been the hallmark of all empires previous to the Chinese. The Spanish stole and became rich. The French stole from Africa and became rich. Then the British stole from Africa, India and China and became rich. Then the Americans came along and stole the land from the Red Indians and used USD, defence, Tech and banking to suck the money from the rest of the world.

Now it is the turn of the Chinese but at least they are decent enough not to kill people while owning them. They simply own them, all of them, every single one of us. Even Zuckerberg stole from his 3 buddies, various billionaires today have lots of stories all over the world. Stealing is not wrong (this is what todays moral code has become sadly), just dont get caught doing it. If you have the power to avoid investigations, greater the glory to you, just look at Corzine or Dimon. You dont have to go too far to talk of stealing especially if you live in Amrika!

Exports are two faceted thing. We need shirts and shoes and all things Chinese, not because they come out just cheap from China, but despite the labour cost increases over the last 2 decades, we still build factories out there, but now of luxury cars, TV's and computers. You see, we have gone up the value chain, we produce higher value goods in China today than we did a decade or two ago. Remember we all send USD 120bn approx every year to build factories in China which is over USD 2.5 trillion in 2 decades, of our money!

If the Chinese go broke, it will be because we wont pay them. But they are smarter than that. They allow FDI not FII so if we stop buying or manufacturing in China, then we will go bust first but they wont, because they wont have a loss. The factory will still be there in China built with our money on the land they sold to us and they only lose the tax revenue and have some unemployment. We all know what happens when Spain and Greece etc went bankrupt, they sold the factories, so China wont lose even if we stop buying or making stuff there.

Just read these 2 article and that too from IMF and you will get a good sense of what China is upto;

Sino Shift

Is China rebalancing? Yes, but with Chinese characteristics

They are insulated from our problems which is why their GDP, currency, inflation, interest rates, sovereign ratings, total employment, real estate prices, size of their banks, size of their oil companies, infra spending etc have all risen consistently for the last 2 decades without as much as  hiccup even when the 2001 Tech crash came or the 2008 GFC! So, how do you explain that, if not insulation which has just become even better since 2008?

You also make a point about disruption in US about relocating factories from Detroit and other places to China. Well, the Chiense never forced anyone. The selfish CEO's will always do what is best for them and their shareholders, which is to reduce costs and increase profits. Americans and their politicians have no one to blame but themselves for taking the decision to relocate to China or elsewhere. Every businessman has a right to relocate wherever it suits them best, some opened car factories in Canada due to the cheap Loonie, some went to China, some to India....

You cannot blame the Chinese for having the cheapest labour force on the planet. In our western consumer oriented farce materialistic societies: We want good shit at cheap prices and yet make a profit! That's it!

No one did right or wrong here, but in the end, the Chinese won!

Thisson's picture

Logging in to make the following comment: China is not insulated from the rest of the world.  They are being victimized and lured into malinvestment.  Central banking has artificially suppressed interest rates, making all of these foreign chinese investments look attractive when, in fact, they are largely unproductive.  Let's take a common sense approach.  How can it possibly make sense that investment returns would be higher in a developed country than in an undeveloped one?  China has plenty of internal areas that are ripe for developments that would improve productivity and earn real returns.  The fact that this investment has been misdirected into foreign investment will be revealed when the tide goes out and we'll all see who has been swimming naked.  If the Chinese were smart they would focus on increasing the productivity of their own natural resources (of which they have many) rather, for example, buying strip malls and commercial office space in the USA.  You may recall that this is the same mistake the Japanese made in the 1980s.

Dubaibanker's picture

Thisson,

Your assumptions / information is incorrect.

China is barely investing abroad. They have a GDP of close to USD 10 trillion and they are investing just USD 100bn overseas as of 2013 and was USD 88bn in 2012. This not a lot of 'malinvestment'.It is barely 1% of their GDP and was much much lower until 3-4 years ago.

Secondly, they are buying productive assets like energy assets, building ports, some profitable hotels and iconic real estate, movie theatres, car manufacturers, banks, insurance companies aside from lending to receive returns on cash instead of buying silly US treasuries. They need to have a little bit of everything while they also have a large land mass which they are rapidly developing at the same time. Building 100 airports,bullet trains, having 7 of the busiest sea ports in the world, nuclear plants, infra etc needs more than we can imagine.

I believe thay are doing enough internally and after that whatever chump change is available are using to further their interests abroad, for example in Latin America and Africa.

Japan could not buy assets aside from real estate because there was no distress like this time which has been a golden opportunity for China. Japan does not have land so they could not develop their own country much further hence their percentage of overseas allocation was far greater than 1%. China, on the other hand, is buying 'real' assets and not just buildings. China just bought the largest bank of Portugal's investment bank for half a billion dollars. China bought the largest ever Canadian energy company in 2012. China bought Volvo as well as half of IBM. These are not realty releated investments which is what is different from Japan.

Plus the size of China is much much larger due to their sheer population.

These 2 reports should help provide you much more detailed information.

One is from the UN. http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf

The other is what the US Senators get to see and of course does not make it to the media. http://www.fas.org/sgp/crs/row/RL33534.pdf

cnmcdee's picture

They grew for two decades because - 20 years ago they paid people 8 cents an hour.  Today it's $1.50  another 20 years to go!

Reptil's picture

Yes, large parts will not be suitable for human habitation. That is already the case but it's not completely visible, since it's not valued proportionally. (upside down)

83_vf_1100_c's picture

  Do you think i could make a few bucks off my ex-wife?

cnmcdee's picture

I think those are a reverse COD when she gets there you pay them!!

cnmcdee's picture

Sounds good lets send them all our gold diggers hopefully we can recoup the shiny metal and they can keep the women..

The Big Ching-aso's picture

Food. They're probably just hungry. Everybody knows ya get hungry after Chinese take-out, man. I mean WTF there's like now what a billion of them? Their economy's been improving lately. That's like a lotta groceries, late night run on hamburgers, whatever.

Reptil's picture

I had to laugh at the takeout thing. But yeah.. food, water, soil, clean air.

 

oudinot's picture

How can I sell the Chinese my wife?

SMG's picture

Don't know if there any weight to this, but Harvey Organ was saying China was running low on industrial silver.  So maybe they're restocking.  Man that would be great for me if true.

Moe Howard's picture

He also made the typical insane price predictions by December, and we are 19 days in. Got a ways to go to $200 silver and $3000 gold. Good luck Harvey, and anyone dumb enough to listen to you.

The9thDoctor's picture

Those silly price predictions keep the metalbugs warm and fuzzy at night.  The 5-year graph has shown otherwise, but I'm just a "paperbug" and don't know what I am talking about, lol.

Pickleton's picture

 I'm just a "paperbug" and don't know what I am talking about, lol. 

 

Apparently so.  Or perhaps you're just wrapping yourself in the wrong graph to keep yourself warm at night.

 

You could try the "Best performing asset in the past ten years" graph.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/7375415/Gold-is-decades-best-performing-investment.html

Escrava Isaura's picture

 

 

And housing was the second best.

 

Escrava Isaura's picture

 

 

“The first thing I did was make a mistake. I thought I had understood capitalism, but what I had done was assume an attitude—melancholy sadness—towards it. This attitude is not correct.” — Donald Barthelme, “Religion and The Rise of Capitalism”


 

THX 1178's picture

WOW. Barthelme is my God. Have all of his collections of short stories. I don't know If you've read any of them but try "the flight of pigeons from the palace." Cool/...

Escrava Isaura's picture

 

 

Correction:

 

Donald Barthelme wrote “The Rise of Capitalism” (a must read)

http://www.jessamyn.com/barth/capitalism.html

 

“Religion and The Rise of Capitalism” was written by Richard Henry "R. H." Tawney 

http://en.wikipedia.org/wiki/R._H._Tawney

 

By the way THX 1178, I just discovered Donald Barthelme; but impressive insights… And the quote above is his.

 

 

Escrava Isaura's picture

 

 

Ladies and gentlemen,

 

Capitalism main theorists preach the promotion of ignorance amongst the masses and their courtiers as virtue.

 

And don’t take my word for it, ever. What is required for you to see, it is for you to be honest with yourself.

 

 

Obama LaForge's picture

Ditto. We keep hearing about how gold is rising because of demand in China and India. Well, what about when China and India crash? That also is supposed to push up gold? And then we hear from Mish Shedberg and company that you should buy gold to weather a deflation OR an inflation...

The long and short of it is, any analyst with a buy gold advertisement should be taken with a grain of salt. If someone's selling it, that means they must not think it's such a super investment.

That said, what I'm betting on is deflation, then devaluing -> inflation. Keeping everything you got in one place with blind faith is not likely to turn out well.

Nage42's picture

Reserves, right?  So if you buy $400 Billion in Russian oil, then the counter in which it's denominated in drops by 60%, are you counting that as a strategic reduction,  or accurate mark-to-market of a long-dated asset that has suffered a massive FX shift?!?

AGuy's picture

No need to worry! We got Belgium to buy our debt now! We're doing just fine! /sarc

If Europe fails to buy our debt, than I am sure Africa will buy it! /Sarc too

 

Ruffmuff's picture

Hey fuck you. I'm in these burbs. One man's shithole..well... is another man's shithole. Stop making me fell bad, asshole.

Occasional's picture

Heh. Sorry 'bout your shithole......

You CAN move you know. 

They haven't implemented movement controls.....yet.....

Being born in a shithole is one thing......

Choosing to stay in one..... well, your on you own there.....

 

MrButtoMcFarty's picture

Graduated from Belleville HS 1984....after summer school for blowing off half my senior year....LOL

Left soon thereafter and never looked back. Love those Holland beaches though.

My sincere apologies.

SILVERGEDDON's picture

Oblammie said " If you like your shit hole, you can keep your shit hole. " 

Looks like he is fixing to fuck you out of Detroit, even, based on his track record.  

Thisson's picture

"We shit-holed some folks."

Did I do that correctly? :-)

winchester's picture
winchester (not verified) Ruffmuff Dec 20, 2014 2:29 AM

then get the fuck out  mother fucker.

 

shit hole is shit hole, period. you black or what...