China Lays Out Conditions Under Which It Will Bail Out Europe; Does Not Want To Be Seen As "Source Of Dumb Money"
Back in September we noted that "Wen Jiabao Says China Willing To Extend Help To Europe... For A Price" the price in question being that, among other things, the EU should recognize China's market economy status, and to split Europe with the US on the topic of Chinese currency manipulation. Naturally, being the biggest import partner for China's goods, the topic of providing vendor financing to Europe has always been a critical one. Well, as was made clear overnight a key part of the European rescue effort is to get China on the same page, and to have it allocate capital to the EFSF. As the FT reports this may have happened, although with more or less the same conditions that China delineated 6 weeks ago. Only this time China has all the leverage. According to the FT: "China is very likely to contribute to the eurozone’s bail-out fund but the scope of its involvement will depend on European leaders satisfying some key conditions, two senior advisers to the Chinese government have told the Financial Times." So what are the conditions: "Any Chinese support would depend on contributions from other countries and Beijing must be given strong guarantees on the safety of its investment, according to Li Daokui, an academic member of China’s central bank monetary policy committee, and Yu Yongding, a former member of that committee." Obviously, Europe will promise the latter. As for the former it could be a tad problematic because as observed previously Brazil has voiced against rescuing Europe in the form of non-IMF participation. But there are more conditions: "It is in China’s long-term and intrinsic interest to help Europe because they are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people,” said Professor Li. “The last thing China wants is to throw away the country’s wealth and be seen as just a source of dumb money.” Alas, that is precisely how the entire world sees China. As for the final condition: "He added that Beijing might also ask European leaders to refrain from criticising China’s currency policy, a frequent source of tension with trade partners." And this is how you declare political check mate and shut up all voices that threaten to protest against mercantilist policies. And since it is only a matter of time before China will have to rescue the US, we hope Senate enjoys the time remaining in which it can debate whether or not China manipulates the CNY. That time is about to end.
Klaus Regling, head of the EFSF, was due to arrive in Beijing late on Thursday for discussions with senior Chinese leaders on whether and how much China might contribute. Nicolas Sarkozy, the French president, telephoned his Chinese counterpart Hu Jintao a few hours
after the summit ended to discuss the rescue plan but there was no immediate announcement on any Chinese involvement.European leaders agreed that the EFSF would explore two plans to increase its remaining firepower from about €250bn to €1,000bn. One would be to offer investors insurance on selected government debt while the other would create a special fund in which the International Monetary Fund or countries such as China could invest.
With $3,200bn in foreign exchange reserves, roughly a quarter of which are believed to be held in euros, China could be willing to contribute between $50bn and $100bn from the reserves to the EFSF or a new fund set up under its auspices in collaboration with the IMF, according to one person familiar with the thinking of the Chinese leadership.
“If conditions are right then something a bit above $100bn is not inconceivable,” this person said.
And here is how China gets one step closer to internationalizing its currency:
One condition China might ask for is that its contribution be at least partly denominated in renminbi, which would protect its investment against currency fluctuations. China would buy euro-denominated bonds but repayments would compensate for any changes in the value of the renminbi, which has appreciated nearly 20 per cent against the euro in the past three years.
Needless to say, Europe is not too happy with the economic give for political take...
Reflecting the unease in Europe, the head of Germany’s industry association, said he feared Chinese help could “come at a political cost”. Hans-Peter Keitel told the FT: “Asking a non-eurozone nation to help the euro would the the other nation the power to decide the fate of the single currency.”
This is spot on, and at this point, Europe has absolutely no trump cards left. It is entirely at the mercy of China. Or so the market thinks.
What is ironic is that when the next European bail out has to happen, and China is indeed seen as an actual source of dumb money, political tensions will finally shift over from the developed world to "surplus positive" one:
"Any mis-steps in helping Europe could cause problems with domestic public opinion – the Chinese people will watch very carefully what their own government does,” Prof Yu said. “European leaders also must have a clear plan of what to do and they must show China they have the political will as well as the support of their own people; if we see protests and chaos all the time, then China won’t have confidence in Europe’s political ability.”
And so China enters the wacky and wonderful world in which Europe will promise the moon and the stars with the only backstop strategy that one of hope, more hope and nothing else.
We are confident this will all end the way good money chasing after bad always does. But for now, the surge continues.
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The new landlord cometh....
I think that China will be bailing herself out pretty soon. With the rest of the world falling down around them, who will buy those cheap exports? The U.S? Greece? Spain?
reality is a bitch, and the piper always has to be paid. When your own growth is dependent upon building ghost cities and second rate high speed rail lines, there comes a point when even your own people begin to question the value of building simply for teh sake of building.
China needs to bail out the rest of the world so it is around to bail them out in 2 years. As long as they all don't go down at the same time the game can continue
"We are have you through the balls" (Wen Jiabao, circa 2011 - Editor note: probably referring to the fact that China had all the power in the negotiation)
China must have asked for PIIGS' gold behind the door in exchange for bailout money.
.
Europe is going to say no and print.
The political costs are lower for the latter. Tell China to fuck off and close your import markets.
China is nationally operating at nearly zero profit, which is why they have to be increasingly bellicose.
Do you really expect that Greece, Italy and Spain will become hard-working, honest, and productive?
Good luck. Nothing has changed. They will take money, promise everything Chinese ask for, and default.
China has learned nothing from Iraq, Libya, Pakistan, etc., As soon as China usefulness is gone (work hard for nothing), China will be treated no better than Saddam or Qaddafi.
LOL. Good luck with that.
Yep, they probably said that with this gold we will give it back once our investment is paid back in full. Everyone is getting pulled in to this impossible scenario. There is no way that Greece can pay back any of this, eventually they will default. As the article said, all this is doing is throughing good money after bad.
You should really educate yourself more, about how much China's export is imports from other Eastern Asian partners, such as Japan, S. Korea, Mongolia, HK, and Taiwan!
When China exports decline, China suffers LESS than those partners! Most of those partners importing their own parts to China, and use ONLY cheap labors in China. Just like Apple products!
Plus, 65%+ of ALL China's imports to the U.S. are by U.S. OWN big corporations. Asking who will suffer more?
Perhaps over the short term, but those corporations have no loyalty to their country of origin and play a shell game with profits. Closing off trade with China would kill it, and fancy arguments about how that would hurt multi national corporations, resulting in even more damage to the US and EU economies ignores the huge sucking sound coming out of China as those companies repatriate industries to service these economies.
Maybe you should educate us on how China can have a viable economy with no outside customers. Your argument is globalization is irreversible. Just watch.
Fucking shit. Something isn't right.
Agreed. What about the source of "dumb money" from the USSA?
If China owns EuroLand, we're frocked.
China simply can't be the perpetual "dumb money" source. As they said themselves, their people won't stand for it.
China is one of the most xenophobic countries the world has ever seen. How the hell is their government going to explain to legions of rural farmers, living in essentially Third World conditions, that they need to bail out Greek pensioners? The press can be stifled, but never completely silenced.
As soon as the PIIGS fail to honor their bailout deals, Chinese mistrust of foreigners and the government's fear of a peasant revolt will put an end to any hope of China as the go-to bailout country.
"China is one of the most xenophobic countries the world has ever seen. "
LOL. All I can say is that you know NOTHING about China!!
China has to be xenophobic you troll, with 292 different languages, you have to have a "barbarian" boogey man to hold all those different people together in that crap hole of an internment camp you claim is one country. That's why you booted out Google, you can't stand the truth.
Now run along and make those sneakers, your 16 hour shift is about to start.
They don't explain shit to their farmers man. They TELL them. Once. And then it gets done.
1. Farmers are self sufficient, the equivalent of homesteaders.
2. Most of the press outlets are government run, so there's no need to stifle press.
3. Another day, another China expert. Why don't you go on a talk show circuit?
Anybody who's opened a history book should be able to see that China's mistrust of foreigners is well founded.
>Portuguese land in China, leave almost empty handed, but steal some local children to sell as slaves
>British land in China, start selling opium
Hmm...
China may be already bailing itself out. That is the problem with closed books, we have no idea. They can print as much as they want and claim anything they wish.
Unfortunately, in Europe's despiration, they will accept anything....even sell their soul (or most likely property).
doubtful...Germany holds cards, China really doesn't. Maybe over the PIIGS but they aren't going to extract any concessions from the krauts. Germany will VETO anything which materially hurts THEIR mercantilist and protectionist economy. Bank on that.
Immagine Chink owned tolls on French and German roads, bet they would like a nice port or two as well, Hamburg would be a great trophy aquisition.
How about some French Nuke tech? no they have that already dont they.
Point is thereis lots of stuff in Europe that they would take equity in given half a chance. Printing will be easier than taking the shaft in the polls by selling out to Chineese interests. In the end they will print.
They could demand Airbus start manufacturing and R&D in China. Plentiful visas and college admissions for scions of ruling class. Weapons tech. Middle East intelligence. Still some industrial tech they havn't stolen the latest version of. Meanwhile, Euros keep mouth shut about China human rights and China generated pollution affecting whole planet. Assistance in continuing Taiwan isolation, other UN votes. More China rep on IMF, World Bank. Increased China imports.
Pretty sure a good chunk of that pollution was simply outsourced from western countries. If not China, then Europe or some other country. Also, Europeans preaching human rights? The same Europe that spawned Stalin and Hitler? The same Europe, home of NATO that's playing world police and bombing Libya? Those "independent" rebels were sure quick to establish a new central bank.
China should probably increase wages near the coast even more and accelerate the process in which Chinese export companies move inland. Perhaps these companies should also move to countries like Vietnam, Cambodia and Laos?
China is a country which in theory can produce almost everything they need except raw material domestically. Why not cut imports as regards things they can produce domestically rather than bother about exports of cheap junk? If China did that I think their economy could grow by 20 % per year rather than by 10 % per year. 20 % is not impossible. The South Korean economy grew in that rate for a few years.
Furthermore, the Chinese leadership would be less vulnerable to major uprisings if people actually could see that they made more money and improved their living standard. My impression is that the Chinese leaders are somewhat stupid when they are so anxious about being able to export cheap junk which requires riot prone cheap slave labour. People generally prefer democracy and freedom to dictatorship. In the long run, I suppose that a non-elected government needs more growth and more prosperity than democratic countries in order not to be toppled. But non-elected rulers seldom seem to realize the need for prosperity until it is too late. Perhaps that is due to the fact that the leaders don´t feel the pressure to improve people´s living standard since they can not lose any elections?
They are now the largest car market. 30 years ago, lucky to get a bike so the standard of living is increasing pretty fast. Couple Chinese tell me house prices are almost the same as US in many areas. Actual income must be a lot higher than reported for a large part of the population because I don't see how that is possible considering they are supposed to have per capita income $3,000/year and have to put down huge down payment.
Reality is a bitch, Chinese bailouts are bottom up bailouts for the most part. Building ghost cities is straight out of Keynes book. Bailing out bankers is straight out of the red shields book. Burn the books, fuck the system, it's all bullshit.
I can't remember the last time I ever had such a leaden feeling of disgust in my stomach. Anybody giddily celebrating this obscene equity orgy cleary does not comprehend the magnitude of what is unfolding in front of our eyes today, and how grim the future has just become. I'm going to throw up now.
The Slave Masters are at work - time to go all in -
The banking industry is like a body having spasms after the brain is dead.
you take shit too seriously.
As a sign of good faith, shipment of a new Freedom Statue is on its way to Shanghai.
Mr. Jiabao also received a free lifetime golden membership to Berloscuni's Bunga Bunga club.
ha ha ha.. the junks are simply worthless... find other stupids for the sell-out!
The new landlord giveth and the new landlord is smart enough to be in a position to take it away...
Right. You'll pay up and shut up.
China is dumb to have anything to do with this s**t. They hold the strongest hand at the poker table and are yet look like they're going to fold, while Europe and the U.S. hold a pair of deuces and king high, respectively.
China would be wise to demand physical Gold as collateral or swap FX reserves for bullion. That would be their strongest move possible and demonstrate to the EU that they are serious about not being the source of 'dumb money.' Indeed the EU would be the dumb ones to exchange bullion for paper.
They will, and then the terms of WWIII will be discussed. Not in public of course.
As reasonable as it sounds, that would basically be a declaration of war.
That declaration would originate from the EU not China. China is the one bailing out the EU. The EU as condition to recieve China's funds must dance to the tune they play. The EU (and US) have the economic weak hand. The US amassed all its Gold from the world not from being holding a weak hand but a strong one. China will do the same.
Another solution is that the EU prescribes that all imports of oil must be paid in euro rather than USD. Then the EU can print all the money they need. Of course, that would take less printing in the US, and the US would probably not like that.
If the west want to topple the Chinese ruling party, I think that it would be easier to see to that underpaid slave labour riot. The Chinese leaders seem to be folly enough to think that it is so important to be able to export cheap junk to the west. Therefore, it is important to see to that wages don´t rise to fast. But why not use all the money they got in order to build factories that can produce more goods for their consumers and produce these goods efficiently enough so that workers can get wages that won´t make them riot? Remember how Henry Ford in 1913/14 more than doubled his workers pay by increasing their pay-cheque to 5 dollars a day. In 1914, a Ford model T sold for $500. 100 days of work = a new Model T. And that was almost 100 years ago. Perhaps some of the investments could be accomplished by buying equipment in Europe and the US? That would create some growth in the west too. To me, that seems as a better solution than lending money to European politicians, countries and banks that they can´t control but are controlled by others than themselves. If they buy factory equipment and tooling instead of lending Europe money, they can be sure that they get something in return.
They are coordinating their margin hikes, so you can bet all parties know the future value of that bullion. How likely is it anyone is going to let go of their gold? Not going to happen.
Agreed. Unless of course if China were to traded their 3 trillion dollar FX holdings for the physical transfer of gold... I somehow doubt that would happen.
Until we see the details of a deal we can't make that assesment. If I had the strongest hand at the table, I'd like you to think I was about to fold, too.
Don't worry, just another RICroll.
http://www.youtube.com/watch?v=oHg5SJYRHA0
Screw them!
Chop Suey Bitchez
the world's worst investor - witness bx
Dumb is as dumb does.
My dad always said the Chinese would own us
Things you own, end up owning you.
the recent rally in EUR/USD and stocks is VERY eerie. Cannot omit a pre-tsunami feeling.
China is going to need all its money when its property market takes a nose dive.
Buy PHYSICAL gold and silver.
http://gainesvillecoins.com
So China is going to buy bonds that can take 50-100% haircuts in the future? Yeah that's smart money.
It's ok. They'll buy protection. Just in case... something, something.
A small price to pay for a provocation they can further leverage.
Bankrolling the US and Europe = dumb, dumb, DUMB.
China trying to buy its economy . Dam if they do , dam if they dont.
The real dumb money is the sheep still walking into a Dollar stores and Wallmarts buying useless Dumb cheep china shit and trinkets,. Dont worry china there are still of northamarica dumbies buying your cheep crapy throw away junk!
Last weekend I went shopping for a new electric hand mixer. I went to four different stores trying to find one that WASN'T made in China. Never did, everything is made in China.
Settled for a whisk and a bowl I already had....probably made in China.
it's a pretty good scam. you buy cheap shit from china. it breaks down in two months. you have to buy it again. personally, i try not to buy anything made in china. but it's getting more and more difficult.
duh No kidding ... I bet you would have never paid the made in U S price .
I have retail stores that had 97 % north america made product threw 1980-to late 90s .. then it was soo much cheeper to contaner your product from over China. ( free trade )
The U S made product that is sold in my stores is 40 times the price of the China counter product and 50 times better quality then the china product.. But the customer will allways go for the lower priced tag.
That is the problem ... every one waves a huge Buy U S flag but when it comes down to it no one want to pay for it.
China will have a realy hard landing .. north america has bought thems selves out of work looking for the never ending sale.
More unemployed people would buy us products if they had any us money to spend - duh
dumb money...funny. Are Rockerfeller Center and Spyglass golf course for sale again?
"And since it is only a matter of time before China will have to rescue the US..."
I don't see how it could ever come to that. When in trouble, unlike the eurozone, the US can and will print. Eventually, this will of course destroy the dollar, but once that happens, there will be nothing China can do to help even if they should want to.
At that point, the US will do the only thing the US knows how to do: Start a war with China based on lies.
Look how well that's worked out so far...
The terms of the war will be agreed to somewhat ahead of time but will still get messy. Both countries need to cull the herd. Russians will want in on the "game" too. Far too many people on this planet and the growth model must continue.
Too many useless property owners. Not enough property.
+7 billion
Don't get fooled: wars in countries like Afghanistan or Iraq take 10-20 years because it's profitable for the corporate interests.
If the "survival" of those corporations is threatened, we can win a war--even against China--very quickly.
Just pray that those corporations don't find a path of greater profitability on the Chinese side, or we'll lose.
To paraphrase the Network movie: the world isn't about countries: it's about companies and currency.
You and I are resources to be used. The sugar-coating and blanketing of our actual role doesn't change it one bit.
A profitability which will be measured in gold ounces. Gee, I wonder which side has more?
Afghanistan is where nations go to die.
All by design folks nothing to see here......all the countries need just a little more time before they blow the whole financial system up and China just wants to make sure that when the one world currency comes out they dont get shortchanged.
Tyler, this is how that headline will be edited for MSM consumption:
"China xxxx xxx xxxxxxxxxx xxxxx xxxxx xx Will Bail Out Europe"
And the DOW will rally another 500 points as the dollar takes a nose dive and gas and food prices explode for the 400k newly unemployed in Amerika every week.
In other words: It's like, totally bullish.
Funny you bring that up. The algos read the headlines that way, too..
Euros feast on a Chinese bailout.. and 45 minutes later they will be hungry for another round.
Oh the irony..
Oh that's just wrong.... :)
They don't have a choice. They will bail out Europe and they will bail out the U.S. The game will role on.
For those who haven't seen it:
TV Ad: United States owes Chinahttp://www.youtube.com/watch?v=JlkLhVo3PbY
yeah, we owe you a stack of paper.
I'm jonesing bad for a dose of Bonzai -
Japan will be furious if China tries to "steal" it's place as THE source of DUMB money. Japan is to Europonzi what German "investors" were to subprime.
Japan is busy right now.
"As for the latter, it could be more problematic because as observed previously Brazil has voiced against rescuing Europe in the form of non-IMF participation."
no doubt Brazil will shut up real quick on any opposition once China(their lifeblood) is involved.
For all we know, the criminals in China may well want a global authority such as the IMF to expand in order to save the world, with the expansion, of course, placing them into a controlling role on par with the US.
I see the criminals in Brazil as the avenue to give this meme legs.
Beautifully played, China-
Who needs thermonuclear war?
Debt is much more powerful.
Next.
Sino-euro. Should be as stable as all the other Sinos in the last year!
to those who bought CDS contracts - HA HA HA HA !!!
you got tricked fair and square. now go f yourselves.
"Tricked"
Fucking Love It!
It's just plain downright fucking Fraudulent! And all wrapped in the guise of fairness, process, legal contractual obligations...
Fucking sell your soul to the devil may as well done.