Meanwhile, China Moves From Currency Wars To Trade Wars

Tyler Durden's picture

As markets replay the same identical reaction to the same identical Greek news that we saw back on July 21, 2011 (and we all know where that went), something else entirely and more troubling is going on behind the scenes. Because as the world was transfixed on regurgitated news out of Greece, which will without a shadow of a doubt end up with a far worse 2020 debt/GDP scenario than the IMF's downside case per the sustainability report (first posted in its entirety here on Zero Hedge last night, and which assumes just a 1% decline in Greek 2013 GDP), China just escalated currency wars into outright trade wars. Because as China Daily reports, "Chinese exports are set to get a tax boost." Translated: even as China pushes the CNY higher in infinitesimal and irrelevant increments to appease US Congress, it has just taken out the trade stimulus bazooka. Why? "Export tax rebates will be increased this year in response to an export decline triggered by the European debt crisis. The move, which Commerce Ministry officials said will be implemented when the time is appropriate, will be the first increase since 2009." Still think Europe is fixed? China's answer: nope.


"We are studying the launch of relevant measures" to stabilize export growth, said Zhong Shan, deputy minister of commerce, at the 2012 China Imports and Exports Work Conference held in Nanchang in East China's Jiangxi province on Monday.


"Uncertainty and instability in the global economic scene are growing - there are also some domestic factors," Zhong said.


According to the General Administration of Customs, exports declined 0.5 percent over the year to January, the first fall in more than two years. Officials from the ministry have stated that exports face challenging times.


China will, "at the appropriate time, increase tax rebates on specific categories of goods, including labor-intensive products", Zhong said.

The last time China proceeded with this measure: when the world was imploding back in 2009.

From 2008 to 2009 when the financial crisis hit, China raised export tax rebates seven times on a wide range of goods.


Tax rebate rates in general were increased to 13.5 percent in 2009 from 9.8 percent before the crisis.


"The situation is getting more severe with a double-digit decline in export growth expected in the first quarter," said Da Jiaxiang, deputy director of the department of commerce in East China's Jiangsu province, one of the nation's top textile exporters.


"We are expecting preferential policies on tax rebates."

And more:

In South China's Guangdong province, a key export region, companies said they were experiencing a difficult time.


As an exporter of Christmas presents, Guangzhou Kingway Gifts felt the consequences of the sluggish global economy as it suffered a 30 percent fall in sales last year.


"Higher export tax rebate rates would help us get through the difficult patch and prevent the hardest-hit from going bankrupt," said Shen Hui, the company's general manager.


Currency policies will also be stabilized, Zhong said, to help companies cope with currency fluctuations.

Our advice to those who have already taken out the Dow 13K hats: enjoy it while it lasts. Because between China promoting its exports and trade balance (which explicitly means others' trade balances are set to be impaired), and gasoline at all time highs for this time of the year, very soon the non-Greece headline driven reality is about to come home to roost.

Finally, and we have shown this before, the only reason why markets have been on a diagonal tear in the past 6 months, is the following simple chart.

Unfortunately, as WTI has demonstrated clearly, the excess liquidity has once again spilled out of stocks and has entered broad commodities. If there is any other faster way to kill a risk rally than soaring energy prices, we have yet to find it.

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GeneMarchbanks's picture

Yep. That sounds about right...

While the west is mired in bureaucracy, games of kick-the-can and sad rhetoric the Chinese just keep dishing out swift moves that fly under the radar.

Now back to those oh-so-relevant Bloomberg opinion pieces...

Thomas's picture

Comment counts low because nobody could take anymore Greek stories so they are over at Yahoo Finance reading up on how to roll over their $200 401K's into a Roth.

Shocker's picture

When will it occur to people that things are not right. We have Greece, All the Iran News, China, US stories all the time. Its just a big cluster mess, and nothing is really addressing any problems.

What happens when cheap China products stop coming to US? We have shut most of our manufacturing so, that isn't an option.

Just understand whats going on.

GetZeeGold's picture


I came here just because I was sick of hearing about Greece.


Thank goodness China is conducting trade's the most positive news of the day.'s the /sarc.



Global Hunter's picture

I'm with you GetZeeGold, besides the catering industry and the banks who get bailed out I can't stand to see any more from comments and I especially can't stand any more staged photographs of that donkey Legarde with Meatloaf (who a poster yesterday referred to as Louis Anderson)-self important inbred twats...all of them!

spiral_eyes's picture

 This isn’t really about Greece at all. It’s about the fundamentally perverse nature of the global economic system that cannot withstand a default or liquidation without bringing down the entire system. Even if China and Japan threw all their FX reserves into bailing out the Eurozone this would merely postpone the systemic breakdown. 

kridkrid's picture

That is exactly right... and it is exactly that simple.  The creation of money by issuing debt (money = debt in our monetary system) with interest tied to the debt, REQUIRES aggregate debt to constantly expand.  Eventually the cost of maintaining debt will bury the productive economy.  What goes up, must come down.  Symptoms vs. Cause.  The subprime meltdown wasn't a cause... it was a symptom.  Greece isn't a cause, it's a symptom.  

Manthong's picture

What's for lunch?

How about some tapas for an appetizer.. pinchito's with a little Tio Pepe?  .. maybe some Mateus? 

Followed by a nice dish of spaghetti with a glass of Chianti.

For dessert.. apple pie and the girl next door.

Schmuck Raker's picture

"What happens when cheap China products stop coming to US? We have shut most of our manufacturing so, that isn't an option."

Oh, I think you'll see the flow of Chinese products into the US stop.

It has little to do with US manufacturing.

In the coming months, years, and decades(?) people will learn to do without. Not by choice, but of nescessity.

No money, no buy.

Troll Magnet's picture

I really hope this happens.  One of the worst things to ever have happened to us stupid lazy Americans is the dollar's global reserve status.  It gave us purchasing power without earning it.  And it made too many of us WAY TOO dependent on our politicians and government.  A lot of (illegal) immigrants come to this country ready to bust their ass doing work that too many spoiled Americans shun because we're too goddamned dependent on our government to cut us a check.  Fuck that shit.  It's time for Americans to get their ass off the couch and labor.  Because they'll only wake up when they start paying taxes.  

Esculent 69's picture

SCHMUCK RACKER- "In the coming months and years and decades(?) people wil learn to do without. Not by choice but of necessity. No money no buy."

Which is by design. It's called nudging the sheeple into the coral/slaughter pen so you can control them when they don't like the way you voted.  This has been a attack on freedom and liberty since the creation of the federal reserve to accomplish the goals of the collectivist/socialist/progressive/communists who despise capitalism because capitalism is what give you economic freedom.  Ask yourselves this. why in the world would congress take away the seperation of banks and investment firms by repealing glass-steagal? Memebers of congress who do the hokie pokie from government to lobbying to banks to GSE's to Federal Reserve to do away with laws that give them an advantage they couldn't get in the private market or capitalist system. they have to cheat and if you complain the give you the middle finger while saying before congress, "I don't know what happened to the $1.6 Billion your honor.  I swear." says Jon Corzine former Democrat Senator, Governor, and drumroll please, Goldman Sachs Alumni. This has alway been about the collectivism vs the individual liberty.  Capitalism is what gives you economic liberty over the pathetic losers like Obama and the entire democrat party and over half of the repuclican party members of congress.  From Socialized medicine to cap and trade to dodd/frank or glass/steagal.  They are controls for you and not government.  Please understand this if anything.

Think of it this way.  Death by $700 trillion cuts. 

SoNH80's picture

I think that most around here at this point wish the Greek people well, but are totally baffled by the Mt. Olympus-sized wave of bullshit washing over the whole sorry "bailout" affair.  Call me when something is actually done to tackle the problem (like, say, a voluntary Greek re-adoption of the Drachma).

thewhitelion's picture

Yeah.  When mine gets back up to $200 that's what I'll do.

idea_hamster's picture

Is it just me, or is Communist China the epitome of the true Keynesian governance?  After all, they run a surplus (OK, a punishingly monster surplus) during most periods.  Then when there is an economic downturn, they loosen the purse-strings.

I suspect that Pettis would say that it's not that simple, since their surplus is held in FX reserves, meaning that they have monitized it already, making it unavailable for direct domestic intervention (bank bail-outs, or otherwise).

But really, aside from how the government holds its surplus, isn't this what Keynes wanted all along?

falak pema's picture

We are in the ironic situation in the West to have in front of us the perfect example where our OWN crazy momentum in first world is leading us : to a China construct...!

Its the model the Oligarchy really craves for! One party system, one Oligarchy controlled global market economy.

Oh, heaven on earth!!!

Only problem, the jobs been taken by that OTHER OLigarchy, the chinese one, not the western one. They got there first, like Amundsen to South Pole...Sheeeeeeet...We will all feel like Shackleton and Scott...beaten to the flag of monopoly 18th hole.

Now will he beat us to North Pole too?? Hells Bells...not that, not that! What will we have left? The North West passage??

But he got there first also...Now we are truly grand slammed and dunked by these jerks. Time to pull the carpet before this dream team of monopoly, one party juggernaut, really gets going...Oh why, oh why ...did we lose China back then in 1949...on why, oh why...(the aulde school of DC Oligarchs cry).

 Roald Amundsen - Wikipedia, the free encyclopedia

Global Hunter's picture

sometimes your posts go over my head but you hit the nail on the head with that one.  I'll further your South Pole Explorer metaphor some more, the beach holiday mules that Scott took to Antarctica to haul supplies have been replaced with our modern day donkeys called printing presses (or HFTs, bankers, politicians etc.).

GeneMarchbanks's picture

I've always thought that the phrase "multi-national" was terribly misleading. I wish people would simply adopt a more accurate phrase: "trans-national" which incapsulates the situation a little better. What is the Corporation? What are its goals? Not easy questions...

So anyway, the corporate 'model' functions much better when you have a huge underclass to exploit, that much is clear. Manufacturing ain't coming back. These entities are finding a new home now and a regime much more suited to cater to their 'needs'. What's left for the 'developed' West? Nothing. Bullshit concepts like QE and warmongering.

falak pema's picture

never say never... even in Athens! Old lamps for new! the circle of life is always reborn.

No, what will change is the US corporate paradigm, legacy of hundred year construct; the hyperconsumer age comes to an end, as population/resource constraints impose new ways of human growth. 'Transnationals' I buy, its closer to the truth, since Reaganomics days! Globalisation changed that, undoubtedly. There is NO simper fidelis to home country. 

GeneMarchbanks's picture

That's because there is no home, or to be accurate, home is Profit-ville.

As far as change goes, I'm not so sure. Hyperconsumerism on it's way out? I see the opposite when I travel, it seems it is being democratized as if it is somehow a right of mankind. Mankind = Creatures and Creators but no longer are we creating in this world but the virtual one -- that is to say: not at all -- yet we remain in this world... for now.

Ghordius's picture

trans-national is really a good description - an entity not bound to any nation

some thoughts on this: a corporation is a legal entity that has some additional legal rights vs. the individual, mostly in the field of the limitations of liabilities (upps! no sorry, I'm a corp)

originally, they were formed by the special grant of the sovereign. now they can't vote yet, but in the US they do set policy, either by funding of campaigns or by lobbying. In any case, they trump the individual, particularly when they reach a "systemic relevance".

which brings me to just another type of entity that has special grants by the sovereign beside the corporations:

banks, special corporations with the additional right of creating credit (another sovereign right). Well, who is the sovereign? In republics, it's you.

everytime some smart hedgie or bankster is allowed to hyperleverage and play, it's with your money. let it marinate...

Cathartes Aura's picture

I like the "trans-" national description, though I often tend towards "faux-" in my thoughts, particularly when watching such gods as Evelyn de Rothschild talking about his "work" in China, and how he en-visions things in the future - then it just seems like those who own the place, go where they like, do whatever they want, and it's up to "us" to adapt to survive. . .

it's a big club farm and you aren't are in it.             (strikethrough newer works for me, grr)


edit: in between reading, and my post, we've all been paper-bagged - whoa Sir Evie, that's harsh!)

p.p.s. anyone else notice the unusual swarm of earthquakes in Greece /Turkey region?

SoNH80's picture

The Chinese are following the Japanese MITI (Ministry of International Trade and Industry) playbook. Technology transfer from the West, protected internal market (except for raw materials, agricultural goods, and oil, of course, no sense in keeping that stuff out), moving up the supply chain, etc. Tax gimmicks are part of the playbook, essentially an inverse tariff, we pay you to send things out. As long as the importing countries shrug and carry on buying Chinese goods, the PRC government will do whatever it can to keep the machines humming.

Zero Govt's picture

we think China as smart but it's entirely relative ..relative to just how bloody moronic Western Govts are

China rebuilt simply by its Commie Govt getting out the way of the (slaughtered) private sector and allowing it breathing room to prosper (just as the British 'light touch' did with Hong Kong and Singapore). Freedom works, Govt dictates don't

Ideas the Chinese Govt 'stimulated' the economy like some Keynsian wizard are complete nonsense. You only need look at its Govt investments, the usual shambolic ghost towns, insolvent train systems, roads to nowhere, pissing red ink green energy

meanwhile in the West Govts have taken the opposite course of getting in the way of the private sector (power un-checked knows no boundaries) and suffocating it with wealth sapping taxes, hundreds of monopolist competition-killing laws, regulations and policies. Rules do not create order, they create chaos

But here we are again with 'Trade Wars' ...Govts of East and West up to their usual bloated biggoted egos of being social and economic vandals

Govt : the best definition of anarchy (and anarchists) you'll ever find

Stuck on Zero's picture

So true.  But all those Chinese government infrastructure projects end up being useful.  Huge water projects, pollution cleanup, resource extraction, transportation systems etc.  What does our government spend it money on?  Entitlements, unions, F22s, aircraft carriers, welfare, bureaucrats, outrageous medical services.  At least the Chinese expenditures have a modicum of sanity.

SunnyDD's picture

Oh Ya.

May I book a font roll set so I can get some of de boost plzzz hahaha.


midtowng's picture

So China believes that it needs to export even more crap to the West? Talk about a one-trick pony.

xela2200's picture

Is there any other trick? Any businessman tries to sell as much as possible. It is the US that doesn't seem to be putting its money back into the business. Only the partners trying to get their money out to pay for their McMansions.

LawsofPhysics's picture

Go for it China.  How many mouths do you have to feed again?  

kridkrid's picture

Ask their oligarchs and I'm sure they'll say, "too many".  And the one-child policy has created a disproportionate number of young men in the "too many, and disposable" category.  Another step towards war... it's a dance... it won't be avoided.

LawsofPhysics's picture

Funny you should bring that up.  Just made an offer to an engineer from China.  I interviewed about 35 candidates from a pile of over 100.  The Americans were not as bright and always asked questions like; "What are my benefits" and "How much paid leave do I get".  The person from China obviously actually read the information in his interview packet, where all those details were clearly spelled out.

It is what it is, hedge accordingly.

Jay Gould Esq.'s picture

Krid, the Chinese are by no means inclined to a shooting war; war with one's largest customer and borrower is bad for business. As their Sun Tzu wrote over two millennia ago, a battle is won before it is even fought. As such, the Chinese are already victorious.

kridkrid's picture

Victorious?  One fifth of the world's population lives in about one fifth of the land mass of China.  China has 50 million young men who will not be able to find a wife thanks to years of infacide because of their one-child policy.  The GDP growth that China needs to sustain to simply support their growing population, as they try to maintain this facade in the face of plummeting global demand, is something close to 10% (good luck with that, China).  "China" hasn't won sh-t.  The top of the Chinese ponzi scheme is getting rich... but the chinese are going to be screwed, just like everyone else.  When their peasants wake up... right around the time that our sheeple wake up... their leaders and our leaders will both need a bit of a distraction.  

I agree that the war is won before it is fought... I think you have the sides wrong.  It's not China vs. the US... you and I have more in common with the average Chinese peasant than we do with the .001% who actually run the show.  We are all just pawns.

caconhma's picture

<war with one's largest customer and borrower is bad for business> Again, it is Yes and NO. America from a customer became a welfare recipient. It is different.

Most importantly, China needs from the West technology. As for markets to sell, there are Russia, Latin America Africa and entire Asia including Japan, India, etc.,



Cognitive Dissonance's picture

We have all understood that the only reason for these bailouts (both in America and overseas) is can kicking, meaning buying time in order to either delay the inevitable or to conjure up some miracles.

This can also be seen as a period of time to ready ourselves for the mother of all storm seasons. It stands to reason then that countries would do the same. On the surface this means protecting what you already own. A little reading of history will reveal the playbook.

JohnKozac's picture

Cog, what books.articles do you suggest?

What's your reading list for this situation? ..if you taught a class for example?

DaveyJones's picture

His favorites are "Where the Sidewalk Ends"  "Goodnight Mr. Moon" and "Where the Wild Things Are" 

Don Birnam's picture

If so, a sage collector -- a first edition ( 1947 ) "Goodnight Moon" in VG+ is worth $8,000. ;)

LawsofPhysics's picture

Precisely,  I think this is a big political smokescreen as we have been able to pretty much get whatever price we want for the crops we have been selling to China.  I'll let everyone know if an order is suddenly halted or held up.  The Chinese have a new-found wealth and they are definitily still spending on foodstuffs that they like or typically have not indulged in before (meat producers are also doing well).  Let's see if they re-invest the rest of their wealth in their own people or try to follow the American playbook and have the mother of all military build-ups while their people become unemployable and starve.

juangrande's picture

" food stuffs that they like or typically have not indulged in before". We are exporting heart disease, diabetes, and cancer. That'll teach 'em!

LawsofPhysics's picture

thanks for demonstrating the typical idiot response.  One thing we grow are pecans, which have a number of very healthy properties.  According to one supplier in China, these have been selling for as high as $100 per pound.  Bribes are a BIG part of doing business in the BRICs by the way.

juangrande's picture

Have you checked out how YUM brands are doing over there? Coca cola? Pepsi? Mc Donalds? But sure pecans are definitely the darling growth story!

thefedisscam's picture

Before you believe your supplier's LIE, just do a search on Chinese Taobao, on Average it is around 50 Yuan ($7-$8) for 500 gram. NOT at all more expensive than the Regular price in the U.S.!

This seller has the lowest price, Only 36 Yuan (or US$5.5 for 1.17 lb) for 500 gram.

BTW, many areas in China imported Pecon Trees, so many of those sold in China are from Chinese OWN Pecon Trees! 


LawsofPhysics's picture

Yes, then they employ people to do what the bees do for us over here already.  Yeah, that's "winning".  But you are correct, when it comes to devaluing currency and lowering standards of living for the working poor, China is #1.

SunnyDD's picture

NO# 1 hehe,

How about that, some one telling de truth.


laomei's picture

Yep, this is what I like to see... bullshit countered with hard fact.


The bee thing is also not really a problem if you are curious.  Yes, the pesticides did play somewhat of a role, but the stories about it back in 2008 are kinda bullshit.  It got cold, too many bees died and hand pollination ensures a higher yield.  Happened again recently with strawberries and other stuff.  Happened out in xinjiang too, where fertilizer isn't such a big deal.


Onto the imported pecan trees... yep, we're going a similar route.  Our family has control of several unpopulated mountains that are undeveloped.  We're turning them into farms.  2 are rather barren, but based on soil analysis it's basically perfect for imported cherry trees.  We're also doing pecans, avocados in a greenhouse along with some ruby reds.  All of these are premium import crops which means we can undercut the import prices quite easily.  It's also free, as the local government is chipping in for our trees as we are "reforesting", part of the deal is that our land is 100% ours to use.


No industry around, no pollution, crystal clear water sources and the area is apparently also gold bearing.  All starts up this summer.  Fruit trees, high quality tea, mushrooms, 2x10,000 sq m green houses... and we're raising chickens for free natural fertilizer (also eggs and meat), lambs and pigs.  Starting to look into some bee hives as well, just to make things simple.


Best of all, there are no local taxes on this, no property taxes, no usage fees, and fuck if I'm going to bother reporting any of this to uncle sam.  Family is all pitching in and is local, so no labor costs either and this is a family co-op, so all the wealth we generate enriches the entire family.  Fruit tree supply contracts alone, we're looking at around $500k a year in pure profit once that fruit starts coming.  None too shabby at all even after splitting it 5 ways.  And it means less overpriced imports from the us for everyone else.

Bill Shockley's picture

Now and again I learn something.

My political Science is strong but my economics are weak and I get to feeling poorly about my knowledge base in econ but then I read something like this  and clarity comes.

It really is never about economics, Keynes or Marx, never more complex than adding on your fingers but the political aspect brothers, that is much more complex.

Money is one thing(actually now a fiction, an illusion) but personal power over others is infinitely more complex, dark and dangerous and real.

Many just don't give a shit about others.

So the advice is as ever.

Read Dicken's a Tale of Two Cities.

And Orwell, 1984.

Both books are about economics and the political outcome of scarcity.

And get a life.


LawsofPhysics's picture

"And get a life."

Likewise, read both books several times, try the Rand series.

DaveyJones's picture

the can now has some very sharp edges, people's feet are starting to bleed.

Don Birnam's picture

The mother of all storm seasons...

A cyclonic amalgam of 1848, 1913, and July, 1914.