China

Some ominous moves out of the Hang Send and the Shanghai Composite overnight which may have everything to do with the latest piece from Caijing, which notes that according to banking sources September lending by China's four largest banks was the lowest so far this year at a paltry 110 billion yuan (from 166 billion in August), while the Bank of China disbursed a miserly 3 billion down from 72.2 billion in August.

Just crossing the DJ newsires: US Commerce Considers Imposing Import Duties On China Pipe

Will update as we get more

"In November 2008, Chinese banks said they would no longer play by our rules. Top tier banks (Bank of China and Industrial and Commercial Bank of China) reneged on derivatives contracts. They failed to come up with billions in collateral on dollar/yen FX trades, which were out of the money after the yen’s October appreciation. This should have been headline news in every financial newspaper, but it wasn’t." - Janet Tavakoli

Following up from my prior post Saturday morning- China accuses Washington of violating the World Trade Organization rules by imposing steep tire tariffs. Demands talks.

Gold, and the companies that produce it, have enjoyed a brisk runup of late, as the metal mounts yet another assault on the beckoning, symbolic $1,000 level. How much of this can be traced to what China has done, is doing, or may yet do? We don’t know, but we suspect it’s not entirely coincidental. All rumor and speculation aside, as China clearly turns more and more bullish on gold, so will everyone else.

Interview with Zhu Min, Bank of China Vice President:

Q. Is overconfidence the biggest risk to the recovery?

A. It's not only overconfidence, it's overmyopic: Wall Street feels the crisis never happened. It seems to me the financial crisis is not over yet, but it has stabilized from a cliff drop. That's one thing. The real economic crisis is just starting.

For the third time, gold soared past the $1,000 level, causing the market to eye the precious metal's record of $1,033.90 reached in March 2008. While Citigroup is predicting a $2,000 scenario by next year due to continuing dollar weakness, a number of bullish factors, both near and long term, have converged to boost gold.

"Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose." - Lou Jiwei, Head Of China Sovereign Wealth Fund

Peter Orszag justifies an insane cumulative budget deficit by 2019 by underscoring "the dire fiscal situation that was inherited." And while the $9 trillion is likely a very gentle underestimation of what will happen if the Bernanke policies kick in and trillion is really quadrillion, it is a sad state of affairs when every administration going forward will simply blame the previous one for its unprecedented fiscal and monetary blunders. Oh and here is an item for future revisionists: by 2019, interest expense will account for more than 80% of the projected deficit of $917 billion. We are now officially a vassal state of China.

In essence what is going on, is that the brief pick up in German and US GDPs on the trade balance side, are being facilitated exclusively by the credit bubble in China. By dint of China being able to recognize GDP at production instead of expenditures (like normal Western countries), China is now trying to back fill into the trade void left from the collapse of Western economies by promoting the same kind of irresponsible lending (and borrowing) that lead the US economy to its current sorry state. This will eventually end very, very badly.

The Japan External Trade Organization has released its latest trade figures, which paint a grim picture for foreign trade by the world's second largest economy. Year to date imports have dropped by 31.9% to $252.9 billion, while exports have plunged 36.8% to $252.2 billion. Most stunning is the disclosure on trade flows with the United States: exports to the US have dropped by 43.5% to $40.5 billion, resulting in Japan's largest positive trade balance. Another development is that China has now replaced USA as Japan's primary trade destination. However that is not saying much: trade with China has declined for the 8th consecutive month. The last fact is among the primary reasons why the Chinese Central Bank has blown a credit bubble of epic proportions in order to mitigate the unprecedented collapse in Chinese trade with its traditional trade partners.

"The worst outcome for China would be one that includes ever-rising inflation pressures, as money and
credit flows augmented by “hot money” capital inflows push the inflation rate up to a level that threatens China’s stability. Since that would be most likely under a scenario in which industrial economies are not recovering in the second half of the year, we could see a situation in which disappointment over the recovery in the big three economies coincides with disappointment about the sustainability of China’s planned 8 percent growth path. That outcome would coincide with a likely bursting of the stock and property market bubbles that are inflating in China now on the hopes that a second-half recovery will validate China’s goal of sustained 8 percent growth in 2009."

Financial commentators are obsessively debating whether the recent rise in the Chinese stock market means there’s a bubble — and if so, when it’s going to burst. My take? Who cares! What happens to the broader Chinese economy is what we should really be watching. It will have a far-reaching impact on the rest of the world — much more far-reaching than a decline in stocks.

Today’s avalanche of China data suggests that the economic recovery is solid, but that the momentum ebbed in July. What was a V-shaped recovery now seems to be experiencing a little gravitational pull. The slightly weaker-than-expected data means an even smaller chance of an imminent change in macro policy and lends weight to those who argue that it is too early to tighten. Having seen the data early, Premier Wen Jiabao restated at the weekend that the goal was to maintain a proactive fiscal policy and a moderately loose monetary policy.

Insightful commentary from Warren Pollock on how China is quietly getting the hell out of dodge.