 Chinese
Dragon Rattles Commodities, Gold, Brazil
Gary Dorsch
Editor Global Money Trends magazine
Jan 25, 2010
Although the US remains the world's #1
economy it's increasingly feeling the heat of a Chinese dragon,
breathing down its neck. At the beginning of the twenty-first
century, the US-economy was eight-times larger than China's -
a decade later the figure was down to four-times. China's $4.9-trillion
economy has already passed Germany's to become the world's third
largest, and is on course to overtake #2 Japan this year.
China has emerged to become the world's
largest exporter, shipping $1.2-trillion of goods abroad last
year, and overtaking Germany, which held the title of world's
biggest exporter since 2002. Factories employing low-paid workers
to assemble iPods, computers, shoes, and toys are leading the
boom. China has also passed the US as the world's largest auto
market and producer. Two decades ago, a car industry barely existed
in China.Steel output for 2009 is estimated at 565-million tons,
up 13% year on year. Excluding China, global steel output fell
23% from the previous year.
While American and European banks were
under siege from the global financial crisis, Chinese banks emerged
from the turmoil relatively unscathed. Chinese banks were in
sound shape, allowing the government's 4-trillion yuan stimulus
plans to be very effective. Because Chinese banks weren't overleveraged,
they were able to move quickly to inject liquidity into the economy,
lending an unprecedented 9.6-trillion yuan ($1.4-trillion) last
year, equaling about 30% of the economy's annual output.
Beijing is now in a stronger position
to build new allies, after a China-ASEAN free trade agreement
came into effect on January 1st, creating the world's third-largest
free trade bloc, and undermining US influence in South East Asia.
The combined population of the free trade bloc is 1.9-billion
people with a combined GDP of $6-trillion. Already, the ASEAN
countries are providing the raw materials and manufacturing parts
for assembly hubs operating in China. According to the Asian
Development Bank, about 60% of China-ASEAN made goods end up
in European, Japanese, and US markets.
Japan and South Korea are more reliant
on trade and investment with China, - now their largest trading
partner. Shanghai and Schenzen has overtaken Tokyo as the world's
second-largest stock market by value. Four Chinese companies
are among the 10 biggest by market value. Toyota Motor is the
top-ranked Japanese company, at #25, worth about one third the
capitalization of Petro-China, the world's #1 ranked company.
Last year, the big surprise was the degree
to which China's economy was able to rebound from the throes
of the "Great Recession." Its industrial production
was up 18.5% from a year ago, and imports rebounded to an all-time
high of $112-billion in December, reflecting massive stockpiling
of key commodities. Iron-ore imports surged 42% from a year earlier,
imports of copper up 63%, and aluminum up 164-percent. China
also imported a record 5-million barrels per day of crude oil
in December, and has lined up more crude from Kuwait, Saudi Arabia,
and Iraq for this year.
However, for every action there is usually
a reaction popping-up somewhere. In China's case, its massive
buying spree for key commodities was also joined by speculators,
hopping on the bandwagon, and fueling a rapid escalation of prices
since July. This is caused a dilemma for the People's Bank of
China, (PBoC), which finds itself far behind the "inflation
curve." The Dow Jones Commodity Index, measured in Chinese
yuan, has made a stunning U-turn, rebounding sharply from an
annualized rate of decline of -52% in July 2009, to positive
inflation rate of +23% today. In turn, the Chinese CPI was +1.9%
higher in December than a year earlier,driven by a 5% rise in
food prices.
PBoC economists are worried that the
consumer price deflation experienced through most of 2009, is
quickly flipping to escalating inflation in 2010. If the PBoC
doesn't tighten its monetary policy, consumer price inflation
could easily accelerate at a +6% clip in 2010. With food and
energy accounting for half of China's consumer price basket,
soaring commodity prices are a ticking time bomb. Social unrest
is the main reason why the Chinese ruling authorities worry about
inflation.
So it's was of great interest to commodity
traders, on Jan 12th when the PBOC, one of the world's most influential
central banks, took a meaningful step to tighten its money spigots
and shakeout speculators. After learning that China's exports
and imports had recovered to their pre-crisis levels, the PBoC
raised the percentage of deposits that local banks must set aside
as reserves by 50-basis points to 16-percent. Adjusting bank
reserve ratios is the PBoC's primary tool for fine-tuning its
monetary policy. The higher the reserve requirement, - the less
capital a bank has available for lending. With less yuan to lend,
the growth of the M2 money supply should contract.
To read the rest of this article, please
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###
Jan 22, 2010
Gary Dorsch
SirChartsAlot
email: editor@sirchartsalot.com
website: www.sirchartsalot.com
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Mr Dorsch worked on the trading floor of the Chicago Mercantile Exchange for nine years as the chief Financial Futures Analyst for three clearing firms, Oppenheimer Rouse Futures Inc, GH Miller and Company, and a commodity fund at the LNS Financial Group. As a transactional broker for Charles Schwab's Global Investment Services department, Mr Dorsch handled thousands of customer trades in 45 stock exchanges around the world, including Australia, Canada, Japan, Hong Kong, the Euro zone, London, Toronto, South Africa, Mexico, and New Zealand, and Canadian oil trusts, ADRs and Exchange Traded Funds.
He wrote a weekly newsletter from 2000 thru September 2005 called,"Foreign Currency Trends" for Charles Schwab's Global Investment department, featuring inter-market technical analysis, to understand the dynamic inter relationships between the foreign exchange, global bond and stock markets, and key industrial commodities.
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