Exploring and keeping readers up to date with the growing economic and political ties between China and South America. Including all the good stuff: Commodities, Energy, International Finance, South-South Cooperation, Microfinance and more
China and Brazil have created a work group to study the possibility of implementation of a bilateral trade program in their respective currencies, in replacement of the North American dollar, said a source in the Central Bank of Brazil.
"The negotiations are still in an initial phase, with a work group having been created with representatives of Brazil and China, who also met during the G-20 summit, in London," explained a source.
The next step should be the visit of a Central Bank of Brazil delegation to China, "despite there being no forecast as to when it may come true," said the source.
The work group should analyze the "results to be reached through an agreement that China recently established with Argentina" - the first country in South America to benefit from trade exchanges in the same currency with the Asian giant and with whom Brazil has also been developing the same program since September 2008.
The Central Banks of China and Brazil are also going to develop a "study of the potential bilateral trade volume to analyze the possibility of an agreement."
Words of wisdom, as usual, from my man Jim Rogers.
"Protectionism is getting worse and worse. I'm terribly worried about because protectionism lead to the Great Depression... I'm worried about a lot of things. A 50% rise in 6-9 months is something to worry about. You usually have corrections after that.
BEIJING, Sept 14 (Reuters) - China's finance ministry on Monday ordered local governments to use money allotted to them under a 4 trillion yuan ($585 billion) stimulus package quickly and efficiently, or else risk losing out on future spending.
The central government could "delay or cut" further allocations of money to those provincial governments that do not use their existing stimulus funds appropriately or do not raise enough of their own funds to complete the projects, the ministry said in a statement on its website (www.mof.gov.cn).
The move aimed to "ensure that projects backed by the central government get started in time and that budgeting for them is accelerated, in order to achieve our strategic goal of expanding domestic demand and promoting economic growth," it said.
1) Wen Signals Unprecedented Spending Will Drive Chinese Rebound - Bloomberg
China's Premier Wen Jiabao signaled he will maintain unprecedented government spending to drive a recovery from the slowest expansion in almost a decade.
"China's economic rebound is unstable, unbalanced and not yet solid," Wen said yesterday in a speech at the World Economic Forum in Dalian, a city in northeastern China. "We cannot and will not change the direction of our policies when the conditions aren't appropriate."
2) Standard Bank Borrows $1 Billion From Chinese Banks
Standard Bank Group Ltd., Africa's largest lender, said the $1 billion loan facility it signed with four Chinese banks will be mainly used for clients developing projects on the continent.
"The money will be used mainly to support our Africa business, for clients wanting to do business in Africa and this would include Chinese clients," said Chief Executive Officer Jacko Maree, after signing the five-year facility in Macau. It will be used mainly to fund projects, he added.
3) Mongolia Fund to Manage $30 Billion Mining Jackpot
The Mongolian government will set up a sovereign wealth fund using mining royalties and tax revenue, and distribute part of the income to citizens to alleviate poverty, said Finance Minister Sangajav Bayartsogt.
The fund, to be run by professional managers from 2013, will disburse part of its annual income to every Mongolian in cash or non-cash securities to let them own stakes in the country's mining wealth, Bayartsogt said. Initial capital will be drawn from Ivanhoe Mines Ltd.'s $4 billion Oyu Tolgoi copper- gold mine project, estimated to generate $30 billion in tax revenue over 50 years, he said.
"We're drafting the idea to implement the proposal, and we're studying examples like the Alaskan Permanent Fund," Bayartsogt said in a Sept. 9 interview in the capital Ulaanbaatar, declining to specify the size of the proposed fund.
On the road today updating from my handheld again and feeling incredibly cool and sophisticated, all while reinforcing the popular belief that we are indeed way too dependent on technology these days.
Here are two short excerpts from different Bloomberg articles which shed some light on the true health and capacity of the Chinese economy. What should you take away if you decide to click through to Bloomberg and read the entire articles? Basically that China is a economic powerhouse and still has room to grow. Likewise, it is not a cure all to the woes of the global economy.
This is important to realize because the government in China will do all it can to produce good economic news, sometimes misleading the international investment community. But hey! Most countries do too. ChinaSouthAmerica, as it always does encourages readers to form own opinions and always try to read in between the lines.
China failed to complete a 28 billion yuan ($4.1 billion) government bond sale for the first time, as the central bank withdrew cash from the financial system to reduce inflation pressures.
The Ministry of Finance sold 27.5 billion yuan of one-year notes at a yield of 1.06 percent, compared with 0.89 percent at the last auction of similar-maturity debt in May, according to Chinabond, the nation's biggest debt-clearing house. Later, the People's Bank of China it said will resume the sale of one-year bills tomorrow after an eight-month suspension.
"The failure to sell all government bonds in an auction is quite rare," said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. "Investors are worried the central bank will fine-tune its monetary policy and drain capital from the financial market."
Chinese stocks may be headed for a "sizable correction" after a so-called momentum indicator for the Shanghai Composite Index advanced to the highest in at least five months.
The 14-day relative strength index, or RSI, for the Shanghai Composite climbed to 83 this week, above the 70 threshold that signals to technical analysts an asset or market is poised to fall. The indicator compares the magnitude of recent gains to losses. The last time the Shanghai gauge's RSI breached the 80 level, in February, the stock measure sank as much as 13 percent in following two weeks.
"The RSI shows that the market is in a pretty overbought situation," said Barole Shiu, a Hong Kong-based technical analyst at UOB-Kay Hian Ltd. "If history repeats itself, there's a very strong chance we'll see a sizable correction."
[South-South Cooperation] -- Brazil, China -- Rigzone
Lula's visit to China has been anything but boring. On the heels of the $10 billion oil for cash deal reached between Brazil and China this past week, comes news of negotiations for two deepwater oil blocks between Petroleo Brasileiro SA (PBR) and China Petroleum & Chemical Corp.
The two oil blocks under negotiation between oil giants China Petroleum & Chemical Corp. (SNP) and Petroleo Brasileiro SA (PBR) are deepwater exploration blocks located in the north of Brazil, the Brazilian company's top financial official told Dow Jones Newswires on Thursday.
Conversations, however, are still ongoing and the deal isn't closed, said Almir Barbassa, chief financial officer of Petrobras, as the Brazilian company is known.
The blocks under consideration are within Brazilian waters, are 100% owned by Petrobras and run deep, or about 2,000 meters, he said. They are located off the coast of the two neighboring states of Para and Maranhao in northern Brazil, Barbassa added.
Earlier this week, China's National Energy Administration Chairman Zhang Guobao told reporters in Beijing that Brazil would offer two oil blocks to Sinopec, as the Chinese company is known, as a way to strengthen energy cooperation between the two countries. He didn't give any further details.
Vitoria Saddi shares her analysis of the latest news to emerge from this weeks meetings between Brazilian President Lula da Silva and Chinese President Hu Jintao. If you have not already checked out Victoria's site, Latin America and Brazil, I highly recommend you do.
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As we all know, president Lula is in China this week. It seems that one of the goals of his visit is to enable Brazil and China to use their own currencies in trade transactions, rather than the US dollar. The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency. It should be clear that this deal is different from what China is doing with Argentina – currency swap. In the Brazil - China deal Brazil would pay for Chinese goods with reais and China would pay for Brazilian goods with renminbi. The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.
In our view, this is an important step towards convertibility. Clearly, the country can afford to have a convertible currency because it has a healthy balance of payments and the government has been taking steps towards convertibility.
Last week the Internet was a buzz with news that China officially announced that it would increase its gold reserves.
Newsworthy yes, but as Otto over at IncaKolaNews in this article magnificently articulates... major news reports and analysis seemed to miss the bigger picture.
I myself posted a small analysis on this topic last Friday, April 24, 2009.
I may have mislead readers slightly with the gold chart I included. I was not suggesting gold is a good investment at the moment. I am no gold expert, and I definitely am not in any position to say whether China's move to buy more gold will affect the global price of gold.
However, I have read a good deal about gold in history text books and in the news in recent months with the global slowdown. It is clear gold remains as it has throughout history, a store of value.
My analysis simply to articulate the following:
China is concerned about the possibility of inflation eroding the value of the money countries like the United States will eventually have to pay back. As developed economies lower interest rates and print money to spur growth their currencies will eventually weaken as money floods the global economy. Likewise, the RMB (Yuan) will likely continue appreciating as China's economy continues to develop. and modernize. All this is not good news for the money China has stashed away in its rainy day fund.
China's gold reserves have nearly doubled over the past five years, according to the country's foreign exchange administration.
At the moment China holds about 1000 tons of gold, up from 600 tons in 2003 according to Hu Xiaolian who is head of the State Administration of Foreign Exchange (SAFE). Take note, the last time China released such information was in 2003, so this is not exactly a every day occurrence.
Definitely big news, especially for the United States which at the moment is the major beneficiary of China's massive foreign exchange reserves, most of which are held in U.S Dollar denominated assets.
“China still has only a very small percentage of its forex reserves held in gold, much less than the United States or other developed countries,” said Paul Atherley, Beijing-based managing director of Leyshon Resources. “Those holdings are still too low in terms of the size of its economy and the growing significance of its currency.”
At the moment, China's total gold reserves only account for roughly 1.6% of its entire accumulated FOREX reserves. The total value of its gold holdings are currently reported as $31 billion (211.6 billion yuan). Furthermore, according to this FT article the move coincidentally comes as many European central banks are selling their gold and as the International Monetary Funds discusses selling a considerable portion of its own gold reserves.
“This is probably the most significant central bank announcement since the Central Bank of Russia announced at the LBMA gold conference in Johannesburg in 2005 that it wanted to hold 10 per cent of its foreign exchange reserves in gold,” said John Reade of UBS.
Check out this chart of how gold has performed over the past five years.
Gold has traditionally been viewed as a store of value and a safe heaven for wealth in volatile times, and these are indeed volatile times.
China recently hinted that it would like in a perfect world that the global economy adopt a single currency. The Political Satire, the Daily Show articulately described in last nights episode, this is just not going to happen (Note the link provided takes you to a video from last nights episode that contains some questionable language).
In reality it is hard to believe China legitimately thinks the United States would consider adopting a single currency. What China was really aiming to do was send a message that the United States better make sure that it not only pays back all the money China has lent it over the years but that it also pays it back at a premium.
If inflation goes through the roof because of low interest rates and the massive amounts of money the United States is printing, China is going to be paid back in a very devalued currency, and this will make for a very unhappy China.
Recent headlines relating to China's planned gold purchases sends yet another clear message to the United States.
"Make sure you get your house in order!"
China's FOREX reserves have grown from $623 billion at the start of 2005 to a whoppin' $1.906 trillion at the end of September of 2008. Growth however did slow tremendously in the first quarter of 2009, growing a mere $7.7 billion.
With its current stock of 1000 tons of gold, China has the fifth largest holdings of gold in the world. Hou Huimin, vice general secretary of the China Gold Association suggested in his opinion China should build it reserves to 5,000 tons.
One thing is clear, China is going to be very careful where its stores it wealth in the coming years.
