China’s gold reserves underestimated
THE AUSTRALIAN JULY 20, 2015 12:00AM
Robin Bromby
Business columnist
Sydney
China has been gradually boosting its gold reserves but won’t admit how much it has. Source: AFP
Pull the other one, Beijing. Various analysts put it more politely, but there was a wave of scepticism washing over Friday’s announcement that the people’s Bank of China had increased its official gold holdings, adding 604 tonnes since 2009, making the present total 1658 tonnes.
Being more measured than Pure Speculation, Bernard Dahdah, precious metals analyst at French bank Natixis put this view thus: “It begs the question of what’s been happening to the gold produced that hasn’t been taken by the central bank”. One London broker said he did not believe the Chinese announcement, and wondered why Beijing was playing down its gold purchases. Another said: “The timing (of the announcement) is as expected; it’s just the amount that makes no sense”.
After all, many quite sober analysts had figured the Chinese central bank was holding somewhere between 3000 and 4000 tonnes; earlier this year Bloomberg, analysing trade data and mining production, put the country’s official holdings at a quite precise 3510 tonnes.
Another London brokerage qualified its analysis with “we are assuming the Chinese data is accurate”.
Sorry, Pure Speculation is not prepared to make such an assumption. We’re with Dahdah: where has all that gold gone? In 2013, for example, China mined 437 tonnes and imported 1033 tonnes. And that pattern of increasing mine output and a steady import flow has been repeated over six years. In the first three months of this year, Chinese mines lifted output by 14 per cent and refined 110.7 tonnes.
In 2014, the Swiss sent 600 tonnes to China. In 2013, one month — July — saw 106.4 tonnes move from Hong Kong into China. Last November’s Hong Kong supplies totalled 99.1 tonnes. This has gone on month after month.
Sure, a good deal has gone into jewellery and bars and coins bought by private investors. And the World Gold Council estimates China’s domestic banks have, since 2009, collectively added 600 tonnes of gold to their inventories.
The most popular theory is the Beijing’s announcement was finely calibrated. In October, the Chinese are hoping the International Monetary Fund will add the yuan to the currencies employed in the fund’s special drawing rights currency basket, so further legitimising Chinese money as an international trading currency. The theory is that China needed to show it had been buying gold as a backing for that currency.
But, if Beijing revealed its real reserves and came out with a figure closer to 3000 tonnes, that would frighten the horses with regard to the US dollar — in other words, the hair-trigger types would assume China was desperate to convert its US currency holdings to something safer. China may at some stage want to deliver a blow to the greenback, but not while it still holds some $US3 trillion of them.
This year we have seen Beijing relax import rules, so that Chinese companies mining gold abroad can sell their output directly into the home market (meanwhile, the ban on exporting gold from China remains) while a $US16 billion ($21.7bn) gold fund — backed by physical gold — is being established in Shanghai.
As the World Gold Council has noted: “In China gold is synonymous with money.”
The unexpectedly low reserves figure also had the effect of accelerating the bearish trend on gold, the metal losing 1 per cent to $US1132 an ounce. Only 1.8 per cent of China’s official reserves are in gold; the European Central Bank has 25 per cent of its reserves in the form of yellow metal.
It doesn’t add up.
China keeps tin down
We noticed that the tin price got a good bump at the end of the week. It rose $US430 a tonne on Thursday and another $US595 on Friday, to close the week at $US15,645 a tonne.
Still not enough for Kasbah Resources (KAS) which stated last month it would not try to raise development finance for its Achhmach project in Morocco until tin settled above $US18,000/tonne or else the terms would simply be too harsh. It has not helped that, as of Wednesday (before the late-week surge), tin had lost 25 per cent in US dollar terms since the start of the year, and is the worst-performing base metal in 2015.
The problem has been Myanmar and its ability to ship large quantities of tin concentrate across the border into China at what is presumed to be a very cheap price. China has been sourcing 98 per cent of its tin imports from its neighbour. This has cut other suppliers out of that market and discouraged new mines going ahead.
The two-day surge might have had something to do with rumours sweeping the industry that there will be a move to have tin from Myanmar’s Kokang province declared “conflict metal” on the basis that the area is the scene of fighting between Burmese government forces and separatist rebels. If we monitor what comes out of the conflict zone affecting the Democratic Republic of Congo, Burundi and Rwanda, the industry argument is, the same should apply to Myanmar.
Capital Economics have downgraded their year-end forecast for tin from $US20,500/tonne to $US17,500. Not good enough for Kasbah, but that could change if the conflict story gains traction. Whether that would matter to the Chinese is another matter.
Still, at some stage (probably when Myanmar mines out all the easily extracted tin in the north) the world will face a severe tin shortage. Therefore, it is probably an idea to keep working toward becoming a tin producer, as Thomson Resources (TMZ) is doing in central NSW, the junior reporting some high grade intercepts it says indicate the presence of a wide tin zone.
Minor metals dented
Expect a severe liquidation within China of various specialty metals and rare earths, says London broker Whitman Howard. This follows the fact that Fanya Metals Exchange in Yunnan province has been unable since April to return any money to investors, with punters owed the equivalent of $8.7bn due to the falling prices for indium, cobalt, tungsten, silver, vanadium, tellurium, rhodium and the rare-earth oxides dysprosium and terbium.
Protests by angry investors erupted last week. Any sell-off of metal stocks now held as collateral is likely to send their prices plunging even further.
Iron ore, coking coal, nickel — and now minor metals. It never rains but it pours.
No investment advice is implied and investors should seek professional guidance. The writer does not own shares in any company mentioned.
http://www.straitstimes.com/business/eco...owing-at-7
A leading member of China's top political advisory body has given an upbeat assessment of China's growth prospects at a forum in Singapore.
Mr Tung Chee Hwa, who was Hong Kong's first chief executive and is now vice-chairman of the 12th Chinese People's Political Consultative Conference's National Committee, said China's economy will keep growing at 7 per cent in the coming years.
He was delivering the keynote address of the opening plenary session at the FutureChina Global Forum 2015 at the Shangri-La Hotel yesterday. The two-day forum, ending today, has attracted business executives and government officials from around the world, and academic experts on China-related issues.
The structure of China's economy is changing in many ways, Mr Tung said.
The most striking changes are that domestic consumption and the service sector will be significant growth drivers in the economy. Consumption for the first half of this year would likely reach 60 per cent of total economic output, and the service sector now accounted for 49.6 per cent of the country's output, he added.
http://www.straitstimes.com/business/eco...hange-asia
China's One Belt, One Road initiative goes beyond just trade, infrastructure: George Yeo
Chong Koh Ping
China's revival of the fabled Silk Road trade links is a fluid initiative focused on human interactions and not solely about developing the physical infrastructure, said former foreign minister George Yeo.
He cited the example of China's plan to build a vast railway network connection to reach "every sea around Euroasia".
The consequence of building the rail network is the "complete reopening up of Euroasia", driven by people who cannot join the global market due to issues of bad connectivity and poor logistics, said Mr Yeo, who is now the chairman of Hong Kong logistics firm Kerry Logistics Network.
"This will change the geoeconomics map of Asia," he added.
Mr Yeo was speaking at the gala dinner dialogue of the sixth FutureChina Global Forum at the Shangri-La Hotel yesterday.
The recent share market rout, has been included into the SDR consideration...
IMF tells China it's worried about investors' mobility in Chinese markets -sources
BEIJING (July 22): The International Monetary Fund (IMF) has told China about its concern over investors' ability to enter or leave Chinese financial markets as they wish, said sources with direct knowledge of the matter.
Those worries were raised last month when the IMF met with Chinese officials in China to discuss the chances of including the yuan in the fund's basket of currencies, also known as the Special Drawing Rights (SDR).
The SDR is an international reserve asset, and Beijing has been lobbying the IMF to include the yuan in the basket to boost the currency's global clout to complement a rising Chinese economy and reduce China's reliance on the dollar.
The talks were held before Chinese shares plunged as much as a third in late June, prompting Beijing to stage its biggest-ever rescue of the stock market.
The measures, which included steps such as barring some investors from selling their shares, drew criticism of unwarranted government interference and cast doubt on China's appetite for market reforms.
The IMF requires any SDR currency to be "freely usable", a criteria that U.S. Treasury Secretary Jack Lew said in April that China has yet to meet.
The sources said the IMF had asked China - which still has a closed capital account - to improve the transparency of its financial markets, but said the fund did not voice any concerns about the yuan's value.
...
http://www.theedgemarkets.com/sg/node/217582
Beijing can't be too transparent, otherwise they won't be able to run the country with communist policies.
Want to be included in SDR? Tan ku ku loh (wait long long)
sent from my Galaxy Tab S
China manufacturing hits 15-month low
AFP JULY 24, 2015 1:14PM
A key gauge of Chinese manufacturing activity tumbled to a 15-month low in July, an independent survey showed, throwing a pall over growth in the world’s second-largest economy.
The preliminary reading of Caixin’s Purchasing Manager’s Index (PMI) came in at 48.2 this month, the Chinese media group said in a joint statement with Markit, a financial information services provider that compiled the survey.
The figure was the weakest reading since 48.1 in April 2014, according to Markit’s data.
The index, which tracks activity in factories and workshops, is seen as a key barometer of the country’s economic health. A figure above 50 signals growth, while anything below indicates contraction.
Caixin took over sponsorship of the PMI survey from British banking giant HSBC this month.
July’s flash PMI was worse than the market expected, Chen Xingdong, a Beijing-based economist with BNP Paribas told AFP.
“China’s industrial economy has had a hard landing or is in industrial recession in my opinion,” he said.
Industrial output in the country grew just 6.8 per cent year-on-year in June, while the producer price index — a measure of costs for goods at the factory gate — declined 4.8 per cent, official figures showed.
“The core reason is effective demand remains weak,” said Chen, adding China had become a less competitive exporter than many other developing countries while domestic consumption had barely improved.
Third-quarter growth was “under enormous pressure”, he said. “Although I don’t think it will decelerate further, the recovery momentum is extremely feeble.”
China’s economy expanded 7.4 per cent last year, the weakest pace since 1990, and slowed further to 7 per cent in each of the first two quarters this year.
Julian Evans-Pritchard, an analyst with research firm Capital Economics, said the PMI figures suggested recent improvements in economic momentum “may have been derailed” this month by weaker foreign demand.
“We think that recent policy easing has yet to fully feed through into stronger economic activity and expect policymakers to respond to signs of weakness by stepping up support in order to prevent growth from slipping much further this year,” he wrote in a note.
July’s final PMI data is due on August 3, Caixin and Markit said.
Always interesting to read Dalio (excerpts from Zerohedge) - especially in the context of further commodity//aud//nzd rout.
http://www.zerohedge.com/news/2015-07-23...eft-invest
***************
We previously conveyed our thinking about the debt and economic restructurings being negative for growth over the near term and positive for growth over the long term—i.e., that it is a necessary and delicate operation that can be well managed. While we had previously considered developments in the stock market to be supportive to growth, recent developments have led us to expect them to be negative for growth. While we would ordinarily consider the impact of the stock market bubble bursting to be a rather small net negative because the percentage of the population that is invested in the stock market and the percentage of household savings invested in stocks are both small, it appears that the repercussions of the stock market’s declines will probably be greater.
Because the forces on growth are coming from debt restructurings, economic restructurings, and real estate and stock market bubbles bursting all at the same time, we are now seeing mutually reinforcing negative forces on growth. While at this stage it is too early to assess how strongly the stock market’s decline will pass through negatively to credit and economic growth, we will soon have indications of this. We will be watching our short-term indicators of Chinese credit and economic growth carefully to see what the pass through to the economy of these developments is like.
The stock market and debt bubble bursting simultaneously has happened many times before in many countries. We identified 28 cases among major economies in the last 100 years. While no two cases are exactly the same, the basic dynamics of such cases and the tools for treating them are essentially the same. Looking at these other cases provides perspective concerning the range of possible outcomes and the most effective ways of using the available tools. The most analogous cases created a depressant on real GDP growth of 1.8% on average, annually, for three years relative to what growth would have been without these events; bad cases saw an annual drag of 4% for three years; and, well managed cases saw no drag over three years (i.e., growth averaging its potential). We would expect China’s outcome to be within that range, depending on how Chinese policy makers use their tools.
The negative effects of the stock market declines will come from both the direct shifts in wealth and the psychological effects of the stock market bubble popping. Though stock prices are significantly higher than they were two years ago, the average investor in the stock market has lost money because more stocks were bought at higher prices than were bought at lower prices. We now estimate stock market losses in the household sector to be significant—i.e., about 2.2% of household sector income and 1.3% of GDP. However, these losses appear to be heavily concentrated in a small percentage of the population as only 8.8% of the population owns stocks. These are rough estimates. We don’t yet know who is experiencing what losses. Such information usually surfaces in the days and weeks after the plunge. Even more important than the direct financial effects will be the psychological effects.
Even those who haven’t lost money in stocks will be affected psychologically by events, and those effects will have a depressive effect on economic activity.
For example, there are now no safe places to invest and the environment looks riskier, which we would expect to encourage the holding of cash and lessen the marginal effectiveness of easing monetary policy.
(24-07-2015, 10:19 PM)AQ. Wrote: [ -> ]Always interesting to read Dalio (excerpts from Zerohedge) - especially in the context of further commodity//aud//nzd rout.
Big shot like Dalio is changing his mind, probably he has "insiders" in China telling him something we don't know...
They have a plan but it may not be conventional... so long as it works... who are we to criticise...
After stock rout, Beijing turns focus back on reform
569 words
24 Jul 2015
English
BEIJING — After assembling rescues of indebted local governments and a plunging stock market for much of the year, China’s leadership gets an opportunity to revive its narrative of economic reform at a meeting in October.
Ahead of the Communist Party’s Fifth Plenum in three months, President Xi Jinping has been gathering with provincial party bosses in recent weeks. Central to the talks is China’s next five-year plan, where a key challenge will be how to deliver on vows to ease state control over the economy.
Some investors see a 2013 pledge to give markets a decisive role as tarnished by how regulators handled a stocks surge and their subsequent plunge. Mr Xi’s blueprint may refocus attention on changes to the social and economic landscape for the coming years. Among central topics will be the role and structure of state-owned enterprises, oversight of energy prices and what to do with the current 7 per cent growth target.
“Here lies the credibility of the leadership,” said Mr Zhang Wenkui, a senior researcher at the Development Research Centre, a unit of China’s State Council. The five-year plan “is supposed to make the Chinese Dream happen”.
Mr Xi, who will mark three years as the party’s general secretary this autumn, has championed a vision of becoming a “moderately well-off society” by 2020, with gross domestic product and per-capita income levels double those of 2010.
While progress has been made in shifting the economy’s reliance towards the consumer and away from exports and polluting industries, moves to introduce greater private-sector competition and reduce politically driven credit allocation have lagged behind. “The Xi leadership needs to move from an era of promises to one of active implementation,” said the University of Sydney’s China Studies Centre director Kerry Brown.
Chinese media said a draft of the 2016 to 2020 plan is complete and the government is seeking comments from local officials and experts.
Mr Xi has been at the centre of the planning process, holding meetings with party bosses of at least 18 provinces in the past three months.
Current and retired Communist Party leaders are set to discuss the proposals in the coming weeks during their annual conclave at the Yellow Sea resort area of Beidaihe. Their challenges include limiting population growth in top-tier cities such as Beijing and encouraging rural migrants to move elsewhere. Expanding the nation’s social-security system, reforming rural landholdings and giving families of internal migrants access to public services are other key areas.
Bringing down remaining barriers between China and the international economy, encouraging upgrading in manufacturing, reforming energy pricing and supporting smaller enterprises are among the issues to watch, said senior researcher Han Meng from the Institute of Economics of the Chinese Academy of Social Sciences in Beijing.
“The GDP target can be lower and growth rate slower, around 6.8 per cent is likely,” he added. That would match the International Monetary Fund’s projection for this year, a pace that would be the weakest since 1990.
An option would be to abandon the annual growth target, a move that may allow policymakers to take more risks, said China International Capital Corporation’s former head Levin Zhu, who spoke at a panel during a conference in Singapore earlier this week. BLOOMBERG
Jul 26 2015 at 4:28 AM Updated Jul 26 2015 at 4:28 AM
The long arm of Chinese international investment
China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control. Bloomberg
by Clifford Krauss and Keith Bradsher
Where the Andean foothills dip into the Amazon jungle, nearly 1000 Chinese engineers and workers have been pouring concrete for a dam and a 15-mile underground tunnel. The $US2.2 billion project will feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than a third of Ecuador.
Near the port of Manta on the Pacific Ocean, Chinese banks are in talks to lend $US7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products.
Across the country in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galapagos Islands. State-owned Chinese banks have already put nearly $US11 billion into the country, and the Ecuadorean government is asking for more.
Ecuador, with just 16 million people, has little presence on the global stage. But China's rapidly expanding footprint here speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground.
ECONOMIC CLOUT
While China has been important to the world economy for decades, the country is now wielding its financial heft with the confidence and purpose of a global superpower. With the centre of financial gravity shifting, China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources.
It represents a new phase in China's evolution. As the country's wealth has swelled and its needs have evolved, President Xi Jinping and the rest of the leadership have pushed to extend China's reach on a global scale.
China's currency, the renminbi, is expected to be anointed soon as a global reserve currency, putting it in an elite category with the dollar, the euro, the pound and the yen. China's state-owned development bank has surpassed the World Bank in international lending. And its effort to create an internationally funded institution to finance transportation and other infrastructure has drawn the support of 57 countries, including several of the United States' closest allies, despite opposition from the Obama administration.
China represents "a civilisation and history that awakens admiration to those who know it," President Rafael Correa of Ecuador proclaimed on Twitter, as his jet landed in Beijing for a meeting with officials in January.
China's leaders portray the overseas investments as symbiotic. "The current industrial cooperation between China and Latin America arrives at the right moment," Prime Minister Li Keqiang said in a visit to Chile in late May. "China has equipment manufacturing capacity and integrated technology with competitive prices, while Latin America has the demand for infrastructure expansion and industrial upgrading."
NEW RISKS
But the show of financial strength also makes China - and the world - more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.
With its elevated status, China is forcing countries to play by its financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 per cent of Ecuador's oil exports, which mostly goes to paying off its loans.
"The problem is we are trying to replace American imperialism with Chinese imperialism," said Alberto Acosta, who served as Correa's energy minister during his first term. "The Chinese are shopping across the world, transforming their financial resources into mineral resources and investments. They come with financing, technology and technicians, but also high interest rates."
The Ecuadorean foreign minister calls the shift to China a "diversification of its foreign relations," rather than a substitute for the United States or Europe. "We have decided that the most convenient and healthy thing for us," said the foreign minister, Ricardo Patino, is "to have friendly, mutually beneficial relations of respect with all countries."
"What Ecuador wants are sources of capital with fewer political strings attached," said R. Evan Ellis, professor of Latin American studies at the US Army War College Strategic Studies Institute. "But there is also a desire to get away from the dependence on the fiscal and political conditions of the IMF, World Bank and the West."
The Chinese money, though, comes with its own conditions. Along with steep interest payments, Ecuador is largely required to use Chinese companies and technologies on the projects.
OUTSIDE INTERNATIONAL RULES
International rules limit how the United States and other industrialised countries can tie their loans to such agreements. But China, which is still considered a developing country despite being the world's largest manufacturer, doesn't have to follow those standards.
In Ecuador, a consortium of Chinese companies is overseeing a flood control and irrigation project in the southern Ecuador province of Canar. A Chinese engineering company built a $US100 million, four-lane bridge to span the Babahoyo River near the coast.
Such deals typically favour the Chinese.
PetroChina and Sinopec, another state-controlled Chinese company, together pump about 25 per cent of the 560,000 barrels a day produced in Ecuador. Along with taking the bulk of oil exports, the Chinese companies also collect $US25 to $US50 in fees from Ecuador for each barrel they pump.
China's terms are putting countries in precarious positions.
In Ecuador, oil represents roughly 40 per cent of the government's revenue, according to the US Energy Department. And those earnings are suddenly plunging along with the price of oil. With crude at around $US50 a barrel, Ecuador doesn't have much left to repay its loans.
"Of course we have concerns over their ability to repay the debts - China isn't silly," said Lin Boqiang, the director of the Energy Economics Research Center at Xiamen University in China's Fujian province and a government policy planner. "But the gist is resources will ultimately become valuable assets."
SIGNIFICANT LEVERAGE
If Ecuador or other countries can't cover their debts, their obligations to China may rise. A senior Chinese banker, who spoke only on the condition of anonymity for diplomatic reasons, said Beijing would most likely restructure some loans in places like Ecuador.
To do so, Chinese authorities want to extend the length of the loans instead of writing off part of the principal. That means countries will have to hand over their natural resources for additional years, limiting their governments' abilities to borrow money and pursue other development opportunities.
China has significant leverage to make sure borrowers pay. As the dominant manufacturer for a long list of goods, Beijing can credibly threaten to cut off shipments to countries that do not repay their loans, the senior Chinese banker said.
With its economy stumbling, Ecuador asked China at the start of the year for an additional $US7.5 billion in financing to fill the growing government budget deficit and buy Chinese goods. Since then, the situation has only deteriorated. In recent weeks, thousands of protesters have poured into the streets of Quito and Guayaquil to challenge various government policies and proposals, some of which Correa has recently withdrawn.
"China is becoming the new company store for developing oil-, gas- and mineral-producing countries," said David Goldwyn, who was the State Department's special envoy for international energy affairs during President Barack Obama's first term. "They are entitled to secure reliable sources of oil, but what we need to worry about is the way they are encouraging oil-producing countries to mortgage their long-term future through oil-backed loans."
The New York Times