China moves from Dollars into metals

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.

The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.


Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.

In full

http://www.telegraph.co.uk/finance/...-Standard-for-the-worlds-currency-system.html

From here in China I can confirm that the metals sector has its foot on the accelator, major plants that were worried about surviving the downturn a few months ago, are now order assured for the next few years at least. None of the output can be explained by commercial orders - its all down to Beijing tip toeing away from the Dollar, Euro etc.

Gold will be the last thing they buy in bulk and when they do its all over for the world as we have known it.
 
Mr_Deputy said:
Its astounding the impact they can have.

Yes, but it's hardly a new thing: since global trade began the country with the biggest pot of money has been able to influence global trends in their favour, it's just up until now we in the UK have been beneficiaries of it as either we or the country we have a "special relationship" with have had that pot of money. Now, a huge country we're at best suspicious of has that power and we can do nothing but go where we're taken as we have neither the financial power nor diplomatic influence to counter it.
 
From memory, the Chinese Investment Corporation is only the 4th largest sovereign wealth fund and controls about a quarter of the total assets the Abu Dhabi one does. Just goes to show what you can achieve with brains and vision.

Lou Jiwei said:
If there is a big fat rabbit, we will shoot it. Some people will say we were shot by Morgan Stanley (instead), but who knows.
 
Ok so again what impact will it have on OUR day to day life? Will we end up a third world country struggling to feed ourselves? Or will life just carry on as normal with China being the major superpower?
 
carlbcfc said:
armchair_jihad said:
Gold will be the last thing they buy in bulk and when they do its all over for the world as we have known it.

What will change for us?

If people start storing things like copper and gold as a reserve, instead of paper money like pounds and dollars, it will likely mean that each pound or dollar buys less copper or gold.

This is the worst kind of inflation, because stuff in the shops gets more expensive, without your wages going up in step.

Normally inflation where your wages go up in step is bad enough, because it discourages people from saving money and really hurts people living on fixed incomes like pensioners.
 
carlbcfc said:
What will change for us?

We and our allies won't be able to dictate the terms of international trade, for one thing. We in the west set up the international financial system and we set it up in the way we wanted business to be conducted. This gave us a pretty huge advantage in global terms over countries which weren't set up to do things in out way. Now somebody else has learned the rules and it looks like they're becoming a pretty handy player.

Look forward to the day when it's not our ball to take away and go home with if we don't like how the run of play is going.
 
If it contributes anything to the discussion China is buying into the Australian mining industry hand over fist. There's also a story in the media that they have 1000 spies in Australia. Whether our Mandarin speaking Prime Minister is one of them is hard to determine as he's rarely visited Australia since he was elected.

The way I see it is that every billion dollars China invests in a company like Rio Tinto means a bigger share of the company for Beijing. Which means a bigger share of the profits for the Chinese. Which means less of the company generated wealth flowing through to the traditional shareholders in the West, especial in 'old money' financial centres like London.
 
carlbcfc said:
What will change for us?

Many, many things, here's a quote from Frank Feild;

in full

http://www.spectator.co.uk/the-magazine/the-week/3540376/politics.thtml

The House of Commons Library has calculated for me what the G8 governments will attempt to borrow over the next two years. The sums are of gobsmacking proportions: a debt total of $2,245 billion this year, rising to $2,521 billion in 2010. The sheer size of these figures expresses our vulnerability. In contrast, in 1940, we had allies in the Commonwealth, particularly Canada, who gave us huge sums and, like America, lent us further monies so as to balance our war budget. Now our allies are part of the hunt for likely lenders.

If we comfort ourselves that there is that kind of money somewhere out there to be lent, we should be distressed that there will be, to put it mildly, a degree of competition between the possible destinations for that available cash.

China, Japan and the Arabs used to be the ones lending, now Japan is bust and has the printing presses on, the Arabs are knifed in the guts by the collapse of the oil price and their investments in 'sure bets' like wall street, only the Chinese have the cash but they are buying metals to use over the next 50 -100 years, THEY ARE NOT GOING TO BUY OUR DEBT.

So as carrots said the rules our forefathers created that allowed us to tilt the financial game in our favour are now fading fast, the game will NO LONGER FUND OUR BULLSH1T! We have spent all of possible earnings of our kids and grandkids, on utter sh1te and all on the never never.

So carlbcfc, what you have now is the once in a life time experience of living through the 'gilded age', everything you think now as being usual and common place you will look back on as a luxury. A wonderful memory for your declining years.

Good luck.

PS I really do blame the 60's generation; think your going to be able to retire and not pay the bill for your vandalism you hippy cnuts? Like fcuk, you and yours will live like hunted lice.
 

Hoochie

Old-Salt
They have been doing this for years. When I got out of the mob I worked in spring engineering for 10 years. Many a time I have had problems sourcing raw materials from my normal suppliers for making springs from Nickel alloy and high tensile carbon steels just beause the Chinese had bought every scrap we had on the shelf at the time.

They have even tried to sell me back British processed steels (Inconel X750, BS5216 M5's and BS2056 302's normally) for crazy inflated prices!

Basically if they buy your materials they hope to stop you from making your products and sell you their crap instead - fortunately for me the stuff we used to make needed true skilled tradesmen to actually meet the tolerances we worked too (small specialist runs for F1, Indy, GT and WRC etc) and not just any old crap of a CNC machine in China.
 
Hoochie said:
Basically if they buy your materials they hope to stop you from making your products and sell you their crap instead - fortunately for me the stuff we used to make needed true skilled tradesmen to actually meet the tolerances we worked too (small specialist runs for F1, Indy, GT and WRC etc) and not just any old crap of a CNC machine in China.

How long before they can produce stuff that's as good as anything any Western company can produce? They were developing their skills base at a phenomenal rate, even before we had all these skilled western craftsmen looking for work - any work.
 
Cheers for the info, I ask as im 26 and still learning about the world every day and have never experienced a shite economy before. Now i realize why all those toys i had in the 80's were made in China.

I ask another silly question..........what is the solution for us...if any?

My head is a sponge, i like to soak up what is happening in our world.
 
smartascarrots said:
Hoochie said:
Basically if they buy your materials they hope to stop you from making your products and sell you their crap instead - fortunately for me the stuff we used to make needed true skilled tradesmen to actually meet the tolerances we worked too (small specialist runs for F1, Indy, GT and WRC etc) and not just any old crap of a CNC machine in China.

How long before they can produce stuff that's as good as anything any Western company can produce? They were developing their skills base at a phenomenal rate, even before we had all these skilled western craftsmen looking for work - any work.

They won't be able to do it before issues of rising cost (and demographics - they only have a birthrate of 1.77 children per wpman being born) catch up with them. The former is a bigger problem than most think because the high-end stuff is skills, as oppose to labour, intensive. The rule of thumb is that the more complex and expensive something is, the less the labour cost matters. This is why a haircut in China might be 10% of the cost of one in the West, but a plasma TV is likely to be 60% of the cost. In the end prices converge, starting with the most expensive and complex things and finishing with the simplist. If China wants to get as many out of poverty as possible, it will focus on employment that will provide for the most people possible and conserve its comparative advantage for as long as possible. The high-end products are important for it to move into, but they'll be entering a crowded market that won't provide much for the people.
 
carlbcfc said:
Cheers for the info, I ask as im 26 and still learning about the world every day and have never experienced a shite economy before. Now i realize why all those toys i had in the 80's were made in China.

I ask another silly question..........what is the solution for us...if any?

My head is a sponge, i like to soak up what is happening in our world.

If you view things in the round, this is pretty much of a reassertion of a basic rule of human societies: numbers count.

600 years ago, China was the global superpower, economically, militarily and intellectually - the reasons why are many and various, but boil down to having such a ****ing enormous number of people all working away under a single government, producing stuff and thinking of how to produce more stuff and do it better.

400 years ago, we thought up some pretty nifty ways of doing things that gave us in the west massive technological and social advantages over the large populations of the east. For a comparatively brief period of time we were able to assert control over them by using our technology and industrial backup, and exploiting their divisions as in India.

Now, the technological gap has been closed and the old rule of 'quantity counts when all else is equal' dictates that we're once again an insignificant piss-wet rock off the edge of a divided continent. Swings and roundabouts. If you want a solution, the only realistic one is to hang around for another few centuries and see what happens. With any luck, as a species we'll have wised up considerably.
 
armchair_jihad said:
From here in China I can confirm that the metals sector has its foot on the accelator, major plants that were worried about surviving the downturn a few months ago, are now order assured for the next few years at least. None of the output can be explained by commercial orders - its all down to Beijing tip toeing away from the Dollar, Euro etc.

Gold will be the last thing they buy in bulk and when they do its all over for the world as we have known it.

Can you just confirm the country origins of these metal sector companies, I ask as I know there is a substantial amount of German companies are out there, in particular a friend works for one in the metal sector. Is this a re-occuring theme?
 

Bugsy

LE
Well, that's very interesting information indeed. Kudos to the Chinese. Canny buggers, eh?

MsG
 
parapauk said:
They won't be able to do it before issues of rising cost (and demographics - they only have a birthrate of 1.77 children per wpman being born) catch up with them.

The birth rate is now reckoned to be 1.79 - same source as before, PP . Ours is 1.66 and Germany’s is 1.41, are we in the same ‘demographic crisis‘?. In any case, India’s is 2.72, but I don’t see anyone rushing to suggest they’ll be taking over the world any time soon. It’s not population that counts, it’s how your workforce is mobilised. Theirs is producing stuff people actually want to buy, ours is… I’m not entirely sure what ours is doing, but it ain’t making things and most of our national revenue was derived from moving made-up numbers around in imaginative ways.


parapauk said:
The former is a bigger problem than most think because the high-end stuff is skills, as oppose to labour, intensive.

That’s pre-supposing that they’re not capable of developing the necessary skills on their own. 30 years ago, who thought they’d be able to turn out a product like Lenovo? And, as I said, there are a lot of highly-skilled people in the West who’re all of a sudden looking for a pay-poke. I’d bet a fair few of them would be happy to pass on their know-how to an employer who isn’t going to go bust any time soon.

parapauk said:
The rule of thumb is that the more complex and expensive something is, the less the labour cost matters. This is why a haircut in China might be 10% of the cost of one in the West, but a plasma TV is likely to be 60% of the cost. In the end prices converge, starting with the most expensive and complex things and finishing with the simplist. If China wants to get as many out of poverty as possible, it will focus on employment that will provide for the most people possible and conserve its comparative advantage for as long as possible. The high-end products are important for it to move into, but they'll be entering a crowded market that won't provide much for the people.

Economies of scale always matter. If the world needs 10m plasma Tvs per year, then a Chinese company employing 10,000 skilled workers will always undersell per unit any one of 100 western companies employing 1,000 workers each. And that’s before you factor in the State’s ability to cap prices on things like fuel and basic foodstuffs to a limit determined by the costs of production rather than cost-plus-profitability.

If China were just another collection of private companies pulling their own ways, comparative advantage theory might make a difference to how things are run, but they’re not. They’ve got a fusion of private enterprise under state control that’s unique in a number of different ways. One of those ways is that the government knows that it has to meet its citizens’ aspirations or dangle from lampposts and that its citizens aren’t content to be sweatshop labourers for ever. That’s not something market forces give a shit about.
 
"Cheers for the info, I ask as im 26 and still learning about the world every day and have never experienced a shite economy before."

Ah Nay Sweat carlbcfc, no one eles on this board has experienced a World Economy like the current one.
It is said to be worse then the crash of late 20's 30's and it took WW II to pull the US and rest of world out of that one.

Smart move by the Chinese buying for the future.
I do think they'll have to start buying/importing womans somewhat rather quickly to stop the urge of all those young men going short.
Very big internal problems in China, so much of their massive military exists to keep the population in line.
john
 

Contrarian

War Hero
This great Chinese mineral grab is well underway. The ramifications will involve seismic geopolitical shifts. The strains are already showing in the world of International Relations. Geopolitically this process is as significant as the clean water crisis.

The West is bust, in tatters it lies, the result of a wholly avoidable systemic collapse of the capitalist system; the result of extremist-capitalism having gone criminally mad. Corporate debt has never been so great, and many Western mining companies are struggling to stay afloat in an ocean of debt. As such, they are vulnerable as they face the possibility of needing to sell equity in order to service debts. Meanwhile, cash rich, state-owned Chinese companies circle overhead waiting for the chance to pick up strategic assets at relatively low cost. China now imports, including scrap, one quarter of the world's copper per year.

Anglo-Australian miner, Rio Tinto, has a market capitalisation value of US$35 billion, but debts totalling $40 billion. Rio will need to service $8.9 billion of debt in September 2009. Chinalco (Aluminium Corporation of China) has expressed an interest in buying up to a $19 billion stake in Rio Tinto. Naturally this has led to concern and fear amongst Western interests. Australian Treasurer, Wayne Swan, is expected to announce a ruling on the proposed Chinese partial acquisition of Rio Tinto in mid-June. However, the decision is unlikely to favour the Chinese. Nationalist sentimentality has broken out in Australia, whilst shareholders in London are giving the idea the cold shoulder. Protectionism has begun, with Australia’s Foreign Investment Review Board scuppering a Chinese $1.9 billion bid for OZ Minerals. Last month the Chinese state scuppered a $2.5 billion Coca Cola bid for a large soft-drinks company in China.

China is able to be a predator -- and at times a clumsy one -- because it is a net-creditor. The West is mainly comprised of net-debtor nations. China owns more of us than people think. The question is, how will we pay them back?

China has been making inroads into Africa and Central Asia of late. A major coup for China was the winning of the rights to mine the Aynak mine in the Logar Province in Afghanistan. The mine contains up to 13 million tonnes of copper. I wonder if this was a diplomatic concession that Washington gave; a Chinese condition for their funding of the Afghanistan war. Chinese diplomatic efforts in mineral rich Africa are in full swing; it is strategically invested in over 18 African countries. China's supply routes are growing by the week.

Western planners failed to appreciate the impending rise of China and India, and the inevitable increase in demand for commodities. Western commercial investment waned in Africa during the past two decades; we were caught flat footed. This gave the Chinese the chance to grab mining rights, and to forge trade agreements throughout the continent. As a net importer of oil, minerals and food, China is reliant to a large extent on Africa. This is also an achilles heel for China, perhaps most significantly as long as China continues to lack a true expeditionary capacity.

Diplomatic spats have already occurred. Executives of Western mining interests have lodged a complaint at the UN over China's growing investments in Africa. The complaint ironically cites the need for China to improve its health and safety and human rights practices before it can be allowed to expand further. Perhaps further down the line we can expect attempts at regime change throughout Africa. Zambia is one example where a populist pro-British opposition movement is challenging Chinese 'exploitation'. The Patriotic Front, led by Michael Sata, is challenging Chinese investment in Zambia, whilst calling for a 'return of the colonists'.

We live in significant times.

Edited for accuracy.
 
Top