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China Pulls The Rug From Under Europe, Halts French Bank Transactions, Makes Good On Trade War Ultimatum

published by Lindquist on Wed, 2011-09-21 02:28

A flurry of headlines out of China suggest global macro-economic volatility may be ready to take it to the next level. We discussed last week how China's oh-so-generous offer of help to Europe was merely a veiled threat playing US against Europe in a game of who-gets-the-funding. Well, tonight, it seems, they are making good on some of those threats. Aggravated by EU's lack of market economy recognition, they pull trading lines with French banks, express concern at the EUR's safety (preferring US Treasuries), and indicate a clear preference for bonds over stocks - all the while warning of growing trade tensions - consider the sabre-rattled.

Initial comments from Commerce Minister Shen via Bloomberg:

*CHINA DISAPPOINTED EU HASN'T RECOGNIZED MARKET ECONOMY STATUS

*CHINA MARKET ECONOMY STATUS IS POLITICAL DECISION, SHEN SAYS

*CHINA MARKET ECONOMY STATUS NOT TECHNICAL ISSUE, SHEN SAYS

*CHINA'S HELP TO EUROPE, MARKET STATUS HAVE NO DIRECT CONNECTION

was quickly followed by the 'threat/promise':

*MOFCOM'S SHEN: EU DEBT CRISIS MAY RAISE CHINA TRADE FRICTION

*CHINA MOFCOM IS CONDUCTING REVIEW OF NESTLE-HSU FU CHI DEAL

and then Reuters reports:

A big market-making state bank in China's onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, two sources told Reuters on Tuesday.

 

The European banks include French lenders Societe Generale , Credit Agricole and BNP Paribas.

 

"Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped," one source who is familiar with the matter told Reuters.

 And the piece-de-resistance of the night was, again from Reuters:

China, the largest foreign holder of U.S. government debt, will keep buying U.S. Treasuries, the official People's Daily, the ruling Communist Party's mouthpiece reported on Tuesday, citing government researchers.

 

In an article about the reasons for China's increased purchase of U.S. Treasuries, the newspaper cited Yan Xiaona, a researcher with the Chinese Academy of Social Sciences, as saying that the dollar "is relatively safer than the euro" because of the unfolding sovereign debt crisis in Europe.

Furthermore, as if he had just read our earlier debt vs equity post: 

Wang Chaocai, a Ministry of Finance researcher, was quoted as saying that "what else we can buy if not U.S. Treasuries? It's more risky to buy into equities."

Lastly, for feces and giggles, China Daily just had to throw in the military element with the tongue in cheeky "Backlash expected if US seals arms deal"...

It seems that China did not get the answer they wanted from the Europeans and just as we said last week, swung back in favor of the US - TSYs as opposed to stocks. China 3 - Europe 0 - US 1 is the approximate score in this first round perhaps.

 

UPDATE: The 'game' continues into the night as China's Xinhua News cites absolutely noone when it claims Fitch's bearish stance on China's banking industry has prompted suspicions of a 'conspiracy'. And remember Fitch is French-owned.

With Europe perceiving Fitch as “purposely targeting” the region, the ratings company needs to find a new candidate to add to the “blacklist” to show its fairness, the report said, citing Wu Jingmei, head of Renmin University of China’s credit rating research center.

and then goes on to comment (via Bloomberg)

*U.S., EU SHOULD 'DITCH' PROTECTIONIST MEASURES: XINHUA

*U.S., EU SHOULD 'OPEN THEIR ARMS' TO CHINESE INVESTMENT: XINHUA

and a seemingly well-time rebuttal from Ambassador Locke:

*LOCKE SAYS CHINA BUSINESS CLIMATE CAUSING `GROWING FRUSTRATION'

*LOCKE SAYS CHINA POLICIES PLANTING `DOUBT' IN INVESTORS' MINDS

*LOCKE SAYS CHINA SHOULD LET CURRENCY APPRECIATE `MORE RAPIDLY'

*CHINA POLICY RAISES CONCERN IN FINANCIAL SERVICES SECTOR: LOCKE

We have lost score now but this rhetoric seems to be gaining pace...

 

  www.zerohedge.com/news/china-pulls-rug-under-europe-halts-french-bank-...

Tags: 
CHINA
ECONOMY
DEBT
EUROPEAN UNION
TRADE
CRISIS
FINANCE

Comments

Submitted by Heydrich on Wed, 2011-09-21 08:05.

China is “Aggravated by EU's lack of market economy recognition.”

Translation:

Western governments are owned by the rich, and they work for the rich against the masses. This is called a “market” economy (“good”) as opposed to a socialist economy, or a command economy that works for the masses (“evil”).

Western governments say that China does not have a “market economy.” They say China is “outside the mainstream,” along with Cuba and Vietnam and North Korea. They say China does not have “MES” (market economy status).

China resents this self-righteous Western bullshit for two reasons…

[1]  China helps finance the Western bankers and puppet governments that are criticizing China. The French-owned Fitch ratings agency, for example, regards the Chinese banking industry as second-rate.

Hence China is reducing its purchases of European debt. This is not mere sulking. China feels that US Treasuries are a safer bet that the sovereign bonds issued by European nations, which increase those nations’ debt, and thus their catastrophe.

(People like Christine LaGarde of the IMF say this is one reason why Europe must have a central Treasury for the entire EU. LaGarde wants the EU to be one nation under the bankers.)

[2] When a country joins the WTO, as China did on 10 Nov 2011, the WTO issues greater penalties for that country during trade disoutes, if the WTO claims that the country has a “non-market economy.”

For example, the West accuses China of “dumping” – that is, selling goods and services at below the cost of production, in order to command market share. Since the US Dept of Commerce says China has a “non-market economy,” the US Department has more discretion to declare that there is dumping, and more power to inflate the dumping “margin,” i.e. the measure of how much dumping (and consequently how much duty) will be owed for the merchandise to be imported into the United States.

By declaring that China has a “non-market economy,” the West says that China has no way to accurately determine the market cost of production. Therefore everything from China constitutes “dumping.”

This is a way for the West to practice protectionism in the name of “free trade." China is tired of it. When China agreed to join the WTO (10 Nov 2001) the WTO promised to recognize China as a “market economy” by 2016. The USA gave vague promises to do it by 2010. The more China has insisted that the West should recognize it as a market economy, the more the West has resisted.

Now that Europe has a crisis, China says, “End your games, or we won’t buy any more of your debt.”

The irony is that all of this doesn’t mean much, since – regardless of Western charges of “dumping” – the West will collapse if it doesn’t get cheap goods from the Chinese PRS (People’s Republic of Sweatshops). If the West bars Chinese imports, or sets tariffs that are too high, then the West itself will die.

There is, however, symbolic value. China helps keep the West afloat, yet the West refuses to “grant” China recognition as a market economy. The West is now in so much trouble that it will probably be forced to declare China to have a “market economy” soon. Otherwise China may buy less Western debt.

Incidentally, Australia recognized China as having a “market economy” in 2005, since Australia would be dead if China did not buy Australia’s raw materials, and China did not export cheap goods to Australia.  

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