From Times Online

March 14, 2010

Difficult year ahead for China admits Premier Wen Jiabao

China faces a difficult year as it works to maintain economic growth and spur development, but it would not be bullied into boosting the value of its currency, Premier Wen Jiabao said today.

In a wide-ranging press conference at the end of China's annual session of parliament, Mr Wen said Beijing was not ready to withdraw stimulus measures put in place in late 2008 to pull the world's third-largest economy out of the crisis, and denied criticism that China is keeping its currency undervalued in order to boost exports.

He also said that he would not allow the US to push China on the issues of China and Tibet, and claimed he was snubbed at last year's Copenhagen climate change summit.

Keeping the yuan stable was "an important contribution" to global recovery from the economic downturn, Mr Wen told hundreds of reporters gathered at the Great Hall of the People for his only formal press conference of the year.

Related Links

• China economy grows at slowest pace in 15 years

• Chinese exports fall at fastest pace in 13 years

"This year is going to be the most complicated year for the economy," he said.

"We will maintain the continuity and stability of our macroeconomic policies," he said, adding that as circumstances change, Beijing would make every effort to make its policies "more flexible".

During the two hour press conference, Premier Wen also repeated China's stance that a recent dip in relations with the United States was entirely the fault of Washington for allowing the Dalai Lama to visit the U.S. and approving the sale of arms to Taiwan.

"The responsibility does not lie with the Chinese side, but the United States," Mr Wen said. "We hope the U.S. will face the issue squarely ... so as to restore and improve China-US relations."

Speaking just after the country's annual legislative session ended with the approval of a budget that extends job-creation and welfare programs to deal with a rapidly expanding rich-poor gap, Mr Wen said

China had to be wary of a "double dip" recession this year as it sought to balance growth, economic structural adjustments and inflation expectations. 

China "must have firm confidence" in dealing with any economic problems, he said. "The only way out and hope when facing difficulties lie in our own efforts," he said during the televised news conference

China, the world's third-largest economy, escaped the worst of the global financial crisis by ordering $1.4 trillion in bank lending and government stimulus.

Although economic growth bounced back to 10.7 percent in the final quarter of 2009, authorities say the global outlook is still uncertain, amid worries that the torrent of lending is adding to inflation and fueling a dangerous bubble in stock and real estate prices. 

When asked if China would play a bigger role in international affairs, Mr Wen said China was still a developing country and was focused on improving living standards across the country. 

He said the government would reform its controversial exchange rate controls but will keep its currency "basically stable." He gave no indication when Beijing might allow its yuan to rise against the US dollar — a move sought by Washington and other trading partners.

Critics say the yuan is kept undervalued, giving China's exporters an unfair price advantage and swelling its trade surplus. China has allowed a roughly 20 percent rise in the currency's value against the dollar since 2005, but re-imposed tight control after the global financial crisis hit.

Related Links

• China economy grows at slowest pace in 15 years

• Chinese exports fall at fastest pace in 13 years

Beijing has more than $800 billion of its foreign reserves invested in U.S. Treasury securities, and Mr Wen said the value of the U.S. dollar was a "big concern." He said he wanted to see the United States "take concrete steps to reassure investors," but gave no details of what Beijing wanted done.

Mr Wen promised to increase imports to promote trade and appealed to other nations to oppose what he said was rising global protectionism. He complained that some countries were trying to boost exports by weakening their currencies, but did not name any. 

The budget passed by the congress called for a 10 percent rise in spending to fuel the economic recovery, with more money for low-cost housing, pensions, and other social programs for the country's 1.3 billion people.

The priorities extend Mr Wen and President Hu Jintao's years long efforts to spread the benefits of economic growth more broadly across a rapidly changing society. This year, inflation is a looming challenge, with housing prices soaring and worrying rises in food prices that consume as much as 40 percent of household incomes. 

Mr Wen said inflation is a serious concern, along with endemic corruption and a yawning gap between rich and poor that leaves millions of migrant workers and farmers without basic government aid. 

"These are enough to affect social stability, and even (affect) the consolidation of state power," he said.
Speaking of his perceived snub at Copenhagen in November, when China was blamed by some for undermining efforts to reach a binding he was criticized for skipping a meeting of top leaders attended by President Barack Obama, Mr Wen said he was never formally notified of the event and had sent Vice Foreign Minister He Yafei to register a protest. Wen said no explanation had been given about the failure to issue a formal invitation.

"So far no one has given us any explanation about this and it still is a mystery," he said.

http://business.timesonline.co.uk/tol/business/economics/article7061436.ece?token=null&offset=0&page=1

Understanding China: Property Market and Stock Market

Understanding China

China has expanded its economy for the last 20 years.  Its growth over the last 10 years was even more impressive than the first 10 years.

Its present stock market is trading at a PE of 50.  This is not sustainable.

Why is the PE so high? 

Being a relatively new stock market, the 'investors' are not savvy and the price fluctuations are expected to be larger than a mature market.

Another reason is the absence of other assets for the growing affluent Chinese to invest in.  Besides keeping money in the bank, most Chinese invest into the property sectors and the stock markets.  The high prices in these markets are reflecting the disparity in the excess demand over supply.

Properties in China's biggest cities, Shanghai and Peking have doubled in price over the last 5 years.  This rise appears unabated.  Some properties have risen another 2% to 10% over the last few months.  Rental yields can support about 50% of the mortgage repayments in most cases.  The gains in investing into these properties are purely capital gains from property price appreciations.

In Peking, it is not uncommon to find a 3 bedroom flat in a condominium centrally located priced at 5 million yuan.  The average per capital income of the local Peking resident is around 2,000 yuan per month.  How can such prices be supported?  Are these properties affordable?  Is there a disconnect between the prices of properties and the affordability of the people who are going to buy and live in them?  Giving the present limited supply relative to demand, the price can continue to be supported.  This can be explained by the unequal distribution of wealth among the population.  There is a small group enjoying a large percentage of the wealth and this group will continue to invest into the property and the stock market in China.  There is still some time to go to equilibrium.

There are many businesses in China with huge business opportunities tapping the capital market.  The A shares cannot be traded by foreigners.  To participate in the Chinese companies one would need to buy the H shares of these Chinese companies listed in the Hong Kong Stock Exchange (HangSeng).

3 Ways to Beat Lower Stock Returns

3 Ways to Beat Lower Stock Returns
By Dan Caplinger
June 24, 2009


When 18 months of losses recently gave way to a nice three-month rally, many investors started to see a glimmer of hope that maybe, just maybe, the stock market was starting to get back to normal. Unfortunately, though, the "new normal" may not give you the kinds of results you got used to before the bear market.

For decades, investors have counted on rules of thumb, such as the 10% long-term average annual return on stocks, to guide their investing decisions. Nearly every financial plan has assumed that while investors would still see bumps in the road, you'd eventually get back to that 10% trajectory.

Getting used to less
Now, though, top investors have started to question that basic assumption. As Foolish fund expert Amanda Kish discusses in the brand-new issue of the Fool's Champion Funds newsletter -- which is available today at 4 p.m. ET -- the recent Morningstar Investment Conference featured two well-known investors, both of whom warned against excessive optimism about any potential recovery.

Both bond guru Bill Gross and index fund pioneer Jack Bogle spoke about the future of the world economy and where the U.S. will fit into it. Gross believes that as a more mature economy, the U.S. can't expect to sustain its past economic growth rates, and so the era of high stock returns is over. As Gross sees it, investors will be better served finding stable sources of income, along with a greater emphasis on overseas investing.

Bogle comes at the problem from a slightly different tack, but he comes to much the same conclusions. With his projections of an 8% average return on stocks and a much smaller payoff from bonds, the conservative allocations he recommends aren't going to get you anywhere near the 10% returns to which many people have grown accustomed.

How to meet the challenge
The toughest thing about lower returns is the impact they have on compounding. Over a typical 35-year career, you can expect to see the money you first invest grow to more than 28 times its original value if you earn 10%. If you assume you'll only earn 7% on your money, though -- not unreasonable if Gross and Bogle's projections are anywhere close -- then the same money will grow less than 11-fold. That will leave you with less than half of what you would have earned with higher returns.

So, what's the right solution? The Champion Funds article recommends three ways to get the most from your portfolio, along with smart fund choices to go with all three methods:

Demand dividends.
While Amanda likes the idea of getting income from your portfolio, she prefers not to rely entirely on bonds. She recommends a fund that invests in ExxonMobil (NYSE: XOM), Hershey (NYSE: HSY), and Home Depot (NYSE: HD) -- strong dividend-paying stocks with yields that can supplement the current low rates that bonds pay now.

Go global.
The premise here is that if the U.S. economy stays slow, then you may get better results from companies with greater overseas exposure. The newsletter's fund recommendation here will help you load up on shares of global giants like Sanofi-Aventis (NYSE: SNY) and Nokia (NYSE: NOK).

Seek out strong growth.
Even in the depths of the recession, some countries are still seeing their economies grow, albeit at a somewhat slower pace. If you prefer the strong growth of emerging markets over developed countries like Japan and Germany, then Amanda has the fund for you, offering an easy way to own parts of America Movil (NYSE: AMX), Petroleo Brasileiro (NYSE: PBR), and other powerhouses of the emerging world.


Weaker returns from your investments can make your life more challenging. The right mix of investments, however, can help you make the most of whatever market environment you face in the years and decades to come.

http://www.fool.com/investing/mutual-funds/2009/06/24/3-ways-to-beat-lower-stock-returns.aspx

Goldman Sachs turns bullish on Chinese economy

Goldman Sachs turns bullish on Chinese economy

Goldman Sachs has dramatically raised its forecasts for the Chinese economy and is now predicting 8.3pc growth for this year, above the Communist Party's own target.

By Malcolm Moore in Shanghai
Last Updated: 9:36AM BST 22 Apr 2009


The reversal came after a raft of strong economic data in March convinced pundits that green shoots are starting to reappear in the Chinese economy, which could shortly overtake Japan as the world's second-largest.

Previously Goldman Sachs forecast that China would only grow by 6pc in 2009. Other economists have predicted growth to be as low as 5pc; strong compared to the rest of the world, but lower than the magic 8pc threshold that China believes is essential to maintain calm.

The Communist Party says that growth under 8pc will not produce enough jobs to keep unemployment at a manageable level and to avoid unrest.

After exports fell by nearly 20pc in the first quarter, the government has poured money into the economy to keep it running. As well as a 4 trillion yuan (£400bn) fiscal stimulus package, Chinese banks have made 4.8 trillion yuan in new loans so far this year.

In order to finance the sudden increase in credit, the Chinese central bank has started printing huge quantities of money. In March, the increase in M2 money supply was 25.5pc, the highest it has been since the Asian financial crisis.

Goldman Sachs is predicting that consumer price inflation will be negative, at -0.3pc, this year, allowing for further cuts in interest rates and the issuing of more new money.

"We are fully confident that we will overcome difficulties and challenges and we have the ability to do so," said Wen Jiabao, the Chinese prime minister, at the National People's Congress in March, as he underlined the government's determination to keep GDP growth at 8pc.

"Since the announcement of the fiscal stimulus package last November [...] the pace of implementation of new infrastructure investment and the scale of domestic credit expansion have been unprecedented," said Helen Qiao, an economist at Goldman Sachs. She added that growth next year would be 10.9pc.

Economic growth was just 6.1pc in the first quarter of this year, the lowest on record. However, commentators suggested that the figure was the bottom of the cycle, and that increases in industrial production, retail sales and fixed asset investment would soon buoy the Chinese economy.

However, Stephen Green, an economist at Standard Chartered in Shanghai, expressed some skepticism that there was a full-blown recovery underway. He said growth had accelerated from the end of last year, but cautioned that "there is a huge amount of volatility in the numbers and a chunk of salt is needed."

He added that while the fiscal stimulus package is likely to boost investment by companies in the short-term, in the long run China needs to increase the incomes of its workers and complete a social welfare system. He kept his forecast at 6.8pc for the year.

http://www.telegraph.co.uk/finance/financetopics/recession/5198966/Goldman-Sachs-turns-bullish-on-Chinese-economy.html

There will be slim pickings if China loses its appetite for Western debt

There will be slim pickings if China loses its appetite for Western debt
Last week I argued that the idea of large Asian economies "decoupling" from the West was unhelpful. Globalization makes nations more interrelated, not less. So export-oriented nations like China and India were always going to feel the impact of a massive Western contraction.

By Liam Halligan
Last Updated: 6:11PM GMT 21 Feb 2009

Comments 0 Comment on this article

But I have to admit that China, with its massive 1,400m population, isn't doing badly. Retail sales remain strong – up 17pc in real terms. Growth has slowed, but GDP still expanded by a pretty spectacular 6.8pc during the fourth quarter of last year.

Japan – that other Asian giant – continues to suffer. Tumbling exports have sparked the worst slump in 35 years. Japanese GDP contracted 3.3pc during the last three months of 2008 – equivalent to a 12.7pc annualized drop. The Nikkei 225 index of leading Japanese shares is down 16pc since the start of 2009. Chinese shares, in contrast, have gained 25pc this year – the best return of any stock market in the world. London's FTSE-100 shed 12pc over the same period, with New York's S&P 500 down 15pc.

Optimism in China has been boosted by the government's Rmb4,000bn (£405bn) support package. Unlike Japan and the cash-strapped Western nations, China is funding its fiscal stimulus using reserves, not extra borrowing.

As the West's predicament has worsened, and China's relative strength has punched through, the political mood music has changed. Just a few weeks ago, in his first speech as US Treasury Secretary, Timothy Geithner accused Beijing of "manipulating" its currency. So what if the renminbi has appreciated more than 20pc against the dollar since 2005, undermining Chinese exports? Wanting to appear tough, "Tiny Tim" attacked China.

Last week's G7 Finance Minister's meeting in Rome produced far more measured tones. "We welcome China's fiscal measures and continued commitment to move to a more flexible exchange rate," purred the post-Summit communiqué.

Hillary Clinton also perfected her "China bashing" rhetoric as she bid for the White House. But now, as US Secretary of State, and on a visit to China, she insists "a positive co-operative relationship" between Beijing and Washington "is vital to peace and prosperity, not only in the Asia-Pacific region, but worldwide".

So, what's different – apart from US politicians no longer being in election mode? Well, behind the scenes, the Chinese government has started demanding guarantees for the $700bn of US Treasury bills on its books.

China has been keeping the States afloat for the best part of a decade, buying up vast quantities of T-bills to fund America's enormous budget and trade deficits. At any point, China could seriously damage the world's largest economy – by refusing to lend more money. So reliant is America on funding from Beijing that, by turning off the cash taps, China could spark an instant run on the dollar.

The Chinese haven't done that as it would harm their dollar-based holdings and they understand we live in an inter-dependent world.

But the ever-greater use of Asian savings to fund the "advanced" economies' deficits is unsustainable. And, as such, we're reaching the point where it will not be sustained. With Western governments intent on printing money and debauching their currencies, the big emerging market creditors – not only China, but Taiwan, Russia, South Korea and others – are now privately raising doubts about their future appetite for Western debt.

This demand drop-off will happen just as the West's dependence on such credit peaks. America and the UK are starting to issue sovereign paper like confetti, to fund highly-irresponsible "recovery programs".

The "rush from risk" that followed the Lehman collapse last September caused the repatriation of billions of dollars invested in emerging markets back to the "safe haven" of the West. That has so far allowed the US and UK authorities to get their larger debt issues away.

But the upcoming volumes are simply enormous. Last year, the US sold bonds to cover its $460bn deficit – around $200bn to foreigners, with China taking the lion's share. But America is on course to issue a staggering $2,000bn of debt in each of the next two years.

Over the same period, the UK will be flogging three times more gilts annually than during 2008. Right across the Western world, crisis-ridden governments will be issuing more and more debt.

Worried about falling currencies and rising inflation, the emerging markets – not least the Chinese – are demanding better returns to buy Western sovereign bonds. This is entirely justified. The debtor governments are weak, confused, and piling loans on top of loans with little sign of future growth.

But how will the Western world react when the creditor countries finally refuse to buy? How will America respond – with resignation, understanding, or aggression? That's the crucial question the world faces over the next three to five years. Just what happens when China stops buying US government debt?

This 'crank' sticks by his prediction that the single currency will not survive

The euro has just surged 2pc against the dollar, up from a three-month low. Why? Certainly not because the eurozone's economic prospects have improved.

New data shows a sharp drop in the 16-member states' PMI index – a bellwether for future growth. The single currency area is still contracting at breakneck speed, and now faces a 1.2pc fall in GDP during the first three months of this year.

So why did the euro strengthen? Because Peer Steinbrueck, Germany's finance minister, indicated the currency union's largest economy would consider bailing-out weaker members if they defaulted on their sovereign debts.

Since the euro was launched in 1999, those of us arguing it would eventually break-up have been dismissed as cranks. But now, by admitting it "will show itself capable of acting", Germany has acknowledged bail-outs may be needed, suggesting collapse is a genuine possibility. The only surprise is that it's taken so long for the politicians to face up to economic reality.

For some time now, eurozone countries with large budget and/or trade deficits have been forced to pay high interest rates when issuing sovereign debt. These problem nations – Portugal, Ireland, Italy, Greece and Spain – are known collectively in global debt markets by the unfortunate acronym of "PIIGS".

The gap between their average 10-year bond yield and the rate needed to sell German government debt – "the PIIGS-spread" – has just topped 200 basis points. Austria has also now joined this high-risk group – given the exposure of its banking system to the emerging markets of Eastern Europe.

German Chancellor Angela Merkel refuses to comment on whether Germany would help eurozone members in trouble. No wonder. As German exports suffer, unemployment is rising. And after years of budgetary restraint, German voters won't take kindly to paying for excesses elsewhere.

But signals coming out of the German Finance Ministry indicate a plan is anyway being hatched – for countries with better credit ratings to sell bonds and then lend the proceeds to the ailing PIIGS. In return for doing this, though, the stronger members will surely want some say over how the money is spent and when taxes will be raised to pay it back.

At that point, eurozone voters will become extremely nervous at an implicit transfer of sovereignty – and the central contradictions of monetary union will be exposed. I've predicted the demise of the single currency since long before it's launch. I'm sticking to that view.

http://www.telegraph.co.uk/finance/comment/liamhalligan/4741093/There-will-be-slim-pickings-if-China-loses-its-appetite-for-Western-debt.html

Asian economic woe grows as China slows and Japanese exports plunge

Asian economic woe grows as China slows and Japanese exports plunge

China's economy may have ground to a halt entirely between the third and fourth quarters of last year and Japanese exports plunged 35pc in December, underlining the scale of the slowdown in Asia.

By Malcolm Moore in Shanghai
Last Updated: 7:39AM GMT 22 Jan 2009

China's national statistics bureau said gross domestic product had grown at an annual rate of 6.8pc in the fourth quarter of 2008, compared to a gain of 9pc in the previous three months.
The annual rate of growth for the world's third-largest economy was the lowest since the second quarter of 1998. "The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy," said Ma Jiantang, head of the statistics bureau.
Although the annual rate of growth was 6.8pc, economists speculated that the actual growth between September and December last year could have been zero, or even negative.
"My rough assumption is that it was basically zero," said Stephen Green, an economist at Standard Chartered bank in Shanghai. However, he added, recent revisions to Chinese GDP figures made an accurate calculation impossible. Mr Green also predicted that GDP may not grow in the first quarter of this year, compared to the last quarter.
Japanese exporters endured a torrid December as demand for a range of goods fell sharply. Exports to the US fell 26pc, those to Europe dropped 41.8pc and those to China were down 35pc.
In China, much of the slowdown has been blamed on a lack of demand from the rest of the world for Chinese-made goods. Wen Jiabao, the prime minister, said earlier this week that the outlook for Chinese employment is "very grim" as factories shut down and foreign companies rein in their spending.
Mr Wen will visit the UK next week, and Gordon Brown has already called upon him to make sure that China plays its part in stabilising the global economy. "We need China to play a full role, in partnership with us, if we are to restore confidence, growth and jobs," said Mr Brown.
China, however, has insisted that it must get its own house in order first, and there are indications that the government has already instructed banks to unleash credit into the market. The value of loans issued in November and December soared by nearly 19pc.
"It is hard to overestimate the potential importance of this," said Mr Green. "Mature economies' banking systems are currently flooded with liquidity that is not being lent out. China's interbank market is similarly flooded, but the difference is that the banks are lending."
The banks are likely to be ordered to finance a large chunk of the Pounds400 billion fiscal stimulus package that the Chinese government announced in November. There is a further Pounds2 trillion of spending demands from local governments across China that they may also be called upon to help with, irrespective of the possibility of bad loans.
Other bright spots included a slight rebound in industrial production growth to 5.7pc in December from 5.2pc in November, and a strong set of retail sales figures, where growth was 19pc.
Goldman Sachs, which issued one of the most bearish predictions for Chinese economic growth in 2009, at 6pc, admitted that there are "rising upside risks" that they may be incorrect, given the money flooding into the market.
"Our checks with commercial banks suggest the value of loans extended in January is likely to be even larger than the amount in December," said Yu Song, an economist at Goldman, adding that falling inflation also raised the possibility of further interest rate cuts.
However, Goldman said that China could be hit by even weaker export demand and maintained its prediction for now. "It is way too early to even claim the worst is over," said Mr Green. "Exports and domestic consumption, as well as profit growth, are now slowing and they will continue to grind lower over the year. Property still looks fragile, as does private investor sentiment. Even if we reach 8pc growth for this year, it will not feel like it," he added.


http://www.telegraph.co.uk/news/worldnews/asia/china/4312120/Asian-economic-woe-grows-as-China-slows-and-Japanese-exports-plunge.html

Advice on China investment: Follow the government

CRAIG STEPHEN'S THIS WEEK IN CHINA

Advice on China investment: Follow the government
Commentary: Talk of yuan convertibility illustrates why official statements and media may be key for making money
By Craig Stephen

Last update: 4:10 p.m. EST Nov. 23, 2008
Comments: 11

HONG KONG (MarketWatch) -- If you want to invest in China, do not try to pick winners among businesses. Instead, follow government policy.

That was the advice given by one seasoned China private equity investor speaking last week at Hong Kong's annual Venture Capital Forum held at Cyberport. To be honest, I had expected some secret investment recipe from these sage professionals, who invest early for the longer term.

There was more: Read the Peoples Daily carefully, as it often front-runs government policy to gauge opinion.

This advice might seem disarmingly straightforward, but it makes a lot of sense. Let the government anoint the winners and jump along for the ride, be it China Mobile (CHL:
china mobile limited) or Alibaba (ALBCF: alibaba com limited) (HK:1688: news, chart, profile) .

For the future, a couple of sectors at the Forum were highlighted as getting special attention from Beijing, namely health care and clean tech.

Some brokers agree that following the government is a sensible investment strategy. MainFirst, in a new report, says earnings visibility is scarce and the simplest path is to see which sectors benefit from the Chinese government's monetary and fiscal stimulus.

This looks like a timely updates of the "buy what China is buying" strategy. After all, in these cash strapped times it seems only governments have money to spend.

Another way to follow this advice is to watch the mainland Chinese government's external policy. China looks set to assumes a bigger role on the world financial stage, possibly sooner rather than later. Increasingly Beijing is debating policy options as it surveys the damaged financial landscape in the post sub-prime era.

Last week the sacred cow of the yuan currency and its lack of convertibility appeared to leap back on to the policy agenda after being run in the press.

A former deputy governor of the central bank called for China to accelerate moves towards convertibility of the yuan. Wu Xiaoling, now a deputy director with the finance and economic committee of the National People's Congress, said China must move soon.

China's currency today has a crawling peg to the U.S. dollar but is still not fully convertible. It may be bought and sold for purposes of trade and investment, but it's not convertible for purely financial transactions.

This arrangement had been credited with shielding China from the worst of the financial crisis. But as times change, it might also be time for a policy rethink.

The main arguments against change are fears of capital flight, unpredictable moves in the exchange rate, and preserving the value of China's U.S. dollar reserves.

As China recently surpassed Japan as the biggest holder of U.S. government securities, it could be timely to question the wisdom of adding to its mountain of dollar reserves, especially with U.S. authorities looking set to print more greenbacks as more businesses demand a bail out.
Wu was reported to say China's foreign reserve and commercial banks hold US$370 billion of Freddie Mac and Fannie Mae bonds, but that should not stop change -- China could afford to lose that.

Worries convertibility could spark capital fleeing China's shaky institutions should be less of an issue today: They surely stack up a lot stronger against their beaten-down overseas counterparts.

Against that, the benefits of having a fully convertible currency have to be considered. It should be easier to trade in yuan, with contracts in yuan removing a lot of exchange risk. There is also potential to boost growth in China's banks and financial institutions as they diversify.

Not only could China seek to have more diversified foreign reserves, it could also benefit when other countries' central banks hold yuan reserves -- something Thailand recently proposed.
Other media reports suggest China is considering adding more gold to its reserves. Gold is well off its dollar-denominated highs, but it has recently held up pretty well as a store of value in euros and many other currencies.

If China does move, or if it begins the process, it will have major implications for reserve currency weightings, as well as potentially for the Hong Kong dollar, and will lead to increased capital flows.

Of course, the proposal may be merely testing opinion, but it is something to keep an eye on.
Meanwhile, in Hong Kong as the economy continues to decline, some analysts suggest that, here too, government intervention is possible. RBS said in a new research note that the government could intervene to shore up the property market if price falls accelerate, warning of a return of asset deflation.

Hong Kong Chief Executive Donald Tsang recently held a fireside chat with British Prime Minister Gordon Brown, so maybe RBS has a fast track on information. The U.K. government will shortly become the largest shareholder in RBS, in the new world of state-owned investment/commercial banks.

It seems everywhere, we will have to get used to more government intervention in the economy.

And as the balance of power shifts on the global stage, being prepared for Beijing's next moves is going to be increasingly important


http://www.marketwatch.com/news/story/china-investors-its-all-about/story.aspx?guid=%7BC6C3074C%2D7F00%2D40DB%2D8F55%2D6E5303B13CDC%7D&dist=morenews

Optimism fades on the mainland, but watch for pockets of growth

CRAIG STEPHEN'S THIS WEEK IN CHINA

Chinese caddies join the unemployment line
Commentary: Optimism fades on the mainland, but watch for pockets of growth
By Craig Stephen
Last update: 4:14 p.m. EST Dec. 7, 2008
Comments: 1

HONG KONG (MarketWatch) -- Keeping track of the widening casualties of the global recession in China is becoming increasingly difficult, but it is still worth watching for pockets of opportunity.

Put deflating asset bubbles, steep interest-rate cuts and a 4-trillion-plus yuan stimulus package into the mix, and you can expect a lumpy economy at best.

In recent weeks, China has gone from optimism it could escape the global slowdown to a realization its export sector would take a direct hit -- November exports are expected to have shrunk in value for the first time in seven years -- and finally, to worries the whole economy is on the floor.

J.P. Morgan, in a new strategy note, pinpoints the "collapse of the domestic housing market" for spreading the feel-bad factor around.

Leaving aside the export sector, it seems intuitive that many of the industries that fed off the asset and property bubble on the way up will be spat out on the way down. One surprising new casualty of the economy is the jobless golf caddie.

http://www.marketwatch.com/news/story/story.aspx?guid=%7B95225E19%2DC6BE%2D4EF8%2DBE83%2DF7C851A6873D%7D&siteid=rss

China lectures US on economy

China lectures US on economy
By Geoff Dyer in Beijing
Published: December 4 2008 04:32

The US was lectured about its economic fragilities on Thursday as senior Chinese officials urged the administration to stabilise its economy, boost its savings rate and protect Chinese investments.

The message went to Hank Paulson, the US Treasury secretary, in Beijing for the strategic economic dialogue he helped launch to discuss long-term issues between the two countries.

EDITOR’S CHOICE
Lex: US-China dialogue - Dec-04
US rescue plan to push down home loan rates - Dec-04
Treasury tackled over Tarp concerns - Dec-03
Record contraction in US services sector - Dec-03
Paulson in last stand against weaker renminbi - Dec-03

As expected, Mr Paulson urged Beijing not to abandon efforts to let the renminbi appreciate, said US officials, amid fears China might want to let its currency weaken to help local exporters weather the global slowdown.

But Mr Paulson also found himself facing calls for the US to address its own economic problems. Wang Qishan, a vice-premier and leader of the Chinese delegation at the two-day talks, called on the US to take swift action to address the crisis.

“We hope the US side will take the necessary measures to stabilise the economy and financial markets as well as guarantee the safety of China’s assets and investments in the US,” he said.
The dialogue was dominated by the global crisis. Zhou Xiaochuan, governor of the Chinese central bank, urged the US to rebalance its economy. “Over-consumption and a high reliance on credit is the cause of the US financial crisis,” he said. “As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.”

Although China also faces a rapidly slowing economy and rising unemployment, the tone of the comments reflected an underlying shift in power.

Eswar Prasad, a senior fellow at the Brookings Institution, said: “One result of the crisis is that the US no longer holds the high ground to lecture China on financial or macroeconomic policies.”

Copyright
The Financial Times Limited 2008

http://www.ft.com/cms/s/0/48ac15fc-c1bc-11dd-831e-000077b07658.html