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China’s Resource Strategy
As Bernanke is doing his best to actively create inflation, the Chinese look for ways out of the immense amount of dollars they hold and to minimize their losses.
It took a while but their strategy is now clear. The will buy as much natural resources as they can get for the currently depressed prices.
Iron ore:
Although iron ore demand in other countries is slumping, in China demand is apparently increasing. In the first quarter of this year, China imported 131 million tons, up 18.8%, year on year. In March alone China imported 52.08 million tons, 46.2% over the same month last year and a record high.
Oil:
China has said it will build the second phase of a strategic crude oil reserve with a capacity of 26.8 million cubic metres, or nearly 170 million barrels, after filling its first four reserve bases with total capacity of 100 million barrels.
Copper:
China, which accounts for about 30 percent of global copper demand,
imported a record 296,843 tonnes of refined copper in March, up 137.6 percent
from a year ago.
Gold:
China has boosted its gold reserves to 1,054 metric tons, according to a Friday report by Xinhua News Agency, which cited Hu Xiaolian, head of the State Administration of Foreign Exchange.
The increase makes China the world's fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons.
Other stuff:
China Inc. is drawing increased attention as Chinese companies snap up mining and energy assets around the world. China announced foreign acquisitions totaling $52 billion last year, two-thirds in natural resources, according to Dealogic. This year, there have already been 65 deals totaling $23.2 billion, nearly all in natural resources, Dealogic says.
Where China can not buy directly, it invests via loans:
Beijing – China and Russia on Tuesday signed an oil cooperation deal involving the supply of Russia oil in return for record loan of 25 billion dollars from China. Chinese Vice Prime Minister Wang Qishan and his Russian counterpart, Igor Sechin, signed government agreements in Beijing to finalize the deal.
Further loan for oil deals were made with Kazakhstan, Brazil and Venezuela.
I think this is a very smart strategy. With demand in the rest of the world in decline due to the Second World Depression, resource prices are still falling. That is a good time to buy in bulk and to hoard for times of higher demand and prices. Paying for these resources in dollars will give China more value than the declining treasuries in now holds.
This will not solve China's treasury headache though. As long as it pegs the yuan to the dollar it will have to keep buying treasuries and there may not be enough resources readily available for China to buy right now to again get rid of these. Eventually the dollar peg will have to fall. But up to then China will do its best to convert its treasury holdings into tangible assets.
When the world economy eventually rebounds China will have the big advantage of having cheaply bought raw materials in stock while others will then have to buy them for increasing prices.
Having a superpower that is:
A) loathe to build up its military beyond defense of its own borders, and
B) capable of marshaling enough soft-power to make up the difference, so that it rivals the U.S. and Europe internationally
is a good thing. It would have the effect of expanding the world from a single axis of propaganda into a space where dialogue can take place, while at the same time casting a stark contrast to the European-American colonialist model of international relations that has ruled the world for the last three hundred years.
So to slothrop and matt, i say: at best, you’re wishing for a pipe-dream utopia that ain’t gonna happen, not in our lifetimes. You want someone who can fight the U.S. and will bring the second nirvana of Jesus Mohammad down to create heaven on earth? Fat chance. The best we can hope for is for China to rise and be able to fend off the U.S. imperialism using soft-power while deflecting Euro-american advances from open combat.
And i find it funny when matt says:
“….the PRC is an authoritarian, state-capitalist dictatorship….”
State-capitalist? Is that something like when the government steps in and props up economic foundations with massive influxes of capital that are distributed solely among the managing elite, while the rest of the country falls into massive unemployment and economic stagnation? Wouldn’t that also be when the State directs and manages production and scientific development through government-sponsored contracts that are disseminated primarily through its military and state-managed bureaucracies? Or would that be when the State decides which manufacturers survive and which are sent off to bankruptcy and restructuring?
“Authoritarian” would be something along the lines of a nation that doesn’t recognize Habeas Corpus, uses torture as a means of establishing, validating and disseminating propaganda narratives, and has a massive police state that imprisons large numbers of its own population for political and ideological offenses, rather than violent ones, wouldn’t it?
Now, “dictatorship” might be harder to pin on the U.S., but saying that the CCCP is run as a “dictatorship” isn’t any more accurate. The highest levels of leadership in the CCCP are power-sharing arrangements, not a dictatorship. It’s really more of an oligarchy, and has been enforced as such ever since the Gang of Four incident. Hu may be president, and nominally the one with the final say, but he shares much of his power with Wen and there are many areas where he can only advise, not directly intervene. Lumping the CCCP in with regimes like that of Baby Doc Duvalier, the Saudi King, Manuel Noriega, or Idi Amin is shallow and disingenuous.
I’m not saying i prefer the Chinese ways to the U.S. ways; but i am saying that, in light of how the two systems have been recently developing, i honestly can’t see a whole lot of difference.
Now, China’s excuse for its government excesses is that it’s a once-proud empire that was ravaged by more than a century and a half of vicious colonialist aggression, now at long last picking up the pieces of its palaces and re-assembling them. Make an omelet, eggs get broken.
The U.S., however, has been at the top of the world’s social order for some 20 or 30 years now, at least (i’d push that back to 50 or 60, even). In that time, it’s been promoting war and intensifying social stratification and police repression among whatever peoples it involves itself (don’t believe me? Compare 1980’s Hungary to 1980’s El Salvador, and then let’s talk). Most recently, its elite took it upon themselves to run armageddon across two defenseless countries, solely for the sake of grabbing up more oil. Its economy is today founded on a “military-industrial complex”, as one of its Presidents so famously stated, that is now back-biting into its own domestic culture with massive prison institutions that far outnumber, per capita, anything Chinese peasants have to face down.
So what’s its excuse for all that? Really, you two are just playing the old American Exceptionalist card: “The devil you know must be better than the devil you don’t.” You pretend as if the Chinese system represents some horrifying de-volution from the current world order, and further pretend as if the current order represents some sort of enlightened achievement of high humanity.
But where are all these advantages y’all’re advertising, here? Slothrop, you’re a free marketeer; China is now at long last maneuvering itself into a position where it can compete with the U.S. on even ground, without fears of the U.S. breaking the rules by starting a war. It’s entering “the marketplace of ideas”, yeah? Are you suddenly now going all ideological on us, and retreating into “it’s only a fair market if its managed by white people”? Have you lost all sense of reason? So much for a rational market, then, yah?
By definition, the Chinese system is going to have things in it that Americans aren’t going to like. But whinging around about how really, we all know the US/UK is better for people, better at heart, better in practice, blah blah blah doesn’t add a tiny jot of anything productive to the process or discussions about where its headed. It’s just one more instance of Americans hearing how weak their standing truly is and then sticking their fingers in their ears and screaming “Lalalalala! We’re white! We’re right! And if you don’t believe us, we’ll fight!”
And pardon me for pointing out: haven’t we had enough of that, these last 30 years? It was the same under Reagan, the same under Bush I, the same under Clinton, the same under Shrub, and now here we are at Obama, watching the economy fall apart and witnessing the greatest government giveaway to the rich ever (or at least, since the railroad land-grab…) —
and you two are whining about how things are still better here than they are in China?
Well, i got news for ya:
Considering where the race was begun, back fifty years ago, that’s a pathetic standard indeed.
Posted by: china_hand2 | Apr 27 2009 2:35 utc | 18
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