Financial Threats From China
Looks like blackmail to me.
Quote:
http://www.telegraph.co.uk/money/mai...nchina107a.xml
China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 6:00pm BST 07/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.
"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency.
Russia, Switzerland, and several other countries have reduced the their dollar holdings.
"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
Re: Financial Threats From China
Well... lemme see..
National Security.
Secrets.
Oil Reserves.
Financial.
Ah, declaration of war. Good. Let's get this horse moving.
Re: Financial Threats From China
Isn't it interesting how the threats Russia and China are making are becoming more and more open?
I'm glad Fox News and the rest of the MSM are all over a collapsed bridge and trapped miners instead of this as though there is no other news out there!
Re: Financial Threats From China
It's pissing me off, that's for sure.
Re: Financial Threats From China
New Threats From China
Quote:
While trade sanctions against China are being discussed on Capitol Hill, the Chinese government has begun a concerted campaign of economic threats against the United States in a game called "Who will blink first?"
Several leading Chinese Communist officials have warned that Beijing may use its $1.33 trillion foreign reserves as a political weapon to counter congressional plans for trade sanctions. Some have called this China's "nuclear option," since dumping U.S. bonds could trigger a dollar crash at a moment when the currency is already breaking down through historic support levels.
Such a move could cause a spike in U.S. bond yields, hammer the already vulnerable housing market and perhaps tip the economy into recession. Therefore these threats cannot be taken lightly.
It is estimated that China holds over $900 billion in a mix of U.S. bonds, clearly the bulk of its foreign reserves. Xia Bin, chief at the Development Research Center, indicated that Beijing's foreign reserves should be used to influence U.S. trade policy in what is an unambiguous threat. "Of course," he added, "China doesn't want any undesirable phenomenon in the global financial order."
He Fan, an official at the Chinese Academy of Social Science, said China has the power to set off a "dollar collapse if it chooses to do so." He noted, "China has accumulated a large sum of U.S. dollars. Such a big sum, of which a considerable portion. . . contributes. . . to maintaining the position of the dollar as a reserve currency."
Clearly China is unlikely to follow this scenario as long as the Yuan's exchange rate is stable against the dollar. Moreover, the U.S. has some leverage in this arrangement since a recession would diminish U.S. buying and importing power thereby adversely affecting Chinese markets.
But there is little doubt the Chinese intend to play the blackmail card and contend the U.S. is hostage to economic decisions made in Beijing. Having control of over 44 percent of the U.S. national debt undoubtedly leaves America acutely vulnerable.
The timing of these threats is particularly troubling. They come at a time when credit markets are already fearful of contagion from subprime mortgage troubles. That may explain why Secretary of Treasury Henry Paulson said any trade sanctions would undermine America's authority to promote free trade and open markets.
While some compromise with China is likely to be worked out, as it has been in the recent past, the backdrop for decision making is colored by the large sum of U.S. dollars sitting in Chinese hands. The Chinese government has allowed the yuan to appreciate 9 percent against the dollar over the last two years under a crawling peg, but it has not diminished the current account imbalance and the growing Chinese trade surplus.
From a strategic perspective the Chinese have a nuclear arsenal to thwart American interests in Asia and now have a financial nuclear option to influence U.S. political judgments as well.
Where this will lead is hard to say. But on the central issue no guess is needed: American options are circumscribed by the real threats China may impose.
China is not an enemy of the U.S. (:wtf:), but neither is it a friend. Recognizing the potential collision of interests in the Taiwan Straits and elsewhere, it is best to keep in mind the dangers that could result from an entangling relationship. Unfortunately this has already occurred and it is not possible to see how the U.S. easily extricates itself from the entanglement.
Re: Financial Threats From China
Is China Quietly Dumping US Treasuries?
Quote:
A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.
Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.
"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.
"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.
While the greenback has been resilient over recent weeks - even regaining something of a 'safe-haven' role as banks scrambled to buy the currency to cover dollar debts - most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.
David Powell, an economist at IDEAglobal in New York, pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.
In a client note entitled "Has China started to dump US Treasuries?", he said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.
The scheme is part of the government's plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.
If so, the switch comes at a very delicate time, just as tempers flair on both sides of the Pacific over China's policy of holding down yuan by currency intervention. A bill in Congress calls for punitive tariff sanctions of 27.5pc against Chinese imports, and there has been a growing outcry over contaminated pet food and lead-tainted toys.
Two top advisers to the Chinese government gave strong hints in August that Beijing should use its estimated $900bn holdings of US Treasuries and agency bonds as a "bargaining chip", words taken as an implicit threat to trigger as US bond crash if provoked.
The Chinese government has since put out an official statement clarifying that it has no intention in taking such an irresponsible step, which would in any case backfire by devaluing China's remaining holding.
Mr Powell said the switch out of Treasuries was a purely commercial decision. "If turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores," he said.
Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of reserves, followed by Japan.
Robin Bhar, a metals analyst at UBS, said there was little evidence yet that Asian central banks were switching heavily into gold. Most of the recent buying of gold has been on the COMEX futures markets, the playground of hedge funds.
Central banks tend to buy their bullion in London at the AM and PM fixings, leaving a footprint that is visible to experts. They seem to have been largely absent from the market so far.
Re: Financial Threats From China
Quote:
"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.
Bul-cough-llll-cough---shi--cough---t!
They know.
