Socio-Economics History Blog

Socio-Economics History Blog

What Will China Dump Next, After Treasuries, to Keep Control?

by mosesman

China_vs_US_currency_war

  • IMO, China is successfully conducting the dumping of USD denominated assets while disguising the entire effort as the devaluation (and defense) of the CNY. Things are not what they appear. If the Chinese were to publicly announce their rejection and dumping of their US$3.x trillion of (USD denominated) reserves, it will collapse the USD overnight and the Chinese will see the purchasing power of their reserves drop easily by 50%. As it stands now, the Chinese are successfully dumping USD, US treasuries … while the market is distracted by talks of Yuan devaluation.
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  • What Will China Dump Next, After Treasuries, to Keep Control? 
    by , http://wolfstreet.com/  
    “Practically boundless” future capital outflows.
    “Beneath all of the financial turbulence there lurks, in my view, a credit crisis; I fear the worst now,” UBS economic adviser George Magnus told Bloomberg TV today. The reform agenda “has stalled,” he said, and “things are looking much bleaker for China going forward.”
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    And so on Monday, we got another flavor of it.
    The Shanghai Composite index plunged 5.3%, to 3016, down 15% so far this year. The Shenzhen Composite fell 6.6%. Hong Kong’s Hang Seng fell 2.8% to 19888, below 20000 for the first time since June 2013, and down 30% from its April high.
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    Everyone had hoped that China’s “National Team” would jump into the fray and bail everyone else out, but it didn’t. And the People’s Bank of China didn’t offer any big new remedies either. But it did stabilize the yuan after it had dropped 1.5% against the dollar last week, and about 6% since mid-August.
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    In Hong Kong, interbank yuan lending rates broke all records since the Treasury Markets Association started compiling the data in June 2013, with the overnight Hong Kong Interbank Offered Rate spiking 939 basis points to 13.4%.
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    And copper did it again, ratting on China’s real economy. Copper goes into anything from skyscrapers to smartphones. China is the world’s largest copper consumer, accounting for over 40% of global demand. And on Monday, copper dropped 2.6% to $1.97 per pound, the lowest level since May 2009.
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    Buffeted by, among other things, fears about slowing demand from the industrial sector in China, oil plunged – with WTI down 6.1% to $31.13 a barrel.
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    To prop up the yuan and counter the impact of capital flight, China had dumped $510 billion of foreign exchange reserves last year, drawing them down to a three-year low of $3.33 trillion. And that was just the beginning. According to estimates by BofA Merrill Lynch, that $510 billion of sales included:
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    * $292 billion of US Treasuries
    * $92 billion of US stocks
    * $3 billion of US agency debt
    * $170 billion of non-US paper.
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    But China also increased its purchases of US corporate bonds by $44 billion, bringing the total to $415 billion.
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    read more.

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