http://www.bloomberg.com/apps/news?pid=206...&refer=home

Extremely clever move by our Chinese friends. They take steam out of their stock market & FX reserves by allowing
investments overseas. What will the effects be? DowJones to 20,000? Hyperinflation? Or a sound new boom?



EDIT: I think this is very, very important news.

Sounds like a creaking dam to me.

Could be a big win for REITs!

Surely if the Chinese start shipping dollars abroad to buy American shares, that's going to cause a major increase in the number of dollars on the market, reduce the value of the dollar and increase US inflation?

One of the reasons why America has been able to get away with such low interest rates is because the Chinese have been taking all those new dollars and sticking them in a vault rather than buying things that push up the inflation figures.

Hats off to the Chinese... A 10 year guide to undermine the world's superpower.

Want to rebalance the balance the power? Pump the western world with cheap imports for a decade, bolster reserves and fix currency to amplify the balance of payments influx. Buy up dollars to keep up the US' purchasing power for Chinese imports.

Leave to settle. Announce that dollars will be sold, and used to purcahse foreign assets in the shape of companies. This unleashes a barrage of dollars, devaluing them, while other asset classes rise - gold, Euro, sterling. Buy assets denominated in these forms and the path to rebalance is complete.

Yes, clever old China!

This big news indeed.

Wouldnt it strengthen western currencies $/£ as they would be in demand by the Chinese to buy stocks? Similarly l would have thought it would lower the Yuan. Maybe this is the first step in de-pegging which will coversely strengthen the yuan.
edited to add
Nevermind l guess they already have enogh western currency not to need the exchange.

A flood of Chinese money is unlikely to drive US inflation, at least not inflation as recorded by CPI/RPI data. The Chinese will be shopping for stocks not socks.

One of Sun Tzu's main principles is to win a war without engaging in battle. All of this was forecast by Marc Faber 5 years ago, in the first chapter of his book "Tomorrow's gold: Asia's Age of Discovery".

What does anyone reckon they will be after? My guess is oil, uranium, PMs (esp PGMs), base metals & misc. African odds & sods. Maybe some leading western brands, like Lenovo/Thinkpad, perhaps even a few MBS...

edit: maybe food producers, too. Shame Unilever is so expensive ATM

Private equity groups are eyeing supermarket group William Morrison, according to a UK Sunday newspaper report.

Isn't that as worrying? That supermarkets will be squeezed to get every penny profit out of shoppers as they can?

Three Gorges. The villagers never stood a chance.

The trouble is the Chinese are not saving, and even the poorest are pouring their money into the Shanghai SM. Yesterday alone, 48 billion shares were traded. Evidently the Chinese Government are very concerned about this.

I think we see that the Chinese are really serious about "diversifying" out of the USD. And the irony is, that the US actually asks them
to do so. It reminds me of this (alleged) incident between a US-President (Johnson?) and Mao Zedong, where the US-president asked Mao to
give his people the freedom to travel. Mao then asked back, something along the lines, "alright, how many of them do you want? 10, 20,
or 30 million?"

And? What do you think will happen to the dollars they spend to buy those stocks?

Now, it's certainly possible that those dollars may go to people who use them to buy other stocks who use them to buy other stocks who use them to buy other stocks... etc, etc, etc. But sooner or later most will appear in the general economy.

It's not as though dollars magically disappear when they go into the stock market, they just get given to someone else who usually then spends them on something else.

But the Chinese do save, in fact they're the most passionate savers and hoarders I've ever met. However they currently get a negative rate of return on their bank savings, so any kind of alternative investment looks attractive.

I travel to China regularly on business, some of the Chinese people I work with there know I have some money in physical gold, and as there are tight restrictions on gold holding in China I'm regularly approached at the end of an evening's meal with a not very subtle offer to buy any Krugerrands or Sovereigns that I might just happen to have on my person!

The Chinese Government does not have to worry about getting re-elected every few years. This means it does not need to keep the population happy in quite the same way as the western democracies do. A little bit of economic pain in the UK means political unpopularity and possibly death for a government. This leads to short-termism.

In contrast the Chinese can play the 'long game' which they appear to be doing rather well.

Zhou En-Lai, when asked what he thought of the French Revolution, said "it's too early to say".

That's a long-game.

So why hasn't the surge in the Dow and FTSE over the last five years shown itself in the CPI/RPI figures?

Do they specifically ask for Krugerrands and Sovereigns? Why don't they just buy shares in Zinjin?

Wonder if they'll have any restrictions on buying foreign PM stocks?

So what your saying is your a smuggling?! I hope you like Chinese jails! Hard labour camps!

lol, no i think its a good thing, just hope you make an excellent profit!!

Lovely quote!

However, I'd take issue with the point that the Chinese government doesn't have to worry about popular sentiment. It worries desperately, about rural disenfranchisement, about urban employment, about food prices, about protests and riots, about the internet "window on the west", and about everything and anything they can imagine. The Chinese government, rather than feeling secure, believe they have a tiger by the tail and are hanging on for grim life.

Sigh.

In order to sell your shares to extract money from the stock market, you need to sell them to someone who has money, which means that they merely transfer their money to you. So unless they've been keeping that money under their mattress, the only difference is that instead of them spending it you spend it.

If the Chinese take money that's currently sitting in a vault, and buy shares, then money that was previously outside the system is now available to spend. That means monetary inflation increases, which means price inflation generally increases.

What is so hard to understand about this?

I think the chinese will buy shares in companies that produce/mine things. They are going to try and ensure supply of the items they need in order to continue the growth.

Gold, Silver, Uranium, Steel, Copper, Zinc, Nickle e.t.c Probably Chocolate too!

I would guess they are likly to try and manipulate the markets before they buy, possibly reducing the prices of these items, in order to reduce the share prices. Maybe they have stockpiled some of these resources in secret and will use them to remove supply issues from the system. Then they will buy up the companies cheaply.

Maybe I can sell my company. 10 million USD? With all that money I am sure there will be a bubble, just need to get it where I want it!!


Charlie

Absolutely not. I run the "developing nations" business for a US company based out of London and work hard at being the polite corporate guest in any country I visit, and I'm not just saying that because IP addresses are traceable.

And where do the dividends now go?

Yup, the Chinese are looking to 'deploy' their huge dollar reserves in something other than low yielding US Treasuries, it will be the biggest hedge fund in history.

In other words, China is the mattress that the Yanks have been hiding their newly minted cash mountain under. Alternatively, sweeping things under the carpet... well the owners of the carpet now want to get the crap out somewhere else...

No, this new legislation is in addition to the biggest hedge fund in history. And that is what is important about it. Every little helps.

lol i told people a few months ago what i think the chinese and the russians are doing, but i was seen as a madman. As i said the only way to bring down the west it to play them at their own game.

So far, the new legislation is quite restrictive since individuals are excluded. I wonder whether they might consider to relax even this rule in the future.
Yes, it looks as if many, many, many little green pieces fo paper will come home in the not too distant future.

Doesn't look very restrictive to me. Any individual with over 300,000 yuan can invest (£20,000) in these funds. The banks that run the funds can invest 50% of the fund in foreign equities. Won't it be like "Shenzen Uranium Fund", or "Zhengzhou PGM Fund"?

The question is: can they use leverage?

Right, the gates are open for the richer. Leverage, I don't know. The article from the OP mentioned that riskier stuff is excluded, I think.
So, we'll possibly see no Chinese hedgefunds, in the original sense.

Guess if they just take a bunch of money off wealthy Chinese they'll have so much they don't need leverage. To me, it looks like everyone in China with money will be able to invest in their equivalent of Merrill Lynch gold & general!

We're screwed Goldfinger, the Americans have already printed enough dollars to cause hyperinflation, they've just been neatly tucked away or exchanged for other bits of paper (Treasuries). If these were to hit the 'market', whether it be for commodities, equities, real estate the Chinese can just outbid whomever they like.

This is highly inflationary, the Chinese will have to be careful not to erode the value of their existing dollar booty.

Right. China and Japan are very much aware of that. I wonder, whether they have any models that tell them how
much USD they should optimally spend, and how much they should keep tucked away. That's a really difficult one.
It could even be beneficial for them to use a certain amount of Dollar bills and convert them into paper bricks for
heating.

Zhang, Yabin, Liu,,, go get him! lol

Indeed, a rush for the exits? Who wants to be left holding the baby.

Well what else did you think the Chinese were going to spend their dollars on? Levi jeans? This could be the start of a bull run on the Dow. Just look at what's been happening in Shang Hai.

The US is getting so screwed by the situaton that their own capitalists and globalists have created that the congress are beginning to worry about where it all might end. Rightly so, in the long term there is almost no gain or a very severe reduction in the standard of living in the US for the majority of its citizens if the current course is taken. There is no guarantee that developing economies will become consumers of US/Western goods. The latest trade deficits (in the UK and the US) show the reality of the current situation, its lose-lose.


http://www.morganstanley.com/views/gef/
Past the Point of No Return

My guess is that the US will become protectionist, but the UK won't (at least until people get really p!ssed off). Our bend-over-for-the-bankers politicians will alllow our financial economy to continue to be based on selling off UK listed assets.

In the deflation/stagflation thread, I mentioned that the Chinese bought UK listed Monterrico Metals. They have positions in Ridge Mining and now Ambrian Capital. ICBC is in talks with Travelex about business cooperation, but denying that they will take them over.

http://politics.guardian.co.uk/economics/c...2078271,00.html

Making it into the mainstream press now.

Not sure why this was taken off the main forum, took me ages to find! This has a huge implication on all assets houses included.

i would have thought so - it's in their interests - if their is a recession/depression their exports will dry up

by releasing this currency in a controlled manner they will increase inflation in the west and bring it's living standards down - again in a controlled manner

the us/uk are aware of this - they are busy building their respective police states to keep order as things get tougher for their citizens

http://www.advfn.com/news_Hong-Kong-shares...s_20613123.html

Hong Kong shares close at record high after China eases investment rules


HONG KONG (XFN-ASIA) - Share prices closed sharply higher as fresh funds
from mainland China started to flow into the local market following the
announcement that mainland banks and funds are now allowed to buy overseas
stocks under the mainland's revised investment laws, dealers said.
Buying was across the board in heavy turnover, about a third of which is
estimated to be due to fresh cash from mainland Chinese banks and institutional
funds, they said.

Talked to a couple of people about possible larger USD-cash flows from China to the US because of the situation described in the OP.
Consensus seemed to be that everything is rosy: it can only be good for the US and other countries if trillions of USD and other currencies
come back. Quote: stocks and house prices will go up - that's good for us.

I was sort of speechless. People seem to be completely unaware that their wages possibly won't keep up. Also the believe that all
Chinese and Russsians of the world have nothing better to do than propping up our housing market (by the time possibly already in
a freefall) seems to be ridiculous. The idea that they might want to buy the good stuff (commodities) does not seem to come to mind.

The good stuff also includes shares in Coca Cola, General Motors, IBM too. Also, why not property? Russian billionaires have been buying up prime location mansions in Mayfair, so why is it inconceivable that Chinese billionaires would be willing to buy prime location property in New York?
I believe that we are at the early stages of a commodity bull market too. The market will be driven by demand from the emerging economies, principally China, but they will only buy what they need, (which happens to be a lot!).