Yu’e Bao or people’s money of China

12 Mar 2014
Imagine that you belong to a Chinese middle class family and is the mother of only child whose father is employed in a factory in some Chinese province. You have a sewing machine and therefore some neighbourhood business and you also own a smart phone. You have an account in a Chinese bank that returns you meagre interests. Then you hear of Alibaba and its Alipay providing you with Yu’e Bao, a financial product.

You have an account in Alipay—a Paypal like system-- and once you transfer the titbits of money you have with you from the State-owned bank’s account to Yu’e Bao, you start receiving 17 times interest compared to traditional savings opportunity! Besides, you can withdraw the money anytime you want from Yu’e Bao! At approximately 6% of annualised interest rates, your life changes all of a sudden. You can save more and shop more using the Alipay system from Alibaba’s e-commerce sites, if that be your choice.

Thus, suddenly you are in a wonderland!

Alibaba—world’s largest online Bazaar does more business in the e-commerce sector than Amazon and Ebay combined. It has Alipay service which in turn launched Yu’e Bao in June 2013.The fund takes deposits from laymen and businesses and funnels them to interbank market.

“Up to 90 percent of Yu’e Bao funds are invested in interbank deposits at 29 large banks, including the big state-owned ones,” notes IB Times in an article.

Given the size of deposits—Yu’e Bao raised $90 billion in 8 months—it can negotiate for better interest rates from banks unlike other customers.

However, behind the success of Yu’ e Bao lays some penchant realities in the Chinese banking sector.

The Chinese banks are primarily state-owned enterprises. Like any other banks, they take deposits from people and dishes out loan to the needy enterprises and individuals. But the banks are also tightly regulated in that the interest rates on deposits and loans are determined not by market forces, but by People’s Bank of China (PBoC), the Chinese equivalent of India’s Reserve Bank.

For decades, the state-owned banks were provided with a huge spread between interests on loans and deposits helping them to rake in gigantic amount in profits. The layman in China having no other avenues to save his precious money always resorted to deposit options provided by banks.

This meant they received just 0.35% interest in savings account and to secure a loan, had always had to attend to sky-high interest rates. Meanwhile the state-owned banks in China channelled this easy money from deposits—it stands somewhere around $12 trillion—to various state-owned enterprises and other industries.

Communist rate of growth

In a bid to keep the Communist growth rate of 8% for GDP, reckless lending measures ensued in China. In addition to legitimate lending, banks also opted for shadow lending as well. This phenomenon resulted in an excessive infrastructure boom. Buildings were built which were never occupied; malls were built where there were no footfalls.

All these resulted in a commodity consumption boom and along with trillions of Yuan in stimulus measures in the wake of Great Recession, assumed a ghastly dimension in terms of credit situation in China. Consequently, the past year in June saw a freezing of interbank lending in China.

The same month also witnessed the launching of Yu’e Bao!

In short, Yu’e Bao was derived from the financial arsenal of China to keep in check the liquidity crunch in the interbank lending using people’s money. By shooting this dart, China valiantly deployed the interbank credit freezing and resultant financial crisis risks on to broader shoulders of Chinese public.

With surplus money in the interbank lending system courtesy of Yu’e Bao, China is in a position to manage credit risks better, one may think. Hold your breath.

News reports today said of a Chinese solar company defaulting on onshore corporate bonds; the bond market is regulated by PBoC since 1997. Unlike the presumed bailout it carried out in case of a trust company, this time around, nobody came to the rescue of Chaori Solar Energy Science and Technology Company. Obviously, Chinese banks are exposed to this credit default risk.

If more of such news follow, and banks grow more cautious in lending to each other, it would help Yu’e Bao to demand excessive interest rates by any standards which could be passed on to customers. The growth momentum of GDP fixed at 7.5% by Xi Jinping means China will have to continue moving on its growth trajectory. This would put pressure on banks to lend voraciously. But waves of default may make lending by Yu’e Bao run to dead end.

While the users of Yu’e Bao can withdraw money in a swish using their smart phones, Yu’e Bao may not be in a position to take out money with such speed as the same would be locked-in within the system. This means, the promoters of Alibaba may have to face the heat; it would possibly face severe financial crisis and in case of a Yu’e Bao default reckless public fury.

Given that Yu’e Bao can continue to grow for the time being, this risk may not emerge until the bubble pops. Chinese e-commerce companies like Baidu and WeChat are also on the move to aggressively promote products like Yu’ e Bao. When they assume a sizeable chunk of the economy the popping of the bubble can contribute to a nightmarish scenario: trigger a financial meltdown, spur an economic failure and spark a political crisis of lethal dimensions.

Perhaps, in a bid to avoid that mishap China is mulling the introduction of private banks on a trial basis which would address the credit requirements of individuals and SMEs. The authorities are also contemplating further de-regulation of the banking sector.

The sooner, better! (rakesh.neelakandan@gmail.com)

http://www.commodityonline.com/news/yue-bao-or-peoples-money-of-china-58205-3-58206.html 

Who will bailout China?

Last Updated : 15 April 2013 at 15:35 IST

Why the question—'who will bailout China?'—should be asked now?

After all, the scenario embedded in the question is not the least plausible one, one can argue. China is still the growth engine of the world; Chinese GDP for the first quarter at 7.7% may not be excellent, but is still good enough, one can say. China still accounts for the majority of imports in crude oil, copper and other commodities exhibiting the underlying strength of the economy. China has excess of $3.3 trillion in foreign exchange reserves.

So why the premature question now?

The reasons stated above that would pre-empt necessity of asking of the question—'who will bailout China?'—are the very reasons that prompts the question in the first place. China is the growth engine of the world. China accounts for a big chunk of crude oil imports as well as metals, China has trillions in US Dollars in reserves.

In short, 'who will bailout China' is a question that you can ignore at your own peril. It may be premature, but worth asking. At least we should start thinking about it even as we realise that China is acutley aware of the risks and dangers that engulf them.

First, let's start with the first quarter GDP figures. China growth has slowed down to 7.7% when compared to expectations of 8% predicted by most analysts. Is that actually a good figure? It has to be noted that parts of Eurozone are witnessing negative GDP growth rates and Chinese growth rate is not a bad figure at all.

“See, you can view this in two ways...a Goldman Sachs study says that China is cutting down on growth in a deliberate manner; that China is actually slowing down fully aware of it. Other view point is that China is experiencing a real slow down with domestic consumption down and exports turning sluggish,”said Srikanth Kondapalli, Professor, Centre for East Asian Studies, Jawaharlal Nehru University, New Delhi.

“I go with the latter view because a deliberate slow down of even 1% can dent Chinese employment figures by a whopping 20 million. Since that can create socio-economic problems, I don't think that China is deliberately slowing down. It is the external—sluggish exports—and internal factors like declining domestic consumption that are resposible for Chinese slow down.” Professor Kondapalli added.

“Persisting labour wage growth is yet another factor that is adding to the slow down; there are reports that with the island tussle between China and Japan aggravating, several Japanese companies are moving to Vietnam. There are at least 80,000 Japanese companies (compared to 600 in India) which has set up shop in China. If they withdraw on a large scale, then that too can be a valid reason of growth decline,” Professor said.

But will this state of subdued Chinese growth would result in a collapse of China?

“On the macro economic front, I see no impending collapse”, the Professor said. The Chinese seem to be diversifying...”

China is doing all it can to raise the stature of the Renminbi and they are doing it cautiously.

“On that front, they are really like RBI, really very conservative,” said the Professor. “They are playing a very cautious game.” he noted.

Property bubble and local government debt

There are weird things happening in China!

“One is the property bubble...” the Professor noted. “But the Chinese are aware of the problem and they are taking preventive measures in this regard as well. For instance, they are now doling out low-interest rate loans and have also introduced restrictions on purchase of second homes,” Professor said.

He also invited attention to the $1.65 trillion debt the local governments there have incurred so far. The figure is more than half of Chinese foreign exchange reserves.

“ The reason behind the Chinese local governments incurring huge debts has a reason in a certain contradiction” said Jabin T. Jacob, Assistant Director & Fellow, Institute of Chinese Studies; New Delhi. The Chinese local government officials are always under pressure to perform and show off results. “At the same time they are also under strict orders not to create unnecessary infrastructure and waste money.” he noted.

But for one to have promotions, the official should show that he has come out with some spectacular results. The stories of inaccurate stats from China, originate from this contradiction!

Is that a catastrophe in waiting? What would happen when China is stormed by a Black Swan event; something really unexpected occurs in China that will take us by surprise?

“As we talk about the issue here, we should also understand that the Chinese are doing all they can to tackle the possibility of its occurrence.” said Jabin.

“China is too big to fail.” he said.

However, Japan with its trillions in pension funds can come to the rescue of the international system, mainly the US, if something untoward occurs, Professor noted. The latest data suggests that Japan has exceeded China in holding of US Treasuries.

Note: Maybe with the drop in gold prices as currently underway, the Chinese may realise that it is better to hold US Treasuries rather than gold. 

As published here: http://www.commodityonline.com/news/who-will-bailout-china-53910-3-53911.html

North Korea: Why China may choose to unseat Kim Jong-un and restrict US' Asia pivot

Last Updated : 04 April 2013 at 17:40 IST

The US' pivot to Asia has been presented to the United States in a platter by its worst enemy North Korea and China is now possibly regretting that it did not restrain North Korea adequately. 

Latest reports say that as soon as the United Sates decided to move its missile defence system to Guam, North Korea moved in with a new threat. It has moved a missile to east coast amid vows of attack on US bases.

Who started all this is an irrelevant question. But the escalation or the upward spiralling of the crisis is something that is evoking serious concerns all over the world.

Daniel Pinkston, a North Korea expert at the International Crisis Group, raises a pertinent question as he spoke to The Telegraph:

"The US has to deter North Korea without antagonising it and fulfil its commitments to South Korea and Japan. What hardware do you deploy and what signalling do you do?" He said he was unsure if officials really intended to dial back their position. "What else is the US going to do? It has sent out a nuclear submarine, the B52 bombers, the B2 stealth jets, a pair of destroyers and now I hear an aircraft carrier is on the way. What else have they got to roll out? Once they have done all this, is it then rolling back if they pause?" he said.

In other words, getting all these million dollar toys to the place is relatively easy. But once you have deployed them, how and in what context would you retrace it?

Ultimately, US has to come out of all this in a positive way. If the tensions escalate and US backs off, it would be a virtual failure for the US. But they, following a possible skirmish or even a war--in which the US would ultimately prevail--could not only get North Korea to agree to sign on dotted lines, but also secure their military interests in the Korean peninsula much to the consternation of Chinese. In fact, China may not be in a position to remain neutral in the event of a war or even a skirmish and will have to join North Korean side; but that would then evolve to be a full-blown war of World War scale. This scenario would possibly never occur.

The Obama administration has said US would have its focus on the unraveling Asian century and would reap benefits together with Asia while the continent progresses in a well laid out economic trajectory.

This has evoked considerable Chinese ire.

China views this as a strategy of containment and may be is in a process of using North Korea to tell the US that things may not be as easy as it sounds.

China will now have to restrain North Korea from employing the threats it has raised or risk a war in its neighbourhood. US, by all accounts is not going to talk to North Korea as that would severely compromise US' position. But, then how Kim Jong-un would save his face and retain his throne? How would he retain his popularity and pre-eminence amongst his peers in North Korean establishment?

Currently, North Korean leader, is in a way, trying to assert himself over the current domestic political establishment in his land by kicking up a furore. And if China finds his position getting unstable may choose to get rid of him. The pawn will be sacrificed in the geopolitical chess board to restrict the capitalistic queen that is US. 

As published here: http://www.commodityonline.com/news/north-korea-why-china-may-choose-to-unseat-kim-jong-un-and-restrict-us-asia-pivot-53733-3-53734.html

How China property market curbs would benefit India growth story

Last Updated : 04 March 2013 at 12:10 IST

The Chinese government has announced a spate of measures to cool the property markets in the Middle Kingdom creating negative impact on the commodities across the board. While gold is supported at the lower levels due to sequestration measures adopted by US, crude oil futures are down along with base metals.

Chinese authorities have called for higher down payments and interest rates for second-home mortgages in places where the prices are appreciating fast and have also doled out provisions to enforce tax laws strictly.

“The curbs were expected. Earlier the curbs applied to third-home mortgages. The measures would enhance the the fall in commodities and may prove to be beneficial for a huge commodity importer like India.” said VK Vijayakumar, Investment Strategist, Geojit BNP Paribas, Kochi.

“Though sequestration has been effected in US, the economic indicators there remain positive. The gradual phasing out of QE measures cannot be ruled out and the commodities that have been propped up by excessive liquidity would come down. Gold, crude and base metals would fall resulting in benefits accruing for India.” he added.

However, he concluded that Europe still remains a problem.

If the commodity prices come down and RBI is able to cut rates aggressively, India's growth problem could be addressed easily. The 'price sanity' in turn can help commodity futures in India in the longer term as demand picks up especially for base metals and crude oil. The market would then reflect supply-demand picture in a better way.

Peking order

Chinese PM Wen Jiabao instructed authorioties to “decisively” curb property speculation.

“This is a final effort by Premier Wen to put a stamp on the direction of policy before he leaves office and the message is clear: there should be no relaxation of property market controls,” Mark Williams, an economist at Capital Economics Ltd. in London, said to Bloomberg

“This is a sensible policy. Even allowing for the construction slowdown of last year, the real estate sector remains on an unsustainable path.” he added.

The government in 2011 hiked the down payment on second mortgages to 60% and wanted the customers to pay rates which are at least 10 percent higher than the central bank’s benchmark rates.

“The accommodative cycle for the real estate sector has ended and is entering a tightening cycle,” Shi Qi, a Shanghai-based analyst at CEBM Group, an advisory company told Bloomberg on current measures.

“Demand would shrink obviously in the second half and prices may start falling next year.” he predicted. 

As published here: http://www.commodityonline.com/news/how-china-property-market-curbs-would-benefit-india-growth-story-53226-3-53227.html

Will Commodities drop if China property bubble pops?

Last Updated : 20 February 2013 at 15:40 IST

The Chinese property market bubble is about to pop; in the sense that it has been in an about-to-pop state for the past 5 years at least. Economists like Paul Krugman with a Nobel Price to his chest predicted that the bubble would pop in 2011 sometime in 2011 itself.

And Yangtze is still undulating with nil whirlpools.

“There is a property market bubble in China” said VK. Vijayakumar, Investment Strategist with Geojit BNP Paribas, Kerala, South India.

“The property markets there are inflated, speculation is rife and given low interest rates the banking system is exposed (to risks)”, he added.

Meanwhile, business is booming in China’s real estate markets, especially in Beijing.

"We have got off to a flying start in 2013. Transactions are picking up, so are prices," said Zhang Huanhuan, a saleswoman for Maitian Real Estate in the capital to South China Morning Post.

Prices of new homes in 70 major cities jumped 0.3% in November, the most in 19 months.

Meanwhile, the authorities there are likely to allow this bubble to float a little more even as they may try to attach strings to it making it a hot air balloon, given that a political transition in China is in the offing in March.

Unless there is stability and there exists no perception of growth, the Xi Jinping takeover may have to face challenges because popular upheavals cannot be ruled out in a stalled economy.

One advantage of property price rise is that it radiates a feel-good-factor across the economy. And a felt-good populace is necessary for stable governance, especially when the government is authoritarian. And it is acutely necessary when a transition is in the offing.

Property bubble and commodities

As and when the bubble pops, it would result in deflation, demand destruction and all and sundry financial indicators going sour ultimately ushering in a recession.

“Commodity prices can come down drastically when that happens…” cautioned Vijayakumar.

But that popping of bubble is not going to result in a financial contagion.

The foundations of Chinese financial architecture rest solely on Beijing. Unlike US, the system is not wired to other institutions of other nations.

Given the size of US economy, and its macro economic underpinnings, a repeat of 2008 may not occur; nonetheless, it would heavily impact commodity markets as China is one of the biggest consumers of commodities.

As published here: http://www.commodityonline.com/news/will-commodities-drop-if-china-property-bubble-pops-52965-3-52966.html

China defies economics as exports climb with Yuan; India question mark

Last Updated : 11 January 2013 at 15:40 IST

India's current account deficit is widening and its rupee is depreciating. Its exports are not gaining strength. Meanwhile, in China, yuan is appreciating, exports are climbing and the nation as per economists, is running a current account surplus.

In a normal scenario, rupee depreciation should aid exports. And yuan appreciation should decelerate Chinese exports. But the opposite is happening.

“But where are the volumes in exports for India and where do we stand in terms of export destinations. Not to speak of the lack of diversification in exports.” ask Martin Patrick in an apparent explanation of this conundrum.

“India exporting to US is a fact, but China exporting to US is also a fact and a resounding one at that. China has got a monopoly when it comes to exporting toys to US; India is nowhere on the radar. China is also giving us some decent competition in textile exports to US where India's position is of strength. Thus, they are monopolistic in certain sectors and gives class competition in other sectors where we are touted to have some strength.” Martin Patrick elaborated.

This is not to say that India is having no hope...

“On the contrary, things have improved in the past 10 years.” he said. “But we can improve by leaps and bounds and should also focus on stepping up exports to Latin American countries and other Asian nations.” he added.

The slowdown in Europe is also a prime factor curtailing Indian exports.

“China is not as depended on Europe as India is when it comes to exports.” he pointed out.

While the Chinese turnaround has been endorsed by many economists, Vijayakumar, Investment Strategist, Geojit BNP Paribas says that Chinese interest rates are key to their turnaround in exports.

“In China, returns on deposits are to the tune of 2.5%-2.7%. They are building the nation using people's money.” he said. in India, interest rates on savings are four times bigger. 

But how sustainable is that strategy of China:

“Opinions galore that it is sustainable on a short-term basis but not on a longer term note. But it has also to be noted that Chinese have a culture of discipline and high ranking productivity.” he observed.

“Besides, inflation in China is moderate...they produce more and supply bottle necks are relatively non-existent.” he added, “this gives them greater room for maneuverability.”

“Had they had to grapple with inflation, then they too would have to raise interest rates. However, that is not the case.” he pointed out.

The point is clear: if you cannot play the game on your own terms, then simply change the game! 

As published here: http://www.commodityonline.com/news/china-defies-economics-as-exports-climb-with-yuan;-india-question-mark-52187-3-52188.html

The Great Chinese turnaround is for real: Kunal Shah

Last Updated : 10 January 2013 at 11:35 IST

Pessimism is 'out of fashion' these days. Its place has been taken over by skepticism. So when analysts say that China has made a turnaround in exports and that it is a genuine turnaround, would you blame Rakesh Neelakandan of Commodity Online for being fashionable? He set out to validate his fashion statement and ended up calling Kunal Shah, Head of Commodity Research at Nirmal Bang Commodities. Four-five stylish volleys demystified the ambience.

Welcome to the ramp...

Commodity Online: China has witnessed its exports jump by 14% in December from a year earlier beating the Bloomberg estimates of 5%. Analysts say this is a genuine turnaround, do you agree?

Kunal Shah: I agree with that. The worst is over for the Chinese economy, I believe. There is a gradual recovery underway and some upside is visible. Slow down is moderating as we see improved PMI figures since October. GDP growth projections are also encouraging.

Commodity Online: What are the headwinds in store for China?

Kunal Shah: For the time being, I expect to see no headwinds affecting China. Nothing immediately at least. But in 2-3 months, I see a Spanish request for bail out happening. This would have implications, not only for China, but for the entire world as concerns return. I would also like to see how the new regime in China that would take over in March, warms up to the challenges of economy; whether they change their course or stick to the status-quo.

Commodity Online: Do you see any bubble formations in Chinese economy?

Kunal Shah: Not for the time being.

Commodity Online: But they are incurring debts of humongous proportions...

Kunal Shah: They may be...but they are also good money managers...not that aggressive in spending compared to US.

Commodity Online: Now, the last question and it is also the most important one: can we trust China data?

Kunal Shah: Obviously you have to. It is official and you have not much of alternatives. Unless proven otherwise, we will have to trust data from China.

The photo-shootFinally China is getting glamorous, yet again! May be you should book your tickets for the next show, especially those who have gone long on base metals and crude oil.

Forget hard landing! The show-stopper is back with a bang!

As published in: http://www.commodityonline.com/news/the-great-chinese-turnaround-is-for-real-kunal-shah-52158-3-52159.html

Gold imports: How genuine are China's statistics?

Last Updated : 09 November 2012 at 13:40 ISTWith 800 tons of gold poised to be imported by China this year, the Middle Kingdom is supposed to equalise India in gold imports. This year, India too is expected to import only 800 tons of gold. [For the next year the country may see only imports to the tune of 550 tons as the consumers in India continue to shy away from imports on government imposing hefty import-duty on gold and rising gold prices.]

But how gennuine are China's gold import statistics?

See this excerpt from GFMS August newsletter: 

“Reviewing the available customs data reveals bullion flows from Hong Kong to mainland China posted a massive increase this year, with total volumes in the first five months rising over 700% year-on-year. On first glance, this may suggest that demand in China has continued to strengthen with these imports destined for fabricators producing jewellery and investment products. However, our information collection from various trade sources indicated that these Hong Kong export numbers have been highly inflated by growing round tripping between mainland China and Hong Kong whereby local companies used gold to engage in currency and interest rate arbitrage transactions.”

According to Philip Klapwij-- Global Head of Metals Analytics – Thompson Reuters GFMS, gold imports to China is mainly routed through Hong Kong which accounts for around 800 tons of gold, and a "substantial part" of those will be 'round-tripped', a practice by which gold is transported to a certain location, then quickly re-exported.

"Over 40 percent of flows from Hong Kong in 2012 we estimate is for 'round tripping," he revealed and was quoted by Reuters as saying.

That means equivalent to 320 tons of gold is used in round-tripping! Now, if this round tripping continues on a day-to-day basis one may have to question the genuineness of China's gold import statistics. 

As published in: http://www.commodityonline.com/news/gold-imports-how-genuine-are-chinas-statistics-51279-3-51280.html 

Crude Oil futures and the paradigm shift in economic power

Last Updated : 04 October 2012 at 11:40 IST

The Asian Development Bank (ADB) is significantly scaling back 2012 and 2013 growth forecasts for developing Asia, saying that after years of rapid growth, the region must brace for a prolonged period of moderate expansion amidst an ongoing slump in global demand.

This has not spared the global crude oil markets in terms of price fluctuations and a downward revision in prices. Crude oil futures fluctuated after dipping 4.1% yesterday, the most since June, reported Bloomberg. Brent crude for November delivery too fell $3.40 to $108.17 a barrel.

For India, GDP growth will slow to 5.6% in 2012, down from 6.5% in 2011. The downward revision in India’s prospects, due in significant part to weak investment demand, is expected to slow South Asia‘s growth to 5.6% and 6.4% for 2012 and 2013, respectively, according to ADB.

The People’s Republic of China (PRC) is forecast to grow 7.7% this year and 8.1% in 2013, a dramatic drop from the 9.3% posted in 2011. The slowdown in the PRC is having a knock-on effect elsewhere in East Asia, with diminished demand for intraregional exports, the report read.

India and China are heavy consumers of crude oil. China is the second biggest consumer in a list topped by the US.

The ADB report along with the inventory climbing in US by 11,000 barrels a day to 6.52 million last week, according to EIA, dragged the markets down.

Ironically positive data from US in terms of PMI data and job data have not given fillip to the crude oil markets.

The PMI data from US as well as the job data released by ADP portrayed positive image of US markets which strengthened the USD.

US private-sector employment increased by 162,000 from August to September on a seasonally adjusted basis, according to the latest ADP National Employment Report released Wednesday. The forecast was that US economy would add 150,000 jobs in September.

The purchasing managers' index by ISM climbed to 55.1 in September from 53.7 in August. A figure below 50 indicates contraction and above 50 expansion.

The data may have capped further downside in crude oil prices. Nevertheless, it is indicative of a novel geopolitical trend in the making wherein the center of gravity in terms of economic power is shifting to Asia.

ADB projects the region’s gross domestic product (GDP) growth dropping to 6.1% in 2012, and 6.7% in 2013, down significantly from 7.2% in 2011. The markets stressed on this aspect more than the US factor which resulted in a downside in crude oil prices.

As published in: http://www.commodityonline.com/news/crude-oil-futures-and-the-paradigm-shift-in-economic-power-50684-3-50685.html

How 18th Party Congress in China related to Copper

Last Updated : 13 September 2012 at 12:00 IST
China is on the verge of leadership change. Widely expected to be held on a date in October, China's 18th Party Congress is expected to replace 70% of the top leadership. This includes the current President Hu Jintao.

So, what does this leadership transition has to do with Copper? Everything!

It is text book knowledge that China is the biggest consumer of copper. Chinese economy has been slowing down for a while and this has raised new questions about the robustness of copper. But there has been reports that the nation is intending to be aggressive in spending to prop up the economy. An infrastructure spending plan to the tune of 1 trillion yuan has already been approved, as per reports.

The plan is speculated to involve power grid expansions (copper wires claim 50% of China's copper consumption, as per Barclays) and housing unit expansions at 36 million entities.

But as many would believe, this is just the tip of the iceberg. Chinese Premier Wen Jiabao has said China has ample strength both in monetary and fiscal domains and would “appropriately use that for preemptive policy and fine-tuning to propel stable economic growth”.

The question is when?

While the current stimulus measures may prove to be thoroughly inadequate, it does have a political motive behind it; a temporary measure to address the humongous expectations of an expanding populace facing rapid slowdown.

The sanctioning of 36 million housing units is a good indication of a policy of appeasement. The country reportedly spends equal amount on external defence and internal stability management and the sanctioning of 36 million housing units is far better an idea than employing gun-wielding security personnel.

But given that the economy, the second largest in the world has more to do in terms of monetary, fiscal maneuvering, the current leadership would not go beyond a point especially since a transition is in sight.

They may want the new leadership to start off with additional stimulus measures as that would be a fundamentally convenient way of executing sensitive measures. The current leadership may be hands-on whereas here they may have a 'hands-off' approach. They may of course have a plan; but they would possibly want the new leadership to implement them.

This of course has ramifications on copper prices.

There are two possibilities here: either the new leadership employ the tools, or they may choose not to. The latter scenario is highly unlikely, still there could be Black Swan events that may change the course of global economy.

The former scenario, if that be the case, would result in the leadership taking more time to finalise the plans; since these are highly sensitive with potent after-effects. It has also to be seen if China would await the impacts of possible US stimulus measures and then decide on its own stimulus measures.

This scenario, on materialisation means copper and other metals may first ride the QE3 wave (if that be announced today) and then a possible Chinese easing wave.

All this may begin with the 18th Party Congress providing some useful hints for the markets.

As published in: http://www.commodityonline.com/news/how-18th-party-congress-in-china-related-to-copper-50309-3-50310.html

On China: Stimulus delayed is stimulus denied

Last Updated : 16 August 2012 at 10:50 IST
As the commodity markets and investors wait in wings to catch an early glimpse of stimulus measures by nations, especially China; there is little wonder that copper climbed on Premier Wen Jiaoba's words that there’s “growing room for monetary policy operation,”

Three month copper on the LME climbed as much as 0.8 percent to $7,443.75 a metric ton before getting traded at $7,426.75 at 11:04 a.m. Shanghai time even as December-delivery copper climbed 0.5 percent to $3.3765 per pound on the Comex in New York.

The premier has remarked that downward pressure on the economy remained “relatively large,”; Bloomberg News said citing Chinese state radio.

“A stimulus is long overdue...and stimulus delayed is stimulus denied.” said Martin Patrick, a Kochi based economist.

“Unless some concrete measures are announced in a period of one month, there could be some trouble in the Chinese economy”, he added.

He, however ruled out a coordinated stimulus measures from the part of BRICS happening due to political issues. “Everybody likes to create the impression of no-problem-we-are-all-growng thing. That's politics, nothing else.”

“And even if something to that tune occurs, it would not solve problems as the troubles lay with the Euro Zone economies rather than BRICS. There are limits to such kind of interventions.” he reiterated.

He observed that monetary easing is not all about a stimulus package. “Monetary easing assures cash flow in the economy...it is not a package measure manifesting.”

What kind of stimulus?Earlier it had been noted in a report that Chinese political system, given its closed structure has been able to hide certain facts. There could be problems embedded in the Chinese economic system which have been hiding for a while and which may come out at any given point in the near future.

“Take for example the case of agriculture; not much of growth is getting registered there...Look at the trade data; mutual trade between modestly growing India and China has dipped by 25% in the second quarter.” Martin Patrick had said.

“That's not a good signal.” he added.

The economic nightmare unveiling in Europe and the stalled recovery in US would continue to challenge Chinese economy.

“Yes, there would be stimulus measures, but would be intended at stimulating the household sector consumption and promoting growth of manufacturing sector in finished goods.”

In another development on Wednesday, Brazil has announcedstimulus measures and privatisation drive to kick start the economy. Brazil, the commodity country could be injecting a $50bn stimulus to the economy through various plans, over a five year period.

As published in: http://www.commodityonline.com/news/on-china-stimulus-delayed-is-stimulus-denied-49750-3-49751.html

'China will continue to excel India; Emerging markets to limp through'

Last Updated : 10 August 2012 at 11:00 IST
Continuous growth is a fanciful dream, continual growth farce and impression of growth the truth--Anonymous

Mooody's Analytics downgrading India's growth projections for the year at 5.5% attributed to turbulent global conditions, policy mis-steps and poor monsoons; investors could see a pall of gloom.

But the growth as registered by India in itself is a cause of cheer. It may not be party time yet; still something to be hopeful of. In Europe recession has set in and Britain and France have been officially in recession. Economic activity has almost come to a stand still in Greece and Southern Europe. Germany is on the brink and there are wide-spread fears that the leviathan anchor that is the crisis, would drag the Euro ship down to the fathoms.

“I believe a 6% growth figure for India would in itself be difficult to achieve...”, said Martin Patrick a Kochi based economist reacting to the Moody's report.

“And for next year, the maximum possible growth rate would be to the tune of 7%” he conveyed.

“But prediction is very difficult as unexpected and unanticipated things are happening in the global markets. It will be 2014 until some assessments could be made and confident conclusions derived.” he hastened to add.

Other emerging markets like Brazil, Russia and South Africa would also continue with limping growth.

“However, China would continue to excel India. They have good dollar reserves, a strong domestic economy and versatile exports. The economy is pretty much diversified with agriculture and manufacturing faring on a robust note.” Martin Patrick added.

But there are contrary views.

China's July exports have picked up just 1%. from a year earlier.

"China will not escape from the global slowdown," Banny Lam, China economist at CCB International in Hong Kong was quoted by Reuters as saying. He is expecting Chinese government to free the cash reserves that banks should hold, so that additional boost would be provided to the economy.

Yesterday, there had been reports that China had pumped up investments in the railway sector.

Chinese government has quietly pumped up its investments in railway sector outlaying funds to the tune of CNY470 billion for July. This is when compared to CNY406 billion stated in a June prospectus of Chinabond, official website of China's debt issues.

The news created positive sentiments in the copper market.

As published in: http://www.commodityonline.com/news/china-will-continue-to-excel-india;-emerging-markets-to-limp-through-49662-3-49663.html

How slowdown in China could drive Copper higher

Last Updated : 10 August 2012 at 12:00 IST
Commodities are mostly about China and China is mostly about commodities. And this necessarily means that China, if it grows or if it slows down could fuel rallies. However both rallies would be distinctly different and both would have different implications.

Let me explain:

We have two scenarios: Either China can slow down or China can grow. The latter scenario, as per fundamental economics is good for commodities and warrant no explanation.

So let's focus on the former scenario.

China trade balance missed its standard mark when exports climbed just 1% in July from year ago period and imports rising 4.7%; Chinese trade surplus stood at $25.15 billion. Deutsche Bank, meanwhile has cut the Q3 growth of China to 7.5% from 7.9%; Q4 growth is estimated at 7.7% revised down from 8.1%. The bank expects 2012 GDP growth of China to be at 7.7% from 7.9%. 2013 growth forecast is pegged at 8.2% from 8.4%.

This data may not portray a rosy picture for commodities. As Bhavik Patel, Commodity Analyst with Commodity Online says:

“Slowdown in China is not good for commodities because usually the prices are driven up by demand only. Slowdown signifies drop in commodity prices but because of slowdown, the expectation will build up for stimulus measures and that will provide a relief rally in commodities.”

At the moment market will focus on slowdown data and after the correction, the relief rally will come on anticipation of stimulus measures, he added.

So we may have a stimulus rally; but which all commodities would benefit?

“Copper...” Patel said and added, “Copper would benefit the most as China is the biggest consumer, rest of metals would follow but copper would gain the most.”

But will there be a stimulus at all?

"China will not escape from the global slowdown," Banny Lam, China economist at CCB International in Hong Kong was quoted by Reuters as saying. He is expecting Chinese government to free the cash reserves that banks should hold, so that additional boost would be provided to the economy.

There are already reports that China has made some investments in the railway sector. Besides Chinese inflation has come down to 1.8%.

So, if the Chinese juggearnaut slows down copper would make losses; only to make a triumphant come back.

As published in: http://www.commodityonline.com/news/how-slowdown-in-china-could-drive-copper-higher-49664-3-49665.html

India’s role in Sri Lanka’s Dostoyevskian moment: A reading of UNHRC vote after settling down of dust

After Fyodor Mikhaylovich Dostoyevsky was sentenced to death by the Tsar of Russia for alleged royal subversion, some intuitive conviction in the great writer bordering Extra Sensory Perception told him for sure that he will not be hanged.

On the morning of execution, promulgation came out from the palace sparing Dostoevsky and fellow convicts from the rope and deporting them to cold prisons in Siberia. The whole thing was a drama (mock execution) and on the night before the same, it was noted by the author that the hair of his prison inmate, a fellow-convict, turned grey out of excessive anxiety. The palace circle which staged the drama even deliberated at length whether or not to dig graves in advance just to add a realistic punch to the whole episode.

The outcome: Dostoyevsky and his inmates thanked King profusely and remained indebted to the King for the rest of their lives even as they labored hard in Siberia. (Dostoyevsky even wrote a poem in praise of His Highness while he was in prison.)

While India’s vote at the UNHRC was against Sri Lanka, and marked a paradigm shift in its stand pertaining to country-specific resolutions, the vote against Sri Lanka has been interpreted as:

1. Feet-dragging until the last minute by Indian government
2. Buckling to American pressure on the issue
3. Allowing Foreign Policy to be dictated by Tamil Nadu politics
4. Estranging Sri Lanka
5. Pushing Sri Lanka into the strategic embrace of China

Read more on my policy blog