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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (14306)	10/29/2004 2:23:42 PM
From: RealMuLan	Respond to of 116555

Mish, I think that is a little one-sided<g>. After doing some reading, here is what I conclude on why China decided to raise the interest rate: The central gov. thinks they have basically achieved their goal of slowing down the economy, and they don’t want a hard landing. So they decided to loosen up on capital lending/loans, and at the same time they also defreeze the commercial buying of farm land (will have some new regulation come out before defreezing) for development (some powerful real estate developers complained that the reason for fast increase of apartment price is no new land can be obtained). At the same time, they do not want the real estate bubble get out of control, so as a counter-balance, they raised the interest rate before they defreeze the land. And this raise, although small, will set a trend for the coming 2005. At the same time, raising interest rate will also encourage more savings, which is in a downward trend recently. It also served some purpose to take back some badly-needed cash. My other post talked about many Chinese changed their US$ back to RMB. Actually, they not only anticipate RMB revalue upward, they also want higher interest in RMB. US$ now only carries <0.6% of annual interest for 1-year certificate deposit, but 2.25% for RMB. These recycled cash is badly needed by the big 4 national banks. The average rate of capital sufficiency of Chinese banks is lower than 6%, while the international standard is at least 8%. They will have to work harder in order to get to the international standard and keep the schedule being offered on the market next year (at least 2 banks are planned CBOC and Construction Bank). If simply to control the fast growth, then how do you explain the defreeze the farm land and loosen up on loans and capital lending?

To: mishedlo who wrote (14306)	11/1/2004 1:34:14 PM
From: RealMuLan	Respond to of 116555

Mish, Andy Xie wrote an article about the possibility of the hyper-inflation on Oct. 25th. I didn’t see it posted here on SI. I read the Chinese version. He gave some statistics about the imports from Asia/China keep the US CPI down. Here are some of the data (my translation might be awkward sometimes<g>): Between 1993-2002: The import price to the US from Asian NIC’s (New Industrialized Country) decreased at 3.5% annually, this, relatively speaking, makes the US CPI increased 5.2% less. In the last 10 years, the import price of the US for IT products declined 60%, and domestically, the consumer price for these products has been flat, but US CPI increased 31% during the same period. The use of cheap labor in China resulted in an annual decline of 8% for the US import price (for IT product). The elasticity coefficient of the Chinese imports for the US retail price is now in 4%-5% range. It is estimated that made-in-China products now account 33%-50% of the US retail market, excluding auto parts. The salary of the Chinese cheap labor has been flat in the last ten years. The food price in China increased little until 2003. Energy price was ok until 2003. The new trend from 2003: The food price in China increased a lot, and will keep increasing; higher energy price; Real wage is increasing for Chinese workers; All of the above points to the price increase in the US. Over-investment and over-capacity in a lot of sectors in China. That all these will result in inflation or deflation will depends on how long the currency bubble will stay. He also got a new article on Chinese residents are using up their purchasing power for the high-price housing. And people should pay close attention to the turning point of China’s economy, especially its exports, capital inflow and its real estate sale.