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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Arran Yuan who wrote (68646)	11/25/2010 1:14:54 AM
From: TobagoJack	Read Replies (2) \| Respond to of 219790

just in in-tray, per pal charles Summing up a few of our thoughts on one page...Feedback always welcome Changing rules, or not just yet: As mentioned quite a few times in recent years, China does not want to play the game as it has been presented to it. China no longer wants to grow reserves based on a low end game of manufacturing, where the value added from I-pod sales, say, is $10 per unit and there is no access to branding and value creation. And thus recent thinking goes that the export growth numbers game story for China is largely over - but what is there to replace it in the short term…? When will the game in fact be over? Will China really give up this space? Does it matter? Interestingly, only recently have people become aware of China’s jump in foods exports… Surface versus long term issues: China’s support of global commodities was key to reflation strategies in 2009-10, to the point now of stimulating its inflation to levels that scared the markets perhaps two times recently, with headline inflation rising to 4.4% (with fears further fanned by MoM inflation potentially above 8%) in Oct from 3.6% in Sept. Also in support of China’s new “leadership” is the potentially “lesser evil” presented by China’s corporate governance and data quality failings given the loss of credibility at many western banks and governments. … Though below the surface of this debate are deeper issues, to be sure New avenues of growth: Inland growth is the next wave of China development. But the problem is the same it always was - a lot of work needs to be done. Just consider that half to China’s rail freight is tied up in transporting coal. So it will take time to re-wire China, not least because rail transport has been saddled with vestiges of past command economy to a greater extent (and we are not talking about the high-speed rail for passengers, of course) … And yet capitalism needs the next new new thing and China internal growth can deliver this because this will create the next large wave of consumers… Consumer demand growth in China has been good, but a little more mixed than high-end estimates, perhaps. It is a story that is still there, waiting to happen. The whole China export story is just such a “mature” market, 1) because of challenges to growth in developed markets; and, 2) because China wants to change the rules of this export game…(What does HK supply China? In addition to handbags, we have seen Chinese come to HK for their cuts of US prime beef, and of course their baby formula needs …) State capitalism vs [crony] US capitalism: The US has not covered itself in glory recently. Effectively it has misallocated a portion (…perhaps not all) of taxpayer capital (the moneys held in trust) to under-peforming banks who themselves mis-allocated capital. Ayn Rand has been lambasted by some, but the principals she put forth are building blocks of capitalism. What US banks and some corporates did (GM, GE…) could be considered a kissing cousin of crony capitalism. But China’s state capitalism model also leaves much to be desired at times and is still far from an efficient markets model. The difference is, the US is in a structural trap of growing debt to fund capital misallocation for a society currently in a state of over-consumption. China, though state capitalism is rudimentary capitalism at times, is still in a build out phase. Can China emulate a Taiwan model of capitalism or some hybrid of what worked in Asia economies, and is that only dependent on the continued over-consumption of the US and a few other nations? Up to now perhaps. BUT perhaps, partly because it is still a top down economy, China has the potential to regiment itself and continue targeting what it wants to grow…Ultimately China, of course, can continue to (“focus on oneself to be strong” or “focus on your main strengths” or…build out the center) End game boiled down: The way we see it…QE1, QE2 and other liquidity injections and bailouts are there to keep the wheels of the current form of exponential debt growth financed global growth going. To stop feeding it would be to see it implode, and therein the fears on deflation. China can help by helping to redirect growth, not only by growing internally (and achieving a long-held goal of getting more growth away from the coasts), but also by generating a new outlet for the supply chain to grow into. The supply chain is an integral part of capitalism and the value creation formula within capitalism Regards Charles