Friday, August 22, 2014

Chinese Cooking> Yuan on Fire

Like the title? Did you forget that an expression can have different meanings in other cultures, especially in translating words from one language to another? Did the moniker infer that things are going so well for China that the value of the yuan is surging? Well, put that to bed because I can tell you that is not the intended purpose.
Part 111, Fiat Manipulation
Ordinarily, after the US and Japan, Germany is front and center, but globalization has benefited China to the point that I feel that China is the world's largest economy and most important under the dominance of fiat economies. China may not have the largest total value by GDP, but if you consider it has the largest workforce, largest volume of exports, largest agriculture and it is the largest manufacturer. They lead in all the categories that count and they did it by fiat manipulation. When you look closer you will see that the yuan is as worthless as the dollar.
Nixon Opened The Door
Being one of the last nations to modernize, China studied the competition. They realized that the Fed is the number one influence in currencies. As a result, they tied the yuan to the dollar. Then, they played upon the power of low wages to take market share just like Japan, Korea and the Northern Nations of the EU, led by Germany. The only nation to suffer was the US and our nation has suffered three haircuts to our standard of living due to fiat manipulation.
Meanwhile, as wages grew in China two things happened. One, many manufacturers left for cheaper Asian economies and secondly, China passed authority to local governments so that the national government could hide behind free trade when local governments passed rules and legislation for protectionism. This technique is nothing new. Japan favored its Keiretsu. South Korea favored its Chaebols. In Europe the descendants of aristocrats or wealthy merchants received government rules and legislation to protect their interest and yet, every nation talks up the idea of free trade which is the lie of fiat governments and globalization. Have doubts? Can you explain why you cannot buy a Bud in many parts of Germany? How come a pink US grapefruit cost $8 bucks in Tokyo? How come you cannot buy a Harley in China? One more and this is a two-for-one deal. You have bans on US meat in Japan and S.Korea, but if a company in either nation buys a US farm, livestock and all and then, it is okay to import under their name over the US brand?
Anyway, getting back to China which offers the biggest problem for fiat nations and global trade. Everyone prints paper to lower the value of their currency to gain market niche, but China adds its cultural legacy to the equation.
Buyer Beware
is an expression that reminds the consumer that one may not get what one thinks one is purchasing. China takes this into its core of cultural transactions. In the Art of War, a Chinese masterpiece, the author reminds you in order to win one must observe the opponent. It is easier to catch an animal if it is sleeping or the enemy leaves an opening to exploit.
When US companies outsource their products to China, they run the risk of having a Chinese manager substitute cheaper quality to cut costs to which they pocket with no regard to licensing agreements. We have many examples from molding sheet rock to soiled animal food. Not to mention the losses Hollywood endures due to piracy as well as recording artists. The list is as long as the name Chen in a Chinese phonebook. The aspect of fake or copycat products is a way of life in China.
It effects every aspect within their society. In the financial crisis of 2007-08 this was reflected in the Chinese stock market. Many Chinese investors had big losses and many of those losses can be traced to the buyer purchasing the stock itself. According to Jie Cao, the average Chinese portfolio declined $40K yuan. He says these people bought because of a rumor in the market. They felt that they were trading like predators, but all too often, they were victims.
It is the same way in domestic business.
is a cultural point of concern. If someone were to search a Chinese merchant on the web, the credit rating of that company determines its ranking. False records of sales moves you up the standings. If you don't hype your numbers, you will not survive, especially if you want brand names like Alibaba to recognize you, says Hua Lizi who sells cosmetics and jewelry.
When you combine the local with the national character, it is easy to see why the largest mall is in China, but only has 2% open for business. China has ten cities larger than New York, but eight of them are "ghost cities" with no population. When you are responsible for over 800 million workers, you do things under the code name of stimulus which covers all aspects of fabrication, manipulation and civic responsibility like this tidbit in the recent news.
The Chinese government is trying to spur domestic growth and like our economy, housing does it best. Recent sales show housing has declined by 10% in the first seven months. This has made lenders leery and prices are declining along with sales. In fact, it is down over 17% yoy. Getting a closer look, ICBC offered investors a chance to buy into the housing growth, but with the recent news investors want out. They were told that they had to wait another fifteen months to be repaid. How is that for an example of liquidity crisis?
I hope by now that you realize that China's GDP figures and targets are mostly fluff both locally and nationally. Remember funny math can carry debt for a long time, especially if you have two set of books, but when people want to be paid and you can't, you will get social unrest.
It is happening today in China, but it is mostly contained until it isn't. The dominoes of declining home prices will show that the fiat yuan is like the Weimar mark, good for warmth by a fire and has as much value as all fiat money has, the price of paper. The only cooking taking place in China is in the books.
I could end here, but I can't with a clear conscious. Did I hear someone yea? Wise guy. The biggest threat to what is left of our economy is being played out through trade partnerships or deals like NAFTA in North America. Ross Perot was right, that sucking sound is jobs going to Mexico. While we waste our money on foolish wars, Mexico made deals with 44 nations. Today, they produce 3.2 million cars a year with 80% for export. Our lying government says we got jobs, but I say we got SHAFT and not the movie hero. These duty free deals allows Mexico to export to North America, South America, Europe, China even Japan. Thomas King, V-P of Corporate Affairs of Volkswagen says, "there is not another country in the world where you can export duty free." For example, cars built in non-union Tennessee exported to close by Brazil, still cost 55% more than one exported from Mexico. I wonder how much more a union car cost but it doesn't matter because our government won't protect our domestic companies, workers or way of life. This week I ask one request from you, dear reader, does anyone know where I can buy a "What Recovery" T-shirt?
End Trade Agreements! End the Fed!