Indonesia jails pop star for sex tapes

Sex-tape scandal pop star jailed
Hundreds charged the gates of the courthouse in the city of Bandung after the verdict was read out, yelling "Too light! Too light," as he sped off in an armoured police car. Police fired warning shots to break up a scuffle between his supporters and critics.

Ariel, lead singer of the country's most popular band, Peterpan, was the first celebrity to be charged under Indonesia's strict anti-pornography law, which came into effect in 2008 despite strong opposition from the public and members of government.

It is seen by many as vaguely worded and as carrying overly harsh penalties.

Ariel insists the tapes were stolen from his house and posted online without his knowledge, but presiding Judge Singgih Budi Prakoso said the pop star did nothing to prevent them from spreading online.

He sentenced him to three-and-a-half years years in jail - well short of the maximum 12 years - and fined him £15,000.
Indonesia's stock market has enjoyed a huge rally since 2008, but the law was passed in the midst of the crisis. Note that it was introduced in 1999, in the wake of the Asian Crisis and it needed almost a full decade and another massive crisis to become law.

Some coverage of the bill's passage here: Indonesia's parliament passes a controversial anti-pornography bill

Flemish leader doesn't want to split Belgium

Flemish leader rejects splitting Belgium
"Everybody thinks I want this, but I think it's not good because we're going to lose our prosperity if we launch into an adventure in which nobody knows how it will end," he said.

He likened bilingual capital Brussels, a largely francophone city located in Flemish territory, to the glue binding the two regions. The fate of areas on its periphery is among the sticking points in the current crisis.

"To say we can cut (the country) is simplistic and dangerous," de Wever added.
For now, the Flemish are happy if they are given more local control. This is a strong version of is happening in Arizona with immigration, and many other states with Obamacare. People are turning to smaller political units closer to home.

However, one has to wonder what happens in Belgium if they do lose their prosperity. At that point, there'd be much less to lose when splitting the country.


KFC hikes prices in China

肯德基30个月来首次涨价 单项产品涨幅0.5-1元

Reports say the increase affects about half the items for sale and the increases are around 0.5 to 1 yuan. KFC items go from a few yuan up to more than 20 yuan for a meal, suggesting the hikes are probably in the 10-20% range, in line with what's happening in other fast food restaurants.


Silver longs slowly exiting, euro specs go long

China's coming crisis

I used to think China would hit the development wall at around $10,000 in per capita GDP. There's still low hanging fruit in the economy, especially in the West, but as the country develops, the reforms needed to press on with economic development become increasingly large. If the current model of development has weaknesses, however, the crisis could come earlier due to bad debts, malinvestments, or other mistakes. For instance, in the United States, it was well known that Medicare and Social Security were going to be a major crisis in the coming years, but the financial crisis of 2008 accelerated the problem. The United States faces a debt crisis today and the looming threat of entitlements has been brought forward to the present.

You may have heard the arguments of China bears such as Jim Chanos or Hugh Hendry, but Fraser Howie and Carl Walter have a new book examining the country's economic system. They previously wrote Privatizing China in 2003, an excellent book detailing the privatization of China's state-owned enterprises and the growth of the stock market. I look forward to reading their latest book, Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise.

Asia Times has an interview with Fraser Howie, titled China not all it seems.
BAS: Does this sort of investing, absent the market forces pushing for new infrastructure versus the party deciding to pursue them, lead to overcapacity?

FH: Yes. In China, the Holy Grail for so many in local government is to go from nothing to something, so if you are a poor province or city and a factory announces it is going to get built, money all of a sudden becomes abundant. But this desire for growth before all else can and does lead to a massive misallocation of capital. But the real question is what will this overcapacity and misallocation of capital lead to? A lot of critics of China point to a property bubble collapse and say that's likely.

Sure, the property market in China may be a bubble in certain cities. But the Internet was a bubble as well and yes, it popped, but look at the Internet now - it is more powerful and central to the global economy than it ever was. Bubbles happen, the key is how you respond to them A more likely result of this overcapacity and it effects will be the upcoming test of what happens when the Chinese SOEs [state-owned enterprises] who were recipients of China's stimulus money need to start paying their loans back. It will be interesting to see how the markets respond if, in two or three years, these companies can't service their debt.

The assumption is the Chinese government will step back in if there are problems, but if investors don't get full disclosure we won't know how bad things really are. Look, we already know securitization in China is booming. Why is that? It's probably because Chinese banks are trying boost lending at any price without fully disclosing the risks, and who knows how much other off-balance-sheet activity is going on?
Asia Times also has a book review, titled The party principle.

The NYTimes has an interview with Carl Walter.


Liu Junluo: Gold crash coming

Here's my slapdash translation of Mr. Luo's latest blog post. A few sentences were left out, either because I found it difficult to translate and/or they did not have a major bearing on the main topic. I used Google Translate to speed things up, in some places the English is not fluid, but the hopefully the main ideas come through.

Note that gold is typically priced in yuan/gram in China. Gold is currently about $43 per gram, or about 283 yuan/gm.

Original post in Chinese is available here. 黄金、美国、新年好+公告
From beginning to end, China's history is filled with "arrogance and destruction," the Ming and Qing dynasties are the model.

2011 has arrived, Goldman Sachs and Chinese economists continue to exhaustively encourage Chinese people to madly buy gold. Now the small problem: the price of gold has surged 500% in 10 years, the global gold market in the region of $ 1,300 has reached an unprecedented scale. A contract must be shared by the long and short side, if there are unprecedented long gold contracts, there must also be unprecedented short-selling. Perhaps in the Chinese market today, I am the only bearish one on gold, and I think it will drop below 300 dollars.

In March 2010, I lectured in Beijing that the time to short gold will be in December 2010. I have a friend who established a short position at 305 RMB in the Shanghai gold futures market contract 1106, all his friends and the managers at futures companies desperately opposed him, and in a panic he closed his short position in gold at 298 RMB. Explaining this small situation, it shows that Chinese peoples' psychological state is not ready for participating in globalization. In Shanghai, November 9, 2010, the 1106 gold futures contract at 310 yuan expanded by 10,000 contracts; December 1, 2010 to December 7, at 303 to 310 yuan, another 10,000 contracts; the same thing from December 27 to December 30, soon after the shorts all won and the longs all lost. Now, nobody would believe that gold will eventually be worthless, but why are there a large number of shorts, moreover shorts that are unknown to the Chinese people.

Now the market value of gold has risen to 6 trillion U.S. dollars; gold futures, paper gold, gold stocks, gold producing countries CDS (credit default swaps), etc. is at least as high as $10 trillion. The gold market could be $20 to 25 trillion in size. Gold is much greater than the U.S. national debt. Chinese economists speak about gold's beautiful future, this logic rests on one idea - the U.S. budget deficit and the U.S. debt. U.S. government debt is now close to 100% of the U.S. economy, at the same time, the Japanese government debt is 200% of GDP, so the U.S. government debt is still normal. Out of control U.S. government debt is the only force lifting the price of gold, this Americans and Chinese economists know. Then, in people's heads should be the idea that a gold crash solves the out of control debt.

Now, Bernanke, Goldman Sachs, and myself, all know that gold is in an unprecedented crash state. Today, we all know the global currency system is the dollar standard. More exactly, global trade or global debt settlement must be in U.S. dollars. During the worldwide Great Depression of 1930, gold soared against all currencies precisely because the world of 1930 was on the gold standard, at the time you had to sell your currency to buy gold, so you could participate in market settlement. Over the past 3 years, global governments and the private sector issued an unprecedented amount of debt, a total size of not less than 20 trillion dollars. More preposterous is that emerging countries, especially China, engaged in large-scale borrowing and inflation.

At 1300 U.S. dollars for gold, the United States has established a worldwide currency reservoir. QE2 U.S. monetary policy has accelerated the rise in inflation in China, the Chinese central bank can only accelerate to keep up with the Americans, in this way the currency in the gold reservoir escapes into agricultural products, coal, oil, the Nasdaq market, at last China's central bank can only desperately hike interest-rate and ultimately resulting in the global outbreak of debt settlement, the crash of the Chinese property market and the gold market. In order to complete this, to solve the U.S. debt with a gold crash, Goldman Sachs and Chinese economists need to create a gold fairy tale.

There are $13 trillion in Japanese savings, if the Japanese take half of the savings, they can put most of the world's gold in Japan. According to the Goldman Sachs' and Chinese economists' logic, that the Japanese do not buy gold now is stupid. But the next 5 years will be the Internet's truly global growth, the Internet will go from 2 billion to almost 4 billion users. After 2012, technology reserves, cultural reserves, human capital reserves and agricultural reserve will create the real boom in America's Nasdaq.

In 2011, everyone in China dreams of getting rich with houses and gold. In 1997, the ASEAN region was also full of dreams of getting rich with houses. In 1998, ASEAN regional house prices collapsed more than 70% and some currencies suffered 1000% devaluation. We Chinese should not be a global financial fool; we see that the Chinese stock market and the U.S. stock market contrast; we look at the global agricultural market and gold market contrast, China's economists are just a group of "idiots and good-for-nothings." In my book "Great Financial World," we also understand these structural problems in Japan's property market after 1992.

This 2011 Chinese New Year, Wall Street and U.S. multinational corporations have got 3 trillion dollars in cash. The most brutal time of the Great Depression was in 1932 when, if you had cash, you were king. If history repeats itself again, Wall Street and U.S. multinational companies have got 3 trillion dollars in cash and will control the world.

The mission of my current book, "Great Financial World", is to record how China was ultimately destroyed by the United States using economics and finance. In the United States now, all the best people are on Wall Street and China's economists tell us that building houses and buying gold can defeat the United States. But America's best talent is working hard to enlarge global indebtedness. It is Bernanke and Wall Street creating the global debt zoom that are idiots! Or its Chinese economists that tell us to build houses and buy gold that are idiots!

Wish My Friends a Happy New Year!

Liu Junluo January 25, 2011

One thing I've noticed about Liu Junluo's writings and which Chinese readers have also noted, is that he's often right about the direction of things, but doesn't always explain why. There is an existing theory that fits Mr. Luo's prognostications like a glove though—deflation. Robert Prechter has predicted a much lower gold price as well and he is one of the most bearish deflationists on record.

An interesting symmetry also exists in the writings of Liu Junluo and others who share his opinion. Just as one can read about the incompetent U.S. government/economists being defeated by the wise Chinese in some quarters, many Chinese hold the inverse opinion, that incompetent Chinese government/economists are being defeated by the wise Americans.


Wenzhou overseas investment plan stopped

Wenzhou's Overseas Investment Trial Halted
The trial program kicked off two weeks ago, drawing much attention from the media. It was largely interpreted as a sign of loosened capital controls.

The State Administration of Foreign Exchange (SAFE) made phone calls to the Zhejiang provincial SAFE bureau and the Wenzhou municipal SAFE bureau, saying the trial was not approved by SAFE after media coverage, according to Outlook Oriental Weekly, owned by the state-run Xinhua News Agency.


Pets and social mood

Sleeping next to pets could be harmful, study says
There's plague (yes, bubonic plague, i.e. the Black Death); chagas disease, which can cause life-threatening heart and digestive system disorders; and cat-scratch disease, which can also come from being licked by infected cats.

Though many people love getting licked or planting a kiss on a pet, it may not be such a good idea, the authors say.

The researchers found several cases of various infections transmitted this way.

"The risk is rare, but when it occurs it can be very nasty, and especially in immuno-compromised people and the very young," says Chomel, who specializes in zoonoses, the study of disease transmission between animals and humans.

Larry Kornegay, president of the American Veterinary Medical Association, called the article "pretty balanced." These cases are "uncommon if not rare," but even so, pet owners should use common sense to reduce risks.
Outbreaks tend to occur during declines in social mood, but there's no plague outbreak. Just negative social mood drawing attention to a study on the disease risk of pets.


Social mood and technology

Society turns against technology during declining social mood. This story below is about a backlash against social networking technology and many peoples' constant use of mobile devices. The social mood perspective on the story is not that the negatives are a creation of declining social mood, it's simply that people are more likely to look at the negatives, rather than the positives, during declining social mood. Nothing has changed with the technology itself, the same negatives and positives were always there, what has changed is the mood of the people using the technology. And we have declining social mood for a reason, to balance out a period of positive social mood when the negatives were downplayed. This goes for technology, culture, politics, business, debt levels, etc.

Social networking under fresh attack as tide of cyber-scepticism sweeps US
But Turkle's book is far from the only work of its kind. An intellectual backlash in America is calling for a rejection of some of the values and methods of modern communications. "It is a huge backlash. The different kinds of communication that people are using have become something that scares people," said Professor William Kist, an education expert at Kent State University, Ohio.

The list of attacks on social media is a long one and comes from all corners of academia and popular culture. A recent bestseller in the US, The Shallows by Nicholas Carr, suggested that use of the internet was altering the way we think to make us less capable of digesting large and complex amounts of information, such as books and magazine articles. The book was based on an essay that Carr wrote in the Atlantic magazine. It was just as emphatic and was headlined: Is Google Making Us Stupid?

Another strand of thought in the field of cyber-scepticism is found in The Net Delusion, by Evgeny Morozov. He argues that social media has bred a generation of "slacktivists". It has made people lazy and enshrined the illusion that clicking a mouse is a form of activism equal to real world donations of money and time.

Other books include The Dumbest Generation by Emory University professor Mark Bauerlein – in which he claims "the intellectual future of the US looks dim"– and We Have Met the Enemy by Daniel Akst, which describes the problems of self-control in the modern world, of which the proliferation of communication tools is a key component.

The backlash has crossed the Atlantic. In Cyburbia, published in Britain last year, James Harkin surveyed the modern technological world and found some dangerous possibilities.

Euro speculators go long

The speculators' net short position in euros evaporated last week and accompanied rapid advance in the euro.

Hugh Hendry on the euro and interest rates

I believe the European bureaucrats have badly misjudged the public mood. Perhaps they are too closely aligned with the plutocracy of the financial and banking sector. Contrast the mood of the ordinary household with that of my rich hedge fund friends. Today the average European long/short fund is running its most bullish risk exposure in many years and is feeling ebullient regarding the rising tide of corporate profitability as businesses pare back employment levels. My grumble is that I suspect the omnipotent powers of my peers’ central bankers might be found wanting just when they are needed most.

For the shadow of policy error lurks once more. The European Central Bank’s president even proclaimed his satisfaction with his bank’s decision to raise rates back in the cauldron month of July 2008. I salute him for his willingness to subject the bank’s decisions to open scrutiny. But tightening monetary policy amid the deepest economic crisis of the past 50 years was perhaps not his institution’s finest hour. And with headline inflation rates being boosted by relative price rises in the commodity sector, as Chinese policymakers continue to plug 10 per cent into their GDP calculators, another poorly-timed rise in European rates cannot be so easily dismissed.

Europe risks getting it wrong again on rate rises


Andy Xie: Euro to replace U.S. dollar

Between a Crutch and Walking Stick

A long and good article, but here's the conclusion:
Supporting the euro is in China and Japan's best interest. They hold more dollar assets than anyone else and have a strong vested interest to safeguard the dollar's value. The only viable alternative to the dollar is the euro. If it is discredited, the Fed will be emboldened to print more money.

Down the road, China and Japan should work with OPEC countries to prepare for the post-dollar world. The three hold most dollar assets in the world. If they don't prepare an alternative, they are always at the Fed's mercy. When the Fed stimulates the economy by printing money, it dilutes their wealth. If they prepare a credible alternative, the Fed will have to think twice before it starts the printing press.

The key step for replacing the dollar is for oil to be priced in a different currency. For now, the euro is the only possibility. China, Japan, and the OPEC should begin discussions on trading oil in euros. Oil is mostly traded in London and New York now. Euro-denominated trading systems could be created in Dubai, Shanghai and Tokyo.

It's time to prepare for the post-dollar world.

What happens during inflation

A supply disruption can happen anytime, but when it happens during inflation, the results can be spectacular.
The recent disappearance of a popular tampon brand is really cramping the style of city women.

Drugstore shelves have been mysteriously empty of o.b. nonapplicator tampons since late fall, leaving the feminine hygiene product's devotees puzzled and peeved.

The popular product is in such short supply that eBay users are bidding up to $76 for three packs, which usually sell for just $8.79 a pack.
Women searching far and wide for o.b. tampons after they mysteriously disappear from store shelves

Another source says prices hit $130 a box, or $3 per tampon.

An explanation comes from an article in the New York Times: Can Johnson & Johnson Get Its Act Together?

In brief, the McNeil Consumer Healthcare division has had quality control problems and was forced to recall all manner of products. During a period of serious inflation, shortages occur due to hoarding and more importantly, distortions in the economy caused by misleading price signals. Should inflation become a serious problem, this tampon story will be repeated over and over with various products.


Lingerie signaling a rise in social mood?

Articles on fashion often have a socionomic component, sometimes just a throwaway line, because the theory about hemlines and stock prices is widespread. More importantly, the designers are aware of cycles int he industry and they see connections to past periods of social mood. They may not always nail the right time period, but they do have a good sense of the mood...if they're successful.

Women's lingerie makers say 50s-styles for the fuller figure are back in vogue
"What were the 50s? It was a post-war period," explains Caroline le Grelle, a fashion consultant for Eurovet, organisers of the lingerie trade fair, which opens on Saturday in Paris.

"Women had gone through a period of hardship. They wanted to enjoy themselves. We haven't experienced a war this time - but we have come through an economic crisis. It's the same scheme of things. We want to sweep it away and have a ball. Hence this return to retro."

So it's out with minimalist thongs and push-up demi-bonnet bras, and in with bullet bras and high-waisted briefs, particularly in black, which Le Grelle calls "the colour of reference for seduction".
"We want to sweep it away and have a ball." However, is it the 1950s post-war boom, or the 1933-1937 rebound from the first leg of the depression?


Rise of the Hans

Tribalism is making a comeback, or how declining social mood will manifest itself in the unwinding of global institutions.

With China's new prominence in global affairs, the Han race, which constitutes 90 percent of the Chinese population, is suddenly the most dominant cohesive ethnic group in the world -- and it is seeking to remain that way through strategic alliances, aggressive trade policy, and attacks on racial minorities within the country's boundaries. The less tribally cohesive, more fragmented West is, meanwhile, losing out.

Almost 20 years ago, I wrote a book called Tribes that sought to trace the role of ethnicity, race, and religion in economic and geopolitical affairs. At the time, there was some skepticism about the continuing influence of ethnicity; some considered the work, frankly, regressive and racist. Now, however, my thesis from 1992 has really come to fruition. We are living in the age of tribes -- and China is just the start.
That's the introduction to the article. Here are some of the meatier portions:
This represents a major shift in the identity of the Chinese tribe, a combination of political and economic power with a very homogeneous worldview. The best way to explain China's economic and foreign policy is most accurately seen as a tribal expression of what Friedrich Nietzsche called a "will to power." Essentially, the Han has become a tribal superpower that treats other groups -- from China's non-Han minority to much of the rest of the world -- as a vast semi-colonial periphery. And with its growing economic and military might, Han China may soon be able to impose its will on some of these "lesser" cultures, should it desire.

China may be setting the underlying tone of our new world, but many other groups have responded in similarly tribal fashion. Like China, Russia has abandoned internationalist communism for a kind of Leninist state-capitalism with racial overtones, as evident both in the increasingly rough treatments of darker-skinned ethnic minorities such as Chechens and an aggressive ethnic Russian retro-imperialism -- once disguised in socialist trappings -- toward "near abroad" countries like Georgia, Armenia, Ukraine, and Belarus.
And the impact of these changes are already being felt:
Tribalism will also threaten the efficacy of international organizations, which tend to assume common interests between groups. Instead we have to think of future international cooperation in more traditional terms, balancing distinct sets of tribal interest. As tribes continue to pursue their own interests ever more zealously, the idealistic rhetoric of multinational organizations will become ever more risible. The way China and other developing countries snarled up the Copenhagen climate conference reflects this shift.

Niall Ferguson on U.S.; Jim Rogers on China

China wants more hot money

As long as it goes into the stock market.

Mini-QFII scheme set for trial run to bolster troubled A-share market
fund manager informed about the progress of the so-called mini-QFII (qualified foreign institutional investor) scheme - which allows domestic brokerages and fund houses to raise offshore yuan to invest in mainland bonds and stocks - said about 10 applicants were in discussions with authorities on the launch of the products.

An official with the China Securities Regulatory Commission said a trial programme would be launched soon because the top regulators were determined to attract fresh capital abroad to bolster the troubled A-share market. Beijing had expected to start a trial run of the mini-QFII programme before the end of last year, but the liberalisation was delayed as regulators spent more time working out supervision of the capital flow and the selection of custodian banks.

The overseas subsidiaries of mainland brokerages and fund houses such as Harvest Fund Management would raise yuan funds in Hong Kong and invest 80 per cent of them in mainland bonds, the fund manager said. The remainder could be used to buy locally listed stocks.

Several foreign institutions who have joint-venture brokerages or fund management companies on the mainland will also receive a green light to participate in the mini-QFII programme. The mini-QFII scheme was designed to bolster the yuan's internationalisation as Beijing created an investment option for offshore yuan.
If investors can participate in the A-share market, it makes the yuan more attractive to hold overseas. This is more of a step towards opening the capital account though, and the other side of the reform is the trial program in Wenzhou that allows capital to leave China.

Wage hikes coming to Guangdong

Guangdong pay pledge to drive out HK factories
The chairman of the Hong Kong Small and Medium Enterprises Association, Danny Lau Tat-pong, said Guangdong's wages would jump between 25 per cent and 30 per cent this year as a combined result of worker shortages, the need to retrain people, yuan appreciation and more requirements for workers' social welfare and insurance.

"We have even been subsidising the workers' canteen more because meat and vegetables are getting more expensive," said Lau, who runs a curtain-wall plant in Dongguan. "Factories have either to upgrade or move out of the province."

The other factor expected to impact on the future of Guangdong's exports is a stronger yuan, which Lau expected would appreciate by 5 per cent this year.

He said the number of Hong Kong factories would dwindle sharply in coming months, citing government estimate that less than 40,000 Hong Kong-owned factories now operate in the province compared with roughly 56,000 at the end of 2009.

"Some will be forced out of the business, some will be sold and some will be relocated to remoter parts of the country or even overseas."
One company is already moving production to Bangladesh; I'm sure Vietnam will also capture some business leaving China.

Now Egypt slides

Egypt Stocks Drop Most in Six Weeks on Concern Tunisia Unrest May Spread

Egypt, recently the scene of anti-Christian riots and bombings (less reported were the Muslims who, in the wake of the intial violence, acted as human shields surrounding churches to protect Christian worshipers), is now feeling pressure from Tunisia.


Tensions increasing in Arab world

Shooting on the streets as Tunisia tries to form coalition

Jordan fears another Tunisia

And Israel is concerned too.

Israel dreading a democratic Arab world
Shalom added that if regimes neighbouring the Israeli state were replaced by democratic systems, Israeli national security might significantly be threatened. The new systems would defend or adopt agendas that are inherently opposed to Israeli national security, he said.

The deputy indicated that Israel and most of the Arab regimes have a common interest in fighting what he referred to as “Islamic fundamentalism” and its “radical” organisations which threaten Israel.

This threat, he added, is the reason behind much of the direct and indirect intelligence and security coordination between Israel and the Arab regimes.

Shalom emphasised that a democratic Arab world would end this present allegiance, because a democratic system would be governed by a public generally opposed to Israel.
That would certainly fit within the framework of negative social mood. Note that U.S. policy is almost wholly supportive of destabilizing Arab regimes, via the promotion of democracy and the current inflation policy of the Federal Reserve.


Negative social mood and food inflation

Things are getting very serious across the Arab world. Riots stretch from Tunisia, Morocco, Jordan and Yemen, after starting in Algeria.

Today, the President of Tunisia fled the country as riots quickly turned political.

Prime minister takes over as Ben Ali flees Tunisian turmoil

There have been riots elsewhere, such as the Chinese students that trashed their cafeteria, but these have not even spread, let alone morphed into political protests. In countries where the social mood is already negative, where the public is already dissatisfied with political leadership, there is great potential for food riots to become something more.

Here's a chart of the Tunisian stock market.

Speculative shorts peak with the low in euro

Silver speculators continue their holding pattern.


Why euro crisis is far from over

Everyone is focused on the next couple of years in the European sovereign debt crisis, assuming if they can make it through this period, things will get better. This ignores the looming impact of demographic changes in European countries.

From Global Aging and the Crisis of the 2020s
The expectation that global aging will diminish the geopolitical stature of the developed world is thus based in part on simple arithmetic. By the 2020s and 2030s, the working-age population of Japan and many European countries will be contracting by between 0.5 and 1.5 percent per year. Even at full employment, growth in real GDP could stagnate or decline, since the number of workers may be falling faster than productivity is rising. Unless economic performance improves, some countries could face a future of secular economic stagnation—in other words, of zero real GDP growth from peak to peak of the business cycle.
Emphasis mine. If the Europeans manage to prevent a major debt restructuring (default by another name), they will have exchanged a severe financial crisis for a fiscal crisis that will last a generation.


Housing lottery in Zhejiang

More than 2,500 people showed up for 288 apartments. See the photos here.

Hugh Hendry interview

You need Windows Media player to watch. Hugh Hendry interview.

Here's the link if you want to open it using Windows Media Player.

He says investors need to separate GDP from wealth when looking at China.

Chinese capital flowing overseas

Wenzhou is staying in the news.
Chinese Investing Overseas Gets Easier
The eastern Chinese city of Wenzhou, in a pilot program, will let residents invest directly overseas, a small liberalization step that is part of a wider effort by China to reduce controls on its currency that could take some pressure off the yuan to rise.

Wenzhou residents will be allowed to invest up to $200 million a year, though investment in a single project can't exceed $3 million, according to a statement posted on the website of the Wenzhou Foreign Trade and Economic Cooperation Bureau.

Residents aren't allowed to invest in overseas property or equities markets under the trial, the bureau added.


The changing face of consumption

Kevin Depew covers Americans growing disgust with overconsumption, plus the U.S. dollar is set for a big rally.Five Things You Need to Know: Get Rid of Your Stuff, the New Sharing, the Dollar Rally, Emerging Markets and Commodities Bust

China's SOEs report big profits in 2010

Chinese media covered the difficulty in the private economy of Wenzhou this weekend, but there's no such problem for state owned enterprises.

SOEs Net Profits Hit New High
China's state-owned enterprises recorded a combined 1.07 trillion yuan in net profits, about 50 percent higher than last year's figures, according to State-owned Assets Supervision and Administration Commission (SASAC).

In the first 11 months, central government-controlled enterprises reported 802.2 billion yuan in net profits while local government-controlled enterprises registered 271.6 billion yuan in net profits, said Wang Yong, the newly-appointed director of SASAC.

Total assets and sales revenues also expanded from 2005 to 2009. Total assets of SOEs rose from 25.4 trillion yuan in 2005 to 53.5 trillion yuan in 2009 and total sales revenues went up from 14.2 trillion yuan in 2005 to 24.2 trillion yuan in 2009, according to SASAC.

Analysts say that in recent years China's state-owned companies have continued to expand due to easier access to bank loans, while private enterprises have faced a growing risk of being crowded out.
Besides the access to bank loans (which come from state-owned banks), a lot of SOEs are in basic industries: utilities, telecommunications and energy. Also, booming sectors such as autos have many state-owned firms. Chinese SOEs have generally done well in years with rising resource prices.

Still, the contrast with the private enterprises in Wenzhou is stark.

Vox Day does socionomics

The darkening days
here is much to recommend this historical perspective; it is certainly more credible than conventional Great Man theory. But it also makes the same mistake that neoclassical economics makes with regard to economic actors in that it incorrectly ascribes rational action to nations and governments. Consider the two examples previously cited. The obvious risk to Japanese wealth in challenging American naval supremacy in the Pacific was much greater than the potential reward of controlling the oil from the Dutch East Indies, even when one takes President Roosevelt's 1941 oil embargo into account.

And the $144 billion annual cost of maintaining a military occupation force in Iraq could not possibly justify the $16 billion in oil imports from Iraq, even if the United States were taking the oil for free rather than paying for it. Nor could it make sense to defend the dollar by selling trillions of dollars worth of Treasury bonds to China when the nation is already insolvent by any traditional accounting measure.

But there is a different means of connecting what is taking place in the economy with current events, one that offers a better explanation for what appear to be increasingly awful events that are taking place with increasing regularity around the country. From the attempted assassination of Rep. Gifford in Arizona to the Mexican beheadings threatening to spill across the border and the White House's assertion of its right to murder American citizens without arrest or trial, the social mood appears to be darkening.
His article is for a general audience unacquainted with socionomics, and he touches on weakness in China and Europe.

Brazilian real caught between a rock (USD) and a hard place (CNY)

The Brazilians are screaming the loudest about the currency war because they are getting hit from two sides, the U.S. and China. Here's the latest coverage from the Financial Times, the latter article discusses capital controls.

Trade war looming, warns Brazil

Tensions rise in currency wars
“These are very tough intellectual questions to which there are no crisp answers but there is a good case for emerging markets to limit inflows now to prevent a crisis in four or five years’ time,” Professor Rogoff says.
The flows are the crisis, usually countries usually enjoy the economic boom associated with the inflows, just as they enjoy the inflationary boom. When the "crisis" hits and a major recession, financial panic and/or currency crisis erupts, this is just the reality of economic conditions breaking through the artificial prosperity built by government or central bank policy.

Americans have the Tea Party, Germans have the Mark Party?

Opposition to the Euro Grows in Germany
For the time being, no political party has focused on the currency concerns. In reaction to the crisis, German Finance Minister Wolfgang Schäuble, who is also a member of the CDU, has urged closer cooperation in European politics -- which is precisely the opposite of what many people want. The center-left Social Democratic Party (SPD), which stylizes itself as the party of the common man, is a strong proponent of euro bonds -- joint European government bonds that critics say would place the burden primarily on German taxpayers.

By contrast, the conservative Christian Social Union, the CDU's Bavarian sister party, can't make up its mind as to which of two party members it should take inspiration from: Theo Waigel, who paved the way for the euro when he was Germany's finance minister, or Peter Gauweiler, who has challenged its constitutionality in court.

Pollsters like Matthias Jung from Forschungsgruppe Wahlen say that they can imagine the formation of a protest movement coalescing around euro-related fears. "The government has to prove that the bailouts for Greece and Ireland serve our own needs in Germany," says Jung. "If the billions in aid are not convincingly justified, it will lead to a legitimation crisis."
This may surprise some folks as well: despite the weak euro benefiting German exports around the work, German industry says they did fine under the regime of the strong deutschemark.
Another opponent of the European currency in its current form is Hans-Olaf Henkel, who was for many years the head of Germany's leading employers' association, the Federation of German Industries (BDI). "The statement that German industry benefits enormously from the euro is like the Ten Commandments in Germany," he says. "But Germany was also the world's second biggest exporter in the days of the deutsche mark. The proportion of euro-zone countries purchasing our exports has even dwindled since the currency's introduction."

Henkel is in a hurry. Just in time for the euro crisis, the one-time enthusiastic supporter of the common currency has now written an anti-euro book titled "Rettet unser Geld!" ("Save Our Money!"). Controversial German author Thilo Sarrazin wrote the dust-jacket text. Just as the former Bundesbank board member Sarrazin has capitalized on the immigration debate in Germany, Henkel wants to take advantage of the underlying mood among the population. In fact, after giving a reading in a Hamburg bookstore, listeners asked him why he didn't run for office in the city government. Following a one-hour flight, he makes an appearance in Frankfurt, before participating in a talk show on German television.

Henkel has a mission: He wants to divide the euro. All of the "olive countries" -- as Henkel dubs the Greeks, the Italians and the French -- should pay in southern euros in the future, he says. The north -- in other words, primarily Germany -- would pay with the northern euro.
The DM is a political issue waiting to take shape and a decline in the social mood is just the type of force that could bring it to fruition.

Chinese property taxes arrive

Here's the Wall Street Journal: China City Set to Tax Residential Real Estate
Here's South China Morning Post: Chongqing to impose controversial flat tax

The Western media is overly focused on the property market and missing the real story. China is in the midst of economic reform aimed at building a strong domestic economy and a major problem facing the country is government revenues. Most localities generate a significant portion of revenues from land sales; this caused the local governments to become overly reliant on property development for revenues. This is a contributing factor to the property bubble in major cities, but the real goal of tax reform is to find a stable source of revenue for local governments—one that can survive a bursting of the property bubble. I doubt the tax will have any short-term impact because the tax will be less than the annual increases in property prices. The bubble will end when the bubble ends and this policy will not be the trigger.

Besides Chongqing, Shanghai has been approved for a trial property tax.


On a lighter note

I stumbled across this Chinese ad for a product that is described as Viagra underwear.


There are infomercials too.

The ads claim that U.S. VAKOOU is the U.S. Military Health Protection Agency. Just one of many interesting claims...

Use Google Translate to fully enjoy!


China's property bubble

Blogger "Barrons" over at Caing has more charts showing China's property bubble.

泡沫的证明 or Proof of the bubble

The first 4 charts are from Japan. The last of Japan is land value versus GNP, the one after is for the U.S. The next ones are from China. Here's the comparison I think is most clear. The first is Japanese land price increase versus CPI, showing the peak in the late 1980s. Below it is the current comparison for China, note that CPI and land prices switch colors in the graphs.

Click through to see more charts, such as a comparison of money supply growth, and land prices versus GDP. 泡沫的证明

Rising costs destroy profit margins in Wenzhou, firms shift to real estate

Wenzhou, Zhejiang is one of the most wealthy parts of China. It was one of the first areas to latch on to the opening of China and it's home to hundreds of businesses. Here is a snip from the Wiki entry:
In the early days of economic reforms, the people of Wenzhou took the lead in developing a commodity economy, household industries and specialized markets. Many thousands of people and families were engaged in household manufacturing to develop individual and private economy. Up till now, Wenzhou has a total of 240,000 individually-owned commercial and industrial units and 130,000 private enterprises of which 180 are group companies, 4 among China’s top 500 enterprises and 36 among national 500 top private enterprises. The quantity, industrial output, tax, export and number of employees of the private enterprises account for 99%, 96%, 75%, 95% and 80% of the whole city respectively. There are 27 national production bases such as “China’s Shoes Capital” and “China’s Capital of Electrical Equipment”, China’s 40 famous trademarks and China’s famous-brand products and 67 national inspection-exempt products in the city. The development of private economy in Wenzhou has created the “Wenzhou Economic Model”, which inspires the modernization drive in China.

The city of Wenzhou is a world leader in lighter manufacturing with over 500 such companies in the city.[3]

There are many area in which people of Wenzhou open the first example of private economy. For instance, Junyao Airlines is built on July, 1991, which is the first and still the only private airline company in China. Jinwen Rail Way is also the first rail way company which is built with private capital.

However, 2010 was worse than 2008 for many of these businesses. (And as you'll read below, the wiki needs updating on the number of lighter companies.) The Economic Observer has a front page story on Wenzhou this weekend:


"Private companies in Wenzhou did not make any money in 2010"

Here are some of the reasons why. (What follows is not a translation. I have mixed my own comments in with some rough translations of portions of the article.)

A sofa manufacturer saw cotton materials go from 450 RMB to 670, then down to 550 RMB, still a 20% increase. Even though his sofa sales increased two to three times, the manufacturer ate the costs and his profit was gone.

Wenzhou's garment industry saw revenues up about 30% and exports up 20%, but profits were meager.


In Wenzhou, the "Shoe Capital of China", one executive says a factory there already closed 4 of 14 production lines due to a shortage of workers. Wages have gone from 1200 RMB/month to 1500-1800 RMB/month, yet they still cannot find workers. Note that he says "already," as he doesn't expect this trend to end. He goes on to estimate the labor shortage at 10-20%, industrial rents went up 5% in 2010 and material costs rose 20%. Profits are barely 2-3%, down from 8%.

In the lighter business, the number of firms has plunged from 500 pre-crisis to 80, but the soaring business at the remaining firms is being eaten up by rising copper and zinc prices. One firm says they're breaking even, but staying in operation to maintain stability and provide employment for the workers.

The glasses industry points to three culprits. Wages have doubled since 2008, to about 1800 RMB/ month. Raw material costs are up 20%, and the currency fluctuations in the U.S. dollar and euro are impacting exports.

Companies in Wenzhou also complain about the corporate tax burden. Tax officials asked some businesses to prepay one year of taxes! An industrial association official said he believes China's tax burden exceeds that of developed nations, he believes it is actually the greatest in the world.

Between the second and third quarter (recall that commodities really started hopping in Q3), only one-third of businesses in Wenzhou reported an increase in profits.
"It is difficult to raise prices, the firm has no choice but to bear the rising cost pressure." So says Wu Jianhai, who created the China Mall in Cameroon. His retail profits are up, but still far from the level they were at before the financial crisis. He says the cost pressures are so great that profits from trade are not even one-tenth of the level in 2000.

The article goes on to discuss how companies are dealing with current conditions. Some firms are exiting, some consolidating, and also upgrading of plant and equipment. The outlook isn't completely negative, as the weak firms exit and business stabilizes for the remaining firms. Some are also exiting to other sectors, such as solar and biotech.

However, many businesses aren't going this route. Instead, they are getting into real estate development (the large firms) and flipping properties (the small firms). Of Wenzhou's top 100 companies, 2 are real estate companies and 6 are construction companies, but 40 others have gotten into the property business. These manufacturing firms borrow money to finance their real estate operations and seven of these real estate development divisions each have more than 3 billion RMB in capital (roughly $500 million).
Of course this has affected land prices. From May to August of last year, the average transaction price was 28,000 RMB/square meter, the highest in the country. In November, one housing development saw prices of 37,000 RMB/sq. meter.
Consequently, a clear cycle has emerged: manufacturing becomes difficult, so they shift capital into real estate, real estate prices rise, costs rise, and manufacturing really becomes difficult.

This move into real estate fits with a story from last year. In July 2010, I blogged about Wenzhou Private Interest Rates Hit 96%. It was about the speculation taking place in the city. Obviously, the bubble didn't burst and prices have continued moving higher.

More of the same from the COTS report

Speculators have been consistent, although this is a snapshot (from January 4) ahead of the big slide in the euro this past week.


Colors coming back to men's fashion in Asia?

Purple Is the New Gray
“With the move away from conservative dress, there’s a lightness in colors,” says Mr. Cho, adding that he’s going to stock some colors for the spring: barley-yellow and electric-blue jackets in lightweight wool, for example, a departure from the classic navy and gray jackets that have dominated sales in the past two years. Also in the pipeline: pink, blue and purple ties in grenadine silk (a textured, loosely woven silk), as well as unstructured jackets — no padding or front canvas (interface) — for a slightly more casual look. “We’re hoping a lot more guys aren’t just wearing suits, but will mix with sports coats and trousers.”
Earlier in the article, the author makes the connection between fashion and economic trends.


Gold debate heating up

Major players are signaling that gold is no longer on the kooky fringe.

Jim Rickards - Gold Standard Coming, Fed’s Hoenig Correct
Jim, you said that battle lines would be drawn on this debate and this is the second major figure who has joined with World Bank President Zoellick openly discussing the use of gold in the monetary system. What is your take on this development?

“What Hoenig has done, as Robert Zoellick did before him, is to legitimize the debate. This is not the last word on gold and there is a long way to go both intellectually and mechanically before we get to a gold standard. What is important is that the discussion is now out of the shadows and in the main arena and it will take on a life of its own from here with participation from many sides. Hoening may have lost his vote on FOMC but he has not lost his voice.”

With regards to the battle lines, how do you think Fed Chairman Bernanke will feel about this?

“Hoenig and Zoellick are not stalking horses for Bernanke and the Board of Governors. An honest debate about a gold standard is the last thing Bernanke wants. However, because of speeches like Hoenig's and the new prominence of Ron Paul in the Congress, this debate is now taking off whether Bernanke likes it or not and he will not be able to contain it.

The battle lines are being drawn between honest gold backed money and fiat money. The G20, IMF, central banks and most academic economists are on the side of fiat money and the citizens, certain honest intellectuals and a few economists are on the side of gold. Let the games begin.

Hoenig is right that even with a gold standard there will continue to be business cycles with occasional periods of higher unemployment and bank failures. But it's not as if fiat money has avoided those calamities. From the severe recessions in the 1970's and 1980's, the sovereign debt crisis of the early 1980's, the stock market crash of 1987, the recession of 1989-1990, the bond market crash of 1994, the LTCM collapse of 1998, the tech bubble crash of 2000 and the Panic of 2008 it's not as if it's all been smooth sailing under fiat money.

It's hard to see how gold could do worse and history says it will do much better. One need only look at inflation, unemployment and economic growth in the period 1870-1914 versus 1971-2010 to see the clear beneifts of gold which seems to produce both consistent growth and low inflation notwithstanding occasional business cycle volatility.”

Mass animal deaths replaces mystery missiles

Are animals really dying off in record numbers? Or is the public "spooked," with 2012 end of the world nonsense adding fuel to the fire?

Notice the clustering of mass animal death stories in the American, and elsewhere English-speaking, press. Certainly looks to be a social component to this story, with the strong possibility that this is simply another way the negative social mood is manifesting in the media.

Here's the Mass Animal Deaths map.


Is China finally serious about the property bubble?

Maybe, now that the leadership is looking directly at the problem.

Property a local government money bin

In a nutshell, here's how it works. The central government tells the local governments to cool property speculation. Except the local governments get most of their money from selling land, and some of the bureaucrats are likely participating in some of the developments as well.
Hu said Wen had lost the bureaucratic battle because any property project involved officials from dozens of local departments - and even more than 100 in extreme cases - with everyone involved pursuing their own vested interests.

"Neither Wen nor any other top central leader could monitor so many departments and officials to ensure his policy is executed," Hu said, citing a research report that suggests that corruption accounts for at least 20 per cent of the cost of mainland housing.

"And the root problem comes from a political system where local officials wield discretionary powers without checks and balances from an independent legislature, judiciary and press."

China's information controls backfire

Salutary lesson for Beijing in flaws of propaganda
President Hu Jintao's visit to a single mother in Beijing on December 29 was meant to be timely propaganda demonstrating the leadership's concern for the poor and needy. However, it backfired spectacularly, generating widespread resentment.
The news item, broadcast nationally on December 30, showed Hu visiting Guo Chunping and her daughter, who recently moved into a government-subsidised low-cost flat in Beijing.

With many ordinary people complaining about high property prices, and similar flats in Beijing costing at least 2,000 yuan (HK$2,350) a month to rent, it sparked outrage online.

Many internet users expressed disbelief that a flat of 45 square metres could cost just 77 yuan a month, the figure 49-year-old Guo told Hu she was paying. Speculation was rife that the whole scenario was faked.

But it turned out to be true, which has led one media academic to describe the awkward episode as a warning signal for the government.
And the human search engines went to work. Some people claimed the woman was a government worker brought in for a charade, some had photos of her supposedly travelling to expensive destinations.
The deputy dean of Renmin University's school of journalism and communications, Professor Yu Guoming , said the fact people jumped to question the credibility of the news on state media was the result of serious flaws in government administration.

"For years the government has depended on giving misinformation or hiding the truth, for example the GDP figures of local governments don't match the central government's calculations. People are used to distrusting them," Yu said.

"Most people have never heard of the 77-yuan rental or are unaware of such policies, which contradict our daily experience. Of course, people would think it's a favour to a few special people or a total sham. The lesson for the government is to administer with more transparency. Hiding or partially releasing information will not work in this society with more [new] forms of media such as microblogs."


Shades of the ground zero mosque debate in China

Church riles Confucius' offspring
Qufu has one now dilapidated church built in the early 20th century. The petition said that building a larger, new church would hurt the feelings of Confucius' followers and insult the sacred birthplace of Confucius.

"To put the shoe on the other foot, if a super-large Confucian temple were built in Jerusalem, Mecca or the Vatican, pitting itself against existing religious buildings there, how would the local people feel about it? Would those governments and people accept it?" said the letter, which has circulated widely since being posted online on December 22.

Bad debts in Mongolia

The country is moving forward, but there are pitfalls.

Mongolia's building boom brought to halt by debt pile
Now, Mongolia's banks are choking on bad debts with the official figure for sour loans put at 7 per cent of the banks' combined asset base. This is down from a peak of 17 per cent in late 2009, but the International Monetary Fund, among others, has criticised Mongolia's central bank for under counting.

Whatever the true bad-debt picture, it is easy to see that Mongolian banks are foreclosing on unfinished construction projects. Figures for November 2010 from the Bank of Mongolia, the central bank, show that as of October 31 the nation's banks owned 23.6 billion tugrik (HK$146.49 million) worth of real estate, or triple the amount they held a year earlier.

There is a "complete lack of money in Mongolia," says Jargalsaikhan D, chief executive of Xas Leasing, an arm of Mongolia's Xas bank, and author of a popular Mongolian-language blog on the sorry state of his country's real estate business. "And to put it very simply, it is hard to build tower blocks without money."

China reduces capital controls

One weapon China can use to fight money coming into the country, is to balance it with money flowing out. Or in this case, not forcing exporters to repatriate foreign currency.

China Allows Exporters to Keep Foreign Earnings Overseas
The new measure signals loosening controls on foreign exchange and will help slow down the growing pace of China's already massive foreign exchange reserves.

Under the new rule, it is up to qualified Chinese exporters to decide how long they park their revenues in foreign currencies in a foreign country and when to transfer the funds to China, according to the State Administration of Foreign Exchange.

In the past, exporters were required to convert their revenues in foreign currencies into Chinese yuan with commercial banks.
As the story notes, this is a loosening of controls on foreign exchange. Currency reform continues, step by step.

Wage hikes could crimp mining shares

Gold miners and others have benefited from low overall inflation and it's a reason why the mining stocks are relative values to the metals themselves. That's not always the case though, if the costs of mining and refining rise faster than the price of the end commodity, it's possible that owning the commodity itself is a better bet.

Which is why this story is worth keeping an eye on. Mining Firms Dig Deeper As Worker Costs Escalate
But some mining companies say the industry is facing increased competition for skilled workers from the oil and natural-gas industry, which is also ramping up spending for exploration and development.

While the scarcity translates into higher costs for mining companies, it benefits workers, who can move from one mine to another, seeking better pay and working conditions.

Kyle Hirsch, a silver miner in Big Creek, Idaho, left his job at the Lucky Friday mine, owned by Hecla Mining Co., and started working at another nearby silver mine, which was paying $350 more a week. "I have been a tramp all my life, going from mining job to mining job," says Mr. Hirsch, 44 years old, who now works as a driller at the Crescent Silver mine in Idaho. "Right now is a good time to mine. Mining is money."

Idaho-based United Mining Group Inc., which owns an 80% interest in the Crescent Silver Mine, says it pays a two-man crew of miners about $100 for every foot of rock they clear. Typically, a crew clears a depth of about 10 feet during a shift, totaling about $1,000.

Last year, the crews were earning less, about $70 to $80 for each foot of rock excavated, according to Greg Stewart, president of United Mining Group. "We have to pay more now," says Mr. Stewart, because of the competition for workers.
This is a global phenomenon; click through to the article for other examples.

Chinese inflation hits in New Year

One of the local fast food restaurants, a place that serves Chinese fast food and has meals that come to about 50-75% of the price of McDonald's or KFC, raised prices on January 1 (a notice has been posted on the door for about a week). Most of the increases range from about 10-30%, some are small amounts, such as a 2.5 yuan item going to 3.0 yuan. However, earlier in 2010 I noticed that they were serving smaller portions (I estimate about 10% smaller) as a method of dealing with inflation. Naturally, the price increases are on top of already reduced portions. I estimate that the average customer is probably paying about 20% more than they were a week ago.


Euro speculators stay bearish, silver specs slightly bullish

Nuclear, the other alternative energy

Scientific breakthrough may solve uranium supply problem at nuclear plants
The technology, developed and tested at the No 404 Factory of the China National Nuclear Corp in the Gobi desert in remote Gansu province, enables the re-use of irradiated fuel. It is able to boost the usage rate of uranium materials at nuclear plants by 60 times.

"With the new technology, China's existing detected uranium resources can be used for 3,000 years," Central Television reported.

Niall Ferguson Lecture

Parts 4 and 5 are very pertinent to the U.S. The whole thing is good, but skip the 9 minute introduction.

The play of the decade

Assuming that the next decade does not see the end of U.S. political, financial and/or military hegemony, plunging the world into a chaotic transition period, with or without economy destroying hyperinflation—that is to say, assuming the global economy grows with mildly positive inflation and rising resource prices—then this is the play of the decade. Or put it this way, if you are banking on some type of collapse, this is a good hedge because your investment in this country will probably grow at least 10 times over in the next decade.

If successful, this country will eventually become a buzzword as it transitions towards becoming the next Kuwait. Buying into the stock market is difficult, it only has a market cap of about $1 billion. Good news for small investors though—if you're willing to accept wide bid/ask spreads, it is relatively easy to invest in this market because capital is freely exchangeable. Whereas large investors have trouble in such a small market, a small investor could take a decent position. My sell signal for later in the decade is a country ETF, since the market capitalization and media coverage will have exploded by then.

If you don't search for news on this country, then you'll only bump into a story every few months, such as the following
The Biggest Tests for Mongolia Lie Ahead
Mongolia's enormous Oyu Tolgoi copper and gold complex is expected to start production in late 2012. As a result, the IMF forecasts 2013 gross-domestic-product growth of 28%, the fastest in the world, up from forecast increases of 7%-8% in 2011 and 2012. Foreign direct investment both in the mining industry and in infrastructure is expected to be many multiples of GDP of just $5 billion.

Chinese consumers want discounts;gov't fights inflation

`Coupon generation' wields consumer power in China
More than a craze, discount shopping is becoming a way of life for young Chinese. Known as the "coupon generation," they are changing the way business is done in the world's second-largest economy.

Companies as global as Nike and as local as the Yonghe fast food chain are courting the bargain hunters. The eagerness for deals has spawned discount clubs, online group buying and sidewalk kiosks that dispense coupons.

A planned three-week campaign by Mercedes-Benz for its two-seat Smart car ended in a day when the more than 200 cars were snapped up in less than four hours at about 135,000 yuan ($20,000) each, a 20 percent discount, on China's most popular online retailer.

It's a relatively new and youth-oriented phenomenon in China, where consumerism has taken off only as the country has shifted from central planning to capitalism and started to grow.
Chinese consumers are the hope of the world, but they will not resemble the free-spending wealthy who gobble up luxury goods. Discount and group-buy websites are very popular and will only become more popular.

Meanwhile, the government is releasing grain reserves to hold down food prices. This could have unintended consequences if the cost of food continues to rise. Price will rapidly increase (or go to infinity in a shortage) if the government runs out of reserves.Reaping fruit of Beijing's war on runaway prices
The reason China can keep its price rises below 10 per cent year on year while other emerging market economies are facing double-digit inflation is mainly because it has two weapons.

One is its state procurement and reserve system for key agricultural products and, by extension, selective management of staple supplies in every category - such as strawberries during the festival season and Chinese cabbage in early winter.

Dang Guoying , an economist with the Chinese Academy of Social Sciences familiar with rural development, said the state reserve system blocked speculators' efforts to manipulate the market and jack up prices for their own gain.

The other weapon, a legacy of the planned economy of the past, is the government control of utilities and certain key resources and services - such as all major transport.

As part of its effort to stabilise food prices, the central government has banned charging road tolls on vehicles carrying farm produce to the cities.

One way the state uses its reserves to harness inflation is to offer the commodities for sale in wholesale markets, at times in large quantities at a discount price, with the state absorbing all the losses.