Fanya Metals Fallout: Song Hongbing Attacked By Mob

Song Hongbing is a financial writer whose series of "Currency War" books were popular in the run-up to the 2008 crisis. I haven't read all his books, but his first had a lot on the Rothschilds, and was pro-gold, anti-dollar. It wasn't too different from arguments you might have heard in the West about the need to buy gold and the death of the dollar. A post I did from 2011: Chinese silver futures market is three times the size of CME; does this sound like a bubble?

SCMP: Chinese investors attack bestselling financial author they blame for ‘40 billion yuan losses’

A high-profile Chinese author of a controversial financial bestseller claims his clothes were torn and his glasses trampled on after he was attacked by angry investors who blame him for them losing 40 billion yuan [HK$48 billion].

Song Hongbing said he was assaulted on Saturday while giving a talk at a hotel in Taiyuan, in Shanxi province, by the investors who bought shares in financial products managed by Fanya Metal Exchange, which is at the centre of an investment scandal.

...Song leapt to fame on the mainland in 2007 after writing a conspiracy-theory bestseller Currency Wars – a book suggesting that Western financial institutions, including the US Federal Reserve, are controlled by a group of bankers that remain loyal to the Rothschild family.

Background on Fanya.

FT: Chinese celebrity author apologises for endorsing Fanya

A bestselling Chinese author has apologised to investors for endorsing the Fanya Metals Exchange in a rare acknowledgment of the role celebrities and state media play in promoting high-interest products to the Chinese public.

Caixin: Author Disavows Letter Backing Angry Investors, Citing Physical Attacks

A controversial best-selling author has disavowed any links to a government-backed commodities exchange that has been accused of fraud, saying he wrote a letter apologizing for his support of the bourse only because angry investors physically attacked him.

Currency Wars: The Warring States Period; China should follow Germany's example: give up your currency to control the continent

The Economic Observer interviews Song Hongbing, a popular author with ordinary Chinese, but not accepted by mainstream Chinese economists. He argues that China should focus on integrating Asia before floating the yuan and that the U.S. is best position to win this round of the Currency Wars. Song wrote a popular book Currency Wars in 2007 and there have been several sequels. The wikipedia entry on Currency Wars gives a decent synopsis, along with criticism by economists and financiers.

Interview: "Currency Wars" Author

EO: What’s have you found?

Song: Based on a recent survey that I did at ETH Zurich University, we analyzed the equity structure of 37 million transnational enterprises and found that 147 of the biggest financial institutes exercise control over 37 million enterprises. Furthermore, there are 20 or 30 big holding groups behind these 147 institutions. This shows how the minority financial holding companies at the top of the pyramid are actually controlling most of the transnational groups in basic materials and energy.

The survey has proved my hypothesis in the book Currency War II. There were 60 families controlling over 60% industries in the US, despite their recent disappearance from the world fortune ranking since 1940. Why did they disappear, you may ask? Is it because of war? Keep in mind, however, there has been no war on U.S. soil since then. I have the sense that at that time the major and vital enterprises in the world were still controlled by a minority of families. Large banks and enterprises are actually very centralized. Many big financial families set up funds and donated their fortunes, especially after 1930. What they want is the control instead of the ownership. Although there might be some philanthropists, the common practice of setting up charity foundations doesn’t seem logical to me.

That survey linked in the quoted text goes to this article Revealed – the capitalist network that runs the world.

EO: The world is really messy now. Your fourth book is “The Warring States Period”. Who do you think will be the “winner”?

Song: According to the current situation, the U.S. and Europe are the first and second countries that are most likely to succeed. Comparatively, China is not yet at the same level. The competition for leadership of the world economy therefore is mainly between the US and Europe. Although China is also willing, the country isn’t yet as competent.

Song goes on to discuss China's strategy, which should be to focus on Asia until its domestic economy is large enough to support the internationalization of the yuan:

EO: In your supposed era of warring states, does China have a decisive role?
Song: I’m not so pessimistic about that. The core idea is that a large domestic market is the base for a country’s ascent. Some have mentioned the internationalization of the yuan, however it’s obvious that the yuan can’t become the world’s reserve money if China’s domestic market isn’t the largest in the world. The Chinese economy is dependent on exports, which means the currency will flow back when goods are exported. Japan and Germany both tried the internationalization of deutschmarks and yen. However, their share in the international currency never exceeded 7%, which is also because of their export-orientated economies.

This could serve as a lesson for China. A third of China’s GDP comes from its domestic market, which is only a ninth of the size of the American market. The best outcome for export-oriented countries can’t be better than was the case for the deutschmark or the yen.

What’s the strategic purpose of promoting the internationalization of the yuan? In my opinion, the answer is to replace the dollar. However, is it possible to guarantee an efficient supervision of yuan trading abroad now? The more yuan that flow abroad, the more dangerous it will be. The same applies when pricing the yuan. If the State Administration of Foreign Exchange and the People’s Bank of China set up the exchange rate at 6.36, while the deal in New York 5, which standard will the market follow? As there are many financial derivatives abroad, the number of the deals there may exceed those in Beijing. In this case, China may lose the pricing right.

This is precisely why I look into the past. Looking back, we can observe how the pound and dollar rose. When comparing the domestic market in the U.S. and Great Britain to the one in China, it’s impossible to argue that the yuan could replace U.S. dollar in the next 30 years. It would be better to promote an Asian currency and benefit from the indirect internationalization of yuan. However, there are also problems, such as how Asia should be integrated.

To read the rest of the article, where Song discusses what lessons the U.S. and U.K. have for China and how to integrate Asia, click Interview: "Currency Wars" Author.

Chinese silver futures market is three times the size of CME; does this sound like a bubble?

And 4 times the size of its gold market. From Song Hongbing's weibo (author of Currency Wars).

刚才一位上海金交所的朋友上山来看我，才知道上海金交所每年的白银交易规模高达20万吨，已经是3年前的20倍之多！虽然规模上超过了CME，但定价权却仍然受制于人，因为他们是国内的封闭市场。可以说，中国白银市场的水已经相当深，如果打开闸门将明显影响世界价格。上海金交所的白银交易已是黄金的4倍！

The price is still controlled by regulators and it is an internal market only. But as Song Hongbing asks, imagine the impact when this market is opened!

The market has grown so large that the exchange is moving to kick out retail (small investor) traders.

现在金交所是在努力压缩白银交易规模，否则明年可能达到36万吨！他们现在有意识地将10万元以下的小客户赶走，年龄超过50岁的也不欢迎。2008年黄金暴跌时，5公斤以上的客户资金都没有问题，全部风险都在5公斤以下的散户。散户神经比较脆弱。

The silver market is on pace to grow from 200,000 tons to 360,000 tons next year if nothing is done. Right now they are getting rid of customers with assets below 100,000 yuan ($15,000) and over the age of 50. In 2008, all of the risk was in the 5kg and under retail customers, customers above that amount had adequate capital.

Those looking for a bubble in precious metals need to be looking at China.