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Monday's Top 10 with NZ Mint: Stockpiles mount in slowing Chinese economy; China's Red Nobility of wealthy 'Princelings'; The amazing Bill Yan; CEOs trust communists most; Dilbert
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
I welcome your additions in the comments below or via email email@example.com.
I'll pop the extras into the comment stream. See all previous Top 10s here.
My must read today is #5 from Martin Wolf. He makes a good case for governments borrow like snot while the bond vigilantes are asleep.
1. China slowdown v 1.0 - Reuters reports growing stockpiles of copper and iron ore in China as production slows.
This can't be good news for Australia.
The most interesting little snippet in this story is that BHP has dropped plans for a big expansion because of its doubts about China.
This might explain the 6% drop in Australian shares over the last week.
Some real doubts are emerging now about China's ability to repeat its miracle rebound of 2008 and early 2009.
That saved Australia and New Zealand.
John Key may not be able to rely on it again.
Here's the detail:
The slowdown has hit hard some of the small and medium-sized manufacturers and traders who form the bulk of China's metals business. Some steel traders have committed suicide and owners of faltering factories have skipped town to escape creditors, according to local media reports over the past year.
This week, the world's biggest miner, BHP Billiton, said it was putting on hold a China-centric plan to spend $80 billion over the next five years to expand its iron ore, coal, energy and base metals divisions.
In his most cautious comments yet, BHP Chairman Jacques Nasser also said he expected commodity prices to cool further and that investors had lost confidence in the global economy.
"We should pause, take a deep breath and wait and see where the pieces fall around the world," he said.
2. China slowdown v 2.0 - The FT reports Chinese Mainlander demand in Hong Kong art auctions has halved this year.
“There used to be five to six mainland Chinese individuals who would bid like crazy here but they did not make any offer in the spring sales,” Mr Ching said at the opening of the new Hong Kong gallery, which coincided with the city’s annual art fair.
The boom in Chinese demand has helped the top end of the art market recover to 2008 prices after the global financial crisis, and is the main reason why Hong Kong has become the world’s third largest art auction market by sales. In 2010, nearly half the buyers at Sotheby’s Hong Kong auctions were mainland Chinese.
Both Christie’s and Sotheby’s set new records for top lots in New York sales recently but fears that the art world would be hit by a slowdown in the Chinese economy and the eurozone crisis have sent Sotheby’s shares down 25 per cent this month. The only publicly traded big auction house reported a $10.7m net loss for the first quarter.
3. The Princelings and their wealth - Here's the New York Times with a good piece backgrounding how the kids of the Communist nobility in China are making a killing.
We should be a little careful whenever we allow very rich Chinese to buy assets here.
Where did that money come from? Are we a soft touch for what is effectively money laundering?
Evidence is mounting that the relatives of other current and former senior officials have also amassed vast wealth, often playing central roles in businesses closely entwined with the state, including those involved in finance, energy, domestic security, telecommunications and entertainment. Many of these so-called princelings also serve as middlemen to a host of global companies and wealthy tycoons eager to do business in China.
“Whenever there is something profitable that emerges in the economy, they’ll be at the front of the queue,” said Minxin Pei, an expert on China’s leadership and professor of government at Claremont McKenna College in California. “They’ve gotten into private equity, state-owned enterprises, natural resources — you name it.”
4. Money for citizenship - The NZ Herald has been reporting on the activities of very wealthy Chinese migrant Yong Ming Yan, also known as Bill Yan, also known as Yang Liu, also known as Bill Liu, who paid both political parties donations and received citizenship over the objections of officials.
Where did he get his money from? He seemed to spend an awful lot at the casino.
He now faces charges of false declarations on immigration papers in 2001, NZ Herald reports this morning.
Do we really know where all these foreign investors have got their money from?
Are we a bunch of patsies for money laundering?
Our recent removal from an EU white list for money laundering suggests the rest of the world thinks we're way too soft on a bunch of people.
5. Austerity slammed again - Martin Wolf writes at FT.com about the failure of austerity strategies and asks why governments don't just take advantage of ludicrously low interest rates to borrow and invest to get their economies going again.
Here's Wolf's thinking:
As Jonathan Portes, director of the National Institute of Economic and Social Research, argues in a recent blog post: “With long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity, and with the UK suffering from both creaking infrastructure and a chronic lack of housing supply, now is the time for government to borrow and invest. This is not just basic macro-economics, it is common sense.”
With real interest rates close to zero – yes, zero – it is impossible to believe that the government cannot find investments to make itself, or investments it can make with the private sector, or private investments whose tail risks it can insure that do not earn more than the real cost of funds. If that were not true, the UK would be finished. Not only the economy, but the government itself is virtually certain to be better off if it undertook such investments and if it were to do its accounting in a rational way. No sane institution analyses its decisions on the basis of cash flows, annual borrowings and its debt stock. Yet government is the longest-lived agent in the economy. This does not even deserve the label primitive. It is simply ridiculous.
6. Fresh Irish bailout? - Bloomberg reports Deutsche Bank saying the Irish government may have to bail out its banking system for a second time.
I wonder how the voters/taxpayers feel about this.
Ireland’s bailed-out banks may need capital to cover as much as 4 billion euros ($5.1 billion) more bad-loan provisions than assumed in stress tests last year, Deutsche Bank analysts David Lock and Jason Napier said in a report published today.
Ireland’s government, which sought a bailout in 2010, has injected about 63 billion euros into its banks in the past three years. The government’s plan for new personal insolvency laws introduces risks even as politicians and the financial regulator seek to avoid widespread residential mortgage debt forgiveness, Deutsche Bank said.
“Although resilient during 2009 and 2010, mortgage arrears have risen sharply over the past year, house prices are continuing to fall, market liquidity is limited, and over half of customers are now in negative equity,” the analysts said. “We fear the size of negative equity balances for some mortgage holders may greatly reduce their incentive to cooperate, pushing them towards default.”
I know what some of you are thinking. How will Facebook be any different from the dot-com bubble of the early 2000’s? For one thing, those bad dot-com stocks were all speculation and hype, and weren’t based on real businesses. Facebook, on the other hand, is based on a solid foundation of angry birds and imaginary sheep.
Second, Facebook is the most successful social network in the world, enabling millions to share information of no interest with people they barely know.
Third, every time someone clicks on a Facebook ad, Facebook makes money. And while no one has ever done this on purpose, millions have done it by mistake while drunk. We totally stole this idea from iTunes.
8. Euro crisis special - Andrew Patterson put together an excellent Euro crisis special on Radio Live's Sunday Business, including good interviews with Clyde Prestowitz, who says Germany should leave the euro, and Satyajit Das, who has a wonderful quote about the Germans mucking around for too long.
9. Capitalists trust communists more than their own leaders - Gillian Tett writes at FT.com about how CEOs of American companies actually have more faith in China's Communist leadership than they do in their own President and Congress.
Although, to be fair, they had a lot more faith in other CEOs of multinationals than anything else.
American capitalist CEOs apparently think that “communist” bureaucrats have been more effective than democratic western politicians. Even though many of these same CEOs have presumably elected those unloved American leaders themselves.
This finding partly reflects the extraordinary rise of China, which has done an impressive job of keeping its giant economy growing since 2007. True, there is no guarantee this can continue: as recent political scandals show, internal tensions are rising. But what impresses some global CEOs, at least right now, is how the Chinese government takes a long-term policy view. “The Chinese have some policies we hate, but at least we know what those policies are,” the CEO of one multinational energy group explained, complaining that “the problem in the US is that policy-making is so short-term ... nobody knows what will happen next.”
10. Totally Rowan Atkinson singing an Ode to Joy...and Audi...and a few other things. Made me laugh.