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

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?

Here's the New York Times:

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 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.

Fair enough.

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.”

7. 'A solid foundation of Angry Birds and imaginary sheep' - Here's a mock letter to investors from Mark Zuckerberg.

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.

Click here to listen to the audio.

9. Capitalists trust communists more than their own leaders - Gillian Tett writes at 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.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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In the end, China's lessening use of raw materials can only be a good thing. Surely, even the most market driven amongst you must know that importing container shipfuls of junk that we flog off as a pretence of an economy, only for it all to end up (very quickly in real terms) as landfill, is both wrong and unsustainable.
We must find another way or suffer the consequences.
For me, I am thinking that small is the way to really go, sod the corporates

The next 12 months will be very interesting....could the "perfect storm" be brewing that Nouriel Roubini has flagged....

A lot of commentators are now picking a China slowdown, although with a  closed and opaque system like the Chinese command economy it is hard to be certain exactly what will happen or how it will played out there.  But if it eventuates;
Our dollar would drop as we (and Australia) ceased to be the currency speculators darlings.
The export sectors would slump pushing trade balances into/toward deficit.
Inflation would rise as oil and other imports swing upward.
Tax receipts would drop from lower corporate profits in the commodities sectors, putting further pressure on government budgets (regardless of the party in power).
We could see stagflation for a while as prices rise but production drops.  Always of most concern is what the political fallout would be.

Many million dollar deals for Auckland property are from funds received from overseas, who knows how much of it is laundered money ?

NZ is a soft touch in this department.
Otherwise,  how does an accidental millionaire,  who needs an O/D, whilst running an underperforming small buisiness, dick around with10mil without raising a red flag?
It's not rocket science.
Did  the the receiving bank verify source of funds, like they are supposed to ?
Do they "Know the Customer", which is expected of these sort of transactions?

It is quite true that the first wave of Chinese immigrants into NZ in the late 1990s has dubious cash origin....(personal experience), but the latter wave is essentially legit. By mid 2000s most chinese businessman has legit recourse to money, but choose someplace overseas (like NZ) to stash away  their spare cash incase of politicial and economic turmoil.
Despite what most foreigners think, older Chinese (those with access to cash and business acument) still remembers the Cultural Revolution. 
Of course the fact that some choose to splash a few millions on properties worth half its value certainly give the impression that there are more than a few Leo Gao from China in Nz instead of the other way round !!
Anybody ever wonder why most of the Queen Street Money changers just happen to be run by Chinese immigrants ???  Its called the "Chinese Hawala".....

Keep an eye on this breaking out of China:
Chinese traders have defaulted on some thermal coal contracts following a drop in prices over the past month, traders said on Monday, providing more evidence that a slowdown in the world's second-largest economy is hitting the appetite for commodities.
The coal defaults also come after sources at steel mills and traders said last week that some iron ore shipments had been postponed.

No 5. & 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.
Steven posted a comment on another thread that provoked me to do a little research. Only took a couple of minute to establish what I suspected. Britain lost its status as the dominant world empire to the USA around about the time of WW I. Funny thing is that peak coal in Britain was in 1913. NOTHING happens without energy! Positive yields going forward are simply due to fiat money, as the underlying production simply won't support growth any longer.
That is a pretty funny read. Any similarities between what is outlined within it and the small minded fool that proposed a levy of $5000 per person leaving NZ for good?

Ive long considered zerohedge a bit loopy, now I see they have let the raving loons in....."tax is theft" the mind boggles....LOL....
I wondered at one stage if von mises was alive today whether he'd support and agree with what ppl are posting in his name or not...but actually I think now Ive read up on him a bit that he was as out there as possible and not be yes....
Small minded fool, no....I havnt ever seen any possible attempt at a logical thought...

Tax is a method of taking from those who produce something so others can do nothing. That production is in all circumstances underwritten by energy. More energy means more can be taken from those that produce by those that don't. You are an engineer so go back to first principles.

Oh dear looks like von mises? anyway because you dont have first principles.  To start with ppl choose to purchase healthcare, education and welfare through taxation.....its hard if not impossible to argue that this isnt the most effective method in terms of outcomes and impact on GDP.  So sure take health, do it the public way and spend 8% of GDP or the private way and spend 18%....for a worse outcome.....(dont live as long) and thats the direct costs....not sure what the true costs are when you consider the impacts of premature deaths and loss of productivity due to ill-health.
Challenge, no too late, lack of cheap and abundant energy and raw materials is the impossible challenge for our economic model now.....we will be going back to a lifestyle that the annual sun fall can sustain....Apart from that yes skills etc is a problem, basically from my perspective I think we have got to the stage that our society/economy/technology is getting too complex for the majority to understand.....and prosper in it....

Uh no this isnt an engineering/science first princciples thing. An alternative is it means more can be there are less that "do nothing" Of course its not just produce more, its also produce more complex. So we allow greater and greater specialisation....if you go back 100~200 years a lot of ppl worked the land, I think the excess energy was 20% or so, hence we could only grow and get more complex within that 20% envelope.  First coal nd then oil changed that significantly, msot could leave the land and do other things....just look at the 1830s on....the explosion in engineering, science, population, expansion and specialisation is mind blowing.

Mist misses the point.
He/she has to ask whither the resources and energy come from, for their fancied exponential-forever growth, are coming from.
Even the underwriting of one more doubling-time would be a good trick.

Yep....I really wonder given a 10% growth which means a doubling of china's economy every 7 years if in fact the "good trick" was actually the last 7 years......and it was done with smoke and mirrors.....
Hence I suppose why there is now the "push" to cut / remove tax....there isnt the "decent" margin in taking of raw materials and making a good any more. So weve tried to keep going by promising the future, seriously so....Whats left? well fighting over the slices of the pie, so the 30% tax just has to come off....yeah right.