"THIS" is the Big One: Chinese exporters shun flagging dollar

[JohnGaltfla]

Chinese exporters shun flagging dollar

By Robin Kwong in Hong Kong

Published: March 27 2008 22:02 | Last updated: March 27 2008 22:02

Rising numbers of Chinese exporters are shunning the US dollar or devising ways to offset the impact of the falling currency as they confront rising labour and raw material costs at home.

According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions to minimise foreign exchange risk.

“They are moving to euros, pounds, Australian dollars or even quoting prices in renminbi,” David Wei, chief executive, told the Financial Times. Moreover, he added, prices quoted in dollars were now often valid for just seven days compared with the 30-60 days common previously.

The dollar has long been the currency of choice for Chinese and other exporters around the world. However, the impact of its recent weakening has led exporters to begin questioning its place as the de facto world currency.

The renminbi, which western governments have long alleged is undervalued, thus giving Chinese exporters an unfair advantage, has appreciated 6.7 per cent against the US dollar in the past six months. Economists expect it to rise 10-15 per cent against the dollar in 2008.

Quanzhou Leething Garment & Knitting, a Chinese men’s underwear factory, said it had started encouraging clients to pay in euros instead of dollars in November. While the Chinese currency has appreciated against its US counterpart in recent months, it has moved little against the euro.

Other companies have taken more unusual approaches, such as setting their own exchange rates and therefore in effect raising prices.

Xiao Zheng, chairman of Dongguan City Shima Toys in southern China, said its price quotations were valid for three months but were calculated based on an exchange rate of Rmb6.6 to the dollar.

With the official exchange rate at Rmb7.01 to the dollar on Thursday, this in effect raised prices 5.8 per cent.

“We are thinking about renewing our quotations every other month and we are also going to offer quotations in euros very soon,” said Mr Xiao.

William Fung, managing director of Li & Fung, a global supply chain company, said international buyers would have to accept higher export prices from China, especially for goods such as toys that are largely made only in the country.

http://www.ft.com/cms/s/0/aac6859e-f...077b07658.html

[Maher]

I wonder if China Mart will be making change in renminbi? Thanks for the head's up. It won't be long until OPEC follows them.

[JohnGaltfla]

I wonder if China Mart will be making change in renminbi? Thanks for the head's up. It won't be long until OPEC follows them.

Maher, the problem is the currency conversion issue...we have no "reserves" so the importers have to convert at their level at their banksters.

This should shoot the Euro to 2:1 sooner rather than later.

And inflation off the charts.

[almost ready]

and wow

phew

thanks, John. Going to take a few minutes to digest this news.

[Great Northwet]

Yea, John; -saw it on the "other board", trying to digest now.

[Digital Omnivore]

This sounds really bad.

I think some of the Q1 numbers for banks are coming out next Monday? Should be a fun day.

[JohnGaltfla]

Yea, John; -saw it on the "other board", trying to digest now.

I thought it was appropriate to warn everyone. News like this is about as big as it gets.

Good luck to those importers who will soon convert to Yuan or Euros to buy products overseas.

That's going to leave a mark.....

[CnMO]

So, in 7 days look for a 5.8% increase for imported items from China.

Inflation, than hyperinflation and then collapse; How long do we have (JG can you make a good guess)?

[Maher]

Yea, John; -saw it on the "other board", trying to digest now.

What other board?

[JohnGaltfla]

So, in 7 days look for a 5.8% increase for imported items from China.

Inflation, than hyperinflation and then collapse; How long do we have (JG can you make a good guess)?

No guesses. They held it together longer than I thought they could.

When you see a Bradley in front of a local bank branch, that will be the official sound of the whistle indicating that the game is over.

[CnMO]

http://www.jsmineset.com/prnHome.asp...27&T_ARID=5982



Posted On: Thursday, March 27, 2008, 2:56:00 PM EST

Market Commentary From Monty Guild

Author: Monty Guild



Dear CIGAs,

A PREDICTION THAT WILLCHANGE THE FACE OF INVESTMENT AND FINANCIALMARKETS

We predict that due to the current major market turmoil Investment banks will cease to exist in the United States of America.

ONE CHARCTERISTIC OF INVESTMENT BANKS IS THAT THEY OPERATE AT A BOUT 30 TO 1 LEVERAGE. COMMERCIAL BANKS OPERATE AT ABOUT 12 TO 1 LEVERAGE.

For this reason and others we predict there will be no investment banks in a few years. Pressure from the government will force them into the arms of commercial banks. They may operate in name only within the commercial banks but the free-wheeling activities of investment banks will be greatly curtailed.

Governments do not want entities with that kind of leverage (30 to 1), especially those who are outside of the regulatory purview of the Federal Reserve. Investment banks are not regulated by the Fed, however commercial banks are.

Respectfully yours,
Monty Guild

[susie0884]

What other board?

I think it would be THIS one:

http://www.thetreeofliberty.com/foru...4654ad12043afe

[Doc1]

Some of you may recall that last year I bought 20 cast iron Chinese wood burning stoves for later resale and barter against exactly this sort of scenario.

There may still be a little time before the import prices start screaming, but you can bet outlets like Harbor Freight and other Chinese importers are going to reflect these increases sooner rather than later.

If you need or want Chinese imports, get them now!

Best regards
Doc

[Mo Magic]

One of my cabinet reps took on a Chinese import line, he is not very happy right now!

1. Customers do not trust that there is no lead!

2. People think they should by American!

so sales for him and others suck!

Bring Back Our Jobs!!!!!!!!!!!

[AR15ER]

Nice........Knowing you America.....

May God help us all.

[Trivium Pursuit]

This should shoot the Euro to 2:1 sooner rather than later

JGF, does that mean that we should be going long options on the Euro?

Btw, thanks for continuing to post here from time to time!

[China Connection]

Plastic stuff here in super markets has gone up 50% in the last week. Prices are going mad here in China.

[mbabulldog]

When you see a Bradley in front of a local bank branch, that will be the official sound of the whistle indicating that the game is over.

It may be parked, but I wonder if it will be manned. Remember, the men manning those Bradleys will have to be paid, as well...Just a thought...

[mzkitty]

*bump* for the day shift.

[Fred]

The link in the original post goes to a story about Pfizer and Lipitor, because of the embedded ellipsis. Here's the one to the story:

http://www.ft.com/cms/s/0/95f406ee-f...077b07658.html

[Richard]

simple answer, stop buying from China, shun Chinese goods, do without if necessary

[Moggy]

What other board?

LOL!!! Time Bomb is the best.

Moggy

[Hfcomms]

The first thing that comes to mind though is Wally World which is where most Amerikans shop now days. They probably import about 85% of their product line from the PRC. Many go to Wally because it's the cheapest and thats about the only place they can afford to shop. They must be stroking the worry beads at the WW HQ about now.

The window is quickly closing to get ready for sure. If you don't have it by now the opportunity is quickly disappearing to get it at an affordable price. It's interesting though that so few see the larger picture here. They grouse about the economy and expensive gas but most don't see where this is going. When "it" pops I think it's going to go fast and the word "ugly" doesn't even begin to do justice to it.

[WalknTrot]

They may have their fingers around our throat, but we have ours around theirs, too.

If they won't take our dollar, they can't sell us all of their semi-useless crap.

Maybe will kick up US manufacturing. Tarriff by proxy, anyone?


Hopeless Optimist

[day late]

It may be parked, but I wonder if it will be manned. Remember, the men manning those Bradleys will have to be paid, as well...Just a thought...

Remember, the men in those Bradleys will be taken care of, as far as food clothing, shelter, weapons and ammunition, and they won't be happy if the govt. leaves out some means to take care of their wives and children.

[Dennis Olson]

JGF, damn nice to see you back here man!

[White Sunlight]

Actually, this news is not as bad as it seems. I do business with China every day and when I offer a price in dollars I lose, because the value of my offer becomes less and less over time. So, I offer the price in the local currency Yuan (or RenMinBi) and now as time progresses the value of my offer becomes greater and greater and if a Chinese company is slow in paying I have a natural way of collecting funky interest by the depreciation of the dollar.

Now, the only problem I have is the exchange move from Yuan to dollars. This cost between 1.5% to 3.0% depending on volume and who is doing business with you. The Chinese partner has to have an import and an export license and then he can exchange the invoice in Yuan to dollars and wire you dollars.

The Chinese government passed laws that state that the first 90 days of an invoice will not have any penalty given by the government if the currency exchange is made in the first 90 days. Between 90 days and 180 days there is a small fee that is less than 1% for making the exchange. After 180 days a considerable penalty occurs for a late payment. This is the bummer law. At 180 days then you have to tap into the rights of the normal citizen in China. Citizens have a write to exchange their own money up to $USD 50,000 every year, so then you tap into people you know and do creative accounting.

The manufacturing bubble is more extreme than the subprime bubble because at the end of the manufacturing bubble a company is caught holding all this expensive equipment, labor force, land and running company with only a few buyers. This is what is next on the agenda next year.

Secondly, the handling of people in China is far more difficult than in the US. We have been brainwashed since the fifties with our TV and Radio making our thoughts of one accord. The TV and its brainwashing in China has only really occured in the past 15 to 20 years. Moreover, a deep resentment to the government has always been there while there is a common bond among the Han people from history and culture that bond will not have much weight when the SHTF.

In speaking to Chinese about the coming famine and new world order, they are basically out of it, not even knowing the history of the West they suffer from lack of information.

The past seven to ten years in China have been nothing but a great party. Every meal that is eaten by the successful one is always over done and too much. Rice which use to have a culture to it, now barely makes it to the meal, sometimes it is throw in at the end as an after thought. Certain businessmen will only order two plates for every one person sitting, but I have found excessive ordering up to five plates per individual in this modern babylon a common way.

The dollar is weak and pathetic, yes this I know. But the shock that China will have in the coming hard times will be great. Look for riots and unrest and a miltary mind coming soon to the streets of Beijing, Shanghai and Guangzhou.

[mzkitty]

Thank you, White Sunlight.

[Deena in GA]

They may have their fingers around our throat, but we have ours around theirs, too.

If they won't take our dollar, they can't sell us all of their semi-useless crap.

Maybe will kick up US manufacturing. Tarriff by proxy, anyone?


Hopeless Optimist

This was actually what I thought too. Maybe we are hopeless optimists, but it could happen....

[mbabulldog]

Remember, the men in those Bradleys will be taken care of, as far as food clothing, shelter, weapons and ammunition, and they won't be happy if the govt. leaves out some means to take care of their wives and children.

good point...

further thinking; what if it is FOREIGN troops in those Bradleys? That's what scares the crap out of me...

[Bubba Zanetti]

WhiteSunlight: fantastic insight. I really appreciate your post.

Still, the $ devaluing could excellerate rather quickly. We have already changed our eating habbits.... Still, I could cut back more.

[ittybit]

The problem is not that folks can't do business in other currencies. The problem is that US dollars from 1945 through 2007 were considerd THE global trade currency. What you sold or bought was always priced in dollars, and so dollars you had to have in order to buy, then the seller had dollars. The system is full of dollars to facilitate the maximum level of global trade.

Once traders begin to escew dollars then the demand for them drops, and the supply becomes an over supply. The price/value continues to drop as holders try to trade them in for things or other currencies. Cycle repeats. This can become a panic to dump dollars, which means the dollar price of everything goes straight through the roof.

Those dollars migrate back to the USA looking for real goods to buy, such as all that wheat that is being shipped out of the country as our stockpiles are drained off, domestic oil production, etc. This is what happened to Germany in the early 1920's. The German economy was gutted by hyperinflation as Marks were used to buy everything and ship it out of Germany.

Our situation may or may not repeat that scenario. We may have a debt collapse before we get hyperinflation. Either way it will be 'not so good'.

[Laurelayn]

One of my cabinet reps took on a Chinese import line, he is not very happy right now!

1. Customers do not trust that there is no lead!

2. People think they should by American!

so sales for him and others suck!

Bring Back Our Jobs!!!!!!!!!!!

Being an underemployed cabinetmaker stuck in a nursery job I don't like much for about 1/2 of what I was making 3 months ago, I'm not very happy either.

L.

[CanadianGuy]

It may be parked, but I wonder if it will be manned. Remember, the men manning those Bradleys will have to be paid, as well...Just a thought...

What is a Bradley?

If I may ask and show my lack of knowledge.

[Fred]

What is a Bradley?

A Bradley:

[45nut]

JGF, damn nice to see you back here man!

Ditto.

[Leedaisy]

bump - this really needs to be above the nipple ring story! Honestly.

[GREYGHOSTt]

why would they waste time and money puting a tank in front of a empty building??

[Hiding Bear]

Good comments and thanks for starting this JG.

Let's keep in mind that what this means is that China is only slowing the rate of accumulating dollars, and is still very very far from selling dollars.

It's unlikely that would dump the dollar overnight with the Olympics coming up, but that doesn't mean that dollar could be some serious devlauation against teh Chinese currency.

Essentially China got too involved in supporting the dollar's value to build up its industry, and now has a hard time using the $1.36 trillion it accumulated without causing all sorts of unintended effects.

See this article for more details.

China: Caught in a Monetary Trap
posted on: March 26, 2008

Scattered throughout my writing are references to the way I view China’s currency regime, why I believe monetary policy is out of control, why I have insisted since 2003 that China’s trade surplus and foreign exchange reserves could only grow, and why I claim that the authorities are increasingly going to have to consider a maxi-revaluation as the only solution to a worsening problem.

I have been asked several times to summarize this argument. Here is a very brief summary:

Since at least 2002-2003, China has been caught in a monetary trap. By tying the value of the RMB to the dollar, and especially by setting it too low, the Chinese authorities ran the risk that in a time of excess global liquidity they would find themselves in the position of excess money inflows leading to excess domestic money expansion.

This would be reinforced as domestic money expansion funded rising industrial production, which would cause an increase in the trade surplus and so increase money flows further. Since global conditions at the time already suggested excess global liquidity, this risk was pretty high.


This is why I argued as far back as 2003-2004 that China’s then-high trade surplus could only rise, and as it rose it would necessarily feed domestic money expansion (the PBoC must create the local money with which to buy all those dollars), which would fund more investment, greater industrial production, and a rising trade surplus. The key figure to watch is growth in foreign currency reserves.

Because of the self-reinforcing nature of this system, this process must necessarily go on until a very sharp adjustment stops it. The adjustment could come in the form, as it has in the past to China and other countries, of sharply rising domestic investment (“good” version: massive infrastructure spending; “bad” version: forced corporate investment via rising inventories).

Or, it could come as rapid debt deflation, a collapse of the banking system into bad debts, a breakdown of sovereign external or domestic credit (from excess fiscal expansion), or out-of-control inflation (which is, of course, one way that the currency can adjust), or it could come as a combination of these factors.

It is possible but unlikely that the adjustment will be benign, and the longer we wait the less likely it is. This last statement is hard to prove but seems reasonable largely because of historical precedents.

http://seekingalpha.com/article/6997...-monetary-trap

[Great Northwet]

You know HB, that's an interesting point about the Olympics. I wonder if the Chinese might change their policies regarding the dollar after the Olympics are over.