January 04, 2010
– Comments (7)
I'm dying to see your reaction to this one. :)
Hapy new Year!!
P.S. Did you catch this one on Nouriel Roubini's worst call ever?
rec'd - on another note, what are your thoughts on Vietnam shutting down its gold trade? and what are the possible implications?
Overlooked story? Maybe. To me it has been clear that China has been buying whatever assets it can get its hands on (in particular commodities) for quite awhile. I agree that many others, including those in various media, have underestimated this fact.
However, when it comes to the why, the author comes up with an impressive number of links supporting the opinion that this is all because the dollar may fall significantly in the future. That may hold some truth, but I don't believe for a moment it is the main reason why China is on a commodity buying spree.
The reason for trying to buy whatever commodities it can get its hands on is a lot simpler: China is a very poor country when it comes to natural resources, and its needs those resources to support its economic developoment.
China has US dollars, and needs natural resources. Therefore it spends US dollars to obtain the resources! It would have to do so, even if the US dollar were the strongest currency in the world...
China is a very poor country when it comes to natural resources.
Really? China is uber-rich in resources. China sits atop enormous coal reserves, leads the world in production of gold as well as rare earth minerals, and last year made a quite significant iron ore discovery.
China would not have to import many resources at present levels if it had opted to lean more heavily upon its own domestic production. Being foward-looking, however, China knows it is better to import now while prices are relatively low. The timing is largely currency related, while the strategy is certainly more about sustaining its growth trajectory over the long term.
China is buying more and more resources to in order to manufacture more and more consumer goods to earn more and more dollars to buy more and more resources. Eventually either the resource bubble bursts or the China bubble bursts, and we'll have a chance to buy very cheap resources, and a very cheap China :)
China recognized it needed an insurance policy because it was over weighted in dollars. The economic crises was a wake up call for China to diversify out of dollars into something of tangible value it could also use for production purposes. For the first time in history, virtually the whole world is printing money simultaineously! It just makes sense for China to buy up these assets before the real pain of inflation hits the world.
Leohaas makes a fair point.
China has to import lumber on a large scale because it is lacking in this resource, it also imports lots of coal, iron, scrap metal, etc because it doesn't have enough resources for its production. China's starting to import beef and feed because it doesn't have the ability to produce as much of this as the rising middle class demands.
To contrast the point, the US has all the coal it needs, and exports agriculture and meat abroad.
#3) On January 04, 2010 at 1:48 PM, TMFSinchiruna (97.78) wrote: China leads the world in rare earth minerals, Any Ideas either here In the U.S or China ? Not much to chose from here In the U.S. TS