The effects on world markets, currencies and stock exchanges
Latest JANUARY 31st 2012
Aug 30th 2005
We are coming to a crucial point in the emergence of humanity as a global society. The opposing economic forces that come into play can be best understood by an analogy with biology. Each living organism must survive by means of both symbiosis and self preservation. When organisms become 'incorporated' to a significant degree within a single 'body', the forces of acceptance and rejection have to find a balance, initially through trial and error. The human body's advanced immune system, used as it is to accommodate the extraordinary demands that are made of it, can still be confused and cause self-destruction. We are now at the stage of globalisation when the merits of protectionism and of free trade both claim the role of saviour of the various nations that make up our global community.

A sudden commitment of all eggs to one basket will be disastrous. We have enough experience to avoid this mistake. It is for this reason, I assume, that Peter Mandelson has chosen the route of 'Tactical Adjustment' in the context of a 'Free Trade Strategy'. Of course he will have to put up with objections from all sides. The French have called him 'Unprofessional'. That means he has not adopted the procedure the French would have used, going for protectionism by subtlety and bureaucracy while adopting Free Trade openly. They will also no doubt call what has happened chaos, brought about by bad management. The Americans will not have the hypocrisy to go along with the latter but will opt for some protectionism. On the other side, free traders will say he should never have gone down the quota's route. Both sides are wrong.

It is true than an element of solidarity and 'fortress' will play a part in EU politics, but in the long run that should only be used to coordinate the move towards an open trading system so that it is better managed and fair within Europe. That is what the EU Commission and Mandelson are, as I see it, trying to do. The Dutch appear to understand that; and the Dutch, as history has shown, are the most pragmatic people, serious engineers and experts at survival.

September 5th 2005
The obvious compromise has been reached, providing it is approved by a qualified majority of EU states. Without the EU (that is the EU as it is, not some vague free-trade area) and all its institutions and the internation working parties made up of people who know and trust each other, there would be no chance of negotiating a transition in this diplomatic way. Perhaps this episode will wake up the half-wits who want to pull out of the EU and try to undermine it while we are part of it. But history tells us that idiots rarely have the intelligence to educate themselves, so I expect it may be only when more of the same occurs soon, as it will, that those with enough good sense amongst the silent majority will speak out and give our government, whichever party is in power, the backing it needs to play a full role at the heart of the EU. What has occurred in this instance has not been a mistake or even a muddle. It has been a necessary process in stages that had to be passed. I assume that the qualified majority to accept the compromise at this stage, in this instance, will be forthcoming.

February 7th 2006
As China gets into its stride, adding as much power generating capacity annually as the total UK generating output, new trade strains are arising. Although the currency has made some welcome adjustments, the wage levels are such that a number of clothing items are threatening European producers with competition they cannot manage. Shoes are a case in point, but just one. The forces that will make us revise our entire economic system are showing their teeth. Eventually we will be forced to face the truth: providing we can control our reproduction and our appetites, the current global population can live and feed itself and, with the help of developing technology, do so without destroying the planetary support systems. If we cannot, and insist on achieving what we suppose to be welfare by the endless attempts to out-perform each other personally, regionally and nationally, we will have to be remarkably quick in controlling this consumerism or supplying it by completely new methods of production which must replace the old ones

February 18h 2007
Americans are concerned that it is America's economy that is paying for all of China's military and industrial development, and this development is turning China into a major military and industrial world player. I see no grounds at all for complaint. It is up to America's citizens how much they wish to to consume, and if they wish to decide that the way China handles its internal affairs and paying its workers is not advancing to their satisfaction they can start a trade war if they wish and put quotas or bans on imports from China if they can. I would not advise this. The alternative for the US is to produce more of what its citizens need domestically. They have a huge country of their own, they could always learn to live in it and look after it on a different basis. Failing that, China will legitimately sell goods to the world and accept its money in payment.

Nobody can rationally fear China is becoming a country with touch of the manifest destiny disease, about to conquer and colonize the world, driven by a belief that it alone holds the cultural  and political keys to the future of humanity.

Far more worrying is the currency instability which could result from the tactics-without-a-strategy operations that flourish in the opening up of huge global markets in futures, derivatives and hedge funds.

 Example from the Telegraph. I have emphasised some paras in the middle for those who remember 1997:


We'll all carry the can if yen binge miscarries

By Liam Halligan, Economics Editor, Sunday Telegraph
Last Updated: 11:59pm GMT 17/02/2007

Say the words "yen carry-trade" to someone at random and they will probably ask you to repeat yourself, before admitting they don't know what you're talking about.

Utter the same phrase to a central banker or a currency dealer, though, and you could unleash a torrent of opinion, soul-searching or even anguish.

The yen carry-trade is one of the hottest topics in global finance. The implications of it could be disastrous. Or they could be benign. But whoever you are and whatever you are invested in, you should be closely tracking the yen carry-trade.

The story starts in Japan, where interest rates are incredibly low. For the past six months, Japanese borrowing costs have been at 0.25 per cent. Sophisticated global traders exploit this by taking out cheap loans in yen, then converting that money into, say, dollars and investing it in American assets.

With US interest rates at 5.25 per cent, a full 5 percentage points higher than in Japan, the profit-making potential of "carrying" credit between the yen and the dollar in this way is enormous. Likewise, there are huge gains to be made by switching borrowed yen into sterling, euro and a host of other relatively high-yielding currencies.

Recent months have seen a frenzy of such carry-trading. No one knows the true scale of the flows - most of the deals are done by private hedge funds on unregulated markets - but the world has been flooded with cheap yen.

With its ultra-low interest rates, Japan has become a massive "easy-money" machine for the rest of the planet. The resulting liquidity boost has flattered asset prices everywhere, pushing major stock markets to multi-year highs while fuelling booms in housing and commodities too.

So what's the problem? Well, the scale of the carry-trade is now so big, and there are so many borrowed yen around, that Japan's currency last week plunged to a 21-year low on a trade-weighted basis.

That matters. Japan is a major global exporter. The rock-bottom yen is now causing headaches elsewhere, with Western manufacturers furious that it gives their Japanese competitors an unfair advantage.

But that's just the start of it. The real, systemic danger is that if - when - the yen starts rising, the carry-trades could suddenly "unwind", triggering financial shockwaves across the globe.

That's because many people agree with Western manufacturers that the yen is too low. Japan is, after all, in the midst of a prolonged recovery - figures out last week put annual growth at a chunky 4.8 per cent.

So, given that the yen is being artificially suppressed by all this carry-trading, the currency could well spring back. If that happened, all those investors holding yen-denominated debt would instantly owe more. At the same time, the investments they have made, having borrowed those yen, would be worth less.

In other words, if there is any sense the yen is about to rise quite sharply, for whatever reason, the carry-trades could be dumped - making that appreciation not only a self-fulfilling prophecy but also far bigger than it should be.

The tens of billions of pounds of global investments made off the back of carry-trading - investments that are supporting asset prices in every-thing from the FTSE100 to antiques and fine wine - would then suddenly look very grim.

If that sounds far-fetched, the last time yen carry-trades built up was in 1997 and 1998. Back then, a seemingly innocuous event - a minor Russian debt default - caused global investors suddenly to re--examine their appetite for risk.

As a result, the yen rallied by almost 30 per cent in just a few weeks as the carry-trades unwound. That caused the collapse of Long-Term Capital Management, a US hedge fund, ultimately leading to a rather serious global slowdown.

The parallels with today are ominous - except this time the hedge funds are more numerous, the carry-trades are worth more, the global liquidity bubble is bigger and investors are now leveraged on a much, much scarier scale.

And when you think about the extent to which even mainstream investors - not to mention pension schemes - have bought into hedge funds, it becomes clear why the yen carry-trade needs to be defused in an orderly fashion.

All this puts policymakers between a rock and a hard place - as shown by last weekend's meeting of the G7 finance ministers. The world wants a stronger yen, to reduce Japan's advantage. That led to calls for direct G7 intervention - the buying-up of yen to support the currency artificially - and/or for the Bank of Japan to increase interest rates when it meets on Wednesday.

But if either move causes the yen to rise sharply, that could, given the extent of the carry-trades outstanding, spark a wave of global risk aversion and a major financial shock.

Little wonder, then, that the G7 fudged. Finance ministers merely hinted the yen was not a "one-way bet" - amounting to a veiled threat to intervene.

The markets reacted defiantly, driving the yen lower still. Traders were convinced, probably rightly, that the G7 hadn't got the guts to bolster the yen. The carry-trades mean Western leaders are petrified of lighting a fuse that causes a financial explosion.

And yet, the lower the yen goes, the greater the potential of "financial whiplash" when the currency eventually changes course.

If the Bank of Japan does raise rates on Wednesday, it could cause the carry-traders to trim their sails and slow down gradually. Or it could cause them to panic. No one knows.

And that's why yen carry-trade" is so much more than a piece of inane financial jargon. It is a reminder of the often-forgotten lessons of recent financial history.

FEBRUARY 28th 2007

Readers will now understand why I put the previous article and preamble warning about the effects of globally interlinked markets and hedge funds in this file on China. It is because any corrections made in such a large and expanding economy as China will, however carefully attempted, be liable to trigger massive precautionary defensive reactions amongst that 1/4 of the world's population involved via the banking and investment sectors. That could cause a loss of nerve and create a collapse out of a needed adjustment. There is no need for a collapse. But those who now have liquidity may wait so long in order to make the killing they don't deserve that it might get to look like one.

If all goes well it may knock out more shallow speculators using borrowed money than it causes real hardship. There will still be some innocent casualties as well. Either way, we shall learn something. Interesting that this wobble occurs just as the world stock markets  had regained the average level they had reached before the burst of the and associated bubbles.

MARCH 01 2007                  as I was saying about carry trades on 17th Feb.......

It looks like nobody wants to sit it out, though globally they will have to, one way or another. Some expert said on the ABC News last night, if you have to sell now, sell your previous losers, not your winners other than the obviously speculative. It's counter-intuitive, of course, as  is the dealer's opposite method of selling every time a stock has risen, but that's a different ball game. As we move into the new globalised, transparent economy the truth will dawn. Risk is inevitable, insurance is impossible! It's going to do us so much good. And remember, now is the time, if you actually have an liquid, to BUY those excellent, Buffet type stocks that have been knocked off their too-high perch along with the rest. That's what pension fund managers will be doing after all. At a certain moment of course....

Shares tumble on rising risk aversion

By Jennifer Coogan (Thursday 15:00) 

NEW YORK (Reuters) - Stocks tumbled on Thursday as a strengthening yen stirred concern that investors were being forced to unwind carry trades in a repeat of the risk aversion that sparked Tuesday's global market rout.

All 30 components of the Dow industrials fell.

After Wednesday's partial rebound by stocks, the rise by the yen signaled a further unwinding of risky "carry trades," involving the reinvestment of the low-yielding Japanese currency. That in turn suggested a further decline in world stock markets, including Wall Street, which have benefited from an appetite for risk.

"The yen carry-trade is further unwinding. European markets gave up a pretty good rally this morning. There's more concerns about subprime weakness," said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York.

The Dow Jones industrial average was down 180.17 points, or 1.47 percent, at 12,088.46. The Standard & Poor's 500 Index was down 23.33 points, or 1.66 percent, at 1,383.49. The Nasdaq Composite Index was down 51.12 points or 2.12 percent at 2,366.04.

Economic data released before the open added to concerns about inflation and economic weakness, analysts said.

A report showed personal income and personal consumption expenditures, excluding food and energy costs, rose more than analysts' forecasts. Another report showed weekly jobless claims rose more than economists predicted, hinting at weakness in the labor market.

"The economic data was weak this morning. PCE was higher than expected. Jobless claims showed cracks in the labor market. So all those reasons are what's contributing to the decline," Boockvar said.

Investors will pay close attention to the Institute for Supply Management's February manufacturing index at 10 a.m. (1500 GMT). Analysts forecast a reading of 50. Anything below 50 would signal a contraction in manufacturing growth.

MARCH 02 2007

Read this:
Merriweather has already just made a fortune on the rise of the Yen. He's only able to do it because the last time when he cocked it up (1998) his hedge fund collapse would have caused so much pain at the top the Federal Reserve bailed him out. It's all very well for some....

London shares recover their poise

London equities pared recent losses on Friday morning as shares moved into positive territory.

The gains echoed similar moves in Asia, where investors appeared to take the view that recent selling had been overdone.

However, investors in Tokyo remained nervous as the yen continued its recent rise against the dollar, raising fears about the unravelling of the global carry trade.

The FTSE 100 rose 3.4 points, 0.1 per cent, to 6,119.4 by midday on Friday led by Royal Bank of Scotland .

ABN Amro (Amsterdam:  upgraded the bank from “neutral” to “buy” after Thursday’s record results, saying it saw upside of 18 per cent from its current price target of £24.50.

RBS gained 2 per cent to £21.11.

The FTSE 250 was trading up 30 points, 0.3 per cent, higher at 11,014.7.

Click here for more from

MARCH 13 2007

Stocks plunge on rising mortgage worries

By MADLEN READ, AP Business Writer

NEW YORK - Stocks plunged Tuesday, driving the Dow Jones industrials down 200 points and erasing the gains from the past three sessions, as troubles for subprime lenders kept piling up and U.S. retail sales came in weaker than anticipated.

Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector as problems increased for lenders such as New Century Financial Corp., Accredited Home Lenders Holding Co., and GMAC Financial Services.

Also, a report from the Mortgage Bankers Association which showed that mortgage delinquencies and foreclosures climbed in the last quarter of 2006 weighed on investors.

The market was also worried Tuesday about retailers, which the Commerce Department said eked out a meager 0.1 percent rise in sales last month. The data overshadowed a profit report from Goldman Sachs Group Inc. that came in well above Wall Street's forecast.

In midafternoon trading, the Dow fell 191.63, or 1.56 percent, to 12,126.99, after falling more than 200 points.

Broader stock indicators also fell. The Standard & Poor's 500 index fell 23.13, or 1.64 percent, to 1,383.47, and the Nasdaq composite index slid 42.04, or 1.75 percent, to 2,360.25.

MARCH 14th 2007

FTSE takes biggest fall since May 2006

Wednesday March 14, 05:58 PM

LONDON (Reuters) - The FTSE 100 share index fell 2.6 percent on Wednesday, its largest percentage drop in 10 months, as concerns over the U.S. economy and problems with mortgage lending sparked a fresh round of global selling.

Fears of a wider impact from some U.S. home owners falling behind with their mortgage payments in the subprime lending market clobbered financial shares, accounting for nearly 29 percent of the FTSE 100's losses.

HBOS tumbled 5.75 percent, Royal Bank of Scotland lost 4.5 percent, HSBC sank 2.5 percent and Barclays gave up 4.6 percent.

Other financial stocks such as private equity group 3i, and Legal and General, also fell.

The FTSE 100 ended down 160.5 points at 6,000.7 points, the lowest close since October 2006. It has lost almost 4 percent this week, snapping a brief recovery following the near 5-percent plunge triggered by a sharp fall in Chinese stocks on February 27.

Continental European shares were also battered, while U.S. stocks were off in their late morning trading after the second-worst sell-off of the year on Tuesday.

"We are entering the phase of the market that is going to spell lower prices. I don't think this is going to go away," said Tom Hougaard, chief market strategist at City Index Markets.

"I'm of the opinion that we need to see a really healthy correction to get some of the weak hands out of the markets. Then we'll see if there is any life left at all in the market."

Hougaard said he expected the FTSE 100 to fall below the 6,000 mark and the Dow Jones industrial average to trade down to around 11,500.

Commodity stocks also weighed on the market. Miner Anglo American dipped 5.2 percent, while BHP Billiton and Rio Tinto lost between 3.4 and 3.7 percent.

In the oil sector, index heavyweights BP slid 2.7 percent and Royal Dutch Shell shed 1.8 percent.

But Stephen Pope, head of equity research at Cantor Fitzgerald, said there was enough global growth to support healthy, heavyweight UK companies.

"There is a lot of over-reaction in terms of the subprime. It is $1 trillion (517 billion pounds), which is sizeable, but the whole of the U.S. mortgage market is $8 trillion," Pope said.

"The market must be allowed to work its magic, and if people have lent without due diligence and care, then they will reap what they sow. Once the bad companies are weeded out, then the rest of the market can get on with what it is doing."


Back in the UK merger and acquisition talk among retailers and gaming stocks offered some relief to the market, with home improvements firm Kingfisher putting on 1.5 percent on talk of a possible bid from private equity.

Sainsbury rose 1.7 percent to 530 pence after a media report said the private equity consortium considering making an offer for the supermarket chain was discussing a price of 550 pence a share or above. The consortium has denied these claims.

Nevertheless only four stocks in the FTSE 100 ended in positive territory.

Home Retail Group added 0.4 percent after saying it expected analysts' average profit forecast to rise by about 10 million to 15 million pounds following a strong end to its financial year.

Gaming stocks were also buoyed by consolidation hopes, with 888 Holdings rising 3.9 percent amid talk that bookmaker Ladbrokes may bid for it. PartyGaming jumped 12.5 percent, but Ladbrokes lost 2.6 percent.

(Additional reporting by Rebekah Curtis)

Time for the smart money to get back in and buy good shares?

APRIL 20th 2007

Markets spooked by breakneck Chinese growth

By Jane Padgham            The Independent

Published: 20 April 2007

Fears that China's breakneck economy is overheating rattled stock markets around the world yesterday. The world's fourth largest economy expanded at 11.1 per cent annual pace in the first three months of this year, an acceleration from 10.4 per cent growth in the previous quarter.

Growth was fuelled by rapid investment and booming exports, with a series of recent tightening measures apparently doing little to restrain activity.

Inflation picked up to 3.3 per cent - the first time it has gone above 3 per cent in more than two years. Analysts said the news would prompt China's central bank to raise interest rates again, and force banks to keep more money in their reserves rather than lending it out.

The prospect of higher borrowing costs and worries that China's boom could rapidly turn to bust pummelled Far East stock markets. China's main share index, the Shanghai Composite, dived 4.5 per cent, the biggest one-day drop since the global sell-off at the end of February. However, it remains 29 per cent above its level at the start of the year. Hong Kong shares were down 2.3 per cent, while those in Singapore fell 3.2 per cent.

In London, the blue-chip FTSE 100 tumbled more than 60 points before recovering its poise to close 8.8 points lower at 6,440.6. On Wall Street, the Dow, which hit record highs on Wednesday, added 4.8 points to 12,808.6.

On currency markets, the yuan touched 7.7160 to the dollar, its highest since it was revalued and freed from its peg to the greenback in July 2005. The Japanese yen rose sharply as risk-averse traders unwound carry trade positions, hitting high-yielding currencies including the pound. Sterling dipped below $2 before finishing the day at £2.0085.

Copper prices fell 4 per cent as investors anticipated that attempts to slow China's economy would hit demand for raw materials. Other industrial metals such as nickel and tin were hit.

Chinese Premier Wen Jiabao said Beijing needed to rein in the economy. "We need to prevent the economy from shifting from relatively fast growth to a state of overheating and to prevent big ups and down," he said in a statement posted on the government's website. "We will work hard to keep basic stability in the overall level of prices."

Upgrading his 2007 growth forecast from 9.6 to 10.6 per cent, Stephen Green, a senior economist at Standard Chartered in Shanghai, said: "This economy is not landing - it has re-fuelled mid-flight and is flying higher again."

He predicted two more rate hikes this year, taking borrowing costs to 6.93 per cent.

Mr Green also suggested growth might be even stronger than the picture painted by the official figures. Adding up the provincial data pointed to growth of 13.6 per cent, he said.

China's economic performance has been extraordinary. It has almost doubled its output in five years, riding an unprecedented wave of industrialisation, urbanisation and inward investment, the latter galvanised by its accession to the World Trade Organisation in 2001. It is on course to overtake Germany in 2008 as the world's third largest economy and is tipped to surpass the US by 2025. News that the economy started 2007 as it finished 2006 came just days after renewed calls from the Group of Seven industrialised nations for China to increase its currency flexibility. China only allows the yuan to trade in a very narrow range against the dollar, but has long pledged to allow it to trade more freely. In the meantime, by refusing to let its currency rise to reflect the economy's strength, China is ensuring its exports are cheaper and providing a big boost to growth.

MAY 18th 2007

China moves to let currency rise

By JOE McDONALD, AP Business Writer 

China took steps Friday to let its currency trade more freely against the dollar and to cool its sizzling economy ahead of talks in Washington over Beijing's soaring trade surplus.

China eased controls on the yuan amid pressure from the U.S. and Europe, but cautioned against expecting sharp increases in its value. The U.S. responded that Beijing is not moving fast enough to allow its currency to strengthen and help reduce its growing trade gap with China.

The Chinese government also raised interest rates for the second time in just over two months and tightened bank credit to slow its economy.

American officials are pushing Beijing to raise the yuan's value in hopes that will help cut the multibillion-dollar U.S. trade deficit with China by making Chinese goods more expensive.

In the latest change, the yuan will be allowed to fluctuate against the dollar by 0.5 percent a day, up from 0.3 percent, the central bank announced. Still, the bank said it would keep the yuan — also known as the renminbi, or "people's money" — "basically stable" to safeguard economic stability.

"It does not mean that the RMB exchange rate will see large ups and downs, nor large appreciations," the bank said on its Web site.

The move comes as senior U.S. and Chinese officials prepare to meet in Washington next week to discuss China's trade surplus, product piracy and other contentious issues.

Critics say Beijing keeps the yuan undervalued, giving its exporters an unfair price advantage and swelling its trade surplus with the U.S. to $232.5 billion last year. Some American lawmakers want punitive action against China if it fails to take faster action on the yuan.

The U.S. government reacted cautiously to Friday's announcement.

"The Treasury's view is that this is a useful step toward an eventual float," said Alan Holmer, President Bush's special envoy for China. "The administration takes the issue of the currency very seriously."

Beijing revalued the yuan against the dollar by 2.1 percent in July 2005 and has let it rise another 5.3 percent since then in tightly controlled trading.

"That is not fast enough as far as the administration is concerned," Holmer said.

Germany, Europe's biggest economy, welcomed the change.

"That is a positive sign," German Finance Minister Peer Steinbrueck said at a meeting of finance ministers outside Potsdam.

Chinese officials say the country needs a more flexible exchange rate to ease the strains of its huge, export-driven inflows of money.

They say eventually they will let the yuan trade freely on world markets. But they insist dropping controls too quickly could damage frail Chinese banks and financial industries, causing economic turmoil.

Communist leaders also are worried that a stronger yuan might hurt export-dependent Chinese producers of toys, textiles and other goods, boosting unemployment and fueling social tensions.

Friday's announcement did not mention the trade disputes and described the change as the next stage in long-range reforms of Beijing's exchange-rate mechanism.

"Substantive progress has been made. Meanwhile, the Chinese economy is undergoing a steady and relatively fast growth; the financial reform is further deepened," the bank said. "All these factors have created a favorable condition for further improving the exchange rate regime."

Friday's interest rate hike was the fourth in the last 12 months. The last rate increase was March 17.

Economists had expected the move after the government reported investment in real estate, factories and other urban assets was growing by double digits, indicating earlier interest rate rises were failing to moderate the boom.

So far, the controls have had a limited impact in a system that is flush with money from soaring exports and economic growth that is expected to top 10 percent for a fifth straight year. Chinese leaders are trying to reduce a growing construction and lending bubble, worried that it could ignite politically dangerous inflation or a debt crisis.

The central bank has been forced to drain billions of dollars a month from the economy by selling bonds to reduce pressure for prices to rise. That has led to Beijing piling up more than $1.2 trillion in foreign reserves.

The 0.18 percent increase takes effect Saturday and raises lending rates to 6.57 percent on a commercial one-year loan, the central bank said on its Web site.

Banks also were ordered to set aside more reserves, reducing the amount of money available for lending. The increase takes effect June 5, the central bank said in a separate statement.

The government said Thursday that investment in urban fixed assets jumped by 25.5 percent in the first four months of the year. That exceeded the 2006 full-year growth rate of 24.5 percent.


AP Business Writer Matt Moore in Potsdam and AP Economics Writer Martin Crutsinger in Washington contributed to this report.

JUNE 29th 2007

China calls for reason as food safety fears mount

By Langi Jiang  Reuters

Under pressure after a U.S. move against Chinese seafood and a huge recall of Chinese toothpaste in Japan, Beijing urged trade partners on Friday to accept its products unless they violate contract terms or local regulations.

China also announced the appointment of a new health minister, a Paris-trained scientist and only the second non-Party member to be named to a ministerial post since the 1970s, but gave no reason for the change.

Intense global scrutiny of the safety of Chinese exports has been spurred by the discovery of contaminated food, dangerous chemicals in pet food and medicines and lead paint on toys.

At home, China has announced crackdowns on fake medicines and unsafe food. Earlier this year, the head of the food and drug watchdog agency was sentenced to death for corruption.

"In principle, if you don't find (any problem), Chinese goods should be allowed to be exported," said Wang Xinpei, a ministry spokesman in Beijing.

"Businessmen have already signed contracts based on mutual trust. They must have included terms of quality and usage in their contracts. Only if the shipments violated these terms or the importing country's quarantine rules should they be stopped. Otherwise, they should be accepted."

The U.S. Food and Drug Administration (FDA) said on Thursday it would not allow imports of Chinese farm-raised seafood unless suppliers could prove the shipments contained no harmful residue.

China is the largest producer of farmed fish, handling 50 percent of the total value of global aquaculture seafood exports around the world. It is also the third-largest exporter of seafood to the United States.

The U.S. ambassador also met with the head of China's quarantine administration to press for a reopening of China's markets to American beef imports, suspended since 2003 due to an outbreak of mad cow disease.


U.S. regulators have been meeting with China's General Administration of Quality Supervision, Inspection and Quarantine at least since May over catfish, after the states of Alabama and Mississippi -- both major producers -- banned imports of the fish, citing high levels of fluoroquinolones, an antibiotic.

Inspectors have continued to find residues of veterinary drugs and food additives not permitted for use in the United States in farmed fish products, an FDA official said.

The FDA said there was no immediate threat to public safety because of the low levels of the substances in farmed catfish, shrimp and other seafood, but health problems could develop if the items were consumed over long periods of time.

The Ministry of Commerce spokesman said China applied international standards and quarantine procedures to food exports.

He had no immediate comment on whether the ministry was addressing the latest concerns from the United States.

In a separate case, nine Japanese companies are recalling Chinese-made toothpaste found to contain diethylene glycol, an industrial solvent, at concentrations as high as 8.5 percent.

Millions of small tubes of the toothpaste were packaged with a toothbrush and sold to hotels throughout the country, a Japanese Health Ministry official said on Friday. One firm alone is seeking to recall three million tubes.

Regulators in Hong Kong, Singapore, Nicaragua, Costa Rica and the United States have warned of toothpaste contaminated with diethylene glycol. The substance was responsible for at least 100 deaths in Panama after it was mixed into cough syrup.

China has launched a crackdown on unsafe food and medicines.

The Beijing News said on Friday the latest steps included seeking feedback from citizens about a new regulation banning toxic nitrates in restaurants, and fining food makers up to 500,000 yuan ($66,000) for problematic products.

Beijing has also banned 10 types of medicine, charging producers wilfully exaggerated their effects on high blood pressure, diabetes and skin problems and seriously misled consumers, the paper reported.

($1=7.614 yuan)

(Additional reporting by Niu Shuping and Vivi Lin and by George Nishiyama in Tokyo)

AUGUST 27th 2007

We should feel very encouraged by the following Reuters report. Not so long ago, a difference of opinion on such matters would have brought out a doctrinaire, agressive statement from the Chinese spokesman charged with defending China's position. Today we have instead a reasoned and clear comment and a helpful exposition of the facts surrounding the recent problems of the health and safety issues affecting toys imported from China.  Would that the US would treat the legitimate decision of China to build a Navy to protect its maritime trade and tourist interests with similar rationality. The current US government theory that its navy can secure the world's oceans on behalf of the rest of the planet is not just arrogant but daft. Piracy and terrorism on the high seas is going to increase unless the means to defeat it are in place in time to make it an unattractive business. The world's oceans cover an immense area. While the choke points are the likely scenes of most conflict, the rest remains a haven for the forces of destruction.

China says U.S. also to blame for toy safety scares

By Lindsay Beck   Reuters   Mon Aug 27, 2:12 AM ET

China on Monday hit back at Mattel, after a massive toy recall, saying designers and importers should also take responsibility for product safety, but promised to punish its own manufacturers who flout standards.

The world's largest toymaker, Mattel, recalled more than 18 million Chinese-made toys in mid-August because of hazards from small magnets that can cause injury if swallowed, just two weeks after it recalled 1.5 million toys due to fears over lead paint.

"I myself looked at some of the samples of these problematic toys, and I found that there is a serious problem with the design. The design is seriously defective," Li Changjiang, head of China's General Administration for Quality Supervision, Inspection and Quarantine, told a news conference.

"In my view, no matter where those toys were sold there would be a recall, because it is highly likely they are dangerous for children.

"While we recognize that Chinese producers should be blamed for those problematic toys, what kind of responsibility should the U.S. designers and the U.S. importers take in this respect?" Li asked.

China is facing growing global pressure to clean up its manufacturing sector and ensure the quality of its exports after a series of scandals involving products ranging from poisonous pet food ingredients to sub-standard toys and tainted toothpaste.

Li has described the storm surrounding Chinese-made goods as politically motivated and unfair, but he has also called for tougher regulation of manufacturers and warned that failure to improve quality was undermining China's trade strength.

On Monday, he blamed differing national standards, misleading statistics and lack of communication for some of the product safety scares that have alarmed foreign consumers.

"For some products, the two countries enforce different standards," Li said of China and the United States, also citing "inaccurate statistics."

But he said the latest Chinese campaign to improve product safety would focus on creating a chain of supervision across the entire production process for both industrial products and food.

Monitoring and inspection of drug manufacturers would also be strengthened, and celebrities banned from endorsing drugs in advertisements, Li said.

He also acknowledged the vast challenge China faces in overseeing its hundreds of thousands of tiny, often family-run producers, a task compounded by lack of communication between myriad government agencies overseeing production and safety standards, and between central and local authorities.

But Li defended the "made-in-China" label and said Chinese-made toys in particular were enjoyed the world over.

"In China, about 3 million workers are working in the toy industry, providing toys to children all across the world," he said.

"It is because of their hard work that children in other parts of the world are having fun in their daily life."

OCTOBER 31st 2007
Since the report above, there have been other recalls of Chinese made toys by Mattel, and quite a lot of apologies from various quarters concerning design, quality control as well as manufacture. However, all this is insignificant compared to the news most of the world has been waiting for for some time: when will the inexorable logic of the global market economy come into conflict with the command economy of China and the state-subsidised supply of oil and its domestic derivatives. It is this which keeps the Dragon Economy on the rise and the billions of Chinese on their path to prosperity (for an increasing number) and survival (for the rest).

In the long term, this will force them and us to new sources of energy and new, sustainable power plants for vehicles. In the short term it will bring a political and economic crisis. In the past, such socio-dynamic pressures have brought war, sometimes world war. Now, such a war for advantage is not conceivable. It is unlikely that it could, therefore, start by accident. The triggers that have had this effect in the past were always just one of a series of possible triggers to ignite an explosion waiting to happen. Today, local explosions are likely but inter-state war between the major powers is not.

Note that the US$ is at its lowest now compared to the £ for 26 years, and this is not unrelated to the complex equations through which the global market attempts to self-adjust. A domestic subsidy on oil affecting the consumption of China is, however, likely to unbalance most equations and estimates of future market values. The world's super-mathematicians may win or lose playing chess and take some banks with them, but at the end if the day there is a physical reality on which biology will act and react. Collective leadership and communication will be at a premium. Bill Clinton without Lewinski round his neck would be good. Brown without Salmond in his ear would be good. Cameron if he wasn't so clueless would be good.

China fuel crisis spreads

By Jim Bai and Rujun Shen - Reuters

China's worst fuel crisis in two years spread to the capital and other inland areas by Wednesday, and one man was killed in a brawl at a petrol station queue, upping pressure on the government to intervene.

Diesel shortages in China's political heart, which escaped previous supply crunches unscathed, highlight tensions between the government and its increasingly independent oil firms about who should pay for the country's generous fuel subsidies.

Top refiner Sinopec on Wednesday pledged more supplies and bought additional diesel fuel abroad, but it may fall to Beijing to end the stand-off by raising domestic prices, easing taxes, promising another year-end pay-off -- or simply strong-arming suppliers into selling more fuel at a loss.

"Sinopec will work hard to resolve the diesel supply tightness," a headline in the company paper announced. Even so, at least five of its Beijing stations were rationing supplies.

At stake are profits for oil majors Sinopec and PetroChina from selling motor fuel in the world's second-largest consumer, where pump prices have not been raised in 17 months even as crude costs hit a series of record highs.

In scenes reminiscent of the weeks-long shortages in summer 2005, also caused by the yawning gap between domestic prices and global crude costs, petrol stations across the country were turning away trucks and rationing supplies.

After striking the southeastern coastal provinces and the financial hub of Shanghai, they are now hitting the interior, managers and local media say.

In Hefei, the capital of eastern Anhui province, independent suppliers had almost all run out of diesel and several controlled by the oil majors were rationing supplies, station workers said.

"We don't have diesel today. Supply has been quite spotty. Long lines in front of gas stations are very common these days in Hefei," a manager surnamed Yang told Reuters by telephone.

A man was killed in fuel-strapped Henan during a brawl over queue jumping at a service station, police said. Parts of Hunan and Hubei provinces also face shortages, media reports said.


Beijing worries that more costly energy could push up already-high inflation or spark unrest, and effectively forces its refiners and retailers to subsidize state-set prices.

Diesel costs about 64 cents a liter at the pump in Beijing, versus around $1 in Singapore and $2 in Britain.

But a recent rally in global crude prices to above $90 a barrel has deepened large firms' losses and made them ever more reluctant to keep markets supplied.

A source at PetroChina said the company would lose 1,500 yuan ($200) a tonne by selling imported diesel at Chinese pumps.

"The crux of the problem is the state-owned enterprises... you see the remaining contradictions of the state sector in the market economy," said Joseph Yu-shek Cheng, political science professor at the City University of Hong Kong.

"On the one hand they understand that they have to assume certain political responsibilities, but at the same time they have to look after their own company interests."

Underlining the key role of pricing in the shortage, shipping companies in badly hit Zhejiang province said they had no problem securing supplies if they were willing to pay above-market prices to independent traders.

After China's last major fuel crisis in summer 2005, when queues stretched for hours, Beijing cracked down heavily on a flow of exports that firms were using to ease their bottom lines, rescinding tax breaks, among other things.

But this time round, with diesel exports just a tiny fraction of consumption, the shortages may be more difficult to solve without direct subsidies, price liberalization -- or a more overt political crackdown on the recalcitrant refiners.


With current retail prices most plants only break even when crude is around $65 a barrel or lower, so soaring markets have forced many independents out of the market. The burden of making up the difference has fallen on the state-owned companies.

Sinopec has raised imports and refining in November, and analysts expect it will get another tranche of cash from the government at the end of this year to offset its losses. Beijing gave it $1.2 billion in 2005 and $640 million in 2006.

An industry source said Sinopec had bought another 30,000 tonnes of diesel for import in November to the hardest-hit southeastern coastal areas. And it will boost refinery runs by 800,000 tonnes next month, a company paper said.

But a Sinopec official told Reuters on Tuesday that its largest refinery will switch off a crude unit in November and process 3 percent less crude than the previous month, sending a signal to Beijing in a move that could worsen the shortage.

"It's ridiculous to shut down plants at a time of razor-thin supply," one source remarked. "I guess it's a silent protest for the central government to raise pump prices."

(Additional reporting by Felicia Loo in Singapore and Langi Jiang in Beijing)

NOVEMBER 1st 2007
Jeremy Warner is always a great commentator on the economic outlook.

Jeremy Warner's Outlook: World currency system at breaking point

Published: 31 October 2007 - The Independent

Currencies were bouncing around all over the place yesterday as traders placed their bets on what the Fed might do to US interest rates after today's meeting of the Open Markets Committee. For sterling, there is an equally important meeting next week of the Bank of England's Monetary Policy Committee.

A speech by Kate Barker, one of the MPC's "floating" voters, seemed to suggest that, contrary to expectations, the Bank was quite happy to leave British rates on hold for now. Similar speculation surrounds the Fed decision, with policy-makers said to be unconvinced by the need for a further, immediate, cut in interest rates. This despite more grim housing market data yesterday.

Yet whatever the opportunity for interest rate arbitrage, the big picture in currency markets remains the same as it has been for some while now, with the dollar in apparent freefall and other developed market currencies strongly appreciating. These adjustments are to some extent justified as a natural reaction to the problems of the US economy, with its humongous twin budget and current-account deficits and fast-slowing growth rate.

Yet there is another dimension to all this, which is proving very uncomfortable for Europeans as their currencies continue to appreciate against the dollar. A number of currencies remain effectively pegged to the greenback, creating major distortions in the usually corrective pricing mechanisms of the free-market system.

The most important of these are the Chinese renminbi, and to a lesser extent the currencies of the oil-rich Gulf states. Until quite recently, these pegs hardly mattered. The Chinese economy was too small to be of significance, while the fact that oil is priced in dollars made it natural for the Gulf states to have currencies that mirrored the behaviour of the dollar.

The situation today is completely different. China is now one of the world's biggest economies, and in the next 20 years is destined to eclipse even the US. The high oil price has meanwhile hugely swollen capital flows coming out of the Middle East. America's biggest trading partners are these countries, yet there is no effective currency adjustment mechanism for addressing the imbalances that have built up between them.

The result is that those currencies that do obey the laws of the free market are disproportionately punished with exceptional appreciation. To put it another way, it is the Europeans who are being forced to pay the price of America's burgeoning trade deficit with China. To make matters worse, China doesn't even sit at the high tables of the international organisations that are meant to address these issues – the G7 and IMF. It suits China to opt out. This makes their deliberations and pronouncements increasingly irrelevant.

The global currency system has become as much of a mess as it was when the Bretton Woods Accord of fixed exchange rates began to break down from the late 1960s onwards, perhaps worse still. The late Herb Stein, President Nixon's economic adviser, once remarked that if something cannot go on forever, it will stop. But as ever, the question about the present bipartite system of exchange rates is when?

Even within China, the pressures to allow a faster rate of appreciation against the greenback are becoming intense. Interest rates are rising in China, but falling in the US, making defence of present exchange rates tougher still. As it is, the Chinese authorities face massive portfolio losses on the dollar assets they have bought in defence of the trade surplus with the US. China wants to move at its own pace, with a gentle deflation of present pressures. The danger for the world economy is of a much more explosive resolution.

The emergence of China - along with India, Brazil and Russia - as a global class of producers and entrepreneurs is having a profound effect on the world economy. JONATHAN FENBY argues that we have reached a vital tipping point, with the old economic order becoming increasingly irrelevant. China’s most important asset in its economic development is its vast workforce, but how has it managed to mobilise its population and what effect has its emerging labour class had on the country as a whole? Jonathan is giving a talk at the ICA: Is there a new global working class? on 20 November at 7.00pm.

JANUARY 14th 2008
We need to bear in mind that announcing a partial success is not the approved style in China, but considering the scale of the task serious progress has been made (see Reuters report below) in product safety. The recession now about to hit the US and the rest of the world should ease the pressure on quite a lot of commercial and financial systems. The US is protecting itself by allowing the dollar to fall, the result for the EU and UK is variable depending on many factors. Our aero industry is in a really tight spot. If the recession could be handled without hardship and unemployment it would be just what the doctor ordered. If we are really wedded inflexibly to market economies dependent on growth it is hard to see how we can deal with Global Warming at all. The only solution to world poverty in the view of many students of global economics is to limit population growth in regions that cannot support the local inhabitants by food production from the land. Meanwhile the wesy has outsourced much manufacturing to Asia and is still betting on the growth method. I can't see it working myself, but in any case we have to also outsource product standard and carbon control. The only equation I can devise is to pour all the funding and employment we can into the technical development in the west of carbon control, that is the only way to prevent a recession and at the same time tackle global warming.

China says product safety push a complete success

By Ben Blanchard - Reuters

China declared on Monday that its four-month campaign to ensure food and product safety had been a total success, with all goals being met months before Beijing hosts the Olympics and 600 companies banned from exporting toys.

But deputy quality watchdog chief Pu Changcheng also sought to play down a series of scandals which beset the made-in-China label last year.

Chinese media report problems involving substandard food, drugs and other goods almost every day. The issue burst into the international spotlight when tainted additives exported from China contaminated pet food in North America.

Millions of Chinese-made toys were recalled in 2007, many by U.S. giant Mattel, mainly due to excessive levels of lead paint.

"The tasks of the rectification campaign have been fulfilled completely and its objectives have all been reached," Pu told a news conference.

"The illegal practice of using non-food materials and or recycled food to produce and process food has been basically eliminated. The illegal practice of abusing food additives such as preservatives and coloring has been effectively held back."

Officials inspected more than 3,000 toy exporters and their suppliers, and revoked 600 export licenses, Pu added.

"The overall quality of Chinese-made toys will be further improved and safety will be fully guaranteed," he said.

The official People's Daily said in December that the latest campaign, spearheaded by Vice Premier Wu Yi, had been a valuable experience, and it praised the hard work of the inspectors.

Pu repeated what has become a standard government line that the media, particularly the foreign press, had overhyped the problem with their hysterical reporting, adding that the issue should not be "politicized."

"It ought to be said that some of the food and product safety problems of last year had also happened in previous years," he said.

"Some of the problems were dealt with in an appropriate and timely way by our close cooperation with related countries and regions, and had neither serious consequences nor seriously negative influences," Pu added.

Food safety problems are particularly pronounced in China's vast countryside, where lax oversight of the many small factories has contributed to a string of food poisoning incidents.

Pu said one of this year's objectives would be to step up supervision over those small manufacturers.

"We must fight to basically solve the question of their unstable product quality and lack of safety in the shortest possible time," he added.

Public fears about food safety grew in 2004 when at least 13 babies died of malnutrition in Anhui province after they were fed fake milk powder.

(Editing by Roger Crabb)

MAY 22nd 2008
The terrible earthquake in China has shown the considerable capability of the current leadership and the Chines military to mobilise in aid of its citizens. It is quite possible that this has been so for a long time, but it is only in the current atmosphere of international openness and transparency that we are able to see, with reporters on the ground, just what has been achieved.

In spite of its considerable resources in personnel and material China has asked for help from the world, and here is a strange irony: they are asking for tents to house the hundreds of thousands of homeless - but the developed world has outsourced most of its tent-making to China!  However I guess it's a question of available stocks, so no doubt there will be tents on there way right now.

MAY 28th 2008
Here's some good news. Perhaps the United States can be progressively eased out of this equation now until their opinion is no longer required.

China's Hu calls for peace with Taiwan during historic meeting

by Sam Yeh - AFP

Chinese President Hu Jintao called for peaceful relations with Taiwan as he met the head of the island's ruling party here Wednesday in the highest-level contact since the two sides split in 1949.

Putting aside decades of tensions that have made the Taiwan Strait one of the world's potential flashpoints, Hu shook hands with Kuomintang (KMT) chairman Wu Poh-hsiung during a red carpet welcome at the Great Hall of the People.

The pair then posed with their accompanying delegations for an historic photograph before heading into their meeting, with the events broadcast on China's state-controlled television.

"Based on the past exchanges and communications between the two parties, and under the new situation, I hope we can promote cross-strait relations, exchange our opinions and look to the future, and push forward the peaceful development of cross-strait relations," Hu said in his opening remarks to the meeting.

Wu in turn said the Chinese and Taiwanese should make sure that their people never take up arms against each other again, in comments that also touched on the massive earthquake in China's southwest this month.

"We cannot guarantee there won't be any natural disasters any more on both sides of the straits, but through our mutual efforts, we can ensure there is no war," he said.

Wednesday's meeting is part of a dramatic easing of tensions between China and Taiwan in recent months.

The Kuomintang's defeat of the pro-independence Democratic Progressive Party in Taiwan's presidential polls in March has been the trigger for the rapprochement.

Ma Ying-jeou, who was sworn in as president last week, has taken a much more conciliatory approach with China than his predecessor, Chen Shui-bian, whose pro-independence rhetoric angered the mainland's communist leadership.

For decades, the KMT and China's Communist Party were the most bitter of Cold War foes, but the KMT has in recent years staked out a platform of reconciliation.

China and Taiwan split at the end of a civil war in 1949, with the KMT nationalist forces retreating to the island after the communists took control of the mainland.

China remains determined to bring Taiwan back into its political fold, and repeatedly warned during Chen's eight years in power that it was prepared to use force to do so.

In some of the most significant developments of the recent thaw, Ma has pledged to deepen economic links between the two sides, vowed not to enter an arms race, and pushed for a restart of a formal bilateral dialogue.

Taiwan said last week the bilateral talks, which have not been held for more than a decade, would resume next month with the aim of building closer trade and tourism links with Beijing.

Key issues would be starting weekend passenger charter and cargo flights as well as allowing more Chinese tourists to visit Taiwan.

Taiwanese press reported that China and Taiwan would officially announce the restart of the dialogue following their meeting on Wednesday.

China has also warmly welcomed Taiwan's help in providing medical aid and other relief following the earthquake that hit the southwestern province of Sichuan on May 12, and Hu again expressed gratitude.

"The loving heart and heart-rending behaviour of the Taiwan compatriots deeply moved us," he said in his opening remarks.

"On behalf of the mainland compatriots, especially compatriots in quake-hit areas, I would like to express our sincere appreciation and thanks to our compatriots in Taiwan."

Before meeting Hu, Wu visited the National Stadium, known as the Bird's Nest, which has been built for the Beijing Olympics.

On Tuesday, he visited the mausoleum of Chinese revolutionary leader Sun Yat-sen in the eastern city of Nanjing.

That visit was highly symbolic as Sun remains a revered political figure for people in both Taiwan and the mainland.

OCTOBER 16th 2008

The global recession has caused Chinese growth to slow significantly. Their stock market has dropped, they have cooperated in the global interest rate cut. They will mothball some factories and go easy on plans to imitate western models of capital market management. All in all, a very healthy dose of reality and manageable by the Chinese government unless something worse happens.


JANUARY 24th 2009
I have left an appropriate time pass before once more making an entry in this file. Much has occurred, covered elsewhere in detail. The global financial system has been knocked for six when it emerged that the US has been shutting its eyes to the financial reality. The parcels of debt that had been used increasingly as tradable value between banks, hedge funds and financial institutions of every degree were revealed on examination to depend on millions of individuals who were unable, if called upon in sufficient number at the same time, to pay. The anglo-saxon communities in particular and the US in eminence were saddled with personal debt they had been encouraged to run up, and the rest of the world had become enmeshed in the trade. The discredited President Bush has been replaced by Obama as predicted elswhere on this site, Major American banks face full nationalisation as do some of their motor manufacturers. Hilary Clinton is US Secretary of State for foreign affairs and will have the job of ensuring relations between China and the US are conducted in a rational manner.

China hits back at U.S. in currency row

By Chris Buckley Chris Buckley - Reuters - Sat Jan 24, 6:16 am ET

BEIJING (Reuters) – China's central bank on Saturday said U.S. accusations that it was manipulating the yuan currency were misleading, a day after Beijing cautioned incoming Secretary of State Hillary Clinton to handle their ties with care.

The remarks from Su Ning, a vice governor of the People's Bank of China, were the bank's first public reaction to comments from U.S. Treasury Secretary-designate Timothy Geithner, who said this week that Beijing was manipulating its currency exchange policies to gain an unfair trade advantage.

"These comments are not only out of keeping with the facts, even more so they are misleading in analyzing the causes of the financial crisis," Su said of Geithner's comments to the Senate Finance Committee, according to the official Xinhua news agency.

The exchange marks a testy start to ties between Beijing and the Obama administration, which may tarnish vows of cooperation in combating the global economic slowdown and security threats.

"China wants a good start with Obama, but trade conflicts are the one issue most likely to hurt this," said Shi Yinhong, an expert on ties between the two nations at Renmin University in Beijing. "Now our diplomacy is conditioned by the financial crisis."

China worries that its already slowing exports will be even harder hit by U.S. policies to narrow their trade imbalance.

Many U.S. lawmakers believe the yuan is much undervalued, giving Chinese exporters a big advantage that they blame for U.S. job losses and the U.S. trade deficit, which hit a record $256.3 billion in 2007.

Su did not directly accuse Geithner of trade protectionism. But the Chinese official's warning was clear enough.

"We believe that faced with the financial crisis there should be a spirit of self-criticism," Su said while visiting a business newspaper's office in Beijing, according to Xinhua.

"The international community is currently working together in actively responding to the financial crisis, and it must avoid exploiting different excuses for renewing or encouraging trade protectionism, because these are of no help in withstanding the financial crisis."

Su's swipe came after China's Foreign Minister urged Clinton to be careful with sensitive issues that could strain ties, calling the relationship between their two nations one of the world's most important.

Foreign Minister Yang Jiechi made the remarks to Clinton, settling into her new job as Washington's top diplomat, in a telephone call on Friday, the Chinese Foreign Ministry website ( reported on Saturday.

"The China-U.S. relationship is one of the world's most important bilateral relations," Yang told Clinton, according to the report.

Each side should "respect and show consideration for the other's core interests and appropriately handle differences and sensitive issues," he said.

The report did not specify those issues, but Beijing considers Taiwan its most sensitive topic in dealings with Washington.

Beijing says self-ruled Taiwan must accept eventual reunification with the mainland and objects to Washington's military aid to and political support for the island. China has also been angered by U.S. pressure over human rights and Tibet.

Yang, a former ambassador to Washington, said the two powers should "handle bilateral relations by adhering to a strategic high-point and a long-term perspective."


But trade and the yuan are already emerging as a points of tension.

Under former President George W. Bush, the Treasury Department urged Beijing to move to a market-determined exchange rate and saw some progress since July 2005.

Yet it refused to formally call China a currency manipulator, which under U.S. law would require the Treasury Department to begin "expedited" negotiations with Beijing to reduce China's trade surplus and eliminate any "unfair" currency advantage.

The China Daily, an English-language paper that often reflects official policy, said Geithner's position was "a clear move away from the stance of the Bush administration."

The dollar has weakened by about 16 percent against the yuan since China revalued it in mid-2005, according to Reuters data. But many U.S. industry groups want much more drastic action.

The yuan closed lower against the dollar on Friday and traded mostly below the Chinese central bank's mid-point, with speculation that Geithner's comments could spark a brief period of modest yuan depreciation.

(Editing by Jerry Norton and Alex Richardson)

AUGUST 12th 2009

China might appeal WTO ruling on film import

By JOE McDONALD, AP Business Writer

BEIJING – China said Thursday it might appeal a World Trade Organization ruling that told Beijing to ease restrictions on imported movies, music and books in its latest trade dispute with Washington.

The Commerce Ministry insisted Beijing does not hamper imports of media products, despite Wednesday's decision by a WTO panel of experts that it violates free-trade rules by forcing such products to be routed through Chinese state-owned companies.

"The Chinese side will conscientiously assess the expert group's ruling and does not rule out the possibility of an appeal," ministry spokesman Yao Jian said in a written statement. "The channels for China's import market for published materials, movies and music are completely unimpeded," the statement said.

The case is sensitive for Beijing because the communist government sees its control over content of movies, music, books and other media as a tool to protect its political power. The government is trying to build up China's state-owned film studios and other media to promote the ruling party's views at home and abroad.

The dispute is one of a series between the United States and China, the world's largest and third-largest economies, over access to each other's markets for goods ranging from tires to poultry. The United States is the world's biggest exporter of movies, pop music and other cultural goods and sees increased sales as a way to narrow its multibillion-dollar trade deficit with China.

Beijing agreed when it joined the WTO in 2001 to treat foreign and domestic companies equally. But foreign companies in a range of industries complain that they face barriers to imports and investment.

The implications for China's regulatory system if the WTO ruling is upheld were not immediately clear. The panel said Beijing may continue to require imported films to go through one of two government-designated distributors — a condition that does not apply to Chinese titles. The ruling also rejected Washington's argument that Chinese censorship of music hampered sales.

Foreign movies, music and other cultural products are popular in China's fast-growing media market. Suppliers face intense competition from China's thriving black market in unlicensed copies and some complain that Beijing is boosting demand for pirated products by limiting access to legitimate goods.

It was unclear whether suppliers of music, movies and books would see a rise in sales if the system changes. Despite rapid economic growth, China's income per person is only about $3,000 a year and consumers might not be willing to pay higher prices for legitimate goods.

"Pirated copies are so convenient, and at that price, the quality is so good," said Vivian He, a woman in her 20s who works for a foreign company in Beijing. "If I want to buy a TV series or a set of DVDs, the price difference between legitimate copies and pirated copies can be very big."

However, He said, "if after this (WTO) ruling there are more cultural products available in China and they could be reasonably priced, I would buy legitimate copies."

Some film companies have tried to combat piracy by selling legitimate DVDs of new Hollywood movies for as little as 22 yuan ($3.20). But that is well above the price of pirated DVDs, which sell for 8 yuan ($1.15) or less.

Google Inc.'s China-based search engine and global music labels launched an advertising-supported free music download service in March to compete with pirates.

China defended its media controls as needed to ensure removal of offensive content and protect public morals.

The WTO ruling said Beijing should allow foreign companies to distribute master copies of books, magazines and newspapers to customers in China; wholesale electronic publications and receive the same conditions and charges as Chinese companies for distributing reading materials.

Washington and Beijing also are arguing over rising imports of Chinese-made tires into the United States.

President Barack Obama is deciding whether to impose higher tariffs or other controls after the U.S. International Trade Commission ruled in June that imports of Chinese tires were harming American tire producers.

A deputy Chinese commerce minister, Fu Ziying, complained Wednesday that the tire case violated WTO principles and "looks like trade protectionism."


Associated Press researcher Bonnie Cao in Beijing contributed to this report.

NOVEMBER 17th 2009
I have added no entries here for well over a year because global events have had to play out before the great realities coming into play as China enters the global economy at full tilt can be seriously discussed.

Now, with President Obama's visit, is the time to open up here again. China has entered the global economy but not yet accepted the currency conventions used by the main trading nations which have convertible currencies. The realtionship between China and the US can be best desribed as that of the lady in the dentist's chair. As his drill starts to whir the dentist exclaims "Madame, are you aware you have hold of my testicles?" "Yes" she replies sweetly, "We aren't going to hurt each other, are we."

China is in an immensely strong position, but America is a customer it does not wish to bankrupt. China has most of the word's raw materials and US consumption has given them 3 trillion dollars surplus to buy up the rest in advance. It is now China's turn to play the game the US and Europe did in the previous century, on a bigger scale. They might do it better. Being conscious of climate change BEFORE starting, and knowing just as well or better than the US what the threat of mismanagement holds, personally I would rather see the world in the hands of the Chinese than an America whose government is hostage to an ignorant electorate that assumes a right to relative luxury.

China has a lot to learn, but it has a huge number of highlly intelligent, self disciplined and hard-working people who are willing and able to learn how to manage its global business.

JANUARY 1st 2010

Many 'green' technologies depend on advanced electronic hardware that has been developed using 'rare earths', minerals that occur naturally but have to be located and mined. Up till now, China has been the source for most of these which have only recently been discovered to be of value rather than curiosity interest. [Note added later: at the start of the IT hardware revolution, it was a mine in California that produced the rare earths needed. This mine was closed when China decided to flood the global market with its low cost production]
China, now cash rich, is also buying up sources, resources and mining company shares all over the globe. I think we should be relieved, since the Chinese have more chance of cutting their greenhouse emmissions if they have the means to do it. The Americans have had the means for some time but showed no signs of taking their responsibilities seriously, poverty seems the only way American climate abuse can be reduced. The Chinese might make a better fist of wealth. Or not, we shall see.

Scientists are warning that our planet is fast running out of many essential materials. Dwindling reserves of platinum, copper and phosphorous could create crises in the electronics, medical and farming worlds. There are fears that competition between countries for remaining deposits will result in 'resource wars'.

Materials scientist Mark Miodownik finds out how serious the situation has become and asks what scientists, politicians and economists can do to secure the earth's resources for future generations.


  1. Thu 11 Feb 2010

JANUARY 31st 2010

BEIJING (Reuters) – Chinese state media laid into the United States on Monday after the Obama administration unveiled its first arms package for Taiwan, a move that prompted China to impose sanctions on the firms involved.

The latest spat between the world's biggest and third-biggest economies threatens to add to a litany of other issues straining ties, including the value of China's currency, trade protectionism and Internet freedoms.

The above is unfortunate. The arms deal is part of a long agreed package and in accordance with all current treaties. Taiwan is no threat to China, and China's relations with Taiwan are as good as thay have ever been. Since there was no question of China planning to invade Taiwan, China could look on the arms purchase as a perfectly helpful security measure for the region as a whole for the long term future. Unfortunately they do not see it this way. In time they may.

FEBRUARY 17th 2010
The article below from the BBC website was written 12 days ago. It is hopeful despite current strains in Sino-American relations. Since then they have if anything deteriorated. A foreign policy advisor to the Chinese government is saying in public "America needs teaching a lesson". How can things get to this absurd state of affairs. Usually, on part form, it is the US that has been at fault in its poor handling of diplomacy. This time I have to admit the Chinese are coming over all unnecessary. At least a visit by the US Navy's strike force has been allowed to go ahead. Let us hope the military are better diplomats than the civilians. <Click for FT article on the visit

The careful choreography of China-US ties

By Kim Ghattas
BBC News, Washington

Two goodwill ambassadors are on their way from Washington to Beijing.

With their big eyes and cuddly looks, pandas Tai Shan and Mei Lan add a somewhat lighter note to an increasingly tense relationship between Washington and China now mired by arms sales, cyber attacks, threats and warnings and talk of currency rates.

The White House confirmed on Thursday that the expected meeting between President Barack Obama and the Dalai Lama would take place later this month at the White House.

Beijing, which accuses the Dalai Lama of pushing for Tibetan independence, had suddenly warned just days earlier that such a meeting would seriously undermine Sino-US ties, even though President Obama had already reportedly made it clear that he expected to meet the exiled Tibetan spiritual leader in the future.

The meeting was postponed in 2009 because the White House did not want to undermine Mr Obama's Beijing visit and his meeting with China's President Hu Jintao.

Positive co-operation

Meanwhile, munching on apples and pears, the US-born giant pandas Tai Shan and Mei Lan returned home to participate in a breeding programme for the endangered species.

Their return is an example of the positive co-operation that does take place between the Chinese and American governments.

The pair were supposed to return home two years ago under an agreement between the two countries. They were delayed because zoo-goers in the US had grown so fond of the pandas and because the pair were not ready yet to participate in the programme.

"Tai Shan and Mei Lan not only represent the crystallisation of American and Chinese co-operation to preserve pandas but also the friendship of the Chinese and American people," said Xie Feng, deputy chief of mission at the Chinese embassy in Washington.

It's a rare nicety by a Chinese official amidst an escalating war of words between that seemed to have started in December at the climate talks in Copenhagen. While President Obama seemed to get a lot of the blame for failing to turn around the situation, many participant said that China took such a tough position that it torpedoed the talks.

I don't think that either country can afford to simply walk away from the other
Robert Gibbs White House spokesman

Then came cyber attacks against Google, which the internet giant blamed on Beijing. They were followed by a surprisingly tough speech by US Secretary of State Hillary Clinton on internet freedom, during which she said that countries or individuals which conduct cyber attacks should face condemnation and consequences.

China warned that the Obama administration's support for Google was endangering relations.

Last week, the Obama administration announced plans to sell Taiwan approximately $6.4bn of arms. This was the third instalment of a package of arm sales started under President George W Bush.

China, which claims Taiwan as its own, suspended military ties with the United States and also threatened to retaliate against the individual firms selling the arms.

And brewing slowly is what could be a tense exchange over China's currency, which Washington and other Chinese trading partners say is kept undervalued to increase the country's trade surplus.

Staying sanguine

But despite all the tension, no-one in Washington is fretting yet.

China's reactions so far have been mostly part of its usual repertoire of diplomatic outbursts - expected knee-jerk reactions to key issues that are sensitive to China and against which it must protest.

But Washington's behaviour too has so far remained within the realm of what China knows it should expect.

While all US presidents since George HW Bush have met with the Dalai Lama - as a signal of Washington's commitment to human rights - the US does not intend to recognise Tibet's independence.

And Washington may have sold arms to Taiwan in the past, but it still follows a one-China policy.

In other words, there is no threat to China's strategic interests, which is why US officials know they can remain sanguine about China's behaviour.

White House spokesman Robert Gibbs said the two countries could work together and still disagree on issues both in public and in private.

"I don't think that either country can afford to simply walk away from the other. That's not what we would do, and I don't think that's what anybody expects them to do either."

Growing impatient

Still, China experts in Washington are starting to wonder why Beijing has felt the need to ratchet up the pressure all of a sudden over all the issues at once.

One view is that China feels buoyed by the US's financial meltdown, while simultaneously wanting to flex its muscles to project power internally.

The Chinese leadership also believes that the Obama administration needs China's co-operation more than ever before on issues like climate change, North Korea and Iran and thinks therefore that it can afford to play tough.

Experts are watching carefully for any sign indicating that the ground is shifting. The clearest sign of all would be if China moved away from simply trying to water down or delay sanctions on Iran to actively blocking or vetoing a UN resolution.

That would signal that while Washington has continued to respect China's red lines on Tibet and Taiwan, China has not reciprocated, failing to see how central the Iran issue is for Washington and its allies in the Middle East.

MAY 20th 2010
The world is now fully alerted to the 'Rare Earths' issue and out dependence on these materials and their crystalline properties to build all our green electrical hardware. Recycling will now become a very important issue, as will the environmental issues surrounding the mining of these metals. As Chinese demand matches or exceeds Chinese supply, politicians all over the planet will fnd their seats heating. A new slant on Global Warming.

JUNE 17th 2010
Time for China at last to let their currency move toward a more reasonable rate. But the will manage it by degrees.

JUNE 27th 2010
The timing of China's move is related to the G8/G20 meeting but I agree wth the commentator who says it is a genuine move. China moves on self-interest but the Chinese government are in some ways closer to understanding global realities than the US public which any US administtration has to carry with them on any sensible global policy. I am sure T. Geithner has his mind attuned to all this.

NOVEMBER 9th 2010
See comments in the file on Banking and Business at this date. [Click here]

NOVEMBER 20th 2010
The Nobel Peace Prize fiasco is unfortunate.

DECEMBER 19th 2010
Cathy Ashton, the EU High Representative for Foreign Affairs, has sensibly suggested the the sales embargo imposed on China after the Tiananmen Square catastrophe should be lifted. Of course it should never have been imposed, it was a typical US grandstanding action to curry favour with public opinion at home, followed for  much the same reasons by the UK and EU. There was nothing good about the Tiananmen affair at the time. It was a disaster, though the culmination in deaths was due to the absurd encouragement of protestors by the western press. It takes time for a country in the position China found itself to move to a less controlled society and they were making that change. What was needed at the time was very careful handling. Instead we had the morons of the western press running wild and selling copy. No doubt it will take time to lift this needless embargo and in any event the last thing we need is a vast increae in arms trading, but let us get real. Working with China on every level is the key to our planetary future. The Ecomomist blog is not yet there.

JANUARY 31st 2012
I have left it for a year while the convulsions of the global economy caused by Britain, the EU and the US of America have made a separate analysis of the China Syndrome pointless, as it is potentially a huge player but the ball was in the western court. It still is, but China remains responsible for its own domestic position and its forays into Africa, where aid and support without strings have made it popular amongs the ruling echelons. The FT report on China's domestic economy is good.

China’s factories surprise with strong month
The Chinese manufacturing sector has made a surprisingly strong start to the year, with domestic orders cushioning the impact of Europe’s debt woes, according to an official survey.

The purchasing managers’ index, an important gauge of factory growth, rose to 50.5 in January from 50.3 a month earlier. In remaining above 50, the PMI indicated an expansion in industrial activity that confounded forecasts for a decline.