China beperkt $-holdings tot expliciet USG-gegarandeerde

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De nationale hypotheek wordt aangepast ;)

Groet / Cees

The Dumping Begins: Chinese Reserve Managers Notified That Any Non-USG
Guaranteed Securities Must Be Divested
http://www.zerohedge.com/article/china-dumping-begins-reserve-managers-notified-any-non-usg-guaranteed-securities-must-be-div
It appears that this time China's posturing is for real. Following up on
our earlier post that Chinese military officials want to "punish"
America by selling Treasuries, Asia Times Online is reporting that an
explicit directive by the Chinese government has notified reserve
managers to sell all risky US assets, including asset backed and
corporates, and just hold on to explicitly guaranteed Treasuries and
Agency debt. And from following TIC data we know that China's enthusiasm
for MBS/Agencies over the past year has been matched solely by that of
one Bill Gross.

 From Asia Times:

     Dollar-denominated risk assets, including asset-backed securities
and corporates, are no longer wanted at the State Administration of
Foreign Exchange (SAFE), nor at China’s large commercial banks. The
Chinese government has ordered its reserve managers to divest itself of
riskier securities and hold only Treasuries and US agency debt with an
implicit or explicit government guarantee. This already has been
communicated to American securities dealers, according to market
participants with direct knowledge of the events.

     It is not clear whether China’s motive is simple risk aversion in
the wake of a sharp widening of corporate and mortgage spreads during
the past two weeks, or whether there also is a political dimension. With
the expected termination of the Federal Reserve’s special facility to
purchase mortgage-backed securities next month, some asset-backed
spreads already have blown out, and the Chinese institutions may simply
be trying to get out of the way of a widening. There is some speculation
that China’s action has to do with the recent deterioration of
US-Chinese relations over arm sales to Taiwan and other issues. That
would be an unusual action for the Chinese to take–Beijing does not mix
investment and strategic policy–and would be hard to substantiate in any
event.

Furthermore, demonstrating just how seriously China is approaching a
populist-driven adversarial stance with the US, was earlier speculation
that instead of unpegging its currency (a move much desired by the US
administration in its goal to further weaken the dollar and make China
less competitive in the export market), China would reduce its trade
balance not by the traditional way of currency inflation, but by the
economic textbook footnote approach of raising salaries.

     Higher labor costs would cut Chinese export competitiveness while
boosting domestic spending power and sustaining economic growth,
according to the bank. Premier Wen Jiabao’s government has been pressed
by U.S. and European officials to end a 19-month yuan peg to the dollar
to help diminish trade and investment imbalances that contributed to the
credit crisis.

     “Wage increases are a better option because they largely benefit
Chinese workers,” Tao Dong, a Credit Suisse economist in Hong Kong who
has covered the Chinese and Asian economies for more than 15 years, said
in an interview yesterday. “Currency appreciation will only result in
Chinese exporters losing out to competitors in countries such as
Malaysia and Mexico.”

     The strategy may limit gains in the yuan to 3 percent this year,
according to Tao. This month’s 13 percent increase in minimum wage in
eastern China’s Jiangsu province indicates that higher pay will play an
important role in officials’ efforts to rebalance growth in the
fastest-growing major economy, Tao said.

     The wage decision “argues against a large one-off yuan
revaluation,” Ben Simpfendorfer, an economist with Royal Bank of
Scotland in Hong Kong, wrote in a note this week.

One thing is certain - China will now focus on doing precisely the
opposite of what America would urge Chinese authorities to do, in order
to establish itself as the focal point of negotiating leverage and
increasingly humiliate the Obama regime. If this involves selling USTs
or corporates (both fixed income and equities) so be it. This is further
confirmed by carefully worded disclosure in today's copy of China
Securities Journal:

     The China Securities Journal, a government-backed daily, accused
the U.S. in a tough-worded front page editorial of playing the "exchange
rate card."

     It said that, just as China didn't interfere with Federal Reserve
purchases of U.S. Treasuries, "the U.S. has no right to interfere in
China's exchange rate policy."

     "Whether or not to appreciate is our own business," the newspaper said.

     "Whether it will appreciate, when and by how much is an integral
part of China's monetary policy."

It is not clear when the asset divestiture directive takes place or if
it is already being enforced. Juding by the afterhours action in futures
and the currency markets, some dumping may already be taking place.
Alternatively, we now know just who it is that sell into every rally
(yes, even in this market, every buyer is matched with a seller).

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