Mega Trends – China Version

1. Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. (BBG)

2. Gold supply/demand figures are notoriously opaque and since there aren’t quarterly earnings calls for gold, who knows about the real numbers.  However, if the numbers are to be believed:  China has become the world’s largest producer @ 400 tonnes per year and is continuing to buy producers; 2,600 tonnes will be delivered to China by the end of the year (1,730 through August annualized) and the rest of the world produces 2,260 tonnes.

3.  China holds roughly $2 trillion in dollar denominated debt and 3.7 trillion in USD reserves (PNC).

4.  China has made it know that it would prefer to shift from an export based to domestic based demand economy.  Next month’s Third Plenum of the Central Committee of the 18th Chinese Communist Party Congress should show how willing the leadership is to commit to that strategy (CBR).

5.  China has taken over the top spot (from the US) as the world’s largest oil importer (EIA). Oil contracts have been historically dollar denominated but that has slowly given way to eurodollar and given this turn of events, contracts denominated in yuan might overtake dollar denominated ones.

China has been trying to shift its economy to be driven by domestic demand rather than through exports to the debt addicted U.S. consumer.  However, they have potential over inflation problems due to this strategy.  It will be interesting to see how they balance the shift while slowly moving away from the dollar and U.S. Treasuries.  A short term recession might be a good thing for China if it can depeg the yuan while it is weak allowing them to sell dollars and bonds.


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