Just a curious question: What are the credit market conditions like in China? Is it difficult to obtain a decent long term loan?

I wonder, if we see a shrinking total credit line as in the US. This might explain, why everybody is trying to hoard cash and highly liquid assets (and is fleeing stocks and real estate). Sterilized short term money would appear as increased FX reserves.

Back in the real world, I think most of my arguments don’t stand up to inspection: CIC will almost certainly fund the upcoming mandates out of cash and any CDB recaps will be both publicly hosannaed and cleanly delineated in the public accounts. I strongly suspect SAFE can’t actually reserve inside the reserves, although I admit I’d feel a lot more confident saying that in the US or UK…

I can assure you that, even within one small room of analysts in Shanghai, opinions are split about which way China will go, although I’ve yet to meet anyone who can make a convincing case that the Rmb should, as opposed to will, remain at or near current levels. Living here, one is daily exposed to purchasing power parity: I just shouldn’t be able to eat half a pound of well-prepared shrimp in an elegant restaurant in the most expensive commercial rental district of Shanghai for a little under USD12. Something’s gotta give.

MMcM — interesting points, as always. i can see why the CIC might want a cash heavy portfolio. Cash has outperformed equities recently, and until equities find a bottom, well, not investing can be better than investing. and it wouldn’t do to underperform SAFE’s safe portfolio by too much (at the same time the CiC cannot entirely emulate SAFE’s portfolio without losing its raison d’ etre).

But let me play devil’s advocate on your points (and on myself) for a bit. The big problem with the “more money was moved to the CIC in June argument” is that there isn’t really any supporting evidence. in the past, the cIc was funded by MinFin bond issuance — and there hasn’t been any issuance. Now it is possible that the CIC didn’t get all of the money raised in late Dec in q1 (tho there are decent sources claiming that this is indeed what happened), and the CIC got its final tranche in June (i.e. the transfers are done at the end of the quarter, hence the low march and the low june). Or it is possible that the SFE just put money on deposit with the CIc to invest, and gave up with the charade of selling minfin bonds to pboc that the pboc repos to the state banks (to sterilize reserve growth) to raise rmb that the minfin uses to buy fx from the pboc that is handed over to the CIC. But that would imply an end to SAFE/ CIC (and PBoC/ Finance ministry) rivalry that feels a bit strange …

as for the CDB, unless the pboc did the recap directly, wouldn’t the money have to first go through the CIC? which raises the issues above, namely, where is the supporting evidence?

at this stage, i am thinking either that the CIC didn’t get everything in q1, or that the PBoC revised 06 style fx swaps with the banks. or that the SOEs were told to hold on to their fx for as long as possible .. but it is certainly possible that inflows really did fall and there was less to mop up.

as for your final point, i suspect it could also be argued the other way:

appreciation = big inflows, problems with sterilization and inflation

no appreciation = smaller inflows, easier to sterilize and less inflation (see the recent data).

and if appreciation doesn’t reduce inflation and it annoys the textile sector, why bother? better to embrace the go slow policy?

to be honest tho, i have no clue which way china will go. tis hard to get a sense from new york! and the china watchers in beijing, shangai and hk are split.

I think this helps to explain some, not all, of the decrease in rate of reserves growth.

Tony

Here’s two (pure guesswork) ifs that knock UDS20+bn off the reserves:

1. The CIC, for reasons that surpasseth man’s understanding, has decided to run a huge cash allocation, a la NCSSF, and USD20-25bn has been transferred to pay for the third party mandates that will be announced later this month.

2. CDB has received another recapitalisation round (through CIC/Huijin) as prep to transfer it our of CIC control. Again, USD20-25bn sounds about right.

On another note, if we agree that the numbers are probably wrong and that the PBOC is, at least to some extent, interested in managing appearances, doesn’t “we have conquered the problem of hot money speculation” sound like a good preamble to “and now we can resume RMB appreciation without enriching them”?

CHINA has entered a new phase in its modern-day scramble for Africa by moving to rebuild 3300 kilometres of roads in the Democratic Republic of Congo.

The project is part of China’s largest single investment in Africa – a $A9.2 billion services-for-minerals deal signed in January.

China has also promised to repair more than 3000 kilometres of largely defunct railways, build 32 hospitals and 145 health centres, install two electricity distribution networks, and construct two hydroelectric dams and two airports.

In return, it has won the rights to five copper and cobalt mines in the Congo’s southern minerals belt.

The deal extends Beijing’s dominance over parts of Africa previously allied to the West.

One senior European diplomat in the capital Kinshasa said: “They are setting themselves up as being unlike other donors who are seen as too slow and always telling governments what to do.”

Some 2000 kilometres to the south, Mambwe Katenta, 45, stands beside a corrugated earth road snaking through dense bush. A mechanic is trying to fix his battered pick-up, damaged by Congo’s atrocious roads.

He said: “It is only (48 kilometres) to the city but we cannot reach there with the things we have to sell – tomatoes, cassava, charcoal … It has always been this way. But now we hear that the Chinese will come and fix this.”

He will not have long to wait. South of his village, on the other side of Congo’s second city, Lubumbashi, the Chinese are on their way. The Chinese Railway Engineering Company is rebuilding the road linking Congo’s south to Zambia.