[Sampanviking]

I read only a little while ago, that the Credit Crunch and Global Downturn had handed a great deal of fiscal power to China, due to the fact that it was one of the few countries that still had real money to lend into the Global/International market place. This money is mainly leant by the banks directly or through Chinese companies that wish to make an overseas acquisition or Investment.

The article I had read has noted that this growing dependence of the West and the USA in particular on the availability of Chinese Capital made considerable parts of their economies and stock markets very sensitive to Chinese fiscal policy. This was illustrated by the effect on the US Stock Markets by January's raising by the CCP of the reserve rate of Chinese banks and Financial Institutions. The effect was to send the Dow Jones tumbling below the 10,000 barrier. The effect is more than just the ups and downs of speculation, as this was a fundamental which reflected the very real bottom line impact on American companies of not having access to sufficient capital, It is also a major factor in the ability of US companies to start hiring again.

The question was whether this ability to turn off an on the money supply was a real point of leverage for Beijing?

Today we have had the chance to judge further.

http://news.bbc.co.u...ess/8513023.stm

US retail sales growth beats expectations

Quote

Despite the encouraging sales figures, US stocks opened sharply lower after China clamped down further on bank lending.

The main Dow Jones index was down 146 points, or 1.4%, at 9,997.95.

This news was indeed confirmed separately

http://news.bbc.co.u...ess/8512480.stm

China banks ordered to increase reserves again

Quote

Analysts had expected the central bank to increase reserve levels again, but were surprised it ordered a second increase so soon after January's move.

The bank has told commercial lenders to hike their reserve levels by 0.5%, to 16.5%, by 25 February.

Quote

This means further increases in bank reserves are likely, analysts said.

"The hike will still not fundamentally tighten liquidity too much and there will be more reserve hikes upcoming," said Shi Lei at the Bank of China.

So a surprise today, where a 0.5% withholding of Capital, results in a 1.5% reduction in US Stock Values and the expectation of further surprises in the not to distant future, all delivered through a vehicle which is neither sanctions or any other protectionist measure.

Also remember, that the lost value of the Stock Market is real lost market, while the Chinese money has simply been taken out of circulation and put into reserve.

[IchiNiSan]

Sampanviking, on Feb 13 2010, 08:10 AM, said:

So a surprise today, where a 0.5% withholding of Capital, results in a 1.5% reduction in US Stock Values and the expectation of further surprises in the not to distant future, all delivered through a vehicle which is neither sanctions or any other protectionist measure.

Also remember, that the lost value of the Stock Market is real lost market, while the Chinese money has simply been taken out of circulation and put into reserve.

Wasn't it like that for every 1 RMB you reserve, that you can lend out an X amount of RMB?

Stock markets always over-react to any surprises, not sure if a 0.5% Chines rate rise to 1.5% decline in stock value is reflecting the reality and the "leverage" the Chinese monetary policies will have on the profitability of American firms.

[Sampanviking]

If it reflects a real relationship with the ability of US corporations to raise finance, then I think it could be very powerful. Obama is putting all his hopes in a recovery that is able to create jobs and get unemployment heading down again.

Companies will not plan for growth of plan to hire while there are question marks over the there finance raising abilities. To the contrary they will become increasingly paranoid at the thought of there share values decreasing to the point that they become vulnerable to hostile bids from Raiders.

If the rate increases are being driven for Political reasons, then the ability of every FD to plan for his company is wrecked. I see this as a direct correlation with the current US/PRC upsets: The Taiwan Sale, Iranian Sanctions, Meeting the Dalai Lama, Trade Tariffs, etc. It reminds us that in China, it is the Government that owns most of the Corporations, in America it is the Corporations that own the Government. Upsetting therefore the ability of Companies to plan and finance will soon raise an almighty howl that the Whitehouse will have no option but to listen to.