Wednesday, September 24, 2008

Daily Sources 9/25

1. Kevin Hamlin at Bloomberg has the much commented on story (h/t Naked Capitalism) that Chinese academic Yu Yongding said today that the leaders of the major Asian economies need to come to some sort of agreement whereby they would agree not to dump US debt. I think it is important to stress that Mr. Yu is not speaking for the government of China. He has served as the Director-General of the Institute of World Economics and Politics (IWEP) since 1998 and as the President of the China Society of World Economics since 2001, as Editor of China and World Economy, and Associate Editor of Asian Economic Policy Review.

This is not to say that Dr. Yu is not influential: he was formerly the academic member of the Monetary Policy Committee of the People's Ban of China (PBOC) and a member of National Advisory Committee of the 11th Five Year Plan of the National Reform and Development Commission (NDRC). The NDRC, formerly the State Planning Committee, was expanded into a sort of super-ministry with 26 departments in 2003. It plays the dominant role in setting Chinese energy policy, for example, though this is set to be transferred to the new National Energy Bureau in an effort to centralize Chinese energy policy making and oversight.

Either way, he is not a member of government now. As per Hamlin:
"China is very worried about the safety of its assets," [Yu] said. "If you want China to keep calm, you must ensure China that its assets are safe." ... Yu said China is helping the U.S. "in a very big way" and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.
"Our export-growth strategy has run its natural course,'' he said. ``We should change course." ... China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. ... If China doesn't allow the yuan to appreciate and continues to promote export-led growth it will lead to confrontation with the U.S. and Europe, Yu said.
"China knows what to do. We don't need your intervention."
... in an evident allusion to the bail out plan. In a related story by Alan Wheatley and Langi Chiang at Reuters, Chinese regulators have allegedly told Chinese banks to stop interbank lending to US banks.

As to Chinese policy going forward, Leslie Hook has an opinion piece at the Wall Street Journal Asia which is mostly an interview with Liu Mingkang, the Chairman of China's Banking Regulation Commission.
He thinks that the abandonment of Glass-Steagall was a pivotal mistake by US legislators:
According to Mr. Liu, the chief regulator for China's banking sector, "the problem started a good 10 years ago, when people over there [in the U.S.] thought, 'We've got to boost innovations. So the Glass-Steagall Act is just the last stumbling stone on our way ahead. Move it away.'" ... Mr. Liu isn't "100%" in favor of the Act, which separated commercial and investment banking in the post-Depression era. (The U.S. repealed the law in 1999, under the Clinton administration.) But he maintains that this separation is good for China, where, he says, the capital market is the capital market, and the banking industry is the banking industry.
(Although the Act was repealed during the Clinton Administration, it was repealed by a GOP dominated Congress.)

2. Edmund L. Andrews at the New York Times reports that Ben Bernanke told the Congressional Joint Economic Committee that "economic activity appears to have decelerated broadly" across the spectrum of industries and services.

3. William Branigin, Dan Eggen and Paul Kane at the Washington Post have the story that Congressional negotiators have emerged from off-the-record meetings and announced that they are close to an agreement regarding the bailout proposal. The Dems have apparently gotten the GOP to agree to strict oversight, curbs on executive pay, help for homeowners, and an equity position for taxpayer monies. Headlines aside, the House Minority Leader John A. Boehner, also declared today that there was no deal on the bailout package.

4. Real Time Economics reports that the German Finance Minister, Peer Steinbrueck, in a parliamentary debate said he approved of recent actions by US authorities to stem the financial melt-down, though he argued they were late to act, and added that it's "'not necessary nor reasonable' for Germany or Europe to take similar action because 'the financial market crisis is most of all an American problem.'" He also argued that this meltdown signaled that "The U.S. will lose its status as the super power of the global financial system, not abruptly but it will erode. The global financial system will become more multipolar." What I find odd about this statement is the inferred notion that international finance is national in nature, though perhaps he was merely signaling that the central role of the dollar is going to erode ... further.

5. On Tuesday, Neil MacFarquhar had the story that the UN General Assembly meeting in New York was being used by "one world leader after another" to criticize the US for the financial crisis. Out of those mentioned in the story, the unusual (and significant) suspects are: Brazil and Germany (though the critique came from Berlin, not in NY). The Secretary General of the UN, Ban Ki-Moon, used his opening speech to criticize the notion of free markets.
“What you are seeing here is the letting off of some political steam,” said Mark Malloch Brown, a British cabinet minister and former senior United Nations official. “They are all remembering the very hard, unforgiving advice that they got from American financial institutions” to “deflate your economy, let your banks go to the wall,” he said. “There is a resentment at what they would see as a further evidence of double standards.”
6. Neil MacFarquhar and Thom Shanker at the New York Times report that leaders from Ukraine, Poland, and Latvia urged the UN to "stand up to" Russia in the General Assembly this week. Did other neighbors refrain or was it simply not reported? If they refrained from comment, or joining in assent with the others, that would be interesting to know.

7. Colum Lynch at the Washington Post has the story that the Russian Foreign Minister, Sergei Lavrov, said yesterday that Russia has refused to attend a high level meeting to discuss options regarding Iran in retaliation for not being invited to the meeting held by the G-7 to discuss the financial meltdown. And Philip P. Pan at the Washington Post reports that a former Chechen rebel leader who switched sides and helped bring Chechnya under control, so to speak, was assassinated in Moscow yesterday. Though it seems to fall on deaf ears, as I keep on reiterating, American and Russian interests are more aligned than, say, Russian and Iranian, or even Chinese, interests. I wish the relevant authorities would begin to act on that hypothesis, at least.

8. Seeking Alpha has an analysis of ENI's (Italy's largest oil company) evident strategy of long term and close cooperation with Gazprom. I would add that American sound and fury about oil diplomacy notwithstanding, it still appears that Europe as a whole is continuing to pursue a policy of energy interdependence with Russia as their view to security.

9. Russian Energy Minister Sergei Shmatko said, apropos the high level delegation Moscow will send to OPEC's December meeting, "Russia must deal [more] actively with issues of influencing the level of crude prices. A Russian factor must appear." He said Russia might best do this by providing more regular production forecasts from its fields. (So this could either mean for manipulation or for improved transparency.) Shmatko made clear that Russia was not contemplating joint actions with OPEC.

10. Ronald Buchanan at Platts reports that Mexico's state oil company, Pemex, has shut in 250 kb/d of crude production because US refineries shut down for Hurricane Ike has meant a lack of demand. Storage tanks were full. Two tankers were to arrive yesterday to help free up some storage. This is on top of reduced overall crude production from Mexico.

11. Tom Doggett at Reuters has the very interesting story that the head of the IEA, Nobuo Tanaka, appeared to agree with the US decision not to draw on IEA emergency gasoline stockpiles, saying that the market was taking care of the issue.
"We have consulted very closely with the Department of Energy on the current situation," Tanaka said, adding that the U.S. oil industry was "much better prepared" to handle the supply disruption caused by hurricanes Gustav and Ike than it was when Hurricane Katrina hit three years ago. ... "If the disruption continues in a very serious level, we definitely will use our (petroleum reserves) ... activate them, if necessary," he said."
Second guessing these statements is a bit of a dog's game, but the IEA is a particularly political organization and cannot really be seen to be publicly disagreeing with its member nations--and the US is a member nation. The clear signal that IEA was ready to supply gasoline should be good for the markets. But I would point out that gasoline lines are growing in the American south-east and that the lowest stock levels since 1967 should increase gasoline prices significantly.

12. Eric Schmitt at the New York Times reports that Pakistani and American forces exchanged fire on the Afghan border today. This is becoming worrisome.

13. Geoff Dyer and Benedict Mander of the Financial Times reported yesterday that Hugo Chavez struck a deal in Beijing to jointly build a refinery in Venezuela. He also announced that the two would double the size of their joint investment fund to $12 billion (€8.2bn, £6.5bn). Chavez announced before he set foot there that Venezuela would purchase 24 military air craft from China and was set to sign some 30 agreements while there, including the construction of four oil tankers and projects in agriculture, telecommunications, agriculture and electronics. Bilateral trade between the two is expected to exceed $8 billion, up from under $200 a decade ago. Nonetheless, announcements that refineries are going to be built are made all the time. They very rarely are actually made, and there aren't a lot of reasons for China to think it likely to be worth the effort. As I wrote to a buddy of mine last night:
I don't really see why China would think Venezuela attractive. Refineries cost several billion dollars, even small ones, and especially ones complicated enough to handle venezuelan crudes cost even more, and require lots of technical expertise. That's the technical expertise which the Venezuelans basically announced via recent prerequisite of technology transfer in all joint efforts that they didn't have themselves. Therefore, Chavez is asking China to:

a) pony up money
b) pony up expertise
c) pony up technology


d) trust that Chavez will not nationalize the effort once China has sunk all of the above into the effort,

even though China has

e) no ability to really project power into the region.

(After all, Chavez would still be protected behind an American umbrella of power. Venezuela has a history, actually, of utilizing the Monroe Doctrine to their advantage with colonial powers.)
But you pays your monies you makes your choice.

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