Monday, October 12, 2009

China Eats the United States for Lunch

And thank you, President Barack Obama for letting the fox (not news!) into the hen house.  Obama's General Motors has sold its Hummer SUV brand and dealer network to Sichuan Tengzhong Heavy Industrial Machinery Co., the first time a Chinese vehicle company has been able to offer a product made in the U. S. GM will make the vehicles until 2012, when the Chinese buyer will take over.  The price?  A nominal $150,000,000, but its sales are off 64% this year, so a turnaround will be needed.  A new HQ will be centered in Detroit or nearby.  If nothing else the long-term thinking Chinese will learn how to do it.  It probably would have been smarter to forego both the $150,000,000 and the upcoming competition.

With vast wealth and natural resources at its 60th birthday, China is stepping up and out of the shadows.  It is establishing stock markets for emerging companies, invests in private and public equity, and U. S. government securities, of which it is the largest owner.  And now it is establishing an internal marketplace to trade commodities, opposing the U. S. presently by far the most important.  Believing it can keep its costs down and gain some control, initially for the $130,000,000,000 of its imported oil.   Sometime in 2010, the Shanghai Futures Exchange may compete with the New York Mercantile Exchange, the dominant international price setter for light, sweet crude today.

And while President Barack Obama is borrowing $3,000,000,000 likely from the Chinese government to buy and destroy 700,000 useable automobiles and light trucks (that poor people could use, in the "Cash for Clunkers" fiasco) China is investing that money into raw materials, natural resources and real estate. It's buying into Kazakhstan's second largest oil producer for $1,00,000,000 for 11% of KazMunaiGasExploratioin Production.

September 29: Hong Kong Exchanges & Clearing -- the stock exchange -- is getting more and more initial public offerings (IPOs) at the expense of the U. S. UC Rusal, Russian aluminum giant is looking for a $30,000,000,000 valuation.  U. S.-based Wynn Resorts and Las Vegas Sands and others are looking.  American rules and regulations among other things turn companies off.  And on October 1, Wynn Macau Ltd. raised $1,600,000,000 selling stock at the high-end of expectations with strong demand.  Sorry, New York Stock Exchange.

The Unites States' markets for initial public offerings is open (a shadow of what it once was, but open). Taking advantage of it is...China. One-third of the U. S. initial public offerings -- 1/3! -- have been Chinese/Asian companies.

Well now even French President Nicolas Sarkozy is jumping off the dollar bandwagon saying it can't remain the world's only reserve currency. Obama's exploding debt is fingered as the threat to the American dollar.

Interesting, U. S.-based Duke Energy Corp., has signed a deal with China Huaneng Group to develop the clean coal technology that is anathema to the Obama Administration's special interest envoronmental backers. The "integrated gasification combined cycle systems" produce about 20% less carbon than conventional pulverized coal plants. Let China do it, not the arm-tied U. S.

China is the world's largest holder of foreign-exchange reserves with $2, 132,00,000,000 by June 30, 2009. The United States government is relying on China to loan it money to monetize its unprecedented deficits. To do so, China is demanding -- and getting -- from the U. S. inflation-protected securities. Huge deficits coupled with the continued easy money typically creates huge inflation as it did in the U. S. before Ronald Reagan's presidency. With inflation interest rates spike and bond prices fall. If interest rates increase on outstanding bonds, those bonds do not lose value. These are "Treasury Inflation-Protected Securities" ("TIPS"). This week Treasury will sell a record $75,000,000,000 of them. Interest payments at, say, 3% of $75,000,000,000 are $2,250,000,000 a year. Just after Reagan was inaugurated the policies of Democratic president Jimmy Carter caused interest rates to hit a high (10-year maturities) of 14.3% -- Fourteen and three-tenths per cent. The above-mentioned $75,000,000,000 of securities would force the U. S. government to fork over -- GET PREPARED TO PANIC --$10,750,00,000 a year to China, perhaps Russia, perhaps India. $10 and three-quarters billion each and every year. Think about this.

(The Latest Comments Are On Top)

China has adopted many free-enterprise components of its economy invented in the U. S. And China is growing, unlike most of the rest of the world. While the U. S. under Democrats in general and President Obama specifically is guiding the U. S. onto central economic command and control and nationalization of key industries, China is doing the opposite (as now is much of formerly-socialist Europe). Obama is a decade or two behind. The comments below discuss this from a variety of sources. _______________________________________________________________________________________
July 15, "I saw the end of Detroit." So Frank Zhao left as a Chrysler senior engineer and went to work for Geely Holding Group, one of China's best-selling automobile brands. Geely is in the bidding for Ford's Volvo brand. And has the U. S. in it sights for export in the next few years. Geely grew in sales in 2008 and so far in 2009.

July 13: China State Construction Engineering Corp. is on track to raise nearly $6 billion in what would be the largest sale of stock in the world so far during 2009 eclipsing Brazil's Visa-Net's $4.3 billion last month. But in actuality on July 23 it raised $7,340,000,000.

July 8, China admitted that it wants Opel for the technology it can gain from the General Motors affiliate. Question will be, will Obama let GM sell Opel to a Chinese company? GM wants it, but Opel would be a major Chinese-government-supported competitor in U.S.-government-supported GM's only growing market, China, which has become the largest market for autos in the world. Will Obama allow China to reap GM's technology and perhaps ultimately win in China to GM's losing, costing the U.S. huge monetary losses and Obama's United Auto Workers union large job losses? Important business questions for a man who knows nothing about business!
Beijing Automotive Industry Holding Co., plans to make a bid for GM's Opel and Vauxhall unit in competition to Russia's Magna International (backed by Sberbank Rossia and OAO Gaz Group). And interestingly enough GM said (July 2, 2009) its first-half 2009 sales to China rose 38%, over 800,000 cars. In January China cut the purchase tax on small cars by half (to 5%) as the Obama Administration is considering increasing its tariff on Chinese-made tires 55%.
Obama's GM is faced with choosing between China and Russia to buy its majority interest in Opel and its UK sister, Vauxhall. China wants GM's engine technology. If it wins, it'll compete in China with virtually-identical products.
China is pushing "reform" of the international currency system to make it more diversified and less reliant on the (un-named) dollar. Although apparently ignored by President Obama and his co-owners the labor union bosses, if China succeeds, and it is by far not the only nation wanting such a change, the U. S. dollar could be at risk as well as dangerous to the ability of the U. S. government to borrow the trillions needed for the Democrats' re-architecting the entire U. S. economy. And perhaps at the margin, a chance for a quasi-bankruptcy of the U. S. Government.
June 25, 2009, the China-owned oil company, Sinopec Group, agreed to acquire Canadian Addax Petroleum adding to its widespread purchasing of natural resources around the world. (This for $7,000,000,000.) While Democrats in the U. S. tie the hands of oil exploration, China is grabbing what it can at today's distressed prices.

A article May 26, 2009, indicated that the stock market in China for new-share issues described below is set to resume.

If an article ever underlines the wrongheadedness of our government over the past decade and especially right now, it is this one: "China Takes Caution With Start-Ups Market" (The Wall Street Journal, Thursday, March 5, 2009, page C2 While our country is doing everything it can to diminish our capital markets and fill them with useless, expensive regulations (not to mention negative rhetoric), for nine years China has been researching and preparing to launch a Nasdaq-style stock market for start-up companies. Make no mistake, America, it has been the easy flow of capital from individuals and institutions to businesses that has been the building block to American dominance in innovation, entrepreneurship, creation of wealth (for the world) and freedom. Although this article discusses a delay in its launch for higher-risk companies, have no doubt: it is coming. And while we are asking, "Has Obama Buried Reagan?" (in today's The Wall Street Journal Opinion, page A15 ) with "Reagan" being a proxy for the free-enterprise system and capitalism, China is taking great strides exactly creating what we are "burying". Clearly the leaders of China are smarter and more far-thinking than those we have elected recently. President Obama thinks the stock market is like an opinion poll and throws out embarassingly ignorant terms such as "profit and income ratios". It is ironic that an apparent Communist country is embracing the successful tenets of capitalism while an apparent capitalist country is embracing the failed tenet of Communism which is central planning. Perhaps it indicates the merit of quasi-dictatorships or oligarchies, or whatever China is, as opposed to democracy where the votes of the masses can be bought by policies that ultimately harm them. While I certainly know little about China, this article is profoundly disturbing to me, a former venture capitalist, who understands the overwhelming merits of capitalism, with all its human warts, in bringing an end to poverty and uplifting the lives of millions of people. Unfortunately, it seems apparent that embracing capitalism does not get Democrats elected and that is all they seem to want.
Oh, did I mention that China is expecting economic growth -- growth -- of about 8% this year - 2009. It is holding off on any financial stimulous after November's $585 billion, to see how that fares. Seems prudent, unlike the political "stimulous" -- essentially to elect and re-reelect Democrats n 2010 and forever beyond. Obama and the Democrats are deaf and blind to the threat of the China Government. Holder of something like $500 billion of U. S. Treasury securities -- some say as high as two-thirds of China's $1.9 trillion foreign-exchange reserves are U.S. Government debt (roughly $1.2 trillion) -- China recently (Friday the 13th of March, 2009?) expressed concern about the safety of U.S. government debt and called upon America to guarantee its safety (which of course it has be simply issuing it!). Let's see, there is publicly held around $6.6 trillion of U. S. debt and it's on a course to grow by up to $4 trillion from Obama's Elect Democrats in 2010 "stimulus" bill, not counting $5.3 trillion of Fannie Mae and Freddie Mac liabilities. All this is cash from somewhere that must be loaned to the United States of America.
There is a follow-up article, "Venue for Start-Ups Begins to Jell in China" (WSJ April 1, 2009, page C2.) The creation of this potential future threat to NASDAQ, (China's Growth Enterprise Market -- GEM --) but more importantly, the threat to the United States' virtual monopoly on venture capital and early-stage entrepreneural companies doesn't seem to be understood, especially in the Obama administration which seems to view NASDAQ as a gambling parlor. The GEM could be launched as early as June 2009. America take note.
As I have written about Obama, he promised us CHANGE and is delivering us CHAINS held by the Chinese Government. Is it planned to destroy capitalism or only ignorance, or perhaps a lack of experience, on his part?

And the question of the day, "Where are the three of the five most valuable (by market capitalization March 2009) companies located?"
U. S. ? No
European Union? No
Japan? No
China? Well, of course. PetroChina (#2), China Mobile (#4, but #1 Mobile Telecom company) and Commercial Bank of China (#5 and the world's biggest bank)

The other two, Exxon Mobil (#1) and U. S. union-hated Wal-Mart (#3) are U. S. based. In 1999 four of the top companies were U. S. based. Go America!

An article of June 12 ("Chinese Car-Parts Makers Expand" WSJ, page B 2) describes China's auto-parts industry as thriving while, of course, that of the United States is as bankrupt as GM and Chrysler. China is emerging as the world's number one market for light vehicles which, of course, creates a vast manufacturing market for parts. And it is selling to the world, with quality that is increasing. This year China is expected to pass Japan as the world's largest vehicle manufacturing country. President Obama, as you are protecting your unions at the expense of American tax payers, you are letting China eat our lunch in cars and parts.


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