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Thread: Chinese state-owned enterprises may default on commodities contracts

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    Default Chinese state-owned enterprises may default on commodities contracts

    so what does the recent action in gold have to do with this:?!

    http://sg.biz.yahoo.com/090907/1/4qj5i.html

    "China's State-owned Assets Supervision and Administration Commission said on Monday it would support government-run firms that take legal action over heavy losses suffered due to bad derivatives deals. The regulatory watchdog said some firms had already notified foreign banks that they were considering legal action over contracts for oil-related structured options. The remarks came about a week after a report said Chinese state-owned enterprises may default on commodities contracts they have signed with foreign banks to cut massive losses from derivatives deals. "The move is a justified action to safeguard one's rights and interests in the commercial context," the agency said in a statement sent to AFP, without naming the firms or foreign banks involved. "SASAC is giving great attention and support (to this) and the relevant trade counterparties should cooperate," it said in the statement. The agency added it was conducting an internal investigation into oil-related structured option deals. "(We) support companies' efforts to cut their losses as much as possible... through negotiation and managing their positions through legal means and reserving the right to take legal action," it said. The agency ordered state firms in March to reconsider their derivative investments overseas and back out of high-risk contracts after several Chinese firms reported huge losses. State-owned carriers Air China, China Eastern and Shanghai Airlines have reported losses of almost two billion dollars since last year on aviation fuel hedging contracts. Late last month, Caijing magazine reported, citing an unnamed state enterprise executive, that only 31 state-owned firms were licensed to enter into such deals, while many more were apparently doing so."


    And what may happen next to the market, dollar, gold as well as to financial entities like JP Morgan that hold a HUGE SHORT position on gold?

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    Default Re: Chinese state-owned enterprises may default on commodities contracts

    another chapter from the same 'playbook' ...

    (snip)"If they [ the US FED - sic ] keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our [ The Chinese gov't - sic ] foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

    China's reserves are more than – $2 trillion, the world's largest.

    "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

    The comments suggest that China has become the driving force in the gold market and can be counted on to
    buy whenever there is a price dip, putting a floor under any correction.

    Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

    "Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

    Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

    "This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."

    Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery.

    China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult".

    Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China.

    "The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis."

    Yet the consequences are not symmetric.

    "He who goes borrowing, goes sorrowing," said Mr Cheng.

    It was a quote from US founding father Benjamin Franklin. (snip)

    from


    also, my 'friend' Elaine has a whole lot of analysis / commentary about the Chinese contract 'renegotiations' at ... which culminate in the following observation ...

    (snip)"There are plenty of Americans who think we can bluff China. We can make various moves to demonstrate how we can blow up the US dollar, for example, rendering China’s holdings worthless. Well, I suspect we would have a hellish time, trying to buy oil after doing this! No, we can’t bluff China about anything. Is China bluffing us? Could be! They have excellent reasons to teach us a lesson!

    This is why diplomacy that involves behaving ourselves is so vital! If we are good at it, we don’t have to fear others retaliating. On the other hand, lecturing China, pushing them around, screaming at them when they torture people or kill Muslims and Tibetans while doing all these things ourselves and patting ourselves on the back….hahaha. No.

    This world is full of people who want to have their own way. It won’t work. We have to take reality into consideration. If China chooses to render ‘contracts’ invalid, well, guess what? The US wants to do this very much! If we want contracts to be kept holy, we better strive to honor our own debts and deals including the most vital: our own currency."(snip)


    ~
    Last edited by Melonie; 09-08-2009 at 03:44 AM.

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