North Korea said to prepare new nuclear test

This news from ITAR-TASS:

SEOUL, April 20. Itar-Tass. Since February the DPRK is preparing the third test of nuclear weapons. It may take place in May or June this year, said today the South Korean radio station YTN, citing an unnamed diplomatic sources.

According to them, Pyongyang is preparing a nuclear test on a considerably higher technical level than the first two test explosions of nuclear devices, which were held on October 9, 2006 and May 25, 2009. The power of the second test was, according to experts, from 10 to 20 kt. Both trials have been recognized abroad, as at best, “partially successful”. At the same time North Korea has a program to create its own ballistic missiles.

We will see how the West reacts to that, probably with the usual condemning.

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Venezuela and China Sign New Cooperation Treaties

Hugo Chavez

Hugo Chavez

From El Nacional:

The Republic of Venezuela and the People’s Republic of China on Saturday signed new treaties for cooperation and improvement of bilateral ties, during a working session of the President of Venezuela with the delegation from Asia.

Both nations signed seven new treaties in the field of oil, technology and infrastructure.

In accordance with recent remarks from the Ministry of Pubic Works and Housing (Mopvi in Spanish), Diosdado Cabello, an important support from China in infrastructure projects is planned, like the construction and maintainance of railways and housing.

In the meeting the Venezuelan president expressed his condolences to the Chinese people:

The dignitary expressed regrets to the people of China for theterrible hours which obliged the president to suspend his voyage” due to the earthquake which cost the live of more than a 1000.

“This tragedy which we feel as well in our hearts and minds, represent a hurt that we sharing” he added.

“Despite the tragedy we decided to not postpone these treaties which have a high social, political and economical importance which are easily overlooked.”

These treaties seem to be important to both countries. China is looking mainly for oil and Venezuela wants to put a satellite into space. As Hugo Chavez said:

Chávez aseguró que la relación entre ambas repúblicas van ‘desde la búsqueda del petróleo hasta el satélite Simón Bolívar”.

Source: El Nacional.

Iranian Officials hold Talks in Beijing

Fars News Agency:

Jalili held meeting and talks with the chinese foreign minister.

Fars News Agency: The secretary of the High Council of National Security of our country traveled to Beijing travel and had discussions with the Chinese minister of foreign affairs.

According to Fars News Agency, Seyyed Jalili secretary of the High Council of National Security of the Islamic Republic Iran today, Thursday, had a meeting about the development of the bilateral realtions with the Chinese foreign minister in Beijing.

Jalili has made the trip to this country with invited senior officials.

This is as the U.S. claims China was now ready to ‘consider steps’ on Iran, as per NYT:

Secretary of State Hillary Rodham Clinton said Wednesday that all the permanent members of the Security Council, which includes China and Russia, were now “unified” on the issue and that “a great deal of further consultation” would occur in the coming weeks.

I don’t see here an agreement on imposing further sanctions on Iran, but you can’t always trust the public statements, can you. They make their deals behind closed doors. Even if it concerns millions of people.

Source: Fars News Agency.

How Serious are Chinese-US Tensions?

Recent news can make you believe that there is a serious rift or even a coming rupture in relations between the PRC and the US.
Yves Smith of Naked Capitalism writes that:

Relations between the US and China have been deteriorating. Although both sides have poked each other in various ways (Obama meeting with the Dalai Lama, China dissing Obama in Copenhagen by standing him up for a meeting, some tit for tat on tariffs), the major, unresolved bone of contention is China’s pegging of its currency, the renminbi, at a level most experts deem to be undervalued. This has widespread ramifications: a continuation of global imbalances (one of the causes of the financial crisis) and preserving Chinese employment at the expense of its trading partners.

Yves analysis is very good. However, let me add two new angles which I think are important as well.

First, lets note that this sort of verbal sabre rattling is actually good for business, at least if you are in the business of selling arms. According to a SIPRI fact sheet, the largest exporters of arms are the US and Russia, by far. They are followed by Germany and France. In all, Europe, Russia and the US make up  88%  the suppliers. China is only 2%.
So, who, then profits from such “news”? The arms manufacturers, obviously. Which in turn means jobs in the respective countries. After all, we are talking here about people who manipulate the market for a living, so it would not be surprising, if these news were manipulated as well.
Besides, I don’t think the PRCs elite and the US elite have any major disagreements. They share the same ideology – corporatism – and  are dominated by the same personality types.

Second, the PRC, or rather the communist corporatist party of China, is in a bind. Being a single party dictatorship, there is, obviously, no alternative this one party. That means, it must succeed at all costs otherwise,  it will lose power and turmoil will result.
Now, this party promised to make the lives of the Chinese population better. If the party doesn’t succeed in doing that, it will be considered a failure by the Chinese population (or a part thereof). Since China does not have an alternative to the party, this might spell trouble for the Chinese elite – they might lose power and influence, something they would try to avoid at all costs? We will see.

World Bank Generously Finances China

Wonders never cease. The World Bank has approved loans for a railway project in China and a water quality improvement project in Shanghai. Both loans have a worth of $300 mln and $200 mln, respectively.

The NanGuang Railway Project thus benefits from $300 mln loan, with maturity 25, and a grace period of 5 years. Here is the World Banks description of the project.

The NanGuang Railway Project aims to provide additional transport capacity and reduce transport time between China’s less developed southwest region and the relatively more developed Pearl River Delta region by connecting the existing railway networks in these two regions. Specifically the loan will finance the construction of about 400 km of double track electrified railway from Litang West Station (about 95 km northeast of Nanning) to New Zhaoqing Station in Guangdong province; and partially finance 62 km of four-track railway being constructed between New Zhaoqing Station and Sanyanqiao Station (near Guangzhou). The World Bank will provide international experience and advice in the process. This important project is part of the China’s economic stimulus program in response to the global economic crisis. “The NanGuang Railway project will not only support further regional economic development by connecting the prosperous coastal region to the interior,” said John Scales, Transport Coordinator from the World Bank Office, Beijing. “But it also provides a platform for the continued high-level engagement that began 25 years ago between the Bank and the Chinese Government on railway development, while simultaneously supporting operational development of the Chinese railway network.”

In addition, the Worldbank also finances $200 for the Shanghai Urban Environment Project:

The Shanghai Urban Environment Project, the third phase of the Bank’s Adaptable Program Loan (APL) started in 2003, will focus on increasing the secure provision of good quality water, reducing pollution load discharged without treatment into water sources, and facilitating sustainable investments in environmental infrastructure in suburban areas of Shanghai Municipality. Through the first two phases, the Bank supported several key infrastructure investments and institutional and policy reforms in the water, wastewater, and solid waste sectors. The new US$200 million loan will finance the construction of infrastructure projects such as Nanhui Raw Water Conveyor and Puxi Trunk Sewer, further contributing to Shanghai’s goal of building a resource-efficient and environmentally sustainable city and hosting a successful “World Expo 2010: Better City – Better Life”.

How generous. The Chinese sit on dollar reserves of some $ 2 trillion, get criticized by the same World Bank for their protectionism, but they still get a credit from the World Bank.

As the Neue Zürcher Zeitung writes:

In fiscal year 2008 the Organization [WorldBank], which purports to fight poverty, gave loans worth $1.5 bln to the Middle Kingdom, which equaled around 6% of total loans given.  According to the World Bank, the goal of these loans is to further Chinas Integration into the world economy. Questionable, however, is that with the scarcity of resources they are giving money to a government, which can at any time afford to spend tens of billions on infrastructure projects to stimulate internal demand.

I agree.  Zoellick is an ex-Goldman Sachsie. Goldman Sachs is very fond of China. China is a command economy that can force projects throught without regard to people’s wishes, which corporations in general, and banks in particular, adore very much.

So if you want to prove that the Chinese economic and societal model is superior to everything else, what do you do?
Well, you make them succeed at any cost, and see to it that all others fail. Oops, sorry I think I have to adjust my tin-foil hat, it’s not working properly today.

Sustainability of China’s economy

Barry Ritholz posted interesting charts on his blog with an even more interesting question.

If you want to know whether the China story is sustainable, consider this chart — then imagine what the US version of this looks like:

I imagine that the US version of the charts looks more or less like the mirror image of these charts. Mounting consumer spending vs. sinking consumer savings compared to the GDP.
That’s where China made all that money: US and other foreign consumers buying their stuff. Since US wages remained stagnant and no longer allowed for much consumption, it was bought on credit there were no savings.

The US consumer is no longer able to buy and China will have to look for other consumers who are willing to go deep into debt to support that economic model. This is unlikely to happen in Western Europe, Japan or anywhere else.

Sure, the Chinese themselves could step-in and start buying their own stuff with their savings. That is also not likely.  Since China does not have a social safety net and those savings are for the rainy-days of the Chinese worker and they probably will be unwilling to go on shopping sprees. Also keep in mind that those savings are not evenly distributed among the population, so there is lots of potential for social unrest between the haves and the have-nots.

Even if we assumed for a moment that Chinese consumers would be willing to spend, they would buy stuff produced mainly in their own country and not produced abroad. This would lead to rising wages – or social unrest if not – in China. That would make the goods more expensive (sounds like inflation coming to China) and would lead to China outsourcing to other countries. That’s just another round of this game we just saw the results of.

It is possible that before we go through a new full cycle of this Ponzi-scheme, the natural resources would be running out. What will happen then, I’ll leave to your imagination.

Is the China story sustainable? No, the entire economic model is flawed and it will be torn apart by the tidal forces that have been unleashed.