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China's economic challenges

China's economic challenges

December 21, 2011 (Chinavestor) China is not immune to western economic woes despite a healthy 9% GDP growth in 2011. The Shanghai Composite Index (SHA:000001) is off 21.9% for the year while the Dow Jones Industrial Average (INDEXDJX:.DJI) managed to eke out some gains! Chinese stocks underperformed western indices by a wide margin, a surprise to many. Why is that?

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1000 points advance best in HK for 2011

1000 points advance best in HK for 2011
December 1, 2011 (Chinavestor) Investors were hungry for some good news in Hong Kong for months. They got what they needed on Wednesday when central banks globally pumped liquidity into cash trapped markets. The Hang Seng Index (INDEXHANGSENG:.HSI) jumped over 1040 points at the open and shed some of it be the close. Still, the 1012.6 points advance is the best in 2011!

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EU leaders walking on tight rope

EU leaders walking on tight rope

October 25, 2011 (Chinavestor) Investors globally pay close attention to every financial detail coming out of Europe this week. The stakes are high, or even higher than many considers. It's not just Greece or other peripheral states that are under attack. Italy has been in the front line of fire for some time but higher yields are now endangering core countries such as Austria and France. Take a look at the following chart depicting the 10 year spread between the Bund (German euro bond) and that of Austria, France, Belgium and the Netherlands.

The spread is actually the highest between France and Germany since 1992!

This is why Europe MUST find a solution to stop the spreading of the debt crisis. We still believe Europe has tools to avert a meltdown and if she does, expect equity markets do well from Wednesday on. ECB has tools to avert Greek default

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U.S. deficit with a China spin

U.S. deficit with a China spin

October 17, 2011 (Chinavestor) The U.S. government closed its books for 2011 on Friday with the following numbers. Total revenues reached $2.3 trillion, an increase of 6.5%. But total expenses amounted to $3.6 trillion, leaving the nation in a $1.3 trillion hole. To put it another way: the government borrowed 36 cents for every dollar it spent.

It's easy to put fingers on China, a country the U.S. has the largest trade deficit with. It looks like China is one of the largest contributor to our financial woes.

But there is a whole lot more to a huge government deficit than just a widening trade imbalance with China. For one, had it not been for cheap manufactured goods from China, consumer products were more expensive. Who would want to pay $350 for a baby stroller, a price Europeans pay, when China can supply it for $100 at Wall Mart? Many argue that they would be willing to pay more for products had they been made in the U.S.A. But the fact of the matter is that a large number of companies chose China for manufacturing because their more expensive U.S. manufactured goods were less appealing for price sensitive consumers.

And here is another fact to think about. Thanks to an over $1 trillion federal debt for three consecutive years, current total debt stays at $14.8 trillion. But debt service was just $227 billion thanks to super low interest rates. The FED has been doing an outstanding job in exporting our debt at super low rates... to who?... U.S. financial institutions and China! Yes, the Chinese lend us money at super low rates so we can continue to live the way we are used to. It's not that they want to but rather they have no choice. Yet.

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Tiny Slovakia roils markets

Tiny Slovakia roils markets
October 12, 2011 (Chinavestor) Investors have enough on their plate without Slovakia complicating European rescue efforts. First of all, U.S. economic recovery remains frail due to high unemployment and mounting government debt. Europe got a debt crisis where Greece has been unable to make good on bond payments had it not been for rescue packages. And when finally Europe set it right, a tiny country within the eurozone blocks it.

The good news is that most likely Slovakia will pass the rescue package, all yesterday's vote was a Slovakian domestic political showdown. Mrs. Radicova, head of Slovakia's ruling coalition, offered her cabinet's resignation should the vote not pass parliament. That was the best news opposition parties could hope for to boot the current coalition government. And that's what they did, blocked the vote.

Chances are that members of the Parliament will quickly pass the Euro rescue fund vote without a majority government. Going forward, it can be eitherĀ a new coalition government that will do it or a new election will be held.

Nevertheless the case represents the problem Europe faces when dealing with 17 different countries. Europe is not federalist and thus any significant decision has to be approved by each and every member of the block. This makes Greek rescue efforts even more difficult - though Europe has the means to solve it!

ECB has tools to avert Greek default

For now, investors will have to live with elevated market volatility. Thank you Slovakia and like-minded politicians.

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