• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Citic Seeks to Secure Metal in Chinese Port of Qingdao

Demon of Light

Demon of Light

Bohemian Revolutionary
DP Veteran
Joined
May 7, 2010
Messages
5,095
Reaction score
1,544
Gender
Male
Political Leaning
Independent
One of China's most important financial companies moved to secure metals at a warehouse while concerns about fraud in commodities markets spread to a second Chinese port.

State-owned Citic Resources Holdings Ltd. 1205.HK -9.77% said Tuesday it has applied to courts in the port city of Qingdao to secure metal assets it owns in warehouses, as concerns mount over the use of commodities for financing in China. Citic Resources' parent is Citic Group, one of the country's biggest state-owned enterprises.


The operator of Qingdao port, on China's eastern coast, confirmed on Monday that Chinese authorities were conducting a probe into allegations of fraud.


Separately, Western banks worry that the potential fraud has flared up at a second Chinese port, Penglai, also located in Shandong province, according to people familiar with the matter.
Click to expand...

Source: The Wall Street Journal

I have been reading about this for the last few months as it seems a lot of the financing in China is being backed by various commodities likes metals and soy. Reports have indicated for a while that in some cases the collateral backing a loan has been sold and lended multiple times. Should this be as widespread as some fear, then this will likely cause a huge crash in the credit markets. It is also noteworthy that this will severely impact commodities imports, which are serving as the primary driver of various foreign markets who are supplying those imports. Australia, in particular, is heavily exposed in its commodities exports to China. Many emerging markets are also big suppliers.
 
Sounds like an economic disaster in the making. China owns a lot of US debt, so how will a crash in their credit markets effect the US?
 
Moot said:
Sounds like an economic disaster in the making. China owns a lot of US debt, so how will a crash in their credit markets effect the US?
Click to expand...

It will be pretty bad, but not so much in the sense of U.S. sovereign debt as any massive sell-off would only aggravate the crisis. They would try to limit the outcome in that respect as the other effects would be plenty severe on their own. Since Lehman Brothers, China and other emerging markets have been driving the global economy and China pretty much drives all the other emerging markets. There are numerous weaknesses throughout the global economy rearing their ugly heads and China spiraling into a crippling recession would send all of it coming down faster. Japan, South Korea, Australia, Singapore, Malaysia, and the UK would all face severe and direct impacts from any significant financial crisis in China. Not only would the U.S. face its own exposure to China, but exposure to many countries that are far more exposed to China.
 
Demon of Light said:
Source: The Wall Street Journal

I have been reading about this for the last few months as it seems a lot of the financing in China is being backed by various commodities likes metals and soy. Reports have indicated for a while that in some cases the collateral backing a loan has been sold and lended multiple times. Should this be as widespread as some fear, then this will likely cause a huge crash in the credit markets. It is also noteworthy that this will severely impact commodities imports, which are serving as the primary driver of various foreign markets who are supplying those imports. Australia, in particular, is heavily exposed in its commodities exports to China. Many emerging markets are also big suppliers.
Click to expand...

Our futures markets (commodities - Chicago Mercantile, NASDAQ, etc.) trade in energy (oil and gas futures for instance), metals (gold, silver, steel, iron ore, aluminum, etc.), livestock/meats, grains/cereals, produce/fruit/juices (corn, orange juice and oranges are a large volume of that market and is also one of the most volatile - hence the potential for a huge profit margin or a huge loss) and so on. The trades can be leveraged as collateral against loans, or against other commodities (ever heard the old saying "Made my money in Pork Bellies"?)

The difference is, the Chinese Communist Party (the Chinese Government) is relatively new to the commodities markets as well as free market capitalism as a whole, and they do not have the controls that the US commodities market has. The Chinese Government owns most major firms in that country (as they do the company in the OP) and it's not practical to have the government regulate and control itself. Basically, it's all corrupt over there, and no one cares unless you get caught and embarrass the leadership, even though they get their cut also. Saving face is a big part of many Asian cultures, and the financial corruption is less of a crime in the minds of the leadership versus having their name and reputation tarnished. So when something like this occurs, and it always does, they find one or more scapegoats, and off to the labor camp they go, or they just disappear.

Commodities trading, however, is as old as the world. It's the modern version of bartering. Everyone does it, and most here have probably done it with their neighbor in the last month or so in one form or another (do a favor in turn for a favor).
 
Beaudreaux said:
Our futures markets (commodities - Chicago Mercantile, NASDAQ, etc.) trade in energy (oil and gas futures for instance), metals (gold, silver, steel, iron ore, aluminum, etc.), livestock/meats, grains/cereals, produce/fruit/juices (corn, orange juice and oranges are a large volume of that market and is also one of the most volatile - hence the potential for a huge profit margin or a huge loss) and so on. The trades can be leveraged as collateral against loans, or against other commodities (ever heard the old saying "Made my money in Pork Bellies"?)

The difference is, the Chinese Communist Party (the Chinese Government) is relatively new to the commodities markets as well as free market capitalism as a whole, and they do not have the controls that the US commodities market has. The Chinese Government owns most major firms in that country (as they do the company in the OP) and it's not practical to have the government regulate and control itself. Basically, it's all corrupt over there, and no one cares unless you get caught and embarrass the leadership, even though they get their cut also. Saving face is a big part of many Asian cultures, and the financial corruption is less of a crime in the minds of the leadership versus having their name and reputation tarnished. So when something like this occurs, and it always does, they find one or more scapegoats, and off to the labor camp they go, or they just disappear.

Commodities trading, however, is as old as the world. It's the modern version of bartering. Everyone does it, and most here have probably done it with their neighbor in the last month or so in one form or another (do a favor in turn for a favor).
Click to expand...

The nature and scale of what is happening in China is the difference. While some form of metal speculation is common and this can be abusive at times, typically the purpose is at least to profit off price fluctuations. Point is, generally, metals are bought to profit off them directly. In China, commodity imports are being driven heavily by a need for collateral to back up loans.
 
You must log in or register to reply here.
Back
Top Bottom