In following up on my thoughts on the move in SHIBOR, I always want my readers to follow along with my thoughts when it comes to China. In my opinion, China takes on added significance because of its huge impact on the GLOBAL MACRO scene. In June 1998, President Clinton was heading to China for a very important meeting with HU JINTAO. Prior to Clinton’s June 25 trip, the U.S. Treasury intervened in the foreign currency markets on June 17 and halted the rise of DOLLAR/YEN by selling DOLLARS and buying YEN. The Asian contagion debt crisis had seen the YEN weaken by 35% during the previous crisis and the Chinese leadership was concerned about the impact of the weakened YEN on Asian exporters.
The U.S. Treasury acted prior to the trip, a trip, by the way, in which President Clinton spent a week in China and did not stop in Japan. The Chinese were able to exert a great deal of influence upon Bill Clinton as the U.S. was seeking to improve relations with the burgeoning world political and economic power. My point is that the Chinese no longer have to “ask” for others to exert economic influence for they can move to impact global markets on their own. China can rattle global markets and importantly world natural resource prices by threatening to slow their economy and spread tremors throughout the global financial system. SHIBOR+BERNANKE= THE UNWINDING OF A HEAVILY LEVERAGED SYSTEM, casting shadows of doubt where only a month ago so much certainty supported global credit and equity markets.
In another example of China’s recent unhappiness with the developed world, I refer to a June 6, 2013 article in the Financial Times. The article, “China Says EU Must Recognize Its Decline Amid Trade War,” by Kathrin Hille. Three quotes from the article sum up the feelings of the Chinese toward the perceived status quo of the world’s established powers. These are all from an editorial in the People’s Daily that the author cites:
- “China doesn’t want a trade war, but trade protectionism cannot but trigger a counterattack.”;
- “The change of the times and the shifts of power have failed to change the condescending attitude of some Europeans.”; and
- “We have set the table for talks [yet] there are still plenty of cards we can play.”