China considers bailing out of costly futures contracts

Oh, here's a lovely little snippet for ya to mull over as you chew your cud this evening...

Derivatives contracts in China

Our loss, your problem

China considers bailing out of costly futures contracts


GIVEN its vast reserves and seemingly healthy economy, a default by China’s government or one of its tentacles should be one of the lesser concerns for international markets. This perception was jolted on August 28th by reports that the State-owned Assets Supervision and Administration Commission (SASAC) might endorse a move by large state-controlled enterprises under its umbrella to break derivatives contracts that were purchased last year from international banks to protect them from rising commodity prices.

Details, inevitably, are fuzzy. There is no official comment; terrified international bankers are silent. But reports in the local press and some elaboration by participants suggest that efforts by the country’s large shippers, airlines and power companies to cope with high oil prices by taking out futures contracts produced steep losses as the market reversed and prices fell.

That apparently prompted SASAC to launch an investigation, in part to find out if its wards were engaged in outright speculation, rather than hedging, but also to determine if a bail-out could be arranged. The bluntest remedy would be to break the contracts entirely; another, to force contracts to be rewritten and losses reduced. Either outcome would be costly for the foreign banks, in the short run through lost profits and in the long run because a growing business in derivatives would be badly undermined.

More at source:
www.economist.com...

Was about to post this. Good on them. As someone in the financial industry I was always leary of these instruments, akin to casino gambling. I hope all the banks go down so we can start fresh. It will be hilarious when all of these tricksters wealth and power crumbles.

www.reuters.com...

[edit on 3-9-2009 by PenandSword]

Banker: But...but...that's my contract! I made that contract! How can I buy my third Maserari without it! You must honor that contract! You must!

China: No.

Banker: But...but...but...

China: Did I stutter? I said "no."

Banker: But that's, like, illegal or something, isn't it?

China: Not here, as of this moment. We are, after all, the Chinese Communist Party.

Banker: This is outrageous! How will I buy another ruby-studded choker from Cartier for my second mistress if this contract isn't honored? How dare you! You'll have the US Government to answer for this!

China: Ah yes, the U.S. governmnet....Oh, by the way, when you go to make your case over there, could you do us a favor? Please remind them that they owe us about $1.5 trillion, all told, and, well, those last few T-bill auctions have lacked a certain je ne se quois without our...shall we say...previously more enthusiastic participation. And since they need to borrow month-to-month from us just to, well, keep the Hoover Dam running and the CIA paychecks flowing and the lights on in the Capitol Dome building -- not to mention granny's social security check, you know -- it might not be the best of ideas to come sniviling to us about details. Nothing personal, of course. A simple "thank you for keeping the lights on" might be more appropriate, if you can catch my drift.

Banker: ...

What futures contracts are they referring? I didnt see that, or must have skipped over it adhd style

Why would they bail when they could just hedge and still make just as much if not more $ playing it right, especially when they have like unlimited leverage?

reply to post by silent thunder


Spot bloody on!

China owns the US.

The reports are specific about Commodities Derivative contracts.

China's SOEs May Terminate Commodities Contracts

From 8/31

and an update the the previous report

Originally posted by Agit8dChop
reply to post by silent thunder

 

Spot bloody on!

China owns the US.

Correction my friend, china owns our "debt" and not even that much considering we could get by without them (debatable subject of course)

bah, still not seeing what contracts they are specifically

pretty sure certain commodities have been doing better than the return of the nasdaq even this year so i wonder what it is

Originally posted by GreenBicMan
Correction my friend, china owns our "debt" and not even that much considering we could get by without them (debatable subject of course)

You are so young and not as smart as you think you are LOL

Some recent US Companies acquired by China

More

and don't forget all the mortgages, hence real estate

and more real estate buying

and there's more, google is your friend

reply to post by redhatty


unaviodable, correct again mr hatty

i still invite anyone to come up with any country with > global companies usa

reply to post by GreenBicMan


It will be interesting to see what the World Economic Forum has to say on Sept. 8th this year. That's when they release the Global Competitiveness Report.

Incidentally, that report will be launched during the Annual Meeting of the New Champions 2009 in Dalian, People's Republic of China.

reply to post by GreenBicMan


…just because a "global" company is based out of the US doesn't mean that it is US owned. I fear that you are looking at this with blinders on. The US has borrowed all it can get from foreigners..they are no longer interested. The bulk of the US treasuries are held by foreigners.. the Chinese in particular have been using that debt to purchase American assets.

With China's posturing in regards to accepting delivery of these worthless derivatives I feel is just another loop around the toilet bowl. Confidence in America is at an all time low.

Don't underestimate the Chinese. They are patient and dumb like a fox.

Work on your Mandarin and Cantonese.... and buy some silver/gold

got this in my inbox from a letterwriter I subscribe to. I thought it was relevant.

Editor's comments: Every country needs a few basic ingredients in order to achieve healthy, sustained economic growth: Reliable sources of energy, and a modern, efficient infrastructure, consisting of a good road and rail system, reliable power grids and high-speed digital communications networks.

If a country wants to be considered a "global economic powerhouse," it's nearly impossible for it to do so without these critical building blocks, so it's not too surprising that China is spending unprecedented amounts of money to beef up its infrastructure.

It's also spending huge amounts of money on long-term oil and gas contracts. And with nearly $2 trillion on hand, it's the perfect time for China to go on an energy-shopping spree. Right now, despite the recent pullback in the Chinese stock market, the country is still on an economic roll that will continue for the next 50 years. According to The Economist, China's capital spending is a whopping 44% of its GDP, and in raw dollars could exceed that of the United States for the first time this year. You can bet that its increase in energy use will track right along with its growth.
China's energy problems are similar to those of the United States: It doesn't have enough of its own sources of fossil fuel to meet its needs. China is importing coal, liquefied natural gas (LNG) and crude oil. And to guarantee that those supplies are uninterrupted, it's buying some major deposits of oil and gas, along with the refineries to process it. Since Christmas, China has been on an overseas energy asset acquisition spree.

The country has spent a total of $17 billion, easily topping the $13.1 billion it spent in all of 2008. What's more, the pace of acquisitions doesn't appear to be slowing - and could even ramp up into 2010.
Many companies are teaming up, putting together joint deals that insure even the largest purchases have funding behind them. And some are very, very big. For example...

• In April, PetroChina (NYSE: PTR) partnered with KazMunaiGaz and paid $5 billion to purchase JSC MangistauMunaiGas from Central Asia Petroleum. This was one of the first instances of Chinese firms partnering together to purchase a foreign oil company

• June saw a highly publicized $20 billion deal, in which China National Petroleum Corporation joined forces with BP (NYSE: BP) to buy a 75% stake in the Rumaila oil field in southern Iraq. The consortium's bid topped that of the Exxon/Mobil (NYSE: XOM)/Shell (NYSE: RDS) partnership.

• Just one month later, the China National Offshore Oil Company (NYSE: CEO) - often referred to as CNOOC - hooked up with Sinopec. The two of them paid $1.3 billion to acquire a 20% stake in a deepwater block off Angola from Marathon Oil.

Now the Chinese are focused on Canada, quietly buying up several parts of different oil sands operations. Just a few days ago, PetroChina announced a $1.7 billion deal, in which it will acquire a 60% stake in Athabasca Oil Sands Corp's MacKay River and Dover oil sands fields. This isn't the first time that China has invested in Canadian oil sands. Back in 2005, CNOOC purchased a 16.7% stake in MEG Energy Corporation, while China Petrochemical Corporation paid $83 million for a stake in Syneco Energy, Inc.

So why is China interested in something like oil sands - oil that is very difficult and expensive to bring to fruition? Simple. All the easy, lucrative projects have already gone. It's a disturbing indication of China's quiet determination to increase its oil and gas reserves... at any price."