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China Tells Banks to Curb Lending After a Generous January Start

Stocks worldwide plunged yesterday (Wednesday), commodities sank, and the dollar pushed higher after Chinese authorities demanded domestic banks slowdown lending amid concerns about asset bubbles growing in the economy.

Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.

New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.

That may be understating the situation.

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Never "Short" a Country That Has $2 Trillion in Cash

The first rule of successful global investing – to paraphrase the words of New York Times columnist Thomas Friedman – is a simple one.

Never short a country with $2.3 trillion in currency reserves.

I'm well aware that bond king Bill Gross has been sounding the alarm about a China bubble, and that Forbes magazine is predicting a major meltdown by the Asian giant. I've also heard all about noted short-seller James S. Chanos – who made his name by correctly calling the Enron Corp. demise – who recently described China as "Dubai times 1,000 – or worse."

Just yesterday (Wednesday), in fact, U.S. stocks suffered their worst beating of the New Year on fears that new bank lending curbs in China might blunt the worldwide economic rebound. Asian markets also were down yesterday.

So what's really going on here? China is making its banks tighten credit. Some of the biggest banks, I've heard, have actually suspended loans for the rest of January!   Many analysts and media pundits believe this is the beginning of the end of the Great China Growth Story.

Don't believe it.

To find out why you shouldn't short China, read on...

Will China Supersede Saudi Arabia as the Key to U.S. Oil Prices?

I bought a Toyota Prius last Saturday.

The signs are everywhere that oil is headed for stratospheric highs – $200, $250 or even $300 a barrel. Some of these signs are just plain obvious. But even the subtle indicators are telling us that some very expensive energy costs headed our way.

Let me tell you about one such indicator that I came across over the New Year holiday. A tiny news item said that Saudi Arabian oil concern Aramco is abandoning a lease on Caribbean oil storage, and further reported that PetroChina Co. Ltd. (NYSE ADR: PTR) is moving in to take Aramco's place.

Most investors here in the West – if they even read the item – would've dismissed it as just another minor business transaction, one among the thousands that take place each day. But this particular deal was much more than that. It's another indication of China's continued global emergence. And it also underscores this country's relegation to the growing legion of "former" world powers that have been eviscerated by the financial crisis that they created.

In case you missed the story, let me share the details, and then explain what I believe those details actually mean.

To see why China is the "new" Saudi Arabia, read on...

What China Can Learn From its Dustup with Google

If you're keeping score in the contest between Google Inc. (Nasdaq: GOOG) and China's central government, you should be aware by now that everyone involved loses.

  • Google stands to lose anywhere from $400 million to $600 million in annual revenue, as well as a considerable foothold in the world's largest and fastest growing Internet community.
  • Chinese netizens lose access to a search engine that is vital to the free transportation of online information.
  • China's online market loses the innovation and competition that is unique to one of the world's most dynamic companies.
  • And Beijing has been robbed of the illusion that it has enough economic muscle to strong arm the West into playing by its rules.

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Number of the Day: With 13.6 Million Vehicles Sold Last Year, China Has Passed the U.S. as the World's Largest Auto Market

China dethroned the United States as the world's largest auto market in 2009 with 13.6 million vehicles sold. It's the first time since Henry Ford's assembly line created a mass market for cars and trucks last century that a country other than the United States led the world in auto sales.

China sold more cars than the United States every month last year, except for August when the popular "Cash-for-Clunkers" program bolstered U.S. sales. China's auto sales, which also were boosted by government incentives, nearly doubled in December, rising 92% from a year earlier to 1.41 million vehicles, the China Association of Automobile Manufacturers said yesterday (Monday).

Roughly 10.4 million light vehicles were sold in the United States in 2009 – the lowest total since 1982 and a 21% decline from 2008. That number doesn't include the sale of heavy commercial vehicles, whereas China's total does. However, just 500,000 heavy commercial vehicles were sold the United States last year, CSM Worldwide analyst Yale Zhang told The Wall Street Journal. That would still leave U.S. sales short of China's mark.

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China is Doing Exactly What the United States Should be Doing – Looking Ahead

After boosting its economy with an $885 billion (2 trillion yuan) stimulus package, China is doing exactly what the United States should be doing – turning its attention toward inflation and excess lending.

The People's Bank of China (BOC) yesterday (Thursday) raised the interest rate on its three-month bills for the first time since Aug. 13. The central bank sold $8.8 billion (60 billion yuan) of three-month bills at a yield of 1.3684%. That's up from 1.3280% last week.

Also, the BOC this week drained a net $20.1 billion (137 billion yuan) from the money market through its open-market operations – its largest weekly fund withdrawal in nearly three months.

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U.S. Escalates Trade Dispute With China

The United States launched another salvo in a trade dispute with China last week when it imposed new duties on imports of steel pipes, escalating tensions between the two powers.

The Chinese government quickly fired back, accusing the U.S. of "protectionism."

The U.S. International Trade Commission (ITC) voted unanimously on December 30 to impose duties between 10.36% and 15.78% on the pipes, which are used mostly by the oil and gas industries. Those new tariffs are designed to negate the subsidies that the U.S. government says China gives its steelmakers.

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Buy, Sell or Hold: Keep Your Portfolio Healthy With Campbell Soup Co. (NYSE: CPB)

On June 1 of last year I recommended buying Campbell Soup Co. (NYSE: CPB). It was a contrarian call at the time, since many brokers and independent analysts had rated the stock a "hold."

That's because most analysts think of Campbell the same way they think of many other consumer staples businesses – as a stable, slow moving business with no real short-term catalyst for growth.

You see, very few remember the tremendous upside that Warren Buffet realized when he invested in another "dull" staples business, The Coca-Cola Co. (NYSE: KO), just prior to a major overseas expansion.And it's precisely that kind of campaign Campbell has mounted – expanding its businesses in Russia, China, and other emerging economies to great success.

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China's Exports to Return to Growth Next Year, but How Much Will It Matter?

Shipments from the Red Dragon were hit hard in the first 11 months this year, falling 18.8% compared to a year earlier, but are expected to bounce back and grow 6% in 2010, China's State Information Center said today (Tuesday).

However, exports from China, which is largely considered to be the world's manufacturing floor, are becoming less and less relevant as the Red Dragon moves toward a more balanced economy.

For instance, imports are expected to grow 11% next year, reflecting a shift toward more domestic consumption. And while the country is known for its massive spending on infrastructure, its service sector is growing twice as fast as its construction and infrastructure sectors, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald, who says exports account for only 20% of China's gross domestic product (GDP).

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China's Emergence is the Decade's Most-Read Story

China's emergence as a global economic superpower was the most-read news story of the past decade, surpassing such events as the Iraq War and the 9/11 terrorist attacks, concludes The Global Language Monitor LLC, a U.S. media tracking group.

There's a strong-and-growing interest in the Asian heavyweight, now the world's No. 3 overall economy, said Global Language President Paul JJ Payack.

"The rise of China to new economic heights has changed – and continues to challenge – current international order," Payack said. "It is with little surprise that its ongoing transformation has topped all other news stories in a decade [that's been marked] by war, economic catastrophe, and natural disasters."

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