19 January 2011
Jim Willie CB,  “the Golden Jackass”


* Dollar Swap Window
* Internal & External Pressures



Special Report #1

CHINA FLEXES ITS GLOBAL MUSCLES

In the last several years, the world has witnessed the arrival of China to the world stage. They have insisted on respect and have received respect. A new empire is being built with numerous platforms but in stages. They have the resources, desire, and savvy to establish trade pacts that pave the way. They need foreign technology, having benefited from Japanese in the last decade. They will benefit from German technology in this decade, as part of more important multi-lateral deals. They need to find a constructive usage for their mass of USTreasury Bonds and USAgency Mortgage Bonds. They are using the USTBonds carefully to forge new hidden treaties in Europe that assure global expansion, if not US isolation. They will convert as much to Gold and hard assets as possible, spending the USGovt debt paper even as the USFed continues to monetize it in reckless fashion. Numerous deals have been struck, and more will come. The transition from a US-led globe to a shared power structure will not be smooth.

DOLLAR SWAP WINDOW

◄$$$ THE CHINESE SWAP WINDOW STRATEGY IS CUNNING, ISOLATING THE UNITED STATES. COORDINATION WITH THE NEW NORDIC EURO IN GERMANY IS LIKELY NEXT. RUSSIA AS HIDDEN PLAYER HAS AN IMPORTANT ROLE AS MAJOR CONDUITS TO CHINA HAVE BEEN CONSTRUCTED. A SECRET AGENDA PROCEEDS ON COURSE. A MASSIVE USTREASURY BOND DUMP IS SOON TO FIND BRISK TRADE, IN SUPPORT OF THE EURO CURRENCY, WITH MOTIVE. CHINA IS EXECUTING A GLOBAL PLAN, AKIN TO COLONIALIZATION. $$$

A brilliant geopolitical strategy is unfolding by the Chinese, explained in the last couple reports. The Chinese have developed a tactical offensive to dump USTreasurys. They have been buying discounted PIIGS nation sovereign debt by the truckload. They have essentially joined the European Union in the process, as a cousin state. They have undercut and intercepted any potential for Europe to join the United States in an anti-China campaign for trade war initiatives, thus isolating the US. The volume of EU sovereign debt purchase will be less than the massive flow of USTBonds sold through the Dollar Swap Windows of various national labels atop the windows. A backside flow has also been revealed, as some private Chinese banks (if there is such a thing) are selling some EuroBonds when the Euro rises like from a back door. Scattered banks in China have far more Euros in FX reserves than are wanted. They are diversifying into USTBonds, as is their prerogative. When the Jackass suggested that five times as much dumping of USTreasurys was taking place as Euros converted to USDollars in return, a sage German banker contact agreed without altering my loose ratio estimate. The Chinese have embarked on a global colonialization plan that began long ago with Canada, extended to Iran, then to Brazil, even as relations developed with Russia. The distinction in recent months is the financial sector aspect with both the European Union and Russia, with bond purchases across the continent and currency swaps in Moscow, which complements the commodity and finished product trade. Witness the Paradigm Shift with China building its core center globally.

◄$$$ CHINA INTENDS TO CONVERT A SIGNIFICANT PORTION OF THE PURCHASED EUROBONDS INTO GOLD BULLION, AS WELL AS OTHER HARD ASSETS. THEY WILL FORCE THE DEAL WITH I.M.F. FACILITATION OF THE EUROPEAN MEMBER NATIONS. THEIR GLOBAL EXPANSION IS CENTERED ON TRADE, WITH A RECENT GRAND FINANCE LEVER. $$$

Notice that China has chosen Europe as its fertile colony, not the United States. They have been betrayed by the USGovt. They are loaded to the gills with USTBonds and USAgency Bonds. Trade friction is growing worse by the month. Cooperation with business investment from early last decade has turned ugly with constant charges of currency manipulation. The last straw might be Quantitative Easing #2 conducted by the USFed, which assures vast FX reserves losses for the outsized Chinese account. Other major friction exists over US outposts in Asia, such as Korea, Japan, the Persian Gulf, and even the Malaccan Straits. The open door opportunity lies in Europe for Chinese penetration. The Chinese have a plan. They do not wish to hold EuroBonds to full maturity. They wish to use them wisely to execute a strategy. To be sure, some losses will be suffered if the EuroBonds rise in yields and lose principal value. Some will die on the vine as the European Union crumbles and PIGS debt dissolves in a sea of acidic paper. But China appears to pursue hard assets, such as property (farms, beachfronts, tenement houses, commercial buildings), industrial plants, port facilities, infrastructure cogs, equity stakes in the icon giant corporations, and lastly, the financial cornerstone, Gold & Silver. Expect the details to come out later, that the back end of the PIGS debt purchase involved specific contract agreements to convert USTBonds to gold bullion with full assistance provided by the Intl Monetary Fund. China has promised to keep funding the IMF aid account for emerging nations, which will enable it to control the G-20 Meetings. The deals are interwoven. China will most assuredly promised foreign aid to the Southern European nations, to cover some of the deficits. The Chinese are using USTBonds to unseat the United States from its geopolitical throne, and to bring an end to the American Empire.

A connected German banker made comment on the entire completed triangle on the Chinese EuroBond gambit, a highly intelligent, deeply crafty, hidden maneuver, which assures gradual global domination. The German banker said, "The Chinese will convert USTreasurys into hard assets on the ground in Europe, then dictate trade and foreign policy. Later they will send millions of Chinese to vacation in the hotels they will own, and most importantly push the US to the point that they are squeezed out of Europe. Trade is the way to go, not depleted uranium bombs, flying military drones, or McDonalds fast food centers." See the Max Keiser video clip (CLICK HERE).

◄$$$ CHINA HAS BUILT ITS PORTUGUESE DOLLAR SWAP WINDOW. NEXT IS THE WINDOW FROM SPAIN, EACH A MAJOR PIECE IN AN ARRAY OF WINDOWS. A MASSIVE USTREASURY BOND DUMP IS SOON TO FIND BRISK TRADE, IN SUPPORT OF THE EURO CURRENCY, WITH MOTIVE. $$$

China has made a deal with Lisbon leaders. China has been given the final green light to purchase $5.3 billion of Portugal debt. More pressure will be relieved in the EU sovereign debt market, according to the Jornal de Negocios in Lisbon. China will buy Portuguese Govt debt in auctions or in the secondary markets during the first quarter of 2011. Portugal has moved onto the global stage, under the spotlight of crisis, as its borrowing costs have spiked. Investors have been rejecting their debt, whose stability has broken down. Rates have risen sharply. Portuguese Finance Minister Fernando Teixeira dos Santos two weeks ago met Chinese Finance Minister Xie Xuren and the head of the Peoples Bank of China during a visit to Asia. The debtor visited the creditor. Chinese President Hu Jintao pledged during a visit to Lisbon last month that his country will help Portugal confront the financial crisis, but stopped short of vowing to buy Portuguese debt. That pledge has now been made solid. Portugal is a small nation two thirds the economic size as Greece. But it is the back door to Spain, the Big Enchalada.

◄$$$ CHINA HAS MADE INITIAL FOUNDATION SETUP TO EXPAND ITS DOLLAR SWAP WINDOW TO SPAIN (AFTER GREECE AND PORTUGAL). THEY WILL FREELY DUMP USTBONDS IN FAVOR OF DISCOUNTED SOVEREIGN DEBT FROM SOUTHERN EUROPE. THE VOLUME OF SPANISH DEBT DOUBLES THE ADOPTED DEBT TO DATE IN COVERAGE. ITALY IS NEXT, TO COMPLETE THE P.I.G.S. QUARTET. $$$

Ireland swallowed the IMF poison pill, but the PIGS nations are all aligned to create direct ties to China, the new European credit benefactor with motive. China has recently backed Spain in EuroZone support, a correct Jackass forecast made over the last few months. During a visit, like a links in a great chain, the Chinese Vice Premier Li Keqiang confirmed his country will buy Spanish Govt bonds, in an effort to allay fear and quiet the storm of lost market confidence over EuroZone debt. During a three day visit to the country, the vice premier signed $7.5 billion in official trade deals. The centerpiece deal was ratification of a grand Brazilian oil sale from Repsol (Spanish oil giant) to Sinopec of China. Other deals include exports of Spanish speciality products, such as cured ham and olive oil. The Chinese population is gradually adopting elements of a Western diet, expanding from the traditional. China is locking in trade deals, just like with Germany. This marks a serious rampup in debt acquisition, surely at heavy discount. The Spanish Govt debt doubles the targeted sovereign bonds for purchase to date after Greece and Portugal. The Xinhua news agency and German Sueddeutsche Zeitung reported Mr Li as saying, "We will buy more [Spanish Govt bonds] depending on market conditions. China's support of the EU's financial stabilization measures and its help to certain countries in coping with the sovereign debt crisis are all conducive to promoting full economic recovery and steady growth." What a slippery piece of political speak!! Recovery and growth are empty zipwords on billboards. China is dumping USTreasurys en masse, blocking a trade war coalition, locking in export markets and imports from Germany, and more, in a brilliant geopolitical stroke.

On a combined basis, Spain's central and regional governments and its banks need to raise about 290 billion Euros to cover debt in 2011, a sum that includes rollover of existing bonds that expire. Any nasty fever that displays lost confidence would force interest rates upward, and raise the risk that Spain could need a bailout. The EU Stability Fund could not manage such a bailout. Any EU or IMF bailout for Spanish Govt debt would be far bigger than anything seen to date in Europe, its economy being twice that of Greece, Ireland, and Portugal combined. China has taken up the extreme slack from EU bond demand, while making more firm and solid its relationship with Germany. The four corners to the Eastern Alliance are Germany, Russia, China, and the Persian Gulf. The discounted bond purchases are glue during a time of falling appetite for the deeply damaged bonds, not quite toxic, but close. Even the IMF has blessed the Chinese participation, not surprising, since it relieves pressure from the IMF in bailouts. The IMF is a mere facilitator anyway of EU nations, without funds of its own. While the EU debt crisis simmers and spills over, the most immediate impact is the rise in the borrowing costs from financial markets. Portugal completed a 500 million Euro bond issuance of short-term debts at the beginning of the new year at a 3.7% interest rate, double what it paid in September. The Spanish government has promised to lower the public deficit from 11.1% of annual output in 2009 to the European Union limit of 3% by 2013. That would require a grand miracle. See the British Broadcast Corp article (CLICK HERE).


◄$$$ THE WORLD BANK ISSUED BONDS DENOMINATED IN CHINESE YUAN, A SIGN OF  THE TIMES. THE YUAN IS GOING GLOBAL, WITH GRADUAL CONVERTIBILITY, EXPANDING IN DIVERSE POCKETS. THE CHINESE PARTICIPATION IN EUROZONE BOND PURCHASES HAS ASSURED FULL I.M.F. COOPERATION. CHINA HAS BEEN ACCEPTED AS AN I.M.F. PLAYER. THE I.M.F. AND WORLD BANK ARE NO LONGER AMERICAN WEAPONS. $$$

The World Bank issued the first bonds denominated in Chinese Yuan, a sign of acceptance and fraternity status. The Yuan Bond was issued to promote the use of the Chinese currency in international markets, improve liquidity, and work toward broader convertibility. That is a longstanding Chinese Govt goal. The World Bank raised 500 million Yuan (=US$76m). Other entities, including the Asian Development Bank, and US firms such as McDonalds and Caterpillar, have issued Yuan Bonds in the past. In 2010, a total of $36 billion in these so-called Dim-Sum Bonds were issued and sold. In return, the Chinese stake in the World Bank is due to increase, thus providing financial and technical assistance to developing countries. The Chinese position could develop into the third largest stakeholder in the bank after the US and Japan. Doris Herrera-Pol is the global head of capital markets at the World Bank. She said, "This is a landmark transaction for the World Bank as it is the first World Bank issuance in RMB (yuan), and signals the strong interest of the World Bank in supporting the development of the RMB market." The main location for Yuan-based bond issuance and trading is in the Hong Kong market, which began over three years ago. Last September, the Chinese Govt started issuing bonds in its currency, selling them in Hong Kong. The former British colony is part of China, boasts a developed and more open financial market, and serves as a conduit between China and the developed world. See the British Broadcast Corp article (CLICK HERE).

◄$$$ THE ULTIMATE IN DOLLAR SWAP WINDOW, A CHINESE BANK ACCOUNT, COMES TO A NEIGHBORHOOD NEAR YOU. THE BANK OF CHINA INVADES THE UNITED STATES IN RETAIL BANKING. STEP BY STEP, THE CHINESE YUAN (REMNINBI) IS MAKING IMPORTANT STRIDES IN BECOMING A GLOBAL CURRENCY. THE ULTIMATE WILL BE USTREASURY BONDS ISSUED IN YUAN, AND GLOBAL WIRE TRANSFERS PASSING THROUGH SHANGHAI. $$$

In its latest step to make the Chinese Yuan (Renminbi = people's money) a competing global reserve currency, the Bank of China will permit individuals to open Yuan savings accounts in the United States. The Bank of China is predominantly state owned. US individual accounts have a $500 minimum balance requirement. Certificates of Deposit are also offered, in 6-month and 1-year terms with a minimum of $1000 invested. A simple procedure involves an application form, a W-9 tax form, and a signature card. Standard identification is required. Businesses can open Yuan accounts with a $5000 minimum and requisite entity paperwork like Articles of Organization. In addition, currency exchange services between USDollars and Yuan are offered, but so far only at its Chinatown branch in New York City. Ambition is clear. The Chinese Govt wants the Yuan to become a fully-convertible competing global reserve currency, and to make Shanghai the world's leading financial center.

Several sovereign nations hold Yuan funds in reserve accounts alongside USDollars. Settlement of cross border trade is increasingly being conducted in Yuan, like with Russia and Brazil. New clearing and settlement platforms have been created in Hong Kong, where new Yuan-based gold contracts will trade. Rice contracts are next. These Yuan-based futures contracts are certain to spread beyong Hong Kong to other exchanges. Note also the World Bank recently issued a Yuan-based bond. Look for a expansion into Europe and England soon, beginning with Singapore, whose SGX exchange already operates global depository equity share (stock) trading of mainland Chinese companies. The distribution for financial exchange participation will naturally follow into Australia and Thailand. Strong economic ties exist with both nations. The ultimate future development will be two distinct events, according to the Simon Black. As he says, "Several years from now, the entire world will know that the baton has been passed on the day that the USTreasury Department holds a bond auction denominated in renminbi, or the day when a bank wire transfer from Bangkok to Boston passes through a corresponding bank in Shanghai." See the Sovereign Man article (CLICK HERE).

INTERNAL & EXTERNAL PRESSURES

◄$$$ SOME DEEP THOUGHTS ON CHINA AND HONG KONG. A HOLIDAY EMAIL EXCHANGE TOOK PLACE WITH A GREAT SOURCE OF INFORMATION. HE HAS NUMEROUS CONTACTS WITH BOTH MAINLAND CHINA AND HONG KONG IN GLOBAL CONSULTING. MY CURIOSITY PROMPTED THE CONTACT, CONCERNING AN UPDATE ON THE HKDOLLAR AND YUAN INTEGRATION. $$$

"With respect to Hong Kong, it is more about China's determination to break the US-British backbone. China has become a de-facto member of the EU. They first bought up Greek debt and are about to buy up debt from Spain and Portugal, as well as Italy sooner or later. French debt will be the last lot they will swallow. This all happening with Berlin's and Moscow's consent since France will be taken out of the equation by the Chinese, thus Berlin does not have to do it. Sakozy is a terrible disturbance source. The Chinese need the European markets and European technology, and so does Russia. Germany will be providing it to both to Russia and China, and will serve as the mediator between Russia and China at the same time. The HK bankers are totally irrelevant in the bigger picture. Most of the key guys have solid connections with British Intelligence anyhow. Beijing does not need HK to be there for them as a transformer to the West any longer. They have acquired enough expertise and what they lack they can buy dirt cheap with thousands of jobless bankers. It is interesting to note that nearly all clearing & correspondence bank for African bank operations used to be through the likes of Standard Chartered Bank in Europe. Suddenly all the SWIFT clearing codes have moved under the Standard Chartered Bank umbrella in Asia. This is a significant hint of a major shift.

There is no doubt in my mind that the implosion of the banking system is going to be engineered like a controlled demolition of an old hotel or stadium, or for that matter the WTC on 9/11. What these people totally under-estimate is the staying power and perseverance of the developing world. People from emerging economies know how to deal with adversity and know how to survive. The entitlement jockeys in the West are totally incapable to cope once their local supermarket shelves are empty. China has frantically tried with reasonable success, to replace and displace the old colonial powers. They use trade as a weapon. The destruction of the US by China is a perfect example. The upcoming economic stumbles by mainland China, both in the economy and political system, might present Hong Kong with a short comeback. When China comes back after their version of meltdown, the world will be faced with a superpower whose strength is perhaps much greater than the United States during its prime time. But the timeframe is around 10 to 15 years."

◄$$$ CHINA HAS TIGHTENED MONETARY POLICY, STEP BY STEP. WHILE REDUCING FUTURE RISK OF ADDITIONAL ASSET BUBBLE EXPANSION, THEY ARE FORCING THE ISSUE WITH EXISTING BUBBLES. A RATCHET EFFECT IS AT WORK IN THE PROCESS, UNLIKE THE UNITED STATES WHICH KEEPS THE FLOODGATES OPEN. $$$

On Christmas day, the Peoples Bank of China hiked their benchmark lending rate by 25 basis points to 5.81%, the second hike in two months. The PBOC has instituted firm measures to quell inflation. As China looks to cool its economic recovery, the United States looks to continue extreme stimulus measures that reek of desperation. The Chinese admit their price inflation, while the US conceals it vigorously. The Chinese even permit their ghost towns and ghost malls to be photographed. The US Quantitative Easing #2 program is at direct odds with China. The QE2 executed by the USFed is designed to create money, to buy USTreasurys, to lower interest rates, to devalue the USDollar, and to make US goods more attractive overseas, in places like China, which has a rapidly growing middle class, rising incomes, and eagerness to improve the standard of living. However, PBOC acts to curtail Chinese demand with tighter monetary policy, tethered by a loose currency peg, which connects the two economies. The US in turn must expand its QE2 operations in an effort to counter the Chinese tightening measures. In a sense, the Chinese are forcing the USFed and USGovt to ramp up QE2, even to plan for QE3, and thus concede a form of defeat. The US is being isolated as the great debt monetization engine, a curse to central banking generally, and a serious blemish on the USDollar, for leadership and prestige.

The list of events for Chinese monetary tightening is long. The list of bank reserve increases and actual rate hikes is long. On January 12th they hiked reserve ratios 50 basis points. On February 12th, reserve rates rose by 50 bpts. On May 2nd by 50 bpts. On October 12th by 50 bpts. On November 10th by 50 bpts. On November 19th by 50 bpts. On December 10th by 50 bpts. As for payouts to investors, they hiked deposit rates on October 19th by 25 bpts. They hiked deposit rates again on December 25th by 25 bpts. They finally hiked bank lending rates on December 25th by 25 bpts. Such moves in the United States would collapse the banking system, the housing market, and the bond market, if not the stock market in a swift topple of dominos.

The Chinese bank decisions come amidst a chorus of commentary by government officials. China's Commerce Minister Chen claims there are no quick fixes in Europe. He showed wisdom (unlike the deceptive commentary in the US) by saying the European debt problems cannot be solved by selling more government bonds. He noted that the $1 trillion EU Stability rescue fund must be rapaid at steep interest rates at a later date. Minister's Chen cites a basic principle lost on the US. A nation cannot extricate itself from a debt crisis by going deeper into debt. A bigger hole is dug, buying time, but assuring a worse crisis later. This is the Rubin Doctrine of Destruction that sent the nation toward the abyss. The stress and strain on USTreasurys comes and goes, seemingly unaffected by bond issuance and bond auctions. The USFed purchases $billions worth of USTreasurys every day, never to worry about a complete absence of demand. The Printing Pre$$ is the primary buyer, having gobbled up 75% of the USTreasury sales in the entire 2010 year.

◄$$$ CHINA SUFFERED A FAILED DEBT AUCTION. FAILURES ACROSS THE WORLD ARE HAPPENING, EXCEPT IN THE UNITED STATES, WHERE THE USDOLLAR PRINTING PRESS WORKS FAST & FURIOUS TO CONCEAL THE ABSENT DEMAND. THE USFED & USGOVT TEMPT MOTHER NATURE AND HER WRATH, WHILE THE CHINESE CONTEND WITH MARKET REALITIES. $$$

Over the Christmas holiday, little shock waves hit China, a direct response to gradual monetary tightening decisions. The 7-day Repo rate in China recently hit the highest level since the historical crisis events in September 2008, the so-called Lehman crisis point. After a string of reserve rate requirement hikes, each of which accomplished little if anything, the Peoples Bank of China had no choice but to do meaningful tightening measures. Certain market realities enter the picture when a monetary Printing Press is not available. It is only an American device for use on American soil to aid the American debt distress and to conceal the American situation. The Chinese Ministry of Finance failed to attract sufficient interest in its 3-month 20 billion Yuan auction. The result was a quick 1.2% plunge in the Shanghai Composite stock index. The news hit a wet US wall, since the USFed is immune to bond shocks, supposedly, practically, but eventually not so in a real world. The USFed believes it can manipulate markets to infinity without fear of consequence from repeated free market violations. The last time China contended with a failed bond auction was in mid-April, when their stock market hit 2010 highs. What followed by a decline down to the yearly lows quickly. As Tyler Durden atply stated, "As the rest of the world celebrates Christmas, blissfully pretending all is good, and the Fed can manipulate markets to infinity without at least one of the numerous violated laws of physics being reasserted in the process, things in China are once again reminding those who care that just as liquidity giveth, so does liquidity taketh away." See the Zero Hedge article (CLICK HERE).

◄$$$ CHINA HAS RESUMED ITS CUTBACK ON RARE EARTH METAL EXPORTS. THE TRADE WAR WIDENS AGAIN. BEIJING USES IT AS A STICK AFTER ANNOYING CHARGES OF CURRENCY MANIPULATION. CHINA WISHES TO PROTECTS ITS OWN INDUSTRY, AND TO STEER THE RARE EARTH METAL PRICES HIGHER. $$$

Rare Earth metals are back on the war room table. China cut its export quotas for rare earths by 35% in the first round of permits for 2011, threatening to extend a global shortage of the mineral ingredients needed for smartphones, hybrid car magnets, and guided missile components. The government allotted 14,446 metric tons of rare earth exports split among 31 domestic and foreign companies, according to the Ministry of Commerce in a late December statement. Compare to the first round of 22,282 tons and the second round of 7976 tons. The Chinese Govt usually issues two rounds of such quotas per year. They are negotiating full-year rare earth quotas for 2011. Relevant factors include domestic output and demand, global requirements, sustainability of the industry, supply of its own electronics industry, as well as foreign mega-deals. China wishes to bolster prices while it exerts greater control over the sector. The claims of protecting the environment as as lunatic as the USGovt claiming to aid the homeowners. The USGovt shot back its intention to file a World Trade Organization complaint over restraints on supplies of the minerals, as tensions rose. China accounts for more than 90% of world supplies in the rare earth metals. They slashed export quotas by 72% in the second half of last year, sparking a surge in prices and a storm of protest, even from Japan. China will also raise export taxes for some rare earth elements to 25% next year, claims the Ministry of Finance.

As the world's biggest consumer, Japan has pursued alternate supply sources. Hitachi Metals Ltd and Toyota Motor Corp have sought cooperative ventures at home and abroad to secure the minerals. Molycorp owns the world's largest non-Chinese rare earth metals deposit. They agreed in December to form joint ventures with Hitachi Metals to produce alloys and magnets in the United States, used in electric car production. Hitachi Metals is Japan's largest maker of rare earths magnets, and consumes 600 tons of these special metals each year. The price of neodymium oxide, essential in magnets for BlackBerry devices, has surged more than four-fold to $88.5 per kilogram, from a base price of $19.12 in 2009. Australian-based Lynas Corp is building a A$550 million (=US$542m) rare earths mine in Western Australia. Demand for neodymium and dysprosium is expected to grow by 15% to 20% per year. Neodymium is also used in tiny hard drives for laptop computers and Apple iPod headphones. Rare earths are 17 chemically similar elements including neodymium, cerium, and lanthanum that are key to the production of electronics. See the Bloomberg article (CLICK HERE).

◄$$$ CHINA HAS AMBITION TO PRODUCE COMMERCIAL AIRCRAFT ON A COMPETITIVE BASIS. COMAC HAS BEEN LAUNCHED. PREPARE FOR THE RUIN OF BOEING, WHICH HAS FUMBLED BADLY ITS NEW PRODUCT LINE. THE RUIN OF ALMOST ALL US-BASED TRANSPORTATION INDUSTRY HAS STRONG MOMENTUM. TRUCKING REMAINS VIBRANT. CARS, PLANES, AND TRAINS ARE ON DEATH'S DOOR FOR UNITED STATES INDUSTRY. THE QUIET STORY BEHIND THE CURTAINS IS THAT BOEING MIGHT BE A FAILED FIRM IN THE NEXT YEAR. $$$

China made clear its ambition to surpass Airbus and Boeing in the aircraft industry. Commercial Aircraft Corp of China (COMAC) is a state-owned jet manufacturer of C919 aircraft, a 150-seat commercial plane launched two years ago. It announced their first one hundred orders of aircraft at the Zhuhai Airshow in southern China, the orders coming from the Chinese airlines, Air China, China Southern, and China Eastern, together with GE Capital Aviation Services of the United States, an airplane leasing company. Prices paid by their customers has not been revealed. COMAC plans to complete the aircraft production in two years, then conduct a test flight by 2014, with delivery date due in 2016. The Chinese firm COMAC forecasts the capacity to sell over 2000 units of C919 worldwide in the next 20 years, sufficient to compete against Airbus and Boeing. Big challenges lie ahead for the firm, as fuel efficiency and production costs must be developed, even final product price. A similar deal to buy 100 jet aircraft would be worth around $7 billion at its list prices. Some analysts expect an initial 20% discount for the completed deals. China wishes to reduce its dependence on Airbus and Boeing companies in the future. In the process, the tech transfer might have military implications. The Pentagon has a worried eye on the F-22 jet fighter aircraft equivalent made in China. Weapons sales are a big piece of the USGovt geopolitical strategy. Chalk up one more weakening link in the US Imperial chain. The USGovt cannot interfere in the string of deals with China, since the deeply indebted United States needs to preserve its creditor position. Not only is sovereign independence sacrificed with huge debt export, as in decisions for the national interests, but technology advantage. See the Seedol article (CLICK HERE).

BobO from Kansas is a former Boeing engineer. He pitched in some valuable comments on the deal, and its impact on Boeing. He is not impressed with the geo-chess moves made by Boeing, nor its new product development quality. The 787 project is three years behind schedule. Some big dropped balls and stumbles have come. He wrote, "The Chinese have now sold their first 100 airplanes. Boeing thought they were so smart in promoting US business with China, giving them their old technology. Now Boeing management has screwed up bigtime on the 787, which was to replace the main product. That old technology is looking better all the time. At best, Boeing has massive cost overruns, late delivery charges on the 787, and a big hit to their reputation. Profitability of the 787 program is greatly delayed. Future sales of all models are adversely affected. Boeing stock took a sizeable hit. Worse case, the 787 is a total failure, the $billions invested maybe a complete loss. The Boeing reputation is taking a death blow. They are left with nothing to sell but their old models, with which they now have to compete against China [since technology was handed to them]. Boeing management will have to spin off assets, to raise cash. There will be large permanent job cuts in employment. Either way, Boeing's stock will eventually fall to a point where the ailing corporation is ripe for takeover. But who, other than the Chinese, has the money? They know the US government is not desperate enough yet, to approve the sale. Besides, if the 787 is a failure, Boeing has little else to offer in a merger acquisition Boeing comes out of this a shadow of its former self, sort of a General Motors of the air! I smell another government bailout in the near future."

◄$$$ GENERAL ELECTRIC HAS TEAMED UP WITH A MAJOR CHINESE AIRCRAFT MAKER TO PROVIDE AVIONICS. IN THE PROCESS CEO IMMELT MADE A HUGE SURPRISING CONCESSION THAT WILL GROW THE CHINESE MARKET SHARE. THE TECHNOLOGY TRANSFER INVOLVED IS HUGE. THE DEAL MIRRORS THE GENERAL MOTORS CAR DEAL MADE LAST YEAR. $$$

One must scratch the head in bewilderment. An important technology transfer from General Electric to China will enable direct competition against Boeing and Airbus. A joint venture deal between GE and a Chinese military jet maker will strike at the very heart of the existing Boeing-Airbus duopoly in control of the global large commercial jet market. Foreign companies have been teaming up with Chinese firms for years to gain access to the giant Chinese market, making concessions, sharing technology. The natural next step is to merge portions of their worldwide operations into partnerships with Chinese companies. General Electric is finalizing plans for a 50-50 joint venture with Aviation Industry Corp of China, a Chinese military jet manufacturer. The GE role is to share the aircraft electronics called avionics. The deal with would give GE access to an official Chinese project aimed at challenging Boeing and Airbus in the huge lucrative civilian aircraft market. In a different transportation partnership, General Motors signed a joint venture with SAIC Motors, its longtime partner in China. They will produce and sell their basic product line of Wuling microvans in India, and later in Southeast Asia and other emerging markets. The two deals demonstrate vividly China's growing international ambitions, even its growing leverage over foreign partners. To wit, in order to facilitate the GE deal, CEO Jeffrey Immelt made a highly questionable concession. He agreed to merge into the venture the entire GE existing worldwide business in non-military avionics. Similarly in its corresponding deal, GM contributed technology, its carmaking plants in India, and use of its Chevrolet brand name in that market.