Jiang criticizes Soros by name.

[Henry C.K. Liu]

The economic "fundamentals" all over Asia are down in the pits and will
stay
there until after the inevitable, yet incredibly resilient, deflationary
boom
on Wall Street.  The reason is that the "fundamentals" of the Asian
economies
had been predicated on a trade/finance globalization regime that hit a
killer
reef in 1997.  Wall Street is living on borrowed time from two sources:
1) from
the repatriated flight capital from Asia, and 2) from borrowing future
investment in the high tech sector.  The funds from item 1 has been
accustomed
to high returns of 25% or more and extremely risk willing.  These funds
will
accelerate the Wall Street bubble beyond any sustainable rate.  The
funds from
item 2 will drain investment from future years starting after 
2000.  In the short term, US interest rates have no place to go except
up and
the yen and euro are going to fall against the dollar until Wall Street
collapses.  Yet, the DJIA went up by 200 points yesterday and as I am
typing
its up another 217 points just because new unemployment numbers went up
from 4.3 to 4.4% and 30 bonds falls to 5.5%, stilll high against EU's 3%
and Japan's 0%.
Whenever the bust come, it would be wishful thinking to expect the
collapse to
bring about the end of capitalism.

The Heng Seng Index's fall since 1997 was directly related to the HK
dollar's
peg to the US dollar through a currency board arrangement.  This
monetary
regime dictates that when the US dollar rises in value in trade terms,
as it
had done since July 1997, HK interest rates will rise which pushes down
equity
prices.  Since HK markets are heavily tilted towards property and
banking, both
of which are hyper-sensitive to interest rates, the HSI falls with
exaggeration
when interest rate rises.  Also, the small size of the HK markets, with
the
fixed peg, allows hedge funds to manipulate the linkage between interest
rates
rates/futures/equity prices, as happened in late August, 1998 when the
HK
Monetary Authority had to intervene by spending US$18 billion in one day
to
thaw a massive attack on the HK dollar by hedge funds.

Essentially, the hedge funds, including Soros' Quantum Funds,
Robertson's Tiger
Funds and Merriweather's LTCM, pre-accummulated with bank credit, large
amount
of HK$ at the same time shorting HK equity.  Then they dumped their HK$
holdings, forcing interest rates to rise and equity prices to fall and
make
money from the shorts like drawing cash from an ATM machine.

For every 1000 point the hedge funds were able to push the HSI down, the
funds
profited US$1 billion.  The HSI fell from around 10000 to 6000 in a few
days,
filling the pockets of hedge funds with over US$4 billions, until the
HKMA
intervened.  Without HKMA intervention, the HSI may reach 3000, netting
the
funds $7 billion in one week. All the neo-liberals cried foul against
HKMA
intervention and accused HK of abandoning free markets.

HK has since restructured its regulations to make this type of
manipulation
difficult.  But as long as the peg exists, the HK dollar will be
subjected to
further attacks through other means, taking home a few billion every 48
hours.

China is in a different situation.  The Chinese financial/currency
markets are
not open.  So it is not possible for speculative hedge funds to attack
its
currency.  Whether the RMB will devalue is a policy matter for China, to
balance its export competitiveness.  With a massive trade surplus of
US$45
billion in 1998, (by US Dept. of Commerce data, Chinese data showed only
US$20
billion), Washington is pressuring Beijing not to devalue the RMB under
threats
of trade sanctions.

The Chinese economy is heading for problems which will be intensify as
the
Chinese economy move further towards market forces.  It is the nature of
the
beast.
The Chinese leadership is convinced from direct experience of the
inevitable
trade off between market efficiency and poverty, and they have opted for
the
market with all its faults.
As you know, whether a socialist market economy is an oxymoron is a
controversial issue.  In some ways, it would be good news whether the
Chinese
experiment success or fail.  If it succeeds, poverty will be eliminated
to
permit China to begin socialist construction.  If it fails, China will
revert
back to socialist construction by default.
In China, one has to have a long perspective.

Henry

Chris Burford wrote:


> At 19:49 04/03/99 -0500, you wrote:
> >The Hong Kong press reports that President Jiang Zemin of China
> >criticized George Soros by name for the first time during a reception
> >today for delgates from HK to the National Politcal Consultative
> >Conference.  Jiang was reported as calling Soros a financial raider and
> >saying Soros would never be allowed to operate inside China.
> >A Soros owned US company holds a 21% interest in a regional airline
> >operating out of Shanghai that has been very profitable.
> >Jiang also reinterated that the RMB will not be devalued not be free
> >floating.  The RMB is pegged at 8.2 to US$1.
> >
> >Henry C.K. Liu
>
> How do you interpret the "strength of the fundamentals", which is as
> analytical as the language of the bourgeois commentators gets? My
> understanding is that the Hang Seng has gone down this year on the
> assumption that there may be a devaluation of the renminbi.
>
> Various bits of news, some reported on this list, show increased risk for
> investors in China, with the likely assumption that inward flows of capital
> will fall off.
>
> Does Jiang's statement indicate that China has the advantage of size and
> many other levers to withstand pressure for devaluation and come out the
> other side in two or three years time?
>
> Presumably the naming of Soros may be a specific tactic to make clear that
> raiders will be punished, and could have wider international implications
> if other countries resisting laissez faire world finances start to develop
> some sort of code.
>
> Chris Burford
>
> London