In today’s Daily Telegraph, (h/t danwei), Ambrose Evans-Pritchard notes that China’s State Reserve Board has been importing large volumes of copper “beyond the usual rebuilding of stock for commercial purposes” and speculates – without resorting to a single Chinese source – that China must be replacing its dollar reserves with metals (possibly with the long-term goal of creating a ‘copper standard’ to replace the dollar as a global currency). Evans-Pritchard doesn’t cite a Chinese copper trader to support this hypothesis; nor does he cite a member of the State Reserve Board. Instead, he cites foreigners who know little more than he does:
While it makes sense for China to take advantage of last year’s commodity crash to restock cheaply, there is clearly more behind the move. “They are definitely buying metals to diversify out of US Treasuries and dollar holdings,” said Jim Lennon, head of commodities at Macquarie Bank.
Except that they’re not. The metals stockpiling program – publicly announced and explained in December – was and is designed specifically to prop up China’s ailing, employment-intensive metals industries. In late January, Caijing published an extensive (English language) article explaining that the central government was not directly buying the reserves, but was instead licensing and subsidizing the purchase of stockpiles by private and state-owned metal companies:
Caijing learned that, under the reserve scheme, a company must first sign a reserve contract with the government to hold metals under government guidance. Afterward, enterprises can apply for equivalent bank loans, using a reserve as collateral.
Got that? The purpose of the stockpiles is to provide collateral for guaranteed loans to support China’s ailing metal industries. If a stockpiling company defaults, then China is left with a big pile of metal that may or may not be worth as much as it was at the time of purchase. Now, whatever else this program may be, it most certainly is not a program to replace dollar reserves with copper, much less a long-term plot to rejigger the global financial system. If Evans-Pritchard (or his assistants) and his sources had bothered to do even a cursory google search on Chinese metal stockpiling they might’ve figured this out (perhaps, even, they might’ve come across this January 30 post on the subject from a small-time blog based in Shanghai). Alas, they didn’t, and thus they leave us with yet another sorry, overheated example of what happens when foreign journalists write about China without bothering to inquire of Chinese sources. Way to go.
[Update: Just noticed that this post is #500 in the illustrious history of this (almost) two-year-old blog.]
[4-17 Update: Sigh. As sorry proof of the damage that bad (China) journalism can do, I point readers to the usually excellent China Car Times blog, and its April 16 post, China Storing Up On Copper for Hybrid Revolution.” Not to single out China Car Times – there are other blogs, with equally overheated reactions to Evans-Pritchard’s column.]