EconoWar Update

High fuel costs are starting to have a significant impact on the Chinese economy, reports the WaPo:

FOSHAN, China — Known widely for its porcelain, this grimy city in southern China is the source of much of the world’s tiles and bathroom fixtures. Yet several factories have shut down in recent weeks, and nearly all are running at a reduced clip: Here in Guangdong province, the heart of China’s industrial boom, many manufacturers cannot find enough gasoline and heavy oil to keep their operations going.

How is the government trying to ameliorate this?

In the first half of the year, China’s refineries produced more than 26 million tons of gasoline, according to state statistics. Refineries have responded to recent pressure from local governments by increasing supplies, considerably easing the shortages. Yet for each ton of gas that the two state-owned giants refine and sell inside China, they lose up to $125, according to Dong Tao. In other words, China’s central government is forcing losses on its state-owned refineries to subsidize domestic gasoline.

Letting the market set the price of gas would increase inflation in China by roughly 2 percent, said Andy Xie, an economist at Morgan Stanley in Hong Kong. Rising inflation could spawn unrest among the country’s hundreds of millions of rural poor.

At times like these, threats of trade pressure and asset freezings have particular force. I’m just saying . . . .

Speaking of which, that Macanese Bank that was fingered in the recent supernote scandal has halted all business with North Korea:

The measure was announced by Banco Delta Asia while massive withdrawals continued, reaching 300 million Hong Kong dollars (about 40 billion Korean won) on September 17 alone, a size accounting for 10 percent of its total deposits.

Since most banks are capitalized at around 7%–and if Gordon Chang is right, much less in China–it would seem that Delta is now insolvent per generally accepted accounting practices. If state intervention doesn’t stabilize and bail out Delta, one wonders how many depositors will withdraw their funds from other banks to make up for their lost deposits, or how many other banks will also lose funds in Delta. Thinking smaller, there could also be a significant impact on North Korea’s business activities, such as they are. I seem to recall that the Korean Friendship Association did its business through Macau.