Debt of US, Gold and Real Economy of China

The head of state-owned Chinese rating agency Dagong, Guan Jianzhong, 57, speaks to SPIEGEL about China's economic model, why he believes the rating system used by the Big Three is a threat to the world and the twilight of Western dominance.

SPIEGEL: Will China invest less in US bonds from now on?

Guan: I personally think it's unsafe to invest in US bonds. It is too risky. But the Chinese government might have considerations other than just economic risk. In terms of pure investment, however, it is not a wise decision any longer.

SPIEGEL: Both the US and Europe are struggling with a massive debt crisis. Is this the end of Western dominance?

Guan: The EU and the United States both have this model of borrowing money to boost their economic development. But they borrow money from the future, they mortgage a virtual fortune that they may -- or may not -- earn for their creditworthiness and their current consumption.

This has been their model since World War II, but this model ended in the financial crisis of 2008. Continuously creating demand for credit to enlarge capital and cash flow has used up their creditworthiness.

This means the model of economic development in developed Western capitalist countries has ended. It leads to another question: Should the government keep borrowing money to support its citizens in consuming much more and maintain high social standards? I think the answer is no.

SPIEGEL: Do you think China's model is better?

Guan: China is characterized by a real economy, unlike like the United States, which mainly depends on the financial industry. Though China's financial industry is developing, China relies on its real economy to create value and money. If we can draw some lessons from the Western experience, we should insist on letting real economy create value and money while discouraging the Chinese from borrowing too much money.

Note: photo of china panda gold and silver real money 1 oz.

Here another hot news below :

It turns out that there is also “advertising” for gold and silver in China, too. The big difference here is that it is China's government which is advertising the “opportunities” in gold and silver and it is urging the Chinese people to buy gold and silver.

An article from mining web-site, Mineweb quotes a program which appears on China's largest (state-owned) television company, promoting bullion-buying in general, but stressing that silver is currently the best value for investors (no surprise to regular readers):

China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive in 2007 but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.

It is only in the last three years that the Chinese government significantly relaxed the rules for precious metals buying for its citizens. Given that the Chinese people (like most of Asia) already had a greater appetite for gold and silver than people in most Western nations, the explicit urging by the government itself for people to load up on bullion clearly implies the expectation of a strong future for precious metals. With a population greater than 20% of the world's total and an abundance of savings, this could easily become a self-fulfilling prophecy – especially given the tiny size of the precious metals market, relative to many other commodities.

It is also clear that China is literally “putting its money where its mouth is.” China has devoted an enormous amount of resources building up its domestic gold mining industry, soaring to #1 in the world this decade, and it recently stunned the world with the announcement of a huge increase in its official, national holdings (see “China now has 5^th largest gold reserves”).

China's gold reserves jumped by 76% from its last announcement in 2002 – up to 1,054 tons. Given that official government purchases on the open market are recorded and announced, this means that rather than buying all that gold openly on the market (which would have driven up the price while they were buying) China has been accumulating gold surreptitiously, through buying up its domestic production – strongly suggesting that ramping-up its gold production was part of a long-term strategic plan to become one of the world's largest (if not the largest) holder of gold among governments.