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written by China Watcher , June 06, 2009

The rest of the story is that Rio Tinto announced its intention to establish a JV with BHP Billiton that will create the world's 69largest iron ore producer. Iron ore is already a highly concentrated industy with enormous market power over the much less concentrated steel industry, as the huge run-up in prices over the past several years give witness. Ironically, Chinese ownership of a good portion of RT might have been pro-competitive -- provided that it would have given them any real ability to break up the iron ore oligopoly. (The shares of iron ore producers held by Japanese mills have not translated into any perceptible influence over iron ore prices, and many observers doubt the Chinese could have achieved this objective.)

All that said, everyone -- Chinese and Westerners alike -- had better start finding acceptable ways for Beijing to dispose of its "excess" dollars. The only way that helps the global monetary imbalance would be to invest in new production capacity in the US, trading dollars for a new asset. By contrast, trading Sino-dollars for other currencies or for American paper assets does nothing to relieve the American economy of its excessive debt burden. The dollar trap is really a global problem.

This consideration underscores the urgency of finding some way to realign the RMB and other undervalued currencies without further delay.