Chapter 2553: The Sequence of Events

"Senator Ren and I started paying attention to this matter shortly after Paper Cotton first appeared. Included Qingyun Tower Tea House, this primitive futures exchange; we also went to turn around. Speaking of which, Comrade Wu Mu also planted a few people inside—of course, he wasn't for preventing financial risks, purely worrying about some conspiracy inside." Chu He said.

"Generally speaking, this matter has nothing special. Can only be counted as a bizarre product erupted from weaving of market's changing clouds and wind plus human greedy nature. Very interesting, extremely valuable for research."

Li Shan listened with cloying feeling, thinking: Your nonsense has no bounds!

Chu He said, actually the onset of the Paper Cotton incident was much earlier than International opening. The time point was at the beginning of this year.

"...Actually the beginning was very simple. Cotton cloth demand rose, causing market price to rise. Following was a series of chain-reaction style rises of cotton yarn and cotton."

Since the Senate recovered Guangzhou, demand for cotton cloth had been expanding year by year. With successive occupation of Liangguang and continuous founding of regime institutions, various organs and factories moving north and newly built were expanding. The Naturalized Citizen class was also expanding rapidly. Demand for "Uniforms" increased greatly.

Originally this demand increase was relatively moderate, but the appearance of Nanyang Company changed this phenomenon.

Nanyang Company's biggest project was the South Vietnam Development Plan. For this, the largest expedition action since Engine Action would be conducted. Expected to put more than twenty thousand immigrants to the South Vietnam area, and in the following five years, emigrate another ten thousand annually.

Immigration of this scale, grain and materials needed could be described as massive volume. Especially basic necessity cotton cloth. Although Nanyang Company adopted the method of small batch and multiple times for procurement to avoid large purchases affecting market stability, market cotton cloth prices still rose in response, and once rising, rose from the beginning of the year until now.

Seeking truth from facts, Li and Zou being so optimistic about the cotton textile industry was largely affected by this wave of market.

"...This is data from 'Business Monthly Report' issued by the Statistics Department since last October. We transcribed statistics related to the cotton textile industry among them—here explain first, relevant numbers aren't necessarily precise, but the general situation can still be seen. Transaction volume of cotton yarn is too small, can be ignored, but prices and transaction volumes of flower [cotton] and cloth rose month by month. Amplitude is bigger this year. Taking average price of last October as base price, rising amplitude of November, December, and January each month exceeded 5%. By February completely became a runaway wild horse; cotton cloth monthly rising amplitude exceeded 7.5%. By March even reached 10%. If not for increasing Songjiang cotton cloth imports, cotton cloth rising amplitude would be even bigger—even so, comparing this May's cotton cloth price with last October, average amplitude already exceeded 50%. This is quite an astonishing number."

Reason one was Nanyang Company's overseas development steps accelerated, needing to reserve more clothing, tents, and other cotton products; two was Liangguang Strategy entering closing stage. National Army originally formed hastily needed comprehensive reorganization; Fubo Army also needed rest and reorganization. Their bedding and uniforms all needed renewal. Just these military uses involved more than one hundred thousand sets of uniforms.

Besides Army, Nanyang Company, and scattered "Government Procurement," there was another key factor: Inflation.

Since the Senate issued new currency in Guangzhou, Silver Note issuance volume kept increasing. Finance and Financial System maintained basic credit of Silver Notes through various means, but inflation, this matter, didn't shift by human will. Social commodity prices rose quietly.

Fortunately, daily necessities in this timeline were limited. The Senate, through unique remote communication and transportation means in this timeline, could grasp grain situations everywhere rapidly, stabilizing grain prices rapidly, only then maintaining a stable situation.

"So speaking, the big rise of cotton products actually has a big relationship with inflation..."

"Correct. One reason is supply and demand contradiction; the other is inflation." Ren Youzi nodded and said, "It can be said like this: current market prosperity and soaring prices are actually hollow. You just need to look at relevant reports to know, currently the biggest customer in the market is the Senate itself. And this kind of bulk procurement won't last too long. Nanyang Company already started reducing procurement volume this month. Next, Joint Logistics procurement volume will also reduce. Looking long term, the cotton textile market will have a recession period. Wanting new growth, afraid can only think of ways on cotton cloth export."

"Defeating Indian Cloth and Songjiang Cloth."

"Correct. Actually current cotton dilemma is exactly because these two giants are still lively and vigorous, cutting off cotton from upstream." Chu He said, "Let's continue the main topic."

Because cotton cloth market rose, cotton market also rose with the water. Situation of source shortage appeared. Originally supplying cotton to market were "Patterned Cloth Firms." This "Patterned Cloth" [Hua Bu] didn't mean printed cloth, but meant "Cotton [Hua], Cloth [Bu]". Patterned Cloth Firms often showed condition of "Has Price No Market"; cotton supply continued intermittently. To ensure their own weavers had cloth to weave, Cloth Shops began to prepay goods payment, buying "Warehouse Receipts" [Zhan Dan].

At the beginning, this practice of prepaying goods payment was just "Deposit" in commerce. Buyer pays some deposit, buys how many piculs of cotton. After goods arrive, deduct deposit according to market price, settle balance, then can pick up goods. Nothing more than a promise made by buyers to ensure their own goods source.

Gradually, someone saw the speculative nature within. Thus, the first fully paid Pre-purchase Warehouse Receipt came out. Pre-purchase Warehouse Receipt didn't settle balance according to price at delivery, but prepaid full amount directly according to current market price. Wait for goods to arrive then conduct delivery.

This practice, essentially to avoid risk of future price rise or supply cut, was a common practice in commerce. Not only Dutch did this; silkworm farmers in Jiangzhe region also had similar operations.

"Reasonably speaking, this doesn't count as fresh matter either. Nothing more than betting on future expected price rise and fall. But don't know which smart person thought of the routine of endorsement and transfer." Chu He laughed, "I really want to know this person, asking him how he thought of it."

Once transferable, this Warehouse Receipt had attributes of speculation and investment. Especially under the condition where cotton market price only increased and didn't decrease, climbing section by section, buying a Warehouse Receipt and changing hands with added price could earn money immediately.

Such short, flat, and fast means of earning money once discovered by people immediately became the focus of speculation. For a time, all Patterned Cloth Firms started selling Warehouse Receipts.

"At the start, this Warehouse Receipt was quite standardized. Had clear issuing firm name, delivery date, delivery cotton quantity and grade. Moreover, when various Patterned Cloth Firms issued, they still had some 'estimates,' having a bottom in heart about roughly how much goods they could deliver in future. Quantity of Warehouse Receipts issued was still limited. But later everyone saw this capital-less business with red eyes [jealousy]..."

Later it became more and more chaotic. Originally only Patterned Cloth Firms issued Warehouse Receipts. With speculative trend becoming more and more fierce, Cloth Shops, Silk Satin Firms, Embroidery Shops... as long as shops related to textile products all scrambled to issue Cotton Warehouse Receipts. Later Cotton Yarn Warehouse Receipts also appeared.

"...Now some people even directly get a name, without even a physical shop, claiming to be XX Warehouse or XX Firm, issuing Warehouse Receipts themselves—actually can sell out like this. Makes me think of Hainan Island real estate bubble in the nineties. At that time a piece of land transfer contract changed hands earning hundreds of thousands..."

"Talk about this later!" Li Shan started to lose composure. These two people grasped the situation so clearly, yet actually stood by with folded arms until now? He couldn't criticize them conveniently. "What should we do now?"

"Fine, anyway, situation is intensifying," Chu He said, "All participants at this time actually already know, the cotton they buy and sell not only has not half a wen relationship with cotton, even has no relation with fabrics. Already purely a speculative game, passing the flower to beat of drum [musical chairs]. It's just that everyone feels they aren't that last stick."

"Qingyun Tower closing, does it mean bubble burst."

"Indeed very likely," Ren Youzi nodded, "Although I am not clear if Qingyun Tower boss will still open door for business tomorrow, how Paper Cotton market will be, its burst is indeed close before eyes."

Reason one was arrival of three ships of Indian cotton spot goods, directly facilitating fall of cotton spot prices; two was local new cotton would go on market in two or three months; three was North, especially Jianghuai cotton producing area, cotton expected bad harvest. Under double blow of soldier disaster and natural disaster, where would people still plant cotton.

"Reasonably speaking, expectation of large production reduction in Northern cotton areas would further stimulate futures market rise. But everyone knows, cotton that native Patterned Cloth Firms in Guangzhou market can deliver mostly comes from Jianghuai producing area. If local production decreases, it implies Patterned Cloth Firms simply can't bring out goods to deliver—this counts as the last straw crushing the camel." Ren Youzi said, "Although speculators everyone knows what they buy and sell is just a piece of paper, after the illusory guarantee of 'Future Cotton' also collapsed thoroughly, market confidence equals collapsing thoroughly."

Chu He continued: "Qingyun Tower boss earned big money in speculative buying and selling. Suddenly closing door at this moment, very likely realized game can't go on quickly. But how exactly it is, still have to look at Comrade Wu Mu's investigation result."

"So saying..."

"Right, you asking Mu Min to send police to you is a bit unnecessary. Guangzhou Political Security has noticed Qingyun Tower for a long time. He can't run away."

"That is good. I worried most about causing financial order turbulence." Li Shan breathed a slight sigh of relief, "However, whether police or Political Security, after all they can't manage financial order. How do you see this crisis should be rectified?"

(End of Chapter)