A perspective on China's Economy, a Contrarian's Point of View

It is somewhat alarmist for my taste. Yet it it rings alarms in ways that should be considered. It closely agrees with the data in the factbook.

It is true that China, as well as any other industrial or advanced economy, is getting hammered by oil prices. More of a concern is the bottleneck in electric generational capacity. Lack of capacity limits growth on demand. New capacity takes time to construct - being involved in the resource sector I'm familiar with the scale of what's needed and even given zero delays due to regulatory concerns they are looking at about two years to bring anything new and of significance online. This would be oil fired. Hydraulic or nuclear would take longer still and the hydraulic route is probably the least feasible.

Other commodities are at high levels currently. Metals are also a Chinese weakness, as it is the very nature of Chinese production - China makes an awful lot of cheap metal goods for sale in Walmart. It is true that China is driving a big mining boom. Unlike oil, there is enough idle mining capacity in North America, and undeveloped (and potential) orebodies, to satisfy the Chinese growth many times over. Once developed, this capacity would have a stabilising effect on prices. Prices themselves are a good thing for China - high prices make a deposit an orebody, guaranteeing supply if the growth is really long term sustainable. But, it takes time: the regulatory process in Canada takes about three years, and about 500 million $, to complete. Two years of construction time, if the orebody is easily accessible, before the production of concentrate. Fortunately for the Chinese, there is plenty of idle smelting capacity at the Horne, CEZ and Kidd. In iron, IOC has been preparing for growth.

China will not have a hard landing. Their principal market is in America, selling cheap stuff in Walmart et al. Even if an economic slowdown precipitates a world recession, this market in America will demand even more. As to what America might do to prevent this from happening, I'll leave that to others - the resource stuff is what drives me.

The hurdle is towfold. One is in selling them reactors - the cost is rather high and other prohibitions may be in effect - recall that Candu reactors can be used as breeders. Second is the time factor: The discourse I initiated is focused on the constraint of electric energy growth. China needs more power today and even if there were zero limits on our ability to go there and construct (if the Chinese were able to pay, cash up front) on day one, it would still be too late to prevent an economic disturbance. A nuclear reactor is not a portable genset!

If, for the sake of this discourse, nuclear was the solution - and over the long term it is - China probably needs fifty reactors today and ten more every five years during the high growth phase.

ice_dog said:

Nuclear energy is the way to go. Price of uranium has bee soaring. Sell them CANDU reactors ! The canucks are coming...lol

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bbk:

China can avoid a hard landing if they understand how to limit growth. There are many other details in the cited article, but they should be able to comprehend the energy situation and avoid scheduling unavailable production futures in mind of this - such an incident might well precipitate a crash. Still, the fact remains that whatever they manage to produce will be gobbled up by American consumers. I think it is a shrewd business strategy, over the short term. I'll throw a question: During the course of Chinese economic development, when will it be time to produce more profitable goods?

Look at Europe. They survive selling us tshirts with a fashion label commanding 100$ and cars for 100K. How will China start bridging the gap from dollar store articles?

Nuclear is expensive when one considers the initial capital cost. But not so much that it can't be funded by the private sector. Given a long run of high oil prices, nuclear suddenly becomes viable again. It does not have to be state owned, which is critical to the stance of the current Chinese government - do they develop, or perish under the regulations of state sponsored socialism.

One concern raised in the cited article doesn't get much attention. If China must open to international finance by 2007 then what is the consequence to the existing dictatorship? China doesn't have much yet on the recognition of private property and the concept of civil justice does not exist. I'm not up to speed on doing business in China but recently ruled out working there for these reasons.

Procedure for settlement of disputes is by arbitration. One must file a writ and the case is decided upon by committee. Now, with the .gov essentially in control of this process, it can't produce much more than wild acts of will, counseled by rage and folly and executed by dragoons. Given the large amount of foreign ventures in China, this implies bribery must be the best "official" method of making arrangements.

China could proceed by making the necessary reforms to implement a civil justice system. Trouble is that it would be inexperienced and untrustworthy. If China is to be open in the year 2007, they had better be working on this yesterday and at a furious pace.