An old friend gave us a subscription to the National Geographic. When an issue comes, Henry takes it and spends hours reading. This month, the magazine devoted the whole issue to China and Henry passed almost all of Sunday afternoon studying it.
“China is unbelievable,” was his judgment by evening.
Every detail is a superlative… bigger, faster, higher, more… more… more. Things are happening so fast that in just 10 years, China will be the world’s biggest economy. We don’t have to tell you what that means, dear reader. Give a guy some money and it’s not long before he thinks he can tell other people what to do and how to live. The United States became the world’s largest economy around 1900. By 1918, Woodrow Wilson was headed to France with his “14 Points.”
“God himself only needed 10,” said Clemenceau.
But America had lent a lot of money to the French and English; they had to listen politely, even if they thought Wilson was a fool.
Now, China has the money – the biggest pile of dollars in the world. And soon it will have the most powerful economy. It won’t be too much longer before Chinese leaders will want to throw their weight around. And they’ll have plenty of pounds to toss wherever they want. There are only 5 girls for every 6 boys. By the time China has the world’s largest economy, it will also have 30 million young men who cannot hope to find a wife. What will they become? Soldiers! Then, China will have the world’s biggest and most modern military… and a keen desire to show the rest of the world how things should be done.
How do you say, “We surrender” in Mandarin? We don’t know, but the Pentagon may want to look it up, just in case.
But don’t worry, that’s still a long way away… with many a slip betwixt the cup and the lip. Oh yes, China is headed for trouble too… you can’t have that kind of growth without trouble. In some ways, China is the biggest bubble the world has ever seen – bigger than dotcoms… bigger than U.S. housing… bigger than credit, finance and derivatives. Not only is it expanding rapidly – it MUST expand or it will blow up. Like a credit bubble, it can’t rest… it can’t stand still. If it stops expanding… bad things happen. In a credit bubble, people need more and more credit to service the bad loans and bad investments they’ve made. If they don’t get more money, the credits go bad. Businesses go belly up. People miss their payments. Loans get marked down. Pretty soon, you have a recession… or worse. China’s bubble is far more dangerous… because it has hundreds of millions of people who have come to depend on high rates of growth. They can’t stay where they are… they’re not peasants anymore. They’ve moved to the cities to join the international proletariat; they need work! They need progress! They need to build giant roads and aqueducts… airports and factories. They need to produce more things. They need to contribute to the global economy. They need jobs. And if they don’t get them, China could blow up. What’s more, China’s economy is run – at the very top – by officials who are even more blockheaded than our own. If trouble fails to find them; they’ll find it.
What caught our eye was a chart of China’s oil use. Ten years ago, China imported 165 million barrels of oil per year. Today, the total is more than 1 billion. What does it do with all that energy? It grows… it develops… it chugs… it thumps… it soars.
Looking at the photos (we haven’t been to China for more than 15 years), the replace reminds of a teenager – sassy, obnoxious, and outgrowing his pants. It is an adolescent nation, growing so fast it must eat all the time. In addition to the oil, China has opened 229 new coal-fired power plants since 1990.
Wonder why the price of oil hit a new high last week – above $126 a barrel? Well, China is a big part of the answer.
And rice is now selling for twice as much as did last year. Could that too be blamed on China? Well, partly. When the Chinese lived on the land, they fed themselves with what they produced. But once in town, they become more customers for the globalized market… competing for their daily bread with people in Des Moines and Dubrovnik.
You’ve heard the expression about land – ‘they’re not making any more of it.’ Well, in China, they’re actually losing it. Since 1949, says National Geographic, China has lost one-fifth of its farmland to dust-storms, desertification, pollution and urbanization. Each year, the country loses more ground – an area approximately as large as the state of Rhode Island.
Let’s see, more and more people moving to the cities – hundreds of millions of them. Building factories… building houses… buying cars… washing machines… computers… More and more people competing for the world’s resources… less and less farmland…
Oh, we’ll do the math later.
*** In China, people are working their way up – from the rice paddies to the packing plant… from the country hovel to the urban tenement. Soon, they will be moving to the suburbs and buying SUVs. Wait… they’re already moving to the suburbs. The National Geographic has a photo of a new suburban development near Shenyang. There are houses that look like they might be in a suburb of London or New London – with white picket fences, lawn chairs and satellite dishes. And what’s this… there are so many rich people eating at fancy restaurants in Beijing that a chef in the city already makes about as much as a chef in Manhattan!
In America, meanwhile, people are working their way down. We’re not kidding. Wages are stagnant. Prices are rising. At the end of the day, they have less spending power; they are poorer. Besides, it said so in the New York Times. People lose their houses… move back in with their parents… and put their stuff in a storage unit. Then, they either can’t make the storage payments… or they realize that the move wasn’t just temporary and they give up. Pretty soon, the auctioneers are selling the stuff.
Of course, they didn’t really need all that stuff in the first place. But getting more stuff is what life is all about… isn’t it? So they got it, and now they have to get rid of it. If only they could hold a yard sale in China!
The Daily Reckoning Australia