China: Land Of Superlatives

Bill Bonner - Mon 12 May, 2008

Everything in China is bigger, faster, longer and it may not be long before they’re calling the shots

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 US became the world’s largest economy by 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 five girls for every six 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 dot.coms...bigger than US 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 us 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 globalised market...competing for their daily bread with people in Des Moines and Dubrovnik .

Oh yes, 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 urbanisation. 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.

*** Today’s a holiday in much of Europe – Pentecost. Between the secular holidays and the religious ones...that is, between the sacred and the profane...it is a wonder anyone gets any work done.

But here at the Daily Reckoning headquarters, we keep our eyes open, even on national holidays.

What we saw at the end of last week was the kind of day that suits us. The Dow dropped 120 points on Friday. The dollar fell. Gold rose. And oil...as mentioned above...hit a new record. We don’t know how long this trend will last – that is, the trend towards higher commodity prices and lower asset prices – but we give it a while.

*** 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 realise that the move wasn’t just temporary and they give up. Pretty soon, the auctioneers are selling the stuff.

Millions of people who moved up the housing ladder in the last five years are apparently now looking for a lower rung. Some are moving in with parents. Others are renting. Still others are downsizing their lives – not necessarily because that’s the way they want it. But with less money to spend, they have no choice. At first, they figure that they’ll be back on their feet in a few months. Then, it begins to look like the move is permanent. So, they don’t need all that 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!

*** There is nothing like a national election to make you despair, sourly, of America’s future.

“Oh I don’t like Obama,” said an American colleague on Friday. “He seems like a demagogue to me.”

The comment took us aback. It had never occurred to us that a candidate for president could be anything but a demagogue. Some are better at it than others, of course.

But how could you hope to win the votes of the yahoos and cornballs without stirring their dull roots with the warm spring rain of patriotism, larceny, and the terrorist bugaboo?

“But Obama’s message is so empty...so vague... He promises ‘change.’ Who can choose a leader based on that kind of promise?”

As we’ve explained in these columns, change is the one thing almost no American wants. They’ve all got their little places at the beach staked out...heavily mortgaged, of course...and now they’re desperately afraid that someone - the Chinese, or the Arabs, or the Fed - is going to kick sand in their face.

Still they listen to Obama’s speechifying as they listen to music, without pay attention to the words. It gently lulls them, calms them, reassures them. They’re confident that Obama, if elected, will do what any of the others would do – try to prevent change at all cost.

The latest Las Vegas odds say that Obama will be the next president. All we know about the man is that he has Paul Volcker for an advisor, so he can’t be all bad. But what probably makes him more appealing than the other candidates is the very thing our colleague dislikes - the vagueness...the emptiness of his speeches...the hollowness of his remarks. Having said little; he has said little to annoy them.