new China Syndrome: Commodity price boom sets alarm bells ringing

[junker]

The new China Syndrome: Commodity price boom sets alarm bells ringing
Mining firms cash in but policymakers increasingly worried over inflationary threat
By Philip Thornton, Economics Correspondent
25 February 2004


There is a major economic boom gripping the world - an asset price bubble perhaps - but few people in the UK will have noticed. Prices of a vast range of commodities, from cement through coal to copper, have surged over the past year and the root cause is another C-word - China.

The world's most populous country is sucking in the world's raw materials at an unprecedented rate to feed its domestic economic boom. It imported 30 per cent more oil last year than in 2003, making it the world's second largest importer after the United States. It accounts for half of the world's consumption of cement, a third of its coal and more than a third of its steel, according to Barclays Capital.



http://news.independent.co.uk/business/news_analysis/story.jsp?story=494776

[salinen]

1. Good

let China become the world's only superpower.

[will work 4 food]

2. Too bad

that we don't export any of that stuff, anymore.

[ramapo]

3. Talk about a disaster...

The good news (for the Chinese anyway) is that China has a booming economy, providing jobs and opportunities for millions of Chinese. China has gone through an amazing transformation since the days of Mao. It has become a manufacturing power and will now feed upon its' success. It has a long way to grow.

The bad news (besides our jobs being exported) is that the world doesn't have enough resources to support American-style lifestyles for China's population.

The Chinese are cognizant of the environmental costs and resource depletion that will result from their rapid development. Indeed there have been indications that they do not wish to make the same mistakes resulting from development that are now so clearly evident here in the West.

However I do not see them really taking the time or spending the money to develop their country in a saner, controlled way. But China has been the source of many innovations throughout history and perhaps they will come up with new ways of providing its' citizens with the comforts that we enjoy but in an environmentally safe and efficient manner.

If not, there may be big trouble ahead.

Imagine the consequences of a continued rise in demand by China for oil. Price rises will be inevitable and these may be the least of our worries. What about the prospects of an oil war? The U.S. will need to defend what it feels to be their almost sovereign right to mid-East oil. The Chinese will need that oil to service their growth.

The same scenario can play out for any number of resources. There is the chance for significant inflation in the cost of resources, substantial environmental impact from the use of these resources, along with a corresponding rise in global tension.

[54anickel]

4. A bit more on the China bubble/floating yuan

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1077690749849

China to ease upward pressure on renminbi

snip>
Economists estimate that roughly $50bn in "hot money" inflows found their way into China last year, pushing domestic money supply to record levels and fuelling inflationary pressures. The hot money largely represents funds brought back to China by local businessmen or overseas Chinese to benefit from a predicted renminbi appreciation.

But Mr Guo made it clear that the People's Bank of China, central bank, has no intention to cave in before the will of speculators. He said Chinese firms would be able to retain more foreign currency and outward investment by Chinese would be encouraged - both measures to ease upward pressure on the renminbi. Inflows remained strong in January, with the foreign currency reserves rising to nearly $416bn, up from $403bn at the end of 2003.

snip>
Chinese companies would therefore be allowed in the first quarter of this year to retain more of their hard currency earnings, thereby reducing pressures on the renminbi money supply. Currently, the central bank buys all but a small portion of hard currency earned by exporters and repays them in renminbi.

The government was also studying the Qualified Domestic Institutional Investor (QDII) scheme, under which mainland Chinese would be allowed to invest in overseas stock markets through selected institutions - another step that would require the selling of renminbi and buying of US dollars. QDII would be implemented when the "conditions are mature".

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