Saturday, February 21, 2009

China - Using American Wealth to Cement Its Supremacy

It's the way these things go - and it's too late to do a damned thing about it.

The West, particularly the U.S., spent the past two decades pouring wealth from Western economies into China's. That came in the form of moving manufacturing from Western factories to Chinese factories and from engaging in free trade (i.e. enormous balance of trade deficits) that left China awash in foreign currency, including something close to a trillion dollars in US cash.

We spent two decades bleeding our wealth away to grow China's economy, wealth we were too greedy and short-sighted to invest in our own economies. Now while the world is in a recessionary slow-down, China has all that money to go on a distress-sale shopping spree. From the G&M Report on Business:

Flush with cash at a time when most countries and corporations are struggling to gain access capital, the Asian economic superpower has spent nearly $60-billion (U.S.) in less than a week in a series of deals that will secure a long-term supply of iron ore, copper, zinc and oil.

Desperate for financing amid stalled capital markets and investor abandonment of the sector, resource producers are turning to China for a commodity it has in spades: ready money.

China is the world's largest consumer of commodities. While the country's economy has slowed due to the global economic downturn, its gross domestic product is still expected to increase by about 6 per cent this year compared with 9 per cent in 2008 and 13 per cent in 2007. A $586-billion (U.S.) stimulus package will spur infrastructure spending, which is expected to underpin commodities demand.

The country's voracious need for metals helped push prices for iron ore, coal and copper to record highs last year. The global financial crisis has now cut prices for most metals in half; China is throwing its cash around to secure a cheap supply.

It's those last two words, "cheap supply," that will come back to haunt us. By the time our own economies have recovered sufficiently to restore demand for energy and metals, prices for those commodities will have recovered - except for our main competitor, China, which will have locked in both supply and price at recessionary values. It was one thing when we were all competing for resources at the same price. Now, thanks to our investor-classes and their greed, China will have the one remaining strategic advantage it didn't already possess.

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