My analysis of Chinese demand and Chinese economic trends has been sustainably different, than what most are conjecturing. For example, let's take a look at some big consensus views that have held sway for the past few years, on China.
1. 2004-2007: Stephen Roach was the touchstone analyst who called for a crash in Chinese growth every year, for 5 years. He was devotedly followed by many people into that view. Especially on the macro boards, here at SI. The "China Crash" dance became an annual event and is still alive today.
2. 2006-2007: Go long Chinese stock markets until the Olympics, then get out because after the Olympics China is going to __________, and you don't want to be long then. This is really interesting one, because of course Chinese stocks peaked last year. So the crowd is already very wrong on this one. But what's notable is that there is still a huge, huge, crowd of people that think X will be the case BEFORE the Olympics at which point Y will be ushered in AFTER the Olympics. This thesis is running very hot right now.
My take: I think I know what X and Y represent, and neither have anything to do with China. It's all about our own consensus views. It's really just a new version of the multi-year China Crash thesis.
3. Allowing refiners and retailers to raise the petrol price in China, twice in the last 6+ months, will kill demand for petrol. This is another interesting one. Actually, I have some moderate sympathy for the crowd in believing this one. From a textbook standpoint, it would normally be true. The hitch is as follows: shortages of petrol have been rampant in China for at least 2 years. The earnings of the giant integrateds have been going down for quite some time. So rationing by availability has been going on for some time. Allowing the price to rise simply rations by a different method. It means that petrol demand will be allowed to go up the income ladder. Whereas before your ability to get gasoline depended on your willingness to wait in line--or if you lived in an area that was well supplied. Now, ability to get gasoline will depend on your income level. That math strikes me as more demand, in the aggregate. The integrateds will finally start buying more oil.(I believe this has already started) The nation will actually be more supplied, on a dispersed basis.
So yeah, I agree with you. This will result in more demand. But our case is strengthened further, because, get this, the amount that China has allowed petrol prices to rise is only a few percentage points above the amount the CNY has been allowed to rise in the last year, against the dollar. So they have sterilized some of the overall rise.
My overall conclusion is that we really don't understand China at all, here in the West. It's truly frightening to imagine how much more pressure already would be coming down to bear on the price of oil, if China had not been able to reach for Coal so hard, over the last 4-5 years. China's coal consumption has been parabolic. And they still have shortages.
Here is my call: nothing that anyone has been predicting to happen in China, after the Olypmics, will a: happen, or b: isn't already happening.
Gregor |
