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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: regli who wrote (43228)	12/21/2005 6:19:30 PM
From: Chispas	Read Replies (2) \| Respond to of 116555

Deciphering a Chinese Puzzle : Clothes may cost less, but commodity prices are higher in 'biflation' BEIJING – China is the world's leading seller of goods to the Dallas-Fort Worth market, but it gets in your wallet in other ways as well. Chinese consumption is driving up prices for steel, cement, cotton, coal, aluminum, copper, oil and other commodities. So while your shoes and shirts cost less made in China, your gasoline, electricity and maybe even your home cost more because of what's consumed in China. Weijian Shan, managing partner of the Hong Kong office of Fort Worth-based Newbridge Capital LLC, calls this "biflation" – inflation and deflation at the same time. Gary Hufbauer of the International Institute of Economics has worked out the deflation piece. His rough calculations figure that U.S. imports of consumer goods from China and other developing countries in Asia have lowered prices by $520 a year on average for every American. Dr. Hufbauer looks both at Chinese imports and the impact of those imports on the prices other producers can charge, and guesses prices are at least 5 percent less than they'd be without the Asian competition. The inflation piece measuring China's role in higher commodity prices isn't easily captured. But take oil as an example. China accounted for about 40 percent of the increase in global consumption last year. Higher demand drove higher prices. Unleaded regular gasoline in Dallas is up 31 cents a gallon over where it was a year ago. The average U.S. household has two cars, which together consume 1,143 gallons of gasoline a year. If gas is up 31 cents, that works out to an increased fuel bill of $354 over last year. China's share – 40 percent – is costing you about $142. Texas long ago lost control of world oil prices, first to global multinationals and then to OPEC. Cotton once made Dallas a global power center, but Texas cotton no longer sets world prices, either. We are price takers now, not price makers. Lester Brown, president of the Earth Policy Institute in Washington, says Chinese consumption already exceeds the United States for every basic food, energy and industrial commodity except oil. He warns that the world cannot afford a China that consumes goods as prolifically as Americans do. Won't work "The economic model that evolved in the West – the fossil-fuel based, auto-centered, throwaway economy – will not work for China simply because there are not enough resources," he said. A China as car-happy as the United States would have three cars for every four people – or 1.1 billion cars by 2031, far above the 795 million in the current world auto fleet, Mr. Brown said. Chinese economists are alert to the problem and echo Mr. Brown's findings. "We have to increase our economic efficiency with new technologies," said professor Huang Fanzhang, vice chairman of the China Reform Forum. "We will need to import not only raw materials, but new technologies for saving material and energy consumption." But suppose China's economy runs off the rails? Danger signs - Shenzhen, China's boom town across the border from Hong Kong, is now a city of 8 million. The skyline is crowded with new office towers. But look closer. It seems like every other tower has a gigantic banner hanging from it pleading for tenants. Michael Brandl of the McCombs School of Business at the University of Texas in Austin sees danger signs of a Chinese asset bubble. "Real estate prices have gone through the roof," he said. "At the same time, China has poorly run banks with lots of nonperforming loans." The 1997-98 Asian financial crisis started when a similar real estate bubble burst in Thailand. Demand for commodities cratered, particularly oil, which fell below $10 a barrel. And this raises one final point about China becoming the world's leading consuming nation. When the United States held that role, American economists had an easier time writing forecasts. "It's not as easy to forecast if China is the leading consumer," said Mine Yucel, senior economist with the Federal Reserve Bank of Dallas. ..................................... Reg. Site dentonrc.com