Monday, 4 January 2010

China and metal - playing the long game

It is my considered opinion that the West is underestimating China on a number of different levels.

If we want to talk superpower politics, then China has always been a superpower albeit one that has been slumbering for 60 years. Remember the last 100 years is a very short period in China's history. In 10,000 years communism will be a mere footnote.

China is playing the long game - it can afford to and has the confidence of thousands of years of civilisation behind it. In contrast the US is a little like the playground bully. The US is young, has grown up quickly and become fat, bloated without losing its arrogance. The US has no friends - merely those that want to be seen to hang out with the playground bully and hope for a few crumbs. China is more like the teacher, simply sitting back with a rye smile and watching the children fight it out on the playground and doing its own thing for the long term good of China.

Where am I going with this - a recent post EAFE Pro looked at China's recent buying of copper and aluminum. I knew such buying was taking place but was surprised at the sheer scale. So why? China is taking advantage of the global recession to buy cheap and stockpile. China knows it will need the metal eventually just to construct the buildings, machines and cars it knows it will need in the future.

Here is the remarkable figure that caught my eye.

These reflect massive increases in imports over a short period of time. Is this all down to the stimulus package? If you have to vast reserves then buying up commodities that you will need in the future is a decent use of the money. Politically this enables China to be even less reliant on Western mining companies.

If one was an investor one would have to consider whether shorting copper is the way to go. If Chinese demand falls will the price follow it or does China intend to keep buying at these brakeneck levels.



狂猪 said...

First, let me clarify that I am a Chinese American and I love to see both countries succeed.

I agree that China is playing the long game. Furthermore, there is certain advantages to executing a long game strategy given the structure of the Chinese government.

However, by no mean is the US poor at the long game compare to China. The US is #1 in the world and has maintained this position for a hundred years (through 1 great depression, 2 world wars, 1 cold war, numerous other wars and crises). This is extremely strong empirical evidence that the US is excellent at what it does. In fact, this is extremely strong evidence that the US is _structurally_ strong.

In fact, I think the current financial crisis, as all previous crisis, will serve to identify US weaknesses and in the end make the US even stronger.

Any suggestion that the US is weak at playing the long game is not supported by history.

By the way, there are some expedience in playing the long game with China's single party system. However, there are some very serious draw backs too. It is too much to list here. However, in the long run the US political system is much better balanced in my opinion.

狂猪 said...

One more point.

Some would argue that China has been strong for 5000 years.

This is a deeply flawed argument. The last 100 years is not like the 4900 years that came before. The degree of globalization isn't comparable. It is only the last 30 that China has show it can compete in globally interconnected world.

I am sure that some things from 5000 years of culture can be brought to bear in today's world. However, if we only look at evidences, there is only 30 years of _evidences_ to show China can be strong in _today's world_.

Anonymous said...

Chinese is simply finding way to spend the large Dollar reserve, pure and simple. The West has so far prevented Chinese to buy any assets on commercial terms, such as mining, technology, real estate, almost everhthing. This may be the only rational thing to do for China. Chinese currency will appreciate when dollar reserve is hedged or spent.

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Anonymous said...

You act as if the primary buyer of these metals is the government rather than the private market. However, the metal hoarders are the private market.

They can sit on these assets as long as they like. But if they do, the interest in still running on their loans. Based on my model, they also got a bad deal and paid too high a price for these "assets".