China is a tough country to base economic analysis on.
I keep in the back of my mind that China is hosting the 2008 Olympics and the World Expo in 2010. They are also working towards joining the WTO somewhere in the next few years.
They also have an aging ruling class that knows they have to keep the people happy or they will be out of work quick (via revolution). There are literally 100’s of millions of farmers moving out of rural China and into the cities every year. These people need jobs which means China needs a growing economy.
The massive flow of rural Chinese to the cities is causing China to build an LA-sized city every month! Think of the resources that entails. They are also building and renovating for the upcoming Olympics and World Expo. In Shanghai they are scraping 1300 acres for the World Expo site.
As with most governments, the statistics coming out of China are questionable. Some analysts believe the Chinese have been understating their growth rate for the last few years by several percentage points – instead of the reported 8 or 9%, growth is really running at 12% or so. This subterfuge makes sense because China has been out shopping the globe for natural resources and wanted to (and still do) disguise their level of demand.
One of the reasons global energy demands are increasing is because China DOES have a consumer class and this segment of the population is growing. The Chinese are willing to work for $4/day w/o bennies because they want the Western lifestyle – the cars, refridgerators, A/C, etc – this demand for resources is in addition to the resources that went into building the cities that these rising consumers are living in.
It is reasonable to assume that China would like to be a world power. I believe they could do this very quickly by offering the world a precious metals backed currency. A Chinese economist is telling the government to increase their gold reserve from 600 tons to 2500 tons quickly and the government is encouraging the citizens to buy gold. Something to watch.
These factors make me think that the Chinese will continue the status quo for a little longer. I don’t think they will start dumping US dollars and treasuries wholesale before 2009. The longer they wait the more they let their internal consumer demand develop and grow.
Summary: China is not completely dependent on the US. There are trends occurring in China that will continue with or w/o the US consumer buying Chinese goods.
Tangent 1: Casey Research (www.caseyresearch.com) is very positive on energy and precious metals stocks but bearish on the base metals stocks.
Tangent 2: I feel like I get enough exposure to the base metals via some of the precious metals stocks so I don’t take positions in the pure base metals stocks that Zeal recommends. I do like the diversity that some of the jr resource stocks offer (both Zeal and Casey Research recommend jr resource stocks): uranium / gold; gold / zinc / moly / uranium; silver / zinc; gold / iron – my portfolio is focussed on silver/gold/energy but I get some exposure to the base metals too.
