Friday, June 20, 2008

Latest on China

Stratfor mentioned the crucial aspect of Chinese industrial success, massive
subsidy of energy prices. It is not just wage differentials keeping
consumer products cheap, it is all the money that the central government is
paying not to have a fuel cost shock like the American economy is enduring.
If individual Chinese people and companies had to pay market prices for
gasoline and fuel oil, industries would shut down, people would park their
cars and the country's economy would collapse. On the other hand, if China
continues paying these subsidies, there will not be any money left to loan
to companies to modernize to keep up with consumer demand. This too will
doom their economy as countries and factories with cheap labor, access to
Western capital markets and oil of their own (Mexico) are able to once again
be competitive with the Chinese.